Montana Dog Food Company
Nourishing Our Own Companions
Business Plan
Contact:
Alyssa Komac
1818 Highland Helena, MT 59601
[email protected]
Written by Alyssa Komac
April 25, 2012
The components of this business plan have been submitted on a confidential basis. It cannot be
reproduced, stored, or copied in any form. By accepting delivery of this plan, the recipient agrees to
return this copy of the plan. Do not copy, fax, reproduce, or distribute without permission.
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Montana Dog Food Company
Table of Contents
Executive Summary……………………………………………………………………………………………………………….….3
The Company………………………………………………………………………………………………………………………….…4
Market Analysis………………………………………………………………………………………………………………………...5
The Competition…………………………………………………………………………………………………………………….….7
Marketing Plan…………………………………………………………………………………………………………………..………8
Operations Plan…………………………………………………………………………………………………………………..…..14
Development Plan………………………………………………………………………………………………………………..….16
Team………………………………………………………………………………………………………………………………………..17
Critical Risks…………………………………………………………………………………………………………………………….18
The Offering…………………………………………………………………………………………………………………………....18
The Financial Plan……………………………………………………………………………………………………………….…..19
Appendix………………………………………………………………………………………………………………………...……...22
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Montana Dog Food Company
Executive Summary
The Montana Dog Food Company (MDFC) is a local producer and supplier of quality dry dog
food. The initial phase of the company limits the production to a highly-athletic canine formula
that will be targeted at sled dogs, hunting and cattle dogs and other high-energy use working
dogs.
The initial business strategy will be based upon differentiation from other premium brands as
MDFC will utilize quality ingredients that are sourced as locally as possible. This strategy will be
supplemented by future intentions of exposed production within the far-too-concealed
industry that currently exists.
MDFC will work closely with Alaska Icefield Expeditions Inc., a large sled-dog tourism company,
to formulate a quality and affordable performance dry dog food. AIE’s role and guidance in this
process will allow for a superior product to be developed. This relationship will also secure a
large initial market for MDFC’s product, thus limiting the initial risk of production.
The Offering
The Montana Dog Food Company is seeking a $30,000 investment. This investment is
necessary for MDFC to match the $50,000 Montana Growth through Agriculture Grant to be
used for equipment purchases, advertising/promotion or consulting services such as
formulation costs and legal services. This grant has the ability to be coupled with a $100,000
loan through the program as well.
In year 5, MDFC will reach $1,637,213 in revenues and have a net profit after taxes of $444,609.
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Montana Dog Food Company
The Company
The Montana Dog Food Company will be based out of Helena, Montana and will be formed as a
Limited Liability Company (LLC).
Through the use of social media and public relations, MDFC will create a community of dog
enthusiasts that are seeking a better understanding of, as well as greater engagement with,
their dog’s nutritional needs.
MDFC will initially focus on reaching the niche market of highly-active canines.
Vision, Mission & Philosophy
Vision Statement
We envision a future in which MDFC is a regional leader in premium dry dog kibble, fueling
canines with various nutritional needs.
Mission Statement
It is the mission of the Montana Dog Food Company to provide a superior yet convenient
source of dog food to canines throughout the Northwest region of the United States. MDFC is
unique in that it strives to provide a local and high-quality source of nutrition for dogs, all while
striving to maintain transparency to the public.
Values & Philosophies
MDFC is an advocate of canine nutrition, industry transparency, community support and
environmental consciousness. We believe strongly in creating quality value-added Montana
products for canines.
The Product
Performance Formula: Highly Athletic All-Natural Dry Dog Kibble
This premium, all-natural kibble will initially be available in 40 pound bags. It will be formulated
based upon the needs of high-energy canines at roughly 35% protein and 23% fat. The kibble
will have no known potential canine allergens (corn, wheat and soy), by-products or
preservatives. The kibble will meet/exceed AAFCO (Association of American Feed Control
Officials) minimum nutritional requirements.
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Montana Dog Food Company
Product Benefits
Premium Nutrition
Canines will benefit from high-quality nutrition that meet/exceeds their high-activity needs.
Known potential canine allergens such as corn, wheat and soy will not be utilized.
Locally Sourced
Sourcing ingredients locally will allow for a Montana value-added product. Consumers will seek
this attribute, knowing they are supporting Montana’s economy and assisting in Montana job
creation. Furthermore, sourcing locally will reduce transportation costs as well as designate the
product as environmentally-friendly.
