Games & Grounds Coffee House

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GAMES & GROUNDS COFFEE HOUSE

Industry: Food and entertainment

Owner: Fukun Liu

Highlights

The proposed business is expected to provide customers with completely new experiences with a very special combination between coffee and gaming from the beginning of 2017. It is the first coffee house that fills the significant market gap i.e., the demand for a place to both enjoy high quality coffee and play computer games. Located in the centre of Middlesex Street – one of the busiest streets in the inner London, it is expected that the business will allow customers the highest level of accessibility. Although the individuals around the street have been found to have greater demand for entertainment, so far existing coffee houses have failed to meet their new needs i.e., the combination between coffee and gaming.

The micro analysis shows that the UK in general and London in particular will continue experience healthy economic growth in the coming years, thus suggesting customers’ stronger consumption power and greater demand for entertainment activities. Given the high level of foot traffic in Middlesex Street, the demand for the business’ product will be possibly huge.

The PEST analysis shows that the UK is a highly favourable environment for the proposed business to grow. The business will have no direct competitor during the first few years. This will certainly allow it sufficient time to consolidate its position as a leader in a new segment of the industry.

The compilation of alternative candelabras reveals that the combination between gaming and coffee is the perfect choice for the proposed business as such a combination helps it meet customers’ new needs for both coffee and gaming.

The CARE analysis shows that the owner of the business is really keen on it and has a strong desire to succeed. In the meantime, the stakeholder analysis reveals that employees and customers will be the most important stakeholders of the business.

The finance analysis shows that the business will be able to generate very strong cash flows. It will have positive cash flows from the first quarter due to its highly innovative business idea and hence exceptional ability to attract customers. After two years, the proposed business will be able to generate a net cash flow of £1,755,999 and recover all the initial investments within 5.6 months. The annual and weekly breakeven units are computed to be 95,204 and 1,904, respectively.

Overall, taking everything into account, the business is highly feasible. However, additional work needs to be performed to assess the key potential challenges it may face.

The report has also discussed the enjoying part as well as the difficult part of the module together with a literature review which covers some relevant theoretical issues.

Table of content

Highlights        

1. Micro analysis        

2. Macro analysis        

3. Strategy        

4. Micro industry        

5. Finance        

6. Recommendation        

7. Eureka        

8. Literature review        

References        

Appendix 1: 7SM for the business        

Appendix 2: PEST analysis        

Appendix 3: The compilation of 3 candelabras for the business        

Appendix 4: The engine diagram for the business        

Appendix 5: Breakeven calculation        

Appendix 6: Cash flow computation        

Appendix 7: The table for WISPA and DENTs        

Appendix 8: The questionnaire        

1. Micro analysis

• GDP purchasing power parity of the UK. According to the Bank of England (2016), for the year 2015, GDP per capita in the UK is $40,999 and the GDP per capital PPP (purchasing power parity) is $38,658. While these show a slight decline compared to 2014, the figures for 2016 have been expected to be significantly better. More importantly, the UK is still the top 25 countries in terms of GDP (PPP) per capita. In the spirit of Paul (2014), such a high level of GDP per capita in all cases would suggest that the citizens’ consumption power is high, thus to some extent suggesting great demand for the business’ proposed product.

• London GDP purchasing power parity. As the economic and financial centre of the whole country, London has consistently secured the highest level of GDP (PPP) per capita. In particular, for the year 2015, the figure is $78,158. This is far greater than the average level of the whole country. This is largely understandable for although the city accounts for just about 12.5% of the country’s total population, it has consistently contributed more than 50% to the UK’s total GDP. The consumption power of Londoners therefore has been expected to be much higher than the UK’s average.

Figure 1: The most important gaming platforms in 2016

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Source: Games Developer Conference, 2016

• 2MR and the size of the industry of the chosen business and growth percentage. The size of the market for gaming coffee is huge. Figure 1 above shows the most important gaming platforms in the UK in 2016. As the most populous and international city in the country, London has a total population of about 9 million (Trading Economics, 2016). The city also has a large number of universities and other education institutions which annually attract approximately 500,000 international students (UKCISA, 2016). In addition, containing four world heritage sites and a large number of attractions, the city has welcomed more than 30 million international and UK tourists annually (the Guardian, 2016). The demand for gaming coffee is expected to increase at the same rate of international students and tourists since these are among the business’ key customers.

