3 CASE STUDY - MANAGEMENT - Mission Essays

Each Case study should be 2 pages each.
9/29/21, 9:57 PM Week 1 Case Study
https://cogswell.instructure.com/courses/4791/assignments/151355 1/2
Due Sep 13 by 12am Points 100 Submitting a file upload
Case Study Rubric
Start Assignment
Scroll down to see grading rubric.
Overview
You will analyze an organizational scenario in terms of metrics and data. This case study is intended to
help you identify key metrics in an organization. You will learn how data analytics can help overcome
challenges and improve operations.
Instructions
1. Complete this week’s Learning Activities.
2. Study the Colgate-Palmolive Canada: Fighting for a Share of the Toothpaste Market case
study. (See the announcement for the link to download your case studies)
3. Write a paper in APA style addressing the following:
Concisely, describe the company.
Concisely, summarize the case study.
Identify, describe, and justify your selection at least 3 key metrics in the case study.
Explain the challenges that the company faces.
Describe how metrics and data analytics might assist with those challenges.
Submission
Submit one APA-styled document of at least 2 pages. Include one additional reference in addition to the
case study.
Week 1 Case Study
https://cogswell.instructure.com/courses/4791/pages/week-1-learning-activities
9/29/21, 9:57 PM Week 1 Case Study
https://cogswell.instructure.com/courses/4791/assignments/151355 2/2
Total Points: 100
Criteria Ratings Pts
15 pts
15 pts
30 pts
30 pts
10 pts
Organization
The organization was
succinctly described in
150 words or less.
The description
embodied the purpose
of the project.
15 to >14.0 pts
Adv ance d
14 to >13.0 pts
Proficie nt
13 to >12.0 pts
De v e loping
12 to >0 pts
Ne e ds
Improv e me nt
Case Study
The case study was
succinctly described in
150 words or less.
The description
embodied the purpose
of the project.
15 to >14.0 pts
Adv ance d
14 to >13.0 pts
Proficie nt
13 to >12.0 pts
De v e loping
12 to >0 pts
Ne e ds
Improv e me nt
Metrics
Metrics were identified
and described. The
selection of metrics
was justified in the
narrative. Metrics were
appropriate for the
business scenario.
The number of
required metrics was
met or exceeded.
30 to >27.0 pts
Adv ance d
27 to >24.0 pts
Proficie nt
24 to >21.0 pts
De v e loping
21 to >0 pts
Ne e ds
Improv e me nt
Business Implication
The business
implication of the
metrics was explained
and justified. A study
of the week’s learning
activities was evident.
At least one additional
source was included.
30 to >27.0 pts
Adv ance d
27 to >24.0 pts
Proficie nt
24 to >21.0 pts
De v e loping
21 to >0 pts
Ne e ds
Improv e me nt
Spelling/Grammar/APA
Narrative was free
from spelling and
grammar errors and
presented in APA
style.
10 to >9.0 pts
Adv ance d
9 to >8.0 pts
Proficie nt
8 to >7.0 pts
De v e loping
7 to >0 pts
Ne e ds
Improv e me nt
9/29/21, 9:56 PM Week 2 Case Study
https://cogswell.instructure.com/courses/4791/assignments/151356 1/2
Due Sep 19 by 11:59pm Points 100 Submitting a file upload
Case Study Rubric
Start Assignment
Scroll down to see grading rubric.
Overview
You will analyze an organizational scenario in terms of metrics and data. This case study is intended to
help you create metrics for different parts of the organization. You will learn how to categorize metrics.
Instructions
1. Complete this week’s Learning Activities.
2. Study the Pacific Coffee Balanced Scorecard: Operationalizing Strategies case study.
3. Write a paper in APA style addressing the following:
Concisely, describe the company.
Concisely, summarize the case study.
Recommend and justify at least 3 categories for metrics (consider the balanced scorecard method).
Recommend and justify at least 2 metrics within the categories.
Submission
Submit one APA-styled document of at least 2 pages. Include one additional reference in addition to the
case study.
Week 2 Case Study
https://cogswell.instructure.com/courses/4791/pages/week-2-learning-activities
9/29/21, 9:56 PM Week 2 Case Study
https://cogswell.instructure.com/courses/4791/assignments/151356 2/2
Total Points: 100
Criteria Ratings Pts
15 pts
15 pts
30 pts
30 pts
10 pts
Organization
The organization was
succinctly described in
150 words or less.
The description
embodied the purpose
of the project.
15 to >14.0 pts
Adv ance d
14 to >13.0 pts
Proficie nt
13 to >12.0 pts
De v e loping
12 to >0 pts
Ne e ds
Improv e me nt
Case Study
The case study was
succinctly described in
150 words or less.
The description
embodied the purpose
of the project.
15 to >14.0 pts
Adv ance d
14 to >13.0 pts
Proficie nt
13 to >12.0 pts
De v e loping
12 to >0 pts
Ne e ds
Improv e me nt
Metrics
Metrics were identified
and described. The
selection of metrics
was justified in the
narrative. Metrics were
appropriate for the
business scenario.
The number of
required metrics was
met or exceeded.
30 to >27.0 pts
Adv ance d
27 to >24.0 pts
Proficie nt
24 to >21.0 pts
De v e loping
21 to >0 pts
Ne e ds
Improv e me nt
Business Implication
The business
implication of the
metrics was explained
and justified. A study
of the week’s learning
activities was evident.
At least one additional
source was included.
30 to >27.0 pts
Adv ance d
27 to >24.0 pts
Proficie nt
24 to >21.0 pts
De v e loping
21 to >0 pts
Ne e ds
Improv e me nt
Spelling/Grammar/APA
Narrative was free
from spelling and
grammar errors and
presented in APA
style.
10 to >9.0 pts
Adv ance d
9 to >8.0 pts
Proficie nt
8 to >7.0 pts
De v e loping
7 to >0 pts
Ne e ds
Improv e me nt
W14625

COLGATE-PALMOLIVE CANADA: FIGHTING FOR A SHARE OF THE
TOOTHPASTE MARKET

R. Chandrasekhar wrote this case under the supervision of Professor Michael Taylor solely to provide material for class
discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The
authors may have disguised certain names and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com.

In January 2013, Richard Werner,1 vice-president of Customer Development, Colgate-Palmolive Canada
Inc. (Colgate Canada), was sitting at a circular table at the conference room in the company’s Toronto
headquarters. He was discussing the 2013 marketing budget for Colgate toothpaste with Mary Simons,
retail environment manager; Philip Marcos, team leader; and Rita Christopher, category manager (oral
care). Market share was a key metric at Colgate Canada. After several years of near steady state, the share
gap between Colgate Canada and its primary competitors had started to widen favourably in the
toothpaste category (see Exhibit 1). The company wanted to extend this growth path, which had led to the
current discussion about the 2013 marketing budget.

