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Lentil Pasta Sauce

Executive Summary
Introduction XXXXX Foods is a lentil pasta sauce processor that is located in SK. XXXXX Foods will have a total of five members sitting on the board of directors which includes two internal and three external members. XXXXX Foods will purchase cleaned lentils from a local producer. The lentils will be cleaned and delivered for processing. They will enter a niche mar et with a premium gourmet lentil pasta sauce. The product will then be mar eted through !algary !oop out of !algary "lberta# and eventually through Sobeys in both "lberta and Sas atchewan. Operations Plan XXXXX Foods will be located in SK. The primary vehicle access# allows ease for sourcing product in and out of the facility. The facility is a $%&&ft2 floor heated, insulated building which will be required for production of the pasta sauce. The production will begin with the lentils being boiled in a steam jacket kettle, which will then be transported into the mixing kettle that will contain the tomato paste. From there the sauce will be placed into 750ml jars, sealed and shipped to the distributors. XXXXX Foods will begin production at 70,000 units in the first year which will leave room for expansion in the future. The majority of the production line will be purchased from Alard Equipment and Handling Innovations.

Human Resources

XXXXX Foods will employ a total 7 employees and increased to 9 by year six when production increases. The plant manager will be responsible for the day to day operations. The sales manager will be in charge of selling and mar eting the product.

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

They will need to be in contact with distributors and consumers to learn and invent new ways to mar et the lentil pasta sauce. The secretary will be involved in the day to day administration and regular secretarial duties. The plant wor ers will be in charge of the processing# filling and shipping+receiving of the lentil pasta sauce production. Marketing Plan: XXXXX pasta sauce will be sold in ,%& ml glass -ars# XXXXX is a lentil enriched tomato pasta sauce that will appeal to vegetarians and health conscious individuals within a niche mar et. The sauce will be produced and pac aged at the XXXXX Foods production facility in SK and shipped to the Sobeys and Federated !oop Limited .F!L/ warehouses in !algary# "* for distribution. "s the health food industry becomes more health conscious# and vegetarians are loo ing for additional meat alternatives# XXXXX will become a greater demand. XXXXX will be mar eted in the health food# specialty food aisle. This offers the product two advantages# the first being a healthy pasta sauce choice# because of the protein found in lentils. The second opportunity is the focus towards vegetarians# as a meat replacement. The specialty nature of the product allows there to be room for a mar 0up in price in comparison with competing pasta sauces. " reasonable mar 0up is 1%2 above XXXXX competitors. XXXXX will be strategically priced at 3%.44 which is a 1%2 mar up over main stream sauces. The ob-ective of the mar eting strategy is to supply !algary F!L and Sobeys stores with XXXXX in year one# expanding to the surrounding !algary area in "lberta in year two and three# with a long term goal of supplying the province of "lberta with XXXXX# 5hile obtaining sales targets of 6&2 of the total target mar et each year# $&2 of the target mar et will be aware of the product by year three. "wareness of the product will be the primary ob-ective of the XXXXX Foods mar eting team. The !algary 7egetarian 8esource maga9ine will be used as a main resource because this maga9ine has no charge to advertise. :n store taste tests will also be

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Lentil Pasta Sauce

used as well as advertising in fliers# in both the !o0op and Sobeys fliers. XXXXX Foods are also going to advertise in the !ountry 5omen# and Flare maga9ines# because these maga9ines target the main segment of the target audience. Financial Plan Ten years of financial pro-ections have been made of XXXXX Foods. "ll costs including selling prices# expenses and salaries have been inflated at 12 every year. Financing will be a mix of debt and e;uity# but will rely more heavily on e;uity. " loan of 366%#&&& will be ta en on representing $&2 of the land and building costs and will be repaid over a 6% year period. !ritical variables involved in the financial analysis are the selling price of individual -ars# the production and sales per year# and the beginning owner<s e;uity investment. These variable all have a huge impact on the level of success experienced by the company. The selling price has the largest impact on whether the company succeeds or fails# followed by the production levels. =iven the current mar et prices for pasta sauce# the base run shows the plan to be unfeasible. " positive cash flow cannot be sustained without a substantial initial owner e;uity investment of 36#>1%#&&&. The following brea down of the financing budget is based on the building and land costs# as well as covering the wor ing capital re;uired for the first year of operations. This represents the absolute minimum investment to operate for year 6. ?et Present 7alue of :nvestment 3-913,535

:nternal 8ate of 8eturn on ';uity :nvestment and :nternal 8ate of 8eturn on ';uity :nvestment are both negative 6&&2# meaning that the company is ban rupt. :n order for the :88 to become positive and therefore ma e the plan feasible# either price levels or production levels must increase by $%2 or %12 respectively.

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Conclusion The base plan will be unfeasible and in order for XXXXX Foods to have a feasible base run the company will either have to charge more for their product or increase unit production.

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Table o Contents
'xecutive Summary..............................................................................................................i Table of !ontents.................................................................................................................v List of Tables....................................................................................................................viii 6.& @perations Plan..............................................................................................................6 6.6 Product Aescription...................................................................................................6 6.1 @rgani9ational Structure ...........................................................................................6 6.$ Site Plan.....................................................................................................................1 6.( *uilding and floor plans ............................................................................................% 6.% Steps 8e;uired for Processing Lentil Sauce..............................................................4 6.%.6 8aw Baterials Aelivered....................................................................................4 6.%.1 8aw Lentils 5eighed..........................................................................................4 6.%.$ First steam -ac et ettle ....................................................................................) 6.%.( :ngredients Beasured .......................................................................................6& 6.%.% Second Stem Cac et Kettle ..............................................................................6& 6.%.> Pumps Transferred Sauce to Filling Bachine .................................................66 6.%., First Person Passes 'mpty Cars.........................................................................66 6.%.4 Semiautomatic Filling Bachine........................................................................61 6.%.) Full -ars are !apped..........................................................................................61 6.%.6& Labeling and Pac aging .................................................................................61 6.%.66 Finished Product to Storage ..........................................................................6$ 6.%.61 Aelivery to 5arehouses in !algary ..............................................................6$ 6.> "verage *usiness !ycles.........................................................................................6$ 6.>.6 "verage *usiness Aay .....................................................................................6( 6.>.1 "verage *usiness Bonth..................................................................................6% 6., Duality control ........................................................................................................6% 6.,.6 E"!!P...........................................................................................................6> 6.4 Supply+service analysis ........................................................................................6> 6.) !apital *udget.........................................................................................................6, 6.6& !ost of =oods Sold................................................................................................6, 6.66 !ash Banagement..................................................................................................1& 6.66.6 :nventories.......................................................................................................16 6.66.1 "ccounts 8eceivable ......................................................................................16 6.66.$ "ccounts Payable............................................................................................11 6.66.( !ash !onversion !ycle...................................................................................11 1.& Euman 8esources Plan................................................................................................1$ 1.% Training Programs...................................................................................................1( 1.> !ompensation..........................................................................................................1( $.& The Bar eting Plan.....................................................................................................1> $.6 @verview..................................................................................................................1> $.1 Bar eting Bix .( P<s/.............................................................................................1> $.1.6 Product..............................................................................................................1> $.1.1 Place .................................................................................................................1> $.1.$Price...................................................................................................................1,

