Market Research
A candle is referred to as a flammable wick which is made up of wax for delivering light. What was initially used as a source of light, candles in present times are used for a variety of reasons. Candles are used for soothing the senses, used a home décor item, used for aromatic purposes and defines ceremonial events. Candles are an essential item for home décor with some customers buying them for stress reduction and relaxation. However, over the years, the commercial use of candles has also increased exponentially with different businesses making use of candles in their course of operations. From luxury spa & massage parlours making use of scented candles for soothing effects to restaurants & cafes using it for creating an aromatic ambience for its customers, candles have grown in popularity over the last couple of years (Shopify, 2022). Hence, the candle business is worth a consideration for an entrepreneur as his potential business venture. However, it is imperative to conduct market research to understand, if there is a market for such business or not. The global scented candles market in the year 2020 was valued at USD 533.5 million and these figures clearly illustrate that there is a market for a candle business with money to be made (Grandviewresearch.com, 2022).
Since the feasibility of the business opportunity has been validated, the entrepreneur is certain about the financial viability of the investment opportunity. The entrepreneur is expected to fund about 60% of the total start-up funds required for this investment. The main purpose of this report is to create a detailed business plan after conducting a thorough research which will help the entrepreneur in raising additional finances required for starting the business from debt sources of bank loan.
The core objectives of the business are to strive for customer satisfaction which is expected to be attained by keeping prices competitive and operations as sustainable as possible. Further, the business is also optimistic of attaining profitability within the first operating year.
The business will have four different operating segments which are segmented on the basis of product categories. These comprise of scented candles, candleholders, luminaries and melting oils.
The business is expected to commence its operations on a total desired funding worth 100,000 SAR out of which the entrepreneur will finance 60% of the requirements from personal savings. With an expected growth rate of 5%, the business will maintain a consistent gross profit margin of 65% and high operating & net profit margins for the first three operating years.
The business will hire the services of a marketing consultancy firm to promote its offerings with the help of undertaking traditional and digital marketing initiatives. Furthermore, there are several sales strategies and promotional tactics which will also be used by the entrepreneur in driving revenue.
Since the entrepreneur is a native of the Kingdom of Saudi Arabia, the type of business entity which will be set up is the proprietorship business structure which is also referred to as the establishment business (Shb.export-entreprises.com, 2022). The main striking feature that concerns the proprietorship business structure is that it needs to be operated by one person and that there is no requirement for minimum capital to be invested (Letsdeel.com, 2022). It best suits the needs of residents willing to commence a new small-scale business. As the intended business opportunity of the candle shop is a small-scale business, the entrepreneur who wishes to retail total control over the business has decided to set up the business consistent with this business structure.
Business Objectives
The name of the candle shop proposed by the entrepreneur is Aroma Shop. The business will be located in the capital city of the Kingdom, Riyadh. It is the most ideal place for conducting the business in the country for it boasts a population which is worth more than 4 million residents (Worldpopulationreview.com, 2022). The candle shop will be located on the first level of Riyadh Gallery Mall. The business location is an important consideration that can dictate the success of any business venture (Frederick, O’Connor and Kuratko 2018). As a result, the shopping mall has been selected which will target both residents and tourists. Located on the main road in the northern part of Riyadh, this mall is a prime location for any business outlet (Inspirock, 2022).
The mission statement of the business reads as: “Aroma Shop make products of love and we sincerely optimistic that you love our products as much as we love making them. Our mission is to produce high quality luxury scented candles and other related products which will rightfully illuminate and inspire your sense organs with compelling aromas. All of our products are made with the slightest attention to detail by incorporating high quality sustainable ingredients at the most compelling of prices in the market”.
The vision statement of the business reads as: “It is the short-term vision for Aroma Shop to become one of the most reputed and respected candle making stores in all of Riyadh. Our long-term vision is to open a chain of multiple retail stores to become the most reputed and respected candle making store within the Kingdom of Saudi Arabia”.
The core business objectives of Aroma Shop have been listed as follows:
- It is the objective of the business to prioritize customer satisfaction as the main primary measure to gauge performance. The main emphasis is placed upon meeting the needs and requirements of customers and offering products at competitive prices.
