Feasibility Business: A Project for the Beverage Industry - Case Study Example

XXXXX No. XXXXX FEASIBILITY BUSINESS XYZ 12 March, Executive Summary This feasibility report has been prepared after making a comprehensive research and analyzing various issues regarding beverage industry. The main objective of this proposed project is to highlight the critical issues for successful launching of a new Swiss Café House (SCH) at Ashland Oregon in United States and to attain a competitive edge against well-established rivalries in the market. Swiss Café House is small domestic outlet at Ashland Oregon which is intended to transform itself into a café house by introducing Swiss based soft and cold beverages through some innovative and resourceful strategies towards the entitys impression and in-depth manifestation. Presently this soft drinks corner is furnishing a mixture of wonderful local wines, coffees, and several soft drinks along with some foodstuff as well. The future plan is to offer unparalleled Swiss based beverages which include imported cheeses, chocolates, pastries, local and imported coffees, and some related fast food or snack items as well. The major aim is to offer the customers with highest quality services and products to keep them staying again and again. We believe that by getting crucial financial support through the sale within first two years, our café will be able to capture 10-20% of the café industry at Ashland Oregon. The project has estimated that it will enjoy a 37.3% profit for its investment by the end of April, 2014. Business and Products Description Café house is a business combination of beverages and foodstuff that is readily available and dished up promptly at sites. This is multi-billion dollar business which in turn keeps on progressing extremely fast around numerous international locations. A café house or franchise is somewhat different from fast-food points as it is recognized from nominal service and by refreshment items simultaneously which may be presented immediately soon after placing the order. The drinking stuff in conjunction with related eatables are usually prepared in volume upfront plus preserved hot for its reuse. Numbers of café houses or beverage outlets are sections of some reputable restaurants or franchises, while standard drinking and eating products are supplied to each venue through main sites. As compared to some other food businesses, the budget fundamentals to set up a café house are comparatively compact in USA especially at locations consisting of low and medium earning community. Mostly eateries wherever people sit a while and enjoy by drinking some coffees, wines or eating some readily made foodstuff are also measured as fast food (Luffman & Sanderson, 2001). My cafe house at Ashland Oregon has proposed to offer the customers with a huge variety in terms of its menu products. Derived from the mentioned food items, the proposal suggests that café must offer low-priced Swiss based drinks and refreshment eatables to its consumers. The proposed Swiss based menu will contribute to increase the traffic to the café. This is really appealing to undertake a sizable diversity of drinks products to grab an increased niche. However, in the beginning SCH will be watchful in deciding upon appropriate products containing maximum approval so that the marketing size will go over the expenses of original set up and expected income. When the café will attain a regular profit in routine, additional products such as fast food items will be added and likewise desserts will be the most beneficial prospective. If situations call for stuff apart from the planned menu, we will have to come up with rapid improvements in the menu earlier than it may get under way losing out clients. Industry Current Analysis Food industry is one of the largest industries in the world as it had sale revenue of about $3.2 trillion in 2004 (US Food Industry Overview, 2006). In USA almost 16.5 million people are professionally associated with food industry and Americans spend about $1 trillion annually which is about 10% of Gross Domestic Product (GDP). United States is presently enjoying a dynamic non-alcohol beverage market that is very much rich as it has the services of multi-plant companies which offer innovative and growing products for local and global markets. This type of industry is quite beneficial for both financial and social levels because of its wide range beverage products to meet the general health and social requirements. The ever-changing US industry provides traditional carbonated soft drinks, juices, coffees, tea, and milk-based drinks with diversified varieties. The last three have come out as of prime importance for general public during recent years. As far as consumption of non-alcoholic beverages are concerned, coffee, tea and drinks are the predominant beverages. Coffee has established a strong standing in hospitality industry in last 10 years. US citizens prefer milk-based coffee as about 90% of coffee cups sold in 2009 contained milk in it. As far as differences are concerned tea is more ceremonial than coffee and it has no