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MoonLight The Shanghai’s Jazz Club

Jazz Clubs in Shanghai account on a long tradition. Currently 11 Jazz Clubs operate in Shanghai, serving a demand composed by roughly 7500 people among Chinese and Foreigners. An increasing trend in yearly demand growth is expected: 20% growth in Foreigners, due to the higher Shanghai’s receptivity and 25% in Chinese, due to an internationalization in their habits . Moonlight is a Jazz Club whose value proposition is a unique musical experience: The Best Jazz Music in Shanghai in the Best Acoustic performant environment. Moonlight’s offer is characterized by: high quality of artists recruited, architectural structure aimed to provide an excellent acoustic, and operations designed in order to reduce noise and disturbance to the music performance. The initial investment required is 644,331.00¥. The Break Even Point will be reached after two years of activity and the Net Present Value over four years is 1,664,164.75¥.

Executive Summary

Industry Analysis Buyers Analysis Competitors Analysis Regulations Analysis

Moonlight’s Identity Body Oustanding Architectural Features Soul High Quality Musical Offer

Value Chain Critical Activities in the Value Creation Process Procurement Operations Marketing&Sales Post Sales R&D

Analysis of Competitive Advantage

Financial Plan

Profound Understanding of the Competitive Environment

Clear Goals and Objectives

Objective Appraisal of Resources and Capabilities

Effective Implementation

Performance Measurement

Walkthrough

Which Is The Industry Segment In Which Moonlight Operates?

Moonlight will operate in the Food & Drink Jazz Nightlife Segment of the wider Music Nightlife Industry in Shanghai. This industry has been segmented along two dimensions: type of service provided and type of music, as they are considered the main differentiation drivers in terms of suppliers, competitors and buyers.

MUSIC & DANCE MUSIC

FOOD &DRINK LIVE-MUSIC

POP-ROCK

DISCO

JAZZ

others

Disco club

Restaurant

Lounge Bar Jazz clubs

Theatres

Pubs

Latin Music Clubs

Type of Service Provided

Typ

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f M

usi

c

Industry Size & Growth The analysis of the Music Nightlife Industry customers’ habits offers solid assumptions to calculate size and growth of the segment in which Moonlight will be operating. Customers are divided into two categories: Foreigners and Locals.

Foreigners First of all, the number of expats living in Shanghai has been sharply increasing in the last decades, following the GDP per Capita growth of the city1. We assume 65% of this cohort to be Music Nightlife Industry customers. Among them, the number of Jazz Interested Individuals is found to be currently around 10%2. This percentage is expected to increase in the following years due to a larger diffusion of Jazz Music in Asia.

1. Expats grow less than proportionally with respect to the growth of Shanghai’s GDP Per Capita 2. Based on current competitors’ attendance and on statistical inferences on a sample of 45 foreigners

2005 2006-2009 2010 2011 2012 2013 2014

Foreigners 84,716 101,799 105,260 109,681 116,042 122,773 131,121

Shanghai's GDP per Capita Growth 9.7% 7.4% 8.2% 8.8% 8.8% 8.8%

Foreginers Growth (Slowness) 5% 4% 4% 3% 3% 2%

Foreigner Growth 5.0% 3.4% 4.2% 5.8% 5.8% 6.8%

Nightlife Customers (%) 65% 65% 65% 65% 65% 65% 65%

Nightlife Customers (#) 55,065 66,169 68,419 71,292 75,427 79,80 85,229

Jazz Interested (%) 10% 10% 12% 12% 12% 12% 12%

Foreigners Jazz Interested (#) 5,506 6,616 8,210 8,555 9,051 9,576 10,227

[Continue] Locals The analysis of the segment’s Chinese cohort starts from demographic characteristics. Shanghai population is divided into Agricultural and Non-Agricultural household (NAH). Jazz Interested Individuals belong to the latter, which is consistently decreasing against the former. The 28% of this category is composed by High Income individuals who are potential customers of the Music Nightlife Industry in Shanghai. However, only 18% of them are expected to be actual customers of it. Indeed, we cannot assume an equal proportion of the population as we did for foreigners because of cultural differences in terms of habits and concept of entertainment. Yet, this proportion is expected to increase by a factor we call “Westernization of Habits”, which may summarize the cultural shift towards globalised behavioural trends, occurring especially in the young generation. The number of Jazz Interested Individuals out of the Nightlife Music Entertainment Industry in Shanghai is calculated by using a lower percentage1 (1%).

2005 2006-2009 2010 2011 2012 2013 2014

NAH 11,489,400 10,832,971 10,674,809 10,518,957 10,365,380 10,214,046 10,064,921

Population Growth -1.46% -1.46% -1.46% -1.46% -1.46% -1.46% -1.46%

# of Families 3,829,800 3,610,990 3,558,269 3,506,319 3,455,126 3,404,682 3,354,973

% of high Income 28% 28% 28% 28% 28% 28% 28%

Chinese Size 1,072,344 1,011,077 996,315 981,769 967,435 953,310 939,392

Nightlife Customers (%) 18% 21% 24% 27% 31% 36% 42%

Nightlife Customers (#) 193,021 209,292 37,172 268,766 304,568 345,140 391,116

Jazz Interested (%) 1% 1% 1% 2% 2% 2% 2%

Chinese Jazz Interested (#) 1,930 2,406 3,136 4,087 5.326 6.941 9,046

1. Based on current competitors’ attendance and on statistical inferences on a sample of 82 individuals.

How Is This Segment Structured? Porter’s Five Forces Analysis

Power of Suppliers Wholesaler Medium to Low Price Sensitivity Food&Drink Accounts for 35% of Total Costs

Very Low Product Differentiation Bargaining Power Low Concentration Low Switching Costs

