Constance ADAMOPOULOS ROUVIERE

Andrea PALOMINO FLORES

Tsiorisoa RAKOTONDRABE

ACCT211

Professor Emily SONG

Case Study : Internet Caribbean Café

Question 1 :

Before starting the Caribbean Internet Café, David Grant should consider lots of managerial
issues on different aspects.

First is considering profitability. M. Grant has very high startup costs : considering equipment
costs and one-time fixed costs, the total is $1,573,000. Therefore, it will be very difficult to
cover all costs and become profitable in a short period of time. Moreover, total fixed costs are
equal to more than 2 million dollars a year, which is an important amount for a startup.

Then, he must look at the situation of the actual market along with the status of the
competition. Jamaica is known to have very low barriers to entry. This means that business can
easily relocate here and enter the market, with almost no difficulty. Obviously, this creates
competition, leading to price wars amongst competitors. First-mover advantage but very high
operating expenses.

Political, economic, and social factors must also be looked at before opening a café in Jamaica.
There is a lot of corruption, bureaucracy, and fluctuation in prices of internet and equipment.
The Jamaican economy is tough. For instance, mortgage rates are very high : 25%/year !

He also should consider Jamaican’s culture, to answer to their wants and needs. He can’t just
copy the idea of the London’s Internet Café without making any changes. Jamaican have not
the same lifestyle as English people for instance.

Because M. Grant is still studying abroad, he hired a Jamaican manager, with only restaurant
experience. He must assess if this manager is the right fit to handle all problems while he is
away in London.

On the technology side, M. Grant must consider that his equipment might become obsolete.
The risk of value loss is very high in his field of work.

M. Grant’s experience in business entrepreneurship and ownership is minimal, he is just getting

his MBA degree. He is a former computer systems engineer, enabling him to have lots of
knowledge on internet and computers, but not that much in how to run a business properly ; he
is still in the learning process on that part.

Finally, the question of control must be reviewed. David always wanted to be "his own boss".
However, to source financing, we see that he had to partner with JTL. Even if Grant has 50%
ownership of the shares, it is obvious that JTL will be in control since JTL owns the debt ! Also,
JTL has the money and muscle to buy M. Grant out of the business ; M. Grant may not have a
similar option. He is in a position of weakness here.

Question 9 : PLEASE REFER TO THE EXCEL SHEET FOR CALCULATIONS

Let’s now proceed with the sensitivity analysis : Optimistic scenario VS. Conservative Scenario.

M. Grant estimated that his target segment in total would be 20,000 people.

According to market research, the optimistic Scenario is the following : 50% of the segment
would visit the café an average of 5 times/year.

Realistic Scenario : 40% of the segment would visit the café an average of 3 times/year.

Pessimistic Scenario : 30% of the segment would visit the café an average of 2 times/year.

After proceeding with the calculations on excel, we found the following net profits or losses :

- Optimistic : $4,465,365
- Realistic : $721,365
- Pessimistic : -$1,006,635

Conclusion :

The project of M. Grant is looking profitable in the optimistic scenario and realistic scenario
perspective, but not in the pessimistic scenario, where he and JTL would suffer a great annual
loss, due to very high fixed costs. Plus, our analysis doesn’t include taxes, and depending on the
rates applicable, profits could go down by 10% to 40%.

David Grand should consider reducing fixed costs ; it could begin with the part-time workers
and start also diminishing all different kinds of expenses, for the venture to be more profitable
and viable in the long term, both for him and JTL.
He could also try to reduce variable costs per unit, by renegotiating a price with JTL for the
usage of internet for instance, but also reducing what it costs to bring food in the café.

Increasing profits by reducing costs is one thing, but it is also possible to achieve it by increasing
revenues, this means increasing the selling price. Beverages and foods represent most of the
café’s revenues, prices could be set higher. Same strategy for the usage of internet. However,
with this technique, it is important to keep in mind that when prices go up, demand goes
down ; that is why it is important to hire marketing specialists that can help justify those high
prices.

Increasing quantity is also a strategy, meaning attracting more customers. This always goes with
marketing and building a strong and profitable relationship with clients.