Please help with the case analysis. Need the answers in the next 4 hours.

Questions to be answered:

Based on the information and assumptions provided in the case, calculate the market potential for frozen biscuit sales in the following markets: (a) New England States and New York, and (b) Atlantic Canada

2. Prepare a sales forecast for Year 1 for By-the-Sea Biscuit Company for both the Northeastern U.S. and Atlantic Canadian markets. Assume the company negotiates a distribution agreement with Price Chopper in the six New England states/New York market and with Co-op Atlantic in Atlantic Canada.

3.Prepare a statement of income and expenses for By-the-Sea for Year 1.

4. Calculate the break-even point for By-the-Sea.

5. What are the key risks involved in this start-up?

6. Assume that Finney and Jobe are successful in the Canadian market only in Year 1. Prepare a statement of income and expenses under that scenario. How sensitive is the analysis to changes in other assumptions?

7. Would you recommend that Finney and Jobe proceed with their plan to start By-the-Sea Biscuit

See\tdiscussions,\tstats,\tand\tauthor\tprofiles\tfor\tthis\tpublication\tat:\thttp://www.researchgate.net/publication/273764063 BY-THE-SEA\tBISCUIT\tCOMPANY:\tA\tDECISION\tIN NEW\tVENTURE\tANALYSIS ARTICLE in CASE\tRESEARCH\tJOURNAL\t\tMARCH\t2015 READS 337 1\tAUTHOR: Sherry\tFinney Cape\tBreton\tUniversity 8\tPUBLICATIONS 205\tCITATIONS SEE\tPROFILE Available\tfrom:\tSherry\tFinney Retrieved\ton:\t10\tNovember\t2015 By-the-Sea Biscuit Company: A Decision in New Venture Analysis Sherry Finney, Cape Breton University I n mid-January 2007, Paul Finney went to his computer to check his messages after a long day at work. An email from Lenus Bungay caught his attention, and he clicked on it immediately. Hi Pat and Paul: Haven't heard from you in awhile. Please give me an update if you can and let me know what the next move is. Regards, Lenus Bungay was the CEO of the newly formed Cape Breton Innovation and Research Council (CBIRC), a private corporation that had recently assumed ownership of the defunct Clearwater seafood processing plant in North Sydney, Nova Scotia. The fundamental purpose of the new council was to expand and develop local business by accessing new technology, new ideas, new products, and new markets. In August 2006, Finney and his long-time friend, Pat Jobe, had presented a business proposal to Lenus and his board that recommended establishing a frozen biscuit manufacturing operation in the former seafood plant. The facilities were perfect. CBIRC immediately expressed interest in the concept and thought the business plan was sound. Finney and Jobe, although convinced of the merits of the product concept, still had some questions that needed answering before they could make a final assessment on the feasibility of the business. Both were employed full-time, and the decision to leave their jobs to pursue this business was not one they could make lightly. Finney picked up the phone and called Jobe at his home in Minneapolis, Minnesota. \"Paddy, where do we go from here? We need to give Lenus some sort of response as to where we stand, but I think we need to finalize our financial projections first, and that requires a closer look at the market potential.\" Business Principals Pat Jobe was a native of Sydney Mines, Nova Scotia and a 1989 graduate of Cape Breton University's chemical technology program. Like many others, Jobe left Cape Copyright 2015 by the Case Research Journal and by Sherry Finney. All rights reserved. The author developed this case for class discussion rather than to illustrate effective of ineffective handling of the situation. An earlier version of this case was presented at the Marketing Track at NACRA's annual meeting in Keystone, Colorado, October 2007. All materials in this case, unless otherwise noted, have been provided by the case protagonists. By-the-Sea Biscuit Company: A Decision in New Venture Analysis 1 Breton to follow work with the hope of moving back home someday. For eleven years he had worked in Atlantic Canada in various animal feed and food processing environments. In 2000, he moved to the U.S. to work for Ralston Purina International in Greenville, MS. Two years later, Cargill bought Purina International, and Jobe relocated to Minneapolis, MN. At Cargill he acted as head of Cargill Animal Nutrition's Process Applications research department. He focused on feed plant systems for three years and developed four patented processes. In 2005, Jobe moved on as an independent consultant. In 2006, he spent much of the year as a project manager for a private firm in Cookeville, TN. As part of his contract, he designed and supervised the construction of a frozen biscuit processing line that produced 15,000 frozen biscuits per hour. Paul Finney was also a native of Sydney Mines and continued to live there. Finney was a graduate of Nova Scotia Community College's electro-mechanical technician program and recipient of the Governor General's Medal, the highest academic award given during convocation ceremonies. He was a journeyman heating technician and 4th class stationary engineer and possessed several training certificates in such areas as indoor air quality monitoring and control, ventilation and air conditioning, and occupational health and safety. Finney had managed his own successful heating business in Cape Breton for the past eighteen years. His business was family-owned and had earned a reputation for superior customer service since it was established by Finney's father over forty years before. In 