Business Plan for Karmeg: Launching a Natural Non-Alcoholic Energy Drink in the UK

1.0 Company description

Karmeg is a small-sized company that intends to operate in the food and beverage industry in the United Kingdom.  The firm’s headquarters will be located in London, UK. The firm will specialise in the production of different natural non-alcoholic energy drinks. The products are marketed under the brand name ‘Karmeg’. The firm projects that its products will gain substantial market acceptance in the UK food and beverage industry hence spurring its growth potential. Its operation will be facilitated by a workforce of 20 employees.

1.1 Vision and Mission Statement

Karmeg will focus on developing a strong customer base by offering customers high-quality and non-alcoholic energy dridrinksshe firm intends to achieve this goal by complying with the set industry standards and the customers’ tastes and preferences. The firm is of the view that pursuing this mission will lead to the development of a high level of customer satisfaction. Subsequently, the firm will attain market leadership and hence long-term.

In its quest to maximize profitability, the firm will focus on developing an extensive product portfolio. The firm intends to achieve this goal by investing in new and continuous product development. Through this approach, the firm will be in a position to increase its customer base. In the course of its operation, the firm intends to optimize performance. To achieve this goal, the firm will focus on gaining substantial market share within the industry. The market share will be progressively improved to obtain a significant level of market dominance.

1.2 Marketing objectives

Karmeg intends to achieve the following objectives by introducing Karmeg into the UK market.

a. To develop a high level of brand recognition. The firm projects that Karmeg will appeal to many potential customers. The firm intends to develop brand recognition by integrating the concept of brand management.

b. To increase the level of customer awareness regarding its brand.

c. To achieve a market share of 15% within one year after introducing Karmeg into the market.

d. To increase sales revenues of $1.5 million within one year of its operation.

1.3 Critical Success Factors

Karmeg’s will derive its success from several critical success factors as explained herein.

i. Product innovation; the firm will ensure that its product is progressively developed to meet the customer’s quality, energy requirements, and health demands. The firm will also ensure that its products are aligned with the customer’s tastes and preferences.  The firm will entrench market research as one of its core success factors in understanding industry dynamics, hence improving its success in undertaking customer service.

ii. Customer service; the firm will establish a strong customer relationship to understand their tastes and preferences.

2.1 Environmental analysis

Karmeg’s success will be influenced by the prevailing conditions in the UK food and beverage industry as expounded by PESTLEPorter’s five forces and SWOT models.

2.1.1 PESTLE analysis

Political environment – The UK is characterized by a high level of stability, which creates an environment conducive to conducting business.

-TheK exit from the European Union will negatively affect the ease with which Karmeg markets its product to other EU countries, for example through exportation.

– The UK has increased the level of taxation on production and sale of sugary products.

Economic environment -The UK has experienced an increase in the level of consumer expenditure. This increases the likelihood of Karmeg generating sales revenue.

-The firm’s capacity to generate sales might be affected by fluctuations in the country’s economic performance. Appendix 1 indicates that the UK has experienced significant economic fluctuation witaboutowth over the past few years (Trading Economics 2017).

Social environment -Consumers are increasingly accepting energy drinks as a way of achieving the required level of hydration hence enhancing their performance.

-Consumers are inclined towards the consumption of healthy products. Karmeg will ensure that its energy drink is healthy hence improving its functionality.

Technology environment -technological innovation with about capacity will enable the firm to produce the energy drink conveniently and cos cost-effectively.

-Development of Internet technology and social networks will enable the firm to market its products in a cost-efficient manner.

Legal environment -An increase in pressure on the energy drink manufacturers to reduce the rate of caffeine in their products will enhance the effectiveness with which Karmeg positions itself as an alternative energy drink.

Environment -The imposition of laws on the protection of the environment in the quest to prevent the occurrence of climate change will require Karmeg to institute environmentally conscious measures.

