Projects

A 5-year business plan for Pet102

Swiss Alps Photo by Andriyko Podilnyk

Background

This article was part of my submission in the “Strategic Financial Project” module of the Master program 2021. The requirement was to make a 5-year strategic plan for a new business venture. My kitten (Mon) inspired me to run a pet care business in Vietnam. So I decided to make a plan for that idea and write a consultancy report. The report included eight main sections with a max word count of 4500, following the module leader’s requirements and instructions.

What I did

What challenges I had

My result

I got a distinction mark for the business plan. However, the overall mark was a 90+10 combination of the business plan (90%) and the reflection section (10%). I had not done well in the second part. So I got a distinction for only 90% of the overall score.

What I learned from the project

Now when looking back, I honestly find it not an excellent report. But I tried my best to finish it at the time and gained many things from my work. Yet I never grow if I don’t learn anything from the first mistake. I will do it better with a second chance. But I won’t do the report again. The experience I learned from this report will help me in other assignments in the future.

The report’s content

  1. Introduction
  2. Strategic analysis
  3. Stakeholder value
  4. KPI justification
  5. Strategic choices
  6. Financial analysis and projection
  7. Risk assessment
  8. Recommendation and conclusion
  9. Reference
  10. Appendix

The following is part of my submission. I hope you enjoy reading it.

1. Introduction

Pet care has been known as one of the most lucrative businesses and attracts many investors to the merit of a rewarding and stable industry. Amid the Covid-19 pandemic, sales forecast for the global pet market is increasing, and the Vietnam market follows a similar trend. With a rising number of pets and pet owners, demand for pet products, pet cares, and other pet segments is set to increase. The idea of opening pet stores in Vietnam sounds promising despite intense competition in the retail landscape. Pet102, a new business venture, is about to join the marketplace, focusing on pet products and services retail. This strategic report is an outline of Pet102’s proposal.

2. Strategic analysis

2.1. Company ownership

The company’s shareholders are three private investors with equal stakes financed from their funds. Investors are enthusiastic about pets and believe in the growth of the pet culture in Vietnam. Two out of the three join the management team. They have work experience in retail and management consulting, bringing them a solid managerial and business background.

2.2. Products and services segmentation

The company provides a wide range of products and services to offer pet owners all their needs for taking the best care of their pet friends. The segmentation includes four main categories as follows:

2.3. Market analysis

Vietnam’s pet industry is among the most robust growth markets. It was the fourth in the top 10 fastest-growing countries with a market value 2012-2017 CAGR of 12.2% (GlobalPETS, 2017). According to an April 2021 report by Euromonitor International, sales value growth of pet care in Vietnam is 16.1% for 2016-2021 CAGR, and the forecast is 15% for 2021-2026 CAGR (Euromonitor International, 2021b). Compared to other countries, the Vietnam market has a high growth rate due to convincing reasons.

Figure 1: Sales of Pet Care % Value Growth

Country 2016-2021 CAGR 2021-2026 CAGR Report name
Vietnam 16.10% 15% Pet Care in Vietnam, April 2021
Thailand 9.20% 6.50% Pet Care in Thailand, May 2021
UK 1.10% 0.90% Pet Care in the United Kingdom, April 2021
US 6.40% 2.30% Pet Care in the US, April 2021

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Figure 2: Pet care in Vietnam - Forecast Sales Value of Pet Care 2022-2026

  2021 2022 2023 2024 2025 2026
Growth YoY   12.2% 13.7% 15.0% 16.3% 17.7%
Pet care in USD’m 74.47 83.55 95.00 109.23 127.07 149.58
Pet care CAGR   12.2% 12.9% 13.6% 14.3% 15.0%
Pet food contribution 84% 84% 85% 86% 86% 87%
Pet products contribution 16% 16% 15% 14% 14% 13%

Source: Euromonitor International from trade associations, trade press, company research, trade interviews, trade sources

Seeing a solid growth of the pet care market in Vietnam, Pet102 enters the pet retail landscape and expects to capture the increasing demand for pet foods and pet services. The company should take a disciplined strategic analysis to precisely evaluate its opportunity. The strategic analysis should include external and internal factors to develop an in-depth understanding of the market beforehand.

2.4. External environment analysis

2.4.1. Macro-environment with PEST

Vietnam has a stable political system that benefits businesses in economic and social infrastructures, policies, and regulations (McKinsey, 2019). As a company created under Vietnamese law, Pet102 has a secure environment for competition with minor tax and interest rates changes. The company can take this advantage for its planning and forecast with firmness and accuracy.

One area to consider is a lack of specific regulations for pets and animals. In advanced economies like US or Euro, animal rights are strictly put forward. Nevertheless, it is not well established in Vietnam. Legislators and the government have limited supports regarding animal welfare.

