business plan - proposed ffv parlour

7/29/2019 Business Plan - Proposed Ffv Parlour

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BUSINESS PLAN PROPOSED FFV PARLOUR IN ENTEBBE

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1.0 EXECUTIVE SUMMARY1.1 Project Background

Background: In response to overwhelming demand for local fresh fruits and vegetables

produce, AGRO-TRADING INITIATIVE PROJECThas commissioned this Business

Plan to determine the market viability for an aggregation, storageand distribution, andprocessing and retailing Fresh Fruits &Vegetables Parlour that connects growers in

Uganda to buyers around the Entebbe and Kampala urban areas.

Purpose: The AGRO-TRADING INITIATIVE PROJECTBusiness Plantests the

hypothesisthat agricultural production and economic activity in Uganda could befueled

by the development of infrastructure to intermediate transactions betweengrowers and

wholesale customers.

Definition: This type of Fresh Fruits& Vegetables Parlour, is also increasingly referredto as a Food Hub. A Food Hubcentralizesthe business management structure to

facilitate the aggregation, storage, processing,distribution, and/or marketing of

locally/regionally produced food products.

Vision: The proposed Fresh Fruits& Vegetables Parlour was envisioned as the first of a

multi-phased development project. The Fresh Fruits& Vegetables Parlour would begin

aggregating conventional local fruit and vegetables to establishthe supply chain, and

could be followed by the introduction of on-site processing,an organic line, proteins,

collocation of existing niche aggregators and eventually anintegrated AgriculturalBusiness Centre. These supplemental projects would serve thebroader needs of the

agricultural community, food entrepreneurs and customers.

1.2 Business Analysis, RecommendationsBusiness Model: To determine if a Fresh Fruits& Vegetables Parlour located in Entebbe

Municipality can operate profitably, a financial model simulating a pro forma profit and

loss statement (P&L) was developed. The financial models structure was based on the

following operating and business model, and inputs were derived from the surveys andoperating data from analogous food hubs.

The proposed Fresh Fruits& Vegetables Parlour will have three core functions:

packing, retailing, marketing and distribution.


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The packing operation will receive raw material from growers and packs it according

to customer specifications. Depending on the growers on-farm post-harvest handling

capabilities, the product is cooled, washed, graded, packed, palletized and placed in

cold storage until it is shipped to or picked up by customers. Farms that field pack may

bring pre-packed cases to the food hub for cooling and storage. On-farm pickup will be

offered to growers who do not have refrigerated transport.

The retailing operation will specialize in making direct OTC (Over-the-Counter) sales

of fresh fruits and vegetables or derivative preparations to customers who will be

placing and taking their orders in the dining lounge area, or off-the-shelf in the

supermarket area.

The marketing operation will consist of buyers and salespeople who will negotiate

transactions with growers and customers. They may conduct pre-season crop planning

with both groups to more consistently match supply and demand throughout theseason.

The distribution operation will handle logistics of farm and customer pickups and

deliveries. This function is often outsourced and is not included as a profit centre in the

business model.

Revenue Model: The packing operation earns revenue by charging a flat fee for cooling

and packing. The fee schedule covers direct costs which vary based on packaging and

cooling required for each crop, indirect costs and a profit margin. The retailingoperation will generate revenue from direct OTC sales of fresh fruits & vegetables to

diners and supermarket customers.The marketing operation will handle two types of

sales: consignment and direct purchase. In a consignment sale the Fresh Fruits &

Vegetables Parlour facilitates the sale to a buyer on a commission basis but does not

purchase the product from the grower. In a direct purchase the food hub buys the

product from the grower at a set price and strives to sell it to a customer at a profit.

Facility Scale: Since volume will be more constrained by supply than demand, the

facility was scaled to the 700 acres likely to be supplied and the resources neededduring peak season. This analysis suggests a facility of 25,500 square feet (2,369 square

metres) which can accommodate 12 million pounds (5.443 million kilograms) or 470,000

cases per year. This meets approximately 40% of customer requirements, suggesting the

Fresh Fruits & Vegetables Parlour can expand its existing footprint or open a second

location in the future.


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Financial Analysis: The projected 3-Year P&L shows the net income increasing from

US$ 106,323 in Year 1 to US$ 147,978 in Year 3 and cash from operations gradually

increasing from US$ 952,500 in Year 1 to US$ 1,285,589 in Year 3 (Refer to Projected 3-

Year Cash Flow Statement in Table 4). This is sufficient margin to weather pricing and

volume variances and provide a return of capital to investors. At full capacity using

seasonal extension strategies, the facility can achieve over US$ 1 million in sales.Figure

1 below graphically depicts the 3-Year projected performance of the Fresh Fruits &

Vegetables Parlour.

Figure 1: 3-Year Projected Financial Performance Highlights

Risks: National local food trends and the survey for this study clearly indicate strong

demand which exceeds available supply, so the greatest risk is lack of grower

engagement to provide the volume needed to efficiently operate the Fresh Fruits &

Vegetables Parlour. There is also the pricing risk inherent in the produce industry

which may squeeze margins and make it more challenging for the food hub to record

profits.

Recommendations: To mitigate these risks, the operating team should employ the

following strategies:

Emphasize a strong relationship with growers and cultivate these to ensureongoing trusted communication, and a consistent quality supply that will meet

demand. This is particularly important in the first few years of the operation.

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2014 2015 2016

Sales

Gross Margin

Net Profit


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Build a base of business with the highest end customers it can reachefficiently. The company should seek customers in channels that are less price-

sensitive and can purchase in large quantities. Fine dining restaurants, high-end

hotels, premium grocery stores, specialty health food stores and international

missions/agencies operating in Uganda are the highest end customers. Public

schools and broad line supermarket and foodservice distributors purchase very

large quantities, but will be more price-sensitive. The Fresh Fruits & Vegetables

Parlourshould seek a mix of customers which emphasizes the higher end of this

range.

Make it a win for growers even if unprofitable at first. If it doesnt work for thegrowers in Year 1 there will not be a Year 2. This means giving growers the price

they need even if it cuts into or eliminates gross margin, and ensuring the

enterprise is well enough capitalized to cover initial losses.

