Executive Summary
Poor nutrition leads to obesity which in turn causes illness or even death. According to American Medical Association (AMA), the increase in health related diseases and illnesses have been caused by the increase in obesity and overweight rates. Some of these diseases include: diabetes, cancer, insomnia, heart diseases, and cardicascular disease. An individual’s body weight can be measured using body mass index (BMI). Research has found that, about 20% of adults suffer from obesity having a BMI of 30 or more.
More than 30% are overweight with a BMI of 25 to 29.9. Graph 1 shows the obesity and overweight for children between the ages of two and seventeen years in Australia. There is therefore a strong call for involvement to perk up diet and health in order to curb the illnesses associated with poor nutrition. Nutritionists have argued that, water, fruits, and vegetables can be used to counteract this problem (Sturm, 2005).
The aim of this product is to promote healthy eating while trying to fight with the increasing rates of obesity in both children and adults. It has been noted that, people have forgotten their traditional foods and are now relying on highly processed foods which increase the cholesterol levels in the body. Many nutritionists and doctors advocate for the use of fruits in reducing this problem but we think dried vegetables would also do a recommendable job.
This product aims at being the market leader not only in Australia but other parts of the world. It aims at providing the best nutrients in its natural form since it is not processed with chemicals. Since the product is in its dried form, it aims as reaching a big market and can stay for long. It will be available in major outlets where even the rich people (who rely on the processed food) can access it easily.
This report focuses on the target market for the product, the quality of the product and how it can be used to prevent obesity in both children and adults. Part one of this report focuses on the product itself, how it is made and the opportunities available. It also focuses on the industry that is responsible for creating the product and the pros and cones of that industry in dealing with the product.
Part two dwells on the anticipated (financial) performance. This part focuses on the business model to be adopted for the product, the estimated start-up costs, profits and break-even analysis. This section shows the profitability of this new venture both in the short-term and in the long-term. Part three focuses on target market (in terms of age, social status, and occupation).
It also dwell on distribution avenues to be followed. The dried traditional vegetables and orphan crops can be a market leader because they do not have any side effects and they are offered at an affordable price. They are accessible to virtually anybody and will be provided at strategic points. Part four of this report concentrates forces of competition as described by porter.
It also focuses on the other rival firms in the market that may pose some threats in the introduction of the product. Part five focuses of the report focuses on the environmental analysis for the product. This section concentrates on the strengths and weaknesses of the product that makes it suitable for the Australian market. It also gives a summary of the external forces that the product will be exposed to. Finally, this report focuses on the exit strategy that the team plans to adopt.
The Product
Product Introduction
The need for keeping healthy by eating a healthy and balanced diet has made some scientists to come up with food supplements to boost this. However, most food supplements contain toxic elements that are harmful to the human health. As such, it is important to ensure that the population eats healthy foods that are not toxic. Traditional leafy vegetables are popular for their high nutritional value. The plants leaves are easy to harvest and use as vegetables.
Examples of orphan crops include finger, millet, and yams; these are crops that have been neglected for along period of time although they are very nutritious. The advantage of these foods is that they contain high nutrients that have some medicinal value. In addition to that, the traditional vegetable and orphan crops if well preserved can solve the problem of food security that is being experience in most part of the world (White, 2010).
This products aims at reducing the high obesity rates that are evident in Australia as it also works as a supplement to the main dishes. This product is provided in its most natural form to ensure that all important nutrients are present for boosting better health.
Our team aims at introducing the product to the rich people, the elderly and sick because these people are not very active and take very little exercises. It aims at targeting the rich because; these are people who have been relying on the highly processed food that is becoming a problem to their health (Biggs, 2006).
The product will be branded in several colours that symbolize the different elements of the product. For example, national colours will be used to show the origin of the product. Food is a basic need and a right for each individual on the universe, however most people do not have access to nutritious foods and this has facilitated the development of health related complications. The product (dried traditional vegetables and orphan crops), is aimed at helping the larger Australian population that rely on junk foods for their daily meals.
