AFC Consultants International

PASTRY SHOP
TABLE OF CONTENTS
1

EXECUTIVE SUMMARY ...................................................................................... 2

PROJECT DESCRIPTION..................................................................................... 2

PRODUCT STRATEGY.......................................................................................... 3

MARKET ANALYSIS:............................................................................................ 3
4.1
LOCAL MARKET ................................................................................................... 3
4.2
MAIN COMPETITION ............................................................................................. 4
4.3
TARGET MARKET ................................................................................................. 4
4.3.1
Pastry shop and Chocolate......................................................................... 4
4.3.2
Ice cream and Merry Cream....................................................................... 5
4.4
SWOT ANALYSIS ................................................................................................ 6

MARKETING PLAN............................................................................................... 7
5.1
5.2
5.3

PRICING ............................................................................................................... 7
SALES CHANNELS................................................................................................. 7
ADVERTISING AND PROMOTION ........................................................................... 7

FINANCIAL PLAN.................................................................................................. 8
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8

INITIAL INVESTMENT ........................................................................................... 8

MAJOR ASSUMPTIONS .......................................................................................... 9
PROJECTED INCOME STATEMENT....................................................................... 11
PROJECTED BALANCE SHEET ............................................................................. 12
PROJECTED CASH FLOWS................................................................................... 13
RATIO ANALYSIS:............................................................................................... 13
BREAK- EVEN ANALYSIS:................................................................................... 14
SENSITIVITY ANALYSIS:..................................................................................... 14

RECOMMENDATIONS AND KEY SUCCESS FACTORS............................. 15

ECONOMIC IMPACT EVALUATION .............................................................. 15

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1 Executive Summary
The proposed project consists in establishing a pastry shop in Marjeyoun caza. The pastry
shop will offer French pastries as well as chocolate, ice cream and merry cream.
The pastry shop will have three major target markets. First, it will target restaurants, hotels
and other pastry shops. The second aim consists in catering for special occasions such as
weddings, births and religious events. Finally, there will be a type of coffee shop where clients
will be able to consume any product in-house.
The total investment amounts to $127,285; it includes equipment with a total value of
$89,395, other fixed assets (fixtures, furniture, office equipment and computers) amounting
to $27,000, and working capital needs of $10,890.
The main financial assumptions take into consideration the socio-economic conditions in South
Lebanon, and are, therefore, relatively conservative. There is a very important gap between
the sales expected in the summer versus those expected during the nine other months.
The projections are taken over a period of 7 years. We expect average net income to be
around $11,887.
The pastry shop provides an internal rate of return (IRR) of 20% and a payback period of 6
years and 3 months. These results clearly show that this project is feasible and that it will
provide satisfactory results to its investors.
A worst-case scenario was developed assuming that slower sales growth. This scenario gave
an IRR of 18% and a payback period of 6 years and 7 months. A best- case scenario was also
developed considering faster sales growth .In this case, the IRR is of 25% and the payback
period is of 5 years and 4 months.
According to our study, the project will provide good returns to the investors. More important,
however, is the socio-economic impact of such a project. It will create 7 decent jobs with
respectable salaries. Moreover, the fact that certain jobs are reserved for women will
contribute in women empowerment in a region where huge gaps subsist between male and
female unemployment. Furthermore, the staff that needs specific skills will be thoroughly
trained; as a result, their output will have a concrete value added.

2 Project description
The aim of this project is to develop a pastry shop in the caza of Marjeyoun. The pastry shop
will have three different lines of products.
French pastries
Regular chocolate and decorated chocolate
Ice cream and merry cream
The workshop will be divided into two main areas: On one hand, the kitchens and decoration
area in which all the production process will take place, and on the other a seating area for
customers.