Secure a management team with experience in marketing and sales. Anexperienced manager that oversees buying and selling with a deep knowledge of

production, perhaps a former grower, is critical for garnering trust and

confidence among growers and buyers. Growers/farmers will need assurance

that they will be rewarded with a better price if they deliver a better quality

product, so the sales staff must be able to effectively gauge and market quality to

buyers to ensure an equitable correlation between quality and price. Depending

on the breadth of experience within the management team, transportation andlogistics should be outsourced until the team has perfected marketing and sales.

Build loyalty for the Ugandan brand and tell the local story to customers.There is real value-added in local produce which should command a better price:

local produce has a longer shelf life, better taste, is nutritional and many

shoppers and diners know the difference and will pay for it. Convey these

benefits to consumers at retail through farm identification and value added

information on signage, cases and PLU (Price-Look Up) codes.

Make it easy for customers to do business with the Fresh Fruits & VegetablesParlour. Deliver consistent quality, packed the way customers demand, and offer

an assortment that will make them a valuable supplier to their customers. In

time, the business relationship will be based less on price and more on trust and

simplicity.


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Establish a wide and cooperative network of growers. There should be a coregroup of growers that participate in pre-season crop planning. Cultivating

relationships with a broader range of growers will also increase the likelihood of

filling gaps if weather or other unplanned events disrupt supply. These

transactional relationships can be the foundation for future partnerships as the

business expands.

Collaborate with other intermediaries and partners to strengthen the market.This is a highly interdependent industry, one in which cooperation with

competitors can expand markets and support prices. As the business and new

relationships develop across the local food system, these stakeholders and other

intermediaries serving the same market should be open to opportunities that

could build efficiencies and strengthen markets. These intermediaries could also

become customers, and vice versa, and are a potential means for finding markets

and filling orders.

1.3 Project ImpactsThere could be significant positive economic and social impacts if the proposed Fresh

Fruits& Vegetables Parlour is developed in Entebbe Municipality. Based on the scale of

the facility operating at steady state, the following benefits could be realized:

Jobs: In steady state the proposed Fresh Fruits & Vegetables Parlour will employ six

full-time and 16 part-time employees and require up to ten (10) third party employees

to handle distribution. Employment would increase up to 250% (2.5x) as the facilitydevelops seasonal extension capabilities and reaches capacity. Indirect employment will

also result from the enterprise. At the projected UGShs 1.5 billion (USD 590,000)

capacity, the facility could create over 200 jobs in the local economy. Staffing would

include positions in management, operations, sales, facilities, production, warehousing,

and distribution.

New Markets: According to the average acreage among survey respondents, the facility

would provide a new market and new revenue stream for as many as 600 family farm

businesses in communities across Central, Eastern and Western Uganda, adding value

to farmland.

Farm Income: It is not known what crops are currently grown on the acreage that would

be committed to the proposed Fresh Fruits& Vegetables Parlour or what new acreage

will be put into production. However, if just 10% of the facilitys volume at capacity


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comes from acreage converted from commodity crops to fresh market fruits and

vegetables, farm revenue could increase by US$900,000 to US$1.8 million.

Economic Multiplier: At a 2.6x multiplier, at capacity and on a retail sales basis, the

proposed Fresh Fruits & Vegetables Parlour would inject an additional $60 million into

the local economy ($20 million wholesale ~ $26 million retail x 85% not currently local x

2.6 multiplier). See page 66 of Appendix for an explanation of local procurement

percentages, compared with equivalent shipments of produce from more distant

locations.

Environmental Impact: In steady state, the proposed Fresh Fruits & Vegetables Parlour

will distribute annually approximately 12 million pounds (5.443 million kilograms)of

produce in 400 tractor-trailer loads over an average distance of 150 miles. This could

reduce carbon emissions by 2.4 million pounds per year.

1.4 ObjectivesThe objectives of the proposed Fresh Fruits & Vegetables Parlour are the following:

Create a strong customer service-oriented sales staff. Capture 5% of the Uganda fresh and processed fruits and vegetable consumer

market by Year 2 2015 and break-even from our initial UGShs. 1.5

billioninvestment.

Maintain tight control of cost and operation during expansion.

1.5 Mission & VisionMission

Bringing prosperity into rural families of Uganda through co-operative efforts and

providing customers with hygienic, affordable and convenient supply of Fresh and

Healthy " food products.

Vision

To be a progressive multi-million dollar organization with a pan-Uganda footprint by 2015.

To achieve this by delighting customers with "Fresh and Healthy" food products,those that are a benchmark for quality in the industry.

We are committed to enhanced prosperity and the empowerment of the farmingcommunity through our unique "Relationship Farming" Model.


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To be a preferred employer by nurturing entrepreneurship, managing careeraspirations and providing innovative avenues for enhanced employee

prosperity.

1.6 Keys to SuccessLocalization: Since AGRO-TRADING INITIATIVE PROJECT is not yet known inUganda, we plan to brand it with a Ugandan-oriented brand name, re-design the

arrangements for Ugandan customs and trends, and hire Ugandan managers to run the

Fresh Fruits & Vegetables Parlour. Eventually we will also franchise out to Ugandans.

Market Penetration: To take advantage of our first to market competitive edge, we will

build our brand through aggressive expansion and promotion, starting with the

Kampala Entebbe axis. In addition to its population of over 2 million, the Kampala

Entebbe area has the highest concentration of companies and high-income shoppers,

and is a trend-setting metropolis in Uganda.

Distribution Channels: Our first priority is to establish the proposed Fresh Fruits &Vegetables Parlour in Entebbe is a location with the best road access and traffic

conditions to be able to gain and build a strong customer base and also deliver products

for corporate orders. Our second priority, as we add more Fruit Parlours to other places

in Uganda, is to establish locations with high visibility and consumer traffic to reach

more fresh fruit and vegetable consumers and become a household name brand.


