Bogalegaba Guest House
Feasibility Study
In Johannesburg
Table of Contents1. Introduction.................................................................................................................................... 6
2. Background information.................................................................................................................2
2.1 Brief history of the organic movement....................................................................................2
2.2 Status of the organic food and beverage market in SA..........................................................2
2.3 Organic Consumer Characteristics........................................................................................3
2.4 Trend Drivers......................................................................................................................... 4
3. The Proposed Concept..................................................................................................................7
4.1 General Information and Assumptions...................................................................................8
4.2 Key Success factors..............................................................................................................9
5 Economic Assessment.................................................................................................................10
5.1 Food service growth expectations........................................................................................10
5.2 Eating Out Patterns..............................................................................................................10
5.3 Health and Dietary Issues....................................................................................................11
6 Market Feasibility......................................................................................................................... 12
6.1 Consumer Trends and Analysis...........................................................................................12
6.2 Health................................................................................................................................... 12
6.3 Indulgence........................................................................................................................... 13
6.4 Convenience........................................................................................................................ 13
6.5 Ethical / environmental issues (Going ‘green)......................................................................14
6.6 Sandton could double in size over the next 10 years...........................................................14
7 Legislative Environment...............................................................................................................15
7.1 Producers............................................................................................................................. 15
7.2 Organic standards and certification......................................................................................16
8 Location....................................................................................................................................... 17
9 Financial Feasibility...................................................................................................................... 18
7.1 Investment Summary...........................................................................................................18
10 Financial feasibility Summary...................................................................................................25
10.1 Profitability........................................................................................................................... 25
10.2 Cash flows........................................................................................................................... 25
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10.3 Ratio analysis....................................................................................................................... 25
11 Risk Analysis............................................................................................................................ 27
12 Conclusions and Recommendations........................................................................................28
13 References.............................................................................................................................. 30
Annexure 1: Projected Operating Budget....................................................................................31
Annexure 2 Expenditure Calculations..........................................................................................32
Annexure 3 Personnel Count.......................................................................................................33
Annexure 4: Monthly Basic Payroll Calculations..........................................................................34
Annexure 6: Costing Sheet Sample Dinner.................................................................................35
Annexure 7: Costing Sheet Sample Lunch..................................................................................35
Annexure 8: Costing Sheet Sample Salads.................................................................................36
Annexure 9: Costing Sheet Sample Breakfast.............................................................................36
Annexure 10: Costing Sheet Sample Starters.............................................................................37
Annexure 11: Project Plan Template...........................................................................................37
Annexure 12: Producer Prices Survey........................................................................................38
Annexure 13: Site Evaluation Template......................................................................................39
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List of TablesTable 1: Summary of statistics on organic food & agriculture..................................................5
Table 2: Summary Statistic for food purchasing behaviour.....................................................6
Table 3: Proposed Organic Restaurant Concept.....................................................................7
Table 4: Restaurant General Information and assumptions....................................................8
Table 5: Consumer Trends and Analysis - Health.................................................................12
Table 6: Consumer Trends and Analysis - Indulgence..........................................................13
Table 7: Consumer Trends and Analysis - Convenience.......................................................13
Table 8: Consumer Trends and Analysis - Ethical / Environmental Issues (Going Green). . .14
Table 9: Trends Analysis - Growth of Sandton......................................................................14
Table 10: Organic Produce Companies.................................................................................15
Table 11: Financial Feasibility Summary...............................................................................18
Table 12: Projected Meal Covers...........................................................................................20
Table 13: Income Calculations...............................................................................................21
Table 14: Projected Income Statement..................................................................................22
Table 15: High-Level Actual Income Statement and Cash Flow............................................23
Table 16: Risk Analysis Summary.........................................................................................27
Table of Figures
Figure 1: Framework of factors affecting organic consumers' attitudes and willingness to purchase..................................................................................................................................3
Figure 2: Restaurant Business Plan Iterations.......................................................................29
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Preface
The attached report presents our research, analysis and findings and is intended to assist
Bogalegaba Guest House in evaluating the viability of an organic restaurant development in
Johannesburg’s Sandton Suburb. The analysis in this report is based on estimates,
assumptions and other information developed from industry research and market data.
The sources of information, the methods employed and the basis of significant estimates
and assumptions are stated in this report. Some assumptions inevitably will not materialize
and unanticipated events and circumstances may occur. Therefore, actual results achieved
will vary from those described and the variations may be material. The findings presented
herein are based on analysis of present and near-term conditions in the Johannesburg area,
any significant future changes in the characteristics of the local community, such as growth
in population, corporate inventory and visitor amenities/attractions, could materially impact
the key market, financial and economic conclusions developed as a part of this study.
As in all studies of this type, the estimated results are based on competent and efficient
management of the potential facility and assume that no significant changes in the
restaurants markets or related markets will occur beyond those set forth in this report.
Furthermore, all information provided to us by others was not audited or verified and was
assumed to be correct. This report has been prepared for the internal use of Bogalegaba
and should not be relied upon by any other party. The report has been structured to assist
company representatives in evaluating potential market demand, as well as the estimated
operating characteristics and should not be used for any other purpose.
Lack of data and high costs are the norm in countries in which the organic industry is
relatively new and may explain the fewer number of organic demand studies that are
available in developing countries and in South Africa so far was done by Du Toit and
Crafford (2003) to investigate preferences for organic food in four retail stores in Cape Town.
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1. Introduction
An ongoing trend is the mainstreaming of both organic foods and its consumers. The
demand for and consumption of organic foods in South Africa continues to grow. No longer
just a niche market, both organic food and the organic consumer are becoming a larger part
of the mainstream.
The main consumer trends observed in food retail provide insight into the changing
consumer trends and South African retailers responded to these changing trends towards
health and environmental concerns with the introduction of organically produced food and
beverages. Woolworths, a major retailer introduced organic food into selected stores in 1999
and has experienced annual growth of over 50 % in the sector in the period. Organic foods
provide a range of attributes which include: food safety, nutrition, value, package and
process attributes
Events such as reports that dairy products in supermarkets contain rBST1 in 2001 and the
contamination of food products with Sudan Red2 which was illegally used to colour chillies
sparked fears of food safety after the National Department of Health recalled a number of
products including spices, powders, and sauces contaminated with Sudan Red ( Pick ‘n Pay,
2005).
The industry is growing at a very high rate and thus unveiling numerous business
opportunities. The domestic market is currently growing at a rate of 30 percent per annum
Irwin (2003) and With only 5-10% of households living below the poverty line, Sandton is
currently Africa’s richest square mile due to the exclusive developments and exclusive
suburbs surrounding the centre, and it presents an ideal location for the restaurant given
also the profiles of the typical organic food consumers.
Projections undertaken show that the project will have a positive NPV of R3 675 412 which
means that returns will add value to the firm. The IRR of the project is projected to be
44.63% which is higher than the hurdle rate of 15 % which is the is the minimum rate of
return on a project that the directors have indicated as the minimum they will accept before
starting the project, given its risk and the opportunity cost of forgoing other projects. The
payback period for the project is projected to be 1.5 years which is very much acceptable
given industry standards of more than 3 – 5 years.
1 rBST is a growth hormone given to cows to increase their milk production
2 Sudan Red is a colourant used for colouring non food products that found its way into food products
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2. Background information
2.1 Brief history of the organic movement
The organic movement has its origins in the European countries in the 1840 and it later
moved to the United States, Australia, Japan and developing countries. It emerged as the
pioneers started a movement in response to the negative impacts of industrial agriculture.
Inspiration and supporting evidence came from studies on nutritional value of food, health
and food safety, controversy surrounding introduction of foods containing genetically
modified organism and the impact of agricultural production on the environment.
The highest growth is expected from the European countries and emerging economies of
India, Brazil, China and South Africa (Willer and Yussefi, 2004). South Africa together with
Egypt has the largest domestic markets for organic food and beverages in Africa. The value
of the South African market is estimate at R50 million to R100 million (Irwin, 2002). Food
retail outlets are the main outlets were organic products are being sold.
Organic products were launched by Woolworths in 1999 with 10 lines, in year 2000 in Pick n’
Pay and both Shoprite and Spa in 2002. Woolworths has since increased its product line
from 10 to 150 lines and organic products are available in 60 of their stores. A study
conducted at three retails supermarkets in Cape Town showed that consumers purchasing
organic had high education and income levels (Du Toit and Crafford 2003)
In South Africa there are 239 (Willer and Yussefi, 2009) certified organic producers that
manage 35 000 ha that include fresh fruits, vegetables, cane sugar, herbs and spices. Few
studies have however been conducted on the organic food market in South Africa. Africa has
the lowest area under organic production but however in Africa and South Africa included
there is certified and uncertified organic production as most of organic production is not
documented and will remain so in the near future.
