EasyInternetcafe Logistics Outsourcing Strategy
This case study examines EasyInternetcafe's strategic pivot from large company-owned cafes to a franchise model with outsourced logistics operations. Following cumulative losses of £80–100 million after the dotcom collapse, EIC restructured its business to focus on core competencies in yield management while delegating logistics to external providers. The paper evaluates four logistics outsourcing alternatives—Ingram Micro, Globalserve, UPS Global Logistics, and Exel—against decision criteria including cost-effectiveness, growth opportunity, operational efficiency, and economies of scale. Through SWOT analysis and quantitative assessment, the study concludes that Ingram Micro represents the optimal solution, enabling EIC to reduce per-store logistics costs and labor expenses while maintaining strategic control through collaborative governance.
- Issue Identification: Strategic and tactical problems facing EIC after dotcom collapse
- Root Cause Analysis: SWOT analysis and quantitative assessment of current logistics crisis
- Alternative Options and Evaluation: Four logistics providers evaluated on cost, efficiency, and strategic fit
- Recommendations and Implementation: Selection of Ingram Micro and franchise model execution plan
- Monitoring and Strategic Control: Governance framework for outsourced logistics oversight
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What makes this paper effective
- Clear problem framing: Establishes the financial crisis (£80–100 million in losses) and operational bottleneck (logistics) upfront, making the urgency of restructuring self-evident.
- Structured decision analysis: Uses a formal alternatives framework (four named providers) evaluated against explicit criteria (cost, growth, efficiency, profitability, core competence, economies of scale), making the comparison transparent and replicable.
- Quantitative rigor: Provides concrete cost breakdowns per store (£560 vs. £1,875 vs. £1,110 vs. £1,434) and annual projections (208 stores/year), anchoring recommendations in data rather than opinion.
- SWOT integration: The SWOT analysis directly supports the decision to outsource, linking strategic weaknesses (high fixed costs, no operating plan) to concrete outsourcing benefits (eliminating capital drain, focusing on yield management).
Key academic technique demonstrated
This paper exemplifies the case-based decision analysis methodology common in business strategy and operations management. It combines qualitative strategic context (SWOT, root cause analysis) with quantitative comparative evaluation (cost per store, annual labor savings) to justify a complex operational decision. The technique is particularly strong in its use of decision criteria as an explicit filter: each alternative is judged against the same six benchmarks, eliminating subjective bias and enabling stakeholders to trace how Ingram Micro emerged as the preferred choice.
Structure breakdown
The paper follows a diagnostic-to-prescriptive arc. It opens with the executive summary and issue identification (problem and urgency), then pivots to root cause analysis (why the current model failed—high fixed costs, logistics bottleneck, misalignment with core competencies). The heart of the paper is the alternatives section, which lists four real logistics providers and evaluates their pros and cons against six decision criteria. The recommendation flows naturally from this evaluation, and the implementation and monitoring sections address execution risk and governance. This structure mirrors a management consulting report: define problem → analyze root causes → generate and screen alternatives → recommend → implement.
Issue Identification
Strategic Issues – Long Term
EasyInternetcafe (EIC) has been experiencing severe financial difficulty after the dotcom bubble burst. Despite strong public support and brand recognition, the company's cumulative losses have reached £80–100 million. The original concept of operating large stand-alone cafes with 250–600 PC terminals proved unsustainable, requiring fundamental business restructuring. The company's new strategy calls for smaller franchised locations with approximately 20–30 PC terminals, operated with minimal staff to reduce fixed costs and capital requirements.
Tactical Issues – Short Term
Three immediate operational challenges have been identified:
- The current in-house logistics operation represents a critical bottleneck and is a primary driver of ongoing losses at EIC.
- Management cannot focus on core competencies—particularly yield management—due to excessive involvement in operational logistics activities.
- Original capital investments were not justified by revenue, as break-even thresholds for large single locations were unattainably high.
Root Cause Analysis
Strategic Perspective
Management has recognized fundamental flaws in the existing business model and initiated a comprehensive change strategy. The company will transition from company ownership to a franchisee-based model, where franchisees assume the capital costs of property and hardware. This approach is designed to eliminate ongoing capital drain on the parent company.
