Café Xaragua Harvard Case Solution & Analysis

Café Xaragua Case Solution

Technological The technological factor that can impact the coffee business of Café Xaragua is the hype of coffee brewing machines.

Café businesses are greatly affected by the dawn of coffee brewing appliances, grinders and espresso makers. The technological machines are now easily available at every electronics mortar superstore. These machines make it easier than ever, to devour coffee, thereby inspiring-coffee lovers to take up brewing at home. This might result in customers using these electronic appliances daily, which affectionate the overall sales of the coffee café around the world.


Following alternatives are available for Lehnert and his team, in order to increase the Café Xaragua’s business:

  1. Continue doing what they do best, i.e. keep on selling coffee products, using the online platform. Café Xaragua is a profitable business and they do not need further expansion and further investment to remain stable in the market.
  2. To expand opportunities; Café Xaragua can open its shop in the vicinity of or within Calgary. This way they will reach out to more customers, brand awareness of the café will increase and the company will have the first mover’s advantage.
  3. Lehnert and his team, after opening a retail outlet of Café Xaragua, can also play the role of Haiti’s green beans distributors in the Calgary market and establish the distribution channels. This is the most beneficial option available for Café Xaragua. The profit rate will increase for the business and so will its brand awareness, and Lehnert and his team would then be able to provide tough competition to the existing competitors.

    Financial Projections

    Café Xaragua is expected to generate kiosk sales of $257,140 for the year 2013 (See Appendix 1). Moreover, the café is also expected to have an online incremental 50% sales of $300,000, which would result in total sales of $557,140 in FY2013 (See Appendix 2). Secondly, the variable cost is  forecasted at $59155due to the addition of kiosks. The cost of goods related to the online channel represented 20% of the sales figure in 2012, which was then added to the additional variable costs of the kiosks, resulting in a total COGS of $386,557 in 2013.

    The rent expense of the 2012’s income statement is added with $4080 rent expense of the kiosk, resulting in a total rent expense of $59,064. The marketing and salary expenses represented 8.4% and 12.5% of 2012’s sales, which resulted in the marketing and salary expense of $27,200 and $69,643, respectively, in 2013.

    The machine and maintenance expenses are calculated by multiplying the previous year's percentage, i.e. 3%, with an incremental online sales, which is further added with the miscellaneous kiosk expenses, amounting to a total of $11,400. The internet and phone expenses of 2012 are added with the similar kiosk expenses, to talling to $4560 in 2013. Moreover, the depreciation on new furniture and fixtures, and the truck are calculated on the basis of the straight-line method for 10 and 7 years, respectively. The depreciation is added to the previous year's depreciation expense, amounting to a total of $28,642 in 2013. The tax expense is calculated at a rate of 25%.

    The net income is calculated by deducting the operating expenses from the gross profit and subtracting the taxes. The income of the company has increased, i.e. the net profit margin of the company has increased from 10.4% to 25%.

    The projected balance for the year has also been foretasted at the year-end 2013 (See Appendix 3). The cash, inventory and prepaid expensed are calculated as a percentage of 2013’s sales, but the cash amount is added with the $300,000 online sales figure, as all of the sales will be received by the company in cash, and there will be no accounts receivables. The currents assets of Café Xaragua have increased from $29,146 to $381,192.

    Additionally, the non-current assets are calculated by taking the book value of the previous long term assets and subtracting their respective depreciation expenses, along with an inclusion of kiosk and truck purchases, plus their depreciation. The total non-current assets of the company are calculated as $103,606 in 2013. The liabilities include the accounts payable (representing 1.66% percent of each year's sales revenue) and tax payable taken from the income statement...........................

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