1

Table of Contents

Question 1 (50) ..................................................................................................................... 3 Question 2 (25) ................................................................................................................... 15 Question 3 (25) ................................................................................................................... 43 BIBLIOGRAPHY............................................................................................................... 51

Question 1 (50)
Growth orientated strategic thinking is essential in the globalised world and is one of the most important factors in the development of entrepreneurial ventures. Comment critically on the strategic entrepreneurship displayed by the organisations portrayed in both caselets. Your answer should include a discussion on the context, resources, purposes and objectives of each organisation.

The prime objective of any business is profitability, thus maintaining this profitable organization implies that strategies for sustainability become imperative. Venter, Urban and Rwigema (2008:405) cities Lynch (1997) stating that strategy is defined as the direction an organisation intends to take in the future and is mindful of its context, resources, purpose and objectives. Venter, Urban and Rwigema (2008:420) argue that there are seven strategies for growing a business, these are: penetrate an existing market, extend market reach, innovate existing products and services, franchise the business, acquire a competitors business and acquire a suppliers business. Using the above definition of strategy and growth, below is a critical analysis of the following caselets A Poor Harvest for Wal-Mart (adapted from http://www.businessweek.com/print/bwdaily/content/apr2007/db20070412_005673.ht m) and Kauai expels junk food from schools (adapted from http://www.kauaiaschool.co.za/index.cfm?a=108 ). The context refers to the external environment within which the organization operates; this includes the political, economic, legal, technological, social, environmental, demographic, international issues and an examination of the organisations competitors, customers and suppliers; this is typically achieved by conducting a strengths, weaknesses, opportunities and threats (SWOT) analysis (Venter, Urban and Rwigema, 2008:405).

Political and Economic Analysis: In the Wal-Mart case study the major political and economic impact is that on farmers. There are a few organisations that are promoting organic foods and thus would issue grants and incentives to encourage farmers to grow organic foods. 3

These incentives are essential as organic farmers dont use pesticides and thus have a decrease of production per acre of 30%. As Wal-Mart has a global presence, they have to procure organic foods from farmers in each region, and have to sensitive to rules and regulations that are binding in that country. Many African countries are sensitive to genetically modified foods and thus prefer organic foods that have to tested and certified. The South African budget speech has annually shown the highest spend on education. This drive from government on education includes addressing the malnutrition that many young learners are experiencing. Kauai initiative to provide healthy, nutritional, tasty balanced meals is directly in line with governments objectives. As research has shown that sugar, fat and additive laden snacks directly lend cause to behavioural and learning problems as well as obesity. Kauai strategy to offer their foods to schools and university, if positioned correctly can acquire government grants to offer these healthy foods at a lower discounted price. The strategy has a positive impact on society from a grass roots level, ensuring that the youth are exposed to a healthier lifestyle.

Social Analysis There is a global drive towards a healthier lifestyle, thus food becomes an essential part of a healthy life. Organic foods have become a buzz word in the health conscience society, knowing this social trend Wal-Marts announced their push for organic foods, envisaging doubling the number of organic food items in its stores. It is evident that price would impact the demand these foods, as many middle class income consumers are price sensitive and thus might not opt for the more expensive organic foods. Many consumers are attracted to Wal-Marts for their low prices on products, thus the higher priced organic foods are not attractive to this consumer trend. Kauai health food and drinks are firmly focused on driving healthier foods at schools and universities to ensure that learner have access to a balanced nutritional diet. This addresses some of problems experience with the South African Educational department of ensuring that learners have nutritional meals. To ensure the success 4

of such a drive, government grants would be essential to ensure that this food is affordable to all learners. This would imply that learners from all economic backgrounds would be able to have exposure to a healthier lifestyle from a young age, which would impact directly on their learning ability.

Technological Analysis As farmers find smarter more cost effective ways to produce organic foods, the production yield would increase that naturally decreasing the prices of organic foods. The current organic farmers find the lack of pesticides to produce organic produce an expensive method with a low production rate, thus compounding the expensive prices for organic foods. The Kauai foods have the traditional fast foods as a competition. Many individual prefer the fast foods that are cheaper and many regard them as tastier. Many fast food outlets and franchises have adopted the Just In Time (JIT) operational methodology, thus able to produce and prepare food quickly and at an affordable price. Thus Kauai needs to ensure that its operations in producing healthier, tasty and nutritional foods are efficient and cost effective to be competitive against these fast food giants that are well established globally.

Legal Analysis Wal-Marts have a business tendency of driving costs as low as possible from suppliers. In selling organic foods, Wal-Mart needs to be cautious as farmers might not be profitable if that supply at an extremely low price, while they have low production yield. This might drive farmers to supply non-organically produced foods, under the pretence of organic foods. This would imply that consumers can initiate litigation against Wal-Marts, who in turn can bring a case against the farmers supplying the product. Such litigation would have an extremely negative impact on a well establish brand such as Wal-Mart. Kauai has to comply with all the health and safety rules and regulations of South Africa in the manner that the food is prepared. The safety measures in the layout of 5

their eating places are governed by laws. There are specific laws pertaining to canteens in schools and universities. Thus as Kauai embark aggressively on supplying schools and universities with their healthy foods, they need to comply with these health a regulation laws.

International Analysis International trends are towards a healthier lifestyle and organic foods are becoming popular globally. The disastrous impact society has had on the environment has a direct impact on global heating. The uses of pesticides have caused an imbalance in the natural equilibrium of the environment. Thus globally there is an ever growing society of environmentally conscience individuals, even governments are obligated to control the levels of pollution. Thus organics foods are within the global trend of an environmentally friendly society. If Wal-Marts are exporting or importing any products, they need to be cautious of the international exchange rates, and the associated tariffs that would imposed. Kauai business of supplying health food is also part of an international trend. As society become harder working, pushing the barriers of success, the stress of the working life has even driven companies to encourage a healthy work lifestyle. Thus the unhealthy fast foods are not encouraged and many corporate opt for canteens to supply healthy, nutritional, balanced tasty meals.

Environmental Analysis Wal-Mart in their drive to increase their organic food offerings and Kauai drive to produce healthy foods, both have a positive impact on the environment. In producing or retailing healthy foods, implies that these organizations are encouraging an environmentally conscience society. In the drive for organic foods, Wal-Mart is encouraging farmers not to use pesticides and thus ensure a safer environment. Kauai also has to investigate the possibility to use green power in the producing their foods and bio degradable food wrapping and boxes. 6

Demographical Analysis Wal-Marts are globally based and thus recruit staff in all countries. The workforces are trained to ensure that they comply with culture and expectations of the company. Kauai has a nationwide presence, and thus recruits workforce that resides within a close proximity to each store. All staff is trained by Kauai on how food has to be prepared and customer service.

SWOT Analysis Strengths: Wal-Marts are a global brand that retails products at low prices. They have developed a global brand and with huge market presence are able to drive supplier prices down and offer the consumer low prices on quality products. Kauai foods have become a trend setter for health foods, catering for the healthier society and now innovatively supplying these health foods to school and universities. These health foods are retailed at affordable prices, and the partnership with Virgin Active ensures that gym goers now have Kauai healthy foods available at these gyms. Weaknesses: As Wal-Marts drive supplier prices down, suppliers would opt for a more profitable options and supplier to other buyers. As a low price retailer, Wal-Mart finds it difficult to retail products that are more expensive, mainly based on perception that all products from Wal-Marts are supposed to be low priced. Kauai foods are aimed at the health market with a tastier food option. There is a large segment of the population that prefer cheaper fast foods. Africa does have a large segment of the population that are experiencing poverty and malnutrition and are unable to afford the Kauai food prices. Kauai might lack the financial resources when compared to a Kentucky Fried Chicken (KFC), and thus cannot aggressively deploy their outlets nationwide as KFC might. Thus this would have a negative impact on their time to market as well as their accessibility. 7

Opportunities: Wal-Marts research has shown that they do have a large percentage of high-income customers that buy staples such as milk and detergent. Thus WalMart does have to capitalize on an existing market to position themselves as a highend merchandise retailer as well. The innovative strategy from Kauai to supply school and university canteens with healthy foods is a strategy that would increase their market penetration. Kauai can also explore opportunities to supply health foods to hospitals, military and mine workers. Supply health food via the United Nations World Food Program and the Red Cross would give Kauai the much desired global presence. Both organisations can capitalise on opportunities such as new markets and segments, new products, diversification opportunities, market growth, competitor weakness, demographic and social change, political and economic change, partnership, merger and takeover opportunities, international growth and economic upturns (Venter, Urban and Rwigema, 2008:408).