The new operational model features smaller stores (20–30 PC terminals) with minimal staffing, supported by an aggressive growth plan targeting 10 new store openings per week over the next two to three years. The company has committed to returning to its core competency in yield management—the science of optimizing revenue per unit of capacity—while outsourcing all non-core activities, particularly logistics.
Strengths
- Deep expertise in yield management and dynamic pricing models
- Founded and promoted by well-renowned Greek entrepreneur Stelios Haji-Ioannou, providing brand credibility and entrepreneurial vision
- Ability to offer consumers internet access at the lowest cost in the market
- Established position as Europe's leading internet cafe brand, with global presence
- Recognition as the world's largest internet cafe operator at its peak
- Strong public goodwill and brand loyalty
- Multiple industry accolades for innovation, marketing, technology adoption, and retail property selection
Weaknesses
- Vulnerability to the dotcom market collapse and technology sector downturn
- Necessity to downsize operations significantly
- Absence of a documented operating plan for the new franchise model
- High initial capital investments and inflexible fixed cost structure
- Historical pattern of investment-heavy decisions without commensurate returns
- Revenue growth expectations that failed to materialize
- Extremely high break-even thresholds for individual large locations
Opportunities
- Complete operational restructuring and process redesign
- Elimination of future capital investment requirements by shifting property and hardware costs to franchisees
- Substantial reduction in capital drain on the parent company
- Shift toward smaller, more capital-efficient store formats
- Rapid growth acceleration through franchise expansion (10 stores per week)
- Development of unmanned or minimally staffed internet cafes, reducing labor costs
- Consistent brand image across all locations through venture capital-backed standardization
- Return to core competencies through outsourcing of non-strategic logistics functions
Threats
- Loss of direct control over logistics operations following outsourcing, creating dependency risk
- Critical need for logistics providers to deliver robust, efficient, and flexible service to support rapid expansion and cost control
- Risk that logistics becomes a growth bottleneck and continuing source of high costs and losses if the wrong provider is selected
Quantitative Analysis – Current Situation
Financial analysis reveals the urgency of operational change:
- Current in-house logistics cost per new store opening: £130 (excluding outbound transport to franchisee)
- Current labor costs: £602 per store
- Planned expansion rate: 4 new franchises per week for three years (approximately 208 stores annually)
- Total annual in-house logistics costs: approximately £270,000, including annual labor costs of £125,250
Qualitative Assessment
EIC must achieve profitability within nine months or face forced closure. Growth and cost-effective logistics operations are essential to company survival. The business must immediately outsource non-core activities, including logistics, to redirect management focus and capital toward revenue-generating core competencies.
Alternative Options and Evaluation
Decision Criteria
Four key decision criteria were established to evaluate logistics outsourcing alternatives:
- Cost-effectiveness of the logistics solution
- Opportunity for rapid growth and new store openings
- Operational efficiency and process quality
- Contribution to overall company profitability and revenue
- Alignment with core competencies (outsourcing of non-core functions)
- Ability to achieve economies of scale
Alternative 1: Ingram Micro
Advantages:
- Ingram Micro is a mature technology products and services provider with expertise in supply chain management
- Offers complete integrated solutions including procurement, warehouse facilities, transportation, returns management, and computer configuration services
- Provides direct billing services to franchisees and payment collection services
- Maintains strong relationships with IT suppliers and vendors
- Offers no-charge warehousing, order management, stocking, and kitting services, eliminating the majority of logistics costs
- Total cost per store: £560 (£179 logistics cost + £381 EIC labor cost)
Disadvantages:
- Currently limited to direct payment collection in certain European countries; EIC must collect payments in other regions
- Earns a markup percentage on products supplied to franchisees
Alternative 2: Globalserve
Advantages:
- Provides complete IT supply chain services globally, including IT procurement
- Operates through 260 country-based Value Added Resellers (VARs), enabling significant economies of scale
- Consolidates products for localized delivery to franchisees
