Taraz Vending Company

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Taraz Vending Company

Executive summary

Market

The market for the vending business is purely empty and only filled p to 10% in Kazakhstan. Most of the machines are located and relatively highly concentrated in Almaty city and Capital of Kazakhstan Astana. And therefore as the result market in the regions is not touched. In Kazakhstan this kind of business started to enter market and began to operate in late 2002 and accelerated harshly in recent 2 years.

Vending business is different from small kiosks or nearby groceries and shops is that:

Flexibility. Flexibility may be the most important strength of vending machines over the kiosks. Because it takes and sometimes difficult and time consuming to move kiosk and shops from not attractive place to more profitable and crowded areas. But vending machines are average 300 kg weight and could easily transport from place where profitability is low to highly profitable places.

Costs. Secondary opportunity of vending machines is their service. There need not to be sales person, building, risk to be robbed and etc. On average one man is enough to serve 25-30 machines a day. Other than 1-2 salespersons per grocery.

Start up costs. It is relatively less costly to start up vending business rather than starting grocery. And the only investment is machines mainly. In turn groceries need to invest in building, sellers, and rent.

Business description

Taraz vending company later (TVC) will have two kind of services: 1. Providing snacks and drinks through machines 2. Providing coffee through machines in Taraz city that has 400.000 people of population. Snacks mainly will be concentrated in the crowded and demanded places. Coffee machines mainly in business and administrative centers. And by the opportunity later we will analyze and discover best places.

Products

Snack series: snacks, choco bars, carbonated drinks, noncorbonated drinks, still water, mineral water, gums, crackers etc. And for the coffee machines the assortment will vary from 4 to 12 sort of coffee. Like cappuccino and this kind of high quality coffee. These products will be purchased from the outside producers or wholesalers and will be sold with the premium.

Management

TVC will be registered as a partnership owned by me and my friend Abzal Jailaubaev who has experience in retail business in Taraz city for 5 years and I have bachelor degree in business administration. In our point of view this step could bring bright synergy for our future business. He will be more like operating man of the machines and stuff and I will be more like finance and accounting side of the business. But decisions will be made fairly combined and mutually. Further ahead we will consider to hire someone to operate machines then Abzal will be more like a COO and I will be more like CFO, CAO.

Financing needs

In terms of financing TVC will need $10000 to start up at the beginning and $50000 at the long run to run the business. $10000 will be met with partners .$5000 each of us will contribute at the beginning. And this will be our owner's equity. And at particular point in time we will borrow $50000 from the bank to scale our operating business. We will make certain calculation in that time period concerning the period for which to borrow from the bank but it could vary 1.5-2 years. Because if we set longer period we will face to overpay interest otherwise if we set shorter period we will face fines on loan. Also we will take into account the earnings from the previous machines that we bought on owner's equity.

Business Mission and Strategy

Mission statement

TVC will provide its service, service of providing beverages, snacks and coffee to all the layers of customers in Taraz city. Mostly snack and drink machines will be placed in crowded places and places where flow of people will exceed 1000 a day. They are like Educational places: high school, universities, libraries etc. Because in this places practically there is no stores in and the students have to go out to pick up some snack or dink. And naturally a young generation is more flexible and responds to the new things and they are not aware of using machines.

Coffee machines will take place in business centers administrative buildings and where adult generation is crowded.

Strategic elements

TVC is going to be the first, invader of the vending machine market in the Taraz city.

Low requirements to the knowledge about business.

Easiness to enter.

Business is flexible in terms of place, product and service delivery

Coffee of highest quality will be provided

Very low costs

Very high returns

Easiness of exiting the business

Strategic objectives

To open up few places at the beginning for the particular period of time, may be 1-2 month. During this time with low risks learn about this business: how to operate properly, what are the difficulties, what are the sales, returns, equilibrium prices, turnover of inventory, customers' response and overall demand and market demand.

To set up a good working system in Taraz city

To take loan from the bank and repay it soon

To buy and place more machines in the city in 4 years and projected profit will be $50,000 a year.

To expand with an additional products like: providing magazines, sterile hospital shoes and etc after year 6.

Sources and Uses of Funds

Start up Costs Summary

Start up cost is going to be $10,000. From which $8,000 will be spend to buy 2 snack and 2 coffee machines. And the rest $2000 will be spend on transportation, inventory buyout, fees to legislate the partnership and for other spending.

