Entrepreneuship MBA Y2

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Table of Contents

Question 1 (50) ..................................................................................................................... 3 Question 2 (25) ................................................................................................................... 15 Question 3 (25) ................................................................................................................... 43 BIBLIOGRAPHY ............................................................................................................... 51



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Question 1 (50)

Growth ± orientated strategic thinking is essential in the globalised world and is one

of the most important factors in the development of entrepreneurial ventures.

Comment critically on the strategic entrepreneurship displayed by the organisations

portrayed in both caselets. Your answer should include a discussion on the context,

resources, purposes and objectives of each organisation.

The prime objective of any business is profitability, thus maintaining this profitable

organization implies that strategies for sustainability become imperative. Venter,

Urban and Rwigema (2008:405) cities Lynch (1997) stating that strategy is defined

as the direction an organisation intends to take in the future and is mindful of its

context, resources, purpose and objectives. Venter, Urban and Rwigema (2008:420)

argue that there are seven strategies for growing a business, these are: penetrate an

existing market, extend market reach, innovate existing products and services,

franchise the business, acquire a competitor¶s business and acquire a suppliers

business. Using the above definition of strategy and growth, below is a critical

analysis of the following caselets ³A Poor Harvest for Wal-Mart´ (adapted from

http://www.businessweek.com/print/bwdaily/content/apr2007/db20070412_005673.ht

m) and ³Kauai expels junk food from schools´ (adapted from

http://www.kauaiaschool.co.za/index.cfm?a=108 ).

The context refers to the external environment within which the organization

operates; this includes the political, economic, legal, technological, social,

environmental, demographic, international issues and an examination of the

organisation¶s competitors, customers and suppliers; this is typically achieved by

conducting a strengths, weaknesses, opportunities and threats (SWOT) analysis

(Venter, Urban and Rwigema, 2008:405).

Political and Economic Analysis:

In the Wal-Mart case study the major political and economic impact is that on

farmers. There are a few organisations that are promoting organic foods and thus

would issue grants and incentives to encourage farmers to grow organic foods.



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These incentives are essential as organic farmers don¶t use pesticides and thus

have a decrease of production per acre of 30%. As Wal-Mart has a global presence,

they have to procure organic foods from farmers in each region, and have to

sensitive to rules and regulations that are binding in that country. Many African

countries are sensitive to genetically modified foods and thus prefer organic foods

that have to tested and certified.

The South African budget speech has annually shown the highest spend on

education. This drive from government on education includes addressing the

malnutrition that many young learners are experiencing. Kauai initiative to provide

healthy, nutritional, tasty balanced meals is directly in line with governments

objectives. As research has shown that sugar, fat and additive laden snacks directly

lend cause to behavioural and learning problems as well as obesity. Kauai strategy

to offer their foods to schools and university, if positioned correctly can acquire

government grants to offer these healthy foods at a lower discounted price. The

strategy has a positive impact on society from a grass roots level, ensuring that the

youth are exposed to a healthier lifestyle.

Social Analysis

There is a global drive towards a healthier lifestyle, thus food becomes an essential

part of a healthy life. Organic foods have become a buzz word in the health

conscience society, knowing this social trend Wal-Marts announced their push for

organic foods, envisaging doubling the number of organic food items in its stores. It

is evident that price would impact the demand these foods, as many middle class

income consumers are price sensitive and thus might not opt for the more expensive

organic foods. Many consumers are attracted to Wal-Marts for their low prices on

products, thus the higher priced organic foods are not attractive to this consumer

trend.

Kauai health food and drinks are firmly focused on driving healthier foods at schools

and universities to ensure that learner have access to a balanced nutritional diet.

This addresses some of problems experience with the South African Educational

department of ensuring that learners have nutritional meals. To ensure the success



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of such a drive, government grants would be essential to ensure that this food is

affordable to all learners. This would imply that learners from all economic

backgrounds would be able to have exposure to a healthier lifestyle from a young

age, which would impact directly on their learning ability.

Technological Analysis

As farmers find smarter more cost effective ways to produce organic foods, the

production yield would increase that naturally decreasing the prices of organic foods.

The current organic farmers find the lack of pesticides to produce organic produce

an expensive method with a low production rate, thus compounding the expensive

prices for organic foods.

The Kauai foods have the traditional fast foods as a competition. Many individual

prefer the fast foods that are cheaper and many regard them as tastier. Many fast

food outlets and franchises have adopted the Just In Time (JIT) operational

methodology, thus able to produce and prepare food quickly and at an affordable

price. Thus Kauai needs to ensure that its operations in producing healthier, tasty

and nutritional foods are efficient and cost effective to be competitive against these

fast food giants that are well established globally.

Legal Analysis

Wal-Marts have a business tendency of driving costs as low as possible from

suppliers. In selling organic foods, Wal-Mart needs to be cautious as farmers might

not be profitable if that supply at an extremely low price, while they have low

production yield. This might drive farmers to supply non-organically produced foods,

under the pretence of organic foods. This would imply that consumers can initiate

litigation against Wal-Marts, who in turn can bring a case against the farmers

supplying the product. Such litigation would have an extremely negative impact on a

well establish brand such as Wal-Mart.

Kauai has to comply with all the health and safety rules and regulations of South

Africa in the manner that the food is prepared. The safety measures in the layout of



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their eating places are governed by laws. There are specific laws pertaining to

canteens in schools and universities. Thus as Kauai embark aggressively on

supplying schools and universities with their healthy foods, they need to comply with

these health a regulation laws.

International Analysis

International trends are towards a healthier lifestyle and organic foods are becoming

popular globally. The disastrous impact society has had on the environment has a

direct impact on global heating. The uses of pesticides have caused an imbalance in

the natural equilibrium of the environment. Thus globally there is an ever growing

society of environmentally conscience individuals, even governments are obligated

to control the levels of pollution. Thus organics foods are within the global trend of an

environmentally friendly society. If Wal-Marts are exporting or importing any

products, they need to be cautious of the international exchange rates, and the

associated tariffs that would imposed.

Kauai business of supplying health food is also part of an international trend. As

society become harder working, pushing the barriers of success, the stress of the

working life has even driven companies to encourage a healthy work lifestyle. Thus

the unhealthy fast foods are not encouraged and many corporate opt for canteens to

supply healthy, nutritional, balanced tasty meals.

Environmental Analysis

Wal-Mart in their drive to increase their organic food offerings and Kauai drive to

produce healthy foods, both have a positive impact on the environment. In producing

or retailing healthy foods, implies that these organizations are encouraging an

environmentally conscience society. In the drive for organic foods, Wal-Mart is

encouraging farmers not to use pesticides and thus ensure a safer environment.

Kauai also has to investigate the possibility to use green power in the producing their

foods and bio degradable food wrapping and boxes.



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Demogr aphical Analysis

Wal-Marts are globally based and thus recruit staff in all countries. The workforces

are trained to ensure that they comply with culture and expectations of the company.

Kauai has a nationwide presence, and thus recruits workforce that resides within a

close proximity to each store. All staff is trained by Kauai on how food has to be

prepared and customer service.

SWOT Analysis

S trengths: Wal-Marts are a global brand that retails products at low prices. They

have developed a global brand and with huge market presence are able to drive

supplier prices down and offer the consumer low prices on quality products.

Kauai foods have become a trend setter for health foods, catering for the healthier

society and now innovatively supplying these health foods to school and universities.

These health foods are retailed at affordable prices, and the partnership with Virgin

Active ensures that gym goers now have Kauai healthy foods available at these

gyms.

Weaknesses: As Wal-Marts drive supplier prices down, suppliers would opt for a

more profitable options and supplier to other buyers. As a low price retailer, Wal-Mart

finds it difficult to retail products that are more expensive, mainly based on

perception that all products from Wal-Marts are supposed to be low priced.

