SOLUTION: Coffee Shops UK Ltd (CSUK) is a nationwide chain of cafés and restaurants. It has 200 outlets of which 120 are coffee shops and bars 40 are ice cream parlours and 40 are franchise outlets at railway stations across the country. Eleanor Young and Julia Richards founded CSUK 10 years ago. As an alternative to Starbucks CSUK immediately took off. People liked the fact that it was a domestic UK company and that Eleanor and Julia were ‘new entrepreneurs’. They opened their first coffee shop in Northampton, which gained them an immediate presence and recognition, not least because it was not a London venture. Six other coffee shops followed soon afterwards, all in the Midlands, and soon everyone knew who they were. Then, in the early part of the 21st century, Young and Richards secured additional backing through an appearance on Dragon’s Den, the UK business venture TV series, which gave them the opportunity to buy up premises in 40 towns, including central London. Young and Richards chose to use the opportunity to pursue the twin strategies of consolidation and diversification. A substantial strategic and well-ordered marketing, promotional and PR campaign centred on the coffee shops supported the consolidation. Richards used some of the money secured from the Dragon’s Den appearance to research diversification opportunities, such as in railway station catering and ice cream parlours. The initial findings of the diversification inquiries were disquieting. After all, railway station catering had a dreadful reputation for serving overpriced bad food and drinks in dingy, dirty and often downright dangerous surroundings. This, stated Richards, was what would give CSUK its entry and its advantage. The stations would be carefully selected, and if they concentrated on network meeting points, junctions and crossovers, they could build a substantial and valuable – and profitable – niche. And so it had proved. The railway station franchises now brought in over 40% of turnover and 70% of profit (see table) Committing to the ice cream venture had been less certain. The data gathered had shown that there was indeed a substantial and underserved market for good quality ice cream and other summer products (cold drinks, iced coffees) at medium prices. Ice cream products at existing outlets were either very good but expensive, or else the products were poor and overpriced, especially in central London and other main tourist traps. SOLUTION: Coffee Shops UK Ltd (CSUK) is a Nationwide Chain of Cafés and Restaurants
Case study questions
1 How would you evaluate Coffee Shops UK Ltd’s progress to date? What financial tools market and environmental analyses are appropriate in this case and why?,
2 How would you choose and select future strategies for this company and assess them for acceptability feasibility and suitability?,
3 What is the difference between organic and non-organic growth? What are some example of the different directions companies can take?
Moreover, CSUK’s Dragon’s Den backer had questioned the line of approach or the need to open a chain of ice cream parlours. Even if there was a market, the backer reasoned that this could be served by expanding the product range at the coffee shop outlets; or, if they were to open new outlets, why not open them as CSUK outlets with the full range of products, and so be able to sell everything under the one roof. If the ice cream and cold products were indeed good value and in demand, people would in any case come and buy them. There would also be the problem that if people wanting the ice cream and cold products could not get them from the main CSUK stores, then they may actually gain an adverse or negative reputation – a reputation for not having what people wanted. Young and Richards debated the ice cream venture long and hard. Eventually, they decided to go ahead, and they opened their first ice cream parlours in central London, Edinburgh, Cardiff and Stratford-upon-Avon. They were immediately very popular and successful doing exactly what they promised, which was to provide good quality ice cream and cold products at reasonable prices. Surveys showed that they were regarded as the best value of any of the equivalent companies, products and services, and better value than iced coffee and other cold products from Starbucks and Coffee Republic. Accordingly, a total of 36 further ice cream parlours were opened, in popular tourist and seaside towns. This year 27 29 4.2 CSUK: key financial data Activity (£ million) Last year Coffee shops and bars Turnover Profit Railway franchises Turnover 14 Profit 4 Ice cream parlours Turnover 0.6 Profit 0.09 20 11 0.9 As shown in the table above, the ice cream venture was immediately successful in its own terms, at least as a niche range of products and services. It demonstrably operated as a marginal service and range of outlets, generating operating profits of 45% of turnover by last year. Having established successful ventures in each of the three areas of business, Young and Richards now sat down with their Dragon’s Den backer to evaluate progress to date, and to determine how to develop the next phase of the business life of CSUK.