The Carmelite Monks of Wyoming are interested in expanding their current monastery through the purchase of an $8.9 million ranch to accommodate more monks and provide a larger place to worship the Lord. The monks are planning to earn money for this 500- acre ranch through fund raising, donations and through sales that are generated by their Mystic Monks Coffee Company. Mystic Monks Coffee sells premium roasted coffee beans to the general Catholic denomination through a website that is operated by the Carmelite Monks. This web based company generates a low net profit of $6,160 each month and is in need of a stronger strategy to raise profits and ensure the purchase of the $8.9 million ranch in an adequate amount of time. Father Daniel Mary, the Prior of the Carmelite Monks, is using a differentiated feature strategy in hopes to raise enough money to execute their vision of a larger monastery.
Table 1- Mystic Monks Coffee Financial Data (per month):
Cost of Goods Sold:
Cost of Sales:
Table 2- Financial Analysis of Mystic Monks Coffee Shop (per month):
Gross Margin Profit
56,000-29,120 = 48%
48% of revenues to cover operating expense and yield a profit. Operating Profit Margin (Return on Sales)
56,000-20,720 = 63%
63% profitability of current operations without regard to interest charges or income taxes. Net Profit Margin
(Net Return of Sales)
6,160 = 11%
11% profit per dollar of sales.
Addressing Mystic Monks Coffee Case
The present situation that needs to be addressed in this case is to improve the strategies of Mystic Monks Coffee Shop in order to gain enough profit to purchase the $8.9 million ranch to expand the Carmelite Monks current brotherhood. The issue is that Mystic Monks Coffee Company only generate about $75,000 per year making the goal of earning $8.9 million rather lofty. Father Daniel Mary represents the manager of this business and is in need of improving his current strategy of focused differentiation to increase the current profit margin of 11%.
Carmelite Monks Objectives
The target for the Carmelite Monks financial performance does not have specifics on how they plan to execute the goal to earn $8.9 million for their new monastery. Their general plan is to raise money from revenue generated from fund raising, donations and sales from Mystic Monks Coffee Company. Without adequate profitability and financial strength, Mystic Monks long-term vision of expanding their brotherhood is jeopardized. The Monks have recently received $250,000 from donations that could be added to their savings for the ranch. The other revenue that they have generated is from Mystic Monks Coffee. When referring to Table 1 you will see that Mystic Monks Coffee generates about $6,000 of profit each month which is about $75,000 per year and when added to the donation makes a total of $325,000 that could be used toward the purchase of the ranch. This leaves the Carmelite Monks with an objective of raising more than $8.5 million more in order to fulfill their vision. The strategic objective to attain the financial target of $8.9 million is very broad and when referring to Table 1 and 2 it is easy to tell they are in need of strong objectives to attain this target.
From the generation of profits alone being $75,000 per year they would have to maintain profit for over 100 years to be able to purchase the $8.9 million ranch. The monks are interested in raising their profits per year so that the process of raising enough revenue for the ranch will not take as long. Even if $250,000 were donated each year on top of their $75,000 per year coffee roasting profits it would still take the Monks over 25 years to produce enough revenue to purchase the new monastery. Although their strategy is ambiguous the ambition of the monks and position in a growing market make it easy to believe that the future financial performance will be better than its current performance. If Mystic Monks Coffee reduces the costs shown in Table 1 the profit margin will rise and the objective of earning $8.9 million will be easier to obtain.
Mystic Monks Coffee Operations
The Carmelite Monks spend over 8 hours a day praying and only 6 hours working. Although there are no labor expenses because the Monks are maintaining the company operations there is still a large gap in the productivity of this company. The Monks have a coffee roaster that can produce up to 540 pounds a coffee per day but because they are only working 6 hours a day they are only producing 135 pounds per day. The Monks sell about 4,250 pounds of coffee beans per month but have the capability to produce and sell over 14,000 pounds of coffee per month. Part of their business model includes the thought of purchasing a new coffee roaster so that they could increase production but as we can see that is not necessary until the Monks can allocate more time to working and produce at least 500 pounds per day.
