Wood Fuel
Co-operative
Outline Franchisee
Proposition
Rowland Parke
September 2012
OUTLINE FRANCHISEE PROPOSITION
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Introduction
Wood Fuel Co-operative is a not-for-profit co-operative supplying performance wood fuels (such as
briquettes made from wood, paper or reclaimed sawdust, and wood pellets) to domestic and
commercial users of wood fuel stoves and biomass boilers.
Distribution of the wood fuel is through a network of franchised depots each independently owned
and run on a commercial basis.
The Wood Fuel Co-operative supplies stock to the franchisees at cost plus 5% to cover our
operational costs. The franchisee sells to non-members at near to normal retail price and to
Members at a 'Members Price' agreed with the Wood Fuel Co-operative. Current Members and nonmembers prices are set out on the Wood Fuel Co-operatives price list at www.woodfuel.coop. These
prices may vary nationally to reflect any differences in stock transport costs.
As a group operating under the Wood Fuel Co-operative flag, franchisees benefit through being able
to access stock in manageable quantities at a cost well below what they could achieve individually.
Through the Wood Fuel Co-operative they are able to access a market of loyal and regular wood fuel
purchasers and sell to them at a price level that provides an operational profit whilst giving the
Members access to fuel at well below national average prices.
We also sell a range of animal bedding materials to the equestrian and domestic pet market.
Each Member loans the co-operative £99.00 for as long as he/she wishes to remain a member. The
co-operative uses the member's loan fund to purchase wood fuel direct from the manufacturers at
the best possible price. The fuel is then distributed to our network of franchisees on extended credit
terms. Thus, the members are effectively financing the franchisees stock and are consequently
entitled to purchase their wood fuel through the co-operative at the lowest sustainable price.
The Wood Fuel Co-operative holds and is responsible for the Members loan fund, not the
franchisees.
The co-operative also sells to non-members, but charges nearer to normal retail price and the
enhanced margin helps to ensure operational viability.
The larger our network of distribution depots and members, the greater our buying power and the
better the terms that can be negotiated both for our franchisees and our members.
The Problem experienced by wood fuel users
•
The Problems experienced by users of traditional wood logs
o
Users of Wood fuel stoves experience the following challenges;
1. Poor Performance – Traditional wood logs are usually inconsistent in quality,
often delivered with a high moisture content and when burned may cause soot
deposit in chimneys resulting in an increased potential for chimney fires.
2. Increased costs – Fuel of inconsistent size and moisture content leads to an
inefficient burn resulting in more wood used.
3. Storage – In order for wood fuel to be economical large quantities of wood are
usually delivered to the users, which will require the inconvenience of time and
space for drying prior to efficient use.
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4. Description - Traditional log sellers frequently tend to be less than accurate in
their product description. The consumer cannot be sure of volume, weight,
consistency, size or moisture content.
5. Size - Traditional logs frequently vary in size. Some may be too small and so burn
too fast, others may be too large to fit on the customers fire and so require
further splitting or cutting to be made useable.
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Solutions
o
Modern manufactured wood fuel products supplied through the Wood Fuel Co-operative
offer customers the following advantages:
1. Choice - Customers may choose from a range of wood fuel products produced
from virgin wood, waste wood, bark or paper. Each has its' own burning
characteristics.
2. Consistency - All our wood briquettes and pellets are dried down to below 10%
moisture content and all are consistent in size, content, weight, density and
quality. This enables the user to quickly learn the burning characteristics of each
fuel and control their stove ventilation accordingly in order to maximise heating
efficiency.
3. Packaging - All briquettes are contained within easily transportable plastic or
paper wraps making them clean and convenient to handle.
4. Storage - The product packaging enables easy and efficient stacking and
storage.
5. Description - Modern briquettes are packed to satisfy Weights and Measures
requirements and are of consistent and accurate weight and calorific value.
6. Cost - Given the product weight, moisture content and price, the customer is
able to confidently work out the product cost per kilowatt hour and compare the
result with other fuels such as coal, gas, oil and electricity.
7. Convenience - Our customers are able to purchase their fuel in bulk, store at our
warehouse and collect as they require. For those customers who have little
storage this is a popular service.
8. Price advantage - By purchasing through the Co-operative as a Member, the
