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, HALFBUCKS’s

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.

HALFBUCKS’s 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)

Coffee65%

Food Drinks

3%

Tea32%

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

62

11 8 5 4 8

36

6 5

2618

10

0

20

40

60

80

100

Supermarket Work Mass Retail Specialty CoffeeShop

Coffee Store Restaurant

Traditional Coffee DrinkersGourmet 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, café 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. Today’s 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 company’s 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 today’s coffee drinkers are no longer just the high-flying executives on the go, but also the cost-conscious, value-oriented 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 anti-Starbucks, 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’ atmosphere-driven 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, HALFBUCKS’s 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)

5,201

223 177 168 1530

1,000

2,000

3,000

4,000

5,000

6,000

Starbucks CarribouCoffee

CoffeeBeanery

Gloria Jean's Brew sters

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 McDonald’s and Burger King do not offer specialty coffee.

Starbucks vs. Morning Competitors (store units)

5,201

3,996

461 409 333 270 249 223 199 1840

1,000

2,000

3,000

4,000

5,000

6,000

Starbuck

s

Dunkin

Don

uts

Daylig

ht Don

uts

Einstein

Bros

Krispy

Kreme

Manhatt

an Bage

l

Bruegg

er's B

agels

Caribo

u Coff

ee

Winchell

's

Tim H

orton's

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

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

% Yr/Yr AbsoluteChain Name Fall 2000 Fall 2001 Fall 2002 Fall 2003 Change Yr/Yr Change

Starbucks 2,709 3,475 4,242 5,201 22.6% 959Dunkin Donuts 3,764 3,803 3,840 3,996 4.1% 156Daylight Donuts 479 475 480 461 -4.0% -19Einstein Bros 423 393 412 409 -0.7% -3Krispy Kreme 172 201 244 333 36.5% 89Manhattan Bagel 282 277 275 270 -1.8% -5Bruegger's Bagel 336 303 266 249 -6.4% -17Caribou Coffee 133 176 181 223 23.2% 42Winchell's 226 220 207 199 -3.9% -8Tim Horton's 108 114 160 184 15.0% 24Coffee Beanery 173 183 186 177 -4.8% -9Shipley Donut Shops 158 156 164 168 2.4% 4Gloria Jeans 234 215 212 168 -20.8% -44Honey Dew Donuts 127 129 136 163 19.9% 27Brewster's Coffee 154 166 170 153 -10.0% -17Seattle's Best 89 97 123 123 0.0% 0Coffe Bean & Tea Leaf 61 71 100 118 18.0% 18Tully's Coffee 72 73 107 104 -2.8% -3Noah's New York Bagels 106 89 89 87 -2.2% -2Barnie's Coffee & Tea 102 100 97 84 -13.4% -13Peet's Coffee & Tea 56 66 64 72 12.5% 8

*Italics indicates direct specialy coffee retailer

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, they’re 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, Seattle’s Best and Tully’s. 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.

"Coffees & Espressos" Small Medium Large "Frappuccinos" Small Medium LargeBrewed Coffee $1.35 $1.55 $1.75 Coffee $2.55 $3.05 $3.55Cappuccinos $2.30 $2.85 $3.15 Mocha $2.80 $3.30 $3.80Latte $2.30 $2.85 $3.15 Vanilla $2.80 $3.30 $3.80Café Mocha $2.50 $3.05 $3.25 Caramel $3.05 $3.55 $4.05Caramel Macchiatto $2.50 $3.20 $3.50 Java Chip $3.05 $3.55 $4.05Café Americanos $1.55 $1.85 $2.05White Choc Mocha $3.00 $3.55 $3.85 "Assorted Cremes" $2.55 $3.05 $3.55

"Classic Favorites" Small Medium Large "Refreshments" Small Medium LargeHot Chocolate $2.10 $2.35 $2.60 Iced TeaTeas $1.15 $1.65 Tea Lemonades

Iced Coffee

Starbucks Menu

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 McDonald’s 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 McDonald’s 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 Coffee Food Additional Avg Starting Approximate

Category Footprint Options Offering Beverages Wages Square Feet Seating

I. Specialty Coffee Retailers

Starbucks NationalCaribou MidwestCoffee Beanery NationalGloria Jean's NationalBrewster's NASeattle's NorthwestTully's NorthwestBarnie's NationalPeet's West +

