Introduction

Kiowa Smoke Shops LLC is a family-owned business that has been in operation since the 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 seen a declining client base, increasing costs, and increasing difficulty with distribution channels. The management had to make drastic staffing cuts and reduce pay for the first-ever time. It is for this reason that the company is seeking to create a revitalization plan for the future. This plan will reduce costs, improve efficiencies and create new distribution and market channels.

The Company

Kiowa Smoke Shops, a limited liability company of class C, is registered in the state Kansas. Kiowa’s sole owners are Mr. Fernando Renaldo & Elizabeth Renaldo. The company doesn’t anticipate adding new owners in near 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. After his arrival in America, Renaldo used the connections he had with his family to open Santiago Cigar Store in Orlando. 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, the younger Renaldo, sold the business to Fernando in 1979. He relocated the company to Kansas City, Kansas. To conform to the image of the midwest, the younger Renaldo changed the name to Kiowa Smoke Shop. The company has grown enough to allow Mr. Renaldo the opportunity to buy two more tobacco shops.

Products

Kiowa Smoke Shops provides the Kansas-Missouri with the greatest selection of specialty and brand name tobacco products. You will find cigars from Mexico and other countries such as India, Spain, Spain, India, the UK, or other areas that produce tobacco. We also sell cigarettes, including foreign and national brands, as well rolled-your-own products. This is for clients who wish make their own cigarettes.

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. Most U.S. cigarettes are made from U.S. tobacco. But, cigarette use and exports have both fallen 16 percent in the last decade, while other tobacco products have also suffered a decline. This creates a market environment that is not favorable to 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 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 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 facility will act as a pilot project to determine the long-term profitability of this concept. If it proves popular, we plan to expand all of our facilities to include this unique customer experience.

Kiowa can only do a limited amount of marketing. We plan to advertise in specialty magazines like Smokehouse and Cigar Connoisseur. We also plan to target a variety of local magazines like Kansas Highways, Midwest Life and other publications that cater to the upper-income population. To create links to our informational website, we are looking to form partnerships with other internet companies. These efforts will be intensified when we launch our online ordering capabilities.

Financial Considerations

Kiowa has a low debt company status and plans to remain that way. Our revitalization efforts will result in increased profits by 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 see any serious 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.
• Expand our customer base through the launching of our new website and our online ordering distribution outlet. Select national advertising will increase market awareness for our products.
• Create a tobacco cafe to enhance our patron’s buying experience

1.2 Mission

Kiowa Smoke Shops aims to provide high quality products, brand names, and prompt service at a reasonable price. Kiowa seeks to offer a unique experience to its patrons by stocking the most comprehensive tobacco products available for its discerning consumers and creating an intimate and comforting environment for the specialty and recreational tobacco customer. Kiowa will always maintain the highest standards of customer service in the tobacco business.

Success Keys 1.3

The industry is being squeezed by declining customers and more hostile federal and judicial regulations. We need to ensure that the following priorities are met:

• To keep a sufficient level profitability, we need a larger customer base.
• Retention of customers can be improved by providing excellent service.
• Decrease costs and improve accounting practices to decrease collection days (improve short-term profits) and improve cost assessment.