business plan business idea: grocery delivery service...within the web-based grocery delivery...

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Section 4 Team 12

Fall 2010

Business Plan

Business Idea: Grocery Delivery Service

Team Member Names Signature Email addresses

Blaine Anderson [email protected]

Sean Collins [email protected]

McKenna Dullea [email protected]

Kevin McKeever [email protected]

Subodh Regmi [email protected]

Kelsey Souleret [email protected]

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Table of Contents Page

Executive Summary 3

The Family Business: What is Famil-Ease? 4

Meet the Family: The Employees that Run Our Business 4

Neighborhood Watch: An Analysis of Our Industry 6

Our Neighbors: The Customers Who Make Our Business Thrive 8

Daily Chores: Our Day-to-Day Operations 10

The Yard Sale: How We Sell Our Product 13

Family Management: Motivating, Planning, and Controlling 16

The Family Bank Account: Our Finances 18

Will You Join Our Family? 19

Appendices 20

End Notes and Works Cited 28

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Executive Summary Famil-Ease Subodh Regmi 11236 47th St. Clearwater, Fl 33762 Phone: 703 329 3399 Fax: none Email: [email protected] Web Address: http:www.familease.com

Management: To be determined Industry: SIC Code: 4215 – Courier Services, Except by Air NAICS Code: 492210, Grocery Delivery Number of Employees: 10 Bank: Bank of America Future Auditor: KPMG

Law Firm(s): Akerman Senterfitt Amount of Financing Sought: 50,000 Current Investors: Owners: 30,000

Use of Funds: Equipment and vehicle

purchases, marketing campaign, salaries,

and establishing a location

Business Description: Grocery delivery services Products/Services: Delivery of grocery products including meat, poultry, vegetables, dairy and snacks to the customer. Sales Volume - $1,949,220 Cost – $1,266,993 Price - $156/delivery Most of the inventory will be received from Associated Grocer of Florida Company Background: Start Up Management: President - 7 years of experience in middle management or above Manager – 4 years of experience in warehouse and office management Competitive Advantage: The ownership of our own inventroy and control over delivery differentiates us from our compititors who use third party for products and their delivery. Markets: Busy families, vacationing families, and elderly/disabled. Market size – 5,245,945. Growth Rate – 9%

Distribution Channels: Web site

Competition: Grocery Delivery/shopping business like Wegoshop.com, WestFetch, NetGrocer Grocery Stores like Sam’s Club, Aldi, Sweetbay Supermarket Restaurants/Fastfood like Quaker Steak and Lube, Panera Bread, Antonio’s Pasta and Grill, McDonalds, Burger King People are looking at ways to make their life convenient and we offer convenience in grocery shopping. Financial Projections (Unaudited): 2010 2011 2012 2013 2014 Revenue: 1,949,220 2,801,760 3,080,480 3,359,200 3,674,320 EBIT: (37,034) 102,635 158,091 178,871 247,634

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The Family Business: What is Famil-Ease?

Famil-Ease is a grocery delivery business that provides fast, reliable service for busy local

families, vacationing families, and senior citizens, in an attempt to alleviate the stress of grocery

shopping. We specialize in the convenience of grocery delivery so customers can spend more time

with their loved ones. Customers place orders one day in advance, or a week before their vacation

and we deliver the order right to their doorstep. What gives us a competitive advantage is our

control over both our inventory and delivery process. Being a small local business gives us the

opportunity to be more personable with our customers and have a quicker response time to any

issues that may arise. What helps Famil-Ease be successful is our experienced and knowledgeable

employees, emotional intelligence, knowledge of family dynamics, and the wants and needs of those

families to help save them time and effort by bringing the grocery store to their front door.

Meet the Famly: The Employees that Run Our Business

In starting the Famil-Ease family, we focused on two essential elements: minimizing costs

and efficiency. The organization of Famil-Ease reflects this.

Projected Organizational Chart by January 1st, 2014 Famil-Ease Grocery Delivery – S-Corporation

The one in charge of running our business is the President. His or her job will be to oversee

the coordination of operations, human resources, and marketing. Next in the chain of command is

the Manager whose job will include overseeing warehouse operations and coordination of deliveries.

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Reporting to the Manager are 2 full-time Warehouse Workers who will handle stocking the shelves

as well as filling orders and keeping the warehouse clean. Our Bookkeeper will be in charge of the

payroll, accounts payable, and receivables. We will have 2 full-time service employees who will deal

with the upkeep of the website, recording orders, and customer service on a full-time basis. We will

start our business with 3 full-time Truck Drivers to deliver our products, and a 3rd Truck Driver in

2014 after we grow in size as a company. As our company grows we will consider employing more

part-time Warehouse Workers to alleviate the workload as well as employing full-time Truck Drivers

as the number of deliveries increases. Aside from those exceptions, the current level of employment

will continue through the 5th year.

We will begin looking for these employees on [Day 9] by publicizing our hiring opportunities

through ads on Craigslist, in the local newspaper, and on job websites like Monster.com. Our hiring

criteria are based on skills, experience, and knowledge. The President is required to have attained an

M.B.A. and have at least seven years of experience in a middle management position or above. He

or she must be organized, strong, and have good leadership skills. Experience in warehousing is also

required. We require our Manager to have a college degree. He or she must have at least four years

of experience with warehouses and how they are run, have strong organization and communication

skills, and be a good leader. Our bookkeeper is expected to have a college degree. Previous

experience as bookkeeper or another relatable position involving finances, sales invoices, etc is

required. Our bookkeeper must have good organizational skills and possess computer skills in order

to be able to enter information into Excel and revise it when necessary. Our full-time service

employees in the office must have previous office-work experience and experience in some sort of

customer-service job. They must possess very good communication skills to be able to help

customers, high computer skills to work and upkeep the website, and keep orders intact. In our

truck drivers, we are looking for previous driving experience with large vehicles and the local

knowledge of the St. Petersburg, Clearwater, and Tampa areas. A clean driving record is also

required. We ask that our warehouse workers are dependable, have previous warehouse experience,

and have the physical ability to perform the required tasks.

One quality we would like all of our employees to possess is a desire to help people. After all,

that is what Famil-Ease is about. An employee who cares for the customers we serve would be an

incredibly valuable asset to our company.

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Neighborhood Watch: An Analysis of Our Industry

The web-based grocery delivery industry has the potential to be a huge industry. Taking a

weighted average of the grocery store industry (80% of $501.1 billion)1 and the local delivery service

industry (20% of $74.2 billion)2, we have calculated that the size of the grocery delivery industry is

$415,720,000,000 in yearly revenue (0.2*74,200,000,000

+ 0.8*501,100,000,000 = $415,720,000,000).

Exhibit 1 shows the projected growth of the

online grocery market as of 2008 and illustrates the

slow, steady growth in sales that characterizes the

introductory stage of the product life cycle. Currently,

the food delivery industry accounts for 1% of e-

commerce sales. However the market potential of the

grocery delivery industry will increase as e-commerce in

the United States is projected to grow by 4-6% in the

near future.3 We expect the online grocery industry to

continue to grow due the following societal trends4:

Convenience: on-the-go products ease increasingly hectic lifestyles and frees up time to be

spent for family or leisure activities.

Generation Y: Generation Y individuals are starting their own households and are more

comfortable than previous generations with online shopping.

Broadband Internet: Broadband Internet is currently used by more than two-thirds of the

US population and provides quicker and easier online access.

Customization: online shopping allows for customized recommendations based on

previous purchases.

Within the web-based grocery delivery service industry, there seem to be two major trends:

1) using package delivery services to get the products to the customer, or 2) shopping for the

customers’ items the day of the delivery. Bucking these trends is what gives Famil-Ease a

competitive advantage.

Companies like NetGrocer.com and Dormzy.com use FedEx to get groceries to their

customers.5,6 While NetGrocer.com offers many of the same products that a grocery store, they

cannot sell fresh fruits and vegetables because of their delivery method. Dormzy.com is catered

towards college students and much of the food they offer is prepackaged and will not spoil. If

Exhibit 1

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someone did want to order fresh produce, though, it would not be possible. Not only are these

companies limited to what they can deliver, they also have no control over the delivery process.

NetGrocer.com and Dormzy.com cannot guarantee that a customer’s order will be delivered on

time. Also, there is a higher possibility that orders will get damaged or lost along the way.

Following the second trend, companies like Wegoshop.com go to the customer’s preferred

grocery store the day of the delivery and shop for the requested items.7 Companies like this run the

risk of stores not having the items needed. Without control over the inventory, Wegoshop.com is

left helpless when an item is out of stock. Wegoshop.com is also at the mercy of grocery stores

prices, leaving customers guessing on how much their order will be.

