Co ee Distribution Business Plan

Executive Summary
The Co ee Warehouse is a new business providing high-quality, full service distribution of
co ee, specialty beverages and beverage-related supplies to co ee houses and espresso
stands throughout the Spokane and Northern Idaho market.

The principal owners are Steve and Jennifer Smith, whose combined experience brings
o ce management, high levels of customer service, and over 20 years in distribution and
sales management. At this time we are seeking additional equity capital to compliment
our own investment and are seeking to arrange a bank line for inventory and receivables
nancing. We have rm commitments to distribute several high-quality new age beverage
products, and have verbal commitments from independent retailers throughout the
Spokane and Northern Idaho market to carry our product. We plan to distribute our rst
products within 30-60 days of nalizing nancial arrangements.

Sales projections for The Co ee Warehouse are estimated to begin at approximately

$2,229,000 the rst year, increasing to approximately $2,558,000 in Year 2 and
approximately $2,936,000 in Year 3. Our net pro t is projected at approximately $283,000
the rst year, increasing to $406,000 by the end of the third year of operation.

Distinguishing characteristics of our business will be the combination of management

experience, sales and distribution experience, high-quality, innovative products and
exceptional customer service. In particular, what really sets up apart is that we are the
ONLY full service distribution company servicing the co ee and specialty beverage
industry in the Spokane/Northern Idaho market. In addition, The Co ee Warehouse has
an exclusive contract to distribute a new, groundbreaking product that would enable us to
gain immediate access to a majority of the potential customer base.

1.1 Objectives
To open and operate a successful co ee and new age beverage distributorship in
the Spokane/Northern Idaho market, employing three to ve employees the rst
year.
To obtain a minimum of 100 regular customers in the Spokane/North Idaho market
the rst year of operation.
Achieve rst year sales of $2,000,000.
Maintain an average gross margin of 25 percent.
To produce a net pro t of at least $400,000 by the end of the third year of
operation.
1.2 Mission
The Co ee Warehouse intends to become a recognized distributor of specialty
beverages and beverage-related supplies and services to co ee houses and
espresso stands throughout Spokane and Northern Idaho.

The Co ee Warehouse plans to develop strong relationships with key customers

so we will be viewed as indispensable partners, rather than just another supplier.
We will work closely with each customer to recommend product assortment
unique for their retail base, appropriate stocking levels, pricing and display
assortments, as well as promotional ideas and material to increase sales. The
fi
ffi
ff
ff
fi
fi
ff
ff
ff
fi
fi
fi
fi
ff
fi
fi
ff
fi
ff
fi
ff
ff
ff
fi
fi
 Co ee Warehouse will seek out and work with the manufacturers we represent to
deliver the most innovative and exciting products possible to the customers we
serve. We are not only selling product, we are selling service.

1.3 Keys to Success

Innovative quality products.
Individualized customer service – providing our customers with what they want,
when and how they want it.
Only full service distribution company in the Spokane/Northern Idaho market.
Fully integrated programs to help customers increase sales through menu
development, creative promotions, advertising, and custom marketing material.
Exclusive distribution rights to ground-breaking products not currently available in
our market.
The combined experience of the principal owners bring upper o ce management
skills, high levels of customer service, and over 20 years in distribution and sales
management.
Company Summary
The Co ee Warehouse, Inc. is a new S-corporation business located in Spokane,
Washington, and will be established based on the details of the following plan.

2.1 Company Location & Facilities

The Co ee Warehouse will be located in the Spokane Valley within the Spokane
Industrial Business Park. This is a prime location to service both the Spokane and
Northern Idaho market. The facilities will include approximately 5,000 square feet
of warehouse space, with an additional 1,400 square feet built out for o ce/retail
space. We are currently negotiating lease terms on the several available
properties, and plan to have a lease signed by July 31.

2.2 Company Ownership

The Co ee Warehouse is a privately held S-Corporation owned in total by its co-
founders, Steve and Jennifer Smith.

