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AVOMERU

Business Plan

Avocado Oil project

Jesse Oljange, Tristan Riom and Ignacio Masia


avomeru@gmail.com
AVOMERU BUSINESS PLAN Last edition: 13/04/16

Index
I Executive summary .....................................................................I-3
I.1 Mission ......................................................................................... I-3
I.2 Vision ........................................................................................... I-3
I.3 Objectives ..................................................................................... I-3
I.4 Resources and capacities ................................................................ I-3
I.4.A Resources: ................................................................................................. I-3
I.4.B Capacities .................................................................................................. I-4
I.5 Key to success ............................................................................... I-4
I.6 Project description ......................................................................... I-4
I.7 Technology.................................................................................... I-4
I.8 Project long term projection. ............................................................ I-8
II Market analysis .............................................................................
II.1 Market segmentation ..................................................................... II-8
II.2 Analysis of external facts ............................................................... II-9
II.3 Analysis of internal facts ............................................................. II-11
II.3.A Local market........................................................................................... II-11
II.3.B International market ............................................................................... II-12
III Market research ..................................................................... III-15
III.1 Market prospection ................................................................... III-15
III.2 Market test assess .................................................................... III-16
III.3 Conclusions ............................................................................. III-16
IV Business model ..................................................................... IV-17
IV.1 Value proposition ..................................................................... IV-17
IV.2 Competitive advantages ............................................................ IV-17
IV.3 Marketing Mix .......................................................................... IV-17
IV.3.A Product ................................................................................................IV-17
IV.3.B Promotion strategy...............................................................................IV-20
IV.3.C Pricing strategy ....................................................................................IV-20
IV.3.D Distribution strategy .............................................................................IV-22
IV.4 SWOT analysis ......................................................................... IV-23
V Operational plan ...................................................................... V-24
VI Financial plan ........................................................................ VI-26
VII Time line ............................................................................. VII-33
VIII Conclusion ........................................................................ VIII-34

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I Executive summary
I.1 Mission

AVOMERU’s mission is to support and empower Leguruki farmers to make


profit out of their avocados by providing them with an efficient and affordable
technology for processing the avocado into oil and creating the appropriate
business structure for taking the oil to market.

I.2 Vision

AVOMERU aims to be a sustainable and innovative dynamic enterprise


capable exporting high quality avocado oil for food and cosmetic applications
in all east Africa region and European countries.

I.3 Objectives

1. Create the first small scale industrial processing plant in Tanzania.

2. Within three years, achieve a production equivalent to 2.5% of the total


domestic avocado production (25.000mt). This percentage represents
629mt of avocados processed into 33.000 liters of avocado oil.

3. Export high quality oil with organic and fair trade product certifications.

4. Put AVOMERU on the top 5 most well-known avocado oil companies.

I.4 Resources and capacities

I.4.A Resources:

- Twende workshop, located in Arusha, available for testing and


prototyping new developments in place.
- Technical support from different organizations:
1) AVORESEARCH/Twende from Arusha, Tanzania
2) Massachusetts Institute of Technology, Cambridge, USA
3) Adolfo Ibáñez University, Santiago, Chile
- Logistics support from ECHO
- Technical and financing support from IDIN

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I.4.B Capacities

- Press the oil in situ with small-scale industrial mobile technology to


avoid incurring in substantial transportation and logistics costs.

- Restraining and controlling fixed costs on the processing.

I.5 Key to success


- Find the appropriate partners to manage the core of the business.

- Engaging and including the farmers in the center of the project, making
them an integral part of it and keeping them highly motivated.

- Rigorous and strict control of the production chain ensuring we deliver


the quality our customers expect.

- Ability to obtain and hold necessary safety certifications for oil.

I.6 Project description


I.6.A Introduction

Avocados are primarily grown for the fresh fruit market, either domestic or export.
There is also an industry of processed avocados such as avocado oil mainly to
different applications: food market and cosmetic industry.

There are 12 major cultivars of avocado, but the main cultivars grown globally are
‘Hass' and ‘Fuerte'. In Leguruki a more unique variety known as “Reed” grows.

The Reed avocado's most distinguishing characteristic is also an obvious one. It


is the largest of all known avocado varieties. Its thin green peel contains a hefty
fruit that can easily weigh a pound or more. Its flesh is a pale golden yellow, its
weight clinging to its fragile shell which makes it complicated to transport. It has
a relatively large seed and seed cavity, but its robust size allows it to still carry a
substantial amount of edible flesh. Its flavour and texture are both superior in
quality. The texture is smooth, almost melting. Its flavour, bold, rich, nutty and
even buttery.

Regardless of its exporting difficulties, it is perhaps the best tasting avocado


and considered so among avocado growers.

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I.6.B Product description

Avocado oil for cosmetics industry is traditionally extracted with solvents at


elevated temperatures. After extraction, the oil for application in skin care
products is usually refined, bleached, and deodorized, resulting in an odorless
yellow oil (Pure avocado oil)

In the food industry cold-pressed avocado oil (Virgin or Extra virgin), which is
sold as culinary oil for use on salads and for cooking. Like extra virgin olive oil,
cold-pressed avocado oil is unrefined and so retains the flavour and colour
characteristics of the fruit flesh.

