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EXECUTIVE SUMMARY Sorvetes De Davao Company is a food store business that sells soft serve ice cream in cones and cups with a variety of toppings to create a more colorful and flavorful dessert. Toppings vary from single to multiple colors in different shapes and textures. This business plan presents the first three years of operations in Davao City. The first store was put-up in Crossing Catalunan Pequeño, Davao City in January 2017 and we are planning to bring the concept to at least two more strategic locations in the city, where it is currently in the beginning stage of market penetration. Sorvetes projects to be a competitive local ice cream store in Davao City under its tagline, “A Flavoursome Treat!”. Sorvetes was established under a General Partnership owned, managed, financed, and organized by three partners and owners: Marbert E. Gregorio, Dengie Lyn C. Mamac, and Lemar E. Trumata on June 29, 2016 with an initial investment of P150,000.00. Sorvetes started its commercial operations on January 18, 2017 and has had gross earnings of P142,397.00 in its fifty-three (53) days of operations ending March 31, 2017. According to this plan, projected sales over the next three years are realistically attainable by even a start-up Sorvetes store.
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OUR BUSINESS Sorvetes De Davao Company (Sorvetes for brevity) was created to become a new player in the ice cream and refreshment industry. The initial offering of the business was to sell soft serve ice cream to a selected customer based and focused on introducing its name in Davao City and has set to generate jobs for the community. This is a venture in an ice cream business that serves customers with a wide array of desserts related to a premium, yet affordable, soft serve ice cream. Vision We seek to become the top preferred soft serve ice cream retailer in Davao City. Mission
An ice cream store committed to selling premium and affordable soft serve ice cream that satisfies customers who seek a fun and flavoursome treat.
Aims to be visible in the Davao market through business expansion and access to advancements in technology.
Offers quality and excellent service through employee training and by maintaining an attractive place of business.
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Goals
Maintain and seek reputable sources of the finest and purest ingredients.
Make customers happy.
Have a profitable business.
Establish two additional branches in two years.
Utilize social media.
Employee development program.
Cleanliness and orderliness in the ice cream shop.
Objectives
To offer affordable ice cream where prices do not exceed P30.00 per unit
To offer new flavours consistent with customer wants every month
To replenish inventory on a weekly basis or as necessary
To check the quality of the soft serve ice cream in every production process
To improve leased properties once a year
To re-introduce the business at school opening by employing social media such as Facebook and Instagram
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To introduce a sales promo campaign to encourage and maintain sales
To offer sponsorship at least once a year in the annual events of the schools, barangay, or city that will create an impact on the business
To continue to improve the products and service offerings every month
To continue to develop new marketing and sales promos that will suit the customers’ needs
To continue to study the changes in the market in order to develop new marketing strategies. Research should be done semi-annually for the next two years
To establish two stores by 2018 and to expand the business thru franchising by 2020
To reach out to the customers and answer their queries about the products and services during business hours from 8am to 5pm from Mondays to Fridays
To provide the best experience as they purchase their products from the time they enter the store up to when they leave
To serve the customers’ orders systematically
Skills development seminar for the employees once a year
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To ensure that customer concerns is answered properly and are dealt with automatically
To achieve 0% complaints in the day to day operations of the business
To achieve the target average sales of 236 cones and cups per day
To increase sales by 5% based on target unit sales in the following and succeeding years of operation
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INTRODUCTION
Sorvetes De Davao Company is an ice cream company selling soft serve ice cream and operates under the food and beverage industry. Ice cream in cones and cups are now becoming popular to students who seek an enjoyable treat. The proponents saw the potential of the business, because it can generate exceptional profits for a short period of time. The start-up capital for this business venture is only P150,000.00. The following sections outline their plans under marketing, operations, and the organization. The financial plan shows results of operations for the first three months, our projections for the remaining months of 2017, and over the next two years.
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MARKETING PLAN
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PRODUCTS/SERVICES Product Description Sorvetes de Davao Company is a food store business that sells soft serve ice cream with a variety of white and dark chocolate strips, jells, fudges, nips, and rainbow sprinkles that give value to an ordinary ice cream cone and cup. For this particular endeavour, the business has four choices of pre-mix powder; these include regular mix, premium mix, high end mix, and the customized mix. Premium mixes are used by Sorvetes in order to come up with a premium yet affordable soft serve ice cream. Sorvetes is on par in comparison with other ice cream stores in the malls. The concept of Sorvetes is rooted in the belief that it is not necessary to go into a mall just to get a cone of soft serve ice cream. Sorvetes brings such happiness outside of its normal boundaries. Most ice cream stores primarily focus on the sprinkles or toppings on its products. The products offered by the existing competitors are also available in Sorvetes; that is why a greater emphasis is being placed on the products’ added value. Sorvetes offers a type of ice cream that is softer than regular ice cream and low in sugar with a high level of protein from the premium pre-mixes.
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The products that Sorvetes sells include soft serve ice cream in cones or in cups. The business caters to the wants of its target customers for having the pleasure of indulging a delicious, yet affordable, ice cream. Sorvetes as retailer of soft serve ice cream has the following offers and are being sold in different sizes and features. Additional products may also be added to this list as the business progresses. Table 1: Product List and Unit Price Menu1 Princess Cone2 Queen Cup3 King Cup4 Sundae Flotte5
P P P P
Price 10.00 20.00 30.00 25.00
1All
will have flavours of vanilla, chocolate, and mix of vanilla and chocolate or depending on the Flavours of the Day: Strawberry, Buko Pandan, Salted Caramel etc. 2No toppings. Additional pay for add-ons. 3Will have four (4) selected toppings from customer 4Will have the following toppings: rainbow sprinkles, rice crispy, mini mallows, chocolate dip, chocolate sprinkles, chocolate droplets, crushed peanuts, crushed cookies, chocolate heart, mini nips or all that are available 5Soda top with ice cubes and ice cream
Every day, our ice cream store serves two flavours. The store also offers other desserts topped with ice cream such as Sundae Flotte. The customers’ wants being addressed include but are not limited to an affordable and delectable soft serve ice cream. Furthermore, customers are given first-rate service. Social media is
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being utilized in which customers ask questions about the products or raise concerns about the services being offered. Sorvetes has favourable outputs because of proper introduction and promotion. Products are proven to be tasty and guaranteed by a rigid quality control measures installed to check if products are up to standard. Queries and concerns are being dealt with properly. The business also warrants replacements and exchange for returns
of
products
not
according
to
customers’
wants
and
preferences. The Ice Cream Store Menu Sorvetes started out with only two flavors: vanilla and chocolate plus mix of vanilla and chocolate with signature cones that creates distinctive and indulgent taste experiences (See Figure 1). Students can choose which flavors they want to enjoy; prices vary according to the cone or cup sizes. Options are provided in order to cater the pupils, students, faculty members, and other groups of individuals in the area according to their purchasing power.
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_______________________
Figure 1: Ice Cream flavours: Vanilla, Chocolate And Mix or Combination of Two
Market Readiness Ice Cream is eaten in almost every country in the world; it is one of the most popular foods consumed by children because of their shapes, textures, colors and flavors in the age bracket of 2 to 12, as well as adults over the age of 45. Everyone knows ice cream. The total worldwide production of ice cream and related frozen desserts was 14.4 billion liters in 2001 (Chris Clarke, 2004). There is a growing market for premium ice cream in the Philippines mainly because of the Filipinos’ sense of adventure in taste and current strong purchasing power. “Premium ice cream sellers
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have now adjusted their price points, making these affordable for the local market even as they maintain its quality,” said Jeff Puno, president of Visfood Corp., the exclusive Philippine distributor of Blue Bell Ice Cream. The center of trade and commerce in Barangay Catalunan Pequeño is within the Crossing Catalunan Pequeño. This barangay is known as the location of some of the major subdivisions in Davao City. These subdivisions include Samantha Homes, Wellspring Village, Residencia Del Rio, Granville and Wellspring Highlands Subdivision. The nearest malls located in this area are kilometres away, such as NCCC Mall in Ma-a and SM City in Ecoland. There are also some existing supermarkets which are located in Mintal and Calinan. With this, customers have to enter into the mall or supermarkets in order to have a cone of ice cream. This is where Sorvetes goes into, the idea of bringing ice cream cones near the doorsteps of the customers. Sorvetes is happy to serve its community to fill the desires of their palates. As of February 2016, there is only one ice cream store, Sorbe Twirl, operating in Crossing Catalunan Pequeño. In response to the needs, Sorvetes serves the existing market in the area. Sorvetes offers premium ice cream with a twist in the cone or cup that makes it unique and different among others.
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Proprietary Position Sorvetes takes good care of its name and is known for its logo and premium products. The business is aiming to establish a lofty market position in the next three (3) years of operations and is envisioned to be the preferred soft serve ice cream in the city. Thus, all of its marketing platforms are strategized to add value and strength to the brand that can help stave off the competition. The name of the ice cream store is distinctive and valuable asset that can be associated with trademark rights. This is protected and registered to the Securities and Exchange Commission (SEC). Sorvetes is also planning to have its name and logo patented.
Figure 2: Sorvetes De Davao Company Logo
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Comparative Position Products are all sourced out from reputable suppliers. The observance of first in first out (FIFO) method and updating the inventory has an edge on its competitor. Further, maintaining new and fresh products has an advantage over the business competitors. Sorvetes makes certain that the products it offers are better from the products of the competitor. This table shows the comparative position of Sorvetes’ products compared with Sorbe Twirl, the only competitor in the area. The goal of comparative analysis is to better position the products and to leverage their competitive edge in the competing business. The table shows the competitive analysis of Sorvetes according to the surveys and interviews conducted by the owners within the area.
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Table 2: Comparative Analysis Bases Price
Sorvetes Lower
Sorbe Twirl Regular
Princess Cone P10.00 10 Peso Cone Queen Cup P20.00
15 Peso Cone
King Cup P30.00
20 Peso Cone
Sundae Flotte P25.00 30 Pesos Cone Appearance
Smooth
Rough
Colorful Toppings
Chocolate and Ube dips
Premix Powder Premium
Regular
Quantity
Optimum
Optimum
Taste
Sweet
Sweet
MARKET ANALYSIS Macro-Environment Analysis The Philippine ice cream business is a promising industry. Engaging a business with this kind of industry will no doubt be a successful venture for as long as the business and people running it are equipped with ample understanding, technical knowledge and qualifications on how to run and operate the business. According to National Economic Development Authority (NEDA), the Davao Region outperformed all other 16 regions in the Philippines in terms of economic growth after posting a stellar gross regional
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domestic product (GRDP) in 2014 at 9.4 percent, a significant increase from its 6.7-percent performance in 2013. National Economic Development Authority (NEDA) XI Director Maria Lourdes Lim said the region surpassed even the national average of 6.1 percent+ in 2014, which is still among the fastest growing economies in Asia. She attributed the impressive performance to the collective efforts of the different sectors for enabling the region to sustain its high growth levels for the past three years. Having recorded the fastest growth among 17 regions, she said Davao has maintained its position as the top economy in Mindanao when it comes to GRDP value. As the third largest and most urbanized metro in the Philippines, Davao is a promising setting for budding businessmen. It is highly noticeable that the city is emerging globally due to its recent infrastructural developments along with its slight societal change. With this, a large number of local entrepreneurs are encouraged to venture out and participate in improving their livelihood as well as the city’s economic status. Among the many reasons the city is accessible include the fact that Mindanao is a regional center, with an ideal climate and a peaceful and friendly environment.