Threats: Wal-Marts as with many other low price retailers face immense competition and market share threats from China. Many products are manufacturer cheaper in China and are now retailed globally at a cheaper price. Wal-Mart also faces threats in penetrating the high-end merchandise as they marketed their brand as a low priced retailer. Kauai faces threats from health food retailer like Juicy Lucy that have a large nationwide footprint and was operational in the 1980s. Kauai can also face threats from potential new comers that might offer health food with more varieties at a cheaper price. Kauai would also face threats in supplying canteens at schools and universities as these markets are currently supplied by other food retailers that might lower their prices to ensure that maintain their market share. Both these organisations can face threats such as new market entrants, increased competition, and demand from customers and suppliers, substitute products, low

market growth, economic downturn, technological threats, demographic and social changes and international trade barriers (Venter, Urban and Rwigema, 2008:409).

The resources of an organisation are a key element in ensuring that its objectives are carried out successfully, this is a key factor to ensure the organisation is competitive. The resources are the internal assets of the organisation, the financial assets, cash, investments; fixed assets such as machinery, equipment and buildings as well as its employees, intellectual property, copyrights and trademarks (Venter, Urban and Rwigema, 2008:405). It is imperative to understand the key success factors for these organisations in their specific industry segment. Venter, Urban and Rwigema, (2008:411), cities Ohmae (1983); that suggests the Three Cs approach for an easy identification of the industry key success factors.

Customers: The demographic grouping of customers and understanding their needs is essential to the success of an organisation. Walmart serves customers and members more than 200 million times per week at more than 8,613 retail units under 55 different banners in 15 countries (Walmarts, 2010). The global presence of this organisation and there revenue shows that they are located in areas that are accessible to their key clientele. Walmarts (2010) states that organisations goal is to save people money to help them live better.

Kauai is a young organisation when compared to Wal-Marts. Kauai has commenced their operations in Cape Town, South Africa and is slowly growing to have stores located nationwide. They have grown to 84 stores in South Africa. Kauai is suppliers of healthy foods and is thus strategically located in Virgin Active gyms, thus providing their obvious clientele with healthy foods. They are now also supply school and university canteens with these health foods. In understanding that many customers prefer the fast foods, Kauai has introduced the Kauai in Motion take away stores which is the preference of many fast food consumers, with the exception that Kauai in Motion foods are healthy and nutritional. 9

Competition: Wal-Mart and Kauai faces the threats as discussed in the SWOT analysis above. Wal-marts are also positioning themselves to service their highincome earners and thus would be competing against high-end merchandise suppliers. Kauai has formed a formidable brand in supplying health food and now faces new competition as they embark on supplying school canteens and universitys with healthy, nutritional foods.

Company: The resources, skills and technology that a company possesses to achieve their goals and differentiate them from their competitors are another key success factor (Venter, Urban and Rwigema, 2008:411).

Wal-Mart and Kauai realise that supplying low priced products and health foods respectively, is not sufficient and thus excellent customer service is focus for both organisation. Thus these companies ensure that their staffs are well trained. WalMart is supplying organic food at lower prices compared to its competitors and now diversifying to high-end merchandise, the transition to this diversification was not as successful as anticipated, and thus the organisation has to re-strategize their marketing plan and position the organisation accordingly.

Kauai has targeted the more conscience population and thus strategically positioned themselves with Virgin Active gyms and now adopted an innovative strategy to supply school and universities with their product, thus increasing their market segment.

10

Venter, Urban and Rwigema, (2008:411), cities Lynch (1997) with factors to consider when analysing strengths and weaknesses of a business as follows:

Strengths  Market dominance  Core strengths  Economies of scale  Management style  Financial resources  Organisational reputation  Product and service quality

Weaknesses  Loss of key skills  Poor leadership  Low levels of innovation  Limited product differentiation - staff retention and incentives

 Lack of financial resources

Venter, Urban and Rwigema, (2008:413), also suggest the analysing of the organisations internal resources by dividing them into:

Tangible resources: These are physical resources such as plant, machinery, land and buildings. Wal-Marts have more than 8600 stores while Kauai has 84 stores.

Intangible assets: This refers to resources such as the brand name, intellectual property, and reputation and service levels. Wal-Marts have developed a global strong brand for low priced quality products and superior customer service. Kauai 11

has developed a strong brand in supplying healthy nutritional foods at an affordable price.

Organisational

capacity:

This refers

to

skills,

leadership,

processes and

management of the organisation.

In understanding the purpose, we analyse the sense of purpose that drives these organisations forward, this is often characterised in the organisations vision and mission statements as well as leadership, ethics and values (Venter, Urban and Rwigema, 2008:405). Wal-Marts was founded in 1962 and has more than eight thousand stores under different banners in fifteen countries, employing more than two million associates and having sales of four hundred and five billion United States dollars for the fiscal year 2010 (Walmarts, 2010). The organisations key goal is to save people money in order for them to live better (Walmarts, 2010).

The Kauai mission is to have products that are recognized by global consumers and our employees as tasty, healthy, natural, affordable and convenient - in an environment that reflects the natural elements of our products (Kauai, 2010).

Both organisations pride themselves on been customer centric and strive to excellent service delivery. The diversification shown by both organisations clearly indicate a proactive approach in leadership to ensure that they service the ever changing needs of their customers. The success of both organisations also clearly indicates that they adhere and abide to strong codes of ethics and values. Walmarts (2010) states that the founder of Wal-Marts, Sam Walton, instilled many principles and values within the company, three of which became their 3 Basic Beliefs to which they remain firmly committed. 12

  

Respect for the Individual Service to the Customer Striving for Excellence

Every organization has its own unique objectives; the vision of the organization is achieved by the strategic execution of the agreed upon objectives (Venter, Urban and Rwigema, 2008:405, 406). An organisations objectives are the manifestation of its vision, these objectives can be classified under are two categories, namely strategic and financial objectives (Venter, Urban and Rwigema, 2008:418).

The objectives of Wal-Mart is clear in its founder statement, If we work together, well lower the cost of living for everyonewell give the world an opportunity to see what its like to save and have a better life (Walmarts, 2010). The Kauai vision is to educate South Africans about how good healthy and wholesome food can taste and to be the first choice of millions of quick service consumers (Kauai, 2010).

Wal-Marts have numerous strategic objectives, many focused on a green energy drive and servicing the high-income customer with high-end merchandise. Kauai focus is to increase their market presence and educate all age groups on healthier, nutritional tasty foods.

Venter, Urban and Rwigema, (2008:419) states that an organisation should develop between six and eight objectives, these may include: Growth: financial performance and market growth Management: management styles and skills

13

Administration: developing and executing processes to increase efficiency of administration Employees: employee development, managing staff turnover and efficiency Environment: managing natural resources and taking care of the environment and promoting such behaviour Quality: quality of service and products offered Finance: financial management and management accounting measures Sales and marketing: marketing spend and coverage, sales targets and incentives Product and Services: introducing new services and phasing out old products and services.