significant conflicts with cultural and religious backgrounds. Rather tea has more cultural norms than coffee because a huge part of Asian population which resides in United States is fond of afternoon tea or arranges a tea party on weekends. Beverage industry is incomplete without the contribution of soft drinks which include water-based carbonated drinks. In United States it has been observed that young generation has the increasing tendency towards non-alcoholic beverages. In 2006, bottled water had a share of about 14.4% while fruit beverages had a share of 7% of total beverage revenue (Beverage Marketing Corporation, 2007). Trends in utilization of milk-based drinks is also substantially increasing on global scale as there was a consumption of about 242 billion liters in 2007, 13% higher than consumption of 214 billion liters in 2002 (Zenith International, Global Milk Drinks, 2008). The markets of United States of America did highest business of $1.6 billion in 2007 from milk-based beverages. It was estimated that global milk consumption would be increased by 19% till 2013. Main Competitors Coca Cola Coca Cola is the world’s leading soft drink company and since it is inexpensive and convenient item, therefore besides grocery stores, picnic spots, hotels, and resorts, it is also available on gas stations, convenient stores, schools, theme parks, airports, railway stations, office canteens and small shops etc (Lamb, Hair, & McDaniel, 2008). The packaging of red and white Coca Cola product is the most recognized product of the company. Coca Cola has adopted the consumer involvement theory is its production strategy and after having a huge dominance over the target market, it has gained a high level conviction from its customers over the entire globe. McDonalds McDonalds is the world’s largest fast food providing organization, presently operating at more than 33,000 locations across the world and serving more than 64 million people around 119 countries on daily basis (http://www.mcdonalds.ca/). Although the company has more than half century experience even then it works through dynamic marketing strategies. McDonalds offer innovative ideas in their operations to keep itself at No.1 position in the fast food industry. Primarily the marketing strategies of McDonalds focus on the provision of excellent services and high quality food at a reasonable cost. McDonalds initiated its existing marketing strategy in 2008 which was named as ‘Plan to Win’ (McDonalds Marketing Strategy, 2008). The main theme of this strategy is not to be the largest fast food chain; rather the aim is to be the fast food chain second to none. Starbucks Starbucks possesses a huge network of coffee stores which is the major component of its marketing strategy as it is running its business in more than 55 countries at more than 17,000 locations in the world. The hallmark of Starbucks marketing strategy is the successful implementation of its stores as sites for social gatherings. The main point of Starbucks strategy is to gain the leading edge in soft drinks industry by offering high quality brands and provides innovative and distinguished coffee products, not just for a matter of sale but to realize its customers a rich experience. Wawa Inc Wawa Inc is one of the leading chains consisting of private gas stations and convenience stores located countrywide in United States of America. Its areas of operations consist of about 17000 employees working at more than 570 locations in Pennsylvania, New Jersey, Delaware, Maryland, and Virginia (http://www.wawa.com). One of the best products of Wawa Inc which gained widespread popularity in United States is its coffee. It is a make of freshly infused coffee introduced by Pennsylvanian branch of Wawa. This freshly brewed coffee is the most successful product of the company as stores of the company sell about 195 million cups of coffee in a year. These coffees can be ordered in various varieties like in original, decaf, hazelnut, or French vanilla flavors as well as in the form of iced coffee (http://www.wawa.com). The coffee is available in number of flavors like Dark Roast, Hazelnut, Hot chocolate, 100% Columbian, Decaffeinated, and French Vanilla etc. Target Market The total population of Ashland Oregon consists of 20,078 people, 9409 households, and 4542 families. Out of whole population, 15.9% consists of children (under 18), 15.5% are between 18 to 24, 20.5% are between 25 to 44 years, 30.4% are between 45 to 64 years, and 17.6% are old citizens (above 65 years). Women are 53.9% of the total population while males are 46.1%. Almost 100,000 tourists visit each year to this city (www.census.gov). Prior to get started the business, comprehending the target audience does not only benefit to set food; but it also support to identify the significance of area of operation, décor as well as the all-around environment of eating venue. A family-style eating place which usually suits parents and small children might not be attractive to senior citizens. In contrast, a high end, noiseless eating place providing a two-hour eating out opportunity probably would not be