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To benefit from the regions’ fastest growing economy particularly in the ice cream industry, this plan is to establish Sorvetes De Davao Company. Available data from the leading distributors of ice cream machines in Davao City were gathered. They verified that soft serve ice cream industry is a flourishing industry in the region. Table 3 shows facts and figures provided by Monterozza, CT Concepts and Remach Kitchen Equipment. They recorded a consolidated sales in units of 173 from 2014-2016. Considering 2014 as the base year, there were increasing percentage sales for 2015 and 2016 of 31% and 50%, respectively. Table 3 : Ice Cream Machine Sales in Davao City SORVETES DE DAVAO COMPANY Crossing Catalunan Pequeño, Davao City Ice Cream Machine Sales from 2014-2016 Suppliers Monterozza
Address
Lanang, Davao City Mabini St., Davao CT Concepts City Remach Ecoland, Davao City Total Percentage Increase
2014
2015
2016
TOTAL
8
12
20
40
19 15
30 13
26 30
75 58
42
55
76
173
31%
50%
0%
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Barangay Catalunan Pequeño is part Talomo District of Davao City’s First Congressional District. The barangay is bounded by Catalunan Grande on the East, Mintal on the North and Bago Oshiro on the South. Crossing Pequeño market and other commercial establishments are the hub of activity in the area. Commercial establishments in the Barangay include the following: bakeshops, gasoline stations, sari-sari stores, fruit stands, restaurants, hardware, fish retailers, mini mart, laundry shops, water refilling stations and many more. Crossing Pequeno is also composed of different subdivisions that include Samantha Homes, Wellspring Highlands, Wellspring Village, Granville and Residencia del Rio. PEST Framework Political Factors Sorvetes is affected by some government regulations in the localities. Listed below are mandated city ordinances that the business needs to follow: The minimum wage rates set forth in the Labor Code of the Philippines are based on the normal working hours of eight (8) hours per day. Small businesses may implement policies and impose terms
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and conditions of employment as they deem fit given their operating and profitability requirements. These policies and employment terms and conditions however must be consistent with mandated labor policies. Under the Labor Code, employees are entitled to compensation or basic wages, overtime pay, holiday and premium pay, service charges, SSS, EC, and Philhealth contributions, service incentive leaves, and retirement pay. Compliance to the City Ordinance No. 56, series of 1948, otherwise known as the “Health and Sanitation Ordinance of Davao City” is necessary in order to be responsive to the current health and sanitation welfare of the citizenry. “The Solid Waste Management Program” under RA 9003, Davao City Ordinance encourages all citizens including all business sectors to practice proper garbage segregation. Sorvetes, as a juridical entity under the General Partnership type of business, is also qualified under Republic Act 9178, also known as Barangay Micro Business Enterprises (BMBEs) Act of 2002. It is an act to promote the establishment of Barangay Micro Business Enterprises (BMBEs), providing incentives and benefits therefore and for other purposes. Once the business application is approved, the following are the incentives and benefits given by the act: exemption from taxes and fees, exemption from coverage of minimum wage law,
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credit delivery, technology transfer, production and management training and marketing assistance, trade and investment promotion and information dissemination. Sorvetes will apply to BMBEs once mandatory requirements of government for the permits and licenses are completed. Economic Factors The inflation is a factor to be taken into account as it strongly impacts on the final consumer prices and the level of sales of ice creams and sorbets. The increase in price is explained by the volatility of raw material prices which are used to make ice cream, such as eggs, milk, sugar, fat, and aromas. The production price of sugar is also very volatile. According to the National Dairy Authority, the escalation of world market prices and a delay in the start of the 2010/11 milling season drove prices for a 50-kg bag of sugar to a record high of P3,084. After that, domestic prices retreated steadily for the remainder of CY 2010/011 to P41.66/kg in August. Sugar prices have remained relatively stable in CY2011/12, with a slight drop in November-January. Industry sources expect prices to increase slightly for the remainder of CY 2011/12, as the milling season comes to a close. The diagram below shows prices of raw materials for sugar and its retailed price in the Philippine market.
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Table 4: Philippine Dairy Statistics from 2008 to June 2013 PHILIPPINE DAIRY UPDATE Jan- Jun Particulars
2008
2009
2010
2011
2012
2013
1. Supply Situation (Quarterly - in LME '000 MT) Local Production
13.81
14.41
15.86
16.45
18.45
9.59
Imports
1,618.71
1,789.65
2,015.02
1,903.41
1,955.41
941.32
Gross Supply
1,632.52
1,804.06
2,030.88
1,919.86
1,973.86
950.91
298.85
199.79
254.98
295.81
131.76
6.33
Net Supply 2. Local Consumption(m kg)
1,333.67
1,604.27
1,775.90
1,624.05
1,842.10
944.58
1,717.60
1,752.56
1,754.46
1,786.38
1,818.87
925.97
3. Milk Requirements
2,712.00
2,766.90
2,770.20
2,820.60
2,871.90
1,462.05
1.00
1.00
1.00
1.00
1.00
1.00
712.00
466.72
729.03
847.68
763.84
383.20
31,662.64
22,234.54
32,886.54
36,713.02
32,256.96
15,803.17
165.70
99.41
142.12
176.69
82.86
10.39
7,368.68
4,735.89
6,411.03
7,652.44
3,499.18
428.48
411.95
464.00
481.83
498.93
559.96
290.86
Exports
(m kg) 4. Local Production Sufficiency (%) 5. Value of Imports - CIF (US $, mil.) (Pesos, mil) 6. Value of Exports FOB (US$, mil.) (Pesos, mil) 7. Value of Production (Pesos, mil.)
Source: National Dairy Authority The price of milk in Philippines has an add-on effect on the product. The Philippine’s dairy products has been pegged at 1% for the last 5 years (National Dairy Authority, 2013; Ang, 2012). This implies that 99% of the local dairy consumption has been continually sourced from overseas, and that the dairy production supply is more or less
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growing at the same rate as the local demand. Most of the imported milk utilized for consumption and further processing are sourced from New Zealand (46%), USA (29%), Australia (8%), and France (3%). Eighty-five percent of these imports are in the form of powdered milk (National Dairy Authority, 2013). Other dairy statistics are presented in Table 4. In view thereof, the sudden change in exchange rate as to the increase of price in raw materials would create price increase of finished goods and a low price for raw materials create low price for finished goods. Social Factors Most of the school events and activities in Catalunan Pequeño National High School and Elementary School contribute to the increase in sales of Sorvetes due to the instant demand from the students. Every 3rd Week of May, Catalunan Pequeño celebrates its “Araw ng Barangay” wherein the “katawhan” residents and non-inhabitants gather together to witness its yearly anniversary. Some classes are suspended in the afternoon so most of the students participate in this big event. This is a good opportunity for Sorvetes to implement its marketing strategies.
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Technological Factor It was not until the mid-1800s, however, that is the first recognized ice cream machine come up or people know about the ice cream machine. Since ice cream businesses require machines for the production and operation, this serves as the backbone of Sorvetes. Without the machine, there is no ice cream. If the machine breaks down, the operation stops. If the machine malfunctions, the product output deteriorates. The softness and hardness of the ice cream rely on the proper functioning of the machine. According to the ice cream business owner of Fabrica Ice Cream located in San Pedro Street Davao City, who also sells powder mixes for soft serve, proper handling, daily and quarterly maintenance and enough technical background helps the operation work smoothly. The basic problem that most of the machines encounter is the frozen cylinder rooted from mishandling the unit. Once encountered, this might also result in a broken beater. The major problem that might occur is the change of compressor that is very costly and would take one to two weeks replacement depending on its availably. Wear and tear of the parts includes rubber gaskets and the expansion tube. If the machine gets in trouble then the operation of the business shuts down.
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Recent brown outs in the city may affect business operations. It is the uncontrollable factor that the owners cannot handle. Industry Analysis Ice cream in the Philippines facts and figures (www.just-food.com, 2010) show that the industry sales were expected to grow by 2.8% in 2009 to P8.75bn (US$195.4m). Volumes were forecast to inch up 0.7% to 64m litres. The market is dominated by two large players, Nestle and Selecta. The minimal growth will mainly come from the expansion of smaller lower-priced brands; this includes others in impulse ice cream such as soft serve ice cream retailers. Consumption of ice cream in the Philippines was concentrated within the Greater Manila area between 2004 and 2008, with 60% of total volume purchased there. The remaining 40% was the share of the provinces and the cities outside of metro manila. Euromonitor believes there is an opportunity for manufacturers to penetrate key cities such as Davao City where the level of consumer income is on par with Metro Manila. Products geared towards lower and middle income consumers have enjoyed recent success. The proliferation of smaller companies offering lowerpriced branded products in the market has been snatching sales from major brands, especially in impulse ice cream. Chocolate remains the undisputed favourite of Filipinos making it the number one flavor launched and developed by ice cream makers.
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If we take a look on the income of the food services activities in the Philippines last 2012 base on the final results of the 2012 Census of the Philippine Business and Industry (CPBI) conducted nationwide, with 2012 as the reference year, Philippines had a total of 26,557 establishments
engaged
in
Accommodation
and
Food
Services
Activities. Total income earned in 2012 by Accommodation and Food Service Activities section reached PhP361.5 billion. The vibrant economic performance in the Philippines provided a lucrative landscape for the growth of restaurants and mobile food services that includes ice cream store business in 2013. Chain players are able to expand their outlet networks as shopping centre operations establish a strong presence in fast growing cities nationwide. (Consumer Food Service Euromonitor International)
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Restaurant & Mobile Food Services Shorterm Accommodation activities Beverage Serving Activities Event Catering & other Food Service Activities Other Accommodation
2% 1% 9%
13%
75%
Source: Based on the final results of the 2012 Census of the Philippine Business and Industry (CPBI) conducted nationwide Figure 3: Percentage Distribution of Accommodation and Food Services Activities Establishments with Total Employment of 20 and Over by Industry Group: Philippines, 2012* Market Forces Analysis The Porter’s Five Forces Model illustrates how the industry’s competition is affected by these forces: Supplier Power, Threat of New Entrants, Buying Power, Threat of Substitute, and Rivalry. Each model plays a vital role in the competition of food industry. Bargaining Power of Suppliers The suppliers of raw materials usually have power over industries. In an ice cream industry there have lots of local suppliers in the market that offer regular to premium mixes. Unknowingly, almost all premium mixes have the same taste. Other suppliers do not
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offer premium but only limited to regular and standard mixes. Judea, Miguelitos, Marleys, Chefsbest and Injoys are the local players of premixes in Philippines that can also be found in the City of Davao. One of the owners of Sorvetes is currently employed in food service industry, apart from the technical advancement and issues she usually encounters from her clients’ experiences, the connection established with different supplier of powder mixes from local to national supplier through customer referrals becomes the competitive edge of Sorvetes. Therefore, the bargaining power of the supplier is relatively low. Bargaining Power of Customer Customers
are
the
backbone
of
any
business.
