Case Memo: Kota Coffee in US

To: Sam Dudley
From: Mingyi Guo
Date: April 17, 2020
Re: SafeBlend Fracturing
The distributorship proposed for Java Bean Plus is viable. It will enable the company to secure 100% of Kota Coffee’s business for the 2020-2021 contact. It should charge a price ranging between $1.9 and $2.13 if it is to secure 100% of Kota Coffee’s business. This is a viable strategy that should be implemented right away.
Background
Kota Coffee is a regional business that serves Pennsylvania and New Jersey. The business requires 4.17 million pounds of raw coffee each year to run its operations. This demand has been supplied by a single supplier since 2017, Java Bean Plus. Java Bean Plus charges Kota Coffee $2.13 per pound, and the variable cost is $1.22 per pound. Java Bean Plus has also learned that Kota Coffee is considering splitting 25% of its business to Nizza if Nizaa offers a competitive price. Therefore, there is a need to determine the amount that Java Bean Plus should propose to Kota Coffee so as to secure its 100% business for the 2020-2021 contact.
Recommendation
Consider charging a price that is lower than the current price, $2.13 so as to secure 100% Kota Coffee’s business. Java Bean Plus would take 75% of the business at @$2.13, meaning it would earn (2.13-1.22)*(4.17*0.75) = $2.85m. Compute the minimum price that should be charged to ensure Kota Coffee’s business is 100% gained.
Recommendation Reasoning
If 25% of Kota Coffee’s business is split to Nizza, Java Bean Plus will take 75% of it, continuing at $2.13 per pound. T...