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Pre-Feasibility Study

Superstore

Small and Medium Enterprise Development Authority


Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
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LDA Plaza, 8 Floor , Egerton Road, Lahore
Tel: (042) 111-111-456, Fax: (042) 5896619, 5899756
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April, 2005
DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject
matter and provide a general idea and information on the said area. All the material
included in this document is based on data/information gathered from various sources and
is based on certain assumptions. Although, due care and diligence has been taken to
compile this document, the contained information may vary due to any change in any of
the concerned factors, and the actual results may differ substantially from the presented
information. SMEDA does not assume any liability for any financial or other loss
resulting from this memorandum in consequence of undertaking this activity. Therefore,
the content of this memorandum should not be relied upon for making any decision,
investment or otherwise. The prospective user of this memorandum is encouraged to
carry out his / her own due diligence and gather any information he/she considers
necessary for making an informed decision.

The content of the information memorandum does not bind SMEDA in any legal or other
form.

DOCUMENT CONTROL
Document No. PREF-9
Revision 1
Prepared by SMEDA-Sindh
Approved by Provincial Chief - Sindh
Issue Date April, 2005
Issued by Library Officer
1 PURPOSE OF THE DOCUMENT ............................................................................................... 1

2 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT..................... 1

3 PROJECT PROFILE.................................................................................................................... 1
3.1 OPPORTUNITY RATIONALE ...................................................................................................... 1
3.2 PROJECT BRIEF ....................................................................................................................... 2
3.3 MARKET ENTRY TIMING ......................................................................................................... 2
3.4 PROPOSED BUSINESS LEGAL STATUS ....................................................................................... 2
3.5 PROJECT INVESTMENT ............................................................................................................. 3
3.6 PROPOSED PRODUCT MIX ........................................................................................................ 3
3.7 Key Success Factors.............................................................................................................. 3
3.8 PROPOSED LOCATION .............................................................................................................. 5

4 INDUSTRY ANALYSIS ................................................................................................................. 7


4.1 INDUSTRY OVERVIEW ............................................................................................................. 7
4.2 PROFIT MARGINS .................................................................................................................... 7
4.3 LEGAL ISSUES REGARDING INDUSTRY ..................................................................................... 8
5 MARKET INFORMATION ......................................................................................................... 8
5.1 MARKET POTENTIAL ............................................................................................................... 8
5.2 TARGET CUSTOMERS .............................................................................................................. 8
6 BUSINESS OPERATIONS........................................................................................................... 9
6.1 INVENTORY PROCUREMENT ..................................................................................................... 9
6.2 PRODUCT MIX OFFERED .......................................................................................................... 9
6.3 PRICING STRATEGIES .............................................................................................................. 9
6.4 CAPITAL EXPENDITURE ......................................................................................................... 10
6.5 BAR CODE FACILITY ............................................................................................................. 10
6.6 DISTRIBUTOR ANALYSIS ....................................................................................................... 11
7 LAND & BUILDING REQUIREMENT .................................................................................... 11
7.1 LAND REQUIREMENT ............................................................................................................ 11
7.2 RECOMMENDED MODE .......................................................................................................... 11
7.3 UTILITIES REQUIREMENT ...................................................................................................... 12

8 HUMAN RESOURCE REQUIREMENT................................................................................... 12

9 DISTRIBUTORS ANALYSIS....................................................................................................... 3

10 KEY ASSUMPTIONS................................................................................................................. 13
10.1 REVENUE ASSUMPTIONS ....................................................................................................... 13
10.2 PILFERAGES AND DAMAGES .................................................................................................. 14
10.3 DAYS OPERATIONAL.............................................................................................................. 14
11 PROJECTED FINANCIAL STATEMENTS ............................................................................. 15
11.1 INITIAL INVESTMENT........................................................................................................... 165
11.2 INCOME STATEMENT ............................................................................................................. 16
11.3 BALANCE SHEET .................................................................................................................. 17
11.4 PROJECTED CASH FLOW STATEMENT ..................................................................................... 18
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1 PURPOSE OF THE DOCUMENT


The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs
in project identification for investment. The project pre-feasibility may form the basis of
an important investment decision and in order to serve this objective, the document/study
covers various aspects of project concept development, start-up, production, marketing,
finance and business management. The document also provides sectoral information,
brief on government policies and international scenario, which have some bearing on the
project itself.
This particular pre-feasibility is regarding a supermarket which comes under the trade
sector. Before studying the whole document one must consider following critical aspects,
which forms the basis of any investment decision.

2 CRUCIAL FACTORS & STEPS IN DECISION MAKING FOR INVESTMENT


Before making any investment decision, it is advisable to evaluate the associated risk
factors by taking into consideration certain key elements. These include availability of
resources, academic knowledge, past experience and specific managerial and technical
skill set. At times evaluation and analysis of strengths, weaknesses, opportunities and
threats (SWOT) for a particular project serves the purpose of a basic tool in investment
decision making. The most critical factor in this project would be to generate sufficient
demand. The superstore sector is based on high volumes and low margins. If a smooth
flow of customers can be arranged the business is most likely to succeed.
This pre-feasibility study tries to capture all the important factors that can play an
instrumental role in the success of a project but all factors should be evaluated by the
investor for their own specific project design with its unique parameters.

