University of Wisconsin Center for Cooperatives

Cooperatives: A Tool for Community Economic Development



APPENDIX F

EXCERPTS FROM ACTUAL FEASIBILITY STUDIES
 
 
THIS APPENDIX includes excerpts from several different feasibility studies conducted by the authors. They are intended as samples to illustrate the guideline discussed in Chapter 5 of this Manual.
 

SAMPLE #1

E. Summary of Market Strengths, Weaknesses, and Opportunities
Strengths

Weaknesses Opportunities In summary, the market for ostrich meat is in its infancy. Like most infants, it has tremendous potential to grow. However, it clearly will not reach its potential without help. It will require significant care and feeding to do so, and that is the challenge facing the

The market research indicates that the key to marketing ostrich is to make it as easy and affordable as possible for restaurants and grocery stores to sell it and for customers to buy it. Butchers and chefs indicate this is done most effectively by conducting demonstrations and samplings in retail stores and restaurants. The role of producers should be to participate in these events, while the co-op marketing staff organizes and coordinates them.


SAMPLE #2

II. MARKET ANALYSIS

Industry Description and Outlook

    The poultry industry has a history of steady growth, especially during the last ten years. Concerns over health and nutrition have spurred consumers toward poultry and away from red meat. According to the U.S. Industrial Outlook, consumption of poultry in 1990, at 63.9 pounds per capita, equaled that of beef for the first time. While per capita consumption of beef declined nearly 8% between 1987 and 1990, poultry consumption increased 15.6% during the same period.

    Sales in the poultry industry have grown accordingly. The U.S. Industrial Outlook reports that current-dollar value of shipments for the industry increased by 9% in 1990, to a total of over $21 billion.

    Industry trends include the recent emphasis on lower fat and cholesterol breeding methods and marketing efforts to continue growth in sales and consumption. Concentration of poultry producing companies is also a growing trend. There has been a 16% drop in the number of plants engaged in poultry processing, and the largest four companies now account for 50% of the total production.

Target Market

    The primary target market for the company's products is the Southeast Asian community of the upper Midwest. This market is located primarily in large urban centers. Secondary markets are located on the West Coast, East Coast, and South. Marketing efforts will initially focus on the Midwest market, but will quickly move into the national market in order to support the plant's processing capacity.

    The last few years have seen rapid growth in the size of the Asian community. According to Business Week June 10, 1991), the Asian community is the fastest growing ethnic group in the United States. The state of Minnesota estimated in April 1989 that 15,000 Southeast Asian refugees were living in or near St. Paul, and chat this number was expected to grow by approximately 18% that year.

    The demand for food items that have been produced according to Asian cultural standards has increased steadily along with the Asian population. According to sources familiar with the Asian food market, the current supply of Asian-style poultry does not meet the demand that exists.

Research

    No published directory of U.S. Asian food distributors and brokers currency exists, which makes it difficult to estimate the exact number of wholesale and retail outlets in this country. In an effort to make up for this lack of information, research was conducted in two of the major metropolitan centers of the Midwest, Chicago and the Twin Cities. This research resulted in the following information and conclusions.

· Chicago: The Asian poultry market is supplied by two processors who provide fresh-killed chickens on a daily basis to approximately 40 Asian food markets in the Chicago area. One source estimated the total number of chickens supplied by these processors to be between 400-500 per day. Because of the very strong Asian cultural preference for fresh poultry over frozen, the Chicago market will not support a frozen poultry supplier. There is simply no market for the proposed Hmong product in the Chicago area

· Twin Cities: This area appears to be a better market for the Hmong product. There is no fresh poultry supplier in this area as there is in Chicago. In addition, the area has a fairly sizable Asian community. A supplier to the Asian restaurant market in the Twin Cities estimates a need for approximately 40,000 pounds per week. He currently buys his chicken from a processor in the South, and is very interested in working with the Hmong plant. However, this distributor needs a younger, plumper chicken than the Hmong plant would process. In addition, he requires "American style" poultry (heads and feet removed). For these reasons, we believe the Hmong plant will be unable to effectively compete with established poultry processors such as Gold'n Plump.

    We have identified a food wholesaler, Asian Food Specialties, who supplies approximately 75 Asian food stores in the Twin Cities and Wisconsin . The chart below illustrates the approximate sales to this distributor, based on his estimates of use. The attached financial projections are based on these figures.
 
