Popeye`s Canada Business Plan
Prepared by
Tim Andrews
Nathan Ballantyne
Jason Jeffrey
1.0 Introduction
1.2 Mission Statement
1.3 Goals and Objectives
1.4 Financing
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2.0 Operations Plan
2.1 Location
2.2 Floor Plan
2.3 Organizational Structure
2.4 Supply Analysis
2.5 Business Cycles
2.6 Capacity Limits and Capital Budget
2.7 Working Capital
2.8 Cost of Sales
2.9 Cash Conversion Cycle
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3.0 Human Resources
3.1 Job Descriptions
3.2 Training
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4.0 Scheduling
4.1 Compensation
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5.0 Marketing Plan
5.1 Industry Overview and Current Markets
5.2 Competition
5.2.1 Direct Competition
5.2.2 Indirect Competition
5.2.3 Customers and Target Markets
5.3 Product and Service Features
5.4 Product Quality
5.5 Pricing Strategy
5.6 Promotion Strategy
5.7 Distribution
5.8 Sales Objectives
5.8.1 Sales Projections
5.8.2 Marketing Expenses
5.8.3 SWOT Analysis
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6.0 Financial Plan
6.1 Sales Revenue and Net Income
6.2 Total Operating Expenses
6.3 Working Capital
6.4 Cost of Capital
6.5 Debt Amortization
6.6 Risk Analysis
6.7 Financing Budget
6.8 Divided Policy
6.9 Ratio Analysis
6.10
Financial Analysis
6.11
Risk Analysis
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Popeye’s Nutritional Supplements
7.0 Conclusion
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8.0 Appendices
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Popeye’s Nutritional Supplements
Executive Summary
This document contains a comprehensive business plan for a Popeye’s Canada supplements franchise
located at Preston Crossing in Saskatoon Saskatchewan. Popeye’s specializes in selling health
supplements in the form of protein powders and weight gains, fat burners and energy boosters,
vitamins minerals and Herbal Remedies and other complimentary fitness products.
Financing
Estimated total start up costs for this business is $360 000. Investors, Tim Andrews, Jason Jeffery and
Nathan Ballantyne will contribute $150 000 towards the business. Another $210 000 is required to cover
the rest of the start-up costs.
Operations
Investor Tim Andrews has been designated as General Manager for this business. Popeye’s will purchase
its products from Supplements Canada which is run by Popeye’s corporate office which will ship its
products from a warehouse in Edmonton. This investment in inventory and other capital costs are
estimated to be $80 000. Popeye’s will lease its property in Preston Crossing were it will be located.
Human Resources
Tim Andrews (GM) will be in-charge of hiring three part-time employees to assist in day to day
operations of running the store. Popeye’s strives to provide the highest quality of customer service in
order to meet customer needs therefore; Mr. Andrews will develop a comprehensive training program
to continually be training part time staff. The store will be open on weekdays from 9pm-9am, Saturdays
and Sundays from 9am-5pm. The store manager will have an annual salary of $50 000/year while part
time staff will be paid $10/hr.
Marketing Plan
Popeye’s will offer an array of variously priced products based on quality. Its pricing strategy is based on
a cost plus structure. Popeye’s will be vigilant in monitoring competitors pricing so it may adapt if need
be. In order to promote the Popeye’s brand the store will rely on both corporate and in house
marketing. This will include T-Shirt handouts, Shaker cup handouts, Popeye’s Dollars, promotional
appearances, email subscriptions, direct mailers and radio spots. Popeye’s has a 3% sales revenue
growth projection and estimates to spend $9 325 annually.
Finance
Financial highlights include:
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Profitability after only the second year of operations.
Profit Margin of 44% after the second year
Dividends of $190 000 by 2014
NPV of $159 153 and IRR of 76%
Popeye’s Nutritional Supplements
Popeye’s Nutritional Supplements
1.0 Introduction
This report presents a comprehensive business plan for a Popeye’s supplements Canada franchise to be
located at Preston Crossing in Saskatoon, Saskatchewan. This is a relatively new high traffic area that is
location is close to the University of Saskatchewan which harbours a population of young students to
which Popeye’s supplements targets for sales. Popeye’s Supplements Canada was created in 1989 and is
the first sports nutrition outlet in Canada. It has now grown to have over sixty locations across Canada.