fascinating to youngsters or families with small babies. Swiss Café House has identified the target markets consisting of customers of different categories. US public has more appeal toward fast food and beverages on weekends because most of the leisure and mall activities are planned on these days. SCH will plan to focus on young and middle age generation as the primary target market. Since females have more than 50% strength in Ashland Oregon, therefore, special Swiss based drinks will be offered to this huge part of target market. Residential population and working class of Ashland Oregon as well as population living close to its vicinity would be the second target market. Ashland Oregon consists of number of shopping malls and thousands of people either work in these markets and malls or visit them for shopping. Majority of these people take their lunch and drinks from fast food restaurants and cafes. On weekends the residential population spends its leisure time by enjoying soft and hot drinks from these points. The third target market of Swiss Café House will be the public that works in the remote areas, travels through Ashland Oregon and quite often stop for refreshment in cafes or restaurants. Lastly, Ashland Oregon has several attractions for tourists throughout as well and about 100,000 tourists visit the city each year. Swiss Café House will arrange special deals for these tourists based on its special Swiss based beverages. Since tourists belong to rich class of citizens, therefore more profit will be obtained through this market. Marketing Objectives and Strategies Swiss Café House will intend to sustain a widespread marketing campaign to ensure its utmost visibility in the primary target market. We are aimed to follow the salient features of the marketing objectives and strategies to ensure the achievement of our strategic objectives. Each soft drinks company service does not require to be installed at a retail location; however, since soft drinks outlets mostly depend on retail traffic, therefore Swiss Café House will establish few distributing outlets at appropriate locations in Ashland Oregon to maximize its visibility amongst consumers. Traffic density is an important factor that must be taken into consideration prior to the establishment of any soft drinks outlet. A watchful analysis would enable the managing authorities of Swiss Café House to consider diversified opportunities for immediate drinking assertions along with two important factors. First one is to figure out the approximate sales potential of each pedestrian while second is the total strength of pedestrian traffic during working hours and its percentage which may patronize the new distributing source. Easy access through adequate and convenient parking with trouble-free access is essentially required to gain the loyalty of potential customers. Swiss Café House may experience some strict government regulations regarding café industry; therefore the company will launch an extensive campaign in the local targeted market of Ashland Oregon through electronic and print media and word of mouth advertising. Alpha Café House will be required to put its best efforts to enhance the customers’ awareness, loyalty, and conviction about its products and services. In order to gain its initial short terms goals, the cafe needs to focus on its communication strategy to the target markets. Advertising policy will be a key factor. There are numbers of theories and models which marketers apply to motivate the consumers towards the positive attitudes of their brands, however, the Hierarchy-of-Effect Model is considered as the predominant model of advertising because it elaborates the awareness, knowledge, liking, preference, conviction, and purchase processes without any ambiguity (Clow & Baack, 2007). By the application of this model, Alpha Café House will emphasize to keep itself present on regional basis. An electronic campaign is quite beneficial through newspapers, radio, television, and online contact to know the trends of local customers. To make the communication more effective and productive, an advertising consultant will be arranged to carry out this important campaign. Promotional plan for Swiss Café House is diversified and will incorporate a variety of marketing connections. Therefore, in order to monitor and observe the services, products, and market position, the café intends to arrange a program to receive the feedback from the customers. Different techniques will be applied to do this such as telephonic conversation, direct mail, opinion through public surveys and online comments. Since internet is the most ready and widely used medium to communicate, therefore the website of Swiss Café House will be a great channel for communication. Management Issues Staffing Policy The success of our café house will be highly dependent on the successful implementation of policies of Human Resource Management that must be harmonious with its business strategies as well as with its formal and informal structure. Staffing policy deals with the selection and appointment of suitable human resource to perform