HALFBUCKS

BUSINESS PLAN
HALFBUCKS

ANNA BARRISTA KEVIN KONA FRED ROAST

Copyright Thomas Hellmann, 2005. This is a fictional business plan. It is solely intended to be used as teaching material.

Table of Contents
1. Executive summary 2. Target Market and Customer Analysis 3. Strategy: Business Model and Competitive Advantages 4. Competitor Analysis 5. Marketing Plan 6. Sales Strategy 7. Staged Roll-out Strategy 8. Financial Projections

Executive Summary
HALFBUCKS is a retailer of premium-quality coffee and related caffeinated beverages that intends to capitalize on the lack of gourmet coffee products at lower prices given the saturation of corporate retail behemoths such as Starbucks. HALFBUCKS offers the coffee drinking population an alternative to the stuffy atmosphere and price-gouging antics that pervades gourmet coffee retailing on virtually every urban street corner.

HALFBUCKS offers its customers a simplified menu of premium quality freshly brewed coffee and standard espresso drinks such as latte, cappuccino, and regular espresso. In addition, HALFBUCKS will also offer basic soft drinks such as water, natural juices and more.

The central branding message will be a widely publicized pricing strategy, that relative to the industry leader Starbucks, HALFBUCKS will always charge half the price for a regular size coffee.

HALFBUCKS will focus on the following key mass markets: Commuters - people traveling to/from work, out shopping, running errands, or just out for a drive Captive Consumers - people who are searching for coffee refreshments in areas such as office parks, manufacturing facilities, colleges, city centers, and other areas where refreshment stands are an integral part of the environment

HALFBUCKS will infiltrate the commuter and captive consumer markets by deploying drive-thru kiosks and limited footprint stores in the most convenient and easy to get to locations. The drive-thru kiosks are designed to be distinctive and easily recognizable, handle two-sided traffic, and enable to serve consumer

coffee in less time than required for a visit to the locally owned cafe or one of the retail chains.

To ensure customer awareness and loyalty HALFBUCKS will pursue highly targeted low cost advertising and promotion campaigns through drive-time radio advertising, the launch of the Mobile HALFBUCKS Coffee Wagon aimed at organizing community charitable events, and public relations campaign.

To be known as the new coffee wave from the Pacific Northwest, HALFBUCKSs will simultaneously launch five stores in the greater Seattle area. It will then quickly expand throughout the Pacific Northwest. It will enter California with 12 month, and then rapidly expand eastward throughout North America.

HALFBUCKSs financial returns are quite promising. HALFBUCKS can breakeven with less than 400 customers visiting a store in any given day. EBITDA margins at the unit level exceed 20%. With low start-up costs and minimal initial capital needs, HALFBUCKS can achieve breakeven free cash flow inside of one year with a $100,000 per store investment. Within 5 years, the company will achieve $50 million in sales. At this point the company plans to go public. Since the company is conceived as the quintessential anti-Starbucks company, it will make a promise to its investors NEVER to sell out to Starbucks.

Target Market and Customer Analysis

Market Analysis
Coffee accounts for the largest sector of the United States hot drinks market, representing 65.2% of the market in volume terms. Estimated 2003 sales of coffee and ready-to-drink coffee in the United States were $19 billion, with the U.S. comprising approximately 20% of the world market. US Hot Drinks Market Segmentation (% by Volume 2001)
Tea 32%

Food Drinks 3%

Coffee 65%

Source: Datamonitor

The $19 billion market is divided between (i) retail (~ $9bn per year), which includes mostly coffee beans sold in supermarkets, and (ii) foodservice (~$10bn per year), which includes coffee sold in cafes and other coffee retailers. In the foodservice segment it is estimated that gourmet (freshly ground) coffee shops and other specialty shop varieties will show the greatest growth, particularly among younger consumers. The premium coffee retail market has proved particularly popular with younger consumers and professionals that are also more likely to involve themselves in the blossoming cafe culture. However, despite the increasing growth of specialty shops coffee drinkers, most consumers, even today, prefer to buy their coffee both traditional and gourmet at a supermarket or a grocery store and brew their own coffee beverage at home.

% Drinking Their Coffee by Location Purchased

100 80 62 60 40 20 0 Supermarket Work Mass Retail Specialty Coffee Shop Coffee Store Restaurant 36 26 11 18 6 8 5 5 4 8 10

Traditional Coffee Drinkers Gourmet Coffee Beverage Drinkers

Source: National Coffee Association

In the 1990s coffee drinking has become relevant and contemporary. Specialty coffee houses or bars have spread across the country, making coffee an important part of socializing. In many communities, coffee bars have become innovative: some provide personal computers so that customers can surf the Internet, while others organize community meetings, book and poetry readings, and even matchmaking services. There are a wide variety of coffee offerings, from size, flavor, preparation and toppings and plenty of gourmet and specialty shops to provide them. This social coffee-drinking growth pattern has made it increasingly difficult for the customer-on-the-go to find a quality, inexpensive and fast cup of coffee in a no-nonsense atmosphere. According to the National Coffee Association, which conducts an annual survey to measure trends in coffee consumption among Americans, the following are the most recent market statistics: 52% of the adult population of the U.S. over 18 years of age drinks coffee every day, representing 107 million daily drinkers Of these, 29 million American adults drink gourmet coffee beverages every day, whether specialty coffee, espresso-based beverages (latte, espresso, caf mocha, cappuccino) or frozen and iced coffee beverages Another 28% of the population, or 57 million adults, drink coffee occasionally On a per capita basis, men drink as much coffee as women (1.7 cups per day each) Coffee drinkers consume on average 3.3 cups of coffee per day The average coffee cup size is 9 ounces 35% of coffee drinkers drink their coffee black; while 62% add a sweetener and/or cream 64% of all coffee is consumed at breakfast; 28% between meals; and 8% at all other meals

