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Unit 7 Btec Business Activity 1 report for January exam prep 2024
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Unit 7 Business and Decision making Exam notes january 2024 Unit 7 Btec Business Activity 1 report for January exam prep 2024
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In this report, I will be advising a client on how to set up a successful coffee shop as an advisor in alocal Enterprise partnership. I will be advising the client on what option is best and what would be
the benefits and implications of each option. In the end, I will justify one option which will assist the
client to use by looking at the profit and loss in both options.
Introduction
In the UK, there have been 16000 coffee shops since 2014 with a turnover of £6.2billion. Tea remains
the nation’s favorite drink with 165 million cups consumed per day compared with 70 million cups of
coffee, but after 15 years of growth, the coffee shop sector is one of the most successful in the UK
economy. The client wants to set up a coffee shop with a maximum of £35000 of their own and their
parents’ money to invest and would need additional investment for the balance of the start-up cost.
There are 2 options to successfully set up a successful coffee shop which are to buy an existing coffee
shop or to set up a new coffee shop. Both options have their benefits and drawbacks. The coffee
market’s annual growth is 4.5% annually by 2018 with revenue exceeding £8.7 billion from 20500
outlets. This report details the assessment of the strengths and weaknesses of these options as well
as identifying the threats and opportunities.
Current Market
According to the case study, there are many coffee outlets in the coffee industry which includes costa
coffee which has 1670 outlets, Starbucks which has 790 outlets and café Nero with 560 outlets in the
UK with a combined market share of 54% which are UK’S top leading coffee brands. All the top coffee
outlets are successful and highly profitable because they have a high reputation, brand name, and
their customer loyalty. The most competitive business among all the UK’s coffee leading brands is
costa coffee with 15% to 153 million, with a return on capital of almost 50% in March 2016 which
suggests that they are operating in a niche market. The information shows entering the coffee
market is highly beneficial for clients to operate in, and the trend data shows that there is high
competition between Starbucks and Café Nero.
Costa coffee opened almost 200 new shops and one in 5 coffee shop customers visit every day, with
their selling of their cost 1.7 billion cups of coffee annually. This data emphasises the interest of
people in buying coffee which makes the coffee markets grow faster and the competition between
them is high. Costa coffee's main competitor is Starbucks which is following the trends of adding
personalised toppings to their customers’ orders and giving seasonal drinks which made them
successful in the coffee market. It is also predicted that the customers focus on where the coffee
beans have been grown and the quality of coffee preparation, which increases demand for specialist
coffee shops offering high-quality ethically sourced products with a wide choice of beans. This
suggests that the coffee market is growing through the trend and the demand of customers.
Moreover, by 2018, “the coffee market forecast is for a 4.5% annual growth, with revenues exceeding
£8.7 billion from 20500 outlets' ' which demonstrates that entering the coffee market would result in
high profitability if coffee shops opened by using appropriate options.
Financial Information
, Opti Optio
on 1 n2
GP= GP=£8
£90, 8,000
000
GPM=
GP 57.5%
M=
50%
Net Net
prof profit=
it= £32,80
£29, 0
560
NPM=
NP 21.4%
M=
£16.
4%
The client has £35,000, option 1 costs £85,000 to purchase the business which will include all the
existing furniture, and option 2 costs £63,500 to buy all new equipment. The sales forecast shows the
figures for options 1 and 2. Option 1 annual revenue is £180,000 and option 2 annual revenue is
£153000 which shows that option 1 has a 16% increase in revenue than option 2 because 70
customers would visit an existing coffee shop each day than 60 numbers of customers visit a new
coffee shop each day which demonstrates that the option 1 is earning 15% profit more than option 2.
By utilising option 1 the client would have a gross profit of 90,000 and for option 2 there would be
88,000 gross profit which indicates that option 2 would experience a reduction of 2.2% profit
compared to option 1. The net profit of option 1 would be £29,560 and the net profit margin would
be 16.4%. The net profit for option 2 would be £32,800 with 21.44% of net profit margin. The
average price a customer would spend in an existing coffee shop (option1) would be £7 and in option
2 a customer would spend £8.50 which is an extra profit of £1.50 than option 1. The Cost of sales
covers the running cost for a business to operate whether in option 1 or 2 it depends on which
option is profitable and costs less to operate. The cost of sales for option 1 is £90,000 and COS for
option 2 is £65,000, which proves that the cost of sales is 16% less in option 2 COS in option 1. This
means that the price of raw materials, maintenance costs, and the company pays less tax, and the
company needs to make more profit to enhance the profits. Both options have expenses for
advertising, option 1 advertising cost is £500 and option 2 advertising cost is £1000 which is more
than an option, it could be assumed that by having option 1 the client wouldn’t need to advertise
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