TITLE: WANJIRU ICE CREAM.
NAME: ANASTACIA WANJIRU.
CENTRE NAME: EMINING TRAINING TECHNICAL INSTITUTE
COURSE NAME:HUMAN RESOURCE MANAGEMENT
PRESENTED TO: KENYA NATIONAL EXAMINATION COUNCIL IN PARTIAL FULFILMENT FOR THE REQUIRMENT OF THE AWARD OF DIPLOMA IN HUMAN RESOURCE MANAGEMENT.
SUPERVISOR: MR LABAT.
Wanjiru’s Ice Cream Business overview. 8
Current Processing Facility and Products. 8
Overview of the Kenyan Ice Cream Industry. 9
Projected Development Plan for RUGUT’S. 11
Planning for the Facility Establishment 11
Strategic Development Plan. 11
Work Plan and Flow of Work. 14
Part 1: Processing the Fruits Fresh Fruit 15
Part 2: making the Ice Cream Mix. 15
Table 1: Capital Budget for Rugut’s. 17
Cost of Goods Manufactured. 18
Table 2: Cost of Goods Manufactured. 18
Table 3: Cost of Goods Sold. 19
Administration, Marketing, and General Expenses. 19
Working Capital Planning and Management 20
22.214.171.124 Inventory Management 20
126.96.36.199 Accounts Receivable. 21
188.8.131.52 Cash Conversion Cycle (CCC) 21
Figure 2: Organizational Structure. 23
Table 5: Human Resources Budget 25
Table 6: SWOT Analysis Strengths. 28
Figure 3: Competitive Positioning for Ice Cream Companies in Kenya. 33
Customer Analysis & Segmentation. 33
Sales and Profit Objectives. 35
Our Channels of Distribution. 36
Sales and Marketing Strategies. 36
Financial Performance Overview.. 38
Table 7: Financial Results (RUGUT) 39
Business Financing Options. 39
Table 8: Unit Cost of Production. 40
Critical Variables for Production. 40
Best, Base, and Worst Case Scenario Analysis. 41
Declaration by the Supervisor
I declare that the business plan is an original work of the candidate and she did not receive any undue assistance from unauthorized person except from the supervisor
Name of the supervisor
I acknowledge that the immense contribution of any mentor and supervision. For this support and encouragement that enable me to write this business plan. May God bless him.
Also, I acknowledge the support I receive from my classmates in writing the business plan.
May God bless them too.
I dedicate this business plan to my beloved parent Ann Mumbi for the support she has given me in my entire academic journey. May God bless her abundantly.
Wanjir’s unique proposition is the use of natural ingredients (sourced locally) and custom manufacturing to suit individual preferences.
The business idea is to run from a rented facility in the suburbs of Nakuru town. This will give the product easy access to the large market whose majority is youth with medium to high education. These tend to frequent hotels/restaurants and recreational joints to catch up with friends and seek new opportunities.
Wanjiru targets hotels, restaurants, and recreational joints as the main customers. These will be able to purchase ice cream in bulk, making it easier for us to cut costs on packaging and get assured repeat customers.
Our packaging for the major customers will be done in 12L buckets/pails while small resellers and direct consumers will get our products in smaller packaging containers of 5L, and 500ml respectively. Each of these will have a sticker with details of nutritional value, ingredients and our contacts.
We have set our maximum capacity at 100,000L of ice cream per year by the time we reach our fifth year. Our retail prices for the ice cream will be as follows:1)12L-Ksh4,300 (2)5L-Ksh2,300 (3)500ml-Ksh170
By the end of the year, we intend to sell 22,000L of ice cream. Being a team of three strong willed individuals, we are certain we’ll pull this through. To actualize this vision, we require an initial financial outlay of Ksh. 14,914,000. Our business is currently valued at Ksh. 1,895,211 with an internal return rate of 23%.
List of Tables
Table 1: Capital Budget for Wanjiru…………………………………………………………………. 14
Table 2: Cost of Goods Manufactured ……………………………………………………………… 15 Table 3: Cost of Goods Sold……………………………………………………………………………… 16 Table 4: Working Capital …………………………………………………………………………………. 16
Table 5: Human Resources Budget…………………………………………………………………… 22
Table 7: SWOT Analysis…………………………………………………………………………………… 26 Table 8: Financial Results (WANJIRU)………………………………………………………………… 36
Table 9: Unit Cost of Production………………………………………………………………………. 37
List of Figures
Figure 2: Flow of Ice Cream Production Diagram …………………………………….11
Figure 3: Organizational Structure…………………………………………………………..20
Figure 4: Competitive Positioning for Ice Cream Companies in Kenya……….30
Wanjiru’s Ice Cream Business overview.
Wanjiru Ice Cream is a sole proprietor ship business which was created in 2019. Started as a class project, it later transformed into a business when the owner noticed that their business offered a unique value to the consumers.
In fact, it was the level of demand of the product from the student body that made the owner realized that they were in business.
With the increasing consumer base, the owner continued to add different fruit flavors, having begun with strawberries and pineapple flavors. The business has since grown into a self-sustaining unit, sometimes getting more orders than they can deliver.
Current Processing Facility and Products
All the fruits are sorted, and processed at the facility. The ice cream mix formula that we use for making the ice cream is prepared by Brookside Dairy Limited according to our formula. We currently make five natural fruit flavors of ice cream. These have received tremendous feedback from our customers.
