A QUESTION 2 (50 marks) Analyze in detail the marketing, operation, and financial aspects of the business, and then suggest to Matthew whether he should open "Freshy" at Prosperous Shopping Centre as planned or not. Freshy: Proposed Fruit Juice Outlet Matthew has five days to decide. Should he open a fruit juice business in the Prosperous Shopping Centre (a shopping centre located at West Kowloon) or continue as the marketing manager at the Champion Bowling Centre? He has been very successful running big bowling tournaments attended by people from all over Hong Kong and has saved enough money to start his own business. Which career path is the right one? BACKGROUND- Prosperous Shopping Centre is a new shopping centre in West Kowloon. Due to its proximity to a cluster of shops selling trendy and fashionable items that young people are fond of, and the short distance from the nearest MTR station (within five minutes walking distance), the developer of Prosperous Shopping Centre is confident that the Centre can attract a substantial number of shoppers and visitors, especially teenagers and young people in their early to late twenties. To make the Centre attractive to shoppers through a well-balanced portfolio of shops in the Centre, the developer of Prosperous Shopping Centre invited interested parties to submit their business plans for consideration. Matthew has been trained in tourism and hospitality at a local university. He plans to eventually open his own travel agency. After graduation, he started working in the tourism industry in order to build up his personal network and practical experience. However, because of keen competition in the market, the travel company he worked at for more than five years has been liquidated. Subsequently, one of his business friends introduced him to the Champion Bowling Centre job as a marketing manager. He worked there for three years, and is performing well. When he heard about the opportunity offered by the developer of Prosperous Shopping Centre, he decided to pursue his dream and begin a startup PROPOSED BUSINESS PLAN Matthew first presented to the centre management his plan to open a travel service business. Unfortunately, the centre management only considered plans for travel services from sizable organizations that already had travel agencies in operation. Matthew clearly does not fit the criteria. As an alternative, he thought of opening a fresh fruit juice operation because he enjoyed making a variety of fruit drinks at home for both family and friends, and felt that perhaps centre management would not require the owner to have relevant experience in operating a juice stand. He proposed to offer customers freshly squeezed fruit juices mixed with homemade soft ice cream. The centre management accepted his business proposal. Matthew gathered the financial data required to open the store and now has five days to accept the centre's offer to lease the space for his proposed juice stand operation." MAT LEASE AGREEMENT The Prosperous Shopping Centre charges rent to business(es) depending on the number of square meters the business occupies. Tenants pay anywhere from HK$1,300 to HK$2,200 per square metre per month. The rate depends upon how well-known and how big the company is. In the case of Freshy, it is going to occupy an area of 40 square meters, with a rental charge at HK$1,500 per square metre per month. Centre lease agreements are generally for two years and requires the tenant, in addition to the lease, to pay for electricity, water, centre management/maintenance and security. Water and electricity are estimated at HK$2,000 per month, and centre management/maintenance and security would cost HK$3,000 per month.- The shopping centre only leases the space and provides basic decorations. Matthew plans to re- decorate the space at an estimated cost of HK$350,000. Other start-up costs are as follows (all in HK$): 1 Overhead sign Outside sign Display case for fruite Refrigerator Ice cream maker Ice maker Fruit juice machines 15,000 18,000 20,000 50,000 30,000 12,000 12,500 1 1 1 1 1 1 1 1 All equipment is expected to last for at least three years. He expects to finance the startup with his own savings. FRESHY Matthew is going to name his store Freshy to emphasize its main product of freshly squeezed fruit juices mixed with homemade soft ice cream. The store is going to operate 7 days a week, and 14 hours a day. To provide sufficient manpower, the store will run 2 shifts every day (day shift from 7:30 am to 2:30 pm, and night shift from 2:30 pm to 9:30 pm), with two hourly paid employees working in each shift. Each employee will be paid HK$50 per hour. FRESH FRUIT JUICES Freshy is going to serve a freshly squeezed fruit drink mixed with ice cream. There is going to be 30 varieties of fruit drinks offered. The ice cream is going be made on-site by mixing an ice cream powder with water in the ice-making machine that slowly mixes the product at about minus 28 degrees Celsius. Soft ice cream is then going to be poured out of the tap at the bottom of the machine. The ice cream could then be mixed with the different types of fruit drinks. The average order would be HK$35, with fruit cost estimated at 15% of the selling price, and raw ingredient for producing ice cream estimated at 8% of the selling price. Costs of accessories for serving the juice, including the cup, the straw, and other necessary items are estimated to be around 5% of the selling price. THE DECISION I Matthew must decide whether to go ahead and start his business. He is hesitant because he does not know how many customers he would need to have for the year to cover all his costs and be profitable. He would also like to make a monthly profit of HK$60,000 for his first year and wonders how many customers he would need to make that profit. His real concern is the ability of Freshy to do enough business to break even prevent bankruptcy