Cold Room Business In Ogba Lagos State Nigeria Marketing Essay

The Nigerian economy has gone through different phases from the military era to the present civilian administration. Nigeria has an emerging economy that has always been appealing to prospective investors. However, establishment of any business operation has always been a very difficult task to embark upon because of the series of risks associated with business in the most populous nation in West Africa. These include political instability, economic imbalances, infrastructural problems and epileptic power supply.

The cold room business like many other businesses that require constant electricity supply has continually suffered a great setback. Very few organisations have successfully operated this business in the face of constant power failure, huge costs of procuring fuel and other social problems related. This few has constantly relied on the use of alternative sources of electricity. These make the business very uncompetitive, almost monopolist and very profitable. In other words, the surviving operators have good returns on capital invested.

With an estimated population of about one hundred and forty million people as at 2007 according to the International Monetary Fund (IMF) and about only ten frozen foods importers in Nigeria, the business opportunities in the sector remain adequately untapped. Long queues of prospective buyers are constant spectacles at cold room operators’ bases and exorbitant pricing by operators are order of the day.

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In order to overcome the problem of erratic power supply which is the major hindrance to the cold room business, the company has decided to purchase two big generating sets to power the cold room operations and two refrigerated trucks to facilitate transportation of products. This will no doubt be a big relief to prospective buyers who hitherto have to cover long distances before they could buy frozen foods. It will make the business more competitive and the gap in the market will have been adequately tapped for good returns on capital employed by the potential investors in the business.

COMPANY SUMMARY: OWNERSHIP AND PROFILE

ASK Seafood Limited will be a distributor of frozen seafood products located in Ogba area of Lagos State, Nigeria. The company will be formed as a partnership/limited liability entity fully owned by Mr Ajalekoko, Mrs Sadie and Mrs Kafilat.

Mr. Ajalekoko had his primary education in Lagos. He later obtained his Bachelor of Science (BSc) degree in Economics and a master in business administration (MBA). He had acquired experience(s) in the marketing sector spanning over 10years working with Dangote Group before moving to Transcorp Group. He also obtained his second master degree in strategic and marketing communication from Greenwich University, London.

Mrs Sadie had a second class (upper division) in Urban and Regional Planning from Obafemi Awolowo University, Nigeria. She started her working career at the marketing section of Cadbury Plc where she rose to the principal management position. She later moved to Metropolitan Bank and now planning to invest her wealth of experience in a private business.

Mrs Kafilat obtained her first graduate degree in Accounting, second degree in Industrial Relation and a Master in Business Administration (MBA). She worked with Hsbc Bank for five years as an accountant. Later, she joined NatWest Bank at the managerial level. She is also now planning to go into the private sector.

THE PLANNED BUSINESS ENTERPRISE:

The planned company – ASK Seafood Limited is going to be a small-medium scale enterprise (SMSE).

The small-medium enterprise is always the bedrock for the advanced economy and since Nigeria is an emerging economy, it has to be private sector driven to take its place in the comity of nations.

Nigeria is ranked 37th in the world in terms of Gross Domestic Product at Purchasing Power Parity (GDP/PPP). (Economist.com) The country has total GDP of $291.7billion and GDP per capita of $2027 as at 2007 and is rapidly growing according to the International Monetary Fund IMF. Therefore, the company will have its head office located in Lagos State – the largest city in the Sub-Saharan Africa with population of about 8million people.

LOCATION

The cold will be situated at 54 Oluwanisola Street, Ogba-Ikeja. Lagos Nigeria where it will start its operation before future expansion.

CHAIN OF DISTRIBUTION:

The cold room will start with a maximum number of twenty major registered distributors picked across major cities of the country for onward delivery and distributions to the chain retailers in their immediate localities.

CAPITAL FORMATION:

The company is to start business with an estimated cost of N25 million (equivalent to £132,500). The promoters have agreed to contribute N5 million naira each (£26,500) and the remaining N10 million (£53,000) is expected to be raised from institutional investors with minimal interest.

The projected cashflow statement, personal recognitions of the promoters in addition to one of the promoter’s landed property will be used as security collateral to facilitate funding from the institutional investor.

STAFF STRENGTH

(a) Manager 1

(b) Accountant Officers 2

(c) Cold room Attendants 2

Customer Service Officers 6.