Sorvetes
understands that happy customers can make business happy. In order to retain loyal customers and gain new ones, Sorvetes is serious in adding value to its products. Since there is only one existing direct competitor in the area and kilometers away to the mall where the next ice cream store is located, Sorvetes will initially offer two flavors of ice cream, chocolate, vanilla and combination of two. The prices will vary according to the customers’ purchasing power. In order to cater the toddler, primary and high school, faculty member, including the classy individuals and the passengers and peddlers, 10pesos, 20pesos, 25pesos and 30pesos depending on sizes of the cones and cups and
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the toppings or add-ons. This makes the bargaining power of customers high. Threats of New Entrants The threat of new entrants is high. Reliable suppliers for the machine and the raw materials require thorough research; it involves daily and quarterly maintenance, machine breakdown and sometimes poor location may contribute to start-up barrier in this industry. However, it is not expensive to start an ice cream business that is why there are lots of new entrants. Threats of Substitute Products Catalunan Pequeño is a progressive Barangay in Talomo District. Most of the food stores within the vicinity of the schools are residents in the said Barangay. In school areas, food chains are everywhere plus, the cooperative and canteen operating inside the school which makes the threat of substitute products are high. One of the solutions of Sorvetes in decreasing the threat is to keep in touch with customer preferences and offer seasonal products based on their ability to purchase. To maintain customers and attract new ones, monthly sales activity is implemented not just around price change but also to the right amount of customer service. These solutions are implemented successfully; Sorvetes maintains a competitive advantage over rivalries.
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Competitive Rivalry within the Industry Competition in soft serve ice cream retailing is low because of its location and its existing loyal customers. No one wants to be left behind, the reason why customers have a lot of options as where to go and buy. In soft serve ice cream businesses, comparison is obvious so the competitive edge must be more visible than others. Added value to the product and the service makes Sorvetes enjoy the competition. There is only one direct rivalry in the area which just started last February 2016, Sorbe Twirl. As expected, the normal way of selling was adopted and implemented. Sorvetes is confident that it can gain customers respect and penetrate the area. Table 5: Market Forces Analysis 5 Forces
High
Suppliers Power
/
Buyers Power
/
Potential Entrants
/
Substitutes
/
Rivalry
Low
/
To sum it up, according to the analysed Porter’s Five Forces of Sorvetes, except for the bargaining power of supplier and competitive rivalry, all other forces are relatively high. Sorvetes penetrates the market despite the facts that threat of substitute products is high. To
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resolve
the
issues
of
substitute
products,
Sorvetes
uses
this
opportunity to sell ice cream by using different and not the usual cones in the market. The customers bargaining power is also high in certain circumstances. Therefore, this industry is not so saturated, yet very competitive, and that requires good planning and strategies. Competitive Analysis The goal of competitive analysis is to better position the business to leverage the competitive edge in the competing industry. There is one (1) identified competitor in Crossing Catalunan Pequeño. Sorbe Twirl started its operation on February of 2016. To be competitive, Sorvetes is designed to be different from its only competitor. Table 6: Competitive Analysis Factors
Sorvetes
Sorbe Twirl
Location
School
School
Staff
Friendly, attentive,
Attends the bare
honest
minimum
Store Ambiance
Inviting
Relatively unattractive
Service
Above Normal
Normal
Customers
Pre-schoolers, pupils & Pupils & students students, passersby
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Competitive Analysis Summary Most of the ice cream stores are located inside a mall but only a few are in public place like schools. Ice cream stores in public areas are just adopting the normal way of selling ice cream that basically offers single pricing. Most of the ice cream stores located in the public have the same store ambience. Customers will buy ice cream in places where it is accessible. Customers buying ice cream are particular to the total appearance of the ice cream. Ice cream taste does not matter to kids for they taste very closely similar to ordinary and premium ice cream. Customers are price sensitive and yet want to get the quality ice cream. According to observation and field interview, customer preferences rely on the following: ice cream presentation, cleanliness of store, visibility of marketing paraphernalia and number of customers. Target Market According to the Philippine Statistics Authority (PSA) in its highlights of the Philippine population as of August 1, 2015 the country has a total populace of 100,981,437 based on the 2015 Census of Population (POPCEN 2015). Out of these, Region XI – Davao Region shared the total population of 4,893,318. Below is the matrix showing the information for Region XI – Davao Region population.
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Table 7: Davao Region Total Population as of August 2015 Total Population by Province, City, Municipality and Barangay: as of August 1, 2015 Province, City, Municipality Total and Barangay Population DAVAO ORIENTAL COMPOSTELA VALLEY DAVAO OCCIDENTAL 1 DAVAO DEL NORTE DAVAO DEL SUR * * Excludes Davao City. DAVAO CITY *Catalunan Pequeño
1,632,991
22,809
REGION XI - DAVAO REGION 1
558,958 736,107 316,342 1,016,332 632,588
4,893,318
Created into a province under Republic Act No. 10360 dated July 23, 2012; ratified on October 28, 2013; taken from the province of Davao del Sur.
Source: Data procured from www.data.gov.ph
Davao City has a registered total population of 1,632,991. Out of these individuals, a total of 22,809 were listed to Barangay Catalunan Pequeño, where Sorvetes established its first ice cream store particularly in Crossing Catalunan Pequeño, where elementary and high schools are also located. Below are the figures showing the number of pupils and students enrolled in Elementary and Secondary, respectively.
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Table 8: Catalunan Pequeño Elementary School Enrolment Data Year 2013 2015 Grade Male Female TOTAL Male Female TOTAL 1
182
154
336
173
157
330
2
188
148
336
145
128
273
3
151
143
294
179
147
326
4
132
137
269
182
163
345
5
132
109
241
172
166
338
6
107
124
231
160
156
316
TOTAL
892
815
1,707
1,011
917
1,928
Table 9: Catalunan Pequeno National High School Enrolment Data Year 2013 2015 Level Male Female TOTAL Male Female TOTAL 1
138
136
274
179
216
395
2
106
111
217
192
188
380
3
109
120
229
146
169
315
4
78
88
166
123
140
263
TOTAL
431
455
886
640
713
1,353
Based on the 2015 enrolment data above, it is concluded that there are an estimated 3,300 pupils and students enrolled for this school year 2016-2017 that is inclusive of the two schools located in the same area that gives the food store its perfect place to operate. Even with the population growth rate of 2.30% for 2010-2015 (www.psa.gov.ph) for Davao City, Sorvetes can only expect more students from this school and other schools it targets in the coming years.
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The target market of Sorvetes is the students of elementary and secondary schools. There is only one direct competitor in the area as of the present. Market Segmentation Sorvetes is very specific regarding its target market, the students. In Catalunan Pequeño National High School alone, there are 1,353 students from the first to fourth years. There are also 1,928 pupils in Catalunan Pequeño Elementary School from grade 1 to grade 6 that leads to a total 3,281 students. Sorvetes needs only 236 cones as its target ice cream sales volume for the day.
Figure 4: Target customers through behavioural segmentation based on research and survey
35
The students in Catalunan Pequeño National High School are 35% of the total target market. These are students from first year up to fourth year. They spend their allowances most in foods. The pupils in Catalunan Pequeño Elementary School are 50% of the total target customers. These range from grade 1 to grade 6. Kids are more in love with ice cream The location of the store is about ten (10) meters away from the entrance and exit gates of the pupils that becomes a factor of their buying decision. The lowest price specifically targets the pupils who have the lowest allowance for consumption. On average, according to the teachers, students and pupils have allowances from P20.00 to P50.00 per day. Students go out of school around 11:30am or lunch time and 4:30pm during dismissal. Sales are at peak during these instances. Other Potential Market Basic mode of transportation in this area is tricycle. Tricycle drivers who are working under the heat of the sun seek food for pleasure is 3% of the total market. There is an estimated 100 drivers of tricycle according to Crossing Pequeño Tricycle Drivers Association (CPTDA). Students from the other school who visit other schools for any other reasons such as invited for a school activity, such as delegates
36
or representative in a competition who are allowed to come in the premises. They are good money spenders for food stuffs. An estimated of 50 students belong to this market. This is 1% of the total market. The parents of about 300 or 8% of the total market, who wait for their children, are in favour to try a cone of ice cream. Members of the faculty such as the teachers, working staff and admin personnel are also potential buyers which are composed of around 60 members, which is 2% of the total target market. Other customers or passersby (1%) who have the craving of having one princess cone of Sorvetes. Sorvetes assures to maintain cleanliness and add value to ice cream cone to extend unexpected potential customers. Supply and Demand Analysis Ice cream consumption usually peaks during the hot summer months. Demand, however, is also stimulated by festivities, town fiestas, birthday parties, and or any family celebrations. As such, consumption of ice cream remains significant even during the rainy season. Since it is strongly associated with joyful occasions, its consumption is also triggered whenever individuals especially students desire to reward themselves as it is an easily accessible indulgence.
37
The total population of the students and pupils in two schools within Crossing Catalunan Pequeño is 3,281 and as projected target sales of 236 cones and cups per day is about 3 to 4 kilos of premix. Sorvetes defined the following groups that classified according to the basis of their daily behaviour which composed of elementary pupils, high school students and other potential customers. This data serves as the demand analysis of the ice cream store. While on the other hand, there is only one ice cream food store in the area. The strategies of Sorvetes boost the demand and create competition in the market. Thus, this is a good avenue to project a good market share and a favorable supply analysis.
MARKETING PROGRAMS AND STRATEGIES
Sorvetes’ products and markets already exist. There appears, however, that want for something better with a twist in the ice cream for that area given our performance during the first 4 months of our operation. Hence Sorvetes’ approach is a combination of some market penetration and product development strategies following the Ansoff Matrix framework.
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___________________________________________________ Source: https://www.edrawsoft.com/ansoff-matrix.php Figure 5: Ansoff Matrix To gain its market reputation, Sorvetes stays focused on its marketing initiatives that concentrate on the following:
Product and Service Plan Sorvetes major goal is to offer premium yet affordable soft serve ice cream. Detailed objectives, strategies and action plans for its products and services are laid down below.