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3 Product strategy
The main strategic objective of the pastry shop will be to gain a substantive market share in
Marjeyoun as well as the Mohafaza of Nabatieh, and eventually in the city of Tyre.
The main objectives for the production unit are:
To use good quality inputs
To maintain quality control by enforcing strict hygiene standards on the personnel,
Stress on the professionalism of the craft women and their value-added in the goods
produced.
Taking into consideration the seasonality associated with the consumption of certain products
in pastry shops such as chocolate and ice cream, producing a diversity of sweets will allow the
pastry shop to function all year round.
The main items that will be offered are:
French pastry (per piece, foret noire, blanche, fraisier,cake, clair)
French pastry (croissant, muffins..)
Cookies (Petits fours)
Chocolate
Decorated chocolate
Gift items
Candies
Ice cream (natural)
Merry Cream
Coffee
Fresh juice
Canned juice and sodas

4 Market Analysis:
The harsh socio-economic conditions in the region do not allow the households to spend much
on pastries and chocolate.
There are around 7 pastry shops in Marjeyoun and 3 in Hasbaya. These pastry shops are
considered small and offer low quality pastries and chocolate. The residents usually prefer to
purchase their pastries from well-known pastry shops in Saida such as El-Baba Sweets and
PainDor, or from Beirut especially on occasions.
Nevertheless, we consider that a pastry shop would still be a successful venture in Marjeyoun,
especially if the management is able to build a loyal and diverse clientele. The fact that the
residents are not satisfied with the quality of the currently offered pastries, presents our
pastry shop an advantage in gaining clients rapidly since it will be offering high quality
pastries, chocolate, ice-cream and merry-cream.

4.1

Local market

The population of South Lebanon is estimated at 30,000 residents and it varies greatly
between winter and summer because expatriates and those who work in Lebanons major
cities tend to spend summers in their villages.
However, South Lebanons population in general and Marjeyoun specifically are among the
poorest in Lebanon. Therefore the production must be able to combine good standards of
quality and taste with prices that would be affordable to locals.

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4.2

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Main competition

There are around 7 pastry shops in Marjeyoun and 3 in Hasbaya. The presence of these pastry
shops will not pose a direct threat to our pastry shop since the residents are not satisfied with
the quality of pastries, chocolate, ice-cream and merry cream they offer.
Moreover, Arabic sweets could be considered as substitutes for French pastries and be
considered as competition.
The most visited pastry shops in Marjeyoun are:
Starsweet
Bulldoor
Well-known pastry shops in Saida such as El-Baba Sweets and Pain Dor and Taj el Molouk in
Beirut might be considered also as competitors to the pastry shop. However, if the pastry
shop offers high quality products at reasonable prices, then these pastry shops will not be
direct competition especially since they are outside the region.

4.3

Target market

The objective of the pastry shop is to reach three specific markets:

First, the pastry shop will cater for events such as weddings and births, as well as
private parties taking place in South Lebanon.
Second, it will distribute to main pastries, restaurants and hotels in the region.
Third, there will be a point of sale with a terrace linked to the production unit, in order
to welcome directly customers.

4.3.1 Pastry shop and Chocolate

The pastry shop could expect to sell relatively more pastries than chocolate, since there are
very few direct substitutes to a piece of French pastry, whereas chocolate can be consumed in
many different ways. On the other hand, the product that nevertheless competes with French
pastry is the Arab sweets, which are more anchored in Southerners habits. One of the
marketing goals of the pastry shop will therefore be to direct people to its products as more
original and casual.
Here again, the clients are classified in three groups:
Other pastry shops, restaurants, hotels, supermarkets and groceries, to which the
production unit will cater and deliver pastries.
Customers that consume goods in the pastry shop
Take-away pastries
Moreover, one major advantage of French pastry over chocolate or ice cream is that its
consumption is less constrained by seasonality factors than the other two products.
Therefore, our expectation is that we could sell on average 50 pieces, as a start, throughout
the targeted region on a daily basis.

