Answer:
Better Beans Coffee Company
1. The two markets showing the most significant net revenue growth upon opening a second store are:
B. Los Angeles and Orlando
2. The two markets worth considering for a second store location are:
E. Los Angeles and Houston
Explanation:
a) Data Analysis and Calculations:
Existing Revenue New Store Cannibalization Revenue Net Revenue Estimate Reduction from Increase due
Cannibalization Market
(Second Store Revenue - Cannibalization)
Los Angeles 4,050,000 $2,677,500 5% $202,500 2,475,000
Houston 1,950,000 1,522,500 5% 97,500 1,425,000
Orlando 2,800,000 2,175,000 25% 700,000 1,475,000
Atlanta 2,240,000 1,695,000 30% 720,000 975,000
Chicago 2,150,000 1,735,000 40% 860,000 875,000
San Diego 1,900,000 1,505,000 20% 380,000 1,125,000
Portland 1,500,000 1,050,000 20% 300,000 750,000
Dallas 2,450,000 1,702,500 45% 1,102,500 600,000
Boston 3,150,000 2,177,500 35% 1,102,500 1,075,000
b) Cannibalization refers to the decline in sales revenue when similar products or stores are introduced in the same market. Before decisions involving cannibalization are made, management should analyze market conditions and establish objective criteria to determine whether to proceed with cannibalization or to maintain current market presence. A key factor for evaluating cannibalization is the net revenue generated by the new product or store after accounting for any losses.
