Feasabilitypastry Shop

Feasibility Study- Pastry Shop with Chocolate Production 1/3/07

Etudes et Consultations Economiques s.a.r.l. 1

TABLE OF CONTENTS 1 EXECUTIVE SUMMARY .............................................................................. 2 2 PROJECT DESCRIPTION............................................................................ 3 3 PRODUCT STRATEGY................................................................................ 3 4 DESCRIPTION OF PRODUCTION PROCESS ............................................ 4

4.1 CHOCOLATE PRODUCTION......................................................................... 4 4.2 ICE CREAM PRODUCTION ........................................................................... 5

5 MARKET ANALYSIS: .................................................................................. 6 5.1 LOCAL MARKET......................................................................................... 6 5.2 CHOCOLATE CONSUMPTION IN LEBANON .................................................... 7 5.3 MAIN COMPETITION................................................................................. 10

5.3.1 Chocolate factories ....................................................................... 10 5.3.2 French pastries ............................................................................. 10

5.4 TARGET MARKET .................................................................................... 11 5.4.1 Chocolate...................................................................................... 11 5.4.2 Pastry shop................................................................................... 12 5.4.3 Ice cream...................................................................................... 12

5.5 SWOT ANALYSIS ................................................................................... 13 5.5.1 Strengths ...................................................................................... 13 5.5.2 Weaknesses ................................................................................. 14 5.5.3 Opportunities ................................................................................ 14 5.5.4 Threats.......................................................................................... 14

6 MARKETING PLAN.................................................................................... 15 6.1 PRICING................................................................................................. 15 6.2 SALES CHANNELS ................................................................................... 16 6.3 ADVERTISING AND PROMOTION ................................................................ 16

7 FINANCIAL PLAN...................................................................................... 17 7.1 EQUIPMENT COSTS ................................................................................. 17 7.2 MAJOR ASSUMPTIONS............................................................................. 18 7.3 PROJECTED INCOME STATEMENT ............................................................ 22 7.4 PROJECTED BALANCE SHEET .................................................................. 23 7.5 PROJECTED CASH FLOWS....................................................................... 24 7.6 RATIO ANALYSIS: .................................................................................... 24 7.7 BREAK- EVEN ANALYSIS: ......................................................................... 25 7.8 SENSITIVITY ANALYSIS: ........................................................................... 27

8 RECOMMENDATIONS AND KEY SUCCESS FACTORS ......................... 27 9 ECONOMIC IMPACT EVALUATION ......................................................... 28



1 Executive Summary The proposed project consists in establishing a pastry shop shop in Bint Jbeil caza. The pastry shop will produce three categories of sweets: chocolate, ice cream, and French pastries. The pastry shop will have three major target markets. First, it will target restaurants, hotels and other pastry shops. The second aim consists in catering for special occasions such as weddings, births and religious events. Finally, there will be a kind of coffee shop where clients will be able to consume any product in-house. The targeted region is the Mohafaza of Nabatieh, which includes the cazas of Bint Jbeil, Hasbaya, Nabatieh and Majaayoun, and the city of Tyre. Based on our market study, we found that there are no chocolate factories in this region. However, the pastry shop will produce a variety of products in order to circumvent seasonality associated with specific products. The population in South Lebanon increases substantially during the summer, and the pastry shop will be able to seize this opportunity, by producing ice cream. The total investment amounts to $117,703; it includes equipment with a total value of $82,125, other fixed assets (fixtures, furniture, office equipment and computers) amounting to $19,000, and working capital needs of $16,578. The main financial assumptions take into consideration the socio-economic conditions in South Lebanon, and are, therefore, relatively conservative. There is a very important gap between the sales expected in the summer versus those expected during the nine other months. The projections are taken over a period of 5 years. We expect net income to be around $ 18,220 the first year and to reach $ 28,209 by the 5th year of production. The pastry shop will also be able to distribute dividends of $ 20,000 for the 2nd and the 3rd year, and of $ 40,000 for the 4th and the 5th year. The pastry shop provides an internal rate of return (IRR) of 30% for the 1st year and a payback period of 4.8 years. These results clearly show that this project is feasible and that it will provide satisfactory results to its shareholders. A worst-case scenario was developed assuming that sales would be 15% less than those expected. It gave an IRR of 10% and a payback period of 9 years. A best- case scenario was also developed considering that sales would be 10% higher than those we really expect. In this case, the IRR is of 39% and the payback period is of 3.8 years. According to our study, the project will provide good returns to the investors. More important, however, is the socio-economic impact of such a project. It will create 10 decent jobs with respectable wages. Moreover, the fact that certain



jobs are reserved for women will contribute in women empowerment in a region where huge gaps subsist between male and female unemployment. Furthermore, the staff that needs specific skills will be thoroughly trained; as a result their output will have a concrete value added.

2 Project description The aim of this project is to develop a pastry shop in the caza of Bint Jbeil. The pastry shop will have three different lines of products.