2.1.2 Competitive environment

The energy drink market segment is dominated by a few large players including Red Bull, GlaxoSmithKline, and Coca-Cola PepsiCo. To enhance their competitiveness, the industry players are increasing their investment in developing new products. For example, GTolaunched, Relencompetitivenessltra, Passion Fruit, and Lucozade Sports Mango (BMI Research 2017). Despite the growing competition, there is a high probability for Karmeg to achieve market share by venturing into a new market niche, by providing customers with natural and organic energy drink solutions. Karmeg will not only address the customers’ energy needs but also their health concerns.

2.1.3 Porter’s Five Forces

a. Rivalry; low

The UK energy drink market is characterized by a low degree of rivalry.  This arises from the fact that the market is dominated by two major players, viz. GlaxoSmithKline and Redbull. Most industry players have differentiated their products to satisfy their target customers’ needs. The low degree of rivalry has significantly reduced the emergence of adversarial relationships between industry players.

b. Threat of new entrant; moderate

The large players such as Coca-Cola, Redbull, and GlaxoSmithKline have developed economies of scale hence limiting the threat posed by new entrants.  Thus, there is a high likelihood that Karmeg will succeed in entering the UK market (Mordor Intelligence 2017).

c. Threat of substitute; low

Karmeg will present a unique energy drink product hence limiting the likelihood of encountering the threat of cross-product substitution.

d. Buyer bargaining power; low

The industry is not dominated by a large number of suppliers of energy drinks. This has significantly reduced buyers’ bargaining power. Moreover, the fact that Karmeg will be a high-end product, the consumers will not be price sensitive.

e. Supplier bargaining power; low

The process of producing Karmeg will be characterized by a considerably short supply chain. This will enable the firm to not only produce high-quality valuable energy drink products but also to maximize profitability.

2.1.4 SWOT analysis

Strength

a. Market opportunity; consumers are increasingly accepting new, organic, and functional food and drink, which has created demand for premium products.

b. Product development; the firm has a well-established capability production of organic and non-alcoholic energy drinks. Weaknesses

Market saturation;  as a new entrant, the firm might experience a challenge in penetrating the market due to the high rate of saturation in the beverages market segment.

Consumer health consciousness; the firm might encounter a challenge due to an increase in consumers’ concern over genetically modified products.

Opportunities

Currency depreciation; the decline in the value of the sterling pound presents an opportunity for Karmeg to export its beverage products.

 Growth of retail market segment; the growth being experienced in the retail market such as the establishment of convenience stores will create an opportunity for the firm to increase its distribution capacity.  Appendix 2 illustrates the increase in the number of supermarkets and convenience stores in the UK.

Technological development; the growth of online stores will provide the firm with an opportunity to reach tech-savvy customers. Threats

Competitive pressure; the firm might experience intense competition from large retailers. The intensity of competition might be spurred by growth in the intensity of consolidation, hence challenging new entrants.

Price war; the prevalence of price wars amongst small and medium-sized enterprises might present a challenge to Karmeg’s capacity to maximize sales revenue.

High cost of production; there is a high likelihood that the firm’s production activities will be affected by post-Brexit due to difficulty in accessing raw materials from the European Union (BMI Research 2017)

 3.0 Market development and trend

 The UK beverage industry is characterized by an increase in the rate of investment by the industry players. For example, Fentimans, a well-established drink producer in the UK announced its decision to invest £ 1 billion to boost its production capacity. Moreover, the firm is also in the process of rebranding its soft drink to boost sales (BMI Research 2017). The firm is also characterized by the presence of large players such as CCoca-Cola Redbull  Suntory, Britvic, AG Barr, and GlaxoSmithKline, which specialize in the production of diverse products amongst them energy drinks (BMI Research 2017).  Thus, Karmeg will have to contend with growing competition from the industry players.