Mystic Monks Business Model
The business model of Mystic Monks Coffee is to continue selling high quality coffee beans to their consumers in order to gain profits and maintain their value proposition with the Catholic consumers. These Catholic consumers have a strong value proposition for the products because the Catholics value the idea of giving to the Catholic Church so much that the price of the product is not as important as the value. Father Daniel Mary has strengthened this competitive advantage by targeting the United States Catholic population through advertisements on their web page saying, “Catholic coffee for Christ and his Catholic church.” This slogan helps to capture the attention of the Catholic coffee consumer which is a target market of about 69 million people. This instinctive element helps compete with their rivals through having a focused market of Catholic consumers. The Catholic consumers know that there are cheaper substitutes for coffee beans but value the relationship with the monks and the church too much to buy from anywhere else.
Mystic Monks Coffee Strategy
The competitive moves that Mystic Monks Coffee’s use as a part of their strategy are seen through focused differentiated high- quality fair trade Arabica and fair trade/organic Arabica beans. These Arabica beans can be caffeinated or decaffeinated and come in varieties of dark, medium, and light roasts and can be purchased on their Mystic Monks Coffee website. They market their product through advertising by word of mouth to catholic parishes and by advertising their website on similar webpages. They have also expanded their business model to include wholesale sales to churches and local coffee shops as well. This strategy will help market their products to other coffee buyers from local coffee shops and help with customer loyalty as well. When their products are more readily available it can help those customers who are not tech savvy purchase the coffee beans elsewhere. But even with these differentiated focuses there are still many barriers that are holding the Carmelite Monks from attaining their vision. Although these strategies have been useful for the company to maintain a stability and produce profit it is not enough for them to purchase the ranch that they desire. The customers value the product but there is simply not enough production for the Carmelite Monks to obtain the desired products.
The strategy of having the Monks maintain operations needs to be reevaluated in order for them to expand their business. I would recommend for the Carmelite Monks to dramatically increase their revenues by hiring a sales associate to help them increase their earnings and provide more hours to roast coffee beans. If they hired a full time associate to be dedicated to operating the coffee roasting process they would be able to increase the amount of coffee beans they roast to about 14,000. When you divide the price of their 12 oz bag of coffee beans by its price of $9.99 and then multiply that number by 16 (16 ounces in one pound) you will see that one pound of coffee beans equals about $13.32. Once you find the price per pound you can then multiply that number by 14,000 pounds of coffee that would be produced each month by a full time associate making their sales triple to $186,480 per month. With sales increasing the Monks would have to be aware of the risks that are associated with this choice. Such risks include an increase in the cost of goods sold and operating costs, the possibility of over running the coffee roasting machine and the risks of the ever changing market. I would also recommend having a projected goal of $500,000 in donations each year.
The Carmelite Monks received a $250,000 donation from one person to help go towards their funds. If the Monks wrote some letters to people within the parish each year asking for some sort of donation on top of the revenue they make from Mystics Monks Coffee they would be able to purchase the ranch within the next 15 years if donated $500,000 a year. When it comes to Mystic Monks marketing strategy I would recommend that they reach strengthen their target market opportunities. Mystic Monks Coffee is in a growing market and has the ability to make this a winning strategy if they allocated more time to the market their products and less time to prayer. Their marketing strategy could be improved by adding advertisements to newspapers, Catholic magazines or billboards in towns that are highly populated by Catholics. There is a lot of work to be done in order for the Carmelite Monks to obtain their goal of purchasing a new monastery but it is not impossible for them to attain this goal. The monks would have to dedicate more energy towards planning a stronger objective and create short term goals to obtain this vision. With more time given to roast coffee beans, larger donations and a stronger marketing strategy they could make this dream become a reality.