a feasibility study v1

Bogalegaba Guest House

Feasibility Study

In Johannesburg

Table of Contents1. Introduction.................................................................................................................................... 6

2. Background information.................................................................................................................2

2.1 Brief history of the organic movement....................................................................................2

2.2 Status of the organic food and beverage market in SA..........................................................2

2.3 Organic Consumer Characteristics........................................................................................3

2.4 Trend Drivers......................................................................................................................... 4

3. The Proposed Concept..................................................................................................................7

4.1 General Information and Assumptions...................................................................................8

4.2 Key Success factors..............................................................................................................9

5 Economic Assessment.................................................................................................................10

5.1 Food service growth expectations........................................................................................10

5.2 Eating Out Patterns..............................................................................................................10

5.3 Health and Dietary Issues....................................................................................................11

6 Market Feasibility......................................................................................................................... 12

6.1 Consumer Trends and Analysis...........................................................................................12

6.2 Health................................................................................................................................... 12

6.3 Indulgence........................................................................................................................... 13

6.4 Convenience........................................................................................................................ 13

6.5 Ethical / environmental issues (Going ‘green)......................................................................14

6.6 Sandton could double in size over the next 10 years...........................................................14

7 Legislative Environment...............................................................................................................15

7.1 Producers............................................................................................................................. 15

7.2 Organic standards and certification......................................................................................16

8 Location....................................................................................................................................... 17

9 Financial Feasibility...................................................................................................................... 18

7.1 Investment Summary...........................................................................................................18

10 Financial feasibility Summary...................................................................................................25

10.1 Profitability........................................................................................................................... 25

10.2 Cash flows........................................................................................................................... 25

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10.3 Ratio analysis....................................................................................................................... 25

11 Risk Analysis............................................................................................................................ 27

12 Conclusions and Recommendations........................................................................................28

13 References.............................................................................................................................. 30

Annexure 1: Projected Operating Budget....................................................................................31

Annexure 2 Expenditure Calculations..........................................................................................32

Annexure 3 Personnel Count.......................................................................................................33

Annexure 4: Monthly Basic Payroll Calculations..........................................................................34

Annexure 6: Costing Sheet Sample Dinner.................................................................................35

Annexure 7: Costing Sheet Sample Lunch..................................................................................35

Annexure 8: Costing Sheet Sample Salads.................................................................................36

Annexure 9: Costing Sheet Sample Breakfast.............................................................................36

Annexure 10: Costing Sheet Sample Starters.............................................................................37

Annexure 11: Project Plan Template...........................................................................................37

Annexure 12: Producer Prices Survey........................................................................................38

Annexure 13: Site Evaluation Template......................................................................................39

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List of TablesTable 1: Summary of statistics on organic food & agriculture..................................................5

Table 2: Summary Statistic for food purchasing behaviour.....................................................6

Table 3: Proposed Organic Restaurant Concept.....................................................................7

Table 4: Restaurant General Information and assumptions....................................................8

Table 5: Consumer Trends and Analysis - Health.................................................................12

Table 6: Consumer Trends and Analysis - Indulgence..........................................................13

Table 7: Consumer Trends and Analysis - Convenience.......................................................13

Table 8: Consumer Trends and Analysis - Ethical / Environmental Issues (Going Green). . .14

Table 9: Trends Analysis - Growth of Sandton......................................................................14

Table 10: Organic Produce Companies.................................................................................15

Table 11: Financial Feasibility Summary...............................................................................18

Table 12: Projected Meal Covers...........................................................................................20

Table 13: Income Calculations...............................................................................................21

Table 14: Projected Income Statement..................................................................................22

Table 15: High-Level Actual Income Statement and Cash Flow............................................23

Table 16: Risk Analysis Summary.........................................................................................27

Table of Figures

Figure 1: Framework of factors affecting organic consumers' attitudes and willingness to purchase..................................................................................................................................3

Figure 2: Restaurant Business Plan Iterations.......................................................................29

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Preface

The attached report presents our research, analysis and findings and is intended to assist

Bogalegaba Guest House in evaluating the viability of an organic restaurant development in

Johannesburg’s Sandton Suburb. The analysis in this report is based on estimates,

assumptions and other information developed from industry research and market data.

The sources of information, the methods employed and the basis of significant estimates

and assumptions are stated in this report. Some assumptions inevitably will not materialize

and unanticipated events and circumstances may occur. Therefore, actual results achieved

will vary from those described and the variations may be material. The findings presented

herein are based on analysis of present and near-term conditions in the Johannesburg area,

any significant future changes in the characteristics of the local community, such as growth

in population, corporate inventory and visitor amenities/attractions, could materially impact

the key market, financial and economic conclusions developed as a part of this study.

As in all studies of this type, the estimated results are based on competent and efficient

management of the potential facility and assume that no significant changes in the

restaurants markets or related markets will occur beyond those set forth in this report.

Furthermore, all information provided to us by others was not audited or verified and was

assumed to be correct. This report has been prepared for the internal use of Bogalegaba

and should not be relied upon by any other party. The report has been structured to assist

company representatives in evaluating potential market demand, as well as the estimated

operating characteristics and should not be used for any other purpose.

Lack of data and high costs are the norm in countries in which the organic industry is

relatively new and may explain the fewer number of organic demand studies that are

available in developing countries and in South Africa so far was done by Du Toit and

Crafford (2003) to investigate preferences for organic food in four retail stores in Cape Town.

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1. Introduction

An ongoing trend is the mainstreaming of both organic foods and its consumers. The

demand for and consumption of organic foods in South Africa continues to grow. No longer

just a niche market, both organic food and the organic consumer are becoming a larger part

of the mainstream.

The main consumer trends observed in food retail provide insight into the changing

consumer trends and South African retailers responded to these changing trends towards

health and environmental concerns with the introduction of organically produced food and

beverages. Woolworths, a major retailer introduced organic food into selected stores in 1999

and has experienced annual growth of over 50 % in the sector in the period. Organic foods

provide a range of attributes which include: food safety, nutrition, value, package and

process attributes

Events such as reports that dairy products in supermarkets contain rBST1 in 2001 and the

contamination of food products with Sudan Red2 which was illegally used to colour chillies

sparked fears of food safety after the National Department of Health recalled a number of

products including spices, powders, and sauces contaminated with Sudan Red ( Pick ‘n Pay,

2005).

The industry is growing at a very high rate and thus unveiling numerous business

opportunities. The domestic market is currently growing at a rate of 30 percent per annum

Irwin (2003) and With only 5-10% of households living below the poverty line, Sandton is

currently Africa’s richest square mile due to the exclusive developments and exclusive

suburbs surrounding the centre, and it presents an ideal location for the restaurant given

also the profiles of the typical organic food consumers.

Projections undertaken show that the project will have a positive NPV of R3 675 412 which

means that returns will add value to the firm. The IRR of the project is projected to be

44.63% which is higher than the hurdle rate of 15 % which is the is the minimum rate of

return on a project that the directors have indicated as the minimum they will accept before

starting the project, given its risk and the opportunity cost of forgoing other projects. The

payback period for the project is projected to be 1.5 years which is very much acceptable

given industry standards of more than 3 – 5 years.

1 rBST is a growth hormone given to cows to increase their milk production

2 Sudan Red is a colourant used for colouring non food products that found its way into food products

6

http://en.wikipedia.org/wiki/Rate_of_return


2. Background information

2.1 Brief history of the organic movement

The organic movement has its origins in the European countries in the 1840 and it later

moved to the United States, Australia, Japan and developing countries. It emerged as the

pioneers started a movement in response to the negative impacts of industrial agriculture.

Inspiration and supporting evidence came from studies on nutritional value of food, health

and food safety, controversy surrounding introduction of foods containing genetically

modified organism and the impact of agricultural production on the environment.

The highest growth is expected from the European countries and emerging economies of

India, Brazil, China and South Africa (Willer and Yussefi, 2004). South Africa together with

Egypt has the largest domestic markets for organic food and beverages in Africa. The value

of the South African market is estimate at R50 million to R100 million (Irwin, 2002). Food

retail outlets are the main outlets were organic products are being sold.