Sources and Uses of Funds

Use of funds

Capital expenditure

Equipment $8000

Working capital

Legal $400

Inventory $700

Rent $400

Cash $500

Total working capital $2000

Total uses of funds $10000

Sources of funds

Partners investment 2*$5000 $10000

Total sources of funds $10000

Products

Places, Locations and Machines

TVC at the beginning will have 4 machines. 2 snack and drink, 2 coffee machines. That machines will be allocated according to the crowdies areas and projected attractiveness of the vending machines places. Like swimming pools and high schools and universities for the snacks and drinks and business and administrative centers for the coffee machines. At the beginning we will place 1 machine to the swimming pool and 1 machine to the high school then after a month we will move 1 to the university and another one to the administrative house. By this we will analyze the demand in every place. Then further will decide where to buy and another extra machine. For the coffee machines this will be the same. At first place both machines at the business centers and then move to the administrative centers. By doing this we will find out most profitable places and collect as much cash as possible.

Machines at the beginning will be purchased from the Almaty city. They are used machines they cost half a price of a new one. Then after some time new ones will be purchased and older ones will be replaced. Old ones will serve as exploring machines. Like they will be placed at the places that are thought to be low flow of people or vandalized but with probably high profit.

Vending Business in Kazakhstan

Trade through vending machines is one of the most technologically innovative, reliable and profitable businesses in the world. Vending develops as an alternative channel of retail trade. According to Western experts, the vending market is just beginning to take off in Kazakhstan, making it an attractive investment opportunity. Statistics provide a solid foundation for this opinion. To date, there are no more than one thousand vending machines in Kazakhstan, a tiny fraction of those throughout the European market. Both local and Western experts agree that distribution and operation of vending machines is one of the most promising segments of the Kazakh market over the next ten years. Profit margins can reach 100%-500% in the first year with careful business management. Be the first in your area-- and you are a winner! Effective business grown of hot beverage machines comprises on average 200%-300% depending on variety and installment location. Half of the European market is now served by multi-functional machines and this ratio is growing. Vending machines that serve hot beverages are the `locomotives' of European vending! Given Kazakhstan's climatic conditions, it is not hard to predict maximum success of hot coffee beverage machines against the overall volume of local vending business. Key to our continuing business success will be opportunities to access new distribution points. Other factors, such as competition, market saturation, and the capricious nature of customers have so far not played a significant role in our industry's development.

Vending and Its Advantages:

Low Starting Capital. This means that a vending business is within reach of those with minimal resources as well as major investors;

Quick Investment Turnaround. Your expenses are recouped quickly;

Simplicity of Financial Scheme. Trading through vending machines does not require cash registers (and employees to run them) it is done on the basis of automated coin collection, which allows for scheme #1 of simplified taxation of small businesses;

Easy Startup Procedures. Installing vending machines does not require special licensing or permits;

Low Servicing Costs. One service person and a vehicle are enough to service 10 (ten) vending machines, for both product supply and money collection;

Simplicity of Installation. Minimal special requirements: an ordinary electrical outlet, and connection to a potable water supply. If this is not readily available, the machines can be supplied with bottled water.

Time Requirements. This can become your second business and/or family business;

Business Mobility. If volume of sales goes down at any given location, vending machines are easily moved;

Low Advertising Costs. Vending machines advertise themselves;

No Office or Retail Space Requirements. This business can be operated from your home, if you have only a few machines;

Vending - One of the Most Stable Businesses. This business is immune to economics lumps; a hot cup of coffee is a comfort in troubled times, and is always an impulse buy. That is why you want to be in this business.

You always win investing money in this business, because Vending represents the following: Stability -You become an owner of high liquidity property when you purchase vending machines. Liquidity - You can always sell vending machines or the whole line of distribution points, which significantly increases their value and marketability to the future of major operational companies (US and European experience). Prospects - The Vending business represents a new, rapidly growing market opportunity. It is easy to develop and can be done with gradual investments. As mentioned earlier, the earlier you enter the business, the more likely you are to succeed - just like in many other businesses. If you decide to enter this business, you will need to make projections for effective economic growth. We will be delighted to help you with initial consulting and will provide you with all necessary information upon request.

Suppliers

TVC will buy snacks, choco bars, drinks from the local wholesale retailers. The products will be purchased in advance for 1 week and will be stored temporarily in the storage room in our garage. And as the return will increase we will rent a building in order to store inventory and keep extra, broken machines and also to repair these machines.

For the coffee machines products at the beginning we will buy ingredients from the international sales companies. Because they are specialized in this field and have fine quality coffee grains. But further we will learn if we ourselves could put and choose locally sold coffee grains, milk or some ingredients.

