Business Name: FRAGRANCES
Company Summary
Fragrances is a new natural and herbal cosmetics company proposing to set up a signature herbal cosmetics store in Central London. The store will deal in herbal cosmetics including perfumes.
The company has been setup by a team of three members who have years of experience in understanding and managing cosmetics business, channel marketing and high-level sales. The promoters will initially fund the business themselves as they believe strongly in their product idea. Market research among over 1000 women in various age groups shows that there is a demand for such products.
Sales projections for Fragrances are estimated be over £1 million for the first year, with a decent net profit.
The promoters feel that, by creating awareness of their products, many women will prefer to purchase their products for their own use, as will friends and family members.
Objectives
Create a niche market in herbal cosmetics industry
Generate retail sales of over £1,000,000 in year one.
Maintain a gross margin of over 65%.
Mission
To give an unlimited opportunity to women of all ages to become beautiful naturally
Keys to Success
Fragrances will:
Offer a unique line of herbal cosmetics that will take into account the differences in requirements of diverse age groups. Herbal cosmetic products are currently in demand today and are also available but there are no differences in cosmetics available for different age groups.
Satisfy the demand of women who do not want to use cosmetics containing harmful chemicals
Execute a targeted marketing campaign to generate awareness of the their products
Fragrances will be a UK-based herbal cosmetics company offering its customers a series of unique herbal cosmetics including skincare products, hair care products and perfumes. There will a wide variety in these cosmetics and will take the differences in requirements of diverse age groups. The store will have two product experts who will help the customers choose the right products according to their ages and requirements. The company will reach out to customers through their own signature store as well as its website.
In the future, the company will also explore the possibility of expanding to the entire UK by setting up a chain of such stores.
Company Ownership
Cosmetics industry in the UK is a growth industry dominated by a few key players. Fragrances needs to pool funding to be able to make its presence felt in the industry. It will be set up as a private limited company as the three promoters will pool in their funds and will form the core management team. As a private company it will be able to achieve its initial standing which would not have been possible as a sole proprietorship or partnership firm.
Start-up Summary
Start-up costs for Fragrances include legal costs, computer supplies, new product marketing, website design and regulatory costs for cosmetics[1]. Start-up assets are mostly dedicated to start-up stock.
Start-up Expenses
£
Legal
1,000
Computer Supplies
1,250
Marketing
15,000
Web design
2,500
Regulatory
4,000
General Administration (including rent and salaries)
137,000
Total Start-up Expenses
£160,750
Start-up Assets
Cash
£10,000
Start-up stock
£60,000
Other current assets
0
Fixed assets (Including fixtures)
£20000
Total assets
£90,000
Total Requirements for Expenses and assets
250,750
To start with, Fragrances will introduce its herbal range in skincare products perfumes.
Skincare products
These will include day creams, night creams, exfoliating creams, anti-wrinkle or anti-ageing creams. Within these there will be creams for specific age-groups and skin types.
Perfumes
Fragrances will start-off with a limited range of perfumes for the working women. In stage two, more variety will be introduced.
Source: National Statistics, accessed from http://www.statistics.gov.uk/cci/nugget.asp?id=6
Market Segmentation
The three main segments of the market who would buy herbal cosmetics are working executives, college and university students and ageing women. There will also be those who would shop for women, perhaps a husband, friend or a family member. Though the store will be in Central London it will cater to the needs of entire UK. Women living outside London will buy the cosmetics online through the company website. The absence of a store in small towns will not impact the sale as the product will be extremely effective and safe. The confidence will be based on additional expenditure on creating awareness about the products.
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As per the mid census estimates, the total women population in all age groups in UK is 30,730,300 (Source: NSO Statistics). In addition, statistics indicate that on an average 93% of total women in all age groups buy cosmetics. The potential market may be set at 28,579,179 (93% of total women). Based on the primary and secondary segments, the projected sales forecast is conservatively set at less then 1% of the total potential market (285,790), as highlighted in the following table and chart.
Potential Customers
Growth
2008
2009
2010
CAGR
Working women
0%
142,895
142,895
142,895
0%
Young girls
0%
107,171
107,171
107,171
0%
Ageing women
0%
26,793
26,793
26,793
0%
Others
0%
8,931
8,931
8,931
0%
Total
0%
285,790
285,790
285,790
0%
Product Elasticity:
The product is a necessity and is not highly price elastic. Consumers are ready to pay a higher product if they become aware of the unique benefits from the product.
Industry Analysis
The UK cosmetics industry accounts for £5 billion sales. (Source: Euromonitor – Consumer Europe 2002/3 – 18th Edition Pub. Euromonitor International Plc)) 93% of British women use cosmetics in some shape or form making us one of the highest users in Europe. (Source: Key Note Report – Cosmetics & Fragrances – A Market Sector Overview 10th Edition, Ed. By Eleanor Hughes) Convenience and benefits continue to be a key trend for British cosmetics consumers. Easy application and usage, as well as effectiveness, are the main requirements. Some of these products have a higher price positioning, but consumers appear willing to pay higher unit prices if products can offer genuine benefits in terms of saving time.
