Developing a Grocery Store with a Fitness Centre in Australia - Assignment Example

Developing a Grocery Store with a Fitness Centre in Australia Table of Contents 1.0 Executive Summary………………………………………………………………2 2.0 Transmittal Letter …………………………………………………………………3 3.0 The Nature, Number and Characteristics of Australian SMEs ……………………4 4.0 Factors Influencing Success and Failure ………………………………………….4 5.0 Leadership / Entrepreneurs………………………………………………………..6 5.1 Characteristics of Successful Entrepreneurs……………………………..………..6 5.2 Analysing Gerry Harvey Against the Entrepreneurship Profile………………………..7 6.0 Analysing Opportunities and Developing a Framework for Business…………...7 6.1 The Nature of the chosen Business ……………………………………………...8 6.2 Viability of the Business………………………………………………………….8 6.2.1 Legal Structure………………………………………………………………….9 6.2.2 Market Size: Market Research ………………………………………………….9 6.2.3 Target Market: Segmentation…………………………………………………..10 6.2.4 Nature of Product ……………………………………………………………….10 6.2.5 Competitive Edge…………………………………………………………….…10 6.2.6 Amount of Finance Required to Get Started…………………………………...11 7.0 References……………………………………………………….……………….12 8.0 Appendices…………………………………………………………………………14 Developing a Grocery Store with a Fitness Centre in Australia 1. Executive Summary Most grocery stores in Australia are established to sell some variety or category of food products. The system adopted by most such businesses limits any expansion involving the implementation of new ideas. While most grocery stores have expanded to become supermarkets, others have chosen just to focus on one food product line (Grocery Retail, 2004). A change that could be brought about in the grocery food market involves emphasizing health issues by establishing a grocery store with a fitness centre attached. When fitness is mentioned, most people think of gyms and exercise. These may be essential for keeping fit, but the idea in this case is to reach beyond exercise as such. It is, at the same time, also about research concerning eating habits and traditional eating cultures that are considered healthy. This will influence not only consumers, but also producers so that food supplies will shift towards those most in demand. The idea is to set up grocery stores with fitness centres alongside or integrated into the store. According to research studies, almost everybody likes to be fit and enjoy good health. With the development of grocery stores encompassing fitness centres, people will be encouraged to visit such centres. The fitness centres in this case will also offer advice on food types and their health benefits in a way similar to what is done in pharmacies. Grocery stores will become more than sellers of foods. The plan is to begin with three medium-sized stores in New South Wales. Consideration will be given to the presence of different cultures in the region (Australian Government, 2009). With time, these businesses can expand into various other areas and other operational lines. They can develop their own restaurants to prepare foods consistent with healthy eating habits and a variety of cultures, as well as moving into other lines of business depending on the success of the initial endeavours. Since there are so many communities, with different cultures in Australia, these businesses have great opportunities for expansion. The fact that all people prefer to be healthy will also contribute to their success. The adage ‘prevention is better than cure’ can help the businesses grow as good eating habits and healthy eating according to specific community preferences prevent many diseases associated with poor eating choices. The Italian community, for example, has been considered a model of good eating habits and food preferences. Making use of such knowledge and other important issues will be necessary for business expansion. 2.0 Transmittal letter August, 21st, 2009 Ms Ivy Madeit 7 Success Drive, Hervey Bay, Queensland.. Dear Ms Madeit, I wish to submit the following report based on your request concerning Australian SMEs. The report is entitled ‘Developing a Grocery Store with a Fitness Centre in Australia’ and informs you of the opportunities available for establishing such a business with particular reference to its structure, area of operation, and external and internal environment analyses. The report also includes reference to the finance required for the business and some start up information linked to the reputation of one of the leading entrepreneurs in Australia, Gerry Harvey. Please inform me if you have any questions regarding the report about my business idea. I can be contacted by telephoning 0405066110. Sincerely, Mohammed 3.0 The Nature, Number, and Characteristics of Australian SMEs There are many wholesale and retail grocery stores in Australia, especially in New South Wales. Most retail grocery stores have adopted the supermarket system of operation akin to that of the Tesco Corporation and stock a wide variety of foods in one large store. Other grocery dealers have opted to sell only one product. For example, Westgarth Licensed Groceries only sells wine (Community Guide Network, 2005). Some others have specialized in fresh foods. Australia has a total of 1,800 SME businesses, with 300 of them in NSW. Among these, 150 are in the wholesale trade, 200 in manufacturing, 100 in accommodation, cafes, and restaurants, 100 in finance and insurance, 250 in building and construction, 150 in cultural, recreational, and personal services, 300 in communication, property, and business services, 150 in health and community services, and 250 in the retail trade. The 300 SMEs in NSW include businesses in all these categories. There are, nevertheless, clear indications that scope remains for creating more SME businesses. Further information about the SME business environment is provided in the Appendices below (Sensis, 2009). 