SMEDA Bakery & Confectionery

Pre-Feasibility Study
BAKERY AND CONFECTIONERY
Small and Medium Enterprises Development Authority

Government of Pakistan
www.smeda.org.pk
HEAD OFFICE 6th Floor LDA Plaza Egerton Road, Lahore Tel (042)111 111 456, Fax: 36304926-7 helpdesk@smeda.org.pk
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REGIONAL OFFICE PUNJAB 8th Floor LDA Plaza, Egerton Road, Lahore. Tel: (042) 111 111 456, Fax: (042) 36370474 helpdesk.punjab@smeda.org.pk
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REGIONAL OFFICE SINDH 5TH Floor, Bahria Complex II, M.T. Khan Road, Karachi. Tel: (021) 111-111-456 Fax: (021) 5610572 helpdesk.sindh@smeda.org.pk
REGIONAL OFFICE KHYBER PAKTUNKHWA Ground Floor State Life Building The Mall, Peshawar. Tel: (091)111 111 456, 9213046-7 Fax: (091) 286908 helpdesk.NWFP@smeda.org.pk
REGIONAL OFFICE BALOCHISTAN Bungalow No. 15-A Chamn Housing Scheme Airport Road, Quetta. Tel: (081) 2831623, 2831702 Fax: (081) 2831922 helpdesk.balochistan@smeda.org.pk
May, 2011
Bakery & Confectionery
DISCLAIMER
The purpose and scope of this information memorandum is to introduce the subject matter and provide a general idea and information on the said area. All the material included in this document is based on data/information gathered from various sources and is based on certain assumptions. Although, due care and diligence has been taken to compile this document, the contained information may vary due to any change in any of the concerned factors, and the actual results may differ substantially from the presented information. SMEDA does not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information he/she feels necessary for making an informed decision. For more information on services offered by SMEDA, please contact our website: www.smeda.org.pk
HTU UTH
DOCUMENT CONTROL
Document No. Revision Prepared by Issue Date Revision Date Issued by PREF-77 3 SMEDA-Punjab June, 2004 May, 2011 Library Officer
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PREF-77/May, 2011/Rev 3
TABLE OF CONTENTS
1 2 EXECUTIVE SUMMARY................................................................................................................................... 1 PROJECT PROFILE ........................................................................................................................................... 2 2.1 PROJECT BRIEF ............................................................................................................................................... 2 2.2 PROJECT CAPACITY AND RATIONALE ............................................................................................................. 2 2.3 PROJECT INVESTMENT .................................................................................................................................... 2 2.4 PROPOSED PRODUCT MIX............................................................................................................................... 3 2.5 PROPOSED BUSINESS LEGAL STATUS ............................................................................................................. 3 2.6 FINANCIAL SUMMARY .................................................................................................................................... 3 2.7 PROPOSED LOCATION ..................................................................................................................................... 4 2.8 OPPORTUNITY RATIONALE ............................................................................................................................. 4 2.9 MARKET ENTRY TIMING ................................................................................................................................ 4 2.10 KEY SUCCESS FACTORS/PRACTICAL TIPS FOR SUCCESS ................................................................................ 4 2.11 STRATEGIC RECOMMENDATIONS ................................................................................................................... 5 2.11.1 Marketing............................................................................................................................................. 5 2.11.2 Pricing ................................................................................................................................................. 5 2.11.3 New Products development .................................................................................................................. 5 2.12 SWOT ANALYSIS........................................................................................................................................... 5 2.12.1 Strengths and opportunities ................................................................................................................. 6 2.12.2 Weaknesses and threats ....................................................................................................................... 6 3 SECTOR AND INDUSTRY ANALYSIS............................................................................................................ 6 3.1 4 NATIONAL ANALYSIS ..................................................................................................................................... 6
PRODUCT............................................................................................................................................................. 7 4.1 RAW MATERIAL ........................................................................................................................................... 10
TECHNOLOGY AND PROCESSES................................................................................................................ 14 5.1 5.2 5.3 5.4 5.5 5.6 RESOURCE MERCHANDISE ........................................................................................................................... 15 MACHINERY REQUIREMENT ......................................................................................................................... 15 REPAIR & MAINTENANCE ............................................................................................................................ 16 ERECTION & INSTALLATION ......................................................................................................................... 16 FURNITURE AND FIXTURES........................................................................................................................... 16 MOTOR VEHICLES ........................................................................................................................................ 17
LAND AND BUILDING REQUIREMENT ..................................................................................................... 17 6.1 6.2 6.3 LAND / COVERED AREA AND CONSTRUCTION COST ....................................................................................... 17 RECOMMENDED MODE OF LAND ACQUISITION ............................................................................................ 18 UTILITIES REQUIREMENT ............................................................................................................................. 18
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HUMAN RESOURCE REQUIREMENT......................................................................................................... 18 FINANCIAL ANALYSIS................................................................................................................................... 20 8.1 8.2 8.3 8.4 PROJECT COSTS ............................................................................................................................................ 20 PROJECTED INCOME STATEMENT ................................................................................................................. 21 PROJECTED BALANCE SHEET ....................................................................................................................... 22 PROJECTED CASH FLOW STATEMENT ........................................................................................................... 23
KEY ASSUMPTIONS ........................................................................................................................................ 24
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PREF-77/May, 2011/Rev3
1 EXECUTIVE SUMMARY
