GRAPE JUICE

TABLE OF CONTENTS

I. Executive Summary II. Sales and Marketing

2.1 Product Description 2.2 Competitor 2.3 Location 2.4 Market Area 2.5 Main Customers 2.6 Total Demand 2.7 Market Share 2.8 Selling Price 2.9 Sales Forecast 2.10 Promotional Measures 2.11 Marketing Strategy 2.12 Marketing Budget

III.

Production

3.1 Production Process 3.2 Fixed Capital 3.3 Life of Fixed Capital 3.4 Maintenance and Repair 3.5 Source of Equipment 3.6 Planned Capacity 3.7 Future Capacity 3.8 Terms and Conditions of Purchase of Equipment 3.9 Factory Locaton and Layout 3.10 Raw Material Needed 3.11 Costs of Raw Material 3.12 Raw Material Availability 3.13 Labour 3.14 Costs of Labour 3.15 Labour Availability 3.16 Labour Productivity 3.17 Factory overhead Expenses 3.18 Production Costs

IV.Organization and Management

4.1 Form of Business 4.2 Organizational Structure 4.3 Business Experience and Qualification of the entrepreneur 4.4 Pre-Operating Activities 4.5 Pre-Operating Expenses 4.6 Office Equipment 4.7 Administrative Expenses

V. Financial Plan
5.1 Project Cost 5.2 Financing Plan and Loan Requirement 5.3 Security for Loan 5.4 Profit and loss Statement 5.5 Cash Flow Statement 5.6 Balance Sheet 5.7 Loan Repayment Schedule 5.8 Break Even Point (BEP) 5.9 Return on Investment (ROI) 5.10 Financial Analysis

I. EXECUTIVE SUMMARY The project can create employment for 40 persons. In addition to supply of the domestic needs, the project will generate Birr 72.04 thousand in terms of tax revenue. The establishment of such factory will have a foreign exchange saving effect to the country by substituting the current imports. This profile envisages the establishment of a plant for the production of grape juice with a capacity of 100 tones per annum. The present demand for the proposed product is estimated at 110.44 tones per annum. The demand is expected to reach at 263.7 tones by the year 2015. The plant will create employment opportunities for 40 persons. The total investment requirement is estimated at Birr 5.87 million, out of which Birr 2.55 million is required for plant and machinery. The project is financially viable with an internal rate of return (IRR) of 12.46% and a net present value (NPV) of Birr 1.37 million discounted at 8.5 %. .

II. Sales and Marketing

2.1.

Product Description

Grape juice is sweetened and preserved non alcoholic beverage extracted by squeezing or crushing grape, an edible, sweet, juicy fruit or berries that grows on a woody grape vines. Grape fruit and the juice consists of water 89.2%, food energy 172 kJ., proteins 0.5 g., fat 0.1g., carbohydrates 9.8g., and ash, calcium, phosphorous, iron, sodium, potassium, vitamin A, thiamin, riboflavin, niacin and ascorbic acid in small amount. Grape used to make juices must have a pronounced flavor combined with high acidity and moderate sugar content. The major consumers of the grape juice are house holds, supermarkets, hotels and restaurants, hospitals and for export. Processing of fruit juice should comply with Ethiopian Standard (ES 360:2001). The raw materials, additives and the processing procedures should be selected as per the Standard.

2.2. Competitors In brief this type of product by its very nature is new in Ethiopian markets. However it can be view as a perfect substitute for the aforementioned exemplary beverages, in this respect it would have indirect competitors product in the market. But this product, by its very nature would have especial feature scientifically proven benefits besides its content of nicotine that would be addition to users. As we have tried to mention some of its chemical content it would be beneficiaries for users and it can simply found and manufactured in the country so that it would cost effective and competitive. 2.3. Location This plant that would produce the product possibly located in Addis Ababa city Administration. The place is selected because it is an ideal place for the competitiveness of the product. Addis Ababa as early developed city in the country its infrastructure more than enough power wise, road wise and also others. Furthermore, the city is at almost equal kms from to ports Djibouti and Barbara. the future infrastructure like rail ways would shorten the market at center of the country and to the port tremendously. 2.4. Market Area

