Cold Stone Creamery Start Up Businessplan

Start-up Business Plan Bishkek Sergey Rubtsov ID: 3193 Raul Leon ID: 4814 Nazira Rysbekova ID: 4319 Svetlana Puchina ID: 3608 Bishkek December, 2010 Description of Business: Cold Stone Creamery® will be the first creamery in Bishkek, Kyrgyzstan to offer from unique ice cream creations, to smoothies, cakes and shakes. Cold Stone Creamery® Bishkek starts with using the highest quality ingredients and ends with Cold Stone signature process for preparing custom creation on a frozen granite stone.

Cold Stone Creamery® offers super-premium ice cream and sorbet, fresh made in every store, every day, and served up with your choice of mix-ins. Our costumers can customize their icecream treat in many different ways, over 11. 5 million to be exact. Page 2 Table of Contents Executive summary Company summary Products Market analysis SWOT analysis Sales Strategy Exit Strategy Personnel Plan Financial Plan Conclusion …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. …. . …. …. …. …. …. 4-5 5-6 6-7 7-10 10 10 11 11-12 12-15 16 Page 3 1. Executive Summary Cold Stone Creamery® Bishkek will be the only place to find high quality ice-cream in a friendly, merry and comfortable environment. It would be the place for people, both young adults and adults, looking forward to have jolly leisure time enjoying the Ultimate Ice Cream Experience®. Our clients in Bishkek will be offered a wide array of options, new and unique choice of super-premium ice cream and sorbet, fresh made in every store, every day, and served up with their choice of mix-ins.

Cold Stone Creamery® Bishkek will have a strategic location in the “???” Shopping Center. In this location, Cold Stone Creamery® Bishkek will be accessible to our target market and in a city area that is well known to attract upper and middle class customers of Bishkek. Cold Stone Creamery® Bishkek will be an attractive business due to its expertise in innovation. Quite simply, making the best ice cream for the world to enjoy is the company passion. Delivering happiness to our customers in Bishkek will be our expertise. 1. 1 Objectives ?

To offer a creative way to enjoy premium ice-cream and other creamery products; ? To create the first comfortable and pleasant place where our customers can enjoy the widest range of customized ice-cream in the whole Kyrgyzstan; ? To obtain market knowledge to make future decisions on expanding in the Central Asian Region; ? To reach sales volume of $83 538 in the first year of operations, $100 246 in the second year, and ultimately $116 953 in the third year; ? To return the initial investment by the 4th year of operation in the market. Page 4 1. Mission1 “We Will Make People Happy”. At Cold Stone Creamery® Bishkek, we will consider ourselves fortunate to be in the „people business?.

Who wouldn? t get a thrill out of serving up a Founder? s Favorite or a Cold Stone Creation™ dreamed up by the wild imagination of an excited 5-year old peering at us through the glass? The fact is that smiling will be contagious around our creamery in Bishkek. We are really in the „smiles? business. You see, our concept of “what we do for a living” goes far beyond selling ice cream. 1. 2 Keys to Success The keys to our success will be: Cold Stone Creamery® Bishkek will be a comfortable and pleasant place that offers high quality customized ice-cream; ? Our friendly personnel striving to make our costumers really happy offering the Ultimate Ice Cream Experience®; ? Offer super-premium ice cream and sorbet, fresh made in every store, every day, and served up with your choice of mix-ins. 2. Company Summary1 Cold Stone Creamery® is an American-based ice cream parlor chain. The company, based in Scottsdale, Arizona, is owned and operated by Kahala Franchising, L. L. C.

The company’s main product is premium ice cream, or ice cream made with approximately 1214% butterfat that is made on location and customized to order for customers at the time of purchase. The number of coffee shops, restaurants and ice-cream kiosks in Bishkek has increased for the past ten years, but there has never been a place that serves up high quality ice-cream and offers a wide variety of drinks, cakes and original creamery creations. In Bishkek there is no place that can offer a unique, innovating and entertaining way to enjoy high quality Page 5 ce-cream in a comfortable and pleasant place. That is why Cold Stone Creamery® Bishkek will be the first to offer what the industry experts categorize as “Super Premium” icecream. Our ice cream will be better than the rest because it will be fresh every day. At Cold Stone Creamery® Bishkek, we will be proud of our expertise in innovation and heritage.

