External Environment
The Economy
Malaysia is the third wealthiest country in Southeast Asia with a population of around 25 million people. About 61% of its population makes up the middle to upper income group of consumers. The Malaysian economy has a firm foundation in a mixed economy that comprises strong manufacturing, service and agricultural sectors. Malaysia’s annual growth rate was 7.1 % in 2004 and the expected growth rate for 2005 is 6 %. In 2004 the GDI per capita was USD 4,500.
Market Analysis
Market Size
Agriculture is still an important sector in the Malaysian economy. Even though its share of the GDP is falling as the country develops, agriculture still accounts for approximately 9% of the GDP. The food processing companies range from small family-owned businesses to large companies, which are listed on the Kuala Lumpur Stock Exchange or operate as subsidiaries of foreign or multinational companies. Most of the companies serve much localized markets, while a few medium to large companies dominate the market on a nationwide basis.
The small local companies account for 64% of the total number of companies, where only 5% are multinational companies. The average size of the food processing companies is close to 40 employees. The industry is very dynamic and the major industries include the production of refined sugar, wheat flour and baked products, non-alcoholic beverages, edible oil, dairy products, confectionery and snacks, fish and seafood products, beer, canned pineapple, and processed meat.
The dominant sector is oils and fats, reflecting the importance of palm oil processing, where Malaysia is the world leader with 50% of output and 60% of export. In 2003 the Malaysian exports of vegetable oil products were close to USD 4.48 billion.
Market Structure
The food production in Malaysia is relatively small compared to other countries in the region. Today the country is dependent on import of both processed food and several agricultural raw materials. Labor shortages and run-down machinery has been factors preventing substantial development in the industry. But the government wants the industry to develop and is willing to support such development with financial resources.
Some of the major food processing companies in Malaysia include Nestlé, Fraser & Neave, Yeo Hiap Seng, Mamee-Double Decker, Lam Soon Berhad, and A. Clouet & Co. Another foreign group expanding its businesses is Groupe Danone, locally known as Britannia Brands (Malaysia) Sdn. Bhd.
Market Trends
The Malaysian food-processing sector has a broader base than many of the other Southeast Asian countries. Most of the major food processing companies are also involved in exporting their products to overseas markets. The diversity found today comes among other things from the wide range of high quality imported food; this has been possible because of the relatively low import duties on most of these products. The open trading environment has also stimulated the extensive use of imported ingredients by its local processing industry.
One thing which needs to be given a thought to by manufacturers in Malaysia is its requirement for a Halal certification. This is of paramount importance to any company seeking to develop a long term and substantial business as a supplier to local food manufactures or us who are going export the products to Malaysia.
Malaysia aims to be the international centre for Halal food production. Malaysia’s focus on Halal products is highly respected and recognized by most Islamic nations. This allows Malaysian based companies to penetrate these markets with ease with their Halal certified food products. This has created the opportunity for the food industry to produce Halal certified foods targeted at the Muslim markets worldwide. Today Malaysia has one of the widest ranges of processed Halal foods in the world.
It is the Islamic Development Department of Malaysia (JAKIM) that issues the Halal certification to the manufactures after satisfactory inspection of the manufacturing facilities, which confirm to slaughtering and preparation of meat and meat products according to the Islamic way.
The government is campaigning to get the consumers to “Buy Malaysian” products, which has encouraged the retail sector to carry more Malaysian produced food products. This has stimulated confidence in the industry, resulting in increased investments in R&D activities, an increased number of new product introductions, expansion of the domestic market into retail, and entry into new overseas markets.
Government policies
One of the government’s political priority areas is to increase the local food production. The objective is for Malaysia to be a net exporter of food products by 2010. A more concrete objective is to increase the yearly export of agricultural and food products to a total value of USD 4.5bn by 2010. Today the yearly value is USD 1.8 bn.
For the period 2001–2005 the government has allocated USD 2.1bn to kick-start agricultural development. Focus areas are development of large-scale farming, intensifying land use, improving agronomic practices as well as using modern technologies and management in the downstream processes. Incentives for local and foreign investments in the agricultural sector are given.
Market Growth Rate
The global chocolate market is attractive and growing
- It is large: 141 billion the fourth largest packaged food market
- It is growing: 5% CAGR(compound annual growth rate) 2004-2007
- Developed markets: 10.1% CAGR driven by wealth and population growth
- It is stable and profitable, and
- It has high level of impulse sales low private label presence.
Product Life cycle
Since we are a startup company we will lie in the infancy stage and gradually move towards the of the growth stage. Our plan is to move towards the growth stage in about 18 months of our operations.
Market Profitability
Buyer Power
Initially there will be a bit of pressure from buyers because they are going to try the Lester’s chocolate for the first time. We are going to keep fair budget for advertising and sales promotion and initially price all the range of chocolate at an introductory price.
