P4 Business Development Report
The business development proposal for the Bristol foodhall
For the attention of: Peter Holden
Author: Francis Rogan
Date: 1st April 2013
The purpose of this report is for me to find out using reliable evidence whether it would be more financially beneficial for the business to replace or refurbish its foodhall. Then give you my recommendation with the reasons behind it and why this would be the best thing to do for the business.
Table of contents Page
Introduction …show more content…
3
Methodology 3
Initial findings 4
Sensitivity analysis 4
Environment 7
Final conclusion and recommendation 8
Introduction:
The business has a foodhall department which has been successful for a number of years but Tesco Metro and Sainsbury central have increasingly been setting up new stores in the city centres over the last few years which will have a negative effect on the business as will draw customers away as the business cant compete with Tesco and Sainsburys as it does not have sufficient volume to compete on prices. Therefore the business faces a dilemma. It now has two options, it can either refurbish the foodhall to focus specifically on speciality foods and wines or the business could replace the foodhall with a toys and games department. The business has to do something if it wants that department to still remain competitive and in this report I will advise you which course of action to take with sufficient evidence to back it up.
Methodology:
To start of this investigation I created a revenue forecast sheet for the foodhall if we made no change (figure 1). I calculated the forecasted data using historic data to make it as accurate as possible. This forecasting model was used to create two scatter graphs (figure 4 & 5) which would show the revenue data and de-seasonalised trend against the quarter number which provided me with a quick and easy way to analyse the foodhall. The scatter graphs also show fluctuations of seasons and trends. I then used this data to calculate the forecasted revenue for the foodhall if no changes were made, which I then compared to the two options potentially to go ahead to help me come to a decision for my recommendation. For the two potential decisions I created a cash-flow forecast (figure 2&3) which would give me the chance to analyse how each option would develop if the business went ahead with that option giving me more knowledge of which option to go ahead with. I calculated the revenue differently for each option. For the refurbishment option I added the future forecast revenue per quarter to the increase in quarterly revenue from the refurbishment option, but for the replacement option I multiplied the build-up factor by the maximum potential revenue per quarter. To work out the net cash flow for the two options I took the total future forecast revenue per quarter from the total costs per quarter. I did this so I could compare the two and would give me good reason to go ahead with whichever option as I could see which would be more financially successful in that area. I then worked out the present value and net present value figures. For the present value I multiplied the net cash flow per quarter figure by the discount factor. I then used this to work out the net present value, which I worked out by adding up all of the present value per quarter figures and then adding this to the net cash-flow figure. This was a very important calculation and is a big contributing factor to my decision as it shows how much value would be added to the business in Bristol. All the predictions are very helpful in making a decision but all this quantitative data doesn’t take into account such factors as competition and the surrounding area. Because of this I researched into Bristols Broadmead shopping centre and found out about the competition for both the potential speciality food and wine store, and the Toys and Games store. I also did some market research into how there industries were predicted to do over the next few years to see there market potential.
Initial findings: I saw that if the business invested £28,000 on refurbishing the foodhall and turning it into a department focusing on speciality foods and wine then its net present value would be £885,570. If the business decided to totally replace the department and create a toys and games department then it would have to invest £140,000 which is an extra £112,000 than the refurbishment option but the net present value would be £1,204,249 which is £318,679 more than the refurbish option. Therefore on initial findings it seems if the Business can afford to replace the foodhall this would be the better option. Taking a look at the revenue of both options the replacement option actually has a higher average of £611,045 compared to the refurbishment option of £551,250. However this is because in quartile two of 2013 the refurbishment option makes no revenue. If I don’t take this quartile into account the average goes up to £630,000 so after that first quartile the replacement option generates more revenue than the refurbishment option. Taking a look at the total costs of both options the replacement option has lower total costs than the refurbishment option again making this a less risky choice for the business to choose. The average total costs for the replacement option are £372,188 whereas the average total costs for the refurbishment option is £490,818. This is £118,630 more than the replacement option on average. Looking at the cash-flow for both the Refurbish and toys and games replacement option the average Net cash-flow for the refurbish option is £120,227 whereas the replacement option is £179,063. Therefore on my initial findings again the replacement option looks the better option to go ahead with of the two.