- The business aims to be accountable to the natural environment. It is the objective of the business to deeply embed sustainability in its operations by carefully outsourcing raw materials which do not have environmental footprint, by reducing wastage and focusing upon sustainable packaging.
- Lastly, it is the secondary objective of the business to become profitable within the first year of operations and maintain a strong financial position to exist as a going concern.
From a global standpoint, the candle business market is well worth USD 533.5 million in the year 2020. Furthermore, it is expected that this market will grow at a compound annual growth rate (CAGR) of 6.7% through 2021-2026 reaching a market size worth USD 13,700 million by the end of year 20206 (GlobeNewswire, 2022). The market has grown and is expected to be grown because of an increase in the number of restaurants, hotels, religious institutions and wellness facilities worldwide. A growing trend of candles is also with respect to home consumption as more and more residents have started to prefer it as a home decoration collectible item. Although most market projections pertain to global research, over the last couple of years, the Kingdom has also witnessed an exponential demand for candle making stores (Verified Market Research, 2022).
Candles as a product are simple yet quite sophisticated. Aroma Shop intends to cater to a wide demographic. The target market segment of the business has been discussed as follows:
- Households: Riyadh is a large city with over a million of households which is the key market for Aroma Shop (Arab News, 2022). Households and Residential establishments are the major customers and the business will produce tailor made products for domestic use. There are several reasons why households in Riyadh may purchase candles. This includes the likes of decoration purpose, stress relaxation, aromatic purpose and as collectibles.
- Hotels & Restaurants: A rising trend with respect to the hospitality business sector has been noticed concerning the use of candles. Luxury hotels & restaurants tend to place fragrant candles on dining tables and washrooms for creating a calm and soothing ambience.
- Spas & Massage Parlours: Candles are a common source of supply when it comes to massage parlours and spa who often place candles for relaxation purpose to calm its customers. This segment requires access to a wide variety of aromatic candles which Aroma Shop looks to target.
The industry is quite saturated with several key players in the market. These businesses tend to cater to different types of segments. Furthermore, the competitiveness of the market is also aggravated because of low barriers to entry as such small-scale businesses do not requires significant amount of capital investments. Also, the switching costs for customers is comparatively low resulting in a higher bargaining power. Consequently, the degree of competitiveness in the market is quite high and a business requires sound positioning in order to maximise its market share.
Target Market
The candle business market is highly fragmented with several different options to choose from for the final customer looking to buy such products at different price points. The primary peers for Aroma Shop are Bath & Body Works, Balloonizer and Rose Colony (Infiniumglobalresearch.com, 2022). The competitive profiling that illustrates the strengths and weaknesses of these competitors have been presented as follows:
|
Competitor |
Strengths |
Weaknesses |
|
Bath & Body Works |
Multiple retail outlets Brand name and goodwill |
Prices are steep and on higher end Quality issues and defects. |
|
Balloonizer |
Provided delivery services Customer service |
Expensive shop Does not specialise in any product |
|
Rose Colony |
Competitive Pricing After sales service |
Candle options are limited. Less fragrances to offer |
Aroma Shop is optimistic of becoming a profitable business within the first year of operations and projects a 2% market share in Riyadh. The business will seek to leverage the weaknesses of its peers in an effort to capitalise upon the opportunity for attaining its projections. The business will make use of the product differentiation strategy as well as the cost leadership strategy for attaining a competitive advantage (Kirzner 2015). Aroma Shop will differentiate itself based on the quality of raw materials which will go into the making of the different candle-based products. Most of them will be sourced from sustainable suppliers with a good track record. Furthermore, the business will also make use of cost leadership strategy and price its offerings with the help of value-based pricing strategy after taking into consideration the price point of peers. Lastly, the business will also make use of several marketing and sales promotion initiatives to focus on volume driven sales that most peers do not tend to place effort on.
Aroma Shop will specialise in making and selling of candles through its retail store. The main objective of specialisation is to attain a competitive advantage and be recognised as a store which specialises in candle related products. One of the key drivers to the success of a candle shop is to embrace the art of creativity which the entrepreneur is aware of. The business will commence its operations with four different product segments. These are classified as follows:
- Signature Scented Candles of different flavours such as vanilla, strawberry, wood, mulberry, cinnamon and others.