1. Chocolate production and decoration unit 2. Ice cream production unit 3. French pastry production

The workshop will be divided into two main areas: On one hand, the kitchens and decoration area in which all the production process will take place, and on the other a seating area for customers.

3 Product strategy The main strategic objective of the pastry shop will be to gain a substantive market share in the Mohafaza of Nabatieh, and eventually in the city of Tyre. The main objectives for the production unit are:

To use good quality inputs To maintain quality control by enforcing strict hygiene standards on the

personnel, Stress on the professionalism of the craft men and their value-added in

the goods produced. Taking into consideration the seasonality associated with the consumption of certain products in pastry shops such as chocolate and ice cream, producing a diversity of sweets will allow the pastry shop to function all year round.



The main items that will be produced are: Items Normally decorated chocolate Decorated chocolate for special occasions Natural ice cream French pastry shop (foret noire, blanche, fraisier) Puff pastry shop (croissant, mille feuilles, boules au chocolat)Cakes, muffins Petits fours Mary cream Coffee Fresh juice Canned juice, sodas

4 Description of production process 4.1 Chocolate production The steps of production that will take place in the production unit are:

Tempering: After mixing and grinding the chocolate mass is subjected to intensive mixing at high temperature. Tempering is a key part of chocolate production. It is a long and complex process, which requires great experience and skill. Tempering is necessary for the cocoa butter to obtain the most stable consistency.

Tempering Machine



• Molding: After tempering, the chocolate is poured into heated moulds. At this stage, if the recipe requires it, various additives (for example, nuts) are put into the chocolate. After that, the chocolate is put into coolers. Then the moulds with the solid chocolate are upturned and shaken on to the conveyor.

• When the chocolate has cooled, the entire piece is cut into strips. These strips are then lifted, turned and cut again to create individual rectangular shaped chocolate pieces.

Rectangular shaped chocolate pieces

• The untidy pieces at the side are removed • Chocolate pieces are packed and decorated by hand. • Each box is checked for both weight and perfection. Then a protective

cushion is added. • Each box is wrapped up and bow-tied by hand with ribbon. • Packaging, decorating and labeling: The last stage in the manufacture

of chocolate is its packaging and labeling. This stage of production is expected to mobilize around five craftsmen (or craftswomen) during special events who will decorate chocolate for presentation boxes and on special occasions.

4.2 Ice cream production The basic steps in the manufacturing of ice cream are generally as follows: - Blending: The ingredients are selected based on the desired recipe, then the ingredients are weighed and blended together to produce what is known as the "ice cream mix". Blending requires rapid agitation to incorporate powders, and often high speed blenders are used. - Pasteurization: The mix is pasteurized. Pasteurization is the biological control point in the system, designed for the destruction of pathogenic bacteria. - Homogenization: The mix is also homogenized which forms the fat emulsion - Ageing: The mix is then aged for at least four hours and usually overnight. Aging improves whipping qualities of mix and body and texture of ice cream.



- Freezing and Hardening: Following mix processing, the mix is drawn into a flavor tank where any liquid flavors, fruit purees, or colors are added. -Hardening: After the particulates have been added, the ice cream is packaged and is placed into a blast freezer at -30° to -40° C where most of the remainder of the water is frozen.

5 Market Analysis: 5.1 Local market The regions the project will cover include the Mohafaza of Nabatieh (cazas of Bint Jbeil, Marjaayoun, Nabatieh, and Hasbaya) and the city of Tyre. According to the most recent data, the population of these cazas is as follows:

- Bint JbeilL: 77,840 - Tyr: 132,111 - Marjaayoun: 41,298 - Nabatieh: 92,363 - Hasbaya: 19,460

The population of South Lebanon varies greatly between winter and summer, for



instance, in Bint Jbeil qaza, the population grows by 126% during these two seasons because expatriates and those who work in Lebanon’s major towns tend to spend summer in their villages. However, South Lebanon’s population in general and in Bint Jbeil specifically are among the poorest in Lebanon. Therefore the production must be able to combine good standards of quality and taste with prices that would be affordable to locals. 5.2 Chocolate consumption in Lebanon An average Lebanese household spends around US$ 420 per month on food. The sharing-out of this budget is usually done as such:

• US$ 112 or 26.7% is spend on fruits and vegetables, • US$ 49.7 or 11.8% is spent on cereals, • US$ 85.4 or 20.3% is spent on dairy products, • US$ 71.25 or 17% is spent on pastries, and • US$ 25.6 or 6% is spent on honey.

