ZEMEN COFFEE

BUSINESS PLAN
FOR
OPENING COFFEE SHOP AT BOLE
INTERNATIONAL AIRPORT
TERMINAL I

October 4, 2018
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 TABLE OF CONTENTS

EXCUTIVE SUMMARY......................................................................................................................... 1
CHAPTER ONE – BACKGROUND...................................................................................................... 2
1.1 BACKGROUND OF THE PROJECT PROMOTER................................................................2
1.2 THE PROJECT BACKGROUND........................................................................................... 2
CHAPTER TWO – PRODUCT DESCRIPTION.....................................................................................3
CHAPTER THREE – MARKET STUDY................................................................................................5
3.1 MARKET FORECAST........................................................................................................... 5
3.3 MARKETING MIX.................................................................................................................. 6
3.3.1 PRODUCT QUALITY..................................................................................................... 6
3.3.2 PRICING......................................................................................................................... 6
3.3.3 SALES................................................................................................................................. 7
3.3.4 PROPOSED PROMOTIONAL MEASURES......................................................................7
CHAPTER FOUR – OPERATING PLAN...............................................................................................8
4.1 EQUIPMENT......................................................................................................................... 8
4.2 SUPPLIES............................................................................................................................. 8
CHAPTER FIVE – LOCATION AND FACILITIES.................................................................................9
CHAPTER SIX – MANAGEMENT AND MANPOWER.......................................................................10
6.1 MANAGEMENT................................................................................................................... 10
6.2 STAFFING........................................................................................................................... 10
CHAPTER SEVEN – FINANCIAL ANALYSES...................................................................................11
7.1 BASIC ASSUMPTIONS FOR FINANCIAL ANALYSES........................................................11
7.1.1 PROJECT LIFE............................................................................................................ 11
7.1.2 DEPRECIATION AND AMORTIZATION.......................................................................11
7.1.3 DISCOUNTING............................................................................................................. 11
7.1.4 INCOME TAX................................................................................................................ 11
7.2 RESULTS OF THE FINANCIAL ANALYSIS.........................................................................11
7.2.1 INVESTMENT COSTS.................................................................................................11
7.2.2 SOURCES OF FINANCE............................................................................................. 12
7.2.3 ANNUAL REVENUE..................................................................................................... 12
7.2.4 PROFITABILITY........................................................................................................... 12
7.2.5 CASH FLOW................................................................................................................ 12
7.2.6 RATIOS........................................................................................................................ 12
7.2.7 BALANCE SHEET........................................................................................................ 13
ANNEXES – FINANCIAL ANALYSIS SUPPORTING TABLES............................................................14
 EXCUTIVE SUMMARY

Zemen Coffee Shop will be the go to place for coffee lovers. We plan on serving the
highest quality coffee and snacks in a trendy, comfortable atmosphere. Our convenient
location and excellent customer service should build a steady repeat customer base.

The owner Mr. Eyob Tegegn has over a decade in the coffee service industry, including
management experience.

Our main products will be the higher margin gourmet coffee products such as espressos,
cappuccinos, lattés, and a variety of snacks, including healthy alternatives.

Strategically located within Bole International Airport, we intend to cater to travelers by

providing plenty of seating space and superior customer service with a trendy vibe.

In the immediate area our competition consists mainly of fast food vendors. We plan on
capturing the upper end of the airport coffee market by serving gourmet, non-machine
made coffee products at reasonable prices. Along with our superior atmosphere and great
customer service, we intend to target the sophisticated coffee consumer.

The location we have selected has 23.6 square meter of space requires a minimum of
renovations.

We expect sales revenue to grow from Birr 934,000 in the first year of operations to Birr
1,556,000 by the end of the fifth year. To minimize operating expenses the owner will be
onsite on a full time basis to reduce staffing costs, supervise and maintain quality control.
We expect net profits to grow from Birr 122,000 to Birr 311,000 by year five.

Birr 1,309,000 in startup funding is required for equipment and initial working capital.

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 CHAPTER ONE – BACKGROUND

I.1 BACKGROUND OF THE PROJECT PROMOTER

The promoter of the present project Mr. Eyob Tegegn has special training on coffee
testing, roasting and ground. He is an experienced business leader with over 8 years of
experience in the fields of coffee roasting. He had leading a number of business
organizations before he embarked on the current project. In general he has broad
background in the overall management of business organization.

Mr. Eyob is the founder of EYOB TEGEGN COFFEE ROASTER. It is an enterprise

established to supply roasted and ground coffee with “ZEMEN COFFEE” brand. In
addition the company carries out integrated investment and business activities in various
related sectors. The company is based in Addis Ababa, Ethiopia.