2.2 Status of the organic food and beverage market in SA
South Africa is one of the 30 African countries that produce certified organic products and
most products are exported due to higher revenues from foreign exchange. The domestic
market is currently growing at a rate of 30 percent per annum. Irwin (2003) says that South
Africa has a favourable position for expansion in there domestic market because of the
following development in the last few years
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a. Establishment of a separate section for organics at the Johannesburg fresh produce
market
b. Proposition of national regulations for organic products
c. Establishment of South African organic certification bodies
d. Formation of three South African organic associations
2.3 Organic Consumer Characteristics
The traditional organic consumers are usually those who purchase organic food as part of
their beliefs and lifestyle. As the niche market expands, other consumer segments are
coming into play such as aging baby boomers, university students, and others who perceive
organic food as a healthy, tasty or chic alternative to conventional food. These consumers
can be characterised by the following attributes
Living in urban areas often a big city
Making purchases based on quality and organic production methods (buyer behaviour)
Well educated and often from middle to high social class
Having relatively high purchasing power
The figure below outline a framework that shows the factors affecting organic consumers
attitudes and willingness to purchase organic food
Figure 1: Framework of factors affecting organic consumers' attitudes and willingness to purchase
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There is only one study that has been produced on belief and purchase of consumers
regarding organically produced food in South Africa by Du Toit and Crafford (2003) and this
may be attributed to the fact that this is a new industry and thus difficult to observe long term
trends. The results however showed that consumers who purchased organic products were
however older than 36 years, English speaking and had high education qualifications and
income levels. Woolworths say that consumers purchase organic food because of the taste
and because it contributes to the environment (Mawson, 2007). Spar sells organic food
products in most of the stores that cater for upper income groups (De Vynk, 2005).
All certified organic products sold in the four major retailers in South Africa are labelled
organic and Woolworths is the only food retailer with its own organic label. Time series data
on consumer purchases is not of organic food for different food categories over time is not
collected by private research firms or government agencies and this is the reason for the
lack of literature on demand analysis for organic food.
2.4 Trend Drivers
There are several factors driving the trend towards consumption of organic food. They go
beyond the stereotypical ones of environmentalism and a holistic lifestyle to include the
increased interest in healthy eating, indulging in food experimentation, increased interest in
food traceability, aversion to pesticides, antibiotics and other chemicals, an overall return to
basics. Three specific triggers for purchasing organic food: children, allergies, and a healthy
lifestyle. A March 2003 US AC Nielson survey in Gourmet Retailer magazine (Everage,
9
External FactorsProcessing, packaging &
labellingCertification
Supply of product
Knowledge awarenessWhat is organic
Why organic
Perceived attributesHealth & Food Safety
Environmental FriendlyAnimal welfare
Products attributeNutritious & Tasty
Sensory CharactersValue
Social & Demographic factorsGender , Education
OccupationFamily Size
Consumer’s preferences & attitudesPerceived demand
Economic factorsHousehold Income
Product PricesPrice of related
products
Purchasing Decision
2003) asked for "the reasons consumers purchase organic products". Answers were as
follows:
32% believe organic is healthier
18% think they contain no pesticides
11% cite better quality
3% consider no GMO as a benefit
3% to prevent allergic reactions.
The factors relating to health and concern over what people are eating are driving the
organic category's growth more than the traditional philosophical approach to food.
Beyond the specific organic drivers, there are mainstream influences to be considered.
Convenience is now such a significant driver in consumer products, healthy eating, low carb
diets etc. have all shifted things in the overall food industry; organic will also feel some
effect. However, this is not a one-way street.
Another study conducted by the University of Pretoria Wendy Engel (2008) showed that the
majority of respondents believe organic food is more nutritious (84.2 %) and tastier (72.5 %)
than conventional food. The table below outlines the results of the study
Table 1: Summary of statistics on organic food & agriculture
Variable Description No %
Nutrition Organic food is more nutritious than conventional food 294 84.2
Taste Organic food tastes better than conventional food 257 72.5
Appearance Organic is more attractive than conventional 283 81.6
Conscience Organic leaves you with a good conscience 283 81.6
Labels Organic labels necessary to guarantee organic origin of products 328 92.1
Soil Conservation Organic agriculture conserves soil and impacts less on the environment 292 86.1
Pesticides Organic food contains less pesticide residue than conventional 290 83.0
Animal Welfare Organic food improves the welfare of animals 283 83.9
Impact on environment Impact of agriculture on the environment is exaggerated 211 89.8
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Environmental issues The environmental problems faced today are not too serious 168 67.0
Local farmers Organic production is good for local farmers 272 80.8
Small farmers Emerging small farmers benefit from organic agriculture 58 76.6
Consumer behaviour Consumer behaviour has a major impact on the way food is produced
More than 80 % of the surveyed in the study mentioned above reported that they buy
organic food and as shown in the table below. While most shoppers reported that they buy
food daily (29.8%) and weekly (30.4 %). Most of those who purchase organic food do so
monthly (33.5 %). While most respondents spend more than R1001 per month on food (>70
%) most spend less than R500 on organic food (73.6 %)
Table 2: Summary Statistic for food purchasing behaviour
Variable Response Food purchasingOrganic food
purchasing
No % No %
Purchase organic food Yes 288 82.3
Purchase frequency
Once / week 109 30.4 0 0
Twice / week 66 18.4 58 22.5
Daily 107 29.8 45 22.5
Monthly 69 19.3 67 33.5
Other 6 1.7 30 15.0
Purchase location Woolworths 141 39.4 132 45.8
Shoprite / Checkers 191 53.4 91 31.6
Pick n’ Pay 238 66.5 149 51.7
Spar 63 18.0 31 10.7
Farm 6 2.0 14 4.8
Fruit & Veg Store 64 18.0 58 20.1
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Information Traders 5 10 5 1.7
Farmers Market 5 1.4 8 2.7
Other 13 4.0 8 2.7
Monthly food expenditure
R500 45 12.6 212 73.6
R501 – R1000 61 17.0 62 21.5
R1001- R2000 128 35.7 0 0
>R2000 124 34.6 13 4.5
3. The Proposed Concept
Table 3: Proposed Organic Restaurant Concept
Menu
Preference
s
ThemeA Combination of casual and fine style dining with outside
dining facility and a dark, romantic place for couples to dine
Variety and
selection
Coffee shop, contemporary, continental, light meals
appetizers / soups, entrees, sandwiches, desserts,
seafood, red meat and poultry trends
Signature items Steaks,
Price range and
valueLSM 7, 8, 9, 10
Beverage serviceFine and wide selection of fine organic wines and soft
drinks, Juices and smoothies
Food quality Taste, Presentation, Portion size, Consistency
Décor
Green, comfortable interior decoration, modern restaurant
construction with elegant style and natural green. Mixing
green paint colors with modern elements is creating a
feeling of comfort and inviting space with exotic trees
reminiscent of a tropical rainforest
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Ambience
Relaxed delicious organic food in a manner that brings
together organic and lifestyle, and with an emphasis on a
LOHAS-Trend (Lifestyle of Health and Sustainability)
Size 200 to 250 square meters
Capacity 100 seater
Equipment and machineryfine china, glassware and flatware (absolutely no paper,
plastic, or Styrofoam), crisp white table cloths
Location and FacilityShould operate within the boundaries of Sandton Drive,
Katherine Street, Rivonia road and Grayston drive
Service
Days open 7
Hours of operation 7 to 10 pm
Service style
Highly trained and often wears more formal attire & should
be able to describe all menu items and a part of the wine-
list.
