Course Title: Business and Management

Module Name: Foundations of Business

Title of the Assignment: Planning, Organising and Controlling: Real

Coffee Ltd

Module Leader: Adrian Rivers

Student Name: Didar Nurbek

Word Count: 2000

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Real Coffee Ltd and coffee industry

The report aims to analyse and evaluate the coffee shops

industry and the strategy used by Real Coffee Ltd. Showing outcomes

of macro environment analysis possible impacts on Real Coffee Ltd

will be explained and assessed. Using Porter’s five forces analysis

nature of competition in the industry will be shown and how Real

Coffee Ltd is affected by them will be explained. Much attention

will be paid to the internal analysis which is divided into four

sections such as marketing issues, human resource issues, operations

issues and financial issues. The relevant analysis of the current

issues for each section will be explained. Besides, potential

solutions and recommendations for each issue will be identified.

Based on each issue and solution the author will propose future

strategic direction and explain how the proposals should be

introduced.

Effects from outside the industry

In order to be effective and keep growing Real Coffee Ltd has

to be able to respond to the changes and challenges from the

external environment quickly (Mullins, L.J. 2013). The analysis of

the external environment can be threats to as well as opportunities

for the company.

Among all found factors in the macro environment

technological and economic factors are likely to have significant

impacts on the future development of Real Coffee Ltd. Significant

developments of coffee machines (Euromonitor International, 2013)

would affect the Real Coffee Ltd negatively because market leaders

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such as Costa, Starbucks and Café Nero are able to obtain newest

machinery. Real Coffee Ltd, on the other hand, is much more

sensitive in spending on machinery. For instance, according to BBC

news a US company has created the coffee machine which is controlled

by sending text messages (BBC, 2012a). One of these kinds of devices

is likely to reduce consumers of Real Coffee Ltd since either the

device would be obtained by market leaders or by costumers to make

coffee at home.

There is not only one economic factor that might influence the

development of Real Coffe Ltd. For example, inflation fell to 2.2%

(BBC, 2013b) which means that costumers’ purchasing power has

increased. This will probably affect Real Coffee Ltd positively

since costumers will be able to visit coffee shops more often.

However, lower inflation rate may move costumers to high-quality and

brand coffee shops such as Starbucks, Costa and Café Nero. A change

in interest rate affects the whole economy and consequently coffee

shop industry too. Bank of England has recently decided that the

interest rate will stay the same of 0.5% and will not be raised

(Larry, E. 2013). If the Bank decided to increase the rate of

interest costumers would have been discouraged from spending on such

activities as ‘hot drink breaks’ because high interest rate attracts

people to save their money in banks.

Forces that affect the industry

Porter’s 5 forces is a useful tool when analysing the

competitive forces of the industry (Gordana, V. 2013). These forces

include: threat of new entrants, threat of substitute products,

bargaining power of supplier, bargaining power of customers and

intensity of rivalry between competitors. This analysis will help to

choose right strategy for Real Coffee Ltd. According to analysis

have been done there is relatively high threat of new entrants for 3

Real Coffee Ltd since cost of entry to the market is low (Jennifer,

J et al. 2010). Although it takes some time to open up a new coffee

shop, all it needs are coffee machine, coffee beans and staff

skills. In addition, there is high potential for economies of scale

in the market. For instance, any technological development such as a

new product-efficient coffee machine is likely to reduce cost of

production. Furthermore, except local coffee shops and cafes there

are three main market competitors – Costa, Starbucks and Caffe Nero

– with which Real Coffee Ltd has to compete (Mintel, 2013a).

Therefore, as there are many potential competitors in the market

rivalry among existing competitors is high. Since the nature of

competition is important other factors of the analysis are shown in

the appendices.

Marketing issues

There are two main reasons for Real Coffee Ltd to change the

marketing strategy significantly although it requires spending

money. First, the most frequent visitors of coffee shops are those

aged between 25 and 34 (Mintel, 2013b). Second, old people do not go

out as often as those who are 15-24. However, as “40% of costumers

are over 55” Real Coffee Ltd should not exclude them from targeted

group.

