5. STRATEGIC PLANNING
5.1. E XTERNAL A NALYSIS
5.1.2. Industry Life Cycle Analysis
order to distribute food products, the product must have a permit from the Ministry of Health, which would be an entry barrier for new competitors. Moreover, we plan on building brand loyalty from the beginning in order to maximize our share of customer, and make it harder for potential competitors to enter the market.
5.1.1.2. Rivalry among Established Companies
Currently, there are no big differences between the products offered by the existing competitors.
There are 3 main competitors offering the same flavors with the same quality. Therefore, 5 cents can make a big difference when consumers are making a purchase decision. We are not afraid of this high level of rivalry because our products have a differentiation factor that we will make sure to highlight through our marketing efforts.
5.1.1.3. Bargaining Power of Buyers
Due to the high number of consumers, they have no bargaining power in this industry. If one particular consumer do not want to purchase our products, there are others that will. As a result, the risk is very low.
5.1.1.4. Bargaining Power of Suppliers
Since in Nicaragua agriculture is still one of the main sectors in the economy, there are a lot of farmers that can provide fresh, organic products. Hence, the power that the farmers might have is low. However, there are not many importers of olive oil, so they might have a relatively higher bargaining power. In general, the bargaining power of suppliers is low.
5.1.1.5. Substitute Products
Salad dressings can have a lot of substitutes such as salt and lemon, vinegar and oil, etc.
Consequently, the power of substitute products is very high.
5.1.2. Industry Life Cycle Analysis
Salad dressings are already a mature industry. Some might even consider it as a declining industry. Because of this, the big brands are always trying to innovate through flavors and presentations. In Nicaragua, the organic salad dressing industry is currently nonexistent;
therefore, Alfresco dressings will be a disruptive innovation and the organic salad dressings industry will be in an embryonic stage. This will bring all the advantages and risks that being
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the first mover has. However, from the success that the organic industry in general has had in the country, we consider that there would be more advantages than risks.
Figure 12. Salad Dressings and Organic Salad Dressings Life Cycle in Nicaragua 5.1.3. Macro Environment
Macroeconomic Forces. During the last five years (2011 – 2015) Nicaragua has had an average real economic growth of 5.16%. The trade industry, which is where all the retail sales are located, has had a 6.74% average growth during the same period (Blandón Sequeira, 2009), and it is the second industry with the biggest percentage of the GDP (11.90% in 2015). Since 1993, Nicaragua has had a fixed currency slip rate. In 2004, this rate was set at 5% per year. The average inflation from 2011 to 2015 has been 5.98.
Demographic Forces. From 2010 to 2015 the average population growth in Nicaragua was 1.22 percent, with a gross birth rate of 23.2 per thousand inhabitants. 42 percent of Nicaraguan population is between 0 and 19 years old which means that Nicaragua is a young country (UNFPA, 2016).
Social Forces. As mentioned in the opportunity section, Nicaraguans have become more health conscious. In the country, the salad franchises, dance studios, gymnasiums, health centers, fruit shake businesses, etc. are flourishing. This only reinforces that this is a growing segment in the country.
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5.2. Internal Analysis (Competencies and Competitive Advantage)
The main intangible asset that the company has is the marketing expertise of one of the founders.
This expertise will allow us to create a strong brand image, to have a well-managed customer relationship and overall, to create loyal customers.
One of the main competitive advantages that Alfresco has is that we are going to be the first movers in the organic salad dressings category, which gives us the freedom to set the industry standards and prices.
5.3. SWOT Map
Figure 13. Alfresco Organic Dressings SWOT Map
The two main weaknesses that Alfresco has are related with being a start-up. We will have to build from zero the relationship with the distributors and our brand image and brand awareness.
However, because of our Marketing expertise, this is not a mayor concern for the company. A second important weakness is related to the short shelf life that our products have in comparison to competitors’ products. Notwithstanding, we believe that our customers will understand that the low expiration date is because of the use of natural ingredients as preservative and they will value the health benefits this signifies.
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unique positioning will help us create customer awareness and gauge demand. Once we are able to gauge demand in the high end stores, where it is simpler to enter, it would become easier to convince the hypermarket chains to carry our brand. This would counter the weakness of not having a current relationship with the distribution channels.As mentioned in the market overview, the Nicaraguan market brings a lot of opportunities for us as a company. Since the Nicaraguan economy is in the growth stage, there are a lot of opportunities for young entrepreneurs like us. Labor costs are low, establishing a new company is relatively fast and easy, cost of materials is also low and many industries are either nonexistent or in an embryonic or growing stage.
