Johnson Bakers Business Strategies - Essay Example

Business Plan Bakery Executive Summary The aim of this paper is to provide a business plan forJohnson Bakers, which plans to open its bakery shop in London. Johnson Bakers is a private company that is owned by two individual partners. Johnson Bakers attempts to provide its customers with various products like cakes, biscuits, pastries, coffee, etc. The expectation of the company is that it will be able to pay off loan in next five years because of their increasing sales to be expected in next two years. The paper will discuss about the competitive analysis of the business and it will include SWOT analysis, Porter’s Forces and Pest Analysis. Marketing strategies and financial plans are also a part of this report. Forecast of profit and loss account, cash flows and balance sheet for three years is also provided in this report. Business Plan Bakery Introduction of Johnson Bakers Johnson Bakers is planning to start new business in London. There are two partners named Michael Johnson and Peter Johnson. Michael Johnson is expert in marketing the products and Peter has expertise in operational activities. They both decided to start new business with equal investment and with a profit sharing ratio of 1:1. The aim of the business is to provide bakery products and services overall London. It is the priority of the company to provide fresh and high quality to its customers. New business needs to promote its product in market as it is planning to manufacture bakery products that are available to all. Initially, the company is planning to introduce some of its key products like cakes, biscuits, coffee and bread. As this is a private partnership of two individuals, it is difficult to control the operations of the business. Peter is allowed to control the accounts and other operational activities of business. Mr. Michael will start its work from the beginning and will continue to work till the achievements of the objectives. Following are the objectives of the company: To capture large market of London To supply products all over the city. To provide huge variety of products UK market is effective for providing hot beverages to the customers. The weather of the country remains cold over the year so the products are widely used in the country. London is a metropolitan city and the lovers of coffee are mostly available there. There are many bakery products available in the market that attracts the public of London. Variety of products is available in the market but Brand recognition proves to be vital for this type of business. It is necessary o analyse the market of UK so that strategies could be made to survive in the competitive market where there are large number of suppliers of the products. Marketing and promotion is a necessary part for introducing new product in the market. It is difficult for the company to achieve its objectives based on the market conditions (Bititci & Carrie, 2013). Market is highly competitive and cheap products are also available. The aim of the company is to manufacture high quality products at low cost so that the company would achieve its objective of capturing customers. Services are also important in this business because the customer mainly attract due to effective services (Stolt, 2010). Making relationship with customers is necessary because there is a need to maintain large number of regular customers. It is observed that tourist comes in the city so the market of UK is also effective to provide products and services to tourists. The company expectation is positive towards capturing large number of consumers to the products. Tourists love to enjoy the products in the cold weather and they attract towards the environment and fresh products to enjoy the weather of the city (Pakroo, 2014). Financial Considerations The company has equity of £120000 invested equally by each partner. Further £130000 is borrowed from the bank as a business loan. The estimated revenue for the company is low to the cost in the first quarter because there is a need to promote the products in the market. Expenses will incur more in the first two quarter because there would be large expenditures on marketing and sales. The company would be able to be at breakeven position in the third quarter and would be able to generate profit at the year-end. The next year will prove to be the best yea for the company as the customers will trust on the brand and there would be o issue for increasing the sales of the products (Stolt, 2010). Mission Johnson Bakers’ mission is to supply high quality products at low prices to build trust and to make regular customers to ensure their stability in the long run. Key to Success Following are two key points that will prove successful for the business in long run: Providing High Quality and fresh products Competitive Price The company has to focus on coffee specially to achieve success in business. The prices that are prevailing in the market are competitive. The company has to focus on the price system so that they could easily capture the market. The company will be able to achieve its primary objective by offering coffee and pastry products at competitive prices. If the company would charge high prices for the product in the first year, it will not be able to gain customers attention as the business is newly open in the market of London (Stolt, 2010). Company Summary Johnson Bakers is a private company that is owned by two individual