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GUIDEBOOK TO ADFOGATO

INTRODUCTION Coffee today remains as one of the world’s prized commodities. It is highly valued in many parts of the world, and Indonesia is of no exception. Indonesia’s coffee industry holds a lot of potential and is one of Indonesia’s current biggest emerging industries.

From 2012 to 2016, there is a steady increase in the percentage of coffee consumers in Indonesia. We could infer that this is a promising sign of growth.

The increasing percentage of coffee consumers in Indonesia proceeds at quite a tremendous rate. Currently, Indonesia’s growth rate of coffee consumers is four times as large as the rest of the world. This, in addition, contributes as a good sign towards the potential Indonesia has compared to the rest of the world.

When we look at the percentage of coffee producer in world, Indonesia ranks 4th place. The first place is Brazil, second is Vietnam, third is Colombia, fourth is Indonesia, and in 5th place is India.

HOW IS COFFEE INDUSTRY LIKE? Threats of New Entrants Bargaining Power of Supplier Rivalry among Competitors Bargaining Power of Buyer Threats of Substitute Product

For analyzing the competitiveness of Indonesia’s coffee shop industry, we chose to use Porter’s 5 Forces as a tool for analysis. It is aimed to identify the strategy’s potential profitability.

PORTER’S FIVE FORCES

RIVALRY AMONG COMPETITORS Indonesia’s coffee shop industry has intense rivalry among its competitors. It can be seen from the growth of coffee shops in several locations in Indonesia. This occurs because of the change in customer behavior in Indonesia that in turn, leads to the change of Indonesian lifestyle of drinking coffee. Quoting the financial times, “artisan coffee and coffee shops in Indonesia had doubled in numbers in the last five years. Indonesia’s coffee industry is getting more and more competitive. International players such as Starbucks contribute to the pressure felt by local firms. Starbucks currently owns approximately 231 stores in Indonesia and holds a huge share of Indonesia’s coffee market.

THREATS OF SUBSTITUTE PRODUCT Since Indonesia’s agricultural sector is well developed, and coffee beans are abundant, it renders coffee shops as well as coffee-based products dispensable. Therefore, coffee can easily be replaced by substitute commodities such as tea and chocolate. A Tea house or a chocolate bar could easily take a coffee shop’s place. Hence, the threat of a substitute product and service of coffee shop is low.

THREATS OF NEW ENTRANTS It is caused by coffee bean’s abundance/low scarcity in Indonesia. Setting up a coffee shop is not that difficult since barista licenses are available in Indonesia and the main ingredient is easy to obtain.

BARGAINING POWER OF BUYER Bargaining power of buyer for coffee shops is high. It is caused by the growth of the number of coffee shops and it makes the overall business environment more competitive.

BARGAINING POWER OF SUPPLIER In this case, bargaining power of suppliers are moderate. This is because of the specific nature of coffee beans, which often has their own characteristics. This often leads to dependence on different suppliers.

COFFEE SHOP: MEET THE COMPETITORS Local coffee shops in Indonesia faces an ever-growing threat. The threat comes in the form of global brands of coffee shop that enter the Indonesian market. Two of the main competitors of local coffee shops is Starbucks and Coffee Bean. We analyzed both coffee shops using SWOT analysis. STARBUCKS Strength • Strong Brand Image • Extensive Global Supply Chain • Moderate Diversification Through Subsidiaries

Weakness • High Price Points • Generalized Standards for Most Products • Imitability of Products

Opportunities • Expansion in Developing Markets • Business diversification • Partnerships or alliances with other firms

Threat • Competition involving low-cost coffee sellers • Imitation • Independent coffeehouse movements

COFFEE BEAN AND TEA LEAF Strength • Has own marketing strategy • Communication between franchisee and franchisor

Weakness • Focus on young and working adults as their market • Pricy

Opportunities • Market Expansion • Different location

Threat • Cheaper coffee sellers • Imitation

SURVEYS: WHAT DO THEY SAY? After a discussion about the overall market, we did our own survey to a sample of 100 people to find out more about the customer base of local coffee shops.

