Market Penetration Strategy
The Farmery is a startup venture in Raleigh, NC. It combines a small greenhouse and mushroom production operation with a retail outlet. The company is focused on the medium- to high-end of the highly competitive and fragmented retail market in the area. The company’s main competitive advantage is its unique production and distribution set up, which is not only attractive for its uniqueness, but helps it to deliver fresh product to consumers, and do it at a much lower cost than other companies are able to deliver. The company believes that it will be able to earn healthy enough margins and generate enough traffic that it can be profitable almost immediately and grow from there into other cities in North Carolina. This business plan reflects both the launch phase and how the company will set itself for long-run growth.
1.0 Product Description
The Farmery is a unique agriculture/retail concept. The business website describes the operation as “a completely new approach to farming and food retailing, one that looks for symbiosis within the entire system rather than the optimization of individual components. it’s a growing and retailing system designed to provide locally grown food in urban neighborhoods” (Greene, 2012). This description identifies what the company is and what it is not. It is a vertically-integrated retailer of farmed goods that combines production and retail on the same site. It is the urban equivalent to a farm store that one might find in an agricultural setting. The Farmery concept stands as a counter and response to the large agribusiness that governs vegetable retailing in the United States today.
The physical structure of the Farmery begins with used shipping containers, which are plentiful on the open market. The idea of repurposing used shipping containers as retail sites is a relatively new phenomenon but is picking up steam due to the flexibility of the business model and the cheap availability of used containers on the market (Inside Retail, 2011). Containers have been repurposed for everything from a Starbucks to housing projects (Falk, 2012). The prospective design of the Farmery is that it will consist of four containers. Each container will be retrofitted to include a mushroom growing system and growing panels on the outside walls where herbs, lettuces, greens, strawberries and other small crops can be grown (Greene, 2012).
These goods will be produced using conventional greenhouse technology. On the bottom floor of the central greenhouse there will be a market and the bottom two containers, where customers will be able to purchase the crops that have been produced. The product line will be supplemented with crops from local farmers and producers (Greene, 2012).
2. 0 Market Analysis
2. 1 Demographics
The Farmery concept is specifically geared to the urban audience. The target demographic can be described as young (under 40), urban and highly-educated. This demographic is likely to have medium or high earnings, and is likely to have at least one professional in the household. Creative professions are likely to be overrepresented among the target market as well. A large segment of this market is likely to have young children as well. The concept can be applied to a wide range of urban environments, due to the relatively small footprint of the Farmery. The first store is going to be located in Raleigh, North Carolina, and is expected to be popular with the local students and educated professionals. There are plans to expand the concept up and down the East Coast, expanding the geographically foot print of the target market.
The Farmery is a combination of two distinct businesses, agricultural and retail. Thus, it will be subject to the regulatory environment of each. There are laws concerning everything from the use of farm labor to the use of pesticides and herbicides in farm production. The latter will be generally a non-event since the emphasis is going to be on organic production. However, all of the state statutes regarding agricultural production will need to be adhered to. There is also the possibility that special licensing will be required to have agriculture and retail on the same urban site. Two distinct business entities might need to be set up to accommodate the regulatory regime. Additionally because regulations are set up at the state level, it is expected that early expansions will be done within the state of North Carolina (Charlotte, Asheville, Wilmington, etc.).
Trade regulations also exist at the municipal level. The Farmery will need to work with local officials in Raleigh in order to ensure that the land on which the business sits is fully licensed to legally not only retail food but also to produce it. In addition, the Farmery is going to be subject to rules regarding food handling. The proprietors will work with officials at the federal, state, county and municipal levels to ensure that all of the applicable regulations are understood and that they will be adhered to.
The broad business is food retail, and the agricultural production is just a hook. The end customer is the retail consumer, not the wholesale market, so the Farmery is going to be considered as competing in grocery retail, not farm production. The grocery retail industry is massive. The Food Marketing Institute (2012) estimates that the U.S. grocery market is worth $584 billion. Given that the population of Raleigh is around 0.0013% of the U.S. population, the local grocery industry is worth around $780 million per year. The industry is highly competitive and highly-fragmented (Imlay, 2006). The largest company in the industry is Wal-Mart, and they compete with a cost leadership platform. Because the Farmery intends to compete as a differentiated player, its more direct competitors will be companies that have the same strategy. Perhaps the largest is Whole Foods, which features organic and natural foods as its staple offering, and appeals to the same demographic that the Farmery is targeting. There are two Whole Foods stores in Raleigh, as well as stores in nearby Chapel Hill, Cary and Durham.
