The Chai Business Plan

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1.      Introduction

The Chai is preoccupied will be preoccupied with selling tea, coffee, other beverages, and snacks in London by satisfying people’s culture of drinking tea and coffee in a relaxed environment. Two people will run this business. A company will be formed, and they will equally own the shares thereby sharing the profits or liabilities equally. The Britain tea and coffee market is huge with people spending billions in cafes each year. Nevertheless, The Chai will still face several competitors in trying to grab a substantial market share in the café industry. This business will be offering premium menu items, free Wi-Fi, and a relaxed environment that will motivate customers to come back. The Chai is still small, and it will be owned and operated by the two owners with John Watson being in charge of the store while Elizabeth Evans is tasked with managing the marketing segment. Additionally, the outlet will be opened each day, and more will be opened throughout the city with time. Also, financial forecasts have been availed including the sales, cash flow, and profit and loss projections.

2.      The Business

2.1  The Background of the Business

The Chai is preoccupied will be preoccupied with selling tea, coffee, other beverages, and snacks. It will start out in London with the intent of expanding to other cities in the country. The United Kingdom is one of the nations with the leading consumers of tea and coffee thus selling the commodity will fit appropriately in the culture. It is thus well-suited to meet these needs. Also, the business will start out in a market plaza since such places are known to attract a myriad of shoppers on a daily basis. The origins of the brand name are from a term used to mean hot beverage in addition to it being unique thus allowing the venture to stand out among its competitors.

The interior decoration will also have to be attractive to promote a cool place to spend time. Some subtle music will also be allowed to play in the background, which will create a good ambiance besides not being too loud as to interfere with people’s conversations. Arts by local artists will be hanged on the walls to create a better connection with the community. Wi-Fi will also be provided at the establishment to keep up with the advent of technology. In so doing, the target of those aged between eighteen and thirty-five years will feel The Chai is a place they could hang out while talking with their associates.

This business will be run by two people. A company will be formed, and they will equally own the shares thereby sharing the profits or liabilities equally. Their combined knowledge and experience in the industry will enable them to appropriate run the Chai. Professionals will also be sought to help out in other areas to ensure that the business grows as planned (Zimmerer, Scarborough, & Wilson, 2005). Also, the mission statement of this venture will be that The Chai will devote itself to provide accessible and affordable premium teas and snacks to London residents in a serene environment. The baristas will be critically selected in addition to being offered competitive salaries. By providing high-quality services, the business can be sure of realizing huge margins, which will also be augmented by its low overhead.

2.2  The Products

The Chai will avail its customers with premium hot and cold beverages, fine accompaniments, and gift baskets. The goal is to become a destination café for visitors and a resource for the community. Customers will also be availed the option of custom ordering the beverages of their choice, which will be blended in accordance with their desires (Tian, 2015). Each of the baristas will undergo extensive training on the practice of blending, brewing, and availing the highest quality beverages that prove that exceptional detail was employed in the making of the drinks. Besides beverages, pastries including scones, bread, cookies, muffins, and other baked goods will be provided. Additionally, there will be the option of having gift baskets that will entail collaborating with the customers to customize them for any occasion.

This café will be opened for each day of the week as long as the market plaza is open. The product portfolio is a typical one for a café in addition to their pricing being premium. In addition to the Wi-Fi, an assortment of newspapers and magazines could also be available to keep people engaged as they enjoy The Chai experience. The business is also looking into having an online platform that will facilitate online purchases whereby people can have beverages and any other offering delivered to their homes or offices. This aspect will be instrumental in making the brand known thus reaching new customers (Boyer, Hallowell, & Roth, 2002).

3.      Markets and Competitors

3.1  Market Analysis

The Britain tea and coffee market is huge with people spending billions in cafes each year. These products are an integral aspect of the daily lives of many consumers. Cafes have significantly spread throughout the UK thereby showing the huge demand that is there for hot and cold beverages. They have become social venues where people can meet their friends for a snack at any time of the day. The coffee culture has also been growing exponentially while that of tea seems to be experiencing stunted growth. The exceptional performance of this industry has been augmented by social and economic factors such as increased disposable income, greater consumer interests in the different blends of beverages, and preferences for cafes over other social venues. The growth of the industry is also expected to continue as this café culture spreads.