Women are more excited about coffee varieties currently available and a higher proportion of women indicated that drinking coffee is a good way to relax Women are more price conscious than men Men appear to more readily attest that coffee helps them get things done Per capita, Americans drink 1.7 nine-ounce cups of coffee per day, or approximately 4.5 billion ounces of some kind of coffee product per day. While a significant portion of this is purchased and brewed at home, the fact is that the coffee market is large. The lifestyle, demographic, and, most important, economic trends continue to support the growing need for no nonsense, gourmet and fairly priced retail coffee shops. From a lifestyle standpoint we believe that many Americans consider drinking coffee as the top way to gain energy and alertness. To some it is a way to unwind and relax with friends. Todays consumers have to choose among the barrage of undifferentiated coffee shops, coupled with inner city lifestyles that are growing ever more conducive to fast casual food and drink venues. We will target the hectic pace of working life, including both commuters and captive consumers, as our initial point of entry. This market seems highly conducive to a fresh, fast and cheap service concept. Furthermore, the similarity between the enormous numbers of undifferentiated coffee shops has created an opportunity for a leading player to take steps to differentiate itself from the competition. We will design our stores to meet consumers' growing need for a quick drinking and meeting venue. In order to serve coffee and food products at below market prices we will not offer the sofa format of most coffee bars. According to market research this format is restrictive because it does not encourage customers to spend enough money relative to the operating cost structure. Internal research and observation showed that guests could be sitting in the stores for an hour nursing only one cup of coffee.

Customer Analysis
The following demographic breakdown represents the mass coffee consumer market and is based on the survey of the National Coffee Association: Ages 20-29: Generally satisfied with the quality of coffee they consume; more likely to perceive coffee to be a good value; more likely to be satisfied with the amount of coffee they consume; more likely to attest to the popularity of coffee; more likely to feel better about drinking coffee; somewhat price conscience; more likely to drink more coffee in the coming year; and more accepting of espresso based drinks. Ages 30-59: Generally satisfied with the quality of coffee they consume; more likely to indicate that the amount of coffee they consume is about right for them; more likely to attest to the popularity of coffee; less price conscience.

Age 60+: Less satisfied with the quality of coffee they consume; more likely to indicate that the amount of coffee they consume is about right for them; more likely to indicate that coffee is a good way to relax; more concerned about news/medical reports about caffeine; more price conscience; less excited about the variety of coffee available; and less interested in espresso based beverages. We believe that there is high number of coffee consumers in each segment who seek convenience and are price conscious. Therefore given our commuter and captive consumer market focus and the above assessment we will target the following type of customers: Price-conscious Americans No-nonsense / No-frills coffee drinkers On-the-go and rushed coffee drinkers Disgruntled Starbucks customers Environmentally aware

Strategy: Business Model and Competitive Advantages

Business Model
At the core of our strategy will be a widely publicized pricing strategy that our coffee will cost half of what it costs at Starbucks. Individual prices will vary by location, depending on Starbucks local prices. In Seattle, Starbucks currently sells its tall coffee for approximately $2, and its Grande coffee for $3. We will therefore sell our small coffee for $1, and our medium coffee for $1.50. We project almost 50% of sales will come from these $1 and $1.50 purchases, with the remainder coming from specialty coffee such as latte, cappuccino and espresso. HALFBUCKS does not plan to add too much variety to the menu so as to ensure a fast, efficient transaction process for our customers. There will be no food served, at least at the companys inception, so as not to distract employees or customers from the essence of our brand excellent coffee at a reasonable price.

Competitive Advantages
The Company intends to compete on the following dimensions: Brand. HALFBUCKS will couple premium quality coffee with the perception of good-ol days value. Recognizing that todays coffee drinkers are no longer just the high-flying executives on the go, but also the cost-conscious, valueoriented busy-bodies of the 21st century. Consumers today are disenchanted with corporate mongers that take advantage of their entrenched position and gouge the regular working person. HALFBUCKS will be viewed as the antiStarbucks, a savior to the common man who seeks a delicious cup of invigorating joe.

