Executive summary
This is a business plan for Ki, a start-up business that aims at becoming a high-end chocolate brand in the UK. The company sets to achieve this by serving its customers with high quality and delicious chocolate made from 100% Mexican cocoa and recipes. This business plan gives a description of the company, its mission, business objectives and business strategy.
The plan additionally includes an industry analysis of UK’s high-end chocolate market to determine its attractiveness and how it is influenced by political, environmental, social and technological factors in the UK. Other constituents of this business plan are Ki’s marketing, operational and finance plan, SWOT and business risk analysis and risk and contingency evaluation
Statement of purpose for the business plan
The statement of purpose for Ki’s business plan is “to enable Ki to successfully enter into and grow in UK’s high-end chocolate industry”.
Terms of reference
To give a practical experience of the concepts and issues involved in the preparation of a business plan
Methods and procedures
In doing an industry analysis of UK’s high-end chocolate industry this business plan uses the Porter’s five forces approach to determine the industry’s attractiveness and a PEST analysis to determine how the industry is affected by political, environmental, social and technological factors in the UK.
These are augmented with secondary research. Ki’s market plan includes discussions on market segmentation, Ki’s product, pricing and promotional strategies.
Ki’s operational plan includes discussions on location capacity and equipment, organizational structure, wages and growth plans, quality and logistics. Ki’s financial plan includes a discussion on funding, financial income statements and financial performance indicators. The SWOT and business risk analysis section includes a SWOT analysis of Ki and discussion on Ki’s internal and external auditing.
In addition, this part also includes a discussion of the risks that have been identified and addressed following the SWOT and audit analysis. The risk and contingency evaluation section discusses Ki’s approach to risk and contingency evaluation
Introduction
Ki is a start-up business with a mission of becoming a competitive high end chocolate brand in the UK. The Mayan – an indigenous Mexican community – name of the company highlights the interest of the company, its history and values. The name means “delicious”. Indeed to produce delicious chocolate the company has strategically chosen Mexico as the location in which the chocolate will be produced.
The reason for this is that Mexican Cocoa (the plant from which chocolate is produced) has international recognition for high quality. To produce a 100% Mexican product the packaging of will also be done in Mexico.
Ki’s key personnel
One of Ki’s key personnel is the managing director who will also double up as the company’s CEO. This is topmost individual in the company’s managerial hierarchy and he/she is the main decision-maker. This individual will work with Ki’s divisional managers to put together resources and to take the company’s product into the market.
His/her tasks include setting the company’s culture, strategy development and deployment, directing the company, leading divisional managers, marketing the company’s product and managing the company’s physical and financial resources. Another of Ki’s key personnel is the operations manager.
This individual will head and lead the company’s operation division and will have the responsibility of ensuring financial success in the company. His/her main task is managing the company’s relations with lending institutions, surrounding community and vendors.
Another of Ki’s key personnel is the quality control and safety manager. This individual will have the responsibility of ensuring high quality in Ki’s products and ensuring that they conform to FSA’s food safety standards and requirements. Another of Ki’s key personnel is the human resource manager.
This individual will have the responsibility of developing the company’s HR policy and ensuring there is efficient recruitment and management of the company’s human capital. Another of Ki’s key personnel is the accountant. This individual will be the company’s bookkeeper.
He/she will have the responsibility of efficiently managing the company’s cash and preparing the necessary financial documents e.g. annual financial statements and budgets. Another of Ki’s key personnel is the shipping and receiving manager.
This person will have the responsibility of receiving Ki’s imports and ensuring they safe keeping in the company’s warehouse. Another of Ki’s key personnel is the professional staff. This includes the companies IT technician, lawyer and receptionist. Such individual will play a management supportive role.
Mission statement
It is the Mission of Ki to provide UK’s high-end chocolate lovers with high-quality and delicious chocolate made from 100% Mexican cocoa and recipes. Furthermore, by achieving these, the company hopes to become a competitive high-end chocolate brand in the UK.
Business objectives
Ki’s general objective is to produce and sell high-quality chocolate in a way that supports social and environmental development. The company has a number of specific objectives. One of these specific objectives is that the company wants to optimize its use of natural resources e.g. cocoa and thus minimize wastage to negligible and acceptable levels.
Another specific objective of the company is ensuring high quality and freshness of its chocolate products. Another specific objective of the company is that it intends to make a positive impact on cocoa farming in Mexico. Another of KI’s specific objectives is to make its chocolate the preferential choice for customers.
This it intends to achieve through creating a linkage between it and its customers. Another specific objective of the company is to create high quality products that are made from 100% Mexican raw materials.
Business strategy
Ki will use a corporate business strategy. With this approach, Ki defines what it does, why it exists and what it purposes to become. In addition to this, Ki defines its operating market and business. The reason for choosing this approach is that it purposes on meeting stakeholder expectations. This is very important for a start up business like Ki.
Industry analysis
Porter’s five forces
Companies in UK’s high-end chocolate industry face the threat of new entrants into this market as the Kingdom’s economy stabilizes from the recent global economic recession. The resiliency of the industry is during this crisis is another factor that is attracting and encouraging new entries. For instance, Nestlé’ launched its Maison Cailler premium chocolate brand this year of which the UK was a target market.
There are no legislative barriers to entry in this industry; however, its high capital is a hindering factor. Companies in UK’s high-end chocolate industry do not face the threat of counterfeit goods as the industry enjoys clearly defined intellectual property protection. The intellectual property protected includes recipes and brand elements such as names, logos and trademarks.
Supplies for UK’s high-end chocolate companies do not have much bargaining power due to their high number. However, companies face the risk of variable prices of cocoa in the international market. This is because the commodity is grown in developing countries facing potential political instability. UK’s high-end chocolate industry inherently does not suffer from increased bargaining power of customers.
The reason for this is that it deals in luxury products. There is no intense rivalry in UK’s high-end chocolate market because it has clear and dominant leaders. The conclusion from this Porter’s five forces analysis of UK’s high-end chocolate industry is that it is an attractive industry.
