U-Pick Orchard
Business Plan
2007
Prepared by:
Jason Schultz
Tyler Whale
Noriko Kawaguchi
MBA 821 Strategic Agri-Business Planning
College of Commerce
University of Saskatchewan
U-Pick Orchard – Business Plan
Executive Summary
U-Pick Orchard (UPO) is a U-Pick fruit orchard. The orchard will focus on
producing naturally grown apples in a set. The 50 acre property has approximately 8 acres
available to grow 2850 trees (2007) and growing to 5350 trees by (2012), for the U-Pick
operation as well as for the production of cider. The apples with be grown organic using no
chemical fertilizers, herbicides or pesticides. The distribution network for the apples will
provide availability to customers via U-pick, farm-gate sales, farmer’s markets, health food
store and local restaurants. Each distribution artery will competitively price the apples in
order to maximize profits. Along with the whole apple sales, U-Pick will also be selling their
home-made cider. The cider will be sold along with the fresh apple sales as a complimentary
product. A total equity investment of $190,000 is required to assure the business stays in a
cash positive position throughout its existence. At this time, approximately $149,696 of
equity has already been given to the business in the form of capital assets. UPO also has the
opportunity to borrow an estimated $70,000 in long term debt if necessary. The orchard will
focus their marketing segment to the Saskatchewan area and surroundings, as well as to any
tourists that are interested in UPO’s experiencing what UPO has to offer in terms of a fun,
different and peaceful outing within their orchard. Some Saskatoon communities will be
specifically targeted for advertisements based on their fit with the target market population.
This will be judged primarily on average income, as well as tacit knowledge of prevalent
habits in certain local communities. Other marketing strategies will involve billboards,
television, brochures and a UPO website to further attract business to the orchard. The
orchards total indirect and direct labour cost approximately $27,000 for the first operating
year of 2007. These costs are what hinder positive cash flows for the first few years, along
with the lower production yields as new trees are growing to production age. By 2010,
consistent positive net revenues will be attained if the plan is able to be followed.
According to UPO’s financial model, an IRR of 19.2% will be realized over a 10 year period,
however, with a require rate of return set at 20%, this creates a misleading NPV of -$10, 177.
The table below summarizes some of the financial results over the 10 year projection period.
Summary of Financial Results
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U-Pick Orchard – Business Plan
2007
Total Sales Revenue
Cost of Goods Sold
Gross Profit
Marketing Expenses
Administration Salaries
Net Income Before Tax
Income Tax
Net Income
Net Present Value (NPV)
Internal Rate of Return (IRR)
2009
2011
2013
2016
19,088
72,345
129,156
180,832
273,927
52,250
63,719
91,493
116,104
154,337
(33,161)
8,626
37,663
64,728
119,590
8,465
8,183
8,513
8,857
9,399
5,138
7,566
9,413
10,618
12,582
(46,764)
(7,123)
19,737
0
0
0
(46,764)
(7,123)
19,737
45,252
97,609
2,448
9,761
42,805
87,848
-10,177
19.2%
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U-Pick Orchard – Business Plan
Table of Contents
Table of Contents ................................................................................................................................ iv
List of Figures ....................................................................................................................................... v
List of Tables........................................................................................................................................ vi
1.0 Introduction .................................................................................................................................... 1
1.1 Industry Overview ..................................................................................................................... 1
1.2 Mission Statement ...................................................................................................................... 1
3.0 Operations Plan ............................................................................................................................ 2
3.1 Location..................................................................................................................................... 2
3.2 Building Layout and Site Plan .................................................................................................. 3
3.3 Facility Floor Plan .................................................................................................................... 5
3.4 Cider Production Process ........................................................................................................ 6
3.5 Work Plan ................................................................................................................................ 8
3.6 Supply Analysis ........................................................................................................................ 8
3.7 Service Providers...................................................................................................................... 9
3.8 Capacity Limits .......................................................................................................................... 9
3.9 Capital Budget ......................................................................................................................... 11
3.10 Cost of Goods Sold ................................................................................................................. 12
3.11 Environmental Limitations on Productions ........................................................................ 12
4.0 HUMAN RESOURCES PLAN ................................................................................................... 13
4.1 Organizational Structure......................................................................................................... 13
4.2 Job Descriptions .................................................................................................................... 14
4.3 Wages & Compensation ....................................................................................................... 14
4.4 Training.................................................................................................................................. 16
4.5 Personality of Qualifiers ....................................................................................................... 16
4.6 Human Resources Strategy .................................................................................................. 16
5.0 Marketing Plan ........................................................................................................................... 18
5.1 Products and Services ............................................................................................................ 18
5.2 Pricing ..................................................................................................................................... 19
5.3 Promotion ............................................................................................................................... 21
5.3.1 Advertising ........................................................................................................................... 21
5.3.2 Sales ........................................................................................................................................ 23
5.3 Segmentation, Targeting and Positioning .............................................................................. 26
5.5 Competitive Analysis ............................................................................................................. 27
5.6 Projection of Revenues and Marketing Expenses ................................................................. 30
6.0 Financial Plan ............................................................................................................................... 32
6.1 Sources of Funding................................................................................................................... 32
6.2 Summary Tables .................................................................................................................... 33
6.3
Critical Variables .............................................................................................................. 33
6.4
Risk Analysis ..................................................................................................................... 34
6.5
Break-even Analysis.......................................................................................................... 35
7.0 Conclusion ..................................................................................................................................... 38
8.0 References ..................................................................................................................................... 39
Appendix A: ........................................................................................................................................ 40
Financial Projections.......................................................................................................................... 40
Appendix B: U-Pick Orchard Logo .................................................................................................. 41
Appendix C: UPO Apple Cider Container Labels .......................................................................... 42
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U-Pick Orchard – Business Plan
List of Figures
Figure 3.1 – Arial View of U-Pick Orchard .......................................................................... 2
Figure 3.2 – Orchard layout ................................................................................................... 4
Figure 3.3 – Storage/Refrigeration Facility Floor plan ....................................................... 5
Figure 3.4 – Flow chart of cider production ......................................................................... 7
Figure 3.5 - UPO Apple Grinder & Cider Press ................................................................. 7
Figure 4.1 – UPO Organizational Chart ............................................................................. 13
Figure 5.1 - Examples of the cider containers and labels .................................................. 18
Figure 5.2 - City of Saskatoon’s % distribution of low income families by community 27
Figure 5.3 - Locations of other Saskatchewan fruit growers ............................................ 29
Figure 6.5.1: Break-even Analysis for 100% Fresh Apple Sales ..................................... 35
Figure 6.5.2: Break-even Analysis for 100% Apple Cider Sales ..................................... 36
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U-Pick Orchard – Business Plan
List of Tables
Summary of Financial Results ............................................................................................... ii
Table 3.6.1 – List of Suppliers and Costs .............................................................................. 9
Table 3.8.1 - Projected apple yields per tree of different ages ............................................ 9
Table 3.8.2 – Capacity limits for apple production (U-pick & Fresh apple sales) .......... 10
Table 3.8.3 – Apples available for producing cider and other products .......................... 10
Table 3.9.1 – Capital Budget ................................................................................................ 11
Table 3.10.1 – Outline of Costs of Goods Sold ................................................................... 12
Table 4.3.1 – Total direct labour requirements for 2007-2011 ......................................... 14
Table 4.3.2 – Summary of wages from 2007-2011.............................................................. 15
Table 5.2.1 - Outline of Fresh Apple and Cider Pricing.................................................... 21
Table 5.3.2.1 - Relative comparison of profits and costs ................................................... 25
Table 5.5.1 - Fruit producers near Saskatoon .................................................................... 29
Table 5.6.1 - Estimated quantity sold of different products at different locations ......... 30
Table 5.6.2 - Estimated Revenue from sale of products .................................................... 31
Table 5.6.3 - Projected marketing expenses for 2007-2011 ............................................... 31
Table 6.1.1 Balance Sheet Ended July 2007 ....................................................................... 32
Table 6.2.1 Summary of Financial Results ......................................................................... 33
Table 6.3.1 List of Critical Variables .................................................................................. 34
Table 6.4.1 UPO Scenario Cases .......................................................................................... 35
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U-Pick Orchard – Business Plan
1.0 Introduction
1.1 Industry Overview
The world apple market is quite extensive with some of the major producing
countries being China, USA and Turkey. Canada currently produces approximately 500,000
metric tons (mt) of fresh apples per year, of which 60,000 mt are exported elsewhere. In
2005 Canada imported 136,000 mt of fresh apples, 70% of them originating from the US, but
also from New Zealand, South Africa, Chili, Argentina and China. The Canadian apple
market represents approximately 33% of the Canadian fruit market or $166 million of the
$517 million dollar marketable value. In 2001, the prairies counted 237 fruit tree farms
covering 179 hectares compared to Canada’s 5974 farms covering 35,339 hectares.
