Business Plan for Saturation Inc.

Question: Describe about the Business Plan for Saturation Inc.? Answer: Background of Company Saturation Inc. is an Australian based firm which is situated in Bronte. The company is involved in supply of grocery products to big retailers houses from past several years. The increase in the number of supplier of grocery products in the area has lead to declination into the profit percentage of the company and their some retailers have shifted to those suppliers that provides product at low cost. Therefore, Saturation Inc. has decided to penetrate into the field of organic grocery store to attract local residents and visitors. The company has taken such decision as there is not much of organic grocery store in the area. The Saturation Inc. has forecasted that they can be able to increase their profit margin and can cover of the losses that have been registered from less supply of grocery products in markets. Moreover, the company will include distinct menu, hard to find grocery products from around the globe. Mission of Saturation Inc The mission of the company is to deliver upscale organic grocery store to the visitors and local customers and delicatessen. The deli will be composed of serving the salads, sandwiches, picnic lunches, quality and hard to find drinks. The gift items will also be served in the store to gain large customers. Moreover, the store will hold all fresh and quality organic products both vegetables and non-veg. Products and Services The Saturation Inc. is planning to include products and services that are organic groceries, gifts and delicatessen in the store. In context to organic grocery, the company will engage high standard grocery from Australia, Asia, Mexico, United States and Europe and locally. The items that will be included in the organic grocery are spreads, oils, rice, cheese, peppers, meats, chocolates, hard to find candies and desserts, etc (Abrams, 2010). On the other hand, in case of gifts item, the Saturation Inc. will comprise the items such as picnic items, kitchen wares, sewn jewelry, and cookbooks and also gift baskets will be made available too in the grocery store. Apart from that, the delicatessen section will provide dinner, lunch and breakfast. Therefore, the menu will offer salads, drinks, soups, sandwiches, soups, desserts and other frozen meals. The breakfast menu and picnic lunches will also be offered. Thus, the biscotti, quiche and scones will be provided in the breakfast menu whe reas frozen meals, homemade breads, sandwiches, daily specials, etc. will be offered in lunch or dinner menu (Barringer, 2010). Moreover, tea juice, soda and quality coffee from all over the globe will be offered all day. The visitors or travelers will be provided picnic lunches. Industry Analysis The market of organic grocery store in other parts of Australia such as Sydney, Melbourne, Queensland is doing quite well and people are satisfied with the organic grocery product as it helps in enhancing their health quality (Bird, 2010). It is evident from the Australian Organic Market Report of 2012 than organic grocery market will grow by 64% in 2017. The growth in the organic grocery store has helped many companies such Woolworth to increase their sale by 36%. Therefore, it can be assumed that there is a great opportunity for the Saturation Inc. to penetrate into organic grocery store in the untapped area of Bronte. On the other hand, the total sale that has been acknowledged from organic grocery product is $1.27 billion in 2012 (Drummond, Ensor, and Ashford, 2012). Thus, there has significant growth in the organic grocery store since 2005 which ensures that customers are more willing to consume organic product. Year Sales Growth 2005 5% 2006 9% 2007 12% 2008 16% 2009 19% 2010 22% 2011 24% 2012 27% 2013 32% 2014 44% Table 1: Organic Product Sales Growth in Australia Market Analysis The major target market of the company would be people that are residents of Bronte and searching for superior quality ingredients in order to prepare national as well as international cuisine (Finch, 2010). Further, the surrounding businesses will be targeted that are looking for delicious meal for their staff members and customers. On the other hand, travelers both from domestic and international that visits Bronte will be targeted and also families all over the world can be taken