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2.0 PRODUCTS AND SERVICESThe proposed Fresh Fruits & Vegetables Parlour will package, process, retail, market

and offer the following Ugandan fresh& processed fruits and vegetables:-

Table 1: Proposed Products

Fresh Fruits Fresh Vegetables1. Apples2. Avocado3. Apple Bananas4. Cavendish Bananas5. Citrus6. Goose Berries7. Guavas8. Jack fruits9. Lemons10. Mangoes11. Oranges12. Papayas13. Passions fruits14. Pineapples15. Straw Berries16. Sweet Melons17. Tangerines18. Tomatoes19. Water Melons

1. Asparagus beans2. Beans Fresh3. Beetroot4. Broccoli5. Cabbage Green6. Cabbage Red7. Carrots8. Cauliflower9. Chinese Cabbage10. Chinese leafy11. Cucumber12. Dodo13. Egg plant14. French beans15. Fresh Mushrooms16. Green peas17. Green pepper18. Irish potatoes19.Jobyo20. Kale21. Leafy salads22. Leeks23. Long beans24. Nakati25. Onions26. Pack choi27. Salads28. Spinach29. Sweet potatoes30. Zucchini

Fruit and Vegetable Juices Fruit Products

1. Smoothies2. Super food drinks3. Fruit and vegetable shakes

1. Fruit wines2. Fruit salads3. Cap cakes4. Yogurt5. Ice cream6. Herbal medicines7. Processed fruit products8. Fruit beverages9. Dry fruits10. Vaseline11. etc.


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3.0 MARKET ANALYSIS3.1 Domestic FFV Market: Small and Dynamic

There is ample evidence that the domestic Fresh Fruits and Vegetables (FFV) market is

growing and it is dynamic:

More Fresh Fruits and Vegetables (FFV) sold today than five years ago. The exotic niche serving Asians and foreigners is growing fast. Nakasero vendors now offer a broader range of products, from local sources,

than 5or 10 years ago.

Open-air kiosks can be found at busy intersections and busy shopping areas,andthey are growing rapidly.

3.2 Macro Factors Supporting the Increase of Demand for FFVThe demand for FFV takes place within a broad economic context. Although theFFVmarket is relatively small, it has been dynamic in recent years. The demand for FFV

isvery income sensitive. The past and prospective growth of these markets is easier

tounderstand when placed in the context of broader economic factors. Some of the

keymacro factors from the past decade or so may diminish as sources of growth

goingforward. If so, it is important that other factors grow more rapidly if the growth in

FFVdemand is to be maintained or augmented. Some of the important factors in this

regardare summarized in Table 2 below.

Table 2: Factors influencing changes in demandIncome Price Urbanization Preferences

GDP Remittances AID Flows FDI Dependency ratio

Supply &demandbalance

Foreign ExchangeRatePopulation

densityand growth

Income densityandgrowth

Emulation Education Demonstration Ethnic composition

Uganda, in recent years, has experienced moderate economic growth by

developingcountry standards, but the record is a notable achievement measured against

the earlierperiod. Rapid urban population growth is also a recent feature, though at 15%

the urbanpopulation shareis still small relative to Latin American, many Asian, and

somesouthern African countries. According to the gross domestic product figures,

realincome per capita has increased at about 7% annually since 1997, with the bulk of

thegrowth coming from the monetized part of the economy and aggregate expenditure

hasexceeded domestic source income, supported by substantial aid transfers andby


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aremittance flow that exceeds even the foreign exchange value of coffee exports. All

ofthese monetary sources flow through the economy and into the pockets of high and

lowincome recipients ultimately being translated into expenditure on goods and

services,including on fresh fruits and vegetables. The activity we observe in the FFV

marketsincluding the structural changes is reflective of this consumption behaviour and

urbanization. In the case of Uganda FFV markets these forces were supplemented

bychanging food preferences based on improved health education, the influence of

thegrowing Asian and foreign population, and the proliferation of restaurants and

hotels,among other factors.

3.3 Private Sector Response to Changed FFV ConsumptionThe major players in the FFV marketsconsumers, retail vendors, market middlemen,

and farmershave all played a dynamicrole in the development of these markets over

the past decade or so. Consumers haveincreased and diversified their FFV consumption

choices. FFV vendorsthe traditionalMunicipal market vendors, newer largesupermarkets, restaurants, and a growingnumber of kioskshave been dynamic in

their response to this demand expansion.Farmers have learned to cultivate new

vegetables, improved water managementtechniques, and some have organized

marketing groups or even taken on the role ofmarket broker, in pursuit of economic

gain. Market brokers and other middlemen haveinnovated along both extensive and

intensive paths in response to profitableopportunities to bring traditional and exotic

FFV to market. Brokers, particularly, havebenefited from the rapidly expanding cell

phone technology, the availability of secondhandvehicles, improved domestic security,

and easier access to cross-bordertransactions.

Over the past decade or so, supply and demand has balanced in the FFV markets,

atprices that exhibit seasonal instability but no upward trend, adjusted for

generalinflation (the non-food price index). As always in perishable food markets, there

hasbeen seasonal instability, but the price record suggests the absence of

sustainedshortage. In the face of rising and diversified demand, suppliesmainly from

domesticsourceshave been forthcoming. Important studies based on the 1992/93

householdsurvey showed that price movements in the retail FFV markets were

transmittedefficiently to all other levels of the market animportant feature of an

economicallyefficient market structure. At the same time marketing costs were high

(measured as ashare of the farm level price), reflecting the underlying high cost of

marketing. Nosimilar studies have been carried out since that period. But given the

improvements intransportation and communication infrastructure it is likely that as

marketed FFVvolume has increased, per unit margins have fallen (adjusted for general

inflation), which is another dimension of economic efficiency.


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3.4 The Future Market for FFVThe future expansion path of FFV marketing depends to an extent on two strategic

features: first is the growth rate and distribution of income over the next ten years or so;

second is the structure of retail food marketing. Uganda has experienced a successful,

sustained period of recovery growth, following on the social, political and economic

breakdown that began in the early 1970s and ended in 1987. Considering the future ofFFV market growth, some aspects of the economic recovery are probably not

sustainable. For example, the return of the Asian community to Uganda as well as the

influx of foreign aid workers is now reflected in the structure of Ugandas demography.

