Performance of T-Bags, a Specialty Teahouse - Essay Example

T-BAGS SPECIALTY TEAHOUSE BUSINESS MARKETING PLAN EXECUTIVE SUMMARY T-Bags is a specialty teahouse with an extensive selection of international teas (from Japan, China, India, Sri Lanka, Thailand, Egypt, Turkey and Africa) and accompaniments sweets, pastries, and cakes particular to that region). It provides a new tea experience by creating a relaxed environment for enjoying specialty tea beverages and is different to anything present in the London tea concept market today which consists of high-end establishments offering afternoon tea or family businesses in a bed and breakfast setting. The business is targeted at the increasing number of people who are frequent travelers and understand and enjoy exotic teas in a relaxed environment. It also provides tea blending services for customer who are keen to experiment with different tea flavors. TABLE OF CONTENTS Page I. Business 4 1. Company Overview & Strategy 4 2. Product Offerings 6 3. Pricing 6 4. Merchandising & Marketing 7 5. Customer Service 8 6. Store Design 8 7. Site Selection & Location 9 8. Store Operations & Management 9 II. Industry 9 1. Market 9 2. The London Tea Market 10 III. Customers 11 IV. Competition 12 V. Management 12 VI. Financial Projections 13 VII. References 16 I. BUSINESS 1. Company Overview & Strategy T-Bags is a specialty teahouse concept offering a broad and creative selection of tea beverages and accompaniments at convenient and accessible locations in the Metropolitan areas. The company provides its customers with a new tea experience by creating a new context for the traditional idea of "afternoon tea". T-Bags is different to other tea-based businesses in the U.K. market today. Most teahouses in the U.K. are usually family businesses (passed through generations) located in the countryside, or if they are in the city area, they are upscale and are housed in high-end hotels. Essentially, T-Bags is based on the specialty espresso bar concept (like Starbucks) which is already rampant throughout the country. Like the espresso bar concept, the specialty teahouse has a strong product focus - tea. However, unlike the other traditional teahouses, T-Bags offers an usually wide menu range in an environment where customers are encouraged to explore different tea flavorings and blends brought in from all over the world. In the short term, The Company's goal is to implement this concept, first, in a retail outfit of less than 800 square feet. The Company's medium term goal will then be to pursue an aggressive expansion strategy in London and other major Metropolitan areas in the U.K. to create a strong brand identity. In the long term, The Company's goal is to become the leading brand of specialty teahouses in the U.K. Although The Company's key selling point is its wide product offerings, The Company is aware that other teahouses in the market today are also able to follow this product strategy. However, The Company's unique selling point which encompasses wide product offerings, a unique customer experience and customer loyalty cannot be easily copied. The following five elements will differentiate T-Bags from its competitors and foster customer loyalty. High Quality Product Offerings. T-Bags has scoured the best places in the world that produces quality tea leaves and the products offered are uncompromising. To complement the tea-drinking experience, T-Bags also offers high quality accompaniments like sweets and pastries sourced from the same regions as the tea in order to provide a consistent experience. Customer Service. Since this business concept is new to the U.K., it is important that first purchases from customers are followed by repeat businesses. Therefore, it is crucial that all employees understand the concept of the business in informing customers of the various product choices. In order to achieve this, The Company will emphasize on product training, customer service development, and profit-sharing compensation to attract suitable candidates. Merchandising and Marketing. To create and reinforce a distinctive brand image built on the quality of its product offerings, the T-Bags logo will be used in product presentation, packaging, and leaflets. In addition, promotional items like free "tea-shots" of the day, loyalty cards, educational material for tea, posters and T-shirts will be given to customers at determined periods of time. Store Locations. Since the convenience of a teahouse is a critical element in attracting customers, the location of the stores will be located in high-traffic commercial areas in the city center. Store design and environment. The design of the stores will be open-concept with floor-to-ceiling windows with natural lighting and a clean and simple design plan that creates warmth. For furniture fittings, there will be a number of comfortable couches, cushioned chairs and low coffee-styled tables that will invite customers to stay and sample the different product offerings while catching up with friends. 