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$.1.(Promotion...........................................................................................................1, $.$ Segmentation# Targeting# and Positioning ..............................................................1, $.$.6 Segment.............................................................................................................1, $.$.1 Target................................................................................................................14 $.$.$ Position.............................................................................................................14 $.( S5@T "nalysis.......................................................................................................14 $.(.6 :nternal Strengths .............................................................................................14 $.(.1 :nternal 5ea nesses .........................................................................................14 $.(.$ 'xternal @pportunities......................................................................................1) $.(.( 'xternal Threats ...............................................................................................1) $.% Bar et "nalysis ......................................................................................................1) $.%.6 Past Performance..............................................................................................1) $.%.1 Bar et...............................................................................................................1) $.%.$ !ompetition.......................................................................................................1) $.%.( Product+Service Features..................................................................................1) $.%.% !ustomers.........................................................................................................$& $.%.> @pportunity.......................................................................................................$6 $.> Bar eting Strategy ................................................................................................$6 $.>.6 Sales and Profits................................................................................................$6 $.>.1 Select Bar ets+Product+Service Bix................................................................$1 $., Selling and "dvertising............................................................................................$1 $.,.6 Product Placement............................................................................................$$ $.,.1 Baga9ine "dvertising.......................................................................................$$ $.,.$ Flyers and !oupons...........................................................................................$( $.,.( *usiness !ards..................................................................................................$( $.,.% Taste Tests........................................................................................................$( $.,.> 5eb Page..........................................................................................................$( $.,., Travel................................................................................................................$% $.,.4 Freight...............................................................................................................$% (.& Financial Plan..............................................................................................................$> (.6 Financing..................................................................................................................$> (.1 *alance Sheet...........................................................................................................$, (.$ 'conomic Forecast...................................................................................................$4 (.( Fnit !ost of Production...........................................................................................$4 (.% Financial Performance "nalysis..............................................................................$) (.%.6 !ritical 7ariables..............................................................................................$) (.%.1 8is "nalysis....................................................................................................$) (.%.$ *rea even "nalysis..........................................................................................(& (.%.( "lternative Salary Scenario..............................................................................(1 (.%.% !ontingency Plan..............................................................................................($ (.> !onclusion...............................................................................................................($ %.& 8eferences....................................................................................................................(( >.&"ppendix "...................................................................................................................(% ,.& "ppendix *..................................................................................................................(,

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..........................................................................................................................................vii Figure 6.6 @rgani9ational Structure for XXXXX Foods.....................................................1 Figure 6.$ Floor Plan...........................................................................................................> Figure 1.% 1&& g Scale. .Scales =alore. "vailable at ......................................................4 httpG++www.goscales.com/ ..................................................................................................4 Figure 6.> Stainless Steele !ontainers. ..............................................................................) .Eandling :novations. "vailable at httpG++www.handlinginnovations.com/.......................) ............................................................................................................................................) Figure 6., Steam Cac et Kettle. ."lard e;uipment. "vailable at .....................................) httpG++www.alard0e;uipment.com/.......................................................................................) ...........................................................................................................................................6& Figure 6.4 Steam Cac et Kettle with Scraper. ."lard ';uipment. "vailable at httpG++www.alard0e;uipment.com/ ....................................................................................6& Figure $.6 !hannels of Aistribution................................................................................$1 Figure (.6 *rea even "nalysis Fsing !hange in 5holesale Price .................................(6 Figure (.1 *rea even "nalysis Fsing !hange in Hearly Production...............................(6

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!ist o Tables
.........................................................................................................................................61 Table 6.6 !apital *udget Summary...................................................................................64 Table 6.1 *rea down of e;uipment cost...........................................................................64 ...........................................................................................................................................64 Table 6.$ !ost of =oods Banufactured.............................................................................6) Table 6.( !ost of =oods Sold............................................................................................1& Table 6.% "verage days :nventory.....................................................................................16 Table 6.> :nventory costs...................................................................................................16 Table 6., !ash !onversion !ycle.....................................................................................11 Table 1.6 Plant manager salary and benefits for 1&&,.......................................................1% Table 1.6 Plant manager salary and benefits for 1&&,.......................................................1% Table 1.1 Secretary and sales manager salaries and benefits for 1&&,..............................1% Table 1.$ "nnual wages and benefits for all ( plant wor ers in 1&&,..............................1% This product fits into a niche mar et appealing to health conscious individuals# and the 7egetarian population that is why this product has an opportunity over its competitors. XXXXX is a lentil# protein pasta sauce offering a healthy choice as a meat alternative# which is an appealing aspect to both segments in the target mar et. ..............................1) Table $.6 !ompetition.......................................................................................................$& Table $.6 !ompetition.......................................................................................................$& Table $.1 Bar eting *udget Plan......................................................................................$$ Table (.6 Financing Plan for XXXXX Foods...................................................................$, Table (.1 *alance Sheet for XXXXX Foods as at Aecember $6# 1&&,............................$, Table (.$ Fnit !ost of Production in 1&6( .first year of full production/.........................$4 Table (.( Sensitivity of !ritical 7ariables.......................................................................(& Table (.% !hanges in Key ?umbers "fter Proposed !hanges..........................................($

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Lentil Pasta Sauce

"#$ Operations Plan


"#" Product %escription
The product being produced by XXXXX foods is a lentil pasta sauce. This sauce consists of coo ed lentils and spices and ingredients such as chopped onion# oregano# basil# salt# garlic powder# parsley# and vegetable bouillon. "ll of these ingredients will be added to the tomato sauce during production.

"#& Organi'ational Structure


XXXXX Foods is presently a partnership. 5e will be forming a corporation with a board of directors that consists of five members# two internal and three external. Forming a corporation will allow the company to see capital more easily. The internal board members will be the founders of the company. The external will consist of three members yet to be determined. Possibilities for this position are shareholders and investors. Fnder the board of directors will be the president+plant manager who oversees the day0to0day operation of the plant and delegates -obs for employees wor ing on the plant. The owner will be in this managerial position as well as on the board. 5or ing bellow the president+plant manager will be vice0president+secretary treasurer as well as six general laborers wor ing in the plant. " mar eting+sales manager position will also be implemented into the structure and will be discussed further in the mar eting module of this business plan. The company<s organi9ational structure is organi9ed into the chart below .Figure 6.6/. The simplicity of the structure ma es it a perfect fit for a small company li e XXXXX. The organi9ational structure avoids being top heavy in that Aavid and the owners will consume the roles of PresidentI 7ice0president# secretary# and treasurer. Therefore# high wages will not be paid to outside individuals consuming these dominant roles.

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

*oard o directors+, 1 internal. $ external President-Plant Manager 2ice+ President-Secretary Treasurer

Sales Manager

./0 Plant 1orkers


Figure "#" Organi'ational Structure or ((((( Foods

"#) Site Plan


XXXXX Foods will be located in Sas atchewan. XXXXX Foods will be located off the highway on a service road. XXXXX Foods will have a 1 J acre lot located -ust north of the Sas atchewan 5heat Pool storage bins. The sight will have two entrances into the lot# one will be an entrance+exit for wor ers# and the other will be an entrance+exit for truc drivers to eliminate confusion for traffic arriving at the same time. There will be par ing on the ?orth side of the building to avoid congestion in front of the building. The building will be located as close to the

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

service road as possible but still allow transport truc s enough room to turn and access the loading doc at the bac of the building. The entire location will be graveled and maintained with fresh graveled every 1 years.

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

Figure "#& Site Plan

"#/ *uilding and loor plans


The proposed building will be a completely insulated $%&& ft2 building with electrical and plumbing and will be covered with a fully weather bearing metal siding. @f the $%&&ft2 floor space# 1%&&ft2 will be used for the production line and storage area. The remaining 6&&&ft2 will be for two offices# two change+bathrooms for the employees# customers and transport drivers and a lunch and coffee room for the employees.

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Lentil Pasta Sauce

Figure "#) Floor Plan

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Lentil Pasta Sauce

3# 8aw# cleaned lentils arrive in Totes. C# :ngredients ta en from storage

*# First Steam Cac et Kettle

E# Second Steam Cac et Kettle with "gitator

%# :ngredients measured and added to tomato sauce

4# F# Cars put in Position Filling Line

I# Labeling

5# !apping

6# Storage Figure "#/ Flo1 o Production

7# 8etail Sales

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

"#, Steps 8e9uired or Processing !entil Sauce


The following steps re;uired assume that the plant is at full capacity and re;uires a total of six plant laborers to produce 6$&#&&& -ars. "#,#" 8a1 Materials %elivered The raw goods used to produce the lentil pasta sauce will be delivered to the processing plant by various suppliers that are outlined in the supply+services analysis of the operations plan. 5hen the truc s arrive at the loading doc of XXXXX foods# the plant manager will ensure the truc s are unloaded and the products are placed in the raw goods storage room in the processing plant. "#,#& 8a1 !entils :eig;ed 8aw cleaned bags of lentils are brought from storage to the scales located beside the first steam -ac et ettle. This is where enough lentils for one batch are weighed by scooping lentils from the bag into a stainless steel container. .employee 6/.

