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Project Feasibility for Bakery and Confectionery Business


BY ADIL ANWAR

ADIL ANWAR 1/1/2012

CONTENTS
Chapter 1: Executive Summary-Business and Project Profile ............................. 5 1.1 Project/Business Plan Brief ................................................................................... 5 1.2 Project Potential Capacity and Prospect ............................................................... 5 1-3 Business Investment ............................................................................................. 6 1-4 Proposed Product Mix .......................................................................................... 7 1-5 Business Legal Status ........................................................................................... 7 1-6 Financial Mix Summary ....................................................................................... 7 Chapter 2: Introduction-Strategic Industry and Market Profile ........................ 9 2.1 Structure of Industry ............................................................................................. 9 2.2 Sector and Industry Analysis .............................................................................. 10 2.3 Classification of Bakery Products ....................................................................... 12 2.4 Consumer Characteristics and Factors Affecting Demand ................................ 13 2.5 Economic Factors Affecting Bakery Food Products .......................................... 15 Chapter 3: Technical Feasibility ............................................................................ 19 3.1 Land and Building ............................................................................................... 19 3.2 Technology and Process...................................................................................... 19 3.3 Raw Material ....................................................................................................... 23 3.4 Human Resource Requirement ........................................................................... 25 Chapter 4: Marketing Plan .................................................................................... 28 4.1 Marketing Vision ................................................................................................ 28 4.2 The Product Mix ................................................................................................. 29 4.3 Market Segmentation .......................................................................................... 29 4.3.1 Market Analysis ....................................................................................... 30 4.3.2 Socio-demographic Trends of Bakery Food Items .................................. 30 4.3.3 Purchase / Consumption Behavior ........................................................... 32 4.3.4 Factors Considered Important in Purchasing Bakery Food Products ...... 34 4.3.5 Market Size of Bakery Food Products ..................................................... 35 4.3.6 Market Value of Bakery Food Products .................................................. 35
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4.4 Target Market Segment Strategy ........................................................................ 36 4.4.1 Market Needs ........................................................................................... 37 4.5 Positioning ........................................................................................................... 38 4.6 Market Trends in Consumption of Bakery Food Products ................................. 38 4.6.1 Competition and Buying Patterns ............................................................ 39 4.7 Marketing Mix Strategies.................................................................................... 41 4.7.1 Product Strategy ....................................................................................... 41 4.7.2 Price Strategy ........................................................................................... 43 4.7.3 Place Strategy ........................................................................................... 43 4.7.4 Promotion Strategy .................................................................................. 44 4.8 Key Success Factors ............................................................................................ 44 4.9 SWOT Analysis .................................................................................................. 45 Chapter 5: Financial Plan ...................................................................................... 47 5.1 Project Capital Costs ........................................................................................... 48 5.2 Projected Income Statement................................................................................ 49 5.3 Projected Balance Sheet ...................................................................................... 50 5.4 Projected Cash Flow Statement .......................................................................... 51 5.5 Summary of Financial Objectives ....................................................................... 52 5.6 DuPont Analysis.................................................................................................. 52 5.7 Project Viability .................................................................................................. 52 5.8 Key Assumptions ................................................................................................ 53

Chapter 1 Executive Summary-Business and Project Profile.

Chapter 1: Executive Summary-Business and Project Profile 1.1 Project/Business Plan Brief The proposed business plan and project feasibility presents an investment prospect in setting up a retail/wholesale Bakery and Confectionery. Major bakery products would be cakes, snacks, sweets, pastries, biscuits, bread and general food items. To market bakery products to cross section of consumer population, a combination of two outlets, one in a lowincome area and another in a high income area, is used in this business plan study along with 25% sales to other bakeries at trade discount of 10%. This combination can be different according to the final site selection and amount of investment being incurred by individual investor. Although for this particular business plan only Bakery & Confectionery items along with general items will be offered. 1.2 Project Potential Capacity and Prospect Project Potential Capacity The project potential capacity cannot be based on machinery capacity, as the same oven will contain different capacities for different bakery products. Bakery comes under wholesale/retail segment and this business segment is considered to be labor intensive. The proposed bakery wholesale/retail outlet will be working from 6.00 am morning to 12.00 midnight. These outlets determine the factory timing for production. Two shifts of sixteen hours duration will be required for production to make business plan successful and practical. These two shifts include only 3 or 4 pure working hours. Main plant & machinery includes industrial oven in which different items are baked with different temperatures and different baking timings. Industrial ovens are easily available in market. For the proposed project, oven of 7x7x10 feet with 8 rotating stands having 5 trays on each stand is used. So the oven capacity will be: 60-kg biscuits in 30 baking minutes at a temperature of 150 degree centigrade. 120 pieces of large Pizza in 20-25 minutes at a temperature of 150 -180 degree centigrade. Number of working days has been taken as 355 with average 2 shifts per day. Initial Capacity of the Bakery & Confectionery is calculated on the basis of total estimated sales of items. The supply of other food products (Bakers and Confectioners) is sufficient to fulfill customer needs but in such an industry opportunity, growth and higher sales are achieved through a demand pull generated by introducing new and innovative products, product substitution and varied packaging. Maximum sales are expected in traditional occasions such as religious festival and weddings months and in winter or spring season. However, in order to calculate average monthly sales, potential revenue is estimated by using the potential demand estimates. The estimated combination of sales is as given below:
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1. 75-80% sales to own outlets. 2. 20-25% sales to other bakeries It is estimated that annual increase in sales would be 5%. Although due diligence is carried out in estimating these numbers, the final outcome will vary depending on the selection of location, pricing, product mix and the marketing strategies. Project Prospect The prospect of Bakery & Confectionery business plan can be linked with the food consumption behavior and lifestyle of the people. People in Pakistan enjoy the traditional food very well but recently many international food chains have brought change in food consumption behavior in Pakistan. Bakery items have short shelf life and so they are normally consumed as they are bought. Abundant availability of raw material is another factor to start bakery unit. Now people are becoming adapted to changing lifestyle and trends and in this context Bakery & Confectionery chain can play an important role in this new era as it is the only source which provides not only traditional bakery items but also new lines and countless varieties of confectionery items. 1-3 Business Investment Total cost of the business worked out is in the table below: Table 1-1: Business Costs Capital investment Working capital Requirement Total Investment Rs 18,844,744 Rs 1,108,113 Rs 19,952,857

This feasibility is based on the assumption of 50% debt and 50% equity (including land). However this financial mix of debt and equity can be changed as per the requirement of the investor. Table 1-2: Project Financing Debt Equity Total Investment 50% 50% Rs 9,976,429 Rs 9,976,429 Rs 19,952,857

Table 1-3: Viability NPV IRR Pay back (years)


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Rs 15,693,517 29% 3.44

1-4 Proposed Product Mix This business plan and feasibility is developed for a project based on a production plant along with 2 retail outlets and outside sales with a mix of city areas. Selection and number of outlets would totally depend upon the mix of target population. For example if we start this venture in bigger cities, one might select more sophisticated outlets with the emphasis on best decor and interior design. But in case of smaller cities, one would prefer to go for a mix, which has more traditional products. It is also recommended to change the mix of both bakery and general items according to sale trends of a particular outlet. In a common bakery major products like breads and cakes account for 40 percent of commercial bakery sales. About 20 percent of sales come from rolls, buns, muffins, bagels and croissants; 10 percent from pies, pastries, donuts and a variety of sweet goods. In this study it is assumed that 30% sales will be consisting of general items but this combination would be different in different outlets and according to consumer behaviors. 1-5 Business Legal Status This wholesale/retail bakery and confectionery business will be started as a sole proprietorship. This business plan and feasibility is based on a Sole Proprietorship. 1-6 Financial Mix Summary The financial cost of the project can be summarized as: Table 1-4: Financial Summary Debt Equity Split Projected Life Repayment of Long Term Loan Grace period for Long Term Loan Markup Rate for Long Term Loan 50:50 10 Years 5 Years 1Year 16%

Chapter 2 Introduction-Strategic Industry and Market Profile

Chapter 2: Introduction-Strategic Industry and Market Profile 2.1 Structure of Industry Historically, the bakery industry established itself close to population centers. Because bread and cake products were perishable, proximity to a customer base was a primary concern. The modern bakery product retailing/manufacturing industry sells a range of products, with over hundred varieties of bread being manufactured along with other food products. The industry also manufactures a wide variety of bakery goods such as savory pastries and sweet foods such as cakes, pies, tarts, waffles and pancakes. Overall, the industry is highly fragmented in line with consumer tastes and buying patterns. Baking and Confectionery industry can be divided into four segments: Retail, Wholesale, Instore and Food service. Retail A retail bakery is a low-volume facility, where a variety of baked goods are produced and sold to consumers from the same location. Generally retail bakers produce and sell on the premises and cater to the demand for fresh baked goods such as bread, rolls and pastries, made from "scratch" or from frozen dough supplied by wholesale bakers. For statistical purposes, they are considered "retailers" rather than manufacturers. Retail bakeries in a city with million population may comprise more than thousand firms, with estimated annual sales of more than hundred million rupees. Wholesale Wholesale bakers are part of the manufacturing sector of the economy and consist of three broad segments: cake, bread and related products, frozen bakery products and crackers and cookies. In economy, for statistical purposes, they are referred to under Pakistan Standard Industrial Classification code (PSIC-4630) as Wholesale and Retail Bakery Products Manufacturers. Firms in this industry produce goods in volume, in manufacturing operations and are normally also responsible for the distribution/selling of their products. Products include all types of bread, rolls (sweet and unsweetened), pizza dough, pizza crusts cakes, pies, fruit pies, frozen dessert pies doughnuts, muffins, pastries (uncooked refrigerated and frozen), ice cream cones wafers, and matzo baking. The wholesale bakery industry includes a growing sub-set of firms that specialize in the production of frozen pre-mixed dough, frozen par-baked (partially-baked) goods and frozen pre-formed products that are primarily sold to small retail outlets or in-store bakeries. These outlets perform the final baking operations which generally involve little or no skill before selling fresh finished products to consumers. Products that are typical of this trade include croissants, specialty breads (e.g., sour dough,

