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The Problem
Facing a saturated local coffee market with over 20 competitors in a 2 mile radius of the ASU Tempe Campus, Steamy Brew Haven recognized the need to adapt and expand offerings to remain competitive. Customer feedback underscores the demand for alcoholic beverages and extended hours. We assessed the market for alcoholic beverages, the cost and profit from expanding shop hours and scoped out the market saturation of alcohol-serving coffee shops in the region.
Results
75.5% of customers have indicated a willingness to visit during evening hours.
50% of customers have expressed interest in expanding offerings to include alcoholic beverages.
There is only one alcohol-serving coffee shop in the vicinity of the coffee shop.
Projected return over investment (ROI) for expanding hours and adding bottled beer and wine to beverage offerings is $3000 a week, $158600 annualized.
Finding 1. Alcohol offers more profit per unit sold.
Finding 1. Alcohol offers more profit per unit sold.
Alcohol offers a higher markup than coffee (>80%), with between 350-400% mark-up for beer and 300% for wine, which means more profit per unit sold. 84% of existing customers expressed interest in alcohol offerings and 74% indicating they would occasionally, frequently, or very frequently order alcoholic beverages.
Finding 2. Expanded hours on selected days introduce more opportunity than risk.
Finding 2. Expanded hours on selected days introduce more opportunity than risk.
38% of surveyed customers indicate preferences for late-day study and socializing, with 75.5% expressing heightened likelihood of visiting Steamy Brew Haven during extended hours. Expansion into evening hours allows for capturing a share of competitor’s market given long evening wait times, particularly on Thursdays when they close at 10pm. From analysis of competitor hours and expressed customer interest, we propose the following operating hours:
Monday – Wednesday: 6am – 10pm
Thursday – Saturday: 6am – 12am
Sunday: 6am – 3pm (no change).
Finding 3. Net positive ROI for expanded hours and alcohol beverages.
Finding 3. Net positive ROI for expanded hours and alcohol beverages.
Initial cost of a liquor license and training ($900), along with recurring annual expenses to renew the license ($500) and labor costs (2 employees, $13.85/hour) for the proposed extended hours is offset by the net profit of an estimated 6 drinks/hour sold. Given average profit per unit sold (beer = $5.1, wine = $6.6) and projected customer engagement from surveys and competitor market space, net ROI is projected at $3,000 per week, $158,600 annualized. Projected ROI over the first 10 years remains net positive even accounting for annualized increase in labor costs ($0.47/hour per year).
Conclusion
Extended hours and inclusion of alcoholic beverage offerings offers high potential for growth and a net positive ROI given current market conditions and customer attitudes.
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