Freddie Lee’s American Gourmet

China Business Development Plan

Department of Economic Development

Summer 2016

Table of ContentsConfidentiality Agreement..........................................................................................................................3

1.0 Executive Summary.........................................................................................................................4

1.1 Project Focus.....................................................................................................................................4

Mission:...............................................................................................................................................4

Objectives:...........................................................................................................................................4

1.2 Methods............................................................................................................................................5

1.3 Market Research................................................................................................................................5

1.4 Trade Finance:...................................................................................................................................6

1.5 Survey................................................................................................................................................6

2.0 Obstacles...............................................................................................................................................7

2.1 Competition.......................................................................................................................................7

Basis of Competition............................................................................................................................7

Internal competition............................................................................................................................7

External competition...........................................................................................................................7

Barriers to Entry..................................................................................................................................7

2.2 Language and Culture........................................................................................................................7

Language.............................................................................................................................................7

Culture.................................................................................................................................................8

2.3 Government Regulations & Issues.....................................................................................................8

2.4 Talent Acquisition Issues....................................................................................................................8

2.5 Facility Issues.....................................................................................................................................9

3.0 Recommendation for Market Entry.......................................................................................................9

3.1 Trends....................................................................................................................................................9

3.2 Guidance................................................................................................................................................9

3.3 Barriers to Market Entry....................................................................................................................9

4.0 Strategies.............................................................................................................................................10

4.1 Strategies.........................................................................................................................................10

4.2 Joint Venture Partners.....................................................................................................................10

5.0 Finances...............................................................................................................................................10

1 | P a g e

5.1- Channels.........................................................................................................................................10

5.2 Pricing..............................................................................................................................................11

5.3 Pricing (continued)...........................................................................................................................11

5.4 Financials – Profit and Loss..............................................................................................................12

5.5 Balance Sheet..................................................................................................................................16

2 | P a g e

Legal Page

Confidentiality AgreementThe undersigned reader acknowledges that the information provided by _______________ in this business plan is confidential; therefore, reader agrees not to disclose it without the express written permission of _______________.

It is acknowledged by reader that information to be furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means and that any disclosure or use of same by reader, may cause serious harm or damage to _______________.

Upon request, this document is to be immediately returned to _______________.

___________________ Signature

___________________Name (typed or printed)

___________________Date

This is a business plan. It does not imply an offering of securities.

3 | P a g e

1.0 Executive Summary Freddie Lee’s American Gourmet sauce is an all-purpose sauce that intends to design, patent, and market sauce products related to the niche American food markets prevalent in China. Two products have already been created and have a presence within the American food market. Two patents are initially incorporated, one for each product. The company projects $125m USD thousand in sales in year two. The company expects to have reached $150 thousand in sales in year four. Patent applications on its first two market entries have already been accomplished using a top patent law firm.

• The objectives of Freddie Lee’s are to generate a profit, grow at a challenging and manageable rate, and to be a business based of good morals.• The mission of Freddie Lee’s is to provide and all-purpose sauce that can be used on virtually anything and provide true American Authenticity.• The keys to success of Freddie Lee’s are marketing and networking, authenticity and quality, also to generate sustainable customers.• The primary product is an Authentic American sauce that is supposed to bring out the ambiance of the American culture.• The market in terms of China is brand new and the board to possibilities is wide open.

In Conclusion, the plan to break ground within the specialized Chinese market, projects positive growth in terms of company revenue. Following the acquisition of a Joint Venture (JV), distribution chain, and proper legal documentation the profits are expected to multiply.

1.1 Project FocusMission: Freddie Lee’s Gourmet sauces provide high quality all-purpose sauces for a wide range

of culinary purposes. Freddie Lee’s is dedicated to manufacturing a delicious multi-purpose sauce that is not only unique but vegan-friendly, gluten free and contains no high fructose corn syrup. With an emphasis in customer satisfaction Freddie Lee’s Gourmet Sauces aims to expand into the International market.

