Creation of a retail trade system for sales of meat, dairy and fermented dairy products with entry to new Moscow and Moscow vicinity sales markets

Throughout recent years the state of retail trade in dairy and meat products in Moscow and Moscow vicinity has demonstrated positive dynamics. The current situation shows that main representatives of this market are large-scale trademarks, many of which are not direct producers. As a result, producers mainly occupy a small-scale retail trade market segment represented by mini-markets, pavilions and milk machines.

Requirements to creation of new trade networks

Despite leading positions of large-scale trademarks, recently dairy and meat products sold directly by producers have been more popular among buyers. Creation of trade chains by these producers requires:

• market analysis in accordance with the planned territorial spread of the sales network;
• careful analysis of the quantity, kinds and location of sales outlets (even distribution in the territory), as well as the optimal variant of establishment (construction, purchase, rent);
• analysis of issues of effectiveness and investment justification, like in the case of attracting the company’s own financial funds;
• calculation of values of effectiveness, profitability, return of investment, break-even point and other financial and economic indicators.

All the above mentioned and other individual requirements have to be reflected in the business plan and the financial model of the project.

Experience of Intesco Group in developing financial models for retail trade chains in Moscow region

Development of business plans and financial models for retail trade networks for direct sales by producers is one of the leading directions of analytical activities of Intesco Research Group. Thanks to extensive knowledge of Moscow and Moscow vicinity markets, our company can develop projects of different degrees of complexity, irrespective of the kind of products. In this aspect our possibilities are vividly proven by the project on opening a chain of outlets in Moscow and Moscow vicinity for sales of meat, dairy and fermented dairy products of the initiator company that deals with processing, sorting, packing, transporting and sales of agricultural products.

Organization of sales in a trade network

The form of agricultural sales consumer cooperative was chosen for project implementation. The list of products to organize sales included: milk (the main kind of product by sales volume and profits), cheese, cottage cheese, ryazhenka and kefir (fermented dairy products), canned products and meat products.

The aim of the business plan was to create a network of outlets for sales of dairy and meat products in the territory of Moscow and in Moscow vicinity, with justification of project implementation effectiveness and calculation of financial cost indicators, economic feasibility of planned activities, optimization of the quantity, kinds and distribution of sales outlets.
Project implementation effectiveness

The justification was based on the following:

• optimal ratio of the quantity, kinds, way of purchase (rent), engaged trade areas and location (by territory coverage) of trade rooms;
• the existing situation of price formation, no prospects of price damping (market expansion investments cannot be justified for such a variant of sales), calculating favourable market prices for products.

Financial model estimates

According to the developed financial model, the estimates were the following:

• investment volume (crediting) – 53.389 million rubles with the loan term of 6 years and interest rate of 14%;
• ratio of loan and the company’s own funds in the project financing volume – 80%/20%;

Project effectiveness rates

As a result of Intesco analysts’ calculations, the project effectiveness rates were the following:

• net income/net present value – 363.390 million/188.365 million rubles;
• simple/discounted pay-back period – 1.64/1.8 years;
• profitability index – 8.8 units;
• internal rate of return – 110.9%
• breakeven point – 42% or 43.843 million rubles per quarter.

According to the business plan, 50 sales outlets were to be opened, 15 of which were milk machines. With the aim of economical expenditure and simultaneous solving of the task of regular coverage of the sales territory, according to population demand estimates, all sales outlets have to be rented based on the need in trade room of 7.65 m2 – for sales of only dairy products, 12 m2 – for sales of dairy and meat products. Taking into account the main profitability item, planned sales of milk were 400 liters per day with the selling price of 40 rubles per liter.

You can order development of a business plan for your project by calling at +7 (495) 212-91-91 or filling in a request at the website, after which our manager will call you.

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