Business Plan

Shine Soft Drink

Word count: [2,680 excluding headings and tables]

Executive Summary

The soft drink industry is one of the largest industry in the world and it is continuing to grow.
Australia is among the countries where the per capita consumption high, one of the reason is
the hot climate. Over the years health concerns associated with carbonated sugary drinks have
impacted consumer’s perception. The adverse effects on the health of children like obesity,
increased blood pressure risk of diabetes among the adults have led to a shift in demand from
these conventional drinks to the artificially sweetened non-carbonated drinks. The growth in
this segment is higher than the conventional drinks. The start-up Shine Soft drinks will be
selling artificial soft drinks with multiple flavors like tea, orange, peach, and lime-lemon. It
will start with a single production facility in the beginning and will be expanded through
staged financing. The initial investment is moderate and both debt and equity sources will be
used to finance it. The prospects for the growth are high as the health benefits with these
drinks will attribute to high sales. Studies have revealed that pricing and positioning plays an
important role in the sale of soft drinks. The primary focus will be on gaining enough market
share and the profits can be realized later through learning curve effect and economies of
scale. The break-even point is one of the important milestones in any business. Achieving it
secures the investment, and more risky strategies can be adopted after that. Every product has
a life cycle, the growth period require large scale production giving rise to the need for
capital. The ideal source at this stage is venture capitalist, whereas, bank loan, angel funding,
and crowdfunding are ideal for initial stage financing. The market is competitive and there
exists both challenges and opportunities for future growth. Strategic, leadership, and resource
issues are faced by the start-ups as they enter into the growth stage.

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Table of Contents
Executive Summary .................................................................................................................... i
1. Introduction ........................................................................................................................ 1
2. Size of the Venture............................................................................................................. 1
2.1 Size of the Venture........................................................................................................... 1
2.2 Prospects for the growth .................................................................................................. 2
2.3 Assumption about the future of the business ................................................................... 2
3. Venture Details .................................................................................................................. 3
3.1 Break-even point .............................................................................................................. 3
3.2 Financing requirements of the venture ............................................................................ 4
3.3 Challenges of fast growth ................................................................................................ 5
3.3.1 Strategic issues .......................................................................................................... 5
3.3.2 Leadership issue ........................................................................................................ 5
3.3.3 Resource issue ........................................................................................................... 6
4. Conclusion ......................................................................................................................... 6
5. References .......................................................................................................................... 7
References .................................................................................................................................. 7
6. Appendix ............................................................................................................................ 9

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1. Introduction
The selected venture is Shine soft drinks, that will be selling artificial soft drinks with
multiple flavors like tea, orange, peach, lime-lemon, etc., including fruit-based drink to all
age citizens of Australia. The product differentiation strategy will position our products
differently. The entry into the market is easy but making a significant impact is difficult. The
business plan is to launch the soft drink at a limited place with the bottle size of 200ml only.
Later, after the feedback from the customers, a full fledge launch will be made in major cities
across Australia for all the variants. The per-capita soft drink consumption is high in
Australia at 141.4 liters in 2019 (Statista, 2019). Existing players offering include, Pepsico
selling varieties of juices from its sub-brand Tropicana (PepsiCo, 2019) and Coco-Cola
selling products such as Fruit box, Fruity Drink, Fuze, Mount Franklin in Australia and
Newzealand (Coca-Coal Amatil, 2019). There exists a good opportunity for growth in this
segment, competitive advantage will be gained through our USP i.e. uniqueness of taste and
varieties of flavors. The report aims to discuss the practicalities associated with the proposed
venture in terms of its size, prospects for the growth, assumptions, breakeven point, capital
structure, and future challenges for growth.

2. Size of the Venture

2.1 Size of the Venture

The soft drink market in Australia is large. In 2019 total revenue amounted to USD 11.80
billion and the annual growth rate is expected to be 1.4% CAGR (Statista, 2019) (Appendix
1). The non-carbonated market stood at USD 4.15 billion. The opportunity can be utilized by
starting with a single production facility. Less than 10 employees will be hired in the initial
stage where the key activities form production of taste syrup to bottling the soft will be done
in house. Bottles will not be manufactured and purchased from the bottle suppliers, the
services of distributors and e-commerce platforms will be used for distributing the final
product. The size of Venture will be US$150,000 where most part of the initial capital would
be used in setting up the machinery for the production of syrup and bottling and paying lease
for the factory. The burn rate will be higher. The first three months will not result in any sale
and all the expenses have to be borne out of capital. The amount set for working capital will
be $30,000 and rest will be invested in fixed assets. Factory expenses will be highest
followed by selling and distribution and efforts will be made to keep administrative expenses
at the minimum. The approach of staged capital commitment and bootstrapping will be
followed and capital will be infused as and when the payment obligation will arise.

