Modern Doughnuts
Business Plan Tory Hislop, Angela Ko, Zara Nanji, Selina Wong 11 July 2011
Table of Contents Executive Summary S ummary ............................................................................................................................... 4 I.
Introduction ..................................................................................................................................... 5 Mission Statement.............................................................................................................................. 5 Vision Statement ................................................................................................................................ 5 Goals and Objectives ......................................................................................................................... 5 Market Overview ................................................................................................................................ 5 Company Overview ............................................................................................................................ 6 Customer Value Va lue Proposition ............................................................................................................... 6 Industry Overview .............................................................................................................................. 6
II.
Operation Plan................................................................................................................................ 7 Organizational Structure..................................................................................................................... 7 Site and an d Floor Plan ............................................................................................................................. 8 Daily Operations............................................................................................................................... 11 Management .................................................................................................................................... 11 Preparing Doughnuts ....................................................................................................................... 11 Clean up and Closing ....................................................................................................................... 11 Daily Business Management ............................................................................................................ 12 IT Processing System ...................................................................................................................... 12 Credit Card Processing System ....................................................................................................... 12 Global Responsibility ........................................................................................................................ 12 Supply Analysis ................................................................................................................................ 12 Capacity ........................................................................................................................................... 13 Capital Budget.................................................................................................................................. 13
III.
Human Resources Plan ............................................................................................................ 13
Management : Job Descriptions ....................................................................................................... 13 Bakery Chefs/Baristas: Job Description............................................................................................ 14 Training programs ............................................................................................................................ 14 Labour and management costs ........................................................................................................ 14 Human Resource strategy: ............................................................................................................... 15 IV.
Marketing Plan .......................................................................................................................... 16
The Marketing Mix............................................................................................................................ 16 Product............................................................................................................................................. 16
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Place and Placement P lacement ....................................................................................................................... 17 Positioning Statement ...................................................................................................................... 17 Target Audience Analysis................................................................................................................. 17 Pricing .............................................................................................................................................. 17 Competitive Analysis A nalysis ........................................................................................................................ 17 Promotion......................................................................................................................................... 18 V.
Financial Plan ............................................................................................................................... 19 Overview .......................................................................................................................................... 19 Taxes............................................................................................................................................
21
Owner’s Equity ............................................................................................................................. 22
Cash Flow & Investment Analysis .................................................................................................... 22 APPENDICES ..................................................................................................................................... 23 1.
STORE MENU .......................................................................................................................... 23
2.
WEBSITE SCREEN SHOT ....................................................................................................... 24
3.
BUSINESS CARD ..................................................................................................................... 24
4.
STICKER FOR PACKAGING .................................................................................................... 25
5.
FACEBOOK PAGE ................................................................................................................... 25
6.
MARKETING BUDGET ............................................................................................................. 26
7.
SENERIO ANALYSIS AND DEBT-TO-EQUITY ........................................................................ 27
8.
FINANCIAL STATEMENTS....................................................................................................... 28
................................................................................. 28 8.1. STATEMENT OF FINANCIAL POSITION ................................................................................. 8.2. STATEMENT OF INCOME AND LOSS .....................................................................................
29
8.3. CASH FLOW STATEMENT ........................................................................................................ ...................................................................................................... 30 8.4. INVESTMENT ANALYSIS ......................................................................................................... ......................................................................................................... 30
9.
CAPITAL EXPENDITURE ......................................................................................................... 31
10.
INGREDIENTS COST ........................................................................................................... 31
11.
HR ROLES AND RESPONSIBILTIES ................................................................................... 32
12.
DEMAND ON DAILY AND WEEKLY BASIS .......................................................................... 33
Business Plan
Executive Summary “A unique quality experience in indulgence”
Jelly Modern Doughnuts is proud to offer delicious, gourmet doughnuts made fresh throughout the day for everyone in Saskatoon who wants to indulge in a quality experience. We prepare a large variety of unique gourmet doughnuts, made from the freshest local ingredients, and offer them all at prices to suit your budget. We can even create custom doughnuts to suit local tastes. We do not use preservatives; you’ll taste the difference that our fine ingredients make when used in our award winning recipes. Whatever you’re craving , our doughnuts offer the quality to satisfy all tastes. This Business Plan has been prepared to obtain financing for the initial launch of this concept in Saskatoon. The financing is required to purchase the property; for site renovations; to obtain bakery equipment; and to start implementing our marketing campaign. Our location will be 5B – 1501 8th Street East; this location is centered in a hub of Saskatoon that is close to a wide array of businesses and residential suburbs. We have a first mover advantage that comes from our innovative and unique product offering. Our target market is to cater to health-conscious, dessert loving individuals ranging from children to adults. Based on the expected growth in Saskatoon and the absence of a doughnut cafe in the city, we anticipate that Jelly Modern Doughnut Cafe will become a successful dessert establishment in the city. We also take telephone and online orders and offer delivery and catering services for business meetings, parties, weddings, and various other custom events. We have a remarkable abundance of expertise including experienced bakery artists and a qualified management team. All of the employees in our business are passionate about providing high quality products and services; they believe in our business and our vision. Start up costs will be approximately $356,000 and a general 44,000 reserve will be held as working capital for a total of 400,000. The financing will be funded with a mix of debt and equity. We, as owners of the business will contribute 150,000. We are asking for a 250,000 loan to which we will provide security through the building and land which have a fair market value of 185,000, and other equipment with a cost of 115,000. Although the liquidation values maybe a fraction of the cost we will provide liquidity preference to the lender. We have prepared our financial plan on the basis of conservatism and expect annual profits ranging from 72,500 in 2012 to 117,055 in 2015. Our financial model is based on selling approximately 331 dozen donuts per week. Our projection is estimating a 57% internal rate of return with a two year payback period. Based on the positive results of our conservative financial analysis, we believe J elly Modern Doughnut is a profitable and enticing business opportunity.
