Coffee Shop Co.
Bain| Round 1 | Easy | New Market Entry
Coffee Shop Co.
Bain | Round 1 | Easy | New Market Entry
Prompt: INTERVIEWEE LED
You’re having lunch with an old friend from university, and she’s looking for some business advice.
She is thinking of opening a coffee shop in Cambridge, England, a large university city an hour and
a half away from London.
She sees potential in this business but wants your help in determining whether opening a coffee
shop is a good idea. What do you think?
Clarifying Information (Only Provide if Asked):
• What is your friend trying to sell? Strictly coffee. She hasn’t ruled out selling other products in the future but wants to
focus on Coffee production for now.
• What is your friend's background? We don’t know this information, but you can assume she hasn’t owned or operated a
Coffeeshop before and needs sound business advice from you Clarifying Information (Only Provide
•
if Asked)
What is the market size of Cambridge? The population of Cambridge is approximately 100,000 people, but you will likely
need to estimate the market size later in the case.
• What is competition like in the local market? We don’t know this for sure, but for the sake of this case you can assume
no competition.
Note: This case was sourced from Bain & Co 167
Coffee Shop - Sample Framework
Profit = Revenue - Costs
Costs = Fixed Cost +
Revenues = Quantity * Price
(Variable Cost * Quantity)
Quantity (Q)
Fixed Cost (FC)
• How many coffee cups sold per day?
• Cost to build/buy storefront location?
• How many cups or customers per year?
• Cost of electric, equipment?
Price (P)
Variable Cost (VC)
• What is the price of one cup of coffee?
• What components go into making coffee?
• Does the price change?
• How much do these components cost?
• How would do price maximization?
Other revenue streams?
Other revenue streams?
External Factors
• Market Size
• Market Trends
• Market Growth Rate
• Competition
• Impact of Digitization
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Coffee Shop – Market Sizing
Question for Interviewee:
How do you estimate the size of the market? Assume the market is in Cambridge and each person has an average of
1 cup of Coffee a day
Market Sizing Exercise Information to give if asked:
*Note: there is no right or wrong answer! Market • Market Location = Cambridge,
sizing is always an assumption* England
• Market Size = Approx. 100,000
Top-Down: • Percent of Adults in Population = 80%
• Percent of Coffee Drinkers = 50%
100,000 people live in Cambridge • Average cups of coffee per day = 1
▪ 100,000 * 80% adult pop. Rate = 80,000 • Percent of coffee brewed at home =
▪ 80,000 * 50% of adult coffee drinkers = 40,000 50%
people • Days in a year = Approx. 350
▪ 40,000 people * 1 cup per day = 40,000 cups per
day
▪ 40,000 cups * 50% made at home = 20,000 cups
per day bought at coffeeshops
▪ 20,000 cups per day * 350 days/ year =
7,000,000 cups of coffee per year
Total Market Size Approx. 7,000,000 cups/year
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Coffee Shop – Breakeven Calculation
Question for interviewee: How much coffee does
your friend need to sell to break even in the first
year?
Additional Information (provided if asked):
• Price per coffee = £3 (£ = pounds)
• Cost to open shop = £245, 610
• Cost to run shop each year = £163,740
• Cost per cup of coffee = £1
Breakeven Calculation (Units)
• (Price * Quantity) - (Fixed Costs + (Variable Costs * Quantity) = £0
• (3*Q) – (163,740 + 245,610 + (1 * Q) = 0
• 2Q – 409,350 = 0
• Q = 204,675 cups to breakeven
Alternative Approach
• FC / Gross Margin (Gross Margin = Price – variable cost)
• (163,740+245,610) / (£3 - £1)
• Q = 204,675 cups to breakeven
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Coffee Shop - Wrap Up
Sample Recommendation:
• Our friend should definitely move forward with opening her coffee shop in Cambridge! Because there are 7,000,000
cups sold in Cambridge each year and the break-even point is 204,675, which is approximately 3% of total market
share, breaking even is very achievable
Sample Risks & Consideration
• Underestimating the competitive threats in the area
• Residual effect of COVID-19 pandemic and making coffee more frequently at home
• We would want to understand our friend’s investment timeline. Depending on how many years she plans to run the
store, it may be difficult to recover the cost of opening
Sample Remaining Questions & Next Steps:
• Understand our friend’s investment and owner timeline
• Explore go-to-market strategies for CoffeeCo.
• Define how the organization will differentiate itself among its competitiors
• Understand if competitors are smaller or larger players and how competitive dynamics will work
• Understand if our friend has any interest in expanding beyond just her first shop
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