3 PROJECT PROFILE
3. 1 Opportunity Rationale

In order to cater to the changing taste and growing needs of the consumers, different
companies have emerged with top quality products. For that reason the demand for super
markets is ever increasing which plays a vital role in making the product available from
the manufacturer to the final consumers.

Furthermore the increase in the living standards of people has increased the consumption
of imported goods, which leaves a good profit margin to entrepreneur. Furthermore the
provision of sponsors and schemes held by different companies also generates a good
amount of revenue for the entrepreneurs.

Supermarkets, which are expanding at the expense of traditional wet markets and small
independent shops, account for 10 percent of all retail food sales. Media exposure and
increased awareness about packaged and hygienic food has also shifted people from
Kiryana / general stores to super markets.

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Karachi is one of the fastest growing metropolitan cities of the country. Customers are
looking for convenient, safe and relaxed shopping places. They prefer to walk in the store
and pick their choice of merchandise. This itself will be a benefit to super market as self-
shopping increase impulsive buying which in result increase in sales.

The Pakistani economy is almost evenly divided between the commodity sector and the
services sector. The total contribution of services sector to real GDP is 48.7% of which
contribution of Wholesale and Retail is 15.4 %.

Supermarket is also one of the low risk businesses at the present scenario. Major
investment is either the land or sellable merchandise. Both have high cash liquidity in
case of severe economic problems.

3. 2 Project Brief
The proposed project will give a detail analysis of the investment criteria of a
supermarket. The project will shed light on the key factors to be considered in the starting
of this business. The required covered area of the land/space is 150 square yards.The
project will also require knowledge about the distributors, which play a vital role in
transferring the goods from the manufacturer to the retailer, the benefits if any provided
by them, their supply method etc.

3. 3 Market Entry Timing


There is no specific timing required to start this business as it is not a seasonal business.
With the influx of more and more imported and local goods the demand for supermarkets
is ever increasing which plays a vital role in making the product available from the
manufacturer to the final consumer.

However it is noted that sales of supermarket rises in the months of October—March, this
is primarily due to the occurrence of different traditional occasions like Ramzan, Eid-ul-
Fitr, Eid-ul-Azha and peek wedding seasons. Also another trend in the sales of
supermarket is the starting of the month effect where the first week of the month registers
a phenomenal increase in the sales as households are stocking their pantries with their
monthly groceries.

3. 4 Proposed Business Legal Status


Selection of the business status is totally dependent on the choice of the entrepreneur.
Since the scope of this project is relatively small, the business can be launched as a sole
proprietorship or as a partnership with relative ease.

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3. 5 Project Investment

Initial Financing Rs. in Actual


Debt 4,888,879
Equity 4,888,879
Total Investment 9,777,758

3. 6 Proposed Product Mix


Supermarket is defined as a place where following products are available under one roof,
and customer can select and pick his/her desired product by himself/herself. Following is
the standard list of super market products along with its shelf-space required in terms of
percentage.

Category Shelf space %


Groceries
Food 21
Non Food 11
Snacks 5
Frozen Food 11
Toiletries 10
House hold cleaning 7
Personal care 6
Cosmetics 5
Medicine 8
Childcare 3
Tobacco 1
Books/Magazine 2
Toys 3
Household products/Appliances 7
100%

3. 7 Key Success Factors/Practical Tips For Success


Before making any investment decision, it is advisable to evaluate the associated risk
factors by taking into consideration certain key element. In order to run the business
effectively and efficiently strategic planning plays a vital role to be successful. This
section will provide the entrepreneur with detail information relating to the strategic tips,
which will act as a basic tools in order to run the business successfully.

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The marketing concept states to sell a product keeping in view the customers needs and
wants. Super market being the product of the entrepreneur should be marketed
accordingly to be competitively successful. These can be done on the following basis:

3.7.1 DISPLAY
As now-a-days most customers indulge in self-shopping, the product should be displayed
in such a manner so that they are easily accessible. Keeping the large size product both
breathe wise and length wise should be kept on the ground, major selling product should
be kept on the second and third panel of the shelf so that it is easily accessible.

3. 7. 2 COURTESY OF THE STAFF

The staff hired should be well mannered and well trained in dealing with the customers.
Any complaints by the customers should be immediately noted down and action should
be taken.

3. 7. 3 KNOWLEDGE OF THE STAFF

The staff hired should have in-depth knowledge of all the products so that they are able to
provide information if any required by the customers. Special care should be taken in
hiring chemist for the medical section. A simple way to overcome this problem is by
assigning aisles to the sales staff.

