Business Proposal: Starting New Division for Growing Exotic Flowers Abhijit Samanta International School of Business & Media; Kolkata

12/17/2009

2 Q-- A company is manufacturing a wide range of

pharmaceuticals and cosmetics. It is an established company,

running successfully for the last 50 years. It has three diverse

areas:

Pharmaceuticals – manufacturing drugs, medicines and

other pharmaceutical products

Cosmetics – manufacturing creams, hair oil, talcum

powder, etc.

Home products – manufacturing floor and toilet cleaners,

liquid soap, disinfectants for hospital and domestic use,

etc.

The company is now facing tremendous competition and its

bottom‐line is under pressure and steadily dwindling. It has

large tracts of vacant land near Kanpur and Cochin. In order to

augment its profitability, the company wants to start a new

division – growing exotic flowers especially for export. You are

requested to set forth the business proposal in this regard.

3

Starting New Division for

Growing Exotic Flowers.

17th December 2009

Prepared for: Vinay Gupta

General Manager,

Cubic Pharmaceuticals & Cosmetics

Prepared by: Abhijit Samanta

Marketing Manager,

Glasgo Company & Limited.

4

1. Executive Summary…………………………………………………………………………………………. 6 1.1 Mission……………………………………………………………………………………………………. 6 1.2 Objectives……………………………………………………………………………………………….. 7 1.3 Keys to success………………………………………………………………………………………… 7 2. Company Summary……………………………………………………………………………………….... 8 2.1 Company Location and Facilities………………………………………………………………. 8 3. Products………………………………………………………………………………………………………….. 8 3.1 Product description………………………………………………………………………………….. 8 3.2 Future products……………………………………………………………………………………….. 9 4. Methodology…………………………………………………………………………………………………… 9 4.1 Market segmentation……………………………………………………………………………… 9 4.2 Market analysis………………………………………………………………………………………… 9 4.3 Industry analysis……………………………………………………………………………………… 10 4.4 Distribution pattern………………………………………………………………………………… 10 5. Statement of problem……………………………………………………………………………………… 10 6. Proposed plan and schedule…………………………………………………………………………… 11 6.1 Strategy and implementation summary…………………………………………………… 11 6.2 Marketing strategy………………………………………………………………………………… 11 6.3 Pricing strategy……………………………………………………………………………………… 12 6.4 Promotional strategy……………………………………………………………………………… 13 6.5 Sales strategy………………………………………………………………………………………….. 13 6.6 Sales forecast………………………………………………………………………………………….. 13 6.7 Sales program…………………………………………………………………………………………. 14 6.8 Sourcing………………………………………………………………………………………………….. 14 6.9 Technology……………………………………………………………………………………………… 15 7. Management Strategy…………………………………………………………………………………….. 15 7.1 Organizational structure…………………………………………………………………………… 15 7.2 Management team gaps…………………………………………………………………………… 16

5 7.3 Personnel plan…………………………………………………………………………………………. 16 8. Financial plan…………………………………………………………………………………………………… 16 8.1 Key financial indicators…………………………………………………………………………… 16 8.2 Break even analysis…………………………………………………………………………………. 17 8.3 Projected gross margin…………………………………………………………………………… 17 8.4 Business ratios………………………………………………………………………………………… 17 9. Advantages and disadvantages………………………………………………………………………… 17 9.1 Comparative comparison………………………………………………………………………… 17 9.2 Industry participants……………………………………………………………………………… 18 9.3 Competition and buying pattern……………………………………………………………… 18 9.4 Main competitors…………………………………………………………………………………. 18 10. Conclusion……………………………………………………………………………………………………. 19 11. Appendix……………………………………………………………………………………………………….. 20

List of Figures

11.1 Appendix 1…………………………………………………………………………………………………… 20 11.2 Appendix 2………………………………………………………………………………………..………… 21 11.3 Appendix3………………………………………………………………………………………..………… 21 11.4 Appendix 4………………………………………………………………………………………..………… 22 11.5 Appendix 5………………………………………………………………………………………..………… 23 11.6 Appendix 6………………………………………………………………………………………..………… 23

6

Glasgo Company & Ltd. (GCL) is an established company running its business since

last 30 years. The company’s main office is located at New Delhi and has a customs

house broker in Kolkata to deal with related matters.

