Should "X" switch to online sales completely, shutting down on-counter sales to improve cash flow and increase profitability?

The unique selling point of <Company name> a gelateria in suburban India, is that it offers low-fat gelato, waffles, and cookies in a neighbourhood with little to no competition within a 2-kilometer radius. Due to the significant expenses required by its location, the company, which was founded in October 2018, has not been able to break even. Online sales through meal delivery apps like Swiggy and Zomato account for a sizeable amount of their income. Despite having a significant amount of seating and being in a prominent position, the gelateria is frequently underutilised. The profitability is being impacted by high overhead expenditures (such rental fees) and underutilised resources (such as the occupancy rate). Therefore, the owner is interested in assessing the viability of switching entirely to an online mode of operation and any potential effects on firm profitability. This report will make use of several qualitative and quantitative tools to help the owner comprehend both the financial viability and the limiting constraints that need to be addressed in order to make the decision successful.

Chapters 1.7 (Organisational Tools: Decision Tree, Force Field Analysis) and 3.5 (Profitability Ratio and Analysis: Profitability Ratio) were consulted in order to come up with a response to the research question. Using a decision tree, it was possible to predict the future financial situation for both options—moving to delivery-only or staying the same. In order to make an informed choice, one might use force field analysis to compare the advantages and disadvantages of both options side by side. One can compare the sales to the costs associated with the changeover using the profitability ratio.

The following people will be interviewed as a part of this research:

• Mr. <CEO Name> Co-owner of <Company Name>.
  • To understand the working of the business, Financial data and help rate FFA
• The accounts manager to get financial data for business analysis
• A few of his customers.
  • People who have had products from <Company Name>. existing customers will be interviewed via a Google Forms Survey.
• Online sources for Secondary Research as and when required.

Information accessibility issues are foreseen. Even if the necessary data is collected, it might not be accurate because it might only be an approximation because not everyone is comfortable sharing their financial information with others. Second, all of the secondary data mentioned may be outdated and so unreliable. Multiple sources would be used to mitigate the impact of these challenges, making the data valid through redundancy.

• The research question was changed as a result of the owner's interview because it became clear that the company also had cash flow problems.
  • “Should <Company Name> switch to online sales completely, shutting down oncounter sales to improve cash flow and increase profitability?” from
  • “Should <Company Name> switch to online sales completely, shutting down on-counter sales to increase profitability?”
• Added Cashflow Forecast and its comparison as a tool.

Low-fat sweets are the speciality of Scoops and Smiles' ice cream brand Kreme De La Kreme. One of the owners was called while looking for potential company projects. Despite having a dining area, they don't get enough walk-in business. Therefore, the focus of this research was on whether they should fully discontinue in-person sales in favour of online ones in order to lower operating expenses and boost profitability. Profitability Ratio, Decision Tree, and Force Field Analysis were used in this process. Owner interviews and customer surveys were the main sources of information. Web searches on the costs and methods of this change, as well as the rates of economic change, were secondary sources. The results showed that, taking into account the legal and labour environment, transferring a manufacturing unit required a lot of resources (time-consuming and process-oriented). It would require additional time and resources. These results are constrained, though, by the fact that the data being used has a lag time and might be erroneous in the given situation. Second, there can possibly be some unrecognised or misapplied legal concerns associated with such a practise. During the interviews, there might have been a misunderstanding of certain words. Only 12 of the roughly 50 participants who were asked to complete the survey did so.

In Mumbai, Maharashtra, there is a dessert shop called <Company Name>. Due to its location in a primarily residential region, the majority of its clients reside within a 2 KM radius. <Company Name>. specialises in its own-brand cookies, brownies, and gelato. Due to their distinctive offerings—low fat gelato, whilst the majority of establishments in the region serve medium fat ice cream—they stand out from other dessert restaurants in the neighbourhood. The business, which was launched in October 2018 with a sizable investment, aims to become profitable by the middle of 2019. Since the company's inception, the owner has seen that more than 80% of their revenues come from online food delivery applications. They currently occupy a location with ample area for both their manufacturing facility and customer seating. Since sales are insufficient to achieve a quick break-even point, the owner wants to fully abandon in-person sales in favour of online ones. They could maximise their space if they did this.