During the discussion, it was suggested that Colgate Canada could increase its marketing budget for the
new financial year by $3 million. Werner highlighted three points:

1. The marketing mix in the current budget had delivered strong profits, and he was hesitant to make
major changes.
2. The incremental expenditure on marketing would need to be focused in order for it to be
effective. A diluted effort of spreading any incremental funding across many marketing activities
would be fruitless. He wondered if it was best to focus on either increased advertising, increased
trade promotions or increased consumer promotions.
3. Any increase in funding for marketing would need to have a solid strategy and reasoning that
would result in an overall increase in operating profit for 2013.

COLGATE-PALMOLIVE: COMPANY BACKGROUND

Colgate-Palmolive (Colgate) was a global consumer products enterprise, marketing its products in over
200 countries. Founded in 1806 by William Colgate in New York City as a starch, soap and candle
1 The names of all persons mentioned in the case study are disguised.

For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.
mailto:[email protected]
http://www.iveycases.com/
Page 2 9B14A044

business, it introduced Colgate toothpaste in 1896 and Palmolive soap in 1898 and established its first
international subsidiary in Canada in 1914. The company was listed on the New York Stock Exchange in
1930.

By December 2012, Colgate had about 37,700 employees with worldwide sales of US$17.085 billion for
the year ending December 2012 and net income of US$2.631 billion (see Exhibit 2). It was driven by the
vision of “delivering strong, consistent business results and superior shareholder returns by providing
consumers globally with products that make their lives healthier and more enjoyable.”2

Colgate had four broad business units: oral care, personal care, home care and pet care. Oral care
generated 44 per cent of the company’s revenue, and Colgate was the leader in the oral care market
worldwide. The company’s oral care product offerings included toothpastes, manual toothbrushes and
mouth rinses.

CANADIAN TOOTHPASTE MARKET

The Canadian oral hygiene market included toothpastes, toothbrushes, mouth wash and smaller categories
such as dental floss and denture products. This was a stable, mature, hyper-competitive category valued at
$810.43 million in 2012. With a high degree of household penetration, the oral hygiene market grew
slowly, yet steadily, with a compound annual growth rate (CAGR) from 2008 to 2012 of 4.2 per cent.4
The overwhelming majority of toothpaste products were purchased by consumers in grocery stores, drug
stores, mass merchandisers and club stores.

In 2012, the toothpaste category was the largest part of the oral care market with sales of $390.6 million
at retail price5 and an estimated market size of $254 million at factory price (see Exhibit 3).

CONSUMERS

Consumers were increasingly aware of the correlation between oral health and overall health.6 They
expected much more than their traditional desire to prevent cavities. Their expectations included
improved tooth and gum health, whiter teeth, fresh breath, reduced sensitivity to heat and cold, reduced
plaque buildup and a product that tasted good — at a competitive price.

Consumers indicated price, brand familiarity and recommendation by dentists as the top three purchase
influences (80 per cent, 71 per cent and 71 per cent of respondents respectively).7 The most prevalent oral
health concerns for consumers were plaque and tartar build-up (83 per cent and 81 per cent respectively).8
2 Colgate, 2007 Annual Report, p. 21.
3 All values are in Canadian dollars, except where otherwise noted.
4 “Oral Hygiene Canada: A Snapshot 2013,” Mintel Global Market Navigator, http://gmn.mintel.com.proxy1.lib.uwo.ca/
snapshots/CAN/292/performance/single, accessed October 31, 2013.
5 Ibid.
6 “Oral Care — US — May 2013 — Interest in Product Attributes,” Mintel, last modified May 2013,
http://academic.mintel.com/display/665403/, accessed October 31, 2013. U.S. market trends were considered to be similar
and applicable to the Canadian market where less data was available.
7 “Oral Care — US — May 2013 — Purchase Factors,” Mintel, last modified May 2013,
http://academic.mintel.com/display/665402/, accessed October 31, 2014.
8 “Oral Care – US — May 2013 — Oral Health Concerns,” Mintel, last modified May 2013,
http://academic.mintel.com/display/665400/, accessed October 31, 2013.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.
http://academic.mintel.com/display/665403/
http://academic.mintel.com/display/665402/
http://academic.mintel.com/display/665400/
Page 3 9B14A044

The demand for whiter teeth was the fastest growing slice in the toothpaste industry,9 with 52 per cent of
the population looking for toothpaste that delivered “shinier teeth.” Sixty-two per cent of women aged 18
to 34 were interested in teeth whitening features.10 Approximately 12 per cent of consumers suffered from
tooth hypersensitivity and 20 to 45 per cent of consumers had mild sensitivity; however, of this
population, only 8 to 10 per cent used sensitivity toothpaste.11

Forty-seven per cent of consumers indicated that they always purchased the same brand of toothpaste.12
Although families tended to be loyal to specific children’s brands, it was thought that the loyalty was
likely to the cartoon character (e.g., Dora the Explorer) featured on the product, rather than to the product
itself. As much as 64 per cent of some consumer segments did not have an oral care product in mind
before shopping.13

Consumers who were not brand loyal often made their final selection of the toothpaste brand in the store
aisle: 60 per cent of consumer toothpaste brand decisions were made in-store while 40 per cent had made
their toothpaste brand decisions beforehand. The latter were brand loyalists.14 Their consideration set was
determined by their need preference, for example, simply clean teeth or reducing tooth sensitivity. The
final product selection was influenced by brand preference, perceived efficacy, retail environment
influences and price.

The market was segmented on the basis of demographics (such as age and gender), needs and
psychographic profile (see Exhibits 4 and 5).

COMPETITORS

The top four competitors in the overall oral care market in Canada collectively held over 80 per cent
market share (see Exhibit 6). The top three competitors in the Canadian toothpaste category held over 75
per cent market share. Smaller competitors, specialty competitors and house brands split the remainder of
the market.

Beyond traditional basic toothpaste, the category was composed of five major toothpaste subcategories:
oral health, sensitivity, whitening, children’s and fresh breath. Furthermore, there were premium and
super premium levels in the subcategories. All the major competitors had products in most or all of the
subcategories (see Exhibit 7).

Competition was largely between products within a subcategory as consumers selected from brands that
suited their need (e.g., tooth sensitivity). Each competitor invested significantly in brand positioning
through consumer advertising, retail merchandising and consumer promotions.