4.0 Factors Influencing Success and Failure Success in business depends on both internal and external factors. Internal considerations alone cannot ensure success. Businesses must analyse their environments in order to determine the relevant threats, opportunities, weaknesses, and strengths that will have very important roles in the extent of their success. Failures in business often arise due to a lack of proper analysis, sometimes compounded by the occurrence of unavoidable external factors. Internal factors in most cases are under managerial control and any mismanagement is to be attributed to the poor skills employed by the managers of the business (Bruhn, 2002, p.77). To ensure success, therefore, the business has to employ managers with the appropriate skills, develop efficacious strategies, and manage all available resources efficiently. The presently selected business has plans to hire personnel with appropriate skills to manage the human and other resources provided and implement strategies to ensure success given the market situation. The business proposed is to have a customer-oriented strategy that will attract the customers necessary for its success. Another important step in the proposal is the use of market research when developing strategies to maintain market position and to expand within the food industry (Bangs, 2002, p.7). Most large companies have succeeded through reputation building grounded on customer care. In other words, most successful businesses around the world have developed effective customer-centred strategies. This truism is apt here because the grocery business is primarily about satisfying customers (Bruhn, 2002, p.77). The current business world is dominated by change with the constant emergence of new technologies, new customer requirements, and innovations by companies so as to stay competitive in the market. In order to meet these challenges, business plans will include employment of managers with change-management skills and conscious of developing quality-improvement frameworks that will automatically help the business to improve in all facets of its performance and management (OECD, 1997). Leadership skills are also important in determining the success or failure of a business. Without the leadership required to develop innovations, assess risks, and implement correct projects, a business has minimal chances of growing and prospering. Well-trained and experienced leaders will be sought during the initial stages of establishing the present business. This will ensure the effective leadership required to consolidate the organizations formed (Bangs, 2002, p.7). Analysing the external environment of the business that includes economic, political, social, technological, environmental, and legislative dimensions will also be important. Government regulations and legislation apply to all matters of food safety. Some of these effectively support food distributors and retailers since they play a very important role in ensuring confidence concerning the food available in the country. Other controls, however, may not be supportive, but this depends on market situations. Australian Government legislation relating to the food industry will affect the presently proposed business operations (Commonwealth of Australia, 2001), including the horticultural code of conduct that must be adhered to by food distributors and retailers (Apple & Pear Australia Limited, 2008) Food industry businesses always have opportunities to operate both internationally and locally. According to food security definitions posited by world summits held over many years, safe food should be available to everybody, affordable, culturally acceptable, and produced in a safe manner. Legislation aimed at ensuring consistency with such a definition would only affect a food retail business with respect to safety and affordability. Australian Government price regulation policies may also affect the business concerned, but this can be avoided by ensuring that food remains affordable without the need for Government intervention. Other relevant legislation relates to the environment and safety generally. Environmental issues are those concerned with conservation and social responsibility. Based on the success factors cited above, it will not be difficult to achieve social responsibility in the present business thereby eliminating any such threat (Bangs, 2002, p.10). Another issue to consider is the state of the economy in the country or a region where the business plans to operate (Worthington and Britton, 2006, p.3). Recessions such as that which recently affected the world’s economy can have a negative impact on businesses. Consumer spending is often reduced and this impedes the performance of most businesses. However, although consumer spending may be reduced, basic consumer needs have to be met, including the purchase of essential foods. Specific types of food may, nevertheless, be affected when recession strikes economies. As this kind of effect cannot be avoided, businesses concerned have to devise strategies that will ensure they remain operational. Since the present business proposal is made during such a recessionary period, it must consider the negative factors involved and recognize that it has much potential to perform better when the recession ends (Worthington and Britton, 2006). Social factors include such considerations as demographic changes, cultural variety, community beliefs, and society practices. These are very important when it comes to understanding consumer behaviour. Market research on such factors and the information made available thereby are very important to business operations. They can affect grocery retailing both positively and negatively (Worthington and Britton, 2006, p.3). 