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4.3.2 Ice cream and Merry Cream

The growth in the number of residents and visitors in the summer season more than doubles
in the South region, which offers important sales opportunities for ice cream. Moreover those
who come back for the summer are usually better off than the regular inhabitants, their
relatively higher purchasing power is beneficial for the whole region in general, and for the
pastry shop in particular.

The pastry shop will produce three different types of ice cream:
Natural ice cream produced from juice fruit such as orange, carrot, lemon,
melon, prickly pear etc Moreover, the fruits would be bought from local
production, hence creating a backward linkage and enhancing local farmers
businesses.
Italian ice cream production, which is done from fruit essence, such as
strawberry, blueberries, etc
Merry cream

Merry cream
Given the fact that the population increases considerably during the three months of June,
July and August, we can safely assume that sales during each one of these months would be
around 20 kgs per day. We also assume that sales will be at an average of 7.5 kgs for around
60 days during the rest of the year.
In this case, clients are classified along three main categories:
Pastries, restaurants, hotels, supermarkets and groceries to which the production unit
will cater and deliver ice cream.
Particulars who want to buy relatively small quantities, 1 kg, for instance, for home
consumption.
Clients who will stay in the pastry shop and buy a cone or some scoops of ice cream.

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4.4

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SWOT Analysis

STRENGTHS

WEAKNESSES

The pastry shop will offer high quality

goods. A professional quality team will
supervise the production; one of the major
strengths will be the ability to build a solid
and loyal relationship with both local
customers (individuals, restaurants) and
expatriates who might ask for western
standards.
The price per quality will be very attractive;
the pastry shop will offer discounts to key
clients and for large orders.
The production unit will produce a
diversified range of products, which can
help smooth out seasonality factors.
There are a number of special occasions
and holidays that the pastry shop could
benefit from:

Inhabitants of rural areas, such as South

Lebanon are more used to Arabic sweets
than French pastries and may not
consider
these products as valid
substitutes.
Given that the majority of people have
limited income, pastries and decorated
chocolate might be considered a
luxurious item.
Although
the
range
of
products
theoretically satisfies preferences at any
time during the year, the caza is much
less populated during the nine months
outside the summer and therefore the
profitability of the business will be
squeezed during the off-season months.

Eid al Fitr
Ramadan
Eid al Adha
Al Hejira
Christmas
Easter
Valentine
First Communion
Weddings
Births and Birthday parties
Competition in the region is weak as the
pastry shop quality is considered of low
quality and not appealing to Marjeyoun
residents who usually purchase their pastry
products from Saida and Beirut. .
OPPORTUNITIES
Labor, is cheaper in Marjeyoun than in
major cities. Hence, the expected price
difference between the pastry shop
products produced in Marjeyoun and those
in main cities could open up new
opportunities to contract deals with
distributors in Beirut or other cities.
Another
opportunity
is
possible
by
establishing contracts with clients such as
hotels and restaurants.
The pastry shop will take advantage of the
fact that during the summer months the
number
of
residents
increases
considerably, especially to sell ice cream.

Marjeyoun - Feasibility Study Pastry Shop

THREATS
There is a risk that the turnover
achieved does not reach expectations
and therefore, the business would not
be able to cover its operating
expenses.
In addition, there is a risk that the
economic condition in the region does
not improve, or even gets worse; this
would definitely impede the profitability
of the business.

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5 Marketing plan
The pastry shop will capitalize on several advantages in order to build up a solid, loyal and
diversified network of clients. It will therefore focus on the following objectives:
Cleanness and high quality of inputs used, as well as high quality standards of
production.
Competitive pricing
Attractive decorations for chocolates to please different tastes
Delivery of chocolates, French pastries, and ice cream to various points of sales and
pastry shops.

5.1

Pricing

The prices the pastry shop will charge are determined by the standards of living of the
targeted regions, by the production costs, and by the competition.