in account. Market Segmentation The marketer of Saturation Inc found that there are around 120 businesses in Bronte that can become potential customers of the company. Therefore, in the starting phase, the company can account 20% that can ensure 10% hike every year. On the other hand, as per the report of 2011Australian Census, there are 6827 residents in Bronte and there is a projection that it will grow by 3% in next eight years. Therefore, the company has compounded on residents as their major target group (Gandellini, Pezzi, and Venanzi, 2012). Moreover, the number of visitors has been estimated on the basis of report of Pump-house Point that in 2011, around 737,342 people on an average visited the point each year (Hajro, 2012). Therefore, the targeted market will help the company in increasing the sales and improving the brand equity. However, the major sales the company can generate from local residents as they will decide the success of the company. Target Market Segmentation Strategy It is understood that from last several there has been significant hike in the explorations of gourmet goods and foreign products in Australia. Therefore, the company has focused on developing strategy to provide effective service to the targeted audiences. The residents of Bronte visit to other cities to buy the gourmet or luxury items which are not available in the market of Bronte. Therefore, setting up an organic grocery store will help the residents save their time and buy the products without travelling to other places (Heagney, 2012). Thus, in order to target the market, the company can use media and placing hoarding at different locations of Bronte so that people can become aware about the organic grocery store. Market Growth The company has a belief that adopted products and services will help them to gain market in Bronte. The market will ensure growth of the store and customers can be attracted to visit the stores. The Australian Retail Sales of Beverages and gourmet 2001 to 2010 shows following growth, Product Classification 2001 ($) 2006 ($) Compound Annual Growth Rate (2001-2006) 2010 ($) Compound Annual Growth Rate (2006-2010) Compound Annual Growth Rate (2001-2010) Cheese and Condiments 4230 5435 6.5% 7252 5.9% 6.2% Confectionary and Beverages 9904 14700 10.4% 22701 9.1% 9.6% Ready to eat meals and gourmet foods 8000 10100 6.0% 13516 6.0% 6.0% Total 22134 30235 8.1% 43469 7.5% 7.8% Market Trends The market trends of Australia can be understood through retail sales of beverages and gourmet foods from 2007 to 2012 on the basis of outlets Outlet Type Sales (%) Gourmet and specialty stores 34.3% Warehouse Club 4.9% Supermarkets and grocery stores 44.6% All other Outlets 16.2% Therefore, from above data, it can be understood that people of Australia are developing interest to buy upscale food products. The gourmet and organic grocery products is helping the people to improve their health status and find stability in their health. The people search quality products as they become highly educated and improvement in the living standards has made people to purchase quality organic products (MacMillan and Venkataraman, 2009). Strategy and Implementation The main strategy that can be adopted by the company is by exploiting the benefits of company over the competition so that growth can be registered. The company will place all the products in the stores that are organically grown so that the trust of the customers can be won over the quality. Competitive Edge: In order to gain competitive edge, the location has to be well tapped. The store can be located in the main market of Bronte as most number of customer visit the main market area to purchase the required product. Moreover, it will be a convenience factor for customers and they may be willing to spend more if the required products are easily available (Marburger, 2012). Therefore, placing high quality organic grocery product in store will ensure competitive advantage. Marketing Strategy: In order to attract the consumers and visitors in the store, the company can use strategy such advertisement through local newspapers, sending flyers via mail, promotional drink glasses and yellow pages (Mackay and Wilmshurst, 2012). Therefore, it can be effective in making people aware about the store. On the other hand, free samples of products can be distributed among the customers