9 “Oral Care — US — May 2013 — Brand Share —Toothpaste,” Mintel, last modified May 2013,
http://academic.mintel.com/display/665390/, accessed October 31, 2013.
10 “Oral Care — US — May 2013,” Mintel Oxygen Reports database 2013,
http://academic.mintel.com/display/637652/?highlight=true, accessed November 27, 2013.
11 Herizo Evo, “1 in 8 Have Sensitive Teeth,” Articles of Health Care, September 6, 2013, www.articlesofhealthcare.com/,
accessed November 2013; NovaMin Research Report, “General Population Tooth Sensitivity Prevalence and Attitudes
Towards Sensitivity Toothpaste, 2004,” Oral Science,
www.oralscience.ca/en/documentation/articles/tooth_paste/GeneralPopulation-Tooth-Sensitivity-Prevalence-and-Attitudes-
Towards-Sensitivity-Toothpaste.pdf, accessed November 27, 2013.
12 “Oral Care – US — May 2013 — Purchase Factors,” op.cit.
13 “Oral Care – US – May 2013,” op.cit.
14 AC Neilson, www.nielsen.com/ca/en/nielsen-solutions.html, accessed December 24, 2013.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.
http://academic.mintel.com/display/665390/
http://academic.mintel.com/display/637652/?highlight=true
Page 4 9B14A044

Toothpaste was largely a category with few observable features that distinguished one competitive
product from another. The room for differentiation either in terms of product composition or technology
was limited. Typically, new product introductions were the result of technology advancements in one of
the subcategories, for example, improved gum health or faster whitening effect. The new product was
usually introduced as a superior product at the super premium level, which gave the competitor an
advantage in that subcategory until another competitor introduced a similar product. Technology
advances were not secret for very long or unduly difficult to copy. Superior brand perception was a very
important competitive tool.

RETAIL ENVIRONMENT

Toothpaste was a staple category for most food and health related retailers. Toothpaste typically
generated a 35 per cent15 margin for retailers. The concentration of the toothpaste category allowed the
top manufacturers with strong branded products to develop strong market positions. Brand equity was one
of the major levers in the arsenal of manufacturers when negotiating with retailers. Notwithstanding the
consumer demand resulting from strong brand advertising, a considerable investment in trade and
consumer promotions was required to ensure prominent retail shelf placement and secure inclusion in
regular retailer promotions.

The retail market was fairly concentrated in Canada. A few retailers held a major part of market share in
several retail segments. For example, the top four retailers of groceries accounted for 70 per cent of sales
(see Exhibit 8). The bargaining power that Canadian retailers had over manufacturers was evident in
several ways: increased retailer advertising had created consumer loyalty to retailers, which had
previously been the sole domain of brand products; an increased number of store brands were building
retailer exclusivity; and retailers were using creative pricing strategies and sophisticated in-store
merchandising (see Exhibit 9).

COLGATE TOOTHPASTE

Colgate Canada had a complete portfolio with toothpaste products in every subcategory (see Exhibit 10).
The company invested $14.7 million in advertising across all toothpaste brands in 2012 and delivered
$18.4 million in operating profits (see Exhibits 11 and 12).

Exhibit 13 summarizes the average retail unit prices of both the category and the individual brands at
different levels in the industry and the share of business for each.

Colgate products had secured very high channel penetration with mass merchandisers, grocery stores,
health and beauty retailers and drug stores. The company’s products were also available in certain
convenience stores, house goods retailers and general merchandise stores. The company’s six largest
customers in Canada, in alphabetical order, were Costco, Loblaws, Shoppers Drug Mart, Sobeys, Target
and Wal-Mart.

15 Case writer’s estimate.

THE 2013 MARKETING BUDGET16

Market share topped the list of metrics that Colgate Canada used to assess its performance. The sales
growth in 2012 was encouraging. No product launches were planned for 2013, but there were always
internal and external pressures to grow market share. Although the revenue growth targets for 2013 for
Colgate Canada had not been finalized, Werner’s team expected that revenue targets set by the company’s
management for the toothpaste category in Canada were likely to increase by about 4.5 per cent.

The market positioning of the current product portfolio was competitively strong, and the current
marketing mix was delivering favourable results. Consequently, the team was hesitant to make major
changes. After reviewing the market data and financial results, they reviewed the 2012 marketing budget
and wondered if any fine-tuning adjustments should be made in the 2013 budget. Colgate Canada’s
marketing mix was typical in the category. The norm in the toothpaste business was to invest heavily in
advertising, often representing three-quarters of the budget, with the remainder invested in trade and
consumer promotions. The industry’s gross contribution margin was approximately 57 per cent.

As the management team discussed the 2013 business plan and marketing budget for the toothpaste
category, it was suggested that the time was right to leverage their current market strength to drive some
growth. The team wondered if an additional $3 million could be approved for the marketing budget. If
approved, the team agreed it could have a major impact. The team also agreed that spreading the
incremental funds across the existing activities would have little impact. Any incremental marketing
funds would only have a significant impact if they were focused in one or two areas.

Simons: The support of our retailers is essential to drive growth. We need to increase the number of
placements in retailer flyers and the number of shelf facings in retail stores as much as possible.
We should add as many alternate point-of-purchase displays as we can. Therefore, in my view,
the additional funding should be focused on trade promotions. Last year we spent $3.9 million on
trade promotions. Investing a sizable portion of any budget increase in trade promotions will get
the retailers to heavily push our products over the competition.

Marcos: I agree with you; however, we need to keep in mind where the growth will come from. We have
built a significant brand loyalty over many years, but new growth will not come from existing
customers. It will only come from consumers who are loyal to competitor brands and from those
who are loyal to no particular brand. Therefore, in my view, we need to spend the additional
funding on consumer promotions. An incremental $1 million will double our 2012 spending and
allow us to create promotions that will spark trial by new consumers and get them to switch to our
brands.

Christopher: We have won our market share through constant reminders provided by our advertisements.
We normally invest 75 per cent of our marketing budget in advertising, which has driven our
current success. Our current campaign is very effective. We just need to have more consumers
see our ads more frequently. We could boost our gross rating point (GRP)17 level significantly
with the new funding. A boost in sales comes from a boost in advertising. That is the best
marketing investment.
16 Values in this section are case writer’s estimates. They do not represent the actual amounts. This disclaimer is provided in
order to protect company confidentiality.
17 One GRP per week represents exposure of 1 per cent of the target market to an advertisement during a seven-day period.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.
Page 6 9B14A044

Werner trusted the advice of his team, and he weighed the alternatives carefully. He agreed that an
increased marketing budget would only have a significant impact if the incremental investment was
focused. He considered five alternatives:

1. Deploy the same budget mix as 2012 and not request an increase.
2. Increase the advertising budget by $3 million, which would allow an increased online presence or an
increased television ad frequency.
3. Increase the trade promotion budget by $3 million to focus on building volume with all the major
retailers. It would include initiatives such as more secondary locations within stores and increased
frequency of distribution of weekly flyers.
4. Increase the consumer promotion budget by $3 million to focus on consumer promotions such as
sampling and coupons to encourage product trial.
5. Make a major market push with an even larger increase in the marketing budget to fund multiple
options.

