Manila Science High School Taft Ave. Cor.

Padre Faura Ermita, Manila

Diuretic Delights: Delight in Every Cup A Feasibility Study

Submitted by: Cleto, Arianne Kim L. Concepcion, Jemah G. Espinas, Mary Angel Z. Laurenciano, Krislyn V. Legaspi, Elijah C. Pedales, Ronniel C.

A. Foreword

Coffee is one of the most consumed beverages in the world. It contains caffeine, which acts as stimulant, and college students cant seem to get enough of it especially if we plan to stay up all night to study. A good coffee break in the afternoon also helps us re-boost our energy. Not all people are blessed with the money to dish out P200 for Starbucks and the 3 in 1 coffee gets bland if you keep having it. Fortunately, a group of BA students opened CAPPACOPEE, a coffee shop at the new Law and Business Building. Their brew has the taste of Starbucks but half the price, according to Diza Rose Ong. Ong heads the group of students that created the shop out of their thesis. The retail specialty coffee industry is unique in that it attracts as many admirers of the product (coffee fanatics) as it does those who are looking for a lucrative business investment, probably more. It is human nature to focus on those things that are of greatest personal interest to us, and in the case of the coffee fanatic that is all things coffee! So, for the good of your business, I ask you to put down that glossy espresso machine product brochure and step away from those roasted coffee samples and the tiny single serving bottles of flavoring syrups. Lets spend the next few moments talking about something even more important than the product, the critical business issues that will define your retail coffee business - I promise that it will be worth your time and that you can go back to the taste testing when were done. As the costs of opening a restaurant and running it profitably continue to climb, restaurateurs need to be as certain as possible that the kind of operation they envision has legitimate potential for success at a particular site. One way to find out is by conducting a feasibility study. More than a sitelocation study, this approach involves gathering and analyzing a great deal of information, from demographics to design, which helps operators make a better-informed decision about the potential success of a specific restaurant concept at a certain location.

Obtaining the information is relatively easy, but turning it into conclusions about the site and restaurant concept is a much more difficult task. A restaurateurs judgment, personality and standards of excellence can make an enormous difference in whether a restaurant sinks or swims, and all of those qualities are difficult to measure. For this reason, an operators skill and creativity are essential to making good use of the procedures described in this handbook. The focus of this observation research is general coffee shop behavior. Two main reasons caused the group to arrive at this topic: first, the members' shared passion for coffee and the coffee experience; second, the practicality that can be afforded since some members are working on a coffeeoriented business for their BA 129 feasibility study. Coffee shop behavior is something that can be readily observed and it occurs within a short time interval so that research by observation is viable.

Since Starbucks is the unquestionable leader in the industry, it was decided that the behavior in its stores be the focus of observations. However, the group also recognizes that other industry players are also quite significant, thus the choice to expand observations into three other popular coffee chains Seattle's Best Coffee, Coffee Bean & Tea Leaf, and the Filipino-owned Figaro Coffee, while Starbucks remained the point of reference for many observations and descriptions.

b. Objective of the project The main goal of the project is to create a coffee shop that provides optimum quality coffee made of premium quality coffee beans from the Cagayan Valley. Our primary goals over the next year are: 1. Secure financing for start-up of at least P1,000,000 for space and equipment. 2. Renovate our space in Taft Avenue Manila. 3. Acquire equipment necessary for business, i.e. coffee pots, cappuccino machines, blenders, etc. 4. Make agreement with coffee distributors, and bakery vendors.

5. Create a cozy, artist friendly environment (i.e. choice of colors, choice of music, dcor) 6. Open for business and become the foremost coffeehouse in the area. C. Scope and Limitation The market study will involve and only involve marketing strategies that will enable the owners to establish a coffee and pastry shop in Taft Avenue, Ermita Manila that is open to the public and entertains students in the area, office workers, and other workers in the vicinity of the coffee shop. This market study will not involve the study of the business in regards to franchising.