Education & Industry Transparency
MDFC’s packaging and website will provide people with the opportunity to become more
engaged and informed consumers. The website will provide verified sourcing of materials used
within the product while the packaging will highlight one such Montana source. The website
will also inform consumers of production practices. This will be utilized to gain consumer trust
within the far-too-concealed pet food industry that currently exists.
Entry and Growth Strategy
MDFC will launch its website in January 2013. We will enter the market following the first
production run of the performance formula in March 2013. We expect to produce 50.8 tons of
dry dog kibble within the first year of operation, which equates to a roughly 5-ton production
run per month in the first year. Five tons consists of 250 40-pound bags of dog food.
Market Analysis
Industry
Market Size
In 2010, there were 78.2 million dogs among 46.3 million households in the United States1. In
that same year, over $8 billion was spent on dry dog food in the U.S.2
Applying national dog-ownership trends to Montana, we see that there are over 260,000 dogs
in our state.3
1
2
American Veterinary Medical Association: Market Research Statistics, 2010
Pet Food Institute: U.S. Pet Food Sales, 2010
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Montana Dog Food Company
Market Trends
Montana Dog Food Company will capitalize on many current market trends within the dog food
industry. The following trends have been identified as supporting the mission of MDFC.
Private label petfood remains of strong interest to retailers. In 2010 there were a record
number of new private-label dog products, suggesting that pet-owners are becoming more
comfortable with private label.4 Furthermore, “be local, buy local, save the local jobs will
become a powerful grass root level movement” in petfood retail, thereby supporting privatelabel manufacturers.5
Humanization of petfood continues to be a market trend. Consumers are now focusing more
on natural formulations, the communication of specific and understandable ingredients and
products that balance the concept of human-grade foods and what is most important for pets
to consume.6
Sales of natural petfoods in natural supermarkets rose 3.5% to $54.2 million in 2010. US
natural petfood sales are expected to reach $2.5 billion by 2014, representing a 11% compound
annual growth. Compared to the 4% annual growth for petfood overall, ‘natural’ claims are
becoming increasingly popular.7 ‘Natural’ topped marketing claims in 2010 for the third year in
a row, far outpacing the next most used claim.8 Furthermore, allergen-free petfoods have
supplemented this nutrition trend.9
Sustainability is another driving trend within the petfood industry. 62% of petfood company
respondents cited consumer demand as the primary reason their companies are adopting
“green” practices.10 These practices involve natural ingredients, recyclable packaging and
manufacturing practices.
Premium petfoods, defined here as those priced at least 10% above the category average,
accounted for 40% of petfood sales in 2010, followed by regular and value petfoods at 27% and
14%, respectively.11
3
American Veterinary Medical Association: Market Research Statistics, 2010
Petfood Industry: US Petowner Buying Trends, November 2011
5
Petfood Industry: Research – What’s In Store for Pet Retail, May 2010
6
Petfood Industry: New Petfood Products: What comes after humanization?, October 2011
7
Petfood Industry: Natural petfood market follows human market growth, September 2011
8
Petfood Industry: Natural petfood market follows human market growth, September 2011
9
Petfood Industry: Nutrition Trends - Allergen-free petfoods, October 2011
10
Petfood Industry: Survey - Consumers drive sustainability in petfood, July 2010
11
Petfood Industry: Market update – Superpremium petfood post-recession, August 2011
4
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Montana Dog Food Company
Consumers are now more than ever seeking out information related to their pet’s health. Tools
such as books, blogs and social media are enabling this trend. “The combined forces of the
largest petfood manufacturers are no longer controlling the information flow.” 12
Market Growth
US dog food sales are projected to grow by 4% in value and 1% in volume in the next year. 13
Pet ownership will once again begin to increase, thereby increasing the demand for dog food.
Furthermore, humanization trends, as identified above, will likely drive the premium end of the
category. These projections account for value sales outpacing growth in volume sales.
The Customer
End-users of MDFC’s product will be informed middle-class dog owners who support locallyproduced goods. The initial niche customers MDFC will target are those owners of highly
athletic dogs, such as mushers, ranchers, agility trainers and hunters.
