Qualification - Higher National Diploma in Business (RQF)
Unit Name - Planning for Growth
Unit Number - Unit 42
Assignment Title - Investing in the future & Developing an exit plan
Learning Outcome 1: Analyse the key considerations SMEs should consider when evaluating growth opportunities.
Learning Outcome 2: Assess the various methods through which organisations access funding and when to use different types of funding.
Learning Outcome 3: Develop a business plan (including financials) and communicate how you intend scaling up a business.
Learning Outcome 4: Assess the various ways a small business owner can exit the business and the implications of each option.
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Assignment Brief
You are to work on a simulated business or social enterprise of your choice. This need not be complex and could be a small business, such as a local service (e.g. a new coffee shop or an online product sales business). You should choose something that interests you personally or where you may have some existing knowledge or access to resources and skills through personal networks.
Introduction
The current report is based on a business plan for a company that assesses the existing opportunities for business expansion and financial growth. A business plan acts as a strategic tool that gives direction for making informed decisions (Barlow, Baehr, Beyerlein, Horton, and Hurd, 2021). It will not only help in determining future financial needs but also can attract potential investors. The selected company is a Hong Kong based bakery firm named as Hei Lee Bakery. The company offers modern style food products along with bread and confectioneries. The other varieties of baked products offered by the company are biscuits, pastries, cakes, and candies. In addition to this, Hei Lee Bakery also produces baked frozen products and frozen dough products. The products offered by the company are also affordable by the lower income group. It operates in Sheung Wan, Hong Kong. It takes special care for quality and hygiene. The company is committed to producing healthy, top quality and nutritious food that can meet the discerning taste of its customers. This company fulfils the demand of both the retail and user market. It is one of the major suppliers to different fast food chains, supermarkets, hotels and restaurants. There are less than 50 employees in the company who support the growth of the business. The corporate mission of the company is based on Quality, Innovation, and Efficiency. For implementing this goal, the company uses the concept of "learn, think and communicate", which eventually supports manufacturing quality products and the latest technologies. The estimated sales company is close to HKD 1 billio.
You will prepare a business plan for the growth of your simulated small business or social enterprise and submit a written report. This will include:
An explanation of the basis of competitive advantage for the business.
Solution:
Being one of the leading bakery manufacturing brands in Hong Kong, Hei Lee Bakery has several competitive advantages for the business. It has a strong brand recognition which is achieved through more than 8 years of excellence in the market. The market and customers admire the company for its high quality and hygienic products. The company has a strong distribution network which not only helped it to again sufficient raw materials from the suppliers but also to deliver the finished goods to the clients on time. In order to achieve a competitive advantage and become the first choice of customers in the market, Hei Lee Bakery adopted the strategy of low price in comparison to the existing competitors. Its pricing strategy is based on the concept of "value for money", which is easily accessible by the low-income group people. The company has its marketing slogan based on the aspect that "nutrition you need every day with the highest quality" (Abang Abd Hadi, Zainal Abidin, Mustapha, & Johari, 2019). This strategy by the company has made it one of the most successful and leading suppliers in the bakery industry, especially for the supply of biscuits, bread and cakes. Since the pricing of Hei Lee Bakery's bakery product is lower and reasonable with higher quality than its competitors. This has eventually helped in improving the brand loyalty of the company in the market. This cost leadership strategy of the company helps in achieving economies of scale, which is accomplished by producing a high volume of cakes. In this context, the company aims at becoming cost competitive within the niche market (Barlow et al, 2021). For example, Hei Lee Bakery targets a specific market and offers bakery items like bread, cakes, and pastries at a cheaper price than its competitors, who might be providing other varieties of products at a lower price. It is to be noted that the company has adopted an economy pricing approach, which is generally appropriate for the low budget and fast moving products like cookies, bread and commercial cakes. Since the target market for Hei Lee Bakery comprises both middle-budget and low-budget groups, hence it aims at offering these fast moving products at a lower price (Rockas, 2019). However, to maintain the profit, the company needs to mass produce its products and maintain the costs low. In addition to this, it is also required for the company to ensure plenty of daily sales to avoid any significant loss.
