Business Plan: YummY - Der gesunde Fast Food Store

Table of contents

Executive summary

1. Introduction

2. The purpose of the company and its management style

3. Host country regulations and investments
3.1 Country risks
3.1.1 Political risk
3.1.2 Economical risks
3.1.3 Growth prospects
3.2 Rules applying to investment from outside
3.3 Other legal issues
3.3.1 Dispute resolution
3.3.2 Labor laws
3.4 Tax considerations
3.4.1 Taxable base
3.4.2 Withholding taxes
3.4.3 Tax rates for Yummy in Zurich
3.5 Foreign exchange
3.5.1 Foreign exchange risks and controls
3.5.2 Transfer pricing and remittance issues
3.5.3 Current and projected rates (USD to CHF)
3.6 Overseas private investment corporation (OPIC)
3.6.1 Subsidies
3.6.2 Export
3.6.3 Free trade zones
3.7 Foreign direct investment (FDI)
3.7.1 Turnkey project
3.7.2 Factors influencing foreign direct investment
3.7.2.1 Supply factors
3.7.2.2 Demand factors
3.7.2.3 Political factors

4. Marketing plan
4.1 Wots-Up-Analysis
4.2 Market potential
4.2.1 Public infrastructure
4.2.2 Population, GDP, per capita GDP, wealth distribution
4.2.3 Developments in consumer spending
4.2.4 Description of the industry (six external variables)
4.4 Competition
4.4.1 Porter’s five forces
4.4.2 Levels of competition
4.5 Target group
4.6 Marketing mix
4.6.1 Product
4.6.2 Price
4.6.3 Promotion
4.6.4 Place
4.7 Marketing goals
4.7.1 Level of the field of business
4.7.2 Level of the company
4.7.3 Level of the operation
4.8 Strategies
4.9 Sales plan

5. Financial plan
5.1 International capital budgeting
5.1.1 Net present value
5.1.2 Payback period – Bailout payback
5.2 Internal/external sources of investment capital
5.3 View of costs
5.4 Cost price calculation
5.5 Balance
5.6 Exploitation estimate
5.7 Liquidity estimate in Swiss Franc
5.8 Liquidity estimate in Euro

6. Conclusion
Books
Publications
Electronic sources

8. Appendix
Appendix A: Switzerland’s world competitiveness for infrastructure,
Appendix B: Age structure Switzerland
Appendix C: Switzerland´s international position in GDP per capita,
Appendix D: BIP
Appendix E: Lorenz curve of income for Switzerland,
Appendix F: Gini indices for Switzerland,
Appendix G: International comparison of Gini indices,
Appendix H: Consumer spending over time
Appendix I: Expenses for health
Appendix J: Expenses for organic food
Appendix K: Possible locations for Yummy stores in Zurich
Appendix L: Location near the central station
Appendix M: Locations near working places and gyms

1. Introduction

Nowadays, people all over Europe are influenced by food scandals about BSE, pesticides in vegetables, and pork. People are set thinking especially by consuming meat because of hormone treatment and antibiotics. Furthermore, topics such as obesity, too much sugar, and cancer causing substances that are caused by preparing meals are often discussed. Because of this, there is a trend towards a healthier and more conscious nutrition. In addition, people do not have much time for meals and look for “fast” food with vitamins and minerals as a result. But actually, there is no special offer that meets the customers’ expectations except salad. Therefore, the company Yummy tries to fulfill this need by offering smoothies (fruit drinks) that replace a whole meal.

People who think about nutrition are usually women and educated people like business people. That is why Yummy concentrates on certain target groups.

A smoothie is an American product and concept. Because of the Americanization and other well-known examples such as McDonald’s, Starbucks, and Dunkin Donuts you can see that American business ideas have been introduced successfully out of America. Especially the franchise system has proved its worth for this kind of business as the company Yummy has already recognized in Germany.

The listed characteristics above apply especially to Switzerland and therefore, Switzerland has become the target country. This assignment describes a business plan for entering the Swiss market. The following section of the assignment is about the purpose of the company and its management style. Then, the host country regulations are examined. The fourth section describes a marketing plan and the fifth section contains a financial plan. Finally, a conclusion discusses the feasibility of the project.

2. The purpose of the company and its management style

The purpose of Yummy in Switzerland is to open up a new niche market. Therefore, Yummy starts its business by opening three stores in Zurich. The primary goals are gaining customers and establishing the products and the brand on the market successfully. On the long-run, Yummy wants to build up a nation-wide operation chain with a franchise system in Switzerland.