Kauai foods are aimed at the health market with a tastier food option. There is a

large segment of the population that prefer cheaper fast foods. Africa does have a

large segment of the population that are experiencing poverty and malnutrition and

are unable to afford the Kauai food prices. Kauai might lack the financial resources

when compared to a Kentucky Fried Chicken (KFC), and thus cannot aggressively

deploy their outlets nationwide as KFC might. Thus this would have a negative

impact on their time to market as well as their accessibility.



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O pportunities: Wal-Marts research has shown that they do have a large percentage

of high-income customers that buy staples such as milk and detergent. Thus Wal-

Mart does have to capitalize on an existing market to position themselves as a high-

end merchandise retailer as well.

The innovative strategy from Kauai to supply school and university canteens with

healthy foods is a strategy that would increase their market penetration. Kauai can

also explore opportunities to supply health foods to hospitals, military and mine

workers. Supply health food via the United Nations World Food Program and the

Red Cross would give Kauai the much desired global presence.

Both organisations can capitalise on opportunities such as new markets and

segments, new products, diversification opportunities, market growth, competitor

weakness, demographic and social change, political and economic change,

partnership, merger and takeover opportunities, international growth and economic

upturns (Venter, Urban and Rwigema, 2008:408).

T hreats: Wal-Marts as with many other low price retailers face immense competition

and market share threats from China. Many products are manufacturer cheaper in

China and are now retailed globally at a cheaper price. Wal-Mart also faces threatsin penetrating the high-end merchandise as they marketed their brand as a low

priced retailer.

Kauai faces threats from health food retailer like Juicy Lucy that have a large

nationwide footprint and was operational in the 1980s. Kauai can also face threats

from potential new comers that might offer health food with more varieties at a

cheaper price. Kauai would also face threats in supplying canteens at schools and

universities as these markets are currently supplied by other food retailers that might

lower their prices to ensure that maintain their market share.

Both these organisations can face threats such as new market entrants, increased

competition, and demand from customers and suppliers, substitute products, low



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market growth, economic downturn, technological threats, demographic and social

changes and international trade barriers (Venter, Urban and Rwigema, 2008:409).

The resour ces of an organisation are a key element in ensuring that its objectives

are carried out successfully, this is a key factor to ensure the organisation is

competitive. The resources are the internal assets of the organisation, the financial

assets, cash, investments; fixed assets such as machinery, equipment and buildings

as well as its employees, intellectual property, copyrights and trademarks (Venter,

Urban and Rwigema, 2008:405).

It is imperative to understand the key success factors for these organisations in their

specific industry segment. Venter, Urban and Rwigema, (2008:411), cities Ohmae

(1983); that suggests the ³Three C¶s´ approach for an easy identification of the

industry key success factors.

Customers: The demographic grouping of customers and understanding their needs

is essential to the success of an organisation. Walmart serves customers and

members more than 200 million times per week at more than 8,613 retail units under

55 different banners in 15 countries (Walmarts, 2010). The global presence of this

organisation and there revenue shows that they are located in areas that are

accessible to their key clientele. Walmarts (2010) states that organisations goal is to

save people money to help them live better.

Kauai is a young organisation when compared to Wal-Marts. Kauai has commenced

their operations in Cape Town, South Africa and is slowly growing to have stores

located nationwide. They have grown to 84 stores in South Africa. Kauai is suppliers

of healthy foods and is thus strategically located in Virgin Active gyms, thus providing

their obvious clientele with healthy foods. They are now also supply school and

university canteens with these health foods. In understanding that many customers

prefer the fast foods, Kauai has introduced the Kauai in Motion take away stores

which is the preference of many fast food consumers, with the exception that Kauai

in Motion foods are healthy and nutritional.



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Competition: Wal-Mart and Kauai faces the threats as discussed in the SWOT

analysis above. Wal-marts are also positioning themselves to service their high-

income earners and thus would be competing against high-end merchandise

suppliers. Kauai has formed a formidable brand in supplying health food and now

faces new competition as they embark on supplying school canteens and universitys

with healthy, nutritional foods.

Company : The resources, skills and technology that a company possesses to

achieve their goals and differentiate them from their competitors are another key

success factor (Venter, Urban and Rwigema, 2008:411).

Wal-Mart and Kauai realise that supplying low priced products and health foods

respectively, is not sufficient and thus excellent customer service is focus for both

organisation. Thus these companies ensure that their staffs are well trained. Wal-

Mart is supplying organic food at lower prices compared to its competitors and now

diversifying to high-end merchandise, the transition to this diversification was not as

successful as anticipated, and thus the organisation has to re-strategize their

marketing plan and position the organisation accordingly.

Kauai has targeted the more conscience population and thus strategically positioned

themselves with Virgin Active gyms and now adopted an innovative strategy to

supply school and universities with their product, thus increasing their market

segment.



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Venter, Urban and Rwigema, (2008:411), cities Lynch (1997) with factors to consider

when analysing strengths and weaknesses of a business as follows:

Strengths

Market dominance

Core strengths

Economies of scale

Management style

Financial resources

Organisational reputation

Product and service quality

Weaknesses

Loss of key skills - staff retention and incentives

Lack of financial resources

Poor leadership

Low levels of innovation

Limited product differentiation

Venter, Urban and Rwigema, (2008:413), also suggest the analysing of the

organisation¶s internal resources by dividing them into:

T angible resources: These are physical resources such as plant, machinery, land

and buildings. Wal-Marts have more than 8600 stores while Kauai has 84 stores.

Intangible assets: This refers to resources such as the brand name, intellectual

property, and reputation and service levels. Wal-Marts have developed a global

strong brand for low priced quality products and superior customer service. Kauai



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has developed a strong brand in supplying healthy nutritional foods at an affordable

price.

Organisational capacity: This refers to skills, leadership, processes and

management of the organisation.

In understanding the pur pose, we analyse the sense of purpose that drives these

organisations forward, this is often characterised in the organisations vision and

mission statements as well as leadership, ethics and values (Venter, Urban and

Rwigema, 2008:405).

Wal-Marts was founded in 1962 and has more than eight thousand stores under

different banners in fifteen countries, employing more than two million associates

and having sales of four hundred and five billion United States dollars for the fiscal

year 2010 (Walmarts, 2010). The organisations key goal is to save people money in

order for them to live better (Walmarts, 2010).

The Kauai mission is to have products that are recognized by global consumers and

our employees as tasty, healthy, natural, affordable and convenient - in an

environment that reflects the natural elements of our products (Kauai, 2010).

Both organisations pride themselves on been customer centric and strive to excellent

service delivery. The diversification shown by both organisations clearly indicate a

proactive approach in leadership to ensure that they service the ever changing

needs of their customers. The success of both organisations also clearly indicatesthat they adhere and abide to strong codes of ethics and values.

Walmarts (2010) states that the founder of Wal-Marts, Sam Walton, instilled many

principles and values within the company, three of which became their 3 Basic

Beliefs to which they remain firmly committed.



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Respect for the Individual

Service to the Customer

Striving for Excellence

Every organization has its own unique objectives; the vision of the organization is

achieved by the strategic execution of the agreed upon objectives (Venter, Urban

and Rwigema, 2008:405, 406). An organisation¶s objectives are the manifestation of

its vision, these objectives can be classified under are two categories, namely

strategic and financial objectives (Venter, Urban and Rwigema, 2008:418).

The objectives of Wal-Mart is clear in its founder statement, ³³If we work together,

we¶ll lower the cost of living for everyone«we¶ll give the world an opportunity to see

what it¶s like to save and have a better life´ (Walmarts, 2010).