London is the capital of the UK besides having a large metropolitan area. Also, it is one of the most visited cities in the world. Additionally, it has a very diverse population having many cultures and languages in the area. The city is home to no less than 8.6 million people in addition to attracting millions of visitors each year. Of these, a substantial percentage is between eighteen and thirty-five years, The Chai’s target group. Nevertheless, a significant number of them already have brand loyalties that could deter them from visiting The Chai. Even though there will be a split between locals and tourists, the target market have a sizable disposable income that the establishment can capitalize on.

The Chai will avail the community with a place to interact and indulge themselves with fine beverages and pastries in addition to unique gift baskets. For tourists, it will become a stop on their tour of London as a break from their activities. These clients will be willing to pay the premium for the products and services due to the promise of great taste, high quality, and a sense of prestige. In fact, higher prices have proven to encourage more sales, because people have the notion that higher prices are reflective of the quality. Therefore, their need to only purchase the best will motivate more sales. Additionally, both locals and tourists could be divided into two classifications.

3.2  Competitor Analysis

In the café industry, a significant number of coffee shops are established in London. The big players include Starbucks, Costa, and Caffe Nero, which hold about half of the market share (Ferreira, 2016). Other non-specialist establishments such as supermarkets and pubs also provide their consumers with beverages in a relaxed environment. The menus and offerings tend to be almost the same. The café industry has low barriers to entry due to several reasons. The capital required to start this venture is small. Also, there is no need for specialized knowledge since learning how to use brewing machines is easy. The only significant barrier is brand awareness, which avails a challenging task for The Chai to establish itself and have its name become known. Additionally, this industry has its competitive rivalry characterized as a mature market whereby the leading competitors’ market shares seem to have solidified. The competitors are also many besides there being little differentiation among them.

Due to the competition being high, The Chai will need to find unique ways of attracting and maintaining customers. This business will be strategically placed to face them and capture substantial market share with time. By being located in the market plaza, people will be quickly attracted to it for beverages and snacks. The reason is that this location puts it into proximity with several individuals and other businesses. It will also tap into the consumer bases of the other outlets in the market plaza. Another competitive advantage is that of the partnership in management. Through every partner’s skills and vast experiences, each will bring something valuable to the table that will help in its expansion. Additionally, the décor of The Chai will foster a relaxed environment thus making attractive for the target market.

4.      Sales and Marketing

The Chai’s value proposition is very clear and distinguishable from others in the market. It entails offering premium menu items, free Wi-Fi, and a relaxed environment that will motivate customers to come back. Because The Chai is a new venture, it will need to prove its worth to premium beverage buyers to earn their loyalty and business. Therefore, the strategy will entail treating first time or regular customers with respect and grace to augment their experience at The Chai. Also, those that prove to be regular will be given free drink coupons to encourage them to come back. Also, the baristas will be trained to always the customer if they would like a snack with their tea or coffee. The staff will also be trained on the best etiquette besides fostering the aspect of remembering buyers and the items they bought on their last visit. In so doing, customers will feel surprised and appreciated (Sin, Tse, Chan, Heung, & Yim, 2006).

It is expected that a loyal consumer base will be established whereby they visit the outlet no less than once each month. Also, having a substantial number of committed regulars that come in a few times each week will help boost the sales. Hence, the sales are expected to begin conservatively and grow exponentially with time. Therefore, the business will have its pricing being comparable to the competition in addition to the value-added feature of immediate service. A cup of tea will average at £2.2 while that of coffee will be about £2.45 depending on the blending that the customer wants. Gift baskets will go for about £10.5. The Chai anticipates sales of at least £11,200 each month for the initial year as the brand becomes known in the community. In the subsequent years, a growth of over ten percent annually will be expected as The Chai gains a substantial portion of the market share besides increasing its customer base in London. The sales will either be face-to-face or through the website.

