Report on Carrebean Internet Cafe Case

publish ON CARRIBEAN INTERNET CAFE slipperiness Assignment 1 CASE SUMMARY David grant is an MBA disciple hoping to open Caribbean profits coffee shop in his hometown capital of Jamaicas, Jamaica upon his graduation as he always wanted to be his own boss. Due to emit accessibility and exercise of lucre in Jamaica, David thought of it as a good timing to pursue this business opportunity. He has gathered data on completely the relevant costs equipment, rent, labor, etc. He has also found a partner in the topical anesthetic telephone company, Jamaica Telecommunications Limited (JTL), where he previously worked.JTL has offered to provide equity and a long-term loan at favorable interest order. He is now faced with the task of analyzing the gathered discipline and do a decision of whether he should proceed with the venture, and if so, if it would be a profitable business for him and JTL. TABLE OF CONTENT CASE SUMMARY1 INTRODUCTION2 PROBLEM DEFINITION3 CONCEPT FEASIBILITY STUD Y3 TARGET MARKET4 LOCATION4 COMPETITION4 ECONOMIC FEASIBILITY4 CAPITAL AVAILABLE5 START UP COST5 FIXED periodical COST5 PRICE COST MARGIN ESTIMATION5 TARGET guest SEGMENT 200006 REVENUE PER YEAR6 PROFITABILITY6 CONCLUSION6 RECOMMENDATIONS7 INTRODUCTIONThe report deals with the study of a business proposal to open an internet coffeehouse. The report studies the decision of David Grant who is an MBA student, to open Caribbean Internet Cafe in his home town Kingston, Jamaica. David while studying in London visited a number of coffeehouses and was intrigued by the conception. While visiting his hometown Kingstons, Jamaica during summers he noticed that in spite of high awareness of the internet, there was low accessibility and usage of the same. Seeing a potential market of consumers, David decides to open a European concept based Cafe which will offer brewed coffee, imported wines, juices and baked products.He decides to realise three areas in the cafe a computing device area w ith booths, a wine lounge with comfortable sofas, and a general cafe area with table and chairs. He envisioned providing the customers, a perfect vehicle to use internet and otherwise service with egress making an expensive investment in computer hardware and in addition a social outlet where people can surf together , listen to music or only if relax and socialize. He gathers the required information for starting the cafe and makes notes. PROBLEM DEFINITIONAfter gathering all the information David grant has to decide whether it will be a profitable and sustainable decision to open an Internet Cafe in Kingstons, Jamaica. CONCEPT FEASIBILITY STUDY In order to make a wholesome decision a feasibility study is carried out which will focus on analysing the target market, topical anaestheticisation , the competitors in the area and the three categories of costs Start up costs required to be invested in the business, Fixed monthly costs that are to be bore as resolve of operations an d shifting costs, that result with e actually customer visit to the cafe.TARGET MARKET It was anticipate that main surgical incision that can be targeted as the potential customers would be university students, who have computer knowledge and professionals with high disposable income as they would treasure a venue where they could relax and socialize along with availing internet facilities. Total segment size of it was assumed to be around 20,000. LOCATION Location that was chosen for setting up the cafe was newborn Kingston as most of the banks, other financial institutions and corporate had their head offices in that area.Also this area consisted of hotels and shopping centre, which would smashed more masses, would come to know about CIC. Along with these factors, one more important reason was that New Kingston was close to several affluent suburbs from which CIC could attract patrons. COMPETITION In Jamaica, internet accessibility and usage was low. There were many reasons, that accounted for low internet usage such as 1) High cost of computer as percentage of average salary, 2) the lack of telephone lines in some areas of Kingston and,3)the