Organic products were launched by Woolworths in 1999 with 10 lines, in year 2000 in Pick n’

Pay and both Shoprite and Spa in 2002. Woolworths has since increased its product line

from 10 to 150 lines and organic products are available in 60 of their stores. A study

conducted at three retails supermarkets in Cape Town showed that consumers purchasing

organic had high education and income levels (Du Toit and Crafford 2003)

In South Africa there are 239 (Willer and Yussefi, 2009) certified organic producers that

manage 35 000 ha that include fresh fruits, vegetables, cane sugar, herbs and spices. Few

studies have however been conducted on the organic food market in South Africa. Africa has

the lowest area under organic production but however in Africa and South Africa included

there is certified and uncertified organic production as most of organic production is not

documented and will remain so in the near future.

2.2 Status of the organic food and beverage market in SA

South Africa is one of the 30 African countries that produce certified organic products and

most products are exported due to higher revenues from foreign exchange. The domestic

market is currently growing at a rate of 30 percent per annum. Irwin (2003) says that South

Africa has a favourable position for expansion in there domestic market because of the

following development in the last few years

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a. Establishment of a separate section for organics at the Johannesburg fresh produce

market

b. Proposition of national regulations for organic products

c. Establishment of South African organic certification bodies

d. Formation of three South African organic associations

2.3 Organic Consumer Characteristics

The traditional organic consumers are usually those who purchase organic food as part of

their beliefs and lifestyle. As the niche market expands, other consumer segments are

coming into play such as aging baby boomers, university students, and others who perceive

organic food as a healthy, tasty or chic alternative to conventional food. These consumers

can be characterised by the following attributes

Living in urban areas often a big city

Making purchases based on quality and organic production methods (buyer behaviour)

Well educated and often from middle to high social class

Having relatively high purchasing power

The figure below outline a framework that shows the factors affecting organic consumers

attitudes and willingness to purchase organic food

Figure 1: Framework of factors affecting organic consumers' attitudes and willingness to purchase

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There is only one study that has been produced on belief and purchase of consumers

regarding organically produced food in South Africa by Du Toit and Crafford (2003) and this

may be attributed to the fact that this is a new industry and thus difficult to observe long term

trends. The results however showed that consumers who purchased organic products were

however older than 36 years, English speaking and had high education qualifications and

income levels. Woolworths say that consumers purchase organic food because of the taste

and because it contributes to the environment (Mawson, 2007). Spar sells organic food

products in most of the stores that cater for upper income groups (De Vynk, 2005).

All certified organic products sold in the four major retailers in South Africa are labelled

organic and Woolworths is the only food retailer with its own organic label. Time series data

on consumer purchases is not of organic food for different food categories over time is not

collected by private research firms or government agencies and this is the reason for the

lack of literature on demand analysis for organic food.

2.4 Trend Drivers

There are several factors driving the trend towards consumption of organic food. They go

beyond the stereotypical ones of environmentalism and a holistic lifestyle to include the

increased interest in healthy eating, indulging in food experimentation, increased interest in

food traceability, aversion to pesticides, antibiotics and other chemicals, an overall return to

basics. Three specific triggers for purchasing organic food: children, allergies, and a healthy

lifestyle. A March 2003 US AC Nielson survey in Gourmet Retailer magazine (Everage,

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External FactorsProcessing, packaging &

labellingCertification

Supply of product

Knowledge awarenessWhat is organic

Why organic

Perceived attributesHealth & Food Safety

Environmental FriendlyAnimal welfare

Products attributeNutritious & Tasty

Sensory CharactersValue

Social & Demographic factorsGender , Education

OccupationFamily Size

Consumer’s preferences & attitudesPerceived demand

Economic factorsHousehold Income

Product PricesPrice of related

products

Purchasing Decision

2003) asked for "the reasons consumers purchase organic products". Answers were as

follows:

32% believe organic is healthier

18% think they contain no pesticides

11% cite better quality

3% consider no GMO as a benefit

3% to prevent allergic reactions.

The factors relating to health and concern over what people are eating are driving the

organic category's growth more than the traditional philosophical approach to food.

Beyond the specific organic drivers, there are mainstream influences to be considered.

Convenience is now such a significant driver in consumer products, healthy eating, low carb

diets etc. have all shifted things in the overall food industry; organic will also feel some

effect. However, this is not a one-way street.

Another study conducted by the University of Pretoria Wendy Engel (2008) showed that the

majority of respondents believe organic food is more nutritious (84.2 %) and tastier (72.5 %)

than conventional food. The table below outlines the results of the study

Table 1: Summary of statistics on organic food & agriculture

Variable Description No %

Nutrition Organic food is more nutritious than conventional food 294 84.2

Taste Organic food tastes better than conventional food 257 72.5

Appearance Organic is more attractive than conventional 283 81.6

Conscience Organic leaves you with a good conscience 283 81.6

Labels Organic labels necessary to guarantee organic origin of products 328 92.1

Soil Conservation Organic agriculture conserves soil and impacts less on the environment 292 86.1

Pesticides Organic food contains less pesticide residue than conventional 290 83.0

Animal Welfare Organic food improves the welfare of animals 283 83.9

Impact on environment Impact of agriculture on the environment is exaggerated 211 89.8

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Environmental issues The environmental problems faced today are not too serious 168 67.0

Local farmers Organic production is good for local farmers 272 80.8

Small farmers Emerging small farmers benefit from organic agriculture 58 76.6

Consumer behaviour Consumer behaviour has a major impact on the way food is produced

More than 80 % of the surveyed in the study mentioned above reported that they buy

organic food and as shown in the table below. While most shoppers reported that they buy

food daily (29.8%) and weekly (30.4 %). Most of those who purchase organic food do so

monthly (33.5 %). While most respondents spend more than R1001 per month on food (>70

%) most spend less than R500 on organic food (73.6 %)

Table 2: Summary Statistic for food purchasing behaviour

Variable Response Food purchasingOrganic food

purchasing

No % No %

Purchase organic food Yes 288 82.3

Purchase frequency

Once / week 109 30.4 0 0

Twice / week 66 18.4 58 22.5

Daily 107 29.8 45 22.5

Monthly 69 19.3 67 33.5

Other 6 1.7 30 15.0

Purchase location Woolworths 141 39.4 132 45.8

Shoprite / Checkers 191 53.4 91 31.6

Pick n’ Pay 238 66.5 149 51.7

Spar 63 18.0 31 10.7

Farm 6 2.0 14 4.8

Fruit & Veg Store 64 18.0 58 20.1

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Information Traders 5 10 5 1.7

Farmers Market 5 1.4 8 2.7

Other 13 4.0 8 2.7

Monthly food expenditure

R500 45 12.6 212 73.6

R501 – R1000 61 17.0 62 21.5

R1001- R2000 128 35.7 0 0

>R2000 124 34.6 13 4.5

3. The Proposed Concept

Table 3: Proposed Organic Restaurant Concept

Menu

Preference

s

ThemeA Combination of casual and fine style dining with outside

dining facility and a dark, romantic place for couples to dine

Variety and

selection

Coffee shop, contemporary, continental, light meals

appetizers / soups, entrees, sandwiches, desserts,

seafood, red meat and poultry trends

Signature items Steaks,

Price range and

valueLSM 7, 8, 9, 10

Beverage serviceFine and wide selection of fine organic wines and soft

drinks, Juices and smoothies

Food quality Taste, Presentation, Portion size, Consistency

Décor

Green, comfortable interior decoration, modern restaurant

construction with elegant style and natural green. Mixing

green paint colors with modern elements is creating a

feeling of comfort and inviting space with exotic trees

reminiscent of a tropical rainforest

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http://restaurants.about.com/b/a/007206.htm

http://restaurants.about.com/b/a/007206.htm

Ambience

Relaxed delicious organic food in a manner that brings

together organic and lifestyle, and with an emphasis on a

LOHAS-Trend (Lifestyle of Health and Sustainability)

Size 200 to 250 square meters

Capacity 100 seater

Equipment and machineryfine china, glassware and flatware (absolutely no paper,

plastic, or Styrofoam), crisp white table cloths

Location and FacilityShould operate within the boundaries of Sandton Drive,

Katherine Street, Rivonia road and Grayston drive

Service

Days open 7

Hours of operation 7 to 10 pm

Service style

Highly trained and often wears more formal attire & should

be able to describe all menu items and a part of the wine-

list.

