1

PROJECT
BAKERY & CONFECTIONARY
Outlets in Urban Cities

Prepared by:
_________
 2

CONTENTS

Sr. No. Title Page number

1.0 Introduction and Background 3
2.0 Project Management Structure - Identifying the credentials of key 4
team members
3.0 Products/Service Demand and Market Analysis 5
4.0 Target Markets 6
5.0 Marketing and Sales Strategy 7
6.0 Project Financing 8
7.0 Project Construction 9
7.1 Plant and Machinery 9
7.2 Furniture and Fixtures 9
7.3 Motor Vehicles 9
7.4 Land and Building: 9
7.5 Human Resource: 9
8.0 Project Operations: 10
8.1 Product 10
8.2 Sales 10
8.3 Product Category wise Sales 10
8.4 Raw Material 10
9.0 Detailed Assumptions for Cash Flow Projections 12
10.0 Cash Flow budget for the project tenure ensuring there is no 13
negative cash balance.
10.1 Projected Income Statement 13
10.2 Projected Balance Sheet 14
10.3 Projected Cash Flow Statement 15
11.0 Cash Flow Projections including the calculation of NPV and IRR 16
12.0 Risk Profile 17
13.0 Sensitivity Analysis 18
14.0 Overall Appraisal of the Project 19
 3

1.0 INTRODUCTION AND BACKGROUND OF PROJECTS

The proposed project presents an investment opportunity in setting up a Bakery &

Confectionery. Major products in this case would be cakes, snacks, sweets & nimko, biscuits,
bread and general items. In order to attract a cross section of population, a combination of 2
outlets, one in a low-income area and another in a posh area, is used in this study along with 27%
sales to other bakeries at trade discount of 15 %. This combination can however, vary according
to the final site selection and amount of investment being incurred by individual investor.
Although for this particular project study only Bakery & Confectionery items along with general
items are included, however, bread production unit covering bread, bun, and rusk and allied
items is not incorporated in this study. The reason being that bread production unit in itself is a
complete unit and requires heavy investment. Almost all the Bakers & Confectioners purchase
bread items from specialized bread-manufacturing units.
 4

2.0 PROJECT MANAGEMENT STRUCTURE - IDENTIFYING THE

CREDENTIALS OF KEY TEAM MEMBERS

The project of bakery and Confectionary is started with two outlets; the organogram of the
project is as follows:

1. Production Manger
2. Sales Manager
3. Shop Supervisor
 5

3.0 PRODUCTS/SERVICE DEMAND AND MARKET ANALYSIS

As the main decisive factors in this case are events and season, the investor will have to match
the timings with these two limitations. Especially to open a bakery chain before Eid is advisable.
The peaks can be classified as winter/ spring and Off Peaks as summer.

The opportunity of setting up the Bakery & Confectionery can be linked with the eating habits of
the people. People in Pakistan enjoy the traditional food very well but recently world known
food chains have brought cultural change in Pakistan. Now people are ready to eat junk food,
While closely observing the trends, Bakery & Confectionery chain can play an important role in
this new era as it is the only source which provides not only traditional bakery items but also new
lines and varieties of confectionery items.

Marketing and branding of Bakery & Confectionery will play a key role in the mobilization of
targeted number of customers. Major marketing options include, site advertisement, cable ads
and handbills among other traditional marketing channels. Before launch of the project, it is
recommended that a research for understanding the dynamics of the targeted market should also
be carried out, to design the products as well as the promotional strategy.

The basic principle of marketing is to sell the right product, at the right price and promote it in
the right place to the right people. The job of the marketer is to control these 4Ps.

However, there are other socioeconomic factors, which also affect the production, selling and
consumption of foods. The success of marketing is often determined by the extent to which
various socio-economic factors are considered. Market research is a useful tool for assessing the
attitudes and behavior of potential consumers.
 6

4.0 TARGET MARKETS

Any big city with a total population of over 1 million is the ideal location for the project.
Ultimately it has to be observed that how to compete and build the name of the Bakery &
Confectionery.