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Table 10: Product and Service Plan
Objectives
Strategies
To offer affordable ice cream where prices are not exceeding P30.00 per unit To offer new flavors consistent with customer’s wants every month
To replenish inventory on weekly basis or as necessary
Action Plans
Review prices offered by competitor
Understand and integrate customers interactions in the business as the source of the new offering
Conduct surveys Provide shout out board for flavours of the day.
Adopting First In First Out (FIFO) method of inventory is an effective technique in making sure that storage of supplies are brand new and fresh
Arrange storage facility to facilitate FIFO Be aware of the seasons requirements and make a program of purchase Conduct inspection to monitor the expiry dates of the products. Have an agreement with the suppliers for return policy that non-moving items are replaced with
Assign the production crew to check the taste and quality of the soft serve ice cream in the absence of the store manager
Set aside restricted funds or budget for the improvements
To check the quality of the soft serve ice cream every production process
To improve lease properties once a year
Ask discounts from suppliers Adjust prices using the discounts given by the suppliers
Store manager should delegate the quality control of the production to the staff. Train the staff on how to spot changes in taste and sweetness during production Leasehold improvements will be done during summer vacation
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Communications Plan Sorvetes has to establish its advertising, sales promotion and public relations plans. The plans and other sales activities of Sorvetes aim to create public awareness to inform its target customers: the students of Catalunan Pequeño National High and Elementary Schools and other potential customers, faculty staff, drivers or peddlers, parents and outsider students from other schools. Advertising Plan Selling messages for the target markets is conveyed through word of mouth, tarpaulins, leaflets or flyers and social networking sites. The business has set aside an advertising budget to reach the maximum number of people efficiently through these media. Sales Promotion Plan Activities to help increase awareness and preference for the products have been performed such as sampling. Complimentary taste spoons for every customer that comes in to the store can have a try when a new product is launch. This tempts the client to buy a cone of ice cream. Other sales promo is prepared for different types of customers. Visual merchandising displays aim to make Sorvetes products more visible by encouraging customers to make an impulse purchase or to choose Sorvetes products rather than the competitor.
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Buy-one-get-one-free (BOGOF) to encourage customers to give more for their money is applied on “no school days” on specified products. To encourage customers to buy for ice cream during ordinary boring days, this BOGOF creates noise in the market. During summer, Sorvetes is offering “unlimited ice cream” booking for events, parties and get together. This is good for five (5) hours. Public Relation Plan In order to improve the business public image, financial reports is provided on monthly, quarterly and annual basis, the business maintains only one book as against to the practice of having two books both for the BIR and in-house purposes. Government compliance is in the priority list. Giving back to the community is also included in the list. Sorvetes maintains schools and barangay relation through sponsorships. Suppliers’ relations is also maintained by the business as it takes bulk orders from them and endorses more customer referrals for their products. The store implements “ice cream parties” where kids are gathered together and ask how much they love ice cream. It is documented through photos and videos to increase popularity and patronage among children.
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Table 11: Communications Plan Objectives Strategies
To be able to re -introduce the business on school opening
The business will resort to both free and paid advertisements
Action Plans
To introduce sales promo campaign at the start of the business operations to encourage and maintain sales
Sales promo kicks in first week after opening of the business, in this way sales are increased or maintained
To offer sponsorship at least once a year
Number of activities will be conducted in a year both in schools, barangay and city
Within the first month a budget is set aside for Facebook advertisements also known as FB Boost. Leaflets and tarpaulins are also utilized Word of mouth and social media such as Facebook and Instagram are tapped for free advertisements. Souvenirs will be given out Raffle prizes for walk-in customers Special deal promo for bulk purchase Free add-ons on ice cream Sorvetes
will
offer sponsorship in terms of party balloons
and
poppers that will multiply
the
name visibility to the public
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Research Plan To measure the effectiveness of the marketing plan and in order to adapt with the drastic changes in the market and develop new product, the business engages into research. This is conducted on a regular basis to assist the business with its overall goals. The plan is measured how far the effectiveness of the marketing strategies exerted by the business. Tracking customers fast changing needs. Customers would want something new yet affordable in their products and services. A competitor may offer a lower price with fair service to them. What Sorvetes is offering are products with reasonable price yet excellent service. Table 12: Research Plan Objectives
To continue to improve the products and services offerings every month.
Strategies
Keep abreast with the latest news in the industry
Action Plans
Attend customer service seminarsworkshops for new service offerings Participate in the products updates mentored by the suppliers Business meetings are also sourced of new information on how to improve the business
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To continue to develop new marketing and sales promos that will suit the customers’ needs
Soliciting feedbacks from the customers would be the best way to know what they really need
To continue to study the changes in market in order to develop new marketing strategies. Research should be included in preoperating activities and will be done semi-annually for the next two years
Keep on tracking the latest updates on business environment and determine if the marketing strategies have been very effective
To establish two
Look for strategic locations where the business can be established
stores by 2018 and to expand the
business
thru franchising by 2020
Giving out customer feedback forms and perform surveys to know their pulses about the current offerings (Refer to Annex A) The store will participate in business expositions to develop information gathering on business development. Performing surveys to customers is the best form of research plan in order to improve product offering. (refer to Annex A) Sorvetes may resort to using its own funds, Profit Sharing Agreement with an Investor, Bank Loan and DOST Loan
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Customer Service Plan This business is service oriented so that it is differentiated from its competitor. In order to do this, the following objectives, strategies and action plans are established. Table 13: Customer Service Plan Objectives Strategies
Action Plans
To be able to reach out to the customers and answer their queries about the products and services during business hours from 8am to 5pm during Mondays to Fridays
Hired employee is equipped with the technicalities of the product, his work is to make sure that every question is answered honestly and the best possibly
Hire capable crew to do the job
To provide the best experience as they purchase their products from the time they enter the store up to the exit
Display area should be clean Provide customers with an area where they can have their orders consumed
To serve orders of the customers systematically
Having a comfortable place where they can stay and eat is one way to retain customers A place where they can have a chitchat with their fellow customers while consuming their orders Purchase system is imposed to avoid confusion in ordering. First come first serve basis for all customers
A step by step procedure in procuring and selling the items is established
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Skills development seminar for the employees once a year
To train staff and personnel on regular basis so that they know how to conduct every time they face and deal with the customers
To ensure that customer concerns is answered properly and is dealt with automatically To achieve a 0% complaints on day to day operations of the business
A well prepared and equipped personnel can handle basic questions and complaints from customers Ensure good quality products and services Quality assurance and measurements should always be a priority of the ice cream store and its product line
Employees will undergo customer service seminar so that they are equipped with the knowledge on how to act whether in front of the clients or not Training of personnel as part of the preemployment process to know the technicalities in attending customer needs. Maintaining clients database by getting their views to improve the existing services offered by the business All concerns and issues in a day are acknowledged and are endorsed to any of the owners. Necessary actions are done depending on type of complains. If it is a minor issue, staffs directly resolves it. More serious complaints are documented. Phone call monitoring from the owners to staff. Ice cream gifts or stuffs are offered to client as peace offering
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Sales Management Plan One of the goals of Sorvetes is to establish its products and services and promote awareness to the customers for repeat orders. To achieve this, sales forecast is provided that will serve as a guide in its sales management. Since the business is a start up and is in its first year of operation and for this particular marketing plan, inventory available for sales of all products is reasonably maintained at 1 kilo for all raw materials. Purchases are based on what are the most saleable items. Out of these, inventory end is maintained at acceptable level if other things are held constant. Inventory items are also divided into slow moving, fast moving and non-moving for monitoring purposes and to ensure movement of the stocks. Based on the Davao City market prevailing prices for each item, generally a mark up is added to all products to come up with the estimated prices. From there, the marketing budget is prepared and presented in the proceeding pages. Table 14: Sales Management Plan Objective
To achieve the target average sales of 236 cones and cups per day
Strategy
Marketing promo is doubled up on the first month of business operations
Action Plans
See to it that the production process is followed to ensure the target volume planned per day.
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To achieve the projected daily sales of 236 cups and cones during summer
To increase sales by 5% based on target units sales on the following and succeeding years of operations
Introduce unlimited ice cream to events, parties and get together
Introduce sales promo at the beginning of each month
Utilize word of mouth Advertise in Facebook through FB Boost/ Sponsored Device special promos to cater to the needs and wants of each customer type To insure availability of soft serve ice cream for the promo, inventory will be done by the owners before the operations starts and replenish whatever is needed on weekly basis
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Sales Target per Item Target sales per day are based on the actual sales revenue of Sorvetes from January 18, 2017 to March 31, 2017 or 53 days of operations. Table 15: Actual Sales Revenue and Target Unit Sales Sorvetes De Davao Company Actual Sales Revenue and Target Unit Sales January 18 to March 31, 2017 (53 days)
Date Jan 2017 (10 Days) Feb 2017 (21 days) Mar 2017 (22 Days) Total Divided by: Cones/Cu ps Divided by: Daily Ave. (53 Days) Target Unit Sales
Princess
Queen
King
20,870.00
8,480.00
330.00
40,050.00
10,540.00
51,460.00
Flotte
Add Ons
Water
-
634.00
30.00
1,350.00
225.00
1,039.00
10.00
4,740.00
530.00
1,475.00
477.00
77.00
112,380.00
23,760.00
2,210.00
1,700.00
2,150.00
117.00
10.00
20.00
30.00
25.00
11,238.00
1,188.00
73.67
68.00
53.00
53.00
53.00
53.00
212.04
22.42
1.39
1.28
237.13
212.00
22.00
1.00
1.00
236.00
Total
Lemon
30,344.00 80.00
53,294.00 58,759.00
80.00
142,397.00
Total
Daily average unit sales are computed to come up with a total of 236 cones and cups as target unit sales per day from the gathered data. A mark-up is added from the selling price of each item. Sales target in number of units is the estimated yield for each product offering. This is then multiplied to the unit cost per item to come up with the sales target in figures. (Refer to Table 15)
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MARKETING BUDGET Sales Target Matrix Table 16: Projected Sales Revenue ORVETES DE DAVAO COMPANY Crossing Catalunan Pequeño, Davao City Projected Sales Revenue 2017 Products
Princess
Target
Selling
Daily
Unit Sales
Price
Sales
Monthly Sales (20Days)
6 Months
2017
212 Cones
10.00
2,120.00
42,400.00
254,400.00
508,800.00
22 Cups
20.00
440.00
8,800.00
52,800.00
105,600.00
King
1 Cup
30.00
30.00
600.00
3,600.00
7,200.00
Flotte
1 Cup
25.00
25.00
500.00
3,000.00
6,000.00
52,300.00
313,800.00
627,600.00
Queen
Total
236 Units
Target Unit Sales is based on the actual average daily sales of Sorvetes from January 18, 2017 to March 31, 2017
Based on the provided, marketing budget will have a share of P 6,000.00 based on the 2017 annual sales revenue. This amount will go to the business marketing expenses and sales expenses.