Supplier Power
Initially the distributors and retailer will also have a bit of pressure to introduce this product but to counter this effect the product has to be good with an outstanding quality. The strategy will be to first advertise heavily on media and then let the consumer demand our product.
Barriers to Entry
Malaysian government absolutely helps and promotes production in Malaysia. There are absolutely no barriers to entry.
- Threat of substitutes products
The substitute for chocolate is confectionary (candies, cookies, patisseries)
- Rivalry amongst the chocolate producing firms
Distribution Channels
- Existing distribution channel
Lester’s distribution channel will be entirely based in Malaysia with outlets in the major cities. Lester’s also wants to further expand the distribution network in Dubai and also serve the Middle Eastern countries. We will move further ahead with our network of distributors and retailers.
- Trends and emerging channels
The current trend is quite productive especially the markets in Dubai. Both the government are in the process of signing a FTA (Free Trade Agreement) which will further cut the import duties and give us subsidies and lower the products cost resulting in a good price penetration strategy . Currently there is trade of around 1.2bn USD between both the countries in the processed food industry.
Lester’s is a unique brand. We are providing a better structure to the distributer. So, we come out to be the price dictator.
Market Trends
The retail chains in Malaysia used to be fairly standardized, witnessing no revolutionary changes. However, in the last two decades major developments have occurred, as consumers have become increasingly conscious of the products they purchase and the conveniences they are getting from the retail chains. The development of large retail outlets has seen remarkable growth with the entry of international supermarket chains, such as Cold Storage, Park son, and Carrefour. In addition to those convenience stores such as the retail franchising chain 7-eleven has now established around 250 outlets throughout Malaysia
- Changes in prices sensitivity
The price sensitivity is quite a normal feature the product which is not at all good may take further enhancement in it and brief the local manufacturers
There is a lot of demand for variety in chocolate industry. There are around 80 to 90 types of chocolate varieties present in the market. Each market has a different liking all together so we will accordingly target are market and meet its demands.
- Level of services and support
We will honor our consumers by providing the optimum quality chocolate every time when ever is being bought by our consumers from any place either retailers or distributors.
In regional trends we will keep on experimenting with our chocolate recipes to suit the taste of our regional consumers. For instance Arab regions love to have more sweet treats so we might have more sugar contents added to our recipe.
Competitor and Competitive analysis
Malaysian market of chocolate and confectionery products is rich and diversified. Here we have to compete with many brands of both local and global companies.
Local competitors such as:
- Sweetkiss Food Industry & Trading Sdn Bhd. Brands SWEETKISS and ROYAL de DOLTON.
- Meika Food Industries Sdn Bhd. Brand: Meika
- Beryl's Chocolate & Confectionery Sdn Bhd. Brand: Beryl’s.
Global competitors such as:
- Nestle Malaysia Berhad. Brands Kit Kat, Smarties, Milky Bar, MILO Choco-Bar, CRUNCH.
- Mars Inc. (USA) Brands: Mars, Snickers, M&M
- Cadbury Schweppes PLC (England). Brand: Cadbury
Although many local companies are presented on the market, global companies are dominating in industry. Global companies are our main competitors.
Our competitors have strong position on the market. For instance, according to Cadbury reports performance growth in 2007 on emerging markets (including Malaysia) is 14%. According to Nestle pre-tax profit report profit growth in Malaysia in 2007 was 9 %. These indicators reveal that chocolate market in Malaysia is stable and growing and nevertheless global economical problems confectionery producers get valuable profit and have positive perspective.
Their major strengths:
- Lot of financial resources to produce huge amount of products and implement their market strategy.
- Produce their products on local plants using local cocoa and labor. This helps them to reduce cost of production.
- Have world famous brands, such as Kit Kat, Snickers, and Cadbury. Customers already familiar with products of these companies.
- They are already on the market and dominating here, using all available channels of distribution.
They also have some weaknesses:
- They are big multinational companies with huge management personnel. Therefore they can be reluctant to developing new products and reacting to external factors.
- As big companies they are focused on competition between each other and could not recognize other new players on the market and leave niche for newcomers.
Strengths of these companies are very valuable and we understand that we cannot compete with them in terms of brand names and volumes of production. Nevertheless our main benefit is our flexibility and ability to satisfy special needs of customers.
They produce chocolate for mass market and usual customers. Their products well known and have standard quality and ingredients. We can offer different types of chocolate for different customers according to their demands. For example we can produce premium high-end expensive chocolate for exclusive purposes and special sugar-free chocolate for diabetics.
For mass products global competitors use mass media for advertizing, mostly TV. We can use other advertizing channels, such us promotions, exhibitions, etc.