2.3 Start-up Summary

Start-up expenses for the Co ee Warehouse total $16,450, and include expenses
such as legal, marketing, lease deposit, computer systems, etc. Start-up assets
include $9,800 in initial cash requirements, $18,750 in short term assets (o ce
furniture, refrigeration equipment), and $75,000 in starting inventory. These start-
up costs will be nanced through investments and small-business loans.

Products

The Co ee Warehouse will provide a rst-class delivery service of quality hot and
cold beverage related supplies, including whole bean or ground co ee, avor
syrups, jet teas, fruit smoothies, bubble teas, concentrated milk, fresh baked
goods and assorted paper supplies. Our services will include invaluable trade
resources, e ective promotional programs, custom-designed marketing material,
ff
ff
ff
ff
ff
ff
fi
ff
fi
ffi
ff
ffi
fl
ffi
 informative monthly newsletters, training and product demonstrations, as well as
information on the latest market trends in the co ee/specialty beverage industry.

3.1 Product & Service Description

PRODUCT DESCRIPTION
The Co ee Warehouse will carry a variety of quality products that will enable us to
provide full service delivery to espresso stands and co ee houses. Our underlying
philosophy in selecting products is to choose lines that will bring consistent
quality, competitive prices, and product satisfaction to our customers. We have
personally researched and sampled each of the following products that we o er to
ensure the quality we guarantee.

• Lowery’s Gourmet Whole Bean and Wired Willey’s White Co ee

• Assorted Gourmet Syrups & Co ee Toppings
• Chocolate, White Chocolate and Caramel Syrups/Sauces
• Oregon Chai Concentrate
• Jet Cafe and Jet Tea Fruit n’ Tea Freeze
• Cappuccina line of product
• Big Train line of product
• Red Bull Energy Drinks
• Good Cow Concentrated Milk with Custom Dispensing Equipment
• Fresh Baked Goods
• Assortment of White, Pre-printed Paper, and Clear Beverage Cups Systems – as
well as an assortment of other paper supplies

At this time, the majority of these products are only available to customers through
wholesale vendors such as Cash and Carry retail outlets – therefore it is the
customer’s responsibility to acquire these products by their own means. The
Co ee Warehouse will make these same products available through our high
quality, full service delivery – bringing these products directly to their doorstep at a
competitive price.

SERVICE DESCRIPTION
An important component of our business is not just our products, but our service.
In addition to our full service delivery, the following are other important service
elements that we will o er to our customers:
• Ideas to help our customers increase sales through menu development,
creative promotions, co-op advertising, and much more.
• Custom designed marketing material such as printed banners, promotional
posters, punch cards, pre-purchased beverage cards, reader boards, etc.
• Distribute a monthly newsletter featuring the latest coffee trends, new
industry equipment, breaking trade news, promotional ideas, new creative
recipes, and upcoming events.
• Samples of the latest product releases – with eye-catching point-of-sale to
advertise new items to the end consumer.
• Routine equipment maintenance and training.
ff
ff
ff
ff
ff
ff
ff
ff
3.2 Competitive Edge
KEY COMPETITIVE STRENGTHS
No other wholesaler in the market offers full service delivery with the variety of product
we feature. We are better positioned than our main competitors to take advantage of
the increasing demands of coffee and specialty beverage supplies because we focus
exclusively on high-quality distribution and customer service. In addition to the variety
of products we feature, The Coffee Warehouse has exclusive distribution rights to
Good Cow’s concentrated milk/dispensing system. This product is not currently
available in our market by any other suppliers.

KEY COMPETITIVE WEAKNESSES

Our primary weakness is that we are a new business competing largely against
established suppliers. To signi cantly build sales, we must not just nd new customers
– we must take customers away from existing suppliers. However by offering a
superior selection of supplies, new groundbreaking products to the market, and
focusing on high-quality service and full service delivery, we feel will can quickly
establish accounts and build strong relationships. Co-founder Jennifer Smith has had
many discussions with owners of coffee and espresso businesses that con rm this
opinion.

