Aleba Water Business Plan | 1999

Business Plan

Xi’an Aleba Mineral Water Company

September 17, 1999 1

Table of Contents

1.0 Overall company plan

.................................................................................................................11.1 Goals and targets..................................................................................................................11.2 Summary of major initiatives...............................................................................................11.3 Background ..........................................................................................................................11.4 The Business System ...........................................................................................................21.5 Current position ...................................................................................................................31.6 Capability gaps.....................................................................................................................41.7 Initiatives to bridge gaps ......................................................................................................51.8 Schedule and milestones ......................................................................................................7

2.0 Sales plan

.....................................................................................................................................102.1 Sales forecast ....................................................................................................................102.2 Current situation.................................................................................................................10

2.2.1 Revenue summary, March to August, 1999.........................................................102.2.2 Current customers by segment ............................................................................122.2.3 Consumption rates by segment............................................................................122.2.4 Current sales by channel .....................................................................................122.2.5 Aleba price realization by segment and channel .................................................132.2.6 Estimated average price realization .....................................................................132.2.7 Profitability by channel........................................................................................14

2.3 Dispenser sales...................................................................................................................142.4 Sales strategy .....................................................................................................................152.5 Sales programs ...................................................................................................................15

2.5.1 Convert test market schools.................................................................................152.5.2 Take over customers of under-performing retail shops. ......................................152.5.3 Start regular dispenser service program. .............................................................15

3.0 Marketing plan

............................................................................................................................163.1 Target markets....................................................................................................................16

3.1.1 Family market......................................................................................................163.1.2 Institutional market..............................................................................................163.1.3 School market ......................................................................................................18

3.2 Competition the Xi’an water market..................................................................................183.3 Past marketing programs....................................................................................................19

3.3.1 Newspaper public relations .................................................................................193.3.2 Newspaper advertising.........................................................................................193.3.3 Family promotion: free tickets ............................................................................193.3.4 Retail shop promotion: free tickets......................................................................193.3.5 School promotion program..................................................................................193.3.6 Free water promotions .........................................................................................203.3.7 Sales promotional materials ................................................................................20

3.4 Buying decisions................................................................................................................203.4.1 Family market buying characteristics..................................................................203.4.2 Institutional market buying characteristics..........................................................213.4.3 School market buying characteristics ..................................................................21

3.5 Growing health concerns over distilled water....................................................................213.6 Market positioning .............................................................................................................223.7 Marketing strategy for coming year...................................................................................22


3.7.1 Components of the marketing strategy................................................................223.7.2 Major target segments .........................................................................................22

3.8 Marketing programs...........................................................................................................233.8.1 Expand school promotion program to between 20 to 30 schools........................233.8.2 Launch dispenser program to expand sales into institutional market..................233.8.3 Launch corporate identity program with logo, uniforms, vans. ..........................233.8.4 Upgrade promotional materials to support marketing and sales programs. ........233.8.5 Continue public relations program in local media. .............................................233.8.6 Continue free water promotions. .........................................................................233.8.7 Develop marketing office inside city walls..........................................................24

4.0 Manufacturing plan

....................................................................................................................254.1 Current situation.................................................................................................................25

4.1.1 Manufacturing costs ............................................................................................254.1.2 Manufacturing inventories...................................................................................254.1.3 Production history ...............................................................................................264.1.4 Bottle damage and losses.....................................................................................26

4.2 Production plan ..................................................................................................................264.3 Upgrade programs..............................................................................................................26

4.3.1 Upgrade quality assurance program. ...................................................................264.3.2 Install fixtures in pre-wash building. ...................................................................274.3.3 Reinforce factory ceiling. ....................................................................................274.3.4 Install filtered air moving equipment in clean room and laboratory....................27

5.0 Transportation plan

....................................................................................................................285.1 Current transportation system............................................................................................285.2 Current transportation costs ...............................................................................................295.3 Current gaps in transportation............................................................................................305.4 Transportation initiatives to close gaps..............................................................................31

5.4.1 Increase van fleet to make deliveries to expanded customer base. ......................315.4.2 Develop central dispatching system using pagers or local service cell phones...31

6.0 Administration plan

...................................................................................................................326.1 Current situation: logistics, cash controls, and accounting................................................326.2 Current situation: major gaps.............................................................................................336.3 Initiatives to close gaps ......................................................................................................33

6.3.1 Move central administrative office to better location. .........................................336.3.2 Develop transportation department......................................................................336.3.3 Develop customer database; establish regular computer back-up routine...........336.3.4 Improve financial reporting to investors. .............................................................33

7.0 Major purchases and accounts payable

................................................................................347.1 Major purchases .................................................................................................................347.2 Accounts payable ...............................................................................................................34

8.0 People ....................................................................................................................35

8.1 Current staffing ..................................................................................................................358.2 Current gaps .......................................................................................................................35

8.2.1 Financial and general management skills............................................................358.2.2 Computer and database design skills...................................................................358.2.3 Graphic design skills and skills to develop promotional materials. ....................368.2.4 No bonus system..................................................................................................36

8.3 Initiatives to bridge people gaps ........................................................................................36


8.3.1 Execute Memorandum of Agreement . ...............................................................368.3.2 Develop bonus plan for workers tied to financial targets. ...................................36

9.0 Special project: Small bottle line

...........................................................................................379.1 Overview............................................................................................................................379.2 Investment, market and distribution analysis.....................................................................379.3 Preliminary time schedule..................................................................................................37

10.0 Organization of the Joint Venture

..........................................................................................38

11.0 Financial plan

...............................................................................................................................3911.1 Summary of March-August operations..............................................................................3911.2 Summary of financial plan .................................................................................................3911.3 Burn rate: Projected monthly operating expense ...............................................................4111.4 Customers required for break-even....................................................................................4111.5 Projected cash balance .......................................................................................................4311.6 Schedule of reports ............................................................................................................4411.7 Useful benchmarks.............................................................................................................4411.8 Key drivers of the business ................................................................................................44


List of Tables

TABLE 1. Schedule and milestones..............................................................................7TABLE 2. Sales forecast .............................................................................................10TABLE 3. Revenue summary, March to August, 1999...............................................10TABLE 4. Estimated customers by segment...............................................................12TABLE 5. Estimated consumption by segment ..........................................................12TABLE 6. Sales by channel in August, 1999..............................................................12TABLE 7. Customers by retail shop, August, 1999 ....................................................13TABLE 8. Price realization by segment and channel, August, 1999 ..........................13TABLE 9. Average price realization March to August, 1999 .....................................13TABLE 10. Profitability by channel..............................................................................14TABLE 11. Dispenser sales March to August, 1999.....................................................14TABLE 12. Dispenser selling prices and costs .............................................................15TABLE 13. Overview of family market........................................................................16TABLE 14. Institutional customers of Marketing Department, August, 1999 .............17TABLE 15. Potential school market .............................................................................18TABLE 16. Preliminary segmentation of competition..................................................19TABLE 17. Buying decisions in the family market ......................................................20TABLE 18. Inventory of school promotional items as of August, 1999.......................23TABLE 19. Manufacturing costs in RMB ....................................................................25TABLE 20. Manufacturing supplies inventory as of September 12, 1999 ...................25TABLE 21. Production from March 1 to September 12, 1999 .....................................26TABLE 22. Bottle losses from March 1 to September 12, 1999 ..................................26TABLE 23. Planned production schedule .....................................................................26TABLE 24. Current transportation cost assumptions....................................................29TABLE 25. Cost to transport one bottle........................................................................30TABLE 26. Location of bottles as of September 12, 1999 ...........................................32TABLE 27. Major purchases planned RMB .................................................................34TABLE 28. Accounts payable as of September 12, 1999.............................................34TABLE 29. Staffing and monthly salaries as of September 12, 1999...........................35TABLE 30. Management team for joint venture...........................................................36TABLE 31. Preliminary time schedule for small bottle project....................................37TABLE 32. Investment overview of Joint Venture........................................................38TABLE 33. Uses of Imagene investment ......................................................................39TABLE 34. Schedule of major purchases .....................................................................40TABLE 35. Projected monthly operating expenses ......................................................41TABLE 36. Fixed costs for break even calculation.......................................................41


