Strawberry Zone Business Plan on Strawberry Farming Submission letter 23 June, 2011. To, Department of Finance and Banking University of Rajshahi Rajshahi, Bangladesh. Subject: Submission of new business plan on Strawberry farming. Dear Sir, It is a matter of limitless pleasure for us to have the opportunity to submit our Group E Business plan on Strawberry cultivation as a part of our academic activities. We have put in our maximum team effort in this group assignment. We show our uttermost gratitude for the opportunity you gave us to implement our creativity and analytical thinking skills that will help us in building future career. We therefore would like to place this project plan to you for your kind consideration. Yours Sincerely, _________________________________ ______________________________ Marzia Akhter Unmesh Ray Himel (7674) (7633) _________________________________ ______________________________ Md. Rauful Islam Syed Shasuddha (7634) (7639) _________________________________ ______________________________ Siadur Rahaman (7642) Contents Table Executive summary 1 Introduction 1-2 The opportunities and threats 3-4 The product Description 4-5 Market Analysis 5-8 Industry analysis 8-9 Competition Analysis 9-10 Marketing plan 10-13 Management team 13 Manufacturing process 13-14 Pro forma of financial plan 14-17 Conclusion 18 Executive Summary: Strawberry (Fragaria vesca) is an important fruit crop and its commercial production is possible in temperate and sub tropical areas of Bangladesh. The country’s weather proved suitable for strawberry farming although this delicious fruit is normally produced in countries having cold weather, particularly in the West. A thorough market research, industry and competitor analysis has been done. We did the market research through doing survey (sample size 50). We found the growth rate of market demand is 42.85% Our target markets are: Super shops (upper class and upper middle class) Fruit Market of Bannai and Gulshan Fruit Market of Bogra and Rajshahi We are starting our business in 1.2 bigha land in the first year. From 1.2 bigha, we can get 2200 kg strawberries in a season. But for many reasons (natural calamity and diseases) .it might happen that we lose some fruits. So we narrow down our target to 1825 kg by which we can capture 4.25% share of the market. Our pricing strategy will be market penetration. We will charge a price which is lower than the market price. Our cost par kg is 125 taka, so even if we charge 500 tk, our profit margin will be very high. Initial investment will need 1,291000 tk.5 partners will initially invest in the business180740 tk each and for the rest we will seek for loan (30%) with a yearly interest rate of 9.5% for 3 years. In the management team,2 partner will work in the field along with two more worker. Another 2 partner will be responsible for packaging. The rest 2 will be doing the distribution and marketing along with 2 more worker under them and 1 van driver will be appointed for transportation. We will buy a land of 1.2 bigha in, Bogra.In the 3rd year we will go for expansion and for that we will take lease of 1 more bigha land for 3 years. 1. Introduction Strawberry (Fragaria vesca) is an important fruit crop and its commercial production is possible in temperate and sub tropical areas of Bangladesh. The country’s weather proved suitable for strawberry farming although this delicious fruit is normally produced in countries having cold weather, particularly in the West. History of strawberry: Professor Dr. M Monzur Hossain is the pioneer of strawberry cultivation in Bangladesh. In the early 1990s, Dr Manzur was in Japan, having his PhD, when Quamruzzaman joined him in a one-year training session. After finishing of their training, they together planned the cultivation of the strawberry in Bangladesh. In 1996 at the time of returning home, Manzur brought along eight varieties of saplings and Quamruzzaman collected six varieties from Japan and America. But none of them sustained in Bangladeshi environment. But they do not give up. They started doing experiment on it and at last Manzur developed some new varieties through tissue cultures at his Botany department’s Plant Breeding and Gene Engineering Laboratory, while Quamruzzaman did the same in Natore. After five years of research, in 2003, three varieties yielded encouraging results. Out of the three, the ‘RU-3? and ‘Modern-3? 