Historically there has been a decreasing amount of production of apples within Canada for
the past several years, as well as the decline price, due to the growth of international apple
production in other areas. Some of the main producing provinces in Canada are Ontario and
British Columbia, with only a small amount of fruit farms being located in Saskatchewan.
Consumer variety preferences are also changing to Gala, Fugi and Braeburn apple types as
well, with overall apple consumption consisting of 20% of the total amount of consumed
fruit.
1.2 Mission Statement
U-Pick Orchards’ mission statement is to provide customers with high quality,
organically and locally grown fresh apples and apple cider, while providing an opportunity to
their pick apples in a scenic yet amazing environment.
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U-Pick Orchard – Business Plan
3.0 Operations Plan
3.1 Location
U-Pick Orchard is located in Saskatchewan (Figure 3.1,)1. Heading north, the orchard
is visible from the highway as you descend the valley to the North Saskatchewan River at the
U-Pick. The attractiveness of this location in full bloom during the summer months will
provide some natural marketing advantages. Located on the immediate north east section of
land with respect to the U-Pick, along with the direct access to highway #12 allows for easy
access to those traveling on this busy highway, particularly during the summer and fall
months when people frequent the lakes north of Saskatoon. Also the highway provides a
convenient transportation route to carry out various other processes to be done in Saskatoon
and area.
Figure 3.1 – Arial View of U-Pick Orchard
N
2.
3.
4.
1.
The region along the North Saskatchewan River has long been sought after by many
Saskatchewan residences as one of the more picturesque places to live. The river also has
some direct benefits for the orchard. The soils (A & B Horizon) are very fertile due to the
enrichment of nutrients in the valley’s soils. This, as well as, the constant supply of fresh
1
www.google.com/maps
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U-Pick Orchard – Business Plan
river water within these soils allows the trees to produce fresh, fully developed fruit. During
periods of drought, the river also provides ample water for irrigation. In addition, the valley
provides some protection to the fruit trees from the elements, particularly over the winter
months. This scenic environment is a huge asset for U-Pick Orchard, as it will add to the
atmosphere that can help market the U-pick operation. Customers can enjoy a unique
experience learning about and picking delicious Saskatchewan apples and perhaps having a
picnic or a stroll through the serene and picturesque environment offered by U-Pick Orchard.
3.2 Building Layout and Site Plan
There overall landscape of the land contains four main buildings (Figure 3.1).
1. The main storage/refrigeration facility. This is where most of the apple
products will be stored at various times of the year, as well as various
machines/equipment (mower, sprayer, fruit press, and quad).
2. The residence. They will be living on-site as to attend to the orchard
when needed. This also allows easy security monitoring of the
investment,
3. The Orchard. Which extends out 3 acres (520ft. by 250 ft.), but it will be
expanding in the following years as the orchard grows.
4. The Greenhouse. It is used to produce a variety of landscape enriching
plants and greenery.
The flow of work at the orchard is very efficient due to its layout and design. The
orchard has been in development since 2002 with approximately 100 Ottawa-3 root stocks
purchased from Traas Nursery Ltd. located in Langley, BC (refer to Table 3.6.1). After a
few months, the root stocks are grafted with apples tree varieties developed at the University
of Saskatchewan’s Horticulture Facility. Large 4inch by 4inch untreated posts was placed
into the ground to support the trellis system used to support the developing trees. The young
tree shoots are loosely tied to the trellis using willow shrubs, allowing for unhindered growth.
The orchard currently has 2100 apple trees planted on three acres of land, with plans to plant
an additional 750 trees in 2007 (refer to Table 3.8.2). There are additional plots of 2.5 and 6
acres available for further orchard expansion. The apple trees are spaced approximately 4
feet apart from each other within the rows with 10 feet between alleyways within the rows
(Figure 3.2). Each row of trees is covered with wood chips that will help protect the soil
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U-Pick Orchard – Business Plan
from degradation and restrict growth of intruding weeds. Just below the surface within each
of the alleys of trees is an irrigation drip line designed to effectively regulate soil moisture
content while reducing water wastage through evaporation. Between each row of trees,
orchard grass has been planted for both practical (evaporation and erosion prevention) and
aesthetic reasons.
Figure 3.2 – Orchard layout
Apple Orchard Layout
Row:
9.
7.
5.
3.
1.
2.
4.
6.
8.
10.
12.
14.
16.
18.
20.
22. 24.
26.
28.
Apple
Trees
4’-5’
Spacing
Irrigation
Lines
10’-12’
Spacing
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U-Pick Orchard – Business Plan
3.3 Facility Floor Plan
Figure 3.3 outlines the building floor plans with further description below:
Figure 3.3 – Storage/Refrigeration Facility Floor plan
12’ x 12’
Freezer
20’ x 24’
Cooler
Door
Door
Door
Legend
Lights (Outside)
Door
Lights (Inside)
Light Switch
Electric Plug
Breaker Box
Water
North
Baseboard Heater (5)
Overhead Door
The recent addition of a storage/refrigeration facility (32’x48’) will provide the
orchard with proper cooling and storing capabilities. Within this building there is 12ft. by
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U-Pick Orchard – Business Plan
12ft. freezer, where particular products like cider or pie products can be frozen to help
prolong shelf life. Attached to the freezer is a 20ft. by 24ft. cooler to provide refrigeration of
the recently harvested apples that will be sold to customers and/or made into various other
apple products. The rest of the area within the building will then be used for storage of the
many 45 gallon barrels that will be used for the cider before it is packaged into the smaller 1
and 2 liter jugs. The area will also contain much of the needed equipment for maintaining
the orchard and will also provide a space to carry out other jobs such as equipment repair,
cider production, etc. For ease of movement within and around the storage building, the 45
gallon drums will be hauled around using a 45 gallon drum trolley, while being loaded in any
half-ton vehicle through the overhead service door. The building is fully insulated and has a
concrete foundation. It is heated electrically through baseboard heaters that are located
around the inside base of the building and has a direct water supply. The freezer and cooler
are chilled by the use of two compressor units, in order to provide adequate refrigeration at
two distinctively different temperatures. These compressors will be placed on the cement
pads just outside of the building in the month of June 2007.
3.4 Cider Production Process
The processes for U-Pick Orchard are quite simple. Once the fruit is ripe, the apples
are picked and stored in the refrigeration room either to be sold as fresh apples, or eventually
made into cider. The flow chart (Figure 3.4) below, along with a more detailed step by step
description provides the outline of work required to make the cider.
Step 1: Apples are hand picked, crated and stored in refrigeration unit.
Step 2: Apples are either sold fresh or used for cider production.
Step 3: Apples for cider are washed, ground and pressed using the cider press shown
in Figure 3.5. Approximately 12 lbs of apples makes 4.55 litres of cider.
Step 4: Pulp is discarded and cider is filled into 45 gallon (205 litres) drums.
Step 5: Drums are refrigerated until pasteurization
Step 6: Cider is transported to the University of Saskatchewan Food Centre for
pasteurization
Step 7: Cider is heated to 82 degrees Celsius and bottled into 2 or 4 litre jugs once
cooled to 70 degrees Celsius
Step 8: Cider is transported back to the orchard for freezing or refrigeration
Step 9: Sold to consumer or retailer
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U-Pick Orchard – Business Plan
Figure 3.4 – Flow chart of cider production
1-2 months
Pick apple
Preserved in Fridge
Wash, Grind and press
Filled in barrels
Freeze
Consumer/Store
Transport
Packaging and labeling
Pasteurize
Transport to Food
Centre
Figure 3.5 - UPO Apple Grinder & Cider
Press
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U-Pick Orchard – Business Plan
3.5
Work Plan
Because of the seasonal nature of the fruit growing business, an annual outline of the
necessary work is provided below.