Objectives: The objectives of this business plan are:

1. To provide a written guide for starting and managing Freddie Lee’s Gourmet Sauces internationally; a strategic framework for developing a comprehensive tactical marketing plan. 2. The intended audience is the owner of this business only; this plan is not intended to obtain financing from outside sources. 3. The scope of this plan is to provide detailed monthly projections for the current plan year*

4 | P a g e

The objectives of Freddie Lee’s are: 1. Profit - To generate sufficient profit to finance future growth and to provide the resources needed to achieve the other objectives of the company and its owner. (Net profit of at least 45% of sales in first year). 2. Growth - To grow the business at a rate that is both challenging and manageable, leading the market with innovation and adaptability. (We need to figure out at what rate)3. Citizenship – To promote and enhance the American and Missouri Economy through the expansion into foreign markets.

1.2 MethodsMethod Overview1. Improve Product Quality and Develop New Products to Gain Recognition From Customers

2. Create a friendly brand identity that helps build a new form of interpersonal relationships with customers

3. Enhance Customer Service to broaden possible business opportunities

4. Design a Marketing Plan to increase revenue from customers and attract new customers within the existing target markets

1.3 Market Research

Market Sizing

Note: Statistics are based on the following Mercosur Common External Tariff (MCET) Codes: 84.17.20; 8433.60; 8434.20; 8434.90; 8435; 8436.29.00.100; 8437; 8438; 8479.20.00Total Market Size = (Total Local Production + Total Imports) – (Total Exports)

5 | P a g e

2014 China’s import market share: 12.1 %2015 China’s import market share: 11.4 %

1.4 Trade Finance:This is where it describes the country’s financial system and how U.S. firms typically get paid. In China there are many ways to finance imports. The most commonplace are letters of credit and documentary collections. China has been a member of the International Chamber of Commerce since 1995. Most major Chinese banks can issue letters of credit. Documentary collections, are similar to letters of credit however less formal and can be received by the exporters or importers home office, and payment is made or received after approved by all parties. Project Financing is how major projects are financed. Multilateral development banks play a major role in project financing. Certain aid-funded projects and procurements are open to U.S. bid. Sources of financial support available to U.S.-based exporters include:

* Export Credits

* U.S. Department of Agriculture

* U.S. Trade and Development Agency

* Multilateral Agencies

1.5 SurveyOur survey consists of finding and working with a specific authentic American food niche markets. To complete this task we will put in time studying the local food markets and even the bigger consumer stores known on a global scale such as Walmart for example due to the vast amount of them in Chinese society. While doing this we will acquire a better understanding for what is on the shelve that meets our certain niche market, what are products that are similar, and how our product will fit on that shelve to meet the demand of the consumer.

Questions:

1 What types of places the consumer could find our product?

2 What will our product be categorized under?

3 How big of a market is Authentic American cuisine in China?

4 Who will buy this product?

6 | P a g e

2.0 Obstacles

2.1 Competition

Basis of Competition

Internal competition- Operators are awarded contracts on competitive bid basis, usually for 3-to-5-year

periods; thus, they compete both on the basis of price, quality and range of goods- Catering companies tend to invest in major stadium developments to ensure long-term

supply relationships

External competition - Potential clients provide their own catering of goods- Some catering can be undertaken by broader food service sector, including the Single

Location Full-Service Restaurants industry and the Caterers industry

Barriers to Entry• The Food Service Contractors industry has moderate barriers to entry. New operators to

the industry are restricted by their ability to raise an appropriate amount of capital, the market power of existing operators, especially the large global players that control over a significant share of the industry's market share, as well as the ability to provide a range of complimentary services other than foodservices.

• Economies of scale - High level of competition, with the top four players estimated to account for just over 75

• Capital intensity- Low level of CI because companies only need to supply staff, food and beverages

to serve their clients• Full-service tenders

- Food safety is a big issue in China.- The cost of complying with these requirements further increases the barriers to

entry into this industry

2.2 Language and Culture Language: The national and most commonly spoken native language in China is

Mandarin. There are seven main dialects. The national language is the dialect that is found in the capital Beijing. Cantonese is the second most popular dialect, which mostly used in Hong Kong and overseas Chinese communities. In order to do business we recommend hiring a translator. We would also recommend printing labels in Mandarin and English for mainland China. For entry into Hong Kong printing in English and in Cantonese would be necessary.