Value addition to the fruit helps improve the quality of the end product and lengthen the storage life. This helps cut losses while enabling us to sell premium quality product that our clients will love. The hotels and restaurants buy from us in bulk and sell the ice cream in their meals and as take-away ice cream cones.
Small retailers also buy in large quantities and resell as ice cream scoops.
Restaurants and hotels in Nakuru town form the bulk of our customers. We have had a very positive response and corporation from them. Small shops from the town and hawkers also buy from us regularly giving us a healthy cash flow.
Our vision is to be the best premium quality ice cream company in Kenya. We plan to achieve this by adding the best quality to our natural fruit
ingredients. We want to be the ice cream brand that every person would reach out in the shelf for; the yard stick for excellent quality ice cream.
Our Goals and Objective We are on a mission to be the best ice cream company in the region. To achieve this grand vision, we know we’ll be required to work very hard. Luckily, we have a grand plan.
Here are the objectives that will propel us to achieve the vision:
- To marry fruit production with dairy production by using the fruit to add value to ice cream. We want to be the ice cream company that people use as an example when they think of ice cream.
- To explore the possibility of creating a limited liability company, (WANJIRU’S, LLC). We are looking to be fully fledged in the future; manufacturing everything for ourselves. This will eliminate the need to source ingredients (like ice cream mix) from other manufacturers.
- To increase our customer base beyond Nakuru. Increasing our customer base will allow us to expand our manufacturing plant.
Overview of the Kenyan Ice Cream Industry
In Kenya, much like in many other places around the world, ice cream business is pretty much recession proof. This is because ice cream is a treat that everyone looks forward to having sometime in the near future. The market is pretty stable, even though the market share is still very minimal due to lack of product awareness. Much still needs to be done in terms of marketing to increase product awareness among many Kenyans.
For the longest time, manufacturers have been making three major flavors of ice cream (that is vanilla, strawberry and chocolate). However, the recent health awakening has created an awareness of healthy foods, making it necessary for manufacturers to think natural additives such as real fruit.
Luckily, not many local manufacturers have picked up this trend. We, being the early adopters of the real fruit infused ice cream in the country stand a better chance of acquiring a huge market share. Given the kind of feedback we get from our current customers, we know the business is headed to the right direction.
The local ice cream consumption per capita is quite low (less than 1L per person per year according to data from Euromonitor International). In 2015, 750,000L of ice cream was manufactured in Kenya, this being 8% increase in production from the previous year. The increasing numbers of young upward mobile urban dwellers is a good indication that the consumer base is increasing. Interestingly, Kenyans are very receptive to new trends. We believe our new line of ice cream brands will be no different since it has health benefits to the consumers. We predict a very strong market for our products because Kenya has the sun all the year round, so, we are sure we will be getting customers every single day.
2. Operations Plan
Projected Development Plan for RUGUT’S
Planning for the Facility Establishment
We plan to acquire a piece of land in the outskirts of Nakuru town to erect the manufacturing plant to enable expansion of the company to the required standards. Zoning the plant outside the urban area will help us reduce costs associated with taxing and to help us assure security of the facility. We have already identified a piece of land within Baringo county, which we are planning to purchase for this development. Negotiations are already underway to see if we can reach an agreeable disposal value. At the same time, we are pursuing the necessary paperwork that will be required for this project.
Strategic Development Plan
We have set in for WANJIRU for the next 10 years. We are foreseeing a situation where the demand for the products will grow exponentially year by year due to the unrivalled quality in the region. As you will see from our financial projections, the first year will not be profitable due to the extensive capital expenditures for laying out the plant. Again, the first year will be our time to do active marketing and brand awareness to increase our market share.
To cut down on costs of operations to manageable levels, the three partners will be the only employees of the company in the first year. As the business will be growing and requiring more attention, other employees will be hired on need basis.
The projected rate of growth of the company means that the company will reach its full capacity by the fifth year of operations. At that time, the company will be utilizing its full capacity and profits will come from lean operations. Quality is a key issue at WANJIRU. We will ensure that we implement a robust quality control program that takes into account all the associated hazards and critical control points to minimize/ or stamp out risks. We are aiming at nothing short of the ISO standards. In fact, we aim to achieve ISO certification by our 5th year of operations.
Strategic plans have also been set in place to ensure that we acquire a large amount of land for possible future operations. We are laying out strategies to install a walk-in freezer for the storage of the products for easy future expansion plans. We foresee a time when we will be getting contracts to supply our brand of ice cream to international hotels and airlines. This will require large capacity for which we are not taking any chances lest we fail terribly.
Building and Floor Plan
In liaison with a food plant engineer, WANJIRU will set up a processing facility in the acquired piece of land to facilitate efficient and quality assured processing. All the standards of a food processing facility will be considered when setting up the plant. We have settled for a galvanized stainless steel facility due to hygiene and durability.
The facility will have all the necessary utilities and a proper waste management system. The building will have designated areas for processing, handling, and storage of both the materials and the finished product. All the necessary plant of the needed capacity will be installed to facilitate processing and storage. There will be a loading and offloading platform to facilitate smooth flow of raw materials and finished products. The offloading platform will be adjacent to the cold room to ease access.
