Reference no: EM132290704

CASE STUDY Forster's Market Introduction Forster's Market is a retailer of specialty food items, including premium coffees, imported crackers and cheeses, and the like. Last year, Forster's sold 14, 400 pounds of coffee. Forster's pays a local supplier dollar 3 per pound and then sells the coffees for dollar 7 a pound. The Roaster Decision While Forster's makes a handsome profit on the coffee business, owner Robbie Forster thinks he can do better. Specifically, Robbie is considering investing in a large industrial-sized coffee roaster that can roast up to 40,000 pounds per year. By roasting the coffee himself, Robbie will be able to cut his coffee costs to dollar 1.60 a pound. The drawback is that the roaster will be quite expensive; fixed costs (including the lease, power, training, and additional labor) will run about dollar 35,000 a year. The roaster capacity will also be significantly more than the 14, 400 pounds that Forster's needs. However, Robbie thinks he will be able to sell coffee to area restaurants and coffee shops for dollar 2.90 a pound. Robbie has outlined three possible demand scenarios: Low demand Medium demand High demand 18.000 pounds per year 25.000 pounds per year 35.000 pounds per year These numbers include the 14, 400 pounds sold at Forster's Market. In addition, Robbie thinks all three scenarios are equally likely.

1. What is the best and worst possible financial outcome for Forster's? What other factors- core competency, strategic flexibility, etc.-should Robbie consider when making this decision?