1.2 Development Timeline
- Replacing milk fat with rice bran oil to form a cholesterol-reducing milk
- Identifying a niche in the market by combining this technology with a smoothie
- Developing a prototype smoothie
- Testing the prototype’s ability to reduce cholesterol
- Obtaining backing from a ‘healthy heart’ charity such
- Producing the smoothie on a commercial scale
The first two points have already been achieved - now we must move on to developing and testing a prototype.
1.3 Long-term Expansion
Two areas for expansion exist: selling the smoothie on a larger scale and also in using the phytosterol technology in other foodstuffs such as chocolate and ice-cream. However, considering the first and obvious option, clearly a smoothie is viewed as a shortcut to a healthier diet and consuming one of the “5 portions a day” of fruit and vegetables. Hence a large market is available which will also desire a wider range of flavours and health-enhancing benefits. Added fibre, echinacea and ginseng are only a few of the possibilities which spring to mind.
There is huge scope for selling to a larger number of people. We intend marketing initially in the London area, but a move to nationwide and possibly continental European vending is a very realistic option. This is considered in greater detail in Section 2.
2. MARKET ANALYSIS
2.1 Opportunities
We have identified two key rapidly growing markets within the food and drink industry.
2.1.1 The Smoothie Drink Market
This market is not well defined, but includes drinks based on milk and fruit juice that have a comparatively high viscosity, hence the name. In fact, part of the appeal to the customer lies in the many flavours and textures available. Furthermore, smoothies are often low in fat and a convenient base for healthy ingredients, e.g. fruit, vitamins, fibre etc, and as such are perceived by many customers as a fast track method to achieve a healthier diet. They are also a good source of nutrition “on the go”. It is a relatively new market worldwide and was worth £29m in the UK in 2002, with 10 million units sold. Crucially, the market is growing rapidly: sales increased by 47% in 2002 and are projected to rise at a similar rate in the future. The market is concentrated in London at present but is also poised to expand in other regions. Our product is milk-based and many international markets exist for flavoured milk products, e.g. The Netherlands, the US, and Australia markets are far more developed than the UK at present. It is clear there is huge potential for new, value added products to penetrate the currently undeveloped UK market. Dairy drinks make up just 0.3 per cent of the UK drinks market, in comparison to 2.5 per cent in the Netherlands.
2.1.2 The Functional Foods Market
People in the western world are increasingly concerned about their health, but in today’s busy society it is difficult to devote time to keeping healthy. As a result there is substantial consumer interest in ‘functional foods’: foods or drinks which provide more than just a nutritional benefit. Examples of functional foods currently on the market are cholesterol-reducing margarines and pro-biotic yoghurt, and emerging areas of research within this sector are soy protein, rice bran, carotenoids and palm oil. 40% of Britons purchased a functional food in 2002, and the market is expected to expand at a rate of 6.8% p.a.. Throughout Europe, it is expected to account for at least 1% of food and drinks market by 2010. Dairy based functional foods in Europe are currently worth Є 3.9 billion.
Our product aims to reduce cholesterol and in the UK alone, 14 million people (23% of the population) want to do something about their cholesterol, and 70% of people over the age of 45 have high cholesterol.
2.2 Our Product
Using a cholesterol-reducing technology incorporated within a smoothie, Fusión combines these two markets. To meet the market needs, the product is designed to have the following characteristics: proven cholesterol-reduction for one portion a day; not excessive cost (less than 150% of the smoothie brand leader’s price); a pleasant taste and texture; convenient packaging; wide distribution; and compliance with relevant food regulations (e.g. the FSA in the UK).
2.3 Target Consumers
We have identified 3 main groups of target consumers who would be interested in the product.
Busy Commuters
- In a high-stress job
- Concerned about health
- Little time to spend on exercising deciding what to eat
- Spend 1 hour+ commuting to work – often miss breakfast
- Often eat sandwiches for lunch and ready-meals for dinner
- Many of these people live in London
Overweight People
- Already concerned about heart disease due to obesity
- Looking to keep diet as healthy as possible
- Very aware of cholesterol and its effects
- Already on a low-fat diet
Health-conscious Retirees
- Aware of most health-risks
- Often take supplements and herbal extracts for health reasons
- Looking to extend life
- Often already use cholesterol-reducing products
These groups are not exhaustive and there are smaller groups of people not included. For example, hyperlipidaemia is an inherited condition causing raised cholesterol levels. However, these people are aware of the need to reduce cholesterol and will require less exposure to marketing. We believe that the best group to target initially is commuters. This is because they are already in the habit of drinking bottled drinks, particularly smoothies, and our product represents a more convenient way for them to control cholesterol levels than our rivals.
