El Mercado

Authentically Mexican

Business Plan

Executive Summary
Outline
Our start-up corporations main mission is to facilitate the distribution of genuine array of Mexican brand food products to U.S. retailers in targeted regions where the Mexican-American population is continuously experiencing exponential growth. Although great amount of food manufacturers in Mexico possess a notable brand image, they do not possess the essential means to penetrate the U.S. market due to the lack of sales and distribution channels. Past several years, food retail companies in the United States have been introducing authentic Mexican food products to their product line; however, executives and staffs in these companies do not have sufficient knowledge about these Mexican manufactured products to target certain customer base. Since the Mexican-American population is the fastest growing demographic segment in the United States, these retailers must recognize the importance of increasing their Mexican product line to fulfill the need of their Mexican-American consumers. This is when our corporation, El Mercado, comes to play an important role. Our corporation will be designed towards helping manufacturers in Mexico to enter the U.S. market by providing vital distribution and marketing services. Additionally, our firm will have another function, helping retailers with making educated decision regarding the stocking of Mexican products with highest return on asset.

A Flourishing Population and Undeserved Population

According to a research conducted by the U.S. Census Bureau in 2010, 308.7 million people resided in the United States on April 1, 2010, of which 50.5 million (or 16 percent) were of Hispanic or Latino origin(Ennis, Vargas, and Albert 2). Among this date presented above, the Mexican-American accounted for the largest growth in the Hispanic population, growing from 20.6 million in 2000 to 31.8 million in 2010 (Ennis, Vargas, and Albert 2). Due to cultural importance, Hispanic-Americans prepare their meals at home to eat with their family. The Food and Marketing Institute pointed out those Hispanic origin civilians are huge grocery shoppers spending $128.50 per week versus the traditional shopper who spends approximately $91.00 per week, a 41% greater expenditure (Taylor 106). From this statistics, we inferred that Mexican consumers attend grocery stores more often than non-Mexican consumers, so food retailers have to offer products with certain qualities, authenticity and freshness. In a sampling of our initial target regions (Texas and California), states with Hispanic population of over one million (Brown and Lopez 1), Mexican-American consumers are not able to find authentic Mexican foods in major food retailer stores, such as Target and Wal-Mart.

El Mercados Solution
El Mercado will offer a service that will aid Mexican food manufacturers to connect with U.S. food retail stores. Helping Mexican food manufacturers establish a contract with U.S. supermarkets will allow these supermarkets to fulfill the demand of the Mexican consumers. Firstly, we will try to receive distribution rights from Mexican manufacturers to export their products to our targeted regions (California and Texas). In return, this will give opportunity for the Mexican manufacturers to build equity in the U.S. market. After our company signed a

written agreement, we will first distribute the products to small local Mexican grocery stores. After enhancing our companys supply chain, we will start offering these products to supermarkets with extensive market share in the retail sector.

Product and Service

El Mercado will distribute Mexican food products to retailers, located in Texas and California. Initially, we will start distributing two product classes: canned vegetables and meats, and Mexican candies (composed of ingredients almonds and dry-fruits). After the initial stage, we are working towards adding diversity to our product offerings. We are going to offer Mexican offer perishable food products and hygienic products like specialty soaps and shampoos. In order to accomplish this goal, our company will establish distribution network by creating a network of logistical service providers. These service providers will serve as the means to transport the manufactured food products from Mexico to mercados and supermarkets in Texas and California. Primarily, these supply chain functions will be outsourced. The only function will be insourced is the distribution to grocery markets. Our supply chain will be based off this structure as shown in the figure below:

Mexican Food Manufacturers

Importers/Customs

Shipping from the Border

Warehouse

Supermarkets/ Groceries

Sales/Marketing Services
Besides the distribution of food products from our Mexican based manufacturing partners, our company will serve as a representative to these partners. Similarly, El Mercado will offer an essential service, concentrating on category management, as a support tool to supermarkets. This service will help the supermarkets develop a greater degree of comprehension towards the demand of Mexican consumers. Simply, El Mercado will provide the resources to advice the supermarkets and grocery stores on stocking authentic Mexican food products that will attract a growing population and increase profits in long-term. In order to complete our part of the deal with full integrity and due to diligence, we will implement these services through: continuously offering versatile of products to our vendors (supermarkets/groceries), performing on-going market research in our targeted regions, and using the market knowledge of our manufacturing partners in Mexico.

