18 Cafe Business Strategies - Essay Example

? TO PLAN A SMALL BUSINESS 18 Cafe – Lot Can Happen Over Food Contents Contents 2 Executive Summary 4 Mission 4 Objectives 5 Business 5 Start up Summary 6 Product/Service 8 Market 8 Market Trends 9 Market Segmentation 10 Key Success Factors 11 SWOT Analysis 12 Competitive Summary 13 Marketing Plan 14 Product 14 Place 15 Promotion 15 Price 16 Management Plan 16 Sales Forecast 17 Financial Plan 18 Break-Even Analysis 19 Cash Flow Forecast 21 Profit and Loss Forecast 22 Balance Sheet Forecast 23 References 25 Executive Summary The rise of globalization has led to the free flow of information to each and every individual on this planet. This has led to the empowerment of the masses and as a matter of concept, brought innovation and entrepreneurship to the forefront of an emerging or even a fully emerged economy. A rise in the entrepreneurship has led to the cropping up of many small and medium enterprises. It’s a time tested fact that every business when it is founded starts on a small note and then grows with time, in order to gain sustainability and maintain competitive advantage in the marketplace. The small businesses are started by identifying and fulfilling the needs of the customer while starting with a very small seed capital. In a similar note, to fulfill the needs of the needs of the youngsters, and busy professionals, who lack the time and space to network and socialize with each other, the concept called 18 Cafe has been developed. 18 Cafe will satisfy the socializing needs of today’s youngsters and busy professionals, while providing a cool, soothing and relaxing ambience of the 18th century, but with the technological connectivity of the 21st century. Mission The mission of 18 Cafe is to provide superior line of products at affordable rates without compromising on the product as well as the service quality. The following figure illustrates the expected figures of net sales, gross profit as well as net profit for 18 Cafe during the first two years of its operations. Figure 1: Expected position during the first two years of operation Objectives The short term objectives of 18 Cafe would be to accomplish sales of ?200,000 in its outlet in the first year and maintain a net profit margin greater than 30% of sales by the end of the year. In the long run, 18 Cafe expects to expand its outlets in UK and subsequently across Africa. Business The globalization of the planet Earth has brought with itself, various advantages to the human life. It has moved on from the era of industrialization in the early 70’s to an era of digitization which began in the late 80’s and finally transformed itself to the era of globalization in the era of late 90’s. People’s lives have increasingly becoming hectic as they try to maintain a descent lifestyle with a descent income. With the rise of middle class families all around the globe along with the pressure of financial crisis on the Euro zone, people around the globe and mostly in the western countries are responding to the pressure on their financial needs by working extra hours or by doing or handling multiple jobs. As a result of this hectic work schedule, social lives of the people are getting hampered. Man is a social animal and the social networking media like Facebook and Twitter has to some extent helped people in connecting with each other. But, the need for physical space is very much essential in spite of the shortage of time for networking in the people’s life. Keeping the need of today’s busy individual in mind, a proper business plan is being built to develop cater to the needs of the human interaction in the real world. So the idea in this business plan is to develop a Wi-Fi cafe that will be serving the purpose of human interaction in the real as well as virtual world, while grabbing some quick bite to please their appetites. The proposed name of the cafe is 18 Cafe. The Cafe is intended to be set up with an initial capital of ?100,000, of which the owner would put in 25% and expected to arrange a bank loan for the remaining 75% capital required for the establishment of the cafe. Start up Summary The start up costs as well as the preliminary financing is shown in the following table. The owner of 18 Cafe intends to invest ?25,000 with personal capital and look for a bank loan worth ?75,000. Start up Expenses Values in ? Legal 850 Stationary 250 Insurance 80 Rent 4000 Furnishing 20000 Equipment 10000 Others 25000 Total 60180 Start up assets Cash Required 5000 Start up Inventory 5000 Other Current Assets Non-Current assets Total Assets 10000 Total Requirements 70180 The start up expenses for 18 Cafe has been represented in the figure below: Product/Service The basic offering in this case is not just a simple product or service. Rather it is a combination of products or services, or rather a bundled offer that will be offered to the individuals. The basic service that will be offered to the customers is generally free web connectivity. Apart from this particular service offering, the cafe will be offering quick bite confectionery products like sandwiches, cakes, cookies, tea, coffee and ice cream. The products will be sub categorized in an effort to suit and cater to the tastes of the individual customers while at the same time offering them more range of choices of food products to choose from. There is another unique service offering that this cafe will be providing