CEREAL KILLER

Breakfast Coffee Cereal

A Concept Paper

Presented to the Faculty of the College of Accountancy and Finance

Polytechnic University of the Philippines

Sta. Mesa, Manila

In Partial Fulfillment of the Requirements for the Course

Strategic Business Analysis with Contemporary Issues and Trends

By

Anacin, Jeremy B.

Balansag, Lalyn N.

Batobato, Catherine A.

Gawat, Laica Marie P.

Majaba, Hannah Marie O.

Mata, Joe-v B.

Reyes, Adrian Russel B.

Sison, Jazelle Hannah A.

Vicencio, Lester Kyle M..

June 02, 2021

Table of contents 1

I. Introduction to the Subject Matter 2

II. Analysis of the Product

a. Description of the Target Market 3

b. Determination of Demand Gap 4

c. Pricing methodology and affordability 6

d. Marketing Strategy 6

III. Technical Solution

a. Product Design 7

b. Target plant / Office Location 8

c. Mode of delivery 9

d. Estimated cost to produce or cost of service 10

IV. Estimated Size of Prize

a. Expected Revenues 11

b. Expected Cost of Goods Sold 13

c. Gross Profit 15

V. Timeline to Complete the Study 16

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 I. Introduction to the subject matter

The Philippine Coffee Board Inc. (PCBI) states that Philippines is one of the few

countries currently producing the four varieties of commercially-viable Arabica, Robusta,

Liberica, and Excelsa. Philippine Liberica is known locally as Barako/Baraco, a coffee bean that

produces a distinctively robust and powerful cup. The bigger cherries and beans are more

common in the Philippine coffee scene, primarily grown in the provinces of Batangas and

Cavite.

Coffee is a staple in the country, always present especially in breakfast meals. The

country is known as a nation of coffee lovers. According to Abucejo (2020), coffee remains as

the crown drink of Filipinos and the most typical reason behind the love for coffee is the energy-

boosting effect it gives off instantly. Kantar Worldpanel Philippines conducted a research

showing that Filipinos shifted from being moderate to heavy coffee drinkers which means they

consume coffee products thrice a week compared to the former who consume said products twice

a week only.

Pre-pandemic data from PCBI shows that local demands for coffee products reached

120,000 metric tons wherein only 30% (35,000 metric tons) of this data was met by the local

farmers, the rest is filled in by imports from other countries. Given these figures, it is obvious

that there is an increasing demand for coffee in the country.

The year 2020 brought a lot of challenges for Philippine coffee farmers, when Taal

Volcano erupted farmland and crops were damaged and families were urged to leave their homes

and farms. In March of the same year, the government declared a lockdown due to the pandemic

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which further put the industry in a disadvantageous situation. The president of PCBI, Pacita U.

Juan said that farmers have suffered an 80% drop in demand as coffee shops, hotels, and

restaurants closed. Pandemic came and they were found stuck with a lot of their crops.

On the other hand, the same with coffee, cereals are evident in breakfast tables. From the

2018 Family Income and Expenditure Survey (FIES) of Philippine Statistics Authority Bread and

Cereals ranked second among the total expenditures of Filipino families with 11%. This

evidently shows that cereals are one of the preferred breakfasts of Filipinos. According to

research and markets, breakfast cereals are expected to grow in value and volume in 2020

compared to the previous years. As Filipino consumers are dining out less often due to the

pandemic, people who usually grab breakfast on their way to work have more time to sit down

now for a meal and the convenience cereals provide is advantageous and works in favor of the

working people and even to students before starting their day.

To promote local produce of coffee farmers especially during this pandemic and to

incorporate Filipinos’ love for coffee in one of the known go-to breakfasts, researchers are

adding flavor to every breakfast cereals being put on tables by infusing caffeine.

II. Analysis of the Product

a. Description of the target market

Target Market

As a start up business, our initial and primary target market are the persons who have

high interest and love to drink coffee especially when doing school works or academic

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workloads and also those who have office and corporate jobs. More commonly, we refer to

working young adults and teen students in high school and college.

