Business Plan
Table of Contents (Jump to)
Executive Summary
Section 2 – Business Summary
2.1. Business Description
2.2. Business Objectives
2.3. Current Situation and Background
2.4. Financial Situation and Legal Requirements
Section 3 – Industry Analysis
3.1. Industry Description
3.2. Industry Growth
3.3. Future Industry Developments
Section 4 – Market Summary
4.1 Market Analysis
4.2 Market Segmentation
4.3 Market Research
4.4 Competition Analysis
4.5 Competition Strengths
4.6 Competition Weaknesses
Section 5 – Sales and Marketing
5.1. Marketing Strategies
5.2. Unique selling point
5.3. Media, promotion strategy and advertising campaign
5.5. Budget
Section 6 – Financial considerations
6.1. Pricing strategy
6.2. Projected sales
6.2. Other financial considerations
Cost
Appendices
Appendix 1 – Cash Flow Forecasts
Section 2 – Business Summary
Due to the impact of supermarkets growth and rising costs the numbers of local and convenience stores are declining[i], particularly in rural areas. This means consumers in many of the rural areas of Wales are finding themselves having to travel further afield for their basic grocery shopping requirements, which can present difficulties, particular for the older age segment and those in single families or with busy lifestyle. It is therefore seen that there is an opportunity for the introduction of a mobile grocery business to service these consumers needs on a regular basis, bringing convenience store benefits and prices to their locale.
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This business plan presents the case for a business that will fill this niche market sector. Provisionally named North Wales Mobile Grocery (NWMG) the business, whilst not a new concept, is innovative in that it brings all of the benefits of convenience shopping close to the door of the consumer whilst at the same time eliminating many of the shopping difficulties experienced by consumers in rural areas, particular those in the older age segment, single families and with busy lifestyles.
The business plan is being presented with the intention of seeking a partnership with a branded grocery organisation that will provide the capital investment to assist with its development and future growth programme.
2.1 Business Description
NWMG will operate two mobile shops offering convenience store shopping close to the homes of those who live in the rural areas of North Wales that are not adequately serviced by local stores. The two stores will be of different sizes, with the larger on being based upon a refurbished coach, with the smaller vehicle being either a reasonable sized van or smaller coach version. The advantage of the former is that, with its low level access, it will allow elderly shoppers to board and browse. The smaller vehicle will be operated on the basis of the consumer having their requirements served personally by the vehicle operators, and will be better able to service the more remote locations where accessibility would be difficult for the larger vehicle.
It is anticipated that the vehicles will be able to carry a range of between 100 and 200 products, with the larger vehicle having the ability of offering a small range of frozen items. This will include all of the staple and basic grocery and food items that are always in demand by consumers.
The mobile shops will operate on a time slot basis at convenient locations that will serve between one and three streets. Dependent upon demand, each area will be allocated between one or two slots a week. It is anticipated that each slot will cover a time period of one and a half hours. With hours from 7.30 am to 9.00 pm, and allowing for thirty minutes travel between slots and six day opening, this provides the business with seven retailing slots per day, equalling 42 retail slots per vehicle per week.
To enable the business to operate on the basis of offering competitive prices, it is the intention of the proprietor to develop a partnership relationship with an existing grocery distribution or retailing brand so that the business will gain low cost competitive advantage[ii] from the economies of scale that partner can offer. The will enhance the ability of the business to deliver consumer satisfaction and at the same time assist in the development of a loyal customer relationship.
2.2 Business Objectives
The objective for the business is to create a quality alternative convenience shopping experience for the consumer, one that will bring quality service at competitive prices. In addition, this experience will address the true meaning of convenience, being located a few steps away from their door at a time when they need to avail themselves of the products being offered for sale.
Following the successful establishment of this pilot business, for the longer term the proprietor is considering commencing a franchise operation that will expand into other rural locations throughout the UK and Ireland.