April – Pruning trees
May – Grafting trees to root stock and planting new rootstock, setting up trellis
supports and fencing, setting up irrigation system, weeding, grass cutting
June – Grass cutting, weeding, general orchard maintenance (checking wrappers on
new trees, trellis and tying new trees, replacing broken willow support sticks)
July – Grass cutting, weeding, irrigation, general maintenance
Aug – Same as July, harvest begins, U-pick operation, sales and promotion
Sept – Picking crop, storage, U-pick, sales and promotion, maintenance
Oct ~ Nov – Cider production and processing, sales and marketing
Dec ~ Apr – Marketing, inventory management, equipment repairs
3.6 Supply Analysis
There are very few items required for the operation of U-Pick Orchard that will
require stringent supply management. All materials used for irrigation, orchard development
and maintenance, or apple and cider storage are available from multiple sources in North
America. There are, however, two things that should be carefully planned. The first is the
root stock required to expand the orchard. Although 500 new trees per year is quite a small
number, it would be in the owner’s best interest to acquire some kind of assurance that he
would be able to purchase new root stock at a reasonable price. Secondly, the time required
for the owner to pasteurize his cider might become an issue in the future as the quantity
produced increases rather dramatically (estimated to be more than ten fold over a ten year
period). If several fruit growers wish to use the same equipment around the same time of
year, time using the pasteurization unit may become scarce as the unit could be in high
demand. The owner should schedule sufficient time with the Food Centre well in advance
and should try to forecast his requirements and have a contingency plan in place if a conflict
arises. Table 3.6.1 lists the main suppliers of product for U-Pick Orchard.
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U-Pick Orchard – Business Plan
Table 3.6.1 – List of Suppliers and Costs
Root stock
Poly pipe and clamps
Irrigation pipe
45-gallon drums
Plastic packs
Fruit Press
Cider Jugs 2 litre
Cider Jugs 4 litre
Labels and Bags
$1.55/tree
$0.22/ foot
$0.11/foot
$10/drum
$4/unit
$1265/unit
$1.00/jug
$1.50/jug
Traas Nursery Ltd. Langley BC
Consolidated Turf Equipment Ltd, Saskatoon, SK
Southern Drip Irrigation, Chilliwack BC
Bioriginals Food and Science Corp., Saskatoon, SK
Thunderbird Plastics Ltd., Burnaby BC
Happy Valley Ranch, Paola, Kansas (Figure 3.5)
Ampack, Edmonton, AL
Custom Labels Inc., Saskatoon, SK
3.7 Service Providers
There are very few service providers required for the operation of U-Pick Orchard.
The owner will provide all of the administrative and financial services for the operation. A
neighbour will provide any mechanical work necessary, and if he is unable, there are many
mechanics to be hired to do any jobs required (no special knowledge is required). The only
real service that cannot be easily provided is the pasteurization of the apple cider produced.
As above, it will be necessary to plan well ahead of time with the University of
Saskatchewan’s Food Centre to book sufficient time with their pasteurization unit.
3.8 Capacity Limits
Based on the number of trees, their age and the average production for trees of various
ages, the production capacity for UPO has been calculated (Table 3.8.1). Dwarf apple trees
will only start to produce apples after 4 years of growth. Projected yields are outlined in
Table 3.8.1 below:
Table 3.8.1 - Projected apple yields per tree of different ages
Age of Tree
Projected Yield
4 yrs
6.82kg/tree
5 yrs
10.91kg/tree
6 yrs
15.91/tree
7 yrs
20.45kg/tree
The average production for dwarf trees of various ages has been estimated to match
figures provided by Agriculture Canada, and supported by the experience of The owner and
other Saskatchewan apple growers. They anticipate purchasing approximately 3,800kg of
apples from a nearby grower to process along with his own. Estimates for the quantity of
apples sold through the U-pick operation have been estimated based on 5kg per customer
with an increasing customer rate as the operation becomes better known. The U-pick
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U-Pick Orchard – Business Plan
operation has been estimate to run for a 45 day period from early August to late September.
A further percentage of the total crop of apples has been estimated to sell ‘fresh’ or
‘unprocessed’. This product will be marketed at the orchard itself, at farmers markets, and in
any nearby stores. Table 3.8.3 outlines the amount of apples remaining for other products. A
small amount is used for products other than cider (pies, dried apples, etc.) with the majority
being made into cider.
Table 3.8.2 – Capacity limits for apple production (U-pick & Fresh apple sales)
Tree Age (yrs)
2007
2008
2009
2010
0
1
2
3
4
5
6
7
8
9
10
11
12
13
750
500
750
500
500
750
500
500
500
750
700
700
600
100
700
700
600
100
700
700
600
100
700
700
600
100
# Trees/Age Group
2011
2012
2013
500
500
500
500
750
700
700
600
100
500
500
500
500
500
750
700
700
600
100
0
500
500
500
500
500
750
700
700
600
100
2014
2015
2016
0
0
500
500
500
500
500
750
0
0
0
500
500
500
500
500
750
0
0
0
0
500
500
500
500
500
750
700
700
600
100
700
700
600
100
14
700
700
600
100
Total # Trees
# Harvested Trees
2,850
700
3,350
1,400
3,850
2,100
4,350
2,100
4,850
2,850
5,350
3,350
5,350
3,850
5,350
4,350
5,350
4,850
5,350
5,350
Grown Apples (kg)
Purchased Apples (kg)
5,182
3,818
12,909
3,818
24,000
3,818
33,091
3,818
44,886
3,818
54,545
3,818
63,750
3,818
75,114
3,818
85,341
3,818
95,568
3,818
Total Apples (kg)
Total Bushels (42lbs)
9,000
471
16,727
876
27,818
1457
36,909
1933
48,705
2551
58,364
3057
67,568
3539
78,932
4135
89,159
4670
99,386
5206
Total U-pick (kg)
% U-pick
Expected # Customers
Daily Customers
500
5.6%
100
2
2,000
12.0%
400
9
3,500
12.6%
700
16
5,000
13.5%
1,000
22
5,500
11.3%
1,100
24
6,000
10.3%
1,200
27
6,500
9.6%
1,300
29
7,000
8.9%
1,400
31
7,500
8.4%
1,500
33
8,000
8.0%
1,600
36
Total Sold Fresh (kg)
% Sold Fresh
1,500
16.7%
6,000
35.9%
10,500
37.7%
15,000
40.6%
16,500
33.9%
18,000
30.8%
19,500
28.9%
21,000
26.6%
22,500
25.2%
24,000
24.1%
Table 3.8.3 – Apples available for producing cider and other products
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U-Pick Orchard – Business Plan
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Apples available to process (kg)
7,000
8,727
13,818
16,909
26,705
34,364
41,568
50,932
59,159
67,386
Apples for 'other' products (kg)
500
500
500
500
500
500
500
500
500
500
Apples for cider (kg)
6,500
8,227
13,318
16,409
26,205
33,864
41,068
50,432
58,659
66,886
# Litres of Cider
5,427
6,869
11,119
13,699
21,877
28,271
34,286
42,104
48,972
55,841
# 2-litre jugs
1,357
1,717
2,780
3,425
5,469
7,068
8,572
10,526
12,243
13,960
# 4-litre jugs
678
859
1,390
1,712
2,735
3,534
4,286
5,263
6,122
6,980
3.9 Capital Budget
Table 3.9.1 – Capital Budget
Land Costs
# of acres
Cost per acre ($)
50
600
Orchard Creation
New Root Stock ($1.55/tree)
30,000
20,000
1,163
Building Costs
52,000
Equipment Costs
½-ton truck
3 small tractors
1 grass mower
1 sprayer
1 fruit press
192 apple containers
1 quad
Total Equipment Costs
Working Capital
Cash
Accounts Receivable
Inventory
Accounts Payable *
Total Net Working Capital
10,000
18,000
12,000
1,000
1,265
768
3,500
46,533
In addition to the initial
capital budget outlined in
Table 5, we propose that
the Orchard should plan to
purchase a $2,000-3,000
trailer to be used in
transporting the fresh
apples as well as the cider.
This purchase should be
made within 5 years.
To date, all capital costs
have been provided by and
personally funded by the
owners. Any forecasted
expenses will be similarly
funded.
0
0
0
0
0
Capital Budget Summary
Land and Orchard
51,163
Building
52,000
Equipment
46,533
Net Working Capital
0
Total Capital Required
149,696
* The financial model shows accounts payable of $2,974, but they are only a result of the calculations in the
financial model and do not represent actual accounts payable.