TABLE 37. Contribution per bottle and per customer ..................................................41TABLE 38. Cash projection, October 1999 to September, 2000 ..................................43TABLE 39. Useful benchmarks to measure progress ...................................................44


List of Figures

FIGURE 1. Xi’an Aleba Water Business System ...........................................................3FIGURE 2. Ticket revenue, March to August, 1999.....................................................11FIGURE 3. Distribution of dispensers in institutional accounts, August, 1999 ...........17FIGURE 4. A drawing of the current delivery system. ................................................28FIGURE 5. Joint Venture Organization .......................................................................38FIGURE 6. Summary of Operations, March-August, 1999 .........................................39FIGURE 7. Calculation of customers required for break-even.....................................42FIGURE 8. Projected cash balance, October, 1999 to September, 2000 ......................44

Xi’an Aleba Mineral Water Company September 17, 1999 1

Xi’an Aleba Mineral Water Company

Business Plan: October, 1999 to September, 2000

1.0 Overall company plan

This business plan outlines the basis of continued growth for the Company. It sets forth goals and targets for the coming year. The plan then sets forth the initiatives required by each department of the Company to reach these goals. As the Aleba business system develops, certain gaps in the Company’s capabilities will arise between where the Company stands and our goals. The initia-tives are designed to fill these “capability gaps”.

1.1 Goals and targets

1. By September, 2000 have 5,000 customers. 2. Maintain average realized price of 8 RMB per bottle. 3. No customer quality complaints.

1.2 Summary of major initiatives

To reach these goals, the Company will pursue three major initiatives in the coming year: 1. Launch a dispenser promotion program to increase market penetration in the institu-

tion segment through network marketing. 2. Continue school promotion and direct selling program to convert schools to regular

customers. 3. Create transportation department with expanded van fleet to support larger customer

base.

1.3 Background

The JV began operations in March, 1999 based on a business plan completed in November, 1998. That business plan called for establishing a strong market position in the school market. In March, Wang Hui recognized that the school market would be more difficult to penetrate, and he devised a new plan to sell water to the family market through retail water shops.

1

Since we did not have the capital to establish our own retail shops, Wang Hui established a net-work of independently owned shops and a system of water tickets to control sales and cash. Since we also did not have a marketing budget geared to a consumer market, Wang Hui used low cost promotions. Approximately 50% of the production from the factory has been used for promotion

1. The November, 1998 plan called for one prototype water shop to explore the family market.


purposes. Based on a national trade publication based in Beijing, Aleba, by July, 1999, was one of three most recognized mineral water companies in the Xi’an market.

1

In June, 1999 we conducted a market test with ten primary schools. The school promotion pro-vided each school with free water for a week, as well as pens, volley balls and soccer balls. The school promotions stimulated family sales, as parents and teachers purchased Aleba for home consumption.

In June, manufacturing quality problems arose from disintegrating paper filters. This problem was resolved with adjustments to the line pressure and changes in equipment cleaning procedures.

In July, Wang Hui began a program to take over the family accounts of the retail shops. Eventu-ally, our plan is to control the customers of all the retail shops. Through the ticket system, Aleba has all the names, addresses and telephone numbers of the retail shops. As Aleba builds its trans-portation capacity with more vans, we will take over deliveries to the retail shop accounts.

In August, Aleba confronted an operating cash shortage. Available operating cash declined to about 10,000 RMB. The shortage is attributable to a variety of factors.

•

The family market has a lower productivity than the school market, our initial target. Each school has an average of fifty classrooms, and water consumption averages one bottle per day. In contrast, each family has one dispenser and consumes a bottle of water in seven to ten days.

•

The November, 1998 business plan assumed that Aleba would collect deposits on bottles. Competition from the market has limited our ability to collect deposits. Only about 30% of the central office accounts have paid deposits. Retail shops have collected deposits on only about 20% of their accounts. Aleba has not yet collected the retail shop deposits.

•

Part of the cash shortage is also attributable to the currency hedge loans. These loans reduce the amount of available investment by as much as 20%, and they further impose a monthly interest expense. Interest income from Aleba’s dollar deposits is not payable until our deposit contract matures.

In September, Aleba completed a customer survey to determine the factors that influenced cus-tomers to buy Aleba water. The survey revealed that 80% based their decision to buy on the advice of a friend. Only 20% purchased on the basis of newspaper articles or advertising.

1.4 The Business System

The current business system includes the following components:

•

A well, factory and warehouse located 25 km from Xi’an. Equipped with Felce five gallon fill-ing equipment with one shift capacity of 1,000 bottles.

•

Contract trucking that moves 400 bottles per load to a central office/warehouse in Xi’an.

1. “Xi’an Mineral Water Industry”, an article appearing in a national China food industry newspaper July 14, 1999 and translated by Ye Liu. From the article: “The well-known local mineral water products are Zhang Ba Long Quan, Da Li and Aleba.”


•

A central office staff that manages logistics of bottle delivery from factory and empty returns.

•

A central office staff that manages a system of tickets for retail purchases to control cash.

•

A central office sales staff with 3 minivans to schedule and make deliveries to central office customers, including retail shops.

1

Sales staff also provides after sales service of dispensers.

•

A network of eight retail shops to sell and distribute water primarily to the family market.

•

A central administration staff, including the general manager, to develop and manage collec-tions, billing, management controls, and financial reporting.

FIGURE 1. Xi’an Aleba Water Business System

1.5 Current position

•

Distribution network of central office/warehouse and eight retail shops now serves 1,600 cus-tomers. (In Aleba’s terminology, a “customer” represents a water dispenser. For example, a bank might have six Aleba water dispensers. The bank represents six customers. This approach allows uni-formity across market segments.)

•

Need more bottles and minivans. Future growth constrained by current bottle inventory and our limited capacity to deliver to new customers.

•

Internal management procedures control an inventory of 6,000 bottles or 3.75 bottles per cus-tomer.

•

Continuing school promotion program. One school has converted to regular deliveries from the school promotion program.

•

Developing weekly, bi-weekly, and monthly reporting schedule for investors.

•

Developing “relationship marketing” programs for institutional and family markets.

