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Feasibility Study - Coffee Shop Business in Riyadh – Saudi Arabia

 



Executive Summary

Coffee is one of the most popular and profitable beverages in the world. It is robust and delicate, flavorful and aromatic, stimulating and relaxing. It’s conversational, it brings people together and it jumpstarts the day. The coffee industry can be a lot of fun. The question that should be raised is whether this idea will bring economic benefit for the owner and investor.

Revenue in the Coffee segment in Saudi Arabia amounts to US$2.42bn in 2023. The market is expected to grow annually by 7.35% (CAGR 2023-2025). By 2025, 60% of spending and 7% of volume consumption in the Coffee segment will be attributable to out-of-home consumption (e.g., in bars and restaurants).

In this feasibility study we try to analyze the profitability of coffee shop in Riyadh – Saudi Arabia. The concept of the coffee shop will be to target the high end class thus the strategy that is proposed to be inline with the target market is by offering high quality coffee – specialty coffee.

The Café will be a business meeting point or refresing places to refill energy from daily routines unlike any other in Riyadh, Saudi Arabia. The café will be a welcoming and adaptable environment, where people can come for a quick coffee, a meeting, or a night out with friends and colleagues. The mangement will provide consistent and superior customer service, offer quality, local and certified food and beverages, and uphold an environment that promotes creativity and productivity at all times. Through these core values we expect to gain high consumer-perceived value of the product.

The café will engage with local community to enhance its customer base and also to increase its brand awareness. The community that will be chosen will be the community that are promoting good and ethical value in their philosophy. It will be inline with the Café mindset to select high quality vendors which do responsible business ethic with the local coffee farmers.

Based on our analysis there is a high probability that the business would be success due to several factors such as market size, local market behaviour and product proposition to target specific market segment. Furthermore the proportion of total roasted coffee consumption with total coffee consumption relatively low compare to global proportion. Thus there is high probability that if the customer shift their preferences to choose roasted coffee compare to instant coffee, there will be significant market growth in the future.

 

The financial projection result is shown below:

Pay back Period

2.63 years

ROI

49%

Net Cash flow in 5 years

SAR 2,158,875

NPV

3,683,322

IRR

54%

 

Based on sensitivity analysis, it is concluded that total required investment is not as sensitive to G&A cost and revenue projection, thus the management of the Café shall conduct thorough evaluation periodically to make sure the Café will be operating in such an efficient way to make sure it can repay the investment on time and also to run strategic marketing plan effectively to make sure it can generate substantial revenue in the coming years.

Based on the economic analysis result, we recommend the company to further conduct location selection and preliminary analysis to make sure the company can execute the project and utilize it for the benefit of the company.

Key to Success

·        The location- visibility and convenient access. Potential market in surrounding area.

·        The best products - freshest high quality (specialty) coffee beans, cleanest equipment, premium serving containers, consistent flavor. The coffee bean used is always supporting local farmers or imported from ethically sourced – vendor.

·        The friendliest servers - Certified, cheerful, skilled, professional, articulate.

·        The finest reputation - word-of-mouth advertising, good rating in online platform. Also the contribution to the surrounding community.



Market Analysis

Global Coffee Market

Figure 1. Coffee Average Revenue Per Capita

(Source: Statista)

Revenue in the Coffee segment amounts to US$495.50bn in 2023. The market is expected to grow annually by 4.47% (CAGR 2023-2025). In relation to total population figures, per person revenues of US$64.50 are generated in 2023. It is projected by 2025, 84% of spending and 21% of volume consumption in the Coffee segment will be attributable to out-of-home consumption (e.g., in bars and restaurants). In the Coffee segment, volume is expected to amount to 7.78bn kg by 2025. The market for Coffee segment is expected to show a volume growth of 1.9% in 2024. The average volume per person in the Coffee segment is expected to amount to 0.98kg in 2023.

 

 

Figure 2. Coffee Revenue Worldwide

(Source: Statista)

 

The Coffee segment consists of Roast Coffee, that incorporates caffeinated and decaffeinated coffee in the form of ground coffee and whole beans, that is prepared with coffee machines or a French press, as well as Instant Coffee, that includes soluble coffee that does not need further equipment for preparation. For coffee shop business it is important to analyze total roasted coffee as it would be the segment that is inline with coffee shop model. The data suggest that the proportion of the revenue are 27% for instant coffee and 73% for roasted coffee.



Figure 3. Coffee consumption worldwide from 2012/13 to 2020/21(in million 60kg bags)

(Source: Statista)


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