The Opportunity
There are many opportunities in the market which our team aims to take advantage of in meeting customers’ needs through the creation of awareness of the new product. These opportunities guarantees successes of the product because issues related to health have remained unsolved for quite some time now. Australia is one of the developed nations and almost all food industries focus on the processed food because of the development in technology.
These foods seem easy to make and have been able to attract a wide population. However, they have not been able to solve the health related issues (which is a common problem) and instead they have accelerated them. This has forced customers to incur additional costs as they seek for medical attention. This creates a very good opportunity for the dried traditional vegetables and orphan crops which guarantees sound health. The following table gives a summary of the factors that have created an opportunity for this new product
How will the Product be sold
The dried traditional vegetables and orphan crops will be sold in supermarkets which are strategically located in both the urban and rural centres in order to reach a big population. They will be offered at affordable prices because the main aim of the introduction of this product is to promote health to all people.
After drying, the product will be packed in small, medium sized and big tins decorated in different colours and with the nutritious values well specified on the tin. They are to be placed alongside other products although the team plans on carrying out a vigorous advertisement to create public awareness. We also plan to open up a small store in Victoria because most of the target population is concentrated in this area.
Start-Up Strategy
We understand that, the introduction stage is the most expensive stage in the product life cycle. This is the stage when we expect to create public awareness in all areas. To achieve this, our team plans to take orders from major supermarkets while at the same time use direct sales representative to reach the areas that may not be served by the outlets.
We expect our start up costs to be approximately $30, 000 with the advertising budget taking the bigger percentage (about 30%). Vigorous marketing will be carried out in the areas where the target consumers are located for instance, near hospitals, schools and colleges. The team seeks to reach its target population by using printed brochures and small pamphlets that explains what the consumer stands to gain by using the product.
The pamphlets will be offered for free for every purchase made. The other percentage will be used for the production process and to pay human resources. Most of this products will be imported from African for, instance Kenya because they have a wide variety of vegetables which are yet to be exploited. Our work will be to dry and package these products before offering them for sale.
Performance and Financials
Expected Performance
During the first year after the product has been launched into the market, we do not expect to make much sales because the product will be in its introduction stage which needs a lot of advertisement in order to create public awareness on the availability of the product.
Most of the money collected from sales will be used for further advertisement in order to ensure that, the product kicks off during the growth stage. Since this is a natural product, we expect its sales volume to increase drastically towards the end of the first year so that a lot of profit is collected in the second year of operation.
The cost of production depends on the type of vegetable and quantity, but since the product does not go through a lot of process, we expect one kilogram of vegetables or orphan crops to cost about $1.5 and the expected selling price is $3. This means that, our products will earn $1.5 gross profit per every kilogram sold. Some of this profit will be used to cater for the overhead costs while the rest will be saved as retained profits.
During the first year, our team expects to sell more than fifty thousand kilograms of dried vegetables and orphan crops fetching close to one hundred thousand dollars as gross profit. This sales volume is expected to increase in the second year even though the product is expected to face some competition. During the second year, the product will be differentiated further and packaged in different tins with each tin containing different type of vegetable.
Financial Analyses
The expected financial performance for the first three years can be summarized in a table as shown below.
As noted earlier, during the first year of operation, we do not expect to make much profit because a lot of money will be used for advertisement. Also the sales are expected to be very low because people will not be familiar with the product. However, in the second year, sales are expected to shoot upwards while overhead costs declines due to reduced advertisement.
With time, competition will emerge in the market which is likely to force us to lower the selling price to at least $2.5 in the third year of operation. By lowering the prices we will be able to retain our market share although the overall effect will be a reduction in the profit levels. The product is expected to break even after three years since competition will have risen to significance levels. At this point, the product will be decline stage of the life cycle, instead of allowing the product to die; it will be sold to big companies
Business Model
The start-up capital will come from members’ contribution (which will be treated as share capital) and contributions from well wishers such as international organizations.
Revenue model
Having no other products in the market, our main source of revenue will be the sale of our products. With this revenue, we plan to start up other products and services to boost our revenue base and to ensure that our products do not die.
Cost model
Our costs include:
- Product purchases.