to the consumers. The entire cafe will be styled in the 18th century theme, in order to give a nostalgic feeling to the old audience that will be visiting the cafe. Market Depending on the kinds of products being offered, the focus should be on both the confectionery market and the sandwich market in the UK. As per a Keynote report released in the year 2011, the sales in the confectionery market in UK has grown exponentially over the years. In the confectionery market, the sale of chocolate based confectioneries has been the highest. As per the statistics disclosed by the report, the sale of the chocolate confectioneries has grown by as much as 17% while the sale in the sugar based confectioneries has grown by around 6% over a period of 5 years (Keynote, 2011). Not many new brands have entered in the Confectionery market in the recent years, while a lot of existing brands have introduced their best selling products in various new kinds of formats. In order to retain the customer’s interest, some of the existing brands have also re-modified their recipes of their existing products. In the recent times, due to the financial pressure that has dominated the western markets, input costs for the confectionery market has also grown up as a response to this particular international macroeconomic factor. The confectionery market of UK responded to the consumers’ cash strapped situation by coming out with strategies that involved introducing a large number of budget items, offering a wide range of discounts as well as promoting economy packs for the products. The clever mix of strategies employed by the UK confectionery market to help and enable the consumers to beat the economic slowdown helped them to get into a position of high level of consumer penetration. In the UK market, the popularity of sandwiches has also grown to a large extent as compared to its position 10 years earlier. As per data available, the UK market for sandwiches is valued at around 3.5 billion Euros. In the earlier days, the sandwich was seen as a stale food, which was difficult to get also. But, in the recent times, there has been a sea change of attitude towards the sandwich sector. With the increase in health consciousness among people, especially youngsters, the sandwich market has grown up by consumers identifying the product as a better and healthy option as compared to other snack foods that are available in the UK market. Also, as of today, the people feel that it is a cheaper alternative for a lunch time food. Market Trends It has been quite evident that the financial crunch resulting out of the pressures over the Euro zone crisis has slowed down the recovery of the global economy. This in terms of the UK food sector implies that customers will be more and more conscious in spending their finances for fooding and other necessities while increasingly looking for the best deals in an effort to get the value for money. The focus will now shift from the criteria of ‘Value For Money’ to ‘Best Value For Money’. So naturally, the innovations that have been promoted by the UK food industry in terms of packaging of food products like the economy packs, in an effort to empower the customers will be the future trends in the UK food market. Also, the customers will be increasingly looking for more healthier food products in the days to come. Market Segmentation The target segment for the 18 Cafe is multifold. Its product and service offerings are perfectly in sync to cater to the space and taste needs of the youngsters, more preferably college and University students in the age group of 18-25 years. The service offering of web connectivity in the cafe will be highly preferred by the young group of consumers, who prefer hanging out with their friends during the lunch time, or after class hours while maintaining their online presence in the social networking sites like Facebook and Twitter. The cafe can also cater to the busy working professionals who are in the need to grab a quick bite amongst their busy work schedule, while having a light time and discussing some important business issues with their colleagues or friends from work. Finally, the cafe can also attract and appeal to the old people mostly in the above 60 years + range during the morning breakfast hours, where they can come down and spend some leisurely hours, after returning from their morning walks. Figure: Segmentation of the Target Market with respect to age. Key Success Factors There are various key factors that can be considered as highly crucial for the growth and sustainability of the business of 18 Cafe. Firstly, since the target population for 18 Cafe is mostly the college and school going students, as well as the young professionals who have a time crunch, proper positioning of the cafe is very vital. The most advantageous spot for the growth of 18 Cafe is its establishments adjacent to a large office area or schools or large university areas. This will provide the Cafe with a continuous customer flow. Also, the operational timing has to be highly flexible and convenient for the customers, so that they can drop in by the cafe at their leisure time and spend some time, hanging around and munching some snacks from the cafe. The over all economic condition of the country is also a great influencing factor for the growth of the business. With the slowdown in recovery from the financial crisis worldwide as well as in the