For a heavy competition and proper positioning of the brand name, one has to open outlets in the
vicinity of competitors (Gourmet, Shezan Bakers, Rahat Bakers, Tahzeeb Bakers, United
Bakery, Cakes & Bakes etc.). This will be a direct marketing of the brand name for the best
quality and the best competitive price.

Marketers need to determine where the product will be sold and methods of distribution
including transportation and storage.

Also for taste/enjoyment consumers are demanding a higher standard of food quality. Value for
money and choice and exposure to new foods both have resulted in demand for diversity in terms
of food varieties and uses. Food safety is a major issue around the world and consumers are
looking for fresh and hygienic foods and which are made from natural products (i.e. free of
preservatives).

Areas having presence of middle income groups in the smaller cities will be an ideal location for
opening sales outlet of the business. Ideally, production facility of the workshop should be
located alongside the sales outlet; however, if the rental costs are a constraint, production facility
can be established at a distant economical location. In such a case, higher transportation costs
may need to be factored in.
 7

5.0 MARKETING AND SALES STRATEGY

This assignment is developed for a project based on a production plant along with 2 outlets and
outside sales with a mix of city areas. Selection and number of outlets would totally depend upon
the mix of target population. For example if we start this venture in bigger cities, one might
select more sophisticated outlets with the emphasis on best decor and interior design. But in case
of smaller cities, one would prefer to go for a mix, which has more traditional products. It is also
recommended to change the mix of both bakery and general items according to sale trends of a
particular outlet. In this study it is assumed that 30% sales will be consisting of general items but
this combination would be different in different outlets and according to consumer behaviors.

Major Marketing and Sales Strategy are as follows:

1. Product Development & Packaging: Expert's help may be engaged for product/service
and packaging design & development.
2. Ads & Point of Sales Promotion: Business promotion and dissemination through
banners and launch events is highly recommended. Product brochures should be acquired
from good quality service providers.
3. Price - Bulk Discounts, Cost plus Introductory Discounts: Price should not be allowed
to compromise on quality. Price during introductory phase may be lower and used as
promotional tool. Product cost estimates should be carefully documented before price
setting. Government controlled prices shall be displayed.
 8

6.0 PROJECT FINANCING

Total cost of the project worked out is in the table below:

Table: Project Costs

Capital Investment Rs. 15,533,00
Working Capital Requirement Rs. 1,676,000
Total Investment Rs. 17,209,000

Table Project Financing

Debt 50% Rs.8,604,500
Equity 50% Rs.8,604,500
Total Project Investment Rs.17,209,000
 9

7.0 PROJECT CONSTRUCTION:

The proposed project will be using local machinery or 2nd hand imported machinery available
locally. Local machinery and installations are quite competitive in price in comparison to the
foreign equipment and installations. Additionally, it is linked with the viability of the project as
the foreign new machinery and installation would not be feasible due to the high costs involved.

7.1 Plant and Machinery

The Total Cost of Machinery required Rs. 2,270,000. The depreciation is charged at 10% p.a. on
written down value. Annual Repair & Maintenance of the plant and machinery is expected to be
1 % from Year 1 to 4 and 1.5 % from Year 5 to 10 of the total machinery cost. Erections and
installation cost is assumed to be 10% of the total cost of machinery.

7.2 Furniture and Fixtures

Following furniture and fixtures will be required for factory and sales outlets.
For Factory 808,000
For 2 Outlets 1,460,000
Total Cost 2,268,000
64% of the depreciation on furniture and fixtures will be charged to administrative and selling
expenses.