Sensitivity analysis:
The additive time series model is appropriate for using as a future forecast because we have used past historic data to predict the results. Presuming the data stayed constant and there were no drastic changes the graph would be accurate. Looking at the data on the forecasting model the data is very sensitive to minor changes. If you alter certain numbers like for example on the refurbishing table the 'cost of sales ' it has a huge effect on the rest of the table. Currently the cost of sales on the refurbishment table is 40% but if it moved down 6.9% to 33.1% the Net present value is now worth more on the refurbish option than the replacement one. Also if the other costs changed from 30 to 24 and went down just 6 this would also totally change the forecast model and the net present value would now be higher on the refurbish option than the replacement option. Of course if the 'other costs ' and 'cost of sales ' went the other way it would push the refurbishment option an even riskier choice for the business than the replacement option.
This also applies to the replacement option. Small changes to certain figures have a drastic effect on the whole model. If the 'maximum potential revenue ' changed from 140 to 124.7 then the whole model changes and the net present value would be worth more on the refurbishment option. The same for when the 'other costs ' goes up from 27 to 33. At this precise point the replacement option now has a higher net present value. The whole forecast model are only predictions so this means they could easily have some unexpected costs occur here or there for either which could have a huge impact on which is the better choice to go ahead with. It is important to remember these aren 't necessarily going to be the exact figures so you have to take this into consideration when making a choice of what the business should do. I have had a look at the predictions for Leeds and Nottinghams Toys and Games departments and Nottinghams maximum potential revenue is a lot higher than ours at 155 to Bristols 140. Now Nottinghams store is only 200 sq ft bigger than Bristols but has 15 more maximum potential revenue. However Leeds is 200 sq ft smaller than Birstols store but is only 5 lower in maximum potential revenue. This does not make sense so this could mean potentially the predictions aren 't that accurate.
This table shows how sensitive the figures can be to minor changes of different factors in the cashflow model.
Refurbishment option Factor Initial value change (%) NPV Before:
885,570
NPV After; Comment % increase in quarterly revenue 15 -10 852,456 The change is small and not very sensitive. Therefore wont make a difference if forecast is slightly out. Refurbishment cost £/sqft 4 -10 888,370 The change is minimal and so is not worth looking into changing too much. Management costs £/qtr 3,500 -10 888,248 The change is minimal and so is not worth looking into changing too much. Other costs £/qtr/sqft 30 -10 1,046,255 The change here is quite large and so could effect NPV a lot if the forecast has not been accurate. This factor is very sensitive to change and is important it is accurate. Staff costs £/qtr/sqft 4.7 -10 910,744 The change is reasonable but not big enough to effect the decision made on which option to go ahead with Cost of sales (%) 40 -10 1,072,166 The change here is large and could be a contributing factor to choosing which option as the NPV can largely alter if this factor is changed.
Replacement option Factor Initial value change (%) NPV Before:
1,204,249
NPV After; Comment Maximum potential revenue,£/sqft/qtr 140 -10 911,637 This change in NPV is quite big but even with it the NPV is still higer than the Refurbished option. Shopfitting cost, £/sqft 20 -10 1,218,249 This change is minimal so is not worth looking too much into. Management costs, £/qtr 2,500 -10 1,206,162 This change is minimal so is not worth looking too much into. Other costs, £/qtr/sqft 27 -10 1,348,866 This change is big so it is important these figures are accurate as minor differences can make big differences to the NPV. Staff costs, £/qtr/sqft 2.5 -10 1,215,907 This change is minimal so is not worth looking into too much Cost of sales (%) 30 -10 1,329,654 This change is big so is important the predictions are accurate for this factor as minor changes can have a big impact.
Environment:
Having looked into the surrounding area of the foodhall we plan to change I have found out about the competition that may arise for both the replacement toys and games option and the refurbishment into a speciality of foods and wines option.
If the business went ahead with the idea of refurbishing the department in Broadmead shopping centre then it would be the only one of its type in Broadmead shopping centre but it would face competition from similar shops such as Tesco metro and Sainsburys local. Tesco metro have a standard selection of wine to choose from and so customers who are shopping there anyway are likely to buy there wine from there as it will be cheaper than a specialist shop and they don’t have to visit another store, unless they want a specific wine or something a bit special in which case they would be likely to visit the businesses refurbished department. Also Sainsburys Local in Broadmead shopping centre supplies wine too. It is not like their Tesco and Sainsburys super stores with a huge selection of wine but will have a small selection to choose from and have all the standard wines so customers are likely to get their wines while they 're there. Also Tesco and Sainsburys are more up market supermarkets, particularly Sainsburys so will have good quality food as it is. Making it more unlikely there regular customers will travel to the business to buy there specialised food if they 're already loyal to Tesco or Sainsburys. However there is still an …show more content…
opportunity for the businesses refurbished department to do well in Broadmead as there are still customers looking for specialised food and wine. There are no other organisations like it in Broadmead and so presents opportunity. People may turn up who are hosting parties and want top quality specific food and wine or perhaps the more affluent customers who want the top end food and wine.
