Ⅰ. Problem identification Ⅱ. Analysis and recommendations

1. 西安交通大学 skywalker Content Ⅰ. Problem identification Ⅱ. Analysis and recommendations Ⅲ. Summary of action plan Ⅳ.Other issues

2. Problem When Where Who Ⅰ. Problem Identification– Case overview Residential department • China— • Prosperous future for coffee shop industry • Shanghai— • Financial and commercial hub of China Loss in 2009 Profitability problem Pudong， Shanghai Office buildings Private business school Li Wang, manager of the shop Competitors Shortly after FY2009

3. Growing coffee-drinking culture • Two-digit growth in domestic • market • Customers requiring high qulity • service and product • Take-away business • Offer growth potential • Good customer experience: • non-smoking • ample magazines provided • free fruit and biscuit in the afternoon • Customer loyalty • Loss in 2009 • Not attractive to new customers • negligible take-away business • Price limited by nearby competitors • Liquidity problems if not performing well • Rent costs expected to grow after 2015 • Potential new entry for high growth • & Low entry barrier Ⅰ. Problem Identification– SWOT Analysis strength weakness opportunities threats

4. Ⅰ. Problem Identification– Financial Analysis Profits dropped significantly from last year. And this coffee shop’s profits are generally lower than the average. The cash balances at both year ends are too slim to cover the payables, indicating some liquidity problems. Therefore, it is urgent to generate more cash to mitigate the situation. Profits! Liquidity If the coffee shop’s profitability remains constant, it will take tens of years for the owner to recover his investment. Unfortunately, the case is the profitability is actually deteriorating!! The interest cover drops substantially from the last year. The slim profit renders the company extremely difficult to pay the due interest. Solvency

5. Ⅰ. Problem Identification– Financial Analysis 3 strategic objectives % change in operating income % change in operating income % change in sales % change in sales % change in operating income • Due to the high DOL (degree of operating leverage), a minor change in sales can bring a significant one in operating income. The operating leverage rocketed to 29.2 this year, indicating some potentially high operating risks. SalesVolume To reverse this trend, we should … • Thus we can boost the operating income by way of increasing sales volume.

6. P(RMB) 50 47.6 Q (Demand) 18600 (Y2009) 19215 (Y2008) Ⅰ. Problem Identification– Financial Analysis 3 strategic objectives Demand curve and price elasticity analysis SalesVolume • Based on data of 2008 and 2009, the price elasticity is calculated to be -0.66, indicating a rigid demand. So, increasing price will lead to a rise in total revenue. • Further calculation shows revenue will continue to rise until the increase in price reaches 25.8%. • So increasing sales price is acceptable. Price

7. Ⅰ. Problem Identification– Financial Analysis 3 strategic objectives SalesVolume > Price > • Therefore, we should promote the efficient, effective and economic use of resources, including fixed assets & intangible ones, by refining the internal process. Value for Money

8. Maximize value for equity Profitability Revenue increase Value for money Differentiation Market development Price Sales volume Efficiency Economy Effectiveness Ⅰ.Strategic Goals Short-term Long-term

9. Ⅱ. Analysis and recommendations—CSF&KPI

10. Ⅱ. Analysis and recommendations—Customer Current Expectation We should focus on breakfast supply We should attract campus students under 20 years * customer number per day ×sales percentage at lunch time.

11. Ⅱ. Analysis and recommendations—Customer • Local proffesionals Expats • Make signpost to maitain nonsmoking environment • Issue vip card • Individual cup • Customer satisifaction • White-collar Students • Reduce waiting time • Issue discount card • Price discrimination at different time period • Theme day activity People-oriented service to maintain existing customers new customer attraction to enlargemarket share

12. Ⅱ. Analysis and recommendations—Internal Process Need to boost food sales Need to improve cost control and emphasize promotion Variance Analysis Material cost: unfavorable Labour cost: favorable Utilities expense: unfavorable Advertising: favorable And according to surveys online, food profit margin >drinks profit margin.

13. Ⅱ. Analysis and recommendations—Internal Process Current Expected *Assumptions: After implementing the strategies, price of food and drinks will increase by 5% and 7%respectively. Also, the sales volume of food and drinks will rise by 40% and 10% seperately.

14. Ⅱ. Analysis and recommendations—Internal Process Action plan • Market development • Advertise in office buildings • Start from7am to increase breakfast supply • Open a take-away window • Boost food sales • Differentiation • Play soft music at certain time • Improve food presentation • Picturesque menu • Design a new decoration style (in the near future) • Update reading material • Value for money • Efficient use of facilities • and ingredients • Keep a clean and cozy • environment • Provide high quality • food and drinks

15. Ⅱ. Analysis and recommendations—Leaning & Growth Current Expected *according to financial expectation figure Action plan Set reward and incentive scheme Train employees Leader takes management courses Competence and courtesy contest Enroll university student as part time workers long term objective

16. Customer loyalty • Attract new customer • Customer satisfaction • Manager and employee training • Employee satisfaction • Incentive scheme • Cost of sales • Operating expenses • Price • Sales volume • Create brand image • Boost food sales • Cost reduction and quality control Learning and Growth Financial Customer Internal Process Ⅱ. Analysis and recommendations—Strategy Map

17. Forecasted Financial Statements for the Year ended 2010

19. Other issues breakeven point analysis *Assume only rental & depreciation are fixed cost. • Safety margin is enlarged and business risk is remarkably lower in 2010. • So, consider efficient use of net cash flow in near future

20. Rent terms After 2015, rental may increase since generous terms will expire Negotiate again; or look for a new site Furnitures & equipment Wears out in about 5 years So new investment in replacing non-current asset will be needed Decoration style Need additional fund to redecorate and change the image

21. 西安交通大学 skywalker Thank you!