PEST analysis
Political factors
Taxation
According to the UK taxation policies, at the minimum companies in UK’s high-end chocolate industry make tax payments to two government entities, namely, the central government and the local government. They pay tax to the central government through corporate tax payments to HM Revenues and Customs. Calculation of this corporate tax uses a flat marginal tax rate.
The companies also make payments (or contributions) to the central government known as national insurance contributions. In addition to these they are also charged value added tax (VAT), excise tax, stamp duty, vehicle excise duty, fuel tax (or hydrocarbon oil duty ) and corporation.
To the local government the companies pay council tax, rates (property tax) and business rates. All of these taxes apply to Ki because it is a business entity and an employer.
Legislation impacting UK’s high-end chocolate industry
UK’s employment legislature defines an employee as any individual who has a “contract of service”. In this case an employer is the entity that provides the contract of service to the employee. UK’s employment legislature prohibits against age, disability, racial and sex discrimination.
UK’s employment legislation prohibits against unfair dismissal and clearly states that an employer should give an employee’s reasonable notice before his/her dismissal.
According to this legislature, companies should consider an employee’s dismissal fair if it is out of, first, the employee’s incapability and unacceptable qualification, second, the employee’s misconduct, thirdly, a genuine redundancy, fourthly, avoidance of contravening an existing statute and fifthly, any other genuine and substantial reason.
When there is an impending dismissal a company will issue a notice to the employee(s) according to the requirements of the legislature. That is, 1 week’s notice for employees with an employment life spanning one to 24 months and for those with a longer employment life, the number of weeks for issuing the notice will be equal to the number years worked.
UK’s employment legislature defines redundancy as a business situation arising from, first, failure of the whole or part of a business, second, a shift of business location or thirdly, the ending of a business’s need for a particular kind of work. UK’s employment legislature advices employers to accord their employees with family-friendly flexible working arrangements e.g. telecommuting, job sharing, flextime etc.
UK health legislature
UK health legislature comprises of work place regulations. These support and enhance workplace safety, health and welfare. According to Act 1974 of British legislature a breach of these regulations constitutes a crime. The punishment of which is a summary conviction accompanied with an appropriate fine.
If the crime is serious as to necessitate an indictment in the kingdom’s Crown Court then there is the possibility of an imposition of an unlimited fine to the offender.
The legislature makes it clear than an offender can be either a person or corporate organization e.g. Ki. Furthermore, the legislature covers situations in which a breach of these regulations causes damage to an individual e.g. an employee of an organization such as Ki. It defines a right and cause of action for such an individual.
Trade Tariffs
According to UK’s Trade Tariff the products in UK’s high-end chocolate industry fall under its section IV (Business link, 2012).
In this section the products’ description is given under the heading number “1806” (titled “Chocolate and other food preparations containing cocoa”) of chapter 18 (titled “COCOA and COCOA PREPARATIONS”) (Business link, 2012). According to the notes on this chapter the UK has no trade restrictions on these products.
Economic factors
When measuring using nominal GDP UK’s economy is the seventh-largest national economy globally whereas when using purchasing power parity (PPP) it is the eighth-largest. There was a 0.3% drop (or contraction) of UK’s GDP by the end of 2011 and as a result the kingdom’s economic growth fell from 0.8% in the previous year to 0.7% (BBC 2012).
In 2012, the expectation is that the economy will oscillate between contraction and economic growth. In March 2012, there was a rise in the inflation rate of the consumer price index (CPI) by 0.1% whereas that of the retail price index (RPI) fell by the same amount (BBC 2012). The CPI rate currently standing at 3.5% is according to the BBC (2012) “still above the Bank of England’s target of 2%”.
Interest rates in the UK still remain at a cautious 0.5% (BBC 2012). These low interest rates are necessary as the kingdom attempts to stabilize against the effects of the recent global recession.
UK’s emergence from this recession was in the fourth quarter of 2009 when it recorded a 0.4% economic growth. According to the exchange rates on the 29th April 2012 1 pound is exchanging at 21.08 to the Mexican Peso and at 1.62 to the US dollar (Reuters, 2012)
Social factors
Health consciousness
Consumer habits and trends in the UK suggest that the kingdom’s health consciousness has been increasing since the year 2000. This means that an increasing number of the kingdom’s populace want foods that are healthy. According to the seventh survey of UK’s Food Standard Agency (FSA) consumers in the kingdom are interested with foods of high nutritional value (Fletcher, 2007).
The FSA is the body in the UK that sees to it that food business such as those in UK’s high-end chocolate business conform to food safety and health standards (Crown, n.d.). When this organization places a red light on a food product it is sending a message to a consumer that the product contains a high levels of a nutrient that he/she should not consume in excessive amounts.
The FSA has given chocolate a red light, however, this as not had a negative impact on its sales as, as been the case with other products. Additional research by the FSA reports that hygiene is increasingly becoming a concern to UK’s consumers.
UK Population growth rate
UK’s population is increasing. The kingdom’s population growth rate is at its highest according to Office for National Statistics data. Immigration to the UK also has been on the increase in the recent past averaging at 240,000 immigrants a year (Market Oracle Ltd. 2012). The immigrants are majorly of a productive age and are highly fertile, hence the rise in UK’s population growth rate.
This rise is positive news for companies in UK’s high-end chocolate industry as it implies an increasing target market. Individuals of the ages 0 to 14 years make up 18% of UK’s population, 66.3% are individuals of the ages 15 to 64 years and 15.7% are individuals with 65 years and above.
Technological factors
One recent technological innovation that is of importance to UK’s high-end chocolate industry is in catering and packaging. Hygiene especially in catering is come out as a major concern to UK consumers. The FSA has developed SFBB packs that facilitate hygienic catering and packaging of food substances. The designing of these packs takes into account the different food business.
Secondary research
Industry analysis
Even with increasing health consciousness there is increasing and continual growth in UK’s high-end chocolate industry. There is opportunity in it for start up business like Ki. One factor that that is driving and facilitating growth in this industry is population growth. Venturing into new markets is another factor that is driving growth in the industry since it enlarges the industry’s target market.