Reduced Price. Based on a leaner cost structure, HALFBUCKS will be able to price below the industry. Recognizing the significant gross margins enjoyed by Starbucks, the high operating expenses from Starbucks atmospheredriven culture, and the declining coffee bean prices internationally, HALFBUCKS intends to price substantially lower than the industry leader. Ultimately, HALFBUCKS will be able to offer lower prices due to its leaner cost structure, stemming in part from a much smaller store footprint. Simplified Price Structure. Consistent with its brand image, HALFBUCKS intends to simplify its pricing scheme. This simplicity in pricing leads to increased transaction throughput. Speed/Convenience. By decreasing transaction processing times, HALFBUCKS will offer consumers an expedited purchasing experience that will fly in the face of slow, deliberate, exaggerated and unnecessary lines at Starbucks. In addition, HALFBUCKS will operate kiosk distribution facilities in certain locations to attract commuting customers seeking high-quality coffee with little or no wait. Technology. HALFBUCKS will further differentiate itself from Starbucks by introducing various dispenser and coffee handling instruments designed to both improve the customer experience and expedite the purchasing process. First, HALFBUCKS will put in place its patented sugar and cream dispenser units (independent, stainless steel). No more struggling with hard-to-tear sugar packets and annoying cream cuplets. No more messy consoles with shredded refuse. Second, HALFBUCKS will provide to the customer its patented hot-handz cup designed to reduce packaging costs while eliminating concern for accidental finger burns. Counter-culture. HALFBUCKS will lead a back-to-basics, anti-Starbucks cultural movement that resists the alteration of the English language. Instead of Tall, Grande and Vente, coffee will be served in small, medium or large sizes. People are fed up with Starbucks pretentious names. As Dave Berry recently noted: If Starbucks decided to call its toilets AquaSwooshies would we go along with that? Listen people: you should never have to utter the words Grande Supremo unless you are addressing a tribal warlord who is holding you captive and threatening to burn you at the stake.

Growth Strategy
Initially, HALFBUCKS will own and manage all of its facilities. In the future, HALFBUCKSs management team intends to study the possibility of offering franchise licenses in order to rapidly gain scale and penetrate various markets to pursue an aggressive strategy against Starbucks.

Competitor Analysis
Industry Dynamics: Starbucks continues to face little competition
In 2003 the number of specialty coffee outlets shrank by 116 (a 5% decrease from 2002). Despite this decrease, the overall unit growth actually increased by 5.7%, implying that, while the specialty coffee category continues to grow, most of the growth is absorbed by Starbucks. The 5.7% increase in unit growth is higher than other restaurant categories. In terms of number of store units, Starbucks is 23 times bigger than its next competitor in the specialty coffee segment. As of December 2003, Starbucks had 5,201 store units, while Caribou Coffee, the second largest competitor in the category, had 223. The dominance of Starbucks suggests not only market superiority, but the lack of a high-volume competitor capable of taking market share across geographic segments. We believe size and capital investments are significant requirements to develop a recognized brand capable of attracting customers away from Starbucks on a sustainable basis.

Specialty Coffee Direct Competition (store units)

6,000 5,000 4,000 3,000 2,000 1,000 0 Starbucks Carribou Coffee Coffee Beanery Gloria Jean's Brew sters 223 177 168 153 5,201

When assessing the broader market and considering breakfast food retail chains that offer quality coffee, Dunkin Donuts presents itself as a viable competitive presence, with nearly 4,000 units. Other fast food establishments including McDonalds and Burger King do not offer specialty coffee.

Starbucks vs. Morning Competitors (store units)

6,000 5,000 3,996 4,000 3,000 2,000 1,000 0
St ar bu ck D s un ki n D on D ut ay s lig ht D on ut s Ei ns te in B ro Kr s is py Kr em M an e ha tta n Br Ba ue ge gg l er 's Ba ge C ls ar ib ou C of fe e W in ch el l 's Ti m H or to n' s

5,201

461

409

333

270

249

223

199

184

Finally, we must also consider the influence of independent coffee retailers as a competitive alternative. In fact, independent specialty coffee chains have a total market share of 54%, which is a higher portion of market share than other food categories such as fast food, where independents account for only 33%. This implies that local coffee shops are prevalent, but also that growth opportunities may exist for specialty coffee chains to continue to expand their footprint. If we assume that the market share of chains continues to increase and ultimately mirrors market share percentages of chains and independents in fast food categories, then we should expect Starbucks to continue to expand unless
Chain Name Starbucks Dunkin Donuts Daylight Donuts Einstein Bros Krispy Kreme Manhattan Bagel Bruegger's Bagel Caribou Coffee Winchell's Tim Horton's Coffee Beanery Shipley Donut Shops Gloria Jeans Honey Dew Donuts Brewster's Coffee Seattle's Best Coffe Bean & Tea Leaf Tully's Coffee Noah's New York Bagels Barnie's Coffee & Tea Peet's Coffee & Tea Fall 2000 2,709 3,764 479 423 172 282 336 133 226 108 173 158 234 127 154 89 61 72 106 102 56 Fall 2001 3,475 3,803 475 393 201 277 303 176 220 114 183 156 215 129 166 97 71 73 89 100 66 Fall 2002 4,242 3,840 480 412 244 275 266 181 207 160 186 164 212 136 170 123 100 107 89 97 64 Fall 2003 5,201 3,996 461 409 333 270 249 223 199 184 177 168 168 163 153 123 118 104 87 84 72 % Yr/Yr Change 22.6% 4.1% -4.0% -0.7% 36.5% -1.8% -6.4% 23.2% -3.9% 15.0% -4.8% 2.4% -20.8% 19.9% -10.0% 0.0% 18.0% -2.8% -2.2% -13.4% 12.5% Absolute Yr/Yr Change 959 156 -19 -3 89 -5 -17 42 -8 24 -9 4 -44 27 -17 0 18 -3 -2 -13 8

*Italics indicates direct specialy coffee retailer

smaller competitors capture more share. In essence, there may potentially be further market share expansion opportunities available to specialty coffee chains.

Comparative Analysis
We segment competition for HALFBUCKS Coffee into three major categories: 1) specialty coffee retailers including Starbucks and other national and regional chains (as outlined above), 2) food establishments offering specialty or gourmet coffee including breakfast food retailers and donut shops, and 3) food chains offering basic coffee including McDonalds and Burger King.