The floor plan will be arranged such as to facilitate easy flow and to reduce chances of contamination or cross-contamination. There will be designated cleaning stations to maximize hygiene and to ensure that the product meets the highest and strictest standards of quality assurance. Of course, there will be periodic inspections by the government agencies and industry regulators to ensure conformity.
The figure below indicates the proposed floor plan for RUGUT’S. (Design removed for proprietary reasons).
Work Plan and Flow of Work
Figure 1: Flow of Ice Cream Production Diagram
Processing and Workflow
1) Ingredients in Making the Ice Cream
Part 1: Processing the Fruits Fresh Fruit
At WANJIRU, we use real fruit to make ice cream. Luckily, the fruits we use are available all the year round. We will ensure that we process and store enough fruits (those that usually get out of season) to ensure we have enough stock to get us through the year. We will contract established fruit farmers to get us the fruits at affordable price. However, we may expect price fluctuation from time to time when our contracted fruit farmers run out of the commodity.
Processing the Fruit
After receiving the fruits from the suppliers, we will sort, wash, peel, cut, and pulp the various fruits according to the recipe for the different flavors.
Then the processed fruits will be sealed hermetically in 1.2 kg bags according to the processing batches. The hermetic seal will preserve the quality of the fruit for longer. Of course, we’ll be storing the processed and packaged fruit in the deep freezer at -26°C to give us the head start of up to 12 months of storage without noticeable loss in quality.
Part 2: making the Ice Cream Mix
Our ice cream mix will use a recipe that is compliant to the Kenya Bureau of Standards (KEBS) requirements.
Generally, our ice cream mix will contain the following parts:
|Butterfat||10% – 16% (KEBS standards for ice cream butterfat content: at least 10% BF but no more than 16%.|
|Milk solids-non-fat (MSNF)||9% – 12% (includes lactose, whey proteins, and caseins).|
|Sucrose||11% – 15%|
|Corn syrup solids||4% – 5%|
|Stabilizers||0% – 0.4%|
|Fruit||27% – 38%|
|Emulsifiers||0% – 0.25%|
|Water||52% – 61%|
Essentially, for every 12L bucket batch of ice cream we make, 5.4 parts is ice cream mix, an equivalent number of parts of air, and 1.2 parts of fruit. Wanjiru ice cream mix formula has won many hearts already. It will be Wanjiru’s signature formula for entrance into the mass market. As time goes and as we continue to get feedback from consumers in the market, Charity will continue improving and diversifying WANJIRU’S flavors.
The biggest advantage of the formula is that all the ingredients are locally available, which makes the cost of acquisition very affordable. We will outsource formula mixing process to a local dairy company to help us avoid having to deal with milk glut during rainy seasons and scarcity during dry seasons.
Subcontracting the mixing process to an established company will help us have a stable supply of the raw material for our process without worrying about the quality or quantity of the commodity. We estimate that the entire process will cost WANJIRU’S 125 shillings per liter of the ice cream mix. This is a considerably good deal since we do not have to invest in a milk pasteurization system. Furthermore, we will always get the required volume of milk at the right time and in the best possible quality.
- Ice cream making process
The powerful commercial ice cream making machines installed at the plant will give us a working rate of 30L of ice cream after every 20 minutes. For a complete ice cream making process, please read it here (http://ruguticecreamshop.com/icecream-making-process/).
- Package into Containers
After making the soft serve ice cream, we’ll then put it in appropriate containers and tubs. They are then passed into the freezer for hardening.
- Hardening and Storage in the Freezer
The walk-in freezer is set at very low temperatures to ensure that ice cream hardens and its quality is preserved. Low temperatures below negative 26°C will ensure that the ice cream quality is preserved and it maintains a scoopable consistency. Proper storage will also help us avoid some of the most common ice cream defects
Httruguticecreamshop.com) that affect the quality of the product.
Our production manager will design quality assurance operations for the company workers. All the workers will be trained on quality assurance and food safety. We’ll so liaise with the Public Health office to ensure that all our workers are certified as safe to handle food meant for public consumption.
The Capital Expenditures
Table 1: Capital Budget for Rugut’s
|Rugut’s Capital Budget|
|Project/Activity||Est. Cost (Ksh)|
|Land Acquisition and Plant Building|
|Acquisition of 1 acre piece of land, preparation, building and installation of the plant (with utilities). Total Cost||4,800,000|
|Walk in Freezer (insulated)||800,000|
|Sink (4 compartments)||18,000|
|1 Fruit sorting table (with conveyor) + 2 processing tables||38,000|
|1 ton refrigerated van||6,000,000|
|Ice cream making machine(s)||1,400,000|
|Double door cooler||60,000|
|Total Equipment Costs||8,363,500|
|Total Working Capital||1,750,500|
|Total Capital Needed||14, 914,000|
Pan for the Working Capital and Management
Cost of Goods Manufactured
We derive the cost of manufacturing based on the flavors of ice cream we’ll be manufacturing at WANJIRU.
For starters, it’s been estimated that we’ll make 22,000L of ice cream in our first year of operation. Since the largest batch of the product will be 12L pails, we estimate that we’ll make about 1,835 pails of ice cream in the first year. Every batch of ice cream will require 1.2kg of fruit for the product.