2.4 Competition
We do not know of any company that currently produces a cholesterol-reducing smoothie: consequently our product is unique and, we believe, will fill a niche in the marketplace.
However, there is competition to our company through products that meet some of the market needs our product addresses. We have identified that these fall into three main categories, summarised in Table 2.1. The appendix contains more details.
Table 2.1 Summary of our Competitors
2.5 Our Competitive Advantage
We believe we have a competitive advantage in that we have an established technology, a dedicated team focused on the product and most importantly, we will be first to the market with our unique selling point – cholesterol reduction incorporated within a smoothie. We aim to gain significant market presence rapidly through partnerships (e.g. dairies) to present a barrier to future entry into the market by our competitors.
2.6 Market Size
Table 2.2 Potential Market Sizes in the UK
Table 2.2 gives population demographics for the UK. Across the UK there is a potential market of 13.5 million people concerned about their cholesterol level who would be interested in our product, in addition to large numbers of health-concerned commuters and retirees.
Table 2.3 Potential Market Sizes in London and the Home Counties
Table 2.3 gives population data for London and the Home Counties, which represents our initial target customer base.
A suitable estimate for people shopping in a ready-to-go store, who are concerned about cholesterol or are looking for a healthy drink is 2.9 million people (0.3*commuters +0.3*worried about cholesterol).
Table 2.4 Potential Market Sizes in London
Uptake (fraction) Frequency / week Market size (million bottles)
1 2 2.9
2 3 8.8
5 3 21.9
0.5 2 1.5
0.2 1 0.3
So for our initial test market in London, anticipated market size would be around 0.3 million bottles per year, increasing to 1 million after 2 years in production.
3. MANAGEMENT TEAM
Cardiovascularly Healthy is led by seven highly motivated and committed Cambridge undergraduates. The founders are highly qualified, have a diverse background, great interpersonal and communication skills and experience in team working and leadership. These are key to Cardiovascularly Healthy’s success. The team has developed many personal contacts in various sectors through their respective educational institutions. These ties will greatly assist the company in promoting the product.
The team was formed in October 2003 through the Chemical Engineering Tripos’ Part IIB Product Design course, which has allowed the management team to work well together. Each team member has the same vision to achieve the same goal: to bring the project to fruition.
3.1 The Team
The roles of each team member are in line with qualifications and interests. The following figure shows the background of each member and the organisation of Cardiovascularly Healthy.
Background Cardiovascularly Healthy Role
Matt Celnik Project management Managing Dir.
Gareth Collins Finance Finance Dir.
Sze-Yiin Lim Consulting Staffing and secretary
Claire MacLeod R&D Internship Technology Dir.
Phanida Saikhwan Manufacturing Manufacturing Dir.
Mark Sankey Sales, Market Research Sales and Marketing Dir.
David White Project Coordinator Communication Dir.
In addition to those listed above, Cardiovascularly Healthy is working closely under the advice of Prof. Nigel Slater. Prof. Slater is one member of the Angel Technology team, which has tasted success with its cholesterol-reducing cheese. He has also experienced a number of years as a lecturer and researcher at the Chemical Engineering department of Cambridge University.
- OPERATING STRATEGIES
4.1 Product Design and Development
Product design will necessarily be complete before production, but we are not limiting ourselves to the original specification.
Development will be an ongoing process and areas to consider improvement will be:
- Flavourings
- Textures
- Complimentary products, for example snack bars
- Additional ‘active ingredients’
- ‘Warm’ drinks that require no refrigeration
Through continual development we will be able to maintain a strong user base and through variety our user base will expand in a most satisfying manner.
4.2 Distribution
It is of critical importance to maintain a good delivery infrastructure from the start of production. Such an infrastructure represents a high capital investment therefore we have a staged delivery plan:
- In the first phase establish links with existing distributors and vendors
- In the second phase continue to build links with distributors and vendors while developing plan for self-distribution
- In the third phase build-up our own distribution network whilst maintaining amicable links with previous distributors
The first and second phases will coincide with the pilot release and subsequent building of a user base in the M25 area. Phase three will be initiated at the time of national launch.