- Candle Holders that come in a diverse array of beautiful and artistic designs & form.
- Luminaries which are available in different shapes, sizes and colours.
- A wide variety of different melting oils.
A graphical pie chart with respect to the sales volume of these product segments have been presented as follows:
Before commencing this new business idea, the entrepreneur has prior work experience of working as a professional chandler and has several years of work experience working in the candle making industry. Over and above work experience, the entrepreneur understands the art of creativity and expects the same from the different staff proposed to be hired. Although the nature of the business is small scale, the business will adhere to a hierarchical business structure. The entrepreneur will own and operate the business having the final say in the decision-making process. He will also hire and handpick two chandlers who will assist him in making the final product. The entrepreneur will also look after operations such as managing inventories, supplies and the finances of the business. Lastly, the shop will also hire sales staff and customer desk representative as a part of its workforce. The entrepreneur will be responsible to brief and groom the manpower by providing appropriate training.
It is expected that the business will generate a total revenue from its product segments worth 300,000 SAR for its first year of operations. Furthermore, the year-on-year growth rate is assumed conservatively at 5% which falls in line with the industry average CAGR of 6%. The revenue projections for the first three years of operations have been graphically presented as follows:
Marketing Plan
As the business is small scale in nature, it will not have an in-house marketing function. However, the entrepreneur with relevant experience understands the need to market properly. Hence, the business will hire the services of an external marketing agency for marketing its products. The business plans on relying upon traditional as well as digital means for marketing. For traditional marketing, the business will rely upon billboard and banner advertisements. Lastly, the business will also take certain digital marketing initiatives such as social media marketing and influencer marketing for spreading awareness.
Aroma Shop is a traditional physical store which is the primary channel of distribution. However, the business has long term plans for tying up with third party delivery service providers to provide the needed flexibility for its customers. There will be several payment options which will be offered to customers which includes cash, bank payments, card payments and other form of mobile payment options. Individual customers will only be sold goods for cash. The business however plans on providing a one-month credit period for bulk orders which will vary from situation to situation and will be dependent upon the creditworthiness of customers.
The business will also make use of sales promotion techniques for driving sales numbers. Some of its sales strategies and initiatives will include:
- Sending introductory letters with introductory offers to customers for spreading awareness.
- Organising different campaigns and events from time to time.
- Attending trade shows and exhibitions for advertising the business.
- Seasonal and festive discounts and offers.
- Making use of the word-of-mouth strategy through referrals and loyalty bonuses.
The owner will be responsible for operations. His years of experience along with the two chandlers which he wishes to hire will make these products. Additionally, the owner will carefully select the suppliers of raw materials with a great degree of emphasis to be placed upon sustainability. Furthermore, inventory management is another important aspect of operations in the candle making business. These needs will be fulfilled by installing an inventory management software which can help improve accuracy levels with respect to inventory levels to be maintained for avoiding understocking and overstocking.