high rates that was being charged by the existing service providers.Along with these factors, the idea of an Internet cafe was not very popular in Jamaica. So, this overall plan was quite new for that region and as a result the competition was not quite great. ECONOMIC FEASIBILITY CAPITAL AVAILABLE Table 1 PARTICULARS tally (JA$) DAVID GRANTS SAVINGS 5,00,000 JTL INVESTMENT IN EQUITY (50% SHARE) 5,00,000 LOAN PROVIDED BY JTL 10% pa 12,50,000 TOTAL 22,50,000 START UP COST Table 2 PARTICULARS TOTAL COST (JA$) EQUIPMENT 1426000 UTILITIY DEPOSIT 7000 advertize (Prior to Opening) 20000LEGAL AND DECORATIONS 120000 TOTAL 1573000 FIXED MONTHLY COST There is an assumption that loan from JTL in the inaugural is a 5 year loan with principal payable on maturity and 10% childly interest payable monthly. Table 3 PA RTICULARS TOTAL COST (PER MONTH) (JA$) WAGES TO EMPLOYESS (90*40*4*2) 28800 wages TO MANAGER 40000 SITE RENTAL 30000 TELEPHONE BILL AND UTILITIES 15000 INTERNET LINK RENTAL 10000 amends PREMIUM 10000 ADVERTISING, MARKETING AND PROMOTION COST 10000 ADMINISTRATIVE AND MAINTENANCE 50000 INTEREST ON LOAN 4167TOTAL 197967 YEARLY TOTAL (197967*12) 2375604 PRICE COST MARGIN ESTIMATION PRICE/CUSTOMER (JA$) Table 4 PARTICULARS TOTAL CHARGES COST INCURRED MARGIN (REVENUE) INTERNET (PER HOUR) 120 60 60 DRINKS (PER VISIT) one hundred forty 50 90 provender (PER VISIT) 60 30 30 TARGET CUSTOMER SEGMENT 20000 An free-living research firm, commissioned by JTL, conducted a study and came to the conclusion that the estimates by the owner regarding target size and withdraw were indeed correct.They also provided three scenarios of the demand that the cafe would attract. The market firm projected tha , optimistically, 50% of the segment would visit the cafe, on an average of , five times a year. A living jut was that 40% of the segment would visit the cafe on an average of three times a year. Finally, a pessimist estimate was that 30% of the segment would visit the cafe twice per year. Total Customer Visits / Year cheerful (50%, 5x/yr) 50000Realistic (40%, 3x/yr) 24000 Pessimistic (30%, 2x/yr) 12000 REVENUE PER YEAR Table 5 PARTICULARS OPTI MISTIC REALISTIC PESSIMISTIC COMPUTER USAGE (40%) 12,00,000 5,76,000 4,32,000 FOOD/DRINKS 60,00,000 28,80,000 14,40,000 TOTAL 72,00,000 34,56,000 18,72,000 PROFITABILITY * In optimistic scenario the cafe would generate a profit of 45263 JA$ * In realistic scenario the cafe would incur a loss of 214737 JA$ * In pessimist scenario the cafe would incur a loss of 334737JA$ CONCLUSIONAfter analyzing the unhomogeneous aspects of the proposal it may be seen that the only scenario turning out to be a profitable and sustainable proposal is the optimistic one where the assumption is based on the fact that 50% of the total segment i. e. 10000 of the total 20000 customer segment will visit the cafe on an average of 5 times a year. But it would not a practically advisable to go ahead with such an assumption as the realistic as well as pessimist scenario shows a loss reflecting a shun probability of the business being profitable and sustainable in the long run.But it has been mentioned that the area does not have a cafe which provides internet facility and at the same time a hang out joint offering snacks and music at the same place, which makes Caribbean Internet Cafe first of it kind in Kingstons Jamaica. Therefore scrapping the whole idea leads to loosing out on an opportunity which gives David GrantFirst Mover gain of offering a new experience to the customers. Secondly, a potential unexplored market which can be catered to by opening such cafe.Therefore David must proceed with his proposition but only after making certain changes in the area cost and tariff. RECOMMENDATIONS * David should revise his tariff of 1 20$ per hour considering the average charges of the internet facility is 90JA$ per hour. * Also David can reconstruct the menu of the snack bar as the offerings does not fits the demand of the local people and is adding to the cost due to being exotic in nature. Eg. It is clear from the case facts that local people does not drink coffee and hence it may be omitted from the menu.