Business Plan
I.
Introduction
Mission Statement
To be the first high quality gourmet doughnut cafe located in Saskatoon. We aim to provide friendly service, recyclable packaging, and tantalizing flavours of doughnut for all occasions. Vision Statement
Jelly Modern Doughnuts is the ultimate quality experience“. Offering delicious, gourmet doughnuts made fresh throughout the day for everyone in Saskatoon who wants to indulge in a quality experience.” Goals and Objectives
Provide the City of Saskatoon an indulgence in a total quality experience and use organic ingredients from local suppliers to provide a preservative free doughnut. Delivery a healthy, trans fat free, fresh and delicious doughnut that will satisfy your cravings Stay committed to the community and the environment by using recycled packaging and donating what we don’t sell to the Saskatoon Food Bank or local charities. Be the market leader in gourmet doughnut and dessert hot spots in Saskatoon ROI of 25% in the first year of operations Sales growth of 5.5% in the first 3 years of operations Market Overview
Saskatoon appears to be second fastest growing among the largest Canadian metro areas in the country and Saskatoon has the fourth lowest rate of unemployment. In addition, a number of factors should cause Saskatoon’s economic growth to continue through 2012. (Statistics Canada) There is a stronger outlook for commodity prices in general for potash, agriculture, and uranium, contributing to increasing the average wage rate overall in the economy. There is also recent surge in non-residential building permits suggests that federal and provincial stimulus projects will give a significant boost to non-residential building that should extend into 2012. (Saskatoon.ca) Based on the above the strength of the uranium and potash sector, Saskatoon continues to attract a young demographic of workers, lowering the average population, increasing the average wages, and providing a greater market for moderate purchases overall.
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Company Overview
Founded in 2011 in Calgary, Jelly Modern Doughnut is a dough nut café with focus on delicious hand crafted doughnut made with organic and local ingredients. The focus for the company is gourmet, transfat free, baked doughnuts in a variety of flavours. Customers will be attracted to the modern upscale store and providing a section of fresh and often unique doughnut flavours including the Bacon, Carrot Cake, and Madagascar Bourbon Vanilla (See Exhibit 6 for more flavours). Orders can be made for individual doughnuts, by the dozen or for special events and occasions. They will be packaged in a recyclable container and sealed with an easily identifiable, Jelly Modern sticker. Customer Value Proposition “Move over cupcake!” Saskatoon’s brand new gourmet doughnut emporium offers fresh, healthy, and
delicious handmade doughnut creations for everyone to indulge. Industry Overview
The doughnut industry market segment has transformed the doughnut and coffee experience from a simple and relatively inexpensive pleasure into a gourmet and customizable product. Currently there is no doughnut café which brings gourmet freshly baked doughnuts to Saskatoon. On this basis, we believe there is an opportunity for us to satisfy the demands of the niche market for high-end doughnuts. There are many opportunities and challenges in the dessert industry as Canadian population tend to be a health conscious, environmentally friendly, and culturally diverse. Consumer’s tastes are constantly shifting in regards to nutrition and quality of ingredients. To meet Consumer demands, we have development baked doughnuts to capitalize on healthier and more enticing doughnut alternatives for breakfast, snack and dessert. Modern Jelly Doughnuts will also have to consider threats from changing health and food safety regulations, to mitigate any food safety risks, Jelly will renew business licenses on an annual basis and perform regular health checks with staff to ensure health standards are followed. Also, with the increasing growth of gluten and other food allergies, to avoid market seclusion we will develop nut-free or gluten free options, if there is a substantial demand. Another key characteristic of this industry is the perishable nature of the end products and volatility of production costs. This is a major concern and challenge for our café because small increment in raw materials prices can greatly affect profit margins on a per unit basis.