Extras offeredBooks, CD’s and DVD’s, magazines, life coaching, health

eating advise etc

4.1 General Information and Assumptions

The Report is based on a large number of assumptions and is subject to significant

uncertainties and contingencies, many of which are outside the writer’s control. The Report

includes cost estimates for setting up the restaurant, equipment, machinery, furniture and

fittings and other fixed and variable costs. These results reflect the order of magnitude of

costs and accordingly, the actual results may differ materially from those projected as it is

often the case that some events and circumstances do not occur as expected or are not

anticipated

Table 4: Restaurant General Information and assumptions

Number of seats 100

Estimated seat turnover by day and by meal period 2

Types of guests served LSM 7, 8, 9, 10

EntertainmentClassical and Jazz music playing subtly in the

background will reflect the theme

Franchise affiliation Non

Site or Facility Assumptions 100 seater restaurant located within the

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boundaries of Sandton Drive, Katherine Street,

Rivonia road and Grayston drive

Inflation Assumptions 6 % / annum

Size of facility Assumptions 200 to 250 square meters

Sales Increase 15 % per year

Increase in Cost of Raw Materials 10 % per year

Increase in Staff Salaries 10 % per year

Increase in Utilities (Electricity / Water 10 % per year

Increase in Rent 10 % per year

Increase in Office Expenses 10 % per year

Debt / Equity Ratio 50 : 50

Depreciation

o Shop Building & Fixtures (Diminishing Balance)

o Kitchenware & Machinery (Diminishing Balance)

o Furniture (Diminishing Balance)

10 % per annum

10 % per annum

10 % per annumEquipment Annual Maintenance Written Down Cost 2.5% of Value

Lease Period 5 Years

Lease Instalments Monthly

Financial Charges (Lease Rate) 15 % per annum

4.2 Key Success factors

Winning principles that can help shape the restaurant and improve its chances of

succeeding include the following

a. Conceive a winning concept : A well-defined concept stands a much better chance

of long term success than some vague notion.

b. Longetivity: the art of being able to maintain success over time while adjusting to

meet the changing demands and buying habits of the customer.

c. Consistency: requires implementing systems and procedures to ensure consistency

of operations

d. Market Appeal: Having a broad appeal and well developed points of difference

e. Expandability: Consistency of quality and service, and operating systems and

management procedures established

f. Menu Pricing: One of the most important factors in the strategic planning of a

restaurant is in the development of the menu. It involves designing an appealing

selection of menu items that are competitively priced in the marketplace.

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g. Selecting Prime Location

h. Market Research: Competition, customer preferences, demographics etc

.

5 Economic Assessment

The tourism industry is a major factor in the full-service restaurants (FSR), fast food and

cafés/bars industry. Tourism spending saw strong growth over the review period. Outlets

geared towards catering for tourists’ experienced rapid sales growth, such as those located

at travel stations/airports, hotels and shopping centres.

During the review period, cities such as Cape Town, Johannesburg, Pretoria and Durban

witnessed an increase in the number of visitors, which encouraged foodservice players to

provide attractive outlets with new decor and menus, along with quality service and new

marketing techniques.

5.1 Food service growth expectations

The healthy outlook for the South African economy, rapid changes in working habits, the

continued expansion of outlets through franchising and the expected increase in the number

of tourists will all contribute towards boosting foodservice transactions and sales over the

forecast period. The number of foodservice units is expected to increase by over 6%

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Compound Annual Growth Rate (CAGR) while the number of transactions is estimated to

grow by more than 10% CAGR. Value sales are predicted to exceed 17% CAGR, to reach

nearly R51 billion in 2009

5.2 Eating Out Patterns

South Africans are increasingly working longer hours and, as a result, family time has

become limited. For this reason, eating out has become more popular. Families often

choose a dining outlet which caters for the whole family unit. Single women and groups of

women are also now going out and eating out more often than ever before, especially

professional and working women with a good level of disposable income. Ladies nights are

very popular amongst this group, as restaurants tend to offer discounts to groups of women

eating out on a specific day of the week. Consumer patterns also point to a greater number

of women diners than men.

A growing middle class amongst black South Africans has resulted in a rise in eating out

patterns amongst this group. The latest household expenditure survey by University of South

Africa’s (Unisa) Bureau for Market Research, carried out in 2003, found that the main

increases in household expenditure by black consumers between 1993 and 2003 in terms of

entertainment were on holidays or weekends away (up 44% per year over the period) and

recreation (up 29%). At the same time, busier schedules had a positive impact on the fast

food and 100% home delivery/takeaway sectors throughout the review period.

5.3 Health and Dietary Issues

There is a clear trend for South African consumers to become concerned with health and

weight issues. Both quality food and health issues are now prime concerns amongst social

groups with higher disposable incomes and who pay more attention to their lifestyles. New

and old consumer foodservice chains are repositioning themselves as quality food entities,

offering healthier options as an attractive alternative to traditional standardised and global

fast food products.

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6 Market Feasibility

6.1 Consumer Trends and Analysis

A number of trends have emerged as relating to health, indulgence, convenience,

environmental and ethical issues and outlined below with supporting evidence

6.2 Health

Consumers are (still) increasingly focused on improved vitality through their food choices. Popular dimensions of the health trend include:

Table 5: Consumer Trends and Analysis - Health

Trends Supporting Evidence

Naturality (e.g. ‘all natural’, absence of

additives/preservatives, organic, whole grain

Functional promises associated with the medical

trend

o Naturally functional foods and whole food

nutrition

Health-related claims accounted for at least

33% of product claims at the SIAL 2008

Trends and Innovations Observatory,

specifically focused on ‘medical’ trends

(12%), Naturality (11%) and dieting (10%).

Among the top 15 products Naturality was

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oPlus-claims’, e.g. added vitamins or calcium

oHeart health (e.g. salt reduction)

oBody fat reduction (e.g. CLA to increase lean

muscle mass)

oGut health (e.g. pre- and probiotics in fermented

dairy foods)

Feel the benefit’ – functional foods/beverages with

benefits that consumers can actually feel (i.e. less

intangible functional benefits)

Fruit as functional ingredients

Dieting often associated with ‘minus-claims’ (e.g.

low-fat, fat-free, reduced sugar, no calorie products

with improved satiety qualities)

Other ‘minus-claims’ (e.g. low/no/reduced trans fat,

allergy related claims)

Digestive health

Vegetarianism

Renewed food safety concerns in terms of

pathogens, chemicals, food additives/preservatives

and food allergies

relevant to 20% of products.

According to the Mintel Global New

Products Database:

o Naturality claims dominated within new

product releases during 2008 (23% of

total new product claims versus 20% in

2007), specific claim examples include

‘all natural’ (15%), ‘no additives’/‘no

preservatives’ (14%) and ‘organic’

(12%). Plus’ claims (i.e. fortification)

applied to 5% of total new product

claims in 2008 (versus 6% in 2007).

o Minus’ claims were relevant to 18% of

total new product claims in 2008 (versus

17% in 2007).

o Specific claim examples include low/no

calorie (7%), no/reduced trans-fat (9%).

6.3 Indulgence

Indulgence could be described as consumers’ need for exciting, diverse and more sophisticated food experiences to ensure more pleasure, intensity and sensation.

Table 6: Consumer Trends and Analysis - Indulgence


Refined product presentation (including product

format, packaging and labelling)

Proliferation of new tastes and flavours through

new food varieties with rare or noble ingredients

(e.g. cheese products at SIAL 2008) and new and

interesting taste combinations to boost a variety of

senses (e.g. meat/deli/poultry products at SIAL

2008 where meat products are combined with new

tastes (e.g. fruit or cheese). Stander (2009)

provides a good description of the indulgence

Indulgence-related claims accounted for at

least 42% of product claims at the SIAL

2008 Trends and Innovations

Observatory, specifically focused on

sophistication (18%), variety of senses

(12%), exotism (6%) and fusion (6%).

Indulgence was relevant to 92% of the top

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movement - “…a fusion of flavours, colours and

texture to give a rich experience…”

Experiencing foods from other cultures

15 products.

6.4 Convenience

Consumers are increasingly challenged with insufficient time in their daily schedules, impacting significantly on their food preparation and consumption behaviour.

Table 7: Consumer Trends and Analysis - Convenience


Ready-to-eat meals – with or without reheating

(i.e. outsourcing meal preparation)

Fragmented eating occasions (stronger focus on

snacking and eating on-the-go)

Speed shopping and increased shopping

frequency

Children nutrition – making parents’ role easier

Healthy snacks

Packaging innovation to improve convenience

Convenience attributes accounted for at

least 10% of product trends at the SIAL

2008 Trends and Innovations Observatory.

Among the top 15 products convenience

was relevant to 69%

Convenience and indulgence was evident

in 62% of the top 15 products.