In conclusion, it is evident from the analysis above that both Wal-Mart and Kauai are aggressively driving their growth orientated strategy. Venter, Urban and Rwigema, (2008:420) suggest seven strategies for growing a business:  Penetrate an existing market  Extend market reach  Innovate existing products and services  Diversify products and services  Franchise the business  Acquire a competitors business  Acquire a suppliers business Wal-Marts global reach and market penetration and growth are phenomenal, and are regarded as the worlds largest public corporation by revenue accordingly to Forbes Global 2000. The organisation has been in existence since 1962, and are immensely profitable, thus clearly indicating the organisations ability to adapt to the consumers ever changing trends and demands. Kauai opened their first store in 1996 and 14 years later have 84 stores and have innovatively strategically positioned their foods at school canteen and Universities. These organisations are innovative and thus successful in strategically growing their organisations. 14

Question 2 (25)
As a potential franchisee of Kauai, draw up a business plan to present to the bank for funding. Your business plan must include all of the required elements of a business plan. [You can supplement the information contained in the case study with additional information to develop your business plan.] Venter, Urban and Rwigema (2008:161) contend that the benefits of business planning are multiple:  It forces the entrepreneur to be disciplined, think through every facet of the plan and collect the necessary information.  This process allows critical and impartial scrutiny of the strategies to secure the long-term future of the business.  Investors require seeing the plan.  The plan serves as a benchmark for control when deviations appreciably exceed expectations.  Entrepreneurs use the plan for self-evaluation.  The plan serves as an early warning system so that entrepreneurs may turn threats into opportunities.  The business plan is a powerful communication tool.

15

TIPULEX FOOD

Business Plan
TIPULEX FOOD
Company Reg: 2009/023173/07

Trading as

Kauai Midrand

Contact person: Mr Vishnu Dhaver Email address: vishnud001@gmail.com Website: http://www.TipulexFood.co.za

16

Kauai is a health food franchise company that was formed in 1996, in Cape Town, South Africa. Kauais mission is to have products that are recognized as tasty, healthy, natural, affordable and convenient. The franchise also offers a Kauai in Motion; this was exclusively developed to offer Virgin Active members health on the go!. Kauai has also commenced the drive to provide learners at school with healthy, tasty, nutritional and affordable food at the school canteens. Kauai currently has 85 outlets nationwide in South Africa and employs over 700 people. Kauai had invested their own money in building the Kauai brand and only recently offered franchises. Kauai has grown from an annual turnover of R7 500 000.00 in 2001 to R150 000 000.00 in 2008. The total funding required for the franchise venture is R1 610 000.00.

Recipient agrees that the Confidential Information is to be considered confidential and proprietary to Owner and Recipient shall hold the same in confidence, shall not use the Confidential Information other than for the purposes of its business with Owner, and shall disclose it only to its officers, directors, or employees with a specific need to know. Recipient will not disclose, publish or otherwise reveal any of the Confidential Information received from Owner to any other party whatsoever except with the specific prior written authorization of Owner.

17

TABLE OF CONTENTS

Executive Summary Proposed Venture Market research and Analysis Marketing action plan Research, Design and Development Operations Venture Team Risks and challenges Financial issues Plan schedule Appendices and References

19 22 24 27 30 32 33 35 36 39 41

18

Executive Summary The Kauai food business is focused on Health, food and juice; in the restaurant sector. Kauai foods were founded in Cape Town, South Africa in 1996. The founding members were three friends who had previously lived on the Hawaiian Garden Isle of Kauai. These three friends ran a bottled juice company while living in tents in a papaya field, but also shared a dream of opening a sandwich and smoothie shop, which is now realised. Kauai Midrand franchise will have founding members of Kauai in a advisory role and a local Gauteng businesspeople driving the start-up franchise to ensure its success. These members are: Carl Harwin Brett Harwin Mick Kenny John Berry Marketing Specialist [Advisor] Successful Hotelier [Advisor] ex- HSBC Banker [Advisor] Head Chef [Advisor]

Vishnu Dhaver Cindy Zulu Jai Peruamal Nadeema Kahan Queenie Khumalo

ex- Mayor of Midrand and entrepreneur Chartered Accountant retired Major General Marketing Specialist Human Resource Specialist Sales executive

Mandla Mangethe -

The Kauai vision is to educate South Africans about how good healthy and wholesome food can taste and to be the first choice of millions of quick service consumers. Our mission is to have products that are recognized by global consumers and our employees as tasty, healthy, natural, affordable and convenient in an environment that reflects the natural elements of our products.

19

From the humble beginning of opening the first Kauai store in Cape Town in 1996, Kauai now has 84 stores nationwide. Kauai is opening another 20 stores in the next 12 months, as the market demand for both Kauai, Kauai in Motion and Kauai school canteen has grown significantly in an ever growing health conscience South African community. Kauai endeavours to keep serving South Africans with healthier, tastier foods, and constantly conducting research to ensure that nutritional, tasty meals are served at school canteens to enforce healthy eating habits at school level. Kauai is opening new stores nationwide while growing its school canteen foods at a rapid rate nationwide as well. The Gauteng province has an extremely health conscience society, with the largest number of Virgin Active gyms in the country, and also boasts the largest number of gym members nationwide. The Gauteng Educational board has approved the Kauai nutritional health foods for learners at school. Kauai, is thus exceptionally well positioned to succeed in the Gauteng Province, preliminary sample tests done at Gauteng Virgin Active gyms have proven to be resoundingly successful.

Kauai has a 100% success rate in their franchises, their selective criteria are stringent and their training policies are compulsory for all staff. The lowest annual turnover of a Kauai franchise was in 2001 with R7 500 000.00. The projected figures for Kauai Midrand is conservatively approximately R13 500 000.00 per annum. On average franchises are achieving between 25% and 35% per annum return on their investment. This franchise opportunity would require a total amount of R1 610 000.00. The franchise fee is R1 210 000.00 and an additional amount of R400 000.00 is required as working capital. The franchise fee includes the business set up costs, furniture, equipment, training and 2 months stock. In order to obtaining a Kauai franchise, from a list of 550 hopeful applicants, only 3 were awarded the opportunity from Kauai Head Office. The Kauai brand is built on excellence service, healthy, nutritional, convenient and affordable foods; thus the organization is extremely selective to whom the franchise are awarded to. Kauai 20

Foods seek entrepreneurs that share their passion for the industry, their commitment to excellence and customer service, and willingness to follow their successful business model for operating a highly successful business. As an approved Kauai franchise, Kauai Midrand has a pre-approved loan from the Industrial Development Corporation (IDC) at an interest rate of prime 5%. The application for finance from your financial institution is establish if you can finance this franchise at a lower interested rate to IDC. The document details the entire business plan as well as verifies the above financial projections. We trust that our application for funding would be viewed favourably, please direct any questions to Mr Vishnu Dhaver, contactable on +27 82 303 9382.

21

Proposed Venture The food industry in South African is certainly a striving one, and health foods are extremely popular with the ever increasing number of people enrolling at gyms who have a preference to a healthier lifestyle. Kauai is a health food restaurant that offers tasty healthy foods. Kauai has become a formidable franchise with irrefutable evident of a business that is extremely successful. Kauai was formed by individuals that had a dream to open a sandwich and smoothie shop. The foods offered differs significantly from the standard fast concept, as the food served is nothing but the freshest foods, prepared with the tastiest of ingredients while ensuring superior nutritional value at an affordable price. Kauai latest drive is supply school canteens with these healthy, tasty nutritional foods. The Kauai vision is to educate South Africans about how good healthy and wholesome food can taste and to be the first choice of millions of quick service consumers. Kauai mission is to have products that are recognized by global consumers and our employees as tasty, healthy, natural, affordable and convenient in an environment that reflects the natural elements of our products. The organization has 84 stores and an additional 20 stores opening in the next 12 months. The approval by the Gauteng Provincial Educational board clearly indicates the innovative ability of Kauai to produce healthy, tasty food for all ages. The Kauai Midrand proposal is to be located in the well-established suburb of Midrand in the Midway Mews Shopping Mall. The Midway Mews Shopping Mall has a large parking area and has installed back-up generators, and has the following shops: Pick & Pay, CNA, Debonairs, Steers, Nandos, Mimos, Clicks and a Body Quest gym. Midrand Primary school and Secondary schools are approximately 200m and 800m respectively from the Midway Mews Shopping Mall. The available premises have a floor space of 200 square meters, while Kauai requires a minimum of 180 square meters. The rental is R40 per square meter, per month.

