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Cafes Monte Bianco Case Essay

Café Monte Bianco (CMB) has the hard decision of determining their next strategy. They are faced with a decision to either continue with their current mix of private and premium coffees or switch to a lower cost all private brand coffee. Giacomo is concerned about the perception of the company if they were to switch to all private brands, however, if it is in the best interest of the company to do so he is willing to explore that route. Since they are growing rapidly they need to determine which strategy is best. There are benefits and drawbacks to both scenarios. Taking on the private brands only would create a demand that can be consistent, full capacity can be utilized, inventory can be maintained, and there are significant cost reductions. However, the cash flow is damaging due to a delay of payment from retailers, and the margins on the products are much lower than the premium brand.

Based on the projected financials, I would advise that CMB maintain their current strategy of offering a diversified product line. The return on investment for the diversified products is over double that of the private label brands. Both scenarios have negative attributes but it would be profitable to take on the products that have a higher margin and high profit even though there are associated higher costs. The only person missing in the meeting was the R&D manager who could provide some light on what other ventures that the company could explore. This would help even more with the diversification. Most of their debt comes from a large line of credit, which is maxed out.

Relying on cash flows from vendors who could take up to 90 days to pay could stretch the company too thin in the months in which sales are low and they would not have a backup plan for any payments. This could also be problematic when needing to purchase more materials for the increased volume. As stated, if they were not able to keep up with the demand they would be dropped as a supplier.

Assumptions that were made include:

All private brand retailers pay in 90 days and never make a late payment
All CMB payments were made on time
No additional lines of credit were taken
All raw materials and inventory were used
No input from R&D manager was given to increase sales in slow months
Tax brackets did not change
Under each coffee grade, they are producing at the highest volume
These assumptions are vital to the calculation of the cash flows.
If these assumptions were not taken, the cash flow could look better in the favor of private brands.

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