Yummy Cheese company feasibility study
In Egypt, cheese is a popular staple diet that is consumed across the social economic divide. The industry offers a variety of cheese products that are consumed by different income groups in the country with varying price ranges. Egypt is a vast nation with a human population of 75 million, most of whom are youth and younger adults who require large quantities of food and nutrition products as they grow.
High income consumers in this country constitute 9 % of the country’s total population. This class of people is popular with buying hard cheese which is the most expensive of all types of cheese. Soft cheese is the most popular and is consumed in large volumes throughout the social economic divide in Egypt. Multinational corporations like the Bel group and Greenland Americana Group dominate the current market
Bel Group which is one of the leading cheese producers, created their corporate foundation in 2008. The main aim of the group was to promote balance diet and preserve the environment. The company’s key activity is the production and sale of dairy products. The firm has two main segments of operations: cheese segment and other dairy products. The company offers a variety of processed cheese like soft cheese, hard cheese, blue cheese, cheese for ready cooked dishes and wrapped cheese. In the other product segment, the group offers products like ice cream yogurt, butter and other milk deserts. Smaller companies that are similar to the Bel group company can also be found in Egypt e.g. the Teama milk and president dairy products.
Hard cheese consumers in this market mainly comprise of high income earners who are only 9% of the population, this product blocks the larger population from consumption by 91% of the population that cannot afford this expensive brand. The prospective company “Yummy” should position its marketing strategy in a way such that it will be able to offer cheaper types of cheese e.g. the soft cheese to capture the market share of the 91% composed of middle and low income earners in Egypt. Competition
Cheese is a popular product in this country. Due to this fact there is stiff competition in the cheese industry. The leading company for dairy product is Best Cheese Company. Competitors in this industry make heavy investments to promote their product in a bid to increase the consumption of such products. A prospective firm in this industry should plan for large capital investment to promote its product. This may be the case if the firm is to stay afloat amidst the stiff competition present in this market.
A prospective firm in the cheese industry should plan for mass sales volumes since the industry indicate forecasted growth, therefore, the prospective firm should anticipate low sales this year. This is due to the forecasted price inflation. According to reports from Euro monitor international, the cheese industry will maintain a two digit growth volume in the future. They argue that this will happen due to the constant effort of manufacturers to capture lager market shares especially in the unpackaged cheese market.
However, retail volume growth forecasted is at 9% compared to last year’s 13%. The reason provided by the study for the drop in the forecasted growth is that the smaller cheese consumers would be less willing to shift from cheaper unpackaged to packaged expensive cheese (report, 2012). The reason given for this expected observation in consumer behavior due the rise in prices caused by market inflation. Owing to this fact, a prospective cheese company should have a properly critiqued growth strategy and proper timing in implementing such strategy.
Cheese is mostly common with teenagers and young adults who form a large portion of the market population. Since hard cheese market share is only 9% of the potential market share, a prospective company should plan to sell soft cheese, blue cheese wrapped and unpackaged cheese since they command a larger potential market of middle and low income earners which is 91% of the population.
The cheese industry in Egypt indicates high mass consumption especially by the young generation that forms the bigger portion of the national population. The prospective cheese company should be in a position to offer high quality products for its customers to create brand loyalty from cheese consumers in Egypt. The firm should possess technical efficiency within its reach such that it can operate at very low cost compared to a competitor and still make good profits (IMES, 2011).
The cheese industry in Egypt mainly comprises multinationals who are the key players in the industry, for instance, the Bel group and the best cheese companies. These firms are highly efficient due to large capital base and can withstand mild market shocks that smaller indigenous firms cannot handle. (media, 2013)
The cheese industry is growing, and forecasts predict a continued growth in the foreseeable future, this means that the market is yet to be saturated which offers an opportunity to start a new cheese business in Egypt and still have a sufficient market share.
The Egyptian cheese industry faces threats of excessive entry of many players in the industry. This may cause stiff competition and company over capacities that lead to duplication of efforts and resources.
500 capital50 000 us $
A capital of 5000000 US $ may be sufficient as starting capital to set up the cheese factory. Sources of this capital could be from bank borrowings The IRR would be 4%
Success of the business
The cheese factory is highly likely to succeed with this level of capital. 500,000 dollars is a sufficient capital base to start up a cheese processing factory considering that plant and equipment require are not very expensive and raw material cost is not that much. The company would have a serious group of promoters who have the desire to achieve and a committed board of directors. With the projected cash flow included in the cash flow statement, the business will not worry about being insolvent. Looking at the balance sheet, the company has sufficient asset base to run efficiently.
The company only needs one unit of output in order to break even. This is an indication of the high level of efficiency at which the company will be working. The Founders of the company comprise of a panel of people from different walks of life and diverse professional backgrounds. The panel draws competencies from areas of Accounts, Law, Actuarial science and Agriculture.
Such a composition of the panel ensures that there will be a high level of technical competency on the part of the promoter that ensures efficient running of the corporate. The expert owners will be in a better position to follow and monitor the activities of the company. They will also be able to point out inefficiencies thus encouraging smooth flow of activities.
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