Popeye’s strives to provide excellent service by offering optimum results and solutions with real
information and accurate knowledge of fitness supplements at the lowest prices possible. Popeye’s
focuses on selling:
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
Proteins Powders and Gainers
Fat burners Energy boosters
Vitamins Minerals and Herbal Remedies
Complimentary products
Popeye’s has positioned itself to effectively take advantage of recent trends throughout Canada of
getting active and living a healthy lifestyle.
1.1 Industry Overview
The health supplements industry has had consistent growth of around 8% for the past five years. Major
players within the industry include Popeye’s and GNC however; major box stores such as Wal-Mart,
Costco and many other major retail outlets have started selling health supplements within their stores.
Additionally, the emergence of online distributors, such as bodybuilding.com has provided the customer
with further choices in their nutritional supplement shopping. Competition has also further been
increased with the opening of many herbal remedy stores specializing in health products which claim to
be naturally based from plants and animals.
1.2 Mission Statement
Our company's commitment is to help you achieve your ultimate goals, whether it may be for personal
satisfaction or to gain that competitive edge. We make it our job to provide you results and solutions by
helping you find the right products, the best products, all at the lowest prices GUARANTEED or simply
return the product!
1.3 Goals and Objectives
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Break-even in the first year of operations.
After the first year achieve a yearly rate of return no less than 15%.
Effectively train employees so all are capable of providing in-depth knowledge to customers
regarding all supplements sold within the store.
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Popeye’s Nutritional Supplements
1.1 Financing
Estimated total start-up costs are $360 000. Investors Tim Andrews, Jason Jeffery and Nathan Ballantyne
will be contributing $150 000 towards the conception of this franchise. Therefore another $210 000 is
required in financing in order to cover the start-up costs and basic inventory purchases, marketing and
insurance which, is estimated to be $100 000.
2.0 Operations
The Popeye’s franchise that we are proposing to operate will be a health store merchandiser, in that our
main business function is the sale of our products to customers. The products that we will sell will range
from herbal remedies to protein powders, with emphasis on the latter. As a franchise, we will act as part
of the franchisers distribution system, by selling the product line to customers. We represent the front
end of this system and will enjoy the benefit of having an established procurement system in place,
which we can rely on. The franchiser is responsible for maintaining warehouses that will store all the
products that we will sell. A major obstacle of competing in this industry is to maintain relationships
with suppliers. This is one aspect of the business that we be secure, by virtue of the franchiser. Our staff
will be trained to not only understand and sell our products, but educate customers on what our
products can do for them.
2.1 Location
Located in Saskatoon, Saskatchewan, Preston Crossing is a popular shopping destination for the people
of Saskatoon. Conveniently located near the University of Saskatchewan, with easy access to Circle
Drive, Preston Crossing is accessible to a wide array of shoppers.
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Popeye’s Nutritional Supplements
2.2 Floor Plan
The majority of our leased space will be for shelf space of our many products. Unlike most retailers we
operate with our entire inventory on the store-front shelves. This limits our need to carry large
quantities of inventory and gives the customers a view of all we have to offer. The space that we will
lease will suffice in terms of our planned short-term and long-term needs.
2.3 Organizational Structure
Our business will operate as a corporation with three shareholders, one of whom will act as the general
manager, and the two other will be silent shareholders. The organizational structure will be quite
simple, and will be structured as follows: Shareholders, General Manager, and Staff.
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Popeye’s Nutritional Supplements
General
Manager
Staff
Staff
Staff
The reason we chose to operate as a corporation is mainly because of the limited liability and ease of
transfer of ownership. We are also obligated to incorporate under of franchise agreement. In terms of
our organizational structure, we felt that simplicity was paramount. There is no need for assistant
manager or specialized staff positions, which would only add extra costs and complexities to our
business model. The board of directors is comprised of the three shareholders and their wives. These
individuals are: Timothy Andrews, Jason Jeffery, Nathan Ballantyne, Carmen Electra, Rosie O’Donnell,
and Meghan Fox. The board brings a wealth of experience, knowledge, and education to the table and
will be a great asset to this organization. Of particular importance, is the General Manager’s experience
as an amateur bodybuilder and part-time power-lifter. Mr Andrews has been immersed in this culture
for many years and has intimate knowledge of the industry. Besides his wealth of knowledge of the
industry, the GM also has an MBA from the esteemed Edwards School of Business.
2.4 Supply Analysis
The franchiser has a supply chain in place and we, the franchisee will act as part of that supply chain by
managing the retailing of the products. We will not directly deal with the suppliers of products, but
rather with intermediary, which is the franchiser. This allows us to focus on the operation of our
business.