consumer is able to purchase fuel at a price below that advertised by any other
retailer in the UK.
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Who has the need?
o
All domestic and many small commercial users of wood fuel stoves, boilers or multi-fuel
stoves
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The Market
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•
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Market size.
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The Firewood Marketing Study of 2007 carried out by D.L.MacIntyre on behalf of
Highland Birchwoods estimated the total Scottish firewood market size to be 52,000
oven dried tonnes of traditional logs. As a direct result of the recession and higher oil
prices wood fuel stove installation is estimated to have risen by 20% per year over the
last 5 years. If we assume wood fuel use has risen by 10% per year since 2007 the
current wood fuel use in Scotland will be in excess of 80,000 oven dried tonnes per year.
We have no figures for the rest of the UK, but the Scottish figure extrapolated across the
rest of the UK produces a total burn of 960,000 tonnes of wood fuel per annum.
o
CPL suggest there have been 800,000 wood burning stoves installed in the UK since 2008
and that 250,000 of those have been in the last 12 months.
How does this market change and grow over time?
o
The market for wood-fuel stoves has grown at over 20% pa for the last 5 years. Support
for this strong growth is also evident from discussion with local installers who each
install between 200-600 new stoves each year. The volatile, polluting and precarious
nature of fossil fuel supplies is persuading many more people to explore local, renewable
wood briquette products as a replacement for their current oil, coal or electric heat
provision.
o
The Government has recently introduced the Renewable Heat Incentive (RHI) which
provides business who use renewable energy for space and water heating with 20 year
index linked subsidies. This is expected to be available to domestic users from Autumn
2013, though the terms may differ.
o
We already supply a growing number of businesses and domestic customers with wood
pellets to fuel their central heating boilers. This is expected to grow exponentially
if/when RHI is introduced to the domestic market.
How much is being spent on the problem today:
o
A consumer will typically pay £50.00 for a 'builders bag' of logs. This is frequently
described by the supplier as a 'one tonne bag' but in fact the weight of logs (assuming
they are dried down to 20% moisture content) in such a bag is nearer to 200kg.
Consequently, the consumer is frequently paying around £300.00 for a tonne of logs
with a calorific value of around 5,000 kWh/tonne. A similar weight and calorific value in
high quality briquettes will cost around £250.00.
o
Domestic customers with one stand-alone room heater wood or multi-fuel stove that
does not heat the hot water might expect to use up to 1 tonne of wood briquettes per
year.
o
Domestic customer who use their stoves for heating hot water and perhaps their central
heating radiators may use around 2 or 3 tonnes per year.
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Customers who have pellet boilers installed as a full replacement for oil fired central
heating systems may use around 4 of 5 tonnes per year.
Define addressable market share
o
The addressable market is the total available customer base within a commutable radius
to the supply outlet. In our experience to date, a commutable radius is 20 - 30 miles.
o
For the Scottish market we assume 12 regional depots based at Inverness, Aberdeen,
Dundee, Perth, Stirling, Edinburgh East, Edinburgh West, Glasgow North, Glasgow
South, Ayr, Galashiels and Dumfries. We assume that within a 30 mile radius of each
depot there are at least three long-established wood/multi-fuel stove retailers and that
each retailer has installed an average of 200 stoves per year over the last five years. This
is in line with local market research done by us in the Dumfries area. So, we assume that
on average each depot area has had at least 3,000 new stoves installed over the last five
years.
o
We estimate that the average potential market in each depot area is between 6 and
7,000 tonnes of wood fuel usage per year.
o
Assuming we achieve a market penetration of 10% then we should expect to sell around
650 tonnes of briquette type wood fuel per depot per year to a customer base of around
1,000 individuals.
o
In addition to the wood briquette market, we believe that if the Government does
introduce the RHI for domestic customers in 2013, then the wood pellet market will grow
strongly in line with the Governments projections.
o
Furthermore, as many of our wood briquette and pellet suppliers also manufacture and
supply horse and pet bedding, we will continue to grow this side of the business as an
adjunct to wood fuel supply. This market has the potential to increase out turnover by
approximately 20%.
o
Our five year plan is to expand to 50 franchised depots across Scotland, England and
Wales which will generate a turnover of over £12m per year and employ 50 full time and
50 part time staff.
The Solution