Figure &#, &$$kg Scale# .Scales 4alore# 3vailable at ;ttp:--111#goscales#com0

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

Figure "#< Stainless Steele Containers# .5andling Inovations# 3vailable at ;ttp:--111#;andlinginnovations#com0

"#,#) First steam =acket kettle The weighed lentils are placed in the first steam -ac et ettle. @nce in the ettle the lentils are coo ed for 6 hour. Then coo ed lentils from the ettle are poured out into a stainless steel container and transferred to the next ettle. .'mployee 6/

Figure "#> Steam 6acket 7ettle# .3lard e9uipment# 3vailable at ;ttp:--111#alard+e9uipment#com0

"g'c ()%. !ollege of "griculture and *ioresources

Lentil Pasta Sauce

"#,#/ Ingredients Measured The spices and ingredients are weighed on scales then added to the correct amount of tomato paste in another additional stainless steel container. This container consisting of the tomato sauce and spices is ta en to the second ettle. This is done by an additional employee. .'mployee 1/

"#,#, Second Stem 6acket 7ettle This ettle is called a scraper ettle because it has an agitator built in that allows it to mix the tomato sauce and coo ed lentils. This is where the coo ed lentils from the first ettle are added to the formulated sauce from the previous step. @nce in this ettle the lentils are mixed with the tomato sauce to give the desired consistency. "fter mixing for 1% minuets the ettle is dumped into the container located beside the filling machine. .'mployee 1/

Figure "#? Steam 6acket 7ettle 1it; Scraper# .3lard E9uipment# 3vailable at ;ttp:--111#alard+e9uipment#com0

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"#,#< Pumps Trans erred Sauce to Filling Mac;ine Pumps located on the container that the sauce was dumped into in the previous step# transfers the sauce to the filling machine though tubes. .'mployee 1/

Figure "#@ Trans er pump# .7olumetric Technologies. "vailable at httpG++www.volumetrictechnologies.com/ "#,#> First Person Passes Empty 6ars Cars that had been brought out from storage at the beginning of the day are set on the table and passed to the filling machine operator. .'mployee $/

Figure "#"$ Stainless Steel Table# .Eandling innovations. "vailable at httpG++www.handlinginnovations.com/

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"#,#? Semiautomatic Filling Mac;ine This is the step where the sauce is placed into the -ars by the filling machine. Semiautomatic filling occurs which means one employee must operate the machine by using a foot peddle to cause sauce to flow into the -ar. The filling machine sits on a stainless steel table. .'mployee (/

Figure "#"" Filling !ine .3 Packing Systems# "vailable at httpG++www.apac aging.com/

"#,#@ Full =ars are Capped "fter the -ars have been filled in the previous step# they are passed manually by the filling machine operator to the capper. "t this step the -ars are manually capped by an additional employee. .'mployee %/ Three total employees are needed to carry out steps 6.%., to 6.%.). "#,#"$ !abeling and Packaging "t this step the full and capped -ars are passed along a table by the employee in the previous step to an additional employee. This employee is responsible for manually placing labels on the -ars# then placing the labeled -ars into a box. 'ach box holds 61 -ars. The boxes are sitting on a pallet for easy transport with a pallet -ac . .'mployee > /

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"#,#"" Finis;ed Product to Storage The finished product in the boxes sitting on a pallet is transferred to storage by the labeling employee# once the pallet has the proper amount of full boxes on it. The employee will use a pallet -ac to transfer the pallets of finished products to storage. This step will only be done twice a day because each pallet will hold 64 boxes of finished product# and the plant can produce 1) boxes of finished product in one wor ing day. .'mployee >/

Figure "#"& Pallet 6ack# .Eandling :nnovations. "vailable at httpG++www.handlinginnovations.com/ "#,#"& %elivery to :are;ouses in Calgary Palettes of finished product will be loaded onto a truc from the 8isdale truc ing company. This truc will transport the finished product to the warehouses for !algary !o0@p and Sobeys in !algary "lberta.

"#< 3verage *usiness Cycles


This average business cycle is for year 4 .1&6(/ of XXXXX Foods when plant will operate at maximum capacity. The average business cycle will be consistent from day to day# wee to wee # and year to year. There is no large increase in pasta sauce consumption at any point in time in a given year# so production each day# wee # month# and year will remain constant. The Plant will operate 4 hours a day# five days a wee and

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Lentil Pasta Sauce

%1 wee s a year. The plant will not be open on statutory holidays and > plant wor ers will be employed year round. The plant will produce 6$&#&&& -ars of lentil pasta sauce in a year. "#<#" 3verage *usiness %ay The average day will consist of processing the lentil pasta sauce by the process outlined earlier in the flow of wor section. The employee responsible for coo ing the raw lentils in the first ettle will begin their wor day at 4G&&am and end at (G&&pm. The five other plant wor ers will start at )G&&am and end at %G&&pm. The coo must be dressed in proper wor attire and begin coo ing at 4G&&am. The five additional employees must be dressed in proper wor attire and begin wor in processing area by )G&&am. Proper wor attire includes latex gloves# hair nets which are provided at the plant# as well as proper wor clothing that employees are responsible for purchasing. "ll employees must change clothing in the change room provided. The processing line will run continuously through out the day. 'mployees will rotate two at a time for a (%min lunch brea . First two employees have a lunch brea from 66G6%am to 61G&&pm. The next two employee<s lunch brea runs from 61G&&pm to 61G(%pm. The final two employees will have a lunch brea from 61G(%pm to 6G$&pm. The other three salary employees including the secretary# plant manager# and mar eting manager will begin their wor day at 4G&&am and end at %G&&pm. 'nd finished product at the end of the day will be %(& -ars. !leaning of the wor stations will be completed by %G&&pm each day. This is the responsibility of the plant wor ers# so processing should be completed by (G$& to allow time for cleaning. The secretaries wor day will consist of answering phone calls to the plant# as well as ensuring delivery truc s are showing up at the scheduled times. The plant managers day will consist of eeping the processing line in operation and ensuring delivery truc s are loaded and unloaded when they arrive at the processing plant. The mar eting manager will be responsible for mar eting the lentil pasta sauce through !algary !o0@p and Sobeys.

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Lentil Pasta Sauce

"#<#& 3verage *usiness Mont; :n an average business month XXXXX foods will produce 6&#4$( -ars. Aelivery of finished goods will occur once a month which wor s out to one time every 6% days. Aelivery of raw materials such as -ars# spices# and tomato paste will occur once a month.

"#> Auality control


The !anadian Food :nspection "gency .!F:"/ has product regulations that XXXXX Foods must follow when ma ing the pasta sauce that will be food for human consumption. XXXXX Foods will have to follow these regulationsG 6. *uilding must be situated on the proper land where the land can be drained# be easily accessible for transport# and be free from congestion. 1. *uilding must be properly managed with good drainage off of building# be closed in to be free from entrance of birds and insects. :t must be basically sound and in good repair. Bust have the capacity to receive and house the raw and finished products. $. Eave the proper e;uipment to handle merchandise which are to stay in location and not ta en out of the wor area. :f new or used merchandise needs mechanical wor # they must be cleaned# saniti9ed and inspected. (. Eave proper cleaning and saniti9ing measures in place %. Ba e sure that wor area is properly managed and cleaned >. :nspection must be done on all products ,. 'mployees must follow appropriate dress attire which would include hair nets# gloves and some type of clothes to eep outside materials getting into product. 4. Ao not bring in any ob-ects .gum# tobacco# etc./ that can infect or fall into the food ). "ll pac aging procedures must be followed 6&. Proper labeling of products must be established before shipment out.

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"#>#" 53CCP E"!!P .Ea9ard "nalysis of !ritical !ontrol Points/ is used to analy9e the sauce production and distribution systems. The steps areG 6. :dentify potential safety ha9ards such as spills# e;uipment malfunctions and human error. 1. Aetermine where and when to prevent these problems that may occur. $. *e sure to set some types of limits to control potential problems and set up methods to monitor critical limits. (. Eave procedures in place to handle and correct problems if critical limits are exceeded. Such as spill its# Baterial Safety Aata Sheets .BSAS/ and e;uipment contact numbers. %. "ccurate records must be ept and routine evaluations must be done to chec if controls are effective. >. Periodic audits must be done to ensure the E"!!P system is in wor ing order. XXXXX Foods is not re;uired to follow E"!!P guidelines# but will follow them in case the regulations are changed at a later date. :n this case# their production will already be in line with the regulations and alterations to the production process will not have to be made. .!F:"# 1&&>/

"#? Supply-service analysis


XXXXX Foods will have a minimal amount of suppliers in order to get as many supplies as possible from one venue. Saputo<s is the choice of supplier for the spices# and !ostco for the tomato sauce. The cleaned and ready to eat lentils will be supplied from Aavid Krause and will be delivered to the plant in proportional si9e for the demand needed at the time. The production line e;uipment consists of two steam -ac et ettles# a "g'c ()%. !ollege of "griculture and *ioresources 6>

Lentil Pasta Sauce

filling line# scale# scoops# containers# pallet -ac s and stainless steel tables. The steam -ac et ettles and filling lines come from "lard ';uipment. The scales for weighing lentils and ingredients come from Scales =alore. The scoops are from 8ose Scientific Ltd# and the stainless steel container# table and pallet -ac come from Eandling :nnovations. The printing plates and labels come from !ustom Labels :nc. *oxes for shipping come from pac agingprice.com. Cars with lids for the sauce are purchased from "mpa . !omputers+printers are from Future Shop and office des s will come from Staples business depot. " detailed list of suppliers can be found in "ppendix ".