Vietnam macroeconomic indicators show enormous potential. The economic transformation stimulated by the government since 1986 was fruitful in helping level up the nation from one of the world’s poorest countries to a middle-income economy. GPD per capita increased 2.7 times to almost USD 2,800 over 2002-2020 (World Bank, 2021). Moreover, Vietnam outperforms many major Southeast Asian economies, ranking the second-highest for forecast GDP growth, with 6.5% CAGR per annum, and the fastest middle-class growth, with a forecast at 9.2% CAGR up to 2023 (McKinsey, 2019). With political stability, its economic push and growing middleclass make the country more attractive to investors and a strong contender for business investment opportunities.

Another critical attribute is per capita gross income, which is forecast to proliferate by 154% over 2021-2040 (Euromonitor International, 2021f). This factor might positively impact the retail sector, increasing the expenditure and budget for pet products and services.

Beliefs and attitudes toward pets are changing significantly (Mai, 2020). In the past, Vietnamese people treated cats and dogs as simply functional animals for house protection or pest control. The increasing trend of pet humanitarian has driven the way animals are being treated. People desire to own pets as companions and treat them as family members. The change is a solid driver to boost the pet industry growth.

The young economic forces speed up digital momentum. Targeted customer groups of Pet102 are set to be Gen Z and Millennials, who are the digital native generation with many tech-savvy consumers. They also show a more frequent online shopping habit, creating potential chances for online retailers (Euromonitor International, 2021f). Also, young customers like to share their pet friends on social media and interact with pet communities online. These factors offer a clear advantage to accelerate digital marketing and facilitate new customers acquisition via online channels.

The emerging of e-commerce is one of the key factors that Pet102 should consider for its distribution channel. In 2020, the government announced a master plan to support the development of e-commerce in Vietnam. The e-commerce market scale is expected to enlarge by 2025, with 55% of the population engaging in online shopping, reaching a market value of USD 35 billion under the B2C model (Vietnam News, 2020). The future of pet retail cannot exclude e-commerce channels. It is crucial to consider online sales in Pet102’s business strategy and planning.

Digital transformation is helping businesses gain more competitive advantages. Notably, the retail sector is experiencing a dramatic shift driven by advanced technologies. Many companies in Vietnam are taking advantage of e-commerce platforms, digital marketing activities, data- driven technologies to increase productivity, reduce operation costs, and offer customers a more personalized and advanced experience. When joining the retail landscape, Pet102 should acknowledge the vital role of technology in contributing to the success of its business.

2.4.2. Pet Industry with Porter’s Five Forces

The next is to consider the competitive environment within the industry to gain a complete picture of factors impacting the profitability in the retail landscape. Thus, Pet102 can identify game-changing trends and shape the competitive forces in their favor to respond quickly to opportunities.

Suppliers of Pet102 include pet product manufacturers and distributors. Pet food suppliers have high bargaining power. One of the reasons is that international suppliers dominate the market. Several key players include Perfect Companion - the largest, holding 40.7% market share in 2020, Mars Int holding 21.5% market share in the same year (Euromonitor International, 2021b). Those suppliers have strong power to decide retail margins. Besides, the competition also involves local suppliers with less bargaining power than foreign ones. They can offer more affordable prices and generous retail margins. Pet102 can take the local ones into to partnership to keep its side of the bargain.
Pet supplies and pet-related products suppliers have low bargaining power. There are no dominant players that hold significant market share proportions as in the situation of pet food (Euromonitor International, 2021b). Another reason is that they highly rely on pet retailers to circulate their products broadly.
Pet102 can tackle the bargaining power of suppliers by building a connection with multiple suppliers, developing exclusivity or dedicated suppliers, particularly with local players.

Pet102’s buyer side has high bargaining power. Purchasers are usually individual pet owners. They frequently make small purchases based on the daily needs of their pets. Nevertheless, Vietnamese buyers have high price sensitivity, often demand more discounts and offers. They have multiple pet store options and easily switch to other retailers to seek better prices. Pet102 can tackle the bargaining power of buyers by developing a large customer base, offering attractive loyalty schemes, innovating sales processes to increase customer engagement.

The competition landscape is intense, with many large and small pet shops across the countries. PetMart, PetShop, PetCity are large retail chains established for a long time and accounting for significant market shares. They follow the brick-and-mortar model with many shops in urban cities. These shops offer a wide range of pet products, supplies and services that customers can opt for entirely. Some shops have extended their presence to online channels, making the retail landscape more competitive. In a market where competitive rivalry is high, Pet102 should consider better deals and lower prices to increase its power in the competition. One way to tackle this challenge is leveraging technologies to streamline the business and scale up sales quickly, focusing on productivity to offer better prices and deals to win customers.

It is a limited chance for international pet retailers to join in the landscape as the Vietnam market size is insignificant compared to their expectations. Nevertheless, local players and private-owned pet shops easily enter the market. One of the reasons is that opening a new pet shop does not require a significant investment in terms of time and money. Small retailers often lack financial strength, marketing expertise, and management knowledge. Pet102 still has room to compete with these new entrants.

