EEE 457 | Business Plan CEO: Anna Jarzebiak Briana Bartel, Jake Doue, Rong-Mai Jiang, Josh Scarcella
Table of Contents: Executive Summary……………………………………………………………………………
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Company, Concept, and Product…………………………………………………………….
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Industry Analysis ………………………………………………………………………………
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Market Research and Analysis……………………………………………………………….
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Economics………………………………………………………………………………………
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Marketing Plan………………………………………………………………………………….
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Design and Development……………..………………………………………………………
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Operations Plan……………………………………………………………………………..…
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Management Team……………………………………………………………………………
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Overall Schedule……………………………………………………………………………….
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Risks and Assumptions………………………………………………………………………..
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Financial Plan…………………………………………………………………………………..
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Offering…………………………………………………………………………………………
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Appendices……………………………………………………………………………………
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Executive Summary At SAVEory Snacks, our opportunity lies within filling a void in the healthy snack food market. We pledge to create revolutionary snacks that combine two opposites on the health spectrum, nutritious chips with savory tastes. Our vision is to break the cycle of childhood obesity so as to promote healthier adulthood lifestyles. We are providing our customers with the essential natural benefits available straight from the Earth. SAVEory Snacks’ chips provide teenagers with one-third of the daily required nutritional intake of vitamins. Our product differentiates itself from our competitors at inception due to our positive image associated with health; we combine this with great taste and functionality (vitamins and minerals). Target Market • 14-18 year olds in public high schools 5.5% of United States’ total population fits within this demographic • Initial target market in San Diego, CA San Diego high school student population is 71,500 • Piloting program among 15 public high schools in San Diego, CA • San Diego is a first mover school for health initiative programs Schools have eliminated potato chips & other unhealthy snacks SAVEory snacks will be obtaining a patent, trademark and copyright for the product as it is crucial to protect our special recipe. Having the patent will ensure exclusive rights to produce the healthy chips fortified with vitamins and minerals for children and will protect us from having main competitors Frito Lay North America, Kraft and General Mills imitate our product. There are three things necessary for SAVEory Snacks to complete in order to be successful. We will cultivate interest among the teenage market through our grassroots marketing program. Our marketing campaign stresses social media (Twitter, Facebook, YouTube, Eventful.com/ DemandIt). Additionally, our company will seek to generate awareness at trade shows in an effort to gauge the curiosity of public high schools in expanding their product mix. Finally, we will utilize mom blogs and parenting magazines to develop parent awareness, which will be used to leverage the schools into selling our product. High awareness, support, and belief in our products will enable national expansion of our chips to other designated obese cities, and eventually to all cities. The chart below represents the factors our company has considered upon entering the snack food industry:
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Once the chip recipes are created, the next step will be to develop the packaging and distribution channels. We plan to outsource production near the location of the distribution centers and to work with local farmers to supply the inputs. Our unique, local approach to purchasing inputs sets us apart from other chip manufacturers.
Anna Jarzebiak: CEO • Has had many leadership roles • Interned at Kohl’s • Main duties include guidance, supervision, delegation and assessor of overall team performance Briana Bartel: CMO • Interned at Toys“R”Us, Inc. • Duties include developing brand image and working with the media Josh Scarcella: VP of Marketing • Experience in social media and integrated marketing, including work with ABC • Duties include coordinating viral marketing campaigns and working with advertising firms Jake Doue: CFO • Has had experience with financial industry, including internship with Morgan Stanley • Duties include financial analysis and statements Rong-Mai Jiang: VP of Finance & CIO • Interned at JP Morgan Chase and Citigroup • Duties include process improvement and capital planning & investment 4
New Hires Include: COO - Will organize supply chain and serve as the liaison between our company and the manufacturer and will be in charge of the various distribution channels Food Engineer - Will be in charge of recipe creation, ensuring FDA approval and figuring out the best way to fortify the chip SAVEory Snacks will have a gross margin of $0.19 per 1 oz. bag. Our production volume will be 114,400 per month during the first year and will increase steadily as we expand to new schools. During year one, 60% of our costs are variable. As we grow, we’ll be able to purchase manufacturing capital and take advantage of economies of scale. Our revenue will come directly from the wholesalers. With conservative sales predictions, we predict SAVEory Snacks will break even at the beginning of year two. We are seeking $250,000, in exchange for a 30% equity holding in SAVEory Snacks. This investment will be used to fund the following: 1. Develop our unique chip recipe 2. Acquire our patent, FDA Approval 2. Begin our marketing campaign 3. Achieve market penetration of 30% of the public schools in San Diego 4. Purchase our office supplies (computers, desks...etc.) 5. Begin our rent payments 6. Begin production of our chips 7. Begin selling chips After year five, SAVEory Snacks will be interested in being acquired by PepsiCo, Kraft, General Mills, or Diamond Foods.
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The Company, Concept and Product SAVEory Snacks is a limited liability company that was established out of Syracuse, NY in September 2011 with business operations set to begin in March 2012 in San Diego, CA. By choosing to incorporate as a LLC it provides lawsuit protection, credibility, tax savings, deductible employee benefits, and asset protection. As founders of SAVEory Snacks, LLC we want to maintain control of our company and brand, while at the same time taking advantage of tax benefits on assets to protect our profits. The foundation for our company’s product offering extends from the current moving trend towards healthy foods and away from the current obesity epidemic. Our mission is to create revolutionary snacks that combine the two opposites of the health spectrum, nutritious chips and savory tastes. Our vision is to break the cycle of childhood obesity so as to promote healthier adulthood lifestyles. SAVEory Snacks, LLC is creating an initial product offering of nutritious chips. Obesity is prevalent among younger generations, typically between the ages of 14 to 18 years old. Our company will introduce a healthy snack chip alternative in public school systems that will assist our target group in making smarter, healthier diet choices. Our product will eliminate the stigma that healthy foods have a bland taste. Each bag of chips is packed with savory flavors and ingredients that provide a natural boost to children’s developing bodies. Our company is continuing the health movement initiated by public schools nationwide. Within the past few years, schools have installed food regulations and policies to assist each 14 to 18year-old from becoming another childhood obesity statistic by limiting the amount of starchy vegetables, sodium, calorie intake and trans fats and increasing the presence of fruits, vegetables and whole grains (USDA, Hellmich). Senate Bill 19, implemented in California, requires the following: No more than 35% calories from fat No more than 10% from saturated fat No more than 35% weight from sugar (excluding fruits & vegetables) Individual food item can have more than 250 Calories
The Product Our products are made up of natural ingredients, herbs, spices as well as vitamins to support a healthy maturation process. Each bag of chips will have a specific function similar to the way Vitamin Water brands its waters. SAVEory Snacks will have five different chip product themes: Heart (Chili Avocado) Balance (Traditional Sweet Potato) Immunity (BBQ Sweet Potato) Growth (Traditional Pumpkin) Endurance (Honey Apple) 6
Unlike most of Frito Lay’s products, our product does not contain any unnatural ingredients and will enter the marketplace as a healthy brand. SAVEory Snacks is a healthy snack option for children aged 14 to 18-years-old. Public school cafeterias will purchase the product to expand health initiatives currently taking place in the targeted city, San Diego, CA. Frito Lay has struggled to position its products as healthy – our chips will enter the marketplace as a healthy alternative. Obesity is a cycle that has tended to expand across generations. This product has the potential to assist in breaking the cycle and helping children mature into adulthood with healthier lifestyles. The time frame cannot be determined exactly, but the process could take anywhere from a few months to a few years. In order to prevent another company from stealing our product idea, we will patent our recipes immediately. The trade secrets associated with our ingredients will provide a head start as the competition won’t know exactly how much of each ingredient is in the product. Entry & Growth Strategy SAVEory Snacks plans to enter the market in the public school systems in San Diego, CA, specifically in the high schools’ cafeterias. According to “America’s Most Obese Cities,” an article on Forbes.com, “it’s clear that rising rates of childhood obesity -- 17% of children and adolescents ages 12-19 years old are overweight -- has prompted cities like Birmingham, San Diego and Richmond to become proactive in terms of obesity prevention.” These schools, and the City of San Diego, plan to improve the health of young people. We plan to enter this market by marketing and selling our products exclusively to the 55 public high schools in San Diego. Because these schools are actively trying to improve their health standards for their children, we will pitch the value and health improvements of our products and sell directly to them. After our initial entry into the market in San Diego (year one), we plan to continue selling our products directly to these schools, while moving to expand in the city of San Diego to the schools we have yet to reach. We will additionally sell to the surrounding San Diego County to its school systems, in year two. Following this minor geographic expansion in year two, we will begin to reach out to the top 20 most obese cities, and their public high schools throughout the country, in year three [1]. These cities are spread out throughout the country, but we do not believe this will pose a significant risk. We believe this because, although all of these cities have not taken significant steps to improve the health options in their high schools, there is resistance to be the first school to take the health food initiative. If these schools see a profitable and successful execution occurring in San Diego, we believe that rapid growth nationwide is very possible, and highly probable. [1] Top 20 most obese cities we plan to move into: Memphis, TN (34%), Birmingham, AL (31.2%), San Antonio (31.1%), Riverside/Bernardino, CA (30.8%), Detroit, MI (30.4%), Jacksonville, FL (29.8%), Nashville, TN (28.8%), Oklahoma City, OK (27.5%), Kansas City, MO (26.9%), San Diego, CA (26.7%), Cincinnati, OH (26.3%),
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Indianapolis, IN (26%), Baltimore, MD (25.8%), New Orleans, LA (25.8%), Virginia Beach, VA (25.8%), Atlanta, GA (25.6%), Milwaukee, WI (25.4%), Richmond, VA (25.4%), Austin, TX (24.9%), Las Vegas, NV (24.9%).