Extra virgin Virgin Pure Blend

General Oil extracted from high- Oil extracted from sound Fruit quality not Avocado oil is
quality fruit (minimal level fruit with some rots and important. excellent for
of rots and physiological physiological disorders. Decolorized and blending and
disorders) Extraction to be carried out deodorized oil with complements extra
Extraction to be carried out using only mechanical low acidity, low virgin olive oil,
using only mechanical extraction methods colour, and bland flaxseed, and
extraction methods including presses, flavour. macadamia oils.
including presses, decanters, and screw Oil produced from The composition
decanters, and screw presses at low good quality virgin should match what
presses at low temperatures (<50ºC). avocado oil; may be it’s claimed on the
temperatures (<50ºC). Addition of water and just avocado oil or label.
Addition of water and processing aids but no infused with natural
processing aids but no chemical solvents can’t be herbs or fruit
chemical solvents can’t be used. flavours.
used.

Organoleptic characteristics

Odor and taste


Characteristic avocado Characteristic avocado Bland or matches
flavour and sensory flavour and sensory description of
assessment shows at assessment shows at infused flavour.
least moderate (above some (above 20/100) (eg. Lemon, chili,
40/100) levels of grassy levels of grassy and rosemary, etc)
and mushroom/butter with mushroom /butter with
some smoky some smoky
Defects Minimal to no defects such Low levels only of defects Low levels only of Low levels only of
as pointy and fishy notes. such as pointy and fishy defects such as defects such as
notes. pointy and fishy pointy and fishy
notes. notes.
Color Intense and attractive Green with potential yellow Pale yellow Depend on the
green hue blend

Free fatty acid ≤0,5% ≤0,8-1,0% ≤0,1% As specified


(%as oleic acid)
Acid value ≤1% ≤2% ≤0,5% ≤0,5%

Peroxide value ≤0,5%

Stability 2 years at ambient 18 months at ambient >2 years at ambient


temperature when stored temperature when stored temperature when
under nitrogen and out of under nitrogen and out of stored under
the light the light nitrogen and out of
the light.
Smoke point ≥250ºC ≥200ºC ≥250ºC

Figure 1 : Table of Avocado oil standards

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I.6.C Project description

Leguruki is a village on the northern region of Tanzania near the foot of the Mount
Kilimanjaro. Its economy is basically dependent on low value added agriculture.

In that region there is an overabundance of avocado trees with an estimated


annual production of 100 million avocados. But due to the very thin skin, this
variety cannot be transported, even to Arusha the nearest town.

In summer 2014 an International Development Design Summit was held in


Tanzania. Local entrepreneurs and inventors as well as others around the world
identified that problem affecting this region and many others all over Tanzania.

A highly motivated team called AVOMERU started working closely with the
community to develop technology for processing these avocados into oil. Our
goal is to produce a high quality oil for food and cosmetics, dramatically raising
the sales price of this natural resource that currently goes to waste.

During the first stage AVOMERU team focused on developing simple prototypes
that are efficient, affordable and scalable. Currently we have already developed
and designed the appropriate technology and we are seeking for funds to scale
up all the equipment and start producing and selling large amounts of high quality
avocado oil.

AVOMERU can not only pay farmers more for their avocados, but also purchase
more of their supply that they could sale in the traditional markets.

Figure 2: AVOMERU team working with the community in Leguruki

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I.7 Technology

There are 3 common oil extraction: expelling or mechanical extraction, using a


centrifuge, and using solvents.

Delicate oils, and those with subtle flavor nuances, like Avocado oil, need to be
treated with great care in processing. Only mechanical means are used to extract
the oil, with strict temperature control maintained at all times.

The process for recovering oil from ripe avocados is a mechanical extraction,
similar to olive oil extraction, with the additional step of removing the skin and
stone (seed). After this, the flesh is ground to a paste and then malaxed for 40-
60 minutes at 45-50°C.

The slightly higher temperature aids the extraction of the oil from the oil-
containing cells and does not affect the quality of the oil.

The oil and water phases are separated from the pulp using a high-speed
decanting centrifuge, and then the oil is separated from the water in final polishing
centrifuges.

I.7.A AVOMERU extracting oil technology

 All the processing technology has been developed locally with the support
of our partners from MIT (Massachusetts Institute of Technology)
 Efficiency, simplicity and functionality are the fundamentals at the time to
design the equipment.
 The aim is build small scale industrial equipment capable to process larges
amounts efficiently and easily while ensuring good quality standards.

Figure 3: AVOMERU’s CAD drawings from equipment developments

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I.8 Project long-term projection.

 Leguruki is to be the proof of the concept once the production is settled and
the oil finds its way on the market. AVOMERU’s next step will be replicating
the business model in other regions of Tanzania or Africa with similar
situations.
 The objective is create synergies among the different processing centers by
optimizing resources and capacities while sharing the same distribution
chain and market linkages all under the same brand AVOMERU.