According to the Mintel database

convenience claims were associated with

12% of total new product claims (versus

10% in 2007),

6.5 Ethical / environmental issues (Going ‘green)

Consumers are increasingly concerned with environmental and social sustainability.

Table 8: Consumer Trends and Analysis - Ethical / Environmental Issues (Going Green)


Certified organic, free range and fair trade

products

Ethical or environmental attributes accounted for 15% of product trends at the SIAL 2008 Trends and Innovations Observatory among the top 15 products.

According to the Mintel Global New Products Database, ethical or environmental claims were associated with 5% of total new product claims (2% in 2007).

19

6.6 Sandton could double in size over the next 10 years

Table 9: Trends Analysis - Growth of Sandton


Big corporates have been leaving Johannesburg's

inner city for Sandton Central in a steady stream

There are several hotels under construction, as

well as the Gautrain rapid-rail project station,

mixed-use developments and office blocks

Current indications are that Sandton Central, as

the country's new commercial hub, will grow by a

further 600 000 m² over the next three to five year

JSE swapped Diagonal street, in JHB for Gwen lane, in Sandton

A-grade space Vacancy rates have tumbled from highs of 8% to 10%, to less than 3%

It has ten hotels, the famous convention centre, and four shopping centres (more than 450 shops), 90 restaurants, bars and cafes

The 24-storey, R1,6-billion La Residence being developed by the Nedbank

29-storey 283-room Radisson SAS hotel.

Rezidor will also open its three-star 192-room Park Inn in 2010.

The Holiday Inn, currently under construction, will be 12 storeys high.

the 12-storey Da Vinci hotel on the corner of 5th and Maude streets,

The Holiday Inn, currently under construction, will be 12 storeys high.

The Legacy group 12-storey Da Vinci hotel in Sandton central

R500m 30 000 m2 of office space Growthpoint Properties The Place on Sandton drive

Proposed 40 and 64-storey mixed-use development on Maud and Gwen lanes.

7 Legislative Environment

Food legislation in South Africa is the responsibility mainly of the health and agricultural sectors, and the following legislation is presently the responsibility of the health sector in this regard:

The Foodstuffs, Cosmetics and Disinfectants Act, 1972 (Act 54 of 1972): This Act governs the manufacture, sale and importation of all foodstuffs from a food safety control point of view. The Health Act, 1977 (Act 63 of 1977): Regulations promulgated under the Act govern, among others, the hygiene aspects of food premises and the transport thereof; milking

20

sheds and the transport of fresh milk; and, the inspection of premises, stipulating for instance the powers and duties of inspectors authorised in terms of the Act.

5.1 Producers

Table 10: Organic Produce Companies

Major Crop producers Nation-Wide Input Manufacturers

Kirklington Organic Farm: Herbs, grains,

deciduous fruit.

Lorraine Trust: Deciduous fruit.

Emerald Acres: Citrus fruit.

Modderfontein Farm: Citrus fruit, indigenous

crops (specifically rooibos Tea).

Datan Boerdery: Berries (specifically

strawberries).

A.M. Muller and Sons: Subtropical fruit

(specifically avocado pears).

Blue Sky Organics: Stone fruit (specifically olive

products).

Agro Organics. Biological Control Products. Bio-earth. Microbial Solutions.

Processors Supermarkets

Allganix: Cider vinegar, coffee, flour, fruit juices,

olive oil, sugar, sunflower oil, vegetables, whole

grains.

Blue Sky Organics: Olives (specifically oil, pickled

olives and other olive products).

Cape Natural Tea Products: Rooibos tea.

Kirklington Organic Farm: Grains, sunflower oil.

Vital Health Foods: Rooibos tea.

Hyperama

Woolworths

Pick 'n Pay

Pick 'n Pay conventional

7.1 Organic standards and certification

South Africa does not yet have national legislation either requiring certification of or affording

protection to organic producers and their products. Therefore the acceptability of imported

certified products depends on their destination within the South African market:

Local retail: Due to the lack of legislated control over organic sales, any certification may

be accepted, depending on the knowledge and policy of the retailer

21

Woolworths, a retail chain, has issued a policy statement requiring internationally

recognised certification by ISO accredited certifying agencies.

The lack of organic legislation in South Africa has generally led to different scenarios

regarding certification agencies accepting each other’s certification:

Some agencies accept the certification of others without any investigation into

equivalency of standards or regulations, and inspection and certification protocols.

On the other hand equivalency of standards or regulations and inspection and

certification procedures are considered to be of paramount importance, and are

investigated before the certification is either accepted or rejected.

This usually occurs on a product by product basis, and does not extend to blanket

acceptance / rejection of any one agency’s certification by another.

The final market: If the produce is to be exported from South Africa, then the certification

of the input must be recognised by the final destination country, according to that

country’s Laws or Regulations.

Two local certification agencies certify according to draft standards published by the National

Department of Agriculture in 2001. Of these, only one agency, Afrisco, is in the process of

becoming ISO 65 accredited. Its close relationship with Ecocert (the company is known as

Ecocert-Afrisco) has historically provided this umbrella. Currently, Afrisco’s certification is for

the domestic market only, but once ISO accreditation has been achieved, Afrisco will also be

able to provide EU certification.

8 Location

The business should operate within the boundaries of Sandton Drive, Katherine Street,

Rivonia road and Grayston drive in Sandton. The area has been chosen after evaluating the

following factors

Anticipated sales volume

22

Accessibility to potential customers

The rent-paying capacity of the business

Restrictive ordinances

Traffic density

Visibility

Customer Parking Facilities

Proximity to other businesses

History of the area

Future development.

Sandton is a suburb of South Africa's largest city Johannesburg. Business travelers find in

Sandton numerous multinational corporations, banks, financial institutions and the

Johannesburg Stock Exchange. The Sandton Convention Centre is one of the region's

largest. To accommodate the ever increasing demand for commercial and office space,

Sandton is undergoing further redevelopment, and the area seems poised to become a

Manhattan-style downtown with office towers and residences soaring above the current

skyline. Sandton is also home to Africa's largest shopping district with Sandton City and

Nelson Mandela Square bustling with up-market boutiques and retailers.

Only 5-10% of households below the poverty line, and the Sandton City shopping

complex is the largest non-metropolitan shopping complex in the Southern Hemisphere.

Currently, it is Africa’s richest square mile due to the exclusive developments and

exclusive suburbs surrounding the centre,

It is however is reaching critical mass with traffic congestion, overdevelopment and a

lack of available land, which means that things are going upwards, with new

developments reaching over 30 stories.

Suburbs include Alexandra, Craighall Park, Dunkeld, Duxberry, Hyde Park, Inanda,

Morningside, Parkhurst, Parkmore, Sandhurst, Sandown, Strathavon, Waverly, Wynberg

9 Financial Feasibility

7.1Investment Summary

23

Table 11: Financial Feasibility Summary

Total Initial Investment: R 648 000

Total Annual Profit Increase (Before Income Taxes):

R 228 558

Weighted Average Cost of Capital / Discount Factor: 9.48%

Corporate Hurdle Rate: 15.0%

5 Year IRR Generated From Project: 44.63%

(True Interest Return Generated by the Project)

(If IRR > Hurdle Rate, Accept the Project)

(If IRR < Hurdle Rate, Reject the Project)

5 Year NPV: R3 675 412

(Present Value of Net Annual Cash Flows)

(IF NPV > R0, Accept the Project)

(IF NPV < R0, Reject the Project)

Payback In Months (Before Income Taxes): 1.5

Table 12: Capex Requirements

Capex Make-up: New Capital Expenditure New Capex

Total Capex in

24

Electrical Oven 10 pan 69 000

69 000

Espresso Machine Cadetta P2 Brasilia

22 941

22 941

Cutlery and :Fryer double deluxAnvil deep fat fryerBoiling tableMicro wave

45 068

45 068

Grinder Gino Rossi 5 640

5 640

Cutlery 6 861

6 861

Plates 27 197

27 197

Equipment & Furniture 288 800

288 800

Décor 21 100

21 100

IT and software 14 000

14 000

Premises -

- -

Total Required Capital Expenditure

500 607

500 607

Funding Required:

Working Capital Requirement

147 096

Capital Expenditure Required

500 607

Total Funding Requirement

647 703

Equipment of world leading brands such as Spinzer, Frymaster, Henny Penny, Lincoln,