Organizational Structure
El Mercado is founded by Ali Kocan, Belinda Huynh, Bashir Khader, and Jacob Ponce. In order to establish a stable environment and explicit internal regulations, the companys organizational design is going to be consisted of centralization with tall hierarchy levels. In compliance with our companys culture, several layers of management will ensure internal control and allow managers to closely keep track of employee activities and productivity. As the figure listed below, the organization is going to be comprised of functional divisions. This will maintain diversity among employees. Since these employees are coming from different backgrounds and technical career fields, it will facilitate the decision making process.

Marketing Plan
Target Market Strategy We will start off by offering authentic Mexican candies, canned goods and juice concentrates. What makes El Mercado different from others is this market is simple, we will be providing a reliable and consistent supply chain for authentic Mexican food products. Instead of replacing their existing manufacturers and/or distributors, we will be providing them with more option of authentic product and giving consistent product offering. El Mercado will always be maintaining a close relationship with these customers and will be keeping the delivery of the authentic products in-house. After establishing a profitable track record of sales with the grocery stores, we will begin entering our way to supermarkets. Our researches on buyers from supermarkets show that there should be a proven sales record in order to enter their channel. The grocery store owners are easy entry points and are willing to bring on new products proved that it is a minimum volume, supermarkets, on the other hand, are much more structured in their selection, and thats why we must be able to prove that our authentic products will be selling better than the ones that are already in their supermarkets shelves. Our main goal is to enter supermarkets as soon as possible; our main advantage is the fact that supermarkets are placing high priority on attracting Mexican customers to their stores. After establishing a footprint with both grocery markets and supermarkets, we will start supplying additional products that allow both of the markets to serve their customers better. We will also use surveys to determine which authentic Mexican food Mexican-American population wants in the grocery stores they go to.

Product Positioning El Mercado is a specialty food distributor that delivers unique, authentic Mexican food products to rapidly growing Mexican-American population. El Mercado differentiates itself from other distributors by focusing on the authentic Mexican food market, rather than distributing multiple food categories. Sales Strategy El Mercado will be using a direct sales strategy approach when reaching our channels. Basically we will be directly contacting and developing relationships with the founders and owners of the markets. Pricing Strategy Our pricing strategy will increase our gross profit margins and the margins for our channel customers. Instead of using the standard markup of 30%, we will charge 35% markup due to it being authentic Mexican products.

SWOT and Cage Distance Framework

Above is the SWOT analysis identifying our strengths, weaknesses, opportunities, and threats depicted in developing our business plan. Our strengths consist of having a huge advantage to the U.S. market as we share a common border with Mexico. Distribution will also be easily accessible due to the North American Free Trade Agreement (NAFTA), which removes most barriers to trade between the United States and Mexico. Opportunities include the growing the demand for Mexican food. As mentioned earlier, consumers from the United States desire fresh and authentic Mexican food that can be difficult to find in most supermarkets. Progressing with our plan correspondingly gives a chance for local producers to expand their business in Mexico. However, there are weaknessesas the agricultural sector remains underdeveloped, it can influence increased price sensitivity in our market. The rise in drug-related violence in Mexico can too cause a threat to our business.

Our CAGE framework demonstrates the attributes creating distance between Mexico and the United States. Comparatively, though Mexico speaks mostly Spanish, Spanish is the second most spoken language in the United States. Again, this is because of the rapid growth in the Hispanic population. Catholicism is the most followed religion in Mexico amounting in 82.7% of the total population (down from 96% in 1970), while in the United States Roman Catholics is only 23.9%. In area relation, Mexico is slightly less than three times the size of Texas (CIA, 2013). Yet Mexico being adjacent to the United States, there is an enormous economic distance in gross domestic product per capita. There is also distance between the two countries in the type of industries. The United States industries are highly diversified, world leading, hightechnology innovator, [and is] the second largest industrial output in the world (CIA, 2013). Mexico concentrates mainly on food and beverages, tobacco, chemicals, and so on.