•

Completed plan for first phase of Imagene investment.

•

Current “burn rate” for the JV is 49,300 RMB per month. Of the total, 17,500 RMB is interest.

1. A fourth minivan has been lent to Retail Shop 4 to assist in deliveries.

Administration

Bottling Operations

and QC

Outbound Logistics

Marketing and sales

Service

Empty Bottle Return

Logistics

Customer Delivery Logistics Ticket

system and collectionsRetail Shop

Management


1.6 Capability gaps

Sales and service

•

Need more mini-vans to support deliveries to expanding customer base.

•

Stronger promotional materials and corporate identity to build the Aleba brand.

•

Need to develop service program to clean existing dispensers on a regular basis.

Marketing

•

Sales promotion program needs continued development to convert school prospects to regular customers.

•

Need to develop network marketing programs, including supporting marketing materials, to replace print and broadcast advertising for family and institution markets.

•

Need stronger corporate identity program and customer database to support shift away from advertising and toward relationship/network marketing strategy.

Manufacturing

•

Quality program needs improved equipment and procedures.

•

New pre-wash building requires additional plumbing and fixtures.

•

Compressor provides inadequate pressure for capping.

•

Factory ceiling needs reinforcement.

•

Factory requires air conditioning in clean room and laboratory.

Transportation

•

Not enough vans to deliver to expanding customer base.

•

Need to develop more responsive, rationalized delivery system with central management of routing.

•

Central warehouse has inadequate parking to accommodate expanded minivan fleet.

Administration

•

Computer data is not regularly backed-up. Computer equipment may need upgrading.

•

Current office space inadequate to conduct meetings.

•

Financial reporting to investors needs to be concise, consistent, timely, and easy to administer.

•

Need expanded customer database and computer capabilities to support network marketing.

People

•

Stronger capability to conduct financial forecasting.

•

Management development plan to assist Wang Hui.

•

Additional sales and delivery people.


•

Lack of clear incentive program for key management people.

Special project: Small bottle line

•

Absence of a small bottle product may be hindering sales to the family market.

1.7 Initiatives to bridge gaps

Sales

•

Convert test market schools to regular customers through extended direct selling effort.

•

Take over customers of under-performing retail shops and outlying customers of other shops.

•

Start regular dispenser service program.

Marketing

•

Expand school promotion program to between 20 to 30 schools.

•

Launch dispenser program to expand sales into institutional market.

•

Launch corporate identity program with logo, uniforms, vans.

•

Upgrade promotional materials to support marketing and sales programs.

•

Continue public relations program in local media.

•

Continue free water promotions.

•

Develop marketing office inside city walls.

Manufacturing

•

Upgrade quality assurance program.

•

Install fixtures in pre-wash building.

•

Reinforce factory ceiling.

•

Install filtered air moving equipment in clean room and laboratory.

Transportation

•

Increase van fleet to make deliveries to expanded customer base.

•

Develop central dispatching system using pagers or local service cell phones.

Administration• Establish regular computer back-up routine. • Develop detailed customer database. • Move central office to better location.• Improve financial reporting to investors.


Major purchases• 4 mini-vans for deliveries.• 1,000 dispensers for marketing program.• Pagers/cell phones for drivers.• Air filtration and conditioning equipment for factory. • Factory ceiling repair. • Larger compressor for capping. • Uniforms and vehicle painting for corporate image program.

People• Execute Memorandum of Agreement among Imagene, ATCO, Aleba Management (Louisiana)

and Aleba Management (Oregon) to develop stronger management team to assist Wang Hui. • Develop bonus system for workers.

Special project: Small bottle line• Evaluate installation of small bottle line as next phase of Imagene investment.


1.8 Schedule and milestones

TABLE 1. Schedule and milestones

Department and programs Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Sales

Convert test market schools to regular cus-tomers through extended direct sell-ing effort.

On-going

End

Take over customers of under-performing retail shops and outly-ing customers of other shops.

On-going

Start regular dis-penser service pro-gram.

Start

Marketing

Expand school promo-tion program to between 20 to 30 schools.

Start On-going

Launch dispenser pro-gram to expand sales into institutional mar-ket.

Start

Launch corporate identity program with uniforms, vans.

Start

Upgrade promotional materials to support marketing and sales programs.

Start

Continue public rela-tions program in local media.

on-going

Continue free water promotions

on-going


Develop marketing office inside city walls On-

going

Manufacturing

Upgrade quality assur-ance program. Start

Install fixtures in pre-wash building. Start

Reinforce factory ceil-ing. Start

Install filtered air moving equipment in clean room and labo-ratory.

Start

Transportation

Increase van fleet to make deliveries to expanded customer base.

Start

Develop central dis-patching system using pagers or local service cell phones.

Start

Administration

Establish routine to back-up computer data Start

Develop detailed cus-tomer database. Start

Move central office to better location. Start

Improve financial reporting to investors. Start

Major purchases

4 mini-vans for deliv-eries. X

1,000 dispensers for marketing program. X

Pagers/cell phones for drivers. X



Air filtration and con-ditioning equipment for factory.

X

Factory ceiling repair. X

Larger compressor for capping. X

Uniforms and vehicle painting. X

People

Execute Memorandum of Agreement among Imagene, ATCO, Aleba Management (Louisiana) and Aleba Management (Oregon)

X

Develop bonus sys-tem for workers. Start

Special project: small bottle

Evaluate installation of small bottle line. Start



2.0 Sales plan

2.1 Sales forecast

• Target of 5,000 customer accounts by September. • Assumption on bottles per customer per month: 3.• Assumption of average price realized: 7.75.

2.2 Current situation

2.2.1 Revenue summary, March to August, 1999

TABLE 2. Sales forecast

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Begin cus-tomers

1,600 1,800 2,000 2,200 2,400 2,700 3,000 3,300 3,700 4,100 4,500 5,000

Add net new cus-tomers

200 200 200 200 300 300 300 400 400 400 500 --

Bottles per month

3 3 3 3 3 3 3 3 3 3 3 3

Total bot-tles

4,800 5,400 6,000 6,600 7,200 8,100 9,000 9,900 11,100 12,300 13,500 15,000

Average price per bottle

7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75 7.75

Revenue 37,200 41,850 46,500 51,150 55,800 62,775 69,750 76,725 86,025 95,325 104,625 116,250

TABLE 3. Revenue summary, March to August, 1999

Bottles Delivered Ticket revenue

Number of dispensers

Dispenserrevenue

March 180 1,698 29 4,915April 147 1,771 11 2,985May 925 8,839 192 28,713June 4,555 37,241 48 9,631July 1,497 12,383 57 18,218Aug 3,411 26,429 61 17,152Total 10,693 88,364 398 81,617


FIGURE 2. Ticket revenue, March to August, 1999

• Impact of school promotion program clearly shows in June. • Fall off in July sales due in part to selling tickets in books of ten. In July, people are consuming

water with tickets they purchased in June.

1,698 1,771

8,839

37,241

12,383

26,429

March April May June July Aug

March April May June July Aug

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000RMB


2.2.2 Current customers by segment

2.2.3 Consumption rates by segment

2.2.4 Current sales by channel

TABLE 4. Estimated customers by segment

Retail shopsAleba marketing

department TotalPercent Number Percent Number Percent Number

Family customers (%) 90% 1,152 67%a

a. Central marketing office has taken over the accounts of retail shop 6 and is continuing to take over the outlying accounts of other retail shops.