baguettes), buns, puff pastry dough, turnovers, Danish dough products, cinnamon buns and frozen muffin mixes. Some frozen baked products only require thawing prior to serving. In-Store and Food Service In-store bakeries are found in grocery stores and are relatively small but offer a substantial range of fresh baked products, with increasing amounts of whole-grain breads being produced. In-store bakers are located at the distribution center (a supermarket), which purchases frozen dough from a wholesale plant and bakes products at the supermarket. The process of bake-off includes defrosting dough, proofing, and baking. Baked goods in the food service sector are those served in restaurants and cafeterias, and they are generally produced by a wholesale bakery. The food service segment includes full-service restaurants and hotel eateries, fast-food outlets, take-out and delivery joints, and company and school cafeterias. 2.2 Sector and Industry Analysis Bakery and confectionery business is emerging as one of the revenue and profit generating business ventures in Pakistan as it provides varieties of bakery items. This phenomenon grew rapidly and today thousands of bakeries exist in the big cities. The wholesale/retail baking industry is considered fragmented. This is even more obvious at the start-up level of an organization. Many are not well-capitalized and do not have the professional staff to put together a company that is able to withstand the competitive forces in the market. The average size of bakery plants is very small. Over the decades, the bakeries have evolved even further. Now, one sees that often larger varieties of mock tails and cocktails, sweets, cakes, pastries etc. Bakery stores business falls under wholesale retail sector. This sector has shown a significant growth over the last few years. Wholesale and retail trade subsector covers the trading activities in the economy, and value added in this sector reflects the margins taken by the traders for transactions of domestically produced and imported products, in the wholesale and retail markets. Services rendered by hotels and restaurants are also a component of this sub-sector. The wholesale & retail trade is the largest component of the services sector, contributing on average approximately one-third of the value addition in the services sector during the preceding four years. The FY10 growth for this sub-sector has been 5.1 percent the lowest growth rate in this sub-sector since FY07 (7.1), but still it has outperformed many other industries. The slowdown not only reflects the sharp deceleration in imports growth during the year, but also the impact of a deceleration in LSM (large scale manufacturing) growth during FY10 which stood at 4.4 percent. Its contribution to growth was 0.9 percent compared to 0.5 for LSM. In 20010-11 this sector showed a growth of 3.9% (provincial). It is important to note that this sector is transforming towards modernization with the entry of large multinational chain stores. These new entrants are likely to bring new
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culture, management techniques and inventory systems, which would help the domestic trade sector to upgrade itself in the same lines. This sectors contribution towards GDP in the year 2010-11 is 17.2%. Table 2-1 shows the contribution of retail and wholesale sector towards GDP for the last 6 years at almost constant factor cost. Table 2-1: Contribution of retail and whole sale sector towards GDP YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 SHARE %AGE 18.7 17.2 17.1 16.8 16.0 16.1 17.2 GROWTH %AGE 12.0 -2.4 5.8 5.3 3.1 4.6 3.9

Source: Economic Survey of Pakistan (2004-2011).

Gross fixed capital formation (Investment in fixed assets) in this industry by private sector has also shown a progressive trend. In year 2005-06 growth in gross fixed capital formation by private sector has shown an increase of 17.2%. The following table shows gross fixed capital formation by the private sector for the last five years: Table 2-2: Gross fixed capital formation by private sector in wholesale and retail sector at constant prices (Rupees in Million) YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 RETAIL AND WHOLESALE SECTOR RS. IN MILLION 15,165 18,123 22,578 23,816 23,059 23,968

Source: Economic Survey of Pakistan (2004-2010).

There are hundreds of bakery stores in Islamabad, Lahore, Rawalpindi, Faisalabad, Multan, Gujranwala and this number is increasing day by day. Although in Pakistan the retail business is not providing employment at a large scale directly, but indirectly it is contributing in the employment growth. As more and more retail outlets are opening and consumer buying has shifted towards unbranded products. Bakeries are coming with top quality products and with the increase in production level the employment also increases. Size of Bakery Plants Since the manufacturing technology of bakery products is similar, a common size of bakery plant has sales ranging from 10,000 to 40,000 kg., weekly flour usage ranging from 500 to 5000 kg. per week, and employees ranging from 15 to 30. This size is common for plants
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producing breads, bagels, frozen dough, croissants, sweet goods, donuts, cakes, and cookies. 2.3 Classification of Bakery Products Technically bakery products can be classified as low moisture, intermediate moisture and high moisture products. Low moisture products comprise cookies and crackers, products with long shelf life. Intermediate moisture products comprise doughnuts, Danish pastries, cream filled cakes, soft cakes etc. High moisture bakery products include bread, cheese cakes, yeast raised products etc with lowest shelf life. Common characteristic of bakery products is that they are all heat treated and they are wholly or partially based on wheat as major ingredient. Almost all the bakeries also sell non-bakery products as well. Following bakery products are most common while all other bakery products are more or less extension of these products. Table 2-3. Common bakery/confectionery products. Cakes Bread Doughnuts Bagels Snacks Desserts & puddings Cookies & Crackers Pies Pastries & croissants Sweets

Source: Baked products: science, technology and practice by Stanely P. Cauvain and & Linda S. Young.

The wholesale and retail baking industry produces two basic types of breads--yeast breads and quick breads. Yeast breads were leavened with yeast. Quick breads used other leavening agents such as baking powder. Baking powder, which also worked by producing carbon dioxide, produced results more quickly than yeast. Quick breads included such products as muffins, loaves, and biscuits. The most popular kind of bread is white bread made from white flour. French breads are made without milk, sugar, and shortening. Their characteristic texture is created by injecting steam into the oven during baking, and the flavor comes from the wheat itself. "Whole wheat breads" are made from whole wheat flour, and "wheat bread" is made from a blend of white flour and whole wheat flour. Other bread varieties are made with white flours of varying coarseness. Rye breads are made with a mixture of rye flour and wheat flour because rye flour by itself does not possess the chemical properties necessary to produce a leavened product. In addition to its bread products, the retail bakery also produces cakes. Cakes are typically made from pourable batters. The basic ingredients are flour, liquid, eggs, and leavening agents--plus flavorings and sometimes fat. The rising action of a baking cake is similar to the leavening action of bread. When a cake bakes, steam and gases cause the batter to expand. Different types of cakes are classified according to how they are leavened and whether they contain fat. Two broad cake classifications are foam cakes and butter cakes. Foam cakes, typically airy and mild, are primarily leavened with air. One way in which this is
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accomplished is by beating egg whites and folding them into the mixture. Examples of foam cakes include angel food cake and sponge cake. Butter cakes rely on leavening agents such as baking powder, baking soda, or yeast. Butter cakes are typically tenderer and possess a smoother texture than foam cakes. Examples include layer cakes and pound cakes. Other types of cakes do not easily fit these traditional distinctions. Chiffon cakes use egg whites and baking powder for leavening. Doughnuts provide a tasty snack and can be eaten for breakfast. Usually sweet and deep fried; doughnuts come with a hole in the middle or as a solid piece filled with items such as jelly, creams or custards. Doughnuts can be baked in an oven instead of deep fried. Common doughnut toppings include powdered sugar, glaze and caramel. The two main types of doughnuts include yeast and cake. Yeast doughnuts are lighter and fluffier. Cake doughnuts tend to be heavier. The majority of doughnuts have a round shape with or without toppings. Bagels, popular breakfast items, are usually made of yeast wheat dough and come in the form of a ring. Bagels have a thick and tough exterior that is crisp and often browned. Common bagel toppings include poppy and sesame seeds. Most bakeries carry bagels, although bagel shops specialize in bagels only. Bakeries sell pies as dessert items. A pie is a baked dish consisting of layers of pastry dough that form a shell and have sweet or sour fillings. Pies can also be filled with meat and eaten as a dinner, however such pies are rarely found in bakeries. Some traditional varieties of pies sold in bakeries include apple, strawberry, blackberry, cherry, cream, custard, key lime and lemon meringue. Pastries refer to baked goods made with ingredients that often include butter, sugar, shortening, flour, baking powder and eggs. Pastries, higher in fat content than breads, include small desserts and quiches. Other types include Danish pastry and croissants. 2.4 Consumer Characteristics and Factors Affecting Demand Changing consumer life styles have a benign impact on the demand of ready-to-go bakery products. Driven by advertising initiatives, consumer preferences are continually changing in favor of new packaged products, chocolates and other snacks. Independent retailers and wholesalers are still the largest delivery channel to customers. As urban life styles change at an increasing pace, two income household have led to increased premium on time and supplemented income, resulting in rising demand for prepared packaged foods. Consumers are generally becoming more quality conscious, fully aware of leading brands in market. Consumption of bakery products has generally increased over the 2000-2010 period. However, this trend varies, depending on the market segment and region examined. In Pakistan, the national average monthly expenditure on food products for middle income families is 42% for
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year 2011 while for poor it is 70%. As a result of higher food prices, food expenditure increased disproportionally to total expenditure compared to base year 2005-06. The changes in per capita consumption of food can be explained partly by changes in the demand structure for food on account of changes in demographic factors, changes in economic well-being, and, most importantly, a change in consumer preferences due to changes in consumer tastes. In the past share of food in household expenditures has been declining for years, while expenses on transport, medical care, education and housing are rising. This trend has changed recently due to higher food prices. To maintain a basic diet, many households are forced to increase their food expenditures at the expense of non food expenditures. In 2005/06, households spent on average 40 percent of their total consumption expenditures on food followed by 14 percent on rent and 6-7 percent each on transport and clothes. Expenditures on medical care (5 percent) and education (3 percent) were relatively low. In relative terms, the increase is more pronounced in rural areas, where food expenditure rose by 10 percent and total expenditure by 4 percent, though in absolute figures the increase has been higher in urban areas. Simulation results show that the poorest quintile spends 13 percent more on food than two years ago, while the richest quintile spends only 5 percent more. Pakistan has a large growing middle-income class (estimated at about 25% of the total population). It also has a large and growing young population and over 55 percent are in 1040 years age bracket. The upper middle-income class is currently estimated at 17 million, with relatively high per capita income which favors consumer spending. Since 2000 demand for specialized products targeted at the middle-income consumers have increased significantly. On average a Pakistani consumes 2,372 kcal daily (HIES 2005/06). The diet is dominated by cereals, and particularly by wheat. Wheat accounts for 35 percent of kcal intake, while protein consumption is less than 9 percent of kcal intake, below internationally recommended levels (10-12 percent). The urban population consumes slightly less kcal (2,335kcal/ capita/ day) than the rural population (2,397 kcal), however the diet is more diverse. The share of cereals in overall kcal intake is 45 percent in rural areas, compared to 38 percent in urban areas. Bakery products account for approximately two-thirds of the expenditures on total food products. Compared to other food products, the bakery products market is approaching towards maturity, and growth in wholesale retail segment of this market is driven primarily by new product introductions and extensions of existing product lines. Several factors have been suggested to explain recent changes in bakery product consumption. The three most important are increasing convenience/quick preparation time in the marketing of foods, the growing youth population and the youth entering job market. Consumers are increasingly relying on
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semi-prepared, restaurant-prepared, and other convenient, ready-to-eat meal options. Bakery products sold to other service industry sectors are expected to increase by more than twenty five percent. At least some of this anticipated growth comes at the expense of supermarkets and grocery stores, which have been experiencing declines in sales values. The overall impact of these trends is unclear on the bakery products market. Both the restaurant and grocery store markets are important channels for bakery products. However, as already discussed, the drive for increase convenience may be shifting consumption between different types of bakery products. 2.5 Economic Factors Affecting Bakery Food Products Energy and Other Manufacturing Costs For almost all producers of grain based foods, energy costs are an important factor. Most of these products are baked or dried in high temperature ovens. Therefore, rising energy (electricity and gas) costs along with outages in the recent past have adversely impacted the profitability of grain-based food producers. These energy outages resulted in bakeries losing entire production runs. Labor Costs Bakery production tends to be relatively more labor-intensive, because the short shelf life of the products requires frequent inventory turnover and prevents retail and whole sale bakeries from achieving large economies of scale. This sometimes requires multiple production locations to serve different geographic markets of size and area. According to labor policy 2010 the minimum wages have been raised by 16% from Rs. 6000 of the previous year to Rs. 7000 per month. Even in a streamlined method of baking and place where decently sized bakery staff is occupied the entire day, the cost of labor can reach in the area of 20-30% of the bakery's profit. Wheat and Wheat Flour Costs For bread and roll producers, flour is estimated to represent between 15 percent and 20 percent of the cost of production. Baked breads account for 40 percent of bakery sales. About 20 percent of sales come from rolls, buns, muffins, bagels and croissants; 10 percent from soft cakes; and the rest from pies, pastries, donuts and a variety of sweet goods. The supply and price of wheat flour are important factors in bakery operations. The type of wheat flour utilized depends on the type of bakery product. Bread and roll producers generally use hard wheat, which has higher protein levels. Conversely, cookie, pastry, cake, and cereal producers generally use soft wheat. From 1990-91 to 2001-02, per capita wheat consumption averaged 131 kg/person/year. For the three year period, 2002-032004-05, however, per capita wheat availability (consumption) fell by 14 percent to 113 kg/year. As a result of the reduced
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availability, real prices of wheat and wheat flour rose by 21 and 19 percent, respectively, from 2001-02 to 2004-05. Increase in support prices of wheat resulted in sharp increase in prices of bakery products. Wheat inflation is largely emanating from a few factors such as smuggling of wheat to neighboring countries, higher cost of transportation, higher agriculture costs, energy/milling costs etc.

