Expresso Espresso: Analyzing Business Policies and Expansion

This case study delves into the business policies and strategies of Expresso Espresso, a coffee shop located near the University of Alabama. It examines Michael Porter's five forces in the context of the coffee industry, the generic business strategies employed by owner Todd Sylvester, and his management style. A SWOT analysis evaluates the internal capabilities of the business, while a financial statement analysis assesses its profitability and break-even point. The report recommends changes in marketing strategies, presents a pro forma income statement, and considers the implications of business expansion. Ultimately, the analysis aims to provide insights into the viability of Expresso Espresso's expansion plans and its ability to maintain a competitive edge in the evolving coffee market.

Running head: BUS 2980 BUSINESS POLICIES
BUS 2980 Business policies
Name of the student
Name of the university
Student ID
Author note

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Table of Contents
Introduction................................................................................................................................2
Michael Porter’s five forces.......................................................................................................2
Generic business strategy of Expresso Espresso........................................................................3
Values and the management style of Todd Sylvester................................................................4
Evaluation of internal capabilities on the basis of SWOT analysis...........................................5
Analysis of financial statements and break – even point...........................................................5
Recommended changes in marketing strategies........................................................................6
Pro forma income statement.......................................................................................................7
Desire of expansion....................................................................................................................7
Reference....................................................................................................................................9

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Introduction
This report concerns with the development of a proper marketing and strategic
positioning strategy for Expresso Expresso. This cafe has been catering the students as well
as the faculties of University of Alabama as the cafe is located just across the street of the
university. The owner is concerned with the rise in the level of competition and therefore has
been looking to change the dynamics and thereby expanding their business. This report will
therefore look create an idea to the owner whether his idea and concept will be ideal in
expanding the business and maintain competitive edge.
Michael Porter’s five forces
Industry rivalry – Dynamics of industry rivalry within coffee industry dramatically changed
since the year 1987. Whereas in the early days Starbuck was the main competitor at present
various small coffee retailers are also providing specialty coffee that are giving tough
competition. Apart from Starbucks, McDonald’s fast food chain is another biggest rivalry.
Hence, the industry rivalry forces generated through competition is very high (Dobbs, 2014).
Potential of new entrants – Barriers to the entry in coffee industry have substantially
increased over the past few years. As a result, potential threat for new entrants has declined.
However, as the initial requirement of capital for coffee shops are small, potential of entering
the small coffee shops are still there.
Substitute products – Primary substitute for coffee is carbonated soft drinks. However, the
health concerned people are now considering coffee over carbonated soft drinks and as per
new evidence coffee is considered as comparatively healthy drink.

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Bargaining power of supplier – If the bargaining power of the supplier is compared with
previous years it can be stated that the supplier’s bargaining power has been increased.
Increased unity among coffee farmers is another major factor in increasing their bargaining
power (Indiatsy et al., 2014).
Buyer’s bargaining power – Buyers are in the better position now to assure that they will
pay the favourable price and in exchange they will receive appropriate quality product.
Bargaining power of buyer has been increased due to availability of various coffee shops and
information regarding the market variables.
Generic business strategy of Expresso Espresso
Various business strategies adopted by Todd Sylvester are mentioned below –
Apart from the traditional coffee drinks his shop also deals in selling smoothies, teas and
some varieties of the pastries. Further, instead of serving the prepared foods Todd prefers to
deliver freshly prepared food after receiving the order.
Instead of offering buyer card or one free cup of coffee on ordering nine cups, Todd
offers flat 10% discount that is straighter and does not pit any burden on the buyer to buy
specific quantity to avail the free offer (Burns & Dewhurst, 2016).
Todd wanted his customers to make feel comfortable and values the importance of speed
and convenience particularly when the customers were ordering the coffee before go to work.
Hence, he placed the priority while completing orders for drive – through quickly. Though
completing the orders in faster way is not a big deal for its competitors Krispy Kreme and Mc
Donald, it is quite challenging for EE as the drinks it serves are made-to-order.
All the above strategies of Todd regarding his business is seem to be correct for the
below mentioned reasons –