I have also looked into the Toys and Games departments potential competition. They are looking to sell Children 's toys from 4 to 10 years; young people 's activities from 10 to 15 years; games, puzzles, books; craft materials, Lego, computer games etc. Argos is a huge variety store that sells a lot of the stuff the businesses new department looks to sell. This would be a disadvantage to the business as it already has a big reputation and a lot of marketing power so could be hard for our new department to compete against. However they are different in that Argos is a collection point and you shop more through catalogues. It is not a shop you walk around and see items you like a buy which is good for the type of shop the business is thinking of bringing in as often kids like to see in real life or play with toys before they buy them which Argos cannot offer. Apart from Argos there is also Game and CEX which sell computer games but none of the other items and WH Smith which sell books. However these aren 't too much of a threat as they only sell one or two items the businesses new store would sell and so is not too similar. Therefore the Toys and games department looks a good idea to go ahead with.
I did some market research into Toys and games to see if it was predicted to continue to do well over the next coming years. I found of Keynote that "The UK population is forecast to see consistent year-on-year growth over the next 5 years, which should keep demand for toys and games fairly constant in the future. However, the next couple of years will see gross domestic product (GDP) growth remain low, while inflation and unemployment remain high. This is likely to have a negative effect on sales of toys and games, as families are likely to reign in their spending on such products, which are often superfluous to basic needs, or instead purchase items that are considered to be value for money". However the same could be said about The specialist food and wine as this also is seen as superfluous to basic needs so this point is invalid in the decision. "In terms of demographics the population of 0-14 year-oldsd is expected to increase by 5.6% over the next 5 years, which should provide a boost to the toys and games market". This is the age group The business are targeting so this is further reason to go ahead with the Toys and Games replacement option. Also the table in figure 6 shows the growth of the UK toys and games market between 2007 and 2016. During this period, sales of toys and games increased by 8.8% overall. The graph in Figure 6 shows this.
Overall, Key Note expects sales of toys and games to increase by 10.3% over the next 5 years, rising from £2.23bn in 2012 to £2.46bn in 2016.
In my market research into Specialist food and drink for the refurbishment option I found a report on keynote about the organic food and drink industry which is very much a big part of specialist food and drink.
It stated "Over the past few years, the UK organic food and drink market has observed year-on-year decline, principally due to continued economic uncertainty following the recession of 2008 and 2009, which resulted in a number of consumers reining in their spending, particularly on higher priced goods such as organic produce. Recent figures have suggested that the UK market began to stabilise in the latter part of 2011, while Key Note has predicted slow but steady growth over the next 5 years. Overall, the market is expected to increase in value by 11.8% between 2012 and 2016, rising from £1.66bn to £1.86bn" This is a positive that it is expected to rise but as you can see from the research into the toys and games industry the market will not be worth the same amount and so there is more opportunity to be successful in the bigger market for the toys and games
industry.
Conclusion:
After extensively analysing the business proposal of which option to go ahead with that would best suit the business I have come to the conclusion that going ahead with replacing the current foodhall with a Toys and Games store would be the best option. Looking at the future forecast models and graphs it is easy to see looking at the quantitative data that the replacement option is the much better option in turns of adding value to the business. Despite the initial start-up cost costing the business £112,000 more The cash-flows and net present value all show it is a risk worth taking as will reap bigger rewards in the future and point to the replacement option being the better of the two. Having into the demographics of the two potential options too, despite both options having competition in the local shopping centre the Toys and games option seems to show the most potential and the market research into their industries back this up with the toys and games industry showing it has a bigger market and will grow more over the coming years. Also the demographic factor about the age group the business will be targeting predicted to grow 5.6% in the next five years is a big boost for this option as it means more potential customers coming their way.