GCL’s main business is in the areas of packaged food and drinking water. Its target

customers are people of upper-middle to upper-end income group. The main

competitive edge of the firm is its 100% quality products. By this the company hopes to

attract its existing customers as well as new customers. As all the products are final end

consumer products, the firm considers itself to be in core consumer market.

The company started its business in 1979 with packaged food then in 1998 looking the

growing demand of Indian market it started a business of packaged drinking water. By

the faith and loyalty of our customers, today we are one of the considerable companies

in our area of business. Presently when the company is celebrating its 30 years, it has

been able to spread its business widely among the customers meeting their growing

demand continuously.

Currently the company has analyzed the craze and demand of Indian flowers in the

foreign market especially in the country like China. To meet the demand of these

countries and to contribute to the overall Indian export, the company wants to start a

new division of “growing exotic flowers” especially for export to these countries.

Initially 10 different kinds of flowers and flower arrangements will be in the line of

products later on 15-20 varieties will be introduced by the end of next financial year.

Presently the company is looking for a gross average margin of 45% and projected rate

of annual growth is 25%. Currently we will be looking for established dealers and whole

sellers for the markets of China. By the end of next 2 - 3 years we will be looking for

establishing our own exclusive store in China.

1.1 Mission: -

GCL’s mission is to become a recognized exporter of Indian quality flower items to the

foreign market. The company guarantees 100 percent customer satisfaction and values

friendly service.

1. Executive Summary: -

7

1.2 Objectives: -

1. Achieve sales figure of Rs 1 Crore in 2010.

2. Open own exclusive store in China.

3. For 2013, export through direct mail marketing.

4. Maintain average gross margin of 25 percent.

5. Establish annual growth of 25 percent.

6. Expand product line to 15-20 varieties.

1.3 Keys to success: -

1. Product quality.

2. Customer service.

3. Controlling fixed and variable costs during first two years.

0

2

4

6

8

10

12

14

16

18

2010 2011 2012

Rs.

Mill

ion

s

Highlights

Sales

Gross Margine

Net profit

8

GIC’s existing business is in the areas of packaged food and packaged drinking water.

Since 1979 the company has achieved excellence through continuous customer support

and loyalty. The main target customers are people of upper-middle and upper-end

income groups. The distribution network is through whole sellers and retail stores.

2.1 Company Location and Facilities: -

The head office is located at Janak Puri, New Delhi. The company also has a branch

office in Kolkata for dealing with related matters. It also has a 600 square feet retail

store located in Park Street, Kolkata.

Apart from the existing business the company’s main focus is on silk flowers and flower

accessories. These products provide consumers with a wide variety of product lines and

allows for individual customization of orders.

3.1 Product Description: -

The customers are provided to choose form a wide variety of silk flowers and flower

accessories. During the first two years the product line will include

Tulip and Roses.

8 kinds of flowers arrangements in accessories.

Seasonal bouquets.

2. Company Summary: -

3. Products: -

9 3.2 Future Products: -

GCL plans to introduce at least 2-3 new kinds of flowers every year for the first three

years, with aggressive advertising at the beginning of each year that introduces these

new flowers.

After establishing a firm reputation, GCL plans to expand the target market to Hong

Cong and Indonesia. The company also plans to introduce products other than flowers

but all will still be related to flowers. The products will include silk jewelry boxes, mirrors

all with hand-painted flowers.

Currently the market for flowers and flower products is rapidly increasing the China.

According to 2007 statistics, the value of permanent floral products for the 2006 fiscal

year was over Rs 2.2 billion, and it still continues to grow.

The gift industry is also growing, as households headed by 45- to 54-year-olds are the

biggest gift purchasers. That will increase the sale of silk jewelry boxes, mirrors etc.

4.1 Market Segmentation: -

Since GCL only deals with flowers and flower accessories basically two major market

segments exist presently.

1. The city areas where demand is more and customers are more quality oriented.

2. The villages and town areas where is demand is comparatively less and

customers are comparatively less quality oriented.

4.2 Market Analysis: -

Mostly in China people bye flowers for two reasons.

I. For their own consumption

II. For gift purpose.

4. Methodology: -

10 Taking the market survey data form one of the leading market research company of

China, we reveled in the last 5 years there is a growth of 4.56% in the combined market

of gift purchase, floral collection and other related products.

For details refer to Appendix 1.