Extras offeredBooks, CD’s and DVD’s, magazines, life coaching, health
eating advise etc
4.1 General Information and Assumptions
The Report is based on a large number of assumptions and is subject to significant
uncertainties and contingencies, many of which are outside the writer’s control. The Report
includes cost estimates for setting up the restaurant, equipment, machinery, furniture and
fittings and other fixed and variable costs. These results reflect the order of magnitude of
costs and accordingly, the actual results may differ materially from those projected as it is
often the case that some events and circumstances do not occur as expected or are not
anticipated
Table 4: Restaurant General Information and assumptions
Number of seats 100
Estimated seat turnover by day and by meal period 2
Types of guests served LSM 7, 8, 9, 10
EntertainmentClassical and Jazz music playing subtly in the
background will reflect the theme
Franchise affiliation Non
Site or Facility Assumptions 100 seater restaurant located within the
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boundaries of Sandton Drive, Katherine Street,
Rivonia road and Grayston drive
Inflation Assumptions 6 % / annum
Size of facility Assumptions 200 to 250 square meters
Sales Increase 15 % per year
Increase in Cost of Raw Materials 10 % per year
Increase in Staff Salaries 10 % per year
Increase in Utilities (Electricity / Water 10 % per year
Increase in Rent 10 % per year
Increase in Office Expenses 10 % per year
Debt / Equity Ratio 50 : 50
Depreciation
o Shop Building & Fixtures (Diminishing Balance)
o Kitchenware & Machinery (Diminishing Balance)
o Furniture (Diminishing Balance)
10 % per annum
10 % per annum
10 % per annumEquipment Annual Maintenance Written Down Cost 2.5% of Value
Lease Period 5 Years
Lease Instalments Monthly
Financial Charges (Lease Rate) 15 % per annum
4.2 Key Success factors
Winning principles that can help shape the restaurant and improve its chances of
succeeding include the following
a. Conceive a winning concept : A well-defined concept stands a much better chance
of long term success than some vague notion.
b. Longetivity: the art of being able to maintain success over time while adjusting to
meet the changing demands and buying habits of the customer.
c. Consistency: requires implementing systems and procedures to ensure consistency
of operations
d. Market Appeal: Having a broad appeal and well developed points of difference
e. Expandability: Consistency of quality and service, and operating systems and
management procedures established
f. Menu Pricing: One of the most important factors in the strategic planning of a
restaurant is in the development of the menu. It involves designing an appealing
selection of menu items that are competitively priced in the marketplace.
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g. Selecting Prime Location
h. Market Research: Competition, customer preferences, demographics etc
.
5 Economic Assessment
The tourism industry is a major factor in the full-service restaurants (FSR), fast food and
cafés/bars industry. Tourism spending saw strong growth over the review period. Outlets
geared towards catering for tourists’ experienced rapid sales growth, such as those located
at travel stations/airports, hotels and shopping centres.
During the review period, cities such as Cape Town, Johannesburg, Pretoria and Durban
witnessed an increase in the number of visitors, which encouraged foodservice players to
provide attractive outlets with new decor and menus, along with quality service and new
marketing techniques.
5.1 Food service growth expectations
The healthy outlook for the South African economy, rapid changes in working habits, the
continued expansion of outlets through franchising and the expected increase in the number
of tourists will all contribute towards boosting foodservice transactions and sales over the
forecast period. The number of foodservice units is expected to increase by over 6%
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Compound Annual Growth Rate (CAGR) while the number of transactions is estimated to
grow by more than 10% CAGR. Value sales are predicted to exceed 17% CAGR, to reach
nearly R51 billion in 2009
5.2 Eating Out Patterns
South Africans are increasingly working longer hours and, as a result, family time has
become limited. For this reason, eating out has become more popular. Families often
choose a dining outlet which caters for the whole family unit. Single women and groups of
women are also now going out and eating out more often than ever before, especially
professional and working women with a good level of disposable income. Ladies nights are
very popular amongst this group, as restaurants tend to offer discounts to groups of women
eating out on a specific day of the week. Consumer patterns also point to a greater number
of women diners than men.
A growing middle class amongst black South Africans has resulted in a rise in eating out
patterns amongst this group. The latest household expenditure survey by University of South
Africa’s (Unisa) Bureau for Market Research, carried out in 2003, found that the main
increases in household expenditure by black consumers between 1993 and 2003 in terms of
entertainment were on holidays or weekends away (up 44% per year over the period) and
recreation (up 29%). At the same time, busier schedules had a positive impact on the fast
food and 100% home delivery/takeaway sectors throughout the review period.
5.3 Health and Dietary Issues
There is a clear trend for South African consumers to become concerned with health and
weight issues. Both quality food and health issues are now prime concerns amongst social
groups with higher disposable incomes and who pay more attention to their lifestyles. New
and old consumer foodservice chains are repositioning themselves as quality food entities,
offering healthier options as an attractive alternative to traditional standardised and global
fast food products.
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6 Market Feasibility
6.1 Consumer Trends and Analysis
A number of trends have emerged as relating to health, indulgence, convenience,
environmental and ethical issues and outlined below with supporting evidence
6.2 Health
Consumers are (still) increasingly focused on improved vitality through their food choices. Popular dimensions of the health trend include:
Table 5: Consumer Trends and Analysis - Health
Trends Supporting Evidence
Naturality (e.g. ‘all natural’, absence of
additives/preservatives, organic, whole grain
Functional promises associated with the medical
trend
o Naturally functional foods and whole food
nutrition
Health-related claims accounted for at least
33% of product claims at the SIAL 2008
Trends and Innovations Observatory,
specifically focused on ‘medical’ trends
(12%), Naturality (11%) and dieting (10%).
Among the top 15 products Naturality was
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Trends Supporting Evidence
oPlus-claims’, e.g. added vitamins or calcium
oHeart health (e.g. salt reduction)
oBody fat reduction (e.g. CLA to increase lean
muscle mass)
oGut health (e.g. pre- and probiotics in fermented
dairy foods)
Feel the benefit’ – functional foods/beverages with
benefits that consumers can actually feel (i.e. less
intangible functional benefits)
Fruit as functional ingredients
Dieting often associated with ‘minus-claims’ (e.g.
low-fat, fat-free, reduced sugar, no calorie products
with improved satiety qualities)
Other ‘minus-claims’ (e.g. low/no/reduced trans fat,
allergy related claims)
Digestive health
Vegetarianism
Renewed food safety concerns in terms of
pathogens, chemicals, food additives/preservatives
and food allergies
relevant to 20% of products.
According to the Mintel Global New
Products Database:
o Naturality claims dominated within new
product releases during 2008 (23% of
total new product claims versus 20% in
2007), specific claim examples include
‘all natural’ (15%), ‘no additives’/‘no
preservatives’ (14%) and ‘organic’
(12%). Plus’ claims (i.e. fortification)
applied to 5% of total new product
claims in 2008 (versus 6% in 2007).
o Minus’ claims were relevant to 18% of
total new product claims in 2008 (versus
17% in 2007).
o Specific claim examples include low/no
calorie (7%), no/reduced trans-fat (9%).
6.3 Indulgence
Indulgence could be described as consumers’ need for exciting, diverse and more sophisticated food experiences to ensure more pleasure, intensity and sensation.
Table 6: Consumer Trends and Analysis - Indulgence
Trends Supporting Evidence
Refined product presentation (including product
format, packaging and labelling)
Proliferation of new tastes and flavours through
new food varieties with rare or noble ingredients
(e.g. cheese products at SIAL 2008) and new and
interesting taste combinations to boost a variety of
senses (e.g. meat/deli/poultry products at SIAL
2008 where meat products are combined with new
tastes (e.g. fruit or cheese). Stander (2009)
provides a good description of the indulgence
Indulgence-related claims accounted for at
least 42% of product claims at the SIAL
2008 Trends and Innovations
Observatory, specifically focused on
sophistication (18%), variety of senses
(12%), exotism (6%) and fusion (6%).
Indulgence was relevant to 92% of the top
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movement - “…a fusion of flavours, colours and
texture to give a rich experience…”
Experiencing foods from other cultures
15 products.
6.4 Convenience
Consumers are increasingly challenged with insufficient time in their daily schedules, impacting significantly on their food preparation and consumption behaviour.
Table 7: Consumer Trends and Analysis - Convenience
Trends Supporting Evidence
Ready-to-eat meals – with or without reheating
(i.e. outsourcing meal preparation)
Fragmented eating occasions (stronger focus on
snacking and eating on-the-go)
Speed shopping and increased shopping
frequency
Children nutrition – making parents’ role easier
Healthy snacks
Packaging innovation to improve convenience
Convenience attributes accounted for at
least 10% of product trends at the SIAL
2008 Trends and Innovations Observatory.
Among the top 15 products convenience
was relevant to 69%
Convenience and indulgence was evident
in 62% of the top 15 products.
According to the Mintel database
convenience claims were associated with
12% of total new product claims (versus
10% in 2007),
6.5 Ethical / environmental issues (Going ‘green)
Consumers are increasingly concerned with environmental and social sustainability.
Table 8: Consumer Trends and Analysis - Ethical / Environmental Issues (Going Green)
Trends Supporting Evidence
Certified organic, free range and fair trade
products
Ethical or environmental attributes accounted for 15% of product trends at the SIAL 2008 Trends and Innovations Observatory among the top 15 products.