Specialty Coffee Retailers

Most specialty coffee retailers that offer specialty coffee as their primary product are regional. Only Starbucks and Coffee Beanery have a national footprint (in fact, theyre international). The Coffee Beanery uses a franchising model and is much more spread out, with a few store locations in various metropolitan areas all over the country. In contrast, Starbucks stores are highly concentrated in particular metropolitan areas, often within several blocks of one another. The Pacific Northwest is home to a number of players, including Starbucks, Seattles Best and Tullys. Caribou Coffee, the second largest specialty coffee retailer by store units, is located primarily in the Midwest and has a few locations in the Southeast. As illustrated by the comparative analysis below, nearly all of these specialty coffee retailers provide a diverse list of coffee products, at prices close to one another. In all cases, the price of a small, 12 ounce regular coffee is at least $1.35 and specialty drinks can be as much as $4.00.
Starbucks Menu "Coffees & Espressos" Brewed Coffee Cappuccinos Latte Caf Mocha Caramel Macchiatto Caf Americanos White Choc Mocha Small $1.35 $2.30 $2.30 $2.50 $2.50 $1.55 $3.00 Medium $1.55 $2.85 $2.85 $3.05 $3.20 $1.85 $3.55 Large $1.75 $3.15 $3.15 $3.25 $3.50 $2.05 $3.85 "Frappuccinos" Coffee Mocha Vanilla Caramel Java Chip "Assorted Cremes" Small $2.55 $2.80 $2.80 $3.05 $3.05 $2.55 Medium $3.05 $3.30 $3.30 $3.55 $3.55 $3.05 Large $3.55 $3.80 $3.80 $4.05 $4.05 $3.55

"Classic Favorites" Hot Chocolate Teas

Small $2.10 $1.15

Medium $2.35

Large $2.60 $1.65

"Refreshments" Iced Tea Tea Lemonades Iced Coffee

Small

Medium

Large

Food Establishments Offering Specialty Coffee A number of breakfast food chains offer specialty drinks as a component of their morning menu. Dunkin Donuts is by far the largest of these (this segment does not include McDonalds or Burger King). Dunkin Donuts offers a limited variety of specialty coffees alongside its long list of assorted donut options. These options include regular coffees and French vanilla and espressos (recently added).

Dunkin Donuts adds cream and sugar to their coffees and serves a significant portion of their customers via drive-thru. Dunkin Donuts franchises its stores, which are located all over the world, but has few, if any, locations on the west coast. The company claims to sell more than 800 million cups of coffee per day. Other donut shops and bagel shops make up the balance of established chains offering specialty coffee. Their focus, however, is in delivering a quality food product.

Food Chains Offering Basic Coffees

McDonalds and Burger King offer regular and decaffeinated coffee and tea. Both chains provide coffee as a complementary item to their breakfast menus. Neither company has indicated a strategy for offering specialty coffees, nor do they market their coffees as such. Aside from the three categories outlined, independent retailers will continue to comprise a significant portion of the market. In most cases, the primary competitive features are their localization and community integration.
Geographic Footprint Coffee Options Food Offering Additional Beverages Avg Starting Wages Approximate Square Feet

Category I. Specialty Coffee Retailers Starbucks Caribou Coffee Beanery Gloria Jean's Brewster's Seattle's Tully's Barnie's Peet's

Seating

National Midwest National National NA Northwest Northwest National West +

Assorted Specialty

Limited; may include sandwiches, baked goods, fruit, yogurt

Juice, water

$9.00

1000

Mix of table/chair, sofas, booths, outdoor option

II. Food Establishments Offering Specialty Coffee Dunkin' Donuts Daylight Donuts Einstein Bros Krispy Kreme Manhattan Bagel Bruegger's Bagel Winchell's Tim Horton's East/Midwest NA Limited States West East Limited States SW & MW Canada

Limited alternatives to regular coffee

Donuts, bagels, breakfast variants

Soda, juice, water

$8.00

1200

Booths, table/chair

III. Food Establishments Offering Basic Coffee McDonalds Burger King Other FF International International Regular & Decaf Burgers Soda $7.00 1200 Booths, table/chair

Marketing Plan
HALFBUCKS will position its drive-thru kiosks, regular kiosks and stores in locations with very high visibility and great ease of access. They will be situated in areas with high commuter traffic and close to office facilities and shopping facilities in order to catch coffee consumers going to or from work, or while they are out for lunch or on a shopping outing. HALFBUCKS will implement a low-cost advertising and promotion campaign that will involve drive-time radio and some small-scale public awareness campaign. Our main branding feature will be the drive-thru kiosks, which given our target locations, will be very eye-catching and should provide the impact of a billboard. Given our simple concept we will also

rely on word of mouth, which has always proven to be the most effective advertising program a company can implement. In addition, the media will be more than willing to promote our anti-Starbucks campaign, which could provide the opportunity for more exposure every time we build our store next to Starbucks.

Positioning
Our target audience will be frequent coffee consumers seeking fair prices for a gourmet cup of coffee with fast and high quality customer service. The recent demographic and economic trends towards fast-paced and cost-conscious consumer market environment support the growing need for this type of retail coffee concept. The primary selling proposition is the good value and ease of purchase of a gourmet coffee on-the-go, which is tasty and fun to drink anytime and anyplace. The overall product personality is anti-Starbucks, energetic, great value, no-nonsense experience, and boon to the common man or woman. The HALFBUCKS Coffee key product benefits include simplified and low-cost prices, fast and convenient service, uniquely tasting coffee you can take anywhere, and ease of coffee handling (sugar and cream dispenser units, hothandz cup).