Fragrances will be a small segment of the cosmetics industry. The market is dominated by major players. Significant shifts in overall value share in this sector have primarily been achieved through major mergers and acquisitions such as L’Oréal’s purchase of The Body Shop.
Competition Analysis
Natural and herbal cosmetic products is a growing sector with the presence of a few big players such as L’Oréal’, Bodyshop, Boots and Johnson and Johnson. It is becoming stronger in the UK and UK is now competing with other European countries for product launches. There has been a 170 per cent increase on launches from the comparable period in 2006. According to a recent Mintel report, the UK has seen the largest increase in herbal beauty products of any European country even in the first quarter of 2007. The country accounted for a mere five per cent of the 1600 organic cosmetics launched worldwide in 2006, which has now risen to 19 per cent of the 1053 products that have already been launched globally in 2007.
In recent years there has been an explosion of activity as consumers have become more aware of the health benefits of using natural ingredients. Supermarkets have now begun to pick up on this trend, with leading chains such as Asda, Tesco and Waitrose all developing own brands to capitalise on the growing consumer demand for organic and ethical products.
Our marketing strategy is to create product awareness among women using cosmetics by strategically placing Internet ads, using direct mailers and generating PR.
Competitive Edge
The present herbal cosmetic retailers carry a mainstream line of cosmetics that are appealing to the masses. Due to their mass distribution model, it would not be prudent for them to carry small amounts of specialty items for specific age groups. By positioning in the market as a specialty store, Fragrances is confident that word of mouth will help to create product awareness across UK.
Fragrances unique selling proposition is that its products will be exclusive and customised for women in accordance with their age groups, skin types etc. Currently, no major cosmetic retailer and online stores offer such customised herbal cosmetics.
The primary weakness of Fragrance will be to generate awareness about the cosmetics and highlight how these are different from the other products available in the market. To generate sales, there is a need to first create awareness about the existence of the product and make it easy for potential customers to locate the speciality store. However, it will not be difficult to establish its presence in the cosmetics industry.
Marketing Strategy
Fragrances marketing strategy is crucial to its success. The company will need to create awareness of its products through:
Strategically-placed ads in women’s magazines and women related websites
Direct mail and e-mail advertising to working women
New product PR in publications for women
Sales Strategy
Sales are dependent upon creating awareness and generating excitement about the herbal cosmetics. The company will strategically place pop-up and banner ads on web-sites relevant to both women, use direct mail and e-mail lists and seek public relations coverage in relevant media sources.
Fragrances will fulfil orders through its speciality store. It will also offer returning customers an option to place their orders on the company’s official website, or fax in orders to the company.
E-orders: Customer can purchase online 24-hours a day, seven days a week.
Fax orders: Customers can fax in an order 24-hours a day, seven days a week.
Sales Forecast
The sales forecast for First Year 2008 takes into account slower sales at the beginning as the company creates awareness of its product and website. Initially the company will be selling limited range of skincare products and perfumes. As the company grows, it will explore the demand for other types of customised products.
The following table illustrates unit sales of 109,500 units for the first year. This would require the company to sell to less than 1% of its target market.
FY 2008
FY 2009
FY 2010
Unit Sales
Units Sold
109,500
115,000
121,000
Average unit price
£ 10
£10
£10
Sales Revenue
£ 1,095,000
£1,150,000
£1,210,000
Direct Unit Costs
£3
£3
£3
Direct Cost of Sales
£ 328500
£345000
363000
Initially the company will be managed by its promoters. They will oversee product development, the online store, speciality store and marketing efforts. Outsourcing will be used on some initial tasks, specifically the website design and maintenance.
Personnel Plan
As the company’s launch date approaches, two product experts will be hired to help with the speciality store sales. As the company grows, more personnel will be added as needed.
Personnel Plan
FY 2008 (in £)
FY 2009 (in £)
FY 2010 (in £)
Management team for 3 Members
£45,000
£45,000
£45,000
2 Employees
£20,000
£21,000
£22,050
Total People
5
5
5
Total Payroll
£65,000
£66,000
£67,050
Fragrances project the gross margin to be healthy percent (70%). Sales projections for 2008 are at over £1 million. Refer appendix for a projected profit & loss account, projected cash-flow statement and projected balance sheet for the period 2008-2010.
