Introduction Kiowa Smoke Shops LLC, (Kiowa) has been in operation as a family business since the early 1960's. Kiowa offers named brand tobaccos, cigars, cigarettes, and roll-your-own accessories.
Over the past ten years, due to increasingly hostile regulations, judicial decisions, and tobacco opposition groups, the tobacco industry has suffered serious declines. Kiowa has seen a declining client base, increasing costs, and increasing difficulty with distribution channels. For the first time management has been forced to reduce staffing levels and institute pay cuts. It is for this reason that the company is seeking to create a revitalization plan 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 exclusively owned by Mr. Fernando Renaldo and his wife, Elizabeth. The company does not anticipate bringing on new owners in the foreseeable future.
In 1960 Mr. Carlos Armando Renaldo and his family left their native Cuba for the U.S. Mr. Renaldo's family had been tobacco growers in Cuba for generations, but the communist revolution in his homeland had left no opportunities for growers outside of government controlled communes. Once in America, Mr. Renaldo leveraged his family connections there to create Santiago Cigar Store in Orlando, Florida. Santiago's catered to the growing Cuban population in the region and over the next 18 years the shop flourished. In 1979 the elder Renaldo sold the business to his son Fernando, who relocated the firm to Kansas City, Kansas. The younger Renaldo, wishing to conform to the midwest's image, renamed the business Kiowa Smoke Shop. Since then the company has prospered enough for Mr. Renaldo to buy out 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 have cigarettes, including national and foreign brands, roll-your-own products for those clients wishing to make their own cigarettes, pipe tobacco from around the world, plus accessories such as ashtrays, pipes, cigarette and cigar cases, fumidors etc.
The Market The United States is the world's leading tobacco exporter and importer and the second largest tobacco producer, behind only China. Most U.S. tobacco is used for cigarettes. However, both cigarette consumption and cigarette exports have fallen 16 percent since 1991, and the consumption of other tobacco products has suffered a similar loss. All of this makes for a current market situation that is unfavorable to Kiowa Smoke Shops. Since the Master Settlement Agreement (MSA) was signed in November 1998, cigarette companies have been forced to boost prices as a result of payments required by the settlement. Higher prices have curtailed consumption. 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 is limited in the types of marketing it can do. However, we plan to advertise in specialty publications such as Smokehouse, Cigar Connoisseur, and others. In addition, we are targeting a number of local magazines such as Kansas Highways, Midwest Life, and others that cater to upper-income people. We are also in the process of creating partnerships with other internet firms to create Internet links to our existing informational website. When we launch our online ordering features we will intensify these efforts.
Financial Considerations Kiowa is a limited debt company and intends to stay that way. We expect to see increased profits from our revitalization efforts by the end of Year 1. Over the next three years we expect that much of our profits will be invested into our new website and cafe ventures. We do not anticipate any serious cash problems.
The overall decline of the tobacco industry has lead to lower profit margins and increased risks and costs. Therefore, in order to remain a viable firm, we have created a revitalization plan that includes the following goals.
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. Increase market awareness of our products through selected national advertising.
Differentiate our patron's purchasing experience through the creation of our tobacco cafe.
The Kiowa Smoke Shops strives to offer quality products, brands, and responsive service for a good 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 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:
Expand our customer base to retain a sufficient level of profitability.
Increase customer retention through high quality of service.
Decrease costs and improve accounting practices to decrease collection days (improve short-term profits) and improve cost assessment.