Promera Inc. - Business Expansion

Promera Inc. - Business Expansion Plan

Recent trends in America focus on the importance of a healthy diet and exercise. Americans are becoming more conscious about what they eat and where it comes from. I was fortunate enough to be the sole heir of a farm that my grandfather started more than 50 years ago. The farm's primary area of production was fresh produce for the retail market centered around the Los Angeles and Bay areas. Long ago, my grandfather planted an orchard of fruit and nut trees, but he never developed that end of the business. Recent marketing trends focus on the value of fruit and nuts in the maintenance of a healthy diet.

A plan to continue operations of the produce portion of the business. However, in response to recent trends and recognition of the asset that mature fruit and nut trees represent, I wish to build a small processing facility to introduce high-end gourmet products to the local market. This processing facility would allow the business to tap into new marketing avenues and realize profit from what is currently an untapped and underutilized asset. Due to rising overhead costs of production, including fuel and utilities, the produce operation is not producing enough capital to accomplish this expansion. Profit margins are shrinking due to rising costs of production.

This new expansion would allow the business to not only realize an increase in profit, but would help it to grow in new direction in the future. This new direction has higher profit potential than current operations. The company already has enough established fruit and nut trees to being production on a small scale. Funds would be used to build a small packaging facility in an unused building, and to plant new trees for future expansion. The market potential is significant, especially as Americans continue to focus on a healthy lifestyle.

The company will transition from a sole proprietorship, owned and managed by my father, Charles Smith, to an S-Corporation managed by a board of directors. He four managers will also be board members. Each board member/manager will have their own division and will be responsible for that portion of the crop production and valued added packaging and marketing of the product. This transition from family-owned sole proprietorship to corporation will allow the business to operate more efficiently.

The company is already in existence as a sole proprietorship. A majority of the capital needed will fund the construction and inspection of a licensed packaging facility to turn standard crops into value-added products that will increase the profits per unit and will help to expand the market potential. These products will be able to be shipped to locations across the United States and across the globe in the future. This addition is expected to quadruple revenues from the current level and secure potentially larger markets in the future.

In order to succeed, the company needs to borrow $10,000 for refurbishing an existing building property on the site. The existing building must be upgraded with stainless steel equipment and packaging equipment in order meet the needs of the business expansion. This meager sum will mean increased profits and realize greater returns. Production will occur in a stepped progression until final production is realized. This amount of money will mean the beginning of future expansion and the potential to become a major producer of value-added fruit and nut products.

Introduction

Promera Inc. will represent a new structural change for the business started by my grandfather, Smith Family Farms. The addition of a production facility to produce value-added fruit and nut products represents a step that is in keeping with good sustainable practices and recent marketing trends. The reason for this expansion is in response to changes in the marketplace that represent preferences for locally grown produce. Transportation and other overhead costs are the primary reason for the needed business change. These costs have become detrimental to many businesses, and many must make similar changes in order to continue thrive.

Recent market trends that favor healthier choices for food is a primary reason for this change. This change will allow the company to keep up with trends in the marketplace, as well as to keep operating costs as low as possible by supplying a high-end product to a local clientele. Many businesses are in the position of needing to make changes so that they can operate more efficiently. Food is a basic commodity and the family farm must now think like a large corporation in order to continue to grow and remain profitable. The addition of the processing plant will allow Promera Inc., to make these changes, while continuing to branch out into new avenues.

Organizational Structure

Promera Inc. is an offshoot of the old family farm, which was a sole proprietorship. The new company will focus on value-added food products and will be an S-Corporation with my father, brother and I as primary shareholders. In addition, we will also add a production and packaging manager, who will also be a shareholder. These four entities will constitute the board of directors, and all decisions will have to meet the approval of these three persons. As a result, the company will divide into four major divisions. The company has plans in the future to expand into new product lines and this structure will allow the addition of these new branches of the company easily into the corporate structure.

The following chart represents the proposed structure of the new corporate entity.

Promera Inc. Organizational Chart

This corporate structure was chosen largely due to the experience and managerial capabilities of the key personnel. These entities will be paid a base salary, plus production and profit incentives. Charles Smith is a second generation farm manager with over 50 years of production experience in produce and marketing. He successfully inherited and managed the produce business for over 30 years and kept the legacy alive for future generations. He has seen many market changes over his career. His greatest asset to the team is his experience and extended years of success.

Mark Smith grew up working beside Charles on the family farm and gained much valuable insight over the years. Mark obtained a Bachelor's in Business Management from Los Angeles University and spent 10 years as the manager of an insurance company. He combines knowledge of the farm from a very early age and knowledge of management issues and risk. His insight into these issues will be valuable in these regards.