According to the Mintel Global New Products Database, ethical or environmental claims were associated with 5% of total new product claims (2% in 2007).
19
6.6 Sandton could double in size over the next 10 years
Table 9: Trends Analysis - Growth of Sandton
Trends Supporting Evidence
Big corporates have been leaving Johannesburg's
inner city for Sandton Central in a steady stream
There are several hotels under construction, as
well as the Gautrain rapid-rail project station,
mixed-use developments and office blocks
Current indications are that Sandton Central, as
the country's new commercial hub, will grow by a
further 600 000 m² over the next three to five year
JSE swapped Diagonal street, in JHB for Gwen lane, in Sandton
A-grade space Vacancy rates have tumbled from highs of 8% to 10%, to less than 3%
It has ten hotels, the famous convention centre, and four shopping centres (more than 450 shops), 90 restaurants, bars and cafes
The 24-storey, R1,6-billion La Residence being developed by the Nedbank
29-storey 283-room Radisson SAS hotel.
Rezidor will also open its three-star 192-room Park Inn in 2010.
The Holiday Inn, currently under construction, will be 12 storeys high.
the 12-storey Da Vinci hotel on the corner of 5th and Maude streets,
The Holiday Inn, currently under construction, will be 12 storeys high.
The Legacy group 12-storey Da Vinci hotel in Sandton central
R500m 30 000 m2 of office space Growthpoint Properties The Place on Sandton drive
Proposed 40 and 64-storey mixed-use development on Maud and Gwen lanes.
7 Legislative Environment
Food legislation in South Africa is the responsibility mainly of the health and agricultural sectors, and the following legislation is presently the responsibility of the health sector in this regard:
The Foodstuffs, Cosmetics and Disinfectants Act, 1972 (Act 54 of 1972): This Act governs the manufacture, sale and importation of all foodstuffs from a food safety control point of view. The Health Act, 1977 (Act 63 of 1977): Regulations promulgated under the Act govern, among others, the hygiene aspects of food premises and the transport thereof; milking
20
sheds and the transport of fresh milk; and, the inspection of premises, stipulating for instance the powers and duties of inspectors authorised in terms of the Act.
5.1 Producers
Table 10: Organic Produce Companies
Major Crop producers Nation-Wide Input Manufacturers
Kirklington Organic Farm: Herbs, grains,
deciduous fruit.
Lorraine Trust: Deciduous fruit.
Emerald Acres: Citrus fruit.
Modderfontein Farm: Citrus fruit, indigenous
crops (specifically rooibos Tea).
Datan Boerdery: Berries (specifically
strawberries).
A.M. Muller and Sons: Subtropical fruit
(specifically avocado pears).
Blue Sky Organics: Stone fruit (specifically olive
products).
Agro Organics. Biological Control Products. Bio-earth. Microbial Solutions.
Processors Supermarkets
Allganix: Cider vinegar, coffee, flour, fruit juices,
olive oil, sugar, sunflower oil, vegetables, whole
grains.
Blue Sky Organics: Olives (specifically oil, pickled
olives and other olive products).
Cape Natural Tea Products: Rooibos tea.
Kirklington Organic Farm: Grains, sunflower oil.
Vital Health Foods: Rooibos tea.
Hyperama
Woolworths
Pick 'n Pay
Pick 'n Pay conventional
7.1 Organic standards and certification
South Africa does not yet have national legislation either requiring certification of or affording
protection to organic producers and their products. Therefore the acceptability of imported
certified products depends on their destination within the South African market:
Local retail: Due to the lack of legislated control over organic sales, any certification may
be accepted, depending on the knowledge and policy of the retailer
21
Woolworths, a retail chain, has issued a policy statement requiring internationally
recognised certification by ISO accredited certifying agencies.
The lack of organic legislation in South Africa has generally led to different scenarios
regarding certification agencies accepting each other’s certification:
Some agencies accept the certification of others without any investigation into
equivalency of standards or regulations, and inspection and certification protocols.
On the other hand equivalency of standards or regulations and inspection and
certification procedures are considered to be of paramount importance, and are
investigated before the certification is either accepted or rejected.
This usually occurs on a product by product basis, and does not extend to blanket
acceptance / rejection of any one agency’s certification by another.
The final market: If the produce is to be exported from South Africa, then the certification
of the input must be recognised by the final destination country, according to that
country’s Laws or Regulations.
Two local certification agencies certify according to draft standards published by the National
Department of Agriculture in 2001. Of these, only one agency, Afrisco, is in the process of
becoming ISO 65 accredited. Its close relationship with Ecocert (the company is known as
Ecocert-Afrisco) has historically provided this umbrella. Currently, Afrisco’s certification is for
the domestic market only, but once ISO accreditation has been achieved, Afrisco will also be
able to provide EU certification.
8 Location
The business should operate within the boundaries of Sandton Drive, Katherine Street,
Rivonia road and Grayston drive in Sandton. The area has been chosen after evaluating the
following factors
Anticipated sales volume
22
Accessibility to potential customers
The rent-paying capacity of the business
Restrictive ordinances
Traffic density
Visibility
Customer Parking Facilities
Proximity to other businesses
History of the area
Future development.
Sandton is a suburb of South Africa's largest city Johannesburg. Business travelers find in
Sandton numerous multinational corporations, banks, financial institutions and the
Johannesburg Stock Exchange. The Sandton Convention Centre is one of the region's
largest. To accommodate the ever increasing demand for commercial and office space,
Sandton is undergoing further redevelopment, and the area seems poised to become a
Manhattan-style downtown with office towers and residences soaring above the current
skyline. Sandton is also home to Africa's largest shopping district with Sandton City and
Nelson Mandela Square bustling with up-market boutiques and retailers.
Only 5-10% of households below the poverty line, and the Sandton City shopping
complex is the largest non-metropolitan shopping complex in the Southern Hemisphere.
Currently, it is Africa’s richest square mile due to the exclusive developments and
exclusive suburbs surrounding the centre,
It is however is reaching critical mass with traffic congestion, overdevelopment and a
lack of available land, which means that things are going upwards, with new
developments reaching over 30 stories.