2.5 An Average Business Day, Week, Month, Year
Our store would typically open at 9:00am and close at 9:00pm from Monday to Friday. Our weekend
hours will be Saturday and Sunday from 9:00am to 5:00pm. The General Manager would open the store
from Monday to Friday and staff member would open on the weekends. Part-time workers would work
the remaining hours of the weeknights and all hours on the weekends. The types of activities that would
take place on a typical day include: inventory management, helping customers, general cleaning duties,
explaining products to customers, etc.
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Popeye’s Nutritional Supplements
The General Manger will be responsible for compiling year-end financial statements, filing income taxes,
placing product orders, maintaining relationship with franchiser.
2.6 Capacity Limits and Planned Capital Budget
The capital assets that are needed for this business are minimal. We are planning on leasing the space
for our business site and do not need to invest in any major capital assets. The bulk of our start-up
investments will come from the following: lease hold improvements, inventory, and franchise fees, and
inventory management system.
In terms of working capital, significant investment in inventory is required. This will require
approximately $80,000 to start. The following is a table of estimated start-up costs:
Building Costs
- Lease hold improvements - $25,000
Equipment Costs
- Inventory Management System - $5,000
Working Capital
- Cash - $30,000
- Inventory - $80,000
- Accounts Payable – ($10,000)
Capital Budget Summary
Building - $25,000
Equipment - $5,000
Working Capital - $90,000
2.7 Working Capital Plan
The following is a description of how working capital will be monitored and managed:
1. Liquidity Management – use of liquidity ratios and cash flow to manage liquidity. We will not
require a great deal of cash on hand.
2. Inventory Management – we will need to carry a minimum amount of inventory as set out in
out franchise agreement. A major part of our management will be adhering to these
stipulations.
3. Accounts Receivable – We will not offer credit to our customers, but rather function as a
cash only business.
4. Accounts Payable – This will also require little in terms of management. Our supplier is the
franchiser, with whom we will work very closely and maintain good relationships. The timely
payment to this party is of paramount importance to our success.
5. Retailing – Again, this aspect of our business will be dependant on our franchiser and the
market price for our products. We do not have much control over either of these aspects of
our business. We will, however, use industry standards as benchmarks against which to
gauge our success.
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Popeye’s Nutritional Supplements
2.8 Cost of Sales for Retailing
The Gross Profit Margins for Popeye’s vary depending on product. The following is a description costs
and sales for each product category.
1. Proteins, Powders and Gainers – average cost= $35 average selling price=$60 (average GPM=$25)
2. Fat burners, energy boosters – average cost=$22 average selling price=$45 (average GPM=$23)
3. Vitamins, minerals and herbal remedies–average cost=$15 average selling price=$25 (average
GPM=$10)
4. Complimentary products – average cost=$4 average selling price=$6 (average GPM=$2)
2.9 Cash Conversion Cycle
The CCC for Popeye’s represents the amount of days that cash is tied-up in the process of purchasing
inventory from the franchiser, until cash is collected from the customer. Popeye’s does not manufacture
its own product and does not offer credit to customers, so the CCC is greatly reduced. However, the
amount of time that inventory sits on shelves does tie up a significant amount of cash. This is a reality of
the business and cannot be reduced. The detail of Popeye’s Cash Conversion Cycle is as follows:
Average Days of Inventory=38
Average Days Payables=10
Cash Conversion Cycle=28
Summary of Operations Plan
The operations of Popeye’s Supplements is unique, in that it relies on an outside part for its supply
chain, does not require a great deal of capital assets, leases the physical location, and does not offer
credit to its customers. The challenge, in terms of managing operations, lies in customer service,
relationship management with franchiser, and inventory management.
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Popeye’s Nutritional Supplements
3.0 Human Resources Plan
Human Resource Strategy
The HR strategy for this franchise will be rooted in hiring people with a passion for physical activity,
helping people, and the industry. There is a great deal of young people who are becoming more-andmore interested in physical activity. We will seek to hire individuals that fit these criteria. In terms of
motivation, our staff will be given discounts on all purchases of products. We will also offer them the
opportunity to move to a wage and commission form of compensation, once we become more
established.
Additionally, the human resources plan focuses on simplicity as there will only be one manager and
several other staff members who will run the till and provide in-depth knowledge to customers who
enter the store and require assistance.