D. Marketing Study The target market of the Diuretic Delights are the students, office workers and other people in the vicinity of the area. Description of Key Competitors Key competitors in the area are Starbucks in Robinson's place Manila and The Bakery in UN Avenue in the same vicinity. Analysis of Competitive Position Our pricing strategy and comfortable atmosphere will be the key to our success. None of the other shops in the area can offer this. Pricing Strategy We will offer three sizes of drinks, small P25, medium P35 and large P50.00. Pastry products would be of prices that depend on the price of their ingredients; ranging from P10.00 to P50.00. Non-dairy products and non-pastry products such as bottled water, juices, and softdrinks would be priced accordingly.

Promotion Strategy We intend to advertise in the local newspapers and offer a "frequent drinkers club" discount to our best customers. We will also send out ads via direct mail, which will include cents off coupons. There would also be a website for added promotion of the store. Management and Staffing Organizational Structure Our organizational structure will be a simple pyramid style with the owners putting in as much work as the employees. Management Team Management would be shared equally by the shareholders of the shop. Staffing We will hire two busboys and two waitresses, these will be recruited from the local schools. Labor Market Issues In this area there are many high school students looking for work, part time or full time, we want to fill that need. Regulatory Issues Proper business permits would be taken and would be issued unto us. Monthly regulation of prices and sanitary measures should take hold. Risks Market Risks The main risk is monetary. The area may not be ready for a place like ours and we may not do a great business. Strengths: Demand: The demand for coffee shops and quality products at competitive prices is enormous

in the Heathrow airport as identified by Michael Peacock (2005)[2]. This is mainly because of the increasing number of passengers to the airport, which has not only increased the customer base but also accelerated the construction of Terminal 5 at the Heathrow airport. Customer base: The customer base which is the main element whilst determining the target market as argued by Gerry Johnson and Kevan Scholes (2003)[3] is enormous in the Heathrow airport terminals. This is not only from the side of the passengers who arrive or depart from the airport but also because of the increase in the visitors who accompany the passengers as argued by David Jinks (2004)[4] Location: The location factor as argued by Laurence Mathew (2005)[5] is a critical element for strategic positioning of an organization in the target market. The fact that the Heathrow airport is of international importance and a shop located there can attract customers from both the national and international market makes the location factor as a key strength for setting-up a coffee shop in the airport. Weaknesses:

Volatile customer base: The major weakness is the volatile nature of the customer base in the airport. The fact that even though the customer potential in the Heathrow airport is vast, but ever changing due to the nature of the business in the airport makes the customer potential as a critical weakness as much as it is argued as a strength. Since this is an apparent factor for any shop in the airport, the weakness is oblivious in nature. Seasonal business: Another important factor that needs to be considered is that the airport caters high level of customers during the periods of holiday making whilst supports only the business travellers at other times. This makes it clear that the business for the coffee shop is seasonal in nature. Opportunities:

Differentiation by Pricing: the demand for quality products at competitive pricing is an increasing demand at the Heathrow airport especially from the customers visiting from the far east of the world as argued by Laurence Mathew (2005). This demand can1 be harnessed by the coffee shop through providing value-added services and quality products at competitive prices. The financial analysis in the next section will provide a deeper insight on the pricing of the products. Diverse Target market: The diversity in the market which is merely due to the diversity in the passengers to the airport provides an effective method of attracting a niche market or more than one segment of the market with customised products whilst providing a base line of product range to meet the overall demand of the customers. Promotion through embracing culture: The fact that the airport caters visitors from difference culture makes it clear that the coffee shop can attract customers through embracing its promotions reflecting upon specific culture. This even though might appear niche marketing, is actually a successful method of reaching the wider market where the visitors would appreciate the innovation in the promotion as argued by Laurence Mathew (2005).