partners. It is a new business that is to be start in London. Both the partners are investing equal amounts to start their business in the city and they borrow the rest of the amount. The expectation of the company is that it will be able to pay off loan in next five years because of their increasing sales to be expected in next two years. The company need to focus on marketing their products in the market for at least six months so to acknowledge the public that new brand is available in the market at relatively low prices. The company would be able to recover the expenses in next two years as the impact of these marketing strategies will be seen in next two to three years (Stolt, 2010). Start-up Cost Two partners own the company and a substantial amount is borrowed from bank. The loan is expected to be paid off within five years because it is a long-term loan for business. The company has to utilize its available resources in an effective manner so that the company could be able to pay off the loan in few years. There is a need to purchase fixed assets for the new business so the estimated cost is necessary to maintain for the business (Peri H. Pakroo, 2014). The cash invested in the company will purchase these assets. The company has enough cash brought by its owners and borrowed from bank (Stolt, 2010). It is estimated that equipment are required for £45000 that is to be purchase from available cash. Current assets including cash are required to make routine payments of raw materials and expenses. The company has to retain cash of £39000 to meet daily and monthly expenditures of business. The company has to incur much cost on marketing and promotion because it is a new business with different products. There is a requirement of advertising the new bakers to inform the public of the city and tourists to visit the bakers. Johnson Bakers require £10000 for advertising the product. The cost is high but it is necessary to run a campaign for marketing or to advertise on print, electronic and social media so people could be aware of the new product available in their city. The cost will be incurred for six months so that the product will be supplied side by side to lead the people to taste the products of the new bakers (Stolt, 2010). Products of Johnson Bakers Johnson Bakers products include bread, coffee, cakes, pastry, biscuits, sandwiches, and others. The company’s policy is to provide fresh products to its customers to build relationship and trust. Freshness will attract customers to visit the bakers again and again to become regular consumers of the products. The operations of the manufacturing department will have complete control over the freshness and quality of the product. The company will ensure that there is proper check and balance on the quality with a commitment that it will not compromise on the customer priority for the fresh and healthy product. It is the responsibility of the owner to check and inspect three times a day by visiting the area in which these products are manufactured. Johnson Bakers is committed to offer variety of products in their bakery and the strategy will be completely followed by the company in next two to three years. The variety means to offer products at different prices for different customers in accordance with the quality. It should be noted that the company has to low the prices of the products manufacture by them because the business has to suffer for at least one year. The reason is to retain customers and entertain tourists to have a taste of products that will increase the range of the customers. People come from different parts of the country to enjoy the weather and food products demand is high in the market. The company’s mission is to provide low prices products to its customers. It is important to note that the company will provide high quality of pastry and coffee at reasonable prices. It is noted that there is high competition of coffee products in the market of UK. Mostly the competitors are supplying the products in London. The targeted customers of the company will be lower and upper middle class families those usually want to enjoy high quality product at reasonable price. Tourists will also encourage visiting the bakers on account of availability of high quality products at low prices. Competition prevailing in the market also suggests that prices must be low so that the customers attract towards to the bakers. If the company wants to achieve its aim of high quality products at low prices, it has to sell the product at reasonable price. The lovers of coffee will attract towards the products on account of their availability at low price. Providing cheap prices products and services in the city will make regular customers. Competitive Analysis To make a marketing plan it is important for a company to determine competitive analysis. By carrying out the competitive analysis a company can identify those products and services that are unique and can provide an edge over the customers. Competitive advantage can be measured through various tools, few of them are mentioned below (Ferrell & Hartline, 2012). SWOT To evaluate the strengths, weaknesses, opportunities and threats of a business SWOT analysis of the business is conducted. Strengths and weaknesses are internal analysis of the business whereas the external analysis of the business is determined through opportunities and threats. The SWOT Analysis of Johnson Bakers is below (Magretta, 2013). Strengths It is a part