Café Xaragua Case

Submitted by:
Ashman Grang
Id - 200530223
Jaismeen Kaur
Id - 200522861
Simran Kaur
Id - 200527090
Table of Contents
Start Up Cost.......................................................................................................................................3
Fixed Costs.......................................................................................................................................4
Variable Costs:................................................................................................................................5
Budgeted (Annual) Contribution Margin Income Statement..........................................................6
Break-Even in Sales Revenue (YEAR 2)............................................................................................7
Margin of Safety (MOS) (Year 2)...................................................................................................8
Sales Revenue for Year 2....................................................................................................................8
Income statement for Year 2..............................................................................................................9
Cash budget on annual basis.............................................................................................................10
Cash budget on monthly bases.........................................................................................................12
SWOT ANALYSIS............................................................................................................................16
a. Strengths of CAFÉ Xaragua:....................................................................................................16
I. Premium quality and taste:...................................................................................................16
II. Low prices:............................................................................................................................16
III. Corporate social responsibility:.........................................................................................17
b. Weakness of CAFÉ Xaragua:...................................................................................................17
I. New brand:.............................................................................................................................17
II. Limited investment:..............................................................................................................17
c. Opportunities of CAFÉ Xaragua:............................................................................................17
I. Unexplored markets:.............................................................................................................17
II. High demand:........................................................................................................................18
d. Threats of CAFÉ Xaragua:.......................................................................................................18
I. Smuggling:..............................................................................................................................18
II. Environmental impact:........................................................................................................18
III. High Competition:...............................................................................................................18
PEST ANALYSIS..............................................................................................................................19
I. Political Factors:....................................................................................................................19
II. Economic Factors:.............................................................................................................20
III. Social Factors:....................................................................................................................20
IV. Technological Factors:.......................................................................................................20
Conclusions & recommendations.....................................................................................................20
Start Up Cost

Capital Expenditures Amounts

Telephone System 2000

Computer System 8000

Espresso Machine 8000

Regular Coffee 4000

Machines

Stereo System 3000

Coffees Grinders 3000

Roaster 50000

Packaging Heat Sealer 4000

Scales 250

Bar 20000

Tables 15000

Chairs 6000

Couches 2000

Shelves 4000

Décor 10000

Dishes 5000

Initial Marketing Cost 10000

Legal Cost 10000

Utilities Deposit 2000

Rent Deposit 6000

Roaster 10000

Total Start-up Cost 217250

Fixed Costs

Fixed Costs Year 1 Year 2

Rent 70695 70695

Machine 6000 6000

Maintenance

Pt Manager Wage 25000 25000

Utilities 23565 23565

Marketing 12000 12000

Interest Expense 300 32500

Wages 251596.8 251596.8

Miscellaneous 4200 4200

Internet 3600 3600

Insurance 3000 3000

Depreciation 14425 14425

Full Time Manager 60000

Lehnert Salary 35000 35000

 Total Fixed Cost 481581.8 516581.8

Variable Costs:

Assumption: Sales units in year 1 are 200 and 300 in year 2.

Variable Costs Y1 Y2

Regular Drip Coffee 21900 32850

Specialty Drinks 29200 43800

Backed Goods 45625 68437.5

Coffers Beans 48180 72270

Total Variable Cost 144905 217357.5

List of sale items and their selling prices

Items Selling Price

Regular Drip Coffee 3$

Specialty Drinks 4$

Backed Goods 1.25$

Coffee Beans 6.60$

"Note: Depreciation of fixed assets has been included in fixed costs in above table"

Budgeted (Annual) Contribution Margin Income Statement

Specialty Drinks Year 1 Year 2

Revenue 182500 182500

Variable Cost 36500 36500

Contribution Margin 146000 146000

Regular Drip Coffee Year 1 Year2

Revenue 136875 136875

Variable Cost 27375 27375

Contribution Margin 109500 109500

Baked Goods Year 1 Year 2

Revenue 114062.5 114062.5

Variable Cost 57031.25 57031.25

Contribution Margin 57031.25 57031.25

Coffee Beans Year 1 Year 2

Revenue 150562.5 150562.5

 Variable Cost 60225 60225

Contribution Margin 90337.5 90337.5

Company is facing loss, it is not sufficient to cover the borrowing costs.

Year 1 Year 2

Total Contribution 402868.75 402868.75

Fixed Costs 481581.8 541581.8

PBIT -78713.05 -138713.05

Capital Employed 325000 325000

ROI 24% 43%

Break-Even in Sales Revenue (YEAR 2)

Selling Price
26

Variable Cost 9.25

Fixed Cost 541581.8

Contribution 16.75

Contribution 16.75
 Contribution % 64%

Breakeven Revenue 840664

The breakeven point is indicating the cut-off point of the revenues. If Café earns less
than $8407 it will face losses.