3.7.4 SPONSORS FROM COMPANIES

The entrepreneur should try to gain sponsors from different companies so that they
advertise their products by giving free samples and also set up stalls outside the super
market so that customers get attracted.

3.7.5 RENT-OUT SHELF SPACE TO COMPANIES

One-way of earning is to rent shelf space to different companies for the display of their
products. Usually the entrepreneurs rent a small portion of there shelf to companies
where they can display their own products and also allow the companies to place their
own stands and thus pay the required amount of rent.One can sell shelf space from Rs.
1000 – Rs. 5,000 per month depending upon the product and the season.

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3.7.6 RENT ADVERTISEMENT SPACE TO COMPANIES

The entrepreneur also can rent advertisement space to companies where the companies
are allowed to place hoardings, banners, posters, sign boards consisting of the companies
product and also carrying the name of the super market.Inside board space can be rented
out to companies from Rs. 15,000 – Rs. 30,000 for a quarter.

3.7.7 DECREASE THE LOST SALES DUE INVENTORY SHORTAGES

The entrepreneur should be able to stock his inventory in such a way that he covers most
of the demands of the target customers. It casts a very negative image on the customers
perception of the shop if they are turned away with an excuse that a certain product is not
available either because of a sell-out or the shop doesn’t carry the product. To minimize
this problem the purchase section of the shop has to be managed efficiently.

3. 8 Proposed Location
Location plays a vital role in the starting of this business. Our proposed areas include
Clifton, Gulshan-E-Iqbal, Ghulistan-E-Johar, & North Nazimabad. These areas are
selected based on heavy population and a clutter of houses/apartments. The detail
analysis of the feasibility for opening a super market in these areas will be covered latter
in this report. The approximate no. of households in these areas are as follows:

Area Households A & B supermarkets


Gulshan-e-Iqbal 30,000 8-10
Gulistan-e-Johar 40,000 6-8
North Nazimabad 25,000 7-8
Clifton/Defence 12,000 15-20

The number of households in these areas include only A-B class households, with
monthly expenditure of around Rs. 2500-3000 on groceries and spending around Rs.100-
150 on daily purchases.

With a total investment of around 6 million (60 lacs) for shop purchasing with a total
covered area of 150 sq.yd. at Rs.40,000 per sq yd, the following areas will be suitable for
investment:

 GHULSHAN-E-IQBAL
 GHULISTAN-E-JOHAR
 NORTH NAZIMABAD
 P.E.C.H.S

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It is estimated that at any given time minimum of 4-5 customers may be present at the
shop. Therefore an ample space of 3-4 cars must be available either outside the
supermarket or very near.

The safety and security element must also be kept in mind in identifying the location.
Following are the five important elements to be considered in selecting the supermarket
location

 SIZE

 PRESENCE OF COMPETITION

 PROFILE OF CUSTOMER RESIDENTS

 PARKING SPACE

 SOCIOECONOMIC LEVEL OF RESIDENTS

It is suggested that the super market should be opened in a densely populated area where
these services are not being provided. Apart from that it should be opened in the center so
that it also covers the near by areas.

It is not advisable to open a super market in an area, which already comprises of number
of super markets since the market can become saturated, and also because the customers
may have become loyal to the existing super markets so that it will be difficult to win/pull
those customers.

Since this feasibility is based on A–class super market, our target is to achieve a 30%
market from small general stores and kiryana stores. A detail analysis of number of
households per supermarket will give the benefits of opening a supermarket in these
areas.

Area Households A & B Households/


supermarkets supermarkets

Gulshan-e-Iqbal 30,000 8-10 3000


Gulistan-e-Johar 40,000 6-8 5000
North Nazimabad 25,000 7-8 3125
Clifton/Defence 12,000 15-20 600

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4 INDUSTRY ANALYSIS
4. 1 Industry Overview
Supermarket is defined as a place where following products are available under one roof,
and customer can select and pick his/her desired product by himself/herself.

The retail industry has emerged to be one of the most rapid growing industries thus
attracting a substantial amount of investment in the business. Retail outlets like Naheed
Superstore, ARY Cash & Carry, Agha’s Supermarket, Paradise Supermarket, Imtiaz
Supermarket and Pace Supermarket are few modern style retail business.

According to a recent study by the United States embassy in Islamabad, the value of
processed retail food sales has grown 12 percent annually in Pakistan during the past
decade. Currently it is estimated at about $1.1 billion (about Rs 68 billion), including
$250 million (Rs 15.5 billion) for imported consumer food.

The Pakistani economy is almost evenly divided between the commodity sector and the
services sector. The total contribution of services sector to real GDP is 48.7% of which
contribution of Wholesale and Retail is 15.4 %.

As more and more retail outlets are opening and consumer buying has shifted towards
packaged/branded products. Companies are coming with top quality products and with
the increase in production level the employment also increases.Thus creating a need for
retail store to sell the product.One window trend has already emerged in Pakistani
market, where the consumer would like to buy groceries, food/non-food, toiletries and
household products under one roof.

