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The Bike Kitchen business plan Harrison, Josh; Kjellander, Sydney; Komolov, Pavel; Loza, Luis; Shah, Rahul Dec 10, 2012

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UBC Social Ecological Economic Development Studies (SEEDS) Student Report       The Bike Kitchen Business Plan Josh Harrison, Sydney Kjellander, Pavel Komolov, Luis Loza, Rahul Shah  University of British Columbia MBA 500 December 10, 2012           Disclaimer: “UBC SEEDS provides students with the opportunity to share the findings of their studies, as well as their opinions, conclusions and recommendations with the UBC community. The reader should bear in mind that this is a student project/report and is not an official document of UBC. Furthermore readers should bear in mind that these reports may not reflect the current status of activities at UBC. We urge you to contact the research persons mentioned in a report or the SEEDS Coordinator about the current status of the subject matter of a project/report”.     The Bike Kitchen Business Plan Decemb er 10 , 2012   Wri t t en by  Tea m 16 :  The COGS  UBC MBA Clas s of 2014 Stu dents   Josh Harris on  Syd n ey Kjell and er  Pav el Komo l ov  Luis Loza  Rahu l Shah     Acknowledgements:  The COGS received support or information from a number of differen t people that helped signifi cantl y in the makin g of t his busi ness plan.  In par ti cular, we would like to thank Sauder School of Business Facult y me mber s  Steve Alish a r an , P aul Cubb on , Tim Silk and Dar ren Dahl; Bike Kitchen Mana ger Luk as  Gall a gher and Bike Co - op Coordinator  Kevin  Chan ; Seeds Progr am Mana ger Br enda Saw a da, UBC Transport ati on Planner Adam Cooper , and the 97 UBC Students, Staff and Facult y bic ycle comm uters who took the tim e to respond to our surve ys.   Disclaimer   S ydne y Kjell ande r and Joshua Harrison wer e member s  of the Bike Co - op at the tim e thi s plan was made, but held no acti ve role in the C o - op  or the Bike Kitchen .  Both of them  have used the Bike Kitchen facil it ies previous l y.  No other me mber of the team had an y associ ati on with the Bike Kit chen previous to th e making of this busin ess plan.  ii  TABLE OF CONTENTS  I. EXECUTIVE SUMMARY................................................................................................ III A. DESC R IP T ION OF THE BUS INESS CONC E P T AND THE BUS INES S  B. THE OPP ORTUN IT Y AND STRATEGY  C. THE TARGET MARKET AND PROJ ECT IO NS  D. THE COMP ET IT IVE ADVA NTA GES  E.  THE ECONOM IC S AND PROFITA B ILIT Y  F. THE OFF ER ING  II. THE INDUSTRY AND THE BUSINESS....................................................................... 1 A. THE IND USTR Y .......................................................................... ................................  1  B. THE BUS INESS AN D THE CONCEP T ......................................................................  2  C. PRODUCTS AND SERV IC ES.... ...................... ............................................................  3  D. GROW TH STRATEGY................................... ..............................................................  3  III. MARKET RESEARCH AND ANALYSIS................................................................... 4 A. CUSTOMER S ......................... ......................................................................................  4  B. SURVEY ANA LYS IS...................................................................................................  4  C. MARKET S IZE AND TRENDS ..................... ..............................................................  5  D. COMP ET IT ION AN D COMP ET IT IVE AD V ANTAGE........................ .... ..................  6  E. EST IMAT ED MARK ET SHARE AND SA LE S ............................. ..............................  7  F. ONG O ING MARKE T EVA LUAT IO N............. .............................. ..............................  8  IV. THE ECONOMICS OF THE BUSINESS..................................................................... 8 A. ANNUA L GROS S AND OPERAT ING MAR G INS............. ................... .....................8  B. CONTR IB UT IO N MARG INS DIV ID ED BY REVENUE SOURC E S .. ...................... 8  V. MARKETING PLAN........................................................................................................ 9 A. MARKET S IZ E......... ................................. .............................. ............................. .........  9  B. TARGET MARKET.. ................................................... ............................. ......... ............  9  C. MARKET POS IT IO N IN G................................. ................................... ..........................9  D. CURR ENT MARKET ING IN IT IAT IVES...... ........................................................ .....10  E. OVERA LL MARKE T ING STRATEGY......... ................... ................... .......................11  F. MARKET IN G STR ATEG IES ......................................................... .............................11  VI. OPERATIONS PLAN....................................................................................................14 A. OPERAT ING CYC LE .................................................................. ...............................14  B. LOCAT IO N .............. ........................................................................ ............... .............15  C. FAC ILIT IES AN D IMPR OVEMENTS ........................................... ............................16  D. PROCUREMENT AND INVE NTOR Y MAN AGEMENT................ ..... .....................16  E. TRANS P ORTAT IO N .................................. ...................................... ............................17  F. COS T AND QU A LIT Y CONTRO L .......... ....... .......................... ..................................18  VII.  MANAGEMENT TEAM.............................................................................................18 A.  ORGAN IZA T ION.... ................................................................................................ ....18  B. KEY PROPOS ED ORGAN IZAT IONA L CH A R T.................................. .................... 19  VIII. OVERALL SCHEDULE.............................................................................................20 IX. CORPORATE SOCIAL RESPONSIBILITY..............................................................20 A. SOC IA L ENTER P R IS E ................................................................................................ 20  B. ENV IR O NMENTA L RESP ONS IB ILIT Y ........ .............................................................20  C. CS R MEASUR EMENT ................................... ...............................................................21  iii  X. CRITICAL RISKS, PROBLEMS AND ASSUMPTIONS...........................................21 A. COMMER C IA L ........ ................................................................................ ....................22  B. OPER AT ION A L ........ ....................................................................................................22  C. PARTNER S H IP S ............................................................................................. ..............23  D . PEOP LE ..................... ....................................................................................................23  XI. THE FINANCIAL PLAN...............................................................................................24 A.  FIN ANC IA L ANA LYS IS ............................... .............................................................24  B.  FINANC IA L PROJ EC T IO NS ................................................................................ .......24  C. SENS IT IV IT Y ANA LYS IS ............................. ..............................................................26  XII. REFFERENCES............................................................................................................27 XIII. APPENDICES .............................................................................................................28  iv  I.  EXECUTIVE SUMMARY  A. THE BUSINESS The Bike Kitchen is a so cial enterp rise bike shop located in the basem ent of the Student Union Buil ding (SUB) on the UBC campus .  Its prima r y purpose is to gene rat e profit s to support its parent or ganiz ati on, the non - profit AMS Bike Co - op, and its cycli ng advo cac y and accessi bil it y programi n g.  The Bike Kitchen off ers repair s er vices, rent als,  refu rbishe d bikes, new and used bike parts and a limi ted selecti on of new bic ycl e accessori es.  