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Food and beverage industry in UK is one of the largest sectors that is having an average turnover of 96 billion pound and generates employment nearly about 4, 00, 000 people (Gov.UK, 2016). More specifically, the coffee industry shows a positive trend specially the consumers with an age group less than 35 years. Currently the valuation of the coffee market is around 7.9 bn pound. The competition among the coffee shop in UK is also high. Nearly 20, 000 coffee shops are there at the end of the year 2015. The non-branded stores are nearly around 8000 in UK. The motives that attract the consumers towards the coffee shops are due to the social needs. Social needs include the time spending activities with the peers, near ones, colleagues etc. Apart from that Government is also supporting the industry by establishing Enterprises Zone which aim to reduce the taxes, supporting the entrepreneurs by planning the activities and lastly to provide the financial incentive schemes.
Based on the different information it will be feasible to open a coffee shop in UK which has a high demand future growth possibilities.
The name of the Coffee shop will be Cup o Joe. The mission of the business will be to serve all the people with superior quality, taste and service. More specifically, this coffee shop will fulfil the requirements of all the people in the terms of budget, varieties and taste. The openness of the process will be the key feature in this new venture. The friendly service and soothing atmosphere of the shop will support the consumers to find this place perfect for the relaxation. Thus in one line the mission statement for Cup o Joe will be “Serving all the consumers with Happiness and Joy”.
Product Service Offering
The product is the ultimate value that will satisfy all the requirements of the consumers that they expect from a coffee shop. The value proposition will be the reasonable pricing with superior quality in the terms of service. From the point of entry to exist all the activities that are involve to serve a consumer will be given equal focus. The employees will be more happy and energetic when the consumer will come to the shop to spend their quality time. The walls of the coffee shop will demonstrate the development process of the coffee that includes the growing of the coffee, extraction of the beans, roasting process etc. (Verhoef, Reinartz and Krafft, 2010). The employees will be ready to provide detailed information about the process that the coffee is served, special offers, new items etc. For service offering, a Service Blueprint can help to give the details of the service that the coffee shop will provide.
In this Service Blueprint the details of the physical evidence; people and process are integrated to give quality service to the consumers (Lambert and Davidson, 2013). The consumer will be asked to share their feedbacks after they have paid the bill. The feedbacks will help to generate an idea about the effectives of the service of the coffee shop. For any issues or grievances, the consumer can directly approach to the manager in charge and also they can send emails via website of the coffee shop.
The trend in the coffee shop seems to be positive as per the market report which is claiming that the demand has increased which accelerate the growth rate of the coffee shop market by 8%. By observing the opportunities the growth rate of the coffee shops is also impressive which is accounted for 4% increase over the year 2015. The consumers are showing their interest towards the coffee shops in UK which is aligning the coffee culture with the lifestyles of UK. The sales growth is also favourable which is accounted for 3.5% (Hassanien, 2015). In the perspective of the independent coffee shop the acceleration in the growth rate are also observed who are giving focus on the attractive interiors, techniques used by barista, wider ranges in the menus that include flat white or cortado.49% of the population preferred to visit the coffee shops as per the reports of the market research. Currently the trend of the coffee is align towards the regular beverage than the special treat which is influencing the entrepreneurs to came up with the new ventures related to the coffee shops. From different market research it has been confirmed that the coffee market will increase and it will generate 8 billion pound turnover within the year 2017. Along with that the sales will also grow nearly by 10% CAGR and move towards 3.7 billion pound within the period 2017 (Davidson, 2015). The growth will also be recorded from the current brands and also newly focused back up brands of corporate like Harris + Hoole from Tesco, Greggs moment etc. The competition is very high in this sector where the mergers and acquisitions are very common. Nearly 20, 000 coffee shops are there at the end of the year 2015. The non-branded stores are nearly around 8000 in UK. The market leader among the branded chain is Costa Coffee that is having nearly 47% of the total market share in UK. On the other hand the independent coffee shop market is also flourishing which due to the improvement of the turnover. One third of the independent shop owner has recorded a growth rate around 20%. The average turnover is around 200,000 pound for each independent outlet (Donnelly, 2016). As per the market report, the branded and non-branded stores will increase up to 30,000 and turnover will grow nearly 15 bn pound. The expansion strategies of the branded chains like Costa Coffee, Star bucks will throw a gig challenge for the independent coffee shops like this venture and for that product/service differentiation is highly needed to achieve the competitive advantage. The people of UK prefer to visit the coffee shops for spending their quality time or relaxation and in this perspective the independent chain need to be focus on these areas with an addition to the low fat items, low sugar, allergen free ranges etc. in order to extract the growing opportunities of the coffee market.
Primary Target Market
In order to serve the market effectively, it is needed to design the Segmentation, Targeting and Positioning (STP) process for the new venture.