Pails and tubs will be required to hold the product during storage. Each tub should have labelling as required by the law.
Table 2: Cost of Goods Manufactured
|Ice cream mix||450,000|
|Pails + Tubs with Lids||70,000|
|Storage and Shipment||320,000|
Cost of Goods Sold
When calculating the cost of goods sold, we take into account the closing inventory. It is also assumed that all the stock will be cleared by 31st December. However, the reality is that there will be inventory left in the stock at the close of business year and this must be accounted for.
Our processing needs makes it necessary to have at least one week’s worth of raw materials for making the ice cream. There will also be stock of two weeks’ worth of finished ice cream.
Table 3: Cost of Goods Sold
|Cost of Goods Sold|
|Cost of Goods Manufactured||1,797,000|
|Cost of Goods Available for Sale||1,797,000|
|Total Closing Stock||456,323|
|Cost of Goods Sold||1,340,677|
Administration, Marketing, and General Expenses
The owner will contribute towards the working capital for running the activities of the company. To cut down the running costs, there will be need to outsource accounting and legal services to independent professionals. RUGUT’S will set aside Ksh. 180,000 per year for the accounting fees.
The company will also set side Ksh. 1,000,000 for marketing the first year. This will help the company put its brand out in the market. The branding will help cement RUGUT’S image as the authority ice cream brand in Kenya.
Working Capital Planning and Management
Table 4: Working Capital
|Work In Progress||459,900|
|Total Working Capital||1,713,160|
The breakdown of the accounts are covered in the appended tables.
184.108.40.206 Cash Management
It is predicted that WANJIRU will have a positive cash flow due to the quick turnover of the inventory. Ice cream is a quick moving product that will not remain stocked for long.
We expect highest sales during the festive seasons and during school vacation. There will be steady sales from our contracted outlets such as hotels and social joints. These will be our largest
The company will incur substantial costs in procuring and processing the fruits. However, these costs will be justified by the premium costing structure that we will adopt for the final product to give healthy returns.
220.127.116.11 Inventory Management
WANJIRU will keep inventory for the ice cream making ingredients (ice cream mix and the fruits) in cold storage at the site. The average inventory for the finished product will be 30 days to ensure that we have enough stock to meet any surge in demand for the product.
We will also keep two months’ worth of fruit inventory to ensure that we do not run out of supply. We will keep larger batches of fruits that are hard to find to ensure that we are always ready to produce all the flavors, even if there is an upsurge of orders.
Even though sales are projected to be constant throughout the year, there will be spikes in product demand during vacations, school holidays and when the contracted suppliers have conventions at their premises.
18.104.22.168 Accounts Receivable
All the contracted buyers will be given a 30-day credit window. This will facilitate easy transaction on their side and help us keep a liquid flow of cash. Other buyers who are not contracted will pay in cash, bank deposit, or checks.
22.214.171.124 Accounts Payable
Permanent staffs will be paid monthly salaries. Contracted workers will be paid on per-project basis.
All the utilities will be paid every month (within 18 days after receiving the bill).
Ice cream mix will be paid within 30 days of receiving the invoice. Since defaulting on this payment attracts an interest, we will try never to default.
126.96.36.199 Cash Conversion Cycle (CCC)
We are looking to hold only 60 days’ worth of processed fruit in our inventory. We will have a 30-day credit window for our collectible accounts and up to 30 days for our accounts payables.
Given that we will have a day’s worth of ice cream as work in progress, we will have an average of 61 days to generate cash inflows from the inventory. This period will be sufficient for us to pick up revenue generation since the working capital has been set aside to start the business.
The calculation is given by the formula:
CCC = Average Days Inventory + Average Collection Period – Average Days Payable
CCC = 61 +3 0 – 30
CCC = 61 days
Read more about CCC here
3. Human Resources Plan
To ensure that we operate efficiently, we will split the company into three distinct departments, namely:
- Procurement Production
Each of these departments will perform a distinct but synergistic role to the overall success of the company.
There will be a chief accountant for the entire company covering all the departments. This function will be contractual since we will need periodic checks of our books of account to ensure that we are running a healthy business and meeting our tax obligations as required.
For the time being, we will contract legal services and outsource human resource services to a reputable company that can meet our needs adequately. These two contractual posts (legal and financial advisor) are considered advisory roles because they are not directly involved in the day to day running of the business.
Figure 2: Organizational Structure
Procurement Production Marketing
Department Department Department
The owners of WANJIRU ice cream form a formidable team. Ms. Judy komoi takes the production department owing to her background in food science and technology. She advises on production schedules, new product development, quality assurance and related issues in that line. Mr. Jairus Korir will be in charge of the procurement department given his background in agricultural economics. Mr. Bungei will be in charge of the marketing docket owing to his background in agribusiness management. The three have equal shares in the business.
Will be in charge of all procurement needs in the company. He liaises with suppliers to ensure that the company has stable supply of raw materials in the right quality, quantity, and at the right time all the time. He is also responsible for planning the acquisition of plant and equipment that is needed at the facility to ensure sooth operations.
Responsible for planning operations such that we are able to utilize the plant capacity efficiently. Will prepare ice cream recipes, do quality tests, and advice on how to make the products better. Will plan operations to ensure that we do not have idle time at the plant. She will liaise with our suppliers and advise them on a formula to use when making our ice cream mix so that we are able to maintain a level standard of quality.