4. 2 Profit Margins
Margins in supermarket merchandise varies from 7-20 percent, depending upon the
product category. It is safely estimated that average margin of 12-15 percent can be
calculated for the purpose of feasibility study.

Items Percentage Margin


Food 7-10
Non-food 15
Medicine 10-15
Toiletries 10
Cosmetics 15-20
Household products 15
Average Margin 15

The income statements and profitability are prepared on the basis of 15 percent margin.

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4. 3 Legal Issues Regarding Industry


Legal environment plays a crucial role in the workings of any sector. In Pakistan
awareness about regulations and policy framework is very minimal and limited access to
information effects negatively on the business operations. All Retail shops in Sindh have
to be registered with the City government. However most of the shops running their
businesses do not apply for the registration. Previously the shops were being registered
with the DHO but after the deregulation the Town offices are now also empowered by the
government to issue the Trade license. Additionally each shop operating as a medical
outlet has to be in possession of a license, which is issued by the office of Chief Drug
Inspector/ Regional Drug Inspector. In addition to such an outlet, the dispensing and the
compounding of medical prescriptions must be personally supervised by a pharmacist.

5 MARKET INFORMATION
5. 1 Market Potential
According to a survey report there are about 125,000 retail shops/outlets in Pakistan, out
of which 30,000 are located in major cities. Out of these about 50,000 are universal
stores/outlets. These are further sub-divided into the following categories:

Retail Industry Analysis


Category Size No.Of Outlets Type
A Very Large 300-500 Modern Trade outlet
B Upscale 5000-7000 Large General Store
C Medium 10000-15000 Small Shop
D Very Small 50,000 + Kiryana/Corner Shop

Stores in the latter three categories are usually owned by the sole proprietorship. In
addition hundreds of government-owned utility stores sell food and household items and
serve as a mechanism for restraining inflationary price increase by following the
government line on pricing.

5. 2 Target Customers
Since according to our analysis this is a class-A super market our target customers will be
according to that i.e. our customers will be those who spend around Rs. 2500-3500 in
monthly grocery purchase and also a visit of around 200 customers spending around
Rs.100-200 on daily purchase.

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6 BUSINESS OPERATIONS
6. 1 Inventory Procurement
In the prevailing market dynamics the individual retailers are buying their goods from
two sources, one is through the delivery vans of the distributors who visit the outlet after
a certain specified time. The other mode of purchasing is done through the traditional
wholesale markets like Jodia Bazaar where the retailers purchase their depleted stocks. It
is worth mentioning that the delivery vans of the distributors do not visit the micro level
retailers due to the high cost of distribution attached to the transactions.

6. 2 Product Mix Offered


Managing the merchandising mix involves decision about what products to carry, styles,
models, colors, sizes, and price ranges, and how many units of each product to have in
inventory. Many customers select one store over another because of the variety or
assortments of goods available.

The decision about size and content of any store is largely determined by the space
available. Adequate space to display an assortment of products is important for
customers’ comfort. Thus, an important decision involves the range of products that are
essential to satisfy the customers’ needs. A small number of products will probably
account for a large amount of sales volume. These products deserve special attention and
need to be stocked. Being out of preferred and highly demanded goods creates a negative
customer impression of the retailer.

In addition to a wide assortments of products on hand, retailers must also have stock
depth, that is, sufficient quantity of each product on hand to support sales.

6. 3 Pricing Strategies
Pricing decisions are a major challenge for most of the retailers. Price is a major factor in
dealing with competition from other retailers.

Many lines of merchandise have what is accepted as a market-level price. It is common to


find prices for normal general and medical items to be based on a standard markup
percentage that is similar for all competitors. Supermarkets often adhere to almost
identical prices so that competitors usually do not have a price advantage.

A retailer can adopt both a high pricing strategy or a low pricing strategy. In some cases a
store may offer something that permits it to set its prices higher than its competitors do.

Pricing below market levels is used by retailers who have decided to focus on lower
expenses, less service, and less ambience.Such a retail store attracts customers who are
extremely price conscious but tend to purchase their entire months grocery from these
type of retail stores.

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6. 4 Capital Expenditure
This section will provide a detail analysis of the estimates of the cost of furniture and
fixtures required to set the business. These will include items like:

The cost of one isle can be calculated on the basis of per Kg cost. The size of the isle can
be around 5 ft in width, 8 ft height and 1. 8 ft in depth. At least a 200 Kg isle will be
required to carry the weights of the items. Around 6 isles will be required. Further more
the cost of one split (2 ton) will cost around Rs. 35000-40000 with installation. Like wise
the cost of one refrigerator is around Rs, 26000-30000, and that of deep freezer is around
Rs.15000-20000. The cost of one tube light is around Rs. 60-65 and at least 25-30 tube
lights will be required. The table below will give a detail cost of these items.