Channels
MDFC will make its product offerings available both online and through various retail outlets
within Montana and the Northwest. MDFC will aim to target retail channels that parallel our
mission and views and are appropriate venues for dry dog food.
The Competition
Highly Athletic Formulations
Figure 1 compares MDFC’s performance dog food with that of other top performance dog foods
currently on the market. As the table illustrates, MDFC’s performance formula will be
comparable in terms of both quality and price to others currently on the market.
Differentiation of MDFC’s product will lie in its local and transparent production characteristics
as outlined in the product strategy portion.
12
13
Petfood Industry: Market report – Pet Owners Seek New information sources, August 2010
Euromonitor: Dog food in the US, July 2011
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Montana Dog Food Company
Figure 1: Performance Dog Food Comparison
Company
Red Paw
Caribou
Creek
Dr. Tim’s
MDFC
National
Annamaet
Eagle
Pack
Product
PowerEdge
32k
Gold
Momentum
Sport
Competition
X-tra
Ultra
Endure
40
40
35
40
38
40
40
38:25
37:25
35:25
35:25
34:20
32:20
30:20
Price ($/lb)
1.38
1.40
1.23
1.25
1.20
1.63
1.25
Distribution
Retail,
Online
Retail
Retail,
Online
Retail,
Online
Retail
Retail,
Online
Retail,
Online
Largest Bag
Size Offered
(lbs)
Protein
%:Fat %
Marketing Plan
Target Market Strategy
MDFC will target owners of highly-active dogs who support local/regional products. Our
product will have both a cognitive and emotional appeal to the consumer as they make the
connection between neighbor and product.
Product Strategy
Each bag of dog food will inform the consumer of the product they are purchasing. The product
will be used as a tool to entice the customer to learn more about MDFC and dog food nutrition
and production, in general. Packaging will be utilized to highlight locally sourced ingredients,
with different production runs showcasing a different supplier.
Pricing Strategy
At $1.25 per pound, MDFC’s performance dry kibble will be priced comparably to other popular
high-quality performance dog foods. A 40-pound bag will cost $50.00 at retail.
Distribution Strategy
MDFC will target pet specialty stores throughout Montana and the Northwest, as well as
alternative retailers, and direct and online purchasers.
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Montana Dog Food Company
Alaska Icefield Expeditions
MDFC will be working very closely with Alaska Icefield Expeditions Inc. (AIE) to produce our first
dry dog food formula for active canines. Through this relationship, MDFC anticipates fulfilling
the sled-dog tourism company’s dry dog food needs, which equate to roughly 600 pounds of
dog food daily. This relationship will provide a discounted cost of quality food for AIE as well as
a large initial market for MDFC. MDFC anticipates working with other large direct purchasers in
the future as well. See Appendix for letter of interest from AIE owner Chris Turner.
Pet Specialty Retailers
Pet specialty retailers include smaller stores that are locally owned and operated and focus
primarily on pet care and nutrition. Figure 2 lists potential pet specialty retailers of MDFC’s
product within five Montana cities.
Alternative Retailers
Alternative retailers include outlets that have a primary focus other than pet nutrition, yet have
missions or values within the realm of MDFC’s. Alternative retailers include veterinary offices,
natural and local grocers and home supply retailers.
A primary alternative retailer MDFC will target is Murdoch’s Ranch and Home Supply.
Murdoch’s has a total of 22 stores in Montana, Colorado, Wyoming and Nebraska. The eight
stores in Montana are located in Missoula, Helena, Dillon, Bozeman, Butte, Hamilton, Kalispell
and Miles City. The Missoula store’s dog food purchaser felt that MDFC’s dog food would be a
great fit as Murdoch’s is trying to incorporate more local product offerings.
Other alternative retailers MDFC would consider approaching include Ace Hardware’s across
the Montana as well as local veterinary offices and natural/local food retailers. Figure 2 lists
potential alternative retailers of MDFC’s product within five Montana cities.
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Montana Dog Food Company
Figure 2: Montana Retailer Examples
Location
Pet Specialty
Alternative
Missoula
GoFetch!
