Saucy Processing
Sauce Processing Business Plan
A paper submitted to
The College of Agriculture & Bioresources
For course AgEc495.3
In partial fulfillment for the requirements of
The degree of Bachelor of Science in Agriculture
University of Saskatchewan
By
Kyle Jordet
Jason Fehr
Nicholas Petruic
December 14, 2007
1AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan
Saucy Processing
Executive Summary
Saucy Processing is a small family run operation owned. The primary focus of the business is adding value to Saskatchewan Carmine Jewel (SCJ) Cherries by producing a new and exciting cherry sauce product. The SCJ cherries used in this operation are produced from 300 cherry trees and there are plans to plant 3000 more cherry trees in the spring of 2008.
The production of the sauce takes place in a HACCP certified kitchen. Here, the owner along with her three hired workers juice the cherries, manufacture the sauce, bottle it, label and package. The workers training required for this job is all performed on the production site so it minimizes downtime and increases the production efficiency. The finished product is then transported to the climate controlled storage facility where it is held before sold.
The finished product is called Cherry Sauce and is sold at two different venues. The sauce is sold during the greenhouse season (April to September) to customers at a local store. The other primary source for sales comes from various farmers markets. These sales are attended during the spring and summer months by the owner and one or two of her employees where a booth is set up to distribute the sauce. The transportation of the product is accomplished by renting a van from Saucy Farms at a rate of $0.38/km which is beneficial because of not having the cost of licensing or maintenance of it.
The product Cherry Sauce is a versatile condiment that can be used on a variety of food favorites from pancakes to cheesecake. It is a unique because the current sauce market does not contain a cherry flavored sauce so the product is in a key position to differentiate itself from its competitors. The sauce comes in a 250 mL glass container and is sold for $4.50 per jar. The sauce will be purchased for cash directly by the customer, so no accounts receivable are associated with this product.
The target market for this product is the local area and surrounding countryside. The ideal customer for this product is a female aged 35 years and older with a family and is the primary food purchaser in the family. The reasoning for this is that this customer will be the most likely to attend the farmers markets and will be less reserved about trying a new product. To create brand awareness for the product a website will be established and newspapers such as the Western Producer will be used to reach a larger target market and to create interest in the product. At the farmers markets, the booth will focus on attracting potential customers by being very visually appealing, and then samples of the product will be available to allow the customers to try the product.
Saucy Processing has no long term debt associated with it. All of the required facilities and equipment are already established within its current operation. The production focused on in this report does not require major additional inputs to increase the production to the desired amount. The direct supply of the raw cherries is beneficial because of the decreased risk of not having the key ingredient for processing of the product. The price of $4.50 has a profit $2.78 per bottle of sauce, which allows the price to be adjusted depending on market demand and competitors prices.
Saucy processing will begin selling 6,000 bottles of sauce in 2008 and increase its sales over the next ten years by 10% yearly. This will occur because of increased brand identification with the product and this is demonstrated by positive net profits in the financial model (Appendix F) over the next ten years. The IRR for this business is 17.7% and the ERR is 9.8% because the primary shareholders for this business are Kate and Wayne Martens, so no dividends are paid out and can then be used to increase marketing of the product.
Saucy Processing has the ability to make a profit. It has very low capital costs, no long term debt and an ample supply raw product. The uniqueness of the product combined with the determination of a committed, profit driven management staff is the recipe required for success in this marketplace. Very Cherry Saucehas the ability to rekindle the love of a customer’s favorite classic food.