This particular pre-feasibility is regarding 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 25% sales to other bakeries at trade discount of 10 %. Project Capacity cannot be based on machinery capacity, as the same oven will be having different capacities for different products. This business segment is labor intensive. The proposed bakery outlet will be working from 6.00 am morning to 12.00 midnight. Number of working days has been taken as 355 with average 2 shifts per day. 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. 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. Areas like Defense, Gulberg, Model Town need heavy investment and areas like Saman Abad, Allama Iqbal Town, Johar Town and Old City needs more traditional varieties of foodstuff. Bakery and confectionery business is emerging as one of the good business ventures in Pakistan as it provides varieties of bakery items. This phenomenon grew rapidly; and today thousands of bakeries exist in the big cities. Over the decades, the bakeries have evolved even further. Now, one sees that offer larger varieties of mock tails and cocktails, sweets and nimko and much more. 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. Positioning of the product, cost of developing and manufacturing the product, cost of competitive products and condition of the economy will determine price of the product. A Bakery and Confectionery needs a capital investment estimated at Rs. 18.845 million for construction and purchasing machinery & equipment. In addition to this, an estimated sum of Rs. 1.108 million is required as working capital. The total project cost is estimated at Rs. 19.953 million. Projected IRR, Net Present Value (NPV) and Payback of this project are 29%, Rs. 15.694 million and 3.44 years respectively.
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2 PROJECT PROFILE
2.1 Project Brief 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 lowincome area and another in a posh area, is used in this study along with 25% sales to other bakeries at trade discount of 10 %. 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. 2.2 Project Capacity and Rationale
Project Capacity cannot be based on machinery capacity, as the same oven will be having different capacities for different products. This business segment is labor intensive. The proposed bakery outlet will be working from 6.00 am morning to 12.00 midnight. These outlets determine the factory timing for production. It is proposed that 2 shifts are necessary for production. The interesting fact is that these two shifts include only 3 or 4 pure working hours. Main plant & machinery includes oven in which different items are baked with different temperatures and different baking timings. Industrial ovens are easily available in market. For the proposed project, oven of 7x7x10 feet with 8 rotating stands having 5 trays on each stand is used. So the oven capacity will be: 60-kg biscuits in 30 baking minutes at a temperature of 150 degree centigrade. 120 pieces of large Pizza in 20-25 minutes at a temperature of 150 -180 degree centigrade. Number of working days has been taken as 355 with average 2 shifts per day. Initial Capacity of the Bakery & Confectionery is calculated on the basis of total expected sales of items. Maximum sales are expected in festival months and in winter or spring season. However, in order to calculate average monthly sales, potential revenue is estimated by using the potential demand estimates. The estimated combination of sales is as given below: 1. 75% sales to own outlets. 2. 25% sales to other bakeries It is expected that annual increase in sales would be 5%. Although due diligence is carried out in estimating these numbers, the final outcome will vary depending on the selection of location, pricing, product mix and the marketing strategies. 2.3 Project Investment
Total cost of the project worked out is in the table below: Table 2-1: Project Costs Capital Investment Working Capital Requirement Total Investment 2
Rs. 18,844,744 Rs. 1,108,113 Rs. 19,952,857
The proposed pre-feasibility is based on the assumption of 50% debt and 50% equity (including land). However this composition of debt and equity can be changed as per the requirement of the investor. Table 2-2: Project Financing Debt Equity Total Project Investment Table 2-3: Viability IRR NPV Pay Back Period (years.) 2.4 Proposed Product Mix 29% Rs. 15,693,517 3.44 50% 50% Rs. 9,976,429 Rs. 9,976,429 Rs. 19,952,857
This pre-feasibility 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. 2.5 Proposed Business Legal Status A bakery business can be started as a sole proprietorship or a partnership and even it can be registered under company law with Securities and Exchange Commission of Pakistan. Although selection totally depends upon the choice of the entrepreneur but this feasibility is based on a Sole Proprietorship1.
TP PT
2.6
Financial Summary
The financial cost of the project can be surmised as under: Table 2-4: Financial Summary Debt Equity Split Projected Life Repayment of long term loan Grace period for long term loan Mark up rate for long term loan 50:50 10 years 5 years 1 year 16%
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TP HTU
For getting information on the formation of type of firm/company, please visit the Website: www.saarcnet.org/newsaarcnet/govtpolicies/Pakistan/settingbusiness.html.
PT UTH
http://www.secp.gov.pk/Guides/PromotersGuide.pdf
HTU UTH
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2.7
Proposed Location
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. Areas like Defense, Gulberg, Model Town need heavy investment and areas like Saman Abad, Allama Iqbal Town, Johar Town and Old City needs more traditional varieties of foodstuff. The outlets should be centrally and conveniently located within a developing or a newly developed residential town in any of the big cities like Lahore, Islamabad/Rawalpindi, Faisalabad, Sargodha etc. 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, 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). 2.8 Opportunity Rationale
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. 2.9 Market Entry Timing
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. 2.10 Key Success Factors/Practical Tips for Success Some of the Key Success factors that will determine the success of this project include: Products range selection and introduction of sitting areas. Quality and Innovation in products. Selection of location. Pricing strategy. Understanding of target customers, alternative availability (product differentiation). Launching time. Hygienic conditions. There should be regular and sustained marketing through fliers distribution and Cable TV. 4
The store should have an ample space for customer car parking. It is advisable to maintain a parking space whereby around 15-20 cars can be parked The staff hired should be well mannered and well trained in dealing with the customers. Customers free gift schemes and surprise gift, valuable customer dinner can be additional success factors. 2.11 Strategic Recommendations 2.11.1 Marketing 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. 2.11.2 Pricing The following factors determine the price of the product: Positioning of the product Cost of developing and manufacturing the product. Cost of competitive products. Condition of the economy. 2.11.3 New Products development Food manufacturers develop new products to maintain and improve their market position. New products can include: New varieties and flavors - these are called line extensions where different varieties or flavors of the same product are produced. Quality improvement of an existing product, either functional or nutritional. Copying a competitor's product. Developing a new, innovative product resulting from new ingredients, new packaging. 2.12 SWOT Analysis A SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or business venture. Strengths and weaknesses are internal to the company. Opportunities and threats originate from outside the company. A SWOT analysis is usually performed early in the project development process, and helps organizations evaluate the environmental factors and internal situation facing a project.
T T T T T T T T T T
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2.12.1 Strengths and opportunities Easy availability of resources(manpower/salesmen) Growing population Expanding cities High bakery items consumption habits of people in Pakistan Government polices Heavy taxes in the form of sales tax and income tax on retail business High competition Credibility factor in the initial phase, as suppliers do not give credit to newly entrants
2.12.2 Weaknesses and threats
3 SECTOR AND INDUSTRY ANALYSIS

