Connect Cafe Shop Business Strategies - Example

Connect Cafe Shop Business plan Student’s name: Instructor’s name: Course title: Date: Table of Contents Table of Contents ii 1.0 INTRODUCTION 1 2.0 MARKETING STRATEGY 1 2.1 Market Research 1 2.2 Analysis of Marketing Research 2 2.3 Marketing Mix & Customer Relationship Management 2 2.3.1 Product 2 2.3.2 Price 3 2.3.3 Place 3 2.3.4 Promotion 3 2.3.5 People 3 2.3.6 Process 4 2.3.7 Proof 4 2.4 Business Name 4 3.0 MARKET ENTRY AND GROWTH STRATEGY 5 4.0 FINANCIAL SUPPORT 5 5.0 PHYSICAL AND VIRTUAL ENVIRONMENT 5 6.0 NATURE OF BUSINESS 5 7.0 CONCLUSION 6 8.0 REFERENCES 7 9.0 APPENDICES 8 Appendix 1: PESTEL Analysis 8 Political Factors 9 Economic Factors 9 Social Factors 9 Technological Factors 9 Legal Factors 9 Appendix 2: Market Research Results 10 Appendices 3, 4 & 5: Growth Strategies Based on Industry Analysis and Internal Analysis 12 Appendix 3 industry Analysis 12 Porters Five Forces Model and Connect Cafe’s Strategic Position 12 Bargaining Power of Customers 12 Bargaining power of Suppliers 13 Threat of New Entrant to the Industry 13 Threat of Substitute Products or Services 13 Rivalry among Existing Competitors 13 Appendix 4: SWOT Analysis 14 Appendix 5: Connect Cafe’s Resources and Competence 15 Competitive Advantage Position 15 How Connect Cafe Will Add Value to its Products and Services 15 Appendix 6: Cash Budget for two years ending September 2014 (all Currencies in £) 17 Figure 1: those who are willing to attend and buy coffee at shops dealing with traditionally brewed ones 10 Figure 2: classification of coffee shops in Glasgow in terms of value and pricing 10 Figure 3: those who would purchase at an outlet with high value and competitively priced coffee 11 Figure 4: porter's five forces model 12 Figure 5: competitive strategy 15 Figure 6: generic value chain 16 Table 1: PESTEL factors 8 Table 2: SWOT Analysis 14 Table 3: cash budget projection 17 Connect Cafe Shop Business plan 1.0 INTRODUCTION Connect is a coffee shop that will provide coffee drinks with different flavours in Glasgow Scotland. Moreover, the restaurant will provide accompanying snacks and other non alcoholic and soft drinks like tea. The aim of Connect Café is to provide coffee drink brewed traditionally and grown organically with sweet aromatic smell. The café will have an ambient atmosphere where people not only drink coffee in hurry but in a relaxed mood especially in the evening so that they can connect with their buddies after long tiresome day. The ultimate aim is to redefine the experience in drinking coffee which isn’t being done by existing competitors. The other market focus is on teetotallers who would love to have that connection point. In terms of market segmentation, the shop will have varied menu with varied pricing, open floor lounge and executive one so as to cater for all economic classes. The aim of this business plan is to outline how the firm will operate, break into the market and attain leadership by creating value to customers. The plan does not focus much on financing since the funding will come from personal savings, family and friends to a tune of £ 2000. 2.0 MARKETING STRATEGY Marketing plays a chief role of connecting the firm and the product/service to customer. It is the proper marketing that allows any firm to gain market leadership through higher sales return and customer satisfaction. Proper marketing deals with the question of what do customers want, where the market is, who will buy and why they will buy the product (Ehmke, Fulton & Lusk, 2005 p. 2 & 3). Connect Café will have broader market by having differentiated services for different calibre of clients. This will be done in the context of service and hospitality marketing of intangibility, inseparability, variability and perishability. 2.1 Market Research The principal aim of marketing research is to pinpoint how marketing mix (7Ps) and its elements affect customer behaviour. The research allows a firm to gain a competitive adage over their competitors. Thus, this would guarantee market leadership if only combined properly and holistically with other functional business areas such as production and management accounting (Aaker, Kumar and Day, 2001, p.3). The first research was macro environment analysis/ scanning (see appendix 1). Secondly, the proprietor conducted market research by interviewing 120 people in Glasgow beyond the age of 21through grab sampling method. The study realised there is ready market for the intended service (see appendix 2 figure 1) 2.2 Analysis of Marketing Research The underpinning premise for developing this model of business was out of the realisation that most coffee bars that serve coffee drink brewed traditionally and grown organically with sweet aromatic smell do focus on upmarket clientele. On the contrary, this business will be operated on competitive prices to ensure affordability. Appendix 2 figure 2 and 3 shows that majority would like to take coffee drink brewed traditionally and grown organically with sweet aromatic smell, but the cost and or value is what prohibits them. Thus, they prefer cheap outlets or have it at home. In addition, they noted that the affordable ones that exist are not modelled to offer that ambient environment where people can catch up and connect after a long day. The existing ones are for self service and for those who want to have quick gulp. It is this market gap/ void that Connect Café is willing to occupy by offering coffee drink brewed traditionally and grown organically with sweet aromatic smell of the same value at the upmarket joints at considerable price. 