POULTRY 

Hard Chicken 
Large Chicken 
Pheasant

#CASES/MO 

12 

2

POUNDS/CASE 

59 
34 
46

# STORES 

75 
75 
75

POUNDS SOLD/MONTH 

53,000 
12,600 
6,900

    A direct survey was conducted with a sample of Asian food stores in the Twin Cities area in an attempt to substantiate the information received from other sources. This survey requested information regarding the amount of chicken or other poultry sold per week by each store, the store's supplier for poultry, the price paid for this poultry, and the store manager's satisfaction with his current poultry supplier(s). The information received through this survey indicated that current sales of poultry products was much lower than those projected by other sources. It was not possible to determine whether this inconsistency was due to a lack of adequate demand (pull factors) of the lack of an adequate supply (push factors).
 

  • Other Areas: At this time, we have not conducted primary research with wholesalers in other parts of the country. However, sources indicate that the West Coast is supplied with fresh-killed poultry, so the market for the Hrnong product there would be minimal. Other areas have not been explored in detail.
  •     The market research was unable to provide verifiable estimates of demand for Asian poultry products. Thus, no dependable information is available on which to base reasonable, well grounded sales projections. The market for Asian poultry products is a risky one at this time. Without additional proof that a substantial market exists, starting a Hmong-owned poultry process plant at this time is not advisable.


    SAMPLE #3

    II Market Analysis

    The following points characterize the market environment for this product.

    A. Dairy Market Profile

    1. Dairy farm numbers in Juneau, Adams, and Marquette counties:
     
    number of 1995 dairy farms
    percent of 1985 farms
    Juneau: 
    Adams: 
    Marquette:
    230
    49
    99
    60%
    48%
    59%
     

    2. Dairy farm numbers in adjacent counties:
     
    number of 1995 dairy farms
    percent of 1995 farms
    Columbia: 
    Jackson: 
    Monroe: 
    Portage: 
    Sauk: 
    Vernon: 
    Washara: 
    Wood:
    365
    326
    739
    309
    529
    918
    169
    473
    66%
    70%
    73%
    61%
    64%
    70%
    56%
    70%
     

    The data from Adams, Marquette, and Juneau counties indicate that this is not a high density dairy production area. In addition, dairy farms in the local vicinity are exiting at a somewhat greater rate than the state average. The data from surrounding counties suggest that adjacent counties offer greater market opportunities than Adams, Juneau, and Marquette counties, and thus should be sought after as sales territory.

    B. Survey of Potential Buyers

    A market analysis of local feed dealers (farm supply co-ops and feed mills) was conducted within a 20 mile radius of Mauston. See Appendix F for a list of dealers and feed mills surveyed.

    80% of dealers surveyed carry a soy meal product with high bypass protein. Competitor #1 and Competitor #2 were the most frequently mentioned products in this class. Other high bypass protein products mentioned by respondents included roasted beans and a soy amino balancer.

    The dealers indicated that, on average, about one-third of their customers are currently using these products. Respondents indicated that many producers don't know about soy meal products as a source of bypass protein; others choose to use a lower cost product; and some producers are not interested in changing their habits.

    The extent to which their customers used these products seemed to be dependent on how enthusiastic the feed staff are in pushing the product, and how knowledgeable they are regarding it. Another variable was the amount of dairying in the local area of each dealer.

    Respondents were also asked their opinion on whether the market for such products is growing, staying the same, or shrinking. The assessment on this was somewhat mixed, with a few respondents thinking the market would stay about the same, and several thinking it will grow. No one thought the market will shrink.

    Reasons given for a growing market were: it's a cost effective product; attitudes toward bone/blood meal are changing and soy meal is a good substitute; and it has applications for large herds. Reasons for the market staying the same included that the product is more expensive than alternatives, and that there's not much dairying in this area.

    The majority of respondents indicated they would be willing to consider carrying a new soy meal high bypass protein product. However, they felt the product must be able to prove its worth to their customers in order to find room for it on their shelves.

    C. Competition Analysis

    1. Competitor #1
    Manufactured in Ralston, Iowa, by Competitor #1 is the market leader and primary competitor. It appears to be a well marketed product with high bypass protein content, being sold primarily through feed dealers. Competitor #1 commands a $30-$40 per ton price advantage over 44% soy meal at retail. According to the newsletter provided in Appendix E, is currently expanding its Competitor #1 plant. Volume sold in 1996 will be approximately 145,000 tons, 23% higher than in l99S.

    The company does a good job of promoting Competitor #1 and training the staff of their marketing outlets about the product. As a result, the staff are knowledgeable about the product and know how to sell it. Competitor #1 has gained significant market share through this strategy (and expect to double their market share by the year 2000). Thus a new product would have to work hard to become established in the marketplace.

    2. Competitor #2
    This product is made by and distributed through local Cenex/Land O' Lakes farm supply cooperatives. Competitor #2 is a soy meal product with ligno sulfate added to increase bypass protein. This product is priced generally comparable to Competitor #1.