240 82% 1,392

Institution customers (%) 10%b

b. The percentage of institutional accounts for retail shops represent an estimate based on review of one retail shop customer list.

128 33% 119 15% 248

School customers (%)c

c. One school customer with fifty classrooms began as a regular customer in September. Aleba shares this account with retail shop #7.

--% 1 --% 1 --% 1

Total 100% 1,281 100% 361 1,641

TABLE 5. Estimated consumption by segment

Days per bottleBottles per

monthFamily 7-10 3Institution office 5-7 5School classroom 1 20

TABLE 6. Sales by channel in August, 1999

Total customers Percent

Retail shop channel 1,276 78%Direct channel Aleba Marketing Department 360 22%Total 1,636 100%


2.2.5 Aleba price realization by segment and channel

2.2.6 Estimated average price realization

TABLE 7. Customers by retail shop, August, 1999

Retail shop Customers Comment1 280 Slowed taking new customers, unable to expand delivery. 2 2203 140 Taken over by Marketing Department. Location has

become new office for Aleba. 4 200 Slowed taking new accounts. Delivery constraint. 5 706 -- Taken over by Marketing Department7 196Xi’an Yang 10Lantian 160Total 1,276

TABLE 8. Price realization by segment and channel, August, 1999

Segment Direct

Through retail shops

Family 10 7.27a

a. JV provides one free ticket for every ten purchased. Effective discount off selling price of 8 RMB per ticket. (80 RMB/11 tickets = 7.27 per ticket.)

Institution 8-10 7.27School 10.0 8.0b

b. Sale to first school is arranged through Retail Shop 7. Most future sales to schools will be direct.

TABLE 9. Average price realization March to August, 1999

Revenue bottles delivereda

a. Revenue bottles are distinguished from promotional bottles

10,693

Ticket revenue 88,364

Average revenue per bottle RMBb

b. The average price per bottle is subject to distortions from timing differ-ences between when tickets are sold and when bottles are delivered. This estimate does not adjust for tickets that have been sold and are currently held by customers. For example, if 10% of the total tickets for the period are still outstanding, the average price realization would be 10% lower.

8.24


2.2.7 Profitability by channel

• Calculating profitability by channel requires including transportation costs. • Transport from factory to Xi’an by large contract trucks. See Section 5.0 Transportation Plan. • Transport to customer in retail channel is responsibility of retail shop. • Transport to customer in direct channel from Aleba central warehouse is with minivans.

2.3 Dispenser sales• The Company has sold dispensers to 24% of its customers.

TABLE 10. Profitability by channel

Retail channel Direct channelRealized price 7.27 10.00Less: Manufacturing cost 2.11 2.11Transport to Xi’an 1.45 1.45Transport to retail shop 1.10Transport to customer 2.27Equals: Net to Aleba 2.61 4.17

TABLE 11. Dispenser sales March to August, 1999

Units sold RevenueAverage

price MemoMarch 29 4,915 169April 11 2,986 271May 192 28,713 150June 48 9,632 201July 57 18,219 320August 61 17,153 281Total 398 81,617 205Total customers 1,636Percent of customers purchasing dispensers from Aleba 24%


• Dispensers come in three models: table top, hot only and hot/cold.

2.4 Sales strategy• Build up direct channel to control customers and generate higher returns.• Focus on school and institutional markets where consumption rates are higher and delivery

costs are lower.

2.5 Sales programs

2.5.1 Convert test market schools to regular customers through extended direct selling effort. • Major leverage available from the school market: high price realization, high consumption, rel-

atively low transportation costs. • Complex purchase decision with many actors to influence the decision. • Major obstacle 1: Parents objecting to school fees. • Major obstacle 2: School administrators’ concerns over food safety. • Success in first school indicates the market is still viable, but selling effort will take time. • Focus on personal selling by Wang Hui of school officials.

2.5.2 Take over customers of under-performing retail shops and outlying customers of other shops.• Begin to expand direct selling channel by “pruning” accounts from existing retail shops. • Next candidates for take over: Retail shops 3 and 4.

2.5.3 Start regular dispenser service program. • Dispensers require regular cleaning. • Use service program as opportunity for customer research. • Feed information into customer database.

TABLE 12. Dispenser selling prices and costs

ModelCost RMB

Selling price RMB

Margin RMB

Margin%

Table top 120 180 60 33%Hot only 500 650-800 150-300 23%-38%Hot/cold 840 1,250 410 33%


3.0 Marketing plan

3.1 Target markets

3.1.1 Family market• Relatively high income, two professional families.• Focus of retail channel. • Most customers switching from distilled water. • Primary market in number of customers. • Not as price sensitive. Retail price of 10 RMB. • Competitive pressure appears primarily in bottle deposits, not price competition. Retail shops

collecting only 20% to 30% of family bottle deposits. (Part of this problem comes from weak incentives for retail dealers to collect bottle deposits that they turn over to Aleba.)

3.1.2 Institutional market• Larger government-owned organizations, such as banks and companies. • Primary focus of Aleba marketing department• Relatively weak penetration of this market. Most early efforts directed toward building and

supporting retail channel. • Accounts for 30% of marketing department customers

TABLE 13. Overview of family market

Xi’an population 5.4 millionAverage family size 5Number of families 1.08 millionFamilies with sufficient income to buy water (%) 25%Families with sufficient income to buy water 270,000Families within geographic market of Aleba retail shops 10%Target families within geographic market of Aleba retail shops 27,000Monthly consumption per family (bottles) 3Total target family market (monthly bottles) 81,000Estimated family accounts: See table 3 1,392Estimated penetration of target family market 3%


Relatively few high volume institutional accounts. Average dispensers per account: 3.6

FIGURE 3. Distribution of dispensers in institutional accounts, August, 1999

TABLE 14. Institutional customers of Marketing Department, August, 1999

Number of institutional accounts

Number of dispensers

Average number of dispensers per account

33 120 3.6

27 2 3 17 5 6 15 8 22 10 23 12 13 18 29 21 28 25 7 9 26 20 16 11 32 14 30 1 24 31 33 4 190

5

10

15

20

25

0

5

10

15

20

25umber of dispensers

Institutional Account


3.1.3 School market

• High consumption market: 1 bottle per classroom (customer) per day. • Low price sensitivity. Selling direct should net average realized price of 10RMB. • Distilled water not competitive due to health concerns. • Major promotion opportunity. June tests revealed that teachers will buy water and that students

will influence their families to purchase water.

3.2 Competition the Xi’an water market

The following market report on the Xi’an water market appeared in a Beijing-based food industry newspaper on July 14, 1999:1

In 1999, in the Xi’an market there are over 20 brands of distilled and mineral water from southern China. Compared to Xi’an local water products, southern water has much bigger sale networks and aggressive advertising through all kind of media. For the small bottle water or 5 gallon family size water, south-ern products own more than 80% of market share in Xi’an. In fact most fami-lies are buying distilled water from the southern producers. (EFM Note: analysis of the local market appearing in a Xi’an newspaper estimates that 70% of water sales are distilled.)