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An assessment of the opportunities available to the business.
Solution:
In the baking industry, there exist numerous opportunities which can flourish the business. Nowadays wedding cake and birthday cake has become an integral part of our lifestyle. These cakes act as a cherry on top of these events and everyone wants a perfect and customised cake. Hence, Hei Lee Bakery can leverage this opportunity by showing its creativity and taking orders from customers to create elegant and attractive cakes that can make their special day more special. These cakes need not only be perfect in terms of taste but also eye-catching. Another business opportunity lies with gluten-free baking which is important for health conscious people. This gluten-free baking can target customers with heart issues and also those who are vegan. It is evident that search baking will require different ingredients than traditional baking. Where there is scope for the business to expand as people have limited gluten-free options. In this context, it is also to be highlighted that some people are also looking for organic food products. These customers are always in search of the purest and best form of nutrition. Hence, the company has the opportunity to use organic raw materials while baking their goods, which will eventually help to cater for the needs of such customers. The company will not only ensure the quality of its goods but will also become the first choice for the customers. This strategy can help in creating a unique position in the market, especially among health-conscious customers. In Hong Kong, such business opportunities have not yet been explored by other baking brands. Introducing a baking truck is also another opportunity for this company to flourish its business. This is considered an excellent opportunity for any brand to reach a wide range of audiences and make them taste their delicacies ranging from bread, pastries, cookies, cakes, croissants, and many more baking items across the country (Abang Abd Hadi, Zainal Abidin et al, 2019). These trucks are often considered as live baking platforms where customers not only get fresh and hot products but also experience the entire process. Besides this, Hei Lee Bakery can also include a dessert box in its outlet, which comprises different cookies, chocolates, cup cakes, doughnuts, and biscuits. These dessert boxes are to be offered on special occasions like Christmas or Valentine's Day, where the customers can gift others and bring a smile to their faces. Moreover, it can also introduce customised dessert boxes which are to be designed according to the customers' requests and fill their life with savoury sweetness. As one of the leading baking brands in Hong Kong, the company also has the opportunity to start online baking classes where it can teach others basic baking techniques. This strategy will not help in creating brand awareness but the company can also find potential bakers who can work with the company in future. These baking classes are additional sources of income company and they can be operated through physical or online mediums.
An assessment of the options for growth, applying Ansoff's growth vector matrix with an assessment of the risk of each option.
Solution:
Assessment of the options for growth using Ansoff's growth vector matrix, along with risk assessment of each assessment
In this section, different growth opportunities for Hei Lee Bakery using Ansoff's growth vector matrix. Ansoff's matrix is basically a strategic framework that supports companies in making informed decisions through its four strategic directions, thereby enabling business growth. This matrix allows the management of a company to identify the most likely and suitable strategy for the adoption of the growth option. According to this selected growth option, the company can devise the most appropriate tactics that can be implemented in its marketing activities. In particular, there are four different Ansoff's growth strategies from which the company needs to select. In the selected bakery company, Hei Lee Bakery, there is a need to evaluate the growth opportunities and maintain a competitive edge from the existing and new rivals. These four growth strategies include (i) Market penetration, (ii) market development, (iii) product development, and (iv) diversification.