Suppliers of the machines will at first be Kazakhstan companies that are specialized in selling used machines or are in this business and have old machines on sale. But further we will make connections with international firms that are producing, reselling machines. Like countries Italy, Russia. We think that Russia will be more convenient in terms of delivery and safety. Because there is set the custom union among three countries Byelorussia, Russia and Kazakhstan. This could open opportunities to be the retailer of the machines themselves in the south region of Kazakhstan and to cut costs that we will pay to resellers in Kazakhstan.

Market Analysis Summary

Taraz city is the capital city of Zhanmbyl region with the population of 400,000. There are bunch of universities around 60 high schools and budget and administrative places like hospitals municipals where there are always crowded.

People in crowded places don't want to line up or wait in a line and receive bad quality products. Thus vending machines is gonna be best reasonable solution to this problem. Because vending machines always provide fresh products, don't go to lunch and doesn't demand vacations and ready to work 24 hours a day and 7 days a week without complaining.

And may be the most significant factor is that there is no such a service provided in Taraz yet. So this opens wide opportunities as to the first who enters.

Also the nature of the vending business promises high profits and low costs. In case of the failure exit strategy is very suitable and has very low risk. Because there is only one big asset is vending machine and nothing else which in tern is very liquid. So losses will be minor and this makes the starting the business very riskless.

Competitive Analysis

In the Taraz city there is no direct competitors that are operating on the same business niche and providing similar vending service. There is no even the idea and existing image of providing food and coffee through machines. But there are indirect competitors like local store or kiosks that provide same products. But our competitive advantage over these kiosks will be that my machines will be located inside the building and provide directly and will be functioning 24 hours without break time. Customers by the nature prefer the closest stores although there will be a little premium.

Competition and buying patterns.

It is certain that at the beginning the sales will not be peaking. Because the people of Taraz city haven't seen the machines before and will be aware of using them. But it will take some time for them to use to it. With our projections this time will be shorter in the high schools and universities. Because young people are very flexible to changes and like experiencing new things. Nowadays people are buying from kiosks. And to reach that kiosks they have to walk out of the building. So with vending machines the products are delivered right inside the building.

Marketing

Marketing strategy

Marketing of the TVC will be to get customers use to the automated foods and coffee. We should provide high quality of service and products in order to gain good reputation and get loyalty.

In order to achieve marketing goals there will be conducted some activities like lowering prices for one day in a week. Or putting posters and advertising posters of the company to the sides of the machines that could motivate customers to buy or slogans of the firm or the vending business.

Location

Location plays vital role in the retailing business as a whole and particularly important to the vending business. High flow of people high chance of them to buy products from machines. So at first the places with flow of more than 1000 people will be filled up. But in case of decrease of people around another advantage of the machines that they can be moved to the more profitable place easily with minimum costs.

Target Markets and Market Segments

Target customers of TVC are people who are in rush and don't have much time because of their work to go to kiosks and spend 5-10 minutes. And those who are happen to be nearby the machines.

Another customers are school pupil who study and have not much time between breaks to go to kiosks and buy the stuff.

For the coffee machines targeted customers are those who want the coffee of finest quality to be delivered with less effort. Who prefer convenient and less time consuming process of preparing coffee than preparing themselves which is time consuming and is inconvenient like you can split milk there should be all ingredients to be and so on.

Pricing Strategy

Snacks will be offered to the customers with the 20 tenge premium for every item sold.

For example if we purchase in wholesale 0.5l bottle of pepsi for 80 tenge then we will sell it for 100 tenge. And this way to other items.

Concerning coffee we will charge 100% premium for the coffee. We buy 1 kg of coffee grain for 3000 tenge + 500 gr of milk for 1500 tenge total of 4500 tnege and get from it 200 cups of coffee and this will gain us with 50 tenge 10000 tenge

Charge 50 tenge per cup

Charge 20 premium for every item

Promotion Strategy

TVC will promote its products and services through:

Making discounts one day in the week so that more people could try to buy the product for the price equal to purchased price. This will make customers familiar with the service.

Posters on both side of the machines that say using these machines are fun and fashion.

Write column in the local newspaper about the know-how in the Taraz city.

Sales projections

Sales forecast are based on the experience in Almaty city Univercity KIMEP. Daily one snack machine sells 200 items with premium of 30 tenge so profit is 6000 tenge per day and for the coffee daily average cups are 50 cups per day with profit of 60 tenge gain is 3000 tenge so if university operates 20 days a month

So snacks gain 6000*20= 120000

Coffee gains 3000*20=60000

But in Taraz city sales and premiums will be lower according to the standard of living in the city

So as there is no such a company in Taraz we will estimate snacks to be sold on average 100 per day for the premium 20 tenge it is gain 2000. and coffee sales 30 cups per day for the gain 40 tenge it totals 1200

If schools operate 6 days a week so

Snacks 2000*24=48000

Coffee 1200*24= 28800

This is as to the beginning of the business. Where no one know about the business and vending machines. And in the future we look forward to the better returns.