Whatever he decided, Werner knew that he would have to present his explanation to Colgate Canada’s
executive management to justify his budget recommendation.

EXHIBIT 1: CANADIAN TOOTHPASTE MARKET — VALUE SHARES 2006 TO 2012

Source: Company files.

EXHIBIT 2: COLGATE-PALMOLIVE COMPANY — CONSOLIDATED INCOME STATEMENT

Year ending December (in US$) (in millions) 2012 2011 2010 2009 2008
Net sales 17,085 16,734 15,564 15,327 15,330
Cost of Sales 7,153 7,144 6,360 6,319 6,704
Gross Profit 9,932 9,590 9,204 9,008 8,626
Less: Selling and Distribution Costs
Less: Other Expense (Income)
Less: Interest Costs
Less: Provision for Income Taxes
5,930
113
15
1,243
5,758
(9)
52
1,235
5,414
301
59
1,117
5,282
111
77
1,141
5,422
103
96
968
Net Profit 2,631 2,554 2,313 2,397 2,037
Number of Employees 37,700 38,600 39,200 38,100 36,600

Sources: Colgate 10-K Report 2012, pp. 44, 89; Colgate 10-K Report 2009, p. 44. The data for 2008 and 2009 is taken from
the 2009 10-K Report, and the data for 2010, 2011 and 2012 is taken from the 2012 10-K Report as per page numbers
cited.

EXHIBIT 3: CANADIAN TOOTHPASTE MARKET — COMPARATIVE SIZE 2009 TO 2012

(in million $) 2012 2011 2010 2009
At retail price 391.0 383.0 362.0 346.0
At ex-factory price 254.0 249.0 235.0 224.0

Note: Some information is augmented with case writer’s estimates.

Source: “Oral Hygiene Canada: A Snapshot 2013,” Mintel Global Market Navigator
http://gmn.mintel.com.proxy1.lib.uwo.ca/snapshots/CAN/292/performance/single, accessed October 31, 2013.

EXHIBIT 4: MARKET SEGMENTATION

Needs Based Segmentation

Clean Teeth and Cavity
Prevention
Reduced Tooth
Sensitivity A Whiter Smile Improved Overall Health

Psychographic Segmentation

Worriers Sociables Sensories Generalists
Consumers
concerned about
the health
benefits
Consumers
concerned with
fresh breath and
whiter teeth
Consumers
selecting a
toothpaste based on
flavour and package
presentation
Uninvolved consumers
buying toothpaste for
the basic need of
clean teeth

Source: Created by case authors.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.
http://gmn.mintel.com.proxy1.lib.uwo.ca/snapshots/CAN/292/performance/single
Page 9 9B14A044

EXHIBIT 5: PSYCHOGRAPHIC SEGMENTATION

Worriers Sociables Sensories Generalists
Prevailing Age
Segment Full Adult Range 18–34 Children All Ages
Estimated
Market Share
(%)
30 35 15 20
Psychographic
Profile
Worriers are
concerned about
the health benefits
of toothpaste.
They purchase
multipurpose
brands of
toothpaste that
have health
benefits, as well as
brands that
emphasize specific
health benefits.
Sociables are
concerned with
fresh breath and
whitening rather
than health
concerns.
Marketing to this
segment usually
consists of
advertising “pretty
smiles.”
Sensories choose
toothpastes based
on flavour and the
presentation of the
actual toothpaste
and packaging.
This segment is
mainly composed
of children and
thus mainly
involves creating
packaging with
character
merchandising
(using
cartoon/movie
characters) and
creating appealing
flavours.
Generalists do not
care about
toothpaste brands
and their additional
benefits. They
purchase
toothpaste on a
“needs” basis and
will usually
purchase brands
that are the
cheapest or on
sale.
Primary Product
Benefits Desired
– Cavity
prevention
– Fight plaque
– Help thinning
enamel
– Reduce tooth
sensitivity
– Whiter teeth
– Fresh breath
– Appealing
flavour
– Fun product
image
– Cavity
prevention
– Low price

Sources: “Product — Markets and Market Segments — The Toothpaste Market,” Marketing Management, last modified
January 23, 2001, http://courses.unt.edu/kt3650_2/sld008.htm#1, accessed October 31, 2013; and “Oral Care – US — May
2013 — Cluster Analysis,” Mintel, last modified May 2013, http://academic.mintel.com/display/665406/, accessed October
31, 2013.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.
http://courses.unt.edu/kt3650_2/sld008.htm%231
http://academic.mintel.com/display/665406/
Page 10 9B14A044

EXHIBIT 6: CANADIAN ORAL HYGIENE MARKET SHARES BY VALUE (%), 2012

Source: “Oral Hygiene — Canada — A Snapshot,” Mintel Global Market Navigator 2013,
http://gmn.mintel.com.proxy1.lib.uwo.ca/search/?max_results=100&q=Toothpaste+Canada&x=-1299&y=-14, accessed
October 31, 2013.

EXHIBIT 7: SAMPLE LIST OF COMPETITOR BRANDS

Company Brand and Product Company Brand and Product
Colgate Palmolive Proctor and Gamble
Colgate Cavity Prevention Crest 3D White Advanced Vivid
Colgate Total Plus Whitening Crest Cavity Protection Toothpaste
Colgate Total Clean Mint Crest Extra White Plus Scope Outlast
Colgate Total Advanced Health Professional Clean Kid´s Crest Spider-Man Liquid Gel
Colgate Total Advanced Health Gum Defence Crest Tartar Protection Toothpaste
Colgate Total Advanced Health Whitening Crest Pro-Health Sensitive Shield Original
Colgate Total Advanced Health Enamel Strength Crest Sensitivity Whitening Plus Scope
Colgate Total Advanced Health Intense Fresh Crest Pro-Health Enamel Shield
Colgate Total Advanced Health Sensitive Crest Pro-Health Whitening Gel
Colgate Optic White Crest 3D White Vivid Toothpaste
Colgate 2in1 Whitening Crest Complete Whitening + Scope
Colgate MaxFresh Kid´s Crest Cavity Protection Gel Toothpaste-Sparkle Fun
Colgate MaxWhite Crest Pro-Health Clinical Gum Protection
Colgate MaxClean
Colgate Bubble Fruit GlaxoSmithKline
Colgate Senstive Sensodyne Repair & Protect
Colgate Senstive Whitening Sensodyne Rapid Relief
Colgate Senstive Enamel Protect Sensodyne 24/7 Sensitivity Protection
Colgate Sensitive Pro-Releif ProNamel
Colgate Sensitive Pro-Releif Whitening ProNamel Gently Whitening
Colgate Sensitive Pro-Releif Multi-Protection ProNamel for Children
Colgate Sensitive Pro-Releif Enamel Repair AquaFresh Advanced
AquaFresh Ultimate White
Church and Dwight AquaFresh White & Shine
Arm & Hammer Sensitive AquaFresh Extreme Clean
Arm & Hammer Enamel Care AquaFresh Extreme Clean Power White
Arm & Hammer Extra Whitening AquaFresh Cavity Protection
Arm & Hammer Complete Care AquaFresh Sensitive
Arm & Hammer Advanced Clean AquaFresh Kid’s Mint
Arm & Hammer Supreme Fresh
Pearl Drops Triple Power Whitening
Pearl Drops Whitening
Closeup
Aim Cavity Protection