Since the plant that could produce the product located around the Addis Ababa the market area would be proposed national as well as international market. The frequent and the amount users of grape juice found in significant number in central country and eastern part of the country, namely Dire Dawa city and the surrounding would one large perhaps the significant one in the country. This is because when we look at the users of grape juice in this area would consume it. This product would shorten their consumption of their time much more even doesnt require one since it can be consumed easily while working their jobs. The other market niche in the country would be eastern part of the country and its surrounding this area put second because of its very nature the consumer of grape juice would use much time even they use it for time taking recreation. However they are much more consumer of it in quantity, therefore the product would be definitely consumed at a larger amount. While we are focusing mainly not solely on these are but the product would also go to every part of the country, the main concern would an international market especially middle east and south east Africa for a while but later on it would expand the market area in the world. Mainly these are got the focus at the first stage were because there are a number of beverage consumer even the grape as it is. 2.5. Main Customers

The main consumer of this product as a bundle, before its processed limited to adults because its considered as a drug by majority of the population. However as the bundle of grape processed as per the content of its nicotine the product would target at all age group and sexes. As we have tried to mention in the above section proposed customers in the market area would be all age group, however the main and significant one are adults of all sex. These customers initially reached through retailers of the grape bundle since the product is new by its very nature should be sold in line with existing unprocessed one. Later on it can

be sold as whole seller as well as retailer when the product is known to the customers very well. 2.6. Total Demand This product is new by its very nature, therefore projection of the demand would be difficult. But we would take the substitute of the product like Pineapple juice and would try to narrate the demand of the product as unprocessed bundle. Only in Addis Ababa city alone there would be more than hundred tones of grape consumed, these would go triple in the other part of the country. The amount of consumption in the middle-east and south-east Africa would be most probably goes beyond all these because the product is exported from here in a significant amount beside the grape bundle. We would try to over view the demand of the Pine apple juice in the country to see the demand trend of the substitute of the product. Mass consumption of processed and packed juice is not widely accustomed by the Ethiopian population. This could be mainly due to the availability of fresh fruits at a comparatively low price and none a viability of locally processed and packed juices at a reasonable price. However, few high income households currently buy expensive fruit juices imported from aboard. On the other hand when urbanization expands, purchasing power of the population increases and change in the consumption habit occurs there will be a growing demand for processed and packed juice. Moreover, there will be a good export market in neighboring countries and the Middle East since it is desired by the population. With respect to past supply all derives from import since there is no grape juice canning plant in the country. Table 3.1 depicts the import of canned grape juice in the past five years (1999-2003). Table 1.1 IMPORT OF GRAPE JUICE (KG) Year 1999 2000 2001 2002 2003 2004 Total Average Source: - Ethiopian Customs Authority. The data on import of grape juice does not show any trend and hence it is characterized with significant fluctuation. For example, the imported quantity during the years 1999 and 2000 which was about 15,000 kg has shown a sharp increase in 2001 i.e 40532 kg. This does not stay long and declined to 22, 134 kg and 19827 kg by the years 2002 and 2003. Again the import figure has rise to about 28 thousand kg in 1994. In general, however, the domestic consumption (import) of grape juice in the country on the average has increased from about Import 15450 14812 40532 22134 19827 27946 140701 23450

15,000 kg in the years 1999-2000 to 27,609 during 2001 -2004. Therefore, if the product to be introduced is competitive in price and quality and proper promotion is worked out the local market is expected to absorb twice of the average level of import doing 2001-2003. Hence, the current effective demand that would be expected in the local market is about 55,220kg. Assuming the same amount of grape juice will be exported to the neighboring and Middle East countries the total effective demand is estimated at 110,440 kg.

2.7.

Market Share

While looking for the products market share we would again go back to the amount utilized as a bundle of grape, since we have tried to put the amount of grape bundles consumed the product would not meant to substitute all the unprocessed one by the processed one but at least it would share considerable market share. Since the consumption of grape by its nature is time taking and impacts the works of the consumer significantly. The innovative product would tremendously reduce the time wasted by consuming the product. Therefore it would contribute not only by reducing the time of consumption but also through providing extra energy and power that would increase the efficiency of the workers throughout their concerned professionals. Projected Demand As urbanization expands and income rises there is a shift towards more expensive foods such as fruit juices. In the major cities of Ethiopia such as Dire-Dawa, Addis Ababa, Nazareth and the like there are number of high and middle income groups who can afford to buy more expensive food products such as canned grape juice if the product is made available in the market. The above situation leads to the conclusion that the future demand for grape juice is mainly a function of urbanization, income, price and change in the consumption habit of the population. Moreover, if the product is supplied in competitive price and quality the export potential in neighboring countries and the Middle East is very high. Therefore, considering all the above factors, demand for fruit juice is forecasted to grow at the average of 10% per annum. Accordingly, as shown in Table 3.2 the demand ranges from 135325 kg in 2008 to 263710 kg by the year 2015.