What gives Famil-Ease a competitive advantage over our direct competition is controlling

both of those aspects. Having our own trucks and a warehouse to store inventory gives us said

control. Both of those assets also have refrigeration capabilities which allow us to store and delivery

fresh product. Since we are getting our products directly from wholesalers and not grocery stores,

we can avoid incurring unnecessary additional expenses by paying for their markup. If by some

reason an order we deliver is incorrect, having control of our inventory and delivery process allows

us to replace the order in the same day without having to rely on supermarkets or the postal service.

Lastly, customers can count on a friendly Famil-Ease truck driver, who cares about their satisfaction,

to deliver their groceries, as opposed to an uninterested mail-man.

While those firms may be the direct competition we face, we face monopolistic competition

with other types of businesses like brick-and-mortar grocery stores, sit-down restaurants, and fast

food restaurants. These businesses require customers to come to them. They are often crowded,

loud, and have long lines that customers must wait in. When visiting sit-down and fast-food

restaurants, customers are limited to that restaurant’s specific menu items. While shopping at a

brick-and-mortar grocery store, customers must physically navigate long isles to find the products

they need and wait in line to check out. Our website, warehouse, and delivery trucks allow us

eliminate all of those negative aspects of getting food, giving us a competitive advantage. Our

website allows customers to shop from the comfort of their own home and our trucks bring the

food to them. Our warehouse allows us to store a wide variety of products, so customers can eat

whatever they want and not be limited to what a restaurant offers.

Our employees give Famil-Ease a competitive advantage as well. In order to get the job,

applicants must have experience and knowledge of their fields allowing for a very short training

period. Many companies hire employees who don’t become truly productive until after a full year.

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It is not just competition that we have to keep track of. Environmental forces that affect

Famil-Ease have to be monitored constantly to make sure the business is successful. First of all,

since our service involves handling food, compliance with the FDA and US Health Department is a

must. Also, people like to pick out their own food, so Famil-Ease must gain and keep customers’

trust by maintaining high quality standards in the products delivered (for quality assurance, see page

12). Today’s fast-paced society puts quickness and convenience at a premium, and Famil-Ease must

be sure to keep up with the times.

Although the increased use of technology makes web-based grocery delivery look like a

promising business, Famil-Ease must be careful because many people are still uncomfortable with

paying for things over the internet. Identities get stolen, as well as credit card information, so

protection of customer data must be on Famil-Ease’s to-do list. Also, some people are just not tech-

savvy. Convincing them to use the internet and use our service would be difficult. Tough economic

times could hurt our business. Also, people with low level income will probably not spend extra

money on a grocery delivery service.

70% of supermarket and grocery shopping in the United States is done by female heads of

household8, so the Famil-Ease website will be organized in a way that makes sense to female grocery

shoppers. Bad weather could also be a problem as Florida is often affected by hurricanes.

Our Neighbors: The Customers Who Make Our Business Thrive

There are many potential customers that could need or want grocery delivery service and

Table 1 shows how we have segmented them.

Typical family

vacations last for 4.3

nights.18 In 5 days,

families can consume

a lot of food. Unless

they want to eat at

restaurants for every meal, which could be very unhealthy and expensive, they will have to find a

grocery store or supermarket to buy their provisions. People with busy schedules are always on the

go and are always looking for things that make life more convenient. However, there are some

people who cannot even get out of their house, like the elderly or disabled. These people need

constant care and things from the world must be brought to them.

Table 1

Variable Segments

Reason for Needing Delivery Service

Vacationing 4,807,3489

Busy Schedule 333,48210

Non-Mobile 105,11511

Family Life Cycle Singles 513,59912

Couples 710,57513

Families 597,48614

Income per Year $0-$49,999 979,31515

$50,000-$99,999 564,67316

$100,000+ 277,67217

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People in different stages of the family life cycle require vastly different amounts of food.

What a single person spends on a week’s worth of groceries looks like pocket change to a family

with three children. Income level also affects what and how people buy. Our service is slightly more

expensive than a regular grocery store, so people with less disposable income will be less likely to

order from us.

From all of those segments, the markets we are targeting are families with busy schedules,

family vacationers, and people who are non-mobile, all of which must have the necessary income to

pay for the Famil-Ease service. With those potential customers in mind, Famil-Ease has chosen to

position itself in the market this way: “Famil-Ease is a convenient service who helps lessen the

difficulty of today’s fast-paced world by delivering groceries to our customers. Whether these

customers are vacationing families, local families with busy schedules, or elderly and disabled who

cannot get out to buy their own groceries, our service saves them time and effort by bringing the

grocery store to their front door.”

Family vacationers will request the Famil-Ease service because its convenience helps them

enjoy their vacation more. Of the total visitors to the Tampa area, 70.8% travel by plane, so it is fair

to assume that many family vacationers do the same.19 This means that these families will not be able

to bring food with them to sustain them on their vacation. By ordering groceries from Famil-Ease,

vacationers can spend more time relaxing with their family, instead of spending hours out of the day

shopping for groceries. To prevent them from going to restaurants for every meal, we remind

customers that buying groceries and cooking is cheaper, and potentially healthier, than eating out at

crowded, loud restaurants.20 Also, suggestions for easy meals that can be prepared with minimal

effort are provided on the Famil-Ease website. While people vacation in Florida year-round, the

majority of vacationing is done in the summer when children are not in school. Thus, vacationing

families will order in the late spring months and throughout the summer.

Families with busy schedules will utilize the Famil-Ease service for similar reasons. In today’s

fast-paced world, a person could spend more time with his or her spouse and children if groceries

were ordered through Famil-Ease. While fast-food is very convenient for a family on the go, it is

very unhealthy. Cooking at home has the potential to be much healthier, and with the help of the

Famil-Ease simple meal suggestions, families could easily provide meals for their loved-ones.

Families need food on a regular basis, so they could order at any time.

Non-mobile people will order from Famil-Ease because they need the world brought to

them and Famil-Ease offers an aspect of that. Providing nourishment to people in need is an

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honorable task that Famil-Ease would be thrilled to take on. In order to reach this market, Famil-

Ease must communicate to both the non-mobile people themselves and their caretakers. Caretakers

will save time and effort by not having to go out and buy the non-mobile person’s groceries. This

market segment needs food on regular basis, so they could order at any time.

All of our target markets will be ordering similar types of food. Table 2 on the following

page provides a comprehensive list.

Daily Chores: Our Day-to-Day Operations

On the following page, Exhibit 2 is a process map of our operations. There are five

potential fail points in our operations:

1 & 2) Failure to properly assess our inventory could prevent us from fulfilling orders.

3 & 4) Mistakes made while compiling orders and food could lead to customers getting a

wrong order

5) Drivers could get lost or go to the wrong address.

Local families and seniors can get next-day delivery if they order before 10:00AM.

Otherwise, they will get their order in two days. For vacationers, orders must be placed at least 1

week in advance

Table 221

Total Average Food Consumption Per Day for 1 Typical American Based on National Averages

Food by Category:

Average pounds consumed per

day for 1 American:

Total Average Food Consumed Per

Family Per Vacation In Pounds:

Total Average Food Consumed Per Family in 7days

In Pounds

Total Average Food Consumed Per

Senior Couple in 7 days

Red Meat 0.303 4.169 6.787 4.242

Poultry 0.202 2.780 4.525 2.828

Fish 0.045 0.619 1.008 0.630

Fruits/Vegetables: 1.939 26.681 43.434 27.146

Eggs: 0.682 9.384 15.277 9.548

Dairy: 1.662 22.869 37.229 23.268

Fats/Oils: 0.233 3.206 5.219 3.262

Flour/Grains: 0.54 7.430 12.096 7.560

Sweetners: 0.373 5.132 8.288 5.222

Other: 0.069 0.949 1.546 0.966

Total 6.048 83.220 135.48 84.672

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Exhibit 2

Customer

chooses

products from

website

Customer

provides

payment info

We send

confirmation

email

Customer’s

order goes

into our

database

Customer logs

onto our

website

Inventory is

projected for

their arrival

Do we have

enough

inventory?

Adjust

projected

inventory

Order more

products

Receive

products from

suppliers

Compile list

of orders to be

delivered

Day of a

delivery

Schedule

delivery routes

and assign

routes to

drivers

Warehouse

workers collect

required food

from warehouse

Food

inspected to

ensure quality

Drivers load

trucks and

depart

Customer is

given order and

receipt of

purchase

At customers

house

Customer

satisfied?