3.1 Job Descriptions
General Manager
9:00 – 5:00 (1 hr lunch) Monday – Friday
The General Manager (Tim Andrews) will be in-charge of the hiring and firing aspects of the business. He
will also have the duty of developing weekly shift schedules for employees, basic accounting activities,
marketing, employee training and providing quarterly reports regarding financial and overall
performance to angel investors Jason Jeffery and Nathan Ballantyne.
Day
-Oversee all operations
-Manage Inventories
-Help customers
Month
- Recruit new staff
-Schedule staff hours
-Analyze key financial ratios
-Manage Inventories (place orders, etc.)
Year
-Compile Financials
-Ensure taxes are completed and filed
- Analyze past year and set strategy for upcoming year
- Evaluate Staff
- Firing of staff when needed
Till and Floor Staff
Till and Floor staff will be in-charge of assisting customers in finding supplements that meet the
customers needs. They will also be in charge of cash transactions at the cash register and keeping the
store neat and orderly.
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Popeye’s Nutritional Supplements
3.2 Training Programs
Popeye’s prides itself on the high quality of service and in-depth knowledge its employees have to offer
customers who enter their stores. Therefore extensive and regular training will be a big part of being an
employee within a Popeye’s franchise. The General Manager, Tim Andrews has extensive knowledge
regarding supplement usage and living a healthy lifestyle and will undertake developing a training
program for floor and till employees when they are hired. Mr. Andrews will provide employees with
literature as well as recent research and studies regarding all types of supplements that are sold in
Popeye’s stores. He will also train employees on how to identify customers supplement needs from their
current workout goals and lifestyles. Mr. Andrews will focus on gathering literature regarding new
supplements that are being sold within Popeye’s and will give quarterly information packages so
employees can keep up to date with new information and products.
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Popeye’s Nutritional Supplements
4.0 Scheduling
Total Planned Hours of Work at Popeye’s
Total Hours of Work
Manager
Part time 1
Part time 2
Part time
3
Daily
Total
Monday
8
7.5
7
22.5
Tuesday
8
7.5
7
22.5
Wednesday
8
7
15
Thursday
8
7
15
Friday
8
7
15
Saturday
2
7
9
Sunday
2
7
9
28
108
Total Hours
Store Hours
44
Mon-Fri 9-9
Weekends 9-5
Total Part-Time Hours
64
Total Full-Time Hours
44
Total Hours
15
108
4.1 Compensation
Table 2.2.1
Employee
Salary
FT/PT
General Manager
$50 000/year
Full- Time
Staff Member #1
$10/hour
Part-Time
Staff Member #2
$10/hour
Part-Time
Staff Member #3
$10/hour
Part-Time
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Popeye’s Nutritional Supplements
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Five Year Labour Projection
Labour
Manager (Salary)
Benefits for Manager
Wage Employees (hourly wage)
2009
2010
2011
2012
2013
$50000
$51500
$53045
$54636
$56275
$3000
$3090
$3182.7
$3278
$3377
$10
$10.3
$10.609
$10.9
$11.3
64
64
64
64
64
Hours
Total Wage Employees (Year)
$33280 $34278.4 $35306.75 $36275.2 $37606.4
Total Labour Cost
$83280 $85778.4 $88351.75 $90911.2 $93881.4
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Popeye’s Nutritional Supplements
5. Marketing Plan
5.1 Industry Overview and Current Markets
The supplement industry is one which has encountered a tremendous amount of growth in recent years
culminating in sales throughout the United States of $23.7 billion in 2007. In addition to such continual
sales growth, the supplement industry has proven itself to be relatively unaffected by the recent
downturn in the economy, posting sales in US of $25 billion for the year ending December 31, 2008; up
nearly 7% from 2007.
The industry is comprised of a variety of firms who produce products fitting into two specific categories,
sports nutrition and physical health. Industry leaders such as EAS, Muscle-Tech, IsoFlex and Biotest each
manufacture and market a variety of protein powders, weight gainers, fat burners and nutritional
powders to an ever growing and expanding consumer base.
Sales of such products are conducted primarily through two separate channels; online ordering and in
store purchase. Not only do firms in the industry provide their consumer base the opportunity to shop
on their individual, customized website, but also on shared distribution websites, most notably
bodybuilding.com.
However, online shopping offers a variety of disadvantages. Wait times for product delivery, delays at
the US border, shipping costs and the inability for prospective customer to sample potential product are
all challenges facing online based distributors.
