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New Startup Business Name: Tea Blending and Packaging Facility Business Concept: The demand for black

tea is ever increasing in Pakistan and due to the removal of import duty on the tea leaves along with reduced sales tax; there is a very bright future for the branded packaged tea in Pakistan. Business Operations: The blending, brewing and packaging operations will be run in 3 shifts per day. The distribution will be completely outsourced to keep focus on the core business of blending and packaging.

Industry Overview Tea is the second most consumed beverage in the world after water. In Pakistan total tea consumption ranges between 200,000 and 225,000 tons. In the total tea market of 225,000 tons, around 50% is the branded tea which comes out to be approximately 110,000 tons. In the finance budget for the fiscal year 2012-2013 the import duty has been removed on the import of tea and the sales tax has been reduced to 4%. Previously the import duty on tea was 10% and the sales tax was 16%. This step was taken primarily to discourage the smuggling of non-branded tea if Pakistan. Earlier due to this smuggling, a sizeable chunk of the market was eaten up by nonbranded tea. Previously 90,000-100,000 tons was finding its way into the country through smuggling. The step taken to remove import duty and reduce sales tax is mainly to encourage the branded tea by opening up more space by the elimination of smuggled tea. The already established brands in the Pakistani tea market transferred this benefit to the consumer in the form of decreased tea prices of about Rs. 50-60 per kg. Pakistan imports tea from over 20 countries but Kenyan share in overall imports is over 50 per cent. Pakistan is the fourth largest tea importer in the world, after Russia, UK and Egypt. Pakistan has become the third biggest consumer of tea in the world, as its masses who rank among the lowest in terms of economic growth and progress, consumed more than Rs. 23 billion worth of tea in 2010. This amount refers to legally imported teas, while considering the illegally obtained tea at least Rs. 34 billion worth of brew was consumed in 2010, amounting to more than Rs.16 billion.

Market Conditions Tea is expected to grow at a CAGR of 7% in total volume terms over the coming years due to the increase in the tea-drinking population and continued centrality of tea as the hot drink of choice in Pakistan. The dynamics of tea consumption are facing some shift, as along with black standard bagged tea; green tea and fruit/herbal tea gain prominence, especially among urban middle-class consumers. However, there are consumers in both the rural and urban population who are heavy drinkers of tea and they will continue to be prominent consumers in the market. The per capita consumption of tea in Pakistan is about one kilogram and is continuously increasing due to increase in demand. The removal of import duty and the lowering of sales tax provide a favorable condition for the startup of a new tea business in Pakistan. The branded companies of tea are not more than dozen but significantly expanded their business throughout the country are now witnessing increasing demand after a steep cut in prices were made of an average of Rs 58 per kg due to lower sales tax and no import duty The decline in black tea prices particularly on various brands has increased their sales and consumption as against different local (loose) brands made available in the local market. The market is showing an expansion through legal channels in branded packaging. According to the statistics of the Pakistan Tea Association, the imports of tea stood at 7.69 million kg in June 2012, has increased to 8.66 million kg in July 2012 and 11.06 million kg in August 2012 respectively. The value of imports was also seen increased from $21.7 million in June to $24.1 million in July and $29.2 million in August. At present, the market situation is in the favor of branded tea companies in Pakistan because the black tea prices have been stabilized and decreased simultaneously. Moreover, the benefit of no import duty is ideal for starting up the new tea business as this business runs of the import of tea leaves primarily.

Land The area of the land purchased for the purpose of establishing this facility would be 7 acres and will be located in industrial estate Lahore. The covered area will be 4 acres and the cost per acre would be Rs. 12 million. The total land cost will be Rs. 84 million. Building and Infrastructure The cost of building and infrastructure will be Rs. 300 million. The building and infrastructure will include: Production floor Warehouse for finished goods Warehouse for raw material and packing material Admin Building (office) Canteen Dispensary Lawn

Machinery and Equipment The machinery and equipment required for this business will be purchased from Wolf Packaging which is a German company. The list of the machinery and its cost is given below:

Machine Packing Machines Blending Machine Water and Treatment Plant (as per legal requirements) Conveyer Cargo Lift

Cost in Million Rupees 215 100 20

10 10

The packaging machines will be the most important machines as packaging is one of the most critical aspects of this business. Market Price in Million Rupees 60 65 60 8 10 12 100gm 200gm 28gm 5gm 1kg 2kg SKU Annual Capacity in Tons 4500 7137 1144 783 6000 12000 Carton Carton Carton Sachets Pouch Pouch Format

In the above table, the market price is mentioned in the first column for the machine which packs the amounts mentioned in the second column. In the third column annual capacity of each machine is given in tons which it can package. In the last column the format or type of packaging is mentioned in which each machine packages the respective amount of tea. Human Resource In the management there will be a CEO and there will be three general managers: GM Manufacturing and Supply Chain

Reporting to GM Manufacturing and Supply Chain will be: o Operations Manager o Engineering Works Manager o Safety Manager o Quality Manager o R & D Manager o Demand Planning Manager o Service Service Manager o Supply Planning Manager o Procurement manager

GM Marketing Under GM Marketing, there will be a marketing team of 8 personnel. GM Sales Under the GM sales, there will be three regional managers, the business will operate on regional basis and it will be divided into three regions, so the three regional managers will be: o Regional Manager South o Regional Manager North o Regional Manager Centre (add areas)

Marketing Strategy In the initial years of the business, the marketing budget will be kept high in order to establish the business in the market and gain maximum possible share. The advertising and promotion budget is kept high because the presence of big giants in the market can easily wipe away this new business, so in order to stay competitive, it is of utmost important to spend heavily on advertising and promotion to establish the brand name in the market. Distribution will totally be outsourced. The distributors will be given lenient credit terms of 45 days as opposed to the norm of 30 days in the industry to give them some incentive in order to push this brand into the market. Moreover, the distributors will be given discounts and for this purpose the distribution budget will also be kept high in earlier years of the operations. Once the business gets established the same percentage of sales will be allocated to distribution budget as done by other established brands in the market. The pricing strategy that will be used is penetration pricing; by keeping the price low to enter the market and attract larger customer base.