3.3 Sales Literature

Sales literature to be distributed to both current and potential customers will include
brochures, iers, newsletters, as well as other print media such as print
advertisements. Jennifer Smith is highly skilled in graphic design and desktop
publishing, and has quality design and printing equipment to publish professional
pieces at a low cost.

3.4 Sourcing

The Coffee Warehouse will purchase product directly from manufacturers, as well as
master distributors. Because this eliminates the broker or “middle man,” this allows us
to operate on a 25-30% pro t margin, while providing our customers with competitive
prices.

To further reduce costs, The Coffee Warehouse plans to share product shipments out
of California with distributors operating in Portland, Oregon and Tri-Cities, Washington.
Other product not being shipped directly to Spokane will be purchased and picked up
in Seattle, Washington. The Coffee Warehouse plans to send a truck to Seattle on a bi-
weekly basis to pick up product, thus cutting costs by an average of 5%.

3.5 Technology

To streamline the ef ciency of our distribution methods, The Coffee Warehouse plans
to use the latest in cutting edge technology – not only in the warehouse – but also in
the trade.
fl
fi
fi
fi
fi
fi
 All of our drivers/sales representatives will be equiped with Thinque MSP handhelds
and software. Thinque MSP applications will reduce eld expenses, decrease day’s
sales outstanding, and increase worker ef ciency. Features can be used in or out of
the warehouse and include managing returns and collections; adjusting item price,
pro t or margin; applying promotional items to an account; streamlining orders;
tracking inventory; reducing out-of-stocks; and providing sales history reports. All
information recorded in the handheld is available in real time to be viewed by
management in the of ce.

3.6 Future Products and Services

Within the rst year of business, The Coffee Warehouse intends to open a retail/
wholesale store and high-quality showroom. Products will be available for purchase by
both our wholesale customers who may need product between delivery days, as well
as retail consumers interested in purchasing product for their home use. We will also
offer a showroom that will feature equipment, supplies, trade resources, and
information on marketing services with examples of marketing and promotional
material available to customers.

With the addition of the product showroom, The Coffee Warehouse will offer customers
quarterly product and training demonstrations that will be presented by trained
beverage experts from the industry.

The Coffee Warehouse also plans to hold semi-annual trade shows for current or
potential customers. These trade shows will allow customers the opportunity to sample
products, talk to manufacturers, learn about new industry trends, review marketing
material, and network with other business owners in their market.

Market Analysis Summary

Coffee is the second largest commodity market next to oil, and growth is expected to
continue at a strong pace for the foreseeable future. The specialty beverage industry is
growing at an equally strong pace, with sales growth in some categories projected to
grow at rates of 40% per year.

This growth offers excellent opportunities for new companies to enter this market, and
we are excited about the possibilities of what The Coffee Warehouse can accomplish
in the Spokane and Northern Idaho market.

4.1 Market Segmentation

The gourmet coffee and specialty beverage industry is divided into several segments.
Consumers who enjoy these products purchase drinks at restaurants, coffee houses,
sports venues, drive-thru espresso stands, and even inside other retail establishments
that might feature an independent beverage stand.
fi
fi
fi
fi
fi
4.2 Target Market Segment Strategy

While the market is already sizeable, this industry continues to grow. New espresso
stands open their doors to the public on a monthly basis in our market, and it isn’t
uncommon to see numerous espresso stands within a one or two mile radius. The
article below, published by a national coffee retail magazine, discusses our market’s
unique drive-thru espresso industry. The sales potential in this market is unlimited.

The Coffee Warehouse initially plans to target these drive-thru espresso stands, as
well as all inner-retail espresso stands within our designated market. It is this segment
that is most in need of the services we are planning to offer. Essential needs include:
quality products at competitive prices, rst class service, and strong sales support. It is
most often these small owner-operated businesses that are neglected by larger
suppliers and are forced to service themselves. It is also these smaller businesses who
could most greatly bene t from marketing services, sales support, and full service
product delivery. Providing the same high-quality service, within the rst six months of
operation, The Coffee Warehouse plans to expand our target into formal coffee houses
and cafes, and as business grows and stabilizes, eventually evaluate the needs of
potential customers in the restaurants and bar industry.