Table 2-4: Procurement/support prices of wheat. Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 Prices of wheat, Rs per 40 Kg 400 415 425 625 950 950

Source: Ministry of Agriculture, Food and livestock (2004-2010).

The price of wheat started rising in May 2007 and has been on an upward path ever since (figure 2-2). Wheat price inflation contributes significantly to the general inflation in the Pakistan economy and the latter exceeded 20 percent in 200809. Figure 2-2. Wheat price Rs/Kg. (2006-2009)

Source: Federal Bureau of Statistics.

Sugar and Other Bakery Ingredients Costs For cookie, pastry, and other sweet good products, sugar is most important ingredient for production bakery and confectionery products. Sugar as a share of the total cost of production varies considerably among different bakery products. Sugar prices have also fluctuated considerably. Sugar prices are significantly higher than world prices (table 2-5). This differential in sugar prices has resulted in sharp increase in bakery product prices. Prices

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of other ingredients such as shortening and cocoa have also increased which has impacted overall price stability of bakery products. Table 2-5: Procurement/support prices of sugar. YEAR 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 PRICES OF SUGAR, RS PER 40 KG 42 45 60* 60 80 100

Source: Ministry of Agriculture, Food and livestock (2004-2010). *Sugar prices fixed by provincial governments.

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Chapter 3 Technical Feasibility

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Chapter 3: Technical Feasibility 3.1 Land and Building For manufacturing of baked products, proposed factory will be consisting of 23 Marlas of land whereas the shop areas will be 900 sq. ft for each outlet and will be rented out. The rate of land is taken as Rs. 200,000 per marla The development charges are taken to be 10% of the land cost. Double story building will be used, sweets, fresh cream and dry cake rooms will be on first floor. The details of the building and civil works is as below: Table 3-1: Land & Covered Area requirement
SR. NO. PARTICULARS AREA SQ. FEET COST PER SQ. FEET PRESENT BOOK VALUE AMOUNT (000)

1 2 3 4 5

Factory Sweets Production Room Fresh cake, pastries production room Dry cake production room Biscuits production room Snacks production room Source: www.zameen.com. Mode of Land Acquisition

600 400 400 400 600

800 800 800 800 800

480,000 320,000 320,000 320,000 480,000

480 320 320 320 480

It is proposed to purchase land & building for the factory. The total cost of purchase of land has been included in fixed assets. The land for outlets will be acquired on rent. Approximately 900 square feet area is desirable for the outlet, which is easily available at about Rs.30,000 to Rs 40,000 per month. In this feasibility study we have taken Rs. 40,000 per month as shop rent. Utilities Requirement Main utilities would be gas, power and water. Distribution transformer station, loading capacity averaging 10 KW, 3-phase industrial meter is estimated to fulfill the requirement of power. B-1 category is required for electric consumption. Monthly gas consumption is estimated at 46 HM3 on average for the project. Water supply would be through local municipality. 3.2 Technology and Process The proposed project will be using local machinery or used (second hand) imported machinery available locally. Local machinery and installations are quite competitive in price in comparison to the foreign equipment and installations. Additionally, it is linked with the viability of the project as the foreign new machinery and installation would not be feasible due to the high costs involved. Major suppliers of Local and used imported machinery are: Bakexcel Associates, Karachi Saeed Fabrication Works, Lahore
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Resource Merchandise Pakistan is one of those countries where abundance of merchandise is available in wholesale markets of every city. Suppliers normally hesitate to supply goods on credit to new stores but after confidence building process a reasonable credit period of 15 days to one month is available to purchasers. The major wholesale markets in Lahore and Rawalpindi are: Shahalam Market/Rang Mahal Akbari Mandi Metro Macro Cosmo Cash and Carry Hall Road Urdu Bazar Abid Market Temple Road Moochi Gate Anwari Gate Rawalpindi Matro Islamabad Cosmo Cash and Carry Rawalpindi CSD Rawalpindi Raja Bazaar, Rawalpindi Nankari Bazar, Rawalpindi Machinery Requirement and Layout Plant and Machinery for the proposed project and layout are stated below. The required machinery is easily available in the market. Used and new machinery can be purchased from different markets in Lahore and Gujranwala. Table 3-2: Machinery Details Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Particulars Flour sifter Spiral mixture Planetary mixture Oven Dyes Sheeter Burner Deep freezers Frier Packing machine C S equipment Fixed/rolling racks Local Local Local Local Local Imported Local Local Local Local Local Local
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No. of Items 1 1 3 1 250 1 2 2 1 2 1 10

Cost per item 100,000 230,000 300,000 350,000 85 650,000 20,000 36,000 100,000 50,000 550,000 15,000

Original value 100,000 230,000 300,000 350,000 21,250 650,000 40,000 72,000 100,000 100,000 550,000 150,000

Amount 100 230 300 350 21.25 650 40 72 100 100 550 150

13 Generators Local 3 175,000 14 Trays Local 350 120 15 Tool, equip, knives Local 50,000 Depreciation rate (%) 10% 628 Depreciation is charged at 10% pa at written down value. Figure 3-3: Bakery Machinery Layout

525,000 42,000 50,000 32,80,250

525 42 50 3,280.25

Source: web site of G. Cinelli-Esperia Corporation, Italy.

1. Proofer/Retarder or Final Steam Proofer 2. Single Rack 3. Rack for automatic loader conveyor 4. Cyclothermic Deck Oven 5. Automatic Loader/Unloader 6. Reach-in Refrigerator 7. Work Table 8. Refrigerated Work Table 9. Semi-Automatic Divider Rounder 10. Slicer 11. Mixer 100kg. (fixed bowl) 12. Volumetric Bread Divider 13. Panini Machine 14. Conical Rounder 15. Overhead Bread Proofer 16. CG/200Kg(2S) STL-H 17. Water Meter (qty. 2) 18. Reversible Sheeter c/w croissant cutter 19. Mini Croissant Former c/w stand 20. Planetary Mixer table top 21. Mini Rack Oven Repair & Maintenance Annual Repair & Maintenance of the plant and machinery is estimated to be 1 % from Year 14 and 1.5 % from Year 5 10 of the total machinery cost.
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Erection & Installation Erections and installation cost is assumed to be 10% of the total cost of machinery. Furniture and Fixtures Following furniture and fixtures will be required for factory and sales outlets: Table 3-3: Details of Furniture and Fixtures
SR. NO. PARTICULARS NO. OF SHOPS NO OF ITEMS COST PER ITEM ORIGINAL VALUE AMOUNT (000)

1 2 3 4 5 6 7 8

Table for production Chairs, tables, furniture Air conditioners Vertical freezers Electric installation & other utilities Weighing scales Microwave oven Computer & accessories Shops Air conditioners Cabinet chillers Vertical freezers Designer cost Interior designing cost Weighing scales Cash counter Microwave oven Sign board Electric installation & other utilities

4 3 2 1 1 1

30,000 120,000 40,000 75,000 50,000

120,000 120,000 120,000 75,000 50,000

120 120 120 75 50 30 12 90 617 160 240 64 100 400 30 50 18 60 100 1,722 2,339

15,000 30,000 12,000 12,000 90,000 90,000 TOTAL (A) 40,000 120,000 32,000 50,000 450,000 15,000 25,000 9,000 30,000 50,000 160,000 240,000 64,000 100,000 400,000 30,000 50,000 18,000 60,000 100,000

1 2 3 4 5 6 7 8 9 10

2 2 2 2 2 2 2 2 2 2

2 1 1 1 1 1 1 1 1 1

TOTAL (B) TOTAL (A+B) Motor Vehicles

Along with the above mentioned machinery and equipment the proposed business will also be using two pickups and one motorcycle. Each pick up will be costing around Rs. 900,000 while the motorcycle will be acquired for Rs. 68,000. Table 3-4: Vehicle
SR. NO. NAME OF VEHICLE QUANTITY ORIGINAL VALUE PRESENT BOOK VALUE AMOUNT (RS. 000)