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Marketing Expenses and Selling Expenses Presented below is the estimated annual marketing expenses and selling expenses of Sorvetes. Table 17: Marketing and Selling Expenses SORVETES DE DAVAO COMPANY Crossing Catalunan Pequeño, Davao City Marketing and Selling Expenses Particulars Advertising and promotion expense Total Notes:
1. *0.956% of Total Annual 2017 Sales Revenue 2. Rough estimates only
Amount 6,000.00 6,000.00
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OPERATIONAL PLAN
53
Business Process Sorvetes is a merchandising or selling business. The business’ process involve are trading of its products. These are discussed on the following sub-sections. Process Flow The business process that Sorvetes is aiming to undertake involves the procurement (Purchase Order System), the creation (Production Process) and disposal (Sales Order System) of raw materials; soft serve ice cream and final products, accordingly. From the requisition and receiving of products up to the sales, process flow guides the business in the course through of its operation. The supply chain of the business is incorporated in these process flows. The following steps are followed in the merchandising business process.
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Procedures
Flow START
1. Start Purchase Requisition Slip from the production crew
2. Requisition of inventory will
start
production
from crew.
the A
purchase requisition slip (PRS) will be filled up by
Forward to the manager for approval
him. 3. Forward the PRS to the
YES
manager for approval.
Approval Decision
4. Approved requisition slip will be issued with a Purchase Order. Manager
NO
Approved PRS issued with Purchase Order
will file disapproved PRS. File
5. Purchase Order will be forwarded
to
the
supplier.
PO will be forwarded to the Supplier
6. End END
Figure 6: Inventory Requisition Flow
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Procedures
Flow
1. Start START
2. Manager will receive a Received confirmation call from the supplier
confirmation call of the order from the supplier. 3. Delivery of items to the store. Production crew will receive the stocks. 4. Production
crew
should
double
check
the
specifications quantity
and
of
the
quality
stocks
condition.
Issue
in
good
to the Cashier. Items that do not pass specifications will not accepted
Issue receiving report (RR) for stocks in good conditions.
NO
Receiving
Report (RR) and forward copy
be
Double Check Specifica tions
and
issued. Received
YES
order
matches it against the PO
5.
Delivery of stocks to the store
and
will
Update Inventory Records
Return stocks that do not pass specifications
be
returned to suppliers. 6. Update inventory records.
7. End Figure 7: Inventory Receiving Flow
END
Supplier
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Procedures
Flow
1. Start 2. Preparation materials
of
raw
(powder
START
mixes
Preparation of raw materials
and water) 3. Preparation of equipment (machine and mixing tools) 4. Ice cream process 5.
Quality
check.
This
involves
tasting
and
Preparation of equipment
Ice cream process
adjustments if necessary. 6. Final ice cream product for sale 7.
Quality Check
Draining of the left over and
cleaning
of
Ice cream ready for sale
the
machine 8. Left over to storage for use in
the
next
production
process
9. End
Figure 8: Production Process
Draining of the left over and cleaning the machine END
Store left over for use in next production
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In the ice cream business as presented in procedures above, the first step is the preparation of all raw materials, ice cream supplies and mixing tools. Clean the ice cream machine by adding clean water in the hopper. When everything is ready, pour the mixture and wait until its gauge reaches 100% to automatically stop. This may take up to 20 minutes depending on the factors affecting the performance of the machine; factors include ambient temperature, electricity and ice cream premix. When the machine stops, it indicates the ice cream is ready for serving. There is no waste because the leftovers are dispensed and stored in fridge and will be used in the next operation. Operating time of ice cream machine is from 10:00AM to 6:00PM only.
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Procedures
Flow
1. Start 2. Received order from the
START
customers. 3. Production prepare
the
crew
will
items
and
release 4. If
not
according
to
Receive order from customers
Production crew will prepare item YES
customers specifications,
Customer Specificati ons
set aside the ice cream and prepare a new one 5. Set aside ice cream will go to the storage to be used
Cashier receives payment
in the next production 6. Cashier payment
receives and
the
NO
Issue receipts
Set aside to be used for next production process
END
STORE
issue
receipts 7. End
Figure 9: Cash Sales Flow
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Procedures
Flow
1. Start 2. Cashier
START
receives
cash
from
the
payment
Cashier receives cash payment from the customers
customers. 3. Cashier
issues
official
Cashier issues official receipts
receipts Count total cash during cut off time of 3pm
4. Count total cash during cut off time of 3pm. Prepare deposit slip
5. Prepare deposit slips 6. Prepare the log book
Cashier receives payment
7. Endorse cash and deposit slips to the manager 8. Manager signs the log book and
deposits
cash
to
Prepare the log book
One
Endorse cash and deposit slips to the manager
Network Bank (ONB)
9. Return validated deposit slips to the cashier for recording 10.
End
Figure 10: Cash Handling Flow
Manager signs the log book and deposits cash to ONB
END
Return validated deposit slips to the cashier for recording
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Raw Materials Cost of raw materials per product is presented on Table 17. Toppings are shared by Queen and King Cups and there are special add-ons for Kings Cups only. Table 18: Raw Materials Princess Product Cone
Queen Cup
King Cup
Premix Powder
1 Kg @ 1 Kg P125.001 P125.002
Cones/Cups
620pcs per 50pcs per box @ box @ P65.00 P600.00
50 pcs per box @ P65.00
Coke
None
None
Toppings (Shared) Special Addons
Superstix 1One
None
None
None
Sundae Flotte
@ 1 Kg @ 1 Kg @ P125.003 P125.004
None
100 pcs per box @ P 451.00 1 Case @ P269.008
Assorted5 @ P3,841.50 ( 94% to Queen = 3,616.25 6% to King = P225.25)
None
Assorted6 @ P694.00
None
Assorted7 @ P49.81 per cylinder
None
None Assorted7 @ P49.81 per cylinder
(1) kilogram of soft serve powder yields 60 Princess Cone. One (1) kilogram of soft serve powder yields 50 Queen Cups. 3 One (1) kilogram of soft serve powder yields 50 King Cups. 4 One (1) kilogram of soft serve powder yields 50 Sundae Flottes. 5Sprinkles used as add-ons to the ice cream: rainbow sprinkles, rice crispies, mini mallows, chocolate dip, chocolate sprinkles, chocolate droplets, crushed peanuts, crushed cookies, chocolate heart and mini nips. Toppings yield a total of 1262 cups for 53 Days. Out of these, unit sales of Queen Cups are 1,188 or (94%), 74 or (6%) of King Cups are sold out. (Refer to Annex B) 6Special add-ons are added to King Cups only. (Refer to Annex B) 7Superstix has 100 sticks per cylinder. Each queen cup is entitled to half (1/2) stick while King Cup is given one (1) stick. 8One (1) case has twelve (12) liters. One (1) liter yields at least five (5) Sundae Flottes. 2
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Table 19: Cost of Raw Materials per Unit Queen Cup Princess Product Cone P125.001/ P125.002/50 Premix 60 Cones Cups = Powder = P2.08 P2.50 P65.00 / 50 P600.00/ Cones/Cups 620 pcs = Cups = P1.30 P0.97
King Cup P125.002/ 50 Cups = P2.50 P65.00 / 50 Cups = P1.30
Coke
None
None
None
Sprinkles5 (Shared)
None
P3,616.25/ 1,188 cups = P3.04
Special Addons
None
None
P225.25/ 74 cups = P3.04 P694.00/ 74 Cups = P9.38
Superstix
None
Material Cost per Unit 1One
P3.05
P49.81/200= P49.81/ 100 P0.25 = P 0.50 P7.09
P16.72
Sundae Flotte P125.004/ 50 Cups = P2.25 P 451.00/ 100 Cups = P 4.51 (P269.006/ 12 Ltrs)/5 Cups = P4.48 None
None
None
P11.49
(1) kilogram of soft serve powder yields 60 Princess Cone. One (1) kilogram of soft serve powder yields 50 Queen Cups. 3 One (1) kilogram of soft serve powder yields 50 King Cups. 4 One (1) kilogram of soft serve powder yields 50 Sundae Flottes. 5Sprinkles use as add on to the ice cream: rainbow sprinkles, rice crispies, mini mallows, chocolate dip, chocolate sprinkles, chocolate droplets, crushed peanuts, crushed cookies, chocolate heart and mini nips. Toppings yield a total of 1262 cups for 53 Days. Out of these, unit sales of Queen Cups are 1,188 or (94%) 74 or (6%) of King Cups are sold. (Refer to Annex B) 6Special add-ons are added to King Cups only. (Refer to Annex B) 7Superstix has 100 sticks per cylinder. Each queen cup is entitled to half (1/2) stick while King Cup is given one (1) stick. 8One (1) case has twelve (12) liters. One (1) liter yields at least five (5) Sundae Flottes. 2
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Sorvetes uses premium premix powder as the main raw material in all its products. Raw materials needed for production are procured from reliable suppliers in Davao City. Quality Control The set of procedures to ensure that products meet its requirements is examined by the production crew from the acquisition of the raw materials up to sales. Owners of Sorvetes also conduct their own inspection. Before the products are being dispatched to the customers, thorough inspection is being observed to ensure alignment with the product scope. From the receiving up to disposal of the products, quality control is observed and maintained. If the process flows are to be followed, the quality of the items in the storage can also be sustained. Monitoring the quality of the products starts at the receiving point; the productions crew only receives items that are in good condition and according to specifications enlisted in the Purchase Order. Bad orders or those items that do not pass the specifications are automatically returned to the suppliers and should be noted in the receiving report. With this move, only quality products are kept in the storage.
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Keeping the products in storage entails a huge amount of work. To do this and to maintain the quality of the products, an efficient master plan and store layout design and proper products arrangement is followed. Products are arranged in the storage according to the products sizes and type within the given slots. Storage good practices can also add up to the quality control being established. Storage care and maintenance is being practiced by the business. The Five S’s of Total Quality Management (TQM) is also applied. This technique according to Osada (as cited in Ho, 2006) is used to established quality environment in the organization. The Five S’s stands for five Japanese words: Seiri, Seiton, Seiso, Seiketsu and Shitsuke, if applied to the store management, this is a key technique of quality control that maintains the quality of the products as well. As examples: Table 20: The Five S of Total Quality Management (TQM) Japanese
Meaning
Seiri
Organization
Seiton
Neatness
Seiso
Cleaning
Seiketsu
Standardization
Shitsuke
Discipline
Example Proper waste disposal and proper arrangement of the products Maintain store and storage cleanliness at all times Consistently observe cleaning schedule Document everything in the storage transparency. Provide reports as basis. Sustain and do the 5-S daily
for
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Controls are indispensable for maintaining the quality of the products in the store and the storage. Weekly inventory is being performed by the production every Friday during business hours. The physical inventory report on stock balances is matched with the stock cards.