Yes

No

Driver

informs

warehouse of

problem

Driver

continues on

route

Warehouse

worker

prepares

replacement

products

Driver returns

to warehouse

Does driver

have to take

replacement

orders?

Driver delivers

replacement products

No

Yes

YesNo

F

F

F

F

F

Driver returns

to warehouse

Courtesy call

to customer

Driver files

report of

deliveries

Customer

survey

Day after

delivery

Line of Visibility

Products

placed in

inventory

Keeping our inventory at an

optimal level is important for the smooth

operation of our business. If our

inventory is too large, our operating

capital will be frozen in the inventory; if

too small, we might run out of products,

preventing us from fulfilling customer

demand. We can get our goods delivered

from the wholesaler the same day if the

order is placed before 10:00AM making

our lead time 1 day22 which helps us keep our inventory level low. To ensure that we are prepared

for emergencies while still keeping our inventory level low, we have decided that our reorder point

will be 2 days worth of demand. The calculation of reorder point in each food group is shown in the

Table 3. Every order we place will be equal to one week’s worth of demand. Since we are not getting

Table 3

Food by Category

Average Demand/day (in Pounds)

Reorder Point (In Pounds)

Red Meat 5.066 10.132

Poultry 3.378 6.756

Fish 0.753 1.506

Fruits/Veg 32.420 64.840

Eggs 11.403 22.806

Dairy 27.789 55.578

Fats/Oils 3.896 7.792

Flour/Grains 9.029 18.058

Sweeteners 6.214 12.428

Others 1.154 2.308

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any large order discounts, we don’t have incentive to order in bigger quantities.23 Additionally,

ordering in smaller quantities helps Famil-Ease provide the highest quality goods possible to our

customers and gives us higher inventory turnover ratio.

Quality assurance is of utmost importance when dealing with food products because

perishable items and fruits/vegetables have low shelf lives. Perishable items will be hand-picked

every day from the local farmers’ market to ensure the highest possible quality to the customers. For

other perishable items like milk, eggs, and meats, we expect to order them once a week in small

quantities – just enough to meet customer needs for the next handful of days. Like the perishable

items, we expect to order non-perishable items once a week to avoid staleness. The non-perishable

items can last for more than a week in our inventory, which will allow us more flexibility when

dealing with our products; but if they do exceed their sell-by date, they will be removed from our

inventory for a loss.

As a further quality check, all products will be inspected at each stage of leaving the

warehouse. Warehouse Workers will check expiration dates and produce freshness as products are

pulled out of inventory. Drivers will double-check expiration dates and freshness, and order

accuracy each morning as they load their trucks. The Manager and Truck Drivers will work together

each morning to map out the most time-efficient routes for the trucks to travel while still

maximizing the number of orders delivered per hour. This strategic planning tactic will ensure that

customers will get their deliveries at the time they requested.

Our truck drivers will deliver the groceries in person to our customers’ front door. On our

website we include the option of simply dropping off the groceries at the doorstep, however, we will

require that the customer agrees that our company will not be liable for any stolen groceries. The

customer assumes all the risk once the drop-off has been completed. If orders are placed multiple

days in advance, our full-time service employees will give each of those customers a courtesy call the

day before their delivery reminding them of the delivery time. A second call will be made the day

after the delivery to inquire of the quality of service they received (i.e. how polite the truck driver

was) and to wish them a good day and thank them for their business. If anything was unsatisfactory,

we will offer them a discount of 15% next time they use our service. As part of that call, the

customer will be asked if there were any products that they needed that we did not offer. This type

of information will help us update our offered products so that they are synchronized with

customers’ needs.

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Calculations on average number of deliveries per day and average number of orders per

truck can be found on page 3 of the Appendices. Being productive for 7 out of the 8 hours in a shift

and delivering a maximum of 4 deliveries each hour within our 20 mile radius, our Truck Drivers

will operate at 72% efficiency level for the first year.

Exhibit 3 organizes our suppliers, inputs, processes, outputs, and customers.

Famil-Ease adds value by delivering the groceries to the customers, making their lives more

convenient.

The Yard Sale: How We Sell Our Service

Famil-Ease is the final intermediary in a relatively selective distribution channel (illustrated

by Exhibit 4, left). We will use a pull strategy

by stocking the products that

potential customers want. The

bargaining power of our

suppliers is fairly weak since their products are not

specialized; therefore there are a large number of available substitutes.

At Famil-Ease, we are a family-friendly service that promises quality, on-time delivery, and

helpful customer service. We promote our brand using the following USP:

“Bringing the grocery store to your front door”

Since we cannot compete with grocery stores on a cost basis, our brand equity will be built

on the value that our customers perceive in our brands and the loyalty we hope to create in our

customers through our convenience and superiority of service. To create awareness of the Famil-

Ease brand, we will pursue aggressive marketing techniques as described in the Promotional

Strategies section (see page 15) we also expect a certain amount of word-of-mouth advertising as

satisfied customers tell friends and family about their positive experience with our company. Exhibit

Suppliers

•Associated Grocers of Florida

• Local Farmers

Inputs

• Employees

•Customer Order

•Grocery Items

•Delivery Trucks

Processes

•Receive goods from suppliers

• Store goods in appropriate locations

•Receive Customer Order

•Obtain items listed in customer order from warehouse stock

• Inspect goods

• Package goods

•Deliver goods to customer location

•Unpack goods and store in appropriate locations

Outputs

• Paperwork

•Delivered grocery Items

• Satisfied customers

Customers

•Busy local families

•Vacationing families

• The elderly and disabled

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5 lists reasons why customers prefer purchasing

groceries online. According to an online panel survey

by the Nielson Company, over 70% of respondents had

a positive experience with online grocery shopping and

only 3% reported disliking it.24

Our pricing strategy involves selling our

products at a price that is affordable to the average

family so as to gain and ultimately retain customers.

Accomplishing this goal will increase our sales and

market share. Since there are a wide variety of

substitutes for our service, our product prices are relatively fixed and are subject to elastic demand.

Our unit prices will be set comparatively equal to that of our direct competition since we are not

differentiating ourselves through price but through the quality of our service. In order to obtain

these objectives, we will set our prices by marking up our items at 35% of cost with no delivery fee

(the high markup cost absorbs the cost of delivery). The minimum dollar amount a customer can

order is $50.00.

We also offer package deals that include a week’s worth of groceries for a family of 4-5.

These packages allow added convenience for families since shoppers will not have to browse

through items to add to their online grocery cart. The basic package deal is shown in Table 4.

Table 4

Breakfast Items pancake mix, maple syrup, eggs, bacon, 3 types of cereals, bagels, cream cheese, and pop tarts

Lunch Items bread, lunch meats and cheeses, lettuce, tomatoes, peanut butter, and jelly

Dinners

Entrees: Hamburgers (hamburger meat and buns), Hot-Dogs (hot dogs and buns), Spaghetti (noodles, sauce, and parmesan cheese), Barbecue (chicken and marinade), Burritos (tortillas, meat, shredded cheese, lettuce, sour cream, and salsa), Seafood (choice of fish and marinade, shrimp) Sides: rice, mashed potato mix, mixed vegetables, corn on the cob, mixed salad, and French fries

Snacks potato chips, tortilla chips, salsa, fruit (including apples, bananas, and grapes), goldfish, and pretzels

Deserts 2 flavors of ice-cream, cones, sprinkles, popsicles, cake mix, icing, assorted cookies and candies

Beverages Milk, 2 sodas, 2 juices, lemonade, tea, and coffee For customers over 21: 2 bottles of wine and 24-pack of beer

Other mayonnaise, ketchup, mustard, salad dressings, butter, salt, pepper

Famil-Ease also offers a variety of other package deals including, but not limited to, the Tropical

Beach Package, Fourth of July Package, and the Vegetarian Package. These deals are typically priced

around $160, depending on the cost of the included food.

Exhibit 5

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In order to gain customers and increase our sales and market share, our promotional

strategies will focus on creating awareness of our product and enhancing our brand image. The

messages that we are attempting to convey to our potential customers include the following:

Convenience: we offer our customers a way to spend more time with their families by

eliminating the time they would typically spend shopping for groceries.

Variety: From the typical brands of food found in supermarkets, to specialty products such

as organic, gluten-free, and lactose-free goods, to fresh local produce, the customer can get

exactly what he or she wants.

Quality: all of our products are quality-assured due to daily inspections made prior to

delivery. On the rare occasion that something is of poor quality, we offer same-day delivery

of replacement products.

Friendly Service: we are a family-friendly service that caters to our customers needs by

being available for calls and providing feedback surveys to improve the quality of our

service.