Product Name
The HALFBUCKS COFFEE name best represents our product positioning. It meets our communication objective of no-nonsense coffee, great value, and convenient service. We have spent considerable amount of time internally, and with outside consultants and ad agencies to select HALFBUCKS Coffee as our product name.

Pricing
Low prices with respect to the gourmet coffee market and simple product price structure are two of HALFBUCKSs key selling points. Interestingly our major competition has been moving in the opposite direction, just as the cost of the raw material has been decreasing. Such price disparity provides a unique opportunity for the HALFBUCKS price coffee concept. Our pricing strategy meets the financial hurdles of the company. The pricing is also consistent with our brand image and product positioning. HALFBUCKSs staple product is a small or large coffee for half the price than Starbucks. This should attract large number of price-conscious and on-the-go consumers. The simplicity in pricing is expected to increase transaction throughput.

Promotion Strategy
HALFBUCKSs goal is to gain visibility quickly and to build a strong buzz and brand awareness, which can be leveraged for further store expansion and to help us build a strong footprint in the retail coffee market. To do that, HALFBUCKS Coffee will pursue the following advertising and promotion campaigns: Advertising starting on drive time radio - HALFBUCKS will try out different stations and keep track of results in order to build an effective radio campaign. Mobile HALFBUCKS Coffee Wagon this will be a key promotional tool. Two of our high-spirited founders and great HALFBUCKS Coffee visionaries, Anna Barrista and Fred Roast, will visit college campuses, factories, corporations, and hospitals in the greater Seattle area, to build the buzz about our staple coffee products. We will work with the organizations to promote our visits to their people and donate portion of our proceeds to their charitable causes. This will give them an opportunity to taste our coffee and become a regular customer of our facilities. The exposure these units will provide is hard to measure in dollars. The Mobile Wagon will also be appearing at community events such as fairs, festivals, and other charitable events. Public relations campaign - intended to generate awareness of editors and product information insertions, reviews, etc. We estimate that our charitable events and other fundraising activities by the Mobile Wagon will generate a fair amount of publicity on its own and will, perhaps, minimize--or even eliminate--the need for a publicist.

Distribution Front Design

HALFBUCKS will use contemporary and chic kiosks for its drive-thru facilities and storefronts. We will work closely with architects and builders to make our places distinctive, so that they are both functional and easily recognizable. Sample Coffee Retail Store Layout

Coffee Server and Prep Area

Table

Table

Entrance

Additive Station
Window

Bar

Sales Strategy
Several sales strategies will be implemented, including daily specials on highprofit items. We will create a simple loyalty program or hand out free drink coupons to those who have purchased a certain number of cups or something comparable. HALFBUCKS will also develop effective sales techniques to promote higher ticket sales. We will encourage our employees to recognize returning customers and to foster a sense of community at each kiosk, both incentives for customers to return.

Sales Forecast
In the first year HALFBUCKS conservatively estimates to have five coffee sales stations, including three drive-thru kiosks and two retail stores. For simplicity and conservatism, we have modeled the same unit economics for both drive-thru and retail locations (although we believe costs of drive-thru kiosks will be significantly less). Our business is cash-flow positive in the first year. Our five locations will generate approximately $1,287,563 in revenue in the first year of operation (see Exhibits).

Sales Programs
Corporate Tasting Events - HALFBUCKS plans to host new coffee tasting events for customers on special occasions. Each time, at the introduction of new type of coffee, HALFBUCKS will adjust its menu to reflect the changes in the flavors served.

Drink Coupons - At fundraising events for schools and corporate events, we will be giving away drink coupons as door prizes or awards. This encourages the person to come in for their free beverage and bring a friend. The drive thru kiosks will also be distributing coupons for special promotions and new product introductions. Professional Memberships- HALFBUCKS will be an active participant in various professional organizations such the National Coffee Association, Chamber of Commerce, Foodservice Associations, and Specialty Beverage Associations. These memberships will provide us with exposure and education but also important contacts and opportunities in the industry and communities where these organizations serve.

Milestones
The milestone table reflects our break-even year, kiosk rollout, and other key markers that will help us measure our success in time and accomplishment.

Staged Roll-out Strategy

The fundamental idea behind HALFBUCKS Coffee is that customers would be willing to trade a less-sophisticated coffee experience for a cheaper cup of coffee. We believe the best way to capitalize on this concept is to begin our rollout with drive-up or walk-up kiosks. These freestanding facilities require little capital investment and minimize operating costs. We would envision launching these locations initially in high-traffic areas. For instance, Seattle drivers are constantly commuting and have little desire to park, get out of their car and wait in line at Starbucks for 10 minutes, especially on rainy days. We believe a farsuperior solution would be for them to opt for our drive through service through which they can purchase a cup of coffee in very little time and with very little hassle. Similarly, we could see this concept working in a downtown environment. The kiosk strategy will allow us to build brand awareness and benefit from viral, word-of-mouth publicity. While initially choosing our brand for convenience, consumers will soon recognize that our coffee is similar in quality to that of Starbucks. They will recognize the value inherent in HALFBUCKS Coffee. Once this groundswell builds, we will then begin to open more traditional storefronts. While these will never approximate a large Starbucks store, we would envision having a stand-up counter where customers could enjoy their coffee. We are in no way trying to cultivate an environment where customers lounge for hours and hours, but we do want to offer a limited area where a customer can sit temporarily. Specifically, we believe the floor plan would include an order counter, another stand-up counter for customers as well as a small table.

