Introduction
Mystic Monk Coffee is a small coffee-roasting factory located at Mount Carmel in the Rocky Mountains in Wyoming. Father Daniel Mary, the Carmelite Order of monks has a vision of creating a new site where they could transform the small house they are currently living, into a 500 acre monastery that would fit 30 monks. In addition, they would like to transform the small building into a larger Gothic Church for Carmelite nuns and a retreat center for lay visitors to present the heritage that they have preserved. Current Status
Source of Income and Vision
Based on the case, there are several ways for the church to generate revenue. The church received a donation of $250,000 that could be used to purchase the new building. Another source of revenue for the church is through their coffee business, Mystic Monk Coffee, which generates $75,000 annually. Referring to Father Daniel Mary’s vision, they are still short of $8.575 million (Refer Section 2). Mystic Monk coffee sells their coffee at $9.95 for 12 ounces and $2.99 for every sample bags for all varieties. Besides coffee, they also sell T-shirts, gift cards, CDs featuring the monastery’s Gregorian chants and coffee mugs.
Investing in Mystic Monk Coffee?
There are several ways to raise funds to attain their goals. One of them is to invest in the Mystic Monk coffee business by purchasing a new and larger coffee roaster which costs $35,000. This is because the current roaster is will not be able to generate the revenue needed to purchase the new building. According to the case, the current theoretical capacity of the roaster is producing 540 pounds per day. Hence, the hourly capacity for the roaster is 22.5 pounds (Refer Section 3a). This is calculated by assuming that the roaster is utilized for 24 hours. However, in the article, my analysis shows that there is only one employee working in a 6 hour shift, which will produce a total of 135 pounds of coffee per day. Mystic Monk Coffee is not fully utilizing the roaster as the output is merely half of the theoretical capacity of the coffee roaster. Referring to the article, Mystic Monk Coffee’s monthly sales revenue is approximately $56,500. This shows that the company sells an average of 4,250 pounds of coffee at 9.95 for every 12 ounces monthly (Refer Section 4a and 4b). Some other aspects of expenses of the company includes, cost of goods sold of 30 percent, 19 percent of shipping fees, 37 percent of utilities and maintenance fees, and 3 percent for the broker (Refer Section 4c). Hence, the total net profit will be the remaining 11 percent which is approximately $6,215 per month. The New Coffee Roaster
The new coffee roaster that Father Daniel Mary intended to buy has an hourly capacity of 130 pounds per hour sold at $35,000. Following the current number of hours of production, 6 hours per day, the coffee is able to produce 780 pounds per day which is 240 pounds more than the current roster. The sales revenue for 1 hour and 6 hours are approximately $1,725 and $10,348 respectively (Refer Section 5a). If the machine is utilized for 24 hours every day, it will be able to produce 3120 pounds of coffee per day. In a month, there will be 93,600 pounds of coffee produced that will generate potential monthly revenue of $1,242,072 (Refer Section 5a). As stated in the article, the net profit margin for Mystic Monk Coffee is 11 percent of the sales revenue; hence, by utilizing the new roaster, the net profit margin is approximately $136,627 (Refer Section 5b).
The New Strategy to Accomplish Vision
After analyzing the potential revenue of the new coffee roaster, we need to identify and change Mystic Monk Coffee’s operations to ensure that the potential revenue will supplement Father Daniel Mary’s vision on purchasing the new building. Currently, Mystic Monk Coffee has only one employee working in a 6 hour shift for 7 days a week. The employee is able to produce 135 pounds per day. In order to produce the anticipated amount of coffee with the new roaster, the company must consider hiring more staffs, and gaining the raw materials needed cheaper and in a timely basis.
Industry/ External Environment Analysis
The coffee industry in the United States is dominated by the leaders in the industry, such as Starbucks, Dunkin’ Donuts, etc. According to research, 89 percent of coffee drinkers brew their coffee at home rather than purchase ready-to-drink coffee. Besides that, there is a significant increase in the retail sales of the coffee industry from $8.3 billion to $13.5 billion in 7 years where organic coffee has expanded at an annual rate of 32 percent. This is essential for the company as it shows the demand for coffee is significantly increasing. Mystic Monk Coffee should consider further expanding in the organic coffee segment. This can be done through marketing themselves at churches, social media, collaborating with clubs and organizations that promote beliefs, selling at retail stores, etc.