"#@ Capital *udget


Table 6.6 is a summary capital budget for 1&&,. " detailed description of costs in the capital budget can be found in "ppendix *. Table 6.6 shows cost of land purchased. The cost of the building previously described in floor plan section# including water# natural gas# electricity and sewage installation. "lso included in the capital budget summary is a cost of landscaping for the site. Processing e;uipment costs are bro en down in Table 6.1 to give the total on the capital budget summary. @ffice e;uipment includes computers re;uired as well as office des s. The total capital re;uired is $>(#6,( for the first year 1&&,. Total capital re;uired K total capital costs .$4,#4,>/ L total wor ing capital .1$#,&1/ for a total of 3(66#>,4.

"#"$ Cost o 4oods Sold


!ost of goods sold is summari9ed in table 6.( by adding beginning inventory# cost of gods produced# cost of goods available for sale# and ending inventory to give cost of goods sold.

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Lentil Pasta Sauce

Table 6.6 !apital *udget Summary


!"edule 6# Capital $udget 2007 Land 1uildin" *ater Installation 2atural 3as Insatallation /lectricit Installation 0ewa"e Installation Landsca!in" &rocessin" e'ui!(ent -..ice e'ui!(ent Total Capital Costs Working Capital Accounts Receivable Raw Inventor Inventor in !ro"ress #inis$ed Inventor Less Accounts &a able )otal *or+in" ,a!ital Total Capital Required
$ 1 305,000 12,000 10,000 28,000 5,000 3,500 22,375 2,000 387,876 35,556 6,850 923 13,8%7 33,%76 23,702 411,678

$ $

$ $

Table 6.1 *rea down of e;uipment cost


4uantit %ro!essing &quip'ent 0tea( 5ac+et 6ettle 720 "al8 0cra!er 6ettle 720 "al8 #illin" Line 0cale 775+"8 0cale 72006"8 0coo!s )ables 0tainless 0teel ,ontainers &allet 5ac+ &allet Rac+ &rintin" &lates ())i!e &quip'ent# ,o(!uter:!rinters ;es+s Total equip'ent !ost 1 $ 1 1 1 1 6 2 3 2 1 1 2 2 ,ost 6,300900 7,600900 5,000900 115900 130900 30900 500900 183900 200900 800900 300900 750900 250900 $ $ )otal ,ost 6,300900 7,600900 5,000900 115900 130900 180900 1,000900 550900 %00900 800900 300900 1,500900 500900 24,37*+00

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Lentil Pasta Sauce

Table 6.$ !ost of =oods Banufactured


!"edule 3# Cost o) 2oods -anu)a!tured 2007 +" re'uired ,ire!t -aterials )o(ato 0auce -re"ano 1asil 0alt 3arlic !owder &arsle Total spi!es ,$o!ed -nion <e"etable bouillon Lentils &ac+a"in" (aterials >air nets Rubber "loves )otal ?ars )otal bo=es )otal lables Total pa!king 'aterials &rice:+" $ 22 7 53 50 29 10,355 096 3859 1o=es re'uired 10 1o=es re'uired 10 5ars re'uired 70,000 1o=es re'uired 5,83% Labels re'uired 70,000 $ 12990 5970 3930 7960 12966 0926 %%8900 0979 &rice:bo= 7100 8 $ 795% &rice:bo= 7200 !air8 $ 6973 &rice:?ar $ 0963 &rice:bo= $ 0915 &rice:label $ 0935 $ Total dire!t 'aterials ,ire!t /a0our *a"e Labourers &'plo1ee 0ene)its Wage la0ourers /(!lo (ent Insurance ,anadian &ension &lan >olida &a *or+ers ,o(!ensation Total 0ene)its Total ,ire!t /a0our $ $ $ $ $ $ $ 6,462 28% %0 176 382 367 1,2*0 2,692 269 3,056

75 67 %%,100 875 2%,500 6.,618 83,347 10%,000

2,839 5,1%8 6,032 5,325 1.,344 123,344

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

-anu)a!turing o3er"ead 4aria0le -anu)a!turing o3er"ead /lectricit 2atural 3as *ater:0ewer )ele!$one:Internet Re!airs and @aintenance Total 4aria0le o3er"ead #i=ed @anu.acturin" over$ead Insurance &ro!ert )a=es ,a!ital ,ost Allowance )otal #i=ed @anu.acturin" -ver$ead Total -anu)a!turing (3er"ead Cost o) 2oods -anu)a!tured )otal ;irect /=!enses )otal ;irect Labour A 1ene.its )otal -ver$ead ,osts Total Cost o) 2oods -anu)a!tured

9,000 7,800 13,800 2,%00 5,818 $38,818 $5,688 7,000 22,358 $35,0%6 $73,864 2007 $83,3%7 123,3%% 73,86% $280,**4

Table 6.( !ost of =oods Sold


!"edule 4# Cost o) 2oods old 2007 1e"innin" Inventor ,ost o. 3oods &roduced ,ost o. 3oods Available .or 0ale /ndin" Inventor Cost o) 2oods old $ B 336,95% 336,95% 13,8%7 323,107

"#"" Cas; Management


Auring the first one to two months of operation# there will be little to no cash flow into the company. This start up period will be spent getting ready for production. The following month will include building up enough finished product inventory to supply retailers with product. Following the initial three months of start up# cash flow should stay relatively constant as there is no seasonal mar et for selling pasta sauce and there are no plans to operate the plant on a seasonal basis.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

"#""#" Inventories :nventory will include the raw cleaned lentils used in the sauce. Lentils cleaned to food ;uality will be brought in as needed# resulting in a very small amount of raw lentil inventory in the plant at any given time. @ther raw materials will consist of the tomato paste and spices needed for the sauce and will be ordered as needed from suppliers. Finished products inventory will be relatively low because products will be shipped every 6% days to warehouses for Sobeys and !algary !o0@p both located in !algary "lberta. The values of raw inventory# inventory in progress and finished inventory come from the values in the capital budget. Table 6.% "verage days :nventory
63erage ,a1s 5n3entor1 Raw Inventor Inventor in !ro"ress #inis$ed Inventor Total ,a1s 5n3entor1 ,a1s 30 1 15 46

Table 6.> :nventory costs


Raw Inventor Inventor in !ro"ress #inis$ed Inventor $ 6,850 923 13,8%7

"#""#& 3ccounts 8eceivable XXXXX Foods will have only accounts receivable for !algary !@0@p and Sobeys because they are the only retailers for the product. The company will adopt a discount policy such of 1+1% net (% to help there competitive stance in an already competitive mar et. The clients will receive 12 discount if paid before day 1% of the receivable. The average days for receivables will be (% days. :n year one accounts receivable is calculated asG Total sales 8evenue x ."vg. days payable+$>%/ "ccounts receivable for 1&&, K 144#(&& x .(%+$>%/ K B),C,,< in 1&&,.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

"#""#) 3ccounts Payable The accounts payable policy will be flexible to ta e interest rates into account and compare the cost of carrying a line of credit versus the cost of not ta ing discounts being offered by suppliers. :t has also been found that some suppliers deal in cash on delivery only# in which case there will be no account payable and the payment will need to be made in cash and possibly financed through a line of credit. The average days payable will be $& days. :n year one accounts payable is calculated asG !=B M !!" expense L "dministration N Bar eting salaries# wages# and benefits x ."vg. days payable+$>% days/ K "ccounts payable "cc. Payable for 1&&, K .$$>#)%( M $%4 L )1#>4)/ x .$&+$>%/ K ))C/>< for 1&&,. "#""#/ Cas; Conversion Cycle The average days of raw material inventory will be $& days for the raw materials. The average days of finished goods inventory on operation site will be 6% days. The average day<s receivable is (% days. This is summari9ed in table 6.,. Table 6., !ash !onversion !ycle
Cas" Con3ersion C1!le Avera"e da s inventor Avera"e collection !eriod Avera"e da s !a able Total !as" !on3ersion !1!le 2007 %6 %5 B30 61

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

&#$ 5uman 8esources Plan


&#" Plant .operation0 Manager ."0: will be in charge of the production plant.
The duties involved include overloo ing day to day production on the floor# coordinating shipping and receiving# assisting with any problems that may occur in the plant as well as operating as the E"!!P coordinator. The manager will be personally involved with sanitation inspections of machinery# e;uipment and plant production area. These inspections should be done at least semi annual and will follow the E"!!P process re;uirements. The plant manager will be trained in all safety regulations program. The plant manager salary will start at 3%&#&&& L 3>#(&& in benefits K 3%>#(&& for the 1&&, year. Table 1.6 describes how benefits are calculated for the plant manager.