Music Equipment Medium to High Price Sensitivity Music Equipment Accounts for 60% of Total Initial Investment

Very High Product Differentiation Bargaining Power Medium Concentration High Switching Costs

Power of Buyers Jazz Interested Individuals High Price Sensitivity Average Cultural Expenditure is for 15% of Disposable Income

Medium to High Possibility to Differentiate Bargaining Power Relatively Small Size Low Switching Costs High Buyers Information

Threat of New Entrants Medium to High Relatively Low Capital Requirement No Lightning Economies of Scale Medium to High Possibility to Differentiate Moderately Accessable Distribution Channels Managable Legal Barriers

Threat Of Substitute Medium Medium Propensity to Substitute Comparable Price/Performance Ratio

Industry Rivalry Medium to Low Medium to Low Concentration Diversificated Competitors No Significant Exit Barriers Low Operating Leverage

Industry Rivalry and Power of Buyers (Customers) worth a more detailed overview which will be held in the following slides.

Is this Industry Attractive? Yes! The Industry shows a constant and appealing average growth rate of 20% a year over the following 5 years. Current Industry Size is found to be aproximately 7500 people. How can this figure be attractive? Considering average capacity per Jazz Club in Shanghai (around 200 people), and number of Jazz clubs currently operating (11), demand is roughly 3 times the offer. Moreover, the degree of competition which appears to be moderate, along with a high potential differentiability of the offer, as well as a balanced bargaining power among supply chain operators, enhances the attractiveness of this industry.

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2000,000

4000,000

6000,000

8000,000

10000,000

12000,000

2005 2006-2009 2010 2011 2012 2013 2014

Foreigners Jazz Interested (#) Chinese Jazz Interested (#)

Power of Buyers Who goes to Jazz Clubs?

Jazz Interested Individuals Characteristics1: Love Jazz, a cultivated taste for music Age between 25-45 Successful People who have consuming capacity Enjoy High-Quality Performance

1 JZ Festival Visitors Analysis

Industry Rivalry Who are the Competitors? Their features?

Value Added Features Core features

11 main Jazz clubs currently operate in Shanghai. They are prevalently located in Xintiandi and The Bund. Jz Club and CJW operate also in other cities, respectively Hangzhou and Beijing. Jz Club provides also correlated activities as Jazz School, Jazz Studio, Jazz Festival. Peace Hotel Old Jazz Bar, the oldest jazz club in Shanghai, considered almost as an institution in the Shanghai’s Jazz scene, is now closed for maintenance and is going to open in the next months.

Competitors Live

concerts

Cocktail, liquor & wine

Charming Atmosphere

Food Cigar Cd

Store Web Site

Other activities

More than one club

Jz club ✓ ✓ ✓ ✓ ✓ ✓ ✓

Cotton Club ✓ ✓ ✓

House of Blues and Jazz ✓ ✓ ✓ ✓ ✓

Peace Hotel Old Jazz Bar ✓ ✓ ✓

Cigar Jazz and Wine ✓ ✓ ✓ ✓ ✓ ✓

Brown Sugar ✓ ✓ ✓ ✓ ✓

Niche Bar ✓ ✓ ✓ ✓

Club Tien Di ✓ ✓ ✓ ✓ ✓

Jazz 37 ✓ ✓ ✓

George V ✓ ✓ ✓ ✓

Brick ✓ ✓ ✓ ✓

Variety of the offer

J a z z

F o c u s

Narrow Medium Wide

High

Low

Peace Hotel Old Jazz Bar

37

George V

Club Tien Di

Competitors’ Positioning Map

Competitors are positioned according to two variables: Variety of the Offer and Jazz Focus. The former refers to the range of services provided, whilst the latter refers to the commitment to Jazz Music, which is strictly correlated to their reputation among Jazz Interested Individuals.

Industry’s Key Success Factors

What Does Customer Want? • Entertainment • Listening to a famous band • Doing something different with friends • Charming Atmosphere • Quality of the service: food &drinks and good music • Quiet audience

How To Survive Competition? • Always offering a high quality performance and a various

calendar • Location, acoustic and architectural features • Agreements and Jazz network in Shanghai • Building on the brand awareness

Key Success Factors • Coordination and efficiency between food & drinks activities and live performance • Good Acoustic Conditions • Reputation • Wide and Updated Artistical Offer • Location • Atmosphere • Being Popular & Trendy

Juridical Person Near relatives of the officers in the administrative department of culture and police are forbidden to operate

entertainment companies Foreign investors are forbidden to operate the entertainment companies without cooperation with Chinese

investors.

Location It is forbidden to open in the peripheral area of resident districts schools, hospitals, departments of government. It is forbidden to open in areas of highly crowded places such as railway stations, airports It is forbidden to open in residential buildings, museums, libraries, cultural protected buildings

Area & Environment Lower Limit of Area: 60 sq. Lower Limit of per capita area: 1.2 sq. Lower Limit of Brightness: 6 Luxes Upper Limit of Noise: 96 dbs.

Activity It is forbidden to sell drinks with alcohol higher than 38°

Customer No children under age are allowed inside

Artists and Staff Initial examination by administrative department is mandatory It is forbidden to hire children under age

Time It is forbidden to operate in time period 2am-8am

References

《娱乐场所管理条例》

“Administration statute

of recreation location”

《娱乐场所治安管理办法》

“Administration rule of public

security in recreation location”

《营业性歌舞娱乐场所管理办法》

“Administration rule of mercantile

singing and dancing location”

《上海市文化娱乐市场管理条例》

“Administration statute of cultural

and recreational markets in Shanghai”

《公众聚集文化经营场所审核公示暂行办法》

“Temporary rule of management in mass cultural places”

Which are the Legal Requirements to open a Jazz Club in Shanghai?

