Sombrero Juice Outlet
This report has been prepared in response to your concern regarding whether to go ahead with the decision to start the Sombrero Juice Outlet business or remain in your current job as the operating manager at the Al Qatara bowling alley in the Al Ain Club. I have analyzed your proposal to serve freshly squeezed fruit drinks mixed with ice cream to customers in the Al Ain Mall with the aim of making a profit of and showed whether indeed the proposed business will be profitable, that is, have a positive operating income or will go bankrupt.
The quantitative analysis based on my calculations evinces that it the business will have a projected positive operating income of DH30,000. From the calculations, the projected customer base of approximately 24,950 customers annually is attainable relative to the 300,000 population in Al Ain, meaning that business will be able to pay all its bills. The report also outlines some vital qualitative perspectives that should be considered before making the final decisions. Thus, it is my recommendation to go ahead with the decision to start the Sombrero Juice Outlet.
It is my hope that you will find this report enlightening in making the decision regarding whether to start Sombrero Juice Outlet or remain in your current position as the operating manager at the Al Qatara bowling alley in the Al Ain Club. Any further questions regarding the information in this report can be forwarded to 797-424-9765.
The objective of this report is to analyze Moawia’s Sombrero Juice Outlet business proposal to determine whether it’s a good business venture based on projected profitability. The report outlines the background information on the proposed business, pinpoints the alternatives and pertinent issues, quantitatively and qualitatively analyzes each alternative before making appropriate recommendations. All salient information and calculations are included in the report.
The main product of Sombrero is a freshly squeezed fruit drink mixed with ice cream with thirty varieties of fruit cocktails. Soft ice cream will be made on site and poured out of the tap at the bottom of the machine before being mixed with discordant types of fruit drinks. Average customer order will be DH10. Moawia would like to make a profit of DH30,000 and is concerned about the ability of Sombrero to get enough customers to make that profit and pay all bills without going bankrupt.
Moawia has two alternatives:
- Go ahead with the current Sombrero business proposal.
- Reject the Sombrero business proposal and remain in his job as the operating manager at the Al Qatara bowling alley in the Al Ain Club.
Assessment of Alternatives
Alternative #1 – Go ahead with the current Sombrero business proposal
Advantages of going ahead with current Sombrero business proposal include:
- Presence of large population in Al Ain of three hundred thousand individuals who are potential customers.
- Presence of a first mall in Al Ain, meaning that residents will increasingly fulfill their shopping needs at the mall instead of traveling to Dubai to shop.
Disadvantages of going ahead with current Sombrero business proposal include:
- Uncertainty of the number of customers who will visit the Sombrero Juice Outlet and purchase the fresh fruit drinks.
- The proposed business plan does not meet competence standards as it fails to give a projected number of customers.
Sombrero Juice Outlet requires an annual revenue of DH249,500 to meet its annual costs of DH219,500. The annual customer base capable of attaining this revenue is approximately 24,900 which is a target that can be achieved by the business in a year based on the population of 300,000 in Al Ain viewed as potential customers and 13,000 University students who normally frequent malls (see exhibit 1).
Alternative #2 – Reject the Sombrero business proposal and remain in his job as the operating manager at the Al Qatara bowling alley in the Al Ain Club
Advantages of rejecting the Sombrero business proposal and remaining in his job as the operating manager at the Al Qatara bowling alley in the Al Ain Club include:
- Avoid incurring losses in an effort to keep his Sombrero business afloat in the mall.
- Avoid going bankrupt.
Disadvantages of rejecting the Sombrero business proposal and remaining in his job as the operating manager at the Al Qatara bowling alley in the Al Ain Club include:
- Fail to establish a pioneering business in the new mall.
- Opportunity cost of capturing the fresh fruit drink market in Al Ain later.
Unable to quantify until additional research is conducted.
Of the two alternatives contemplated, only alternative #1 has the ability of attaining profitability and preventing the owner from being bankrupt. Hence, Moawia should start the proposed Sombrero Juice Outlet since the projected customer base is attainable.
Start the proposed business and employ the proper marketing tools to ensure the business attains profitability by attracting the target customer base and more to continue operating in the mall.
Exhibit 1 – Number of Customers Analysis
|Projected Annual Costs|
|Water and Electricity||9,600|
|Maintenance and Security||8,400|
|Leasehold Improvement Costs||12,000|
|Ice Cream Maker||25,000|
|Display Case for Fruit||8,000|
|Fruit Juice Extractor||3,500|
Projected Annual Profit = DH 30,000
|Annual Projected Financial Statement|
|Operating Income||DH 30,000|
|Average Customer Order|
Number of customers =
= (DH 249,500 / DH 10)
= 24, 950 customers