The total estimated start-up funds estimated to commence the venture is worth 100,000 SAR which falls in line with the market research results. These have been assumed to be funded by 60% from the owner’s personal savings while the remaining 40% is expected to be raised from debt sources of finance with aid of a medium to long term bank loan. The loan is expected to bear an interest rate of 8% per annum as per KSA market (Saib.com.sa, 2022). A summary of start-up expenses and funding have been attached as follows:
|
Statement of Start-Up Funds |
|
|
Financial Particulars |
SAR |
|
Start-Up Costs: |
|
|
Investment License |
2,000 |
|
Commercial Certificate |
8,100 |
|
Registration Fee |
200 |
|
Prepaid Annual Rent |
24,000 |
|
Insurance Expense |
5,000 |
|
Office & Administrative Expense |
4,000 |
|
Marketing Expense |
8,500 |
|
Supplies & Initial Working Capital |
8,000 |
|
Other Operating Expenses |
2,700 |
|
Contingent Cash Reserves |
10,000 |
|
Total |
72,500 |
|
Start-Up Assets: |
|
|
Equipment |
12,500 |
|
Furniture & Fixtures |
15,000 |
|
Total |
27,500 |
|
Total Start-Up Funds |
1,00,000 |
|
Statement of Sources of Funds |
|
|
Financial Particulars |
SAR |
|
Estimated Total Start-Up Funding |
1,00,000 |
|
Owner’s Investment @60% |
60,000 |
|
8% Business Loan @40% |
40,000 |
There are several assumptions which have been relied upon for preparing the financial statements. The total revenue is expected to increase at 5% per annum. The cost of sales is worth 35% of total revenue. The sole proprietorship business requires the entrepreneur to obtain a one-time investment licence of SAR 10,100 (FIRM, 2022). Furthermore, the annual registration fee is worth SAR 200 each year. All operating expenses have been assumed to reflect upon real life projections based on KSA market. Depreciation expense is calculated at 15% per annum on depreciable assets using the straight-line method. Lastly, zakat is to be paid at 2.5% of profit before taxes (PWC, 2022). The financial projections of the business have been prepared and presented as follows:
|
Pro Forma Income Statement (SAR) |
|||
|
Financial Particulars |
2022 |
2023 |
2024 |
|
Total Revenue |
3,00,000 |
3,15,000 |
3,30,750 |
|
(-) Cost of Sales |
1,05,000 |
1,10,250 |
1,15,763 |
|
Gross Profit |
1,95,000 |
2,04,750 |
2,14,988 |
|
Operating Expenses: |
|||
|
License & Certificates |
10,100 |
– |
– |
|
Annual Registration Fee |
200 |
200 |
200 |
|
Annual Rent |
24,000 |
25,200 |
26,460 |
|
Insurance Expense |
5,000 |
5,000 |
5,000 |
|
Salaries & Wages |
40,000 |
41,000 |
42,025 |
|
Office & Administrative Expense |
4,000 |
4,200 |
4,410 |
|
Marketing Expense |
8,500 |
9,350 |
10,285 |
|
Supplies Expense |
8,000 |
8,400 |
8,820 |
|
Other Operating Expenses |
2,700 |
3,000 |
3,300 |
|
Depreciation Expense |
4,125 |
4,125 |
4,125 |
|
Operating Profit |
88,375 |
1,04,275 |
1,10,363 |
|
Finance Cost |
3,200 |
3,200 |
3,200 |
|
Profit before Zakat |
85,175 |
1,01,075 |
1,07,163 |
|
Zakat @2.5% |
2,129 |
2,527 |
2,679 |
|
Profit for the year |
83,046 |
98,548 |
1,04,483 |
|
Gross Profit Margin Ratio |
65.00% |
65.00% |
65.00% |
|
Operating Profit Margin Ratio |
29.46% |
33.10% |
33.37% |
|
Net Profit Margin Ratio |
27.68% |
31.29% |
31.59% |
|
Pro Forma Balance Sheet (SAR) |
|||
|
Financial Particulars |
2022 |
2023 |
2024 |
|
Current Assets: |
|||
|
Cash |
90,421 |
1,67,779 |
2,27,159 |
|
Inventories |
5,250 |
6,615 |
6,946 |
|
Total Current Assets |
95,671 |
1,74,394 |
2,34,105 |
|
Non-Current Assets: |
|||
|
Equipment |
12,500 |
12,500 |
12,500 |
|
Furniture & Fixtures |
15,000 |
15,000 |
15,000 |
|
(-) Accumulated Depreciation |
4,125 |
8,250 |
12,375 |
|
Total Non-Current Assets |
23,375 |
19,250 |
15,125 |
|
TOTAL ASSETS |
1,19,046 |
1,93,644 |
2,49,230 |
|
Liabilities: |
|||
|
Trade Payable |
21,000 |
22,050 |
23,153 |
|
8% Bank Loan |
40,000 |
40,000 |
40,000 |
|
Total Liabilities |
61,000 |
62,050 |
63,153 |
|
Capital: |
|||
|
Owner’s Capital |
1,00,000 |
1,00,000 |
1,00,000 |
|
Retained Earnings |
83,046 |
1,81,594 |
2,86,077 |
|
(-) Drawings for Personal Expense |
1,25,000 |
1,50,000 |
2,00,000 |
|
Total Capital |
58,046 |
1,31,594 |
1,86,077 |
|
TOTAL LIABILITIES & CAPITAL |
1,19,046 |
1,93,644 |
2,49,230 |
On classifying all the operating expenses barring financial expenses into fixed and variable costs, the estimated break-even sales which the business has to generate to cover its total costs is worth 148,500 SAR. Consequently, the margin of safety is worth 151,500 SAR. All relevant calculations have been presented as follows:
The profitability results of the business are commendable. Aroma Shop is able to maintain consistent gross profit margins at 65%. Furthermore, the operating profit margin and the net profit margin of the business can be observed to showcase an increase in trend. Hence, the business is forecasted to be a highly profitable venture based on the first three years of operations. A graphical representation of the profitability metrics of the business has been attached as follows:
Conclusion
Based on the discussions that have been presented in this report, it can be concluded upon that the Aroma Shop venture is destined for financial success. The business venture makes sense from a financial standpoint and secondary research results suggests that there is a prominent market for this business in KSA which is expected to grow in the coming few years. This business plan therefore urges banks or financial institutions to provide the needed finance for funding the business opportunity.