7 | P a g e

Culture: The key to success in a foreign market regarding cultural differences is to remain sensitive. A deep respect for the customer service and support functions is necessary. The customer service department is responsible for misunderstandings, mistakes and malfunctions. Chinese Business culture is conservative and direct. The Chinese put a significant emphasis on the value of ‘saving face’ and public appearances. It is common within Chinese business practices to develop strong relationships and goodwill that is known as Guanxi before closing a deal. Typical business times are between 8:00am and 5:00pm local time. Giving gifts is forbidden by the government but has become common place in business and is best done by a local joint venture partner.

2.3 Government Regulations & Issues

This has to do with the political environment that takes place in the Chinese Business Sector, and what measures need to be put in place to secure Chinese Business. In the Case of Freddie Lee’s we will need to cover the span of issues associated with importing to China while exporting from China. When shipping a product overseas as part of a commercial transaction, the exporter must be aware of packing, labeling, documentation, and insurance requirements. Especially in terms of traveling throughout

China one must consider heavily the subject of having a Visa. A valid U.S. passport and Chinese visa are required to enter China. A visa must be obtained from Chinese Embassies or Consulates before traveling to China.

* Import Regulations for Food Products in China:

Normally, the Chinese importer (agent, distributor, joint-venture partner, or FIE) will gather the documents necessary for importing goods and provide them to Chinese Customs agents. Necessary documents vary by product but may include standard documents such as a bill of lading, invoice, shipping list, customs declaration, insurance policy, and sales contract as well as more specialized documents such as an import quota certificate for general commodities (where applicable), import license (where applicable), inspection certificate issued by the General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) or its local bureau (where applicable), and other safety or quality licenses.

* Food items containing certain food colorings and additives deemed harmful to human health by the National Health and Family Planning Commission (NHFPC) are also barred entry.

2.4 Talent Acquisition IssuesWhile researching issues regarding Talent Acquisition for Freddie Lee’s American Gourmet sauce it has come to our attention that there are not any particular issues with this topic, mostly because it will be made in America so the only thing that needs to be done upon arrival in China is to be placed on the shelve at market.

8 | P a g e

2.5 Facility IssuesThere are currently no facility issues pertaining to business in China. All manufacturing facilities will be based in Missouri and Illinois.

3.0 Recommendation for Market Entry

3.1 Trends The Ascendant pursuit of various flavors has boosted both volume and value sales of overall sauces, dressings and condiments. In addition, despite widespread usage of monosodium glutamate and soy sauces across the country, some Western-originated sauces, dressings and condiments such as mayonnaise, salad dressings, ketchup and pasta sauces underpinned the steady growth of the category, with increasing acceptance of Western cuisines, particularly among young urban consumers

3.2 Guidance

- Select entry option:

Short / Long-term Goals, Takeover/Merger, Consolidated? Is a local partner needed? Joint venture?

- Target a rapidly growing middle class with rising disposable incomes - Understand and utilize regulations within food industry

3.3 Barriers to Market Entry

New operators to the industry are restricted by their ability to raise an appropriate amount of capital, the market power of existing operators, especially the large global players that control over a significant share of the industry's market share, as well as the ability to provide a range of complimentary services other than foodservices.

9 | P a g e

Capital intensityo Low level of CI because companies only need to supply staff, food and

beverages to serve their clientso Full-service tenderso Food safety is a big issue in China.o The cost of complying with these requirements further increases the barriers to

entry into this industry

4.0 Strategies

4.1 StrategiesThe strategy recommended is to enter the foreign market is through the creation of a joint venture partnership with a local grocery store that specializes in expatriate centralized imports. This market would allow you to directly penetrate the market in China centralized around the westerners.