7.3 Motor Vehicles

Along with the above mentioned machinery and equipment the proposed business will also be
using two pick ups and one motorcycle. Each pick up will be costing around Rs. 589,000 while
the motorcycle will be acquired for Rs. 40,000. Motor vehicles will be depreciated at 20% on
written down value basis

7.4 Land and Building:

The cost of land and building is as follows:
Construction Cost 4,820,000
Land Cost 4,300,000
Total Cost 9,120,000

7.5 Human Resource:

Following labor and staff will be required for the factory and office.
No of Annual
Place Employees Salaries
Factory wages and salaries 21 1,116,000
Administrative and Selling Staff 3 240,000
Shop Staff 9 756,000
 10

8.0 PROJECT OPERATIONS:

8.1 Product:
The proposed bakery will be offering a large variety of quality products at competitive prices.
The product line will be including different types of fresh cream cakes, dry cakes, snacks, sweets
and nimko and biscuits. As the production will depend on the sales potential, the sales are
estimated depending upon the industry norms. The project will be having two sales outlets of its
own and the rest of the production will be sold to other bakeries. It is hereby assumed that sales
to other bakeries will at a trade discount of 15%. Out of the total sales 27% will be sold to other
bakeries while 73% of the total sales will be sold on bakery’s own outlets.

8.2 Sales:
Proposed sales for the first year are as under:
Table Estimated Sales
Percentage Sales Amount of Sales (Rs.)
Sales on outlets 73% 17,154,9831
Sales to other bakeries 27% 6,408,233
Total Estimated Sales 100% 23,563,216

Total sales incorporated for profit estimates include 5% safety margins.

8.3 Product Category wise sales:

a) Fresh Cream Cakes (Fresh cream, Fresh fruit, Chocolate Cakes, Butter cream cakes,
Special ice cream cake)
b) Fresh Pastries (Fresh & Chocolate pastries, Donut, Cream puff, Cream roll)
c) Bread (Bread, Bun, Rusk Etc.)
d) Dry cakes (Dry cakes, Fruit cakes large, Fruit cakes small, Plain cakes large, Plain cakes
small)
e) Snacks (Chicken pizza large, medium, small, Chicken bread, Chicken drum stick leg
piece, Chicken leg piece, Chicken shami, Chicken sandwitch, Chicken patties, Chicken
bread roll.
f) Sweets & Nimko (Nimko, Jaman, Chum Chum, Kalakand, Burfi, Moti Choor, Piteesa
g) Biscuits (Cake Rusk, White Biscuits, Coconut Biscuits, Macaroon Coconut, Almond
Macaroon, Cheese Finger, Salty Zeera Plus, Plain Khatai, Baker Khani, Finger, Jam
Wafer, Special Biscuit, Chocolate Biscuits, Round Almond Biscuit)

8.4 Raw Material

As the proposed bakery is going to offer a variety of products, a number of ingredients will
beused for manufacturing bakery items. Some ingredients for basic items are listed below:

a) Plain Cakes( Butter, Sugar, Maida, Baking powder, Eggs, Flavour )

b) Nimko (Baison, Peanuts, Channey, Nimko masala)
c) Sweets (Khoya, Maida, Eggs, Ghee, Sugar syrup
 11

d) Chicken Bread (Maida, Oil, Yeast, Sugar, Salt, Chicken, Onion, Masala, Cheese,
Mayonnaise & Ketchup, Mix Vegetable)

Due to a large range of products offered on the proposed bakery, it is not possible to list down
the costing of each and every item. An approximate percentage is used raw material ricing which
is as under:

Table: Raw Material Pricing

Raw Material for bakery items sales on outlets 30% of sales Price
Raw Material Purchases for sales to other bakeries 35% of discounted price
Purchase price of General Items 85% of sales price
 12

9.0 DETAILED ASSUMPTIONS FOR CASH FLOW PROJECTIONS

The following assumptions are used while preparing Income Statement, Balance Sheet and Cash
Flow Statement projections for next 10 years.