3.1 National Analysis Bakery and confectionery business is emerging as one of the good business ventures in Pakistan as it provides varieties of bakery items. This phenomenon grew rapidly; and today thousands of bakeries exist in the big cities. Over the decades, the bakeries have evolved even further. Now, one sees that offer larger varieties of mock tails and cocktails, sweets and nimko and much more. Bakery stores business falls under retail sector. This sector has shown a significant growth over the last few years. In 20010-11 this sector showed a growth of 3.9%.2 This sectors contribution towards GDP in the year 20010-11 is 17.2%3. The following table shows the contribution of retail and wholesale sector towards GDP for the last 6 years at constant factor cost.
TP PT TP PT
Table 3-1: Contribution of retail and whole sale sector towards GDP 4
TP PT
Share Growth %age %age 2004-2005 18.7 12.0 2005-2006 17.2 -2.4 2006-2007 17.1 5.8 2007-2008 17.3 5.3 2008-2009 17.5 3.1 2009-2010 17.0 4.6 2010-2011 17.2 3.9 Gross fixed capital formation (Investment in fixed assets) in this industry by private sector has also shown a progressive trend. In year 2005-2006 growth in gross fixed capital formation by private Year
2 Source: Economic Survey of Pakistan 2009-10

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sector has shown an increase of 17.2%5. The following table shows gross fixed capital formation by the private sector for the last five years:
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Table 3-2: Gross fixed capital formation by private sector in wholesale and retail sector at constant prices (Rupees in Million) 6
TP PT PT
Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010
Retail and wholesale sector Rs. M 15,165 18,123 22,578 23,816 23,059 23,968
There are thousands of bakery stores in Islamabad, Lahore, Rawalpindi, Faisalbad, Multan, Gujranwala and this number is increasing day by day. Although in Pakistan the retail business is not providing employment at a large scale directly, but indirectly it is contributing in the employment growth. As more and more retail outlets are opening and consumer buying has shifted towards packaged/branded products. Companies are coming with top quality products and with the increase in production level the employment also increases.
4 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, nimko, biscuits, etc. 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 10%. Out of the total sales 25% will be sold to other bakeries while 75% of the total sales will be sold on bakerys own outlets. Proposed sales for the first year are as under: Table 4-1: Estimated Sales Sales on outlets Sales to other bakeries Total Estimated Sales Percentage Sales 75% 25% 100%
Total sales incorporated for profit estimates include 5% safety margins. The detail of expected annual sales of different items is given in the table below:

