Market Growth, Micro-Market, and Financial Analysis, Competitive Environment, and Direct Competitors - Example

Business Plan Contents Contents 2 Business Plan 4 Objectives 4 Market Size and growth 5 Micro Market Analysis 7 Target Market 7 Current Trend 8 Customer Profile 8 Competitive Environment & Direct Competitors 9 Porter’s five Forces Model 9 SWOT Analysis 12 Competitive Advantage 13 Marketing Strategy 13 Equipment 15 Financial Analysis 15 Funding Requirements 15 Forecasted Sales Revenue (2016-2018) 16 Forecasted Income statement 16 Forecasted Balance Sheet 17 Cash Flow Statement 17 Breakeven Analysis 18 Managerial Competencies 18 Material Risks 20 Reference List 21 Appendix 23 Business Plan This is a business plan about establishing an organic food restaurant in London, which will have a retro-based theme. Such a concept is relatively new in the London hospitality industry, which makes this business plan a lucrative idea to explore. The restaurant has been christened as “Naturally Retro”. The restaurant will serve organic and healthy foods to its client in what can be identified as a retro based ambience playing live music by performers. This is one of the first theme based restaurants serving organic food, which makes it unique from the competitors. The live performance concept is expected to be the unique selling proposition of this restaurant. The restaurant has committed to serve only healthy food, with less calorie and fat content, keeping in mind the health conscious people of West London. This vision is to promote a healthy lifestyle for people by providing them with healthy and delicious food at the same time. This will primarily be a restaurant targeted for families who want to enjoy their food in a relaxing environment. Objectives Marketing objectives of a company can be described as a framework that is to be followed by the business at the beginning in order to achieve its goals. Products and markets have been identified as two of the major parameters that influence marketing objectives of any company. In order for a company to achieve its financial objectives, selling of products has been regarded as the most important parameter. All other actions like, advertising, pricing and service provided by the organization, has been considered as subsidiary services, which are performed to enhance sales of the company. In case of Naturally Retro, the following objectives have been identified: To achieve 2% of market share within first three years of its operation. To achieve 1.5% increase in revenue on an annual basis. To be regarded as a fine dining restaurant that promotes retro culture. To generate employment in the economy by hiring local talented performers. To establish a strong customer friendly atmosphere by recognizing needs of customers and catering to them. To maintain one of the best service quality. Market Size and growth There has been a surge in the demand for organic food in U.K. in the recent times, which in turn reflects attitude of people towards eating healthy food. Figure 1: Sales of organic products U.K. (Source: Soil Association, 2013) The above chart shows that demand for organic foods have consistently increased in the past decade till 2007 after which it had experienced a relative decline. However, reports published in recent years have shown that there is recovery of demand as the same for organic food in 2013 was 2.8% higher compared to 2012 (Doward, 2014). This implies that the trajectory of recovery has begun, which can be promising for the new business. In order to form an idea about the share of restaurants serving organic food in London, a comprehensive study is made. It has been found out that the share of restaurants serving organic food in London is relatively small. The following chart shows the same. This signifies that though demand for organic food is high, yet only few restaurants have grabbed this business opportunity (EVD, 2009). Figure 2: Percentage Share of firms selling organic foods (Source: Soil Association, 2013) Finally, the following graph shows increase in profit percentage of organizations serving organic food. It can be seen that restaurants that serves organic food have experienced high growth in recent years. Figure 3: Rise in profits from sales (Source: Soil Association, 2013) In past few years, London has experienced a surge in growth of unusual themes like, Burger and Lobster, Archipelago, Supperclub and Bunga Bunga. Each of these is themed differently and has become quite popular among the masses and this is prompting more restaurants to venture into this business (The Nudge, 2014). Naturally Retro propagates retro based theme of 80’s mainly centered on American retro music. Commercial pop music from 1960’s has become popular in recent times among the London youth, which increases marketing prospects of this business. It has been observed in case of U.K., that there has been a rise in trend of people eating outside. Fortunately