Timeline of Expansion Year 5: Year 3:
New Orleans, LA
Year 1:
Richmond, VA
Jacksonville, FL
San Diego
Orange County, CA
San Bardardino County, CA
Year 2:
Year 4:
San Diego County
Memphis, TN Nashville, TN Riverside County, CA
We plan to expand significantly, after the 5th year, into the remaining cities of the top 20 most obese cities and beyond, to the major cities throughout the country. Our expansion will be greater than merely expanding into schools. We plan to expand our distribution channels beyond just selling to schools, to selling our product in warehouse wholesalers, grocery stores, and health food stores. This movement will occur later in our products life cycle, when it is an established product in schools. In addition, we also plan to expand our product mix into crackers and other snack items.
The Industry Analysis Proposed Business Operations in the Industry Our product will be competing in the Other Snack Food Manufacturing Industry NAICS 311919 (census.gov). The competitors for our product include Frito Lay, Nabisco, Kraft Foods Inc. and Diamond Foods. According to the government census website, the sales prediction for 2011 for the snack food industry is $28,390,000 with 83.4% coming from grocery wholesalers. The industry is constructed by different types of snacks, those including: potato chips, cheese puffs and curls, corn chips, popcorn, pork rinds, potato sticks, pretzels and tortilla chips. Industry Size & Annual Growth Rate The industry is currently in the mature part of the life cycle but is continuing to grow at a rate of 4.2% each year. Although the industry is in the mature stage, the revenue for the market is $28.4 billion with $5.9 billion in profits. The potato chip segment has the largest among all the segments, with a 26.9% market share. Due to our emergence into a mature market, we must emphasize our health as a point of differentiation. Present Industry Structure The snack food industry is a fragmented industry. The key player in this industry is Frito Lay North America with 48.4% of market share. Kraft Foods Inc., General Mills Inc., and other various companies have 4-6% of market share each. Our advantage is branding our product exclusively as a healthy chip to support children bodily functions. Key Trends for the Snack Industry The biggest cost drivers in our industry are agricultural ingredients. Unfortunately for our industry, costs of these natural ingredients increased by over 100% between 2006 and 2008. 8
Although the prices of these natural ingredients have steadied a bit, they are still expected to rise slowly throughout 2011. Luckily, these prices are predicted to stay stable throughout the next five years. While supplier prices are rising, selling prices for our industry are decreasing. Due to the recession, there is a high elasticity of demand for cheaper substitutes. There are numerous industry changes that will occur during the next several years. The companies competing in our industry will continue to introduce more health conscious snack choices as they have been doing for the past five years. For example, 50% of Frito Lay’s ingredients will be all natural. Key Success Factors for Industry & Conclusions The winners are able to dominate the market mainly through their extensive and constant marketing strategy. Losers in the industry lack marketing efforts as well as the inability to differentiate their products. Unlike Frito Lay, we are advertising our healthy snacks through a digital marketing campaign specific to each region.
Market Research &Analysis Definition of Relevant Market & Customer Overview, Market Size & Trends Our relevant market directly consists of schools, beginning with public high schools in San Diego. Indirectly, our relevant market includes parents and children as the key influencers of the schools. For schools, we are targeting San Diego, because this city is deemed as a first mover for health initiatives in the schools. In addition, California requires all schools to follow the nutrition standards classified in the California Education Code. For the parent’s market, we are targeting those parents concerned with their children’s health. More specifically we are targeting parents who tend to buy organic foods for their household. These parents live in the San Diego, have a median household of $60,000 and are aged 30 to 50years-old and have children within the targeted range of 14 to 18-years-old. With the children’s market, we are focusing on children aged 14 to 18-years-old who buy lunches in the school cafeteria. The teen market is growing rapidly and tends to have a large influence in the grocery store. Additionally, chips rank the highest among the favorite snacks of this group. There are over 510,000 households in San Diego that we will be targeting and 55 public high schools in the city area. “By 2020, the Census Bureau projects, there will be over 34 million teenagers in the good United States” (Marigny Research Group, Inc. p. 73). By using the 34 million predictions of teens in the country divided by the total population (312,493,971 people) and then multiplying that number (.1088) by the number of people in San
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Diego (1,307,402), we found the predicted amount to be 142,248 teens living in the San Diego area. Buyer Demographic/Behavior Initially, our buyers will be adolescents (14 to 18) in high school. They will be buying the products in cafeterias across the country during lunch, or during any other time of the day which cafeterias are open. The buying process will begin with a sampling method. Once this occurs, the process will be as follows: 1. Contact schools, determine willingness to try samples 2. Use distributor to supply samples 3. Trial period of samples 4. Student approval 5. Purchase larger quantities of chips The switching cost will not be high but brand loyalty may pose a problem. Through interviews with school cafeteria directors, we found that health initiatives have really limited their food selection. Therefore, health and quality of the product play a major factor in the purchasing decisions for schools. Market Segmentation and Targeting Our target market can be broken down into several different demographics within adolescents. First, we can break it down by socioeconomic classes. Within the United States, adolescents who find themselves in a low socioeconomic class are more likely to be unhealthy due to a number of factors (poor nutrition, lower levels of recreational activity)(Gearhart).
California is also fairly diverse as seen above. Some ethnic groups are more likely to practice unhealthy habits compared to others. We would also be able to segment our market into male adolescents and female adolescents. However, we’ve decided to simply focus on geographic regions as opposed to different demographics. 10
Competition and Competitive Edges Our competitors have well-established brands appearing in the news, magazines and online promotions such as Time Magazine and The New York Times. Kraft is in the snack food industry providing its customers with different types of cookies, crackers cheese while General Mills is providing cereal, cookies and some chips. Our main competition is Frito Lay because it predominantly sells various types of potato chips. The snack food companies are successful especially Frito Lay because “Children’s favorite snacks are Chips (76%), cookies (75%), and popcorn (73%)” (Barbour p.129). SAVEory Snacks will be introduced into public schools as a part of a child’s diet helping them fight obesity. Schools will become our main customers providing us a steady outlet for our product. Selling exclusively to schools allows our products to reach our target market of children between the ages of 14 to 18. Estimating Market Share and Sales In total, the revenue for the snack industry is $28.4 billion. Of this, 29% of this revenue comes from chips, for total chip revenue of $7.7 billion. Snack revenue is expected to grow at the following rates in 2012, 2013, 2014 respectively: 3.1%, 2.5%, and 2.6%. This becomes expected revenue of $7.94 billion, $8.14 billion, and $8.35 billion, in 2012-2014 respectively. The total population in the US in 2011 is 309 million people. Of this, 17 million of them are public high school students; this is 5.5% of the total population. Our total available market is 5.5% of the total population, and we initially are targeting San Diego, which has a population of 1.3 million people, or .4% of the total population. The number of high school students, based on the total percentage of high school students in the country, is 71,500 people. These 71,500 students are spread over 55 public schools in San Diego. We expect to sell to 30% of these 55 schools in year 1and already have one school commitment to date. We assume that, on average, these 71, 500 students are spread evenly between the 55 schools, so we expect to have a target market of 5,250 students in year 1. We are assuming that 50% of the students will buy one 1 oz. bag of our chips every day. Students attend school 180 days per year, which are the total sales during the academic year of $ 572,000. Ongoing Market Evaluation According to Ibis World, the snack food industry becoming healthier. With this increase with health prices tend to rise. Regarding to pricing, our company will rely heavily on the relationships we build with our suppliers in receiving great quality ingredients at an affordable price that can then be passed onto our customers. Currently, other snack food companies are working on lowering fat and cholesterol contents, as well as using all natural ingredients in each of its bagged snacks. With more and more companies taking on the health food initiative in its products, expected revenue growth is predicted to increase 3.1% in 2012. A five-year projection, by 2016, forecasts an average 2.1% increase in revenues per year and reach up to $31.5 billion.
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In order for SAVEory Snacks to maintain a competitive edge and a substantial competitive market share we must have the ability to adapt quickly to change and customer demands, continually differentiate our product from competitors, create strong relationships with our suppliers so as to effectively compete on price, as well as developing economies of scale to produce higher profit margins over the next few years.