    3. Competitor #3
    Competitor #3 markets two products: one is an extruded product, the other is an extruded/ expelled product. Competitor #3 sold about 1,000 tons of the extruded product in 1996. The extruded/ expelled product has only been on the market for one year, yet Competitor #3 sold 2,000 tons of it in 1996 (its first year). This appears to be a growth product for them. 99% of Competitor #3's sales are direct to farmers, about one third of product going out as part of a mix, and the remainder sold straight.

    4. Competitor #4
    Manufactured in Nebraska, this is a similar product to Competitor #1. These two products compete head to head in many parts of the Midwest, but Competitor #4 is not marketed significantly in Wisconsin at this time. Competitor #4 displayed at the 1996 World Dairy Expo in Wisconsin, indicating a market expansion orientation.

    5. Roasted Soybeans
    Roasted beans are a good source of bypass protein. The main disadvantage of roasted beans is their higher fat content compared to commercial sources of bypass protein such as Competitor #1. Although roasted beans offer high feed value, they are less palatable and tend to produce oil in excess of dairy cows' need. Roasted beans are readily available in Wisconsin.

    7. Summary
    Because none of the competitors identified above is manufactured in Wisconsin, there appears to be a window of opportunity for the company to provide transportation cost savings over meal imported from other states, and to provide a higher feed value source of bypass protein relative to Competitor #1.


    SAMPLE # 4

    VlI Financial Analysis

    The discussion below presents a summary of major assumptions and major cash flow issues, and the table on page 21 contains a summary of cash flow projections. Complete five-year cash flow projections and accompanying assumptions are presented in Appendix E, along with a line by line narrative explanation of these assumptions and projections.

    A. Major Assumptions

    1. Funds Required
    Total building and land costs are estimated to be $327,500. Additional funds needed include working capital (equal to 6 months of operating expenses) and points and closing costs. Therefore, the total funds required are approximately $338,467.

    2. Sources of Funds
    REA requires a borrower to obtain supplemental financing (funds from other sources) equal to at least 20% of the REA funds loaned to the project. These supplemental funds are assumed to be a combination of equity contributions and a low-interest loan from (see Chapter VI). Thus, the sources of funds are as follows:
     

    $270,650 
    $ 33,908 
    $ 33.908 
    $338,467
    REA loan (80%, of total) 
    loan (10% of total) 
    community equity (10% of total) 
    Total

    The REA funds are interest free and the loan term is 120 months (10 years), although under normal circumstances REA defers payments for the first two years of the term.

    The terms for a loan obtained from years). are 2% for 120 months (10 years)

    3. Square Feet Available
    Only 4,000 of the available 5,000 square feet of clinic space are rented during the first year (presumably to . The remaining 1,000 sq. ft. is assumed to be rented starting in the second year.
     
    4. Rent per Square Foot
    The cash flow projections assume a rent charge of $10.75 per square foot per
    year (approximately $0.895 per square foot per month).

    B. Major Cash Flow Issues

    1. REA Loan
    The cash flow projections assume that the facility will receive a 10-year, zero interest loan of $270,650 from the Rural Electrification Administration. It is also assumed that REA will provide a 2-year deferment on principal payments. Thus, the clinic will not make payments on its REA loan for Years 1 and 2.

    Starting in Year 3, the clinic will make annual payments of $33,381 on the REA loan.

    2. Dairyland Loan
    2% interest loan of $33,908 from The cash flow projections also assume that the facility will receive a 10-year,. Payments on the principal and interest on this loan are made every year, starting in Year 1.

    3. Total Debt Service
    Total debt service equals the annual principal payment on the REA loan plus the interest and principal payment on the loan. In Years I and 2 the total debt service is estimated to be $3,744 per year. In Year 3, when loan payments to the REA begin, total debt service is estimated to be $37,575.

    C. Facility's Cash Flow Ability

    Assuming the facility receives a two-year deferment on the REA loan, the facility is projected to achieve a positive cash flow in Year I of $21,392. In Year 2, cash flow is projected to equal $33,697 due to the rental of the additional 1,000 square feet.

    In Year 3, the facility shows a much smaller cash flow of $500 due to the first payment on the REA loan. However, the building reserve fund, initially established with the working capital portion of debt financing and enhanced by the positive cash flows in Years I and 2 (due to the REA deferment) will enable the facility to survive the smaller cash flow projections in Years 3-5.


    SAMPLE # 5

    IX. FINANCIAL DATA

        Attached is a complete set of financial projections for the company for its first five years of operation. The projections include balance sheets, income statements, changes in balance sheets and statements of cash flow. The projections were prepared on a monthly basis for the first year, on a quarterly basis for the second and third years and on an annual basis for the fourth and fifth years. The table below provides a summary of major balance sheet and income statement items.