MoonLight

Moonlight’s Identity

MOONLIGHT AIMS TO IMPROVE THE QUALITY OF LIFE OF THE COMMUNITY IT BELONGS TO, ENRICHING ITS MUSICAL AND CULTURAL OFFER. ITS MISSION IS PURSUED DEVELOPING MANAGERIAL AND TECHNICAL MODELS ABLE TO PROMOTE INTERNATIONAL AND LOCAL JAZZ MUSIC.

“BETTER LIFE BETTER CITY"

Mission Value Proposition MOONLIGHT’S OFFER IS A UNIQUE MUSICAL EXPERIENCE: THE BEST JAZZ MUSIC IN SHANGHAI IN THE BEST ACOUSTIC PERFORMANT ENVIRONMENT.

Moonlight’s Body: how does it look like?

Engineering and Architectural Features applied to emphasize the quality of sound:

Maximum Capacity 300 persons

Floor inclination 6 - 8¡

Maximum volume 6000 mc

Maximun height of the ceiling 7 m

Ceiling’s characteristics Smooth nonabsorbent

Seats Padded armchairs upholstered by absorbent fabric

Stage 30–40 cm high

Goal: 80% of Seats with optimal exposure to the sound

MoonLight’s Body: how does it look like?

FIRST FLOOR • Reservation area (100 seats) • Non-reservation area (140 people) • Bar Counter • Stage • Ticket office • Restroom • Wardrobe • Toilets • Back-office

SECOND FLOOR • 60 seats • Bar counter • Rehearsal room • Rooms for technical Equipment

First Floor

MoonLight’s Soul:how does it sound like ? Moonlight’s offer is articulated into three product lines, which correspond to three shows:

Masters Stars whose fame is clearly recognized (Grammy Awards, participation to International Jazz Festivals)

Famous Artists Well known Musicians in the Chinese and international jazz scene

Local & Emergent Artists Musicians active in the Shanghai scene will share the stage with the Moonlight’s jazz band.

INBOUND LOGISTIC •Food and drink Delivery and Inventory Management

OPERATIONS

•Order collection and processing •Management of technical and audio system •Management of customers’ arrival

POST SALE SERVICES •On-line service

- Employees - Skills - Full/Part Time

Infrastructure -Musical equipment -Bar equipment

Value Chain

MKTG & SALES •Ticket policies •On-line sales •Pre-sale •Communication •Web-site •Advertising

Research and Development

Human Resources

Procurement (Artists’ Recruitment)

Moonlight creates value mainly thanks to two drivers:

Procurement – Artists’ Recruitment Operations – Order Collection and Processing

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OUTBOUND LOGISTICS •Concert + Drinks

How to Create Value – Driver 1: Procurement

Artists’ Recruitment

In order to guarantee high quality of the musical performance Moonlight will pursue these

activities:

1) selection of artists by the art director

2) settlement of performances calendar

3) organization of the artists’ transfer and accomodation

4) rent of specific musical and technical equipment1

Once high quality of musical performance is guaranteed, Moonlight will focus on building a long

term relationships portfolio by:

1) establishing contracts with artists managers

2) identifying possible public and private sponsors

3) creating relations with musical equipment suppliers

Strategic Relevance

Effective Artist Recruitment Process matches the Industry’s Key Success Factors because it provides

Moonlight with a wide, updated and high quality artistical offer. This represents the starting point

as well as the substantial element to achieve visibility and to obtain an outstanding reputation.

1. Long term contracts wil be pursued following selection criteria based on quality and reliability.

How to Create Value – Driver 2: Operations

RESERVATION AREA

Order2Listen System © - Each table is provided with a touch screen device which allows the customer to make the order and pay by credit card. - Orders are automatically transmitted to the counter and visualized in real time by the barmen. - The reservation area is divided in 3 competence zones. Orders of each zones are delivered by the zone-responsible waiter. - Payments in cash are collected by the waiters at the delivery moment, while credit card payments are processed directly at the table.

THIS SYSTEM REDUCES NOISES DUE TO THE ORDER COLLECTION AND WAITERS’ MOVEMENTS ACROSS THE ROOM, IN ORDER TO KEEP THE AUDIENCE ATTENTION FOCUSED ON THE MUSIC PERFORMANCE.

NON RESERVATION AREA (FIRST FLOOR AND SECOND FLOOR)

- Orders are collected and delivered by

waiters and processed by the barmen. THE NOISE AND THE MOVEMENTS ASSOCIATED WITH THESE OPERATIONS ARE MINIMIZED BY SPECIFICALLY TRAINED PERSONNEL AND SEATS LAYOUT.

High Quality Music alone is found not be enough to provide an outstanding “Jazz Experience”. Noisy and crowded environment may turn the music into just a background. Therefore, Operations management needs to match the following needs: Quiet audience, Coordination and Efficiency between Food&Drinks activities and Live Performance. In detail, two different operational practises will be implemented:

Strategic Relevance All the operational practises are aimed to fulfill customers’ needs for quiet audience and quality of service. The deriving charming atmosphere exalts the “Jazz Experience”.

Order2Listen System© : Touch Screen Device

The Order2Listen System © has been conceived in order to set a specific replicable order processing standard. The system is supported by a touch screen device which presents the following characteristics:

Attributes Database: Food&Drink Menu Payment by Credit card Receipt Print-out Information on the Artists CD Purchasing

Technical Specification Display LCD Display/ TFT Active Matrix Width 13.4 inches Height 13.3 inches Weight 5.5 lbs Viewable Size 15’’ Pixel Pitch 0.297 mm Type Touch Screen Color Support 16.2 Million Colors

How to Create Value – Driver 2: Operations

Customer Targeting As we defined above, Buyers of the Jazz Music Nightlife Industry are Jazz Interested Individuals. Moonlight intends to serve a specific target represented by the Jazz Lovers Individuals, who are thought to value more Moonlight’s proposal.

