Abstract

Pacific Coffee operated several stores in Central Hong Kong, the heart of the city’s financial district. One of these stores (“Store X”) was situated on the ground floor and near the main lobby of a Grade A commercial building and a five-minute walk away from Lan Kwai Fong, a popular area for drinking, dining, and clubbing frequented by the city’s professionals. Store X’s opening hours were from 7 a.m. to 8 p.m. daily. Profitability was constantly challenged by increased competition as well as pressures from cost inflation, including rent, labor, and raw material price increases. Jonathan Somerville, the group COO, had been contemplating a number of different strategies to optimize profitability at the store.

Two other related cases in this series include:

1. Pacific Coffee Balanced Scorecard: Operationalizing Strategies

2. Pacific Coffee: Long Run Investment Decisions

Learning Objectives

This case can be used to teach students the dynamic effects of fixed and variable costs under the impact of varying sales volumes. Other costs to consider include relevant costs, opportunity costs and sunk costs. Students can then discuss the impact these various costs will have on decision making.