Segmentation will help to group the buyers with similar needs and wants. It is very practical that the people are different in their needs and wants and in this perspective segmentation will help to group the buyers for serving the products or service effectively (Wilson, 2015). Segmentation will be done in the following way:
Psychographic segmentation: In this segmentation, the life style and attitude of the consumer will be given focus. There are many people who like to spend their some portion of the time frequently in the coffee shop.
Demographic Segmentation: In this segmentation base, the age group will be given focus. The items in the coffee shops will be presented by keeping the age group as a factor. In this perspective the items for the kids will be there. Apart from that the profession will also be considered. The young students, job holders will be focus to attract them towards the coffee shop.
Behavioural Segmentation: In this segmentation the buying attitude of the consumers will be noted. The consumers who will visit frequently will be given club offers to increase their interest towards the shop.
Targeting the audience is the second step in the STP process where the consumers will be targeted with the value of the business. The targeting of the people can be done by following the strategy which is mentioned below:
Differentiated Targeting: In this strategy, the coffee shop will introduce different products for different age groups in order to fulfil all the requirements of the people (Wilson, 2015). Developing the product uniformly for all the people will bring loss towards the business due to the different taste and preference factor. During the initial stage of the business, the primary target market will be the student, youth and early job holders who like to prefer the socialisation factor.
Positioning the product or service to the people in a different manner can help to achieve the competitive advantage. The people will like to address the innovation or differentiated service in order to compare the shops. Thus positioning of the shop will mainly focus to the pricing factor which will support the budget of the primary target market. The reasonable pricing with quality service of the coffee shop will be the Unique Selling Proposition (USP) for the business. In this respect a positioning map can be prepared to understand the placement of the product in the mind of the people in respect to the competitors.
From this positioning map, the orange circle is the position of the new business where the price and quality is balanced in order to fit the requirements of the people.
Marketing is one of the crucial steps in the business development process. It is the process which the business used to generate the value for the targeted audience in order to satisfy them and in turn the profitability of the business will grow. In order to design a successful marketing campaign, integration of the four P’s is necessary to convince the customers towards the product which can be done in the following way:
Product (P): The product is the ultimate value of the new venture. The espresso based beverages like Cafe Latte, Cafe Mocha, granite ices, juices, smoothies, deserts along with the baked foods will be served to the targeted audience. The dishes will be served as per the variations in the country’s cooking theme. Along with the product, the services related to the speedy delivery, compliant receive process, party organising for the birthdays, anniversaries will be there. The consumer will like to address the value from the coffee shop and if the coffee shop meet their expectations effectively, then the growth of the business is very much possible. In this respect three levels of the products can be categorised in the following way:
Core Product: Serving the consumers with beverages and foods at a moderate price is the core product or benefit offered by the new venture.
Actual Product: The different menus, order taking, bill providing, party organising will be the actual product
Augmented Product: In this section, the feedback collection, complaint addressing will fall which are manly the supported service of the coffee shop.
Pricing (P): It is the only P in the marketing mix which helps to generate revenue for the business. The value of the organisation is being exchanged with the price that is being charged to the consumers in order to maximise the profitability. The first and foremost is to fixing the objective of the pricing. In this new venture of the coffee shop, the pricing objective will be Market Penetration where the prices of the items will be charged moderately in order to attract the customers towards the business (Kotler and Armstrong, 2014). The ultimate aim is to increase the market share and for this attracting the people towards the coffee shop is needed to be done. Based on the pricing objective, the value based pricing will be considered for the new venture. In this method all the cost will be calculated in order to fix the retailing price. Thus in order to determine the cost, it is needed to categorise them at the initial stage. Fixed cost are the major cost which will be involve in order to operate the coffee shop like expenses related to the staffs. It will be better to maintain this cost under 50% in relation to the total overhead. The other consideration will be the legal compliances, rent of the premises, cost of the raw materials like beans, milk etc. The standard rate for the premises is nearly around 10 to 25 pounds per square feet and expenses towards the legal compliances are around 400 to 900 pounds for 10 to 25 seats coffee shops. Thus after calculating all the cost and the depreciation, it is needed to find the breakeven point which will help to fix the price of the items. If we consider the following parameters then it will be easier to calculate price as well as the Gross profit.
Purchasing the milk in bulk quantity will be feasible for the business
It is assumed that one espresso support 6 to 7 grams of ground coffee
The brew will be 145 espresso in case of coffee for one bag
Thus considering the cost for 1 bag is 12, then it is 8 pence for one espresso (12/145) (Heather, 2012).
Promotion (P): It is one of the marketing mixes that are responsible to aware, inform and persuade the people towards the product (Kotler and Armstrong, 2014). The promotional mix that is appropriate for the new venture will be:
Advertisement: Advertisement is needed to be done with the help of the medium social media. Social media platform will be used which is a low cost as well as the message can be sent to numerous users at a time. The primary target market is very much aware of the social media and they are the maximum users of social media. In this respect, this medium will be feasible for the selection.