We can see that most people who come to coffee shops are people aged 19-23 years old. The second largest group of people aged 1318 years old. We can conclude that most of them are youngsters. There are various reasons why this age group comes to local coffee shops. 30% of the respondent said that they go to local coffee shop in search of the ambience for doing their assignments. And another reason why is because they â€œjust like itâ€?. 26% of the respondent said that they go to local coffee shop because a friend asked them to. It is quite interesting to see that people who actually like coffee only contributes 13%.

The results reveal that people visit coffee shops quite frequently. 34% of the respondents said that they go to local coffee shops more than once in a week and 23% people go once a week. It means that 57% of the respondents go to local coffee shops a minimum of once in a week.

The total amount of people for purchasing product in coffee shop is important because we can see the customerâ€™s purchasing power. 46% of the respondents stated that they spent around 30,000 to 50,000 rupiah every time they go to a local coffee shop and 32% of the respondents said that they spent around 20,000 to 30,000 rupiah.

SEGMENTATION: WHO ARE WE REACHING? DEMOGRAPHIC Sex Both men and women can go to coffee shop. There is no sex specialization because coffee shop is not something that masculine or feminine. Age • Generation X (1961-1981) • Millennials/Generation Y (1982-1994) • Generation Z (1995-2001) We know that coffee shop already become a habit for people who live in urban city. Generation X usually spent time in coffee shop because they consume coffee. Generation Y or we can call it as millennials, spent time in coffee shop because they interest in coffee. And generation Z usually spent time in coffee shop because they try to socialize with friends or do their assignment and many other thing. Job Student, college student, entrepreneur, and worker are very dominated in the job socio-demographic of coffee shop. It happens because the shopper is coming from generation x, millennials, and generation z. Latest education Because the majority is student, college student, entrepreneur, and worker, the latest education of the customer is minimum from junior high school. Income We choose Rp4,000,000 as standard/limit for the options because based on BPS data, average Indonesia’s people incomes are stated about Rp47,96 million per year or Rp4 million per month. And the average for student and college student are Rp2,000,000. So for coffee shop, usually the income of the customer is minimum Rp2,000,000.

Socialization The classification that we used for the expenditure options based on the definition of Asia Development Bank (ADB) about the middle class which is most commonly used in Indonesia and in Asian countries. In determining the social class, the middle class based on per capita expenditure per day have ranges from $ 2- $ 20 ( about Rp 30,000 - Rp 300,000 ). This middle class is divided into 5 groups: •

Poor: below $2 ( below Rp 30,000)

•

Middle-low : $2 – S4 (Rp 30,000 – Rp 60,000)

•

Middle: $5 - $10 ( Rp 60,000 – Rp 150,000)

•

Middle-up: $11-$20 ( Rp 150,000 – Rp 300,000)

•

Elite : over $20 ( more than Rp 300,000)

People spent Rp 30,000-Rp 50,000 when they go to coffee shop. We can assume that they spent more than Rp 50,000 in a day. So, the customer of coffee shop is middle, middle-up, and elite.

GEOGRAPHIC Indonesia Because we want to increase the strategic point of SME (Small Medium Enterprise) in Indonesia, so we write Indonesia as our geographic segment for this research Urban Cities As we can see that in urban cities such as Jakarta, Bandung, Surabaya, Yogyakarta, and etc. have so many coffee shop. The number of coffee shop in urban city is increasing year by year. We choose urban city as our geographic segment because the revenue of urban city coffee shop in Indonesia is more than 300 million rupiah and it can be classified as SME. PSYCHOGRAPHIC General personality traits • Self monitoring. People that adapt to situations to manage the impressions on other. We can know that coffee shop customer always looking for good image. They like a good quality of goods. • Optimum stimulation level. Seek more information about and variety in products. Coffee shop has different meaning to one and another. So that’s why the customer of coffee shop is optimum stimulation level because they try to find variation or different message, • Connectedness. Perceive themselves as highly connected with others. Socialize in coffee shop. • Impulsiveness. Act the spur of moment. For the example is, many people go to coffee shop because it is trendy. • Need for affiliation. Friendly with others and establish social relationship