Product innovation is another factor that is driving growth of UK’s high-end chocolate industry. The innovation facilitates the meeting of customer demands at high levels. The rise in disposable income levels is another factor driving the growth of UK’s high-end chocolate industry. These rise means consumers have more purchasing power. Large-scale production companies have dominance in UK’s chocolate industry.
As a result SMEs focus on providing unique and special chocolate and/or chocolate products. According to Sena ” Unique chocolates may be from a region famous for a particular technique, baked on-site or offer a different take on tradition, while specialty services tend to focus on gift-packaging or delivery” (2012).
One driver of customer demand with respect to chocolate is taste. Customers love to consume chocolate that is delicious. In Great Britain 91% of its females and 87% of its males consume chocolate and its allied products. The love for tasty chocolate has spread beyond the UK and into other markets such as India and China in which disposable incomes and taste innovations are the key drivers of the industry’s growth.
Even during the recent global recession chocolate sales were strong. Surprisingly, with individuals making cuts on other items chocolate still remained to many as Sena (2012) points out an “affordable luxury”. Financial performance success in the chocolate industry is highly dependent on manufacturing efficiency, supply chain efficiency and marketing strategy effectiveness.
A concern in this industry is the variability and subsequent unpredictability in the cost of raw materials e.g. cocoa. Cocoa prices have been seen to be variable a situation which arises because it is mostly grown in developing countries with political and economic instability.
The chocolate industry has shown resiliency in the face of the recent global recession. It has also shown innovativeness when it comes to meeting emerging consumer demands driven by increasing health and production consciousness. Small companies in the industry focus more on providing the market with premium and special chocolate and its allied products.
Growth in the industry will remain as new markets open up for chocolate and its allied products and as economies recover from the recent global recession. Healthier varieties of chocolate are becoming more popular with consumers. Fair-trade arrangements are increasing in the industry to counter the human exploitation in the production of chocolate.
Size of the Industry
UK’s chocolate Consumption is the seventh highest in the world with the average Brit consuming 17.49lbs (or 7.93Kgs) of the product annually (Chocolate Devine Ltd., 2011). The size of UK’s chocolate industry by sales is £3.6billion (Chocolate Devine Ltd., 2011). According to predictions by experts chocolate sales in the UK will over the next five years increase by 17%.
This implies a corresponding increase in the size of the industry, which is dominated by international companies such as Kraft and Nestle. According to The Times 100 (2012) “UK consumers have a choice of over 5,000 chocolate lines available from 150,000 outlets”. UK’s chocolate market workforce is in its tens of thousands.
Purchase process and buying criteria
A criterion that consumers are using when purchasing high end chocolate (or luxury chocolate market) is ethics in the production process. UK consumers do not want to consume chocolate whose production disregards human welfare and proper social, economical and environmental ethics. The steady rise in demand for Fair Trade chocolate in the UK is testament to this fact.
Another criterion is environmental awareness. Globally, there is a rise in environmental awareness with consumers increasingly wanting products that show consciousness to the environment. This is no different in UK’s chocolate industry. The steady rise in the demand for organic luxury chocolate in the UK is testament to this fact.
One of the main reasons why luxury chocolate is purchased is that it makes a great gift for many individuals an attribute that is significantly enhanced by the Fair Trade and organic chocolate concepts.
These concepts, however, have a price-escalation effect on the price of luxury chocolate as they are quite costly for the producer to implement. The high price is, however, important when you consider the non-monetary gains achieved from these concepts.
Description of industry participants
There are a number of high-end chocolate brands in the UK such as Godiva, Leonidas, La Maison du Chocolat. These companies stock 150,000 outlets in the UK with over 5000 chocolate varieties (The Times 100, 2012). The major dominant brands are international and they are Kraft, Mars and Nestlé. Kraft’s share of the market is 28% whereas Mars’s and Nestlé’s share of the market is approximately 24% each (The Times 100, 2012).
All of these companies distribute their products to major retail outlets, department stores and chain stores in the UK. They ensure that they have a steady, smooth and efficient supply chain as this is effective in ensuring that customer demands are being met and on time. Such a supply chain is the end result of well calculated and designed logistic strategies.
Industry trends
Recent chocolate industry trends are driving product innovation and the growth of the industry as well. According to Sena (2012), new product releases in UK’s chocolate industry in 2010 were 16% higher than in 2009. These trends are aiming at providing chocolate consumers with healthier products. A beacon of these trends is dark chocolate, which has been bound to significantly reduce blood pressure and cholesterol.
In addition, dark chocolate is highly nutritious as it contains quite a massive amount of antioxidants. Another beacon of these trends is the Fai Trade certified chocolate. This is an arrangement between a chocolate producer and a consumer such that the latter pays premiums to the former to ensure that he/or she buys or consumes ethically produced chocolate and/or chocolate products.
Fair-trade arrangements simply ensure that production of chocolate in developing countries is free of human exploitation. These arrangements add to the sentimental value of chocolate.
Another trend in the chocolate industry is the increasing demand for premium and specialty items. The demand for these items during the recent global recession was low, however, as economies pull out and recover from this crisis the demand is raising.
On of these items is the high-end chocolate variety which is baked on the business premise and that has a secret recipe. Another item as given by Sena is the ” seasonal and boxed assorted chocolates” (2012).
Opportunities in the industry
There are franchising opportunities in the chocolate industry. The level of franchising depends on the interest of the franchiser. Gift-giving franchisees deal in delivering gift-chocolate. Bulk Candy franchisees offer a wide variety of chocolate and non-chocolate confectionaries. Premium or unique franchisees offer high-end and special chocolate that is an import from areas (or regions) with historical repute.
On-Site baking franchisees bake chocolate on order for a customer. This not only produces chocolate but gives a customer the baking experience as well. Ethical franchisees offer chocolate on a Free Trade arrangement, which guarantees quality and increase in the sentimental value of the product.
Industry outlook
The sales of high-end chocolate are expected to improve in the next three to five years as UK’s economy continues to stabilize from the recent global economic recession. This is because the stability is causing a rise in disposable incomes, which are in turn increasing the purchasing power of consumers.
