Company Background:

Daily Grind Coffeehouse was founded in 2007 by two friends who love nothing more than a hot cup of joe. The company has always prided itself on putting quality firstfrom the beans they brew to the knowledge and friendliness of people who serve it. Their goal has always been to be the coffee shop that makes the absolute best cup of coffee in town. They strongly believe in fair trade and donate 5% of their profits to support the communities of their farming partners. The founders are co-CEO of the company. Their professional backgrounds comprise marketing and corporate law.

Over the last 10 years, Daily Grind has managed to grow from a single storefront to a local coffee chain with eleven brick-and-mortar locations within California. Daily Grind Coffeehouses are decorated with a retro industrial vibe. They feature art and signage that tells the story of their crop-to-cup process and educate customers on various coffee-related topics. This privately-held LLC offers premium coffee beverages and breakfast items.

Each of their cafs average $2,750 in sales per day, with some locations performing much higher than others depending on location, square footage and whether or not they have a drive-thru (all but two locations do). The average transaction is $5.74. Last year, Daily Grind saw $10,900,000 in total revenue.

You are the new Chief Financial Officer who oversees the accounting department for Daily Grind, including its corporate office and all eleven locations. Your team is responsible for evaluating strategic decisions for the company and making recommendations to the co-CEOs, who fully depend on you for your accounting knowledge and professional experience. Your advice and input provide direction for the company so that Daily Grind can continue to grow its profits and ultimately expand nationally. Assume that Daily Grind analyzed their sales analysis and variable cost income statements (P&L) for the past two quarters. They are a service/retail business but use this format in their P&Ls to make strategic decisions.

You've brought it to the attention of the executive team that sales in the grab & go cases in all of the stores have really slowed down. The executive team has tasked you and your team with bringing them several suggestionsincluding one recommendationfor new products to try. Your recommendation will be piloted for three months in the busiest location to assess demand for this new product.

After researching lots of options you've narrowed down your suggestions. Of the three options you're proposing, which one do you recommend?

A.) Local fresh-pressed juices. Nature's Nectar is a local artisanal juice bar that offers 12-oz juice blends at wholesale for $4.75 per unit. The drinks have a shelf-life of three days and come in eight different juice blends. Nature's Nectar will offer The Daily Grind a special pack size during the trial run, as a result of the exposure they'll receive at your busiest location. This special pack includes four units (per flavor), with a minimum order of six packs every-other-day, which is in line with their delivery schedule.

B.) Bagel chip & flavored cream cheese snack packs. This is a relatively new product from a well-known national brand. These snack packs come in four different varieties, two savory and two sweet. They have a shelf life of approximately four months and wholesales at $.65 per unit. A case includes 24 units and your distributor requires a four-case minimum for every order.

C.) Local chocolate confections. A friend of one of The Daily Grind's store managers is trying to get her confectionary company off the ground. For the opportunity to showcase her products, Ellie is willing to negotiate several factors. She'll deliver product weekly for free, requires no minimum order and will provide marketing materials to promote the new product. Ellie's Bon Bons include two large pieces of decadent chocolate candy per pack, have a shelf life of one week and wholesale for $1.50.

Questions:

1. Which option would you choose?
2. What would the variable cost income statement look like in order for you to make this decision? Think about what your variable costs and fixed costs might be in this situation. Daily Grind owns rather than leases its store facilities and provides all display cases. What kinds of costs would be incurred?(even though two questions are asked you're supposed to answer them both all together)