PIE Consultancy

In association with TOURISTCONSULT of Basel, Switzerland

LOLI FOODS
BUSINESS PLAN

REPORT LIMITING CONDITIONS

This business plan was initially developed by the two owners of the business,
Loli Foods. The owners decided to approach PIE Consultancy for review and
improvement of their plan. Thus, this plan is a mere improvement of the plan
done by the owners.

This document is subject to the following conditions:

1.1. The copyrights of document vest in PIE Consultancy Limited.

1.2. Neither the whole nor part of this document or any reference to it may be
included in any published document circular or statement nor published in
any way without the prior written approval of PIE Consultancy.
1.3. The responsibility of this study is limited to the client to whom it is
addressed.
1.4. Whereas no effort has been spared in ensuring that all information
contained in this document is of the highest integrity, and whereas the
assumptions used and the computations made are based on very sound
professional judgment, PIE Consultancy does not accept any responsibility
for any loss arising from the use of this document.
1.5. Where it has been stated in this study that information has been supplied to
PIE Consultancy by a third party, this information is believed to be reliable
and correct. However, PIE Consultancy does not accept any responsibility
if this should prove not to be so.

1. INTRODUCTION

Loli Foods is a newly established business, registered as a partnership. The

business owners are two young men who have decided to venture into business
with the key purpose of getting self employed. The owners are both Form IV
school leavers (one is 30 years old the other 31). Both have had experience
working in a farm which specializes in horticulture (fruits and vegetables) and
limited food processing. Both have had short courses in horticultural
production and processing of horticultural products, especially fruits. In this
document they will only be identified by their first initials: “D” and “N”.

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2. GENERAL BUSINESS CONCEPT

The two owners have developed some know-how and skills mainly in fruit
farming and in food processing. The two are convinced that they can use this
experience to start their own business and get self employed. Towards this end,
they developed a concept, saved some money, and also did a market survey to
analyse potential demand, competition, and pricing.

Their overall concept is to produce and sell fruit juices to hotels and
restaurants. They also want to start by specializing only in juices from 4 fruits:
orange, lemon, mango, and passion. Depending on how business develops,
they plan to expand into other juices as well as into other fruit products, such
as marmalades, and canned foods.

3. MARKETING STRATEGY

The owners have done a survey on which they have based their market
analysis, and strategy, as detailed below:

3.1. Market Survey and Analysis

The owners have done a survey among hotels and restaurants (2 – 4 star
category - hereafter referred jointly as “hotels”) in the city of Nairobi to
determine the following:

a. Which hotels make their own juices and which ones outsource juices.
b. Variety of juices made in-house vis a vis those outsourced.
c. Juices outsourced from supermarkets vis a vis small suppliers.
d. Number and capacity of small suppliers.
e. The product range of the small suppliers.
f. The price range of the small suppliers for the various products.
g. Hoteliers’ feedback about quality and reliability of small suppliers.

The detailed results of the survey are available in a separate document. In

summary, the survey revealed the following:

• Among the 5 star hotels about 95% their juice supply is made in-house, and
about 5% outsourced externally.
• Among the 5 star hotels that that outsource their juice supply, none of them
buys juices from supermarkets.

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• Among the 4 star hotels about 60% their juice supply is made in-house, and
about 40% outsourced externally.
• Among the 4 star hotels that that outsource their juice supply, only about
10% is sourced from supermarkets.
• Among the 3 star hotels, about 25% their juice supply is made in-house, and
about 75% outsourced externally.
• Among the 2-3 star hotels that that outsource their juice supply, about 50%
buy from supermarkets, the other 50% from small suppliers.
• That in some cases some hotels would make some of the juice in-house (for
example orange) but outsource others (like mango).
• That the general perception is that small suppliers provide a superior /
fresher product than supermarkets, but are more erratic.
• This notwithstanding, the main complaints revolved around poor hygiene
and excessive addition of water and sugar.
• That the price per litre at the time of the survey (June 2006) the price range
for the various juices was as follows:
o Orange: Ksh.135 -145
o Lemon: Ksh.45 -50
o Mango: Ksh.145 -165
o Passion: Ksh.135 -145
• That most of the juice from small suppliers was supplied in plastic jerry cans
of different sizes, ranging from 5 litres to 20 litres.
• That hotel customers are becoming increasingly health sensitive, and more
and more are asking for pure natural juice (i.e with no sugar at all added).
• There are about 12 small suppliers (different sizes) supplying various hotels
of the target category in Nairobi.

3.2. Market Strategy

The foregoing survey has enabled the owners to develop a Marketing Strategy
that they believe will achieve the following:

 Offer a unique “product” focussing on health (nutrition) and hygiene.