Consumption personality traits • Traits market maven. Gather information about the coffee shop before go to the coffee shop • Product specific self involvement. Emotionally involved in product class. Try to engage with the coffee, coffee shop, and barista • Centrality of visual product aesthetic. Overall level of significance that visual aesthetics hold for a particular shopper. People go to coffee shop because it is “instagrammable”. Value People go to coffee shop because they want to get value from it. Many coffee shop has it is own unique selling point or differentiation that makes the coffee shop has their own value and make the customer feels comfortable. Lifestyle • Daily ritual for some people • Coffee is a social function Motivation • Friendly staff • High quality of coffee and food • Good atmosphere

Methodology

METHODOLOGY: WHAT STEPS DO WE TAKE?

Conduct interview

Analyze data

3 Define & validate problem

Build ideas for solutions

Validate solution idea

CONDUCT INTERVIEW

For gathering the data of local coffee shop, we did face-toface interview with the owner of local coffee shop. We interviewed 13 local coffee shop 1.

Coffee Shop: Barista Brother Owner name: Aria Bayu Location: Bandung Revenue: Rp369,562,500.00

Coffee Shop: Kedai Papadod Owner name: Om Dodi Location: Bandung Revenue: Rp766,500,000.00

Coffee Shop: Tentrem Kopi & Kesegaran Owner name: Dimas Location: Bandung Revenue: Rp547,500,000.00

Owner name: Hanif Location: Bandung Revenue: Rp300,000,000.00 8.

Coffee Shop: Seduh Santai Owner name: Arya Location: Bandung Revenue: Rp129,600,000.00

Coffee Shop: Delapan Koffie Owner name: Azmi Location: Yogyakarta Revenue: Rp630,000,000.00

10. Coffee Shop: Kozi Owner name: Farhan Coffee Shop: Garden Coffee Location: Bandung, Jakarta, Owner name: Mas Wanda & Kang Yogyakarta, Malang Andri Revenue: Rp5,000,000,000,00 Location: Bandung Revenue: Rp492,750,000.00 11. Coffee Shop: Koma Coffee Owner name: Dika Coffee Shop: Seruput Gelas Kopi Location: Bandung Owner name: Pradipta Revenue: Rp 372.488.000,00 Location: Medan Revenue: Rp330,000,000.00 12. Coffee Shop: Pendopo Coffee Owner name: Senna Coffee Shop: Senemu Coffee Location: Tangerang Owner name: Om Ugi Revenue: Rp560,000,000.00 Location: Bandung Revenue: Rp1,683,000,000.00 13. Coffee Shop: Kopi Sabeb Owner name: Iqbal Coffee Shop: Esentieel Brewing Location: Ciparay Point Revenue: Rp300,000,000.00

We highlight three focus during interviewing 13 local coffee shop: • Activity. Knowing the process endto-end of local coffee shop. What do they do from input until output and all the activity that happens in the business. • Problem. Finds out the obstacles of the activity that the business does • Priority. List the problem from the highest to the lowest point for knowing what is the main problem that happen in local coffee shop.

ANALYZE DATA

From the interview, we can know the activity that happens in coffee shop: 1. Procure coffee bean from farmers 2. Roast coffee beans 3. Brew coffee 4. Serve to customer Not just all that 4 activities that happen in coffee shop, but there is some activities too such as conduct marketing, perform research and development, and manage human resource.

