FEASIBILITY STUDY REPORT

DRY CLEANING & LAUNDRY BUSINESS

12/18/2008INTELLIGENT DATA LIMITED

EXECUTIVE SUMMARY

ABC is a Laundry and Dry cleaning outfit that is about to be established in the Victoria Island/ Lekki axis. The business will provide both dry cleaning and laundry services and will operate with one or two more outlets or shops, to serve as drop off and pick up centres. The business is to service both individuals and the wholesale end of the market by providing different classes of professional cleaning services, including turnkey solutions to guest houses, hotels, private hospitals and private school hostels.

The demand for laundry and dry cleaning service is increasing due to changing income level, the stress of self washing, need for proper clothes maintenance and increase in clothing expenditure.

Start-up financing for the business will be through owner investment. The total requirement is estimated at about N 35.6m.

In providing exceptional laundry and dry cleaning services for customers in the Victoria Island/ Lekki axis, we aim to:

Attain a 30% market share by the year ending 2009. Declare first year total sales of over N 14 m Producing net profits of about N4,539,600

About the business

Laundry is basically wet-washing. It is carried out using the electric washing machine which could have a water dispenser tank in built or connected to water pipes directly from a source. Here, clothes goes in dry and comes out wet, then, the clothes are taken into the Tumble dryer or another device called Hydro Extractor, used in draining the water out of the cloth.

Dry cleaning on the other hand, is for clothes that use no water for cleaning, examples of this are suits, jackets and other clothes with labels that reads “Dry clean only”. In place of water, spray chemicals are used in removing the stains on clothes. A machine called Suit and Jacket Former is then used to make the suit and jacket smooth and straight instead of using steam ironing.

In setting up a laundry business, it is expedient to know the level to start

with. There are basically three scales of laundry business, these are;

The Small scale; which requires as low as N 5,000 to start. It could begin with staff strength of between one to three. The washing is done manually until it grows to having one or two domestic washing machines.

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The medium Scale starts with one or two domestic washing machines and staff strength of about four to eight. This set up can manage client strength of about fifty to hundred.

The Large scale; as the name implies, it is set up for a professional standard laundry business, with heavy duty modern equipment to serve as high as a thousand clients. Usually with more than one outlets to serve as customer service centres.

BUSINESS DESCRIPTION

Our core services will include;

Drop & Pick Executive home/office delivery Corporate/industrial contract cleaning Press only Stain treatment

The primary focus is the setting up of a professional laundry and dry

cleaning outfit to be able to service both the individuals and the

wholesale end of the market by providing different classes of professional

cleaning services to;

Individuals

Guest houses

Hotels

Offices

Private hospitals

Large churches and

Private boarding schools on the Victoria Island/ Lekki axis.

The business will operate by starting with one outlet, and as the business

expands, there will be need for two more outlets or shops, to serve as

drop off and pick up centres and will open from 8 am-7pm Mondays –

Saturdays.

Providing a door-to-door dry cleaning and laundry service in Lekki/Victoria Island will ease the customer the burden of coming down to the outlets for drop off and pick up. The strategy and intention is to make loyal customers evangelists of our services, who will in turn recommend us to

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other customers, so as to have an increasing number of customers, hence giving us recognition and market share.

Our Strengths:

We will be offering a new service for laundry and dry cleaning,

providing another choice for customers

We will be providing quick and convenient service in order to save

customer time and energy.

We will pick up and deliver door to door with regular charge.

Weaknesses:

Strong competition from already established outfits in V.I/Lekki area.

Starting with no market share at all

Less experience than competitors.

Opportunities:

The demand for the service increases as expenditure on clothing

increases, including expenses clothes.

People tend to spend more time on leisure, activities rather than

doing the house work like general home cleaning, washing etc.

There is high likelihood of repeat business

There is ability to decrease the fixed costs as the sales volume

increases.

Threats:

If the business is successful, there will be new competitors who

provide same.

As economy develops, incomes increases, it is possible for people to

be able to afford domestic washing machines.

