The introduction of high quality foods such as organic frozen yogurt displayed and sold via a vending machine would not only be favorable to health conscious customers but its novel approach would result in a considerable degree of consumer interest thus making it a viable business venture. The proposal we have come up with has been thoroughly researched and analyzed from primary and secondary sources. The vending machine market has seen rapid growth in parts of North America and highly concentrated in parts of the Far East such as Japan. The convenience and simplicity in the business model and the absence of employee costs (i.e. minimal for maintenance) makes it an easy start-up in comparison to start-ups requiring high start-up capital.
Initially, it was our plan as a group to develop a business concept where we would establish our own yogurt shop similar to either Pinkberry or Snog due to our mutual love of eating yogurt and the fact that we found the overall business model to be viable. Unfortunately, our 2011 examination of the U.K. yogurt shop market reveals a high degree of market saturation with brands such as Frae, Itsu, Moosh, Snog, YUforia, Yog and Pinkberry all competing for a “slice” of the U.K. consumer market. Furthermore, each company has their own variation of yogurt with some shops such as Snog advocating the use of organic ingredients while others pursue an approach of having unique flavors and overall affordability (Birkett, 2009: 21). With so many different stores and product variations already present in the U.K. market today this makes market penetration and the creation of sufficient brand awareness of a new yogurt shop all the more difficult to implement. While one alternative is to buy into a particular franchise, the fact remains that the considerable costs involved in such a venture as well as the level of competition already present in the current market today was perceived by us as a group as being far too resource intensive and risky for us to pursue. We based this off the affordable loss principle described by Prahalad & Mashelkar (2010) which specifically states that people should invest into a business only what they were prepared to lose (Prahalad & Mashelkar, 2010: 132 – 135). Prahalad & Mashelkar (2010) continues to explain that nearly 90% of all new businesses have the tendency to go under within the first year of operation (Prahalad & Mashelkar, 2010: 132 – 135). While this rate is considerably lower for franchises that have a well established degree of brand awareness the fact remains that there is no guarantee that should we either buy into a franchise or establish our own independent shop that it would become a success (Prahalad & Mashelkar, 2010: 132 – 135). Another viewpoint that we as a group examined was that of Baum & Bird (2010) who advocated the use of the Bird-in-hand principle when it comes to establishing a new business. Baum & Bird (2010) explains that people that wish to start their own business should start with who they are, what they know and who they know in order to create their first business venture and slowly and steadily expand (Baum & Bird, 2010: 397 – 405). This forces them to become more “imaginative” so to speak in making do with what they have at the present (Baum & Bird, 2010: 397 – 405).
Analysis of a Possible Small Scale Business Venture
One possible small business venture that we thought of that conformed to the principles we selected as the basis for business plan was to buy a vending machine and stock it with various drinks and place it within a high traffic area. As Lin, Yu, Hsu & Weng (2011) explains, vending machines are a viable business venture since they don’t take much to maintain, have a low initial investment cost and can be placed into various areas such as train stations, schools and even malls resulting in a steady stream of consumers (Lin, Yu, Hsu & Weng, 2011: 9129). To test the viability of this potential venture the group created an industry and market analysis which examined the current strength of the vending machine industry and its impact on consumers markets today. The study revealed the following details:
According to various reports published in 2011 which examined the amount of products sold by automatic vending machines, the rate of sales within the market has dropped by 1.1% since 2010, reaching £1.92 billion (Howorth, 2003: 83). Furthermore, by comparing the quantity of refreshing vending machines (soda and juice dispensers) in the UK between 2010 and 2009, we noticed a 2.9% drop had occurred in a case study where 449,000 units were evaluated (Howorth, 2003: 83). Additionally, a survey conducted by the National Statistics Office in 2011 estimated that a 5.3% increase in the household spending on food arose in 2010 following a value of £88.2 billion, where 1.7% of the sales were maintained by refreshment based vending machines (the ubiquitous machines seen in most university and college campuses that sell coke, sprite, etc.) (Howorth, 2003: 83). This is indicative of the fact that while the sale of products coming from vending machines has been quite strong (£1.92 billion) the industry itself is starting to wane. While there could be any number of reasons behind this such as an increase in the number health conscious consumers or fewer consumers willing to spend on frivolities as a result of the current financial recession and the debt crisis in mainland Europe the fact still remains that despite the 1.1% drop in overall sales the current vending machine market appears to be a viable investment opportunity especially when taking into consideration the fact that there are plenty of high traffic pedestrian locations in the U.K. today where vending machines can be placed rather easily since they don’t require much space at all.