In addit i on it also provides the space fo r a numbe r of the Bike Co - op `s comm unit y se rvices.  B.  THE OPPORTUNITY AND STRATEGY  In Septembe r 2015, the Bike Kitchen will be moving to a more visi ble, more convenient and larger loc ati on in the SUB.  This new sp ace op ens up a number of new busi ness opportuni ti es for the Bike Kitch en, includ ing the potential to incr e ase ret ail offe ring s, provide a hi gher qu ali t y of service and a catal yst t o improve their br and image.  In addit ion, there is an immediate opportuni t y to tr ansit ion to a new busi ness mod el – sep arated from the operati ons of the Bike Co - op – to both facil it ate mana gem ent and more clearl y comm unic ate the ir value proposi ti on to custom ers.  Lastl y, ther e is an opportuni t y to bet ter se gment the ma rket, and tar get ye ar round custom ers in ord er pro vide more consi stent net i ncome and deli ver greater impact tow ards th eir comm unit y goa ls.     C.  THE TARGET MARKET AND PROJECTIONS The UBC campus population consi sts of over 60 ,000 Staff, Fa cult y and Students, over half of which own a bike.  8% of thi s population regul arl y comm utes to campus by bi c ycle.  In addit ion, v  a portion of the campu s population renews itself regularl y due to incoming and outgoin g students, which prevents market saturati on and maintains high seasonal demand for bikes and related acc essories.  D.  THE COMPETITIVE ADVANTAGES The Bik e Kitchen rec eiv es fre e rent, uti li ti e s, and other support from the AMS.  These subsi dies all ow the Bike Kitchen to provide some of the lowest rates in the Cit y as well as offer unique educati onal pro gr ams, Do - It - Yours elf (DIY ) repa ir, and other comm unit y services.  Their centr al locati on at t he SUB, in the center of the UBC campus , provides the Kitchen acc ess to the large capti ve mark et of the campus population.   E. THE ECONOMICS AND PROFITABILITY Over the 5 year plan pe riod containing future ex pansion recomm endati ons , our financial anal ysis shows the plan to be healt h y with good net inco me potential.  Althou gh the Bike Kitchen has stable yea rl y revenues of approx im atel y $25 0,000 , incre asing costs have er oded their net income by app rox im atel y 40 % over the last few ye ars.  This is mainl y due to  the gradual incr ease in empl o ye e wa ge ex penses in conjunction with ope r ati ons that ar e at cap acit y and cannot gen erat e addit ional revenues to m atch wa ge incre ases.    The ex pansion break - eve n scenario was cal culated showing that revenue gr owth of 54% is n eeded in ord er to suppor t the increas ed ex penses post - ex pansion .  A reven ue incre ase of at least thi s much is well supported by th e lar ge capti ve m arket on campus , high un met demand at the Bike Kit chen, and stron g evidence in the m arket resear ch that incr e ased s er vice off erin gs will provide value to the tar ge t market.    II. THE INDUSTRY AND THE BUSINESS   A. THE INDUSTRY In th e past 20 yea rs, Canadians and Britis h Colum bians have become more conscious abou t healt h, and their carb on footprint . Man y comm uters hav e  been choosi n g bic ycl es over ca rs in efforts to fit ex ercise int o their bus y sch edules or even deli berat el y redu ce their ne gati ve impact on the environment. In 2011, unit sales of road bikes in Canada grew by 25%, while all other segments ex hibi ted stagnat ion or negati ve gro wth.  The avera ge unit price  incre ased from approx im atel y $ 1070 to $1105 per road bike and the siz e of the road bike market grew fro m $26.5 mill ion in 2010 to $34.1 mill ion in 2011. The tot al siz e of the bik e market in Can ada in 2010 was  esti mated to be $251 mill ion  (Bic ycl e Tr ade Association of Can a da, 2011) .   The bic yc le shop indus try in the Gre ater Vancou ver Are a is buil t around sell ing and servicin g bic ycl es and related go ods .   It is mainl y com prised of independ ent bike shops and ca n be chara cteriz ed as mature, with slow - growth and relativel y low ba rriers to entr y due to  the low capit al requirements and unre gulated indus tr y . The incr ease in the gener a l popularit y of c ycli n g in Vancouv er, coupled with ma yo r Greg Robertson’s pro - c ycli ng ini ti ati ves has result ed in an  increas ed number of bicyc l e stores.  In Novemb e r 2012, there were 37 bi c yc les shops operati n g withi n the Cit y of Vanco uver boundari es.   Ind ependent bic ycl e stores withi n their respecti ve segment s lar gel y de al wit h the same suppl iers and most l y compete thro ugh product diffe renti ati on and quali t y of servic e , with the ex cepti on of 2   the low budget se gment where lar ge - scal e retail ers compete on price. Stores that do not carr y ex clusi ve and high  value m erchandise , compe te on locati on and convenience of access (transportati on routes, hi gh foot - tr affi c) as well as service qu ali t y.   B. THE BUSINESS AND THE CONCEPT The Bike Kitch en is the full - ti me storefront of the UBC AMS Bik e  Co - O p. It is located on th e lower level of the Student Union Buil ding. It rents, services, refu rbishes and sell s used bikes ,  also  offe ring rep air inst r ucti ons and other educ ati onal courses. The stor e i s run b y one full - ti me mana ger along with part - ti me st udent emplo yees and volunt eers.   The goal of the busi ness is to provide af fordable bic ycl es and relat ed servi ces to the campus and P oint G rey comm unit y while increasing awar eness and reducin g the number of discarded bic ycl es throu gh refurbi shment of donate d and abandoned unit s since i ts founding in 1997. M aking pro fits is a seco ndar y  goal  to its  prim ar y  purpos e of servin g the comm unit y. The Bike Kitchen re gularl y host s educati onal sessi ons fo r men and women that are or ganiz ed b y the AMS Bike Co - Op. Educati o na l acti vit ies are ex pected to conti nue but will from now  on be directl y funded and host ed usin g the funds and facil it ies of the Bike Co - Op.   The store is ex pected to move int o bigger pr emi ses on the same level of the buil ding in 2015 , which will be renova ted with support from UBC. As a venture of a student societ y ,  The Bike Co -Op offers  annu al  membe rship for the price of $1 5 , which gives  membe rs the privi lege of using purple and yell ow bikes at no char ge withi n the campus area.    3   The AMS Bike Co - Op was foun d ed in 1998 an d is run b y th e Board of Dire ctors , whi ch is  comprised of AMS me mbers . The numbe r of members of the Bike Co - Op hovers around 200 annuall y due hi gh turno ver rates as gradu ati ng classes stop comm uti ng to campus .  (UBC Bi ke Co - op, 2012)  C. PRODUCTS AND SERVICES The Bik e Kitchen provides refu rbished bikes an d a limi ted selecti on of new and  us ed parts for  various bike repair need s  along with a limi ted selecti on of cyc li ng acc ess ories, such as helm ets and locks . The stor e als o  rents tool s and floor s pace to custom ers who wish to work on their bikes independentl y. No vice c ycli sts can learn to repair or buil d their own bic ycl es with the help of the store mech anics. Those who do  not  like gett ing their hands dirt y can drop thei r bikes off for servic e at a competit ive price.     D. GROWTH STRATEGY The Bike Kitch en and Th e Bike Co - Op s et an amb it ious goal for the follow ing 5 yea rs, assum ing that the y can consi der ab l y ex pand their custom e r base with the move int o the bigger pr emi ses and expanding the Bike Kitchen’s product and service offering. Its goals for the next 5 years include:   Hiring a full - ti me busine ss developm ent oriented store mana ge r .   Ex panding the product li ne b y adding bic ycle app arel, new bic yc les and a wider sel ecti on of parts  and bike acce ssories .  Movi ng closer to a full service bike shop while maintaining its core so cial purpose.  4    Buil ding a stron ger bus iness model to make the store self - sufficient wit h consi stent profit abil it y .   The goal of thi s is to all ow the Bike Kitchen to full y suppor t the Bike Co -Op, removi n g the need of AMS funding to the Co - Op.   In cre asing oper ati onal revenue b y at least 100 % following the mov e int o the more convenientl y loc ated bi gge r pr emi ses with double the floor spac e and inc r eased ex posure  to the student foot - traffi c .   III. Market Research and Analysis A. CUSTOMERS The Bike Kitchen’s pri mar y t ar get custom ers ar e people who regul arl y com mut e to campus by bike and need  bike rep air services, parts and acc essories.   A secondar y ta r g et custom er group ar e people who live on campus , regularl y us e the ir bike, and would be int erested in th e Bike Kitchen’s services .    