Sources of Funds

Owner’s Equity $75,000

Bank Loan $75,000

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Application of Funds

Machinery $80,000

Lease rent for factory and Office $20,000

Other fixed investment $20,000

Working capital requirements $30,000

2.2 Prospects for the growth

A four-year prospective study by Tucker, Bailey, and LeCheminant (2015) revealed that the
risk of weight gain has led to consumers inclined towards healthy drinks. Considering the
large market and rising demand for non–carbonated drink the prospects for growth are high.
The key USP of our offerings will be providing consumers with new choices and varieties
that will be healthy as compared to the conventional carbonated drinks. Awareness about the
product will be spread through advertisement on social media. More focus would be made on
the earned media as the product is healthy and consumer’s recommendations will act as
advertisement. The industry is growing at 1.4% CAGR (Statista, 2019). The global
temperature is on the rise, so is the population. The demand for soft drinks will be going to
increase due to these two factors. Australia is among top soft drink consumer countries in the
world at 11th spot yet the population is comparatively small (NPR, 2019). Besides, the
growing population also has a better standard of living which will account for better future
prospects due to the direct relationship between these two (Goryakin, Monsivais, & Suhrcke,
2017).

2.3 Assumption about the future of the business

The basic assumptions about the business include the following:

 The consumers are getting health conscious day by day and the relative demand for a
fruit based non-carbonated drink will increase more as compared to conventional
carbonated drinks. A study by Katzmarzyk, et al. (2016) revealed that the artificially
sweetened carbonated soft drink consumption is one main cause of obesity in the
children. Overconsumption increases the risk of diabetes (Donazar-Ezcurra, et al.,
2018) and increases blood pressure in adolescents (Souza, Cunha, Pereira, & Sichieri,
2016). A study by Yu, et al. (2015) revealed that the consumption of soft drink is also
associated with symptoms of depression among adults in China. These factors have
led to increased health consciousness among consumers and the demand for natural
and low sugared drinks have increased. The demand for our soft drink will continue to
rise.
 An important determinant of the sale of soft drink is its price and positioning apart
from the taste and nutrients. The price elasticity of the soft drink is 1.29 which makes
the demand reasonably elastic with change the change in price (Colchero, Salgado,
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 Unar-Munguía, Hernandez-Avila, & Rivera-Dommarco, 2015). A low price in the
beginning will help boost the sale. Similarly, consumers are also attracted by the
packaging of the drink. Himmelsbach and Leuenberger (2015) argued that the
positioning of beverage plays an important role in driving a sale from a specific target
audience.
 Consumer loyalty will translate into high profitability. The consumers that will be
buying our product will be given discounts and priority so that the better publicity and
increased sale is achieved.
 The cost of production per unit will increase with the scale of production until the
economy of scale is achieved. This will lead to better profitability in the future and
contribute to the growth of the business.

3. Venture Details
3.1 Break-even point

The total cost per bottle is calculated at $2.40. To make an impact and lure customers, an
initial price of $3.00 or 2.99 will be set. Since the initial capital infused is $150,000, the
breakeven point will be achieved when the net contribution from the sale equals this amount.
The V/C ratio is estimated to be 40% giving net contribution per bottle at $1.20 ($3.00*(1-
40%)). Due to high fixed cost break-even will be longer. The fixed cost of $120,000 will be
recovered by selling 83,333 units of soft drink.

Sale price p.u. $3.00

V/C ratio 40%
Variable Cost p.u. $1.20
Contribution p.u. $1.80
Initial Investment $150,000
Break-even point 83,333 units

The average soft drink consumption per capita per day in Australia is 0.84 drink (ABC News,
2019) where every one drink in two is non-sugary. Coca-Cola alone sells 1.9 billion soft
drinks per day worldwide (Coca-Cola UK, 2019). The population of Sydney is 4.65 million,
initially for the period of six months after launch, our target audience will be one percent of
the whole population (that comes out to be 46,500) and to formulate at-least 5% as sales (i.e.
2,325 customers). The per-week sale of soft drink per customer is set to be at least two
drinks. The expected sale in six months will be 120,900. The break-even sales will be
achieved in 4.15 months of launch (assuming the sale will be even throughout the period).
Considering the pre-launch period, the BEP will be achieved in 7.15 months of the start-up.
The factors that can lead to early BEP are low fixed and variable costs. A comparison of the
variables is as below:
Low VC High VC Low FC High FC
Sales Price p.u. 3.00 3.00 3.00 3.00
Less: VC p.u. 1.20 1.80 1.20 1.20
Contribution per Unit (A) 1.80 1.20 1.80 1.80