Another projection is that the sales of high-end Fair Trade chocolate and organic high-end chocolate are expected to rise and as such these products have the greatest opportunity for growth.
High-end chocolate lovers want to promote ethics in its production and as such are endlessly entering into Fair Trade arrangements with producers. This concept is relatively new; however, its knowledge is spreading steadily among high-end chocolate consumers. As it spreads the sales of Fair Trade chocolate are improving by the day.
High-end chocolate lovers are increasingly becoming aware of the environment. Thus, by buying organic high-end chocolate they are demonstrating their concern and care for it (the environment).
Convectional high-end chocolate sales in the UK are projected to decline significantly over the next three to five years. This is because UK consumers are increasingly becoming health conscious and as such are demanding for healthier chocolate.
Marketing plan
Target market
Ki’s target market is all lovers of delicious high-end (or luxury) chocolate in the UK whether it is Fair Trade or organic. UK’s demographic study shows that 18% of UK’s population are individuals of the ages between 0 to 14 years, 66.3% are individuals of the ages 15 to 64 years and 15.7% are individuals with 65 years and above.
From these statistics Ki’s specific target market will be high-end chocolate lovers in the 15 to 64 years age group and 65 years and above. There is exclusion of the 0 to 14 years age group because it is unlikely that individuals in this age bracket will be able to afford this product, which is quite expensive especially when there is introduction of the Fair Trade and organic variants.
In the 15 to 64 years age group Ki’s marketing strategy will have a special focus on high-end chocolate lovers with salary packages that accommodate disposable income. This is because Ki projects that the purchasing power of these individuals will keep raising as UK’s economy continue to stabilize. This projection is inferred from the industry research undertaken by Ki and which is presented above.
In the 65 years and above age group, Ki’s marketing strategy will focus on middle and upper class high-end chocolate lovers. This is because individuals in this age bracket most likely are able to afford high-end chocolate. Generally, Ki’s target market is any individual in the UK who loves high-end chocolate and is able to afford it.
Description of key competitors
Ki’s major competitors in the UK’s high-end chocolate market include Nestlé, Mars, Godiva and La Maison du Chocolat. Nestlé, headquartered in Switzerland, is the dominant company in UK’s high-end chocolate market owning 28% share of it. Nestlé venture into the high-end chocolate market was a strategy to counter and mitigate the effects of the recent economic downturn.
It launched its Maison Cailler brand of high-end chocolate in January this year (Dow Jones Newswires, 2012) in Switzerland and already there is strong performance of the product in the UK market. According to Broc who is the Director of the company’s Chocolate Centre of Excellence this brand aims at offering high-end chocolate consumers in the UK with the perfect personalized chocolate (Nestlé, 2012).
Interested individuals undergo a profiling stage aimed at revealing the individuals chocolate personality or taste. After successfully completing the profiling the individual waits for the personalized chocolate (Maison Cailler chocolate) to arrive. This arrives within 48 hours so as to ensure its freshness.
The personalized chocolate is created using secret recipes only known to Maison Cailler, a chocolate company now in the ownership of Nestlé. There are twelve variants of the Maison Cailler chocolate to choose from. Nestlé’s marketing strategy for this new brand rests on the quality of the product and of the service.
The company is of the view that successful marketing is achievable mainly through giving customers a product and service of unrivalled quality. In addition to this, the company is making use of the internet platform to popularize this brand by encouraging buyers to share their experiences with the product online with their friends.
Godiva Chocolatier is another of Ki’s major competitors in the UK’s high-end chocolate market. The company manufactures high-end chocolate and other allied products. Godiva is a Turkish-owned company with Belgian roots. In North America, Europe and Asia Godiva owns and runs over 450 buying outlets, which are either boutiques or shops.
In addition, in these same regions the company’s products are sold by more than 10,000 speciality retailers. Gold Ballotin is the name for Godiva’s lucrative high-end chocolate brand. The name is French and in English means a small and elegant box of chocolates.
A package of this brand contains a collection of chocolates made from classic Belgian recipes. Each piece in the Gold Ballotin is according to FTD “an exquisitely rich, velvety chocolate with fascinating flavours and intriguing textures to delight your favourite chocolate lover”.
The package for Godiva’s Gold Ballotin chocolates is a golden box of striking beauty. Godiva believes that such a package shows not only style but sophistication as well. The Gold Ballotin is a perfect choice for gift shoppers and it comes in different sizes e.g. 8 piece, 19 piece or 36 piece.
Interested individuals can shop and order the Gold Ballotin online in which case it is delivered within the shortest time possible. Godiva’s marketing strategy for the Gold Ballotin rests heavily on the quality of the product.
The company believes that by maintaining high quality the product markets itself as its recipe is unique. Packing also plays an important role in the marketing strategy. The packaging is attractive, stylish and shows sophistication and thus can easily catch the eyes of shoppers especially those shopping for gifts.
La Maison du Chocolat is another of Ki’s major competitors in the UK’s high-end chocolate market. It is a French company located in Nantere, France and which runs about 30 stores in metropolitan areas in Europe, North America and Asia. The company is distinctively known for its work with gourmet chocolate. The head chocolatier in La Maison du Chocolat revives old classical recipes in new products.
Two luxury products that stand out at La Maison du Chocolat are the French chocolate truffles and assorted chocolate box. La Maison du Chocolat’s French chocolate truffles are delicious confectionaries that can suit any special occasion. La Maison du Chocolat’s assorted chocolate box is a collection of chocolates prepared from the freshest French ingredients. The assorted chocolate box is a good choice for shoppers shopping for gifts.
One of La Maison du Chocolat strengths is its wide variety of high-end chocolate products that live a consumer spoilt for choice. As with Godiva La Maison du Chocolat marketing strategy rests heavily on the quality of product. The company’s chocolate is unique and needs to maintain its identity to the consumer.
This can only be done by ensuring high quality in the product. Packaging is also part of the marketing strategy. The packaging is done with an emphasis on attracting the customer’s eye particularly those shopping for gifts.