2.3 Marketing Mix & Customer Relationship Management 2.3.1 Product The firm will launch a traditionally brewed coffee dried in the sun, roasted using wood fuel and grown in organic firms through innovative approaches. The coffee will be sourced from coffee zones in the world like Amharic mountains in Ethiopia and Kenya. This will then be blended to give it a Scottish touch. Moreover, clients will be allowed if they wish to participate in the process. The essence is to have quality products that add value at affordable rates and as means of public relations so as to have good public image that can be used to attract customers. To achieve the above, the key success factors will be to offer high value product as offered in upmarket shops at a lower price. 2.3.2 Price The firm will adopt pricing system of what customers are willing to pay for a product under certain conditions by having different pricing approaches. This should be achieved by employing multiple units pricing that allows for those who buy more than one product of the services to receive discount. Lastly the firm will employ the use of price skimming for most of their services. The essence is to undercut competitors by making it easy for clients to switch to Connect Café while creating a barrier to counter switching so that they can be locked in. 2.3.3 Place The other critical factor is about spatial distribution of products. Distribution is an important mechanism of getting products to the intended clients. To cater for all based on competitive pricing; the firm will be located strategically in Glasgow. It will have proximity to transport hub and offices so that who come out of these places can directly access it conveniently. 2.3.4 Promotion The firm will engage in aggressive promotion through advertisement, word of mouth reference, and offering of discount, customer loyalty management and linking up with known brands like McDonalds to sell their snacks. In addition, the firm will ensure there is strong communication link with clients and prospective ones so as to get feedback on the desired level of services and areas for improvement. 2.3.5 People The core aim of any organization is to be a market leader in their respective field of operation through delivery of high quality product and services. This desire for market leadership can only be achieved through investment in human resource by selecting and developing them. The organizations/sectors strength, success and failure rely on the staff recruited. The firm will strive to recruit staff and management who display proficiency not only in technical qualification but also with proven ability in interpersonal skills. 2.3.6 Process Process remains one of any organizations’ core concerns. In order to improve on service delivery, customer intimacy and loyalty, Connect Café will ensure that their services have a wide collection of options. The process of Just in Time production will be adopted. The idea behind this principle is to create the most value for the end customer by focusing on elimination of waste. It connects with marketing paradigm, as production is linked to the philosophy of value creation for the client who is willing to consume the product or service that offers the highest value. Thus, Lean production is centred with the idea of creating value with less amount of effort and fewer resources attached to it (Jackson & Jones, 1996, p. 12). Online booking will be accepted so long as payment is done in advance. 2.3.7 Proof Anywhere in the world, one would wish for physical evidence as a means of referral and indication of product quality. One of the approaches the firm will utilise is the use of testimonials and feedback as a means of physical evidence. This kind of marketing has been found to be an effective approach of locking in clients while at the same time attracting more (chartered institute of marketing, 2009, p. 7). 2.4 Business Name Brand name gives one the opportunity to exploit it for legally accepted commercial use. The essence of all this is to differentiate the goods and services of different traders dealing with the same products or even different ones. Apart from mere protection of intellectual property, trade mark has an important connection with marketing. One of the aims of marketing is to create a close bond between customer and the producer or the product/ services. One way of ensuring this is by having unique labels that allow the client to know that the product is from a preferred producer (Onkvisit & Shaw, 2009, p.338). The name Connect Café means a place where people can meet and have chart, date and cut deals while having coffee after long tiresome. Simply as the name suggests, it is a connection point with a difference. 3.0 MARKET ENTRY AND GROWTH STRATEGY The entry strategy of the firm is to provide traditionally brewed coffee of high value as offered by existing competitors at a lower price. The initial plan is to build large loyal customer base irrespective of person’s economic status. The aim is to rely of numbers rather than few to penetrate the market. Based on the porter’s model, the layers of advantage and that the firm has over the existing competitors is ability to combine value and price. The second is based on the internal competencies/ strengths (see appendix 3, 4 and 5). This means the firm will rely on creating barriers to entry into the industry and also exploit its strengths/ core competencies as its key success factors. The key strengths here will be differentiation and cost advantage. 