CASE ANALYSIS

Life is short. Follow your dreams.

Executive Summary

Mr. Prem Vellaiyan, having taken an inspirational decision in his life to pursue his dream
opened a café in the name of Steamy Mugs in March 2016. The café is located in a strategic
location in Tilak Nagar – near a playground and within 1.5 km from Somaiya Vidyavihar. It
attracts customers of all backgrounds, be it students or professionals. Attracting customers
to the café was difficult to begin with. From selling around 120 cups six months after the
inauguration of the café, it has grown to selling around 260 cups in both hot and cold
beverages. The venture took almost a year to become profitable. The bestselling product at
the café is Masala Chai. The USP of the café is its decent ambience and pocket friendly prices.
The interior is beautifully designed keeping youngsters in mind. The walls are stacked with
books for the avid readers.

Mr. Prem is looking to expand the café and open one, if not two cafés in the next year and a
half.

Market Analysis

According to TechSci Research report, “India Coffee Shops/Cafés Market Forecast, Consumer
Survey and Opportunities, 2021”, coffee shops market in India is expected to grow at a CAGR
of 11% during 2016-2011. This increase can be attributed to the changing lifestyles of the
customers. More than the urge to have a cup of coffee, it is the willingness of the customer
to spend some quality time with their loved ones.

The big brands such as Starbucks, café Coffee Day and Chaayos are quick to understand this
trend. According to a recent article in Economic Times, Chaayos is planning to double its store
count from 37 to 75 in a span of just six months. It targets to open 25 new stores in Mumbai
alone in 2016-17.

That being said, in order to avail the services of the big brands, a customer needs to shell out
around Rs.500-600 for two. The customer is always in search of places which can prove to be
a bang for the buck. Hence, expanding in the case of Steamy Mugs, in terms of market
attractiveness is a good move.

Consumer Preferences

 Choice of Beverage
As per a study conducted by Ms Divya Khanna on consumer perception towards tea
and coffee bars in Delhi NCR it can be said that major population prefer tea over
coffee.

 Ambience
The first thing that customers come across is the store’s ambience. T o
further brighten the atmosphere of the cafés, there has been a
 g r e a t e r t h r u s t o n providing more value added services such as video
juke boxes, cozy sofa seating, and exciting round the year promotions.

 Music
The music should not be too loud it should encourage conversation, and the person
behind the counter should be non-intrusive and friendly

 Arrangement of Seats
The seats are arranged in such a way so that some privacy is ensured to
the customers as most customers come there to discuss business or to relax and
chat.

Current Customer Sentiment Analysis

We tried to do a kind of sentiment analysis of the current customers of the café. We followed
the reviews onty Facebook and Zomato as the major basis for the analysis. Steamy Mugs is
rated a whooping 4.9/5 on Facebook and 4.3/5. The current customers seem to be very happy
with the current services of the café. A huge majority of the reviews are positive on zomato,
however, some negative reviews if there are, have been defended by the loyal customers of
the café.

Pain points of current customers

The café is serving its customers well. It was very encouraging to see Mr. Prem respond to a
majority of the reviews on social media. That being said, customers have mentioned some
pain points which are worth highlighting.

1. Space constraint in the current café.

Expansion Scenarios

We are going to suggest two scenarios. The application of either one would depend on Mr.
Prem’s rationale behind expanding the business.

1. Open a new bigger, better café near the current one, and shut the current one

A major concern in the current customers is the lack of space in the café. To tackle this
problem, we would like to suggest that Mr. Prem open a new, bigger and better café
in Tilak Nagar and shut the current shop.