II. Food Establishments Offering Specialty Coffee

Dunkin' Donuts East/MidwestDaylight Donuts NAEinstein Bros Limited StatesKrispy Kreme WestManhattan Bagel EastBruegger's Bagel Limited StatesWinchell's SW & MWTim Horton's Canada

III. Food Establishments Offering Basic Coffee

McDonalds InternationalBurger King InternationalOther FF

Regular & Decaf Burgers Soda $7.00 1200 Booths,

table/chair

Assorted Specialty

Mix of table/chair,

sofas, booths, outdoor option

Limited alternatives to regular

coffee

Donuts, bagels,

breakfast variants

Soda, juice, water $8.00 1200 Booths,

table/chair

1000$9.00Juice, water

Limited; may include

sandwiches, baked goods, fruit, yogurt

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, hot-handz 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 HALFBUCKS’s 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. HALFBUCKS’s 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 HALFBUCKS’s 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

Bar

Coffee Server and Prep Area Table

Table

AdditiveStation

Entrance

Window

Bar

Coffee Server and Prep Area Table

Table

AdditiveStation

EntranceBar

Coffee Server and Prep Area Table

Table

AdditiveStation

Entrance

Window

Sales Strategy Several sales strategies will be implemented, including daily specials on high-profit 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 far-superior 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 Morning Mix Afternoon Mix Total MixCoffee $1.00 40% 20% 30%XL Coffee $1.50 25% 10% 18%Latte $2.00 20% 40% 30%Cappucino $2.00 10% 20% 15%Espresso $2.00 5% 10% 8%Total 100% 100% 100%Weighted Average Price $1.48 $1.75

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

Sales ProjectionsMorning Customer Traffic

Customers Average Sale Total Sales5AM 30 $1.48 $44.256AM 40 $1.48 $59.007AM 60 $1.48 $88.508AM 90 $1.48 $132.759AM 60 $1.48 $88.5010AM 40 $1.48 $59.0011AM 30 $1.48 $44.25Total Morning 350 $1.48 $516.25AssumptionsAverage Sale Per Morning Customer $1.48Total Morning days per week 5Morning SalesTotal Morning Sales Per Week $2,581.25Total Morning Weeks Per Year 52Total Morning Sales Per Year $134,225.00Afternoon Customer Traffic

Customers Average Sale Total Sales12PM 30 $1.75 $52.501PM 50 $1.75 $87.502PM 50 $1.75 $87.503PM 50 $1.75 $87.504PM 40 $1.75 $70.005PM 30 $1.75 $52.50Total Afternoon 250 $1.75 $437.50AssumptionsAverage Sale Per Afternoon Customer $1.75Total Afternoon days per week 5Afternoon SalesTotal Afternoon Sales Per Week $2,187.50Total Afternoon Weeks Per Year 52Total Afternoon Sales Per Year $113,750.00Total SalesTOTAL CUSTOMERS PER DAY 600TOTAL SALES PER DAY $953.75TOTAL SALES PER WEEK $4,768.75TOTAL SALES PER YEAR $247,975.00Days of OperationDays per week 5Weeks per year 52

Start-up Costs - One Month BuildoutConstructionMaterials $15,000.00Plumbing/Gas/Water $10,000.00 assumes no existing systemElectrical $5,000.00 assumes no existing systemLabor $8,000.00 2 men @ $200/day for 1 monthTotal Construction $38,000.00Kitchen EquipmentCoffee Machine 1 $2,000.00Coffee Machine 2 $2,000.00Coffee Machine 3 $2,000.00Dispensing Machine $5,000.00Sink $500.00Counter $500.00Refrigerator 1 $1,300.00Freezer 1 $1,900.00Total Kitchen Equipment $15,200.00FurnitureTables $500.00 1-4 person table @ $300/each; 1-2 person table @ $200/eachChairs $700.00 6 chairs @ $100/each + 1 replacementBarstools $400.00 4 barstools @ $100/eachTotal Furniture $1,600.00SystemsPOS System $5,000.00Bookkeeping System $1,500.00Total Systems $6,500.00Permits & LicensesBuilding Permit (Work Permit) $100.00Certificate of Occupancy $100.00Signage Permit $100.00Operating Permit $100.00Total Permits & Licenses $400.00Professional FeesLegal - Business Structure $2,000.00Legal - Investment Contract $2,000.00Legal - Lease $2,000.00Total Professional Fees $6,000.00OtherInitial Coffee Inventory $500.00Menu Board $200.00Rent Deposit $13,500.00 assumes 3 month depositMiscellaneous $5,000.00Total Other $19,200.00Total $86,900.00