4.3 Industry Analysis: -

In the Chinese market there is a very high spending in floral purchase for personal

consumption as well as purchase for gift purchase. On an average more than 62%

house hold likes to spend over floral purchase. And the demand for Indian silk flower

and other varieties of flower is very high.

Corresponding to the above analysis there are firms who works in this division but as

the demand for Indian flowers is high the related Indian suppliers are comparatively

less. It provides a huge opportunity for our company to establish a good market share.

4.4 Distribution Pattern: -

The existing distribution channel for China is relatively very simple. The main production

areas of flowers are the rural areas. The flowers basically go to whole sellers first then

there are retailers and the final customers. It’s basically a 2 level distribution channel.

We are looking for whole sellers who only work in this field. In first two or three years we

will supply through the whole sellers and then after establishing a good brand name we

will shift to direct mail marketing.

As there is a growing demand for Indian flowers in the Chinese market there is a very

good opportunity but apart from that the company has identified few problems that might

occur in the due course of business. These are listed below.

1) If there is late in delivery the flowers may get dry.

2) Any unwanted discontinuity in the supply chain may cause the above problem.

3) Initially as we are not directly facing the customers, knowing the customers

preference and feedback will be tough.

5. Statement of Problem: -

11 4) The entire business is dependent on the efficiency of the whole sellers and the

retailers.

5) Without knowing the competitor’s product mix and pricing setting a price strategy

will be difficult.

However a few months working experience in the territory will help the company to

address the problems.

6.1 Strategy and Implementation summary: -

GCL focuses on providing high-quality products to consumers with outstanding service.

Customization of orders and specialization of services will create a competitive

advantage.

GCL is developing the organization by beginning with few employees to reduce costs.

All current employees are very highly motivated, resulting in a positive and strong

company culture. This culture will carry over to all new trainees, which is a prime

objective for the expansion of GCL.

The first year of service will be the most important, as GCL plans to establish strong

relations with both suppliers and buyers. These relationships will help GCL to grow and

evolve in this industry.

6.2 Marketing Strategy: -

GCL is focusing mostly on silk flowers and flower accessories, targeting women

of upper-end income households as the end customers.

At the initial level GCL will be arranging a few trade shows for the promotion of

silk flowers and flower accessories. The target will not be the only target

customers but anyone who likes flowers. This will spread the brand name of the

6. Proposed Plan and Schedule: -

12 company. It will be also a good opportunity to start and get exposure to the

Chinese market.

With the selling of products the company will also motivate the customers to give

their valuable feedback through mail. .

The main target of this feedback will be knowing about customer preferences and

maintain a constant relationship with the customers. From the mailing list the

company will also prepare a customer database which later on will help in

creating a direct mail marketing network.

GCL will create product catalog through which it will try to attract more and more

new customers. The main purpose of this will be to reach to maximum no. of

customers with minimum marketing research.

6.3 Pricing Strategy: -

Being a very new company in this business and that too with a new territory the

company does not know about the pricing strategy of the competitors. So at the initial

level the company will go for low pricing strategy. GCL sets standard prices for each

product line. These prices are not expected to experience significant change over the

next two years.

Tulip - Yuan 2.00

Roses - Yuan 2.25

Arranged Flowers 1 - Yuan 10.00

Arranged Flowers 2 - Yuan 15.50

Arranged Flowers 3 - Yuan 20.50

Arranged Flowers 4 - Yuan 30.00

Special Arrangement 1 - Yuan 50.00

Special Arrangement 2 - Yuan 60.00

Special Arrangement 3 - Yuan 70.00

Customer desired Arrangement - Yuan 85.00

Other Seasonal Bouquet - Yuan 100.00

These prices exhibit quality products at reasonable costs to consumers.

13 6.4 Promotional Strategy: -

GCL wants to promote its product as fine choices products. This will be done through in-

store promotions, direct-mail advertisements, appearances in related catalogs, and

publicity events. Initially the company is not interested in any price promotion activity as

the company believes at the initial level it will hamper the brand equity of the company.

6.5 Sales Strategy: -

Products will be distributed through whole sellers and retailers to final customers. The

advance order will be collected by them and will be forwarded to GCL’s New Delhi

corporate office.

The customers feed backs will be the most important issue in setting the sales strategy.

The customer feed backs will be collected by mails and representatives from our

corporate office will be addressing each and every individual mails of customers within

24 hours. GCL believes this will create a very strong customer relationship.