Table 1.1 PROJECT DEMAND FOR GRAPE JUICE (KG) Year 2006 2007 2008 2009 2010 Projected Demand 110,440 123,023 135,325 148,858 163,744

2011 2012 2013 2014 2015

180,118 198,130 217,943 239,737 263,710

Past Supply and Present Demand Mass consumption of processed and packed juice is not widely accustomed by the Ethiopian population. This could be mainly due to the availability of fresh fruits at a comparatively low price and non a viability of locally processed and packed juices at a reasonable price. However, few high income households currently buy expensive fruit juices imported from aboard. On the other hand when urbanization expands, purchasing power of the population increases and change in the consumption habit occurs there will be a growing demand for processed and packed juice. Moreover, there will be a good export market in neighboring countries and the Middle East since it is desired by the population. With respect to past supply all derives from import since there is no grape juice canning plant in the country. 2003). Table 3.1 depicts the import of canned grape juice in the past five years (1999-

Table 1.2 IMPORT OF GRAPE JUICE (KG) Year 1999 2000 2001 2002 2003 2004 Total Average Import 15450 14812 40532 22134 19827 27946 140701 23450

Source:- Ethiopian Customs Authority.

The data on import of grape juice does not show any trend and hence it is characterized with significant fluctuation. For example, the imported quantity during the years 1999 and 2000 which was about 15,000 kg has shown a sharp increase in 2001 i.e 40532 kg. This does not stay long and declined to 22, 134 kg and 19827 kg by the years 2002 and 2003. Again the import figure has rise to about 28 thousand kg in 1994. In general, however, the domestic consumption (import) of grape juice in the country on the average has increased from about 15,000 kg in the years 1999-2000 to 27,609 during 2001 -2004. Therefore, if the product to be introduced is competitive in price and quality and proper promotion is worked out the local market is expected to absorb twice of the average level of import doing 2001-2003. Hence, the current effective demand that would be expected in the local market is about 55,220kg. Assuming the same amount of grape juice will be exported to the neighboring and Middle East countries the total effective demand is estimated at 110,440 kg. 2.8. Selling Price

The current selling price of grape juice ranges from Birr 15-20 per litter. Taking this price as a reference and allowing margin for wholesalers and retailers, a factory-gate price of Birr per 18 per litter is proposed for the envisaged project. The existing food and beverage distributors /whole sellers and supermarkets could be used as an outlet for the product. 2.9. 2.10. 2.11. 2.12. Sales Forecast Promotional Measures Marketing Strategy Marketing Budget

III.

Production

3.1 Production Process The most important steps involved in processing juices are: Selection and preparation of fruits, Extraction of juice, Straining, filtration and clarification, and

Preservation.

The best juice is extracted from freshly picked, sound and suitable varieties, when these fruits shall be properly selected. The selected fruits will be washed by rotary brusher to remove soil and dirt from the grove. Before processing stems and leaves need to be removed from the fruit. Juice from fresh fruits is extracted by crushing and pressing. Different methods are used to separate suspended matter in the juice which is caused by broken fruit, tissue, seed and skin, and various gums, peptic substances and proteins in colloidal suspension. These impurities can be removed by filtration. Sometimes centrifugation method is applied. After the juice becomes free from suspended impurities, refrigeration and pasteurization at 90c for 30 seconds be conducted for preserving the juice extracted. Finally, the pasteurized juice shall be cooled, filled, labeled and dispatched.

3.2 Fixed Capital Machinery and Equipment The list of machinery and equipment of the project is indicated in Table 5.1. The total cost of machinery and equipment is estimated at Birr 2.5 million, out of which Birr 2 million is required in foreign currency. Table 5.1 LIST OF MACHINERY AND EQUIPMENT Sr. No. 1. 2. 3. 4. 5. 6. 7. 8. Item description Receiving line and bins Inspection, washing, sizing Rasper Juice extractor Finisher Pasteurizer Filler and sealer Cooling machine Qty. Set Set 1 1 1 1 1 1

9. 10. 11. 12. 13. 14.