I am Brian Smith and grew up working on the family farm. I graduated from Berkley with a Bachelor's degree in Business Finance. For the past ten years, I worked my way up the ladder in a financial institution to become director of finance at Wachovia Bank. I will be primarily responsible for accounting and financial management areas of the business, in addition to fruit crop production.

The new business will entail a food processing plant. None of the three original family business members felt that they had sufficient expertise in the rules and regulations needed to run the production and packaging facility. Therefore, it was decided to hire in an outside specialist. We chose to hire John Bower as production manager of the food processing and packaging facility. Mr. Bower has a degree in production management and has over 15 years experience in this type of setting.

The above four entities will constitute key shareholders of the company. They have diverse experience in different areas that will be needed for management of the new entity. The company will also hire various laborers and an administrative assistant to run the daily operations. Marketing will be outsourced to a local marketing firm. The chosen entity will be chosen by competitive bid. The person chosen will have to have a demonstrated track record in new market development, as well as to be reasonably priced.

History of Business

Smith Family Farms has been in business for more than sixty years, with a brand and logo that are familiar on local grocery shelves. Although Promera Inc. will be a new business in a new business format, it will still keep many of the elements with which customers identify the brand. Promera Inc. recognizes the value of customer recognition and brand equity. It is essential that customers recognize the brand and the quality that has been associated with it in the past. Although, Promera Inc. is a new business from a technical standpoint, it will not be new to the customers. The advertising campaign will reflect this philosophy.

Formal Business Structure

The business expects to experience seasonal shifts in demand. During spring planting and harvest periods, the demand for labor will be high. The hours of operation will be 7AM to 4PM PDT all year round, but may increase with need during various times of the production year. The business will not have a retail division and will rely on internet sales, distribution to local retailers that are already familiar with the brand, and farmer's markets in the Los Angeles and Bay Areas.

The original farm was a seasonal operation with periods of no production in the winter months. The ability to dry and produce value-added products will allow the business to smooth its income and realize revenue all year round. The new production facility will change the nature of the business from seasonal to year-round. The business will be able to stockpile product during the busy season and sell it on a continual year round basis.

The owners of the business will be directly responsible for the daily operation of the business. They will make joint decision as a body of shareholders, but each will have their own division to manage and operate. Each of the owners will have a stake and a role in the ability to make this new enterprise a success. They will have knowledge of what is happening on the production floor and will have a view of the larger picture as well. The owners are passionate about making this operation a success. All of the owners wish to play a role in the daily operation of the business. They have a passion for what they do and do not wish to simply sit back and let someone else do the work. They are hands-on type people, making them the most valuable assets that the company has in its possession.

Playing an active role in the daily operations of the business will allow them to be in direct contact with the product at every stage of production. This will allow them to make better forecasting models and to take advantage of opportunities. It is foreseeable that at some time in the future, my father will retire, at which point he will have the option to sell his shares or to remain a silent partner in the business.

The new fruit and nuts packaging line that is being proposed is only one of many expansions in the future. However, it is felt that the best approach to the expansion is to accomplish one task at a time and to do that well before moving on to the next one. The best approach is to do what is familiar and attainable, using assets that are already on-hand before expanding into new realms. This has been the sustaining philosophy of the business from its early beginnings.

Marketing

Marketing will be the key to a successful business transition. It does little good to produce a product without the customer. Farm products marketing differs from packaged product marketing and represents a change in traditional lines of operation. In the past, marketing of fresh produce followed traditional commodity lines. The farm had a list of customers that carried farm produce and these clients placed weekly orders that were custom harvested and delivered to meet the client's needs. Any product that was left over would be taken to the local commodity auction and sold in this fashion.

This form of marketing and production will still be utilized by the fresh produce division of the company. However, rather than the mainstay of the operation, it will represent only 1/3 of the total revenue producing capabilities. It will help to defray operating costs in the other division through the first year. Production facilities will begin operations in late spring, as early berries come into production. It will shift product lines, as they become available. Established plantings of strawberries, blueberries, raspberries, apples, peaches, plums, and pears have been producing for many years and are managed to maintain peak production though proper pruning and fertilization techniques. This is a considerable advantage over a new operation that would have to wait for years until their plants began production.

The fresh produce market is used to seasonal shifts in production. However, the ability to dry, vacuum package and store produce will provide opportunities for sales beyond the production season. Packaged food represents a new market and a new way of marketing. Therefore, the bulk of the marketing research will concentrate on the sales of new product lines of packaged foods. The following outlines the plan for the marketing of new product lines.

Customer Survey and Consumer Demand

Consumers of packaged food products are becoming more knowledgeable than they were in the past. According to an IBM survey, consumers revealed a desire to know the contents, origins and environmental impact of the producers (IBM, p, 1). Producers need to establish trust among consumers and they need to establish a certain level of transparency in order to win over today's consumers (IBM, p, 1). In accordance with this trend, packaging will provide full disclosure of the product contents in a language that the average consumer can understand.