Implementation Plan Implementation Activities and Dates 1. Begin building renovation 01-02-10 2. Complete renovation 03-02-10 3. Begin preliminary advertising 04-02-10 4. Purchase and setup equipment 04-12-10 5. Open for business 05-02-10

E. Floor Plan F. Financial Studies

4.0 Financials, Budgets, and Forecasts The marketing plan is built on these truths: The marketing budget is based on a percentage of sales value. Currently, that value is set at 20%. Building a strong brand and brand loyalty is critical to the success of Diuretic Delights. Marketing is a critical component of the Diuretic Delights business plan. The relationship between marketing dollars spent and revenues generated is positive only to a certain point. We don't feel that a marketing budget based on 20% of sales is close to that point where

additional marketing dollars spent won't create additional revenue. If we can manage, we plan to spend more than 20% of sales on marketing in future years. However, we want to keep this relationship in mind as we consider spending more on marketing efforts. Our understanding of the need for strong branding and emphasis on marketing gives us a competitive edge over other cafes in our area and potential competitors.

4.1 Break-even Analysis Diuretic Delights is operating in an industry capable of supporting high gross margins. Variable costs in relationship to per-unit revenues are low. Variable costs are equal to roughly 25% of per-units revenues. It is our hope that as we move into the future and continue to build relationships with our suppliers, this value will decrease further, approaching a value of 20%. Fixed costs for Diuretic Delights equal almost P7,500. Fixed costs include: payment of debt, facility lease costs, hardware costs, and other costs Diuretic Delights must maintain on a monthly basis. These costs are fixed and aren't impacted by an increase or a decrease in sales. Currently, Diuretic Delights will break even at a monthly sales point of P10,000.

Break-even Analysis Break-even Analysis

Monthly even

Units

Break986

2,

Monthly Revenue Breakeven

P 10,002

Assumptions: Average Revenue Average Variable Cost Estimated Monthly Fixed Cost 7,500 Per-Unit 0.84 P Per-Unit 3.35 P P

4.2 Sales Forecast Revenues for the first year of operation are based on an almost 10% growth rate from month to month. This is an aggressive estimate, but we feel that our strong emphasis on marketing will have positive results. Annually, beyond the first year of operations, we're predicting a growth rate of roughly 10%. We'll have a better idea of potential growth rate beyond year one as we make our way through our first year. The plan will be updated as we receive more information.

Sales Forecast

Sales Forecast 20 01 Unit Sales 16, Coffee (based on average) 230 Specialty Drinks (based on average) E-mail Memberships 173 60, Hourly Internet Fees 255 Baked average) Other Total Unit Sales 2,564 7,820 4,602 3,062 3,368 Goods (based on 777 0 15 54, 255 0 16 280 60, 280 0 18 908 66, 908 0 20 199 72, 199 0 22 219 80, 390 66, 729 72, 202 80, 822 88, 29 12, 9,1 042 13, 853 10, 047 14, 639 11, 151 16, 602 12, 366 17, 763 13, 17, 19, 21, 23, 02 20 03 20 04 20 05 20

20 Unit Prices 01 P1. Coffee (based on average) 00 Specialty Drinks (based on average) E-mail Memberships 0.00 Hourly Internet Fees P2. 0.00 00 P1 P2. 00 00 02

20 03 P1. 00 P2. 00 P1 0.00 P2.

20 04 P1. 00 P2. 00 P1 0.00 P2.

20 05 P1. 00 P2. 00 P1 0.00 P2.

20

P1.

P2.

P1

P2.

50 Baked average) Other 00 Goods (based on 25 P0. P1.

50 P1. 25 P0. 00

50 P1. 25 P0. 00

50 P1. 25 P0. 00

50 P1. 25 P0. 00

Sales P1 Coffee (based on average) 6,230 Specialty Drinks (based on average) E-mail Memberships 21,726 P1 Hourly Internet Fees 50,636 Baked average) Other Total Sales 75,323 12,855 54,141 99,555 49,510 Goods (based on 8,471 P0 P3 P6 5,318 P0 P4 65,700 P7 2,850 P0 P4 82,270 P8 1,135 P0 P4 00,497 P9 20,547 P1 00,248 P0 P5 33,899 P1 47,289 P1 62,018 P2 78,219 P2 8,259 P1 P1 0,085 P1 7,853 P2 2,093 P1 9,639 P2 4,303 P1 1,602 P2 6,733 P1 3,763 P2 P1 P1 P2 P2

20 Direct Unit Costs 01 P0. Coffee (based on average) 50 Specialty Drinks (based on average) 50 P2. 50 50 02

20 03 P0. 50 P2. 50

20 04 P0. 50 P2. 50

20 05 P0. 50 P2. 50

20

P0.