Additionally, an effective marketing strategy will need to be implemented, which will be instrumental in making potential buyers aware of The Chai’s opening and location in addition to illustrating why the outlet is so wonderful and worth visiting. The marketing activities must consider the different kinds of customers that will be visiting the store. For tea and coffee, the marketing approach must appeal to their palates. Secondly, for socializers, the adverts must illustrate the sense of prestige. For gift basket buyers, it must be shown the wide selection that is available besides the location being strategic. Additionally, the store must be made very visible for tourists to encourage them to enter as they stroll around London (E. Belch & A. Belch, 2004).

There will thus be different marketing programs to boost sales. A distinctive logo will need to be made to act as a unique identifier. The style of the outlet will also have to be distinctive to make it easily recognizable. Another integral activity is that of advertising and promotion. They will focus on portraying the establishment as a place with exceptional offerings besides assuring a first-class experience. It will take part in local radio programs to create awareness about the brand and its location (E. Belch & A. Belch, 2004). Brochures will also be handed out at the store. Moreover, The Chai will need to have social media pages where it can interact with its technology savvy customers.

Publicity will also be instrumental, which will entail engaging in community events that have the target market concentrated. Additionally, exceptional services will have the outlet benefiting from word-of-mouth. In so doing, its sales volumes will be driven up. Additionally, strategic alliances will be formulated with other stores and organizations in helping to generate new leads (Street & Cameron, 2007). All these marketing programs will assist in positioning The Chai as the appropriate place to enjoy high-quality beverages and snacks in the course of the day.

5.      Management

The company is still small, and it will be owned and operated by John Watson and Elizabeth Evans. The former will manage the store while the latter will deal with the marketing segment of the business. The two have extensive experience in the café industry and related ones and the accrued knowledge will be instrumental in dealing with all the aspects of the business and make The Chai a success. Therefore, the management style will necessitate the participation of the owners. Other managers will not be added until it becomes necessary, particularly during expansion. It will help in keeping the overhead very low thus allowing the reaping of higher returns and the quick recouping of investments. A simple organizational structure will thus be maintained at the onset of the business. The future structure will include managers as other outlets are opened. They will comprise a Human Resources manager, an accountant, a purchasing director, a marketing manager, and supervisors.

The initial personnel plan entails one cashier and three baristas at the outlet. Each of them will be required to be on the site whenever the store is open. These workers also double as the cleaning staff as they will be expected to maintain top-notch cleanliness in their workspace. As the expansion occurs, more people will be employed to maintain the quality and consumer experience. Part-time employees could also be used during peak periods. Since the owners are maintaining a hands-on approach, they will also assist when the need arises.  The organizational structure will also initially entail three distinct departments. They are general and administrative, sales and marketing, and production. The first one will involve the management of the outlet, which comprises the two managers. The second one will entail promotion of the store, with Elizabeth being responsible for this task. Lastly, it will constitute the people that will be interacting with the customers.

6.      Operations

The outlet will be opened each day, and more will be opened throughout the city with time. By being located in the market plaza, several advantages and disadvantages will be realized. The location is a place that is deemed to be in a well-trafficked place. Such sites are believed to be frequented by the target market. Therefore, many people will not have any challenges accessing it. Also, individuals that had visited the plaza for other purposes could make The Chai the place to rest and enjoy the beverage of their choice. It is also near many businesses meaning that some of the workers in those entities could make The Chai the destination to visit or order beverages and snacks. On the other hand, The Chai will not be the only café in the market plaza. The suitability of this location means that some of the competitors have already set up shop there. It also shows that they must have already grabbed a significant market share, which is composed of The Chai’s target market. Hence, the management must ensure to realize competitive advantages over the others to attract some of the customers and realize returns.

Some equipment and inventory will be necessary for starting The Chai. They include dishes, teapots, teacups, refrigerators, coffee makers, dishwasher, hot water and steam machine, furniture, and other kitchen items. The Chai will also have to factor in the expenses for rent, marketing, insurance, and legal services. Cleaning equipment will also have to be included in the start-up purchases. Additionally, the businesses will have to source a wireless router to ensure that the provision of free Wi-Fi is stable and dependable at all times irrespective of the traffic.