Coffee Menu
Sale Price Coffee XL Coffee Latte Cappucino Espresso Total Weighted Average Price Morning Mix Afternoon Mix Total Mix $1.00 $1.50 $2.00 $2.00 $2.00 40% 25% 20% 10% 5% 100% $1.48 20% 10% 40% 20% 10% 100% $1.75 30% 18% 30% 15% 8% 100%

Note: Additional $0.50 charge for double espresso shot (not calculated in weighted average)

Sales Projections
Morning Customer Traffic Customers 5AM 6AM 7AM 8AM 9AM 10AM 11AM Total Morning Assumptions Average Sale Per Morning Customer Total Morning days per week Morning Sales Total Morning Sales Per Week Total Morning Weeks Per Year Total Morning Sales Per Year Afternoon Customer Traffic Customers 12PM 1PM 2PM 3PM 4PM 5PM Total Afternoon Assumptions Average Sale Per Afternoon Customer Total Afternoon days per week Afternoon Sales Total Afternoon Sales Per Week Total Afternoon Weeks Per Year Total Afternoon Sales Per Year Total Sales TOTAL CUSTOMERS PER DAY TOTAL SALES PER DAY TOTAL SALES PER WEEK TOTAL SALES PER YEAR Days of Operation Days per week Weeks per year 5 52 600 $953.75 $4,768.75 $247,975.00 $2,187.50 52 $113,750.00 $1.75 5 30 50 50 50 40 30 250 Average Sale $1.75 $1.75 $1.75 $1.75 $1.75 $1.75 $1.75 Total Sales $52.50 $87.50 $87.50 $87.50 $70.00 $52.50 $437.50 $2,581.25 52 $134,225.00 $1.48 5 30 40 60 90 60 40 30 350 Average Sale $1.48 $1.48 $1.48 $1.48 $1.48 $1.48 $1.48 $1.48 Total Sales $44.25 $59.00 $88.50 $132.75 $88.50 $59.00 $44.25 $516.25

Start-up Costs - One Month Buildout

Construction Materials Plumbing/Gas/Water Electrical Labor Total Construction Kitchen Equipment Coffee Machine 1 Coffee Machine 2 Coffee Machine 3 Dispensing Machine Sink Counter Refrigerator 1 Freezer 1 Total Kitchen Equipment Furniture Tables Chairs Barstools Total Furniture Systems POS System Bookkeeping System Total Systems Permits & Licenses Building Permit (Work Permit) Certificate of Occupancy Signage Permit Operating Permit Total Permits & Licenses Professional Fees Legal - Business Structure Legal - Investment Contract Legal - Lease Total Professional Fees Other Initial Coffee Inventory Menu Board Rent Deposit Miscellaneous Total Other Total $15,000.00 $10,000.00 assumes no existing system $5,000.00 assumes no existing system $8,000.00 2 men @ $200/day for 1 month $38,000.00 $2,000.00 $2,000.00 $2,000.00 $5,000.00 $500.00 $500.00 $1,300.00 $1,900.00 $15,200.00 $500.00 1-4 person table @ $300/each; 1-2 person table @ $200/each $700.00 6 chairs @ $100/each + 1 replacement $400.00 4 barstools @ $100/each $1,600.00 $5,000.00 $1,500.00 $6,500.00 $100.00 $100.00 $100.00 $100.00 $400.00 $2,000.00 $2,000.00 $2,000.00 $6,000.00 $500.00 $200.00 $13,500.00 assumes 3 month deposit $5,000.00 $19,200.00 $86,900.00

Start up costs (less prepaid & exp) Prepaid Professional fees Dues liceenses

$67,000.00 $13,500.00 $6,000.00 $400.00 $86,900.00

Labor Projections
Staffing Sun Assistant Manager Manager Assistant Manager Wages Hourly Assistant Manager Manager Assistant Manager Total $9.00 $12.00 $9.00 $10.00 Daily $63.00 $96.00 $54.00 $213.00 Weekly $315.00 $480.00 $270.00 $1,065.00 Annually $16,380.00 $24,960.00 $14,040.00 $55,380.00 Mon 7AM-3PM Tue 7AM-2PM Wed 7AM-2PM Thu 7AM-2PM Fri 7AM-2PM Sat Hours/day 7 8 6