Margin of Safety (MOS) (Year 2)

Breakeven Units 32333.24179

Total Sales Units 146000

Margin Of Safety % 78%

Margin Of Safety Units 113666.7582

If company earns more than break even, it indicates margin of safety. It means that if
company earn revenue more than $840664 the above value will be treater as MOS revenue
value.

Sales Revenue for Year 2

Target Profit $50000

Fixed Cost 541581.8

Contribution 591581.8

Revenue 924346.5625
NOTE:

Cost to sales ratio = 36%

Contribution will be 64%

Total 100%

Income statement for Year 2

200 drinks 300 drinks

Revenues $ $

Regular Drip Coffee 109500 164250

Specialty Drinks 146000 219000

Backed Goods 91250 136875

Coffees Beans 120450 180675

Total Revenue 467200 700800

COS

Regular Drip Coffee 21900 32850

Specialty Drinks 29200 43800

Backed Goods 45625 68437.5

Coffees Beans 48180 72270

Total Cost 144905 217357.5

Gross Profit 322295 483442.5

Operating Costs

Rent 70695 70695

Machine Maintenance 6000 6000

PT Manager Wage 25000 25000

Utilities 23565 23565

Marketing 12000 12000

Interest Expense 32500 32500

Wages 251596.8 251596.8

Miscellaneous 4200 4200

Phone Expenses 3600 3600

Insurance 3000 3000

Depreciation 14425 14425

Full Time Manager 0 60000

Lehnert Salary 35000 35000

Total Fixed Cost 481581.8 541581.8

Net Profit -159286.8 -58139.3

Cash budget on annual basis.

Inflows $

Cash Received From Customers 467200

Loan Received 250000

Equity 75000

Total Inflow 792200

Outflows

Cash Paid To Customers 144905

Rent 70695

Machine Maintenance 6000

PT Manager Wage 25000

Utilities 23565

Marketing 12000

Interest Expense 32500

Wages 251596.8

Miscellaneous 4200

Internet 3600

Insurance 3000

Lehnert Salary 35000

Start-up Cost 182250

Total Outflow 794311.8

CASH OUTFLOW -2111.8

Cash budget on monthly bases
 ITEMS JULY AUG SEPT $ OCT NOV DEC JAN $ FEB MAR APRIL $ MAY JUN $
$ $ $ $ $ $ $ $

Cash From 38933 38933 38933 38933 38933 38933 38933 38933 38933 38933 38933 38933
Customers

Loan

Received 250000

Equity 75000

Total Inflow 363933 38933 38933 38933 38933 38933 38933 38933 38933 38933 38933 38933

OUTFLOWS

Cash Paid To 12075

Customers

Rent 5891 12075 12075 12075 12075 12075 12075 12075 12075 12075 12075 12075

Machine 500 5891 5891 5891 5891 5891 5891 5891 5891 5891 5891 5891
Maintenance
PT Manager 2083 500 500 500 500 500 500 500 500 500 500 500
Wage

Utilities 1964 2083 2083 2083 2083 2083 2083 2083 2083 2083 2083 2083

Marketing 1000 1964 1964 1964 1964 1964 1964 1964 1964 1964 1964 1964

Interest Expense 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000

Wages 20966 2708 2708 2708 2708 2708 2708 2708 2708 2708 2708 2708

Miscellaneous 350 20966 20966 20966 20966 20966 20966 20966 20966 20966 20966 20966

Internet 300 350 350 350 350 350 350 350 350 350 350 350

Insurance 250 300 300 300 300 300 300 300 300 300 300 300

Lehnert Salary 2917 250 250 250 250 250 250 250 250 250 250 250

Startup Cost 182250 2917 2917 2917 2917 2917 2917 2917 2917 2917 2917 2917

Total Outflow 230547 51005 51005 51005 51005 51005 51005 51005 51005 51005 51005 51005

- - - - - - - - - - - -

Cash Outflow 133386 12072 12072 12072 12072 12072 12072 12072 12072 12072 12072 12072
SWOT ANALYSIS

a. Strengths of CAFÉ Xaragua:

I. Premium quality and taste:

High-quality items are critical to client happiness. Their positive purchasing experience
compels them to return. Because of its high-quality products, the firm has an edge. All of the
items on sale are of excellent quality, organic, and delicious. The partners concentrated on
Arabica typika coffee, which has a full round body, intense floral tastes, and vanilla and
chocolate flavours. These tastes are marketed as a luxury product, particularly in Japan and
Italy.

II. Low prices:

Coffee beans of great quality and high organic content are imported directly from Haiti,
saving the organisation a substantial amount of money. As a result, the product prices are
likewise inexpensive. These inexpensive rates will help the organisation reach an increasing
number of clients. This is another beneficial feature for increasing market strength and brand
recognition.