B. SURVEY ANALYSIS Two surve ys were admi nist ered to gau ge the aw areness  and  per cepti ons of the Bike Kitchen , as well as pr ef eren ces  of th e  att ra cti ve ye ar round bi c yc le comm uter se gm ent .  The first surv e y was admi nist ered  fac e to fac e  to 44 cycli sts , mainl y students,  at bic ycle rack s around campus .   The second surve y was dist ributed onli ne to 43 commut er cyc li sts among sta ff, facult y , and mainl y gr aduate students at  the  Saude r School of Business,  Centre for Int eracti ve Rese arch on Sustainabil it y ( C IR S )  buil d ing and th e Resour ce Man a gement and Environmental Studi es ( RMES )  program .   See Appendix  A ,  Table 1  for a breakdown of the surve y  and respondent  t ypes .  5   In gen eral, the respons es  between the two surve ys were compa rable, with one notable ex cepti on.  When asked about their percepti on of the servi c e  at the BK, ove r twice as man y face - t o - f ace respondents indi cated with a 5/5  as  did  onli n e respond ents , possi bly refle cti ng  a fo rm of participant bias or a di ffe rence in the servic e ex pectations of the two surve y groups .  The surve y result s sugge st that awareness of the Bike Kitchen is not an iss ue with current bike comm uters, with ov er 93% having heard of the sh op and 80% having been to it.  However there is room for improvement in the level of servic e provided, with onl y 59% perceivi n g the s ervice at the Bik e Kitchen to be Good or  Ver y Good, and ove r 43% of respo ndents indi cati ng th a t quali t y of service was th e most important factor i n decidi ng on a bike sho p to use.  In terms of new ini ti ati ves at the Bike Kitchen, the re was on l y moder ate  support fo r New Bikes  (41% ) and sli ghtl y more int er est in cyc li ng clot hing (49% ).  Indivi dual co mm ents highli ghted that ex ist ing cyc li sts alread y have bi kes and are not in the market  for new ones; th at  respondents ex pect bett er sele cti on and price s from  other stores (ME C in particular for c ycli n g clot hing), and that a number of respondents are more int e rested in ref urbished rathe r than ne w bikes .  On the other hand, there was ve r y stro ng  int er est in  a new  sam e - da y rep air servi ce ( 93 %) .   Overall the surve y result s suggest that investi ng in improved service levels, both in terms of quali t y and consi st en c y of servi ce, and in cr eati n g a same - da y repair serv ice of ferin g, would be the best  wa y to sati sf y the needs of c ycle comm uters .  Other ini ti ati ves, su ch as adve rtisi ng and increas ed produ ct off erin gs, ma y be bett er ta r gete d towards new students t o campus who ar e just gett in g int o c ycli n g.   A summ ar y of the surve y res ult s are included in Appe ndix A, Table 3 .    C. MARKET SIZE AND TRENDS 6   Accordin g to  the UBC Transportati on 2011 surve y, the over all siz e of the UBC population  as of November 2011  was  62 , 793 people .  Appr ox im atel y 54% , or 33 , 908 ,  own a bic ycl e.  Approx im atel y 8% , or 5 , 023  comm ute to campus regularl y b y bike  and 11 %, or 6 , 907 ride a bike on campus onc e a week or more .   Of th e regul ar bike comm uters, the re ar e over twice as man y Facult y  membe rs  as ther e are Grad u ate  Students or Staff, and thre e times as man y Grad Students as there ar e Und er gr ads.   The campus market chan ges and is rene wed annua ll y with the arriv al of new students, and the gr aduati on of cur rent stud ents .   This dynami c redu ces mark e t saturati on, maintaining  peak  se ason al demand for bic ycles  and related ac cessories  at the start of each school ye a r in Septembe r .  Both UBC  Transport ati on and  the Cit y of Vancouve r  Transportati on Department , have Transportati on Plans that encoura ge  the growin g social  trend towards inc r eased c yc li ng  throu gh improved bike routes, facil it ies, safet y and aw a reness.  Betwe en the in creasin g popularit y of cyc li ng and the  ini ti ati ve s to encoura ge c ycli n g t o Campus , the market for the Bike Kitchen is likel y to  gr o w .  Potential threats to thi s growth are the improved convenie nce or lower ed cost of other transpo rtati on alt er nati ves – such as a  pote nti al Sk ytrain line to campus – which could decre ase the number of bic ycl e comm uters .  This effe ct was s een in 200 4  with  the int roducti on of the U - P ass, aft er whi ch the numbe r of dail y bic ycl e trips to campus dropped b y alm ost half  ( UBC Tr ansportati on, 20 05).  D. COMPETITION AND COMPETITIVE ADVANTAGE The Bike Kitchen’s low cost structure, through AMS partnership benefits (free rent and uti li ti es)  all ow the Bike Kitch en t o provide some of the l owest  servic e rates  in th e c it y  as well as offe r unique educ ati onal pro grams, D o - It - Y ourself (DIY )  repair, and othe r co mm unit y s ervic es .   Its  7   central locati on on camp us  is also a si gnificant ad vanta ge  as it mak es it  the most  convenient bike shop for the majorit y of the campus population.  There are no oth er bike s hops  in the main area of campus ; howeve r ,  More Bikes is located in th e new residenti al develop ment – Wesbrook  Vill age,  n ear 16 t h  and Westbrook Mall .  Off campus the nearest bike store s  are The Bike Gall er y and West Point C ycles, both located on 10 t h  Ave , west of Alma .  All three of these independe nt bike stores charge  higher pric es, are less convenient , and do not of fer  th e comm unit y  bike shop  servic es that the Bike Kit chen does .   Non e of them guar antee same da y se rvice .  See Append ix A, Figure 1  for  a Blue Ocean Strate g y Graph of the Bike Kitchen `s uni que offe rings in compari son to their competit ion .  MEC, alt hough relativel y far from campus , is i ncluded as a competit or due to its  low er than indus tr y aver a ge pric es  and direct targeti ng overl a p of cycle comm uters .  Our Comm unit y Bikes is the onl y competit ion for DIY bike rep air, but is located far of cam pus and as such isn’t a convenient locati on fo r most students and facult y ( Appendix B, Table 3 and 4  f or a br eakdown of competitor’s pric es ) .  E. ESTIMATED MARKET SHARE AND SALES The  siz e of the Bike Kitc hen  of onl y 2800 squ are feet, is a limi ti ng fa ctor t o operati ons and limi ts  sales growth prior to the move.  How eve r, onc e i t moves  int o the 4500 sq uare foot ret ail spac e, with 1000 square foot stora ge/work area, it will have alm ost double the  capa cit y for incr eas ed sales.  Sales over the last few ye ars hav e been ste ad y  with rev enues of  ab out  $250 ,000 , but sti ll well below the ave ra ge U.S. specialt y bike retai ler , with aver a ge sales of approx im atel y $867 thous and per ye ar with a typical siz e of 5000 square feet (NBDA, 2011) .  Adjust ed for square footage, thi s figure woul d be $ 486 ,000  per year for a siz e of store sim il ar to the Bike Kitchen.  8   Given the la r ge custom er base of the UBC popul at ion, and that cu rrent dem and cur rentl y ex ce eds capa cit y (the curr ent lo cati on frequentl y has to turn custom ers aw a y), t here is a si gnific ant potential for s ales gro wth from the store ex pansion .   This potential is fur ther improved throu gh targeted ma rketi n g and focusing of product and service offe rings for the desired tar get markets.    F. ONGOING MARKET EVALUATION C ustom er data  -  su ch as Student, Staff or Facu lt y -  shoul d be coll e cte d during sales to help evaluate if the primar y ta rget market is bein g rea c hed .  See the Op erati n g P lan for more details.   IV. THE ECONOMICS OF THE BUSINESS A. ANNUAL GROSS AND OPERATING MARGINS S hown in calculati ons in Appendix C, Table 1  during the last two ye ars, the gross mar gin repres ented on ave ra ge 61.5% of the annu al rev enues. The fix ed costs represent ed on aver a ge 46.5 % of the revenue wit h  an avera ge net income of 15%. The de gr ee of operati ng lev er a ge is approx im atel y 4,  which mea ns that  net income wil l increase $4 for eve r y new doll ar of revenu e.  This is due to our assum pti on that wages are a fix ed cost.  As one of the two major ex penses (the other being COGS ), hav ing wages as a fix ed cost creates thi s high ope r ati ng leve ra ge.  T his creat es risk discussed in the R isk and Financials s ecti on, wher e if rev enues d o not grow with the ex pansion , the high oper ati ng lev era ge cr eates the potential for lar ge loss es .  B. CONTRIBUTION MARGINS DIVIDED BY REVENUE SOURCES 9   Appendix C, Table 2  sho ws cal culations of the Mar gins divided b y revenu e sourc es .  