GREEN ACRES FARMERS MARKET

Alicia and Clifford were on the horns of a dilemma. A piece of land on the main road through the town
of St. Mary's had just become available for sale and it was expected to sell quickly. It was the last
undeveloped lot with a significant amount of road frontage in a high traffic area. Alicia and Clifford
had always felt that their area was ripe for a farmer's market. But it was already March -- if they
decided to go ahead and open this year, 1994, they would have to act quickly.

The dilemma arose because there was a municipal development agreement on the land and public
approval was required before a farmer's market could be established. If Alicia and Clifford determined
that the market could be a profitable opportunity, they had no assurance that a development agreement
would be signed in enough time to enable them to start operations in 1994.

The question today was whether or not they should they go ahead and buy the land before knowing the
outcome of the municipal decision ? An assessment of the profitability of the opportunity would help
them make that decision.

This case was prepared by Professor A. Ellen Farrell of Mount Saint Vincent University for the Acadia Institute of Case Studies as a basis
for classroom discussion, and is not meant to illustrate either effective or ineffective management.

Copyright (c) 1995, the Acadia School of Business Administration, Acadia University. Reproduction of this case is allowed without
permission for educational purposes, but all such reproduction must acknowledge the copyright. This permission does not include
publication.

The persons and places in this case are disguised, however the basic relationships and elements remain unchanged.

The Village of St. Mary's

Alicia and Clifford lived in St. Mary's, a semi-rural town of 3000 people about a half hour's drive
outside of a major centre in the Maritimes. The town and the much larger surrounding area were
growing, as the suburbs pushed their boundaries further from the city and people fled to the
commutable country environment. The area was also home to a significant rural population who had
large gardens, large house lots, and who liked the small town life. A number of small villages and
towns dotted the general area. Exhibit 1 shows St. Mary's and the surrounding area.

Within a half-hour's drive of St. Mary's were a variety of operations which catered to a tourist
population. Tourist attractions included: horse-back riding, tidal bore rafting, government-operated and
private campgrounds, public and private golf courses, and beaches. The area was rich with crafts
persons - some with their own shops - and an internationally recognized sculptor also lived in the area.

In addition to the traditional crafts persons, there were a variety of talented individuals involved in
making: specialty meats; specialized in honey-related products like brandied honey, honey butter, and
honey with the comb in the bottle; sugar bush candy makers; and what was reputed to be the best bread
in the province.

Clifford had always felt the farmer's market idea was a valuable one in the "corridor", the secondary
highway that linked several communities off the main divided highway - # 108. People travelled the
corridor on their way to the neighbouring community of Lucas. Lucas had a mall which housed a large
bargain store, grocery store, liquor store and a number of food and retail outlets. When travelling home
from work, many people who lived beyond St. Mary's often took the first exit off the main highway
because they wanted to get off the highway as soon as possible. Although this route was slightly longer,
it took them through the towns of St. Mary's and Lucas and past many of the local businesses.

The land that was for sale was located on the "way home" side of the street. The lot was barely cleared
and required a significant amount of work to get it ready for construction. The owner was asking
$42,000 and Clifford felt an offer of $40,000 would be accepted by the owner. The lot was about an
acre and a half, had 400 feet of road frontage, and was near a subdivision where many young families
lived. A sewer tax of $3,500 would have to be paid to the municipality before construction could begin.

Located on the Gloosecap Trail, a popular destination drive for tourists, Alicia and Clifford felt they
were perfectly positioned to capture the travelling tourist population, the metro traffic seeking a not-
too-distant Sunday drive, and the local market.

EXHIBIT ONE

Area Map
The Partners

Clifford talked about the farmer's market idea with some friends, who he thought might be interested in
a business opportunity. Anna was a partner with Clifford in another very successful business and she
and her husband, Howard, frequently socialized with Clifford and Alicia. All four were entrepreneurs
in other ventures. Anna and Howard were semi-retired and had significant land holdings. Clifford and
Alicia each worked at their businesses, owned a number of properties, and were always looking for new
opportunities.

Anna and Howard were interested and pursued the idea along with Alicia and Clifford. Anna and
Howard agreed to join Alicia and Clifford in a four-way, equally-split corporation, if the idea appeared
to be a profitable opportunity.

Green Acres

The four believed the success of a farmer's market depended on the ability of the market to satisfy a
variety of needs from three distinct groups: residents who wanted locally produced quality goods,
tourists who were looking for quality goods provided in the context of "a Nova Scotian shopping
experience," and the metro traffic who came on the weekends for a drive in the country.