Labeller Centrifuge Vessels (with 2 pumps) Boiler Conveying unit Laboratory equipment

1 1 Set 1 1 Set

Land, Building and Civil works The total land requirement of the project is about 2500m2, out of which built-up area is 1500m2. The total construction cost of building assuming a construction rate of Birr 1500 per m2 is estimated at Birr 2.25 million . The lease value of land, at the rate of 9.78 Birr / m2, and for 80 years of land holding, is Birr 24,450 . The total cost of building and civil works is about Birr 2,274,450. 3.3 Life of Fixed Capital

Fixed Asset Machinery Building Furniture Vehicle

Life 10 Years 20 Years 5 Year 7 Years

Annual Depreciation 10% 5% 20% 15%

3.4 Maintenance and Repair Maintenance service and spare parts are available locally. Since the machinery and equipment spare parts the supplier company is available within a country, the machinery and equipment spare parts will be 3.5 Source of Equipment The machinery and equipment required by the envisaged project can be obtained from the following companies specialized in manufacture of machinery for juice production 1. Pomejuice and products, 11, Bayajapur, post-pimpal kothetal, Satana, Nasik, Mahaashtra, India 423204, Tel -91-2555-242625. 2. Vicent corporation

2810E, 5th Avenue Tampa, FL 33605 United states Phone: (813) 248-2650 E-mail: Sharon@vicent corp.com 3.6 Planned Capacity 3.7 Future Capacity 3.8 Terms and Conditions of Purchase of Equipment 3.9 Factory Position and Layout For its proximity to raw material, rural area of the provisional administration at a site where the near to the plantation of grape is proposed as a location for the envisaged grape juice plant. 3.10 Raw Material Needed

According to Ethiopian Standard, ES 360:2001, fruits used for canning shall be sufficiently ripe, fresh, wholesome and sound, free from traces of spoilage, insects, parts of insects and foreign matters. The additives shall be clean and shall not be harmful to human health. The principal raw materials, additives and packing material required by the project are indicated in Table 4.1. The major raw material, grape fruit can be grown in the region or sourced from neighboring regions. The total cost of raw material is estimated at Birr 556.5 thousand.

Grape Fruits Sugar 3.11 Costs of Raw Material RAW & AUXILIARY MATERIALS REQUIREMENT AND COST (AT FULL CAPACITY) Sr. Raw & Auxiliary Material Unit of Measure Tons Kg pcs Qty. 170 1,000 100,00 0 5. Plastic sheet (for shrink wrapping) Grand Total Tons 5 75 556.5 75 556.5 Cost (000 Birr) FC LC Total 425 6.5 50 425 6.5 50

No. 1. Grape Fruits 2. Sugar 3. Plastic bottles (food grade)

3.12 3.13

Raw Material Availability Labour

Direct Labour Type of employee Laborers Store keeper chemist Operators Mechanic Production Head Marketing Officer Purchaser No. needed 15 1 2 6 1 1 1 1

Indrect Labour

Type of employee General Manager Secretary Accountant Personnel Cashier Electrician Driver Guards

No. needed 1 1 1 1 1 1 2 4

3.14

Costs of Labour MANPOWER REQUIREMENT AND ANNUAL LABOUR COST

Sr. No. 1. 2. 3. 4. 5. 6 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Description General Manager Secretary Marketing Officer Purchaser Accountant Personnel Cashier Production Head chemist Mechanic Electrician Store keeper Driver Operators Laborers Guards Sub-Total Benefits (20% BS) Grand Total

Req. No. 1 1 1 1 1 1 1 1 2 1 1 1 2 6 15 4 40

Monthly Salary (Birr) 2,500 700 1,400 1,200 1,400 1,400 500 1600 1,800 900 900 600 900 3600 4500 1,200 25,100 5,020 30,120

Annual Salary (Birr) 30,000 8,400 16,800 14,400 16,800 16,800 6,000 19,200 16,800 10,800 10,800 7,200 10,800 43,200 54,000 10,800 301,200 60,240 361,440

3.15 3.16 3.17 3.18

Labour Availability Labour Productivity Factory overhead Expenses Production Costs

The annual production cost at full operation capacity is estimated at Birr 1.96 million (see Table 7.2). The material and utility cost accounts for 42.47 per cent, while repair and maintenance take 3.83 per cent of the production cost. * N.B Table 7.2 ANNUAL PRODUCTION COST AT FULL CAPACITY ('000 BIRR)

Items Raw Material and Inputs Utilities Maintenance and repair Labour direct Factory overheads * Administration Costs** Total Operating Costs Depreciation Cost of Finance Total Production Cost

Cost 556.5 275.83 75.0 180.72 60.24 120.48 1268.69 442.22 248.97 1959.88

% 28.39 14.07 3.83 9.22 3.07 6.15 64.73 22.56 12.70 100

4 Organization and Management

4.8 Form of Business 4.9 Organizational Structure 4.10 Business Experience and Qualification of the entrepreneur 4.11 Pre-Operating Activities 4.12 Pre-Operating Expenses Pre-production expenditure includes interest during construction (Birr 296.44 thousand) training (Birr 10 thousand) and (Birr120 thousand) costs of registration, licensing and formation of the company including legal fees, commissioning expenses, etc .