    Summary of Financial projections
    (in thousands)
     
    Year 1
    Year 2
    Year 3
    Year 4
    Year 5
    Balance Sheet
    Total Assets 
    Total Liabilities 
    Total Equity 
    Total Liabilities and Equity
    297.4
    194.0
    103.4
    297.4
    256.9
    188.1
    68.7
    256.9
    228.1
    181.3
    46.8
    228.1
    206.0
    171.1
    34.9
    106.0
    189.0
    159.3
    30.0
    189.0
    Income Statement
    Net Sales 
    Cost of Sales 
    Gross Profit 
    Operating Expenses 
    Operating Profit 
    Other Expenses 
    Net Profit
    471.2
    336.5
    134.8
    168.1
    -33.4
    23.2
    -56.6
    553.6
    394.6
    158.0
    169.7
    -11.7
    23.0
    -34.7
    607.9
    434.1
    173.8
    173.6
    .2
    22.2
    -22.0
    653.1
    466.4
    186.8
    177.6
    9.2
    21.0
    -11.9
    685.8
    489.7
    196.1
    181.6
    14.5
    19.6
    -5.1

        The projections assume that the company will have total sales of $471,240 in the first year. Total sales represent 138,600 pounds of hard chickens at 60¢ per pound; 582,120 pounds of large chickens at 60¢ per pound; and 76,230 pounds of pheasant at $1.60 per pound. The projections assume that the company will realize a growth in sales of 10% per year for the second and third years and 5% per year for the fourth and fifth years. The company will operate at 54.51% capacity during the first year and increase to 72.72% by the end of the fifth year.

        The company's gross profit margin is projected to remain consistent at 28.60% given the product mix. This margin is higher than the industry average of 14.5% according to Robert Morris Associates 1989 for poultry processing companies with assets in excess of one million dollars. The company is projected to have a relatively high gross profit margin due to the low cost of live birds (the types of birds purchased by the company are usually not utilized by conventional poultry processors) and the low cost of labor.

        Although the company is projected to realize a generous gross profit margin, the gross profit generated is not large enough to cover operating and interest expenses in any of the first five years of operation. In the third year, the company begins to generate a gross profit that is adequate to cover operating expenses, but not interest expense. Thus, the company is not projected to realize any net profit during its first five years of operation. This inability to generate a profit is reflected on the balance sheet by a decline in equity and a decline in the company's cash line item.


    SAMPLE #6

    Sources Uses Option #1
    100% New Construction
     
    SOURCES        
    Cash Reserve 
    Member Equity 
    Memeber Loans 
    Henry Financing 
    Owners Contribution 
    Vendor Credit 
    Vendor Loan 
    City/Community 
    NCBDC/Local Banks 
    Total Sources
     
    250,000
    159,200
    360,000
    180,000
    949,200
    98,000
    200,000
    200,000
    1,470,000
    2,917,200
    8.57%
    5.46%
    12.34%
    6.17%
    32.54%
    3.36%
    6.86%
    6.86%
    50.39%
    100.00%
    1592 members @ $100 
    90 members @ $4000
     
    USES        
    Acquisition 
    Construction Costs 
    Construction 
    Demolition (Co-op Building) 
    Demolition (Other Building) 
    Site Costs 
    Total Construction Costs 
    Equipment 
    Inventory, additional 
    Fees 
    Start-up Promotion 
    Start-up Staffing 
    Holding Costs 
    Business Disruption 
    Working Capital Year 1 
    Subtotal 
    Overrun Allocation 
    Total Uses
    1,100,000
    39,000
    25,000
    44,000
    600,000
     
     
     
     
    1,208,000
    4,000,000
    114,000
    150,000
    25,000
    25,000
    25,000
    25,000
    80,000
    2,652,000
    265,000
    2,917,200
    20.57%
     
     
     
     
    41.41%
    13.71%
    3.91%
    5.14%
    0.86%
    0.86%
    0.86%
    0.86%
    2.74%
    90.91%
    9.09%
    100.00%
    15,000 sq/ft @ $40 sq/ft 
    10,000 sq/ft @ $80 
    5,000 sq/ft second story @ $60 
    7,800 sq/ft @ $5 

    12,500 sq/ft @ $3.50 

    10,000 sq/ft @ $3.50 
    7,000 sq/ft @ $40 
    7,000 sq/ft 3,200=3,800  *$30 
    6% - 12% 
     

    Total Sites 
    Footprint 
    Retail 
    2nd Story
     
    22,500 sq/ft
    10,000 sq/ft
    7,000 sq/ft
    5,000 sq/ft
       

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