A point for consideration for the new toys and games store would be that there has been a rising level of ownership of smartphones, so for the 12-15 year olds the toy shop will be targeting they could introduce 'apptivity ' products, eg toy and cars and helicopters that can be remotely controlled using a smartphone. They are being increasingly made by manufacturers and it is important for the business to stay up to date and add this to their product range. Also they need to consider the fact that Toys and games stores are more successful in certain seasons and so will be booming around Christmas time but will need to stay in with the trends to keep successful all year round.
Finally I believe the business should go ahead with the Replacement of the foodhall and bring in a toys and games store. It has been superior and showed more potential in all areas I have researched into and is the stand out option for the business to go ahead with.
References:
Broadmead Shopping centre Staff. (2013). Bristol Shoppping Quarter. Available: http://www.bristolshoppingquarter.co.uk/. Last accessed 10th April 2013.
Keynote. (2012). Organic Food & Drink Market Assessment 2012. Available: https://www.keynote.co.uk/market-intelligence/view/product/10588/organic-food-%26-drink?highlight=organic+food&utm_source=kn.reports.search. Last accessed 10th April 2013. Keynote. (2012). Toys and Games market report 2012. Available: https://www.keynote.co.uk/market-intelligence/view/product/10631/toys-%26-games/chapter/7/forecasts?highlight=toys and games. Last accessed 10th April 2013.
Keynote. (2012). Toys and Games market report 2012. Available: https://www.keynote.co.uk/market-intelligence/view/product/10631/toys-%26-games/chapter/5/strengths-weaknesses-opportunities-and---------threats?highlight=toys and games. Last accessed 10th April 2013.
The Business. (2011). The Business. Available: http://teaching.shu.ac.uk/om/thebusiness/website/new_intranet/whoswho.htm. Last accessed 10th April 2013.
Appendices
Forecasting model-Figure 1 Forecasting model- Figure 1 (bottom half)
Cash flow for the refurbishment option - Figure 2 Cash flow for the replacement option - Figure 3
Scatter graph showing the revenue and de-seasonalised trend against the quarter number with trend line and linear equation - Figure 4 Additive time series model showing the revenue, historic and future forecast against the quarter number - Figure 5
A graph to show the growth in Total UK Market for Toys and Games by Value (£m at rsp), 2007-2016- Figure 6
For the attention of: Peter Holden
Author: Francis Rogan
Date: 1st April 2013
The purpose of this report is for me to find out using reliable evidence whether it would be more financially beneficial for the business to replace or refurbish its foodhall. Then give you my recommendation with the reasons behind it and why this would be the best thing to do for the business.
Table of contents Page
Introduction …show more content…
3
Methodology 3
Initial findings 4
Sensitivity analysis 4
Environment 7
Final conclusion and recommendation 8
Introduction:
The business has a foodhall department which has been successful for a number of years but Tesco Metro and Sainsbury central have increasingly been setting up new stores in the city centres over the last few years which will have a negative effect on the business as will draw customers away as the business cant compete with Tesco and Sainsburys as it does not have sufficient volume to compete on prices. Therefore the business faces a dilemma. It now has two options, it can either refurbish the foodhall to focus specifically on speciality foods and wines or the business could replace the foodhall with a toys and games department. The business has to do something if it wants that department to still remain competitive and in this report I will advise you which course of action to take with sufficient evidence to back it up.
Methodology:
To start of this investigation I created a revenue forecast sheet for the foodhall if we made no change (figure 1). I calculated the forecasted data using historic data to make it as accurate as possible. This forecasting model was used to create two scatter graphs (figure 4 & 5) which would show the revenue data and de-seasonalised trend against the quarter number which provided me with a quick and easy way to analyse the foodhall. The scatter graphs also show fluctuations of seasons and trends. I then used this data to calculate the forecasted revenue for the foodhall if no changes were made, which I then compared to the two options potentially to go ahead to help me come to a decision for my recommendation. For the two potential decisions I created a cash-flow forecast (figure 2&3) which would give me the chance to analyse how each option would develop if the business went ahead with that option giving me more knowledge of which option to go ahead with. I calculated the revenue differently for each option. For the refurbishment option I added the future forecast revenue per quarter to the increase in quarterly revenue from the refurbishment option, but for the replacement option I multiplied the build-up factor by the maximum potential revenue per quarter. To work out the net cash flow for the two options I took the total future forecast revenue per quarter from the total costs per quarter. I did this so I could compare the two and would give me good reason to go ahead with whichever option as I could see which would be more financially successful in that area. I then worked out the present value and net present value figures. For the present value I multiplied the net cash flow per quarter figure by the discount factor. I then used this to work out the net present value, which I worked out by adding up all of the present value per quarter figures and then adding this to the net cash-flow figure. This was a very important calculation and is a big contributing factor to my decision as it shows how much value would be added to the business in Bristol. All the predictions are very helpful in making a decision but all this quantitative data doesn’t take into account such factors as competition and the surrounding area. Because of this I researched into Bristols Broadmead shopping centre and found out about the competition for both the potential speciality food and wine store, and the Toys and Games store. I also did some market research into how there industries were predicted to do over the next few years to see there market potential.
