Reference no: EM133101978

Auntie Bev's Flower Shop

1.0 Introduction

Beverley Rose was the owner of the only flower shop in the Mandeville area and gained a reputation for selling high-quality plants and agricultural supplies at reasonable prices. However, another store opened nearby recently, selling similar flowers and agricultural items at slightly lower prices. Sales of plants started to decline in 2011, where a 40% decline was observed compared to 2010. To compete, "Auntie Bev" was thinking of moving to a larger location and expanding her business to capitalize on emerging opportunities such as the demand for landscaping services by wealthy professionals. She was uncertain how her current customers would react to such a move and wondered what kind of strategic management activities she should engage in to ensure her business's long-term survival.

2.0 Jamaica Profile

The Jamaican economy is heavily dependent on services, which now account for nearly 65% of GDP. The country continues to derive most of its foreign exchange from tourism, remittances, and bauxite/alumina. Remittances account for nearly 15% of GDP and exports of bauxite and alumina makeup about 10%. The bauxite/alumina sector was most affected by the global downturn while the tourism industry was resilient, experiencing an increase of 4% in tourist arrivals. Tourism revenues account for roughly 10% of GDP, and both arrivals and revenues grew in 2010, up 4% and 6%, respectively. Jamaica's economy faces many challenges to growth: high crime and corruption, large-scale unemployment and underemployment, and a debt-to-GDP ratio of more than 140%. Jamaica's onerous public debt burden is the result of government bailouts to ailing sectors of the economy, most notably to the financial sector. In early 2010, the Jamaican government created the Jamaica Debt Exchange to retire high-priced domestic bonds and significantly reduce annual debt servicing. Despite some improvement, debt servicing costs still hinder the government's ability to spend on infrastructure and social programs, particularly as job losses rise in a shrinking economy. Jamaica was hard hit by the effects of the global economic crisis, experiencing economic contractions from 2008-to 2012.

3.0 Company background

Beverly Rose opened Auntie Bev's Flower Shop in December 2008, 20 years after graduating from the University of the West Indies (UWI) with a degree in Chemistry and Management.

Born and raised in Jamaica, Beverley had always aspired to be an entrepreneur and after completing her UWI education had been involved on a part-time basis in several business ventures. Two years after graduating from UWI, while employed full-time as an insurance agent, she formed a small business with a friend to sell used shipping containers. Throughout her corporate career, Beverley changed jobs several times, working in the sales department at a shipping agency, then in the customer service department at a paint company, and starting in 2004, as the marketing manager at a roofing company. Over time, Beverley sold her shares in the used container business and opened a partnership with another friend, who owned a well-established plant shop. Beverley eventually quit as the marketing manager of the roofing company in the summer of 2005 and became a full-time partner in the plant shop. She immersed herself in the partnership and was involved in all aspects including direct sales, plant preparation, chemical labeling and packaging, visiting suppliers, and promoting the shop. To enhance her knowledge of plants and the agricultural sector, she pursued training courses in plant science offered by the Ministry of agriculture along with other private courses. After gaining experience in the flower and agricultural supplies industry, Beverley sold her share of the business to her friend and used the funds to open Auntie Bev's flower shop in the Christmas season of 2008.

Beverley funded the business with personal savings of J$ 950,000. She was confident in her experience even in the face of the tumultuous economic conditions in Jamaica. She did not do any market research before opening Auntie Bev's flower shop and started the business solely from personal knowledge of the industry. Based on her knowledge, she was aware of the growing interest by customers in establishing home gardens and felt that the rising prices for herbs and gardens supplies offered a unique opportunity to launch a one-stop agricultural shop.

4.0 Shop Location

Beverley initially wanted to locate the shop in Kingston but was unable to find a suitable site at a reasonable cost. Instead, she was located in Mandeville. The shop was on the ground floor of a three-story building in a very busy area of Mandeville, about a five-minute drive from a large shopping center. The building also houses four small food outlets and a computer sales and repair shop. A heavily visited gas station was also close to Auntie Bev's flower shop, with the South Coast Highway (a heavy traffic main highway linking all major cities along Jamaica's south coast) was a stone's throw away from the shop.

Although Beverley was in a high-traffic location, she was considering moving her location because the shop was recessed at an angle that made it not visible to passing motorists. She originally planned to erect a large floodlit sign at the roadside, but the cost to erect the sign was quite high, at J$ 60,000. She abandoned the idea and chose a smaller sign over the storefront entrance.

The expansion of the car park serving the building also meant that Beverley no longer had the space in front of the shop to display plants and allow them adequate sunlight. This led to increased plant losses up to 25%, and many seedlings were showing stunted growth. Beverley recognized that she would need additional space for a greenhouse to expand and break into the lucrative flowering plant market. However, Beverley's customers liked the shop's current location due to its accessibility, and she thought that she would lose a significant number of customers if she relocated. Beverley considered moving to Savannah la Mar, another densely populated area along the north coast if she could not find a suitable location in Mandeville.

