1. Presented by: Tahir Amlani Kristen Boese Adele Capjack Amy Luchkovich Lindsey Marofke Casey Paulhus

2. Agenda  Industry and Company Overview  Operations Plan  Human Resources Plan  Marketing Plan  Financial Plan  Conclusion

3.  60% of adults in Ontario drink coffee daily and about 16% of adults will purchase coffee daily  Sales forecasted to grow by 6% after 2011  Markham, Ontario is expected to increase from 287,000 to 386,000 residents by 2021

4. The Company  Well-known brand name  Largest Canadian-owned specialty coffee retailer with 360 cafés Mission Statement Second Cup strives to be the model for the quintessential, convenient “Neighborhood Coffee Shop” by supporting and promoting positive social interaction in the community  In doing so we open our doors to invite people from the surrounding area to meet, organize, and get to know one another as a community

5. Short-term Goals  Acquire necessary financing  Become knowledgeable about Second Cup operations and procedures  Obtain and train competent, hardworking staff  Build reputation in the community  Year 1: Create community awareness of new franchise location to obtain 50% of potential customers  Year 2: Begin realizing profits  Year 3: Achieve 2% market share

6. Long-term Goals  Build a sustainable business that provides financial support for Ken and Mary  Maintain healthy positive economic profits and cash flows  Foster a loyal customer base  Sustain lasting presence in the community by building relationships with local organizations and people

8. Benefits of Franchising  The Second Cup business model has proven to be successful  Established customer base and brand reputation  "Coffee College”  Minimal start up costs and guesswork involved  Established suppliers  Ongoing sales and marketing assistance  Ongoing research development  Site selection "My Second Cup experience has incorporated the best of both worlds for me – it has given me an opportunity to be my own boss while providing me with the franchisor’s invaluable support" - Shelly Sunderji,

9. Disadvantages of Franchising  Restrictions imposed  They have a proven strategy and have developed best practices in the industry  Ongoing costs – 9% royalty fee  Advertising is consistent and effective

10. Operations  Sale of whole beans, merchandise and pastries  Sale of beverages produced  Coffee/teas/ciders  Specialty coffees/hot chocolate  Blended drinks  Customer service

11. Cost of Sales Per unit gross margin ($) Specialty Coffees / Hot Choc Coffee, Tea, Cider Blended Drinks Pastries Coffee Beans and Merch Selling price per unit4.002.004.002.0015.00 Direct materials: Base inputs (coffee, tea bags, powders, baked goods)0.15 0.201.005.25 Added inputs (syrups, whipped cream, milk)0.600.000.600.00 Lids, Cups and coffee jackets0.25 0.300.00 Cost of sales per unit1.000.401.101.005.25 Per unit gross margin – direct materials 3.001.602.901.009.75 Gross margin % 75%80%73%50%65% Direct labor0.55 Per unit gross margin2.451.052.350.459.20 Gross margin % 61%53%59%23%61%

12. Summary - Capital Budget and Working Capital Description*Total Cost ($) Capitalized Assets Equipment and appliances 58,300 Furniture and Fixtures 46,800 Office 2,700 Total Capitalized Assets107,800 Working Capital Cash192,700 Accounts Receivable0 Inventories1,584 Accounts Payable(7,335) Total Working Capital186,949 Total Capital Costs$294,749 *All purchases available from suppliers in Marham, Ontario

13. Till Staff Washroom Mop Closet Men’s Washroom Women’s Washroom Drive-thru Storage Office Cooler Blender, syrup ice machine, fridge Coffeemakers/ Italian sodas/Sink Products Condiment Bar Bean Display Entrance Patio Couch Fireplace Chair Couch Booths Food display case Tills Barista machine Tables and chairs Floor Plan

18. Second Cup Mary Hatch Manager/Owner Ken Hatch Manager/Owner Sales associate / Barista Organizational Structure

19. Management Team – Ken and Mary Hatch Ken Hatch  Prior experience  Local high school caretaker (20 years)  Managerial expertise  Responsibilities  Administration  Financial  Marketing / Promotion

20. Management Team – Ken and Mary Hatch Mary Hatch  Prior experience  8 years experience in coffee shop  Various duties: coffee equipment use, opening/closing procedures, customer service  Responsibilities  Operations manager  Staff Hiring, training, evaluation  Adherence to standard operating procedures  Staff scheduling  Ordering of supplies

21. Management Team  Pre-approved by Second Cup  Management training  Coffee College  Online e-learning training modules

22. Support team  Franchisor  Accountant  Lawyer  Investors (bank)  Provide guidance and direction

23. Management Team Success (MTS) Experience + Training + Support = Success

24. Recruitment and Retention  Compensation  Minimum wages  Increased pay for key-holding employees  Free coffee  Weekly expense account for non-coffee products  Yearly account increase  Scholarship opportunities for students  Paid training programs  Holiday pay