Initial findings: I saw that if the business invested £28,000 on refurbishing the foodhall and turning it into a department focusing on speciality foods and wine then its net present value would be £885,570. If the business decided to totally replace the department and create a toys and games department then it would have to invest £140,000 which is an extra £112,000 than the refurbishment option but the net present value would be £1,204,249 which is £318,679 more than the refurbish option. Therefore on initial findings it seems if the Business can afford to replace the foodhall this would be the better option. Taking a look at the revenue of both options the replacement option actually has a higher average of £611,045 compared to the refurbishment option of £551,250. However this is because in quartile two of 2013 the refurbishment option makes no revenue. If I don’t take this quartile into account the average goes up to £630,000 so after that first quartile the replacement option generates more revenue than the refurbishment option. Taking a look at the total costs of both options the replacement option has lower total costs than the refurbishment option again making this a less risky choice for the business to choose. The average total costs for the replacement option are £372,188 whereas the average total costs for the refurbishment option is £490,818. This is £118,630 more than the replacement option on average. Looking at the cash-flow for both the Refurbish and toys and games replacement option the average Net cash-flow for the refurbish option is £120,227 whereas the replacement option is £179,063. Therefore on my initial findings again the replacement option looks the better option to go ahead with of the two.
Sensitivity analysis:
The additive time series model is appropriate for using as a future forecast because we have used past historic data to predict the results. Presuming the data stayed constant and there were no drastic changes the graph would be accurate. Looking at the data on the forecasting model the data is very sensitive to minor changes. If you alter certain numbers like for example on the refurbishing table the 'cost of sales ' it has a huge effect on the rest of the table. Currently the cost of sales on the refurbishment table is 40% but if it moved down 6.9% to 33.1% the Net present value is now worth more on the refurbish option than the replacement one. Also if the other costs changed from 30 to 24 and went down just 6 this would also totally change the forecast model and the net present value would now be higher on the refurbish option than the replacement option. Of course if the 'other costs ' and 'cost of sales ' went the other way it would push the refurbishment option an even riskier choice for the business than the replacement option.
This also applies to the replacement option. Small changes to certain figures have a drastic effect on the whole model. If the 'maximum potential revenue ' changed from 140 to 124.7 then the whole model changes and the net present value would be worth more on the refurbishment option. The same for when the 'other costs ' goes up from 27 to 33. At this precise point the replacement option now has a higher net present value. The whole forecast model are only predictions so this means they could easily have some unexpected costs occur here or there for either which could have a huge impact on which is the better choice to go ahead with. It is important to remember these aren 't necessarily going to be the exact figures so you have to take this into consideration when making a choice of what the business should do. I have had a look at the predictions for Leeds and Nottinghams Toys and Games departments and Nottinghams maximum potential revenue is a lot higher than ours at 155 to Bristols 140. Now Nottinghams store is only 200 sq ft bigger than Bristols but has 15 more maximum potential revenue. However Leeds is 200 sq ft smaller than Birstols store but is only 5 lower in maximum potential revenue. This does not make sense so this could mean potentially the predictions aren 't that accurate.
This table shows how sensitive the figures can be to minor changes of different factors in the cashflow model.
Refurbishment option Factor Initial value change (%) NPV Before:
885,570
NPV After; Comment % increase in quarterly revenue 15 -10 852,456 The change is small and not very sensitive. Therefore wont make a difference if forecast is slightly out. Refurbishment cost £/sqft 4 -10 888,370 The change is minimal and so is not worth looking into changing too much. Management costs £/qtr 3,500 -10 888,248 The change is minimal and so is not worth looking into changing too much. Other costs £/qtr/sqft 30 -10 1,046,255 The change here is quite large and so could effect NPV a lot if the forecast has not been accurate. This factor is very sensitive to change and is important it is accurate. Staff costs £/qtr/sqft 4.7 -10 910,744 The change is reasonable but not big enough to effect the decision made on which option to go ahead with Cost of sales (%) 40 -10 1,072,166 The change here is large and could be a contributing factor to choosing which option as the NPV can largely alter if this factor is changed.
