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Market Feasibility

Having noted the beehive of activities around Melbourne GPO’s shopping centre, the hub presented an ideal location for a café business. On every single day, individuals throng the centre to access several services offered in the shopping area. The business opportunity presented in the area sufficed to be the motivating factor behind the proposed establishment of Café Ultimate. The location is ideal for a café business due to the high number of passing shoppers that visit the shopping centre on a daily basis. The situation of the business in Melbourne CBD also guarantees a massive influx of customers that visit the area on a daily basis. The commencement of residential and commercial development in Melbourne guarantees a continued rise in the number of individuals that visit the CBD and the shopping centre.

Customers of Café Ultimate comprise primarily of people passing by. Other customers include employees that work in and around the shopping centre. There is no age limit for the café’s customers since the business intends to serve customers that enjoy a value-for-money and a healthy meal as well as fine coffee. The business intends to avail its foods either on a take away or dine in basis. Young singles and families form the majority of customers targeted by the café. The target customer population presents high discretionary expenditure and moderate income. Most of the customers are ‘social drinkers’. However, some customers prefer pick-me-up or daily fix services. They expect a relaxed, convenient and friendly environment to socialise as they enjoy their meals or take fine coffee. Since the café intends to avail alternative meals to fast foods, it will be a preferred option bearing in mind the existing health concerns associated with fast foods.

On each weekday, Melbourne anticipates approximately 854,000 individuals. The categories of individuals in the city include residents, workers, students, visitors, and young individuals aged below 15 years. The city also anticipates a 2% and 3.2% annual growth of workers and city residents respectively. This implies that the cafe will be full to its capacity during peak hours such as at ten o’clock, lunch hour and in the evenings. This emanates from the congestion witnessed in other restaurants surrounding the mall. From the congestion, it is apparent that the existing demand for restaurant services around the shopping centre exceeds the available cafes and restaurants. On a monthly basis, the café expects to serve approximately 6,000 customers.

Prior to setting up the business in Australia, the Government anticipates that the business will conform to the food safety legislation. The objective of the legislation is to safeguard consumers as well as increase their confidence in the foods offered by the café. As a result, the café business will ascertain its conformance with food safety standards. The standards encompass Standard 3.1.1 Interpretation and Application, Standard 3.2.2 General Requirements and Food Safety Practices, and Standard 3.2.3 Equipment and Premises. In accordance with the food legislation in Australia, notifying the local council will be the first move of the business owner. This includes providing the business and contact information. There are three main competitors of the business that operate around the shopping centre. These include Ca De Vin, Federal Coffee Palace, and Max Brenner Chocolate Bar. The increase in the number of city residents and workers in Melbourne imply that the opportunity would last for a long time. However, the threat of existing competitors and new entrants would compel the business to improve on the quality of its products and services to attract more customers. High start-up capital suffices to be the main barrier to entry in the café business. However, there are other alternatives such as leasing premises, equipment, fittings, and furniture that investors can use to lower costs of starting the business.

Technical Feasibility

The location of the firm in the CBD is one of the competitive advantages that the business will enjoy. In the quest to position itself strategically in the market among its competitors, Café Ultimate intends to improve on the value and quality of its light meals and drinks. The firm intends to hire expert chefs that will prepare unique meals that exceed meals offered by competing cafes in the shopping centre. Hiring international chefs will enable the preparation of new menus overnight in a bid to meet customer preferences that change on a continuous basis. As a guarantee of improved catering services, the café will also hire an experienced manager having the necessary industry expertise and experience associated with the successful running of restaurant and café business. A proper combination of the competitive advantages guarantees a unique selling position to the café.

The café intends to employ the services of in-house chefs in the preparation of new menu items that meet customer needs. The use of in-house chefs will enable the café to prepare healthy light meals as the main differentiation point. The availability of experienced and expert chefs avails the required flexibilities and capabilities required to develop new menu lines. The other role of in house staff will entail ensuring that they guarantee ‘value for money’ for the fine coffee since the product will not be different from similar products offered by competing cafes in the shopping centre.

The management of the café has also opted for an in-house sales and distribution strategy that makes use of the premises of the café. The decision emanates from the fact the firm intends to maximise on its premises before extending its operations to other sections upon its firm establishment in the city. The Melbourne GPO shopping centre is a large shopping destination that draws a huge number of customers from all sections of the CBD. The café intends to use its in-house sales staff to sell its products on both take-away and dine-in basis. The firm will also venture into marketing itself in the industry. As a result, it will employ effective strategies of product promotion to communicate its existence, products, and services to the customer base. The use of discounted meals and coffee will be the first promotional strategy. The successful launch of the firm requires a period of approximately two weeks. The café will also use different advertising forms such as A-frame advertising boards, flyer drop in mail boxes and weekly newspaper advertising. The business will rely on shop front signage as the main promotional strategy since it is appealing and bright. Advertising the café and its services will also take place through word of mouth. Word of mouth advertising will focus on the quality of services and products offered by the café.

