Introduction
Kiowa Smoke Shops LLC (“Kiowa”) has been operating since the 1960’s as a family business.
The tobacco industry has seen a significant decline over the past ten year due to more hostile regulations, judicial rulings, and opposition groups. Kiowa has experienced a decline in client base, rising costs, and difficulty with distribution channels. For the first ever, the management has had to reduce staffing levels as well as institute pay cuts. The company has created a plan to revitalize the business for the future. 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 is a class C Limited Liability Company registered in the state of Kansas. Kiowa is owned solely by Mr. Fernando Renaldo, and Elizabeth Renaldo. The company doesn’t anticipate adding new owners in near future.
Carlos Armando Renaldo, his family and their belongings left Cuba in 1960 to seek asylum in the United States. His family had been tobacco growers in Cuba since generations but the communist revolution had robbed them of any opportunities. Once in America, Mr. Renaldo leveraged his family connections there to create Santiago Cigar Store in Orlando, Florida. Santiago’s catered to growing Cuban populations in the region, and the shop prospered over the next 18-years. Fernando Renaldo, the younger Renaldo, sold the business to Fernando in 1979. He relocated the company to Kansas City, Kansas. In order to fit in with the Midwest’s image, Renaldo the younger renamed Kiowa Smoke Shop. The company has grown enough to allow Mr. Renaldo the opportunity to buy two more tobacco shops.
Products
Kiowa Smoke Shops offers the widest variety of specialty and named brand tobacco products in the Kansas-Missouri area. These cigars come from Mexico, Spain or India and are also available in the UK. We also stock cigarettes of all brands and roll-yourself products for clients who wish to make their cigarettes.
The Market
The United States, which is China’s second-largest tobacco producer, is the world’s top tobacco importer. The majority of U.S. cigarette tobacco is consumed in the United States. The decline in cigarette smoking and exports of cigarettes has been 16 percent since 1991. Other tobacco products have suffered a similar drop. All this creates a negative market environment for Kiowa Smoke Shops. The Master Settlement Agreement (MSA), signed in November 1998, has forced cigarette companies to raise prices due to the payments. The settlement has reduced consumption by lowering prices. 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.
Kiowa possesses a number of competitive advantages however. 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 project will be used to evaluate the long-term viability of this 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. 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. We are also looking for partnerships with internet companies to provide links to our website. These efforts will be intensified as we launch our online order features.
Financial Considerations
Kiowa is a limited debt company and intends to stay 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 of the tobacco industry has lead to lower profit margins and increased risks and costs. We have developed a revitalization plan to ensure that we remain viable.
- Cut costs by 15% in the next three years, and finally by 20% by concentrating on inventory overhead.
- Our new website launched and our online ordering distributor outlet was created to increase our customer base. Select national advertising will increase market awareness for our products.
- We created our tobacco cafe to differentiate our patrons’ purchasing experience
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 keep up the best standards 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 keep a sufficient level profitability, we need a larger customer base.
- Retention of customers can be improved by providing excellent service.
- Reduce costs, improve accounting procedures to reduce collection days (improve short term profits) and improve cost analysis.