Table of Contents
Table of Contents
List of Figures
List of Tables
1Introduction
1.1Introduction To Saucy Processing
2Operations Plan
2.1Overview of Operations
2.2Sauce Production
2.3Capital Budget
2.4Analysis of Capital Budget
2.5Costs Of Goods Manufactured
2.6Direct Materials:
2.7Costs of Production
2.8Direct Labor:
2.9Manufacturing Overhead:
2.10Total Costs of Goods Manufactured
2.11Administration, Marketing, & General Expenses
2.12Working Capital Planning & Management
2.13Inventories
2.14Accounts Receivable
2.15Accounts Payable
2.16Cash Conversion Cycle
3Human Resources
3.1Overview of Human Resources
3.2Job Descriptions
3.3Technical Skills
3.4Wages
4Marketing Plan
4.1Overview of Marketing Plan
4.2Positioning Statement
4.3The Marketing Mix (4 P’s)
4.4Products and Services
4.5Price
4.6Promotion
4.7Place
4.8Segmentation
4.9Targeting
4.10Positioning
4.11SWOT Analysis
4.12Market Analysis
4.13Past Performance
4.14The Market
4.15Competition
4.16Customers
4.17Target Markets
4.18Product Features
4.19Opportunity
4.20Sales and Profit Objectives
4.21Channels of Distribution
4.22Pricing Policy
4.23Select Markets/Products/Service Mix
4.24Selling and Advertising
4.25Marketing Plan Budget
5Financial Plan
5.1Overview of Financial Plan
5.2Financial Budget
5.3Unit Cost Per Batch Breakdown
5.4Critical Variables
5.5Break Even Analysis
5.6Scenario Analysis
6Conclusions
6.1Conclusion & Suggestions
7References
Apendendices
Appendix A. Cherry sauce logo
Appendix B. Expenses
Appendix C. HACCP Certified Church Processing Kitchen
Appendix D. Location of Saucy Farms from Saucy Processing located in Nipawin
Appendix E. Location of Marketplace Store and Church in Nipawin
Appendix F. Base Run Financials
List of Figures
Figure 1 Process of making sour cherry sauce
Figure 2 Organizational Structure
Figure 3 Saucy Farms logo
Figure 4 Saucy Processing
List of Tables
Table 1 Capital Budget for Saucy Processing
Table 2 Break down of Direct Materials
Table 3 Total Direct Labor and Benefits
Table 4 Total Manufacturing Overhead
Table 5 COGM
Table 6 General Expenses for Saucy Processing
Table 7 Detailed table of employee wages and benefits
Table 8 List of sauce competitors
Table 9 Projected unit sales over a 10 year period.
Table 10 Marketing budget for Saucy Processing
Table 11 Summary of Financial Results
Table 12 Unit cost breakdown of producing and selling sauce
Table 13 Critical Variables – Saucy Processing
Table 14 Scenario analysis for Saucy Processing
1AgEc 495.3 College of Agriculture & Bioresources, University of Saskatchewan
Saucy Processing
1Introduction
1.1Introduction To Saucy Processing
The processing facility is located in the town of Nipawin and the supply of raw product comes from Saucy Farms. Saucy Processing is the processing division of Saucy Farms that will process the sour cherries into a value added sauce to be used on many delicacies.
The demand for new food additives is escalating every year with the increased production of Saskatchewan fruit grown orchard products. The product Cherry Sauce is a versatile product that is best suited for the food condiment industry. The current market for this product is competitive but the unique qualities associated with this product give it an advantage over its competitors.
Saucy Processing’s mission statement is to provide consumers a unique, high quality product that has been produced by a hard working Saskatchewan family determined on making their mark in this world. This product, Cherry Sauce, was based on an ideal similar to the early pioneers of this province, to try to grow something non native and produce a superior product demanded by the consumer.
The goals set out by Saucy processing are to increase sales and gain brand identification. These two goals go hand in hand with one another, because to increase sales consumers must fist identify the product as something to satisfy a need of theirs. The long term goals are to have annual sales of over 8,500 bottles of sauce by year five of production. To achieve this long term goal the short term goal of increasing brand identity must first be met, or sales will remain similar to the current numbers.
This business plan will focus on the production, marketing and financial feasibility of Saucy Processing and it will conclude with suggestions and projections for the business’s future years of production.
2Operations Plan
2.1Overview of Operations
Saucy Processing is in the business of making value added sauce out of Sask Carmine Jewel (SCJ) sour cherries that are purchased from Saucy Farms. Saucy Processing’s operations plan will include an overview of the cost of good sold and its capital budget. It will also cover all management decisions that are associated within the processing company.