domestic front, more and more people will prefer opting for cheap and healthy foods, which will in turn help Cafe 18 to grow at a fast pace. Another very crucial factor for the success of this business is that this particular Cafe concept along with its ambience, must provide a wide appeal to the target consumers, more specifically the young college and school going audience of the area. The reason being, once the unique image of 18 Cafe gets established in the minds of these youngsters they will become repeat customers for the Cafe over a period of time. Also, the Cafe will get a lot of free word of mouth recommendation from the youngsters. SWOT Analysis Strengths of 18 Cafe The Cafe would provide superior quality of products as well as services, which would help build its reputation. The ownership of the Cafe would employ excellent management expertise and fine ability of administration to run the business in a smooth way. Weaknesses of 18 Cafe The Cafe being a new setup might not be able to generate elevated preliminary sales owing to credibility issues. The business would require the development of systemised operational as well as marketing methods. Opportunities The Cafe is intended to target the youth and there is an enormously growing segment of market for outlets offerings sandwiches, ice-creams, cakes and other confectionary items in addition to coffee. Hence, 18 Cafe would target these enlarging market segments. Threats Due to the instable economic conditions that are prevalent across the world, the prices of supplies, raw materials and other ingredients required for the business are increasingly rising, hence affecting the profit margin of the business. Competitive Summary The UK market is already a booming area for various fast food and snack outlets like the Burger King, Wimpy, Bagel Nash, and Chicken Cottage. Most of these chains have been in the business of feeding the population of UK with their standardized, popular and widely accepted snacks and fast food products. The long presence in the UK market, coupled with the locational advantage they have achieved in due course of time, through the opening of multiple stores in various parts of the country have provided them with better visibility to the customers. This has also led to increased brand recall for these brands amongst the minds of the customers. Also, the cafe concept of Cafe 18 can come under very close competition can from the well established French styled chain of restaurant outlets, named Cafe Rouge. This particular cafe can emerge as a very big competitor for the cafe format, which 18 Cafe is trying to promote. One unique advantage that 18 Cafe will have over its competitors is that 18 Cafe is offering a lot of discounts, value based products as well as products in various economy packs, which might cater to the needs of the customers in a much better and economical manner and may even tempt the customers to become loyal customers and visit the store again and again for multiple number of repeat purchases. Another unique advantage that 18 Cafe can have over its competitors is that the customers of UK are increasingly becoming more and more health conscious and will prefer fresh and healthy food products like sandwiches and fresh cakes, rather than opting for fast food and snack products with unhealthy amounts of cheese and oil with high calorie contents. Marketing Plan Product The product offering will comprise of mainly sandwich and confectionery items like sandwiches, cakes, cookies, tea, coffee and ice cream. There will be multiple varieties for the items that are on offer for the consumers. For the sandwich segment, there will be a wide range of variety like cheese sandwich, chicken sandwich, egg-chicken sandwich, all green sandwiches, and salad sandwich. For the cake segment, the varieties will comprise of categories like muffins, jam cakes, chocolate cakes, eggless cakes, pastries etc. For the tea section, the offerings will comprise of iced tea, black tea, organic tea. For the coffee section, there will be similar offering like mochachino coffee, cappuccino coffee, cold coffee, extra cream coffee etc. For the ice – cream section, there will be various deals on offer. The ice-cream will be offered mostly on four different flavors like vanilla, chocolate, raspberry and butterscotch. Also, apart from the usual offerings, on special requests from the consumers, special home packaging of food products will also be offered for the benefit and convenience of the consumers. Place The hospitality and food sector has an uncanny resemblance to the infrastructure sector. For both the sectors, location and locational advantage is of prime importance for the success of the ventures. This is similar in the case of 18 Cafe. Proper and right identification of target market is essential accompanied by choosing the right spot to set up shop. In the food segment, unless a food outlet is visible, the product or service offerings of that particular outlet will simply not sell. So in an effort to ensure the product and service offerings of 18 Cafe are in high demand of the targeted consumer segment, the Cafe should be located in a place where there are a lot of offices or near a university area. The concept cafe is will be a big hit, if it is located in a University campus or just in an office area, which houses a lot of offices. The setup of the cafe in an office area will provide a steady