IKAWA CAFÉ BUSINESS PLAN

Questions

You are required to write a business plan either for a business idea you have. This can be a real or an imaginary business or a plan for an existing small business. Whilst you do not have to follow any precise format, a specimen format is provided in the textbook. The interactive chapter exercises on the textbook website allow you to build your plan step-by-step and place it in this format.
Specimen plans are readily available on the internet. However, be warned, do not copy the contents of on-line plans. Turnitin will reveal this and it is an academic offence which will automatically cause you to fail the assessment.
Marks will be awarded for the thoroughness of the plan, not for the profit-making potential of the business idea. A good plan that proves the idea to be unviable can receive full marks. A profit projection, breakeven calculation, monthly cash flow forecast, and balance sheet are required only for the first year. You must provide details of the assumptions on which these are based.
The unit leader evaluates reports based on the following criteria:
• Clarity, consistency and originality of value proposition(s)
• Clear, identification of target market segment(s)
• Comprehensiveness of market and competitor analysis
• Consistency/originality of core marketing and entry and/or growth strategies
• Comprehensiveness and accuracy of financial projections
• Comprehensive identification of resources required and financing
• Identification of material risks and their mitigation
• Realism and practicality of plan
• Overall presentation
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Please use the attached reference as the unit coordinator is the author of the book
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Report expectations :
-Value proposition : Clear, detailed and consistent value proposition with some originality
-Market and competitor analysis: Comprehensive and detailed market and competitor analysis
-Marketing strategies – core, launch and growth: Good, clear, comprehensive and detailed strategies – core and launch/growth
-Financial projections :Excellent, comprehensive and accurate financial projections
-Identification of resources required and financing: Comprehensive identification of resources and realistic identification of financing options
-Identification of material risks and mitigation: Comprehensive identification of risks and their mitigation
-Realism and practicality of plan:Realistic and practical plan. Convincing of management capabilities of author
-Overall presentation, including clarity of English: Excellent presentation, structure and use of English

Solutions

IKAWA CAFÉ BUSINESS PLAN

1.      Executive Summary

Ikawa Café is an iconic coffee bar that will be located in Muscat, Oman. The project will take advantage of the benefits that are realized from taking coffee and the growing population in the region. Specifically, the business will have a sitting capacity of 30 people. The company is expected to face competition from renowned companies such as Starbucks. However, Ikawa will use the strategy of offering more affordable coffee. Besides, Ikawa Café will also consider ambiance and a theme that will provide a unique experience for customers. In addition, it will consider delivering coffee to corporate functions as a way of reaching more customers. Ikawa Café will start as a small private limited company due to the accompanying benefits of separating it from the owner, infinite continuity, and more opportunities to accessing capital. The structure will involve the entrepreneur as the chief decision-maker and will be assisted by three managers, including an accountant, marketing manager, and production manager. Although the setting of the shop will require $16,500, the entrepreneur is unable to raise the whole amount, and would thus need some debt financing. The breakeven point will be between the 5^th and 6^th months of the first year, and so it is expected that the debt will be payable within the first half-year of operation. While the café can be affected by various risks such as operational, reputational, and economic, Ikawa Café can use strategies like public relations, reserving capital for reinvestment, and employee training as some of the ways of countering the risks.

IKAWA CAFÉ BUSINESS PLAN

2.      Organizational Description

The organization will focus on selling coffee in its outlet as well as offering catering services for various customer functions. The model of operation is inspired by the realization that people meet over the coffee shop to relax and engage. Besides, such outlets exist in the West Village in Muscat City. In addition, many corporates usually source for catering services during functions. Ikawa Café will solve the issue of congestion in more prominent hotels, given the increase in the number of people buying cooked foods and drinks. Since people have busy schedules that take much of their time, including time for preparing meals, Ikawa Café will meet such needs by offering instant coffee (Avery et al. 2017). Another issue that the business will solve is catering to people with low income. The price of coffee in restaurants is usually high, indicating that some people in the region cannot afford it. While Ikawa Café has a great potential in selling coffee and attracting many customers, the coffee bar will have a capacity of 30 seats only, for a start, due to resource constraints.

Coffee, as a product, has many health benefits. For instance, Samoggia and Riedel (2019) confirm that taking coffee can enhance physical activities due to the rise in the adrenaline levels. In addition, the authors aver that taking coffee can significantly reduce the likelihood of developing type 2 diabetes and Alzheimer’s. Moreover, coffee is attributed to a healthier and more functional brain since it reduces the chances of developing depression (Preedy 2015). Overall, such benefits support a healthy life; hence, a coffee business venture is a significant move for Ikawa Café.

