Food and Beverages Business in Australia - Case Study Example

BUSINЕSS РLАN FОR ОRGАNIZАTIОNS Student’s name Course & code Professor’s name University City Date Executive summary The energy drink investment, a minor niche in the beverages sector can be said to be an opportunity for investors. The business plan involves analysis of energy drinks processing and distribution. The energy drinks market having gained a 29% consumption within Australia demonstrates higher market feasibility. In the same manner, the business utilizing the existing production technology and the online marketing strategy demonstrates the technical aspect of the business. This is in the view that the financial investment into the business is affordable at about A$1.4 billion with expected annual revenue of A$0.8 billion. The manpower available within Australia makes it possible for the business to operate since the states have experienced and trained personnel in the field of beverage processing. As such, the business motivating the employees besides conducting research and development places the business ahead of the existing competitors. Table of Contents 1. Title page………………………………………………………………………….……….1 2. Executive summary ……………………………………………………………………….2 3. Introduction…………………………………………………………………...…………...3 4. Market feasibility…………………………………………………………………….……3 5. Technical feasibility…………………………………..................................................…...6 6. Financial feasibility……………………………………………...…...……………………8 7. Human resource feasibility………………………………………………...…...………...10 8. Conclusion ……………………………………………………………………………….11 9. References…………………………………………………………...………………...…13 10. Appendix …………………………………………………….…………….…………….15 Introduction The food and beverage industry has proven quite lucrative over the recent years. As a matter of fact, venturing into energy drink manufacturing and distribution within Australia provides an investment with high success possibilities (Cowburn et al 2016). Considering the statistics on the energy drinks business within Australia, it can be deduced that the investment in energy drinks industry has grown to relatively greater heights. Nevertheless, the manpower in Australia makes it possible for the investment into the venture since there are skilled personnel available and the resources that can be utilized (Davoren et al 2014). This retrospect paper seeks to discuss the energy drinks business plan with respect to the existing business in Australia Market Feasibility The food and beverages business is currently booming around the world. For instance, the energy drinks investment has taken much control of the market share for drinks in Australian states (Cowburn et al 2016). For example, globally, as at December 2008, the beverage industry had reached $26.9 billion global sales representing 47.3 percent of the global market. As a matter of fact, in 2015, the industry generated approximately A$94 billion which made it a major contributor to the Australian economy (Davoren et al 2014). The market breakdown for energy drinks in australia includes Mother energy drink, Red Bull, Cola soft drink, V Energy Drink, Pulse and Diet Cola. The consumption of energy drinks in Australia is estimated to be 29 percent of the population. Basing on the fact that the industry is useful for sportsmen and athletes, it can therefore be deduced that the statistics are expected to go higher with the increasing number of Australians participating in sports (Heckman et al 2014). The industry is fast growing considering that more flavours are being introduced into the market besides the population becoming more dependent on the energy drinks due to the tight work schedules that do not favor them to take much time at eateries. That is to say, there are increasing staistics on coffe and tea products consumptions in the past two year between 2013 and 2015. 46 percent of the Australian population is said to consume coffee related energy drinks wheras the consumption of tea related energy drinks was 38 percent (Dolekoglu et al 2015). Considering the rate of industry growth, it can be noted that the market is yet to attain its full capacity. This is due to the fact that more people are becoming trendy and prefer drinks and other beverages at work which provides more market opportunities for the industry with the growing populations (Davoren et al 2014). In Australia, people are getting the products from notable supermarkets like Woolworths, Aldi, Coles, IGA and Costco. Currently the products are being distributed by manufactures and distributors of non-alcoholic drinks like Coca-Cola and Pepsi (Heckman et al 2014). In Australian setting, it has been established that the consumers of energy drinks include athletes, college students and other younger generation between 18 and 24 years old (Dolekoglu et al 2015). The consumption of energy drinks comprised of flavored mineral waters and soft drinks between 2011 and 2012 was peak amongst young population between the age of 14 and 18 by 51 percent which is contrary to the consumption of caffeinated energy drinks where adults between 51 and 70 years dominate the market. For instance, consumption of caffeinated energy drinks is estimated to be done by 4.5 percent of children between 2 and 18 years, 34 percent of teenagers between 19 and 30 years and 66 percent of the population