Ayrking, Keating, Mirror, Carpigiani, Lincat, Morretti, Ilsa, Round-Up, Sanyo, Elettrobar is

readily available locally

25

Table 13: Projected Meal Covers

Breakfast Covers Lunch Covers Snack Covers Total Covers

Peak Season Weeks

36

Monday 30 40 40 110

Tuesday 30 40 40 110

Wednesday 30 40 40 110

Thursday 30 40 40 110

Friday 35 35 45 115

Saturday 35 35 35 115

Sunday 10 15 15 40

Weekly Total 200 245 245 710

Peak Season Total 8820 9540 25520

Off Season Weeks

20

Monday

2030 30

80

Tuesday

2030 30

80

Wednesday

2030 30

80

Thursday

2030 30

80

Friday 25 25 25 75

Saturday 25 25 25 75

Sunday 10 10 10 30

Weekly Total 140 180 180 420

Off Season Total 2800 3600 3600 9400

26

Table 14: Income Calculations

Beverage Revenue Months 1 2 3 4 5 6 7 8 9 10 11 12 No. of Operational Days per month 31 28 31 30 30 31 30 31 30 31 30 31 364 Average Guest Spend (Net) 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 Average No of Guests 0 0 0 0 0 0 0 0 0 0 0 0 Beverage Rev 1 550 1 400 1 550 1 500 1 500 1 550 1 500 1 550 1 500 1 550 1 500 1 550 18 200

Combined Beverage Rev 1 550 1 400 1 550 1 500 1 500 1 550 1 500 1 550 1 500 1 550 1 500 1 550 18 200

No. of Operational Days per month 31 28 31 30 30 31 30 31 30 31 30 31 Breakfast Covers

Average Spend Incl. Vat 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 No. Guests Per Day 30 30 30 30 30 30 30 30 30 30 30 30 Total Net of Vat 48 947 44 211 48 947 47 368 47 368 48 947 47 368 48 947 47 368 48 947 47 368 48 947 574 737

Luncheon Food Revenue Average Spend 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 Guests Dining per day 40 40 40 40 40 40 40 40 40 40 40 40 Total Revenue Incl. Vat 99 200 89 600 99 200 96 000 96 000 99 200 96 000 99 200 96 000 99 200 96 000 99 200 1 164 800

Total Net of Vat 87 018 78 596 87 018 84 211 84 211 87 018 84 211 87 018 84 211 87 018 84 211 87 018 1 021 754

Dinner Food Revenue Average Spend 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 Guests Dining per day 40 40 40 40 40 40 40 40 40 40 40 40 Total Revenue Incl. Vat 248 000 224 000 248 000 240 000 240 000 248 000 240 000 248 000 240 000 248 000 240 000 248 000 2 912 000

Total Revenue Net of Vat 217 544 196 491 217 544 210 526 210 526 217 544 210 526 217 544 210 526 217 544 210 526 217 544 2 554 386

Beverage Revenue Average Spend Per Cover 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Total Revenue Incl. VAT 74 400 67 200 74 400 72 000 72 000 74 400 72 000 74 400 72 000 74 400 72 000 74 400 873 600

Total Net of VAT 65 263 58 947 65 263 63 158 63 158 65 263 63 158 65 263 63 158 65 263 63 158 65 263 766 316

TOTAL FOOD 353 509 319 298 353 509 342 105 342 105 353 509 342 105 353 509 342 105 353 509 342 105 353 509 4 150 877

TOTAL BEVERAGE 66 813 60 347 66 813 64 658 64 658 66 813 64 658 66 813 64 658 66 813 64 658 66 813 784 516

Table 15: Projected Income Statement

1 2 3 4 5 6 7 8 9 10

INCOME 4 935 393 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863

Food Revenue 4 150 877 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105

Beverage Revenue 784 516 801 758 801 758 801 758 801 758 801 758 801 758 801 758 801 758 801 758

EXPENDITURE 97.74% 4 823 761 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809

Administration & General 2.66% 131 200 184 800 184 800 184 800 184 800 184 800 184 800 184 800 184 800 184 800

Staff Payroll Costs 14.39% 710 250 674 748 674 748 674 748 674 748 674 748 674 748 674 748 674 748 674 748

Utilities 1.95% 96 400 150 000 150 000 150 000 150 000 150 000 150 000 150 000 150 000 150 000

Food Cost 80.00% 3 320 702 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684

Beverage Cost 60.00% 470 709 481 055 481 055 481 055 481 055 481 055 481 055 481 055 481 055 481 055

Unit Marketing Costs 0.94% 46 500 47 522 47 522 47 522 47 522 47 522 47 522 47 522 47 522 47 522

Rates & Insurance 5 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000

Mgt Cont Op Profit 111 632 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054

2.26% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27%

Depreciation 187 167 187 167 187 167 187 167 187 167 187 167 187 167 187 167 187 167 187 167

Profit Incentive (Group Operator) 0.00% 0 0 0 0 0 0 0 0 0 0

Net Trading Profit before Interest -75 535 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112

-1.53% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44%

Cash Profit Pre-Tax 111 632 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054

Table 16: High-Level Actual Income Statement and Cash Flow

High-Level Actual Income Statement

Total Total Total Total Total

Year 1 Year 2 Year 3 Year 4 Year 5

Total Income 4 935 393 5 043 863 5 043 863 5 043 863 5 043 863

Less: Normal Expenditure (4 633 855) (4 814 439) (4 814 439) (4 814 439) (4 814 439)

Less: Depreciation (33 399) (33 399) (33 399) (33 399) (33 399)

Surplus (deficit) before interest 268 138 196 024 196 024 196 024 196 024

Less: Interest on Long-term loan (39 580) (37 391) (34 887) (32 023) (28 748)

Less: Interest on overdraft - - - - -

Net profit (loss) after interest 228 558 158 634 161 138 164 002 167 277

Less: Tax (63 996) (44 613) (45 524) (49 351) (50 508)

Profit after tax 164 562 114 020 115 614 114 651 116 769

Actual Cash flow Year 1 Year 2 Year 3 Year 4 Year 5

Total income 4 935 393 5 043 863 5 043 863 5 043 863 5 043 863

Less Expenditure (4 633 855) (4 814 439) (4 814 439) (4 814 439) (4 814 439)

Less: Capital expenditure - - - - -

Surplus (deficit) before debt repayments 301 538 229 424 229 424 229 424 229 424

Less: Debt repayments (cap & interest) on LT loan (54 819) (54 819) (54 819) (54 819) (54 819)

Less: Tax (29%) (63 996) (44 613) (45 524) (49 351) (50 508)

Add: Inflow of Capex funds

Surplus (loss) before overdraft interest 182 723 129 992 129 081 125 254 124 097

Less: Interest on overdraft - - - - -

Surplus (loss) after overdraft interest 182 723 129 992 129 081 125 254 124 097

Opening bank balance 147 096 329 818 459 810 588 891 714 145

Closing bank balance 329 818 459 810 588 891 714 145 838 242

Projected Balance Sheet

Total Total Total Total Total Total

Start Up Year 1 Year 2 Year 3 Year 4 Year 5

Land & Buildings 119 138 119 138 119 138 119 138 119 138 119 138

Furnishings, Equipment & Vehicles 309 900 309 900 309 900 309 900 309 900 309 900

429 038 429 038 429 038 429 038 429 038 429 038

Accumulated depreciation - 33 399 66 799 100 198 133 598 166 997

NET FIXED ASSETS 429 038 395 639 362 239 328 840 295 440 262 041

Debtors - - - - - - Cash on hand (bank balance) 147 096 329 818 459 810 588 891 714 145 838 242

CURRENT ASSETS 147 096 329 818 459 810 588 891 714 145 838 242

TOTAL ASSETS 576 134 725 457 822 049 917 730 1 009 585 1 100 283

Creditors - - - - - -

Provision for tax - - - - - - Bank overdraft - - - - - -

CURRENT LIABILITIES - - - - - -

Long term loan 300 000 284 761 267 333 247 401 224 605 198 534

LONG TERM LIABILITIES 300 000 284 761 267 333 247 401 224 605 198 534

TOTAL LIABILITIES 300 000 284 761 267 333 247 401 224 605 198 534

Retained income opening bal - - 164 562 278 582 394 196 508 847 Post (loss) tax profit for year - 164 562 114 020 115 614 114 651 116 769

