Tobacco Retail Business Plan

Introduction

Kiowa Smoke Shops LLC, (Kiowa) has been in operation as a family business since the early 1960’s. Kiowa offers named brand tobaccos, cigars, cigarettes, and roll-your-own accessories.

Over the past ten years, due to increasingly hostile regulations, judicial decisions, and tobacco opposition groups, the tobacco industry has suffered serious declines. Kiowa has seen a declining client base, increasing costs, and increasing difficulty with distribution channels. Management was forced to cut staffing and make pay cuts for the first time. This is why the company created a revitalization strategy for the future. The plan includes reducing costs and improving efficiency, as well as new distribution and marketing channels, and a new venture that combines a cafe and tobacco store.

The Company

Kiowa Smoke Shops is a class C Limited Liability Company registered in the state of Kansas. Kiowa is the sole property of Mr. Fernando Renaldo with his wife Elizabeth. The company is not planning to bring on any new owners in the near future.

In 1960 Mr. Carlos Armando Renaldo and his family left their native Cuba for the U.S. Mr. Renaldo’s family had been tobacco growers in Cuba for generations, but the communist revolution in his homeland had left no opportunities for growers outside of government controlled communes. To open Santiago Cigar Store at Orlando, Florida, Renaldo used his family connections from Cuba. Santiago’s was a catering shop that served the growing Cuban community in the area. The shop grew steadily over the next 18 year. Fernando Renaldo became the older brother and sold the business in 1979 to Fernando. In Kansas City, Kansas, Fernando took over the operation. To conform to the image of the midwest, the younger Renaldo changed the name to Kiowa Smoke Shop. Since then, the company is thriving enough for Renaldo’s purchase of two other tobacco shops.

Products

Kiowa Smoke Shops provides the Kansas-Missouri with the greatest selection of specialty and brand name tobacco products. You can find cigars made in Mexico, Spain and India as well as the UK. We also carry cigarettes, both national and international brands, and roll-your-own tobacco products for clients who want to create their own cigarettes.

The Market

The United States is the world’s leading tobacco exporter and importer and the second largest tobacco producer, behind only China. The vast majority of U.S.-grown tobacco is used in cigarettes. Both cigarette sales and cigarette consumption have declined 16 percent over the past decade. The consumption of other tobacco products, however, has also fallen. This makes the current market unfavorable for Kiowa Smoke Shops. Since the Master Settlement Agreement (MSA) was signed in November 1998, cigarette companies have been forced to boost prices as a result of payments required by the settlement. Increased prices have reduced the consumption. The long-term drop in cigarette use due to noneconomic factors continues. Private tobacco opposition as well as health care organizations continue their push for complete elimination of smoking throughout the country.

However, Kiowa has a lot of competitive advantages. These includes established supply channels and its various cost advantages that are difficult to replicate, multiple locations in the Kansas City area, and our future combined cafe and tobacco store that will create more volume and greater client loyalty. This pilot facility will help determine the long-term sustainability of the concept. If it proves popular, we plan to expand all of our facilities to include this unique customer experience.

Kiowa has limited marketing options. However, we plan to advertise in specialty publications such as Smokehouse, Cigar Connoisseur, and others. We are also targeting local magazines like Kansas Highways and Midwest Life that target upper-income individuals. To create links to our informational website, we are looking to form partnerships with other internet companies. When we launch our online ordering features we will intensify these efforts.

Financial considerations

Kiowa has a low debt company status and plans to remain that way. Our revitalization efforts should result in higher profits by the end year 1. In the coming three years, we anticipate that a large portion of our profits will go towards our new website and café ventures. We do not expect any cash problems.

1.1 Objectives

The overall decline in the tobacco industry has resulted in lower profit margins, increased risks, and higher costs. To ensure we are a viable company, we created the following revitalization plan.

• Lower costs over the next three-years and eventually by 20%. Specifically, focus on inventory overhead.
• We have launched our new website, and now we offer online ordering. This will allow us to grow our customer base Increase market awareness of our products through selected national advertising.
• Our tobacco cafe was created to improve the purchasing experience of our patrons.

1.2 Mission

Kiowa Smoke Shops is committed to providing high-quality products and brands at a fair price. Kiowa strives to provide a unique experience for its customers by offering the best tobacco products and creating a comfortable and intimate environment for specialty and recreational tobacco customers. Kiowa will not compromise on its commitment to providing the best service in the industry.

1.3 Keys for Success

We must ensure the following priorities as the industry is becoming increasingly dependent on declining customer numbers and hostile judicial or federal regulations.

• To ensure sufficient profitability, we need to expand our customer base.
• Customer retention can be increased by providing high-quality service.
• In order to reduce costs and improve accounting, you can decrease collection days (improve your short-term profits) or improve cost assessment.