Th e revenu e streams for Th e Bike Ki tchen ar e sales of new parts and used parts, repa ir services, rental bike services and oth er misc ell aneous  revenues. This anal ysis shows that the gr oss mar gin  fo r the sal e of used parts, rep air and rent se rvices ex ceeds 90 % and the gross mar gin on the sal e of new parts is consi derabl y lower at 34%. Howeve r, as the fix ed costs are not traceable to each of th e revenue sour ces, th e se rv ices and sale of used par ts have ver y  high gross margins since the cost structure of thes e ar e alm ost compl etel y wa ges.   V. MARKETING PLAN A. Market Size  R efer to Market Siz e and Trends secti on for macr o data.   One key obje cti ve of The Bike Kitch en is to facil it ate the growth comm uter trips  to camp us made using bic yc les.  B. Target Market The most favo rable cust omers ar e bike comm uters ,  as  the y  require less educ ati on from stor e staff, ar e less price s ensit ive, and would provide consi stent revenue ye ar - ro und. People  who live on - campus  are at tr acti ve as the y  would be inclined towards the Bike Kitchen’s products and services bec ause of the convenience of locati on. Seasonal cyc li sts are rev enue gener ators during the peak seasons, when demand is at its highest. A  final  segment ar e the incoming students, who ma y not yet hav e bikes, who drive demand fo r bi kes and related ac cessori es at the start of each school ye ar .  C. Market Positioning 1 0   W it h several bike  stores in Vancouver’s west end, The Bike Kitchen need s to diff erenti ate itself in thi s competiti ve market and levera ge its locati on advanta ge. It sho uld focus on working towards fulfil li ng the following posi ti oning statem ent.  Positioning Statement The Bike Kit ch en is th e most convenient stor e fo r all your UBC c ycl e com mut ing ne eds, be cause it is loca ted on campus and offers good qu ali t y pr oducts and servic es at rea sonable prices .  D. Current Marketing Initiatives P lease ref er to App endix B, Table 1  for a detailed descriptio n of the cu rrent marketi ng ini ti ati ves.  The marketi n g ini ti ati ves have been focused  on the mont h of September, when the stor e is alread y at full capacit y, making it diffi cult to measure th e dire ct impa ct and effe cti veness of these m arketi n g strat e gie s.   Marketing/Advertising Budget   2010 - 2011 % of Revenues 2011 - 2012 % of Revenues 2012 - 2013 YTD % of Revenues          Revenues   $265,008   100   $249,190   100   $160,391   100  Advertisi ng   $300  0.11   $2,437  0.98   $441  0.28   The advertisi ng bud gets for the past financial years do not ex ceed 1% of tot al revenues. The highest was in 2011 – 2012, when the bud get was 0.98% of the rev enues. Also, in 2011 – 2012, it is int eresti ng to note that alt hough the budget increas ed by 712% f rom the previous year, the 1 1   revenues decr eased b y 6%. This showcases the difficult y of me asurin g t he direct impact and effe cti veness of advertis ing on revenues. Howev er, thi s also illust rates the need for consi stent advertisi ng str ate gies. It is advised tha t the store lever a ge its partners hips that provide free mediums of advertisi ng.  In conjunction with the store ex pansion in 2015, we have bud geted adv ert isi ng costs as $2,500 to promot e the new loc ati on, revamped line of produ cts/ services and brand bu il ding .  E. Overall Marketing Strategy Taking int o ac count the Bike Co - op’s shared and long standing value of non - profit comm unit y focus, the ma rketi n g strat eg y shoul d not be perc ei ved b y the consum ers as a transit ion to a pu rel y for - pro fit busi ness. It sh ould be refle cti ve of the comm unit y bik e shop that it is. Its prim a r y objecti ve is to inculcate a cult ure of c yc li ng and m aking and fix ing you r own bikes.  The Bik e Kitchen want s to offer its products and services at an af ford able pric e point in a convenient locati on. Once it mo ves int o the new  space, the recomm en dati on is to  offer new bic yc l es and inc reas ed retail .  F. Marketing Strategies Name The name ‘Bike Kitchen’ does not clearly indicate the primary business of the store. As there is not a subst anti al adv er ti sing bud get av ail able, the name shoul d be succinct and shoul d communicate the nature of the core business. A name such as ‘UBiCycles’ would be apt for the new locati on.  Signage 1 2   The Student Union Buil ding is located cent rall y and is one of the busi est buil dings on campus . T he locati on of the Bike Kitchen is not at eye lev el, and the curr e nt signboard is fairl y inconspicuous. Currentl y, th e spa ce around the entran ce shoul d be m ade more att ra cti ve b y paint ing the entr ance wa y with  bright colors and bic ycl e icono graph y . A co ntest could be held  to award the best artwork t o be paint ed on the entra ncewa y. This strat e g y is relativel y inex pensive and effe cti ve  promot in g brand renew al . On ce th e transit ion int o the new l ocati on is compl eted, there shoul d be a new co nspi cuous signboard repr esentative o f the new stor e UBiC ycles .  Branding Branding is an important part of any organization. It creates an image in the customer’s mind of the organiz ati on as a wh ole. All bic ycl es leavin g the store shoul d have a st icker att a ched with the Bike Kitchen’s name and logo. Placin g the sti ckers on ex ist ing bike rac ks and ca ges and an y proposed new on es, will help create hi gher cust omer aw aren ess. Anothe r brandin g techniqu e would be to provide Bike Kitchen brand ed c ycli n g app arel and acc essories . C ycli ng appar el with th e UBC lo go on it can showcase the endors emen t of the Bike Kit ch en b y UBC.  To creat e an independ ent identit y in the consum e r s mind, The Bike Kitche n shoul d to diss ociate itself from an y mark eti ng comm unic ati ons that mention The Bike Co - op or The Bike Hub. Although all fall unde r t he purview of the Alma Mater Societ y (AMS ), The Bik e Kitchen shoul d be per ceived as an ind e pendentl y run bike stor e and shoul d work tow ar ds rebuil ding its br and percepti on and deli verin g a consi stent message, while avoidi ng dil uti o n.   This is at the core of our recom mend ed nam e chan ge to UBiC ycles in order to creat e dist ance between the Co - Op and it’s social enterprise.  Advertising 1 3   Advertisi ng on UBC Connect befo re new ac a demi c ye ar be gins wou ld be effe cti ve to get incoming student s familiarized with the store’s operations. This is particularly applicable to int ernati onal students, who are given addit ion al information about the cit y and the campus . Additi onall y, campus tours conducted b y the ad mi nist rati on staff or curr ent students are other techniques that could be helpful in providi ng ex posure to the store.  Additi onal advertisi ng su ggesti ons include:   C reati ng short videos in coll aborati on with the UBC Fil m Societ y and ad vertisi ng th ese videos in the Norm Th ea ter. A contest could be  held, awa rding the autho r of the winnin g idea with a minim um pr iz e and film credit s. Thi s would help gene rate buz z around the project as well   Advertisi ng in all campus residences, specifi call y targeti ng students new to Vancouver or Canada   There are a vari et y of workshops conduct ed in the comm on rooms of on - c ampus residencies. An opti on could be to offer fun an d brief workshops on bike awa reness, safet y and mainten anc e.   Promote covered bike parking right outside the Bike Kitchen’s entrance. This will add an aura of professi onali sm to the store and reinforc e the perc epti on of quali t y service   Init iate a mont hl y - them ed Critical Mass Bike Ride to or around campus . This would provide a social fun envir onment.   S ince The Bike Kitch en can adve rtise via UBC Digit al Signa ge at no cost because of its Co - op status, max im um advanta ge shoul d be t ake n of this medium  1 4    A mut uall y bene ficial relations hip is under developm ent between the Ub ys se y, wh erein The Bike Kitchen rec eiv es adve rtisi ng spa ce in ex chan ge for providi n g bic y c l es to deli ver the newspap er. Adv ertis ements shoul d be plac e d during off - s eason to promot e ye a r -round bic ycli ng  People The empl o ye es and volunt eers working with the Bike Kitchen are represent ati ves of the organiz ati on. To creat e a sense of professi onali s m , on - dut y empl o ye es s hould be provid ed with Bike Kitchen vests to be worn over no rmal clot hing. This helps to dist ingui sh an empl o ye e from a customer, and improving the customers’ perception of the store. Other Recommendations One of the current marketing initiatives includes outreach booths at Kitsilano Farmer’s Market and UBC Farm. This gen erates minim al revenue and ne gli gibl e in - store traffi c. It is recomm ended th at thi s ini ti ati ve be disconti nued, as there are possi bil it ies to channel these resourc es elsewh ere.   