Note: All brand names are company trademarks.

Sources: www.colgate.ca/app/CP/CA/EN/OC/Products/Toothpastes.cvsp, accessed December 17, 2013;
www.crest.com/en-CA/crest-products/crest-toothpastes.aspx, accessed December 18, 2013; www.gsk.ca/ english/html/our-
products/index.html, accessed December 18, 2013; and www.churchdwight.ca/, accessed December 18, 2013.

EXHIBIT 8: CANADIAN RETAIL — GROCERY SALES 2011

Retailer
Revenue
(million$)
Market share
(%)
1
2
3
4
5
6
7
8
Loblaw Cos Ltd
Sobeys Inc
Metro Inc
Costco Canada Inc
Canada Safeway
Wal-Mart Canada Corp
Jim Pattison Foods
Others
27,808
15,642
10,428
6,952
5,214
5,214
2,607
13,035
32
18
12
8
6
6
3
15
Total 86,900 100

Source: CIBC World Markets, accessed October 31, 2013.

EXHIBIT 9: SOME COMMON RETAILER STRATEGIES

Retailer as a Brand: Retailers, particularly large retailers of staple goods, heavily advertised their store
banners to build brand loyalty. When shopping for routine items, consumers often chose the retailer first
and made their purchase selection from the brands on offer. As a result, retailer brand preference
sometimes trumped product brand preference, which gave the retailer negotiating leverage over the
manufacturers of branded products.

Store Brands: The retailers developed merchandise that carried the store’s own brand name that
competed head-on with manufacturers’ brands. For example, Loblaws’ private label “President’s Choice”
covered a wide gamut of consumer requirements and competed with national brands. Store brands held
about 12.5 per cent of market share in oral hygiene category in Canada in 2012.

Pricing: Retailers would ask for a variety of special concessions from manufacturers. Some examples:
“Mark downs” (lowering the price in order to not only draw customers into the store but clear out stocks
and make room for the next shipment); “Vendor allowance” (adjusting the price for damaged merchandise
or for the return of unsatisfactory merchandise); “Loss leader” (selling merchandise below the listed price
to attract …

Ambrose Tong prepared this case under the supervision of Professor Thian Chew solely as a basis for class discussion. The authors
have disguised certain data to protect confidentiality. Cases are written in the past tense; this is not meant to imply that all practices,
organizations, people, places or facts mentioned in the case no longer occur, exist or apply. Cases are not intended to serve as
endorsements, sources of primary data, or illustration of effective or ineffective handling of a business situation.

Inquiry on ordering and permission to reproduce the case and its materials, write to [email protected] or visit cbcs.ust.hk

© 2014 by The Hong Kong University of Science and Technology. This publication shall not be digitized, photocopied or
otherwise reproduced, posted, or transmitted without the permission of the Hong Kong University of Science and
Technology.

Last edited: 8 April 2019

THIAN CHEW
AMBROSE TONG

Pacific Coffee Balanced Scorecard:
Operationalizing Strategies

Since China Resource Enterprise Ltd. (CRE) acquired a majority stake in Pacific Coffee in 2010, the
coffee chain had experience tremendous expansion particularly in mainland China (See Appendix for
background information). Yet, Hong Kong remained the core part of the business, and Pacific Coffee could
not afford to lose its leadership position in its home base. On top of this, the competitive environment had
become more intense whilst the Hong Kong coffee consumers became more sophisticated.

Jonathan Somerville, CEO of Pacific Coffee, realized that while he needed to stay involved and on top
of the business in Hong Kong, he no longer had the capacity to be involved day to day, when his “gut feeling”
of what was happening in the business could explain what he saw in the financial reports he was getting. At
the same time, he needed to motivate his Hong Kong team and give them direction when implementing
strategies.

At the same time, there was an increasing saturation of coffee houses and intensified competition in
Hong Kong, alongside a far more sophisticated and demanding customer base. Jonathan needed to develop a
strategy to address these new challenges, and then operationalize these. He realized one got what one
measured, and needed both a baseline as well as target metrics aligning to Pacific Coffee’s overall strategy
and critical success factors to get there.

He had previously come across the Balanced Business Scorecard as an effective tool to link and align
a company’s strategy to its operations: the scorecard considered customers, internal business processes,
innovation, and growth, as well as financial factors when determining the health of a company and how it
tracked its strategic priorities. By balancing financial and non-financial, as well as leading and lagging
indicators, in one framework, Jonathan felt that this would be an effective tool to help his management team
focus on what was important to achieve in the Hong Kong business going forward, as well as cascade these
priorities down the organization.

HBP Product ID: ST78

UST078

HKUST Business School Thompson Center for Business Case Studies

ST78 2
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies
Appendix: Pacific Coffee, Pioneering Coffee Culture in Hong Kong
Pacific Coffee Company Limited, a Hong Kong-based coffeehouse chain, experienced a major change
of ownership in September 2010. The new majority-shareholder of Pacific Coffee had been investing
significant effort to establish and extend the brand and network in China. In the meantime, the management
team had to maintain its leading position in the highly competitive Hong Kong market.