Since the grocery delivery business is in the introductory stage of the industry life cycle, our

promotional goal is to inform and raise awareness of our company. Our promotional budget for

year 1 is $20,482. During the first year, we will only be implementing a few of the actions in our

promotional mix. Our communication mix involves the following promotional activities, objectives,

budgets, and timing:

Traditional Advertisements: We will make use of traditional advertisements in order to

stimulate primary as well as selective demand. In year 1, radio ads will cost $9,53625 and

newspaper ads will cost $7,33026. In following years we will increase our promotional budget

to include the cost for billboards and bus advertisements.

Nontraditional Advertisements: Our nontraditional advertisements will reach out to more

tech-savvy consumers, create further awareness of our product, and retain loyal customers.

We will begin development of Facebook and Twitter accounts in year 1. In following years,

we will further develop these accounts as well as create smart phone apps so that customers

can order from their smart-phones.

Public Relations: We will make use of public relations in order to create awareness of our

brand. We will hold a press release through www.free-press-release.com when we first open

our business. In year 2 we will invite a reporter to write a story about our business.

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Sales Promotions: Our sales promotions will encourage people to try our service, reduce

sales fluctuations, and develop customer loyalty. We will place coupons in vacationing books

and newspapers, put items on sale and offer periodic online

specials, offer 5% discount for orders placed 2 weeks before

delivery, and offer a 10% Senior Citizen discount.

Other Marketing: To stimulate demand, we will take part in

online marketing. In year 1, we will run several online

advertisements including pay-per-click ads, banner ads, and

Google ads with a total cost of $2,988. We will also place fliers in

elderly communities and physical therapy clinics at a cost of

$60027. These promotional activities will be repeated and

expanded upon in following years depending on their success in year 1.

Table 5, right shows our monthly first year sales forecast.

Table 6, below, shows our five-year sales forecast.

Year 1 Year 2 Year 3 Year 4 Year 5

Sales $1,949,220 $2,801,760 $3,080,480 $3,359,200 $3,674,320

Net Income ($41,700) $64,660 $93,589 $107,363 $150,406

Promotional Expense $38,916 $58,120 $64,896 $68,326 $75,853

Market Potential282,041,434,275$ 2,045,517,143$ 2,045,525,309$ 2,045,525,325$ 2,045,525,326$

Market Share 0.10% 0.14% 0.15% 0.16% 0.18%

Markup 35% 35% 35% 35% 35%

Average Sales Prices $1,932,840 $2,798,640 $3,082,560 $3,366,480 $3,690,960

Total Variable Costs $238,184 $339,382 $373,940 $401,968 $441,008

Contribution Margin $1,694,656 $2,459,258 $2,708,620 $2,964,512 $3,249,952

Total Fixed Costs $70,938 $15,400 $15,400 $15,400 $15,400

Breakeven ($) $80,813 $17,523 $17,528 $17,493 $17,500

Breakeven in Market Share 0.004% 0.001% 0.001% 0.001% 0.001%

Family Management: Motivating, Planning, and Controlling

Keeping employees motivated is paramount to achieving organizational goals and enhancing

productivity. Because this element is so important to the success of any company, we fabricated a

very generous benefits package, installed a bonus program based on sales per month, as well as a few

training and betterment programs to keep our employees engaged and educated.

Sales Forecast Year 1

Jan. $87,715

Feb. $97,461

March $116,953

April $136,445

May $185,176

June $194,922

July $292,383

Aug. $282,637

Sept. $214,414

Oct. $155,938

Nov. $116,953

Dec. $68,223

Total Sales $1,949,220

17

Thanks to our excellent benefits package, employee turnover should be extremely low,

especially for low wage employees who generally value benefits packages more than salaried

employees. Our benefits package includes paid vacation time (10 days, doesn’t carry over from year

to year), holidays (6 days), sick leave (3 days), miscellaneous leave (1 day), overtime, shift and

nonproduction bonuses, life insurance, health insurance, disability insurance, and finally retirement

and savings. With such a comprehensive benefits package, Famil-Ease will be able to increase

employee morale and keep our workers motivated.

At Famil-Ease we also want our employees to challenge themselves to reach their full

potential. To help accomplish this, we set up a bonus pay system based on the number of sales the

company makes in a given month. If sales exceed the expected sales forecast by 10% for a given

month, we will pay everybody in the company a $50 bonus. If sales exceed the forecast by any more

than the first 10%, we will pay each employee a flat rate of $25 per 10% increase thereafter with no

cap on how much bonus money can be earned. Not putting a cap on the bonus dollar amount that

each employee can earn will put the responsibility of working hard in the employees hands, leading

to increased motivation and satisfaction amongst employees.

The last tactic Famil-Ease will use in keeping our employees motivated and engaged will be

to offer monthly training and betterment programs. Initially we will offer only 2 programs: a

customer interaction workshop, and an efficiency seminar. The programs will alternate from month

to month. The customer interaction workshop will teach our Truck Drivers and FULL-TIME

SERVICE employees how to formally greet, interact with, and service a customer. The efficiency

seminar will teach everybody involved in the distribution of our goods how to manage themselves

and people around them to get the most work done in the shortest amount of time. As our company

grows and evolves, we will develop more programs. We offer, as incentive to attend our programs,

the option of choosing a bonus payment of $20 per seminar or 1 extra vacation day per 6 seminars

attended. (Training sessions can be taken more than once by an employee). Training programs will

be taught by either the warehouse manager or the President of the company. The 2-hour-long

seminars will have written tests at the end in order to ensure employees comprehended the subject

material. Implementing these training programs will play a vital role in making sure our employees

are the best at what they do, ensuring that we are the best at what we do as a company.

Famil-Ease will implement a number of different plans to ensure flexibility in the event that

our industry requires our business model to change. As mentioned previously, we already plan on

hiring part-time help during peak vacationing months to help satisfy the increased demand from

18

vacationing families. Also, as demand increases for our service, more full-time employees with be

hired.

Famil-Ease will also implement a system of mandatory combined training sessions to

increase the flexibility of our employees. We will train our Truck Drivers, Warehouse Workers and

full-time service employees on how to carry out each other’s responsibilities. If a need arises for a

different number of employees within the existing positions, we could look within our own

company to fill the need first, instead of searching for new hires. This system will also increase

cohesion amongst employees because they will be able to relate to one another on a higher level and

interact with each other more often.

Looking more towards the future, if Famil-Ease expands to other locations, training

employees within the company to take on management roles would be a top priority for Famil-Ease

as a sign of appreciation and loyalty for their hard work.

To ensure that all current and future plans are executed properly and effectively, Famil-Ease

will implement a communication plan to make certain that each employee is able to effectively

communicate with other employees to avoid confusion. We will have a clear set of procedures on

how tasks should be accomplished, as well as policies outlining what Famil-Ease considers

unacceptable behavior. For employees who violate company policy, positive discipline steps will be

taken.

The Family Bank Account: Our Finances

Famil-Ease is looking to attract investors interested in a potentially fast growing and highly

profitable enterprise. The delivery grocery business has the potential to make a large impact in the

Clearwater, Florida area where there are a variety of market segments interested in the convenience

and of having their groceries delivered. We have located our business in Florida because it has one

of the highest vacationing populations and longest vacationing seasons in the country, and we are

focusing on catering to vacationing families. By offering door to door convenience, easy access

customer service, and prompt delivery we will expand our vacationing customer market while adding

a loyal local customer base consisting of families and senior citizens who are incapable of or dislike

doing their own shopping.

We will surpass profitability early in year 2. This will be contingent on maintaining our high

projected volume of deliveries as there is a low profit margin in the grocery business and success

depends on a high volume of sales. Our focus will be on offering comparable prices to

supermarkets while adding door front delivery for almost no added cost. Our business will be

19

effective because the ease of ordering familiar grocery products is coupled with fast delivery and

high customer service. Famil-Ease will also focus on expanding the existing grocery market in the

area by offering a high level of convenience and customization to individual needs. Value for the

customer will primarily be created through our ability to delivery fresh goods in a convenient and

timely fashion while maintaining reasonable pricing.

In addition to the $30,000 owner’s investment, and the $77,762 in long term debt, we will

still require $50,000 in outside equity. Venture capitalists can expect an annual 35% dividend payout

ratio on Famil-Ease’s net income. The payout rate reflects the stability of the grocery delivery

business as growth will be steady but on the low side and there will be a low to average risk in the

investment. Dividends will be distributed annually and over the five year period we expect initial

investors to almost triple their initial investment.