1 2

Shehzore (second hand) Motor cycle

2 1

900,000 68,000

1800,000 68,000 TOTAL

1,800 68 1,868

22

3.3 Raw Material As the proposed bakery is going to offer a variety of products, a number of ingredients will be used for manufacturing bakery items. Some ingredients for basic items are listed below: Table 3-5: Plain Cakes
INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Butter Sugar Maida B Powder Eggs Flavour Cream+Honey Total

Kg Kg Kg Kg Pcs Ltr Kg

21.73% 3.86% 28.97% 0.97% 34.77% 0.05% 9.66% 100%

240 70 39 60 7 450 280

1750 311 2333 78 72482 4 778

419,982 21,777 90,996 4,666 507,373 1,750 217,768 1,046,544

Table 3-6: Plain Fruit Cake


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Butter Sugar Maida Baking powder Fruit chunks Semolina Eggs Flavor Total

Kg Kg Kg Kg Pcs Kg Pcs Ltr

24.50% 3.92% 24.50% 0.98% 29.40% 4.90% 11.76% 0.05% 100%

240 70 39 60 43 98 7 450

1973 316 1973 79 2368 395 24161 4

473,505 22,097 76,945 4,735 101,804 38,670 169,124 1,776 888,655

Table 3-7: Dry Cakes


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Butter Sugar Maida B Powder Eggs Flavour Cream+Honey Total

Kg Kg Kg Kg Pcs Ltr Kg

22.17% 3.94% 27.09% 0.99% 35.47% 0.49% 9.85% 100% Table 3-8: Nimko

240 70 39 60 7 450 280

3571 635 4364 159 144,964 79 1,587

856,928 44,433 170,195 9,521 1,014,746 35,705 444,333 2,131,530

INGREDIENTS

UNIT OF MEASURE

%AGE OF INGREDIENTS

COST IN RS

QUANTITY

TOTAL COST IN RS

Baison Dry Fruit Channay

Kg Kg Kg

68.29% 19.51% 9.76%


23

78 128 98

1212 346 173

94,551 44,332 16,971

Nimko masala Total

Kg

2.44% 100%

123

43

5,325 3,412,708

Table 3-9: Sweets


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Khoya Maida Eggs Ghee Sugar syrup Total

Kg Kg Kg Kg Kg

33.82% 21.74% 15.46% 14.49% 14.49% 100%

190 39 7 160 780

5402 3473 10,650 2,315 2,315

1,026,413 135,440 74,550 370,435 1,805,870 3,412,708

Table 3-10: Chicken Bread


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Maida Oil Yeast Sugar Salt Chicken Onion Masala Cheese Mayonaise&Kup Mix vegetable Total

Kg Kg Kg Kg Kg Kg Kg Kg Kg Kg Kg

14.65% 1.95% 0.20% 2.44% 0.20% 34.18% 12.21% 4.88% 9.77% 4.88% 14.65% 100%

39 128 180 70 8 300 40 84 800 90 80

1,040 139 14 173 14 2,427 867 347 693 347 1,040

40,562 17,750 2,496 12,134 111 728,027 34,668 29,121 554,668 31,201 83,203 1,533,961

Table 3-11: Pastries & Puff


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Butter Sugar Maida B Powder Eggs Flavour Fresh Cream Total

Kg Kg Kg Kg Pcs Ltr Kg

12.21% 9.77% 12.21% 0.20% 15.63% 0.20% 49.80% 100%

280 85 39 60 7 495 220

1573 1258 1573 25 51,543 25 6,418

440,428 106,961 61,345 1,510 360,799 12,458 1,411,886 2,395,387

Table 3-12: Chicken Pizzas


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Maida Oil Yeast

Kg Kg Kg

19.48% 1.46% 0.10%


24

39 128 180

3533 265 18

137,778 33,915 3,179

Sugar Salt Chicken Onion Masala Cheese Mayonaise&Kup Mix vegetable Total

Kg Kg Kg Kg Kg Kg Kg Kg

1.94% 0.39% 29.13% 19.42% 3.88% 9.71% 4.85% 9.71% 100%

70 8 300 40 84 800 90 80

353 71 5299 3533 707 1766 883 1766

24,729 565 1,589,745 141,311 59,350 1,413,107 79,487 141,311 3,624,478

Table 3-13: Biscuits


INGREDIENTS UNIT OF MEASURE %AGE OF INGREDIENTS COST IN RS QUANTITY TOTAL COST IN RS

Butter Sugar Maida B Powder Eggs Flavour Total

Kg Kg Kg Kg Pcs Ltr

16.39% 14.46% 33.75% 0.48% 34.72% 0.19% 100%

280 85 39 60 7 495

4001 3530 8237 118 219,656 47

1,120,287 300,077 321,259 7,061 1,537,594 23,300 3,309,577

Table 3-14: Chicken Drum Stick, Chicken Leg Piece, Chicken Shami, Chicken Sandwich, Chicken Patties, Chicken Bread Roll.
PRODUCTS UNITS OF MEASURE TOTAL COST IN RS

Chicken drum stick Chicken leg piece Chicken shami Chicken sandwich Chicken patties Chicken bread roll 3.4 Human Resource Requirement

Pcs Pcs Pcs Pcs Pcs Pcs

33.6 50.4 12.32 25.2 15.68 16.8

For the bakery business, following direct labor will be required for the factory. Table 3-15: Factory wages and salaries
SR. NO DESIGNATION NO OF EMPLOYEES MONTHLY SALARY ANNUAL SALARY RS. 000

1 2 3 4 5 6 7 8

CEO & Production manager Production supervisor Main chef Helpers Dispatchers Electrician Drivers Security guards

1 1 3 6 2 1 1 2

35000 18000 15000 7000 7000 8000 10000 7500 Total

420 216 540 504 168 96 120 180 2,028

25

Human resources for the business is shown in the organogram and listed in table below: Figure 3-4: Human Resource Organogram

CEO & production manager Admin Officer Marketing Accountant

& Sales Manager

Production

supervisor

Driver (1)

Security Guards (2)

Sweeper

Supervisors (2)

Assistant Accountant

Cashier

Sales man

Dispatch ers (2)

Main Chef (3)

Helper s (6)

Table 3-16: Administrative and selling staff


SR. NO DESIGNATION OF EMPLOYEE NO OF EMPLOYEES MONTHLY SALARY ANNUAL SALARY RS. 000

1 2 3 4

Marketing & sales manager Admin officer Accountant Asst. Accountant

1 1 1 1

25000 12000 18000 10000 Total

300 144 216 120 780

There will be two sales outlets. Details of the shop staff are given in the following table: Table 3-17: Shop staff
SR. NO DESIGNATION SHOPS MONTHLY SALARY ANNUAL SALARY RS. 000

1 2 3 4 5

Cashier Supervisor Sales man Sweeper Security guard

2 2 2 1 2

8000 10000 8000 7000 7500 Total

384 240 960 168 360 2,112

26

Chapter 4 Marketing Plan

27

Chapter 4: Marketing Plan 4.1 Marketing Vision Sun Shine Bakery and Confectionery is built around the belief that eating healthy, hygienically prepared food products can have a significant impact on a person's health and attitude, as well as the environment. Sun Shine Bakery and Confectionery also believes that customers can have great tasting baked goods and quick-dining experience if the right attention is paid to satisfy changing customer preferences for quality and consistency and be responsive to various seasons and festive of the year. Sun Shine Bakery and Confectionery will launch a first outlet location at Islamabad (F sector) and Rawalpindi simultaneously to serve customers from all walks of life and build a local brand which can be leveraged into additional locations in the coming years. Sun Shine Bakery and Confectionery will communicate through advertising, referral marketing, and a loyalty program. This marketing plan will allow the owner, to focus his marketing efforts by taking the long view, and looking for results on a daily and weekly basis to see that the chosen tactics are successful. Goals Personal Goals: Devote at least 25 hours per month specifically to marketing. Obtain at least one speaking engagement to employees per month related to bakery food. Set up operations in such a way that it is possible to take two weeks vacation in second year of operation. Business Goals: Achieve total annual operating profit of Rs 10,598,000 in year 2. Achieve average monthly spend per customer of Rs 1500 by end of year 3. Strategic Goals: Expansion for new products in the fourth year of operation after the concept and brand has been proven. Achieve 99.5% customer satisfaction (199 in 200 customers leaves satisfied) Achieve 15% market of bakery goods customers by end of year 3 Tactical Goals: Reach 5,000 club card holders by end of year 3 Achieve Sun Shine Bakery and Confectionery club membership of 3,500 by end of year 3 Have 15 business referral partners by end of year 3

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4.2 The Product Mix Most bakery units vary their product mix depending upon the size of store and its location. Sun Shine Bakery & Confectionery will carry a broad selection of bakery products, as well as variety of non-bakery items instead of selling typically more limited range of bakery items. In the beginning retail sales mix by product type will be approximately 73% bakery items, 14% food items and 8% specialty and branded beverages along with light meal. 4.3 Market Segmentation Sun Shine Bakery & Confectionery focuses on the middle and upper income markets. The main demographic and psychographic segments in this market are young house wives, children, students and business people of 15 year old to 55 year old. They represent more than 70% population of Islamabad and Rawalpindi and represent groups of people sharing similar behavior patterns and reasons for patronizing Sun Shine Bakery products. Sun Shine Bakery & Confectionery snacks and sandwiches is a haven for busy and successful business men who want to enjoy and escape from daily chores of work life. These people will value the high quality product presented without pretension. Our customers will also appreciate the fun and fast service whether celebrating a birthday or stopping in before going home. These market segments consume the majority of confectionery and bakery products. This will establish a healthy, consistent revenue base to ensure stability of the business, while high visibility and competitive products and service are critical to capture this segment of the market.