between the age of 51-70. These customers are majorly shoppers at the supermarkets as it has been noted that 99 percent of the customers at such supermarkets like Woolworths purchase at least one drink (Cowburn et al 2016). Basing on the state of the customers in Australia, it can be deduced that the industry depends greatly on the supermarkets. Setting up the business as a stand-alone enterprise provides a better alternative for these customers whose intention is to have a drink without being interrupted by other shoppers, say, at the supermarkets (Council 2015). Therefore, the customers for this business are relatively the same number of customers presently available in Australia, that is, 29 percent of the population. The setting up of this business depends on the government policies that are rather the external considerations (Traill et al 2014). Australia, being a multi-state country, it is difficult to segment the market as one entity and therefore setting up of outlets throughout Australia will depend on working with each state independently. The government regulations on food and beverages which requires new enterprises to fulfil various health considerations present a challenge to entry (Council 2015). Moreover, the larger established investments like Woolworths have gained credibility within the country and therefore intimidate new investments reducing the risk of competition. Technical Feasibility The industry is a competitive one and therefore utilizing the existing technology will definitely prove effective in alleviating the competition. As such, developing the technology will be done by the technical team for the business (Tepic et al 2014). This will make the customer service easier and effective besides saving money that would rather be utilized for subcontracting. Moreover, designing the technology like websites for the company that allows customers to place orders over the internet places the business at a better position in terms of altering the technology to suit certain unseen situations like designing discounting schedules for premium customers (Council 2015). The production of the drinks will highly depend on in house production (Smith & Pititto 2014). This is because at the start of the business, the funds will not be enough to allow for outsourcing of expertise. Besides, the team for production will gain experience by participating actively in the production of the drinks which saves money for training programs for the workers and outsourcing of the expertise. The sales and distribution will be dependent on a combination of mechanism. This will involve utilizing the in house sales at the production points to make maximum utilization of the space for the business (Levy & Shrapnel 2016). The in house sales wi be done by designing outlets like restaurants that serve the drinks to customers as retail shops within the reach of the company’s premises. Moreover, using distributors and sales representative will be used in order to reach far markets increasing the trading zone. The energy drinks investment requires various raw materials that are locally available in Australia (Heckman et al 2014). For instance, preparation of caffeinated drinks will utilize the locally available coffee and the water for flavoured and soft drinks which saves money for importing of the raw materials. Besides, facilities like coffee pots and refrigerators for storing the manufactured products are to be sourced within Australia from reliable suppliers like Hotpoint and Ramtons who provide equipment with warrantees to mitigate the costs for repairs and replacements. In the same manner, hiring of qualified personnel in the field of energy drinks processing who are available within the country will allow the business to utilize the available skills to provide quality beverages in large quantities besides avoiding preparing products with higher levels of caffeine than recommended. Besides, Sacks et al 2015 demonstrates that, Australia, being a country that is rich in cultural tastes, the business will diversify in the varieties of the energy drinks to suit the tastes of the customers. Energy drinks, being classified under food within Australia, are regulated under Standard 2.6.4 which is a subsection of the Australian and New Zealand food and Standards Code. The code indicates substance levels to be added into the energy drinks besides indicating that sale of energy drinks should not be mixed with alcoholic drinks (Levy & Shrapnel 2016). Moreover, the code points out that the processing of the FCB must not involve mixing of non-alcoholic soft drinks in forming a product. Similarly, the considerations for Competition and Consumer Act of 2010 requires that the labelling of the products is done properly in regard to the contents especially for high level of caffeine to indicate a declaration of the high quantities (Traill et al 2014). The labelling will be done in such a way that the business presents their products through a specific trademark that is unique within and outside Australia besides noting the amount of each substance included in the specific drink. The business utilizing the personal certifications like logos on the containers will enable the business to establish a reliable way of dealing with the environmental threats like dumping (Phillipov 2016) This will be regulated