2. Opportunity Current demand 55 tones par year, we grow half of the demand locally Yearly turnover Tk1100000 cr. country’s weather proved suitable for strawberry farming. It is in the introduction stage .Market demand is increasing significantly Slowly but strawberry market is spreading outside of Dhaka. Imported strawberries can be replaced by the locally produced strawberries. After meting local demand, foreign exchanges can be earned through doing export. Strawberry business falls into SME’s category. Present government is giving many subsidies on SMEs to promote the growth of GDP. 3. Product Description Our product is Strawberry which is a sweet fleshy red fruit. Strawberry belongs to the family Rosaceous. It is a low perennial herb with many runners and bearing white flowers followed by edible fruits having many small achene’s scattered on the surface of an enlarged red pulpy berry. This is the only fruit which carries seeds on the surface. Garden strawberries are a common kind of strawberry cultivated worldwide and is a well- known fruit mostly in western countries. Various usage of strawberry in addition to being consumed fresh is: Strawberries can be frozen, made into preserves, as well as dried and used in such things as cereal bars. Strawberries are a popular addition to dairy products, as in strawberry flavored ice cream, milkshakes, smoothies and yogurts. Strawberries are also used to prepare pie, juice, jam etc. Strawberry also has a high nutrition value. One cup (144 g) of strawberries contains approximately 45 calories and is an excellent source of vitamin C and K. Creating value to the market: Whenever someone starts a business that will prosper only if, it creates any value to its target market. Value to the customers: We will try to serve them in a better way. So that customer can get 100% satisfaction. Augmented product (extra offer): For marketing we are offering not only the product but also many things like free recipe with every packet, showing cooking processes at superstores and many more. We will continuously come up with this kind of different offers so that we can grab and hold our potential customer. Distribution channel: We are going to distribute the strawberry to the superstores and other fruit markets by our own people. We are not involving any third party in our business for distribution. So distribution will be heavily monitored by us. Quality: At Bangladesh Agricultural Research Institute (BARI) we took a short course on how to start a strawberry business and that made us able to chose best strawberry seeds and plant it in a proper way and fertilize it in such a way that best kind of strawberry will be seen in the plants 4. Market Analysis Market of strawberry in Bangladesh is growing now. The stage of this strawberry industry is growing very fast. To analyze the market we need to determine few things. These things are Growth rate Target Market and justification Target market size Market segment Market Survey a. Growth Rate: Strawberry is a growing industry of Bangladesh; we analyzed the market and observed that in 2009 the market demand for strawberry was 40 tons. And next year it went up to 55 tons. From these we can calculate the growth rate of strawberry in Bangladeshi market. Growth rate = Changes in demand from previous year/demand of last year = (55-40) tons/40tons = 37.75%, so the market has grown by 37.75%. b. Target Market and Justification: Firstly our target market will be northern part of the country. Our main target is to cover all the outlets of super shop and Agora, shopno, Nandan and Naz garden (4**** hotel). We have chosen Bogra as our plant because Bogra is the door of northern part of country. From bogra to Dhaka transportation cost will be minimum and here we have available place for expansion our business. Our second target market is to cover some special place of Dhaka. Super shops (upper class and upper middle class) ÿ Agora(9 outlets) ÿ Shopno(among 41 outlets ,we will target only 10-15) ÿ Lavender(2 outlet) ÿ Nandan(4 outlets) Sense berry and touch&take (local super of Bogra) Fruit Market of Bannai and Gulshan Fruit market of Bogra As par 1991 Bangladesh census, Gulshan had a population of 281,337. Many of Dhaka’s richest reside here. 21.59% of residents are occupied with commerce while 40.92% are service professionals. Average literacy rate of the area is 59.7% for people over the age of 7 against the national average of 32.4%. Most of the foreign diplomatic missions in Bangladesh area are located in Gulshan or Baridhara Diplomatic zone. All international brand stores like Move pick, Baskin –Robins, Coffee World, Roll Express, Pan Pacific Hotels and Resorts, Westin Hotels are there in Guslhan. c. Target Market size Strawberry growers and traders in Bangladesh are expecting Tk11 cr. in annual turnover, as they go into its first-ever commercial cultivation in 2006. Rajshahi University professor Dr. Manzur Hossain, who developed the fruit nearly a decade ago, expects nearly 25 tones of output from