Our client, Hara Coffee Company, is a large coffee chain with over 200 locations in the United Kingdom. They import beans from numerous regions and batch-roast them in the UK, offering customers a vast selection of premium blends. In addition to serving delicious coffee, our client offers freshly made sandwiches, pastries, and salads of the highest quality. Hara Coffee Co. is also one of the most socially and environmentally responsible coffee brands in the United Kingdom, and their value proposition heavily relies on customers paying a premium for delicious products that do not compromise on sustainability metrics.
The rising cost of living has significantly reduced the revenue of coffee chains throughout the United Kingdom over the past year. People are increasingly choosing to brew their own coffee at home, with beans delivered by subscription. The CEO of Hara Coffee Company is intrigued by the expansion of coffee subscription models in the UK. They requested that our team investigate whether their chain could also introduce a coffee subscription model, in which customers pay a fixed monthly fee and receive a certain number of coffees throughout the month.
What factors would you evaluate to determine whether it is a good idea for our client to implement a coffee subscription model?
The client would now like your help in deciding how to price the subscription. They have done some market research and have identified two possible options, as illustrated in Exhibit 1. How would you decide between these two options, and which one would you choose?
The client appreciated your analysis and is considering implementing the £15/month subscription option. What additional revenue streams could they implement to maximise cross-selling revenue? Second, what are some additional ideas for revenue growth that do not necessarily involve cross-selling?
The client likes your ideas and they are considering adding smoothies to their product mix and even offering them as part of the subscription that we were discussing. Your colleagues came up with the following estimates to help you make sense of this opportunity:
If we introduce smoothies, we anticipate that our customer base will order a smoothie 1/3 of the times on average. Assuming we continue to charge £15 per month for the subscription, does it still make sense to include smoothies?
What would you recommend to the client in light of everything we have analysed?
This case has been developed to reflect some of the recent cases given in McKinsey interviews over the past year - particularly focusing on new, innovative business models that seek to push the candidate's thinking and test their understanding of what problems consulting clients currently face.