1996, Finney became involved in property management and owned several residential and commercial rental properties. In 2004, his interests expanded into the tourism accommodation industry. Previously, Finney had also designed and manufactured a micro-encapsulation assembly for one of Jobe's projects with Purina. Finney and Jobe had worked together on smaller projects in the past. However, for several years they had discussed a variety of possible opportunities, but they had never progressed beyond the idea stage. Ideally, they wanted to work together and for themselves, using their acquired skills. When Jobe left Canada for the United States, he intended it would be a five-year plan, which would allow him to gain some experience and make some contacts. It was now seven years since he had left Cape Breton. When Finney learned of the newly formed CBIRC in July 2006, and the organization's interest in finding alternative uses for the plant, he immediately contacted Jobe about the idea of a frozen biscuit line. Jobe supplied the production and costing information, and Finney set to work on the market research. A plan began to form, and what resulted was the beginning of the By-the-Sea Biscuit Company. Finney's and Jobe's idea was to utilize Clearwater Seafood's fish processing plant as a frozen dough plant, initially dedicated to manufacturing frozen, ready-to-bake biscuits, and potentially making other similar products later. The name, By-the-Sea, was selected because of Cape Breton's island location. Frozen Dough Industry Background Finney's research on the bread industry indicated the traditional methods of baking bread often resulted in products with a relatively short shelf life that quickly became stale. It was these shortcomings that led to the development of a manufacturing method for frozen dough in the early 1960s. Although it was a great idea, a lack of knowledge and manufacturing experience prevented the frozen dough from matching the quality of fresh dough made by hand from scratch. By the 1970s, research into 2 Case Research Journal Volume 35 Issue 1 Spring 2015 freezing techniques helped producers understand the characteristics of frozen dough. As a result, researchers discovered how to retain the texture and extend the shelf life of the product. By the 1980s, a better understanding of dough chemistry allowed the quality of frozen dough to become more acceptable and marketable. By 2006, natural additives allowed manufacturers to produce frozen dough that was comparable in quality to homemade dough. Another critical part of the production process related to the need to employ a rapid freeze method to minimize yeast fermentation during dough preparation. According to Finney's and Jobe's research, every indication was that frozen dough would be the future of the bread industry. The Bread Market in 2007 The Retail/Wholesale Biscuit and Bakery Market Jobe knew from his recent contract work that the frozen dough market was strong in the United States, but he really did not have an understanding of the situation in Canada. Finney's research revealed some surprising and promising information about the bakery market in general. According to research by Agri-Food Canada, there were many growth opportunities in North America's biscuit and bakery market. In fact, the organization went so far as to state that Canada was \"the location of choice for manufacturers of biscuits and bakery products for the North American market.\" Similarly, a report by the Alberta Department of Agriculture, Food, and Rural Development stated, \"the opportunities for greatest expansion in the bread and dough market will be in wheat-based, ready-to-eat baked goods in frozen, ready-baked or par-baked (partially baked) frozen dough and mixes.\" Other research predicted growth in this market. Between 1998 and 2006, the retail value for bakery products produced in Canada had increased by 43.8 percent. In 2004, the retail market was estimated at $6.3 billion and the average Canadian household spent $536 annually on bakery products, up from $135 in 1998. The United States, UK, and Japan were the top three countries for Canadian exports of the product class. The total value of bakery exports to the United States in 2005 was $545 million. This figure did not include exports of frozen or par-baked products. Nova Scotia manufacturers accounted for $7,385,110 or less than 2 percent of this figure. From Finney's and Jobe's research, it appeared that Canada's comparative advantage in this industry over the United States was based on an excess supply of high quality wheat, lower sugar prices, lower energy costs, and competitive overhead costs. The partners also conducted additional research on the domestic market, which revealed that the wholesale commercial bakery/frozen bakery manufacturing market was experiencing steady growth as well. According to Statistics Canada, these sales figures, as outlined in Table 1, were calculated by adding manufacturing shipments to total imports and subtracting total exports. With the exception of the slight decline between 2001 and 2003, which analysts attributed to the Atkins craze and carb-reduction diets, the overall growth in the bakery industry, in general, was positive. These figures were reflective of commercial bakeries, including those manufacturing frozen dough products. The Frozen Dough Market However, although bread consumption patterns were important, Finney and Jobe were particularly interested in trends within the frozen bakery market. Unfortunately, By-the-Sea Biscuit Company: A Decision in New Venture Analysis 3 