Analysis of Ki’s competitive position
The main way through which Ki will realize a competitive advantage over its competitors is in the newness and uniqueness of its product. Ki’s chocolate is 100% Mexican and as such is a new variety in UK’s high-end chocolate market.
Ki is to capitalize on this advantage while knowing that, first, high-end chocolate lovers want to indulge in new and/or classic chocolate tastes and second, it is important and essential to maintain high quality in its product as this is the only effective way of maintaining and enhancing the product’s unique identity.
Another way through which Ki will realize a competitive advantage over its competitors is in the uniqueness of its retail experience. Ki wants to offer a unique retail experience to its customers, specifically, those who purchase its chocolate in its retail outlet(s). Ki’s retail experience aims at making its chocolate a valuable and special item to the consumer or any individual shopping for the perfect gift.
The other way in which Ki will realize a competitive advantage over its competitors is in its moral standing. One of Ki’s moral values is respect for the environment, customer, employees, and all those involved in the creation to selling of its chocolates.
Ki’s main supplier of chocolate, Finca Cholula, maintains a high code of ethics and completely practises organic farming. Therefore, Ki’s customers will have the comfort of enjoying a product with high regard for human life and the environment.
Poor quality in its product and retail service will put Ki in a competitive disadvantage with its competitors. Ki’s main strength is in the uniqueness of its product and service. The most effective way for Ki to maintain and enhance this strength is by ensuring top quality in its product and retail service.
Top quality is essential in building productive public relations for a company and these are in turn essential in boosting the company’s financial performance. A weak and inefficient supply chain will put Ki in a competitive disadvantage with its competitors.
From the industry overview above, one critical success factor for companies in UK’s high-end chocolate industry is a robust and efficient supply chain as this enables meeting of customer demands at advanced levels.
Inability to meet customer demands causes customer dissatisfaction which in turn causes a decline in sales and eventually undermining of a company’s financial performance. Ki will have to ensure that it has a robust logistic strategy for it to realize this critical success factor.
Poor organizational structure and culture will put Ki at a competitive disadvantage with its competitors. Poor organizational structure and culture easily frustrates employees and kills they morale and commitment to a company. As such, it can cause a compromise on the quality of products and/or services an organization offers.
Poor organizational structure and culture is one of the major causes of employee turn over. Employee turnover, especially when it is external, can have detrimental effects to a company’s future.
External employee turnover occurs when an employee abandons his/her current employer to work for a different employer. In Ki’s case, external employee turnover can lead to a situation whereby the company’s trade secrets are revealed to its competitors and as such rendering it unable to compete.
Market segmentation
UK’s high end chocolate (or luxury chocolate market) has three main market segments, namely, convectional, Fair Trade and organic chocolate. Individuals who make up the Fair Trade market segment enter into fair Trade arrangements with chocolate producers.
These arrangements serve as guarantee to them that the producer will manufacture chocolate without human exploitation and while observing a high code of social, economical and environmental ethics. Fair trade chocolate is still a new concept but its demand is rising.
Individuals that make up the organic chocolate segment are those that are environmental conscious. Organic chocolate is produced from cocoa cultivated using organic methods and hence it is seen as environment-friendly chocolate.
Organic chocolate is expensive in comparison to convectional chocolate owing to the high cost of its raw material. Demand for organic chocolate is increasing as consumers become more aware of the environment. Fair Trade and organic chocolate concepts increase the sentimental value of luxury chocolate.
Individuals who make up the convectional chocolate market segment are those who do not pay any special attention to the production and farming of chocolate. They just want to buy high-end chocolate. Convectional chocolate is traditional chocolate.
Organic and Fair Trade chocolates are derivatives of convectional chocolate. Demand for convectional chocolate is falling as environmental awareness increases and as concern grows for the welfare of cocoa farmers.
Products
At its start, Ki will be dealing in a number of products, namely, chocolate bars, flavoured chocolate truffles, solid chocolate, spiced chocolate and swarms of chocolate. Ki’s chocolate bar is a bar form confection that has 4 main ingredients, namely, cocoa solids, coca butter, sugar and milk. All these ingredients are 100% Mexican. Ki’s hard chocolate is hard and durable chocolate that is prepared using 100% Mexican cocoa butter.
Ki’s spiced chocolate is chocolate made from 100% Mexican cocoa and which is flavoured using Mexican spices. Ki’s chocolate truffles are confectionaries prepared by coating a filling (e.g. a nut, strawberries etc.) with chocolate made from 100% Mexican cocoa.
For chocolate bars, solid and spiced chocolate customers will choose among pre-packaged boxes. The package boxes will come in three sizes and for each size there will be two colours. Truffles and swarms will be packaged in brown bags. Hot chocolate will be sold in powder form; to prepare at home and in the store ready to drink.
The production and packaging of these products will be in Mexico. The key, unique and defining characteristic in all of these products is that the cocoa for making the chocolate will be 100% Mexican. None of the chocolate or chocolate products in the UK market today boasts of such uniqueness. The Ki will work on cash on delivery terms with its major supplier of chocolate, Finca Cholula.
Ki’s choice of this supplier is mainly out of the reason that the supplier uses organic farming to cultivate cocoa. This is important in selling its product to an environment conscious target market as seen above. Production of Ki’s chocolate and subsequent packaging will also be done at the supplier’s chocolate factory.
These will be done with respect to the directives that Ki will provide. The already finished products will be transported by air Mexico to the UK as freight twice in a week. This will ensure that Ki provides its customers with fresh products.
Pricing strategy
Taking into account the relevant factors e.g. product type and cost of production and selling, Ki will initially use a penetration pricing strategy and thereafter a premium pricing strategy. With the penetration pricing strategy the price of Ki’s high-end chocolate will be relatively lower to that of its competitors.
This will be a strategic move with the aim of building customer loyalty and ensuring that Ki gains market share in the mid or long term. The penetration pricing strategy is apt for Ki in the short-term as it enables the company to deal with competition from dominant companies and to steadily gain market share. A strength of the penetration pricing strategy is that it has the potential to increase a customer’s lifetime value.