2. Product Offerings While T-Bags' menu is primarily focused on tea offerings, it will also provide other accompaniments like sweets and pastries, in addition to retailing tea-related merchandise. Tea Beverages. T-Bags offers both caffeinated and de-caffeinated tea beverages from around the world, including China, Taiwan, Japan, India, Sri Lanka, and Kenya which are not commonly found in the U.K. market today. In addition to a la carte product offerings, customers also have an opportunity to explore different blends of tea with the help of the store's experienced team members and to customize orders according to individual tastes. Other Beverages. As T-Bags main objective is to be a specialty tea retailer, the only other beverage offered will be still and gaseous mineral water. Accompaniments. In order to enhance the tea selections sourced from different parts of the world, T-Bags will offer a broad selection of high quality sweets and pastries which are sourced from the same regions as the tea selections. Tea-related Merchandise. Merchandise like tea pots, tea caddies, tea cups and other paraphernalia sourced from around the world and customized exclusively for T-Bags (bearing T-Bags logos) will also be offered to encourage customers to purchase ready tea leaves or individual customized blends for consumption at home. 3. Pricing T-Bags prices its tea and other products competitively with the existing high-end tea prices offered by competitive tea houses in the city center. The following is a list of the basic price categories for tea offerings and related products: Description Price (Pounds) A La Carte Tea Orders (per cup) 3.50 Blended Tea Orders (per pot for 2 persons) 8.50 Sweets/Pastries (per serving) 3.50 to 5.00 Tea Pots (each) 15.00 to 35.00 Tea Caddies (each) 12.00 to 25.00 Tea Cups (set of 4) 16.00 to 25.00 Although prices are relatively higher in the high-end teahouses in the city center (for example, $6.50 for a la carte orders), T-Bags will not match these prices as the target market consists of customer who are not looking for luxurious settings with a fixed menu, but a unique relaxed experience where they are encouraged to explore with different tea blends. 4. Merchandising & Marketing The Company's marketing strategy is to create brand awareness, encourage trial purchases by educating customers about the tea offerings available and promote repeat business through the extensive product mix and friendly service. The details of the marketing strategy are as follows: Free sample shots for "tea-of-the-day" to allow customers to try new flavors and blends. Free delivery to nearby offices. Loyalty-Cards where one stamp mark will be provided for each tea purchase and ten stamp marks will enable a card holder to receive a free tea beverage of his/her choice. Free tea blending advice and techniques for specialties teas where customers have access to different tea leaves and are encouraged to experiment with different flavors that suit their personality. Reasonably priced tea merchandise like tea pots, tea caddies, tea cups and other paraphernalia sourced from around the world and customized exclusively for T-Bags. All merchandise will bear the T-Bags logo and some will be limited editions. Licensed hot-spot internet user area to encourage working customers to visit should they want to work outside of the office. Educational material like posters and leaflets detailing the types and quality of tea and its benefits. 5. Customer Service In order for this concept to be successful, the T-Bags retail team will need to consist of members who are passionate about tea and enthusiastic about sharing their tea knowledge with customers. The Company will carry out internal training programs to source, train and motivate employees on how to achieve maximum customer satisfaction which will set T-Bags apart from its competitors. All employees will also be outfitted with clean and trendy uniforms which consist of polo-neck T-shirts bearing the T-Bags logo and khaki colored cotton long pants with a black belt. 6. Store Design The concept for all store designs will be clean lines with floor-to-ceiling windows which offers natural lighting and a comfortable and warm environment. With at least 800 square feet in size for each store, the teahouse will be able to accommodate a high volume of traffic without being overcrowded. For furniture, there will be comfortable couches, cushioned chairs and low coffee-styled tables that will invite customers to stay and sample the different product offerings while catching up with friends. This distinctive store design will reinforce the difference between T-Bags and its competitors who either have five-star hotel settings or a country-side B & B environment. For this design concept, Black & Johnson architects has been engaged to provide an estimated cost for both the store concept and fittings. 