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P
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Table 4-2: Annual Sales Items Quantity to be sold Other Bakeries Sales Price per Total Unit in Quantity Rs.
Outlets Fresh Cream Cakes Fresh cream (lbs.) Fresh fruit (lbs.) Chocolate Cakes (lbs.) Butter cream cakes (lbs.) Special ice cream cake (lbs.) Fresh Pastries Fresh & Chocolate pastries (Pcs.) Donut (Pcs.) Cream puff (Pcs.) Cream roll (Pcs.) Bread (Outsourced)7
TP PT
14,200 14,200 15,620 8,520 7,100
3,550 3,550 3,905 2,130 1,775
17,750 17,750 19,525 10,650 8,875
160 160 160 160 180
22,720 22,720 22,720 22,720
11,360 11,360 11,360 11,360
56,800 56,800 56,800 56,800
20 20 20 20
Bread, Bun, Rusk Etc. Dry cakes Dry cakes (lbs.) Fruit cakes (lbs.) Plain cakes (lbs.) Snacks Chicken pizza large (Pcs.) Chicken pizza medium (Pcs.) Chicken pizza small (Pcs.) Chicken bread (Pcs.) Chicken drum stick (Pcs.) 5,680 10,650 14,200 5,680 24,850 1,420 2,663 3,550 1,420 6,213 7,100 13,313 17,750 7,100 31,063 280 140 70 304 40 28,400 14,200 14,200 7,100 3,550 3,550 35,500 17,750 17,750 152 128 120
7 It is assumed that bread items worth Rs. 1,002,400 per year will be sold.
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Chicken leg piece (Pcs.) Chicken shami (Pcs.) Chicken sandwitch (Pcs.) Chicken patties (Pcs.) Chicken bread roll (Pcs.) Sweets & Nimko Nimko (Kg.) Jaman (Kg.) Chum Chum (Kg.) Kalakand (Kg.) Burfi(Kg.) Moti Choor (Kg.) Piteesa (Kg.) Biscuits Cake Rusk (Kg.) White Biscuits (Kg.) Coconut Biscuits (Kg.) Macaroon Coconut (Kg.) Almond Macaroon (Kg.) Cheese Finger (Kg.) Salty Zeera Plus (Kg.) Plain Khatai (Kg.) Baker Khani (Kg.) Finger (Kg.) Jam Wafer (Kg.) Special Biscuit (Kg.) Chocolate Biscuits (Kg.) Round Almond Biscuit (Kg.)
24,850 14,200 7,100 28,400 8,520
6,213 3,550 1,775 7,100 2,130
31,063 17,750 8,875 35,500 10,650
72 18 36 22 24
710 1,065 1,065 1,065 1,065 1,065 1,065
1,065 1,598 1,598 1,598 1,598 1,598 1,598
1,775 2,663 2,663 2,663 2,663 2,663 2,663
296 296 296 296 296 296 296
2,840 533 533 533 533 533 533 533 533 533 533 533 533 533
4,260 799 799 799 799 799 799 799 799 799 799 799 799 799
7,100 1,332 1,332 1,332 1,332 1,332 1,332 1,332 1,332 1,332 1,332 1,332 1,332 1,332
224 224 224 224 224 224 224 224 224 224 224 224 224 224
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4.1
Raw Material
As the proposed bakery is going to offer a variety of products, a number of ingredients will be used for manufacturing bakery items. Some ingredients for basic items are listed below: Table 4-3: Plain Cakes Ingredients Butter Sugar Maida Baking powder Eggs Flavour Cream+Honey Total Table 4-4: Plain Fruit Cakes Ingredients Butter Sugar Maida Baking powder Fruit Chuncks Sougi Eggs Flavour Total Unit of Measure Kg Kg Kg Kg Kg Kg Pcs Ltr. %age Ingredients 24.50% 3.92% 24.50% 0.98% 29.40% 4.90% 11.76% 0.05% 100.00% Cost in Rs. 240 70 39 60 43 98 7 450 Quantity 1,973 316 1,973 79 2,368 395 24,161 4 Total Cost in Rs. 473,505 22,097 76,945 4,735 101,804 38,670 169,124 1,776 888,655 Unit of Measure Kg Kg Kg Kg Pcs Ltr. Kg %age Ingredients 21.73% 3.86% 28.97% 0.97% 34.77% 0.05% 9.66% 100.00% Cost in Rs. 240 70 39 60 7 450 280 Quantity 1,750 311 2,333 78 72,482 4 778 Total Cost in Rs. 419,982 21,777 90,996 4,666 507,373 1,750 217,768 1,046,544
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Table 4-5: Dry Cakes Ingredients Butter Sugar Maida Backing powder Eggs Flavour Cream + Honey Total Table 4-6: Nimko Ingredients Baison Dry Fruit Channey Nimko masala Total Table 4-7: Sweets Ingredients Khoya Maida Eggs Ghee Sugar syrup or Sugar Total Unit of Measure Kg Kg Kg Kg Kg %age Ingredients 33.82% 21.74% 15.46% 14.49% 14.49% 100.00% Cost in Rs. 190 39 7 160 780 Quantity 5,402 3,473 10,650 2,315 2,315 Total Cost in Rs. 1,026,413 135,440 74,550 370,435 1,805,870 3,412,708 Unit of Measure Kg Kg Kg Kg %age Ingredients 68.29% 19.51% 9.76% 2.44% 100.00% Cost in Rs. 78 128 98 123 Quantity 1,212 346 173 43 Total Cost in Rs. 94,551 44,332 16,971 5,325 161,179 Unit of Measure Kg Kg Kg Kg Pcs Ltr. Kg %age Ingredients 22.17% 3.94% 27.09% 0.99% 35.47% 0.49% 9.85% 100.00% Cost in Rs. 240 70 39 60 7 450 280 Quantity 3,571 635 4,364 159 144,964 79 1,587 Total Cost in Rs. 856,928 44,433 170,195 9,521 1,014,746 35,705 444,333 2,131,530
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Table 4-8: Chicken Bread Ingredients Maida Oil Yeast Sugar Salt Chicken Onion Masala Cheese Mayonnaise & Ketchup Mix Vegitable Total Table 4-9: Fresh Cream Cakes Ingredients Butter Sugar Maida Backing powder Eggs Flavour Fresh Cream Total Assume 20% extra cost for this type of Cakes Unit of Measure Kg Kg Kg Kg Pcs Ltr. Kg %age Ingredients 12.21% 9.77% 12.21% 0.20% 15.63% 0.20% 49.80% 100.00% Cost in Rs. 280 85 39 60 7 495 220 Quantity 4,129 3,303 4,129 66 135,299 66 16,846 Total Cost in Rs. 1,156,123 280,773 161,031 3,964 947,096 32,702 3,706,201 6,287,890 7,545,468 Unit of Measure Kg Ltr Kg Kg Kg Kg Kg Kg Kg Kg Kg %age Ingredients 14.65% 1.95% 0.20% 2.44% 0.20% 34.18% 12.21% 4.88% 9.77% 4.88% 14.65% 100.00% Cost in Rs. 39 128 180 70 8 300 40 84 800 90 80 Quantity 1,040 139 14 173 14 2,427 867 347 693 347 1,040 Total Cost in Rs. 40,562 17,750 2,496 12,134 111 728,027 34,668 29,121 554,688 31,201 83,203 1,533,961
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Table 4-10: Pastries & Puff etc Ingredients Butter Sugar Maida Backing powder Eggs Flavour Fresh Cream Total Table 4-11: Chicken Pizzas Ingredients Maida Oil Yeast Sugar Salt Chicken Onion Masala Cheese Mayonnaise & Ketchup Mix Vegitable Total Unit of Measure Kg Ltr Kg Kg Kg Kg Kg Kg Kg Kg Kg %age Ingredients 19.42% 1.46% 0.10% 1.94% 0.39% 29.13% 19.42% 3.88% 9.71% 4.85% 9.71% 100.00% Cost in Rs. 39 128 180 70 8 300 40 84 800 90 80 Quantity 3,533 265 18 353 71 5,299 3,533 707 1,766 883 1,766 Total Cost in Rs. 137,778 33,915 3,179 24,729 565 1,589,745 141,311 59,350 1,413,107 79,487 141,311 3,624,478 Unit of Measure Kg Kg Kg Kg Pcs Ltr. Kg %age Ingredients 12.21% 9.77% 12.21% 0.20% 15.63% 0.20% 49.80% 100.00% Cost in Rs. 280 85 39 60 7 495 220 Quantity 1,573 1,258 1,573 25 51,543 25 6,418 Total Cost in Rs. 440,428 106,961 61,345 1,510 360,799 12,458 1,411,886 2,395,387
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Table 4-12: Biscuits etc Ingredients Butter Sugar Maida Baking powder Eggs Flavour Total Unit of Measure Kg Kg Kg Kg Pcs Ltr. %age Ingredients 16.39% 14.46% 33.75% 0.48% 34.72% 0.19% 100.00% Cost in Rs. 280 85 39 60 7 495 Quantity 4,001 3,530 8,237 118 219,656 47 Total Cost in Rs. 1,120,287 300,077 321,259 7,061 1,537,594 23,300 3,309,577
Table 4-13: Chicken Drum Stick, Chicken Leg Piece, Chicken Shami, Chicken Sandwich, Chicken Patties, Chicken Bread Roll, Unit of Measure Pcs Pcs Pcs Pcs Pcs Pcs Cost per Unit in Rs8
TP PT
Product Chicken Drum Stick Chicken Leg Piece Chicken Shami Chicken Sandwich Chicken Patties Chicken Bread Roll
33.6 50.4 12.32 25.2 15.68 16.8
5 TECHNOLOGY AND PROCESSES

