Caffe’ Appassionato: Building a Premier Specialty Coffee Company
Paula A. Wilson & Alva Wright Butcher
University of Puget Sound
This case is intended to be used at the undergraduate level in either an introductory accounting course or an introductory finance course. It could also be used in an entrepreneurial studies course. Financial data from other specialty coffee companies will provide a basis for an analysis of the market. Does the market appear to be saturated? Students will be asked to prepare pro-forma financial statements, given projected costs, profit margins, and sales. They will also perform sensitivity analysis. How are the pro-forma financial statements impacted by variation in expected growth in sales, costs, inventory turn, etc.? When is the firm likely to break-even?
Neighbors and friends, Phil Sancken and Tucker McHugh, discovered in early 1990 that each had recently quit his executive job and was interested in owning his own firm. They decided to focus on the specialty coffee industry. The odds against such a venture in Seattle were tremendous. Although Seattle already was home to several specialty coffee firms, Phil and Tucker felt that there was room in the market for different varieties of fine coffee. They tested the market with a small coffee cart and spent several months experimenting with the roasting process. The final result was a distinctive roasting process that Phil and Tucker referred to as “romancing the bean.” It led to a coffee that was full-bodied, did not leave a bitter aftertaste and was also easier on the stomach because it had lower acidity. They had identified a location for a coffee shop that would provide the ambience of an old world Viennese coffee house. The firm, Caffe’ Appassionato, would serve “coffee with a passion.” In 1990 the specialty coffee industry in the U.S. was relatively young and was expected to grow from 10% of total coffee sales in 1989 to 50% of total coffee sales by 2000.
The founders would provide initial financing of $100,000. Students are placed in the role of Phil and Tucker. They must decide whether or not to actually lease the store, purchase the roaster, and establish the firm. This will involve analysis of the market, breakeven analysis, financial forecasting and sensitivity analysis.
This case was prepared by Paula A. Wilson and Alva Wright Butcher, University of Puget Sound, and is intended to be used for class discussion rather than to illustrate either effective or ineffective handling of the situation.
Presented to and accepted by the North American Case Research Association (NACRA) for its annual meeting, November 2003, Tampa, Florida. All rights reserved to the authors and NACRA. © 2003 by Paula A. Wilson and Alva Wright Butcher.