this trend has been higher in case of eating healthy and organic food. According to statistics, 1 in 7.5 meals are eaten outside. It has also been estimated that about 19 million people are eating healthy food. These statistics clearly indicate a trend of healthy eating. The number of people eating outside in London alone has increased by 2 million from 2012 to 2013. Micro Market Analysis Target Market The target market for this restaurant is mainly upper middle class and upper class. It has been found in researches conducted regarding organic food that these food items are generally purchased by people with a higher social status as organic foods are priced relatively higher. This is the rationale of conducting this research. Additionally, women are found to constitute a greater proportion in the consumption of organic food. The target customers also include people who have interest in retro based music of 80’s (Han and Ryu, 2009). The presence of live performers in the restaurant is expected to attract people interested in music. Current Trend The current market trend in U.K. has shown that prospects for Naturally Retro are very high. This is because the percentage of people consuming organic foods is on a rise. Presently, it has been estimated that the UK Foodservice and Hospitality market is expected to grow by 1.8% in terms of sales reaching a value of £79.7 billion (EVD, 2009). A recent research, which was conducted on the extent of obesity, diabetes and the problem of overweight in London, has found that the proportion of people affected with these diseases is on a rise. On account of these problems that are being faced by majority of the crowd in London, there is an increasing tendency to shift towards healthy eating. Statistics show in case of women only the number of obese individuals had increased by 1.23 million from 2003 to 2010 (Diabetes UK, 2010). It is a well-established fact that population of U.K. is ageing fast and consumers prefer healthy food including organic food. Owing to all these factors, it can be argued that current trend in customer’s behavior is likely to be favorable for the business. Customer Profile In terms of demography, it has been found out in an independent research that people belonging to the age group of 35 has highest affinity for consuming organic food. Naturally Retro is targeting both business customers wanting to enjoy good quality food in a short span of time as well as families seek a good relaxing time. Additionally, it will be ideal for customers who are music lovers. Presence of such a restaurant will help in the promotion of music and art, which is also one of the factors that the government of London has been emphasizing on in recent times. Competitive Environment & Direct Competitors Porter’s five Forces Model Porter’s five forces model is a useful tool that helps managers to formulate the business level strategy. This helps in understanding competitive environment of the industry and helps the firm in developing its strategy accordingly (Grundy, 2006). Bargaining Power of Buyer: This acts as a strong threat only when buyers force down the prices due to their collective strength (Han and Ryu, 2009). However, it has been observed that in U.K., the number of restaurants serving organic food is relatively lower, which means that buyers or customers have less number of options of choice. This implies that strength of buyer in the restaurant industry is moderate as they have considerable options. Quality of food and price of food have been identified as two important variables, which influence buyers. Additionally, product differentiation has also been followed by restaurants for influencing buyers. Bargaining Power of Suppliers: The suppliers for the restaurant industry are mainly farmers who provide raw materials like. organically produced vegetables and butchers who provide meat. Recently, the government of U.K has been promoting organic farming meticulously, which has raised the number of suppliers. This implies that threat from the suppliers is not very strong for restaurant industry in U.K. (Stolzea and Lampkin, 2009). Even so, there has been a common consensus among existing players in the market that establishing a good relationship with the suppliers is an integral part in reducing cost of doing business. Rivalry among existing firms: Naturally Retro primarily targets customers who are health-conscious and has a knack for music. Based on current market scenario, it can be stated that Naturally Retro can face competition from Amico Bio, Gym’s kitchen and Saf Kensington, which serve healthy foods, particularly for health conscious customers (Evans, 2013). Similarly, there are a few themed restaurants like, Bunga Bunga and Burger and Lobster, which are themed restaurants. Therefore, it can be stated that competition that can be faced by Naturally Retro will be stiff. Threats of new entrants: Restaurant industry is one of the industries in which