5.0 Product Mix

Traditionally, establishments that sold plants or agricultural supplies were viewed as agricultural shops that catered to the needs of farmers. As the focus shifted away from serving farmers in rural communities to serving homeowners in the suburbs, the product mix in many agricultural shops was expanded and they were converted into home and garden shops to satisfy the needs of the new segment. Auntie Bev's consisted of medium to low-end plants and gardening supplies not costing more than J$ 6,000. Items included seedlings, pots, and chemicals (see Exhibit 1). Beverley deliberately chose not to cater to the high-end market and carry more expensive items, since the turnover of such items was very slow and tied up a lot of capital.

Unlike competitors specializing in selling one type of product, customers of Auntie Bev's could find garden supplies, ornamental flowers, or vegetable seedlings all in one location. Bev's customers could find unique products such as neatly bagged manure. She also expanded her product line to include bonsai plants, turtles, and aquarium fishes and widened the range of brands in each product category. For seasonal events, she sold special flowers like roses for Valentine's Day, a crown of thorns for Easter, and poinsettia for Christmas. She also cultivated rare and exotic plants.

6.0 Promotion

Very limited marketing was done for the shop before opening due to a lack of start-up capital. Promotional flyers were distributed at nearby shopping plazas and surrounding companies two weeks before the grand opening. Beverley created mobile plant shelves to display plants outside the front entrance of the shop but did not display a sign outside the shop until her second year of operation. Despite the low level of marketing, there had been a natural increase in sales over the past two years and Beverley was reluctant to increase her marketing budget beyond the J$10, 000 she spent on flyers and posters.

7.0 Pricing

Beverley deliberately kept prices low for the first months of operation. Initially, the mark up on plants was 25 to 50%, while on shop items (garden supplies) it was 30%. She changed her pricing structure after the first year in business so that for plants costing less than J$ 150, the mark-up increased to 100%, while for plants costing more than J$ 400, the mark-up was 50%. The mark up on shop items, on the other hand, was increased to 40% at the end of the first year and was increased more recently to 50%. An exception to the general pricing policy was made for the more expensive items (i.e. more than J$5,000), where the mark-up was maintained at 35%. Such items (e.g. pumps, resin pots) represented 10% of auntie-Bev's entire inventory. The normal markup for competitors similar in size was 50-100% and the larger shops usually marked up their prices by 100%. Beverley's general pricing policy, however, was to set her prices at either the same level or slightly lower than all other nearby competitors.

Beverley was considering raising her prices. She knew that sales would be affected and estimated that a 5% increase in price would result in a 7.5% decline in sales volume. She wondered if the higher price would also change the image of her shop and be enough to offset the lower sales volume.

8.0 The Consumer

There appeared to be several distinct segments of customers who patronized the shop. The majority (60 percent) of Auntie Bev's customers were working women (25 to 40 years old) who were first-time home garden owners. The second-largest customer segment (15 percent) comprised retirees over 60 years old who enjoyed gardening in their free time. Expatriate workers constituted approximately 10 percent of the shop's customer base. These individuals tended to be fairly wealthy and were primarily interested in purchasing exotic plants. Teenagers (10 percent) and farmers (five percent) were the final two customer segments. Teenage customers were most likely to purchase aquarium fishes and flowering plants, while farmers were more interested in purchasing vegetable seedlings and chemicals.

Over the past two years, Auntie Bev's had developed a loyal customer base. Many of these loyal customers were attracted to the shop because of its extended opening hours on evenings and weekends. The late closing time (7:00 p.m.) also allowed Bev to cater to walk-in shoppers who had stopped on their way home after work to purchase food from the various food vendors surrounding Auntie Bev and then noticed the shop. Approximately 15 percent of such walk-in customers were from outside the Mandeville area and were not aware of the shop's existence before their first visit. A growing number of customers had also started visiting the shop on weekends because they found the opening hours on a Sunday to be more convenient.

Beverley's willingness and ability to procure exotic plant species that were not readily available in competing shops had also attracted some customers away from the larger, well-known suppliers of plants and seedlings. What Beverley discovered was that many customers were willing to travel significant distances to obtain the more exotic varieties of plants and that her reputation for selling such plants gave her a competitive advantage. Several schools in the district had approached Beverley, seeking plant rentals for school functions. Since Beverley did not provide this facility, she usually referred these requests to the plant shop owned by her former business partner. A few school teachers had also come into the shop and bought seedlings to use in science projects and this was a business opportunity that Beverley felt held significant future potential.

Relatively wealthy young professionals who were interested in landscaping services (fuelled by their exposure to programs on cable television) represented another emerging market and Beverley had received several inquiries about such services from customers. The rise in housing projects that required landscaping services was another growing market and Beverley had submitted three proposals for landscaping commercial properties but had been unsuccessful in winning any bids thus far. Her plan for the upcoming year was to attend various courses in commercial landscaping design to increase her chances of winning this business.

