1. food and drink
2. food and grocery retailers
3. butchers

Saskatchewan Organic Meat Market
COMM 492.3 College of Agriculture, College of Commerce,
University of Saskatchewan
December 4, 2003
Prepared for:
Simon Weseen & Gary Storey
Prepared by:
Kari Henderson
Kim McLean
Kim Minogue
Kristin Nemeth
Saskatchewan Organic Meat Market__________________________________________
1.0 Introduction ..........................................................................................
1.1 Mission Statement ............................................................................................................... 5
1.2 Goals & Objectives.............................................................................................................. 5
1.3 Project Benefits ................................................................................................................... 6
2.0 Operations Plan .......................................................................................
2.1 Location................................................................................................................................ 6
2.2. Floor plan............................................................................................................................ 7
2.3 Work Plan and Flow of Work............................................................................................ 8
2.4 Organic Slaughter and Processing Guidelines ................................................................. 8
2.5 Average Business Cycle (Week)......................................................................................... 9
2.6 Capital Budget................................................................................................................... 10
2.7 Cost of Sales....................................................................................................................... 13
2.8 Operating Expenses .......................................................................................................... 13
3.0 Human Resources ......................................................................................
3.1 Organizational Structure.................................................................................................. 13
3.2 Job Descriptions ................................................................................................................ 14
3.3 Mentoring and Guidance.................................................................................................. 15
4.0 Marketing Plan ........................................................................................
4.1 Organic Livestock Market Overview .............................................................................. 16
4.2 The Marketing Mix (4 P’s)............................................................................................... 17
4.2.1 Product...................................................................................................................................... 17
4.2.2 Service ....................................................................................................................................... 18
4.2.3 Target Market .......................................................................................................................... 18
4.2.4 Pricing ....................................................................................................................................... 19
4.2.5 Promotion ................................................................................................................................. 20
4.3 SWOT Analysis ................................................................................................................. 21
4.3.1 Strengths ................................................................................................................................... 21
4.3.2 Weaknesses ............................................................................................................................... 21
4.3.3 Opportunities............................................................................................................................ 22
4.3.4 Threats ...................................................................................................................................... 22
4.4 Competition ....................................................................................................................... 23
5.0 Financial Plan .........................................................................................
5.1 Loan Amortization............................................................................................................ 25
5.2 Dividends............................................................................................................................ 25
5.3 Inflation.............................................................................................................................. 25
5.4 Ratio Analysis.................................................................................................................... 25
5.5 Summary of financial Results .......................................................................................... 26
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5.6 Breakeven Analysis ........................................................................................................... 27
6.0 Conclusion ............................................................................................
7.0 References ............................................................................................
8.0 Appendix A............................................................................................
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List of Figures
Figure 2.1 Proposed site location for the Saskatchewan Organic Meat Market……….6
Figure 2.2 Proposed floor plan for the Saskatchewan Organic Meat Market………….7
Figure 2.3 Flow of work diagram……………………………………………………...8
Figure 3.1 Organizational structure…………………………………………………..14
List of Tables
Table 2.1 Building capital costs for lease agreement basis……………….…………..…10
Table 2.2 Equipment capital costs……………………………………….…………...…11
Table 2.3 Working capital……………………………………………….………………12
Table 2.4 Capital budget summary……………………………………..………….…...12
Table 2.5 Manufacturing overhead for year 1……………………..……………….…...12
Table 2.6 Cost of goods manufactured………………………….…….………………...12
Table 3.1 Cost of labor over 5 years………………………………….……….………...16
Table 4.1 Estimated market share and meat consumption………….………………..…19
Table 4.2 Purchase and sale prices…………………………….……………………..…20
Table 4.3 Direct competition to the market….………………….…………………..…..23
Table 4.4 Indirect competition to the market…………..……..…….……………..……24
Table 4.5 Estimated marketing budget………………..…..…………………….…..…..24
Table 5.1 Financing……………………………………….…………………………....25
Table 5.2 Summary of financial ratios…………………...…………..………………….26
Table 5.3 Summary of financial results……………………………...……….………….26
Table 5.4 Sensitivity analysis…………………………………….…………..………….28
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1.0 Introduction
Saskatchewan Organic Meat Market is a one of a kind supplier of strictly Saskatchewan
produced organic beef and pork. The beef products available are steak, roasts and ground
meat. The pork products include pork chops, hams, and roasts. The animals will be
raised and slaughtered at Pine View Farms. Guidelines set by the Organic Crop and
Improvement Association (OCIA) will be followed by Pine View Farms and the Market
to ensure the meat is pure organic and free of any contaminations.
The demand for organic meat is increasing due to a number of food safety scares, health
issues, and the need for a traceable product. Saskatchewan Organic Meat Market will
have the capacity to ease the consumer’s apprehension regarding the meat they will
consume.
Saskatchewan has the potential to increase organic meat production due to its ideal
environment and land availability. With effective marketing, the demand for organic
meat will increase throughout the world, providing an excellent opportunity for
Saskatchewan.
