Business Description
Since it was founded in 2005, Tropical Coffee House (TCH) has become one of the most preferred small-sized establishments for people who like to blend unique leisure experiences with the art of healthy living. Headquartered in London, TCH operates several other outlets in Essex, Kent and Surrey in line with its core mission of taking memorable experiences and quality services to the customers’ doorstep.
TCH has enjoyed huge popularity among young and working class high-end customers who enjoy spending for quality and experience, rather than quantity and price leadership. TCH is embedded in a family business model, although it has over the years shed off the family tag by recruiting professionals based on merit and engaging in efficient management of key resources to remain competitive in today’s dynamic markets (Sirmon & Hitt 2003).
TCH offers a wide range of products and services, which include blended coffee, diet-sensitive burgers and hotdogs, organic and fruit concentrate health drinks, cakes, sauna baths and gym facilities. Most of its existing products and services are priced at a premium to penetrate the upper-end consumer market segment which remains substantially underrepresented in most European markets.
Recently, the company’s management undertook customer satisfaction surveys and found that most high-end consumers are attracted to health drinks prepared using “high protein” and “natural” products (Jacobsen 2015). Having seen this as an opportunity for growth, the company’s management and selected beverage professionals have been working on the formulation of a product that uses “high protein” and “natural” ingredients to develop a high-value health drink.
These efforts have produced a new product known as Tropical Health. TCH has also seen the need to blend the new product with different natural flavours (e.g., orange, strawberry, lemon, vanilla etc) to provide consumers with choices and enhance diversification (Barett, Balloun, & Weinstein 2000). The main objective of this business proposal is to demonstrate how Tropical Health will be launched into the market and also to seek for financial and managerial support from potential backers.
Investors in the industry might want to know why TCH is keen on diversifying its health products at the expense of more traditional products such as blended coffee and diet-sensitive burgers. The truth of the matter is that contemporary consumers have become more health-conscious and available literature demonstrates that there is a huge market for products developed using high protein and natural ingredients (Jacobsen 2015).
Business Opportunities
Potential Customers
Tropical Health will target high-end, health-conscious consumers who have the means to sample the best that the market has to offer. The company is targeting customers who want to spend their money on innovative products that provide substantial health benefits in spite of their premium cost. This market segment is substantially underutilised in the United Kingdom (U.K.) as most companies in the sector target low and middle-class consumers.
Consequently, the targeting of this consumer market will enhance customer value by assisting the company to fulfil the needs of this particular segment. It will also assist TCH to become more popular and to develop a reputation for its Tropical Health brand, hence creating competitive advantage (McMillan 2013).
Geographical Area
TCH intends to launch Tropical Health in its London establishment, although there is a possibility for expanding into other outlets in Essex, Kent and Surrey depending on initial demand. London has a wide range of high-end customers due to its reputation as a business and commercial hub.
Additionally, the city is densely populated and is also known as the preferred destination for international conferences that bring together moneyed delegates from all over the world (Lewisham Business n.d.; London n.d.). As such, potential investors should realise that TCH has a high potential to succeed in launching its high-protein health drink due to city’s population dynamics, socioeconomic endowment, and reputation as a global business hub.
Business Competitors
Although the U.K. experiences high competition in the health drinks industry (Creating New Choices 2014), only a few companies specialise in the production of fleshly squeezed juice with 100% fruit content equivalent. Some hotel establishments such as The Ivy, River Cafe, Cibo and Fat Boys are known to provide various variants of fruit juice and health drinks to high-end consumers within London and its environs.
Most of these competitors have a huge capital base and have been in operation for a long time. However, research demonstrates that these competitors rely on organic and energy-boosting ingredients to make their health products despite the fact that health-conscious customers are increasingly being attracted to high-protein health drinks (Jacobsen 2015).
This strength serves to guarantee potential investors and managerial professionals that, although the competition for the health drinks market in the U.K. may be stiff, there are still areas that can provide excellent opportunities for growth if TCH becomes keen on exploiting prevailing consumer needs and expectations (Stokes & Wilson 2010).
Marketing Strategy
Costing and Pricing
Launching a new product often occasion managerial challenges due to difficulties in setting the appropriate costing and pricing budgets (Luan & Sudhir 2010). TCH has identified how products with similar attributes have historically responded to the variables of costing, as demonstrated below. It is important to note that pricing of the new product will be premium-based not only to recover costs but also to achieve alignment with intended target customers.
Table 1: Costing for Tropical Health.
Sales Projection
Based on the previous sales of TCH’s organic health drinks, it is estimated that the company will sell €1.5 million worth of Tropical Health in the first two years of production. Sales are projected to grow at 30 percent annually for the next three to six years.
Potential investors might query how these figures have been formulated. It is important to note that the estimations are based on the ready market for high-protein health drinks (Jacobsen 2015), as well as the actual sales realised by TCH in its organic health drinks segment.
