Natural Food Product Private Ltd - Case Study Example

Natural Food Product Private Ltd Business Plan Table of Contents Executive Summary 3 Introduction 4 Company and Product Summary 4 Environmental Scanning 5 Five Forces analysis 5 Opportunities and Challenges 7 Organisational Structure, Management Team and Operational Plan 8 Strategic Plan 10 Financial Plan 11 Conclusion 14 15 Reference 16 Executive Summary ‘Natural Food Product Private Ltd’ (NFP) is a start up venture aiming to enter the organic food sector of UK. The company will manufacture organic foods by processing and removing its harmful effects. The company will offer organic food products like tea, crops, dairy products, canned meat specifically into the UK market. Environmental scanning of organic food products has revealed key information that indicates underlying opportunities and challenges. Five forces analysis of organic food manufacturing sector shows that suppliers’ and buyers’ bargaining power is very high. Acquiring low cost and high quality suppliers is the biggest challenges for NFP. The UK population has become more health conscious and they are trying to change their food habits. The popularity of organic food has increased significantly in UK. Different management teams are employed for managing operational and functional activities. The organisational structure will be simple and will focus on its value chain activities. To penetrate the market, NFP will aim to provide low cost organic foods but at a cost lower than that of its key competitors. It will implement various cost cutting measures such as reduction in overhead in order to reduce the overall expenses. The company will import low cost materials from abroad and will lease farming land in the UK to minimise the material cost. For financing the business, 45% of total capital will be obtained from personal sources and the rest will be from loans. As per the projected income statement, the profit for the first year will be £64125 and return on sales will be 7.125% 0. Introduction The paper will attempt to present a business plan for organic food manufacturing business. The UK market has been identified as one of the major growing market in for organic food. The UK people are suffering from various types of diseases unhealthy food habit that leads to increase obesity in society. This business plan has identified this opportunity to serve society for developing healthy society. Organic food manufacturing business in UK has generous and profitable idea. This business plan will include all the important factors that will increase the strength of organic food manufacturing business in UK. The primary aim of this business plan is to prepare a successful and effective roadmap for organic food business in UK. Company and Product Summary Developed countries like USA and other European nations are suffering from obesity related problems. The modern lifestyle has led to changes in the food habit of people. People have become busier with their social and economic activities and they are unable to devote sufficient time to their health. However, gradually, they are becoming health conscious and they have started to prefer healthy and organic food items. This fact portrays tremendous potential for organic food sector in UK. The new venture will attempt to enter this sector by providing processed organic food items to health conscious and obese people. The name of the start up venture is ‘Natural Food Product Private Ltd’ (NFP). NFP is a UK based private holding company. The company will manufacture processed organic food and will supply the products in the UK markets. It will establish a manufacturing plant that will be constructed in rural areas where agricultural products will be easily available. The head office will be set up in London. London is the largest market of UK in terms of customer availability. NFP will process foods that will be free of artificial preservatives, colours, chemical additives. The primary aim of NFP is to develop an obese free society by introducing healthy foods habits in UK. Environmental Scanning Five Forces analysis In order to identify the degree of competition in organic food industry, Porter’s five forces analysis is an important tool. It analyses five forces i.e. existing rivalry, threat from substitute products, new entrants, buyers and suppliers bargaining power. The existing rivalry in the UK in the organic sector is increasing at a very high rate. Many small and medium scale companies have been lured by the promises of high growth. In London, a number of organic food manufacturer are present like Fabulous Foods, Mother Earth, Bod Ayre Products Limited, Eastern Venture, Aspall, Green & Blacks etc. These companies have successfully established themselves in the UK market and they provide a wide array of products like organic tea, juice, vegetable, chocolates etc. The threat from substitute product is mild as very limited alternatives are available in the market for health conscious people. In general, a large variety of foods is available in the market but these foods cannot be considered as real substitute of organic food items. The threat of new entrants is quite high in this sector. According to the industry life cycle, this sector is in their growth stage which makes it attractive to a large