Sales Promotion: It is a short term incentive to boost the buyers towards the product. The new venture will give introductory offers to the consumers at a first cum first serve. Discount card will be issue to the frequent users and in those cards points will be added based on the purchase. This type of offers will create interest among the people.
Internet Marketing: New website will be launch in name of Cup O Joe where the people can view the offers, post their reviews or complaints, new products information etc. will be available.
Place: Place is the ultimate variable in the business development which influence the profitability of the business. The convenience provided by the business towards the people can be possible for the marketing mix Place. It is the point where the manufactured products will be delivered to the target audience. In the perspective of the new venture, the place will be located at the West of London where maximum offices and universities are there. The traffic will be high but on the other hand the expenditure towards the lease will also be high. After all the reach and availability will be focus to ensure maximum traffic towards the business (Black, Clemmensen, and Skov, 2015).
For starting a new venture anticipating the possible risk are needed to be done. It is the sound entrepreneurial skills which support the business owner to overcome the risk by undertaking certain strategies to overcome the risk. Experiments in the items are very common in this venture in order to attract the people and that contains the risk. The taste and preferences are different for every individuals and the new item can be unacceptable for the consumers (Burns, 2015). Thus proper market research is needed to be done. Secondly, the risk related to the safety is also important. For example, fire incidents due to the short circuits, injury to the staffs or customers can be possible if certain protection is not taken. Thus risk assessment as per the Health and Safety Act is needed to be done in the coffee shop. Thirdly, the selection of the location is the risk to the business. Location is the ultimate platform that will attract the people towards the business and if the location lacks the convenience then the responses will be negative from the customers (Altman, Sabato and Wilson, 2010). On the other hand high cost related to the main area is also risk for a new venture. Thus a balance is needed to be done for the selection of the location. Apart from high level of competition is also observed from several market reports and the branded chains like Costa Coffee or Barista has increase their investment around 20% for the expansion of the business. On this ground the independent chain will be at a risk to grow and expand their market
It is the finance which will support the business operation of the new venture. The activities like recruiting the staffs, purchasing the equipments, decorating the interiors, meeting the day-to-day expenses require finance or investment. Thus there is a need to analyse the financial requirements in order to anticipate the profit and losses. The average gross margin will be 60% to 65% for the food items and 50% for the beverages. The valuation for the left out will be around 6.50 pound after deducting the cost of the ingredients that is around 3.50 pound. The cost related to the legal compliances, rent of the premises should be involved while anticipating the profit. The assumption for the cost for a coffee shop is between 112500 pounds to 408185 pounds depending of the size and location of the coffee shop. Funding schemes like Enterprise Finance Guarantee scheme from the Government is also available if the size of the coffee shop is 10 to 12 seats (Limini Coffee, 2016). The retaining profit should be utilise in purchasing more equipments or opening up a new shop in another location can be done. It is assumed that if the variable cost is around 40% then the break even for the month will be around 32, 000 pound. The break even is justified by anticipating the cost that is 30K pound for 40 to 60 square meters.
It is the breakeven which help to determine the return on investment. For example, fixed cost for the new venture is around 20,000 to 20, 300 pounds and for that the margin is 65%. Thus the break even will be 13,000 pounds each month. It is to be noted that among five people it is one people who come to the coffee shop daily and based on that per year 2 billion coffees used to drink by the people. The average price for the cappuccino is around 2.30 pound to 2.50 pound. Thus the decision of the people to come to the coffee shop is depend on the value of the product which involves, price, service, quality and excitement. The offering price of the coffee should be 1.89 pound and for that selling 100 cups will help to generate 50, 000 pounds per year additionally (Limini Coffee, 2016). Thus it is the assumption which will help to determine the finance requirements by considering the several costs. For example, it is 30% for the food cost, 20 to 25% is the labour cost, 10% is the operating cost, establishment cost will be around 15% and last is the net profit which is around 19% to 20%.
Altman, E.I., Sabato, G. and Wilson, N., (2010). The value of non-financial information in small and medium-sized enterprise risk management. The Journal of Credit Risk, 6(2), p.95.
Black, D., Clemmensen, N.J. and Skov, M.B., (2015). Pervasive Computing in the Supermarket: Designing a Context-Aware Shopping Trolley.International Journal of Mobile Human Computer Interaction (IJMHCI), 2(3), pp.31-43.
Burns, P., (2015). Entrepreneurship and Small Business: Start-up. Growth and Maturity. Palgrave Macmillan.
Davidson., L. (2015). Coffee shops stir £7.9bn into market as café culture dominates. [Online] Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/12048234/Coffee-shops-stir-7.9bn-into-market-as-cafe-culture-dominates.html, Accessed as on 19.9.16
Donnelly., S. (2016). UK’s independent coffee shop industry flourishing. [Online] Available: http://startups.co.uk/uks-independent-coffee-shop-flourishing/ , Accessed as on 19.9.16
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