Small Dog Hotel In Guangzhou China Tourism Essay

Small Dog Hotel In Guangzhou China Tourism Essay Guangzhou is the largest city in south China. The wealth gap in the city is significant. Therefore, there is inexpensive labour available while high-end customers are willing to pay a profitable price for the services offered. The pet industry is booming. The dog population in the city has increased by 15% each year  [1]  . This makes dog boarding one of the most lucrative industries in the city Financially, it takes three months to reach positive net cash flow, and ROCE is negative in the first year, since the profit is negative, however, in the second year, the company will have substantial increase in profits, the profit will reach  ¥183,100. Description of Business Services Provided Dog Overnight Boarding: Providing overnight stay to dogs along with a complimentary dinner in the evening. Dog Day Play Group: Dogs are cared for during the day with play sessions in the morning and afternoon. Dog Taxi Service: Drivers pick-up dogs at 7 a.m., and brings them home in the evenings. This saves pet owners from the inconvenience of the hectic rush hour traffic. Special taxi booking is available at an additional fee. In-house shop offers dog products for long-term boarders. Owners can order dog treats over the phone using prepaid cards. Dogs will follow a structured daily schedule. Following each dogs stay, a complimentary report of the dog is provided to owners. Business Ownership The business will be a Limited Liability Company, as this can reduce tax liability in the long term. Company location Guangzhou city is in one of the wealthiest cities in south China. There is a increasing number of middle-class residents, and it is also close to the manufacturing towns where kennel equipment can be manufactured at a low cost. Woof Hotel is located in the northwest suburb of Guangzhou, near G105 motorway with good transport links. G105 is also linked to tourist resorts in the province where people take their pets on holiday. So, the company can advertise along the motorway to attract potential customers. The northwest suburb is a mountainous region away from residential areas, as this minimises noise from dogs barking. This particular location is surrounded by farmlands and allows for future expansion. The approximate commute time is 40 minutes from the city centre. Facilities and Staffing The maximum capacity is 100 dogs; each kennel measures 2 x 4m. There is a large fenced, grassed outdoor exercise area. There is a small kitchen for preparing dog foods. There reception area sells dog products, and there is also a customer lounge. Staff to dog ratio is 1:10. There are 24 hour surveillance cameras operating on-site to ensure the safety of dogs and staff. A burglar alarm will be installed to prevent dog thefts. Expansion Plan 2nd Year Increase kennel capacity by 50; Purchase agility equipment, a paddling pool and a sand pit for dogs to play in. 3rd Year Differentiate the kennels by building luxury suites as well as offer budget stays. Provide dog grooming service. 5th Year Introduce dog training and socialisation classes. Franchise opportunities become available. Build more Woof Hotels in other areas of the province. Marketing Market Needs The number of dogs in the city is growing by 15% each year; however, the pet service industry cannot keep up with the growth. People are unable to find satisfactory pet boarding kennels at reasonable rates. More professionals have pets. However, most people dont have time to adequately care for their dogs for 365 days a year. Finally, dogs arent allowed on any public transport anywhere in China, which makes it difficult for people to travel with their pets. SWOT Analysis Strength Weakness Management team has expertise in starting a small business Director has seen many successful pet boarding business overseas Being the first dog kennel can make the company the industry leader The idea of boarding kennel has not been tried and tested in the country Team leaders have no previous experience in pet industry Lack of skilled workers Opportunities Threats The pet industry is booming There is increasing demand for boarding kennel The satisfaction rate for the service offered by competitors is low Competitors may enter this lucrative market in a few years, this may decrease the market share of the company Competition At the moment, there are very few direct competitors boarding kennels. The indirect competitors are: Private Veterinary Surgery: These surgeries are small and the housing is in poor condition. As sick dogs are coming in to see the vet and boarders are placed in a cage along with sick dogs. The vet is not responsible if a healthy dog boarder falls ill. The risk being the cost for treatment in case the pet contracts a virus is extremely high. The vet charges a high rate for boarding fees. Home boarding: There are currently a small number of people offering home boarding. However, they are not regulated; Customers do not know their backgrounds therefore difficult to establish reliability. It is predicted there will be an increase in the number of