Pure Petals Business Plan July 3, 2009
Management and Future Investors of Pure Petals
Table of Contents
Executive Summary 3
1.1. Industry Overview 5
1.2. Mission Statement 11
1.3. Goals & Objectives 12
2.0 Operations Plan 12
2.1. Operational Overview 12
2.2. Location 13
2.3. Floor Plan 15
2.4. Purchasing 17
2.5. Daily Operations 17
2.6. Working Capital Management 18
3.0 Human Resources Plan 19
3.1. Job Descriptions & Qualifications 19
3.2. Management and Labor Costs 20
3.3. Organizational Chart 21
4.0 Marketing Plan 22
4.1. Marketing Overview 22
4.2. Products and services 23
4.3. Pricing 25
4.4. Promotion and Distribution 25
4.5. Place 27
4.6. Competitive Analysis 28
5.0 Financial Plan 29
5.1. Initial Costs 30
5.2. Capital Structure 30
5.3. Projected Financial Results 30
Appendix 1 – Financial Projections 35
Table of Figures
Figure 1 – Proposed Location on Broadway Avenue 14
Figure 2 – Proposed Floor Plan 16
Independent entrepreneur, Carolyn Jones, is seeking $60,000 in debt financing and $40,000 from outside equity investors to finance her proposed business, Pure Petals. Pure Petals will operate as a Fair Trade flower shop on Broadway Avenue in Saskatoon, Saskatchewan. Carolyn will act as shop manager and will contribute $50,000 in initial capital funding, representing approximately 55% ownership of the outstanding shares in Pure Petals.
The Fair Trade flower industry is an attractive, dynamic, and economically viable market to be entering. Worldwide sales of fair trade flowers have grown 30% annually since 2001, and the United States market is growing 50% per year. Despite these incredible growth statistics, there are currently no Fair Trade florists located in Saskatoon. Saskatoon is a viable market for new businesses, as the city has one of the fastest growing economies in Canada including a booming fair trade movement.
Pure Petals will offer a variety of unique floral arrangements using Fair Trade certified flowers. In particular, flower arrangements will be designed for Celebrations, Triumphs, Miracles, Misfortunes, Spontaneous Acts of Kindness, and Adoration. Pure Petals will also offer complementary products such as cards, balloons, stuffed animals, and vases. Pure Petals will promote sustainability though the use of environmentally friendly containers and packaging.
Pure Petals will target Saskatoon consumers who value social responsibility and environmental sustainability. The business will gain significant competitive advantages as a first mover in the Saskatoon Fair Trade flower industry. Pure Petals will also develop partnerships with other Fair Trade and eco-friendly vendors on Broadway to benefit from increased exposure and cross-promotion. Carolyn will bring passion and commitment to her role to ensure the long term success of Pure Petals.
Pure Petals will be strategically located within the heart of Saskatoon on Broadway Avenue. This location is beneficial as it boasts high volumes of foot traffic, proximity to downtown, and proximity to other Fair Trade and eco-friendly merchants. Pure Petals will also benefit from the marketing efforts of the Broadway Business Improvement District. Other promotional activities which will target Saskatoon and the surrounding area will include advertising through radio and newspaper.
To achieve our goal of providing beautiful floral arrangements and superior customer service, Pure Petals will employ an experienced and creative floral designer. Pure Petals will secure a sufficient supply of fresh Fair Trade flowers by establishing strong relationships with multiple Fair Trade flower distributors in Canada. Whenever possible, the company will also subsidize its inventory of imported flowers with purchases from local organic growers in Saskatchewan.
Pure Petals will require an initial capital investment of $150,000 to fund capital outlays and initial operating costs. Based on our five year financial projections, Pure Petals will generate average net income of $36,000 and cumulative cash flows of $290,000. We have performed a sensitivity analysis, taking into account varying sales levels and flower purchase costs. Based on our projections, equity investors will earn a return on investment of approximately 70%.