This heritage is based on a tradition of continuously redefining plain old regular ice cream into something truly extraordinary. At Cold Stone Creamery® Bishkek, we will call every ice cream we serve a „Creation? because each one will be a work of art. Freshly made, smooth, creamy ice cream blended on a frozen granite stone with endless combinations – fruits, nuts, candy, cookies, brownies… our Bishkek costumers will name it. The legal base for the company would be company with Limited Liability. 2. 1 Organizational structure of Cold Stone Creamery® Bishkek: Operations Manager HR, Marketing, PR Manager Accountant Sellers (2) Creamery Workers (2) Janitor Organizational structure of the creamery in Bishkek would be vertical. The creamery is going to be a subject to small business with 7 employees. Page 6 3.

Products1 All ice creamery creations will be offered in three major sizes: ? ? ? “Like It” 5 oz /113 g, “Love It” 8 oz / 170 g, “Gotta Have It” 10 oz / 226 g. There is also a kids’ size 2. 5 oz / 55 g. Also offered are shakes and smoothies. All ice cream will be made in house using natural ingredients and waffle cones and bowls are baked daily. The company also will have a line of ice cream cakes, pies, and ice cream cupcakes and ice cream cookie sandwiches, most of which will be made on-site. The creamery will also offer the option of customizing these frozen desserts much like their ice cream creations.

Cold Stone Creamery® Bishkek will offer super-premium ice cream and sorbet, fresh made in every store, every day, and served up with your choice of mix-ins. Our costumers can customize their ice cream treat in over 11. 5 million ways. Cold Stone Creamery® has reinvented what people expect from their ice cream experience. By using only the finest ingredients to make our ice cream and mixing in our costumers choice of fruit, nuts, chocolate or fresh cake (to name just a few) on a frozen granite stone, Cold Stone Creamery® delivers the best tasting ice cream, completely customized for our costumers every time.

Cold Stone Creamery® is passionate about innovation and search the globe for premium ingredients and innovative new flavors. At Cold Stone, our clients can customize their own ice cream creations or choose from the list of Cold Stone Signature Creations, tried and true favorites developed by a team of award-winning Tastemasters™. Page 7 Cold Stone Creamery® in Bishkek will offer an incredible number of flavors and toppings, which are new to the majority of local customers, which comprises part of competitive advantage:

Sinless Sans Fat™ Sweet Cream French Vanilla Cheesecake Strawberry Candy Cane All Creamery Flavors1 Mint Coffee Chocolate Cake Batter Dark Chocolate Peppermint Eggnog Amaretto Banana Black Cherry Bubble Gum Butter Pecan Caramel Latte Cinnamon Cinnamon Bun Coconut Cookie Batter Local Favorites1 Mocha Oatmeal Cookie Batter Orange Dreamscicle Peach Peanut Butter Pecan Praline Pistachio French Toast Irish Cream Mango Raspberry Vanilla Bean White Chocolate Macadamia Nut Lemon Sorbet Raspberry Sorbet Watermelon Sorbet Cotton Candy Dark Chocolate Green Apple Gummy Bear . Market Analysis Summary3 Cold Stone Creamery® is faced with the exciting challenge of being the first-mover in the Bishkek which has amazing ice- creams and other dairy products. The consistent popularity of ice-cream, cakes, coffee and specialty drinks is a winning concept and we believe it will produce overwhelming results. The market we will engage in is the downtown area. Specifically near the mall “???”. The target market we will serve consists of the university student population and those primarily within walking distance of the shop in downtown.