II Market analysis
II.1 Market segmentation

The Avocado Oil market is very wide goes from unrefined oil to premium and
extra virgin refined oil in the food market and including other highly processed
cosmetic products such as cream, soap and lotions. Refined oil fetches a
higher price in the market especially in the international market.

Market target:

According to International Trade Centre (TradeMap®) Tanzania is an


emerging exporter of avocado products. Avocado trade in Tanzania is
discussed at two different levels: the export market, with an average annual
growth of 6.4%, and the promising domestic market which currently absorbs
77% of the national production.

In Tanzania avocado industry scored 25.000mt in production on 2013. This


percentage represents 413mt of avocados processed in 22.000 litters of
avocado oil.

In the big picture AVOMERU will target both the domestic as well as the export
markets because of the high potential in both markets for smallholder farmers.
Decisions on products to be targeted will be informed by careful market
research and gross margin analysis to ensure AVOMERU business model is
profitable and sustainable.

Customers and markets will partner with smallholder horticultural farmers from
through AVOMERU to facilitate production and marketing of high quality
products for both the domestic market and the international market. The target
market is the export market and the domestic market for high quality products.
In the medium term, AVOMERU will invest in product development to produce
finished products for the domestic, regional and international markets. Value
addition will include processing of avocado into premium-refined oil.

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II.2 Analysis of external facts

Figure 4: The Porter’s Five Forces diagram

 Industry rivalry:

Large producers are characterized by organic cash crops, which are either
exported or processed after they leave the farm. This crops which are the most
likely to go to distributors and processors for further treatment, and resulting
products are often exported.

Medium-sized producers tend to produce for a smaller geographical market.


Limited by infrastructure, some of these producers are now working together to
develop their own products, partnering up with complementary businesses to be
able to expand the offerings of their on-farm market to attract more customers.
Others have partnered with small regional processor/distributors to reach
restaurants and specialty food retailers. Most medium producers offer on-farm
markets as stationary storefronts, incorporating products sold on consignment or
retailed for other area producers.

Small organic producers tend to not use distribution intermediaries. Instead they
focus on direct relationships with consumers through farmers' markets and on-
farm markets. They may supply some restaurants, specialty retailers, or small
grocers, but these relationships are painstakingly developed and rely on niche
marketing and personal relationships. These are the small farms most likely to
give up on organic certification due to the paperwork and expenses involved.

The edible oil industry is very wide with a fierce rivalry among low price edible oil
such as sunflower. The industry is ruled by large industrial companies benefiting
from economies of scale and competing among the rest of the players by price.
Our real industry of extra virgin high quality oils such as avocado oil is currently
insufficient to keep up with the supply due to the increasingly growth of
international demand of avocado including avocado oil. So we can clearly state
that our industry has a moderate rivalry and the major players are medium
industrial size most of them holding organic product and fair trade certifications.
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 Bargaining power of buyers:

As in all agriculture business there is a trend of high bargaining power from the
buyers. Since most of the products are perishable and seasonal wholesalers or
traders have leverage to set the sale price.

However, once processed into oil, our product has a long shelf life. Additionally,
by controlling our fixed structural costs and carefully matching with the
appropriate distribution partners we could minimize that bargaining power.

 Bargaining power of suppliers:

Our major suppliers are the smallholder farmers who are not merely part of the
project, but the entire motivation for its existence. Purchasing of the supplies is
based on a fair trade for both sides. As AVOMERU grows and adds suppliers,
we will gain bargaining power and also create economies of scale.

 Threat of substitutes:

The threat of substitutes is high for general edible oils and cosmetic since there
are plenty of alternatives (olive oil, macadamia nut oil, sunflower, or even
chemical base products)

However if we narrow the scope to organic or virgin high quality oils the risk of
substitutes is lower due to your positioning with a differentiate product.
AVOMERU will definitely mitigate the risk of substitutes by differentiation.

 Threat of new entrants:

The risk of new entrants is low since it’s a business that requires establishing a
processing plant next to the source of avocados. The initial investment for a
small-medium industrial processing plant is not large but there are many legal
barriers such as local government permits and licenses, food and health
certifications and other certifications (organic product and fair trade).

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II.3 Analysis of internal facts

This analysis aims to study the market of Avocado oil, specifically the needs,
trends, growth, size, number of participants, distribution patterns, competition
patterns and finally deep analysis on the main competitors.

II.3.A Local market

a Cosmetic industry
There is an existing local market for low quality product. Those products
are mostly cream made by local small entrepreneurs, sold without any
certification.

The other market is high quality products for high end markets. Arusha is
a very touristic city and it represent a great opportunity for us. Making
soap, hair oil or cream is a promising option.

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b Food industry

We size the domestic high quality edible oil market on 563,400 litters per year
according to our estimations based on TradeMap data.

1) SUPERMARKETS (retail point of sale analysis)

List of local supermarkets inspected:


Nakumatt
Clock Tower Supermarket.
Village Supermarket (Njiro complex)
Pick & Pay

Product analysis:

The range of edible oil in the market is really wide but the main ones you can find
at any main local supermarket are Sunflower oil, Corn oil, Vegetable oil, Olive Oil.

This table is a summary of relevant characteristics of the local edible oil products.