Discrepancies,
which
include
stock
damages
due
to
mishandling, listing error and missing inventory, are accounted for properly as reconciling items or inventory loss whichever is applicable. Product movement classification is also practiced to know which products are saleable and lagging.
A separate report is provided to
show products that are fast moving, slow moving, and non-moving with emphasis on the expiry dates. The production crew acts as the quality control officer for this. Fast moving items are monitored in terms of price changes and substitutes products, slow moving items are promoted by the business and non moving items are returned to the suppliers. Sorvetes enters into a contract with the suppliers that all non-moving items are accepted as return stocks and are to be applied as payment to the business accounts. The above quality control results impacts the quality of the products being offered. The planned quality control is an operational internal control procedure, whatever costs this control system entails one to put in place, reflected in the pre-operating and operating costs of the
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business. This does not require a large amount of money as this becomes part of the business standard operational procedures. Waste Disposal Waste disposal is being handled in accordance with the city ordinances and other applicable local, national and international laws on environment. Since the business of selling soft serve ice cream falls into the food industry, proper waste handling and disposal is strictly imposed. Segregation is being practised by Sorvetes. As mandated by the city ordinances enacted by the local government. Davao City Ecological Solid Waste Management Ordinance of 2009, (City Ordinance No. 0371-10) Section 10. Mandatory Segregation of Solid Waste - The segregation of waste at source by all establishments is mandatory. To avoid having a bad image, the strict imposition of the aforementioned quality controls is being observed and practiced. The main objective is to have zero complains. The business also makes an arrangement with the suppliers for return damaged stock. Davao City Environment and Natural Resources Office (CENRO) regulate and require each business establishment to segregate waste before disposal. The business is also required to observe and practice recycling to reduce garbage like reuse of plastic or cartoons as garbage bins.
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Planned waste disposal is incorporated in the operations of the business and is reflected in the operating expenses of the business; the business does not have any investment in a waste disposal devise because it is a production process that does not need a stricter compliance. Facilities The particular site of the ice cream store creates value and impact to the entire business operation because it ensures good service and crafts the business market position. Good and conducive facilities under a perfect business location and store lay-out enables Sorvetes to easily implement all of its marketing strategies without compromising the quality of food and services. Storage, Office and Store Location The storage, office and store are located at the premises of the business address at Crossing Catalunan Pequeño Davao City. Emphasis is given to the entire store since the business is handling and dispensing foods. The store is built in accordance with law; to do this the business gets clearances from the local authorities. Location Plan Figure 11 shows the exact location of Sorvetes as provided by Google maps.
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Sorvetes ice cream store is located at Crossing Catalunan Pequeño, Davao City adjacent to Catalunan Pequeño Elementary and Catalunan
Pequeño
National
High
Schools.
The
property
is
strategically located since it is accessible to those customers located along barangay road leading to the nearby subdivisions of Granville, Wellspring Highlands, Samantha Homes and Residencia Del Rio.
Figure 11: Location of Sorvetes in Crossing Catalunan Pequeño Sorvetes rents a space at Crossing Catalunan Pequeño (refer to Annex C for Lease Contract). The area is about 20 square meters and is way above the required 12 square meters to establish the business.
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The building space is owned by Sara A. Bautista, the space incurs P6,000.00 monthly rental fee with one (1) month advance and two (2) months recoverable deposit. Store lay-out The ideas, designs, concepts, decors and lay out of the ice cream store are protected to avoid potential infringement issues and cases in the future (Refer to Annex D). This is under Republic Act 9150 Series of 2011, an “act providing for the protection of layout-designs (topographies) of integrated circuits, amending for the purpose certain sections of Republic Act no. 8293, otherwise known as the intellectual property code of the Philippines and for other purposes.”
Figure 12: Physical Lay-Out of Sorvetes
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Equipment and Other Fixed Assets Any ice cream business requires ice cream machine regardless of its brand and type. Sorvetes’ machine is a floor type China brand in which most of its parts are locally available. For the protection of the machine, Automatic Voltage Regulator (AVR) is installed to avoid electrical problems. To start the business it needs to have enough electric power for the ice cream machine. Power shortage and interruptions affect the operation of the business and may cause machine problems. It is not enough to have electricity with current fluctuation that results in under and over voltage. Automatic Voltage Regulator (AVR) that has 5000watts has stabilized the flow of current since the machine consumes 1.7kw under normal 220 voltages. A good source of potable water is needed for the daily cleaning of the machine and mixing tools for the premix (Refer to Annexes E, F and G). Maintenance and Repairs Repairs and maintenance of ice cream machine are assigned solely to the technician of the supplier. Quarterly maintenance includes cleaning the condenser. Repairs refer to the refrigeration system of the machine that includes balance of pressure or Freon and replacement of the compressor and gear box if necessary. Since the
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unit is covered with warranty agreement for one year, all parts for the repair will be provided by the supplier of the machine. Repairs and maintenance have an estimated monthly budget of P 600.00 and will be increased by 5% on the following year. Staffing Requirements Sorvetes has two operation staffs who work on a daily basis: one production crew and one store manager, who also serve as the cashier. They are equipped with proper training in handling the machine and are empowered with customer service since they are in charge of the day to day operations of the business. A written policies and procedures manual is the foundation for the training in order to best serve the customers. Quality control, cleanliness and sanitation procedures are utilized within the food store. All the employees are managed by the manager who sees the value of the Total Quality Management (TQM) and applies in Sorvetes. The internal and external factors of the entire workforce are monitored, handled, assessed, and studied by the manager. The owners have good leadership experienced combined with expertise in technical and management techniques and styles. Their corporate wealth of exposure in sales and customers service becomes the competitive edge against competitors.
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Salaries and Wages Schedule of the Staff Sorvetes follows the mandatory daily rate in the region. Daily rate for Region 12 is P310.00 per day for non-agriculture sector. Employees work from Mondays to Fridays or five (5) days a week. Allowances are also given out depending on the position handled by the employee; this is apart from the cost of living allowance mandated by law which is P5.00 per day for Region 12. Every employee is given Social Security System (SSS). They are also insured with Employees Compensation
Commission
(ECC)
and
Philhealth
Insurance
Corporation (PHIC). Employees are also given out Home Development Mutual Fund (HDMF) or Pag-ibig benefits. Sorvetes De Davao Company is already a registered employer with SSS, PHIC and HDMF (Refer to Annexes H, I and J). Salaries and wages are given every 15th and 30th of the month. (Refer to Annex K). Deductions of employee shares in the benefits together with the employer shares are remitted on the following month (Refer to Annex L). The compensation schedule of the employees is shown in Table 21.
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Table 21: Staff Monthly Salaries and Other Benefits SORVETES DE DAVAO COMPANY Salaries and Benefits Staff Basic Pay COLA Allowance Manager/Cashier
6,200.00
100.00
Production Crew
6,200.00
100.00
Total
12,400.00
200.00
Staff Manager/ Cashier Production Crew Total
SSS 442.00 442.00 884.00
Staff
Total Salaries
Cashier Production Crew Total
7,200.00 6,300.00 13,500.00
900.00 900.00
Employer Share ECC PHIC 10.00 100.00 10.00 100.00 20.00 200.00
HDMF 100.00 100.00 200.00
Total Benefits 652.00 652.00 1,304.00
Production Plan Sorvetes on the average sells 212 of Princess Cones, 22 of Queen Cups, 1 of King Cup and 1 of Sundae Flotte per day. Therefore, ice cream machine is producing on the average a total of 236 cones per day which is equivalent to four (4) premium premix powder per day based on 60 Princess Cones produced per day. Data is gathered from the three (3) months or fifty-three (53) days operations of Sorvetes for the period from January 18, 2017 to March 31, 2017 (Refer to Table 15).
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Major identified suppliers of raw materials are Monterozza Ritz Food Corporation, Glory Foods Corporation, Rafsky Enterprises and Baking Pantry, which are all located in Davao City. Raw materials for these products are included in the store shelves and storage for production. Table 22: List of Raw Materials, Suppliers and Addresses Raw Materials Supplier Address Premix Soft Serve Powder
Monterozza Ritz Food Corporation
Lanang, Davao City
Cones
Glory Foods Corporation
Cups, Sprinkles or Toppings
Rafsky Enterprise
Uyanguren Avenue Corner Suazo St., Davao City Sta. Ana Avenue, Davao City
Cups for Flotte
Oro
Hi-Q
Packaging Arellano St., Davao City
Corporation Superstix
NCCC Centerpoint
Crossing Matina, Davao City
The above listed suppliers of premix powder, cones, cups and toppings are cash on delivery (COD) purchases except for Monterozza Ritz Food Corporation which extended Sorvetes a 15-day term for a minimum purchase order of 100 premix powders.