Type of Equipment Quantity Value in Rs


Isles 6 60,000
Bar Code Equipment 1 219,000
Air conditioners(split type) 2 70,000
Refrigerators 2 90,000
Deep Freezers 2 40,000
Fixed Isles 5 50,000
Genset 1 80,000
Fans 4 6,000
Tube lights 25 1,500
Cash Machines 2 25,000
Front Glass Doors 1 27,000
Sign Board 1 30,000

6. 5 Bar code facility


All products can be entered into a computerized database using specific inventory
software. Bar codes will be issued at each product sku. Two bar code reader and two
computers linked together will be used. Once the data has been properly entered into the
database, then every product must carry a sticker with a barcode. This will increase the
performance of cash counter and organize the inventory in a better and proper form.

The cost of setting up the barcode reading system is estimated at Rs. 219,000. This is an
additional option but carries with it great benefits.The first and foremost benefit is that it
tremendously enhances the managements ability to tracks the depleted stocks so that
purchase orders can be placed with the suppliers timely in an effective and efficient
manner.Secondly this facility also enables the management to trace inventory

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pilferages.All in all this bar code facility enables the management to keep a complete
overview of the activities of the business.

Bar Code System Cost in Rs.


Customized Software 50,000
Two Computers 45,000
Server Machine 47,000
Barcode reader 30,000
Data Entry 50,000
Total Cost 222,000

6. 6 Distributor Analysis
Distributors play a vital role in transferring the product from the manufacturer to the
retailer and finally to the end consumer thus maintaining an integral part in the value
chain delivery.

Foreign companies considering marketing their products in Pakistan may choose to use
the services of local distributors or may develop their own distribution chain. Distributors
in urban areas generally deal on an exclusive basis. Some market consultants estimate
that the services of 100-300 distributors would be required for nationwide coverage. One
very large multinational company selling consumer products employ 500 distributors to
reach a significant portion of Pakistan’s small towns and villages.

As a matter of policy, most companies do not provide credit to distributors and


distributors in turn generally sell on a strictly cash basis to retailers. Smaller distributors
often do provide credit to retailers, but the volume of such transaction is relatively
insignificant.

It is ideal to get the required merchandise from various distributors. It is also possible to
have different payments arrangement with different distributors, such as, strictly cash,
credit, and bill-to-bill.

7 LAND & BUILDING REQUIREMENT


7. 1 Land Requirement
Land of approximately 150 square yards is required for setting up a medium sized
superstore in ‘A’ class Category.
7. 2 Recommended Mode
The preferable mode of acquisition for the land and building would be to purchase the
land because rented premises would be insecure and could lead to problems in the long
run. Purchasing the land is actually the real investment in this business next to inventory.
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If careful sight selection is observed a corner plot off the main road can be acquired at a
reasonable price.
7. 3 Utilities Requirement
In supermarket the only direct utility cost will be electricity and telephone charges.The
consumption of electricity will be lower in the winters as compared to the summers since
the air-conditioning will be shut, this will result in savings directly to the business.

8 HUMAN RESOURCE REQUIREMENT


In the business of running a super store the utilization of Human resource is a crucial
factor as each employee adds to the cost of doing business and such small operations can
not take great strains in the monthly costs.

Staff Description Rate Qty Monthly Yearly

Cashier 7000 2 14000 168000


Purchaser 5000 1 5000 60000
Salesman 4500 3 18000 162000
Helper 3500 2 7000 84000
Security Guard 5000 2 10000 120000
Total Yearly Salary 594000

Cashier will be responsible to make all the payments and receipts for purchases and sales
respectively. Also they will ensure that no counterfeit notes are forwarded into the cash
register of the store.

A purchaser will be commissioned to ensure that the depleted stocks are replaced as
quickly as possible. To achieve this target the purchaser will be required to receive the
distributor’s goods arriving in delivery vans in the morning and go to the whole sale
market in the evening to purchase emergency stocks and imported stuff.

Salesman will be required to price the goods and stack them in the shelves according to
their specifications. Furthermore they will assist the customers in locating the products.A
trained salesman is required to deal with the pharmacy section.

Helpers are next in place to the salesman who will assist them in their activities. Their
core job description will be to dust the products twice daily so that the customers don’t
get a negative image of the store. Additionally they will be required to help the cashiers
pack the goods in plastic bags.

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Security guards are essential for cash businesses like a retail store. Daily cash before
being deposited in the bank or used to purchase inventory in vulnerable to being lifted by
thieves.

9 DISTRIBUTORS ANALYSIS
Distributors play a vital role in transferring the product from the manufacturer to the
retailer and finally to the end consumer thus maintaining an integral part in the value
chain delivery.

Foreign companies considering marketing their products in Pakistan may choose to use
the services of local distributors or may develop their own distribution chain. Distributors
in urban areas generally deal on an exclusive basis. Some market consultants estimate
that the services of 100-300 distributors would be required for nationwide coverage. One
very large multinational company selling consumer products employ 500 distributors to
reach a significant portion of Pakistan’s small towns and villagers.