Taking into consideration the harsh socio-economic condition in the region concerned, the average household in South Lebanon might spend less on food because the items bought are less expensive. Moreover, it is practically certain that the families concerned spend less than 17% of their food budget on pastries. Nevertheless, we consider that a chocolate factory and a pastry shop would still be a successful venture in Bint Jbeil, especially if the management is able to build a loyal and diverse clientele. The fact is that chocolate remains the preferred sweet to be offered and is perceived to be the most suitable, or appropriate gift to offer for special occasions. A study conducted in 1998 on a sample of 350 Lebanese persons from all age brackets, covering all the Lebanese territory, and from all social classes gave very interesting results concerning chocolate consumption in Lebanon. When asked whether or not they consumed chocolate, 317 respondents, or 90.7% of the sample answered positively. Men Women Respondents % Respondents % Total

Yes 152 86.4% 165 94.8% 90.7%No 24 13.6% 9 5.2% 9.3%

Total 176 100% 174 100% 100%



0%

20%

40%

60%

80%

100%

Men Women Total

Chocolate consumption by sex

Yes No

Moreover, the age structure of chocolate consumers shows that more than 90% of people aged below 40 years eat chocolate. The age bracket between 40 and 59 years old witnesses a decline in chocolate consumption, mainly due to the fact that it makes people get fatter, and because it increases diabetes and blood cholesterol. This declining trend is confirmed for respondents over 60 years old of whom only 63.6% consume chocolate. 10 to 18 19 to 24 25 to 39 40 to 59 >60 Resp. % Resp. % Resp. % Resp. % Resp. % Yes 88 96.7 125 92.6 44 95.6 46 83.1 14 63.6No 3 3.3 10 7.4 2 4.4 10 17.9 8 36.4Total 91 100 135 100 46 100 56 100 22 100

0102030405060708090

100

10 to 18 19 to 24 25 to 39 40 to 59 >60

chocolate consumption by age bracket

Yes No

Finally, the distribution of consumption according to various kinds of chocolates



showed that 46% of people consume chocolate as small pieces offered, and that 42.3% consume it as chocolate cake, items that will be produced in the pastry shop. The nature of chocolate consumed is as follows:

Number % Bar 266 84Small pieces 146 46Chocolate cakes 134 42.3Chocomax 108 34Mousse au Chocolat 86 27.1Hot chocolate 81 25.5Others 12 2.8

0%10%20%30%40%50%60%70%80%90%

Bar Smallpieces

Chocolatecake

Chocomax M ousseau

Chocolat

Hotchocolate

Others

Distribution of chocolate consumption according to type



5.3 Main competition

5.3.1 Chocolate factories Chocolate producers in South Lebanon Name Location Mondiale Bnaafoul (caza of Saida) Daoud Bnaafoul (caza of Saida) La Roche Bnaafoul (caza of Saida) Moreover, there is only one chocolate factory in Bint Jbeil caza, in Rmeich, and it produces sporadically, for special occasions only. The distribution of chocolate factories throughout South Lebanon is thus favorable to the establishment of such a production unit since the nearest competitors are located in the caza of Saida, which is outside the region targeted.

5.3.2 French pastries Distribution of French pastries in South Lebanon Name Location Dallas Nabatieh Taeb Nabatieh Ganita Nabatieh Wehbeh Nabatieh El Razi Nabatieh Rahal Harouf, Nabatieh Abbas El Doueir, Nabatieh Bourgi Tyre El Rammal Tyre Gharanity Tyre Eblaoui Tyre El Badaoui Tyre El Chammas Tyre Beit el Kahweh Tyre El Nabil Tyre El Bohsali Tyre Krayyem Bint Jbeil, Harris Although there are several French pastry shops in South Lebanon, the majority of them are outside the targeted region. In the caza of Bint Jbeil, there are 13 pastry shops but only one of them is a well-established one.



5.4 Target market The objective of the pastry shop is to reach three specific markets:

First, the pastry shop will cater for events such as weddings and births, as well as private parties taking place in South Lebanon.

Second, it will distribute to main pastries, restaurants and hotels in the region.

Third, there will be a point of sale with a terrace linked to the production unit, in order to welcome directly customers.

5.4.1 Chocolate As was shown by the graphs above, chocolate is consumed by almost all people, with no difference between sexes, and there is a minor consumption difference between age brackets, except for people above 60. Moreover, we deducted from data about yearly chocolate consumption per person in European- Mediterranean countries that in Lebanon, per capita consumption should be around 2 kgs a year. Taking into consideration the socio-economic realities in South Lebanon, we can assume that in this region, chocolate consumption does not exceed 0.75 kg per capita on a yearly basis. The regions the project would cover include the Mohafaza of Nabatieh and the city of Tyre.

Number of inhabitants Hasbaya 19,460Bint Jbeil 52,710Marjaayoun 40,879Nabatiyeh 92,363Mohafaza Nabatiyeh 205,412Tyre 130,83Total 235,495 Approximately 251,622 kgs of chocolate are consumed in the Mohafaza of Nabatiyeh and Tyre each year. Taking into consideration the fact that almost 46% of the chocolate eaten is of the “small individual pieces”, this leaves us with a potential market of 115,746 kgs per year. Our objective consists in being able to sell, on average, around twelve tons of decorated chocolate per year. Our aim is thus to capture 10.3% of chocolate consumption, and to sell, on average, 40 kgs of chocolate per day.