The Coffee Industry in Hong Kong
1980–2000: The Early Years
In the eighties and until the early nineties, it was difficult to get a decent cup of coffee in Hong Kong.
While local tea houses served coffee, it was a far cry from the coffee served in Europe and the United States.
The only places that served proper coffee were the occasional Western restaurant and the upscale hotels. At
the same time, a trendy coffee drinking culture, led by Starbucks, was taking off in the U.S. Lifestyle-themed
coffeehouses started to proliferate across North America as holding a cup of such coffee became fashionable.
Recognizing this unique opportunity, several American expatriates started setting up American-style
coffeehouses in Hong Kong. These stores were characterized by quality service, comfortable lounge chairs, a
relaxing ambience, and provision of useful media such as the latest editions of newspapers and magazines. As
there was no Western-style coffee culture among local people, these first stores primarily targeted expatriates
and tourists. They could be found in and around Central, the key business district of Hong Kong. Similar
coffeehouses were seen in prime shopping areas frequented by tourists, such as Tsim Sha Tsui and Causeway
Bay. Residential areas with a high number of expatriate residents like Discovery Bay also were popular store
locations.

By the mid-nineties, these coffeehouses started to flourish as more local residents became familiar with
this relaxed and cozy Western coffee culture. Hong Kong, with its high population density, was characterized
by small apartments and an intense work culture. The coffeehouses offered a welcome respite from the
crowdedness and stress. In the U.S., anecdotal experience indicated that as much as 80% of a coffeehouse’s
business was derived from takeout customers, whereas the trend in Hong Kong was the opposite. Most
customers in Hong Kong chose to take coffee breaks inside the stores. As coffeehouses gained in popularity,
additional players entered the market. By the start of the century there were only a few coffeehouse chains,
each with no more than 15 stores. Most Western-style coffeehouses were limited to a single location operating
in a “mom and pop” style.
2000-2019: Emergence of Coffee Culture and Competition
From 2000 on, Hong Kong experienced a surge in coffee stores driven by both local and global coffee
players. The U.S. and European coffee culture took hold in Hong Kong. But with this success and popularity,
intense competition emerged and almost every prime location in Hong Kong had multiple coffeehouses. As
the industry grew, a few chains emerged that dominated the industry. By early 2019, Pacific Coffee, Starbucks,
and McCafé collectively operated around 400 stores in Hong Kong. Still, new brands and offerings continued
to emerge and to challenge their dominance.

HKUST Business School Thompson Center for Business Case Studies

ST78 3
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies

Photo: Three Coffeehouses on Gloucester Road, Hong Kong (as of March 2019)

Source: Google Maps, March 2019
Starbucks
Starbucks Coffee Company, the world’s largest coffee company, made its debut in Hong Kong in May
2000 with its first store launch at Central district’s Exchange Square. Starbucks in Hong Kong was operated
through a joint venture with Maxim’s Group called Coffee Concepts (Hong Kong) Limited (Coffee Concepts).
Founded in 1956, Maxim’s Group was the biggest fast-food and bakery chain operator in Hong Kong.
Maxim’s Group in turn was 50% owned by Jardine Matheson Group, a conglomerate established in Hong
Kong more than 100 years ago.

Starbucks expanded rapidly in Hong Kong and opened its 100th store by mid-2008. In June 2011,
Maxim’s Group acquired all of Starbucks’ shareholding in Coffee Concepts and therefore assumed full
ownership of Starbucks shops operating in Hong Kong and Macau. Hong Kong became a licensed market for
Starbucks Corporation. By mid-2018, Maxim’s operated over 170 Starbucks stores in Hong Kong.
McCafé
McCafé, a coffeehouse concept by McDonald’s Corporation, started opening coffeehouses in Hong Kong
by occupying a portion of space at existing McDonald’s fast-food restaurants. McDonald’s had been operating
in Hong Kong since the late seventies and had restaurants across the territory. This allowed McCafé’s stores
count to expand quickly. By early 2019, there were around 110 McCafé locations across Hong Kong.

Together with Pacific Coffee these three chains constituted the majority of the Western-style coffeehouse
market in Hong Kong. There were also other emerging but smaller rival chains providing similar beverage
offerings. Another coffee chain under the Maxim’s Group, Simplylife, had six outlets. Caffé Habitu, a
boutique coffee–oriented chain under The Habitu Group of Hong Kong, had eleven outlets and planned for a
few more locations. 18 Grams, another specialty coffee chain, had six locations. These smaller chains
differentiated themselves by their décor, specific offerings and unique environments.

The coffee-drinking culture in Hong Kong, though solidly entrenched by 2019, still had room for further
development as the coffee consumption per capita in Singapore and Japan was higher.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.

HKUST Business School Thompson Center for Business Case Studies

ST78 4
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies
The Economics of the Industry
The typical coffeehouse store operated from 7.30 a.m. or 8 a.m. in the morning until 8 p.m. to 10 p.m. in
the evening. Some locations in shopping and tourist districts would operate until 11:30 p.m. The upfront
capital expenditure for setting up a coffeehouse included furniture, fittings and fixtures, machinery, and rental
deposits (usually two or three months’ of rent).

Most Western-style coffeehouses were situated in one of three general location types, namely, business
area, retail area and government/public area. In office zones, some locations were at a corner or occupying a
small space on the lobby floor. In retail areas, the presence ranged from street-level stores in residential
neighborhoods to those occupying common spaces on various floors of shopping malls. In public areas, Pacific
Coffee stores were at university campus, hospital premises or transport terminals. A rental contract contained
the total lease period from two years to longer than six years. The typical lease contract included a fixed term
of first three years1. Some leases contained rent-free clauses (one to three months) that typically started the
beginning of the lease in order to entice retail chains to open at newer areas and provide time for construction
and fit-out In shopping malls, food and beverage tenants usually paid the lowest rent rate. Other leases
included performance-based clauses (e.g., revenue-sharing), which encouraged the coffeehouse’s
performance to be more aligned with the objectives of the landlords. If the returns did not match expectations,
the tenant could be told to vacate the space.

Unlike in the US where most customers customized their coffee drinks, the majority of consumers in Hong
Kong ordered the standard offerings shown on the menu. The popular beverages included Cappuccino, Latte,
Americano, Mocha, and Macchiato. As temperatures in Hong Kong reached tropical levels from April to
September, cold beverage versions (iced or over crushed ice) of these popular beverages started making up a
bigger portion of sales. The bigger chains were keen at introducing new beverage flavors in order to
accommodate changing seasons and to keep their innovative edge. Still, the mainstream coffee drinks
continued as key pillars of beverage income.
Pacific Coffee Company Limited
Pacific Coffee was founded in July 1992 by Tom Neir, an American expatriate from Seattle. He opened
the first store at Bank of America Tower in Admiralty, a bustling Grade-A office district next to Central. To
help scale up its operations in the mid-nineties, a few Hong Kong-based angel investors injected new capital
to fund expansion. By 2000, Pacific Coffee had become an established retail chain in Hong Kong. In the same
year, CVC Asia Pacific, a venture capital and private equity arm of Citigroup, became a significant investor
in the chain. CVC also brought management and governance guidance to the business. Pacific Coffee grew to
become a sizable chain with about 30 stores in early 2005.