Business Plan
II.
Operation Plan
Organizational Structure
Jelly Modern Doughnuts is a bakery inspired by nostalgic childhood memories from the scent of freshly baked goods. The two owners, sisters who were inspired to bring a truly hand-crafted treat, made fresh throughout the day using organic and local ingredients. They want to establish one of the first specialty doughnut shops in Canada. Zara Nanji, an entrepreneur with experience in various business ventures will monitor the day to day operations of the business, in charge of maximize the instore customers’ satisfaction. Angela, e xperienced with working as an executive pastry chef, will be in charge of the kitchen and baking process. Along with the sisters, other employees will be hired to operate and assist in the administrative duties at the store. The business will be incorporated and registered in Saskatchewan to provide limited liability to the owners and favourable tax treatments for small businesses operating in Canada. Figure 1: Organizational Chart
Jelly Modern Doughnuts
Kitchen Manager/Baker
Assistant Baker
Assistant Baker
Operation/Financial Manager
Cashier
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Book-keeper
Site and Floor Plan
This proposal includes the plan to purchase a 1,620 sq ft retail space, at 5B – 1501 8th Street East, Saskatoon, a retail location, located in the same shopping Complex as Safeway Groceries, Fantastic Nails, Original Joes Restaurant, Chinese Restaurant and Traeger’s Bakery & Restaurant. It is a high traffic location due to the broad amenities, including a Blockbuster Video store. The high volume of foot traffic resulting from the surrounding amenities will be critical in developing Jelly Modern Doughnuts presence in the community. The store is not large, but provides adequate space for a kitchen, display counters and customer seating. The floor plan is created with an open space concept, allowing us to minimize the capital requirement on the store on start-up with a modern and elegant concept. Traeger’s Bakery & Restaurant will be a competitive threat for customers who are looking dessert or
treat options. Moreover, competition remains strong in the industry, with Tim Hortons and Starbucks serving similar products nearby. Nevertheless, the location and the new store will attract potential customers and interest to try Jelly Modern Doughnuts for the first time. In order to build a loyal customer base, we will develop a loyalty program called my JD rewards, allowing us to track the purchasing behaviour of our clients. In addition to developing a reputation in luxury bakery products, Modern Jelly Doughnuts aims to be a one-stop location to serve premium beverages.
Figure 2: Site Plan
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Figure 3 – Building Specifications
Location
5B - 1501 - 8th. St. East, Saskatoon, SK
List Price
$185,000
Size
1,620 sq ft
Surrounding Amenities
Safeway Boston Pizza Original Joes Bookstore
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Figure 4: Store Floor Plan Front of store
Back of store
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Daily Operations Open 7 days a week with the following operating hours: Monday – Friday Saturday Sunday
7 am – 7 pm 8 am – 6 pm 9 am – 5 pm
Management
Inventory will consist of the key organic ingredients (e.g. flour, sugar, eggs, milk) purchased and delivered from local Saskatoon food distributors and farmers. Deliveries are recommended to be made during the slow periods of the work day, and not recommended in the mornings when there is limited help available to count and review the purchase order. The inventory management will be balanced between freshness and availability. Especially for pro ducts that have a risk of spoilage, such as, eggs and milk. In the beginning of operations, order size should be conservative and small because if these items run out, it is not hard to purchase at a higher price at the Safeway next door. Ingredients in inventory for specialized doughnuts should be purchased and monitored closely by Angela. It is unlikely that these orders will be made frequently. By having a single person in charge, we can ensure that appropriate controls are in place to reduce spoilage and maintain q uality. Preparing Doughnuts
Since the operations begin before the store is opened to customers, deliveries can be made throughout the day. Doughnuts are made fresh every morning when Angela opens the store. The dough should be prepared the night before to decrease the prep time for the first batches in the mornings and stored in the fridge for the next day. Baking will start and be ready for when the store opens. We will prepare an average of 12-15 types of doughnuts each day. The classic and most popular types should always be prepared, leaving approximately 5-7 types that vary depending on the day. Before the doughnuts can be iced and decorated they are placed in the cooling area. Any doughnuts made for special orders (e.g. corporate events) should be displayed with appropriate sign notifying customers that they are not available for sale but, can be ordered in advance. This is to advertise doughnuts for special events. When the store closes for the day any remaining unsold doughnuts will be gathered and stored in a container to be dropped off at the local food bank the next morning. Clean up and Closing
After the store has closed the remaining employees are required to clean up the store front. The kitchen can be cleaned up following to the preparation of the final batch of doughnuts. The store needs to meet the standard requirements of the Health and Safety Regulations of Saskatoon and compliance with the Canadian Food Inspection Agency’s acts and regulations. Angela or Zara will also need to reconcile the cash and credit card transactions to the cash and transaction slips at the end of each night.