the start-up cost required to begin business is not very high. This encourages new entrepreneurs to enter the restaurant business easily (Stolzea and Lampkin, 2009). Additionally, barriers to entry in this industry are relatively low. In relation to the restaurant business in U.K., the government has introduced few regulations, which can act as barriers to entry to some extent. Firstly, the government has raised its commitment to reduce carbon footprint generated from the restaurants operating in London and secondly, introduction of goods and services tax by the government has visibly raised the cost of operation of restaurants (Soil Association, 2013). Apart from these, there are no barriers, which makes this threat a credible one. Threat of substitutes: Threat of substitutes for the restaurant industry can come from three different sources. The first one is other restaurants serving similar products, the second one being departmental stores that sell organic food and third is home-made food. These substitutes do not provide ready-made organic food, but they sell raw organic food, which can be easily cooked at home (Barrow, 2011). Furthermore, it can be argued that fast food centre and take away counters can also act as substitute for the products. Based on understanding of the forces that regulate the restaurant industry in U.K., this section now discusses about direct competitors of the business. Competitor Strength Weakness Vitao Serves quality organic and healthy food. Provides both buffet and a-la-carte options for customers. Good ambience Received negative publicity from certain food critiques regarding the taste of food. Criticized often on grounds of food quality deterioration. Customers complaining about high price. Smiths Serves both vegetarian and non-vegetarian food. Multiple cuisines have been a strong point. The spacious ambience has also been regarded as strength. Often criticized on grounds of service. Customers have complained on grounds of value for money. Natural Kitchen Quality of food is regarded as high. Service of the staff has received rave reviews. Ambience has been appreciated Any major weakness has not been identified so far. Supperclub Alternative dining experience that provides food in beds. Cabaret dancers to entertain customers. Good quality food. Ambience has been often criticized as unsuitable for customers visiting with family. Lack of menu confuses customers at times. Les Trois Garcons Unusual dining environment with stuffed animals. Has been popular among customers. Food is often expensive making it difficult for customers to access. Quality of service has been complained about. Sarastro Opera themed restaurant. Highly praised for spacious interiors. Weaknesses have not been identified so far. (Source: Evans, 2013; The Nudge, 2014) The competitor analysis has been done on two grounds. The first three has been considered as direct competitors as they serve organic food, which is the main strength of Naturally Retro. The other three competitors are also direct competitors in the sense that they are themed restaurants. However, one fact emerging from this analysis is that there are no restaurants that serve organic food and has a retro based theme. This provides added advantage to Naturally Retro. SWOT Analysis SWOT analysis can provide a framework to analyze both the internal and external analysis of a company. Internal resources and capabilities of a firm help to understand about the strength and weakness; whereas, external factors that affect the business accounts for threats and opportunities. The following table summarizes strength, weakness, threat and opportunities that are likely to be faced by Naturally Retro. Strength It has been found out from secondary research conducted by various organizations that there is an increasing trend among the Londoners to eat healthy food as they are becoming more health conscious. None of the restaurants present in London provides organic food along with retro based music. The restaurants which are present either provides organic food or retro music separately but none of them provides both. The location of the restaurant is also one of the major strength as the place is frequently visited by people. Weakness The premium pricing strategy that is being followed by the company can deter some of the customers from visiting the restaurant which reduces the customer base. The operating cost of the restaurant may be considerably higher which can adversely affect the revenue. Managing the human resource effectively can prove to be a challenge for the organization. Opportunity The biggest opportunity comes from the fact that there are not many restaurants in the industry which serves similar product. The promotional effort on the part of the government to encourage healthy eating among the people enhances the opportunity of the business. The recovery of demand for organic food items as has been indicated by recent trends also provides