If we fail to satisfy the customers, we may likely lose them to rivals.

People may decide to wash clothes by themselves most especially

when they may no longer be able to afford dry cleaning

professionally.

Financial constraints.

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INDUSTRY ANALYSIS

Though fluctuations had been observed in the Nigerian economy, most especially in some other businesses, the dry cleaning and laundry business sector remains dynamic as industry transformations and new brand innovations had been introduced by various outfits. As of now, there are over sixty Laundry outfits registered with the Lagos state chapter of the Association of Dry cleaners aside the small scale launderers.

A number of factors are also significant for the growth of the dry cleaning industry. Among these include the progress of the hospitality industry in the country, as well as work and home pressures. Due to these factors, a number of consumers have increased preference for going for professional cleaning services.

The industry is structured in such a way that the success in this kind of business is dependent on the following factors;

Quality of service Proper Awareness/Visibility Business Location and Pricing

For the quality of service provided, the customers want proper and unequalled care of clothes with convenience and timeliness, the customers would want you to wash for them without having to come down to your outlets, and would also want their clothes done without the fear of damages.

It will therefore be wise to offer top quality professional service to customers so as to quickly make loyal customers upon entry into the market. This will be done by differentiating our special services, increasing the incentives and value added and conduct periodic customer’s surveys to learn about their preferences.

The business location is equally important as it affects the success of the trade; the choice location is ideal for this type of business in that it is highly residential and a large population of businesses.

A quick look at the industry service rates

Curtains – per foot range between N 450 to N 950

Towel – between N450 and N1,150 depending on size.

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Blanket/Bedspread is between N700 and N2,000 depending on

fabric and colour.

Pillow covers(2) between N200 and N400 depending on fabric

Duvet cover range between N800 and N4,200 depending on size.

Table clothes per square metres - between N450 and N650.

Bath robe- between N 450 and N2,150

Napkins – range between N 150 and N350

Female Suits- between N1,500 and N2,300 depending on fabric.

Female native attires range from N750 to N3,500 depending on

fabric.

Men’s suits - between N800 and N3,500

Men’s native attires range from N900 to N 3,300.depending on

fabric.

Shirts for men would be washed for between N 400 and N 1,000

Women’s shirt would be washed for between N 300 and N 800

Express service charge of some outfits is 100% extra of the regular rate.

Laundry takes between three to five days while charges are VAT inclusive.

MARKET ENVIRONMENT

The Victoria Island/ Lekki axis is an ideal environment for a laundry

business, this is because the area is both residential and non-residential.

Victoria Island for instance is a highly populated business area, where a

large number of the busy working class people can be found.

The market in Victoria Island is made up of banks and other financial

institution’s executives, and the middle-level workers that earn between

N 50,000 and N 1.5m monthly salary and cannot afford the time to wash

but can pay the professional dry cleaners to do so. There are also hotels,

guest houses, residents and schools in this area.

The Lekki/Ajah axis is both a residential and a business environment, take

for instance the Lekki phase 1, Admiralty Way, Lekki first roundabout,

Chevron area, VGC area towards Ibeju-Lekki/Ajah which accommodates

banks, hotels, guest houses and other businesses is a beehive of

economic activities, setting up a laundry and dry cleaning services is

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lucrative in this areas as most workers and residents would prefer to dry

clean professionally rather than self washing.

For this reason, the level of threat of new entrant is high among the

players on the V.I/ Lekki axis; this is for the fear of the new competitor

entering into the market to weaken the position of existing players. In as

much as it is not so easy to come into the market because of the

business’s high capital intensive nature, most industry competitors still

find the area suitable for business of laundry.

The laundry outfits do not have much control over driving up prices as

there are similar (close substitutes) outfits that would charge less for the

same service, hence gaining more market share. What this implies is that

some customers are price sensitive and would prefer to pay less for

washing if they are faced with choosing between two extremes or closely

related charges for the same service. This may weaken our power to drive

up prices.