Even though the risk associated with our business is average, the opportunity for Famil-Ease

to thrive in the highly populated vacation market of Clearwater, Florida will help alleviate any risk

associated with the investment. We expect the company to break even ¼ of the way through the

second year, and begin to pay investors immediately in year 2 once profitability is reached. The long

term debt will be paid off periodically over the next few years. Forecasted IRR over the first five

year period, as calculated by the constant growth model and the book value of equity model, are

50.25 and 47.63 respectively. This substantial return shows that our company is capable of

generating capable growth and return for our investors. Our debt leverage is high initially at 97% of

our invested capital, and we pay the debt over the course of 5 years with the debt being fully paid off

in year 5. This is not a problem because since our debt level is low so our yearly interest payments

are low and manageable. Our low interest payments and mid level dividend payments allow us to

continue to be profitable while satisfying our investors well past their level of investment. Any

additional revenue will be put towards updating the equipment in our facility and expanding our

operation and projected total compensation for shareholders exceeds $100,000 over 5 years.

Will You Join Our Family?

Famil-Ease is a business that wants to help families make their lives easier. We are a

company in a growing industry that has the potential to become wildly profitable. With our position

in the market as a source of convenience, our efficient organizational structure, our quick

operations, and our prediction of being profitable within our second year, the future of Famil-Ease

is looking bright. So this question must be asked: “Will you join our Famil-Ease family?”

20

Appendices Appendix A: Forecasted Financial Statements

Famil-Ease LLC Forecasted Income Statements – Prepared March 2011

Famil-Ease LLC Forecasted Balance Sheet – Prepared March 2011

Famil-East LLC

Forecasted Statement of Retained Earnings – Prepared March 2011 Famil-Ease LLC

Ratio Chart

Pro Forma Income Statement

Revenues $1,949,220 100.0% $2,801,760 100.0% $3,080,480 100.0% $3,359,200 100.0% $3,674,320 100.0%

COGS(Materials) (1,266,993) -65.0% (1,821,144) -65.0% (2,002,312) -65.0% (2,183,480) -65.0% (2,388,308) -65.0%

COGS(Labor) (112,961) -5.8% (136,310) -4.9% (138,777) -4.5% (181,604) -5.4% (184,976) -5.0%

COGS (Depreciation) (8,479) -0.7% (8,479) -0.3% (8,479) -0.3% (11,106) -0.3% (11,106) -0.3%

COGS (Credit Transactions) (48,731) -2.5% (70,044) -2.5% (77,012) -2.5% (83,980) -2.5% (91,858) -2.5%

Gross Margin $512,056 26.3% $765,783 27.3% $853,900 27.7% $998,072 26.8% $998,072 27.2%

SG&A Expenses (127,542) -6.5% (177,391) -6.3% (194,670) -6.3% (208,684) -6.2% (228,204) -6.2%

Salaries, Wages and Benefits (294,010) -15.1% (354,453) -12.7% (361,012) -11.7% (367,353) -10.9% (373,997) -10.2%

Lease Expense (100,000) -5.1% (103,000) -3.7% (106,090) -3.4% (109,273) -3.3% (112,551) -3.1%

Utilities Expense (25,524) -1.3% (26,290) -0.9% (27,079) -0.9% (27,981) -0.8% (28,728) -0.8%

Depreciation Exp (Equip.) (2,014) -0.1% (2,014) -0.1% (6,958) -0.2% (6,958) -0.2% (6,958) -0.2%

EBIT $46,366 -1.9% $102,635 3.7% $158,091 5.1% $178,871 5.3% $247,624 6.7%

Interest (4,666) -0.2% (4,666) -0.2% (4,666) -0.2% (2,866) -0.1% (1,066) -0.1%

EBT ($41,700) -2.1% $97,969 3.5% $153,425 5.0% $176,005 5.2% $246,568 6.7%

Taxes 0 0.0% (33,309) -1.2% (59,836) -1.9% (68,642) -2.0% (96,162) -2.6%

EAT ($41,700) -2.1% $64,660 2.3% $93,589 3.0% $107,363 3.2% $150,406 4.1%

Dividends $ - $22,631 $32,756 $37,577 $52,642

Change in Retained Earnings ($41,700) $42,029 $60,833 $69,786 $97,764


Pro Forma Balance Sheet

Cash 86,458 38.3% 155,423 49.6% 179,534 49.9% 227,120 54.7% 328,079 64.1%

Accounts Receivable 46,410 20.6% 53,880 17.2% 59,240 16.5% 64,600 15.6% 70,660 13.8%

Inventory 50,680 22.5% 72,846 23.2% 80,092 22.3% 87,339 21.1% 95,532 18.7%

Total Current Assets $183,548 81.4% $282,149 90.0% $318,866 88.7% $379,059 91.4% $494,271 96.5%

Net Fixed Assets 41,973 18.6% 31,480 10.0% 40,763 11.2% 35,831 8.6% 17,767 3.5%

Total Assets $225,521 100.0% $313,629 100.0% $359,629 100.0% $414,890 100.0% $512,038 100.0%

Accounts Payable 105,583 46.8% 151,762 48.4% 166,860 46.4% 181,957 43.9% 199,026 38.9%

Accruals 3,876 1.7% 3,776 1.2% 3,845 1.1% 4,223 1.0% 4,300 0.8%

Current Liabilities $109,459 48.5% $155,538 49.6% $170,705 47.5% $186,180 44.9% $203,326 39.7%

Long-term Debt 77,762 34.5% 77,762 24.8% 47,762 13.3% 17,762 4.3% 0 0.0%

Common Stock 80,000 35.5% 80,000 25.5% 80,000 22.2% 80,000 19.3% 80,000 15.6%

Retained Eanings (41,700) -18.5% 329 0.1% 61,162 17.0% 130,948 31.6% 228,712 44.7%

Total Liabilities & Equity $225,521 100.0% $313,629 100.0% $ 359,629 100.0% $ 414,890 100.0% $ 512,038 100.0%



Beginning retained earnings 0 (41,700) 329 61,162 130,948

Dividends paid 0 (22,631) (32,756) (37,577) (52,642)

Net income (EAT) (41,700) 64,660 98,589 107,363 150,406

Ending retained earnings ($41,700) $329 $ 61,162 $130,948 $ 228,712

Pro Forma Statement of Retained Earnings

Ratios Table

Year 1 Year 2 Year 3 Year 4 Year 5 Averages

Liquidity:

Current Ratio 1.64 1.81 1.88 2.04 2.43 3.9

Quick Ratio 1.21 1.35 1.4 1.57 1.96 2

Operating Profitability:

Total Asset Turnover 8.64 8.93 8.56 8.09 7.18 5.05

Inventory Turnover 25 25 25 25 25 14.49

Financing:

Debt Ratio 0.83 0.74 0.61 0.49 0.4 0.43

Profitability:

Profit Margin -2.1 2.3 3 3.2 4.1 0.3

Return on Equity -1.06 0.8 0.68 0.51 0.49 0.23

21

Appendix B: Capital Structure Summary Famil-Ease LLC Capital Structure

January 2011

Source Amount

Owners $30,000

Outside Venture Capitalists $50,000

Lenders $77,672

Appendix C: Capital Investment, Investor Cash Flows and Return on Investment

Famil-Ease LLC Capital Investment, Investor Cash Flows and Return on Investment

January 2011

Founder’s Investments $30,000 Outside Investors

$50,000

Equity Distribution/Dividends

Year 1 $0

Year 2 $22,631

Year 3 $32,756

Year 4 $37,577

Year 5 $52,642

Total Distribution $142,606

Required Return 25% Growth Rate

8.77%

Return on Investment (IRR) = 50.25

Appendix D: Return on Investment TECHNIQUE 1: Constant Growth Model Terminal Value = $52,642(1 + 0.0877) = $352,795 (0.25 - 0.0877) 0 1 2 3 4 5 6 -$80,000 $0 $22,631 $32,756 $37,577 $52,642 $352,795 Thus,

CF0 = -80,000 CF1 = 0 CF2 = 22,631 CF3 = 32,756 CF4 = 37,577 CF5 = 52,642 + 352,795 = 405,437

Solve for the investment criteria with WACC = 25%, we get

Payback Period = 3.66 years NPV = $99,500 IRR = 50.25% MIRR = 46.93%

Technique 2: Book Value of Equity Model Common Stock = Founders’ Equity + Outside Equity = 30,000 + 50,000 = $800,000 Retained Earnings in Year 5 Balance Sheet = $228,712,000 Total Book Value of Equity at the end of Year 5 = $80,000 + $228,712 = $308,712 0 1 2 3 4 5 -$80,000 $0 $22,631 $32,756 $37,577 $52,642 $308,712 Thus,