4.0 FINANCIAL SUPPORT The initial starting capital will be sourced personal saving, friends and family at a tune of £ 2000 pounds. According to the observation and based on other trends, in the initial first year, there is no forecasted big break even since the firm will be building its brand name and customer base so as to be established in its market niche. Moreover, since the firm is new in the industry, production capacity would be improved on as time goes by (see appendix 6). 5.0 PHYSICAL AND VIRTUAL ENVIRONMENT The business will be physically located in Glasgow Scotland. Since the proprietor want to offer an ambient place and with no capital to build own premise, for the start the business will work with a lease. However, the firm will have virtual presence in internet where people can go through the menu, book/reserve and pay in advance. Apart from booking, the firm will have link with other websites where it can advertise it services. These will include social media and close suppliers and its own website. The shop will act as the only distribution point for the start. However, with progress the firm will venture in to mobile coffee dispensing and outside and office catering. 6.0 NATURE OF BUSINESS The business will be operated on sole ownerships as result of limited funding and need for initial growth. However, with time this will be reviewed as the growth continues. The reason for going for sole ownership is because of limited legal requirements and ability to have hands on management because the business is still at incubation stage. However, the proprietor will comply to all regulations of registering business and trade mark rights. Annually the firm will file tax returns and will employ the use of electronic tax register machines for ease of payments of value added tax and income tax. 7.0 CONCLUSION Porter’s value chain developed in 1985 recognizes that business organizations are basically an integration of activities geared towards designing, producing, marketing, delivering and supporting products and services. Every business organization has a specific and unique value chain which is the potential sources of their competitive advantage (Henry, 2008, p.102). the value chain that Connect Café will adopt is of value at competitive pricing and differentiation. 8.0 REFERENCES Aaker, D.A., Kumar, V. And Day, G. (2001). Marketing research. New York: John Wiley and Sons Barney, J.B. (2007). Gaining and sustaining competitive advantage, 3rd edition. Upper Saddle River, NJ: Pearson Education. Ehmke, C. Fulton, J. & Lusk, J. (2005). Marketing’s Four P’s: First Steps for New Entrepreneurs. Purdue Extension EC-73. Retrieved 4th August 2012 from: http://www.agecon.purdue.edu/newventures/Pubs/AICC-NewVenReportJune08.pdf Enz, A.C. (2009). Hospitality Strategic Management. New York: John Wiley & Sons, Inc Jackson, T. L. & Jones, K. R. (1996). Implementing lean management systems. Oregon Portland: productivity Inc. Henry, A. (2008). Understanding Strategic Management. New York: Oxford University Press King, A. (2007). Cooperation between corporations and environmental groups: A transaction cost perspective. Academy of Management Review, 32(3): 889-900. Kristandl, G. & Bontis, N. (2007). Constructing a definition for intangibles using the resource based view of the firm. Management Decision, 45(9): 1510-1524. Leiblein, M.J. (2003). The choice of organizational governance form and performance: Predictions from transaction cost, resource-based, and real options theories. Journal of Management, 29(6): 937-961. Leiblein, M.J. (2003). The choice of organizational governance form and performance: Predictions from transaction cost, resource-based, and real options theories. Journal of Management, 29(6): 937-961. Onkvisit, S. & Shaw, J. J. (2009). International marketing: strategy and theory. New York: Routledge 9.0 APPENDICES Appendix 1: PESTEL Analysis The strategic position of a business organization is influenced by how business organisations interact with the key external factors impacting on their operations and business activities. According to Kristandl and Bontis (2007, p.943), PEST analysis relies on an organization past events and experience but plays crucial roles in determining the future of a business organization. Enz (2009, p.53) notes that PESTLE analysis is an audit a business organization can undertake to determine environmental influences affecting the business and use the findings to develop strategic decision-making. PESTLE is an acronym for Political, Economical, Social, Technological, Legal and Environmental factors that have impacts on the business activities and operations of an organization. The following is the PEST analysis for Connect Cafe. Table 1: PESTEL factors Political Economic Social-Cultural Insecurity Issues affecting sales directly Tax system in Britain is remarkably low for corporate and personal taxes. Has a large economy base being racked fourth worldwide UK has Low inflation and strong government finances. Low Interest rates Stable economy with minimal inflation cases. Resent global recession greatly affected lending abilities for bank and UK was affected which led to closure of many businesses. Cultural influences on shopping trends vary from country to country across the EU. Next