Today's situation reminds me that several years ago in Xi’an's juice market, all of the juice products came from southern manufactures. Today, Ru-Shi, Xi’an local juice manufacture has earned the biggest market share in the Xi’an juice market. Local consumers have been educated that Shaanxi apples are better than southern apple and realized that the quality of local juice is the best. (from

TABLE 15. Potential school market

Number of schoolsXi’an 150Xianyang 30Total 180

Average classrooms per schoola

a. School size varies from ten to sixty classrooms.

15

Total classrooms 2,700Current sales to schools (classrooms) 50Current market penetration of school class-rooms 2%

1. Translated by Ye Liu.


Ye: The concentrated apple juice that Ru-Shi used is from Fu-An Company, one of Aleba's business partners in Xi’an)

In order to change the Xi’an mineral water market situation, the local consum-ers must be educated that Xi’an has the best mineral water resources anywhere. The advertising for local products must be more aggressive and attractive. The packaging of the products must be improved.

3.3 Past marketing programs

3.3.1 Newspaper public relations• Focused on telling the Aleba story. • Focus on high quality, international investment team.• Articles featuring Dr. Bradley, Mr. Tani, Jim Ray.

3.3.2 Newspaper advertising• Early advertising focused on small ads providing contact information. • Later, larger ads using trade-outs to build Aleba image as quality mineral water.

3.3.3 Family promotion: free tickets• Aleba provides one free ticket in every book of ten tickets. • 11 for price of 10 reduces effective price realization in this segment from 8 to 7.27 RMB per

bottle.

3.3.4 Retail shop promotion: free tickets• To stimulate the quick development of accounts, Aleba provides five free tickets to the retail

shop for every new account.

3.3.5 School promotion program• Provided free water for a week to ten test primary schools in June, 1999. • Also provided soccer balls, basketballs, pens, wall calendar and booklets to each school. • Focused on primary schools where children influence over parents is likely to be highest.

TABLE 16. Preliminary segmentation of competition

Distilled water Mineral water Total

Southern producers 80%

Local producers 20%

Total 70% 30% 100%


• Focused on schools in high income neighborhoods.

3.3.6 Free water promotions• Approximately half of factory production from March to August has been used for free water

promotions. • Three principal uses:

1. Gain local publicity and build networks by providing water for “public” purposes, e.g., for construction workers renovating old city wall;

2. Gain access to large potential accounts, such as schools; 3. Gain exposure at important public events that attract large numbers of people and offi-

cials, e.g., Xi’an trade and investment fair.

3.3.7 Sales promotional materials• Developed sales promotion materials from xerox copies of newspaper articles. • Stapled in a package for the institutional market. • Some individual pieces professionally done by graphic artist, but no design continuity or cor-

porate identify.

3.4 Buying decisions

3.4.1 Family market buying characteristics

• Conducted telephone survey of 200 customers in August.1

• 80% purchased Aleba water based on word of mouth; 20% on basis of advertising. • Segment this market between families switching from distilled water and families new to buy-

ing water.

1. This survey also polices the retail accounts to make certain they do not submit fake customer names to get their five free tickets.

TABLE 17. Buying decisions in the family market

Family segment Characteristics of buying decisionSwitching from distilled Focus on health factors

Familiar with “system” for dispensers and bottle returns. Resistant to paying bottle deposits

New to market Concern about family budget: new expenditure.Detailed explanation often required of “system” for dis-pensers and bottle returns.


• Price seems less of a factor than family well-being.1

• For two income family with each parent earning 500 RMB per month, three bottles of water represent an expenditure of 30 RMB per month or 3% of income.

3.4.2 Institutional market buying characteristics• Price sensitive. More difficult bargaining over price. Sophisticated buyers. • Very low likelihood of getting deposits on bottles. • Separation of purchaser and user. Single purchaser will make decision over installation of mul-

tiple dispensers. 2

• Buyer making the decision to provide water to employees as a benefit. Less influenced by health issues of mineral v. distilled. More focused on bottled v. boiled water.

• Institutional customers often lead to family customers as employees learn the quality of the water.

3.4.3 School market buying characteristics• Complex buying decision. Many parties influence a “committee” decision. • School administration sensitive to pressure from parents over fees. • Also worried about food purity. Boiled water is known and acceptable. Bottled water repre-

sents risky innovation in routine. • School administrators more willing to put bottles into faculty rooms. • Less sensitive to price. • Strongly influenced by health arguments in favor of mineral water. • Not a market in which distilled water will be able to compete effectively. Administrators are

aware of the health risks to children of distilled water. (Shanghai recently banned the sale of distilled water in schools.)

• School promotion appears to have broken down some of these barriers, but additional direct selling effort will be required to convert schools to regular customers.

3.5 Growing health concerns over distilled water• Increasing public attention in news media to the health impacts of drinking distilled water. • News impacts schools most directly. Shanghai schools have prohibited distilled water sales.

1. Only about 2% to 3% of our customers have complained about price, as distilled water companies have dropped their price to as low as 6 RMB per bottle.

2. Creates quality problem: the job of keeping dispensers with filled bottles usually falls to low level office employee. They are less concerned over removing label before installing bottle on dispenser. Pieces of the paper label then become stuck on the inside of the bottle, creating a cleaning problem.


• News also has impacts on family consumers drinking distilled water. • Least impact on buying decisions in the institutional market.

3.6 Market positioning• Focus on three attributes:

1. Highest quality mineral water for your health. 2. Local source deep in the mountains of Lantian.3. Highest quality production with Japanese expertise.

3.7 Marketing strategy for coming year

3.7.1 Components of the marketing strategy

Build marketing programs around the following components: • Expand institutional sales and use institutional customers to introduce Aleba to employees

(family market). • Continue school promotions and direct selling to higher income primary schools. Focus on the

children to introduce Aleba to both school and family markets. • Use dispenser network marketing program to bring three to five customers for each new dis-

penser. • Encourage distilled water users in family market to switch through continued public relations

program and network marketing program to encourage word of mouth referrals. • Use part-time marketing people paid on commission to expand our sales force.

3.7.2 Major target segments1. Institutional accounts

Institutional networks developed by Wang Hui and local partners. 2. Schools

10 test market schools and between 20 to 30 primary schools in higher income neighborhoods. 3. Families switching from distilled water

Difficult to reach except through on-going public relations and promotion program.


3.8 Marketing programs

3.8.1 Expand school promotion program to between 20 to 30 schools. • Begin October. Follow pattern of June tests. • Focus on primary schools.

3.8.2 Launch dispenser program to expand sales into institutional market.• Provide free dispenser (property of Aleba Water) to institutional buyers willing to sign long

term supply agreement and refer new potential customers. • Details of the program will develop as Wang Hui experiments with different approaches. • Initial test will involve 100 dispensers.

3.8.3 Launch corporate identity program with logo, uniforms, vans. • Develop corporate image design regulations. • Implement in uniforms, vans, promotional materials.

3.8.4 Upgrade promotional materials to support marketing and sales programs. • Develop new promotional materials that reflect higher quality, professional look.• Consider customer newsletter on health topics.

