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4.4 Research on viability

4.4.2 Strategic plan

Now that the internal- and external analysis has been finished, we can now proceed to the formulation of the strategic plan. We know everything about the industry, competitors, and the company itself. Using all of this information gathered so far, we can make the best decision on choosing the most appropriate strategy. To do this, I will start with the market positioning, and then continuing on with the competitive advantage theory and finally the brand strategy. The strategic plan relates back to chapter 2.2 of the theoretical framework, under the strategic formulation part of the chapter.

MARKET POSITIONING

Market positioning is about the positioning of the company in the market. "The market" is very broad, so in order to be successful as a company, it should know how it wants to position itself. It answers the question of how the company wants to be perceived by their target group. It is very important to carry out a certain image which shows the company's uniqueness, in order to distinct itself from the competitors, and of course to leave the right impression in the minds of the segments which are being targeted.

 Core impressions of the company: Status Symbol / Hip / Healthy

 Secondary impressions: Quality / Taste / Innovative

 Other impressions : Packaging / Safety

COMPETITIVE ADVANTAGE

Before choosing the right strategy, it is important to identify the company’s competitive advantage. A competitive advantage is needed if we want to stay ahead of our competitors.

In order for Anna's green tea to be successful it needs to be sustainable not only in the short- but also in the long run. To ensure sustainability, the company needs a certain advantage, something it does better compared to its competitors. This is called the "competitive advantage". Michael Porter describes in his theory, that competitive advantage can be achieved by three factors: Competitive advantage by lower prices for the same product (cost leadership), competitive advantage through a better or more attractive product (differentiation), or competitive advantage by focusing on a certain niche market (focus). Only with one of these advantages will the company be able to stay successful in the long-run. The competitive advantage of our company is the Differentiation Advantage.

Using Matcha green tea as our basis, in combination with Japanese style and culture, we are setting the company apart from our competition, and this will certainly be noticed.

BRAND STRATEGY

As the company wants to portray a certain image with certain qualities and attributes, an important tool to use is the company's brand strategy. Each brand portrays certain values, and it is up to the company to make sure these values are in line with the company's goal(s). This is done by researching, defining, and building the brand. In order to reflect the values mentioned above the company will represent this using certain elements

 Logo: The Company’s signature logo represents something modern and Japanese. Anna in comes from the Japanese name Hana, which means flower, but to make it more accessible to the Dutch people, it became Anna. The flower is based on Kiku-no-hana (Chrysanthemum) which was used as an emblem by the Japanese royal family. So it is kind of a status symbol.

 Physical location: The physical location of the company must radiate “hip” and high quality.

To do this, the atmosphere must look trendy of furniture must be of high quality.

 Packaging: Drinks that are sold must have good looking packaging. People taking away drinks send a message to outside people, and that message must be trendy, hip, healthy, and high status.

 Website: A good looking website will help radiating the image we want for our customers and the outside world.

PORTER’S GENERIC STRATEGIES

Porter describes 4 common strategies that are used by companies to achieve their competitive advantage. Now that we know our market positioning, competitive advantage, and brand strategy, we can choose the best generic strategy.

Figure 15: Porters Generic Strategies

I believe the best strategy is Differentiation. There are many coffee/tea bars out there, mainly focusing on coffee. We do something else. Most of our products offered are made with Matcha

Cost leadership Differentiation

Cost focus Differentiation focus Generic

strategies

4.4.3 MARKETING PLAN

This part of the thesis is about the marketing plan of the startup company. The marketing plan consists of segmentation, to identify our (potential) customers, and the marketing mix. The marketing mix consists out of four main elements used to create a marketing strategy. The marketing plan relates back to chapter 2.3 of the theoretical framework explaining theories about segmentation and the marketing mix.

SEGMENTATION

The tea and coffee market in the Netherlands is huge. There are many types of consumers with different needs and wants. Some care about price only, while others care about quality, and are willing to pay premium prices. People have different tastes too. Then there are different ranges of age as well, and to cater to all these people in the coffee and tea market is impossible. Therefore it is important to divide this market into groups that our company decides it wants to attract.

First off, I use geographic segmentation. The company will operate primarily in 3 provinces: Zuid-Holland, Noord-Zuid-Holland, and Utrecht. I mentioned this before. In these three provinces alone the number of inhabitants is more than 7.5 million. Furthermore, the target group of the company is internationally minded people, modern people, students, and “hip people”, to name a few. And these people are mostly found in urban areas. This brings us to the next point.