they could not find any industry statistics other than those reported by various government departments, and they wondered how much faith they could place in those figures. They felt uncomfortable using data from only one source and the information was not specific to frozen biscuits. Based on anecdotal information, it appeared to Finney and Jobe that the frozen biscuit market was more developed in the United States. Jobe said it was commonplace to see shoppers with a \"bag of a dozen frozen biscuits\" in their carts. As well, many U.S. restaurants served a complimentary southern-style biscuit before any meal. Jobe observed that biscuits had become a staple food in certain U.S. regions. In Canada, the biscuit market appeared less developed. However, there was indication it was growing. Finney noted that one of the local supermarket chains recently began to carry a limited line of frozen bakery items, including croissants, pizza dough, and rolls. Finney thought these unbranded products appeared to be manufactured or at least repackaged by the retailer. While calculation of the actual percentage of final household consumers that had used this kind of product before was difficult to determine, it was safe to say it was more widely consumed in the United States, but was gaining entry in Canada. As an example, Tim Hortons, a fast-food restaurant chain best known for its coffee and donuts, was testing a sandwich breakfast item featuring a biscuit with an egg and a choice of sausage, bacon, or cheese in its test markets in New England and certain markets in Canada. Recently in conversation, one of Cape Breton's Tim Hortons franchise owners had indicated to Finney that other provincial stores were now test marketing the biscuit/egg product and that he expected to have them in his stores soon. This anecdotal information alone was not enough, though, so Finney turned to secondary sources. Sales figures for Canada had been difficult to find. However, in the United States, a 1997 report stated that, \"biscuit dough accounts for 41 percent of refrigerated/frozen dough product sales. Biscuit dough sales are expected to have an increase of 6.5 percent annually, with forecasted sales of $3.2 billion by the year 2000.\" Finney was disappointed the data were so dated, but at least it was a starting point. In trying to determine market size, he felt he would be conservative if he assumed an annual growth rate of around 5%. Based on this assumption, Finney calculated the average U.S. per capita expenditure in the product class to be approximately $14.33. He calculated this figure by dividing the projected annual sales value for 2006 by the U.S. population ($4.29 billion/299,344,150). According to an Agriculture Canada Comparative Consumer Profile report, Finney knew that in 2004, U.S. consumers spent 17.7 percent of annual food consumption on bread products, while Canadians spent approximately 15.4 percent in the same category. This represented a difference of about 15 percent. Finney really had no concrete information to go by for the Canadian frozen dough market, but believed he would be very conservative in his estimate if he projected the average per capita expenditure by Canadians would be around $12.20 (or about 15 percent less than that of U.S. customers). With respect to purchasing habits of the final household consumer, further research was required to determine exactly what percentage could be expected to be repeat purchasers. A secondary consideration related to how people used the biscuits. For instance, if it was positioned as a \"breakfast\" item or before meal biscuit, regular purchases could be expected by a segment of the market. Finney also learned, however, that another segment of the population associated this kind of product with special occasions only (i.e., Christmas holiday, Thanksgiving, and summertime gatherings). 4 Case Research Journal Volume 35 Issue 1 Spring 2015 The motivation of this buyer was convenience and freshness. Unfortunately, consumer behavior information was not readily available, but informal market observations indicated a very strong movement to position biscuits as convenient breakfast alternatives, making them available in such locations as gas stations and fast-food franchises. Market Trends There were also several demographic and social/cultural shifts that were occurring, which had an impact on this market. One trend within the United States, and quite possibly Canada, was increased demand for products for the single-person household, which has resulted in higher demand for single portion/convenience packaging. Consumers were also moving away from traditional breads toward premium healthy and natural foods that also provided a different eating experience. Analysts expected demand for whole grain breads to surge and there was also an increased interest in artisan breads, which were burgeoning in popularity among Canadians, due in part to Canada's diverse population. While Finney had no hard data to support this growth, he knew he had seen the changes himself in the range of bread products carried at local grocery stores. As with many product classes, convenience was cited consistently as one of the hottest food trends, and frozen dough and previously frozen fresh baked bread products were not an exception. Finney's and Jobe's research revealed that customers wanted high quality products that they could prepare quickly. Added to this was the growth in the number of on-the-go consumers who wanted portability in bakery products. To meet this demand, bite-sized bakery products in innovative, portable packaging were becoming popular. Finally, with the increasing awareness of various food intolerance conditions and unsafe imported food, demand for organic products was experiencing rapid growth. Finney had learned that by 2001, demand for organic food in Canada had experienced an annual growth rate of 20 percent. Research by Statistics Canada had also revealed, \"the majority of Canadians are willing to spend more for chemical-free food, and 25 percent would spend up to 50 percent more.