Presented by:
Tahir Amlani
Kristen Boese
Adele Capjack
Amy Luchkovich
Lindsey Marofke
Casey Paulhus



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
Industry and Company Overview
Operations Plan
Human Resources Plan
Marketing Plan
Financial Plan
Conclusion



60% of adults in Ontario drink coffee daily and
about 16% of adults will purchase coffee daily
Sales forecasted to grow by 6% after 2011
Markham, Ontario is expected to increase from
287,000 to 386,000 residents by 2021
The Company


Well-known brand name
Largest Canadian-owned specialty coffee retailer with 360 cafés
Mission Statement
Second Cup strives to be the model for the quintessential, convenient
“Neighborhood Coffee Shop” by supporting and promoting positive social
interaction in the community

In doing so we open our doors to invite people from the
surrounding area to meet, organize, and get to know one another
as a community
Short-term Goals







Acquire necessary financing
Become knowledgeable about Second Cup operations
and procedures
Obtain and train competent, hardworking staff
Build reputation in the community
Year 1: Create community awareness of new franchise
location to obtain 50% of potential customers
Year 2: Begin realizing profits
Year 3: Achieve 2% market share
Long-term Goals
Build a sustainable business that provides financial
support for Ken and Mary
 Maintain healthy positive economic profits and cash
flows
 Foster a loyal customer base
 Sustain lasting presence in the community by
building relationships with local organizations and
people

Benefits of Franchising








The Second Cup business model has proven to be successful
Established customer base and brand reputation
"Coffee College”
Minimal start up costs and guesswork involved
Established suppliers
Ongoing sales and marketing assistance
Ongoing research development
Site selection
"My Second Cup experience has incorporated the best of both worlds for me – it has
given me an opportunity to be my own boss while providing me with the franchisor’s
invaluable support" - Shelly Sunderji,
Disadvantages of Franchising

Restrictions imposed
 They have a proven strategy and have developed best
practices in the industry

Ongoing costs – 9% royalty fee
 Advertising is consistent and effective
Operations


Sale of whole beans, merchandise and pastries
Sale of beverages produced




Coffee/teas/ciders
Specialty coffees/hot chocolate
Blended drinks
Customer service
Cost of Sales
Specialty
Coffees /
Hot Choc
Coffee, Tea,
Cider
Blended
Drinks
Pastries
Coffee
Beans and
Merch
4.00
2.00
4.00
2.00
15.00
Base inputs (coffee, tea bags, powders, baked goods)
0.15
0.15
0.20
1.00
5.25
Added inputs (syrups, whipped cream, milk)
0.60
0.00
0.60
0.00
0.00
Lids, Cups and coffee jackets
0.25
0.25
0.30
0.00
0.00
Cost of sales per unit
1.00
0.40
1.10
1.00
5.25
Per unit gross margin – direct materials
3.00
1.60
2.90
1.00
9.75
Gross margin %
75%
80%
73%
50%
65%
Direct labor
0.55
0.55
0.55
0.55
0.55
Per unit gross margin
2.45
1.05
2.35
0.45
9.20
Gross margin %
61%
53%
59%
23%
61%
Per unit gross margin ($)
Selling price per unit
Direct materials:
Summary - Capital Budget and Working Capital
Description*
Total Cost ($)
Capitalized Assets
Equipment and appliances
58,300
Furniture and Fixtures
46,800
Office
Total Capitalized Assets
2,700
107,800
Working Capital
Cash
Accounts Receivable
Inventories
192,700
0
1,584
Accounts Payable
(7,335)
Total Working Capital
186,949
Total Capital Costs
$294,749
*All purchases available from suppliers in Marham, Ontario
Women’s
Couch
Tables and chairs
Washroom
Booths
Couch
Products
Entrance
Men’s
Washroom
Tables and chairs
Chair
Chair
Mop
Closet
Booths
Tables and chairs
Coffeemakers/
Italian sodas/Sink
Fireplace
Condiment
Bar
Staff
Bean
Display
Blender, syrup ice
machine, fridge
Patio
Floor Plan
Till
Office
Washroom
Storage
Cooler
Drive-thru
Organizational Structure
Second Cup
Mary Hatch
Manager/Owner
Sales associate /
Barista
Sales associate /
Barista
Ken Hatch
Manager/Owner
Sales associate /
Barista
Sales associate /
Barista
Sales associate /
Barista
Sales associate /
Barista
Management Team – Ken and Mary Hatch
Ken Hatch