- Rent for the production centre.
- Salaries and wages.
- Transportation of both raw and finished products.
- Paying contractors.
- Licensing.
Market
Market & segmentation
To ensure that our product does not die after reaching the maturity stage, we plan to use the cost leadership strategy. This is a strategy aimed at ensuring that costs remain as low as possible. It is a competitive strategy used by many organizations by giving them a competitive advantage in the market (Hitt, et al, 2009:81). Cost leadership strategy is an indication of how a firm’s theory in successful competition is centred on low costs and prices.
It ensures that products of the same value are offered at a lower price in order to attract more customers. By using the cost leadership strategy, we will be able to position the product to target the average customers in the market with little or no differentiation. This strategy uses the low-margin high-volume kind of approach. Key areas in cost leadership are: materials, management of logistics and manufacturing.
Consumers’ choices are complex and multifaceted. If consumers were concerned only about getting food at the lowest possible price, alternative agriculture would have a hard time taking hold, because industrial-style farming produces food cheaply. Consumers require the source of food that will be of most benefits to their bodies.
Vegetables and orphan crops are the only type of food that can satisfy a wide range of consumers’ need. Most of the government health agencies and departments such as World Health Organization (WHO) have been fighting with the growing problem of obesity and unhealthy eating. They have been advocating for a modification in the health program to include more fruits and vegetable.
Research has proved that, diets with a bigger portion of vegetables can lower or even prevent some illnesses such as cancer and heart diseases (World Health Organization, 2004). This is because diets rich in vegetables contain less cholesterol as compared to those rich in carbohydrates or proteins. Obese and overweight people are advised to increase their daily intake of vegetables as this will help them to maintain an incredible figure (Baourakis, 2004).
This being the case, our product targets to reach people in hospitals, schools, colleges, and government institutions. By reaching these populations we are assured that our products get to the right people. The elderly people are also our main point of focus because they too need a lot of vegetables to help then in fighting diseases and to grow strong. Vegetables are digested easily and can also be used to clean the stomach.
Competition and Risks
Being a new product in the market, we are expecting to face some risks and competition although this will not deter us from further production. Having the government fight against junk food by taxing them heavily is a good opportunity for us and we will take full advantage of it.
To be able to survive in the competitive market, we will charge low prices for our products so as to attract a big market. The low cost also gives us a competitive advantage which is a significant entry barrier. By charging low prices, we are able to buy large volumes of goods from suppliers thus we enjoy economies of scale.
However, being a cost leader we are prone to face some risks (Hosler, 2008). The first risk is that, in most cases, there is a danger of out competition on the basis of cost. If this happens, the leader will be forced to continuously reduce prices which may not be profitable in the long-term. The other risk is that, the persistent force to cut costs may engrave corners that displease customers because more often than not these low prices will result in the production of poor quality products.
Porters’ Five Forces Model
Porter developed a structure for analyzing the nature and extent of competition within an industry. His argument was that, in every industry, there are at least five competitive forces which establish the nature of competition within that industry. These five forces apply to our product and are discussed below:
Buyer’s bargaining power
Buyers have the ability to determine which products will move first and which will not. It is through buyers that a company realizes its competitive advantage in the market. We expect our product to be subjected to the following buyers’ power.
- Low switching costs.
- Buyers are many and are not concentrated.
This is a weak force since the buyers have limited bargaining power.
Competitive Rivalry in the industry
Within the food industry, there are businesses which compete with each other for the available market share. These businesses either specialize in the production of similar products or differentiated products. This competition is based on:
- Low prices.
- Quality.
- Performance.
- High exits barriers.
- Little product differentiation.
- High investment intensity.
Though there are several companies which offer high quality and low cost products, there is still great rivalry in the industry as products are close substitutes to each other.
Threat of Substitutes
Our product is likely to face many substitutes in the market. Other companies are likely to come up and offer similar products thereby threatening the survival of our product.
Threat of entry
Dried traditional vegetables and orphan crops product will enjoy the following barriers:
- Strong economies of scale.
- Brand loyalty of customers.
