Hara Coffee Co's innovative coffee subscription model

1. Market assessment

1.1. Demand / Customer trends. What are the main trends in the market? What is the typical customer profile? How many such customers are out there? What is it that they value? What sort of products are they looking for? How price driven are they? Would customers switch coffee brands? How many coffees do they get per month? How do they brew their own coffee (relevant for product definition)?

1.2 Competitors. Who are our main competitors? How has their size, growth, and profitability changed over the past 5 years? How do their stores (number of locations, placement, space, etc.) differ from ours? How their product differentiates from what we would be able to offer? Where are the competitors already present (location of competitors)?

2. Client assessment

2.1. Capabilities. Are our product categories attractive enough to ensure cross-selling to coffee subscribers? Can we deal with a potential demand increase from the subscription? Do we have the workforce to introduce this digital offering, or do we need to hire them (e.g., developers)? Do we have the technical capabilities to sustainably provide this new product?

2.2. Financials. 

2.2.1 Budget. What is the budget planned and secured for this project and the timeline? 

2.2.2 Profitability analysis. How will this impact our revenues (new customers, more products sold per customer through repeated visits, possibility of selling new products such as reusable cups, halo effect created by increased brand awareness)? How will this impact our costs (initial investment costs in digital architecture, increased raw material costs from selling more coffees, costs of maintaining the digital subscription, etc.)? Cannibalization – customers switching from buying in store to ordering home

2.3. Risks

2.3.1. Financial. Will this investment yield a better payoff than other alternative investments (e.g., new range of products in-story)? Can we afford to pay more due to unforeseen delays/challenges? Would we risk cannibalizing too much of our coffee sales?

2.3.2 Operational. Can we prevent customers from exceeding their daily limit? Can we prevent account sharing? Can we protect online customer data? How will the products be delivered?

2.3.3 Branding. Can we maintain our ESG goals? Will we lose our perceived brand value? 

Upon performing calculations, candidates should identify that:

• Option 2 is more profitable for the business and also generates better footfall, which might come in handy if we add new revenue streams
• The main driver of profitability here is the cross-selling opportunity. The actual subscription is generating negative profitability.
• We assumed the highest possible cost in our model (subscribers getting the maximum amount of coffee per day every single day). It would be interesting to see what the utilisation rate is, as that might influence how often customers will re-order our product.

Our decision should not be based solely on financial variables, but also on non-financial ones. A cheaper, more accessible price, for instance, could increase the product's popularity and increase demand by triggering a halo effect. 

These are some of the potential solutions you could have thought of for this case. 

1. Maximize cross-selling opportunities

1.1. Products

• Increase variety. Offer new flavors (vanilla, hazelnut, etc.) and preparation methods (iced, frappe, etc) for our existing products. Offer completely new products (bakery items, mochas, teas).
• Launch complementary products. Introduce merchandise (t-shirts, mugs, etc), offer brew at home products (teas / coffee packets).

1.2. Services 

• Host community coffee nights, offer coffee tasting sessions, offer coffee brewing classes.

2. Utilize assets to generate new revenue streams

2.1 Locations. Rent location during business hours (corporate or private events) or outside of business hours (e.g., co-working space). Add an ATM cash or Bitcoin machine, add a parcel drop-off service, offer luggage storage.

2.2 Brand. Launch our products in supermarkets, start a franchise, lease our brands to catering companies.

2.3 Coffee expertise. Offer digital barista masterclasses, start a YouTube channel focused on coffee sourcing, offer business classes on the retail sector. 

The purpose of this analysis is to determine whether the increase in profits generated by the additional subscribers and increase in cross-selling profits is greater than the costs incurred by offering smoothies 1/3 of the time. 

Upon performing calculations, candidates should identify that:

• Introducing smoothies brings an additional £175k in profits for the business.
• Cross-selling revenues are the primary driver of increased profitability, so perhaps by implementing some of the previously suggested strategies to increase revenues, we can increase profits even further.

Our calculations assume that people get a smoothie 1/3 of the time, however, if people were to choose a smoothie more often, this will further decrease our profits.  

Based on the current analysis, I recommend that Hara Coffee Co. launches a beverage subscription that includes both coffees and smoothies at a price of £15 per month.  My reasons for this are: 

• Offering a subscription at a cost of £15/m will generate an additional £1m for the business, mainly from cross-selling revenues
• Offering smoothies as part of the subscription will attract even more clients and will increase our bottom-line by another £175k
• In addition, considering that the majority of the revenue seems to be coming from cross-selling, I believe there are many brand-extension opportunities for the company, including [your answers for Q3].

Some of the risks associate with this process revolve around our ability to manage the digital aspects of launching the subscription, such as being able to prevent account sharing and protect customer data. In addition, we should also take into account the impact of this move on our brand, as the increased costs might make it more expensive for difficult for us to maintain our ESG commitments.

In terms of next steps, I'd like to examine the costs associated with maintaining and marketing the subscription, as well as conduct a more in-depth analysis of each of the revenue-boosting ideas we identified to determine how well they align with the overall brand and customer preferences.