Coffee and Café Nero Essay

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Greenwich University | Joanne Williams8953511724025003771901722755Café Nero
Case study Analysis
900000Café Nero
Case study Analysis

Summarise the business of Café Nero and its competitors
Branded coffee shops like Café Nero started to become more successful from 2002 onwards. In 2004 the turnover for coffee shops increased and the price of coffee remained constant throughout this time. One of Café Nero’s main competitors is Costa Coffee, from 2004 and onwards Costa Coffee made an increase in profit of 8 million even though the business made a loss the year before. Café Nero became the fastest growing Coffee chain in the UK but their competitor still remained ahead of them. A positive outcome for Café Nero is that the business is certain that they will not have to borrow any money to open up new shops in the future. Café Nero has increasing competition from other coffee brands such as Starbucks and Coffee Republic Company. In 2001 one of Café Nero’s competitors from a fast food chain had to sell their chain of coffee shops to Café Nero. The Aroma shops were renamed and given a new design then reopened to the public.
Customers are attracted to coffee shops as they offer an experience to the individual. Customers can socialise with friends over beverages or take a short break to relax and regenerate after shopping and enjoy a coffee. Café Nero markets their brand based on making an enjoyable and a luxury experience for the customer. The company spent the majority of their money on interior fittings and refurbishments to attract custom and increase their profits.
Describe the main costs that have affected Café Nero and its competitors over the years
From 2002 onwards coffee shops from around the UK were becoming more popular with customers and this meant an increase in sales. It was expected that individual coffee stores would have gained sales from £325,000 and £500,000 per year. The estimated gross profit would have been between £97,500 and £150,000 a year. It was seen that the majority of coffee shops were actually making huge losses instead. There was millions being spent on interior fittings for inside the shops and as competition grew, coffee shops spent more to attract custom. Also the rent in some regions of the UK was extremely high so coffee shops had to sell one cup of coffee every 40 seconds to break even.
Calculate the profit and losses for Café Nero for the last 5 years by filling in table 1
See notes for details.
Starting with the year 2001 calculate the change in sales for each year
See notes for details.
Starting with the year 2001, calculate the change in Net Profits for each year?
See notes for details.
In what year did Café Nero’s financial fortunes change?
Starting from the year 2000 the turnover and sales for Café Nero was low this stopped the business from opening any new shops and expanding. In 2001 their turnover and sales increased giving them a gross profit of 2.3 but they were still in the minus figures for their net profit and therefore did not make any profit after all deductions had been made. This continued to 2004 when they eventually got out of the minus figures and started to make more profit after deductions. The highest amount of profit Café Nero made was at the end of 2006 where there profit reached a high amount of 7.4 million.
Over the number of years Café Nero has spent a lot of money buying and opening up new shops so that their number of shops has increased significantly.
These costs are called fixed costs as the expenses do not change.
Fixed costs: Professional fees (legal documents, accounts) Insurance. Variable costs: Packaging and cost of product.
Fixed costs such as premises costs (rent, gas,…