EC

Coffee Contract

Role of East Coast V.P. of Sales(w), Anderson Coffee

By Tony Simons & Thomas Tripp

You are Pat Hammer, East Coast Vice President of Sales for Anderson Coffee. You have been invited to meet with Sandy Grant, Food & Beverage Director for the Statler Hotel in Ithaca, New York. The hotel is scenically located near the center of the Cornell University campus and is attached to the renowned School of Hotel Administration. When Grant called you, he (she) expressed interest in Anderson’s Product, but seemed very concerned about the price. Two months ago, you received a request for bids for coffee suppliers for the contract that runs July 2003 through June 2004. A copy of the request for bids is attached. You responded to the request with a bid and a packet of promotional materials. As July approached, you figured Anderson was no longer under consideration. You were surprised and pleased to be invited to meet with Grant. The coffee industry is, in many ways, risky. You depend on weather patterns and on third-world politics for your production. However, modern technology has dramatically reduced the perishability of your product. Further, Anderson’s extensive lines of flavored coffees have sold well. Anderson also offers its customers advanced clinics and consultations on coffee brewing and water filtration. A recent letter from a major chain of pancake houses attests to the positive results of these clinics and to the fact that customers appreciate them. Despite your product’s quality, though, demand for Anderson coffee this year has fluctuated. Overall, sales have been slightly lower this year than last. You know that your product is higher-priced than that of many of your competitors. This difference makes sense because you pay more for your beans and support extensive research and development efforts on the growing, processing, and brewing of coffee. Further, your company has a commitment to paying independent coffee farmers a fair price that allows them to earn a living wage. These substantial

costs have, you believe, paid off in Anderson’s superior coffee and reputation. The Statler Hotel account would be very nice from a publicity standpoint, as it serves (and is staffed by) many current and future hospitality managers. However, the volume, at 10,000 pounds annually (approximately 4,545 kilograms), is only moderate. You do not have other customers in the Central New York area, so shipping alone would cost you close to $0.80/lb. You know that Anderson sells at close to cost — $5.93/lb. — to a few very major consumers who are also conveniently located. However, your selling price to most restaurants is $8.10/lb. You feel that your bid price represents a reasonable discount. The CEO of Anderson Coffee, R.N. Hatch, has told you that you should not accept any deal for less than $6.50/lb. This price represents a loss of about $0.20/ lb. Mr. Hatch figures that this loss, multiplied by 10,000 pounds, represents a $2,000 investment in publicity. However, every penny you are able to add to the per-pound price will translate to a personal commission of $50. Summary of Key Points All prices include delivery

Anderson Price Stated on Bid, including delivery (Price includes delivery cost: 0.80/lb. due to low volume in the area)

$7.94/lb

Standard Restaurant Price, delivered $8.10/lb.

Best Price Offered to Largest Customer $5.93/lb

Annual Quantity 10,000 lbs

Worst deal acceptable $6.50/lb.

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2 Coffee Contract/Role of VP of Sales(w)

STATLER HOTEL, CORNELL UNIVERSITY REQUEST FOR BID

The following bid request is for coffee products and coffee related services. The requested time frame is for a one year period beginning July 1, 2003 through June 30, 2004. Please review the enclosed details that may affect the bid price. PRODUCT: Colombian Coffee. Product shall be 100% Colombian coffee. Coffee will be provided in grind form appropriate for the equipment owned by the Statler Hotel. PACKAGING: The above items should be available in both 12 ounce and 2 ounce packets. The individual packets should be gas-flushed or vacuum packed to maintain a shelf life of up to 6 months. EQUIPMENT: The Statler Hotel currently owns their own coffee equipment with the exception of 3 Bunn-0-Matic ten cup pour over machines. It is expected that the company awarded the bid will supply the hotel with the above equipment at no charge while under contract. Furthermore, it is expected that coffee filters are provided at no charge for all coffee machines. EQUIPMENT REPAIRS/SERVICE: It is expected that the vendor will provide service repairs on coffee machines at no charge. Any parts needed for the coffee machines owned by the Statler Hotel will be the responsibility of the Statler. ORDERS/DELIVERY SCHEUDLE: To be discussed once the bid has been awarded to vendor. The minimum requirement is one delivery per 14 days although one delivery per week is optimal and preferred. PRICING: Prices quoted are to remain in effect for the length of the contract beginning July 1, 2003 through June 30, 2004. CANCELLATION CLAUSE: Vendor may terminate the awarded contract upon 60 days written notice with a copy to both the Food and Beverage Director and the Purchasing Director of the Hotel. Statler Hotel may terminate the awarded contract upon 60 days written notice to the vendor. ACCEPTANCE TIME FRAME: Please submit your bid to James Robinnet, Purchasing Director of the Statler Hotel no later than June 1, 2003. In order for your company to calculate an appropriate price per pound for the coffee to be bid on, please note our annual usage this past year was approximately ten thousand pounds. In addition to the above, the Statler Hotel purchases flavored and decaffeinated coffees. In addition to the above bid, please enclose a product/price list of the flavored coffees offered by your company. If you have any questions in regards to this bid, please contact James Robinnet at 607-254-xxxx Thank you.