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Daily Business Management
Zara and Angela should meet at the end of each week and later as business regulates, at the end of each month to discuss the sales, assess the bestsellers and review other items of importance. Goals and initiatives can be made and evaluated to ensure that the sisters are up to date on the business practices. The budget should be reviewed to ensure that the business is on tract and since tin the beginning of operations cash is critical for success should be managed accordingly. IT Processing System
I recommend installing a point of sales system that will allow the tracking sales and other financial records. This will be critical to identify popular items in the development of the business and identify sale trends. Moreover, the IT system will increase the store efficiency as orders will be delivered wirelessly to the back end of the store where employees can pack orders while the customers make their payment. This will decrease the time customers will have to wait in-line. Credit Card Processing System
We will be renting a Moneris Merchant Credit Card Processing system that will allow us to accept debit and credit card payments. This will require us to set up a high-speed internet connection. We will also use Moneris services for the store gift cards and loyalty cards. This will allow us to maintain consistent in our processes, increasing efficiency and effectiveness for the storage and retrieval of information. Global Responsibility
We are always concerned about how our actions will impact the environment. Not only do we strive to be a socially responsible corporation, we want to ensure that to our customers and the community act environmentally-conscious from their homes to the store. We p lan to: install recycle containers in the store, use environmental friendly containers, and promote recyclable products Supply Analysis
Our business is differentiated by the quality of our product; this means that the inputs that go into the creation of these doughnuts also must be exceptional. The main inputs of our business will be the ingredients required for the production of our doughnuts (butter, eggs, sugar, flour, etc...). All of the supplies will be obtained locally; we have already entered into negotiations with local farmers to have fresh, organic product delivered to our store on a daily basis. Although it is very expensive to have fresh ingredients we have offset some of the related costs through high quantity orders and the ability to not keep material amounts of inventory at the store. Note that there are some ingredients such as baking soda, nutmeg, cinnamon powder, and powdered sugar that are not available at the local market and will be purchased in mass volumes through the Real Canadian Wholesaler. Please refer to APPENDIX 10 to view our estimations of our cost for ingredients.
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Jelly also emphasizes environmental friendliness through th e use of boxes that are made from 100% recycled materials. We also prefer the use of reusable plates, cups and utensils in store. Capacity
We have reviewed our baking process and have found that we are able to produce 3 batches of 36 doughnuts at a time. The basic doughnut is the same in terms of prep and bake; the topping process is where there can be some variation in approach and time. I have summarized our review of the process below: Process
Prep time Cook time Topping time Total time
Minutes
10 20 15 45
During any given week there are we are open a total of 78 hours (Sunday to Saturday), allowing us to produce a total of 104 batches of 108 doughnuts. This gives us a total of 11,232 doughnuts as our capacity of doughnuts on a weekly basis. Please refer to the APPENDIX 10 to view the complete calculation. Capital Budget
The initial setup of our second location will require the purchase of several new capital assets. The complete listing of capital assets required with a more detailed breakdown of the building improvements and the furniture and fixtures amounts are provided in APPENDIX 9 The total capital start up cost, which includes the purchase of capital assets, building improvements, utilities and first year advertising efforts is budgeted at a total of $355,964. These amounts will be funded through a mix of owner and debt financing. Working capital requirements are minimal as Jelly operates on a cash basis for sales. There will be no accounts receivables on the books. Jelly will also have no inventory balances and only small balances in accounts payable, pending the details of supplier payment terms (generally within 30 days). On an ongoing basis, the sales generated will be used to repay suppliers, cover payroll amounts, and building costs; this means that working capital requirements will be minimal.
III.