4.3 Market Growth

Coffee has been a growing industry for the past several years. In the gourmet/
specialty coffee industry alone, the gures show an impressive rate of growth in the
United States.

The new age beverage industry is growing at an equally strong pace. Sales growth in
the chai tea category alone is estimated to be 50% historically, with projected growth
rates of 40% per year. Energy drinks, including brands such as Red Bull – and trends
such as Jet Tea – are driving the new age beverage growth, and have increased 50-
fold in the past three years.

Bubble Tea has been a rapidly growing market in Asia, though it is relatively new to
the United States. Introduced to trend setting marketings such as San Francisco
and Seattle, sales have been exploding – and the craze of the “Tapioca Pearl” is
expected to spread throughout America.

4.4 Industry Analysis

The coffee and specialty beverage industry is pulverized, with hundreds of
manufacturers, brokers, suppliers and retailers. Unlike the beer/soda industry, with
large companies such as Anheuser Busch, Pepsi and Coca Cola controlling most of
the market, the coffee and specialty beverage industry does not have large national
chains with market control.
fi
fi
fi
fi
In an open industry growing at such a strong rate, The Coffee Warehouse is in position
to capitalize on the customer’s need for quality product, exceptional service, and an
effective partner to success.

4.5 Industry Participants

With the rate of growth in the gourmet coffee market, in addition to the recent trends in
Jet Teas and other specialty beverages, the industry is comprised of many small
participants, each focusing on only a few speci c items or brands at a time. As the
markets evolve, we expect the industry to consolidate with larger distributors
representing more of a vast selection of products in each market.

Currently in our segment of the industry, there are no large national chains with market
control. There are also few products that are offered with exclusive rights to one
market. While this is the case with many products, The Coffee Warehouse is working
with manufacturers to change that practice, and not only represent a larger variety of
product than others in our industry, but also acquire exclusive rights to many of the
products in our portfolio.

4.6 Distribution Patterns

The following ow chart illustrates the overall industry surrounding the distribution
patterns of coffee and specialty beverages. (The Coffee Warehouse falls into the level
highlighted in yellow).

Several manufacturers are represented by master distributors and/or brokers who in

turn provide the product to direct distributors and other wholesale suppliers. Other
manufacturers allow distributors and suppliers to purchase product direct – depending
on the quantity of product being purchased.

4.7 Competition & Buying Patterns

While there are a handful of coffee and specialty beverage suppliers providing product
in our market, there is still a great deal of room for new business. Most importantly,
there is room for new business that understands the need for high-quality service and
sales support – in addition to product at competitive prices.

In this industry, customers choose their suppliers based on available product, price,
and service – though most often, it is the service that suffers most. While one supplier
may offer the product at the right price, they do not provide the level of service that the
customer demands. The next supplier may offer the right level of service, though their
prices are too high. This results with the customer purchasing most of their supplies
through a cash and carry style wholesale store – leaving the customer with no service
or support.
fl
fi
 By positioning ourselves in the market with in-demand, quality product at competitive
prices, with a consistent high level of customer service – we are con dent that we will
see customers and their business continue to increase.

Sales and Marketing

The unique aspects of our business include individual product selection, quality
assurance, and high-quality full service distribution. Our strategy is to focus 100% of
our efforts on the market for espresso supplies in the Spokane and Northern Idaho
area. By focusing all of our effort and energy on this particular area, we expect to
quickly develop and maintain a leadership position. The Coffee Warehouse’s key
personnel will stay in contact with our customers, and will be able to respond to
changes in this market much faster than our competitors.

The Coffee Warehouse will offer the best, most highly personalized service in the
marketplace. Being a small, owner-operated company, we intend to use this to our
advantage to be absolutely certain that every one of our customers receive excellent
service. We will go out of our way to make sure that our customers know that they truly
matter to us. Sales reps and in-house personnel who deal with customers will be
carefully trained and given wide latitude for insuring that customers are always
satis ed.