THE ECONOMICS OF THE BUSINESS Revenue Sources and Gross and Operating Margins The major revenue drivers for SAVEory Snacks will be our five main products. Some flavors will be more popular than others, but it is too early to tell at this point, which flavor will find the most success. Each bag will cost the same amount of money to produce (41 cents). Therefore, reallocating money towards a more popular chip will not disrupt the financial plan. We will charge wholesalers 60 cents per bag. That being said, we will make ten cents per bag. That is a contribution margin of 31% for every different type of chip.
Fixed and Variable Costs SAVEory Snacks fixed cost: Fixed Costs Year 1 210,000 Salaries 2600 Depreciation 1008 Utilities 732 Internet/Phone Advertising Expense 48000 9360 Rent 25000 Legal 2990 USDA/FDA Shipping/Distribution 1800 20000 Insurance 12 Website 321502 Total Fix Cost
Year 2 210,000 2600 1008 732 62769 9360 15000 0 3600 20000 12 325081.231
Year 3 210,000 2600 1008 732 46322 9360 15000 0 5400 20000 12 310433.678
Year 4 210,000 2600 1008 732 158434 9360 15000 0 9000 20000 12 426145.566
Year 5 210,000 2600 1008 732 101371 9360 15000 0 12600 20000 12 372682.6
Variable Cost: Variable Costs: COS Total
0.41 0.41
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Operating Leverage and Implications Our costs are mainly variable costs. Since we are outsourcing our production to local chip production plants, we incur less fixed costs than we would have if we produced independently. Our risk will be reduced by outsourcing. Our fixed costs will be a lesser percentage of total cost each year, due to the fact that we will be producing a larger volume of chips as our company grows older. We will begin with a low operating leverage, which will fall over time, reducing the risk of our company and increasing investor value. We project our variable costs to remain steady over time. Start-up Costs Start-up Costs: Office Furniture Technology Equipment Patent Legal USDA/FDA Website
10,000 8,000 800 25000 2990 12
Breakeven Chart and Calculation Our profits will come exclusively from selling our 5 varieties of chips to wholesalers who will then sell the chips directly to the schools. Our variable costs per chips is consistent across chip variety—each bag of chips costs $0.41 to make, and will be sold to the wholesaler for $0.60. In every school we sell chips in, we expect to sell 1 bag of chips for every 2 students in each school each week. We expect that specific types of chips will become more popular than another flavor, but due to consistent cost structures, our revenue will not be affected. We have margins of 31% and due to our low operating leverage, which will consistently fall over time; we are an attractive business for investors. Our revenues are highly flexible, and we will have substantial barriers to entry due to health regulations in schools, that not all snacks will meet. Our margins will increase over time, as eventually, we will purchase and independently produce our chips, which will enable us to take advantage of economies of scale. Our business is viable and profitable, as students will become consistent and repeat customers in schools. Economic Model Our unit of analysis that helped us figure out what our breakeven period would be was bags of chips sold. We figured out that we would have to sell 1,692,116 to break even. Year 1 # of chips to produce March - Aug # of chips to produce Sept - Feb Total # of chips sold
Year 2 286,000 286,000
Year 3 286,000 638,000 924,000
660,000 2,010,800 2,670,800
Year 4 year 5 634,700 1,025,000 4,082,400 6,437,000 4,717,100 7,462,000
Therefore, we will break even during the 2nd Quarter of our third year. This would happen less than two years after we begin selling our chips (two school years). 13
Breakeven = Total Fix Cost/ Contribution Margin Breakeven = 321,502/ (0.60-.41) Breakeven = 1,692,116 bags of chips Profit Potential and Durability Our profit stream should be quite durable, because as long as schools are in session, there will be a need for snack foods. It could potentially be weak during the first several months if we do not have the predicted number of schools on board with our company. Also, during the summer months we will have to figure out where to distribute our chips. We are looking into camps, summer schools, and other summer activities that involve teenagers. Barriers of entry will be moderately difficult to hurtle. Competitors will have to meet statewide health regulations to compete against us. They will also have to deal with any sort of brand loyalty that exists for our product.
The Marketing Plan Overall Marketing Strategy Our marketing philosophy will stress the healthiness of our product as well as its association with general activity and health. The marketing strategy will consist of three target markets: adolescents, parents and schools. In order to reach adolescents, we will use social media including Facebook, Twitter and YouTube. For parents we will advertise in parenting magazines in addition to using mom blogs as influencers for this market. The schools will be targeted through trade shows, sampling and pamphlets distributed to the various high school cafeterias. Pricing Price: $0.60 Gross Margin: ($0.60-0.41) = $0.19 Gross Margin Percentage = 31% The Selling Cycle SAVEory Snacks would employ a complex selling cycle for penetrating our target market, of selling directly to public high schools, beginning in San Diego. Primarily, we want to understand, and engage in dialogue with the 55 public schools in the San Diego area (as we move on from San Diego, we would take the same approach with the new school districts). In order to gain interest among the schools, we will send free cases of samples to the various locations. Schools will be able to try out the products free-of-charge to see if the chips would sell in the high school cafeterias. From there, we hope to have a large amount of schools on board, which will serve as influence for A&R Wholesalers. Once A&R has knowledge of the schools on board, there will be a bidding process among the schools to determine the price of the chips sold at schools. This final pricing will be out of our control and will not have an effect on our bottom line.
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Advertising and Sales Promotion When marketing our products towards adolescents, we will focus on an online campaign via Facebook, Twitter, YouTube, and vimeo, and eventful.com/demand. We will hope to shoot a series of webisodes that includes the chips, not as a plot driver, but as merely a prop. The series will be shot and produced by talented San Diego teens. We will provide them with a budget and provide them with a film coach. We hope to do this with teens in each of our regional markets. At the end of each video, we will provide a link that directs the viewer to eventful.com/demand where the students can demand that their school include the chips in their meal. Demand It! is usually used for smaller movies in different cities, but the same tactic can will beand should be used for food items in schools. We will also have Facebook fan pages for both the series and the product. A Facebook ad campaign targeted at San Diego teens will cost 36 cents per click. If we spend $150 a day for 120 days, we will be able to get 50,000 clicks. This would cost $18,000. A twitter account will also be established. Wendy’s recently launched a mysterious Twitter campaign called the Girl Behind Six. The Twitter account would award six prizes for different tweets. At the end of the campaign, Wendy’s announced it was the company behind the account and it was used to create hype for the new Wendy’s “W” sandwich, which filled the 6th spot on the menu. We will tweet out twitter games that include hash tags to things specifically appealing to teenagers. We hope to build up brand loyalty before the product is even introduced to the teens. We will use the same model but will instead use the campaign via Facebook, as this is a more popular social media outlet among our target market. When marketing our product towards parents, we really want to tackle parenthood magazines as well as mom blogs. We will seek advertisements in magazines such as Family Circle, Parent & Child, and Hybrid Mom. A representative at Family Circle says that a half page ad would approximately cost $105,920. The ads will stress that our product will be released to schools first. Parents will be encouraged to contact their children’s schools, asking them to incorporate SAVEory Snacks into their menu. The ads would most likely be released once we plan on advertising nationally. We also want to get mom blogs to endorse our product. This is a cheap way to advertise which will hopefully lead to word of mouth advertising. When marketing our product towards schools, we will send them pamphlets with all the ingredients and health information they find necessary. We will also try to get our name into the various trade magazines read by school dining/ cafeteria directors. Samples will also be sent to schools. We will send out approximately 5000 1 oz. bags throughout the San Diego area would cost the company about $2500 including distribution labor. We will also provide samples of our product at school philanthropy events such as Relay for Life. Sponsoring a Relay for Life events costs $5,000 for Platinum sponsors. This payment gets: our brand name on the t-shirts; our name announced 3 times on the PA system; and signage. Spending $25,000 on sponsoring 5 Relays will help us gain some publicity with the different schools throughout the San Diego community. SNAXPO, a snack food trade show, will also be attended in order to build awareness among the school market. When marketing our product towards parents, we really want to tackle parenthood magazines as well as mom blogs. We will seek advertisements in magazines such as Family Circle, Parent & Child, and Hybrid Mom. A representative at Family Circle says that a half page ad would approximately cost $105,920. The ads will stress that our product will be released to schools 15
first. Parents will be encouraged to contact their children’s schools, asking them to incorporate SAVEory Snacks into their menu. The ads would most likely be released once we plan on advertising nationally. We also want to get mom blogs to endorse our product. This is a cheap way to advertise which will hopefully lead to word of mouth advertising. We will send out approximately 5000 1 oz. bags throughout the San Diego area would cost the company about $2500 including distribution labor. We will also provide samples of our product at school philanthropy events such as Relay for Life. Sponsoring a Relay for Life events costs $5,000 for Platinum sponsors. This payment gets: our brand name on the t-shirts; our name announced 3 times on the PA system; and signage. Spending $25,000 on sponsoring 5 Relays will help us gain some publicity with the different schools throughout the San Diego community. SNAXPO, a snack food trade show, will also be attended in order to build awareness among the school market. Publicity One way publicity will be achieved is through Twitter. With retweets and hash tags, we hope to gain some followers and get people familiar with our product. Our unorthodox marketing campaign via eventful.com/demandit will gain some traction in the news. Advertising our product before it’s released in schools will get people talking about it word of mouth. Customer Service SAVEory Snacks wants to have constant contact with its purchasers. Therefore, each bag will have a phone number, email address, mailing address and a website on which our company’s members can be reached to resolve any issues as well as being very accepting and open to customer suggestions. We truly believe that our product is successful at the hands and every bite of our customers. SAVEory Snacks puts a big emphasis on honing in on what is desired and needed by our consumer to better fulfill their demands. By opening up several channels of communication for our customers they have the opportunity for their voices to be heard, both positive and negative. Guarantee Policies As stated earlier, our healthy chip alternative is specifically made for the benefit of consumers in aiding them to lead healthier lifestyles. We strictly pride our company on offering our customers credible information regarding our product in an effort to avoid making exaggerated claims made by many other snack food companies that aren’t FDA approved. We plan to have our product USDA Organic certified, FDA approved, as well as being certified healthy by the U.S Department of Health and Centers for Disease Control and Prevention. By assuring our customers they are purchasing an authentic healthy food product we are guaranteeing them our and major organizations’ full confidence in our product. By reassuring our consumers that they’re snacking on the market’s healthiest chip we are creating a strong relationship and a foundation for customer loyalty. Currently, our competitors have no prominent organization partnerships labeled on their chip packages. Competitors have made claims that their products are all natural for marketing purposes but fail to adhere to their claims. 16
Distribution After finding a large distributor of snack food to schools, A & R Wholesale Distributors Inc., we are interested in exploring the option of selling through the wholesaler. We want to consumers to understand the nutritional value of our chips therefore we plan to exclusively direct distribute our product to public schools. A & R Wholesale Distributor is a major distributor of snack food for schools in the San Diego area. As we expand, we will find other distributors to our target schools.