4.3 Capital Resources
Our product can be produced with current hardware used by the milk industry.
4.4 Funding
As a start-up company we require a cash supply to build the business. We have identified the following sources of initial funding:
- Cambridge University Entrepreneurship Centre
- Market Development Grant Scheme
- University Challenge Fund
Once a user base has been developed, further sources of funding will be investigated which would not be available to a new high risk venture. These include:
- Business angels
- Venture capitalists
4.5 Feedstocks
Feedstocks required are:
- Milk
- Rice bran oil / wheatgerm oil
- Flavourings
Milk will be sourced through links with an existing dairy. In order to reduce overall capital cost and to secure a regular supply of milk we intend to approach dairies with our proposal and build adjacent to their site. A cut in profits will result from this but we believe this is outweighed by the reduced costs and access to the dairy’s existing marketing and distribution options. Volatility in the milk market will not be an issue once a strong partnership has been forged, although this could result in the company paying more for milk than is reasonable. It is proposed to limit contracts with dairies to six months only where possible, to provide time for re-negotiation of supply contracts when necessary.
Our initial market is London and the M25 area. There is a plethora of fresh fruit growers in this area and hence acquisition of flavourings will not be a concern. We are conscious of the fact that fruit production is seasonal and intend to use this cycle to our advantage by producing a seasonal product. Using local resources over foreign ones provides a useful marketing advantage.
4.6 Marketing Plan
Four stages have been identified for the market development of the product:
- Pilot launch in London to target busy commuters, especially tube and rail travellers (Years 1-2)
- Expand market to within the M25 to include convenience stores and supermarkets (Year 3-5)
- National launch of product through high street outlets, kiosks and supermarkets (Year 3 and beyond)
- International launch in Europe and America. It is noted that an American launch will require further product development to meet FDA standards (Year 5 and beyond)
At each stage the marketing expenditure will increase with the projected user base. The following initial marketing strategies have been identified:
- Poster boards in tube stations
- Advertising through station based shops and kiosks
- Newspaper and television articles focusing on health benefits of the product
An early emphasis on health benefits to attract target consumers will be encouraged as a good public image is paramount to the product’s success. It is intended to hire a specialist PR company to handle these issues. This is a high capital cost but is justified by the importance of our public image. An early market push could be enabled by promoting our product on BBC Breakfast news, whereby we inform our target consumer directly.
5. FINANCIAL PROJECTIONS
By comparing our product with others on the market we have decided to charge £2.50 for our 500ml bottle, which is a comparable price to that of other smoothies, especially those sold in train and tube stations.
5.1 Estimated Start-up Costs
Linking our business to an existing dairy plant limits our start-up costs, as it does not require us to buy large amounts of capital equipment for bottling. The pieces of equipment we need to purchase are: a homogeniser to mix the oil back in to the milk, a centrifuge to initially remove the milk fat, although this may not be required if we purchase skimmed milk, and fruit processing equipment. The total capital cost including the Lang factor to take into account plumbing and installation is £100k as detailed in Table 5.1 below.
Table 5.1 Capital Costs
The total start-up costs are detailed in Table 5.2 below and allowing for a contingency of £50k, start-up costs in total will be £0.5M.
Table 5.2 Start-up Costs
5.2 Profits
The retail price of the smoothie is £2.50. As a milk product the smoothie is exempt from VAT, but 40% of the retail price will go to the retailer and 15% to the distributor, leaving us with 45% of the retail price - 119p. We estimate receiving 91.5p of this as profit – the rest going towards operating costs and paying back start-up costs. For production of 300,000 bottles of smoothie per year, our conservative estimate, our pre tax profit is £105k per year and on production of 1 million bottles per year, our proposed future target a pre tax profit of £745k per year.
Expanding after 2 years with production and sales doubling corresponds to us moving to a nationwide market, and stocking in supermarkets as well as convenience stores. We would break even after 2.5 years, but even no growth results in break-even after 5 years. Further expansion into the Netherlands and the rest of Europe would require more investment but would also increase sales. With our plans to expand nationwide and the Netherlands within 5 years, after 5 years the company will be worth £1-£2 million.