To determine the management style for the company, the author uses Geert Hofstede’s five cultural dimensions: power distance, individualism versus collectivism, masculinity versus femininity, and uncertainty avoidance. For Switzerland, masculinity is the highest ranking dimension at a value of 70. This means that there is a higher separation between the values of Swiss men and women. The men are more competitive and assertive in comparison to the women. Individualism is the second highest dimension at a value of 65 and implies that the Swiss are independent and take care of themselves. At a value of 58, uncertainty avoidance is the third highest dimension. This dimension indicates that the Swiss population is not afraid of unusual situations and does not need strict rules and regulations. The lowest dimension is power distance at 34 which reflects that the power of the society is distributed relatively equal.^[1]

As a result of Hofstede’s examination, Yummy in Switzerland should have low hierarchies and the manager positions are preferably occupied by men. Each employee knows his/her area of responsibility, so there is no need for strict rules (cooperative management style).

3. Host country regulations and investments

3.1 Country risks

The Swiss Confederation was founded in 1291 as a defensive alliance among three cantons. In succeeding years, other localities joined the original three. The political and economic integration of Europe over the past half century, as well as Switzerland's role in many UN and international organizations, has strengthened Switzerland's ties with its neighbor countries. However, the country did not officially become a UN member until 2002. Switzerland remains active in many UN and international organizations, but retains a strong commitment to neutrality.^[2]

The low country risk of Switzerland is closely linked to the stable political development and especially to the government’s view on international investments and loans. Switzerland is very attractive to foreign investors like Yummy, which will establish a long term business as well as the company will create new jobs.

3.1.1 Political risk

The political risk of Switzerland is low^[3] (see chart below), since the decision-making is based on consensus-building, and the main characteristics of Swiss politics are balance and continuity. The constitution sets out the federal relationship between the government and the cantons. There are 20 full cantons and six half-cantons, and each has its own government and parliament. The cantons are divided into a total of 2,915 communes. Responsibility for legislation rests with the lowest level of government deemed appropriate, and consequently, the cantons and communes enjoy extensive powers in some areas. The cantons and communes raise taxes, administer their area and elect their own parliaments.

The Federal government is formally only responsible for defense, foreign and economic policy, and any responsibilities not formally allocated to government by the constitution are taken on at cantonal level. Although its influence is slowly growing, only 30 percent of total public expenditure is spent at federal level.^[4]

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3.1.2 Economical risks

The economical and commercial risks for Yummy in Switzerland are low^[5], since Switzerland is a prosperous and stable market economy with low unemployment, a highly skilled labor force, and a high per capita GDP. Switzerland ranks high in the Economic Freedom Index of the Heritage Foundation, shown in the table below. Although Switzerland is not pursuing full EU membership in the near term, in 1999 Bern and Brussels signed agreements to further liberalize trade ties.^[6]

Switzerland is attractive for Yummy Smoothies, because it has maintained a degree of bank secrecy and has kept up the Franc's long-term external value. Reflecting the economic conditions of Europe, GDP growth dropped in 2001 to about 0.8 percent, to 0.2 percent in 2002, and to -0.3 percent in 2003, with a small rise to 1.8 percent in 2004 and 2005.^[7] Even so, unemployment has remained at less than half the EU average.^[8]

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3.1.3 Growth prospects

Growth has followed a slightly decreasing trend in 2005. The Swiss GDP growth rate was 1.7 percent in 2004 and 0.8 percent in 2005. The Swiss National Bank even anticipates economic growth of a little over 2.0 percent for Switzerland this year, which corresponds to the December forecast.^[9]

Switzerland is particularly open to international trade and has achieved its best result concerning external trade: exports have risen by 4.5 percent in 2005. The unemployment rate is low at 3.8 percent in 2005, and 4.4 percent in 2004. Switzerland enjoys one of the world's highest standards of living and its economic stability is ensured.^[10]

3.2 Rules applying to investment from outside

In Switzerland, controls on inward investment and on the recirculation of profits or capital on disinvestment do not exist (laissez-faire attitude). However, the support for investments differs at federal and cantonal level. At federal level, only infrastructural investments and a few traditional industries in long-term decline are supported. The infrastructural investments, for example, are supported by subsidized loans up to 25%. In contrast, there is more official support at cantonal level. Some examples of support are assistance or subsidy with land or premises, waiving of work permit requirements, tax holidays up to 10 years, cheap energy and training subsidies. It depends on the canton what kind of privileges it offers.^[11]

3.3 Other legal issues

3.3.1 Dispute resolution

Although Switzerland is not a member of the European Union the political system can be compared to the German one.