1.1 Mission Statement
“The Saskatchewan Organic Meat Market will provide a healthy, fresh, safe, chemical
free, and traceable meat product that originates from one Saskatchewan organic
livestock location”
1.2 Goals & Objectives
•
To promote the Saskatchewan organic livestock industry
•
Establish a reliable clientele
•
Provide a quality well recognized product
•
Become recognized by organic consumers
•
Generate at least 20% return on equity
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1.3 Project Benefits
•
The Saskatchewan Organic Meat Market will benefit Saskatchewan organic
livestock producers by giving them a market to sell their beef and pork.
•
Consumers will be provided with a high quality, safe, and traceable product
•
Promotes the Saskatchewan organic industry by providing information on the
benefits of organic products
2.0 Operations Plan
2.1 Location
The Saskatchewan Organic Meat Market will be located on #1 3414 8th east in the city of
Saskatoon, SK. This location was selected due to the steady flow of traffic, proximity to
the Centre at Circle & 8th Mall, and ease of consumer access. The chosen building is
optimum for the purpose of the Market because it is 2400 sq ft. enabling ideal
freezer/cooler space with adequate consumer floor space. The location can be seen on
the map found below.
Figure 2.1 Proposed site location for the Saskatchewan Organic Meat Market
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Saskatchewan Organic Meat Market__________________________________________
2.2. Floor plan
Figure 2.2 Proposed floor plan for the Saskatchewan Organic Meat Market
The store will be set up based on requirements for the butcher’s equipment and
freezer/cooler space. The exact floor plan will be determined once installation of the
freezers and coolers is completed by a refrigeration specialist. This specialist will be
consulted regarding proper power outlets and ventilation considerations. The floor plan
has been designed to get optimum consumer viewing while still maintaining a user
friendly environment for the employees. A large portion of the building space will be
used for major equipment including a 14’ x 22’ walk-in freeze, 14’ x 22’ walk-in cooler,
coffin freezer, deli cooler, and 8’ x 30” cutting table. The above diagram depicts the
projected lay out of the Saskatchewan Organic Meat Market.
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Saskatchewan Organic Meat Market__________________________________________
2.3 Work Plan and Flow of Work
Figure 2.3 Flow of work diagram
•
Organic meat will be purchased and transported to the Saskatchewan Organic
Meat Market from Pine View Farms located at Osler, SK. (Approximately
26.2 km north of Saskatoon) All of the organic meat will be brought into the
store as eviscerated carcasses.
•
The in-store butcher will be responsible for cutting the beef and pork sides to
customer specifications and expected consumer demands. Beef cuts available
will include roasts, steaks, and ground beef. The available pork products will
include pork roasts, hams, and pork chops.
•
All beef and pork products will be available both fresh and frozen.
2.4 Organic Slaughter and Processing Guidelines
All organic slaughtering and processing plants need to be certified by an organic
certifying agency. The agency the Saskatchewan Organic Meat Market has selected to
work with is OCIA (Organic Crop Improvement Association). A number of people in the
organic industry presently are certified with OCIA including Bouvry Exports in Fort
MacLeod, Alberta. Bouvry Exports is federally inspected and slaughters and processes
both organic and non-organic beef.
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Guidelines to be followed at the Market are outlined in the OCIA International
Certification Standards, which became effective on July 21, 2003 (ocia.org, 2003).
After certification is received the facility is inspected annually by an OCIA auditor. The
auditor ensures that all documentation is up to date. Documentation includes clean-down
logs for all handling equipment, storage facilities, and transportation containers. Cleaning
dates, cleaning methods, location or bin/container numbers, brand name and source of
any material used must be provided.
Cleaning of the equipment must not leave a residue and if it does it must be rinsed
thoroughly. The cleaners must appear on the list of approved cleaners in the OCIA
standards. The water used must be tested for nitrates, mercury, lead, and iron and must
confirm that there is no contamination from pesticides. Any pesticides used at the facility
must be approved by the OCIA. It is imperative that the organic meat is kept free of
contamination from non-organic products, pollution, and substances prohibited by the
OCIA.
Storage records must be maintained identifying the source of product, date and amount of
product in/out, lot number, scale ticket, invoices for incoming or outgoing product,
transportation method and name, and destination of product removed.
Transportation records must provide the name of the product, declaration of organic
status, lot number or demonstration of ability to track, owner of the product, amount of
product shipped, clean truck documentation, buyer of product and location of product
loading and unloading.
2.5 Average Business Cycle (Week)
The average business week at the Saskatchewan Organic Meat Market will see the
manager monitoring daily sales to evaluate the progress of the business. The manager
will be responsible for the weekly books, organizing the week schedule, and providing a
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positive work environment. The butcher will evaluate the potential consumer demand for
the upcoming week based on the previous week’s sales. The butcher will be responsible
for allocating fresh meat cuts as needed throughout the week. On a daily basis the
butcher will cut fresh meat for display purposes and to meet consumer preferences. It is
understood that there will be slight seasonal variance in the demand for certain cuts and
types of meat. Minor adjustments will be made in the type and number of cuts stocked in
the store to compensate for these changes.
2.6 Capital Budget
Table 2.1 Building capital costs for lease agreement basis (2400 sq. ft. space)
Description
Estimated Cost ($)
Source of prices
Base price
~$12-$14 per sq. ft.
Century 21 Dome Realty
Occupancy price
~$10-$12 per sq. ft.
