Are you sure that the last drop of milk your loving child drinks is safe? Do you know what compels you to feed your baby melamine and other contaminated milk?
The huge demand-supply gap makes the milk price high and that creates the chance for low price contaminated milk to enter into Bangladesh market. Another recent agro-problem Bangladesh has faced is huge potato spoilage after having bumper production each year and potato farmers incur huge loss. Poto (country’s first non-dairy milk brand) identifies these top problems as opportunity and combines two solutions into one direction which is producing milk by adding value to the local quality potatoes to introduce non-dairy milk in Bangladesh market as a new offering.
Poto’s product line comprises two basic category of milk which is original & flavoured in three tetra pack size of 250ml, 500ml and 1litre. A new generation of non-dairy beverages has dawned with Poto, a delicious-tasting, fat free, cholesterol free, that can be used just like milk. Potato based Poto is an excellent source of bio available calcium and least allergic of all non-dairy beverages available on today’s world. The total demand of milk is 6,570,000 tonnes (per head 120 ml) and supply is 3,326,000 tonnes including the imported milk (The Independent, 25 December, 2008).
Among the milk producers Milk Vita is the biggest by holding 20% of demand so it grabs almost 40% of total supply. Brac Dairy, Pran, Akij are holding sizeable portion of the market. Poto uses cost leadership and differentiation strategies to gain competitive edge over its competitors. It gets the first mover advantage over all potential non-dairy milk brands. Poto is not only an entrepreneurship venture but also an ecopreneurship endeavor. The production process is eco-friendly because there are no chemical or harmful particles used in the production and the disposal system is safe.
The company also emphasizes safety and hygiene issue of the human resources. The firm has a marketing strategy of positioning its product on the basis of low price and quality. The objective of its marketing campaign is to make people aware about non-dairy milk concept and its benefits over ordinary milks. To reach the segmented portion of buyers in Dhaka Poto uses all the four means of marketing mix and marketing tools like TVC, FM radio ads, newspaper ads, campus campaign, assurance program and 24/7 help desk.
The production of Poto is done in the own operational plant in Sirajganj because the availability of rawmaterials as well as the convenient transport and communication. The operation of Poto consists of three phases— procurement and storage, production and packaging phase. The finished products are distributed by the help of local distributor. The project is associated with risks like demand risk, supply risk, economic risk, political risk etc. which is reflected in the discount rate (20%). The estimated project cost is BDT 8,493,500 in FY 2009-10 which is financed by 69% equity from partners and 31% debt from lenders.
The ratio analysis shows net profit margin of 3%, 16. 8%, 20. 2%, 20. 8% and 21. 2% in FY 2009-10, 2010-11, 2011-12, 2012-13 and 2013-14 respectively. The projected financial statements also portray liquidity and solvency of the firm. The NPV of the project from 5-year financial projection is positive by BDT 13,979,595. The IRR of the project is 52%. The payback period is 2. 10 years and discounted payback period is 2. 54 years. The stress testing shows positive NPV in all the three cases— base (BDT 13,979,595), best (BDT 20,053,800) and worst (BDT 4,275,886).
The social cost-benefit analysis also reveals positive social NPV of BDT 23,024,450 at 25% discount rate and the social IRR of the project is 56%.
Poto is the country’s first non-dairy milk brand which produces milk from local quality potatoes. Nondairy milk is a new option for the milk consumers of Bangladesh and it is also an innovative value added product of potato. The milk industry of Bangladesh has encountered problem with contamination of melamine and emulsion due to huge shortage of supply.
Also the potato producers of Bangladesh are facing spoilage problem after having bumper potato production each year and thus incur huge loss. Poto identifies these top problems as opportunity and combines two solutions into one direction which is producing milk from potatoes to introduce non-dairy milk in Bangladesh market as a new offering.
PRODUCT OFFERINGS ?
Poto original— Original non-dairy milk-white. ? Poto flavored— Poto choco milk (Chocolate flavored milk), Poto milk berry (Strawberry flavored milk) and Poto Vanilla (Vanilla flavored milk). Poto markets its products in 3 tetra pack sizes: 250ml, 500ml and 1 Litre.
FEATURES AND UNIQUE SELLING PROPOSITION ?