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. Major suppliers of Local and used imported machinery are:
P P
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P P
It is assumed that 70% of the Product Sales price is taken as its Raw Material Cost.
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Bakexcel Associates, Karachi Saeed Fabrication Works, Lahore 5.1 Resource Merchandise Pakistan is one of those countries where abundance of merchandise is available in wholesale markets of every city. Suppliers normally hesitate to supply goods on credit to new stores but after confidence building process a reasonable credit period of 15 days to one month is available to purchasers. The major wholesale markets in Lahore and Rawalpindi are: 5.2 Shahalam Market/Rang Mahal Akbari Mandi Metro Macro Cosmo Cash and Carry Hall Road Urdu Bazar Abid Market Temple Road Moochi Gate Anwari Gate Rawalpindi Matro Islamabad Cosmo Cash and Carry Rawalpindi CSD Rawalpindi Raja Bazaar, Rawalpindi Nankari Bazar, Rawalpindi Machinery Requirement
Plant and Machinery for the proposed project are stated below. The required machinery is easily available in the market. Used and new machinery can be purchased from different markets in Lahore and Gujranwala. Table 5-1: Machinery Details Sr. No PARTICULARS 1 2 3 4 5 6 7 8 9 10 Flour Safeter Spiral Mixer Planetary Mixer Oven Dyes Sheeter Burner Deep freezers Frier Packing machine Local Local Local Local Local Imported Local Local Local Local No. of items 1 1 3 1 250 1 2 2 1 2 Cost per item 100,000 230,000 100,000 350,000 85 650,000 20,000 36,000 100,000 50,000 Original Value 100,000 230,000 300,000 350,000 21,250 650,000 40,000 72,000 100,000 100,000 Amount (Rs. 000) 100.00 230.00 300.00 350.00 21.25 650.00 40.00 72.00 100.00 100.00
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Cold storage equipment Fixed/Rolling racks Generators Trays Tools & equipments 16 knives others Depreciation Rate (%age)
12 13 14 15
Local Local Local Local Local 10%
1 10 3 350
550,000 15,000 175,000 120 50,000
550,000 150,000 525,000 42,000 50,000 3,280,250
550.00 150.00 525.00 42.00 50.00 3,280.25
628
The depreciation is charged at 10% p.a. on written down value. 5.3 Repair & Maintenance
Annual Repair & Maintenance of the plant and machinery is expected to be 1 % from Year 1 4 and 1.5 % from Year 5 10 of the total machinery cost. 5.4 Erection & Installation
Erections and installation cost is assumed to be 10% of the total cost of machinery. 5.5 Furniture and Fixtures
Following furniture and fixtures will be required for factory and sales outlets: Table 5-2: Details of Furniture and Fixtures Sr. No 1 2 3 4 5 6 7 8 PARTICULARS Factory Tables for production Chairs tables & other furniture Air conditioners Vertical freezer Electric installations & other utilities Weighing scales Micro wave oven Computers & accessories No. of Shops No. of Items 4 3 1 1 2 1 Cost Original per item Value 30,000 120,000 40,000 75,000 50,000 120,000 120,000 120,000 75,000 50,000 Amount (Rs 000) 120 120 120 75 50 30 12 90 617
15,000 30,000 12,000 12,000 90,000 90,000 TOTAL (A)
1 2 3 4 5
Shops Air conditioners Cabinet chiller Vertical freezer Designer cost Interior designing cost
2 2 2 2 2
2 1 1 1 1
40,000 120,000 32,000 50,000 450,000
160,000 240,000 64,000 100,000 900,000
160 240 64 100 900
16
6 7 8 9 10
Weighing scales Cash Counter Microwave oven Sign board Electric installations & other utilities
2 2 2 2 2
1 1 1 1 1
15,000 25,000 9,000 30,000 50,000
30,000 50,000 18,000 60,000 100,000
30 50 18 60 100 1,722 2,339
TOTAL (B) TOTAL (A+B) 5.6 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. 900,000 while the motorcycle will be acquired for Rs. 68,000. Table 5-3: Vehicle Sr. No 1 2 NAME OF VEHICLE Shahzore Pickup (second hand) Motor cycle Quantity 2 1 Original Value 900,000 68,000 TOTAL Present Book Value 1,800,000 68,000 Amount (Rs. 000) 1,800 68 1,868
6 LAND AND BUILDING REQUIREMENT