Mr. Eyob has taken up important projects and proved its mettle in due course of time over
the years. The promoter has keen business acumen to survey profitable projects and
execute them at a commendable pace. Its track record over past years speaks for itself.

I.2 THE PROJECT BACKGROUND

A steady growth of industry and trade has been registered in the past years in Ethiopia
due to an array of reforms and the opening up of the economy and the creation of
encouraging investment environment. There has been a surge in investment, growth in
exports and increased employment generation. Moreover, experience has been gained in
providing support to the private sector, and a closer working relationship with the sector
has been created. This is in part as a result of a more open and liberalized economy, and
due to the rebound from years of unsettled domestic and external conditions.

General trend toward quality among consumers definitely plays an important role in the
recent growth in gourmet coffee. Additionally, such factors as desire for small
indulgencies, for something more exotic and unique, provide a good selling opportunity for
coffee bars.

The promoter, cognizant of the growing demand in the coffee shop business in the near
future, has planned to open coffee shop at Bole International Airport.

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 CHAPTER TWO – PRODUCT DESCRIPTION

The envisaged coffee shop will offer its customers the best tasting coffee beverages in the
area. This will be achieved by using high – quality ingredients and strictly following
preparation guidelines. The shop layout, menu listings and marketing activities will be
focused on maximizing the sales of higher margin espresso drinks. Along with espresso
drinks, brewed coffee and teas, as well as some refreshment beverages, will be sold in the
coffee shop. For the gourmet clients that prefer to prepare its coffee at home, the shop will
also be selling coffee beans.

The menu offerings will be supplemented by free books and magazines that customers
can read inside the coffee shop.

The menu of the envisaged coffee shop (Table 2.1) will be built around espresso – based
coffee drinks such as lattes, mochas, cappuccinos, etc. Each of the espresso – based
drinks will be offered with whole, skimmed, or soy milk. Each of these coffee beverages is
based on a ‘shot’ of espresso, which is prepared in the espresso machine by forcing
heated water through ground coffee at high pressure. Such espresso shots are combined
with steamed milk and/or other additives like cocoa, caramel, etc., to prepare the espresso
– based beverages. Proper preparation techniques are of paramount importance for such
drinks. A minor deviation from the amount of coffee in the shot, the size of the coffee
particles, the temperature of milk, etc., can negatively affect the quality of the prepared
drink.

Manu of the envisaged coffee shop is listed below:

1. Roasted bean

- 1kg
- 500g
- 250g
- 100g

2. Roasted and Ground Coffee

- 1kg
- 500g
- 250g

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 - 100g

3. Black Coffee

- Big

- Small

4. Coffee made with light roast

- Big

- Small

5. Espresso

- Tall

- Short

6. Cappuccino

7. Tea with different flavor

8. Milk

9. Traditional Coffee

10. Macchiato

- Tall

- Short

11. Coffee Arabi (White coffee)

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 CHAPTER THREE – MARKET STUDY

3.1 MARKET FORECAST

The formal cultivation and use of coffee begun in the ninth century, but prior to that coffee
has grown in the highland forests of Ethiopia.

Ethiopia is the largest coffee producer in sub-Saharan Africa. The nation also occupies
fifth place on the world stage, behind Brazil, Vietnam, Colombia, and Indonesia. Ethiopia
is also the second largest coffee exporter in the continent next to Uganda.

In 2017, Ethiopia earned more than 881 million dollars from 225,493tn of exported coffee.
Ethiopian coffee export destinations have grown to 60 countries in which the top
destinations such as Germany, Saudi Arabia, Japan, the United States, Belgium, Sudan
and South Korea take an 86pc share of the total. An indicator of the commodities
importance for the nation is that over 15 million people rely upon coffee production.

The annual coffee production of Ethiopia in 2017 was 469,000tn, almost half of which was
consumed domestically.

3.2 TARGET MARKET

Given the premise of the airport, our primary target market will be local and international
travelers. Both groups are heavy consumers of coffee, tea, and snacks.

Based on previous customer surveys, there is a strong demand for a high end coffee shop
in the airport that serves great coffee and has outdoor seating. The main complaint about
the existing competition in the area is “Inconsistent product: Discerning customers are
reluctant to become regular patrons of a coffee shop that cannot consistently serve a high
quality product.”

The local customer base consists of approximately 1.5 million travelers per annum. Bole
international airport is expanding and the number of travelers also expected to increase
more. The local business market is strong and has been relatively unaffected by economic
downturns.