VI. OPERATING PLAN A. OPERATING CYCLE The store will primaril y rel y on the demand gene r ated durin g the acad emi c ye a r as its locati on on campus means custom er traffic is c ycli c al throu ghout the ye ar . It will  op erate ye a r round as in the summ er term there is sti ll  demand generat e d by students who com mut e to campus using 1 5   bic ycl es and the va rious participants of confe ren c es held in the Point Gre y area who frequ entl y need to use rental bic ycle s for long periods of time .   The store hours durin g t he regula r ac ademi c ye ar will be Monda y to Frida y, 7:00 am – 6:00 pm and durin g the summ er s eason -  Monda y to Frida y, 9:00 am -  4:00 pm du e to lower traf fic in th e area and in the Student Union Buil ding. Currentl y, the store operat es fro m 10:00 am to 6:00 pm Monda y to Frid a y, 11:00 am to 6:00 pm on Saturda ys and clos es for all holi da y weekends. All products and services wi ll be avail able ye ar roun d; however, the store will operate with r educed staff durin g the summ er.   B. LOCATION The store is to be relocated withi n the old SUB – the buil ding with the highest rate of foot - traf fic on campus , located in the prox im it y of both bus loops . Using part - ti me student workers and volunt eers will all ow the Bike Kitchen to conti nu e uti li z ing a lean cost structure b y pa yin g less than aver a ge full - ti me hourl y wa ges. The loc ati on of the store will offer a convenient plac e for students to work flex ibl y while balan cing their co urse load . B y offe ring store credit in ex chan ge for hours o f voluntee r wo rk and  othe r perquisit es (e.g. waivi n g the member ship fee or givi ng free acc ess to tool s and floor space ) the mana gemen t of the Bike Kitch en s hould be able to keep empl o ye e turnover rates relativel y low durin g the  academi c ye ar. Ev en wi th its central locati on, a tt racti n g traffi c is  a sign ificant chall en ge at the mom ent due to the obscured locati on of the store in the basement of the SUB. Approp riate adve rtisi ng and plac ement of signs will be necess ar y (see Mark eti ng Plan sec ti on). The move int o the new premi ses i n the autum n of 2015 will provide  the Bik e Kitchen with  increased  l evel of dail y foot - tr affi c .  1 6   C. FACILITIES AND IMPROVEMENTS S ee Mark et Resea rch an d Anal ysis for descriptio n of the ope rati onal ben e fits of incre ased floo r space.  D. PROCUREMENT AND INVENTORY MANAGEMENT The main sources of inventor y fo r the Bike Kitchen are the donated an d abandoned bic ycles which then get refurbishe d and prep ared for subse quent sale. Due to the ex ist ence of anti - fen cin g laws, the busi ness is unable to pa y for old an d used bic ycl es  which  l im it s its procurement capabil it ies. The store mana gement is limi ted in its abil it y to replenish the inventor y at the level of a full profit - oriented Independent Bik e Deale r (ID B), due to relativel y l ow cash rese rves, but it manages to obtain its selecti o n of produ cts for its members at ver y compe ti ti ve prices.   To eli mi nate the bott leneck caused by insuf ficient quanti ti es of donated bic yc les, it is recomm ended that the st ore hire a part - ti me empl o ye e to patrol the campu s, identif y abandoned bic ycl es and r epo rt them to the UBC Plant Operati ons and the UBC Trans portati on Planning in order to facil it ate quicker removal and subsequ ent inventor y replenish ment as opposed to the current semi - annual basis .   A store empl o ye e moni t ors and replenishes the parts inven tor y on the ad hoc basis , pla cing one to five orders per week with one or more of the Bike Kitchen’s ten suppliers.  To rea ch the base case sales level indi c ated in Appendix F, Table 1  the  Bike Kitch en must be able to adequ atel y addr e ss the procur ement res tri cti ons and incre ase its fl oor cap acit y to 10 bike 1 7   stands for custom ers and 2 for the shop staff to work on  refu rbishe d bikes following its relocati on in 2015.   During the comi ng yea r, the followin g s ystems of inventor y m ana gem ent shoul d be empl o ye d (see  Maste r  Schedule sec ti on for durati on of each stage ):   S tage 1 -  Conti nuous Review S yst em: Assumi ng there are onl y va riable orderin g costs , the inventor y l evel fo r al l products shoul d be che cked dail y and orders sh ould be placed ever y time the inventor y for  a specifi c product fall s reaches or fall s below its calculated reorde r point . It is important at thi s stage of adjust ing the busi ness model that the Bike Kitchen maintains sufficient levels of inventor y fo r all its products and avoids stock - outs in order to esti mate de mand with a high er de gree of accu rac y. For the durati on of the stage, it is imperati ve th at the store empl o ye es accurat el y enter data on a dail y basis in order to gen er ate a datab ase that would provid e s ufficient empi ric al evide nce to for ec as t demand in the subsequen t stage.   S tage 2 – News Vendor Model. Bas ed on the dat a ac cumul ated du ring the previous sta ge, the store man a ger cal cu lates the opti mal levels of inventor y b y decidi n g on the ri ght balance betwe en the fil l rate (per centa ge of demand sati sfied) an d the cost of overstockin g alon g with the reduc ed level o f worki ng capit al.  E. TRANSPORTATION The suppl iers th at provid e the Bike Kitchen with merchandise ar e responsi ble for deli verin g the goods su ch as parts, acc essories and new bi c ycle s . The store mana ger ho wever, has to bo rrow a 1 8   vehicle from the Alma Mater Societ y on the per - need basis to coll ect donated bic ycl es around Vancouve r  in orde r to periodicall y replenish the i nventor y.   F. COST AND QUALITY CONTROL At the mom ent, the demand gener a ted b y the stor e, and the orde r siz es are not sufficientl y bi g to negoti at e volum e discou nts with dist ributors. Planned cap acit y incr ease in 2015 will potentiall y all ow the Bike Kitchen to rene goti ate its suppl y contracts for bett er cr edit terms and purcha sin g prices.  Th e sensit ivi t y anal ysis in the finan cials s ecti on shows the import a nce of cost cont rol for the sustainable healt h of the busi ness.  Quali t y control is  to be performed b y the stor e ma nager or senior bi c ycle m echanic  at the time of order deli ve r y.  Additi onal quali t y cont rol is perfo rmed b y mech anics befo r e the inst all ati on of a part on a bic ycl e.     VII. MANAGEMENT TEAM AND HUMAN RESOURCES  A. Organization  Appendix D, Figu re 1  shows the cur rent Organi z ati on Chart of the  Bik e Kitchen. I t is horiz ontall y stru ctured with the  General Store Mana ger and man y part - ti me bike technicians.. The descript ion of the actual fun cti ons for ea ch posi ti on is the foll owing:   Gener al Mana ger:  The Gener al Mana ger is res ponsi ble for leading and controll ing the operati ons of the busi ness which includes trai ning and supervisi n g bike technicians, 1 9   service quali t y control, s ales, custom er servi ce an d admi nist rati ve tasks such as inventor y control, pa yrolls, accounti ng and  m a rketi n g .   Bike Technicians: Bike technicians’ general functions are: Servicing bikes, conducting check - ups, supe rvising and providi ng inst ructi ons for Buil d Your Own Bike (BYO B) program. Bike t echnicia ns also assi st with sal es and admi nist rati ve tasks as r equ ested b y the Gener al Mana ger .  B. Proposed Organization Chart Appendix D, Fi gure 2  sh ows the propos ed or gani z ati on chart that is to be implemented when the Bike Kitchen ex pands to the new locati on. Under thi s scenario, our proposal contemplates an increas e in the number of part - ti me bike technicia ns from 6 to 8, based on the knowled ge t hat the number of bic yc le stand s will increase from 7 to 12. Also, as there is an ex pected increase in volum e of ser vice, a full - ti me Gener al Man a ger an d a Store M ana ge r shoul d be hired to att end to admi nist rati ve tasks, along with a dedicated salesperson and a part - ti me store Sales Representative to assi st the management on the sales of bikes, parts, clot hing, and acc essories during pe ak hours. A detail descriptio n of the proposed functi ons for each posi ti on is the following:  a.  Gener al Man a ger: The Gener al M an a ger ’s main responsi bil it ies ar e to l ead and control the oper ati ons of th e busi ness, train and sup ervise bike technici ans and to ensure the Bik e Kitchen is adherin g to  th e requir ed quali t y stand ar ds  b.  