Century 21 Dome Realty
Combined price
$25 per sq. ft.
$5000 per month
$55000
Century 21 Dome Realty
Total lease price (1yr.)
GST and PST (1yr.)
Century 21 Dome Realty
$7150
Total Lease price (1 yr.)
$62,150
Total Lease price (2 yr.)
$63,393
Total Lease price (3 yr.)
$64,661
Total Lease price (4 yr.)
$65,954
Total Lease price (5 yr.)
$67,273
Note: 5 year lease with 1 month free per year. Lease payments are inflated by 2% per
year.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
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Table 2.2 Equipment capital costs
Type of Equipment
Estimated Cost ($)
Source of prices
Walk in Freezer 14’x 22’
$22,000
Frontier Refrigeration
Walk in Cooler 14’x 22’
$21,000
Frontier Refrigeration
Installation of freezer/cooler
$51,600
Frontier Refrigeration
Coffin Freezer (installed)
$6200
Frontier Refrigeration
Deli Cooler
$8000
Frontier Refrigeration
Cryvac (chamber model)
$5000
Atlas Cutlery & Butcher Suppliers
8’x 30” cutting table
$540 Atlas Cutlery & Butcher Suppliers
Cutting board materials
$500 Atlas Cutlery & Butcher Suppliers
Grinder
$2800 Atlas Cutlery & Butcher Suppliers
Tenderizer
$2500 Atlas Cutlery & Butcher Suppliers
Printer/scale
$3000 Atlas Cutlery & Butcher Suppliers
Smoke house
$6000 Atlas Cutlery & Butcher Suppliers
Mixer
$1700 Atlas Cutlery & Butcher Suppliers
Over-wrap machine
$550 Atlas Cutlery & Butcher Suppliers
Slicer
$900 Atlas Cutlery & Butcher Suppliers
Office/Staff Room Supplies
$7000 Atlas Cutlery & Butcher Suppliers
Display/Information Shelf
$500 Atlas Cutlery & Butcher Suppliers
Cashier Equipment
$650 Atlas Cutlery & Butcher Suppliers
Total cost of equipment
before taxes
Total cost of equipment
after taxes
$140,440
$158,697
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
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Table 2.3 Working capital
Description
Estimated Cost
Cash
$
Inventories
$4,131
Total Net Working Capital
$4,131
Table 2.4 Capital budget summary
Description
Estimated Cost
Equipment
$158,697
Net Working Capital
$4,131
Total Capital Required
$162,828
Table 2.5 Manufacturing overhead for year 1
Variable Manufacturing Overhead Costs
Maintenance
TOTAL VARIABLE OVERHEAD
$500
$500
Fixed Manufacturing Overhead Costs
Building Lease (year)
Natural Gas
Capital Cost Allowance
Electricity
TOTAL FIXED OVERHEAD
$62,150
$1,800
$19,945
$37,279
$121,174
TOTAL MANUFACTURING OVERHEAD
$121,674
Table 2.6 Cost of goods manufactured
Cost of Goods Sold
Beg Finished Goods Inv
Cost of Goods Manufactured
Goods Available for Sale
End Finished Goods Inventory
Cost of Goods Sold
$396,766
$396,766
$ 4,131
$ 392,598
0
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
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2.7 Cost of Sales
Beginning Finished Goods Inventory + cost of manufacturing
= Costs of goods Available for Sale – Ending Finished Goods Inventory
= Cost of Sales
Ending Finished Goods Inventory = $4,131 (Amount of meat in the store at any given
time)
$396,766 – $4,131= $392,635
The cost of manufacturing includes direct materials purchased, direct labor costs, and
manufacturing overhead. Included in the manufacturing overhead are fixed and variable
costs. The variable costs include maintenance and freight charges from Pine View Farms.
The fixed costs include the lease, natural gas, capital cost allowance, and electricity.
2.8 Operating Expenses
The initial costs to the Saskatchewan Organic Meat Market are three fold. Space,
equipment/personnel and product supply are all very critical to this operation. The
location of the Market will provide optimum window space and exposure. The cost for
leasing space depends on the location; the Market was able to secure a five year lease
costing $62,150 per year plus taxes. The Market received a bonus of a five month free
lease applied one month free per year from the realtor at Century 21 Dome Realty. The
Saskatchewan Organic Meat Market will purchased all the required equipment to run a
successful operation.
The Market will not have an accounts receivable because payments for the products will
be made at the time of the purchase. There will be no accounts payable as all purchases
will be paid for at the time of purchase.
3.0 Human Resources
3.1 Organizational Structure
The Saskatchewan Organic Meat Market will be run as a corporation with the
shareholders electing a board of directors. The board of directors will consist of three
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organic industry representatives who may include organic producers, local abattoir
owners, or prominent organic association members. It will be the responsibility of the
board of directors to select a store manager. An in-store butcher and one part-time
employee will be hired by the manager.
Shareholders
Executive Directors
3 Organic Industry Rep’s
Manager /
Meat Specialist
Butcher
Part-Time
Customer Personnel
Figure 3.1 Organizational structure
3.2 Job Descriptions
Executive Directors: The board of directors will be responsible for the selection and
hiring of a store manager. It will be the responsibility of the executive directors to
provide the manager with a direction and vision of the company. The board of directors
will also assist with the decision making process regarding the production levels of the
store.