It is common to use multivariable segmentation nowadays

(Brassington, F. & Pettitt, S. 2013), potential customers are better

segmented in groups by age and occupation. In terms of age,

costumers have been split into three groups: 15 – 24, 25 - 54 and 55

and over. In terms of occupation, groups have been split into

students, pensioners and businessmen and white-collar workers.

Although students do not earn money directly, their parents provide

them with money. In addition, since students have more free time and

are influenced by the Internet, it is easy to attract them through 4

media ads. Businessmen and white-collar workers aged between 25 and

54 are considered as the main potential customers. They are likely

to have a meeting or break at coffee shops. Although they require

good service and high technology in a coffee shop, they are willing

to pay for them. The last group of older people is also important

and does not require much. Therefore, newspapers, magazines,

cleanliness and comfortability are all they need. It is also highly

advised to pay attention on positioning. Since it is difficult to

compete with the main competitors in terms of quality of their

product, Real Coffee Ltd should concentrate more on price and

promotion.

Human Resource Issues

Human resource is the most important tool in an organization

and the human resource department aims to maximize productivity of

employers (Bhagria, A. 2013). There are two identified weaknesses of

Real Coffee Ltd in hiring and training the staff. First, Real Coffee

Ltd does not provide employees with training and practicing. Second,

zero hours contracts are not effective in terms of staff loyalty. It

is important to provide employees with training because it increases

competitiveness in the market, helps to handle risks and brings good

relationship with employers (Lindblad, M. n.d.). Although employees

may be absent for the work while they are training, it helps them

both employees and employers since staff becomes able to perform its

job better (Frost, S. n.d.). Therefore, it is preferable to invest

in training. Zero hours contracts are cost-effective, legal and

employer can avoid liabilities and rights of an alternative

employment contract (Spanjers, S. 2013). However, provision of

training is best mixed with use of traditional employment contracts.

This is because a traditional contract improves staff turnover and

service generally (Pennycook, M. 2013).

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Although there are several issues in Real Coffee Ltd

structure, the main issue that should be fixed is formalization.

Formalization is “the routine nature of succession” (Webster, L.A.

n.d.) and, therefore, more rules and responsibilities are likely to

improve the structure. Rules and responsibilities are better to be

identified between employees and especially between two managers –

Alice and Ross. Delegation of roles and responsibilities clearly

identifies tasks and, thus, improves the functioning of organization

(Rao S.R. 2009). This may also include regular scheduled meetings to

which managers should bring evidence and support for their

proposals.

Operations Issues

Operations issues are all the problems that occur during the

production and delivery of products and services (Boddy, D. 2011a).

Since Real Coffee Ltd delivers both product and service to

customers, it should concentrate on both of them. One of the main

strengths of Real Coffee Ltd is having a wide range of flavours of

coffee because market leaders have been working on adding a variety

of flavours of coffee too. There are five operations activities help

to describe and analyse an organisation’s operations system

(Sprague, 1990). These activities are: capacity, standards,

materials, scheduling and controlling. The main activity that Real

Coffee Ltd has difficulty with is materials. According to

information gathered about Real Coffe Ltd it holds high levels of

stock in order to lower the price. It is risky and inefficient

because except space, insurance and security costs, stocks may

become out of date or damaged (Hamel, G. n.d.). Thus, high levels of

stock can lead to a worse situation than the lack of stock. Of

course, due to uncertainty in demand it is safe to have a buffer

stock. In any case, the Managing Director can get materials for

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lower price by buying either high levels of stock or low levels of

stock using offers and discounts as suggests the manager. Therefore,

it is advisable to decrease the stock level to a reasonable amount.

Another main activity that Real Coffee Ltd should work on is

control. It involves four steps: setting objectives, measuring,

comparing and acting (Boddy, D. 2011b). It helps to move immediate

operations towards objectives and learn lessons for future

improvements.