3.1 Market growth

As a natural and non-alcoholic energy drink, Karmeg will benefit from the growth that is projected to be experienced in the UK non-alcoholic market segment.  It is estimated that sales in the UK non-alcoholic beverages market segment will expand by 3.4% year-on-year in 2017, which entails an increase from the 2.8% growth experienced in 2016.  The market is further projected to grow by a Compound Annual Growth Rate (CAGR) of 2.8% between 2017 and 2021 (BMI Research 2017).  Table 1 and graph 1 in the Appendix illustrate the projected trend in sales revenue with alcoholic drinks.  The potential for growth in the non-alcoholic market segment is also illustrated by the fact that the industry has experienced considerable year-on-year growth over the past, which is projected to increase in the future as illustrated by the Appendix.

3.1 Market Targeting, Segmentation and Positioning

Lamb, Hair, and McDaniel (2008) assert that effective market targeting, segmentation,n, and positioning are critical in determining a firm’s success. Targeting entails the process of identifying a specific group p which a firm intends to introduce and market its product.  Market targeting is essential in improving the success with which a firm formulates effective marketing strategies.  Karmeg will target individual and institutional customers. Institutional customers will be comprised of sports clubs while individual customers will be comprised of ordinary consumers and athletes.

3.2 Positioning

To succeed in an environment characterized by a high level of dynamism, Karmeg will ensure that its products are optimally positioned.  According to Jobber and Fahy (2000), market positioning enables a firm to shield itself against various market forces such as competition. To survive in the UK food and beverage industry, Karmeg will position itself as an innovative and aggressive organization that deals in the manufacture and distribution of highlight-quality on-alcoholic, alcoholic, and natural energy drinks.

3.3 Sales plan

Karmeg’s sales activities will be facilitated through inside and outside sales personnel. The inside personnel will be responsible for telemarketing within the firm’s stores. For example, sales representatives will be charged with the responsibility of marketing to institutions such as sports clubs Conversely, outside personnel will entail marketing to customers through sales representatives who will be distributed across the UK.  Therefore, Karmeg Company intends to generate revenue from onsite, telephone, online, mail order, and off-site sales. The outside sales personnel will be compensated on a basic salary plus a commission. The compensation package will further entail other forms of intrinsic motivation such as awards and gifts.

3.4 Human resource plan

Karmeg will recruit qualified personnel to enhance its operational efficiency. Employees will be selected based on the skills and knowledge required to undertake the required roles and responsibilities. Employees will be adequately remunerated to enhance their performance. Thus, a comprehensive reward plan comprised of monetary and non-monetary rewards will be developed.

4.1 Product strategy

To tap into the UK energy drink market, Karmeg will produce its energy drink brand from fruits and vegetables. The firm will ensure that the energy content of the raw materials is maintained during the production process. Thus, the energy drink will be of high quality and valuable to the target customers. A comprehensive quality control process will be undertaken to ensure the safety and health of its customers.   The firm will also incorporate product diversification as one of its product strategies. This will be achieved by ensuring that the energy drink is of different flavors to address the customers’ tastes and preferences (Kahn 2001). Consequently, the firm will incorporate the concept of product This will not only enable the firm to meet the customers’ needs but also increase the sales revenue.

4.2 Pricing strategy

In introducing its product into the market, Karmeg will adopt penetration and psychological pricing. Lamb, Hair, and McDaniel (2008) assert that penetration pricing involves setting the price of a product at a relatively lower point compared to competing products in the market. Conversely, a psychological pricing strategy will entail setting the price of Karmeg at a point that will have a positive influence on the target customers’ emotions. The rationale of entrenching psychological pricing strategy is to influence the consumers’ psyche (Gilligan & Hird 2008). Even-odd number psychological pricing strategy will be employed in setting the price point.

4.3 Promotion sStrategyKarmeg will undertake an extensive market awareness campaign. Different market communication methods will be used. Some of the methods that will be used include advertising, direct marketing, sales promotion, and public relations. In its advertising process, the firm will integrate diverse mediums. These mediums will include traditional and emerging mediums. Some of the conventional mediums that will be used include radio and media such as magazines, newspapers, banners, brochures, billboards, and television. The firm will post pictures of Karadion and various local dairies.