should consider exploiting opportunities in other states. Societies are high spenders and this culminates to more sales especially at peak seasons. Technological Legal Environmental The popular use of Wi-Fi hot spots within Cafes and Restaurants Increased information sharing through greater communication technology. Improved supply chain knowledge through greater sock control Tax rules are strict and heavy penalties imposed on failing to comply Most of the people are environmental conscious. Most products are expected to be environmental friendly; the public greatly reject any non-green business practice. PESTLE Analysis. Source: (Leiblein, 2003, p.942). Political Factors King (2007, p.890), argues that the UK government is stable and reliable with only a few disagreements with other EU members prevailing. As such, the political environment in which Connect Cafe operates in is a good one. The combined EU business environment provides strict policies that ensure businesses are protected through a well setup legislative system. Some of the rule imposed on local and international traders has both direct and indirect effects on Connect Cafe and its suppliers. Political factors can be impacted through labor laws, tax policies trade restrictions and the environmental law which will be felt by business organizations such as Connect Cafe. Economic Factors The prevailing economic situations and trends both at the local and international levels impact on the performance of business organization in all industries. However, in the UK under the Labor Government since early 1990s, the country’s economy has resisted any form of cyclical trends back into recession. Various elements of the economy have boosted the GDP growth biased towards retailing, service industries and the financial sector (King, 2007, p.891). Social Factors People are opting to non alcoholic drinks as an option for relaxing and passing time. Consumers are well informed about the products they want and are able to access lots of information from the media, TV, Radio and the internet, which offers resourceful information. Customers are able to determine the type of products they want, the manufacturer and even the supplier as all the information is available to them (Barney, 2007, p.13). Technological Factors The introduction of e-commerce in the mid 1990s can enable Connect Cafe to pioneer in implementing the internet technology in its online business. In addition they can create internet hot spots in the café. Legal Factors The legal framework for conducting business activities in the UK is well structured and encourages the growth of the market, business security, as well as sustainable profitability of most business organization across many business industries including cafes. In addition, there is support fund for young entrepreneurs like PSYBT Appendix 2: Market Research Results Figure 1: those who are willing to attend and buy coffee at shops dealing with traditionally brewed ones Figure 2: classification of coffee shops in Glasgow in terms of value and pricing Figure 3: those who would purchase at an outlet with high value and competitively priced coffee Appendices 3, 4 & 5: Growth Strategies Based on Industry Analysis and Internal Analysis Appendix 3 industry Analysis Porters Five Forces Model and Connect Cafe’s Strategic Position It is imperative that business organizations analyze their environment in order to be able to be able to effectively take advantage of prevailing business opportunities and achieve competitiveness. With this regard, Porte’s five forces model is a significant analytical tool available for business organizations to understand where such business opportunities lie in their industry and business environment. Goymer (2004, p.209) notes that Porter’s five forces model is essential for business organizations such as Connect Cafe in understanding both the business current competitive position and the strength of the position the business is perceived to move to. Figure 4: porter's five forces model Porters Five Forces Model. Sources: (Shrader & Heselbein, 2008). Bargaining Power of Customers In the restaurant industry just like in all other business industries, the customers are the most important players. The customer is the determinant in spending over buying clothes. Multiple of customers have a huge impact to the market. If many customers perceive that the prices are high, a company will have to reduce the prices to prevent mass shifting of customers to rivals in search of lower prices (Shrader & Heselbein, 2008, p.503). Bargaining power of Suppliers Supplier Power enables a business to assess the capacity the suppliers have to adjust prices. This is driven by the number of supplier in each key product, considering the uniqueness of each products o service they supply, their strength and control over the market and the cost that can be incurred in case the business decides to move to other suppliers (Henry, 2008, p.435). Connect Cafe main suppliers have limited control over the market as there are numerous suppliers. Threat of New Entrant to the Industry Threats mostly come from bigger enterprises in the industry that probably have more market base than Connect Cafe and may have an advantage of operation internationally. Threat of Substitute Products or Services There are various substitute products like cocoa, tea and other soft drinks. These can considerably eat to Connects market share. To overcome this, at given