But that element, which has been an important aspect of FFV demand in

Kampalaparticularly, is not likely to grow. Foreign assistance and remittance transfers

were a rapidly growing support for general consumption expenditure, including FFV

consumption, in the 1990s. But as a share of national expenditure, these sources may not

grow and might even decline. So a continuation or augmentation of the economic

growth rate will probably rely on improvements in economic productivity, somethingthat was not a strong feature of the economic growth of the 1990s. The demand for FFV

is very income sensitive, so a slowdown in growth as well as an enhancement will be

reflected in FFV market activity, including the pace of marketing innovation.

Over the past decade or so, there have been important changes in the retail market

structure for FFV. In some ways, the most obvious and publicized change has been the

rise of large supermarkets. But these stores (there are four) account for a small share of

FFV marketing. There has also been a rapid replacement of the traditional dukas with

smaller supermarkets. But these stores, for now, sell very little FFV, preferring to use

their limited cold storage space for milk and poultry and their limited capital to support

other aspects of store improvements. The more dynamic part of the FFV retail market is

the proliferation of FFV kiosks. Some of these kiosks are larger, more substantial

structures located outside the small supermarkets or at service stations. Some are

roadside stands. They source their product from the municipal wholesale markets. The

municipal markets have also experienced change, reflecting the rising and diversified

demand for FFV, as well as the congestion driven shift of demand away from the large,

central markets toward the community based council markets.

Looking into the future, continued population growth and urbanization will probably

support further growth in both kiosk-based shopping for FFV as well as shopping at the

council municipal markets. The smaller supermarkets may or may not begin to bring

FFV inside into a capital (and electricity) intensive cold-storage structure, in a bid to

replace the kiosks out front. This shift is more likely to occur in a rapidly growing

income environment. The large supermarkets will probably become somewhat more


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competitive in the marketing of higher value FFV, but if the experience from Kenya is a

guide, the market share will remain small. It is unlikely that the number of large

supermarkets will grow as rapidly as it has in Kenya.

The concept of extensive and intensive sourcing strategies can be used once again to

consider the role of small holders in the future development of FFV markets.

Alternative expansion paths for the FFV retail structure are shown in Figure 2 in

association with the growth path of extensive and intensive market innovation (the

horizontal and vertical axis, respectively). The black circles denote the relative

importance of each element now in the market structure. The large supermarkets prefer

contract relationships directly with farmers. They place a very high premium on stable

and fresh supply, since they view FFV as part of a strategy for convincing shoppers that

all their food needs can be satisfied under one, very capital intensive, roof. They view

the role of the FFV section, not in terms of direct profits, but in the sections success in

bringing customers into store thus increasing overall sales volumes per square foot andreducing average unit costs. In other words, as large supermarkets expand, there will be

a demand for market innovations of the intensive type. This means a greater premium

on supply from farmer groups, from farms with access to cold storage, and from farms

with a higher quality of water management. If Uganda had a bigger sector of irrigated

large farms as there is for example in Kenya, then large supermarket expansion would

probably involve greater sourcing from these types of farms. Such farms, currently

producing flowers for export, may in the future reorient to supplying large

supermarkets.

At the other extreme are the municipal markets and the brokers who supply them.

These markets currently find it cost effective to source FFV from an extensive network

of small farmers extending across agro-economic zones and even borders. Intensive

strategies employed by both vendors and brokers for sourcing product in these markets

are a dynamic feature but not likely to dominate as the market expands. For the

foreseeable future small-holder producers of FFV will be the dominant suppliers to

these municipal markets.

In some ways, the most interesting development to watch as the FFV market developsis the role of the kiosks and small supermarkets. Kiosks generally obtain their produce

from the municipal markets, but some are supplied directly by brokers. And for the

larger kiosks, particularly those located in front of small supermarkets or service

stations, direct broker supply may be an increasing trend. Whether or not the small

supermarkets will absorb these kiosks is an open question. The capital and operating

costs involved are high, involving cold space and perhaps a cold room, plus the


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competition from high margin packaged goods for floor space is high. If small

supermarkets did absorb the kiosks which are currently out front that would reinforce

the trend for being supplied directly by brokersperhaps brokers with access to

wholesale cold-storage. This in turn would probably be incentive for brokers to follow

more intensive strategies for developing relationships with a network of farmers.

Figure 2: Expansion Paths in FFV Retail

Large Supermarkets

Intensive

Expansion Small Supermarkets & Large Kiosks

Municipal Markets

Extensive Expansion

3.5 Market CompetitionThere are three different types of competitors that MWIJE HALTOW LTD. MIXED

DAIRY AND VEGETABLE PRODUCTION FARM faces:

1. Supermarkets. These stores sell a greens mix to consumers. The advantage of thesupermarket is convenience. The four leading supermarkets in Kampala

Shoprite Checkers, Uchumi, Nakumatt and Tuskys Supermarket (which

recently acquired two local retailers Half Price and Good Price supermarkets)

are open many hours during the day. Their disadvantage is price and

quality. The quality and variety is lower than the standards set by the offerings

of MWIJE HALTOW LTD. MIXED DAIRY AND VEGETABLE

PRODUCTION FARM and other similar local farmers. The cost is higher,

usually 15% more.

2. Similar local farmers. These are very similar operations to MWIJE HALTOWLTD. MIXED DAIRY AND VEGETABLE PRODUCTION FARM, sometimes

larger and sometimes smaller. There appears to be room in the market for

multiple farmers as most of the farmers sell out their products each day at the

farmer markets.


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3. Large distributors. An example of this would be Freshmark a wholly ownedsubsidiary of the Shoprite Checkers Group responsible for the procurement of

FFV for the exclusive supply to Shoprite stores and the Nakasero market-based

fresh fruits and vegetable distributors who buy a wide variety of products and

quality of produce from rural farmers within a radius of 100 kms of Kampala

City and distribute them to restaurants, urban groceries and markets, exporters,

and a variety of other large consumers in the market. The produce is not

usually local, and is a few more days older from the field compared with the

local farmers. The price is comparable and the quality can be comparable, but not

necessarily. The disadvantage of a food distributor is the lack of flexibility

relative to a local grower when serving local customers.

Buying patterns are based on the customer's desires. What is meant by this is that

lower-end restaurants and urban groceries (or at least restaurants that are less

concerned about quality) will not bother to get greens from local farmers, there is no

need for them to. This pattern is similar for the individuals. There are some individuals

that are content with the offerings from supermarkets. There are others that appreciate

the difference in quality and are willing to schedule a trip to the farmers market to meet

their weekly needs.

