FORECASTING COFFEE SHOP SALES DURING THE LOCKDOWN
Challenge: Raise coffeeshop sales during the lockdown
Business type: small
One day, coffee shop owner Eric asked us to help him raise and forecast sales during the lockdown. Eric found out about our app from his accountant, so he decided to give it a try.

Eric wrote us about the issue: the coffee shop's revenue was mainly due to sales in the shop itself, and the new rules of the coronavirus made him think about the best way of running this business online. It raised questions like changes in supply, costs, and earnings, so it was important to keep business going and get revenue without the cost of consulting a business analyst.

Financial situation analysis

When recommending the package, we focused on four customer's issues:

- supply change
- costs and waste estimation
- sales forecast for a business online.
Eric was interested in weekly, monthly, and quarterly forecasts to have control changes in business strategy.

Looking at these issues, we realized that the best solution for Eric would be Prudentia Standard, as it includes cash flow forecast, sales forecast and trend-seasonality decomposition, price elasticity report, CLTV (customer lifetime value) report, item profitability report, customer and vendor dependency report, cost optimization tool. To test this package, it was enough to connect to QuickBooks and let Prudentia analyze his company's financial model.

This is what Eric got after the analysis:

  • there was a decline in sales due to lockdown restrictions;
  • the purchase plan risked becoming a waste as demand declined;
  • popular and most requested drinks (cappuccino, espresso, latte) lost their actuality because they are hot drinks that have to be served right away or at least require special thermic cups and gentle delivery.

He saw that a significant part of the profits was focused on cash, and prices were tied primarily to the coffee quality and ingredients for drinks/desserts. In addition:

  • 50% of profits came from regular customers. Because the coffee shop had been closed, it lost 30% of regular customers and 20% of other passing customers;
  • 30% of the revenue was divided into two big expenditure categories: 15% - coffee beans and other ingredients purchase, the other 15% - salaries, insurance, and other expenses.

The client got all this data from Prudentia. That is, he obtained a company's real financial picture from already existing accounting data. Now, he could launch a full forecasting analysis:

  1. Cash flow forecast;
  2. Sales forecast and trend-seasonality decomposition;
  3. Price elasticity report;
  4. CLTV report;
  5. Item profitability report;
  6. Customer and vendor dependency report;
  7. Cost optimization tool.

Solutions

What will happen to the business in the next three months?
That's what Eric got after the forecasting analysis.

- In a month, the cash flow will drop by another 20%.
- Seasonal sales may fluctuate by 15%
- There is a risk that profits may drop down by 15%
- The purchase plan has to be changed; otherwise, it'll become an extra cost.

Based on these predictions, the likely solutions to raise sales may be:

  • Purchase plan optimization: reorganize coffee beans and sweets purchase plan to satisfy demand online and avoid waste. To focus on coffee delivery service to offices and home and branded packaging;
  • Launch of special discounts and out-of-season drinks, proposing, for example, a discount on two coffee shakes or milkshakes 150 ml each on orders 2 and more cups, or the Coffee of the Week at a discount for regular customers;
  • Focus on seasonal (daily, weekly) sales, the launch of coffee delivery with extended working hours schedule expanding the schedule of online work;
  • Development of a "lockdown" menu with sweets that last longer (hard cookies instead of cakes and pies);
  • Work on disposable coffee cups design without losing their quality, change of supplier;
  • Marketing strategy change, focus on social networks, paid search advertising, and e-mail.

Difficulties

Forecasting models show how certain decisions can affect a company's success. The models are quite accurate, but the decisions themselves are made directly by business owners. Eric had difficulty prioritizing new decisions, but the result was worth it. Usually, it is enough to test the forecast results in a month or a couple of months to see whether the proposed changes work for the business or some changes have to be applied.

Result

Eric decided to change his purchasing strategy and focus on seasonal sales with an extended work schedule online. These are the forecasts that Eric got in a month after the changes he had applied.

  • 20% sales growth
  • Regular customers retention and new customers flow thanks to a new advertising strategy
  • Waste and some costs will be reduced by 10%.
Challenge: Raise coffeeshop sales during the lockdown
Challenge accepted: sales growth by 20% in the next quarter, waste reduction by 10%
Product: Prudentia Standard
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