This is because customers tend to have a bond with the initial product offering so much that if there is maintenance of high quality there is incremental willingness in them to buy additional products from the company.
In the long-term and when Ki secures an acceptable market share and a substantial competitive advantage the company will switch from the penetration pricing strategy to the premium pricing strategy. The reason for this is that Ki’s chocolate is a premium (or luxury) commodity. By switching to the premium pricing strategy the price of Ki’s chocolate will be slightly higher or lower than that of its competitors.
There will be gradual transition between these pricing strategies. This is because an abrupt and unexpected rise in price can create a negative impression on customers and consequentially cause plummeting sales and poor financial performance. The transition will be spread over a period of time that is sufficient to make price increases unnoticeable to the customers.
Ki will use various promotional strategies. Sampling (or promotional products) is one of the promotional strategies that Ki will use to promote its high-end chocolate product. With this promotional strategy Ki will organize a promotional event where potential customers will sample or try its product for free. The main advantage of this strategy is that the customers will try the product without any risk.
A disadvantage of it is that the promotional event will be expensive. Ki will also undertake point-of-purchase advertising in UK’s major retail stores such as Harrods, Selfridges and Liberty in which it will display its high-end chocolate product.
Discounting is another promotional strategy that Ki will use to generate customer demand for its product. Ki will offer a quantity discount to its customers. An advantage of discounting is that it encourages potential and price sensitive customers to try out a product. A disadvantage of discounting is that it is difficult to set an accurate limit to its usage.
Product promotion
Another promotional strategy that Ki will use is follow-up with clients (or customers). Ki will keep information about its customers in a database so as to keep in touch with them as often as is necessary. This will enable Ki inform its customers about new products and events.
Ki will also undertake specialty advertising whereby it will reward its loyal customers with different items e.g. T-shirts and pens with the company’s logo and trademark on it. This will enable Ki to preserve its loyal customers and at the same time attract new customers. An advantage of specialty advertising is that it makes customers feel appreciated.
A disadvantage of specialty advertising is that it can be quite costly to implement. Ki will advertise in electronic and physical media platforms. The marketing department will develop ads to run on television, radio and major internet search engines. The marketing department will also develop magazine ads to be printed in UK’s luxury magazines such as Lusso and GQ.
Product placement is another promotional strategy that Ki is intending to use to promote its product. More specifically Ki is interested in product placement in UK movies or music videos. Ki will seek to have its high-end chocolate brand placed in movie or music video scenes.
The reason for this is that movies and music reach a far greater audience and have the potential to build customer confidence on a particular brand. Ki product placements will target scenes that portray luxury. A disadvantage of this promotional strategy is that it is quite expensive to effect.
Distribution strategy
Ki will use both direct and indirect channels to distribute its high-end chocolate product. The direct channel that Ki will use is its own retail outlet and sales via the internet. The indirect channels that Ki will use are major retail outlets in the UK e.g. Harrods, Selfridges and Liberty. Ki’s customers will be able to make purchases over the internet.
This will be made possible by the company’s website which will have a portal specifically designed for carrying out online transactions. Ki’s customers will also be able to by its product directly from the company.
This will be made possible by the company’s own retail outlet, which the company will also use to host some of its promotional events e.g. sampling and point-of-purchase advertising. Ki’s indirect distributors that are mainly major retail outlets in the UK are vital entities in the company’s distribution strategy. The reason for this is that they are well-known and easily accessible to the UK public.
Aggregate production planning activities are undertaken in business organizations to enable them achieve a balance between capacity and demand in such a way that operating and production costs are minimized. Ki will use a level approach to aggregate production planning.
That is, it will meet its customer’s quantity demands by maintaining its rate of production at a constant and manage fluctuations in these demands by varying its inventory levels. The main advantage of the level strategy is that there is stability in worker level and production. Its disadvantage is that it results in relatively high costs of labor and inventory.
Operational plan
Location capacity and equipment
The company intends to become a competitive high end chocolate brand in the United Kingdom. Specifically Ki wants to set up base in London as it finds these a strategic environment for a number of reasons. First and foremost the city is not only the capital of the kingdom but also its largest metropolitan area. In the wider European Union (EU), London is the largest urban zone.
The city’s Gross Domestic Product (GDP) is the fifth-largest in the world. London receives the most international visits than any other place in the planet. The city’s Heathrow airport serves the highest number of international passengers compared to all other airports and thus it is the busiest airport in the world (USA Today, 2012).
According to 2010 data, with a population of 7,825,200 people London is the most populated municipality in Europe and with a population of 8,278,251 people it is the second most populated urban area in Europe. London’s metropolitan area, which has a population ranging from 12 to 14 million people, is the largest in the EU.
The city generates 17% of UK’s GDP. London is associated with financial dealings of great global prominence and as such challenges New York’s position as the world’s most important financial hub. The city has the highest number of overseas banks which is 480. London hosts major global media companies such as the BBC and CNN.
London’s port, the second largest in the UK, handles approximately 45 Million tonnes of cargo annually. Tourism in London generates an annul revenue ranging between 7 and 10 million pounds. London’s workforce of about 9 million people is the largest in Europe. Continual improvement of the city’s telecommunications and transport infrastructure ensures that there are smooth supply chains and healthy competition.
Organizational structure and culture
Ki will be a hierarchal organization meaning it will use a hierarchical organizational structure. By this organizational structure Ki will have a single top authority entity with all other entities in the company being subordinate to it. Decision-making, will hence, be done from the top coming down. There will be clear definition of procedures and roles.
Though decision-making will be at the top Ki will integrate democracy in the organization and as such the top decision-maker will have to make consultations before reaching a particular decision. This arrangement is important for Ki as it wants to ensure that its staff members appreciate the decisions made and therefore, understand what they are doing.
An advantage that Ki will enjoy from the hierarchical structure is that authority in the company will be made obvious thus making it easy for employees to figure out who to approach when a problem arises. Another advantage that Ki will enjoy from the hierarchical system is that it facilitates the hiring of managers or heads who are adequately qualified and skilled and thus improves productivity of employees.