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3.3 MARKETING MIX

Marketing mix can be defined as the set of controllable, tactical marketing tools that a
company blends to produce the response it wants in the target market.

Marketing mix includes, but is not limited to the best possible mix of four variables,
namely; the nature of the product, the price of the product, the sales and the promotional
activities. A combination of these fou elements, affects the ultimate sales success of a
product.

3.3.1 PRODUCT QUALITY

Product quality is one of the basic and most important marketing mixes that affect the
success of a new product. Product quality has two dimensions, level and consistency.
Level means the producer must first choose a quality level that will be acceptable in the
target market and in a level that comply with the quality of competing products.
Consistency refers to the consistent delivering of ones established quality through strict
quality control measures.

The envisaged project is passionate about coffee and intends to focus on consistently
serving the highest quality product by:

 Sourcing premium beans and snacks and maintaining freshness at all times.

 Using a top of the line espresso machine and related equipment.

 Properly training our staff – our baristas will be sent away for proper training.

By focusing on quality, consistency, and great customer service we will build a steady
repeat customer base.

3.3.2 PRICING

Pricing a product is an important and critical activity since it is the major factor in
determining revenue. If a lower price is fixed, it will affect the profitability of the company,
and if a higher price is fixed, the product will not be able to stand in competition and may
be priced out of the market. Therefore, the right price has to be fixed.

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We intend to mainly focus on specialty coffees including espresso, cappuccinos, mochas,
etc. as the profit margins are much higher than regular coffee. To command a higher price
for regular coffee we will not use drip machines. Instead, each cup will be single served
using a bodum, so that every cup is up-to-the-minute fresh and delicious.

Our pricing will be competitive with the higher end of the market. We believe that
customers will be happy to pay top prices for a great cup of coffee.

3.3.3 SALES

We will be offering counter service in a professionally designed, cozy, inviting interior

space. Interior seating will be a mix of smaller individual tables for intimacy. We intend to
be open 24 hours and seven days a week.

3.3.4 PROPOSED PROMOTIONAL MEASURES

Advertising is a potent tool of marketing and a component of overall promotion activities.

It serves as a communication link between the seller and the buyer or the consumer. It
does not simply provide information about products but also attempt to influence people
by an overt appeal to reason or emotion. In other words, advertisement does not end with
the flow of information from the seller to the buyer; it goes further to influence and
persuades people to action or belief.

To minimize costs and connect with our customer demographic, most of our advertising
will be of the digital variety. We intend to aggressively promote our products using the
following methods:

 Posters on the airport billboards

 Our state of the art website

 Social media: Daily specials will be announced on Facebook and Twitter

Statistics demonstrate that loyalty cards are highly effective – we will use a custom
designed rewards card to promote repeat business.

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 CHAPTER FOUR – OPERATING PLAN

4.1 EQUIPMENT

The following equipment will be purchased:

TABLE 4.1: LIST OF EQUIPMENT AND THEIR COSTS

Unit of Unit Price Total Cost

No. Item Description Qty
Measure (Birr) (Birr)
1 Commercial grade La Marzocco Espresso machine Set 2 150,000.00 300,000.00
2 Espresso grinder Set 1 65,000.00 65,000.00
3 Coffee grinder small Set 1 30,000.00 30,000.00
4 Glass door fridge Set 1 30,000.00 30,000.00
5 Dishwasher Set 1 45,000.00 45,000.00
6 Microwave Set 1 20,000.00 20,000.00
7 Misc. shelving, storage bins, etc. Set 1 100,000.00 100,000.00
8 Furniture and displays Set 1 225,000.00 225,000.00
9 Glass wares Set 1 50,000.00 50,000.00
Total 865,000.00

Maintenance contracts for the equipment will be negotiated with local vendors.

4.2 SUPPLIES

We have negotiated an agreement with Wholesalers to supply premium beans. Milk,

juices, soft drinks, fruit, etc. will be sourced from the local supply.

Muffins, scones, cookies, yogurt fruit cups, and sandwiches will be supplied on a daily
basis by local suppliers.

Utilities (water, electricity, gas, internet, phone) are estimated to be Birr 10,000 per month

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 CHAPTER FIVE – LOCATION AND FACILITIES

The premise is at Bole International Airport. The space features:

 23 square meter of indoor space in a modern, well maintained building

 The floor plan will include a seating area, a kitchen, storage area and washroom.
The space in the coffee shop will be approximately distributed the following way –
12.6 square meter (i.e. 55% of the total) for seating area, 6 square meter (26%) for
production area, and the remaining 4.5 square meter (19%) for the customer
service area.