Jazz Lovers Identity

Age

Over 35 years old

Culture and Recreation Services Expenditures

Medium to High (from 427 RMB to 1121 RMB per month1)

Jazz Music Knowledge

The typical Jazz Lover collects information about concerts and artists, purchase CD’s, listens to Jazz radios, attends festivals, reads Specialised Jazz Press and may play an instrument.

Foreigner Jazz Lovers account for 10% of foreigners Jazz Interested Individuals2. The proportion of Chinese Jazz Lovers out of the Chinese Jazz Interested Individuals is twice, based on the following assumption: Chinese individuals, once they show interest, they are more likely to adopt lovers’ behaviours.

1. Source: Shanghai Yearbook 2006 for Chinese Cohort 2. Statistical Inference on a sample of 45 foreigners

Foreigners Jazz Interested (#) 5.506,00 6.616,00 8.210,00 8.555,00 9.051,00 9.576,00 10.227,00

Jazz Lovers (%) 734 882 1.094 1.140 1.206 1.276 1.363

Chinese Jazz Interested (#) 1.930,00 2.406,00 3.136,00 4.087,00 5.326,00 6.941,00 9.046,00

Jazz Lovers (#) 428 534 696 908 1.183 1.542 2.010

NIGHTS’ SCHEDULE

Three kinds of Night Format

Jazz Masters

• 2 big stars per month

• Each artist performs 3 times in 2 nights:

– first night 1 exhibition (h 21.00)

– second night 2 exhibitions (h 21.00 / h.23.00)

International Artists

• 2 famous artists per week

• Each artist performs once per night

Local emergent artists

• Joint performance with Moonlight's home band

ACCESORY SERVICES

Bar service •Drinks&Salty Snacks

Rehearsal room •Provided by equipment for live radio shows •Available from 14.00 to 18.00

Online services

•Tickets and tables booking service

•Website updated in real time with videos and images that visitors can download

•Web community

•Forum&Chat with the artists

•Cd store

Marketing&Sales: 4P’s Analysis MoonLight: What Does it Offer?

The Product

Strategic Relevance The differentiation of the offer is aimed to 1) Catch higher margins per night from the Jazz Masters Shows 2) Increase utilization rate, keep a high quality musical offer and share costs with

competitors by the International Artists Shows 3) Promote local Jazz music to enhance local demand

PRICE POLICY FOR EACH LIFE PERFORMANCE Jazz Masters

• Differentiated cover charge

– Booked Table: 300 RMB

– Front Door: 240 RMB

– Students: 120 RMB

International Artists

• Undifferentiated cover charge: 40 RMB

Local emergent Artists

• Free entrance

PRICE POLICY FOR THE ACCESSORY SERVICES

Bar service – Cocktail: 90 RMB – Beer: 60 RMB – Bottle of wine: 200-600 RMB – Salty Snacks: free of charge

Rehearsal room • No charge (for strategic purposes)

Marketing&Sales: 4P’s Analysis MoonLight: How much should Customers Pay?

The Price

Strategic Relevance The differentiation of the price is aimed to 1) Attribute a premium price to table booking 2) Attract younger segment thanks to students’ policy,

in order to set up the basements of the future potential customers

Free of charge reharsal room represents a long term investment for talent scouting purposes

0

1

2

3

4

5

Za BeiDistrict

HuangPu

District

Pu TuoDistrict

Lu WanDistrict

Jin AnDistrict

HongKuo

District

Yang PuDistrict

Jazz Clubs’ Density in Each Districts

Marketing&Sales: 4P’s Analysis MoonLight: Where should it be located ?

The Placement

Strategic Relevance Preferable location is the Luwan District. Moonlight would be in the heart of Shanghai’s Nightlife, close to the Shanghai Conservatory of Music and other minor music schools. This choice is driven by the need of being close to competitors in order to take advantage of their existing customer base, considered the low customers’ willingness to engage time consuming research processes. Moreover, the proximity to the Conservatory of Music is functional to the talent scouting activities Moonlight intends to pursue. This area is well served by public transportation.

Moonlight’s aim is to build consciousness and brand awareness not only in Shanghai and in China, but also within the international Jazz Community. Moonlight intends to pursue a push marketing strategy through the following channels:

Marketing&Sales: 4P’s Analysis MoonLight: How to make it popular?

The Promotion

Newspaper & International Magazines

• China Daily • Shanghai Daily • Down Beat (US) • Jazz Journal International (UK) • Jazz Magazine (France) • Jazzaround (Belgium)

Radios

• Jazzexcursion.com • FM94.0 <Jazz Shanghai> • Jazzradioworld.com

Websites

• YouKu.com • Shanghaijazzscene.com • Allaboutjazz.com • Jazz-clubs-worldwide.com

Places (through flyers and posters)

• Musical equipment shops • Conservatory in Shanghai • Taxi Touch Screen Device

Strategic Relevance The selection of the promotional channels is aimed to reach Jazz Lovers. However, the first year marketing strategy needs to bridge the gap with respect to competitors in terms of customer base and brand consciousness . Aggressive marketing campaign is thus necessary also through non- Jazz specialised channels.

Post Sales Services

Post Sales Services are provided through Moonlight’s website. Photo&Video Moonlight publishes photos and videos of the musical performances in order to let customers accede to an historical archive of all the shows held. Forum&Online Community Moonlight customers are given the opportunity to share their opinions about Jazz Music in order to make them feel part of the “Moonlight Family”.

Strategic Relevance Post Sales Services are aimed to create a particular relation with customers and thus increase their loyalty to the club.

