Soft Drink Industry Business Plan – Free Essay Examples

Soft Drink Industry Business Plan

Executive summary

The intended venture is a private limited company.The firm will deal with the manufacture of soft drink products. Its operation will concentrate on the production of non-alcoholic energy drink that will be consumed by various categories of individuals. The identified consumers are the categorized into individual and organizational. The individual consumers include children, youth, men and women. The decision to settle in soft drink production is due to the increased business opportunities in relation to soft drink industry both in U.S and globally. As a new entrant in the market, the firm will enter the market by establishing its own venture within U.S. In the recent past the soft drink industry has under gone significant changes. This is due to the increased competition that has pressurized the soft drink industries to be more innovative in regard to their market.

The firm’s management has also conducted SWOT analysis of both itself and that of the competitors. In order to determine the suitability of the product, a product SWOT analysis is also included. The major competitors identified are Coca-Cola Company and Pepsi. Consumer’s tastes and preferences are also changing. They prefer soft drinks that will result into health and at the same time bring refreshment upon consumption. The management initial location of operation is U.S. This is after consideration of the need to gain a significant share of the domestic market. With time, it is projected that the firm will involve in international retailing before venturing into foreign direct investment. The competitive advantage of the firm lies in the incorporation of current technology in manufacturing and general operation. A comprehensive analysis with regard to market is conducted to determine the feasibility of the venture. This will involve analysis of the variables of the dynamic market. These include consideration of the marketing mix. Various strategies which include pricing, promotion and distribution will be formulated in accordance to the variables. A concrete marketing plan will then be formulated using the information collected.

The management has also considered the importance of being acquainted with the soft drink market trends. This will help in accessing the future viability of the firm. The management has also included an analysis of the consumers. This is paramount for the firm since he will be acquainted with the consumer purchasing behavior. This can enable the management in devising means on how to influence the consumer decision making process. Due to the changing trends in the soft drink industry, the management has forecasted that there will be a steady increment in the level of profitability through the gross profit margin. This is through formulation of a financial plan which enables the management to conduct financial analysis such as the break even. To ensure firms’ success, a competent management team is included. This includes of the founder and the vice president who are the key men. In other levels, there are departmental managers to ensure smooth flow of organizational activities. The personnel manager will be responsible of formulation of recruitment procedures. It has been projected that the remunerations of the employees will be increased according to the profitability and sales level of the firm. Promotion of the employees will be done periodically after conduction of employee performance appraisal.

Introduction

  • Business name: Buss Soft Drink Limited
  • Name of proprietor: Sliden Samuels
  • Business form: Private Limited Company

Business form and activity

With the intention to venture into entrepreneurship and conducting a thorough scanning of the environment, the decision was to venture into the soft drink industry in US by establishing a sole proprietor form of business. The core activity of the business is to manufacture divergent varieties of soft drinks.

Business vision and mission statement

The mission of the firm is to become a first rate company in the manufacture of soft drink in U.S and abroad. This is through manufacturing and supply of soft drinks that incorporate both refreshment and health due to their energy value. In the operation of every business, there is need for the management to develop a business plan. This is a document prepared by the management depicting the financial and the firms’ objectives with respect to financial and operational matters. It also shows how these goals will be attained thus contributing to the firms’ long term success. Various modifications are made to the plan with time depending with the changes in the environment presenting either an opportunity or a threat.

Business plan is prepared for internal and external use. With regard to external use, the plan will be required by individuals such as the lenders and the potential investors. It is also important in that the owner and employees of the firm will use the plan on their daily operations.

The Soft Drink Industry

Within the soft drink industry, there has been stiff competition due to the high opportunities for growth in this industry. For instance in U.S, competition has been between Coke and Pepsi. Generally, soft drink consumption has been on the increase with an estimated market share of 46.8%.According to Deicehert, Meghan, Emily, Leslie & Kelly the market value for soft drinks hit a mark of $302.7 billion in the year 2004.They also found out that there was potential of growth in the value with the prospects reaching $367.1 billion in 2009 (2006, para.2).This shows that the industry is a good investment destination for entrepreneurs. Within the U.S market, there has been occurrence of stagnation in the rate of growth but the level of profitability has remained solid. This has made the players in this sector to consider various alternatives within the soft drink industry. These include the manufacture of bottled water, snacks and energy drinks for the sports industry. This means that these firms have to diversify their product lines for them to remain competitive. This presents a very good entrepreneurship opportunity.