Suburbs include Alexandra, Craighall Park, Dunkeld, Duxberry, Hyde Park, Inanda,
Morningside, Parkhurst, Parkmore, Sandhurst, Sandown, Strathavon, Waverly, Wynberg
9 Financial Feasibility
7.1Investment Summary
23
Table 11: Financial Feasibility Summary
Total Initial Investment: R 648 000
Total Annual Profit Increase (Before Income Taxes):
R 228 558
Weighted Average Cost of Capital / Discount Factor: 9.48%
Corporate Hurdle Rate: 15.0%
5 Year IRR Generated From Project: 44.63%
(True Interest Return Generated by the Project)
(If IRR > Hurdle Rate, Accept the Project)
(If IRR < Hurdle Rate, Reject the Project)
5 Year NPV: R3 675 412
(Present Value of Net Annual Cash Flows)
(IF NPV > R0, Accept the Project)
(IF NPV < R0, Reject the Project)
Payback In Months (Before Income Taxes): 1.5
Table 12: Capex Requirements
Capex Make-up: New Capital Expenditure New Capex
Total Capex in
24
Electrical Oven 10 pan 69 000
69 000
Espresso Machine Cadetta P2 Brasilia
22 941
22 941
Cutlery and :Fryer double deluxAnvil deep fat fryerBoiling tableMicro wave
45 068
45 068
Grinder Gino Rossi 5 640
5 640
Cutlery 6 861
6 861
Plates 27 197
27 197
Equipment & Furniture 288 800
288 800
Décor 21 100
21 100
IT and software 14 000
14 000
Premises -
- -
Total Required Capital Expenditure
500 607
500 607
Funding Required:
Working Capital Requirement
147 096
Capital Expenditure Required
500 607
Total Funding Requirement
647 703
Equipment of world leading brands such as Spinzer, Frymaster, Henny Penny, Lincoln,
Ayrking, Keating, Mirror, Carpigiani, Lincat, Morretti, Ilsa, Round-Up, Sanyo, Elettrobar is
readily available locally
25
Table 13: Projected Meal Covers
Breakfast Covers Lunch Covers Snack Covers Total Covers
Peak Season Weeks
36
Monday 30 40 40 110
Tuesday 30 40 40 110
Wednesday 30 40 40 110
Thursday 30 40 40 110
Friday 35 35 45 115
Saturday 35 35 35 115
Sunday 10 15 15 40
Weekly Total 200 245 245 710
Peak Season Total 8820 9540 25520
Off Season Weeks
20
Monday
2030 30
80
Tuesday
2030 30
80
Wednesday
2030 30
80
Thursday
2030 30
80
Friday 25 25 25 75
Saturday 25 25 25 75
Sunday 10 10 10 30
Weekly Total 140 180 180 420
Off Season Total 2800 3600 3600 9400
26
Table 14: Income Calculations
Beverage Revenue Months 1 2 3 4 5 6 7 8 9 10 11 12 No. of Operational Days per month 31 28 31 30 30 31 30 31 30 31 30 31 364 Average Guest Spend (Net) 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 Average No of Guests 0 0 0 0 0 0 0 0 0 0 0 0 Beverage Rev 1 550 1 400 1 550 1 500 1 500 1 550 1 500 1 550 1 500 1 550 1 500 1 550 18 200
Combined Beverage Rev 1 550 1 400 1 550 1 500 1 500 1 550 1 500 1 550 1 500 1 550 1 500 1 550 18 200
No. of Operational Days per month 31 28 31 30 30 31 30 31 30 31 30 31 Breakfast Covers
Average Spend Incl. Vat 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 60.00 No. Guests Per Day 30 30 30 30 30 30 30 30 30 30 30 30 Total Net of Vat 48 947 44 211 48 947 47 368 47 368 48 947 47 368 48 947 47 368 48 947 47 368 48 947 574 737
Luncheon Food Revenue Average Spend 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 80.00 Guests Dining per day 40 40 40 40 40 40 40 40 40 40 40 40 Total Revenue Incl. Vat 99 200 89 600 99 200 96 000 96 000 99 200 96 000 99 200 96 000 99 200 96 000 99 200 1 164 800
Total Net of Vat 87 018 78 596 87 018 84 211 84 211 87 018 84 211 87 018 84 211 87 018 84 211 87 018 1 021 754
Dinner Food Revenue Average Spend 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 200.00 Guests Dining per day 40 40 40 40 40 40 40 40 40 40 40 40 Total Revenue Incl. Vat 248 000 224 000 248 000 240 000 240 000 248 000 240 000 248 000 240 000 248 000 240 000 248 000 2 912 000
Total Revenue Net of Vat 217 544 196 491 217 544 210 526 210 526 217 544 210 526 217 544 210 526 217 544 210 526 217 544 2 554 386
Beverage Revenue Average Spend Per Cover 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 30.00 Total Revenue Incl. VAT 74 400 67 200 74 400 72 000 72 000 74 400 72 000 74 400 72 000 74 400 72 000 74 400 873 600
Total Net of VAT 65 263 58 947 65 263 63 158 63 158 65 263 63 158 65 263 63 158 65 263 63 158 65 263 766 316
TOTAL FOOD 353 509 319 298 353 509 342 105 342 105 353 509 342 105 353 509 342 105 353 509 342 105 353 509 4 150 877
TOTAL BEVERAGE 66 813 60 347 66 813 64 658 64 658 66 813 64 658 66 813 64 658 66 813 64 658 66 813 784 516
Table 15: Projected Income Statement
1 2 3 4 5 6 7 8 9 10
INCOME 4 935 393 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863 5 043 863
Food Revenue 4 150 877 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105 4 242 105
Beverage Revenue 784 516 801 758 801 758 801 758 801 758 801 758 801 758 801 758 801 758 801 758
EXPENDITURE 97.74% 4 823 761 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809 4 979 809
Administration & General 2.66% 131 200 184 800 184 800 184 800 184 800 184 800 184 800 184 800 184 800 184 800
Staff Payroll Costs 14.39% 710 250 674 748 674 748 674 748 674 748 674 748 674 748 674 748 674 748 674 748
Utilities 1.95% 96 400 150 000 150 000 150 000 150 000 150 000 150 000 150 000 150 000 150 000
Food Cost 80.00% 3 320 702 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684 3 393 684
Beverage Cost 60.00% 470 709 481 055 481 055 481 055 481 055 481 055 481 055 481 055 481 055 481 055
Unit Marketing Costs 0.94% 46 500 47 522 47 522 47 522 47 522 47 522 47 522 47 522 47 522 47 522
Rates & Insurance 5 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000 48 000
Mgt Cont Op Profit 111 632 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054
2.26% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27% 1.27%
Depreciation 187 167 187 167 187 167 187 167 187 167 187 167 187 167 187 167 187 167 187 167
Profit Incentive (Group Operator) 0.00% 0 0 0 0 0 0 0 0 0 0
Net Trading Profit before Interest -75 535 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112 -123 112
-1.53% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44% -2.44%
Cash Profit Pre-Tax 111 632 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054 64 054
Table 16: High-Level Actual Income Statement and Cash Flow
High-Level Actual Income Statement
Total Total Total Total Total
Year 1 Year 2 Year 3 Year 4 Year 5
Total Income 4 935 393 5 043 863 5 043 863 5 043 863 5 043 863
Less: Normal Expenditure (4 633 855) (4 814 439) (4 814 439) (4 814 439) (4 814 439)
Less: Depreciation (33 399) (33 399) (33 399) (33 399) (33 399)
Surplus (deficit) before interest 268 138 196 024 196 024 196 024 196 024
Less: Interest on Long-term loan (39 580) (37 391) (34 887) (32 023) (28 748)
Less: Interest on overdraft - - - - -
Net profit (loss) after interest 228 558 158 634 161 138 164 002 167 277
Less: Tax (63 996) (44 613) (45 524) (49 351) (50 508)
Profit after tax 164 562 114 020 115 614 114 651 116 769
Actual Cash flow Year 1 Year 2 Year 3 Year 4 Year 5
Total income 4 935 393 5 043 863 5 043 863 5 043 863 5 043 863
Less Expenditure (4 633 855) (4 814 439) (4 814 439) (4 814 439) (4 814 439)
Less: Capital expenditure - - - - -
Surplus (deficit) before debt repayments 301 538 229 424 229 424 229 424 229 424
Less: Debt repayments (cap & interest) on LT loan (54 819) (54 819) (54 819) (54 819) (54 819)
Less: Tax (29%) (63 996) (44 613) (45 524) (49 351) (50 508)
Add: Inflow of Capex funds
Surplus (loss) before overdraft interest 182 723 129 992 129 081 125 254 124 097
Less: Interest on overdraft - - - - -
Surplus (loss) after overdraft interest 182 723 129 992 129 081 125 254 124 097
Opening bank balance 147 096 329 818 459 810 588 891 714 145
Closing bank balance 329 818 459 810 588 891 714 145 838 242
Projected Balance Sheet
Total Total Total Total Total Total
Start Up Year 1 Year 2 Year 3 Year 4 Year 5
Land & Buildings 119 138 119 138 119 138 119 138 119 138 119 138
Furnishings, Equipment & Vehicles 309 900 309 900 309 900 309 900 309 900 309 900
429 038 429 038 429 038 429 038 429 038 429 038
Accumulated depreciation - 33 399 66 799 100 198 133 598 166 997
NET FIXED ASSETS 429 038 395 639 362 239 328 840 295 440 262 041
Debtors - - - - - - Cash on hand (bank balance) 147 096 329 818 459 810 588 891 714 145 838 242
CURRENT ASSETS 147 096 329 818 459 810 588 891 714 145 838 242
TOTAL ASSETS 576 134 725 457 822 049 917 730 1 009 585 1 100 283
Creditors - - - - - -
Provision for tax - - - - - - Bank overdraft - - - - - -
CURRENT LIABILITIES - - - - - -
Long term loan 300 000 284 761 267 333 247 401 224 605 198 534
LONG TERM LIABILITIES 300 000 284 761 267 333 247 401 224 605 198 534
TOTAL LIABILITIES 300 000 284 761 267 333 247 401 224 605 198 534
Retained income opening bal - - 164 562 278 582 394 196 508 847 Post (loss) tax profit for year - 164 562 114 020 115 614 114 651 116 769
Retained income closing bal - 164 562 278 582 394 196 508 847 625 616 Owners Contribution 176 134 176 134 176 134 176 134 176 134 176 134
Investment/Grant 100 000 100 000 100 000 100 000 100 000 100 000
SHAREHOLDERS FUNDS 276 134 440 696 554 716 670 330 784 981 901 750
TOTAL FUNDS 576 134 725 457 822 049 917 731 1 009 586 1 100 284
Check (0) (0) (0) (0) (0) (0)
10 Financial feasibility Summary
The initial Capex requirements is expected at R 1680 000 with the bulk expected toward securing premises, machinery and equipment
10.1 Profitability
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10Net Trading Profit before Interest 1 591 853
1 548 832 1 548 832
1 548 832
1 548 832
1 548 832 1 548 832 1 548 832 1 548 832 1 548 832
32.25% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71% 30.71%Cash Profit Pre-Tax 1 625 252
1 582 231 1 582 23111 582 231
1 582 231
1 582 231 1 582 231 1 582 231 1 582 231 1 582 231
10.2 Cash flows
Net Profit
1 591
853
1 548
832
1 548
832
1 548
832
1 548
832
1 548
832
1 548
832
1 548
832
1 548
832
1 548
832
Depreciation 33 399 33 399 33 399 33 399 33 399 33 399 33 399 33 399 33 399 33 399
WC Requirements -35 000 -3 233 0 0 0 0 0 0 0 0
Tax Payments -434 636 -423 400 -424 310 -428 137 -429 294 -430 600 -432 074 -433 740 -435 624 -437 755
Inflow/Outflow
from operations
1 155
616
1 155
599
1 157
921
1 154
095
1 152
937
1 151
632
1 150
157
1 148
491
1 146
608
1 144
476
Working Capital
Annual Income
growth 2.2% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Brought Forward 147 096 182 096 185 328 185 328 185 328 185 328 185 328 185 328 185 328 185 328
Movement for year
–
income growth% 35 000 3 233 0 0 0 0 0 0 0 0
Carried Forward 182 096 185 328 185 328 185 328 185 328 185 328 185 328 185 328 185 328 185 328
10.3 Ratio analysis
The project has a positive NPV of R3 675 412 which means that returns will add value to the
firm. This does not necessarily mean that they should be undertaken since NPV at the cost
of capital may not account for opportunity cost, i.e. comparison with other available
investments. These rules are as show below
If... It means... Then...