5.1 Marketing Strategy

Our basic marketing strategy is to work with customers on a one-to-one basis to

ensure their supply needs are being met and help develop unique marketing programs
for each of them. We intend to prioritize customer service and make it a key
component of our marketing programs. We believe that providing our customers with
what they want, when and how they want it, is the key to repeat business and
positive word-of-mouth advertising. Because we want to develop close working
relationships with our customers, we want to establish accounts in as personable a
way as possible. It is for this reason that we will overwhelmingly emphasize in-person
sales calls to build accounts.

We will closely integrate all of our marketing and sales efforts to project a consistent
image of our company and a consistent positioning of our products and services. We
will build this image around our name “The Coffee Warehouse, Inc.” and emphasize to
customers the high-quality service that is behind this name.

To support our marketing initiatives and product knowledge, we will attend as many
area conventions and trade shows as possible to ensure we are offering the most up-
to-date market trend information.

5.2 Promotion Strategy

fi
fi
Relationships are the key to success in the distribution business. Personal selling will
remain our most important means of promotion. Both Steve and Jennifer Smith will
lead this effort – Steve, with his skill and experience in sales and distribution, and
Jennifer in customer service and relations. In addition to personal selling, The Coffee
Warehouse has identi ed several other means of advertising and publicity.

The Coffee Warehouse will send news releases to local media and press, as well as
trade magazines to try to get product and company feature coverage in front of the
eyes of our customers – as well as the end consumer. We will also produce a few
generic press releases about the products we are distributing for our customers to use
toward publicity coverage for their businesses in local publications such as the
Spokesman, The Inlander and Local Planet.

Third, we shall have a monthly newsletter for current of potential customers. This
newsletter will highlight new and current trends in the industry, upcoming conventions
and trade shows, offer promotions and special deals, as well as provide new recipes,
fun tips and other information that can be used in their business. We will also highlight
not just our products, but also display ideas and success stories of other business in
the industry. As a more straight forward advertising effort, The Coffee Warehouse will
feature an advertisement in the Yellow Pages, frequent ads in the Spokesman Review,
the Inlander, and the Local Planet, as well as participation in networking, local trade
shows, and personal word-of-mouth advertising.

5.3 Distribution Strategy

To begin, The Coffee Warehouse will operate two delivery trucks with a third vehicle for
special deliveries between scheduled delivery days. Deliveries will be made Monday
through Friday, and will be strategically routed to minimize travel time and fuel costs –
while maximizing production. On average, we will service 20-30 accounts per day,
with deliveries to each account twice a week. As the number of accounts increase, the
need for additional delivery trucks will continue to be evaluated. With each additional
delivery truck, routes will be restructured to maintain maximum ef ciency.

5.4 Sales Strategy

Distribution sales are dependent on repeat business, therefore the sales strategy for
The Coffee Warehouse is based on personal, consistent sales contact, with a high
emphasis on customer service and relations. Because we are a new distributor, we
understand that we will have to prove our worth to our customers in order to earn their
respect and business. Both of the owners, Steve and Jennifer, will make personal calls
on potential customers to review our product line and services, give general
information on our company, and discuss how we feel we can help them succeed in
their business.

The Coffee Warehouse will begin operations with two full-time delivery/sales
representatives, who will be responsible for providing full service and delivery to
current customers, but also make sales calls for potential new business. This delivery/
fi
fi
 sales representatives will receive a base salary, with commission on quali ed sales, as
well as bonuses for new acquired business. Customers will be scheduled for a pre-
arranged delivery day once or twice a week, depending on the quantity and timeline of
product needed. Product orders can be placed in a number of ways to help facilitate
the process:

• Phoned Orders: Customers can easily phone orders into our of ce, up until 2:30
p.m. of the afternoon prior to their scheduled delivery day.
• Faxed Orders: Customers can fax in a completed product order sheet, with the
same deadline as phoned orders.
• Tel-Sell: Customers may choose to have a representative from the of ce call
them the day prior to their scheduled delivery to check product quantities and
assist them in placing their order.
We understand the hectic schedule of a small business, so if a customer fails to call or
fax their weekly order, they will receive a courtesy call from our of ce to verify that an
order is not needed.