5.4.2 Pastry shop Our target market for pastry shop is practically the same as for chocolate, however, the competition is somehow different. On one hand, the pastry shop could expect to sell relatively more pastries than chocolate, since there are very few direct substitutes to a piece of French pastry, whereas chocolate can be consumed in many different ways. On the other hand, the product that nevertheless competes with French pastry is the Arab sweets, which are more anchored in Southerners habits. One of the marketing goals of the pastry shop will therefore be to direct people to its products as more original and casual. Here again, the clients are classified in three groups:

Other pastry shops, restaurants, hotels, supermarkets and groceries, to which the production unit will cater and deliver pastries.

Customers that consume goods in the pastry shop Take-away pastries

Moreover, one major advantage of French pastry over chocolate or ice cream is that its consumption is less constrained by seasonality factors than the other two products. Therefore, our expectation is that we could sell on average 50 pieces, as a start, throughout the targeted region on a daily basis.

5.4.3 Ice cream The growth in the number of residents and visitors in the summer season more than doubles in the South region, which offers important sales opportunities for ice cream. Moreover those who come back for the summer are usually better off than the regular inhabitants, their relatively higher purchasing power is beneficial for the whole region in general, and for the pastry shop in particular. Furthermore, the climate in South Lebanon is hot; the period of time during which ice cream is consumed is longer than the three months of June, July and August.

The pastry shop will produce three different types of ice cream:



- “Natural ice cream” produced from juice fruit such as orange, carrot, lemon, melon, prickly pear etc … Moreover, the fruits would be bought from local production, hence creating a backward linkage and enhancing local farmers’ businesses.

- “Italian ice cream” production, which is done from fruit essence, such as strawberry, blueberries, etc…

- Mary cream

Mary cream

Given the fact that the population increases considerably during the three months of June, July and August, we can safely assume that sales during each one of these months would be around 33 kgs per day. For the months of April, May, September and October when the climate is cooler and population is composed of regular inhabitants only, we assume that daily sales will be around 10 kgs per day. In this case, clients are classified along three main categories:

Pastries, restaurants, hotels, supermarkets and groceries to which the production unit will cater and deliver ice cream.

Particulars who want to buy relatively small quantities, 1 kg, for instance, for home consumption.

Clients who will stay in the pastry shop and buy a cone or some scoops of ice cream.

5.5 SWOT Analysis

5.5.1 Strengths

The pastry shop will offer high quality goods. A professional quality team will supervise the production; one of the major strengths will be the ability to build a solid and loyal relationship with both local customers (individuals, restaurants) and expatriates who might ask for western standards.

The price per quality will be very attractive; the pastry shop will offer discounts to key clients.



The production unit will produce a diversified range of products, which can help smooth out seasonality factors.

There are a number of special occasions and holidays that the pastry shop could benefit from:

• Eid al Fitr • Ramadan • Eid al Adha • Al Hejira • Independence Day • Christmas • Easter • Valentine • First Communion • Weddings • Births • Circumcisions

5.5.2 Weaknesses

Inhabitants of rural areas, such as South Lebanon are more used to Arabic sweets than French pastries and may not consider these products as valid substitutes.

Given that the majority of people have limited income, pastries and decorated chocolate might be considered a luxurious item.

Although the range of products theoretically satisfies preferences at any time during the year, the caza is much less populated during the nine months outside the summer and therefore the profitability of the business will be squeezed during the off-season months.

5.5.3 Opportunities

Labor, which is the main factor of production of decorated chocolate, is cheaper in Bint Jbeil than in major cities. Hence, the expected price difference between chocolate produced in Bint Jbeil and those in main cities could open up new opportunities to contract deals with chocolate distributors in Beirut or other cities. Another opportunity is possible by establishing contracts with clients such as hotels and restaurants.

The pastry shop will take advantage of the fact that during the summer months the number of residents increases considerably, especially to sell ice cream.

5.5.4 Threats

There is a risk that the turnover achieved does not reach expectations and



therefore, the business would not be able to cover its operating expenses.

In addition, there is a risk that the economic condition in the region does not improve, or even gets worse; this would definitely impede the profitability of the business.

6 Marketing plan The pastry shop will capitalize on several advantages in order to build up a solid, loyal and diversified network of clients. It will therefore focus on the following objectives:

• Cleanness and high quality of inputs used, as well as high quality standards of production.

• Competitive pricing • Attractive decorations for chocolates to please different tastes • Delivery of chocolates, French pastries, and ice cream to various points of

sales and pastry shops. 6.1 Pricing The prices the pastry shop will charge are determined by the standards of living of the targeted regions, by the production costs, and by the competition. Pricing Rates 1kg of normally decorated chocolate $15 1kg of extra decorated chocolate $21 1kg of ice cream (natural) $7.3 1kg of ice cream (Italian) $9.5 French pastry (per piece, foret noire, blanche, fraisier) $0.7 French pastry (croissant, mille feuilles, boules au chocolat) $0.5 Cakes (muffin, cake, éclair) $0.3 Sablés, petits fours (kg) $5.3 Mary cream $0.7 Coffee $0.3 Fresh juice $1.0 Canned juice, sodas $0.5 The pastry shop will offer differentiated pricing according to the quantities purchased by the customers. The price list above is applied for retail selling.