6.1 Land / covered area and construction cost
The proposed factory will be consisting of 23 Marlas of land whereas the shop areas will be 900 sq. ft for each outlet. The rate of land is taken as Rs. 200,000 per marla The development charges are taken to be 10% of the land cost. Double story building is recommended, sweets, fresh cream and dry cake rooms are proposed to be on first floor. The details of the building and civil works is as below: Table 6-1: Land & Covered Area requirement Sr. No. 1 2 3 4 5 PARTICULARS Factory Sweets production room Fresh cream cake production room Dry cake production room Biscuits production room Snacks production room 17
Area Sq feet 600 400 400 400 600
Cost per Sq Feet 800 800 800 800 800
Present Book Value 480,000 320,000 320,000 320,000 480,000
AMOUNT (Rs. 000)
480 320 320 320 480
1,200 800 960,000 960 1,200 800 960,000 960 1,500 800 1,200,000 1,200 200 1,000 200,000 200 6,500 5,240,000 5,240 Area required 5,100 Note: Double story building is recommended, sweets, fresh cream and dry cake rooms are proposed to be on first floor 6.2 Recommended Mode of Land Acquisition
6 7 8 9
Frying & Oven room Dispatch & ware house Raw material / store spares store Admin block
It is recommended to purchase land & building for the factory. The total cost of acquisition of land has been included in fixed assets. Where as the land for outlets will be acquired on rent. Approximately 900 square feet area is desirable for the outlet, which is easily available at about Rs.30, 000 to Rs 40,000 per month. In this feasibility study we have taken Rs. 40, 000 per month as shop rent. 6.3 Utilities Requirement Main utilities would be gas, power and water. Distribution transformer station, loading capacity averaging 10 KW, 3-phase industrial meter is estimated to fulfill the requirement of power. B-1 category is advisable for electric consumption. Monthly gas consumption is estimated at 46 HM3 on average for the project. Water supply would be through local municipality.
7 HUMAN RESOURCE REQUIREMENT

For the bakery business, following direct labor will be required for the factory. Table 7-1: Factory wages and salaries Sr. No 1 2 3 4 5 6 8 10 DESIGNATION Production Manager Production supervisor Main Chefs Helpers Dispatchers Electrician Drivers Security guards No. of Employees 1 1 3 6 2 1 2 2 Monthly Sal. 25,000 18,000 15,000 7,000 7,000 8,000 10,000 7,500 Annual Sal. Rs. 000 300 216 540 504 168 96 240 180 2,028
18
Administrative staff for the feasibility is listed in the table below: Table 7-2: Administrative and Selling Staff Sr. No. 1 2 3 4 Designation of Employee Marketing & Sales Manager Admin officer Accountant Asst. Accountant No. of Employees 1 1 1 1 Monthly Salary 25,000 12,000 18,000 10,000 Annual Sal. Rs.000 300 144 216 120 780
There will be two sales outlets. Details of the shop staff are given in the following table: Table 7-3: Shop Staff Sr. No. 1 2 3 4 5 Designation Cashier Supervisor Sales man Sweeper Security guard Shops 2 2 2 2 2 No. of Employees 2 1 5 1 2 Monthly Salary 8,000 10,000 8,000 7,000 7,500 Annual Sal. Rs. 000 384 240 960 168 360 2,112
19
8 FINANCIAL ANALYSIS
8.1 Project Costs
PROJECT COSTS
Rs. (000) % age Land Building and Civil Works Plant and Machinery Erection, installation & commissioning charges and duties Furniture, fixture and office equipment Motor vehicles Total Fixed Cost Preliminary & preproduction expenses Contingencies* Total Capital Cost Net initial working capital Total Investment Required Debt Equity Ratio Debt Equity Project Returns IRR Pay Back Period NPV * Contingencies are taken as 1.5% of the total Fixed cost and preliminary expenses % Yrs Rs. 29% 3.44 15,694 50% 50% 9,976 9,976 19,953 Total 5,060 5,240 3,280 328 2,339 1,868 18,115 451 278 18,845 1,108 19,953
20
8.2
Projected Income Statement