22

The suburb is in close proximity to VodaWorld, which houses the Virgin Active gym, as well as the Planet Fitness gym which is located within a 5km radius. The Kauai Midrand vision is to bring the Kauai food culture to the Midrand and surrounding areas, allowing this young striving community to now have access to healthy, tasty, nutritional and affordable foods.

23

Market research and Analysis

The GDP is expected to remain above 4% through 2010, giving Kauai the confidence to expand throughout South Africa.Initially when Kauai commenced their business, it was aimed at encouraging a healthier way of eating for South African. Thus on inception a single menu was available, but this expanded to a Kauai in Motion menu and now a school canteen menu. Kauais target market resides in LSM 8 to 10, thus the improvement in living standards of the middle class, growing at 50% per annum, is in line with Kauais newly-formulated strategic plan As Kauai grew in popularity, the ideology of healthy, tasty, nutritional food grew within South Africa. Globally there is constant drive to eat healthy food to ensure we live a better quality of life. The Virgin Active partnership with Kauai ensured that Kauai could now offer their foods to every Virgin Active gym in South Africa. Kauai realised that learners at school were not served a balanced diet. Research has shown that sugar, fat and additive laden snacks were direct contributors to behaviour and learning problems as well as contributing to the rising obesity levels in children. Thus Kauai adapted their menu to create healthy, nutritional, tasty and balanced meals for learners at school, with an aggressive drive to make food fun. The Juicy Lucy health food franchise has been in South Africa since the 1970s and have established a reputation and brand awareness, an obvious strength for Juicy Lucy. Their products have been in the market for a significant period and thus had a large percentage of the market share. Juicy Lucy prices were high and thus appealed predominately to the wealthier segments of society. Juicy Lucy lacked market vision, thus irrespective of their early establishment, they never altered their menus to be price competitive and cater for school canteens. This implied that this weakness impacted their market penetration into middle and lower income groups of the South African society which is by far the majority by virtue of numbers.

24

The lack of penetrating other income groups could be attributed to a lack of vision, primarily due to a possible lack of competition in the market space. Thus Juicy Lucy became complacent, and never aggressively changes their strategy. Newcomers such as Kauai, Nandos who offer grilled chicken opposed to the traditional unhealthy fried chicken, implied that Juicy Lucy brand requires changing, adding a fresh new look, ideas and new tastes. The healthy fast-casual segment of the food sector is the fastest growing area, showing double digit growth year on year, double the rate of the traditional quickserve food segment. The concept of providing healthy foods to school canteens is an awesome concept. Firstly it ensure that learner have a balanced, nutritional, healthy and tasty meal, thus improving their concentration and focus. And secondly, it creates brand awareness that these young people would grow-up with the Kauai taste, and if they find it appealing, they would encourage their children to have Kauai foods. The price is not aimed at the upper market, but more to the middle class, which is the larger in numbers compared to the upper class.

The factor in the table for analysis below, 1 = strongest and 5 = weak. In the final column, estimate the importance of each competitive factor to the customer. 1 = critical; 5 = not very important.

Table 1: Competitive Analysis Importance to Customer 2 1 3 3 1

FACTOR

Kauai

Juicy Lucy

Nandos

Products Price Quality Selection Service

2 2 2 1 2

3 4 2 4 2

2 2 2 3 2

25

FACTOR

Kauai

Juicy Lucy

Nandos

Importance to Customer 2 3 3 3 1 2 3 3 3 3

Reliability Stability Expertise Company Reputation Location Appearance Sales Method Credit Policies Advertising Image

3 2 2 2 2 1 N/A N/A 3 2

2 3 2 3 3 2 N/A N/A 4 3

2 2 2 1 1 1 N/A N/A 1 1

It is evident from the above analysis that Kauai foods needs to improve in their marketing and increase their nationwide footprint which would make their products more accessible.

26

Marketing Action Plan

Primary data sources such as demographics, socioeconomics, psychological, lifestyle, awareness, knowledge and behaviour; formed a strong foundation in understanding the potential behaviour and spend patterns of the community studied. Arnould and Wallendorf (1994) assert that ethnographic research provides multiple important perspectives on behaviours that impact marketing decisions. The Midrand suburb houses approximately 1.2 million adults, of which a staggering 78% are employed. The lower income earners account for 38% of this employed population, while the middle income constitutes 43% and 19% of higher income groups.

The Kauai brand is fast becoming synonymous with a healthy, tastier way of eating and living. The marketing of Kauai is evident at school canteen, where learners are exposed to tasty, healthy, nutritional foods that are affordable. The presence of Kauai foods at all Virgin Active gyms creates the perfect association that Kauai is associated with a healthier balanced form of life that improves ones quality of health and life.

Kauai has a large variety of healthy foods at affordable prices as shown below. Kauai has a variety of tasty sandwich, wraps and nutritional drinks for all times of the day as shown in Figure 2.1.

Figure 2.1 Breakfast menu and sandwiches, adaped from Kauai menu

27

The prices for the hot meals and the wraps are as depicted in Figure 2.2.

Figure 2.2 Hot Meals and Wraps, adaped from Kauai menu The prices for the salsas, noodles and burritos are as depicted in Figure 2.3.

Figure 2.3 Salsas, noodles and burritos, adaped from Kauai menu

There is a variety of smoothies and healthy drinks, these prices are depicted in Figure 2.4.

Figure 2.4 Smoothies and Health drinks, adaped from Kauai menu 28

Kauai franchise has a set price for all their foods and drinks on sale. Kauai would only allow a set number of price promotions and discounts per annum. The promotion dates may differ per franchise, but each franchise has a fixed quota on the number of promotions. Kauai has promotional pricing on the opening of every franchise store, allowing small taste samples to be given at the entrance of the shopping mall. The Kauai franchise is allowed to offer a 40% discount on evening meals for the first two weeks of operation. As the Kauai Midrand operation is with a 1km radius of both the primary and high schools, Kauai requested that the Kauai Midrand franchise supply the required food to these schools canteens. Kauai Midrand would continue with the drive that was initiated with Virgin Active, and incorporate rival gyms such as Body Quest and Planet fitness. As a principle we wish to supply healthy foods to all South African and not special privileges to one specific health club, but all that which to live a quality life.

Promotions are also done based on community activities, such as community fun walks, marathons, and soccer, ruby, cricket and tennis tournaments. As South African pride them as a sporting nation, it is imperative for Kauai to support these events and drive promotions to increase the brand awareness. Kauai also runs specials during school holidays to ensure that learners still have access to affordable healthy food during school holidays.

As Kauai is dependent on fresh foods supplied daily, there is a full dependence on the distribution network ensuring that all delivery schedules are adhered to. Kauai has outsourced the distribution to Imperial Logistics, who have signed a performance bond, implying that in the event that Imperial does not deliver on a scheduled time, Imperial Logistics would be subjected to a financial penalty. Imperial Logistics have a well-established fleet of refrigerated vehicles throughout South Africa, and thus would be able to deliver on Kauai nationwide logistics and distribution requirements.

29

Research, Design and Development

Franchising is universally accepted as one of the most successful business formats. The Franchise Association of South Africa (FASA), therefore, defines how to franchise and ensures that all parties follow the internationally accepted franchise business principles. FASA and its staff serve the needs of both the public and the franchise community by continually promoting the advantages of franchising both to business entrepreneurs, to prospective franchisees and to the public.