Moreover, the firm will enter into an advertising, cont with local television and radio broadcasting houses. The contract will entail airing the adverts during prime time such as during major programs. As a result, the likelihood of creating awareness among a large number of potential customers is increased (Luther 2008). Conversely, the creation of awareness through emerging technologies will be achieved through social media platforms such as Facebook, Twitter, YouTube Blogs, and Wikis. The use of these mediums will increase Karmeg’s success in creating awareness for the target customers.

4.4 Distribution strategy

Karmeg will ensure that its product is readily available across the UK. Subsequently, the firm intends to employ a robust distribution strategy that will be comprised of both direct and indirect channels.  Direct distribution will be achieved by establishing a contractual relationship with major retail stores in the UK to carry the firm’s products on its shelves. Additionally, the firm will also distribute Karmeg through retail outlets. Through the integration of these approaches, Karmeg will succeed in increasing the accessibility of its products.

5.0 Financial projections

Karmeg’s dec mission to venture into the non-alcoholic energy drink market industry the y is motivated by the need to maximize profitability. To achieve this goal, the company will incur a substantial cost. To meet this cost, the firm estimates its total budget to be approximately $ 2 million. The firm intends to facilitate its operations by using both equity and debt capital. Equity capital will entail sourcing funds from personal savings and donations from friends. Conversely, debt capital will be comprised of loans from different sources. One of the fundamental sources of funds that the firm will consider entails a bank loan. In the process of seeking funds, focus on several financial projections. To achieve this objective, the firm will ensure that it sources the bank loan from the most cost-effective institution. In addition to bank loans, the firm will source funds from angel investors. The firm thinks that it will successfully raise the required start-up capital from bank loans and angel investors.

The firm thinks that it will successfully develop a strong financial position. Subsequently, the firm will be able to repay the debt finance. Thus, the firm has established several financial projections that it intends to achieve during the first financial year. These projections are illustrated by the pro-forma income statement, balance sheet, and cash flow statements.

5.1 Income statement

Appendix 5 illustrates the projected income statement the firm expects to increase its sales revenue progressively and hence the level of net profit.  The firm expects to achieve this increase in sales revenue by improving its commitment to market entry.

5.2 Projected cash flow

Considering the intensity of competition in the energy drink industry, the firm expects to incur a substantial cost in its quest to generate profitability. However, the firm thinks that it will succeed in generating positive cash flow within the first year of its inception.  Appendix 6 illustrates the firm’s projected cash flow.

5.3 Projected balance sheet

Karmeg expects to develop substantial financial strength by improving its financial position. Subsequently, the firm will be focused on developing its net worth as illustrated in Appendix 7.

6.0 Exit plan

The entrepreneur recognizes that the likelihood of continued future ownership and management of the firm cannot be guaranteed (Ferrell & Hartline 2014). Therefore, the founder appreciates the importance of effective the business to receive a return on financial and personal investments made over the years. Nevertheless, the founder is committed to ensuring that the enterprise remains a going concern entity. However, the certainty of the business gaining remarkable market performance is not guaranteed. Therefore, the firm will formulate different exit strategies depending on the prevailing outcome as expounded herein.

a. Issuance of shares to the public; Karmeg expects to list its shares in the stock market.  If the firm achieves extraordinary market performance as depicted by the movement in the price of its share in the stock market, the exit strategy will then be based on floating the company’s share through an Initial Public Offering [IPO].

b. Issuance of shares to employees; if the firm experiences moderate growth but is yet to gain high recognition from the public, the firm will adopt the Employee Stock Ownership Plan [ESOP] experience strategy. This strategy gy entails selling the company’s shares to the employees (Hiduke & Ryan 2013). The rationale for integrating this strategy is to preserve the firm’s operations. By selling the firm to the employees, the entrepreneur will be guaranteed that the firm will attain future success because of its extensive knowledge regarding the firm’s management and operations. The adoption of thethatSOP ahe will attain enable the entrepreneur to benefit from the tax advantage. To implement the exit strategy successfully, the entrepreneur will seek the input of an experienced ESOP specialist.

References

Abrams, RR.2014, Successful business plan: Secrets & sStrategies Planning Shop, Palo Alto, CA.