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U-Pick Orchard – Business Plan
3.10 Cost of Goods Sold
Table 3.10.1 – Outline of Costs of Goods Sold
Direct Materials (Cider)
Purchased Fruit (200 bushels @ 11.4¢/kg)
Cider Jugs - 2 litre ($1/jug)
4 litre ($1.5/jug)
Labels ($0.10/label)
45-gal Drums ($10/drum)
Transport Costs ($25/trip for 6 drums)
Pasteurization ($250/6 drums)
Miscellaneous
Bags for U-pick ($0.25/customer)
Total Cost of Direct Material
Direct Labour
Overhead
Electricity/Heat
Property Tax
Insurance
Label/Logo Creation
Maintenance
Gas
CCA
Total Cost of Labour and Overhead
Total Cost of Production
Selling and Administration Salary
Marketing Expenses
Total Cost of Selling Annual Crop
Expected Average Selling Price
Fresh Apples ($2.6/kg = average price)
Cider - 2 litres ($5/jug)
4 litres ($9/jug)
2007
2008
2009
2010
2011
435
1,357
1,017
203
265
110
1,104
200
25
$ 4,718
444
1,752
1,314
263
72
143
1,426
300
102
$ 5,814
453
2,835
2,126
425
212
231
2,308
450
179
$ 9,219
462
3,493
2,620
524
129
284
2,844
675
255
$11,286
471
5,579
4,184
837
407
454
4,541
1,013
281
$ 17,766
21,629
27,567
35,760
40,158
51,089
1,200
500
500
750
500
1,250
21,203
1,224
510
510
1,248
520
520
1,273
531
531
1,299
541
541
510
1,275
17,152
520
1,301
14,256
531
1,327
12,206
541
1,353
17,503
$47,532
$52,250
5,138
8,465
$65,852
$48,748
$54,562
6,329
8,022
$68,914
$54,125
$63,344
7,566
8,183
$79,093
$56,556
$67,842
8,850
8,346
$85,039
$ 72,868
$ 90,634
9,413
8,513
$108,560
5,200
6,783
6,105
21,216
8,758
7,882
37,871
14,460
13,014
55,183
18,172
16,355
61,915
29,601
26,641
3.11 Environmental Limitations on Productions
The principle limiting factor on apple production is the weather. The time of primary
concern is in the early summer when the trees are blooming where strong rain, winds, hail or
frost could result in a 50-100% reduction in crop yields. However, weather will affect yields
throughout the year. The local wildlife can also be a problem and preventative maintenance
steps are required to reduce the risk of orchard damage. In particular, the area has a large
deer population which are the primary wildlife concern and which necessitate high and
sturdy fencing to keep them out of the orchard.
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U-Pick Orchard – Business Plan
4.0 HUMAN RESOURCES PLAN
4.1 Organizational Structure
U-Pick Orchard is a sole proprietorship. The small size of this operation fits with
the goals to retire together and work together doing something they both enjoy, while
keeping busy with this project they’ve started. The majority of the work, at least early on,
will be completed by the principle owners. The owner has developed much expertise in
regards to the development of an orchard and the production of cider. He is an exceptionally
capable person and enjoys long hours and hard work. The owner will be the primary orchard
manager. The owner has many bookkeeping and administration skills. She will be
responsible for all financial management, accounting, etc. Both of them will participate in
marketing and promotions and any other tasks required in running their operation.
Figure 4.1 – UPO Organizational Chart
Orchard
Owner/Operator
Owner/Operator
Part-time Employee
Part-time Employee
Part-time Employee
Part-time Employee
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U-Pick Orchard – Business Plan
4.2
Job Descriptions
The organizational structure of the U-Pick Orchard is limited. It consists of two full-
time employees/owners and one primary part-time employee. Also included are three
additional part-time employees that will be allocated to the operations as needed; such as
times of harvest, cider production, and any other times where more help is required.
Particularly when the orchard expands and is producing more product, additional help will be
required. The main source for labour will be through friends/extended family/or friendly
neighbors within the general area. All employees will be trained by and report to the owner.
Since the owners are the only two full-time employees, they will be tending to the
majority of the duties. These duties are outlined in section 3.5. The U-pick portion of their
operation will demand some intensive customer service inputs, specifically, an education
component, and a supervision component. The time requirement will depend greatly on the
number of U-pick customers expected. All apples that have not been picked during the UPick season will be harvested during the mid-to-end of growing season and placed in the
multi-use horticultural boxes and placed in the cooler. The U-Pick season will span early
August to late September 2007, during which time an estimated 100 customers will be
picking approximately 5kg of apples each, representing approximately 5.6% of their apple
production. Other fresh apples are expected to be sold at road side stands, local and farmer’s
markets, etc. The remainder of apples will be used for the production of cider, and a small
quantity of other apple products for sale from the farm as well.
4.3
Wages & Compensation
Since all work is rather labour intensive, a wage rate was chosen to be slightly higher
than minimum wage. Since the owners expect that much of their labour force will be
‘volunteer’ for the first year or two, an estimate of the number of hours required to complete
the tasks for a 5-year period has been calculated and attached a wage rate of $9/hour along
with employee benefits. The majority of the wages will be allocated to the owner’s time so
in reality, only a fraction of this will actually be paid. Table 4.3.1 outlines the break down of
hours required for each process and gives an approximation of the wages to be covered for
the first 5 years. Table 4.3.2 provides the summary of wages paid from 2007-2011.
Table 4.3.1 – Total direct labour requirements for 2007-2011
2007
2008
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2009
2010
2011
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U-Pick Orchard – Business Plan
# of Harvested Trees
Grown Apples (kg)
# Litres of Cider
# 45-gal drums
Orchard
Planting
Cultivating
Weeding
Irrigation
Pruning
Spray Painting
1,400
12,909
6,869
34
2,100
24,000
11,119
54
2,100
33,091
13,699
67
2,850
44,886
21,877
107
Rate
Total (hours)
15min/tree
8hrs/100 trees
9hrs/100 trees
3hrs/100 trees
20hrs/100 trees
3hrs/100 trees
187.5
228
256.5
85.5
570
85.5
125
268
301.5
100.5
670
100.5
125
308
346.5
115.5
770
115.5
125
348
391.5
130.5
870
130.5
125
388
436.5
145.5
970
145.5
1413
1566
1781
1996
2211
Total Orchard Hours
U-Pick
Public Education
Supervision
10mins/group
10mins/group
Storage
Harvesting
Product Manufacturing (cider)
Cider production
Pasteurization (4 people)
Other products
700
5,182
5,427
27
17
17
67
67
117
117
167
167
183
183
25mins/tree
292
583
875
875
1,188
60L/hr/person
8hr/1230 litres
90
141
114
179
185
289
228
356
365
569
1hr/day (90 days)
90
90
90
90
90
Marketing
15 shows
Road Stand (15 days)
Other Sales
10hrs/day
6hrs/day
1hr/day (120 days)
150
90
120
150
90
120
150
90
120
150
90
120
150
90
120
Bookkeeping
6hrs/month
72
72
72
72
72
New Staff Training
4hrs/month (4mo)
16
16
16
16
16
3,113
3,901
90
270
72
49
90
270
72
149
90
270
72
249
90
270
72
349
90
270
72
383
2,026
3
675
2,532
3
844
3,220
3
1073
3,545
4
886
4,422
4
1,105
2,508
Total Hours/year
Season Marketing Hours
Other Marketing Hours
Secretarial Hours
Managerial Hours
Total Direct Labour Hours
# of Employees
Hours per employee
4,327
5,236
**Orchard Sources of Information came from PFRA Shelterbelt Centre, all others were estimates
based on The owner's experience.
Table 4.3.2 – Summary of wages from 2007-2011
5 year estimates of Wage & Salary Costs
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U-Pick Orchard – Business Plan
2007
Wage ($9/hr)
E.I (2.73%)
C.P.P. (4.95%)
Holiday Pay (5.80%)
Worker's Comp ($5.12/$100)
Total Wage Cost
Marketing and Administration
Wage ($9/hr)
E.I (2.73%)
C.P.P. (4.95%)
Holiday Pay (5.80%)
Worker's Comp ($5.12/$100)
M&A Wage Cost
4.4
$
2008
18,237
498
903
1,058
934
21,629
$
4332
118
214
251
222
$
5,138
$
23,244
635
1,151
1,348
1,190
27,567
5337
146
264
310
273
6,329
2009
2010
2011
30,152
823
1,493
1,749
1,544
$ 35,760
33,860
924
1,676
1,964
1,734
$ 40,158
43,077
1,176
2,132
2,498
2,206
$ 51,089
$
6380
174
316
370
327
7,566
$
7462
204
369
433
382
8,850
7936
217
393
460
406
9,413
$
Training
The technical expertise for the duties of maintaining the orchard will be provided by
Mr. and Mrs. XXXXX, from their 4 years of experience that has been acquired to date.
Significant assistance can be found from the University of Saskatchewan Horticulture group
and the University of Saskatchewan Food Center. The amount of training required for the
part-time workers is estimated to be quite minimal. These employees will be paid while
being trained on the job so they work and learn at the same time.
4.5
Personality of Qualifiers
The type of individual, who should be sought after to fill these part-time positions,
would be someone who enjoys working outdoors and independently, someone who is good
with their hands, physically fit and respectful of the gentle nature which is required to handle
plants and their fruit. Although higher education is not a necessity, someone who enjoys
working with the public and who is a skilled sales person would be an asset.
