Dog Grooming Business Viability Case Study

| FourSee Business Startup Professionals |
Memo
To: | Mark Rover, CEO | From: | FourSee Business Startup Professionals | cc: | | Date: | February 19, 2013 | Re: | Concerns about recent entry into the dog grooming market within the Chicopee area | | |

Executive Summary

The proposed dog grooming business plan needs some reworking. Some areas of focus include staffing, business location; customer service area, and implementation of additional services. Listed below are the problems we feel need to be addressed which are followed by our recommendations: * too many groomers on staff; Cut groomers or number of hours of groomers * too many competitors; create a mobile division to service a greater area to increase dog population served * revenue too low to make a profit; increase costs to $50.00 per grooming and push additional services market not big enough to break even; add addition services within the dog realm (i.e. doggie daycare) * startup costs are high; find investors to split the startup * need for a high volume of customers to make a profit; partnership with a company such as Mass Mutual and provide grooming and day care to employees
The business will need $50,000 – $60,000 for the startup supplies and rent. With the proposed plan the NPV is in the black at ($597,086.96) which makes the IRR severely less than 1.
We feel the prosed changes will give this grooming business a fighting chance at viability. These ideas are suggested in order to raise revenues which will in turn increase the NPV as well as IRR. This case is in regards to the grooming startup within the Chicopee, Massachusetts area. We have done extensive research not only in the immediate area but the national outlooks on the industry. We feel that there is a good first start with the business plan being proposed but feel that it is in the best interest of this future company to tweak a few areas of concern. With the market being saturated by competitors this company needs to stand out from the rest. Having great groomers who offer excellent work and customer service is just a small piece of the pie. Many competitors have pet related services, one of which is grooming. To stay relevant it makes sense to add additional services with low overhead such as daycare. In this industry you can be the best of the best but there are many factors which play into whether customers choose you over the others. This memo will outline: * The Real Issues * What the Competitive Environment Analysis looks like and who are the competitors * Our Recommendation for Strategic Change which include: * Theoretical justification * Value Proposition of initial business plan * Finances outlined in an Excel format which include: * Pro-forma * NPV, IRR, Payback Period for 5 year period. * Risk Analysis * How will Progress be Measured
This will give you a sense of what our thinking is pertaining to the concerns we have found and see how we would recommend solving these possible problem areas moving forward.

Real Issue
The real issue for this startup is they are attempting to enter into a market that is already saturated with competitors. They are also attempting to do this at an extremely high startup cost without rationalization of these costs. When entering into a startup business it is always wise not to assume that your business will be able to take control of a large portion of the competitors market immediately if even at all. Most startups are successful when they enter into a market with realistic expectations. An article by P Grabowski stated, “Many new businesses have a tendency to suffer the “big boys disease”, they try to tackle their problems the way big companies would. This usually means trying to do things they not only can’t afford but also shouldn’t be doing in the first place. (Grabowski , 2013)”
The internal organizational problems that are causing this issue are the fact that they are starting off with a staff size that is unrealistic considering that the labor is the majority of the expense of the business. Until there is justification which supports the business has the cliental which requires this amount of staffing the business should start off with a limited amount of staff. In addition all of their eggs are being put into one basket by only offering a basic service. In looking at the competitors The Good Dog Spot, Wintergreen Kennels and For K-9s & Felines to name a few; we can see that they offer numerous services such as veterinary, pet boarding and pet sitting. These additional services help to increase their sales and revenue. This startup currently does not have any suggestions for offering additional services. This can hurt potential sales and revenues in the long run.
Competitive Analysis
In analyzing if opening a dog grooming business in Chicopee, Massachusetts is a good business idea, we must fully understand the competitive landscape of this industry. In performing this analysis, we will apply some of the principles Michael Porter developed as part of his “Five Forces” model. Porter tells us understanding the intensity of competitive rivalry is very important when assessing a potential business venture. In determining the location of potential competitors, we expanded the radius of competitor analysis outside of the Chicopee area as our research showed us that “the marketing area includes all residences and businesses within a forty-five minute driving distance of the pet grooming salon” (Ogle, p. 154). There are twelve competitors within a fort five minute driving distance to Chicopee, MA. Below is a listing of the competitors who offer dog grooming services in the Chicopee or surrounding areas. Business Name | Location | Category/Services Offered | The Good Dog Spot | Chicopee, MA | Pet Groomers, Pet Boarding/Pet Sitting | Mt Tom Boarding Kennel & Grooming Shop | Holyoke, MA | Veterinarians, Pet Boarding/Pet Sitting | Grooming Room Llc | Wilbraham, MA | Pet Groomers | Pet Supplies Plus | West Springfield, MA | Pet Store, Grooming | Petco | Holyoke, MA | Pet Store, Grooming | Marion 's Grooming | Somers, CT | Pet Groomers | Amy 's Animals Professional Dog Grooming | Belchertown, MA | Pet Groomers | The Ruff House | Westfield, MA | Pet Groomers, Pet Boarding/Pet Sitting | Wintergreen Kennels | Southampton, MA | Pet Boarding/Pet Sitting, Pet Groomers | For K-9s & Felines | Westfield, MA | Holistic, all natural Pet Stores, Pet Groomers | VCA Montgomery Road Animal Hospital | Westfield, MA | Veterinarians & Grooming | A Little Bit of Love Dog Grooming | Granby, MA | Pet Groomers, Pet Boarding |