&#& Sales Manager ."0: 5ill be in charge of selling and mar eting the product. Their
base salary will be 3%&#&&& L 3(#%1$ in benefits. Total Salary and benefits is 3%(#%1$ for the 1&&, year. The employee filling this position will need to have some experience and+or post secondary education in business value or mar eting. They will need to be in contact with the distributors# fre;uently learning and inventing new ways to mar et and sell the pasta sauce. Table 1.1 describes benefits for sales manager.

&#) Secretary ."0: 5ill be involved in administration including paying of bills# payroll
and accounting in general. "lso ordering of supplies# ordering and receiving information from the future retails such as invoicing# and directing phone calls to whomever the caller may need to tal to. They will be responsible for entering data such as sales numbers or information on new retails. !omputer s ills will be an asset towards the secretary position and the position will pay 3$%#&&& L 3$#6>> in benefits K 3$4#6>>+year. Table 1.1 describes benefits for secretary.

&#/ Plant 1orkers: Four total plant employees will be ma ing the sauce which will
change to six when the plant reaches full production. This will include unloading and loading of transport truc s and moving both raw and finished products to storage. The

"g'c ()%. !ollege of "griculture and *ioresources

1$

Lentil Pasta Sauce

-ob descriptions for plant wor ers have been covered in the flow of wor . The laborers are re;uired to follow proper sanitation re;uirements while coo ing the lentils and mixing the sauce. They will have to be trained to wor each machine in the facility and will be put through first aid classes. Dualifications include a high school education and upward. These positions will be paid on wage bases of 361.%&+hour with benefits to aid in eeping high employee moral and eep them within the company. "nnual wages for each employee will be 31>#&&& L 3(#4$> in benefits K 3$&#4$>+year for each of the six employees. :n year one the total plant laborer wagesG 3$&#4$> x ( employees K 361$#$((+year plus the plant managers 3%>#(&& gives a total of 36,)#,((. Table 1.$ summari9es benefits and wages for ( employees in 1&&,.

&#, Training Programs


"ll of the employees from XXXXX Foods will be put through training programs such as fire escape plans and will be familiar with all BSAS boo lets in case of an emergency. They will be shown an emergency plant evacuation plan at least twice per operational year. 'very employee will be trained to wor all pieces of processing e;uipment. 'mployees will rotate -obs within the plant to let them experience all aspects of food processing as well as to decrease repetitiveness for the employees. This should increase moral and production. The plant e;uipment training will be performed by the plant manager.

&#< Compensation
"ll plant wor ers will be eligible for wor ers compensation if on the -ob in-uries occur. !ompensation will only be paid to the physical laborers and not to the management team rates are all included in the tables 1.6 01.$.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

Table 1.6 Plant manager salary and benefits for 1&&,


0ales @ana"er 6nnual alaries $ene)its /(!lo (ent Insurance ,anadian &ension &lan *or+ers ,o(!ensation Total $ene)its Total alar1 and $ene)its $ $ 2973C %995C $ 5912 50,000 *0,000

1,365 2,%75 2,560 $ 6,400+00 $ *6,400

Table 1.1 Secretary and sales manager salaries and benefits for 1&&,
0ecretarial 0alar 0ales @ana"er 6nnual alaries $ene)its /(!lo (ent Insurance ,anadian &ension &lan *or+ers ,o(!ensation Total $ene)its Total alar1 and $ene)its $ $ 1995C %995C $ 3912 $ 35,000 50000 8*,000 1,%%3 3,59% 2,652 7,68. .2,68.

Table 1.$ "nnual wages and benefits for all ( plant wor ers in 1&&,
*a"e >ours !er wor+er 6nnual 7ages $ene)its )or Wage &arning &'plo1ees /(!lo (ent Insurance ,anada &ension &lan >olida &a *or+ers ,o(!ensation 7$:1008 Total $ene)its )or Wage &'plo1ees Total $ene)its and alaries $ $ 2973C %995C $0906 $ 5912 $ $ 12950 2,080 26,000 2,839 5,1%8 6,032 5,325 1.,344 4*,344

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

)#$ T;e Marketing Plan


)#" Overvie1
OXXXXX is a legume based pasta sauce providing essential protein and fiber re;uirements for vegetarian inclined diets as well as the health conscious individual# within one convenient readymade serving.O

)#& Marketing Mix ./ PDs0


)#&#" Product The sauce will be sold in ,%& ml glass -ars# pac ing 61 -ars to a box and 4& boxes to a pallet. The total production of year one will be ,&#&&& -ars. XXXXX is a lentil enriched tomato pasta sauce that will appeal to vegetarians and health food fanatics ali e. The sauce will be produced and pac aged at the XXXXX Foods production facility in SK and shipped to the Sobey<s and Federated !oop Limited .F!L/ warehouses in !algary# "* for distribution. )#&#& Place XXXXX will be manufactured at Sas atchewan# where a new facility will be constructed in the spring of 1&&,. The advantage of constructing a building at this location is the accessibility to the plant by the owners. From the plant# truc ing will transport the product to !algary. The product will be sold at the retail level through !oop grocery stores in the !algary area# as well as through Sobeys< "lberta and later in the Sas atchewan locations. =iven the nutritional ;ualities of the sauce# it would be best placed alongside products with similar appeal. "lthough this strategy runs the ris of being passed over for a competing product# it does insure that the consumer sees the product as an option. :f the sauce is shelved out of context# it could be passed over completely by potential buyers. "nother goal related to product placement within the store is having the -ars shelved between eye level and belt height. This small detail could mean the difference between the -ar catching the buyer<s eye and being hidden out of sight. The ideal store placement would be on an end cap at the end of the aisle which "g'c ()%. !ollege of "griculture and *ioresources

1>

Lentil Pasta Sauce

would give a more exclusive position drawing more attention to the new product and its benefits. )#&#)Price The specialty nature of the product means there is room for mar 0up in comparison with competing pasta sauces. :n comparing mainstream sauces to organic sauce it is concluded that a reasonable mar 0up for XXXXX would be 1%2 above its competitors. *eing the target mar et is made up of people who are willing to spend a higher portion of disposable income on food# assumes the premium for the product will be easily accepted. "lthough this product is not organic# its noble ;ualities appeal to a similar mar et. The product is priced in line with an organic sauce# the retail price of organic sauce is in the range of 3(.$%0 3(.%&# therefore a retail price of 3%.44 will be the goal for XXXX pasta sauce based on a $& 2 mar up from the wholesale price# with a wholesale price of 3(.61 )#&#/Promotion "s with any new product# product awareness is extremely important. "lthough the pasta sauce mar et has many competitors# XXXXX stands alone in the pulse enriched sauce mar etI this niche product is a novelty ;uality that will be used to penetrate sales# re;uiring a promotional strategy to establish brand loyalty. The promotional strategy will based on maga9ine advertisements in the !algary 7egetarian 8esourceI Flair# !ountry 5omenI wee ly flyers through Sobeys and F!L# as well as in0store taste testing# and internet websites.