Items
1 kg of chocolate
1kg of decorated chocolate
Gift items
Candies
1kg of ice cream (natural)
Merry Cream
French pastry (per piece, foret noire, blanche, fraisier,cake, clair)
French pastry (croissant, muffins..)
Petits fours (kg)
Coffee
Fresh juice
canned juice, sodas

Price ($)
8.0
15.0
10.0
4.0
5.0
0.7
1.0
0.5
7.0
1.0
1.3
0.5

The pastry shop will offer differentiated pricing according to the quantities purchased by the
customers. The price list above is applied for retail selling.

5.2

Sales channels

The production unit will establish strategic alliances with the hotels, restaurants,
supermarkets, municipalities and other key clients to be the exclusive distributor of sweets for
special occasions. This requires good quality services including timely delivery, freshness of
goods etc to be competitive in order to attract and retain a large base of clients.

5.3

Advertising and promotion

On the launching day, the pastry shop will organize an open cocktail party to invite key clients
and the local residents to visit and taste the varieties to be offered.

Moreover, brochures will be distributed to potential key clients including hotels,

restaurants, and other pastry shops.

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6 Financial Plan
This section details the calculations, assumptions and methodology used as a basis for the
projection of the expected financial performance of the pastry shop.

6.1

Initial Investment

The following table shows the projected equipment and initial investment requirements. The
total investment required includes the cost of equipment, vehicles, as well as working capital
requirements and amounts to $127,285.

Initial Investment
Cost Items
Merry cream
Merry-cream machine
Pastry
Planetary Mixer bowl capacity 12 lt.
Automatic Dough Mixer
Dough Sheeter
Baguette Moulder with Hopper
Rotary rack oven coming with rack
2 electric modular deck ovens
Prover
Pastry work top refrigerator
Beverages
Coffee Machine
Orange Juice Squeezer
Milk shake blender
Fridges
Freezer
Display fridges
Total equipment
Fixtures & installations
Furniture
Refrigerated Pick-up
Office equip, computers, software
Establishment Costs
Total fixed assets
Working capital needs
Total initial investment

Quantity Unit cost Total cost

1

3,500

3,500

1
1
1
1
1
1
1
1

2,572
6,130
7,367
5,942
22,240
8,757
8,090
3,336

2,572
6,130
7,367
5,942
22,240
8,757
8,090
3,336

1
1
1

348
514
600

348
514
600

1
1

15,000
5,000

12,000

15,000
5,000
89,395
6,000
4,000
12,000
3,000
2,000
116,395
10,890
127,285

Source: Pro-Kitchen

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6.2

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Major assumptions

Sales assumptions are conservative and are based on a clear-sighted understanding of the
socio-economic condition of the targeted region. Moreover, the proposed pricing of goods is
based on market price levels in the region.
The pastry shop will have various products to sell with the following pricing:

Items
1 kg of chocolate
1kg of decorated chocolate
Gift items
Candies
1kg of ice cream (natural)
Merry Cream
French pastry (per piece, foret noire, blanche, fraisier,cake, clair)
French pastry (croissant, muffins..)
Petits fours (kg)
Coffee
Fresh juice
canned juice, sodas

Price ($)
8.0
15.0
10.0
4.0
5.0
0.7
1.0
0.5
7.0
1.0
1.3
0.5

The sales quantities for one year are expected to be as follows:

Quantity sold per year

1 kg of chocolate
1kg of decorated chocolate
Gift items
Candies
1kg of ice cream (natural)
Merry Cream
French Pastries (all kinds)
Petits fours (kg)
Coffee
Fresh Juice, Canned Juices, Sodas