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4.3.1 Market Analysis Market survey for analysis of wholesale/retail bakery food products was undertaken to explore consumption pattern, consumer behavior and their perception of bakery products in the market. The survey was carried randomly and opinions of 100 consumers of bakery food products were recorded on a questionnaire. 4.3.2 Socio-demographic Trends of Bakery Food Items By Age: An analysis (Table 1) by age reveals that the heaviest users, forming 41% of respondents, of bakery items are males and females in the >45 age group. Breaking down their consumption pattern with respect to age reveals that 16% of these use 1-2 kg, 8% use 2 kg and 12% use 1kg, 1-2 times a week (Table4.3.3). Household
Table 4.3.1: Demographic Profile of Respondents
Demographic charcteristics Age (years) 16-25 26-35 36-45 >45 Total Occupation Businessman Manager Professional Govt. officer Technician Housewife Clerk Total Income (Rs) 8000-10000 12000-18000 20000-25000 >25000 Total Male n 16 32 08 35 91 03 10 19 31 04 00 24 91 16 16 02 60 94

composition is undoubtedly an important factor here-household in this age group are more likely than most to be providing for families with older children and teenagers, who tend to consume large

%
17.5 35.2 8.80 38.5 100 3.30 11.0 20.8 34.0 4.40 00 26.3 100 17.0 17.0 2.12 63.8 100

Female n 00 01 02 06 09 00 00 03 00 00 06 00 09 00 04 02 00 06

% 00 11.1 22.2 66.6 100 00 00 33.3 00 00 66.7 00 100 00 66.7 33.3 00 100

Total n 16 33 10 41 100 03 10 22 31 04 06 24 100 16 20 04 60 100

% 16.0 33.0 10.0 41.0 100 3.10 10.0 22.0 31.0 4.00 6.00 24.0 100 16.0 20.0 4.0 20.0 100

quantities of bakery items as snacks. The age bands on either side of this group (8% of 16 to 25 age consume 1-2kg, 4% use 2kg and 4% use 1kg and 4% of age 36 to 45 consume 1-2kg and 4% use 1kg) show less than average usage of bakery items, presumably size

because

small

household

consumption of bakery item is less when compared to large

Source: Field survey data, 2011

household. This is directly related to their income as well. Bakery food usage drops sharply at middle age (36 to 4510%)an age group that often coincides with younger household size. This reinforces the importance of the family market in terms of volume consumption of bakery items. As a result of the market analysis conducted on people eating bakery products it was determined that 41% of the consumers coming to bakeries were more than 45 years old and 33% were aged 26 to 35 years.

30

By Social Grade: The status of bakery items as something of a commodity product is confirmed by the fact that the highest usage is to be found among those in the high income socio-economic groups (60%--table 4.3.1) 24% of said they buy it 1-2 times a week. Those in the lower-earning group are the lowest users of bread, with 8% and 4% buying 2-3 times per week and 1-2 times a week (table 4.3.2). One reason for this is that bakery items especially standard bakery items is a particularly cheap staple item in the diet, and it makes sense for those on lower incomes to consume it in greater quantities than more expensive alternatives. Eating habits might also play a dominant role in selection of bakery food; for example, those in the high income socio-economic groups are generally more likely to be adventurous in their eating habits, and to experiment with variety of new bakery items. There is something of a polarization among those in different income socio-economic group, which
Rs 8000-10000 Rs 1200018000 Rs 2000025000 Rs > 25000

Table 4.3.2: Income and Purchase Frequency of Respondents


Income 1-2 times a week 8% 8% Purchase Frequency 2-3 times a week 8% Once in month 4% 5-6 times /month 4%

24%

4% 12%

20%

8%

contains a relatively high proportion of heavy users of bakery food products, but also a high proportion of light users. This group occupies the majority consumers because of large families and younger people with low income. By Occupation: Customer

Source: Field survey data, 2011

Table 4.3.3: Age versus Amount Consumed


Age (years) Amount Consumed 1-2 kg 16-25 26-35 36-45 >45 8% 16% 4% 16% 2 kg 4% 4% 8% 1kg 4% 20% 4% 12%

demographics of Rawalpindi and Islamabad (2 million and 0.9 million

Source: Field survey data, 2011

population) which consists of seven major occupational groups comprises businessmen 3.1%, managers 10%, professionals comprises 22%, govt. officials 31%, technicians 4%, housewife 6% and clerks 24% (table 4.3.1). They form the middle-income class with relatively high per capita income and consumer spending. Over the years demand for specialized bakery products targeted for sales at the potential middle-income consumers, has increased significantly. Govt. officers tend to form large consumers (31%) occupational group for bakery products and this is followed by clerks (24%) (table 4.3.1). Large consumers occupational groups are likely to be diverse in their eating habits and they are more likely to try new products where as it is assumed that consumer
31

in the occupation category of clerks tends to buy low cost standard bakery products. Consumption of ready-to-eat bakery food products is greater in urban areas because of higher disposable incomes and access to modern style of food. This customer base who is high wage earners in the bracket of Rs25000 forms the largest purchasers of bakery products (table 4.3.1). Mixed response was obtained from other occupational categories but they form important group when it comes to consuming new and/or traditional expensive bakery products since they can drive bakery sales up. 4.3.3 Purchase / Consumption Behavior Frequency of Purchase: About 32%
Percentage Respondents

(figure 4.3.3) of the respondents purchased bakery items at intervals of one to two times a week and once a month. While 24% reported to be purchasing 2-3 times a week. This is more likely to be in direct correlation with the household size and income level. The results indicated that, the

35% FIGURE 4.3.3 CONSUMER PURCHASE FREQUENCY 30% 32% 32% 25% 24% 20% 15% 10% 5% 0% 1-2 times a 2-3 times a once in 5-6times a week week month month Purchase Frequency 12%

predominant purchase frequency for those with high income and large household size ranges from one week (24%) to one month (20%) as indicated in table 4.3.2. Consumption Pattern: Respondents would consume bakery products on special occasions as well as for taste and pleasure (figure 4.3.4). It was observed that bakery products were consumed as and when the need arises. A (44%) higher to
Percentage Respondents

tendency

consume bakery food is during arrival of guests but respondents also consume for taste (24%) (24%) and when

pleasure

50%FIGURE 45% 40% 44% 35% 30% 25% 20% 15% 10% 5% 0% guests

4.3.4 CONSUMPTION PATTERN

24%

24%

4% taste birthday pleasure party Consumption Attributes

4% on the road eating

everyone was at home. This suggests that bakery

products are also considered as a family treat and shared more or less among family members and guests.

32

Pack Size Usually Purchased: The predominant pack size usually bought was 1kg and 1-2 kg. 44% of respondents
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Percentage Respondents

prefer 1-2kg pack size while 40% prefer to buy 1kg (figure 4.3.5). There is not large difference between

FIGURE 4.3.5 PACK SIZE USUALLY PURCHASED


44% 40%

these two sizes suggesting that these two pack sizes seem to be more convenient to consumers. Only 16% consumers said that they

16%

1kg

1-2kg Pack Size

> 2kg

would buy > 2kg pack size of bakery product. This may be due to consumer becoming price sensitive over larger pack sizes of bakery products. Consumer spending: 72% of the consumers said that they would like
Percentage respondents

FIGURE 4.3.6 CONSUMER SPENDING ON BAKERY PRODUCT


80% 60% 72%

to spend Rs200-400 in the purchase of bakery products (figure 4.3.6). This high percentage suggests that consumers are generally not price sensitive and bakery food has

40%
20% 0% 16% Rs 150 12% Rs 200-400 Rs 500 Amount spent in Rs

become a part of their staple diet/food. There is not much

difference between low spenders (16%) and very high spenders (12%) on bakery, suggesting consumer will buy bakery products irrespective price of the product. Decision on Purchase: Generally, the respondents were the ones deciding on which brand and type of bakery product to be purchased. On the whole, the choice of bakery items depended largely on the adults preferences. The head of household appeared to have complete say in the choice brands or types of bakery products to be purchased. Other influences include the respondents own consumption experiences and persuasive effects of advertisements and promotions. Generally, there is perceived distinct differentiation between the various brands. Adventurous / Habit Based Purchasing: Respondents mentioned that price would not be a key determining factor in the purchase of a bakery food. However if the price is high then they would buy standard products and in small quantities; however low price or discount will enable them to try new products. Generally high income respondents were more receptive to new
33

brands and bakery products. They prefer established brands. Therefore there is some brand loyalty among them. 4.3.4 Factors Considered Important in Purchasing Bakery Food Products Respondents were asked to rank the attributes that they would consider important when they purchased bakery food products: Taste: Most of the respondent expressed satisfaction with taste of bakery food products. 36% respondents said that they find taste of bakery products either good or very good while 12% said it was excellent and 16% responded as having normal taste. Preference for Bakery: When asked about factors influencing the preference for particular
Figure 4.3.7: Consumer survey: Factors considered important in purchasing bakery products
Masoom's Unique Rahat others dissatisfied v satisfied some what excellent normal v good good v good good average v good good average sometimes no yes pricing quality taste freshness variety
0% 64% 20% 24% 40% 12% 4%

Brand

0% 12% 36% 52% 0% 36% 64% 12% 16% 36% 36% 16% 56% 28% 24% 44% 32% 36%

important factor in deciding from which bakery to buy product. 24% prefer quality and 20% prefer price as important factor. Only 12% respondents rated
Respondent Response

is rated as the least important factor (4%). Brand: 52% purchased bakery items from small sized bakeries compared to 36% who said they purchased their bakery food from Rahat bakers from while none purchased Masooms

Preference Freshness Hygiene

freshness as important and variety

Service

Taste

Quality

bakery 40% said taste is the most

0%

20% 40% 60% Percentage Respondents

80%

bakers. Rahat bakers have become a house hold name while small bakeries hold large market share due to their easy accessibility and low prices. This suggests that consumers preference largely lies in non-branded products. Quality: Majority of respondents (64%) were somewhat satisfied with the quality of bakery products however 36% were very satisfied with bakery products. None expressed dissatisfaction with existing quality of bakery products. High percentage of satisfaction among respondents indicates that bakery products are generally perceived as good quality among consumers.
34

Hygiene & Cleanliness: Mixed response was obtained with regard to prevailing hygiene and cleanliness in bakeries. 44% respondents perceived cleanliness in bakeries as good while a slightly less number of respondents (32%) rated cleanliness as average, in bakeries. Only 24% rated hygiene as very good which is again slightly less than those who rated hygiene as average. This indicates that hygiene is less influencing factor in the purchase of bakery products. Counter-Service: High percentage of respondents (56%) expressed complete satisfaction with counter-service while a small percentage (28%) rated counter-service as average and still a very small percentage (16%) rated as very good. Generally respondents are satisfied with counter-service in bakeries. 4.3.5 Market Size of Bakery Food Products The total working population of Islamabad and Rawalpindi is 400213 lakh (Islamabad is 1,85,213 lakh and Rawalpindi is 2,15,000 lakh). According to market survey shown in table 4.3.3 16% bought 2.5kg, 20% bought 4.5kg and 4% bought 1.5kg and 60% bought 4.5kg per month. Total market size and of bakery food products comes out to be 19,4,98,356 kg/year. Table 4.3.3: Market Size of Bakery Foods Products
Type of customer (income range) Rs8000-Rs 10000 Rs12000-Rs18000 Rs20000-Rs25000 Rs 25000 Total Consumer %age 16% 20% 4% 60% Amt bought/month(kg) 2.5 4.5 1.5 4.5 Total demand (kg/month) 160085 360191 24012 1080575 1624863 kg/m