Design & Development Plan Development Status and Tasks: The start of our development process will be the kitchen. Here, we will combine ingredients and make variations to ensure our chips taste better than other healthy chips. Once our chips are created, they will be sampled by a focus group of students and parents. After receiving feedback from the focus group, we will hire food scientists and nutritionist to create our chips given the input from the focus group and our newfound knowledge of the development process. During the weeks the food scientists create the chips, at the end of each week, a new focus group will be conducted. Once the final focus group is conducted and the results are satisfactory to the team, we will move the snack into manufacturing. If the focus group results are unsatisfactory, we will continue the week of development/ focus group schedule until the results are satisfactory. Once the chips and packaging are developed, we will be sending product samples to San Diego High Schools to test the chips. Moreover, the high school students sending in the designs for the packaging will also have a large impact on the product development. Development Plan 1. Write Business Plan 2. Reach out to San Diego Schools 3. Reach out to Potential Angel Investors 4. Create Distribution Channels 5. Create Chips 6. Create Packaging 7. Send Chips to Schools 8. Get Schools on Board 9. Series A VC Funding 10. Implement Marketing Strategy 11. Establish Distribution Channels 12. Send out Chips to Schools Difficulties and Risks SAVEory Snacks anticipates two potential problems and difficulties. The first major problem that we anticipate is trouble keeping our products fresh. We are a company that pledges to be allnatural—we do not want to use preservatives. Our company may run into problems keeping our 17
products fresh, which would require that we purchase all of our products locally. We believe that this could be an attractive selling point, but this could impact our margins and force our prices up. The best way for us to counteract these potential problems is to enter into purchasing agreements with local farmers and food producers to buy in bulk. We don’t believe this problem would affect time to market. There is still the risk that our chips will not catch on with our target market. However, SAVEory Snacks believes that our chips will be successful. Product Improvement & New Products SAVEory Snacks firmly believes in offering our consumers the highest quality of natural ingredients in every bag. To accomplish this, we plan to outsource to local production plants in which local farmers will provide our ingredients. This ensures fresh, non-preservative made chips. In order to remain competitive, our company will constantly assess new market trends as well as monitor our competitors’ actions. Upon our successful healthy chip movement in San Diego, CA we will continue to increase our flavor assortment to include salsa, cheese, barbeque and sour cream and onion, as well as expand to include chips with omega-3, iron, and B12. Eventually, in time, as SAVEory Snacks gains more awareness and notoriety in the snack industry we plan on expanding our product line to include healthy crackers that will be directed towards high school students. Costs A food scientist’s salary would be $1,444/ week. A nutritionist’s salary would be about $1,000/ week. A team of three food scientists and one nutritionist working for three weeks would cost SAVEory about $16,000 (Glassdoor). The three focus groups that would occur at the end of each week would cost about $15,000 (Leber). The cost for renting out a shared-use test kitchen for fifteen days would cost $2040 (“Kitchen Chicago”). Another $5,000 will be spent on ingredients. We will have an emergency budget of $150,000 set aside in case development. Of the $150,000 we will be setting aside $40,000 for development. Proprietary Issues: Marketing our product is important to our company’s success. We will obtain patent, trademark, and copyright for our product. The patent protects our recipe, which contains our trade secret. Having the patent for our recipe will give us exclusive rights in producing the healthy chips. Trade secrets do not have a regulatory process however our rights to keep trade secret private are upheld by the court of law. To protect our trade secrets we will require all employees, contractors, and others who come into contact with your firm to sign an agreement stating they will keep information private and confidential. Trademark and copyright will be obtained to protect our company’s name, slogan and images used for our product. The packaging of our product will be trademark and copyright protected to prevent competition from duplicating our image to that may confuse our consumers. (Muske, Holcomb and Holcombe)
Operations Plan 18
Operations Cycle and Planning The operating cycle for our product begins with the planting of ingredients. The ingredients are shipped to the manufacturing plants located in various cities in the United States (near each location where the chips will be sold). When the ingredients arrive the facilities, they are stored in cool, dry areas until they go through the baking process. Once selected, the chips are baked with flavoring ingredients, the ingredients are stored on rolls and brought to the assembly line as necessary. Bottlenecks in our service delivery may occur when there is a bad harvest of ingredients. To prevent this, we will be sure to have connections abroad as a last resort in getting the chips to the various schools. In the manufacturing process, brown, over baked chips will most likely be the bottlenecks. To prevent this, we will have a “brown chip” detector which will remove any fault chips from the production line. Once the ingredients are harvested, there is a five to seven day grace period until the ingredients spoils. To ensure freshness, we will have a push system that will distribute the ingredients as soon as we receive them. The time it takes to produce the products, reach the distributors and ship to the wholesalers will be on average, seven days. The quality consistency issues that may exist will be the freshness of the chips and the amount of chips in each bag. To ensure freshness, we have strategically positioned our suppliers near the places the chips will be sold. We plan to outsource our production process. However, we will be responsible for purchasing all ingredients for the production facilities. Our main relationships will include the schools, the farmers and A&R Wholesaling.
7 Days
Finished Products Sent Outsource Production to to Wholesaler AJ Snacks
Farms Send Grown Raw Materials to Factory
The quality control practices we will use are GMP (good manufacturing practice), SSOPs (sanitary standard operation procedures) and HAACP (hazard analysis critical control points). We will win the marketplace with our quality, wholesome, all natural, healthy chips.
Geographic Location: 19
We plan our business to begin in San Diego, and follow the Trader Joe’s template for food production and processes. SAVEory Snacks will set up regional production centers to purchase and produce all our chips locally. In San Diego, we will purchase all of our necessary inputs (sweet potatoes, carrots, vitamins, minerals…etc.) in the San Diego region. The products will be produced in the San Diego region as well. This will dramatically reduce our shipping expenses, as our products will not be sent all over the country. Our customers, the schools, and the end users, the students, are universally going to be close to our production plans. We also plan to use this as a marketing point, as we believe that many consumers will welcome wholly regionally produced products. Facilities, Equipment and Improvements
The Snack Food Industry requires a high level of capital intensity; technology and equipment incur very high costs. Our top competitors have funded their operations costs of $500 million to $1 billion. As a result, it is in our best economic interest to outsource all production to a local production plant in San Diego. We will follow this template during expansion. This production outsourcing includes all labor, technology and production facilities, as well as machinery updates. Due to our nature as a start-up, we do not pose a significant threat to the capacity constraints of the production facilities we are outsourcing to. The cost to produce and package each bag of chips is $0.16. The following are the factory outsourced steps for producing our chips: 1. Sweet potatoes skinned 5-7 days after being picked to determine freshness 2. Rinsing of sweet potatoes to remove dirt/bacteria 3. Slicing of sweet potatoes 4. Seasoning and vitamin fortification of sweet potatoes 5. Seasoned potatoes moved to drying platform 6. Baking of chips 7. Packaging of cooked chips Upon receiving investment, we plan on beginning operations in March 2012. This investment will provide us the necessary funding for our office space (rent) as well as our office supplies. These expenses will be our only capital expenditures.