)#) SegmentationC TargetingC and Positioning


)#)#" Segment Aue to the increased interest in vegetarianism# as well as consumers becoming more health conscious. There are two main target segments for XXXX# the 7egetarian and 7egetarian inclined population# as well as the female health conscious population. *oth of these segments are targeted out of !algary F!L and Sobey<s grocery chains.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

)#)#& Target The target mar et is the vegetarian population in !algary# as well as the female health conscious individuals in !algary as well. XXXX Foods will position XXXXX into the urban centers# because (2 of urban populations are vegetarianI ,42 of vegetarians are female and as such ,12 of this segment is between 1& and $) years of age. .!algary 7egetarian 8esource/. )#)#) Position The image that XXXXX foods is portraying of XXXXX is a healthy meat alternative for the vegetarian population# as well as a healthy protein supplement to the health conscious individual. XXXXX will be mar eted in the health food aisle.

)#/ S:OT 3nalysis


)#/#" Internal Strengt;s P ?ew product to the pasta mar et P @nly pulse based pasta sauces in the mar et P Lentils promoted as healthy and important parts of the diet. P !ontinuous supply of lentils .)42 of !anada<s lentil production in Sas ./ .Pulse !anada/. )#/#& Internal :eaknesses P Q@ne ShotR first impression mar et M there are many existing products# most consumers will only buy this product once if it fails to impress them P XXXXX is a new firm P ?o brand loyalty has been developed P Large initial investment with production

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Lentil Pasta Sauce

)#/#) External Opportunities P :ncrease in vegetarian popularity due to increasing health awareness P Lentils used as a meat replacement P @ffers a choice to vegetarian consumers of protein sources )#/#/ External T;reats P 'stablished competition .dominated by few large firms/ P 8is of having to import ingredients to ma e the product P Pulse crops are not widely consumed throughout !anada

)#, Market 3nalysis


)#,#" Past Per ormance XXXXX Foods# is a new business and as such they are trying to establish their presence in the mar et place. This is a niche product and therefore will be mar eted as a specialty sauce# within a uni;ue mar etplace. )#,#& Market :n !anada (2 of the population is vegetarian# .!algary 7egetarian 8esource/. :n !algary# where XXXXX will be mar eted (.,2 of total grocery shelf space is devoted to pasta sauce# and furthermore 1&#&&& people in one wee pass through a F!L store in !algary. .Federated !o0op# 1&&%/. )#,#) Competition XXXXX will have many competitors in the pasta sauce mar et. Table $.6 summari9es these competitors# as well as their prices. )#,#/ Product-Service Features This product fits into a niche mar et appealing to health conscious individuals# and the 7egetarian population that is why this product has an opportunity over its competitors. XXXXX is a lentil# protein pasta sauce offering a healthy choice as a meat alternative# which is an appealing aspect to both segments in the target mar et. "g'c ()%. !ollege of "griculture and *ioresources

1)

Lentil Pasta Sauce

Table $.6 !ompetition Product Eame !atelli =arden Select Prego Traditional 8agu 8o9oni Portabello Bushroom Eealthy !hoice Traditional !lassico di *asilicata !ompliments Traditional !ompliments @rganic Primo Eunt<s Thic and 8ich !atelli Spaghetti Sauce with meat Package Si'e .ml0 ,&& >,% ,&& ,&& ,&& ,&& ,&& ,&& >4& >4& $)4 Price .B0 1.1, 1.)4 1.(4 $.(4 1.)4 1.)4 1.,, %.(4 1.(4 6.)4 6.(4

)#,#, Customers *y loo ing at the attributes of the lentil pasta sauce that XXXXX Foods will be mar eting# and the current trends of the health food industry# the intended target is the active# vegetarian# as well as the health conscious female consumer. Aue to the occurrence of these individuals being concentrated in larger urban centers# we will focus on the city of !algary. This e;uates to approximately (& &&& persons. .!algary 7egetarian 8esource# 1&&%/. !algary was chosen because of its relative populationI high percentage of young individuals# as well as the expanding growth of the city. This will aid in mar eting+advertising and product movement of XXXXX<s early life. The customer segment chosen to be focused on is the increasing vegetarian population found in large urban centers. Eealth concerned and conscious consumers are "g'c ()%. !ollege of "griculture and *ioresources

$&

Lentil Pasta Sauce

beginning to switch more towards the vegetarian inclined diets. 8e;uirements of a high value protein source# cholesterol free products# and high dietary fibre found in legumes and pulses are recommended in everyday diets of vegetarians. .!algary 7egetarian 8esource# 1&&%/. )#,#< Opportunity "s society today becomes more health conscious# and vegetarians are loo ing for additional meat alternatives# XXXXX will be of a greater demand. XXXXX will be mar eted in the health food# specialty aisle. This offers the product two advantages# the first being a healthy pasta sauce choice# because of the protein found in lentils. The second opportunity is the focus towards vegetarians# as a meat replacement. :n targeting both attributes of the sectors within the two grocery chainsI XXXXX has realm of opportunity. :n the beginning stages of XXXXX development# the product will be mar eted to !algary# and surrounding area<s. XXXXX Foods will then loo at expanding into the Sas atchewan mar et of the Sobey<s grocery chain as a long term opportunity.

)#< Marketing Strategy


)#<#" Sales and Pro its XXXXX is strategically priced at 3%.44 which is a 1%2 mar up over main stream sauces# such as !ompliments @rganic pasta sauce. The ob-ective of the mar eting strategy is to supply !algary F!L and Sobey<s stores with product in year one# with a production capacity of ,&#&&& -ars. 'xpanding to surrounding areas in "lberta in year two# with a long term goal of supplying the province of Sas atchewan with XXXXX. 5hile obtaining sales targets of 6&2 of the total target mar et each year# $&2 of the target mar et will be aware of the product by year three. Frban populations have a higher population of vegetarians compared to rural .(2/# as well as the ma-ority of vegetarians are female aged 1& to $) years of age. .Statistics !anada# 1&&%/. :t is these reasons that XXXXX will be positioned into the urban centers# of !algary "lberta.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

Figure )#" C;annels o %istribution XXXXX will be transported from the warehouse where the sauce is produced to F!L and Sobey<s warehouses in !algary. @nce the product is present in the warehouse# the company<s will distribute XXXXX to the !algary F!L as well as Sobey<s grocery chains in the first year# expanding to the surrounding area of !algary in year two and three. 5ith a long term goal of eventually expanding into the Sas atchewan mar et of the Sobey<s grocery chain. )#<#& Select Markets-Product-Service Mix The goal of XXXXX pasta sauce is to generate product awareness# into the target mar et. *ecause the target mar et is realistic# and is not a dominate segment of !algary<s population# the goal will be attainable. The product is only targeted to individuals who are loo ing for a product similar to XXXXX. *eing the product has no direct competition within the mar etI because there is no other lentil containing pasta sauces# this is a beneficial attribute of XXXXX entering a niche product into the specialty food industry.

)#> Selling and 3dvertising


"wareness of the product will be the primary ob-ective of the XXXXX Foods mar eting team. The !algary 7egetarian 8esource maga9ine will be used as a main resource because this maga9ine has no charge to advertise in# it will give an unbiased opinion to our consumers# while also creating a demand for XXXXX. :n store taste tests will also be used through advertising in flyers# in both the !o0op and Sobey<s. XXXXX foods are also going to advertise in the !ountry 5omen# and Flare maga9ines# because these maga9ines target the main segment of the target mar et# therefore presenting the product to the end consumer directly.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

)#>#" Product Placement The 36%#&&& fee is the cost of having the pasta sauce on the shelf in Sobeys stores in !algary as well as all !algary !o0ops in. This number is a ;uote from the sales managers at both the Sobeys and !o0op offices. :t is approximately 34&&& for Sobeys stores and 3,&&& for !algary !o0op. The sauce will be placed as an end cap display in the stores. This means the pasta sauce is located at the end of the row of products facing customers as they wal into the store. The 36%#&&& includes having the sauce delivered from the warehouses and placed on the shelves in all the stores. Table $.1 Bar eting *udget Plan 3dvertising Product Placement in Store Baga9ine "dvertising Flyers and coupons *rochures+*usiness cards Total 3dvertising

3 3 3 3 B

6%#&&& 6&#6$% 6%#&&& $&& /$C/),

Taste tests in stores 5eb page Travel expenses Total Promotion Freight Total Marketing Expenses )#>#& Maga'ine 3dvertising