Quantity
2,500
840
720
2,520
2,250
13,200
18,750
3,600
3,600
7,200

Because there exists a seasonality associated with the goods produced, and the region
targeted is much more populated in summer than in winter, the assumptions are split in
summer and winter season sales:
2,500 kgs of chocolate with an average of 4 kgs per day for 250 days a year and 1.5
times more for the weekends.
840 kgs of decorated chocolate with an average of 7 kgs per day for 120 days a year.
720 gift items are expected to be sold annually with an average of 2 gifts per day for
360 days.
2,520 candies are expected to be sold annually with an average of 7 Kgs per day for
300 days a year.
2,250 kgs of ice-cream are expected to be sold annaually with an average of 20 kgs
per day for the 3 summer months, and an average of 7.5 kgs for a period of 60 days
after the summer season and before the summer season.
13,200 cones of Merry cream distributed as follows: 60 cones per day for 5 months,
and an average of 20 cones per day for the 7 remaining months that precede and
follow the three summer months.
Approximately 18,750 pieces of pastries will be sold annually with an average of 30
pieces per day over 8 regular months and 60 pieces per day over 4 seasonal months.
Approximately 3,600 kgs of petits fours will be sold annually with an average of 10
kgs per day over 360 days.
3,600 cups of coffee are expected to be sold: i.e.10 cups per day over a period of 360
days.
As for fresh orange juice, canned juice and sodas it is estimated that 20 glasses will
be sold daily over a period of 360 days.

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Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Increase in chocolate sales & candies

5%
5%
3%
2%
2%
It is assumed that sales will increase by 5% during the 2nd and 3rd year of exercise, by 3%
during the 4th, by 2% during the 5th and 6th years, and 1% by the 7th year.

The pastry shop is expected to have a capacity of 20 seats. The table below shows the
average check and average covers per day.
Other Assumptions
Customers

Seats
Average Occupancy Average covers / day Average Check (USD)
20
30%
6
3

The table below displays the increase in customers over the 7 projected years.
Growth in Customers
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Customers
10%
8%
5%
5%
3%
1%
The following table shows the main assumptions for the income statement. It is assumed that
general expenses will grow by 2% annually. Maintenance expenses of equipment, fixtures and
installations are estimated at 1% of sales. On the personnel side, wages are expected to
increase by 2% annually and the income tax rate is 15%.
The table also shows the cost of good sold for every item that will be sold in the pastry shop.
In addition, the pastry shop will have around 2% of sales of packaging expenses, 5% of sales
of waste, and 3.5% of sales of transport expenses. Rental expenses are expected to increase
by 5% every 3 years.

Income Statement Assumptions

COGS - Chocolate
COGS-Decorated chocolate
COGS-Gift items
COGS-Candies
COGS- Ice cream
COGS-Merry Cream
COGS-Pastries
COGS-Petits fours
COGS-Beverages
Waste
Packaging Expenses
Maintenance expenses
Transport expenses
Electricity & energy expenses
Annual increase in general expenses
Annual increase in salaries
Increase in rental expenses
Income Tax Rate

63%
51%
40%
50%
40%
14%
43%
43%
25%
5%
2%
1%
3.5%
0.5%
2.0%
2%
5%
2%

on sales
on sales
on sales
on sales
on sales
on sales
on sales
on sales
on sales
on sales
on sales
of sales
of sales
of sales

every 3 years

The following table shows the balance sheet assumptions: Accounts receivable are estimated
at 0.25 months of sales (i.e. 1 week of sales). Inventories are estimated at 1 month of cost of
materials. The accounts payable are based on 1 month of cost of materials.

Balance Sheet Assumptions

Accounts Receivable
Inventories
Accounts payable
Expenses payable

Marjeyoun - Feasibility Study Pastry Shop

0.25
1
1
5%

month of sales
month of consumables
month of COGS
of general expenses

10

1%

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The depreciation rates used in the following table follow international accounting standards:

DEPRECIATION RATES
Equipment
10%
Fixtures&Installations
10%
Furniture
7.5%
Vehicles
12%
Computers and office equipment
20%
Establishment Costs
33%
The pastry shop will have an area of 100 square meters. According to professionals in the
caza, the rental costs for such a venture will need a budget of around $4,000 per year.