2.3 Current Situation and Background
The growth of supermarket chains within the past few decades, with their share of the grocery market rising to 75% in 2006[iii] together with the increased costs of running a local business, has led to the demise of many local stores during the course of the past few decades, a position that experts expect to continue[iv]. In many rural areas this has created a situation where consumers have been left with no local stores, forcing them in some instances to travel reasonable distances to do their daily and weekly shopping in out of area stores. Of itself, this presents difficulties for the elderly, single parent families and those with business rural lifestyles. Valuable time and money is having to be spent by these consumers in having to arrange for transportation or to take time off work in order to do their shopping at distant supermarkets. Furthermore, there is a need to purchase additional supplies during these visits as they have no convenient store from which to satisfy sudden extra need or impulse buying requirements. The disadvantage of this situation is that any price benefit gained from their shopping is eroded by the extra cost and inconveniences they experience.
It is these problems that our mobile service is intended to address. Between once and twice a week our mobile stores will bring convenience back to the local area. It will reduce the trauma of having to make time consuming and difficult trips for the elderly and those who have time limitations. Furthermore, the small price differential between our products and those offered by distant stores will be more than offset by the cost saving of the travel involved.
2.4 Financial Situation and Legal Requirements
As this is a new business, there is no financial background to rely upon. However, a detailed financial plan has been constructed and is attached within the appendices at the end of this plan. This shows that the business requires funding of £X,XXX,XXX to complete its programme. To facilitate the attractiveness of the investment, it is intended to set the business up as a limited company, which will provide the investor with formal shares, which will pay out dividends as well as having the potential for capital gain return.
In terms of legal requirements, the owners are aware that the business will need to comply with all the health and safety regulations relating to food retailing. In addition, if the product range is to include alcoholic, tobacco and other legally controlled products, the relevant licences will need to be applied for.
Section 3 – Industry Analysis
3.1 Industry Description
Latest statistics show that the numbers of local and convenience stores, particular those that are independent, are continuing to decline[v], and there is little sign of this situation being reversed within the foreseeable future. The statistics also show that the position in respect of independent stores is being exacerbated by the increase in the share that supermarkets and multiples are taking of the convenience retailing market. For example, Tesco now has a 6% share of the convenience store market[vi]. However, the supermarkets and multiples, despite the inroads they are making into this market segment, still have catchment area criteria that need to be met before they will consider opening a convenience store in a specific location. This means that consumers in the less densely populated and more rural areas of the country, as is the case in North Wales, are the losers, as these larger organisations do not consider the replacement of closed down stores in these areas as being economically viable, which thus leaves consumers in these areas bereft of the convenience retailing services available to their suburban neighbours. Indeed, a recent report showed that between 2002 and 2006, 7,337 or 4 independent retailers a week were forced to close this businesses, which shows the significant scale of the problem that has been created[vii].
However, demographic statistics show that the consumer segmentation is changing. The UK consumer population is aging, particularly in rural areas[viii] as are the general lifestyle and social habits of the population as a whole. Similarly, there is increasing pressures being seen to affect long distance shopping experiences, which includes the rise in traffic congestion problems, environmental concerns, both in terms of climate and the degeneration of local community life. As a result of these issues, consumers are increasingly turning towards convenience shopping as being a more appropriate alternative. By bringing a mobile service to rural areas, our business offers the consumer in those areas the ability to have that choice.
3.2 Industry Growth
Despite the decline in the number of independent retail outlets, and a slow down in the growth of supermarket growth over the past few years[ix], one area of industry grown that has maintained a fairly consistent level of increase is the convenience store sector. The IGD[x] report in 2007 shows that there was a growth of 4.9% in this sector in 2006, which took its revenues to over £26 billion, with expectations that this figure will exceed £35 billion by 2012.