of the internal analysis, which determines the quality, or strength, which Johnson Bakers has and can use against its competitors. Ambience of the place is one of the biggest strengths of Johnson Bakers. The environment is pleasant and gives a native touch to the place. As it is built on a large scale, it can accommodate 60 customers at a time and has 5 cash counters so the customers do not have to wait for a long time. The location of Johnson Bakers is in the middle of London, and there are several offices nearby. The location is also the strength as people have an easy access to the bakery and people working in the nearby offices usually purchase goods from this bakery (Magretta, 2013). Various varieties of cakes, biscuit, pastries and coffee of high quality are also the strengths of Johnson Bakers. High quality products and innovation in making cakes and biscuits attracts the attention of the customers towards it. Furthermore, Johnson Bakers uses technology in producing the goods, which helps in reducing the cost of the goods and increases the quantity of the goods as well. Use of technology is the strength of the bakery as it eases the entire process of manufacturing. In addition to it, experienced staff that have expertise in making good quality and innovative goods is hired. The experienced staff manages the customers well which a plus point for Johnson Bakers (Magretta, 2013). Weaknesses It is a part of the internal analysis, which determines the drawbacks, or weaknesses, which Johnson Bakers has and can work on them to improve them so that the competitors do not benefit from it. One of the weaknesses of Johnson Bakers is that it has to face the unsold perishable products. Some products are perishable and remain unsold during the day and have to go in waste as the customers prefer buying fresh items from the bakery. If the items are sold next day then it will be difficult for Bakers to maintain good quality products. They must get into a contract about the unsold perishable goods from someone to avoid wastage of products. Another weakness Johnson Bakers have is that of high priced products. As compared to its competitors, the prices of the products of Johnson Bakers are a bit high. Moreover, Johnson Bakers needs to work on its supply chain activities as at times delays in the delivery of products is noticed which in long term can affect the market share as people will cancel their orders in case of unnecessary delays (Markman & Phan, 2011). Opportunities Opportunities are determined by analysing the external factors of the markets. It is carried out so that the company is able avail the opportunities of the market and captures a bigger share in the market. The biggest opportunity that Johnson Bakers has is that of the expansion of the product line. By expanding the products of the bakery it can gather more attention of the customer towards it. Johnson Bakery can open new outlets even outside London, which is also an important opportunity available at their doorstep. The entire bakery industry is growing at a fast pace so Johnson Bakers also has the opportunity to grow its product line and increase its outlets. Johnson Bakers also has the option of online marketing, which can increase their sales (Markman & Phan, 2011). Threats Threats are also determined by analysing the external factors of the market. By determining the threats of the market the company can avoid certain decisions that they plan to take or use its strengths to overcome the threats of the market. The main threats that Johnson Bakers has are that of substitute products and many competitors. There are many bakeries in the market that provide similar products and slightest mistake by Johnson Bakers can risk its market share. Prices set by the competitors are also a weakness of the company as the company change in the price by the competitors can cause Johnson Bakers with their market share (Markman & Phan, 2011). Porter’s Five Forces Five forces provided by Michael Porter are present in every industry. It is an important tool and every business must determine the five forces of the industry to analyse the competition within the industry. Johnson Forces determined the Porter’s five forces, which are below. Intensity of Existing Rivalry It is an important factor to determine, as a business must be aware of the competitive forces in the market. There are several competitors of Johnson Bakers in the local market. The direct competitors of Johnson Bakers are large groups of bakery chains. Hummingbird Bakery, Gail’s Artisan Bakery, Nordic Bakery, etc. are the few main competitors of Johnson Bakers. These competitors also provide high quality products to their customers. Other competitors are also their which focus more in reducing cost than quality for the customers but Johnson Bakers is in no direct competition with such bakers (Ferrell & Hartline, 2012). Threats of Substitutes A business has serious threat of losing its customers with an increase in the number of substitutes products in the market. If there are fewer substitutes then there is usually a high cost of switching to substitutes and vice versa. Light snacks and tea can be substitute products for the business. Light snacks and tea are perfect substitute and have low cost as compared to the products of the Johnson Bakers (Ferrell & Hartline, 2012). Threat of new Competitors As the market grows, the opportunity of making high profits in the industry increase, which allows new competitors