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Risk Mitigation
Key Risks:
1. Currency Fluctuations: Hedge USD imports via forward contracts.
2. Supply Chain Delays: Maintain 30-day ingredient buffer stock.
3. Low Demand: Aggressive sampling campaigns in high-footfall areas.
Discussion
**Expanded Risk Mitigation Strategy**
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### **1. Currency Fluctuations (ETB/USD)**
**Risk**: A 10% depreciation of the ETB could raise import costs by **3.2M ETB/year** (30% of ingredients are USD-denominated).
**Mitigation Strategies**:
- **Hedging**:
- **Forward Contracts**: Lock in exchange rates for 50% of annual import needs via the *Ethiopian Commodity Exchange* (e.g., $100,000 USD at 56 ETB/USD for 12 months).
- **Diversified Sourcing**: Shift 20% of imports to Eurozone suppliers (e.g., Spanish olive oil) to reduce USD dependency.
- **Localization**: Increase local sourcing from 70% to 80% by Year 2 (e.g., replace imported pepperoni with Ethiopian *berbere*-spiced beef).
- **Pricing Adjustments**: Add a 5% “import surcharge” on premium pizzas during currency crises.
**Tools**:
- **Forex Dashboard**: Real-time tracking of ETB/USD rates via *Bloomberg Terminal* (shared with investors).
- **Reserve Fund**: Allocate 2M ETB to offset sudden currency swings.
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### **2. Supply Chain Delays**
**Risk**: Djibouti port delays (avg. 14 days) could disrupt 30% of ingredient supplies.
**Mitigation Strategies**:
- **Buffer Stock**: Maintain 30-day inventory of critical imports (olive oil, truffle oil) and 15-day stock of local ingredients.
- **Dual Sourcing**:
- **Port Diversification**: Route 20% of imports via Berbera Port (Somaliland), reducing Djibouti dependency.
- **Local Backups**: Partner with *Lakeside Dairy* (Hawassa) as a secondary cheese supplier.
- **Logistics Partnerships**: Contract *DP World* (Djibouti) for priority customs clearance (cost: +5% fee).
- **Emergency Air Freight**: Reserve $10,000 USD/year for airlifting stalled specialty items.
**Contingency Metrics**:
| **Risk Level** | **Action** |
|-----------------------|--------------------------------------------|
| 1–7 day delay | Use buffer stock; no operational impact. |
| 8–14 day delay | Activate local backups; airlift 10% stock. |
| 15+ day delay | Menu simplification (e.g., pause truffle pizzas). |
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### **3. Low Demand**
**Risk**: Falling below 175 customers/day could delay break-even by 6+ months.
**Mitigation Strategies**:
- **Aggressive Sampling**:
- **High-Footfall Zones**: Distribute 500 free slices/day at Sheger Park and Bole Airport for 2 weeks.
- **Corporate Partnerships**: Offer free lunch catering to 10 mid-sized offices in exchange for social media tags.
- **Dynamic Pricing**:
- **Off-Peak Discounts**: 20% off Mondays–Wednesdays (slowest days).
- **Flash Sales**: “Happy Hour” pizza discounts (4–6 PM) via Deliver Addis app.
- **Menu Adaptation**:
- Introduce *injera*-wrapped pizza rolls (50 ETB) for price-sensitive customers.
- Launch “Build-Your-Own Pizza” nights (300 ETB base + 50 ETB/topping).
**Data-Driven Adjustments**:
- **Customer Feedback Loop**: QR code surveys at tables (analyzed weekly).
- **Social Listening**: Track #IslandPizzaAddis sentiment using *Hootsuite*.
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### **Risk Matrix**
| **Risk** | **Likelihood** | **Impact** | **Mitigation Effectiveness** |
|------------------------|----------------|------------|------------------------------|
| Currency Fluctuations | High | High | 70% (hedging + localization) |
| Supply Chain Delays | Medium | High | 85% (buffer + dual sourcing) |
| Low Demand | Low | Medium | 90% (sampling + pricing) |
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### **Cross-Functional Alignment**
- **Finance Team**: Monitors forex rates and adjusts hedging quarterly.
- **Operations Team**: Manages buffer stock levels and supplier relationships.
- **Marketing Team**: Executes demand-generation campaigns with real-time adjustments.
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### **Cost of Mitigation**
| **Strategy** | **Cost (ETB/Year)** | **Risk Reduction ROI** |
|----------------------------|---------------------|--------------------------------|
| Hedging | 500,000 | Saves 3.2M ETB in forex losses |
| Buffer Stock | 1,200,000 | Prevents 5M ETB in lost sales |
| Sampling Campaigns | 800,000 | Generates 4M ETB in new sales |
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**Conclusion**: This multi-layered approach ensures resilience against Ethiopia’s volatile market conditions. By hedging currency risks, securing supply chains, and aggressively stimulating demand, Boaz minimizes downside exposure while maximizing growth potential. 🌍🛡️