It is evident there are many choices for dog owners to consider when selecting a place to bring their dog to be groomed. The good news in this analysis is that there is only one other dog grooming business currently in Chicopee; however if the travel radius Ogle cites is true, then our competitive rivalry is significant. In addition to there being quite a few competitors already operating locally in this industry, one of them, Petco, is a dominant player in the industry according to IBISWorld.
Now that we understand the existing amount of competition, we must also consider how likely it is that additional competitors will enter the market in the future. According to the latest IBISWorld industry report, “barriers to entry are low since there are no formal industry licensing or training requirements, and the costs of establishing an at home or mobile service are relatively low as well” (Competitive Landscape). In addition to the ease of entrance to this market, we also learned from IBISWorld that “companies are still entering the industry due to rising demand” (Competitive Landscape). It appears we could enter this market relatively easily; the question to ask ourselves now is if we could secure enough of the available market to have a successful business.
Securing market share in an industry with high competition is always challenging, but may be even more challenging in the pet grooming industry. We not only need to worry about other businesses offering the same service, but we also need to consider if there are any substitute products available which would impact our ability to be successful. In the pet grooming industry, the substitute products or services are the consumer’s ability to groom their own pets at home. We must consider whether or not there is a rise in consumer’s appetite to groom their own pets or if the demand for professional grooming services is increasing. Although the threat of substitutes does exist, we are confident this threat would not have a dramatic impact on our ability to be successful as the industry revenue is “forecasted to grow at an annual average rate of 5.4%” (IBISWorld, Industry at a Glance).
Finally, we must also consider how much bargaining power the supplier and customers have within this industry. Dog owners are generally not driven to a particular grooming establishment solely based on price. Most dog owners feel their dogs are a part of the family, Owners are more likely to consider factors such as how well their dog is treated while being groomed, how good their dog looks after grooming and how clean is the establishment. This leads us to the conclusion that we would not likely face significant competitive challenges based on price. Suppliers do not hold significant bargaining power as there are many sources to obtain the products needed to perform dog grooming and there are many types of these products available to groomers.

Recommendation for Strategic Change
The target market we are pursuing is the portion of those dog owners who follow the recommendation of grooming their dog every 2 to 6 weeks. These potential customers realize the value of having their dogs professionally groomed. By following the recommendation outlined this dog grooming company will be profitable as well as a sustainable. We would first recommend that the number of staff be reduced until the business is well established and the customer base is increased. After reviewing the financials and taking the start-up cost into consideration we are recommending that the staff is reduced by 2. This is an annual cost savings of $50,000.00 as the average salary of a groomer in the Chicopee area is $25,000.00. As the business begins to grow the staff members can be increase as the need arises. We have carefully analyzed the market and have determined that there is a potential to gain a customer base of at least 270. We are taking into consideration that not every one of these potential customers will be there on day one of the business opening.
Our analysis indicates there are several competitors which are already established in this area. The research shows that people are willing to drive at 45mins to a groomer. This establishment would be the twelfth one to enter the market therefore we are recommending that you offer services other than grooming such as pet sitting and specialty cuts. We are also recommending selling doggy treats and supplies. This will give your company an additional reason for customers to visit thereby increasing your customer base and revenue. We are also suggesting that you create a mobile division to service a greater area of the dog population. This will assist the name recognition. Another recommendation to increase the customer base is to form a partnership with one of the large companies in the area and offer grooming and pet sitting services. The mobile division is a good avenue to offer this service.
We recommend that you raise your price on grooming to $50.00 instead of $37. 75 as the current state prices will make it too difficult to make a profit. In order to break even at the current price you will have to service 4968 dog in the first year. There is not enough potential customers in this area for that large volume. Although the rental property is $750.00 per month there is the additional cost of renovating the space to fit the needs of your business this includes the installation of the equipment. The average cost to start a business of this type is $50,000 -$60,000 dollars. It is our recommendation that an investor be considered to help offset the startup cost while the business gets established.