As we first segmented by geographic location, we now use psychographic segmentation. The basis of this type of segmentation is the lifestyle of individuals. Think about the individual’s attitude, interest, values etc. The people we target are:

 Students: We want to position ourselves as a place where students can hang out, study, and meet with their friends.

 “Hip modern people”: As we are portraying our company as premium, we like to make the company a status symbol. These people are likely to have professional careers and care about status. We like to portray our company as a “ cool” place to be

 Internationally minded people: Because, our company is based on Japanese tea culture, we like to attract people who like to try new and exotic things. These people are usually to be found in urban areas.

 Health conscious people: Because green tea has many benefits to the health of people, we want to promote this, in order to attract health conscious people.

Lastly, we also segment the market by age group. The main target groups are young adults, and adults. Young adults can be classified between the ages of 17 to 25, and adults from the ages of 26 to 45.

MARKETING MIX

The marketing mix is the most important tool to create a marketing plan and consists of the four P’s:

Product, Price, Place, and Promotion. Using these elements, I will be able to create a marketing plan that fits our generic strategy, and will help to create the right image we want to achieve.

Product Matcha green tea

Matcha is Japanese green tea grounded into powder. It is made from the leaves of the tea plant Camellia sinensis. What makes Matcha so special is the origin and

production of this green tea. The different ways in which green tea leafs are treated, determine the tea quality.

More than 800 years ago, Matcha was manufactured by Buddhist monks as a meditation drink. Nowadays Matcha is the finest and rarest teas in Japan. The tea can be used in any type of food or beverage to create a green tea taste, which is what this company does.

Products Beverages:

Figure 18: Green tea beverages Figure 17: Roasted green tea beverages

Sweets

Crepes

Figure 22: Crepes

Figure 21: Parfaits sweets Figure 20: Ice cream sweets

Economy Penetration

Skimming Premium

Price

Premium Pricing Strategy

When determining the price of a company's product(s), the first thing that comes in mind are the expenses. Looking at the expenses, the company sets a profit margin it wants to achieve and based on that, the price is determined. However there comes much more into play when it comes to pricing strategies. As mentioned before, Anna's green tea wants to portray an image of high status. To do this, a high prices need to be set for its products because products that are high in price are often linked with high quality and vice versa. Therefore, the best pricing strategy for Anna's green tea to pursue would be the "Premium Pricing Strategy"

Thomas Nagle describes the price/quality effect in his book about consumer psychology. It refers to the price-quality relationship as the perceptions consumers have about products that are relatively high in price are an indication of good quality. So, the effect of this is that consumers will be less sensitive to the price of the product. Figure 23: Pricing Strategies Matrix shows the pricing strategies

Place

The place of the business is very important as this is the place where the target customers need to be attracted. Based on the previous analysis of segmentation, we can now list places where the type of

Low Hi gh

Low High

Price

Quality

Some of the possible locations are:

 Amsterdam, De Dam. As Amsterdam is the capital of the country, there are many people especially tourists that potentially could visit our store.

 Rotterdam, Koopgoot. The Koopgoot is a place with many shops in the city center. Many of our potential customers can be found.

 Den Haag, Grote Markt. There are many people who go shopping in de Grote Markt.

Besides that, the place is renovating, and from 2014 it will look very nice.

Out of these three options, Den Haag is chosen. The reason for this is that the main competitors are not found in this area. In Den Haag, Starbucks only has one store in the Central Station. Besides that I have found a perfect location that fits our company image, and will attract the customers we want.

Nieuwe Haagse Passage

The city center of Den Haag is being renewed, which gives us the opportunity to capitalize on a new project that is being built at the moment. The project is called: Nieuwe Haagse Passage. The building connects three important streets, attracting many customers. The building itself looks incredibly nice and modern, built by the architect Tschumi. The building will have many international retailers, hotels, and catering facilities.

Figure 24: Nieuwe Haagse Passage

As can be seen, the building looks very modern, and is in the heart of the city, which is very accessible. Looking at the map, below, the Nieuwe Haagse Passage, together with 3 other areas form a unique mix of atmosphere, greatness, and international allure that is part of the urban transformation. Right below the building, there is public transportation available as well.

