100.0% 90.0%
$250,000 80.0% 70.0% $200,000 60.0% $150,000 50.0% 40.0% $100,000 30.0% 20.0% $50,000 10.0% $0 Espresso Drinks Whole Beans Drip Coffee Pastries Blended Other Serveware Packaged Beverages Beverages Food/Tea Media Brewing Equipment 0.0%
Maximize
market penetration Provide a relaxing, attractive social atmosphere Offer high-quality products Create a great working environment Achieve profitability
– Fits within the largest segment of disposable income spending -- food and beverages – Steady growth in this segment in the 1990’s has led to an abundant number of new companies – As demand for convenience has made eating out a normal routine, the demand for specialty food services has increased in recent years

Industry Costs and Capital Structure
– Low to moderate costs for each location – Major start-up expenditures are property and equipment – Major operating costs are labor and cost of sales
The Frappuccinos
Site’s Operational Results (1998 FYTD – 11 Months)

Financial Operations
1998 Total Sales $760,576 COGS 242,593 C/M 517,983 Fixed Exp. 367,746 EBIT $150,237 1997 $796,688 262, 945 533,743 431,923 $101,820 % (4.5%) (7.7%) (3.0%) (14.9%) 47.6%
Hale Waihona Puke Store Manager
Assistant Manager
Shift Supervisors
Baristas
Baristas
Baristas
The Frappuccinos
Site 7-S Analysis

Staffing
– Location has one manager, an assistant manager and 16 partners – Benefits package includes health, dental, and vision care, stock options, free shift drinks, and a free pound of coffee each week – Raises are based on semi-annual performance evaluations with raises ranging from 0-5% – Bonuses are not utilized, but the location has given away non monetary rewards

Revenues $1,308.7 million Gross Margin 195.7 million Pre-tax Profit Margin 116.4 million Net Income 68.4 million Return-on-Assets 8.7% Return-on-Equity 11.0% Debt-to-Equity 0.04 12 mo. Revenue Growth 28.4%
The Frappuccinos
(% of Sales)
15% 8.9% 5.2%
Company Financial Performance (1998 FY)
30% 25% 20% 15% 10% 5% 0% -5% -10%
Net Profit Margin ROE ROA Debt/Equ 12-Mo Rev Growth
– No money spent on independent advertisement – Local entertainment budget underutilized The Frappuccinos
Volume of Sales vs. Contribution Margin %
$300,000
Industry
Starbucks
The Frappuccinos
Site Analysis
The Frappuccinos
Site Characteristics




Leased store located on Central Street in Wellesley Store has over 1,000 square feet of retail space and 1,000 square feet of office and storage space in the basement Second most profitable store in the fourteen store region Located one block away from Commuter Rail train station and in busy retail shopping area Only one direct competitor (Au Bon Pain) in the area
The Frappuccinos
Site 7-S Analysis

Structure
– Functional in structure and relatively flat – Corporate organization is tall with four levels of management above store management

- beverages - pastries - whole coffee beans - coffee-related retail items
The Frappuccinos
Industry Overview
The Frappuccinos
Industry Definition

Specialty Eatery Industry
Dollar Volume Sold
Product Contribution The Frappuccinos Margin %
Site 7-S Analysis
The Frappuccinos
Site 7-S Analysis

Strategy
– Store’s strategy is to create a comfortable Third Place environment – Serve customer a customized high-quality product – Achieve high level of profitability by focusing on high-margin items while generating add-on sales – Minimize overall expenses by focusing on controllable expenses
The Frappuccinos
Industry PEST Analysis

Political Influences
– Relationships between coffee producing nations and US – State & Local government controls

Economic Influences
– Constant demand for food and beverages – Changes in disposable income could influence purchase levels

Social Influences
– Consumer preferences could shift from coffee to other beverages
Opportunities
– Whole bean sales in supermarkets
Threats
– Lack of ownership of coffee farms can lead to price fluctuations
The Frappuccinos
Company Financial Performance (1998 FY)
Technological Influences
– Use of technology can improve operational efficiencies
The Frappuccinos
Company Overview