Human Resources Plan
Management : Job Descriptions
Zara Nanji is a Chartered Accountant with Bachelors in Commerce from the University of Calgary and a Master of Professional Accounting from the University of Saskatchewan. Zara has had 3 years experience with small businesses through her work with a big four firm in Calgary. It has long been her passion to go out and start her own small business. Angela Ko is a pastry chef who graduated in 2005
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from Cordon Blue Culinary Arts school in Ottawa. Since graduation Angela has been working as the assistant pastry chef at the Willows in Saskatoon. Angela has long been dreaming of opening her own bakery. For a list of duties and responsibilities for Zara and Angela please see APPENDIX 11. Bakery Chefs/Baristas: Job Description
Angela will require at least one other person to help prepare the daily doughnuts. Bakery/Baristas will be referred to as staff members. Duties and responsibilities will include those listed in APPENDIX 11. At any one time there will be two staff members working with either Zara or Angela. The staff members will work under the discretion of the managers and bring any issues to their attention as needed. The staff members will either have the duty of taking customers orders or working as a floater between clearing tables and prepping doughnuts, depending on the stores activity level. Staff members must enjoy working with a team, have ab ility to learn quickly and adapt to changes in production, work efficiently and demonstrate enthusiastic work ethic. Training programs
All training will be done in-house. Each new employee will have two days of orientation and job shadowing before working independently. During this training all roles and duties will be explained, observed and performed. Additional all corporate ideologies and strategies will be reviewed with store management to ensure all employees are following the same basic strategy and promoting the company vision. Initial training will be provided to employees by the store manager and will require a 2 hour session of business history and values orientation. Labour and management costs
Three full-time-equivalent staff will be hired (one full-time employee and four part-time employees). During the operating hours, one staff will serve the customers; one will clean up tables and restock napkins as well as clean windows before store opens [This includes managers]. Employees on shift will be required to come in 1hour before opening hours to assistant in preparing the doughnut and dough for the day. Employees are trained to perform different duties and are rotated to different roles on a weekly basis. All staff will receive $10.00 per hour [Minimum wage $9.25 as at May 1, 2009 for Saskatchewan]. Salaries and wages increase by 2.5% per year to adjust for inflation. CPP, EI and WCB benefits are provided to all staff. Considering the nature and size of the business, we plan to hire extra staff members based on business sales growth. We will require at least 10,000 additional doughnut sales from our project at a contribution margin of $1.48 to justify hiring another part-time staff member to help prepare for increase production and customer service efficiency [Part-time cost would be based on 22 hours/ week for annual wage expense of $13,650]. At our current projections an additional employee will be hireable in 2014 in growth assumptions hold ture, however we have decided not to include the additional labour cost as it is undeterminable if the hiring will occur within the next 5 years. Over the next 5 years we anticipate Zara and Angela running all the management duties of the operation. Zara and Angela will be taking out a fixed amount from the company each year to cover their living expenses [starting at $50,000 each per year and by 2014 taking $80,000 each]. A 5-year projected payroll expenses is provided as follows:
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Figure 6: Projected Payroll Costs 2012
2013
2014
2015
2016
Hourly staff
78,260
80,216
82,222
82,278
86,384
Benefits
CPP
3,874
3,971
4,070
4,172
4,276
hourly staff
EI
1,393
1,428
1,464
1,500
1,538
WCB
1,260
1,291
1,324
1,357
1,391
Vacation Pay
4,151
4,628
4,744
4,862
4,984
89,302
91,534
93,823
96,168
98,572
Total payroll Expenses
Human Resource strategy:
We are committed to providing a happy, positive and professional working environment. Employees have the opportunity to request shift times and are welcomed to make suggestions to our day-to-day operations. In order to motivate employees, we will have an Employee of the Month Program and that employee will get to assist naming or create the drink or doughnut of the month. All employees are entitled 15% of net profit on the first group orders greater than 3 dozen that is bought to the business by them. During work hours all employees are entitled to one free doughnut and coffee and 50% off at all other times. To help improve our operations, a “Suggestion Box” will be placed at the cashier for customers to make comments on our products and services provided by our staff. Lastly there will be a required uniform for all employees to wear during work hours which will consist of a T-shirt (white shirt with logo, with indulge on it) and small pink aprons to give the old style bakery feel. Total uniform cost will be $40 ($20 for shirts and $20 for aprons with printing) and we will order 20 to start with for a total expense of $800.
Business Plan
IV.
Marketing Plan
The Marketing Mix Product
Our modern doughnut cafe will offer a selection of fresh, premium, healthy doughnuts made with no trans-fats from local and organic ingredients. Our delicious doughnuts, uniquely crafted by our talented pastry chefs and bakers, are made fresh on site throughout the day. We offer minis for those who just want a taste and regular size doughnuts for the full experience. We will also offer dozen grab and go packages. We have a large display case to entice customers to indulge in the variety of gourmet doughnuts. As a compliment to your doughnut, we also offer a wide array of coffee, espresso, and teas. We also can make gluten-free or nut-free doughnuts on request. For an adventure in indulgence, we offer a Maple Bacon doughnut topped with fresh bacon bits. We are committed to the social environment by being eco-friendly through the use of biodegradable, recyclable packaging. To brand our products we will seal them with recycled jelly doughnut stickers. We are committed to community and unsold excess doughnuts will be delivered to the Saskatoon Food Bank. Figure 7: Grab and go packages and flavours of doughnuts
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Place and Placement
Our doughnut cafe will sell directly to customers and will be located 5B – 1501 8th Street East. This is a location which is centered in the hub of Saskatoon close to a wide array of businesses and residential suburbs. The store will be visible to traffic as well as advertise our Logo on the Plaza column. There is ample parking and the store is easily accessible for individuals walking or driving. We will cater to health-conscious dessert loving individuals ranging from children to adults. We also will take telephone and online orders and offer delivery and catering services for business meetings, parties, weddings, and events. Our delivery times are 7am, 8am, 10am and 2pm. Pick up times are ready on the hour. Positioning Statement For Jelly Modern Doughnut, its about revolutionizing a Canadian tradition. A hand-crafted, fresh,
healthy, gourmet doughnut made with local ingredients and sophisticated flavours. “We provide the
total quality experience in indulgence.” Target Audience Analysis We intend to target the Saskatoon geographic market. According to the 2006 Census, Statistics Canada, and Consumer Reports on Eating Share Trends (CREST) survey; Females and children prefer sweet foods and doughnut sales have increased since 2008 as people see it as an easy food to eat. The target market will include young professionals, university students, and children and their parents. This target market is aged 10-49. This target market has a moderate to high level of disposable income who want to have a high quality dessert for a moderate price. Jelly Modern Doughnuts offers an easy to eat delicious dessert.
