In this sample business plan we are going to examine the
viability and profitability of a fruit juice production factory in Nigeria. What
are the opportunities for investors and new entrants into this business and
what are the likely challenges anyone investing into this venture likely face. This
as well as a breakdown on the startup costs and a sample financial projection
for the first year is explored in this article.
Introduction:
What is a Fruit Juice Factory?
A fruit juice factory is a business venture that specializes
in extracting juice from natural fruits harvested from farms, processing and
packaging them into drinkable beverages for consumer use. This venture unlike many
other beverage factories depend almost totally on naturally existing raw
materials and minimal chemical additives but it must contend with low shelf
life of its products and rising cost of doing business. Among other factors is
huge capital outlay required for setting up a production plant in Nigeria.
What Market
Opportunities Exist for Fruit Juice Factories in Nigeria?
Nigeria has a large consumer market for beverages. At least
120 million people consume not less than 1 liter of non-alcoholic beverages per
week (carbonated fizzy drinks, Choco drinks, kunu, zobo, tea, coffee and other
flavor colored drinks). That is about 6.2 billion liters of beverages of which
fruit juices account for 550 million liters and local factories produce a mere
135 million liters per annum.
Roughly 25% of fruit juice locally consumed is
produced by local factories while 75% is imported (statistics provided by the
Raw Material and Research Development Council). This figure is conservative and
is limited to only the formal sector.
The average price of fruit juice beverage per liter is 300
naira at retail value which makes this market to be worth at least 166 billion
naira in size excluding informal fruit juice producers. The number of local players
in this market is very limited due to high entry requirement. The main
competitors combined control less than 20% of the entire market which means if
anyone with the resources to mass produce affordably and distribute efficiently
such a person can achieve monopoly status within 5 years.
Some Fruit
Juice Market Opportunities at a glance
- Raw materials for fruit juice production in Nigeria is very cheap and in abundant supply
- Key market regions are within reach of raw material sources which means factories can be within close reach of both raw material sources and target customers which is good for operating costs
- Market demand is easier to estimate and forecast compared to most other finished goods production ventures in Nigeria
- There is limited product differentiation among existing players with the exception of Chivita that easily stands out with its range of products
What is the
Demand Level of Fruit Juice like in Nigeria?
The yearly demand of 550 million liters for fruit juice in
Nigeria by at least 22 million consumers is driven by several factors;
- A lot of people spend huge amount of money yearly hosting different events such as; conventions, workshops, seminars, parties, wedding receptions, anniversary get together among other social gatherings. Fruit juices feature high on the list of
- Increasing awareness about the harmful effects of fizzy drinks on health and body weight has led to a sudden increase in demand for fruit juices which are the more expensive option but for people conscious about weight loss, diabetes, obesity and other similar ailments
- Growing demand by parents for school feeding services. Many private schools serve lunch to their pupils and fruit juices feature prominently in their menu
- Ready source of refreshment by busy corporate employees especially during lunch breaks
As well as other social and economic factors not explored
here but available on request by email: paulonwueme@gmail.com
What are
the Present and Future Trends of this business?
The future of the fruit juice market in Nigeria is guaranteed
to keep rising as more individuals and groups acquire increased discretionary
income. Policy direction of the Nigerian government is in support of home grown feeding solutions, Nigerian consumers are also becoming more receptive to made in Nigeria products as imported alternatives become more expensive for them.
What are some
Challenges of Setting up a Fruit Juice Factory in Nigeria?
There are 12 major challenges with running a fruit juice
factory in Nigeria. I will only outline 5 in this blog posts as follows;
- Stiff competition. This makes adjusting prices upwards very difficult even when it is necessary.
- Low profit margin due to rising operating costs but limited price control from producers
- Brand loyalty is hard to achieve in a market where there are several substitutes of equal quality competing at similar price ranges
- Distribution challenges such as high costs and delays to other market regions are common due to poor road transport infrastructure
- Consumers have control over pricing in this market. A slight increase in prices will be met with protest buying from consumers who will purchase the cheaper alternative
How
Profitable is a Fruit Juice Factory in Nigeria?
The fruit juice factory is a profitable business venture if
it is done on a large scale involving production of at least 200,000 of liters
daily with an efficient distribution and logistics system in place. At medium
scale, it can be very tough running such a business profitably in Nigeria especially
if you are unable to determine your own distribution and logistics system. So investing
in this business is a long term project more suitable for large scale investors.
It is even more profitable if you own your raw material source i.e fruit
plantation
How much
does it Cost to Setup a Fruit Juice Factory in Nigeria?
A minimum of 822 million naira is required to establish a
100,000 liter per day processing factory with delivery vans, production line,
depots, factory building, 1.5 year running expenses, marketing budget and other
operational set up costs. This is a business that cannot be reasonably run on a
small scale or medium scale given the harsh operating environment.
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Startup
Costs in Naira
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|
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Raw materials/Inventory
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30,000,000
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Factory building and offices
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120,000,000
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Production line
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230,000,000
|
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Logistics Vans and Trucks
|
93,000,000
|
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Warehousing, storage and depot
setup
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72,000,000
|
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Other Vehicles and equipment
|
60,000,000
|
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Office supplies
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9,600,000
|
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Office furniture, interior decorations,
appliances and gadgets
|
3,800,000
|
|
ICT (SaaS, PCs, telecoms, CCTV
system, ERM, projectors etc)
|
5,600,000
|
|
Generating set
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15,000,000
|
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Contingency
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61,000,000
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Miscellaneous
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13,000,000
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Working capital
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60,000,000
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6 months salaries
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28,800,000
|
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Licensing fees, consultancy, dues
and registration
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12,000,000
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Marketing
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9,000,000
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Total
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822,800,000
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What is the
Return on Investment from a Fruit Juice Factory?
An investment of 900 million assuming the factory can achieve
yearly sales of 2,700,000,000 based on 60,000 liter daily sales for 300 days in
a year at an assumed factory price of 150 naira per liter and 5% markup should
yield 135 million naira in net profit in the first year. That means ROI is 15%
and payback period is 6 to 7 years.
Are you
interested in setting up a fruit juice factory in Nigeria and need a bankable
business plan written for you? Give me a call: 0803 206 4106 or email me on: paulonwueme@gmail.com to have one prepared for you.
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Other
Sample Business Plans in Nigeria
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