percentage, the café will sell the same products at the shop. Rivalry among Existing Competitors To curtail threats from existing competitors, the firm will be innovative and ensure total quality management so that the coffee is of high quality. The second is to be low cost producer through lean production. This will make the production and operational cost low. Consequently this is transferred to consumer. Moreover, this will make switching cost low in our advantage. To counter threat from new entrants, the firm will create barrier to new entrants by raising standards, locking in customers by creating high witching cost. Lastly is to drive internal efficiency through innovation, leadership and reward based management, management accounting, proper supply chain management and massive marketing to ensure customer loyalty. Appendix 4: SWOT Analysis SWOT analysis of an organization involves evaluating internal factors which have either beneficial or detrimental impact on the ability of an organization to effectively compete in the market place. Organizations strengths are internal resources and capabilities and regarded as an organization’s core competencies. It is these strengths that will enable Connect Cafe to create and maintain competitive advantage against competitors in the market place. Weaknesses on the other hand are those factors internal to an organization that jeopardize business performance and competitiveness in the market place. Table 2: SWOT Analysis Strengths Weaknesses Winning strategy in terms of cost and value Bringing new approach of traditionally brewed coffee and client participation Skilled workforce Strong in-house research and development First time experience in the coffee business therefore limited knowledge unknown brand name limited starting capital Opportunities Threats Bigger market to be tapped Opportunity to offer unique services that are not currently being offered High competition from existing rivals Reinvention of various industry brands with cost-leadership strategies Appendix 5: Connect Cafe’s Resources and Competence Competitive Advantage Position Competitive advantage is the advantage a business has over its competitors that is gained by providing customers greater value, either by means of lowering prices or through providing greater benefits and services that will justify higher prices. According to Michael Porter, there are two basic types of competitive advantage, which include cost advantage and differentiation advantage (Strasser, 2011, p.17). Michael Porters Model of competitive advantage. Source:(Brown, 2010). How Connect Cafe Will Add Value to its Products and Services The value created by s business is equal to the benefits the customers receive less the costs incurred by the firm’s suppliers and the cost of using the firm’s own assets. When a business increases value created, companies benefits are increased with low costs for its suppliers. The firm gets to utilize its resources effectively. Value creation in a business organization is addresses the economic logic behind the organizations existence. A business becomes more profitable as it creates more value for its products. In Michael porter’s models on competitive advantage, he defines a value of chain as a set of activities that a business does to create value for its customers. Porter value chain focuses on systems and how inputs are transformed into outputs until purchased by customers. Porter’s generic value chain model consists of both primary and secondary activities. Primary activities consist of such activities as physical creation, sale, maintenance and support of products or services. This includes inbound and outbound logistics, operations, marketing, sales, and service (Strasser, 2011, p.45). In Connect Cafe Inbound, logistics are the procurement processes for receiving material from suppliers and the operations involve putting the coffee and other products to counters in its chain shops to be sold to customers. Marketing and sales processes in Connect Cafe involve physical and online marketing in its websites, marketing its products in the Connect Cafe Directory and in the Media including billboards, magazines, Television and over radio. Secondary activities also referred to as support activities support the primary functions of the business. In Connect Cafe, the supportive functions include the procurement process, the human resource management Ventura that manages all the companies IT systems and the Connects Cafe Directory. The entire infrastructure includes all the shops in malls, its chain store shops and all the facilities that the company has put in place in order to enable its operations to be successful. Figure 6: generic value chain Porters Generic Value Chain.Source: (Burrow, 2008). Appendix 6: Cash Budget for two years ending September 2014 (all Currencies in £) Table 3: cash budget projection 2012 Sept /013 Sept 2013 Sept/014 Sept Beginning cash balance 2000 28, 000 Expected cash receipts Cash sales 78, 000 100, 000 Collection of account receivable 120, 000 130, 000 Other income 0 0 Total cash 200, 000 250, 000 Expected cash payment Raw material/inventory 80, 000 90, 000 Payroll 40, 000 40, 000 Other direct expenses 7,000 6,000 Advertising 15, 000 17, 000 Selling expense 5, 000 4, 000 Administrative expense 10 ,000 9, 000 Plant and equipment expenditures 11, 000 13, 000 Other payments 4, 000 1,000 Total cash expenses 172, 000 180, 000 Ending balance 28, 000 50, 000 Read More