NPV > 0the investment would add value to the firm
the project may be accepted
NPV < 0the investment would subtract value from the firm
the project should be rejected
NPV = 0 the investment would neither gain nor lose value for the firm
We should be indifferent in the decision whether to accept or reject the project. This project adds no monetary value. Decision should be based on other criteria, e.g. strategic
positioning or other factors not explicitly included in the calculation.
The IRR of the project is projected to be 44.63% which is higher than the hurdle rate of 15 %
which is the is the minimum rate of return on a project that the directors have indicated as
the minimum they will accept before starting the project, given its risk and the opportunity
cost of forgoing other projects. The payback period for the project is projected to be 1.5
years which is very much acceptable given industry standards of more than 3 – 5 years.
Given the above analysis the project appears to be a sound investment however certain risk
should be considered as outlined below and further research and consultation done.
11 Risk Analysis
Table 17: Risk Analysis Summary
Risk IdentifiedProbability
of occurrence
Action required
Supply: Security of supply is a long term treat
as the area under certified organic production
is limited
Low
Identify both domestic, regional and
overseas suppliers of certified organic
produce
Concept: The Organic restaurant is a fairly new
concept in South Africa and very few studies
and research has been conducted
Medium
Further research and consultation needs to
be done and company needs to be kept
abreast of emerging trends and patterns.
Inorganic food can be sold as an
alternative for non fanatics
Premises: There is stiff competition for
commercial properties in Sandton and those
available command a high premium
High
Develop a concept that will appeal to a
premier niche in the market LSM 7, 8, 9, and
10. Enough time must be allocated towards
securing premises
Competitors: The rate of industry growth could
attract a lot of competitors High
Attention must be given to branding and thus
logo, menu, signature items, beverage
selection, ambience, theme, operations etc
all have to be in line with brand concept
Selling the brand: As a non franchised
concept, It will take time to monitor and
evaluate brand performance and success
HighImplementation of a differentiated concept
and thorough demand and analysis.
Economic conditions: Variations in the fiscal
and monetary regimes could alter the market
growth, disposable income and ultimately
aggregate demand
Low
Targeting, building and retaining a loyal
brand of high net worth customers LSM
7,8,9,10
Certification and licensing: Low Investigation and familiarisation with the
certification and licensing environment
Scientific arguments: A lot of arguments are
being made about the validity of the organic
health benefits
Low
Company should strive to establish
relationships based on trust, advise, with an
emphasis on a LOHAS-Trend (Lifestyle of
Health and Sustainability)
Costs: Organic food is generally more
expensive because organic farming requires
more manual labour and attention and this
could become worse in the near future with
diminishing suppliers
Low
Identify both domestic, regional and
overseas suppliers of certified organic
produce
Funding: Inability to meeting the projects
funding requirements High
Investigation of various equity, partnerships
and joint venture options
Suppliers: Vertical integration of key suppliers Medium Investigation of vertical integration to secure
supply contracts
12 Conclusions and Recommendations
In line with international consumer trends South African consumers are becoming more
health conscious and aware of food safety. Cities such as Cape Town, Johannesburg,
Pretoria and Durban have witnessed an increase in the number of visitors, which has
encouraged foodservice players to provide attractive outlets with new decor and menus,
along with quality service and new marketing techniques.
The healthy outlook for the South African economy, rapid changes in working habits, the
continued expansion of outlets through franchising and the expected increase in the number
of tourists will all contribute towards boosting foodservice transactions and sales over the
forecast period. South Africans are increasingly working longer hours and, as a result, family
time has become limited. For this reason, eating out has become more popular. Families
often choose a dining outlet which caters for the whole family unit. Single women and groups
of women are also now going out and eating out more often than ever before, especially
professional and working women with a good level of disposable income.
A growing middle class amongst black South Africans has resulted in a rise in eating out
patterns amongst this group. There is a clear trend for South African consumers to become
concerned with health and weight issues. Both quality food and health issues are now prime
concerns amongst social groups with higher disposable incomes and who pay more
attention to their lifestyles. New and old consumer foodservice chains are repositioning
themselves as quality food entities, offering healthier options as an attractive alternative to
traditional standardised and global fast food products.
A number of trends have emerged as relating to health, indulgence, convenience,
environmental and ethical issues and outlined below with supporting evidence. Financial and
market intelligence projections for the setting up of an organic restaurant point towards a
lucrative niche market that is poised to grow exponentially as it is strongly correlated to
trends and patterns elsewhere in the world. Despite this numerous risk exist and as the
organic food industry concept is relatively new in this part of the world. Further research still
needs to be done and various other financing, ownership, operational, menu, theme etc still
need to be explored further.
The table below outlines a logical framework that has to be followed to ensure the
development of a sustainable business concept.
Figure 2: Restaurant Business Plan Iterations
Idea Conception
Restaurant Location
Restaurant Concept
Marketing
Recruitment and Stocks
Designs and Menus
Permits and Licences
Restaurant Name
Financing
Restaurant Business Plan
Feasibility Analysis
13 References
Du Toit, L and Cranford, S. 2003. Beliefs and purchasing practices of Cape Town Consumers regarding organically produced food. Journal of Family Ecology and Consumer Sciences, 31: 1-11.
