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Small Dog Hotel In Guangzhou China Tourism Essay

2955 words (12 pages) Essay in Tourism

5/12/16 Tourism Reference this

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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 dog’s 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 don’t have time to adequately care for their dogs for 365 days a year. Finally, dogs aren’t 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 isn’t 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 Hotel’s rates are at a reasonable level.

Service Operations

Premises and Vehicles

The cost of purchasing land is high, and some land isn’t 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 Hotel’s 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 don’t 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 China’s 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

E&M

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 (P&L 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 doesn’t 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 people’s 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.

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