The tone of the market would be more up-scale than some existing markets and would be open from
May to October. In the spring and early summer, the major selling items would be seeds: bulbs,
bedding and potted plants, manure, fertilizer, and other gardening products. As the season progressed,
seasonal fresh fruit and vegetables would be supplied by local farmers and non-seasonal items would
be supplied by wholesalers. Locally grown products available throughout the season would include:
potatoes, lettuce, broccoli, green peppers, turnip, strawberries, blueberries, plums, apples, squash,
onions, carrots, chard, raspberries, peas, beans, pumpkins and watermelon. Some items to be supplied
by wholesalers would be red peppers, mangos, and certain varieties of apples, plums, onions and
oranges.

In addition to the produce, they expected to include: a wide selection of crafts from local area crafts
persons; preserves, compotes, honey and maple syrup; a variety of locally made deli meats, sausages
and pasta salads; prepared foods such as barbecued specialty sausages; ice cream and a bakery. The
four believed the bakery to be the key to the farmer's market based on their discussions with other
owners and their own observations. The bakery was a strong drawing card. Alicia envisioned
townspeople and tourists dropping by at lunch or on weekends for big, juicy locally-made Octoberfest
sausages, barbecued and served with locally-made sauerkraut and bun. This tasty treat would be eaten
at picnic tables on the deck located near the property's edge by a small brook.

To encourage the tourist traffic, they planned to establish a tourist information area on the site. With
brochures, pamphlets, and travel guides supplied by the local tourist bureau, the farmer's market would
be better able to assist tourists. In future years, the tourist bureau might consider relocating their booth
from its present location on a tertiary highway to the Green Acres location. Bicycle and bus tours
through the area were common, and they hoped to capitalize on this as time passed.

Alicia wanted to set aside a small area in the proposed building where weekend activities would take
place. Here, local artisans could work allowing patrons to watch them and provide activities for
children. She had already developed a short list of activities for children and adults:

quilting demonstration
smocking demonstration
highland dancing
wood carving
kite making
bicycle maintenance
tole painting
weed and reed weaving
pumpkin painting and carving
antique car display
flea markets

The market could also provide tourists staying at the beautiful government-operated provincial park
with grocery items, crafts and gifts.

The Development Agreement Process Moves Slowly

The county municipality bylaws required that a development agreement be signed between the
landowners and the municipality if the intended use of any lot exceeded the uses permitted by the lot's
zoning. The farmer's market exceeded the zoning allowances for the property the Green Acres partners
were investigating.

The partners did not see signing a development agreement as a problem. What they did see as a
problem was the amount of time that would be required to have all the necessary approvals and
paperwork accomplished. They had to have a new environmental assessment completed at a cost of
$500, drawings made of the proposed new building, and a new survey of the lot and plot plan
developed ($300). All of these plans must be submitted to the municipal planning group for approval.

The municipal planning group would only give its approval after it had notified the public at large.
Notices would appear in the paper indicating that someone had made application to use the land for the
purpose of a farmer's market. Any opposition would be a strike against allowing a development
agreement to be signed. If there was significant opposition from the public, the development agreement
may not be granted at all. Municipal officials assured Alicia, however, that public opposition to a
farmer's market was like public opposition to a medical centre -- virtually nonexistent. "Everyone likes
to see a medical centre in their community," they said.

Timing was a concern. If the partners bought the land and started the development agreement process
immediately, the soonest the municipal and public consultation process could be finished would be the
first week of June, and this was if everything went smoothly. This did not account for any problems if
someone objected to a farmer's market on the property. The Green Acres partners could not apply for
the development agreement without purchasing the land, nor are they allowed to start building on the
property until the development agreement had been approved.

In deciding whether or not to go ahead at this stage, the partners developed a business plan which they
hoped would help them to decide whether or not to purchase the land. They were wondering if they
should take the risk of buying the land and then possibly finding out that the development agreement
had met with opposition. If the project was not feasible in the first place, they did not have to worry
about whether or not to buy the land.

The second concern was that if there were no problems with the development agreement, would the
plan be feasible given the fact that it would appear they only have half a season for their first year's
operations.

They hoped that an examination of the revenues and costs would help them with their decision.
A Beautiful Building

Their observations and research showed that other farmer's markets generally needed to expand their
premises a couple of years after opening. This information generated discussion amongst the partners
as to the size of the building that would be built. Alicia argued strongly against the large, and therefore
more expensive and impersonal 4000-square foot building that was being considered. Clifford and
Anna believed it was far better to build a large building now than have to add on in a couple of years.