2. Open a new café at some distance from the current location and keep the current
one operational as well.
One of the major POD of Steamy Mugs is the proprietor Mr. Prem Vellaiyan’s ability
to instantly connect with his customers which gives them a sense of belongingness
and replicating the same level of customer satisfaction at two stores simultaneously
can be a major challenge.
Implications

Refernces

1. https://www.techsciresearch.com/report/india-coffee-shops-caf%C3%A9s-market-
forecast-consumer-survey-and-opportunities-2021/601.html
2. Book- Coffee Retailing The Refreshing Brew
3. https://www.99acres.com/shop-for-rent-lease-in-chembur-mumbai-harbour-375-sq-
ft-to-500-sq-ft-r18-spid-S13649493

Assumptions:
One month rent is the security deposit.
Rent has been extrapolated for a 500 sq.ft property by finding out rent for 1500 sq.ft size
property through the internet in the vicinity.
Assuming 10% growth in sales per month
Revenue from food has been assumed to be 50% of combined total of Hot & Cold
Beverages assuming that half of the customers order food
Direct Cost has been assumed to be 50% of the revenue of each product
Electricity cost was calculated according to the data given in our source & a 10%
growth in the cost was assumed

Staff Cost was again calculated as per the data given in our source
Depreciation is 20% of Equipment & Machinery
Initial demand in Case 1 will be equal to the current demand
Whole menu has been averaged into hot & cold beverages and food items
Increase in all the values of Investments in scenario 2 compared to scenario 1 has
been done on the basis of an increase in total shop floor area from 500 sqft to 750
sqft,assuming the current store to be of 250 sqft.

Month Wise Plan Month 1 Month 2 Month 3 Month 4 Month 5 Month 6

Net Sales Revenue
Hot beverages 301800 331980 365178 401695.8 441865.4 486051.9
Cold Beverages 265544 292098.4 321308.2 353439.06 388783 427661.3
Food 283672 312039.2 343243.1 377567.43 415324.2 456856.6
Total 851016 936117.6 1029729 1132702.3 1245973 1370570

Direct Cost
Hot beverages 150900 165990 182589 200847.9 220932.7 243026
Cold Beverages 132772 146049.2 160654.1 176719.53 194391.5 213830.6
Food 141836 156019.6 171621.6 188783.72 207662.1 228428.3
Electricity 36000 39600 43560 47916 52707.6 57978.36
Total Direct Cost 461508 507658.8 558424.7 614267.15 675693.9 743263.2

Contribution 389508 428458.8 471304.68 518435.148 570278.663 627306.529

Fixed Cost
Rent 75000 75000 75000 75000 75000 75000
Labor & Staff 96000 105600 116160 127776 140553.6 154609
Maintenance 3600 3960 4356 4791.6 5270.76 5797.836
Office Expense 14400 15840 17424 19166.4 21083.04 23191.34
Inventory Carrying Cost 2023.2 2023.2 2023.2 2023.2 2023.2 2023.2
Depreciation @ 20% 30000 30000 30000 30000 30000 30000
Décor Depreciation @
15% 72000 72000 72000 72000 72000 72000
Marketing & Promotions 20000 30000 40000 50000 60000 60000
Total Fixed Costs 313023.2 334423.2 356963.2 380757.2 405930.6 422621.3

Net Profits 76484.8 94035.6 114341.48 137677.948 164348.063 204685.189

Pay-back Calculation
- -
Scenario 1 -491,615 397579.6 283238.1 -145560.2 18787.89 223473.1
- - -
Scenario 2 934635.2 840599.6 726258.1 -588580.2 -424232.1 -219546.9
 Pay-Back Forecast
(Operating Current Store and Opening New Store)
600000
400000
200000
0
-200000
-400000
-600000
-800000
-1000000
-1200000
1 2 3 4 5 6 7 8 9 10

Pay-Back Forecast Lower Confidence Bound Upper Confidence Bound

Figures Figures
Investments (Scenario (Scenario
1) 2)
Deposit(500
60,000 60,000
sq.ft)
Décor &
240000 480000
Furniture
Equipment &
75000 150000
Machinery

Legal Expenses
50,000 50,000
& Taxes

Coffee stock
8100 16200
(roasted beans)

Syrups stock 20000 40000

Menu cards 15000 30000

Awnings,boards 50000 100000

Bill
50000 100000
books,stationery

TOTAL 568,100 1,026,200