The Kauai vision is to educate South Africans about how good healthy and

wholesome food can taste and to be the first choice of millions of quick service

consumers (Kauai, 2010).

Wal-Marts have numerous strategic objectives, many focused on a green energy

drive and servicing the high-income customer with high-end merchandise. Kauai

focus is to increase their market presence and educate all age groups on healthier,

nutritional tasty foods.

Venter, Urban and Rwigema, (2008:419) states that an organisation should develop

between six and eight objectives, these may include:

Growth: financial performance and market growth

Management : management styles and skills



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Administration: developing and executing processes to increase efficiency of

administration

E mployees: employee development, managing staff turnover and efficiency

E nvironment : managing natural resources and taking care of the environment and

promoting such behaviour

Quality : quality of service and products offered

Finance: financial management and management accounting measures

S ales and marketing: marketing spend and coverage, sales targets and incentives

Product and S ervices: introducing new services and phasing out old products and

services.

In conclusion, it is evident from the analysis above that both Wal-Mart and Kauai are

aggressively driving their growth orientated strategy. Venter, Urban and Rwigema,

(2008:420) suggest seven strategies for growing a business:

Penetrate an existing market

Extend market reach

Innovate existing products and services

Diversify products and services

Franchise the business

Acquire a competitor¶s business

Acquire a supplier¶s business

Wal-Marts global reach and market penetration and growth are phenomenal, and are

regarded as the world¶s largest public corporation by revenue accordingly to Forbes

Global 2000. The organisation has been in existence since 1962, and are immensely

profitable, thus clearly indicating the organisations ability to adapt to the consumers

ever changing trends and demands. Kauai opened their first store in 1996 and 14

years later have 84 stores and have innovatively strategically positioned their foods

at school canteen and Universities. These organisations are innovative and thus

successful in strategically growing their organisations.



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Question 2 (25)

As a potential franchisee of Kauai, draw up a business plan to present to the bank

for funding. Your business plan must include all of the required elements of a

business plan. [You can supplement the information contained in the case study with

additional information to develop your business plan.]

Venter, Urban and Rwigema (2008:161) contend that the benefits of business

planning are multiple:

It forces the entrepreneur to be disciplined, think through every facet of the plan

and collect the necessary information.

This process allows critical and impartial scrutiny of the strategies to secure the

long-term future of the business.

Investors require seeing the plan.

The plan serves as a benchmark for control when deviations appreciably exceed

expectations.

Entrepreneurs use the plan for self-evaluation.

The plan serves as an early warning system so that entrepreneurs may turn

threats into opportunities.

The business plan is a powerful communication tool.



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Business Plan

TIPULEX FOOD

Company Reg: 2009/023173/07

Trading as

Kauai Midrand

Contact person: Mr Vishnu Dhaver

Email address: [email protected]

Website: http://www.TipulexFood.co.za

T T IIPPUUL L E E X X

F F OOOODD



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Kauai is a health food franchise company that was formed in 1996, in Cape Town,

South Africa. Kauai¶s mission is to have products that are recognized as tasty,

healthy, natural, affordable and convenient. The franchise also offers a Kauai in

Motion; this was exclusively developed to offer Virgin Active

members health ³on the go!´. Kauai has also commenced

the drive to provide learners at school with healthy, tasty,

nutritional and affordable food at the school canteens.

Kauai currently has 85 outlets nationwide in South Africa and

employs over 700 people. Kauai had invested their own

money in building the Kauai brand and only recently offered franchises. Kauai has

grown from an annual turnover of R7 500 000.00 in 2001 to R150 000 000.00 in

2008.

The total funding required for the franchise venture is R1 610 000.00.

Recipient agrees that the Confidential Information is to be considered confidential

and proprietary to Owner and Recipient shall hold the same in confidence, shall not

use the Confidential Information other than for the purposes of its business with

Owner, and shall disclose it only to its officers, directors, or employees with a

specific need to know. Recipient will not disclose, publish or otherwise reveal any of

the Confidential Information received from Owner to any other party whatsoever

except with the specific prior written authorization of Owner.



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TABLE OF CONTENTS

Executive Summary 19

Proposed Venture 22

Market research and Analysis 24

Marketing action plan 27

Research, Design and Development 30

Operations 32

Venture Team 33

Risks and challenges 35

Financial issues 36

Plan schedule 39

Appendices and References 41



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Executive Summary

The Kauai food business is focused on Health, food and juice; in the restaurant

sector. Kauai foods were founded in Cape Town, South Africa in 1996. The founding

members were three friends who had previously lived on the Hawaiian Garden Isle

of Kauai. These three friends ran a bottled juice company while living in tents in a

papaya field, but also shared a dream of opening a sandwich and smoothie shop,

which is now realised.

Kauai Midrand franchise will have founding members of Kauai in a advisory role and

a local Gauteng businesspeople driving the start-up franchise to ensure its success.

These members are:

Carl Harwin - Marketing Specialist [Advisor]

Brett Harwin - Successful Hotelier [Advisor]

Mick Kenny - ex- HSBC Banker [Advisor]

John Berry - Head Chef [Advisor]

Vishnu Dhaver - ex- Mayor of Midrand and entrepreneur

Cindy Zulu - Chartered Accountant

Mandla Mangethe - retired Major General

Jai Peruamal - Marketing Specialist

Nadeema Kahan - Human Resource Specialist

Queenie Khumalo - Sales executive



consumers. Our mission is to have products that are recognized by global

consumers and our employees as tasty, healthy, natural, affordable and convenient -

in an environment that reflects the natural elements of our products.



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From the humble beginning of opening the first Kauai store in Cape Town in 1996,

Kauai now has 84 stores nationwide. Kauai is opening another 20 stores in the next

12 months, as the market demand for both Kauai, Kauai in Motion and Kauai school

canteen has grown significantly in an ever growing health conscience South African

community. Kauai endeavours to keep serving South Africans with healthier, tastier

foods, and constantly conducting research to ensure that nutritional, tasty meals are

served at school canteens to enforce healthy eating habits at school level. Kauai is

opening new stores nationwide while growing its school canteen foods at a rapid rate

nationwide as well.

The Gauteng province has an extremely health conscience society, with the largest

number of Virgin Active gyms in the country, and also boasts the largest number of

gym members nationwide. The Gauteng Educational board has approved the Kauai

nutritional health foods for learners at school. Kauai, is thus exceptionally well

positioned to succeed in the Gauteng Province, preliminary sample tests done at

Gauteng Virgin Active gyms have proven to be resoundingly successful.

Kauai has a 100% success rate in their franchises, their selective criteria are

stringent and their training policies are compulsory for all staff. The lowest annual

turnover of a Kauai franchise was in 2001 with R7 500 000.00. The projected figures

for Kauai Midrand is conservatively approximately R13 500 000.00 per annum. On

average franchises are achieving between 25% and 35% per annum return on their

investment.

This franchise opportunity would require a total amount of R1 610 000.00. The

franchise fee is R1 210 000.00 and an additional amount of R400 000.00 is required

as working capital. The franchise fee includes the business set up costs, furniture,

equipment, training and 2 months stock.

In order to obtaining a Kauai franchise, from a list of 550 hopeful applicants, only 3

were awarded the opportunity from Kauai Head Office. The Kauai brand is built on

excellence service, healthy, nutritional, convenient and affordable foods; thus the

organization is extremely selective to whom the franchise are awarded to. Kauai



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Foods seek entrepreneurs that share their passion for the industry, their commitment

to excellence and customer service, and willingness to follow their successful

business model for operating a highly successful business.

As an approved Kauai franchise, Kauai Midrand has a pre-approved loan from the

Industrial Development Corporation (IDC) at an interest rate of prime ± 5%. The

application for finance from your financial institution is establish if you can finance

this franchise at a lower interested rate to IDC.

