Cherry Production

Ag Ec 495Business Plan

Nick Petruic Jason FehrKyle Jordet

Overview Introduction Operations Marketing Financials Conclusion References

Introduction Produce a variety of orchard and garden products

Processing Division Creation of value added products Sour Cherry Syrup

Operations Plan Processing

Buys raw, cleaned cherries from Grindstone Farm Processed into Cherry Syrup

Flow of Work

Church Kitchen

Cost of Goods Manufactured

Total Direct Materials $42,624

Total Direct Labour $6,480

Total Manufacturing Overhead $80

Total Cost of Goods Manufactured $49,184

Capital Budget Grindstone Processing

Very minimal 2 Steamer Juicers

Valued at $200 each

All other equipment is supplied with rental

Working Capital Planning & Management

General Expenses

Description Estimated Cost Source of Estimate

Administration Costs $15 * 1 hr/day 260 working days/yr

= $3,900

Accountant $1,500 MNP

Total costs/ yr $5,400

AR/AP/CCC Accounts Receivable

N/A to production

Accounts Payable 30 day payment period Grindstone Farms

Cash Conversion CycleCCC= Average Days Inventory + Average Collection Period

– Average Days Payables

CCC = 150 + 30 – 0 = 180 days

Human Resources Technical Skills

Mixing of ingredients Sterilization Product Pourer Sealing and Labelling

All training is on the job Direct supervision from president

Human Resources cont. Wages:

Kate Martens $2,400/yr Employees $4,080/yr Total Deductions $542.40/yr Total Yearly Wages $7,022.40

Marketing

“If you consider food as a way to express your inner creativity and enjoy new and exciting experiences, then Cherry Syrup is a way to add a fresh stimulating new flavor to your favorite dishes.”

The Four P’s Products and Services

“ Cherry Syrup” is a branded name for their sour cherry syrup

This syrup is a versatile meal additive

Price Processing will sell their syrup for $4.50 per

bottle Competitive pricing strategy

The Four P’s cont. Promotion

Appearances on the Prairie Farm Report Visually appealing booth at Farmer Markets Websites

Place Saskmade Marketplace Farmer Markets

Store

Segmentation, Marketing, & Positioning

Segmentation Food additive market 35 + age female

Primary purchaser of food More adept to try new things

Segmentation, Marketing, & Positioning

Marketing Approximately 1510 women over the age of 35

66% of the women

One of the only sour cherry syrups currently on the market

Sask Made Marketplace will help further the market 55 785 women in the age bracket in Saskatoon alone

Website will also help to further the market to more exotic places

Segmentation, Marketing, & Positioning

Positioning processing will market its product as specialty syrup

and as a food additive room for sour cherry syrup in the current market

Consumers will recognize our product as a truly unique and flavorful experience

SWOT Analysis Strengths: Human resources Training is on the job Direct supervision from manager Manager is ambitious and dedicated Low cost for wages Low labor intensity Hours are flexible The workers have been together for

many years Workers get along well Small chain of command Small family oriented business

Weaknesses: Human Resources Availability of skilled workers Work can be dangerous Work is not constant Work area is small Requires constant manager

supervision

 

SWOT Analysis Physical Resources Church rent is $10/day Church is HACCP certified Close proximity Ample supply of cherries to process Cherry supply is close to processing

plant (9 km)

Physical Resources Roads for transport are mostly

gravel -possible threat in winter months

Dependent on outside source for processing

Weak product image Narrow product line

SWOT Analysis Financial Resources No accounts receivables No long term debt

Financial Resources High CCC Accounts payable every 30 days Profits are dependent on sales alone

SWOT Analysis Opportunities: Sour cherry industry is new Lots of potential It’s a versatile product -can be used on a variety of food

products -can be used at multiple meal times Potential in catering industry

Threats: Other Sask. made fruit products Weather; drought and frost Health conscious consumers, ie: no

desserts Cherry supply is surrounded by

forest -potential threat of fire Thousands of cherry acres soon to

enter production

CompetitionProduct Attractions Price (Cdn$)Pure Organic Maple Syrup Canada No. 1 Medium

-An organic syrup-Attractive to the new health awareness consumer

$ 12.89/ 500 mL

Aunt Jemima Original Table Syrup

-The most recognizable brand name in syrups-Safe choice

$ 3.99/ 250 mL

Smuckers syrup squeeze bottle -Brand name syrup-Safe choice

$ 4.49/ 250 mL

RP Saskatoon Berry Syrup -In province competition-Premium product

$ 8.75/ 250 mL

PGF Prairie Berry Syrup   -In province competition-Specialty Syrup

$ 5.75/ 250 mL

Product Features

Cherry Syrup from Sask Carmine Jewel Cherries Locally produced Food Additive One of the first of its kind

Sale Objectives

Product Sales (units)Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10

Syrup (jars)