Another target market is for various Saskatoon events and wedding crowd who are interested in having an alternative to cupcakes and cake at their wedding. This market is similar to the young professional market above. he population of Saskatoon is approximately 300,000, of this, 70% of the population is between 10-64 (Statistics Canada, 2006). The total size of the market approximately 120,000-150,000 people. Pricing Jelly Modern Doughnut uses a premium pricing strategy; the prices are high in order to encourage favourable perceptions in the market. We have full control over the price of our product; the margin is large enough that it allows for change if required; however, these prices are not expected to change as it is important to maintain the perception of complete and constant quality. Any items that are not sold at the end of the day will not be discounted or re-circulated; these over produced items will be donated to aid local need (The Saskatoon Food Bank, and the Mumford House for homeless women and children). Competitive Analysis
In Saskatoon there are several competitors that offer similar or substitute products; however their strategy or product is very different from ours. There are two other primary doughnut retailers in
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Saskatoon, both with pricing that is relatively similar. They both have a low price strategy where they offer their doughnuts for under a dollar per doughnut. Substitute products in Saskatoon vary from cupcakes to other baked specialty pastries. Specialty bakeries such as Calories and Traegar’s offer a wide range of goods such as breads, cookies, and cakes mainly to have in the restaurant. There are two main cupcake stores in Saskatoon (Cupcake Corner and Cupcake Conspiracy), and another cupcake retailer (Crave Cupcakes) about to open during the 2011 calendar year. These cupcake retailers all utilize a premium pricing strategy, making them very similar to each other - there is no clear differentiating factor. However, Jelly tackles an idea that is similar to the novelty cupcake retailers, but is differentiated. The pricing of a specialty Jelly doughnut is between that of the low price doughnut retailers and the cupcake retailers. We offer both the 3 bite doughnuts (minis) and the full sized pastry; the minis are priced at $1.95 individually, and $2.25 for the full size. Similar to our competitors, volume discounts are offered when packages of 12 or 16 are purchased. Figure 8: Complete Pricing Matrix Competitor
Product
Price
Smaller Alternatives
Crave Cupcakes Cupcake Corner Cupcake Conspiracy
Cupcakes Cupcakes Cupcakes
2.95/each, 31.95/dozen 3.00/each, 27/dozen 2.50/each, 25/dozen
Tim Horton’s Robins Doughnuts
Doughnuts Doughnuts Doughnuts
0.79 0.89 2.25/each 24.95/dozen
1.75/each or 16.95/dozen 1.75/each or 16.00/dozen N/A – only available for special events/orders N/A – no smaller alternatives N/A – no smaller alternatives 1.95/each or 24.95/16
JELLY MODERN DOUGHNUTS
Note that in order to achieve our profit objectives approximately 588 doughnuts will have to be sold in a day. Please refer to the APPENDIX 12 to view the full computation. Prices will not vary, and will be adjusted for inflation every couple of years rather than incremental increases each year Promotion
Part of our success in Calgary came from creating hype and awareness during our first year of operation. For the Saskatoon location, it is important we are able to get early exposure to generate excitement, potentially even before the doors are open. There are several promotional items and events that will be implemented in order to achieve initial awareness and continued participation in the community. Grand Opening
We are currently arranging to have Global News Saskatoon and/or CBC come in for an interview. We will also offer them promotional give away prizes that they can feature on their website to pair with the online video made available to the public. Promotional vouchers will be distributed to local radio stations for free doughnut packages. This is a great way to get our name on the radio at the cost of a few dozen doughnuts. Currently we have agreements with C95FM, Wired 96.3, Magic 98.3(work r adio station), and Rock 102FM. We will be
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delivering 25 vouchers for a dozen Jelly doughnuts which can be redeemed during the first two weeks of operation. At the store on the grand opening day, we will be giving free doughnuts to the first 100 patrons. We will also be of fering half price doughnuts if Facebook users “like” the Jelly Modern Doughnut group or follow us on Twitter. Also, all customers who purchase a dozen doughnuts during the opening week we will be given a free doughnut ring. For children we will be offering temporary tattoos and balloons. We are confident in our product and word of mouth is a great way for good news to travel. We are hoping to create awareness and spread the word by providing samples around the city. During the opening week, a tent will be set up on the university campus and at select spots in downtown offering free doughnut samples in a variety of flavours. These sample locations will be announced on the radio and will be posted on Facebook and Twitter. ( APPENDIX 5) General Promotion