\" Major Players With a better understanding of the market, Finney and Jobe tried to learn more about the competitive situation. They found a report by Statistics Canada called a Company Directory for Commercial Bakeries and Frozen Bakery Product Manufacturing (NAICS 311814) Facilities. After a careful review of all the companies listed in that directory, they learned that only twenty-three of the 140 listed were actually involved in frozen or partly baked manufacturing. Four of these businesses were in New Brunswick and one was in Nova Scotia. The same report also showed information about the export market. Specifically, the report stated Canada Bread Company Limited, a multinational firm that operated in Canada, the United States, and England, had positioned itself as the leader in par-baked breads in the U.S. market, with a 50 percent market share. All research of the par-baked industry within Atlantic Canada, however, revealed no players, specifically when it came to biscuits. There were other dough products being sold in the grocery outlets (rolls, crust, and croissants), but biscuits had not yet been offered in the marketplace. By-the-Sea Biscuit Company: A Decision in New Venture Analysis 5 The Marketing Plan Target Markets Geographically, Finney and Jobe saw their target markets as initially being Atlantic Canada, particularly New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland, and the six New England states plus New York state (see Table 2 for population figures). Finney found published reports that stated the United States continued to be the primary export market for Canadian bakery products. The same reports further stated that Canadian firms were among the first in North America to develop quality frozen dough, and many of these firms had established a strong presence in the U.S. market for their frozen products. Canada Bread Company was the only manufacturer specifically mentioned. Many of the regional markets in the United States were large, geographically close to Canada, and continued to exhibit potential, particularly in the categories that related to serving the growing in-store bakery segment of U.S. retail grocery chains. While Finney and Jobe intended to concentrate their efforts in these regions initially because of their proximity, they were certainly interested in looking to other international markets later. From their research on major players, they saw that several Canadian operations were already actively involved in exporting their products to the United States and locations as far away as Australia. Finney also found a report that mentioned Japan, Singapore, Hong Kong, and the UK as promising frozen dough export markets. Once they had decided on geographic territories, the partners next turned their attention to possible buyers within those regions. Finney's and Jobe's research revealed that in-store bakeries were considered the leading users of frozen dough in terms of business and total dollar sales. As a result, they extended their investigation to consider possible B2B (business-to-business) outlets. Research of the Atlantic Canadian market had revealed three major wholesale grocery chains: Atlantic Wholesalers, Sobeys, and Co-op Atlantic. Finney and Jobe would have to do some additional research to determine how many grocery outlets had in-store bakeries. However, stores that did not have in-store bakeries would also represent a segment of the market, as they would sell the biscuits in their frozen form to final household consumers. They were fairly confident that of the three large players in Atlantic Canada, they could land a supply contract with at least one. The wholesale and retail operations of Atlantic Wholesalers Ltd. included the following stores: Atlantic Superstore, Atlantic SuperValu, IGA, Atlantic Save Easy, Omni, Red & White, Foodtown, Foodmaster, Quik Mart, Smart Cart, and ValuMart. Its modern distribution centers in Halifax, NS, and Moncton, NB, supported the retail network, franchise group stores, large independent retailers, and Cash & Carry outlets. In the Atlantic region, Sobeys operated eighty-three corporate Sobeys supermarkets, forty-one Foodland stores, thirty Price Chopper stores, 143 Needs convenience stores, and three Sobeys Express and sixty Lawton's drug stores. Sobeys also operated ten distribution centers in Atlantic Canada. Co-op Atlantic operated seventy-five full-service Co-op, sixteen Co-op Basics and nineteen Valufoods stores in Atlantic Canada and Magdalen Islands, PQ. The partners felt that Co-op Atlantic might be the most appealing customer because it was an operation that focused on local producers. The Co-op believed that local communities 6 Case Research Journal Volume 35 Issue 1 Spring 2015 benefited by supporting and buying local products. It was also a smaller operation, with only 20 percent of the market, as self-reported. Finney and Jobe were more confident in their ability to provide constant supply to a smaller retailer located within their immediate geography. Sobeys and Atlantic SuperValu also purchased from local suppliers, but it was part