The product

In an effort to remain competitive, the firm will deal with the production of non-alcoholic energy drink. The product will be manufactured in such a way that it incorporates the energy giving minerals. Its absorption rate would be very high to ensure that it restores energy instantly to the consumer. The prospects of the market for the energy drink will be high. This is due to the fact that its consumers would include all categories of consumers. Its chances of succeeding in the market are also increased due to the value addition upon consumption by the sportsmen and women. Within the sports industry, there is possibility of the firm succeeding due to the fact that the youth are the ones mostly involved in sports hence forming the largest consumer of the product.

SWOT Analysis

The firm will have a competitive advantage over the competitors. This is due to the fact that the firm has targeted a new market niche that has not been fully exploited. This include the energy drinks to serve both in the sports industry as an energy drink and also a refreshment. One of the target foreign markets is China. Competitive edge of the firm is also in that it will incorporate the current technology in its production process. This will enable the firm produce quality products. It will also involve itself with continuous market research in order to determine the changes that are possible to occur in the market and incorporate them in the product.

Products SWOT analysis

To ensure that the energy drink succeeds, the firms’ management will ensure that it conducts a comprehensive research to incorporate aspects that will lead to the product gaining competitive advantage.

Strengths Weaknesses Opportunities Threats
Access to quality natural resources for production
-Development of a strong product brand name, product affordability and high quality, well developed channels of distribution.
Saturation of the carbonated soft drink sector. Profit levels from the product will be high, possibility of venturing into oversea market Unfair competition from established competitors such as coca-cola and Pepsi..
-Seasonality and effects of the weather, presence of free trade.

Market Analysis

Before launching the product into the market, the management of the firm will conduct a market analysis. The information obtained will help in the process of developing and marketing the product. In conducting marketing analysis, the management will consider various aspects which include the following.

Marketing plan

To effectively penetrate the soft drink industry, the firm will incorporate expertise in marketing of the new product. This will involve consideration of the marketing mix variables which include product, pricing, place and promotion.

Pricing strategy

Before pricing the product, the management will ensure that it incorporates value into the product. The pricing strategy will involve conduction of the consumers’ sensitivity to price. The firm will use penetration and promotional pricing strategy. Promotional pricing will enable the firm gain a significant market share for the product. When a sustainable share is attained, the firm will gradually increase the price. In the initial stages the firm will use promotional pricing such as the use of ‘buy one get one free’ strategy (Marketing teacher, 2000, para.1).

Cash flow for the first year

For the first year, the firm is expected to have a negative cash flow but it will recover with time.

Item Year 1
cash received
Cash from operation
Cash sales 470,000
Cash from receivables 150,000
Total from cash operations 620,000
Other cash received
Sales tax& VAT received 40,000
Current borrowings 7,000
Other liabilities 0
New long-term liabilities 0
Sale of other current asset 0
Sales of long term assets 0
Total cash received 667,000
Expenditures
Operation expense
Year 1
Cash spending 80,000
Payment on bill 630,500
Total on operation 710,500
Other cash spending
Sales tax & VAT paid 0
Principal paid on current borrowing 7,000
Additional liabilities on principal payment 0
Principal payment –long term liabilities 22,500
Purchases on other
current assets
0
Total cash spent 740,000
Net cash flow (73,000)

Distribution strategy

The management has also considered the importance of analyzing the available channels of distribution that are commonly used within the soft drink industry. This will enable the selection of the most convenient and cost effective channel being adopted by the firm. The firm has identified that the most commonly used channel within soft drink industry is the direct. In the initial phase of the product lifecycle, the management has concluded to use retailers. This is due to the fact that the retailers will have more bargaining power in comparison to the firm.

A concrete distribution strategy will be formulated to ensure that the soft drink is accessible by various consumers. This will contribute to the firm maximizing the level of sales and profits. The management will ensure that a good distribution channel is developed. Multiple channels of distribution such as direct and indirect will be used to ensure that the consumers can access the product conveniently. Research will be conducted to determine the consumer preferred channel of distribution. A comparison of the competitors’ channel of distribution will be conducted in order to determine their effectiveness in relation to the firms’. In order to penetrate the foreign market, the investor will incorporate foreign agents. This is due to the fact that they know the dynamics within the foreign market. In order to motivate the distributors, the firm has formulated a strategy aimed at compensating them on a margin based the level of sales (Marketing analysis,2007, para.5).

Promotional strategy

In order to ensure that the firm attains competitive advantage, a comprehensive promotional strategy will be formulated. The importance of promotion is to ensure that product awareness is created amongst the prospective consumers within the shortest time possible. Extensive advertising and sales promotion will be conducted to ensure product awareness. Both persuasive and informative promotional concepts will be utilized. The message will be formatted in a way that appeals the potential consumers and a combination of advertising media used. Graphical considerations such as color will also be incorporated due to differences in tastes and preferences of the consumers.

