Cafe Xaragua Harvard Case Solution & Analysis

Competition Analysis

Since the location Kensington, which was selected in Calgary was highly favorable for business opportunities’ therefore the Café Xaragua need to face some gigantic competitors like Starbucks and Second cup. Starbucks is a globally recognized name in the coffee industry and possess a modern retail outlet network worldwide with an exceptional brand image. They have a famous offering, exceptional and consistent taste of coffee by maintaining the outstanding financial position. Moreover, Second Cup is a Canadian coffee retailer having operations of over than 345 cafes across Canada and is quite famous for its specialty in coffee. It was established back in 1975 and is quite an experienced competitor.

cafe xaragua case solution

SWOTAnalysis

Strengths

• Products taste is extremely good.
• The product is consumed by 65% of Canada, which can be used as a strength to push the product in the market by maintaining the good quality.
• Directly importing the exceptional quality coffee from Haiti, hence reducing the cost as well.
• Relatively less costly ($3 for regular and $4 for special)

Weaknesses

• New brand name
• Limited money to invest

Opportunities

• 65% of market segment like and drink coffee daily
• Growing demand of coffee in youth (Colleges and Universities)

Threats

• New entrant
• Existing competitors (Starbucks and Second cup)
• Heavy marketing campaigns from competitors

Budgeting and Financials

Since this business in not an expansion of a world most famous café chain or retail store. It is approximately a new business which needs to buy finance by the fresh university graduates. From the current analysis, it can be said that the opening of this café looks quiet feasible because of the selected location and its associated attributes.

Ø  Determining Start-Up Costs

The total startup cost is around $144,250 as per exhibit 1. This cost includes four major parts thatcomprise of general equipment category, roasting equipment, furniture and other items. The general equipment includes elements related to Information technology and several machines accounted for around $28,000. The category of roasting equipment includes elements like roaster, heat sealer and scales which accounted for $54,250. Third category belongs to the furniture which needs to be an important part of the café, accounted for around $47,000. Other items are the last category comprises of décor, dishes and cutlery which accounted for $15,000. These elements which have been the part of this exhibit are really important for specific new business.

Ø  Capital Arrangements and Estimates

Since the opening of Café Xaragua was planned by three youngsters so generating a handsome amount of capital was definitely a big deal for them.  They knew that they need to hire the professional people. The wage rate would be around $16 with an additional 20 % as a part of the benefit. The total hourly rate would be $19.20 which would allow them to hire a professional employee. The amount which is generated by them is around $75000 and planned to take a loan of around $250,000 from the bank at 13% interest rate annually.

They planned to sell around 300 drinks per day which would give them the revenue of around $1050 which would give them monthly revenue of $31,500. If this monthly revenue is calculated on an annual basis, soXaragua Café can generate revenue of $3,78000. This amount is expected to generate through the sales of the core product which is coffee. So additional items can contribute at least $94,500 annually, which is 25% of the total revenue generated by the core product coffee (Assumed).  The total revenue would be around $4,72500 annually. Moreover, they assumed to sell baked good at a price of $2.50 to half of their daily customers.

This might be expected to give them the revenue of around $375 per day or $135,000 annually. They also assumed to sell 10-ounce bags to the 10% of their daily customers, which was expected to give them revenue of around $1,78200 annually.  By these numbers other than an assumption ($94,000), Café Xaragua is expected to generate around $6,91000annually which is no doubt a handsome figure. Being in the first year if they even earned the profit of around $1,38200 (20% of total sales) so it won’t be a bad option to carry on with.

Decision Statement

This project looks quiet feasible from financial as well as from the perspective of the Canadian market dynamics which is quiet favorable for such businesses. Although they need to borrow a massive amount of $250,000 from the bank, but at this stage this amount can give them exceptional returns later on.............................

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