Our local market has a mixed educational background – about half have a college degree or Page 8 higher. While most people (72%) drive to work, the high concentration of downtown business and parking garages ensures steady foot traffic past our location. These numbers tell us that we are situated in a relatively educated, wealthy area of the town. Within this population, we are focusing on two separate groups with different needs: 18-24 year olds, including students at the local universities, and “first families” – young adults (25-35) with children under 13. 8-24 year olds have disposable incomes which they tend to spend on immediate pleasure items, especially when those products have a prestige or individuality value. The population around the downtown area is highly populated by the 18-24 age demographic. We will also target “first families” (see above).

Young families who would like to spend their free time in cozy and pleasant place. In both of these groups, we will aggressively target young women, who tend to brand loyalty in food choices, and often turn to use sweets in times of stress or celebration. 4. Market Segmentation The potential customer groups for Cold Stone Creamery® are 15-64 Year Olds. Our market research indicates about 38,000 potential customers in the downtown area who are within this age range. The following is a breakdown of target customers: Market AGE 0-14 15-64 65 and over TOTAL % of Population 32. 3% 61. 6% 6. 1% 100% Page 9 4. 2 Target Market Segment Strategy2 The target customers will be between 15-64 years old. The income level is about 49,200 soms annually. A limited number will come from other areas of Kyrgyzstan out of curiosity or to see the Cold Stone Creamery of Bishkek.

A majority of the customers will be people, who prefer an amazing atmosphere and high quality products. We have specifically targeted segments of people with an appreciation for delicious desserts and a need for comfort and relaxation. Cold Stone Creamery® is a haven for the busy and successful who want to give themselves a small treat. It doesn’t take a lot of time, yet is so rewarding. These people will value the high quality product presented without pretension. Our customers will also appreciate the fun and fast service. 4. Marketing analysis of the population2 The population of 15-64 years of age is our target market since this segment of population has the ability to earn money and spend it on their own. For Kyrgyzstan this age of people is about 62%. Population statistics 6% 32% 0-14 years 15-64 years 65 – over 62% Page 10 4. 4 Service Business Analysis Although Cold Stone Creamery® is creating a new position in the food service industry; we do share similarities, and therefore compete with several kinds of quick-service dessert businesses: 1. Restaurants: any restaurant offering dessert; 2.

Ice Cream Shops: private kiosks; 3. Coffee Shops: any place coffee and pastries are available for carry-out or dine-in consumption; 4. Supermarkets: in-store bakeries as well as frozen specialty desserts are subject to competition; 5. Bakeries: free-standing traditional bakeries. 5. SWOT Analysis Strengths: ? ? ? ? ? ? ? Know-how technology in creating customized ice-cream Innovative approach to serving ice-cream Unique flavors Strong management Trained personnel in customer service Established and well-known brand name Point of presence location Weaknesses ? ? ? ? ?

High price High equipment costs alongside with considerable capital investment Low purchasing parity of population Dependency on suppliers of toppings and flavors Low salaries, which could result in higher employee turnover Page 11 Opportunities: ? ? Potential for further expansion in Central Asian region Accumulating market knowledge to make future decisions on expanding in the Central Asian Region Threats: ? ? ? ? ? ? Expatriate failure Political instability Weak legal protection Corruption Availability of cheaper substitutes Fluctuations in taxation and boarder control regulations . Pricing Strategy Serving sizes Like It Love It Gotta Have it Grams per portion 113 170 226 Price per serving $1,50 $2,10 $2,40 Price per gram 0,013274336 0,012352941 0,010619469 The Cold Stone Creamery® Bishkek will offer its products for the price that is adjusted to local market purchasing ability. The ice-cream will be offered at affordable prices for a luxury ice cream. The prime cost of the hand-crafted ice-cream is usually 10%-12% of the sale price according to our findings.

But since the Cold Stone ice-cream is of premium quality with expensive ingredients we assumed a prime cost of 15% computing our cost of goods sold in yearly income projection. The price customer pays per gram decreases with the increase in portion size. This would encourage customers to buy bigger portions of ice-cream. Page 12 7. Exit strategy ? The first attempt to open a Cold Stone Creamery® Bishkek is to be considered a pilot project to indentify the possible opportunities of growth in the Central Asian region; ?

