catering and decorating services

Pre-Feasibility Study

(Catering & Decorating Services)

Small and Medium Enterprises Development Authority

Ministry of Industries & Production Government of Pakistan

www.smeda.org.pk

HEAD OFFICE 4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,

Lahore Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7

[email protected]

REGIONAL OFFICE Punjab

REGIONAL OFFICE Sindh

REGIONAL OFFICE Khyber Pakhtunkhwa

REGIONAL OFFICE Balochistan

3rd Floor, Building No. 3, Aiwan-e-Iqbal Complex,

Egerton Road Lahore, Tel: (042) 111-111-456 Fax: (042) 36304926-7

[email protected]

5TH Floor, Bahria Complex II, M.T. Khan Road,

Karachi. Tel: (021) 111-111-456

Fax: (021) 35610572 [email protected]

Ground Floor State Life Building

The Mall, Peshawar. Tel: (091) 111-111-456


Bungalow No. 15-A Chaman Housing Scheme

Airport Road, Quetta. Tel: (081) 2831623, 2831702


Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost

December, 2013

TableofContents 1. DISCLAIMER ......................................................................................................................... 2 2. PURPOSE OF THE DOCUMENT ......................................................................................... 3 3. INTRODUCTION TO SMEDA ............................................................................................. 3 4. INTRODUCTION TO SCHEME ........................................................................................... 4 5. EXECUTIVE SUMMARY ..................................................................................................... 4 6. BRIEF DESCRIPTION OF PROJECT ................................................................................... 4 7. CRITICAL FACTORS ............................................................................................................ 5 8. INSTALLED AND OPERATIONAL CAPACITIES ............................................................ 5 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT ........................................................ 6 10. POTENTIAL TARGET MARKETS ...................................................................................... 6 11. PROCESS FLOW ................................................................................................................... 6 12. PROJECT COST SUMMARY ............................................................................................... 6

12.1 Project Economics ......................................................................................................7 12.2 Project Financing ........................................................................................................7 12.3 Project Cost .................................................................................................................7 12.4 Space Requirement ....................................................................................................8 12.5 Machinery and Equipment .........................................................................................8 12.6 Human Resource Requirement ................................................................................9 12.7 Revenue Generation ..................................................................................................9 12.8 Other Costs ..................................................................................................................9

13. CONTACTS - SUPPLIERS .................................................................................................. 10 14. ANNEXURES ....................................................................................................................... 11

14.1 Annexure 1 – Income Statement ............................................................................11 14.2 Annexure 2 – Balance Sheet ..................................................................................12 14.3 Annexure 3 – Cash Flow Statement ......................................................................12 14.4 Useful Project Management Tips ..........................................................................14 14.5 Useful Links ..............................................................................................................15

15. KEY ASSUMPTIONS .......................................................................................................... 16

SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST - 2

1. DISCLAIMER This information memorandum is to introduce the subject matter and provide a general idea and information on the subject. Although, the material included in this document is based on data / information gathered from various reliable sources; however, it is based upon certain assumptions which may differ from case to case. The information has been provided on as is where is basis without any warranties or assertions as to the correctness or soundness thereof. Although, due care and diligence has been exercised to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained information does not preclude any further professional advice. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision, including taking professional advice from a qualified consultant / technical expert before taking any decision to act upon the information.

For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk


2. PURPOSE OF THE DOCUMENT The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document / study covers various aspects of project concept development, start-up, production, marketing, finance and business management.

The purpose of this document is to facilitate potential investors in Catering and Decorating Services by providing them with a general understanding of the business with the intention of supporting potential investors in crucial investment decisions.

The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed by existing enterprises by trial and error, and certain industrial norms that become a guiding source regarding various aspects of business set-up and it’s successful management.

Apart from carefully studying the whole document one must consider critical aspects provided later on, which shall form the basis of any investment decision.

3. INTRODUCTION TO SMEDA

The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs).

With a mission "to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify policy, access to finance, business development services, strategic initiatives, and institutional collaboration and networking initiatives.