ESTIMATED START-UP COSTS:

Requirements

Start-up Assets

Fixed Asset Naira (N)

Building of the cold room 4000 sq feet 1,500, 000

Refrigerated Trucks (2) 4, 000,000

Generating Set (2) 2, 000,000

Land of 100 sq feet 1,500, 000

Furniture and Fittings 500, 000

Office Equipment & Computers 450,000 9,950,000

Current assets

Cost of Initial Stock (4000 cartons) 10,000,000 10,000,000

Other Expenses

Company Registration 100,000

Local Government Tax (Annual) 100,000

Stationery & Printing 50,000

Miscellaneous (Offloading and Offloading

Expenses) 150,000 400,000

Operating expenses

Salary and wages per annum

1 Manager (50,000×12) 600,000

1 Accountant (40,000 x12) 480,000

2 Sales attendants (25,000 x2 x12) 600,000

6 Customer service (15,000x6x12) 108,000

Lighting & Electricity (N10, 000 x 12) 120,000

Fuel and Energy (55,000 x 12) 660,000

Bank Charges & Interests 1,750,000 4,318,000

24,668,000

Savings at Start-up 332,000

25,000,000

Total Funding Required 25,000,000

*Depreciation of assets is put at 10% using straight line depreciation.

Start-up Funding

Contributions by Business Owners

Investor 1 5,000,000

Investor 2 5,000,000

Investor 3 5,000,000 15,000,000

Raised Funds from Banks 10,000,000

Total Funding 25,000,000

CHAPTER 2

OVERVIEW OF SEA FOOD INDUSTRY IN NIGERIA.

Fish is a major source of food around the world. It supplies protein needed for good health and development. It is collected from seas and oceans and also reared by farmers. Over 75 percent of fish produced is used for direct human consumption while remaining 25 percent is reduced to fishmeal and oil. (Free Encyclopaedia) Over 40 percent of fish for direct human consumption is fresh, 30% is frozen fish, canned fish (14%) and cured fish (12%). (FAO)

Fish is a highly perishable commodity and quality deteriorates with detrimental consequences to consumers’ health if not properly handled. Statistically, almost 30% of fish produced world-wide is traded internationally. Therefore, safety and quality assurance on fish products has become very vital. (FAO)

Nigeria has been a major importer of fishery products given its ever increasing consumption and lack of sufficient internal source for its production. Its fish market size is estimated at one million tonnes per year. (Nigeria Fish Organisation)

The Federal Fisheries Unit of the Federal Ministry of Agriculture and Natural Resources (Nigeria’s Department of Agriculture) is responsible for the regulations of seafood importation into Nigeria. The Unit issues import licences to local firms applying to import seafood products after due certifications while the Nigerian Customs Service is the government agency for excise and import duties collection.

Imported frozen seafood products like fish in branded boxed packages of 20kg, 25kg and 30Kg containing about 80 to 120 pieces depending on fish sizes are usually shipped to Lagos, Port Harcourt and Warri, which are the major seaports in Nigeria. For health reasons, consignments pass through custom and National Agency for Food and Drug Administration and Control (NAFDAC) inspections and clearances before transportation in refrigerated trucks to cold storage warehouses located within Lagos and other urban centres.

Seventy percent of frozen seafood products imported to Nigeria originate from Europe while the remaining 30% come from China, USA, Korea, Brazil and neighbouring African countries like Morocco, Gambia, Angola, Mauritania and Namibia. Suppliers in the EU countries arrange frozen seafood products from different loading ports around the world to be freighted in large ocean vessels of 3500 to 4000 metric tons in order to reduce transportation costs thereby reducing the landing costs for competitive advantage.

Due to the perishable nature of the product, Nigerian Government classifies port clearance of fish consignments landing at her seaports as “Priority”. Importers are allowed to transport their consignments to their warehouses upon partial payment of import duty and port charges while the remainder are allowed to be paid later at a later date.

Frozen seafood products are widely distributed in Nigeria through the networks of privately-owned cold room operators located in the major cities. The seafood is available frozen in city markets, and also smoked for rural village markets. Sub-wholesalers buy from major distributors, who purchase directly from the importers to break bulk further except for promotional sales. The major importers’ distributors are the nucleus of distribution channels in Nigeria’s retail sector and serve nearly every member in the distribution channel. They offer credit facilities to sub-wholesalers as well as retailers and provide cold storage facilities usually located very near the traditional markets.

In Nigeria, retailers in the traditional markets form over 80 percent of the distribution channel and product prices offered by them are about 20 to 30 percent lower than those offered in convenience stores or supermarkets because the prices are negotiated on the spot. This results in very competitive pricing and very low profit margins to them leading to impoverishment. For example, Herring is sold at a retail price of about N30 to N100 per one depending on its size in Nigerian market whereas; the same specie goes for about N430 per unit in the originating European retail market. Likewise, Mackerel sells for about N630 per unit in the UK and sells for about N100 per unit in Nigeria. .