The Florida-based chain Publix is expanding into the North Carolina market as well, and will be a formidable competitor taking the mid- to high-end of the market (Portillo, 2012). They will challenge stores like the Farmery and the same mid- to high-income segment as Harris Teeter. There are four Harris Teeter stores in Raleigh and several others in the immediate area. Another competitor is the large grocery chain Kroger. This store appeals to a mainstream audience, siphoning customers from both Wal-Mart and Harris Teeter. There are four Kroger stores in Raleigh and a further 12 within a 20-mile radius.
Perhaps the most direct competition lies with the different farmer’s markets around town. There is a downtown farmer’s market that operates seasonably on Wednesdays and another seasonal market at Midtown as well. Both of these offer consumers the opportunity to purchase farm-fresh products, and appeal to the same target market as the Farmery intends to target. The seasonal nature of these events and their limited hours are competitive disadvantages, but they have advantages in that they are more well-established, and have a broader range of goods for sale than the Farmery intends to have.
The Farmery is going to compete as a niche player, essentially a green grocer, and this segment of the market is highly fragmented. Competition in this niche is heavily dependent on location, so anything within a two mile radius of the eventual site would be a competitor. The Farmery is expected to be a magnate store, however, drawing customers from all of Raleigh, at least when it initially opens and the concept is novel. It is not expected that there will be strong competitive response. Smaller niche stores in organics or green grocers are not likely to have the capability to compete head-on with the grown-on-site hook that the Farmery offers. They may offer some minor competitive response but the most significant threat is expected to come from Whole Foods and Harris Teeter, as these compete directly against the Farmery for the same target market. Both of these stores are full service operations that offer a much broader range of products that the Farmery, including organic and fresh produce. They struggle, however, with a problem that the Farmery has identified, in that they cannot provide fresh local produce year-round, something with which the farmer’s markets also struggle. This opens up a niche for a greenhouse specialist like the Farmery to offer fresher produce at lower prices.
3.0 Marketing Plan
The basic organizational strategy that the Farmery intends to pursue is the differentiated strategy, where the company succeeds by making its product/service offering different and more attractive than those of the competition (MindTools, 2012). The marketing strategy therefore needs to reflect this approach to the business. Market penetration reflects the degree to which the Farmery can capture share of the target market’s business. As part of the research triangle, Raleigh has a significant portion of its population that fits the target market. For the Farmery to succeed, it only needs to capture a small portion of the market share. This is especially true because the store has a small footprint, and has the flexibility to set up on vacant lots without the costs of either renting or developing fixed real estate. The Farmery therefore needs to focus on two or three key elements to ensure adequate market penetration.
The first of these is location. Let it not be understated that location, location, location is critical to the success of any retail business. Because food is not normally something that people are willing to travel more than a few miles for, it is important that the Farmery target a neighborhood where there is a high concentration of individuals that fit the target market. There are several neighborhoods that have good potential, both those near the university and those that are further in the suburbs. The location should have ample parking and a substantial amount of foot traffic as well. Such a location will have broad — based appeal and be able to draw customers from a broad by virtue of location on a high traffic artery. Locations near the university, where there is opportunity to capture a significant amount of student traffic, are considered to be particularly viable.
The second key success factor for market penetration is to ensure that awareness is at a very high level. The advertising strategy will be discussed in Section 3.2. Beyond advertising, the company needs to have a significant public relations strategy. This is critical for two reasons. The first is that the company is not particularly well-capitalized so it needs to find ways to increase its exposure at a low cost. The second is that the Farmery wants to attract attention from beyond its immediate area. By attracting such attention, the company can set the stage for future growth in the Raleigh area. The public relations plan should leverage the innovative concept to garner as much free press as possible, but for its architecture, its concept and for the food as well. Local media and national media coverage should be courted in order to gain maximum exposure. In addition there will be significant word-of-mouth initiatives in order to gain maximize exposure.
