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Life's Too Short for Boring Food.©

South China Seas Trading Co. Limited

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Background and

Overview

Summary

We are offering for sale the shares of South

China Seas Trading Co. Limited, a company

was incorporated in British Columbia in

1987, the year it opened its first retail store

in Vancouver’s internationally celebrated

Granville Island Public Market. The

company sells spices and other specialty

cooking ingredients from around the world

at the flagship Public Market location,

a second retail outlet in Vancouver’s

hip Commercial Drive neighbourhood,

through a small number of specialty

food resellers, and online across Canada

through southchinaseas.ca and globavore.

ca. The second retail store also serves

as a commissary for the preparation and

packaging of an extensive and growing

range of proprietary herb and spice blends

and other products.

Concept

South China Seas has been the primary

agent for the introduction of the

exhilarating tastes and exotic fragrances of

the World’s cuisines to West Coast chefs

and adventurous home cooks for more

than 30 years. The Company is known

for the unrivaled extent of the hard-to-find

culinary essentials it stocks and for the

superior quality of its herbs and spices.

Many of the Vancouver’s top restaurants

and innovative chefs are amongst its

customers.

The South China Seas name alludes to an

original focus on the foods of South East

Asia – which were all but impossible to

source when the company was founded.

Over time, the range of products has

broadened in response to increasing

sophistication of the local culinary scene.

The Victoria Drive location incorporates a commercial kitchen

where herbs and spices ground, blended and packaged.

South China Seas carries a broad selection of exotic

fruits, vegetables, and herbs.

Life's Too Short for Boring Food.©

The South China Seas trademark reflects an initial focus on the

cuisine of South East Asia.

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Offerings now include the essential

ingredients of Asian, Indian, Middle

Eastern, Mediterranean, Caribbean and

Latin American cuisines – fresh and

fragrant herbs and rare spices, sauces and

condiments, fresh and dried chiles, exotic

fruits, vegetables and mushrooms, curries,

chutneys and pickles, exquisite EVOOs and

wine and fruit vinegars, fragrant teas, fresh

and dried noodles, heirloom rice varieties,

seaweeds & sushi ingredients, dim sum,

dumplings and tamales, fresh tortillas, and

much, much more.

An extensive selection of cookbooks

with a focus on global culinary traditions,

and the work of ground-breaking chefs

are also stocked – to support the sale of

unfamiliar ingredients, and as a profitable

product category in and of itself. For the

same reasons, specialty cookware and

tableware, which enhance the experience

of preparing and sharing meals from other

cultures, is also on offer.

The eclectic product mix is supported by

a culture of product-knowledge-based

customer service. Culinary knowledge,

experience and, most importantly, passion,

are key factors in hiring. Informative

store signage, packaging text, and the

encyclopedic culinary content of the South

China Seas website also play a strong role

in driving sales.

Professionally executed retail design,

signage, packaging and merchandizing

are key elements of the South China

Seas brand. When the prime location at

the heart of the Public Market became

available in 2014, CMHC, the federal

agency that administers Granville Island,

selected South China Seas to take over the

space. The $250,000 refit of the flagship

store continues to set the bar for design

and product merchandising the Public

Market.

In 2008, Vancouver Magazine described

South China Seas’ second location as

a “beautifully designed [and] curated

culinary experience”

The focus on design extends to the

Company’s fast and attractive, user friendly,

fully scalable ecommerce website.

South China Seas relocated to the heart of the Public Market in

2015. Surrounded by several of Vancouver’s favourite producers

and purveyors, the stylish new store occupies the Market’ best

location.

“Less a store than a curated culinary experience (visit and you’ll

see what we mean), the beautifully designed (Victoria Drive) store

is a destination for foodies seeking hard-to-source ingredients for

African, Asian, Caribbean, and Middle Eastern dishes. It’s also a

place to find reasonably priced ground spices and rare produce like

lobster mushrooms, wild chanterelles, or Thai eggplant. Don’t know

what to do with such ingredients? A wall of cookbooks covering

the world’s major culinary regions offers guidance – as do the

pleasant, knowledgeable staff...” Vancouver Magazine

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Granville Island and the

Public Market

In the 1970’s, Granville Island was

transformed from the remnants of an

industrial wasteland adjacent to the

downtown peninsula into one of the most

beloved public spaces in Vancouver, if not

the world. This shopping, entertainment

and cultural district set in a waterfront

location in the heart of the city is beloved

by locals and tourists alike, and attracts

more than 10.5 million visitors a year.