Start-up Funding
The promoters of the company will use personal funds to finance the start of this business. The primary start-up costs are as follows:
Start-up Expenses
£
Start up Funding
Start up Expenses to fund
160,750
Start up Assets to fund
90,000
Total Funding Required
250,750
Assets
Non-cash assets from start-up
80,000
Cash
10,000
Additional cash Raised
0
Cash Balance on Starting Date
10,000
Total Assets
90,000
Liabilities and Capital
Liabilities
Current Borrowing
0
Fixed liabilities
0
Accounts payable
0
Other current liabilities
0
Total Liabilities
0
Capital
Planned Investment
Shareholders equity
250,750
Investor
0
Additional Investment Requirement
0
Total Planned Investment
250,750
Loss at Start-up
(160,750)
Total Capital
90,000
Total Liabilities and Capital
90,000
Break-even Analysis
The following Break-even Analysis shows what is needed in monthly sales to break even.
Break-even Analysis (Year 2008)
Monthly units break-even
1,914
Monthly Revenue Break-even
£19,140
Assumptions:
Average per-unit revenue
£10
Average per-unit variable cost
£3
Estimated monthly fixed cost
£13396
This Confidentiality Agreement (the “Agreement”) is by and between (hereinafter “Disclosing Party”) and the undersigned recipient of information. (hereinafter “Recipient”)
Recipient and its Representatives shall not disclose any of the Confidential information in any manner whatsoever, except as provided under Permitted Disclosures. Recipient hereby agrees to indemnify Disclosing Party against any and all losses, damages, claims, expenses and legal fees incurred or suffered by Disclosing Party as a result of breach of this Agreement by Recipient or its Representatives
Appendix A
Projected Profit & Loss
2008 (£)
2009 (£)
2010 (£)
Sales
1,095,000
1,150,000
1,210,000
Direct cost of goods
328,500
345,000
363,000
Other costs
–
–
–
Cost of goods sold
328,500
345,000
363,000
Gross Margin
766,500
805,000
847,000
Gross Margin %
70%
70%
70%
Total Operating Expenses
396,025
375,667
352,917
Profit Before Interest and Taxes
370,475
429,333
494,083
EBITDA
370,475
429,333
494,083
Interest Expense
–
–
–
Taxes
148,190
171,733
197,633
Net Profit
222,285
257,600
296,450
Projected Cash Flow
2008 (£)
2009 (£)
2010 (£)
Cash Received
Cash from Operations
Cash sales
1,095,000
1,150,000
1,210,000
Subtotal cash from operations
1,095,000
1,150,000
1,210,000
Additional cash received
VAT received
0
0
0
New current borrowing
0
0
0
New other liabilities
0
0
0
Sale of other current assets
0
0
0
Sale of fixed assets
0
0
0
New Investment received
0
0
0
Subtotal cash received
1,095,000
1,150,000
1,210,000
Expenditure
Cash spending
58,000
86,000
95,000
Bills payment
652,232
691,342
727,276
Total spent on operations
710,232
777,342
822,276
VAT paid
0
0
0
Repayment of current borrowing
0
0
0
Purchase of other current assets
0
0
0
Purchase of fixed assets
0
0
0
Dividends
0
0
0
Subtotal Cash Spent
710,232
777,342
822,276
Net Cash Flow
384,768
372,658
387,724
Cash Balance
394,768
767,426
1,155,150
Projected Balance Sheet
2008
2009
2010
Assets
Current assets
Cash
394,768
767,426
1,155,150
Stock
60,000
60,000
60,000
Other Current Assets
0
0
0
Total Current Assets
454,768
827,426
1,215,150
Fixed Assets
Fixed assets Accumulated
20,000
20,000
20,000
Depreciation
0
0
0
Total Assets
474,768
847,426
1,235,150
2008
2009
2010
Liabilities and Capital
Current Liabilities
Accounts payable
53,900
57,085
60,020
Current borrowing
0
0
0
Other current liabilities
108,583
220,456
308,795
Long term liabilities
0
Total liabilities
162,483
277,541
368,815
Capital including profits
312,285
569,885
866,335
Total liabilities and Capital
474,768
847,426
1,235,150
Bibliography
Barrow Colin, Barrow Paul, Brown Robert, The Business Plan Workbook, (2001) Kogan Page Ltd
Blackwell Edward, How to Prepare a Business Plan, (2004) Kogan Page Ltd
Branson, Richard, The Best-Laid Business Plans: How to Write Them, How to Pitch Them (Virgin Business Guides), (2005) Virgin Books; New Ed edition
Covello Joseph, Hazelgren Brian, The Complete Book of Business Plans (Jan 1993), Sourcebooks
Eleanor Hughes, Key Note Report – Cosmetics & Fragrances – A Market Sector Overview 10th Edition
Euromonitor – Consumer Europe 2002/3 – 18th Edition Pub. Euromonitor International Plc
Finch Brian, How to Write a Business Plan, (2006), Kogan Page Ltd
McKeever Mike P., How to Write a Business Plan,(1992) Nolo Press
UK Population data accessed from http://www.statistics.gov.uk/glance/#population
Footnotes
[1] The UK cosmetics industry is regulated under the the Department of Trade and Industry’s 1996 Cosmetic Products (Safety) Regulations.
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