Target Market Profile

1. Coffee lovers

2. People who wants an alternative for the usual coffee experience

3. Students who eat snacks in between breaks during review and studying

4. Working young adults in their prime years in the office

b. Determination of Demand Gap

Projected Demand

To determine the demand for our product we multiply the percentage of people who

consume coffee products to the average number of times these people consume coffee products

in a week.

(Population of the target market in the area) x (Percentage who consume coffee products)

10,000 x 50% = 5,000 consumption

To add validity to the demand, we also ask the question of how many times they are willing

to buy our products such as daily, every other day, and once a week. Then we multiply it to the

percentage of consumers of coffee to get the average weekly demand for our own product

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 Consumers of coffee Probability to Frequency of Estimated
purchasing purchasing within a consumption
week
5000 10% 7 days 3,500
5000 30% 3 days 4,500
5000 60% 1 day 3,000
Total average weekly consumption 11,000
Total average monthly consumption (11,000x4weeks) 44,000
Total average yearly consumption (11,000x52weeks) 572,000

Projected Supply

To compute the supply, we listed a total of 19 supermarkets plus a Lazada and Shopee store in

the area who will get a supply of 500 pieces of our product in a week since supply is directly

proportional to demand.

Supply Stores Average supply

Retail Stores 500 19 9,500
Shopee 250 1 250
Lazada 250 1 250
Average weekly supply 10,000
Average monthly supply (10,000x4weeks) 40,000
Average yearly supply (10,000x52weeks) 520,000

Projected Demand Gap

To compute the demand gap, we deduct the weekly, monthly, and yearly supply gap.

Demand Supply Gap

Weekly 11,000 10,000 1,000
Monthly 44,000 40,000 4,000
Yearly 572,000 520,000 52,000

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 c. Pricing Methodology

The market for cereal is inelastic in that consumers are not very responsive to price

changes. With this, Cereal Killer is priced based on the cost-plus transfer pricing method. This is

a traditional pricing method where the price is based on markups. To apply this method, the

manufacturing costs of the cereal in addition to a 20% mark-up would be the price of coffee

cereal.

Since the product will be sourced locally, the costs of manufacturing the product will be

significantly lower. Even with a 20% mark-up, our target market can afford the cereal. With the

health benefits that Cereal Killer can provide and its affordability, Filipinos will enjoy their bowl

of cereal.

d. Market Strategy

Cereal Killer is a product offering breakfast or snack cereal. The cereal infused with

coffee nutrients and flavor will be available to the market as:

Product. Cereal Killer is a coffee-flavored and caffeinated breakfast cereal in the shape of coffee

beans with coffee granules. Our cereal is available in a 250g pack, perfect for families and just

anyone trying to save.

Place. Because the product will be manufactured and produced in Bulacan, this product will be

distributed in grocery stores in Bulacan intended for the buyer’s convenience. With the global

pandemic keeping us safe in our home, Cereal Killer will be available on online shopping sites

such as Shopee and Lazada.

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Price. The product is priced based on the cost-plus transfer pricing method but will be expected

to keep its prices minimum so that everyone can afford and buy it easily. The main target of this

product are students and hence the price will be kept at a minimum so that every student could

easily manage to meet its cost.

Promotions. It will be marketed as a local cereal brand using various online platforms such as

Facebook, Instagram, and Twitter. Word-of-mouth marketing is also another promotion, with the

help of our friends and families as well as the buyers who are aware of our product.

People. The main target of this product are students who study at night and love to drink coffee

to keep them awake. As we kept on our idea of coffee-flavored cereal, we realized that this

product will also gain attention from working individuals. As a result, from students as our target

market, we changed it to coffee lovers in general.

III. Technical solution

a. Product Design

Keeping in mind the target market’s demands, our business decided to develop a new

breakfast option to start their morning which is Cereal Killer. It is a coffee-flavoured, caffeinated

breakfast cereal in the shape of coffee beans containing coffee granules. The cereals are made

with whole grain and used commercial flavoured coffee beans such as Arabica and Robusta

beans to infuse caffeine, creating a delectable new brand of cereal. Cereal Killer delivers a

valuable proportion of a day’s total nutrient needs, such as vitamins, proteins and fiber. It

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contains all the nutritious value of a well-balanced breakfast with enough caffeine to start the

day. A single box contains 250grams of cereal, making it ideal for families.

