Cafes Monte Bianco Case

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 taking on private brands only, CMB’s financials would look as follows:
Private Label Profit

Income Statement

Period ending December 31, 2001

Estimated

2001
2000
Revenues

52,800,000 56,112,408

Costs of goods sold

42,918,000 33,233,867
Gross margin

9,882,000 22,878,541

Marketing expenses

- 4,155,980
R&D expenses

832,033 3,328,130
Selling expenses

1,251,149 3,574,710
Administrative expenses

2,376,000 4,752,000
Interest expense

3,825,000
3,825,000
Total Expenses

8,284,181 19,635,820

Profits

1,597,819
3,242,721
Taxes (40%)

639,128 1,297,088
Net profit

958,691 1,945,633

Cash Flow Statement
Period ending December 31, 2001

Net Income 958,691 Current Depreciation 25,937,000 Add: New Depreciation 400,000
Increase in AR (10,273,133)
Decrease in AP (487,331)
Decrease in Finished Goods 1,148,400
Decrease in Inventory 2,907,963
Net Cash Flows 20,591,590

2001 2000
Net