Replacement option Factor Initial value change (%) NPV Before:
1,204,249
NPV After; Comment Maximum potential revenue,£/sqft/qtr 140 -10 911,637 This change in NPV is quite big but even with it the NPV is still higer than the Refurbished option. Shopfitting cost, £/sqft 20 -10 1,218,249 This change is minimal so is not worth looking too much into. Management costs, £/qtr 2,500 -10 1,206,162 This change is minimal so is not worth looking too much into. Other costs, £/qtr/sqft 27 -10 1,348,866 This change is big so it is important these figures are accurate as minor differences can make big differences to the NPV. Staff costs, £/qtr/sqft 2.5 -10 1,215,907 This change is minimal so is not worth looking into too much Cost of sales (%) 30 -10 1,329,654 This change is big so is important the predictions are accurate for this factor as minor changes can have a big impact.
Environment:
Having looked into the surrounding area of the foodhall we plan to change I have found out about the competition that may arise for both the replacement toys and games option and the refurbishment into a speciality of foods and wines option.
If the business went ahead with the idea of refurbishing the department in Broadmead shopping centre then it would be the only one of its type in Broadmead shopping centre but it would face competition from similar shops such as Tesco metro and Sainsburys local. Tesco metro have a standard selection of wine to choose from and so customers who are shopping there anyway are likely to buy there wine from there as it will be cheaper than a specialist shop and they don’t have to visit another store, unless they want a specific wine or something a bit special in which case they would be likely to visit the businesses refurbished department. Also Sainsburys Local in Broadmead shopping centre supplies wine too. It is not like their Tesco and Sainsburys super stores with a huge selection of wine but will have a small selection to choose from and have all the standard wines so customers are likely to get their wines while they 're there. Also Tesco and Sainsburys are more up market supermarkets, particularly Sainsburys so will have good quality food as it is. Making it more unlikely there regular customers will travel to the business to buy there specialised food if they 're already loyal to Tesco or Sainsburys. However there is still an …show more content…
opportunity for the businesses refurbished department to do well in Broadmead as there are still customers looking for specialised food and wine. There are no other organisations like it in Broadmead and so presents opportunity. People may turn up who are hosting parties and want top quality specific food and wine or perhaps the more affluent customers who want the top end food and wine.
I have also looked into the Toys and Games departments potential competition. They are looking to sell Children 's toys from 4 to 10 years; young people 's activities from 10 to 15 years; games, puzzles, books; craft materials, Lego, computer games etc. Argos is a huge variety store that sells a lot of the stuff the businesses new department looks to sell. This would be a disadvantage to the business as it already has a big reputation and a lot of marketing power so could be hard for our new department to compete against. However they are different in that Argos is a collection point and you shop more through catalogues. It is not a shop you walk around and see items you like a buy which is good for the type of shop the business is thinking of bringing in as often kids like to see in real life or play with toys before they buy them which Argos cannot offer. Apart from Argos there is also Game and CEX which sell computer games but none of the other items and WH Smith which sell books. However these aren 't too much of a threat as they only sell one or two items the businesses new store would sell and so is not too similar. Therefore the Toys and games department looks a good idea to go ahead with.
I did some market research into Toys and games to see if it was predicted to continue to do well over the next coming years. I found of Keynote that "The UK population is forecast to see consistent year-on-year growth over the next 5 years, which should keep demand for toys and games fairly constant in the future. However, the next couple of years will see gross domestic product (GDP) growth remain low, while inflation and unemployment remain high. This is likely to have a negative effect on sales of toys and games, as families are likely to reign in their spending on such products, which are often superfluous to basic needs, or instead purchase items that are considered to be value for money". However the same could be said about The specialist food and wine as this also is seen as superfluous to basic needs so this point is invalid in the decision. "In terms of demographics the population of 0-14 year-oldsd is expected to increase by 5.6% over the next 5 years, which should provide a boost to the toys and games market". This is the age group The business are targeting so this is further reason to go ahead with the Toys and Games replacement option. Also the table in figure 6 shows the growth of the UK toys and games market between 2007 and 2016. During this period, sales of toys and games increased by 8.8% overall. The graph in Figure 6 shows this.