Research information pertaining to the location, demographics, socioeconomic, psychological, and lifestyle statistics was supplied by the research department at Kauai Head Office. Each potential franchisee is given a dedicated team that does a detailed research into the location of the franchise, the local and surrounding areas, population, socioeconomic and lifestyle patterns. The population and socioeconomic statistics were verified by Statistics South Africa. The potential franchisee, Mr Vishnu Dhaver, is the ex-mayor of Midrand and thus was able to verify information pertaining to the shopping Mall, other shops, schools and gyms in the area. The location for the Kauai Midrand establishment has been identified, and currently in negotiations on the rental price. Kauai designers have viewed the premises and have the preliminary design and layout as depicted in Figure 2.5 and 2.6.

Kauai have commenced with a survey in the Midrand and surrounding suburbs to have a more accurate view of the lifestyles and socioeconomic standing of these communities. Enrolment figures from all the gyms in the area have been requested, these figures and names, would assist in the marketing strategy to ensure maximum market penetration and sustainability thereof.

30

Figure 2.5 Preliminary design and layout of the Kauai store

Figure 2.6 Preliminary design and layout of the Kauai store

31

Operations

The proposed location for Kauai Midrand in the Midway Mews shopping mall has both pros as well as cons. There are currently numerous shops offering food in the vicinity, these shops from Debonairs to Nandos, have 10 years of service in the Midrand area. Most of these food retailers are franchises and are thus legally obligated maintain the franchise stipulated price. Thus, with the exception of promotions and discounts, a price war is unlikely for major franchises.

The area is a well-established shopping mall, with ample secured parking. Currently there are numerous other food retailers, but none focused on health food and drinks. The desired premises have been allocated, with the help of Kauai Head Office. The franchise includes the following:

 Assist with the business plan for the loan if required  Help find a location  Design the layout and design of the store  Provide the equipment required to have Kauai Midrand operational  Have a nationwide contractor to supply raw materials  Have a compulsory 3 month training course for staff

Kauai Midrand have approached the University of Midrand, and held discussions with their faculty of Hospitality. We thus commenced with an interview process of local graduates that have shown excellence in all aspects of their studies.

The Operational costs comprising of both fixed and variable costs are detailed in the Section Financial Issues.

32

Venture team

Kauai Midrand has the following ownership structure: Mr Vishnu Dhaver owns 80% equity and Mrs Cindy Zulu owns 20% equity. Kauai Midrand is thus a 100% BEE Ownership Company, with 20% Black female.

The board of directors for Kauai Midrand are:

Chief Executive Officer and Chairman: Mr Vishnu Dhaver Mr Dhaver is a qualified engineer, with a post graduate degree in business. He with 15 years of experience in numerous business sectors and its an entrepreneur with equity in numerous other boards.

Chief Financial Officer: Mrs Cindy Zulu Mrs Cindy Zulu is a Chartered accountant, with 20 years of experience in the Fast Moving Consumable Goods sector.

Managing Director: Mr Mandla Mangethe Major General Mangethe is a retired gentleman that previously headed the South African Air Force.

Marketing Director: Mr Jai Perumal Mr Perumal is a marketing specialist that assisted in the transition from Heath and racquet to Virgin Active. He was also the team lead in assisting Nandos marketing break into the South African market. 33

Human Resources Director: Ms Nadeema Kahan Mrs Kahan is a specialist in coaching, education in employee life cycle, talent mapping, assessment, recruitment, talent development, performance

management, organizational effectiveness, health and safety negotiations, legal compliance and strategic planning.

Sales Director: Mrs Queen Khumalo Mrs Khumalo is a spirited seasoned sales executive. She developed and executed the sales strategy for Spur. She was pivotal in the interface between the corporates and the food industry.

From the University of Midrand, Kathie Tau, Paul Mketi, Sarah Johnson and Krishnee Govender were recruited as they recently graduated from a diploma in hotel and food management. They are people with wonderful caring professional personalities.

John Prince and Ntlokoma Bhekita who graduated top of their class at the University of Midrand in the Chef department, were recruited to run the kitchens of Kauai Midrand.

The Kauai Midrand team consists of seasoned professional business people that would add the experience needed to bring the desired impact Kauai envisaged. The key focus is to have professional customer centric service; excellent service delivery is imperative and non-negotiable.

The founding members of Kauai are advisors to Kauai Midrand; they are Mike Harwin, Brett Harwin, Mick Kenny and John Berry. 34

Risks and Challenges

Every business opportunity has numerous risks and challenges. The health food industry needs to be quick at adapting to the needs and ever changing trends of society. In order to mitigate most of the risks associated with such a franchise, Kauai Midrand has engaged extensively with Kauai owners to get reports on previous mistakes undertaken by other Kauai franchisees. It is best to learn from other people faults as avoid those obstacles as we would inevitably find problems of our own.

Starting a new health food restaurant in a well-established area; implies that we would now be competing for a market that other food restaurants had established. Thus aggressive marketing from the established dominant players in the area is inevitable.

We have thus put all the necessary processes and procedures in place that to ensure that our supply chain is stream line, efficient and effective. We have place performance bonds with our distribution and logistics partners; we also have back up from local shops to procure from them in an unlikely event of non-delivery from our distribution partners. The shopping mall we would commence our operations from has a backup generator, thus in the event of power cuts, we would still be operational.

We have also appointed a task team to investigate unexpected issues that might arise and propose and execute a solution within various timescales. Example, a severity one issue has to have a solution within 2 hours, and new marketing plans and drives have to it executed within 5 days. Our teams vast experience in this industry implies that expertise would assist in making this project a success in the shortest time period possible.

35

Financial issues

The expected fixed operational expenses projections are as follows:

Monthly Expense R 15 000 R 5 000 R 18 000 R 1 610 000 No. properties or staff 1 5 4

rent, water & electricity salaries Management Interest on loan Fixed Costs

No. Months 12 12 12

Total R 180 000 R 300 000 R 864 000 R 161 000 R 1 505 000

Interest @ 10% (prime -5%)

The rent, water and electricity expense also includes security services that are offered at the Midway shopping Mall.

The first year sales is based on the current consumer spend in the suburbs as well as historical data from previous Kauai franchises, and thus used an extremely conservative sales figure as a worst case scenario. For year 2, we used a conservative increase of 12%, 18% for years 3 and 4 and 10% for year 5.

Year 1 Sales R 7 500 000 Cost of Goods Sold R 3 000 000 Gross Profit R 4 500 000

Year 2 R 8 400 000 R 3 360 000 R 5 040 000

Year 3 R 9 912 000 R 3 964 800 R 5 947 200

Year 4 Year 5 R 17 841 600 R 19 625 760 R 7 136 640 R 7 850 304 R 10 704 960 R 11 775 456

In the projected sales figures, we use the annual operational expenses with a slightly higher increase compared to consumer price index, and use a fixed increased expenses of 10% per annum.
Year 1 R 7 500 000 R 3 000 000 R 4 500 000 R 1 505 000 R 2 995 000 Year 2 R 8 400 000 R 3 360 000 R 5 040 000 R 1 655 500 R 3 384 500 Year 3 R 9 912 000 R 3 964 800 R 5 947 200 R 1 821 050 R 4 126 150 Year 4 Year 5 R 17 841 600 R 19 625 760 R 7 136 640 R 7 850 304 R 10 704 960 R 11 775 456 R 2 003 155 R 2 203 471 R 8 701 805 R 9 571 986

Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income

36

Kauai Midrand would envisage a worst case scenario of repaying the loan within a 5 year period. The loan repayment is calculated, producing the Nett income before Tax.
Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income Loan repayment Nett Income Before Tax Year 1 R 7 500 000 R 3 000 000 R 4 500 000 R 1 505 000 R 2 995 000 R 322 000 R 2 673 000 Year 2 R 8 400 000 R 3 360 000 R 5 040 000 R 1 655 500 R 3 384 500 R 322 000 R 3 062 500 Year 3 R 9 912 000 R 3 964 800 R 5 947 200 R 1 821 050 R 4 126 150 R 322 000 R 3 804 150 Year 4 Year 5 R 17 841 600 R 19 625 760 R 7 136 640 R 7 850 304 R 10 704 960 R 11 775 456 R 2 003 155 R 2 203 471 R 8 701 805 R 9 571 986 R 322 000 R 322 000 R 8 379 805 R 9 249 986

The company tax of 30% is deducted, 6% for royalty and 4% for marketing, thus indicating the net income after interest and tax.
Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income Loan repayment Nett Income Before Tax Company Tax @ 30% Royalty @ 6% Marketing @ 4% Nett income Year 1 R 7 500 000 R 3 000 000 R 4 500 000 R 1 505 000 R 2 995 000 R 322 000 R 2 673 000 R 801 900 R 1 603 800 R 106 920 R 160 380 Year 2 R 8 400 000 R 3 360 000 R 5 040 000 R 1 655 500 R 3 384 500 R 322 000 R 3 062 500 R 918 750 R 1 837 500 R 122 500 R 183 750 Year 3 R 9 912 000 R 3 964 800 R 5 947 200 R 1 821 050 R 4 126 150 R 322 000 R 3 804 150 R 1 141 245 R 2 282 490 R 152 166 R 228 249 Year 4 R 17 841 600 R 7 136 640 R 10 704 960 R 2 003 155 R 8 701 805 R 322 000 R 8 379 805 R 2 513 942 R 5 027 883 R 335 192 R 502 788 Year 5 R 19 625 760 R 7 850 304 R 11 775 456 R 2 203 471 R 9 571 986 R 322 000 R 9 249 986 R 2 774 996 R 5 549 991 R 369 999 R 554 999

The break even analysis is calculated as follows: Break-even point =

   

Where fixed costs are setup and overhead costs And Contribution per unit sales = Income per unit sale variable costs

37

As Kauai Midrand would be supplying food to two schools, as well as the Virgin Active gym in VodaWorld, using those projected sales figures and the expected growth of 50% to 25% in the first two years respectively; we have the following projected figures.

Sales Cost of Goods Sold Gross Profit Operating Expenses Operating Income Loan repayment Nett Income Before Tax Company Tax @ 30% Royalty @ 6% Marketing @ 4% Nett income

Year 1 R 9 800 000 R 3 920 000 R 5 880 000 R 1 505 000 R 4 375 000 R 322 000 R 4 053 000 R 1 215 900 R 2 431 800 R 162 120 R 243 180

Year 2 R 14 700 000 R 5 880 000 R 8 820 000 R 1 610 350 R 7 209 650 R 322 000 R 6 887 650 R 2 066 295 R 4 132 590 R 275 506 R 413 259

Year 3 R 20 580 000 R 8 232 000 R 12 348 000 R 1 723 075 R 10 624 926 R 322 000 R 10 302 926 R 3 090 878 R 6 181 755 R 412 117 R 618 176

Year 4 R 25 725 000 R 10 290 000 R 15 435 000 R 1 843 690 R 13 591 310 R 322 000 R 13 269 310 R 3 980 793 R 7 961 586 R 530 772 R 796 159

Year 5 R 30 870 000 R 12 348 000 R 18 522 000 R 1 972 748 R 16 549 252 R 322 000 R 16 227 252 R 4 868 176 R 9 736 351 R 649 090 R 973 635

Kauai Midrand has negotiated payment terms of 30 days from invoice from all suppliers. Payments for rent, water and electricity and salaries are paid at the end of each month. Payment for food sold is done solely on a cash basis.

38

Plan schedule

In order to achieve the desired success, there are major project milestones that that have to be achieved. There are target dates set against these milestones as Kauai Midrand envisages that it would commence operations on 1 December 2010.

Major Project Milestones

Milestones/Deliverables Locate possible partners and Directors to drive business Present business case for Franchise to Kauai Conduct research with Kauai on possible locations Find location, negotiate rental, layout and design Start negotiations with Schools and gyms in the suburb Supply chain and distribution terms signed off Recruitment of Staff Application for loan from Bank (outside IDC) Failure to above application revert to IDC on preapproved loan Commence with Kauai store layout and design Bring marketing aware in the Midrand Area Staff commence training Arrival of equipment and furniture Compete installation of equipment and furniture First Dry run Final touch ups Final motivational talk prior to operations Unofficial opening, invite VIPs in Midrand Official opening Invite Schools and gyms on promotional opening month

Target Date 1 June 2010 1 July 2010 1 Aug 2010 15 Aug 2010 20 Aug 2010 25 Aug 2010 20 Sep 2010 1 Oct 2010 20 Oct 2010 25 Oct 2010 25 Oct 2010 1 Nov 2010 20 Nov 2010 25 Nov 2010 26 Nov 2010 28 Nov 2010 29 Nov 2010 30 Nov 2010 1 Dec 2010 5 Dec 2010

Progress Completed Completed Completed Completed Completed Completed Completed Completed TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD TBD

39

Kauai Midrand hereby thank you for taking the time to view our business plan. As the South African economy steadily climbs out of the global recession, it is evident that our economy is starting to stabilize with consumer spend patterns starting to increase. Even during the recession period, the industry least affected was the food industry as food is a basic necessity.

Kauai health foods are a highly lucrative business, especially if the location is well researched and investigated. The Kauai franchise at the Cape Town waterfront took 12 months to repay their franchise loan.

Kauai Midrand had conducted intensive research and thus have a pre-approved loan from the IDC, our hope in presenting this business plan to your financial institution is have an improved interested rate compared to the prime 5% offered by IDC.

The wealth of business experience from a seasoned group of business people that would be hands on in this business would significantly lessen the minimal risk normally with any start up business or franchise.

We trust that our request would be looked upon favourably by your organisation

Yours Sincerely

Vishnu Dhaver
CEO Kauai Midrand +27 82 303 9382 Vishnud001@gmail.com 40

Appendices and references

http://www.moneyweb.co.za/mw/view/mw/en/page1639?oid=198295&sn=Detail
Kauai's aggressive franchise plans 10 March 2008 Kauai Health Food & Juice Kauai has embarked on an aggressive growth plan which includes opening 20 franchises over the next year. Kauai (pronounced ka-why) has spent 12 years developing the now recognised Kauai brand and cutting its own niche in a new market. There are currently 74 mainly company-owned Kauai outlets and this is the first time that the company has aggressively targeted the franchise model, giving hands on investors the opportunity to own a Kauai franchise store. The platform is now ready to support franchisees with an aggressive store roll-out and Kauai plans to open 20 franchise stores in the next year. In addition we are also offering franchisees the opportunity to take over selected company-owned stores, the benefit being that a franchisee can buy into a business with a strong track record and low risk. We believe that these stores will benefit from having a community member in place to maximise the stores potential, said Kauais Business Development Director, Guy Le Ray-Cook. According to Le Ray-Cook the benefits of owning of a Kauai franchise include 12 years of successful trading history, pre-approved finance for applicants with sufficient capital backing, a growing marketing fund and being a part of a market segment leader with no major competitors. He said that as a guideline, franchisees of successful stores could see a full return on investment in two to five years. The cost of buying a Kauai franchise store is R1.1 million and a franchise fee of R110 000 (excluding VAT) and working capital. A deposit of R400 000 is required in cash. Applicants are to pay a royalty fee of 6% which includes use of the Kauai brand and field support; and a 4% marketing fee, that is held separately and used exclusively to build brand awareness. Franchisees will undergo a two month training course at one of the dedicated Kauai training stores, and receive ongoing field-service support from consultants who have experience in running their own Kauai stores. Kauai franchisees will be part of a secure growing brand with reliable infrastructure and support teams in place, says Le Ray-Cook. Interested franchisees should be hands-on service-orientated operators who share in the passion and brand cultures possessed by Kauai. The ideal candidate should be a hard-working, peoples person who shares in Kauais passion to feed healthy and enjoyable food to the nation. They must be a team-player, and past retail management experience would be an advantage. Future and current locations available for Kauai franchise stores include: Kolonnnade Shopping Centre, Brooklyn Mall, Woodlands Boulevard and Centurion Mall in Pretoria; Clearwater Mall, Fourways Mall, Sandton Business Mode, Greenstone Mall, Norwood Place, Killarney Mall, East Rand Mall and The Glen in Johannesburg; Mimosa Mall in Bloemfontein; Hemmingways in East London; Walmer Park Mall in Port Elizabeth; La Lucia Mall, Musgrave Mall and Balito Lifestyle in Durban; and Constantia Village and Somerset Mall in Cape Town. Existing company-owned stores which are available for conversion to franchises include Rosebank and The Wedge in Johannesburg; and Willowbridge, Tygervalley, Sea Point, Mostert Street and Kloof Street in Cape Town. For information call (021) 552 0222 (021) 552 0222 or visit www.kauai.co.za