In mid-2005, Chevalier Group, a family-run conglomerate in Hong Kong, acquired 100% of Pacific
Coffee for HK$205 million. This price valued Pacific Coffee at roughly HK$4.6mn per store. The group
envisioned that its connections in mainland China could help Pacific Coffee realize the next transformational
growth opportunity. Pacific Coffee entered the mainland market in late 2005. As a newcomer, Pacific Coffee
lacked brand recognition in its first two years of China expansion, which affected its ability to get favorable

1 Under the fixed-term period of a lease, a tenant would owe the landlord for rent over the whole duration. If tenant
failed to pay, the landlord could sue to recover the lost rental income. A shop lease usually had a lease extension
option, which both parties had to agree to mutually.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.

HKUST Business School Thompson Center for Business Case Studies

ST78 5
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies
locations with fitting consumer profiles. Finding capable staff was also a challenge. Chevalier ultimately
concluded that achieving its strategic goals in China was too resource-consuming and aborted the expansion.

This eventually led to the sale of an 80% stake of Pacific Coffee to China Resources Enterprise, Limited
(“CRE”) for HK$327mn in cash in June 2010. At time of the sale, Pacific Coffee had more than 80 stores in
Hong Kong and 5 in mainland China. CRE, a Chinese state–owned enterprise founded in 1938, was a publicly
listed company in Hong Kong with annual sales turnover of HK$86bn for 2010. The conglomerate had more
than 4,500 supermarket retail outlets throughout China as well as ownership of leading beverage brands. As
a young member of CRE’s Retail Business Division, Pacific Coffee could leverage CRE’s influence and
presence to help quickly establish its network in mainland China. The long-term goal was to position Pacific
Coffee as a leading coffeehouse brand in mainland China. By June 2013, Pacific Coffee became wholly-
owned by CRE as Chevalier Group sold its remaining 20% stake to CRE.

From CRE’s acquisition, Pacific Coffee expanded its network in Hong Kong and its expansion into
mainland China was also quick as coffee consumption growth far outpaced that of tea. Under the CRE
umbrella, Pacific Coffee’s CEO would participate in quarterly meetings among the business leaders of CRE’s
various business segments [see Exhibit 1 for Pacific Coffee’s development timeline].

The Hong Kong market, however, remained a core part of the business. Not only was it critical to retain
a dominant presence and brand in its home market, the Hong Kong operation also provided vital operating
cash flows to the coffee-chain group. Going forward store and revenue growth in Hong Kong was expected
to expand at a modest pace. The key focus of Pacific Coffee’s Hong Kong strategy shifted from expansion to
optimizing profitability at existing stores. With Chevalier Group still retaining a 20% stake in Pacific Coffee,
cross promotion between the coffeehouse chain and Chevalier’s Café Deco group of restaurants (around 30
outlets in Hong Kong as of early 2019) was also initiated.

By March 2019, Pacific Coffee’s system-wide store count exceeded 430. It had around 115 stores in Hong
Kong and over 310 stores spread across over 20 cities in China, respectively. Within the system, there were
also 9 locations in Macau and 5 in Malaysia.

A core differentiating factor of Pacific Coffee was its emphasis on coffee quality. It only used Arabica
coffee beans, from which 22 varieties of coffee were developed. Its espressos had three distinct blends for
customer choice. In 2011, Pacific Coffee was awarded “best coffeehouse” by readers of Hong Kong Economic
Journal for its focus on coffee quality excellence. As its market share grew in Hong Kong, Pacific Coffee
continued to tweak coffee quality gradually.

At our scale now, we cannot offer coffee drinks that are too niche or too premium in flavors
—Jonathan Somerville, CEO, Pacific Coffee2

CEO and COO of Pacific Coffee
Raymond Tong Kwok-Kong was recruited as the new CEO of Pacific Coffee in September 2010 after
CRE took control. Raymond graduated from the University of Pennsylvania with dual degrees in Electrical
engineering and finance. He began his career as a management consultant at McKinsey & Company’s Hong

2 Presentation by Jonathan Somerville at HKUST.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.

HKUST Business School Thompson Center for Business Case Studies

ST78 6
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies
Kong office. Before this CEO appointment, Raymond served as vice president of Sumitomo Corporation
Equity Asia, a private equity arm of Sumitomo Group of Japan. At Pacific Coffee, Raymond used all of the
skills he had acquired previously to push Pacific Coffee’s transformation forward. In March 2013, the
company was restructured under two units, namely, China Operations and HK& Overseas, reporting to
Chairman and CEO Lan Yi, a key member of the CR Management. Raymond was promoted within CRE and
became general manager of the corporate development department at CRE’s Retail Business Division. He
retained an overseeing role in Pacific Coffee as one of the board directors.

Jonathan Somerville was appointed COO of Pacific Coffee in 2008 after spending nine years at Igor’s
Group, and was subsequently promoted to CEO of Pacific Coffee, a Hong Kong–based chain of Western-style
restaurants acquired by Chevalier Group in early 2007. A British national born in Australia and raised in Hong
Kong, he obtained his hotel and hospitality–related university degree in the UK. Before joining Igor’s Group,
he worked at Marco Polo Hong Kong Hotel for five years.
Customer Groups
Pacific Coffee served on average more than 25,000 customers daily. Customer groups would be classified
by the following three location-specific categories:

• Office (30% of all customers) —customers at these stores included professionals who used stores as
a “second office” by having meetings there, as well as office workers getting takeout.
• Retail (50%)—These stores were frequented mostly by shoppers and tourists as a place to meet
outside work hours and during holidays. Stores in residential areas were included in this category as
well.
• Others (20%)—The “others” category included stores at universities. Coffee and studying went hand
in hand with the limited space in Hong Kong; the stores were ideal places for study. Although not as
profitable in the short term, this segment was also seen as attractive over the long term because
lifetime brand recognition and affinity was built during this period of a customer’s life. It also included
stores in government offices and hospitals serving both workers as well as visitors. Last, this segment
included stores in Hong Kong’s airport and mass transit rail terminals serving commuters.
Company Operations in Hong Kong
With its retail network spread over Hong Kong’s key business and retail districts, Pacific Coffee had a
tested and well-run central sourcing, logistics, and procurement team. Stores were replenished with fresh
products on time at the appropriate inventory levels. The central headquarters also comprised teams
specializing in evaluating new food and beverage products; handling human resources and training; managing
locations that included finding, negotiating and renewing leases; financial management and accounting;
marketing ranging from in-store promotions to advertising in media; building proprietary information systems;
and high-level management decision making. All these teams reported to Pacific Coffee’s COO. Another team
managed by the COO was the retail service team, the largest within the company, with approximately 700
staff. This team comprised an operations manager who supervised 16 area managers, under whom were all
store managers. An area manager usually covered seven to nine store managers [see Exhibit 2 for Pacific
Coffee’s organization chart].