Our idea of creating a caffeine-infused cereal is to indulge the coffee cravings of students

and working people who love coffee, as well as to provide an effective alternative delivery

system of small amounts of caffeine for those who can’t drink coffee. The biggest concern in

developing our product was getting the flavour right on our new cereals that will serve the rich,

smooth and creamy taste of an actual coffee, as well as keeping the price point low enough for

our customers to easily afford our product.

b. Target Plant/Office Location

Our business intends to primarily operate an online store for our products hence, our

transactions will mainly take place on the shop’s website as well as other online shopping

applications such as Shopee and Lazada. The product will be posted in our online store pages

including its product description, image and price. This will be accessible to all people

nationwide and customers will be able to order at any time.

The product that we will be offering will be manufactured and stored in a commercial

space in Guiguinto, Bulacan. It is strategically located 5-10 minutes from expressway and

immediately north of Metro Manila, allowing us to distribute our products easily to retail

establishments and directly to our customers. In addition, it is subject to provincial rates,

resulting in lower rental fees and thereby minimizing the costs for production. The office will be

located in the second level of the commercial area and will be utilized for day-to-day operations

of managing the business.

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 Location: Violeta Village, Brgy. Tabang, Guiguinto, Bulacan

c. Mode of Delivery

Cereal Killer, a coffee-infused breakfast cereal that aims to provide affordable and

energy boosting cereal for students and adults, maintains two distribution channels.

First is the Direct Channel, wherein the product is directly delivered toward its

customers by setting up online store in the sites of Shopee and Lazada. The method of delivery

will be through third-party logistics companies, specifically J&T Express and JRS Express.

Second, the product will be delivered to customers through the retailer channel. The

retailers mentioned refer to grocery stores, convenience stores and supermarkets. The method of

delivery to the retailers depends upon the discretion of the retailer. It may be through a pick-up

option by the retailer or the product can be directly delivered to the location of the stores of

retailers.

d. Estimated Cost to Produce a Box of Cereal Killer

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 Cereal Killer (250 grams)

Direct Material Cost:

Cereal

Commercial Flavored Coffee Beans - 50% Robusta, 50%Arabica (430/kl) ₱ 32.25

Cereal Grains

30% Whole grain wheat (66/kl) 4.95

70% Wheat flour - Gluten (95.31/kl) 16.68

Sugar (58.50/kl) 0.73

Salt (15/kl) 0.04

Emulsifier (1250/kl) 3.13

Others 5.78

Cereal Box 5.00

Direct Labor Cost 2.82

Manufacturing Overhead Cost 1.13

Total Estimated Cost to Produce ₱72.49

The total estimated cost to produce a box of 250 grams of Cereal Killer is ₱72.49. Direct

labor cost is based on the estimated production capacity of 4,260 boxes each day and 30 factory

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workers. Daily wage of 400 is based on the minimum wage under WO No. RBIII-21 for the

Non-Agriculture Sector in the province of Bulacan. Manufacturing overhead cost is computed as

40% of the direct labor cost. There is a high overhead rate as most of the production will rely

heavily on equipment and machineries. The illustrated cost per box of cereal may be subject to

change depending on the result of the study.

IV. Estimated Size of Prize

a. Expected Revenues

This revenue forecast is based on the assumptions that:

1. The estimates are solely based on the researchers’ own judgment since there was no pilot

questionnaire administered;

2. The revenue will be based on the 20% mark-up on cost as provided in the pricing

methodology part of the paper;

3. The sale for the year will be based on the projected demand and production capacity of

the company on working days while maintaining reasonable inventory for non-working

days;

4. The risk adjustment for the calculated expected revenue will be 7% for the purpose of

conservatism;

5. The demand for the product will be constant.

The price of the product will be Php 83.94 for a 250 gram-box of cereals based on the

20% mark-up on the costs to produce as computed below:

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 Total Cost per Box (see Part III-d of the paper) Php 69.95

20% Mark-up 120%

Total Selling Price Php 83.94

The company will set aside 10,586 boxes of Cereal Killer every month for safety stock as

computed below. This will let the company deal with unexpected situations although this will

also result in a limited number of released products for sale in the market.