4.6
Human Resources Strategy
The U-Pick Orchard will enable a variety of methods to motivate, manage and satisfy
its employees, while always keeping an eye on safe work practices. First off, the employees
will be able to eat as many apples as they would like while working within the orchard.
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U-Pick Orchard – Business Plan
Various evening Bar-B-Q’s could be included after a long day of labour within the orchard.
The employee’s families could also be invited to attend certain events at the orchard as well.
Mr. The owner’s enthusiastic personality, work strategy and ethics will help provide
direction for the employees, while giving an overall easy-going yet hard-working and fun
culture to the group of employees. Every employee will be responsible for arriving on-time
and maintain reliability.
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U-Pick Orchard – Business Plan
5.0 Marketing Plan
5.1 Products and Services
The basic mission of the UPO is to provide local residents with high quality,
organically and locally grown fresh apples and apple cider. In addition, they aim to educate
their customers about apples and provide them with the opportunity to pick their own fruit
and enjoy their overall experience while at UPO.
UPO will sell primarily fresh apples and apple cider. The fresh apples will be available as Upick, pre-picked and sold at the orchard, at local Farmer’s Markets, and available in some
local stores such as Steep Hill Foods (Broadway Ave., Saskatoon). The Cider will be
available in all of those locations as well as at the Bulk Cheese Warehouse (Broadway Ave.,
Saskatoon). Cider will be sold in 2 and 4 litre plastic containers. Each translucent container
will have an easy to use pouring handle as well as a colour label indicating the products’
origin (U-Pick Orchard, SK), nutritional facts, as well as other important information (Figure
5.1). This label should be sure to highlight the origin as well as the fact that the product is
organically grown. Some work needs to be done on the labels to assure it attracts the
customer’s attention (a more attractive graphic or real picture for example).
Figure 5.1 - Examples of the cider containers and labels
2L Container
4L Container
Though the apples grown at UPO are not certified as organic, they are organically
grown without the use of pesticides, herbicides or fertilizers. In addition to apples, UPO
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U-Pick Orchard – Business Plan
grows sour cherries and plums. Though they are not part of this business plan; the
availability of these products as U-pick or pre-picked will add to their competitive advantage.
The owners plan to offer their U-pick customers more than just the experience of
picking apples. As part of their strategy to attract customers to their orchard, they will open
up their property to visitors who wish to stay and enjoy the serenity of the surroundings.
Their location in a sheltered valley on the North Saskatchewan River provides an ideal
environment to have a leisurely stroll along the river bank or in the woods. There will also
be picnic tables and a barbecue available to those who wish to spend the time to have a meal
after picking some apples. This will add value to the overall experience for the customer and
provide UPO with a sustainable competitive advantage, much like what is done at the
Saskatoon Berry Barn. In addition, they will provide a variety of other products for purchase
such as Saskatoon Berries, tomatoes, garlic, strawberries, apple pies, apple butter, dried
apples, and the possibility for some other items. The apple items will be made by the owner,
while the other items are produced by nearby farmers. The broader range in variety should
also help to attract more customers.
5.2 Pricing
There are many national and international competitors in the fresh apple markets, but
relatively few in the cider markets. Many varieties of fresh apples are imported from all over
the world with prices ranging anywhere from $1.50/kg to $3/kg or more. As the majority of
UPO’s apples are similar to the Royal Gala variety, which is currently selling at the
supermarkets for approximately $2.20/kg, a similar price for UPO’s U-pick apples (Table
5.2.1). At least in the initial stages, UPO will not be competing on price or demand a
premium price. However, some inherent advantages that could justify a premium price in the
future are the fact that the apples are organically grown and grown locally. Local produce
has the advantage of being fresher (often resulting in superior taste) and eliminating the need
for costly and polluting transportation. For pre-picked apples, however, sold at the farm gate
or at the Saskatoon Farmer’s Market, and will also adopt a slight premium pricing strategy
($2.80/kg) for the reasons outlined above. Apples sold at Steep Hill Foods will be sold for
the same price as the other apples they currently sell ($3.25/kg less 25% markup = $2.60/kg),
once again, relying on the aforementioned advantages to attract buyers to UPO’s product
versus another.
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U-Pick Orchard – Business Plan
The cider market has 5 main competitors as outlined below along with their
respective prices:





Santa Cruz – 4 liters = $10.95-12.95
Growers – 4 liters = $16.74
Safeway Select – 4 liters = $21.68
President’s Choice – 4 liters = $8
Homestyle Beverages – 4 liters = $5.33
The Santa Cruz product (US) is organic cider and predominates in most of the
grocery stores (organic section) as well as some health shops. Growers’ product is sold as 4bottle set, each packed in small bottles and sold in the juice section. Safeway Select product
is only seen in Safeway and was also sold in 4-bottle set in the juice section. It was the only
sparkling non-alcoholic apple cider. President’s Choice (Loblaw’s) is perhaps the most
similar to UPO’s cider, requiring refrigeration and bottled in plastic containers. Home-style
Beverages’ products are mostly sold in farmers markets and souvenir shop. It is concentrated
syrup that requires dilution to make a drinkable product.
UPO’s product is the only Saskatchewan made product sold around the city. Though
it cannot be sold as a certified organic cider, it can indicate that it has been organically grown
and thus compete with price and quality with the organic ciders. As such, Santa Cruz’s
product might be the one which UPO is directly competing with. Along with the local aspect
of their product and its limited supply; the best pricing strategy will be to establish a
penetration pricing strategy, offering their product for slightly less than the Santa Cruz cider,
but slightly more expensive than President’s Choice, which is not organic or local. As such,
the price for a 2 litre jug has been set at $5/jug and $9/jug for 4-litre. This slight discount for
a larger purchase should help assure that UPO’s entire product is sold every year. If the cider
is selling very quickly, the owner may decide to price his cider slightly higher, and if not,
slightly lower. It is important to note that if UPO is to take a permanent stall at the Farmer’s
Market in Saskatoon, they must attend at least 90% of the market days, and therefore, they
must have product to sell. Since apples are really best eaten fresh, the main product the
owner will sell during the early summer months will be apple cider. Therefore, retaining
some of their stock is of interest to the owner’s Farmer’s Market segment.
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U-Pick Orchard – Business Plan
Table 5.2.1 - Outline of Fresh Apple and Cider Pricing
Product
Fresh Apples
U-pick Apples
Farm-gate pre-picked
Farmer’s Market
Steep Hill Foods
Apple Cider
2-litre jug
4-litre jug
Price
$2.20/kg
$2.80/kg
$2.80/kg
$2.60/kg
$5/jug
$9/jug
5.3 Promotion
There are many ways that UPO will be promoting its products and U-pick operation
to the public. The budgeted options are discussed below along with other potential
mechanisms for the owner and The owner to consider for future use. The goal of the various
promotional programs is to maximize the sale of U-pick or on farm sales of fresh apples.
Any remaining product can be sold in the other venues described below. High visibility,
both with advertising and sales locations, will help attract customers to the U-pick operation.
5.3.1 Advertising
Billboards
The first way is through two billboard sized signs that will be located a short distance
on either side of orchard. The other road sign should be located along the junction. These
signs will be highly visible to the passing motorist and will inform them of dates and times of
operation, products available and other pertinent information (organic, U-pick, cider, etc.). A
strategically located billboard within the city of Saskatoon has also been budgeted for.
Newspaper and Television
All marketing using newspaper and television media sources will be sought out free
of charge. This can be achieved through special interest stories. Environmental issues are
capturing a great deal of attention in the media and the decision made by the owner to grow
organic fruit will be of interest to certain reporters. Shaw cable, CTV Saskatchewan, CBC,
Planet S and the Star Phoenix have all shown interest in doing a story about the small U-pick
orchard north of Saskatoon. In addition, there are several newspapers from smaller
communities surrounding Waldheim that publish free advertising and articles on a regular
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U-Pick Orchard – Business Plan
basis. The owner will be encouraged to use these as good sources of free advertising as often
as possible. The timing of these stories is critical for them to have the best success of
attracting people to the U-pick operation and should therefore be printed or aired just before
or during the apple picking season (late July to early September).
Brochures
There are several means of advertising by brochure. First of all, wherever UPO’s
product is for sale (stores, restaurants, etc.) and inquire into the possibility of leaving threefold, fully-coloured promotional brochures for UPO’s U-pick operation and picnic area.
Initially, 5000 brochures have been budgeted to print. This brochure will not only detail the
U-pick/picnic experience in words and pictures, but will also discuss the importance of
supporting local food sources, describe the apples varieties and growing process, provide
information for possible field-trips for schools or other groups.