The market is dominated by a few large suppliers of laundry equipment,

and the supplier’s customers are fragmented in that, only those who can

afford the equipment for large scale laundry business are able to buy, so

the bargaining power of the buyer is low. Suppliers of washing equipment

believe that the industry is growing and that more people are now

investing in the business, so, this is why the suppliers holds the power in

bargaining with buyers on the prices of the equipment.

COMPETITION

Key Industry players with outlets in the Victoria Island / Lekki axis include;

Garment Care. Located on plot 1088, Adeola Odeku Street and at Plot 6, First Roundabout, Lekki Phase 1.

Washaman drycleaners is situated Texaco Filling Station, after Eleganza Estate, Lekki, and another outlet at Plot 19, Sinari Daranijo Street, Victoria Island.

Mega Wash is located at Suit C212, Ikota shopping Mall VGC and another outlet at Oba Adeyekan Estate, Lekki Phase 1.

Daystar, located at Km 21, Lekki/Epe Express Way, Ajah. Clean Touch drycleaners are located on 41c, Ahmadu Bello Way,

Victoria Island.

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Cedar Oaks is located at 20, Remi Oyefiade Close, Lekki Ajah and an outlet at Silvershares Place, Jakande Estate, Lekki, and a new arrival,

Michael & Solomon dry cleaners, located at Km 24 Lekki/Epe Express Way, by Ajiwe Bus Stop, Thomas Estate, Ajah.

For most of these outlets, their customers are basically those within and around the business location.

There are also those of small scale laundry outfits within this choice area. Competition is high in the Victoria Island/Lekki axis as most dry cleaners take advantage of unique selling propositions imbibed in marketing strategies and service delivery at gaining customer loyalty.

The two major industry players are Garment Care and Washaman Dry cleaners. Garment care was established in 1999, to provide a world class cleaning service. Managed by one of the world’s most experienced hands in laundry and dry cleaning, Brian Pearce and Nana Otedola, also a UK trained launderer. Their wealth of knowledge has to an extent transformed the industry as they have the latest equipments in cleaning. They are believed have to about 50% market shares as they have outlets at Lekki, Ikeja and Victoria Island.

The second major player is Washaman Dry cleaners. Among the early comers, they currently operate with five outlets with head office in Ikeja GRA, This outfit operate a regular day to day dry cleaning with no special services attached, yet they also have a large market share as they have outlets at Victoria Island and the VGC.

Strengths of competitors: high volume of sales, aggressive pricing i.e some outfits charges lower than others in order to gain and retain a good market share.

Weaknesses: inadequate services and support knowledge, lack of personal attention to washing directions and details. Delay in delivery, damage of customer’s clothes.

REGULATIONS/ ENVIRONMENTAL ISSUES

Registration with the Corporate Affairs Commission (CAC) will be essential, while joining the association body for launderers and dry cleaners will equally ease the flow of business especially at the starting stage.

The office and factory premises will always be kept clean so as to ensure work and customer friendly environment. Waste gathered from laundry materials will be properly disposed.

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All stain removal chemicals to be used must be the ones tested and approved by NAFDAC and FEPA or any other regulatory bodies in ensuring hazardous- free working situations.

MARKETING AND SALES STRATEGIES

Key marketing strategies will for the purpose of this plan be formulated after the four “Ps” of marketing, which include price place, product and promotion.

Product: free home pickup and delivery service, approaching customers once a week, we will provide convenience and high quality dry cleaning and laundry services to not only the residents but also the hotels, guest houses, hospitals, schools and churches located on the Victoria Island / Lekki axis of Lagos.

Incentives will include;

-Perfect and professional dry cleaning of the highest possible standard.

- Same day for dry cleaning services, no deposits.

- Pickup and delivery services at no extra charges

- Efficient and friendly customer care service

- Proper care and attention to clothes.

- Fair compensation for loss or damage due to negligence on our part.

- Specially-sized boxes, bags and hangers to fit every garment.