3.3.2 Labor laws

In general, an employment contract must include the trial period that may not exceed three months and the period of notice. Furthermore, the contract does not contain any immoral or illegal tasks. In Switzerland, there are limited and unlimited employment contracts. In a limited contract the duration of the employer-employee relationship is defined and it cannot be terminated in advance. In an unlimited contract the duration is not determined and the contract can be terminated by both parties at any time. However, the period of notice must be kept. In some cases, the party who terminates the contract must explain his/her reasons for the decision.

In Switzerland, there is no statutory minimum wage. However, employers are supposed to pay a higher hourly wage for work at night, on Sundays and public holidays. At the moment, the principle of seniority determines the wages. However, this principle is more and more replaced by the payment of results. Generally, women’s wages are usually lower than men’s.

The maximum legal working time totals between 45 and 50 hours a week and depends on the position. Employees who are over 20 are entitled to a minimum of four weeks of vacation whereas employees up to their 20th year are entitled to five weeks.

The Swiss law (except Geneva) does not know maternity leave as the German law. There is a kind of maternity protection: In the first eight weeks after birth, the women are not allowed to work. The length of the employment relationship determines the wage payments during maternity. In Switzerland, there are also professional trade associations or trade unions that represent the interests of their members.^[12]

3.4 Tax considerations

Switzerland is a confederation of 26 cantons and taxes are levied at both the federal level and the cantonal or communal level. As a result, no average corporate income tax exists. The federal corporate income tax is imposed at a flat rate of 8.5 percent of taxable income, whereas the maximum effective rate is 7.8 percent. Cantonal tax rates vary widely: the local tax burden varies between 8 percent and 25 percent of pre-tax income.^[13]

The stamp duty levied when corporations are founded or when participation in Swiss corporations or cooperatives does not apply for Yummy’s business in Switzerland.^[14]

3.4.1 Taxable base

The calculation of taxable income is based on the financial results according to Swiss civil law (so-called "Massgeblichkeitsprinzip"). This profit and loss account may, however, be adjusted according to specific provisions in the tax laws.^[15]

Yummy Smoothies is subjected to Swiss corporate taxation, because the business will set up three permanent establishments in Zurich, Switzerland. A permanent establishment, according to domestic Swiss law, is a fixed place of business through which the business activity of the enterprise is wholly or partly carried out. Furthermore, the permanent establishment is a building or construction or installation site which lasts a minimum of 12 months.^[16]

In Switzerland, capital gains are generally taxed in the same way as ordinary income. The normal VAT rate is 7.6 percent and is therefore one of the lowest rates in Europe.^[17] Reduced rates apply on agricultural goods (VAT of 2.4 percent) like milk, yoghurt, and fruits used in the production process of Yummy smoothies. If Yummy decides to import goods, the rate will be at 35 percent.^[18] Import taxes, such as land taxes and wealth tax rate will not apply for Yummy in Switzerland.

3.4.2 Withholding taxes

Since there is no withholding tax on interest on private loans (incl. inter-company loans) Yummy is able to finance its subsidiaries in Switzerland through loans by the German Yummy Holding Company. Furthermore, there is no withholding tax on royalties in Switzerland.^[19] Withholding taxes are only levied on dividends, interest on bank loans and bonds, but especially the issue of paying dividends might only apply after Yummy has conduced successful business in Switzerland after a time period of 5 to 10 years.

3.4.3 Tax rates for Yummy in Zurich

Profits tax rates:

Profit tax is levied on net profit after deduction of expenditure for tax. A three-tier tax scale is used to calculate the basic cantonal tax, as outlined below:

1. a tax of 4 percent as a basic tax
2. a surcharge of 5 percent on taxable income exceeding 4 percent of equity
3. a surcharge of 5 percent on taxable income exceeding 8 percent of equity. However, the maximum tax on earnings never exceeds 10 percent.^[20]

Zurich’s tax law stipulates the tax rates used to calculate the basic cantonal tax on which the cantonal and municipal taxes are based. The cantonal tax chargeable amounts to 100 percent of the basic cantonal tax. Current municipal tax rates vary between 69 percent and 122 percent of the basic cantonal tax for natural persons (excluding church tax) and between 76.72 percent and 137.50 percent for legal entities.^[21]

