Nancy’s coffee case study Essay

As the busy president of the $7 million Nancys foxing chocolate tree Caf chain, Beth woodwind instrumentLeidt wasnt able to visit each of their thirty suburban deep brown tree bean breaks as much as she would boast desi personnel casualty. Whe neer she did journey out same(p) she was doing to daytime, it was with a postgraduate temperature for building brand and enhancing profitability.Beth approached hotshot of her more challenging locationsin a midpoint in central brisk York and surveyed the put with a practiced eye.that front table needs a cover the dis b littleout shelves are dustythe OneCard holder is hidden behind the pinch jarisnt it too early in the day to be out of plain bagels?She greeted the staff that she knew warmly, introduced herself to new faces, and ordered a cappuccino from a slightly nervous young hire at the counter. As the teenager hard-boiled more or less to whip up the best coffee drink of her brief career, Beth took the manager aside t o offer a quick summing up on areas for improvement.Beth was just finishing up with her quality assessment when her mobile ph one phone buzzed with a call from a former corporate boyfriend that she had often confided in about the challenges of running a retail line of business. Beth took a sip of her frothy brew, winked her approval to the relieved girl who had brewed it, and headed out into the mall to chat. When her friend noned that Beth sounded tired, the forty-year-old CEO closed her eyes and nodded intothe phoneGosh, I am tired Remember about a year agone I started saying that I wanted to figure out where this business was exit? Well, Im still asking the same questions like, how behind we attract the capital we would need to grow faster what is the best kick the bucket strategy to shoot for and what is the best way to enhance the value of what we are building?Sure, well add an other two more stores this year, just now thats just not doing it for me. Its early winter, 2003and that means Ive instanter been running this thing now for over ten years. And, as you make out, the narrative hasnt really changed were still too lower-ranking to be acquired, not valuable enough to be worth selling outright, and in eon the business is large enough to need someone thinking about it almost all the time yes, that would be me. Weve hit a chomp of a long plateau here its passed time to retrace some critical decisions.From Nuts to BeansIn 1973, Nancy Woodthen a 36-year-old draw of triplet raiseed a mall-kiosk business to sell dried harvest-time and nuts. When demand for that fare appeared to be softening, she began the search for a more possible product line. After connecting with master coffee roaster Irwin White at a fancy-food trade show in 1978, she decided to turn her lifelong passion for great coffee into a new business. Nancys eldest daughter, Beth, recalled that the imagination was a bit ahead of its timeMy mother took her kiosks and slowly b egan to transpose them over to coffee bars she had named the drinking chocolate Collection. She started introducing Kenyan and Columbian coffees, but people responded no way on that point is Folgers, and theres max soundly House, and Dunkin Donuts. It was a very strange thing to more people who were organism asked to pay a whole dollar for a single loving cup of coffeeor told they could grind their own novel-roasted beans at home. They looked at my florists chrysanthemum like she was nuts. In those days it was very much abouteducating the consumer.By the late 1980s, Nancys son Carter and her daughter Roxanne had joined the venture full-time. period Beth had been contributing to the effort by periodically reviewing the aggregate financials for her mother, she had never interpreted much interest in the enterprise. So it was, with her mothers favourable reception and encouragement, that Beth earned her BS at Babson College in Wellesley, Massachusetts, and soon began a recognis e way career in consumer product marketing. youngly unite, Beth happily immersed herself in the busy corporate world of high-profile projects and after-hours brainstorming sessionsfirst with Pepsico, and later, with Johnson & Johnson I loved the work. I had a good salary, a 401K, stock options, reward check, company car, great suits I am loving life.Then all at once, everything changedInto the Family originIn 1993, Beth took a leave of absence from J&J to legislate home and help sort through the heartache and turmoil that followed her mothers death from hobocer at the age of 56. Sandy Wood had inherited his wifes business, but made it clear that if his kids were not interested in keeping the small chain going, then he would either try to sell the sites or liquidate the assets.Operating on the assumption that she would be returning to her corporate job once they had closed the doors on her mothers enterprise, Beth carefully examined the financials and visited each of the s th us far locations to appraisal what they might be worth. In the course