The problems with the traditional wood log supply industry has been defined above as being
unreliability in terms of fuel moisture content, weight and volume description, variable log
size, poor cleanliness, difficult handling and the requirement for specialised log storage
facilities.
o
Our objective is to provide a clean, dry, consistent, easily handled and economic
modern wood fuel product through a national network of local distribution depots.
Key Points

What is your differentiator?
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o
Without exception, all existing suppliers of wood briquettes and pellets in the UK are
commercial businesses that exist primarily to make a profit for their owners or
shareholders.
o
The Wood Fuel Co-operative is financed by its members each of whom contribute a
loan of £99.00 to enable the co-operative to purchase stock and equipment in order
to run the business and provide the members with low cost wood fuel.
o
This co-operative model for wood fuel supply has proved to be attractive with new
members joining at an average rate of two per week.
o
In addition, and uniquely in the UK, the local nature of Wood Fuel Co-operative
means it is able to store members wood fuel within our depots enabling members to
draw-down their pre-bought wood fuel as and when required.
What is your competitive advantage?
o
Our members provide the interest free funding required to purchase wood fuel in
large quantities and so we are able to negotiate substantial discounts that are
passed on through our distributors to our members.
o
The co-operative is a not-for-profit organisation and is only required to cover our
actual cost of operation. This model enables the business to ensure a comfortable
balance between covering our basic operating overheads and providing our
members with wood fuel at the most economic price.
o
The franchisees are commercial operations and benefit from being able to access
supplies of stock at a cost below what they could achieve individually without
committing to purchase full lorry loads (24 pallets) from each supplier. They are thus
in a position to sell to members at a low price whilst still retaining a sustainable
operating margin.
Our Offering
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Our Offering
o
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The Wood Fuel Co-op is an aggregated buying and storage service for high performance
wood fuel products such as wood briquettes and pellets. Consumers are able to buy in
bulk, store in our distributors premises and collect as and when required (storage is as a
'virtual' pallet with several customers drawing from one pallet and that pallet being
replaced as required).
Evidence
o
Using a cooperative business model we have been able to leverage volume discounts on
wood fuels from suppliers. In order to achieve best price direct from manufacturers we
must purchase full lorry loads of product (24 pallets). Currently, with only 50 members
we are able to purchase small lorry loads which, whilst achieving a considerable saving
over purchasing single pallet loads, is still less than we could achieve with a higher
membership base.
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Superiority
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Not only do we enable members to purchase at discounted prices, but we also solve
their storage problems. The only way consumers could match our prices is by purchasing
their wood fuel direct from the manufacturer in minimum full lorry loads. This is
economically and practically not feasible for domestic consumers.
Benefits
o
Consumers benefit in the following ways;
1. Lower prices for equivalent calorific value of fuel through buying briquettes as against
buying traditional logs.
2. Consistent product and therefore economical performance of wood fuel stoves.
3. Convenience of not requiring storage for bulk purchases.
4. Having a clean easily handled fuel as opposed to dirty coal products and bulky awkward
and damp log products.
5. Having the option of delivery at extra cost.
6. Being part of a co-operative consumer buying group which is able to deliver these
benefits without the individual member needing to be pro-active.
Our Advantage
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Uniqueness
o Our advantage is our installed customer base (Members) who increase the buying power
of the business. When a member commits to joining the Wood Fuel Co-operative he/she
is highly unlikely to shop around to try and achieve a better price. In addition, the
members loan to the business is interest free, thus providing free financing to the
business.
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Scalability
o
The more customers we acquire the more buyer power we can leverage and establish
higher margins. The cooperative model also locks in customer, so customer churn is
minimal.
o
Unlike traditional retailers our customers effectively underwrite stock purchases.
Therefore we effectively earn before we spend.
o
As we grow our membership base we increase our sales and also our capital base
available to enable us to finance new stock line or capital equipment.
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Our Competition
Competitors

Our competitors are the many small traditional log suppliers (who supply product of
variable quality, weight, moisture content and volume) and specialist wood fuel retailers
(who generally require a larger profit margin than we do in order to cover their higher
operating costs) and small retailers (who stock wood fuel as part of their wider service and
who are not able to purchase stock in sufficient quantities to qualify for the discounts we
can negotiate with suppliers).
Key Points

We are able to attract customers because of our highly competitive price structure, plus
many people like and trust the co-operative business model. In addition, being a not-forprofit organisation we are able to frame our business to benefit our members rather than
shareholders.

