Business Plan for a New Lithuanian Shop in Stratford
In conclusion, the research conducted into the feasibility of a Lithuanian shop in Stratford has raised numerous arguments both for and against the business idea being viable.
The questionnaire results suggest that there is a demand for another Lithuanian shop. Although the questionnaire results point out that most people’s earnings are allow and that they are prepared to buy the minimal price for products is outweighed by customers’ intention of shopping at “The Lithuanian Sunset” 5 days a week. This will in effect mean that “The Lithuanian Sunset” will be able to charge lower prices as the fixed costs will be spread over many products. This would in turn provide “The Lithuanian Sunset” with flexibility over prices, which will eventually allow it to charge lower prices for its products and keep all customers satisfied. The article on immigration further makes a Lithuanian shop more feasible, as it suggests that immigration from Lithuania into the U.K. is on an extortionate rise, which will allow “The Lithuanian Sunset” to operate at full capacity and increase the size of the Lithuanian grocery market primarily in London. This would in turn make competition mentioned in the competition map less significant as an influx of Lithuanian immigrants would increase the size of the market and reduce the competition between “The Brother’s Food Store” and “Costcutter”.
The marketing mix for “The Lithuanian Sunset” underscores the feasibility for a Lithuanian shop as it explains that the premises for a new Lithuanian shop are within a close proximity to local infrastructure and are within a visible place in Stratford shopping centre. This thus implies that “The Lithuanian Sunset” will not struggle in attracting customers all due to convenience of reaching the shop and the lack of promotion needed will thus reduces the cash outflows of “The Lithuanian Sunset” and allow it to operate with enough working capital. However, the expectation of low prices makes the Lithuanian shop less feasible, as lower prices will mean lower retained profit and limited expansion. However, this will hopefully be cancelled out by the vast product range and expected high capacity utilization all due to large immigration levels from Lithuania into the U.K. The high capacity utilization will hopefully achieve “The Lithuanian Sunset” bulk-buying economies of scale and allow it to charge lower prices and still operate at profit.
The cash flow and breakeven analysis suggests that “The Lithuanian Sunset” will experience a cash deficit for the first five months of operation, which is a considerably short time compared to “The Brothers Food Store”. Yet, “The Lithuanian Sunset” will start operating at a rising closing balance beginning on the sixth month. This in turn makes “The Lithuanian Sunset” more feasible as the crisis period will be short and can be thus covered by reserves from owners, whereas, after that “The Lithuanian Sunset” will produce positive closing balances, which will mean that the operation of the business will be sponsored through working capital and the return for the owners is thus likely to be higher. The investment appraisal suggests that I and Eimantas will be able to claw our investment back in 3 years and 3 months, which is a generally short time span compared to “The Brother’s Food Store” and thus the value of the return will therefore be worth more in “today’s terms”. However, the breakeven analysis suggests that “The Lithuanian Sunset” will have to sell over 6,000 units in order to breakeven. This in a sense makes the possibility of a Lithuanian shop more feasible as it will hopefully encourage me and Eimantas to aims for almost full capacity in order to meet the breakeven point, which will in turn lead to more informed decisions and the idea of scientific management that could help to reduce the risk of failure. Yet, the high breakeven output suggests that “The Lithuanian Sunset” will have to expand soon if it wants to achieve high profit margins beyond the amount of 8,000 units, which is the maximum capacity.
Overall, the business is a viable proposition that could be made successful by effective management and informed decision making.
A feasibility study to determine whether there is scope for a new Lithuanian shop in Stratford.
Procedure: In order to find out whether the concept of a Lithuanian shop was feasible the following activities took place:
- Report 1- Objectives and Methodology were identified in June 05.
- Report 2-Background information related to the business idea was identified in June 05 (Appendix 2). This was done to identify the approximate revenue the Lithuanian shop would earn and whether the business is worthwhile.
- Report 3-Secondary Research was completed in July 05.
- Report 4: primary Research was completed in July 05 (Appendix 5). This was done to get an insight into the needs of the consumers.
