A Problem Solving and Decision-Making Case Study
Adapted from resources provided by Start Here, Go Places by AICPA
Critical thinking skills are crucial for success in business. This case study helps students further develop those skills by putting them in charge of running a local coffee shop chain. Students will work through real-world business situations by evaluating and making strategic decisions that affect the company’s bottom line.
Each week, you’ll be presented with a situation that requires problem-solving and decision-making. You will discuss the situation and the proposed strategic options for dealing with that situation. In addition to selecting the option you think is best for the company based on the details provided, you will also create lists of additional questions you would ask, information you would need, and factors you should consider in making that decision. Once you have made your decisions and compiled your list, you will write a short discussion about which of the three options would be best for the company. Discussions should revolve around supporting rationale for the best decision, reasoning as to why the other options weren’t as strong and what you were able to come up with for your list.
The Daily Grind Coffeehouse was founded in 2007 by two friends who love nothing more than a hot cup of joe. The company has always prided itself on putting quality first—from the beans they brew to the knowledge and friendliness of people who serve it. Their goal has always been to be the coffee shop that makes the absolute best cup of coffee in town. They strongly believe in fair trade and donate 5% of their profits to support the communities of their farming partners.
Over the last 10 years, The Daily Grind has managed to grow from a single storefront to a local coffee chain with eleven brick-and-mortar locations. The Daily Grind Coffeehouses are decorated with a retro industrial vibe. They feature art and signage that tells the story of their crop-to-cup process and educate customers on various coffee-related topics.
This privately held, LLC offers premium coffee beverages and breakfast items. Each of their cafés average $2,750 in sales per day, with some locations performing much higher than others depending on location, square footage and whether or not they have a drive-thru (all but two locations do). The average transaction is $5.74. Last year, The Daily Grind saw $10,900,000 in total revenue.
As management for The Daily Grind, your team is responsible for evaluating strategic decisions for the company that come down from the owner and CEO. Your advice and input provide direction for the company, so that The Daily Grind can continue to grow its profits.
Welcome to the Coffee House Part 2
The owner of the strip center where one of The Daily Grind’s stores is located recently reached out with a business proposition. The tenants in the unit next door are not renewing their lease, so the landlord has offered it to The Daily Grind to expand their current location. In light of recent changes in corporate tax rates, The Daily Grind has enough to invest in the expansion of this location. With this being one of the company’s two locations without a drive-thru (since it’s in the middle of a strip center), the idea of expanding their footprint in this well-trafficked shopping destination is particularly appealing. In fact, this expansion would make this location The Daily Grind’s largest by far. The executive team has decided to lease the unit next door but is still debating the best use of this additional space. Based on their ideas, which option would you recommend?
A.) Make this location into a specialty store. This direction would also allow for expansion of the current café’s seating area to accommodate more guests. The specialty store would sell a wide variety of coffee brewing products, from single-serving French presses all the way to high-end espresso machines, books, mugs, other coffee-related accessories, and branded merchandise. The cost associated with this build out would include additional tables and chairs, shelfing and cabinets for merchandise, an additional counter and register, as well as the wholesale cost of the products for the store. Staffing for this location would need to increase to employ cashiers in the new portion of the store.
B.) Turn this location into a training store. In this approach, the extra square footage would be used to create a sort of mock café that somewhat mirrors the existing space but is used exclusively for training all new employees. A second counter and service line with a register would be added to the new area along with extra tables and seating for written portions of training, testing, and tasting—in addition to guest overflow from the original store. Two fulltime trainers would need to be hired. The hard costs associated with this build out would be similar to a new store, minus the cost of the kitchen and deep storage for product.
C.) Add an in-house bakery to this location. Another way to utilize the space would be to turn it into a bakery, which would provide product to this store and all of The Daily Grind’s locations moving forward. This approach would also allow for a small increase in the size of the café seating area for guests. The build out cost would be higher than the other two options, as it would include a separate kitchen with multiple ovens, industrial-sized mixers, and other equipment as well as baking supplies, utensils, etc. This would also require specialized labor in the form of bakers to operate this portion of the store.
A Problem Solving and Decision-Making Case Study