The document details the entire business plan as well as verifies the above financial

projections. We trust that our application for funding would be viewed favourably,

please direct any questions to Mr Vishnu Dhaver, contactable on +27 82 303 9382.



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Proposed Venture

The food industry in South African is certainly a striving one, and health foods are

extremely popular with the ever increasing number of people enrolling at gyms who

have a preference to a healthier lifestyle. Kauai is a health food restaurant that offers

tasty healthy foods. Kauai has become a formidable franchise with irrefutable evident

of a business that is extremely successful.

Kauai was formed by individuals that had a dream to open a sandwich and smoothie

shop. The foods offered differs significantly from the standard fast concept, as the

food served is nothing but the freshest foods, prepared with the tastiest of

ingredients while ensuring superior nutritional value at an affordable price. Kauai

latest drive is supply school canteens with these healthy, tasty nutritional foods.



consumers. Kauai mission is to have products that are recognized by global

consumers and our employees as tasty, healthy, natural, affordable and convenient -

in an environment that reflects the natural elements of our products.

The organization has 84 stores and an additional 20 stores opening in the next 12

months. The approval by the Gauteng Provincial Educational board clearly indicates

the innovative ability of Kauai to produce healthy, tasty food for all ages.

The Kauai Midrand proposal is to be located in the well-established suburb of

Midrand in the Midway Mews Shopping Mall. The Midway Mews Shopping Mall has

a large parking area and has installed back-up generators, and has the following

shops: Pick & Pay, CNA, Debonairs, Steers, Nandos, Mimos, Clicks and a Body

Quest gym. Midrand Primary school and Secondary schools are approximately 200m

and 800m respectively from the Midway Mews Shopping Mall. The available

premises have a floor space of 200 square meters, while Kauai requires a minimum

of 180 square meters. The rental is R40 per square meter, per month.



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The suburb is in close proximity to VodaWorld, which houses the Virgin Active gym,

as well as the Planet Fitness gym which is located within a 5km radius. The Kauai

Midrand vision is to bring the Kauai food culture to the Midrand and surrounding

areas, allowing this young striving community to now have access to healthy, tasty,

nutritional and affordable foods.



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Mar ket resear ch and Analysis

The GDP is expected to remain above 4% through 2010, giving Kauai the

confidence to expand throughout South Africa.Initially when Kauai commenced their

business, it was aimed at encouraging a healthier way of eating for South African.

Thus on inception a single menu was available, but this expanded to a Kauai in

Motion menu and now a school canteen menu. Kauai¶s target market resides in LSM

8 to 10, thus the improvement in living standards of the middle class, growing at 50%

per annum, is in line with Kauai¶s newly-formulated strategic plan

As Kauai grew in popularity, the ideology of healthy, tasty, nutritional food grew

within South Africa. Globally there is constant drive to eat healthy food to ensure we

live a better quality of life. The Virgin Active partnership with Kauai ensured that

Kauai could now offer their foods to every Virgin Active gym in South Africa.

Kauai realised that learners at school were not served a balanced diet. Research

has shown that sugar, fat and additive laden snacks were direct contributors to

behaviour and learning problems as well as contributing to the rising obesity levels in

children. Thus Kauai adapted their menu to create healthy, nutritional, tasty and

balanced meals for learners at school, with an aggressive drive to make food fun.

The Juicy Lucy health food franchise has been in South Africa since the 1970¶s and

have established a reputation and brand awareness, an obvious strength for Juicy

Lucy. Their products have been in the market for a significant period and thus had a

large percentage of the market share.

Juicy Lucy prices were high and thus appealed predominately to the wealthier

segments of society. Juicy Lucy lacked market vision, thus irrespective of their earlyestablishment, they never altered their menus to be price competitive and cater for

school canteens. This implied that this weakness impacted their market penetration

into middle and lower income groups of the South African society which is by far the

majority by virtue of numbers.



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The lack of penetrating other income groups could be attributed to a lack of vision,

primarily due to a possible lack of competition in the market space. Thus Juicy Lucy

became complacent, and never aggressively changes their strategy.

Newcomers such as Kauai, Nandos who offer grilled chicken opposed to the

traditional unhealthy fried chicken, implied that Juicy Lucy brand requires changing,

adding a fresh new look, ideas and new tastes.

The healthy fast-casual segment of the food sector is the fastest growing area,

showing double digit growth year on year, double the rate of the traditional quick-

serve food segment. The concept of providing healthy foods to school canteens is an

awesome concept. Firstly it ensure that learner have a balanced, nutritional, healthy

and tasty meal, thus improving their concentration and focus. And secondly, it

creates brand awareness that these young people would ³grow-up´ with the Kauai

taste, and if they find it appealing, they would encourage their children to have Kauai

foods. The price is not aimed at the upper market, but more to the middle class,

which is the larger in numbers compared to the upper class.

The factor in the table for analysis below, 1 = strongest and 5 = weak. In the final

column, estimate the importance of each competitive factor to the customer. 1 =

critical; 5 = not very important.

Table 1: Competitive Analysis

FACTOR Kauai Juicy Lucy NandosImportance

toCustomer

Products 2 3 2 2

Price 2 4 2 1

Quality 2 2 2 3

Selection 1 4 3 3

Service 2 2 2 1



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FACTOR Kauai Juicy Lucy NandosImportance

to

Customer

Reliability 3 2 2 2

Stability 2 3 2 3

Expertise 2 2 2 3

CompanyReputation

2 3 1 3

Location 2 3 1 1

Appear ance 1 2 1 2

Sales

MethodN/A N/A N/A 3

CreditPolicies

N/A N/A N/A 3

Advertising 3 4 1 3

Image 2 3 1 3

It is evident from the above analysis that Kauai foods needs to improve in their

marketing and increase their nationwide footprint which would make their products

more accessible.



27

Mar keting Action Plan

Primary data sources such as demographics, socioeconomics, psychological,

lifestyle, awareness, knowledge and behaviour; formed a strong foundation inunderstanding the potential behaviour and spend patterns of the community studied.

Arnould and Wallendorf (1994) assert that ethnographic research provides multiple

important perspectives on behaviours that impact marketing decisions. The Midrand

suburb houses approximately 1.2 million adults, of which a staggering 78% are

employed. The lower income earners account for 38% of this employed population,

while the middle income constitutes 43% and 19% of higher income groups.

The Kauai brand is fast becoming synonymous with a healthy, tastier way of eating

and living. The marketing of Kauai is evident at school canteen, where learners are

exposed to tasty, healthy, nutritional foods that are affordable. The presence of

Kauai foods at all Virgin Active gyms creates the perfect association that Kauai is

associated with a healthier balanced form of life that improves ones quality of health

and life.

Kauai has a large variety of healthy foods at affordable prices as shown below.

Kauai has a variety of tasty sandwich, wraps and nutritional drinks for all times of the

day as shown in Figure 2.1.

Figure 2.1 Breakfast menu and sandwiches, adaped from Kauai menu



28

The prices for the hot meals and the wraps are as depicted in Figure 2.2.

Figure 2.2 Hot Meals and Wraps, adaped from Kauai menu

The prices for the salsas, noodles and burritos are as depicted in Figure 2.3.

Figure 2.3 Salsas, noodles and burritos, adaped from Kauai menu

There is a variety of smoothies and healthy drinks, these prices are depicted in

Figure 2.4.