CF0 = -80,000 CF1 = 0 CF2 = 22,631 CF3 = 32,756 CF4 = 37,577 CF5 = 52,642 + 308,712 = 361,354

Solve for the investment criteria with WACC = 25%, we get

Payback Period = 3.66 years NPV = $85,055 IRR = 47.63% MIRR = 44.48%

22 Appendix D: Financial Assumptions

For Year 1

1. This business will be an S-corporation. No taxes will be incurred on the business level 2. Three F-350 delivery trucks, two forklifts, with an average of 59 customers served per day Thursday through Monday. 3. Three targeted segments: Local residents, local senior citizens, vacationers

Local residents: i. 395,432 households in the area29 ii. Nationwide 2% of all people said they would be interested in grocery delivery iii. 1.39% market share for grocery start up businesses30 iv. 395,432 x .02 x .0139 = 110 households served per week (average household gets groceries once a week) v. 110 per week/5 operating days in a week = 22 deliveries per day

Local senior citizens i. 105,115 senior citizen households in the area31 ii. 11% of senior citizens are incapable of leaving the house to get their own groceries32 iii. 1.39% market share for grocery start up business33 iv. 105,115 x .11 x .0139 = 160 households served (average senior citizen gets groceries once every 2 weeks) v. 160/10 operating days in 2 weeks = 16 deliveries per day

Vacationers i. 5,193,980 vacationers per year in this area34 ii. 14,230 vacationers per day (5,193,980/365 days in a year) iii. 4.3 days is the average stay time35

1. 61,189 vacationers there at one time (14,230 x 4.3) iv. 3.2 people on average per vacationing family

1. 19,122 families vacationing at one time (61,189/3.2) v. 34% of vacationing families interest in grocery delivery36 vi. 1.39% market share for grocery start up business37 vii. 19,122 x .34 x .0139 = 90 households served per visit (vacationers stay an average of 4.3 days) viii. 90/4.3 = 21 deliveries per day

Average deliveries per day = 59

Total deliveries Year 1 = 12,390 (59 per day x 210 operating days) 4. Hours of operation: Warehouse open from 8 a.m. until 6 p.m. daily, delivery from delivery from 9 a.m. to 6 a.m.

(With an hour long lunch break) 5. Variable costs for the delivery of groceries will differ depending on the distance of the drive. The company estimates an average delivery

cost per job of $26.27, average labor cost of $18.00, and a total average delivery cost per job of $44.27. Delivery Cost

Gas Price/gallon $2.69 Miles per gallon 16 miles per gallon Avg miles traveled 16 miles per delivery Credit Card cost $3.93 Cost of Bags $1.60 Cost of Coolers $1.50 Sales Tax $11.55 Dry ice used 5 lbs Price of Dry ice $1/1b

Average Cost per delivery $ 26.27 per delivery Labor Cost

Truck driver 3 Trucker hourly wage $15 Hrs per day- truckers 8 Deliveries per day truckers 20

Average labor cost/ delivery $18.00 per delivery Average Delivery cost per Job $44.27

6. All supplies will be paid for a one month after ordering. Delivery is typically made within the week of ordering. 7. Since there are 12,390 deliveries made in Year 1 the company will require 123,900 grocery bags (10 on average per delivery)

Bags are deliveries in bundles of 500 and cost $79.95 per 500 bags delivered

The company will need 248 deliveries of bags (123,900 total bags/500 bags per delivery)

The total cost for grocery bags will be $19,812 (248 deliveries x $79.95 per delivery)38 8. There is one cooler used on average per delivery. Therefore the company will need to purchase 12,390 coolers during Year 1.

Each cooler costs $1.5 on average

The total cost for coolers will be $18,585 (12,390 total deliveries x $1.5 cost of each cooler)39 9. Total Yearly Gas Cost

Gas Price/gallon $2.69 Miles per gallon 16 miles per gallon Avg miles traveled 16 miles per delivery # of deliveries (yearly) 12,390 Yearly Gas Cost $33,329

10. Equipment Depreciation Cost (5 year straight-line) Amount Life Span Total Cost

Trucks 3 5 $39,39640

23

Forklifts 2 5 $ 3,00014

Total Cost per delivery $3.42

Office Equipment (5 year straight-line) Desks, Chairs $1,600 Computers $2,800 Printer, Copier $800 Telephone $400 Shelving Units $4,470 Total $10,070 Annual Depreciation $2,014 11. The company will purchase $50,680 of materials and will keep this in inventory to have on hand at all times just in case demand forecasts

were too conservative.

This is sticking to an inventory turnover ratio of 25.0 12. The company will lease a building in Clearwater, Florida and pay $100,000 in rent per year ($8,333 per month). The building will incur an

annual utility expense of $25,524.15 13. Based on population assumptions, estimate sales of 59 per day on weekdays (Thursday through Monday)16 Therefore 295 sales per week x

42 operational weeks in year 1= 12,390 sales in year 1. 14. The markup cost for orders with is 35.0% (We are using a 30% markup on our goods plus an extra 5% to cover delivery costs). Our

businesses delivery costs are factored into the prices therefore inflating prices, but allowing for “free delivery”

We found that the average person consumes $9.44 worth of groceries per day

Vacationers: i. $9.44 average consumption per person x 3.2 average persons in a vacationing family x 4.3 average duration of

vacation = $130 in goods17 ii. 30% markup ($130 x .70) = $91 Cost of Goods Sold iii. $91 COGS/.65(markup including delivery cost) = $140 average per delivery18

Local Residents i. $9.44 average consumption per person x 2.59 average person’s per household x 7 days average time between

deliveries = $171 in goods ii. 30% markup ($171 x .70) = $120 Cost of Goods Sold iii. $120 COGS/.65 (markup including delivery cost) = $185 average per delivery

Local Senior Citizens i. $9.44 average consumption per person x 1 person per household x 14 days average time between deliveries =

$132 in goods ii. 30% markup ($132 x .70) = $92.4 Cost of Goods Sold iii. 92.4 COGS/.65 (markup including delivery cost) = $142 average per delivery

15. Annual Revenues= Local Residents (4,620 x $185) + Senior Citizens (3,360 x $142) + Vacationers (4,410 x $140) = $1,949,220 16. Since we deal solely with online transactions it is assumed that 100% of sales will be on credit. It is estimated to take approximately 1 week

for credit sales to be collected. Credit card transaction costs equal 2.5% of credit card purchases based on information collected from credit card companies.

Accounts Receivable

Annual Revenues x Credit Card Percentage x (1/42 weeks operational in Year 1)

$1,949,220 x 100% x (1/42) = $46,410

Credit Card Transaction Cost

$1,949,220 x 100% x 2.5% = $48,731

17. Promotion Expenses

Advertising Budget = $38,916

Advertising Expenses = 7.6% of Gross Margin ($512,056 x .076)19 i. Industry average is 3.8% of gross margin for advertising expenses ii. We are trying to reach two distinct markets from different areas (local and vacationers), so we doubled the amount

of advertising to accommodate both groups 18. A total of 4 service employees will be needed during the 1st year:

1 President $41,346 (Plus 29.2% Benefits) = $53,419 1 Manager $31,010 (Plus 29.2% Benefits) = $40,065 1 Bookkeeper $24,808 (Plus 29.2% Benefits) = $32,052 2 Full-time $51,600 (Plus 29.2% Benefits) = $66,667 Total Administrative Salaries and Benefits Cost = $192,20318 Full-Time Benefits:

Social Security 6.20%* Fixed at 6.2% & capped at $106,800 in 2010.

Medicare 1.45%* Fixed at 1.45% and no cap.

FUTA 0.8%* Federal Unemployment Tax Act costs, fixed.

SUTA 2.7%* State Unemployment Tax Act costs, Workers’ Comp. 0.6%* Health Insurance 13,000

* Part-Time Benefits

Annual SG&A Expenses: Advertising/Promotion $38,916

Cost of Bags $19,812 Cost of Coolers $18,585

24 Gas Expense $33,329 Computing Software $3,90020 Insurance $5,000

Legal/Accounting $8,00021 Total Annual SG&A $127,542 It is assumed that all SG&A expenses are paid with cash.