3.3 Future Industry Developments
A Datamonitor report in 2007[xi] shows that the grocery market is perhaps the most competitive in UK retailing. This report confirms the research conducted by IGD in terms of the consumer’s control over the development of this sector, forecasting that in the next five year it is the changes in consumer perception and demand that will drive the market segmentation and, as has been seen, this is moving more towards convenience and local shopping as is predicted by IGD. However, neither of these reports, or other market observations, see the independent store sector recovering. With the decline of independents expected to continue, this provides additional opportunities for a business such as the one NWMG is proposing to develop in an area that is expected to suffer significantly from this decline.
Section 4 – Market Summary
4.1 Market Analysis
The grocery retailing market can be divided into three main segments. These are the supermarkets and multiples, who between them now how a share approaching 90% of the total market, leaving the co-operatives and independents with the balance[xii]. However, as a recent economic report produced by Defra[1] in (2003, p.18)[xiii]reveals, the situation is different in Wales, which has the highest number of non-superstores per 100,000 of population in the UK. It can thus be deduced that the continual closure pattern of independent stores is likely to affect North Wales, a more rural area of the country, to a greater degree than other areas of Wales and the UK, increasing the gap in the marketplace for the consumer orientated local store provision to be filled. However, with the problems of cost, competitive pricing and market share penetration affecting local stores the most, the meeting of consumer demands can be seen to be more appropriately filled through the introduction of the more flexible mobile store business model that is being proposed by NWMG.
4.2 Market Segmentation
In terms of segmentation of the North Wales market, the Defra report mentioned in section 4.1 also reveals that, in comparison with the rest of the UK, a high proportion of the Welsh population employment is concentrated in rural areas. Another report conducted by Swansea University also show that the age demographics in Wales is changing, with an above average growth of population in North Wales between 1981 and 2001 and an 88% increase in the numbers of people aged 75 and over in the three decades to 2001[xiv] These statistics show the potential for the increased need for convenience grocery retailing in the area, and a need that is set to continue to rise during the coming decades.
4.3 Market Research
Undertaking the market research, the results of which have been presented within this business plan, has helped the Proprietor of NWMG to identify the potential for the mobile grocery concept envisaged. For example, it has determined that there is a gap in the market that provides opportunity for business growth and also that the segmentation of population and the market performance are conducive to enabling the business to achieves its goals and objectives, both in terms of market share and financial projections. Furthermore, this research has confirmed that the consumer perception and demand is continuing to focus upon convenience “time limited” shopping rather than the “marathon” shops that were prevalent in the early days of supermarket expansion, which also fits in with the structure of the mobile store concept.
4.4 Competition Analysis
There is no doubt that the UK retail grocery sector is dominated by supermarkets and multiples and these represent a formidable force of competition. However, the Defra (2003, p.12) report referred to previously shows that in Wales, these retailers control under a third of the retailing stores per 100,000 people, when compared with independent stores. The geographical and widespread demographics of North Wales also make supermarket growth and penetration more difficult than it would be in a more suburban area. Another area of competition may also occur from smaller independent stores within close proximity to the areas that the NWMG business will be servicing, although it is considered that the price differentiation will limit the response from this sector of the market. Therefore, it is considered that, although competition from these sectors would be strong, some of that strength would be dissipated by these demographic obstructions.
4.5 Competition Strengths
Irrespective of the last comment made within the last section, the competition to NWMG does have some considerable areas of strength. Some of their main strengths emanate from their position of size and market dominance. For example, the economies of size[xv]and brand awareness give these businesses the financial and loyalty ability to be able to react positively and aggressively to any new market entrant. It is partly for these reasons that NWMG is seeking a partnership with an established brand to assist with the development of its business model.
4.6 Competition Weaknesses
However, as has briefly referred to earlier, there are some weaknesses that attach to the competition as well. Foe example, the low area concentration of the North Wales population and the geographical structure of the region make it more difficult for theses larger stores to be able to find suitable stores to fulfil the standard criterion that is needed before development is commenced. Similarly, the governments current determination to regenerate rural communities is also having a restrictive impact on the major chain development programmes. Finally, the supermarket growth is particularly constrained by the regulatory conditions laid down by the monopolies commission in terms of limits to market share positions. These issues will assist NWMG by muting any negative response form these competitors to its entry into the convenience market sector.