Alicia finally conceded to the larger building with the assurances from the group that expensive
fiberglass panels would be inserted into the metal roof to add daylight to what otherwise would have
been a very dark interior.

Total building costs for a 4000-square foot wooden structure, with wood siding, a metal cantilever roof,
an unfinished interior, a verandah, a cement floor, two bathrooms, a cold room and an office would be
approximately $60,000. This figure did not include the $40,000 cost of buying the 1.5-acre lot.

While the land was in a very desirable location and had 400 feet of road frontage, it was only partially
cleared. To clear the remainder of the land and make it suitable for building and parking would cost an
additional $20,000 for heavy equipment and gravel. Picnic tables would dot the exterior of the building
and there would be parking for 20 cars.

Management

Alicia and Anna planned to manage the operations for the first year and pay themselves a salary to do
so: Alicia for one half of the reduced season, Anna for the other half. Clifford and Howard would be
there to pinch hit when needed. Anna thought that this would be a good retirement project for herself
and Howard, since they were semi-retired. Alicia and Clifford could devote themselves to the planning
and operations in the first year, but not on a regular basis, since each had unrelated business activities.
None of the partners had any significant experience in retail sales or produce. In the long run, they
hoped to be able to find a good manager that they could trust to oversee the operations.

There was a supply of available labour in the area and they did not foresee any problems finding good
people to train.

Other Farmer's Markets Nearby

A number of competitors existed within a 20-kilometre radius of the proposed location.

1. Darby's market was located approximately 5 kilometres down Highway 318 from the Exit 9
turnoff of Highway 108. Darby's sold fruit, vegetables, bedding plants, shrubs, ice cream and
other related products in an unfinished building with few structural or cosmetic niceties.
Darby's offered ample parking. In discussion with one of the Darby brothers, he noted that
their operation grossed $250,000 during their six-month season. The Green Acres' partners felt
that the Darby operation did not take advantage of the increasing "country/ urban commuting
resident" who wanted the feel of a country market with the specialty products and variety of a
superstore. Their location was dingy and dark and they did not sell any local crafts.

2. Farmer's Friend had several locations throughout Nova Scotia and had two in the immediate
area. A long established site on Highway 8 (about 20 kilometres further down the road from
the proposed Green Acres site) focused more on shrubs, bedding plants, gardening supplies,
fertilizers, and seeds. Fruit and vegetables and a 36 flavours of ice cream rounded out their
product selection during seasonal peaks. A member of the board of directors for Farmers
 Friend said this site was their "best" location in the province. The Green Acres partners
assumed this exceeded "another site" which the board member had said "had revenues of
$200,000 based on an eight-month year." (The partners actually believed this number to be
much greater, but used this number as the low or worst case scenario.)

3. This Farmer's Friend was virtually next door to a smaller operation which sold only fruit and
vegetables. The owner travelled twice weekly to the valley to replenish his supply. There were
no crafts or related products at this location.

4. Farmer's Friend had just established a very large nursery and retail outlet on the main
highway. It was immediately off the main highway and was very visible. The extremely large
size of their operation made it appear that they were positioned for warehouse, wholesale,
contractor, and major landscaping sales. No crafts or produce were sold there.

5. Sobey's was located at the main highway intersection near Lucas. Their strength and buying
power made them a formidable competitor. Green Acres would hope to compete with them on
the basis of location, service, and price. Many people coming home would have to pass Green
Acres first because people who lived in the neighbouring towns generally took the St. Mary's
exit to get off the main highway and drive through town. When people buy from farmer's
markets they want to be assured they are buying local which was more likely to be stressed by
the Green Acres' staff, and prices would be lower. Sobey's had the superstore product without
the country appeal. They had no local crafts.

Traffic Counts

Alicia collected the Department of Transportation travel statistics for Highway # 8 as well as traffic
counts for highways near other successful farmer's markets. The partners hoped an examination of the
traffic counts for a variety of locations relative to Green Acres and its competitors would help them
develop an index to determine demand. The following traffic counts were supplied by the Nova Scotia
Department of Transportation shown in Exhibit 2.