With respect to the delivery system, the firm will use both formal and informal systems. Formal method will include advertising through television, catalogs, radio and newspapers. Informal method will include the use of repeat buyers. Due to the nature of the sports industry which is the main target, the firms’ management will also consider the seasonality within this industry. During the various sports season, more investment will be done to cater for the product promotion. This will ensure that the product is sustained in the market (Maureen, 1986, para.1-6).

Market research and analysis

The management of the firm will include various market variables in the process of conducting market analysis. These include the competitors, consumers, market size and its trends.

Consumer research

This will be aimed at determining the potential consumer.This will help in unveiling the prospective consumer enabling the production of the firm to be in accordance to the tastes and preferences of the consumers. With regard to the soft drink, the product will have an increased number of potential consumers. The firm will target both the individual and the institutional consumers. For instance the institutional consumers include the organizational sports clubs while the individual consumers will include the children, youth and the aged. This is due to the fact that the products will nutritional value to the consumers apart from the refreshment that the consumer gets. With respect to the energy drink, the major targeted consumers are the athletes and the body builders.

To effectively promote the product, the consumer will consider the consumers’ decision making process. The main intention will be to influence the decision process hence making the consumers to consume the new product and not that of the competitor. Information obtained from market research will help in the development of strategies such as branding.

Market size and trends

Due to the increased potential of growth in the soft drink industry, the firms’ management anticipates that the firm will have a significant share of the 46.8% of the total soft drink market in US. This will be experienced upon the country recovering from the current recession which has affected the soft drink industry. For instance all categories of liquid beverages such as Pepsi, Coke have been on the decline (Bedford, 2009, para.2).According to Neil, the soft drink market will grow mainly due to the increase in the demand for sports, energy drinks and healthier lifestyles. With respect to soft drinks, it is expected that the market size will hit $ 39.1 billion by the year 2010.This shows that the firms’ scope of operation has a potential of expanding (2007, para.1).

The information regarding the market size and trends will be obtained by the management from the government bureau of statistics. Also the competitors will also give information regarding the market.

Market profitability

The management will conduct an analysis on the profitability of the market. This will help in the determination of the industry potential. This means that it will be possible for the management to determine the attractiveness of the soft drink industry. In analyzing the market profitability, the firm’s management will consider various variables. These include the barriers to entry, degree of rivalry within the industry, threats of substitutes, buyer and supplier power. With regard to rivalry in the soft drink industry, the rivalry is low. This is due to the fact that there is no individual market player who has a market share that is over 60% including the market leaders such as Coca cola and Pepsi. The threat of substitute for the firm’s products is minimized by the ability of the firm to conduct continuous product innovation. The revenue from the soft drink industry for the year 2007

was estimated to be $ 42.5 billion with a gross margin of 35.18%. The rate of profitability is enhanced by the incorporation of foreign trade. The revenue from the soft drink industry export was estimated to be $ 36.1 million. The US domestic demand of the soft drink industry was $ 48.3 billion (Soft drink manufacturing industry in the US and foreign trade review, 2009, para.5).

Management Plan

To ensure that the firm succeeds, an expert management will be incorporated. These will help in addressing any problems that may arise in the course of operation of the firm. The key executive will include the following;

  • The founder: He will operate as the chief executive officer of the firm. He will mainly be involved in the process of product development.
  • The vice president: He will be involved in ensuring that all the departments run smoothly by enhancing their relationship. He has expertise knowledge in production engineering and marketing.

The daily operation of the firm will also be enhanced by the, lower and middle level managers.

Advisory board

Due to the dynamic changes in the soft drink industry, the management has also incorporated an advisory board (Susan, 2009, p.2). The role of this board is to ensure that it advises the management on how best to increase the profitability. The decision for this was reached after consideration of the fact that the internal management may lack some of skills regarding the soft drink industry.

In order to be effective in setting the board, the management has concluded that it will consider individuals who have recently retired from the soft drink industry. It will also include successful soft drink entrepreneurs and vendors. For it to be effective, the board will be lean being composed of three members.

The following include other members who will be involved in the management team.

Financial consultant and organizer

His main roles will to ensure that the firm’s financial processes are well planned and that the accounts of the firm are well maintained. He will be concerned with developing the firms financial records such as the income statements, balance sheets and cash flow statement that the firm can use to identify the need for financial funding. He will also be involved with identification of the risks that the firm may face and its impact on the firm. In order to increase the returns of the firm, the management has considered conduction investing in other sectors. The financial controller will be responsible of ensuring that the firms’ investment decisions are well researched to reduce risk of failure.