Examining the U.K. Vending Machine Market
The market is segmented into three sub-divisions: refreshment vending machines, cigarette/tobacco vending machines and other vending machines. The first subdivision is considered as the leading subdivision in the market today and is composed of and extensive variety of goods such as hot and cold beverages as well as various confectionery and snacks (Howorth, 2003: 83). The second subdivision of the market is involved in selling various cigarette brands to smokers however this particular market has experienced recent downward slopes as of late due to declining sales (Howorth, 2003: 83). Upon closer examination it was revealed that a decline in the number of smokers as well as recent government restrictions within the U.K. regarding the number of locations where a person can smoke has contributed greatly to this trend (U.K. to ban public smoking, 2006: 1). This would explain the 1.1% decline in sales in 2010 since this was the same year that stricter smoking regulations and anti-public smoking campaigns were similarly put into effect. The last subdivision of the vending machine industry involves the sale of various condoms, panty liners, tampons, disinfections, mobile phones and a variety of miscellaneous products (Howorth, 2003: 83). This particular sector has had anemic growth within the past 3 years and which could be due to lackluster demand for the products available from such machines.
In 2010, the UK market for automatic vending machines (the sale of the machines themselves and not the products within) has experienced a moderate growth despite the sustained economic insecurity. This subsequent growth in the number of sales of vending machines has been connected by experts such as Barr & Wright (2010) to the statistical rise in family expenditure on food of which the refreshment subdivision of the automatic vending machine industry has greatly benefitted from (Barr & Wright, 2010: 1 – 5). It was based on this data that the group decided that for our small scale business venture the most likely means of entry into consumer markets is to utilize refreshment based vending machines. This is due to its higher sales revenue as compared to other vending machine subtypes and the fact that we are more familiar with this particular form of food consumption as compared to the other types of vending machines currently on the market today.
Examining Consumer Trends within Recent Years
Dobson & Chakraborty (2008) in their examination of consumer trends within U.K. in the past 3 years has noted that people are generally becoming more self-conscious regarding their health and physical appearance (Dobson & Chakraborty, 2008: 333 -341). While Dobson & Chakraborty (2008) doesn’t precisely indicate whether this is the result of health awareness campaigns or the mass media Dobson & Chakraborty (2008) does recommend that strategies in targeting today’s “brand of consumer” should therefore concentrate on campaigns and the creation of consumer products that emphasize “no fat, no cholesterol and with comparatively low calories” (Dobson & Chakraborty, 2008: 333 -341). It must also be noted that Beattie, Dhanani & Jones (2008) has noted a distinct increase in the amount of consumers that have a greater degree of awareness regarding environmental and social responsibility. As Beattie, Dhanani & Jones (2008) states, “consumer trends in product and service patronage have been changing as of late towards companies who are involved or promote donations, recycling and preservation of the environment” (Beattie, Dhanani & Jones, 2008: 181 – 219). It is based on this that Beattie, Dhanani & Jones (2008) recommends a marketing strategy that emphasizes such trends or to connect a business venture to a company that upholds such tenets so as to ensure positive consumer responses regarding the sale of a product (Beattie, Dhanani & Jones, 2008: 219 – 220). Another factor to take into consideration is that consumers within the U.K. market have as of late been shifting towards “cashless” transactions utilizing either credits or mobile phone technology. Heap, Chua & Dornhofer (2005) expounds on this by stating that business should take this particular method of transaction into consideration and incorporate it as either a primary or secondary means of creating transactions with customers (Heap, Chua & Dornhofer, 2005: 85 – 88). This is similar to the opinion of Picker (1993) that taking advantage of new methods of consumer transactions is one of the best ways to “get ahead” in today’s competitive market economy (Picker, 1993: 19).