4.2 Joint Venture Partners Joint venture partners are necessary for foreign companies entering the Chinese market because of government regulations. It is also highly recommended because of the Chinese company’s ability to speak the language, negotiate with the government and ability to read the domestic market.

Our recommendation for creating a Joint Venture Partner is to create a partnership with a local grocery store or distributor. The best grocery stores to create partnerships with would be those within the expatriate communities. The partner would take care of any government regulations or restrictions.

5.0 Finances

5.1- Channels

When talking about Channels of distribution, this includes all aspects of how the product is bought and sold or who handles the product before it reaches the consumer. This includes wholesalers, jobbers, retailers, 3rd parties, joint venture partners, etc. In the case of Freddie Lee’s American Gourmet sauce we look at it from a standpoint of being manufactured domestically in the US then shipped to China. So in this case we only require a distributor or wholesaler that we can ship straight to and they will purchase the product and from there it will go to retail stores such as expatriate markets.

Distributors:

Made for China Mitsui Foods Alibaba

10 | P a g e

Anchor Foods

5.2 Pricing

Pricing is the discussion of the pricing model chosen for the success of the enterprise, this includes value based pricing, and cost plus pricing which are all variables to consider. When partaking in going international one most take into consideration including the cost of manufacturing raw materials and labor, VAT imposed, import tariffs and shipping costs due to the fact that in the case of Freddie lee’s Gourmet Sauce, it will be manufactured domestically in the USA then shipped to a distributor in China.

When considering Price-based Costing which is what people are willing to pay for the product, keeping in mind that domestically one could compare to a competitor’s price but in a foreign market that may not always be the case.

In most of the stores/ markets where similar sauces and potential competitor’s products can be found. Their shelve price is approximately 31 Yuan equivalent to about five or six USD. All things considered the variables that go into the following pricing model is as follows:

Product Pricing:

Base Price (US shelve price): 3.99 USD = 25 Yuan* VAT (17%) : 0.68 USD = 4.30 Yuan* Import Duty (15%): 0.60 USD = 3.78 Yuan* Shipping Fee: 3.00 USD*= 18.90 Yuan* Totals: 8.27 USD = 52.10 Yuan*

5.3 Pricing (continued)

8.27 USD/ 52.10 Yuan is what the product would have to be sold for in order to keep the same profit margins that the sauce is making on a domestic level. Now this is only what the distributor would be buying it for. Then it goes to the retail stores where it will eventually acquire its shelf price.

Distributor Markup ( 20% ): 1.65 USD = 10.42 Yuan*

Cost-based Price: 8.27 USD = 52.10 Yuan*

Distributor Price: 9.92 USD = 62.50 Yuan*

11 | P a g e

Retail Markup (20%): 1.98 USD = 12.50 Yuan*

Shelf Price: 11.90 USD = 74.97 Yuan*

This is the price that it would be priced at sitting on the shelf all variables considered from the standpoint of manufacturing domestically however there may be cheaper models to explore from a standpoint of manufacturing in China however at this time it would be too expensive to manufacture domestically.

5.4 Financials – Profit and Loss

When developing a five year financial projection for Freddie Lee’s American Gourmet sauce we take the profit and loss statement, balance sheet, cash flow statements and owner’s equity into consideration.

Profit and Loss Statement:

“Profits = ( Revenues – Costs)” or E(P = R – C)M the E representing the economy and the M represents the market.

In the case of Freddie Lee’s Gourmet Sauce the equation would look like this keep in mind this is only per unit and not bulk.

$3.99 = ( $8.27 - $4.28 ) per unit*

Now projecting a five year plan one looks at the equation that includes the market and economy factor. So in the case that Sales are up but Profits are down we look at several factors including:

Less Disposable income High Petro Costs Product Mix Industry Rev Trends Competitors Supply of Raw materials

When determining which of these is the case, one must start by spelling one’s take on the current economy especially the parts that would affect the company or the industry overall. Currently the economy in China is for the most part doing very well and is

12 | P a g e

excelling socio-economical. The middle class is growing at an increasing rate which means that there is and will be more disposable income in the economy in the years to come.

