Group Case: Chintu Chaiwala

Chintu Chatterjee has been working alongside her mother, Raj Chatterjee, in the family business for the

last five years. The Chatterjee family business, Raj Mahal Restaurant, is a successful Indian restaurant in

Abbotsford, BC. Chintu helps in all areas of the restaurant except accounting and finance as Chintu has

never been fond of numbers or math. Over the years Chintu has gained valuable entrepreneurial and

business knowledge related to customer service, inventory procurement, and other day-to-day business

operations. Currently, Chintu works 40 hours a week at Raj Mahal Restaurant for $40 per hour. Chintu

often ends up working closer to 50 hours a week, but she does not charge for the extra hours because

she feels personally invested in the success of her familys business.

Recently Chintu has started to feel that her brother, Jassa Chatterjee, wants to take on more

responsibility at Raj Mahal Restaurant. Chintu feels this might be a sign for her to finally pursue her own

passion. Although, she is very fond of Indian cuisine, her true passion lies in Indian chai. Chintu decides

that it is time for her to use her savings and start her own business, Chintu Chaiwala. Chintu Chaiwala

will be a modern, eclectic caf specializing in Indian chai.

In order to start her own business, Chintu could either rent a neighboring unit to Raj Mahal Restaurant

in Abbotsford or she could rent a unit at the Lonsdale Quay Market in North Vancouver. Raj is

encouraging Chintu to stay close to home, however Chintu wonders if it is time to be truly independent

and start her business in a new area where a chai caf would be unique and the only of its kind. Chintu

has written out some considerations for both locations in the table below:

Abbotsford, BC North Vancouver, BC (North Van)

Close to family home and restaurant

Rent is $2,000 per month for 800 sq. ft.

There are four to five Indian restaurants

that serve chai within 10km radius

Average household income in Abbotsford

is $120,000

Larger proportion of Indian people in the

community compared to North Van

Annual property tax would be $12,000

Distance from family allows for more

autonomy

Rent is $3,000 per month for 815 sq. ft.

There are no Indian restaurants within

10km radius

Average household income in North Van

is $200,000

North Van is a more populous and

touristic area

Annual property tax would be $20,000

Regardless of location, the caf will be open seven days a week:

- Sunday, Monday Tuesday - open from 11:00 AM to 7:00 PM

- Wednesday to Saturday - open from 11:00 AM to 10:00 PM

Chintu plans the product offering for a caf in Abbotsford to be as follows (direct material, direct labour,

and estimated overhead costs included in cost per serving):

Product Description Cost to make

(1 serving)

Selling price

(1 serving)

Estimated # of

servings sold per

week

Chai Original Indian Chai 2.15 5.00 700

Kadak (strong) Chai 2.35 5.25 750

Masala Chai 2.55 5.35 750

Ginger Chai 2.45 5.50 500

Chocolate Chai 2.30 5.50 375

Chai Affogato* 3.00 7.50 360

Snacks Samosa (2 pieces) 5.00 10.00 500

Mathi (salty cookie) 0.50 2.50 700

Cake (assorted) 4.25 4.50 600

Rusk (crispy cookie) 0.25 1.25 800

*Chai Affagoto is only available as a special weekend evening treat on Wednesdays to Saturdays from

7:00PM to 10:00PM.

Chintu predicts that if the caf were to be in North Vancouver, the cost of all the items would remain

the same, however the selling price of each item could be increased by 10%. Chintu suspects that the

number of units sold would remain the same regardless of location. The caf would require two

employees to be on shift at all times. Chintu plans to pay the employees BC minimum wage which is

$16.75 per hour. The employees would start work one hour before opening and end their shifts one

hour after closing. Chintu hopes that her business would be profitable enough for her to take an annual

salary at least equivalent to what she is making at Raj Mahal Restaurant. Raj has told Chintu that she will

generously gift Chintu with some of the old pots and pans from Raj Mahal Restaurant that are not being

used. Chintu is budgeting to spend at least $10,000 in start-up costs (cups, plates, tables, chairs, etc).

Chintu would like a detailed budget for both locations to better understand where profits would be

greater for her business. Being a detail-oriented person, she knows that there can be fluctuation in

financial results depending on sales and expenses. Chintu is curious to know what the difference would

be between an optimistic budget and a more conservative one. She also wants details on how actual

results are evaluated when compared to budgets.

Chintu wonders whether her estimates for number of sales per location are appropriate based on the

demographics of the locations. Are there certain products she should focus on promoting and selling

more of or some products that should be discontinued? Chintu would appreciate advice on product

offering.

During a visit to Surrey, Jassa gets into conversation with the owner of a local restaurant, Maharaja

Catering. The owner of Maharaja tells Jassa he is willing to sell samosas for $1.25 each to Chintu

Chaiwala as long as Chintu pays for all shipping and handling costs. The shipping and handling for 100

samosas would be $50. Chintu would like to know whether it makes sense to purchase samosas from

Maharaja Catering or continue making them in-house.

Chintu estimates that $125 of overhead is spent producing 500 weekly servings of samosas. The other

costs are typically 50% direct labour and 50% on direct materials. Chintu is wondering what the breakeven revenues and units are with regards to samosa servings. She has also heard of margin of safety and

CVP graphs- she would like more details on those.

Chintus older sister, Dr. Happy Chatterjee, is also a chai lover. However, due to her demanding career as

a medical doctor, she does not have time to make chai. Through her social circles, she has learned about

a chai making machine, known as the Chaiologist2000. The Chaiologist2000 can make all of the chai

drinks Chintu Chaiwala offers. The machine costs $55,000 and would be useful for five years. It would

result in added cash inflows of $10,000 for the first two years, and $15,000 for the last three years. Dr.

Happy also mentions that there would be a maintenance fee of $7,500 to be paid in the third year.

Chintu thinks this machine could be useful but is not sure if the cost is worth it. She can borrow money

from the bank at a 7% rate. Alternatively, she can offer her older sister 30% equity in her business if she

funds the machine purchase (Chintu would still be responsible for paying the maintenance costs).

Regardless of the machine being a good or bad idea, Chintu wants a detailed analysis on whether she

should have a business partner.

Chintu wants to ensure that her new business has a strong focus on corporate social responsibility. As

such, to honour the land that Chintu Chaiwala will exist on, Chintu wants to collaborate with a local

Indigenous chef to create a special bannock snack to be included on the menu. Fifty percent of the

proceeds of the bannock sales will be donated a Canadian Indigenous charity. Chintu wants this product

to be very successful and an enticing reason for customers to visit the caf. Chintu wants to do

marketing for this unique product offering, as well as the caf in general. Outsourcing marketing to a

third party would cost about $10,000 a year. Outsourced marketing would result in weekly sales

increasing by 5%. If Chintu were to handle marketing herself, the cost would be $5,000 and sales would

increase by 2% per week. Provide Chintu with advice on what strategies she could employ for in-house

marketing and recommend whether it is better to simply outsource this task.

Chintu is excited to start her chai dreams, however she knows she cannot open her business without

learning more about how to do accounting. She thinks eventually she will hire an accountant, but in the

meantime, she will do her own accounting to keep costs low. As such, Chintu needs some sound

bookkeeping and accounting advice for a new business owner, including details on how to make an

income statement. Chintu is also wondering about the Chaiologist2000. If she decides to buy this

machine, what depreciation method should she use, how would she calculate and record depreciation

for the Chaiologist2000, and where on the financial statements would the machine be recorded?

Advise Chintu on what to do with her business. Produce a business report, including comprehensive

analysis, recommendations, and any questions you may need to ask Chintu.