Place; the choice location is suitable for this nature of business. It is equally accessible for customers from either the extreme of Ajah towards the Bar beach Eko Hotel axis. Having one or two more shops or outlets can equally boost the business as customers can drop and pick up clothes.

Price; our aim is to do better than what the industry giants are doing at a competitive price. For instance, Garment Care charges are the highest in the industry for now as they clean men’s two-

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piece suits for N2,600, women’s suits for N2,300 and native attires for between N 1,800 and N 3,500 depending on fabric. Another key player situated on Victoria Island/Lekki axis, Cedar Oaks, charges N1,500 for men’s suit, N 950 for women’s suit and between N 750 and N 2,000 for native attires. it will be wise to start with the same price as Cedar Oaks which records an average of N 1.2 m monthly total revenue from operating in the same area with three outlets in V.I, Lekki Roundabout and Ajah.

Promotion;

well designed and printed handbills and flyers announcing the outfit with its special offers like discounts, bonuses etc. will be dropped at offices, homes, hotels, guest houses etc within the V.I/Lekki axis,

The marketing team will have to push the business as they would meet one-on –one with clients to promote the special services and the rates. The marketers are to build and manage a working relationship with the customers, as targets will be set on a monthly basis.

Branded vehicles, tricycles and vans will also promote the business while it will equally be right to advertise in fashion and business magazines, like The Gallery, Business Day, Genevieve etc.

The total amount that should be allotted to promotion may not be more than N1.5m for the first year.

Equipments and installations

The needed heavy duty washing equipments can be sourced from either

local suppliers or ordered directly from the manufacturers.

Most of the manufacturers like the Italian Renzacci and Imesa, Britain’s

Pony, America’s Newmatic and Real star, are commonly used here in

Nigeria and have sales offices with their trained installations and

maintenance engineers in Lagos. This makes it easier to purchase and

install locally. The machines are available at Harrimag showroom on Opebi

road, Ikeja, Instant Dry cleaners are sole agents for Renzacci equipments,

while Adebowale Electronics has Imesa, LG and Pony machines in stock.

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Renzacci has been in existence for about 45 years and is known for good

quality, cost effective and reliable equipments and that is why the brand

has been suggested during research for the purpose of this project.

At the main office and factory, computerised and latest washing

equipments would be purchased for the quality and standard of service

desired. The equipments that will be required for starting up the outfit

include;

Item Qt

y

Description Cost

(N)

1 1 Renzacci Planet Dry-cleaning

Machine.10 kg/22 Lbs, Model 20/N

Automatic with Card Programming

and circle end alarm. Stainless steel

electric version with pressurised

water for continuous distillation cap.

With 2 tanks. Closed circuit.

4,150,000

2 1 Renzacci Automatic Washer

Extractor. Model LX 22/A. Cap

21kg/44 Lbs. Motor protection with

stainless steel housing electric.

1,430,503

3 1 Renzacci Electric Tumbler Dryer

Model D50. Cap. 25kg/55Lbs

stainless steel drum with motor

protection.

1,233.804

4 1 Renzacci Unipress (Hoffman) Utility

pressing machine complete in-built

boiler, steam generator, electro-

pump, electro-suction, vaporization-

gun and 1 steam iron with

automatisms.

2,230,887

5 1 Renzacci Self contained vacuum

steam ironing table (i.e. in-built

boiler) and 1 steam iron.

1,210,739

6 1 Renzacci Pneumatic Hydro- spotting 825,000

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with Vacuum and Arm.

7 1 Renzacci Hydro Extractor ZP635 1,350,709

8 1 Renzacci Vertical wall poly bagging

machine

350,000

9 1 Renzacci Rotor cabinet with in-built

steam generator.