of the mandate of the Co-op to proactively support local suppliers. Currently, Co-op did not have a supply of frozen bread products. For the six New England and New York states, or northeastern U.S. market, the most viable outlet appeared to be Price Chopper, a regional cooperative. Price Chopper had 112 stores in these regions and held market shares ranging from 6 to 36 percent (see Table 3). Based on research, Finney and Jobe believed they should avoid targeting national and/or regional chains (i.e., WalMart). They agreed, at the onset at least, that supplying a national chain was beyond their capabilities and interest. Price Chopper seemed to be a viable market for them. Geographically, it was accessible, and Jobe had a good handle on what the U.S. buyers were paying. He knew By-the-Sea could compete on price and he also believed they could differentiate with a healthy biscuit alternative. For Co-op Atlantic and Price Chopper, Finney projected that By-the-Sea would be able to capture 50 percent of the frozen biscuit sales of both retail chains in their respective geographic markets. He based this projection on Jobe's market experience and the fact that with little or no competition and their ability to offer competitive prices, a significant share of the market should be possible. Reaching this 50 percent share figure would probably take several months, however. Finney felt comfortable in projecting a 10 percent share in the first month, followed by a 10 percentage point increase each month thereafter until 50 percent was reached. Finney was also aware that fluctuating currency exchange rates would have an important impact on their ability to sell to U.S. markets. Recently, the Canadian dollar was gaining strength and as of January 2007, the U.S. dollar was valued at $1.16 CAD. Products and/or Services and Unique Selling Proposition After their investigation of the market, Finney and Jobe had decided on their initial product offering and positioning. By-the-Sea's frozen dough biscuit line would include two variations: a \"traditional country\" white flour biscuit and a \"healthy Omega 3\" flax-enriched biscuit. Jobe perfected the recipe for the white flour biscuit and production could begin immediately. The product had undergone a limited number of trial tests with consumers. Finney and Jobe needed to conduct additional research to develop the recipe for the flax version. But that would be down the road. With respect to the appearance of the biscuit, it would be \"puck\" shaped, and would measure approximately three inches in diameter and 5/8 inches in height, in its frozen form. As the partners envisioned, the main benefits or services provided to consumers through this product included savings, convenience, freshness, and health benefits. For the busy mother who wanted to provide a \"home-baked\" biscuit with dinner for her family, the frozen version allowed her to pop three or four in the oven, 10-12 minutes before supper, and they would be ready just in time to be placed \"hot on the table.\" Finally, they saw two competitive advantages of By-the-Sea's product: (1) lower ingredient, labor, and operating costs would allow the company to be price competitive with most other Canadian and U.S. producers and (2) the company planned to offer a flax-enriched biscuit product that would be appealing to the health-conscious By-the-Sea Biscuit Company: A Decision in New Venture Analysis 7 consumer. Jobe knew they could be price competitive based on his current knowledge of similar U.S. competitors. Labor costs would be less in Cape Breton and the rental rate at the CBIRC facility was significantly less. Further, in Finney's and Jobe's research, they had not found evidence of another manufacturer of frozen biscuit dough which had differentiated its product by offering a \"healthy\" alternative. Pricing From Jobe's recent contract work setting up a production line in Tennessee, he became familiar with the cost to produce one case of 216 white flour biscuits. Accordingly, he was able to estimate costs to produce the same quantity in a Cape Breton location (see Table 4). Based on knowledge of wholesale prices in the industry and awareness of the need to be competitive, he proposed that By-the-Sea would price its traditional biscuit variety at $13.50 per case. Even considering shipping costs, this price allowed the company to be competitive. Jobe knew from his experience that a leading United States competing branded product wholesaled for approximately $25/case of 216 biscuits (exclusive of shipping). It was important for By-the-Sea to be competitive in its pricing because shipping costs were to be paid by the buyer and given the location of By-theSea, this was certainly an important consideration. Although the leading competitor's price did not include shipping, its manufacturing facilities were significantly closer to the U.S. market. Jobe felt there might be a bit of room to move on their price, but he preferred to enter the market at the $13.50 level. Finney and Jobe also discussed the need to have different pricing levels for wholesalers and smaller retailers. This needed more research, but they expected the overall average to be near the $13.50 price level. A bag containing a dozen biscuits typically retailed for $2.99 to the final consumer. Distribution Plan For the Atlantic Canadian market, Finney and Jobe proposed that distribution would occur principally by selling direct to grocery retailers. Two potential retailers had been identified: Co-op Atlantic in the Canadian market and Price Chopper in the United States. Actual