The Dancing Goat is the name Logan Jones chose for his caf. The origins of the name

The Dancing Goat is the name Logan Jones chose for his café. The origins of the name came from a 1600s fable of a young goat herder watching his goats dance after they ate red coffee beans. Logan wanted his customers to have the same pleasant ‘dancing’ experience when they drank his specialty coffee blends. In his Sopital Lane café in Melbourne, Logan has a central roasting room in which he roasts fresh coffee beans from around the world. He offers 12 blends of coffee and delights customers with the atmosphere of his classy, European-style café with couches and low tables. The Dancing Goat has become very successful and Logan began to expand his operations to several locations around Melbourne. He roasts the coffee at the main Sopital Lane café and transports it daily to the other cafés.

Logan now has 10 cafés located around Melbourne. They offer a deliberately small, but highquality gourmet menu. Logan is well liked by his staff and they all understand his requirement for friendly service, a pleasant atmosphere and excellent coffee. Every new staff member learns to make coffee to Logan’s strict specifications and wears The Dancing Goat uniform with pride.

Logan is particularly pleased when returning customers at each of the cafés praise his friendly, well-trained staff. Nevertheless, after several years of successful operations, the profitability of the Dancing Goat has begun to decline. Logan has decided to revisit The Dancing Goat’s ‘branding’ strategy. He recently read the following article relating to the Starbucks decision to ‘unbrand’:21 

The idea is that the [Starbucks] chain will turn some of its premises into individually branded neighbourhood coffee shops, to find out whether it will do better by adopting a facade that’s more like an old fashioned neighbourhood coffee shop. In its home-town of Seattle, an outlet called 15th Avenue Coffee and Tea will be the test-bed for this new non-brand, selling beer and wine as well as high-end brew.

Logan is particularly interested in Starbucks’ test-bed 15th Avenue Coffee and Tea store, which courted coffee connoisseurs with the same elaborate coffee brewing machines that Logan decided to purchase for The Dancing Goat cafés. Although Logan is a little dubious about the potential success of the Starbucks’ approach in his operations, he is aware that several café managers are dissatisfied and keen to make significant changes. Logan ponders ‘Why not let one of the cafés loose for a couple of years to trial a similar unbranding approach?’ Logan could set simple performance targets based on profitable growth and pay uncapped incentives. He will allow the manager to determine what would best suit the local clientele without too much interference from Logan. After all, Logan knows the manager of the trial café he has selected is not scared to take risks. Logan will be satisfied as long as the profitability of this café remains at an acceptable level.

Required

Given your understanding of risk management, briefly provide advice to Logan on:

(a) The risk profile and level of risk exposure for The Dancing Goat of the new approach.

(b) How Logan might reduce this level of risk exposure.