to enter the market. As new competitors enter the market then they become rivals of the existing participants. The threat of new competitors is high because in bakery industry there are lesser barriers to entry. The initial investment is also very low as compared to other industries, which attract more people towards this type of business. The business of bakery can successful in almost all types of locations but a prime location will have a bigger impact on the rivals (Ferrell & Hartline, 2012). Bargaining Power of Suppliers If there are many suppliers of the company then they have less bargaining power over that company. Bargaining power of the suppliers can have an impact on the company internally. As for producing confectionery items ingredients like eggs, milk, flour and wheat are required. There are many suppliers of such items in the market because of which Johnson Bakers has a high bargaining power with the suppliers. The company has a particular supplier for the supply of coffee beans and in this case they have low bargaining power with the suppliers (Magretta, 2013). Bargaining Power of Customers If the customers are able to pressurize the company then they have more bargaining power over that company. If the number of competitors is less in the market and there are more customers then the customers have low bargaining power, which usually increases the profitability of the company. The customer in bakery industry has a high bargaining power as the switching cost is low. Price and some by the quality of the products attract some customers. Johnson Bakers is more focused on serving those customers, which prefer quality of the products to price as they provide good quality products and target customers belonging to middle and high-income level (Magretta, 2013). PEST Analysis For the commencement of the new business it is very necessary to carry out the Pest Analysis to determine the impact of different factors of the environment on the business. Political, economic, social and technological factors of the market can be analysed with the help of Pest analysis. Effective business and marketing strategies can be made if these factors are properly analysed by the Johnson Bakers. Political Factor There are no such political risks involved in the baking industries but there are certain political factors that can have a big impact on the bakery industries. Regulations of the surrounding can force the bakeries to stop performing certain functions of the business. Changes in the employment laws will also have an impact on the business of Johnson Bakers. Moreover, changes in the local authority regulation can also disturb the business of Johnson Bakers for which they must be prepared to develop new strategies and policies to perform well in the market (Markman & Phan, 2011). Economical Factor Changes in the tax and insurance structure are a part of the economical factors that directly impacts on the bakery industry. Due to economic factors, price of wheat can also change which changes the price of the products. In the case of recession, cakes and pastries become luxury and cannot be afforded by many people. It can get difficult for Johnson Bakers to deal with fluctuation of prices and for this purpose they must focus on their business strategy accordingly (Markman & Phan, 2011). Social Factor Social factors can also have a negative impact on the business of Johnson Bakers as more health awareness programs are being conducted. The confectionery products include more sugar and people nowadays are very health conscious which can lead to low consumption of such products. Johnson Bakers must make some innovations in their products and add fewer calories so that people buy their products more. Johnson Bakers must also focus on keeping the environment green and avoid wastages otherwise the social activist can be a serious threat to them (Markman & Phan, 2011). Technological Factor It is considered that the technology does not create a big impact on the bakery but it is as important as all the other factors. Technological advancement will not affect the market of the bakery industry. Usage of new technology in the manufacturing of product can increase the quantity and reduce the cost of the products. Johnson Bakers must adopt the technological advancements that take place in the market to compete with its competitors (Ferrell & Hartline, 2012). Market Analysis Johnson Bakers has to focus more on serving the customers in the offices nearby and also to the residents of the area. To carry out the market analysis it is necessary to determine market segmentation, target market segment strategy and service business analysis. Market Segmentation Market segmentation enables a company to differentiate its customers into several categories in order to make marketing strategies accordingly. Johnson Bakers focuses on the consumers belonging to middle and upper income levels. In addition to it, the demand of products from offices is also catered with great attention. The offices usually order for cakes, pastries and biscuits, which defines a particular segment. The segments mentioned consume all the products of Johnson Bakers and these segments are briefly discussed below (Magretta, 2013). Customers form Offices Customers from the offices contribute to a large part of the revenue. These are regular customers and mostly order in bulk quantity. Though the orders from these customers are not on daily basis but they at least order for 20 days