Sharing fixed costs in a single establishment: combining a brewpub and coffee house
As many small business in the United States fail annually, there is additional pressure to stay creative, and strategy is imperative to success. The purpose of this study is to model a potential strategy by combining two business models, a brewpub and coffee roasting house, in the same establishment to determine if sharing fixed costs helps drive total cost down. Customers are looking for more natural, high quality ingredients in their coffee and beer, hence the rise in the craft markets. Equipment costs, labor, ingredient costs, and processing times create high prices for these products, making it difficult for small business owners to succeed. In the center of California’s agricultural mecca, the Central Valley, this project explores this combined business model to determine what factors, including location, capacity, and cost, play an important role in strategy. The main data sources include analysis of ingredient location, estimated startup costs, SWOT analysis, census data, and operation costs. Based on analysis of data, three main conclusions emerged: The importance of convenient location and size of establishment in keeping fixed costs low, understanding increasing incremental costs for each unit sold, and a need for strategy around expansion and continually sourcing fresh ingredients. Potential implications for analysis of capacity for the establishment and room for expansion include increasing the rate of success and developing a shared fixed cost model for similar businesses.