Mar 30, 2019 i

OPENING A COFFEE SHOP IN KOREA

An assignment submitted in partial fulfilment of the

Course

Communicating Critical Decisions (CCD)

Submitted to
xxx

Submitted by
xxx

On
Mar 30, 2019
 Mar 30, 2019 ii

Deepak A Jacob

Consultant

Mr. Kim and Mr. Andes,

Subject: Opening a coffee shop in Korea - Analysis on the future course of actions

Sirs,

For opening a coffee shop in Korea, this report provides a recommendation on what course of

action to be taken. The relevant facts are collected and post analysis, the final recommendation is

made. This could assist you in reaching a final decision.

Keeping the growth opportunities, current scenario, profitability and risks, it is recommended that

this option, best suits your entrepreneurship goals.

Yours truly,
 Mar 30, 2019 iii
Executive Summary

Mr. M G Kim and Mr Andes are teachers at “Kyungpook National University, Daegu, South

Korea. They teach business courses and aspire to open a coffee shop in Korea. Mr Kim, a Korean

native, did his PHD in US and has tremendous business management knowledge. Mr Andes is a

retired entrepreneur, and he aims to invest in this new business.

The recommendation is not to take a franchisee but set up an independent self-managed coffee

shop which differentiates itself from others by using new services. The owners should make use

of their connections with the university to ensure profitability from the very beginning.

Number of words: 103

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CONTENTS

LETTER OF TRANSMITTAL…………………………………………………......ii

EXECUTIVE SUMMARY…......…………………………………………………. iii

SITUATION ANALYSIS…………………………….……………………………1

THE PROBLEM STATEMENT…………………………………………………....2

ALTERNATIVES…………………...........................................................................3

CRITERIA FOR EVALUATION...............................................................................3

EVALUATION OF OPTIONS……………………………………………………...4

1) Branding – Franchising route: …………….……………………4

2) Independent self-managed Coffee shop: ……………………….4

THE RECOMMENDATION………………………………………………………..5

ACTION PLAN……………………………………………………………………. ..6

CONTINGENCY PLAN……………………………………………………………..6
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Situation Analysis

Strengths

Mr M G Kim is a Korean naïve who has studied in the US. He teaches Business Management in

KN University. He understands the culture and the market well. Mr Andes is a retired

Entrepreneur, who has investing capability. He too, teaches business management courses at KN

University. What connects them both is their plan to start a Coffee shop business. M G Kim’s

business knowledge and understanding of the market and Andes’ experience in starting up

businesses make them an ideal business pair. Both of them are teaching at KN University and they

could make use of this connection to set up the Coffee place easily and to get the initial momentum

going. M G Kim and Andes understand the western style and has insight to imbibe the same to the

new venture. Moreover, they understand the competition, it the likes of Starbucks well.

Weaknesses

M G Kim and Andes cannot put 100% of their efforts in this business. Both of them are working

professionals and this could prove to be this biggest challenge. Though M G Kim has immense

knowledge in business, he has never setup one before, and Andes has not done this in Korea, this

could lead to improper management of hurdles in the future. Andes’ citizenship could also be an

issue and lead to questions like whether he can get into food business, whether he can get into

partnership with a Korean citizen etc.

Opportunities

Coffee is very important to Koreans. And hence, coffee shops are too. Coffee shops could be

places where even non coffee lovers would love to visit. After home, then office, these people

would want to go to a coffee shop to relax. Hence, the market is huge. There aren’t many entry
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barriers for this business and the capital required is less. Koreans are known for their customer

loyalty and this could lead to designing more products like subscriptions, loyalty cards etc. There

is also lack of coffee shops in the market, as told by the student. A new coffee shop inside or close

to the university could drive in lots of customers. The per capita income is increasing and people

do not mind eating out. All these are opportunities which are to be targeted.

Threats

As presented in the opportunities, Korean customers are loyal to their existing coffee shops. And

the market already has the presence of coffee powerhouses like Starbucks. The first obstacle will

be to woo the consumers to the new coffee shop. And the company should also have an action plan

on how to handle new entrants in its vicinity. As told in the case, pricing could be an issue.

Customers want to spend very less on a coffee shop and the margins would be thin. In this stage,

the business also does not have a differentiator which will drive customers in.

The Problem Statement

To move from the current state to the desired state, various methods to enter the business should

be evaluated. And this would influence the profitability of the business. could only be achieved by

Hence the problem statement for Kim and Andes is “What should be the mode of entry?”.

Option 1: Brand driven -franchise model

Option 2: Self- managed coffee shop which differentiates itself from competitors

Desired State: Opening a coffee shop which will drive in customers and hence, be profitable

Current State: Lack of a proper plan in how to setup the business

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Alternatives

(1) Branding – Franchising route.

1.1 Location: On campus

1.2 Locations: Outside campus

(2) Open a self-managed shop which differentiates itself from competitors

2.1 Location: On campus

2.2 Location: Outside campus

Criteria for Evaluation

Following are the criteria based on which evaluation has been conducted:

(1) Profitability

(2) Ease of business

(3) Sustainability

(4) Ease of customer acquisition

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Evaluation of Options

(1) Branding – Franchising route: Franchising model is the easy way to start up the coffee

shop. Opportunities are plenty as Korea is a growing market. But the cost of acquiring a

franchisee will be too high and the thin margins might not be enough to ensure profit from

the beginning. Moreover, they will not be able to control the operations, menu etc. There

will not be any creativity. They will not be able to use their influence in campus and this

business can be done by anyone with enough capital. And it does not matter if this is done

inside campus or outside.

(2) Open a self-managed shop which differentiates itself from competitors:

Though M G Kim and Andes do not have any experience in the business, they can come

with their own version. The capital needed will be low, they can use their creativity, the

can even conduct surveys among the students to know what they want or what is missing

in the market. The key is to find a differentiator which cannot be easily copied by the

competitors.

On the campus or outside: Opening in campus will give them plenty advantages like

tapping into the trust of students and resident faculties. The cost will be low, so will be

the threat of competitors. But they will be missing out on the opportunity of bigger

revenue, if they open outside. The shop should be opened at a place which would attract

all the students and faculties and the customers outside too. Few of the differentiators

could be providing English newspapers/books, coffee subscriptions etc.

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Recommendation

As per the case analysis, Mr M G Kim and Mr Andes are recommended to Open a self-managed

shop which differentiates itself from competitors. The advantages are low cost, easy

management, and easy customer acquisition.

Action Plan

 KN University should be reached out to before the plan is initiated. This will cancel out

any future problems.

 The opening will make or break the business. Hence all students, faculties and residents

should be informed about this. They should also be told about the importance of a local

business.

 The differentiator should be marketed prior to opening of the coffee shop.

 If this business is a success, they can even think of expanding to other universities.

Contingency Plan

 As of now, there are no coffee shops nearby, after their success, competitors with

substantial money power could be interested. Say, Starbucks. To counter this, a plan has to

be formulated. On top of this, the differentiator should be designed in such a way that is

cannot be easily copied.

Number of words: 1072