in a month. Local Residents Local residents that consume the products of Johnson Bakers are also regular base customers. These customers come to the bakery on daily basis and around 75 % of them have a high demand of coffee and pastries. It is because of these customers the revenue of the business remains stable (Markman & Phan, 2011). Target Market Segment Strategy The main area to target for Johnson Bakers is the office customers and local residents. To increase their share in the market Johnson Bakers needs to maintain the quality of their products and must be able to provide its customers with given quantity at any given day (Magretta, 2013). Market Needs The weather in London is cold for most of the months in a year because of which the consumption of coffee s very high in London. The demand of coffee does not drop down in summers as people in London have developed a taste to consume coffee on daily basis and the option of cold coffee is also available. High consumption of coffee is one of the most crucial needs of the market because of which Johnson Bakers needs to focus more on the enhancing the taste of their coffee’s and implement new ideas for innovation in their products. Biscuits and pastries are also the need of the market as they are required in the offices on almost regular basis (Magretta, 2013). Service Business Analysis The entire coffee industry in London has observed a rapid growth in its consumption. People usually on their way to offices purchase coffee or after the work prefer purchasing coffee and pastries. Innovation in the coffee should be done or different varieties of coffee should be provided by Johnson Bakers to gain the attention of the people towards it. Apart from the selling of cakes and breads, Johnson Bakers are able to understand the needs of the market for which they should also focus and invest on providing coffee to their customers (Markman & Phan, 2011). Competition and Buying Pattern The competition in the nearby local area is not very high because of the quality provided by the competitors is not very good and their products like biscuits and pastries are not very fresh. Johnson Bakers need to focus more on the quality of their products to gain the attention of the customers. There are certain bakeries in London that also provide high quality products which are the serious competitors of Johnson Bakers but are not situated in the nearby areas (Ferrell & Hartline, 2012). The Johnson Bakers purchases high quality roasted coffee beans so that they can provide its customers with the best coffee in the town. Cakes, pastries, biscuit, etc. are made under the supervision of highly qualified and experienced staff, which ensures the quality of the products. Johnson Bakers have a variety of products available at the shop and serve people of almost all age groups. The price of their product is comparatively a little high than its competitors in the nearby location. Johnson Bakers needs to carry out some promotional activities to grab the attention of the customers (Ferrell & Hartline, 2012). Strategy and Implementation Johnson Company will succeed in surviving in competitive market of London by providing high quality and fresh products available at competitive price. The prices will be set by the company on analysing the prices of substitutes that are available in local market of London. Competitive Edge Johnson Bakers’ competitive edge is not limited to niche market. It has to focus on the broad market. The company has wide market because of their location where there are many offices those bought bakery products like pastry from the market. The market is highly competitive as there are others who sell their product at cheaper price. The company will offer fresh and different variety of biscuits and pastry that are preferred by the people living in the locality. Sales Strategy The company would not be able to generate high sales in first year as there is a need of promotion and marketing. The company is expecting to generate sales of to be £50000 in the first year of starting the business. The company would be able to increase its sales by 25 percent in the next year. It is also expected that it will successful in increasing the sales by 35 percent in the third year of the business. The expected sales of the company in second and third year are to be £62500 and to be to be £84375 in the third year of the business. The company is estimating that it will be able to stable the business in next three to four years of business because there is an availability of large number of customers in the market. The company is confident that it would generate high amount of profits in upcoming years due to its long-term strategies to gain trust of the customer. The company objective is to retain the customers for their continuation of business. Regular customers will be entertained by providing high quality services. The company will be able to increase its sales in last three months that will prove to be profitable. The company is applying the strategy to increase the sales gradually because it will take time to increase the customers of the product. Initially, the company has to suffer more because there is a prediction that customers will be engaged by marketing techniques and offering low prices of high quality product. The company has an objective to provide variety of products to different targeted customers that they must have choice to get products in accordance with their preferences. The