Projected Income Statement
Year 1 Year 2 63,548 Year 3 64,123 Year 4 64,699 Year 5 65,274 Year 6 66,195 Year 7 67,116 Year 8 68,036 Rs. in Thosands Year 9 Year 10 68,957 69,878
Net Sales Cost of sales Salaries, wages and benefits Raw material purchases Other production overheads Fuel and power Depreciation
54,730
2,028 35,923 1,170 1,527 947 41,594 13,136 2,892 274 90 3,940 546 7,741 5,395 1,596 1,596 3,798 950 2,849
2,129 38,808 1,403 1,662 852 44,854 18,694 3,037 318 90 4,198 454 8,096 10,598 1,277 1,277 9,321 2,330 6,991
2,236 38,808 1,403 1,810 767 45,023 19,100 3,188 321 90 4,432 379 8,410 10,691 958 958 9,733 2,433 7,300
2,348 38,808 1,403 1,972 690 45,220 19,479 3,348 323 90 4,683 317 8,761 10,718 638 638 10,080 2,520 7,560
2,465 38,808 1,462 2,148 621 45,504 19,771 3,515 326 90 4,951 266 9,149 10,622 319 319 10,302 2,576 7,727
2,588 38,808 1,462 2,342 559 45,758 20,437 3,691 331 5,904 364 10,290 10,147 10,147 2,537 7,610
2,718 38,808 1,462 2,553 503 46,043 21,072 3,876 336 6,225 301 10,738 10,334 10,334 2,584 7,751
2,854 38,808 1,462 2,785 453 46,360 21,676 4,069 340 6,569 250 11,229 10,447 10,447 2,612 7,835
2,996 38,808 1,462 3,038 407 46,711 22,246 4,273 345 6,937 208 11,763 10,482 10,482 2,621 7,862
3,146 38,808 1,462 3,316 367 47,098 22,780 4,486 349 7,332 174 12,342 10,438 10,438 2,609 7,828
Gross Profit Administrative & Selling Expenses Salaries, wages and benefits Other Admin expenses Amortization Selling & related expenses Depreciation
Operating Profit Non-Operating Expenses/Income Financial expenses Other Income
Profit Before Tax Tax @ average Profit After Tax
21
8.3
Projected Balance Sheet

Projected Balance Sheet
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Rs. in Thosands Year 9 Year 10
Fixed assets Net book value Preliminary & preproduction Current assets Raw Material Packing Material Stores and Spares Finished goods Trade Debtors- outside sales Advances to suppliers Cash & Bank Total Assets
18,115 451 1,387 1,387 19,953 9,976 9,976 9,976
16,623 361 1,476 46 2 450 215 492 4,053 6,735 23,718 9,976 2,849 12,825 7,981
15,317 271 1,595 53 2 522 250 532 11,706 14,661 30,248 9,976 9,839 19,816 5,986
14,172 180 1,595 53 2 527 252 532 18,369 21,330 35,682 9,976 17,139 27,116 3,991
13,165 90 1,595 53 2 532 255 532 25,138 28,106 41,362 9,976 24,699 34,675 1,995
12,278 1,595 53 3 537 257 532 31,926 34,902 47,180 9,976 32,426 42,402 -
12,055 1,595 53 3 544 261 532 39,768 42,756 54,811 9,976 40,036 50,012 -
11,251 1,595 53 3 552 264 532 48,394 51,393 62,644 9,976 47,787 57,763 -
10,548 1,595 53 3 559 268 532 56,987 59,997 70,545 9,976 55,622 65,598 -
9,932 1,595 53 3 567 271 532 65,502 68,524 78,455 9,976 63,484 73,460 -
9,391 1,595 53 3 574 275 532 73,892 76,924 86,315 9,976 71,312 81,288 -
Financed by :
Share capital Retained earnings Long term loans Current liabilities Trade Creditors Raw Material Packing Material Stores and Spares Accrued & others Provision forTaxes Total Liabilities & Owner's Equity
19,953
1,476 46 2 438 1,962 950 23,718
1,595 53 2 466 2,117 2,330 30,248
1,595 53 2 493 2,143 2,433 35,682
1,595 53 2 521 2,171 2,520 41,362
1,595 53 3 551 2,203 2,576 47,180
1,595 53 3 611 2,262 2,537 54,811
1,595 53 3 646 2,297 2,584 62,644
1,595 53 3 683 2,335 2,612 70,545
1,595 53 3 723 2,375 2,621 78,455
1,595 53 3 766 2,417 2,609 86,315
22
8.4
Projected Cash Flow Statement

Rs. in Thosands Year 9 Year 10 10,482 616 (8) (4) 37 (2,584) 8,593 40 (2,612) 8,515 (8) (4) 43 (2,621) 8,390 10,438 541 (8) (4)
Projected Cash Flow Statement