Figure 2.4 Smoothies and Health drinks, adaped from Kauai menu



29

Kauai franchise has a set price for all their foods and drinks on sale. Kauai would

only allow a set number of price promotions and discounts per annum. The

promotion dates may differ per franchise, but each franchise has a fixed quota on the

number of promotions. Kauai has promotional pricing on the opening of every

franchise store, allowing small taste samples to be given at the entrance of the

shopping mall. The Kauai franchise is allowed to offer a 40% discount on evening

meals for the first two weeks of operation. As the Kauai Midrand operation is with a

1km radius of both the primary and high schools, Kauai requested that the Kauai

Midrand franchise supply the required food to these schools canteens. Kauai

Midrand would continue with the drive that was initiated with Virgin Active, and

incorporate rival gyms such as Body Quest and Planet fitness. As a principle we

wish to supply healthy foods to all South African and not special privileges to one

specific health club, but all that which to live a quality life.

Promotions are also done based on community activities, such as community fun

walks, marathons, and soccer, ruby, cricket and tennis tournaments. As South

African pride them as a sporting nation, it is imperative for Kauai to support these

events and drive promotions to increase the brand awareness. Kauai also runs

specials during school holidays to ensure that learners still have access to affordable

healthy food during school holidays.

As Kauai is dependent on fresh foods supplied daily, there is a full dependence on

the distribution network ensuring that all delivery schedules are adhered to. Kauai

has outsourced the distribution to Imperial Logistics, who have signed a performance

bond, implying that in the event that Imperial does not deliver on a scheduled time,

Imperial Logistics would be subjected to a financial penalty. Imperial Logistics have a

well-established fleet of refrigerated vehicles throughout South Africa, and thus

would be able to deliver on Kauai nationwide logistics and distribution requirements.



30

Resear ch, Design and Development

Franchising is universally accepted as one of the most successful business formats.

The Franchise Association of South Africa (FASA), therefore, defines how tofranchise and ensures that all parties follow the internationally accepted franchise

business principles. FASA and its staff serve the needs of both the public and the

franchise community by continually promoting the advantages of franchising both to

business entrepreneurs, to prospective franchisees and to the public.

Research information pertaining to the location, demographics, socioeconomic,

psychological, and lifestyle statistics was supplied by the research department at

Kauai Head Office. Each potential franchisee is given a dedicated team that does a

detailed research into the location of the franchise, the local and surrounding areas,

population, socioeconomic and lifestyle patterns. The population and socioeconomic

statistics were verified by Statistics South Africa. The potential franchisee, Mr Vishnu

Dhaver, is the ex-mayor of Midrand and thus was able to verify information

pertaining to the shopping Mall, other shops, schools and gyms in the area. The

location for the Kauai Midrand establishment has been identified, and currently in

negotiations on the rental price. Kauai designers have viewed the premises andhave the preliminary design and layout as depicted in Figure 2.5 and 2.6.

Kauai have commenced with a survey in the Midrand and surrounding suburbs to

have a more accurate view of the lifestyles and socioeconomic standing of these

communities. Enrolment figures from all the gyms in the area have been requested,

these figures and names, would assist in the marketing strategy to ensure maximum

market penetration and sustainability thereof.



31

Figure 2.5 Preliminary design and layout of the Kauai store

Figure 2.6 Preliminary design and layout of the Kauai store



32

Oper ations

The proposed location for Kauai Midrand in the Midway Mews shopping mall has

both pros as well as cons. There are currently numerous shops offering food in the

vicinity, these shops from Debonairs to Nandos, have 10 years of service in the

Midrand area. Most of these food retailers are franchises and are thus legally

obligated maintain the franchise stipulated price. Thus, with the exception of

promotions and discounts, a price war is unlikely for major franchises.

The area is a well-established shopping mall, with ample secured parking. Currently

there are numerous other food retailers, but none focused on health food and drinks.

The desired premises have been allocated, with the help of Kauai Head Office. The

franchise includes the following:

Assist with the business plan for the loan if required

Help find a location

Design the layout and design of the store

Provide the equipment required to have Kauai Midrand operational Have a nationwide contractor to supply raw materials

Have a compulsory 3 month training course for staff

Kauai Midrand have approached the University of Midrand, and held discussions

with their faculty of Hospitality. We thus commenced with an interview process of

local graduates that have shown excellence in all aspects of their studies.

The Operational costs comprising of both fixed and variable costs are detailed in the

Section Financial Issues.



33

Venture team

Kauai Midrand has the following ownership structure:

Mr Vishnu Dhaver owns 80% equity and Mrs Cindy Zulu owns 20% equity.

Kauai Midrand is thus a 100% BEE Ownership Company, with 20% Black

female.

The board of directors for Kauai Midrand are:

Chief Executive Officer and Chairman: Mr Vishnu Dhaver

Mr Dhaver is a qualified engineer, with a post graduate degree in business.

He with 15 years of experience in numerous business sectors and it¶s an

entrepreneur with equity in numerous other boards.

Chief Financial Officer: Mrs Cindy Zulu

Mrs Cindy Zulu is a Chartered accountant, with 20 years of experience in the

Fast Moving Consumable Goods sector.

Managing Director: Mr Mandla Mangethe

Major General Mangethe is a retired gentleman that previously headed the

S outh African Air Force.

Mar keting Director: Mr Jai Perumal

Mr Perumal is a marketing specialist that assisted in the transition from Heath

and racquet to Virgin Active. He was also the team lead in assisting Nandos

marketing break into the S outh African market.



34

Human Resour ces Director: Ms Nadeema Kahan

Mrs Kahan is a specialist in coaching, education in employee life cycle, talent

mapping, assessment, recruitment, talent development, performance

management, organizational effectiveness, health and safety negotiations,

legal compliance and strategic planning.

Sales Director: Mrs Queen Khumalo

Mrs Khumalo is a spirited seasoned sales executive. S he developed and

executed the sales strategy for S pur. S he was pivotal in the interface between

the corporates and the food industry.

From the University of Midrand, Kathie Tau, Paul Mketi, Sarah Johnson and

Krishnee Govender were recruited as they recently graduated from a diploma in

hotel and food management. They are people with wonderful caring professional

personalities.

John Prince and Ntlokoma Bhekita who graduated top of their class at the University

of Midrand in the Chef department, were recruited to run the kitchens of Kauai

Midrand.

The Kauai Midrand team consists of seasoned professional business people that

would add the experience needed to bring the desired impact Kauai envisaged. The

key focus is to have professional customer centric service; excellent service delivery

is imperative and non-negotiable.

The founding members of Kauai are advisors to Kauai Midrand; they are Mike

Harwin, Brett Harwin, Mick Kenny and John Berry.



35

Risks and Challenges

Every business opportunity has numerous risks and challenges. The health food

industry needs to be quick at adapting to the needs and ever changing trends of society. In order to mitigate most of the risks associated with such a franchise, Kauai

Midrand has engaged extensively with Kauai owners to get reports on previous

mistakes undertaken by other Kauai franchisees. It is best to learn from other people

faults as avoid those obstacles as we would inevitably find problems of our own.

Starting a new health food restaurant in a well-established area; implies that we

would now be competing for a market that other food restaurants had established.Thus aggressive marketing from the established dominant players in the area is

inevitable.

We have thus put all the necessary processes and procedures in place that to

ensure that our supply chain is stream line, efficient and effective. We have place

performance bonds with our distribution and logistics partners; we also have back up

from local shops to procure from them in an unlikely event of non-delivery from our

distribution partners. The shopping mall we would commence our operations from

has a backup generator, thus in the event of power cuts, we would still be

operational.

We have also appointed a task team to investigate unexpected issues that might

arise and propose and execute a solution within various timescales. Example, a

severity one issue has to have a solution within 2 hours, and new marketing plans

and drives have to it executed within 5 days. Our teams¶ vast experience in this

industry implies that expertise would assist in making this project a success in the

shortest time period possible.