Another advantage of the hierarchical organizational structure is that it defines a clear promotional pathway for employees and as such they are highly motivated to reach to the next level. Another advantage of the hierarchical system is that it enhances departmental loyalty through building a team spirit among employees as they work to achieve a common goal.
A detriment that Ki may suffer as a result of the hierarchical system is organizational structure inflexibility, which will make the company sluggish in taking hold of new opportunities. Another detriment that Ki may suffer as a result of the hierarchical system is prolonged decision-making. This is because decisions will have to be made at the topmost organ of the company and as such may take time.
Another detriment that Ki may suffer as a result of the hierarchical system is reduced creativity and innovation in the company, which is as a result of its top-down decision-making arrangement that can easily frustrate the actuation of new ideas.
To deal with these shortcomings Ki will integrate a normative organizational culture that will promote a high level of ethics and critical thinking in the company.
A high code of ethics will promote professionalism in the company whereas critical thinking will boost objectivity and individual decision-making. Thus, communication in the company will be enhanced and employees will be properly equipped to maneuver around the organization structure in order to improve processes.
Wage plan
Ki will use a time rate system for payment of employee wages. Wages will be paid on a monthly basis. Thus, the wage an employee earns will be the product of the time he/or has worked and his/her wage rate per month. The wage rate per month will vary according to the position an employee fills and as such, there will be a wage increase as you move up the organization’s hierarchy.
An advantage of this wage plan is that it is simple to calculate and easy to understand. Another advantage of this wage plan is that it is useful to an organization like Ki which uses costly raw materials to get a quality product. Another advantage of this wage plan is that employees have a guarantee that they will receive a wage at the end of the month and as such feel that they are economically secure.
This is important in improving employee concentration on their jobs and productivity as well. Another advantage of the time rate system is that it does not discriminate among employees. Most trade unions actually prefer the time rate system for payment of employee wages.
A disadvantage of the time rate system is that it is a poor approach towards improving efficiency and increasing a company’s output. This is because with the time rate system, the amount of wage is not directly proportional to the amount of work done. Another limitation of the time rate system is that it does not provide an incentive for inefficient workers to improve on their efficiency and for efficient ones to maintain their efficiency.
Another limitation of the time rate system is that it supports idle time that in turn raises production costs. Another limitation of the time rate system is that it necessitates strict supervision of employees for acceptable quality standards to be achieved.
Business growth plan
Ki’s business growth plan has four steps. The first step is doing a diagnosis of the business. At this step an assessment of Ki’s business divisions is to be done with the aim of gathering detailed information. This will enlighten the company on what to change. Owing to the enormity of this task Ki will put up a planning team that will undertake it.
Ki’s business divisions that will be targeted in this exercise are marketing, human resources, operations and finance. The second step in Ki’s business growth plan is dependent on the results of the first step. The second step is shifting focus to key divisions and setting new goals.
This step involves a series of tasks that are, doing a SWOT analysis of the business, reviewing Ki’s values, vision and mission and doing weakness assessment. Goal setting in this step will be dictated by the company’s capacity to take up extra work and by the mnemonic “SMART”. The mnemonic implies that the new goals will have to be specific, measurable, achievable, realistic and time limited.
Having set new goals the third step in Ki’s business plan will be developing business strategies directed towards achieving the goals. This step will comprise development of marketing, human resource, operational and finance strategies. Ki notes that these strategies have direct and indirect impacts to each other and as such need managing in such a way they interferences are constructive.
The fourth step in Ki’s business plan is implementation. Having developed strategies in the third step the next logical step will be implementing them. Most likely the strategies will necessitate changes in Ki’s major business divisions and as such employees will have to be informed of the growth plan.
Quality plan
Maintaining high quality in its product is of fundamental importance to Ki. Ki actually identifies high product quality has one of its business’s critical success factors. To ensure high quality in its products Ki has a quality management plan in place. The plan clearly defines the acceptable quality standards and requirements that should be met in Ki’s operational processes and products.
The plan’s quality objective is “enhancing high-quality in Ki’s products in order to improve financial performance and competitiveness”. The plan targets at improving quality in all of Ki’s products and operational processes at budget-friendly expenditure. The plan also ensures that Ki’s products and work place processes at the worst conform to FSA standards and UK legislature respectively.
The plan outlines quality control activities e.g. sampling and lab testing that determine whether indeed Ki’s products meet the acceptable quality standards. The plan also outlines quality assurance activities which ensure that production and management processes are being followed to the letter and that they are effective in enhancing quality.
The plan also outlines the roles and responsibilities of each individual in the company in ensuring that quality is observed. Finally, the plan outlines the quality tools necessary for its implementation. These quality tools are cause and effect diagram, a check sheet and exploratory data analysis graphs e.g. histograms.
Logistics
A robust and efficient supply chain is one of the critical success factors currently driving UK’s high-end chocolate industry. Robust and efficient supply chains enable meeting of customer demands at advanced levels. To realize this critical success factor Ki will have to ensure that it has a robust logistic strategy or strategies. Two factors will determine the choice of logistic strategy that Ki will use at a particular time.
The first factor is the performance-effectiveness of the logistic strategy and the second is its cost-effectiveness. A logistic strategy is performance-effective when it enables a company to adapt well to the flexibility of its supply chain. A logistic strategy is cost effective when its creation and implementation results in optimal yields at reduced and necessary expenditure.
Ki’s current logistic strategy involves the hiring of a 3pl logistics company as it is unable to fulfill all the functions of its supply chain. Ki will work with DHL as its 3PL logistics company.
If the supply chain becomes weak Ki will consider the services of a 4pl logistics company, which will ensure that customers receive products on time and the quality of products is maintained. 4PL companies review a company’s supply chain to identify the problems that are causing customer dissatisfaction.
Financial data and plans
Funding
Ki’s funding will be done by the owners of the company. These individuals have through their own means raised a capital of £150,000 to fund Ki’s operations.
SWOT and business risk analysis
One of Ki’s strength is the uniqueness of its product as this will be instrumental in attracting buyers. Another of Ki’s strength is its brand approach to business. This approach will be instrumental in generating customer confidence on its product. Ki’s industry is another of its strengths. The high-end chocolate industry is resilient.