In addition, erratic power supplies, fluctuating voltage and lack of technological infrastructures affect the business adversely in Nigeria. It is always very difficult to maintain constantly low temperatures required for cold room operation except the business runs on powerful generating sets at all times. This makes the business cost intensive.

Lack of adequate infrastructure and machinery is another crucial issue. Unlike in most advanced economies where cartons of products are palletized, loaded and offloaded using forklifts, products are manually loaded and unloaded in Nigeria. This exposes products to changing temperatures thereby adversely affecting their qualities.

Transportations of products are often times done on open and non-refrigerated trucks which expose products to unfavourable storing conditions. In this case, if adequate care is not taken in the handling of haulage and discharging time, loss could amount to 50% of cost values of products.

Pilferages at discharging points at the seaports affect the profitability of the business especially when high value fishes like mackerels and croakers are being discharged. Wharf rats vandalise vessels and steal products and safe discharging operations require the presence of heavily armed police to ward off pilferages.

Therefore there are significant barriers to entry into the business at the importer’s level due to high costs of infrastructures and logistics. However, if adequately managed, the business remains very lucrative and profitable.

CHAPTER THREE:

MARKET ANALYSIS

The Stallion Group has the largest market share of the Nigerian seafood products market. The organisation has the widest infrastructure in terms of storage, transportation and human resources in country. Through the firm’s long standing relationships with suppliers from the EU, particularly from The Netherlands, UK, Ireland and Mauritania, Stallion has established itself as the market leader commanding more than 45% market share according to industry sources. It is estimated that the group owns more than 60,000 tonnes of cold storage capacity in key Nigerian locations.

Stallion Group’s presence in the regional African markets and the Middle East gives the organisation economies of scale and provides the ability to purchase large quantities from the suppliers. Stallion has deployed best technology on supply chain management to gain competitive advantage and meet suppliers’ operating standards. Stallion is owned by the three Vaswani Brothers and has established total dominance of the food market in Nigeria over the years.

Seafood Products Ltd is the second largest player with an estimated market share of about 25%. It has about 20,000 tonnes of storage capacity. The company sources its products from The Netherlands, UK and Mauritania for the entire range of species.

The third largest importer of seafood products is POF Nigeria Ltd. The company’s market is mainly based in the city of Lagos. POF imports European and Mauritanian products and has a cold room capacity of 12,000 tonnes.

Other importers with significant influence in Nigerian market include African Fish Limited, Onward Fisheries, Fiogret Nigeria, Agro Allied, Magulf, Joma Foods, Globe Fishing, Agro mar, Fola Foods and Primlax Nigeria limited. All these share the remaining market almost evenly among themselves.

The above shows the availability of potential market in the country as the distributions channels were targeted to the commercial centres of the country. This also confirms that the distribution channel has an opportunity for more wholesalers to come in to the market to become the importers’ major distributors.

It is a clear fact that most areas in the urban regions and cities are yet to be adequately served by well organised distributorship. Availability of large number of importers in the industries indicates that ready supply source(s) is guaranteed to a reasonably high level. Therefore coming to the industries and the business is seen as a right step in the right direction.

MARKET MIX:

Target Customers

The company’s main customership is targeted at the retailers, corporate organizations like restaurant, hotels or hospitality providers in the locality where the company is situated.

The Product: our product will be imported frozen fish species packaged in cartons of 20kg, 25kg and 30kg coming into the market maintaining its high quality standards. The quality of products will be maximumly guaranteed through reliable supplies sourcing and ensuring constant storage conditions at warehouse and in transit as a means of differentiating our product from our competitors. A befitting branding system will also be put in place in order to capture corporate customers which will be the bedrock of our supply chain.

Pricing: our pricing strategy shall be carefully fixed to take care of economic value of our services to our clients. Although, as a new company the penetrating strategy remains our likely option, choosing market segmentation to penetrate into the market and to take care of our immediate environment will be our main focus. However, our prices shall be differentiated based on market segmentations and will be reflecting the economic order of the day.

Promotion: the promotional activities of our business shall make use of media houses, local newspapers, personal call cards and bill boards in the neighbourhood. Discounting on bulk purchases and other forms of incentive will be put in place in order to attract increased patronage. Also, customer information management (CIM) through formidable information technology database will be a major means of facilitating better customer services, personal experiences and up-marketing of our numerous customers.