Shop rental
Shop area in square meters
Annual rent

100
4,000

Staff structure:
Regarding the administrative staff, the pastry shop will hire a pastry shop manager, and a
presentable and friendly salesperson. On the production side, the pastry shop will have a chef,
an attendant, and 1 craftswoman, who will receive training in order to acquire the required
skills.
Staff selection and training is crucial; the team must be as efficient and motivated as possible
in order to ensure high quality products and services.

STAFF STRUCTURE
Number of
employees
MANAGEMENT / ADMINISTRATIVE
Pastry shop manager
Salesperson
Driver
Janitor
Total Management

1
1
1
1
4

PRODUCTION
Chef
Attendant
Craft-women
Total production

1
1
1
3

TOTAL STAFF

The total number of employees is 7; however, seasonal workers are hired in high seasons that
are estimated at around 3 months.

6.3

Projected Income Statement

The following income statement is based on expected market levels for revenues and costs.
The income statement shows reasonable income levels with average net income of $11,887
annually and an average net profit margin of 8%.

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Projected Balance Sheet

The balance sheet shows the projected assets and liabilities of the company.

Pastry Shop
Projected Balance Sheet

Cash & Equivalents

Accounts Receivable
Inventory
Current Assets
Equipment
Fixtures&Installations
Furniture
Vehicles
Computers and office equipment
Establishment Costs
Accumulated Depreciation
Net Fixed Assets
Total Assets
Accounts payable
Expenses payables
Current Liabilities
Total Liabilities
Invested Capital
Owners' Equity
Owners' Equity
Total Liab. & Shrholders Equity

Owners' Equity
Begin. Owners' Equity
Net income
Owners' Withdrawals
Ending Retained Earnings

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

2,315
2,604
4,676
9,594
89,395
6,000
4,000
12,000
3,000
2,000
12,546
103,849
113,443
4,676
2,178
6,854
6,854
100,000
6,590
106,590
113,443

15,681
2,740
4,910
23,331
89,395
6,000
4,000
12,000
3,000
2,000
25,092
91,303
114,634
4,910
2,218
7,127
7,127
100,000
7,507
107,507
114,634

29,308
2,881
5,155
37,344
89,395
6,000
4,000
12,000
3,000
2,000
37,638
78,757
116,101
5,155
2,258
7,413
7,413
100,000
8,688
108,688
116,101

42,513
2,970
5,310
50,794
89,395
6,000
4,000
12,000
3,000
2,000
49,518
66,877
117,671
5,310
2,309
7,619
7,619
100,000
10,052
110,052
117,671

35,897
3,034
5,416
44,348
99,395
16,000
4,000
12,000
4,000
2,000
62,597
74,798
119,145
5,416
2,351
7,767
7,767
100,000
11,378
111,378
119,145

49,810
3,097
5,524
58,431
99,395
16,000
4,000
12,000
4,000
2,000
75,077
62,318
120,749
5,524
2,394
7,918
7,918
100,000
12,831
112,831
120,749

63,733
3,127
5,580
72,440
99,395
16,000
4,000
12,000
4,000
2,000
87,556
49,839
122,279
5,580
2,448
8,028
8,028
100,000
14,252
114,252
122,279

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

7,507
11,810
10,629
8,688

8,688
13,644
12,279
10,052

10,052
13,264
11,937
11,378

11,378
14,528
13,076
12,831

12,831
14,203
12,783
14,252

6,590
6,590

6,590
9,171
8,254
7,507

The owners will be able to start withdrawing cash by the 2 nd year.