- Report 5- Cost Research, Sales Forecasts were completed in July 05 (Appendix 2). This was done to estimate future sales and profit margins.
- Report 6-Break-even Analysis was completed in July 05. This was done to find out the number of products the Lithuanian shop will have to sell in order to break-even and estimate when the shop will start making a profit.
- Report 7- SWOT Analysis and Marketing Mix were completed in September 05, This was done to find out the find the right balance between product, price, promotion and place and to identify strengths, weaknesses, opportunities and Threats associated with the Lithuanian shop.
- Report 9-Qualitative and Quantitative Analysis was conducted in October 05.
- The background to the study showed that there were not enough Lithuanian shops in Stratford to satisfy the increasing number of Lithuanians.
- Secondary research highlighted that most Lithuanians shopped at ‘The Brother’s Food Store’ because they had no alternatives in the area. The Pound is forecast to rise against the Litas, which indicates that the new Lithuanian shop will have a greater flexibility over prices.
- Primary research indicated that a vast majority of Lithuanians would like to see another Lithuanian shop in Stratford. Although a great proportion of the sample stressed that they would like the new Lithuanian shop to be slightly cheaper than ‘The Brother’s Food Store’ and provide quality products at the same time.
- The financial investigation has shown that the new Lithuanian shop will take considerably quicker to breakeven than ‘The Brother’s Food Store’ with the estimated time being 6 months. After these 6 months, the Lithuanian shop is forecast to generate a profit. The breakeven analysis has shown that the new Lithuanian shop will have to sell an average of 6819 products per month in order to break-even. Anything above that will generate a profit. The payback period is predicted to be 3 years and 3 months which is certainly looking positive given the fact that ‘The Brother’s Food Store’ have taken a year longer to claw back their investment.
- The SWOT analysis shows that the main strength of the Lithuanian shop will be its close proximity to its suppliers, the main weakness are that the shop will be located in the same building as ‘The Brother’s Food Store’, the main opportunity is an ever increasing number of Lithuanian immigrants in London, and the main threat is that Lithuania may adopt the Euro, which will have an adverse effect on Lithuanian imports.
It is clear therefore, that the concept of a Lithuania shop in Stratford is feasible.
The primary research highlighted that a vast majority of the sample want to see another Lithuanian shop in Stratford. Most Lithuanians have explained that they heard about ‘The Brother’s Food Store’ through word-of-mouth, which in turn suggests that the new Lithuanian shop will not have to invest large sums of money into advertising, Yet, the research has also accentuated that most Lithuanians have a low income and therefore expect to receive high quality products for a good value for money. This thus projects a problem as the new Lithuanian shop will have to find importers who provide quality goods at a low price, which may be difficult to achieve in the Newham area. Nevertheless, most Lithuanians said that they would be willing to spend at least £10 every time they shopped. The secondary research indicates an opportunity of operating at a full capacity as there is an ever increasing number of Lithuanians coming into U.K. to hunt for jobs. This in turn suggests that the new Lithuanian shop will be able to achieve both quality and price through the potential of economies of scale. In terms of competition, Lithuania is safe as the increasing number of Lithuanians will allow both firms to operate at full capacity without the need to compete with each other for customers. The SWOT analysis highlights that the opportunities of an increasing number of Lithuanians and an appreciating Pound will work in favour with the financial backing from Eimantas Gudonis and a local suppliers. Yet, the main weakness of lack of reputation can be overcome through advertising and Public Relations and the threat of soaring price of rent during the 2012 Olympics can be dealt with by recouping the costs by providing food from various nationalities so as to appeal to as many tourists as possible. The cash flow forecast has shown that the new Lithuanian shop will experience a cash deficit in the first 6 months of operation, yet this problem will be overcome through Eimantas Gudonis injecting capital from his private funds, which will in effect reduce the need for borrowing and will not incur any additional costs to the business. However, the business is expected to generate a profit on the 7th month of operation which is promising in comparison to ‘The Brother’s Food Store’ that took twice as long to generate a profit. However, the breakeven analysis suggests that the new Lithuanian shop will have to sell over 6000 products a month in order to breakeven, which in effect raises the issue whether the new premises will have enough space to store that many products. However, this problem will be overcome by hiring a storage unit in the Stratford Shopping Center, which means that if the shop runs out of stock, it will only take a few minutes for staff to deliver the products to the shop. The investment appraisal suggests that the payback period will be 3 years and 3 months, which is a fairly short period in comparison to ‘The Brother’s Food Store’s’ 4 years and 3 months.