6.6 Sales Forecast: -

A sales forecast has been prepared on the basis of collected data from the Chinese

market. The forecast is done on the year 2010, 2011 and 2012. The forecast includes

Tulip and Roses, Arranged Flower 1, Arranged Flower 2, Seasonal Bouquets and

Catalog sales.

The company projected a constant growth over the market. However in spite of constant

growth the sales may fluctuate depending on various months.

For Details of sales forecast refer to Appendix 2.

The direct cost of sales also has been projected. (Appendix 3)

14

6.7 Sales Programs: -

The whole sellers will be motivated to organize some awareness programs to

create the market demand in few initial months.

Price promotion and incentives will be encouraged form the next year.

Retailers will be selected depending on area basis.

6.8 Sourcing: -

All the flowers will be producing in India only. Currently GCL does not face any obstacle

in the areas of production now. After the raw flowers are collected from the field a

processing will be done with soft chemicals to after the fact that the flowers remain fresh

at least 9-10 days in low temperature.

Only soft chemicals will be used so that qualities of flowers do not get harm.

0

50

100

150

200

250

300

350

400

450

500

Tulips and Roses Arranged Flowers 1

Arranged Flowers 2

Other/Seasonal bouquet

Catalog sales

Un

its:

Hu

nd

red

s

Sales Forecast

2010

2011

2012

15 6.9 Technology: -

GCL will use sophisticated technology especially for the storing and packaging. As the

product is basically a natural product importance will be given on culture and production

of quality flowers. Sophisticated technology will also be used in terms of selecting the

fertilizers and spraying over the field.

GCL will start with skilled and experienced employees especially in the production

areas. Skilled employees will be also there in the corporate office to look after the

export. Sales representatives will be provided especial training and they will be

compensated with commission. The main objectives will be production of quality

products and create the market with experienced hands.

7.1 Organizational Structure: -

The company is organized in four main functional areas.

Production

Sales and Marketing

Finance and administration

Communication

Legal matters and written agreements will be handled by consultant lawyer.

7. Management Summary: -

16 7.2 Management Team Gaps: -

Each of the three employees is responsible for managing his or her area of expertise.

The problems with having only one individual in charge of a department are as follows:

1. Lack of understanding of other departments.

2. Minimal management experience.

3. Self control over all programs.

7.3 Personnel Plan: -

In the personnel plan there would be at least 3 people in each of the four departments.

The persons will be experienced in their relevant fields. In case of any necessity

required training will be provided.

The projected gross margin will be approximately 25%.

Sales projection for the year 2010 will be Rs. 1 crore.

GCL is looking for a financier who will finance 30% of the company on debt.

The accounting statements and analysis are given in the appendix.

8.1 Key Financial Indicators: -

Key financial indicators for GCL are

Constant Gross Margins.

Sales on credit

Net Worth

Return on equity.

8. Financial Plan: -

17 8.2 Break Even Analysis:-

GCL’s break-even analysis indicates that the firm has a strong balance of costs and

sales. The break-even point is at just over 1200 units.

For Details see Appendix 4.

8.3 Projected Gross Margin: -

GCL has done a projected gross margin statement for the years of 2010, 2011,

2012.The detailed calculation is shown at Appendix 5.

8.4 Business Ratios: -

The ratios illustrated in the table of Appendix 6 indicate strong, consistent growth.

Business ratios for the years of this plan are shown in appendix.

9.1 Competitive Comparison: -

GCL expects that there would be a wide competition in the Chinese market. In this kind

of scenario the main key points which will help the company to remain in the

competition are:

There is no compromise with product quality and processing. GCL can assure

customers with 100 percent quality assurance which will be very helpful to

maintain a constant market share.

With the flowers there is no use of any plastic stems everything is pure natural.

The initial low pricing strategy will help the company to be there in the

competition and through challenges to the competitors.

The bottom line of cost control is designed is such a way that even if there is fall

in price because of market demand, the company will be still able to make its

margin.

9. Advantages and Disadvantages: -

18 9.2 Industry Participants: -

There is no such huge competition in the Chinese market so far in this segment of

business. However the positive growing demand for Indian flowers is already an

advantage for the Indian firms like us.

Apart for the flower, the projected business of GCL i.e. gifts. There are no of companies

in the market. In the long term planning the company also can look for creating joint

venture with their firms to do handmade Indian flower printing over the gifts.

Another important objective of the company will be to maintain a good friendly

relationship with the whole sellers.