25. Recruitment and Retention  Friendly culture / customer focus  Focus on student recruitment

26. Job Descriptions  Sales Associate/Barista  Serve the "World's Greatest Coffee"  Cash handling  Daily cleaning duties  Entertainment of guests with Barista Flair and positive energy

27. Training Programs  Sales Associate/Barista  Certified Sales Associate exam  Barista qualifications  Customized customer care program  On-the-job training  Opening/closing procedures  Coffee equipment training  Cash register procedures  Online e-learning training modules

28. Compensation  Management  Yearly salary of $30,000  Sales Associates/Baristas  $9.50 per hour  $11.00 per hour for key-holding employees  Free coffee  Weekly expense account  Paid training programs  Holiday pay

29. Human Resources Costs

30. Products  Coffee/tea/ciders  Specialty drinks/hot chocolates  Blended drinks  Beans and merchandise  Pastries

31. Prices  Set by head office  No power to change prices because of franchise Selling prices Specialty coffees/Hot chocolate $4.00 Coffee/Tea/ Cider $2.00 Blended Drinks $4.00 Pastries$2.00 Coffee beans, merchandise $15.00

32. Promotion  Head office promotions – covered by royalty fee  In-house promotions  Grand opening  Free drink trials  Print advertising for grand opening  Sponsorship of local sports teams  Other donations where possible  Community donations of leftover product

33. Place  Suburb between the business community and an affluent residential neighborhood  Business people and residents with high disposable income can be targeted  Convenient location to attract commuters and draw local residents  Free standing store with drive-thru

34. Segmentation  Two segments: residents and business people  Average income level higher in Markham

36. Targeting  Business community and local residents – coffee drinkers  1/50 = 2% market share Residents of Markham287,000 Residents under 19(60,000) Adult population227,000 Daily coffee drinkers – Ontario 60% Coffee purchased at eating places 16% Potential daily customers 21,792 Number of competitors50 Daily customers per establishment 436 Days open for business362 Yearly customers157,774 Year12345 % of sales 46%75%100%

37. Sales Quantity of sales Specialty Coffees, hot chocolate 35% Coffee, tea, cider 45% Blended drinks 25% Pastries 20% Coffee beans, merchandise 2%

38. Competitive analysis  Two groups:  Basic coffee retailers: Tim Hortons, McDonalds, convenience stores, etc.  Specialty coffee retailers: Starbucks, independent coffeehouses  Basic coffee retailers not considered to be a close substitute  Personal taste, brand recognition play role in customer loyalty

39. Competitors in Close Proximity  Starbucks  Mall location, no drive-thru, no outside seating, can be difficult to find parking  Independent coffee house  Limited menu items, no drive-thru

40. Sales Quantity Financial Plan

41. Unit Metrics

42. Financial Plan Gross Margin

43. Financial Plan Net Income

44. Financial Plan Break-Even Net Income

45. Financial Plan Break-Even - Economic

46. Financing Structure  Bank Loan: $200,000  5 year term  10% interest rate  association with franchiser  Equity Financing: $101,000  Common Shares: $1,000  Preferred Shares: $100,000 Financial Plan

47. Equity Investment  External equity financing required: $100,000  Preferred Shares  Dividends – 15% of positive retained earnings  Callable as of the 5 th year of operations  Return of capital: $195,000  Priority upon liquidation  External Rate of Return on Equity: 20% Financial Plan

48. Net Present Value of Equity Investment (NPV) 180,477 Internal Rate of Return (IRR) 64% Financial Plan Investment Analysis

49. NPVIRR 67% Debt Financing $180,47764% 100% Equity Financing $127,70834% Financial Plan Leveraged IRR

50. Financial Plan Cash Flow

51. Financial Plan Scenario Analysis

52. Financial Plan Scenario Analysis

53. Contingency Plan Worst Case  Elimination of staff  Additional hours worked by the Hatches  Increased marketing efforts  Pressure head office to increase prices  Re-evaluate return of capital and payout to investors in year 5  Paid out by year 10 Financial Plan

54. Contingency Plan Best Case  Capacity limitations at peak hours  Additional employees hired  Additional facilities added to the drive-thru window  Barista machine, coffee pots Financial Plan

55. Opportunity  Growing city and coffee industry Customers  Residents of Markham who live and shop in this community  Second home - great location with efficient service Competitive Advantage  Experienced management team, strong brand recognition and loyalty, commitment to employees, customers and community Risk and Return  64% IRR with a payback in the first 5 years  Moderate risk that can be mitigated