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Fixed Investment (B) 1,50,000 1,50,000 1,50,000 2,50,000
Break Even Point (B/A) 83,333 1,25,000 83,333 1,38,889

Apart from these factors, the pricing strategy also plays an important role. A penetrating
strategy will push the BEP further whereas a skimming strategy will drag it closer. Market
demand is another a factor as more sale will result in early BEP in terms of a number of days
and vice versa. Shine Soft drinks will have to make a pricing strategy in such a manner that
profits can be earned without harming future demand for the soft drinks. In order to help
maintain the demand for the products, advertisement and product awareness campaign should
be done. The cost control measures will ensure that they are not running beyond the standard
costs and are always under the budget.

3.2 Financing requirements of the venture

The initial finance will be done by own capital (equity) to the tune of $50,000 to maintain
complete control over the ownership and fast decision making. The rest of $100,000 will be
arranged by a long term bank loan. As the own funds limited, for purchase of machinery bank
loan, will be taken as it is easy to finance a purchase of a fixed asset from the bank as
compared to a working capital loan or purchase of intangibles. Bank loans are also secure in
terms of their intervention in the normal course of business. As long as covenants are
followed properly, banks do not intervene at all apart from requiring periodic statements
only. The cost of capital is also low, as the government supports the entrepreneur loans and
the interest rates are low as compared to general commercial loans (Kgoroeadira, Burke, &
van Stel, 2019). The different kind of bank loans available is short term, medium term, and
long term. The very short term loan is ideal for working capital finances and long term loans
are ideal for financing fixed assets. A huge investment is required to be made for the
purchase of machinery in our case a long term loan is preferred. Further, since the debt to
equity ratio is maintained at 2:1 there is no solvency risk with this capital structure.
Moreover, the credit period from the supplier of raw materials and bottlers can be used to
support short term working capital requirement.
There are different options available for finance. The most desirable are angle funding,
crowdfunding among the informal investors and venture capitalist is one of the formal
channels apart from the banking finance (Degryse, Lu, & Ongena, 2016). The combination of
these can also be possible when staged financing is opted. The benefits and risk of each
source are different. The interest rates are generally high with crowdfunding for the start-ups
that have little or no existence. Further, investors are hardly interested in putting their money
as most of them on P2P lending (crowdfunding) are individuals with personal savings
(Langley & Leyshon, 2017). Angel investors are also difficult to find and they are most
interested in providing equity, which in turn put the control of ownership at the risk (Drover,
Wood, & Zacharakis, 2017). The Venture capitalists are big investors interested in start-ups
that are relatively big in size or are at the later stage of start-ups when evidence is visible for
its profitability (Park, LiPuma, & Prange, 2015). They would be ideal to approach at the later
stage when the launch will be made in other Australian cities and more capital would be
required to build infrastructure for large scale production. Considering the pros and cons

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associated with these alternatives, the best suited for our venture at the current stage is a mix
of own equity (to secure control of ownership and fast decision making) and bank loan (to
gain leverage benefits) being an easy source of finance at the time.

3.3 Challenges of fast growth

The start-up is at the early stage but as soon as the BEP is achieved, the introductory period
will end and it will enter the growth stage. There exists a lot of challenges vis strategic,
leadership and resources issue. These are discussed as follows.

3.3.1 Strategic issues

The soft drink industry is dominated by PepsiCo and Coca-Cola and these are international
leaders with a huge capital base allowing them to use a wide range of strategies to capture
market share. They have used the strategy to lower price at multiple occasions in the past and
derived long term benefits by eliminating competition in the market (Mayureshnikam & Patil,
2018). The current price of a can of Coca-Cola in Australia is just $1.30 (Woolworths, 2019)
as compared to our price tag of $3.00. Pricing is a strategic decision and it plays an important
role in triggering the buyer decision, there is a level of tolerance in the buyer for the price
difference that he is willing to pay for the premium for health benefit in the drink. If the
difference is higher there is always a risk of loss of consumer on this account. To counter this
challenge, the price is already set with a very low margin and if the situation will demand
then the price will be dropped and penetration strategy will be adopted selling the soft drinks
at cost. Further, issues new product launch, marketing strategy, and CRM comes under the
strategic umbrella and managing them will be crucial for growth.