3.6 Industry Structure SummaryLarge supermarkets source the bulk of FFV from local farmers: Large supermarkets source the

bulk of FFV from local sources with imports fillingseasonal gaps in local supply (e.g.mangos from Kenya) and filling customer nicheswith products not grown in Uganda

(e.g. apples from South Africa and elsewhere).Large supermarkets and their buying

agents (e.g. Freshmark for Shoprite) are experimenting with different strategies to

enhance the quantity and quality of FFVproduct sourced locally.

Problem solving behaviours by market participants are present in Ugandas FFVmarket: Market

players at all levels of the market farmers, brokers, andretailers employ problem

solving behavioursto find low cost and profitable solutions to satisfy changing

demand. Thepresence of experimentation by market participantsespecially theirinvestments inbuilding longer term relationshipsis evidence in support of a

competitive market thatis driving market participants to experiment and innovate for

commercial advantage.

The FFV market is small and appears to be efficient: Supply and demand hasbalanced in the

FFV markets, at prices that exhibit seasonal instability but no upwardtrend. There has


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been no indication that other market forcessuch as collusion bymarket

intermediariesexplain price fluctuations. The price record overall suggests theabsence

of sustained shortage. Important studies based on the 1992/93 household

surveyshowed that price movements in the retail FFV markets were transmitted

efficiently toall other levels of the market, an important feature of an economically

efficient marketstructure. In the face of rising and diversified demand, supplies

mainly from domesticsourceshave been forthcoming.

Future growth in the FFV market will depend on the pace and distribution of incomegrowth,

urbanization and the structure of retail food marketing: The factors that havedriven demand

so farthe return of the Asian population and the growth in foreign aidworkersare

probably unsustainable and will have to be replaced by improvements ineconomic

productivity. FFV demand is very income sensitive and so a slowdown ineconomic

growth or its enhancement will be reflected in FFV market growth. Thestructure of food

retail will influence local sourcing in different ways: the growth ofsupermarkets, large

and small, will favour direct supply relationships with farmers andplace greater

importance on farm organization, cold storage and improved watermanagement; the

growth of municipal markets and kiosks will favour indirect supply ofFFV through

brokers and traders and place greater importance on communication,transportation

infrastructure and trade policy.


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4.0 MARKETING PLAN4.1 Strategies for Maximizing Sales

As a rule and priority, a wide range of products shall be on offer at the proposed Fresh

Fruits & Vegetables Parlour. This is because most buying decisions take place in the

store. A relatively well-supplied agri-hub facility should carry a minimum range ofaround 20 fruit and 30 vegetables. Product choice is not only about the range of crops

on offer, but also different varieties, colours types of packaging, etc. Although there are

no fixed rules, the proportion of fruits and vegetables on offer should be more or less

equal.

The quantity and type of fruits and vegetables for sale varies in each country. However,

as a general rule, produce can be divided into two groups. "Basic" refers to bulk

produce sales and is demanded by all types of consumers. "Specific" refers to those

destined for certain niche markets.

Basic products can be divided into permanent - produce that should be available on

shelves all year round such as apples, tomato, potato, lettuce, carrots, etc.; seasonal,

available only during certain months of the year such as peach, nectarines, melons, etc.

and minor produce, such as garlic, parsley, radish, etc. Within specific categories of

products are exotics - these are mainly of tropical origin and include pineapple, mango,

coconut, etc.; off-season crop, in many cases originating from other countries;

mushrooms; ready-made salads; aromatic herbs; those of a specific quality, such as

quality certified products, labeled with origin certification or regional differentiatedproduce, etc.; organics and fresh-cut or ready to eat products.

There are many different ways in which produce can be displayed and some may be

highly effective. The most common practice is to place contrasting colours next to one

another. This is in order to create a contrast of different coloured commodities. For

example, red tomatoes next to green cucumbers, or violet and white eggplants, etc.

Another method includes mixing and matching products that are often sold together

such as tomato and lettuce, for salads, bananas with other fruits, for making fruit salads,

etc. Less common is the grouping of similar products such as tubers and roots.

4.2 PricingProduce at the proposed Fresh Fruits & Vegetables Parlour may be priced by weight,

count or volume with competitors prices used as guidelines. If produ ce is sold by

weight, then UNBS-inspected and approved scales are needed to verify the weight of


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produce sold. Selling by weight assures consumers and producers that they receive full

shilling value for the produce. The volume system works well for crops that lend

themselves to packaging such as small fruit and vegetables or items sold in large

volume. Producers should use signs with the prices listed in units so customers are

charged the same amount for their produce. It is a good idea to price produce with

UShs. 500/= and UShs. 1,000/= intervals to maintain the farm image and ease of

calculation.

4.3 Advertising and PromotionGood service, courtesy, quality produce and reasonable prices cause positive word-of-

mouth advertising, and this type of advertising is the most effective method of all.

However, it takes time to build up a satisfied clientele, and other forms of advertising

may be required until the proposed Fresh Fruits & Vegetables Parlour has a large

number of satisfied customers. Other advertising forms include signs, newspapers, FM

radio and TV ads, mail out materials and bumper stickers. Regardless of the form used,advertising is basically done to inform the public of certain key factors concerning the

market operation, including what produce is available, the hours of business operation

and the location of the proposed Fresh Fruits & Vegetables Parlour.

Newspaper advertising is always a good way to reach the public, but may only be

necessary when sales levels are low and more customers are needed to move produce;

when the proposed Fresh Fruits & Vegetables Parlour opens; or when new produce

comes in season. Ads can be run in the classified section or in a display format. The

classified ads generally are less expensive and reach consumers who use produce forcanning or freezing. Display advertisements often are used to catch the customers

attention and announce special events at the Fresh Fruits & Vegetables Parlour.

Direct mailings, such as catalogs or coupons, are also beneficial. An inexpensive book

for visitors to sign, which gives their name, address and particular interest, can supply

roadside marketers with a mailing list and knowledge of the customers interests.