Type Packaging Retail price (1L)


Sunflower PET plastic TZS 6,250
Corn oil PET plastic TZS 10,150
Vegetable oil PET plastic TZS 8,667
Olive Oil Virgin PET plastic, Metal can, Glass TZS 20,000
Olive Oil Extra Virgin PET plastic, Metal can, Glass TZS 27,000

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The only sample of avocado oil was found at Village supermarket in Njiro.

Brand Packaging Retail price


Clearspring Organic Avocado oil Glass bottle 250ml TZS
(cold pressed) 44,500

II.3.B International market

a Cosmetic industry
[To be fulfilled]

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b Food industry

Due to lack of data and resources for analysing the international market we
carried out an online research among different well known avocado oil producers’
websites and other online gourmet shops.

In the following table you can see the results of the research:

Capacity Retail price Estimated retail


Brand Type (ml) (USD) Retail price (TZS) price per litter
Organic
$20.51
Clearspring avocado oil 250 ml TZS 44,500.00 TZS 178,000
Pure
$13.95
Choosen foods avocado oil 500 ml TZS 30,271.50 TZS 60,543
Avocado oil
$11.49
Grove Extra virgin 250 ml TZS 24,933.30 TZS 99,733
Avocado oil
$4.60
Grove Extra virgin 100 ml TZS 9,982.00 TZS 99,820
Swanson Organic
$21.98
organic avocado oil 473 ml TZS 47,696.60 TZS 100,838
Avocado oil
$11.99
Olivado Extra virgin 250 ml TZS 26,018.30 TZS 104,073
Avocado oil
$16.99
Tourangelle Extra virgin 500 ml TZS 36,868.30 TZS 73,737
Chilean San Avocado oil
$125
Pietro Extra virgin 5000ml TZS 271,250 TZS 54,250

Average retail price x litter TZS 96,374

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Key findings:

 In the local market the offer of avocado oil is almost inexistent


 In avocado oil industry the packaging trend is a glass bottle of small
dimensions (250ml to 500ml)
 Market price for avocado oil fetch a higher price than extra virgin olive
oil (around 400% more)
 The estimated price for 1litter of avocado oil is 50USD or 109.000 TZS

III Market research


III.1 Market prospection

During several months the team focused on gathering data from different key potential
customers and partners such as:

‐ Local entrepreneurs (other by products manufactures, Spa’s, etc.)


‐ Point of sale (supermarkets and convenient stores)
‐ Restauration industry (restaurants, hotels)
‐ Distributors and wholesale retailers
‐ Certification organizations and Associations (Fair trade, TAHA Tanzanian
Agriculture Associations)

In order to assess the following:

‐ Level of knowledge and awareness of avocado oil products.


‐ Interest on avocado oil products and its by-products
‐ Willingness to pay
‐ Accurate costumer target

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III.2 Market test assess

After completing the market prospection and developing a pilot product. Samples were
delivered to strategic potential customers or partners for testing and feedback collection.
Also a special local event was held in Arusha a great the opportunity for an official
presentation.

The objective of this actions was:

 Make the official presentation as a new upcoming local company.


 Asses the acceptance of the pilot product in terms of price and willingness to pay.
 Asses the acceptance of the overall branding and packaging designs.
 Stablish contact with potential customers or partners.

Figure 5: AVOMERU on the Arusha Christmas Fair

III.3 Conclusions

 Pilot product awakened great interest among potential costumers specially


during the fair where visitors were surprised to see avocado oil (innovative
and unknown product)

 Customer had the opportunity to assess the smell and taste of it and the
results were quite promising (good impressions)

 Great acceptance of the set sale price of 10USD for the pilot product (beer
bottle 300ml) seems a fair price for the costumer and we could even raise
it up to 15USD increasing our costumer willingness to pay expectations.

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IV Business model
IV.1 Value proposition

 Provide and support local farmers from Leguruki with the technology to
process successfully their unique avocados into oil.

 Create and design the appropriate business structure for taking the oil to
market.

 Offering smallholder producer groups from Leguruki access to reliable and


profitable markets (food &cosmetic)

IV.2 Competitive advantages


 We are trying to create a market to fit with farmers’ needed. Most of the oil we
could substitute avocado oil with such as organic or virgin high quality oil is
expensive and imported. Our aim is to answer to a local demand of oil with
this new product and local suppliers.
 Network of farmers and cooperatives ready to invest in machines and make
oil by themselves so we cut down logistic and production costs do not need to
find space to produce and store raw oil.
 Avocado is a seasonal crop that is harvested twice a year. Having a
manufactory plant would imply high fixed cost but with our lower cost mobile
station we can price more competitively.

IV.3 Marketing Mix


IV.3.A Product

a Product description:

Simplicity is best so the main concern of AVOMERU on the short term will be
offering premium tasteful avocado oil for high end costumers.
Our philosophy is manufacturing our oil as if it was for ourselves, taking
extreme care of each and every detail, promoting made in TANZANIA
products.

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Glass bottle 300ml.

Simple but elegant product targeting high-end customers


who want add richness and flavour to their diet. The
product will be found in small 300ml packaging on
supermarkets or specialized organic stores.

