Brickman Vending Services - Case Study Example

? Brickman Vending Services A Business Plan BY YOU YOUR SCHOOL INFO HERE HERE 0 Introduction Brickman Vending Services is a start-up company providing a variety of chilled drinks, snack products and hot beverages provided through self-service vending machines. Brickman Vending will be established as a sole trader organisation in order to provide ownership with 100% control over administration, accounting and all aspects of the Brickman Vending value chain. Under the sole trader structure, the owner receives all profits sustained through revenue growth and other investment strategies and many lenders are more willing to extend credit due to the unlimited liability this structure ensures. The sole trader structure also provides opportunities for claiming taxation advantages associated with business losses. This structure also provides advantages related to the capital gains tax, the sole trader is eligible by law to claim a 50% CGT reduction and the ability to write off expenses for a vehicle utilised for business purposes (Quinn Group 2012). The vending industry in the United Kingdom is valued at ?1.94 billion and there are currently 468,000 refreshment vending machines operating in the country (Research and Markets 2010). In most UK households, vending machine product purchases are representative of approximately 1.9 percent of total household spending on food (Research and Markets 2010). The statistics on the UK vending sales industry are highly favourable for ensuring profitability and revenue growth. Furthermore, total household expenditures on food for families in the UK increased by 5.3 percent in 2010 (Report Buyer 2011). In all respects, the vending industry in the UK represents a very auspicious opportunity for ensuring success of the start-up venture. 2.0 Mission and objectives The mission of Brickman Vending Services is distinctly customer-centric: Brickman Vending Services strives to provide a range of products that focus on serving the lifestyle needs of customers in the United Kingdom. From professionals to busy, on-the-go customers, Brickman Vending provides modernised service delivery and diversity of product for our valued buyers. The business maintains three distinct objectives achievable during the first year of operations. 1. Establish brand recognition for the business to establish a competitive brand presence. 2. Gain five percent of market share in the vending industry in the UK 3. Build market loyalty in the commercial business-to-business environment. 3.0 External market analyses There are approximately 300 vending competitors operating machines in the London region, where Brickman Vending Services will initially launch its vending business. Major competitors include Academy Beverage Company, Amazing Beveridge Company, Evend Ltd. and LTT Vending (Vendingmachine.co.uk 2013). This is representative of only the largest and most recognised vending companies in the London area. Despite the saturated market environment, there are opportunities associated with brand development for Brickman Vending that can serve to outperform the competitive reputations of major rivals. None of the aforementioned competitors maintain a strong brand in the UK, known largely by contractual experience in the commercial sales environment. The business model of vending services is easily replicable by competitors, in relation to the established vending supply network in the UK and the non-differentiated aspects of food products available in vending machines. Nandan (2005) indicates that the only genuine, tangible asset that cannot easily be copied by competition is the brand. After scanning the external competitive environment, a lack of brand presence by major competition is advantageous for building a consumer-centric brand personality that can be recalled by customers as a means of differentiating Brickman Vending from competitors. Thompson, Gamble and Strickland (2005) offer the work of Michael Porter regarding the external market characteristics that either serve to improve business position or impose risks to success. Two relevant concerns for Brickman Vending are threats of substitutes in the market and supplier power in the supply chain. The presence of supermarket leaders and hyper-market concepts, such as Tesco and Sainsbury, represent many substitute products that are commonly offered in vending machines. However, consumer behaviours associated with planned grocery consumption and vending usage are distinctly different. Vending marketing involves focusing on place, emphasising the convenience factors of impulsive purchases, whilst supermarkets focus on a holistic shopping experience. Brickman Vending must focus on promoting impulse decision-making in order to ensure revenue growth. The diversity of available food suppliers for vending services