Content II. Environment Analysis & Internal resources to seek the PCSвЂ™s strategy I.Case Overview вЂўCoffee culture emerged in China вЂўCoffee consumption growth in China >10% вЂўPotential вЂўMany competitors: Starbucks Coffee, U.B.C. Coffeeв†‘ВҐ15,000 by 2% Year 2008 Shanghai Pudong вЂ”вЂ” ChinaвЂ™s financial and commercial hub Li Wang вЂ”вЂ” has limited business experience Beverages and Food вЂўLow sales growth Rate вЂўAt a loss in prior year в†“ВҐ46,010 by 142% II-1. External environment A Macro Environment (PESTпј‰ пѓ� Economical factors пѓ� Social factors B Industry Environment пѓ� Five forces model C Business environment пѓ�SWOT A. Macro environment (PESTпј‰ Economical factors Social factors Rapid economic growth Huge population Changes in the concept of drinking Shanghai Pudong вЂ”ChinaвЂ™s financial and commercial hub Coffee culture has emerged in China More foreigners and culture blending в�† As we can see the economic and social environment is favorable B. Five forces model В· Low switching costs В· Low capital investment В· Lack of marketing channel control пѓјBarriers to entry the market -Comparatively high customer loyalty -The technology needed В· Many competitors В· High growth rate of industry В· Low conversion cost В· Barrier to exit is not so high В· similar products В· Similar prices В· Low switching costs В· Alternative suppliers В· High demands in the market Not mentioned in the case в�†Competition situation is serious C.SWOT Analysis Strength пѓ�Superior geographical position пѓ�Steady source of customers Weakness пѓ�Limited business experience пѓ�Similar products пѓ�Unskilled staff пѓ�Take-away sales пѓ�Online sales пѓ�High cost of sales Opportunity Threat пѓ�Coffee consumption in China is growing fast пѓ�market share is potential пѓ�new market segmentation пѓ�Potential customers пѓ�Newcomers пѓ�price war II-2. Internal resources Tangible resources Intangible assets вЂўFixed assetsпјљFurniture and fittings вЂўA very good reputation вЂўThe manager has a deep understanding of the European culture Financial status Debt paying ability Asset management ability Profitability вЂ”Year 2009 Liquidity ratio 1.17 Quick ratio 0.96 Asset-liability ratio 53% Equity ratio 112% Number of times interest earned -42% Inventory turnover 23 Asset turnover 1.05 Net profit ratio -1% Return on assets -2% Summary: Through the above analysis we suggest that the shop take the following strategy Overall strategy Intensive growth strategy Competitive strategy focused-differentiation strategy In the next page we use Balanced Scorecard to expatiate it III. Balanced Scorecard A strategic planning and management system Vision and strategy i. Learning and Growth Perspective Critical Success Factors Key Performance Indicators Working skills Manager/staff learning hours per year Corporate culture Personnel turnover rate Personnel management Time to fill vacancy Attractive Product The frequency of new product introduction вЂў Hold training programs regularly and set the least training hours per year вЂў Hold group activities regularly вЂў Manager/executive attend to executive education course irregularly вЂў Decision made by one person should be replaced with Brain Storm Suggestions ii.Internal Business Processes Perspective Critical Success Factors Excellent internal processes Key Performance Indicators The number of skilled staff Work efficiency вЂ“ average waiting time per customer Comfortable environment and atmosphere Customer retention rate Inventory management Inventory turnover вЂў Suggestions вЂў вЂў Replace some PTE with FTE Less than the Average by Refurbish the outlets to create a more comfortable environment 6% Introduce new products with Chinese Feature About 35% of other coffee shops provide wider product range to improve their business. iii. Customer Perspective Critical Success Factors Key Performance Indicators Qualified services Customer satisfaction/Number of customer complaints Customer loyalty Customer retention rate Attract new customers The new customers Nearlyobtained half of the вЂў Suggestions вЂў вЂў are between The market customers share 21-30Besides, years old, which is of about 30% consistent theshops age otherwith coffee of office workers increase advertising to improve their business. Set a suggestion box for customersвЂ™ complaints and encourage the adviser by coupon Develop membership - discounts. While, programs