If failure occurs the company will have to write down as losses of business activity all accounts concerned with capital expenditure, capital investment and all monthly operation expenses; ? Equipment delivered from China is the most expensive asset, and it would be hardly possible to sell it anywhere, but it can be transferred to another possible newly opened location in Kazakhstan and Russia; ? Due to failure of business total losses associated with closing the business would be approximately 140 000$. 8. Personnel Plan The personnel plans for the first three years are included in the following tables.

The first table includes the salaries paid in the first year of operation. It is important to note, that the expatriate? s salary is extremely high compared to the salaries of local staff members. The expatriate is estimated to stay in Kyrgyzstan for a period of one year in order to train a new operations manager and to educate the current staff about all the processes and icecream preparation technology. The accountant is going to be a part-time staff member with main responsibility of making accounting reports for tax payment purposes and further reporting to headquarters of Cold Stone Creamery® in United States.

Personnel Plan (1st year) Sellers Creamery worker Janitor Operations Manager (Expatriate) Accountant PR, Marketing, HR Manager 2 3 1 1 1 1 Total Monthly Salary Costs Total salaries paid $260 $390 $100 $1 000 $200 $200 $2 150 Page 13 Total Yearly Salary Costs $25 800 For the second and third year local trained Operations Manager will take over managing the creamery, which will significantly reduce costs associated with expatriate stay in Kyrgyzstan. Personnel Plan (2nd, 3rd year) Sellers Creamery worker Janitor Operations Manager (Local) Accountant PR, Marketing, HR Manager 2 3 1 1 1 1 Total Monthly Salary Costs Total Yearly Salary Costs

Total salaries paid $260 $390 $100 $400 $200 $200 $1 550 $18 600 The salaries listed in tables above are generally accepted averages for this type of positions in other service providing businesses. 9. Financial Plan The purpose of any business is the generation of added capital surplus, or so called positive financial output. Therefore the most crucial decision of starting a business or not should be based on financial projections of proposed business, that are needed to deepen the analysis for making the decision. Page 14 9. Start-up Investment Requirements Low Initial Franchise Fee Travel & Living Expenses While Training(expatriate) Real Estate Lease Architectural Fees Leasehold Improvements Exterior & Interior Signage Equipment Initial Inventory Employee Uniforms Grand Opening Permits & Licenses Telephone & Utility Deposits & Hookups Miscellaneous Additional Funds/Working Capital-3 months Total Total Initial Investment Average $0 High $0 Average per account $0 $12 000 $21 000 $5 000 $25 000 $2 000 $101 300 $1 500 $75 $450 $350 $275 $1 550 $9 000 $179 500 Com mon size 0% 6. % 11. 7% 2. 8% 13. 9% 1. 1% 56. 4% 0. 8% >0. 0% 0. 3% 0. 2% 0. 2% 0. 9% 5. 0% 100% $12 000 $12 000 $18 000 $24 000 $4 000 $6 000 $20 000 $30 000 $1 500 $2 500 $91 300 $111 300 $1 000 $2 000 $50 $100 $100 $800 $300 $400 $250 $300 $1 500 $1 600 $9 000 $9 000 $159 000 $200 000 $179 500 The prices indicated in the table above are weighted average based on various sources. The price of equipment is the original price stated in Cold Stone Creamery® franchise agreement.

Most likely equipment will be delivered from China, since the company has a well established franchise chain there. The expenses that would cover expatriate costs (except for salary) during his stay in Kyrgyzstan are also included in the initial investment. As we can see from common size analysis of initial investment the majority of it is comprised of costs associated with purchase and transportation of equipment and accounted to 56. 4% of initial investment. improvements and one-year real estate contract. Other considerable costs are leasehold Page 15 9. Capacity Planning and Sales Projections In order to project sales and determine the financial outcomes with different capacity utilization several assumptions about resources of the company were required: Seats: 2-seat tables: 4-seat tables: Total seats available: 6 4 28 Time resources: Time per customer group(hours): Operating time: 1 9 Total number of seats in the creamery will be 28. We assume that the time of fulfilling the customer order and his stay in the creamery will be average of one hour. The creamery is going to operate for 9 hours a day, with 26 operating days a month.