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Capacity Levels and Inventory Management There are four main inventories SAVEory has to concern itself with during production. First, we must concentrate on raw material inventory. Raw materials include sweet potatoes, salt, pepper, avocados, vitamins, vegetable oil, sunflower seeds, and other natural ingredients. Raw materials inventory turnover should occur every 3 days, leading to approximately 60 turnovers per year. Initially, we will be targeting fifty-five schools in the San Diego area with 396 bags per day, 1,980 per week. Raw materials and production costs, per week will be $811.80. Due to our outsourcing procedures, SAVEory Snacks will not hold any inventory. All chips will be sent directly to the high schools. Our production cycle will occur once per week, with 120% of total weekly demand for chips produced in each cycle. We estimate a lag time of one day from when the order is received. This production cycle will cost $974.16. We will pay about $500 per day to transport our chips to the distributors. We will use two drivers. Total maintenance, repair and operations costs include cleaning materials, computers, office supplies, factory upkeep materials, and other industrial equipment. Information regarding MRO inventory has yet to be found. A rough estimate would be weekly turnover for cleaning supplies costing SAVEory $250 a week. This would simply be cleaning for the kitchen we are leasing at first. Things get trickier as we move into bigger facilities. Legal Issues Affecting Operations: Legal Issues that may affect our operation are contractual bonds between our company and snack food distribution centers for schools. We plan on selling our product exclusively to schools targeting adolescents before selling and expanding to the general public. Therefore, our distribution channel, A&R Wholesale Distributors Inc., will be contractually obligated to sell our chips exclusively to schools. We want our consumers to understand the nutritional value of our chips and to avoid disputes against our product; we will have our product USDA Organic certified, FDA approved, as well as being certified healthy by the U.S Department of Health and Centers for Disease Control and Prevention.
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Management Team Organizational Structure: Below is the organizational structure for SAVEory Snacks.
Key Management Personnel: SAVEory Snacks’ management team will consist of five founders as well as two additional additions to our executive team within the next few months. 1. Anna Jarzebiak- CEO of SAVEory Snacks, LLC., Ms. Jarzebiak has had many leadership positions within her sorority Alpha Phi, such as serving on the Executive Board as Vice President of Member Recruitment, Director of Member Development, as well as Director of Risk Management. Additionally, she has made a great deal of contributions to a student run business organization, S.I.F.E (Students In Free Enterprise). Also, Ms. Jarzebiak has interned for Kohl’s in the Summer of 2011 in product development. Her acquired skills through her experience have given her the ability to balance time, work effectively in a team, as well as excelling in her field of work. Key Duties: Ms. Jarzebiak will provide guidance, supervise company operations, and delegate responsibilities in executing SAVEory Snacks’ mission, vision and strategies. She will also assess company performance, work with her fellow upper management team to create a cohesive company culture. 2. Briana Bartel- Ms. Bartel will serve as the Chief Marketing Officer and Director of Public Relations for SAVEory Snacks. In addition to her public relations and marketing majors, Ms. Bartel brings expertise from working for the consumer public relations department at the Toys“R”Us, Inc. headquarters, being account supervisor for the on campus public relations firm, Hill Communications and working in the marketing department at Envision Radio Networks. Her experience includes Consumer Public Relations and Marketing, Advertising as well as Integrated Communications and Digital Media. Key Duties: Overseeing the public relations and marketing department. Developing press releases and campaign creation to distribute to the various 22
target markets. Building image of the brand and gaining positive impressions throughout the different media platforms. Study and understand the key publicity associated with SAVEory snacks and capture market share through publicizing in different mediums including print and social media. 3
Josh Scarcella- Mr. Scarcella will serve as the Vice President of Marketing for SAVEory Snacks. His experience includes internships with the following departments: Social Media at Crossborders, Integrated Marketing and Promotions at ABC, and Integrated Marketing at “The Doctors”. Key Duties: Coordinate Viral Marketing Campaigns on Facebook, Twitter, eventful.com; Work closely with advertising firms for traditional advertising campaigns; Work with Product Development Teams when Developing New Snacks; Analyze and accentuate key value propositions.
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Rong-Mai Jiang- Ms. Jiang is dual major in CPA Accounting and Information Management & Technology. She brings expertise from her internships at JP Morgan Chase, Atlantic Philanthropies, and Citigroup. She will serve as Chief Information Officer and Vice President of Finance for SAVEory Snacks. Key Duties: Responsible for process improvement, capital planning & investment, technology assessment as well as financial reporting for SAVEory Snacks.
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Jake Doue- Mr. Doue will serve as the Chief Financial Officer for SAVEory Snacks, LLC. Jake has experience working in the financial industry, after interning at Morgan Stanley Smith Barney for an institutional consulting team. He also served as a key member in the development of a new adventure camp in Massachusetts, helping to brainstorm, market and run various aspects of the camp as it achieved profitability. Jake also has experience networking and connecting with various Venture Capital and Private Equity firms, across many investment specializations. Key duties: Responsible for financial analysis and statements at SAVEory Snacks, as well as managing financial risks. Other responsibilities include contacting potential investors and expense management and forecasting.
The current management team has worked together for over two months and has successfully created a cohesive plan that will assist in gaining funds from outside investors. SAVEory Snacks will be hiring a COO and Food Engineer in order to further expand the management team and expertise. The Food Engineer will be joining the team once the company starts developing the product in one month. The job of the Food Engineer will be to create the recipe and further create new flavors in the future while adhering to the dietary regulations. The COO will come on board once the product is completely created and the plan is thought out -this will most likely be in January 2012. The job of the COO will be to coordinate inventory, make sure the supply chain is running efficiently and control the manufacturing process. The COO will also make sure the ingredients from the suppliers meet the requirements and are being shipped in a timely manner.
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Management Compensation and Ownership: Each founder of SAVEory Snacks will initially earn $30,000 per year. The initial equity is 20% for each of the core management team. The COO and Food Engineer will be paid a salary of $45,000 per year for their expertise. When we seek venture capitalist funding, we will each dilute an equal share of our 20% to bring in the funding. In the future, we foresee SAVEory Snacks being bought out by Pepsi Co, Kraft, General Mills or Diamond Foods. Other Current Investors: Currently, we do not have any other investors besides the $20,000 we have pledged to contribute to the growth of the company. We are seeking capital funding from venture capitalists and investors to fund the following: Administrative costs during six months of zero operating revenues Legal expenses (trade secrets, legal fees) FDA approval Rent, office supplies Marketing campaign Developing relationships with farmers and distributors (travel expenses) Begin production operation We are also considering seeking loans from friends and family in return for investment returns but no equity stake. Employment and Other Agreements, Stock Options and Bonus Plans: We will create agreements with distributors with school districts. A&R Wholesalers will be the main distributor for the San Diego area. Additionally, we will be creating agreements with local farmers to supply our product. The initial sales team will include our core management team but will be expanded once our company grows. The core management team will hold 60% of our company (12% each), and the future investors will own 40%. Any ensuing investment will create dilution of the shares equally among the management team and VC investors’ proportional to their investment holdings. *We would consider guaranteeing venture capital equity stakes provided they accept a lower equity stake in the company.
Board of Directors or Board of Advisors: Our board will consist of individuals with various backgrounds that will help guide SAVEory Snacks to success. Our board will help us achieve success in the following three areas: quality taste and health; local distribution; and national expansion. Each board member will be compensated with a 1% equity stake -- this will increase as the company grows.
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Board: Management and Fundraising Advisor: Andy Silverman: Mr. Silverman has worked in Private Equity finance for over 10 years, most recently at Capital Resource Partners in Boston, MA. His roles include managing the funds investments, and working with these portfolio companies, as well as evaluating new investment opportunities. Andy Silverman will serve on our board to help SAVEory Snacks successfully run and manage our company. He will also advise SAVEory Snacks in pitching to Venture Capitalists, and acquiring the necessary funding. Financial Advisor: Benjamin Krall will serve as an advisor on our board and guide our company to exceptional financial standing with his expertise in investment and finance. He is a Syracuse Alumni that has also completed schooling at Nichols College. He is currently attending New England School of Law where he is studying in the area of legal services. Wholesaling Advisor: We are currently seeking a board member with an expertise in wholesaling and distribution. This board member’s knowledge and connections will help our company grow nationally. Operations Advisor: We are seeking a board member who can coordinate our supply chain and create an efficient schedule for our product cycle. Legal Advisor: Alfred Warburton is a finance and law professor at Syracuse University. He will assist in obtaining patents, establishing our LLC any legal issue that may arise. Product Development Advisor (Nutritionist): Katelyn Cowen, a Health and Wellness Promotions Specialist at Syracuse University, will be advising in regards to our healthy chips’ contents and making sure that our company adheres to the school’s nutritional dietary program. Supporting Professional Advisors and Services: The marketing and advertising will be in house, as two members on our core management team have expertise in this area. Accounting will also be done in house and the banking advisor will be sought out when loans are deemed necessary.