The proprietor of NWMG has used the market research conducted, in conjunction with other efforts, to endeavour to closely define the target market for the business. The result of this research conclusion is that the target market will be concentrated upon three main types of consumers.
The first, and perhaps primary market segment will be the older age segmentation. The inherent difficulties in terms of cost and transportation that these people experience as a result of the loss of their local stores. This is in addition to the desire these people have to reviving local facilities. Secondly, there is the large segment of the population that is employed in rural areas. Because of the constraints of their employment, these people do not have the ability to be able to access distant stores with the same ease as those who are employed within a more suburban or town location. Whether they are employed or self-employed, this sector of the population do not afforded the luxury of being able to pop to the local store at lunchtime or during a break. The final segment of the population being targeted is the singles market. This includes single parents who cannot afford to spend the time travelling to distant stores due to their child commitments, such as school runs etc., and those people who live on their own and do not wish to spend the time or expense travelling long distances to purchase a ready meal of few items of grocery needs.
The local position of the North West Mobile Grocery mobile stores together with their ease of accessibility, predetermined time slots that will be maintained on a regular basis and the price competitiveness of the products is seen to be addressing the concerns and demands of all of these target segments.
As seen from the attached cash flows, the owner intends to spend the first month organising the refurbishment and conversion of the vehicles used for the service, the estimated costs for which have already been provided. In addition, this time will also be spent in putting into place all of the other capital expenditure items and implementing the supply, administrative and management systems that are required for a business of this nature. From a retailing aspect, research will be conducted to enable the development of the initial time slot calendar and location rota, which will need to be established to ensure an efficient deployment of staff and vehicles.
From the human resource aspect, the employees selected will need to have HGV licences but, as customer service is also an integral part of their duties, it is intended to that the necessary training is undertaken by these employees to ensure they can interact with the customers in an effective and appropriate manner, thus building a relationship that will enhance the business product and create a loyalty factor that will continue to improve customer retention.
Another step in the initial development process for the business will be to address the issue of location parking. In addition to public parking availability it is also intended to enter into discussions with owners of Public Houses, elderly care homes, local farmers and local village community centres to assess the viability of these sites being used where appropriate. These have the added advantage of potentially attracting custom from those who frequent those establishments. As the business grows, the product range is likely to increase. Additionally, as customer relationships develop it is intended to introduce a limited request service that ensures the product range continues to reflect the products that customers require.
Section 5 – Sales and Marketing
5.1 Marketing Strategies
As the intention is for the business to position itself as a time determined local convenience store, a major part of the marketing strategy is to deliver the vehicle to specific locations at time slots that equate to local needs. For example, in areas of higher employment, these would be prior to office hours, lunchtimes and after office hours. Similarly, for areas with a high concentration of elderly and family residents, the mid-morning and mid-afternoon time slots are perceived to be more appropriate.
5.2 Unique selling point
The unique selling points of this particular business model, apart from the intention for the retailing opportunity to be where the consumer needs it at the time it is needed, is to maintain a competitive price, service and product range advantage. The partnership connection is particularly important in regards to the first and last of these advantages in that it will enable NWMG to keep prices at a level where the differential between these and distant store prices will be offset by the cost and time saving of making such a trip.
5.3 Media, promotion strategy and advertising campaign
Because of the nature and geographic area of the business, the media and promotional strategy will be localised, using newspaper, local radio and TV stations to promote the business. The approach will be further enhanced with the delivery of direct flyers, which will introduce the service and market research conducted through local questionnaires and interviews. This type of direct consumer feedback is considered to be essential for both the establishment of and future growth of the business. It also allows for the employees to begin to develop a customer relationship, whilst at the same time assisting the business in determining that it’s strategy is delivering to customer needs and satisfaction.