Prior experience
 Local high school caretaker (20 years)
 Managerial expertise

Responsibilities
 Administration
 Financial
 Marketing / Promotion
Management Team – Ken and Mary Hatch
Mary Hatch

Prior experience
 8 years experience in coffee shop
 Various duties: coffee equipment use, opening/closing
procedures, customer service

Responsibilities
 Operations manager
 Staff Hiring, training, evaluation
 Adherence to standard operating procedures
 Staff scheduling
 Ordering of supplies
Management Team


Pre-approved by Second Cup
Management training


Coffee College
Online e-learning training modules
Support team
Franchisor
 Accountant
 Lawyer
 Investors (bank)

 Provide guidance and direction
Management Team Success (MTS)
Experience + Training + Support = Success
Recruitment and Retention

Compensation
Minimum wages
 Increased pay for key-holding employees
 Free coffee
 Weekly expense account for non-coffee products

 Yearly account increase



Scholarship opportunities for students
Paid training programs
Holiday pay
Recruitment and Retention


Friendly culture / customer focus
Focus on student recruitment
Job Descriptions

Sales Associate/Barista




Serve the "World's Greatest Coffee"
Cash handling
Daily cleaning duties
Entertainment of guests with Barista Flair and
positive energy
Training Programs

Sales Associate/Barista
Certified Sales Associate exam
 Barista qualifications
 Customized customer care program
 On-the-job training

 Opening/closing procedures
 Coffee equipment training
 Cash register procedures

Online e-learning training modules
Compensation

Management


Yearly salary of $30,000
Sales Associates/Baristas






$9.50 per hour
$11.00 per hour for key-holding employees
Free coffee
Weekly expense account
Paid training programs
Holiday pay
Human Resources Costs
250000
200000
150000
100000
50000
0
Year 1
Year 2
Year 3
Year 4
Year 5
Products
Coffee/tea/ciders
 Specialty drinks/hot chocolates
 Blended drinks
 Beans and merchandise
 Pastries

Prices


Set by head office
No power to change
prices because of
franchise
Selling prices
Specialty
coffees/Hot
chocolate
Coffee/Tea/
Cider
Blended
Drinks
Pastries
$4.00
$2.00
$4.00
$2.00
Coffee beans, $15.00
merchandise
Promotion


Head office promotions – covered by royalty fee
In-house promotions
 Grand opening
 Free drink trials
 Print advertising for grand opening
 Sponsorship of local sports teams
 Other donations where possible
 Community donations of leftover product
Place
Suburb between the business community and an
affluent residential neighborhood
 Business people and residents with high disposable
income can be targeted
 Convenient location to attract commuters and draw
local residents
 Free standing store with drive-thru

Segmentation


Two segments: residents and business people
Average income level higher in Markham
Population
Markham Demographics
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
-
Male
Female
0-9
10-19 20-29 30-39 40-49 50-59 60-69 70-79
Age
80+
Targeting


Business community
and local residents –
coffee drinkers
1/50 = 2% market
share
Year
1
% of
46%
sales
2
3
4
5
75% 100% 100% 100%
Residents of Markham
287,000
Residents under 19
(60,000)
Adult population
Daily coffee drinkers –
Ontario
Coffee purchased at
eating places
Potential daily
customers
Number of competitors
227,000
60%
Daily customers per
establishment
Days open for business
436
Yearly customers
16%
21,792
50
362
157,774
Sales
Quantity of sales
Specialty
Coffees, hot
35%
chocolate
Coffee, tea,
45%
cider
Blended drinks
25%
Pastries
20%
Coffee beans,
2%
merchandise
Competitive analysis

Two groups:
Basic coffee retailers: Tim Hortons, McDonalds,
convenience stores, etc.
 Specialty coffee retailers: Starbucks, independent
coffeehouses

Basic coffee retailers not considered to be a close
substitute
 Personal taste, brand recognition play role in customer
loyalty

Competitors in Close Proximity

Starbucks


Mall location, no drive-thru, no outside seating, can
be difficult to find parking
Independent coffee house