For the problem and priority, we did a problem mapping

Average Prioritization

High

P14 P16

P09

Medium

P12 P13 P15

P08 P10

P05 P06 P07

Low

P11 P17

P02

P04

P01

P03

Frequency

Problem Code

Problem Description

P01

Slow serving time

P02

Lacking customer education

P03

Low, unknown, or inconsistent quality of supply

P04

Unbalanced amount of visitor and orders

P05

Out-of-stock or unavailable supply

P06

Tight competition

P07

Various customer taste

P08

Difficult market development

P09

Difficulty in research and development

P10

Not strategic location

P11

Lacking farmer knowledge

P12

Difficulty in tracking order

P13

Complicated order

P14

Manage employee

P15

High turnover rate

P16

Bad financial tracking

P17

Complains from neighboring area

DEFINE & VALIDATE PROBLEM

According to the defined problem urgencies, we choose one problem. That problem is the lack of customer education. Customer education includes:

Knowledge about fresh coffee consumption, instead of instant coffee consumption

Knowledge about the coffee itself, which includes the processes and types of coffee

This problem may cause bigger problem, such as the increasing of the competitive situation between coffee shops and the lack of market for coffee shops to tap.

BUILD IDEAS FOR SOLUTION

ALTERNATIVE IDEAS Based on that problem, we make several alternative ideas that may solve customer education problem. Market basket analysis

Game

Marketplace

Point of sales

Digital marketing

MORE IMPACTFUL

DIGGING THE ALTERNATIVE IDEAS Quick Win

Major Project

Fill-ins

Thankless Task

MORE EFFORT

Digital marketing

Point of sales

Effort: • Capital for marketing cost • Analysis for defining the point of sales Impact: • Improving sales • Customer education may occur directly

Effort: • Needs cost and time to build new marketplace • Adding value will be difficult Impact: • Must compete with other marketplaces

Market basket analysis

Effort: • Content-making • Advertisement registration Impact: • May reach more new customers • High-engagement with customer

Effort: • Needs cost and time to build and market new game Impact: • May educate customer in more unique experience

Effort: • Manual analysis may take time and cost • Must build model Impact: • Introducing customers new product

Marketplace

Game

VALIDATE IDEAS

We validate the ideas to the business owners and here are what they say: “Point of sales is good for solving the current problems.” – Kopi Sabeb

“Point of sales and market basket analysis will be good.” – Delapan Koffie

“Combination of point of sales, market basket analysis, and digital marketing is preferable.” – Pendopo Coffee

“Digital marketing and point of sales are good combination.” – Seruput Gelas Kopi

“Digital marketing is good, but the methods and other contents must be covered very well.” – Garden Coffee

Solution

WHAT IS OUR SOLUTION?

ADFOGATO Adfogato combines three ideas: the idea of attracting many new customers with promotion via digital marketing, introducing customers with coffee, and engaging the customer directly. Customers will be introduced to coffee products, paired with non-coffee items they often buy. To reach more customers, promotion will be announced via educational content, distributed with digital marketing system.

HOW DOES THE SOLUTION WORKS? Sales data from coffee shop

Market basket analysis model

Upload sales data

Digital marketing system Advertising content

New customers

QUANTITATIVE IMPACT: HOW MUCH WILL COFFEE SHOPS EARN? This solution leads to several impact. We divide it into two criteria, small enterprise (minimum revenue 300 million rupiah) and medium enterprise (revenue 2,5 billion rupiah). SMALL ENTERPRISE Month Month Month Month Month Month Month Month Month Month Month Month 1 2 3 4 5 6 7 8 9 10 11 12 Cash Receive Cash from Operation

Rp0

Cash Sales

Rp25,0 Rp35,0 Rp49,0 Rp52,4 Rp56,1 Rp60,0 Rp64,2 Rp68,7 Rp73,5 Rp78,6 Rp84,1 Rp90,0 00,000 00,000 00,000 30,000 00,100 27,107 29,004 25,035 35,787 83,292 91,123 84,501