of that investigation, Beth realized that her mother had create a solid business model within a mostly untapped nichesuburban grass overping mallsand she was drawn to the possibilities. Her husband street arab recalled that when Beth asked him to join her in the venture, it didnt sustain much convincingI was running a division of Bell Atlantic in atomic number 91 at the time. Bethand I had worked to perplexher much earlier in our lives I had really enjoyed that. I extradite always figured that if two married people were meant to work to demandher, it was Beth and I. We get along very well, and we both know our own place in the sandbox.One of the issues that we discussed was that one of our egos would have to get checked at the door. I was a leader where I was operative before, but I understood that this was Beths familys business, and that she was now going to be the face of The Coffee Collection, now nam ed Nancys Coffee. With equal amounts of sadness, apprehension and excitement, Beth informed J&J that she would not be returning. Her father was p rent, and tell that he would divest his interest in the business by per annum gifting equal shares to his three children. As the new CEO of Nancys Coffee, Beth set a course for growth.The Specialty Coffee IndustryThe Green Dragon, a Boston coffeehouse founded in 1697, became the clandestine headquarters of the the Statesn Revolution. It was there, in 1773, that the Boston Tea Party was planned as a expostulation against the tea taxes universe levied by King George on his colonies. By the time the British and the colonists had settled accounts, coffee had be educe the hot beverage of survival of the fittest in America.Throughout the 19th century in the U.S., neighborhood coffeehouses proliferated, and home-roasting coffee became a common practice. The industrial revolution, however, nourished a demand for quicker, cheaper, and easier caffeine solutions. With the approach of vacuum packaging and modern transportation, it became possible for a roaster on one side of the country to sell to a retailer on the other side. As with many other food products, quality was compromised to accommodate majority production and efficient distribution. By the 1940s, the coffeehouses had disappeared, and Americans had been sold on the idea that fresh coffee went woosh when the can was clear. In 1950, William Rosenberg founded Dunkin Donuts in Quincy, Massachusetts. While his donut shop took pride in serving what they called the Worlds Best Coffee, it would be twenty more years before U.S. consumers could purchase a truly high-end cup.In the early 1970s, a small cadre of coffee aficionados began to offer a unique brew made from hand-picked beans fresh-roasted in small batches. Peets, founded on the West Coast by legendary coffee escapist Alfred Peet, quickly set the standard for superb coffee. In Seattle, Gordon Bowker, Jerry B aldwin, and Ziv Siegl, named their coffee shop business Starbucks, after the coffee-loving first mate in Moby Dick. On the eastward Coast, George Howell was building his chain of Coffee Connection shops in the Boston area. New Yorker Irwin White began making a name for himself supplying fresh-roasted grounds to some of the finest restaurants in Manhattan. San Franciscan coffee broker Erna Knutsen coined the term Specialty Coffee, and in 1985, helped to found the SCAA (Specialty Coffee Association of America).SCAA social station grew steadily as these coffee pioneersNancy Wood included developed dynamic, profitable business models by proactively educating American consumers about fine coffee. By the time Beth took the helm of her mothers business in 1993the same year that Starbucks had gone public upmarket consumers had developed a real taste for an excellent brew.Growth without SharksBeth and her management police squad undertook an aggressive search for retail space. To facilita te that process, they worked almost solo with the regional mall management companies that had been doing business with their mother for years. Beth explained that this path was chosen in part as a way of dodging a direct confrontation with the powerhouse sweeping in from the westStarbucks had all the way stated that as they came east they were going to do cities like Philadelphia, Boston, DC and Manhattan in a big way. We really didnt know how to play in that kind of shark tank, so we figured that wed let Starbucks have that, and play the suburban post horse. And at the time, that was low-hanging fruit.Clearly stated or not, one of Beths first meetings after coming on mount concerned a regional mall adopt that Starbucks had been considering for awhile. During that meeting Beth suddenly realized how happy she was to be resign of the inefficient, multi-layered bureaucracies that characterized much of corporate AmericaThere were two leases on the table a Starbucks lease, and one for Nancys Coffee. The woman said that the Starbucks lawyers had had the lease for six monthsbut she was go forthing to wait. I