the customer base of the Vouchers.little gifts for special daysвЂ¦ PCS вЂ”вЂ” local professionals and expats Carry through questionnaire survey вЂў Attract the office workers nearby by developing вЂњtake-awayвЂќ & network business, which fulfill their needs вЂў Attract new customers by advertising and promotion such as distributing booklet and providing coupon iv. Financial Perspective Critical Success Factors Key Performance Indicators Keep the sales grow at a good rate Sales Grow Rate Control the operating cost of sales Gross Margin Rate Keep the cash flow reasonably and make good use of the surplus Overall cash flow Investment Return Rate Suggestions вЂў Categorize the cost of sales by kind вЂў Enhance the bargain capacity with suppliers вЂў Consider the rationality of the assets depreciation policy вЂў Make investment in facilities and innovations etc. which can The revenue structure of create future value the Pudong Coffee Shop is quite different from others. To verify the specific reason for low GM, suggest to categorize the cost of sales by kind. Strategy mapвЂ” A tool for BSC A logical, step-by-step connection between strategic objectives Financial Customer Internal Business Processes Learning and Growth Develop our working skills Develop corporateDevelop our Improve strategy, cultural attitudes capacity governance and to work together decision making Improve internal Create the processes comfortable environment and atmosphere Deliver quality services to customers Provide particularly attractive products and services Promote the Pudong Coffee Shop brand Advocate with and Sustain the Attract new on behalf of customer loyalty customers customers Improve strategy, Develop Develop our governance and common attitudes capacity decision making to work together Develop our skills IV-1. Financial statements &Value evaluation Price в†‘3% Volume в†‘5% Volume в†‘5% General inflation в†‘4% Fixed General inflation в†‘4% Fixed Under the assumptions, the PCS will have a profit. IV-1. Financial statements - continued Assumptions: Inventory turnover rate Trade credit terms Same as Year 2009 IV-1. Financial statements - continued Loss в†“ Cash flow ??? Assumptions: No investing or additional financing activities As the depreciation cost is prepaid when fixed assets were purchased. IV-2. Break-even point Analysis Variable cost Cost of sales Depreciation of tangible assets Wages and remuneration Rental Cost Mixed cost Utilities (lighting and heating etc.) Garbage collection Advertising and promotions Analysis Fixed cost Assumptionsпјљ пј€1пј‰Average spend per person is 50. пј€2пј‰consider the mixed cost as fixed cost 2009 BEP=(420,000+500,000+23,710)/50=18,875 2010 BEP=(458,640+508,720+20,066)/50=17,715 IV-3. The overall valuation of the coffee shop Assumptions: вЂў As the consumption market in China was expanding at a rate excess of 10 percent per annum, we assume that the sales growth rate is 10%. вЂў Because the growth rate is 10% which is really high for a business, we divide the life span of the coffee shop into two related periods, within which, one is of high growth rate and the other is called the follow-up. вЂў In the follow-up period, according to the competitive equilibrium theory, the growth rate of sales roughly equal to the nominal growth rate of macroeconomic, which is between 2%~6%. As China is highly developing, we assume that rate is 6%. вЂўWe assume that Li be able to borrow the loan with the same interest rate . вЂў We assume that the growth of sales is smooth. вЂў Then we use the EVA method to value the shop. вЂў Let the cost of equity equals the rate of net profit to equity. IV-3. The overall valuation of the coffee shop requity =net operation profit after tax/ Equity =38,435 /438,656=8.76% rwacc пЂЅ rdebt D пЂ« requity E V V =7%Г—180,779 /( 180,779 +438,656)+ 8.76% Г—438,656/( 180,779 +438,656пј‰ =8.25% EVA (Economic Value Added )=net operation profit after tax-total capital cost =38,435-438,656Г—8.25%=2,245.88 The value of the coffee shop =Investment Capital +The Present Value of EVA =681,000+ 2,245.88 /(1+8.25%)+ 2,245.88 Г—1.1/(1+8.25%) ^2+ 2,245.88 Г—1.1^2/(1+8.25%)^3+ 2,245.88 Г—1.1 ^3/(1+8.25%)^4+ 2,245.88 Г—1.1^4/(1+8.25%)^5+ 2,245.88 Г— 1.1^5/[(8.25%-6%) Г—(1+8.25%)^5] = 799,864.8 V. Overall Summary Urgent Task Survival Action NOW! Take the suggestions to obtain a profit & look forward to the future!