Appendix
1. How far will a person drive to get their dog groomed? According to Madeline Ogle (2007), “the marketing area includes all residences and businesses within a forty-five minute driving distance of the pet grooming salon” (p. 154).

2. How big (quantity of potential customers) is the market for dog grooming around Chicopee?
The population of Chicopee is 55,333. The number of households is 23,117. The estimated number of pet owning households with dogs is 3,245. There are currently 11 pet grooming type establishments in and around Chicopee. Taking this data into consideration we divided the number of dog groomers by 12 as we would be the twelfth business to enter the market. Therefore the estimated number of potential customers is 270.

3. What are the potential revenues for the entire market?
$4,700,000,000.00 in revenues within the Pet Grooming & Boarding industry which x 31.6% is the pet grooming contribution to the industry = $148,520,000.00 (This includes cats too)

4. What are the potential revenues for the market not taken by the competition?
3245 is the total population of dogs present within the Chicopee town limits x 37.75 (Average cost within the New England Area) x 24 (The average number of times per year a dog is groomed) = $2,939,970.00 per year

5. What are the potential revenues when you consider the competition?
3245 (is the total estimated dog population in Chicopee)/ 12 (including our business there are 12 companies in the area of Chicopee) = 270 (would be our portion of dogs id the population was equally distributed) x 37.75 ((Average cost within the New England Area) x 24 (The average number of times per year a dog is groomed) = $244,620.00 per year

6. Assuming you rent a space, buy the basic equipment for dog-grooming and have five dog groomers (of which you are one): what does that cost? * Average Dog Groomer salary in Chicopee Ma is $25,000 per groomer (x 5 groomers) annually = $125,000.00 * Substantial startup cost for a grooming salon is the equipment http://doggroomeradvice.com/expected-start-up-cost-for-dog-grooming * Clippers $120.00 x 5 (One per table/groomer)= $600.00 * Shears $50.00 x 15 (Three per table/groomer) = $750.00 * Blades $20 x 15 (1 Small/ 1 Medium/ 1 Large or each table/groomer) = $300.00 * Brushes $6.00 x 12 (2 per table/groomer) = $72.00 * Combs $5.00 x 12 (2 per table/groomer)= $60.00 * Apron/smock $20 x 5 (1 per groomer) = $100.00 * Shampoos (concentrated sold per gallon)$15.00 x 5 = $75.00 * Conditioners (concentrated sold per gallon)$15.00 x 5 = $75.00 * Dryers $360 x 2 = $720.00 * Nail clippers $7.00 x 5 (1 per table/groomer)= $35.00 * Safety supplies $30.00 x 1 (One for the whole facility) = $30.00 * Washing Machine $419.00 x 1 = $419.00 (searsoutlet.com) * Dryer $463.93 x 1 = $463.93 (searsoutlet.com) * Bathtubs x 1 $1,000 = $1,000.00 * Grooming tables x 5 $250.00 = $1250.00 * Cages 1 @ $189.99 (for big dogs) + 1 @ $149.99 (small has two separate cages) (petedge.com) * Above pricing from vhttp://doggroomeradvice.com/expected-start-up-cost-for-dog-grooming/ Except where otherwise noted * Salon rent $750.00 x 12 = $9,000.00 per year (www.officespace.com) * Grand Total = $140,289.91

7. What does it cost, on average, in supplies, to groom a dog?
$8.33 per dog labor + 0.15 for shampoo per dog + 0.15 conditioner per dog = 8.63 total cost per dog

8. How many dogs can your company groom in a day? Show your math. (5 points)
According to Madeline Ogle (2007), “Typically an owner/trimmer completes an average of twelve trims per day” (p. 24). Our company has four full time groomers plus the owner. The owner will realistically only be available for grooming 25% of their time as much of their time will be focused on building customer relationships.
12 trims x 4 full time groomers = 48 dogs
3 trims x 1 quarter time groomer =3 dogs
Total projected grooming potential = 51 dogs per day.