We have also budgeted for membership with the Tourism Saskatoon brochure. This
full colour brochure is available in many locations within the city and highlights some of the
interesting tourist options around Saskatoon. Membership will include printing and
distribution of a mini map plan printed in 70,000 brochures, detailed mention in a visitor’s
guide of 65,000 copies, mention in a convention planner of 1,000 copies, promotion of the
Tourism Saskatoon website.
UPO is also a member of the Saskatchewan Fruit Growers Association which
provides a listing of their business in their brochure as well.
Business Cards
A budget has been set for the printing of 5000 business cards as well to be distributed
with brochures and given out to people that might be interested in UPO’s operation.
Community Newsletters
Another great facility of advertising is Newsletter, which will be printed in 10
different community newsletters. Ad sizes will vary between newsletters, but at $50 a piece,
UPO will be able to insert anywhere from a business card sized add to a half page write-up of
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U-Pick Orchard – Business Plan
their operation. Communities will be selected based on their fit with the target market
population. This will be judged primarily on average income, as well as tacit knowledge of
prevalent habits in certain other communities. For example, the Nutana, Varsity View, and
City Park communities have reputations of being particularly ‘green’ in action. Communities
like these along with some of the more affluent communities will be initially targeted for a
newsletter campaign aiming for the July-September window.
Website
A website might be a good way for people who have heard of U-Pick Orchard to view
several pictures and learn more about the opportunities, products, organic nature of
production, etc. that is being offered. Following the initial creation of the website, a
maintenance fee has been budgeted for future years.
Other
There are other options for additional paid advertising if the results from the above
are not satisfactory. For example, a local coffee house newsletter called ‘Perks’ is widely
distributed in shops around Saskatoon and for a relatively small fee ($60-1000/week) ads of
various sizes can be printed.
5.3.2 Sales
U-Pick and Farm Gate
If possible, UPO would like to sell as much of their product as possible either as part
of the U-pick operation or at the farm gate. In addition, maximizing sales of fresh apples is
ideal. This would both maximize revenues and minimize costs. A breakdown of costs per
kilogram of fresh apples or litre of cider is provided and compared with the relative profit
margins if sold at the farm, or off the farm (Table 3.8.2)
Farmer’s Market
The Saskatoon Farmer’s Market is open during the summer months on Tuesday,
Thursday and Saturday, while in the winter months the days are Thursday and Saturday. The
joining fee is $150 dollars and requires the business to be there at least 90% of the time.
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U-Pick Orchard – Business Plan
Participating in the Farmer’s Market will allow UPO to sell product on a year round basis.
The Farmer’s Market is also currently seeking apple cider sales. It is recommended that
UPO only sell their fresh apples and cider during the growing season of 2007, and any
remaining product they may choose to sell throughout the remainder of the year. However,
there will be no product to sell in the early parts of summer. The Farmer’s Market is an ideal
place to sell their organically and locally grown product to the many like-minded people that
choose to patronize this option. It would also be a good place to recruit U-pick customers!
Steep Hill Foods
This small, cooperatively owned and operated grocery store caters to those people
who are very health conscious and interested in eating organically and locally grown foods.
The Steep Hill board of directors has agreed to sell both fresh apples and cider from UPO at
the prices indicated in Table 5.2.1. They will add a 25% surcharge on which represents their
profit margin. Some concerns have been raise, however, in regards to the plastic cider
containers. Many health conscious people avoid plastic containers with acidic juices as
certain plastics are believed to leach chemicals into the liquid. Glass jar options may be
considered. At this time, the amount of shelf space (or fridge space) available for UPO’s
product is still being negotiated.
The Bulk Cheese Warehouse
Attracting a similar clientele to Steep Hill Foods, and being a good fit with the target
population for UPO, a good alliance has been confirmed with The Bulk Cheese Warehouse
to sell UPO’s cider.
Calories Restaurant
Although nothing has been solidified with the management of Calories Restaurant,
they have expressed interest in using UPO’s apples and cider in their cooking. The volume
of sales to Calories will likely be small; however, the resulting publicity for the U-pick
operation could be substantial.
A table has bee created below to compare the relative profit levels when 100% of the product
is sold either as fresh apples or as cider, as well as comparing the different locations of sale.
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U-Pick Orchard – Business Plan
The location of sale is important for two reasons; first, the selling price for fresh apples
differs depending on where it is sold, and second, the cost structure differs slightly between
locations (transportation is eliminated for example if sold from the farm gate). This table
serves two purposes; first, it shows a relative comparison of profit margins for UPO when
100% of the product is sold as one type or another, and second, it shows the changes in cost
structure (costs/kg or liter) between year 1 and 5. The significant difference here is largely
due to the increased yield of apples between year 1 and 5, but has a substantial effect on the
overall costs of production.
Table 5.3.2.1 - Relative comparison of profits and costs (if 100% of product was sold
either as fresh apples or as cider, as well as comparing different locations of sale).
Year 1
Quantity Sold
(100% product)
Location of Sale
U-pick
Farm-gate
Farm-gate
Farmer's Market
Farmer's Market
Steep Hill Foods
Steep Hill Foods
Product Sold
Fresh Apples
Fresh Apples
Cider
Fresh Apples
Cider
Fresh Apples
Cider
(kg or liters)
9,000
9,000
7,514
9,000
7,514
9,000
7,514
Expenses
22,890
26,144
33,270
29,794
36,945
29,794
36,945
Revenues
19,800
25,200
18,785
25,200
18,785
23,400
18,785
Profits
(3,090)
(944)
(14,485)
(4,594)
(18,160)
(6,394)
(18,160)
Cost/kg or L
2.54
2.90
4.43
3.31
4.92
3.31
4.92
Product Sold
Fresh Apples
Fresh Apples
Cider
Fresh Apples
Cider
Fresh Apples
Cider
Quantity Sold
(kg or liters)
48,705
48,705
40,662
48,705
40,662
48,705
40,662
Expenses
34,193
41,612
67,501
44,371
70,261
44,371
70,261
Revenues
107,150
136,373
101,655
136,373
101,655
126,632
101,655
Profits
72,957
94,761
34,154
92,001
31,394
82,261
31,394
Cost/kg or L
0.70
0.85
1.66
0.91
1.73
0.91
1.73
Year 5
Location of Sale
U-pick
Farm-gate
Farm-gate
Farmer's Market
Farmer's Market
Steep Hill Foods
Steep Hill Foods
Other
There are many options within Saskatoon and surroundings for selling product and as
a result, marketing the orchard and UPO’s products. The Broadway Roastery, for example,
currently does not offer a hot (or cold) cider drink to its customers. As a local business, this
would be a good fit to sell UPO cider to their customers. Other local restaurants who may
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U-Pick Orchard – Business Plan
require apples in their cooking can purchase their fruit from UPO as a marketing tool for
their clientele as well. Purchasing local and organically grown foods is a growing
competitive trend in the restaurant business. Places like John’s Prime Rib and The Hole in
the Wall are good examples of restaurant customers the UPO may wish to serve.
In the creation of Table 5.3.2.1, the price of cider was held constant at $2.50/litre.
This table clearly indicates that given the proposed price structure in Table 5.3.2.1, it is far
more profitable to sell fresh apples than it is to sell apple cider. In addition, it is marginally
more profitable to sell from the farm gate rather than at the Farmer’s Market or Steep Hill
Foods. This can be expected as there are many more expenses associated with the production
of cider compared with fresh apples, and the profit margins are not as high. A substantial
amount of this difference is in increased labour and transportation with the production of
apple cider.
5.3 Segmentation, Targeting and Positioning
As the average Canadian consumes approximately 17.6kg of apples and other apple
products per year (Stats Canada), the size of the Saskatchewan apple market (based on a
provincial population of 1 million) is approximately 17.6 million kg annually. Considering
that UPO is a small operation that will only produce enough fruit to sustain between 0.05%
in 2007 and 0.6% in 2016 this amount, the operation will seek a very small market share.
With any product left over from the U-pick season, UPO will primarily target the
fresh apple and apple cider market, and will focus their market segmentation on Saskatoon
and its surrounding populations. As their total production is too small to target larger chain
grocery stores to distribute the product, rather, they will be targeting the crowds that shop at
local farmer’s markets and the smaller ‘alternative’ grocery stores such as Steep Hill Farms
and The Bulk Cheese Warehouse.
Generally speaking, consumers who patronize the above mentioned venues are those
who wish to buy organic or locally produced foods. Although UPO’s product is not certified
as organic, it is grown without the use of pesticides, herbicides or fertilizers. As such, it will
cater nicely to the organic crowd. UPO will brand their product as an uncertified yet organic,
locally grown and high quality product.