about 8.5 acres of land in 45 districts until April. “The initial commercial production will meet 50 percent of the gross annual demand for the fruit. At present, the demand for the fruit stands at 55 tons,” said Hossain, also the general secretary of Bangladesh Strawberry Farmers Association, which monitors the fruit’s cultivation in the country. So the market demand for strawberry in Bangladesh is 55 tones (1 ton=1000kg, 55 tones=55,000 kg).As we are just starting, we will do the cultivation in a land of 1.2 bigha size only. Per bigha land we can plant 5000 seeds. In other words, 1.2 bigha land has a capacity of 6000 strawberry plant. Each strawberry plant bears around 300 to 350 grams of fruit. So, we can harvest 1800 kg (6000*300gm) to 2100kg (6000*350gm) of strawberries from one bigha land in a season. By doing this we can capture 3.6% to 4.2% of the market share. As we are producing for the first time, we do not have any experience and it might happen that some trees will not give fruits or fruits are not properly grown. Natural calamity (rain, storm) can also harm some trees. So we might loss some of our fruits. Suppose 1000 seeds/plants are unproductive. Then: 5000*300 gm = 1,500 kg 5000*350 gm = 1,750 kg Thus we are narrowing down our target market size from 3% (1,500 kg)-3.5% (1,750), on average 3.25% (1625kg). X% of 50,000kg=1500 So, x = 3% X% of 50,000 kg= 1,750 kg So, x = 3.5% (3.5%+3%)/2 = 3.25% (Target Market share) 3.25% of 55000 kg= 1,625 kg (Target Market Size) d. Market Survey: Nandan Swapno Lavender Banani local fruit 1.Daily sale 6to8 kg 1.2to4 kg 2to3kg approximately 7 kg 2.Price 700to800 tk 700to800 tk 600to700 tk around1000to1200 local strawberry 3.Buying price Didn’t mention Around 500 taka 20% less than They said their buying price their selling 800 to 900 taka. I think it is prince ( 450- fake price. It would around 450 500) taka because quality is bad than the super shop. 4. sources NW(j)4, kamal Emrul Kayes 1.Md. Atiar Not availabale Ataturk Rahman Avenue,North Supervisor & Avenue Gulashan manager cultivator Dhaka 1212 Mob:01916- Tile: 9862637, 041491 88850049 Mob: 01974- 163015 2.Murad Chowdearry Mob:- 01711781782 We conducted a survey among our main target market that is foreigners and superstores of Dhaka city. This is a very good indication for our strawberry industry. In near future demand of strawberry will increase significantly. 5. Industry Analysis Commercial production of strawberry has started in the year 2006 in Bangladesh and currently there is a demand of 55 tons of strawberry in Bangladesh. Currently local producers are growing only 28 tons which is only half of the total demand. And the rest half is being imported from other countries. So there is good scope available for local producer to grab the market and supply according to the demand. Observing the market scope many local farmers have already started and planning to start growing strawberry at a large scale. This is good news, because if production increases than we will not have to import strawberry in future. But there is another factor that should be taken into consideration. If our local production rate increases like this, in future this will exceed the industry demand growth rate. So, there will be, excess supply in the industry compare to the demand although there is a shortage now. To get rid of this problem, we have to increase the usage of strawberry along with fresh consumption. For this, please see our extension plan. From the survey of other producers of strawberry in the local market, we found their year to year growth and by taking average we found the industry average which is 37.755%. 6. Competitor Analysis After producing strawberry our first challenge will be the competition in the market. We have both direct and indirect competitors in the market. There are a lot of competitors already in the market who are producing and marketing strawberry in Bangladesh for last few years. These are our direct competitors. Among all direct competitors existing in the market, we have identified our main competitors and below there is a brief description about our main direct competitors. A.R. Enterprise: This farm is located at kaliakawr in Gazipur. They have started strawberry farming from the year 2004 and farming on approximately 7 bigha of land with an annual production of around 14000 kg and daily production of around 80 kg. Their main competitive advantages are: Low transportation cost, ability to supply strawberry at a faster rate as the farm is located close to Dhaka. Ability to sell at a lower price as they have achieved economics of scale. King Sons Farm: This farm is located in Maymenshing. They are faming strawberry from the year 2009 on 