Business Venture that will be Pursued
Taking the principles of affordable loss and the bird-in-hand into consideration it was decided by the group to combine both the vending machine concept and our initial desire to create a yogurt shop and go into a small scale business venture where an automatic vending machine would dispense yogurt and combine it with various toppings. While as a group we have no idea how to create an automatic vending machine we did do subsequent research online and found various companies that can create automatic vending machines to precise specifications (intelligentvending.co.uk seems like the best provider for our current concept). The average cost of such a machine will be £8,000.00 plus an additional £5,000 for internal changes to the machine itself that includes mechanical and touch screen modifications in order to make it suitable to dispense yogurt and toppings. This particular type of machine not only accepts cash and coins but credit cards as well making it a convenient method for nearly any type of consumer to purchase yogurt.
Early on we realized that cannot make the yogurt ourselves since this would require access to equipment and recipes that would have cost considerable sums. Not only that, Neganova & Neganova (2011) states that people are more willing to buy a product that they are familiar with as compared to a product of unknown origin despite it being cheaper and having the same quality (Neganova & Neganova, 2011: 261). Taking this into consideration it was decided that as a business startup we would enter into a partnership with Snog and buy yogurt at a wholesale price from them. We would also utilize their brand name on the front of the machine in exchange for 5% of monthly revenue from the machine. The whole sale price of the yogurt will cost £1800 in large drums that will bought at different intervals throughout the month and added into the machine as necessary. Most modern vending machines have an indicator that has access to the internet and as such can send a signal to a laptop informing the owner when a particular product is running out. Furthermore all fruit toppings for this concept will be placed into a syrup like mixture in order to ensure their freshness and sweeten the yogurt as necessary.
The increasing awareness of health problems within the U.K. (such as obesity and diabetes) has contributed to a popular trend in many modern food companies in the U.K. to target customers who want to derive health benefits from the products they consume. Taking this into consideration this business plan was designed for the needs of such consumers. The idea revolves around a self-service vending machine that enables customers to purchase frozen yogurts at their own convenience. This machine will provide buyers with an opportunity to choose yogurts of various flavors, sizes, and toppings with ease and simplicity using an LCD touch screen with a user-friendly interface that will significantly improve a person’s buying experience. The machine itself will also be equipped with a cash and credit card reader so that customers may easily purchase the product.
There are a number of features that make this product unique: Firstly, it will be the first vending machine that will provide customers with natural and organic frozen yogurt in the United Kingdom. Therefore, its overall uniqueness and sheer novelty should draw customers in. Overall, this product is unique from a marketing standpoint and technological perspective and not only that, through our joint partnership agreement have a set of such machine will give SNOG a competitive edge over its other competitors in terms of greater market penetration and brand awareness. It must also be noted that the competitive superiority of the vending machine can be explained by the novelty of this business idea and as such hinges on the first mover principle.
Initial funding for this venture will come from a small business bank loan taken out with a local bank. Since the overall amount needed to start this venture is quite low it will be possible to borrow the initial funds quite easily with the parents of each group member being the guarantors of the loan. The initial loan will consist of a 19,000 pound balloon loan with a 7 to 10 year payment scheme with the bank. The reason why a balloon loan scheme was chosen was due to the fact that it was determined by the group that as the business improves we will be able to pay a higher amount down the line as the amount of profits increase. Having this particular loan type to “test the waters” so to speak also enables the group to apply for more loans in future once viability has been established with the proper figures to show a loan officer in the future. To pay for the loan all payments will be deducted from the overall revenue stream of the machine. For this particular venture the initial stakeholders will be (PLACE YOUR NAME HERE) and (PLACE YOUR PARTNERS NAME HERE) with future stakeholders consisting of potential venture capitalists that may want to invest in the scheme.
