Coffee Shop Co.

Coffee Shop Co.

Help a friend determine whether opening a coffee shop is a good idea. 

Client Background

A friend comes to you for business advice

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?

Case Setup

Start any case by understanding the question you’re asked to solve. Ask your interviewer questions if you feel confused or need more information. We want you to succeed in your interviews!

Take the time (1-2 minutes) to think about how you would approach the problem. Always structure your thinking, and communicate your ideas with your interviewer.

Here are some sample questions to ask yourself:

•  How big is the opportunity?
•  How much does it cost to open a coffee shop?
•  What is the shop’s go-to-market strategy?

Analysis

You show your proposed framework to your friend, and she really likes it! She’s especially interested in figuring out how big the market is to best estimate how much coffee she can sell. She knows the market probably includes commuters, visitors, etc., but for now, she wants you to focus on Cambridge residents alone.

How do you estimate the size of the market?

After you show her the potential options for estimating market size, she wants you to approximate the market size using your framework. Assume that Cambridge has a population of 100,000 people and, on average, each drinks 1 cup of coffee per day.

*Note: When making assumptions about market size, there is no “right” or “wrong” answer. Base your estimations on your reasonable assumptions about the market.

Now that you have the market size, your friend wants to gain a better understanding of how much coffee she would need to sell to break even in her first year.

How much coffee does she need to sell to break even in the first year? 

Here is some additional information:

•   Price per coffee = £3
•   Cost to open shop = £245,610
•   Cost to run shop each year = £163,740
•   Cost per cup of coffee = £1

Case Recommendation

After running through the calculations, do you think it's reasonable for her to open up a coffee shop?