You are the marketing analyst for Better Beans Coffee Company, which has nine stores nationwide. The company wants to build two additional stores. Your executive team has decided that rather than expand to new markets, they want Better Beans to begin opening additional stores in existing markets. While this will create cannibalization in the short term, it will create marketing and operating efficiencies as more stores are opened in each city.

As a scrappy and growing startup, Better Beans does not yet have access to complex marketing analytics software. Fortunately, you are an expert at gathering market data from inside and outside the company and crunching accurate numbers with nothing more than an Excel spreadsheet.

You have been tasked with calculating the two best markets for opening an additional store. You have already calculated two things that allow you to estimate the net additional revenue in each market after adding a second store:

1. Revenue for a second store in each market
2. The revenue lost from estimated cannibalization at the first store.

Important note: Due to the high investments already made in existing stores, management has specified that any market where cannibalization is 25% or more should be eliminated from consideration.

Questions

1. Ignoring cannibalization rates for now, what two markets have the highest net revenue increases when adding a second store?

   Atlanta and Portland Chicago and Los Angeles Portland and Houston Chicago and Houston Los Angeles and Portland

2. What two markets should be chosen for a second store based on management's criteria that the cannibalization rate for the existing store should be less than 25%?

   Note: Cannibalization rates and net revenue increase amounts need to be considered when making this determination.

   Chicago and Houston Orlando and Houston Chicago and Dallas Chicago and Los Angeles Orlando and Dallas

3. 

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Existing Store Revenue Second Store Revenue Estimate Cannibalization Estimate Revenue Drop Net Revenue Due to Increase for Cannibalization Market (Second Store Revenue - Cannibalization) Los Angeles Houston Orlando Atlanta Chicago San Diego Portland Dallas Boston $ 1,950,000 $ 1,000,000 $ 1,800,000 $ 1,700,000 $ 3,100,000 $ 2,100,000 $ 1,850,000 $ 1,450,000 $ 1,400,000 $ $ $ $ $ $ $ $ $ 1,812,500 1,050,000 1,695,000 1,835,000 2,580,000 2,100,000 1,802,500 1,322,500 1,430,000 25% 20% 40% 55% 5% 50% 65% 5% 20% $ 487,500 $ 200,000 $ 720,000 $ 935,000 $ 155,000 $ 1,050,000 $ 1,202,500 $ 72,500 $ 280,000 $ $ $ $ $ $ $ $ $ 1,325,000 850,000 975,000 900,000 2,425,000 1,050,000 600,000 1,250,000 1,150,000