As a matter of policy, most companies do not provide credit to distributors and


distributors in turn generally sell on a strictly cash basis to retailers. Smaller distributors
often do provide credit to retailers, but the volume of such transaction is relatively
insignificant.

It is ideal to get the required merchandise from various distributors. It is also possible to
have different payments arrangement with different distributors, such as, strictly cash,
credit, and bill-to-bill.

10 KEY ASSUMPTIONS
10. 1 Revenue Assumptions
The entire feasibility is based on the following assumption:

Total household in the vicinity: 1000

Customer Customer Merchandise Daily Sales Monthly Sales


Category volume Daily Value
Category A 25 1,000 25,000 750,000
Category B 50 500 25,000 750,000
Category C 100 100 10,000 300,000
Category D 100 50 5,000 150,000
Total Annual Sales 23,400,000

Annual customer traffic growth rate:5%

Average merchandise value per customer growth rate:10%

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This will make up approximately Rs. 60,000 – Rs. 65,000 sales every day. It must be
noted that the sales numbers are calculated at a lower side. The potential of such type of
supermarket sales can go upto Rs. 90,000-125,000 per day within a small period of time.

One should also keep in mind that in such a business it is almost impossible to maintain
an error free inventory. Chances of pilferage and damages increases due to large number
of sizes and variety of products. It is estimated that minimum 1 percent of total cost of
sale will be account for such purpose.

10. 2 Pilferages and Damages


One should also keep in mind that in such a business it is almost impossible to maintain
an error free inventory. Chances of pilferage and damages increases due to large number
of sizes and variety of products. It is estimated that minimum 1 percent of total cost of
sale will be account for such purpose.

10. 3 Days Operational :


The superstore will have to operate at full operational capacity as possible.It will have to
remain open for all days except gazetted public holidays under compliance with the
Shops and Establishment act.

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11 PROJECTED FINANCIAL STATEMENTS


Statement Summaries
Initial Investment

Capital Investment Rs. in actuals


Land 6,000,000
Building/Infrastructure 489,000
Machinery & equipment 1,080,000
Furniture & fixtures 83,200
Office vehicles -
Office equipment 224,500
Pre-operating costs 168,000
Training costs -
Total Capital Costs 8,044,700

Working Capital Rs. in actuals


Equipment spare part inventory -
Inventory 1,611,458
Upfront land lease rental -
Upfront building rent -
Upfront machinery & equipment lease rental * -
Upfront office equipment lease rental * -
Upfront office vehicles lease rental * -
Upfront insurance payment 21,600
Cash 100,000
Total Working Capital 1,733,058

Total Investment 9,777,758

Initial Financing Rs. in actuals


Debt 4,888,879
Equity 4,888,879
Lease -
Export re-finance facility -
* Provisioning for the first year installments

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11. 1 Projected Income Statement

Statement Summaries SMEDA


Income Statement
Rs. in actuals
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Revenue 22,750,000 25,095,000 27,716,850 30,649,150 33,939,500 37,616,950 41,737,500 46,348,050 51,512,650 58,114,000
Cost of goods sold 20,337,784 22,429,495 24,766,222 27,377,479 30,304,776 33,573,955 37,233,884 41,325,815 45,905,719 51,725,568
Gross Profit 2,412,216 2,665,505 2,950,628 3,271,671 3,634,724 4,042,995 4,503,616 5,022,235 5,606,931 6,388,432

General administration & selling expenses


Administration expense - - - - - - - - - -
Rental expense - - - - - - - - - -
Utilities expense - - - - - - - - - -
Travelling & Comm. expense (phone, fax, etc.) - - - - - - - - - -
Office vehicles running expense - - - - - - - - - -
Office expenses (stationary, etc.) - - - - - - - - - -
Promotional expense 22,750 25,095 27,717 30,649 33,940 37,617 41,738 46,348 51,513 58,114
Insurance expense 21,600 19,440 17,280 15,120 12,960 10,800 8,640 6,480 4,320 2,160
Professional fees (legal, audit, etc.) 22,750 25,095 27,717 30,649 33,940 37,617 41,738 46,348 51,513 58,114
Depreciation expense 163,220 163,220 163,220 163,220 163,220 163,220 163,220 163,220 163,220 163,220
Amortization expense 33,600 33,600 33,600 33,600 33,600 - - - - -
Property tax expense - - - - - - - - - -
Miscellaneous expense 227,500 250,950 277,169 306,492 339,395 376,170 417,375 463,481 515,127 581,140
Subtotal 491,420 517,400 546,702 579,730 617,054 625,423 672,710 725,877 785,692 862,748
Operating Income 1,920,796 2,148,105 2,403,926 2,691,941 3,017,670 3,417,571 3,830,906 4,296,358 4,821,239 5,525,684