Restauration 3L.

This product is designed for those customers with larger


consumptions whose main concern is the content rather
than the container. The target for this product is large
consumers such as restaurants or hotels and their
respective suppliers.

Wholesale avocado oil refined 1L.

High quality refined and unrefined avocado oil will be also in our product portfolio.
The target of this product are other manufactures of by-products of avocado oil.
But also for wholesale traders from international markets were our direct sales
force is limited or inexistent.

Cosmetic 250ml

Avocado oil can be a more effective moisturizer than chemical-


laden cosmetics. This oil is considered to be “a base oil” that you
can apply on the skin alone, in it’s pure form. The packaging size
will target high-end users and will be available in supermarkets
and specialized grocery stores.

Avocado seed powder

Still an embryonic plan to convert a waste into a valuable product. In that case
turning avocado seeds into fine powder used for infusions with healthy and
medicinal properties. This incorporation will be a great step toward a circle
economy model.

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b Avocado Oil benefits:

While everyone is familiar with olive oil and its role in a healthy diet, not many
people are well-versed about avocado oil. Yet oil for oil, avocado has about
the same nutritional blueprint as olive, only tastier and healthier.

First, about 70 percent of avocado oil is oleic acid, a monosaturated pale


yellow omega 9 fatty acid with a lard-like odor. Aside from the excellent work
it does in the body — like improving glucose levels for diabetics — the acid is
less susceptible to spoiling than other fats.

What's more, avocado is also cholesterol-free and contains no trans fats.


Because avocado oil is pressed from the pulp of the fruit rather than the seed
and has such a pleasing fat ratio, extra virgin avocado oil has a high smoke
point of 400 degrees Fahrenheit. This makes it perfect for cooking as well
as atop salads. Avocado oil has a mild smell, a creamy texture and rich, nutty,
buttery flavour.

Externally, avocado oil is hailed as an excellent source for skin and haircare
and is already an ingredient in many products

c Packaging:

AVOMERU pursues simplicity overall so all packaging designs should use as


many locally available resources and suppliers as possible.

To market the first pilot product oriented to high end customers AVOMERU
has developed a really simple, polyvalent and low cost packaging but really
good looking.

On the following steps all other packaging solutions will be developed trying to
maintain the same premises.

Figure 6: AVOMERU packaging solutions

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IV.3.B Promotion strategy

Find below some detailed actions AVOMERU will carry out for promotion purposes:

 Attractive website
 Promotional materials (samples, brochures and other merchandise)
 Online advertising
 Advertising on local food magazines
 Attractive displays on the point of sale
 Attending local fairs and exhibitions

IV.3.C Pricing strategy


Our price is aggressively lower than the average market price, and we produce
exclusively in Tanzania. Many businesses value local production but can only
purchase avocado oil from countries such as Kenya and South Africa. We aim
to get the local market and fill that gap with AVOMERU products.

Total Cost Price (no VAT.) Margin %


(USD) (TZS) (USD) (TZS) on sales
Product A
(Glass retail bottle 300ml) $4.09 TZS 8,875.30 $10.00 TZS 20,000.00 56%
Product B
(Restauration packaging 3L.) $31.40 TZS 68,138.00 $69.00 TZS 149,730.00 54%
Product C
(Cosmetic Oil 250ml.) $3.69 TZS 7,996.45 $6.50 TZS 14,105.00 43%
Product D
(Wholesale Oil refined litter) $8.40 TZS 18,228.00 $18.00 TZS 39,060.00 53%

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The following competitive positioning matrix shows in one axis the price positioning of
our company and the differentiation level. For measuring the differentiation of the
company we focused on the following indicators innovation, packaging, number and
range of different products or by-products that add value to the main product. In the long
term AVOMERU will aim to scale up on the differentiation axis without increasing their
prices by offering a more complete range of infused oil and packaging improvement such
as spray packaging’s or similar.

Figure 7: Competitive positioning matrix for avocado oil industry

This chart shows the market price for the retail small packaging (approx. 250ml.) of the
main competitors of the industry.

 
Clearspring $ 20.51
Olivado $ 11.99
Grove $ 11.49
Choosen foods $ 10.95
Avomeru $ 10.00
Tourangelle $ 7.00
Chilean San Pietro $ 5.00

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IV.3.D Distribution strategy

As a starting point, AVOMERU will establish commercial linkages with all the
different channels through which the product will be sold.

1. Wholesales trader
2. Retailer
3. Supermarkets and Cosmetic enterprises
4. Hotels and restaurants
5. Others (special event, fairs, exhibitions, households…)

Direct trading in the domestic and regional markets. Stabilising partnerships


with international distributors with similar and compatible products targeting
same market segment.

Below is an illustration of the marketing channel chosen for AVOMERU to


penetrate the domestic market on the first run. The thicker arrows indicate
which channel AVOMERU is going to focus on to establish a loyal and close
relationship. Focusing on the direct trading on the local market will enable us
to be more sensing to the market response and get a reliable feedback direct
from the end market.

