Business plan

Your Individual chosen Case Scenario business plan report

To complete this assignment you are required to produce a business plan report suitable for consideration by the management team of your chosen case scenario company in the context of the strategic challenges facing the company.

Your report should be a maximum of 4,500 words.

 

In producing your business plan/consultancy report you should:

  1. a) Identify, explore and evaluate alternative strategies for developing the business.
  2. b) In undertaking a) above, research the relevant ‘real world’ industry, market and business environment the company is situated in. You should use a combination of relevant real world primary and/or secondary research to provide the basis upon which your strategic choices are made.
  3. c) Arising out of a) and b) above, set out a compelling five year business plan report designed to enhance shareholder value. You may use your own definition of

shareholder value but must explain and justify it. The plan may identify a range of strategies for consideration but should ultimately put forward your recommendation with evidenced justification.

  1. d) Identify specific KPIs to assist in measuring to what degree shareholder value is being enhanced.
  2. e) Review your proposed plan, and identify and assess the key risks within it.

 

You should include graphs, tables and figures within the main body of the report where appropriate. You may also wish to include extracts of your spreadsheet planning model results within your business plan report to strengthen your justifications and evidence.

If you carry out any primary research you should include relevant extracts within an appendix as part of the evidence of carrying out that primary research.

Overall contextual research into the relevant industry, market and business environment (15%)

 Use of primary and/or secondary research to justify the strategic option(s) being set out for the company (20%)

 Definition and justification of shareholder value for chosen case study company (5%)

 Recommended strategy/strategies and justifications (10%)

 Case study company-specific KPIs justification (10%)

 Identification and assessment of key risks within proposed plan (10%)

 The quality of the business plan taking account of cohesion, links with your research and associated considerations (25%) – Note: this will be assessed using the assessors academic judgement of the submission presented.

 

 

About Company

Shropshire Teas is a mid-sized private company based in the UK. Their primary business is blending, packaging, marketing and selling tea to the UK retail market.

Shropshire Teas is unsure of where it is heading strategically in the near future and has contracted

you as a consultant to provide guidance through a five year business plan report. The company’s

management team welcomes your identification of and insight into potential (and viable!) strategic

options. The management team is open to considering a range of strategies that may strengthen

their core activities, and/or diversify their product range, and/or enter international markets, or and/or perhaps consolidate the company’s activities.

The market

Tea is by far the most popular hot drink in the UK, with over 160m cups being drunk every day, more than twice the consumption of coffee. Teabags account for 96% of the cups drunk.

In recent years there has been a steady decline in black tea sales as younger consumers have turned to the more fashionable coffee, and the health conscious have switched to green teas and herbal teas.

The market remains very large despite this decline, and is estimated to be worth over £600m a year in retail sales, of which over £400m is sales of the standard product.

The popularity of alternative teas – green teas, fruit and herbal teas – has grown rapidly as sales of the standard black tea have declined. All the major producers, including market leaders Tetley and their main rivals P G Tips, now sell ranges of these alternative infusions. The market for green teas is now estimated to be growing at around 8% a year and the market for fruit and herbal infusions by a similar amount.

The coffee retail market has been innovative in recent years with a focus on the coffee shop environment and building a youthful trendy image. This more up-market image has in turn supported premium pricing. Despite the rise of the alternative tea market, tea has been much less successful than coffee in establishing a distinctive modern image.

 

The company

 

Background

Shropshire Teas – “The Taste of Shropshire” – is a long established private company. They started life in 1963, when the founder started blending teas for his customers in his grocery store in Shrewsbury. The tea proved so popular that he set up Shropshire Teas to market and sell his blend of light fresh black tea more widely.

Product range

The company produces four main product lines from its factory on an industrial estate at Telford, close to the motorway network and with fast rail access to the UK’s second city, Birmingham.

The main product categories are:

 Own label tea bags for major UK supermarket chains

 Own label / bulk pack tea bags for smaller retail chains and caterers

Shropshire Gold Blend Tea – their own branded premium black tea product

 Specialty teas – green teas and decaffeinated teas

 Fruit infusions

 

While the company is best known for Shropshire Gold Blend, around 40% of their sales revenues currently come from sales of tea bags to the major supermarket chains who sell them under their own brand label.

The company’s supermarket sales are on three-year contracts, won by competitive tender. Margins are low, but they provide a reliable cash flow without associated ongoing promotion and merchandising costs.

One contract is due for renewal by competitive tender in 2 years’ time. The other was only recently signed and has three years to run. The contracts include a 20% discount on Shropshire Teas standard pricing.

The company can earn better margins on its own branded products and would like to grow these so as to become less reliant on the renewal of the large supermarket contracts. It sees particular growth opportunities in the specialist and fruit tea sectors, where the market is growing strongly, but volumes are smaller than the sales of Shropshire Gold Blend Tea Bags.

The company prides itself on its environmentally friendly reputation. All teas are sourced from Fair Trade suppliers and the tea bags are at least 80% biodegradable.

 

Production

 

Tea is blended, bagged and packaged at the factory. The company has a single production site, which contains both the factory and the company sales and administration offices. The company owns the site and values the property at cost in the balance sheet.

Shropshire Teas has production plant and equipment sufficient to produce a notional 6 million Kg of standard own brand tea bags per year. Actual production depends on the product mix and on productivity of the workforce. The table below shows the relative production capacities of the various product ranges. In each case, the figures show capacity in 2016 if 100% of production was dedicated to only that one product line.

By diverting production capacity from low margin standard tea bags to the Shropshire branded products, the company can improve gross margins, but has to balance this against the reduction in total production.

Actual capacity rarely reaches the notional maximum and depends on workforce productivity. The company believes that more operator training and higher hourly pay rates could improve productivity, but with low margins are reluctant to increase the cost base.

Tea production equipment has a five year life, and is depreciated at 20% per year. The company policy is to replace one fifth of their equipment each year. They also added 500,000 Kg of new capacity in 2015.

 

Inventory management

The company decides on how to allocate their production capacity between the different product lines at the start of each year. Raw tea and packaging supplies are ordered regularly throughout the year, with company policy of maintaining raw material stock levels of at least 10% of annual consumption.

In planning how to use resources, management monitor the levels of finished goods inventory and try to balance the need to produce sufficient product to meet demand with minimising the level of unsold inventory.

 

Treasury management

 

Shropshire Teas has outstanding long term debt of £7.84 million. The company has a good relationship with its bank and so long as the business remains profitable is under no pressure to reduce the debt.

Should the business wish to raise further funds for expansion then it may be able to raise further long term loans at attractive interest rates, and also has the option to raise more equity capital. In both cases, the executives will first need to prepare a convincing business plan to justify the new investment.

The business has cash to meet its short term working capital needs, and a Current Ratio (current assets / current liabilities) of over 3 as at the last balance sheet date.

 

 

 

 

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