19. We are using grocery delivery computer software that costs $1,500 initially, and then $200 per month after that.

$1,500 + (12 months x $200 per month) = $3,900 20. There will be 2 paid days outstanding at the end of each year for both manufacturing and administrative employees. (Assume 215 work

days.) 21. Target ending cash balance for the firm is equal to 2 months of operating expenses =

$518,752 x 2/12 = $86,459 22. Founders will contribute $30,000. 23. Outside equity investors are needed to provide $50,000 24. The company will borrow $77,762 from the bank at a 6% rate and no dividends will be paid

For Year 2:

1. Sales for the vacationing segment of our business increase by the retail industry rate of 14.4%22 From Year 1 to Year 2 we are experiencing more growth so the growth rates are doubled

21 Sales per day Year 1 x 1.288 growth = 27 deliveries per day Year 2 Sales for local residents and senior citizen segments of our business are expected to grow 5.13% (average growth rate for the delivery industry over the last 5 years)23 22 Sales per day Year 1 x 1.1026 growth = 24 deliveries per day Year 2 (Local Residents) 16 Sales per day Year 1 x 1.1026 growth = 18 deliveries per day Year 2 (Senior Citizens)

2. Initial Inventory grows in accordance with sales

Sticking to inventory turnover ratio of 25.0 the company will need to have $72,846 of inventory on hand

$1,821,144 COGs/25.0 inventory turnover ratio = $72,846

Company will need to purchase $22,166 in additional inventory at the beginning of the year ($72,846 - $50,680) 3. Material costs vary with sales 4. All supplies are still paid for one month after ordering. Accounts payable varies with sales 5. Since the firm is still operating below capacity no additional equipment is needed for year 2.

The following depreciation expenses do NOT vary with sales Manufacturing Equipment (5 year life) Annual Depreciation = $8,479per year Office Equipment (5 year life) Annual Depreciation = $2,014 per year

6. Annual Revenues 69 deliveries per day (260 Operating Days)

Vacationers: 27 deliveries per day x $140 per delivery = $3,780 per day

Local Residents: 24 deliveries per day x $185 = $4,440 per day

Senior Citizens: 18 deliveries per day x $142 = $2,556

Total Revenue per day = $10,776

Total Revenue in Year 2 ($10,776 per day x 260 days) = $2,801,760 7. Since we deal solely with online transactions it is assumed that 100% of sales will be on credit. It is estimated to take approximately 1 week


8. Accounts receivable is estimated to be the following:

Annual Revenues x Credit Card Percentage x (1/52) = ($2,801,760 x 100% x (1/52) = $53,880

Credit Card Transaction Cost ($2,801,760 x 100% x 2.5%) = $70,044 Note that both vary with sales

9. All Year 1 salaries, wages, and benefits grow at 2% inflation Total Salaries, Wages, Benefits = $354,453

10. There are no new employees in year 2. Total Administrative Salaries and Benefits Cost = $196,047



Advertising Expenses = 7.6% of Gross Margin ($765,783 x .076) 12. Since there are 17,940 deliveries made in Year 2 the company will require 179,400 grocery bags (10 on average per delivery)

The total cost for grocery bags will be $28,702(359 deliveries x $79.95 per delivery)25 13. There is one cooler used on average per delivery. Therefore the company will need to purchase 17,940 coolers during Year 2.

The total cost for coolers will be $26,910 (17,940 total deliveries x $1.5 cost of each cooler) 14. Total Yearly Gas Cost $48,259 (# of deliveries 17,490) 15. Annual SG&A Expenses:

Advertising/Promotion $58,120 Cost of Bags $28,702 Cost of Coolers $26,910 Gas Expense $48,259 Computing Software $2,400 Insurance $5,000 Legal/Accounting $8,000 Total Annual SG&A $177,391

16. Target ending cash balance for the firm is equal to 2 months of operating expenses = $632,117 x 2/12 = $105,353

17. No new equity capital 18. Dividends will be paid out at 35% of Net Income. 35% x $64,660 = $22,631

25

19. We are taxed at a 34% rate based on our income being in the $75,000 - $100,000 tax bracket. $97,969 x 34% = $33,309 in taxes25

For Year 3: 1. Sales for the vacationing segment of our business increase by the retail industry rate of 14.4%26

27 Sales per day Year 2 x 1.144 growth = 31 deliveries per day Year 3 Sales for local residents and senior citizen segments of our business are expected to grow 5.13% (average growth rate for the delivery industry over the last 5 years)27 24 Sales per day Year 2 x 1.0513 growth = 26 deliveries per day Year 3 (Local Residents)

18 Sales per day Year 2 x 1.0513 growth = 19 deliveries per day Year 3 (Senior Citizens) 2. Initial Inventory grows in accordance with sales



Company will need to purchase $7,246 in additional inventory at the beginning of the year ($80,092 - $72,846) 3. Initial inventory grows in accordance with sales 4. Material costs vary with sales 5. All supplies are still paid for one month after ordering. Accounts payable varies with sales 6. In Year 3 due to increasing sales, the firm will buy one new walk in freezer and one new walk in cooler

Walk in freezer = $12,96127

Walk in cooler = $11,75927 The following depreciation expenses do NOT vary with sales

Manufacturing Equipment (5 year life) Annual Depreciation = $8,479 per year Office Equipment (5 year life) Old Depreciation = $2,014 per year New Depreciation on cooler/freezer = $24,720/5 = $4,944 Annual Depreciation = $6,958 per year

7. Annual Revenues 76 deliveries per day





260 Operational Days




Annual Revenues x Credit Card Percentage x (1/52) = $3,080,480 x 100% x (1/52) = $59,240

Credit Card Transaction Cost = $3,090,480 x 100% x 2.5% = $77,012 Note that both vary with sales


11. There are no new employees in year 3. Total Administrative Salaries and Benefits Cost = $199,968



Advertising Expenses = 7.6% of Gross Margin ($853,900 x .076)28 13. Since there are 19,760 deliveries made in Year 2 the company will require 197,600 grocery bags (10 on average per delivery)

The total cost for grocery bags will be $31,580(395 deliveries x $79.95 per delivery) 14. There is one cooler used on average per delivery. Therefore the company will need to purchase 19,760 coolers during Year 3.

The total cost for coolers will be $29,640 (19,760 total deliveries x $1.5 cost of each cooler) 15. Total Yearly Gas Cost $52, 154 (# of deliveries 19,760) 16. Annual SG&A Expenses:

Advertising/Promotion $64,896 Cost of Bags $31,580 Cost of Coolers $29,640 Gas Expense $53,154 Computing Expense $2,400 Insurance $5,000

Legal/Accounting $8,000 Total Annual SG&A $194,670


18. No new equity capital 19. Dividends will be paid out at 35% of Net Income. 35% x $93,589 = $32,756 20. We are taxed at a 39% rate based on our income being in the $100,000 - $335,000 tax bracket.

$153,425 x 39% = $59,836 in taxes For Year 4:

1. Due to increasing sales we purchase another delivery truck at $13,132 (still depreciated at the same rate as the other vehicles – 5 year straight line) and hire another driver making $15 an hour. This will increase our capacity of deliveries per day.

2. Sales for the vacationing segment of our business increase by the retail industry rate of 14.4%29 31 Sales per day Year 2 x 1.144 growth = 35 deliveries per day Year 4

26

Sales for local residents and senior citizen segments of our business are expected to grow 5.13% (average growth rate for the delivery industry over the last 5 years)

26Sales per day Year 2 x 1.0513 growth = 28 deliveries per day Year 4 (Local Residents) 19 Sales per day Year 2 x 1.0513 growth = 20 deliveries per day Year 4 (Senior Citizens)

3. Initial Inventory grows in accordance with sales



Company will need to purchase $7,247 in additional inventory at the beginning of the year ($87,339 - $80,092) 4. Initial Inventory grows in accordance with sales 5. Material costs vary with sales 6. All supplies are still paid for one month after ordering. Accounts payable varies with sales 7. Since the firm would be operating above capacity for three trucks we purchased a fourth truck in year 4.

The following depreciation expenses do NOT vary with sales Manufacturing Equipment (5 year life) Annual Depreciation = $11,106 per year (4 trucks now) Office Equipment (5 year life) Annual Depreciation = $6,958 per year

8. Annual Revenues 83 deliveries per day (260 operational days)











12. New employees for Year 4: 1 Full Time Truck Driver $15/hour x 260 days x 8 hr/day (plus 29.2 cost for benefits) = $40,310 Total Administrative Salaries and Benefits Cost = $203,967





The total cost for coolers will be $32,370 (21,580 total deliveries x $1.5 cost of each cooler) 16. Total Yearly Gas Cost $58,050 (# of deliveries 21,580) 17. Annual SG&A Expenses:

Advertising/Promotion $68,326 Cost of Bags $34,538 Cost of Coolers $32,370 Gas Expense $58,050 Computing Software $2,400 Insurance $5,000

Legal/Accounting $8,000 Total Annual SG&A $208,684 Total Administrative Salaries and Benefits Cost = $168,042


19. No new equity capital 20. Dividends will be paid out at 35% of Net Income.

35% x $107,363 = $37,577 21. We are taxed at a 39% rate based on our income being in the $100,000 - $335,000 tax bracket.