Conversely, in store shopping address each of these challenges faced by online distributors. Franchises
such as Popeye’s and GNC offer a wide array of product offerings in a one stop environment. Consumers
are able to sample product prior to purchase, while inquiring to knowledgeable staff the benefits of any
particular product line.
5.2 Competition
As the supplement industry continues to grow, competitors both within the manufacturing and
production sector, as well as distribution sector are ever emerging.
5.2.1 Direct Competitors
Direct competition in the Canadian supplement marketplace comes from the largest
international supplement provider, GNC. With 3 stores in Saskatoon, GNC has substantial name
recognition, corporate backing and an international presence. With a presence in major
shopping areas, GNC carries a variety of popular brands and offers a “Gold Card” rewards
program. However, with a greater focus on health products than sports nutrition, and higher
prices than its competitors, GNC has fallen as of late from its position as the leading distributor
nutritional offerings.
Online distributors, most notably bodybuilding.com, provide an additional source of
competition. Offering more products at a lower base price than traditional retail outlets, with
two warehouses throughout the United States and international shipping, bodybuilding.com has
generated a tremendous amount of success in recent years. However, wait times of up to 10
business days for international orders and high shipping costs discourage many consumers from
purchasing products online.
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Popeye’s Nutritional Supplements
5.2.2 Indirect Competition
As the nutritional supplement industry continues to expand, non-traditional carriers of product
are entering the marketplace. Large organizations such as Wal-Mart have begun to expand into
the supplement marketplace, carrying a select few products at low price. Wal-Mart has recently
reached an agreement to carry products manufactured by Six-Star, a mid level nutritional firm.
Offering protein powders, mass gainers, and fat burners, at a relatively low price, Wal-Mart has
taken a small step in capturing market share.
Additionally, a variety of drug stores including Shoppers Drug Mart, have introduced a
nutritional section. Similar to Wal-Mart, drug stores tend to offer a basic product, with few
choices of brand or flavour.
5.3 Customers and Target Markets
As the trend toward a more healthy and active lifestyle continues, the consumer base for
Popeye’s supplements continues to widen. From young high school athletes, to college and
weekend warriors to active middle aged adults, a product exists to further assist the consumer
in living a more healthy and active life.
Undoubtedly however, the target market for a Saskatoon based location is the younger, active
market. With a student population of approximately 15,000, the University of Saskatchewan,
and Saskatoon offer a concentrated youth population. Home to the varsity “Huskies”, the U of S
has a long history of athletics and numerous student athletes. Specifically, current partnerships
exist between Popeye’s and the vaunted U of S Huskies football program. Working closely with,
and targeting U of S athletics and the student population as a whole serves as gateway to the
young, athletic market.
5.4 Product and Service Features
Popeye’s Supplements offers a wide array of products from a variety of popular brands. High end
product offerings from firms such as Biotest and Muscle-Tech are widely available throughout the store,
as are lower quality products and brands. Popeye’s offers a diverse range of product offerings which
caters to those who are seeking a particular supplement, or are partial to a specific brand.
Highly educated employees are continually trained to provide expertise on each product in the store,
thereby able to recommend products to curious and inquisitive customers.
5.4.1 Product Quality
Popeye’s stands behind our product offering. Should a customer not be satisfied with the product
purchased, upon proof of purchase, the customer will be entitled to a full refund or product exchange.
As Popeye’s offers numerous products from a host of brands, an element of product control simply
cannot be managed by each Popeye’s outlet. However, in offering a refund and exchange policy,
Popeye’s is able to ensure customer satisfaction and repeat business.
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Popeye’s Nutritional Supplements
5.5 Pricing Strategy
As the nutritional supplement industry is a highly competitive one, with product offerings being quiet
similar appropriate pricing is crucial to financial success. Products are to be priced using a cost plus
structure. For example, should a container of protein powder be purchased at $35.00 from a distributor,
it may be sold to the customer for $49.99. As various brands produce similar, yet subtly different
products (perhaps one powder contains high quality protein, or a better taste) pricing may slightly vary
from brand to brand.
Additionally, price matching strategies are to be employed. Should a competitor, such as GNC offer a
product at a lower price than Popeye’s, Popeye’s will offer the product to the customer at 90% of the
competitor’s price. However, it must be noted that price matching policies pertain only to competitor
local retail establishments, not online distributors.
