business ideas: Dry Animal Feed Business Plan

* The calculations use the average data for the World

1. SUMMARY OF THE PROJECT

The essence of the project is the organization of an enterprise for the production of dry animal feed in Kazan. Dry feeds are increasingly used by owners for their animals. Despite the fact that the bulk of the feed is produced by the largest players at the international level, small regional players still have a chance of developing in the low price segment due to the use of inexpensive labor, locally produced raw materials, and inexpensive equipment focused on small production volumes.

At the same time, the location region has a high population density and a sufficiently high solvency. The project’s effectiveness is indicated by the calculated integrated performance indicators given in Table. one.

Table 1. Integrated performance indicators

Discount rate (r-year), %	3%
Discount rate (r-month), %	0.247%
Payback period (PP), months	24
Discount payback period (DPP), months	24
Net present value (NPV), rub.	38 628 985
Return on Investment (ARR), %	6.04%
Internal rate of return (IRR), %	4.06%
Profitability Index (PI)	2, 32

2. DESCRIPTION OF THE INDUSTRY AND COMPANY

The project involves the organization of an enterprise for the production of dry granulated pet food - dogs and cats. Production is located in the village. Chamomile, in the immediate vicinity (less than 5 km) from Kazan in a rented room.

Kazan is a city in the Russian Federation, the capital of the Republic of Tatarstan, the largest port on the left bank of the Volga. One of the largest religious, historical, economic, political, scientific, educational and cultural centers of Russia. The population of Kazan is, as of 2015, 1.2 million people. The industrial environment of the city consists of engineering, chemical and petrochemical industries, light and food industries. On the territory of the agglomeration is a number of the largest enterprises in Russia. All this indicates a fairly high level of welfare of the population.

According to the Euromonitor International analytical agency, in 2015, the pet food market amounted to 117.9 billion rubles, of which 114.5 billion rubles. - food for dogs and cats, 3.4 billion rubles. - feed for other animals. In physical terms, this amounted to 548, 203.5 tons of feed for cats and dogs; of which 58% is feed for cats, the rest is for dogs. In quantitative terms, sales in 2015 decreased by an average of 3.5%. However, according to the forecasts of Euromonitor International, growth should be expected already in 2016, including in monetary terms, not less than 1.6%.

Fig. 1. The dynamics of the market of animal feed in 2010-2016 (according to Euromonitor International)

Given the steady growth in sales in previous years, as well as forecasts of further growth, the market seems very promising. It is advisable to focus on food for cats and dogs.

It is planned to purchase a universal production line focused on the production of dry feed for all types of animals. An important point is the development of our own unique recipe, for which a qualified specialist with experience in this field is invited.

Sales are supposed to be carried out through federal and regional distribution networks (retail), pet stores, retail outlets in animal markets, etc. Thus, it is planned to create a sales department responsible for organizing sales and meeting planned profitability indicators.

The project is capital intensive - the total investment cost is 16.43 million rubles. Most of them are spent on the purchase of a production line, as well as on the development of feed formulations.

Table 2. Investment costs of the project

	NAME	AMOUNT, rub.
The property
one	Warehouse and office equipment	100, 000
Equipment
2	Set of production equipment	13, 930, 000
3	Car	400, 000
Intangible assets
four	Recipe Development	300, 000
five	Site development	100, 000
Current assets
6	Current assets	1 800 000
	Total:	16 630 000 ₽

	Own funds:	₽ 10, 000, 000.00
	Required borrowed funds:	6 630 000 ₽

	Rate:	18.00%

	Duration, months:	48

3. DESCRIPTION OF GOODS

The organization produces dry feed of the price segment “budget” for dogs and cats. These feeds are oriented towards a wide target audience; providing the basic nutritional functions of animals, they are not medicinal or intended for a strictly defined breed, they are designed for balanced daily nutrition. The nomenclature is given in Tab. 3.

Table 3. Nomenclature of goods and variable costs

	GOODS / SERVICES	COSTS UNITS, rub.	TRADING VALUE, %	UNIT COST, rub.
one	Dog food (up to 1 year)	23	250%	81
2	Dog food (over 1 year old)	17	320%	71
3	Cat food (up to 1 year old)	29th	250%	102
four	Cat food (over 1 year old)	25	270%	93
			Total:	346 ₽

In general, two main groups of products can be distinguished - dog food and cat food. In each of these groups, two subgroups are distinguished by the age of the animals — up to a year and older than a year, differing in composition. Young cats and dogs require food with a higher vitamin content and higher digestibility. In this regard, as well as with the fact that they have a significantly lower sales volume, a slightly higher trade margin on them is assumed.