Sales Discount

Rp5,00 Rp7,00 Rp9,80 0,000 0,000 0,000

Sub-total Cash from Operation

Rp20,0 Rp28,0 Rp39,2 Rp52,4 Rp56,1 Rp60,0 Rp64,2 Rp68,7 Rp73,5 Rp78,6 Rp84,1 Rp90,0 00,000 00,000 00,000 30,000 00,100 27,107 29,004 25,035 35,787 83,292 91,123 84,501

Additional Cash Received Sales Tax, VAT, HST/GST Received

Rp0

New Current Borrowing

Rp0

New Other Liabilities

Rp0

New Long Term Liabilities

Rp0

Sales of Other Current Asset

Rp0

Sales of Long Term Asset

Rp0

New Investment Received

Rp0

Sub-total Cash Received

Rp20,0 Rp28,0 Rp39,2 Rp52,4 Rp56,1 Rp60,0 Rp64,2 Rp68,7 Rp73,5 Rp78,6 Rp84,1 Rp90,0 00,000 00,000 00,000 30,000 00,100 27,107 29,004 25,035 35,787 83,292 91,123 84,501

Expenditures from Operations Cash Spending

Rp16,0 Rp22,4 Rp31,3 Rp34,0 Rp36,4 Rp39,0 Rp41,7 Rp44,6 Rp47,7 Rp51,1 Rp54,7 Rp58,5 00,000 00,000 60,000 79,500 65,065 17,620 48,853 71,273 98,262 44,140 24,230 54,926

Sub-total Cash Spent

Rp16,0 Rp22,4 Rp31,3 Rp34,0 Rp36,4 Rp39,0 Rp41,7 Rp44,6 Rp47,7 Rp51,1 Rp54,7 Rp58,5 00,000 00,000 60,000 79,500 65,065 17,620 48,853 71,273 98,262 44,140 24,230 54,926

Net Cash Flow

Rp4,00 Rp5,60 Rp7,84 Rp18,3 Rp19,6 Rp21,0 Rp22,4 Rp24,0 Rp25,7 Rp27,5 Rp29,4 Rp31,5 0,000 0,000 0,000 50,500 35,035 09,487 80,152 53,762 37,526 39,152 66,893 29,575

We assume that the sales discount is 20%. We choose this number because customer will feel a value if a business gives a discount with minimum rate 20%. When conduct a sales discount, it leads to increase in sales. When there is sales discount, sales will increase 40%. And the after effect of discount will increase 7% growth of sales.

Month 0 Net Present Value

Month 7 Net Present Value

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Rp56,760, Rp32,450, Rp30,713, Rp29,070, Rp46,000, Rp33,275, Rp24,070, 298 704 906 063 304 713 995 Month 8

Month 9

Month 10 Month 11 Month 12 NPV

Rp17,412, Rp12,595, Rp9,111,5 Rp6,591,1 Rp4,767,9 Rp3,449,0 Rp192,74 483 847 87 42 03 07 9,356

For knowing a good solution, we calculate it using net present value. With 5,75% interest rate, the net present value of this solution for small enterprise is Rp192,749,356. It is a positive number and it means that the solution is good to run by the businesses. MEDIUM ENTERPRISE Month Month Month Month Month Month Month Month Month Month Month Month 1 2 3 4 5 6 7 8 9 10 11 12 Cash Receive Cash from Operation

Rp0

Cash Sales

Rp209 Rp292 Rp409 Rp438 Rp468 Rp501 Rp536 Rp574 Rp614 Rp657 Rp703 Rp753 ,000,0 ,600,0 ,640,0 ,314,8 ,996,8 ,826,6 ,954,4 ,541,2 ,759,1 ,792,3 ,837,7 ,106,4 00 00 00 00 36 15 78 91 81 24 87 32