Retained income closing bal - 164 562 278 582 394 196 508 847 625 616 Owners Contribution 176 134 176 134 176 134 176 134 176 134 176 134

Investment/Grant 100 000 100 000 100 000 100 000 100 000 100 000

SHAREHOLDERS FUNDS 276 134 440 696 554 716 670 330 784 981 901 750

TOTAL FUNDS 576 134 725 457 822 049 917 731 1 009 586 1 100 284

Check (0) (0) (0) (0) (0) (0)

10 Financial feasibility Summary

The initial Capex requirements is expected at R 1680 000 with the bulk expected toward securing premises, machinery and equipment

10.1 Profitability

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Net Trading Profit before Interest 1 591 853

1 548 832 1 548 832

1 548 832

1 548 832

1 548 832 1 548 832 1 548 832 1 548 832 1 548 832

32.25% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71%Cash Profit Pre-Tax 1 625 252

1 582 231 1 582 23111 582 231

1 582 231

1 582 231 1 582 231 1 582 231 1 582 231 1 582 231

10.2 Cash flows

Net Profit

1 591

853

1 548

832

1 548

832

1 548

832

1 548

832

1 548

832

1 548

832

1 548

832

1 548

832

1 548

832

Depreciation 33 399 33 399 33 399 33 399 33 399 33 399 33 399 33 399 33 399 33 399

WC Requirements -35 000 -3 233 0 0 0 0 0 0 0 0

Tax Payments -434 636 -423 400 -424 310 -428 137 -429 294 -430 600 -432 074 -433 740 -435 624 -437 755

Inflow/Outflow

from operations

1 155

616

1 155

599

1 157

921

1 154

095

1 152

937

1 151

632

1 150

157

1 148

491

1 146

608

1 144

476

Working Capital

Annual Income

growth 2.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Brought Forward 147 096 182 096 185 328 185 328 185 328 185 328 185 328 185 328 185 328 185 328

Movement for year

–

income growth% 35 000 3 233 0 0 0 0 0 0 0 0

Carried Forward 182 096 185 328 185 328 185 328 185 328 185 328 185 328 185 328 185 328 185 328

10.3 Ratio analysis

The project has a positive NPV of R3 675 412 which means that returns will add value to the

firm. This does not necessarily mean that they should be undertaken since NPV at the cost

of capital may not account for opportunity cost, i.e. comparison with other available

investments. These rules are as show below

If... It means... Then...

NPV > 0the investment would add value to the firm

the project may be accepted

NPV < 0the investment would subtract value from the firm

the project should be rejected

NPV = 0 the investment would neither gain nor lose value for the firm

We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic

http://en.wikipedia.org/wiki/Opportunity_cost

positioning or other factors not explicitly included in the calculation.

The IRR of the project is projected to be 44.63% which is higher than the hurdle rate of 15 %

which is the is the minimum rate of return on a project that the directors have indicated as

the minimum they will accept before starting the project, given its risk and the opportunity

cost of forgoing other projects. The payback period for the project is projected to be 1.5

years which is very much acceptable given industry standards of more than 3 – 5 years.

Given the above analysis the project appears to be a sound investment however certain risk

should be considered as outlined below and further research and consultation done.


11 Risk Analysis

Table 17: Risk Analysis Summary

Risk IdentifiedProbability

of occurrence

Action required

Supply: Security of supply is a long term treat

as the area under certified organic production

is limited

Low

Identify both domestic, regional and

overseas suppliers of certified organic

produce

Concept: The Organic restaurant is a fairly new

concept in South Africa and very few studies

and research has been conducted

Medium

Further research and consultation needs to

be done and company needs to be kept

abreast of emerging trends and patterns.

Inorganic food can be sold as an

alternative for non fanatics

Premises: There is stiff competition for

commercial properties in Sandton and those

available command a high premium

High

Develop a concept that will appeal to a

premier niche in the market LSM 7, 8, 9, and

10. Enough time must be allocated towards

securing premises

Competitors: The rate of industry growth could

attract a lot of competitors High

Attention must be given to branding and thus

logo, menu, signature items, beverage

selection, ambience, theme, operations etc

all have to be in line with brand concept

Selling the brand: As a non franchised

concept, It will take time to monitor and

evaluate brand performance and success

HighImplementation of a differentiated concept

and thorough demand and analysis.

Economic conditions: Variations in the fiscal

and monetary regimes could alter the market

growth, disposable income and ultimately

aggregate demand

Low

Targeting, building and retaining a loyal

brand of high net worth customers LSM

7,8,9,10

Certification and licensing: Low Investigation and familiarisation with the

certification and licensing environment

Scientific arguments: A lot of arguments are

being made about the validity of the organic

health benefits

Low

Company should strive to establish

relationships based on trust, advise, with an

emphasis on a LOHAS-Trend (Lifestyle of

Health and Sustainability)

Costs: Organic food is generally more

expensive because organic farming requires

more manual labour and attention and this

could become worse in the near future with

diminishing suppliers

Low

Identify both domestic, regional and

overseas suppliers of certified organic

produce

Funding: Inability to meeting the projects

funding requirements High

Investigation of various equity, partnerships

and joint venture options

Suppliers: Vertical integration of key suppliers Medium Investigation of vertical integration to secure

supply contracts

12 Conclusions and Recommendations

In line with international consumer trends South African consumers are becoming more

health conscious and aware of food safety. Cities such as Cape Town, Johannesburg,

Pretoria and Durban have witnessed an increase in the number of visitors, which has

encouraged foodservice players to provide attractive outlets with new decor and menus,

along with quality service and new marketing techniques.

The healthy outlook for the South African economy, rapid changes in working habits, the

continued expansion of outlets through franchising and the expected increase in the number

of tourists will all contribute towards boosting foodservice transactions and sales over the

forecast period. South Africans are increasingly working longer hours and, as a result, family

time has become limited. For this reason, eating out has become more popular. Families

often choose a dining outlet which caters for the whole family unit. Single women and groups

of women are also now going out and eating out more often than ever before, especially

professional and working women with a good level of disposable income.

A growing middle class amongst black South Africans has resulted in a rise in eating out

patterns amongst this group. There is a clear trend for South African consumers to become

concerned with health and weight issues. Both quality food and health issues are now prime

concerns amongst social groups with higher disposable incomes and who pay more

attention to their lifestyles. New and old consumer foodservice chains are repositioning

themselves as quality food entities, offering healthier options as an attractive alternative to

traditional standardised and global fast food products.

A number of trends have emerged as relating to health, indulgence, convenience,

environmental and ethical issues and outlined below with supporting evidence. Financial and

market intelligence projections for the setting up of an organic restaurant point towards a

lucrative niche market that is poised to grow exponentially as it is strongly correlated to

trends and patterns elsewhere in the world. Despite this numerous risk exist and as the

organic food industry concept is relatively new in this part of the world. Further research still

needs to be done and various other financing, ownership, operational, menu, theme etc still

need to be explored further.

The table below outlines a logical framework that has to be followed to ensure the

development of a sustainable business concept.

Figure 2: Restaurant Business Plan Iterations

Idea Conception

Restaurant Location

Restaurant Concept

Marketing

Recruitment and Stocks

Designs and Menus

Permits and Licences

Restaurant Name

Financing

Restaurant Business Plan

Feasibility Analysis

13 References

Du Toit, L and Cranford, S. 2003. Beliefs and purchasing practices of Cape Town Consumers regarding organically produced food. Journal of Family Ecology and Consumer Sciences, 31: 1-11.