Nonetheless, because of all of these opportunities, there are a lot of new entrepreneurs in the country that could be possible competitors. At the same time, if we start to succeed in this category, the existent competitors could decide to import a wider variety of flavors and introduce their already existent healthy product lines in order to recover market share.
In order to counter these threats, we will make use of our marketing expertise in order to position ourselves in the market and in the mind of the consumers before new players can enter this new market segment.
A last threat is the lack of knowledge of some potential customers who confuse being light or fat free, with being healthy. Our main strategy to eliminate this misconception, is to create advertising campaigns where we educate our audience and explain the difference between the concepts. Moreover, we will make use of public relations to promote the brand in the media with the help of our partner nutritionists in the morning health segment.
5.4. Business Level Strategy
Alfresco vinaigrettes and dressings will use a differentiation focus strategy. All the other competitors are currently using a cost leadership strategy, therefore, their products are perceived to have little or no difference between each other. This means that a small difference in prices can lead to a buy or no buy decision.
Our company, however, will create value through:
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Lowering buyer’s costs. Even when our prices are higher, because our products are organic, this will bring health benefits to our consumers. A healthy diet not only helps controlling weight, but also improves mood, combats diseases, boosts energy and improves longevity.
Sustainability. From the introduction stage, we will aim to create a strong brand image in order to create customer loyalty. This in turn, will work as an entry barrier for future competitors.
Just by being an organic dressing, our products are already using a differentiation strategy.
However we will use the focus differentiation strategy because we will only focus on three small market segments: diabetics, lactose and gluten intolerant, and health conscious consumers.
All of them from the middle and high class.
At the same time, our customer service and community engagement will be another differentiator for our product. We not only want to create excellent products but also to provide an excellent customer experience.
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penetration strategy, we will make use of our knowledge of the Nicaragua market to introduce new products. These new products will make use of Alfresco’s brand equity in order to attract our already loyal customers.6.1.1. Line Extension
The first type of product development that we are going to do will be a line extension. First, by listening to our consumers’ feedback in the social media channels, we will study the possibility of introducing new flavors to the existing product line.
Second, we will introduce single serving size dressing pouches. This product is aimed for the consumers that like to take a homemade lunch to work. In Nicaragua, the regular lunch break is one hour. Most people do not have enough time to go home to have lunch and come back to work on time. There are catering services that serve offices, however these options are not always healthy and at the end, are more expensive. Therefore, many prefer to bring their lunch from home. However, if you take your lunch from home you either have to carry your big dressing bottle or have a bottle stored at the office.
The pouches will come in a box of 20 units, containing 5 pouches of each of the flavors. This will not only be a convenient presentation for the customers but also will give them variety in terms of flavors. Again, we are aiming to attract the variety seeking consumers.
At the same time, the pouches will work as a portion restrainer for those customers that are following a strict diet.
Additionally, the single serving pouches could be introduced in the hotel and restaurant segments. This will allow us to increase our target market which will at the end translate into more sales and revenue.
6.1.2. Brand Extension
On the other hand, we will also make use of the brand value in order to enter a different category, the “to go” industry. Currently in Nicaragua there are sushi and sandwiches to go. However,
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there are no salads to go. We plan to enter this category providing lunch size salads with Alfresco vinaigrettes pouches as a dressing.
In order to enter this industry, we will have to develop new distribution channels because the ideal channel for this industry are convenient stores. Just as 7eleven in Taiwan, consumers can simply go to a convenient store and get a fresh, ready to eat salad accompanied with organic Alfresco salad dressings.
With regard to promotion of this product, besides the social media advertising, we would make use of point of sale advertising with the purpose of attracting customers’ attention.
6.2. Market Development
Finally, as stated in the opportunities, once we have a well-positioned product and high brand awareness, we can enter other Central American markets. The first country to enter will be El Salvador due to the fact that we already have commercial alliances with potential distributors.
Furthermore, El Salvador is the Central American country with the highest influence from United States, which will make it easier for consumers to adopt product categories that are trending in the US.
The second country to enter will be Costa Rica since it is the Central American country with the strongest economy. We believe that we can get a higher margin in Costa Rica due to the high prices encountered in the country.
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The following assumptions were made when creating the projected financial statements:
A loan of US$3,500.00 will be made to buy the property, plant and equipment required to start operations. At the same time, it will be used to cover all the startup expenses such as the legal and accounting expenses. The interest rate of this loan is 8% and the period is 3 years (See Amortization Table in Appendix 10.3)
During the first year of operations, the goods will be manufactured in the house of the owners. Therefore, rent and security are not considered until year 2, when the business will be moved to a rented space. Kitchen, packaging, warehouse and offices premises will be located in the same building.