Willer, H. And Yussefi, M. (eds). 2004. The World or Organic Agriculture Statistics and Emerging Trends 2004. 6th revised Ed. International Federation of Organic Agriculture movements: Bonn, Germany
Pick and Pay, 2005. Hot Topics: A Food scare worth worrying about (Online). URL www.pick’npay.co.za (hottopics). 8 September 2005
Irwin, BL. 2002. Small Scale previously disadvantaged producers in the South African Organic Market. Adoption Model and Institutional Support. A plan B paper submitted to the Michigan State University in partial fulfilment of the requirements for the degree of Master of Science. Dept of Agriculture Economics Michigan
Mawson, N. 2007. Consumer’s environmental awareness low, retailer survey finds. Business day. 19 June 2007 (Online). http://www.businessday.co.za/articles/companies.aspx?=BD4A495996 (July 2007)
De Vyynck, D. 2005. Organic food sales grow steadily. Cape Times. 30 March 2005
Engel, W 2008. Determinant of consumer’s willingness to pay for organic food in South Africa. A paper submitted in partial fulfilment of the requirement for the degree Minst Agrar in the Department of Agricultural Economics, Extension and rural development, University of Pretoria
Annexure 1: Projected Operating Budget
Months 1 2 3 4 5 5 6 7 8 9 10 11 12
INCOME 420 322 379 646 420 322 406 763 406 763 420 322 406 763 420 322 406 763 420 322 406 763 420 322 4 935 393
Food Revenue 353 509 319 298 353 509 342 105 342 105 353 509 342 105 353 509 342 105 353 509 342 105 353 509 4 150 877
Beverage Revenue 66 813 60 347 66 813 64 658 64 658 66 813 64 658 66 813 64 658 66 813 64 658 66 813 784 516
EXPENDITURE (%) 388 941 358 593 390 341 416 225 413 725 429 541 398 608 413 524 402 608 413 024 403 608 395 024 4 823 761
Administration & General 2.7% 4 700 6 900 6 900 10 450 10 450 13 150 13 150 15 400 15 400 15 400 15 900 3 400 131 200
Staff Payroll Costs 14.4% 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250
Building Utilities 2.0% 1 800 4 000 4 000 7 550 7 550 10 250 10 250 12 500 12 500 12 500 13 000 500 96 400
Food Cost 80% 282 807 255 439 282 807 273 684 273 684 282 807 273 684 282 807 273 684 282 807 273 684 282 807 3 320 702
Beverage Cost 60% 40 088 36 208 40 088 38 795 38 795 40 088 38 795 40 088 38 795 40 088 38 795 40 088 470 709
Unit Marketing Costs 0.94% 8 000 4 500 5 000 5 000 2 500 2 500 2 500 2 500 2 000 2 000 2 000 8 000 46 500
Rates & Insurance (aprox) 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 48 000
Mgt Cont Operating Profit 31 381 21 053 29 981 -9 462 -6 962 -9 219 8 155 6 798 4 155 7 298 3 155 25 298 111 632
Depreciation 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 15 597 187 167
0.0% 0 0 0 0 0 0 0 0 0 0 0 0 0
Net Profit b4 Interest 15 784 5 455 14 384 -25 059 -22 559 -24 816 -7 442 -8 799 -11 442 -8 299 -12 442 9 701 -75 535
Annexure 2 Expenditure Calculations
Month 1 2 3 4 5 6 7 8 9 10 11 12
Electricity 0.00% 1000 2 500 2 500 5 250 5 250 7 000 7 000 9 000 9 000 9 000 9 000 0 66 500
Water 0.00% 300 1 000 1 000 1 800 1 800 2 750 2 750 3 000 3 000 3 000 3 500 0 23 900
Computer Supplies p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000
Gas p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000
Telephone & Fax (Admin) p.m. 300 300 300 300 300 300 300 300 300 300 300 300 3 600
Telephone & Fax (Rental) p.m. 400 400 400 400 400 400 400 400 400 400 400 400 4 800
Training & HR Support p.m. 700 700 700 700 700 700 700 700 700 700 700 700 8 400
Subscriptions p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000
Public Relations p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000
Advertising: International p.m. 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 1 000 12 000
Marketing: Brochures p.m. 5 000 1 500 2 000 1 500 500 500 500 500 500 500 500 5 000 18 500
Marketing: Trade Shows p.m. 2 000 2 000 2 000 2 500 1 000 1 000 1 000 1 000 500 500 500 2 000 16 000
Permanent Payroll Sched 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250
Kitchen Supplies 1.00% 3 535 3 193 3 535 3 421 3 421 3 535 3 421 3 535 3 421 3 535 3 421 3 535 41 509
Bank Charges 0.20% 841 759 841 814 814 841 814 841 814 841 814 841 9 871
Agents Commission 1.50% 0 0 0 0 0 0 0 0 0 0 0 0 0
Legal Expenses p.m. 200 200 200 200 200 200 200 200 200 200 200 200 2 400
Cleaning Materials p.m. 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 1 300 15 600
Beverage Supplies 2.00% 1 336 1 207 1 336 1 293 1 293 1 336 1 293 1 336 1 293 1 336 1 293 1 336 15 690
Total Direct Expenditure 67 458 65 605 66 658 99 224 96 724 99 608 78 907 81 341 80 657 80 841 81 157 74 841 973 020
Admin & General 4 700 6 900 6 900 10 450 10 450 13 150 13 150 15 400 15 400 15 400 15 900 3 400 131 200
Payroll Costs 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250
Marketing Costs 8 000 4 500 5 000 5 000 2 500 2 500 2 500 2 500 2 000 2 000 2 000 8 000 46 500
Building Utilities 1 800 4 000 4 000 7 550 7 550 10 250 10 250 12 500 12 500 12 500 13 000 500 96 400
Total 62 046 62 946 63 446 99 746 97 246 102 646 82 129 86 629 86 129 86 129 87 129 68 129 984 350
Annexure 3 Personnel Count
Staff Head Count
Jan July
Restaurant Manager 1 1 1 1 1 1 1 1 1 1 1 1 1
Head Chef 1 1 1 1 1 1 1 0 0 0 0 0 0
Captain 1 1 1 1 1 1 1 1 1 1 1 1 1
Sous Chef 1 1 1 1 1 1 1 1 1 1 1 1 1
Receptionist 1 1 1 1 1 1 1 1 1 1 1 1 1
Head waiter 1 0 0 0 1 1 1 1 1 1 1 1 1
Waiters 6 0 0 0 6 6 6 1 1 1 1 1 1
Generals 3 3 3 3 3 3 3 3 3 3 3 3 3
0 0 0 0 0 0 0 0 0 0 0 0
Total Staff Compliment 8 8 8 15 15 15 9 9 9 9 9 9
Basic Pay Per Position
Restaurant Manager 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000
Head Chef 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000
Captain 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000
Sous Chef 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000
Receptionist 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000
Head waiter 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000
Waiters 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500 3 500
Generals 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000 3 000
0 0 0 0 0 0 0 0 0 0 0 0 0
Annexure 4: Monthly Basic Payroll Calculations
Total Basic Pay For Employees 1 2 3 4 5 6 7 8 9 10 11 12
Restaurant Manager 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 8 000 96 000
Head Chef 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 7 000 84 000
Captain 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 72 000
Sous Chef 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 6 000 72 000
Receptionist 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 48 000
Head waiter 0 0 0 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 4 000 36 000
Waiters 0 0 0 21 000 21 000 21 000 3 500 3 500 3 500 3 500 3 500 3 500 84 000
Generals 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 9 000 108 000
Gross Payroll 40 000 40 000 40 000 65 000 65 000 65 000 47 500 47 500 47 500 47 500 47 500 47 500 600 000
Payroll Burden
Provident Fund8.00% 3 200 3 200 3 200 5 200 5 200 5 200 3 800 3 800 3 800 3 800 3 800 3 800 48 000
Performance Bonus4.00% 1 600 1 600 1 600 2 600 2 600 2 600 1 900 1 900 1 900 1 900 1 900 1 900 24 000
UIF1.00% 400 400 400 650 650 650 475 475 475 475 475 475 6 000
RSC0.34% 136 136 136 221 221 221 162 162 162 162 162 162 2 040
Meals 20 160 160 160 300 300 300 180 180 180 180 180 180 2 460
Employee Benefits p.m. 150 150 150 150 150 150 150 150 150 150 150 150 1 800
Medical Aid 50 400 400 400 750 750 750 450 450 450 450 450 450 6 150
Employment Equity p.m. 400 400 400 400 400 400 400 400 400 400 400 400 4 800
Skills Levy1.00% 400 400 400 650 650 650 475 475 475 475 475 475 6 000
W C A 0.50% 200 200 200 325 325 325 238 238 238 238 238 238 3 000
Incentives p.m. 500 500 500 500 500 500 500 500 500 500 500 500 6 000
Total Payroll Burden 7 546 7 546 7 546 11 746 11 746 11 746 8 729 8 729 8 729 8 729 8 729 8 729 110 250