We plan to on participate in several events on an annual basis. Planned local events include the folk festival, a taste of Saskatoon, Shakespeare on the Saskatchewan, Saskatoon sidewalk sale, and the annual CIBC run for the cure. These events will give us some exposure to groups that we may otherwise not reach and it will allow us to showcase our involvement in the community along with any philanthropic efforts. We have approached several large venues such as the TCU and the University of Saskatchewan regarding a general contract agreement to cater deserts for events. A corporate program for large purchases has been created. Corporate partners purchasing three dozen doughnuts will receive their fourth dozen for free. Submission of weekly promotional doughnuts ideas will be collected from staff members, corporate partners, and members of our Facebook group. Each week the winning creation will be featured in store and posted on Twitter and our Facebook group. Lastly, the company vehicle will be covered in a car wrap and driven around Saskatoon during the year. Over the summer months free doughnuts will be distributed using the company wrapped vehicle. To view the cost of these promotional activities, please refer to APPENDIX 6
V.
Financial Plan
Overview We have prepared a 5-year financial plan in APPENDIX 8. The financial plan integrates our operating, human resource and marketing plan in generating our projected balance sheet, income statement and cash flows. We have also prepared an investment analysis that looks at the expected returns and operating ratios that are relevant in this investment. The financial plan has been organized below: Appendix # 8.1 8.2
Description
Statement of Financial Position Statement of Income and Loss
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8.3 8.4
Cash Flow Statement Investment Analysis
The projected financial statements assume that an investment decision will be reached by September 30th 2011. Once we have finalized the agreement we can work out the details of contractors and renovations during the month of October. The renovations and rent payments will commence at the beginning of November, with equipment orders coming in during the month of December when construction is substantially complete. Our grand opening will be sometime during the month of January 2012 after recruitment and training is complete. It is estimated that there will be no seasonality in sales, making annual average projections suitable. Statement of Financial Position
Please refer to Appendix X for projected statement of financial position for the December 31st years ended 2011-2015. Accounts Receivable
All amounts are paid and collected in cash at the time of purchase. Therefore, no balance in accounts receivable is anticipated. Inventory
All suppliers are delivered fresh on a daily basis. There are a few non-perishable items (nutmeg, and cinnamon powder) that will remain in storage, however, it is not anticipated that a material amount of inventory will be on hand at the end of each period. Non-Current Assets
Non-current assets have been summarized in the capital budget discussion in the operating section of the report. All of the items have been brought on at the purchase amount, and are being amortized by applying the appropriate CCA rate for the related asset class. Note that CCA will be used to determine the amortization of these assets in order to simplify the process from an administrative perspective. Accounts Payable
As mentioned we are in the process of negotiating payment terms and prices with our suppliers. It is expected that there will be small payables balance on the books related to items received during the last month of the fiscal year (December) that has not been paid for due to the 30 day payment term. The total accounts payable amount represented also includes amounts payable for the December utilities. Note that there is no amount accrued for payroll, as amounts are paid bi-weekly. We are assuming that employees would have received their pay up to the last day of the fiscal year and any amounts not captures are immaterial for the purposes of our projection. Income Statement
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Revenues
There are two types of sales: walk in and special orders. The estimate of walk in sales was approximated by looking at weekdays and weekends separately. The weekdays are broken up into sections of times to isolate hours that typically have higher sales volumes. Based on the size of the store and the size of the city compared to Calgary, we scaled back the number of customers we expect on an hourly basis to approximately 25% of what it currently is at our Calgary location. The weekends were approximated with a constant number of customers per hour, as there typically is a steady flow of customers throughout the day. Please refer to APPENDIX 12 to view the complete calculation of our demand estimates. Estimates of revenues during the year have been approximated by extrapolating weekly demand by the number of weeks in a year. This average estimate of revenues is rather conservative and there are weeks that may have higher or lower sales during the year, but we are assuming that this is a reasonable average. From 2011 to 2015, we have assumed a growth rate of 5.5%; this growth rate approximates the annual population growth rate in Saskatoon per the 2006 Census. We believe that this is a conservative, yet reasonable estimate of the rate of growth in sales for the company. The costs of related sales have been discussed in depth in the operating section of the report. It was found that a majority of the cost in the production of each unit was related to labour, then overhead expenses, and lastly materials. With a total per unit cost of 0.68/doughnut, the contribution margin per unit (at an average selling price of 2.16 – which incorporates volume discounts) is 1.48/doughnut.