Store Manager: The store manager’s main responsibilities are to ensure a high level of custom er servic e, moni tor sales ,  assi st custom ers and  att end to the admi nist rati ve tasks of 2 0   inventor y control, pa yr oll s, accounti n g and m arke ti ng. The Store Mana ger wil l  report to the Gener al Mana ger  c.  Bike Technicians: B ik e technicians servic e bik es, conduct ch eck - ups, offer te chnical assi stance and suppo rt to custom ers in the  Buil d Your Own Bik e program. B ike technicians also assi st wi th sales if  requested b y th e Store Ma na ger  d.  S tore Sales Representati ve: The Store Sales Repr esentative helps  the Store Mana ge r with  in - store sales of clot hin g, new and used bikes sal es and gene ral custom er service durin g store peak hou rs.  VIII. OVERALL SCHEDULE S ee Appendix E  for  the overall schedul e.   IX. CORPORATE SOCIAL RESPONSIBILITY A. SOCIAL ENTERPRISE The Bike Kitchen ex ist s as the social enterprise of the Bike Co - Op.  Inher ent is the missi on of The Bike Kitch en is the support of the co - op me mbership through comm unit y bik e ser vic es and bike programs that prom ote c ycli n g aw aren ess on campus .  As a social ent erprise t he Bike Kitchen ope rat es with non - profit ideal s.  The net income gen erat ed each ye ar is dispersed to empl o yees th rough bonuses and the remainder to the Bike Co - Op to support its operati ons.   B. ENVIRONMENTAL RESPONSIBILITY 2 1   The main environm enta l impact of the Bike Kitchen is throu gh its promot ion as c ycli n g convenient alt ern ati ve to hydroc arbon and el ectri cit y based tr ansportati on .  This busi ness plan focuses on new ini ti ati ves to focus more dire ctl y on the co re se gment of c ycle comm ute rs.  Through th ese ini ti ati ves The Bike Kitchen will be focusin g its effo rts directl y on fulfil li ng its visi on increased c yc li ng t o and around campus .  The Bike Kitchen has ini ti ati ves and pa rtn ersh ips with other campus groups such as Th e Ub ysse y , that allow these groups to deliver items around campus using the Bike Kitchen’s transport bic ycles.  Smal l ini ti ati ves such as thi s help lower the ov erall carbon footprint of the universit y as small amou nt.  The more important impact of these ini ti ati ve s is raisi ng awar eness that alt ernati ves are possi ble and compl etel y viabl e.   C. CSR MEASUREMENT It is recomm ended that the Bike Kitch en focus CSR measurement through custom e r servic e.  The cur rent ope rati ons of the Bike Kitchen ar e s uch that the dem and is not being m et.  Man y custom ers com e in look ing for refu rbished bike s onl y to be turned aw a y due to stock - outs .  Focused on the visi on, th e prim ar y ef forts of th e Bike Kitch en shoul d wo r k towards me eti ng thi s demand, and gett ing more peopl e on bic yc les.  When these potential custom ers le ave, th e opportuni t y to incr ease ridership ma y be lost .  Therefo re th e ke y CSR measurem ent shoul d sim pl y be kee ping tra ck of demand (see procur e ment and inventor y man agement), reali z ing that meeti ng demand means max im iz ing the CSR impact of the Bike Kit ch en.   IX. CRITICAL RISKS, PROBLEMS AND ASSUMPTIONS 2 2   There ar e four  gen eral ri sks, the first is comm ercial risk , t he second i s operati onal, the thi rd is partnership and the fourt h is people .  A. COMMERCIAL The critical comm erci al risk highli ghted for the Bike Kitchen is the one that is tied to the assum pti on that increase d space, retail off erin gs and staff will incre ase sal es.  The co rrespondi n g risk is that thi s assum ptio n does not hold after  the ex pansion of the Bike Kitchen int o its new space, and th e incr eased costs are not cov ered b y i ncreas ed sales.  There are a number of specific risks that fall under thi s incre ased cost risk.  For ex ampl e: increas ed servic e hours, in creas ed retail and pro gram offe rings.  For each of the specific risks, we have detailed a ke y acti on or miti gati on to t he risk that can be implemented be fore the full ex pansion int o the new space.  An ex ampl e of a critical cost risk is the plan to sell new bikes .  This will increas e inventor y cost, reduce workin g capit al and move the Bike Kitche n int o a market it has not pla yed in before.  Th e miti gati on for thi s risk is to pil ot the offering of new bikes for s ale nex t September on a small  scale .  The sugges ti on is  to bring in ten new bikes at a cost of $400 -  $500 per unit  and determi ne from the actual demand for  new bikes and the con sumer pre fer enc es.  This pil ot will offer  good market information be for e a lar ger comm it ment is needed.  B. OPERATIONAL The ke y oper ati onal risk in thi s new plan revolves around the proposal for same - da y turn around service.  This proposal is a vital valu e proposi t ion to the co re s e gment of dail y UBC bike comm uters.  Th e risk of thi s service off erin g is the ex posure to dem an d variabil it y.  On an y 2 3   given da y the demand for thi s service will have a lar ge standard deviati on compared with the mean.  To miti gate thi s variabil it y we are propos ing empl o ye es as fl ex ible proc ess cell s able to work as mechanics and sales assi stants .  Th is flexibi li t y off ers  mana gemen t a level of abil it y in  deal ing  with this demand variabil it y.  C. PARTNERSHIPS The partnerships with the Bike Co - Op and AMS provide subst anti al benef it to t he Bike Kitchen through its full y subsi di z ed rent and uti lit ies in the  SUB.  Without these subsi dies t he Bike Kitchen would not be a profit able busi ness.   The risk to t he Bike Kitchen is that with ex pansion and a chan ge of its busi ness model to become more of a full service bike s hop, these partnerships ma y be call ed int o qu esti on.   In addit ion, t he Kitchen’s suppliers have si gnific ant  power in the relations hip ( See Append ix H for Porter’s Five Forces Indust r y An al ysis ) and with the chan ge to the Kit chen the suppli ers ma y ex ert pressure on prices and retail opt ions.  D. PEOPLE W it h this change in busi ness model and correspo nding ex pansion plan, conti nuit y of ke y people is ver y important.  Organ iz ati onal knowledge in The Bike Kitchen as a small social enterprise is mainl y kept in the head s of staff.  This is risk y at an y point , h owev er , it is especiall y risk y consi derin g the ex pansion plans as the loss of key personn el would have a lar ge impact on the successful impl ementati o n of the plan.  The highlighted mitigation of this is to be clear on each of the staff’s value propositions.  Why are they motivated to help deliver this change?  Depending on each of the staff’s motivation it is advised to incenti viz e  key staf f to ensur e  conti nuit y throu gh ex pansion in 2015.  2 4    X.  THE FINANCIAL PLAN E. FINANCIAL ANALYSIS  Financial anal ysis of this busi ness plan started with the last thre e ye ars of fi nancial statements for the Bike Kitch en and t hen fore casted five yea r s forward giv en the rec omm endati ons in this busi ness plan.  Appendix F  details the proforma statements and the scenario and sensit ivi t y anal ysis .  F. FINANCIAL PROJECTIONS  Base, mid, and hi gh case projecti ons have been created.  Ke y assum pti ons to these plans ar e:  Comm on to all   Underl yi n g growth rate of 3% p.a. fo r all rev enues and costs   C osts to move int o the new  space in 2015 wil l be $60,000.  This has been sp li t as $20,000 each for gene ral movi n g ex penses, $20,000 of suppl ies ex pendit ure and $20,000 of equipm ent ex pendit ure.  These cha r ges ar e one time char ges associ ated with the move and do not per sis t into fut ure ye a rs   The rental fl eet is c ycle d ever y ye ar, me aning 10 bikes are pur chas ed in Ma y, rented through the su mm er and then sold in September  Base Cas e  2 5    The base cas e assum es revenue growth associated with the move in 2015 as a doubli ng of service revenu e an d used sales, and a 60 % incre as e in new sales.   The bas e case ex penses i ncreas e acco rdin gl y to support these rev enues an d ar e rooted in the fundamentals of the plan.  Overall staffing le vels increase from six to eleven people.  Therefo re wa ges and be nefits increas e b y 11/6.  Cost of goods sold incre ases b y 60% in conjunction with new sales.  The other ex pen ses increas e b y th e 3% gro wth rate reco gniz ing that thes e ex penses will not increase in conjunction with the move, due to economi es of sca l e   W it h thi s bas e case proje cti on, The Bike Kitchen will be well posi ti oned for a stead y flow of profit s that will sus tain it s increased se rvices to members  Low Cas e   The low case scen ario has the s ame basic assum pti ons as the base case ex cept the ke y differen ce that revenu es do not increase in conjunction with the move (i.e. revenu es are the same in the new store as the y would hav e been in the old store).  