Promotion techniques for the proposed Fresh Fruits & Vegetables Parlour can be

individually or community-based planned activities. The business operator can usefriendly, courteous service, volume price discounts or superior quality produce to

establish goodwill. Some planned community activities that can help promote the

proposed Fresh Fruits & Vegetables Parlour are tours, bulletins and leaflets, produce

or monetary donations, distribution of discount coupons at community service

organization activities (i.e., barbecues, ice cream socials), exhibits at craft shows and

fairs and sponsorship of community events.


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5.0 BUSINESS OPERATIONS5.1 Operating Model

The proposed Fresh Fruits & Vegetables Parlour will have four core functions:

packing, retailing, marketing and distribution.

The packing operation will receive raw material from growers and packs itaccording to customer specifications. Depending on the growers on-farm post-

harvest handling capabilities, the product is cooled, washed, graded, packed,

palletized and placed in cold storage until it is shipped to or picked up by

customers. Farms that field pack may bring pre-packed cases to the food hub for

cooling and storage. On-farm pickup will be offered to growers who do not have

refrigerated transport.

The retailing operation will specialize in making direct OTC (Over-the-Counter)sales of fresh fruits and vegetables or derivative preparations to customers who

will be placing and taking their orders in the dining lounge area, or off-the-shelf

in the supermarket area.

The marketing operation will consist of buyers and salespeople who willnegotiate transactions with growers and customers. They may conduct pre-

season crop planning with both groups to more consistently match supply and

demand throughout the season.

The distribution operation will handle logistics of farm and customer pickupsand deliveries. This function is often outsourced and is not included as a profit

centre in the business model.

The initial phase of the project assumes packing, retailing,marketing and distribution of

Ugandan first grade produce only. Since focus is a key success factor in entrepreneurial

strategy, this limitation in scope is to allow the operator to master buying, packing,

retailing and marketing the largest and most profitable product line. Over time the team

can introduce new offerings such as leased storage, private labeling, seconds, organic,

proteins, processing and more. These future opportunities are not reflected in the

business model.


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5.2 Business ModelThe packing operation earns revenue by charging a flat fee for cooling and packing. The

fee schedule covers direct costs which vary based on packaging and cooling required

for each crop, indirect costs and a profit margin. The marketing operation will handle

two types of sales: consignment and direct purchase. In a consignment sale the

proposed Fresh Fruits & Vegetables Parlour will facilitate the sale to a buyer on a

commission basis but will not purchase the product from the grower. In a direct

purchase the food hub will buy the product from the grower at a set price and strive to

sell it to a customer at a profit.

As a general practice, product packed at the food hub is sold on commission and

product packed by the grower is purchased directly. In the first case, the grower

receives the remainder of the price paid by the customer less commission and packing

fees. This transaction can take a few weeks to settle.

This for-profit business model incents the food hub to maximize price and volume, and

to boost profit margin by minimizing direct and indirect overhead costs. Growers are

incented to improve quality to attract a higher price and increase percent pack-out for

product graded and packed at the food hub.

5.3 FacilityThe ideal facility is located close to a core group of committed grower-suppliers and

near a major transportation route leading to a large customer base. The interior will

have zoned refrigeration, ambient storage, a packing floor and offices. The exterior will

have at least two raised loading docks that tractor-trailers can easily access for shipping

and receiving and a back lot or access road for truck overflow. Technical requirements

include commercial or industrial zoning, access to an abundant supply of clean water,

adequate electrical service, preference for natural gas and adequate weight limits on

access roads. The retailing area should comprise of a dining lounge area (with an

attached kitchen); a supermarket display area for fresh and processed fruits and

vegetables; and ample parking space for vehicles. Some optional facilities are restrooms,playground and a picnic area.

If an existing structure in an ideal location with refrigeration can be leased within

Entebbe Municipality, it may be advantageous to begin operations as a leaseholder to

minimize capital expense and location risk should the core group of growers change its

locus of concentration in the first few years of operation.


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5.4 Hours of OperationThe business hours that the proposed Fresh Fruits & Vegetables Parlour will be open

to the public for business will be 18 hours per day from Monday to Sunday. Since the

proposed Fresh Fruits & Vegetables Parlour will be a high-volume fresh and processed

produce selling facility, it will be necessary to keep it open for such a period of time

daily to cater for the expected high volume of customers shopping for fresh fruits and

vegetables at any time of the day.

It is also good practice to have the facility open to evening shoppers since some of them

can only afford to get time for fresh and processed produce shopping after the normal

daytime working hours like most supermarkets in the Kampala area usually operate.

Having the facility to operate over the duration over Saturdays and Sundays is meant to

cater for the peak in customer demand when the highest customer traffic usually

occurs.

5.5 LocationThe location of a foods hub can greatly influence its profitability. There will probably be

very few market locations that will be ideally suited. Some variables to consider when

evaluating sites are traffic count, population density and composition, zoning

regulations, the type of markets being targeted, distance from customers and

competitors as well as the type of produce offered. The more successful foods hubs are

located near customers and are easily visible from the road.

For the case of the proposed Fresh Fruits & Vegetables Parlour, the most convenient

place for its location is considered to be Entebbe Municipality for precisely the

following reasons:-

Entebbe Municipality is the gateway and exit to Uganda for air-boundpassengers and therefore makes a good stop-over for in-transit customers

interested in fresh and processed Ugandan fruits and vegetables. The traffic density between Entebbe and Kampala is one of the highest in

Uganda and this counts in quite a significantly way in attracting potential

customers who use this route.

Entebbe is not quite far off from Kampala city which is a focal point in thesupply and delivery of fresh fruits and vegetables in Uganda. The Entebbe


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location for the proposed Fresh Fruits & Vegetables Parlour will therefore give

it a strong fresh produce sourcing cost advantage.

The competition in Entebbe Municipality area for supermarket-sized produce-dealing facilities is not as acute as that one in Kampala. There are no large

supermarkets to speak of within the Entebbe Municipality area. So, the location

of the proposed Fresh Fruits & Vegetables Parlour will make it a sole player in

this relatively virgin territory almost devoid of competition from any other in-

town facilities dealing in the same product or service.