Marketing Plan
Product
Tropical Health fulfils customers’ needs due to its immense health benefits.
Place
TCH intends to use its main outlet in London as the preferred distribution channel for launching the new product. However, depending on demand, TCH will use its other establishments to reach a wider customer base and projected sales objectives.
Price
Tropical Health will be priced at a premium as it targets high-end consumers. Although the price of the new product will be determined by factors such as production costs, market share and target customers, the underlying justification is to price it at a premium to achieve product and customer differentiation (Barett et al. 2000).
Promotion
TCH will use viral marketing and word-of-mouth to advertise the new product with the view to not only differentiating it from competitors but also developing a good relationship with customers (Barett & Weinstein 2015). It is important to satisfy potential investors by underscoring that the preferred promotional tools are cost-effective and easy to use (Barett et al. 2000; Luan & Sudhir 2010).
Business Operations
Operational Function
Although TCH operates under a family business model, it has six professional managers with wide experience, master’s level education, and other key competencies in entrepreneurship. The company has adopted an innovative management style, whereby work-flows are results-oriented and senior manager always strive to develop new and better ways of doing things (Benfari 2004; Armstrong 2009).
TCH intends to use competitive recruitment to hire three more food and drink specialists to assist it in blending high-protein natural ingredients for use in the new product. Competitive recruitment will also be used to hire two senior managers and several support members to oversee the commercialisation of the new product.
Most managerial decisions are made through consultation, though a few important ones must be sanctioned by TCH’s founder. Finally, managers and employees are compensated and rewarded based on education, responsibilities, and individual productivity.
Products and Services Offered
TCH can be termed as a small enterprise interested in the provision of premium-priced products and services (e.g., blended coffee, diet-sensitive burgers, health drinks, cakes, sauna baths and gym facilities) to lock into the high-end market segment. Tropical Health product will be a new addition to the company’s staple. The new product is intended to satisfy an emerging market for high-protein and naturally blended health drinks (Jacobsen 2015).
Personnel
TCH utilises Mintzberg Five Parts of an Organisation model to not only recruit employees into respective areas of the business, but also to ensure alignment of human capital between and among the sections. This model will be utilised in the development, launch and sale of the new product.
The five parts include:
- the operating core which is responsible for performing the basic work of developing the new product by securing inputs, processing them and arranging for the product’s distribution to customers,
- the strategic apex which is responsible for formulating and implementing strategies that are designed to facilitate the achievement of organisational objectives,
- the middle line managers who are responsible for linking the strategic apex to the operating core by managing information flows up and down the hierarchy and by coordinating the work of junior staff,
- the techno-structure which consists of food and drinks specialists who are responsible for setting the standards relating to work processes, outputs and skills, and
- the support staff who are responsible for providing back-up services to other components of the organisation (Quader 2007; Armstrong 2009).
Finances
Revenues
It is expected that the launch and commercialisation of Tropical Health will bring approximately €1.5 million in sales revenues within the first two years of business. TCH’s organic-based health drinks brought €800 million in profits within the first two years, implying that the new venture is bound to impact positively on the company’s bottom-line.
Going by the high demand for high-protein, naturally-blended health drinks in the market today (Jacobsen 2015), it is anticipated that the sales revenues for the new product may surpass €2 million within the first two years if senior management adopts an effective marketing mix and if the company serves a wider geographical reach (Barett & Weinstein 2015). These sales revenues justify why potential backers should consider investing in the launching and commercialisation of the new product.
Expenses
Fixed and variable costs for the launching and commercialisation of Tropical Health product are around €810,000. If provisions for unforeseen expenses are made, it is correct and justifiable to argue that all expenses for the launch and commercialisation of Tropical Health will not surpass the €1 million mark.
These expenses are viable for a small business enterprise that wants to make it big in the high-end consumer market. However, financial and managerial support is needed from potential backers to offset these costs and spur the product line into profitability.
Financial Projections
Owing to the prevailing high demand for high-protein, naturally-blended heath drinks not only in London but also in other major cities in Europe (Jacobsen 2015), it is expected that the sales revenues for the new product will grow at annual rate of 30 percent for the next three to six years after the launch of the new product.
It is projected that TCH will be able to attract potential investors, who will finance all activities related to the new product for the next 12 to 24 months in return for a 10 percent stake of the product’s net revenues for the next five years. Alternatively, potential investors may undertake a 50 percent equity financing in return for a 5.5 percent stake of the product’s net for the next three years.
These arrangements are critical in helping TCH to expand its product offerings to other areas and outlets within eight to twelve months after launch with the view to becoming a market leader in the provision of high-protein, naturally-blended health drinks to the high-end consumer segment.
Reference List
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Stokes, D. & Wilson, N., 2010, Small business management and entrepreneurship, 6th edn, Cengage Learning, Boston, MA.