in the UK provides suppliers with more negotiating power in procurement. The switching costs for selecting an alternative vending company are quite low in the supplier market due to the high volume of competing vending companies present in the London region. However, Brickman Vending will follow the advice of Ragatz and Handgeld (1997) who state that development of strategic alliances with desirable suppliers can facilitate better relationship management and improve cost controls in the supply chain. Brickman Vending will be seeking out customer relationship management strategies that will facilitate more effective business-to-business relationship growth to provide the business with competitive advantages related to not only cost, but diversity of product availability for the vending machines and exploiting the knowledge and competencies of suppliers to assist in streamlining supply networks. 4.0 Target market identification Vending services are relevant for all markets, in all age demographics. However, the most likely markets to utilise Brickman Vending Services include: Employed professionals within the business environment Manufacturing employees Retail customers within the shopping environment Research indicates that in 2006, 33.8 percent of all vending machines in operation in the UK were in a manufacturing business (Maras 2007). Concurrently, 23.5 percent of all vending machines are in commercial and professional offices (Maras 2007). This is therefore representative of over 57 percent of the entire market. It is not wholly surprising that manufacturing and office professionals seek vending services for convenience in order to satisfy their snacking and beverage needs. Coupled with an additional 10.7 percent of all vending machines in the retail environment, the identified target markets maintain the resources and tangible needs necessary for Brickman Vending to ensure profitability by targeting these consumer markets. 5.0 Marketing strategy Brickman Vending will maintain one visible advantage over other vending competitors: modernised vending machines with touch-sensitive interfaces and electronic chat capabilities to speak with Brickman customer service agents. Hickman (2011) indicate that the profit margin for hot beverages is 70 percent, whilst the vending industry also provides a 30 to 40 percent profit margin on a single bar of chocolate or bag of crisps. Though the costs of more modernised vending machines is higher than traditional dispensing assets, the variety of products that are deemed favourable by the manufacturing and professional markets will provide ample profit return with each and every product dispensed to recapture the capital costs of modernised asset procurement. As such, there must be a considerable emphasis on promotion in order to establish brand recognition with desired markets. Brickman Vending will be distributing direct mailing literature to a plethora of businesses (both office and manufacturing) to indicate the modernised features and benefits of live chat features and touch interfaces. This mailing will consist of a step-by-step guide highlighting the service proposition and low-cost opportunities for allowing Brickman Vending machines to be utilised in these environments. The literature will describe how Brickman focuses on fulfilling customer needs, allowing the customer to select some products that will be provided based on their pre-existing knowledge of employee needs and attitudes about vended products. The goal of this promotional strategy is to create partnered supply strategies, making the customer feel more valued and integrated into business-to-business decision-making processes. The business will also utilise social media as a means of providing discounting incentives to the target markets. Periodically, Brickman Vending will offer electronic promo codes that can be entered onto the vending machine interface to provide product discounts. All direct mailing literature will emphasise the existence of the Brickman Vending website so as to familiarise markets about periodic discounting. Customer who sign up on the website will be provided opportunities to participate in the loyalty program (a very successful profit-building activity in supermarkets and airline companies), which will provide e-mailed codes for recurring purchase rewards to target consumers. The vending machines will be equipped with log-in capabilities, thus identifying loyal customers and providing incentive discounts to facilitate more interest in purchasing from Brickman over competitors. As a metric for evaluation of customer satisfaction, the website will sustain a customer satisfaction survey that is completely upgradable, thereby providing valuable statistical data on market perceptions of the Brickman Vending brand. Data from this effort will improve promotional strategy, place marketing (selecting new locations with viable profit opportunities), and improve the service model. 