Days/week
5 5 5

5AM-12PM 5AM-12PM 5AM-12PM 12PM-6PM 12PM-6PM 12PM-6PM

5AM-12PM 5AM-12PM 12PM-6PM 12PM-6PM

Unit Economics
Sales Breakfast Sales Lunch Sales Tax Effect Total Net Sales Cost of Coffee Sales Gross Profit Labor Assistant Manager Manager Assistant Manager Total Labor Costs Payroll Taxes Total Labor & Fringe Other Expenses Rent Advertising Insurance Utilities Repairs & Maintenance Depreciation Miscellaneous Total Other Expenses Restaurant Operating Profit SG&A EBIT Add Back: Depreciation EBITDA Assumptions and Notes Coffee Cost of Sales % Sales Tax Rate Rent Retail Location Square Feet Interest Expense 20.00% 8.00% $15.00 per square foot 300 average 6.50% $54,000.00 $8,034.39 $2,678.13 $5,356.26 $4,017.20 $2,330.00 $2,678.13 $79,094.11 $72,576.90 $6,695.33 $65,881.57 $2,330.00 $68,211.57 20.20% 3.00% 1.00% 2.00% 1.50% 0.90% 1.00% 29.50% 27.10% 2.50% 24.60% 0.90% 25.50% $16,380.00 $24,960.00 $14,040.00 $55,380.00 $7,199.40 $62,579.40 6.10% 9.30% 5.20% 20.70% 2.7% 23.40% $134,225.00 $113,750.00 ($19,838.00) $267,813.00 $53,562.60 $214,250.40 20.00% 80.00%

* Based on 6% social security, 1.5% Medicare, 6% unemployment (% of Labor cost)

Sources & Uses of Cash

0 Month 0 Sources of Cash Capacity utilitzation Net sales COGS Expenses Net revenues Bank loan Equity raised Surplus Cash Total Uses of Cash Startup Costs Interest Expense Taxes Total Net Cash Corporate Tax Rate $ $ 86,900 13,100 35.00% $ $ 271 8,913 $ $ 271 6,379 $ $ 271 5,498 $ $ 271 6,270 $ $ 271 8,696 $ $ 271 12,774 $ $ 271 16,853 $ $ 271 20,931 $ $ 271 25,010 $ $ 271 29,089 $ $ 271 33,167 $ 86,900 $ 271 $ 271 $ 271 $ 271 $ 271 $ 271 $ 271 $ 271 $ 271 $ 271 $ 271 $ $ $ $ 271 9,589 9,859 27,657 $ $ $ $ $ $ $ 27,657 27,396 500,000 (3,250) (9,589) (434,500) 80,057 $ $ 3,250 9,589 $ $ $ $ $ $ $ 0% 50,000 50,000 $ $ 13,100 9,184 $ $ 8,913 6,650 $ $ 6,379 5,769 $ $ 5,498 6,541 $ $ 6,270 8,966 $ $ 8,696 13,045 $ $ 12,774 17,124 $ $ 16,853 21,202 $ $ 20,931 25,281 $ $ 25,010 29,359 $ $ 29,089 33,438 $ $ 33,167 37,517 $ $ $ $ 50% 10,332 2,066 12,182 $ $ $ 60% 12,399 2,480 12,182 $ $ $ 70% 14,465 2,893 12,182 $ $ $ 80% 16,532 3,306 12,182 1,043 $ $ $ $ 90% 18,598 3,720 12,182 2,696 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $ 216,978 43,396 146,187 27,396 1 Month 1 2 Month 2 3 Month 3 4 Month 4 5 Month 5 6 Month 6 7 Month 7 8 Month 8 9 Month 9 10 Month 10 11 Month 11 12 Month 12

(3,916) $

(2,263) $

(610) $

$ 100,000

Net revenue Financing Interest

Net sales COGS Expenses

$ $ $

20,665 4,133 12,182

Taxes Start-up

13 Month 13 Sources of Cash Capacity utilitz Net sales COGS Expenses $ $ $ 100% 20,665 4,133 12,182 4,349 $ $ $ $

14 Month 14 100% 20,665 4,133 12,182 4,349 $ $ $ $

15 Month 15 100% 20,665 4,133 12,182 4,349 $ $ $ $

16 Month 16 100% 20,665 4,133 12,182 4,349 $ $ $ $

17 Month 17 100% 20,665 4,133 12,182 4,349 $ $ $ $

18 Month 18 100% 20,665 4,133 12,182 4,349 $ $ $ $

19 Month 19 100% 20,665 4,133 12,182 4,349 $ $ $ $

20 Month 20 100% 20,665 4,133 12,182 4,349 $ $ $ $

21 Month 21 100% 20,665 4,133 12,182 4,349 $ $ $ $

22 Month 22 100% 20,665 4,133 12,182 4,349 $ $ $ $

23 Month 23 100% 20,665 4,133 12,182 4,349 $ $ $ $

24 Month 24 100% 20,665 4,133 12,182 4,349 $ $ $ $ $ $ 247,975 49,595 146,187 52,193 -

Net revenues $ Bank loan Equity raised Surplus Cash $ Total Uses of Cash Startup Costs Interest Expen $ Taxes Total Net Cash $ $ $ $

27,657 32,007

$ $

31,736 36,085

$ $

35,815 40,164

$ $

39,893 44,243

$ $

43,972 48,321

$ $

48,050 52,400

$ $

52,129 56,478

$ $

56,208 60,557

$ $

60,286 64,636

$ $

64,365 68,714

$ $

68,443 72,793

$ $

72,522 76,871

271 271 31,736

$ $ $ $

271 271 35,815

$ $ $ $

271 271 39,893

$ $ $ $

271 271 43,972

$ $ $ $

271 271 48,050

$ $ $ $

271 271 52,129

$ $ $ $

271 271 56,208

$ $ $ $

271 271 60,286

$ $ $ $

271 271 64,365

$ $ $ $

271 271 68,443

$ $ $ $

271 271 72,522

$ $ $ $

271 18,268 18,539 58,333

$ $

3,250 18,268

58,333

Beg balance Net revenue Financing Interest Taxes Start-up

$ $ $ $ $ $ $

80,057 52,193 (3,250) (18,268) 110,733

Yearly sources and uses

Year 1
Sources of Cash Net sales COGS Expenses Net revenues Bank loan Equity raised Total Uses of Cash Startup Costs Interest Expense Taxes Total Net Cash