Potato milk is world’s new non-dairy milk innovation. ? Potato milk is commercially and technically viable non-dairy milk option for Bangladesh which is best taste comparing to soy-milk and rice-milk. ? Cholesterol and lactose free milk which is helpful for lactose intolerant people and also free from dairy allergy ? No artificial sweetener, color and flavor and no animal ingredients, preservative used in Poto. Poto is vegan friendly and Non-GMO (Genetically Modified Organism) product.
Poto’s business model is entirely production or manufacturing-based. Poto’s production process transforms and adds value to the quality potatoes and produces non-dairy milk of various flavors. Poto will: ? Produce milk in its own operational plant using eco-friendly production process. ? Sell milk in 3 tetra pack size in the local market. How Poto makes money is shown in the following business model:
GOALS AND OBJECTIVES
Poto’s vision is to make a safe milk consumption platform to create a healthy nation.
Poto wants to offer non-dairy milk to reduce the demand-supply gap and assists potato producers who have incurred huge loss due to potato deterioration, while it uses the most efficient, state-of-the-art technology in operation. Poto aims at establishing eco-friendly work environment and providing better employee incentives as it continues to expand its business. Short-term goals ? To offer quality products at a competitively lower price to capture market share. To create a demand for non-dairy milk as a best taste option. ? To persuade the target customers regarding the benefits of non-dairy milk that will bring ? familiarity among customers. Long-term goals ? To expand its operation beyond Dhaka in the year 2015 and further goes for export. ? To set up new industrial unit in the west region of Bangladesh by the year 2018. ? To ensure sustainable development of the nation by creating newer utility of quality potatoes.
To attain 20% growth rate by the year 2014. ? To attain net profit margin of 25% in year 2017. To achieve BDT 20,000,000 free cash flow by the year 2015 to setup another operational plant by the year 2018. ? To utilize 1200 tonnes of potatoes by the year 2018. ? To repay loans by the year 2020 and lever up the firm with 25% debt by the year 2025.
As there is 49% gap between the demand and supply of milk in Bangladesh this sector needs more supply of milk. The total demand of milk is 6,570,000 tonnes (per head 120 ml) and supply is 3,326,000 tonnes including the imported milk (The Independent, 25 December, 2008).
Whereas the present and projected scenario of Dhaka Metropolitan City estimated by Poto is: Source: Data used from Statistical Pocket Book of Year 2010. Due to milk shortage melamine, emulsion and other contaminated milk are entering into market to fulfill the demand supply gap quickly and people get less option without purchasing those milk. Increasing dairy milk production is not an overnight task because of shortage of livestock and grazing field. So the demand for non-dairy milk will be created in Bangladesh.
Non-dairy milk emergence factors
Non-dairy milk— ? can be introduced to fulfill the demand-supply gap ? is more affordable for greater range of consumers ? can also serve the heart, diabetics and dairy allergic patients which is big portion in the demand but vulnerable to dairy milk ? with different flavors is cheap and better quality than available flavored milk
The milk market growth rate is 20% according to industry analysis (source: The Daily Star;Published On: 8/4/2008). ? “We are happy that private companies are coming up with big plans in this sector.
There is still a huge scope for growth for every player as together we are only catering to one-fifth of the market,” according to Ms Ferdousi Ali, chairman of Milk Vita. ? Milk industry is going to be a thrust sector (The Independent, 25 December, 2008). ? The government is encouraging agro-processed business. According to FAO all over the world value added potato products’ consumption is increasing. The year 2008 was “World Potato Year”. The government observed this year by launching a huge potato campaign. The people have become more interested to consume value added potato products.
So, it is obvious that there is an ample growth prospect of the business.