Popeye’s strives to proactively offer high quality products at a lower price than its competitors. In
pricing via a cost plus structure, while closely monitoring competitor prices and employing a price
beating offer, Popeye’s provides top line products at low prices.
5.6 Promotion Strategy
Perhaps the most crucial aspect to the development and success of a Popeye’s location is promotion
and consumer awareness. Numerous channels will be used to promote not only the location, but
product offerings and encourage repeat business as follows:
Storefront and Recognizable Logo
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Signage and logo synonymous with Popeye’s franchises across the country. Consistency in
using corporate signage and symbol to consumers passing in visible sight of the retail
outlet.
T-shirts Handout
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Keeping consistent with the corporate strategy; following purchase of product, customers
will be given a free t-shirt, suitable for the gym, displaying the Popeye’s logo. In doing so,
the Popeye’s franchise logo will gain exposure in numerous fitness facilities throughout
Saskatoon.
Shaker cup Handout
-
Similar to the t-shirt handout, Popeye’s will hand out shaker cups with the corporate logo,
following consumer purchase. Shaker cups allow the customer to mix a protein shake
anywhere, anytime by simply adding water and shaking. As with the t-shirt promotion,
shaker cups again further promote the Popeye’s brand around the city.
Popeye’s Dollars
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Similar to a rewards program; following purchase, consumers will be handed a small
denomination of Popeye’s dollars. Popeye’s dollars can be applied to, and redeemed by the
consumer upon their return to any Popeye’s location across the country.
Popeye’s Nutritional Supplements
Online Website
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Popeye’s corporate website offers consumers information on products, workout routines
and locations across the country. By simply adding the new Saskatoon retail location to the
corporate website, increased awareness of the additional location will result.
Promotional Appearances
-
In keeping with Popeye’s corporate strategy, athletes will be sought out by management to
make promotional appearances, thus increasing traffic to stores. Historically, bodybuilders
and local professional athletes (such as CFL football players, or NHL hockey players calling
Saskatoon home) have made appearances at numerous Popeye’s throughout the country
Email Subscriptions
-
Consumers entering Popeye’s will be given the opportunity to sign up for an emailed
newsletter subscription. The subscription will identify consumers of upcoming sales,
promotions and guest appearances.
Direct mailers
-
Similar to email subscriptions, consumers will be able to register for direct mailers upon
entry into the retail location. Direct mailers will comprise of coupon booklets which
consumers will be able to redeem at specific retail locations for discounts on product
offerings.
Radio spots
-
Upon the opening of the new location, a variety of radio advertisements and spots will be
aired on popular stations throughout the city. Not only will the announcement of the grand
opening be promoted over the radio, but further sales, promotions and guest appearances
will be advertised through such means on a regular basis.
5.7 Distribution
Following with corporate strategy, Popeye’s newest Saskatoon location will pull inventory from a
corporate western Canadian warehouse. Doing so will ensure that adequate stock levels are monitored
as the distribution system has proven quite successful in the over 60 locations across the country.
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Popeye’s Nutritional Supplements
5.8 Sales Objectives
5.81 Sales Projections
Popeye`s has a 3% sales revenue growth projection as articulated below.
Sales Projections
8,000
Units
7,000
6,000
Quantity of Sales
5,000
Proteins Powders and Gainers
4,000
Fat Burners Energy Boosters
3,000
Vitamins Minerals and Herbs
2,000
Complimentary Products
1,000
2009
2010
2011
2012
2013
2014
Year
5.82 Marketing Expenses
As a franchisee, we are obligated to pay advertising royalty, 5% of annual sales. Also, local
advertising is budgeted at $9,325 per year.
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Popeye’s Nutritional Supplements
5.83 SWOT Analysis
Strengths
-
Strong relationship with suppliers
Brand Recognition
Nationwide presence
Distribution system
Ability to attract guest promotional appearances
Growing market share
Weakness
-
At the mercy of the corporate office
o Policies, regulations, systems
Cash tied up in inventory
Image directly tied to “Freak Fix”, other outrageous slogans
Lack of control
o How products are promoted by manufactures
o Industry
-
Opportunities
-
Trend toward healthier lifestyle
Expansion from sport specific nutrition to healthy lifestyle
Lack of consumer awareness of exact nutritional specifications – staff can educate and sell!