The charm of Granville Island lies in

its unexpected mix of uses. The world

renowned Granville Island Public Market

is the Island’s primary destination and its

economic driver. Its fascinating assortment

of artisanal food producers, butchers,

fishmongers, delis, produce vendors and

eateries is augmented with purveyors

of handcrafted jewelry, fashion and

decorative products. The ateliers of local

artists and designers are located in the

adjacent Net Loft building and throughout

the island. Granville Island is also home

to several theatre companies, and hosts

numerous performing arts and cultural

events year-round, including Vancouver’s

Fringe, Comedy, Writer’s and Children’s

Festivals.

Operationally self-sustaining, Granville

Island includes approximately 700,000 sf.

of net leasable area, accommodating over

300 businesses. The Island is estimated

to provide approximately 3,000 Full Time

Equivalent (FTE) jobs and generate roughly

$285 million in sales (2016).

Most visitors arrive by vehicle, bicycle or on

foot via a short causeway (Granville Island

is actually a peninsula). It is also easily

reached in minutes from several points in

downtown Vancouver and around False

Creek, by the Aquabus and False Creek

Ferry systems.

Granville Island, a breathtaking oasis in the heart of Vancouver is

anchored by the Public Market.

A presentation kitchen integrated into the store

hosts weekend cooking demonstrations and

sampling by suppliers and local producers.

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Key Assets and Attributes

Intellectual Property

The South China Seas and Globavore

brands, and their associated positioning

statements: Life’s Too Short for Boring

Food and Celebrating the 10,000 Mile

Diet are registered trademarks. These

brands are applied to product packaging,

store signage, website graphics and

notably, on branded collateral items.

The Globavore trademark and positioning statement

captures the global scope of current product

offerings.

Only very high quality products are sold

under the South China Seas and Globavore

labels, and the brands have developed

such a strong association with quality

and desirability that these products

command much higher pricing margins

than conventional products. The brands

themselves have become desirable

commodities, as reflected in the sales of

branded T-shirts, aprons and shopping

bags.

POS and Inventory Systems

South China Seas uses LightSpeed

software, which provides a real time online

POS/Inventory connection between both

retail locations and the administrative

office. In-store and online payments are

processed by ChasePaymentec. Visa,

MC, Amex, and Interac are accepted.

Reloadable gift cards are also in use. CCTV

systems, which are monitored both in-store

and online, are installed in both stores.

Over the years, procedures governing

all aspects the Company’s activity have

been developed and are consolidated into

comprehensive Operations Manuals which

cover day-to-day operations, inventory

control, cash management, HR, shipping

and receiving, food safety and traceability,

and so on.

Collectively, these highly evolved

operational assets are implementation-

ready for a much larger multi-store retail

organization.

A POS and Inventory Management system tracks sales, customers,

suppliers and inventory in real time.

Reloadable Gift Cards are available in the stores.

Online Gift Certificates are offered on the website,

and when purchased, emails with personalized

messages and unique Promotion Codes are

generated and sent to recipients.

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Almost all pre-packaged dry goods

and perishables, either sourced locally

(70 – 80%), from elsewhere in Canada,

or imported, are received directly at

Granville Island, where most retail sales

are generated. A few of the dozen or so

varieties of rice and grain products that

are sold are also purchased locally, and

these bulky/heavy products are received,

packaged and labeled directly at Granville

Island.

All produce is sourced from local

distributors (the majority of it, by special

order) and is received and prepped at

Granville Island. There is a small off-

premise refrigerated storage locker in the

Public Market building, plus additional

dry, refrigerated, and freezer storage in an

adjacent building.

The Victoria Drive location also provides

a venue for occasional Cooking Class

Series and culinary events, and facilitates

wholesale, bulk and food service sales

to restaurants, and increasingly, to craft

brewers.

Similarly, the website would require no

further development or modification

to handle a massive ramp up of online

sales. Its customized WordPress and

3DCart components present as a single,

handsomely designed site, and allow

for easy back-end management of blog

and ecommerce functionality. A custom

search engine is incorporated, and the

entire site (as opposed to just its payment

pages) meets the highest industry security

standards.

Manufacturing and Logistics

Most South China Seas and Globavore

branded products (herbs and spices, rice

and other grains, salts, dried chiles, etc.)

are received at the Victoria Drive retail

store/commissary for storage, processing

(grinding, blending), packaging, labeling,

etc., and are transferred as needed to

Granville Island.