5.0 Leadership / Entrepreneurs 5.1 The characteristics of an Entrepreneur An entrepreneur is person who takes risks in starting up a business with a view to yielding profits. Effectively managing business operations and expanding a business does not make a person an entrepreneur. Entrepreneurship involves combining the processes of initiating, managing, organizing, and taking responsibility for a business and entrepreneurs need to have certain characteristics. These are creativity, willingness to work, ability to secure resources, strong integrity, independence, goal orientation, inquisitiveness, persistency, reliability, competitive spirit, personal initiative, self confidence, problem-solving skills, the capability to learn from failure, and a tolerance of ambiguity (Dlabay et al., 2005, p.128). Successful entrepreneurs always require the above characteristics to ensure they achieve the goals of their initiated businesses. Creativity, for example, enables the identification of new potential business opportunities that cannot be perceived by other people as profitable. Persistence in developing ideas and the capability to learn from mistakes enable these people who are goal-oriented to achieve their goals. This means that they always focus on the goals they set for themselves and will search for all possible means to achieve such goals. As in establishing any business operation, resources are needed. Securing such resources is an essential ability for an entrepreneur (Dlabay, et al., 2005, p.128). 5.2 Analysing Gerry Harvey Against the Entrepreneurship Profile Gerry Harvey is known for his success as an entrepreneur in the retail business, especially through Harvey Norman Holdings Ltd. He is the Chairman of this is a large company that deals in many household goods around Australia. His success has come through his possessing the outstanding entrepreneurial and leadership skills required to develop and sustain the success of such a large retail business. 6.0 Analysing Opportunities and Developing a Framework for Business Identification of business opportunities can come about in many ways. Market research, however, always plays a very important role. An idea generated because of some experience in school, in town, or in a system may appear to be new even though it already exists in the market. Also, success of a new idea depends on the region where the idea is to be developed as a profit-making endeavour. For example, setting up a more effective rail transport business in Africa may appear to be a very sound business idea. This is because in this area, the rail transport system is still not fully developed and efficient. Market research can reveal such situations and indicate how to go about achieving the goals involved (Burstiner, 2001, p.75). The requirements of a modern and effective rail transport system akin to those in developed countries will include extensive financial resources that the entrepreneur may be unable to secure. Another important aspect of market research is establishing the extent of demand. Having an idea that fails to return profits is pointless in this sense. Business ideas must take into consideration many marketing factors, including consumer numbers, changes in organization, and competitors. Without such consideration the business risks failure. Businesses should also have the ability to expand, for a one-off business opportunity does not fully utilize the talents of an entrepreneur with the sort of characteristics cited above (Burstiner, 2001, p.75). Opportunities arise from the external analysis of business environments. External analysis considers the type of business, the legal structure, the market size, the competitors, any market edge, the targeted market, and the products of the business. It does so while mindful of all relevant economic, political, legislation, social, environmental, and technological factors that surround the business operations (Nijkamp, et al., 2006, p.127). 6.1 The Nature of the Chosen Business The type of business proposed is in the grocery industry and involves food retailing and offering consultation services concerning the health implications of consuming the foods being sold. More specifically, the business will require the development of grocery stores with attached fitness and health advisory centres. The business model is akin to that of a pharmacy except that the traded goods will be primarily food items. Consultation service offerings will depend upon available information obtained from research that focuses on the health benefits of certain foods, specific community eating preferences and other food-related cultural practices among the diverse ethnic communities in Australia (Jacenko and Gunasekera, 2005). The proposed business will have a total of 75 employees with 10 trained for counter service. There will be three general managers, one for each store, with one overall manager responsible for all three stores. A quality-improvement team comprising six employees will be appointed together with an information management team of three. The remaining employees will cover other departments of the organization. 