Just Juice Ltd: You will be completing these questions in timed conditions on Monday 22nd October.
The figures came as a shock. Bill and Anne thought of themselves as entrepreneurs and had expected their business to be successful even though they had no relevant experience.
They realised this could make it risky, but had an ambition to own a chain of smoothie bars. Looking at their accounts for the first two months of trading, they were beginning to question whether they had made the right decision to give up their highly paid jobs in the City.
They had yet to reach their break-even level of sales and over the first 10 weeks of trading, Just Juice Ltd had only attracted an average of 350 customers per week.
Table 1: Just Juice Ltd Costs and Revenues
Variable cost per customer
|
£3.00
|
Weekly fixed costs
|
£1430
|
Average spend per customer
|
£6.25
|
Things had seemed straightforward six months earlier. Their idea of opening a smoothie bar, selling their own unique fruit and vegetable drinks and healthy snacks, had been met with overwhelming approval from family and friends.
This enthusiasm seemed justified when their secondary market research confirmed a growing market for their product. The value of UK sales of smoothies grew from £6.3 million in 2001 to £34 million in 2006. A market research report by Mintel suggested a further 300% growth in UK smoothie sales by 2011 as well as increasing demand for drinks made from different fruits and vegetables.
Not wanting to leave anything to chance, they had drawn up a detailed business plan. They felt private limited status would give them a number of benefits. They knew little about the smoothie market and conducted primary market research in several towns.
Bournemouth seemed an ideal location. Offering a combination of a large population boosted by a thriving tourist industry in the summer, little competition and, most important to Bill and Anne, easy access to the countryside.
Having located suitable premises, they drew up detailed budgets and cash-flow forecasts. It came as no surprise to them that the bank manager agreed to lend them £50,000 towards the start up costs of £110 000 though Anne had argued that they should raise the money from a venture capitalist and not a loan.
Bill and Anne were able to raise the remaining £60,000 by selling their property in London and buying a luxury flat in Bournemouth where property prices were generally cheaper.
With hindsight it seemed that the planning was the easy bit. They were late opening the bar because of late delivery of supplies and missed some of the summer trade. A competitor managed to set up nearby and open a month before them. Once they started trading, they found it difficult to recruit good quality part-time staff.
Another problem was the unexpected 10% increase in the cost of fruit and vegetables due to a poor harvest. Bill and Anne began to question the quality of their business planning and particularly their market research as sales only reached 75% of their budgets.
(a) What is meant by the term ‘entrepreneurs’ (line 1)?
(2 marks)
(b) State two non-financial items that the Bank Manager would have expected to see in the business plan for Just Juice Ltd before agreeing to the loan. (2 marks)
(c) Explain one reason why Bill and Anne might have decided to use primary market research as part of their business planning. (4 marks)
(d) Calculate the percentage growth in the UK market for smoothies between 2001 and 2006. (4 marks)
(e) Analyse the possible reasons for Just Juice Ltd failing to reach its break-even number of customers. (10 marks)
(f) To what extent might the drawing up of a detailed business plan guarantee the success of Just Juice Ltd? (15 marks)