A wage increase of 5% is considered every year. In year 1, we only considered one person in the kitchen and a part time salary for one of the owners. From year 2, we considered two people in the kitchen, 1 security guard and 1 administrative wage for one of the owners.
The cost of goods sold is determined to be 50% of sales price. However we consider that through economies of scale we will be able to reduce it to a lower percentage. For the purpose of this Business Plan, we worked with a fixed 50% per year.
Each of the flavors have a different manufacturing cost and we project that the demand for some flavors will be higher than the demand for others. However, for the purpose of the proformas we estimated an average manufacturing cost.
Due to the low shelf life of our products, purchasing inventory was calculated by multiplying cost of goods sold by 1.1. The additional 10% was considered as waste.
Kitchen utensils (knives, measuring cups and spoons, etc.) will be replaced every two years and are expressed as an expense in the income statement.
In year 1, the market share was set at 2%, 1% the first six months when the distribution will be limited to upscale stores, and 3% the last six months as the distribution channels will include the two main hypermarket chains. In year 2, the market share was set at 4%, in year 3, 6%, in year 4, 8% and in year 5, 10%. (See Market Share Table and Sales Forecast in Appendix 10.2). These percentages are based on our target market which is composed by the top 15% households in Managua with the higher income.
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Proformas are in USD using the official exchange rate for April 1st, 2016 US$1 = C$28.2729.
Property, plant and equipment was depreciated using the straight line depreciation method with a useful life of two years.
Tax regulation for companies registered as small business require a fixed monthly tax payment of US$50.00. However, because of our sales forecast we used a 30% tax retention that is the one required by law.
In Nicaragua, there are no minimum requirements for social capital when establishing a new company.
7.1. Start-Up Budget
The following is the summary of the start-up budget. A detail can be found in Appendix 1.
Table 4. Initial Investment Summary Initial Investment Summary
Legal and Accounting expenses $1,430.00
Cash $500.00
Inventory $162.09
Kitchen equipment $2,000.00
Kitchen Utensils $233.00
Cleaning Utensils $37.00
Total initial investment $4,362.09
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7.2. Projected Initial Balance Sheet
Table 5. Alfresco LLC Initial Balance Sheet
Alfresco LLC
Initial Balance Sheet
As of November 22, 2016
Assets Liabilities and Equity
Current Assets $ 2,162.09 Liabilities
Cash $2,000.00 Account Payable $ 3,500.00
Inventory $ 162.09
Equity
Non-Current Assets $ 2,000.00 Shareholders' Equity $ 662.09
Property, Plant, and
Equipment $2,000.00
TOTAL ASSETS $ 4,162.09
TOTAL LIABILITIES
AND EQUITY $ 4,162.09
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7.3. Income Statement
Table 6. Yearly Estimated Income Statement Projections
Alfresco, LLC
Yearly Estimated Income Statement from 2016 to 2021
2016 2017 2018 2019 2020 2021
Sales $ - $ 42,681.60 $ 85,363.20 $ 128,044.80 $ 170,726.40 $ 213,408.00 Cost of Goods Sold $ - $ 21,340.80 $ 42,681.60 $ 64,022.40 $ 85,363.20 $ 106,704.00 Gross profit $ - $ 21,340.80 $ 42,681.60 $ 64,022.40 $ 85,363.20 $ 106,704.00 Wages expense $ 200.00 $ 8,400.00 $ 19,620.00 $ 20,601.00 $ 21,631.05 $ 22,712.60 Utilities expense $ 179.17 $ 2,150.00 $ 2,472.50 $ 2,596.13 $ 2,725.93 $ 2,862.23 Rent expense $ - $ - $ 5,400.00 $ 5,400.00 $ 5,400.00 $ 5,400.00 Advertising $ 200.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 Other Marketing
Expenses $ 150.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 $ 1,800.00 Start-up Expenses $ 1,430.00 $ - $ - $ - $ - $ - Kitchen Utensils $ 233.00 $ - $ 233.00 $ - $ 233.00 $ - Depreciation $ 108.33 $ 1,000.00 $ 891.67 $ - $ - $ - Other Operational
Expenses $ 200.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 $ 2,400.00 Interest Expense $ 23.33 $ 233.99 $ 144.17 $ 46.90 $ - $ - Income before
income tax $ (2,723.83) $ 2,956.81 $ 7,320.27 $ 28,778.38 $ 48,773.22 $ 69,129.17 Income tax (30%) $ - $ 887.04 $ 2,196.08 $ 8,633.51 $ 14,631.97 $ 20,738.75 Net income $ (2,723.83) $ 2,069.77 $ 5,124.19 $ 20,144.87 $ 34,141.25 $ 48,390.42