Home | Photo&Video | Calendar | Tickets | Forum | About Us

February , Wednesday 10th

Special Al Di Meola @ Moonlight

Wednesday night Master of Jazz Guitarist Al Di Meola is landing to Moonlight to show his marvelous talent to Shanghai. Hurry up, tickets are available for the three shows in the website’s section.

CEO ART

DIRECTOR

MARKETING COMMUNICATION Club’s

MANAGER

Bartenders Waiters Casher Front Door

backoffice

House Band

Who Is Moonlight? Human Resources

Qualified, skilled and Chinese-English speaking.

EMPLOYMENT POLICY Low employees turnover obtained by monetary incentives (above the average wages). Long term relations.

TRAINING PROGRAMS • Development of expertise in

using the technical devices • Settlement of operating

procedures to reduce disturbance elements (noise, movements during the performance) and enhance the operational efficiency

Strategic Relevance Marketing and Communication divisions are separated in order to obtain gains from specialization: the former is strictly aimed to build brand awareness and customer base, whilst the latter is focused on building the relationship portfolio.

R&D: Talent Scouting The Research and Development Activities are pursued by Communication Division. They represent a Moonlight’s distinguishing characteristic. They consist in:

Support to Emerging Artists

Talent scouting in music schools

Free reharsal room provision

Jazz Music Diffusion

• Building partnerships with Shanghai Conservatory of Music and other minor Music Schools

Artists that will perform on the Moonlight stage will be invited to teach in partner schools and conservatories. These agreements would generate two advantages:

1. Potential increase of the customers base thanks to the promotion of Jazz music.

2. Empower Moonlight’s bargaining power towards the artists because their educational purpose activities are compensated with monetary and fiscal benefits from their home countries1.

• Organization of events to put beginners in touch with the Jazz music (sponsorship of festivals, organization of seminars and courses)

1. Consulates and Embassies are found to promote cultural exchanges with China

Strategic Relevance In order to put in practice its Mission "Better Life, Better City", Moonlight will actively interact with the players of its surronding environment.

Moonlight’s Differentiation Advantage

Firm’s Resources Industry’s KSF Satisfied

Competitive Advantage Notes

Architectural Features

• Good Acoustic Conditions

• Superior quality of the customer’s musical experience

The advantage deriving from the architectural features is sustainable as they are scarce, relevant, durable and difficult to imitate. On the contrary, the technical devices and the personnel skills are subject to faster obsolescence and imitation and thus need to be continuously updated and translated into non-transferable firm’s specific routines.

Technical Device • Coordination and Efficiency between Food &Drinks activities and Live Performance

Skilled Personnel

Relationship Portfolio

• Reputation • Wide and

Updated Artistical Offer

• Recruitment of the best artists at more advantegeous conditions

• Superior attractiveness towards customers

• Superior resources for geographical expansion

The advantage based on long term relations with Jazz music professional operators (Schools, Artists and Artists' representatives) is durable but vulnerable in terms of appropriability of the results and degree of imitability.

Brand • Being Popular & Trendy

Moonlight’s Strategy

Industry Wide

Single Segment

COMPETITIVE SCOPE

Low Cost Differentiation

SOURCE OF COMPETITIVE ADVANTAGE

COST LEADERSHIP

DIFFERENTIATION

FOCUS MOONLIGHT

Moonlight intends to seek a differentiation strategy with a focus on the segment of “Jazz Lovers Individuals“ which represents a niche in the population of “Jazz Interested Individuals”.

Moonlight’s Future Perspectives Geographical Expansion

When?

Once Moonlight has consolidated its competitive position in Shanghai and formalized a set of Best Practices, a geographical expansion can be pursued.

How?

This expansion will be achieved by the replication of Moonlight’s Business Model, leveraging on the Architectural Features and the Technical Devices.

Where?

The selection of the geographical area should be based on similarities in the market characteristics in terms of demographical and cultural trends.

Why?

The deriving advantages are:

• Increase in the brand value

• Consequent Increase in the Bargaining power towards the artists

• Exploitation of Economies of scale in artists’ recruitment, communication, marketing and relationship portfolio management

• Exploitation of learning economies

Analysis Of Initial Investment Moonlight offers to its customers a unique musical experience. In order to provide the best music quality and to exploit Moonlight’s characteristic architectural features, PA system and music equipment should be chosen thoroughly. Moreover, to further enrich the uniqueness of the Moonlight’s experience, designing the bar build out is crucial. For these reasons, the initial investment is split into three main categories:

What? Brand&Product Price

Speakers 2x Nexo PS10 ¥ 19.040,00

Controllers Nexo PS10 ¥ 8.160,00

Sub Nexo LS500 ¥ 14.960,00

Graphic Equalizer DBX 1231 ¥ 2.380,00

Effects Yamaha Rev100 ¥ 1.768,00

Analog Mixer Yamaha IM824 ¥ 17.445,94

PA System Tot: ¥ 63.753,94

Keyboard Roland KC550 ¥ 4.080,00

Bass Markbass CMD102P ¥ 16.252,00

AMPS Tot: ¥ 20.332,00

Main Mic AKG C414 ¥ 7.133,20

Drum Mic Sonor Force 505 ¥ 2.713,20

Secondary Mic AKG C414 ¥ 7.133,20

Total Mics Tot: ¥ 16.979,60

Piano Schimmel Grand Piano ¥ 114.920,00

Drums Pearl Vision Birch ¥ 6.772,73

Upright Bass King Road King ¥ 27.879,86

Instruments Tot: ¥ 149.572,60

Music Equipment : ¥ 101,065.54

Music Instruments : ¥ 149,572.60

What? Price

Bar Equipment ¥ 34.000,00

Furniture ¥ 45.000,00

Insurance ¥ 20.000,00

Bar Designing&Buildout ¥ 225.000,00

Bar Costs ¥ 324.000,00 Bar Costs: ¥ 324,000.00

Total Initial Investment ¥ 644,331

Analysis Of Revenues and Costs - Personnel Moonlight’s offer is divided into three main products: Masters, Internationals and Emergent. In order to efficiently provide each of these, the need for personnel varies. For example, for a no-cover night with Emergent bands, with relatively low expected attendance, Moonlight will not need neither a cashier nor a front-door guard, whilst in the Master of Jazz shows it will need two cashiers and two front door guards. We now concentrate on the number of bartenders needed to maintain a satisfying service time in respect to the expected attendance and expected number of orders.