4.3.6 Market Value of Bakery Food Products The total market value of bakery food products can be determined from market size by focusing on four separate groups or categories of customers with different income range against purchase of bakery foods as shown in table 4.3.4. Sunshine bakery and confectionary has three major competitors (Rahat, Masooms & Unique bakers). The marketing plan envisions taking total of 9.2% market share from these competitors from consumer demographic range. Table 4.3.4. Market Value of Bakery Food Products.
Type of customer (income range) Rs8000-Rs 10000 Rs12000-Rs18000 Rs20000-Rs25000 Rs 25000 Total Purchase (Rs/month) 150 300 0 300 Percentage consumers 8% 4% 0 12% Total demand (kg/month) 160085 360191 24012 1080575 Total Market value (Rs/month) 1921020 4322292 0 38900700 Rs 45144012/m

35

Total size of market = 1624863 kg/month. Estimated share = 9.2% selected. (149487kg) This represents sales of 149487 kg of bakery products per month with a potential value of Rs 4153238 per month or Rs 49,8,38,857 per year. This is almost equal to forecasted Rs 49578948 (less 0.52% contingency) per year estimated annual sales bakery food products. 10% (Rs 5151063) sale of general food products from forecasted bakery sales is added in the first year and this gives total forecasted (bakery and general food products) value of Rs 54730000. 4.4 Target Market Segment Strategy Strategically, targeting the dominant market of regular stream of upper and middle income house wives, business people and government employees in 25-45 year old age range helps serve the needs and requirements of our customers, and ties in logically with our marketing plan and style of Sun shine bakery. The increase in the size of household has led to a higher proportion of bakery food being consumed both outside and inside the home. This has helped to boost demand for sandwiches, pizzas and pastries. The heaviest users of bakery products are high income people falling in the age bracket of 45 year old group (table 4.3.3), most of whom use bakery products one to two times a week. The customers in this age bracket have regimented schedules in their lives, and find value in exceptional service, timely service, and delightful food. This tier of our market segment is the primary focus of our marketing plan so tactics that are geared towards markets that relate to middle and high income consumers may prove effective in generating profitable sales. The presence of children in a household is an important predictor of bakery products usage. Housewives with children in their household are heavy users of bakery products, compared to housewives with no children in their household. Households with children in the early and late teenage years are particularly likely to consume large quantities of bakery food a week. In urban areas employed people form main crux of people with high income. These are employed in both public and private sector. As indicated in table 4.3.1 the government officers form 34% of total employed population and high income group (table 4.3.2) forming ( Rs 25000) 24% are more likely to form major purchaser group of bakery products. The 26-35 year olds forming 16% of surveyed consumers consume about 1-2kg of bakery products as much as 45 year olds (table 4.3.3). Within the 2635 year old group niche is very important, because they also heavily populate the Rawalpindi and Islamabad area. The economic profile of middle income class is changing rapidly and this is conducive to an expansion in demand for ready-to-eat bakery products. Sun Shine Bakery & Confectionery have specifically targeted segment of people with an appreciation for high quality, freshly baked products. In both Rawalpindi and Islamabad, Sun Shine Bakery & Confectionery outlet will target progressive and generally well-educated
36

and affluent consumers who are interested in trying new products and experiences and are dissatisfied with the limited selection and lack of personal service found in bakeries. Also for taste/enjoyment consumers are demanding a higher standard of food quality. Value for money and choice and exposure to new foods both have resulted in demand for diversity in terms of food varieties and uses. Food safety is a major issue around the world and consumers are looking for fresh and hygienic foods and which are made from natural products (i.e. free of preservatives). The key is to deliver the best quality food at the best price with the highest level of service. This is the very definition of value. This concept is at the heart of Sun shine bakers and confectionery. Personal and expedient customer service along with competitive priced product mix is a key to maintaining the market share of this target market. 4.4.1 Market Needs Convenience--Convenience has emerged into a critical factor determining product acceptance. Convenience foods are necessary in the market because of the contributing factors of changing eating habits and busy lifestyles, where the pressures on time availability has resulted in increased on-the-go consumption. Also, the growing demand towards consumption of healthy snacks has increased the demand for convenience products with combined health benefits and good quality. In response to this trend, bakery manufacturers have launched products with single portions and smaller packs. The convenience trend has also increased consumer interest in easy to prepare bake-off products, where part-baked or frozen dough is used. With the hectic lifestyle and time constraints, bake-off products offer consumers the benefit of ease of preparation. Health--Low / Light Bakery Products Bakery products are generally perceived as products with reduced fat and carbohydrates. With the growing incidence of obesity and popularity of diets such as the Atkins diet; low calorie foods have gained immense popularity. Capitalizing on this trend, manufacturers are developing products, with smaller portion sizes. Whole meal, multigrain and other such products are now gaining a strong popularity and also support this healthy product development trend through the provision of added fibre. Increasing health awareness and concern over the consumption of artificial ingredients has fuelled the demand for natural products. Bakery products that contain all natural ingredients are likely to thrive in this competitive market. Pleasure--In addition to healthier products, consumers also are purchasing products that satisfy their taste buds. The taste enjoyment factor is vital in the market place, as the large range in bakery products available provides a wide range in consumer choice. With lifestyles becoming increasingly stressful, consumers may indulge in food for comfort eating purposes. Consumers increasingly seek for premium, gourmet and exotic products to satisfy their desire to indulge.
37

Premium bakery products offer superior taste experience and are usually rich in fat and calories. Cakes, pastries and biscuits are the typical indulgent products within the bakery sector. 4.5 Positioning Despite high competition in Islamabad and Rawalpindi, Sun Shine Bakery & Confectionery will position itself as a place where customers can buy quality, healthy bakery items at best prices and also enjoy a quick dining experience (sandwich with tea or coffee) in a relaxing environment. This will distinguish from its rivals. 4.6 Market Trends in Consumption of Bakery Food Products The wholesale/retail bakery trade is in rapid growth. Business facilities are growing in the metropolitan areas with building of commercial buildings, hospitals and additional parking facilities increasing. This increased business traffic will facilitate the need for more bakery shops that specialize in on-the-go foods and fast service. On the other side consumer habits have changed rapidly over the past decades and today food issues like convenience, indulgence, health, variety, value-for-money and hygiene/safety are very important. This has resulted in a paradigm shift in the consumption and sale of bread and bakery products. For example, sales of standard loaves of bread are in decline, while the sales of small items like sandwiches, pizzas and wraps are on the increase. Sales of traditional biscuits are under pressure, while assorted biscuits sweetened with dry fruit are gaining market share. The consumer also seems to be more active than ever. This is certainly the case for younger generations in terms of participation in the workforce. In these households, time is scarce and the average time dedicated to meal preparation is lower than ever and still declining. This creates a demand for convenience and food service, and different food consumption patterns on working days and at the weekend. Related to this trend and to a more hedonistic lifestyle, trend watchers have noted an increase in individual eating pattern and an increase in the number of consumption moments per day (e.g., snacks). Demand for bakery products is also related to season for example, products such as cakes and sandwiches are in significantly high demand in summer, along with a slower but consistent demand for other baked products. In summer people taking evening walk would often like to come to relax for light meal of coffee/tea and sandwich before going home and in winter freshly baked products such as snacks and pastries are very much in demand. Most of the day's activity occurs in the evening with a relatively steady flow for the remainder of the day. Moreover the ability of bakeries to pass down acquired competencies to new entrants in market by training cake bakers/decorators, team managers and other bakery staff will enable strong business outgrowth with the view of opening additional outlets of bakery shops in twin cities of Rawalpindi and Islamabad.
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A national bakery brand in whole sale/retail sector does not exist and branding remains a key issue for bakeries in this sector. A strong brand undeniably generates added value and strengthens the market position. But on the other hand all bakeries combined, from small local ones to large ones having many retail outlets, show an average bottom line profit throughout the year. Profit margins are much better in large full service bakeries with good management, good staff, good concepts, large product portfolio and good location and good financial controls. A full service bakery with all of these factors should show a bottom line profit of 13% - 25%. 4.6.1 Competition and Buying Patterns Competitors: Competition in the Rawalpindi and Islamabad area is high and major metropolitan markets exhibit a high degree of inter-firm rivalry for market share. Bread, sometimes considered to be a "commodity" product, is often used as a "loss leader" in bakery stores which further contributes to a highly-competitive pricing environment. Sun Shine Bakery & Confectionery is opening up a new niche in the bakery products market where everyone does not provide nearly the level of product quality and customer service as Sun Shine Bakery & Confectionery. Sun Shine Bakery & Confectionery will offer best prices for its products however, in some cases, prices would be higher than competing bakery products found through other bakeries. The higher cost will result from the key differences of Sun Shine Bakery products versus competitors. The consumer survey indicates that consumers are willing to pay a slightly higher premium to get product that meets their criteria of quality.
Leading bakeries do not provide environment whereby customer can drink tea or coffee in a restaurant like atmosphere. Local customers are looking for a high quality product in a relaxing atmosphere