41

http://www.whichfranchise.co.za/franchiseeProfile.cfm?articleId=225

KAUAI TAKES DURBANITE CASHIER TO CO-OWNER

FROM

The new Kauai Hillcrest, launched in June, is co-owned by joint venture partner Kim Ryan. Loyal employees, like Ryan, who have been with the company for three years or more and have excelled in running their stores, are given the opportunity to take a 49% stake in a store. To assist employees Kauai accesses pre-approved Industrial Development Corporation (IDC) funding. The IDC fund is a special loan with interest rates of prime minus 5% for job-creating companies like Kauai who have a proven record of successful business practice. Kauai loans the employee R200 000 in order for them to access the IDC loan of up to R800 000. This enables employees, who would otherwise not be able to raise the funds, to take a 49% stake in the business. Kauai owns the remaining 51% and continues to provide administration, field and fiscal support. Kauai is now on their third loan facility with the IDC, as the drive to empower people through training, and ultimately ownership is key to the company. Kim is totally focused on making Kauai the number one franchise with her unyielding commitment to customer service and satisfaction. She is the perfect example of a person who shows that passion, commitment and hard work do pay off, said Thompson. Ryan began her career at Kauai as a cashier at the Kingspark store. She was promoted to assistant store manager then store manager. After a spell working abroad, Ryan returned to manage the La Lucia store and was offered a joint venture partnership in the Hillcrest store. Kauai motivates its staff to achieve bigger and better goals. I would never have been able to afford to buy shares in a store but with Kauais support I am now a proud business owner, said Ryan. I am really excited about the opportunity to promote Kauais menu to the Durban market, a market which is hungry for a fresh, healthy food on the move alternative. View full details and Apply for an Kauai Health Food & Juice Co Franchise

42

Question 3 (25)
A countrys policy framework impacts on entrepreneurs who are starting and nurturing a new venture. As a potential franchisee of Kauai, discuss the impact of any two elements of the policy framework in your country. All countries dependent on entrepreneurship, from job creation, foreign direct investment, international trade to ensure economic growth. Every entrepreneur globally works within a set of rules that govern the manner in which it would operate. Venter, Urban and Rwigema (2008:226) states that the policy framework includes SMME policy, macro-economic policy, labour policy, competition policy, intellectual property policy and taxation policy. The author further explains that some of the elements of the framework are criticised by many as being overly rigid and thereby infringing on the ability of entrepreneurs and small business owners to function effectively and efficiently; while other elements of the framework allow a level of protection to entrepreneurs. In the discussion that follows, a brief summary is provided on the policy framework for South African entrepreneurs, there after two elements of this framework is used to discuss the impact it would have on a potential Kauai franchisee. The policy framework for South African entrepreneurs is summarised below, as depicted in Venter, Urban and Rwigema (2008:227):

Macroeconomic policy  GEAR and AsgiSA The Reconstruction and Development Program (RDP) which was Congress of South African Trade Unions (COSATU) vision of a socialist South Africa, was replaced by a more pragmatic, flexible and market-orientated macroeconomic growth strategy; namely the Growth, Employment and Redistribution (GEAR) strategy, thereby setting South Africa on the road to becoming globally competitive (Venter, Urban and Rwigema, 2008:227-228). GEAR proposes the acceleration of the fiscal reform process, a further step in the gradual relaxation of exchange controls, consolidation of trade and

43

industrial policy reforms, implementation of a public sector asset restructuring programme, an expansionary public infrastructure investment programme, structured flexibility within the collective bargaining system and a social agreement to facilitate wage and price moderation (Venter, Urban and Rwigema, 2008:228-229). While GEAR has shown measures of success, governments drive to half poverty and unemployment by 2014, this implied the need for an additional trust in the form of the Accelerated and Shared Growth Initiative of South Africa (AsgiSA) to assist in achieving these goals more effectively (Venter, Urban and Rwigema, 2008:229).  Exposes South Africa to international competition by deregulating markets SMME policy  National small Business Act 102 of 1996 This Act provided for the establishment of the national Small Business Council, it also provided a formal definition of what constitutes a Small, Medium or Micro-Enterprise (Venter, Urban and Rwigema, 2008:234).  DTI Initiatives The Department of Trade and Industry (DTI) has numerous initiatives which promote the development and growth of the small business sector. The integrated strategy on the promotion of small business enterprise is based on; increasing the supply of financial and non-financial support services, creating demand for small enterprise products and services and the reduction of small enterprise regulatory constraints (Venter, Urban and Rwigema, 2008:237).

Taxation policy  Income Tax Income tax is levied on all taxable income in terms of the Income Tax Act 58 of 1962; all new businesses must register with the South African Revenue

44

Service (SARS) in order to obtain an income tax number (Venter, Urban and Rwigema, 2008:242).  VAT Value-added tax (VAT) is a consumption tax levied on the sales of goods and services by vendors, as well as on the importation of goods and services into South Africa; this is regulated by VAT Act 89 of 1991 (Venter, Urban and Rwigema, 2008:244).  Employee taxes and contributions Employee taxes and contributions are essentially those deductions made by the employer from his or employees salaries and paid to the Receiver of Revenue; these include Pay as You Earn (PAYE), Standard Income tax on Employees (SITE), unemployment insurance and the skills development levy (Venter, Urban and Rwigema, 2008:247). Labour policy The labour Relations Act (no.66 of 1995) purpose is to advance economic development, social justice, labour, peace, and democratisation of the workplace by fulfilling the primary objectives of the act, which are to realise and regulate the fundamental rights of workers and employers (Nel et al, 2008:87). South Africa has a comprehensive legislative framework governing labour relations; this framework is often criticised as being overly rigid, making employment costly 1991 (Venter, Urban and Rwigema, 2008:250).  Labour Relations Act  Basic Conditions of Employment Act  Occupational Health and Safety Act  Compensation for Occupational Injuries and Diseases Act  Unemployment Insurance Act  Unemployment Insurance Contributions Act  Employment Equity Act  Skills Development Act  Skills Development Levies Act

45

Competition policy  Competition Act This policy is regulated by the Competition Act 89 of 1999; which places prohibitions on restrictive horizontal and vertical practices as well as on the abuse of dominant position, regulates mergers and establishes the Competition Tribunal (Venter, Urban and Rwigema, 2008:291).