number of new entrants. The entry and exit barrier in this industry is quite low due to low investment. Bargaining power of buyer and suppliers are substantial. Suppliers include farmers and suppliers of raw meats. In the UK, due to a small number of low cost and high quality suppliers, their bargaining power is quite high. The main buyers are the leading retailers such as Sainsbury, Asda, Holland & Barrett, and Tesco etc. They buy products in bulk and they have the power to affect the price of their suppliers. However, these retailers are important for the success of NFP as they are prime medium to reach individual customers. NFP must try to supply its products to leading retailers. NFP can also lease the some space to display and to sell its organic food items in their retail store. NFP has to acquire some of these leading retailers by providing high quality organic foods that will enhance their retailing business. Opportunities and Challenges In the process of NFP’s operation, it will encounter with a number of opportunities and challenges. Identification of these factors is important as NFP need to exploit the opportunities and overcome the challenges. Obesity has become one of the major health related issues in the UK society. Nearly “46% of men in England and 32% of women are overweight” and “an additional 17% of men and 21% of women are obese” (Anne Collins, 2007). Obesity has also affected a large number of UK children. According to Health Survey for England, around one in every four adults and one child in every ten children aged between 2 to 10 years are suffering from obesity. It has been predicted that “if no action was taken, 60% of men, 50% of women and 25% of children would be obese by 2050” which will encourage diseases like heart attack, cancer, diabetes etc (Department of Health, 2010). However, the UK population are becoming health conscious and the demand of organic food has increased significantly. Besides UK Government and government-authorised independent organisations like Soil Association and Health Food Manufacturers Association (HEMA) are aiming to boost the organic food sectors by spreading awareness regarding the advantages of organic foods. Total population of UK is around 62,348,447 and their GDP (per capita) is $34,200 (CIA, 2010). Large population of UK with good economic condition indicate high growth for NFP. NFP must conduct programs for spreading awareness against obesity. To promote its products, NFP must communicate with the target audience effectively. The areas with higher population density like London should be prime target market. The biggest challenge of this industry is the acquisition of high quality farmers and suppliers. The financial conditions of UK farmers are weak and they are unable to provide high quality product in the market. Besides, high demand of organic foods has forced the UK farmers to grow crops and vegetable within short period time that has affected the quality of product. This industry is suffering from shortage of suppliers (Hill, 2007). NFP will take necessary steps for developing a number of high quality suppliers. In this respect, NFP aim to acquire cultivation land and grow v\crops as per its need. It will also try obtain materials from foreign countries. Organisational Structure, Management Team and Operational Plan NFP will operate in organic food sector. The manufacturing plant will be situated in areas where sufficient amount of farmers and suppliers are available. Location of manufacturing plant is very important as maintenance of products’ freshness is very crucial. The head office in London will conduct activities like accounts & finance, distribution etc. In order to manage different functional activities of NFP, different management teams will be required. The following organisational chart portrays the functional management teams of NFP. Figure 1: Organisational Chart (Source: Watteville and Gilbert, 2000, p.55) The above chart shows the important functional areas of a NFP and NFP has to concentrate on these departments for proper running of operations and business. Each of these departments will be handled by a director or a head manager. For operational activity, NFP will focus on its value chain activities. The value chain activities will help to enhance its primary and secondary activities. The following figure shows a specimen of value chain that will be followed by NFP. Figure 2: Value Chain (Source: Moseley, 2008, p.45) The above figure of value chain is an ideal process for maintaining primary and secondary activities. Strategic Plan Primarily, NFP will provide processed food items like fruits, crops, dairy products, tea & coffee, meat products etc. Necessary food items will be possessed for removing its harmful effects that makes one obese. For marketing strategic plan, NFP has to identify its target consumers and target market. The company aims to operate in the major markets of UK like London, Wales, Liverpool, and Hound Point etc. The processed organic foods are comparatively expensive. However, in order to penetrate the market, NFP will aim to provide low cost organic food items to its target consumers. Therefore, the company will choose the strategy of ‘cost leadership’. Another prime reason for selecting this generic strategy is that buyers like