6.2 Viability of the Business Many grocery businesses in Australia are confined to selling food products and offer no services relating to the health benefits of specific foods. The nutrient content of foods may be indicated on the packages, but this is not enough. Most Italian foods, for example, have sufficient health benefits to enable consumers to stay healthy (Hutton, 1999). Viability is determined primarily by sufficient product demand and profitability. This is normally a reflection of consumer behaviour and needs, the resources required to start the business, market size, and the ability to expand (Hisick, 2007, p.105). A one-off business cannot be considered viable in this sense. A viable business must have the capacity to remain operational even after a long period of time. The belief here is that the development of grocery stores with fitness centres will constitute a viable business venture. Food is a basic survival necessity. Consequently, food businesses, if properly run, should remain viable given the right market conditions and effective management. It warrants emphasis, too, that currently in Australia, there are no such extended grocery stores. Existing supermarkets and grocery retailers sell little more that a variety of foods. Some of them sell only specific foods. Just with any other business, this business idea requires resources for its establishment (Grocery Retail, 2004). The only resource requirement beyond normal retailing will be the hiring of staff with knowledge of different ethnic community cuisines and the health benefits of different foods. Skills and competences required can be created and moulded by an organization, depending on the organization’s targets. The proposed organization, therefore, can hire people with relevant generic skills and train them specifically for their duties. This is similar to the requirements in other grocery stores. According to research reports and information about cuisines, people love to eat healthy foods and are inclined to avoid foods that can lead to such health problems as obesity, heart attacks, and strokes, among others. Information about the health benefits of certain foods and about foods that can cause certain health problems is available through journals, online articles, television news, books, and many other sources (Hutton, 1999). One problem that exists is that not all people are prepared to pursue and take in the information from these sources. Another issue is that not all foods are covered with respect to their links to even the most common diseases, with only people somehow affected by these ailments seeking the information available. Getting all the health information that may be required about all the foods is not possible by reading any one article or book. It will, therefore, be very helpful for people to have such information available in the grocery stores when they really need it. 6.2.1 Legal Structure Governments require that a business must be legal for it to operate. Being legal in this case means selling what are considered to be legal products and being registered to operate as required within a specific industry (Wells, 2003). In the present case, the food sales business will need to be registered within the food industry and should only sell food products that are legal and avoid any illegal food stuffs and drugs. The structure of the business is also important. Businesses can be registered as small, medium, or large. The proposed business is a medium enterprise and therefore belongs to the SME group. 6.2.2 Market Size: Market Research This proposal aims ultimately to encompass the whole of NSW and all its diverse communities. While it is apparent that there are many existing grocery stores, this does not impede the present business proposal because of its unique idea for enticing customers. One important business precondition is to do market research to reveal consumer requirements. This proposal is based on the findings that Australians, just like all people, would like to keep fit and avoid health problems due to poor eating habits. It is also based on research findings that in Australia, and in NSW in particular, there are many different ethnic communities with a variety of eating and food preferences and food cultures that relate to people’s health. Each food is important and advice about specific foods and how they should be used for good health is desirable (Australian Government, 2009). Most available information about foods that cause health problems emphasize negative effects and provide little insight concerning how to make more effective and positive use of the foods in ways that do not cause ill health. Moreover, every food has a function in the body and any advertisements discouraging people from consuming such food without proper guidance misleads them and may lead to food insecurity. All these observations form the basis for proposing grocery stores that offer advice about the health benefits of a variety of foods through fitness centres. 6.2.3 Target Market: Segmentation The business will target all communities, with any market segmentation in the provision of services based on consumer requirements that reflect the fact that people have different tastes and preferences. Since ethnic communities have a variety of cultures and eating and food preferences, all which may benefit other communities, too, full information will be provided concerning benefits. The market is therefore divided according to the number of identifiable communities in NSW and perhaps on some combinations of two or three communities (Nijkamp, et al., 2006, p.128). 6.2.4 Nature of Product Although food is a product that will never cease to be in demand, the level of such demand will vary with consumption behaviour. One problem with selling foods is that many are perishable. However, this is not a major problem for businesses with proper management skills that ensure optimum ordering patterns consistent with demand and maintaining profitability. Storage facilities that prevent fresh foods from perishing must also be available. 