 A five year lease at Birr 35,000/month

 The airport is responsible for trash collection, recycling, pest control, and security

The premise has the necessary water and electricity hookups and will require only minor
remodeling to accommodate the espresso bar, kitchen and storage area. The coffee
shop’s open and clean interior design with modern wooden décor will convey the quality
of the served beverages and snacks, and will be in – line with the establishment’s
positioning as an electric place where people can relax and enjoy their cup of coffee. The
total cost for interior design estimated to be Birr 200,000.00.

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 CHAPTER SIX – MANAGEMENT AND MANPOWER

6.1 MANAGEMENT

Mr. Eyob will manage the business (he will be present at all times during opening hours).
Mr. Eyob has previous coffee roasting service management experience and is trained,
experienced coffee roaster.

The interior design of the premises will be contracted to external design service provider.

The accounting services for the business will provide to licensed and certified external
accountant.

The baked goods also will be supplied by catering service provider.

6.2 STAFFING

The shop intends to be open 24 hours and seven days a week in three shift per day basis.
In one shift two full-time baristas will be hired at industry standard wages. Baristas will be
trained at barista training center. Two waiters, one cashier, and two cleaners will be
sourced from the local labor market.

Therefore the total personnel requirement has been estimated at 21 persons.

Training of the required manpower for the project has to be planned well in advance. The
key personnel should be selected and trained suitably. The training may be carried out on
job training during operation of the coffee shop.

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 CHAPTER SEVEN – FINANCIAL ANALYSES

I.3 BASIC ASSUMPTIONS FOR FINANCIAL ANALYSES

I.3.1 PROJECT LIFE

Based on the lease period, the operational life of the project is considered to be 5 years.
Hence, the costs and benefits of the project are computed over 5 years.

I.3.2 DEPRECIATION AND AMORTIZATION

Based on the Business Income Tax Proclamation Number 286/94, the following
depreciation rates are applied to depreciate the assets of the project:

 Buildings and associated Civil works 5%, linear to scrap Value

 Machinery and Equipment 20%, linear to scrap Value

 Pre-production expenditure 10%, linear to scrap value

I.3.3 DISCOUNTING

The total investment and equity capital of the project are discounted at 10 percent
over the life of the project.

I.3.4 INCOME TAX

The income tax required from the project is computed based on the newly introduced
Income Tax Proclamation No. 286/1994.

I.4 RESULTS OF THE FINANCIAL ANALYSIS

I.4.1 INVESTMENT COSTS

The total initial investment cost of the project, which includes fixed assets and initial
working capital, is Birr 1,309,000 of which Birr 1,065,000 is for fixed assets and Birr
244,000 is for for the initial working capital. Details of the investment costs are
shown in Schedules 1.

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I.4.2 SOURCES OF FINANCE

The investment requirement of envisaged project would be financed fully by equity

capital.

I.4.3 ANNUAL REVENUE

The sales revenue is calculated on the basis of the average unit prices of the
products. The unit prices were determined on the basis of the proposed marketing
strategy.

The gross sales revenue (i.e. including VAT) generated by the project amounts to
Birr 1,789,000. The net sales, excluding all taxes, are Birr 1,556,000 at year five.

I.4.4 PROFITABILITY

The project generates profit throughout the operation years. A net profit of Birr
122,000 will be made in the first year of operation, growing to an annual value of Birr
311,000 during the last year of operation. Details are shown in Schedule 2.

I.4.5 CASH FLOW

The projected cash flow of the project shows that the project would generate positive
net cash flows throughout the operation years. Cumulative cash flow generated by
the project at the beginning of the operation will amount to Birr 313,000. At the end
of the project life, this amount will rise to Birr 1.9 million. Details are shown in
Schedule 3.

I.4.6 RATIOS

In financial analysis, financial ratios and efficiency ratios are used as an index or
yardstick for evaluating the financial position of a project. It is also an indicator for
the strength and weakness of a project. Using the year-end balance sheet figures
and other relevant data, the most important ratios such as return on sales which is
computed by dividing net income by revenue, return on equity (net profit divided by
equity), return on assets (operating income divided by assets), and return on total
investment (net profit plus interest divided by total investment) has been carried out
over the period of the project life and all the results show that the project is highly
liquid and has sound financial performance. (See Schedules 2)
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I.4.7 BALANCE SHEET

The positive financial performances are manifested in the balance sheet. As can be
seen from the projected Balance Sheet depicted in Schedule 5, the initial net worth of
the project, which is Birr 1.06 million, will rise to Birr 2.4 million at the end of the project
life.