Such components as flour and cereal grains, meat and poultry by-products, etc. are used as raw materials. All these components are purchased directly from the meat processing plant and from farmers in the region. Thus, it is possible to achieve a significant reduction in the cost of the product.

All feed is packaged in branded bags. Container volume:

- for dogs - 1.0 kg, 5.0 kg, 10.0 kg;

- for cats - 0.5 kg, 1 kg, 3 kg.

The information on the package contains without fail:

- the product's name;

- mark on the appointment of food (for dogs, for cats);

- the weight of the feed without packaging;

- name and full address of the manufacturer;

- mark on the conformity of feed to a certain stage of the animal's life cycle;

- feeding instructions;

- a list of ingredients in accordance with their level of content.

4. SALES AND MARKETING

Produced feeds belong to the price segment “budget”. Sales of products occur through intermediaries, which include federal and regional retailers, pet stores and retail outlets in pet markets. The final consumers are men and women, owners of cats and dogs between the ages of 18 and 60 with relatively low incomes.

Market processing is carried out by sales representatives in the amount of 2 people. They negotiate with potential customers, enter into supply contracts and oversee the joint work of the manufacturer and the client. Orders from existing customers are accepted and processed, billed, etc. Specialist Sales.

In addition, sales representatives are required to carry out training and motivating pet-sellers, as they are direct intermediaries in the interaction of the manufacturer and the end customer. Such training is aimed at ensuring that the seller can give high-quality advice to the buyer and recommend this particular feed. It is also expected to reward the most successful sellers for the quarter at the expense of the manufacturer.

Today, more than 80 grocery hypermarkets, about 60 officially registered pet stores, and 3 “bird” markets operate in Kazan. This volume allows you to fully load the production of the enterprise. However, in order to take into account possible risks, the calculation takes the level of production load at about 70% of the maximum possible.

There are no feed producers of a similar level in the region. The bulk of the products presented in this segment belong to the largest international manufacturers. Domestic manufacturers of economy class at the federal level are also represented. Competitor analysis is given in Table. four.

Table 4. Analysis of the competitive environment

No.	Name of competitor	Price segment	Benefits	disadvantages
one	Competitor 1	Average	- Quality recipe - Wide representation in retail chains	- High price - Lack of systematic work with clients
2	Competitor 2	Average	- Bright packaging - Quality recipe	- Lack of promotional activities - Relatively high cost
3	Competitor 3	Economy	- Low price	- Unstable recipe - Lack of systematic work with clients
four	Competitor 4	Economy	- Low price - Wide representation in pet stores	- Lack of representation in retail chains - Unattractive packaging
five	Competitor 5	Economy	- Quality recipe	- Supply disruptions - Lack of systematic work with clients - Unattractive packaging

Thus, by analyzing the existing closest competitors, taking into account all their strengths and weaknesses, it is possible to determine the required competitive advantages for the enterprise. These include:

- attractive packaging - provided through cooperation with a professional design bureau;

- the absence of supply disruptions - due to the high-quality new production lines, proven production technology, as well as due to the territorial proximity and regional orientation of production;

- systematic work with clients - due to the constant active work of sales representatives, training events, etc.

5. PRODUCTION PLAN

The production is located in a rented room in the village. Chamomile, within 5 kilometers of Kazan, which reduces rental costs. The required dimensions of the premises are determined by the dimensions of the production line and amount to 275 m2 - this directly includes the production room and the warehouse of raw materials and finished products.

A Chinese-made line is purchased directly from the exporter. It includes all the necessary equipment for the production, packaging and packaging of feed. At the same time, its main advantages are that, replacing just one block, it is possible to reorient production to fish feed, for other domestic animals, and even to breakfast cereals for people. The line capacity is up to 350 kg of feed per hour.

The line supplier carries out installation and commissioning of equipment, as well as its further maintenance. Training in working with the line is carried out by the supplier within 10 working days. Equipment warranty - 3 years.

Demand for animal feed does not have seasonality. Thus, when reaching the planned sales figures in 10-11 months, you can count on a constant level of demand. In the financial calculation of this business plan, the planned yield is determined based on the load at the level of 70% of the maximum possible.

Formulation development and adjustment of the technological process of production is carried out with the help of an invited specialist with significant experience in this field. The process is carried out throughout the first month of the project.