Willer, H. And Yussefi, M. (eds). 2004. The World or Organic Agriculture Statistics and Emerging Trends 2004. 6th revised Ed. International Federation of Organic Agriculture movements: Bonn, Germany

Pick and Pay, 2005. Hot Topics: A Food scare worth worrying about (Online). URL www.pick’npay.co.za (hottopics). 8 September 2005

Irwin, BL. 2002. Small Scale previously disadvantaged producers in the South African Organic Market. Adoption Model and Institutional Support. A plan B paper submitted to the Michigan State University in partial fulfilment of the requirements for the degree of Master of Science. Dept of Agriculture Economics Michigan

Mawson, N. 2007. Consumer’s environmental awareness low, retailer survey finds. Business day. 19 June 2007 (Online). http://www.businessday.co.za/articles/companies.aspx?=BD4A495996 (July 2007)

De Vyynck, D. 2005. Organic food sales grow steadily. Cape Times. 30 March 2005

Engel, W 2008. Determinant of consumer’s willingness to pay for organic food in South Africa. A paper submitted in partial fulfilment of the requirement for the degree Minst Agrar in the Department of Agricultural Economics, Extension and rural development, University of Pretoria

http://www.businessday.co.za/articles/companies.aspx?=BD4A495996

Annexure 1: Projected Operating Budget

Months 1 2 3 4 5 5 6 7 8 9 10 11 12

INCOME 420 322 379 646 420 322 406 763 406 763 420 322 406 763 420 322 406 763 420 322 406 763 420 322 4 935 393

Food Revenue 353 509 319 298 353 509 342 105 342 105 353 509 342 105 353 509 342 105 353 509 342 105 353 509 4 150 877

Beverage Revenue 66 813 60 347 66 813 64 658 64 658 66 813 64 658 66 813 64 658 66 813 64 658 66 813 784 516

EXPENDITURE (%) 388 941 358 593 390 341 416 225 413 725 429 541 398 608 413 524 402 608 413 024 403 608 395 024 4 823 761

Administration & General 2.7% 4 700 6 900 6 900 10 450 10 450 13 150 13 150 15 400 15 400 15 400 15 900 3 400 131 200

Staff Payroll Costs 14.4% 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250

Building Utilities 2.0% 1 800 4 000 4 000 7 550 7 550 10 250 10 250 12 500 12 500 12 500 13 000 500 96 400

Food Cost 80% 282 807 255 439 282 807 273 684 273 684 282 807 273 684 282 807 273 684 282 807 273 684 282 807 3 320 702

Beverage Cost 60% 40 088 36 208 40 088 38 795 38 795 40 088 38 795 40 088 38 795 40 088 38 795 40 088 470 709

Unit Marketing Costs 0.94% 8 000 4 500 5 000 5 000 2 500 2 500 2 500 2 500 2 000 2 000 2 000 8 000 46 500

Rates & Insurance (aprox) 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 48 000

Mgt Cont Operating Profit 31 381 21 053 29 981 -9 462 -6 962 -9 219 8 155 6 798 4 155 7 298 3 155 25 298 111 632

Depreciation 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 187 167

0.0% 0 0 0 0 0 0 0 0 0 0 0 0 0

Net Profit b4 Interest 15 784 5 455 14 384 -25 059 -22 559 -24 816 -7 442 -8 799 -11 442 -8 299 -12 442 9 701 -75 535

Annexure 2 Expenditure Calculations

Month 1 2 3 4 5 6 7 8 9 10 11 12

Electricity 0.00% 1000 2 500 2 500 5 250 5 250 7 000 7 000 9 000 9 000 9 000 9 000 0 66 500

Water 0.00% 300 1 000 1 000 1 800 1 800 2 750 2 750 3 000 3 000 3 000 3 500 0 23 900

Computer Supplies p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000

Gas p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000

Telephone & Fax (Admin) p.m. 300 300 300 300 300 300 300 300 300 300 300 300 3 600

Telephone & Fax (Rental) p.m. 400 400 400 400 400 400 400 400 400 400 400 400 4 800

Training & HR Support p.m. 700 700 700 700 700 700 700 700 700 700 700 700 8 400

Subscriptions p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000

Public Relations p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000

Advertising: International p.m. 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 12 000

Marketing: Brochures p.m. 5 000 1 500 2 000 1 500 500 500 500 500 500 500 500 5 000 18 500

Marketing: Trade Shows p.m. 2 000 2 000 2 000 2 500 1 000 1 000 1 000 1 000 500 500 500 2 000 16 000

Permanent Payroll Sched 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250

Kitchen Supplies 1.00% 3 535 3 193 3 535 3 421 3 421 3 535 3 421 3 535 3 421 3 535 3 421 3 535 41 509

Bank Charges 0.20% 841 759 841 814 814 841 814 841 814 841 814 841 9 871

Agents Commission 1.50% 0 0 0 0 0 0 0 0 0 0 0 0 0

Legal Expenses p.m. 200 200 200 200 200 200 200 200 200 200 200 200 2 400

Cleaning Materials p.m. 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 15 600

Beverage Supplies 2.00% 1 336 1 207 1 336 1 293 1 293 1 336 1 293 1 336 1 293 1 336 1 293 1 336 15 690

Total Direct Expenditure 67 458 65 605 66 658 99 224 96 724 99 608 78 907 81 341 80 657 80 841 81 157 74 841 973 020

Admin & General 4 700 6 900 6 900 10 450 10 450 13 150 13 150 15 400 15 400 15 400 15 900 3 400 131 200

Payroll Costs 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250

Marketing Costs 8 000 4 500 5 000 5 000 2 500 2 500 2 500 2 500 2 000 2 000 2 000 8 000 46 500

Building Utilities 1 800 4 000 4 000 7 550 7 550 10 250 10 250 12 500 12 500 12 500 13 000 500 96 400

Total 62 046 62 946 63 446 99 746 97 246 102 646 82 129 86 629 86 129 86 129 87 129 68 129 984 350

Annexure 3 Personnel Count

Staff Head Count

Jan July

Restaurant Manager 1 1 1 1 1 1 1 1 1 1 1 1 1

Head Chef 1 1 1 1 1 1 1 0 0 0 0 0 0

Captain 1 1 1 1 1 1 1 1 1 1 1 1 1

Sous Chef 1 1 1 1 1 1 1 1 1 1 1 1 1

Receptionist 1 1 1 1 1 1 1 1 1 1 1 1 1

Head waiter 1 0 0 0 1 1 1 1 1 1 1 1 1

Waiters 6 0 0 0 6 6 6 1 1 1 1 1 1

Generals 3 3 3 3 3 3 3 3 3 3 3 3 3

0 0 0 0 0 0 0 0 0 0 0 0

Total Staff Compliment 8 8 8 15 15 15 9 9 9 9 9 9

Basic Pay Per Position

Restaurant Manager 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000

Head Chef 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000

Captain 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000

Sous Chef 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000

Receptionist 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000

Head waiter 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000

Waiters 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500

Generals 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000

0 0 0 0 0 0 0 0 0 0 0 0 0

Annexure 4: Monthly Basic Payroll Calculations

Total Basic Pay For Employees 1 2 3 4 5 6 7 8 9 10 11 12

Restaurant Manager 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 96 000

Head Chef 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 84 000

Captain 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 72 000

Sous Chef 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 72 000

Receptionist 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 48 000

Head waiter 0 0 0 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 36 000

Waiters 0 0 0 21 000 21 000 21 000 3 500 3 500 3 500 3 500 3 500 3 500 84 000

Generals 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 108 000

Gross Payroll 40 000 40 000 40 000 65 000 65 000 65 000 47 500 47 500 47 500 47 500 47 500 47 500 600 000

Payroll Burden

Provident Fund8.00% 3 200 3 200 3 200 5 200 5 200 5 200 3 800 3 800 3 800 3 800 3 800 3 800 48 000

Performance Bonus4.00% 1 600 1 600 1 600 2 600 2 600 2 600 1 900 1 900 1 900 1 900 1 900 1 900 24 000

UIF1.00% 400 400 400 650 650 650 475 475 475 475 475 475 6 000

RSC0.34% 136 136 136 221 221 221 162 162 162 162 162 162 2 040

Meals 20 160 160 160 300 300 300 180 180 180 180 180 180 2 460

Employee Benefits p.m. 150 150 150 150 150 150 150 150 150 150 150 150 1 800

Medical Aid 50 400 400 400 750 750 750 450 450 450 450 450 450 6 150

Employment Equity p.m. 400 400 400 400 400 400 400 400 400 400 400 400 4 800

Skills Levy1.00% 400 400 400 650 650 650 475 475 475 475 475 475 6 000

W C A 0.50% 200 200 200 325 325 325 238 238 238 238 238 238 3 000

Incentives p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000

Total Payroll Burden 7 546 7 546 7 546 11 746 11 746 11 746 8 729 8 729 8 729 8 729 8 729 8 729 110 250

Total Payroll Cost 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250

Labour Cost % 11.3% 12.5% 11.3% 18.9% 18.9% 18.3% 13.8% 13.4% 13.8% 13.4% 13.8% 13.4% 14.4%

Annexure 6: Costing Sheet Sample Dinner

5 Menu Item Costing

Name: Dinner

(Primary Products)