particular jobs. Further it provides assistance for developing and promoting a particular business culture. Swiss Café House (SCH) will manage its full time vacancies through online and newspapers advertising while part-time jobs will be offered to the foreign university students studying in Southern Oregon University. In such situation, SCH would apply polycentric staffing policy for the first year of the marketing. In this approach parent-country nationals hold key positions at company headquarters while foreign citizens will be employed as subsidiaries (Hamblin, 1974). This staffing style can curtail the risks of cultural myopia. The café house will execute its marketing under the supervision of a Director and General Manager. Primarily both will be responsible for overall running of the café house while the daily operations will be supervised by shift managers, holding a degree of MBA in marketing form a reputable University and 14 years’ experience in related field. Swiss Café House will operate in two shifts and its human resource plan is shown as Appendix-I. Cross-Culture Issues Regardless of type of business, it cannot be established in a standard fashion in different kinds of cultures. As a result, relationships and business are enhanced when people understand the communication gaps and try to overcome it from different cultures and find new approaches to old problems. In business at international level, communication problems arise when the staff from home country remains unable to understand the cultural differences in traditions, practices, and thought processing. One of the fundamental problems is ethnocentrism which declares the belief that ones own cultural group is by some means intrinsically better to others. In the process of an international business, the culture directly affects the management, marketing, and overall performance of the company. Swiss Café House is likely to face the same challenges. Language is considered as the most often cited barriers to conflict free cross-cultural business communication. Its importance cannot be underestimated. Difficulties with language fall basically into three categories. Gross translation problems are those which convey delicate differences from one language to the other and culture oriented variations among speakers of the same language. Secondly, enunciation approach and phrases also create barriers in business. A particular intonation that suggests loyalty to a nation is understood in many languages. The last language barrier is the national prejudices and class distinctions which are often reinforced thorough sociolinguistics language. We will arrange special training programs for key staff to understand local languages and therefore to get rid of this basic barrier. Transportation of raw material for Swiss based beverages will be a big issue for café house especially in the beginning. Although, today transportation modes are much better than past, even then it is always difficult to accept, adopt or even to understand the technological needs with respect to other cultures. Any logistic supply to SCH from Switzerland will be based on several factors. Environmental based factors include climate, topography, population size, population density, and the relative availability of natural resources while technology based factors are control, subjugation and harmonization. We will resolve these issues by appointing efficient staff through geocentric staffing policy. Another communication hurdle in the international business of SCH is the temporal understanding of time. Mostly cultures fall into two types of temporal conception. The first one concentrates on the schedules of personal interaction while second follows temporal contribution and achievement of existing transactions. Political Factors Although the distressing incidents at the start of 21st century e.g. attacks of terrorists in New York on 11 September, 2001 had turned out the most difficult times for the business world, and up to some extent contributed to global recession as well, however, political conditions in USA are fairly good. There is no threat of political instability. Government institutions are strong and reliable. In current scenario, there is no such situation or government agreement that has a negative effect on beverage, soft drinks, and fast food industry. However, in terms of human health particularly with respect to children, US government has passed little legislations which Swiss Café House will have to follow. Economic Factors Like some other business fields, fast food and beverage industries are also directly proportional to the peaceful environment and stable economy of the country because the emerging activities of these industries are generally characterized by peaceful environment and high earning elasticity of the general public. In case, the global economy falls down, the corporate environment will get disturbed, and ultimately less number of people will go out for dinning, drinking, or spending leisure and exciting weekends at restaurants, café, or hotels. During last few years, the fuel cost has risen tremendously