6.2 Sales channels The production unit will establish strategic alliances with the hotels, restaurants, supermarkets, municipalities and other key clients to be the exclusive distributor of sweets for special occasions. This requires good quality services including timely delivery, freshness of goods etc… to be competitive in order to attract and retain a large base of clients. 6.3 Advertising and promotion On the launching day, the pastry shop will organize an open cocktail party to invite key clients and the local residents to visit and taste the varieties to be offered. The production unit will allocate a budget of $4,000 for the first year on advertisement and $2,000 for subsequent years. The budget will cover brochures and posters to be displayed in the pastry shop. Brochures will be distributed to potential key clients including hotels, restaurants, and other pastry shops.



7 Financial Plan This section details the calculations, assumptions and methodology used as a basis for the projection of the expected financial performance of the pastry shop. 7.1 Equipment costs

Source: Vresso, Jal-el-Dib Boulanges, Jal-el-Dib Samtec, Dekwaneh

Initial InvestmentCost Items Quantity Unit cost Total costRefrigerated room 1 5,000 5,000Tempering machine for chocolate 1 2,850 2,850Shaker for chocolate 1 1,000 1,000Spoons for ice cream 4 80 320Marycream machine 1 3,500 3,500Mixer (pastry) 1 4,000 4,000Mixture slimmer 1 7,000 7,000Convection oven 1 7,000 7,000Oven for pastry baking 1 5,000 5,000Plates and trays 1 2,500 2,500Other small equipment (mainly decoration) 1 2,500 2,500Thermometer 1 30 30Moulds 1 425 425Pasteurizer 1 13,200 13,200Coffee machine 1 300 300Orange Juice squeezer 1 500 500Freezer 1 15,000 15,000Refrigerated pick-up 1 12,000 12,000Total equipment 82,125

Other fixed assetsFittings & installations 12,000Furniture 4,000Office equip, computers, TV 3,000Total fixed assets 101,125Working capital needs 16,578Total initial investment 117,703



Source: Boulanges, Jal-el-Dib The first table displays the costs of the equipments needed in order to produce the three kinds of sweets. The cost of the equipment directly related to production is of USD 82,125, it includes the refrigerated room, tempering machine, shaker for chocolate etc… Other fixed assets include fittings and installations, furniture, and office equipment. The total cost of the project is evaluated at USD 117,703 including working capital needs and beginning inventories. The beginning inventory includes perishable raw material such as chocolate, ingredients for ice cream, for French pastries, for cakes and for fresh juice covering two weeks of sales on average. Other goods such as canned juice, sodas and coffee will cover about 1 month of sales. The beginning inventory amounts to $6,319. 7.2 Major assumptions Sales assumptions are rather conservative and are based on a clear-sighted understanding of the socio-economic condition of the targeted region. Moreover, the proposed pricing of goods is based on market price levels in the region.

Beginning inventoryDescription Quantity Unit cost ($) AmountChocolate (Kg) 615 5.00 $3,075Ingredients for ice cream (kg) 495 3.33 $1,650Ingredients for french pastries (units) 525 0.35 $184Puff pastry (units) 525 0.25 $131Ingredients for cakes (units) 525 0.17 $88Ingredients for petits fours (kg) 225 2.13 $480Ingredients for Mary cream (units) 750 0.09 $70Coffee (units) 500 0.33 $167Fresh juice (units) 225 0.33 $75Canned juice, sodas (units) 1,500 0.27 $400Total beginning inventory 6,319



The pastry shop will have various products to sell with the following pricing:

Items Price ($) 1kg of normally decorated chocolate 15.0 1kg of extra decorated chocolate 21.0 1kg of ice cream (natural) 7.3 French pastry (per piece, foret noire, blanche, fraisier) 0.7 French pastry (croissant, mille feuilles, boules au choco)0.5 Cake (muffin, cake, éclair) 0.3 Petits fours (kg) 5.3 Mary cream 0.7 Coffee 0.3 Fresh juice 0.7 Canned juice, sodas 0.5 The expected sales for one year are expected to be as follows:

Items QuantityNormally decorated chocolate (kg) 9,000 Extra decorated chocolate (Kg) 3,000 Ice cream (kg) 4,170 Mary cream (cones) 8,100 Pastries (pcs) (all kinds) 16,000 Petits fours (kg) 3,200 Coffee 8,600 Fresh juice 4,400 Canned juice, sodas 15,925 Because there exists a seasonality associated with the goods produced, and the region targeted is much more populated in summer than in winter, the assumptions are split in summer and winter season sales:

• 9,000 kgs of normally decorated chocolate with an average of 30 kgs per day for 300 days a year.

• 3,000 kgs of extra decorated chocolate with an average of 10 kgs per day for 300 days a year.

• 4,170 kgs of ice cream distributed as follows: 33 kgs per day for the 90 days of summer (June, July, and August), and 10 kgs per day for the months of April, May, September and October.