We have chances to succeed in the Malaysia chocolate market since we will offer special types of chocolate which are purely represented in product lines of our competitors.
Marketing Mix:
Product:
The main product of Lester’s is Chocolate further divided into two categories, Premium version and Regular version. These would be marketed in different types like Bar Chocolate, Chocolate coated wafers, Gift packs etc.
Price:
One of the main strengths of our product is our pricing strategy. In order to be known into the market place and as a new entrant, the company will provide its target market with affordable cost while providing them a high quality product. Complete peace of mind and value for money.
Place:
We’ll be placing the chocolate bars on shelves in our retail outlets and other retail stores along with hyper markets and will pay extra to the hyper market owners for assigning exclusive display counters for Lester’s Chocolates.
Promotion:
To promote the product, Lester’s will use video advertisements, print advertisements and the concept of e-marketing (web). We’ll also be displaying our product line at the fares from time to time
Strategy and Plans
Objectives
- Establishing and maintaining working relationships and contractual agreements with potential investors and Ghana cocoa brokers and wholesalers.
- Bringing the new facility to maximum production within three years of operation.
- Increasing our profit margin with the use of improved technology in the new facility.
- Effectively communicating to potential customers, through targeted efforts, our position as a differentiated provider of the highest quality premium chocolate maker in the world.
Business Strategy
- Lester’s business strategy is to cater the Malaysian market and further expand its business overseas by opening its outlets in Dubai and Middle Eastern countries.
- The demand for chocolate is growing every single day and we are going to meet these demands according to the expansion in the production. Presently we are going to produce around 60 tones of chocolate which will be further expanded to the full capacity of 150 tones.
- We will be focusing on the Malaysian market for first six months and then we will open up an outlet in Dubai which will act as our first foreign office. This office will also act as first retail outlet in Dubai city and the hub of our distribution network expanding in the Middle Eastern market. This will also help us to minimize the distribution and administrative cost.
- In order to cater to the customers who don’t compromise on quality. In addition Lester’s seeks to export the final product to countries in the Middle East from Dubai. We intend to first maximize our sales Dubai through targeted marketing efforts and varieties of chocolates that we will be providing the customers with.
Operating Plan
Premises
It is vital that the food processing business has adequate production facilities to maintain a consistent flow of production. We will be leasing an industrial land area of 1 acre with a built up of 100,000sqft with a net value of RM 6,534,300 at Bukit Angkat, Cheras, Selangor at RM 26136. We will need to spend around RM 10,000 on internal refurbishing.
Hours of Operation
Our hours of operation will be 9 am to 6 pm, however if and when needed we’ll have our workers do paid overtime to meet our demands.
Equipment
We already have a RM231,743 worth NETZSCH all-in-one chocolate making equipment that can produce up to 6 tones of chocolate a day, with around RM100,000 kept as surplus to get a new equipment (if we need to increase production in future) without waiting for the funds to arrive or repair old machinery.
Staffing
From the outset all staff will have job descriptions, a career and training history file, and a record of employee review.
All staff will undergo full product training and will spend at least two weeks working on factory equipment before actual production cycle begins.
There will be a dress code for all the workers working on machinery with proper safety measures taken into account.
Stage of Development
We’ll be investing around Rm525, 000 jointly by the three Partners and we expect our potential investors to invest Rm300, 000 to operate effectively.
In order to get our products to market, the following steps must take place:
- Uninterrupted supply of raw material and machinery (as and when required)
- Coordinate delivery of products to retail outlets
- Process customer orders (wholesale)
- Deliver orders
- Invoice for orders
- Implement advertising and promotional plan
Quality Control
We have established HACCP program following Malaysian standards by SIRIM. We had already sent an application for certification from MOH. The HACCP system was assessed by the independent assessors through compliance audit and follow-up audit to check the corrective actions. Surveillance audit was then carried out by the government agency for certification. We’ll be applying for ISO certification as soon as the production is underway.
Production Cycle
http://www.chocoeasy.com/the_process/enlarge2.html
Financial Analysis
Income Statement Projection 2008-2010
Balance Sheet
Break Even Point
Risk Analysis
Overview
“In 2005, the global confectionery market was worth an estimated USD119.69bn, having risen by almost 19% in value terms compared with levels in 2001. During this time, the market increased by almost 13% in volume terms, reaching nearly 15.7 million tones.”
“In value terms, chocolate confectionery is the largest sector, accounting for almost 60% of total sales. By volume, however, sugar confectionery accounts for the majority sales, with a share of just over half (51%).”
“The confectionery market in regions such as Western Europe and North America remains fairly mature, and consumption levels have been largely static in recent years. In contrast, growth has been stronger in developing regions, notably central and eastern Europe, India and parts of the Far East such as China.”