3 3 3 B 3 B

%#&&& 1&& (#4&& ,C),$ 1&#%(& >$C@>,

The 36&#6$% is an annual fee to place an advertisement for XXXXX in Flair# and !ountry 5omen maga9ines across western !anada. This price is based on a half page add in every issue. The reason Flair# and !ountry 5omen were chosen was because these maga9ines are purchased by a large proportion of the target audience# >42 of Flair female readership are between the ages of 640() . Flair maga9ine# 1&&(/# which is the main target mar et for XXXXX Foods.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

)#>#) Flyers and Coupons The 36(#&&& is an annual fee to have the product in both the Sobeys and !o0op<s monthly flyers. This is a great way to increase customer awareness# of the product. The coupons will be in the flyers beside the advertisement for the product. )#>#/ *usiness Cards :t will cost 3$&& to get business cards made for XXXXX Foods# that include Aavid and 7ic y Krauses contact information on them. )#>#, Taste Tests XXXXX Foods will spend 3%&&& a year on setting up taste tests in the stores that the sauce is sold in. The taste tests will be done three times a year# during three different seasons# to reach as many customers as possible. .ex. Summer# spring# fall seasons/. )#>#< :eb Page The 31&& expense will be to update and maintain the already existing website.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

)#>#> Travel The 3(#4&& is based on a yearly travel expense. *ecause XXXXX Foods is based on a wholesale distribution to Sobeys and !algary !o0op travel expenses to drive and sell this product will be low. The numbers are based on approximately ten trips to !algary where the offices and stores for Sobeys and !algary !o0op are located. )#>#? Freig;t The yearly cost of freight is 31&#%(&.&&. This number is based from truc ing# from Sas atchewan to !algary "lberta# based on the estimated trips will haul XXXXX# to both retail stores in !algary.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

/#$ Financial Plan


/#" Financing
XXXXX Foods will rely heavily on owner e;uity to cover the cost of construction# as well as the costs of operation in the early years. *ecause of the high ris factor associated with this business plan# as well as the relatively remote location of the plant# a substantial ban loan can not be ac;uired without offering other security. "lthough the amount is less than desired# XXXXX will be pursuing a ban loan to help cover the high costs of construction. The loan ta en on as long term debt will be valued at 366%#&&&. This is $&2 of the building and e;uipment costs and will carry an interest rate of 42. The loan amount and interest rate are based on estimations by TA !anada in Swift !urrent and will be paid bac over a 6% year period. "lthough ta ing on a loan will negatively affect the already terrible :88 of XXXXX# it is included to lessen the amount of e;uity re;uired which is already very high. :n addition to the loan# XXXXX will be see ing outside investors to help raise the re;uired e;uity. These investors will be ta en on as shareholders to be paid in accordance to the dividend policy that has been set. :n the case of a business failure# any debt holders will be paid out first# and the shareholders will be paid out of any remaining assets if any are left. The dividend policy is based on the total wor ing capital and the dividend policy factor is chosen such that the company does not pay out dividends if it results in a negative cash flow. The dividend factors are very high in this plan because company can not afford to pay any dividends in any of the first ten years of operation. :nvestors will be extremely hard to find given the small chance of being paid a dividend. "s well# the complete absence of an external rate of return ma es this business an unattractive option for potential investors. "lthough the interest on long term debt is ta en into account when calculating profits# it is a relatively small percentage of the losses observed in the net income and

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

ending cash flow values. 5hile interest on debt will represent an expense for the company# the loan only covers a small amount of the total capital re;uired. "fter examining the base run of the financial situation of XXXXX Foods# the plan appears to be unfeasible. The ending cash flow in every year comes up negative unless a huge initial e;uity investment of 6#>1%#&&& is made. This number is far too high to be realistic and does not fix the company<s financial problems# only nurses it through the first 6& years of operation to maintain a positive cash flow. The following financing budget uses values that would let XXXXX construct the plant and maintain operations in year one# but would run into cash flow problems at the end of year one as well as in following years. Table (.6 Financing Plan for XXXXX Foods Schedule ,G Financing *udget Long Term Aebt @wner<s ';uity Total 1&&, 366%#&&& (4%#&&& 3%&&#&&&

/#& *alance S;eet


The balance sheet as of Aecember $6# 1&&, can be seen in Table (.1. Some important numbers to ta e notice of are the negative cash balance and the large amount of owner<s e;uity. Table (.1 *alance Sheet for XXXXX Foods as at Aecember $6# 1&&,
"ssets !urrent "ssets !ash "ccounts receivable Total inventories Total current "ssets Liabilities !urrent Liabilities "ccounts Payable Long Term Liabilities Long term debt Total !iablities @wner<s ';uity @wner ';uity 8etained 'arnings Total O1ner E9uity

3.6&6#&1>/ $%#%%> 16#>16 3.($#4()/

3$$#(,> 66&#,>% B"//C&/$

Long Term "ssets *uildings# Bachinery N ';uip. 3$4,#4,% "ccumulated !.!.". .11#$%4/ Land 6 Total Long Term "ssets 3$>%#%6)

3$4%#&&& .1&,#%,6/ 3">>C/&@

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

Total 3ssets

$321,669

Total !iabilities F E9uity

$321,669

*ecause there is not currently a plant in operation# the land# building and e;uipment all need be purchased new. " more in depth bra edown of the building and e;uipment costs are shown in Schedule > "ppendix *. *ecause the balance sheet shown is for the end of the first year# it shows accounts payable and receivables that represent 1 wee s of finished product inventory# as well as one months worth of production worth of raw materials inventory.

/#) Economic Forecast


The inflation rate was set at 12 every year for the next ten years of production. "ll input prices and revenues are ad-usted to reflect this rate of inflation. The interest on the long term debt was set at 42 and remains constant over the ten year plan# although it important to note the loan is planned to be paid off over a 6% year period.

/#/ Gnit Cost o Production


" brea down of XXXXX<s production cost per -ar of XXXXX can be bro en down into individual components including direct materials# overhead costs per unit# direct labour# and mar eting costs. This analysis can be seen in Table (.$. Table (.$ Fnit !ost of Production in 1&6( .first year of full production/ :ngredients costs Pac aging Total materials per -ar Airect labour @verhead cost Total Gnit Cost o Production Bar eting and "dministration Total Gnit Cost per 6ar 3&.1& &.)) 36.6) 36.4& 0.60 $3.59 36.%& $5.09

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Lentil Pasta Sauce

/#, Financial Per ormance 3nalysis


The financial situation of XXXXX Foods is loo ing very unattractive. "s the business model stands# the plan is unfeasible. The business experiences negative cash flows in each of the nest pro-ected ten years of operation. The model also shows a net loss in every year. "lthough the losses decrease as the life of the company goes on# the net loss at the end of the tenth production year is still 366&#&&&. The company<s net present value .?P7/ at 1&2 re;uired rate of return was calculated using a re;uired return on e;uity and has a value of 30)6$#%$% which indicates a poor investment because the value is extremely negative. The internal rate of return .:88/ and external rate of return .'88/ were 6&&2 negative.

/#,#" Critical 2ariables The critical values for this financial model are wholesale price per -ar and the level of production per year. These two values have a great impact on whether the business succeeds or fails. @ther variables such as the price of labour and price of input materials are minimal in comparison. /#,#& 8isk 3nalysis *ecause the business plan is unfeasible in its current state# the values in the base run financial model can be considered to be the worst case scenario. The critical values to be examined have been found to have the greatest impact on the current financial situation. =iven the current mar et prices for pasta sauce# the brea even scenarios can be considered to be the best case scenario. The variables found to be most critical are found in Table (.(. The values in the best case scenario represent what the price or volume produced must be to give a positive ?P7 in year one.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

Table (.( Sensitivity of !ritical 7ariables *ase !ase 5holesale price per Car 7olume Produced .worst/ 3(.61 ,&#&&& *est !ase .brea even year 6/ 3>.$> 616#$41 2 !hange %( 6,$