4 bigha of land. Their annual production is around 7500 kg with a daily production of around 40 kg. In this farm 5 workers are working now under a manager. There production cost is around Tk210 and selling price is around Tk400 for per kg of strawberry. They supply strawberry in different super shops of Dhaka city along with retail fruit markets. Some of their competitive advantages are: Low labor cost Comparatively competitive selling price. Garden Fresh Strawberry: This farm is located in Ashuliya, Dhaka. They are faming strawberry from 2009 on 1 Bigha of land. There annual production is around 2000 kg with a daily production of 13 kg.Low transportation cost as the farm is very close to Dhaka. Strong connection with buyers. . 7. Marketing Plan Marketing is a process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return also it helps to grow customers by delivering satisfaction. For our strawberry we will go for traditional marketing processes as well as few innovative promotional activities will be doing by us. Our brand will be created later on but before creating a brand image we have to let our target people know about the features and benefits of this very famous foreign but locally grown fruit “Strawberry”. In Bangladesh, strawberry farming has been started for couple of years and its growing almost every year. Fruit is always a good thing to have. But there are other farms in the strawberry industry so our marketing plan programs should be done by keeping that in mind. Our marketing plan consists of few steps and those steps are described elaborately below: Step-1: Situation Analysis Before entering any market we have to analyze the advantages and disadvantages of that market. Though strawberry market is new in Bangladesh still we have competitors. So the advantages and disadvantages are: Advantages - Our quality is better than the competitor. - Our distribution is stronger - Our packaging is better -penetration pricing strategy. Disadvantages - Small farmers have started growing strawberries - Few people still think foreign strawberries are of better quality. - We have to grow strawberry for a particular span of time (September-March) Rest months of the year we will be sitting idle. Step-2: Key Planning Decision 1. Advertising objective: Our objective for advertising will be to provide our customers fresh, locally grown, well-packed, tasty strawberries which are cheaper than imported strawberries but have the same quality and taste. 2. Target Audience: Target audience for our advertisement will be- - Superstores (Swapno, Agora, Lavender, Nandan) - Foreigners. - High and middle income people of Banani, Gulshan, Baridhara area. 1. Competitive advantage: -We will promote our strawberries along with the numerous benefits it has, we will promote the attributes rather than the product. - The quality of our strawberry is better than the competitors. - Also the packaging of our strawberry is going to be better and different than the competitors. Present strawberry farms in Bangladesh provide their product in a plastic packet which is not that much strong. We are introducing a new packaging for strawberry and that is fruit-baskets and the picture is shown above. Though this packaging will cost only 1.5 taka more than of those plastic packets but the benefits of these baskets are not unknown to the customers. These baskets look very attractive and strong. Also these baskets can be re-used.. 1. Product Image : Personality and benefits: The personalities of Strawberry are: Strawberries are high in Vitamin C & K. Vitamin K is very rare, so or strawberry can provide people this rare vitamin very easily and we all know vitamin C can prevent numbers of infectious diseases. Research shows that if one heart patient can eat 8-10 strawberries, his blood pressure can significantly decrease. There are lot more benefits of the great berry, Strawberry. We will use these personalities and benefits to promote our product to the target market. Showing these attributes to the customer can be one of our main and strong marketing strategies as no farm ever did this. 1: Product differentiation: We are always trying to add value to the customer by differentiating our product from competitor’s product in a unique way. 2. Product Positioning We know the development of strawberry has been done in Bangladesh. Now the stage for the market is Introduction. We know during introduction stage Marketing programs has to be done more. Step-3: Tactics and the Media Strategy The tactics of our advertisement of Strawberry are: 1. News paper 2. TV 3. poster 4. Decorated shelves in the super store. Step-4: Creative Strategy Creative strategy includes two things. Firstly what is the message