by introducing litter bins that will be used in various outlets to reduce the levels of pollution. Through the research on the industry, it was established that the energy drinks are not allowed to be sold in primary and secondary school besides being prohibited for pregnant and lactating mothers since the drinks are presumed not to contain any nutritional value (Kass et al 2014). Moreover, the advertisements of these drinks are not directed at children besides the children being the leading consumers of the products. These ethical considerations are a hindrance to the well-being of this business. The online marketing technology is changing fast and this has a positive impact on the success of the business. This is because advertising of the business is easier over social media platforms like twitter, Facebook, WhatsApp among others than the traditional television and newspaper adverts (Phillipov 2016). Besides, allowing online order placement for the products allows the business to gain customers from places that are far from the locale of the business (Levy & Shrapnel 2016). Financial Feasibility Basing on the total turnover for the larger supermarkets in Australia that deal in beverages, especially energy drinks, it can be projected that the revenue for the business can be relatively A$0.8 billion as total revenue (Levy & Shrapnel 2016). The sale of the products can be estimated to be 0.5 million units which represents A$5 million dollar sold having each unit sold at A$10 dollars. The business start-up investment is rather involving since it involves rental of space and structures besides other equipment and facilities. This is summarized in figure 1.0 below and appendix A, source: Heckman et al 2014. Asset Cost (A$) Rental space 40,000 Computers 70,000 Bottle fillers 10,000 Refrigerators 15,000 Coffee pots 5,000 Research and development 140,000 Legal requirements 30,000 Experts hiring 80,000 Transport means 150,000 Total 540,000 Figure 1.0 start-up expenditure Source: Heckman et al 2014 These expenses are nevertheless set to go higher by 20 percent with the growth of the business (Levy & Shrapnel 2016). This is because the production depends on the availability of the raw materials and the high level of expertise. The payback from the venture is however not lucrative at first since the operational costs are high. In the first year, it is projected to be A$0.8 billion. However, the reward from the business are projected to outweigh the risks considering that the investment will require least operational costs in the subsequent years (Smith & Pititto 2014). Reducing the operational costs will ultimately increase the profit margins for the business. Alternatively, investing in online advertisement of other products is likely to be more profitable compared to energy drinks processing and distribution. The alternative requires less structure and therefore less funding but likely the returns will be less than the expected returns on energy drinks (Davoren et al 2014). As discussed by Davoren et al 2014, the possible financial risks in setting up the venture includes signing over mortgage as a goodwill for the lease of the business space. This poses as a threat in case the success of the business is not guaranteed considering it is dominated by more established firms. The bank would provide a better alternative for the source of funds through asset financing (Smith & Pititto 2014). Besides, leasing out mortgage can serve as a possible source of the extra funds for the business start-up. Having a gross margin of 7% increase annually, the business is lucrative within Australia and other countries worldwide. However, for the first year, the return on investment is set to be 12%. This, considering the payback within three years, it is likely to have a 20 percent payback on the venture. Within a 2-year period, it is not expected for the business to attain breakeven. Human Resource Feasibility The business involves technological equipment operations and therefore, the required personnel have to be computer savvy to help in conducting market analysis and the analysis of the products before being sold to the customers (Smith & Pititto 2014). Moreover, the venture requires managers who will coordinate the activities within the business including hiring new staff. The technicians on the other hand are expected to conduct the activities on the ground like equipment operation and advertising of the business over the internet. The venture technically requires trained personnel advertising vacancies that allow experienced personnel for application and conducting interviews will allow the business to get reliable and experienced manpower. Since the manpower will be of skilled personnel, the compensation will involve paying for production so that they are motivated to produce more (Davoren et al 2014). The growth strategy for the business involve maintaining quality in production through motivating the employees through incentives (Cowburn et al 2016). Besides, conducting research and development activities to establish new trends in the venture besides the employees participating in refresher courses will help boost the quality of the products and services offered (Heckman et al 2014). With the growth of the business, the organizational structure is subject to change to incorporate supervisors