Scenario A: Assessment of Retail Locations To: SoCal Regional Manager, SuperBig Coffee Company . Fr: Mr. Kopano Koffie, President, SuperBig Coffee Company Re: Southern California Acquisition As you are aware the board of directors of the SuperBig Coffee Company has indicated an interest in buying out stores owned by Local Roast Java, a regional chain in your area. As the Southern California regional manager I believe you are in the best position to evaluate the Southern California market. To help you begin this process, I wanted to share several relevant details that will help you to complete this task: Past research shows that shops are most successful when located along major artery streets. In most cases, these should also be located near concentrations of likely customers, usually this would be within two miles of the neighborhoods customers live in or near office parks, hospitals and shopping districts. Our company's typical customer is a college educated, middle class, professional, owns a car and lives in a neighborhood that is at least 50% owner occupied. Since many of our customers prefer to use a drive through on their way to work or business meetings it is essential our locations provide easy access. Access off a major street both into and out of the parking lot is ideal, preferably in a stand-alone location, rather than in a shopping center with competing traffic and parking demands. Our shops require a minimum of 500 square feet of space (and in higher traffic areas, up to 1500 square feet) located in an area that is zoned commercial or retail. Talking with our property attorneys, we should anticipate retail space in Southern California will rent at rates of between $15-25 per square foot. A typical, successful location in this region should gross $750,000 annually, however, we can justify less, so long as we net at least $100per square foot per year after all expenses. Approximately 12,500 staff hours are required to run a shop (about $125,000/year). You already have numerous locations in the region, and anticipate after purchase of Local Roast Java's 23 Southern California locations, between 8-12 of the existing or purchased shops will need to be closed to avoid competition between locations which are too close together. An average order takes about 2.3 minutes to fill and generates $5.37 in gross sales. In a typical 15 hour day, (6:00am - 9:00pm) between 500-700 customers can be served. For any given location, we find that approximately 8.4% of likely potential customers will actually visit our coffee shop on any given day. Research also shows that when wait times go over four minutes (e.g. lines are visibly longer that six people or cars), approximately 28% of the prospective customers will opt to bypass the location, therefore in particular high traffic areas, the service area for a given location may decrease from two miles to a little as 0.75 miles. While there are additional details the board will need to consider such as termination of existing leases, store rebranding, etc. these are one-time costs they will evaluate independent of the market potential. I would appreciate your analysis of the market as it pertains to this take-over opportunity so I can make a recommendation to the Board of directors by the end of the month. Of course, if we do not opt to buy out Local Roast Java, these same stores are likely to be purchased by one of our other competitors generating additional competition, so it is important you take care to clearly assess this situation so we make an informed decision