Caffe Bene_master Brewer of Growth and Global Ambition

To: The Global Brand “Caffébene”

From: Kyungran Kim

Date: Feb 03. 2017

Subject: Café Bene Lease Recommendation

Executive Summary

I analyzed the problem related to the first U.S. launch of Caffebene, which appeared as Korean coffee brand in 2008. The problem that Caffebene faced was that the lease was already made before even the permit required for the operation was received. Caffebene in position is divided into three options. First option is to sue the landlord who refused the extra extension of the lease after 5 months’ grace period is over. Second option is to keep the business in NYC and pay over $100,000 for monthly lease between 6 months to 2 years until the permit is received. Last option is to terminate the contract and move its location to another location within the U.S. or fold the operation in the U.S. and open the Caffebene in the Chinses market. I analyzed three possibility in this paper and came up with a recommendation out of three by looking at bigger picture for next 5 years. Since contract is made upon both Kim and landlord’s agreement, taking legal action is not an option which terminated the first option for me. Second option is too risky and profit is too low after 5 years later. Third option was to terminate the contract but rather move to different locations within U.S. and open Caffebene in China depends on Kim’s financial status. If Kim is struggling with money, I would fold everything from the U.S., and just reopen in China for best succession for Caffebene’s future.

Problem Identification

Caffebene made decision to spend $6 million to expand its business into heart of NYC’s Time Square. Problem arises when Kim realizes that the store did not have necessary permits needed to run the business after making monthly lease contract for $100,000 a month for many years and permit process in NYC could take anywhere from six months to two years. Caffebene were required wait to receive their permits yet obligated to pay lease payment as soon as 5 months’ grace period end. Since the financial commitment has already made, Caffebene’s rapid growth through globalization could drastically slow down.

        The company’s attorney recommended Kim to take legal action against the landlord and break the contract, and perhaps find new location. Unfortunately, finding a new good location in Time Square was complicated. Contract with the landlord for multi-year was the main concern leading their thought to whether they need to take a legal lawsuit action against the landlord and move to new location, he should stay with the contract as he planned or break the contract and fold the U.S. business and enter the China.

Analysis

Taking legal lawsuit action against the landlord

Caffebene’s attorney recommended taking legal action against the landlord when the landlord refused to extend the five months’ grace period to deal with permitting process. To file a lawsuit against someone or some company, specific evident is required to proof.  If the opponent wins the case, they may require a losing side to pay the other’s attorney’s fees in certain limited situations.

For Caffebene’s case, it is true that it was not the landlord’s fault. Kim came to United States and him and his board made decision to sign the contract with five months’ grace period for remodeling which both Kim and the landlord agreed upon on. Most likely Caffebene will lose this case because it was mainly Caffebene’s lack of preparedness for such a complex market. In addition, if Caffebene loses this lawsuit case, Caffebene will have additional spending on lawsuit case. Caffebene is already struggling from spending a large percent of the company’s cash balance.

Staying in the U.S.

        If Caffebene decided to stay with the contract there will be considerably great amount of loss for next few years.

Caffebene already have put down $1.35 million and obligated to pay rest of $100,000 for 7 months (12months – 5months’ grace period) as soon as five month’s grace period for reserved for remodeling ends. Generally, each store earns estimated sales of $500,000 per year in Korea, and we can make assumption its average sales based on Korea’s sales. Yearly sales are $500,000 and monthly sales are about $42,000 which it gives roughly $300,000 for 7 months in their first year. When we add estimated down payment, monthly lease, average sale for next 5 years along with $6 million to properly launch the new concept, they will only end up with $20,000 left by just looking at the big picture. However, since sales can be fluctuate and uncertain, sales can be turn out to give a chance or it can put Caffebene at risks