P2.

P0. E-mail Memberships 63 P0. Hourly Internet Fees 31 Baked average) Other 00 25 Goods (based on 00 P0. P0. 00 31 63

P0. 63 P0. 31 P0. 00 P0. 25

P0. 63 P0. 31 P0. 00 P0. 25

P0. 63 P0. 31 P0. 00 P0. 25

P0.

P0.

P0.

P0.

Direct Cost of Sales P8, Coffee (based on average) 115 Specialty Drinks (based on average) E-mail Memberships 669 P1 Hourly Internet Fees 8,679 Baked average) Other Subtotal Direct Cost of Sales 7,286 3,015 9,317 6,248 3,873 P0 P5 P0 P6 P0 P6 P0 P7 P0 P8 Goods (based on P0 P0 P0 P0 P0 0,547 2,601 4,862 7,348 436 P2 279 P2 0,207 P2 1,228 P2 2,824 P7, P2 5,106 P8, 927 P2 7,617 P9, 819 P2 0,378 P1 0,801 P3 3,416 P1 1,881 P3 P8, P9, P1 P1

4.3 Expense Forecast The marketing budget will consistently equal approximately 20% of sales. One of our strongest strengths is our marketing and brand building capabilities, and the aggressive marketing budget is a

reflection of the importance we attribute to our marketing activities. Currently, the marketing budget beyond year one remains set at 20% of sales. It is our hope to increase this budget should sales and efficiencies of scale allow us to do so. Explanation of Major Marketing Expenses: Local TV spots... In our first year of operations, we will spend P23,000 on TV spots. TV spots allow us to reach a large audience and effectively target our market. Print Materials... Print materials always require a significant budget. They include: flyers, literature distributed internally, novelties for customers, coupons, and anything else we can squeeze into this budget. Local Newspapers... An important part of our marketing efforts. Newspapers ads will give us a vehicle for consistently getting our message/brand in front of a large number of potential customers. We believe this vehicle will get our message to seniors, which make up a large portion of our target market. In addition, the business section will provide us with a means for communicating with our business customers. Local Radio Spots... These are an inexpensive way to secure a large number of daily impressions. Diuretic Delights Events... This will include local radio and TV events where radio and TV stations broadcast from the Diuretic Delights site offering freebies to first-time customers for stopping by. Diuretic Delights will also run educational programs and community events throughout the year. Customer Happiness Representative... This employee will monitor the level of happiness amongst Diuretic Delights customers. They will be responsible for: developing customer satisfaction programs, monitoring happiness levels, responding to customer concerns, and the general well being of every Diuretic Delights customer.

Marketing Expense Budget Marketing Expense Budget 2001 P23, Local TV Spots 000 P6,7 Print Materials 50 P3,3 Other 00 ----------Total Sales and Marketing Expenses Percent of Sales % % % % % 050 8.81 P33, 355 8.81 -----P36, 991 8.81 30 ----------P39, 990 8.81 93 ----------P43, 389 8.81 92 ----------P48, 32 -----25 P3,6 68 P3,9 84 P4,3 83 P4,8 300 P7,4 830 P8,1 613 P8,9 674 P9,8 2002 P25, 2003 P27, 2004 P30, 2005 P33,

4.4 Linking Sales and Expenses to Strategy Our marketing expenses are tied directly to our sales revenue. As sales increase, the marketing expenses will increase. Currently our marketing expenses equal roughly 20% of sales, and we hope to increase that value in the future. Our programs will be monitored for efficiency and return on investment. Most notably, we want to pay close attention to the value of the "Customer Happiness Representative." This component of our marketing budget is expensive, and we want to track the value of the program to make sure we're optimizing our budget. Periodically, we will survey our customers to determine the effectiveness of our programs, and we'll adjust the marketing mix appropriately based on our findings.