They are currently having cash flow issues because of low sales and high operating costs, which result in huge outlays without equivalent profits. For this Assessment, I would refer to Units 1.7 and 3.5.

The graph demonstrates that the company's sales have grown over time. According to the owner, a sizable part of their revenue (80%) originate from online delivery requests made through meal delivery applications like Swiggy and Zomato. Additionally, they feature a seating space for walk-in clients.

However, because it only accounts for 20% of their sales, the operating costs for obtaining this 20% of the sales are much more than the revenue produced. Despite being near several educational institutions and being in a residential area, they have not been successful in drawing walk-in clients. For the facilities they provide in the seated area, such as the tables and chairs (fixed cost), energy, and maintenance costs in the seating area itself, they suffer significant ongoing costs. If the seating area is gone, <Company name> might be able to lower operating costs without much of a hit to sales (given that walk-in business only accounts for 20% of total sales), use the seating area to boost manufacturing capacity, or move manufacturing to an area with lower costs but better accessibility, ramp up online delivery services, and boost profitability. Their costs can be reduced, and their earnings can increase, if they switch to a delivery-only business model without a seating area.

According to the study done using a convenient sample technique and the findings from Fig. 2, it was discovered that the demand for purchasing ice cream is rising, ensuring that the business may totally transition to an online flat form.

The owners want to downsize and switch to a delivery-only business model, which will have a significant impact on their cash flow. To assess this, a comparison of their cash flow before and after the move is used, with the assumption that they will relocate in March 2020.

Rent is reduced from $75,000 to $50,000, which has a significant positive impact on the company's cash flow and will also increase profitability. The net cash flow changed from negative to positive figures, which will undoubtedly make it easier for company to make important decisions. The length of time it takes to put this shift into place, though, might hurt their sales. Consequently, the procedure for moving places needs carefully prepared. The new site must also meet all of the needs of the company and have a rent that is affordable enough to make a difference. High foot traffic may also be advantageous for advertising. However, the act of migrating would incur costs of its own. The profitability ratio is determined to comprehend the effect on earnings.

Net Profit Margin (NPM) = \(\frac{𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖t}{𝑆𝑎𝑙𝑒𝑠\ 𝑟𝑒𝑣𝑒𝑛𝑢𝑒}\) × 100% = \(\frac{288080}{1192016}\) × 100% = 24.18%

Net Profit Margin (NPM) = \(\frac{𝑁𝑒𝑡\ 𝑃𝑟𝑜𝑓𝑖t}{𝑆𝑎𝑙𝑒𝑠\ 𝑟𝑒𝑣𝑒𝑛𝑢e}\) × 100% = \(\frac{438004.6}{1608972}\) × 100% = 27.22%

Net Profit Margin (NPM) = \(\frac{𝑁𝑒𝑡\ 𝑃𝑟𝑜𝑓𝑖t}{𝑆𝑎𝑙𝑒𝑠\ 𝑟𝑒𝑣𝑒𝑛𝑢𝑒}\) × 100% = \(\frac{823900}{1769869}\) × 100% = 46.55%

The company's revenues are going to increase tremendously over the next few years after they relocate and start just doing business online, as we can see from the calculations and tables above.

Since it directly compares a company's sales to its earnings, I have utilised the ratio net profit margin here. In this case, the NPM for FY2020 is 27.22 percent. This indicates that the company gets a profit of 27.22 INR for every instance of sales for 100 INR. The following year, this soars to 46.55 INR, or nearly 47 INR for every 100 INR of sales. They would have to spend less in terms of energy bills like electricity if they moved to a different site and changed their sales model. As a result, they would have to pay less in fixed expenses associated with maintaining the seating space they currently have. Their profitability would rise as a result of a decrease in spending as their net profit would rise. According to the results of the equations, <Company Name> would be extremely profitable and break even in a short period of time if everything went according to plan. The fact that all statistics about future performance are dependent on forecasts, which may or may not be accurate, would be a limitation of this. Additionally, it makes little consideration of outside influences; therefore, a decision tree is created.