Manager:
It will be the manager’s responsibility to report back to the board of directors
on a quarterly basis to discuss the performance of the Saskatchewan Organic Meat
Market. The manager will also then be responsible for the hiring and overseeing of a full
time butcher and one part time customer personnel. Included in the manager duties will
be arranging for the delivery of meat, ordering the proper amount of meat and
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
maintaining positive relations with employees and customers, and ensuring a smooth
operating market. The manager will receive a salary wage of $45,000 and a 2% increase
per year.
Butcher: The butcher will be responsible primarily for the cutting of meat, organization
of freezers, overall viewing area for consumers, and maintaining public relations.
This
butcher will also supply information to the manager as to how much meat and supplies
they are going to require, and when and what type of cuts are doing the best in the
Market. The butcher will receive a salary wage of $40,000 and 2% increase per year.
Part time customer personnel: The customer personnel will be responsible to work the
cashier, aid in any questions that consumers may have and generally help maintain the
public relations the Market has with their consumers. The part-time customer personnel
will receive an hourly wage of $7.50 with a $0.25 increase per year to a maximum of
$9.00.
See Table 3.1 for the cost of labor over 5 years.
3.3 Mentoring and Guidance
The success of the Saskatchewan Organic Meat Market will rely on the sharing of
knowledge among the employees. This will provide consistent and quality customer
service. Employees will be hired based on previous experience; however guidance will be
provided to increase their knowledge in the meat industry. There will be no extra costs
incurred by the Market for the provided mentoring. The manager will be required to have
management experience and be well versed and knowledgeable in the meat industry. The
butcher will have a certificate in meat handling and preparation. All employees will
receive Canadian Pension Plan, Employment Insurance, and holiday pay.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
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Table 3.1 Cost of labor over 5 years
Manager
2004
2005
2006
2007
2008
Benefits Paid
CPP (4.95%)
$
2,055
$
2,098
$
2,145
$
2,191
$
2,237
EI (2.4%)
$
1,512
$
1,512
$
1,512
$
1,512
$
1,512
Total Benefits
$
3,566
$
3,610
$
3,657
$
3,703
$
3,749
Butcher
Benefits Paid
CPP (4.95%)
$
1,806
$
1,846
$
1,887
$
1,928
$
1,970
EI (2.4%)
$
2,016
$
2,016
$
2,016
$
2,016
$
2,016
Total Benefits
$
3,822
$
3,862
$
3,903
$
3,944
$
3,985
CPP (4.95%)
$
183
$
195
$
206
$
219
$
231
EI (2.4%)
$
363
$
363
$
363
$
363
$
363
Holiday Pay @ 5.76%
$
415
$
429
$
442
$
456
$
470
Total PT Benefits
$
961
$
986
$
1,012
$
1,039
$
1,064
Workers Comp @ $2.33 per
$100 Salary
$
2,148
$
2,193
$
2,239
$
2,286
$
2,334
CPP
$
4,044
$
4,139
$
4,239
$
4,339
$
4,438
EI
$
3,891
$
3,891
$
3,891
$
3,891
$
3,891
Holiday Pay
Workers Comp @ 2.33 per
$100 Salary
$
415
$
429
$
442
$
456
$
470
$
83
$
84
$
85
$
86
$
87
TOTAL BENEFITS PAID
$
8,432
$
8,542
$
8,657
$
8,772
$
8,886
TOTAL SALARY &
BENEFITS PAID
$
100,632
$
102,682
$
104,771
$
106,894
$
109,052
Part Time Personnel
Total Benefits Paid
4.0 Marketing Plan
4.1 Organic Livestock Market Overview
The organic industry has grown significantly due to an increased concern in food safety,
health issues, and the consumer’s desire to know where their food comes from. The
Saskatchewan organic livestock industry is growing and has the potential to continue to
grow.
Presently there are 50 organic livestock producers in Saskatchewan.
Saskatchewan has the environment and the space for expansion, which is important
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
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because Canada expects to increase their organic sales by 10% by 2010. (Saskatchewan
Agrivision Corporation, 2002)
If the demand for organic meat does increase, producers will have an incentive to
increase their production.
Natural meat producers may find it feasible to become
certified organic producers. There are strict guidelines that need to be followed in order
to become a certified organic producer. At this time natural livestock producers do not
feel there is a large enough demand to make certification worth while. If Saskatchewan
can continue to penetrate the organic market throughout Canada and the world with its
organic livestock products, producers would make the appropriate changes in order to
meet the organic certification standards. This increase in organic livestock production
would increase the need for organic meat slaughtering and processing plants, as well as
retail stores.
Presently, Saskatchewan organic producers do their own slaughtering, processing and
retailing, from the farm gate. Some organic chicken producers have to ship their animals
outside of the province to get slaughtered and processed because of a lack of organically
certified facilities in this province. The facilities in Saskatchewan that do this type of
slaughtering and processing must be federally inspected in order for the products to be
exported out of Saskatchewan and Canada. Federal inspection is missing from many
facilities.