Management Summary
The Coffee Warehouse will be owned and operated by its founders, initially working
with a small employee base that will cover sales and delivery. Management and
personnel plans are covered in more detail in the topics to follow.

6.1 Organizational Structure

The Coffee Warehouse will be managed by the two founding partners, whose
individual areas of expertise cover many of the functional aspects of the business.

The organizational structure is very simple. Steve Smith will be responsible for the
routing, distribution management and delivery systems. Jennifer Smith will be
responsible for customer service, accounting, shipping and the general administration
of the business. Together they will be responsible for product selection and sales and
marketing.

The support staff at the of ce and warehouse, as well as the delivery personnel will
report to Jennifer. Because Steve will be spending a majority of his time in the trade,
Jennifer will be able to support any day-to-day needs that the personnel may have.
However even when Steve is out of the of ce, he will be in constant contact via
computer or phone.

The goal of The Coffee Warehouse is to have a team of committed associates who
empower each other so that the customer’s expectations can be exceeded. Our goal
is to offer career opportunities, advancement opportunities and a level of income and
bene ts that is competitive within the region and job classi cation. It is our long-term
goal to be the preferred employer within our niche of the beverage distribution industry.
fi
fi
fi
fi
fi
fi
fi
fi
 6.2 Management Team

Steven D. Smith
Steve has a long history of experience in sales and distribution management,
speci cally in the beverage industry. As the sales and distribution manager for the
largest beverage distributorship in the state, he currently manages ten sales
representatives and twenty four merchandisers. During this time as sales manager, he
has helped increase market share from 25 to 40%.

Over the last twenty years, Steve has successfully built and maintained rapport with
buyers in the city’s largest key accounts, and has strategically routed sales,
merchandising and truck routes throughout the city.

Steve has many industry contacts and an in-depth knowledge of the market.

Jennifer L. Smith
Jennifer recently operated as general manager for a local business and directed a staff
of thirteen, overseeing the accounting practices, human resource issues, and day-to-
day operations of the company. Prior to this position, Jennifer has held a variety of
other inside business management and operations positions.

Jennifer’s strengths and skills include strong management, excellent public relations,
high levels of organization, extensive computer knowledge – including desktop
publishing and graphic layout – and extensive presentation and reporting skills.

6.3 Personnel Plan

PERSONNEL – GENERAL
Initially we expect to be able to handle business needs with Steve and Jennifer, one
administrative assistant, and two product delivery/sales personnel. As business
continues to grow, we intend to hire additional employees one at a time and pay
premium, over market labor rates to attract and retain quality help.

Not only will we train our employees to deliver excellent service, we will give them the
exibility to respond creatively to client requests. In addition, we will continually monitor
our clients’ level of satisfaction with our service through surveys and other convenient
feedback opportunities.

To ensure our personnel are meeting our expectations, we will hold a minimum of
quarterly meetings with all employees so that results can be reviewed and future plans
can be discussed. At least twice a year, a refresher course will be required on product
knowledge and how to exceed our customer’s expectations.

SALES AND DELIVERY

In order to deliver high quality, personalized service we will carefully select all
employees – with extra attention given to sales reps and delivery personnel who will
deal directly with customers. We will carefully review references not just from past
employers or manufacturers, but also from retailers whom these sales reps have
fl
fi
served. We will also make sure that each employee understands our way of delivering
quality service to each customer. We will have immediate back-up support available by
phone from our of ce for more dif cult service issues. We will also give employees
enough latitude so that they can respond immediately to almost any customer request
or complaint – which in this industry usually means granting immediate credit for
damaged merchandise, and adding additional merchandise to an order.

Financial Plan

The Coffee Warehouse projects the gross margin to be at approximately 20-25 percent.
Sales projections for FY2004 are at $2,229,652 increasing to $2,558,584 in FY2005 and
$2,936,137 in FY2006. Cash- ow analysis, balance sheet, business ratio, break-even
analysis, and other nancial details are shown in the appendix.
fi
fi
fl
fi