1,500 1,500 1,500 2,000 2,500 4,000 9,000 14,000 16,000 19,000

Channels of Distribution

Ridsdale Transportation ltd. To Saskmade Marketplace 1 Trip/month

Company Van Farmers markets

Marketing BudgetAdvertising

Western Producer Ad $116

Pamphlets $30

Banner $300

Total Advertising $446

Promotion and Development

Store $1,350

Farmers Markets $1,080

Donation $500

Web Page $1,500Travel Expenses $744.80

Sample Product $1,890

TV Interviews No cost

Total Promotional and Development $7,064.80

Total Marketing Expense $7,510.80

Pricing Policy

Market Based Large Margin

Lots of room to move Can sell cheaper to distributors

FinancialsYear 2008 2009 2010 2011 2012

Sales 86,400 88,128 89,891 91,688 93,522

COGS 30,564 52,517 53,571 54,628 55,710

Gross Margin 55,836 35,611 36,320 37,060 37,812

Expenses 11,782 12,017 12,258 12,503 12,753

Net Income Before Tax 44,055 23,594 24,062 24,557 25,060

Income Tax 4,405 2,359 2,406 2,456 2,506

Net Income After Tax 39,649 21,234 21,656 22,102 22,554

Net Cash Flow to Equity 39,775 52,371 53,412 54,474 55,558

FinancialsYear 2013 2014 2015 2016 2017

Sales 95,393 97,300 99,246 101,231 103,256

COGS 56,839 58,033 59,161 60,325 61,517

Gross Margin 38,554 39,297 40,086 40,906 41,739

Expenses 13,008 13,268 13,533 13,804 14,080

Net Income Before Tax 25,546 26,029 26,552 27,102 27,659

Income Tax 2,555 2,603 2,655 2,710 2,766

Net Income After Tax 22,992 23,427 23,897 24,392 24,893

Net Cash Flow to Equity 56,684 57,830 58,978 60,149 73,182

 

Net Present Value (NPV) 54,335

Internal Rate of Return on Equity Investment 28.40%

External Rate of Return on Equity Investment 12.90%

Unit Cost BreakdownUnit Cost Per Batch* 2008 2009 2010 2011 2012

Cherries $36.00 $36.70 $37.45 $38.20 $38.97

Ingredients 12.74 13 13.25 13.52 13.79

Packaging Materials 60.41 61.62 62.85 64.1 65.39

Total Unit Cost of Direct Materials $109.15 $111.33 $113.56 $115.83 $118.14

Direct Labour 20.25 20.66 21.07 21.49 21.92

Overhead 29.65 30.12 30.72 31.33 31.96

Total Unit Cost of Labour and Overhead $49.9 $50.78 $51.79 $52.82 $53.88

Total Cost of Production $159.05 $162.11 $165.35 $168.65 $172.02

Selling and Administration 37 38 38 39 40

Total Unit Cost of Selling $196.05 $200.11 $203.35 $207.65 $212.02

Expected Average Selling Price $270 $275 $281 $287 $292

Critical Variables

Critical Value Base Case IRR=0% Allowable % Change

Unit Price $4.50 $2.49 55.3%

Quantity of Sales 19,200 10,683 55.6%

Wages 10.13 72.74 718.1%

Price of Jars $19,200 $81,011 421.9%

Break Even Analysis

0

2500

5000

7500

10000

12500

15000

17500

20000

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Year

# o

f U

nit

s S

old

Base Case Cash Flow Break Even Net Income Quanity Break Even Economic Break Even

Scenario Analysis

Variable Worst Case Base Case Best Case

Number of Sales 14,400 19,200 24,000

Average Price $3.37 $4.50 $5.63

NPV (104,982) 54,335 227,638

IRR -2.7% 28.4% 56.4%

Conclusion Suggestions

Market outside Saskatchewan Small market place

Use a distributor Opens a world of possibilities….

References APLUS Kitchen Equipment [Online]. Available at http://apluskitchenequipment.com (Verified October 10, 2007)

Cowboy Orientated Web Sites [Online [. Available at http://www.thecattle.net . Verified on November 3, 2007

Net Grocer [Online]. Available at http://shop.netgrocer.com (Verified October 9, 2007)

Richards Packaging [Online]. Available at http://richardspackaging.com (Verified October 11, 2007)

Risdale Transport [Online]. Availabe at http://www.ridsdale.ca/thirdpagr.htm. Verified on November 3, 2007

Saskatchewan Governmental Insurance [Online]. http://sgi.sk.ca (verified October 12, 2007)

Saskatchewan Made Marketplace [Online]. Available at http://www.saskmade.ca . Verified on November 4, 2007

SaskPower [Online]. Available at http://saskpower.com (Verified October 10, 2007)

Shop Sobeys [Online]. Available at http://www.shopsobeys.com . Verified on November 4, 2007

Town of Nipawin [Online]. Available at http://nipawin.com (Verified October 11, 2007)