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Table 23: List of Raw Materials, Suppliers, Price, Volume and Total Costs Type
Supplier
To produce 60 Princess Cones Premix Powder Monterozza Cones
Glory Foods
Unit Price
Volume Required
Total Cost
P 125.00 per Kg
1 Kg
P 125.00
P 600.00 per box or 620 pcs
60 cones
P 58.06
Total Cost Per Yield
P 183.06
To produce 50 Queen Cups Premix Powder Monterozza
P 125.00 per Kg
1 Kg
P 125.00
50 cups
P 65.00
50 cups
P 152.00
50 cups
P12.50
Cups
Rafsky
Sprinkles
Rafsky
P 65.00 per box or 50 pcs P 3.04 per cup
Superstix
NCCC
P0.25 per cup
Total Cost Per Yield
P 354.50
To produce 50 King Cups Premix Powder Monterozza Cups
Glory Foods
Toppings or Sprinkles
P 125.00 per Kg 1 Kg
P 125.00
50 cups
P 65.00
Rafsky
P 65.00 per box or 50 pcs P 3.04 per cup
50 cups
P 152.00
Special Addons
Rafsky
P9.38/cup
50 cups
P 469.00
Superstix
NCCC
P0.50 per cup
50 cups
P 25.00
Total Cost Per Yield
P 836.00
To produce 50 Sundae Flottes Premix Powder Monterozza Cups
Oro Hi-Q
Coke
NCCC
Total Cost Per Yield
P 125.00 per Kg 1 Kg P 451.00 per 50 cups box or 100 pcs P 4.48 per cup 50 cups
P 125.00 P 225.50 P 224.00 P 574.50
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A list of products, suppliers, price, volume and total costs on Table 23 provides a summary of the production plan Sorvetes is undertaking. This table also shows the computed total cost per yield per product. Inventory Volume Inventory volume is maintained according to the weekly requirements of each offering and the re-order level of each product is planned as well. Inventory is kept at an acceptable minimum level so that the business can cater to the daily needs of the customers. Inventory at the end of each period is maintained at 40 kg of premium mixes, 4 boxes of cones, 4 boxes of cups, 4 kg of syrup, 2 liters of Coke and 25 pieces of bottled water. With total value of P8, 410.00, this amount forms part of the business equity at the beginning and all throughout its operations. Inventory re-orders point is observed by the business. By having a realistic re-order level, Sorvetes not only ensures enough stock but also avoiding overstock of raw materials. Table 24 shows the end period inventory and the safety stock per raw material. Safety stock amounting to P3, 588.48 is the minimum amount of the raw materials Sorvetes holds in stock for emergency situation. These are 20 kg of
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premium mixes, 1 box of cones, 2 boxes of cups, 2 kg of syrup, 1 liter of Coke and 10 pieces of bottled water. Table 24: Inventory Level and Safety Stocks Sorvetes De Davao Company Inventory Level and Safety Stocks
Inventory
Cost Per Unit c
a
Safety Stocks b
Premix Powder
40 Kg
20 Kg
125.00
5,400.00
2,500.00
Cones
4 Boxes
1 Box
600.00
2,400.00
600.00
Cups
4 Boxes
2 Boxes
60.00
240.00
120.00
4 Kg 2 Ltrs
2 Kg 1 Ltr
140.00 22.42
560.00 44.84
280.00 22.42
25 pcs
10 pcs
6.61
165.16
66.06
8,410.00
3,588.48
Particulars
Syrup Coke Bottled Water Total
Inventory Amount d= a*c
Safety Stocks Amount e=b*c
For example, to compute for the re-order level of premix powder, the owners consider the products delivery lead time of 5 days, which is the amount of time it usually takes for the shipment of the product to arrive. Per day consumption of premix powder is on the average 4Kg per day. Formula Re-Order Level = (Lead Time x Demand per Day) + Safety Stock
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Computation: Re-Order Point
= (5 Days x 4 Kg) + 20 Kg = 40 Kg
Graphical presentation of the re-order level is shown on Figure 13.
Qty of Premix 100 90 80 70 60 50 Re-Order Point
40 Lead Time
30 Safety Stock
20 10 0 5
10
15
20
Figure 13: Re-Order Point
25
30
35
40
45
No. of Days
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Cost of the Products Costs of the products are provided above. These costs are up to date as of March 31, 2017. Labor Costs Since the business is into productions using machine process, manpower costs forms part of the operating expenses of the business as provided under salaries and wages schedule for the staff and key personnel. Overhead Expenses Schedules of expenses that substantiate the business operations are provided and presented further in the financial plan. Since the business is using machine process, there are no overhead expenses incurred related to production, but the business incurs general and administrative expenses. Further, operating expenses are the costs associated with the store’s main operational activities to produce the required volume sales plan. These costs constitute which are directly related to selling, advertising, and delivery of goods to customers. The costs that are directly attributed to the operations are necessary to give and meet the standards of the products, complying customers’ desires and achieve the store goals.
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ORGANIZATIONAL PLAN
80
Legal Structure of the Business Sorvetes De Davao Company is organized as a partnership business
agreement
with
three
persons
binding
to
contribute
resources to common fund in the co-owned business for a profit (Refer to Annex M, N and O). The owners or partners are persons of, Marbert E. Gregorio, Dengie Lyn C. Mamac and Lemar E. Trumata. The capital to be contributed to the business is in the form of money. Partners have completely understood by all means the legal structure of the business, to wit: That any partner can bind the partnership into a contract irrespective of the consent of the other partners as long as he/she is with authority and is for the benefit of the partnership due to mutual agency. That the established partnership is not considered a separate entity from the partners when it involves debts to third party creditors. That a mere change due to the withdrawal, admission, death, insolvency or insanity of any of the partner in the parties of partnership agreement dissolves the partnership. Aside from the capital accumulation and the willingness of the partners to invest money to the business capitalization, mutual trust is also the reason among investors to venture into partnership.
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Ownership Sorvetes is owned by the three partners. Capital investment is equally shared by the three partners. Sharing is also equal among the partners and is applicable to the division of the accumulated profits annually. Net profit sharing is only to be carried out after Sorvetes is able to establish its third branch. Table 25: Shareholdings and Percentage of Ownership Name Shareholdings
% Share
Gregorio, Marbert E.
P 50,000.00
33.33%
Mamac, Dengie Lyn C.
P 50,000.00
33.33%
P 50, 000.00
33.33%
Trumata, Lemar E. TOTAL
P 150, 000.00
100%
Organizational Structure and Key Management Personnel
BUSINESS OWNERS/PARTNERS/MANAGERS Gregorio, Marbert E. Mamac, Dengie Lyn C. Trumata, Lemar E.
-Cashier
-Production Crew
Figure 14: Sorvetes Organizational Chart
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Table 26: Job Description of Sorvetes Key Personnel Designation Job Description Manager
Cashier
Production Crew
Responsible for overall operations in the business Monitor the operation of the store ( before and after ) In charge of procuring all raw materials Update social networking sites Formulate business strategies as to the pricing and sales activities Solve issues and concerns of the customers through phone calls and personal messages if not emails in Facebook, Instagram or other social media tools Responsible for the collection and preparation of the financial accounts Manage the accuracy and completion of monthly financial statements In charge in daily operation of the ice cream store Take charge in the cleanliness Serve the customer Get customers feedback, concerns & suggestions Turn Over all survey forms for customers feedback
Pre-Operating Activities Before Sorvetes operates, it has undertaken some pre-operating activities. These pre-operating activities include but not limited to the following: market survey or research, the business plan preparation and obtaining appropriate permits and licenses of the business. Further, these activities from the business inception to the start of the operations are best described at a Gantt chart below:
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Table 27: Sorvetes Pre-Operating Activities * (Gantt Chart) SORVETES DE DAVAO COMPANY PRE-OPERATING ACTIVITIES GANTT CHART ACTIVITY Aug Sept Oct Nov 2016 2016 2016 2016 Market Research and Study Business Plan Raise Capital Signing of Contract of Lease Publish of Job Hiring Obtain Permits and Licenses Purchase of Ice Cream Machine Purchase Equipments Fabricate of Store Advertisement Selection of Applicants Orientation and Training of Staff Start of Commercial Operations
Dec 2016
Jan 2017
Pre-Operating Costs Pre-operating costs are being incurred by the business before its commercial operations on January 18, 2017. Based on the preoperating activities and key points given, above are the pre-operating costs involved together with the target dates of completion. The business owners or partners initially invested an amount of P1,000.00 for market research and study and the business plan
84
preparation because raising initial capital from all sources happened after the two activities mentioned as presented in the GANTT Chart. Market research, study and the business plan was prepared by the partners. Initial capital is needed for the project to be realized, partners contribute an initial total capital of P 150,000.00 exclusive of incidental expenses related to this activity. Each of them may contribute their personal savings or they may borrow from other sources. Contract of lease signing follow suit on November 19, 2016 to secure the place where the business is established. One month advance of P6,000.00 plus two months recoverable deposit of P12,000.00 is paid to the lessor. This forms part of the business prepayments. Initial permits and licenses application commence after the initial capital has been acquired with an initial costs of P 2,506.00. Acquisition of an ice cream machine, the purchase of assets, and the hiring and training of staff follow through after the aforementioned activities. Estimated expenses are provided at the start of the commercial operations of the business. These expenses cover the costs of the grand opening of the business.
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Presented below are the details of the pre-operating costs of the business. Table 28: Pre-operating Costs SORVETES DE DAVAO COMPANY PRE-OPERATING COSTS Target Dates ACTIVITY August Market Research and 2016 Study Sept - Oct 2016 Business Plan November Raised Capital (Net for 2016 Contingency Fund) November Signing of Contract of 2016 Lease Nov - Dec Obtain Permits and 2016 Licenses December Purchase of Ice Cream 2016 Machine December Purchase of Equipments 2016 and other Assets December Fabricate of Ice Cream 2016 Store November 2016 Publish of Job Hiring December Advertisement & Purchase 2016 of Initial Products December 2016 Selection of Applicants December Orientation and Training of 2016 Staff January Start of Commercial 2017 Operations TOTAL
Costs Involved
Remarks
1,000.00 One Time 300.00 One Time One Time 24,000.00 One Time 2,506.00 One Time 71,954.80 One Time 8,150.00 26,660.00 One Time - One Time 13,295.65 One Time - One Time - 3 Months 2,133.55 One Time 150,000.00
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Fixed Assets Fixed Assets include the stand fans, tables and chairs used by the staff and the customers. Other assets include freezer, calculators, money detector, and trash bins. Since everything is used for the day to day operations of the business, detailed list of fixed assets, number, specifications, purpose, suppliers and prices are already presented and discussed in the operational plan (Refer to Annexes E, F and G). General and Administrative Expenses General
and
administrative
expenses
for
trading
or
merchandising concern include salaries of both the staff and the key personnel since they are the ones acting as secretary (cashier) and bookkeeper (cashier). These expenses are further presented under the financial plan. Other expenses which are not directly related to the trading business
operations
such
as
office
supplies,
utilities
and
communications are to be included here. These costs have been incurred to support the trading and marketing activities and these are shown on the following matrix.