Preparation and dissemination of prefeasibility studies in key areas of investment has been a hallmark of SME facilitation by SMEDA.

Concurrent to the prefeasibility studies, a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services.


4. INTRODUCTION TO SCHEME ‘Prime Minister’s Youth Business Loan’ program, for young entrepreneurs, with an allocated budget of Rs. 5.0 Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, through designated financial institutions, initially by the National Bank of Pakistan (NBP) and the First Women Bank Ltd. (FWBL).

Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 01 year grace period and a debt: equity of 90: 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).

5. EXECUTIVE SUMMARY Catering and Decoration Services Business is proposed to be located in a middle income area in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan etc.

Services include catering of food & services to events such as weddings, mehndi & mayun, corporate Events etc and decoration of event site (this service is to be outsourced).

Capacity: Maximum 150 events per year and initial utilization upto 67%

Total Cost Estimates is Rs. 2.10 million with fixed investment of Rs. 1.37 million and working capital of Rs. 0.74 million

Given the cost assumptions IRR and payback are 39 % and 3 years respectively

The most critical considerations or factors for success of the project are:

1. Procurement of Raw material 2. Location- proximity to marriage halls, business hubs etc 3. Quality Food

6. BRIEF DESCRIPTION OF PROJECT

Location: The recommended area for the proposed catering and decorating service business is the middle income locality in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc. This business can also be undertaken in all small 2nd tier towns in addition to suburban towns of large cities.


Product: The proposed project will offer high quality food & catering services to events such as weddings, anniversaries and corporate events etc.

Target Market: Target customer for catering business would be event management companies, corporate and individual clients, marriage hall & lawns etc.

Employment Generation: The proposed project will provide direct employment to 09 people. Financial analysis shows that the business shall be profitable from the very first year of operation

7. CRITICAL FACTORS

Procurement of raw material Location - proximity to marriage halls, business hubs etc Quality of food Strict management control Professionalism and courteous customer service Skilled Staff / Cooks Planning, Organizing & Time management Contract with suppliers for decoration

8. INSTALLED AND OPERATIONAL CAPACITIES For the proposed project, it is assumed that on an average 100 events will be catered during a year with an average of 400 guests per event. The proposed business can also serve up to 1,000 or more guests per event. Marquee and other decorative arrangement for big events can be outsourced to multiple decorators.

Table 1: Project Economics

Events No. of Events in a Year %Weddings 30 30Mehndi & Mayun 30 30Anniversaries 10 10Corporate Events 07 07Others 23 23Total 100 100


9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT The Pakistani economy is becoming increasingly service-oriented and over the past several decades the food service industry is growing substantially. There has been a mushroom growth of marriage halls, event management complexes in the past decade across all major cities and towns therefore there is a potential for proposed catering and decorative service business to be established in cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan, Peshawar and Quetta etc.

10. POTENTIAL TARGET MARKETS The recommended areas for the proposed business will be cities like Karachi, Lahore, Rawalpindi, Hyderabad, Faisalabad, Multan etc. This business can also be done in all small 2nd tier towns in addition to suburban towns of large cities. Target customers for the said business would be Corporate and Individual clients, Event Management Companies, Marriage Halls & Lawns etc.

11. PROCESS FLOW For a regular event, following process is to be followed:

Hiring and scheduling of Staff Ordering and serving arrangements for menu items Ordering equipment as needed from event rental companies Obtaining licenses and permits, if needed, for use of the site etc. Coordinating all ancillary services with the client and the vendors

12. PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of Catering & Decoration Service Business under the ‘Prime Minister’s Youth Business Loan’ program. Various cost and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as appendix


12.1 Project Economics

All the figures in this financial model have been calculated for catering of 100 events in a year, whereas decoration service for such events will be outsourced in order to control the capital expenditure at initial stage. Revenue generated through such events are based on given assumptions and are calculated to be Rs. 19.20 million. The following table shows Internal Rate of Return, Net Present Value and Payback Period.