Organizational Vision

To be a leading coffee brand in Oman.

Organizational Mission

To cover 70% coffee retail market in Muscat by offering a high quality brand.

1. Market Analysis

The market analysis considers the conditions that face the entrance and acquisition of customers. According to Phadermrod et al. (2019), the SWOT analysis is a crucial tool that provides an insight into the expected competitiveness once the company starts its operations. The model involves the internal factors categorized into strengths and weaknesses, and external influences, including opportunities and threats.

Figure 1: SWOT Analysis

Strengths ·         Lower prices ·         Unique coffee ·         Reputation	Opportunities ·         Proximity to a large market ·         Increase in marketing opportunities ·         Popularization of coffee ·         Diversification
Weaknesses ·         Lack of intensive capital	Threats ·         Competition from renowned companies

 

The organization can use its strengths to take advantage of opportunities, counter threats, and minimize the effects of weaknesses. Lidstone and MacLennan (2018) suggest that SWOT analysis helps the company to make strategic decisions. The company can access a large market by offering an extraordinary experience for the customers. In addition, increasing the market could imply an increase in revenue; hence, Ikawa Café can eventually realize increased capital. Furthermore, the company can embrace ethical values, which will contribute to a good reputation, and subsequently increased popularity in the market. Affordable prices will help the company to reduce the adverse effects of intensive competition from the existing rivals.

Porter’s five forces can also be applied in monitoring the nature of the coffee retail industry. Vignali and Vignali (2017) define Porter’s five forces as rivalry, both the bargaining power of suppliers and customers, as well as threats of substitutes and new entrants. Sacks (2014) describe that the level of competition in the industry as high, with companies such as Starbucks, Kicking Horse Coffee, Lavanna Super Crema, and Whole Bean Coffee being some of the companies dominating the high-end market for coffee. There are other small brands in the city that are likely to pose a threat to the company. Closeness in the rivalry in the industry is mostly due to the imitability of the brewing process. Since there are few entry restrictions in the industry, the presence of many suppliers reveals that Ikawa Café would be faced by a weak force; hence, the company can shift from one supplier to another without much effect. However, the company should maintain a low number of suppliers for consistency purposes. The company will have to counter a strong force of substitutes, including tea, cocoa, and chocolate. Moreover, the company will be faced with a strong force from buyers, as they can shift among the available alternative beverages and companies.

2.      Organization and Management

The organization will be a registered private company with an advantage of distinguishing itself from the shareholders, thus becoming a separate entity. The directors are not liable for any debts incurred by the company, and the organization can own property in its virtual identity. Bloomsbury Publishing (2013) indicates that such a business has an interrupted existence, meaning that it can continue operating even after the shareholders face issues such as death. In addition, it is also possible to change ownership by transferring shares. Such a form of business ownership provides several relationships among the directors, whereby they can be suppliers, employees, or creditors of the company. A private company is also preferable since it makes it easier to acquire capital, unlike partnerships, and sole proprietorship. Overall, a private company can go public after directors suggest diversifying the control of activities as well as expanding the business undertakings.

The business will have the entrepreneur as the central controller of activities. Given that it will start as a small company with less revenue, the structure will be simpler to save on some costs such as labor and office space (Pellicer et al. 2009). Ikawa Café will exhibit a short horizontal structure, with the director making big decisions about finance and product development. The firm will have a marketing manager, given the intensity of the department in maximizing sales. The manager will have the responsibility of advising about strategies that will increase the share market (Moorman 2016). Besides, the manager will control the activities of the salespersons, such as motivating them to be more productive and also supervise the marketing budget. The organization will also have an accountant, who will be advising the director about finance, and pay cash obligations such as rent, salaries, and suppliers (Mahlamäki et al. 2019). The responsibilities of the production manager will entail managing the workforce in the kitchen and service area, as well as procuring the necessary materials such as foods and coffee. The organization will consider two salespersons, five employees in the kitchen, and three in the service area. The organization will consider outsourcing additional staff whenever it will be required to offer outside catering.

Figure 2: Organizational Structure

3.      Product Description

The main product offered by Ikawa Café is coffee, which will be procured from credible suppliers and delivered to the bar. The company considers roasting coffee to have a personal touch. After the process of preparation, the company will be serving ready coffee to the customers on the premises or delivering to the required destination within West Village. Accompaniments for coffee will be complementary, whereby the organization will employ an additional pastry chef to bake snacks. The production process will assume the following structure.