with service. They desire a unique, classy experience. We are offering customers completely new experience and far higher quality product. Nowhere else will they find hygienically and professionally prepared and served bakery products. The uniqueness of our products lies in pairing ordinary with the exotic. Our competitive edge is our unique niche in an old market. Sun shine bakery and confectionery faces three most important well established competitors in the Rawalpindi and Islamabad area. The top competition comes from Massoms, Rahat and Unique bakers who have years of experience and significant brand recognition as well as several small locally based competitors. In spite of all the competition, all of these bakeries have remained profitable and opened year-round. These bakeries have strong brand recognition and their products are known for consistent quality. These competitors have been in the Rawalpindi and Islamabad area for over 20 years with the exception of Mosooms bakers. In recent years, there has been a trend for the leading bakeries to open more retail shops in other metropolitan cities such as Lahore and Karachi as a way to
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increase profitability. Each of these competitors has a unique product that differentiates them from their competitors. Rahat bakery: Rahat bakery has only two bakeries each in Rawalpindi and Islamabad in highly commercialized areas. Rahat bakery offers customers a wide range of products with high quality and price. Their product range and diversity speaks well of their craftsmanship in the art and science of baked goods. However their attention to service and hygiene is low and has no advertising of their new products or any special offers in terms of price and products. They charge premium price for many non-standard baked goods. Their entire focus is on baked goods having no products in their non-bakery product portfolio. Masooms bakery: Masooms bakery is set apart from other competition because they do not focus their business solely on bakery related products. Besides offering a full line of baked goods they also offer non bakery goods. They charge premium price to their entire line of baked goods as well as non baked goods. Their product range is less when compared to Rahat bakery but they give attention to hygiene, service and quality. They have no advertising of their new products or any special offers in terms of price and products. Unique bakery: Unique bakery is perhaps the oldest and well established bakery in twin cities with more than six retail outlets. Today they have many outlets in other metropolitan cities as well. Their local shops have a strong following of local consumers. They offer most of the time standard baked goods with some non standard bakery items and non baked goods as well. Their prices are low and therefore have large price sensitive customer base. They lack shop interior dcor and style. They have no advertising of their new products or any special offers in terms of price and products. Buying Patterns: With a median age of around 20 years, Pakistan is a young country. Total population is 173 million (2010). While 63.05 million resides in urban areas out of which 59% are aged 15-64 years (2010). In spite of declining per capita income, 60% of consumers annual expenditures go to food consumption. Thats the largest expenditure when compared with education, energy, housing, transport and health costs. Consumption of ready-to-eat bakery food products is greater in urban areas because of higher disposable incomes and access to modern style of food. This customer base who is high wage earners in the bracket of Rs 25000 forms the largest purchasers of bakery products (table 4.3.2). For the baked food items, consumers make purchasing choices for a number of reasons and factors. Perceived quality and taste of bakery food product is essential (table 4.3.7) for consumers going out to eat, because of the price premium they must pay. Only a few of our competitors such as Masooms and Rahat bakers have emphasized the high quality of their products to justify their high prices. Others, like Unique bakers push convenience and low
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price, but they are able to do this because they offer standard baked products most of the time (table 4.3.7). Among the Rawalpindi and Islamabad population middle income consumers have consistently shown a commitment to well establish local brands of baked food. Rahat bakers has benefited from this preference by making its baked goods in the store and offering high quality diverse baked goods. Sun shine bakery and confectionary anticipate that its target markets will also be concerned with quality and individuality, but in different ways. The affluent, educated and professional are looking for good tasting, prestige products. The price premium for some products, in this case, is an advantage. The middle income and aged consumers with families forming unusually high number in our targeted market are cost-conscious, and often health conscious and so standard baked bakery products will be of more beneficial for them. 4.7 Marketing Mix Strategies Our customer-centered strategies seek to optimize price, product mix and promotion as a means to drive sales and profits. This approach is achieved by remaining focused on key success factors of affordability, product variety, and choice and customer convenience. We will become known as unique dining experience as well as a superior bakery and confectionery shop. 4.7.1 Product Strategy The proposed bakery will be offering a large variety of quality products at best prices. Bakery product mix can be extended to different width, length and depth. The product mix will be including different types of fresh cream cakes, dry cakes, snacks, sweets, nimko, biscuits, etc (Table 4-2). As the production will depend on the sales potential, the sales are estimated depending upon the industry norms. The project will be having two sales outlets of its own and the rest of the production will be sold to other bakeries. It is hereby assumed that sales to other bakeries will be at a trade discount of 10%. Out of the total sales 25% will be sold to other bakeries while 75% of the total sales will be sold on bakerys own outlets. Sale Forecast After establishing Sun Shine Bakery as the place for quality baked products and quick dining experience for first three years we project aggressive sales increases for the following years for POS and carry-out while keeping costs constant. Keeping food costs low while sale increases is vital to the profitability of Sun Shine Bakery & Confectionery. Table 4-1: Estimated sales
PERCENTAGE SALES

Sales on outlets Sales to other bakeries Total estimated sales


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75%-80% 20%-25% 100%

Sale forecast is based on 3% of total yearly demand given in table 4.3.3. Total sales incorporated for

profit estimates include 5% safety margins. The detail of expected annual sales of different items is given in the table below:
P

Table: 4-2: Estimated Annual Sales Items Quantity to be sold Outlets Fresh cream cakes Fresh cream (lbs) Fresh fruit (lbs) Chocolate cakes (lbs) Butter cream cakes (lbs) Special ice cream cake (lbs) Fresh pastries Fresh & chocolate pastry (Pcs) Dough nut (Pcs) Cream puff (Pcs) Cream roll (Pcs) Bread (out sourced)* Bread, bun, rusk etc Beverages Dry cakes Dry cakes (lbs) Fruit cakes (lbs) Plain cakes (lbs) Snacks Chicken pizza large (Pcs) Chicken pizza medium (Pcs) Chicken pizza small (Pcs) Chicken bread (Pcs) Chicken drum stick (Pcs) Chicken leg piece (Pcs) Chicken shami (Pcs) Chicken sandwich (Pcs) Chicken patties (Pcs) Chicken bread roll (Pcs) Sweets Nimko (Kg) Jaman (Kg) Chum chum (Kg) Kalakand (Kg) Burfi (Kg) Motichor (Kg) Pateesa (Kg) Biscuits Cake rusk (Kg) White biscuits (Kg)
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Other bakeries 3550 3550 3905 2130 1775 11360 11360 11360 11360

Total quantities 17750 17750 19525 10650 8875 56800 56800 56800 56800

Sale price per unit in Rs. 160 160 160 160 180 20 20 20 20

14200 14200 15620 8520 7100 22720 22720 22720 22720

28400 14200 14200 5680 10650 14200 5680 24850 24850 14200 7100 28400 8520 710 1065 1065 1065 1065 1065 1065 2840 533

7100 3550 3550 1420 2663 3550 1420 6213 6213 3550 1775 7100 2130 1065 1598 1598 1598 1598 1598 1598 4260 799

35500 17750 17750 7100 13313 17750 7100 31063 31063 17750 8875 35500 10650 1775 2663 2663 2663 2663 2663 2663 7100 1332

152 128 120 280 140 70 304 40 72 18 36 22 24 296 296 296 296 296 296 296 224 224

Coconut biscuits (Kg) Macaroon coconut (Kg) Almond macaroon (Kg) Cheese finger (Kg) Salty zeera plus (Kg) Plain khatai (Kg) Bakar khani (Kg) Finger (Kg) Jam wafer (Kg) Special biscuits (Kg) Chocolate biscuits (Kg) Round almond biscuits (Kg) 4.7.2 Price Strategy

533 533 533 533 533 533 533 533 533 533 533 533

799 799 799 799 799 799 799 799 799 799 799 799

1332 1332 1332 1332 1332 1332 1332 1332 1332 1332 1332 1332

224 224 224 224 224 224 224 224 224 224 224 224

*It is assumed that bread items worth Rs. 1,002,400 per year will be sold.

Total sales = Rs 49578948/year

Our pricing objective will be revenue maximization through introduction of new products into market with the ultimate aim of growing market share and establishing long term customer base. This will be followed by best pricing strategy (table 4-2) consistent with the differentiation objective, to provide added value at a reasonable rate with quantity discounts (non cumulative), trade discounts and seasonal/festive discounts. Promotional pricing will be applied for new bakery items and value pricing will be used under adverse economic conditions to retain sales. However for premium quality product (non-standard), products made for special orders and products made on short notice, optional product pricing and skim pricing strategy of 15% more than the original price will be followed. 4.7.3 Place Strategy The outlets will be centrally and conveniently located within a highly developed commercial area in Islamabad and Rawalpindi (Sadder and F sector). For a heavy competition and proper positioning of the brand name, the outlets will be opened in the vicinity of competitors (Unique Bakery, Shezan Bakers, Rahat Bakers, United Bakery, Cakes & Bakes etc.). This will be a direct marketing of the brand name for the best quality and the best price. Marketers need to determine where the product will be sold and methods of distribution including transportation and storage. Following factors will be taken into consideration when
opening outlets: Compatible land use patterns Quality built environment Property values (realistic) Rent levels (realistic) Organized promotions Good management of shopping center or downtown Business compatibility 43

4.7.4 Promotion Strategy Pull promotional mix will be used for motivating customers to seek out Sun Shine bakery and confectionery products. This strategy encompasses: 1. Leaflet advertising program will target the selected group of residential areas. The main aim of this strategy would be education of consumers and awareness for products and services. 2. Flier/banner will be used within 3km radius of two bakery outlets to advertise the service. 3. Membership card will be offered to frequent customers and who scored at least 250 points on bakery product purchases from Sun Shine bakery and confectionery will be given one product free of cost along with other food purchases. 4. Free delivery for large orders such as parties or functions. 5. Word of mouth referrals. 4.8 Key Success Factors Key success factors are identified to cope with the changing market circumstances and the strong competition in this sector. Some of the factors that will determine the success of this project include: Major bakeries such as Rahat, Masooms, Unique and Fresco bakeries market their products through their brands. These brands result in value added above average. A clear marketing strategy provides communication to support the brand. Profitable bakeries supply a range of products to be more attractive to customers. Bakeries with a narrow range of products are more vulnerable to changes in market and hence less profitable. Trendy products are important to attract the attention of consumers. Innovating new product offerings will differentiate us from our competition. Products range selection and introduction of sitting areas. Presenting a high level of quality in product line. Selection of location. Pricing strategy. Understanding of target customers, alternative availability in product differentiation. Launching time. Hygienic conditions. There should be regular and sustained marketing through leaflet distribution and word of mouth.

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4.9 SWOT Analysis Strengths Easy availability of resources (manpower/raw materials). Growing population. Expanding cities. High bakery items consumption habits of people in Pakistan. As eating habits have changed considerably over the past two decades, bakery products are more likely to be consumed at meal-times than has been the case in the past. The wide range of products within the bakery products sector means that it is more adaptable than the bread sectors.
The markets value has been increased for a number of years by heavy price-ceiling.

Qualified and experienced management and staff. No pricing regulation imposed from government side. The products are particularly well-suited to todays more casual eating habits, as they can be eaten at meal times or as snacks at any time during the day. Many bakery snacks have a long shelf life. The products lend themselves well to impulse purchasing. Generally, these products are more suitable for smaller households, which are increasingly becoming the norm. Product variety is an important feature of the sector, meaning that it lends itself well to NPD. Many of the bakery products that were once available only on a seasonal basis are now on sale for much of the year. The sector can accommodate extensions of many of the new products that have been developed within the snack and sweet product sectors. Introduce new concepts in bakery products for competitive advantage in products. Exploit booming growth of retail/wholesale bakery business. The ability to decrease the fixed costs as a percentage of an individual sale as volume increases.

Opportunities

Weaknesses Government policies. Heavy taxes in the form of sales tax and income tax on retail business. High competition.
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The market is approaching maturity and saturation, leaving little room for growth.