- Charges transparent transaction fees (3.25%) and local reseller markups (5%) based on equipment purchase value
- Total cost per store: £1,875 plus £381 EIC labor costs, totaling £2,256
Disadvantages:
- Does not directly supply products; instead operates through third-party VARs, adding layers to the delivery process and extending timelines
- Requires one-off service setup fee of £10,000 and £2,000 country-specific setup costs, increasing initial capital requirements
Alternative 3: UPS Global Logistics
Advantages:
- UPS operates warehouse facilities, reducing EIC labor costs to £477 per store (from £602)
- Total implementation cost: £1,110 per store (£633 logistics + £477 EIC labor)
Disadvantages:
- EIC must procure equipment independently and arrange shipping to the UPS warehouse, adding operational complexity
- Does not provide direct billing services to franchisees; EIC must purchase equipment from suppliers and assume ownership and capital risk
- EIC must manage consolidated invoicing for outbound delivery and collect payment directly from franchisees, creating administrative burden
Alternative 4: Exel
Advantages:
- Offers services comparable to UPS with the added benefit of supplier management services
- Assigns two dedicated personnel to manage the EIC account
- Manages current inventory, forecasts store openings, manages purchasing requirements, handles delivery and returns, and audits invoices
- Arranges inbound logistics to a merge-in-transit consolidation facility
- Provides computer configuration services
- Total estimated cost: £1,434 per store (£957 logistics + £477 EIC labor costs)
Disadvantages:
- Does not bill franchisees directly for equipment and logistics costs; EIC retains this responsibility
- Requires EIC to manage billing and payment collection from franchisees
- Annual account management cost: £57,000, adding significant fixed overhead
Comparative Cost Analysis
When evaluated against the four alternatives, cost differences are substantial. Ingram Micro's total per-store cost of £560 is substantially lower than all alternatives: Globalserve at £2,256 (4x higher), UPS at £1,110 (2x higher), and Exel at £1,434 (2.5x higher). Over the planned expansion of 208 new stores annually, this cost differential translates to annual savings of over £350,000 with Ingram Micro compared to Globalserve, the next-lowest-cost option in most scenarios.
Recommendations and Implementation
Recommended Strategy: Ingram Micro Partnership
Based on comprehensive evaluation against the six decision criteria, Ingram Micro emerges as the optimal logistics outsourcing partner for EasyInternetcafe. The recommendation is grounded in four primary factors:
Cost Leadership: At £560 per store, Ingram Micro's total cost is the lowest among all four alternatives by a significant margin, directly supporting EIC's critical objective of returning to profitability within nine months.
Integrated Service Delivery: Ingram Micro's end-to-end supply chain solution—encompassing procurement, warehousing, transportation, returns management, and configuration—eliminates the operational complexity and administrative burden that competitors impose on EIC. The no-charge warehousing and inventory management services provide additional cost relief unavailable from other providers.
Direct Franchisee Billing: Ingram Micro's ability to bill franchisees directly and collect payments reduces EIC's working capital requirements and administrative overhead, enabling the company to maintain focus on yield management rather than logistics administration.
Growth Enablement: The cost-effective model directly supports the aggressive growth target of 10 new stores per week. Lower per-store logistics costs mean each new opening contributes to profitability rather than accumulating losses, a critical requirement for the franchise model's success.
Implementation Approach
Implementation of the Ingram Micro partnership should proceed through three coordinated workstreams:
Phase 1 – Transition Planning (Weeks 1–4): Establish detailed service level agreements with Ingram Micro, define data integration requirements, and establish governance protocols. EIC management and Ingram Micro leadership should jointly design the operational handoff from in-house logistics to the provider.
Phase 2 – Pilot Deployment (Weeks 5–12): Begin Ingram Micro logistics support for new franchisees in a limited geographic market, enabling refinement of processes before full-scale rollout. Monitor cost performance and service quality metrics closely during this phase.
Phase 3 – Full-Scale Expansion (Weeks 13+): Roll out Ingram Micro support across all new store openings, targeting the 10-stores-per-week growth objective. Simultaneously migrate logistics for existing company-operated stores to Ingram Micro where operationally feasible.
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