 Achieve a unique promotion of their product by offering a guarantee
for every delivery.
 Be priced competitively
 Be distributed efficiently and cost effectively.

This strategy is outlined in more detail below.

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3.2.1. Product Development

The owners have decided to introduce only 4 juices, and three categories for
each juice, except the mango juice (with only 2 categories): “Premium Pulp”,
Pure Natural” and “Fortified” which had the following characteristics:
o “Premium Pulp” all natural, no additives, and with pulp.
o “Pure Natural” purely natural but no pulp.
o “Natural Fortified” sweetened but instead of sweetening with sugar,
sweetened with honey.

In the case of mango juice, because it is naturally very sweet, they will
supply only “Premium Pulp”, “Pure Natural”.

3.2.2. Promotion

Based on the survey, the owners decided to target only 3 and 4 star hotels to
start with. Their promotion strategy is built on three pillars:

a. Proposing a scientific approach to each of the establishments

targeted. This would present their products with very nutritional and
hygienic jargon, and appeal to the new health consciousness.
b. Guarantee the quality / hygiene of every delivery. In this regard, a
receiver will be asked test a sample of every delivery, and if not
satisfied, it will be withdrawn immediately.
c. Use hotel clients as demand pushers. They will move from hotel to
hotel and cleverly influence the clients to ask for “Pure Natural” and
“Fortified” juices from Loli.

3.2.3. Pricing

The owners determined that the best approach would be to be competitive

in terms of price at the introduction phase, and as demand for their product
rose, they would either look for ways of increasing supply (volumes) or
adjusting their pricing. However, because of the two unique products they
decided to price the juices as follows:

3.2.4. Place: Distribution Network

The main handicap of the owners is their means of distribution. Accordingly,

to begin with, they decided they will operate from home in Nairobi West,
(making the juice at home), and focus on only the hotels in the city centre. This
way they will be able to hire a car to make deliveries in a relatively small area,
thus reducing distribution costs.

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4. MANAGEMENT AND PERSONNEL

The two owners decided to initially handle the entire operation. They decided
they will distribute responsibilities as follows:

D: Sourcing of Raw Materials, payment to suppliers, making of the

juices, Storage of Juices.
N: Taking customer orders, Distribution of the juices, Debt Collection,
banking, stock taking.

They will hire additional staff on need basis or as business improves.

5. CAPITAL INVESTMENT COSTS

The owners determined that they needed to invest capital in a number of items.
These are shown in the schedules appended in the Financial Plans.

6. FINANCIAL PROJECTIONS

The owners have done their financial projections based on the prices as well as
investment indicated above, and estimated monthly costs as detailed in the
attached projections. They have done projections for the first 3 months then
extended the same into the next 3 quarters of the first year of operations.

7. RISK ANALYSIS

The owners have done a risk analysis as follows:

7.1. Raw Material Risks

The main risk in this category would arise if the supply of raw materials is
curtailed or completely eliminated. This could arise if any of the following
events occurred:

• Drought affecting output of fruits,

• Crop diseases impacting on output and quality of fruits.
• Labour strikes in farms that would curtail output, at least
temporarily.

The effect of the foregoing would be an increase in the prices of raw

materials or reduction of production or interruption of entire production.

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Except for reduction in supplies due to events such as drought, this risk is
considered low.

Nevertheless, in order to mitigate for this risk, the owners have planned the
following steps:

o Decided to start small and minimize capital outlay.

o Decided to be as diverse as possible by establishing early good
relations with many potential suppliers.
o Decided to be very accommodating in terms of price they are ready
to pay potential suppliers.

7.2. Production and Distribution Risks

Production risks would arise primarily if any of the following events

occurred:

• Breakdown of any of the machines / equipment.

• Indisposition of one of the partners, or other event that may make
the partner unavailable
• Unavailability of Transport.
• Extended shortages of power supply.

The effect of the foregoing would be to severely curtail ability to service

customers. This would negatively affect Loli’s image, market confidence,
and growth. This risk is considered low in terms of its effect because,
whereas the events are likely, they are unlikely to be for extended periods.

Nevertheless, in order to mitigate for this risk, the owners have planned the
following steps:

o Regular preventive maintenance / service of the equipment.

o Train someone who will be on standby and available at short notice.
o Establish relationships with 2-3 transporters to be available on call.

7.3. Demand Risks

Demand risks would arise primarily if any of the following events

occurred:

• Decline in business in hotels which in turn would arise from events

such as decline in tourism, depressed economy, or increased
insecurity that discourages people from eating out.
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• Change in customer tastes so that they prefer other types of

beverages.
• Deterioration of product quality.
• Preference of other competitor(s) product to Loli’s due to quality,
taste, or pricing.