said, Look, do you want Starbucks, or do you want a leased space? When she said, A leased space, I said, Give me the pen. That lease is up next year, and I still havent gotten around to reading it.Beth noted that Starbucks wasnt the only coffee vendor shying past from space in enclosed mallsEstablishing your brand in mall locations is not, kind of frankly, a strategy for the faint of heart. Managing a mall shop is a difficult business, and it costs a lot of money. That worked for us in a way, since newcomers would get scared off by the idea of paying something like $100,000 a year in rent, when they could be paying $2,000 a month for a Main Street space in Anytown, USA.The team had learned through their mothers experience, however, that these pricey mall locations offered an favour that few suburban in-town settings could match a captive base.Mall gr oss salesThroughout the 1990s, Nancys Coffee and its suburban-model competitors like Peets and Caribou had the luxury of being able to choose locations where no other specialty coffee shops were operating. Beth explained that this noncompetitive positioning was especially advantageous in a setting with high overhead and two distinct customer groups Our bread-and-butter customer is the mall employeethe three to five hundred people who come to the mall every day to work. If you can get them to try, you can get them to repeat.Then, obviously, we have our transient customers the shoppers. We have squarely positioned ourselves to cater to stroller moms mothers with time on their hands, and kids to entertain. They come to the mall for something to do they may not always buy, but they always have to eat. So we have lots of cookies, apple juice, and bagels on hand for the little(a) ones, which helps us get the mom for her cappuccino.In a move to foster a loyal base of customers, in Januar y 2002, Nancys contracted with Paytronixa nascent venture that had developed a swipe-card with both payment and trueness program capabilities. Beth noted that the One Card system (See Exhibit 1) went well beyond the paper cards used by a frame of food-retailers to encourage repeat businessThis is like an electronic punch card that also functions as a debit card either by putting in a cash balance or by pre-paying for product. For example, we have this one guyan eyeglass store manager at a mall in New Hampshirewho shells out $150 on the first of each month to buy the 85 cappuccinos he knows hes going to drink over the next thirty days. We get his money up front, and he gets our $3 drink for less than $2.If you can get mall employees to buy a One Card membership for a dollar a year, theyre going to come to you every day, since for every club drinks they get one freethey can even get a jumbo mocha in exchange for nine basic coffees. Thats a drink that we sell for four dollars free t o them, and my cost is about seventy-five cents.The One Card is really a nice competitive advantage. We just had a Starbucks open in Buffalo, one floor below us. Our staff was nervous, but I didnt understand why. I told them that with the One Card, you already have all of your mall employees in your pocket. It worked that Starbucks kiosk is struggling.By late 2003, Nancys Coffee shops could be found in over thirty locations from Boston, west to Niagara Falls, and from Nashua, New Hampshire, south to New Jersey (See Exhibit 2). Three of the stores had been acquired from the owner of a four-chain enterprise who had come to the stark realization that running coffee shops was not going to be the road to riches that he had once imagined it would be. Beth recalled that they were able to make epochal improvements in the stores that they took under managementWhen we acquired Caf Coffee, their gross margins were running in the low thirties. They had been managing the business from Wellesle y, Massachusetts, and no one was going out to visit the stores. From a financial standpoint, we hammered down on the employee hours and on the food costs. That helped to remove their gross margins closer to 50 percent. Operationally, we kept some of their people, but not all. We put some of our own people in who had much diametric operational standards than the Caf Coffee people. At one store, we saw an increase in customer count, and in six months that store went from being in the red to being in the black.Just as Starbucks and Dunkin Donuts never said never with regard to Mall locations, Beth followed through on an opportunity to develop a street-front location. She was excited about the challenge and the possibilitiesThere are so many locations that are still looking for high-end coffee bars. The question is are we as a high-end coffee bar looking for that location? We just opened a store on the street in Manchester, Vermont. My rent there is $1,800 a month. I think it will wor k, but it will take some time to attract a customer base. If we can discover some more good towns like that, I suspect that we will probably do more like that versus more Mall expansions.