• 8,100 cones of Mary cream distributed as follows: 70 cones per day for the 90 days of summer, and an average of 20 cones per day for the 90 days that precede and follow the three summer months.



• Approximately 16,000 pieces of pastries will be sold annually with an average of 50 pieces per day over 320 days.

• Approximately 320 kgs of “petits fours” will be sold annually with an average of 10 kgs per day over 320 days.

• 8,600 cups of coffee are expected to be sold: 40 cups per day during 85 days in the summer and 20 cups per day for the remaining 260 days.

• As for fresh orange juice, it is estimated that 20 glasses will be sold daily during the 85 days of summer, and that only 10 glasses will be consumed daily for the remaining 270 days.

• Finally, it is estimated that 65 bottles of canned juice and sodas will be sold during the 85 days of summer and that 40 will be sold for the remaining 260 days.

Year 1 Year 2 Year 3 Year 4 Year 5 Growth in sales 5% 5% 2% 1% It is assumed that sales will increase by 5% during the 2nd and 3rd year of exercise, by 2% during the 4th, and at 1% during the 5th year. The following table shows the main assumptions for the income statement. It is assumed that general expenses will grow by 2% annually and maintenance expenses of equipment, fixtures and installations will increase by 2% annually. On the personnel side, wages are expected to increase by 2% annually and the income tax rate is 15%. Income Statement Assumptions Annual increase in general expenses 2% Maintenance expenses 2%of fixtures & installations Annual increase in salaries 2%annually Income Tax Rate 15% The following table shows the balance sheet assumptions: Balance Sheet Assumptions Accounts Receivable 20%sales Inventories 0.5 month of consumables Accounts payable 10%of consumables Expenses payable 20%of general expenses The depreciation rates used in the following table follow international accounting standards: DEPRECIATION RATES Furniture 7.5%Fixtures & installations 7.5%Office equipment and computers 20%Equipment 10%



The cost of rental of the pastry shop is shown below: Pastry shop to be rented Pastry shop area in square meters 250Rental per square meter in USD 10Annual rent 2,500 Staff structure: Regarding the administrative staff, the pastry shop will hire a General Manager and a Marketing and Sales responsible with substantive skills, and a presentable and friendly salesperson. On the production side, the pastry shop will have a chef, a cook, and 5 craftswomen, which will receive a serious training in order to acquire the required skills. Staff selection and training is crucial; the team must be as efficient and motivated as possible in order to ensure high quality products and services.

The total number of employees is 10 all year round. The monthly salaries including social security charges and transport are around USD 7,038.

STAFF STRUCTURENumber of Monthly Total Total Monthlyemployees Salaries salaries NSSF TransportTransport Total

Management & Sales Manager 1 1,000 1,000 215 104 104 1,319 Marketing & sales 1 700 700 151 104 104 955 Salesperson 1 350 350 172 104 104 626 Chef 1 800 800 172 104 104 1,076 Cook 1 400 1,200 258 104 104 1,562 Craft-women 5 300 1,500 1,500 TOTAL 10 3,550 5,550 968 520 7,038



7.3 Projected Income Statement The following income statement is based on expected market levels for revenues and costs.

The income statement shows reasonable income levels with average net income of $25,000 annually and an average net profit margin of 9%.

PASTRY SHOPProjected Income Statement Year 1 Year 2 Year 3 Year 4 Year 5

5% 5% 2% 1%Decorated chocolate 135,000 141,750 148,838 151,814 153,332 Extra decorated chocolate 63,000 66,150 69,458 70,847 71,555 Ice cream 30,580 32,109 33,714 34,389 34,733 Marycream 5,400 5,670 5,954 6,073 6,133 Pastry 8,000 8,400 8,820 8,996 9,086 Sablés, petits fours 17,067 17,920 18,816 19,192 19,384 Coffee 2,867 3,010 3,161 3,224 3,256 Fresh juice 3,080 3,234 3,396 3,464 3,498 Canned juice, sodas 7,963 8,361 8,779 8,954 9,044 Total Revenues 272,956 286,604 300,934 306,952 310,022 Decorated chocolate 68,400 71,820 75,411 76,919 77,688 Extra decorated chocolate 37,500 39,375 41,344 42,171 42,592 Ice cream 13,900 14,595 15,325 15,631 15,788 Mary cream 756 794 833 850 859 Pastry 4,800 5,040 5,292 5,398 5,452 Petits fours 6,827 7,168 7,526 7,677 7,754 Coffee 860 903 948 967 977 Fresh juice 1,467 1,540 1,617 1,649 1,666 Canned juice, sodas 4,247 4,459 4,682 4,776 4,823 Marketing expenses 4,000 2,000 2,040 2,081 2,122 Salaries & wages-production 42,000 42,840 43,697 44,571 45,462 Social Security Charges 5,160 5,263 5,368 5,476 5,585 Transport-staff 2,496 2,546 2,597 2,649 2,702 Total cost of sales 192,412 198,343 206,681 210,814 213,470 Gross margin 80,544 88,261 94,253 96,138 96,552