Raw Material Inventory 15 days

Packing Material Inventory 15 days
Stores and Spares Inventory 15 days
Finished goods inventory days
Accounts Payable 15 days
Accounts Receivable 7 days
Advances to suppliers 5 days
Administrative Expenses(as %age of sales) 0.50%
Annual rent of 2 shops Rs.720,000
Shop Rent per month Rs. (000) 30
Shop rent growth rate 10%
Electricity Rs.480,000
Others selling expenses(as %age of sales) 3%
Amortization in Years 5
Other Income(as %age of sales) 2%
No of Working Days in One Year 365
No. of Working Hours in One Day 8
No. of Shifts 2
No. of Outlets 2
Working Hours of Outlets 16
Bakery Sales 70% of shop sales
General Items Sales 30% of shop sales
Salaries, wages growth rates (as %age of
5%
annual Salaries and Wages)
 13

10.0 CASH FLOW BUDGET FOR THE PROJECT TENURE ENSURING THERE IS NO NEGATIVE CASH BALANCE.

10.1 Projected Income Statement

(Rs. in thousands)
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Net Sales 22,385 24,015 25,127 26,295 27,521 29,581 31,806 34,209 36,805 39,607
Cost of Sales (12,824) (13,569) (14,299) (15,078) (15,953) (17,406) (18,901) (20,522) (22,280) (24,184)
Gross Profit 9,561 10,446 10,828 11,217 11,568 12,175 12,905 13,687 14,525 15,423
Admin & Selling Exp. (3,431) (3,535) (3,675) (3,837) (4,021) (6,895) (7,282) (7,716) (8,196) (8,726)
Operating Profit 6,130 6,911 7,153 7,380 7,547 5,280 5,623 5,971 6,329 6,697
Financial Expenses (860) (688) (516) (344) (172) - - - - -
Other non-Operating exp/income (448) (480) (503) (526) (560) (592) (636) (684) (736) (792)
Profit Before Tax 4,822 5,743 6,134 6,510 6,815 4,688 4,987 5,287 5,593 5,905
Tax (1,446) (1,723) (1,840) (1,953) (2,047) (1,407) (1,496) (1,586) (1,677) (1,771)
Profit After tax 3,376 4,020 4,294 4,557 4,768 3,281 3,491 3,701 3,916 4,134
Retained Earnings Opening - 3,376 7,396 11,690 16,247 21,015 24,296 27,787 31,488 35,404
Retained Earnings Closing 3,376 7,396 11,690 16,247 21,015 24,296 27,787 31,488 35,404 39,538
 14

10.2 Projected Balance Sheet

(Rs. in thousands)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
ASSETS:
Fixed Assets 15,844 14,580 13,461 12,466 11,580 10,789 12,464 11,602 10,845 10,178 9,588
Cash & Bank 1,366 5,486 9,160 12,832 16,653 20,580 21,616 26,032 30,552 35,195 39,978
Other Current Assets - 857 917 971 1,028 1,089 1,190 1,298 1,416 1,542 1,679
17,210 20,923 23,538 26,269 29,261 32,458 35,270 38,932 42,813 46,915 51,245

EQUITY & LIABILITES:

Capital 8,605 8,605 8,605 8,605 8,605 8,605 8,605 8,605 8,605 8,605 8,605
Retained Earning - 3,375 7,395 11,689 16,246 21,023 24,305 27,796 31,497 35,412 39,545
8,605 11,980 16,000 20,294 24,851 29,628 32,910 36,401 40,102 44,017 48,150
Long Term Liabilities 8,605 6,884 5,163 3,442 1,721 - - - - - -
Current Liabilities - 2,059 2,375 2,533 2,689 2,830 2,360 2,531 2,711 2,898 3,095
17,210 20,923 23,538 26,269 29,261 32,458 35,270 38,932 42,813 46,915 51,245
 15

10.3 Projected Cash Flow Statement

(Rs. in thousands)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
CASH FLOW FROM:
Operating Activities - 5,841 5,395 5,393 5,542 5,648 3,693 4,416 4,520 4,643 4,783
Investing Activities (15,844) - - - - - (2,657) - - - -
Financing Activities 8,605 (1,721) (1,721) (1,721) (1,721) (1,721)
NET CASH FLOW (7,239) 4,120 3,674 3,672 3,821 3,927 1,036 4,416 4,520 4,643 4,783
Opening Cash 8,605 1,366 5,486 9,160 12,832 16,653 20,580 21,616 26,032 30,552 35,195
Closing Cash 1,366 5,486 9,160 12,832 16,653 20,580 21,616 26,032 30,552 35,195 39,978
 16