36

Financial issues

The expected fixed operational expenses projections are as follows:

MonthlyExpense No. Months

No.propertiesor staff Total

rent, water & electricity R 15 000 12 1 R 180 000

salaries R 5 000 12 5 R 300 000

Management R 18 000 12 4 R 864 000

Interest on loanR 1 610

000 Interest @ 10% (prime -5%) R 161 000

Fixed Costs R 1 505 000

The rent, water and electricity expense also includes security services that are

offered at the Midway shopping Mall.

The first year sales is based on the current consumer spend in the suburbs as well

as historical data from previous Kauai franchises, and thus used an extremely

conservative sales figure as a worst case scenario. For year 2, we used a

conservative increase of 12%, 18% for years 3 and 4 and 10% for year 5.

In the projected sales figures, we use the annual operational expenses with a slightly

higher increase compared to consumer price index, and use a fixed increased

expenses of 10% per annum.

Year 1 Year 2 Year 3 Year 4 Year 5

Sales R 7 500 000 R 8 400 000 R 9 912 000 R 17 841 600 R 19 625 760

Cost of Goods Sold R 3 000 000 R 3 360 000 R 3 964 800 R 7 136 640 R 7 850 304

Gross Profit R 4 500 000 R 5 040 000 R 5 947 200 R 10 704 960 R 11 775 456


Sales R 7 500 000 R 8 400 000 R 9 912 000 R 17 841 600 R 19 625 760



Oper ating Expenses R 1 505 000 R 1 655 500 R 1 821 050 R 2 003 155 R 2 203 471

Oper ating Income R 2 995 000 R 3 384 500 R 4 126 150 R 8 701 805 R 9 571 986



37

Kauai Midrand would envisage a worst case scenario of repaying the loan within a 5

year period. The loan repayment is calculated, producing the Nett income before

Tax.

The company tax of 30% is deducted, 6% for royalty and 4% for marketing, thus

indicating the net income after interest and tax.

The break even analysis is calculated as follows:

Break-even point =

Where fixed costs are setup and overhead costs

And Contribution per unit sales = Income per unit sale ± variable costs


Sales R 7 500 000 R 8 400 000 R 9 912 000 R 17 841 600 R 19 625 760Cost of Goods Sold R 3 000 000 R 3 360 000 R 3 964 800 R 7 136 640 R 7 850 304




Loan repayment R 322 000 R 322 000 R 322 000 R 322 000 R 322 000

Nett Income Before Tax R 2 673 000 R 3 062 500 R 3 804 150 R 8 379 805 R 9 249 986


Sales R 7 500 000 R 8 400 000 R 9 912 000 R 17 841 600 R 19 625 760





Loan repayment R 322 000 R 322 000 R 322 000 R 322 000 R 322 000

Nett Income Before Tax R 2 673 000 R 3 062 500 R 3 804 150 R 8 379 805 R 9 249 986

Company Tax @ 30% R 801 900 R 918 750 R 1 141 245 R 2 513 942 R 2 774 996

Royalty @ 6% R 1 603 800 R 1 837 500 R 2 282 490 R 5 027 883 R 5 549 991

Mar keting @ 4% R 106 920 R 122 500 R 152 166 R 335 192 R 369 999

Nett income R 160 380 R 183 750 R 228 249 R 502 788 R 554 999



38

As Kauai Midrand would be supplying food to two schools, as well as the Virgin

Active gym in VodaWorld, using those projected sales figures and the expected

growth of 50% to 25% in the first two years respectively; we have the following

projected figures.

Kauai Midrand has negotiated payment terms of 30 days from invoice from all

suppliers. Payments for rent, water and electricity and salaries are paid at the end of

each month. Payment for food sold is done solely on a cash basis.


Sales R 9 800 000 R 14 700 000 R 20 580 000 R 25 725 000 R 30 870 000





Loan repayment R 322 000 R 322 000 R 322 000 R 322 000 R 322 000Nett Income Before Tax R 4 053 000 R 6 887 650 R 10 302 926 R 13 269 310 R 16 227 252

Company Tax @ 30% R 1 215 900 R 2 066 295 R 3 090 878 R 3 980 793 R 4 868 176

Royalty @ 6% R 2 431 800 R 4 132 590 R 6 181 755 R 7 961 586 R 9 736 351

Mar keting @ 4% R 162 120 R 275 506 R 412 117 R 530 772 R 649 090

Nett income R 243 180 R 413 259 R 618 176 R 796 159 R 973 635



39

Plan schedule

In order to achieve the desired success, there are major project milestones that that

have to be achieved. There are target dates set against these milestones as Kauai

Midrand envisages that it would commence operations on 1 December 2010.

Major Project Milestones

Milestones/Deliver ables Target Date Progress

Locate possible partners and Directors to drive business 1 June 2010 Completed

Present business case for Franchise to Kauai 1 July 2010 CompletedConduct research with Kauai on possible locations 1 Aug 2010 Completed

Find location, negotiate rental, layout and design 15 Aug 2010 Completed

Start negotiations with Schools and gyms in the suburb 20 Aug 2010 Completed

Supply chain and distribution terms signed off 25 Aug 2010 Completed

Recruitment of Staff 20 Sep 2010 Completed

Application for loan from Bank (outside IDC) 1 Oct 2010 Completed

Failure to above application revert to IDC on preapproved loan 20 Oct 2010 TBD

Commence with Kauai store layout and design 25 Oct 2010 TBD

Bring marketing aware in the Midrand Area 25 Oct 2010 TBD

Staff commence training 1 Nov 2010 TBD

Arrival of equipment and furniture 20 Nov 2010 TBD

Compete installation of equipment and furniture 25 Nov 2010 TBD

First Dry run 26 Nov 2010 TBD

Final touch ups 28 Nov 2010 TBD

Final motivational talk prior to operations 29 Nov 2010 TBD

Unofficial opening, invite VIPs in Midrand 30 Nov 2010 TBD

Official opening 1 Dec 2010 TBD

Invite Schools and gyms on promotional opening month 5 Dec 2010 TBD



40

Kauai Midrand hereby thank you for taking the time to view our business plan. As the

South African economy steadily climbs out of the global recession, it is evident that

our economy is starting to stabilize with consumer spend patterns starting to

increase. Even during the recession period, the industry least affected was the food

industry as food is a basic necessity.

Kauai health foods are a highly lucrative business, especially if the location is well

researched and investigated. The Kauai franchise at the Cape Town waterfront took

12 months to repay their franchise loan.

Kauai Midrand had conducted intensive research and thus have a pre-approved loan

from the IDC, our hope in presenting this business plan to your financial institution is

have an improved interested rate compared to the prime ± 5% offered by IDC.

The wealth of business experience from a seasoned group of business people that

would be hands on in this business would significantly lessen the minimal risknormally with any start up business or franchise.

We trust that our request would be looked upon favourably by your organisation

Yours Sincerely

Vishnu Dhaver

CEO Kauai Midrand

+27 82 303 9382

[email protected]



41

Appendices and references

http://www.moneyweb.co.za/mw/view/mw/en/page1639?oid=198295&sn=Detail

Kauai's aggressive fr anchise plans

10 March 2008

Kauai Health Food & Juice

Kauai has embarked on an aggressive growth plan which includes opening 20 franchises over the next year.

Kauai (pronounced ka-why) has spent 12 years developing the now recognised Kauai brand and cutting its ownniche in a new market. T here are currently 74 mainly company-owned Kauai outlets and this is the first time that the company has aggressively targeted the franchise model, giving hands on investors the opportunity to own aKauai franchise store.