Several trends dominate the packaged foods industry, according to a 2008 survey. The first trend is a trend towards probiotics. Probiotics contain beneficial live bacteria that are said to aid the digestive tract (BizCommunity.com). Dannon's Activia achieved $150 million in sales alone in its first year (BizCommunity.com). This indicates an extreme amount of market acceptance. Dried and fresh fruits are a natural addition for these products that include live culture yogurt. This represents a potential market that could include other producers or end customers. This will be an advertising angle that could be explored, should the capital to start the project be approved.

Another major trend includes organic foods and beverages for children. This trend grew from controversy over the marketing of high sugar, low nutrient foods to children (BizCommunity.com). Organic product makers took advantage of this controversy and began marketing a line of healthy choices for kid's snacks (BizCommunity.com). Promera's brands will organically produced and will use little inputs, in terms of preservatives. They will offer a high nutrition, natural alternative that parents will feel good about giving to their children.

Fresh is best" is the latest marketing slogan of the newest Fresh and Easy Neighborhood Markets. This chain opened recently on the U.S. West Coast and have grown steadily (BizCommunity.com). This chain not only represents a potentially large, local market for Promera brands, but also happens to have the same marketing demographic as the proposed business expansion. Along with this trend is a growing demand for what are being termed "superfruits" (BizCommunity.com). This category of fruits includes high nutrient fruits such as acai, goji berries, and pomegranate and berries of all kinds. Promera sees a goldmine when one combines these trends with products already on the market and the proposed new business plan. Promera will make use of the five acres of berries already in production.

These trends are encouraging for the new business direction. The products that Promera currently produces and intends to produce in the near future are in accordance with major marketing trends and demand. However, prior to deciding to launch Promera Inc., a preliminary marketing survey was conducted to attempt to assess potential market demand and sales potential. Due to expense, the survey was conducted online by a professional marketing research firm. A more extensive marketing research campaign will be conducted should the project be approved. This research would include specifics about packaging and other issues that will affect final product design.

The preliminary market research indicated that the demographic group representing potential customers is diverse and from a varied background. They average age of the potential customer was from 18-70 years old. The 20- to 50-year-old crowd represents the largest market segment. Most of the potential customers were in the middle to upper income range. Intended price was key reason for the prevalence of this market segment. More females than males were more likely to purchase Promera products. This is largely because the females was more likely to be the primary grocery shopper in the family. In addition, complementary products, such as Activia yogurt are primarily targeted towards this demographic.

The typical customer is knowledgeable about health issues and is concerned about social and environmental issues. This represents a higher education target market. There was no difference between single and married couples in the survey. Both were equally likely to purchase Promera's products. Potential consumers were from varied ethnic background, with none more prevalent than they appear in the general population.

If launches of similar products with similar demographic groups is any indication, the market potential is close to $150 million on a national level. The future market is poised for rapid expansion and growth. It is in the early stages of development and sprang from health concerns and national campaigns to promote healthier living, including a healthy die (5aday.gov). National, government entities have launched a major campaign promoting the idea that eating more fruits and vegetables will lead to better health. Fruit is being promoted as an answer to inexpensive, sensible weight loss (thefruitpages.com).

National campaigns by government entities is a likely indicator of market growth. They continue to promote the health benefits of fresh fruits, dried fruits, nuts and fresh produce. This creates a need in the general public. The market potential is wide open and will continue to grow as Americans of all ages adopt a healthy lifestyle. National campaigns such as these represent free marketing for companies such as Promera that intend to fill this growing need.

The marketing survey was conducted online, using interactive drop down boxes and fill in questions. Due to the inability to print the actual online survey correctly, the following is a list of the questions that were included. Consumers were provided several choices and were asked to indicate the range the most accurately represented their answer.

Marketing Questionnaire Questions

Are you Male or Female?

What is your age?

What is the highest level of education you have completed?

What is your own yearly income?

What is your total household income, including all earners in your household?

What is your current marital status?

What is your religious affiliation?

What is your race?

Promera Inc. intends to offer a new line of packaged fruit and nut products that will be available in your local stores soon. The products will be organic, dried fruit and nut combinations in convenient snack packages. The products will be preservative free and will be grown according to nationally accepted organic standards. The following question are intended to explore your thoughts about these products and the likelihood that you would purchase them for you or your family.

How many days per week do you or your family consume fresh fruits and vegetables?

How many times per week do you or your family consume prepackaged dried fruit, or products containing dried fruit?

How important is it to you that your food contain no preservative and originates from the most natural source possible?

Would you like to see more healthy snack choices for your children?

What price would you be willing to pay for a product that is organic, made from premium quality dried fruits and nuts, and other natural ingredients?

How likely would you be to purchase a product such as has been described?

How many times per week do you foresee purchasing such as product?