discussions, however, had not been held with either. Typically, biscuits would be packed in bulk, 216 per case and cases would be palletized. This quantity was the industry standard. Pallets were cold-stored for shipment. Shipment would occur by refrigerated truck to Maritime destinations. The Maritimes included Nova Scotia, New Brunswick, and Prince Edward Island. Refrigerated ship containers might be a cost-effective alternative for U.S. Eastern Seaboard destinations, as Finney learned from discussions with other local manufacturers of frozen product. Shipments would be direct to a wholesale customer's central warehouse. From there it was the responsibility of the wholesaler/distributor to repackage and distribute to retail stores. The delivery terms would be F.O.B. shipping point (North Sydney, NS). Promotional Mix Because By-the-Sea Biscuit Company's initial product strategy was to offer an unbranded product to channel intermediaries only, the promotional mix needed to be different than it would be if the company had decided to focus on strong consumer acceptance. Based on the partners' research, they proposed the following promotional campaign. 8 Case Research Journal Volume 35 Issue 1 Spring 2015 One of the more popular approaches in food promotion was direct solicitation to the wholesaler/retailer. Usually, this was done by phone and potential buyers were asked if they would like to receive a case of product samples. According to Jobe's experience, this offer usually was not refused. Along with the product sample, product information including pricing was provided to potential buyers. For most buyers, price was the number one consideration, followed very closely by quality. Potential buyers were able to sample the product themselves and were assured of the quality. Jobe also knew that another proven approach for gaining leads was to participate in domestic and international food trade shows. At many of the international events, the Canadian government sponsored a Canadian Pavilion and invited vendors to apply for space. Participation at these events could be very costly, so it was very important to conduct careful research to determine the profile of the tradeshow attendee before selection. Finney had identified five possibilities and figured the company could budget to attend two in the first year of operation. He also came across a report by Agri-food Canada that stated, \"Canadian frozen food manufacturers should target the Private Label Manufacturers' Association (PLMA) show in Chicago in lieu of The Fancy Food Show. The PLMA show has significant foodservice and retail appeal for buyers in the growing frozen food industry. Therefore, more Canadian exporters should use the PLMA to demonstrate their strengths in frozen food manufacturing.\" See Appendix for a list of possible trade shows of interest. A final component of By-the-Sea's promotional campaign was the design and promotion of a website to create leads for the company. By-the-Sea would supply information and target it toward the retailer/wholesaler. Site visitors would be able to obtain contact information for the company and information on how they could receive samples, once verified as an approved buyer. Another thought was to incorporate a shipping cost calculator, so that buyers would be able to determine quickly if By-the-Sea's product, including shipping costs, allowed for an acceptable margin. Obtaining listings on other industry sites would also be beneficial. Retailers would be made aware of the website through personal selling efforts. Finney and Jobe decided that if in the future, they decided to use a branded product approach for By-the-Sea Biscuit Company, the promotional mix would change to include a combined push/pull strategy. Initially, they intended to focus solely on sales to grocery retailers for their own private labels. There were no immediate plans for any consumer-based advertising. Operations Plan Physical Plant and Requirements The Clearwater plant building was approximately 59,000 sq. ft. in area, of which 56,000 sq. ft. was on the ground floor. By-the-Sea's total required floor space in this plant was 9,000 sq. ft. (see Table 5). Because the company would be utilizing an existing plant designed for food processing (specifically seafood), Jobe expected that all equipment specific to the production of frozen dough would be readily adaptable. The partners had spent time reviewing a document outlining the existing physical plant regarding water, power, refrigeration and cold storage, drainage, and sterilizing. They did not foresee any special requirements or major modifications to the existing facility to accommodate their needs. Further, the facilities of the Clearwater plant would be By-the-Sea Biscuit Company: A Decision in New Venture Analysis 9 perfect for conducting the quick freeze method. To outfit a facility with this equipment would require such a significant capital expenditure that it would probably make the venture too risky, otherwise. All required freezing equipment was in place if Finney and Jobe decided to rent the Clearwater plant. Jobe estimated that the time period between receiving the necessary equipment and production start-up would be 4-5 months. This was the time taken to assemble a similar biscuit production line in Cookeville, Tennessee. Production Capacity When the equipment was operating at 50-60 percent capacity, the average daily production would be approximately 700 cases at 216 biscuits per case, 30 lbs. per case of a 2.2 oz. frozen biscuit. The proposed production line was capable of producing