7. Site Selection & Location T-Bags site selection strategy is to open stores in high-traffic, high visibility locations in the city centers like business and retail districts. In addition, the main location preference is also to be near busy tube stations or big commercial retailers like Boots or Marks & Spencers to cater to office workers for take-away orders which provides repeat business. 8. Store Operations & Management The store will be staffed by one full-time Store Manager and four hourly part-time assistants. This means that at any given time, there will be at least four employees in the store - two behind the counter and 2 on the floor serving customers and cleaning up. All employees will also be fitted with customized T-Bags uniforms. The store operating hours are 7:00am to 6:00pm, Mondays to Saturdays. The reason for the 7:00am opening hours is to cater to the office workers for take-away orders. II. INDUSTRY 1. MARKET The size of the market and its potential for growth Behind the Turks, Britons are the world's second biggest tea drinkers. (BBC) with 90% of tea drinking done at home (The Grocer 46). Following the launch in 2005 of a new campaign by the U.K. tea industry to highlight the benefits of tea to a younger audience, the number of 20-34 year olds drinking tea has increased for the first time in three years, with nearly two-thirds now drinking tea on a regular basis. (Tea4you) The U.K. drinks 165 million cups of tea a day, 62 billion cups per year. (Tea4you) The trends and recent developments in the beverages sector There has been a dramatic rise in the popularity of 'healthier' drinks, with herbal tea sales up by a third over the last five years. In this instance, cut-price supermarket brands (not the market leaders) are the biggest losers from the change in tastes (BBC). In tea markets around the world, people are moving away from cheap instant drinks towards drinks with a healthier, less-processed image (BBC). The opportunities for innovative small companies Although the tea business has existed for a while, the market in U.K. is saturated with most establishments existing outside the city center and managed by inherited family members, or housed in high-end hotels. According to the Top Tea Place Awards 2005 (managed by the U.K. tea council), examples of quality teahouses include the Ollerton Watermill Tea Shop in Nottinghamshire and The Conservatory at the Lanesborough Hotel at Hyde Park Corner , London. (Tea4you) The tradition of "Afternoon Tea" is also epitomized in posh settings like The Claridge's and Harrods. Here, the opportunity exists for tea establishments that is accessibly located in high-traffic areas and serves a clientele that does not necessarily want to dress up for a relaxing tea experience with friends and who appreciates the opportunity to create their own blend of tea. 2. THE LONDON TEA MARKET The following table relates the actual and projected consumption of black tea of the major leading countries around the world. (Food and Agriculture Organization, 2006) Black Tea Actual Consumption (2000) Projected Consumption (2010) India 617 919 Former USSR 224 315 U.K. 134 126 Pakistan 109 150 U.S. 81 94 Although U.K. is the world's third largest importer of tea, the projected consumption for 2010 will decrease. This is inconsistent with the increased figures displayed for India, the former USSR, Pakistan, and the US. The Food and Agriculture Organization of the United Nations (2006) attributes this increase to the response to promotional efforts on the health benefits of tea (for example, heart and blood vessel disease, some cancers, and bacterial infections). In explaining the decrease in projected tea consumption for the U.K., Simrany of the Tea and Coffee Trade Journal (2000) believes that the two major contributors include the need for convenience and product availability. Tea has always been seen as less convenient to prepare and consume compared with other beverages like coffee, soft drinks, and fruit juices, and is especially true for tea consumed away from home. The availability of good quality tea is also an issue as trend moves towards tea products in ready-to-drink bottles and cans. Although convenience and availability are seen as inhibitors in the tea market in the U.K., This Company believes that these are very factors that will provide T-Bags its niche in the market - the availability of good quality tea beverages found in convenient locations. III. CUSTOMERS T-Bags customers are essentially tea drinkers who are well-traveled and appreciate having the opportunity to taste varied tea flavors not traditionally offered by other tea houses. Another