Start up costs (less prepaid & exp) $67,000.00Prepaid $13,500.00Professional fees $6,000.00Dues liceenses $400.00

$86,900.00

Labor ProjectionsStaffing

Sun Mon Tue Wed Thu Fri Sat Hours/day Days/weekAssistant Manager 5AM-12PM 5AM-12PM 5AM-12PM 5AM-12PM 5AM-12PM 7 5Manager 7AM-3PM 7AM-2PM 7AM-2PM 7AM-2PM 7AM-2PM 8 5Assistant Manager 12PM-6PM 12PM-6PM 12PM-6PM 12PM-6PM 12PM-6PM 6 5Wages

Hourly Daily Weekly AnnuallyAssistant Manager $9.00 $63.00 $315.00 $16,380.00Manager $12.00 $96.00 $480.00 $24,960.00Assistant Manager $9.00 $54.00 $270.00 $14,040.00Total $10.00 $213.00 $1,065.00 $55,380.00

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

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

Sources & Uses of Cash0 1 2 3 4 5 6 7 8 9 10 11 12

Month 0 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12Sources of CashCapacity utilitzation 0% 50% 60% 70% 80% 90% 100% 100% 100% 100% 100% 100% 100%Net sales -$ 10,332$ 12,399$ 14,465$ 16,532$ 18,598$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 216,978$ COGS -$ 2,066$ 2,480$ 2,893$ 3,306$ 3,720$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 43,396$ Expenses -$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 146,187$

Net revenues -$ (3,916)$ (2,263)$ (610)$ 1,043$ 2,696$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 27,396$

Bank loan 50,000$ Equity raised 50,000$ Surplus Cash -$ 13,100$ 8,913$ 6,379$ 5,498$ 6,270$ 8,696$ 12,774$ 16,853$ 20,931$ 25,010$ 29,089$ 33,167$ Total 100,000$ 9,184$ 6,650$ 5,769$ 6,541$ 8,966$ 13,045$ 17,124$ 21,202$ 25,281$ 29,359$ 33,438$ 37,517$

Uses of CashStartup Costs 86,900$ Interest Expense 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 3,250$ Taxes 9,589$ 9,589$ Total 86,900$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 9,859$

Net Cash 13,100$ 8,913$ 6,379$ 5,498$ 6,270$ 8,696$ 12,774$ 16,853$ 20,931$ 25,010$ 29,089$ 33,167$ 27,657$ 27,657$

Corporate Tax Rate 35.00% Net revenue 27,396$ Financing 500,000$ Interest (3,250)$

Net sales 20,665$ Taxes (9,589)$ COGS 4,133$ Start-up (434,500)$ Expenses 12,182$ 80,057$

13 14 15 16 17 18 19 20 21 22 23 24

Month 13 Month 14 Month 15 Month 16 Month 17 Month 18 Month 19 Month 20 Month 21 Month 22 Month 23 Month 24Sources of CashCapacity utilitz 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%Net sales 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 20,665$ 247,975$ COGS 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 4,133$ 49,595$ Expenses 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 12,182$ 146,187$

Net revenues 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 4,349$ 52,193$

Bank loan -$ Equity raised -$ Surplus Cash 27,657$ 31,736$ 35,815$ 39,893$ 43,972$ 48,050$ 52,129$ 56,208$ 60,286$ 64,365$ 68,443$ 72,522$ Total 32,007$ 36,085$ 40,164$ 44,243$ 48,321$ 52,400$ 56,478$ 60,557$ 64,636$ 68,714$ 72,793$ 76,871$

Uses of CashStartup CostsInterest Expen 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 3,250$ Taxes -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ 18,268$ 18,268$ Total 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 271$ 18,539$

Net Cash 31,736$ 35,815$ 39,893$ 43,972$ 48,050$ 52,129$ 56,208$ 60,286$ 64,365$ 68,443$ 72,522$ 58,333$ 58,333$

Beg balance 80,057$

Net revenue 52,193$ Financing -$ Interest (3,250)$ Taxes (18,268)$ Start-up -$

110,733$

Yearly sources and usesYear 1 After year 1

Sources of CashNet sales $216,978 $247,975COGS $43,396 $49,595Expenses $146,187 $146,187Net revenues $27,396 $52,193

Bank loan $50,000 $0Equity raised $50,000 $0Total $127,396 $52,193

Uses of CashStartup Costs $86,900 $0Interest Expense $3,250 $3,250Taxes $9,589 $18,268Total $99,739 $21,518