2,337,190

10 1 Pony SPA Flatwork Ironer, 4.3 fleet 920,000

11 2 Trolleys 150,000

12 1 Mikano 100 KVA sound proofed

Generator + transportation

2,624,000

TOTAL 18,812,832

COST OF OTHER BRANDS OF EQUIPMENT

Equipment

Pony LG Imesa Realstar

Beko Electrolux

11kg Washing Machine

N/A N/A 920,000 N/A 800,000 1,200,000

23kg Wasing Machine

N/A N/A 2,000,000

N/A N/A N/A

10kg Washing Machine

N/A 310,000 N/A 300,000 288,000 N/A

30kg Washing Machine

N/A N/A 3,200,000

N/A N/A 3,200,000

10kg Dry cleaning Machine

N/A 4,800,000

4,900,000

5,200,000

N/A 4,400,000

16kg Dry cleaning Machine

N/A N/A N/A N/A N/A 5,800,000

Suit Former

1,000,000

N/A N/A N/A N/A 1,400,000

Finishing Table

800,000 930,000

10kg Tumble Dryer

1,300,000

N/A 810,000 1,290,000

800,000 1,200,000

18kg Tumble Dryer

N/A N/A N/A N/A N/A 1,800,000

12kg 1,350,00 N/A N/A 1,600,00 N/A N/A

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Hydro Extractor

0 0

Utility Presser

2,250,000

N/A 2,230,000

N/A 2,300,000

2,600,000

Flatwork Ironer

920,000 N/A N/A N/A N/A 930,000

Suit Former

1,000,000

N/A 1,000,000

N/A N/A 1,400,000

CAPITAL REQUIREMENTS & STRATEGY

The business will require a start-up capital of about N35.6m

Industry survey puts the minimum monthly nets profit of this kind of professional laundry business at about N 200,000.00

The business will apart from having a central office operate one or two other outlets as drop-off and pick-up centres to reach some customers who are not so close to the main office outlet, while revenue generated from the outlets could serve as additional source of funding for other expenses like salary payments, maintenance of machineries, material purchase etc.

Funding Options

The aim here, is to consider the financing options for the equipments of

about N 18,812,832.00

Loan:

lending plan has to be submitted to the bank six months before starting

the business, it may take up to two months for processing, while we will

have a minimum of 3 months to pay back the loan on short-term with

about 21% interest.

This option may not be possible as we are just starting without any market

share to guarantee us of over N 18m in 3 months.

Leasing options

Cost of equipments = 18,812,832

Equity contribution = 3,762,766

Amount to be financed = 15,050,266

Tenor = 24 months

Rate = 36%

Monthly Rental = 888,679.32

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For 12 months tenor

Rate = 36%

Rental payment = 1,511,981.11

For 36-month tenor

Rate = 36%

Monthly Rental = 567,019.78

Decision to Lease means that we desire to buy, but we would also want to

consider the alternatives to buying hence, minimising cost. If we lease the

equipments, it will make it easier for us to focus our resources on other

factors. If we choose the 36 months tenor plan, we will pay a monthly

rental of N 567,019.78 from the N 1,200,000 estimated total revenue,

which will leave us with not enough money to cover for the running cost of

about N 821,700.00 monthly.

SERVICE/OPERATION REQUIREMENTS

For the proposed establishment of a top service oriented facility that will provide exceptional customer service, to service the wholesale end of market located within the Victoria Island/Lekki axis, it can be classified as a large scale. It is important to know the cost implication of such intention.

We can either buy a house out rightly in V.I/ Lekki for about over N 250m or rent an office space for about N 3m per annum.

Buying to own means that we no longer have to pay rents which may be increased yearly, while the decision to rent implies that we can use the funds that we ought to use in buying a house to acquire more facilities to boost production which would in turn yield enough profit to later on buy our own property.

The following is an overview of the core requirements for setting up;

An initial start up capital of about N 35.6m which consists of cost of each of the following;

Item Description 1 1 Office space of about 350 square metres, which

will consist of the reception, administrative offices, machine, section, ironing rooms, storage room and rest rooms.

2 Office furniture set, i.e. tables and chairs with 2 cabinets.

3 Furniture for the reception area, with a TV set, and window blinds, chairs for workers..

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4 3 nos. 1.5 HP Air conditioning systems, for the reception, offices of the manager and the accountant.