5.5 Budget
The budget details for the sales and marketing programme are addressed in more details within the cash flow projections. However, because of the localised nature of the business and the direct interaction with customers that will be achieved during retailing activities and the market research programme, it is not considered that a substantial budget will be required for this area of the business overheads. In this area also, in addition to comparing actual with budget coats, a system for monitoring the return on marketing expense will be maintained
The predominant owner of this business will the author this report, who intends to invest £30,000 of his own capital into the project. With the objective of forming a partnership with large grocery brand distributor or retailer, it is anticipated that this partner will be offered a position on the board of the limited company. The responsibility will be shared by these board members in the following manner. With regard to the day-to-day business activities and development, the author will be responsible for this areas. The new board members will have responsibility for product development and assisting in the development of the business retailing strategy for the future.
In addition to senior management, the business will employ four full time personnel. All of these employees will be required to have HGV licences and, as previously indicated, undergo customer relationship training. The employees will work in pairs on the two vehicles, dividing the responsibility of driving and retailing appropriately, with required rest periods being taken during the times when the vehicles are at a static location. To ensure that the required hours of employment are maintained the proprietor, who has an HGV licence, will act as a relief driver for part of the week on each vehicle.
It is anticipated that the above management and employee structure will serve the business during the course of the first year years of operation. Where required, other expertise will be engaged on an “as and when” required basis to deal with legal, accounting and taxation issues that affect the business.
Section 6 – Financial considerations
6.1 Pricing strategy
Although, due to the additional costs of transportation, staff, economies of scale and other overhead cost that attach to the type of business being operated by NWMG it will not be possible to maintain prices as low as those offered by supermarkets, as mentioned earlier, through the facilities offered by the intended partnership connection, including the economies of scale this provides, the pricing of products will be maintained at a competitive level for the local consumption and will largely by offset by savings that consumers achieve from lessening distant shopping trips.
6.2 Projected sales
In terms of the projection for sales, it is anticipated that the business will experience a reasonably significant rise in sales revenue within the first six to nine months of operations. From the position at the end of the first year the objective is to achieve an annual sales increase of around two and a quarter times in year two and approximately a third in year three. Although part of these sales progressions will come from product range and price increases, most of the increase will result from the business attracting an increased customer bases and encouraging additional purchases. The progression from year four onwards is likely to demand an increase in the number of routes covered, which will require additional vehicles and staff levels. All of these intentions have been incorporated within the projected cash flow forecasts and account statements that are attached in appendices one to three at the conclusion of this plan.
6.2 Other financial considerations
As can be seen from the cash flows, the majority of the capital investment for the business will be required within the initial months of trading. In total, these capital costs can be identified as follows: –
Item
Cost
Vehicle 1 – large
20,000
Vehicle 2 – small
12,000
Vehicle conversions
5,750
Computer
1,250
Retail equipment e.g. fridge & CCTV
1,500
Other
625
Total
£51,125
Retail equipment includes chip and pin and remote stock control programmes. Of this capital £27,000 of the vehicle is intended to be met through the provision of a six year hire purchase agreement, with the balance of the funding being achieved through the initial capital investments. As a point of interest, it is also intended to replace the business vehicles on a four year cycle, using the asset replacement fund, as this will maintain the professional image of the business and reduce the amount of maintenance costs expended during their usage.
The total financial requirement of the business is £75,000, which is anticipated to be met by a £25,000 investment from the proprietor and the remainder from the partnering organisation. In exchange for the partner’s investment, they will receive 45% of the business shares and the remainder of their investment will form the basis of the share premium account noted on the balance sheets.
Appendices
Appendix 1 – Cash Flow Forecasts
Notes to the cash flow
Number of weeks is counted by reference to the number of Saturdays in the month
No account has been taken for VAT and Corporation tax at this stage
Product price increases have not been taken into account as it is considered that these will be offset by increased costs
A contingency amount of 1% has been allowed to account for any unexpected expenses
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