both domestic and overseas competitors in the future which will invest in this lucrative market. Differential advantage Woof house is aimed toward middle class dog owners, since positioning the company in the middle class makes it easier to move up or down the market. The industry is new; demand from each segment of the consumer market is unknown. In the expansion plan, the company will introduce luxury and budget stays to accommodate customers needs. Promotional Plan A lot will be invested in advertising during the first year, including: Sign posts along the motorways G105. Leaflet distribution: either by hiring commissioned people wearing company tee-shirts to distribute the leaflets in streets, Discounts offered during low seasons Advertising in partnerships with pet shops, with free taster boarding vouchers available The van transporting dogs with the company logo on will be self-marketing when driving in the city Market Research The director has conducted desk research on www.goumin.com , a popular networking site for dog owners. The main issues facing them include lack of boarding kennel in the city; no transport which allows pets on hence restricts their movement, and expensive vet fees. The demand for boarding kennel is very high, yet there isnt any available at the moment. Since response rate on forums is high. The director has posted a survey on the website (see appendix), in order to find out the monthly spending by dog owners and decide the pricing structure of Woof Hotel. Also, Woof Hotel will also use questionnaire to get feedbacks from owners after their dogs have stayed in the hotel, in return they are given discount towards their next stay. Customers and Pricing Woof Hotel is targeted toward middle income people; the rate is set to be low at  ¥50 per stay in the first year in order to attract customers. However, the vets charge the same rate  ¥50 at a monopolized price with poor service standards dogs in cages all day with no exercises at all. The consumer is predicted to be price insensitive, they can accept price increase if it matches the service provided. Moreover Woof Hotels rates are at a reasonable level. Service Operations Premises and Vehicles The cost of purchasing land is high, and some land isnt available for purchase by the government. Therefore, Woof Hotel will rent the site. Since the company is located in the suburbs and rural areas, the cost of renting land for agricultural purposes is low; the rent per m2 is estimated to be 95% less than in the city centre. IT The Woof Hotels personalised webpage needs to be set-up; there is a cost to purchase the domain. The Internet is increasingly popular today. It also serves as an advertisement of Woof Hotel. The receptionist will be trained to answer all the queries regarding to staying in Woof hotel. Insurance Currently, there is few insurance providers for pets in China. The insurance cover for business start-up is expensive; Therefore, Woof Hotel will not purchase any insurance during its first two years. However it may decide to do so in the future, depending on the circumstances. Local Regulations Currently there are no laws aimed specifically at dogs. Although a compulsory Dog ID tag was introduced in 2009  [2]  , many dogs still remain unregistered. Some unregistered dogs dont have vaccination certificate even they have been vaccinated. This is the main issue facing Woof Hotel, there is a risk of other dogs contracting the virus, however these owners represent a large proportion of potential clients. Management and organisation Team Leaders Lin Zhang Financial Director A Mathematics graduate at University of Warwick, also pursuing a MSc in Finance A life- long dog lover, having raised puppies and have first-hand experience with caring for dogs, good knowledge on basic dog care Very business- minded and passionate about starting a pet care business Multilingual, able to travel abroad to visit and study from other partner boarding establishments. David Zhang Managing Director Experienced as the facility manager at a multinational company for over 10 years Several years of experience starting and running small businesses Have excellent local knowledge and business networks in the area. Team Members Staff A Receptionist Customer Service: answering customers enquiries Staff B and C Dog Carer Responsible for looking after dogs and supervising their plays Staff D Driver Responsible for transporting dogs to and from Woof Hotel Responsible for transporting dog foods and other necessities for Woof Hotel Staff E Gardener and Cleaner Maintaining the landscape and garden of the Woof hotel Clean dog kennels daily Remuneration In the beginning, Woof Hotel will hire low cost labour workers. The market price for an unskilled worker is approximately  ¥2000 per month. In the future, Woof Hotel may recruit skilled workers such as graduates from the local veterinary college. The wage cost will increase to approximately  ¥3000 per month, but Woof Hotel hope to retain these skilled workers to increase customer satisfaction. Recruitment The recruitment will be advertised. As there are many migrant workers in