BMI Research: United Kingdom food and drink report 2017.

Ferrell, C & Hartline, M 2014, Marketing strategy; text and cases, Cengage, Mason.

Gilligan, C &  Hird, M 2008, International marketing: strategy and management,  Taylor & Franchis, New York.

Hiduke, G & Ryan, J 2013,  Small business; an entrepreneur’s business plan, Cengage Learning, New York.

Jobber, D &  Fahy, J 2000,  Foundations of marketing,  McGraw-Hill International Limited, London.

Kahn, K 2001, Product planning essentials, Sage, New York.

Lamb, C, Hair, J & McDaniel,  W 2008, Marketing, Cengage, New York.

Luther, W 2011, The Marketing Plan: How to Prepare and Implement it, American Management Association, New York.

Mordor Intelligence: United Kingdom energy drink market; by type, application, and geography; market shares, forecast, and trends 2017.

Trading Economics:  United Kingdom GDP growth rate 2017.

Appendices

Appendix 1

Economic growth in the UK

Source: (Trading Economics 2017)

Appendix TThe trend of the number of convenience stores and supermarkets in the UK

Source: (BMI Research 2017)

Appendix 3

Projected Sales growth in non-alcoholic sales

Year Non-alcoholic drink sales growth (y-o-y)

2014e 11.90

2015e 2.60

2016e 2.80

2017f 3.40

2018f 3.80

2019f 3.50

2020f 3.30

2021f 3.10

Appendix 4

Year Fruit and vegetable juices sales in million £

2014e 3,076.00

2015e 3,179.20

2016e 3,287.50

2017f 3,417.10

2018f 3,571.20

2019f 3,719.60

2020f 3,866.10

2021f 4,005.70

Appendix 5

Karmeg Company

Projected Income Statement

3rd August 2017-31st July. 2018

Amount in ‘000’ £

NovDec JanFebMarchApril MayJun Jul.Aug. Sept. Oct.

Sales revenue 190 220 250 280 350 400 450 500 600 700 800 900

Total sales cost 50 55 60 65 70 80 90 100 120 125 130 140

Gross profit 140 165 190 215 280 320 360 400 480 575 670 760

Operating expenses

Payroll 10 15 20 25 30 33 35 40 44 50 55 60

Marketing and sales expenses 5 5 8 10 12 15 20 25 30 30 35 40

Rent 12 12 12 12 12 12 12 12 12 12 12 12

Utilities 5 5 5 5 5 5 5 5 5 5 5 5

Cost of insurance 8 8 8 8 8 8 8 8 8 8 8 8

Total operating expense 40 45 53 60 67 73 80 90 99 105 115 125

Profit before interest and tax 100 120 137 155 213 247 280 310 381 470 555 635

Tax expense 20 20 20 20 20 20 20 20 20 20 20 20

Net profit 80 100 117 135 193 227 260 290 361 450 535 615

Appendix 6

Karmeg Company

Cash Flow Statement

3rd August 2017-31st July. 2018

Amount in ‘000’ £

Income from sales

Cash sales 900

Collections 20

Total cash received from sales 920

Income from financing

Interest income 30

New long-term liabilities 100

Investment received 35

 Total cash from financing 165

Total cash receipts 1,085

Expenditures

Operation expense 56

Inventory 80

Cash spending 120

Payment on bill 32

Income tax payments 25

Sales tax and VAT 15

Dividends 25

Total cash disbursements 353

Net Cash flow 732

Appendix 7

Karmeg Company

Balance Sheet

3rd August 2017-31st July. 2018

Amount in ‘000’ £

Assets

Current Assets

Cash 100

Inventory 200

Total Current aAssets300

Long term assets

Equipment 150

Computers and tTelecommunication30

Total Llongterm assets 180

Total Assets 480

Liabilities and Capital

Current borrowing 200

Accounts payable 30

Total current liabilities 230

Paid in capital 120

Retained earnings 130

Total capital and liabilities 250

Total net worth 480