Bakery products are generally more expensive to the consumer than other products (e.g., bread). This may have a negative effect on the sector in the event of an economic downturn.

Need to have fairly constant volume of business to support the necessary service staff. The need for reliance on outside investor.

Threats The wide range of product positioning can be confusing for the consumer. Credibility factor in the initial phase, as suppliers do not give credit to newly entrants. Fewer new products being developed as the sector is approaching maturity. Price-cutting has become increasingly evident within the sector over the past few years. Fluctuating economic and political conditions increases uncertainty and reduces discretionary spending. Rising raw material costs the price of raw materials and fuels are expected to continue to rise in the short term, a development which is certain to place greater downward pressure on the profit margins.

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Chapter 5 Financial Plan

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CHAPTER 5: Financial Plan 5.1 Project Capital Costs Project Capital Costs
%age
Land Building and Civil Works Plant and Machinery Erection, installation & commissioning charges and duties Furniture, Fixture and Office Equipment Motor Vehicles Total Fixed Cost Preliminary & preproduction expenses Contingencies * Net Initial Working Capital Total Investment Required Debt Equity Ratio: Debt Equity Project Financial Analysis/Returns IRR (%) Payback Period (Yrs) NPV (Rs.) *Contingencies are taken as 1.5% of total fixed costs and preliminary expense 29% 3.44 15,694 50% 50%

Rs. (000) Total


5,060 5,240 3,280 328 2,339 1,868 1,8115 451 278 1,108 19,953

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5.2 Projected Income Statement


Projected Income Statement Rs. in Thousands

Year 1
Net Sales Cost of sales
Salaries, wages & benefits Raw material purchases Other production overheads Fuel & power Depreciation

Year 2
63,548
2,129 38,808 1,403 1,662 852 44,854 18,694 3,037 318 90 4,1,98 454 8,096 10,598 1,277 1,277 9,321 2,330 6,991

Year 3 Year 4 Year 5


64,123
2,236 38,808 1,403 1,810 767 45,023 19,100 3,188 321 90 4,432 379 8,410 10,691 958 958 9,733 2,433 7,300

Year 6 Year 7
66,195
2,588 38,808 1,462 2,342 559 45,758 20,437 3,691 331 5,904 364 10,290 10,147 10,147 2,537 7,610

Year 8
68,036
2,854 38,808 1,462 2,785 453 46,360 21,676 4,069 340 6,569 250 11,229 10,447 10,447 2,612 7,835

Year 9
68,957
2,996 38,808 1,462 3,038 407 46,711 22,246 4,273 345 6,937 208 11,763 10,482 10,482 2,621 7,862

Year 10
69,878
3,146 38,808 1,462 3,316 367 47,098 22,780 4,486 349 7,332 174 12,342 10,438 10,438 2,609 7,828

54,730
2,0208 35,923 1,170 1,527 947 41,594

64,699
2,348 38,808 1,403 1,972 690 45,220 19,479 3,348 323 90 4,683 317 8,761 10,718 638 638 10,080 2,520 7,560

65,274
2,465 38,808 1,462 2,148 621 45,504 19,771 3,515 326 90 4,951 266 9,149 10,622 319 319 10,302 2,576 7,727

67,116
2,718 38,808 1,462 2,553 503 46,043 21,072 3,876 336 6,225 301 10,738 10,334 10,334 2,584 7,751

Gross Profit Administrative & selling expenses Salaries, wages & benefits Other admin expenses Amortization Selling & related expenses Depreciation Operating profit Non-operating expenses/income Financial expenses Other income Profit before Tax Tax @ average Profit after tax

13,136 2,892 274 90 3,940 546 7,741 5,395 1,596 1,596 3,798 950 2,849

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5.3 Projected Balance Sheet Year 0


Fixed Assets Net Book Value Preliminary & preproduction Current Assets Raw materials Packing materials Stores and spares Finished goods Trade debtors-outside sales Advances to suppliers Cash and bank 1,387 1,387 Total Assets Share capital (Financed by:) Retained earning 19,953 9,976 9,976 Long term loans Current Liabilities Trade Creditors Raw materials Packing materials Stores & spares Accrued & others 1,476 46 2 438 1,962 Provision for taxes Total liabilities & owners equity 19,953 950 23,718 1,595 53 2 466 2,117 2,330 30,248 1,595 53 2 493 2,143 2,433 35,682 1,595 53 2 521 2,171 2,520 41,362 1,595 53 3 551 2,203 2,576 47,180 1,595 53 3 611 2,262 2,537 54,811 1,595 53 3 646 2,297 2,584 62,644 9,976 1,476 46 2 450 215 492 4,053 6,735 23,718 9,976 2,849 12,825 7,981 1,595 53 2 522 250 532 11,706 14,661 30,248 9,976 9,839 19,816 5,986 1,595 53 2 527 252 532 18,369 21,330 35,682 9,976 17,139 27,116 3,991 1,595 53 2 532 255 532 25,138 28,106 41,362 9,976 24,699 34,675 1,995 1,595 53 3 537 257 532 31,926 34,902 47,180 9,976 32,426 42,402 1,595 53 3 544 261 532 39,768 42,756 54,811 9,976 40,036 50,012 1,595 53 3 552 264 532 48,394 51,393 62,644 9,976 47,787 57,763 18,115 451 16,623 361 15,317 271 14,172 180 13,165 90 12,278 12,055 11,251 -

Rs. in Thousands

Year 1

Year 2 Year 3 Year 4 Year 5 Year 6

Year 7 Year 8
10,548 -

Year 9
9,932 -

Year 10
9,381 -

1,595 53 3 559 268 532 56,987 59,997 70,545 9,976 55,622 65,598 -

1,595 53 3 567 271 532 65,502 68,524 78,455 9,976 63,484 73,460 -

1,595 53 3 574 275 532 73,892 76,924 86,315 9,976 71,312 81,288 -

1,595 53 3 683 2,335 2,612 70,545

1,595 53 3 723 2,375 2,621 78,455

1,595 53 3 766 2,417 2,609 86,315

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5.4 Projected Cash Flow Statement Year 0


CASH FLOWS FROM OPERATING ACTIVITIES Net Profit Amortization Depreciation Current Assets Movement Raw materials Packing materials Stores and spares Finished goods Trade debtors-outside sales Advances to suppliers Current Liabilities Movement Raw materials Packing materials Stores and spares Accrued and others Tax Paid (Other Adjustments)

Rs. in Thousands

Year 1
3,798
90 1,492 (1,476) (46) (2) (450) (215) (492)

Year 2 Year 3 Year 4 Year 5 Year 6


9,321
90 1,306 (119) (7) (72) (35) (40) 119 7 28 (950) 9,649 (1,995) 7,653 4,053 11,706

Year 7 Year 8
10,334
804 (8) (4) 35 (2,537) 8,626 8,626 39,768 48,394

Year 9
10,482
616 (8) (4) 40 (2,612) 8,515 8,515 56,987 65,502

Year 10
10,438
541 (8) (4) 43 (2,621) 8,390 8,390 65,502 73,892

9,733
90 1,145 (5) (2) 26 (2,330) 8,658 (1,995) 6,662 11,706 18,369

10,080
90 1,007 (5) (2) 28 (2,433) 8,765 (1,995) 6,769 18,369 25,138 51

10,302
90 887 (5) (4) 30 (2,520) 8,783 (1,995) 6,788 25,138 31,926

10,147
923 (8) (4) 60 (2,576) 8,542 (700) (700) 7,842 31,926 39,768

10,447
703 (8) (4) 37 (2,584) 8,593 8,593 48,394 56,987

1,476 46 2 438 4,662 (1,995) 2,666 1,387 4,053

CASH FLOWS FROM INVESTING ACTIVITIES Additions in fixed assets Preliminary and preproduction

(18,115) (451) (18,556)

CASH FLOWS FROM FINANCING ACTIVITIES

Long term loan (Repayment)


TOTAL INFLOW/OUTFLOW OF FUNDS

9,976 (8,590) 9,976 1,387

Opening Cash Closing Cash

5.5 Summary of Financial Objectives The following analysis illustrates overall first five year EBIT plan for the company. Table 5-1 Summary of Financial Objectives
CATEGORY (Rs 000) YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Revenue Cost of sales Gross profit Total costs EBIT 5.6 DuPont Analysis

54,730 41,594 13,136 49,335 3,798

63,548 44,854 18,694 52,950 9,321

64,123 45,023 19,100 53,433 9,7333

64,699 45,220 19,479 53,981 1,080

65,274 45,504 19,771 54,653 1,0302

Table 5-2 DuPont Analysis for first five years


CATEGORY YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

Net profit margin Total asset turnover Leverage factor ROA ROE 5.7 Project Viability

5.2% 2.31 1.85 12.0% 22.2%

11% 2.10 1.53 23% 35.3%

11.4% 1.80 1.32 20.5% 26.9%

11.7% 1.56 1.19 18.3% 21.8%

11.8% 1.38 1.11 16.4% 18.2%

Table 5-3 Project Viability NPV Pay back (years) Rs 15,693,517 3.44

5.8 Key Assumptions Table 5-4: Operating Assumptions No of working days in One year No of working hours in one day No of shifts No of outlets Working hours of outlets 355 8 2 2 16

Table 5-5: Revenue Assumptions Outlet sales Bakery sales General items sales Outside sales 75% of total production 75%-80% of shop sales 20%-25% of sales 25% of total production

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Table 5-6: Expense and growth rates assumptions Sales growth rate Salaries, wages growth rates (as %age of annual salaries & wages) Other production overheads Repairs & maintenance as %age of machinery costs Building repairs & maintenance as %age of building costs Packing material as %age of sales Fuel and Power Gas Average annual units consumed Rate per unit Annual rate increase % Power and water Average annual units consumed (approx) Rate per unit Annual rate of increase % Shop rent per month (Rs.000) Shop rent growth rate Table 5-7: Cash flow assumptions STOCK LEVELS Raw material inventory Packing material inventory Stores and spares inventory Finished goods inventory Accounts payable Accounts receivable & advances Accounts receivables Advances to suppliers Table 5-8: Other expense assumptions
Administrative expense as %age of sales

10% 5% 1.5% 1.0% 2.5%

549 Rs 6.45 5% 240,000 Rs 1.5 5% 40 10%

15 days 15 days 15 days 3 days 15 days 7 days 5 days

0.50 % Rs. 960,000 3% 5 2%

Selling & related expenses Annual rent of two shops Others as %age of sales Amortization in years Other income as %age of sales

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