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Projected Cash Flows

The following table shows the projected cash flows of the pastry shop.
Pastry Shop
STATEMENT OF CASH FLOWS

Year 1

Net income
Adjustments to reconcile net income
to cash provided by operating activities
Depreciation
Changes in receivables
Changes in inventories
Changes in accounts payable
Change in expenses payables
Total Adjustments
Cash provided by operating activities

Year 2

Year 4

Year 5

Year 6

Year 7

6,590

9,171

11,810

13,644

13,264

14,528

14,203

12,546
(2,604)
(4,676)
4,676
2,178
12,120
18,710

12,546
(136)
(234)
234
40
12,449
21,620

12,546
(141)
(245)
245
40
12,446
24,256

11,880
(89)
(155)
155
51
11,841
25,485

13,080
(64)
(106)
106
42
13,058
26,321

12,480
(62)
(108)
108
43
12,460
26,988

12,480
(31)
(55)
55
54
12,503
26,706

Cash Flow from Investing Activities

Capital expenditures
Investment in fixed assets
Net cash used in investing activities

(116,395)
(116,395)

Cash flow from financing activities

Changes in invested capital
Owners' Withdrawals
Cash provided by financing activities

100,000
100,000

Cash at beginning of year

Changes in cash
Cash at end of year

Year 3

2,315
2,315

(21,000)
(21,000)

(8,254)
(8,254)

(10,629)
(10,629)

(12,279)
(12,279)

(11,937)
(11,937)

(13,076)
(13,076)

(12,783)
(12,783)

2,315
13,367
15,681

15,681
13,627
29,308

29,308
13,206
42,513

42,513
(6,616)
35,897

35,897
13,913
49,810

49,810
13,923
63,733

The projected cash flows statement shows the initial net investment in fixed assets and
projected capital expenditure over a period of 7 years. The owners will be able to start
withdrawing cash by the 2 nd year.

6.6

Ratio analysis:

The following table shows the main financial ratios for the pastry shop.
Ratio Analysis
Liquidity Ratios
Current Ratio
Quick Ratio
Working Capital
Profitability Ratios
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Financial Strength
Total Debt to Owners' Equity
Management Effectiveness
Return on Assets=ROA
Return on Equity=ROE
Return on Investment = ROI
Sales / Business Days (360)
Asset Management (Efficiency)
Total Assets Turnover: Sales/tot assets
Total Debt to Total Assets
Working Capital Cycle
Days Sales Outstanding
Days of Inventory
Days of payables

Working Capital Turnover=Sales/Working Capital

Marjeyoun - Feasibility Study Pastry Shop

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Average

1.40
3.27
5.04
6.67
5.71
7.38
9.02
0.72
2.58
4.34
5.97
5.01
6.68
8.33
2,740 16,204 29,931 43,175 36,581 50,513 64,413

5.50
4.81
34,794

29%
5%
5%

30%
7%
7%

31%
9%
9%

31%
10%
10%

31%
9%
9%

31%
10%
10%

31%
10%
9%

31%
9%
8%

0.064

0.066

0.068

0.069

0.070

0.070

0.070

0.07

6%
6%
6%
347

8%
9%
10%
365

10%
11%
15%
384

12%
12%
20%
396

11%
12%
18%
405

12%
13%
23%
413

12%
12%
28%
417

10%
11%
17%
389.59

110%
6%

115%
6%

119%
6%

121%
6%

122%
7%

123%
7%

123%
7%

119%
6%

8
30
26
45.6

8
30
26
8.1

8
30
26
4.6

8
30
26
3.3

8
30
26
4.0

8
30
26
2.9

8
30
26
2.3

8
30
26
10.13

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AFC Consultants International

The current ratio, which is computed by dividing current assets by current liabilities, witnesses
a major increase over the years led by higher levels of inventories.
The quick ratio, which is the same as the current ratio except that it excludes inventories
increases rapidly over the years as accounts receivable increase. The current and quick ratios
demonstrate the capability of the company to quickly meet its short term liabilities.
The return on average assets, which is computed by dividing net profits by total assets, shows
how much profit the company is able to achieve from the use of its assets. This ratio increases
and reaches of 12% in year 7.
The total assets turnover shows how well the management is making use of its assets. The
assets turnover is computed by dividing sales over total assets. It is expected to increase with
the growth in sales to reach 123% in year 7.
The gross profit margin fluctuates around an average of 31%. The operating margins and the
net profit margins improve over the years with the growth in sales.
The return on average equity shows healthy levels fueled by the growth in profitability. Also
the return on investment shows increasingly high levels that reach 28% in year 7.
The internal rate of return is 20% and the payback period, which is the period necessary to
pay back the investment, is 6 years 3 months.