Limited menu items, no drive-thru
Financial Plan
Sales Quantity
2009
2010
2011
2012
2013
Coffee Beans, Merch.
25,310
28,925
18,078
14,463
1,446
41,416
47,332
29,583
23,666
2,367
55,221
63,110
39,444
31,555
3,155
57,430
65,634
41,021
32,817
3,282
59,727
68,259
42,662
34,130
3,413
Total Quantity
88,222
144,363
192,484
200,184
208,191
Specialty Coffees
Coffee, Tea, Cider
Blended Drinks
Pastries
Financial Plan
Unit Metrics
2009
Projected sales
(units)
Customers/month
Customers/day
Customers/hour
2010
2011
2012
2013
88,222
144,363
192,484
200,184
208,191
7,352
245
14
12,030
401
24
16,040
535
31
16,682
556
33
17,349
578
34
Financial Plan
Gross Margin
Revenues
Cost of Sales
Direct Labour
Gross Margin
Gross Margin %
2009
2010
2011
2012
2013
282,021
(78,821)
(107,561)
95,639
475,334
(132,850)
(110,268)
232,216
652,792
(182,447)
(113,726)
356,618
699,271
(195,437)
(134,269)
369,564
749,059
(209,352)
(138,663)
401,044
34%
49%
55%
53%
54%
Financial Plan
Net Income
2009
Gross Margin
95,639
2010
2011
2012
2013
232,216
356,618
369,564
401,044
Interest
Tax Expense
(181,471) (210,021) (230,033) (233,666) (243,805)
(18,539) (15,141) (11,387)
(7,240)
(2,658)
(2,950) (21,229) (25,506)
Net Income
(104,371)
Net Profit %
-37%
Op Expenses
7,054
1%
112,248
17%
107,430
15%
129,075
17%
Financial Plan
Break-Even Net Income
Net Income Break-Even Quantity of Sales
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
31-Dec-09
31-Dec-10
31-Dec-11
Net Income Break-Even Quantity of Sales (units)
31-Dec-12
31-Dec-13
Quantity Sold in Base Case
Financial Plan
Break-Even - Economic
Economic Break-Even Quantity of Sales (units)
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
31-Dec-09
31-Dec-10
31-Dec-11
Economic Break-Even Quantity of Sales (units)
31-Dec-12
31-Dec-13
Quantity Sold in Base Case
Financial Plan
Financing Structure

Bank Loan: $200,000
5 year term
 10% interest rate
 association with franchiser


Equity Financing: $101,000


Common Shares: $1,000
Preferred Shares: $100,000
Financial Plan
Equity Investment


External equity financing required: $100,000
Preferred Shares


Dividends – 15% of positive retained earnings
Callable as of the 5th year of operations
 Return of capital: $195,000


Priority upon liquidation
External Rate of Return on Equity: 20%
Financial Plan
Investment Analysis
Net Present Value of Equity
Investment (NPV)
Internal Rate of Return
(IRR)
180,477
64%
Financial Plan
Leveraged IRR
NPV
IRR
67% Debt
Financing
$180,477
64%
100% Equity
Financing
$127,708
34%
Financial Plan
Cash Flow
Cash, End of Period
$250,000
$217,101
$200,000
$150,000
$100,000
$156,019
$71,782
$75,751
$64,675
$50,000
2009
2010
2011
2012
2013
Financial Plan
Scenario Analysis
Variable
Worst Case
Base Case
Best Case
Quantity of Sales
85%
100%
105%
Input Prices
115%
100%
90%
Interest Rate
12%
10%
8%
Employee Wages
110%
100%
100%
-12.8%
64.1%
86.0%
IRR
Financial Plan
Scenario Analysis
Net Income
Worst Case
Base Case
Best Case
2009
$ (141,035) $ (104,371) $
2010
$
2011
$
27,633
2012
$
2013
$
(20,039) $
(83,440)
7,054
$
39,167
$
112,248
$
138,738
30,097
$
107,430
$
144,327
43,048
$
129,075
$
167,660
Financial Plan
Contingency Plan
Worst Case
 Elimination of staff




Additional hours worked by the Hatches
Increased marketing efforts
Pressure head office to increase prices
Re-evaluate return of capital and payout to investors in
year 5

Paid out by year 10
Financial Plan
Contingency Plan
Best Case
 Capacity limitations at peak hours


Additional employees hired
Additional facilities added to the drive-thru window
 Barista machine, coffee pots
Opportunity

Growing city and coffee industry
Customers


Residents of Markham who live and shop in this community
Second home - great location with efficient service
Competitive Advantage

Experienced management team, strong brand recognition and
loyalty, commitment to employees, customers and community
Risk and Return


64% IRR with a payback in the first 5 years
Moderate risk that can be mitigated