Gross profit margin% 30% 31% 31% 31% 31%General & administrative expensesRental expenses 2,500 2,500 2,500 2,500 2,500 Utilities:Electricity,water,telephone 1,920 1,958 1,998 2,038 2,078 Transport expenses 3,840 4,032 4,234 4,318 4,361 Supplies 3,000 3,150 3,308 3,374 3,407 Maintenance 1,643 1,675 1,709 1,743 1,778 Salaries-Administrative 24,600 25,092 25,594 26,106 26,628 Social Security Charges 6,450 6,579 6,711 6,845 6,982 Transport-staff 3,744 3,819 3,895 3,973 4,053 Other expenses 2,000 2,040 2,081 2,122 2,165 Total General & Administrative Exp 49,697 50,846 52,028 53,019 53,952 EBITDA 30,847 37,415 42,225 43,120 42,600 Depreciation expenses 9,413 9,413 9,413 9,413 9,413 Tax expenses 3,215 4,200 4,922 5,056 4,978 Net Income 18,220 23,802 27,891 28,651 28,209

Net profit Margin 7% 8% 9% 9% 9%



7.4 Projected Balance Sheet The balance sheet shows the projected assets and liabilities of the company.

The pastry shop is expected to start distributing dividends of $20,000 in year 2 and 3. In year 4 and 5 the company will be able to distribute dividends of $40,000.

PASTRY SHOPProjected Balance Sheet Year 1 Year 2 Year 3 Year 4 Year 5

Cash & Equivalents 5,417 16,578 31,633 28,825 26,065Accounts Receivable 54,591 57,321 60,187 61,390 62,004Inventory 8,017 8,264 8,612 8,784 8,895Current Assets 68,025 82,163 100,431 98,999 96,964Fixtures & installations 12,000 12,000 12,000 12,000 12,000Equipment 82,125 82,125 82,125 82,125 82,125Furniture 4,000 4,000 4,000 4,000 4,000Office equip, computers, telecom 3,000 3,000 3,000 3,000 3,000Accumulated Depreciation 9,413 18,825 28,238 37,650 47,063Net Fixed Assets 91,713 82,300 72,888 63,475 54,063Total Assets 159,737 164,463 173,319 162,474 151,026Accounts payable 13,876 14,569 15,298 15,604 15,760Expenses payables 9,939 10,169 10,406 10,604 10,790Total Liabilities 23,815 24,739 25,703 26,208 26,550Invested Capital 117,703 117,703 117,703 117,703 117,703Retained Earnings 18,220 22,022 29,913 18,564 6,773Shareholders Equity 135,923 139,725 147,616 136,267 124,476Total Liab. & Shrholders Equity 159,737 164,463 173,319 162,474 151,026

Stat. Of Retained Earnings Year 1 Year 2 Year 3 Year 4 Year 5Begin. Retained Earnings 18,220 22,022 29,913 18,564 Net income 18,220 23,802 27,891 28,651 28,209 Dividends Paid 20,000 20,000 40,000 40,000

Ending Retained Earnings 18,220 22,022 29,913 18,564 6,773



7.5 Projected Cash Flows The following table shows the projected cash flows of the pastry shop.

The projected cash flows shows the initial net investment in fixed assets and the net invested capital by the owners. The distributed dividends are shown starting in year 2. 7.6 Ratio analysis: The following table shows the main financial ratios for the pastry shop.

PASTRY SHOPSTATEMENT OF CASH FLOWS Year 1 Year 2 Year 3 Year 4 Year 5

Net income 18,220 23,802 27,891 28,651 28,209 Adjustments to reconcile net incometo cash provided by operating activitiesDepreciation 9,413 9,413 9,413 9,413 9,413 Changes in Working Capital (38,793) (2,053) (2,248) (872) (382) Total Adjustments (29,381) 7,359 7,164 8,541 9,031 Cash provided by operating activities (11,161) 31,162 35,055 37,192 37,240

Cash Flow from Investing ActivitiesCapital expendituresInvestment in fixed assets (101,125) Net cash used in investing activities (101,125) - - - -

Cash flow from financing activitiesNet Investment by owners 117,703 Net borrowings & repayments of loansDividends distributed (20,000) (20,000) (40,000) (40,000) Cash provided by financing activities 117,703 (20,000) (20,000) (40,000) (40,000)

Cash at beginning of year - 5,417 16,578 31,633 28,825 Changes in cash 5,417 11,162 15,055 (2,808) (2,760) Cash at end of year 5,417 16,578 31,633 28,825 26,065



- The current ratio (obtained by dividing current assets by current liabilities), which indicates liquidity, is satisfactory in all years (levels over 2 are considered satisfactory). - The return on average assets increases over the years as the net income of the pastry shop increases. It shows that assets are used in an efficient way to generate returns. - The total assets turnover increases is very high in all years and is due to high levels of sales in comparison with the assets base. - The profitability margins are satisfactory in all years. - The return on average equity increases from 13% in year 1 to 22% in year 5, and is on average 18.4% over the 5 years. The return on investment is also satisfactory, it increases from 15% to 24% over the 5 years, and has an average of 21.5%. These are attractive return rates. The internal rate of return (IRR) is 30% and the payback period, which is the period necessary to pay back all the initial investment, is 4.8 years. 7.7 Break- even analysis: The following table shows the minimum annual revenue levels needed for the pastry shop to break- even. Thus, an average of USD 200,000 per year is a minimum level of revenue for the pastry shop to stay in business.