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Overall Schedule Date
Plan of Action
March-April 2012
Have patents filed, SAVEory Snacks incorporated, prototypes created, advertising planned and funds obtained
May-June 2012
Have factory space rented in San Diego, CA, initiate online social media outreach beginning with YouTube webisodes and then expanding into Facebook and Twitter, attend trade shows
July 2012
Place orders for chips based on number of schools and students at each school
August 2012
Complete orders, send out to wholesalers in San Diego area
September 2012
Hire more staff (sales team) based on need from sales orders
October 2012
Complete contracts with high schools for a trial period until they are completely satisfied with chip sales
November 2012
Send orders to schools, keep track of numbers and expand market research
December 2012
Expand to other schools in California based on success in San Diego market
January 2013
Research and expand into new distribution centers near new markets, expand to other first mover schools, expand advertising to print and continue social media efforts
January 2014 – January 2015
Research and expand into grocery stores, expand advertising into television
A challenge SAVEory Snacks may experience is the expansion to other regions nationwide. Just like San Diego, we will be outsourcing. Therefore, it’s important to find compatible factories that will work well with our company. Also, it’s important to recognize the differences each state has when it comes to health regulations. Our company will make sure health initiative programs are installed in public schools within the specified region. Further down the road, if our regional launches are successful, we will look to expand to grocery stores. The main capital concern we may have regarding grocery store distribution is whether or not our outsourced production can handle the necessary capacity. If necessary, we will look to leasing our own factory and equipment at this point. 26
Critical Risks, Problems, and Assumptions Key assumptions One assumption is that our key distribution channel will be able to sell to A &R Wholesale Distributor. Although we are making this assumption, we do not see this as a potentially derailing problem for SAVEory Snacks. Obtaining a patent, trademark, and copyright for our product is crucial for our product. We are assuming that the patent will protect our recipe, which contains our trade secret. Having the patent for our recipe will give us exclusive rights in producing the healthy chips fortified with vitamins for growing children. We are assuming that our recipe will be unique enough to patent. The patents will be written by our legal advisor. If we are unable patent our product, we will undoubtedly face significant pressure from other chip producers, copying our product line. This could pose a problem of significant magnitude, and could derail our overall venture. It is imperative that we have a patent for our products. We also have assumed that we can produce our chips for an input cost of $0.25 for 1 oz. bag of chips. SAVEory Snacks also assumes that each bag of chips will be sold at $0.60. If we are unable to make the margins above, we will be forced to make our cost structure more variable in nature than it already is. This will further enable us to mitigate our risks, but this will take time to restructure our finances. This could hurt our time to market, and overall market shares in the short term. If we fail to deliver on the above assumption, we will merely experience a delay in time to market, without significant long-term problems. The last major assumption that we are making, is regarding the overall snack food market. The expected growth over the five years is over 2%. We are assuming this growth rate will hold true. The company also assumes that the current trend of health foods in schools will increase. The two aforementioned assumptions are the basis for our entry into this market void. If growth in the snack industry begins to contract, or the social trend involving health food snacks becomes less important, it will be much more difficult for SAVEory Snacks to acquire significant market share and revenues. If these assumptions do not hold true, our revenue growth will be stunted, and our growth projections throughout the country will not be reached. We do not foresee a significant risk in these assumptions not being reached, but they are risks, at this point. One major risk would be imitation from competitors. If our product does find success in the high school student market, competitors may release a product that is very similar to ours. If the company is already a major power, like Frito Lay, it will be difficult to take much market share away from them. At first, our product’s success depends on its uniqueness. We may establish brand loyalty down the road, but we need to be unique first. If the market is saturated with similar products, SAVEory Snacks will be in trouble. A second major risk will be schools not willing to introduce a healthier chip. Competitors have adjusted their products to include more natural ingredients. Chips are now baked, which is a healthier alternative to regular potato chips. There are also Sun Chips, which are under the Frito Lay umbrella. Sun Chips are often associated with healthier ingredients than regular Lays chips. Schools may have brand loyalty to these existing chips already. Therefore, it’s important for 27
schools to understand the benefits of our chips in relation to the chips currently offered. Failure to attract customers will limit cash flow and thwart SAVEory’s efforts to expand its product nationally. It is crucial that the schools, parents, and students accept our product. A third risk will be in outsourcing to new locations during expansion time. It’s important that each location has sufficient production technology that meets our development plans for production. It’s also important that each regional location follows our recipes closely and does not steer away from the healthy ingredients that make our products unique. 3. SAVEory Snacks has two key assumptions that have been prevalent throughout our business plan, and the success of our business depends on our ability to deliver on these assumptions. Our primary assumption is our ability to create our healthy chips that our customers, the high schools, and our end users are willing to purchase and enjoy eating. If we fail to create a chip that is desirable from a taste standpoint, that also meets and exceeds the health standards of the schools we are selling to, then every aspect of our business plan is attainable. However, if we fail to deliver on our pledge to create these healthy, tasty chips, we will be delayed in our ability to reach our target market in San Diego, according to our timeline. This risk of our inability to create these tasty chips is the biggest threat to the success of SAVEory Snacks. Secondly, we need to be able to provide these chips at a reasonable price in order to compete with other products sold at public high schools. If we are unable to purchase the necessary goods to make our healthy chips, we will be greatly inhibited in producing our chips at a reasonable cost. We have pledged to purchase locally, and to be all-natural. But if local food prices are too high, we have two options: either pay more for our inputs while risking our margins and profits; or purchase domestically, but not locally. The biggest risk that we would encounter in the latter scenario is a backlash against false advertising of purchasing locally, when in reality we would be purchasing our inputs from all over the country. Fundamentally, this is a lesser issue than the first risk presented, but still presents potential trouble for our company. SAVEory Snacks believes that the five themed chips, which also incorporate all the necessary vitamins and minerals, and are generally healthy, will be desired and enjoyed by high school students. We also assume that we can do this with limited costs, in order to provide our products at reasonable costs. If we cannot do this initially, we will be delayed in reaching our markets, and thus will require more time improving and perfecting our chips. This poses the largest risks to our company, and our business plan assumes we will deliver in these vital areas.
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FINANCIAL PLAN Highlights of Financial Statements In the first year of operation, SAVEory Snacks will have revenue of $ 171,600 and a net income loss of $ (200,131). In year 2, revenue will jump to $ 825,060 with income of $ 147,410. In years 3 through 5, income will be $464,942 $1,039,335 and $1,919,892 respectively. Our growth rate of sales is detailed in the graph below:
Months to Breakeven and to Positive Cash Flow The CFO of SAVEory Snacks, Jake Doue, and VP of Finance, Rong-Mai Jiang will be responsible for creating the quarterly and annual cost reports Jake and Rong-Mai will be responsible for analyzing and presenting any major investments to the management team for joint approval. Employment expansions will also be conducted in the manner. If we exceed our budget, cost cutting will be implemented swiftly to avoid financial catastrophe. As we expand into new markets across the country, beginning with the most obese cities in America, new venture funding may be sought to enable this expansion. Expansion outside of the San Diego area will not occur until year 3, which will be the earliest time we will seek outside funding. C. See appendix for financial statements
PROPOSED COMPANY OFFERING Desired Financing The management team of SAVEory Snacks is investing $100,000 of personal equity to begin our company. This will be used to begin SAVEory Snacks and to develop or recipe and marketing campaigns. Beyond this, SAVEory Snacks is seeking equity financing from Venture Capitalists to begin our business in San Diego. The management team will hold 60% of the equity, with 6% equity being paid to the Board of Advisors, 2% each to our COO and Food Engineer, and 30% to Venture Capitalists. The majority of our financing will be derived from our cash flows throughout the year, which is positive beginning in January. The venture funding is to enable us to begin our business (pay for chip inputs, rent, patents, office supplies, marketing 29
campaign). We have given ourselves an $80,000 buffer funding in order to cover unforeseen costs, expansion, and future recipe and food development. We will begin expanding to other school districts in the San Diego County in fiscal year 2 (the beginning of our second full school year). We will break even in the 2nd Quarter of fiscal Year 3 (school year 2). Our substantial expansion throughout the country is beginning in fiscal year 3. We do not project that we will need additional funding for this expansion. Proposed Offering We are seeking $250,000 from Venture Capitalists based off of the results we found from our NPV calculation. Our present value valuation of SAVEory Snacks is $1,246,043. The Venture Capitalists investing the money will then hold 30% equity in SAVEory Snacks. As noted above, this cash infusion will enable us to meet the following milestones: 1. Develop our unique chip recipe 2. Acquire our Patent 2. Begin our Marketing Campaign 3. Achieve market penetration of 30% of the public schools in San Diego 4. Purchase our office supplies (computers, desks...etc.) 5. Begin our Rent Payments 6. Begin production of our chips 7. Begin Selling our Chips to schools Capitalization After the Venture Capital investment of $250,000, they will hold 30% equity in the firm. This investment will guarantee them a seat on the board. In addition, the management team will hold 60% equity stake, while the board will be given a 6% equity stake in exchange for their guidance, with 4% paid to our COO and Food Engineer. Use of Funds The money we receive from Venture Capitalists will be used to help us pay for our startup expenses during the first six months. The total fixed costs during the first six months will be approximately $ 159,851. Therefore, $ 159,851 of the venture capitalists funds will be used on fixed costs: salary - $68,000; rent - $3204; marketing - $16,000; legal - $8,332; and others adding up to $7,464. The remaining funds will be used as cash cushion in case any unexpected obstacles arise. Investor’s Return At the end of year 5, the management team will meet venture capital growth demands, and buyback the equity stake of the venture capitalists. Their investment of $250,000 for 30% will bought-out $1,250,000, a 1000% return. We plan to be acquired by one of the major players in the snack food industry at the end of year 5. These companies include, but are not limited to the following: PepsiCo (Frito-Lay), Kraft, General Mills, and Diamond Foods. These companies have a significant history of acquiring start-up snack companies, and we view this as a viable exit strategy, and a strategy that will reward our investors. SAVEory Snacks--Chipping Away at Junk Food 30
Appendices A: Board ……………………………………………………………………………………… B: Marketing Research …………………………………………….………………………. C: Financial Statements …………………………………………………………………… D: Management Credentials ……………………………………………………………….. E: Works Cited ………………………………………………………………………………
A. Advisory Board Members: Management and Fundraising Advisor: Andy Silverman: Mr. Silverman has worked in Private Equity finance for over 10 years, most recently at Capital Resource Partners in Boston, MA. His roles include managing the funds investments, and working with these portfolio companies, as well as evaluating new investment opportunities. Andy Silverman will serve on our board to help SAVEory Snacks successfully run and manage our company. He will also advise SAVEory Snacks in pitching to Venture Capitalists, and acquiring the necessary funding. Financial Advisor: Benjamin Krall will serve as an advisor on our board to assist in the finances of the company. Mr. Krall has a financial background, and he is looking to become a venture capitalist in the near future. Wholesaling Advisor: We are currently seeking a board member with an expertise in wholesaling and distribution. This board member’s knowledge and connections will help our company grow nationally. Operations Advisor: We are seeking a board member who can coordinate our supply chain and work with our wholesalers. Legal Advisor: We are seeking a board member who will provide legal counsel. This board member will assist in obtaining patents, establishing our LLC and any legal issue that may arise. Product Development Advisor (Nutritionist): Katelyn Cowen, a Health and Wellness Promotions Specialist at Syracuse University, will be advising in regards to our healthy chips’ contents and making sure that our company adheres to the school’s nutritional dietary program.