³ T he platform is now ready to support franchisees with an aggressive store roll-out and Kauai plans to open 20 franchise stores in the next year. In addition we are also offering franchisees the opportunity to take over selected company-owned stores, the benefit being that a franchisee can buy into a business with a strong track record and low risk. We believe that these stores will benefit from having a community member in place to maximise thestore¶s potential,´ said Kauai¶s Business Development Director, Guy Le Ray-Cook.

According to Le Ray-Cook the benefits of owning of a Kauai franchise include 12 years of successful trading history, pre-approved finance for applicants with sufficient capital backing, a growing marketing fund and being a

part of a market segment leader with no major competitors. He said that as a guideline, franchisees of successful stores could see a full return on investment in two to five years.

T he cost of buying a Kauai franchise store is R1.1 million and a franchise fee of R110 000 (excluding V AT ) and working capital. A deposit of R400 000 is required in cash. A pplicants are to pay a royalty fee of 6% whichincludes use of the Kauai brand and field support; and a 4% marketing fee, that is held separately and used exclusively to build brand awareness.

Franchisees will undergo a two month training course at one of the dedicated Kauai training stores, and receiveongoing field-service support from consultants who have experience in running their own Kauai stores.

³Kauai franchisees will be part of a secure growing brand with reliable infrastructure and support teams in place,´ says Le Ray-Cook. ³Interested franchisees should be hands-on service-orientated operators who share in the

passion and brand cultures possessed by Kauai. T he ideal candidate should be a hard-working, people¶s personwho shares in Kauai¶s passion to feed healthy and enjoyable food to the nation. T hey must be a team-player, and

past retail management experience would be an advantage.´

Future and current locations available for Kauai franchise stores include: Kolonnnade S hopping Centre, BrooklynMall, Woodlands Boulevard and Centurion Mall in Pretoria; Clearwater Mall, Fourways Mall, S andton BusinessMode, Greenstone Mall, Norwood Place, Killarney Mall, E ast Rand Mall and T he Glen in Johannesburg;Mimosa Mall in Bloemfontein; Hemmingways in E ast London; Walmer Park Mall in Port E lizabeth; La Lucia Mall,Musgrave Mall and Balito Lifestyle in Durban; and Constantia Village and S omerset Mall in Cape T own.

E xisting company-owned stores which are available for conversion to franchises include Rosebank and T heWedge in Johannesburg; and Willowbridge, T ygervalley, S ea Point, Mostert S treet and Kloof S treet in CapeT own. For information call (021) 552 0222 (021) 552 0222 or visit www.kauai.co.za



42

http://www.whichfranchise.co.za/franchiseeProfile.cfm?articleId=225

KAUAI TAKES DURBANITE FROMCASHIER TO CO-OWNER

The new Kauai Hillcrest, launched in June, is co-owned

by joint venture partner Kim Ryan. Loyal employees,like Ryan, who have been with the company for three

years or more and have excelled in running their stores,

are given the opportunity to take a 49% stake in astore.

To assist employees Kauai accesses pre-approved

Industrial Development Corporation (IDC) funding. The IDC fund is a special loan with

interest rates of prime minus 5% for job-creating companies like Kauai who have aproven record of successful business practice. Kauai loans the employee R200 000 in

order for them to access the IDC loan of up to R800 000.

This enables employees, who would otherwise not be able to raise the funds, to take a49% stake in the business. Kauai owns the remaining 51% and continues to provide

administration, field and fiscal support. Kauai is now on their third loan facility with the

IDC, as the drive to empower people through training, and ultimately ownership is keyto the company.

³Kim is totally focused on making Kauai the number one franchise with her unyielding

commitment to customer service and satisfaction. She is the perfect example of a person

who shows that passion, commitment and hard work do pay off,´ said Thompson.

Ryan began her career at Kauai as a cashier at the Kingspark store. She was promotedto assistant store manager then store manager. After a spell working abroad, Ryan

returned to manage the La Lucia store and was offered a joint venture partnership in theHillcrest store.

³Kauai motivates its staff to achieve bigger and better goals. I would never have been

able to afford to buy shares in a store but with Kauai¶s support I am now a proudbusiness owner,´ said Ryan. ³I am really excited about the opportunity to promoteKauai¶s menu to the Durban market, a market which is hungry for a fresh, healthy µfoodon the move¶ alternative.´

View full details and Apply for an Kauai Health Food & Juice Co Franchise



43

Question 3 (25)

A country¶s policy framework impacts on entrepreneurs who are starting and

nurturing a new venture. As a potential franchisee of Kauai, discuss the impact of

any two elements of the policy framework in your country.

All countries dependent on entrepreneurship, from job creation, foreign direct

investment, international trade to ensure economic growth. Every entrepreneur

globally works within a set of rules that govern the manner in which it would operate.

Venter, Urban and Rwigema (2008:226) states that the policy framework includes

SMME policy, macro-economic policy, labour policy, competition policy, intellectual

property policy and taxation policy. The author further explains that some of the

elements of the framework are criticised by many as being overly rigid and thereby

infringing on the ability of entrepreneurs and small business owners to function

effectively and efficiently; while other elements of the framework allow a level of

protection to entrepreneurs. In the discussion that follows, a brief summary is

provided on the policy framework for South African entrepreneurs, there after two

elements of this framework is used to discuss the impact it would have on a potential

Kauai franchisee.

The policy framework for South African entrepreneurs is summarised below, as

depicted in Venter, Urban and Rwigema (2008:227):

Macroeconomic policy

GEAR and AsgiSA

The Reconstruction and Development Program (RDP) which was Congress of

South African Trade Unions (COSATU) vision of a socialist South Africa, was

replaced by a more pragmatic, flexible and market-orientated macro-economic growth strategy; namely the Growth, Employment and

Redistribution (GEAR) strategy, thereby setting South Africa on the road to

becoming globally competitive (Venter, Urban and Rwigema, 2008:227-228).

GEAR proposes the acceleration of the fiscal reform process, a further step in

the gradual relaxation of exchange controls, consolidation of trade and



44

industrial policy reforms, implementation of a public sector asset restructuring

programme, an expansionary public infrastructure investment programme,

structured flexibility within the collective bargaining system and a social

agreement to facilitate wage and price moderation (Venter, Urban and

Rwigema, 2008:228-229).

While GEAR has shown measures of success, governments drive to half

poverty and unemployment by 2014, this implied the need for an additional

trust in the form of the Accelerated and Shared Growth Initiative of South

Africa (AsgiSA) to assist in achieving these goals more effectively (Venter,


Exposes South Africa to international competition by deregulating markets

SMME policy

National small Business Act 102 of 1996

This Act provided for the establishment of the national Small Business

Council, it also provided a formal definition of what constitutes a Small,

Medium or Micro-Enterprise (Venter, Urban and Rwigema, 2008:234).

DTI Initiatives

The Department of Trade and Industry (DTI) has numerous initiatives which

promote the development and growth of the small business sector. The

integrated strategy on the promotion of small business enterprise is based on;

increasing the supply of financial and non-financial support services, creating

demand for small enterprise products and services and the reduction of small

enterprise regulatory constraints (Venter, Urban and Rwigema, 2008:237).

Taxation policy

Income Tax

Income tax is levied on all taxable income in terms of the Income Tax Act 58

of 1962; all new businesses must register with the South African Revenue



45

Service (SARS) in order to obtain an income tax number (Venter, Urban and

Rwigema, 2008:242).

VAT

Value-added tax (VAT) is a consumption tax levied on the sales of goods and

services by vendors, as well as on the importation of goods and services into

South Africa; this is regulated by VAT Act 89 of 1991 (Venter, Urban and

Rwigema, 2008:244).

Employee taxes and contributions

Employee taxes and contributions are essentially those deductions made by

the employer from his or employees¶ salaries and paid to the Receiver of

Revenue; these include Pay as You Earn (PAYE), Standard Income tax on

Employees (SITE), unemployment insurance and the skills development levy

(Venter, Urban and Rwigema, 2008:247).