EXHIBIT 2
Department of Transportation Traffic Counts
Highway # Location # Cars/Day
8 County Line 5190
1992
Green Acres
8 County Line 2840
1990
Farmer's Friend
318 between #108 & 14 2940
1987
Darby's
8 North of #318 4280
1992

 
 These numbers were equivalent to a day in May or October and were the annual average daily traffic
for the road noted. The Nova Scotia Department of Transportation noted that these numbers were
higher in the summer due to tourist traffic. The year denotes the year the traffic survey was conducted,
and the competitors name notes the competitor closest to the traffic count.

The absolute numbers themselves are less important than the relationship to revenues implied by them.
Alicia believed she could develop an index to estimate revenues using the traffic counts combined with
the estimated revenues from other competitive operations. Developing an index of "dollars of revenue
per car passing by," she extrapolated enough information to develop an estimate of revenues for Green
Acres.

Revenues

Since the first part of the season would be missed, it was important to know how much of the business'
seasonal sales potential they would lose. The partners estimated the sales per month as shown in
Exhibit 3. In Exhibit 3, the sales per month are shown as a percentage of the total amount of business
for the six-month-a-year operation.

EXHIBIT 3

Percentage of Total Sales by Month

May 10%
June 15%
July 25%
August 25%
September 15%
October 10%

The various product groups would represent different proportions of the revenues at different times of
the year. For example, ice cream would sell much more in July and August than in October; local
produce sales would be big in August and September but not in May; and bedding plants would be big
sellers in May and June but not in September and October. Because each product group would
represent a different profit margin and because their first year would not be a full season, these
breakdowns were important to the "go/no go"decision. Each product group and its estimated proportion
of revenues is listed in Exhibit 4.

EXHIBIT 4

Revenue Provided by Product by Month (%)

M J J A S O
Ice Cream 5 10 10 10 10 5
Plants 30 40 20 10 10 20
Produce 30 25 60 70 60 55
Related 35 25 10 10 20 20

While all the partners believed a bakery to be essential to the long term success of a farmer's market
such as this, they did not feel they could acquire the necessary equipment and the necessary expertise to
open the bakery in the first year. It would take approximately $10,000 in set-up costs and an
 experienced baker to make the bakery operable.

Despite a knowledgeable staff, more customer awareness, and a better product selection, they only
allowed themselves a four percent increase in revenues for Year 2. This was an effort to demonstrate
the most conservative scenario.

During the winter months, Clifford thought they could store cars in the building to produce some
revenue during the down season. He estimated the building would hold 10 cars for which they could
charge $250 each.

Costs

Costs of goods sold were calculated using percentage markups on selling prices provided by Farmers
Dairy and the owners of other large markets and bakeries. See Exhibit 5.

EXHIBIT 5

Markup on Selling Price by Product Type

Ice Cream $.60 cost per $1.25 of revenue
Plants 10%
Produce 35%
Related/Craft 20%

Other costs are estimated as follows:

Number of Employees - the revenue per hour is calculated for each month. Assuming the average cash
register transaction was $5.00 and each employee was expected to conduct 10 transactions per hour, the
number of employees per day could be determined assuming each person worked 8 hours.

Employee Wages - the cost of each employee, associated costs (uniforms, etc), and vacation pay was
set at $7.00 per hour.

Managers Wages - the wages paid to Alicia and Anna for the four months of the first year's day to day
operations. They would pay themselves $500 per week for eight weeks each and each would be
expected to be at the location all day, every day for the period for which they ran the operations during
its start-up year. In all likelihood, next year's day to day operations would be handled by a senior
employee who would be paid accordingly.

Equity - each partner would be expected to contribute $5000. The remainder would come from the
mortgage on the property and the building, and a demand loan to begin initial operations.

Bank Loan - the bank loan monthly payment of $1300/month was calculated on $100,000 for ten years
at 10 percent.

Demand Loan - interest would have to be paid on the demand loan until revenues were such that it
could be paid out. The rate was expected to be 12 percent, a rate slightly higher than the mortgage.
Only as much of the line of credit would be used as was necessary on a month to month basis.

Promotion - the initial promotional for signs and local advertising was set at $5,000. On-going
 promotion in the local weekly newspaper was planned at 300/month.

Utilities - nominal figures for utilities (electricity, water, garbage removal, etc.) and other incidental
expenses had to be included. It was noted that deli coolers, pop coolers, ice machines, and the cold
storage room were a significant draw on electricity. They allocated $500/month for this cost.

A decision needed to be made quickly. Should the partners go ahead and buy the land in anticipation of
setting up the market, or should they wait.