Most of these products are brought in

directly by the company, usually from the

US, but some from elsewhere in Canada,

and internationally. A few Mexican herbs

and spices, a couple of specialty salts, a

few Indian spices, and several dried chiles

are purchased locally.

Popular cooking classes held at the Victoria Drive location.

The quality of South China Seas herbs and spices is unsurpassed.

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interest in food and cooking, and for them,

the Market is the Island’s big draw. This

cohort includes many of South China Seas’

best customers. For them, South China

Seas itself is the Public Market’s big draw,

and a visit is on their itinerary every time

they visit Vancouver.

Sales categories at the Granville Island

location are dominated by dried spices

and herbs which in 2017 were over 17%

of sales followed by fresh spices and herbs

were over 8.5% of sales, then sauces and

marinades at about 8%. Chiles and chile

sauces together made up the next 13% of

sales combined. Overall, South China Seas

and Globavore branded products account

for approximately 24% of brick and mortar

sales revenue.

Online customers tend to take advantage

of the wide range of products on offer.

While herbs and spices, dried chiles,

specialty salts and so on are good online

sellers, these categories represent a

smaller percentage of overall sales. This

is probably due to two factors: Online

competition from sites exclusively selling

spices, and a demand for products that are

more widely available in larger cities, but

unobtainable in smaller communities.

“The South Seas have always been a source of intrigue. This shop

recreates a bit of that wonder, with a remarkable collection of rare

spices and hard-to-find sauces. Fresh Kaffir lime leaves, Thai basil,

sprigs of curry plant, young ginger, sweet Thai chile sauce, and

occasional exotic produce like mangosteens and rambutans are just a

few of the exotic selection of products available. Pick up recipes and

ideas from the knowledgeable staff.” Frommer’s Complete Guide to

Vancouver

The South China Seas

Customer

The online and in store customer profile

is similar, but not identical. The Granville

Island Public Market generally attracts

locals who want higher quality products

and a great selection and are willing to pay

a bit more. The majority of tourists who visit

the Island (especially in the summer) visit

the Market primarily for the experience,

and do not generally purchase much other

than meals, snacks, and handicrafts. A

significant minority however have a great

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Competition and Industry

Brick and Mortar Competition

South China Seas has no comprehensive

competitor in Metro Vancouver.

Competition is limited to ethnic retailers

who serve specific segments of the market

– Latin American specialty stores serving

the Mexican market, Southeast Asian

stores serving the Vietnamese market,

Indian Stores serving the South Asian

Market, and so on. These retailers generally

compete on price rather than on service,

design, product presentation, location,

product quality and cleanliness. With herbs

and spices specifically, there is some price-

based competition from within the Public

Market, principally from The Grain’ry, but

South China Seas is the only purveyor

of an extensive range of superior quality

herbs and spices, as opposed to a narrower

offering of generic products.

Online Competition

There are online competitors across

Canada, some of which run retail and

online sales operations somewhat

similar to South China Seas, but, as in

Vancouver, they serve only segments of

South China Seas’ market: Spice stores

that sell only spices, Mexican stores that

sell only Mexican products, Thai stores

that sell only Thai products, and so on.

Websites that compete for segments of

South China Seas market include Silk

Road Spice Merchant in Alberta, Épices de

Cru in Montreal, Mexican House of Spice

in Victoria, The Spice Trader and House

of Spice in Toronto, and Cardamom and

Cloves in Ottawa. None are anchored by

a stunning flagship store with a 30-year

history in the heart of Canada’s second

most popular destination (after Niagara

Falls), and none can fulfill an order that

might be comprised of a diverse selection

of herbs, spices and chiles, perhaps an

organic Japanese soy, fresh Margrut lime

leaves, black mole paste, a superb Spanish

EVOO, a Thai granite mortar and pestle

or a Middle Eastern cookbook… In 2018,

the value of the average South China Seas

online order was $71.42.

“South China Seas is Now Open in Moose Jaw, Antigonish,

Wawa, Come By Chance, Medicine Hat, Iqaluit, Rimouski,

Miramachi, The Hat, The Peg, and The Big Smoke...”

South China Seas E-Commerce Launch, 2013

South China Seas Pantry-In-A-Box (Thai, Mexico,

Foodie, China, Middle East, India, Sushi) are popular

gift items packed with exotic ingredients.