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ANNEXES – FINANCIAL ANALYSIS
SUPPORTING TABLES

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 Schedule 1
Initial Investment Costs
( '000 Birr)
Year 0 Year 1 Total
Items Grand Total
Loc. C. For. C. Loc. C. For. C. Loc. C. For. C.
Fixed investment 1,065 - - - 1,065 - 1,065
Working capital, initial - - 114 130 114 130 244

Total 1,065 - 114 130 1,179 130 1,309

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 Schedule 2
Sales Revenue
('000 Birr)
Operation Years
No. Description
1 2 3 4 5
1 Net Sales Revenue 934 1,089 1,245 1,400 1,556
1.1 Coffee Beans 689 804 918 1,033 1,148
1.2 Coffee Beverages 245 286 326 367 408
2 VAT (15% on sales) 140 163 187 210 233
3 Total Sales Revenue 1,074 1,253 1,432 1,610 1,789

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 Schedule 3
Proforma Profit & Loss Statement
('000 Birr)
Operation Years
Description
1 2 3 4 5
Total Sales Revenue 1,074 1,253 1,432 1,610 1,789
Less net sales tax 140 163 187 210 233
Net Sales 934 1,089 1,245 1,400 1,556
Less Cost of Goods Sold 614 678 741 830 893
Gross Profit 319 412 504 570 663
Gross Profit Margin 34% 38% 40% 41% 43%
Less Administrative Expenses 179 180 184 191 194
Profit (loss) before Interest, Sales Cost & Tax 140 231 320 380 469
Less Selling & Dist'n Costs 18 20 21 23 25
Profit (loss) before Tax 122 211 299 357 444
Less Income Tax (30%) * * 90 107 133
Net Profit (Loss) 122 211 209 250 311
Cumulative Net Profit (Loss) 122 333 543 792 1,103

Ratios (%)
Return on sales (net income by revenue)
13% 19% 17% 18% 20%
Return on equity (net profit divided by equity)
9% 16% 16% 19% 24%
Return on assets (operating income divided by assets)
22% 25% 27% 27% 27%
Return on total investment (Net profit + interest to
investment) 11% 20% 28% 33% 42%

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 Schedule 4
Cash Flow for Financial Planning
('000 Birr)
Implimentation
Year Production Years
Description
0 1 2 3 4 5
Total Cash Inflow 1,065 557 402 400 440 502
1. Inflow of funds 1,065 244 - - - -
Total equity 1,065 244 - - - -
Borrowing (term loan) - - - - - -
Borrowing (overdraft) - - - - - -
Increase in overdraft - - - - - -
2. Inflow from operation - 313 402 400 440 502
Profit after tax - 122 211 209 250 311
Depreciation - 191 191 191 191 191
3. Other income - - - - - -
Salvage value of assets - - - - - -
Recoverable assets - - - - - -
Total Cash Outflow 1,065 244 36 37 46 37
4. Investment
Fixed investment 1,065 - - - - -
Pre-Production expenditures - - - - - -
Incremental working capital - 244 36 37 46 37
5. Loan repayment
Term loan (Principal) - - - - - -
Overdrft (Principal) - - - - - -
Net cash flow - 313 366 363 394 465
Cumulative Net cash flow - 313 679 1,042 1,437 1,902

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 Schedule 5
Projected Balance Sheet

('000 Birr)
Implimentation
Year
Production Years
Description
0 1 2 3 4 5
Fixed assets
Fixed investment 1,065 1,065 1,065 1,065 1,065 1,065

Pre-production expenditures - - - - - -
Total Fixed Assets 1,065 1,065 1,065 1,065 1,065 1,065

Less acc. Depr'n & ammortiz'n - 191 381 572 762 953
Net fixed assets 1,065 874 684 493 303 112
Current assets
Cash on hand & at bank - 323 690 1,055 1,450 1,917

Debtors (receivables) - 77 90 102 115 128

Stocks - 157 179 202 234 256

Total current assets - 557 959 1,359 1,799 2,301

less Current liabilities

Creditors (payables) - - - - - -

Overdraft - - - - - -
Total current liabilities - - - - - -
Total working capital - 557 959 1,359 1,799 2,301

Total net assets 1,065 1,431 1,643 1,852 2,102 2,413

Financed by
Paid-up capital 1,065 1,309 1,309 1,309 1,309 1,309

Loan and Credit - - - - - -

Retained profits (Losses) - 122 333 543 792 1,103

Total 1,065 1,431 1,643 1,852 2,102 2,413

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