Tesco, Sainsbury, and Wal-Mart offer low cost products; hence they try to acquire low cost suppliers. NFP must focus on its value chain to reduce operational and administrative costs. The acquisition of low cost materials is very important for cost leadership strategy. NFP will encourage low cost farmer and will import materials from abroad, for example, tea from India, coffee from Brazil, and meats from other European countries like Switzerland etc. For other vegetables, NFP will lease farming lands in the UK. The company will also focus on reducing costs of different activities like supply chain and inventory management by implementing IT solutions like RFID. NFP will also provide necessary techniques to educate its farmers for growing high quality crops and vegetables. For spreading awareness regarding its product information, the company will implement integrated marketing communication (IMC). NFP must devise effective promotion and communication strategy to convince its target audience. For ensuring sustainability, it will maintain a long-term relationship with its suppliers, farmers and employees by paying them standard compensations. The NFP will aim to achieve competitive advantage by procuring high quality crops for manufacturing organic foods at low cost. Financial Plan For financing the new business, the required capital will be obtained from personal sources and also from banks and other sources. To reduce the initial cost the company will lease its land and buildings. It will also help to reduce the risk for the company. The company needs to pay for capital expenditures, cost of goods sold and fixed overheads expenses like administrative cost, salary etc. The following table shows the initial start up cost. Table 1 The company will aim to invest 45% of total capital from personal sources and rest from loan. The following table shows the capital sources, interests on loan and repayment of loan. Table 2 Initially, the company has to make capital investments for acquiring machineries, furniture and other fixed assets etc. The following table shows capital expenditure. Table 3 Sales for the first year have been projected based on the key information revealed from market and industry analyses. Necessary variable and fixed cost have been assumed as per the projected sales. The following table shows the cash budget for the first year including the inflow and outflow of cash. Table 4 The following table shows the income statement for the first year. Table 5 The above table shows that the projected profit for the year is £64125. This is quite a low return in terms of sales. The return on sales and on initial investment is 7.125% and 7.735% respectively. However, as per the above projected income and expenditure and total cost of assets, the return on asset (return/asset) is 1.00195. The company’s profit is expected to increase by next year, which will help it to lease more farming land. Conclusion The above business plan shows the entire planning for Natural Food Product Pvt. Ltd. The business planning for NFP has included all the important areas that are very crucial for the future success. It has distinctly identifies the major opportunities and challenges. NFP will make position in the market as per the underlying opportunities and challenges. The marketing and operational strategies are effective to penetrate the UK organic food market. The projection of financial statements are shows stable financial growth. Reference Anne Collins. 2007. UK Obesity Statistics. [Online]. Available at: http://www.annecollins.com/obesity/uk-obesity-statistics.htm. [Accessed on December 01, 2010]. CIA. November 17, 2010. World Factbook: Europe :: United Kingdom. [Online]. Available at: https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html. [Accessed on December 01, 2010]. Department of Health. 2010. Obesity. [Online]. Available at: http://www.dh.gov.uk/en/Publichealth/Obesity/index.htm. [Accessed on December 01, 2010]. Hill, A. July 01, 2007. Organic food under threat. [Online]. Available at: http://www.guardian.co.uk/environment/2007/jul/01/food.organics. [Accessed on December 01, 2010]. Moseley, G. B. 2008. Managing Health Care Business Strategy. Jones & Bartlett Learning. Watteville, A. D. and Gilbert, L. 2000. Advanced information and communication technology. 2nd Edition. Heinemann. Consider structuring the essay into these topics so that it is more detailed: 1. Executive summary - Done 2. Company description - Done - Details of companys products and services 3. Market and Customer Analysis - Needs more details - Identification of target market and client basis and company competitive advantage analysis 4. Marketing and Operations – Needs more details - Plans for production of goods, provision of services, sales and distribution 5. Company Organisation – Needs more details - Overview of key employees, organisational structure and anticipated staffing needs 6. Key objectives and timeline – Need to add - A schedule of quantifiable goals and associated timing. - Identification of critical elements necessary to achieving these objectives 7. Financial data - Done - Historical and projected financial information and statements based on companys business goals and current and anticipated funding 8. Appendix containing supplemental information, if required Read More