Financial Rational Financing El Mercado will be done in three time period rounds. Our first funds of financing will be dedicated to salaries, operating expenses, and inventory. El Mercado will conduct business with small, local grocers at first to set a solid base for shipment, delivery expectations, and generate cash flow within the first time period. The second round of financing will be dedicated to the entrance of local supermarkets. The money from this time segment will fund inventory, salaries, new hires, and capital expenditures. The final round will fund our projected sales and growth with the local grocers. By this stage, El Mercado will be financially able to maintain any growth by our own generated funds. These generated funds from larger supermarkets will be greater than when we first started with conducting sales with only small local grocers. Average warehouse and office rent costs, utilities, and communications costs are used in the costs. Ali and Bashir have experience with financial reporting, coming from years of working for large accounting firms. El Mercado will take the skills of these efficiently educated men for the accounting. Technology costs are derived from the maintenance and keeping of computer systems up to date. El Mercado will continuously modify and update our technology to minimize any chance of bullwhip effect. Main office computers will be provided, however, the staff will provide and work with their own tablets and laptops in order to bring work home and cut technology expenses.

Profit and Loss From Operations Item Rent Utility Bills Communications Costs Accounting/ Finance Technology Salaries Insurance and Licensing Fees Total Fixed Costs Variable Costs COGS Direct Labor Costs Total Variable Costs Total Costs Direct Sales Distributer Sales Services/ Maintenance Total Revenue Total Profit 5000 100000 500 122314 500 100000 500 117115 500 100000 500 117116 500 500 100000 100000 500 500 2014 11000 2600 1200 2015 11000 2600 500 2016 11000 2600 500 2017 11000 2600 500 2018 11000 2600 500

117117 117118

50000 12000 62000 184314 100000 75000 3500 178500 -5814

50000 12000 62000 179115 175000 100000 4000 279000 99885

50000 12000 62000 179116 200000 125000 6500 331500 152384

50000 12000 62000 179117 250000 150000 7000 407000 227883

50000 12000 62000 179118 275000 200000 8000 483000 303882

Revenue Forecast Item Direct Sales Distributer Sales Services/Maintenance Total Revenue Units/Users ASP

2014 100000 75000 3500 178500 10 10000

2015 175000 100000 4000 279000 500 350

2016 200000 125000 6500 331500 800 250

2017 2018 250000 275000 150000 200000 7000 8000 407000 483000 1000 1500 250 183.3333

CASH FLOW FORCAST Net Income Plus Depreciation Cash flow from Operations Less Equipment Plus/Less Change in Working Capital Less Purchased IP Plus/ Less Other Cash Items Total Cash Used Total Cash Required or Generated Plus Financing Source 1 ETF Source 2 Total Financing Cum. Financing Required 2014 -5814 250 -6064 -250 -100 -880 150 -1080 2015 99885 700 99185 -250 -100 -950 150 -1150 2016 152384 850 151534 -400 -100 150 -350 2017 227883 1000 226883 -600 -200 150 -650 2018 303882 1100 302782 -900 -300 150 -1050

-7144

98035

151184

226233

301732

1500 800 2300 2300

2000 1000 3000 5300 500 500 5800 0 5800 0 5800

HEADCOUNT AND SALARY FORECAST Item 2014 Existing Headcount Manufacturing 4 8 Research 4 4 Product Development 4 4 Sales 4 2 Marketing 4 5 G&A 4 5 Total Head Count 24 28

2015 15 4 4 4 5 6 38

2016 15 4 5 6 7 7 44

2017 18 6 7 6 8 7 52

2018 20 6 7 6 9 8 56

Sources http://country-facts.findthedata.org/compare/1-2/United-States-vs-Mexico https://www.cia.gov/library/publications/the-world-factbook/geos/mx.html https://www.cia.gov/library/publications/the-world-factbook/geos/us.html http://www.fas.usda.gov/itp/Mexico/030607StrengtheningNAFTA.pdf

http://www.census.gov/prod/cen2010/briefs/c2010br-04.pdf http://www.thercas.org/proceedings/07/Growing%20Hispanic%20Population.pdf http://www.pewhispanic.org/2013/08/29/ii-ranking-latino-populations-in-the-states/