Figure 25: Map Den Haag Promotion

The last part of the four p's is promotion. Promotion consists of all activities that are meant to communicate with the market in order to increase sales. Promotion can be carried out in numerous ways. Think for instance about radio, television, magazines, trade shows, direct mail, but also very important if not the most important, the internet and mobile internet specifically.

Our main form of promotion will be using (mobile) internet. Some of the activities we will do to promote the business are:

 Creating an attractive website: The most important part of promotion is a good website in my eyes. A website can be seen as an extension of a store, and therefore it should be attractive to carry out the message we want to portray.

 Making use of social media: Nowadays, social media is used very much, and the company should make use of this. A twitter and Facebook page will be very helpful, as special promotions and information can be reached to the target audience very quickly and easily.

 Creating a mobile application: As most people use smartphones or tablets, the company will create an application, with coupons and other special promotions. This way people will be more willing to visit our store.

 Handing out flyers: Handing out flyers is always a good thing to reach people. It is easy to hand out flyers to people walking nearby the store, and it is inexpensive.

These promotional methods combined will be enough to promote the business.

4.4.4 FINANCIAL PLAN

The last part of the empirical framework is the financial plan. This section is the quantitative part of everything I have stated before, and is an integral part of this thesis, and needed to know the validity of opening this company. The financial plan consists out of the summary of financial needs, which is a list of the minimum financial requirements to open this business. Then the pro forma statements will be created. These are the cash flow statement, income statement, and the balance sheet. Finally a break-even analysis will be made to look at when costs equal revenue. This chapter relates back to chapter 2.4 of the theoretical framework, where the theory about the financial plan is explained.

STATEMENT OF FINANCIAL NEEDS

The statement of financial needs is a list of all the investments needed to start the company. It gives a clear view of what is needed. This is the first step of the financial plan, because using this will be the guideline to start making projections later on. The figure below shows the statement of financial

Assumptions: The above figures are the assumed total investments needed to open the store. Also, all machines and the car are purchased. Often companies lease machines and vehicles, but I decided to buy it. Furthermore, in preparing the statement, I excluded VAT amounts.

As can be seen from the statement above, €185096 will be needed to start the company and make it operational. Most of the costs are the fixed costs, where the initial renovation and machines are high in costs. Secondly, current assets are quite a big amount due to VAT pre financing. Lastly, startup costs are much the lowest expense, of course initial tableware is needed which costs a lot. For more detailed information about each expense, please refer to the appendix.

SOURCES OF FUNDING

Assumptions: €80000 will be paid by the owner. The remaining amount needed for the initial investment is financed by a commercial loan with a loan rate of 8 percent to be repaid in 60 months.

Nearly 57 percent of the company’s initial investment is financed by a commercial loan. Monthly payments which include interest plus the amount that needs to be repaid, amounts to circa €2131.

More information about the sources of funding and the amortization schedule can be found in the appendix.

SALES PROJECTIONS

Assumptions: 160 customers are expected on a daily basis. Furthermore the store will be open 7 days a week. I assume Beverages will be sold the most with parfaits having the second most sales.

I expect Anna’s green tea, to attract 160 customers per day. The reason for this is the very attractive position of the store, where many people will be walking by. People will be able to takeaway drinks

Amount Totals Months Loan Rate Monthly Payments

Owner's Equity 43.22% 80,000

Commercial Loan 56.78% 105,096 60 8.00% 2,130.97

Total 100.00% € 185,096 60 8.00% € 2,130.97

Sources of Funding

Products Percentage Price/unit Cost/unit

Beverages 55% 4.50 0.62 Per day 160

Parfaits 25% 6.00 1.30 Per week 1120

Crepes 10% 4.50 0.90 Per month 4800

Ice cream 10% 4.75 1.05 Per year 58400

2014 2015 2016 2017 2018

% change 0% 15% 15% 15% 15%

Sales € 286,160 € 329,084 € 378,447 € 435,214 € 500,496 COGS € 50,282 € 57,825 € 66,498 € 76,473 € 87,944 Gross Profit € 235,878 € 271,259 € 311,948 € 358,740 € 412,551

Sales Projections

Total customers

Total

increase each year due to the popularity of the company and the brand. Therefore, in 2018 expected sales volume will exceed €500000. A more detailed sales projection can be found in the appendix

INCOME STATEMENT

Assumptions: All shares belong to me, the owner and no dividends will be paid out in these years.