Considering the assumptions above we can summarize the financial results for the Cold Stone Creamery in Bishkek in the following table: 100% Capacity Utilization Customers served per hour: Customers served per day: To-go orders income per day: Average income per customer: Total average income per day: Total average income per month: Total average income per year: 50% Capacity Utilization Customers served per hour: Customers served per day: To-go orders income per day: Average income per customer: Total average income per day: Total average income per month: Total average income per year: 14 126 $25 $1,50 $214 $5 569 $66 830 28 252 $50 $1,50 $428 $11 138 $133 661 75% Capacity Utilization Customers served per hour: Customers served per day: To-go orders income per day: Average income per customer:

Total average income per day: Total average income per month: Total average income per year: 25% Capacity Utilization Customers served per hour: Customers served per day: To-go orders income per day: Average income per customer: Total average income per day: Total average income per month: Total average income per year: 7 63 $13 $1,50 $107 $2 785 $33 415 Page 16 21 189 $38 $1,50 $321 $8 354 $100 246 1st year projection (62,5% capacity) Total weighted income a year: 3rd year projection (86% capacity) Total weighted income a year: $83 538 2nd year projection (75% capacity) Total weighted income a year: $100 246 $116 953 The capacity utilization forecasts for each year were calculated by the following formulas: Total expected capacity 1st year: C=(100% CU+75% CU+50% CU+25% CU)/4=62,5% Total expected capacity 2nd year: C=(100% CU+75% CU+50% CU)/3=75% Total expected capacity 3rd year: C=(100% CU+75% CU)/2=86% 9. 3 Income Statement 1st year $83,538 $12,531 $71,007 2nd year $100,246 $15,037 $85,209 3rd year $116,953 $17,543 $99,410

Sales Cost of Goods Sold Gross Margin Less Expenses: Marketing Expenses Fliers Coupons Additional Marketing Total Marketing Expenses Operating Expenses Start Up Costs(inventory) Salaries Permit Fees Utilities Rent Office Supplies Cleaning Supplies Uniforms Total Operating Expenses Expenses Subtotal 15% Unexpected Cost Total Costs Profit Before Taxes $100 $50 $400 $550 $1,500 $25,800 $350 $565 $21,000 $130 $130 $75 $49,550 $50,100 $7,515 $70,146 $13,392 $100 $50 $700 $850 $0 $18,600 $0 $565 $21,000 $130 $130 $25 $40,450 $41,300 $6,195 $62,532 $37,714 $100 $50 $700 $850 $0 $18,600 $0 $565 $21,000 $130 $130 $25 $40,450 $41,300 $6,195 $65,038 $51,915 Page 17 Depending on the actual sales appropriate financial management actions will be taken, especially concerning marketing expenses.

Lower expatriate costs and higher sales are the cause of considerable higher profit in 2nd year compared to 1st year. With current projections the initial investment could be returned in 4 years of operating in the market. 10. Conclusion Cold Stone Creamery® Bishkek will be the first company suggesting its custom superpremium fresh made ice cream with a wide range of mix-ins and flavors. Considering the market analysis and size of targeted customer base we can assume high potential for growth of the company in the market of Bishkek. The financial success of the project was based on a set of assumptions, that could require further investigation for making ultimate decision of entering the Kyrgyz market.

Nevertheless the projected success we have to emphasize the influence the risks the company would face during the market entry and implementation of their corporate strategy. It is important to note that success of the project is highly dependent on the growth of sales volume, which was one of the main assumptions made during the calculations.

Page 18 References ? Most of the materials about the company are taken from its official website ? Statistical data on census and population are taken from National Statistic Committee of Kyrgyzstan ? Some information concerning the ice-cream industry are taken from Milk Industry Overview Report in Kyrgyzstan http://www. agroasia. com/downloads/milk_industry. pdf Page 19

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