The overall tax burden arising from profits taxes (direct federal tax, cantonal and municipal taxes) for the Yummy stores domiciled in the City of Zurich lies in the range of 17.80 (minimum yield) to 31.76 percent (maximum rate of tax) of net profit after deduction for tax. If the total tax charged is expressed in terms of the tax burden on pre-tax profits to enable a comparison with other countries, it is seen that the tax burden lies between 15.11 percent (minimum yield) up to a maximum of 24.11 percent of pre-tax profits.^[22]

3.5 Foreign exchange

Historically, the Swiss Franc (CHF or SFR) has always been a highly stabile currency.^[23] This trend continues with minimal daily depreciation and appreciation of the Swiss franc.

On January 27, 2006, the Swiss Franc was worth EUR 0.643950 or USD 0.778695. Since mid-2003, the exchange rate with the Euro has been stable at a value of about 1.55 CHF per Euro, so that the Swiss Franc has risen and fallen with the Euro against the U.S. dollar and other currencies.^[24]

3.5.1 Foreign exchange risks and controls

The Yummy businesses in Switzerland will not be exposed to a volatile foreign exchange rate, thus a highly stable exchange rate (CHF to EUR). The graph below indicated the Euro foreign exchange rate over the past seven years. As shown in the graph, the ratio between Euro and Swiss Franc varies frequently, but still remains advantageous and secure for conducting business in Euro and/or Swiss Franc. Subsequently, there are no foreign exchange risks, which would be applicable to the Yummy businesses in Switzerland.

Euro foreign exchange reference rates

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Source: http://www.ecb.eu/stats/exchange/eurofxref/html/index.en.html

In addition, Switzerland permits a free foreign exchange market and does not imply foreign exchange controls.^[25] Therefore, there is no need for Yummy to consider and manage this issue.

3.5.2 Transfer pricing and remittance issues

Transfer pricing does not apply for Yummy products, since these products are made to order and just-in time. The prices for Yummy products in Switzerland are equivalent to the prices of Yummy smoothies in Germany.

After 3 years of business in Switzerland each Yummy store in Zurich will yield profits that will be kept in Switzerland.

3.5.3 Current and projected rates (USD to CHF)

The current exchange rate of the Swiss Franc/US-dollar and Swiss Franc/Euro is listed in the table below.^[26]

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The currency exchange forecast of the Swiss Franc to the US Dollar is shown in the table below. The numbers indicate Swiss Francs per 1 US dollar on an average per month.^[27] The numbers indicate a stable and favorable exchange.

illustration not visible in this excerpt

3.6 Overseas private investment corporation (OPIC)

The Overseas Private Investment Corporation (OPIC) was established as an agency of the U.S. government in 1971. OPIC helps U.S. businesses investing overseas, fosters economic development in new and emerging markets, complements the private sector in managing risks associated with foreign direct investment, and supports U.S. foreign policy.^[28]

Since the Yummy Corporation is based in Germany, the OPIC support does not apply.

3.6.1 Subsidies

There are no applicable subsidies which could be granted by the German government for Yummy business in Switzerland.

However, there is one possible option to further minimize political risks:

- German Federation Guarantees for direct investments abroad.^[29]

The German Federation takes over guarantees to minimize political risks (socialization, war, interdiction of payments) abroad. Compatible capital endowments are: capital endowments of foreign subsidiaries of German companies (e.g. Yummy subsidiary in Switzerland).

The German Federation Guarantees are only subject to companies, not individuals.

Premises:

- The capital endowment need to have a sufficient legal protection (in Switzerland)
- The existence of an investment protection contract
- Economic risks are not covered
- Compatible guarantees can only be granted for future investments.

The guarantee taker (Yummy) has to pay a minimum of 5 percent in case of a loss. The current fee is set at 0.5 percent of the amount of the federal guarantees. The duration for granting these guarantees is limited to 15 years.^[30]

3.6.2 Export

Yummy will not export any goods from the German Holding Corporation to Switzerland and vice versa. Yummy products are made out of fresh ingredients (fruits, vegetables and yoghurt), which will be purchased locally in Switzerland.

3.6.3 Free trade zones

Switzerland is a member of the European Free Trade Association (EFTA).^[31] Other member states of the EFTA comprise Iceland, Norway and Liechtenstein.