Financial Issues

Research has positively shown that Real Coffee Ltd has enough

resources to pay all debts over the next year and to wait for the

payment from its creditors for 35 days (Finance, n.d.). Besides,

revenue growth between 2008 and 2013 was 20%, which is good. Acid

test ratio tells that the company is not able to repay all debts

using its most liquid assets (Jan, I. n.d.a). It is preferable to

improve it by “converting inventory to cash or accounts receivable”

(Winmark, n.d.). In addition, stock turnover of the company of 3

times is too low. This is one of the main financial issues that

should be solved. In order to solve this it is advised to increase

promotional budget to increase demand for products and services of

Real Coffee Ltd (Louise, B. n.d.). Return on capital employed (ROCE)

is the key profitability ratio which is another issue that should be

solved. Cutting costs and buying raw materials for cheaper price are

two ways to improve profitability (Jan, I. n.d.b). Although not

important as stock turnover and ROCE, net profit margin and gearing

or leverage should be also increased by focusing on growth.

Proposed strategy

Having done research it has been identified that preferable

strategic direction for Real Coffee Ltd is aiming for growth. By

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using the product/market matrix it has been chosen that the best

suitable strategy for the company is a market penetration. It aims

to increase market share by reducing price, advertising and

improving distribution (Boddy, D. 2011c). This strategy has been

chosen because Real Coffee Ltd had not yet spent on promotion which

plays significant role in marketing (Brassington, F. & Pettitt, S.

2013). Improved quality of the products, discounts and relevant

promotional advertising are effective tools to increase market share

(Joseph, C. n.d.). More distribution channels also increases market

share in the industry. In order to achieve aiming point weaknesses

of the company should be turned into strengths and opportunities

should be used. Managers should know where the company is going, its

activities and purpose to operate successfully (Dr. Williams, B.

n.d.). A mission statement exists for this purpose. The mission

statement chosen for Real Coffee Ltd is “To distribute from small

coffee shops to the country”.

Proposed implementation

First step that Real Coffee Ltd is advised to take is

targeting right segment. Taking information about target market into

consideration the company should start spending on promotional mix.

This is likely to increase number of customers as well as stock

turnover. It is also highly advised to spend on training and,

consequently, use of traditional employment contracts. The main

mission of HR management is to create ‘a crew’ which will act

effectively and productively. It is also important to have meetings

regularly applying decentralisation to make decisions, discuss

issues and proposals with managers. Clearly identified duties and

responsibilities of managers should be introduced and roles of

managers should be clarified. Real Coffee Ltd should be controlling

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activities of the company by measuring figures, comparing them and

acting accordingly.

Reference list:

BBC (2012a) ‘US firm create text-powered ‘robotic barista’ coffee

maker’ [Online]. BBC Retrieved from:

http://www.bbc.co.uk/news/technology-18166907 [Accessed 1st November

2013].

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BBC (2013b) ‘UK inflation falls to 2.2% in October’ [Online]. BBC

Retrieved from: http://www.bbc.co.uk/news/business-24910587

[Accessed 4th November 2013]

Berardi, J. (2013) Coffee: Your Poison or Your Medicine? [Online] Retrieved

from: http://www.huffingtonpost.com/john-berardi-phd/coffee-health-

benefits_b_3881377.html [Accessed 1st November 2013].

Bhagria, A. (2013) ‘Roles and Functions of the Human Resource

Department’ [Online] Young HR manager. Retrieved from:

http://www.younghrmanager.com/roles-and-functions-of-the-human-

resource-department [Accessed 5th November 2013].

Boddy, D. (2011a) Management: An introduction. Fifth edition. Essex:

Pearson.

Boddy, D. (2011b) Management: An introduction. Fifth edition. Essex:

Pearson.

Boddy, D. (2011c) Management: An introduction. Fifth edition. Essex:

Pearson.

Brassington, F. & Pettitt, S. (2013) Essential of Marketing. Third edition.

England: Pearson.

Dr. Williams, B. (n.d.) ‘The mission statement: Why, How and its

Importance’. [Online] Retrieved from:

http://www.mlmia.com/benefits/free-benefits/articles-archives/85-

the-mission-statement-why-how-and-its-importance [Accessed 1st

December 2013].