Total Payroll Cost 47 546 47 546 47 546 76 746 76 746 76 746 56 229 56 229 56 229 56 229 56 229 56 229 710 250
Labour Cost % 11.3% 12.5% 11.3% 18.9% 18.9% 18.3% 13.8% 13.4% 13.8% 13.4% 13.8% 13.4% 14.4%
Annexure 6: Costing Sheet Sample Dinner
5 Menu Item Costing
Name: Dinner
(Primary Products)
Product Name Units
Price (per each unit) Total Price
Beef fillet 200 89.00 17.80
Chips 150 55.00 8.25
0.00
0.00
0.00
(Primary Products) Total: 26.05
(Secondary Products)
Product Name
Quantity (in
grams/lt)Price (per
1Kg or lt) Total Price
Olive oil 0.5 127.00 0.06
Black pepper 5 99.00 0.50
Vegetables 30 150.00 4.50
0.00
0.00
(Secondary Products) Total: 5.06
Total Cost: 31.11
Selling Price: 185.00
Food Margin: 16.82%
Generated Profit: 153.89
Annexure 7: Costing Sheet Sample Lunch
4 Menu Item Costing
Name: Lunch
(Primary Products)
Product Name Units
Price (per each unit) Total Price
Lamb rib strips 250 90.00 22.50
Chips 150 55.00 8.25
0.00
0.00
0.00
(Primary Products) Total: 30.75
(Secondary Products)
Product Name
Quantity (in grams/lt)
Price (per 1Kg or lt)
Total Price
Olive oil 0.5 127.00 0.06
Black pepper 5 99.00 0.50
Vegetables 12.49 150.00 1.87
0.00
0.00
(Secondary Products) Total: 2.43
Total Cost: 33.18
Selling Price: 140.00
Food Margin: 23.70%
Generated Profit: 106.82
Annexure 8: Costing Sheet Sample Salads
2 Menu Item Costing
Name: Salads
(Primary Products)
Product Name
Quantity Units
Price (per each unit) Total Price
Chicken 200 23.00 4.60
0.00
(Primary Products) Total: 4.60
(Secondary Products)
Product Name
Quantity (in grams)
Price (per 1Kg) Total Price
Alomonds 200 8.29 1.66
Feta Cheese 30 43.96 1.32
Avocadoes 150 19.33 2.90
White wine vinegar 0.00
Garlic 30 69.99 2.10 0.00
(Secondary Products) Total: 7.98
Total Cost: 12.58
Selling Price: 42.00
Food Margin: 29.94%
Generated Profit: 29.42
Annexure 9: Costing Sheet Sample Breakfast
3 Menu Item Costing
Name: Breakfast
(Primary Products)
Product Name Units
Price (per each unit) Total Price
Bacon 2 4.00 8.00
Eggs 2 1.30 2.60
Sausages 1 0.87 0.87
Toast 2 0.55 1.10
Tomato 1 0.01 0.01
0.00
(Primary Products) Total: 12.58
(Secondary Products)
Product Name
Quantity (in grams)
Price (per 1Kg) Total Price
Margarine 10 36.00 0.36
Mushroom 50 19.50 0.98
Baked beans 20 8.00 0.16
Cereal 100 51.90 5.19
(Secondary Products) Total: 6.69
Total Cost: 13.37
Selling Price: 42.00
Food Margin: 31.83%
Generated Profit: 28.63
Annexure 10: Costing Sheet Sample Starters
1 Menu Item Costing
Name: Starter
(Primary Products)
Product Name
Quantity Units
Price (per each unit) Total Price
chicken livers 100 17.48 17.48
0.00
(Primary Products) Total: 17.48
(Secondary Products)
Product Name
Quantity (in grams)
Price (per 1Kg) Total Price
0.00
0.00
0.00
0.00
0.00
(Secondary Products) Total: 0.00
Total Cost: 17.48
Selling Price: $28.00
Food Margin: 62.43%
Generated Profit: 10.52
Annexure 11: Project Plan Template
Ite
m
No
Task
Actual
Start
Date
Target Completion
date & StatusDeliverables
1. Refresh the
Strategic Plan12/1/04 4/30/05
1.1
1.2
2. Strategy Map /
Strategic Plan3/1/05
2.1
2.2
2.3
3. Measurements and
Targets
3.1
3.2
3.3
4. Initiative Mapping
and Budgeting
4.1
4.2
4.3
5. Reporting
Framework
(Database)
5.1
5.2
5.3
Annexure 12: Producer Prices Survey
Produce prices Hyperama Woolworths Pick 'n PayPick 'n Pay
conventional
Apples / Kg 9,99 14,48 - 5,99
Avocado / 2's 11,99 17,95 11,99 11,99
Baby Marrow / 400 grams 8,99 11,42 10,99 7,99
Bananas / Kg - 14,27 11,00 11,00
Brinjal / 2's 7,99 13,98 7,99 8,99
Broccoli / each 7,59 7,95 6,99 -
Cocktail Tomatoes / 350 grams 7,99 15,66 12,59 12,59
Green Beans / 400 grams - 11,37 8,49 8,99
Green Beans / Kg 22,00 35,70 19,98 17,49
Green Pepper / 2's 9,99 8,95 8,99 7,99
Herb Salad Pack 8,59 8,95 7,99 7,99
Herbs 3,99 4,99 4,29 4,99
Leeks - 6.99 - -
Lemons / 3's 6,99 8,95 4,87 4,49
Sweet Peppers / 3's (red, yellow, green
pack)15,99 - 14,99 14,99
Sweet corn / 4's - 11,99 - 9,99
Sweet Italian Peppers / 400 grams 10,99 10,95 - 13,99
Sweet Peppers / 2's 10,99 - 8,99 6,99
Sweet Potato 5,99 - 5,99 5,99
Swiss Chard / Kg 17,47 29,95 17,47 16,63
Annexure 13: Site Evaluation Template
Name of person making report:Address:Phone:Date of report:Address of site:
Information on Site, Customers, and Street Traffic
Type of site (strip center, mall, free-standing, drive-through or other):Nearest intersections:Distance of nearest intersections from site:Nearest stop sign (ft.) and name of street:Number of lanes on front and side streets (number and street name):Description and number of parking spaces (front, side, and back, as applicable):Condition of adjacent streets:Observations of traffic on streets at peak hours including time of day observed:Description of adjoining business (left and right), including type of building and products or services offered:Frontage measurements:Depth of site:Total square footage:
Customer traffic count of adjacent buildings or businesses
Left Building
6:00 - 8:00 a.m. 8:00 - 10:00 a.m. 10:00 - noon Noon - 1:00 p.m. 1:00 - 2:00 p.m. 2:00 - 4:00 p.m . 4:00 - 6:00 p.m.6:00 - 7:00 p.m. 7:00 - 8:00 p.m. 8:00 - midnight midn't - 6:00 a.m.
Right Building
6:00 - 8:00 a.m. 8:00 - 10:00 a.m. 10:00 - noon Noon - 1:00 p.m. 1:00 - 2:00 p.m. 2:00 - 4:00 p.m . 4:00 - 6:00 p.m.6:00 - 7:00 p.m. 7:00 - 8:00 p.m. 8:00 - midnight midn't - 6:00 a.m.
Major competition within one and one-half km of site (name, address, type of business):
Observations made from surveillance of adjacent businesses and discussions with
businesspeople regarding general business conditions, customer traffic, parking availability,
center advertising, promotions, reasonableness of rent, possible rent increases, possible
construction and other (disadvantages and advantages):
Visibility of site from street (North, South, East, and West in feet):
Ingress and egress observations:
General access (excellent, good, poor):
Purchase of Real Estate
Purchase price:
Terms of purchase:
Base Rental
Monthly:
Date and amount of increase:
Percentage rental (yes or no; if yes, describe):
Common area costs (yes or no; if yes, briefly describe):
Description of utility costs that must be paid and estimated amounts:
Description of other costs:
Term of lease:
Renewal term and increased rental or other increased costs associated therewith:
When lease can be cancelled (years and months from date of possession or on other date)
Price Comparisons with Competitors within One Mile
Prime competitor:
Secondary competitors:
List each of your major products or services and insert competitor's price:
Population -- Demographics (Minimum Two-Mile Radius)
Population:Year:Increase in last 12 months (%):Per-capita income:Median family income:Type of housing:Average home, condo, or apartment value:General comments
Zoning and Restrictions
Present zoning class:
Permissible uses:
Required setbacks (front, rear, right side, left side):
Number and size of parking places (front, back, left side, right side):
Fire zone:
Nearest fire hydrant:
Address and distance of closest fire station (feet or miles):
Sign Restrictions
Freestanding:
Exterior:
Interior:
Utility Information (Company Name and Phone Number)
Electric:
Natural gas:
Water:
Telephone:
Health dept.:
Zoning:
Other:
Problems discovered when contacting utilities:
Nearest Industrial Developments
Name and address:
Type of business:
Estimated of employees:
Distance:
Possible Area Business Draws (convention facilities, colleges, high schools, grade schools, parks or churches)Shopping Areas
Location:
Distance from site:
Comparable rents:
Exhibits
1. Strip map showing site in relation to competitors within a one-mile radius
2. Videotape of location from all directions
3. Demographic profiles from one- and two-mile radius
4. Traffic count sheet
5. Plot plan of site
6. Other business and development information from brokers, landlords and others
7. Names and addresses of real estate brokers used
Final Evaluation of Suitability of Site