stream of office professionals during the lunch time, where as a setup near the university area will provide a steady inflow of young customers at all times of the day, irrespective of the hour. It is advisable that Cafe 18 should open multiple outlets, at least a minimum of 2 and position each of them near a university and an office area to gain the maximum rewards for the needs it is trying to fulfil and the product and service it is offering. Promotion The promotion of 18 Cafe has to be done in a proper fashion so that the promotional campaigns appeals to the target segment comprising mostly of youngsters in the age group 18-25 and also the working professionals. The promotion has to be done by positioning the ads in various segments. The best way to go for promoting the Cafe is by advertising through bill board posters near the universities and office areas, promoting and sponsoring college level competition and fests. Also, the Cafe can provide ads on YouTube, the sites of which will be displayed at the bottom of the bill board posters. The cafe can also opt for a tricky marketing technique, popularly referred to as viral marketing. In an attempt to opt for viral marketing strategy, the cafe can design small mobile applets and push it to the youngsters in the designated age group via email or SMS links directly to their mobiles. This will generate a lot of awareness among the target group. Also, promoting the brand via social networking sites like Facebook and Twitter will generate some buzz and level of curiosity amongst the youngsters. In an effort to bring the cafe into notice, the cafe can also promote itself by giving ad videos on news channels during the prime hours. Price Determining the price of the product in the food business is the trickiest part of being in this business. The competition arising out of threats from substitutes is huge as there are multiple number of food outlets, both branded and non branded present in a location. So as a tact to attract and lure in customers, it will be wise to keep the price of its products very low, just to cover the input costs, and then once the inflow of consumers rise up and the brand gets recognition and recall in the minds of the consumers, 18 Cafe can simply raise the prices of its product offering to make up for the lost profits. Management Plan For an effective management of the small business of 18 Cafe, it is very essential to split up the manpower into various teams who will be responsible for handling the various divisional aspects required to successfully run the business. The entire business should be broadly classified into 4 divisions – Marketing, Finance, Operations and Human Resource. The marketing division will be responsible for promoting and developing the brand of 18 Cafe. They should be responsible for developing consumer connect of the brand with the designated and targeted segment. A part of their job is also to forecast the sales for every month and quarter. Better sales forecast by the marketing team will lead to better and more efficient use of resources and may lead to low wastage of the inputs which will definitely be highly beneficial and profitable for the business. The finance team should be handling the financial aspects of the business and should keep a track of profit and loss accounts and other key financial aspects. The Operations division will have a major role in this case. 18 Cafe being in the food business has to count quality as a vital factor. Failure to provide good quality food at low prices will prove to be detrimental for the growth of the business. So the prime role of the Operations division will be to provide smooth operations in the counter front, while efficiently managing the backend operations like maintaining quality, negotiating with vendors, handling input issues etc. The human resource division should look into the motivational issues of the employees, while handling their monthly payments, overtime dues etc. Sales Forecast Sales We would assume that the Cafe can hold 500 units of products with a retail value of ?750 (where the average price per unit of product is ? 1.5). If the outlet of 18 Cafe is stocked on a daily basis, them the outlet can be expected to generate expected revenue in the range of ?500 to ?750 every day. Again, if we consider that the outlet of 18 Cafe is open for business for about 360 days a year; this would imply that the outlet would generate around ?180,000 (on the basis of ?500/day) to ?270,000 (on the basis of ?750/day). Expenditures The stocking up of the outlet with products would necessitate an arrangement of delivery vehicle and drivers. Additionally the day to day operations would require paper bags as well as package boxes in addition to the cost of ingredients and manufacturing cost. Let us assume that the total estimated expense per day for the outlet of the Cafe would be approximately around ?400 per day. Income If we assume that the average annual revenue generated by the outlet of 18 Cafe is ?250,000 and that the operating margin of the company is 40%, the outlet would earn a profit of ?150,000. Fund Requirement Nevertheless, the Cafe will have to pay a yearly rent in addition to the funds required to set up the outlet. The expense for the initial outlet of 18 Cafe would be around ?8,000 (which comprise of ? 