Forecasts and Financial Data
For this project it is anticipated that the single vending machine the company will start out with will generate up to 70,750 pounds in sales within a single year with a growth rate of 10 to 15 percent in the number of units sold within a period of 3 years. This assumes that within this given period of time no possible situation may arise that could result in a drop in consumer demand within this particular period. Based on an examination of costs which arise with doing business which consists of the cost of ingredients (yogurt and fresh fruits) (2200 pounds monthly), corporate taxes (12,000) as well as VAT (12,000) as well as branding expenses (5% of monthly sales) and the percentage that goes towards the owners of the space (15%) the overall profits gained per year on this particular venture ranged from 22,000 pounds to 23,000 pounds. This takes into account that the first month of doing business will actually be a loss for the company due to low sales rates and the amount that needs to be paid into corporate taxes, ingredients and various associated fees. The highest cost for the business is the 2200 pounds paid per month for the cost of ingredients and fruits. This rate takes into account the possibility of product spoilage as well as the possibility of unsold ingredients within a given month. Overall it is anticipated that since there are two partners in this venture both partners will receive 11,000 to 11,500 per year out of one machine as profit. Based on this it is anticipated that a return of investment for this particular venture (taking into consideration the time and effort required as well as individual taxation on income) will take up to 2 to 3 years.
Year 1 estimate along with costs
|Summary of Financial plan|
|Annual unit sales||14,600|
|Price P/Unit||£ 2.75|
|Variable cost P/Unit (production and sales)||£ 0.97|
|Fixed costs (machine rent, maintenance, toppings etc.)||£ 27,792|
|One-time start-up costs (equipment, marketing, legal, etc.)||£ 19,000.00|
|Working capital required (receivables, inventory, etc.)||£ 2,600|
|Estimated Annual Gross Revenues and Income:|
|Annual revenues||£ 70, 750|
|Annual variable costs||£ 3,372|
|Annual contribution margin||£ 12,124|
|Contribution margin per unit||£ 1.78|
|Annual break-even quantity||789|
|Ratio of break-even to expected quantities||10.4%|
|Starting-up the business:|
|Total up-front funds required||£13,000|
|Additional units to cover up-front funds||3141|
|Break-even quantity with up-front funds||3930|
|Payback period for start-up funds (in days)||728|
|Annual return on start-up investment||30%|
|Variable cost to price ratio||35.3%|
|Contribution margin ratio||58.0%|
Our marketing strategy is to provide students, commuters, shoppers, and families with a healthy option snack. The overall concept is specially designed for health-conscious and environment-conscious people who also love to dine in different ways. Our strategy is to influence buying decisions by the product itself (organic, fat-free, and sugar-free), utilizing recycled materials and great design packaging. The unique selling point of the venture is of course the product since SNOG produces (in our opinion) the best and healthiest frozen yogurt in London. The vending machine could be programmed to be more interactive and full of surprises to the customers such as having facial recognition and rewards for smiling resulting in buying products “an experience”.
SNOG is dedicated to providing healthier yogurt than its competitors (i.e. Pinkberry) since it is fat-free and uses natural ingredients with a mixture of fresh fruits and nuts and organic yogurt. As part of the marketing strategy, our aim is to use strategic locations where customers can access the vending machines at their own convenience increasing brand awareness and visibility. As SNOG provides a fun experience in their shops, it is part of our strategy to replicate this experience with our vending machines. Hence, the machines should have bright colors and a screen running interesting facts about the product and how we make them so delicious. At the same time, the vending machines should be quick and easy to use in order to appeal to a larger variety of people of all ages.
Our aim is to reach consumer demographics aged 16 to 34 consisting of young professionals, students, and families. If split into distinct categories: 16-20 would be our youngest potential customers. To appeal to this category we are making the machines fun with some high-tech features and using attractive designs.
The age demographic of 21-34 consists of young professionals and/or university students. In this segment and especially in central London, we identified the need for quick service and reliable products. SNOG Vending will appeal to people who appreciate convenience and would rather have it on the go. In a few seconds our customers would be able to take away a quick and healthy snack/dessert at any time day or night.
Strength, Weakness, Opportunities and Threats
- A healthy snack/dessert available 24 hours day.
- Fun for the children and convenient for people “on the go”.
- Lack range of a sufficient range of flavors (4 types per vending);
- Market may respond as a seasonal product reducing demand for the product during winter time.
Brand awareness by introducing the vending machines in strategic locations (high demographic reach).