and managers for different sectors like operations manager, marketing managers among others (Smith & Pititto 2014). These posts will serve as career paths for the employees since they will be provided with opportunities to fill the posts as they advance. Conclusion Conclusively, it has been established that the energy drinks industry within Australia is developing at a fast rate though the market has not reached full capacity (Cowburn et al 2016). However, the opportunity cost seems to be fair since the other alternative though being less costly, the returns from the market would be low since it would focus on established firms compared to the energy drinks industry which utilizes the public as the market (Davoren et al 2014). References Council, AB 2015, ‘Energy drinks: An industry commitment’. Cowburn, G, Matthews, A, Doherty, A, Hamilton, A, Kelly, P, Williams, J, Foster, C & Nelson, M 2016, ‘Exploring the opportunities for food and drink purchasing and consumption by teenagers during their journeys between home and school: a feasibility study using a novel method’, Public health nutrition, vol. 19 no. 01, pp.93-103. Davoren, SL, Mills, C & Jones, AK 2014, ‘National and Regional Perspectives of NCD Risk Regulation: Australia’, Regulating Tobacco, Alcohol and Unhealthy Foods: The Legal Issues, Routledge, UK. Dolekoglu, CO, Kara, A, Erel, G & DeShields, OW 2015, ‘Modeling Soft Drink Buyers’ Preferences for Stimulant Beverages: Empirical Evidence from an Emerging Market’, In Proceedings of the 2009 Academy of Marketing Science (AMS) Annual Conference, Springer International Publishing., pp. 231-231). Heckman, MA, Sherry, K & De Mejia, EG 2014, ‘Energy Drinks: An Assessment of Their Market Size, Consumer Demographics, Ingredient Profile, Functionality, and Regulations in the United States’, Compr Rev Food Sci Food Saf [Internet], 2010 May [cited 2014 Apr 2]; vol. 9 no. 3: 303–17. J. Chromatogr. A xxx. Kass, N, Hecht, K, Paul, A & Birnbach, K 2014, ‘Ethics and obesity prevention: ethical considerations in 3 approaches to reducing consumption of sugar-sweetened beverages’, American journal of public health, vol. 104 no. 5, pp.787-795. Levy, G & Shrapnel, W 2016, ‘It is clear that the beverage landscape in Australia is changing’, Nutrition & Dietetics, vol. 73 no.1, pp.114-114. Phillipov, M 2016, ‘Using media to promote artisan food and beverages: insights from the television industry’, British Food Journal, vol. 118 no. 3, pp.588-602. Sacks, G, Mialon, M, Vandevijvere, S, Trevena, H, Snowdon, W, Crino, M & Swinburn, B 2015, ‘Comparison of food industry policies and commitments on marketing to children and product (re) formulation in Australia, New Zealand and Fiji’, Critical Public Health, vol. 25 no. 3, pp.299-319. Smith, L & Pititto, T 2014, ‘M and A activity in the food and beverage sector’, Food Australia, vol. 66 no. 4, p.24. Tepic, M, Fortuin, F, GM Kemp, R & Omta, O 2014, ‘Innovation capabilities in food and beverages and technology-based innovation projects’, British Food Journal, vol. 116 no. 2, pp.228-250. Traill, WB, Mazzocchi, M, Shankar, B & Hallam, D 2014, ‘Importance of government policies and other influences in transforming global diets’, Nutrition reviews, vol. 72 no. 9, pp.591- 604. Appendix A Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required in A$ Land ……………………………………………………………………………………40,000 Capital Equipment …………………………………………………...………………150,000 Computer ………………………………………………………………………………. 70,000 Beginning Inventory ……………………………………………………………….…. 100,000 Start-up Supplies ………………………………………………………………………. 50,000 Licenses and Permits ……………………………………………………………………10,000 Leasehold Improvements …………………………………………………………...…. 30,000 Utility hook-ups & Installation ………………...........................................................…. 60,000 Advertising (Preopening) ……………………………………………………….………50,000 Insurance …………………………………………………………………….….………15,000 Carbonators …………………………………………………………………….….……85,500 Total Estimated One-Time Cash Requirements ……………………………….……645,500 Start-up Operating Expenses Estimate No. of Months Total Cash Item Monthly Expense X Before Break even = Required (A$) Owners Salary ……………………............................................................................…. 20,000 Employee’s salary, wages, benefits …………………………………………………. 140,000 Rent ……………………………………………………………………………………120,000 Promotion expenses …………………......................................................................…. 100,000 Supplies and postage ……………………………………………………………………80,000 Vehicle Expenses ……………...................................................................................…. 80,000 Telephone …………………………………………………………………………….…10,000 Travel …………........................................................................................................…...15,000 Interest ………………................................................................................................…. 70,000 Maintenance ……………………………………………………………………….…. 150,000 Total Cash Required to Cover Operating Expenses ……………………………….…. 635,000 Plus: Total One-Time Cash Requirements (Previous Table) ……….......................…. 560,000 Add 10% Safety Factor……………........................................................................…...119,500 Total Cash Required for Start-up ……………………...........................................1,400,000 Read More