Table 5. Planned production indicators

	GOODS / SERVICES	AVERAGE PLANNED VOLUME OF SALES, units / month	PRICE FOR UNIT., Rub.	REVENUE, rub.	VARIABLE COSTS, rub.
one	Dog food (up to 1 year)	6, 000	81	483, 000	138, 000
2	Dog food (over 1 year old)	15, 000	71	1, 071, 000	255, 000
3	Cat food (up to 1 year old)	5, 000	102	507, 500	145, 000
four	Cat food (over 1 year old)	10, 000	93	925, 000	250, 000
			Total:	2 986 500	788, 000

6. ORGANIZATIONAL PLAN

A limited liability company is selected as the legal form of the enterprise. Management functions are performed by the director. The director has at least 3 years of experience in a similar position at a manufacturing enterprise. He has knowledge in the field of enterprise management, financial flows, personnel management, etc.

It is planned to create two divisions - a commercial one, which includes sales representatives and a sales specialist, and a production one, which includes production line operators, a storekeeper and a truck driver.

The requirement for the operators of the production line is at least 3 years of experience in a similar position at any production enterprise, experience in working with CNC machines. Requirements for sales representatives - experience in sales in the field of FMCG from 2 years, the presence of a personal car.

The remaining employees of the enterprise are presented with general requirements - responsibility, determination, lack of bad habits, etc.

The work schedule of the enterprise is a five-day working week, from 9.00 to 18.00.

Table 6. Staffing and payroll

	Position	Salary, RUB	Number of people	PHOT, RUB
Administrative
one	Accountant	25, 000	one	25, 000
2	Director	50, 000	one	50, 000
Industrial
3	Production line operator	25, 000	2	50, 000
four	Sales Manager	22, 000	one	22, 000
five	Sales Representative	30, 000	2	60, 000
Auxiliary
6	Storekeeper	27, 000	one	27, 000
7	Loader	20, 000	one	20, 000
eight	Loader driver	23, 000	one	23, 000

	Total:			₽ 277, 000.00
	Social Security contributions:			83 100, 00 ₽
	Total deductions:			360 100, 00 ₽

7. FINANCIAL PLAN

The financial plan is designed for a five-year period, but the project itself has no time limit. The financial plan takes into account investment costs, variable and fixed costs, tax and credit obligations.

The main direction of investment is the acquisition of a production line, the cost of which is 13.93 million rubles. The cost of a light truck for delivering goods to customers is 400 thousand rubles. The main investment in intangible assets is the development of our own feed formulation, which will cost 300 thousand rubles. The investment costs of the project are given in Table. 2 of this business plan. Depreciation of fixed assets is calculated using the linear method for a period of 15 years.

Deficit of own funds at the start of the project in the amount of 6.63 million rubles. covered by attracting a bank loan. Loan rate - 18% per annum, loan term - 48 months, credit holidays - 3 months.

To account for the value of money over time, a discount rate is applied. For this project, it was chosen at the level of 3%, since the project is not innovative, the product and technology are well known, and the market is sufficiently formed. A detailed financial plan is given in Appendix 1 of this business plan.

Table 7. Fixed costs of the enterprise

	NAME	AMOUNT PER MONTH., Rub.
one	Rent	100, 000
2	Advertising	35, 000
3	Communal payments	20, 000
four	Telephony and Internet	10, 000
five	Depreciation	80, 000
6	Selling expenses	20, 000
7	Management expenses	10, 000
eight	Fuel and lubricants expenses	10, 000
	Total:	285 000 ₽

8. EVALUATION OF EFFICIENCY

The effectiveness of the project is evaluated on the basis of the financial plan and calculated integrated performance indicators (Table 1).

At the established discount rate, the payback period of the project is 24 months, the discounted payback period is equal to it. The net present value (NPV) of the project is 38, 628, 985 rubles, which significantly exceeds the amount of investment costs. The internal rate of return (IRR) is 4.06%, which is higher than the discount rate. The profitability index is 2.32> 1. All three key indicators indicate the investment attractiveness of the project. Given its even higher potential in the future 10-15 years, the project can be considered uniquely attractive.

9. RISKS AND WARRANTIES

The main risks associated with the project should include:

- problems when creating a feed formulation - in order to avoid this, a particularly careful approach to the selection of a specialist invited for its development is required;

- problems in the operation of the production line - requires careful inspection and verification of all components and assemblies during its installation and commissioning, the active participation of all personnel in training, as well as fixing in the contract for the supply of equipment and its maintenance the moments associated with its failure due to the fault of the manufacturer or installer, fines for downtime, etc .;

- toughening the pricing policy of competitors - a constant search for suppliers of raw materials and the maintenance of a workable base of suppliers with the aim of the possibility of rapid replacement of the counterparty if necessary;

- failure to fulfill sales plans - constant monitoring of the work of sales representatives, receiving feedback from customers on the quality of the enterprise’s work is required.

The advantage of the project is that money is invested for the most part in relatively liquid tangible assets, which can be a guarantee of the return of borrowed funds.