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Table 29: General and Administrative Expenses SORVETES DE DAVAO COMPANY Crossing Catalunan Pequeño, Davao City For A Month General and Administrative Expenses Annex P Notes to Particulars FS Depreciation expense 7 Electricity, light and water 8 Rent expense 9 Repairs and maintenance 10 Salaries and wages 11 SSS, PHIC and HDMF Con 12 Supplies expense 13 Taxes and licenses 14 Miscellaneous expense 15 Total
Amount 2,159.20 1,650.00 6,000.00 600.00 13,500.00 1,304.00 500.00 2,500.00 50.00 28,263.20
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FINANCIAL PLAN
89
Total Project Cost ` The three partners squeezed the entire initial investment of P150,000.00 before the commercial operations of Sorvetes. Table 30 presents the total project cost in establishing the business. Table 30: Total Project Cost SORVETES DE DAVAO COMPANY Crossing Catalunan Pequeño, Davao City TOTAL PROJECT COST Particulars
Total
Fund Source Equity Loan
FIXED ASSETS Leasehold improvements Equipment & FFEs Total Fixed Assets
26,660.00 80,104.80 106,764.80
26,660.00 80,104.80
WORKING CAPITAL Advertisement and Promo Initial Products Purchase Rental payments Total Working Capital
4,600.00 8,695.65 24,000.00 37,295.65
4,600.00 8,695.65 24,000.00
1,000.00 300.00 2,506.00 2,133.55 5,939.55
1,000.00 300.00 2,506.00 2,133.55
ORGANIZATIONAL COST Market Research and Study Business Plan Permits and Licenses Commercial Operations Total Organizational Cost
TOTAL PROJECT COST FUNDING MIX
150,000.00 100%
150,000.00 100%
0%
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Sub-schedules for the total project cost are presented at Table 31. These costs were incurred before January 18, 2017, the start of the business commercial operation. Table 31: Total Project Cost Sub-Schedules Leasehold Improvements Metal Fences Renovation Contact Trapal TOTAL
Amount 8,360.00 15,000.00 3,300.00 26,660.00
Equipments & FFEs Ice Cream Machine Sink Freezer TOTAL
Amount 71,954.80 3,000.00 5,150.00 80,104.80
Working Capital Advertisement and Promo Raw Materials Supplies Rent (Dec, Jan & 2 Months Deposit) TOTAL
Amount
Permits and licenses Articles of Partnership Name Reservation SEC Filing Fees Barangay Clearance Cedula TOTAL
Amount
4,600.00 3,771.10 4,924.55 24,000.00 37,295.65
836.00 120.00 1,030.00 20.00 500.00 2,506.00
The three partners contributed equally shared capital in order to implement the business. Schedule shows what funding requirements
91
the business has undertaken. The business owners may have options between equity as their personal capital or borrowings from the bank. For this particular business, the owners and partners have agreed to initially contribute P50,000.00 each in cash as capital investment. Projected Statements of Comprehensive Income Sorvetes is using accrual method in accounting of its business transactions. Meaning, the company realizes income even if not paid and recognize expense even if not incurred. Depreciation expenses are provided for all property plant and equipment. This includes leasehold improvement. Bonuses and 13th month pays are given on the second year of business operations. Expenses directly related to sales are also increased by 5% if applicable. Sales revenue composed of 100% cash sales (Refer to Annex P). Projected Statements of Financial Position Sorvetes has to maintain at least P 12,500.00 of accounts payable. This is equivalent to two weeks inventory or the 15-day term payment awarded by Monterozza Ritz Food Corporation to Sorvetes. Partners will not withdraw generated net income for three (3) consecutive years or until it has established its third branch.
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Inventory held at the storage is replenished and maintained weekly at the given amount (Refer to Annex Q). Projected Cash Flow Statement Projected cash flow of Sorvetes is presented at Annex R. Financial Analysis Horizontal Analysis - Income Statement and Balance Sheet Horizontal analysis of Sorvetes Comparative Statements of Income for 2017 to 2019, with 2017 as the base year, shows that Sales revenue is increasing for 2018 and 2019 with percentage increase of 7.45% and 12.54% respectively (Refer to Annex S). Gross income on the other hand is increasing since the company has established considerable mark ups for three years; consequently, resulting to higher net income on the second and third year. This is also attributed to the company’s target sales increase of 5% every year. Operating expenses are also increasing in a three year period. The company has not recorded other income for the next three years. The financial condition of Sorvetes as shown in its Comparative Statements of Financial Position as of 2017 to 2019, with 2017 as a base year showed an increasing trend for all accounts. There were some accounts on steady and in decreasing amounts; however, most of the accounts increased steadily. Total Assets and Total Liabilities &
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Partners’ Capital for 2017 up to 2019 increased steadily (Refer to Annex T). Given the above analysis, it may be concluded that Sorvetes performs well for three years evidenced by the increasing net income for three consecutive years. Financial Position of the company also shows positive results for the business. Management sells products on steady mark-ups. These can be seen on the gross income for three years. Management must continue to look for ways to increase its sales for all products that can give higher gross profits. The basic rule of “Reducing costs and Maximizing the Profits” should always be applied by the management.
Vertical Analysis - Income Statement and Balance Sheet Given the schedules, the percentages of assets classified as current for 2017 up to 2019 is on the average 70.43%. Total liabilities for three years are on the average 12.55%. Inventory held is steady for three years. This is composed of the initial inventory held for replenishment (Refer to Annex V). Cost of goods sold for three years are escalating.
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The common size income statement, with sales revenue at 100%, essentially shows how many cents of each sales pesos of the business are absorbed by the various expenses of the company. In the given schedules, it may appear that over the three years the company is fairly doing well (Refer to Annex U). In providing a common size statement, the management will have a grip of the total financial condition of the company. Unreasonable fluctuations on these percentages are significantly different from the industry averages, the possibility of fraudulent financial reporting should be considered. Since these percentages will not provide the management with much
insight,
it
is
recommended
comparing
these
competitors’ or industry averages to be more meaningful.
with
the
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Financial Highlights The table below shows the financial highlights for the next three (3) years. Table 32: Financial Highlights Particulars
Actual Jan-Mar 2017
Projected Apr-Dec 2017
Total 2017
Projected 2018
Projected 2019
Revenues
142,397.00 470,700.00 613,097.00 658,800.00 690,000.00
Gross Profit Net Income after tax Total Assets Liabilities
97,679.58 321,157.80 418,837.38 439,199.64 448,666.28 7,937.33
31,473.95
39,411.28
63,392.90
67,461.74
171,872.41 215,400.12 216,835.20 292,472.56 361,678.10 13,935.08
25,988.84
27,423.92
39,668.38
41,412.18
Equity
150,000.00 157,937.33 150,000.00 189,411.28 252,804.18
Total Liabilities & Equity
171,872.41 215,400.12 216,835.20 292,472.56 361,678.10
Gross Margin Ratio Net Margin Ratio Sales Growth Debt-toEquity Return on Equity
68.60%
68.23%
68.32%
66.67%
65.02%
5.57%
6.69%
6.43%
9.62%
9.78%
-
-
0%
4.97%
9.94%
0.09
.16
0.18
0.21
.16
0.05
.20
0.26
0.33
0.27
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Break-even Analysis This
is
the
consolidated
three-year
projected
results
of
operations of Sorvetes De Davao Company. Table 33: Break-even Computation SORVETES DE DAVAO COMPANY Crossing Catalunan Pequeño, Davao City CONTRIBUTION MARGIN and BREAK EVEN ANALYSIS
Sales
TOTAL
Ratio
1,961,897.00
100%
Less: Variable Costs
941,854.35
48%
Contribution Margin
1,020,042.65
52%
Less: Fixed Costs
849,776.73
43%
Net Income
170,265.92
9%
a. Break Even in Currency = Fixed Costs/ Contribution Margin Ratio = 849,776.73/52% BEP in Peso
Given
the
= P1,634,186.02
computation,
Sorvetes
must
P1,634,186.02 of soft serve ice cream to break-even.
sell
a
total
of
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Ratio Analysis Ratios used to gauge asset management efficiency and liquidity. For the year 2017. Current Ratio
= Current Assets/Current Liabilities = 113,193.76/27,423.92 = 4.13
The current ratio expresses the extent to which the current liabilities due to be settled within 12 months are covered by its current assets to be realized within 12 months. The current ratio indicates the liquidity of the business. Given the current ratio of 4.13, it means that Sorvetes has 4.13 times more sufficient current assets than current liabilities. Acid Test (Quick) = Current Assets less Inventories/ Liabilities =(113,193.76-8,410.00)/ 27,423.92
Current
= 3.82 Acid test ratio shows the extent of cash and other current assets that are readily convertible into cash in comparison to the short term obligations of an organization. The acid test ratio (quick ratio) measures Sorvetes ability to meet current obligations based on the most liquid assets such as cash and accounts receivable. The quick ratio of 3.82 indicates that the company has 3.32 in liquid assets for each 1.00 current liabilities.
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Inventory Turnover
= Cost of Goods Sold/ Average Inventory = 194,259.62/8,410.00 =23.10
This ratio measures the company’s efficiency in turning its inventory into sales. Its purpose is to measure the liquidity of the inventory. A 23.10 inventory turnover ratio of Sorvetes implies strong sales.
Inventory Turnover In Days
= 365/Inventory Turnover =365/23.10 =16 Days
Management wants to make sure its inventory moves as fast as possible to minimize these costs and to increase cash flows. Remember, the longer the inventory sits on the shelves, the longer the company's cash cannot be used for other operations. Management strives to only buy enough inventory to sell within the next 90 days. If inventory sits longer than that, it can start costing the company extra money.
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Given its computation, Sorvetes is able to convert and sell its inventory for 16 Days. Total Assets Turnover (Capital Turnover) = Net Sales/Total Assets = 613,097.00)/216,835.20 =2.83 This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the company isn't using its assets efficiently and most likely has management or production problems. A ratio of 2.83 means that the net sales of a company equals the average total assets for the year. In other words, Sorvetes is generating 2.83 pesos of sales for every peso invested in assets. Ratios used to gauge a firm’s utilization of debt and company stability. For the Year 2017. Debt-To-Capital
= Total Debt/ Partners’ Capital =27,423.92/ 150,000.00 = 0.18
100
Given this case, the lower the value of debt-to-equity ratio makes it favourable indicating less risk. Higher value of debt-to-equity ratio tells otherwise. A debt-to-capital ratio of 0.18 of Sorvetes means that almost all the assets of the company are financed by partners’ capital rather than debts.
Debt-To-Total-Assets
= Total Debt/Total Assets =27,423.92/ 216,835.20 = 0.13
It shows that Sorvetes’ extent of debt as to its assets is 13%. Ratios used to gauge a firm’s profitability & return to owners. For the Year 2017. Net Profit Margin = Net Profit After Taxes/ Net Sales = 39,411.28/613,097.00 =6.43% This measures the amount of net income earned with each peso of sales generated by comparing the net income and net sales of a company. Net Profit Margin of 6.43% shows that the percentage of sales is left over after all expenses are paid.
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Return on Investment
= Net Profit Margin x Total Asset Turnover = 6.43% x 2.83 = 0.18
OR Return on Investment = Net Profit After Tax/ Total Assets =39,411.28/ 216,835.20 =0.18
This shows that 0.18 of net income was produced by Sorvetes total assets during the period. It shows how efficient the company manages its assets to produce profits during a period.
Return on Equity = Net Profit After Taxes / Partners’ Capital = 39,411.28/150,000 =0.26
This means that every peso of Sorvetes partners’ capital generates 0.26 peso of net income. This is an important measurement for potential investors because they want to see how efficiently a company will use their money to generate net income.
102
Detailed
and
tabular
computations
ratios
for
three
(3)
consecutive years are presented in Annex W. Other Financial Assumptions In making the financial plan of the Sorvetes, there are financial assumptions that have been used: a. Rough estimates are used in some expenses of the reports. b. Partners have been informed on the development of the Business Plan. c. Estimated inventory held is equal to one week raw materials used in production process. d. Contingency funds are not provided due to money constraints. e. Annual sales are 100% attributed to cash sales.