Other income 8,898 27,864 58,955 96,348 140,938 197,389 267,113 348,048 440,517 641,564
Gain / (loss) on sale of assets - - - - - - - - - -
Earnings Before Interest & Taxes 1,929,694 2,175,970 2,462,881 2,788,289 3,158,608 3,614,961 4,098,020 4,644,406 5,261,756 6,167,249

Interest expense 519,414 476,417 428,444 374,920 315,202 260,328 213,512 161,278 103,000 37,979
Earnings Before Tax 1,410,281 1,699,553 2,034,437 2,413,370 2,843,406 3,354,633 3,884,508 4,483,128 5,158,756 6,129,270

Tax 366,098 467,344 584,553 717,179 867,692 1,046,622 1,232,078 1,441,595 1,678,064 2,017,745
NET PROFIT/(LOSS) AFTER TAX 1,044,182 1,232,209 1,449,884 1,696,190 1,975,714 2,308,011 2,652,430 3,041,533 3,480,691 4,111,526

Balance brought forward 522,091 1,754,301 3,204,185 4,900,375 6,876,089 9,184,100 11,836,531 14,878,064 18,358,755
Total profit available for appropriation 1,044,182 1,754,301 3,204,185 4,900,375 6,876,089 9,184,100 11,836,531 14,878,064 18,358,755 22,470,281
Dividend 522,091 - - - - - - - - -
Balance carried forward 522,091 1,754,301 3,204,185 4,900,375 6,876,089 9,184,100 11,836,531 14,878,064 18,358,755 22,470,281

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11. 2 Projected Balance Sheet


Statement Summaries SMEDA
Balance Sheet
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Assets
Current assets
Cash & Bank 100,000 344,901 1,048,313 1,899,437 2,917,980 4,128,911 5,740,563 7,615,110 9,787,280 12,238,562 19,839,660
Accounts receivable - - - - - - - - - - -
Finished goods inventory - - - - - - - - - - -
Equipment spare part inventory - - - - - - - - - - -
Raw material inventory 1,611,458 1,777,563 1,963,277 2,170,981 2,404,048 2,664,534 2,956,406 3,282,987 3,648,813 4,116,408 -
Pre-paid annual land lease - - - - - - - - - - -
Pre-paid building rent - - - - - - - - - - -
Pre-paid lease interest - - - - - - - - - - -
Pre-paid insurance 21,600 19,440 17,280 15,120 12,960 10,800 8,640 6,480 4,320 2,160 -
Total Current Assets 1,733,058 2,141,904 3,028,870 4,085,538 5,334,988 6,804,245 8,705,609 10,904,576 13,440,413 16,357,130 19,839,660

Fixed assets
Land 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000 6,000,000
Building/Infrastructure 489,000 464,550 440,100 415,650 391,200 366,750 342,300 317,850 293,400 268,950 244,500
Machinery & equipment 1,080,000 972,000 864,000 756,000 648,000 540,000 432,000 324,000 216,000 108,000 -
Furniture & fixtures 83,200 74,880 66,560 58,240 49,920 41,600 33,280 24,960 16,640 8,320 -
Office vehicles - - - - - - - - - - -
Office equipment 224,500 202,050 179,600 157,150 134,700 112,250 89,800 67,350 44,900 22,450 -
Total Fixed Assets 7,876,700 7,713,480 7,550,260 7,387,040 7,223,820 7,060,600 6,897,380 6,734,160 6,570,940 6,407,720 6,244,500

Intangible assets
Pre-operation costs 168,000 134,400 100,800 67,200 33,600 - - - - - -
Legal, licensing, & training costs - - - - - - - - - - -
Total Intangible Assets 168,000 134,400 100,800 67,200 33,600 - - - - - -
TOTAL ASSETS 9,777,758 9,989,784 10,679,930 11,539,778 12,592,408 13,864,845 15,602,989 17,638,736 20,011,353 22,764,850 26,084,160

Liabilities & Shareholders' Equity


Current liabilities
Accounts payable - - - - - - - - - - -
Export re-finance facility - - - - - - - - - - -
Short term debt - - - - - - - - - - -
Other liabilities - - - - - - - - - - -
Total Current Liabilities - - - - - - - - - - -

Other liabilities
Lease payable - - - - - - - - - - -
Deferred tax - 61,500 (66,000) (193,500) (321,000) (448,500) (613,800) (779,100) (944,400) (1,109,700) (1,275,000)
Long term debt 4,888,879 4,517,313 4,102,750 3,640,214 3,124,154 2,548,376 2,143,809 1,692,427 1,188,810 626,916 -
Total Long Term Liabilities 4,888,879 4,578,813 4,036,750 3,446,714 2,803,154 2,099,876 1,530,009 913,327 244,410 (482,784) (1,275,000)