Labour policy

The labour Relations Act (no.66 of 1995) purpose is to advance economic

development, social justice, labour, peace, and democratisation of the workplace

by fulfilling the primary objectives of the act, which are to realise and regulate the

fundamental rights of workers and employers (Nel et al, 2008:87). South Africa

has a comprehensive legislative framework governing labour relations; this

framework is often criticised as being overly rigid, making employment costly

1991 (Venter, Urban and Rwigema, 2008:250).

Labour Relations Act

Basic Conditions of Employment Act

Occupational Health and Safety Act

Compensation for Occupational Injuries and Diseases Act

Unemployment Insurance Act

Unemployment Insurance Contributions Act

Employment Equity Act

Skills Development Act

Skills Development Levies Act



46

Competition policy

Competition Act

This policy is regulated by the Competition Act 89 of 1999; which places

prohibitions on restrictive horizontal and vertical practices as well as on the

abuse of dominant position, regulates mergers and establishes the

Competition Tribunal (Venter, Urban and Rwigema, 2008:291).

Tr ade Policy

Venter, Urban and Rwigema (2008:244), states that South Africa has become a

signatory to the General Agreement on Tariffs and Trade (GATT) in 1994, and has

since ratified the General Agreement on Trade and Services (GATS) and the

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

GATT, GATS, TRIPS

Intellectual property policy

The World Intellectual Property Organisation (WIPO) states that intellectual property

refers to all intellectual activity such as inventions, literary and artistic works,

symbols, names, images, and designs used in commerce (Venter, Urban and

Rwigema, 2008:291). South African has a number of different legislations that

protects intellectual copyrights, the most important specific to intellectual property

rights are Copyright Act, Patent Act, Designs Act and the trade Marks Act (Venter,


WIPO

TRIPS

South African legislation

Black economic empowerment policy

The objectives of the Broad-based Black Empowerment Act 53 of 2003 include the

economic empowerment of all black people (that is, black South Africans, Asians

and coloureds) including women, workers, youth, people with disabilities and people

living in rural areas (Venter, Urban and Rwigema, 2008:312). Venter, Urban and

Rwigema, (2008:313) states that there are nine codes and 25 indicators, these are

depicted in table 3.1 below.



47

Code 000

Framework for Measurement of B-BBEE

Contains general principles and generic scorecard

Code 100

Measurement of the Ownership Element of B-BBEE

Measure the effective ownership of enterprises by black

people

Code 200

Measurement of the Management Control Element of B-BBEE

Measure the effective control of enterprises by black people

Code 300

Measurement of the Employment Equity Element of B-BBEE

Measures initiatives intended to achieve equality in the

workplace

Code 400

Measurement of the Skills Development Element of B-BBEE

Measures extent to which employers carry out initiatives to

develop the competencies of black people

Code 500

Measurement of the Preferential Procurement Element of

BBBEE

Measures the extent to which enterprises buy goods and

services from BEE compliant suppliers

Code 600

Measurement of the Enterprises Development Element of

BBBEE

Measures the extent to which enterprises carry out initiativesaimed at contributing so socio-economic and enterprise

development

Code 700

Measurement of Soci0-Economic Development Element of

BBBEE

Measures the extent to which enterprises carry out initiatives

aimed at contributing to socio-economic development and

promoting access to the economy for black people

Code 800

Qualifying Small Enterprises

Contains scorecard and principles for qualifying small

enterprises

Table 3.1 Broad based black economic empowerment codes, adapted from

Venter, R., Urban, B. and Rwigema, H. (2008) Entrepreneurship: Theory in

Practice. Oxford University Press, South Africa, pp 313-314.

BBBEE strategy

BBBEE codes

National credit Act

NCR (2010) states that National Credit Act 35 of 2005; defines a number of basicrights that the consumer has with regard to the credit market. Some of the principle

objectives of the Act are:

To promote a fair and non-discriminating marketplace for the access of

credit



48

To prohibit unfair practices

To prohibit reckless credit-granting

By-laws and municipal regulations

Venter, Urban and Rwigema, (2008:320) states that the municipal by-laws and

regulations generally regulate issues relating to licensing, business zoning rights,

compliance with health regulations; and informal trading.

The above discussion briefly describes the essences of the South African policy

framework. It is evident that all the policies have an impact on any business. From aBBBE policy perspective, it would be essential for the organisation to be BBBEE

compliant.

Kauai is aggressively growing the business into supplying health foods to both

school canteens and universities. The organization that purchases Kauai foods

would be subjected to Code 500, in that they are supposed to procure foods from

BBEE companies. Kauai management structure and ownership have no black

involvement with the exception of franchise owners. Thus the organisation will find it

difficult to comply with government rules on BBBEE policy.

In the event that Kauai embarks on supplying school, hospitals and military with

health foods on a large scale basis, the organisations tender for such a proposal

would fail on their BBBEE scorecard. Venter, Urban and Rwigema, (2008:314) gives

a typical break down of scores associated with BBBEE elements, this would typical

constitute 30% of the total tender weighing:

Element Points

Ownership 20

Management Control 10

Employment Equity 15

Skills Development 15



49

Preferential procurement 20

Enterprise development 15

Socio-economic development 5

Total 100 Points

The taxation policy is applicable to all companies in South Africa. Venter, Urban and

Rwigema, (2008:342) states that expenses that can be deductible for income tax

include: material bought for manufacture or resale, wages and salaries, advertising

and promotion, administrative costs, interest on loans and overdrafts, repairs and

maintenance, vehicle running costs and bad debts. Kauai is also entitled to claim for

depreciation in the form of wear and tear allowance on equipment, furniture and

buildings.

Value added tax (VAT) is a consumption tax levied on the sales of goods and

services. Business owners such as Kauai whose taxable income exceed R300 000 a

year are required to register for VAT.

Employee taxes and contributions include Pay As You Earn (PAYE), Standard

Income Tax on Employees (SITE), unemployment insurance and skills development

levy. SITE is applicable on net remuneration only up to R60 000 per annum,

employees that earn more than R60 000 per annum are subject to PAYE and are

required to submit an income tax return.

Employers and employees must pay a monthly contribution to the Unemployment

Insurance Fund (UIF). Employees contribute 1% of their remuneration to UIF, while

the employer contributes one of the employees¶ remuneration, thus a total of 2% of

the employees remuneration is paid towards UIF.

All employers are obligated to pay a skills development levy of 1.5% of all

remuneration.

Thus Kauai has to comply with the tax policies of South Africa.



50

In conclusion, Audretsch, Grilo, and Thurik (2007) concluded that policy frame work

is not for promoting small and medium-sized enterprises (SMEs), but considerably

more pervasive, embracing a broad spectrum of institutions, agencies and different

constituency groups. The Kauai Health Foods Company has no BBBEE information

on any website, the company ownership is also 100% white. They would be required

to transform if they intend growing their business within the public sector.

The existence of two economies was highlighted by former president Mr Thabo

Mbeki; there is a dominant, cutting-edge first economy and a marginalised poverty

stricken second economy that exist side by side. The second economy can be

characterised by high levels of poverty, agricultural dualism, spatial chaos, historical

restrictions on entrepreneurial development and poor support from governmentstructures that have little history or experience in planning and service delivery

(ANC, 2009). The BBBEE rational is to close the gap between these two economies

and create one economy that can give all South African hope towards a brighter

future.

The policy frameworks exist to ensure that business owners function with ethical and

moral norms, as well affording a level of protection to entrepreneurs (Venter, Urban

and Rwigema, 2008:326). It is imperative for organisations to work within these

policy guidelines.



51

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