strategy of variety of products is viable and the sales of the company will increase through this effective strategy. Management Summary Management and operations of the company is in the hands of Peter Johnson who has the ability to effectively manage the operations of the business and to resolve the issues that comes forward during the production. Sales, payroll and expense are properly controlled by the owner as he has the experience to make effective strategies so that the operations of the business move smoothly to fulfil the objectives. All the accounts will be managed by the responsible person so to avoid any issues regarding over expenditures of the business (Bititci & Carrie, 2013). Production workers will work according to the specified directions of owner and it is decided that the manager itself that is Peter will decide units of the production. The owners of the company will prepare payroll. It is difficult to manage the cost of the company and to increase the profitability but it could be managed through effective planning and increasing production. All the issues regarding the product efficiency, the management so to increase the efficiency of production and services will control revenues and satisfying the needs of the customers. Financial Plan Johnson Bakers has capital of £120000 invested equally by each partner. The capital of £130000 is borrowed from bank for five-year period. It is possible that the company will increase its profits in two years that would be further invested in the business. The amount invested by each partner is £60000. It is agreed that the profit will not withdraw from the business till three years. It is decided that they would not withdrew than 10 percent of their profit from the business after three years till 7 years. Break Even It is expected that the company would not be able to generate net profit in the first year of the business. The company would be able to generate profit in the fourth quarter but the impact ion the income statement of the year would be negative. The company has to suffer loss in the first year as it needs to spend more money on marketing and promotion. The company would then able to generate more profits in the second year. Breakeven is expected to be during first quarter due to the increasing sales and decreasing expenditures. The breakeven will not shown in the income statement but it could be seen in the income statement that the company would be able to start generating profits in the fourth quarter. The company has to suffer in the first year as the business is new and it requires time to stable. However, owners of the business have much confidence that they would be able to capture wide market in near future because the analyses are showing positive response towards future of the business. List of References Bititci, U.S. & Carrie, A.S., 2013. Strategic Management of the Manufacturing Value Chain: Proceedings of the International Conference of the Manufacturing Value-Chain August ‘98, Troon, Scotland, UK. Berlin: Springer. Ferrell, O.C. & Hartline, M., 2012. Marketing Strategy. Mason: Cengage Learning. Magretta, J., 2013. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Harvard: Harvard Business Press. Markman, G. & Phan, P.H., 2011. The Competitive Dynamics of Entrepreneurial Market Entry. Cheltenham: Edward Elgar Publishing. Peri H. Pakroo, J.D., 2014. Small Business Start-Up Kit for California, The. Berkeley: Nolo. Stolt, R., 2010. The Importance of Customer Relationship Management in Business Marketing. Munich: GRIN Verlag. Appendix Estimated Profit & Loss Account For Johnson Bakers 1st Quarter 2nd Quarter 3rd quarter 4th quarter Year 1 Year 2 Year 3 Sales 5,000 8,000 13,000 24,000 50,000 62,500 84,375 Direct Cost of Sales 750 1,200 1,950 5,000 8,900 11,000 19,750 Gross Profit 4,250 6,800 11,050 19,000 41,100 51,500 64,625 Expenses Salaries and Wages 1,500 1,650 2,100 2,800 8,050 9,660 11,592 Utility Expenses 120 330 550 890 1,890 2,268 2,722 Marketing Expenses 2,000 3,000 4,000 1,000 10,000 12,000 14,400 Depreciation 50 50 50 50 200 200 200 Payroll Taxes 40 30 38 59 167 200 240 Total Operating Expenses 3,710 5,060 6,738 4,799 20,307 24,328 29,154 PBIT 540 1,740 4,312 14,201 20,793 27,172 35,471 Interest Expenses 6,500 6,500 6,500 6,500 26,000 26,000 26,000 Net Profit (5,960) (4,760) (2,188) 7,701 (5,207) 1,172 9,471 Assumptions Year1 Year 2 Year 3 Sales 0 25% 35% Expenses 0 20% 20% Estimated Statement of Cash Flow For Johnson Bakers Cash From Operational Activities Year 1 Year 2 Year 3 Cash Sales 50,000 62,500 84,375 Long term liabilities 130,000 130,000 130,000 Owner Equity 120,000 120,000 120,000 Expenditures Cash Expenditures 20,307 24,328 29,154 Add: Depreciation 200 200 200 Less: Interest Expenses 26,000 26,000 26,000 Net Cash Available 253,893 262,372 279,421 Estimated Balance Sheet of Johnson Bakers Year 1 Year 2 Year 3 Assets Cash 253,893 262,372 279,421 Inventory 20,000 25,000 30,000 Total Current Assets 273,893 287,372 309,421 Non Current Assets Equipment 45,000 45,000 45,000 Less: Depreciation 200 200 200 Total Assets 318,693 332,172 354,221 Equity & Liabilities Bank Loan 130,000 130,000 130,000 Other Liabilities 73,900 81,000 94,750 Total Liabilities 203,900 211,000 224,750 Equity Peter Johnson 60,000 60,000 60,000 Michael Johnson 60,000 60,000 60,000 Total Owners Equity 120,000 120,000 120,000 Net Income (5,207) 1,172 9,471 Total Equity 114,793 121,172 129,471 Total Equity & Liabilities 318,693 332,172 354,221 Read More