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over Ireland to compete with the large supermarket multiples. Part of the reason Musgrave SuperValu Centra has been so successful is the huge support the company gives to its franchisees. Musgrave offer a wide range of services including the following: s centralised buying s marketing advice s store design s financial systems s information technology assistance. As a result the market share of the independent retailers serviced by Musgrave has grown from 8 per cent in the mideighties to 25 per cent in the late-nineties. Retailing is very competitive and many owners of SuperValu and Centra stores, because they are enterprising, are constantly looking for ways to develop their businesses. Enterprise brings risks and Musgrave, through their Business Planning Programme, anticipate the problems that might emerge and so limits the risks.
Business Planning
Pressure from substitute products or services Shops traditionally have competed with other shops. However, many service stations and off-licences are now opening a retail section and thus competing with the local shops. Bargaining power of buyers Most buyers are free to shop wherever they like. Even in rural communities there is no guarantee that the local population will buy locally, especially as new motorways increase accessibility of other shops. The local shop can often know local needs and may be better positioned to service them. Bargaining power of suppliers An independent retailer has very little bargaining power when negotiating with suppliers. For this reason many join symbol groups like SuperValu or Centra. The retailer can get a much better agreement with a supplier as part of a symbol group. Intensity of rivalry among competitors Some retailers actively compete with their rivals and carefully watch the prices in their stores. They may also attempt to differentiate from each other by, for example, providing home delivery services or freshly cooked food and lunches.
improves communications between the owner and his or her employees, customers, suppliers and bankers.
Strategic analysis
Development of a business plan begins by getting the owner to assess the present position of the business. This where are we now analysis is usually based on three key sources of information: 1. the financial history of the business 2. market research 3. analysis of changes in the environment, i.e. roads, housing developments, etc. The business plan should focus on the nature of the business, the customer profile, information on competitors, a SWOT analysis and the key issues facing the business in the future. A SWOT analysis is an analysis of the strengths, weaknesses, opportunities and threats facing the business.
The above is based on the strategy proposed by M. E. Porter (1980) and is illustrated by the diagram below:
Business 2000
New entrants In many cases it is difficult to enter an existing market. However, if the circumstances change then new competitors may emerge. This can occur when the population rises in an area, as has happened in many outlying towns around the major cities. In these cases the local shops may not be ready to satisfy the demands of the new market and new retailers may enter the marketplace.
provides guidelines for the use of resources and the identification of priorities improves performance by assisting owners to examine the potential
Action plans
Only now is the owner ready to make action plans for the year ahead. For each project a plan is made focussing on the following elements: s resources needed s the finance required s the target date for completion s the milestones that will help monitor progress.
Objectives
To begin with a short list of objectives is drawn up. These should be achievable and quantifiable as demonstrated below. Examples of Business Objectives The objectives of a SuperValu or Centra supermarket might be:
s s
Some owners may find this task quite daunting and now may be the time to get the assistance of an accountant. Musgrave SuperValu Centra offer the support of its Retail Accounting Team. This is a team of accountants that provide a wide range of financial support services to its retailers. The business plan should now be ready to communicate to the key staff who will be affected by it. Once up and running the plan needs to be monitored on a regular basis, perhaps every month but certainly every three months. If it is found that the plan is no longer valid, then it is time to make a new business plan in order to refocus.
Sales plan
The Musgrave Business Plan comes with financial planning computer software. Using this the owner is assisted in drawing up sales forecasts, gross profit projections, overheads plan and profit checks.
s s s s s
Competitors
Quite often it is the emergence of new competition that motivates the trader to develop his or her business. However, in addition to identifying existing competition it is also desirable to anticipate the potential for new competition. these it will be possible to identify certain key issues that threaten the company goals or even the long-term survival of the business. These issues will now dominate the development of the rest of the business plan.
Personal plan
It is critical that the owner has a clear view of where he or she wishes the business to go in the future. If the owner is getting ready to retire then the business plan will be very different to an owner who is planning on setting up a family.
To increase turnover by 8% each year To generate 15% of gross profits from the meat and deli department within 3 years To develop a profitable in-store bakery business within 2 years To increase the average gross margin by 1% each year for 3 years To reduce overhead costs by 1% per year To increase turnover by 10% per year To reduce the turnover from tobacco as a percentage of total turnover by half within 3 years To secure a Lotto machine within 2 years.
1 2 3 4
SWOT analysis
A SWOT analysis looks at the strengths, weaknesses, opportunities and threats to a business. The strengths and weaknesses come from within the organisation and the opportunities and threats occur outside. The owner of the store should involve trustworthy family members and staff in this process. Not only will this help to generate a greater range of ideas but it will also make it easier to implement any new plans later on. The following is a sample SWOT analysis for a typical SuperValu or Centra store.
Mission statement
This is a simple statement of the purpose of the business. It should take account of the personal plan of the owner and the SWOT analysis issues.
Taking a local supermarket or other business of your choice, write a short report outlining: s The nature of their business (What is their core business?) s Profile of customer base (Who are their main customers?) s Competitors (Who are their main competitors?)
Financial plan
The computer software will also help in drafting a financial plan for the business. Financial projections including profit and loss projections, cashflow projections, balance sheet projections and ratio analysis must be drawn up in order to finance the growth of the business. The computer generates many ratios that show the full impact of the changes about to be made. The most important ratios are:
s s s s s s
Competitive strategy
The owner must now decide how to make the business different from any competitors. The mission statement will help to determine the focus for this strategy.
Study the sample SWOT analysis for a typical SuperValu or Centra store and list three key issues facing this business in the next 3 5 years.
Functional review
In order to become more competitive there may have to be changes to certain functional elements of the business. For example, it may be necessary to build a bigger car park, change the layout of the store, offer a wider range of products or have longer opening hours.
Outline the main benefits to Musgrave of supporting the growth of SuperValu and Centra.
Gross Profit Margin on Sales % Overhead Costs as % of Sales Labour Costs as % of Sales Operating Profit as % of Sales Interest Cover Debt : Equity Ratio.
While every effort has been made to ensure the accuracy of information contained in this case study, no liability shall attach to either The Irish Times Ltd or Woodgrange Consultants Ltd for any errors or omissions in this case study.
Business 2000