Given the central role of her position, she will liaise heavily with the production and marketing departments to ensure that the demand from the market is met. As soon as the marketing department delivers their market orders, she will plan operations ahead of time to ensure that the procurement department has procured enough raw materials to meet the demand in the shortest time possible so that the company does not have to spend a lot of money holding stock on the cold room. She will also plan the operations such that there is enough time to do periodic checks in the machinery to ensure that we reduce the rate of wear and tear. Operations should be able to run at least 8 hours a day for 4-5 days a week.
Sales & Marketing Manager
The marketing manager is responsible for converting the products in our freezers to money in our bank account. He will prospect for marketing leads from hotels, restaurants, shops, and institutions to ensure the company generates enough sales leads to sustain the business and bring in healthy profits.
He creates and nurtures relations with customers, prospect for new market segments, fixes pricing, manages logistics, and collects feedback from customers. This feedback is useful in the production department to improve quality of an existing product or develop a new product for a new market segment.
The table below summarizes the human resource budget for the three departments.
Table 5: Human Resources Budget
|Budgeted Salaries and Wages Expenses|
|Role/Department Expenses (Ksh.) Production 150,000 Marketing 190,500 Procurement 70,000 Wages for Casual Laborers Included per department|
|Total Salary Paid 410,500|
All the owners and workers within the company will be required to undergo a public health training course and obtain food handlers certificate to ensure that the products released to the market meet the minimum standards of quality.
There will also be a need to train all the workers on occupational health and safety to ensure that they remain safe within their work environment. An accredited organization should conduct these trainings and issue a valid certificate to ensure that they are alert to emergencies. When all the workers know how to use their equipment safely, there will be increased efficiency, which leads to reduced down time in either the human resource or machinery.
Luckily, our production manager is a graduate of food science and technology. She knows all that is required for the production of a safe product. She also knows how to formulate excellent ice cream recipes. In fact, the business was born out of her revolutionary ice cream recipe that she presented for her undergraduate project.
4. Marketing Plan
4P’s of the Marketing Mix
WANJIRU will sell three different quantities (12L pails, 5Ltubs and 0.5L tubs). The smaller quantities will be sold by order from the market. This will help reduce costs associated with packaging and handling. The ice cream will be composed of the ice cream mix, the processed fruit, and flavors.
The fruits will be bought from contracted farmers and at the local market while the ice cream mix will be bought from a dairy processing factory according to RUUT’S formula. Any other additional ingredient shall be procured on order and as demand will dictate.
The finished product will be packaged in plastic buckets and/or tubs with proper labels that meet the minimum requirement by law. The product name, company logo and contact details, nutritional information, and sell by date will all be indicated on the product label.
We currently make ice cream with Vanilla, Strawberry, Cherry, and Raspberry.
WANJIRU will rely on a contracting model to retain regular buyers. Contracting will assure sales and guarantee business continuity since hotels, restaurants, and other social joints have regular traffic that will convert into sales. The competition will be high since other sellers also target these buyers as well but
WANJIRU is stalking high on beating them due to the uniqueness of our product.
Promotion will be necessary to make the brand visible in the market. Referral marketing will be our greatest model of marketing because businesses are more likely to believe the testimony of other businesses using the product. Personal marketing is very powerful and will enable us to make WANJIRU the only option that our target market should consider when they are looking for frozen products.
We will also leverage the power of the search engine to increase our visibility. We will strive to have our business featured in major local publications to improve our authority and visibility online. Our website will feature our products and have the capability to allow our clients place and track orders online.
The search engines will be augmented with social media to drive traffic and increase sales. Instagram will be particularly important to increase our visibility online due to its use of images. We will feature our ice creams of different flavors to create a catchy line for every entry to ensure that many people get to read about us.
We will also seek to have our business featured in travel and food magazines to help us reach out to many hotels and conference centers that can use our products.
Our primary target is the Kenyan market. We are starting from Nakuru region due to the presence of many hotels and restaurants that offers ready market for us. The region has fairly good transport network making it easy to deliver the finished product to the customer in time. The weather here is also good for business. Many revelers who throng Nakuru town is a good opportunity for us to sell the product easily as there is a demonstrable demand for ice cream.
Naivasha, another resort town, is also within our target market region. This will give us a better opportunity to leverage the quality of our product when pitching to the hotels. Once we have their businesses, it will be easier to sell the product in faraway towns like Mombasa, Nairobi, and Kisumu. The company will be more established with a notable brand and healthy cash flow to allow us venture into these other markets.
Table 6: SWOT Analysis Strengths
- Knowledge in procurement, processing, and marketing (graduates of economics, food science, and agribusiness management)
- Land available for expansion; easy to acquire. The place is situated in a lower tax zone since it is out of the central business district. Transport costs are also quite low
- Founders split costs making it a more bearable. They also motivate each other to continue working hard on their areas of expertise
- The fruit is grown in close proximity. The local market is always flooded with fruits at affordable prices.
- Good customer relations skills. Our customers are our biggest ambassadors as they sell our products out of the good experience they’ve had.
- High startup costs associated with land purchasing and plant building and installation.
- Very intense workloads for the employees, especially in the early days when the three owners will be the sole employees at RUGUT.