All indications demonstrate a healthy and growing market for the newly proposed products. There are several competitor products on the market, made by national chains, such as Dole, Proctor and Gamble, and other companies that may pose potential competition. However, many of these products do not advertise as organic and contain preservatives and chemical used to grow the crops. This group of products is not considered to be competitive, as they are not considered to be the same market.

Promera products will be targeted towards a niche with in the general population, This niche market is adamant about the source of their food and their environment. They indicated that they would be willing to pay a slightly higher price than they would for similar products that were not organic. The targeted market emphasizes quality over cost.

The trends discovered during this market research are similar to those found by national survey results in the Journal of Nutrition Education and Behavior. This study was a follow up to a 2001 study conducted by the National Cancer Institute that found African male of 36 years and older were the worst consumers of daily requirements of fruits and vegetables. This study decided to use this sample population as the demographic against which to measure trends. The reasoning behind the study was that improvement in this group would be the best indicator of improved fruit and vegetable consumption in the remainder of the population.

The study found that African-American men had improved their consumption of fruits and vegetables, as compared to the same study conducted in 2001 (Moser et al., p. 313). This study indicated that increased consumption was due to successful communication of the benefits of eating them (Moser et al., p. 313). This study indicates strong market growth in the most difficult demographic group to convince. if, as these researchers surmise, this trend indicates even larger growth in other demographic groups, the market potential discovered during the preliminary market survey is large and getting larger.

Initial marketing efforts will be targeted towards an upper end demographic. However, there ar also indications that fruit and vegetable intake is increasing among low income Americans as well (Sisson, p.5). The role of public health officials is a key reason behind the trends found in many of the demographic groups explored in the course of this study (Richards & Patterson, p. 21). This study indicated that if consumers are given the choice of high quality produce over other cheaper alternatives, they will chose the high quality produce as a result of national campaigns promoting the health benefits of consumption (Richards & Patterson, p. 21).

The ultimate question of the marketing survey is whether the consumer would actually make a purchase of the product. The Potential market is over $1 million dollars nationally. However, Promera Inc., is a relatively small producer. However, the company is located near a major metropolitan area that is famous for healthy lifestyle and the demographic that is likely to make the final purchase. There is expansion potential in the future to different areas of the country, but for now the effort will remain local, concentrating the potential that lies in the Los Angels and Bay areas. It is expected that as production increases in the first several years that sales could total in the neighborhood of $500,000 with the business in its beginning stages.

Promera products will be distributed to customers through retail grocery shops in the local area. The grocery stores will purchase the products at a wholesale price and will offer them to customers at retail prices. In addition to the end retail customers, there are also potential customers in schools, public offices, and in vending machines as a healthy alternative to the normal non-nutritive choices in these areas. Promera snack sized products would make healthy additions to school lunches. There are many potential clients, aside from the retail customer base.

Competition Analysis

It is important to understand the segmentation in the fruit snacks market. The market grew from concerns that there were no healthy choices for snacks. There are several major corporations that have fruit snacks on the market, such as Kellogg's (Kellogg's.com). However, the first ingredient in these fruit snacks is high fructose corn syrup (Kellogg's.com). Consumers are savvy and understand that this is nothing more than the sugary snacks that they protested, leading to the development of Promera's production line. Although these products are mainstream, they are not targeted towards the same savvy demographic of educated, high-end consumers.

Welch's makes similar products, including dried fruit. They promote concern for environmental issues such as animal testing and a need for all natural products (Welch's.com). They are developing a line of products that are organic, which may pose potential competition. However, their marketing is targeted towards the mass supermarket consumer. Promera's products will be associated with specialty healthy shops and groceries, such as Erewhon Natural Food Market in Los Angeles (local.yahoo.som). There are 553 specialty health food stores in southern California with a majority located in the Los Angeles area (local.yahoo.com).

Major competitors, such as Welch's do not meet the criteria for gaining access to the specialty organic market in the California area. Competition is more likely to stem from local fruit snack producers that are similar in size to Promera. The existence of many small companies that have recently sprang up indicates that this market is growing and healthy. The key to success will be differentiate Promera's products from other local competition.

Promera's prime concern will be companies that are already established in the market. These companies will pose the greatest threat to success. However, the size of the market is enormous and there is room for overall market growth. There are new customers adopting a healthier lifestyle every day, particularly as the government continues to promote consumption of healthier snacks. Consumers are used to only a few similar specialty snacks on the shelf, and will be receptive to trying new flavor combinations. Promera's products will be taste tested extensively prior to market entrance. They will be perfected so that the general population of health food consumers thinks they are excellent in quality.

Promera will use already established brand equity and consumer trust from the fresh produce operation to leverage consumer trust in these new markets. Each product introduction will be test marketed to ensure consumer acceptance. The key will be to associate Promera products with excellence and taste, in addition to the healthy alternative that they represent.