Our members provide free financing for the business and the more members we attract the
greater our buying power.
Competitors
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Positioning
o
We compete against conventional thinking that wood logs are cheap and freely
available and a convenient source of fuel.
o
Below we have mapped the relative benefits of price and convenience of alternative
sources of supply as well as the relative performance (indicated by size of data point)
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Unlike Statements
1. Our co-operative business model engenders trust and loyalty in our customer
base.
2. Our objective of providing the customer with a high quality product at the
lowest possible price is greatly appreciated by our members.
3. We exist to serve our members rather than owners or shareholders.
Alternatives
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Value Chain
o
•
We fit into the value chain for performance fuels easily as we act as a channel to market
where we can leverage volume discounts and therefore make wood fuel more accessible
to consumers.
Change Imperative
o
For our target market of those people who can afford wood fuel stoves, our most
compelling value proposition is that of convenience and performance. High performance
fuels previously out of economical reach and for most users (members) are now
available at cheaper costs to wood logs. More importantly we remove the inconvenience
of storing and/or drying large quantities of wood.
o
It is likely that we will secure more existing wood stove users (as opposed to new users)
as they will have experienced the problems and faced the inconvenience issues already
described.
Our Business Model
Objective
Our business model is split into two distinct and separate divisions:
1. The Wood Fuel Co-operative, which is the parent body that represents our members, holds
and operates our members loan fund and appoints franchisees to distribute stock to our
members at a local level through a national coverage.
•
The Wood Fuel Co-operative will generate revenue through two avenues:
1. Membership loans of £99.00 per member which will fund the capital costs
of stock purchase and, as the membership fund increases, capital costs such
as equipment purchase which will be leased to franchisees at a beneficial
rate to cover only maintenance, insurance and depreciation.
2. Revenue from the sale of stock to our network of franchisees. The margin
on sale of stock to franchisees will vary from 3% to 5% depending on the
potential margin available to franchisees.
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2. Our network of Franchisees, each of which will be an independent business responsible for
its own running costs and contracted to supply only Wood Fuel Co-operative approved and
supplied products to be retailed at prices agreed with the Wood Fuel Co-operative.
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The Franchisees will generate revenue through:
3. Retailing the Wood Fuel Co-operative range of products to Wood Fuel Cooperative Members and non-members at commercially viable margins.
Prices will be kept low through the Wood Fuel Co-operative's advantageous
buying power direct from manufacturers.
4. Stock Control: The Franchisee will ultimately be able to draw stock from the
Wood Fuel Co-operative on a sale or return basis. Thus, the Members will
(subject to conditions and membership recruitment by the franchisee)
finance the franchisees stock.
Stock Lines
The Wood Fuel Co-operative was established to provide wood based fuel products to its members
and to that end currently stocks Verdo Briquettes and Verdo Pellets, EziLite Paper Briquettes,
Hotmax Briquettes, Hotties Briquettes and Fire Blox Briquettes. Our current stock line of animal
bedding includes; Bedmax, Littlemax, Bedwell, Nedz, Dodds, Bliss and Fitch. Coal products to help
folk with multi-fuel stoves keep them in overnight include: Homefire, Ecoal, Housecoal and Brazier.
o
We are always open to new ideas from our franchisees. Additional stock lines will be
added to increase sales volume, especially over the quiet summer period. Stock lines
currently being explored are:
1. Composts: Directed at increasing the summer trade. Although it is a very
competitive market with a number of local outlets, our bulk buying ability
may be able to deliver reasonable margins for our franchisees.
2. Bird Food: People who purchase wood fuel and horse bedding are also likely
to feed wild birds. We may provide reusable tubs that customers can re-fill
themselves from a bulk bin.
3. Oak Planter Barrels: Directed at the summer market, we are serving a small
market for oak barrel planters.
4. Other ideas are welcome. This is a co-operative effort for the benefit of
both our members and our franchisees. By ensuring our franchisees
prosper, we secure the distribution network to our members and ensure the
long-term security of the business model.
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Business model visual