6.2.5 Competitive Edge The proposed business would still experience competition from other grocery retailers, including the large supermarket chains such as Woolworths and Coles. These competitors, however, base their businesses on different ideas and objectives. The competitors are still a threat because they already have extensive grocery market shares. Nevertheless, given the proposed new idea for extending grocery store services and the proper management of the business to be initiated, the new enterprise should have a high chance of prospering. Although it may be the case that existing supermarket performance in the grocery industry is evidence that the industry cannot support another supermarket chain of the same size (Apple & Pear Australia Limited, 2008, p.6), opportunities for other forms of grocery businesses remain in place. 6.2.6 Amount of Finance Required to Get Started The proposed business will require finance capital to buy food products, to buy grocery store premises, to employ appropriately skilled people, and to run the business generally. A summary of these capital needs is set out below. Buying grocery stores (3)…………………………………$200,000 Buying stock………………………………………………$150,000 Registration fees…………………………………………....$10,000 Marketing and other business costs………………….……$350,775 Necessary equipments……………………………………..$120,000 Employees (75)…………………………………………....$ 350,000 (starting) Miscellaneous……………………………………………….$100,000 Total……………………………………………………….$ 1,280,775 7.0 References Apple & Pear Australia Limited (2008), “Public Submission to ACCC Grocery Inquiry by Apple & Pear Australia Limited”, accessed 21 August 2009 from http://www.accc.gov.au/content/ item.phtml?itemId=812883&nodeId=d34432ccfc32b75ad000752f993c0ce5&fn=080%20%20Apple%20&%20Pear%20Australia%20Limited%20(15%20pages)pdf Australian Government (2009), “Department of Immigration and Citizenship”, New South Wales, accessed 21 August 2009 from http://www.immi.gov.au/living-in-australia/choose-australia /regional-life/nsw/ Bangs, D. H. (2002), The Market Planning Guide: Creating a Plan to Successfully Market your Business, Product, or Service, Sixth Ed., New York, US: Kaplan Publishing. Burstiner, I. (2001), How to Start and Run Your Own Retail Business: Expert Advice from a Leading Business Consultant and Entrepreneur, Third Ed., New York, US: Kensington Publishing. Bruhn, M. (2002), Relationship Marketing: Management of Customer Relationships, New York, US: Financial Times, Pearson Education. Commonwealth of Australia (2001), “Fair Market or Market Failure?”, accessed 21 August 2009 from http://www.aph.gov.au/Senate/committee/retail_ctte/report/c01.htm Community Guide Network (2005), “Westgarth Licensed Groceries”, Northcote Supermarkets & Grocery Stores. Dlabay, L., Burrow, J. L., and Eggland, S. A., (2005), Introduction to Business, sixth Ed. New South Wales, Australia: Cengage Learning, Business. Grocery retail, (2004), “Determinants of Prices in the Retail Sector: Price Determination in the Australian Food Industry”, A Report, pp.113-21. Hisick, ? (2007), Entrepreneurship in SMEs, London, UK: McGraw-Hill Education. Hutton, W. (1999), Food of Australia (H),Clarendon, US: Tuttle Publishing. Jacenko, A. and Gunasekera, D. (2005), “Australia’s Retail Food Sector, Some Preliminary Observations, Australian Bureau of Agricultural and Resource Economics”, The Pacific Food System Outlook. ABARE CONFERENCE PAPER 05.11. Nijkamp, P., Moomaw, R. L., and Traistaru, I. (2006), Entrepreneurship, Investment and Spatial Dynamics: Lessons and Implications for an Enlarged EU, Camberley, UK: Edward Elgar Publishing. Organisation for Economic Co-operation and Development (OECD) (1997), “Globalisation and Small and Medium Enterprises (SMEs)”, Vol. 1-2, OECD Publishing. Sensis, (June 2009), “Sensis® Business Index-Small and Medium Enterprises”, accessed 21 August 2009 from http://www.about.sensis.com.au/small_business/sbi.php Wells, D. (2003), “Australian Food and Grocery Council, Safeguarding Australia: Agriterrorism Food Chain Security”, National Convention Centre, Canberra, accessed 21 August 2009 from http://www.afgc.org.au/cmsDocuments/Food%20Chain%20Security.pdf Worthington, I. and Britton, C. (2006), The Business Environment, Fifth Ed., New York, US: Financial Times, Prentice Hall. 8.0 Appendices Location of SME Business Total Metro Non-Metro New South Wales Victoria Queensland 300 165 135 South Australia 225 285 30 Western Australia 225 195 30 Tasmania 150 90 60 Northern Territory 150 90 60 Australian Capital Territory 150 150 - Total 1800 1365 435 Division of SMEs Manufacturing 200 Building and Construction 250 Wholesale Trade 150 Retail Trade 250 Accommodation, Cafes and Restaurants 100 Transport/Storage 150 Finance and Insurance 100 Communication, Property and Business Services 300 Health and Community Services 150 Cultural Recreational and Personal Services 150 Total 1800 SME Business Cycle Analysis Time Analysis 1. Trough 2. Recovery 3. Peak 4. Slow down Low business confidence Rising confidence Strong business confidence Falling business confidence Poor perceptions of the economy Rising perceptions of the economy Strong perceptions of the economy Declining perceptions of the economy Weak sales Improving sales Strong sales Declining sales Low investment Rising investment High investment Declining investments Pessimistically low investment (high realization ratio) Investment expectations improving but still on the low side Optimistically high investment expectations (low realization ratios) Investment expectations weakening but still on the high side Low selling price rises Rising selling prices High selling prices Selling prices weakening Weal profitability Improving profitability Strong profitability Declining profitability Flat employment Rising employments Strong employment Declining employment Low wages growth Rising wages High wages growth Moderating wages growth Data obtained from Sensis (2009). Read More