an opportunity for the restaurant. Threat The taxes imposed by the U.K. government on like service tax has raised the cost of eating outside. The reduction of carbon commitment by the government for encouraging environmentally friendly production can become a potential threat. The slow recovery of the economy has made consumers opt for cheaper dining options which can provide a considerable threat. Competitive Advantage The major competitive advantage for the company is its unique product offering. This means imbibing the retro culture with the healthy and nutritious organic food. Presently no other restaurant has been located in London which provides the same products. This provides Naturally Retro edge over its competitors. Moreover the concern of the government regarding obesity and other weight related problems like diabetes means that the restaurant can also receive support from the government. Marketing Strategy Marketing strategies can be described as the path which is followed by organizations in order to achieve the marketing objectives. The existing literature points out those there organizations generally apply 4ps of marketing which are product, place, price and promotion in order to realize the marketing objectives. In case of hospitality industry involving hotels and restaurants it has been found that there are seven important elements namely product, people, price, promotion, place, physical environment, process and place (Bowie and Buttle, 2013). Product: The unique feature of the hospitality industry is that it has got the presence of both tangible and intangible component in its product offering (Oh and Pizam, 2008). Naturally Retro plans to offer both vegetarian and non vegetarian dishes to its customers specially prepared from organic components. The restaurant plans to serve traditional American, Mexican and Asian cuisines to its customers which will have low calorie and fat content. These form the tangible part of the product offering. The intangible part will compose of services offered by the waiting and the singing staff. This is equally important as retro music is a part of the culture of Naturally Retro. It is the quality of the food along with its nutritive value and the musical ambience of the restaurant that will provide the customers with the ultimate dining experience. Price: Pricing the products served by hotels and restaurants is a complex task because it involves the concept of perceived value by the customers (Kim, et al., 2013). Restaurants and hotels can charge relatively higher price for their products compared to their rivals only when the customers think that the products offered by the restaurant has a higher value. The ideal pricing strategy for Naturally Retro will be premium pricing as the primary target customers for the restaurants will involve upper middle class and upper class. Place: It has been found that London West End is one of the most popular and busiest places in London and harbors multiple renowned restaurants (Probst, et al., 2013). It has also been observed that the place is most likely to be crowded during the pre-theatre times and before and after football matches. The post theatre times are relatively less crowded. This is the reason that lunches at restaurants are more common than dinners. Owing to these unique features and easy accessibility West End of London has been selected for opening this restaurant. Promotion: The current practices which are predominant among the existing players in the restaurant business indicates that the most popular forms of advertising are mass advertising, advertising specifically for target customers and activities of public relations (McDonald and Wilson, 2011). Electronic mediums like television, radio and internet based advertising are also being heavily used by the hospitality industry presently to promote their brand value. Radio commercials are primarily used to spread awareness among the customers when they are travelling. Naturally Retro can use both traditional mode of advertisement like television, radios and even print medium like billboards and newspapers. Furthermore, internet advertisement can also be used by Naturally Retro to enhance customer awareness. People: Service plays a very important role in hospitality industry as the waiting staff communicates with the customers directly and their behavior is important in determining frequent visits and creating a patronage. Furthermore, performing staff of the restaurant must be carefully recruited to guarantee a good show. Equipment The other 2ps of marketing strategy, namely process and physical evidence, can be combined in the equipment that will be required in starting the restaurant. Process mainly refers to equipments and support mechanisms that enhance service provision by customers. Equipments for Naturally Retro include sophisticated cooking equipments like advanced technology ovens and refrigerator for preparing quality foods. Also