As a result of the research the following recommendations should be considered”
- Based on the analysis of the primary and secondary research the business will have to advertise for at least the first 3 months during which it should have to introduce penetration pricing in order to attract many customers and establish its reputation as a low cost shop.
- Based on the analysis of the financial date the business must control its cost during the first 6 months of operation in order to reduce cash outflows and make it easier to breakeven. Some of the ways to control costs include using low energy electrical appliances and body sensitive lights.
- Based on the analysis of the elements of the marketing mix the business will have to provide a variety of products in order to appeal to as many customers as possible and minimize the risk of relying on one group of products. The business should aim to emphasise its price and quality competitiveness during the first months of operation in order to establish a customer base and allow the consumers to spread a positive comments about the shop, which should act as a catalyst to attracting more customers.
- Based on the SWOT analysis:
- The business should attempt to minimize the threat of the soaring rent prices by devising a long-term strategy to recoup the high costs incurred by the rent. I would advise the business to try and appeal to tourists during the 2012 Olympics by providing food from different cultures. I also see that the 2012 could easily be turned into a great opportunity by somehow attracting Lithuanian Olympic stars to promote the shop, which will help to establish its brand name all over Europe and even the World. The Lithuanian shop could even think about sponsoring the Lithuanian squad in order to differentiate itself as a nationalist shop and therefore appeal to Lithuanians’ emotions.
- The new Lithuanian shop should exploit the strong pound by importing large quantities of goods with distant expiry dates, such as alcoholic drinks or sweets. This will ensure that the Lithuanian shop will have flexibility over its prices during the period when the business cycle enters the recession.
- In order to avoid the weakness of large cash outflows during the first months of operation, the Lithuanian shop should purchase second hand freezers from the old ‘Iceland’ shop in order to save great amount of money that could be used as working capital to stimulate business activity during its early months of predicted inactivity.
- The new shop should exploit its strength of close location to its suppliers by establishing a good relationship with them so as to gain longer trade credit periods in the future and to negotiate lower prices.
However, it is important to be aware of the limitations of the research. The limitations are that the sample size was too small and clearly does not reflect the entire population of Lithuanians in London. Also, the secondary research is too general and does not appeal directly to the Stratford area, since the rising number of Lithuanians in the U.K. does not necessarily equate to a higher capacity as most Lithuanians would now prefer to live outside London, given its expensive cost of living. If the concept of a Lithuanian shop business is to be feasible it is clear that location should be considered. It is suggested that the new Lithuanian shop should be located in Stratford due to the fact that it has the greatest proportion of all Lithuanians living in Newham. However, Stratford area is forecast to become more expensive with the approaching Olympics games. Consequently, given the low income of most Lithuanians, many Lithuanians may choose to relocate to areas with a lower cost of living, which would in effect make the idea of a Lithuanian shop less feasible. The aspects of Human Resources that should be reviewed carefully are workforce planning. This will involve looking for people are fluent in Lithuanian and are dedicated to hard work. Without Lithuanian workers the new Lithuanian shop would prove unsuccessful as most people who will shop in the new shop will be Lithuanian and may find it difficult to speak English thus having Lithuanian workers would aid communication and create a homely atmosphere. The Operational matters that must be taken into account are transportation of stock from the suppliers in Barking to Stratford. This will be important in order to meet consumer demand and keep the shelves stocked so that people have a selection of products to choose from.