The average Processing Time for an order fulfilled by a qualified bartender is calculated as 90 seconds.

The number of orders accomplished per minute is thus calculated as

In order to calculate the average amount of people in the line and the average waiting time we need to take into account:

• Expected Maximum Attendance

• Number of Average Orders per Customer per Night

From which we derive the average arrival time of orders per minute as:

Total Average Orders Per Night

Expected Maximum Attendance * Average Orders per Customer per Night

Average Arrival Time of Orders

By using a M/M/c Model for Queue Management in which we have c servers (number of bartenders) and Exponential Distribution of the order arrival we can calculate the Average Amount of People in the Queue.

Consequently, the average time that a customer spend in the line waiting for its order to be fulfilled is (Waiting Time):

The aim of this analysis is to maintain an effective service level in terms of waiting time in the queue for each customer. We fix this value as

Maximum Allowed Total Processing Time:

Standard Processing Time + Waiting Time = 105 seconds.

This results in T<15.

As we will see, the number of servers/bartenders per night will be function of these variables, especially the expected attendance and the expected number of orders per night.

C =

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ers

λ

Financial Plan Per Product Line Emergent / Local Bands

We divide the financial analysis in the first four years focusing on Expected Attendance, Type of Customer , Revenues and related costs of Food&Drink, Cost of Labour.

For the first year we expect Attendance to be 45% of the total club’s capacity (300 people). Attendance is expected to grow according to the market segment size’s growth shown previously. Customers are classified according to their forecasted willingness to spend in Moonlight per night. Type A Customers are mostly students, artists and relatively lower income individuals who are expected to spend on average ¥ 150.00 per night, whereas Type B Customers will be willing to spend on average ¥ 300.00 per night. Moreover, we assume that Moonlight will be able to apply a 70% mark-up on the Food&Drink cost, leveraging on its focused offer and differentiated strategy. Revenues and Cost for Food&Drink are thus calculated:

Year 1 Year 2 Year 3 Year 4

Attendance (%) 45% 51% 60% 76%

Attendance (#) 135 154 179 228

A (% of Attendance) 80% 80% 80% 80%

B (% of Attendance) 20% 20% 20% 20%

Revenues Food&Drink ¥ 24.300,00 ¥ 30.000,00 ¥ 33.300,00 ¥ 37.800,00

Cost Food&Drink ¥ 14.294,12 ¥ 16.147,06 ¥ 18.794,12 ¥ 24.000,00

In the Emergent Bands shows Moonlight will necessitate a Sound Technician (Hourly Wage: ¥ 60.00) and a certain number of bartenders (¥ 100.00), waiters (¥ 50.00) and front door guards (¥ 50.00) depending on the expected attendance.

Taking into account the Cost of Hiring a Local/Emergent Band which is found to be ¥ 3,000 and ¥ 1,000 as a cost associated with the cleaning stuff, we forecast operating margin for Emergent / Local Bands Shows as:

Financial Plan Per Product Line Emergent / Local Bands


Bartenders 4 4 4 5

Waiters 4 5 5 6

Front Door Guards 0 0 1 2

Total Cost Of Labour ¥ 4.060,00 ¥ 4.410,00 ¥ 4.830,00 ¥ 6.160,00

Revenues ¥ 24.300,00 ¥ 30.000,00 ¥ 33.300,00 ¥ 37.800,00

Costs ¥ 22.354,12 ¥ 26.057,06 ¥ 28.418,24 ¥ 32.395,29

Operating Margin ¥ 1.945,88 ¥ 3.942,94 ¥ 4.881,76 ¥ 5.404,71

Financial Plan Per Product Line International Bands

In the International Bands shows Moonlight will necessitate a Sound Technician (Hourly Wage: ¥ 60.00) and a certain number of bartenders (¥ 100.00), waiters (¥ 50.00) and front door guards (¥ 50.00) depending on the expected attendance. In addition to that, considering that an entry cover is applied for international bands shows, cashiers (¥ 60.00) will be present.

Revenues from Food&Drink and related costs are calculated as above assuming a 70% mark-up on average.

Year 1 Year 2 Year 3 Year 4 Attendance (%) 60% 75% 83% 93%

Attendance (#) 180 224 248 280

A (% of Attendance) 45% 45% 45% 45%

B (% of Attendance) 55% 55% 55% 55%

Revenues Food&Drink ¥ 41.850,00 ¥ 51.900,00 ¥ 57.450,00 ¥ 65.100,00

Cost Food&Drink ¥ 24.617,65 ¥ 30.529,41 ¥ 33.794,12 ¥ 38.294,12

Bartenders 4 5 5 6

Waiters 5 5 6 7

Front Door Guards 1 1 2 2

Cashiers 1 1 2 2

Total Cost Of Labour ¥ 5.250,00 ¥ 5.810,00 ¥ 7.000,00 ¥ 7.910,00

In the case of International Bands, as mentioned, a cover at the entrance will be applied. The cost of the ticket will be set at ¥ 40.00 regardless whether the type of the customer (whilst different price policies are applied for Master of Jazz Shows).