Taxes
We have assumed that Jelly will have taxable income that is less than 500,000 during the term of the projection. As Jelly will be operating in Saskatoon, an effective tax rate of 15.5% has been applied.
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Owner’s Equity The amount contributed by the owner’s total 150,000 and the total amount we are applying to receive in
debt is for the remaining 250,000. The start up amount will be used for the purchase of the items listed in the capital budget, along with start up operational costs and immediate advertising costs.
Cash Flow & Investment Analysis The cash flow projection is based on the expected scenario that suggests that Jelly will b e able to sell approximately 25% of our current sales at the Calgary location, which is approximately 190,000 doughnuts per year. The estimated sales in this scenario suggests a positive cash flow amount beginning as early as year one, with a payback period just beyond two fiscal years of operation. However, we recognize that there is the potential for not reaching this expectation; therefore, we have performed a sensitivity analysis that looks at the results from operations (net income, net cash flows, NPV, IRR and the payback period) if sales reach 50%, 75%, 80% and 90% of the projected totals. APPENDIX 7 From this analysis it is evident that a minimum of 75% of projected sales is required in creating a positive NPV. However, 80% or higher, would be preferred due to the extended payback period with 75% of expected sales. Moreover, if sales do not achieve at least 90% of our projection, at the end of our 5th fiscal year, we will have limited cash to expand our business.
Debt-to Equity Another critical ratio when asking for the bank to loan us $250,000 will be how our Debt to Equity position is affected. APPENDIX 7 Based on these forecasted ratios, we can see that our debt to equity ratio significantly improves from year to year. Although the debt position is high in 2011 at 1.00 this is reasonable considering that all major capital expenditures will take place in year 1.
Overall Start up costs will be approximately $356,000 and a general 44,000 reserve will be held as working capital for a total of 400,000. The financing will be funded with a mix of debt and equity. We, as owners of the business will contribute 150,000. We are asking for a 250,000 loan to which we will provide security through the building and land which have a fair market value of 185,000, and other equipment with a cost of 115,000. Although the liquidation values maybe a fraction of the cost we will provide liquidity preference to the lender. The ratios of solvency, profitability, break-even and scenario analysis all show positive and healthy results assuming we can reach our projected sales or at least 75% of projected sales. Given our current projection, it is evident that the initial risk the creditors will bear is anticipated to diminish with the success of our business. The current capital structure will provide us with the ability to start our business off with a strong foundation in cash. APPENDIX 8.4
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APPENDICES 1. STORE MENU
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2. WEBSITE SCREEN SHOT
3. BUSINESS CARD
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4. STICKER FOR PACKAGING
5. FACEBOOK PAGE
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6. MARKETING BUDGET
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7. SENERIO ANALYSIS AND DEBT-TO-EQUITY
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8. FINANCIAL STATEMENTS 8.1. STATEMENT OF FINANCIAL POSITION
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8.2. STATEMENT OF INCOME AND LOSS
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8.3. CASH FLOW STATEMENT
8.4. INVESTMENT ANALYSIS
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9. CAPITAL EXPENDITURE
10.
INGREDIENTS COST
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11.
HR ROLES AND RESPONSIBILTIES
As seen in the roles and responsibilities chart below it will be mostly Zara’s job to review the financials
of the company to make sure budgets and targets are being met. Angela will be more focused on the operations aspects of the day –to-day business and therefore this will create some segregation of duty to ensure that Angela is initiating the major expenses and Zara will be approving them. Management Management Zara Angela Oversight of the day to day operations of Jelly Doughnuts
Staff Member Staff Member Till Shift Floater Shift Assist in preparing the daily products for Jelly Doughnuts to a high quality standard
Meeting, greeting and getting feedback from customers
Follow health, safety, and sanitation guidelines
Managing all accounts payable and payroll
Hiring, training, supervising, firing and promoting of staff
Follows cash handling procedures and cash register policies
Follow inventory stocking and recoding guidelines
Analyzing key
Approving work
Prepare espresso
Serving customers
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financial ratios on a monthly basis Advertising and marketing the Jelly Doughnut brand
schedules on a monthly basis Purchasing all items including food, beverages, coffee beans, equipment and supplies
based coffee beverages Responds to customers’ needs
Creating and maintaining the Company’s website
Promoting and seeking out corporate and group event catering
12.
DEMAND ON DAILY AND WEEKLY BASIS
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and cleaning tables Performs cleaning duties