Here are the key aspects to our business plan.
Running Costs

Running Costs: Each Franchisee is likely to incur different operating costs, to some extent
reflecting on the area they are located in. The overheads to consider are as follows:
o
Premises rent: Range from £150/month for our 2,000 square foot in Dumfries to around
£600/month in a more affluent area of the country.
o
Rates: Being a small business here in Scotland we are exempt from rates but this will vary
around the UK. Check your local position.
o
Telephone/Internet: We average around £50 per month but you may be more, or less.
o
Electricity: We average around £20 per month but are supplied through the Industrial
Estate so yours may be less. We heat the office with a wood stove - of course.
o
Mobiles: We pay about £10 per month but you will know your own costs.
o
Insurance: We are covered for business, public liability and stock to £10k. We pay about
£25/month through the NFU.
o
Office: This includes things like printer ink, paper, receipt books and other sundry items.
We allow about £50/month and that easily covers us.
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o
Vehicle fuel/insurance/tax/repair. You will need to run a transit sized vehicle to do
deliveries from time to time. Difficult to generalise here, but our overall costs come in at
about .30p per mile excluding depreciation. Depreciation generally depends on the age of
vehicle you choose to run.
o
Advertising: You will be responsible for local advertising and this will be backed up by our
national advertising. Budget between £100/£150 per week for the six month winter
period at least for the first two years. We will provide a show unit which you will be able
to use at your local shows.
o
Wages: You will need someone in the office to take calls and look after the books whilst
you are dealing with customers or perhaps doing a delivery. Here in south west Scotland
the going rate is around £13k to £15k pa. Your own drawing should relate directly to your
operating surplus, so the quicker you can move into surplus the better. By joining a
proven co-operative where you will be able to immediately buy stock at the best possible
price in order to achieve the best margin, you are giving yourself the best prospect of
early profitability
Capital Costs
As a franchisee you are responsible for financing the start-up costs of your business. These costs may
include:
o
Premises: You will locate and negotiate the lease on your premises (we will have some input
here to ensure our franchisee is going to be operating from a suitable premises). You will
cover any deposit required from your landlord and the subsequent monthly rent. (You may
be able to negotiate a rent free period to help you get started). Remember these premises
will have to be large enough to hold stock (around 2,000 square foot) and have enough
outside yard space to park and unload a 50' articulated lorry, and be high enough inside to
safely operate a forklift truck.
o
Telephone/Internet: You may have to pay for the installation or re-connection of telephone
lines.
o
Office Equipment: If you don't already have a suitable computer, printer, telephone, copier,
desks, chairs etc. then you will need to purchase them. No need to buy new or expensive,
you should be able to buy suitable office equipment for under £2k total.
o
Forklift: You should be able to start off with an older machine costing between £2k and £4k.
When you are established and have enough of a membership base the Wood Fuel Cooperative may provide you with a new forklift (terms and conditions apply).
o
Van: You will need a transit sized van to do local deliveries. A perfectly good operational van
can be bought for under £5,000. When you are established and have enough of a
membership base the Wood Fuel Co-operative may provide you with a new van (terms and
conditions apply).
o
Stock: Until you establish a membership base of 50 members (which you are should do
within six months), you will need to finance your stock bought from the Wood Fuel Cooperative. Allow up to £8k for this stock which will be a selection of each of our product
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range. In addition to this, you will be required to loan the Wood Fuel Co-operative £5,000 to
enable us to purchase stock as required prior to you recruiting your first 50 members.
o
Total Capital requirement: Allow between £20k and £25k to get started and bear in mind
that as you recruit members around 80% this capital may be replaced by members leasing
new equipment to you at most favourable rates and funding your entire stock levels on a
sale or return basis (terms and conditions apply).
Revenues
It is clear to most people that burning fossil fuels is not sustainable in the long-term. Wood fuel
burning appliance sales have been increasing by around 20% year on year for the last four or five
years. The Government is financially supporting business heating their premises with biomass boilers
and this is due to be extended to domestic consumers next year.
The Wood Fuel Co-operative intends to position itself and its franchisees as the supplier of first
choice for all wood fuel consumers throughout the UK.
This ambitious project can only be achieved with many like-minded entrepreneurs working together
in a co-operative spirit to best meet the needs of both our members and our franchisees.
For our members we want to provide access to good quality wood fuel at an affordable price and we
want our franchisees to be able to provide themselves and their staff with a fair, motivational and
sustainable wage.
Potential turnover and margins can be discussed directly with Rowland Parke.
Key Points

Franchisees should assume a capital requirement of up to £25,000 of which up to £20,000
will be replaced by membership funding as performance targets are met.

Franchisees should assume that it may take 12 to 18 months to build up a sufficiently large
customer base to ensure sustainability.

Franchisees will be fully supported by the Wood Fuel Co-operative, its members and other
franchisees at every stage of establishment and growth. This is a joint effort and there is
strength in numbers.

A thriving and prosperous franchisee network helps secure the future of the Wood Fuel Cooperative and protects its members. This is what we strive for.
Further information may be obtained from Rowland Parke on 01387 731 210 or email:
[email protected].
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