III. Corporate social responsibility:

When Lehnert and his partners recognised that collecting coffee beans on a big scale would
have a substantial influence on both local farmers and the environment, they became deeply
devoted to sustainability and replanting. They've cleverly created a strategy to showcase the
company's commitment by including an eye-catching hang tag with each delivery that
promises to plant one coffee tree. Buyers can register their trees with the company online and
receive updates on the tree's life cycle. This will not only encourage buyers, but will also
provide farmers with a long-term source of income. In short, it is a win-win situation for
farmers, roasters, businesses, coffee enthusiasts, and, of course, the environment.

b. Weakness of CAFÉ Xaragua:

I. New brand:

A strong brand image and awareness are critical for the company's success. These qualities
not only help clients remain with the items, but they also produce new customers. Café
Xaragua is a new brand on the market in the provided circumstances. The brand is neither
well-known nor has a strong brand image. As a result, attracting and retaining consumers can
be challenging and time consuming.

II. Limited investment:

The firm is concentrating on high-quality items; nevertheless, a significant amount of

expenditure is necessary to attain this goal. Because the brand is new to the market,
investment is modest, which may present obstacles to achieving the goals.

c. Opportunities of CAFÉ Xaragua:

I. Unexplored markets:

As stated in the case study, Lehnert and his partners are considering expanding the firm to
high-potential locations throughout Canada. Which two cities, Calgary and Albert, offered
themselves as excellent opportunities. Calgary has a healthy economy, which implies that
people's wages are above average, thus it would be an excellent opportunity to promote
luxury items there. On the other hand, Alberta is a small town with a skilled workforce and
connections in the private sector that can be beneficial in the long run.

II. High demand:

Canadians adore coffee; over 65% of the population consumes it on a regular basis.
Furthermore, potential markets such as Alberta and Calgary are densely populated; this
population will rise by 10,000 over the next five years. As a result, demand for the products
will rise.

d. Threats of CAFÉ Xaragua:

I. Smuggling:

One of the most serious challenges to the café is the Dominican Republic's smuggling of
Haitian coffee. Smugglers strive to dodge taxes, and the cost of a bag is cents on the pound. If
effective long-term plans are not implemented, it will have an impact not just on the farmers'
livelihoods but also on the brand's image.

II. Environmental impact:

Because Haiti is positioned in the heart of the hurricane belt, it is more prone to severe
hurricanes, floods, and earthquakes. Furthermore, due to deforestation few years ago, it
suffered a severe scarcity of charcoal. As a result, environmental conditions may be a
significant issue to consider, as they may affect the growth of the trees and, eventually, the
company's sales.

III. High Competition:

Café Xanguha's main competitors are two well-known brands, Starbuck's and Second Cup.
This might jeopardise the brand's existence and growth.
PEST ANALYSIS

TECHNOLOGICAL

I. Political Factors:

Canada is a democratic country governed by a parliamentary system. The country's two

major political parties are the Liberal Party and the Conservative Party of Canada, along with
several smaller political groups. The country's political condition is steady and sound. As a
result, it is advantageous for new firms. Café xanguha will have no problems in Canada,
particularly in Calgary and Alberta. On the other side, Haiti's history has been marked by
political instability. Lehnert intends to import coffee beans from there, which may alter the
company's costs and cause ups and downs.
 II. Economic Factors:

In general, the Canadian economy is regarded as one of the wealthiest and most stable in the
world. As a result, it appears that starting a new firm in such a thriving economy is
advantageous. In terms of potential markets, Calgary and Alberta can both present
considerable growth chances for the organisation. People's wages are often high, allowing
them to pay expensive costs. Both cities' economies are robust and populated. However,
activities in Alberta cannot be that straightforward. Because the petroleum industry is so
important to the economy, it may be difficult to compete with such a talented and skilled
labour force.

III. Social Factors:

Canadians enjoy their coffee. According to the case study, over 64% of Canadians consume
coffee on a regular basis. Furthermore, people's hourly wages are pretty adequate. In a
summary, Calgary and Alberta as a whole had a terrific economy in 2010 and present an
excellent chance for café growth.

IV. Technological Factors:

Café xanguha is committed to offering high-quality items. This is only achievable if the
brand prioritises cutting-edge technology. Innovative technologies will not only save time but
will also save money.

Conclusions & recommendations

We may deduce from the financial study that the café will lose money for the next two years.
Because it is a startup, it will take some time to recoup all of its expenses. By implementing
an effective marketing plan, the organisation may offset these losses. Marketing can assist the
café in gaining notoriety and establishing a strong image in this highly competitive sector.
Furthermore, both internal and external elements appear to be adequate. Both politically and
economically, Canada is a stable and solid country. As a result, joining the market will be
simple in this scenario. However, because the coffee beans will be imported from Haiti, the
country's political instability and environmental factors may have an impact on the brand.
Second, café may face stiff competition in potential markets because its two main
competitors, Starbucks and Second Cup, already provide services there. Café xanguha must
also prioritise technology. The use of new technology will not only help them improve
quality but will also save time and money.