4.2 The Marketing Mix (4 P’s)
4.2.1 Product
The Saskatchewan Organic Meat Market will provide consumers with organically raised
and processed beef and pork. These animals consume feed that was grown without the
use of pesticides and chemical fertilizers. The land in which the feed is grown has been
free of pesticides and genetically modified organisms (GMO’s) for a minimum of 3
years. No antibiotics are used on the animals at any time. The farm that produces the
organic livestock is verified and inspected by an accredited certifying body to insure all
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Saskatchewan Organic Meat Market__________________________________________
organic guidelines are followed. Detailed and audited documentation must be kept of all
practices and movement of meat in order to trace the meat back to the farm of origin.
The organic producer must keep up to date with processing and handling protocol. The
organic farm monitors water and soil quality at all times to insure it is free of all harmful
contaminants.
Organic livestock slaughter and processing plants must also be certified by an organic
certifying agency, who will audit them once a year. The audit consists of insuring
adequate documentation of all processes and movement of the meat. The meat must be
kept free of contamination from non-organic meat as well as pesticides used throughout
the facility.
4.2.2 Service
The Saskatchewan Organic Meat Market provides consumers with a safe, healthy, and
traceable organic product. This gives consumers the peace of mind that their families are
consuming chemical free meat that was produced, slaughtered and processed at one
location. The in-store butcher will be available to cut meat according to consumer
specifications. All Saskatchewan Organic Meat Market employees will be qualified to
provide superior and knowledgeable service to their customers. The Market will make
organic meat available to consumers at a more convenient location.
The Market’s
location allows consumers to purchase their meat without leaving the city. The market
will educate consumers on the benefits of organic products providing an alternative to
healthy eating and a healthy lifestyle.
4.2.3 Target Market
Organic meat is a premium product that is not consumed by the majority of meat eaters in
Saskatoon. The people that do consume it, can afford it, and recognize the benefits
involved in the production of these animals. The Saskatchewan Organic Meat Market
will target the consumers that can afford to buy organic products. There is also the
consumers that make it a priority to be able to afford organic meat because of personal
beliefs and motivations. If the high income meat consumers already consume organic
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
meat the Saskatchewan Organic Meat Market provides the products they want, in the cuts
they want, at a convenient location. An effective promotional campaign will have to be
put in place to convince the traditional meat consumer to purchase organic meat.
In Saskatoon 50% of households make over $53,000 a year and the highest 10% are
making over $160,000. (Statistics Canada, 2003) In order to purchase the products,
consumers must be made aware of the market and all the benefits of purchasing organic
products. In these high income households, the Saskatchewan Organic Meat Market will
promote the organic meat to the adults. They will be making the food purchasing
decisions for themselves and their children. Based on the Saskatoon demographic profile
and Canadian meat consumption rates, a target market was selected. The following table
demonstrates the projected organic meat consumption for the Saskatoon area and the
percent of market share that the Saskatchewan Organic Meat market hopes to capture.
Table 4.1 Estimated market share and meat consumption
Type of Meat
Beef
Pork
Total # of
organic
animals
consumed per
week
6.58
25.84
% of market
share the
Market hopes
to capture
# of organic
animals
ordered per
week
# of organic
animals
ordered per
year
30%
15%
2
4
104
208
Using the Saskatoon demographic profile and the Canadian meat consumption rates
(CanFax, 2003), a meat consumption rate for Saskatoon was derived (Community Profile,
1996). The organic meat consumer percentage was used to derive the Saskatoon organic
meat consumption (6.58 beef, 25.84 pork carcasses per week).
The Saskatchewan
Organic Meat Market hopes to capture 30% of the beef market and 15% of the pork
market. Therefore, arriving at a value of 2 beef and 4 pork carcasses delivered to the
Market per week.
4.2.4 Pricing
The Saskatchewan Organic Meat Market is a price maker. Premium pricing for organic
products will be implemented in the Market.
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The meat will be purchased from Pine View Farms. Purchase prices were adjusted 50%
above the average non-organic beef and pork carcass prices. The selling price was also
adjusted 50% above the average retail selling prices of non-organic beef and pork cuts.
Table 4.2 Purchase and sale price
Product
Purchase Price ($/lb)
Beef
$2.01
Roasts
Steaks
Ground Beef
Pork
$1.88
Pork Chops
Ham
Roasts
Selling price ($/lb.)
$
$
$
8.39
10.49
4.49
$
$
$
7.49
4.34
7.04
4.2.5 Promotion
Two types of promotions must be implemented in order to reach the target market. One
type has to inform the organic consumers about the Saskatchewan Organic Meat Market.
By informing organic consumers, they will begin to purchase from the Market rather than
their previous supplier. The second type is to convince the high income consumers of the
benefits of organic products, so they may begin consuming organic meat.
External Promotion
Saskatchewan Organic Meat Market will promote it’s products at natural lifestyle trade
fairs in surrounding areas. Ads will be placed in Saskatchewan organic magazines and
other publications relating to healthy living. Radio advertising and most importantly
internet marketing will be extensively useful in getting the Saskatchewan Organic Meat
Market name and products in the eye of the consumer. Consumer’s word of mouth will
be an important promotional tool. Brochures will also be available at the market as well
as other select locations visited by the consumers.