All businesses must be planned carefully. It is essential to consider the situation of the market that the business will be entering. To start the business will be a small business coping in the retail sector. As a result, the following factors should be noted: the income elastic nature of the retail market, the increasing interest rates that are likely to cut consumer spending and thus reduce demand for Lithuanian products, and the presence of direct competition in Stratford.
All businesses, especially new businesses must be aware of external factors. Sound business planning requires consideration of ‘What if?’ scenarios. For example, if the Pound is forecast to depreciate against the Litas, the business should buy a large stock of goods that have a distant expiry date which means that when the competitors will charge higher prices for Lithuanian goods due to the higher cost of imports, the new Lithuanian shop will be able to sell its goods at a cheaper price, which would provide it with a competitive edge. If the number of immigrants from Lithuania will decrease, then the new Lithuanian shop will have to diversify, perhaps into the Eastern European market in order to maintain its sales. If for some reason another Lithuanian shop opens in Stratford then I would stress non-price competition as a means of maintaining healthy profit margins.
However, the research has been supported by evidence from a business of the same nature and from the same area. The analysis of starting a new Lithuanian shop is objective as it both shows the weaknesses and strengths of the new business so that action could be taken to counter those weaknesses so that they do not turn into a self-fulfilling prophecy. All research conducted is relevant to the study as it centers on the underlying theme of a Lithuanian shop, which thus makes it realistic.
Evaluation of the Investigation:
I will now evaluate the reliability of the findings and my research analysis in answering the problems to whether a new Lithuanian shop is a feasible idea. I believe the main areas of my analysis and findings are my questionnaire results, the breakeven analysis and the cash flow forecast. However, the main areas of weakness have been the desk research as all articles are fairly outdated and the prices of ‘The Brother’s Food Store’ have now changed due to inflation. In addition, in terms of the cash flow forecast, all inflows and outflows are mere predictions that generalize the retail market in Stratford.
Stage 1 Strengths
The good points of my research were:
- I had access to plenty of information because I live in Stratford and I am thus familiar with the market and consumers.
- The information I have gathered reflects the new business very well as the shop from which I gathered most of my financial income is located in Stratford.
- The owners of ‘The Brother’s Food Store’ have told me of the problems that I am likely to encounter when starting up a new Lithuanian shop.
Stage 2 Weaknesses
The main weaknesses of my research were:
- The sample for my field research was fairly small and does not thus reflect the Lithuanian population in Stratford accurately.
- It is uncertain whether all Lithuanians whom I questioned came from Stratford and were giving positive responses just for the sake of it.
- I feel that the secondary research was very generic and did not reflect the Lithuanian population in Stratford accurately.
- It lacks contingency planning since it assumes that everything will be successful and does not take account of options that the new Lithuanian shop could take if things do not go according to plan.
Stage 3 Possible Improvements
To overcome the weaknesses of the investigation, I would implements the following improvements:
- Use a bigger sample size in order to get a more reflective view of the Lithuanian population in Stratford.
- Carry out additional field research in neighbouring wards that have high Lithuanian populations in order to consolidate my field research conducted in Stratford.
- Take greater accuracy when researching costs, perhaps by collecting financial information from another different shop, as ‘The Brother’s Food Store’ could have given me inaccurate information in order to hinder the survival of my business since I will be their future competitor.
- I should have carried out a contingency plan in order to come up with methods of an alternative backup strategy if things do not go to plan.
Conduct a contingency plan so as to provide the new Lithuanian shop with a backup strategy if things do not go according to plan.
Stage 4 the Future
All in all, I am fairly confident with accuracy of my research and analysis since it was very specific to the nature of my business and the market. The outcome has shown positive signs of a new Lithuanian shop and problems have been outlined from the outset so that they could be eradicated. If the new business considers my recommendations for the future than it will be able to overcome most threats and even turn them into opportunities and increase its market share. However, all my recommendations are not watertight as the new business will certainly encounter unexpected problems that it will have to counter by itself. I therefore suggest that the new business devises a corporate strategy and tactics it will take to achieve that strategy. This will in turn help to encounter all problems and give the new business a clear sense of direction.