Additionally, opening the café will necessitate satisfying some requirements. Acknowledging them is imperative since it is advantageous to get things right at the onset since it will make it will ease the management of the business once it is up and running (Burns, 2010). Firstly, the premises will need to be registered. In the UK, it is required to visit the local authority and have the new café registered at the environmental health service department. The local authority will be a very helpful source in knowing all the aspects that must be registered before The Chai is opened. Secondly, some rules will apply that must be adhered to. Choosing a location for a catering business, it must satisfy the necessary regulations of a premise to be used for the safe preparation of food.

Also, the whole café must be up to code in several areas. One, its design must enable cleaning and maintenance of hygiene besides having measures that repel pests such as rats and flies. Next, it must have lavatories and hand washing facilities to augment cleanliness. Washbasins must also be availed that have hot and cold water, soap, and disposable towels. There must be a proper waste management system that facilitates the collection of food waste among other types of rubbish and their eradication. The café must also have an ample supply of water safe for drinking besides having proper lighting, ventilation, and drainage.

Furthermore, food preparation areas need to satisfy some conditions. The walls, floors, and surfaces need to allow easy cleaning and disinfection. Therefore, they must be washable, hard-wearing, smooth, and in an appropriate state. The ceilings must be constructed in a manner that does not shed particles or facilitate the growth of moulds, building up of dirt, and condensation. Windows must be designed in a way that restricts dirt from entering besides having insect-proof screens. Doors must also be washable. Any equipment that is in this area must be well-maintained besides allowing thorough cleaning and disinfection. Moreover, the venture must have all the equipment necessary in facilitating effective cleaning and disinfection of anything used in the business.

The sourcing of this business will also be strategic to ensure the high quality that the company promises will not be compromised (Burns, 2010). Any ingredients will only be purchased from top quality distributors and suppliers. It will entail the establishment of direct sales associations with merchants dealing with fresh produce, vegetables, and meat. The ingredients for the beverages will also have to be from top-notch suppliers. Additionally, the café will engage with the artists to ensure the realization of significant discounts in having exceptional art designed to be displayed in the café. Management will have to reach a marketing agreement with them for the signature art. To be on the safe side, the business will also need to identify suppliers that could come in handy in the event of emergencies or other unique circumstances. Moreover, future expansion will enable the company to realize economies of scale that will be instrumental in the negotiation of more attractive terms of trade with suppliers (Burns, 2010).

7.      Financial Forecasts

Several assumptions will be reached in making these projections. They include no other cafes opening in the market plaza in the next year, a progressive increase in population and disposable incomes in the area, sustained tourist interests in London, and growing buyer interest in beverages.

Sales Forecasts

            In the initial year, it is estimated that the business will be making at least £11,200 each month. These funds will come from the sale of beverages, pastries, and gift baskets (see Appendix A).

Cash Flow Forecasts

The projected cash flow is shown in the table (see Appendix B). The management will be tasked with collecting and paying the sales tax of 17.5% as is required in London.

Profit and Loss Forecasts

This projection is instrumental in illustrating when the business will start experiencing losses or profits. For The Chai, returns will start being experienced as of the first year, and this growth will continue as sales volumes increases (see Appendix C).

8.      Financial Requirements

The Chai will require at least £45,000 to be up and running. The two shareholders will each contribute £22,500 since they hold equal stakes in the business. This contribution will be instrumental in facilitating an efficient start up. The money will be used to acquire all the long-term, short-term assets, and supplies.

9.      Assessing the Risks

Many entrepreneurs are usually ignorant of the numerous risks that could occur within their venture and the consequences they could have on their ability to continue making profits (Tjoa, Jakoubi, & Quirchmayr, 2008). Hence, risk management is imperative for survival. One of the primary risks is that of fire. The reason for this is that a commercial kitchen can have fire starting at any instant besides taking hold rapidly. Such occurrences would have very detrimental impacts thus the need to be well prepared. One resolution is to evaluate one’s insurance policy in addition to any endorsements it may have. In so doing, one is aware of what will be paid for in the occurrence of any accidental losses. Next, fire safety measures will have to be put in place. They include having fire extinguishers, fire blankets, fire detection and sprinkler systems, regular fire drills, and evacuation procedures.