Market penetration - A company emphasizes market penetration when it plans to promote the existing products in the existing market. Hei Lee Bakery can adopt this strategy in several ways. The first approach for the bakery company is to acquire its competitors and maximize the market share, thereby minimising the existing competition. In this context, the leading competitors of Hei Lee Bakery company are Tai Pan Bakery, Maxims and Saint Honore. These competitors are a huge threat for the company to operate in the Hong Kong market. However, the strategy of acquiring competitors can help in driving out the competitors. For instance, the acquisition of another Bakery company Maxims help Hei Lee Bakery to establish as the largest and strongest bakery chain in Hong Kong. In addition to this, the company can also motivate its existing customer for maximizing the consumption of its baked items treating the nutritional benefits and taste which it offers (Abang Abd Hadi, Zainal Abidin et al, 2019). In addition to this, the company can also provide various augmented discounts and offers on its products, especially during special events and holidays. This approach can help in maximizing the sales rate on specific occasions. In addition to this, with the increase in the number of health conscious customers, can also offer different products like sugar-free, vegan, gluten-free, multigrain products, and oats baked products, along with maintaining the taste and quality. These products can help the company to earn maximum sales, even from those people who have dietary restrictions. This is one of the best approaches to improve the brand image and attract a specific group of customers. Apart from these strategies, Hei Lee Bakery can also adopt the approach of strategic alliances with other companies, which can eventually support in maximizing the number of outlets throughout Hong Kong and also to other countries. These market penetration strategies can help the company to maximize its sales and greater profit (Rockas, 2019).
Apart from its benefit of maximizing the growth options, the market penetration strategy has also certain risks like less income and questionable reputation. The strategy of introducing discounts and offers can no doubt maximize sales, but at the same time, it has the risk of reducing the overall profit margin. For big companies, there is the scope of optimising production cost through producing products at the bulk quantity and making a profit irrespective of discounts. On the other hand, it is difficult for small companies to sustain in the market if their product holds a higher production cost (Mitreva, Gjurevska, Taskov, & Gjorshevski, 2019). Similarly, Hei Lee Bakery being a bakery brand that offers delicious but perishable food products, raises questions in the mind of customers when it provides substantial discounts to some products. In such a case, the bakery products which are offered at premium cost might get affected.
Market development - Market development is that strategy where the business promotes its product in new markets. In this context, Hei Lee Bakery can open new stores in those areas it is currently not operational and has the potential to attract a huge local market segment. It is to be noted that Hei Lee Bakery company is not operational outside of Hong Kong. Hence there is potential for the brand to expand geographically in other nations, thereby increasing its brand awareness. For example, the strategy of introducing specific products like sugar-free products for diabetic or health-conscious customers can be targeted to other countries as well. Moreover, it can also offer products in different sizes or quantities, based on the demand of that specific target market segment (Mitreva et al, 2019). Through this approach, this bakery brand is able to achieve market dominance and maximize market share.
However, the risk associated with market development is the massive capital investments in the new market and the requirement of additional time and effort. The huge investment by the company can result in a loss if this development opportunity does not pay off. Moreover, this strategy requires additional time and effort which might restrict the company in managing business operations, thereby leading to huge losses.
Product development - In this strategy, it is required to introduce new products in the existing market. For Hei Lee Bakery, the most appropriate product development approach is to launch new bakery products. However, this can be in the form of new products or new flavours in the existing item. For example, a new flavour of pastry, cake or bread can be introduced in the market. The existing bakery product is enhanced with the help of quality improvement, especially through making them healthier. However, the company needs to conduct a detailed market analysis before introducing any new product in the market, so that it can determine the customer requirement and the specific type of bakery product they need. The customer feedback collected will further help in the research and development approach to introduce a new bakery product. However, the newly introduced product is then heavily marketed to develop customer awareness. One of these marketing approaches is to distribute the new product as a sample to the customers outside the outlet so as to receive instant feedback. Apart from price, quality and taste, the presentation of the new bakery product also plays a significant role in customers' acceptance (Mitreva et al, 2019).
Some of the major risks associated with this strategy is hiring the right people and introducing new technology. During a new product development phase, it is important to hire the right people, which is not always successful. The success of the new product to be introduced is often dependent on the technology used. The new technology is introduced too late or too early, then the new product might fail.
Diversification - It is considered as one of the riskiest strategies which is adopted while introducing new products in new markets. Hei Lee Bakery Company can introduce this diversification strategy by introducing a new range of products in new outlets. On the other hand, there is also scope for vertical diversification through introducing flour processing units, dairy farms, and poultry farms for eggs (Mitreva et al, 2019). Additionally, it can also diversify into various industries like coffee chains, restaurants and the hospitality industry. Besides the company can also use its brand name for diversification into unrelated industries like processed food, fast-moving consumer goods and cereals.