2.2Sauce Production
The cherries used by Saucy Processing are purchased in one pound bags from Saucy Farms. They are kept in storage in cold storage. The cherries are then transported to the church where they are put into a steamer juicer which extracts the juice from the fruit meat and it is collected in sterilized pails. The juice is then stored in the cold storage at her store until there is enough collected at which point it is transported back to the church processing kitchen (Appendix C) where the owner and three other women prepare the finished product(Figure 1). The juice is put into a large cauldron and the sugar, lemon juice, corn sauce, and pectin is all added. These products are heated until the appropriate viscosity is obtained, then it is extracted and measured out into 250 mL glass bottles. The bottles have been sterilized and are then sealed with a safety seal and labeled. The finished product is then placed in boxes and is transported to the heated storage area where it is held until the product is transferred to be sold.
2.3Capital Budget
The total working capital that will be held by Saucy Processing is $5,319. The majority of the capital held by Saucy Processing is in its final product, the cherry sauce. The remaining capital is held in the equipment used to do the processing.
Figure 1 Process of making sour cherry sauce
2.4Analysis of Capital Budget
Table 1 Capital Budget for Saucy Processing
Description: / Estimated Cost: / Source of Estimate:Equipment:
Steamer Juicer / $400 / 2 x $200Kate Martens
Working Capital / $5,319
Total Capital / $5,719
The capital withheld in Saucy Processing is very minimal. The company rents all the buildings associated with the processing, storage, and the selling of the product. The capital consists of two steamer juicers that are valued at $200 a piece as well as the total working capital associated with business.
2.5Costs Of Goods Manufactured
The cost of Goods manufactured is $16,805. This includes a direct materials cost of$10,334, for cherries, packaging and ingredients. The direct labour cost was $2,336, for the owner and three employees. The manufacturing overhead was $40 for depreciation on the equipment. This follows the CCA values of 20% on equipment, but only 10% is used for the first year. Also included in the manufacturing overhead are the variable costs of the church rental, heated storage rental, and rental of the company van from Saucy Farms, giving a total of $4,134 for manufacturing overhead.
2.6Direct Materials:
Table 2 Break down of Direct Materials
Input / Price* / Amount/ batchCherries / $2.50/lb / 12 lbs = $30.00
Sugar / 0.06/oz / 96.91 oz = $5.82
Lemon Juice / 0.08/oz / 0.5 oz = $0.04
Corn Sauce / 0.20/oz / 32.3 oz = $6.46
Pectin / 0.85/oz / 0.5 oz = $0.43
Total/ Batch / $42.75
*The prices listed above come from Kate Martens, for the cherries, and Netgrocer, available at
2.7Costs of Production
60 jars/batch
= ($42.75/batch)/60 jars
=$0.71 /jar+ $1 (cost of glass jar) + $0.01 (Cost of Pallets)
=$1.72 / total jar cost
16 batches/ 8 hr day
= 16 batches * 60 jars/batch
=960 jars/day
960 jars/day * $1.72/ total jar cost
=$1,653.60/day
$1,653.60/day * 6.25 days/yr
= $10,334/yr total cost of sauce
2.8Direct Labor:
Table 3 Total Direct Labor and Benefits
8 hours per day x 6.25 days per year = 50 hours/yearKate (Manager) / $15/ hour x 0.25 / = $3.75
Workers (3) / $8.50 / hour x 0.75 / = $6.38
Total Wage/hour / = $10.13 x 50 hrs x 4 / $2,026
Total Benefits / $310
Total Direct Labor and Benefits / $2,336
2.9Manufacturing Overhead:
Table 4 Total Manufacturing Overhead
Fixed Overhead Costs:Depreciation on Equipment / @ 10% / $40
Variable Overhead Costs:
Church Rental / $60
Processed Storage (Abe’s Rent-a-Bay) / $1,800
Company Van Rental / $2,234
Total Manufacturing Overhead / $4,134
The rental of the HACCP approved church kitchen is $10.00/day. To rent a bay, the charge is $150/month which will cost the company a total of $1,800/year. Saucy Processing rents a cargo van from Saucy Farms for $2,234/year. This is calculated by taking the owner’s average distance to farmer markets (140 km) and multiplied by the cost of gasoline/km and depreciation on the vehicle ($0.38). This is then multiplied by 140 (this being the number of markets per year on average she attends) and then multiplied by 30%. This is because the transportation of sauce takes up only 30% of the room in the van as other good for sale are also being transported in the van at the same time.