Trade Policy Venter, Urban and Rwigema (2008:244), states that South Africa has become a signatory to the General Agreement on Tariffs and Trade (GATT) in 1994, and has since ratified the General Agreement on Trade and Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).  GATT, GATS, TRIPS Intellectual property policy The World Intellectual Property Organisation (WIPO) states that intellectual property refers to all intellectual activity such as inventions, literary and artistic works, symbols, names, images, and designs used in commerce (Venter, Urban and Rwigema, 2008:291). South African has a number of different legislations that protects intellectual copyrights, the most important specific to intellectual property rights are Copyright Act, Patent Act, Designs Act and the trade Marks Act (Venter, Urban and Rwigema, 2008:309).  WIPO  TRIPS  South African legislation Black economic empowerment policy The objectives of the Broad-based Black Empowerment Act 53 of 2003 include the economic empowerment of all black people (that is, black South Africans, Asians and coloureds) including women, workers, youth, people with disabilities and people living in rural areas (Venter, Urban and Rwigema, 2008:312). Venter, Urban and Rwigema, (2008:313) states that there are nine codes and 25 indicators, these are depicted in table 3.1 below. 46

Code 000 Framework for Measurement of B-BBEE Code 100 Measurem ent of the Ownership Element of B-BBEE Code 200 Measurem ent of the Management Control Element of B-BBEE Code 300 Measurem ent of the Employment Equity Element of B-BBEE Code 400 Measurem ent of the Skills Development Element of B-BBEE Code 500 Measurem ent of the Preferential Procurement Elem ent of BBBEE Code 600 Measurem ent of the Enterprises Development Element of BBBEE Code 700 Measurem ent of Soci0-Economic Development Element of BBBEE Code 800 Qualifying Small Enterprises

Contains general principles and generic scorecard

Measure the effective ownership of enterprises by black people Measure the effective control of enterprises by black people

Measures initiatives intended to achieve equality in the workplace Measures extent to which employers carry out initiatives to develop the competencies of black people Measures the extent to which enterprises buy goods and services from BEE compliant suppliers

Measures the extent to which enterprises carry out initiatives aimed at contributing so socio-economic and enterprise development Measures the extent to which enterprises carry out initiatives aimed at contributing to socio-economic development and promoting access to the economy for black people Contains scorecard and principles for qualifying small enterprises

Table 3.1 Broad based black economic empowerment codes, adapted from Venter, R., Urban, B. and Rwigema, H. (2008) Entrepreneurship: Theory in Practice. Oxford University Press, South Africa, pp 313-314.

 BBBEE strategy  BBBEE codes National credit Act NCR (2010) states that National Credit Act 35 of 2005; defines a number of basic rights that the consumer has with regard to the credit market. Some of the principle objectives of the Act are:  To promote a fair and non-discriminating marketplace for the access of credit

47

 To prohibit unfair practices  To prohibit reckless credit-granting

By-laws and municipal regulations Venter, Urban and Rwigema, (2008:320) states that the municipal by-laws and regulations generally regulate issues relating to licensing, business zoning rights, compliance with health regulations; and informal trading.

The above discussion briefly describes the essences of the South African policy framework. It is evident that all the policies have an impact on any business. From a BBBE policy perspective, it would be essential for the organisation to be BBBEE compliant. Kauai is aggressively growing the business into supplying health foods to both school canteens and universities. The organization that purchases Kauai foods would be subjected to Code 500, in that they are supposed to procure foods from BBEE companies. Kauai management structure and ownership have no black involvement with the exception of franchise owners. Thus the organisation will find it difficult to comply with government rules on BBBEE policy. In the event that Kauai embarks on supplying school, hospitals and military with health foods on a large scale basis, the organisations tender for such a proposal would fail on their BBBEE scorecard. Venter, Urban and Rwigema, (2008:314) gives a typical break down of scores associated with BBBEE elements, this would typical constitute 30% of the total tender weighing: Element Ownership Management Control Employment Equity Skills Development Points 20 10 15 15 48

Preferential procurement Enterprise development Socio-economic development Total

20 15 5 100 Points

The taxation policy is applicable to all companies in South Africa. Venter, Urban and Rwigema, (2008:342) states that expenses that can be deductible for income tax include: material bought for manufacture or resale, wages and salaries, advertising and promotion, administrative costs, interest on loans and overdrafts, repairs and maintenance, vehicle running costs and bad debts. Kauai is also entitled to claim for depreciation in the form of wear and tear allowance on equipment, furniture and buildings. Value added tax (VAT) is a consumption tax levied on the sales of goods and services. Business owners such as Kauai whose taxable income exceed R300 000 a year are required to register for VAT. Employee taxes and contributions include Pay As You Earn (PAYE), Standard Income Tax on Employees (SITE), unemployment insurance and skills development levy. SITE is applicable on net remuneration only up to R60 000 per annum, employees that earn more than R60 000 per annum are subject to PAYE and are required to submit an income tax return. Employers and employees must pay a monthly contribution to the Unemployment Insurance Fund (UIF). Employees contribute 1% of their remuneration to UIF, while the employer contributes one of the employees remuneration, thus a total of 2% of the employees remuneration is paid towards UIF. All employers are obligated to pay a skills development levy of 1.5% of all remuneration. Thus Kauai has to comply with the tax policies of South Africa.

49

In conclusion, Audretsch, Grilo, and Thurik (2007) concluded that policy frame work is not for promoting small and medium-sized enterprises (SMEs), but considerably more pervasive, embracing a broad spectrum of institutions, agencies and different constituency groups. The Kauai Health Foods Company has no BBBEE information on any website, the company ownership is also 100% white. They would be required to transform if they intend growing their business within the public sector.

The existence of two economies was highlighted by former president Mr Thabo Mbeki; there is a dominant, cutting-edge first economy and a marginalised poverty stricken second economy that exist side by side. The second economy can be characterised by high levels of poverty, agricultural dualism, spatial chaos, historical restrictions on entrepreneurial development and poor support from government structures that have little history or experience in planning and service delivery (ANC, 2009). The BBBEE rational is to close the gap between these two economies and create one economy that can give all South African hope towards a brighter future.

The policy frameworks exist to ensure that business owners function with ethical and moral norms, as well affording a level of protection to entrepreneurs (Venter, Urban and Rwigema, 2008:326). It is imperative for organisations to work within these policy guidelines.

50

BIBLIOGRAPHY

Alon, I. and Higgins, J.M. (2005) Global leadership success through emotional and cultural intelligences. Kelly School of Business, Business Horizons. Vol. 48, pp. 501-512.

ANC (2009) The rural development strategy of the Government of National Unity [online]. Available from: http://www.anc.org.za/rdp/ruralrdp.html [Accessed 02 October 2010]

Arnould, E.J. and Wallendorf, M. (1994) Market-Oriented Ethnography: Interpretation Building and Marketing Strategy Formulation. Journal of Marketing Research American Marketing Association. Vol. XXX1, November 1994, pp 484504

Audretsch, D. B., Grilo, I. and Thurik, R. (2007) Explaining entrepreneurship and the role of policy: a framework [online]. Available from: http://people.few.eur.nl/thurik/Research/Books/intro%20handbook%20entreprene urship%20policy%20TEXT%20CH01.pdf [Accessed on 2 October 2010]

Kauai (2010) Kauai Health food and drink official website [online]. Available from: http://194.116.175.202/$sitepreview/kauai.co.za/about_profile.cfm [Accessed on 2 October 2010]

Makura, M. (2010) South Africas GREATEST entrepreneurs. MME Media, Johannesburg, South Africa.

51

MANCOSA (2010) Entrepreneurship: Study Guide. Management College of Southern Africa.

NCR

(2010)

National

Credit

Act

Summary

[online].

Available

from

http://capetownproperty.blaauwberg.net/articles/national_credit_act_summary.ph p [Accessed on 3 October 2010]

Nel,P.S, Werner, A., Hassbroek, G.D., Poisat, P., Sono, T. and Schultz, H.B. (2008) Human Resource Management. 7th Edition. Cape Town: Oxford University Press Southern Africa.

Venter, R., Urban, B. and Rwigema, H. (2008) Entrepreneurship: Theory in Practice. Oxford University Press, South Africa.

Walmarts

(2010)

Walmart

corporate

[online].

Available

from:

http://walmartstores.com/AboutUs [Accessed on 2 October 2010]

52