The Market will promote their
products to organizations for steak nights and other occasions including weddings, large
business meetings, and house parties.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
Internal Promotion
Cooking demos and taste testing will occur regularly at the Market. An information
center consisting of brochures and an educated staff will help educate the public on
organic meat products. Appealing window displays will be present at the Saskatchewan
Organic Meat Market. Posters of Pine View Farms will be posted at various locations
through out the Market. Cooler displays will consist of appetizing, fresh, red meat, with
samples of cooked meat for tasting. There will be an opportunity for consumers to visit
Pine View Farms to observe the animals in their natural, clean, and open environment.
Group trips will be organized and promotion barbeques will be held at this location.
They will have the opportunity to tour the farm and interact with the animals by
participating in feeding and caring for them. Customers will be given the opportunity to
meet and become acquainted with Kevin and Melanie Boldt at Pine View Farms,
developing a beneficial relationship.
4.3 SWOT Analysis
4.3.1 Strengths
The demand for organic products is increasing in the wealthier countries.
The
Saskatchewan Organic Meat Market has many strengths including providing a new
product available at the retail level. There are no other exclusively organic meat stores in
Saskatchewan so the Market would be a leader in this area. The market also serves as an
information center, educating the public about organic production and products. The
Market will employ educated staff to provide consumers with peace of mind about the
products they are buying. The staff will be knowledgeable in all aspects of the organic
industry. Saskatchewan Organic Meat Market is located at a convenient location, making
it easy to find for first time customers.
4.3.2 Weaknesses
The most important weakness of the market could be due to the premium price demanded
for the organic meat resulting in a limited consumer demand. There are limited ventures
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
that use the Market’s by-products which include carcass bones. Those that could use byproducts require the market to pay a fee in order for the products to be disposed of.
4.3.3 Opportunities
People in Saskatoon who already consuming organic meat have to drive to the farm gate
to purchase it. The Saskatchewan Organic Meat Market provides a quality product at a
convenient location. The benefits of organic products speak for themselves as food
safety and healthy lifestyle issues have been a growing concern. Organic meat products
free the consumer of these concerns. The meat at the market is all produced by Pine
View Farms, providing a consumer product with traceability and reassurance.
Potential opportunities for the Saskatchewan Organic Meat Market include the retail of
other Saskatchewan organic products. The Market could also open other locations in
Canada.
There is opportunity for new businesses like the Market to be eligible for government
grants and funding. Canadian Adaptation and Rural Development in Saskatchewan
(CARDS) and Agriculture Development Fund are possible grants. This would ease the
start up costs associated with the introduction of the Saskatchewan Organic Meat Market.
4.3.4 Threats
A large percentage of Saskatoon’s population does not currently consume organic
products. The people who are currently consuming organic meat have reliable and
trustworthy producers that they purchase from, and may be unwilling to switch to a new
supplier.
Consumers may be uneducated about the benefits that are associated with
organic products.
Competition such as natural producers, currently offer a quality product at a lower price.
This will pose a threat to the success of the Saskatchewan Organic Meat Market. The
costs associated with the start up of this market could be detrimental in the long run if
consumers are slow to buy the products.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
4.4 Competition
Currently there are no organic meat shops in the city of Saskatoon. A few producers sell
organic meat at their farm gate. Within the city there are some stores that sell a few
select cuts. These stores include Steep Hill Co-op and Boryski’s Butcher Block. Indirect
competition poses a threat to the Market as it will be very difficult to persuade those who
currently eat traditional meat to begin to purchase from the Saskatchewan Organic Meat
Market. Stores including M&M Meat Shop, Prairie Meats, and grocery stores such as
Costco and IGA, will create indirect competition for the Saskatchewan Organic Meat
Market.
It is expected that an increase in organic meat consumption will result in a rise in
competition. An increase in competition will result from a rising number of producers
and therefore increasing the opportunity to sell organic meat. Since the Saskatchewan
Organic Meat Market would be established before an increase in competition occurs they
would already occupy a significant percentage of the market share.
The following tables give detailed information for each business competing with the
Saskatchewan Organic Meat Market.
Table 4.3 Direct competition to the Market
Saskatchewan Organic Meat Market Direct Competitors
Business
Strengths
Weaknesses
Steep Hill Co-op 730
Broadway Ave.
Boryski’s Butcher Block
2210 Miller Ave. & 8th
Street
•
•
•
•
•
•
Existing clientele base
Location
high income consumer
base as well as some
student consumers
•
Specialized meat
production
knowledgeable
experienced staff
good location
•
•
•
•
Very little organic meat
selection
Co-op structure difficult to
understand,
staff consists of members
which may lack in
knowledge of organic
products
small variety of organic
products
Natural meat – grass fed
beef coming from 4
different farmer which may
alter consistency
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
Table 4.4 Indirect competition to the Market
Saskatchewan Organic Meat Market Indirect Competition
Business
Strengths
Prairie Meats
2326 Miller Ave. & 8th St
M&M Meat Shops
3322 8th St E & Lawson
Heights Mall
Costco
115 Marquis Dr.
•
IGA, Safeway, etc.
