STR 581 Week 3 Formulating Strategy and Alternatives Example

Three Paths for Cascade: Formulating and Choosing a Strategy for a Coffee Roaster and Cafe Chain

[Student Name]

University of Phoenix

STR/581: Strategic Planning & Implementation

Week 3 Assignment

[Instructor Name]

[Date]

Cascade Bean Roasters, its options, figures and forecasts are composites written for a model paper.

Weeks 1 and 2 analyzed Cascade, the invented Oregon coffee company with $142 million in revenue. The environment brings high coffee costs, fewer downtown commuters, intense cafe rivalry and powerful grocery buyers, along with opportunities in suburban drive-throughs, cold drinks and traceable sourcing. Internally, Cascade's advantage lies in direct sourcing and roasting, while its 48 cafes are costly and undifferentiated. This paper formulates and chooses a strategy.

The Strategic Issues

Three issues stand out. First, margins have fallen from 9 to 4 percent, driven by coffee costs and cafe labor. Second, the business that generates most revenue, cafes, is the one where Cascade has the least advantage. Third, wholesale depends on four grocery buyers who hold most of the bargaining power. Any strategy must address all three.

What a Strategy Must Contain

Hambrick and Fredrickson (2001) argued that a strategy should answer five linked questions: arenas, where the firm will be active; vehicles, how it will get there; differentiators, how it will win; staging, the sequence of moves; and economic logic, how it will earn returns. They warned that many so-called strategies are lists of initiatives without these elements. Rumelt (2011) similarly described good strategy as a diagnosis of the challenge, a guiding policy for dealing with it and coherent actions, and bad strategy as goals and slogans without a plan. Porter (1996) insisted that strategy means giving things up, deciding which activities to forgo so the remaining ones reinforce each other in ways rivals struggle to match.

How the Alternatives Were Generated

The alternatives came from pairing Week 2's strengths and weaknesses with Week 1's opportunities and threats. A strategy built on strengths and opportunities points upstream, toward traceable coffee and spare roasting capacity. One built on reducing weaknesses against threats points toward fixing the cafe network. A third combines them. Each was given a champion on the leadership team to develop it fully before the comparison began.

Alternative 1: Retail Repositioning

Close or relocate eight underperforming downtown cafes as leases expire, open 15 suburban drive-through cafes over three years and invest in a better app and loyalty program to compete with national chains and drive-through brands. Wholesale continues as is.

Alternative 2: Upstream Growth

Build the business around what Cascade does best. Expand traceable, directly sourced coffee through wholesale, adding natural and specialty grocers to reduce dependence on the four large chains; grow online subscriptions from $2.4 million to $15 million; and offer roasting for restaurants and offices. Shrink the cafe network to about 30 flagship cafes that showcase the coffee, closing downtown losers and converting a few to drive-through.

Alternative 3: Balanced Hybrid

Pursue both retail repositioning and upstream growth at a slower pace, opening eight drive-throughs while growing subscriptions to $8 million and adding specialty grocers.

Evaluation Criteria and Results

Fit with environment and capabilities. Alternative 1 fits the suburban shift but competes where Cascade has no advantage. Alternative 2 builds on sourcing and roasting and addresses grocery dependence. Alternative 3 fits partially on both.

Financial return. Projections assume coffee costs stay high for two years and then ease. Alternative 1 reaches an estimated 6 percent margin by year three, requiring $18 million in capital. Alternative 2 reaches about 9 percent with $7 million, since online and wholesale use spare roasting capacity. Alternative 3 reaches about 7 percent with $12 million.

Risk. Alternative 1 depends on winning a crowded drive-through market. Alternative 2 depends on building online demand and new grocery accounts, and risks weakening brand visibility as cafes shrink. Alternative 3 spreads resources thin.

Feasibility. Cascade has strong roasting, sourcing and wholesale skills but limited online marketing experience; Alternative 2 requires hiring for e-commerce.

The strategy that grows the smaller part of the business turns out to make the most money, because it sells what Cascade does best.

Testing the Alternatives Against Uncertainty

Week 1 flagged two uncertain trends: the path of bean prices and the fate of downtown foot traffic. Each alternative was tested under four scenarios combining high or easing prices with recovering or flat downtown traffic. Alternative 1 performs worst if prices stay high, since drive-through competition limits price increases. Alternative 2 performs best in three of four scenarios and second best in the fourth, where downtown traffic recovers strongly and closed cafes would have regained value. Alternative 3 is never best and never worst. Because Alternative 2 holds up across most futures, it is the more robust choice, and keeping the 30 strongest cafes limits the downside if downtown recovers.

What the Leadership Team Thought

The options were discussed at a leadership offsite. The vice president of retail favored Alternative 1, arguing that cafes are the face of the brand. The wholesale director and the chief financial officer favored Alternative 2. The discussion clarified a shared concern: closing cafes could weaken the brand that sells packaged coffee. The chosen strategy addresses that concern by keeping flagship cafes in the most visible locations and using them to introduce subscription and retail coffee.

The Choice

Cascade should pursue Alternative 2, upstream growth with a focused cafe network. It builds on the capabilities that pass the VRIO test, uses idle roasting capacity, addresses grocery dependence and requires the least capital for the highest projected margin.

The Strategy as Integrated Choices

Arenas: specialty coffee for home, grocery and food service across the West Coast, plus about 30 flagship cafes in Oregon and Washington. Vehicles: organic growth in subscriptions, new specialty grocery accounts and food service roasting partnerships. Differentiators: traceable, directly sourced coffee with a story customers can verify, roasted to specialty standards. Staging: first close losing cafes and launch the improved subscription offer; then add grocery accounts; then food service. Economic logic: higher margins from wholesale and online sales using spare capacity, with flagship cafes building the brand.

Financial Logic in More Detail

The economics favor the upstream strategy because of how costs behave. Roasting carries heavy fixed costs but little cost per extra pound; with the plant at 55 percent of capacity, each additional pound roasted for wholesale or subscriptions adds revenue with little added cost. Cafes have high variable costs, chiefly labor, that rise with every sale. Shifting the revenue mix from 64 percent cafes toward about 45 percent by year three raises the company's overall margin even if cafe margins stay flat.

What Cascade Will Stop Doing

Cascade will stop opening cafes as its main growth engine, stop competing on app features with national chains and stop accepting promotional terms from grocery buyers that erase wholesale margins.

Conclusion

Three genuinely different paths were evaluated against fit, return, risk and feasibility. Upstream growth with a focused cafe network best matches Cascade's strengths and environment and offers the strongest economic logic. Week 4 will consider how this strategy meets Cascade's social responsibilities, and Weeks 5 and 6 will plan implementation and risk.

References

Hambrick, D. C., & Fredrickson, J. W. (2001). Are you sure you have a strategy? Academy of Management Executive, 15(4), 48-59. https://doi.org/10.5465/ame.2001.5897655

Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61-78.

Rumelt, R. P. (2011). Good strategy/bad strategy: The difference and why it matters. Crown Business.