Question

Your team has gathered the following information to assist with your decision. Farmers Blend would launch in 100-cup jars (standard size) O Regardless of branding choices, S5 million for advertising and promotions should produce 40% awareness among instant coffee drinkers and 60% ACV distribution I Nestle surveyed 200 instant coffee drinkers in the US. Results indicate that they are sympathetic to the plight of coffee farmers, with 50% willing to try a fair trade coffee Data from FLO states that half of al coffee drinkers globally (regular or instant) who Retail margins for instant coffee are 20% averaged across channels and brands). Due Nescafe's contribution margin is 40% for Classic and 30% for TC heard of Fairtrade have bought it at least once to Nestle's size, they sell direct to retailers without using a wholesaler Raw beans represent 50% of the variable cost for both Classic and TC. You can assume the cost of beans will be the same for Farmers Blend with the exception of the FLO premium should you decide to go that route Although Nescafe consumers resemble other instant coffee drinkers in the US, the TC consumer tends to be older (age 55+) than the Classic consumer (age 18-54). Folger's Maxwell Nescafe CrystalsHouseClassic Nescafe starbcks Store Taster's VIA brands Other Choice Percent of instant coffee drinkers who report consuming each brand | 37% | 26% | 21% | 14% 8% 10% 7% in the last 6 months (Source: MRI Retail price per 1 cup Retail price per 100-cup Jar Sold as 8 single-serve packs in a box S0.06 $0.05 $0.10 S0.08 $1.00$0.04 $4.00 NA $6.00 $5.00 $10.00 $8.00 NA NA

2) For Nescafe Taster's Choice, what is the projected variable cost of coffee
beans for a 100-cup jar if you decide to use the FLO Fairtrade mark for
Farmers Blend?

$5.82
$4.66
$2.91
$2.33
$2.00

Answer 1

Answer)

Nescafe classic is sold directly to its retailers. This means that Retail Price is the Sale Price for Nescafe Classic per 100 cup jar, that is, $10.00.

Also given that Contribution Margin for Nescafe Classic is 40%.

This means that Variable cost of Nescafe Classic = (100% - 40% ) of Retail Price = 60% of $10 = $6

Now, $6 is the variable cost of Nescafe Classic.

We are told that coffee beans represent 50% of the Variable Cost of Nescafe Classic.

So, Variable cost of Coffee beans = 50% of $6 = $3

The current (i.e. before Farmers Blend) variable cost of coffee beans for a 100-cup jar is $3.00.