Poto offers non-dairy milk in Bangladesh market in first phase. The domestic market of non-dairy milk is less competitive but the firm faces huge competition from the existing dairy milk brands which are offering the substitute product. ? Milk Vita is the largest liquid milk processor of Bangladesh. The daily demand of milk is 37. 5 million and the company can meet only 20% of it. So it grabs about 40% of total supply. But the milk collection has fallen some 35% to 55. 3 million litres in FY 2007-08. (source: The Financial Express, Publish date: January 26, 2009) ? Brac Dairy is the second largest liquid milk plant in Bangladesh. The market share of Brac Dairy had increased to 35% from 20% by year 2006 to 2007. (www. ssireview. org/articles/entry/in_the_black_with_brac/) ? Pran-RFL is the third largest liquid milk producer in Bangladesh has a daily processing capacity ? of 1 lakh litres of milk although it only processes 40,000 litres daily due to milk shortage (source:The Daily Star ; Published On: April 4, 2008). Milk price of these competitors lie between BDT 14 to 20 for 250 ml, BDT 26 to 28 for 500 ml and BDT 50 for 1 litre. (see Appendix A6) ? Brac Dairy, Pran-RFL, Akij Foods and Beverage Ltd. use tetra pack for packaging a portion of supplied milk. Pran-RFL and Akij use tetra pack for normal milk and Brac Dairy uses tetra pack for flavored milk.
Competitive forces analysis:
Porter’s five forces analysis has been conducted to evaluate competitive edge of Poto from its existing and potential competitors (see Appendix A12). The analysis shows:
Bargaining power of suppliers (potatoes and other ingredients) is low. ? Bargaining power of buyers is high because the consumers get several options. ? Threat of new entrants domestically is high as the market is quite lucrative and milk demand–supply gap is huge. ? Threat of substitute although very high. ? The intra-industry rivalry is domestically low because the demand is quite high than the supply.
Among the competitors Milk Vita is the biggest by holding 20% of demand so it grabs almost 40% of total supply. Brac Dairy, Pran, Akij are holding sizeable portion of the market.
Poto has competitive edge in price and taste. It gets the first mover advantage over all potential non-dairy milk brands. Besides, competitive analysis reveals the market is lucrative in all terms of forces that indicate opportunity, profitability and sustainability. The competition among competitors is fair because all operate to make Bangladesh milk industry a self sufficient one which is still a gigantic task.
Marketing goals and objectives:
To meet the growing needs of the target market and to evaluate the competitive environment and continue to establish a differential advantage. To establish an effective and profitable marketing mix of product, place, price and promotion. ? To establish a customer base of 5% of the defined target market within 2015 ? To exceed break-even selling point of 381 tonnes at FY 2009-10
Making people aware about non-dairy milk, its nutritious value, taste and benefits. ? Focusing price, taste and unique selling propositions while developing marketing campaign ? Building brand proposition to different consumers according to their perception (e. g. smartness for youth, taste and nutrient for children and family consumers). ? Creating customer loyalty and making customer delight by proper quality assurance campaign
Geographic location: Dhaka city for first 5 years (see Appendix A5) ? Demographic: Social class—middle class and high end consumer. Age— 10-24 and 25-55 are two prospective buyer segments for flavored milk and original milk respectively ? Prospective buyers: Around 2,500,000 (35% of total Dhaka city population fall under Poto’s target customer segments) Market positioning: Poto positions itself in the market on the basis of low price and tasty-nutrient non-dairy milk benefits. The product positioning map shows the unique positioning of Poto relative to itscompetitors.
Poto’s combination ofproduct, price, promotion and distribution and other marketing activities needed to meet the marketing objectives is: ? Product— Poto offers two basic types of product line: original and flavored. The pack sizes of Poto Original are 500 ml and 1litre.
Poto Flavored offers 3 flavors (chocolate, strawberry and vanilla) with pack size 250 ml and 1litre.
Poto uses state-of-the-art tetra pack technology for packing its offers. The shelf life of Poto is 4 months for original and 6 months for flavored. ? Price— The following price list shows the wholesale and retail price of product lines: [pic] Distribution Channels— Poto uses a simple distribution channel with zone-wise distributors. The Dhaka city has divided into 9 different zones covering 19 areas (see Appendix A5). Finished Poto products come directly to a Dhaka city warehouse from the plant. Sales team uses firm’s covered van to distribute the product to the dealers.
It uses different specific day for specific zone. Then the secondary distribution channel leads by the dealers distribute the product by using their own resources. Poto also make strategic alliance with super stores and educational institutes’ canteens to sell Poto. Integrated marketing communication— Poto’s marketing communication mix or promotion mix includes all the typical elements like advertising, sales promotion, public relations, personal selling and direct marketing to activate pull strategy (see Appendix A7). Some of the tools are— ?