$176,005 x 39% = $68,642 EAT For Year 5: 1. Sales for the vacationing segment of our business increase by the retail industry rate of 14.4%

35 Sales per day Year 2 x 1.144 growth = 40 deliveries per day Year 5 Sales for local residents and senior citizen segments of our business are expected to grow 5.13% (average growth rate for the delivery industry over the last 5 years)

28 Sales per day Year 2 x 1.0513 growth = 30 deliveries per day Year 5 (Local Residents) 20 Sales per day Year 2 x 1.0513 growth = 21 deliveries per day Year 5(Senior Citizens)

2. Initial Inventory grows in accordance with sales Sticking to inventory turnover ratio of 25.0 the company will need to have $95,532 of inventory on hand $2,388,308 COGs/25.0 inventory turnover ratio = $95,532 Company will need to purchase $8,193 in additional inventory at the beginning of the year ($95,532 - $87,339)

3. Initial Inventory grows in accordance with sales 4. Material costs vary with sales 5. All supplies are still paid for one month after ordering. Accounts payable varies with sales

27

6. We do not need any new equipment in Year 5. The following depreciation expenses do NOT vary with sales Manufacturing Equipment (5 year life) Annual Depreciation = $11,106 per year (4 trucks now) Office Equipment (5 year life) Annual Depreciation = $6,859 per year

7. Annual Revenues 91 deliveries per day (260 Operational Days)











11. No new employees in year 5 Total Administrative Salaries and Benefits Cost = $208,046





The total cost for coolers will be $35,490 (23,660 total deliveries x $1.5 cost of each cooler) 15. Total Yearly Gas Cost $63,645 (# of deliveries 23,660) 16. Annual SG&A Expenses

Advertising/Promotion $75,853 Cost of Bags $37,816 Cost of Coolers $35,490 Gas Expense $63,645 Computing Software $2,400 Insurance $5,000

Legal/Accounting $8,000 Total Annual SG&A $228,204 17. Target ending cash balance for the firm is equal to 2 months of operating expenses =

$711,875 x 2/12 = $118,646 18. No new equity capital 19. Dividends will be paid out at 35% of Net Income.

35% x $150,406 = $52,642 20. We are taxed at a 39% rate based on our income being in the $100,000 - $335,000 tax bracket.

$246,568 x 39% = $150,406 EAT

28

End Notes

1. IBISWorld. “Supermarkets & Grocery Stores in the US.” http://www.ibisworld.com/

industryus/ataglance.aspx?indid=1040 (accessed November 28, 2010).

2. IBISWorld. “Couriers & Local Delivery Services in the US.” http://www.ibisworld.com/

industryus/ataglance.aspx?indid=1950 (accessed November 28, 2010).

3. Empower Research, “Online Grocery Industry,” Slideshare, http://www.slideshare.net

/incred23/online-grocery-industry

4. Burmaster, Alex and Maya Swedowsky, “Opportunities Abound for Online Shoppers,”

Nielsonwire (2009). http://blog.nielsen.com/nielsenwire/consumer/ opportunities-abound-

for-online-grocers/

5. Netgrocer.com. “Shipping Info” http://www.netgrocer.com/cnt/shippinginfo.html (accessed

November 27, 2010)

6. Dormzy.com. “About Dormzy” http://www.dormzy.com/pages/About-Dormzy.html (accessed

November, 27 2010)

7. Free Press Release. “Grocery Delivery Company Expands to Tampa Area” http://www.free-

press-release.com/news/200609/1159631640.html (accessed November 28, 2010)

8. IBISWorld. “US Supermarkets & Grocery Stores.” http://www.ibisworld.com/

industryus/productsandmarkets.aspx?indid=1040 (accessed November 29, 2010)

9. Pinellas Convention & Visitors Bureau “Statistics.” http://www.pinellascvb.com/statistics/

(accessed October 25, 2010)

10. SRDS Media Solutions. “Market Profiles Reports: Demographic Overview; Designated Market

Area: Tampa et al, FL” http://www.claritas.com/SRDS/ home?user_id=

10533182%3BfJlVJMMEYAHD&auth_token= hhGq0hIkyR0NlGjFLVMzzf0FP6U

%3D# (accessed November 29, 2010)

11. Pinellas Convention & Visitors Bureau. “Statistics”.


Area: Tampa et al, FL”







29





18. Pinellas Convention & Visitors Bureau “Statistics.”

19. Pinellas Convention & Visitors Bureau “Statistics.”

20. Mintel Oxygen “Evening Meals – US – January 2008.” http://academic.mintel.com/sinatra/

oxygen_academic/search_results/show&/display/id=294353/display/id=318876/display/I

d=294353. 11/15/10

21. U.S. Census Buereau, "Per Capita Consumption of Major Food Commodities." 2010.

http://www.census.gov/compendia/statab/2010/tables/10s0212.pdf (accessed 10/27/10).

22. Judith Gachez, interviewed by Blaine Anderson, November 16th 2010

23. Judith Gachez, interviewed by Blaine Anderson, November 16th 2010

24. Swedowsky, Maya, “Analyst Spotlight: Online Grocery Shopping: Ripe Timing for Resurgence,”

The Nielson Company (2009). http://blog.nielsen.com/ nielsen wire / wp-

content/uploads/2009/10/Nielsen-OnlineGroceryReport_909.pdf

25. Gaebler.com, “Cost of Radio Advertising in Saint Petersburg, FL.”

http://www.gaebler.com/Cost-of-Radio-Advertising-In-Saint+Petersburg---FL (accessed

November 28, 2010)

26. St. Petersburg Times, “”2010 ROP Rates: Retail.” http://www.tampabay.com/

mediakit/pdf/retail_rates.pdf (accessed November 28, 2010)

27. FedEx Office, http://www.fedex.com/us/office/copyprint/brochures/flyers-half.html

(accessed November 28, 2010)

28. BizMiner.” Local Market Research Report-Tampa-St.Petersburg-Clearwater, FL Metro Area

Grocery Stores”. Last modified November 2010. http://reports.bizminer.com/ temp//

pdf/ 9KoQPu.pdf

29. Pinellas Convention & Visitors Bureau “Statistics”.

30. Bizminer, Local Market Research: Tampa, Clearwater, St. Petersburg, FL, Grocery and related

products, http://reports.bizminer.com/temp/pdf/pAD1P1.pdf

31. Pinellas Convention & Visitors Bureau “Statistics”.

32. Arapahoe County Council on Aging. “Senior Survey Results,” http://www.co.arapahoe.co.us/

Departments/CS/Senior%20Resources/2009%20Senior%20Survey%20Report_%20

FINAL .pdf

30



34. Pinellas Convention & Visitors Bureau “Statistics”. http://www.pinellascvb.com/statistics/

35. US Census Bureau, http://academic.mintel.com/sinatra/oxygen_academic/search_results/

show&/display/id=483150/displaytables/id=483150#section_5255426.

36. Gary Geissler. “Targeting tourists: An exploratory study of proposed online grocery delivery

service. 8.3 (2002), http://proquest.umi.com/pqdweb?index=0&did=13488833&SrchMode

=1&sid=1.



38. Global Industrial, "Grocery Bags." 2010. http://www.globalindustrial.com/g/packaging/bags/

paper/grocery-bags?infoParam.campaignId=T9A&gclid=COCv187886QCFeFN5QodK

DuLiw (accessed 10/27/10).

39. Food Service Warehouse: Restaurant Supplies and Equipment,

http://www.foodservicewarehouse.com/kraft-paper/bag-sk1652/p337252.aspx

40. Cargo Van Go Inc. Used Car Inventory, http://cargovango.com

41. Sandhills Publishing Company. CAT F-35, Mid Continent Lift,

http://www.machinerytrader.com/list/list.aspx?bcatid=4&DidSearch=1&EID=1&LP=MA

T&scf=False&ETID=1&catid=1036&Manu=CATERPILLAR&mdlx=Contains&SO=2&b

tnSearch=Search&pdcl=1

http://www.globalindustrial.com/g/packaging/bags/

http://www.globalindustrial.com/g/packaging/bags/

business plan business idea: grocery delivery service...within the web-based grocery delivery...

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