B. Focus Group Results: Conducted with 6 Students from Schuylkill Valley High School: Pat Cieniewicz; Jonny Snyder; Dom DeFuso; Morgan Greenwood; Chris Lorah; Jenna Potts. Questions: What do you usually do for lunch? Three mostly pack while three mostly buy If you buy: What are your favorite items? Cheesesteak, Chicken Patty Who Pays? One student’s parents pay; one pays herself; the other is a mixed result What is the satisfaction with cafeteria food? Generally dissatisfied Do parents affect your purchasing decisions at school? No. If you pack: What main items do you pack? Sandwiches/ leftovers What snacks do you pack on the side? Brownies; chips; fruit; jello/yogurt/ pudding; bars; cookies What drinks do you pack? Water and sometimes iced tea Do your parents pack your lunches? One packs his own lunch while another’s parents pack his lunch. One’s mom makes her sandwich, but she packs her whole lunch. How big of a factor does health play in your purchasing/ packing decisions? Packing allows one to eat healthier food. Students try to eat healthier during days of sports or games. It does not seem to have a big effect on buyers. Drinking water is healthy to four out of six. Have you noticed anything that has changed over the past few years in terms of menu? In terms of entrees, there haven’t been many changes. Have you noticed any changes in terms of snack variety? They haven’t noticed anything significant other than certain drink changes. Do you ever buy snacks after you have finished your lunch? One buys ice cream sandwiches after lunch. Others buy cookies or French Onion Sun Chips. How often do you buy snacks? One buys every day; two students buy 3/5 week days. One buys 1/5 week days. One buys once a month. Where do you buy them from (cafeteria/ vending machines)? Vending Machines are locked until the end of school, so the students only buy snacks from the lunchroom during school. How often do you buy chips? Chips are mostly packed. One buys chips once a week. Do you mind that the chips have gotten more health conscious? Healthiness of chips absolutely affects purchase decisions negatively. One student doesn’t like Sun Chips. What types of chips do you like? French Onion Sun Chips; Doritos that are not baked; Cheese Curls; Dieffenbach’s Chips; don’t really like health chips. Would you try chips made from something other than potatoes? One didn’t like sweet potato chips, but would try them with a flavoring. Two like apple chips. One likes plantains. Two others don’t like plantains Would you try our product? 5/6 would try the new product Word Association: School – bus; lunch; bus; math; books; work Lunch – lady; friends; food; cafeteria; gross; dinner Cafeteria – Schuylkill Valley; lunch; food; chairs; table; lunch Health – apple; water; vegetable; class; water; vegetables Chips – salt; potato; potato; potato; potato; sour cream & onion
Survey Results- Completed by 21 Parents:
Survey Results- Completed by 49 High School Students:
C. SAVEory Snacks Balance Sheet Yr 1 Cash Accounts receivable Office Furniture & Equipment Technology Equipment Depreciation Patent Total Assets
Yr 2
Yr 3
Yr 4
Yr 5
116,509 17,160 10,000 8,000 (2,600) 800 149,869
201,173 82,506 10,000 8,000 (5,200) 800 297,279
590,972 160,248 10,000 8,000 (7,800) 800 762,220
1,510,129 283,026 10,000 8,000 (10,400) 800 1,801,555
3,267,927 447,720 10,000 8,000 (13,000) 800 3,721,447
Liabilities & Owners Equity Venture Capital Retained earnings (deficit)
100,000 250,000 (200,131)
100,000 250,000 (52,721)
100,000 250,000 412,220
100,000 250,000 1,451,555
100,000 250,000 3,371,447
Total liabilities and equity
149,869
297,279
762,220
1,801,555
3,721,447
SAVEory Snacks Income Statement Year 1 March
April
May
June
July
August
September
October
November
December
January
February
Total
Sales (a) COS
-
-
-
-
-
-
25,740 10,553
25,740 10,553
25,740 10,553
25,740 10,553
25,740 10,553
42,900 17,589
171,600 70,356
Gross margin
-
-
-
-
-
-
15,187
15,187
15,187
15,187
15,187
25,311
101,244
17,500 217 84 61 4,000 780 2,083 249 1,667 1
17,500 217 84 61 4,000 780 2,083 249 1,667 1
17,500 217 84 61 4,000 780 2,083 249 1,667 1
17,500 217 84 61 4,000 780 2,083 249 1,667 1
17,500 217 84 61 4,000 780 2,083 249 1,667 1
17,500 217 84 61 4,000 780 2,083 249 1,667 1
17,500 217 84 61 4,000 780 2,083 249 180 1,667 1
17,500 217 84 61 4,000 780 2,083 249 180 1,667 1
17,500 217 84 61 4,000 780 2,083 249 180 1,667 1
17,500 217 84 61 4,000 780 2,083 249 180 1,667 1
17,500 217 84 61 4,000 780 2,083 249 180 1,667 1
17,500 217 84 61 4,000 780 2,083 249 180 1,667 1
210,000 2,600 1,008 732 48,000 9,360 25,000 2,990 1,080 20,000 12
26,642 (26,642) (2,355)
26,642 (26,642) (2,355)
26,642 (26,642) (2,355)
26,642 (26,642) (2,355)
26,642 (26,642) (2,355)
26,642 (26,642) (2,355)
26,822 (11,635) (1,029)
26,822 (11,635) (1,029)
26,822 (11,635) (1,029)
26,822 (11,635) (1,029)
26,822 (11,635) (1,029)
26,822 (1,511) (134)
320,782 (219,538) (19,407)
(24,287) $
(24,287) $
(24,287) $
(24,287) $
(24,287) $
(24,287) $
(10,607) $
(10,607) $
(10,607) $
(10,607) $
(10,607) $
(1,377) $
(200,131)
Expenses: Salaries Depreciation Utilities Internet/Phone Advertising Expense Rent Legal USDA/FDA Shipping/Distribution Insurance Website Total expenses Pretax income Taxes Net income (loss)
$
SAVEory Snacks Income Statement Year 2-5 Q1
Q2
Q3
Q4
Yr 2
Yr 3
Yr 4
Yr 5
Sales COS
252,120 103,369
57,480 23,567
229,680 94,169
285,780 117,170
825,060 338,275
1,602,480 657,017
2,830,260 1,160,407
4,477,200 1,835,652
Gross margin
148,751
33,913
135,511
168,610
486,785
945,463
1,669,853
2,641,548
Expenses: Salaries Depreciation Utilities Internet/Phone Advertising Expense Rent Legal USDA/FDA Shipping/Distribution Insurance Website
52,500 650 252 183 15,692 2,340 3,750 360 5,000 3
52,500 650 252 183 15,692 2,340 3,750 1,080 5,000 3
52,500 650 252 183 15,692 2,340 3,750 1,080 5,000 3
52,500 650 252 183 15,692 2,340 3,750 1,080 5,000 3
210,000 2,600 1,008 732 62,769 9,360 15,000 3,600 20,000 12
210,000 2,600 1,008 732 171,323 9,360 15,000 5,400 20,000 12
210,000 2,600 1,008 732 262,020 9,360 15,000 9,000 20,000 12
210,000 2,600 1,008 732 264,168 9,360 15,000 12,600 20,000 12
Total expenses
80,730
81,450
81,450
81,450
325,081
435,435
529,732
535,480
pretax income Taxes
68,020 6,013
(47,537) (4,202)
54,061 4,779
87,160 7,705
161,704 14,295
510,028 45,086
1,140,122 100,787
2,106,068 186,176
(43,335) $
49,282
Net income (loss)
$
62,007
$
$
79,455
$
147,410
$
464,942
$
1,039,335
$
1,919,892
SAVEory Snacks Statement of Cash Flow Total Q1
Q2
Q3
Net income (loss)
$
(72,860) $
(72,860) $
Add non-cash expense - dep'n (Inc) Dec in receivables
$ $
650 -
650 -
Cash from (used) in operations
$
(72,210) $