Taking into account the Cost of Hiring an International Band which is found to be ¥ 12,000 and ¥ 1,000 as a cost associated with the Cleaning Staff, we forecast operating margin for International Bands Shows as:


Revenues From Cover ¥ 7.200,00 ¥ 8.960,00 ¥ 9.920,00 ¥ 11.200,00

Revenues ¥ 49.050,00 ¥ 60.860,00 ¥ 67.370,00 ¥ 76.300,00

Costs ¥ 42.867,65 ¥ 49.339,41 ¥ 53.794,12 ¥ 59.204,12

Operating Margin ¥ 6.182,35 ¥ 11.520,59 ¥ 13.575,88 ¥ 17.095,88

Financial Plan Per Product Line International Bands

Financial Plan Per Product Line Masters of Jazz

The Master of Jazz shows are quite different in terms of revenues and costs. As mentioned, Masters of Jazz perform three times when invited to Moonlight. We expect attendance to be high in the first two shows (first night) whilst decreasing in the third. This consideration is based on the analysis of past attendance during Jazz Festivals in Shanghai.

Entry cover is applied to customers depending on whether they have booked the table (BT: 100 seats available), for which Moonlight charges a ¥ 300.00 ticket (20% more of the standard ticket (FT)). Discount tickets are available for students (ST) attending all the shows, as already explained.


Covers BT FT ST BT FT ST BT FT ST BT FT ST

Total Show 1 Attendance 100% (100)

100% (200)

15% (30)

100% (100)

100% (200)

15% (30)

100% (100)

100% (200)

15% (30)

100% (100)

100% (200)

15% (30)


95% (190)

30% (57)

100% (100)

100% (200)

30% (60)

100% (100)

100% (200)

30% (60)

100% (100)

100% (200)

30% (60)


80% (140)

15% (21)

100% (100)

99% (199)

15% (29)

100% (100)

100% (200)

15% (30)

100% (100)

100% (200)

15% (30)

Revenues From Covers Show 1 ¥74.400,00 ¥74.400,00 ¥74.400,00 ¥74.400,00



Customers are expected to be: 20% Type A (Average WTS: ¥ 150.00) and 80% Type B (WTS: ¥ 300.00). Revenues from Food&Drink and related Costs (Mark-up 70%) as well as Cost of Labour, are calculated following the same methods as above:

Cost of hiring a Master Jazz Band is found to be around ¥130,000. However, we expect that as the Moonlight brand value increases (15% per Year) in terms of awareness and reputation, bargaining power towards the artists’ agencies would increase accordingly. We can therefore estimate the cost for hiring the Master Jazz Bands each year and the Operating Margin per Product Line as:


Revenues Per Master Show ¥359.580,00 ¥391.410,00 ¥391.800,00 ¥391.800,00

Costs Per Master Show ¥149.853,53 ¥161.722,35 ¥161.881,18 ¥161.881,18

Cost of International Band ¥130.000,00 ¥117.000,00 ¥105.300,00 ¥100.000,00

Operating Margin ¥79.726,47 ¥112.687,65 ¥124.618,82 ¥129.918,82

Financial Plan Per Product Line Masters of Jazz

¥000

¥1.000.000

¥2.000.000

¥3.000.000

¥4.000.000

¥5.000.000

1 Year 2 Year 3 Year 4 Year

Marketing Budget

S,G&A Costs

Rent

R&D

Communication Manager

Club's Manager

Marketing Director

Art director

Fixed Costs Rent Monthly rent fee per metre is found to be, for Type A building (best located) ¥ 300.00.

For the 375 square metres club Moonlight accounts for a fixed cost for yearly rent

of ¥ 1,350,000.00

Personnel Based on the organization chart the account for managerial personnel is composed by:

Sales, G&A Costs and R&D Expenses Both Sales and General & Administrative Costs and R&D Expenses are calculated as percentage of annual revenues

(2% of Annual Revenues)

Marketing Budget The Budget designated to Marketing Expenditure varies year by year. We expect higher expenses in the first two operating years accounted for brand establishment and promotion channels settlements (8% of Revenues). After this first stage, in the following years we expect Marketing Expenditures to decrease.

S,G&A Costs ¥358.088,40 ¥417.424,80 ¥442.530,00 ¥476.604,00

R&D Expenses ¥358.088,40 ¥417.424,80 ¥442.530,00 ¥476.604,00

% of Revenues 8% 8% 5% 5%

Marketing Budget ¥1.432.353,60 ¥1.669.699,20 ¥1.106.325,00 ¥1.191.510,00

Fixed Cost Year 1 Year 2 Year 3 Year 4

Rent ¥ 1,350,000.00 ¥ 1,350,000.00 ¥ 1,350,000.00 ¥ 1,350,000.00

Art Director ¥ 250,000.00 ¥ 250,000.00 ¥ 250,000.00 ¥ 250,000.00

Marketing Director ¥ 200,000.00 ¥ 200,000.00 ¥ 200,000.00 ¥ 200,000.00

Club’s Manager ¥ 200,000.00 ¥ 200,000.00 ¥ 200,000.00 ¥ 200,000.00

Communication Manager ¥ 200,000.00 ¥ 200,000.00 ¥ 200,000.00 ¥ 200,000.00

1 year 2 year 3 year 4 year

Fixed Costs ¥4.098.530,40 ¥4.454.548,80 ¥3.941.385,00 ¥4.094.718,00

Cost Per Emergent Bands ¥600.000,00 ¥600.000,00 ¥600.000,00 ¥600.000,00

Cost Per International Bands ¥1.080.000,00 ¥1.080.000,00 ¥1.080.000,00 ¥1.080.000,00