Figure 3: Product Description

4.      Marketing and Sales

Marketing will be essential as a way of attracting and retaining customers. The marketing mix model will be applied to developing the most suitable strategies. The models have several phases, including product, pricing, placement, and promotion (Sari 2017). Firstly, the product will be of excellent quality to make it much competitive against rivals such as Starbucks. Ikawa Café will solely source its raw coffee from countries that produce the best quality, such as Ethiopia (Yihdego et al. 2020). In addition, the coffee will be appropriately brewed to ensure that it provides the right aroma and effects on the drinker. Ikawa Café will embrace consistency in the brewing process (Aguayo-Mendoza et al. 2019, pp.90-91). The product will also be packaged in cups that will be explicitly designed for Ikawa Café; hence, the customer experience will be unique. In addition, the location will have a particular theme having the color of ripe coffee beans. Besides, there will be small and large cups with varying prices to accommodate consumers with varying coffee intake

The promotion will be conducted in various ways to reach customers. One of the most viable approaches will entail the use of the internet for advertising. A significant percentage of people in the region have access to the internet, either on their phones or computers. NYC Connected (2018) reports that by 2025, the inter-connectivity will reach a 100% coverage in the entire state. Therefore, potential customers will be contacted through several platforms, which are supported by the internet, including social media, websites, and mobile applications. In addition, the promotion will be achieved by offering loyalty points for repeated customers (Montoya & Flores 2019). Once customers make a purchase, they will earn some points that they can redeem later. Moreover, peer advertising will be attained by the employees and returning customers (Semerádová & Weinlich 2020). Such an advertisement approach will be enhanced by the unique services that will be offered, which will consider that customers are in the proximity of the business. Another promotion method will include public relations, as suggested by Martiningsih (2018). The director can engage in activities that are of interest to the public, thus making the bar popular in its locality.

The business will be located in one of the streets in the locality. Hence, Ikawa Café will consider the importance of service factors, such as space, parking, and proximity to offices, as suggested by Longenecker (2010). Such aspects will enhance the services by reducing the time spent by the customers while moving to the shop. Besides, there will be deliveries made to offices close to the bar. More importantly, Ikawa Café will participate in trade fairs in the region as a way of introducing its business to surrounding markets.

Pricing will be dictated by the cost incurred in brewing, serving, and delivering the Ikawa coffee, among other expenses. However, a smaller margin will be considered for profits, so that the coffee can suit the medium and small income earners (Martiningsih 2018). Notably, companies such as Starbucks charge their coffee between $1.85 and $5 per mug. Hence, to enhance competitive advantage, Ikawa Café will provide the coffee at a lower price.

5.      Funding Request

The report aims to request for debt funds. Since the entrepreneur does not have sufficient funds, seeking partial funding will close the resource gap.

Item	Cost ($)	Units	Total ($)
Kitchen Equipment	5,000	N/A	5,000
Furniture and Renovation	7,000	N/A	7,000
Licenses	1,000	1	1,000
Capital Labor	1,000	N/A	1,000
Marketing	1,500	N/A	1,500
Miscellaneous	1,000	N/A	1,000
Total			16,500

Figure 4: Budget

The budget considers the initial cost of starting the business. Notably, Ikawa Café has acquired kitchen equipment such as oven, coffee brewer, microwave, utensils, and fridge, among others. In addition, space has to be rehabilitated to suit the required theme. Other costs included in the capital requirement entail licenses, capital-labor, and initial marketing expenses. Since the entrepreneur does not have enough funds capital even after sourcing half of the capital from friends and savings, a funding of $8,250 is required. Given the prospects of the company, the amount can be refunded within six months of operation. The World Bank (2020) states that the lending interest rate in the US stood at 5.3% in 2019; hence, given a variation, the rate can be set at a maximum of 7% per month. Therefore, it means that the company will owe the creditor a total amount of $9,500 after compounding the principal amount. The amount can be recovered from the net earnings; hence, the company will be well-positioned to pay the debt.

6.      Financial Projections

The cash flow statement indicates the cash in revenue expected and the costs to be incurred in the first year. The value is based on relativism, with a sale of $15,000 in the first month. The amount is based on the realization that it is possible to attract enough customers to make a revenue of an average of $500 per day. The projection considers that, on average, each customer will spend between $10 and $20, indicating that between 20 and 30 customers will be served on a daily basis. In addition, it considers that given the impact of marketing, there will be a monthly increase of 5% for each of the subsequent months. On the other hand, given that some costs are fixed, it is expected that an increase in costs will be at a lower rate, 3%. The business will start with seven employees, who will cumulatively earn $6,000 per month. The net profit for the first month will be $1,500, and at the end of the year, the company will have made $147,514.