Figure 8: AVOMERU distribution pattern

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IV.4 SWOT analysis

Strengths Weakness

- Motivated and committed project leading - Complicated organization of all the people
team where the project manager is originally involved in the project.
from the Leguruki village.
- First production stage really disseminated
- Financial and technical support from our were having a direct control is complicated.
MIT partners.
- Lack of initiative and vision from the local
- Capacity to minimize fixed costs. community.

- Control the overall production process - Lack of financial resources


enabling us to make the right turn if
necessary.

- Great availability of raw materials

Opportunities Threats

- Increasingly on growth international - Unstable political context with high


demand of avocado including avocado oil. corruption rate.
Currently supply is insufficient to keep up - Tightening of quality certifications process
with it. such as fair trade or organic product.
- Tightening of tax import conditions for
- Local youth with a high willingness to learn European market and other east African
and work regions.
- Industrial park obsolete with high need to - Roads in poor conditions complicating
update much of the equipment. logistics and increasing cost.
- Unreliable infrastructures and electricity
- Tanzanian economy on growth growing supplies (constant power cuts)
with new investment and business.

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V Operational plan

V.1 Production and value chain

Below there is a chart map of the whole production value chain. On the left side in yellow
we find those activities necessary for the process but not developed by AVOMERU on
the right side in green those activities where AVOMERU is direct responsible.
AVOMERU will also provide technical and financial support to smallholder farmer in form
of trainings and interest free loans to purchase necessary equipment.

Figure 9: AVOMERU’s production value chain map

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V.2 Human and other capacity resources

V.2.A Management

Daily project management issues such as project implementation, costs


and performance will be the direct responsibility of the management team
form by Project Manager and Operations Manager.

Other transcendent strategic decisions will be discussed on a project


comity held monthly. The Project Management comity will be constituted
by representatives from all the stakeholders and partners involved since
the project foundation.

V.2.B Administration

Internal administration duties will be carried out by locals from the village
and a front office in Arusha town will be available for customer reception

V.2.C Logistics

AVOMERU will be frequently supervising the wellbeing of the different


mobile stations for pressing distributed among different coops or farmers.
AVOMERU will also coordinate training and maintenance of the
equipment to ensure productions standards are met. AVOMERU
production chain will start on the collection stage after pressing the oil.
The oil will be collected in the AVOMERU processing facility located in
Leguruki, collection teams for especial cases could be also easily
organized.

V.3 Risk assessment and mitigation strategy

The risk is a common element present in any business venture. AVOMERU aims to
minimize the risk of failure by strict control of fixed expenses and weighed growth
and expansion plan.

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VI Financial plan

ABSTRACT:

This document intends to outline the investments required and product cost break down
as well to break sale figures into components, by sales channel or target market
segment, and provide realistic estimates for sales and revenue. It's not exact data,
because we're still guessing the future but it’s an accurate projection.

VI.1 Initial investment outlay

Find below the estimated detailed investments in capital expenditures required to start
the project for the next 3 years, such as new equipment, installation, warehouse
building, etc.

CONCEPT 2016 2017 2018


1. Equipment to set up processing station $6,575.00 $11,800.00 $4,700.00
2. Warehouse and logistic infrastructure $500.00 $8,000.00 $12,000.00
3. Other $7,800.00
TOTAL $7,075.00 $19,800.00 $24,500.00

INVESTMENT 2016
Concept qty Cost (usd) Total Cost (usd)
Mixing equipment 1.00 $800.00 $800.00
Hydraulic press with 2 barrels 1.00 $2,800.00 $2,800.00
Boiler tank + 3 socket pasteurizing tank 1.00 $1,000.00 $1,000.00
Pasteurizing stainless steel tank (50l.) 4.00 $100.00 $400.00
Filtering equipment 1.00 $400.00 $400.00
Pulleys mechanism for attaching engine 1.00 $175.00 $175.00
Other equipment 1.00 $1,000.00 $1,000.00
Warehouse and logistic infrastructure $500.00
TOTAL $7,075.00

INVESTMENT 2017
Concept qty Cost (usd) Total Cost (usd)
Mixing equipment V.2 1.00 $2,000.00 $2,000.00
Hydraulic press with 2 barrels V.2 1.00 $3,200.00 $3,200.00
Boiler tank + 4 socket pasteurizing tank 1.00 $1,600.00 $1,600.00
Pasteurizing stainless steel tank (50l.) 5.00 $100.00 $500.00
Filtering equipment V.2 1.00 $2,000.00 $2,000.00
Other equipment 1.00 $2,500.00 $2,500.00
Warehouse and logistic infrastructure $8,000.00
TOTAL $19,800.00

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INVESTMENT 2018
Concept qty Cost (usd) Total Cost (usd)
Pasteurizing equipment 1.00 $2,500.00 $2,500.00
Filtering equipment 1.00 $1,800.00 $1,800.00
Other equipment 1.00 $400.00 $400.00
Motorbike vehicle 1.00 $1,800.00
Car vehicle 1.00 $6,000.00
Warehouse and logistic infrastructure $12,000.00
TOTAL $24,500.00

Next chart incorporates to the capital expenditures detailed above plus all the operational
expenses and product supplies inventory required for the commencing of the activity for
each year.
We understand as operational expenses all the expenses related to the activity such as
wages, non-product related supplies, marketing, communication and sales expenses,
rent, etc.
For product supplies we estimated a provision of 20% of the total annual direct product
cost (raw and packaging material) as working capital or stock inventory.