UPO will be targeting mid to high income households, health conscious people,
quality conscious people and those who support local product. In addition, those who wish
to enjoy a different experience in a country environment or enjoy a picnic in a serene and
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U-Pick Orchard – Business Plan
beautiful setting will be ideal targets for U-pick customers. The figure below illustrates the
percentage of families housed in Saskatoon who are living below the minimum amount of
income to support their basic needs. It also shows the areas where these families are in
relation to Saskatoon’s communities2.
Figure 5.2 - City of Saskatoon’s % distribution of low income families by community
This will assist UPO in selecting those communities where they may wish to focus
their advertising efforts, for example, in the community newsletters mentioned above.
5.5 Competitive Analysis
Currently, there are several small fruit growers in the Saskatoon and rural areas.
There are many producers who are selling a variety of fruits at their specific orchard location
where customers are welcome on-site. Though not all are U-pick operations, some U-pick
operations exist near Saskatoon. A distinct advantage for UPO is that they are only 1 of 2
apple growers in the area and they are situated on a main highway frequented by cottagers
during the summer months. The other apple orchard is near Vanscoy and is located about the
same distance from Saskatoon as U-Pick is, though in a south-westerly direction. This
competitor (Prairie Sun Orchards) is also apart of the Saskatchewan Fruit Growers
2
City of Saskatoon Populace; Retrieved on March 11, 2007 from:
http://www.city.saskatoon.sk.ca/org/city_planning/resources/populace_newsletter/Populace_Spring_2005.pdf
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U-Pick Orchard – Business Plan
Association. Table 5.5.1 below illustrates the variety of fruit growers within the Saskatoon
area while figure 5.3 illustrates the locations of the various fruit growers in Saskatchewan
(SFGA 5,6).
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U-Pick Orchard – Business Plan
Table 5.5.1 - Fruit producers near Saskatoon
Grower’s Name
Contact Person & Location
Types of Fruit
Davies Saskatoon
Orchard
Maxwell & Doreen Davies and Terry &
Debbie Zerbin SASKATOON, SK
Saskatoons
Darryl Porter SASKATOON, SK
Saskatoons
Ben and Ann Epp SASKATOON, SK
Strawberries, Saskatoon’s
Berry Masters
Grant and Audrey Rotzien
Saskatoon’s, chokecherries
The Berry Barn
SASKATOON, SK
Saskatoon’s
Warman Berry Ranch
Moonlake Saskatoon
Berry Farm
Springside Farms Co.
Ltd.
Phil and Erna Reddekopp WARMEN,SK
Strawberries, Saskatoon’s,
raspberries, chokecherries
Moonlake Saskatoon
Berry Farm
Strawberry Ranch,
Inc.
Prairie Sun Orchards
SASKATOON, SK
James Wiens WALDHEIM, SK
Fruits & Vegetables
Strawberries, Saskatoon’s,
raspberries
Vincent and Mary Fehr HAGUE, SK
Strawberries, Saskatoon’s
Wayne and Clare Pearson VANSCOY, SK
Sour cherries, apples
Figure 5.3 - Locations of other Saskatchewan fruit growers
A key difference between the fruit producers mentioned above and UPO can offer is
in the overall experience and setting that comes along with the UPO U-pick operation. In
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U-Pick Orchard – Business Plan
addition, the variety of products for sale at UPO, and other U-pick operations in close
proximity (a U-pick Saskatoon Berry operation is nearby) may be advantageous in attracting
customers to their location. There are only two other competitors that provide similar aspects
with the U-pick orchards, the Saskatoon Berry Barn and Moon Lake Saskatoon Berry Farm.
These two locations offer similar overall experience aspects that are provided with the Upick fruit orchards, but neither of them have U-pick apples. UPO is effectively filling an
empty niche and if marketed properly, could attract a great deal of customers to their
operation.
5.6 Projection of Revenues and Marketing Expenses
Sales, revenue projections and budgeted marketing expenses for the first 5 years are
outlined below in Tables 5.6.1 & 5.6.2. All expenses are increasing by a 2.5% rate of
inflation.
Table 5.6.1 - Estimated quantity sold of different products at different locations
Product
Average Price
Quantity Sold
2009
2010
2007
2008
$2.20
$2.80
$2.80
$2.60
500
500
500
500
2000
2000
2000
2000
3500
3500
3500
3500
5000
5000
5000
5000
5500
5500
5500
5500
$5
$9
1357
678
1717
859
2780
1390
3425
1712
5469
2735
Fresh Apples
U-pick
Farm Lane
Farmer's Market
Local Grocery Store
per kg
Cider
2-litre
4-litre
per jug
Other Products
estimated sales proportional to the number of U-pick customers
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U-Pick Orchard – Business Plan
Table 5.6.2 - Estimated Revenue from sale of products
Product
2007
Total Revenue
2008
2009
2010
2011
Fresh Apples
U-pick
Farm Lane
Farmer's Market
Local Grocery Store
$1,100
$1,400
$1,400
$1,300
$4,488
$5,712
$5,712
$5,304
$7,854
$9,996
$9,996
$9,282
$11,220
$14,280
$14,280
$13,260
$12,342
$15,708
$15,708
$14,586
Cider
2-litre
4-litre
$6,783
$6,105
$8,758
$7,882
$14,177
$12,759
$17,467
$15,720
$27,893
$25,104
Other Product Sales
1,000
4,000
7,000
10,000
11,000
Total Annual Revenues
$19,088
$41,855
$71,063
$96,227
$122,341
Table 5.6.3 - Projected marketing expenses for 2007-2011
Marketing Expenses
#Per Year
Price/Fee
2007
Advertising
Newspaper
Television
Billboards
Brochures (5000)
Business Cards
Tourism Saskatoon
Website
Community Newsletters
Sales
Farmer's Markets
Tradeshows
Transportation/Deliveries
Office Supplies (phone etc.)
Total Marketing Expenses
5 to 10
2
2
5000
5000
1
Annual Marketing Expenses
2008
2009
2010
2011
10
0
0
700
0.32
0.05
165
700
50
0
0
1400
1600
250
165
700
500
0
0
1428
1632
255
168
102
510
0
0
1457
1665
260
172
104
520
0
0
1486
1698
265
175
106
531
0
0
1515
1732
271
179
108
541
5
100
150
200
25
150
1000
2500
200
153
1020
2550
204
156
1040
2601
208
159
1061
2653
212
162
1082
2706
216
8465
8022
8183
8346
8513
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U-Pick Orchard – Business Plan
6.0 Financial Plan
6.1 Sources of Funding
The only planned source of funding will be the owner’s equity committed by The
owner and The owner The owner. A total of $190,000 is required to assure the business
stays in a cash positive position throughout its existence. At this time, approximately
$149,696 of equity has already been given to the business in the form of capital assets
(buildings, land and equipment).
UPO also has the opportunity to borrow an estimated $70,000 in long term debt.
According to our business model, at 8% financing, this will improve the IRR by 2.3% to
21.5%. There will still be an equity need of $150,000 with this long-term loan, but it may be
in the best interest of the company if they require additional financing. However, the
intention of the owners is to offer free labour to their operation, thus eliminating a significant
portion of the expenses included in this business plan. For the sake of properly evaluating
UPO as a viable business venture, we have included a modest wage rate for all labour
contributing to this project.
Table 6.1.1 Balance Sheet Ended July 2007
U-Pick Orchard
Opening Balance Sheet
31-Jul-06
Assets
Current Assets:
Cash
Total Current Assets
17,717
17,717
Fixed Assets:
Land
Buildings and Equipment
Accumulated C.C.A
Total Fixed Assets
30,000
119,696
(21,203)
128,493
Total Assets
146,210
Liabilities
Current Liabilities
Accounts Payable
Long Term Liabilities
Long Term Debt
Equity
Owner's Equity
Retained Earnings
Total Owner's Equity
Total Liabilities and
Owner's Equity
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2,974
-
190,000
(46,764)
143,236
146,210
32
U-Pick Orchard – Business Plan
6.2 Summary Tables
The financial model that was generated is for a business that sells several products at
various prices. These are outlined in the marketing plan, but consist primarily of fresh apples
and apple cider. Small amounts of revenue have been included for the sale of other products
(other fruit, apple products, and local produce). The fresh apples have at least 4 different
points of sale, representing 3 different prices while the cider also has four different points of
sale with 2 different prices. This business plan also assumes in the base case assessment that
UPO will be successful in selling 100% of its product every year.