In thi s case, the wages and bene fits ex penses increase to reco gniz e the new staff that will be hired.  This low c as e reco gniz es the ke y risk th at the new sp a ce will require more staf f, but does not  gua rante e incre ased rev e nues .  The probabil it y of thi s outcome is small based on our market res ear ch and the planned miti gati ons.  Also , if revenues are not materiali z ing as int ended when moved int o the new store, staffing redu cti ons are alwa ys an opti on to decre ase loss es.  See the sensit ivi t y secti on bel ow regardin g the importance of wages ex pense.  High Case  2 6    The high cas e scena rio reco gniz es the potential upside of the mo ve that might be gained through inc reas ed ef ficie ncies and opti mi z ati on.   In thi s cas e the servi ce and used sales revenues increas e by 150 % and the new sales revenues incre ase b y 10 0% in the move from th e old store to the new st ore.  This hi gh case is just i fied by the potential new dail y servic e offerin g, incr eased reta il and increased dedicated bike stands for refurbishi n g bikes.  G. SENSITIVITY ANALYSIS A sensit ivi t y anal ysis ha s been per formed on the key rev enue gen erators and ke y ex penses fo r The Bike Kitch en.  This tornado cha rt (Appendix F , Fi gur e 1 )  shows the impact to net income by var yin g thes e input s by +/ -  20%.  The ex pense input s are the most im portant to net income.  Var yin g wages ex pense by +/ -  20% impacts net income by alm ost +/ -  90%.  This reall y emphasiz es the importan ce of efficientl y man a ging sta ffin g lev els to mat ch demand.  Var yin g COGS by 20% shows an impact of alm ost 70% on net income.   This shows the importance of contractual te rms with suppli ers (prices, shi ppin g, A/P ) and inventor y mana gem ent.  The other thr ee factors all have a lesse r impact on net income and are all revenue factors.  This illust rates how important cost control is an d where the relative focus shou ld be in terms of cost control and revenu e gen e rati on.  That bein g said t he most lever a ged rev en ue gene rator is servic e.  This shows that a variati on of 20% in servic e leve ls will impact net income by 50%.  In Summ ar y, over t h e 5 year pl an period contai ning futur e ex pansion recomm endati ons, our financial anal ysis shows the plan to be healt h y with good net income potential.  Although the Bike Kitch en has stabl e yea rl y rev enues of approx im atel y $250,000, increasin g costs have er oded their net income by approx im atel y 40% over the last few ye a rs.  This is mainl y due to the 2 7   gr adual incre ase in empl o ye e wage ex penses in conjunction with operati ons that are at capa cit y and cannot gen erat e addi ti onal revenues to match wage incr eas es.    The ex pansion break - eve n scenario was cal culated showing that revenue gr owth of 54% is needed in ord er to suppor t the increas ed ex penses post - ex pansion .  A reven ue incre ase of at least thi s much is well supported by th e lar ge capti ve m arket on campus , high un met demand at the Bike Kit chen, and stron g evidence in the m arket resear ch that incr eased s er vice off erin gs will provide value to the tar ge t market.  Word Count:  6530 words XII. REFERENCES 1) Cit y of Vancouve r. (2 012) Transportation 2040 Plan: A transportation vision for the City of Vancouver .  2) UBC Transportati on. (2006). 2005 Strategic Transportation Plan. Vancouver: UBC Transportati on Planning.  3) NBD A, Indust r y Ov er view 2011, htt p:/ /nbda.com/ articles/i ndust r y - ov erv iew - 2011 - p g34.htm  4) Offic e of Plannin g and Insti tut ional Resear ch, The Universit y of Britis h Col umbi a: Statistics . Students. Full-time and Part-time Enrolment UBC Vancouver. UBC Faculty and Staff Count. Faculty and Staff. R etrieved from http: // www.pai r.ubc.ca/st ati sti cs   5)  youb c: Vancouver . Campus Life. Commuter. R etrieved from htt ps:/ / you.ubc. ca/ubc/va ncouver/comm uter. ez c   6) Bic ycl e Tr ade Associ a ti on of Canada  (BTAC) . (2011). Annual Bike Sales Report. R etrieved from www.bta c.or g : htt p:/ /www.btac.or g/m embe rs/annual_bi kes_sales_r ep ort.ht ml  7) UBC Bike Co - Op. (20 12). About us. R etrieved from bikecoop.c a: htt p:/ /bikecoop.ca/ about - 2/  8) UBC Transportati on. (2012). 2011 Transportation Status Report. Vanco uver: UBC Transportati on Planning.    2 8    XI. APPENDICES APPENDIX A: MARKET RESEARCH  1     T abl e 1: Bike Commut er Survey Popula ti on   Survey type  Type of respondant # of respondents % of Total  Face to Face  Student 41  93%    Staff  2  5%    Faculty  1  2%    total 44  100 %  Online Survey  Student 28  65%    Staff  8  19%    Faculty  7  16%    total 43  100 %  Combined  Student 69  79%    Staff  10  11%    Faculty  8  9%    Total 87 1 00 %    Tabl e 2: Most Impor t ant Fact or in Deci di ng on a Bike Shop to Use   Survey Type  Conveni enc e  Low Pri ces  Qual it y of Ser vi ce   Face to Face  10  12  17   Onl i ne  13  10  20   Combi ned  23  22  37   % of Total Res pondent s  26% 25% 43%    1   Table 3: S umm ar y of Posi ti v e Responses to Survey Qu esti ons  by surv e y t ype .   Figu re 1: Blue Oc ean Str ate g y for the Bike Kit ch e n    Survey TypeSeasonal / Weather DependantYear RoundHeard of Bike Shop in SUBBeen to BKPercieve Service at BK to be Good to very GoodWilling to Use Repair Service at BKInterested in Same Day RepairWilling to Shop for New Bike Willing to shop for Bike ClothesConvenienceLow PricesQuality of ServiceFace to Face 4 29 41 36 27 36 N / A 23 21 10 12 17Online 20 20 40 34 24 31 40 13 22 13 10 20Combined 24 49 81 70 51 67 N / A 36 43 23 22 37% of Total Respondants28% 56% 93% 80% 59% 77% 93% 41% 49% 26% 25% 43%Note:  Positive response is defined as indicating a 4 or 5 on a number scale, or indicating Li kely to Very Li kelyNote:  "No response" is counted as a negative response.Type of Commuter CyclistMost Important Factor in deciding on a Bike Shop to use2   APPENDIX B. MARKETING PLAN T abl e 1: Cur r ent Mar keti ng Ini t i ati ves         Tabl e 2: Impl ement at ion schedule for proposed mar ket i ng st rat egi es    AMS Insider C ampus N ewsletter P rintC iTR UBC Radio Station RadioDiscorder Magazine P rintO utreach Booths at K itsilano Farmer’s Market and UBC F armS hared initiative withC ycling ResourcesC entresP ersonalBooths on Imagine Day,C lubs Day, and during the start of SeptemberS ome conducted by paid volunteersP ersonalInternational StudentO rientation Amazing RaceEventThe Ubyssey C ampus N ewsletter P rintN orm Theatre C ampus cinema AdvertisingUBC Digital SignageInformation disseminated via TVs on campusAdvertisingInitiatives Description MediumN ame changeS hould clearly reflect operations. Eg. 'UB Cycles' or ‘Campus Bikes’N ew locationN ew SignboardWith the new name, a relevant tagline, and colorful.N ew locationS ocial MediaF aceboo k and Twitter could be used in 2014, providing sufficient time topromote the new location and transitioning into a new brand image.O ne year prior to transitionWebsiteThe website should be revamped to promote the new location and products and servicesS imultaneously with socialmedia initiativeS tickersS hould be applied to every bike leavingits store and on bike racks/cagesImmediateAdvertise on UBC C onnect and via campus toursS hould provide a brief descriptionabout the store and relevant linksApril 2013 onwardsUniform VestsVests should have the store’s name and logoImmediateS hort advertisementIn collaboration with UBC F ilm S ociety to advertise in the N orm TheaterEarly 2013Informative workshopsWorkshops on bike awarenesss,safety, and maintenance in campusresidenciesEarly 2013Trial bikesO ffering trial bikes on rental during off-season for a weekEarly 2013C ritical Mass BikeMonthly bike ride with maximumpossible participantsMarch 2013 onwardsThe Ubyssey Advertise during off- peak seasonsWhen partnership is finalizedTask Description Schedule2   Table 3: Comparison of competitor’s prices and hours of operation  *Not e: The lowest pri ces and longest hour s of oper at ion are highl i ght ed         T abl e 4: Compar ison of compet i t or pri ces for addit i onal ser vi ces   *Not e: Lowest pri ces are highl i ght ed. Some pr ice s unknown    ServicesBike KitchenMountain Equipment Co-opThe Bike GalleryWest Point CyclesMore+ BikesOur Community BikesFull tune-ups35 - 50 - 15035 - 45 - 65 - 14045 - 80 - 18050 - 70 - 18040 - 70 - 18050 - 75 - 100Hours 10 - 6 10 - 7 9:30 - 6 9:30 - 6 10 - 6 11 - 6Bike Rentals2 Hour Rate 16 N A N A 16 20Daily Rate 25 N A N A 30 35DIY Rate (per hour)7.50 N A N A N A N A 6DIY with Instructions (per hour)15 N A N A N A N A 12Hourly mechanic rate50 60 60 60 60 50All figures are in $ amountsServicesBike KitchenMountain Equipment Co-opThe Bike GalleryTiresTire Ins ta lla tion 6 10 7. 