Net Cash $27,657 $30,676

Cash Flow1 2 3 4 5

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

Cash, beginning of year -$ 138,287$ 68,238$ 81,519$ 261,460$

Cash flow from operations

Total EBIT from New Restaurants 136,979$ 273,959$ 547,917$ 1,095,834$ 2,191,668$ Total EBIT from Existing Restaurants -$ 260,967$ 782,900$ 1,826,767$ 3,914,501$ Total EBIT (Net Revenues) 136,979$ 534,925$ 1,330,817$ 2,922,601$ 6,106,169$ Interest (16,250)$ (48,750)$ (113,750)$ (243,750)$ (503,750)$ Taxes (47,943)$ (187,224)$ (465,786)$ (1,022,910)$ (2,137,159)$ Dues & licenses (2,000)$ (4,000)$ (8,000)$ (16,000)$ (32,000)$ Professional fees (30,000)$ (60,000)$ (120,000)$ (240,000)$ (480,000)$ Rent deposit (67,500)$ (135,000)$ (270,000)$ (540,000)$ (1,080,000)$

(26,713)$ 99,951$ 353,281$ 859,941$ 1,873,260$

Cash from financing activitiesBank loan 250,000$ 500,000$ 1,000,000$ 2,000,000$ 4,000,000$ Equity raised 250,000$ -$ -$ -$ -$

500,000$ 500,000$ 1,000,000$ 2,000,000$ 4,000,000$

Cash - investing activitiesCapital investments (335,000)$ (670,000)$ (1,340,000)$ (2,680,000)$ (5,360,000)$

Cash, end of year 138,287$ 68,238$ 81,519$ 261,460$ 774,720$

Profit Loss1 2 3 4 5

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

Cash flow from operations

Total EBIT from New Restaurants 136,979$ 273,959$ 547,917$ 1,095,834$ 2,191,668$ Total EBIT from Existing Restaurants -$ 260,967$ 782,900$ 1,826,767$ 3,914,501$ Total EBIT (Net Revenues) 136,979$ 534,925$ 1,330,817$ 2,922,601$ 6,106,169$

Interest (16,250)$ (48,750)$ (113,750)$ (243,750)$ (503,750)$ Taxes (47,943)$ (187,224)$ (465,786)$ (1,022,910)$ (2,137,159)$ Dues & licenses (2,000)$ (4,000)$ (8,000)$ (16,000)$ (32,000)$ Professional fees (30,000)$ (60,000)$ (120,000)$ (240,000)$ (480,000)$

40,787$ 234,951$ 623,281$ 1,399,941$ 2,953,260$

Balance SheetYear 1 Year 2 Year 3 Year 4 Year 5

ASSETS

Cash 138,287$ 68,238$ 81,519$ 261,460$ 774,720$ Prepaid expenses & deposits 67,500$ 202,500$ 472,500$ 1,012,500$ 2,092,500$

Construction 190,000$ 570,000$ 1,330,000$ 2,850,000$ 5,890,000$ Kitchen Equipment 76,000$ 228,000$ 532,000$ 1,140,000$ 2,356,000$ Furniture 8,000$ 24,000$ 56,000$ 120,000$ 248,000$ Systems 32,500$ 97,500$ 227,500$ 487,500$ 1,007,500$ Others 28,500$ 85,500$ 199,500$ 427,500$ 883,500$

335,000$ 1,005,000$ 2,345,000$ 5,025,000$ 10,385,000$

TOTAL ASSETS 540,787$ 1,275,738$ 2,899,019$ 6,298,960$ 13,252,220$

LIABILITIES AND RETAINED EARNINGS

Bank loan 250,000$ 750,000$ 1,750,000$ 3,750,000$ 7,750,000$ Due to shareholder 250,000$ 250,000$ 250,000$ 250,000$ 250,000$

500,000$ 1,000,000$ 2,000,000$ 4,000,000$ 8,000,000$

Retained earnings, beginning -$ 40,787$ 275,738$ 899,019$ 2,298,960$ Net income for the current year 40,787$ 234,951$ 623,281$ 1,399,941$ 2,953,260$ Total Retained Earnings 40,787$ 275,738$ 899,019$ 2,298,960$ 5,252,220$

TOTAL LIABILITIES AND RETAINED EARNINGS 540,787$ 1,275,738$ 2,899,019$ 6,298,960$ 13,252,220$