"s shown in the tables# the XXXXX Foods financial models are more sensitive to a change in price than in volume. " smaller percentage change in price can allow the company to reach its brea even levels in comparison to increasing production. *ecause of the unreasonable levels of price increase re;uired and the increased production levels that are beyond plant capacity# a combination of both would be re;uired to allow the plan to be feasible. Since the base model of the plan is unfeasible# there is no concern over how much decrease is allowable for both production levels and wholesale price. :n the case presented in the preceding pages# all numbers were found using the brea even levels as a basis for the best case scenario facing the company. /#,#) *reakeven 3nalysis Figures (.6 and (.1 show the brea even analysis by altering the wholesale price of the sauce and the level of production respectively. "s shown by Figure (.6# the brea even prices that are re;uired are all much higher than the base price of 3(.61 per -ar. These prices# although attractive to the goals of the plan# are unrealistic in the pasta sauce mar et. To obtain wholesale prices of 3(.61# the retail selling price would have to be 3,.11 to reach the cash flow brea even# and 3).&( to brea even the net income. These prices are far too high in comparison to other products that are already available on the mar et. " more detailed comparison of competing products is given in the mar eting section of this plan.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

8 7 6 5 %ri!e per 9ar % 3 2 1 0 1 2 3 % 5 8ear base cas$ .low brea+ even net inco(e brea+ even econo(ic brea+ even 6 7 8 9 10

Figure /#" *reakeven 3nalysis Gsing C;ange in :;olesale Price

250000

9ars %rodu!ed per 8ear

200000

150000

100000

50000

0 1 2 3 % 5 8ear base cas$ .low brea+ even net inco(e brea+ even econo(ic brea+ even 6 7 8 9 10

Figure /#& *reakeven 3nalysis Gsing C;ange in Hearly Production

"g'c ()%. !ollege of "griculture and *ioresources

(6

Lentil Pasta Sauce

Figure (.1 shows the levels of production that would result in brea even scenario for both cash flow and net income. These levels are both substantially higher than the base levels. :n early years# there may be a slight possibility of producing more than the base run if experienced wor ers are hired. 'ven in the case of finding# s illed employees# the higher production levels are only a positive if the extra product can be sold. *ecause this product is uni;ue# it is unli ely that any such s illed employees will be easy to find# especially when considering the low wage levels# and the relatively remote area of Shaunavon. :t is also important to note that the estimated production capacity of the plant being built is 6$&#&&& -ars of sauce. The re;uired levels of production re;uired to brea even are higher than capacity in every year with the exception of year one. /#,#/ 3lternative Salary Scenario The business plan presented represents ideal numbers of employees and competitive salaries. "s with many businesses that are owned and operated by the same individuals# it may be of interest to examine what will happen to the financial model if the owner<s ta e on more responsibility to streamline the number of employees# or ta e a cut in pay in an effort to ma e the business succeed. The following section will examine how the financial model will be affected if the secretarial services are done for free# as well as the position of plant manager ta ing on the duties of the sales manager and ta ing a 36&#&&& pay cut. :n addition# the assumption will be made that by intensively training hired employees# production will be more efficient and one wage earning employee can be eliminated. The wage for the remaining wor ers will stay at the same level to stay competitive with other positions with similar re;uired ;ualifications. :f the changes listed are made# the financial situation of the company does see improvement. The ending cash flow at the end of the first year becomes positive# but is followed by three years of negative flows. This is a huge improvement over the base model in which all years ended in a negative cash flow. "nother improvement can be seen in the net income category. :n the base run# all year showed losses# and in the revised run# the company showed net income in the fifth year. The net present value also showed improvement# changing from 30)6$#%$% to 30$6)#%)). The final noteworthy changes come in the values of the :88 and '88. The based run showed that a negative "g'c ()%. !ollege of "griculture and *ioresources (1

Lentil Pasta Sauce

return to owner<s e;uity that made a calculation impossible# and after changes were made the values wereG :88 K 06.&2 and '88 K 0&.)2. These levels are beginning to approach a positive level and ma e the business plan loo li e a more attractive possibility. :n addition to the listed changed# the cash flow could be positive and thus ma e the plan feasible if the initial owner e;uity investment was raised to 3($&#&&&. The added start up capital would allow the company to eep a positive cash flow throughout the first ten year of operation. Table (.% summari9ed the effect that the changed listed above have on some of the ey numbers of the financial model. Table (.% !hanges in Key ?umbers "fter Proposed !hanges ?et :ncome .3/ 'nding !ash *alance .3/ ?P7 .3/ :88 '88 /#,#, Contingency Plan "s an alternative building a plant and running all operations out of Shaunavon# the option of co0pac ing could be investigated. This alternative was investigated by colleagues in a separate planning class and was a scenario that showed positive returns. "lthough that scenario showed positive returns# the levels were low. :t may be an option in early years to build funds within the company to assist in the building and establishment of a plant. Hear 6 0,(#(), >,#46( Hear % 6%#%&$ (4#$,6 0$1,#&)) 0&.)2 06.&2 Hear 6& %&#,4( 1%)#1(1

/#< Conclusion
"fter running the financial model# it is found that the plan is unfeasible. The negative ending cash flows mean that the model doesn<t wor . :f XXXXX Foods is still intending to construct a plant# there needs to be some changes in the employment structure# as well as some re0evaluation in the scope and si9e of the pro-ect. :f the financial figures are ignored and the plan is followed as written# finding investors to finance the pro-ect will be nearly impossible to recruit# and their investments will be lost within a few years.

"g'c ()%. !ollege of "griculture and *ioresources

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Lentil Pasta Sauce

,#$ 8e erences
:ebsitesG "lard ';uipmentG "vailable at 0 httpG++www.alard0e;uipment.com+weSbuy.htm !algary 7egetarian 8esourceG "vailable at 0 httpG++www.calgaryveg.com !ountry 5omen Baga9ineG "vailable at 0 httpG++www.countrywomanmaga9ine.com Federated !o0opG "vailable at 0 httpG++www.fcl.ca Eandling :nnovationsG "vailable at 0 httpG++www.handlinginnovations.com Flare Baga9ineG "vailable at 0 httpG++www.flare.com Future ShopG "vailable at 0 httpG++www.futureshop.ca Pulse !anadaG "vailable at 0 httpG++www.pulsecanada.com XXXXX FoodsG "vailable at 0 httpG++www.XXXXXfoods.com 8ose Scientific LtdG "vailable at 0 httpG++www.rosesci.com Scale =aloreG "vailable at 0 httpG++www.scalesgalore.com Sobey<s =rocery !hainG "vailable at 0 httpG++www.sobeys.ca Staples *usiness AepotG "vailable at 0 httpG++www.staples.ca Statistics !anadaG "vailable at 0 httpG++www.statcan.ca Auotes: "mpac G "vailable at 0 httpG++www.ampac .co !ostcoG "vailable at 0 httpG++www.costco.ca !ustom Labels :ncG "vailable at M httpG++customlabelsinc.com A and A Lumber 8isdale Truc ingG "vailable at 0 httpG++www.sas truc ing.com Saputo<sG "vailable at 0 httpG++www.saputo.ca Sas powerG "vailable at 0 httpG++www.sas power.com Sas telG "vailable at 0 httpG++www.sas tel.ca FLineG "vailable at 0 httpG++www.uline.com

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Lentil Pasta Sauce

<#$ 3ppendix 3

"g'c ()%. !ollege of "griculture and *ioresources

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uppl1:ser3i!e anal1sis

upplier Alard /'ui!(ent Alard /'ui!(ent Alard /'ui!(ent 0cales"alore9co( 0cales"alore9co( Rose 0cienti.ic Ltd9 >andlin" Innovations >andlin" Innovations >andlin" Innovations >andlin" Innovations >andlin" Innovations #uture 0$o! 0ta!les ,ostco ,oo! 0a!utoEs 0a!utoEs 0a!utoEs 0a!utoEs 0a!utoEs 6rause #ar( ,oo! A(!ac+ ,usto( Lables inc9 &ac+a"in" &rice9co( Fline Fline

0tea( 5ac+et 6ettle 0tea( 5ac+et 6ettle wit$ 0cra!er #illin" Line 0cale 775+"8 0cale 7200+"8 0coo!s 768 0tainless 0teel )ables 728 0tainless 0teel ,ontainers 738 &allet 5ac+ 728 &allet Rac+ &rintin" &lates ,o(!uters:&rinters 728 ;es+s 728 )o(ato sauce ,$o!!ed onion -re"ano 1asil 0alt 3arlic !owder &arsle ,oo+ed lentils <e"etable bouillon 5ars A Lids D$0963 eac$ Labels D $0935 eac$ 1o=es D $2925 !er 15 >air 2ets Rubber 3loves

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>#$ 3ppendix *

"g'c ()%. !ollege of "griculture and *ioresources

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