more; however, the freezing process could sometimes slow the production line. Although it was very likely the freezing capacity of the refrigeration equipment at Clearwater would allow for a more efficient freezing rate, Finney and Jobe felt comfortable making their projections at this percentage. Human Resources Plan Administration and Staffing According to Finney's industry research, the average commercial bakery/frozen dough manufacturing facility operated with an approximate 80/20 staff/admin ratio. Keeping with the standard, Finney and Jobe believed their operation would have personnel requirements as follows. Business ManagerThis individual would be responsible for the day-to-day administration of the business including shipping/receiving, bookkeeping, payroll, employee recruitment, training, health and safety, and production line equipment monitoring. In addition, this individual would spend a portion of his/her time overseeing the production line, which would involve monitoring output, quality control, and health standards. Finney would assume this role. Product/Market Development ManagerThis individual would be directly accountable for product management, product planning, and overall delivery of new product innovations to address the growing trends in the bakery market. This individual would spend some of his/her time on new product R&D. From a sales perspective, the manager would also be responsible for generating and/or following up on leads and servicing accounts. This position would also require a significant amount of time for travel in order to attend trade shows and service accounts. Jobe would assume this role. Production Line PersonnelTen staff would be required to operate the production line. Education requirements would be minimal. Training would be provided. Financing Requirements Finney had done some preliminary estimates of start-up expenses and they included costs for equipment, initial inventory, and working capital. The cost for new equipment was $158,000 and therefore, represented the maximum cost (see Table 6). But, Finney and Jobe were confident they could locate good, used equipment and the estimated cost would be approximately $100,000. Jobe had already located two used 10 Case Research Journal Volume 35 Issue 1 Spring 2015 commercial bakery lines for sale in Minnesota. The prices were $74,000 and $80,000. They expected to finance this part of the project. They calculated initial raw material costs for training purposes, testing, and first order to be approximately $30,000. Finally, they expected working capital requirements to be in the range of $100,000. Finney and Jobe would invest $30,000 each and the remaining capital would be financed through an operating line of credit. Finney had also generated a list of other anticipated operating expenses, which included the following: Operating Expense Category Expense Details Rent and Electricity 9,000 sq. ft. Commercial rental rates in Nova Scotia ranged from $8-14/sq. ft., so he assumed a negotiated rate of $10/sq. ft. including electricity. He assumed that business occupancy taxes would be paid by the landlord as part of the lease. Salaries Managers$40,000 annually. Production Labor $10/hour or $21,000 annually, which was reflective of the industry according to Statistics Canada. Mandatory Employer Related Costs 12%This amount covered employment insurance premiums, pension plan premiums, and Workers' Compensation premiums. Marketing and Travel Expense Business cards, trade show attendance and displays (two shows for the first year), website development. Total allocated budget of $19,000. Office Equipment Purchase of office furniture, computers, software. $200 per month. COGS Expense Inventory expense would vary according to production levels. COGS expense included the product itself as well as all packaging costs ($7.78 variable cost/case). Shipping Costs Shipping costs were included in all raw material ingredient prices. Interest Payments Interest-only payments on $100,000 loan. Annual interest rate of 7.5%; monthly interest payments of $625. Conclusion At this point during the phone call with Jobe, Finney became slightly distracted as he began to contemplate the vast amount of data and information collected over the past several months. He quickly brought himself into check and back to the conversation. Jobe was responding to his plea to move the plan forward: \"You're right, Paul. I really want to do this, but I can't take the chance of leaving my work here and moving the family back home unless I know the market is there.\" Finney agreed wholeheartedly. He offered to do some number crunching over the weekend to see if he could get a better idea of the market size and sales potential in the chosen markets. He also offered to put together a projected sales forecast and income statement for the first year of operations and determine a breakeven point for sales. He concluded the call, \"Call me on Sunday night and we can hash this over. We really can't keep Lenus and his board waiting much longer. We need to make a decision on this.