Year 0 CASH FLOW FROM OPERATING ACTIVITIES Net profit Amortization Depreciation Current Assets movement Raw Material Packing Material Stores and Spares Finished goods Trade Debtors- outside sales Advances to suppliers Current Liabilities movement Raw Material Packing Material Stores and Spares Accrued & others Other adjustments Tax paid CASH FLOW FROM INVESTING ACTIVITIES Additions in fixed assets (18,115) Preliminary & preproduction (451) (18,566) CASH FLOW FROM FINANCING ACTIVITIES Repayment Long term loan 9,976 TOTAL INFLOW / (OUTFLOW) OF FUNDS (8,590) Opening Cash 9,976 Closing Cash 1,387 Year 1 3,798 90 1,492 (1,476) (46) (2) (450) (215) (492) 1,476 46 2 438 4,662 Year 2 9,321 90 1,306 (119) (7) (72) (35) (40) 119 7 28 (950) 9,649 Year 3 9,733 90 1,145 (5) (2) 26 (2,330) 8,658 28 (2,433) 8,765 Year 4 10,080 90 1,007 (5) (2) 1 30 (2,520) 8,783 Year 5 10,302 90 887 (1) (5) (2) Year 6 10,147 923 (8) (4) 60 (2,576) 8,542 (700) (700) 35 (2,537) 8,626 Year 7 10,334 804 (8) (4) Year 8 10,447 703 -
(1,995) 2,666 1,387 4,053
(1,995) 7,653 4,053 11,706
(1,995) 6,662 11,706 18,369
(1,995) 6,769 18,369 25,138
(1,995) 6,788 25,138 31,926
7,842 31,926 39,768
8,626 39,768 48,394
8,593 48,394 56,987
8,515 56,987 65,502
8,390 65,502 73,892
23
9 KEY ASSUMPTIONS
Table 9-1: Operating Assumptions No of Working Days in One Year No. of Working Hours in One Day No. of Shifts No. of Outlets Working Hours of Outlets Table 9-2: Revenue Assumptions Outlet Sales Bakery Sales General Items Sales Outside Sales Table 9-3: Expense and Growth Rates Sales growth rate Salaries, wages growth rates (as %age of annual Salaries and Wages) Other Production Overheads Repairs and Maintenance (as %age of Machinery Cost) Building Repair and Maintenance (as %age of Building Cost) Packing Material (as %age of sales) Fuel & Power Gas Avg. annual units consumed Rate per Unit Annual rate Increase % Power & water Avg. annual units consumed (aprox) Rate per Unit Annual rate of Increase % Shop Rent per month Rs. (000) Shop rent growth rate 10% 5% 1.5% 1.0% 2.5% 75% of the total production 70% of shop sales 30% of shop sales 25% of the total Production 355 8 2 2 16
549 Rs. 645 5% 240,000 Rs. 15 5% 40 10%
24
Table 9-4: Cash Flow Assumptions STOCK LEVELS Raw Material Inventory Packing Material Inventory Stores and Spares Inventory Finished goods inventory Accounts Payable Accounts Receivable and Advances Accounts Receivable Advances to suppliers Table 9-5: Other Expense Assumptions Administrative Expenses(as %age of sales) Selling and Related Expenses Annual rent of 2 shops Others (as %age of sales) Amortization in Years Other Income(as %age of sales) 0.50% Rs.960,000 3% 5 2% 15 days 15 days 15 days 3 days 15 days 7 days 5 days
25

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Pre-Feasibility Study

BAKERY AND CONFECTIONERY

Small and Medium Enterprises Development Authority

Bakery & Confectionery

Bakery & Confectionery

KEY ASSUMPTIONS ........................................................................................................................................ 24

Bakery & Confectionery

Bakery & Confectionery

Rs. 18,844,744 Rs. 1,108,113 Rs. 19,952,857

Bakery & Confectionery

Bakery & Confectionery

Bakery & Confectionery

Bakery & Confectionery

2.12.2 Weaknesses and threats

3 SECTOR AND INDUSTRY ANALYSIS

2 Source: Economic Survey of Pakistan 2009-10

3 Source: Economic Survey of Pakistan 2009-10

4 Source: Economic Survey of Pakistan 2009-10

Bakery & Confectionery

Year 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010

5 Source: Economic Survey of Pakistan 2009-10

6 Source: Economic Survey of Pakistan 2009-10

Bakery & Confectionery

14,200 14,200 15,620 8,520 7,100

3,550 3,550 3,905 2,130 1,775

17,750 17,750 19,525 10,650 8,875

160 160 160 160 180

22,720 22,720 22,720 22,720

11,360 11,360 11,360 11,360

56,800 56,800 56,800 56,800

Bakery & Confectionery

24,850 14,200 7,100 28,400 8,520

6,213 3,550 1,775 7,100 2,130

31,063 17,750 8,875 35,500 10,650

710 1,065 1,065 1,065 1,065 1,065 1,065

1,065 1,598 1,598 1,598 1,598 1,598 1,598

1,775 2,663 2,663 2,663 2,663 2,663 2,663

296 296 296 296 296 296 296

Bakery & Confectionery

Bakery & Confectionery

Bakery & Confectionery

Bakery & Confectionery

Bakery & Confectionery

33.6 50.4 12.32 25.2 15.68 16.8

5 TECHNOLOGY AND PROCESSES

Bakery & Confectionery

Bakery & Confectionery

Local Local Local Local Local 10%

550,000 15,000 175,000 120 50,000

550,000 150,000 525,000 42,000 50,000 3,280,250

550.00 150.00 525.00 42.00 50.00 3,280.25

15,000 30,000 12,000 12,000 90,000 90,000 TOTAL (A)

40,000 120,000 32,000 50,000 450,000

160,000 240,000 64,000 100,000 900,000

160 240 64 100 900

Bakery & Confectionery

15,000 25,000 9,000 30,000 50,000

30,000 50,000 18,000 60,000 100,000

30 50 18 60 100 1,722 2,339

TOTAL (B) TOTAL (A+B) 5.6 Motor Vehicles

6 LAND AND BUILDING REQUIREMENT

Area Sq feet 600 400 400 400 600

Cost per Sq Feet 800 800 800 800 800

SMEDA Bakery & Confectionery

SMEDA Bakery & Confectionery