5.3 Challenges
Our profit is very reliant on a number of variables including the milk price. The price of milk can be very variable, but one way to ensure stability is to secure a long term milk supply agreement at an agreed price, and as our product has significant added value then we are not vulnerable to drops in the milk price. Another significant variable is the cut taken by the distributors and vendors, if this was to increase then our profit would be significantly reduced.
5.4 Sources of funding and Implementation plan
Our total start-up cost is £500k, including contingency and our first month’s inventory. Sources of funding already identified are personal sources - £20k, the University Challenge fund and the Cambridge University Entrepreneurship centre. A grant is also available from the Milk Development Council to cover 50% of the cost of a campaign to develop the milk market with an innovative new product, and this will give us a substantial start to our fundraising.
Implementation plan
- 0 months – require £120k plus £80k contingency
- testing of prototype for efficacy – £50k
- PR agency – £20k
- Research and development – £50k
- Money from Milk Development council, business angels, University funding
- 6 months – require further £300k
- capital costs
- marketing
- inventory
- personnel
- Now have proof of concept – venture capitalist funding at this stage
Our cash flow curves would indicate pay-back to be within 5 years, and is likely to be within 3 years. Our eventual goal is to move into the US market by 2015, and in order to achieve that float the company on the stock exchange after 6 years as an exit strategy, where our investors could choose to take shares or the money.
6. BUSINESS RISKS
The risks related to our business are both internal and external.
6.1 Financial Risks
Our revenues and expenses are difficult to predict and may vary significantly as a result of these factors:
- Changes in our pricing policies or the pricing policies of our competitors
- Volatility in the milk and rice bran oil market leading to fluctuating raw material cost. Mitigating steps such as researching market trends and securing long term supply contracts will be taken
6.2 Marketing Risks
A failure to build our brand name quickly and forcefully will result in lower than expected revenues. If we do not gain brand recognition, we may lose the opportunity to build a critical mass of customers. To increase brand recognition, we will need to spend substantial funds in sales and marketing efforts as well as ensure that we are the pioneers in the cholesterol-reducing smoothie drink market.
APPENDIX
Details on Competitors
2.4.1 Small Smoothie Companies
The smoothie market is occupied by many small players and a diverse range of drinks. The products may be yoghurt-, milk- or fruit juice-based, and may or may not contain ingredients added for health, e.g. echinacea and ginseng. Also, most tend to be relatively low in fat (<4%). These companies are small and have a limited product range and financial backing, but some are growing to fill the market. Examples: PJ Smoothie Co, Innocent, Re:Juice.
2.4.2 Cholesterol-reducing Products
These may be either medicines or functional foods. The former are prescribed to those with medically diagnosed cholesterol problems while our product competes with the latter. There are only a few of such products on the market. Benecol and Flora pro-activ are cholesterol-reducing margarines that work by using added phytosterols in relatively high concentrations. They are designed to be taken in at least one portion per day. Both are well established brands in the UK and abroad with strong financial backing. Recently they have benefited from substantial advertising campaigns. Benecol also produces cholesterol-reducing yoghurts. Although these products are aimed at our target consumers, they are not necessarily direct competitors. This is because cholesterol-reducing products do not need to be mutually exclusive, and in fact the health benefit is increased when phytosterols are taken in larger amounts through many products (up to a maximum dosage that is still in debate).
2.4.3 Unilever
Unilever is a international food and household products group of considerable size, with a £30 billion turnover and invests heavily in R&D. Unilever is the parent of Flora pro-activ, described above. It also owns Slimfast, a milkshake product to aid dieting, and Sunny Delight, a soft drink marketed as healthy for children. Following recent diet trends, Slimfast has lost revenue and Unilever may well be looking to revive the brand. With a strong position in the drinks market and cholesterol-reducing technology in-house, we consider Unilever to be in a good position to move into our market of cholesterol-reducing smoothies. Evidence from the FSA indicates this company has been attempting to gain approval for cholesterol-reducing yoghurts and ‘milk-type’ products.
REFERENCES
Slater, N.K.H., 2003, Personal correspondence
Scraggs, E., 2003, Entrepreneurship: Commercialising an innovation, Cambridge University Centre for Entrepreneurial Learning
Leatherhead Food International British Medical Journal Milk Development Council (www.mdc.org.uk) Tetrapak ()
Flora pro-activ ()
Benecol ()
Food Standards Agency ()
British Heart Foundation ()
Industry Sourcing ()