we are trying to deliver to our target market, it’s more like a “Specific Slogan” for our product. Secondly what is main concern of our product that will attract our customers to frequently buy our product? The Message: the message or the slogan for our strawberry can be: “Real Juicy & Tasty Strawberries for YOU!” . Step-5: Pricing Strategy (market penetration) As we have stated earlier that we have done a market as well as a competitor analysis, we analyzed that industry average price for per kg strawberry is 716.67 taka. We have found that our cost of goods sold per kg is 123taka and we are selling at a rate of 500taka/kg. Our selling price will be a lot less than the competitors. This pricing strategy is called Market Penetration. We are asking for low price to grab the target market. Packaging Packaging will be done in such a manner so that it will create value to our product. We will first separate the strawberries according to its size, color and weight. Three kinds of Packaging will be there. One for the big sizes which will be delivered to super shops. One for small sizes only and the other one will be mixed of both sizes. Packaging will be done on the basis of customer demand (small, big and medium sizes). Each package will contain 250 gm of strawberries. A green basket full of fresh & red strawberries with our firm’s name and pictures will also create the brand image gradually. Each green plastic basket will cost 2 tk and the wrapper with the name and picture printed on it will cost 1.5 tk. So the total cost of par packaging will be a total of 3.50 tk. Distribution Our Distribution strategy should be our competitive advantage. We will keep the distribution channel very simple. As this is a start-up business, no distribution agents will be used primarily as it will increase the cost. Before harvesting, distributor will contact with the fruit shops and super-shops to know the demand of that day (which branch of super-shops will need what amount of strawberries).They will do it on a daily basis. As strawberry is an extremely perishable fruit, it is necessary to deliver the fruit as soon as possible. So all contracts (how many kg to which outlet) should be done before.. Then strawberries will be collected from the firm in plastic crates. We will use the public transportation to take those fruit crates from the firm to Dhaka location (where we will do the packaging). 2 people will be responsible for the packaging. Then these packets will be delivered through the marketing people& distributor (4 people) to the destinations. We will use van to distribute which will reduce our transportation cost. Storage Initially we do not need to store as we will distribute as soon as we will harvest based on the demand. But gradually when we will expand in the upcoming years (3rd year of our production), we will need storage system. Fruits can be stored in storage at 32 degree Celsius up to 10 days if necessary.. For distant marketing, strawberry should be pre cooled at 4 degree Celsius within 2 hours of harvesting and kept at the same temperature. After pre cooling they will be shipped in refrigerated vans. 8. Management team Ours is a partnership business. We are five people in the business. Name of the partners: 1. Marzia Akther(Founder) 2. Unmesh Ray Himel 3. Md.Rauful Islam 4. Syed Shamsuddha 5. Saidur Rahman 9. Financial Projections Initial investment: Land 67 decimal* 7178tk 800,000 tk Van 1*10,000 tk 10,000 tk Irrigation Pump 1*14000 tk 14,000 tk Strawberry Seeds 6000*10tk 60,000 tk Fencing 70,000 tk 70,000 tk Legal 9,000 tk 9,000 tk Expenses(Memorandum, BSTI) Insurance 7000tk 7000 tk House For Labor 200,000tk 200,000 tk Organic Herbicides 5000 tk 5,000 tk ,Pesticides Training Expense 2 person*3000tk 6000 tk Cash in hand for other Labor 90,000 tk expenses(first months labor cost:,15000tk*2=30,000 tk*3 salary, electricity, gas bill months=90,000 tk payment and other day to day expense) Electricity, gas and other 20000 Total Investment 1,291,500 Tk Land We will buy 67 decimals or 1.2 bigha of land in Bogra,matidali village. It will cost us 800,000 tk. We will buy the land instead of taking lease like other competitors because we have done a thorough market and industry analysis. We have found that in Bangladesh strawberry has a potential market and in near future it will be possible to export it in other countries of the world. So if we have our own land then we can produce at least a fixed amount of output even if we can not go for expansion. We don’t have to be worried about the lease period or lease renew or lease contract cancellation for which many competitors’ business may get harm. So owning of land is a competitive advantage of ours over the competitors. Cash