as it will help in creating an image in the mind of the customers. Sales Strategy: The Company will be focusing on forming an environment that will force the customers to visit the store again and again. Therefore, a friendly and comfortable atmosphere will be developed that can satisfy the expectation of consumers. On the other hand, the pricing strategy will be accordance with the market rate and discount will be provided on buying bulk amount (Goksoy and Ozsoy, 2007). The price of the product and services will not be above the market price and moreover, the company can decrease the price for regular customers. Apart from that, the company will engage employee that will provide high standard service to the customers and visitors in stores (Dess, 2012). Strategic Alliances: The Saturation Inc can associate with local businesses such as restaurants, outfitters and hotels as it will help the company in increasing sales. On the other hand, the relationship can too be formed with the local product growers in order to receive fresh products to stock in store (Clarke, 2010). Management Summary The management of the Saturation Inc. will have a capacity of 50 staffs that will take up the responsibility of the organic grocery store in due manner. The company can have two managers, three merchandise managers, three book keepers and rest of the staff involved in serving clients and recruiting people and delivering the products. Year 1 Year 2 Year 3 Year 4 Managers 50000 50000 54000 60000 Accounting/Books 3000 4000 4000 5000 Cooks/Kitchen 11000 11000 13000 14000 Merchandise Manager 30000 32000 36000 40000 Other Staffs 25000 25000 28000 28000 Total Payroll 119000 122000 135000 147000 Personal Plan Figure 1: Company Structure of Saturation Inc. Financial Plan Profit and Loss Projection Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Revenue Gross revenue $496,000 $505,920 $526,157 $557,726 $602,344 Cost of goods sold 174,400 177,888 185,004 196,104 211,792 Gross margin $321,600 $328,032 $341,153 $361,622 $390,552 Other revenue [source] $0 $0 $10,000 $0 $0 Interest income $900 $0 $0 $0 $0 Total revenue $322,500 $328,032 $351,153 $361,622 $390,552 Operating expenses Sales and marketing $39,000 $39,780 $41,371 $43,853 $47,362 Payroll and payroll taxes 59,000 $60,180 $62,587 $66,342 $71,650 Depreciation 36,000 36,720 37,440 38,160 38,880 Insurance 38,000 $38,760 $40,310 $42,729 $46,147 Maintenance, repair, and overhaul 13,500 13,770 14,040 14,310 14,580 Utilities 29,000 $29,580 $30,763 $32,609 $35,218 Property taxes 14,000 $14,280 $14,851 $15,742 $17,002 Administrative fees 17,000 $17,340 $18,034 $19,116 $20,645 Other 4,000 $4,080 $4,243 $4,498 $4,858 Total operating expenses $249,500 $254,490 $263,640 $277,360 $296,341 Operating income $73,000 $73,542 $87,513 $84,263 $94,212 Interest expense on long-term debt 4,038 3,224 2,369 1,471 528 Operating income before other items $68,962 $70,318 $85,144 $82,792 $93,683 Loss (gain) on sale of assets 0 0 1,000 0 0 Other unusual expenses (income) 0 0 0 0 0 Earnings before taxes $68,962 $70,318 $86,144 $82,792 $93,683 Taxes on income (30%) 20,689 21,095 25,843 24,838 28,105 Net income (loss) $48,273 $49,223 $60,301 $57,954 $65,578 Cash Flow Projection Activities Particulars Year 1 Year 2 Year 3 Year 4 Year 5 Total Operating activities Net income $48,273 $49,223 $60,301 $57,954 $65,578 $281,330 Depreciation 36,000 36,720 37,440 38,160 38,880 187,200 Accounts receivable 0 0 0 0 0 0 Inventories 0 0 0 0 0 0 Accounts payable 0 1,000 0 (1,500) 0 (500) Amortization 0 0 0 0 0 0 Other liabilities 0 0 0 0 0 0 Other operating cash flow items 0 0 0 0 0 0 Total operating activities $84,273 $86,943 $97,741 $94,614 $104,458 $468,030 Investing activities Capital expenditures $0 $0 $0 $0 $0 $0 Acquisition of business 0 0 0 0 0 0 Sale of fixed assets $0 $0 ($1,000) $0 $0 (1,000) Other investing cash flow items 0 0 0 0 0 0 Total investing activities $0 $0 ($1,000) $0 $0 ($1,000) Financing activities Long-term debt/financing $83,712 ($67,102) $7,043 $31,145 ($94,798) ($40,000) Preferred stock 0 0 0 0 0 0 Total cash dividends paid 0 0 0 0 0 0 Common stock 0 0 0 0 0 0 Other financing cash flow items 0 0 0 0 0 0 Total financing activities $83,712 ($67,102) $7,043 $31,145 ($94,798) ($40,000) Cumulative cash flow $167,985 $19,841 $103,784 $125,759 $9,660 $427,030 Beginning cash balance $60,000 $227,985 $247,826 $351,610 $477,369 Ending cash balance $227,985 $247,826 $351,610 $477,369 $487,030 Balance Sheet Particulars Initial balance Year 1 Year 2 Year 3 Year 4 Year 5 Assets Cash and short-term investments $60,000 $227,985 $247,826 $351,610 $477,369 $487,030 Accounts receivable 4,000 4,000 4,000 4,000 4,000 4,000 Total inventory 25,000 25,000 25,000 25,000 25,000 25,000 Prepaid expenses 0 0 0 0 0 0 Deferred income tax 0 0 0 0 0 0 Other current assets 5,000 5,000 5,000 5,000 5,000 5,000 Total current assets $94,000 $261,985 $281,826 $385,610 $511,369 $521,030 Buildings $90,000 $90,000 $90,000 $90,000 $90,000 $90,000 Land 100,000 100,000 100,000 100,000 100,000 100,000 Capital improvements 0 0 0 0 0 0 Machinery and equipment 90,000 90,000 90,000 90,000 90,000 90,000 Less: Accumulated depreciation expense 0 36,000 72,720 110,160 148,320 187,200 Net property/equipment $280,000 $244,000 $207,280 $169,840 $131,680 $92,800 Goodwill $0 $0 $0 $0 $0 $0 Deferred income tax 0 0 0 0 0 0 Long-term investments 0 0 0 0 0 0 Deposits 0 0 0 0 0 0 Other long-term assets 0 0 0 0 0 0 Total assets $374,000 $505,985 $489,106 $555,450 $643,049 $613,830 Liabilities Initial balance Year 1 Year 2 Year 3 Year 4 Year 5 Accounts payable $2,000 $2,000 $3,000 $3,000 $1,500 $1,500 Accrued expenses 0 0 0 0 0 0 Notes payable/short-term debt 0 0 0 0 0 0 Capital leases 0 0 0 0 0 0 Other current liabilities 100 100 100 100 100 100 Total current liabilities $2,100 $2,100 $3,100 $3,100 $1,600 $1,600 Long-term debt from loan payment calculator $90,000 $73,712 $56,610 $38,653 $19,798 $0 Other long-term debt $100,000 $200,000 $150,000 $175,000 $225,000 $150,000 Total debt $192,100 $275,812 $209,710 $216,753 $246,398 $151,600 Other liabilities 0 0 0 0 0 0 Total liabilities $92,100 $75,812 $59,710 $41,753 $21,398 $1,600 Equity Initial balance Year 1 Year 2 Year 3 Year 4 Year 5 Owner's equity (common) $60,000 $60,000 $60,000 $60,000 $60,000 $60,000 Paid-in capital 250,000 250,000 250,000 250,000 250,000 250,000 Preferred equity 0 0 0 0 0 0 Retained earnings 0 48,273 97,496 157,797 215,751 281,330 Total equity $310,000 $358,273 $407,496 $467,797 $525,751 $591,330 Total liabilities and equity $402,100 $434,085 $467,206 $509,550 $547,149 $592,930 Loan Payment Annual interest rate 5.0% Monthly rate 0.41% Loan amount $90,000 Term of loan (months) 60 Payment ($1,693.84) Month Principal balance Principal payment Interest Payment 1 $90,000 ($1,327) ($367) ($1,694) 2 88,673 (1,333) (361) ($1,694) 3 87,340 (1,338) (356) ($1,694) 4 86,002 (1,343) (350) ($1,694) 5 84,659 (1,349) (345) ($1,694) 6 83,310 (1,354) (339) ($1,694) 7 81,955 (1,360) (334) ($1,694) 8 80,596 (1,365) (328) ($1,694) 9 79,230 (1,371) (323) ($1,694) 10 77,859 (1,377) (317) ($1,694) 11 76,482 (1,382) (312) ($1,694) 12 75,100 (1,388) (306) ($1,694) 13 73,712 (1,394) (300) ($1,694) 14 72,319 (1,399) (295) ($1,694) 15 70,920 (1,405) (289) ($1,694) 16 69,515 (1,411) (283) ($1,694) 17 68,104 (1,416) (277) ($1,694) 18 66,688 (1,422) (272) ($1,694) 19 65,266 (1,428) (266) ($1,694) 20 63,838 (1,434) (260) ($1,694) 21 62,404 (1,440) (254) ($1,694) 22 60,964 (1,445) (248) ($1,694) 23 59,519 (1,451) (242) ($1,694) 24 58,067 (1,457) (237) ($1,694) 25 56,610 (1,463) (231) ($1,694) 26 55,147 (1,469) (225) ($1,694) 27 53,678 (1,475) (219) ($1,694) 28 52,203 (1,481) (213) ($1,694) 29 50,721 (1,487) (207) ($1,694) 30 49,234 (1,493) (201) ($1,694) 31 47,741 (1,499) (195) ($1,694) 32 46,242 (1,505) (188) ($1,694) 33 44,736 (1,512) (182) ($1,694) 34 43,225 (1,518) (176) ($1,694) 35 41,707 (1,524) (170) ($1,694) 36 40,183 (1,530) (164) ($1,694) 37 38,653 (1,536) (157) ($1,694) 38 37,117 (1,543) (151) ($1,694) 39 35,574 (1,549) (145) ($1,694) 40 34,025 (1,555) (139) ($1,694) 41 32,470 (1,562) (132) ($1,694) 42 30,908 (1,568) (126) ($1,694) 43 29,340 (1,574) (120) ($1,694) 44 27,766 (1,581) (113) ($1,694) 45 26,185 (1,587) (107) ($1,694) 46 24,598 (1,594) (100) ($1,694) 47 23,005 (1,600) (94) ($1,694) 48 21,404 (1,607) (87) ($1,694) 49 19,798 (1,613) (81) ($1,694) 50 18,185 (1,620) (74) ($1,694) 51 16,565 (1,626) (67) ($1,694) 52 14,939 (1,633) (61) ($1,694) 53 13,306 (1,640) (54) ($1,694) 54 11,666 (1,646) (48) ($1,694) 55 10,020 (1,653) (41) ($1,694) 56 8,367 (1,660) (34) ($1,694) 57 6,707 (1,667) (27) ($1,694) 58 5,040 (1,673) (21) ($1,694) 59 3,367 (1,680) (14) ($1,694) 60 1,687 (1,687) 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