Euromonitor International (2013) ‘Coffee in the United Kingdom’. UK

– June.

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Finance (n.d.) ‘Creditor Days’ [Online] QFinance. Retrieved from:

http://www.qfinance.com/dictionary/creditor-days [Accessed 15th

November 2013].

Frost, S. (n.d.) ‘The importance of Training & Development in the

workplace’ [Online] Retrieved from:

http://smallbusiness.chron.com/importance-training-development-

workplace-10321.html [Acessed 9th November 2013].

Hamel, G. (n.d.) ‘The Disadvantages of Holding Too Much Inventory On

Hand’ [Online] Retrieved from:

http://smallbusiness.chron.com/disadvantages-holding-much-inventory-

hand-22710.html [Accessed 15th November 2013].

Jan, I (n.d.a) ‘Quick Ratio’ [Online] Financial Accounting.

Retrieved from:

http://accountingexplained.com/financial/ratios/quick-ratio

[Accessed 20th November 2013].

Jan, I (n.d.b) ‘Quick Ratio’ [Online] Financial Accounting.

Retrieved from:

http://accountingexplained.com/financial/ratios/quick-ratio

[Accessed 20th November 2013].

Jaw, J., Lesslie, S., Mattock, I. and Shahinfar, M. (2010) Coffee

Shops [Online] Retrieved from: http://web.uvic.ca/~pcourty/8.pdf

[Accessed 3rd December 2013].

Jospesh, C. (n.d.) ‘Examples of Penetration Strategies’ [Online]

Retrieved from: http://smallbusiness.chron.com/examples-penetration-

strategies-11699.html [Accessed 1st December 2013].

Larry, E. (2013) ‘Interest rates may rise next year, says Bank of

England chief economist’. [Online] The Guardian. Retrieved from:

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http://www.theguardian.com/business/2013/oct/16/bank-of-england-

interest-rates-may-rise-next-year [Accessed 5th November 2013].

Lindblad, M. (n.d.) ‘Why is workplace training important?’ [Online]

Retrieved from: http://everydaylife.globalpost.com/workplace-

training-important-4623.html [Accessed 6th November 2013].

Louise, B. (n.d.) ‘How to improve inventory turnover’ [Online]

Retrieved from: http://smallbusiness.chron.com/improve-inventory-

turnover-20522.html [Accessed 20th November 2013].

Mullins, Laurie, J. & Gill, C. (2013) Management & Organisational

Behaviour. Tenth edition. Pearson.

Pennycook, M., Cory, G. & Alakeson, V. (2013) A matter of time: The rise of

zero-hours contract. Resolution Foundation

Rao, S.R. (2009) ‘Advantages of Delegation’ [Online] Retrieved from:

http://www.citeman.com/4762-advantages-of-delegation.html [Accessed

10th Novemeber 2013].

Spanjers, S. (2013) ‘Legal implications of zero hours contracts’

[Online] http://www.hrmagazine.co.uk/hro/features/1077828/legal-

implications-zero-hours-contracts [Accessed 9th November 2013].

Sprague, L. (1990) ‘Operations management: Productivity and quality

performance’, in E.G.C Collins and M.A. Devanna (eds), The Portable

MBA, Wiley, New York.

Tovey, A. (2013) Zero-hours contracts ‘unfairly demonised’ research finds. [Online]

The Telegraph. Retrieved from:

http://www.telegraph.co.uk/finance/jobs/10474023/Zero-hours-

contracts-unfairly-demonised-research-finds.html [Accessed 15th

November 2013].

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Webster, L.A. (n.d.) ‘Formalization of an Organizational structure’

[Online] Retrieved from:

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structure.html [Accessed 9th November 2013].

Winmark (n.d.) ‘Quick Ratio’ [Online] Winmark. Retrieved from:

http://www.wbsonline.com/resources/quick-ratio/ [Accessed 21st

November 2013].

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Appendices:

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