Establishing the café will necessitate several resources. Human capital is one of the mandatory resources necessary in the establishment of the café. The human resource aspect of the business will involve two teams; Team 1 and Team 2 having their team leaders. The first team will handle issues associated with administration and customer service. The second team will be responsible for the kitchen and food preparation. Rather than the managerial and chef positions, the café will require customer service employees. Mr and Mrs Richard, the owners of the café will also head the management of the business. Each team will also require the services of two full time staff members and one casual staff. The business will employ 8 staffs.

At the time of establishing the business, the cafe will only use the premise situated in the CBD. The location of the premise in the shopping centre is ideal in attracting passing customers. Currently, the café will not need a separate location for its operations. Having acquired the premise from a former entrepreneur, the table below shows the equipment and plant needed to establish the café.

Equipment Item

Number required

Source of financing and cost

On-going maintenance and cots

Covered under the purchase price

Replacement after every 6 months

Crockery, linen and cutlery

80 settings of cutlery and crockery

Covered under the purchase price

Replaced when need arises

POS Equipment

Covered under the purchase price

Covered under warranty

Furniture-Tables and Chairs

15 tables and 40 chairs

Covered under the purchase price

Replaced when need arises

Cupboards & Benches, sinks and drains

Covered under the purchase price

Replaced when need arises

Commercial kitchen

Covered under the purchase price

Maintained on an annual basis

High quality coffee maker

Covered under the purchase price

Covered under warranty

Table 1: Listing of Equipment and Plant

The Café Ultimate will also rely on suppliers to supply raw materials. The main raw materials include fresh fruit and vegetables, delicatessen items, manufactured meat, fresh meat, flour, rolls, and fresh bread. Other supplies include plant and equipment, coffee beans, wines, soft drinks, beer, badges and staff uniforms, table cloths, promotional materials and serviettes. The storage of all stock will be on-site. The management will use cartons or vacuum sealed bags to store vegetables and other fresh produce. The café will use vacuum sealed bags to store meat in a commercial refrigerator. Storage cupboards will store coffee beans, packaged and canned products. The café will also use refrigerated cabin displays to store other perishables such as cakes for a period that does not exceed three days. The business will use the stock control system to control its stock. The rate of stock turnover will be once per week. The business will also require a computerised EFTPOS linked to the accounting system. The function of the system will be the direct processing of Cash Transactions, Debit Card, and Credit Card. The function of the accounting system will be the processing of general ledger transactions, stock control, and payroll as well as maintaining human resource records.

The Building Code of Australia (BCA) provides the legal framework for establishing a food business in Australia. Prior to using the premise, the owners assessed its condition to ascertain that it complies with each of Standard 3.2.3 requirements. According to the Standard, the design and construction of the premise should be proper to serve the interests of the business without having an adverse impact on the health of consumers. From the assessment of the building, it was evident that the premise met almost all the requirements of the Standard. However, the old design did not include coving at the floor and wall junctions of the areas of food processing. As a response, it is imperative that the owners should install coving to aid in the cleaning process. The table below shows the registration, licenses and permits associated with the business.

Description of License/Registration

Date Obtained

Date of Expiry

Company Registration

Jan 1, 2017

In Process

Business Name Registration

Jan 3, 2017

Jan 2, 2018

Food Business Licence

Current License-Dec 31, 2016

Dec 30, 2017

Australian Business Number

Jan 5, 2017

In Process

Table 2: Listing of Permits, Licences, and Registrations

The ethical behaviour of employees that serve customers is one of the most important ethical issues affecting the café business. It is evident that customers also rate their level of satisfaction based on the treatment or service rendered by front-line employees besides the quality of the meals and drinks served. Since the interaction between the employee and customer is known as the ‘moment of truth’, it is evident that poor interactions impact negatively on the rating of service quality. Tolerance of the relativity degree in moral standards turned out to be an ethical behaviour that the managers of the establishment are uncomfortable with. For instance, there are instances where customers default on payment after having their meals. Such scenarios pose a challenge to managers since the industry requires them to respond to the situation in an ethical manner without subjecting the customer to injury, insult or harm.