3.8.5 Continue public relations program in local media.• Use Shinzawa to promote tie to Imagene in local media. • Use Tatsuo Ohbabra, Toshi Tanaka, Ron Bradley, Jim Ray and Ed Morrison to give local inter-

views during their visits to Xi’an.

3.8.6 Continue free water promotions. • Continue water promotions as appropriate, as determined by General Manager. • Not to exceed 4,000 bottles per month.

TABLE 18. Inventory of school promotional items as of August, 1999

ItemInitial Order

Used in June promotions

Available on hand Unit price

Inventory value

Balls 2,000 900 1,100 30 33,000Pens 50,000 25,000 25,000 0.89 24,475Notebooks 100,000 32,500 67,500 0.80 54,000


3.8.7 Develop marketing office inside city walls. • Expand marketing program inside city walls by locating a marketing office (similar to a retail

shop)• Increase visibility for Aleba and access to family and institutional accounts.


4.0 Manufacturing plan

4.1 Current situation

4.1.1 Manufacturing costs

4.1.2 Manufacturing inventories

TABLE 19. Manufacturing costs in RMB

Daily production in bottles 400 800 1,000

Percent of one shift capacitya

a. Production runs at 130 bottles per hour or 1,066 bottles per 8 hour shift.

38% 76% 100%

Materials

bottleb

b. Bottle costs 35 RMB and is depreciated over 50 trips.

0.70 0.70 0.70

cap 0.35 0.35 0.35label 0.11 0.11 0.11bag 0.03 0.03 0.03

Subtotal material 1.19 1.19 1.19

Utilitiesc

c. Utilities based on monthly production of 20 days and monthly cost of 1,500 RMB.

0.19 0.09 0.08

Labord

d. Labor based on manufacturing headcount shown in Section 8.0 People below. Total monthly manufacturing wages equal 5,800 RMB.

0.73 0.36 0.29

Total manufacturing costs 2.11 1.64 1.56

TABLE 20. Manufacturing supplies inventory as of September 12, 1999

UnitsMonths supply

Unit Price RMB

Value of inventory

RMBBottles 6,000 N.A. 35.0 105,000Caps 30,000 3 0.35 10,500Plastic bags 180,000 18 0.11 20,000Labels 480,000 48 0.03 14,000Total 149,500


4.1.3 Production history

4.1.4 Bottle damage and losses

4.2 Production plan

4.3 Upgrade programs

4.3.1 Upgrade quality assurance program. • Testing kits for biological contamination meets Chinese standards but are not up to Western

standards.• Testing kit required for ozone levels. High ozone levels impart bad taste to the water.

TABLE 21. Production from March 1 to September 12, 1999

Bottles PercentTotal bottles produced 22,104 100%Total bottles sold 12,012 54%Bottles used for promotion 10,092 46%

TABLE 22. Bottle losses from March 1 to September 12, 1999

BottlesPercent of total bottle

inventoryBroken bottles 20 0.3Dirty, scratched 32 0.5Lost 7 0.1Total 59 1.0%

TABLE 23. Planned production schedule

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Sales 4,800 5,400 6,000 6,600 7,200 8,100 9,000 9,900 11,100 12,300 13,500 15,000

Promo-tiona

a. From Section 2.0 Sales Plan.

4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000

Total 8,800 9,400 10,000 10,600 11,200 12,100 13,000 13,900 15,100 16,300 17,500 19,000

Promo-tion as% of total

45 43 40 38 36 33 31 29 28 25 23 21

One shift capacity (%)b

b. Assumes average of 20 production days per month.

41 44 47 50 53 57 61 65 71 76 82 89


• Bottling machine goes through four cycle cleaning. Last cycle involves chlorine rinse. Impor-tant to maintain proper concentration of chlorine.

4.3.2 Install fixtures in pre-wash building.• Four cycle cleaning does not solve all cleaning problems. • Important to add pre-wash station. New building has been constructed to accommodate this

station.

4.3.3 Reinforce factory ceiling. • Differential air pressure has put pressure on ceiling panels. Some have come loose.• Reinforcement required.

4.3.4 Install filtered air moving equipment in clean room and laboratory. • Required in laboratory and clean room during summer months. • Sanitation bureau regulations require filtration and positive pressure in clean room.


5.0 Transportation plan

5.1 Current transportation system

FIGURE 4. A drawing of the current delivery system.


5.2 Current transportation costs

TABLE 24. Current transportation cost assumptions

Assumptions Unit Amount

3 wheeled bike:Cost per vehicle RMB 400Average daily deliveries bottles 20Daily deliveries (high) bottles 40Labor cost per day RMB 22Annual license fee RMBUseful life of bicycle years 2

Small minivan:Cost per vehicle RMB 45,000Useful life for depreciation years 5Headcount per vehicle people 1Average daily deliveries bottles 40Customers per minivan customers 200Distance traveled per day km 100Gas consumed per 100 km liters 10Price of gas per liter RMB 2Daily cost of gas RMB 20Daily wage rate for driver RMB 30

Contract trucking:Bottles per truck bottles 400Contract rate per truck: direct deliv-ery to Aleba central office and retail shops

RMB 420

Contract rate per truck: city delivery, multiple stops for institutional accounts

RMB 450

Additional contract labor per truck people 4Rate per trip per contract labor head RMB 40Total contract labor per trip RMB 160


TABLE 25. Cost to transport one bottle

5.3 Current gaps in transportation• Inadequate capacity to support customer base of 5,000.• Growth in retail delivery system has led to “irrational” delivery patterns for outlying accounts. • No system developed to provide fast response to customer delivery requirements. Drivers must

return to central office for delivery instructions. • May be incurring cost penalties on contract trucking from Lantian to Xi’an over a self-oper-

ated vehicle.

Route Unit Cost

Contract trucking from Aleba factory to Aleba central office or retail shopsContract fee RMB per bottle 1.05Labor RMB per bottle 0.40Total RMB per bottle 1.45

Contract trucking from Aleba factory to institutional accounts in Xi'anContract fee RMB per bottle 1.13Labor RMB per bottle 0.40Total RMB per bottle 1.53

Minivan delivery from Aleba central warehouse or retail shops to customerLabor RMB per bottle 0.75Gas RMB per bottle 0.50Depreciation RMB per bottle 1.02Total 2.27

Bike delivery from retail shop to accountLabor RMB per bottle 1.10Depreciation RMB per bottle 0.05Total 1.15


5.4 Transportation initiatives to close gaps

5.4.1 Increase van fleet to make deliveries to expanded customer base. • Increase minivan fleet to four.

5.4.2 Develop central dispatching system using pagers or local service cell phones.• Use pagers or local cell phones to dispatch drivers.


6.0 Administration plan

6.1 Current situation: logistics, cash controls, and accounting• The Company has developed a manual management control system that enables us to know

where all bottles are in the system.

TABLE 26. Location of bottles as of September 12, 1999

• The Company has developed a system of tickets to manage cash. This system centralizes cash collection in the central office. Periodic changes in the tickets enables the central office to detect counterfeit tickets.

• The Company uses a manual accounting system set to Chinese accounting standards. No effort has been made to automate the system or conform the system to U.S. GAAP.