Neff’s Animal Specialty
Pet Nebula
Murdoch’s
Good Food Store
Orange Street Food Farm
Helena
Pet Town
Murdoch’s
Real Food Store
Alpine Animal Clinic
Bozeman
Dee-O-Gee
Barkenhowell’s
Bridger Feeds
Murdoch’s
Montana Harvest Natural Food Store
Billings
Equus & Paws
Loveable Pets Bakery & Boutique
Mary’s Health Foods
Whitefish
The General (Pet) Store
Third Street Market
Mountain Valley Foods
Online/Drop-Ship
MDFC will have a strong web presence in which consumers may order the product directly
online. A negotiated number of bags will be stored at the manufacturer’s warehouse and will
be mailed upon each online order placed. This distribution method will equate with a higher
gross profit per bag sold as it will eliminate the retailer’s margin; however, a portion of that
money will be allocated for the manufacturer as compensation.
Regional Events
MDFC will have a strong presence at various regional events related to dogs and local goods.
This will include dog-centered events, such as Five Valley Kennel Club’s Agility Trials and Dog
Shows, Montana’s Race to the Sky and Helena’s “Don’t Fence Me In” Dog Trail Run, as well as
farmers’ markets and trade shows. MDFC will sell product at these events when allowed,
however, we do not anticipate this outlet method being a prominent distribution strategy.
Regional events will serve the greater purpose of engaging with Montana communities and
educating the consumer.
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Montana Dog Food Company
Advertising & Promotion
Brand
MDFC will rely heavily on product branding to differentiate our product from others offered.
We will focus primarily on our “Made in Montana” status. This will include registering through
the “Made in Montana” program and utilizing the logo as well as incorporating local
information relating to our product on our packaging and website and in all advertising
campaigns. Such information would include locations of sourced ingredients, often highlighting
the ranch or farm that supplied the product, as well as identifying local supporters of our
product.
Another tangent of the Montana-related branding of our product will be creating an advertising
campaign that focuses on what it means to be a “Montana Dog.” This campaign will highlight
the incredible tasks and activities many dogs in Montana regularly partake in, including hunting,
mushing, agility trials and herding. MDFC will brand our product so that the consumer
associates our dog food with owning a “Montana Dog” and thereby creating pride in purchasing
our product for their loyal companion.
Also critical to MDFC branding is our ability to engage and inform the public. MDFC will be
transparent from day one. This aspect of our business will be important to communicate to the
public so that it may be embraced by consumers.
Positioning
MDFC will position our product as a high quality, affordable dry dog food. MDFC will educate
the consumer and become a thought leader within the dog food industry.
Advertising
Figure 3 outlines MDFC’s forecasted marketing budget along with the anticipated advertising
campaigns to be conducted.
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Montana Dog Food Company
Figure 3: MDFC Forecasted Marketing Budget
Year
Advertising Campaigns
Annual Budget
1
Retail Advertising
Word-of-Mouth
Social Media/Web Site
Free Local Media Opportunities
Regional Events
$1,651
2
Add Montana Print Advertising
$6,035
3
Add Montana Television Commercials
$14,840
4
Add Regional Print Advertising
$26,640
5
Maintain Media Mix
$32,744
Social Media
MDFC will interact heavily with potential consumers. This will be done primarily through a
Facebook page and MDFC’s website forum. Interactions will include answering questions,
informing consumers of production practices and sharing relevant industry information.
Public Relations
MDFC will capitalize on various public relations opportunities, including interviews and
community donations.
Sales Strategy
MDFC’s sale strategy will rely upon wholesale to retailers and large, direct purchasers and
direct to consumer sales via MDFC’s website.
Wholesale
Pet specialty and alternative retailers, as outlined earlier, will be the primary sales method.
Large, direct purchasers such as AIE will make up the remainder of MDFC’s wholesale segment.
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Montana Dog Food Company
Direct to Consumer
Consumers wishing to order dog food online may do so via MDFC’s website. A drop-ship
agreement will be arranged with the manufacturer to allow for this sales strategy.