5.1 SWOT Analysis Strengths Diversity of product for use in vending machines Strong knowledge of branding and promotions Competency in understanding buyer behaviour Modernised and unique vending machine availability Weaknesses No brand recognition in UK High loan payments for asset procurement No alliances yet developed with important suppliers Opportunities Viral marketing Trade shows for more visibility Expansion into other UK regions Threats New market entrants Theft of product in machines and damage – liabilities Rising prices in the product supply chain 6.0 The pricing structure Before it is possible to determine potential annual revenues, it is necessary to highlight the pricing structure for the diversity of products available with Brickman Vending. Table 1: Pricing structure Chocolate Bars – Standard Size ?.85 Crisps ?.85 Hot Coffee ?.75 Carbonated Beverages – Plastic Bottle ?1.25 Chilled Water ?.85 Candy ?.80 Wrapped Sandwiches ?4.50 Gum and Mints ?.75 To determine expected revenues, a mean price must be considered to determine an average unit sales price. A total of ?10.60 represents the sale price if a consumer purchases one of each product in a single transaction. Dividing this total by the eight identified product categories, an average per-unit price of ?1.33 represents the mean for a single vending transaction. All figures associated with revenues in the cash flow (See Appendices) are based on an average per-unit transaction of ?1.33. 7.0 Start-up requirements Brickman Vending will be, at start-up, operating a total of 30 vending machines. Brickman Vending will gain financing through loans at major UK banking organisations as well as personal financing through sole trader’s credit cards. Asset Procurement – Vending Machines ?240,000 Facility Headquarters Rent ?1,700 Cash needed at Start-up ?3,000 Company vehicles ?40,000 Start-up inventories ?10,000 Advertising ?3,000 Website development ?1,000 Licensing and legal ?2,000 Total Start-up Requirements ?300,700 8.0 Break even analysis The formula for breakeven identifies fixed costs divided by Unit Selling price less variable costs. Fixed costs of the Brickman business model include rent, monthly payments on the start-up loan spread over 20 years, labour costs and monthly advertising. Variable costs include petroleum and inventories fluctuating against demand ratios. ?1100 monthly for loan payments, ?1700 monthly for rental, ?3200 labour monthly, advertising ?500 monthly (all fixed costs). Variable costs include ?300 monthly petrol and ?5,000 monthly for inventories. Variable costs must be broken down into per-unit characteristics, which in this case total ?.61. ?6500 / (?1.33 - ?.61) = ?4680 breakeven Brickman Vending must earn ?4680 monthly in order to break even. 9.0 Findings from primary market research Of course, theoretical knowledge highlighting effective marketing strategies as well as consumer behaviour literature is insufficient to determine an appropriate business model that will be viable and sustainable with target markets. As such, the owners of Brickman Vending conducted a quantitative market research study using a small randomized sample of UK consumers. The survey consisted of three questions, utilising a ranking scale from 1-10 to determine the likelihood of consumers to utilise Brickman Vending Services. The questions ranged from consumer behaviour-oriented discussion, to the business concept of modernised vending machines and chat functions, and the level of trust and respect that consumer maintain when considering using vending services. The following is the survey utilised for this study, identifying the characteristics and sentiments of 11 random consumers of varying demographics: 1. I trust in vending machines to provide me with quality products and often select vending services to fill my needs. 1 2 3 4 5 6 7 8 9 10 2. Brickman Vending will be using modernised vending machines with touch interfaces and chat options for live discussion with service representatives. To what degree would you be likely to use these modern machines over traditional machines, even if pricing was moderately higher than traditional vending equipment. 