Located throughout
Saskatoon
•
•
•
•
•
•
Weaknesses
Specialized in meat
• Higher prices for a
production
traditional product
Diversified products
• Don’t do their own
processing
prepared products
variety of location
High quality meats
• No personal service
large quantities for
cheaper
Convenience - everyone • Limited traceability of the
has to go to the grocery
products
store
Table 4.5 Estimated marketing budget
Promotional Activity:
Estimated Expense:
Paper & Printing
$1000
Publications & Magazines
$2000
Website
$1500
Trade Show
•
Trade Show Booth
$500
•
Trade Show Supplies & Expenses
$3000
Radio Spots
$1500
Taste Tests & Demos
$500
Total Marketing Expense
$10000
5.0 Financial Plan
To meet capital expenditures in year 1 and continue business activities, $217,000 long
term debt and shareholder’s equity is required. Saskatchewan Organic Meat Market will
receive government grants from CARDS and Agriculture Development Fund and the
remainder will come from shareholders or a bank loan.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
Table 5.1 Financing
Long term debt
$42,000
Shareholder’s Equity
$175,000
Total Financing
$217,000
5.1 Loan Amortization
The market will get a bank loan for $42,000 with an interest rate of 8% and will be paid
back in 10 years. The payments will be $6,259 per year.
5.2 Dividends
Dividends will not be paid out until 2006. At this time the cash balance greater than
$100,000 will be distributed to the shareholders.
5.3 Inflation
All wages, materials purchased, and other expenses will increase with an inflation rate of
2% per year for the10 year projection.
5.4 Ratio Analysis
Liquidity ratios were not calculated as part of the evaluation into the financial
performance of the business. This is due to the fact that liquidity ratios take into account
current liabilities that the operation holds.
The Market does not hold any current
liabilities as the business will pay for the meat at time of delivery and therefore liquidity
ratios do not apply.
The inventory turnover in the high nineties indicates that fewer inventories are being held
for long periods of time. This is a result of proficient inventory management.
Leverage ratios which are calculated by total liabilities over total assets, or total liabilities
over total equities are an indicator as to how a business is able to make fixed debt
payments. The low debt ratios from the time of business implementation and throughout
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
the 10 year plan indicate that the business is financed mainly by shareholder equity and
pose a low financial risk to any financial institution.
Financial performance of the Saskatchewan Organic Meat Market can be evaluated
through the profitability ratios shown below in table 5.2. The ratios show that the
business is profitable and performance is at a desired level for overall profit margin and
return on equity.
Table 5.2 Summary of financial ratios
2005
2007
2009
2011
2013
Activity and Operating Ratios
Inventory Turnover
Total Asset Turnover
97.98
1.57
95.54
2.09
95.17
2.29
95.49
2.41
194.55
2.47
Operating Expenses
Total Operating Expense/Sales
Interest Expense/Sales
11.72%
0.56%
11.18%
0.43%
10.64%
0.31%
10.13%
0.18%
9.62%
0.06%
Leverage Ratios
Debt Ratio
Debt to Equity
10.08%
11.22%
10.02%
11.13%
7.29%
7.86%
3.82%
3.97%
0.00%
0.00%
Profitability Ratios
Gross Profit Margin
Net Profit Margin
Return on Total Assets
Return on Equity
13.65%
12.68%
19.87%
22.09%
18.73%
17.39%
36.33%
40.38%
22.11%
20.54%
47.07%
50.77%
24.93%
23.15%
55.85%
58.06%
27.35%
25.41%
62.76%
62.76%
5.5 Summary of financial Results
Table 5.3 Summary of financial results
2004
Total Revenue
Cost of Goods Sold
Gross Margin
Total Expenses
Income Before
Taxes
Income Taxes
Net Income(Loss)
$ 537,741
$ 392,635
$ 145,106
$ 64,518
2005
$ 558,719
$ 416,945
$ 141,774
$ 65,482
2006
$ 580,582
$ 417,151
$ 163,431
$ 66,453
2007
$ 603,368
$ 422,952
$ 180,416
$ 67,427
2008
$ 627,118
$ 430,065
$ 197,053
$ 68,404
$
$
$
$
$
$
$
$
$
$ 112,989
$
8,045
$ 104,944
$ 128,650
$
9,160
$ 119,490
80,588
5,738
74,850
76,292
5,432
70,860
96,978
6,905
90,073
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
2009
Total Revenue
$ 651,875
Cost of Goods Sold
$ 438,335
Gross Margin
$ 213,540
Total Expenses
$
69,384
Income Before Taxes
$ 144,157
Income Taxes
$
10,264
Net Income(Loss)
$ 133,893
Net Present Value (NPV)
$
$
$
$
$
$
$
2010
677,683
447,638
230,045
70,363
159,682
11,369
148,312
Internal Rate of Return on Equity Investment
External Rate of Return on Equity Investment
$
$
$
$
$
$
$
2011
704,588
457,619
246,969
71,343
175,626
12,505
163,122
$
$
$
$
$
$
$
2012
732,639
468,483
264,156
72,320
191,836
13,659
178,177
$
$
$
$
$
$
$
2013
761,886
480,183
281,703
73,292
208,411
14,839
193,572
$ 383,829
72%
39%
5.6 Breakeven Analysis
In order to insure that the Saskatchewan Organic Meat Market is a feasible business it is
important to look closely at the cost associated with running the Market. It is important
to understand how sensitive the IRR and cash balance are to changes in the Markets
critical variables. A break-even analysis (Table 5.4) was prepared to determine the
critical percent change in selling prices and the volume of meat purchased/sold to result
in a 0% IRR or negative cash balance. The selling price of meat is one the most
important critical variables to consider. A 21.5% decrease in the selling price of all meat
cuts will create a 0% IRR. A slightly negative cash balance is created when the selling
prices are decreased by an additional .5% (22%). Since a large percent decrease in price
is required to achieve 0% IRR and negative cash balance, the Saskatchewan Organic
Meat Market is a sustainable operation.