11.0 CASH FLOW PROJECTIONS INCLUDING THE CALCULATION OF NPV

AND IRR

Table: Project Costs

Capital Investment Rs. 15,533,000
Working Capital Requirement Rs. 1,676,000
Total Investment Rs. 17,209,000

Table : NPV & IRR

IRR 18%
NPV @20% Rs. 7,162,238
Pay Back Period (years.) 4.49

Table Financial Summary

Debt Equity Ratio 50:50
Projected Life 10 years
Repayment of long term loan 5 years
Grace period for long term loan 1 year
Mark up rate for long term loan 10%
 17

12.0 RISK PROFILE

For starting a Bakery & Confectionery risk factors that should be considered before or during
this project are described below:
i. Number of customers to the Bakery & Confectionery will determine the financial
success of the project.
ii. The entrepreneur should analyze existing competing Bakery & Confectionery
businesses in the target city.
iii. Looking at the size of investment and potential Bakery & Confectionery, it is advised
that the facility be set up in those cities of the country that have a population to cover
the proposed production of this business.
iv. Another aspect linked with the revenue generating capacity of the project is the
spending pattern of the potential customers in a specific city. Also international food
chains are looking at our country as potential market.
v. Selection of right location for an outlet is an important factor in the popularity of any
Bakery & Confectionery. Initially 2 outlets are planned and in future new outlets will
be added so as to capture the desired targeted population.
vi. Provision of other general items for the customers also plays a major role in the
popularity of the Bakery & Confectionery. General items include drinks, eggs,
chocolates, candies, jams, jellies, ice creams and related products.
vii. For every Bakery and Confectionery general items play a vital role in sales revenue.
Adequate provision for a sitting area is also advisable.
viii. Background knowledge and experience of the entrepreneur in the bakery business.
ix. Induction of trained human resource for production of requisite items.
x. Maintenance of quality and hygiene standards.
xi. Pricing strategy & understanding requirements of the target customers.
xii. Decor presentation and layout of the shop and products.
xiii. Location considerations for easy access of the customers.
xiv. Skilled and experienced master chef should be considered an investment and be
retained on better terms,
 18

13.0 SENSITIVITY ANALYSIS

Some of the factors that will determine the sensitivity of this project include:

i. Products range selection and introduction of sitting areas.

ii. Quality and Innovation in products.
iii. Selection of location.
iv. Pricing strategy.
v. Understanding of target customers, alternative availability (product differentiation).
vi. Launching time.
vii. Hygienic conditions.
viii. Spares parts & consumables technology used
ix. Energy requirement and machinery suppliers problems
x. Quality Assurance Equipment & Standards
xi. Product Development & Packing strategy
xii. Ads & Point of Sales Promotions activity
xiii. Introducing Discounts strategy
xiv. Adequacy & Competencies in hiring staff.
 19

14.0 OVERALL APPRAISAL OF THE PROJECT

Bakery and Confectionery business is growing in both urban and semi-urban areas. This study
encompasses the bakery business located in commercial neighborhood surrounding and middle
income residential localities. Major products include cakes, snacks, sweets, nimko, biscuits,
bread and general confectionery items, which will be sold to target customers of the vicinity.

The sales outlet will be supported by an in house production facility. Selections of adequate
product mix and business location, supported by marketing efforts are the critical success factors.
This Bakery & Confectionery business will be started as sole proprietorship with an investment
of Rs. 17 million. This project is based on 50% debt and 50% equity ratio. Projected NPV, IRR
and Payback of this project are Rs. 7.16 million, 18% and 4.49 years respectively. The business
will provide employment opportunity to 34 individuals including the owner manager