The EFTA Convention established a free trade area among its Member States in 1960. In addition, the EFTA States have jointly concluded free trade agreements with a number of countries worldwide. Iceland, Liechtenstein and Norway entered into the Agreement on the European Economic Area (EEA) in 1992, which entered into force in 1994. The current contracting parties are, in addition to the three EFTA states and the 25 EU member states.^[32] Switzerland pursues free trade agreements with overseas countries, e.g. the U.S.^[33] Therefore, customs duties and tariffs are levied on products when trading with Switzerland in the perspective of Yummy Holding Germany.

3.7 Foreign direct investment (FDI)

The European Union represents Switzerland's first trade partner and realizes 75 percent of its external trade with the EU. The industrial products traded between Switzerland and EU are ruled by 1972's free trade agreement between EU and Switzerland. On the 1st of June 2002, seven sectoral agreements came into effect between EU and Switzerland. The main export partners of Switzerland are Germany, the United States and France, and its main import partners are Germany, France and Italy. Switzerland mainly imports machinery, pharmaceutics vehicles and capital goods.^[34]

Furthermore, foreign investors view Switzerland as a favourable country to pursue investments and conduct business. The table below presents the direct investments in Switzerland. Due to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2005, Germany represents one of the major investors in Switzerland.^[35]

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3.7.1 Turnkey project

Yummy decides to have all three businesses set up as a turnkey project in Zurich. The Yummy management decides to contract a developer and architect to have the businesses constructed as a completed facility which includes all items necessary for use and occupancy. This enables Yummy to concentrate on its marketing campaigns in the pre-opening phase. All costs for establishing the turnkey projects are included in the financial plan.

[...]

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^[1] View Web site: <http://www.geert-hofstede.com/hofstede_switzerland.shtml>

^[2] View Web site: <http://www.cia.gov/cia/publications/factbook/geos/sz.html#Govt>

^[3] View Web site: <http://www.fita.org/countries/ch.html>

^[4] View Web site: <http://www.fco.gov.uk/servlet/Front?pagename=OpenMarket/Xcelerate/ShowPage&c=Page&cid=1007029394365&a=KCountryProfile&aid=1019745009328>

^[5] View Web site: < http://www.fita.org/countries/ch.html?ma_rubrique=panorama>

^[6] View Web site: <http://careers.berlitz.com/Europe/ch/profile.asp?aInfo=3&cInfo=CH&cCode=31>

^[7] View Web site: <http://www.fita.org/countries/ch.html>

^[8] View Web site: <http://www.cia.gov/cia/publications/factbook/geos/sz.html#Govt>

^[9] View website: <http://www.snb.ch/e/aktuelles/pressemit/pre_060316.html>

^[10] View website: <http://careers.berlitz.com/Europe/ch/profile.asp?aInfo=3&cInfo=CH&cCode=31>

^[11] View Web site: <http://www.lowtax.net/lowtax/html/jswcfir.html#swx>

^[12] View Web site: <http://www.helplinelaw.com/law/switzerland/labor%20law/labor%20law.php>

^[13] View Web site: < http://fita.org/countries/ch.html >

^[14] View Web site: <http://www.steueramt.zh.ch>

^[15] View Web site: <http://www.steueramt.zh.ch>

^[16] View Web site: <http://www.steueramt.zh.ch>

^[17] View Web site: <http://www.deloitte.org>

^[18] View Web site: <http://www.taxation.ch>

^[19] View Web site: <http://www.taxation.ch>

^[20] View Web site: <http://www.steueramt.zh.ch>

^[21] View Web site: <http://www.steueramt.zh.ch>

^[22] View Web site: <http://www.steueramt.zh.ch>

^[23] View Web site: <http://www.fita.org/countries/ch.html>

^[24] View Web site: <http://en.wikipedia.org/wiki/Swiss_franc>

^[25] View Web site: <http://www.fita.org/countries/ch.html>

^[26] View Web site: <http://www.bloomberg.com/markets/currencies/fxc.html>

^[27] View Web site: <http://www.forecasts.org/exchange-rate/swiss-franc-exchange-rate.htm>

^[28] View Web site: < http://www.opic.gov/>

^[29] View Web site: <http://www.subventionen.de/foerdermittel/3>

^[30] View Web site: <http://www.subventionen.de/foerdermittel/3>

^[31] View Web site: <http://www.efta.int/>

^[32] View Web site: <http://www.efta.int/>

^[33] View Web site:<http://vienna.usembassy.gov/de/policy/handel.htm>

^[34] View Web site: <http://www.fita.org/countries/ch.html>

^[35] View Web site: <http://www.unctad.org/en/docs/wir2005_en.pdf>