Another essential variable in the feasibility of the Market is the volume of beef and pork
purchase/sold. The quantity of beef purchased/sold can be decreased by 20,500 lb and
pork by 8,200 lbs to result in 0% IRR. A slightly negative cash balance is created when
the quantity of beef purchased/sold is decreased by 22, 500 lb and pork by 9,000 lb. The
Saskatchewan Organic Meat Market can withstand a substantial decrease in the amount
of meat purchased/sold before an IRR of 0% or a negative cash balance is created.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
Table 5.4 Breakeven Analysis
Break-Even Analysis
Variable
Selling prices for beef
roasts
steak
ground meat
Selling prices for pork
pork chops
hams
roasts
RESULTING IRR
RESULTING CASH BALANCE
(lowest cash balance in 10 year period)
Base price ($/lb)
$
$
$
8.39
10.49
4.49
$
$
$
6.59
8.23
3.52
$
$
$
6.54
8.18
3.50
$
$
$
7.49
4.34
7.04
$
$
$
5.88
3.41
5.53
$
$
$
5.84
3.39
5.49
$
0%
15,561.00
$
72%
143,887.00
Base Quantity (lb)
Volume Meat Purchased
beef
pork
Volume Meat Available for Sale
beef
pork
RESULTING IRR
RESULTING CASH BALANCE
(lowest cash balance in 10 year period)
Percent Change in Selling Price
22%
21.5% Decrease
Decrease
-6%
(363)
Decrease in Volume Purchased/Sold
(lb)
71,841
37,440
20,500
8,200
22,500
9,000
59,176
23,213
20,500
8,200
22,500
9,000
72%
144268
0%
(9496)
-10%
(670)
6.0 Conclusion
The financial analysis shows that the Saskatchewan Organic Meat Market is a feasible
operation that has potential to develop into a substantial business opportunity. The
success of the market hinges on capturing the target organic meat consumption levels and
establishing consumer loyalty. Through analysis of the base case financial scenario an
IRR of 72% was achieved. The Saskatchewan Organic Meat Market was deemed a
feasible operation based on the selling price of products and the quantity of meat
purchased/sold. The organic industry has tremendous opportunity with rising consumer
health concerns, therefore increasing the potential for the Saskatchewan Organic Meat
Market.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
7.0 References
1. Anne Cooney, Professional Research Associate, Ag Economics University of
Saskatchewan. Who are Organic Consumers? SAFRR Seminar, Melfort SK.
February, 2003.
2. Bouvry Exports: Martin Conrad. Fort MacLeod, AB
3. CanFax, 2003 www.canfax.ca
4. CBC News Inflation Rate Eases to 2%. Last updated Tuesday, September 23,
2003.
www.cbc.ca/stories/2003/09/23/inflation_0300923
5. Correction Service of Canada, Community Profile 1996.
http://www.csc-scc.gc.ca/text/rsrch/community/esaskatoon96.pdf)
6. Cost of debit machine 15721
http://www.1nbcard.com/#5
7. Human Resources Development Canada
www.sk.hrdc.ag.ca/lmi/wages/census/occs/
8. OCIA.org. International Certification Standards, Revised March, 2003
www.ocia.org
9. Pine View Farms: Kevin & Melanie Boldt, Osler, SK
10. Safeway “Weekly Specials” Flyer www.safeway.com
11. Sask Energy http://www.saskenergy.com/rates/currentrates.htm
12. Saskatchewan Agrivision Corporation, The Organic Agriculture Industry. June
2002.
www.agrivision.sk.ca
13. South Valley Winery Business Plan 2002 COMM 492.3 Agribusiness Venture
Management Prepared by: Kyle Gross, Glenn Houser, Andrew Jackson, Carol
Luca.
14. Staples. Cost of cash registers
http://www.staples.ca/products/catalog/
14. Statistics Canada, Selected Income Statistics for Individual Families and
Households, 1996 Census.
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
Saskatchewan Organic Meat Market__________________________________________
http://www.statcan.ca/english/Pgdb/Famil6/h.htm
15. University of Kentucky. College of Agriculture
www.tysonfoodsinc.com/IR/publications/factbook/factbook01/p4.pdf
16. University of Toronto. Human Resources Department-payroll.
http//:www.utoronto.ca/hrhome/cpp_ei03.html
17. The Western Producer, December 11, 2003
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan
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8.0 Appendix A
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COMM 492 College of Commerce, College of Agriculture, University of Saskatchewan