customer segment includes office workers, including a wide range of ages and income levels that are time-sensitive (who make frequent take-away orders throughout the week) but are looking for a quality cup of tea typically found in posh, upscale tea saloons. The stores' locations will be accessibly placed in areas where office workers commute on their way to work in the morning and/or during their lunch hour. IV. COMPETITION The Company believes that the principal competitive factors in the specialty tea market are product quality, the "brand" of the establishment, and store location. In this respect, T-Bags will compete not only with high-end tea houses in the city center and family-owned businesses in the outskirts of the city, but also with food and sandwich bars which offer low-priced tea beverages. In addition to current competition, The Company also anticipates potential competition from tea distributors who have access to tea sources from around the world and have the means and product knowledge to realize the same opportunity. As the market leader in this business concept, The Company plans to establish itself as a recognized brand in the U.K. before any other company can enter the market. V. MANAGEMENT The management structure provides a range of skills and experience linked to the retail industry, with one of the managing partners having an extensive knowledge in the tea industry. The following provides a background for the business partners: Bill Johnson Age 35, is a food & beverage director with Harrod's Department Store in the grocery division with a total of 12 years in the food and beverage industry. Mr. Johnson is also a tea connoisseur and has traveled around the world collecting and tasting different kinds of tea offerings. Mr. Johnson will be responsible for The Company's product management, marketing, operations, and site and lease procurement matters. Sarah Areni Age 31, is an investment banker by profession, having worked at Citigroup in London. Ms. Areni has an MBA degree from University of London and has a strong management and financial skills. She will be responsible for The Company's overall financial management, including financing, budgeting, accounting, and cash management. Together with Mr. Johnson and Ms. Areni, the company operations will also be supported by an experienced full time store manager trained in the food and beverage industry. VI. FINANCIAL PROJECTIONS Capital Costs A prime retail space of approximately 800 square feet will be leased and fit. The following are the forecasted capital costs: Lease Costs 96,000 (includes 80,000 pound lease deposit) Store Fittings 48,000 Specialty Tea Equipment 8,000 Misc. 2,500 ______ Total 154,500 In addition, the company requires a 37,500 pound working capital facility for the first year operating cash flow balances. This facility will be reduced throughout the first year, and will no longer be required during the second year. Sales The assumptions are based on the performance of one T-Bags teahouse throughout the year. Management's projection for first month revenue based on 250 visitors per day, escalating gradually over a period of six months to a steady number of 600 customers per day. This relates to an average of 430 customers per day, and around 650 pounds per square foot. During the second year, average monthly revenue is projected to exceed 600 customers per day. Based on research, the average London sandwich bar sells about 300-400 take-away cups of tea a day. Verdi's Garden on Knightbridge, which is a restaurant rather than a sandwich bar sells around 300 cups of tea on a Saturday alone, and cart operations selling coffee and tea beverages sell around 500 cups of tea per day. For this business plan, management is conservative in its projected figures as T-Bags is a new concept offering specialty tea only, and needs some time to build its reputation. Product Mix Management projects that 75% of customers will order a-la-carte beverages and the remaining customers will explore the tea blending options. Approximately 30% of customers will also order sweets and pastries or water. Salaries The store will house an experienced full-time store manager at 15,600 pounds per year, and two hourly rotating assistants at 5.00 pounds/hour. Financial Performance The Tea Counter has projected revenue of 520,000 pounds, operating cash flow of 62,400 pounds, and net cash flow of 29,800 pounds. Operating cash flow generated is approximately twice the monthly interest expense. REFERENCES "British tea drinking on the wane." BBC, Simrany, J. (2006), "The state of the tea industry." Tea and Coffee Trade Journal, Vol. 172, No. 1, January 2000, Tea4you (2006), . "Tea shakes off old image." The Grocer (2003), London, September 13. "World tea production reaches new heights." Food and Agriculture Organization (2006), . Read More