Operating in a relatively affluent environment
Partner with other Popeye’s locations in the city to sponsor various events
o U of S Athletics
o Sporting events
o Bodybuilding competition
Based in a student heavy population, students care about how they look
Threats
-
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New entrants
Online threats
Current competitors expansion
o Grocery stores offering nutrition products
o Wal-Mart/ department stores offering similar products
FDA regulations (Ephedrine example)
Cannibalization of other Popeye`s Stores
Product is not a necessity, more of a luxury good
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6.0
Financial Plan
The following section reports detailed sales projections for the following 5 years.
6.1 Sales Revenue and Net Income
For simplicity, products have been broken into 4 main categories as follows, Protein Powder, Fat
Burners, Vitamins and Minerals, Complimentary Products.
Net Income
400000
350000
300000
250000
200000
150000
100000
50000
0
-50000
-100000
-150000
2009
2010
2011
Net Income(Loss)
2012
Cash
2013
2014
Dividends
Total revenue for 2009 is projected to reach $564,696. It is also projected to double by 2013. Gross
Margin for total revenue is estimated to be 49% in 2009. As expected Popeye’s experiences a loss in the
first year of $83,838, however net income will grow to $195,480 by 2013.
6.2 Total Operating Expenses
Total operating expenses are expected to be $363,048 in 2009, followed by a decline in expenses in
2010 to $231,619.
6.3 Working Capital
As inventories are concerned, the store will carry 38 day inventory of all products. All sales are on a cash
basis, therefore there are $0 accounts receivable. Accounts payable are also paid within 10 days.
Popeye’s net working capital for 2009 is as follows:
-
Cash + Inventories + AR – AP = 30,000 + 50,000 + 0 – 10,000 = $70,000
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Popeye’s Nutritional Supplements
6.4 Cost of Capital
As shown in the operations plan, section 2.6 capital budget, the total capital cost in 2009 is a major
expenditure ($120,000) on building equipment and working capital. As shown in the financial plan, the
average capital cost allowance (CCA) or depreciation is 20% on all equipment. The items will be
depreciated to two thirds of their original price in 5 years.
6.5 Debt Amortization
Long term debt will be paid at a fixed amount every year for the next 5 years at an interest rate of 10%
resulting in total debt payoff by 2014.
Long-Term Debt
400000
350000
300000
250000
200000
150000
100000
50000
0
-50000
-100000
-150000
2009
2010
2011
Net Income(Loss)
2012
Cash
2013
2014
Long Term Debt
6.6 Risk Analysis
Risk analysis provides a list of critical success variables which determine the success of the store in both
short and long term; they are as follows:
-
Unit of sales
Selling prices
Supply and or cost of product
As shown in table 6.6, unit of sales and selling price of product is the most critical success factors, while
costs of direct materials is also important for financial performance.
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Popeye’s Nutritional Supplements
Table 6.6
Risk Variables and Level of Importance
Variables
Unit of Sales
Selling Price
Cost of Product
Level of Importance
1
1
2
Where 1 equals most critical for success
Where 2 equals important but not critical
6.7 Financing Budget
$150,000 of equity will be invested by Mr Andrews, Ballantyne and Jeffrey. In addition, $210,000 will be
obtained via bank loan at 10% over 5 years.
Financing Structure
Long term debt
Owners equity
Total financing
$210,000
$150,000
$360,000
6.8 Divided Policy
Dividends will be paid to equity investors as follows:
-
$30,000 in 2012
$60,000 in 2013
$100,000 in 2014
This will ensure within the first two years an adequate supply of cash for the business to continue
operations and cover unanticipated events.
6.9 Ratio Analysis
In the second year of operations ratios are as listed below.
Profit Margin
Return on equity
Return on total assets
6.10
44%
43%
15%
Financial Analysis
Popeye’s financial analysis is positive, as the NPV shows a value of $159,153 in future cash flows. The
expected return on the equity investment is 76%.
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Popeye’s Nutritional Supplements
6.11
Risk Analysis
Popeye’s initial year will incur a loss. However, in year 2 net income returns a positive $50,894.Reason
for this discrepancy between years 1 and 2 is attributed to the high capital costs incurred in year 1.
8.0 Conclusion
Popeye’s Preston Crossing, Saskatoon location, is found on solid marketing, human resources and
operations planning. In following, key financial projections indicate projected positive earnings over the
coming 5 years with an expected internal rate of return of 76%.
Such results are projected against thorough market research, conducted by franchiser, which has
identified the Preston Crossing location as an extremely attractive business opportunity.
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Popeye’s Nutritional Supplements