The Uganda cold chain network for fresh produce is poorly developed. Thelocation of the proposed Fresh Fruits & Vegetables Parlour in the Entebbe

Municipality area makes it a convenient stop-over cold-storage fresh produce

facility that out-bound fresh horticultural exporters and consumers can use to

keep or source their fresh fruits and vegetables before flying out through Entebbe

Airport.

Entebbe Municipality hosts a large contingent of UN troop bases that do nothave quick and easy access to supplies of fresh fruits and vegetables. Positioning

the proposed Fresh Fruits & Vegetables Parlour near these UN troop bases and

other international agencies accords the facility a distinctive advantage over the

other competitors in bidding for fresh produce supply tenders to them whenever

the opportunity arises.

Availability of parking is another important factor that should be considered in

selecting a location for the proposed Fresh Fruits & Vegetables Parlour. Secure off-road

parking is essential for the safety of customers and users of the facility. The parking lotshould be a well-drained grassy or graveled area. If the proposed Fresh Fruits &

Vegetables Parlour is generating a large amount of traffic as is expected, then traffic

flow directions may be needed to assist in orderly parking.

Organized traffic patterns can make a big difference in the number of cars that can park

at any given time. Three main steps that the operator of the proposed Fresh Fruits &

Vegetables Parlour can take to fully use parking lot space include setting up definite

entrances and exits, setting up one way traffic flow and marking off distinct parking

spaces for cars. Following these steps will improve safety as customers enter, movethrough and leave the parking lot. It will also eliminate confusion in the parking lot and

allow for more parking spaces. However, the cost of setting up traffic patterns and

marking off spaces needs to be considered. Signs will be required to direct traffic, and

materials will be needed to mark off parking spaces.


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6.0 MANAGEMENT PLAN6.1 Key Positions

The ideal operator will have existing relationships with growers and a high level of skill

and experience in marketing and sales. The key positions at start-up include:

General Manager or Chief Executive oversees the marketing, operations and financial

functions of the company. This individual will also actively buy and sell with growers

and customers. As the company adds staff this individual may become less hands-on,

but will continue to be involved in every aspect of the enterprise and may handle key

accounts. Book-keeping staff will be needed fairly early on to assume time consuming

office and accounting duties it is a very paperwork-intensive industry and in time a

Controller will be needed to manage growth.

Salesperson/Buyer who will visit farms to build the grower base, meet with buyers to

expand the customer base, and negotiate transactions to meet sales targets. This

function will eventually split into buying, sales and customer service.

Warehouse/Quality Manager who oversees receiving, inspections, packing, order

processing, shipping and logistics. This individual hires, trains and supervises floor

labour and is responsible for food safety and quality management at the facility. This

position will eventually split into dedicated quality management, warehouse

management, logistics and human resources management functions.

Supermarket Manager whosupervises employees and store operations, taking

inventory and ordering products, performing administrative and human resources

work, or engaging in safety inspections and loss prevention. He/she will also

organizing merchandise, communicate with employees, and provide excellent customer

service.

6.2 Project PromoterThe man of vision and energy behind the proposed Fresh Fruits & Vegetables Parlour

is Mr. Aggrey Mugabi a self-made made entrepreneur, who has vowed to leave no

stone unturned in realizing his cherished dream of establishing and operating a modern

and futuristic agri-hub business in Uganda that will introduce new standards in agro-

produce trading; raise the incomes and improve the welfare of the Ugandan farmers;

create thousands of jobs; and add value to local agro-produce. Mr. Aggrey Mugabi is a

3rd Year Bachelor of Entrepreneurship student at Makerere University.


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7.0 FINANCIAL PLANThe following is the Financial Plan for the proposed Fresh Fruits & Vegetables Parlour.

7.1 Start-up Summary

The start-up expenses include:

Legal expenses for obtaining licenses and permits as well as the accountingservices totaling US$ 1,300.

Marketing promotion expenses for the grand opening of the Fresh Fruits &Vegetables Parlour in the amount of US$ 4,500 and as well as flyer printing

(2,000 flyers at US$ 0.25 per copy) for the total amount of US$ 5,000.

Consultants fees of US$ 3,000 paid to Consultants Firm for the help with settingup the Fresh Fruits & Vegetables Parlour.

Insurance (general liability, workers' compensation and property casualty)coverage at a total premium of US$ 2,500.

Other start-up expenses including stationery (US$ 500) and phone and utilitydeposits (US$ 2,500).

The required start-up assets of US$ 577,500 include:

Operating capital in the total amount of US$ 70,000, which includes employeesand owner's salaries of US$ 25,000 for the first two months and cash reserves for

the first three months of operation (approximately US$ 15,000 per month). Start-up inventory of US$ 30,000. Plant Equipment for the total amount of US$ 60,000. Land for construction of the proposed Fresh Fruits & Vegetables Parlour in the

amount of US$ 200,000.

Construction materials worth US$ 90,000. Building and civil construction expenses estimated to cost US$ 60,000. Purchase and installation of furniture, fixtures and fittings estimated to cost US$

20,000.

Purchase of transportation van at a cost of US$ 20,000.

Physical contingencies (5% of start-up assets) and worth US$ 27,500.


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Table 2: Start-up Costs SummaryITEM DESCRIPTION COST IN USD COST IN USHS

A. Start-up ExpensesLegal expenses 1,300 3,300,000

Insurance 2,500 6,347,000

Consultants Fees 3,000 7,616,000

Marketing promotion expenses 5,000 12,694,000

Other Start-up Expenses (incl. Stationery) 2,500 6,347,000

Sub-Total 14,300 36,304,000

B. Start-up AssetsLand/Site (1.5 2 Acres) 200,000 507,760,000

Construction Materials 90,000 228,492,000

Building & civil construction costs

Labour Costs 33,000 83,780,000

Transport Costs 15,000 38,082,000Technical installations + Interior design 10,000 25,388,000

Utility connection costs 2,000 5,078,000

Plant Equipment 60,000 152,328,000

Furniture, Fixtures & Fittings 20,000 50,776,00

Transportation Van (1 Unit) 20,000 50,776,000

Start-up Inventory 30,000 76,164,000

Operating Capital 70,000 177,716,000

Sub-Total 550,000 1,396,340,000

Physical Contingencies (5%) 27,500 69,817,000Sub-Total 577,500 1,466,157,000

TOTAL (A + B) 591,800 1,502,460,000

Funding for the project will come from three major sourcesowners/promoters

investments; angel investor financing and bank loans. The project promoter Mr.