Option 1 is estimated to generate 727,000 INR per quarter, whereas Option 2 will only generate 700,000 INR, with an 80% chance of success based on rising demand. <Company Name> can break even with a 10,000 INR initial investment in just the first quarter. As a result, choosing Option 1 would be wise. These forecasts and computations, however, might be deceptive and erroneous due to shifting trends. I consulted secondary sources with market forecasts for the following few years made by reputable economists and Market Analysts in order to lower the likelihood. Even if it is not entirely accurate now, it is as exact as it can be.

Moving could also be detrimental if there is too much opposition to the change. This necessitates the necessity for a Force Field Analysis, or a side-by-side comparison of the company's potential incentives and deterrents to this transformation.

I have compared the motivating and inhibiting pressures of switching to a new location and implementing a business-to-business sales model using the force field analysis mentioned above. The pushing forces outweigh the restraining factors, which can be lessened with further brainstorming. Their sales may suffer during the few days it takes for the location move to take effect because it takes some time. This can be controlled by estimating sales for the days they intend to execute the changes, then producing and stocking up on enough products to last those days and perhaps even an extra day or two as a backup plan. The product might not be sold during such times, but it could be relocated to the new site, refrozen, and then sold. According to a poll conducted, the majority of consumers might or might not want to keep doing business with <Company Name> if they moved to a new building. People might not want to wait for the delivery service to bring them their ice cream or might not want to travel to pick it up themselves, therefore this creates a legitimate fear of losing clients. Going to the outlet and picking up their desserts in person doesn't take more than 20 to 30 minutes because the majority of their present customers live within a 2-kilometer radius of the outlet, whereas delivery apps take the same amount of time, if not longer, and charge extra for delivery. Moving could entail travelling a significant distance, causing the delivery times of online apps to increase from 20 to 60 minutes. Customers might not want to wait for this long or may choose to travel further to avoid the wait and delivery fees. Moving, though, can create more and better chances for the company to expand. As they would enter a new market, moving to a new site that would be more commercial or industrial could increase their consumer base. Additionally, they get another method of advertising their goods since food delivery apps typically promote brands and goods for a little price, which is not excessive given the increased revenue.

Updating their licences, permits, contracts, etc. will cost money, as will physically transferring their equipment, but these expenses are one-time payments that pale in comparison to the prospective rise in revenues. I believe that the Driving Forces outweigh the Restraining Forces after taking all of these things into account.

Given that the Driving Forces far outweigh the Restraining Forces, making the modification would be wise. The cost is, however, another important consideration. Opting for any change, no matter how modest, is meaningless if there aren't adequate returns. The Decision Tree is the next tool that we will discuss.

To address the company issue of high costs, low productivity, and lower profitability, data analysis and the implementation of relevant business management techniques must be conducted.

The decision tree analysis showed that switching to a delivery-only business model would reduce non-productive costs (such as higher than average rental fees for operations in affluent areas), utilise resources to capacity (such as freeing up / getting rid of non-productive resources like seating area or building productive capacity), and improve overall business operation efficiency. Although this strategy can necessitate some immediate costs and have a negative effect on revenue in the interim. 20% of the present revenue from walk-in consumers would be at risk if the company switched to an online delivery business model. The owners would need to take creative methods to ramp-up their online purchases and encourage "take-away" by providing introductory freebies or discounts in addition to the cost optimisation measures already adopted.

I advise <Company Name> to proceed with the aforementioned modification. To boost profitability, it would entail relocating and converting to a delivery-only business model. To have a better understanding of the choice made, they should take the changing client behaviour into account.

Instead of going entirely online, they might even think about using promotions to boost sales, allowing them to examine the question, "Should <Company Name> strengthen its promotion mix to maximise profitability? considering Since they are promoting their outlets in a residential neighbourhood with numerous educational institutions nearby, students may be one of their key objectives.

They can also alter their current establishment to make it more accommodating for students and promote it as a gathering place for students throughout test and project seasons. A larger seating area, student discounts, and free Wi-Fi with at least sufficient speed and bandwidth would all be part of this reform. If promoted as a hangout, their establishment can draw young people or students to use the Wi-Fi for research during project seasons or to simply relax and study during test seasons.

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http://mahakamgar.maharashtra.gov.in/lc-notice-of-change-application-for-shop-establishment.htm.

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http://www.indiafilings.com/learn/gst-registration-amendment/.

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