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Opportunities and

Potential

Since buying out a partner and assuming

full ownership two decades ago, the

owners have been systematically

developing the capabilities of the business.

Everything is now in place for new owners

to build on this foundation, and take next

steps on several fronts.

Physical Stores

For years, South China Seas sales growth

has been outpacing overall sales growth

in the Granville Island Public Market, and

there is no reason why this won’t continue.

The Victoria Drive location is not situated

in a prime retail area, and commissary

and order fulfillment, rather than retail, are

its primary functions. There are however

several areas in Metro Vancouver where

South China Seas would thrive – generally,

areas with a high income demographic,

such as Vancouver Westside, and the

North Shore would be most suitable.

Outside of Vancouver, promising new

locations include booming cities such

Victoria and Kelowna in B.C., and all major

Canadian cities.

Over the years, South China Seas has

received several franchise enquiries, and

opportunities for expansion with low

capital requirements through this model

are intriguing.

Other Retail Channels

Developing broader retail distribution of

proprietary brands (South China Seas,

Globavore, Junko’s) is another direction a

new owner could take. A curated selection

of South China Seas and Globavore herbs

and spices in retail packaging are already

sold at the highly regarded Dirty Apron

Cooking School and Delicatessen in

Yaletown, and Fujiya, BC’s largest retailer

of Japanese foods, has been carrying the

Company’s Junko’s salad dressings for

many years.

A Store Within a Store

At the time of this writing, a new and very

exciting opportunity for broader retail

distribution is opening up. A major regional

supermarket chain has invited South

China Seas to introduce a store within

a store concept within its soon-to-open

flagship store for its upmarket brand. The

store will be anchoring an exciting and

architecturally unique retail development

in Vancouver’s down town. The unit will

be differentiated with custom fixtures and

Globavore/South China Seas signage,

and will feature a range of SCS branded

products along with a curated selection

of upscale specialty food products from

around the world. The latter will carry

Owner/chef Don Dickson is sometimes joined by acclaimed chefs

such as Jefferson Alvarez (left) and Vikram Vij at popular cooking

classes.

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a secondary “Presented by Globavore”

brand in the form of stickers and/or neck

tags. Staffing and inventory management

will be provided by the supermarket, and

additional South China Seas products

(such as Junko’s Salad Dressings) will be

sold in other departments within the store.

Importantly, South China Seas will not be

required to pay slotting fees.

This exciting development substantively

strengthens the South China Seas brand,

and facilitates opening up additional

distribution channels.

Online Sales

Southchinaseas.ca is far and away

the strongest website in the industry:

Beautifully designed, fully scalable,

user friendly, secure, and fast. The site

received 43,514 visitors in 2018. All of

this traffic was organic – achieved without

professional SEO, and no pay per click

advertising. South China Seas nonetheless

appears in the first page of most searches

for specific spices, herbs, chiles in most

cases, particularly when Canada, or

Vancouver is included in search terms.

To date, ownership has been focused on

the design and functionality of the site

itself, and on putting in place effective

systems to manage order tracking,

logistics, and order fulfillment.

A modest advertising and optimization

budget would bring South China Seas to

top of page in almost all searches within

the Canadian market.

This is the next step, and probably

represents the biggest opportunity for

growth.

Savvy new owners with a focus on search

optimization, online advertising and social

media promotion, plus a commitment

to scaling up order fulfillment and the

shipping process, should be able to

increase online sales exponentially:

Online grocery retail is a growth industry,

the specialty foods segment within it is

particularly promising – and the average

order value is already over $70.

The potential for expansion into the US

market is of course enormous, but unless

current Homeland Security Administration

requirements are eased, a fulfillment and

distribution centre on the other side of the

border would be required.

The South China Seas website provides a customer

friendly experience on all platforms.

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Wholesale Operations

Bulk and food service wholesale,

particularly the sale of dried and fresh

spices and aromatics to BC’s craft

breweries, is an area of strong growth.

We have just completed the development

of a proprietary spice mix for the butchery

operations of a major supermarket chain.

The anticipated initial volume for this

initial product alone is 20 Kg per month at

$50.00 per Kg.

Financial Overview

The most recent year-end in 2018

recorded gross margins in excess of 49%.

Although Granville Island Public Market

sales were flat in 2018, in large part as

a result of parking and traffic disruptions

due to construction, recently, year over

year increases have ranged around 10%.

Leases and detailed financial statements

can be viewed upon signing an NDA

(Nondisclosure Agreement).

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