As a result of this calculations find above the estimated working capital required for each
year:

2016 2017 2018


Total working capital required $40,940.01 $129,193.50 $224,831.15

Provision for product supplies $4,137.51 $69,138.50 $145,096.15

Working capital for operational expenses $29,727.50 $40,255.00 $55,235.00

Investments required on capital expenditures $7,075.00 $19,800.00 $24,500.00

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VI.2 Product cost breakdown

2016 2017 2018


Concept/Activity Total cost (usd) Total cost (usd) Total cost (usd)
Aux. activity $1,326.50 $2,805.99 $5,611.98
Admin $276.50 $1,105.99 $2,211.98
Logistics and transportation $800.00 $1,200.00 $2,400.00
Supplies (electricity, fuel,etc) $250.00 $500.00 $1,000.00
Direct activities $493.55 $1,270.51 $2,339.17
1. Processing and refining $324.88 $1,028.57 $1,855.30
2. Packaging process $168.66 $241.94 $483.87
SUBTOTAL $1,820.05 $4,076.50 $7,951.15

Total cost (usd) Total cost (usd) Total cost (usd)


Total Material supplies $18,867.50 $65,062.00 $137,145.00
1. Avocado unrefined oil $16,000.00 $57,600.00 $122,000.00
2. Packaging $2,867.50 $7,462.00 $15,145.00
TOTAL $20,687.55 $69,138.50 $145,096.15

VI.3 Incomes forecasting/projection

Sales forecasting 2016 2017 2018


qty total qty total qty total

Small glass $10.00 1,500 $15,000.00 3,000 $30,000.00 6,000 $60,000.00


packaging (300ml.)

Restauration $69.00 100 $6,900.00 800 $55,200.00 2,000 $138,000.00


packaging (3L.)

Cosmetic Oil $6.50 500 $3,250.00 1,200 $7,800.00 3,000 $19,500.00


(250ml.)

Wholesale litter of
$16.00 1,000 $16,000.00 3,000 $48,000.00 5,000 $80,000.00
refined Oil

Total of Sales $41,150.00 $141,000.00 $297,500.00

Litters (L.) 5,875 18,600 33,550

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VI.4 Profit and Loss

Profit and Loss

2016 2017 2018

Sales $41,150.00 100% $141,000.00 100% $297,500.00 100%

Direct Cost of Sales $19,361.05 47% $66,332.51 47% $139,484.17 47%

Other Production Expenses $1,326.50 3% $2,805.99 2% $5,611.98 1.9%

Total Cost of Sales $20,687.55 50% $69,138.50 49% $145,096.15 49%

Gross Margin $20,462.45 50% $71,861.50 51% $152,403.85 51%

Project Manager salary $9,600.00 23% $12,000.00 9% $14,400.00 4.8%

Sales Manager salary $9,600.00 23% $12,000.00 9% $14,400.00 4.8%

Sales and Marketing $2,250.00 5% $4,500.00 3% $8,500.00 2.9%

Communication and internet $480.00 1% $660.00 0.5% $840.00 0.3%

Office supplies $150.00 0.4% $200.00 0.1% $350.00 0.1%

Transport/fuel $1,500.00 4% $2,200.00 2% $3,600.00 1.2%

Utilities $1,200.00 3% $1,800.00 1% $2,800.00 0.9%

Warehouse rent $1,440.00 3% $3,000.00 2% $4,000.00 1.3%

Equipment depreciation $707.50 2% $3,395.00 2% $5,845.00 2.0%

Other $2,800.00 7% $500.00 0.4% $500.00 0.2%

Total Operating Expenses $29,727.50 72% $40,255.00 29% $55,235.00 19%

Total Cost $50,415.05 121% $109,393.50 78% $200,331.15 67%

Profit Before Interest and Taxes -$9,265.05 -23% $31,606.50 22% $97,168.85 33%

Interest Expense $400.00

Taxes Incurred (30%) 4.7% 9.8%


- 6,582.44 29,150.65
Net Profit -$9,665.05 -23% $25,024.07 18% $68,018.19 23%

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VI.5 Projected balance sheet

Avomeru
Balance Sheet
[December 31, 2016]

Assets

Current Assets:
Cash $2,000
Accounts Receivable $3,429
Less: Reserve for Bad Debts 0 $3,429
Supply Inventory $4,634
Total Current Assets $10,063

Fixed Assets:

Furniture and Fixtures


Less: Accumulated Depreciation 0 $0

Equipment 6,575
Less: Accumulated Depreciation 658 $5,918

Buildings 500
Less: Accumulated Depreciation 50 $450

Total Fixed Assets $6,368

Total Assets $16,430

Liabilities and Capital

Current Liabilities:
Accounts Payable $2,667
Sales Taxes Payable $1,955
Payroll Taxes Payable $1,200
Short-Term Bank Loan Payable 0
Total Current Liabilities $5,821

Long-Term Liabilities:
Long-Term Loan Payable $4,000
Total Long-Term Liabilities $4,000

Total Liabilities $9,821

Capital:
Equity 15,874
Net Profit -9,265
Total Capital 6,609

Total Liabilities and Capital $16,430

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VI.6 Break-even analysis

The following chart calculates the UCM (Unit Contribution Margin) which is the revenues
per unit less unit variable costs.