Sales Forecast
Wholesale Analysis
Figure 4: Number of 40 lb. Bags of Dog Food Sold
AIE
Pet Specialty
Alternative
Drop-Ship
Annual
Year
Annual
Monthly
Annual
Monthly
Annual
Monthly
Annual
Total
1
500
168
2,016
0
0
2
24
2,540
2
2,025
360
4,320
112
1,344
4
48
7,737
3
2,025
900
10800
450
5,400
8
96
18,321
4
2,025
1,540
18,480
1,000
12,000
32
384
32,889
5
2,025
1,800
21,600
1,350
16,200
50
600
40,425
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Montana Dog Food Company
Operations Plan
Business Model
What is key to note concerning MDFC’s business model is the lack of distributor between
packaging and retail. A distributor will not be utilized until after year 2 to trim costs and
increase margins for both MDFC and retailers. An increased profit margin for MDFC in the first
few years will help ensure adequate cash flow. Increased retail margins for the first few years
will encourage the sale of our product by retailers. Distribution of our product will be
bootstrapped for the first two years by simply delivering the product to retailers with my own
truck and trailer. After which, MDFC will contract with a distributor.
Figure 5: Business Model Years 1 & 2
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Montana Dog Food Company
Formulation
Tom Willard and Greg Aldrich of Pet Food Ingredient and Technology, Inc. will be hired to assist
in formulating MDFC’s performance dry dog food kibble. Their consulting fee is $200 per hour,
with an expected time contribution of 40 hours. Formulation costs are therefore $8,000.
Nutritional analysis of MDFC’s product will be done at Montana State University through Dr.
Jane Boles. Also, MDFC will utilize Dr. Brent Ruby at the University of Montana to supplement
the nutritional analysis component of our product.
Suppliers
Trim from cattle and other carcasses such as lamb and buffalo would be the primary protein
source for MDFC dog food and therefore would be the ingredient of the greatest quantity
utilized in production. Ranchland Packing, a meat processor in Butte, MT, has been identified
as a primary source for these ingredients. Any meat needs not met by Ranchland Packing could
be addressed through purchasing cattle directly from Public Auction Yards in Billings, MT after
which Ranchland Packing would do the processing.
Agricultural products from within Montana will be utilized heavily. Once the formulation has
been created, MDFC will contract with agricultural cooperatives, such as Big Sky Local Food,
Western Montana Grower’s Cooperative and Mission Mountain Food Enterprise Center, to
source local agricultural ingredients. Those ingredients that are not able to be sourced locally,
whether due to lack of availability or financial limitations, would be sourced out of state
through traditional petfood industry outlets.
It is MDFC’s objective for at least 55% of the ingredients used in production to be sourced from
Montana.
Production
MDFC will utilize the services of Montana Food Products for FDA approved food manufacturing
and packaging capabilities. They specialize in source-verified meat products, thus making them
a natural fit for MDFC. Their facility is located in Laurel, MT and is currently at less than half
capacity. MDFC will contract with them to establish in-state production initially.
Dry dog food manufacturing utilizes some equipment most human-food processors don’t have.
It would be necessary to purchase an extruder, which pushes the mixed formula through a highpressure, high-heat tunnel to shape and cook the kibble. I have estimated the necessary
additional equipment purchases at $100,000. See the Appendix for information regarding the
Growth Through Agriculture Loan that would make this purchase feasible for MDFC.
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Montana Dog Food Company
Development Plan
Phase I: Bootstrap
Figure 6: Year 1 Timeline
Activity
Months 1 &
2
Formulate
Performance
Dog Food
X
Launch Website
& Market
Product
X
5-ton
Production Run
each month
Months 3 &
4
Months 5 &
6
Months 7 &
8
Months 9 &
10
Months 11
& 12
X
X
X
X
X
X
X
X
X
Market Product
& Deliver
Phase 2: High Growth
Figure 7: Years 2-5 Timeline
Year 2
Formulate AllLife-Stages (ALS)
Formula
Expand Montana
Retail Market
Expand into
Northwest Retail
Market
Expand
Production
Facilities
Formulate
Additional
Product Lines
Year 3
Year 4
Year 5
X
X
X
X
X
X
X
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Montana Dog Food Company
Team
Management
Alyssa Komac
Alyssa is a Business Management major at the University of Montana with an expected
graduation date of December 2012. She has completed a minor in Environmental Studies and is
currently completing the prerequisites necessary to apply to veterinary schools. Alyssa
attended the 2011 Petfood Forum & Workshop in Schaumburg, Illinois and has been mushing
sled dogs in Alaska for the past three summers. She is passionate about Montana and animals,
making the Montana Dog Food Company a perfect fit with her interests.