TVC, FM radio ads, Newspaper ads Buzz Marketing (opinion leaders: Doctors) “Poto goes to school” campaign “Poto’s quality assurance campaign” SMS contest Point of purchase ads.
Marketing budget: The five year allocation of marketing budget at affordable method shown below: [pic] 6. 7 Customer service and control: 24/7 call center always and retailer survey quarterly conducted by the marketing team to know the first hand information of the consumers. The total marketing plan is flexible and open for any required contingencies.
The production of Poto is done in the own operational plant in Sirajganj because the availability of raw-materials as well as the convenient transport and communication. The operation of Poto would consist of three phases— procurement and storage, production and packaging phase. Procurement and storage— The pre-production is run by the procurement and storage unit. The procurement unit is responsible for purchasing 200 tonnes of potatoes and other ingredients in FY 2009-10, 500 tonnes of potatoes and other ingredients in FY 2010-11 and adds 50 tonnes each succeeding years.
The storage unit stores the raw-materials in own 500-ton capacity cold storage. Production phase— The production phase transforms the potatoes into milk which is the finished product. The production unit produces 500 tonnes milk in FY 2009-10. Packaging— In this phase produced milk is packed in tetra packs of 250 ml, 500 ml and 1 litre.
Placement of order: The distributors and dealers can place orders by using order form or through internet. The customers can place orders only through the website.
Delivery: Milk is delivered in 1 dozen retail pack or 50 pcs wholesale pack.
The local dealers are responsible for home delivery with extra commission.
Billing: Milk distributors are required to make payment within 45 days. Accounts payable would be paid within next year.
Quality control: Internal quality control is closely monitored by the production manager and supervisors and low quality outputs are disposed. The weight of each pack is automatically checked.
Project implementation schedule:
The project starts at July 2009 and the commercial launch is on January 2010. The 6-month project implementation schedule is as follows: [pic] Resource ramp-up: With a view to implement the project, resource ramp-up is very vital. The financial resources (equity and debt) and human resources are the key elements. Financial resources are vital for uplifting capital investments and working capital. Human resources are significant throughout the entire business process.
Capital investments: The starts up expenses are projected to be BDT 513,500. Initial capital expenditures for starts up assets are projected to be BDT 7,980,000. The firm’s project cost is BDT 8,493,500. The project cost is financed by 69% equity provided equally by the partners and 31% debt provided by financial institution. Personnel requirements: Staffing needs— at the initial phase, the operation of Poto is monitored by three department heads categorized as procurement and storage, production and sales and administration. Employee needs— the head of the departments are taken from the partners and requirement for labors, supervisors and managers are fulfilled from outsource. External resources: Suppliers, distributors, superstores and lenders.
OWNERSHIP FORM AND MANAGEMENT TEAM
Poto firm is a partnership of three capital provider. Poto’s organization structure is top-down hierarchical structure with same authority among peers Poto’s management team consists of 14 executives like following
General risks: The project is associated with following general risks: Demand risk— the price of substitute and other options’ production cost lowering may shiver the demand of potato milk. Supply risk— the main raw material of potato milk is abundant in Bangladesh but the other ingredients’ supply may impede the production. Regulatory risk— the standard testing of the product and business approval is highly regulated by our government but the sector is going to be the thrust sector so regulatory risks are going to be lessened.
Risk from PEST analysis: The project is associated with following risks analyzed from PEST analysis: Political risks—the political variables hamper are strikes, terrorism, instability etc. Economic risks— the project is affected by economic parameters such as inflation rate, consumer price index, recession etc. Socio-psychological risks— non-dairy milk is a new product in people’s lifestyle so it may has setback regarding people’s acceptance. Technological risks— technological changes, invention of new alternative milk may cause problem
(Contingency Plan) In the exporting phase the firm may apply for government assistance and tax benefits as an exporting agro-processor. Firm’s primary exit strategy is converted into private limited company from partnership firm to reduce capital problem (if occurs) and skill managing. Firm’s secondary exit strategy will be merged with another milk company to lessen the risk of being dissolute.