throughout the world due to war in Iraq and war against terrorism. In response of fuel cost, SCH is likely to add more investment to meet its necessary requirements. US GDP rate had declined during global recession in 2008 and 2009 but once again it is stable and presently it has increased by 1.6% since December 2011 to 2012 (http://research.stlouisfed.org/publications/net/page24.pdf). Financial Viability The financial concerns include working capital like salaries of staff, utilities, and some miscellaneous expenditure. The budget experts of Swiss Café House believe that preliminary financial support of $125,000 will be adequate to achieve the short term profitability plans. It is estimated that by the end of first fiscal year, SCH will make a minimum gross margin of 17%. The cafe is going to come in operations by 1st May i.e. on Labour Day. The stakeholders expect that the Swiss based beverages, relevant snacks and eatables will observe the highest peak season in November and December, especially close to Christmas. Climatology of Ashland Oregon will be a main factor to determine the initial sales projections. It reveals that the season from September to November is the best time for tourists and for local families as well to go outside for dinner or social gatherings. Cash flow forecast for first twelve months is shown as Appendix-II. The expected cash flow may be changed with respect to any change in the target market. Findings and Recommendations It has been studied that conditions are fairly favorable to launch Swiss Café House in Ashland Oregon, therefore, this feasibility report recommends that authorities of café house must go ahead to launch its internationalization. For mode of entry, although transnational strategy can be applied, however, international strategy will be much better as it deals with conditions when pressure is low from local responsiveness and cost reduction. Appendices Appendix-I: Human Resource Plan Position Strength in 1st Shift Strength in 2nd Shift Total Strength Payroll/Head /Month (₤) Total Payroll/Month Total Annual Payroll (₤) Managing Director 01 - 01 3800 3800 45600 General Manager - 01 01 3500 3500 42000 Shift Manager 01 01 02 2200 4400 52800 Accountants 01 02 03 1500 4500 54000 Receptionist 02 02 04 1200 4800 57600 Facilities Management 02 03 05 1200 6000 72000 Kitchen Staff 03 06 09 1000 9000 108000 Waiters 08 08 16 700 11200 134400 Parking Boys 01 01 02 700 1400 16800 Sanitary Workers 01 02 03 700 2100 25200 Grand Total 46 50700 608,400 Appendix-II: Financial Viability Variables Month Wise Forecast ($) 2013 May Jun Jul Aug Sep Oct Beginning Cash Balance 125000 8352 8379 11256 17513 26177 Sales 79445 95000 97000 102000 104000 108900 Total Cash Available 204445 103352 105379 113256 121513 135077 Cash Disbursements Manufacturing 5000 4800 4770 4800 4890 5100 Expenses 27550 22220 21850 22555 22000 23550 Depreciation 778 778 778 778 778 778 Principal 1020 1020 1015 1035 1048 1070 General And Admin 2200 1780 1410 2075 1970 2070 Staff Salaries 46500 46500 46500 46500 46500 46500 Total Cash Disbursements 83048 77098 76323 77743 77186 79068 Net Cash From Operations 121397 26254 29056 35513 44327 56009 Loans and Capital Infusion National Bank Fixtures 0 0 0 0 0 0 Capital Infusion 0 0 0 0 0 0 Other Disbursements Proprietors Draw 12000 12000 12000 12000 12000 12000 Debt Service 1100 1100 1100 1100 1100 1100 Capital Disbursements Furniture & Fixtures 66645 0 0 0 0 0 Equipment 33300 0 0 0 0 0 Net Cash Balance 8352 8379 11256 17513 26177 37409 Variables Month Wise Forecast ($) 2013 2014 Nov Dec Jan Feb Mar Apr Beginning Cash Balance 37409 49601 50073 44830 35357 19709 Sales 111000 102000 98000 94000 88000 94000 Total Cash Available 148409 151601 148073 138830 123357 113709 Cash Disbursements Manufacturing 5325 5500 5610 5800 6100 6100 Expenses 24250 25500 26855 27125 27200 27000 Depreciation 778 778 778 778 778 778 Principal 1055 1040 1050 1055 1055 1055 General And Admin 2100 2710 2650 2615 2515 2420 Staff Salaries 46500 46500 46500 46500 46500 46500 Total Cash Disbursement 80008 82028 83443 83873 84148 83853 Net Cash From Operation 68401 69573 64630 54957 39209 29856 Loans and Capital Infusion National Bank Fixtures 0 0 0 0 0 0 Capital Infusion 0 0 0 0 0 0 Other Disbursements Proprietors Draw 12000 12000 12000 12000 12000 12000 Debt Service 1100 1100 1100 1100 1100 1100 Capital Disbursements Furniture & Fixtures 0 0 0 0 0 0 Equipment 0 0 0 0 0 0 Net Cash Balance 49601 50073 44830 35357 19709 10256 Financial Projection Item Capital Required ($) Construction Cost (all inclusive) 376,707 Equipment & Machinery 33,300 Dining & Office Furniture 66,645 Working Capital (Utilities, salaries, bills etc) 10,23,325 Total 14,99,777 References Beverage Marketing Corporation (2007). Focus Report, Next Generation Carbonated Soft Drinks in the US Clow, K. E. and Baack, D. (2007). Integrated Advertising, Promotion, and Marketing Communications. 3rd Edition, Pearson Education. pp. 165-171 Hamblin, A. C. (1974). Evaluation and Control of Training. Maidenhead: McGraw-Hill Book Company < http://research.stlouisfed.org/publications/net/page24.pdf> Read More