the city, unskilled labours are easy to recruit. Unfortunately, there is a loophole in Chinas laws. People with a history of animal abuse do not have criminal records. There is a risk that staff recruited may abuse animals. In such cases, the person will be dismissed immediately. The presence of surveillance cameras ensures the welfare of all our dogs. Financial Reports PROFIT AND LOSS ACCOUNT for Woof Hotel Unit:  ¥ ( ¥1 =  £0.1 ) Year 1 Price per Dog per day 50 Average No. of Dogs 35 Gross Sales Daily 1750 Gross Sales Annually (365 Days) 638,750 Sales Tax (6%) 38325 Gross Profit 600,425 OVERHEADS Wages 200,000 Rents 60,000 Utility Bills 70,000 Insurances 0 Dog food 150,000 Staff Vaccination and expenses 1,500 Telephone 2,400 Professional fees and recruitment 24,000 Transport 60,000 Advertising 200,000 Gardening and Cleaning 25,000 Sundries 50,000 TOTAL OVERHEADS 842,900 Net Profit(Loss) Before Tax -242,475 Corporation Tax (20%) 0 Profit for the year -242,475 PASTE CASH FLOW STATEMENT HERE BALANCE SHEET Unit:  ¥ ( ¥1 =  £0.1 ) Year 1 ASSETS Fixed Assets Property-kennels and exercise area 100,000 Property- office staff accommodation 80,000 EM 50,000 Equipment 50,000 Vehicle 120,000 TOTAL FIXED ASSETS 400,000 Current Assets Cash 843,100 Debtors 0 TOTAL CURRENT ASSETS 843,100 TOTAL ASSETS 1,243,100 LIABILITIES Loans 0 Current Liabilities 0 Tax Payable 0 Overdraft 0 Creditors 0 TOTAL LIABILITIES 0 CAPITAL ACCOUNT Capital 1,485,575 Reserves (PL from Yr 1) -242,475 TOTAL CAPITAL 1,243,100 Analysis Gross Profit Margin = Gross Profit / Revenue x100 Year 1: 600,425/638,750 = 94.4% Year 2: 1,441,020/1,533,000 = 94% Break Even Units = Total Overheads / (Price of Product Direct Cost of Product) Year 1:  ¥842,900 / 50 = 16,858 units Year 2:  ¥1,212,000 / 60 = 20,200 units Break Even Sales = Total Overheads /Gross Profit Margin x 100 Year 1:  ¥842,900/94.5 =  ¥891,957 Year 2:  ¥ 1,212,000/94 =  ¥12,893 ROCE = Profit before tax/(Capital Reserve+ long term loans) x 100 Year 1: -242,475/1,243,100 = -19.5% Year 2: 183,216/ 6,700,037= 2.7% Assumptions The utility bill and rents are paid every month There is no depreciation in the first two years Dog pays on arrival; the company has no borrowings. Therefore no debtors or creditors. Utility bill: air-conditioner is used in summer; no heater is needed in winter Commentary The number of holidays each month is likely to coincide with the income (see appendix for more details). Since this industry is relative new, the financial reports cannot give a reliable estimate, how people will respond to the business is uncertain, the actual number of dogs may vary. This will affect many figures in the financial reports. It takes approximately three weeks to reach positive cash flow. There is no gearing ratio since the company doesnt have any loans. ROCE is negative in the first year since the company is making a loss; however, the company has substantial increase in profit in the second year. Appendices Currency In the business plan, the local currency Chinese Yuan is used, its exchange rate to British Pound is  [3]  :  ¥1 =  £0.096 or  £1 =  ¥10.4 Proposed location of Woof Hotel on Google map Indicated by the arrow is the proposed location of Woof Hotel, it is close to motorways G105; The label A is the city centre., Woof Hotel has good transport links, the driving time is 30 minutes to city centre. Dog ownership Statistics in Guangzhou City The number of pet dogs in Guangzhou has increased rapidly since 1995 by official statistics  [4]  ; it is going to increase by 15% each year, which coincides with the economy boom, as peoples income increases, they are more willing to invest in their pets. Monthly Spending by Dog owners A survey was conducted on http://bbs.goumin.com/forum-24-1.html, 32 people have responded, their average spending is calculated to be:  ¥1,159; with a standard deviation of  ¥ 563. However, this sample is biased; also the spending is likely to double or even triple if the animal needs to veterinary attention, which has not been taken into account. Statistics of Holidays in China  [5]   The chart shows the statistics of the number of bank holidays per month in China, which is likely to coincide with the profitability of Woof Hotel, however, school holidays in February, July and September which are also high seasons have not been included when families are most likely to travel. Thus the high season will be from January to February and from May to August. The low seasons will be March, April and from September to December. What the paper says Extract from financial express http://www.financialexpress.com/news/pet-industry-has-never-had-it-so-good-in-china/201045/, titled pet industry has never had it so good in China: In some parts of the country, ownership is seen as a must-have accessory for the well-off The country has 100 million dogs in 2007 and is expected to reach 150 million by 2010. The market potential is expected to reach $5 billion by 2010. The recent pet-boom has given birth to a new economics sector in its own right the pet economy sector. In pet food industry alone, the compounded growth rate is averaging 30% per year.