in hand & Total Initial Investment Initial Investment is now of 1201,500 taka. We need some cash in hand to operate day to day activity and for first three months salary, electricity, gas, water and other expenses. If we keep cash in hand for about 90,000 tk then our initial investment end up with an an amount of 1,291,500 tk. Funding Source: Each of us (5 partners) will invest 180740 tk each. For The rest of 30% taka, we will seek for bank loan at an interest rate of 9.5%. So we are financing our business with a combination of equity and debt financing. Equity 70% and debt 30%. As strawberry businesses falls under small and medium enterprises (SMEs), it has the opportunity to get a bank loan. The present government is giving many facilities for these SMEs to achieve higher GDP growth rate. Strawberry production is in the introduction stage and earlier we have already discussed that it has many opportunities to grow in Bangladesh. It can also go for exporting after meeting the local demand. So growth in this sector means growth in GDP for which banks are giving loans to promote these kinds of businesses. 5 members* 180740 tk = 903700 lakh taka Initial investment- equity financing= 1,291,500-903,000 =387800 X% of 1,291,500=387800 lakh So, x = 30% We will seek for bank loan of 387800 tk (30% debt) for 3 years at an interest rate of 9.5% In the 3rd year, when we will go for expansion, we will go for lease which is also a form of financing. We will take lease of 2 more bigha of land at an expense of 15,000 tk per year per bigha. Annual Production Year 1 = 1625 kg Year 2 = 2000 kg Year 3 = 3500 kg (extension of production by taking lease 1 bigha of land) Year 4 = 4000 kg (using full capacity of 2 bigha land) Break Even Point Analysis: Our initial investment will be 1291,500 taka. Total fixed cost is 1,021,500 tk. Total variable cost 230,700 taka So if we produce 1625 kg in the first year then out variable cost par unit or par kg is 142 taka. We have set price at 500 tk par kg. If we calculate the break even point in term of unit of out put then we get at 2853 kg, it will reach the break even(no loss-no profit).In term of sales volume it is taka 1021499.716.This quantity or volume of sales will be reached at 2 years 5 months. So, after 2 years 5 months, our business will start earning profit. Break Even analysis(volume and sales) Fixed Cost taka Land 800,000 Van 10,000 Irrigation Pump 14,000 Fencing 70,000 Legal Expense 9,000 Insurance 7000 House for labor 200,000 Training Expense 6,000 Pipeline set up 4,000 Piping for water 40,000 Qb= Break Even salaries 30,000 quantity water 3,000 FC=Fixed gas 4,000 Total Fixed Cost 1,197000 Cost Variable Cost vc=variable cost par seeds 60,000 unit)kg) sales salaries 15,000 p=price par Electricity 9,200 unit(kg) Packaging 24,500 S*=Break even point Transportation 76,000 Mulching 15,000 (sales taka) Fertilizer 8,000 VC=Total variable cost Digging 5,000 S=total sales Soil Leveling 25,000 Total variable Cost 237,700 Variable Cost par unit(kg) 147 Risk Factors Price per unit(kg) 500 Whenever there is a business, unconditionally there will be few risks. When we started planning for farming Qb=FC/p+vc 2869.4 strawberry, few certain risks we could or 2869 kg assume are: S*=Fc/1-VC/S 1434700 Rotten Behavior: Strawberry is very perishable in nature, it gets rotten Break even at 2.445428571 very easily, so if we cannot deliver 2 years 5 them properly, they will be rotten months. and our production will be hampered, so this characteristic of strawberry is going to be a risk factor for our business. Taste of the fruit: Bangladesh is a country for very sweet & juicy fruits like Mango, Litchi, Jackfruit, etc. Bangladeshi people love sweet fruits more than sour tasted fruits. Though strawberry is very juicy and sweet, it has slightly sour taste, which Bangladeshi people may not like very much. Small farmers: Small farmers of Bangladesh have also started producing strawberries in their fields and that may significantly decrease the price of per Kg strawberry as they are not aware of the market.. 10. Conclusion: To outrage any present Keeping all uncertainties in to our mind, our company had already over estimated every possible threat that should have been taken into account. By considering every possible threat we wish to keep up quality control to perform regular research upon our strawberry plant. In addition, our profit margin is a perfect encouragement for future expansion. Gradually after the first 3years of our business operation we would definitely like to go for further expansion (industrial usage of strawberry and export). Provided if things act into our behalf we would possibly stretch our product line (strawberry juice, jam).