The third key success factor for market penetration is pricing. While in general vegetables are inexpensive, the main competitors for the Farmery can be fairly pricey. This creates a market opportunity that the Farmery can exploit. With high density production and no shipping costs, the Farmery is an a position of being able to undercut its larger competitors on price while simultaneously beating them on freshness as well. It will take a vastly superior value proposition in order to attract customers, because of the disadvantage that the Farmery has with its product line breadth (or lack thereof). It is believed, however, that the Farmery can produce at a price low enough to deliver such a superior value proposition.
3.2 Advertising Media
In addition to the extensive public relations campaign, some advertising will be required to help promote the new business. This will take two forms — the digital media platform and the grassroots platform. Because the Farmery does not have much capital to start its business, it must focus on low-cost advertising strategies in order to maximize efficiency. The first step is to create a digital marketing program. Not only is digital marketing more cost-effective but it is better-targeted than conventional advertising media. Most of the digital content will be produced by the principals of the company. The platform will need to be multichannel in order to maximize exposure, with a heavy emphasis on social media. There are low costs associated with social media, mostly costs associated with producing content. Using the friends and family model of content production, the Farmery will set up a number of digital platforms — website, Facebook, YouTube, Twitter, etc. — and use these to help create awareness of the concept. The company has already crowdsourced initial financing for its venture (Greene, 2012). An email mailing list is also an essential form of digital marketing that should not be overlooked, because it is actually the most popular way for people to interact online (Mandese, 2012). Among other ideas, YouTube videos can be produced illustrating how the concept works, and taking consumers through the back end production part of the facility. Other content can focus on the benefits, the location, social responsibility, involvement in the community and other relevant subjects. By providing information and active content, the Farmery’s digital media platform will provide low-cost exposure, in addition to building a ready-made market for the next round of financing.
The advertising strategy in more conventional media is actually going to be unconventional. The company simply cannot afford at this moment in time to produce television and radio spots. The most conventional thing it can do is to market in local student and neighborhood papers, or campus radio. Otherwise, flyers and pop-up stalls in markets can help to gain exposure prior to opening (in addition to putting inventor from the prototype facilities to good use).
The core promotional message is going to highlight to two most significant offerings — freshness and uniqueness. The freshness is the key product attribute that separates the Farmery from just about any of its competitors. This freshness will help the company to compete even against the largest of competitors. Initially, however, the concept itself will be a key selling point. Most people have never seen such a store as this, and the concept itself is going to bring people through the door. It is worth the effort to promote the concept and then link that concept to the core offering of the Farmery. This will create strong brand associations for consumers that associate the Farmery with this concept specifically. That association is going to be at the core of the company’s differentiation strategy. It is essential that all marketing communication will serve to promote the differentiation of the Farmery from all other retail outlets, as a point of making the Farmery uniquely attractive and giving customers a good reason to be return visitors.
4.0 Management Plan
4.1 Company Organization
The Farmery is a small startup, but the organizational design is going to emphasize scalability. The analogy of the shipping container is apt here — the store can be enlarged by adding another container, and the company should be structured in a similar, modular way so that it can grow quickly either with company-owned operations or with franchises. The organization structure is going to be based on each store, with a central head office. Initially, of course, these functions are all going to be performed by the two principles. As the company grows, the plans involve having a central head office in the Raleigh area where general administrative tasks are performed (accounting, HR, finance, etc.). There will be regional districts and then individual stores in the three-layer organizational structure. In the first store, the two principals will split duties between managerial and growing, with both splitting sales duties. Part-time staff will be introduced where needed in order to ensure that retail side of the business is staffed at all times.
4.2 Company Philosophy
The philosophy that guides the Farmery is “Fresh is best.” This philosophy is rooted in the desire to increase the sustainability of our agro-retail system. Too many retailers, even “green” ones, rely on produce shipped from other parts of the country or even from other parts of the world. This is wasteful, inefficient, and ultimately needless. The Farmery provides a means for consumers to experience the freshest possible produce at a good price. They will be contributing to the increasing density of our cities as we use our urban spaces to increase agricultural production. Their money will remain in the city of Raleigh, so they are making a direct contribution to the local economy. In addition, they will be reducing the needless emission of greenhouse gases into our atmosphere. Customers will be encouraged to walk or bicycle to the store where possible in order to truly reduce their greenhouse gas emissions.
