Caviar Company

BUSINESS PLAN     CAVIAR DELIGHTS

19331 Madison Avenue
New York, New York 10016

When Caviar Delights was bought by its present owner from a bankruptcy court, the company had been out of business for more than two years and had only a handful of sales in the year prior to its demise. By closely following this informal business plan—and using his own cash and credit—the new owner took Caviar Delights from $0 to $2 million in sales in the firm's first year of operation. Contributor: Scott Lockett of Tindell Associates.

• assumptions
• initial considerations
• projections
• products
• market
• advertising
• initial first steps
• organization
• complications
• conclusion

ASSUMPTIONS

• We've got caviar.
• We've got credit.
• The old customers return.
• Ed (me, the owner) stays alive until Jan 1.
• Washington Avenue location remains headquarters location.
• Inventory moved to Washington Avenue site.

INITIAL CONSIDERATIONS

The gourmet market will be hard to crack initially. We should restart the existing caviar business with caviar—plus a few new products—and focus on them. The resulting cash flow will allow us to re-evaluate and enter the gourmet market without a drain on the company's limited resources. Based on the 1999 sales figures, the retail market is miniscule (less than 1 percent of total sales). The company should focus on its wholesale customers and increase margins, prices, and volume, then re-evaluate the retail (mail order) gourmet market in January 2001.

The objective is to position Caviar Delights as the pre-eminent caviar and gourmet provider in the country. In order to achieve this, the strategy will be to:

1. Rebuild the caviar distribution and packing of Caviar Delights
2. Acquire private-label gourmet items and integrate them into the caviar markets
3. Continue to add new products to the private-label offerings
4. Expand sales into new geographic markets
5. Strengthen sales in the company's existing markets

PROJECTIONS

Here are our sales projections for the next three years:

• Sales for fiscal year 2000: $2,300,000
• Sales for fiscal year 2001: $4,600,000
• Sales for fiscal year 2002: $9,000,000

These numbers are ambitious, but with increased marketing and a sales force, they are easily achievable. The numbers for 2000 are based on sales from 1999 (exclusive of old accounts receivable). Sales from May to December 1999 were $1,094,559 ($136,820 per month). Projections for fiscal years 2001 and 2002 include assumptions of a nationwide sales force.

PRODUCTS

Historical sales show that Caviar Delights derived nearly 100 percent of its revenue from caviar sales. Foie gras and smoked salmon accounted for less than 1 percent of these sales.

In order to achieve our short-term goals, the product line must be increased. The establishment of complementary products within the current lines will make the company less dependent on the whims of the caviar market. It will also increase profit margins.

With the proper selection of items, all of the existing markets can be penetrated. Each of the items must meet rigid standards of quality and low cost. The standard markup for new and private label items is a minimum of 50 percent.

The current list of products to offer includes: caviar (Beluga, Osetra, Sevruga, Salmon, Paddle), smoked salmon, foie gras, coffee, spices, hot sauce, pies, cakes, sausage, and pasta. All of this is Caviar Delight's private label. Possible other products are Ehmer Meats and Edwards Hams. These new products will contribute a 25 percent increase in revenue over 1999.

MARKET

In 1999 Caviar Delights had 233 clients. These customers are spread across the country. While the market penetration in greater New York City is small, there is certainly ample room for growth in this same region. With the addition of two salespeople, the company can concentrate on new business in New York City while managers Ed and Charlie concentrate on the previous clients.

The two new salespeople will easily contribute an increase of 10 percent in revenue over 1999. They will be supported by a new nationwide sales force in place by 2001, along with a new retail mail order and Internet division.

The sales force will be a "straight commission"-based system. In 2001, the addition of representative firms may help speed the transition to nationwide sales. A sales system utilizing the software packages Act! and Access will be implemented, and the sales force will be trained to use it. This new software will allow all interactions with clients to be easily logged and accessed, and will create targeted profiles of customers, which can be manipulated for specific marketing initiatives.

ADVERTISING

It's unknown if any consistent advertising was conducted for the company in 1999 before it went bankrupt. But that's all in the past.

We know the most effective method of advertising Caviar Delights is targeted advertising. To achieve our goals, we will send customers on the old company's mailing list a letter notifying them of our purchase of Caviar Delights. These mailings will be followed by phone calls from Ed or Charlie.

New efforts will target each customer based on his/her profile. New markets will be targeted based on the specifics of the market (i.e., caterers will receive marketing showing offerings specific to caterers).

Monthly specials will increase sales and flatten the cyclical nature of the past caviar business.

Attendance at the Fancy Food Shows as an exhibitor should continue.

INITIAL FIRST STEPS

1. Create brochure with old and new products by October 1.
2. Send letter to previous Caviar Delights customers and alert them of the purchase by September 23.
3. Put up informational web page by October 1 with a fully functional web page (online ordering) by December 1.
4. No catalog yet. Will re-evaluate whether one should be produced when we consider retail expansion in January.
5. Ed helps bring back old customers while the two new salespeople will concentrate on new business. Charlie will handle most of the old customers after Ed hands them off.
6. Salespeople will be paid strictly on commission. Initial thought is 8 percent of collected gross sales.
7. Increase efforts to understand our customers, tailor the product offerings for the particular customers, and up sell.

ORGANIZATION

In order to maximize profits for Ed and Charlie, the number of employees on the payroll should be kept to a minimum. Here is an overview of the company's key employees and/or positions to be filled in the near future:

Ed: President. Helps make transition smooth while old customers get used to the idea that the previous caviar company now has a new vision and a new name. Assists in the recovery of old clients. Transitions out of operations and to the head office by January 1, 2001.

Charlie: Operations Manager. Oversees company. Maintains financial controls, records, and accountability. Manages caviar processing. Directs salespeople. Purchases products. Sustains old clients. Assists with new business.

Administrative Assistant: Assists Charlie, answers phones, performs data entry, general and administrative tasks. Makes coffee, buys Diet Coke.

Two Salespeople: Focus on new business. Some interface with old clients once Ed and Charlie have recovered them.

Caviar Processors: Pack caviar. Seasonally adjusted numbers depending on how many are contracted for this function.

Possible additions: Contract legal consultation and an annual audit by a certified public account.

COMPLICATIONS

In order for this to work, we must have credit or more cash. Why?

Old customers may not return. Caviar may be too scarce or expensive to get. We must be able to maintain the current markup and reduce costs. The key to introducing a private label is price and service. If the company cannot maintain competitive prices then the private label won't sell.

The sales force must be motivated to sell. And a straight commission sales force may not work. If using representative firms, there may be pressure from other companies they represent which could undermine our success.

CONCLUSION

The short-term future looks a little scary.

However, once the caviar sales are restored, the cash flow from this company is bound to be huge.

The first few months will be lean, so credit is absolutely necessary. An infusion of cash from some source can replace the credit, but repayment may dilute earnings and delay build up of cash necessary for expansion. It will also violate the principle of limiting the number of people involved.

As a final thought, it's entirely possible that Caviar Delights could be structured so that it becomes a public offering within five years. Then the money will really flow.