The effect of the foregoing would be to severely curtail Loli’s sales volumes.
This would negatively affect its finances and growth. This risk is considered
medium in terms of its probability but severe in terms of its impact.

In order to mitigate for this risk, the owners have planned the following
steps:

o Diversity its customer base as much as possible.

o Constantly monitor new beverages being introduced in the market.
o Maintain customer confidence through the guarantee scheme.
o Establish scheme of constant feedback from consumers.

7.4. Financial Risks

Financial risks would arise primarily if any of the following events

occurred:

• Customers fail or delay in paying their accounts.

• Projected costs turn out to be higher than anticipated.
• Revenues turn out to be lower than projected.
• Bank interest rates increase.
• Loss due to damage of stocks or rejection of deliveries.
• Loss due to theft / pilferage, etc.

The effect of the foregoing would be to negatively affect Loli’s cash flows,
its ability to meet its obligations, and its profits and growth. This risk is
considered medium in terms of its probability but severe in terms of its
impact.

In order to mitigate for this risk, the owners have planned the following:

o To insist on cash on delivery at least at the beginning.

o In the case of any credit, this should not be more than 7 days, and for
relatively small amounts.
o All credits to be on strictly contracted terms.
o Review revenues on daily basis.
o Review costs on daily basis.

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o Purchase policy focusing on minimum stocks.

o A fixed salary of Ksh. 14,000 per month for each partner.
o Fixed telephone cost refund of Ksh.2,400 pm for each partner
o Open a well controlled bank account.
o Establish a rigorous internal control system.

8. FINANCING

The overall investment required to start off the business is as follows:

ITEM ESTIMATED COST

(Ksh)
Purchase of Capital Items 115,000.00
Initial Working Capital 25,000.00
TOTAL 140,000.00

To start the business, the owners will need a total of Ksh.140,000.00. The
owners have each saved Ksh.50,000.00, and thus can raise a total of
Ksh.100,00.00 from their savings. They plan to borrow Ksh.40,000 which they
will pay over a period of 12 months, at a rate of about 20% p.a. This business
plan will be used to solicit this small loan.

The financial projections attached indicate that the business will be able to meet
its cash obligations. Although the cash balances will be declining over the 4
quarters of the first year, they should improve dramatically in the following
year as the business will no longer have any loan to service.

9. CONCLUDING REMARKS

PIE Consultancy has helped many small businesses in designing their business
plans or in reviewing their business plans. PIE Consultancy is proud that a
very high percentage of the clients it has advised has been successful. PIE
Consultancy is of the view that this is one of the better done and thought
through plans, and would recommend it for financing.

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LOLI FOODS

SCHEDULES OF FINANCIAL PLANNING AND PROJECTIONS

PROJECTED CAPITAL INVESTMENT

QUANTITY UNIT PRICE TOTAL COST

ITEM
NEEDED

Ksh. Ksh.
Fridge + Fridge guard 1 10,000 10,000
Juice Extractor 1 23,500 23,500
Freezer (15 Cu. Ft) 1 26,500 26,500
Sinks + Taps 1 10,000 10,000
Working Top (Stainless steel) 1 5,000 5,000
Chopping Boards 2 895 1,790
Jerry Cans 40 50 2,000
Blender 1 7,500 7,500
Miscellaneous tools 1 5,000 5,000
Telephone set and Connection 1 7,500 7,500
Working Clothes (White Overcoats) 4 500 2,000
Working Clothes Gumboots 2 600 1,200
Dust bin 1 625 625
Broom 1 215 215
Mops 1 119 119
Dust pan 1 28 28
Strainers 2 380 760
Mop bucket 1 120 120
Soap dispenser 1 3,290 3,290
Seats 2 1,200 2,400
Tables 2 1,800 3,600
TOTAL 113,147

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PROJECTED REVENUES FOR THE FIRST WEEK

AND FIRST MONTH OF OPERATIONS
Price Estd Estd Estd Estimated Estimated
per Litre Litres Litres Litres Weekly Monthly
per per per Sales Sales
day Week Month Ksh Ksh

Orange Premium Natural 150 8.0 56 224 8,400 33,600

Orange Natural 144 8.0 56 224 8,064 32,256
Orange Fortified 144 8.0 56 224 8,064 32,256
Passion Premium Natural 150 4.0 28 112 4,200 16,800
Passion Natural 144 4.0 28 112 4,032 16,128
Passion Fortified 144 4.0 28 112 4,032 16,128
Lemon Premium 50 2 14 56 700 2,800
Lemon Natural 48 2 14 56 672 2,688
Lemon Fortified 48 2 14 56 672 2,688
Mango Premium Natural 150 4.0 28 112 4,200 16,800
Mango Natural 144 4.0 28 112 4,032 16,128
TOTALS FOR THE FIRST WEEK / FIRST MONTH OF OPERATIONS 47,068 188,272

