Expanding a Business (AQA GCSE Business)

TradeUp is a high street retailer that buys, sells and exchanges second-hand entertainment products and technology. These products include video games, mobile phones and tablet computers. TradeUp was established in 2002. The number of TradeUp stores since 2015 is shown below.

To keep up with a growing market, TradeUp has used franchising since 2015 to expand rapidly as it had limited funds available to set up stores itself. To open a TradeUp franchise, each franchisee must make an initial investment of £150 000. This money is used to design and fit the shop, purchase opening stock and train managers. Franchisees must pay TradeUp an ongoing royalty fee of 7% of their revenue.

One franchisee is Amelia Appleby. Amelia has had an idea to sell home appliances such as vacuum cleaners and microwaves, but she is unsure which products would be popular. Amelia is keen to present her idea to TradeUp as soon as possible, but she knows that she needs market research to support her proposal. Although Amelia is busy running her store, she has decided to conduct a focus group with her regular customers. To encourage customers to participate, Amelia will pay each of them a small fee. In the past, Amelia has used questionnaires to collect feedback from customers. These were placed on the shop counter for four weeks for customers to complete, but she had a very low response rate.

STC has experienced rapid growth since 2018. It outsources all the production of its collections. It currently uses six suppliers who are based in the UK and China.

Each collection (range of clothing items) can contain up to 30 items of clothing including jackets, dresses and tops. Items will be available to buy for about four weeks. Suppliers are sent designs based on the current trend. They must create clothing samples for marketing within 48 hours. Full production and launch is a month later. If sales are high, more orders are expected quickly. Otherwise the business moves on to another collection.

Table 2 – STC’s costs and sales

Table 3 – STC’s suppliers

STC has experienced rapid growth since 2018. It outsources all the production of its collections. It currently uses six suppliers who are based in the UK and China.

Each collection (range of clothing items) can contain up to 30 items of clothing including jackets, dresses and tops. Items will be available to buy for about four weeks. Suppliers are sent designs based on the current trend. They must create clothing samples for marketing within 48 hours. Full production and launch is a month later. If sales are high, more orders are expected quickly. Otherwise the business moves on to another collection.

Table 2 – STC’s costs and sales

Table 3 – STC’s suppliers

Reusable drinks bottles are becoming more popular. Jake Webb is a product designer. A couple of years ago, Jake noticed that young people wanted to drink cold water on the go without having to buy single-use plastic bottles. He thought there was a gap in the market for lightweight, stylish bottles.

Last year, Jake developed a product he called the BEco Bottle. He bought some second-hand equipment to begin manufacturing bottles. The equipment can only produce small quantities, meaning the unit cost per bottle is high. Jake has had to turn down orders with tight deadlines because production is so slow. Jake has also struggled to find a supplier who can provide the materials in the small quantities he needs. He eventually found a supplier, but it was unwilling to negotiate on the price.

When he set up his business, Jake used the Internet to collect secondary market research for his business plan. He used an Internet search engine to try and find up-to-date information to support his idea. Jake found a market research report from three years before. The report did not focus on Jake’s target market and he did not recognise the name of the company that had conducted the research. However, it did help him identify sales figures and trends for reusable bottles.

Fone ltd produces ultra-thin mobile phone cases and accessories. The managing director Anita Wang started the business with her three brothers 15 years ago. Each of them provided £50 000 capital. Each member of the family has an equal number of shares. The brothers take no part in the running of the business. Fone ltd plans to spend £2 million introducing one new product and expanding the product range of the business. This expansion will be funded by a loan.

Two possible options to expand the product range are:

1. introduce car phone holders

2. introduce headphones.

The business will recruit a team leader for the new production department. Anita is keen to attract an experienced manager. The salary and benefits for the job are above the average for the local area. She wants someone who can lead the new department effectively to help the success of the expansion.

Table 1 Extract of person specification for team leader’s job

Since opening in 2003 Krispy Kreme has expanded steadily in the UK. There are now 45 stores and coffee shops with another 35 planned for the next few years. Quality is an important part of Krispy Kreme’s business as all doughnuts have to be made with quality ingredients to the original secret recipe from America.

 To ensure perfection every doughnut is made in one of only 13 larger stores. They are then delivered to local outlets. To make sure they are fresh each doughnut has a shelf life of only one day.

 All new employees follow an induction programme. This covers understanding the importance of quality and health & safety procedures.  Krispy Kreme aims to keep the top hygiene rating of 5 at all its stores.

 Krispy Kreme wants staff to enjoy their work and take pride in their job. Employees focus on:

•  being passionate about their work, and believing in the quality products

• demonstrating initiative, creativity and problem-solving skills.