in the front end activities equipments like ETPOS and automatic generated billing machines can reduce the service time considerably and reduce the average customer handling time. Physical Evidence in marketing mix refers to the appearance of the product that is being sold. For Naturally Retro the furniture and ambience comprise this and it should be carefully selected keeping in mind the theme of the restaurant. Financial Analysis Funding Requirements The original fund for starting the business is expected to come from three different sources. The first major portion is expected to be invested by the owner of the restaurant. This will directly come from the wealth that has been inherited by the owner from personally. This will comprise about 40% of the investment. The remaining 60% of the investment must is to be obtained as a loan from a U.K. based bank. This can be considered as a “seed capital” for starting the business because. However, obtaining this loan will not be a difficult task as owner is expected to provide collateral for the same. Forecasted Sales Revenue (2016-2018) This business plan has forecasted the sales figure for Naturally Retro for three years. The graph for the same is provided in the following figure. Figure 4: Total Revenue (Source: Author’s Creation) All calculations done in this project has been done in U.K. pounds. It can be seen from the above graph that the restaurant is expected to increase the profits by 2.7% in two years from the date of its operation. This is realistic because it was the initial aim of the company to increase profits by 3% by the end of two years. Forecasted Income statement The graph below shows the forecasted growth in profit for two years for the restaurant. Figure 5: Forecasted Profit (Source: Author’s creation) It can be seen from the above graph that the company can start earning positive profit from its first year of operation itself. However, significant profits can only be observed from the second year of its operation. The gross profit is expected to grow by 18% in the second year. The calculations have been shown in the appendix. Forecasted Balance Sheet The balance sheet of the company reveals that there is adequate working capital which helps the company to meet its day to day operational needs. This also signifies that the liquidity factor of the company is positive. The detailed calculation of the balance sheet has been shown in the appendix. Cash Flow Statement The cash flow statement of the company has been shown in the following graph. Figure 6: Cash Flow (Source: Author’s Creation) Based on the forecasted sales figures, it is expected that the company will attain positive cash flows from the second year of its operation. The kink in the graph shows the same. Breakeven Analysis The breakeven analysis for the restaurant has revealed that it will reach breakeven only when sales of 350060 pounds are made. The corresponding unit of sale for the company will be 833.4761905 units. Managerial Competencies There are three main categories of people that are required for conducting the business. They are manager, accountant, well trained staff, chef and cooks and finally performers. The role of the manager is to oversee that the guests are satisfied or not. In case of any customer complaints the manager should be able resolve the issues speedily to enhance customer satisfaction. In the hospitality industry it has been identified that mangers play a key role in motivating the employees so that they are able to perform their duties in a self-determined manner. From this aspect, it can be argued that the manager will play a key role in ensuring that the business runs efficiently. Secondly, the role of staff is very important in establishing a good relationship with the customers to make sure they visit again. In this regard, it can be said that role of the manger will be important in proper training of the employees. The role of the accountant will be to manage finances of the business in an efficient manner. Finally, the cooks should have minimum experience of two years. The following table provides the list of key persons and their roles. Role Name Contractor The Studio Harrods Excellent reputation in the market and has received numerous awards for their work. Manager Mr. Henry Ford. Have six years of work experience in the hospitality business Accountant Ms. Estella Hawking Worked as an accountant in two major organizations before. Has passed CA for Harvard University Chef Mr. Peter Thompson Experience of seven years in Savory Grill. Performing Artists Four to five performing artists along with back up dancers are to be selected on the basis of audition. Waiting Staff Recruitment of both experienced and inexperienced candidates having a degree in hospitality management or work experience in the same. Material Risks There can be a number of risks that can arise from operating a restaurant. The first category is of safety of the workers who