cuto enterprises business plan c. baillargeon, k. ivey, c. mardell & k.templeton comm 492.3

CUTO EnterprisesCUTO EnterprisesBusiness PlanBusiness Plan

C. Baillargeon, K. Ivey, C. Mardell & C. Baillargeon, K. Ivey, C. Mardell & K.TempletonK.Templeton

Comm 492.3Comm 492.3

• Greenhouse industry in SaskatchewanGreenhouse industry in Saskatchewan– relatively smallrelatively small– marketing problems:marketing problems:

• economies of scaleeconomies of scale

• consistencyconsistency

– other problemsother problems• climatic conditionsclimatic conditions

• location of growerslocation of growers

Industry OverviewIndustry Overview

Mission StatementMission Statement

“The aim of CUTO Enterprises is to establish a profitable agri-business venture while facilitating the establishment of an infrastructure to expand the greenhouse vegetable industry in Saskatchewan.”

The Marketing Mix

• Products and Services

• Pricing

• Promotion

• Place

Products & Services• Product:

– Greenhouse grown cucumbers and tomatoes

• Service:– A central marketing arm for the greenhouse

growers of Saskatchewan

Pricing

• Product price based on contract with wholesaler– calculated using a weighted average price index

• Distributor fee– producer paid fee for service

Promotion

• Product promotion– promote an above standard premium quality

product

• Service promotion– provide grower information seminars– provide ease of production

Place• Wholesale market in Saskatchewan

• Produce is sold FOB Saskatoon

STP• Segmentation

– Provide a premium quality product that is higher than regulation standards

– Provide a niche product• vine-ripened tomatoes

• Targeting– Main target is the wholesale distributors

• Positioning– competitive advantage over local market

Competitive Analysis

• Main competition exists outside of Saskatchewan– Alberta, British Columbia, USA, Mexico, etc.

• Competition exists with substitute products

Marketing Strategy

• Product Strategy– present an above standard premium quality

product to the wholesalers

• Service Strategy– combine grower production to capture benefits

of accessing wholesale market– provide ease of production– provide an excellent information source

Marketing Strategy

• Investment Strategy– profitable business that allows future expansion

in the greenhouse industry

Revenues and Expenses

• Projected Revenues

2001 2005 2010Gross Margin 595,252$ 646,392$ 775,230$

• Marketing Expenses- $20,000/year

Location

• Selection Factors– Market Accessibility– Supply of Fresh Produce– Services and Utilities

Saskatoon

• Western Grocers and Federated Co-op

• South Saskatchewan River

• Central Saskatchewan

• Natural Gas, Power, Telephone, Infrastructure

1323 Fletcher Road1323 Fletcher Road

Park-ing

Fletcher R

oad

CUCUTO BUILDING

CUTOCUTOCUTO

UL

P

Site PlanSite Plan

Expansion

Area N

Floor Plan100’ 100’

25’175’

70’

C

T

FC

FT

PP

RM

WM

F/I

A

F

GM

WR

20’

FL

Unload/Load Docks

Site and Building Costs• Land $ 134,000• Building $ 750,000• Tomato Grading Line $ 678,000• Cucumber Grading Line $ 77,405• Office Supplies & Furnishings $ 15,825• Fork Lift, Pallet Jacks & Pallets $ 11,229• Electrical & Natural Gas Installation $ 60,000

TOTAL $ 1,726,860

Average Business Year

• Operate March through October– Due to:

• higher energy costs

• decreased production

• Busy Season – End of May until the beginning of August

Average Business Year

• Full-Time Staff Remains on in Off-Season– Grower Seminars– Prospective Grower Contacts– Market Exploration

• Industry Seminars

– Product Diversification Studies– Season Reviews

Strategy

• CUTO is a corporation owned by growers and local investors.

• Goal: to maintain a healthy and enjoyable work environment.

• Employees will clearly understand their specific roles and duties in CUTO.

Organizational Structure

MAINTENANCEQUALITY CONTROLLER

25 PART-TIME EMPLOYEES

BOARD OF DIRECTORS

FACILITY SUPERVISOR

BOOKKEEPER

GENERAL MANAGER

Expansion of Personnel

• No expansion in first 5 years.• However, if production and number of growers

increase, CUTO will adapt to ensure sufficient service.

• Re-evaluation of market and CUTO’s position will occur in 5 years.

• Possibility of new full-time employee after year 5.

Financing Budget Assumptions

• ‘class A’ voting shares = $750,000 equity

• $1,000,000 debt financing @ 9.0%

• Dividend Policy: year end cash balance > $175,000

• Production: 20 acres of cucumbers & 20 acres of

tomatoes

2001 2005 2010Revenues 14,602,192 15,805,882 17,450,971COGS 14,006,939 15,159,490 16,675,741Gross Profit 595,252$ 646,392$ 775,230$ Expenses 443,199 451,735 457,325Income Before Taxes 152,053$ 194,657$ 317,905$ Income Taxes 32,114 41,112 79,781NET INCOME 119,940$ 153,546$ 238,124$

Net Cash Flow to Equity 233,335$ 7,050$ 7,875$

Expected Return on Equity Investment (IRR) = 23.6%

Summary of Financial Results

Sensitivity Analysis

• Distributor Fees @ $0.34/kg tomatoes & $0.07/cucumber

Distributor Fees @ $0.34/kg. tomatoes & $0.07/cucumber

-10.0%

-1.8%

7.4%

15.8%

23.6%

-20.0%

-10.0%

0.0%

10.0%

20.0%

30.0%

12 14 16 18 20

Acres

IRR

Why CUTO?• Market Penetration

– expansion of the SK greenhouse industry

• Lower Producer Packaging & Marketing Costs per unit

• CUTO’s high quality standards – producer focus on quality

• Invaluable information source • Dividends

Acknowledgments

• Glen Sweetman - Sask. Ag & Food

• Bill Brown & Marv Painter - U. of S.

• B.C. Hot House Growers Association

• Supplier Contacts