Even with the global recession hitting hard, surprisingly, consumers found high-end chocolate an affordable luxury. Another of Ki’s strengths is its time of entry into the market.
Ki is entering UK’s high-end chocolate market at a time when the kingdom’s economy is stabilizing from the recent global economic crisis and as such disposable incomes are on a rise and so is consumer purchasing power. Another of Ki’s strengths is its robust business plan. This is a comprehensive plan covering the company’s entry into the market up to its growth.
One of Ki’s outstanding weaknesses is its concentration on the UK market only. This is the age of globalization and as such Ki should venture into new markets especially the Asian market where chocolate is increasingly becoming popular.
Another of Ki’s weaknesses is its focus on high-end chocolate only. Ki should try other chocolate products and see how they fair. Another of Ki’s weaknesses is the company’s dependence on a single supplier of chocolate, Finca Cholula.
One of Ki’s opportunities for lies in innovative products. UK consumers are increasingly becoming health conscious and as such there is opportunity for healthy high-end chocolate products. Another of Ki’s opportunities lies in new markets such as Asia, where as mentioned, chocolate popularity is on a rise.
Ki’s entry into such markets at such an early stage can see it gain a huge market share in the mid or long term. Another of Ki’s opportunities lies in mergers with bigger companies such as Nestlé, Kraft or Mars. Such mergers will give Ki a much needed competitive advantage and capital boost to improve its operations.
One threat that Ki faces is potential political instability in Mexico following drug wars in the country. Such instability will most likely cause the price of cocoa to go up and as such increase Ki’s operational expenditure, which will consequentially reduce the company’s profits.
Another threat that Ki faces emanates from the increasing health consciousness in the UK, which has the potential to impact significantly and negatively on Ki’s sales. Another threat that Ki faces is the increasing complexity in supply chains.
Supply chains are becoming more complex as consumer demands change. Ki will have to make sure that it tunes itself to meet the requirements of its supply chain or else it will be unable to meet its customers’ demands.
Internal audit
Ki’s internal audit model is risk-focused. The audit begins and ends in the finance and operations divisions. The first step in the audit is the identification and understanding of specific risks associated with finance and operations.
The second step in the internal audit is formulating a definition for acceptable levels of these risks. The third step in the internal audit is the formulation of a internal audit function that comprehensively encompasses the expertise needed to sufficiently track, measure and manage these risks.
External audit
Ki’s external audit is a review of the company’s financial statements by a third party who has no affiliation whatsoever with Ki. Ki’s external audit will be done annually before 31st of each year as is required by UK legislature (Crown, n.d.). Ensuring that Ki’s financial statements are in order and giving an unbiased view of the company’s financial state will be the major functions of the company’s external auditing activity.
The audit will conclude with the preparation of an external audit report conveying the findings of the independent auditor. Any inconsistency uncovered by the independent auditor will be outlined in the external audit report.
Risk identified
One of the operational risks identified is the varying and uncertain cost of cocoa in Mexico due to potential political instability in the country arising from drug wars. Another risk identified is increasing supply chain complexity that is driven by changing customer demands. Another risk identified is poor sales as a result of increasing health consciousness in the UK.
Another operational risk identified is Ki’s dependency on a single chocolate supplier. One financial risk identified is an increase in foreign exchange rates and/or a decrease in interest rates.
Another financial risk identified is increased competition risk which can cause plummeting sales. Another financial risk identified is the tax risk. Ki will have to comply with Mexican tax laws and those of the UK. This may prove to be quite costly.
Risk addressed
The risk of supply chain complexity has been addressed by Ki’s logistic strategy, which accommodates the services of 3pl logistics companies and if needed 4pl logistics companies as well. The risk of poor sales as a result of increasing health consciousness in the UK has been addressed by the Ki’s organizational culture which promotes innovativeness.
Innovativeness in the company will also address the competition risk to a limited extent. Ki will ensure that it maintains a healthy and productive relationship with banks and other lending institutions. As such, the company will have addressed the risk arising from increases in foreign exchange rates and/or a decrease in interest rates.
Risk and contigency evaluation
Ki will use a qualitative or subjective approach towards risk evaluation. In this way the company will rely on an expert’s (e.g. internal auditor’s) opinion on the riskiness of a particular situation. The expert will also enlighten Ki on the severity of the risk if it was to occur. Risks will be prioritized as very high, high, medium or low depending on severity, that is, the extent of potential loss they can actuate if they occurred.
Table 1 in the appendix A shows Ki’s risk severity classification. Ki’s risks will also be classified according to frequency of occurrence.
This classification is shown in table 2 of appendix A. Ki’s contingency evaluation will use the expected monetary value (EMV) and will consider groups of risks and not individual high impact or priority risks. The magnitude of the expected monetary value will enlighten Ki on the level of contingency planning and funding required.
References
Are UK consumers becoming more health conscious, 2012. Web.
BBC 2012, Economy tracker: gdp. Web.
BBC 2012, Economy tracker: inflation. Web.
BBC 2012, Economy tracker: interest rates. Web.
Business Link 2012, UK trade tariff. Web.
Chocolate Devine Ltd 2011, Chocolate facts. Web.
Crown, About us. Web.
Crown, Audit commission act 1998. Web.
Dow Jones Newswires 2012, Nestle launches luxury designer chocolate business to target premium consumers. Web.
Fletcher, A. 2007, Are UK consumers becoming more health conscious, viewed 29.
Market Oracle Ltd. 2012, UK population growth and immigration trend forecast 2010 to 2030. Web.
Nestlé 2012, Nestlé’s new Maison Cailler brand creates chocolate haute couture. Web.
Reuters 2012, Currencies quote. Web.
Sena, M. 2012, Chocolate industry analysis 2012 – cost & trends. Web.
The Times 100 2012, From bean to bar – the production process. Web.
USA Today 2011, London-Overview. Web.
Appendix
Table 1: Risk classification according to severity.
Table 2: Ki’s risk classification according to frequency.