One of the most significant risks associated with diversification strategy is the threat to brand reputation. The expansion of the brand through new products in a new market has the risk of creating confusion among the existing customers. Customers might perceive that Hei Lee Bakery is no more specialised brand in bakery items. Additionally, diversification also requires enormous capital and debt expenses, which might create financial obligations for the company.
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An assessment of the options for financing growth.
Solution:
Hei Lee Bakery operates as a bakery brand in Hong Kong. This company has several options for financing growth.
• Non-bank cash flow lending - This is also known as enterprise value lending where business development companies provide cash flow lending. This approach of debt financing evaluates the potential growth of a business for underwriting a loan. Business development companies provide flexible payment options along with professional guidance for helping the recipients in achieving their objectives (Jukova, Ilina, Gundarin, Potekhina, and Misanova, 2019).
• Recurring Revenue Lending - This area of debt is appropriate for those with SaaS or other recurring billing models. In this type of financing, the lender evaluates the Annual Recurring Revenue or the Monthly Recurring Revenue of the recipient company before agreeing to the loan (Mitreva et al, 2019).
• Home equity loans - It is a different form of debt financing where the lender tap into the assets and credit of the business owner, instead of that of the business. If the owner has owned a home, then it can borrow against its equity. The major risk factor with this financing is the business owner can lose his or her property in case of any default.
• Debenture - This type of financing instrument acts like a bond that is backed by intangible assets, performance, and reputation of the company. While creating a debenture, other aspects can also be taken into account like credit ratings and cash flow (Tapayan, 2018).
• Mezzanine financing - It is a type of hybrid debt. It acts as a bridge between debt financing and equity financing. However, this mezzanine financing is considered lower than pure equity but is superior to pure debt. Hence, it can be considered as a stock rather than debt. It is because the options provided in mezzanine financing are more attractive for the lenders to transform debt into equity. This financing process is appropriate when the company can only provide equity and the lender can only contribute towards debt for concluding the deal.
Various ways of accessing fundings
There are basically three ways through which companies can access fundings:
• Retained earnings - Companies can earn profit by selling any product or service more than its making price. This is the easiest way of accessing funds and is often used for investing in projects and expanding business. This is used when companies look for a less expensive approach of raising capital from the external investors.
• Debt capital - Companies also have the facility of borrowing money through bank loans or a debt issue where various investors can become lenders. This method of accessing funding is adopted when the principal and interest are to be paid to the lenders. Here the interest price is less costly than other sources of raising funds.
• Equity capital - Here the company can access fund by selling the ownership stakes in the form of shares. This method is preferred as the investors need not be required to make interest payments.
Business Plan
Hei Lei Bakery is recommended to implement and incorporate innovative strategies within the business plan which will further help in attracting the target customers. It is therefore required for the company to provide profitable and lucrative services to the customers as it will help in the smooth operation of the business plan.
• Business overview - the business office bakery company is based on selling the best products like bread, pastries, cookies, cake, coffee, milk shake and many more. Besides the physical store, the business plan also includes the proposal of opening a digital platform and food truck.
• Industry analysis - The revenue of the bakery industry in Hong Kong approximately US$2011 2021. However, the average volume per person in this industry is expected to rise to 53.8 kg in 2022. This market in Hong Kong has registered a positive compound annual growth rate of 2.79 % 2012 to 2017.
• Operational plan - The order taking process of this bakery can be directly through the country or from the online website. The menu of this bakery store will include bread, cake, muffins, pastries, croissants, coffee, tea, milk shakes. There will be sufficient staff who can take orders and deliver the food to customers politely and efficiently, with good behaviour.
• Financial analysis-
• Marketing plan - The marketing plan is designed considering the four elements: product, price, place and promotion. In context to the product, Hei Lei Bakery will introduce new and innovative products in the new market according to the customers' demand. More specifically, the emphasis will be on offering quality products at a reasonable price. For this purpose, the penetration pricing strategy will be implemented for easy acceptance of the product. Considering the place, Hei Lei Bakery is planning to introduce its outlet and food truck in those locations of Hong Kong where it is still not present. Finally, the promotion of the brand and product will be carried out through social media, to attract a wide range of customers.
