Business Plan: Business Plan Australia Has the World's Leading

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Business Plan

Australia has the world's leading coffee culture. This can be threatening to firms unprepared for it, but for firms with a great product that will appeal to Australia's savvy consumers, there is plenty of opportunity. One such product is the lever espresso machine, something that delivers exquisite espresso and gives the home barista a chance to "become one with the shot."

The Lever espresso machine from Espresso Art is a high-end product that specifically appeals to Australia's savvy coffee consumers. It will be priced higher than the baseline "good" home espresso machine but because of its lack of automated parts, it will be priced much lower than the comparable top-of-the-line automated machine. A price point of $1,200 has been set. The Lever will be distributed both on the company's website and through a distributor of high-end home espresso making equipment. The promotional campaign will be based on word-of-mouth, coffee connoisseur-specific advertising and an information campaign from both Espresso Art and the distributor.

The Lever will be hand made at a plant outside either Sydney or Melbourne, so that the company is close to the epicenters of Australian coffee culture. The facility will be small with room for expansion to meet expected increases in demand. The company will focus on intrinsic forms of motivation to attract espresso lovers to work in the company and help it grow. Commitment to the art of espresso is a critical component of hiring, and word of mouth will be used to fill openings, rather than using traditional means of hiring.

The project will take a year to bring to fruition. It is expected that a small loss will be incurred in the first year, to be financed by debt. Production levels in the second year and beyond should deliver profits, and by the end of the third year Espresso Art should be operating at its desired capital structure and be seeking ways to expand beyond the Australian market.

Background

Australia has one of the world's richest coffee cultures. In recent years, Australia has taken the lead in cultivating coffee culture at both the high end and in the mainstream market. Australian drinks like the flat white can be found on cafe menus around the world. Ex-pat Australians run trend-setting cafes in London, Berlin, Singapore, Edinburgh, Hong Kong and beyond, such that Australian coffee culture now rivals that of North America's Pacific Coast for world influence. The domestic market consumes 2.4kg of beans per person on average and coffee consumption has doubled in the past thirty years. In 2008, sales of hot drinks surpassed $1.35 billion and by 2013 these are expected to be $1.473 billion (Wong, 2010), with coffee the biggest component of that figure at over 55% share. Cafes are a $7.5 billion business domestically (Carmody, 2004)

The Australian market is particularly sophisticated, having been established as a major coffee nation for several decades. Indeed, Starbucks has struggled as it has moved into Australia and was recently forced to close ae of its Australian outlets due to "challenges unique to the Australian market," essentially meaning a lack of interest on the part of Australian consumers for that company's relatively low quality coffee (AFP, 2008). With the size and sophistication of the Australian coffee market, competition is fierce and the pace of innovation rapid, but there is also a significant amount of opportunity, because the population is so receptive to new coffee ideas and products. The trick is to avoid making the same mistake Starbucks did and offering Australians a product that is poorer than that to which they have become accustomed.

Keeping this in mind, it is reasonable that Australians might want to be able to make cafe-quality espresso at home. Most home machines are poor, while some are decent. However, the premium machine makers often do not make a home version of their products, until now. A new company, Espresso Art, is launching a home version of a traditional lever espresso machine. These machines would allow espresso lovers to brew to a higher standard at home than has ever been available before. Relying more on manual technology allows this machine to be more affordable than other home machines and is perfect for the hands-on Australian coffee geek. The Australian market has been determined to be sophisticated enough to launch this type of machine.

Marketing Issues - Product

There are a number of marketing issues that need to be addressed, generally relating to the four Ps of marketing -- product, price, place and promotion. The short version is that these machines are high end products for the sophisticated consumer. They produce exceptional espresso and provide the consumer with a unique hands-on experience suitable for serious espresso lovers. The price will be at the high end for home machines. The price-quality relationship, however, will be favorable because of the lack of automation technology. Place will reflect the distribution of the machine, both through online ordering and through a distributor in the country. The promotion aspect will address both the identification of the target market and the strategy that Espresso Art will utilize to reach these customers.

The product is a lever espresso machine, also known as a piston espresso machine. When the espresso machine was invented in the 1950s, it was a lever machine. The user manually pushes the piston or lever instead of pushing a button, and the result is a more direct connection with the espresso. This is important to serious coffee lovers because there are so many variables that go into a quality espresso. Australian consumers in particular have come to understand that bean quality, roast quality, grind, temperature and pressure all contribute to the best espresso shot, and the Espresso Art Lever gives the user more control over these variables than do modern espresso machines. They are the soul of brewing, an experience described as almost Zen-like by some professional baristas (Home Barista.com, 2007).

Because of its lack of automation, the Espresso Art Lever espresso machine is one that requires a higher degree of training and skill for its effective use. As such, it will largely appeal only to those who are willing to take the time to acquire this skill (wanna-be professionals), or to those who already have this skill (former professionals). In either case, the market is a niche one. The product not only produces a high quality shot but is highly durable, because of the simple nature of its parts. The Lever machine is durable and relatively lightweight, which means that it is portable as well, unlike most serious espresso machines. Thus, it may also have an appeal to customers who move frequently, or travel with a car frequently. Other home machines, if portable, do not produce professional quality espresso; alternately, they are cumbersome and have strict water and electricity requirements that make them unsuitable for transport.

Marketing Issues -- Price

The price of the Espresso Art Lever machine will be competitive with other higher-end home machines. There are few regularly-produced lever machines available to the home consumer Australia -- most in use are either vintage machines or professional machines that have been purchased for the home. The price will reflect the premium quality of the machine, but compared with a conventional espresso maker the price will be lower because of the manual nature of the product. Most are sold only on eBay, for prices ranging upwards of $1,800. New models of lever machines are available in Europe for around €1000, depending on make and model, but these seldom find distribution in the Australian market.

According to random talk on coffee-related Internet sites, a commonly-cited benchmark for home machines is the Rancilio Silvia, which retails on MyShoppingAustralia.com.au for $749. The highest-end machine on the home market is the Marzocco G3, which retails for $7,200 on CoffeeParts.com.au. Knowing that the price ceiling for the home machine is that high allows for the Espresso Art Lever to be priced slightly higher than the Silvia.

There are a number of elements to pricing strategy -- positioning, cost and demand curve the most important (Allen, 2011). The first of these is positioning -- the product should be positioned as superior to the Silvia but without high end brand recognition or electronic components it cannot be priced anywhere near the G3. This hints at a price point somewhere slightly higher than the Silvia, between $800-1200. The second element of pricing strategy is the cost of the product. In this case, the materials cost per unit is $75 and the labor cost per unit is $125. Marketing and transportation costs are $50. With a markup of 100% expected both to the distributor and then to the consumer, the price point could be as low as $1,000, but a higher price point would deliver a greater contribution margin. The demand curve is also an important pricing consideration. For example, an introductory price would be at the lower end of the acceptable range would allow for greater market penetration. This depends on the price… [END OF PREVIEW]

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