1 2 3 4 5 6 7 8 9 10 3. I purchase products from vending machines at least once weekly 1 2 3 4 5 6 7 8 9 10 Figure 1 illustrates the statistical coding results of the survey, showing the mean (average) scores for each question to assist in determining the likelihood of diverse consumers to use Brickman Vending Services. Figure 1: Excel analysis of descriptive statistics from market research survey Quantitative Survey Results             Question1 Question2 Question3 Respondent 1   7 10 6 Respondent 2   3 10 8 Respondent 3   8 8 6 Respondent 4   7 8 8 Respondent 5   9 8 9 Respondent 6   2 4 8 Respondent 7   8 7 10 Respondent 8   6 7 8 Respondent 9   8 8 9 Respondent 10   6 7 6 Respondent 11   4 6 3         Total   68 83 81 Mean Total   6.18 7.55 7.36 *See Appendix A for survey template utilised in primary market research As illustrated by the results, there is a higher-than-average level of trust in vending machines, along with considerable interest in modernised vending products with chat functions. All scores indicate a favourable market for Brickman Vending that should assist in revenue production and differentiation between existing competition with little to no brand presence or reputation in the UK. 10.0 Cash flow analysis It has been estimated that approximately 50 consumers will be serviced daily at each machine, multiplied by 30 machines in operation in the London region. At an average per transaction price of ?1.33, this is representative of approximately ?59,000 monthly in sales. After taking into consideration the cost of inventories, fixed and variable costs, the cash flow forecast illustrates a cash position of $635,500 at the end of Fiscal year 2014. This will place Brickman Vending into a quality financial position for further asset procurement to expand in 2014 to other regions, thereby improving revenue growth that should be supported by intensive promotions and brand recognition for excellence in vending services and product. This is also beneficial in the event that the company requires more employees to be recruited in order to fulfil the chat options feature that distinguishes the business or other labour necessary for machine maintenance or delivery of product. References Hickman, L. (2011). The rise of the hi-tech vending machine, The Guardian. [online] Available at: http://www.guardian.co.uk/business/2011/mar/31/rise-hi-tech-vending-machine (accessed 3 April 2013). Maras, E. (2007). State of the Vending Industry Report, Cygnus Business Media. [online] Available at: http://media.cygnus.com/files/cygnus/document/AUTM/2011/JUN/2007_svi_10280312.pdf (accessed 1 April 2013). Nandan, S. (2005). An exploration of the brand identity-brand image linkage: a communications perspective, Brand Management, 12(4), pp.264-278. Quinn Group. (2012). Sole Trader Structure. [online] Available at: http://www.allbusinessstructures.com.au/sole-trader-advantages-and-disadvantages (accessed 3 April 2013). Ragatz, G.L. and Handgeld, R.B. (1997). Success factors for integrating suppliers into new product development, Journal of Production Innovation Management, 14(2), pp.190-202. Report Buyer. (2011). Automatic Vending: UK market report 2011. [online] Available at: http://www.reportbuyer.com/consumer_goods_retail/shopping/vending/automatic_vending.html (accessed 2 April 2013). Research and Markets. (2010). Automatic Vending Market Report. [online] Available at: http://www.researchandmarkets.com/reports/1202775/automatic_vending_market_report_plus_2010.pdf (accessed 3 April 2013). Thompson, A., Gamble, J. and Strickland, A. (2005). Strategy: winning in the marketplace, 2nd edn. New York: McGraw-Hill Companies. Vendingmachine.co.uk. (2013). Vending Machine Businesses in London. [online] Available at: http://www.vendingmachine.co.uk/city-London-Greater%20London/ (accessed 3 April 2013). Cash Flow Forecast Brickman Vending Services Pre-Startup EST Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Total Item EST Cash on Hand (beginning of month) 3,000 3,000 60,500 118,000 175,500 233,000 290,500 348,000 405,500 463,000 520,500 578,000 635,500 635,500                               CASH RECEIPTS                             Cash Sales 0 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000   TOTAL CASH RECEIPTS 0 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 59,000 0 Total Cash Available (before cash out) 3,000 62,000 119,500 177,000 234,500 292,000 349,500 407,000 464,500 522,000 579,500 637,000 694,500 635,500                               CASH PAID OUT                             Food Inventories 10,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000   Advertising 500 500 500 500 500 500 500 500 500 500 500 500 500   Petroleum 300 300 300 300 300 300 300 300 300 300 300 300 300   Rent 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700 1,700   Licensing and Legal 2,000 0 0 0 0 0 0 0 0 0 0 0 0   Wages 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200 3,200   SUBTOTAL 0 5,280 5,280 5,280 5,280 5,280 5,280 5,500 5,500 5,500 5,500 5,500 5,500   Loan principal payment 0 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 1,100 0 Capital purchase (specify) 0 400 400 400 400 400 400 400 400 400 400 400 400   TOTAL CASH PAID OUT 0 0 0 0 0 0 0 0 0 0 0 0 0   Cash Position (end of month) 0 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 1,500 0 3,000 60,500 118,000 175,500 233,000 290,500 348,000 405,500 463,000 520,500 578,000 635,500 693,000 635,500 Read More