Substitutes products pose a high risk to the retail of pet foods. The tradition of using leftovers to feed pets is still in most households. Although the practice is not suitable for pets’ health, it still is the norm for new pet owners. As leftover food is far more economical than exclusive pet foods, the pet friends will be treated as family members with the same food proportion. As far as the pet culture grows, changing people’s minds and awareness about pets’ health remains a challenge. The company can tackle this by educating customers and understanding their needs rather than selling products.

Pet services, like grooming, daycare, are less impacted by substitutes as those sectors are exclusive and high-end. Demands for those services depend on the openhanded love pet owners give their beloved friends.

2.5. Internal analysis with SWOT

In-house expertise in e-business, digital marketing is the principal strength to help Pet102 build a solid digital-driven business. In addition, the management team has in-depth knowledge and understanding of the Vietnam retail landscape, allowing the company to develop strategies to gain competitive advantages.

The company needs to build up its service expertise, including vets, grooming, bedding, pet nutrition, and consultation. Becoming the leading pet care provider in Vietnam requires the company to offer a wide range of products and services. The service expertise needs to be built for long-term strategy as the service sector has better margins.

The Covid-19 strike moves customers to online platforms, boosting e-commerce in Vietnam to grow faster in the next few years. The habit of shopping online for pet-related food and supplies will remain. Investing in omnichannel agility will be beneficial for retailers to approach customer demands.

The pet market in Vietnam is still relatively small compared to other markets in the region. The chance that big international players will participate in the fragmented market in Vietnam is low. Thus, the competition is between local players, more balanced in resources and capabilities.

Pet102 has disadvantages of late entering the market. Intense rivalry poses a threat that Pet102 must take an aggressive strategy to compete with local players already long active in the market. Also, consumers’ demand and buying habits might not increase as much as forecast, as they might cut back on spending due to inflation and unfavorable economic conditions.

3. Stakeholder value

Key stakeholders are customers, investors, staff, and suppliers. Each stakeholder group has specific expectations that drive Pet102’s direction.

Customers are individual pet owners located primarily in urban cities. They are the most crucial stakeholder playing the role of lifeblood for Pet102’s operation and deciding its success. Response to customer expectations is the right direction to satisfy them and win their loyalty. The higher level of customer satisfaction and loyalty, the higher the sales performance. Customers’ value is defined as below:

Investors are in the management team and have complete control over the company, meaning that they take responsibility and commit to the business’s success. The priority is to gear direction to long-term social responsibility goals to build a sustainable business. Investors’ value is defined as below:

Employees include shop assistants, pet groomers, animal caretakers, and people in supporting functions. They are vital resources helping the company achieve success. They are both in the front and back end to interact and consult with customers. If employees are happy, it is highly possible that customers feel the same. The company commits the following value to employees:

Suppliers include foreign and local ones who want to circulate pet products in Vietnam market. Suppliers are key partners influencing significantly upon the supply chain. Supplier management plays a crucial role in fostering the practical value for Pet102. The company commits to the following value:

4. KPI justification

5. Strategic choices

5.1. Generic strategies

Pet102 should concentrate on the core elements to adopt a competitive plan at a high-level strategy. The approach needs to position the company thoughtfully to accelerate its competitive advantages. A common method to do this is the three generic strategies for competitive advantage introduced by Michael Porter. According to Porter, firms have three choices, whether to adopt a cost leadership, a differentiation strategy, or a focus one (Porter, 1979).

Cost leadership is a strategy to be the lowest cost player in the industry. The priority is to minimize business costs to generate a better profit margin and allow the company to offer a lower price to customers. In pet retail business, the gross margin is mainly commission and distribution margin and not much flexibility to change. What Pet102 can do to reduce its cost structure is:
a. To minimize overheads and fix costs
b. To reduce selling and distribution expenses

Differentiation is a strategy to gain competitive advantages through unique characteristics or breakthrough products or services. Pet102 needs to define core competencies to separate from remaining retailers in the market. Its uniqueness will bring a greater value proposition to customers. The company can divide the differentiation into sub-strategies and decide which approach best fits its situation.
a. Differentiating through products and services: it can offer premium qualities of pet products and services or distribute exclusively for organic brands. This approach may require customers to have an in-depth knowledge of pet care and demand superior services. The requirements seem not workable in Vietnam, where consumers are learning how to take care of pets, and the budget is still in careful consideration.
b. Differentiating through the operation: it can employ particular value chain activities such as speedy delivery services, excellent customer services, and brilliant digital marketing strategies.

Focus is a strategy to concentrate on particular segments or niche markets. It shifts the efforts to customers who have unique needs, and the company is trying to satisfy that needs. Focus is a typical start-up strategy. It splits into two sub-categories that modify the cost leadership and differentiation strategy, allowing the company to either maintain a lower cost structure or offer unique features to customers. The differentiation for pet products is hard to achieve in Vietnam market. Pet102 can gear to a cost focus strategy.
a. To build up a cost-efficiency business
b. To build up online channels to avoid the high and fixed rental costs

5.2. Strategy evaluation

6. Financial analysis and projection

Projection: A 3-statement model

7. Risk assessment

8. Recommendation and conclusion

Reference