However, more money to be spent on products such as Freddie Lee’s the more incentives for potential competitors to enter the market. Upon research, we have concluded that there are eight different expatriate grocery stores in Shanghai so for a start. The approach would be to gain access to shelf space in all eight of those stores selling approximately two cases of twelve jars per month. The numbers for the projected year one are as follows:

Year One (Twelve Months):

($3.99 X 12 jars)2cases = $95.76 per store per month

$95.76 X 8 stores = $ 766.08 per month

$766.08 X 12 months = $ 9192.96 per year

Now moving onto year two the goal would be to expand to another large city such as Beijing and have a presence on the shelves of expatriate stores in Beijing. Obtaining the shelf space in another eight of Beijing’s major expatriate stores would double the business during year two.

Year Two ( Twelve Months ):

($3.99 X 12 jars)2cases = $95.76 per store per month

95.76 X 16 stores = $ 1532.16 per month

$ 1532.16 X 12 months = $18385.92 per year

Year three we will have the same approach by moving to another city and gaining the business of another eight stores, however the next target city will be Hong Kong which was colonized by the British so there is more of a presence of foreign products. Just for projection purposes we will shoot for selling one case per store.

Year Three ( Twelve Months )

( $3.99 X 12 ) = $47.88 per store per month

( $47.88 X 8 stores) = $383.04

13 | P a g e

$383.04 X 12 months = $4596.48 + $18385.92 = $ 22,982.40 per year

Year four presents us with another opportunity to expand to another city of possible business, however all variables held constant we must first target the next market and that would be to expand west to Chengdu in the Sichuan Province which is known for being more eastern and not as open to foreign markets. However, they do exist but our target goal should be in five store selling only one case per month and the numbers are as follows:

Year Four ( Twelve Month )

( $3.99 X 12 ) = $47.88 per store per month

$47.88 X 5 stores = $ 239.40

$239.40 X 12 = $2872.8 + $4596.48 + $18385.92 = $25,855.20

Year five presents us with the opportunity to expand further into China but by now the product will have copy cats that are selling for cheaper so the focus of our plan in year five should be to maintain the business that we have in the stores that we have already established business in:

Year Five ( Twelve Month )

$2872.8 + $4596.48 + $18385.92 = $25,855.20

Freddie Lee’s American Gourmet Sauce Profit and Loss Statement

For period Ended Dec. 31, 2021Income $ $

Sales 211,894.62

Total income 211,894.62

14 | P a g e

Expenses

Shipping $3 per unit ($3 X 25,632 Units) 76,896

VAT (17%) 17,386.19

Import Duty (15%) 15,340.75

Total Expenses 109,622.94

Profit/Loss 102,271.68

*Profit

15 | P a g e

5.5 Balance Sheet

Balance Sheet for Freddie Lee’sAs of Dec. 31, 2021

Assets Liabilities and Shareholder’s EquityCurrent Assets: Current Liabilities:Cash 211,894.62 Shipping: 76,896 VAT: 17,3896.19Total Current Assets: 211,894.62 Import Duty: 15,340.75

Total Current Liabilities 109,622.94

Shareholders’ Equity Retained Earnings 102,271.68

Total Shareholders’ Equity 102,271.68

Total Assets: 211,894.62 Total Liabilities and Shareholders’ Equity 211,894.62

Net Present Value (NPV)

The calculation of the NPV is with an interest rate of one percent and the initial cost of goods sold during the first year then it is followed by using the projected cash flows of each year for five years with an expected cash flow for each respectable year.

NPV: $ 170,304.76

16 | P a g e

PV of Expected Cash Flows: $180,165.88

Initial Cost Year 1 Year 2 Year 3 Year 4 Year 5

9861.12 9192.95999999999

18385.92

22982.4

25855.2 25855.2

NPV

17 | P a g e