References
Arab News, 2022. 6 Arab-owned candle brands to make your home smell wonderful. [online] Arab News. Available at: <https://www.arabnews.com/node/1791336/6-arab-owned-candle-brands-make-your-home-smell-wonderful> [Accessed 26 March 2022].
FIRM, S., 2022. Starting a business in Saudi Arabia-Process, cost and benefits. [online] S & F CONSULTING FIRM LIMITED. Available at: <https://www.sfconsultingbd.com/blog/starting-a-business-in-saudi-arabia-process-cost-and-benefits/> [Accessed 26 March 2022].
Frederick, H., O’Connor, A. and Kuratko, D.F., 2018. Entrepreneurship. Cengage AU.
GlobeNewswire, 2022. Global Demand for Candle Market Size Set to Touch USD 13,700 Million by 2026 at a 6.7% CAGR Growth: Says Facts & Factors. [online] GlobeNewswire News Room. Available at: <https://www.globenewswire.com/news-release/2022/01/24/2371711/0/en/Global-Demand-for-Candle-Market-Size-Set-to-Touch-USD-13-700-Million-by-2026-at-a-6-7-CAGR-Growth-Says-Facts-Factors.html> [Accessed 26 March 2022].
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Infiniumglobalresearch.com, 2022. Saudi Arabia Candle Market – Infiniumglobalresearch.com. [online] Infiniumglobalresearch.com. Available at: <https://www.infiniumglobalresearch.com/saudi-arabia/saudi-arabia-candle-market> [Accessed 26 March 2022].
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Kirzner, I.M., 2015. Competition and entrepreneurship. University of Chicago press.
Letsdeel.com, 2022. How to Register an Establishment (Sole Proprietorship) in Saudi Arabia. [online] Letsdeel.com. Available at: <https://www.letsdeel.com/blog/register-establishment-sole-proprietorship-in-saudi-arabia> [Accessed 26 March 2022].
PWC, 2022. Saudi Arabia – Corporate – Taxes on corporate income. [online] Taxsummaries.pwc.com. Available at: <https://taxsummaries.pwc.com/saudi-arabia/corporate/taxes-on-corporate-income#:~:text=Zakat%20is%20charged%20on%20the,as%20calculated%20for%20Zakat%20purposes.> [Accessed 26 March 2022].
Saib.com.sa, 2022. Business Finance | The Saudi Investment Bank. [online] Saib.com.sa. Available at: <https://www.saib.com.sa/en/business-finance> [Accessed 26 March 2022].
Shb.export-entreprises.com, 2022. [online] Shb.export-entreprises.com. Available at: <https://shb.export-entreprises.com/ressources/features/list-of-business-types.pdf> [Accessed 26 March 2022].
Shopify, 2022. How to Start a Candle Business (with Examples). [online] Shopify. Available at: <https://www.shopify.com/blog/candle-business> [Accessed 26 March 2022].
Verified Market Research, 2022. Candle Market Size, Share, Trends, Opportunities & Forecast. [online] Verified Market Research. Available at: <https://www.verifiedmarketresearch.com/product/candle-market/> [Accessed 26 March 2022].
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