4000 rent per year and the expenditure for furniture and settings). Conclusion Hence, assuming that 18 Cafe sets up its first outlet in UK in the first year and it generate a gross profit of ?150,000 per year; the annual capital expenses of the Cafe for this outlet would be ?8,000. Thus, the actual estimated profit of the Cafe in its first year of operations in UK would be ?142,000. Financial Plan The financial plan of 18 Cafe would play a crucial role as it would form the very foundation on which the company would form its business structure. It would also depend on the financial plan of the Cafe how it exercises the other financial instruments, for instance forecasts and budgets. The Cafe intends to start up its business with an initial capital of ?100,000, of which it is estimated that around ?80,000 would be the start up cost. The financial objectives of the Cafe should be formulated keeping in mind the business profitability, liquidity status as well as the monetary stability of the business. The financial plan of 18 Cafe would be: 1. To accomplish sales of ?200,000 in its outlet in the first year 2. To maintain a net profit margin greater than 30% of sales by the end of the year. These financial goals of the Cafe are based on two important considerations. First, it is expected that there would be incessant decline in the cost of sales and rise in the percentage of profit margin, as 18 Cafe sets up more outlets in the United Kingdom and then subsequently in Africa. As the Cafe develops and its market position strengthens, it would reduce the extent of outsourcing. Thus, with the expansion of the business, 18 Cafe would take up more staffs and associates. Second, it is anticipated that the expenses associated with advertising and marketing would also decrease over the years. Break-Even Analysis The break even analysis of 18 Cafe would be conducted for a time frame of one year. As already discussed in the Sales forecast, the estimated average sales price of a product unit of the Cafe is ?1.5. For the analysis, let us assume that the fixed expenses associated with production of the sandwiches, cakes, cookies, ice creams and other products are ?0.25 per unit of product. Additionally the variable expenses such as the price of raw materials and ingredients are estimated to be ?.035 per unit. It is expected that the outlet of 18 Cafe would sell on an average around 12,000 units of products per month over the period of one year. By considering all these values into the formulas, we can conduct a breakeven examination. The yearly expected unit sale of an 18 Cafe outlet is 12,000 x 12 = 144,000. Thus, the total variable expenses would be 144,000 x ?.35 = ?50,400. Likewise, the fixed expenses over the period of one year would be, (?.25 x 12,000) x 12 = ?36,000. Consequently, the total expenditure of 18 Cafe for the one year time period would be, ?50,400 + ?36,000 = ?86,400. The estimated revenue for each the outlet of 18 Cafe over one year is 144,000 x ?1.50 = ?216,000. As a result, the Profit or Loss for the year would be ?216,000 – ?86,400 = ?129,600 Therefore, Breakeven Point for 18 Cafe = ?36,000 / (1.50 - 0.35) = 31,305 units (approximately) This indicates that the 18 Cafe will have to sell around 31,305 units of products with the purpose of breaking even. The break even sales value for the Cafe would be (31,305 x ?1.50) = ?46957.5. Since, 18 Cafe is expected to sell around 12,000 units of products every month, hence it is likely that it would break even during the third month of its operations in the United Kingdom. Cash Flow Forecast (All Values in ?) Year 1 Year 2 Cash Flow from Operating Activities Cash Receipt from Customers 216000 250000 Cash Paid to employees and suppliers (86400) (100000) Net Cash Flow generated from Operations 129600 150000 Cash Flow from Investing Activities Furniture and Equipments (25000) (1000) Replacement of old equipments 0 (6000) Proceeds 0 2000 Net Cash Flow from Investing Activities (25000) (5000) Cash Flow from Financing Activities Proceeds from contributed Capital 5000 6000 Loan Proceeds 15000 12000 Loan Payments (5000) (5000) Net Cash Flow from financing activities 10000 13000 Profit and Loss Forecast Income Statement Year1 Year 2 (Values in ?) Net revenues 216000 250000 Cost of revenues 86400 100000 Gross profit 129600 150000 Operating expenses: Sales & Marketing 80000 85000 General and Admin 47000 49000 Annual Rent 8000 8000 Net income (5400) 8000 Balance Sheet Forecast Balance Sheet of 18 Cafe (Values in ?) ASSETS Current Assets:  Year 1  Year 2 Cash & Cash Equivalents  5000  5200 Marketable Securities     Accounts Receivable  10000  9000 Inventories  4000  5000 Prepaid Expenses  1200  1400 Total Current Assets  20200  20600       Fixed Assets  24000  24000 Intangible Assets  18000  18000 Investments  0  5000 Other Non-current Assets  20000  21000       TOTAL ASSETS  82200  88600       LIABILITIES Current Liabilities:  Year 1 Year 2  Accounts Payable  1500  1600 Accrued Expenses     Short-term Loans  2000  3500 Current Portion of LT Debt  2000  2500 Income Taxes Payable  1000  1000 Total Current Liabilities  6500  7000       Non-current Liabilities:     Line of Credit  30000  32000 Term Loan  18000  18000 Total Non-current Liabilities  48000  50000 TOTAL LIABILITIES  54500  58600       EQUITY Capital  20000  21000 Retained Earnings  7700  9000 TOTAL EQUITY  27700  30000       TOTAL LIABILITIES & EQUITY  82200   88600 References Keynote, 2011. Executive Summary. 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