Placing: Having understood the fact that our products are highly perishable, our organisation will be well positioned to guarantee the same trend of quality of our products from the importers/suppliers to the hands of prospective customers. To achieve this, our refrigerated trucks will be involved in bulk distributions of our products especially where it has to go long distance. This will ensure an additional value of service to our customers as “quality guaranteed” shall remain the major goal of our organisation. This will be ensured even at the point of profit maximisation.

CHAPTER FOUR

SALES FORECAST

Year 2009 Year 2010 Year 2011

(N million) (N million) (N million)

Sales 1,080 1242 1,490.4

Costs of Sales 720 828 993.6

(Assumptions)

It is assumed that a sale of 400 cartons/day is made for 30days at N7500/carton.

Cost Price/carton is N5000.

The sale volume grows by 15% after the first year and 20% in the third year.

The wages and salaries are increased in line with business growth at 15% and 20% respectively.

PERSONNEL PLAN

Year 2009 Year 2010 Year 2011

(N million) (N million) (N million)

Managing Partners (3) 6.0 6.9 8.280

Manager (1) 0.6 0.69 0.828

Accountant (1) 0.48 0.552 0.662

Sales Assistants (2) 0.6 0.69 0.828

Customer Service Assistants (6) 0.108 0.124 0.149

Total People 13 13 13

Total Payroll 7.788 8.956 10.747.

GENERAL FINANCIAL ASSUMPTIONS

Year 2009 Year 2010 Year 2011

(N million) (N million) (N million)

Loan Amount 10 10 5

Fixed Charge at 1% 0.1 0 0

Interest Rate at 15% per annum 1.5 1.13 0.37

Business Registration 0.1 0 0

Tax Rate (Local Council) 0.1 0.1 0.1

Internal Revenue Tax on Profit 20% 20% 22%

Financial Plan and Assumptions Explanations.

100 percent of company’s sales are projected as cash sales payable through cheques and deposit payslips confirming payments into the company’s bank accounts.

Distributors give 30 days for credit supplies but substantial discounts are given for cash purchases and volume purchases. Therefore, the company plans to buy stocks on cash basis so that it can extend the savings accruable from these to own customers as sales bonuses to win loyalty and price advantage.

Gross margin will be put at 50% range of cost price to maintain business growth in view of high overhead expenses involving fuelling and maintenance of generating sets and in line with competition in the market.

Since the business is just starting, steady growth in sales volume is expected to be 15% in the second year and 20% in the third year. This is expected to reflect in the remunerations of staffs and management accordingly to encourage optimum performance and desired organisational growth.

Operating expenses used for projections are strictly based on interviews, inquiries and surveys conducted directly from suppliers, other operators and experience of the operational manager engaged for the business. Fixed assets like land, structure and vehicles will be purchased outright through trough and reasonable bargaining. These have been already negotiated. Other useful information was carefully sourced to ensure geniuses and higher degree of certainty.

CASH FLOW PROJECTION FOR FIRST 3 YEARS.

The organisation will be positioned in the market as a medium-risk concern with steady cash flow. Accounts payable is made at end of corresponding month while sales are strictly on cash basis. Cash balances and surpluses will be used to offset credit lines and loan payable to reduce interests payable or ploughed back into business. It may also be invested in low-risk businesses to reduce the opportunity cost of cash held or protection against unforeseen changes in business environment.

Year 2009 Year 2010 Year 2011.

(N million) (N million) (N million)

Sales 1080 1242 1490.4

Expenditure:

Purchases 720 828 993.6

Salaries/Wages 7.788 8.956 10.747

Rates/Bills and Interests 1.8 1.23 0.47

Fuel & Energy 0.66 0.76 0.911

Other Expenses 0.32 0.37 0.44

Repayment of Loan 0 0 10.0

Tax Payment (20%) 0 16.8 17.1

Sub Total Spent 730.57 856.12 1,033.27

Net Cash Flow 349.43 385.88 457.13

Cash B/F 25.0 — 374.43 760.31 —

Cash Balance 374.43 760.31 1,217.4

Calculation of Return on investment:

Return on Investment : Average net profit x 100

Average investment 1

Average net profit: 349.43+385.88+457.13

3 =397.48

Average investment: 1080+1242+1490.4

3 = 1270.8

ROI : 397.48 X 100

1270.8 1 = 31.28%

CHAPTER 5

Conclusion

In view of the return on investment (31.28%) it shows that the business is economically viable and the liquidity ratio is high from the cashflow analysis as indicated above, if all factors are duly considered.