- Strong capital cost on entry.
- Legal constraints.
- Mergers and acquisitions.
It stands to win over the threat of entry in the market because; the government has put strong entry barriers.
Supplies’ bargaining power
- Flexibility to the industry’s request.
- Volume and price provided.
- Concentrated suppliers.
- High switching cost.
The suppliers bargaining power is weak over the buyers’ and could always lower their prices to ensure a share of the buyers’ prospective profit.
Environmental Analysis
SWOT Analysis
SWOT is an acronym for Strength, Weaknesses, Opportunities, and Threats. In order to understand where our product stands in the Australian market, we have first to analyze the strengths and opportunities of the product as well as the threats and weaknesses that the product will be exposed to.
Strengths
- Marketing power & growth- strong brand creation through cross-promotion.
- Strategic expansion through customer-focused innovations.
- High turnover growth.
- A strong market strategy.
- Strategically placed to fight competition.
Weaknesses
- Low profit margins.
- Lack of a well thought future market strategy.
Opportunities
- Increased economic development.
- An unfulfilled customer need.
- Rise in per capita income.
- Increased technological advancement.
Threats
- Industry rivalry.
- Entry of new firms.
- Strong government regulations.
- Competition.
- Emergence of substitute products.
PEST Analysis
Political
- Free and fair government which promotes equality.
- Fair Trade Practices.
- Consumer Protection.
- Taxation policies.
Economic
- Factors affecting the GDP- for instance employment, inflation, and government spending.
- More disposable income.
- Seasonality issues.
- Developed Australian economy.
Socio-cultural
- Lifestyle trends and consumer preferences.
- Demographic changes.
- Increased consumer spending.
- Multi-cultural society.
Technological
- Innovation capacity.
- Improved infrastructure.
- Australia is among the technologically advanced nations in the world.
The forces described above helps in the determining the market growth (or decline) of our product and the implication of its strategic business unit. If an economic recession occurs, the economic forces would have a considerable bearing on the future market strategies through ripple effects on the political and socio-cultural factors.
Political factors put a restriction on the development of the industry by putting tough taxes and regulation requirements. Australia has been experiencing low tariffs barriers which have led to an expansion in the international trade thereby resulting in increased demand for food products. Australia’s economic growth potential is facilitated by its demographic advantage and could therefore open up opportunities for industry development.
Although the Australian economy has been doing well and the future is promising, our product has to overcome some obstacles before it realizes its full potential. First there is the government requirement which it has to adhere to before being allowed to operate, increased capital costs, requirement of skilled labour force, and rivalry from other firms. To add to these risks, the product is not guaranteed of a ready market in the rural areas making it a risky undertaking.
Exit Strategy
Since we may not be in a position to continue the production of our product because of competition, we plan to sell it to one of the major food industries in the country. Depending on the circumstances, we may even choice to emerge with big grocery firms and continue producing the product. Another option would be to franchise our product so that we maintain our market share and even attract new customers. All this will depend on the performance of the product after three years of operation.
Reference List
Baourakis, G., 2004. Marketing trends for organic food in the 21st century, Volume 3 Marketing Trends for Organic Food in the 21st Century. World Scientific.
Biggs, M., 2006. Overweight and obesity in Australia. Web.
Hitt, M., et al, 2009, Strategic management: competitiveness and globalization: concepts & cases. London, Cengage Learning.
Hosler, A. S., 2008. Assessing retail fruit and vegetables availability in urban and rural underserved communities, Public health research, practice and policy, 5(4): A123. Web.
Morgan, C., 2010. Should the government control; what we can and can not eat? Web.
National Institute of Health, 2010. DINE Healthy: Diet improvement software. Web.
Powers, S., 2007. Organic for Health. New York, Sandra Powers.
Sturm, R., 2005. Childhood obesity- what we can learn from existing data on societal trends, part 1. Public health research, practice, and policy. Web.
White, Anne, 2010. Why organic Food costs so much. Web.
World Health Organization, 2004. Fruit and vegetable for health, Report of a joint FAO/WHO workshop, Kobe, Japan. Web.