6.7

Break- even analysis:

The following table shows the minimum annual revenue levels needed for the pastry shop to
break- even. Thus, an average of USD 114,567 per year is a minimum level of revenue for the
pastry shop to stay in business.

Pastry Shop
BREAK-EVEN ANALYSIS

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Total Revenues
Total Variable Costs
Total Fixed Costs

124,988
62,158
56,106

131,525
65,270
56,897

138,292
68,536
57,704

142,577
70,594
58,061

145,644
72,010
60,101

148,633
73,451
60,357

150,119
74,185
61,441

Break-even revenues

111,612

112,948

114,400

115,002

118,875

119,324

121,466

6.8

Sensitivity analysis:

A worst-case scenario is taken by assuming a slower sales growth.

In this case, the pastry shop will have an average profitability of $10,113 annually. The
internal rate of return is 18%. The payback period is 6 years and 7 months.
A best-case scenario is developed considering faster sales growth.
This scenario gives an average profitability of $16,955 annually. The internal rate of return is
25% and the payback period is 5 years and 4 months.
Average Yearly Sales

Worst-case
Most likely
Best-case
136,478
140,254
151,041

Average net income

Average net profit margin
Internal rate of return
Payback period in years

10,113
7%

11,887
8%

16,955
11%

18%
20%
6 years 7 months 6 years 3 months

25%
5 years 4 months

Marjeyoun - Feasibility Study Pastry Shop

14

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AFC Consultants International

7 Recommendations and key success factors

In order to achieve satisfactory results, there are some key success factors that should be
highlighted:
All the personnel of the pastry shop must be very qualified. The craft women, the
chef, the cook and the sales person will receive all the necessary training in order to
perform according to high standards. The managerial personnel and the chef will be
selected according to their merits and previous experience.
As a first stage the pastry shop should follow a policy of market penetration, trying to
seize any opportunity in order to get a wide array of clients.
The pastry shop will make full use of its marketing resources in order to market itself
as a destination and as the most competent pastry producer in the region and in order
to capture a market share from the Arabic sweets producers.
After a certain period of functioning, the pastry shop would have acquired some key
clients, on which it will focus as the primary target market.
The pastry shop should try to differentiate itself from other French pastries building up
on its main assets: quality, cleanness and affordable prices.
Regarding the decorated chocolate, the manager should take into consideration the
life cycle of certain models, and will make sure to introduce new models once the
market for specific products has attained the maturity stage.
The shop seating area ought to be as pleasant as possible, in order to attract visiting
expatriates and tourists.
Finally, we need to stress one more time the importance of cleanness, high standards
of production and good quality of inputs.

8 Economic impact evaluation

Establishing this pastry shop in the caza of Marjeyoun will have several positive repercussions
on the socio- economic state of the region:
Building up such a craft shop will allow for an economic diversification in a region
where agriculture and other low-skilled jobs are predominant.
The pastry shop will create 7 full-time jobs; it will offer new career opportunities to
young people, especially women in Marjeyoun.
Creating jobs for women will empower them; it will help them to increase the
household income in a very positive and comfortable way.
Furthermore, the creation of these jobs will ensure to employees respectable wages
and thus helps to lift up the standard of living of the concerned households.
The production of pastries and especially of fresh juice has backward linkages that will
be beneficial to the whole region, mainly through the use of fresh fruits, milk, and
flour, produced in the area.
Moreover, the training the employees will have received will equip them with valuable
skills for future job opportunities.
Finally, the pastry shop will be seen as a new attraction, and as one of the reasons to
spend some additional time in Marjeyoun.

Marjeyoun - Feasibility Study Pastry Shop

15