	1st Month ($)	2nd Month ($)	3rd Month ($)	4th Month ($)	5th Month ($)	6th Month ($)	7th Month ($)	8th Month ($)	9th Month ($)	10th Month ($)	11th Month ($)	12th Month ($)	Total ($)
Revenue	15,000	15,750	16,538	17,364	18,233	19,144	20,101	21,107	22,162	23,270	24,433	25,655	238,757
Expenses	3000	3090	3183	3278	3377	3478	3582	3690	3800	3914	4032	4153	42576
Gross Income	12,000	12,660	13,355	14,086	14,856	15,666	16,519	17,417	18,362	19,356	20,402	21,502	196,181
Labor Cost	6000	6000	6000	6000	6000	6000	6000	6000	6000	6000	6000	6000	72000
Utility Cost and Rent	3500	3500	3500	3500	3500	3500	3500	3500	3500	3500	3500	3500	42000
Miscellaneous	1000	1000	1000	1000	1000	1000	1000	1000	1000	1000	1000	1000	12000
Net Income	1,500	2,160	2,855	3,586	4,356	5,166	6,019	6,917	7,862	8,856	9,902	11,002	147,514

Figure 5: Cash Flow Statement

The breakeven point can be identified from the cash flow. Vadrale and Katti (2018) explain that it is the point at which the company realizes the capital cost. In this case, Ikawa Café had incurred $16,500 to set up. Accordingly, from cumulating the net profits, the breakeven point is between the 5^th and 6^th month.

Figure 6: Balance Sheet for 1st Year

The value of the assets are funded by either the liabilities or equity. It is expected that the company’s assets will have accumulated to $159,514 by the end of the first year, with equity rising to $48,014 from the director’s equity of $8,250.

7.      Risks and Mitigating Them

Ikawa Café will be vulnerable to reputation risk during its operations. For instance, the reputation of the company can be ruined by such occurrences as inappropriate behavior by employees, which can reduce the number of customers and support from other stakeholders (Vig et al. 2017). One of the ways of countering the reputation risk is by engaging in public relations. Heath et al. (2018) indicate that the strategy can be applied in preventing the risk and building a reputation once a particular incidence happens. Overall, to maintain ethical standards, the company will train workers regularly on ethical issues to keep the rules instituted by the organization.

Ikawa Café can further be affected by economic risk, which is based on the hardships that can influence the purchasing power of current and potential customers (Galli 2018). For instance, some crises may arise, which can increase the cost of coffee berries, yet at the same time lead to decreased sales as people may not have sufficient disposable income. However, according to Riggs et al. (2017), such an issue can be solved by diversifying the company’s operations. For example, the company can start offering related drinks and capitalize on the broader food industry, leading to an increase in revenue. Moreover, the company can diversify to other sectors, indicating that any issue that is facing the coffee industry will not affect its operations. In addition, the company should reserve part of its proceeds for times of crisis to avoid transferring the risk to the customers as a form of higher prices (Shad et al. 2019). Since coffee is a commodity whose value changes with factors such as agricultural and transport costs, Ikawa Café can hedge against significant increases in coffee prices.

The organization is prone to compliance risk, which exists after regulations are instituted by the government to safeguard the interests of various stakeholders. For instance, the food industry is quite regulated to maintain healthy conditions during the process of manufacturing (Kotsanopoulos & Arvanitoyannis 2017). Although some new circumstances may arise, which are unique to the organization, a lack of compliance can lead to suspension of licenses, closure of businesses, or penalties (Wu & van Rooij 2019). Hence, the company can cushion itself against such risks by keeping updated about the current developments in the industry.

Operational risks can affect Ikawa Café to some extent. For instance, a natural disaster can destroy the premise, necessitating the closure of the business. In addition, given that the organization has online operations, it is vulnerable to cyber attacks, in which funds can be sourced from the apps and online payment methods (McKim 2017). Customer data can also be accessed and maliciously used by hackers. Overall, the company will ensure that the systems are monitored to enhance security as well as engage backup systems to protect data.

Competition risk occurs once an organization is comfortable in its position. For instance, Ikawa Café can acquire a large market in the region and substantially grow its revenue and capital. Kenton (2016) observes that an organization might not be observant about changes occurring in the industry until it is overtaken by competitors to realize that changes in tastes and preferences had occurred. Therefore, Ikawa Café can manage such a risk by making continuous improvements in its coffee production and service (Rehman & Anwar 2019). Overall, the company must maintain a constructive interaction with the customers and stakeholders to remain profitable.

8.      Reference List

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