Overall, Key Note expects sales of toys and games to increase by 10.3% over the next 5 years, rising from £2.23bn in 2012 to £2.46bn in 2016.
In my market research into Specialist food and drink for the refurbishment option I found a report on keynote about the organic food and drink industry which is very much a big part of specialist food and drink.
It stated "Over the past few years, the UK organic food and drink market has observed year-on-year decline, principally due to continued economic uncertainty following the recession of 2008 and 2009, which resulted in a number of consumers reining in their spending, particularly on higher priced goods such as organic produce. Recent figures have suggested that the UK market began to stabilise in the latter part of 2011, while Key Note has predicted slow but steady growth over the next 5 years. Overall, the market is expected to increase in value by 11.8% between 2012 and 2016, rising from £1.66bn to £1.86bn" This is a positive that it is expected to rise but as you can see from the research into the toys and games industry the market will not be worth the same amount and so there is more opportunity to be successful in the bigger market for the toys and games
industry.
Conclusion:
After extensively analysing the business proposal of which option to go ahead with that would best suit the business I have come to the conclusion that going ahead with replacing the current foodhall with a Toys and Games store would be the best option. Looking at the future forecast models and graphs it is easy to see looking at the quantitative data that the replacement option is the much better option in turns of adding value to the business. Despite the initial start-up cost costing the business £112,000 more The cash-flows and net present value all show it is a risk worth taking as will reap bigger rewards in the future and point to the replacement option being the better of the two. Having into the demographics of the two potential options too, despite both options having competition in the local shopping centre the Toys and games option seems to show the most potential and the market research into their industries back this up with the toys and games industry showing it has a bigger market and will grow more over the coming years. Also the demographic factor about the age group the business will be targeting predicted to grow 5.6% in the next five years is a big boost for this option as it means more potential customers coming their way.
A point for consideration for the new toys and games store would be that there has been a rising level of ownership of smartphones, so for the 12-15 year olds the toy shop will be targeting they could introduce 'apptivity ' products, eg toy and cars and helicopters that can be remotely controlled using a smartphone. They are being increasingly made by manufacturers and it is important for the business to stay up to date and add this to their product range. Also they need to consider the fact that Toys and games stores are more successful in certain seasons and so will be booming around Christmas time but will need to stay in with the trends to keep successful all year round.
Finally I believe the business should go ahead with the Replacement of the foodhall and bring in a toys and games store. It has been superior and showed more potential in all areas I have researched into and is the stand out option for the business to go ahead with.
References:
Broadmead Shopping centre Staff. (2013). Bristol Shoppping Quarter. Available: http://www.bristolshoppingquarter.co.uk/. Last accessed 10th April 2013.
Keynote. (2012). Organic Food & Drink Market Assessment 2012. Available: https://www.keynote.co.uk/market-intelligence/view/product/10588/organic-food-%26-drink?highlight=organic+food&utm_source=kn.reports.search. Last accessed 10th April 2013. Keynote. (2012). Toys and Games market report 2012. Available: https://www.keynote.co.uk/market-intelligence/view/product/10631/toys-%26-games/chapter/7/forecasts?highlight=toys and games. Last accessed 10th April 2013.
Keynote. (2012). Toys and Games market report 2012. Available: https://www.keynote.co.uk/market-intelligence/view/product/10631/toys-%26-games/chapter/5/strengths-weaknesses-opportunities-and---------threats?highlight=toys and games. Last accessed 10th April 2013.
The Business. (2011). The Business. Available: http://teaching.shu.ac.uk/om/thebusiness/website/new_intranet/whoswho.htm. Last accessed 10th April 2013.
Appendices
Forecasting model-Figure 1 Forecasting model- Figure 1 (bottom half)
Cash flow for the refurbishment option - Figure 2 Cash flow for the replacement option - Figure 3
Scatter graph showing the revenue and de-seasonalised trend against the quarter number with trend line and linear equation - Figure 4 Additive time series model showing the revenue, historic and future forecast against the quarter number - Figure 5
A graph to show the growth in Total UK Market for Toys and Games by Value (£m at rsp), 2007-2016- Figure 6