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7.4. Cash Flow
Table 7. Yearly Estimated Statement of Cash Flow
Alfresco, LLC
Yearly Estimated Statement of Cash Flow from 2016 to 2021
2016 2017 2018 2019 2020 2021
Cash Flow from operating activities
Cash collected from customers $ - $ 42,681.60 $ 85,363.20 $ 128,044.80 $ 170,726.40 $ 213,408.00 Cash paid for
Purchasing inventory $ (162.09) $ (23,474.88) $ (46,949.76) $ (70,424.64) $ (93,899.52) $ (117,374.40) Operating and admin expenses $ (2,615.50) $ (17,383.99) $ (34,469.67) $ (35,244.02) $ (36,589.98) $ (37,574.83)
Tax $ - $ (887.04) $ (2,196.08) $ (8,633.51) $ (14,631.97) $ (20,738.75)
Net cash from operating activities $ (2,777.59) $ 935.69 $ 1,747.69 $ 13,742.63 $ 25,604.93 $ 37,720.02
Cash flows from investing activities Cash paid for property, plant and
equip $ (2,000.00) $ - $ - $ - $ - $ - Net cash from investing activities $ (2,000.00) $ - $ - $ - $ - $ -
Cash flows from financing activities Increase (decrease) in short term
loans $ 3,413.66 $ (1,082.14) $ (1,171.96) $ (1,159.55) $ - $ -
Interests Paid $ (233.99) $ (144.17) $ (46.90) $ - $ -
Net cash from financing activities $ 3,413.66 $ (1,316.13) $ (1,316.13) $ (1,206.45) $ - $ -
Cash and Equivalents, Beginning of
Period $ 2,000.00 $ 636.07 $ 255.63 $ 687.19 $ 13,223.37 $ 38,828.30
Cash and Equivalents, End of Period $ 636.07 $ 255.63 $ 687.19 $ 13,223.37 $ 38,828.30 $ 76,548.32
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7.5. Profitability Analysis
7.5.1. Net Present Value and Internal Rate of Return
Table 8. Alfresco LLC Profitability Analysis: Net Present Value and Internal Rate of Return
Alfresco, LLC
Profitability Analysis
2016 2017 2018 2019 2020 2021
Period 0 1 2 3 4 5
Cash and Equivalents, End of
Period $ (4,362.09) $ 255.63 $ 687.19 $ 13,223.37 $ 38,828.30 $ 76,548.32 Present Value $ (4,362.09) $ 250.62 $ 660.51 $ 12,460.68 $ 35,871.35 $ 69,332.17
Discount Rate 2%
Net Present Value $ 102,153.25
Internal Rate of Return 119%
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7.5.2. Break Even Analysis
A break even analysis was conducted in order to determine the number of units at which the revenue received equals the cost that the company incurs in order to generate that revenue. The following formula was used in order to obtain such number
𝑈𝑛𝑖𝑡 𝑏𝑟𝑒𝑎𝑘 𝑒𝑣𝑒𝑛 𝑣𝑜𝑙𝑢𝑚𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠
𝑈𝑛𝑖𝑡 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
For the reason that the fixed cost varies each year as a result of increases in wages and utilities, a unit break even volume was calculated for each one of the years forecasted.
The dollar break-even was obtained by multiplying the unit break-even by the unit price.
Table 9. Alfresco LLC Break Even Analysis
Alfresco, LLC
Break-even Analysis
Total Fixed Cost $ 14,750.00 $ 31,692.50 $ 32,797.13 $ 33,956.98 $ 35,174.83 Unit Selling Price $ 4.00 $ 4.00 $ 4.00 $ 4.00 $ 4.00 Unit Variable Cost $ 2.00 $ 2.00 $ 2.00 $ 2.00 $ 2.00 Unit Break Even 7,375 15,846 16,399 16,978 17,587 Dollar Break Even $ 29,500.00 $ 63,385.00 $ 65,594.25 $ 67,913.96 $ 70,349.66
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8. Conclusion
Nicaraguan economy is currently in a growing phase. The current government has been focused on creating an adequate environment for investment, which translates in law regulations that make the process of starting a new company, a smooth one.
The Organic Salad dressings industry in Nicaragua is currently inexistent. However, after analyzing the market and consumer preferences, there is an opportunity for this industry to flourish in the country.
At the same time, the Financial Analysis of this business plan reflects that with the proper management practices and marketing efforts, a local organic salad dressing brand is a profitable business. Alfresco has all the opportunities to become the number one organic salad dressings in the Central American region and to fulfill its initially stated objectives.
It is fundamental for the success of the company to leverage its key success factors and to act rapidly in order to obtain the first mover advantage. Finally, if the branding is done properly, it would be easy for the company to accomplish its expansion plans to the rest of the Central American region.
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