Table 6.2.1 Summary of Financial Results
2007
Total Sales Revenue
Cost of Goods Sold
Gross Profit
Marketing Expenses
Administration Salaries
Net Income Before Tax
Income Tax
Net Income
Net Present Value (NPV)
Internal Rate of Return (IRR)
6.3
2009
2011
2013
2016
19,088
72,345
129,156
180,832
273,927
52,250
63,719
91,493
116,104
154,337
(33,161)
8,626
37,663
64,728
119,590
8,465
8,183
8,513
8,857
9,399
5,138
7,566
9,413
10,618
12,582
(46,764)
(7,123)
19,737
0
0
0
(46,764)
(7,123)
19,737
45,252
97,609
2,448
9,761
42,805
87,848
-10,177
19.2%
Critical Variables
Several variables were tested to determine their relative effect on the ability of this
business to generate profits. The following table shows a list of the variables that were tested
along with their relative level of importance: 1 = critical for success, 2 = important for
success and 3 = minor importance. Note that in order to determine the effect of the price
variable, we set the % yield sold as fresh or cider as either 100% or 0% so that only one
variable (price) was changing at one time. As there are many variables that could change
simultaneously, we did not further analyze the % yields sold as fresh vs cider.
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U-Pick Orchard – Business Plan
Table 6.3.1 List of Critical Variables
Variable
Quantity of Apples Sold
% of Yield Sold Fresh
% of Yield Sold as Cider
Sale Price of Fresh Apples
Sale Price of Cider
Employee Wages
Inflation
6.4
Level of Importance
(1-3)
1
1
1
1
1
2
3
% Change Required for
IRR=0
-59%
Depends on price
Depends on price
-68 to -75%
-44 to -46%
+122%
+625%
Risk Analysis
Because UPO has a fairly diversified offering of products (different prices and
location of sale), in order to analyze the variable of price, we considered 100% of sales to
either be fresh apples versus cider and not a combination of both. The base case for
assessing price also represents the analysis of the % yield sold either as fresh or as cider.
That is, we only assessed the possibility of selling 100% fresh product versus 100% cider.
This provides an adequate comparison of the relative profit margins when selling
proportionally more of the fresh versus cider product. The table below outlines the base
case, best case and worst case variables. The base case represents what is currently reported
throughout the business plan and in the financial statements based on research and
assumptions made throughout, the best case is our best estimate of what is reasonable to
expect (except the inflation rate which is arbitrarily high to show the lack of effect it has on
the bottom line) and with the variables as reported in the table below, has an IRR = 19.2%.
For the best and worst case scenarios, only one variable is changed at any time, the others
remaining as with the base case. The different IRR’s are reported beside the best case
scenarios, but the worst case scenario was set such that the IRR = 0.
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U-Pick Orchard – Business Plan
Table 6.4.1 UPO Scenario Cases
Variable
% Yield Actually Sold
% Yield Sold Fresh
% Yield Sold as Cider
Price of Fresh
Price of Cider
Employee Wage Rate
Inflation Rate
Base Case
100%
22.4%
77.6%
$2.2-2.8/kg
$2.5/L
$9/hr
2%
100%
100%
0%
$4/kg
$5/L
$8.05
-20%
Best Case
IRR=19.2%
IRR=21.6-28.4%
IRR=13.5-14.8%
IRR=40.2%
IRR=37.4-38.4%
IRR=20.8%
IRR=29.2%
Worst Case
41%
0%
100%
$0.71/kg
$1.35/L
$20/hr
14.5%
Because it is more profitable to sell fresh apples versus the cider, the best case
scenario shows 0% for cider sales and 100% for fresh apple sales. Refer to the Excel
document provided (Critical Variables worksheet) for more detail regarding the critical
variables used and the resulting NPV and IRR values.
6.5
Break-even Analysis
A break-even analysis was performed for Net-Income, Cash Flow and IRR (IRR=0)
examining pricing changes for both fresh apples versus apple cider when 100% of the
product is sold as either fresh or as cider. The graphs presented below show the relative
pricing requirements to achieve break-even every year. Because of the small volume of
production in the first year and the higher cost structure, the first year break-even prices are
quite high, but drop rapidly for both products, to (and below) the levels where the products
will actually be priced. This is a good indication that the business will be viable in the short
run.
Figure 6.5.1: Break-even Analysis for 100% Fresh Apple Sales
8
7
6
IRR = 0
5
Net Income
Breakeven
4
3
Cash Flow
Breakeven
2
1
16
20
15
20
14
20
12
13
20
20
11
20
10
20
09
20
08
20
07
0
20
$
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U-Pick Orchard – Business Plan
IRR = 0
Net Income
Breakeven
Cash Flow
Breakeven
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
$
20
18
16
14
12
10
8
6
4
2
0
Figure 6.5.2: Break-even Analysis for 100% Apple Cider Sales
(2-Liter Jugs)
After examining the results from the base case scenario, it appears that UPO is a
decent investment with an internal rate of return (IRR) 19.2% and an external rate of return
(ERR) of 17.2%. UPO shows a positive net income in the fourth year of operation. After 10
years of operation, the net present value (NPV) is only showing a negative value because we
have the required rate of return (RRR) set at 20%. Although we could not find a Canadian
apple industry average IRR, 19.2% is quite a decent return for this kind of business. The
critical factors for UPO are to assure 100% sales of inventory each year, and the selling price
of the products. If UPO fails to sell 59% of its product, the IRR = 0%. Creative marketing
and plenty of effort should result in a successful annual sales percentage and the fact that
59% can remain unsold before there is trouble gives a lot of breathing room for UPO. In
addition, any unsold apples can be made into cider product which has a much longer shelf
life and can defer sales volume as necessary. The more likely scenario isn’t whether or not
100% of the product will be sold, but whether the product will be sold as the more profitable
fresh apples, or as cider. The selling price is also surprisingly flexible before bringing the
IRR to 0%. That is, if 100% of the sales were to come from a single product, the price could
still be reduced by almost 50% before UPO’s IRR reached 0%. These are outlined in more
detail in the excel spreadsheets provided (Critical Values worksheet). In addition, the
weather might play a critical role in the yields at UPO. There is a possibility that harsh
winters would significantly damage the orchard, or that cool summer temperatures or other
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U-Pick Orchard – Business Plan
unfavourable weather negatively affect the fruit yield. However, the most common source of
weather related problem, drought, has been mitigated by establishing a reliable irrigation
system, and is therefore not a factor to be considered.
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U-Pick Orchard – Business Plan
7.0 Conclusion
Upon completion of the U-Pick Orchard business plan, it has been concluded that this
venture is feasible. The business plan has shown that UPO could remain profitable even if
certain critical variables changed quite significantly. The key to success for the orchard is in
implementing successful marketing strategies. By portraying an overall high quality
experience at the orchard and with the product, the business’s image will help boost sales to
assure all inventory is sold. The business does have a negative cash flow in its first few
years, but as apple and cider yields grow and mature, so will its net income. An IRR of
19.2% is an excellent expected return for this business.
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U-Pick Orchard – Business Plan
8.0 References
1. Google Maps: www.google.com/maps
2. Saskatoon Populace: A Semi-Annual Publication of Demographic and City Planning
Information.
http://www.city.saskatoon.sk.ca/org/city_planning/resources/populace_newsletter/Populace_
Spring_2005.pdf
3. Agriculture and Agri-Food Canada (AAFA). 2003. 2002/2003 Canadian Fruit Situation
and Trends including apples, tender fruits, grapes (Vinifera) and berries
http://www.agr.gc.ca/misb/hort/sit/pdf/fru_02_03_e.pdf
4. Agriculture and Agri-Food Canada (AAFA). 2003. Apple Varieties in Canada.
http://www.agr.gc.ca/malus/varieties_e.html
5. Breau of Stats. 2007. Population estimate. http://www.stats.gov.sk.ca/
6. Saskatchewan Fruit Growers Association (SFGA) Find A Product.
http://www.saskfruit.com/
7. Saskatchewan Fruit Growers Association (SFGA) Members Location Map.
http://www.saskfruit.com/modules.php?name=FindAGrower
8. Statistics Canada. 2005. Population urban and rural, by province and territory.
http://www40.statcan.ca/l01/cst01/demo62i.htm
9. Statistics Canada. 2006. Food Consumption Highlights.
http://www.statcan.ca/english/ads/23F0001XCB/highlight.htm
10. USDA/FAS. 2004. World Apple Situation.
http://www.fas.usda.gov/htp/horticulture/Apples/World%20Apple%20Situation%20200304.pdf
11. Estimate based on information obtained from The owner and The owner
12. Agriculture and Agri-Food Canada (AAFA). 2002. Canadian Apple online.
http://atn-riae.agr.ca/applecanada/production-e.htm
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U-Pick Orchard – Business Plan
Appendix A:
Financial Projections
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U-Pick Orchard – Business Plan
Appendix B: U-Pick Orchard Logo
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U-Pick Orchard – Business Plan
Appendix C: UPO Apple Cider Container Labels
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