Factory warehouse empty 318 Retail shop 1 372Factory warehouse full 1,043 Retail shop 2 514Factory use 13 Retail shop 3 487QC samples 52 Retail shop 4 754Office 3 Retail shop 5 85Broken, scratched, dirty 52 Retail shop 6 85Fu An (JV partner) 1 Retail shop 7 374Lantian nuclear company 8 Economic zone 156Lantian development zone 16 Radio Shaanxi 44Lantian government office 8 Xi’an Yang retail shop 50Xi’an Yang customer 10 Xi’an Yang retail shop 16Lantian customer 3 School 58Lantian customer 1 Central marketing dept. 288Lantian customer 8 Lost 7Lantian customer 2 Sold 8Lantian customer 1 Customer 2Shinzawa apartment 1 Xi’an warehouse 542Lantian retail shop 293 Receipt no deposit 280Lantian County government 20 Sanitation bureau 8

Marketing department 5

Subtotal (Lantian) 1,853 Subtotal Xi’an 4,135Total 5,987


6.2 Current situation: major gaps• Inadequate office space to conduct negotiations with institutional accounts and inadequate

parking for expanded fleet of minivans. • Quicker response system needed for minivan deliveries. • Inadequate customer database to conduct extensive relational marketing programs; inadequate

back-up of computer. • Weak financial reporting to investors.

6.3 Initiatives to close gaps

6.3.1 Move central administrative office to better location.• Move planned for October 1999 to office building owned by Post Office. • Location in Southwest section of the city, our strongest market area.

6.3.2 Develop transportation department • Develop separate transportation department for regular accounts. • Maintain one minivan at direction of administration department. • Minivans dispatched through pagers or local cell phones.

6.3.3 Develop detailed customer database; establish regular computer back-up routine.• Develop customer database on Access, a relational database program, instead of Excel. • Purchase equipment required for regular computer back-up and train staff in necessary tasks.

6.3.4 Improve financial reporting to investors. • Develop schedule of weekly, 2 week and monthly reports.• Consult with KPMG to determine if evaluation of the current accounting system is appropriate.


7.0 Major purchases and accounts payable

7.1 Major purchases

According to the Company’s financial model additional investments will be required, if sales pro-jections are met. The financial model appears in the Appendix: • Cap purchases will likely be required in December, March and May. • Bottle purchases will be required in February, May and July. • An additional four will be required by May of next year.

These investments are contingent on whether the Company meets its sales projections.

7.2 Accounts payable

TABLE 27. Major purchases planned RMB

Item QuantityUnit Price Total Investment

Dispensers 1,000 130 130,000Minivans 4 30,000 120,000Bottles 3,000 35 105,000Factory air conditioning units 3 8,000Cell phones 4 1,500 6,000Paint vans 8 500 4,000Aleba uniforms 50 60 3,000Factory ceiling reinforcement 2,000Larger compressor for filling machine 1 2,000 2,000Total 380,000

TABLE 28. Accounts payable as of September 12, 1999

Payee ReasonAmount (RMB)

Construction company Construction of pre-wash building

100,000

Construction company Rock sign at factory 20,000Lantian hotel Shinzawa, Ray stay 5,000Other 75,000Total 200,000


8.0 People

8.1 Current staffing

8.2 Current gaps

8.2.1 Financial and general management skills• Wang Hui needs assistance in financial management to prepare cash forecasts. • Wang Hui has inadequate management assistance to complete the projects scheduled for the

coming year. • No financial arrangement in place to support Wang Hui.

8.2.2 Computer and database design skills• Need database design for customer database.

TABLE 29. Staffing and monthly salaries as of September 12, 1999

Xi’an Office RMB Lantian Factory RMBGeneral manager 1,500 Production manager 700Assistant manager 1,000 Chief technician 700Accountant 900 Administrator 600Transportation manager 800 Assistant production manager 600Cashier 600 Quality control technician 450Warehouse keeper 600 Cashier, warehouse keeper 550Chief administration department 800 Guard 500Secretary 400 Worker 500Marketing manager 800 Worker 400Assistant marketing manager 700 Worker 400Driver 600 Secretary 400Driver 500Delivery 400a

a. Delivery workers will be increased in October to 500 from 400 currently.

Delivery 400Delivery 400

Total Xi’an Office 9,300 Total Lantian Factory 5,800Total salaries 15,100Total headcount 26


8.2.3 Graphic design skills and skills to develop promotional materials. • The Company does not have professionally designed sales and promotion materials.• Need outside assistance to develop corporate image program. • Wang Hui needs assistance in developing promotional materials, such as a customer newslet-

ter.

8.2.4 No bonus system• No bonus system in place to reward key employees for hitting targets.

8.3 Initiatives to bridge people gaps

8.3.1 Execute Memorandum of Agreement among Imagene, ATCO, Aleba Management (Louisiana) and Aleba Management (Oregon) to develop stronger management team to assist Wang Hui.

8.3.2 Develop bonus plan for workers tied to financial targets.

TABLE 30. Management team for joint venture

Responsibilities Paid byWang Hui General management ATCO, ImageneEd Morrison Business planning ATCO

Financial reporting to ATCOJim Ray Financial reporting to Imagene Imagene

Evaluation Phase 2 Imagene investmentRon Bradley Technical consulting JVYe Liu Financial analysis and translation Aleba Oregon

Marketing and promotional materialsShinzawa Marketing and promotion in Xi’an Imagene

Evaluation Phase 2 Imagene investment


9.0 Special project: Small bottle line

9.1 Overview

Small bottle line includes: • injection molding equipment to manufacture preforms from PET;• blow molding equipment to manufacture bottles; • filling and capping line to produce 600 ml bottles of water.

9.2 Investment, market and distribution analysis• Need to conduct investment, market and distribution analysis by November, 1999 if production

is to be complete by Summer 2000. • Different business than five gallon:

1. Production economics: Selling plastic, not water.2. Distribution system: Different distribution system to small retail shops.

• Aleba project started as small bottle project. Wang Hui has experience in this market.

9.3 Preliminary time scheduleTABLE 31. Preliminary time schedule for small bottle project

Month YearFeasibility analysis complete November 1999Investment decision December

Start building constructiona

a. Weather in Xi’an is a factor in building construction. The weather has to be warm enough to pour a building foundation.

December

End building construction March 2000Equipment installation MarchTest production AprilSanitation bureau approvals MayBegin production June


10.0 Organization of the Joint Venture

FIGURE 5. Joint Venture Organization

TABLE 32. Investment overview of Joint Venture

Party a

a. In the corporate documents, Xi’an Aleba Soya is Party A and Aleba Water Company is Party B.

Form of InvestmentInvestment

(RMB millions) PercentXi’an Aleba Soya Land, buildings 1.6 24.62%Aleba Water Company Cash, equipment 4.9 75.38%Total 6.5 100.00%

24.62% 75.38%

Xi'an Aleba Mineral Water

Company

Aleba Water Company

U.S.

ImageneEagle CapitalAleba

Management Oregon

Aleba Management

Louisiana

Xi'an Aleba Soya Company

Fu An


11.0 Financial plan

11.1 Summary of March-August operations

Detail on first six months of operation are presented in the Appendix. Before allowance for depre-ciation and amortization, the Company lost 338,000 RMB during its first six months of opera-tions.