Estimated Safety Stock (see Part II-b of the paper) 127,032

Divide by: Months per Year 12

Units to be Kept per Month of Production 10,586

ESTIMATED ANNUAL REVENUE

Production Capacity per Month (Number of Boxes) 85,200

Multiply by: Percentage of Boxes Released to Market per Month

(Based on Estimated Safety Stock) 87.575%

Total Estimated Sales 74,614

Multiply by: Selling Price per Box Php 83.94

Revenue per Month 6,263,099

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 Multiply by: Months per Year 12

Annual Revenue 75,157,190

Multiply by: Risk Adjustment 93%

Estimated Annual Revenue Php 69,896,186.63

Based on the above computation, the estimated annual revenue of the company will be

Php 69,896,186.63.

b. Expected Cost of Goods Sold

This revenue forecast is based on the assumptions that:

1. The estimates are solely based on the researchers’ own judgment since there was no pilot

questionnaire administered;

2. The revenue will be based on the 20% mark-up on cost as provided in the pricing

methodology part of the paper;

3. The sale for the year will be based on the projected demand and production capacity of

the company on working days while maintaining reasonable inventory for non-working

days;

4. The risk adjustment for the calculated expected revenue will be 7% for the purpose of

conservatism;

5. The demand for the product will be constant.

ESTIMATED ANNUAL COST OF GOOD SOLD

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 Production Capacity per Month (Number of Boxes) 85,200

Multiply by: Percentage of Boxes Released to Market per Month

(Based on Estimated Safety Stock) 87.575%

Total Estimated Sales 74,614

Multiply by: Cost per Box Php 69.95

Cost of Goods Sold per Month 5,219,249

Multiply by: Months per Year 12

Annual Cost of Goods Sold 62,630,992

Multiply by: Risk Adjustment 93%

Estimated Annual Cost of Goods Sold Php 58,246,822.19

Based on the above computation, the annual estimated cost of goods sold of the company
will be Php 58,246,822.19.

c. Expected Gross Profit

1. This revenue forecast is based on the assumptions that:

2. The estimates are solely based on the researchers’ own judgment since there was no pilot

questionnaire administered;

3. The revenue will be based on the 20% mark-up on cost as provided in the pricing

methodology part of the paper;

4. The sale for the year will be based on the projected demand and production capacity of

the company on working days while maintaining reasonable inventory for non-working

days;

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 5. The risk adjustment for the calculated expected revenue will be 7% for the purpose of

conservatism;

6. The demand for the product will be constant.

ESTIMATED ANNUAL GROSS PROFIT

Estimated Annual Revenue Php 69,896,186.63

Estimated Annual Cost of Goods Sold 58,246,822.19

Estimated Annual Revenue Php 11,649,364.44

Based on the above computation, the estimated gross profit of the company will be Php
11,649,364.44.

V. Timeline to Complete the Study

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Industry Analysis 1 (April 15-April 29)

Different industries were looked into to come up with the final industry where the

business will operate. Industries such as the car, technology, food, food delivery, and real estate

were analyzed to know if there is still a share in the market that can be occupied. The strengths,

weaknesses, opportunities, and threats (SWOT) analysis as well as political, economic, socio-

cultural, technological, environmental, and legal (PESTEL) analysis were made to assess further

the aforementioned industries. The market shares of prominent players in each industry were also

analyzed as well as their marketing mix.

Industry Analysis 2 (April 30-May 20)

From the many industries in the first analysis, these were reduced to three industries:

food delivery, homeschooling, and the coffee industry. Once again, the market shares of

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prominent players were looked into as well as their marketing mix. It was decided that the

industry that will be pursued is the coffee industry.

Formulation of Concept Paper (May 21-June 2)

The concept paper was conceived after deciding about the industry. In this phase, a

product or service has been proposed. In this case, the product is a cereal made with coffee

flavor. The product has been extensively tackled in the concept paper. Matters such as the

background of the subject matter or the industry, the analysis of the product whether it be pricing

or about the marketing, and the expected revenues and costs were laid down in the concept

paper.

Finalization (June 3-July1)

This phase involves the revision and enhancement of some of the parts of the concept

paper as well as the preparations made to finalize the idea of the product in hopes of making it

feasible to deploy in the market.

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