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As it deals in various other products like smoothies, teas and some varieties of the
pastries it will attract more customers as it will not only attract the coffee drinker but also the
tea drinker, smoothies drinkers and the customers who prefer to have something like pastries
will visit EE.
Offering flat 10% discount will be more preferable for the customers against buyer card
or offer of one cup free coffee on order of 9 cups of coffee. The reason behind this is that
they are not obliged to order specific quantity to avail the offer. Further, the buyer card may
be lost before availing any offer or next time the customer visit the coffee shop. Hence,
offering flat discount is better against other options (Bull et al., 2016).
Though serving the drive through customers is time consuming it gives the store
differentiating factor and 40% of total revenues of EE generated through serving the drive
through.
Values and the management style of Todd Sylvester
Todd does not believe in becoming the tyrannical boss and created family
environment in the shop. He further allows his employees chatting with the friends who visits
the shop during work hours and hung out during their off hours. Hence, Todd follows
Laissez-faire style of management where the leader has limited input on day to day decision
making approach on day to day basis and the employees are provided with the freedom
regarding whatever they think are best (Fazzini, 2018).
His values are expected to provide advantages to EE as the employees will feel strong
sense of the responsibility towards the company as well as towards other employees. Further,
it will make the employees happy in working EE which in turn will lead to higher level of
efficiency.

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Evaluation of internal capabilities on the basis of SWOT analysis
Strengths Weaknesses
Deliver coffee based on make – to – order
Offers various other products like smoothies, teas
and some varieties of the pastries apart from
coffee
Offer 10% flat discount
Does not serve the customers after 11 pm and
asks the customers to leave at that time
Most of the products are of generalized standards
High point for the prices (Bull et al., 2016)
Opportunities Threats
Provides family like environment to the
employees that will increase the efficiencies
Socially responsible attitude
Movement of independent coffee houses
Increase of competition involving the sellers of
low cost coffee.
Analysis of financial statements and break – even point
From the analysis of profit and loss account of the company it is identified that sales
as well as the gross profit of the company for the last 3 months that is over March 2006 to
May 2006 was in increasing trend. However, due to high operational expenses the business
could not generate any positive income in any of the months (Williams & Dobelman, 2017).
Further, from the balance sheet of the company over the period of February 2006 to May
2006 it has been found that current assets of the company were sufficient to pay off its
current obligations. Further, the company was lower leveraged as its outside borrowing is
comparatively lower than the own equity (Ives, 2015).

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Break even calculation –
From the above table it can be stated that EE requires selling 3,214 numbers of
products for covering its fixed as well as variable costs and after that point only the company
will start earning the profit.
Recommended changes in marketing strategies
The recommended changes that can be incorporated in the marketing strategies can be
discussed with the help of the 4 Ps.
It is seen that with respect to price, it is essential that the prices of the products need
to be reasonable so that it becomes easier for various sectors of people to come to the shop
and purchase their product.
In accordance to product, it is essential that several kinds of products are presented to
their customers so that they are satisfied with the products and accordingly their level of sales
would increase.
By looking into the aspect of place, Expresso Expresso needs to establish their shop in
areas where the extent of customers will be high so that their level of expense towards
advertisement and promotion gets reduced.

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Promotion is even an essential aspect for any enterprise and therefore the cafe needs
to promote their products and services by providing happy hours to their customers where
there would be discounts and other attractive offers which would attract more customers.
Pro forma income statement
It is expected that concentrating on other sectors of customers will increase the sales
by 75%. However, as the COGS of the company is too high that is 58% and the operating
expenses are fixed, it will only reduce the loss margin from 62.65% to 17.80%. However, it
will not be able to generate profit for the company.
Desire of expansion
As Todd is not able to generate positive earnings from the business as its major
customers are from university students only, it shall expand to other location that will

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increase the sales level. However, it is expected that the additional sales will override the risk
from loss of market share.

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Reference
Bull, J. W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., ...
& Carter-Silk, E. (2016). Strengths, Weaknesses, Opportunities and Threats: A
SWOT analysis of the ecosystem services framework. Ecosystem Services, 17, 99-
111.
Burns, P., & Dewhurst, J. (Eds.). (2016). Small business and entrepreneurship. Macmillan
International Higher Education.
E. Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of
industry analysis templates. Competitiveness Review, 24(1), 32-45.
Fazzini, M. (2018). Financial Statement Analysis. In Business Valuation (pp. 39-76).
Palgrave Macmillan, Cham.
Indiatsy, C. M., Mwangi, M. S., Mandere, E. N., Bichanga, J. M., & George, G. E. (2014).
The application of Porter’s five forces model on organization performance: A case of
cooperative bank of Kenya Ltd. European Journal of Business and
Management, 6(16), 75-85.
Ives, M. (2015). Financial Statement Analysis. In Encyclopedia of Public Administration and
Public Policy-5 Volume Set (pp. 1-7). Routledge.
Williams, E. E., & Dobelman, J. A. (2017). Financial statement analysis. World Scientific
Book Chapters, 109-169.

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