Financing sources: Executive Investment Capital Investment
$ $
100,000 250,000
Financing uses: Office Furniture & Equipment Technology Equipment patent Total source (use) of cash Beginning cash Ending cash
$ $ $ $ $ $
(10,000) (8,000) (800) 259,790 $ $ 259,790 $
$ $
$ $
$ $
(72,210) $
-
$ $
(72,210) $ 259,790 $ 187,580 $
Q4
Yr1
(31,820) $ (22,591) $
Yr 2
Yr 3
(200,131)
$
147,410
650 $ (9,438) $
2,600 (17,160)
$ $
2,600 $ 2,600 $ (65,346) $ (77,742) $
(38,892) $ (31,379) $
(214,691)
$
84,664
100,000 250,000
$ $
(10,000) (8,000) (800) 116,509 116,509
$ $
650 $ (7,722) $
-
$ $
-
$ $
$ $ $ (38,892) $ (31,379) $ 187,580 $ 148,688 $ 148,688 $ 117,309 $
$ $ $
$ 464,942
Yr 4 $
1,039,335
Yr 5 $
2,600 $ (122,778) $
$
-
$ $
-
$ $
-
$ $
-
-
$ $
-
$ $
-
$ $
-
$ 389,800 $ 201,173 $ 590,972
SAVEory Snacks Depreciation Schedule Asset Useful life Year 1 Year 2 Year 3 Year 4 Year 5 Office Furniture & Equipment 10 1000 1000 1000 1000 1000 Technology Equipment 5 1600 1600 1600 1600 1600 Depreciation Expense 2600 2600 2600 2600 2600
$ $ $
919,157 590,972 1,510,129
$
2,600 (164,694)
$ 389,800
84,664 116,509 201,173
919,157
1,919,892
$ $ $
1,757,798
1,757,798 1,510,129 3,267,927
SAVEory Snacks Sales Forecast Year 1 # of chips to produce March - Aug # of chips to produce Sept - Feb Total # of chips sold
Year 2 286,000 286,000
Year 3 286,000 638,000 924,000
660,000 2,010,800 2,670,800
Year 4 year 5 634,700 1,025,000 4,082,400 6,437,000 4,717,100 7,462,000
SAVEory Snacks Fixed Costs Fixed Costs Salaries Depreciation Utilities Internet/Phone Advertising Expense per Yr. Rent Legal USDA/FDA Shipping/Distribution Insurance Website Total Fix Cost
Year 1 Year 2 Year 3 Year 4 Year 5 210,000 210,000 210,000 210,000 210,000 2600 2600 2600 2600 2600 1008 1008 1008 1008 1008 732 732 732 732 732 48000 62769.2308 46321.6783 158433.566 101370.6 9360 9360 9360 9360 9360 25000 15000 15000 15000 15000 2990 0 0 0 0 1800 3600 5400 9000 12600 20000 20000 20000 20000 20000 12 12 12 12 12 321502 325081.231 310433.678 426145.566 372682.6
SAVEory Snacks Valuation SAVEory Snacks Assumptions: Year 1
Year 2
Year 3
Year 4
Year 5
Net income + Depreciation expenses + Taxes Total free cash flow
(200,130.84) 147,409.52 2,600.00 2,600.00 (19,407.16) 14,294.65 (216,938.00) 164,304.17
464,941.64 2,600.00 45,086.49 512,628.12
1,039,335.05 2,600.00 100,786.77 1,142,721.82
1,919,891.74 2,600.00 186,176.43 2,108,668.17
Year Discounted value of free cash flow
1 (166,875.38)
3 233,330.96
4 400,098.67
5 567,925.65
Discount rate (risk rate) Industry growth rate SAVEory Snacks Valuation
2 97,221.40
0.3 0.025 1,131,701
SAVEory Snacks Assumptions: (1) Year 1: San Diego, CA: 5 Months 30% of schools next 5 Months 50% of schools (2) Year 2: Expand to San Diego County (3) Year 3: Expand to Richmond, VA & Orange County, CA (4) Year 4: Expand to Memphis, TN & Nashville, TN & Riverside County, CA (5) Year 5: Expand to Jacksonville, FL and New Orleans, LA & San Bernardino County, CA
(6) 8.84% tax rate (7) 10% of sales will be on account (8) Assuming distributors will always buy at quantity discount (9) Executive contribution: $100,000 & $250,000 Capital investment (10) Student population: 5.5% of total population ( US Census 2010) (11) No population growth rate & no industry growth rate
D.
Jacob Doue 506 Summer St. Manchester, MA 01944 (978) 578-7222
[email protected] EDUCATION: Syracuse University, Whitman School of Management, Syracuse, NY Bachelor of Science in Finance, Bachelor of Arts in Economics, (May 2012) G.P.A. 3.4/4.0 Intermediate Macro and Micro Economics, Intro to Money and Banking, International Macro Economics, Econometrics, Financial Management, Investments Accounting, Marketing Syracuse University London, London, UK Fall 2010 WORK EXPERIENCE Morgan Stanley Smith Barney, Danvers, MA The MHC Group at Graystone Consulting Investment Analyst Intern: Summer 2011 · · · · · ·
Analyzed investment securities using point and figure method Compiled investment reports for security selection, containing technical and fundamental analysis Played integral role in adjusting investment strategy though back-testing of investment model Created client presentations, detailing investment strategy for client meetings Worked hand in hand with investment analyst to prepare quarterly reports for institutional clients Prepared and combined presentation material for $1 billion institutional consulting deal
Manchester Athletic Club, Manchester, MA Blue Sky Adventure Camp Lead Counselor and Project Adventure Facilitator: Summers 2009-2011 · · · · · ·
Solely responsible for orchestrating wilderness curriculum based on experiential learning model Motivated and created fun camp experiences with children ages 7-14 through wilderness exploration, teambuilding exercises and group challenges Worked to improve communication skills with peers and to develop conflict resolution strategies for group success Responsible for planning daily camp schedules with other counselors and camp manager Collaborated with camp director to improve overall camp efficiency and efficacy Mentored and helped camp manager select teen leaders for future counselor positions
Camp counselor: Summer 2008 · ·
Played major role in successfully launching an outdoor, wilderness based full day camp Assisted project adventure facilitator in organizing and directing team-building activities
· · · ·
Computer: Excel, Bloomberg, Morningstar, Linkedin, PC and Mac experienced Zephyr StyleAdvisor: historical charting database for financial blends, models etc. Proficient in Point and Figure Chart analysis Manage personal Roth IRA over past three years to 68% gain
SKILLS
LEADERSHIP · ·
Captain and Treasurer of SU Club Tennis Team Syracuse University Abroad Global Ambassador Program
ACADEMIC ACCOMPLISHMENTS · ·
Strategic Management Group Papers and Presentations: eBay and Google Business analyses CAPSIM Business Simulation: Individual: 94th percentile, Team Competition: 2nd Place
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"Frito-Lay Salaries in Plano | Glassdoor." Glassdoor“an inside look at jobs & companies. N.p., 16 Aug. 2011. Web. 2 Nov. 2011. . "How It's Made: Potato Chips. [VIDEO]." Best Online Videos | Wimp.com. Web. 03 Nov. 2011. . "Kitchen Chicago: Kitchen Rental Rates." Kitchen Chicago, a Shared-Use Kitchen in Chicago, IL. N.p., n.d. Web. 2 Nov. 2011. . Leber, Beth. "Cost of Running a Focus Group." useit.com: Jakob Nielsen on Usability and Web Design. N.p., n.d. Web. 2 Nov. 2011. . Muske, Glenn, Rodney Holcomb and Suzanne L. Holcombe. Division of Agricultural Sciences and Natural Resources. Oklahoma: Oklahoma State University, n.d. "Rental
A
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