9.0 Suppliers

The type of supplier varied for each of Auntie Bev's product lines. There were two different categories of suppliers of ornamental plants (which were imported into the country before being propagated). Beverley bought about 30 percent of her ornamentals directly from eight of the 10 largest suppliers in the country based on their wider plant selection (a special license was required to import plants and seedlings) and geographic location. Auntie Bev got the majority of ornamental plants, however, from 30 small home-based suppliers, who bought from the larger plant shops and propagated on a limited scale before selling to shops like Auntie Bev. Beverley preferred buying from these smaller suppliers since their prices were usually lower than their larger competitors' prices.

There were five large nurseries selling seedlings for food plants (e.g. cabbage, lettuce, tomatoes) in the country. Auntie Bev got most of its seedlings from the largest supplier, which was located in Mandeville. Beverley often had to contend with shortages of seedlings due to the seasonal growing patterns for some plants. The supply of seedlings was also somewhat dependent on the importation of seeds by the chemical companies who supplied seeds to the nurseries, who in turn sold seedlings to plant shops.

In an interesting twist, some customers had also turned into suppliers. The largest herb supplier for Auntie Bev's, for instance, had started off buying herbs from Auntie Bev to start a small home garden and had evolved into one of the largest herb suppliers in the country. Auntie Bev got her fish, turtles, and pet supplies from three small-scale suppliers located in the Mandeville area and sourced chemicals directly from five of the seven large chemical suppliers in the country.

Equipment was bought directly from large hardware distributors as well as wholesalers of gardening tools. Beverley sometimes collaborated with other plant shop owners to buy plants and garden supplies in bulk to get discounted prices.

10.0 Competition

When Auntie Bev opened in 2008, there were a few established plant shops that dominated the Jamaican home and garden industry. Competitors tended, however, to focus on sales of either plants or chemicals and no one, at the time, had the mix of products that Auntie Bev carried. For instance, there were four large family-owned businesses in Mandeville that controlled the market, but one shop only sold plants while the other shops only sold fertilizers and chemicals. The large seedling supplier for Auntie Bev in Mandeville also sold directly to the public but had slightly higher prices than Auntie Bev and Beverley felt that this allowed her to remain competitive despite the smaller size.

Initially, there were no direct competitors near Auntie Bev, with the closest competitor located 30 miles away. Within the last 10 months, however, a much smaller shop with a similar product mix had opened one mile away and there were rumors that another home and garden shop was going to be opened in the nearby shopping mall by December 2013. Beverley had also noticed that within the last year the type of products offered by one of the larger competitors had changed to more closely resemble her own.

11.0 Financial Performance

The slow revival of the agricultural sector in Jamaica and the increased interest by consumers in growing their food had helped spur sales in the first year of the company's existence. The Ministry of Agriculture had also invested heavily in educational programs encouraging citizens to start home gardens and this, coupled with the population's exposure to cooking shows on cable television, had contributed to an increased demand for vegetable plants and herbs in particular. These factors had increased Auntie Bev's sales significantly.

During the first 18 months after opening, sales had grown steadily but had slowed considerably in the second half of 2010 (see Exhibit 2). Beverley had also managed to put aside J$ 850,000 in cash, which she held in reserve in case of an emergency. She was reluctant to use this money to fund the operations of the business, but her banker had reassured her that she could use these savings to get a loan of twice this amount if needed. Although she had not done a formal analysis of sales trends, Beverley kept a meticulous log of her monthly sales and expenses and noticed that sales tended to peak in December but drop off in July and August when families were on vacation or saving money to buy school supplies. Apart from the Christmas season, Auntie Bev's experienced higher than average sales during special occasions such as Mother's Day and Valentine's Day. Beverley feared, however, that sales for the upcoming Christmas season would not match the pattern witnessed in previous years.

12.0 CURRENT SITUATION

By the fourth quarter of 2011, sales were 40 percent lower than the previous year even though the dramatic slowdown in the Jamaican economy experienced in 2008 (fuelled by the global financial crisis) had prompted more people to start planting home gardens. There were also early indications that the price of fertilizers, seeds, and gardening equipment would increase by at least 10 percent in the upcoming year, which would add to the cost of doing business. Beverley estimated that if she moved to a new, more visible location she might be able to increase sales by at least 20 percent and was optimistic that, with an aggressive promotion campaign, sales might increase by as much as 40 to 50 percent the end of the following year. Some of the costs associated with such a move included $J 30,000 for erecting a greenhouse and shop sign as well as a monthly rental of J$10,500 for a plot of land. Beverley knew that if she stayed in his current location, however, she would be forced to cut back on the volume of flowering plants she sold because of the product losses incurred due to the lack of space.

She expected that sales for the upcoming Christmas season would be 25 percent less than the previous year unless she invested in a more aggressive marketing campaign for the shop. As she reflected on the future of the business, Beverley knew that some tough decisions would soon have to be made.

Exhibit 1: Sample Product List and prices

Exhibit 2: Quarterly sales and expenses (J$ 000)

1. What does a SWOT analysis reveal about the situation confronting Auntie Bev's Flower Shop?

2. If you were to write a mission statement for Auntie Bev, what will it state? Please justify your reasons for this answer.

3. What possible strategies could Auntie Bev's Flower Shop employ to overcome the threats in her external environment?

4. What course of action would you recommend to Auntie Bev's as she ponders on the future of her business?