3.3.2 Leadership issue

The biggest challenge will be combating international brands like Pepsi and Coca-Coal.
Recently, these brands have focused more on artificial soft drinks and fruit-based drinks.
Banumathy & Hemameena, (2006) revealed that the consumers in the globalized world prefer
international brands over the local brand. Standard quality and taste are one of the reason for
it besides psychological satisfaction. Consumers preference are changing. Marketing
communication is an important factor in deriving consumer preferences (Chu, 2000). Other
important factors responsible for driving consumer preferences are familiarity with the brand
(Gluckman, 1986) and brand persona or the external attributes of the brand (Ubeja & Patel,
2014). Some of these variables are independent to the market players and some like
marketing communication is within the control. For the startup, these factors possess
uncertainty in the entirety. Timely feedback from customers will be taken and the market
trends will be monitored as a measure to remain updated about the changing consumer taste
and preferences. Based on this information further development will be done in the products
and marketing strategies will be formulated.

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3.3.3 Resource issue
The resources are limited be its capital, human resource or entrepreneurial skills. The
increased sale will be dependent on more production, which in turn require investment in
machinery and staff. Capital would definitely be required in the growth stage. Securing a deal
with a venture capitalist is not an easy task, keeping control over ownership is important. The
start-up would have to make sure that early profits are not distributed and adequate equity
base exist to bargain debt. The cost of raw material will also increase in trend with the
inflation, however, the cost of production can be decreased by reaching economies of scale
and learning curve effect. Further, the government has followed the practice of taxing soft
drinks at high rates in order to curb challenges of obesity and ill health among the youth
(Zheng, Huang, & Ross Jr, 2019). As per the Australian Beverage Council (2019), the
increased tax on sugar-sweetened beverages by the government as a measure to prevent
harms on public health has led the major manufacturers including Pepsi and Coca-Cola to
reduce the use of sugar in beverages by 20% by 2025. The competition in the low sugar and
fruit drink will increase in the coming future and there will be a fight for resources. PepsiCo
had acquired Tropicana in 1998 for $3.3 billion (Venkataraman, Summers, & Venkataraman,
2017). It has now become an important profit generation segment for the company. The
company has plans to invest more in non-carbonated fruit-based drinks. Alahi and Bass
(2018) argued that Pepsi and Coca-Cola have a future growth strategy is based on
diversification into new products which include investing more in the health-conscious
segment and developing new products. The more investment by these companies into the
health-conscious segment will create a threat for the resources of our business. As a
countermeasure, the Shine Soft Drinks will have to be ahead in planning.

4. Conclusion
The Australian soft drink industry is large in size and is expected to grow in the future. The
report discussed the practicalities associated with the proposed venture in terms of its size,
prospects for the growth, assumptions, breakeven point, capital structure, and future
challenges. The start-up is at the early stage in the large soft drink industry where growth
opportunity exists a lot. There is always uncertainty about the changing taste and preferences
of the consumers but better feedback and trend monitoring ensure timely countermeasures.
The BEP is early, however, the shrinking margin and slow demand can defer it and vice
versa. The ideal way to start the business is by putting own money and taking entrepreneur
loan from banks with more flexibility and low-interest rates. The industry has long been
dominated by international players and they seem potential threats to the start-up in the
future.

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5. References

References
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Alahi, A., & Bass, E. (2018). COCA-COLA’S FUTURE GROWTH STRATEGY:
DIVERSIFICATION?.
Banumathy, & Hemameena. (2006). Customer satisfaction and customer preferences towards
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Chu, C.-H. (2000). Buying behavior of consumers for soft drinks. Marketing Science, 811-
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Coca-Cola UK. (2019, June 18). How many drinks does The Coca-Cola Company sell
worldwide each day? Retrieved from Coca-Cola: https://www.coca-
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Colchero, M., Salgado, J., Unar-Munguía, M., Hernandez-Avila, M., & Rivera-Dommarco, J.
(2015). Price elasticity of the demand for sugar sweetened beverages and soft drinks
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Irala, J., & Bes-Rastrollo, M. (2018). Soft drink consumption and gestational diabetes
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Drover, W., Wood, M., & Zacharakis, A. (2017). Attributes of angel and crowdfunded
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6. Appendix

Figure 1: Year on year revenue from soft drinks in Australia. Source: Statista (2019)

Figure 2: Business Canvas