Shareholders' equity
Paid-up capital 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879 4,888,879
Retained earnings - 522,091 1,754,301 3,204,185 4,900,375 6,876,089 9,184,100 11,836,531 14,878,064 18,358,755 22,470,281
Total Equity 4,888,879 5,410,970 6,643,180 8,093,064 9,789,254 11,764,968 14,072,980 16,725,410 19,766,943 23,247,634 27,359,160
TOTAL CAPITAL AND LIABILITIES 9,777,758 9,989,784 10,679,930 11,539,778 12,592,408 13,864,845 15,602,989 17,638,736 20,011,353 22,764,850 26,084,160

Note: Total assets value will differ from project cost due to first installment of leases paid at the start of year 0
- - - - - - - - - - 0

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11. 3 Projected Cash Flow Statement


- - - - - - - - - - 0

Statement Summaries SMEDA


Cash Flow Statement
Rs. in actuals
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Operating activities
Net profit - 1,044,182 1,232,209 1,449,884 1,696,190 1,975,714 2,308,011 2,652,430 3,041,533 3,480,691 4,111,526
Add: depreciation expense - 163,220 163,220 163,220 163,220 163,220 163,220 163,220 163,220 163,220 163,220
amortization expense - 33,600 33,600 33,600 33,600 33,600 - - - - -
Deferred income tax - 61,500 (127,500) (127,500) (127,500) (127,500) (165,300) (165,300) (165,300) (165,300) (165,300)
Accounts receivable - - - - - - - - - - -
Finished good inventory - - - - - - - - - - -
Equipment inventory - - - - - - - - - - -
Raw material inventory (1,611,458) (166,104) (185,714) (207,705) (233,066) (260,486) (291,872) (326,581) (365,826) (467,596) 4,116,408
Pre-paid building rent - - - - - - - - - - -
Pre-paid lease interest - - - - - - - - - - -
Advance insurance premium (21,600) 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160 2,160
Accounts payable - - - - - - - - - - -
Other liabilities - - - - - - - - - - -
Cash provided by operations (1,633,058) 1,138,558 1,117,975 1,313,660 1,534,604 1,786,708 2,016,219 2,325,930 2,675,787 3,013,176 8,228,014

Financing activities
Change in long term debt 4,888,879 (371,566) (414,563) (462,536) (516,060) (575,778) (404,567) (451,383) (503,616) (561,894) (626,916)
Change in short term debt - - - - - - - - - - -
Change in export re-finance facility - - - - - - - - - - -
Add: land lease expense - - - - - - - - - - -
Land lease payment - - - - - - - - - - -
Change in lease financing - - - - - - - - - - -
Issuance of shares 4,888,879 - - - - - - - - - -
Purchase of (treasury) shares - - - - - - - - - - -
Cash provided by / (used for) financing activities
9,777,758 (371,566) (414,563) (462,536) (516,060) (575,778) (404,567) (451,383) (503,616) (561,894) (626,916)

Investing activities
Capital expenditure (8,044,700) - - - - - - - - - -
Acquisitions - - - - - - - - - - -
Cash (used for) / provided by investing activities
(8,044,700) - - - - - - - - - -

NET CASH 100,000 766,992 703,412 851,124 1,018,544 1,210,930 1,611,652 1,874,547 2,172,171 2,451,281 7,601,098

Cash balance brought forward 100,000 344,901 1,048,313 1,899,437 2,917,980 4,128,911 5,740,563 7,615,110 9,787,280 12,238,562
Cash available for appropriation 100,000 866,992 1,048,313 1,899,437 2,917,980 4,128,911 5,740,563 7,615,110 9,787,280 12,238,562 19,839,660
Dividend - 522,091 - - - - - - - - -
Cash carried forward 100,000 344,901 1,048,313 1,899,437 2,917,980 4,128,911 5,740,563 7,615,110 9,787,280 12,238,562 19,839,660

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The following are the list of few distributors operating in Karachi city:

 PREMIER DISTRIBUTOR

24. M.A Jinnah road Muslimabad tele # 4946223

 APEX MARKETING SERVICES

Plot no. L-28-C, block no. 21, Federal B Area, Karachi


Tele # 021-6376712-3-4-5

 M/S GIZRI CORPORATION

Maqbool Manzil, 43/4-D, block 6, S. Abdul Latif Road, P.EC.H.S, Karachi.


Tele 0214553132 / 4386617

 M/S THE CHANNELS:

F-53/1, Block # F, North Nazimabad Karachi


Tele# 021 – 6678881-2

 DISTRIBUTION NETWORK Pvt Ltd:

C-8 C Area Blk –7/8 K.C.H.S.U S/Millat Rd


Tele # 021-452890

 IBL Pvt Ltd

41 O Block 6., Dr. Mehmood Hussain Rd. P.E.C.H.S, Karachi


Tele # 111828282

 DISTRIBUTORS SERVICE Ltd

Mehar Sons Estate Talpur Rd.


Tele # 021-2411523

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PREF-9/April, 2005/Rev1