Table 2: Project Economics

Description Details Internal Rate of Return (IRR) 39% Payback Period (years) 3.0 Net Present Value (NPV) Rs. 3,855,365

Returns and profitability are highly dependent on regular occurrence of events, good marketing practices, quality of services and more importantly good quality and taste of food.

12.2 Project Financing

Following table provides details of the equity required and variables related to bank loan;

Table 3: Project Financing

Description Details Total Equity (10%) Rs.210,400 Bank Loan (90%.) Rs.1,893,600 Markup to the Borrower (%age/annum) 8%Tenure of the Loan including Grace Period (Years) 08Grace Period (Years) 01

12.3 Project Cost Following requirements have been identified for operations of the proposed business.

Table 4: Capital Investment for the Project

Capital Investment Amount (Rs.) Construction & Renovation 105,000Machinery & Equipment 165,000Office Equipment & Furniture 174,000Advance Rent 150,000Vehicles 675,000Preliminary Expenses 100,000


Total Capital Cost 1,369,000Initial Working Capital 735,000Total Project Cost 2,104,000

12.4 Space Requirement

Space required for Catering & Decoration Services Business is 750 sq. ft. Management office will require 150 sq. ft. and 600 sq. ft. will be used for storage and cooking. It is also assumed that preparation of Bar-B-Que items will be prepared on site as and when required.

Table 5: Space Requirement

Area Required Area (Sq. ft.)

Monthly Rent Charges (Rs.)

Yearly Rent(Rs.)

For Office & Storage 750 25,000 300,000Total Rent 25,000 300,000

12.5 Machinery and Equipment Following table provides list of machinery and equipment required for the proposed Catering & Decoration Services Business.

Table 6: Machinery and Equipment

Description Total Rs.

Burners / Fittings / Others 40,000 Daigs / Kadhai / Others 20,000 Storage Racks 15,000 Deep Freezers 60,000 Other Kitchen Utensils 30,000 Total 165,000

Table 7: Office Equipment & Furniture Costs

Quantity Cost Amount Computer & UPS 1 50,000 50,000Printer 1 15,000 15,000Tables 2 8,000 16,000Chairs 6 3,000 18,000Sofa Set 1 20,000 20,000Split AC 1 45,000 45,000Others 1 10,000 10,000Total 174,000


12.6 Human Resource Requirement

Table 8: Human Resource Requirement

Description Nos. Salary per employee per month (Rs.)

Total monthly Salary (Rs.)

Owner 1 25,000 25,000Head Cook 1 20,000 20,000Cooks / Karigars 2 15,000 30,000Helpers 4 10,000 40,000Driver 1 10,000 10,000

Total Staff 9 125,000 The table above provides details of human resource required to run a Catering and Decoration Services Business. Salaries of all employees are estimated to increase at 10% annually.

12.7 Revenue Generation

The revenues are based on assumption that 100 events/year with an average of 400 guests will be organized. The standard menu will be of two items only.

Table 9: Revenue Generation

Events Nos. Sales

Price (Rs.)Revenue (Rs.)

Banquet Arrangement (Per Head) 400 90 36,000Shamiana / Kanats (Per Head) 400 15 6,000Marquee Set up (Per Head) 400 90 36,000Stage 1 20,000 20,000Water (Per Head) 16 250 4,000Food – Standard Menu (Per Head) 400 225 90,000 Total Sales Revenue 192,000Total Sales Revenue in a Year 19,200,000

12.8 Other Costs

An essential cost to be borne by the said business is the promotional expense to attract more clients. Average monthly expenditure in this head is assumed to be Rs. 20,000. Working Capital Requirements: It is estimated that an additional amount of approximately Rs. 735,000 will be required as cash in hand to meet the initial working capital requirements during operations. The requirement is based on the rent, utilities and salaries expenses for at least four months. The following table gives the break up.