Another risk is that of intruders. Intruder alarms should thus be fitted since they are designed to safeguard assets when the place is unoccupied besides availing a safer setting for the workers (Tjoa, Jakoubi, & Quirchmayr, 2008). These alarms deter vandalism and death besides facilitating a coordinated response when activated. A combination of devices could be used including vibration, movement, duress, break glass, and door and window alarms. Safes could also be used to store any cash or valuable items. An additional risk is that of putting the public in any danger (Tjoa, Jakoubi, & Quirchmayr, 2008). Hence, it is necessary to ensure that the premises and furniture are regularly maintained. Any food items served must also have gone through proper storage, and preparation. Moreover, the mishandling of cash may occur thus resulting in some money going missing. To avert this, the café must have POS registers besides ensuring handling of money is not done by one staff member.

10.  Exit Strategy

Furthermore, the business may prove unsuccessful thus the need to have a pre-planned approach. The first one is an IPO, which is a quick way of acquiring more capital to maintain the business (Hawkey, 2002). The other option is that of liquidating, closing, and leaving the café industry.

 Appendix A: Sales Forecasts

Items Year 1 Year 2 Year 3

Coffee

£36,880.00

£43,555.00

£46,365.00

Chocolate

£63,930.00

£66,900.00

£72,710.00

Iced Teas

£15,735.00

£16,860.00

£17,915.00

Herbal Teas

£7,130.00

£7,700.00

£9,205.00

Gift Baskets

£2,700.00

£2,810.00

£3,000.00

Total Sales

£136,490.00

£148,365.00

£160,435.00

Direct Cost of Sales

Year 1

Year 2

Year 3

Total

£55,575

£59,815

£61,545

 

Appendix B: Cash Flow Forecasts

  Year 1 Year 2 Year 3
Cash Received      
Cash from Operations      
Cash Sales  £  136,490.00  £  148,365.00  £  160,435.00
Total Cash from Operations  £  136,490.00  £  148,365.00  £  160,435.00
Additional Cash Received      
VAT  £    10,237.00  £    11,127.00  £    12,033.00
Total Cash Received  £  146,727.00  £  159,492.00  £  172,468.00
Expenditures      
Cash Spending  £    30,630.00  £    39,340.00  £    44,610.00
Bill Payments  £    82,375.00  £    94,865.00  £    98,880.00
Total Spent on Operations  £  113,005.00  £  134,205.00  £  143,490.00
Additional Cash Spent      
VAT  £    10,237.00  £    11,127.00  £    12,033.00
Total Cash Spent  £  123,242.00  £  145,332.00  £  155,523.00
Net Cash Flow  £    23,485.00  £    14,160.00  £    16,945.00

  

Appendix C: Profit and Loss Forecasts

 

YEAR 1

YEAR 2

YEAR 3

Sales

£136,490.00

£148,365.00

£160,435.00

Direct Cost of Sales

£55,575

£59,815

£61,545

Other Costs of Goods

$0

$0

$0

TOTAL COST OF SALES

£55,575

£59,815

£61,545

Gross Margin

£    80,915.00

$88,550

$98,890

Gross Margin %

59.28%

59.68%

61.63%

Expenses
Payroll

£    30,630.00

£  39,340.00

£     44,600.00

Marketing/Promotion

£      3,795.00

£    4,215.00

£       4,215.00

Depreciation

£         970.00

£       970.00

£          970.00

Rent

£    12,645.00

£  13,345.00

£     14,050.00

Utilities

£      5,625.00

£    5,760.00

£       6,040.00

Monthly disposable supplies

£         840.00

£       840.00

£          840.00

Insurance

£      3,515.00

£    3,515.00

£       3,515.00

Total Operating Expenses

£    58,020.00

£  67,985.00

£     74,230.00

Profit Before Interest and Taxes

£   22,895.00

£20,565.00

£     24,660.00

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