5 4 ceiling fans for the factory 6 Laundry & Dry cleaning equipments + installation 7 Office/GSM telephone lines installation+

maintenance ( for a year) 8 Toyota Hiace bus(new) 9 Water filter machine + installation 10 3 Nos. of Computers and Printers 11 Stationeries 12 Salary Payment for one year 13 Utility Costs for a year

Over all start-up Requirements

Start-up Expenses for the first running year

Rent N 3,000,000.00

Equipments N 18,812,832.00

Delivery Van N 3,550,000.00

Office furniture/equipments N 1,800,000.00

Publicity N 1,500,000.00

Operation Cost (for first year) N 1,640,400.00

Salaries (for first year) N 5,220,000.00

Other N 100,000.00

Total Requirements N 35,623,232.00

BREAKDOWN:

Operation costs of about N 1,640,400.00 is made up of the following on a monthly basis;

1. Laundry Chemicals, detergents & starch 10,7002 Diesel for generator 30 ltrs a day x 28 @N 90 per

litre 75,600

3 Hangers, Poly bags & clothes protectors 26,000

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4 Payment of electricity, phone bills 10,000

5 Fuelling of Delivery Van 14,400136,700

A total of N 136,700 monthly will amount to N 1,640,400.00 in twelve months.

MANAGEMENT AND PERSONNEL

The manager of the business will be a laundry expert who will be in charge of operations and the quality of garment cleaning. Workers will report to the manager who will report to the CEO.

A work force of about 15 staff, which will include the management team and the labour force, will be required in starting the business, but as the business begins to grow, additional staff may be needed.

The staff that would be employed should be able to carry out working conditions and requirements:

Understand and be able to apply dry cleaning and laundry processes

Meet set standards by following instructions Work in hot and humid conditions Over time may be called for.

Those required for start up will be persons with a minimum of two year experience in laundry industry.

Position Required Number

Monthly Salary

General Manager 1 N 70,000.00Accountant 1 N 40,000.00Laundrymen 3 N 25,000.00 x 3Ironers 2 N 25,000.00 x 2Marketers 4 N 30,000.00 x 4Customer Service Officers

2 N 20,000.00 x 2

Security man 1 N 10,000.00 Bus driver 1 N 20,000.00

Office Cleaner 1 N 10,000.00

TOTAL N 435,000.00

Each marketer will be entitled to a commission of N 10,000.00 on meeting a monthly target of N 300,000.00, and if they exceed the target, they will

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receive bonus, while failure to meet targets may amount to deduction from their salaries.

FINANCIAL PROJECTIONS

To avoid being too optimistic, this sale estimation is calculated based on the current turnover of competitors

We assume running cost is approximately N 9,860,400.00 per year, which include;

Rent 3,000.000.00

Full Payroll 5,220,000.00

Utilities and an estimation of other running cost

1,640,400.00

TOTAL 9,860,400.00

Monthly Sales forecast

Monthly Revenue 1,200,000.00Monthly Expenses 821,700.00Net 378,300.00

The business would have broken even with an excess of N 378,000.00 froms the first month of operation.

Yearly Forecast

Year 2009 2010 2011Revenue 14,400,000.0

0 15,400,000.00 17,400,000.00

Expenses 9,860,400.00

9,909,707.00 9,959,255.54

Net profits 4,539,600.00

5,490.293.00 7,440,744.46

.

With an aggressive marketing team of four persons and a monthly target of about N300,000.00 will produce N 1.2m per month. By the end of the

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month, we should have up to N 378,300.00 after we have deducted the monthly expenses of about N 821,700.00

We are looking at annual revenue increase of 0.7% after the first year, this may be due to increase in number of customers, while we have the expenses increasing by 0. 5% yearly due to likely changes in quantity of materials etc.

How do you intend to raise the start-up capital?

How much money do you have at the moment?

Would you want to rent an apartment or buy a house for the business?

When exactly do you intend to start the business?

What name would you adopt for the business?

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