This memo is focused on answering the key questions that Mr. Todd Sylvester, the owner and operator of the business Expresso Espresso, may have following the unfolding of the current situation wherein his business is facing a net loss. The analysis, discussion, and recommendations would emphasize the fact that the owner wants to save his business and make it survive and thrive in this highly competitive environment which apparently is being dominated by big-time rival Starbucks Corporation.
Before setting out giving recommendations how you would be able to turn the situation around, an important first step that has to be finished first would be the definition of the goals and values that he wants to put forward and hold for his business. It is important to note that whatever those goals and values were when you began his venture in 2006, the evidence (i.e. the current situation he and his business is facing) shows that they did work in pushing the company and its performance forward. Therefore, some changes need to be introduced here. Initially, you were inspired by the goal and value of offering a place where customers could find comfort and socialize. This is where you got the idea of putting up a business in the specialty coffee industry. When the business was still in the planning stages, you saw to it that customer comfort would be a top priority—you wanted it to be one of the major selling points of the business. This is why you invested heavily on designing and furnishing the interiors and exteriors. However, the problem was that these goals and values appear to be costly for your business, especially for a startup (i.e. relatively) like Expresso Espresso. So, in line with these facts, you have to revise your business model specifically the values and goals.
The state of the specialty coffee industry is something that you must be aware of if you want to see the business survive and thrive over the next few years. What you would want to see here is a growing market (i.e. number of customers) because that would translate to a bigger room for competitors to coexist. Fortunately, the specialty coffee industry’s market is still growing consistently. It is worth noting that whatever happens, a growing market for a particular industry would almost always lead to business growth and expansion as this pushes up the sale volume and therefore the revenues that the industry players can generate. Specialty products in this industry such as coffee, espresso, tea, chai, and granite were tagged as the leading products in the industry with average sales estimate to be at $50,395 per store. This is, in fact, should have opened up a big opportunity for Expresso Espresso. Unfortunately, it appears that you were not able to capitalize on it. Starbucks, the premiere and the most dominant player in the industry so far, managed to do so and that is why it is still in the top spot as of today. Their opportunity capitalization tactics should be used as a guide in developing future growth and expansion plans.
Below is a SWOT Analysis table summarizing the key findings from Expresso Espresso.
So, here comes the resolution part. What the company’s focus here should be the three Ps of marketing namely the product, price, and promotion-related strategies; in order to really stand out (especially against industry giants like Starbucks), the company has to be able to offer to its customer a more than reasonable (ideally a highly valuable) proposition in terms of these three Ps. The goal should be to be able to offer to the customers a reasonably priced product (addressing the Price component) that is high quality (product component) and has a high level of marketing and brand rating (promotional component). Realistically, a single product offering cannot excel in all of these three components. This is the part where the company should focus on product specialization. Basically, the product development team should be able to come up with at least three products that represent each of the three marketing mix components. For example, they should be able to offer to the customers products that are low cost with reasonable brand rating and product quality; a high quality product that is a little bit more expensive than their low cost offerings but with an also reasonable brand rating; and lastly, a product that has been promoted and marketed so well but is on an average scale in terms of price competitiveness and quality.
This question is, in fact, the easiest one to answer, even for the owner. What is important to mention here is that the ultimate decision with regards to this question should be based on a concrete analysis of the company’s present situation and future prospects (this is where the SWOT analysis’ findings should be useful). At present, the company is not in a good shape. It is burning cash because its net income is simply not enough to cover for the net expenses. Year to date (i.e. 2006) from February to May (four months), the company has already earned a loss of ($34,765). If this trend does not reverse over the next few months, the company is looking to record a six digit loss by the end of the fiscal year, something which is not good for a startup business. That would mean that the company is not actually growing. This fact alone should deter the owner from opening up a second branch. The first branch alone is proving to be a very tough job for Mr. Sylvester to handle profitably. Without being able to find a solution to the income generation-related problems that the first branch is still suffering from, the same problems would only surely appear by the time the second branch goes up and running (should they decide to proceed). So, the recommendation here would be to fix the financial woes they are experiencing in the first branch first and then after enjoying a period of growth and stability, open up their second branch. This may be branded as a conservative way of doing business but this is the right way to do it, considering the fact that the company is currently burning cash thanks to its losses. In order to arrive in that situation (where it is already operationally and financially sound) to open up a second branch), certain strategies may have to be implemented such as price cuts, increase in promotional and marketing spending, and diversification and segmentation of existing product lines.
In summary, the author of this paper believes that opening up another branch of Expresso Espresso would be a catastrophic mistake. The company is losing money even with just the operation of its first branch. The problem would even become bigger, probably twice as big, if they are to open another branch at this point. So, the main recommendation is to solve the existing financial and operational problems first, wait until they have already recovered all their losses, and then proceed with the actual opening of another branch. It is important that the members of Expresso Espresso’s management team rely on the SWOT analysis provided in this memo for their future decision-making. That way, they will be able to make informed and sound decisions, ones that would not lead to the company’s demise or worse, bankruptcy. So far, there is only one direction where the company would go if the present situation is going to continue and that would be bankruptcy. A startup can only lose so much money (so far Expresso Espresso has already lost a lot); the company has to generate a stable income as soon as possible in order to survive and make the necessary changes to turn the situation around.