HKUST Business School Thompson Center for Business Case Studies

ST78 7
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies
At the store level, the majority of the sales came from sale of coffee, other coffee-based beverages (e.g.,
Chilinos), and non-coffee drinks such as bottled fruit juices and water. Beverage income averaged 60%–70%
of a typical store’s sales turnover. Within the beverage products, those that contained milk accounted for the
majority of revenue (around 70%). Food products, such as doughnuts and sandwiches, were available as well
to help provide a comprehensive service offering and made up 20%–25% of sales. While most sales were
conducted in cash, about 12% of the total store revenue was transacted using Octopus cards, a widely used
electronic cash storage and payment system in Hong Kong.

Since 2008, Pacific Coffee had also run a loyalty-card program so that repeat customers could accumulate
points on their cards. They could then use the points as a discount off their future purchases. In addition, to
encourage sales by employees from certain companies located in the same building on a store, Pacific Coffee
offered a 20% discount for purchasing coffee. Loyalty membership income, together with merchandise sales,
constituted 5% of store revenue.

The chain was also pushing for more business-to-business sales by placing coffee machines in corporate
offices and profiting from supplying coffee beans or coffee capsules on long-term contracts. These services
and products were branded under “Coffee Solutions”. Pacific Coffee serviced and supplied more than 300
corporate clients. Business-to-business sales turnover accounted for about 10% of overall revenue.

Major costs included the wages of the store manager, the baristas, and other supporting staff; coffee beans,
milk, and other food costs; rental expenses; utilities and gas; and depreciation of the furniture and fixtures.
Operating hours differed from store to store, depending on each store’s main customer segment and
neighborhood, but usually ran from 7 to 7:30 a.m. until 8 to 10 p.m. Ingredient costs had been volatile due to
changing global demand for commodities such as milk and sugar.

There were four categories of store size. Large stores were between 1,500 and 2,000 square feet; medium
stores, between 800 and 1,500 square feet; small stores, 500 to 800 square feet and corporate locations, 250
square feet or more. Since the economic recession in late 2008, the Hong Kong property market had
experienced significant growth in prices and rental rates. Pacific Coffee, on average renewed or entered into
new leases 20 times a year. With some landlords asking for rent rate increases ranging from 20% to 50%
above their previous levels, Pacific Coffee had to be very careful in assessing the economic viability of
existing and new locations.

F&B’s pay the least rent in shopping malls . . . they typically make up 20% of tenant mix.
—Jonathan Somerville, CEO, Pacific Coffee3

Most stores were headed by one store manager. Reporting to the store manager were 1 to 10 staff handling
all operations (baristas and cashier) depending on the store size. Store staff’s working hours were 240 hours
a week spanning six working days and three shifts per day. A major key performance indicator (KPI) for store
managers was the amount of food wastage their stores incurred, as coffee beans and milk could usually last
for at least a few days. Service quality was imperative at the stores, and Pacific Coffee prescribed a
comprehensive staff training plan and policy. As the company kept expanding its scale in Hong Kong and
abroad, able employees were able to pursue long-term careers. Owing to the Hong Kong government’s
legislation for minimum-wage floors since mid-2010, Pacific Coffee had also faced upward staff cost
pressures, although it never paid staff at minimum wages. Staff costs increased 10% and retail staff turnover
was kept relatively low across the company (around 6% per year). Retail workers who joined for less than

3 Presentation by Jonathan Somerville at HKUST.
For the exclusive use of M. DELEON, 2021.
This document is authorized for use only by MICHAEL DELEON in USV CTL 581 – 25-1 taught by Bobbi Makani, San Jose State University from Sep 2021 to Mar 2022.

HKUST Business School Thompson Center for Business Case Studies

ST78 8
UST078 Pacific Coffee Balanced Scorecard: Operationalizing Strategies
three months contributed most to the turnover. After six months of joining, staff turnover trend became more
stable. Quarterly bonuses were given to performing staff, which depended on customer feedback. The
management team received customer feedback forms directly for evaluation.

In terms of gross margins, beverages yielded 65% while food commanded 50%–55%. Half of overall
beverage costs was attributed to milk whereas the other half included chocolate (for Mocha, etc.), coffee beans
and packaging materials. Drinks that contained less milk generally commanded higher margins. The overall
group gross margin had been consistently trending at around 60%.

When Chevalier Group was still the sole owner of Pacific Coffee, Pacific Coffee invested in a central
kitchen that produced food products for the coffeehouse locations as well as for external customers. As the
network grew, the central kitchen gradually evolved to just serving the chain’s own stores and orders from
other companies within CRE. The central kitchen was the Pacific Coffee’s only owned property and employed
100 staff. Before noon each day, store managers ordered food products from the central kitchen for the
following day. The food products were produced afterward and packed before midnight. The logistics team
subsequently picked them up and delivered them to the stores during the early hours of the next day. The
kitchen also provided a centralized platform for food research and development. Pacific Coffee also had a
warehouse that stocked more than 300 items. For example, coffee bean shipments sourced directly from
overseas roasters were received twice a month. The coffee beans were then roasted before being delivered to
stores. Unlike some of Pacific Coffee’s competitors which held coffee bean inventory for three to four months,
the chain’s coffee beans were usually consumed within one and a half months. This helped to ensure the
freshness of the beans in order to achieve consistent coffee quality.

Like other chain-store-based businesses, Pacific Coffee stores collected money up-front as transactions
were made on site. Cash …

Why Choose Us

100% non-plagiarized Papers
24/7 /365 Service Available
Affordable Prices
Any Paper, Urgency, and Subject
Will complete your papers in 6 hours
On-time Delivery
Money-back and Privacy guarantees
Unlimited Amendments upon request
Satisfaction guarantee

How it Works

Click on the “Place Order” tab at the top menu or “Order Now” icon at the bottom and a new page will appear with an order form to be filled.
Fill in your paper’s requirements in the "PAPER DETAILS" section.
Fill in your paper’s academic level, deadline, and the required number of pages from the drop-down menus.
Click “CREATE ACCOUNT & SIGN IN” to enter your registration details and get an account with us for record-keeping and then, click on “PROCEED TO CHECKOUT” at the bottom of the page.
From there, the payment sections will show, follow the guided payment process and your order will be available for our writing team to work on it.

3 CASE STUDY – MANAGEMENT

Why Choose Us

How it Works

Submit a Comment Cancel reply

Recent Posts