Ratio Analysis Year 1 Year 2 Year 3 Year 4 Year 5Current Ratio 2.86 3.32 3.91 3.78 3.65Return on Average Assets 11.4% 14.7% 16.5% 17.1% 18.0%Total Assets Turnover: Sales / total assets 171% 174% 174% 189% 205%

Gross Profit Margin 30% 31% 31% 31% 31%Operating Profit Margin 11% 13% 14% 14% 14%Net Profit Margin 7% 8% 9% 9% 9%

Return On Average Equity=ROE 13% 17% 19% 20% 22%Return on Investment = ROI 15% 20% 24% 24% 24%



PASTRY SHOPBREAK-EVEN ANALYSIS Year 1 Year 2 Year 3 Year 4 Year 5

Total Revenues 272,956 286,604 300,934 306,952 310,022Total Variable Costs 192,412 198,343 206,681 210,814 213,470Total Fixed Costs 59,109 60,258 61,441 62,431 63,365

Break-even revenues 200,315 195,673 196,169 199,331 203,459



7.8 Sensitivity analysis: A worst-case scenario is assumed whereby the level of sales would be 15% less than the level expected. This would yield an average net income of USD 6,831 instead of USD 25,355. Moreover, the internal rate of return would be of 10% instead of 30%. The payback period is 9 years in this case. A best-case scenario was also developed assuming that sales would be 10% higher than in the most likely scenario. In this case, average net income is $37,703. Moreover, the internal rate of return is 39% instead of 30%, and finally the payback period is 3.8 years instead of 4.8 years.

8 Recommendations and key success factors In order to achieve satisfactory results, there are some key success factors that should be highlighted:

• All the personnel of the pastry shop must be very qualified. The craft women, the chef, the cook and the sales person will receive all the necessary training in order to perform according to high standards. The managerial personnel and the chef will be selected according to their merits and previous experience.

• As a first stage the pastry shop should follow a policy of market penetration, trying to seize any opportunity in order to get a wide array of clients.

• The pastry shop will make full use of its marketing resources in order to market itself as a destination and as the most competent chocolate, ice

PASTRY SHOP Worst-case Most likely Best-caseNormally decorated chocolate (kg) 7,650 9,000 9,900Extra decorated chocolate (Kg) 2,550 3,000 3,300Ice cream (kg) 3,545 4,170 4,587Mary cream (cones) 6,885 8,100 8,910Pastries (pcs) (all kinds) 13,600 16,000 17,600Petits fours (kg) 2,720 3,200 3,520Coffee 7,310 8,600 9,460Fresh juice 3,740 4,400 4,840Canned juice, sodas 13,536 15,925 17,518

Average net income 6,831 25,355 37,703 Average net profit margin 3% 9% 12%

Internal rate of return 10% 30% 39%Payback period in years 9 years 4.8 years 3.8 years



cream and pastry shop producer in the region. • After a certain period of functioning, the pastry shop would have acquired

some key clients, on which it will focus as the primary target market. • The pastry shop should try to differentiate itself from other French pastries

building up on its main assets: quality, cleanness and affordable prices. • Regarding the decorated chocolate, the manager should take into

consideration the life cycle of certain models, and will make sure to introduce new models once the market for specific products has attained the maturity stage.

• The shop seating area ought to be as pleasant as possible, in order to attract visiting expatriates and tourists.

• Finally, let us stress one more time the importance of cleanness, high standards of production and good quality of inputs.

9 Economic impact evaluation Establishing this pastry shop in the caza of Bint Jbeil will have several positive repercussions on the socio- economic state of the region:

• Building up such a craft shop will allow for an economic diversification in a region where agriculture and other low-skilled jobs are predominant.

• The pastry shop will create 10 full-time jobs; it will offer new career opportunities to young people, especially women in Bint Jbeil. These jobs will also contribute in restraining the migratory floods, which is draining Bint Jbeil’s most capable people to big cities and out of Lebanon.

• Creating jobs for women will empower them; it will help them to increase the household income in a very positive and comfortable way.

• Furthermore, the creation of these jobs will ensure to employees respectable wages and thus helps to lift up the standard of living of the concerned households.

• The production of pastries and especially of fresh juice has backward linkages that will be beneficial to the whole region, mainly through the use of fresh fruits, milk, and flour, produced in the area.

• Moreover, the training the employees will have received will equip them with valuable skills for future job opportunities.

• Finally, the pastry shop will be seen as a new attraction, and as one of the reasons to spend some additional time in Bint Jbeil.

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Feasabilitypastry Shop