- Changing needs of manufacturing will require rapid adjustment, which may not be financially sound due to the capital expenditures involved. For instance, the need for the freezer may change over time even if it has been installed. It is not a cheap installation at the plant.
- Limited technical knowhow on how to maintain the machines. A technician will need to be put on standby to ensure that the company does not have unnecessarily protracted down time.
- There is a glaring need for a premium ice cream in the market, especially for large hotels and social joints
- We are capitalizing on the contracting model to ensure that we do not have unnecessary competition during product influx.
- The rising trends for healthy eating in Kenya will net us many conscious consumers who want an assurance that the product they are using is safe for their health
- Competitors who use artificial additives will take advantage of misinformed consumers and sell to them cheaper product. Competing on pricing will work against our product since many people may not be particularly concerned with the quality of the product they consume.
- Maintaining a contract is not an easy task. The client may have varying needs med way, which may force us to install a new line, or create a new formula, or even drop the client altogether if the demands to not add to our bottom line
- High costs associated with storing seasonal fruits. Seasonality of such fruits may also lead to price fluctuations, which may slice our earnings.
WANJIRU started as a class project when Ms. winnie created an ice cream formula as her undergraduate project work. The panelists loved the product so much that they asked for more. When she delivered the batch, we (her friends) realized that we could team up and convert her skills into a sustainable business.
During the institution open day of 2019, we teamed up and made a batch of 100L of ice cream to showcase at the event. It was sold out in two hours. People thronged our stand asking for more of the product but we had none. We were embarrassed to turn people away because we had nothing to sell to them even though they had the money to buy the product.
When we noticed the demand, we had no doubt in our minds that people will definitely love the product. We started the project in a rented house at the University’s main gate and started selling the product on order. Soon enough, we were receiving orders from as far as Nakuru town. That is when we realized that we had a business going on.
Given the networks that we (the business owners) have made so far, it is viable to start a dedicated ice cream making company that will serve Nakuru and its environs and later expand to capture the regional market. The increased market share will boost RUGUT’S profits.
In Kenya, the ice cream industry is still quite young. Not very many people consume the product (the per capita consumption of ice cream in Kenya is less than 1L per person per year according to data from Euromonitor International).
However, the weather is quite good allowing us to sell the product throughout the year.
That Kenyans have embraced healthy eating will work to our advantage since our greatest strength is the differentiation strategy we have adopted. Our unique selling po
int is having the fruit in the ice cream such that the consumer can actually tell that real fruit has been used to make the product rather than just an artificial flavoring.
The ice cream market in Kenya has relatively small number of established players. This makes it easy to enter the market with a differentiated product. Many small players can find their niche in the local market since it is still a growing market.
Since ice cream is very elastic in terms of pricing, it is easy for consumers to switch between brands when they feel they are getting a deal from the pricing angle. This makes it necessary to contract large buyers to ensure brand loyalty. Our approach to dominating the market is via providing a differentiated product and targeting profitable establishments. Most of the patrons who frequent our target clients’ business premises have moderate to high purchasing power. We are assured that they can afford the product on a regular basis.
In the local market, there are not very many substitutes to this product since the industry is still very young and is rapidly growing. Many consumers are not aware of the wide array of frozen products. This puts us at an advantage of being the market leader in terms of product quality in this niche market. Major competitors include Dairy Land, Cold Stone, Azam, Lyons Maid, Nestle, and Planet.
Figure 3: Competitive Positioning for Ice Cream Companies in Kenya
|SECTOR FOUR Low Quality and High Price (Careless manufacturers who think they can sell crap for premium. These are those who heard someone making money doing ice cream then they decide to go into the business full throttle with no info/research & planning)||SECTOR THREE Premium Quality and High Price (Specialty brands with a unique identifier. Usually have very loyal customers. Here is where we are going to be)|
|SECTOR ONE Low Quality and Low Price (Generic ice creams. Most new entrants target this market)||SECTOR TWO Premium Quality and Low Price (Large manufacturers with very deep pockets. They are aggressively looking to take a large market. Usually makes losses)|
Customer Analysis & Segmentation
Our typical customers are restaurants, hotels, and social joints. In Nakuru alone, we are targeting 35 such clients who will give us the volumes we require to make reasonable profits. Of course, we will also be selling to ice cream stands and shops around town. We cannot forget the academic institutions because the idea was born out of a class project in an academic institution to begin with.
The current trend in the food industry is healthy and natural. We are embracing this tow by using only natural ingredients in our ice cream to make it as natural as possible. We want our ice cream to resonate well with the local market to get brand loyalty. We will keep tweaking our formula to accommodate the changes in the menus of our clients.
WANJIRU business model of targeting establishments will work well for the growth of the company since there is a ready market owing to the large number of hotels and restaurants in the country. Of particular interest is the growth in the tourism industry that has necessitated development of social joints and restaurants with particular demand to the local foods.
There is a great potential in the industry owing to the strategic developments that are aimed at opening Kenya to the regional and international markets. The connection will allow us to market our product to the larger regional market while still targeting large customers who take a contract with us to buy ice cream in bulk from RUGUT. The company will pursue and get contracts with major hotels and restaurants across the country to ensure that we get enough market share for sustainable growth.
