Doing Business in the Age of Digital Economy: Cash Only?

DGIN5200 Foundations in Business Assignment 1

Arjun Rajendra Gupta (B00899773) (ar619526@dal.ca)

 An Analysis of Moving Business to the Point of Sales at Kettleman's Bagel Company

Kettleman's Bagel Company (KBC) was founded in 1993 by Craig Buckley and is
privately owned. It first started its operation on 912 Bank Street, Ottawa, and serves Montreal-
style bagels. It also sells other related food products such as sandwiches and beverages. One of
the reasons behind KBC's success is that they cook the bagel in a wood burning-oven and offer
customers a no-wall experience. (Kettleman's Bagel, 2021). Till now, KBC has been a successful
cash-only business for its retail stores except the online orders.

Revenue Generation using Cash Only Business

One thing that sets KBC apart from all other bagel companies is the flour that they use.
Since the beginning, KBC has used a high protein flour specially packaged for them by ADM.
Three stores of KBC generate around $12 million annually in revenue, and about 10 percent
comes from wholesale business. Hence, most of their sales are driven by dine-in and take-out
orders. (Journal, B, 2021). Clients may not always have the required cash quantity because they
are a cash-only business in their retail outlets, so KBC installed ATMs to address this issue. This
was a smart move to generate additional income; as stated, they earn few dollars on each
transaction, and there are thousands of transactions annually.

Although the cash-only business is thriving, Mr. Buckley noticed that they are losing
customers, particularly the young generation. Now that KBC has five locations and planning to
expand further, they cannot lose any segment of the customer as it will affect their revenue with
a large amount. Additionally, other competitors such as McDonald's, Tim Hortons have already
moved to POS systems. Since KBC is also growing in the scale of revenue, the number of stores,
and the number of products, the owner is now thinking about whether adopting POS systems will
benefit them or not.

Alternate Payment Methods

Point of Sales (POS) is a combination of hardware of software. The hardware part

handles the acceptance of cards, whereas software handles different payment methods and
processing. POS system accepts all kinds of payments such as cash, cheque, debit card, credit
card, mobile wallets, and a quick response code. (Nambisan, B, 2021). Traditionally there was
only one type of POS - GPRS/PSTN, which required a standard telephone line or GPRS SIM
card for data connectivity. GPRS POS are bulky but quite affordable. Also, they limit the
payment acceptance to cards only, and other digital forms of payments are not accepted. Mobile
POS (mPOS), a sleeker version of GPRS POS, helps you accept payments anywhere. It can run
on a smartphone and collect payment from Near Field Connectivity (NFC) Cards. Low cost
compared to the latest POS in the market.

Keeping customers in mind for a better experience, a new type of POS came into the
market, i.e., Android POS. It runs on a wireless portable device on an Android operating system.
These POS has a large screen like mobile phones and accept all modern payment methods such
as GPay, Apple Pay, Amazon Pay, and other mobile wallets. Over any mode of wireless
connectivity, the devices can connect to backend payment services. As it runs on the android
system, these devices can easily upgrade their software and readily accept the new mode of
payment (Nambisan, B, 2021).

POS relevant to Business

Considering that KBC is a successful cash-based business and has a high turnover, KBC
had to deposit a considerable sum of money in banks directly or carry around, which increases
security risk. POS decreases this risk of all the transactions which have happened electronically.
However, if we choose the old-fashioned POS, it generates a new risk of hacking the machine if
the POS is not auto-updating itself. This may lead to a leak in customers' card data and
fraudulent transactions. Old fashioned POS works on a telephone line or GPRS SIM card, and
thus, getting connectivity for these POS may be costly compared to Android POS. As for
Android POS, we can get cheaper connectivity from third-party internet service providers.
(Pezzini, G, 2018).

POS that suits the best for KBC is Android POS. It does cater to the need of attracting
young generation but also promises to support new payment method which requires a software
update. Additionally, it auto-updates itself, which protects it from hacking and can run on any
mode connection. POS services are given by many banks such as RBC, TD bank, etcetera, and
non-banking financial companies (NBFCs). As per tech editor, (Rowe, A, 2021) compares ten
best modern POS system rates Square POS system as top rated. Also, after reading about all the
POS systems in detail and comparing the price point, Square turns out to be the best.

Digitization of Business

KBC is writing its whole menu on a blackboard with colorful chalks and designing them.
However, moving to android based POS will help KBC move to a digitized menu display
according to the time of the day. According to (Hiiemaa, K, 2018) retail businesses never see 45
percent of customers the second time. A solid point-of-sale system allows you to effortlessly
make sales, track sales, and improve your ability to attract more clients, depending on your
specific requirements. Using the same data, offers can be given to old customers as a part of
loyalty. Additionally, data can be used to attract customers to come back again by giving them
offers. Moreover, the taxes, which were done manually, can now be done with the help of POS.