“Per capital consumption of confectionery in most of the developed countries average almost 11Kg. Per capita consumption of chocolate confectionery tends to be higher in Northern European countries, while the Scandinavian markets command high per capita rates for sugar confectionery.”
“The global confectionery market remains relatively fragmented, with the top six manufacturers accounting for less than half (45%) of value sales.”
“The confectionery market has witnessed a high degree of merger and acquisition activity in recent years. Recent deals have enabled both Cadbury Schweppes and Hershey to strengthen their respective positions in the higher-growth markets for healthier forms of confectionery.”
“The spread of confectionery products marketed on a health platform continues to grow. Sugar-free chewing gum is well established in many parts of the world, whilst demand low-fat, organic and natural confectionery products continues to grow.”
“Another area of innovation has included the development of new flavors. In recent years, demand for intense flavors has risen in sectors such as chewing gums and mints, while more novel varieties are still appearing across the industry as a whole.”
“Between 2006 and 2010, the global confectionery market is forecast to increase by over 16% in value terms, reaching more than USD145bn. Volume sales are expected to amount to over 17.8 million tones by 2010.”
“Malaysia is currently the largest cocoa processing country in Asia and ranked fourth in the world. Malaysia is a net exporter of cocoa products including chocolates. Malaysian cocoa products are exported to over 66 countries, including USA, Australia, France, Japan, Singapore and New Zealand.
Currently, the key areas for growth and development in the food processing industry in Malaysia are functional food, convenience food, food ingredients and halal food.”
http://www.mida.gov.my/en_v2/index.php?page=food-industries
SWOT Analysis
Limiting Factors
The constraints that could affect our sales are
- The availability and flexibility of work force
- Access to an abundant supply of parts and raw material
- Time for planning and proper utilization of resources.
- Financial resources
Critical success Factors
- Access to essential unique resources
At Lester’s we are using the premium cocoa from Ghana to produce higher grade quality chocolate which is going to be in competition with high priced chocolate varieties in the market whereas for our standard brand of chocolates we are going to use our standard cocoa from Indonesia which is cheaper. The dried milk for the milk chocolate is going to be imported from New Zealand. The fruity chocolate will use all the seasonal fresh fruits from Malaysia such as (Mango, Samutra, rangutan, nuts ……..)
- Ability to achieve economies of scale
Once we complete our production and distribution cycle we will have the surety of excess demand for our product in the market. This will also include promotional activities such advertising and sales promotion. The more we will produce the less it will cost.
- Access to distribution channel
The distribution channel we perceive to have will be based on opening our own outlets in the major cities of Malaysia and in international market such as Dubai catering all the local distributors and retailers. We will also aim to acquire good shelf space in the Hypermarkets by giving them additional sales incentives.
At Lester’s we are going to have state of the art machinery which will be imported. This includes industrial Mixer, blender, Roller etc.
Alternative Scenarios
Modify our production line to produce chocolate milk, chocolate butter, and condensed sweet creamer. We could switch to chocolate milk, which is an FMCG product, it will definitely help Lester’s come out of the turmoil if we face a situation where sales are dipping because of the main product that is chocolate.
Specific Risks and Solutions
We see some risks associated with our expected growth:
- Losing touch with customers
- Loss of clientele to other manufacturers.
- Quality of service diminished
- New businesses
The risks facing the growth of Lester’s can be summed up in one word: competition. In order to create our position in Malaysia as the premier chocolate manufacturer, Lester’s needs to outshine its competition by keeping our focus on superior product knowledge and outstanding quality and pricing. We will be able to take our position to higher levels.
Conclusion
Lester’s is a viable production company and it is completely possible to start this business without having to invest a huge sum and produce large returns in a few years from its inception. The writers of this plan urge you to review the information provided and if there is anything you feel is incomplete or inexplicable, please bring it to our attention. We can prove to be a profitable firm. Thank you for taking time to review this plan.
Appendices:
Financial report of Nestle the leading chocolate manufacturer in Malaysia.
Accessed on 5th of Jan 2010
Cadbury financial report
Accessed on 5th of January 2009
UAE chocolate market overview
Accessed on 15 December 2009
Middle Eastern Market overview
Import Regulations, Saudi Arabia – accessed on 17 December 2009
Malaysian Cocoa Board - http://www.koko.gov.my/lkm//loader.cfm?page=industry/FAQ.cfm
Accessed on 20 December 2009
International Cocoa Organization - http://www.icco.org/
Accessed on 25 December 2009
The Singapore Market for Confectionery and Snacks – accessed on 22nd December
Local Chocolate manufacturing company accessed on frequently for referencing
Books:
McKiver M., 1999. How to write a business plan.
Nolo.
Kotler Philip, Marketing principles and practices.
A B Teoh, 2007. Exporting And International Trade.
Lester’s-The World As It Is