1.1. Industry Overview
1.1.1. The Fair Trade Flower Industry
The Fair Trade certification on flowers is a guarantee that growers meet strict social and environmental standards and that workers receive a premium to invest in community development. Buying Fair Trade flowers ensures consumers that workers are receiving fair wages and protection from harmful chemicals; growers are managing for environmental sustainability; and communities are directly benefiting from the presence of the flower industry (Fair Trade Flowers Program Overview).
The Fair Trade certification provides the following basic rights to workers in developing countries (Fair Trade Flowers Program Overview):
· Fair wages;
· Childcare and schooling for their children;
· Paid maternity, vacation, and sick leave;
· Protection gear and training on safe handling of agrochemicals;
· A premium of 10% of each sale to invest in community development; and
· Training to implement development projects of their choosing including scholarships, microlending, adult literacy, and gardens to feed their families.
In addition to providing socio-economic benefits to workers, the Fair Trade label holds growers accountable for ensuring the following sustainable farming methods are employed (Fair Trade Flowers Program Overview):
· Careful monitoring of pests and application of natural pesticides such as chilli and chamomile extract, building of soil fertility, and support for the plants’ natural defences;
· Reduced water and energy usage;
· Protection of watersheds and wildlife habitat; and
· Employment of organic farming practices where possible.
1.1.2. Growth in the Fair Trade Flower Industry
The Fair Trade flower industry has experienced incredible worldwide growth in the past 5 to 10 years. The following statistics support our belief that the Fair Trade flower industry is an attractive, dynamic, and economically viable market to be entering (Fair Trade Flowers Program Overview; Finlay Flowers, 2008):
· Fair Trade flower sales worldwide have grown more than 30% annually since 2001. In the United States, the Fair Trade flower market is currently growing at more than 50% each year.
· Consumer awareness of Fair Trade flowers has grown 30% annually since 2003.
· The Fair Trade flower certification has a high purchase conversion, in that 56% of consumers who are aware of the Fair Trade option also purchase it.
· Although the Fair Trade flower market is still growing in North America, the Fair Trade flower industry has been extremely successful in Europe. For example, 50% of roses sold in Switzerland today are Fair Trade certified. Also, sales of private label roses tripled at a leading floral company in Finland after converting the flower supply to Fair Trade certified.
· In 2007, worldwide spending on Fair Trade products (including flowers) increased 47% over the previous year and benefited 7 million farmers and workers in 58 developing countries.
1.1.3. PESTE Analysis
· Canadian regulations surrounding agricultural imports and trade restrictions are continuously evolving. If the Canadian government imposed strict regulations regarding the import of agricultural products or trade restrictions with certain countries that are major exporters of Fair Trade flowers, the company’s supply chain could be strained and costs could increase due to reduced supply.
· The supply chain for Fair Trade flowers is highly dependent on growers in developing countries, such as Ecuador, Colombia, and Kenya. The political environment in these developing countries can be highly unstable. Any significant changes to tax policies or labour laws in these exporting countries could also strain the company’s supply chain and increase input costs.
· We will address these challenges by making strong contacts with various distributors and local growers to diversify our supply chain and limit our exposure to changes in any certain export countries.
· We believe that our company is less likely to be affected by potentially stricter regulations surrounding agricultural imports because Fair Trade flowers are generally of higher quality and have lower levels of pesticide residues.
· The worldwide economy is currently experiencing a recession which has reduced consumers’ levels of disposable income and discretionary spending. If consumers view flower purchases as luxury spending, we will experience a decline in demand for flowers and decreased revenues.
· We will address this challenge by diversifying our target market in Saskatoon. We will mitigate the risk of a future decline in luxury spending by marketing Fair Trade flowers to more non-discretionary consumers, such as wedding and funeral planners.
· We believe that our company will be insulated from the recession’s effects on consumer spending. Recent research from Reuters shows that consumers are still putting environment and ethical issues at the heart of their spending decisions during the recession, with spending on ethical goods and services rising 15 percent in 2007-2008, versus overall household spending growth of 3 percent (Potter, 2009). Also, Canadian research data shows that average spending on weddings (a large player in the flower market) is increasing in 2009 despite the recession (Wedding Trends in Canada, 2009). The same survey data indicated that 67% of brides will try to incorporate eco-friendly products when planning their wedding day.