Product Name Units

Price (per each unit) Total Price

Beef fillet 200 89.00 17.80

Chips 150 55.00 8.25

0.00

0.00

0.00

(Primary Products) Total: 26.05

(Secondary Products)

Product Name

Quantity (in

grams/lt)Price (per

1Kg or lt) Total Price

Olive oil 0.5 127.00 0.06

Black pepper 5 99.00 0.50

Vegetables 30 150.00 4.50

0.00

0.00

(Secondary Products) Total: 5.06

Total Cost: 31.11

Selling Price: 185.00

Food Margin: 16.82%

Generated Profit: 153.89

Annexure 7: Costing Sheet Sample Lunch

4 Menu Item Costing

Name: Lunch

(Primary Products)

Product Name Units


Lamb rib strips 250 90.00 22.50

Chips 150 55.00 8.25

0.00

0.00

0.00



Product Name

Quantity (in grams/lt)

Price (per 1Kg or lt)

Total Price

Olive oil 0.5 127.00 0.06

Black pepper 5 99.00 0.50

Vegetables 12.49 150.00 1.87

0.00

0.00


Total Cost: 33.18


Food Margin: 23.70%


Annexure 8: Costing Sheet Sample Salads

2 Menu Item Costing

Name: Salads

(Primary Products)

Product Name

Quantity Units


Chicken 200 23.00 4.60

0.00



Product Name

Quantity (in grams)

Price (per 1Kg) Total Price

Alomonds 200 8.29 1.66

Feta Cheese 30 43.96 1.32

Avocadoes 150 19.33 2.90

White wine vinegar 0.00

Garlic 30 69.99 2.10 0.00


Total Cost: 12.58


Food Margin: 29.94%


Annexure 9: Costing Sheet Sample Breakfast

3 Menu Item Costing

Name: Breakfast

(Primary Products)

Product Name Units


Bacon 2 4.00 8.00

Eggs 2 1.30 2.60

Sausages 1 0.87 0.87

Toast 2 0.55 1.10

Tomato 1 0.01 0.01

0.00



Product Name

Quantity (in grams)


Margarine 10 36.00 0.36

Mushroom 50 19.50 0.98

Baked beans 20 8.00 0.16

Cereal 100 51.90 5.19


Total Cost: 13.37


Food Margin: 31.83%


Annexure 10: Costing Sheet Sample Starters

1 Menu Item Costing

Name: Starter

(Primary Products)

Product Name

Quantity Units


chicken livers 100 17.48 17.48

0.00



Product Name

Quantity (in grams)


0.00

0.00

0.00

0.00

0.00


Total Cost: 17.48

Selling Price: $28.00

Food Margin: 62.43%


Annexure 11: Project Plan Template

Ite

m

No

Task

Actual

Start

Date

Target Completion

date & StatusDeliverables

1. Refresh the

Strategic Plan12/1/04 4/30/05

1.1

1.2

2. Strategy Map /

Strategic Plan3/1/05

2.1

2.2

2.3

3. Measurements and

Targets

3.1

3.2

3.3

4. Initiative Mapping

and Budgeting

4.1

4.2

4.3

5. Reporting

Framework

(Database)

5.1

5.2

5.3

Annexure 12: Producer Prices Survey

Produce prices Hyperama Woolworths Pick 'n PayPick 'n Pay

conventional

Apples / Kg 9,99 14,48 - 5,99

Avocado / 2's 11,99 17,95 11,99 11,99

Baby Marrow / 400 grams 8,99 11,42 10,99 7,99

Bananas / Kg - 14,27 11,00 11,00

Brinjal / 2's 7,99 13,98 7,99 8,99

Broccoli / each 7,59 7,95 6,99 -

Cocktail Tomatoes / 350 grams 7,99 15,66 12,59 12,59

Green Beans / 400 grams - 11,37 8,49 8,99

Green Beans / Kg 22,00 35,70 19,98 17,49

Green Pepper / 2's 9,99 8,95 8,99 7,99

Herb Salad Pack 8,59 8,95 7,99 7,99

Herbs 3,99 4,99 4,29 4,99

Leeks - 6.99 - -

Lemons / 3's 6,99 8,95 4,87 4,49

Sweet Peppers / 3's (red, yellow, green

pack)15,99 - 14,99 14,99

Sweet corn / 4's - 11,99 - 9,99

Sweet Italian Peppers / 400 grams 10,99 10,95 - 13,99

Sweet Peppers / 2's 10,99 - 8,99 6,99

Sweet Potato 5,99 - 5,99 5,99

Swiss Chard / Kg 17,47 29,95 17,47 16,63

Annexure 13: Site Evaluation Template

Name of person making report:Address:Phone:Date of report:Address of site:

Information on Site, Customers, and Street Traffic

Type of site (strip center, mall, free-standing, drive-through or other):Nearest intersections:Distance of nearest intersections from site:Nearest stop sign (ft.) and name of street:Number of lanes on front and side streets (number and street name):Description and number of parking spaces (front, side, and back, as applicable):Condition of adjacent streets:Observations of traffic on streets at peak hours including time of day observed:Description of adjoining business (left and right), including type of building and products or services offered:Frontage measurements:Depth of site:Total square footage:

Customer traffic count of adjacent buildings or businesses

Left Building

6:00 - 8:00 a.m. 8:00 - 10:00 a.m. 10:00 - noon Noon - 1:00 p.m. 1:00 - 2:00 p.m. 2:00 - 4:00 p.m . 4:00 - 6:00 p.m.6:00 - 7:00 p.m. 7:00 - 8:00 p.m. 8:00 - midnight midn't - 6:00 a.m.

Right Building

6:00 - 8:00 a.m. 8:00 - 10:00 a.m. 10:00 - noon Noon - 1:00 p.m. 1:00 - 2:00 p.m. 2:00 - 4:00 p.m . 4:00 - 6:00 p.m.6:00 - 7:00 p.m. 7:00 - 8:00 p.m. 8:00 - midnight midn't - 6:00 a.m.

Major competition within one and one-half km of site (name, address, type of business):

Observations made from surveillance of adjacent businesses and discussions with

businesspeople regarding general business conditions, customer traffic, parking availability,

center advertising, promotions, reasonableness of rent, possible rent increases, possible

construction and other (disadvantages and advantages):

Visibility of site from street (North, South, East, and West in feet):

Ingress and egress observations:

General access (excellent, good, poor):

Purchase of Real Estate

Purchase price:

Terms of purchase:

Base Rental

Monthly:

Date and amount of increase:

Percentage rental (yes or no; if yes, describe):

Common area costs (yes or no; if yes, briefly describe):

Description of utility costs that must be paid and estimated amounts:

Description of other costs:

Term of lease:

Renewal term and increased rental or other increased costs associated therewith:

When lease can be cancelled (years and months from date of possession or on other date)

Price Comparisons with Competitors within One Mile

Prime competitor:

Secondary competitors:

List each of your major products or services and insert competitor's price:

Population -- Demographics (Minimum Two-Mile Radius)

Population:Year:Increase in last 12 months (%):Per-capita income:Median family income:Type of housing:Average home, condo, or apartment value:General comments

Zoning and Restrictions

Present zoning class:

Permissible uses:

Required setbacks (front, rear, right side, left side):

Number and size of parking places (front, back, left side, right side):

Fire zone:

Nearest fire hydrant:

Address and distance of closest fire station (feet or miles):

Sign Restrictions

Freestanding:

Exterior:

Interior:

Utility Information (Company Name and Phone Number)

Electric:

Natural gas:

Water:

Telephone:

Health dept.:

Zoning:

Other:

Problems discovered when contacting utilities:

Nearest Industrial Developments

Name and address:

Type of business:

Estimated of employees:

Distance:

Possible Area Business Draws (convention facilities, colleges, high schools, grade schools, parks or churches)Shopping Areas

Location:

Distance from site:

Comparable rents:

Exhibits

http://www.inc.com/topic/Industrial+Developments+International+Inc.

1. Strip map showing site in relation to competitors within a one-mile radius

2. Videotape of location from all directions

3. Demographic profiles from one- and two-mile radius

4. Traffic count sheet

5. Plot plan of site

6. Other business and development information from brokers, landlords and others

7. Names and addresses of real estate brokers used

Final Evaluation of Suitability of Site

a feasibility study v1

Documents

organic food

organic movement

organic standards

market feasibility

dietary issues

financial feasibility

consumer trends

ethical environmental