2.10Total Costs of Goods Manufactured
Table 5 COGM
Total Direct Materials / $10,334Total Direct Labor / $2,336
Total Manufacturing Overhead / $4,134
Total Cost of Goods Manufactured / $16,805
2.11Administration, Marketing, & General Expenses
The owner is the sole person responsible for all administration and all other related responsibilities. She manages all the organizational tasks associated with processing of the cherries.
General Expenses Assumptions:
The assumptions for general expenses are as follows. For the administration costs it is assumed that she spends one hour a day each working day (260) performing these tasks.
Table 6 General Expenses for SaucyProcessing
Description: / Estimated Cost: / Source of Estimate:Administration Costs: / $15 x 1hour/day =
$3,900
$371 / 260 working days per year
Kate Martens
Benefits: / Appendix F
Total costs/year / $4,271
2.12Working Capital Planning & Management
2.13Inventories
The inventories involved in the cherry production fall into two categories:
-raw goods & finished goods
Raw Goods
The cherries that are bought by Saucy Processing from Saucy Farms are cleaned, washed and packaged in plastic bags that hold one pound of product at the cost of $2.50/lb. They are then held in Saucy Processing’s inventory from 1 to 5 days until they are juicedthen stored in a freezer. The juice is stored in the freezer until the required amount is obtained and then it is transported by van to the church kitchen where it is processed into finished goods. The raw products are supplied by Saucy Farms as needed, because they possess adequate storage facilities, so Saucy Processing does not require large amounts of raw product on hand at all times, therefore inventories are minimal.
Finished Goods
The finished goods are prepared in the church kitchen. It’s here where the goods are made, bottled, labelled and packaged. The finished goods then will be transported to the heated storage space where they are to be stored up to an average of 150 days, meaning that at any given time there is $1,262 worth of product available in the storage facility. The goods are stored there until they are sold.
2.14Accounts Receivable
The accounts receivable for the Saucy Processing business are not applicable. Saucy Processing sells the product directly toconsumers.This system creates no accounts receivable because product is traded for money at the point of transfer and therefore no money is owed at a later date. Saucy Processing’s current clients do not purchase quantities of her product large enough that would make the transaction process more beneficial to either party.
2.15Accounts Payable
The accounts payable for SaucyProcessing is set at 30 days. The raw cherries are purchased from Saucy Farms and are put on a 30 day payment period where Saucy Processing will pay all current debts. During the first year of production, Saucy Processing’s approximate accounts payable balance will be at the maximum $1,729 for the year. The ingredients used to create Kate’s finished goods are very few and are paid for upon obtaining them so the accounts payable rarely accumulates for them.
2.16Cash Conversion Cycle
The cash conversion cycle is as follows:
The processing of the product can be completed in 6.25 days in year one, therefore it will remain in storage for large periods of time. The products will be moved out throughout the spring and summer months. The processed product will remain in storage over the winter, until the store in Nipawin reopens and farmers markets resume.
CCC= Average Days Inventory + Average Collection Period – Average Days Payables
CCC = 155 + 0 – 30 = 125 days
3Human Resources
3.1Overview of Human Resources
Human resources for Saucy Processing are a relatively small overall cost. The operations consist of four employees, the owner is the manager and three general workers. Chain of command and technical skills will be accounted for within the human resources
3.2Job Descriptions
The job description for the processing of the cherries is quite clear. Saucy Processing requires a total of 4 people to be able to effectively process the cherries. The types of employees that she hires are middle aged women. She prefers this age demographic to others because of their motivationand possession of the proper skill set required to thrive in this type of job environment. The chain of command is shown clearly in the below figure.
Figure 2 Organizational Structure
3.3Technical Skills
The women hired to work in the processing line have to be self motivated and must be competent workers who do not need to be looked over all of time. There are four main jobs to be performed during the process.
- Mixthe Ingredients
- Jar sterilization
- Pour the sauce
- Sealed and labeled
These skills are taught on the job by the owner. She spends an hour on average with every new employee to make sure that they know the proper tools that are required to perform the tasks. She takes on this task because she is in the lead managerial position; therefore she is very experienced with all jobs that are involved in the processing line.