· Fuel prices have increased dramatically in recent years, and many experts believe that fuel prices will continue to rise in the future. As our supply chain is reliant on imports from countries around the world, our input costs could increase if transportation and distribution costs rise with the price of fuel.
· We will mitigate the risk of increased transportation costs by making contacts and building relationships with local growers.
· Trends towards health consciousness, environmental friendliness, and social responsibility are becoming increasingly popular which presents incredible growth opportunities for our company. Conversely, with these trends being extremely high-profile issues in society today, our company’s reputation could be harmed if the Fair Trade label becomes associated with any negative publicity in the future.
· The growth in these trends provides the basis for our business strategy and placement in the flower market. The Fair Trade flower industry is currently untapped in Saskatoon, as there are currently no florists that offer Fair Trade flowers. These trends towards environmental friendliness and social responsibility will provide huge growth opportunities for our company We will profit greatly from our first mover advantage in this dynamic industry.
· We will mitigate the risks of any negative publicity surrounding the Fair Trade certification by profiting on our first mover advantage and building our brand recognition in Saskatoon while the issues of environmental friendliness and social responsibility continue to be favourably viewed in the market.
· Currently Fair Trade flower production processes in developing countries rely heavily on manual labour. Although the rate of technological change associated with growing Fair Trade flowers is slow, any increase in the use of automated processes would increase efficiency and potentially decrease the costs of purchasing Fair Trade flowers.
· Technological change does not currently represent a significant opportunity or challenge for our company, but we will encourage our distributors to purchase from growers that employ efficient and environmentally friendly farming methods.
· Our company, like all companies involved in the farming industry, is highly affected by changes in environmental factors. The supply chain for Fair Trade flowers is largely dependent on production levels in select exporting countries, and as such, any unfavourable change in the weather or climate in these countries could significantly reduce the supply of flowers and increase our input costs.
· As noted above, we will mitigate these supply chain risks by making strong contacts with various distributors and local growers to diversify our supply chain and limit our exposure to changes in any one export countries.
1.1.4. Other Expected Challenges and Responses
· One challenge that our company will have to overcome to achieve its sales targets and desired market share is the lack of awareness of the Fair Trade label. If consumers in Saskatoon are unfamiliar with the Fair Trade certification, they will not recognize a value premium in our products and would be unlikely to switch from their current florist to Pure Petals.
· We believe that awareness of the Fair Trade label will continue to grow at a high rate in Saskatoon. As noted above, worldwide awareness of Fair Trade products is growing 33% annually. In our marketing strategy, we plan to partner with other Saskatoon businesses that promote Fair Trade products, such as Ten Thousand Villages and The Better Good. As these vendors are not in the business of selling Fair Trade flowers, our company does not represent direct competition. All of the businesses involved in these strategic partnerships would benefit from cross-promotion and increased awareness of the Fair Trade label.
· Although Fair Trade growers are associated with better flower quality because they can attract and retain the best workers, some consumers may perceive Fair Trade flowers to be of lower quality than non-Fair Trade products. This misconception would harm our company’s brand image and would make it difficult to achieve sales targets and market share.
· We will combat the misconception that Fair Trade flowers are of lower quality by dealing with reputable distributors that provide only the highest quality flowers.
· We will also educate Saskatoon consumers about the quality of Fair Trade flowers by providing them with information about the success of the Fair Trade flower industry in other markets. For example, 97% of Swiss consumers stated that Fair Trade flowers were of equal or better quality than non-certified flowers (Fair Trade Flowers Program Overview).
· Given that the Fair Trade flower industry has only recently emerged and is still in its growth stage, there is a risk that the supply of Fair Trade flowers may not meet demand from distributors and florists. If the supply of Fair Trade flowers is not sufficient to meet demand, our input costs would increase and we could lose potential customers.
· We believe that the current supply of Fair Trade flowers is sufficient to meet our supply chain needs and we will not be forced to pay a premium to achieve our desired purchasing levels. Currently, more than 30 of the highest quality growers in Ecuador, Colombia, and Africa are Fair Trade certified, producing more than a billion stems every year in hundreds of the hottest varieties (Fair Trade Flowers Program Overview).