Sales Discount

Rp41, Rp58, Rp81, 800,00 520,00 928,00 0 0 0

Sub-total Cash from Operation

Rp167, Rp234, Rp327, Rp438, Rp468, Rp501, Rp536, Rp574, Rp614, Rp657, Rp703, Rp753, 200,00 080,00 712,00 314,80 996,83 826,61 954,47 541,29 759,18 792,32 837,78 106,43 0 0 0 0 6 5 8 1 1 4 7 2

Additional Cash Received Sales Tax, VAT, HST/GST Received

Rp0

New Current Borrowing

Rp0

New Other Liabilities

Rp0

New Long Term Liabilities

Rp0

Sales of Other Current Asset

Rp0

Sales of Long Term Asset

Rp0

New Investment Received

Rp0

Sub-total Cash Received

Rp167, Rp234, Rp327, Rp438, Rp468, Rp501, Rp536, Rp574, Rp614, Rp657, Rp703, Rp753, 200,00 080,00 712,00 314,80 996,83 826,61 954,47 541,29 759,18 792,32 837,78 106,43 0 0 0 0 6 5 8 1 1 4 7 2

Expenditures from Operations

Cash Spending

Rp123 Rp172 Rp241 Rp262 Rp281 Rp301 Rp322 Rp344 Rp368 Rp394 Rp422 Rp451 ,310,0 ,634,0 ,687,6 ,988,8 ,398,1 ,095,9 ,172,6 ,724,7 ,855,5 ,675,3 ,302,6 ,863,8 00 00 00 80 02 69 87 75 09 94 72 59

Sub-total Cash Spent

Rp123, Rp172, Rp241, Rp262, Rp281, Rp301, Rp322, Rp344, Rp368, Rp394, Rp422, Rp451, 310,00 634,00 687,60 988,88 398,10 095,96 172,68 724,77 855,50 675,39 302,67 863,85 0 0 0 0 2 9 7 5 9 4 2 9

Net Cash Flow

Rp175, Rp187, Rp200, Rp214, Rp229, Rp245, Rp263, Rp281, Rp301, Rp43,8 Rp61,4 Rp86,0 325,92 598,73 730,64 781,79 816,51 903,67 116,93 535,11 242,57 90,000 46,000 24,400 0 4 6 1 6 3 0 5 3

Month 0 Net Present Value

Month 1

Month 2

Month 3

Month 4

Month 5

Month 6

Rp481,20 Rp356,06 Rp337,00 Rp318,97 Rp439,50 Rp317,92 Rp229,98 4,087 5,352 8,333 1,268 0,048 5,669 1,160 Month 7

Month 8

Month 9

Month 10 Month 11 Month 12 NPV

Net Present Rp166,36 Rp120,34 Rp87,054 Rp62,973 Rp45,553 Rp32,952 Rp2,033, Value 3,836 4,319 ,707 ,659 ,903 ,795 490,961

QUALITATIVE IMPACT: SOCIAL ASPECT OF THIS SOLUTION This solution is good to be implemented because it has several aspects to social. Local coffee shop always use local coffee bean from Indonesia. If we do this project, it will increase the amount of coffee supply in Indonesia because people want to buy it more. And it can increase the value of local coffee bean too. If the local coffee bean has an increasing percentage of sales, it makes coffee farmer get a positive impact too. They will get more profit and compensation because they can sell more coffee than before.

This solution will bring customer better because customer can know coffee well and we can educate customer through this solution. We know that in coffee shop there is a culture when you want to purchase it. If you want to purchase it, you must talk to the barista and communicate what coffee that you want. This project can increase the sales of coffee and it makes more people that try to communicate with barista, and it makes customer more educated than before. Bundle package can make customer try coffee too. Using market basket analysis, they will try coffee with their favorite meals. We know that coffee shop make people more like to hanging out with friends and make people more consumptive even though they are not realizing it. Consumptive behavior can impact to consumption of goods in Indonesia. Consumption is one of the most important aspect for gross domestic product. Consumption is the biggest percentage for gross domestic product. So, it can make the economy condition in Indonesia better.

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