Why Our Products
WANJIRU supports local economy by using the local products to make the ice cream. We procure milk from a local dairy processor, and the fruits from local farmers and market. Our product is supportive of the local culture of eating whole foods that are pro-health.
The greatest opportunity we have is the current need for a differentiated frozen dairy product with a local taste in the market. WANJIRU is offering premium product that has all the features that the market currently needs. It is customized to meet individual needs and our premium pricing is reflective of the differentiation in the market.
We are particularly concerned with pursuing the chained hotels and restaurants because getting a contract with one outlet makes it easy for us to get a contract to supply the other branches as well. Bagging a few of such hotels (e.g. Sarova, Java, Taidys, etc) will give RUGUT a positive latitude in the business. We are even considering producing signature ice cream for each of these restaurants to make it extremely personalized.
Personalizing the product to individual needs will cement our authority as the ultimate ice cream brand in the country. New entrants and other competitors will never find it easy to elbow us out because we are religiously strategic.
- WANJIRU ice cream is highly adaptable to individual needs. This is important because the customers are looking for a product that fits their individual needs.
- WANJIRU is offering premium quality ice cream that is currently not present in the market. The use of natural fruit in the ice cream is the unique selling point for the product.
- Our target clients know the value they want in a product and price consideration only comes second to that quality. They are willing to pay for the experience of a differentiated product that is tailored to specifically meet their individual needs.
- Personalization will help WANJIRU beat the competition.
Sales and Profit Objectives
- WANJIRU should comfortably produce 100,000L/year of ice cream by the fifth year of operation. This will be achieved by aggressive marketing and setting f targets, which we must work hard to achieve.
- We will maintain incremental sales volumes throughout the year.
WANJIRU is going to be positioned as the premium ice cream brand in Kenya. Our ice cream will be tailored to meet individual preferences and help our customer design their own signature ice cream.
Our Channels of Distribution
Given the model of operation at WANJIRU, it will be easy to do the distribution of the product. Buyers have a contract with the company and send their orders beforehand. Fulfilling these orders is easy because the source and destination of the product is known. This will cut out unnecessary travel time and help shave off the associated overheads.
A refrigerated truck will be used to ferry the product from the processing facility to the client’s premises. There will be business operation cost apportioned towards that activity and it will add to the cost of goods sold.
Our Pricing Policy
WANJIRU uses a bulk market approach to set the price of the product. Selling in volumes will help the company capitalize on the economies of scale production to shave off unitary costs of the product. Each 12L buckets of ice cream will be sold at 4,300 shillings. The buyer will decide how they repackage the product when they sell it to the final consumer. Since our ice cream is premium quality, the buyers can repackage and sell it at premium prices since we are selling it as restaurant quality gourmet ice cream. They can still make excellent profits out of the bulk purchases.
Sales and Marketing Strategies
has a very strategic approach to sales and marketing. Given that the bulk of our customers are business entities who buy to resell, we have a limited number of targets to pitch to that effect. However, we also manufacture for the direct consumer and small business entities to resell. The latter strategy is erratic and highly seasonal, so, the bulk of our product will not be manufactured for this latter segment. We are avoiding having large inventory for speculative purposes due to the nature of the product we are dealing with.
We will heavily rely on personal sales because it gives us the advantage of explaining all the inquiries that the customer may have. We will offer free sample and modify the product to meet personal taste and preferences of the customer. It is estimated that we will use 4% of our inventory for the sample demonstrations in the first year. We will pitch individual businesses and offer to demonstrate to them how our product gives them leverage before they sign the contract. The contract will provide details of how much ice cream they will buy from us each year, delivery frequency, and payment terms. This will allow us get more ambassadors through referral marketing.
We will also create a website for the company and optimize it for the search engine so that we can be found. We will strive to be listed on major publications and our clients’ websites to give us more exposure. The search engine optimization will be augmented with active social media marketing to reach out to an even larger audience. It is estimated that we will hire a professional web designer to create a responsive, user friendly, SEO website. Current estimates for the cost puts the figure at 150,000 shillings.
Fliers, brochures, and banners will help us provide details about our product. The brochures will give us an opportunity to explain why our product is the best and give our customers an opportunity to reach out to the untapped catchment areas. We will also strive to get published on regional and international travel and food magazines for an even more exposure.
5. Financial Plan
Having priced our products at Ksh. 4300 per 12L pail, Ksh. 2300 per 5L tub, and Ksh 170 per 0.5L tub, we have factored in the national inflation rates and interest rates on loans. Given the annual inflation rate of 3.5% and interest on long term loan at 9%, our pricing will be incremental after some time by a similar margin to cushion the company from losses due to inflation.
Financial Performance Overview
In the first year of production, WANJIRU will have quite a tight cash flow due to large inventory that is held for longer period before it converts into money since the buyers have a 30-day credit window. Again, there will be some idle capacity since we will not be able to utilize the installed capacity fully as we are still getting into the market.
As sales continue to grow, profitability increases since the capacity is getting used optimally at no additional cost. Administrative costs also remain quite plastic as the available staff stretch their capacity to increase the output. As the table below illustrates, RUGUT will operate on a tight margin for the first few years.
Costs will be adjusted upwards to take care of inflation. As the capacity nears complete utilization, there will be need to hire additional staff on permanent basis. Other scheduled maintenance costs for the plant and the website will have a fixed cost, unless a complete overhaul is needed. Accidents and fault will be covered by the insurance policy.