Table 10 – Working Capital Requirement

Month Monthly Charges (Rs.) Utilities 04 285,000Salaries 04 375,000Rent 04 75,000Total 735,000

13. CONTACTS - SUPPLIERS KITCHEN 'N' RESTAURANT SYSTEMS 102-A, Allama Iqbal Road Butt Lane, Garhi Shahu, Lahore, Punjab, Pakistan Phone: +92-42-36366590 / 36305989 Fax: +92-42-36305989 KITCHEN CARE # 103, Golden Plaza F-7, Blue Area, Islamabad, Capital, Pakistan Phone: +92-51-32875226 Fax: +92-51-32277176 PRESTIGE KITCHENS Kehkashan Shopping Arcade Block-7, Clifton, Karachi 75600, Sindh, Pakistan Phone: +92-21-35862978 / 35862839 Fax: +92-21-5871814 KITCHEN EQUIPMENTS Syed Qaiser Imam 554 Buffer Zone, Karachi Phone: 03333045358


14. ANNEXURES

14.1 Annexure 1 – Income Statement


14.2 Annexure 2 – Balance Sheet

14.3 Annexure 3 – Cash Flow Statement


14.4 Useful Project Management Tips Technology

List of Equipment

Burners / Fittings / Others Daigs / Kadhai / Others Storage Racks Deep Freezers Other Kitchen Utensils

Energy Requirement: Should not be overestimated or installed in excess and alternate source of energy for critical operations be arranged in advance

Equipment Suppliers: Should be asked for training/orientation and after sales services under a contract with the suppliers

Quality Assurance Equipment & Standards: Products/Service quality standards need to be defined and a monitoring system for compliance to be instituted. This improves credibility.

Marketing

Product Development & Packaging: Expert's help may be engaged for product/service and packaging design & development

Ads & P.O.S. Promotion: Business promotion and dissemination through banners and launch events is highly recommended. Brochures from good quality Decoration Service Providers need to be obtained and kept for further use.

Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be allowed to compromise quality. Price during introductory phase may be lower and used as a promotional tool. Product cost estimates should be carefully documented before price setting.

Human Resources

Owner Head Cook Cooks / Karigars Helpers Driver


Adequacy & Competencies: Skilled and experienced staff should be considered an investment even to the extent of offering share in business profit.

Performance Based Remuneration: Attempt to manage human resource cost should be focused through performance measurement and performance based compensation.

Training & Skill Development: Encouraging training and skill of self & employees through experts and exposure of best practices is route to success. Least cost options for Training and Skill Development (T&SD) may be linked with compensation benefits and awards.

14.5 Useful Links

Prime Minister’s Office

www.pmo.gov.pk

Small & Medium Enterprises Development Authority (SMEDA)

www.smeda.org.pk

National Bank of Pakistan (NBP)

www.nbp.com.pk

First Women Bank Limited (FWBL)

www.fwbl.com.pk

Government of Pakistan

www.pakistan.gov.pk

Ministry of Industries & Production

www.moip.gov.pk

Ministry of Education, Training & Standards in Higher Education

http://moptt.gov.pk

Government of Punjab

www.punjab.gov.pk

Government of Sindh

www.sindh.gov.pk

Government of Khyber Pakhtoonkhwa

www.khyberpakhtunkhwa.gov.pk


Government of Balochistan

www.balochistan.gov.pk

Government of Gilgit Baltistan

www.gilgitbaltistan.gov.pk

Government of Azad Jamu Kashmir

www.ajk.gov.pk

Trade Development Authority of Pakistan (TDAP)

www.tdap.gov.pk

Securities & Exchange Commission of Pakistan (SECP)

www.secp.gov.pk

Federation of Pakistan Chambers of Commerce and Industry (FPCCI)

www.fpcci.com.pk

State Bank of Pakistan (SBP)

www.sbp.org.pk

15. KEY ASSUMPTIONS

Description Debt Equity Ratio 90:10Interest Rate 8%Loan Tenure (With 01 year grace period) 8 YearsSales Price Growth Rate 10%Depreciation Rate 10%Weighted Average Cost of Capital 9.2%Prepaid Rent Period 6 MonthsIncrease in Staff Salaries 10%Increase in Office expense 10%

catering and decorating services

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