50Fla t re pa ir 6Tube 5 10BrakesA djus tme nt 8 - 10 10 - 20P a ds or c a ble ins ta lla tion 10 - 15 10 - 25O ve rha ul of e xis ting s ys te m 15 15Se tup 15 - 20GearsA djus tme nt or simpleins ta lla tion 8 9 - 10Ins ta lla tion of c a ble s 10 - 15Se tup of ne w sys te m 15 - 20DrivertrainCle a n & Lube 6Ins ta ll or re s ize c ha in 6 10 10Ins ta ll c ha in & c ogs 20Ins ta ll c ha in, c ogs , rings /c ra nks & pulle ys 30 35BearingsA djus t H ub, H e a ds e t, or Bottom Bra c ke t 8 5 - 8O ve rha ul H ub, H e a ds e t, or Bottom Bra c ke t 15 - 25 11 - 20 20Ins ta ll ne w c a rtridge Bottom Bra c ke t 15WheelsTrue (s tra ighte n) 10 - 15 10 - 15 20Spoke re pla c e me nt 20Build a ne w w he e l 35 25 - 35 45AccessoriesIns ta lla tion or ra c k, fe nde rs 10 5 - 21Ins ta lla tion of othe r a c c e s s orie s (pe r hour) 35All figures are in $ amounts1   APPENDIX C. CONTRIBITION MARGINS AND REVENUE SOURCES  Table 1: Annual Contribut ion Margins   Table 2: Contribut ion Mar gins divided by Rev en ue Sources  2010- 2011 2011- 2012 2012- 1013 YTDSales 265, 008$               100% 249, 190$               100% 160, 391$               100%less Variable expenses 100, 619$               38% 97, 627$                 39% 44, 420$                 28%Contribution Margin 164, 389$               62% 151, 564$               61% 115, 972$               72%Lees Fi xed Costs 119, 501$               119, 599$               68, 317$                 Net Income 44, 888$                 31, 965$                 47, 654$                 Degree of operating leverage 3.7 4. 7 2. 4Sales 145, 828$               100% 48, 104$                 100% 52, 758$                 100% 10, 052$                 100% 8, 266$                   100%less Variable expenses 96, 311$                 66% 1, 889$                   4% 1, 220$                   2% 1, 009$                   10% 191$                       2%Contribution Margin 49, 518$                 34% 46, 215$                 96% 51, 539$                98% 9, 043$                   90% 8, 075$                   98%Sales 139, 689$       100% 38, 351$       100% 53, 899$       100% 12, 324$                 100% 4, 927$                   100%less Variable expenses 91, 873$                 66% 2, 438$                   6% 1, 442$                   3% 1, 741$                   14% 132$                       3%ontribution Margin 47, 816$                 34% 35, 913$                 94% 52, 457$                 97% 10, 582$                 86% 4, 795$                   97%Sales 86, 036$                 100% 21, 652$                 100% 34, 865$                 100% 10, 831$                 100% 7, 007$                   100%less Variable expenses 41, 353$                 48% 1, 034$                   5% 1, 121$                   3% 686$                       6% 225$                       3%Contribution Margin 44, 683$                 52% 20, 618$                 95% 33, 744$                 97% 10, 146$                 94% 6, 781$                   97%New Parts Used Parts Service Rentals2010- 20112011- 20122012- 2013 YTDMisc RevenueNew Parts Used Parts Service Rentals Misc RevenueNew Parts Used Parts Service Rentals Misc Revenue APPENDIX D. ORGANIZATION CHARTS Figure 1: Bike Kitchen’s current Organization Chart Bike Co-opBoard of Directors ManagerBike Kitchen Employee 1Bike TechnicianBike KitchenEmployee 4Bike TechnicianBike KitchenEmployee 5Bike TechnicianBike KitchenEmployee 3Bike TechnicianBike KitchenEmployee 2Bike TechnicianBike Kitchen           Figu re 2: Bike Kit chen P roposed Organiz ati on Chart   Bike Co-opBoard of Directors General Manager Bike KitchenEmployee 7Part Time Bike TechnicianBike KitchenEmployee 6Part Time Bike TechnicianBike KitchenEmployee 1Part Time Bike TechnicianBike KitchenEmployee 3Part Time Bike TechnicianBike KitchenEmployee 2Part Time Bike TechnicianBike KitchenEmployee 8Part Time Bike TechnicianBike KitchenEmployee 5Part Time Bike TechnicianBike KitchenEmployee 4Part Time Bike TechnicianBike KitchenStore Manager Bike Kitchen Sales RepresentativePart Time Bike Kitchen APPENDIX E: OVERALL SCHEDULE Table 1: Over all Schedul e  Year Activities         2013  S ell the current rental fle et in September 2013 and renew fleet in Ma y 2014   In formation boot hs at the farmer 's m arkets should be disconti nued   R eplace cu rrent si gnboa r d with a new one without an y m enti on of The Bike Co - op   P aint entrance point   S pring cle aning of racks and old bikes locked up outsi de the entranc e   Disconti nue Fa cebook an d other social media init iatives   C omm ence brand sep ar ati on from The Bik e Co - op   Optim iz e suppl ier quanti ty   Decouple Th e Bik e Kitc hen duti es and The Bike Co - op duti es   Fre e up staff to init iate changes        2014  Test 'real ' ne w bikes dem and   Hire Store Man a ger   C oll ect data   Accru al based accounti n g   "W hat gets measur ed get s managed " (Fil l Rate = 95%)   S im pli f y and clarif y pro gram offe rin g        2015  Name ch an ge to UBC yc l es 'A plac e of bikes '   New ope rati n g hours fro m 7 AM -  6 PM and same da y servi ce   More retail   Hire dedic ated sales pers onnel staff and 3 new bik e technicians        APPENDIX F. FINANCIAL ANALYSIS Table 1: Base Case  Sc en ario:            Table 2: Low Case  Sc ena rio:             Table 3: High C ase Scen ario:             Table 4 : Br eak even case :             Fi gu re 1             APPENDIX G. SWOT ANALYSIS  Strengths  • Locati on  • C onvience  • C apti ve Market  • Ease of access to market  • Free Rent / Util it ies  • Funding from AMS  • Ex ist ing cli entel and membership  • C ampus Init iative support  • C omm unit y Brand    Weaknesses  • C apacit y  • P rocurement / Supply  • S easonalit y  • Managment Structure  • Unclear non - profit governance model  • P hysical access with a bike (stairs)  Opportunities  • R elocati on int o larger space  • P roduct line ex pansion  • J oint venture -  MEC, Ride - on Bikes, More Bikes, Our Comm unit y Bikes  • J oint suppl y procurement for lower rates  • Use membership to collect custom er data    Threats  • Other Bike Stores (More Bikes)  • Losing core custom er base from switch to  For - profit  • Loss of funding if detached from Co - op  • Inventor y Risk  • For profit model could violate AMS club status and free rent etc.     APPENDIX H. PORTER 5 FORCES        In d u s t ry Riv al ry  P o ten ti al Entr an ts  Buyers  Su b s ti tu tes  Sup p li ers  Threat of New Entrants The indus tr y has low entr y barriers du e to low capit a l requirements, eas y acces s to input s and dist ributi on and absence of governm ent regulations . Incumbents are unli kel y to retaliat e and possess no unique advanta ges be sides convenient locati ons.  Bargaining power of Consumers C hangin g trends and potential obsol eteness of inventor y all ow custom ers to ask for disc ounts . Bu yers have hi gh level o f acc ess to information an d now switching costs coupled with high pric e sensiti vit y. Ho wever, low bu ye r con centrati on reduces bar gaini n g powe r.  Bargaining power of Suppliers The indus tr y is suppli ed by a mix of big an d small firms. Volum e is an important factor fo r suppl iers and switching costs for IBDs are hi gh as th e y lose ex ist ing credit terms with current suppl iers. Su ppliers’ freedom to raise pric es is low due to ex ist ing alt ernati ve choi ces.  Substitute Products Threat The high price/pe rforma nce rati o of transit programs (U - P ass) is a high threat and the most popul ar subst it ute, foll owed by pay - as - you - go car sha re pro grams like Car2Go.  Rivalry in the Industry There is low diversit y in siz e or capa cit y of stor es. Most firms compete on diff erenti ati o n and by fo cusing on sin gle or few segments. Th e indus tr y is mature and growin g ver y slowl y. The level of conc entrati on is ex tremel y low and custom ers .   APPENDIX I. MARKET STATISTICS Table 1: Canadian Bic ycl e Retail Market :  Year Volume ($ million) Growth 2007  196.2  -  2008  214.4  9.3%  2009  244.4  14%  2010  251.1  2.7%   Table  2 : Market Se gment ati on by Cate go r y:  Bike category % of total sales volume 26” Bikes  26” Cruiser 0.94  26” Comfort 1.42  26” Rigid Mountain 0.12  26” Front Shock Mountain 16.90  26” Dual Shock Mountain 17.20  Total 26” Bikes 36.58    Youth Bikes  20”/24” BMX/Freestyle 1.81  24” Juvenile 1.96  20” Juvenile 1.46  19” and below 1.41  Total Youth Bikes 6.64    Road Bikes  34.06  Hyb rid Bikes  16.60  Tandems  0.11  E - bikes  0.19  29” Wheel 5.17  Miscell aneous  0.63  Total All Bikes 100.00    


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