Aggrey Mugabi is making his capital contribution to the project in form of land

valued at US$ 200,000within the Entebbe Peninsula area. Financing for the start-up

inventory and operating capital is expected to be raised through a medium-term bank

loan worth US$ 100,000. The remaining US$ 291,800 needed to cover the start-upexpenses and the rest of the assets will be raised from angel investor sources. Table 3

below summarizes project funding sources.


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Table 3: Project Funding by Source

ITEM DESCRIPTION

ANGEL

INVESTOR

FUNDING

(USD)

MEDIUM-

TERM LOAN

FUNDING

(USD)

PROMOTERS

EQUITY (USD)

A. Start-up ExpensesLegal expenses 1,300 0 0Insurance 2,500 0 0

Consultants Fees 3,000 0 0

Marketing promotion expenses 5,000 0 0

Other Start-up Expenses (incl. Stationery) 2,500 0 0

Sub-Total 14,300 0 0

B. Start-up AssetsLand/Site (1.5 2 Acres) 0 0 200,000

Construction Materials 90,000 0 0

Building & civil construction costs 0 0

Labour Costs 33,000 0 0

Transport Costs 15,000 0 0

Technical installations + Interior design 10,000 0 0

Utility connection costs 2,000 0 0

Plant Equipment 60,000 0 0

Furniture, Fixtures & Fittings 20,000 0 0

Transportation Van (1 Unit) 20,000 0 0

Start-up Inventory 0 30,000 0Operating Capital 0 70,000 0

Sub-Total 250,000 100,000 200,000

Physical Contingencies (5%) 27,500 0 0

Sub-Total 277,500 100,000 200,000

TOTAL (A + B) 291,800 100,000 200,000

Percentage of Total Funding 49.31% 16.90% 33.79%


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7.2 Projected 3-Year Profit & Loss AccountTable 4: Projected 3-Year Profit & Loss Account (Figures in USD)

ITEM/YEAR 2013 2014 2015

Sales 1,020,000 1,200,000 1,300,000

Direct Cost of Sales 278,000 310,000 360,000Other Production Expenses 0 0 0

Total Cost of Sales 278,000 310,000 360,000

Gross Margin 742,000 890,000 940,000

Gross Margin % 72.75% 74.17% 72.31%

Expenses

Payroll 384,000 416,000 448,000

Sales and Marketing and other Expenses 72,000 132,000 132,000

Depreciation 9,600 9,600 9,600

Leased Equipment 0 0 0

Utilities 12,000 12,000 12,000

Insurance 9,600 9,600 9,600

Rent 36,000 36,000 36,000

Payroll Taxes 57,600 62,400 67,200

Other 0 0 0

Total Operating Expenses 580,800 677,600 714,400

Profit Before Interest and Taxes 161,200 212,400 225,600

EBITDA 170,800 222,000 235,200

Interest Expense 9,310 13,703 14,203

Taxes Incurred 45,567 59,609 63,419

Net Profit 106,323 139,088 147,978

Net Profit/Sales 10.42% 11.59% 11.38%


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7.3 Projected 3-Year Cash Flow StatementTable 5: Projected 3-Year Cash Flow Statement (Figures in USD)

ITEM/YEAR 2013 2014 2015

CASH RECEIVED

Cash from Operations

Cash Sales 255,000 300,000 325,000Cash from Receivables 697,500 873,971 960,539

Sub-Total Cash from Operations 952,500 1,173,971 1,285,539

Additional Cash Received

VAT Received 0 0 0

New Current Borrowing 100,163 0 0

New Other Liabilities (Interest-free) 36,000 36,000 36,000

New Long-term Liabilities 36,000 36,000 36,000

Sales of Other Current Assets 0 0 0

Sales of Long-term Assets 0 0 0New Investment Received 0 0 0

Sub-Total Cash Received 1,124,663 1,245,971 1,357,539

EXPENDITURES

Expenditures from Operations

Cash Spending 384,000 416,000 448,000

Bill Payments 511,954 637,704 695,324

Sub-Total Spent on Operations 895,954 1,053,704 1,143,324

Additional Cash Spent

VAT Paid Out 0 0 0Principal Repayment of Current Borrowing 19,992 19,992 19,992

Other Liabilities Principal Repayment 0 0 0

Long-term Liabilities Principal Repayment 18,000 18,300 3,700

Purchase Other Current Assets 24,000 30,000 40,000

Purchase Long-term Assets 24,000 30,000 30,000

Dividends 0 0 0

Sub-Total Cash Spent 981,946 1,151,996 1,237,016

Net Cash Flow 142,717 93,975 120,523

Cash Balance 182,717 276,692 397,215


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7.4 Projected 3-Year Balance SheetTable 6: Projected 3-Year Balance Sheet (Figures in USD)

ITEM/YEAR 2013 2014 2015

ASSETS

Current Assets

Cash 182,717 276,692 397,215Accounts Receivable 147,500 173,529 187,990

Inventory 33,000 36,799 42,735

Other Current Assets 29,000 59,000 99,000

Total Current Assets 392,217 546,020 726,940

Long-term Assets

Long-term Assets 74,000 104,000 134,000

Accumulated Depreciation 21,600 31,200 40,800

Total Long-term Assets 52,400 72,800 93,200

Total Assets 444,617 618,820 820,140LIABILITIES AND CAPITAL

Current Liabilities

Accounts Payable 51,123 52,530 57,564

Current Borrowing 80,171 60,179 40,187

Other Current Liabilities 36,000 72,000 108,000

Sub-Total Current Liabilities 167,294 184,709 205,751

Long-term Liabilities 58,000 75,700 108,000

Total Liabilities 225,294 260,409 313,751

Paid-in Capital 80,000 80,000 80,000Retained Earnings 33,000 139,323 278,411

Earnings 106,323 139,088 147,978

Total Capital 219,323 358,411 506,389

Total Liabilities and Capital 444,617 618,820 820,140

Net Worth 219,323 358,411 506,389

business plan - proposed ffv parlour

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