Cost Per Star Bands ¥3.120.000,00 ¥2.808.000,00 ¥2.527.200,00 ¥2.400.000,00

Total Fixed Costs ¥8.898.530,40 ¥8.942.548,80 ¥8.148.585,00 ¥8.174.718,00

Total Food&Drink Cost ¥26.236,23 ¥30.903,93 ¥33.088,24 ¥36.064,07

# of Customer Expected 201 240 258 283

Cost Per Customer 131 129 128 128

Average Night Revenues per Customer EB

Bar Service ¥180,00 ¥178,57 ¥179,03 ¥180,00

Covers ¥0,00 ¥0,00 ¥0,00 ¥0,00

Total per Customer EB ¥180,00 ¥178,57 ¥179,03 ¥180,00

Average Night Revenues Per Customer IB

Bar Service ¥232,50 ¥231,70 ¥231,65 ¥232,50

Covers ¥40,00 ¥40,00 ¥40,00 ¥40,00

Total Per Customer IB ¥272,50 ¥271,70 ¥271,65 ¥272,50

Average Night Revenues Per Customer SB

Bar Service ¥540,00 ¥540,00 ¥540,00 ¥540,00

Covers ¥246,07 ¥244,14 ¥244,00 ¥244,00

Total Per Customer SB ¥786,07 ¥784,14 ¥784,00 ¥784,00

Average Revenue per Customer ¥252,84 ¥251,55 ¥251,82 ¥252,68

Average Unit Margin ¥122,32 ¥122,74 ¥123,74 ¥125,15

Annual BEP 72.748 72.857 65.852 65.317

BEP per show 232 232 210 208

BEP per Show (Utilization) 77% 77% 70% 69%

BEP $ Per show ¥58.577,27 ¥58.366,44 ¥52.811,41 ¥52.561,13

BEP Analysis

Pro-Forma 4 Years Income Statement

1 Year 2 Year 3 Year 4 Year

Total Revenues ¥17.904.420,00 ¥20.871.240,00 ¥22.126.500,00 ¥23.830.200,00

COGS ¥15.045.396,47 ¥16.341.295,29 ¥16.937.465,88 ¥18.092.577,65

Total Annual Operating Margin ¥2.859.023,53 ¥4.529.944,71 ¥5.189.034,12 ¥5.737.622,35

Fixed Costs

Art director ¥250.000,00 ¥250.000,00 ¥250.000,00 ¥250.000,00

Marketing Director ¥200.000,00 ¥200.000,00 ¥200.000,00 ¥200.000,00

Club's Manager ¥200.000,00 ¥200.000,00 ¥200.000,00 ¥200.000,00

Communication Manager ¥200.000,00 ¥200.000,00 ¥200.000,00 ¥200.000,00

R&D ¥358.088,40 ¥417.424,80 ¥442.530,00 ¥476.604,00

Rent ¥1.350.000,00 ¥1.350.000,00 ¥1.350.000,00 ¥1.350.000,00

S,G&A Costs ¥358.088,40 ¥417.424,80 ¥442.530,00 ¥476.604,00

Marketing Budget ¥1.432.353,60 ¥1.669.699,20 ¥1.106.325,00 ¥1.191.510,00

Total Fixed Costs ¥4.098.530,40 ¥4.454.548,80 ¥3.941.385,00 ¥4.094.718,00

EBITDA -¥1.239.506,87 ¥75.395,91 ¥1.247.649,12 ¥1.642.904,35

Amortization (20%) ¥128.866,20 ¥128.866,20 ¥128.866,20 ¥128.866,20

EBIT -¥1.368.373,07 -¥53.470,29 ¥1.118.782,92 ¥1.514.038,15

Amortization Schedule for Initial Investement is fixed as Constant Quotes over 5 years. Therefore Amortization is computed as Initial Investment over 5 per year.

After having analysed all the components of the income statement, we hereby propose the 4 years pro-forma income statement for Moonlight.

1 year 2 year 3 year 4 year

Net Profit -¥1.368.373,07 -¥53.470,29 ¥1.118.782,92 ¥1.514.038,15

(+) Depreciation

(+) Amortization ¥128.866,20 ¥128.866,20 ¥128.866,20 ¥128.866,20

Potential Cash Flow From Operations -¥1.239.506,87 ¥75.395,91 ¥1.247.649,12 ¥1.642.904,35

Δ Working Capital ¥179.111,86 ¥194.539,23 ¥201.636,50 ¥215.387,83

(-) Δ Inventory -¥3.582.237,25 -¥3.890.784,59 -¥4.032.729,97 -¥4.307.756,58

(+) Δ Accounts Payable ¥3.761.349,12 ¥4.085.323,82 ¥4.234.366,47 ¥4.523.144,41

(-) Δ Accounts Receivable ¥0,00 ¥0,00 ¥0,00 ¥0,00

Cash Flow From Operations -¥1.060.395,01 ¥269.935,14 ¥1.449.285,62 ¥1.858.292,18

Cash Flow From Investment -¥644.331,00 ¥0,00 ¥0,00 ¥0,00

Net Cash Flow -¥1.704.726,01 ¥269.935,14 ¥1.449.285,62 ¥1.858.292,18

Cash Flow Statement

-¥ 300 -¥ 200 -¥ 100 ¥ 000 ¥ 100 ¥ 200 ¥ 300

1 year

2 year

3 year

4 year

x 10000 1 year 2 year 3 year 4 year

Net Profit -¥1.368.373 -¥53.470 ¥1.118.783 ¥1.514.038

(+) Amortization ¥128.866 ¥128.866 ¥128.866 ¥128.866

Cash Flow From Investment -¥644.331 ¥000 ¥000 ¥000

Δ Working Capital ¥179.112 ¥194.539 ¥201.636 ¥215.388

Net Profit (+) Amortization Cash Flow From Investment Δ Working Capital

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