Table 7: Financial Results (RUGUT)
The 10-year Financial Plan has been intentionally removed for the obvious reasons. Please get in touch (http://rugutice cream.co.ke) if you need a personalized business plan with financial projections.
Business Financing Options
There are two plausible models for financing the business. The first being 100% equity financing, which requires the owners to fund all the aspects of the business with their own finances. This model provides the true internal rate of returns value.
The second model amalgamates equity and debt funding. It can take two forms namely;
75% equity : 25% debt and 4% equity : 96% debt.
In the first scenario, the company will need to stake 25% of its assets for financing at 9% interest rate over a 10 year period. It reduces risk to entry since profits and losses are shared according to that ratio. In any case, if the business fails to meet its obligations, the financier will auction their share of the business.
The second scenario puts the owners of the business at a greater risk since the cash flow will not be favorable to them. Even though they get financing almost hassle free, they have no voice in the business. It is they are employed by the financier to run the business. They take all the risk, do all the hard work but the bulk of the money goes to the financier. They must consult the financier whenever they are going to make an important business decision.
All the earnings of the business will be retained and re-invested into the business until after the fifth year when the plant capacity is fully utilized. At that time, dividends will be paid equally according to the number of shares held by each owner.
Unit Cost of Production
Table 8: Unit Cost of Production
|Unit cost calculated based on the 12L sample.|
|Item||Estimated Cost (Ksh.)|
|Ice cream mix||550||570||600||630||650|
|Small components (emulsifiers, corn syrup, etc.)||120||120||120||120||120|
|Marketing & Admin||1,700||1,400||1,250||1,100||850|
|Estimated Selling Price||4,300||4,300||4,300||4,300||4,300|
Analyzing our Risks
Critical Variables for Production
The local market is very sensitive to price changes. A slight shift could mean a significant change in revenues for WANJIRU. To ensure that the company maintains optimal performance, the production capacity must be carefully monitored. The seasonality of some of the fruits may also affect our output. However, we are putting in place measures to ensure that we have enough inventory of the fruit to cover lean seasons.
Break Even Analysis
The break-even point is critical to our business because it shows us at what point our business can begin making profit. All costs are covered by the available inventory and there is no return on investment. It is the point when we can tell how much capacity need to be utilized to get the business moving to the positive side.
Sales volumes and pricing play a critical role in the determination of the breakeven point. We will be able to know which variable is most likely to have a significant effect on the revenues. Cash flow is going to be quite sensitive given the nature of the product, the inventory period, the credit window, and the rate of national inflation. Until we are able to utilize full plant capacity and fix inflation, cash flow will not be stable despite the incremental sales.
Again, given the political instability witnessed during the electioneering period in the local scene, the company may be forced to slow down production since the big customers rely on tourists to move their volumes as well. The tourists tend to cancel their reservations when there is political instability at the destination.
Fruit seasonality is also a factor never to be overlooked. The fruits we use to make our premium ice cream products are seasonal and may pose a challenge during lean seasons. However, this challenge can be surmounted by having stocks in the inventory that can last through the lean season. The biggest challenge with this is that it adds to the costs of holding inventory since we have to use the freezer to preserve the quality of the fruit. This can add to the cost of manufacturing ad increase our selling price.
Best, Base, and Worst Case Scenario Analysis
WANJIRU has been tested for the best, worst, or base case scenarios to see what will happen when there is negative or positive deviation, and when there is no deviation at all. The effect on the net present value (NPV) has been projected when there is a change in both the price and volumes of the product sold to see if the business will be able to survive.
It has been noticed that a small deviation to the negative side will have a significant effect on the business’ bottom line. Even though price and volume can be moved independently with significant effect on the business, shifting both simultaneously may have devastating effect on the business. Hence, both pricing and sales volumes are critical to the business continuity.
Our Contingency Plans
Success of the business largely relies on the sales. Since changing the price will have a serious effect due to the sensitive nature price evokes in the local market.
We will not be able to make a meaningful headway by changing the pricing.
However, we have a feasible route by changing the sales volume.
We already have plans to produce 0.5L ice cream tubs for the direct consumers on demand. Selling to direct consumers and small retailers will shield the company from undue losses or low sales volumes in case our contracted buyers have a slow season. We will also explore the option of selling to local supermarket chains to keep the plant running at full capacity.
WANJIRU projects an incremental growth in the first four years to reach full capacity by the fifth year of operation. This calls for aggressive marketing, to which plans have been made. We will consider expanding the plant by installing additional equipment shall our expectations be met by the sales volumes. This will also call for hiring of additional staff. On the flip side, the company will consider shutting down the business to shave off more losses shall the sales volumes remain plastic for the first four years, failing to reach at least 30% of the targeted full capacity.
Given the numbers and the projections contained in this business plan, RUGUT Ice Cream is a feasible project. Careful management of costs will be prudential in making a profitable venture out of this business plan. The strategy must be adhered to and quality maintained at exceptional levels to beat competition and claim a profitable market share.
Customization of food products is a new concept in the region and will be the greatest strength to make the business successful since the customers will be given an experience, they cannot get anywhere else. This is bound to create loyalty among the customers and build a strong local brand.