COMPUTATION OF GROSS OPERATING PROFIT FOR THE FIRST WEEK

AND FIRST MONTH
Sales 100% 47,068.00 188,272.00
Cost of Sales @40% 55% 25,887.40 103,549.60
Gross Operating Profit 45% 21,180.60 84,722.40

COMPUTATION OF OVERHEAD COSTS FOR THE FIRST WEEK

AND FIRST MONTH

RATIO ESTIMATED
ESTIMATED
ITEM TO MONTHLY
WEEKLY COSTS
SALES COSTS

% Ksh. Ksh
Salaries & Wages 17.50 8,237 32,948
Packaging Materials 1.50 706 2,824
Advertising & Promotion 3.50 1,647 6,590
Heat ,Light & Power 3.50 1,647 6,590
Water & Sewage 1.50 706 2,824
Postage & Telephone 3.50 1,647 6,590
Cleaning Supplies 1.00 471 1,883
Printing & Stationery 0.50 235 941
Transport Costs 4.00 1,883 7,531
Travel & Subsistence 1.50 706 2,824
Insurance 0.75 353 1,412
Laundry 1.00 471 1,883
Miscellaneous Expenses 0.30 140 561
TOTALS 40.05 18,850 75,399

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PROJECTED GROWTH IN SALES, COST OF SALES, OVERHEADS,

AND GOSS OPERATING PROFITS / LOSSES
TOTAL
2ND 3RD 3RD TOTAL
Month1 Month 2 Month 3 1ST
QUARTER QUARTER QUARTER FIRST YEAR
QUARTER
Ksh. Ksh. Ksh. Ksh. Ksh. Ksh. Ksh. Ksh.
Sales 188,272 197,686 207,570 593,527 610,220 623,092 632,950 1,866,263
Cost of Sales 103,550 108,727 114,163 326,440 335,621 342,701 348,122 1,026,444
Gross Operating Profit 84,722 88,959 93,406 267,087 274,599 280,392 284,827 1,106,905
Overheads 75,399 77,284 79,217 231,900 235,161 237,642 239,521 704,703
Gross Operating Profit / Loss 9,323 11,674 14,190 35,187 39,438 42,750 45,306 162,681

Sales are assumed to grow by: 5.00% 5.00% 3.75% 2.81% 2.11% 1.58%
Overheads are assumed to grow by: 2.50% 2.50% 1.88% 1.41% 1.05% 0.79%

COMPUTATION OF NET PROFIT

TOTAL
2ND 3RD 3RD TOTAL
Month1 Month 2 Month 3 1ST
QUARTER QUARTER QUARTER FIRST YEAR
QUARTER

Gross operating Profit / Loss 9,323 11,674 14,190 35,187 39,438 42,750 45,306 162,681
Less Fixed Costs:
Rent 11,000 11,000 11,000 33,000 33,000 33,000 33,000 132,000
Interest Costs 1,072 1,072 1,072 3,216 3,216 3,216 3,216 12,864
Total Fixec Costs 12,072 12,072 12,072 36,216 36,216 36,216 36,216 144,864
Net Profit / Loss - 2,749 - 398 2,118 - 1,029 3,222 6,534 9,090 17,817

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CASH FLOW PROJECTIONS

Month Month Month 1ST 2ND 3RD 3RD TOTAL
1 2 3 QUARTER QUARTER QUARTER QUARTER FIRST YEAR

Opening Balance at Beginning of Period 100,000 18,918 15,186 100,000 13,971 7,193 3,727 100,000
Cash Inflows:

Loan 40,000 40,000 40,000

Sales 188,272 197,686 207,570 593,527 610,220 623,092 632,950 2,459,790

Total Cash Inflows 228,272 197,686 207,570 633,527 610,220 623,092 632,950 2,499,790

Total Cash Available 328,272 216,603 222,756 733,527 624,192 630,285 636,677 2,599,790
Cash Outflows:

Investment Costs 115,000 115,000 115,000.00

Cost of Sales 103,550 108,727 114,163 326,440 335,621 342,701 348,122 1,352,884

Overhead Costs 75,399 77,284 79,217 231,900 235,161 237,642 239,521 944,225

Fixed Costs 12,072 12,072 12,072 36,216 36,216 36,216 36,216 144,864

Loan repayment 3,333 3,333 3,333 10,000 10,000 10,000 10,000 40,000

Total Cash Outflows 309,354 201,417 208,785 719,556 616,999 626,558 633,860 2,596,973

Cash Balance at Close of Period 18,918 15,186 13,971 13,971 7,193 3,727 2,817 2,817

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