\" \"Okay, talk to you Sunday,\" Jobe replied. Finney gathered his research material and began to pore over the figures. His projections would be based on his assumptions and his assumptions were only as good as the market research he had done. He was excited at the prospect of the new business, but knew that he could not let his excitement cloud his judgment. Finney immediately focused on the task at hand so he would be ready for Jobe's call on Sunday night. By-the-Sea Biscuit Company: A Decision in New Venture Analysis 11 Table 1: Sales of Commercial Bakeries and Frozen Bakery Product Manufacturing (Value in Millions of Canadian Dollars) 1994 NAICS 311814Commercial Bakeries and Frozen Bakery Product Manufacturing 1995 1996 1997 1998 1999 2000 2001 2002 2003 2,011 1,980 2,013 2,142 2,124 2,290 2,158 2,534 2,446 2,428 Source: Statistics CanadaNAICS 311814Report Date: 26-Jul-2006 Table 2: Target Market Population Figures Population in 2006 Relevant U.S. Market Figures United States 299,344,150 New England States 13,922,517 New York State 18,976,457 Relevant Canadian Market Figures Canada 32,623,490 Atlantic Canada 2,285,729 Source: U.S. Census and Statistics Canada websites Table 3: New England and New York StateMarket Share Held by Price Chopper Market Share Percentage Albany, NY City Populations 36% 95,658 Worcester, MA 19.5% 172,648 Utica-Rome, NY 17.6% 299,896 Burlington, VT 11.6% 608,827 Poughkeepsie, NY 6.7% 29,871 Syracuse, NY 12% 147,306 Source: Wikipedia, \"Price Chopper,\" Available URL: http://en.wikipedia.org/wiki/Price_Chopper. Accessed July 2006. 12 Case Research Journal Volume 35 Issue 1 Spring 2015 Table 4: Production Costs to Produce 700 Cases Amount Unit Cost Total Biscuit Flakes 840.00 Lbs. $ 0.53 $ 447.72 Cartons 700.00 Ea. $ 0.64 $ 445.90 Country Bake Biscuit Mix 6,961.50 Lbs. $ 0.38 $ 2,645.37 Flour 3,748.50 Lbs. $ .20 $ 730.96 Nitrogen - Gal. $ .59 $- Poly Bags 700.00 Ea. $ .14 $ 100.10 21,000.00 Lbs. Total Dough Weight $ 4,370.05 Total Material Cost (Cost/Case) ($4,370.05/700) $ 6.24 Production and Cleaning Labor to Produce 700 Cases 108.0 Hours $ 10.00 $ 1,080.00 $ 1,080.00 Operation Costs (Cost/Case) ($1,080.00/700) $ 1.54 Total Variable Cost Per Case w/o Fixed $ 7.78 Source: Pat Jobe Table 5: Required Square Footage for Operations Biscuit Line (40 ft. x 60 ft.) 2,400 Dry Ingredient Warehouse 2,000 Refrigeration Storage and Biscuit Freezing 3,000 Office and Maintenance 1,500 Total 8,900 sq. ft. Source: Pat Jobe and Paul Finney Table 6: Required Equipment ListPurchased New Description Cost ($) Blender 50,000 Incline Conveyor 10,000 Flour Dusters 3,000 Extruder and Conveyor 22,000 Sheet Rollers 25,000 Cutter 5,000 Scrap Return Conveyors 10,000 Shoot/Conveyor 8,000 Accumulation Table 5,000 Packaging Equipment 20,000 Total: All Equipment is Subject to Annual Depreciation of 10% 158,000 Source: Pat Jobe and Paul Finney By-the-Sea Biscuit Company: A Decision in New Venture Analysis 13 Appendix: Finney's Notes on Potential Trade Shows Private Label Manufacturer's Association (PLMA) 2006November 12-14, 2006 (Chicago, Illinois). Canada has its own pavilion at this show. The show normally features more than 2,300 exhibit booths, covering both food and non-food products and attendees have included executives from the leading supermarket and drug store chains, mass merchandisers, warehouse clubs and convenience stores. It will be the largest concentration of private label buyers of any show with more than fifteen international pavilions from Europe, South America, and Asia. All-inclusive participation fees are: (a) 10 x 10 corner single booth = $5,750 (b) 10 x 10 standard single booth = $5,350 (c) 20 x 10 corner double booth = $11,000 (d) 20 x 10 inside double booth = $10,000 The Canadian Food & Beverage Show is the annual showcase dedicated exclusively to suppliers of food and beverage products for the hospitality industry. The F&B Show offers attendees the opportunity to develop new menu ideas from over 630 exhibits as they prepare for the busy spring and summer seasons. The 2005 Food & Beverage Show attracted 9,776 qualified attendees, giving them an opportunity to visit international, national, and local suppliers of branded, specialty, niche, and commodity products. Booth spaces are sold in units of 10' x 10'. $2,200 per 10' x 10' (plus 7% GST) corner premium $150.00. HostEx is Canada's largest hospitality trade show that combines restaurant and accommodation operators from across the country with the leading suppliers producing a dynamic once-a-year event. This national stage is an ideal environment to understand the key trends influencing consumer tastes that will attract more customers and operational efficiencies that reduce costs. Nearly 9,000 foodservice professionals attend the Toronto-based show each October, representing quick-service restaurants, full-service restaurants, bars, caterers, and more. Available booth sizes: 10' x 12' (120 sq.ft.) and 10' x 10' (100 sq.ft.) $2,200. ApEx is Atlantic Canada's largest hospitality trade show, attracting leading suppliers and foodservice professionals from throughout the region. A complete range of food and beverage products and services are on display at the show's 350 booths. Held every April in Halifax, ApEx is the region's biggest annual foodservice event. Booths are a basic 10' x 10' pipe and drape (8' backwall and 3' sidewall). $1249.00 per booth Canadian funds (plus 15% HST) New England Food Service & Lodging, Boston, MA. NEFS provides access to over ten thousand buyers from the New England Foodservice Market, representing a cross section of the region's foodservice industry, including buyers from chains, restaurants, caterers, hotels, institutions such as hospitals, universities, and corrections facilities, distributors, wholesalers, and brokers. Rates are: 100-399 sq. ft. $23.75 per square foot 400-799 sq. ft. $23.25 per square foot 800 sq. ft. and over $22.85 per square foot All leads obtained through trade shows will be followed up through either direct marketing efforts or personal selling visits. 14 Case Research Journal Volume 35 Issue 1 Spring 2015