Competitors – Pinkberry – frozen yogurt company from U.S and substitute products (Ice-creams)
Distribution and Sales Strategy
Our group determined that we will need to use different distribution and promotional channels in order to attract customers. At first, it is necessary to increase people’s awareness about the vending machine concept. This news could be spread through social networks such as Facebook and Twitter, which is the least expensive method of promoting the product and attracting customers (Neuts, 2011: 80). Additionally, fliers could be distributed in the venues where the vending machines will be installed and will act as the main distribution channels for the company. The average cost of this would reach 50 pounds or less and will come out of out-of-pocket expenses by both members of the group. Overall, the main advantage of this approach is that it will allow the company to increase their customer base within a short time.
Furthermore, word-of-mouth can also greatly benefit the venture as this communication channel will become particularly important at the initial stages when customers are not aware of the products on offer. In order to implement this project, the group will need to form alliances with two groups of business partners. While targeting schools, the group should emphasize the health benefits of frozen yogurts and its nutritional value as these educational institutions set high standards for food producers. In turn, the group can fill this niche because the product we sell, namely yogurt, is rich in vitamins and proteins, which are of great benefit to children and adolescents.
Identified Risks and Measures of Risk Mitigation
First, it is necessary to establish partnerships with reputable manufacturers of vending machines and the companies that supply components for such devices. In many ways, the success of this plan depends on their ability to manufacture the vending machine that is able to preserve such dairy products as yogurts. This is why the group should carefully evaluate the quality standards of these suppliers. The second group of partners will include various organizations where the product will be distributed, for instance, hospitals, cinemas, schools and health clubs. The group should carefully select the locations for the vending machines. At the beginning, it is necessary to avoid the places where other companies or potential competitors sell their products, for example, locations with Coca-Cola vending machines.
Our group examined other potential competitors in the vending machine market and discovered that companies in the same industry we are about to enter mainly depend on the design and entertainment factors of their machines in order to entice consumers. For instance, Britivic Soft Drinks have been using smart vending machines, which interact with their customers by offering video games that give them a chance to win a free product. Furthermore, Nestle vending machines are relying on their visual attractiveness; however they also depend on a consumer’s brand awareness in order to “push their product” so to speak. Another competitor is Ben & Jerry’s who are not only concerned about the design and entertainment quality of their machines but have partnered up with Greenpeace and have subsequently introduced climate-friendly freezers thus showing a certain degree of corporate social responsibility. Based on this the group should determine what particular façade the machine must have and the type of message that we are trying to get across in order to entice people to buy our products. An enticing facade is necessary in order to entice customers and minimize the amount of consumers that go to other vending machines as a result of our vending machine looking less than desirable. Taking this into consideration a sufficient amount of time and effort must go into product design and distinction.
Product Scenarios for the Present and Future
The first scenario for the implementation of this business venture is to implement it within a familiar environment in order for us as a group to better evaluate the effectiveness of the business. Based on this the first scenario the first vending machine will be placed in (PLACE NAME OF SCHOOL HERE) in order to gauge the reaction of our target market. Should this scenario prove to be fruitful the next scenario is to expand into other schools and then malls within the local area by adding 2 or more machines depending on the amount of capital we as a group can generate.
Further research by the group into local markets has revealed that the prices for frozen yogurts were quite high (£4.75) in comparison to ice-creams (£2.50). Informal interviews were also created through surveymonkey.com and distributed online as well as in person with various potential customers did reveal though that they would prefer Snog instead of other alternatives due to its flavor and focus on health and wellness. Upon asking whether they liked the idea of automatic yogurt vending machines customers gave a positive reaction admitting that they like the idea of Snog vending machines. The key element that needs to be considered at the start-up of this kind of a business is which location would be the most suitable for the business’s needs. Based on this, sites with a great quantity of pedestrian traffic would be essential in order to obtain adequate levels of revenue. Widespread locations for positioning a successful vending machine would be: shopping malls, schools, banks, hospitals, hotel lobbies, etc. Yet the business offers the possibility of trying different places (due to its mobility) until an option that fulfills the targeted aims presents itself. It must also be noted that placing a machine in a particular location does come with a cost of 15 to 33 percent of the profit going to the location owner due to costs related to electricity and the space provided. Thus the group should take into account different price markups depending on the rental charge for a particular location.
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