Advisory Board
Dr. Timothy Hunt
Dr. Tim is a practicing veterinarian and dog musher in Marquette, Michigan. In 2005, he and his
wife Mary started producing a premium, all-natural dog food under the brand Dr. Tim’s. The
company currently produces a highly athletic canine formula, an active canine formula, an alllife-stages canine formula and a feline formula. Dr. Tim’s industry experience and knowledge
proved invaluable to this business plan.
Don Gaumer
Don is an adjunct instructor in the Department of Management and Marketing and the
Department of Accounting and Finance at the University of Montana’s School of Business
Administration. He also works as a financial advisor at S.G. Long and Company in Missoula, MT.
Don received his MBA from the University of Montana and since then has been involved in
banking, investments, corporate finance, corporate senior management and various start-up
ventures. Don’s guidance in developing this business plan has been crucial.
Cooper Burchenal
Cooper is the founder of Omnibars, a Montana-based producer of wholesome beef energy bars.
Cooper proved instrumental in identifying various resources and points of contact within
Montana that allowed me to recognize the potential to manufacture dog food within the state.
Dan & Chris Turner
Dan and Chris are the founders of Alaska Icefield Expeditions, a glacial sled-dog tourism
company operating in Southeast Alaska. Alaska Icefield Expeditions feeds over 600 active sled
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Montana Dog Food Company
dogs for a four-month period each summer. The Turners’ knowledge of quality dry dog food as
well as their experiences as serial entrepreneurs has been critical to the formation of this
business plan.
Critical Risks
Unpredicted Sales Growth
A major risk for MDFC is sales growth because demand may exceed anticipated sales or just the
opposite; demand may not be as great as forecasted. To address this risk, MDFC will secure
purchasing contracts from retailers before the first production run. Furthermore, MDFC will be
working closely with AIE, Inc. to develop our product, thus ensuring a large initial market for our
product. Should demand exceed initial production capabilities, MDFC will scale back the retail
outlets until demand can be met in a timely manner. Market development will continue once
production capacity has increased.
Dramatic Increases in Ingredient Prices
Unexpected and severe increase in ingredient prices is a critical risk for MDFC. To protect
MDFC from unexpected price variation, we anticipate buying materials in bulk when possible as
well as agreeing upon prices with suppliers’ months in advance of utilizing the purchased goods.
This will allow MDFC to react accordingly should prices increase drastically.
The Offering
Figure 8: Sources and Uses of Funds
Sources of Funds
Founders, Family &
Friends
Investor
Growth Through
Agriculture Grant
Growth Through
Agriculture Loan
Total
Uses of Funds
Research &
Development
$30,000 Equipment
Professional & Legal
Year 1
$50,000 COGS Year 1:
Ingredients &
Production
Year 1 Operating
$100,000 Costs
Contingency Cash
$20,000
$200,000
18
$12,000
$100,000
$5,000
$35,983
$21,167
$25,850
$200,000
Montana Dog Food Company
The Financial Plan
Figure 9: Retail Price Break-Down Years 1 & 2 and Years 3-5
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Montana Dog Food Company
Figure 10: Collections Schedule
Net 30
75%
Net 60
15%
Net 90
8%
5 Year Balance Sheet
20
Uncollectible
2%
Montana Dog Food Company
Monthly Break-Even Point: $12,624
Figure 11: Break-Even Analysis
Detailed 5 Year Income Statement and 5 Year Statement of Cash Flows can be found in the
Appendix.
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Montana Dog Food Company
Appendix
AIE Letter of Intent to Purchase…………………………………………………………………………………………….…23
Growth Through Agriculture Program………………………………………………………………………………………24
Detailed 5 Year Income Statements…………………………………………………………………………………………26
Detailed 5 Year Statement of Cash Flows……………………………………………………………………………..….29
22
Montana Dog Food Company
AIE Letter of Intent to Purchase
23
Montana Dog Food Company
Growth Through Agriculture Gant and Loan
24
Detailed Accounting Follows
Income Statements
Cash Flow Statements
25
Montana Dog Food Company
Year 1 Income Statement
26
Montana Dog Food Company
Years 2 & 3 Income Statement
27
Montana Dog Food Company
Years 4 & 5 Income Statement
28
Montana Dog Food Company
Year 1 Statement of Cash Flows
29
Montana Dog Food Company
Years 2 & 3 Statement of Cash Flows
30
Montana Dog Food Company
Years 4 & 5 Statement of Cash Flows
31