Question: Niagara’s Very Best Juice Bar - Case Study
08 Dec 2022,2:48 AM
Niagara’s Very Best Juice Bar
Niagara’s Very Best Juice Bar (NVBJB) is a food and beverage operator based in St. Catharines, Ontario. The company was started in 2011 and currently they have five (5) outlets up and running at various shopping malls within the region. Sales have been good with continuous increases in revenue and net income year to year.
The Chief Operating Officer (COO) for NVBJB, Mary Smith, has been giving serious consideration to opening a standalone unit to be located in Grimsby, Ontario. Grimsby has a growing population of approximately 26,000 and is conveniently located as the halfway point in between Hamilton and St. Catharines. The residents of Grimsby work within the township itself as well as other communities in and outside of the Niagara region. Grimsby offers a $10,000 entry grant to paid on January 1st for the first 2 years of a new business opening.
The possible standalone unit would be a departure from the current business model for NVBJB which has relied upon leasing space in shopping mall food courts.
Mary envisions the standalone unit to be open 7 days a week and 12 hours a day (9:00 AM – 9:00 PM). This unit would offer a very comfortable environment for customers with flat screen TVs and free Wi-Fi.
If Mary were to go ahead with a standalone unit the following costs would be incurred.
Building purchase: $800,000.
Annual insurance expense: $1,500.
Electricity expense: $700 per month.
Water expense: $200 per month.
Gas expense: $200 per month.
Property maintenance: $50 per month.
Internet and telephone: $160 per month.
Equipment & Furniture purchase: $128.000.
Management salaries: $2,800 per month.
Business tax expense: 16%
The building purchase would require a 20 year mortgage financed through Niagara Super Credit Bank with an interest rate of 3.2%. Depreciation would be at 5% per annum.
The equipment and furniture purchase would be financed with a 5 year loan at an interest rate of 5.2%. Depreciation would be at 18%.
The financial goal with the standalone unit is to achieve a net income value of $1,800 per month.
Mary needs to present a proposal to the senior executive team next week. At this time, she is not sure if the project is financially viable.
REQUIRED;
You must show all your work for the following:
1. Calculate the required number of customers to be served to break even per year.
(35 Marks)
2. Calculate the required number of customers on a per hour basis to break even.
(10 Marks)
3. Generate an annual income statement to provide proof that your calculations are correct.
(35 Marks)
4. Provide your recommendation as to whether or not this project should be pursued.
(10 Marks)
5. Provide three (3) recommendations as to how NVBJB can best remain relevant in an intense competitive environment.
(10 Marks)
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