• Foot traffic in Middlesex Street. Middlesex Street is among the busiest ones in the inner London as it is the home for Coventry University London Campus (hereafter CULC) and is surrounded by several popular markets and busy shopping centres. From the researcher’ observation, the daily foot traffic in this street is approximately 300,000 pedestrians and the street is particularly busy between 7 and 8 am and between 16 and 19 pm.

Figure 2:  The participants’ view about the need for the combination between gaming and coffee

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Source: The researcher’s own survey

• Market gap. At the time being, regardless of the fact that there have been several coffee houses in the streets including huge brands such as Starbucks, Caffe Nero, Costa and so on, none of these has been in the business of providing customers with the special combination between coffee and gaming. The business therefore may be the first coffee house to offer this special product which is likely to appeal customers tremendously. As can be seen from Figure 2, more than 60% of the potential customers agree that they do like the business’ idea.

• Entry segment and customer type. The business will focus on students, office employees and international tourists of all income categories. The main reason for it is that the product of gaming coffee is highly affordable and spending on this product will account for only a very small proportion of customers’ income (Mullins, 2003).

• Follow up segment and customer type. The follow-up segment for the business will contain firms which organize annual meetings and parties and hence look for coffee houses that can offer large spaces and excellent sound systems.

• Offering comprising product, service and repeater. What will make the business highly unique is the combination between premium coffee and high-speed gaming. To ensure the highest level of customer satisfaction, everything will be of exceptional quality. The business will provide customers with latest game stations with the fastest speed, free excellent Wifi, premium coffee and especially a large space which not only is clean but also has great design (see Figure 3).

Figure 3: Customers’ preferences

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Source: Researcher’s own survey

• 7SM. All in all, it is very clear that the business is highly feasible since all the 7SM questions including What, Why, When, Where, Which, Which and How can be addressed very well (see Appendix 1).

2. Macro analysis

• PEST. Overall, the PEST analysis clearly indicates that there will be a lot of potentials for the proposed business (see Appendix 2). The political condition in the UK is very stable and hence the country will be at a position to attract more international students and tourists and highly skilled employees from throughout the world. In the meantime, with positive signs about the country’s economic growth, there will be a further improvement in customers’ consumption power and hence a rise in their demand for the business’ product. Next, a higher demand for entertainment is now clearly a prominent feature of the UK society. Finally, with fast developments in technologies, the business will be able to improve the quality of its services and offer customers faster gaming and internet to enhance their satisfaction.

Figure 3: Genre breakdown of video game sales in 2015

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Source: Entertainment Software Association

• 2MR and competitor analysis and gap. As mentioned earlier, the proposed business has no direct competitor as it is the first coffee house that provides customers with a special combination between coffee and gaming. Some of the potential competitors may consist of Costa, Starbucks, Caffe Nero, and so on. Although these are very strong bands with very well-established presence in the UK, they do not necessarily compete with the proposed business since the unique product provided by the business is very different from that offered by these brands (Hackman and Johnson, 2009). Figure 3 above indicates the types of video games that will be provided by the proposed business.

3. Strategy

• Compilation of 3 candelabras. See Appendix 3.

• Justification for the chosen candelabra. The compilation of alternative candelabras reveals that the combination between gaming and coffee is the perfect choice for the proposed business as such a combination helps it meet customers’ new needs for both coffee and gaming. Such a choice can be well justified for two reasons. On top of the list is that it can allow the proposed to meet customers’ changing needs very well and hence distinguish itself from existing powerful coffee houses. As mentioned earlier, since this is a completely new business idea, it is essential for the business to avoid direct competition with existing powerful coffee houses in order to have sufficient time to consolidate its market position. The combination between gaming and coffee will therefore enable the proposed business to attract a large amount of existing coffee houses without necessarily turning these into its direct competitors.

Second, the combination between coffee and gaming fits nicely with new trend in customer consumption i.e., their desire to satisfy multiple needs in a simultaneous manner. This is what traditional coffee houses cannot do. In order to attract customers and build up the loyal customer base, what the business will do is to offer loyal customers special discounts and organize reward competition to recognize loyal and strong game players. As suggested by Hisrich (2011), customer recognition will help satisfy customers since it meets their needs very well, thus turning them into loyal customers. All in all, both the combination of gaming and coffee and the chosen strategy can be well justified.