KL+Juice+Bar

= Revision case study: = = ** Business Activity ** = = **Read the case study and answer all of the questions.** = =KL Juice Bar=


 * Background to the business**

Salman and Karen started their own business two years ago. The business operates a small chain of ‘juice bars’ in their own country, mainlylocated in the capital city. The business started from an idea Karen had while on holiday in Europe. She had noticed how often Europeans love to eat and drink whilst ‘on the move’. There were countless bars, cafés, diners and restaurants and they all seemed to be busy, all the time! During her visit Karen had discovered a chain of specialist cafés or bars known as the ‘Euro Juice Bars’. These sold soft drinks and snacks but specialised in freshly-produced fruit juices, all prepared on the premises. These seemed to be very popular. She wondered if the same idea would work back home.

Karen had worked in several restaurants in her home city. She knew how much work was involved in preparing and selling food and drink to the public. This did not reduce her enthusiasm for the juice bar idea. She spoke to her friend Salman, who was a manager of a clothes shop. He was bored with his job and he was keen to find another challenge. When Karen told him about the juice bar idea, he was not very enthusiastic. ‘The shop rents in our city are so high, how would we ever make enough profit from just selling juices to pay ourselves a decent salary?’ he asked Karen. ‘We would also have to import all of the juice-making equipment and probably some of the fruit – could we find suppliers we could depend on?’ Karen was expecting this reaction to start with. She showed Salman some figures she had worked out on possible costs and revenues. Salman was impressed by the expected profits that Karen was suggesting they could make. They decided to start thinking about a business plan. They could show this to the people who would, hopefully, invest money into the business. They decided to see a friend who was a lawyer who would help them draw up a Deed of Partnership. Before they went much further with their proposal, they also carried out some market research to see if such a bar would be popular in Kuala Lumpur. Setting the business up – government and environmental constraints The planning for the first bar took six months – longer than they had both expected. The major problem had been finding a suitable location. Some residents in the best location had objected to a juice bar. They believed that it would create further traffic congestion and rubbish, particularly from take-away drink cartons. Karen had also spent a long time finding out about the health and safety laws concerning cafés – she did not want her first customers to get food poisoning! At last, the day of opening came – and what a success it was! Salman had the idea of asking a well-known basketball player to officially open the bar. This had created lots of free publicity and they had also paid for adverts in local newspapers. The success of their business took them both by surprise. Sales exceeded all forecasts. They were able to open new bars due to the demand. Staffing levels grew quickly – and with them management problems. Salman and Karen were starting to disagree over the future of the business. They could either: < Option 1 – operate with the existing 10 juice bars and continue to open new ones at the rate of one every two months, or < Option 2 – set up a franchised operation that would allow much more rapid expansion. Both options would require additional sources of finance. Salman was keen to continue to expand as rapidly as possible. He wanted to sell franchises in KL Juice Bars so that they could create an international chain. Karen was less sure. She saw the benefits of franchising, but was worried about losing control of these branches. Also she did not want all of her life to be taken over by the KL Juice Bar chain. She would be happy with a much slower rate of expansion – see option 1 above. So after two years of success, the two of them decided to agree on a plan for the future. They had already decided that keeping the business as a partnership was no longer the best form of legal structure for their business. Questions
 * Setting up the business – the first steps**
 * Expanding the business**
 * 1** Is the KL Juice Bar a primary, secondary or tertiary business activity? Explain your answer? (3)
 * 2** Is the KL Juice Bar in the private or the public sector of industry? Explain your answer. (3)


 * 3** Why do you think Salman and Karen decided to form a partnership? (4)


 * 4** Why do you think they drew up a Deed of Partnership? (4)


 * 5** Explain TWO factors you would expect to see in a Deed of Partnership. (4)
 * 6** What is meant by franchising?___ (3)


 * 7.** Would you advise Salman and Karen to sell franchises for the KL Juice Bar? Give reasons for your answer. (10)


 * 8.** Identify the future business objectives of Salman and Karen. How are they different? (4)


 * 9** Why might the different objectives for the future of KL Juice Bars lead to conflict between Salman and Karen? (4)


 * 10** Do you agree with Salman and Karen that a partnership was no longer the right form of legal structure for their business after two years of growth? Explain your answer. (5)


 * 11** Which form of legal structure would you now recommend for KL Juice Bars and why? (6)