4.5 Contribution Margin The Contribution Margin chart and table presents a strong outlook for Diuretic Delights's first year of operations. Sales increase an average of 10% per month in the first year. Contribution margin runs at roughly 50%. The marketing budget is consistently based on 20% of total revenue. A strong focus on local TV and radio is apparent in the expense breakdown. The marketing budget is spread evenly throughout the year.

Contribution Margin Contribution Margin 2001 P375 Sales ,323 P57, Direct Cost of Sales 286 P3,0 Other Variable Costs of Sales 00 ----------P60, Total Cost of Sales 286 015 317 248 873 -----P66, 00 ----------P72, 00 ----------P79, 00 ----------P86, 00 -----015 P3,0 317 P3,0 248 P3,0 873 P3,0 ,855 P63, ,141 P69, ,555 P76, ,510 P83, 2002 P412 2003 P454 2004 P499 2005 P549

P315 Gross Margin ,036 83.9 Gross Margin % 4% 1% ,840

P346 ,824 84.0 8%

P381 ,306 84.0 4%

P420 ,637 84.1 9%

P462

84.1

Marketing Expense Budget Local TV Spots 000

2001 P23, 300 P6,7

2002 P25, 830 P7,4 25 68 P3,6 30 93 ---------------P36, 355 991 8.81 % %

2003 P27, 613 P8,1 84 P3,9 92 ----------P39, 990 8.81 %

2004 P30, 674 P8,9 83 P4,3 32 ----------P43, 389 8.81 %

2005 P33,

P9,8

Print Materials 50 P3,3 Other 00 ----------Total Sales and Marketing Expenses Percent of Sales % 050 8.81 P33, -----P4,8

P48,

8.81

P281 Contribution Margin ,986 75.1 Contribution Margin / Sales 3% 0% ,485

P310 ,833 75.2 7%

P341 ,317 75.2 3%

P376 ,249 75.3 9%

P414

75.3

G. Graphical Analysis Break-even Analysis

Sales Monthly

Monthly Expense Budget

Sales vs. Expenses Monthly

Contribution Margin Monthly H. Social Relevance

The business proposal will of course, be a big help to the Philippine economy through its paid taxes and revenues. Coffee is proven to be a good source antioxidants and is of many benefits to

people who drink it. The coffeehouse would be of help to students of the vicinity that will be hired. It would also provide a cheaper alternative to bigger markets of coffee. It would also be part of the rise of entrepreneurs in the metro. Because of the removal of the stalls in Manila Bay, the rise of the establishment may be of help to the rise of the entrepreneurial circle in the vicinity of Manila Bay.

I. Conclusions and Recommendations The market study of the feasibility of the rise of the coffee shop Diuretic Delights is in face feasible in every aspect. The only problem that the shop might face involves financial aspects. But with proper management and proper advertising, the shop would possibly give rise to a coffee shop that may exceed those foreign investor's and give the Philippine economy a boost. J. Acknowledgement The people behind the feasibility study would like to extend our gratitude to the following people: To ARENA INTERNET CAFE; for providing us the computers To our parents; for the financial and moral support To Emman Concina; for proving us the reference materials To Ms. Purificacion Jacob; for having the project done in ample time and for giving us the opportunity.

I. Index

The makers of this feasibility study would like to thank the following references:

http://www.essortment.com/career/samplecoffeesh_smct.htm http://www.buzzintown.com/hyderabad/venue_icfai-school-financial-studieshttp://www.google.com.ph http://www.wikipedia.com.ph http://www.ringsurf.com/online/2114-social.html -i