The first chart shows the UCM for each product as well as a weighted average for each
year. With that information we can foresee how many products we need to sell in order
to cover the fixed costs know as break-even point.

Sale price 2016 2017 2018 Variable Cost UCM UCM %

Product A $ 10.00 1500 3000 6000 $ 4.14 $ 5.86 59%


Product B $ 69.00 100 800 2000 $ 31.59 $ 37.41 54%
Product C $ 6.50 500 1200 3000 $ 3.87 $ 2.63 40%
Product D $ 16.00 1000 3000 5000 $ 7.83 $ 8.17 51%

2016 2017 2018


Average UCM $ 13.27 $ 17.63 $ 18.59

Fixed cost $ 21,694.00 $ 43,060.99 $ 60,846.98

Break-even 1634 2443 3272


(product units)

On this second chart below you can see the UCM obtained per litre of oil during the 3
years projection.

2016 2017 2018


Litres 5875 18600 33550
Sales $ 41,150.00 $ 141,000.00 $ 297,500.00
Price x liter $ 7.00 $ 7.58 $ 8.87
Cost V $ 3.26 $ 3.53 $ 4.12
UCM/liter $ 3.75 $ 4.05 $ 4.74
Fixed cost $ 21,694.00 $ 43,060.99 $ 60,846.98

Break-even 5791 10632 12829


(liters)

The break-even analysis in that case shows the amount of litters needed to cover the
fixed expenses for each year. The results show a completely feasible scenario since
the fixed cost are not significant according to the small structure intended.

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VI.7 Business ratios

Find below the analyse of a couple of indicators which measure how profitability is
AVOMERU relative to its total Assets, shareholder Equity or Investment required.

2016 2017 2018

ROA (Return on Asset) -56% 45% 64%

As you can see the Return on Asset is considerably high since the investment and total
assets needed are not significant. During the first year the result is negative due to initial
loses. But from 2017 on the rate experiences a progressive increment up to 64% due to
low capital expenditure investment and high revenues.

2016 2017 2018

ROI (Return on Investment) -20% 19% 30%

The Return on Investment experiences lower figures than Return on Assets ratio which
indicates that operational expenditures are higher than capital expenditures or assets.
Still a really positive figure since the profitability still higher than what average
shareholder expects to obtain (around 20%)

2016 2017 2018

ROE (Return on Equity) -40% 33% 51%

With the Return on Equity we find out how much net profit AVOMERU creates with the
shareholders’ investment (equity). To calculate this ratio we include as well the cost of
equity as a 20% of the invested capital equity.

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VII Time line

May 2016 Start with the first round of investment

Jun 2016 Set-up first stage of processing plant in Leguruki

Aug 2016 Test the quality of the oil in a Laboratory

Identify and solve production problems

Sept 2016 Apply for business license and other legal registrations

Stablish clear roles and responsibilities among all the


partners and AVOMERU team members.

Oct 2016 Define and design a good quality control system.

Nov 2016 Start standardized trainings for each and every AVOMERU
processor

Jan 2017 Clear all the business license and other legal registrations

Mar 2017 Consolidate commercial relationships with Kenyan and


local partners.

April 2017 Milestone of 20 coops processing for AVOMERU

Jun 2017 Start with second round of investment

Start construction of bigger Leguruki processing facility

July 2017 Get the distinguishing certifications such as fair trade and
organic product.

Dec 2017 Stablish long-term partnerships with local and


international distributors

Feb 2018 Start with third round of investment

Aug 2018 Milestone of 60% sales from international market

Sept 2018 Consolidate a solid AVOMERU branding

Nov 2018 Milestone of 30.000 liters (2% of total TZ production)

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VIII Conclusion

AVOMERU team is convinced that by implementing properly this plan will meet our
financial goals in within 3 years. Following projections AVOMERU will achieve a
production equivalent to 2% of the total domestic avocado production (25.000mt).
The results show a completely feasible scenario since the fixed cost are not significant
compared with the expected revenues as we demonstrated with the return on asset ratio.
The investment required and expected net profits for the next years:

2016 2017 2018

Total working capital required $40,940.01 $129,193.50 $224,831.15

Net profit ‐$9,665.05 $25,024.07 $68,018.19

ROI (Return on Investment) ‐20% 19%  30%

AVOMERU team is determined to support and empower Leguruki farmers engaging


them as an integral part of the project keeping them highly motivated.
In the years to come with no doubt AVOMERU will become an important new player on
Avocado Oil Industry aiming to be one of the most notorious industrial small scale
producers from East Africa.

Take this exciting opportunity to get in on the ground floor of an ambitious company
with unlimited growth potential. “BE PART OF AVOMERU’S REVOLUTION”

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