9.3 Competition and buying patterns: -

A huge no of Chinese customers prefer to buy Indian flowers. The Chinese flowers are

also available in the market. Surely there must be something in the Indian flowers which

attracts them more.

However the buying pattern or behavior shows the customer’s sensitiveness over the

Indian flowers. This of course gives a competitive advantage over the market

competitors.

9.4 Main Competitors: -

The main competitors in the surrounding area are:

Floral Whole seller.

Craft stores.

Gift Shops.

19

Looking from all the above mentioned prospective the only conclusion GCL can draw

that there is very good opportunity in the Chinese market for this business. Mostly in

starting a new business the most important problem occurs from the competition of the

market.

Looking toward Chinese market the environment is extremely suitable for GCL because

there is already an existing demand in the market. Apart from that for the preference of

Indian flowers the competitive advantage is also very high.

Especially for the company like GCL which is already having a strong background of

maintaining customer relationship. All the forecast also has done depending over sound

statistics. So the probability of achieving target is very high.

The only thing with which the company must meet is the customer satisfaction. It is

extremely a customer psychology oriented business. Understanding the customer

psychology in terms of their needs and preference is the biggest challenge for the

company.

Having a strong industry background GCL is looking at the project very positively. Hard

work in terms of producing quality and with a very strong and widespread network

reaching the final customers is the primary goal for GCL.

10 Conclusions: -

20

11.1 Appendix1

Last five year’s growth analysis: -

Market Analysis

Year Potential Customers 2004 2005 2006 2007 2008 Growth

Gift Purchasers 275000 291500 308990 327529 347181 6%

Floral Collectors 250000 260000 270400 281216 292465 4%

Other 175000 180250 185658 191228 196965 3%

Total 700000 731750 765048 799973 836611 4.56%

11. Appendix: -

0%

2%

4%

6%

8%

Gift Purchasers

Floral Collectors

Other Total

Growth

Growth

21

11.2 Appendix 2: -

Initially the sales forecast was done on Tulip and Roses, Arranged flowers 1, Arranged

Flowers 2, Other/Seasonal bouquet and Catalog sales for the years of 2010, 2011,

2012.

11.3 Appendix 3: -

Direct unit cost of products has been projected here.

Sales Forecast (Units)

Year 2010 2011 2012

Tulips and Roses 28,300 35,165 45,714

Arranged Flowers 1 5,000 6,501 8,451

Arranged Flowers 2 5,000 6,500 8,450

Other/Seasonal

bouquet 8,200 10,660 13,858

Catalog sales 0 20,000 30,000

Total Unit Sales 46,500 78,826 1,06,473

Direct Unit Costs 2010 2011 2012

Tulips and Roses 1.5 1.5 1.5

Arranged Flowers 1 11.99 12 12

Arranged Flowers 2 27.99 28 28

Other/Seasonal bouquet 42 42 42

Catalog sales 0 1.49 1.49Other 0 0 0

22

Total Cost of production: -

Total cost of production = Units * Direct unit cost.

11.4 Appendix 4: -

Break-even Analysis:

Monthly Units Break-even 1,228

Monthly Revenue Break-even 20870

Assumptions:

Average Per-Unit Revenue 17

Average Per-Unit Variable Cost 11

Estimated Monthly Fixed Cost 7366

Direct Cost of Sales (Rs) 2010 2011 2012

Tulips and Roses 42450 52748 68571

Arranged Flowers 1 59950 78012 101412

Arranged Flowers 2 139950 182000 236600

Other/Seasonal bouquet 344400 447720 582036

Catalog sales 0 29800 44700

Other 0 0 0

Subtotal Direct Cost of Sales 586750 790280 1033319

23 11.5 Appendix 5: -

11.6 Appendix 6: -

Pro Forma Profit and Loss

Year 2010 2011 2012

Sales 1586750 2040280 2595819

Direct Costs of Goods 586750 790280 1033319

Gross Margin 1000000 1250000 1562500

Gross Margin % 25.00% 25.00% 25.00%

Main Ratios 2010 2011 2012

Current 1.86 2.53 3.05

Quick 1.05 1.54 2

Total Debt to Total Assets 54.24% 39.90% 33.14%

Pre-tax Return on Net Worth 127.18% 80.80% 65.15%

Pre-tax Return on Assets 58.20% 48.56% 43.56%