Sales and Marketing
First, Mystic Monk Coffee must target those individuals that have strong religious influence and beliefs. The company can try to market themselves at churches and create a clear message to their customers; that they are trying to build a new facility. In my opinion, this might attract a segment of coffee drinkers that would like to give back to the community. They can create and design posters to put in churches, religious clubs and organization which might attract peoples’ attention to gain more market share. The other place that Mystic Monk might consider is to collaborate with several universities in Wyoming to sell their coffee at their schools. Mystic Monk sells most of their coffee through their website. Another approach for Mystic Monk is to use social media, such as Facebook, Twitter, Instagram, etc. to advertise themselves and gain more attention. They must send a clear message that they are raising funds for their building. As social media is one of the most current advertising tools in the market, it will positively impact the sales of Mystic Monk Coffee. Apart from that, constantly creating promotions and developing seasonal coffee flavors will also attract more customers. In addition, the company can also develop a relationship with retail stores in Wyoming to sell their coffee to boost sales.
Value Chain Analysis
Figure 1 shows the value chain of Mystic Monk Coffee. It starts with obtaining raw materials such as coffee beans, bags, etc. from suppliers. They manufacture their own coffee with a variety of flavors such as Chants of Carmel, Cowboy Blend, etc. After they received an order from their website or from telephone calls, they will ship their products mainly through United Parcel Services (UPS) or United States Postal Service (USPS) to their customers. The value chain of the company is fairly simple. However, Father Daniel Mary should seek for other suppliers from other regions and compare their prices to ensure that the coffee beans are at the lowest price in the same time with assured quality. According to the article, it shows that Mystic Monk Coffee is also advertising on several affiliate websites to sell their coffee with an 18 percent commission on sales made. In my opinion, the commission rate is too high. They should renegotiate the terms with the affiliates to decrease the commission to 10 percent or even lower than that. On the other hand, the company might also consider some other choices of shipping companies such as Federal Express (FedEx) and Deutsche Post (DHL) as they might have a lower rate of shipping fees. This will also provide the company with a larger variety of choices to evaluate and compare prices with the current shipping companies. Another component of the value chain that Mystic Monk should monitor is their customers. They must constantly obtain feedback from their customers to make sure that the customers are satisfied with their products. In a long run, the company will gain more insights on what are the values and key criteria that the customers are looking for. This will also generate a greater idea for Mystic Monk Coffee to create new flavors, develop promotions, etc. to suit their customers’ taste and preferences. They could gain feedback through social media or send some survey forms to their customers through mail as they will have the address of their customers when they placed an order. Continuous improvement is a key element to success.
Operations
The operations frameworks that make a company successful include cost, quality, delivery and flexibility. In my opinion, Mystic Monk Coffee should implement all of the above stated sales and marketing strategy before making a decision on purchasing the new coffee roaster. This is because they have not fully utilized the current coffee roaster which has a capacity of 540 pounds per day. If all of the marketing strategies are being successful implemented and increased the sales revenue of the company to the maximum capacity of the roaster, then they should purchase the new roaster. With a larger capacity of the new roaster, it can help to achieve Father Daniel Mary’s vision, to purchase the 500-acre land to build the new monastery. Another option for Mystic monk Coffee is to have 2 production lines with both the current and the new roaster. As the company has a larger scale of operations, they can have a larger negotiating power to their suppliers on the cost of raw materials. Quality must also be assured when producing each bag of coffee. This is because the coffee industry has a lot of competitors. My analysis shows that Mystic Monk Coffee is able to generate $160,275.06 of profit in a month, if they have 2 production lines (Refer Section 6a and 6b). However, this profit does not include the payroll expense of the company. With 2 production lines, the company must hire more man power to accommodate the process. In 6 years, Father Daniel Mary will be able to purchase the new land provided with the approximate monthly sales revenue of $144,248 (Refer Section 7). Another alternative for the company is to just hire a project manager to supervise all the operations. This might be easier as father Daniel Mary is not very experienced in the business. Mystic Monk Coffee should also increase the working hours per shift in order to increase productivity and boost sales.
Conclusion
In conclusion, Mystic Monk Coffee should attain their goals in a systematic order. They must first increase their customer base and market share before deciding to purchase the new coffee roaster. This is because the capacity of the current roaster is not in its maximum state. If all of the marketing plans and strategy is effective, then they can buy the new coffee roaster which will help them achieve their vision of building the new building that could accommodate 30 monks, act as a Gothic Church, convent for Carmelite nuns and a retreat for lay visitors.