4.13 4.14

Office Equipment Administrative Expenses

5 Financial Plan
5.11 Project Cost 5.12 The total investment cost of the project including working capital is estimated at about birr 5.87 million, of which 27.21 per cent will be required in foreign currency. The major breakdown of the total initial investment cost is shown in Table 7.1.

Table 7.1 INITIAL INVESTMENT COST Sr. No. 1. 2. 3. 4. 5. 6. 7. Cost Items Land lease value Building and Civil Work Plant Machinery and Equipment Office Furniture and Equipment Vehicle Pre-production Expenditure* Working Capital Total Investment cost Foreign Share Total Cost (000 Birr) 24.45 2250.0 2500.0 75.0 450.0 426.44 146.43 5872.32 27.21

5.13 5.14 5.15 5.16 5.17 5.18

Financing Plan and Loan Requirement Security for Loan Profit and loss Statement Cash Flow Statement Balance Sheet Loan Repayment Schedule

The investment cost and income statement projection are used to project the pay-back period. The projects initial investment will be fully recovered within 7 years. 5.19 Break Even Point (BEP)

The break-even point of the project including cost of finance when it starts to operate at full capacity ( year 3) is estimated by using income statement projection. BE = Fixed Cost Sales Variable Cost 5.20 5.21 Return on Investment (ROI) Financial Analysis = 60 %

The financial analysis of the grape juice project is based on the data presented in the previous chapters and the following assumptions:Construction period Source of finance Tax holidays Bank interest Discount cash flow Accounts receivable Raw material local Work in progress Finished products Cash in hand Accounts payable 1 year 30 % equity 70 % loan 3 years 8% 8.5% 30 days 60days 2 days 30 days 5 days 30 days

B. 1.

PLNAT CAPACITY AND PRODUCTION PROGRAMME Plant Capacity

The proposed annual processing capacity of the envisaged plant is 100 tonnes grape juice, based on 300 working days a year and a single shift of 8 hours per day. The capacity can be increased by increasing the number of working hours per day. 2. Production Programme

The production programme is indicated in Table 3.3. At the initial stage of the production, the plant requires some years to penetrate into the market and develop skill in production. Therefore, in the first and second year of production, the capacity utilization rate will be 60% and 85%, respectively. In third year and thereafter, full capacity (100%) production shall be attained. Table 3.3 PRODUCTION PROGRAMME Sr. No. 1. 2. IV. B. Product grape juice (Tonnes) Capacity utilization (%) Production Year 2007 2008 2009-2016 60 60 85 85 100 100

MATERIALS AND INPUTS UTILITIES

The major utilities of the envisaged project are electricity, furnace oil and water. The annual consumption and cost of utilities is indicated in Table 4.2. Table 4.2 ANNUAL UTILITIES REQUIREMENT AND COST Sr. No. 1 2 3 Utility Electricity Water Furnace Total Unit of Measure kWh m3 Lt. Qty. 120,000 6,000 60,000 Unit cost 0.4736 3.10 3.34 Total cost 56,832 18,600 200,400 275,832

VI. A.

MANPOWER AND TRAINING REQUIREMENT MANPOWER REQUIREMENT

The envisaged project requires 40 work force. The list of manpower for the envisaged project is indicated in Table 6.1. The annual cost of labour including fringe benefits is estimated at Birr 361.440 thousand.

Table 6.1 B. TRAINING REQUIREMENT

The training of production head, quality control chemists, electrician and mechanic will take part for about two weeks by the supplier of machinery during erection. Machine operators shall be trained by in-house staff before commissioning. The cost of training is estimated at Birr 10,000.

1.

Profitability

According to the projected income statement, the project will start generating profit in the second year of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and net profit plus interest on total investment (return on total investment) show an increasing trend during the life-time of the project. The income statement and the other indicators of profitability show that the project is viable. * ** Factory overhead cost includes salaries and wages of supervisors, insurance of factory workers social costs on salaries of direct labour etc. Administrative cost includes salaries and wages, insurance, social costs, materials and services used by administrative staff etc.

4.

Internal Rate of Return and Net Present Value

Based on the cash flow statement, the calculated IRR of the project is 12.46 % and the net present value at 8.5% discount rate is Birr 1.37 million.