4.3 Personnel Policies
The personnel policies will be a reflection of the overall corporate philosophy. The philosophy will reflect the desire to create a healthy, diverse working environment. The jobs are, in general, ones that can be trained for. Thus, the hiring will focus on personal traits such as a positive attitude and a willingness to work hard towards a common goal. Thus, a sense of teamwork will be fostered that will help the company to overcome the various challenges that it will inevitably face as a new company trying to build the business. Over time, the personnel philosophy will emphasize providing for our employees as well, hiring from the local neighborhood and disadvantaged areas of the city. In addition, the company wants to hire people who are willing to grow with it, so it will create enticements over time, eventually leading to the company being able to provide medical insurance and other such attractive benefits for example. The Farmery will also take the time to become familiar with the Civil Rights Act of 1964 and the other supplemental acts that govern workplace hiring and promotional policies. Based on our philosophy, we are unlikely to run afoul of these acts but we must do our due diligence and understand them nevertheless. Any relevant state and municipal supplements to the relevant federal statutes will also be upheld.
As noted, our employees are going to be hired more for their personal attributes than for their technical skills. We will train them with what we need them to know. There are going to be three training programs in place initially — management, retail and growing. The management training program will focus on developing our management system and philosophy, and communicating that to management trainees. The retail training system will focus on customer service and the technical skills involved in cash handling. As the main point of contact with the public, the retail staff will also receive significant training on the agricultural side of the business so that they can answer questions that will inevitably be asked. Lastly, they will receive some culinary training to provide value-added services to customers with respect to ideas for preparing the different vegetables, herbs and mushrooms that we are going to sell. The final training program is for agriculture, where the company is going to teach people how to manage the greenhouse and grow all of the different plants, repair and maintain the equipment, and also to grow mushrooms, which is an entirely different skill set.
The Farmery recognizes the need for professional record-keeping as a means of ensuring that it is making money. There are basically going to be two types of records kept, the first being managerial accounting records and the second being financial accounting. The managerial records will ensure that inventories are logged accurately, and tracked closely. All company assets will be tracked, and all transactions will be logged into the computer system. This form of accounting will be used to make production decisions, set prices and track cash flow. Financial accounting under GAAP will be used to create the income statements and the balance sheets based on the concepts of accrual accounting.
5.0 Manufacturing and Distribution Plan
The genius of the Farmer is that manufacturing and distribution all take place in the same facility. The majority of the produce that the company is going to sell will be produced on-site and then sold at the same location. There will be third-party goods for sale as well. These will be acquired directly from local farmers or artisan producers, and will then be brought to the site to be sold.
6.0 Pro Forma Financial Statements
Pro Forma Income Statement
Cost of Goods Sold
Selling, Administrative Expense
Pro Forma Balance Sheet
Total Current Assets
Property & Equipment, net
Other Current Liabilities
Total Equity & Liabilities
There are a number of risks that the company is going to face. There are two types of risk factors — those that the company can control and those that it cannot. Controllable risks are those associated with liability. These types of risk can be contained with appropriate training of staff and with the purchase of insurance to reduce the company’s exposure to risk.
Non-controllable risks are more of a concern. Inflation and interest rates can challenge the company, especially if it takes on debt financing at any point. In addition, macroeconomic risks in general affect the local employment base and the disposable income of the local population, factors that could reduce overall demand. There are also risks associated with weather. Storms can damage the physical infrastructure, or at the least reduce sales.
Another source of risk is with the legislative environment. Changes in government policy can affect the viability of the business. In this case, the ability to combine agriculture and retail requires favorable zoning, so every Farmery outlet will be subject to the whims of local government. Lastly, there is risk associated with competitor response. Some of our major competitors could imitate our idea in their parking lots, reducing the uniqueness of our offering and reducing the incentive for their customers to switch. The Farmery must have contingency plan in place to deal with all of these types of risk.
For the controllable risks, having the right insurance is essential, but so is the training program. There are some dangerous activities that need proper training and there are also rules governing food handling as well. In addition, management must ensure that it is aware of all laws and regulations that apply to its business, at all four levels of government. For the non-controllable risks, the development of contingency plans to manage political risk and economic risks are going to be necessary. Tactics may include moving some locations that are facing difficulties to more favorable locations, or may include lobbying efforts to reduce political risk. Also, community involvement helps to mitigate these risks by creating goodwill and a strong association with the immediate neighborhood.
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