Mystic Monk Coffee free essay sample

The Carmelite Monks of Wyoming are a religious order of the Catholic Church, founded by Father Daniel. Father Daniel Mary has a vision of moving the monastery from the current small makeshift home to a 500-acre Irma Lake Ranch capable of housing up to 30 monks, a Covent, a retreat center, and a hermitage. The current price of the Irma Lake Ranch is listed as $8. 9 million, which presents a considerable financial obstacle in this pursuit. The Carmelites Monks of Wyoming currently run a coffee business called Mystic Monk Coffee (MMC). Father Daniel Mary, while looking at the financial capabilities of the monastery, is evaluating the possibility of achieving the Monastery’s strategic goal with current resources. This is a relatively large leap – compared to the current 4-bedroom range style home, which currently houses only 13 monks. Father Daniel Mary, who lacks the business experience, is considering to what extent the Carmelites can rely on the Mystic Monk Coffee operations to fund the remaining balance of the Irma Lake Ranch purchase. We will write a custom essay sample on Mystic Monk Coffee or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Our recommendations take into account the following considerations: †¢ The received donation of $250,000 and current plea for additional funds. †¢ The capacity and profit potential of the current roaster. †¢ The capacity and profit potential along with ROI of upgrading to the larger roaster. †¢ The market potential for sales and growth. †¢ The time constraints resulting from the strict Carmelite schedule and routine. †¢ The needed $445,000 down payment (assuming 5%) on a negotiated $8. 5 million purchase price and the $40,365 monthly mortgage payment on a 30yr loan at 4% rate. Our research provided some possible scenarios that will guide our recommendation: †¢ Invest in the new roaster which will increase ability to double capacity of production. †¢ Reduce the sales price to $8. 00 per bag to entice additional sales and increase market share. †¢ Relax the cloistered monastic restraints to boost daily production hours from 6 to 8 day. †¢ Review packaging process and materials to reduce cost of goods sold. †¢ Continue fundraising activities to secure additional revenue. The Group A recommendation for Father Daniel Mary is to pursue with the purchase of the Irma Lake Ranch. The following synopsis and strategic analysis will portray the key activities and positioning required to sustain the purchase of the property and Mystic Monk Coffee operation. SYNOPSIS The Carmelite order of catholic monks under the direction of father Daniel Marry are looking to purchase a larger facility in the form of a ranch near the Rocky Mountains. This ranch would cost $8. 9 million. Current operations at Mystic Monk’s coffee generate revenues averaging $56,500 per month. At the current 11% net profit margin, this interprets to $74,580 in annual profits. At this rate, it would take at least two and a half years to raise the funds needed to make the down payment – taking into consideration the $250,000 in donations. Thereafter, the monastery would require at least $34,150 in monthly donations from the fund set up by the local business owners in addition to the $6,215 in monthly income to make their $40,365 monthly note. In essences without improved sales from MMC, the New Mount Carmel project would not be possible to achieve. One strategic issue that is apparent is the daily schedule that the Carmelite monks follow is not business friendly as it restricts the number of working hours to six. The monks must find a way to possibly increase production while still adhering to the restrictive schedule of living in the monastery or relax the schedule to allow for more time for coffee operations. Another issue is the profit margin. Doing some costs analysis, it is obvious to us that the profitability of the business is being affected by costs, which make up 89% of sales leaving a margin of 11%. Costs will need to be properly managed in order to improve the net profit margin. Finally, the current pricing and distribution of the coffee bags needs to be re-evaluated. Currently operations are at 39% of capacity, which is not deliberate but due to the fact that this is the level of operation, that satisfies the current demand for MMC coffee. The target market and marketing strategy needs to be expanded. Currently the focus is on Catholic American’s who drink coffee, wholesale to churches and local coffee shops. This a very limited market population compared to the 30 million Americans who drink premium coffee – the coffee grade produced by MMC. Being a Monastery tax stipulations do not require the profits of MMC to be taxed as all of its employees are volunteers and they are not being paid wages (IRS). This provides more cost savings to allow for a more aggressive pricing strategy. STRATEGIC ANALYSIS Costs Analysis Figure 1 below shows the breakdown of costs in the manufacturing of MMC. The current wholesale market price for fair trade Arabica is $1. 55 per pound, which translates to $1. 16 per 12-ounce bag. Assuming the cost of the bag to be $0. 55[1], this put the total cost of sales at $1. 71 leaving $1. 28 in costs unaccounted for. MMC does not pay for labor, hence their labor costs for roasting, and bagging is zero. This calls for action. By eliminating, this additional cost MMC could reduce their current cost of sales by close to 43%. From figure 2, we can see that this will directly increase net profit margin by 17% to 28%, which more than doubles the net profit. [pic] [pic] Figure 1. Current Costs break down. Figure 2. Adjusted Cost break down Revenue Currently monthly revenue from sales totals $56,500. At $9. 95 per bag this would mean that the total number of bags being sold per day is 284 which is 39% of the capacity of the current 540 pound/day roaster (see Figure 3 below). Various factors are at play here. Obviously, the current production is determined by the demand. One of the factors affecting the demand for MMC coffee is their marketing strategy. There is a need to expand their market focus. With a 32% growth in demand for organic coffee annually for the last 7 years, there is no reason why demand for MMC should not be exceeding current capacity, but for the fact that their market focus is too narrow. Apart from expanding market-reach, lowering the current price to $8. 00 assuming this price utilizes full capacity; revenue will jump by over 103% to $115,200 per month (See figure 4). [pic] [pic] Figure 3. Current daily sales. Figure 4. Adjusted daily sales Production and Capacity Analysis Assuming MMC is able to boost sales above the current capacity to warrant additional capacity, funds are available to purchase a 130 pound-per-hour roaster at $35,000. Figures 5 and 6 show the impact that the upgrade has on revenue. Compared to the current capacity at 6 hour of production this would produce 1040 bags per day. However, increasing labor hours to 8 hours, production would be at 1347 bags per day 33% more. This shows increasing returns on the investment by adding more labor hours. [pic] [pic] Figure 5. 6-hour operation. Figure 6. -hour operation Comparing this to the production from the old roaster, figure 7 shows that by purchasing the upgrade, the new roaster will pay for itself within a year. [pic] Figure 7. RECCOMENDATIONS In order to achieve their strategic goal, our first recommendation is that MMC put together a marketing strategy that would expand the current focus outside of the ir current target market of Catholics. They need to take advantage of the growth within the organic coffee market. With increased demand, they can look to boost production to the levels by purchasing the larger roaster as this would also increase the total capacity available. Pricing is another issue that must be looked into. Our analysis shows that the benefit from lower price to boost demand is exponentially significant. In order to price competitively MMC has to take a closer look at reducing the waste and cutting costs of sales by at least 43%. This alone is capable of doubling profits. We also recommend that after stimulating demand for MMC coffee, MMC can look to double their capacity by purchasing a second roaster. Additional staffing will be needed and this can come from engaging one of the other brothers who is not currently engaged in a specific task at the Monastery. In addition to these, we recommend relaxing some of the conventions that limit available production time to a six- hour workday and make it an eight hours. Our analysis shows that this alone is capable of boosting current output by 33%. On a final note, we advise that the purchase of the ranch be financed. The donations that were made in addition to revenue from the increased over the next two months (at $190,000/ month) – assuming that the roaster was upgraded and schedules relaxed should be used as a down payment for the property. We advised that Father Prior consult with business experts to come up with a detailed business plan that would show how the operations of MMC would raise the funds needed to meet the estimated $40,365 monthly mortgage payment.