9. How many times does the average customer have their dog groomed per year?
A dog should be groomed every 2-4 weeks depending on the breed of dog and style of cut= 24 times per year.

10. What is your potential revenue in a day
$37.75 x 51 dogs per day (work for 4 full time groomer and 1 groomer working at 25%)= $1,925.25 per day revenue

11. What is your break-even number of grooming? The break even number of groom for five years is: $4,968, $4,930, $4,891, $4851, $4,811

12. Given that quantity, what level of market penetration do you need on an annual basis to break-even? (Break-even Quantity/ Total Market Quantity) 4968 dogs in the first year 13. Is this a good business idea? If not, what does the model need to work? Explain your reasoning.
No -- * too many groomers on staff * too many competitors * revenue too low to make a profit * market not big enough to break even * startup costs are high

References
American Veterinary Medical Foundation | American Veterinary Medical Foundation. (n.d.). Pet Ownership Calculator. Retrieved February 12, 2013, from http://avmf.org/

Chicopee Population and Demographics (Chicopee, MA). (n.d.). Chicopee Yellow Pages and Chicopee MA Guide. Retrieved February 12, 2013, from http://chicopee.areaconnect.com/statistics.htm

World’s most popular Grooming Surveys Since 1998. (n.d.) Pet Grooming Surveys. Retrieved February 12, 2013, from http://www.petgroomer.com/SURVEYS/results-pricing.htm

Moldvay, C. (2012). Pet Grooming & Boarding in the US. IBIS World Industry Report, 81291, Retrieved from http://clients1.ibisworld.com.libproxy.baypath.edu/reports/us/industry/default.aspx?entid=1735

http://doggroomeradvice.com/expected-start-up-cost-for-dog-grooming

www.searsoutlet.com

Stregowski, J. (2013, 02 16). Top five dog grooming basics. Retrieved from http://dogs.about.com/od/grooming/tp/5-Basics-of-Dog-Grooming.htm

Ogle, M. B., (2007). From Problems To Profits. The Madson Management System for Pet Grooming Businesses, 154, 24

Grabowski , P. (2013, 02). 5 common startup problems (properly) solved. Retrieved from http://standoutsales.com/startup-basics/5-common-startup-dilemmas-properly-solved/

Dog Grooming Businesses in the Chicopee, Massachusetts area. Retrieved from: http://www.yelp.com/search?find_desc=dog+grooming+chicopee%2C+ma&find_loc=San+Francisco%2C+CA&ns=1#find_desc=dog+grooming&find_loc=chicopee,+ma&show_filters=1&start=10

References: American Veterinary Medical Foundation | American Veterinary Medical Foundation. (n.d.). Pet Ownership Calculator. Retrieved February 12, 2013, from http://avmf.org/ Chicopee Population and Demographics (Chicopee, MA). (n.d.). Chicopee Yellow Pages and Chicopee MA Guide. Retrieved February 12, 2013, from http://chicopee.areaconnect.com/statistics.htm World’s most popular Grooming Surveys Since 1998. (n.d.) Pet Grooming Surveys. Retrieved February 12, 2013, from http://www.petgroomer.com/SURVEYS/results-pricing.htm Moldvay, C. (2012). Pet Grooming & Boarding in the US. IBIS World Industry Report, 81291, Retrieved from http://clients1.ibisworld.com.libproxy.baypath.edu/reports/us/industry/default.aspx?entid=1735 http://doggroomeradvice.com/expected-start-up-cost-for-dog-grooming www.searsoutlet.com Stregowski, J. (2013, 02 16). Top five dog grooming basics. Retrieved from http://dogs.about.com/od/grooming/tp/5-Basics-of-Dog-Grooming.htm Ogle, M. B., (2007). From Problems To Profits. The Madson Management System for Pet Grooming Businesses, 154, 24 Grabowski , P. (2013, 02). 5 common startup problems (properly) solved. Retrieved from http://standoutsales.com/startup-basics/5-common-startup-dilemmas-properly-solved/ Dog Grooming Businesses in the Chicopee, Massachusetts area. Retrieved from: http://www.yelp.com/search?find_desc=dog+grooming+chicopee%2C+ma&find_loc=San+Francisco%2C+CA&ns=1#find_desc=dog+grooming&find_loc=chicopee,+ma&show_filters=1&start=10