The remaining amount of money will go to the retained earnings.

Looking at the income statement, the company will make a net loss of €2362. The main reason for this is that the company is new, and needs more customers in order to make a profit. I don’t want to increase prices, because too high prices will chase away customers. In the second year, and the years thereafter, net profit is gradually expected to increase.

CASH BUDGET

Assumptions: First two months will have the least sales due to the unpopularity. Furthermore I assume seasonality does not play a role because AGT offers both hot and cold food and beverages.

2014 2015 2016

Total Sales 286,160 329,084 378,447

Total Cost of Sales 50,282 57,825 66,498

Gross Profit 235,878 271,259 311,948

Total Operating Expenses 229,125 231,883 234,917

Earnings Before Interest and Taxes 6,753 39,376 77,031

Interest Expense 7,764 6,286 4,685

Earnings Before Taxes -1,012 33,090 72,345

Taxes 1,351 7,875 15,406

Net Profit -2,362 25,215 56,939

Anna's Green Tea

Projected Income Statement - Yearly

Month: Pre-Start 1 2 3 4 5 6 7 8 9 10 11 12 Totals

Receipts

Total Receipts 185.1 15.0 18.0 25.0 25.0 30.0 20.0 20.0 30.0 30.0 22.0 22.0 29.1 471.3 Payments

Total Payments 183.3 19.8 22.7 24.2 23.5 22.7 24.2 23.5 22.7 24.2 23.5 22.7 26.0 463.0

Cashflow Surplus/Deficit (-) 1.8 -4.8 -4.7 0.8 1.5 7.3 -4.2 -3.5 7.3 5.8 -1.5 -0.7 3.2 8.3

Opening Cash Balance 1.8 3.5 -1.3 -6.0 -5.2 -3.7 3.6 -0.6 -4.1 3.2 9.0 7.5 6.8

Closing Cash Balance 3.5 -1.3 -6.0 -5.2 -3.7 3.6 -0.6 -4.1 3.2 9.0 7.5 6.8 10.0

Anna's Green Tea

Cash Budget - Monthly (In Thousands)

The cash budget shows the monthly cash flows of the company for the first year. What we see is that during the first six months, closing cash balances are negative. This is changing in the last six months. The negative cash balances aren’t significantly high, and see no problems to pay monthly bills. A more detailed cash budget can be found in the appendix.

BALANCE SHEET

Assumptions: No new machines will be bought in the beginning five years. Furthermore is depreciation excluded from the balance sheet because it is a non-cash item and therefore does not represent Anna’s green tea’s actual earnings potential.

As can be seen total fixed assets stays the same due to no new purchases of any fixed assets. Total liabilities decrease on a yearly basis because each year, the commercial loan to be repaid becomes lower. A more detailed balance sheet can be found in the appendix.

4.5 SUMMARY

The empirical framework of this thesis uses the body of the theoretical framework and presents the findings. These findings will be summarized to give a quick view of what the empirical framework is all about.

Anna’s green tea’s mission is to serve the best Japanese green tea beverages and food, in modern Japanese-style stores. With its vision to enhance people’s lives with Japanese tea culture in a modern way, it looks to create a modern place for people to gather and enjoy green tea beverages. The company entity is a private limited partnership, the main reason for this choice being that this type of

Beginning 2014 2015 2016

Assets

Current Assets

Total Current Assets 51,995 31,825 40,117

Fixed Assets

Total Fixed Assets 133,101 133,101 133,101

Total Assets 185,096 164,926 173,218

Liabilities and Owner's Equity Liabilities

Total Liabilities 105,096 87,289 68,003

Owner's Equity

Total Owner's Equity 80,000 77,638 105,215

Total Liabilities and Owner's Equity 185,096 164,926 173,218

Pro Forma Balance Sheet

Anna's Green Tea

primary operation. If the company will be successful it might look into other sources of income such as licensing and franchising. The organizational structure of the company consists of four hierarchies.

At the top of the company we have the restaurant manager, then the assistant manager, shift supervisor, and finally the barista. When more stores will be opened, the structure will slightly change, as a district manager, regional manager, and a director will be included.

At the top of the company we have the restaurant manager, then the assistant manager, shift supervisor, and finally the barista. When more stores will be opened, the structure will slightly change, as a district manager, regional manager, and a director will be included.