After year 1 $216,978 $43,396 $146,187 $27,396 $50,000 $50,000 $127,396 $247,975 $49,595 $146,187 $52,193 $0 $0 $52,193

$86,900 $3,250 $9,589 $99,739 $27,657

$0 $3,250 $18,268 $21,518 $30,676

Cash Flow
1 Year 1 Development Plan Number of Newly Developed Restaurants Number of Existing Restaurants Total Number of Restaurants 5 0 5 10 5 15 20 15 35 40 35 75 80 75 155 2 Year 2 3 Year 3 4 Year 4 5 Year 5

Cash, beginning of year Cash flow from operations Total EBIT from New Restaurants Total EBIT from Existing Restaurants Total EBIT (Net Revenues) Interest Taxes Dues & licenses Professional fees Rent deposit

138,287

68,238

81,519

261,460

$ $ $ $ $ $ $ $ $

136,979 136,979

$ $ $

273,959 260,967 534,925

$ $ $

547,917 782,900 1,330,817

$ $ $

1,095,834 1,826,767 2,922,601

$ $ $

2,191,668 3,914,501 6,106,169 (503,750) (2,137,159) (32,000) (480,000) (1,080,000) 1,873,260

(16,250) $ (47,943) $ (2,000) $ (30,000) $ (67,500) $ (26,713) $

(48,750) $ (187,224) $ (4,000) $ (60,000) $ (135,000) $ 99,951 $

(113,750) $ (465,786) $ (8,000) $ (120,000) $ (270,000) $ 353,281 $

(243,750) $ (1,022,910) $ (16,000) $ (240,000) $ (540,000) $ 859,941 $

Cash from financing activities Bank loan Equity raised $ $ $ Cash - investing activities Capital investments Cash, end of year $ $ (335,000) $ 138,287 $ (670,000) $ 68,238 $ (1,340,000) $ 81,519 $ (2,680,000) $ 261,460 $ (5,360,000) 774,720 250,000 250,000 500,000 $ $ $ 500,000 500,000 $ $ $ 1,000,000 1,000,000 $ $ $ 2,000,000 2,000,000 $ $ $ 4,000,000 4,000,000

Profit Loss
1 Year 1 Development Plan Number of Newly Developed Restaurants Number of Existing Restaurants Total Number of Restaurants 5 0 5 10 5 15 20 15 35 40 35 75 80 75 155 2 Year 2 3 Year 3 4 Year 4 5 Year 5

Cash flow from operations Total EBIT from New Restaurants Total EBIT from Existing Restaurants Total EBIT (Net Revenues) Interest Taxes Dues & licenses Professional fees $ $ $ $ $ $ $ $ 136,979 136,979 $ $ $ 273,959 260,967 534,925 $ $ $ 547,917 782,900 1,330,817 $ $ $ 1,095,834 1,826,767 2,922,601 $ $ $ 2,191,668 3,914,501 6,106,169 (503,750) (2,137,159) (32,000) (480,000) 2,953,260

(16,250) $ (47,943) $ (2,000) $ (30,000) $ 40,787 $

(48,750) $ (187,224) $ (4,000) $ (60,000) $ 234,951 $

(113,750) $ (465,786) $ (8,000) $ (120,000) $ 623,281 $

(243,750) $ (1,022,910) $ (16,000) $ (240,000) $ 1,399,941 $

Balance Sheet
Year 1 ASSETS Cash Prepaid expenses & deposits $ $ 138,287 67,500 $ $ 68,238 202,500 $ $ 81,519 472,500 $ $ 261,460 1,012,500 $ $ 774,720 2,092,500 Year 2 Year 3 Year 4 Year 5

Construction Kitchen Equipment Furniture Systems Others

$ $ $ $ $ $ $

190,000 76,000 8,000 32,500 28,500 335,000 540,787

$ $ $ $ $ $ $

570,000 228,000 24,000 97,500 85,500 1,005,000 1,275,738

$ $ $ $ $ $ $

1,330,000 532,000 56,000 227,500 199,500 2,345,000 2,899,019

$ $ $ $ $ $ $

2,850,000 1,140,000 120,000 487,500 427,500 5,025,000 6,298,960

$ $ $ $ $ $ $

5,890,000 2,356,000 248,000 1,007,500 883,500 10,385,000 13,252,220

TOTAL ASSETS LIABILITIES AND RETAINED EARNINGS Bank loan Due to shareholder

$ $ $ $ $ $ $

250,000 250,000 500,000 40,787 40,787 540,787

$ $ $ $ $ $ $

750,000 250,000 1,000,000 40,787 234,951 275,738 1,275,738

$ $ $ $ $ $ $

1,750,000 250,000 2,000,000 275,738 623,281 899,019 2,899,019

$ $ $ $ $ $ $

3,750,000 250,000 4,000,000 899,019 1,399,941 2,298,960 6,298,960

$ $ $ $ $ $ $

7,750,000 250,000 8,000,000 2,298,960 2,953,260 5,252,220 13,252,220

Retained earnings, beginning Net income for the current year Total Retained Earnings TOTAL LIABILITIES AND RETAINED EARNINGS