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Appraisal of exit or succession options for a business
As a SME company, there are several exit or succession strategy for this business like selling the brand, mergers and acquisitions, liquidation, Initial Public Offering (IPO).
• Passing the business to a family members - In this exit strategy, the business the business is transfer to family member or relative at a certain stage which helps in keeping the business within the family for multiple generations. the foremost benefit of this option is that the business owner has the opportunity to select the person with whom he/she wants to handover the business and there is no risk for the former owner of completely separating from the business. However, the disadvantages lies with the emotional and financial stress within the family.
• Mergers and acquisitions - The merger and acquisition is succession strategy where the company is purchased by or merged with another company having similar business goal. the primary advantage of this option is for those owners who want a better return, through negotiating price, terms and other details. The business owner also gets the opportunity to have a clean break from the business. The major challenge in this approach is to find an appropriate acquirer who will fit into the business, which can eventually result in a costly and time-consuming process.
• Initial Public Offering (IPO) - Similarly initial public offering (IPO) is also a profitable exit strategy. Here, the shares of the company is offered to the public in a new stock issuance. The foremost benefit of using this exit strategy is that it will provide the maximum substantial profit in comparison to other exit strategy. However, the demerit lies that this exit strategy is not suitable for everyone. This strategy is time consuming, requires heavy effort, and excessive money.
Based on the evaluation of the above mentioned exit or succession options, it is believed that the most appropriate strategy for Hei Lei bakery is to continue the legacy within the family and pass it along to a trustworthy and reliable family member. In this way, the former business owner will remain connected with the business in some form of transitional or ongoing advisory role.
• A recommendation for the business.
Following on the above business plan, you are to write an appraisal of the exit or succession options for the business or social enterprise, explaining the benefits and drawbacks of each option and coming to a recommendation.
Solution:
Recommendation for the business
As a bakery brand, Hei Lee Bakery has several approaches to expand its business. It is evident that sometimes it becomes challenging to make consistent sales and earn sufficient profit. In this section, a set of recommendations is illustrated to properly navigate the financing processes of the business.
• Being a bakery business, Hei Lee Bakery is advisable to offer delivery and ordering services. This convenient approach will be highly appreciated by the customers, as it makes the purchasing process a seamless experience. For this process, Hei Lee Bakery can include an online ordering system to its website and higher transportation service to quickly deliver products.
• Expanding the menu is also another recommended strategy for Hei Lee Bakery to stand out against its competitors. Despite sticking to the traditional and classic menu, it is recommended to introduce new and innovative bakery items. These new items on the menu should act as a treat for the customers which they will not be able to get in any other company. The company should also focus on providing customised and personalized products to customers at their big events like weddings and birthday parties (Abang Abd Hadi, Zainal Abidin et al, 2019).
• Moreover, the company can also offer sales and coupons, especially during the holiday season. Some of the examples of such offers are free delivery, discount, host sales, and loyalty program. To reach a wide range of audiences and make them aware of these offers, Hei Lee Bakery can conduct vigorous marketing.
• Another approach to expand the business is to start a bakery food truck. These bakery food trucks can be parked at different locations. Moreover, these food trucks are mobile and can move from one location to the other, unlike the brick and mortar stores.
Conclusion
In summary, the present report is based on the business plan of a bakery company. The selected bakery company is Hei Lee Bakery which is based in Hong Kong. This company offers different baked items like bread, pastries, and cake. The primary competitive advantage of this company is the low-cost strategy where it offers different products at a minimum price in comparison to its competitors, thereby satisfying the needs of the middle and low-income groups. In addition to this, the report also assesses the business opportunities and financial growth options. Furthermore, this report also evaluates the growth option with the use of Ansoff's matrix and determines the potential risk of each strategy. Finally, a set of recommendations that can help the financial growth of the business are illustrated which includes ordering and delivery service, menu expansion, offering discounts, and introducing food trucks.