are involved in the work. The working staff has to work in kitchen, which involves the risk of being hurt by sharp cutting instruments and fire. In case of any medical exigency, the restaurant must take care of expenses incurred by the victim. Additionally, chances of fire in restaurants are not common. This means insurance of the restaurant must be done in order to avoid any financial losses that may happen in the future. There are also risks of gas explosion and loss of inventory and equipments from acts of vandalism. These actions mean that an emergency fund must be kept separately to handle this issue. Apart from this, there may be chances of financial contingency in a different context as well. This can arise when there are excessive deviations in forecasted sales figure. The existing thumb rule suggests that 10% deviation from the expected sales is acceptable; but if this value is more than 70%, then actions must be taken by the management. Another problem can arise if returns from equity are weak. One of the actions can be comparing per unit cost of production with sales. This can help in understanding the root cause of problem in case there is a deviation. Regular monitoring must be done in order to see whether the sales projections are on track. An additional fund must be maintained in order to support aggressive promotional measures. This can involve hiring independent advertising and selling agents on a contractual basis, where payment of these agents is strictly conditional to sales of the organization. Reference List Barrow, C., 2011. Starting a business for dummies. New Jersey: John Wiley & Sons. Bowie, D. and Buttle, F., 2013. Hospitality marketing. London: Routledge. Diabetes UK, 2010. Diabetes in the UK 2010: Key statistics on diabetes. [pdf] Diabetes UK. Available at: < http://www.diabetes.org.uk/Documents/Reports/Diabetes_in_the_UK_2010.pdf> [Accessed 31 May 2014]. Doward, J., 2014. Organic food back in vogue as sales increase. [online] Available at: [Accessed 31 May 2014]. Evans, N., 2013. London’s 10 best diet-friendly restaurants. [online] Available at: [Accessed 31 May 2014]. EVD, 2009. Market survey UK - Health Foods. [pdf] The ministry of Economic Affairs. Available at: [Accessed 31 May 2014]. Grundy, T., 2006. Rethinking and reinventing Michael Porters five forces model. Strategic Change, 15(5), pp. 213-229. Han, H. and Ryu, K., 2009. The roles of the physical environment, price perception, and customer satisfaction in determining customer loyalty in the restaurant industry. Journal of Hospitality & Tourism Research, 33(4), pp. 487-510. Kim, H. J., Park, J., Kim, M. J. and Ryu, K., 2013. Does perceived restaurant food healthiness matter? Its influence on value, satisfaction and revisit intentions in restaurant operations in South Korea. International Journal of Hospitality Management, 33, pp. 397-405. McDonald, M. and Wilson, H., 2011. Marketing Plans: How to prepare them, how to use them. New Jersey: John Wiley & Sons. Oh, H. and Pizam, A., 2008. Handbook of hospitality marketing management. Oxford: Elsevier. Probst, L., Houedjofonon, E., Ayerakwa, H. M. and Haas, R., 2012. Will they buy it? The potential for marketing organic vegetables in the food vending sector to strengthen vegetable safety: A choice experiment study in three West African cities. Food Policy, 37(3), pp. 296-308. Soil Association, 2013. Organic market report 2013. [pdf] Soil Association. Available at: [Accessed 31 May 2014]. Stolzea, M. and Lampkin, N., 2009. Policy for organic farming: Rationale and concepts. Food Policy, 34, pp. 237-244. The Nudge, 2014. Unusual restaurants in London. [online] Available at: [Accessed 31 May 2014]. Appendix Appendix 1 Appendix 2 Income Statement of Naturally Retro (in pounds)   2015 2016 2017 Revenue 1226560 1219949 2793400 Interest from other income   10000 12000 Total revenue and other income 1226560 1229949 2805400 Interior Decoration 1000500 1000342 1000369 Cost of furniture 10000 10000 10000 Rent 120000 120000 120000 Paying of salary 13000 15000 20000 Miscellaneous 1000 1000 1000 Total expenses 1144500 1146342 1151369 Profit 82060 83607 1642031 Change in profit (%)   0.018852059 18.63987465 Appendix 3 Forecasted Balance sheet (in Saudi Riyal)   2015 2016 2017 Assets       Non-current assets       Intangible assets 100000 100100 100200 Property Plant and equipment 150000 160000 160000 Total non-current assets 250000 260100 260200 Current assets       Inventories 20000 20000 20000 Trade and other receivables 59000 59000 59000 Cash and Cash equivalent 600000 670000 630000 Total current asset 679000 749000 709000 Total assets 929000 1009100 969200 Liabilities       Debt 300000 500000 500000 Trade and other payables 19687 152936 15236 Taxes payable 65978 685978 95978 Total Liabilities 385665 1338914 611214 Equity       Share Capital 352703 584788 603008 Total Equity 325003 584008 603900 Total equity and liabilties 710668 1922922 1215114 Appendix 4 Appendix 5 Read More