FIGURE 6. Summary of Operations, March-August, 1999

11.2 Summary of financial plan• Use Imagene investment to expand delivery capability, bottle inventory, and customer base

through dispenser program. • Major purchases will be phased to maintain flexibility.

TABLE 33. Uses of Imagene investment

RMB %Sources:

Imagene investment 1,203,500Uses:

Investments in major purchases 1,042,000 87%Working capital 161,500 13%Total uses 1,203,000 100%

Sales Manufacturing Marketing Administrative Financing costs-400

-300

-200

-100

0

100

200

-400

-300

-200

-100

0

100

200RMB (000)

163

114

-127

-272

-338


TABLE 34. Schedule of major purchases

Major purchases RMB

% of Imagene funds invested

Cumulative percent of Imagene funds

investedOct 331,000 28% 28%Nov 189,000 16% 43%Dec 52,000 4% 48%Jan 0 - 48%Feb 105,000 9% 56%Mar 0 - 56%Apr 0 - 56%May 225,000 19% 75%Jun 0 - 75%Jul 140,000 12% 87%Aug 0 - 87%Sep 0 - 87%


11.3 Burn rate: Projected monthly operating expense

11.4 Customers required for break-even

For the coming year, the Company can operate with an operating budget of 49,300 RMB per month.

TABLE 35. Projected monthly operating expenses

RMBSalaries 16,000Electricity 1,500Telephone 2,600Gasoline 3,000Contract truck transportation 4,200Office expenses 500Travel 1,000Entertainment 1,000Q.C. Testing 500Repairs 500Contingency 1,000Subtotal 31,800Loan Interest 17,500Total monthly operating expenses 49,300

TABLE 36. Fixed costs for break even calculation

Monthly AnnualOperating expenses 49,300 591,600Marketing programs 5,000 60,000Total fixed 59,300 651,600

TABLE 37. Contribution per bottle and per customer

RMBRevenue per bottle 8.50Less:

Manufacturing costs (1.64)Transport to Xi’an (1.45)Transport to customer (2.27)

Equals: Contribution per bottle 3.14


FIGURE 7. Calculation of customers required for break-even

Average bottle consumption per customer per month

3.75

Average consumption per year 45Contribution per customer per year 141.34

TABLE 37. Contribution per bottle and per customer

RMB

2 4 6 8 10 12 14 16 18 200.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5RMB in millions

Thousands of customers

Fixed CostsContribution


11.5 Projected cash balance• Cash balances, after the Imagene investment should decline to 706,000 RMB in May, 2000.

After July, the Company should begin accumulating cash from operations.

FIGURE 8. Projected cash balance, October, 1999 to September, 2000

TABLE 38. Cash projection, October 1999 to September, 2000

Cash in Cash out BalancesOpera-tions

Invest-ment

Total cash in

Opera-tions Purchases

Total cash out

Net Monthly

Cash

Cash Balance

Oct 43,850 1,203,500 1,247,350 49,300 331,000 10,000 867,050 877,050Nov 56,450 - 56,450 49,300 189,000 877,050 -181,850 695,200Dec 61,700 - 61,700 49,300 52,000 695,200 -39,600 655,600Jan 66,950 - 66,950 49,300 0 655,600 17,650 673,250Feb 77,325 - 77,325 49,300 105,000 673,250 -76,975 596,275Mar 84,675 - 84,675 49,300 0 596,275 35,375 631,650Apr 92,550 - 92,550 49,300 0 631,650 43,250 674,900May 105,550 - 105,550 49,300 225,000 674,900 -168,750 506,150Jun 115,525 - 115,525 49,300 0 506,150 66,225 572,375Jul 126,025 - 126,025 49,300 140,000 572,375 -63,275 509,100Aug 141,650 - 141,650 49,300 0 509,100 92,350 601,450Sep 128,625 - 128,625 49,300 0 601,450 79,325 680,775

Oct

ober

Nove

mbe

r

Dece

mbe

r

Janu

ary

Febr

uary

Mar

ch

April

May

June July

Augu

st

Sept

embe

r

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

-100,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

RMB

Net Operating CashCash Balance


The summary of operations in presented in the Company’s financial model in the Appendix.

11.6 Schedule of reports

11.7 Useful benchmarks

11.8 Key drivers of the business1. Number of customers2. Transportation efficiency3. Price realization

TABLE 39. Schedule of Reports

Report FrequencyProduction and dellivery WeeklyMarketing Every 2 weeksFinancial Monthly

TABLE 40. Useful benchmarks to measure progress

Data BenchmarkReport Frequency Comment

Production and deliveries to Xi’an Increasing Weekly Deliveries include revenue and promotional bottles.

Daily deliveries to customers 300 Weekly Deliveries 7 days per week. 300 represents about break-even volumes.

New customers per month 200-300 Monthly Budget projection.Bottles per customer 4-6 Monthly Below 4 and deliveries degrade;

above 6 and inefficiencies arise. Revenue per bottle 8 Monthly Below 8 indicates too deep dis-

counting on price. Promotional bottles per month 4,000 Monthly Above 4,000 exceeds budget.Accounts receivable retail shops Monthly Increases in A/R should track

increases in customers. Inidca-tor of financial condition of retail shops.

Cash balance 500,000 RMB Monthly Should not go below 500,000 RMB


IndexAAccounting 32Accounts payable 34Administration plan 32Administrative gaps 33Administrative initiatives 33

BBackground 1Benchmarks 44Bonus plan 36Bottle damage and losses 26Bottle locations 32Break-even analysis 41Burn rate 41Business System 2Buying decisions 20

CCapability gaps 4Cash balance, projected 43Cash controls 32Company plan 1Competition 18Consumption rates by segment 12Contribution 41Current position 3Customers by segment 12

DDispenser sales 14Dispensers in institutional accounts 17

FFamily market 16Financial plan 39

GGoals and targets 1

HHealth concerns over distilled water 21

IImagene investment, uses 39Initiatives, overview 5Initiatives, summary 1Institutional market 16

JJoint venture organization 38

LLogistics 32

MMajor purchases 34Major purchases, schedule 40Management team 36Manufacturing costs 25Manufacturing inventories 25

Manufacturing plan 25Manufacturing upgrade programs 26Market positioning 22Marketing plan 16Marketing programs 19, 23Marketing strategy 22Memorandum of Agreement 36

PPeople 35People gaps 35Price realization 13Price realization, segment and channel 13Production plan 26Production, 1999 26Profitability by channel 14

RRevenue summary, 1999 10

SSales by channel 12Sales forecast 10Sales plan 10Sales programs 15Sales strategy 15Sales, current situation 10Schedule and milestones 7School market 18Small bottle line 37Staffing 35Summary of Operations, 1999 39

TTarget markets 16Ticket revenue, 1999 11Transport costs for one bottle 30Transportation costs 29Transportation gaps 30Transportation initiatives 31Transportation plan 28Transportation system 28

Aleba Water Business Plan | 1999

Business

Transcript of Aleba Water Business Plan | 1999