Production control officer

Her main role is ensuring that the products result into consumer satisfaction. This means that her role will be to conduct a research on the market and advise the production team on the necessary product adjustments. A long with that she will be involved in development of the firm’s contingency plan due to the changes that occur in the soft drink industry.

Hiring and personnel procedures

To ensure that employees are maintained, the management has a well developed personnel management plan. This will ensure that the employees who will be recruited in the firm leads to increment in the firm’s productivity and reduces opportunity cost. This has laid down the recruitment, rewarding and compensation procedures. With regard to recruitment, the firm will incorporate transparency to by ensuring that only the qualified recruits are hired and inducted into the firm.

The firm will incorporate various categories of employees. These will include the temporary and permanent employees. In line with compensation, the personnel manager has laid down a policy that is aimed at ensuring that the employees receive remunerations according to the level of sales and the firms’ profit. This will help the firm in that the employees will be motivated in their performance.

Due to the high cost involved in constructing the premises, the firm’s management has considered the option of renting the operating premises. The firm will be located in New York due to the availability of infrastructure that will enhance the growth of the firm. As a risk mitigating procedure, the firm will take cover with regard to various policies.Amongst the policies will be those intended to cover the employees in the course of their duty.

Personnel plan

The personnel management has projected the following remunerations for various employees for the first two years of the firm operation.

Year 1 Year 2
CEO 50,000 55,000
Vice President 45,000 48,000
Other employees 100,000 120,000
Total payroll 195,000 223,000

Financial Analysis

As the sole proprietor of the firm, the project will partly be financed by personal savings and the other by loan.

Projected income statement

Items Year 1
Amount in $
Year 2
Amount in $
Sales 750,000 800,000
Direct sales cost 200,000 200,000
Other cost of sales 40,000 55,000
Sales total cost 240,000 305,000
Gross margin 510,000 545,000
Gross margin in % 68% 68.125%
Expenses
Cost of labor
85,000 75,000
Cost of promotion 170,900 170,000
Cost of depreciation 45,000 40,000
Rent 15,400 15,400
Office stationeries 50,000 55,000
Insurance 50,000 70,000
Total operating expense 416,300 375,400
Profit before interest & tax 93,700 139,600
Earning before, interest, tax & depreciation allowance. 60,000 169,600
Cost of interest expense 10,000 8,000
Cost of tax 45,000 45,000

Firm’s pro-forma balance sheet

Items Year 1 amount in $ Year 2 amount in $
Current assets
Cash
100,000 340,000
Accounts receivables 20,000 28000
Inventory 55,000 38,000
Other current assets 45,000 45,000
Total 220,000 451,000
Fixed assets
Long term assets (machinery)
250,000 150,000
Accumulated depreciation 45,500 90,500
Total fixed assets 295,500 59,500
Total assets 515,500 510,500
Capital and liabilities
Creditors
Year 1
35,000
Year 2
45,000
Current borrowing
Other current liabilities 49,000 90,000
Total current liabilities 84,000 140,000
Long term liabilities 100,000 70,000
Total liabilities 268,000 220,000
Paid in capital 170,000 180,000
Reserves (75,000) (50,000)
Earnings 20,000 120,000
Total capital 115,000 250,000
Total capital and liabilities 383,000 470,000
Net worth 247,500 290,500

Break even analysis

With reference to break even, the firm is expected to reach its break even point when the revenue will equal the costs. The management projects that the firms total fixed costs will be $ 500,000.The unit price of the new product will be $ 65 while the variable cost will be $ 55.The firm has calculated the break even in terms of revenue as follows.

B.E.P=500,000/ (65-55). =$50,000

The firms break even revenue is expected to be at $ 50000.

Maintaining accounting record

The firms’ accounting record will be maintained by the accounting department. This will ensure that the firm can be able to determine the trend of the firm by obtaining information from a central source. These records will be kept in electronic form in the firm’s database for purpose of backup. The firm will also be able to use the information to forecast.

With regard to compensation, the employees will be compensated on the basis of their level of performance. The management will conduct performance appraisal occasional in order to reward the employees accordingly.

References

Marketing teacher. (2009) Pricing strategies, Web.

Maureen, H. & Garry, A.A (1986).Developing a promotional strategy. Michigan: Michigan State University. Web.

Bedford, H., (2009) Beverage digest: Years of growth wiped out. New York: Sicher Publishers. Web.

Just drinks (2009).The soft drink manufacturing industry in US and its foreign trade. Web.

NetMBA.com (2007) Market analysis. Internet service for management and business administration. Web.

Roman, G.H & Scott, W.C.(2003). The successful marketing plan. New York: Mac-Graw Hill Professionals. Web.

Susan, W.(2009).Writing a business plan: the management plan section of the business plan. Small business: Canada. Web.

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