Management

Abzal Jailaubaev is the experienced salesman and small business operator in the Taraz city with the diploma of business administrator from Kazakh-Turkish College. He had experience in managing major tea producing and packaging firm in Taraz for 5 years and is very skillful in organizing personnel and managing operations. Beybyt Zhunusov (Me) also college graduate and further bachelor in business admin from KIMEP. My strength is that to do all the necessary accounting and financing of the company.

Financial Data

Financial plan

TVC will finance start up through partnership investment and in the phase to expand will be financed through loan from the bank. Loan wil be taken as half year of operations passes. The expansion will include opening up new places and buying new machines.

Seasonal Data

For the seasonal data situation is as follows. For the snacks the season doesn't impact very much. Because in the summer seasons demand for the drinks will rise according to the temperature. In the winter seasons demand also wil stay the same. The reason is that cold weather pushes people not to go outside and buy inside the building.

But the situation for the coffee is different. I the summer seasons demand will fall and in winter seasons demand will rise.

Break even analysis

39166 tenge /25%= 156666 tg

Projected profit/loss

2010=490000

2011=5580000

Projected income statement

vending business mission financial

	2010	2011
Income
Gross sales	4000000	44000000
Less return and allowances	0	0
Net sales	4000000	44000000
Cost of sales	3000000	35200000
Gross profit	1000000	8800000
Gross profit margin	25%	25%
Operating expense
General and administrative expense
Salaries and wages	0	0
Emploee benefit	0	0
Payroll taxes	50000	70000
Sales commisions	0	0
Profeccianal ervices	50000	100000
rent	200000	1200000
Maintenance	50000	100000
Equipment rental	0	0
Furniture and equipment purchase	20000	50000
insurance	10000	30000
Interest expese	0	1000000
utilities	30000	180000
Marketing and avertising	20000	50000
transportation	40000	200000
Depreciation and amortization	40000	240000
Total operational expnses	510000	3220000
Net income before tax	490000	5580000
Provisions for tax on income	50000	500000
Net income after taxes	440000	5080000

Timeline

2010 year

sep invest 1500000 tenge and buy machines

oct operate

nov operate

dec operate

2010

Jan operate

Feb take a loan and buy machinery

March operate

Projected cash flow 2010

	Sep	Oct	Nov	Dec	total
Cash receipt
Income from sales
Cash sales	1000000	1000000	1000000	1000000	4000000
collections	0	0	0	0	0
Total cash from saes	1000000	1000000	1000000	1000000	4000000
Income from financing	0	0	0	0	0
Loan proceeds	0	0	0	0	0
Owners investment	1500000	0	0	0	1500000
Total cash from financing	1500000	0	0	0	1500000
Total cash receipts	2500000	1000000	1000000	1000000	5500000
Cash disbursement
expenses
COGS	800000	800000	800000	800000	3200000
Operating expense	127500	127500	127500	127500	510000
Loan payment	0	0	0	0	0
Income tax payment	0	0	0	0	0
Equipment purchase	10000	0	5000	5000	20000
contingency	0	0	0	0	0
Owners draw	0	0	0	0	0
Total cash disbursement	937500	927500	932500	932500	3730000
Net cash flow	1562500	72500	67500	67500	1770000
Opening cash balance	0	1562500	1635000	1702500	0
cash receipts	2500000	1000000	1000000	1000000	5500000
Total cash disbursement	-937500	-927500	-932500	-932500	-3730000
Ending cash balance	1562500	1635000	1702500	1770000

Projected cash flow 2010= 1770000tg

2011= 10620000 tg

Projected balance sheet December 2010

Assets

Current assets

Cash 75000

Inventory 105000

Prepaid expenses 50000

Total current assets 230000

Fixed assets

Land 0

Building 0

Equipment 30000

Machinery 1200000

Furniture 0

Fixtures 0

Less accumulated depreciation 40000

Total fixed assets 1270000

Total assets 1500000

Liabilities

Current liabilities

Account payable 0

Accrued payroll 0

Taxes payable 0

Total Current liabilities 0

Total liabilities 0

Owners equity 1500000

Total liabilities and owners equity

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