 Incentive schemes and a national annual awards ceremony are organised to celebrate successes.

 There are formal training sessions as well as support from line managers, peers  and trainers.  Additionally, Skills Workshops and Talent Workshops offer support for those keen to further their careers. There are many career opportunities and internal promotions are frequent. Krispy Kreme is proud that over 60% of senior positions are recruited internally.

 A Krispy Kreme app is available to customers in the USA.  Other major coffee shop chains in the UK have apps for customers to use that include a store locator, offers, loyalty bonuses and menus.  App developers have quoted £30 000–40 000 to create an app.

Thorntons’ chocolates are made at its factory in Derbyshire. It employs experienced and highly skilled chocolate makers to design products and oversee production. It has approximately 200 stores throughout the UK.

At its store in Derby, Thorntons has successfully introduced job production where a chocolate maker shows customers how the delicious treats are made. Unique premium products can be made to order exactly as the customer requests. The store in Derby was chosen as it has lots of space for the production equipment. It is located near to the factory and each day a chocolate maker from there is selected to be sent to the store.

Thorntons offer franchising, called ‘Thorntons In Your Store’. The franchise is offered to existing business owners, such as card shops, who allocate space to sell Thorntons’ products. The franchise fee is £1000 for five years with the buyer paying for the fixtures and fittings needed. Predicted sales are between £80 000 and £250 000. To support the business owners Thorntons offer training and help with sales and customer service.

People in the UK like chocolate, but they’re eating less. The value of UK chocolate sales is growing but the amount of chocolate sold is falling. Customers are now buying chocolate as a treat. A third of British chocolate buyers splash out on premium products.

TradeUp is a high street retailer that buys, sells and exchanges second-hand entertainment products and technology. These products include video games, mobile phones and tablet computers. TradeUp was established in 2002. The number of TradeUp stores since 2015 is shown below.

To keep up with a growing market, TradeUp has used franchising since 2015 to expand rapidly as it had limited funds available to set up stores itself. To open a TradeUp franchise, each franchisee must make an initial investment of £150 000. This money is used to design and fit the shop, purchase opening stock and train managers. Franchisees must pay TradeUp an ongoing royalty fee of 7% of their revenue.

One franchisee is Amelia Appleby. Amelia has had an idea to sell home appliances such as vacuum cleaners and microwaves, but she is unsure which products would be popular. Amelia is keen to present her idea to TradeUp as soon as possible, but she knows that she needs market research to support her proposal. Although Amelia is busy running her store, she has decided to conduct a focus group with her regular customers. To encourage customers to participate, Amelia will pay each of them a small fee. In the past, Amelia has used questionnaires to collect feedback from customers. These were placed on the shop counter for four weeks for customers to complete, but she had a very low response rate.

Jake is planning to redesign the original BEco Bottle to make it appeal to the sports and fitness market. Retailers are keen to stock the sports bottle if the design and price are right.

Jake does not currently have enough equipment to manufacture both the original BEco Bottle and the new sports bottle. The new equipment needed would cost £20 000 to buy and Jake cannot afford this.

Although Jake has always used the fact that the BEco Bottle is produced in the UK in his advertising, one solution is to outsource production of the sports bottle to India. He has found a manufacturer in India who can offer a short-term contract and is able to use cheaper labour and materials. This means the sports bottle can be produced for 50% less than it costs in the UK. However, the manufacturer has asked Jake to remove some of the design features from the sports bottle, so it is easier to produce.

An alternative option is for Jake to use hire purchase to buy the equipment he needs and produce the sports bottle in his current factory. This would allow Jake to pay for the equipment in monthly instalments. However, it will take Jake four years to pay for the equipment and he will have to pay an 8% interest charge.

Janet owns and runs Premium Motors, based in Manchester. Her business provides a luxury chauffeur service (a car and driver are hired). This has proved popular with customers who book the services for events such as weddings or parties.

Since the business started 10 years ago, it has expanded slowly using organic growth. Janet would like to expand by offering services in a new area. Her research has shown that chauffeur services are in the most demand in London. However, this is a highly competitive market.

There is an opportunity to take over an existing chauffeur company called London Luxury Cars (LLC). This takeover would cost £400,000. Premium Motors would instantly gain LLC’s large customer base. This includes repeat bookings from TV celebrities and well-known hotels that book chauffeur services for their guests. Existing LLC agreements (contracts) with hotels will last for another year and Janet will then have to agree new contracts.

If Janet were to take over LLC, she would manage the company from her headquarters in Manchester. She is unfamiliar with the London area.