No system is perfect and is always vulnerable to risks. POS systems are highly vulnerable
to cyberattacks and leakage of customer data. If the POS service provider is not updating the
security of the software regularly, it can cause harm to the business. Also, a new POS system
requires training of employees to update the dashboard, how to collect payments, how to send
offers to customers, and managing the whole POS. Till now, employees were collecting the cash
and maintaining cash register, and everything at the business was manual. However, after
implementing the POS system, the taxes can be done with the help of POS (Square, 2021); this
will save the cost of accountants too. POS will have proper connectivity to the internet and in
case if the network is not set up or POS is not updated properly, it may cause business to lose
money. Hence, the manager's task is to ensure that POS is up and running continuously and the
system is properly working. Inventory management can be done automatically from POS, such
that POS will order the stock from the vendor automatically as soon as the stock is about to
finish. Also, it can remove the items from the customer menu if the food item is over.
Nevertheless, it comes with a significant problem: if employees do not update the stock, the POS
system may malfunction. For example, an employee forgot to enter the entry of flour used for
baking; then the system will not order the necessary ingredient on time. This, in turn, will cause
an unpleasant experience for the customers. Although it simplifies the manager's task, at the
same time, it increases the attention required for the manager for POS.

Cost of Digitization

On any given day, Kettleman's bakes 6,000 bagels. (Phillips, C, 2018). Also, there would
be other transactions for sandwiches and beverages. At KBC, the Cheapest bagels cost around
$2, and sandwiches cost $7.5 on average (Kettleman's Bagel, 2021). Suppose 5,000 bagels were
sold and 1,000 bagel sandwiches were sold; it would generate a revenue of $17,500 per day &
$6.3 million annually just from bagels and sandwiches. Additionally, if we add revenue from
other products, the total revenue would be summing up to around $24,500 per day & $9 million
annually, and all this is from cash only. Suppose an average customer spends $8 at KBC. Hence
it makes 3,000 customers/transactions per day across all the branches of KBC.

Customers who could not come to the restaurant because they did not have cash and the
younger generation, who do not carry cards or cash, will increase customers. Assuming after
adoption of the POS system, there will be an increase of approximately 20 percent in daily
footfall, which will make total customers to 3,600 per day, accounting for $4,800 of additional
revenue per day.

Let us compare the cost of traditional POS (RBC) and Android POS (Square) on the
existing system. In Royal Bank of Canada, the one-time setup cost is $500, and a monthly fee of
$130 for 250 free transactions and over 250 transactions per transaction extra cost will be $0.5.
(R.B.C., 2021). Whereas in Square POS, the one-time setup cost is $1,329 per location and a
monthly fee of $60, and on average, there is a 3%+$0.2 charge per transaction. (Rowe, A, 2021).
Due to all the modes of payment available, most customers will choose to make payments except
cash. In the worst case, let us say 3,000 out of 3,600 customers are making payments digitally.
Although the initial setup cost of modern POS is high, the traditional RBC POS will cost $1,505,
and Square POS will cost $1,380 monthly, in the worst case. On the other hand, it will increase
revenue by more than $144,000 monthly, and the total cost for android POS for all the branches
will be under $7,000 monthly.

Conclusion

Although the POS system introduces a few organizational complications, the financial
perspective resolves these issues. Based on financial research it is clear that if the company
switches to a POS system, it will generate more than $120,000 in income after monthly POS
costs. Customers will have a pleasant experience and desire to return in the future, thanks to the
characteristics of POS. As Craig Buckley says, "If you are not growing, you are dying." (Phillips,
C., 2018); the same goes for any business. As a result, moving to POS is a step toward
expansion. Kettleman's Bagel Co. should invest in a new point-of-sale system that will allow
them to grow their consumer base.
 References

Hiiemaa, K. (2018). How Your POS Can Help You Keep Customers Coming Back.
https://erply.com/ca/how-your-pos-can-help-you-keep-customers-coming-back

Journal, B. (2020). Kettlemans Bagels. Bakers Journal.

https://www.bakersjournal.com/kettlemans-bagels/

Kettleman’s Bagel. (2021). Montreal bagels: Lunch Catering: Kettleman's Bagel Co.
https://www.kettlemansbagels.ca/about-us/

Nambisan, B. (2021). What Is POS And How Does It Work?

https://www.forbes.com/advisor/in/banking/what-is-pos-and-how-does-it-work/

Pezzini, G. (2018). 12 pros and cons of online, cloud-based POS systems

https://www.lsretail.com/resources/12-pros-cons-online-cloud-based-pos-systems

Phillips, C. (2018). Ottawa-based Kettleman’s Bagel Co. eyes ambitious expansion. Ottawa
Business Journal. https://www.obj.ca/article/ottawas-kettlemans-bagel-co-eyes-
ambitious-expansion

R.B.C. (2021). Royal Bank - Merchant Services - E-select.

http://www.rbcroyalbank.com/merchantservices/eselect/pricing_details.html

Rowe, A. (2021). 10 Best Restaurant POS Systems.

https://tech.co/pos-system/best-restaurant-pos-systems

Square (2021). Square Support Centre - CA.

https://squareup.com/help/ca/en