Introduction
Kiowa Smoke Shops LLC has been in business as a family company since the early 1960’s.
The tobacco industry has been in serious decline for the past ten-years due to increasingly hostile regulation, judicial decisions and tobacco opposition groups. Kiowa has suffered a falling client base and increased costs. It also faces increasing difficulties in distributing its products. The first time in history, management was forced to lower staffing levels and implement pay cuts. This is why the company is trying to develop a future revitalization plan. This plan includes reducing costs, improving efficiencies, new distribution and marketing channels and a new venture into a combined cafe and tobacco store.
The Company
Kiowa Smoke Shops Limited Liability Company is a class-C Limited Liability Company that has been officially registered in Kansas. Kiowa is exclusively owned by Mr. Fernando Renaldo and his wife, Elizabeth. The company does not expect to hire new owners in foreseeable future.
Carlos Armando Renaldo with his family fled Cuba for America in 1960. They had been tobacco growers in Cuba for many generations. But the communist revolution there had limited opportunities for growers to escape from government-controlled areas. Once in America, Mr. Renaldo leveraged his family connections there to create Santiago Cigar Store in Orlando, Florida. Santiago’, which was catering to the rapidly growing Cuban population, opened his shop in Orlando, Florida. It grew over the next 18years. Fernando Renaldo bought the business from his father in 1979 and relocated it to Kansas City. 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 offers the widest variety of specialty and named brand tobacco products in the Kansas-Missouri area. These include cigars from Mexico, Spain, India, the UK, and other tobacco producing areas. 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 both the world’s largest tobacco importer and exporter, and also the second largest tobacco producer in the world, just behind China. The majority of U.S. tobacco is used to make cigarettes. But, cigarette use and exports have both fallen 16 percent in the last decade, while other tobacco products have also suffered a decline. The current market is very unfavorable for Kiowa Smoke Shops. The Master Settlement Agreement (MSA), signed in November 1998, has forced cigarette companies to raise prices due to the payments. Consumers have been less likely to smoke because of higher prices. The long-term decline in cigarette consumption due to non-economic factors continues as well, as private tobacco opposition and health care organizations continue to push for the elimination of all smoking throughout the nation.
Kiowa offers a number competitive advantages. These include established supply chains and their various cost advantages, multiple locations throughout the Kansas City area, as well as our future combined cafe/tobacco store that will produce more volume and increase client loyalty. This facility will serve as a pilot to test the long-term economic viability of the idea. If it proves successful, we plan to expand our facilities in order to provide this unique experience to all customers.
Kiowa can only do a limited amount of marketing. We do plan to advertise with specialty publications like Smokehouse, Cigar Connoisseur, etc. We also plan on advertising in a few local magazines, such as Kansas Highways, Midwest Life or others that target upper-income persons. 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, a company that has limited debt, intends to continue being so. We expect to see increased profits from our revitalization efforts by the end of 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 don’t anticipate any cash problems.
1.1 Objectives
The overall decline of tobacco has led to lower profit margins as well as increased risks and costs. The following goals have been set for a revitalization program to help us remain a viable business.
- Reduce costs by 15% over the next three years and ultimately by 20%, specifically concentrating on inventory overhead.
- Expand our customer base through the launching of our new website and our online ordering distribution outlet. Select national advertising can increase market awareness of our products.
- Create a tobacco cafe to enhance our patron’s buying experience
1.2 Mission
Kiowa Smoke Shops is committed to providing high-quality products and brands at a fair price. Kiowa wants to provide an exceptional experience to its patrons. The shop carries the most diverse tobacco products, and creates a cozy and relaxing environment for specialty and recreational customers. Kiowa will continue to maintain the highest standards of service in the tobacco industry.
1.3 Keys to Success
With the industry being increasingly pinched by declining numbers of customers and more and more hostile judicial and federal regulations, we must insure the following priorities:
- To ensure sufficient profitability, we need to expand our customer base.
- High-quality customer service will increase customer retention.
- To reduce collection days, improve accounting practices and increase cost assessment, and decrease costs.