The POS system suffices to be one of the latest technological improvements in the restaurant business. As a result, Café Ultimate will also install the system to automate jobs carried out by kitchen and service staff. The industry has also witnessed the introduction of product management systems. Such systems are responsible for programme scheduling, controlling inventory and purchases, formulation of prices, product forecasts, and menu engineering. The successful performance of Café Ultimate will require the installation of the system to reach the desired levels of operational efficiency. Social networking has also been on the rise particularly in the marketing of business in the hotel and hospitality sector. As a result, Café Ultimate will use social media to their advantage by advertising the location of its premise as well as its products and services.

Financial Feasibility

The projected transactions of sales for Quarter 1, Quarter 2, Quarter 3, and Quarter 4 in the 2017 financial year are 18,100, 19,900, 16,200, and 18,800 respectively. The estimated average sale price is $9.84 with a cost of sales average of $2.90. The Café will require the services of 5 employees during normal times. However, the number will increase to 6 during peak working hours. In the first year, Café Ultimate anticipates a customer satisfaction rating of 85%. The business also expects to yield profits worth $5,865 per month from each employee. Café Ultimate anticipates a profit of $144,879 in the first year of operation.

Café Ultimate’s Year 1 Gross margin is calculated at 71%. The Café’s net profit margin before tax is calculated at 21% for the first year of operation. The sustainability of the margins indicates that the business is quite profitable in the medium term as well as the long term. Each month of trading reveals a healthy cash surplus. The anticipated cash from operations realised in Year 1 is $139,575. The ending cash balance for the first year will be $192,071. During the first year of operation, the managers have negotiated favourable terms of credit of 30 days. As a result, all suppliers will adhere to the agreed upon period. Apparently, a reduction in the terms of credit of any magnitude will result in a consequent reduction in the peak cash during the affected period. However, the managers have adequate liquid assets to deal with the situation in the event of its occurrence. From the negotiations made between the managers and suppliers as well as the figures availed above, it is evident that the business presents a positive and strong cash flow. The figure below shows the financial ratio analysis.

Ratio Analysis

Opening Balance Sheet

Current Ratio

Quick Ratio

Inventory Turnover

Total Assets

Net Worth

Return on Equity

Return on Total Assets

Days Sales Outstanding

Gross Margin

Net Margin

Figure 3: Financial Ratio Analysis

From the ratios above, the first year indicates a solid performance.

Since the Quick Ratio and the Current Ratio are both very high, it is evident that the Café Ultimate business has a positive and strong cash flow. The strong and positive cash flow emanates from the fact that cash is the principal mode of payment. Moreover, the business has a sound liquidity. The positive cash flow indicator also arises from the fact that acquisition of purchases takes place majorly on 30 day terms following the negotiations made between managers and suppliers.


  • The operation of the business for paying tax and reporting is on a cash basis.

  • The average sale price for each transaction is $9.84.

  • The average cost incurred on each transaction is $2.90.

  • The business will use the historical Gross Margin of 71%.

  • Monthly sales transactions vary between 5,900 and 7,500 during peak seasons.

  • PAYG remittance takes place on a monthly basis.

  • GST remittance takes place at the end of each quarter in arrears.

  • Seasonal fluctuations characterise the business. Peak seasons include New Year and Christmas. The seasons build form November and slow in February.

The estimated start-up budget for Café Ultimate business is $276,667. There is a split of the budget of advance monthly payments and ‘one-off’ costs of $29,683 and $246,984 respectively. Plant and equipment worth $65,933 and goodwill worth $158,238 also form part of the ‘one-off’ costs. The figure below shows the start-up budget.

Start Up Budget

Monthly Expenses

Projected Monthly Expenses

Cash Required to Start

% of the Total Budget

Salary of the Managers

Other Wages and Salaries





Other Utilities




Professional and legal costs


One off’ costs

Equipment and fixtures

Starting Inventory

Deposits for utilities

Professional and legal fees

Permits, licences, and registrations

Advertising and promotion at launch

Others (Insurance, advance rent, goodwill etc.)






The source of the start-up capital is an equity injection worth $138,333 from the owners and a loan over a 2-year period from the bank. Owners of the business will use its strong cash flow to repay the loan borrowed from the bank. Owners have more than sufficient financial resources to cover the loan in the event of a reduction in the cash flow. Personal guarantees for the owners and a mortgage debenture over Café Ultimate business are the collaterals for the business.

Fire causing loss of property or life is one of the financial risks that the business may encounter. The other risks include changes in the terms of the supplier, food poisoning, inability of suppliers to avail supplies, major disputes with the owner of owner of the shopping centre, and the loss of key personnel.

Break Even Analysis

The figure below shows the break even chart.


Number of Units

Total Fixed Costs

Total Variable Costs

Total Sales Revenues
























































From the table above, it is evident that Café Ultimate will need 51,078 transactions before it earns any profit from the business.