Session 4-5-Case 2 - By-The-Sea Biscuit Company A Decision in New Venture Analysis - Case

NA0361
By-the-Sea Biscuit Company: A Decision

in New Venture Analysis
Sherry Finney, Cape Breton University
I
n mid-January 2007, Paul Finney went to his computer to check his messages after
a long day at work. An email from Lenus Bungay caught his attention, and he
clicked on it immediately.
Hi Pat and Paul:
Haven’t heard from you in awhile. Please give me an update if you can and let me know
what the next move is.
Regards, Lenus
Bungay was the CEO of the newly formed Cape Breton Innovation and Research
Council (CBIRC), a private corporation that had recently assumed ownership of
the defunct Clearwater seafood processing plant in North Sydney, Nova Scotia. The
fundamental purpose of the new council was to expand and develop local business
by accessing new technology, new ideas, new products, and new markets. In August
2006, Finney and his long-time friend, Pat Jobe, had presented a business proposal to
Lenus and his board that recommended establishing a frozen biscuit manufacturing
operation in the former seafood plant. The facilities were perfect. CBIRC immediately
expressed interest in the concept and thought the business plan was sound. Finney
and Jobe, although convinced of the merits of the product concept, still had some
questions that needed answering before they could make a final assessment on the fea-
sibility of the business. Both were employed full-time, and the decision to leave their
jobs to pursue this business was not one they could make lightly.
Finney picked up the phone and called Jobe at his home in Minneapolis, Minne-
sota. “Paddy, where do we go from here? We need to give Lenus some sort of response
as to where we stand, but I think we need to finalize our financial projections first, and
that requires a closer look at the market potential.”
Business Principals
Pat Jobe was a native of Sydney Mines, Nova Scotia and a 1989 graduate of Cape
Breton University’s chemical technology program. Like many others, Jobe left Cape

Copyright © 2015 by the Case Research Journal and by Sherry Finney. All rights reserved. The author
developed this case for class discussion rather than to illustrate effective of ineffective handling of the
situation. An earlier version of this case was presented at the Marketing Track at NACRA’s annual meet-
ing in Keystone, Colorado, October 2007. All materials in this case, unless otherwise noted, have been
provided by the case protagonists.

By-the-Sea Biscuit Company: A Decision in New Venture Analysis 1
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Breton to follow work with the hope of moving back home someday. For eleven years
he had worked in Atlantic Canada in various animal feed and food processing envi-
ronments. In 2000, he moved to the U.S. to work for Ralston Purina International in
Greenville, MS. Two years later, Cargill bought Purina International, and Jobe relocated
to Minneapolis, MN. At Cargill he acted as head of Cargill Animal Nutrition’s Process
Applications research department. He focused on feed plant systems for three years
and developed four patented processes. In 2005, Jobe moved on as an independent
consultant. In 2006, he spent much of the year as a project manager for a private firm
in Cookeville, TN. As part of his contract, he designed and supervised the construction
of a frozen biscuit processing line that produced 15,000 frozen biscuits per hour.
Paul Finney was also a native of Sydney Mines and continued to live there. Finney
was a graduate of Nova Scotia Community College’s electro-mechanical technician
program and recipient of the Governor General’s Medal, the highest academic award
given during convocation ceremonies. He was a journeyman heating technician and
4th class stationary engineer and possessed several training certificates in such areas as
indoor air quality monitoring and control, ventilation and air conditioning, and occu-
pational health and safety. Finney had managed his own successful heating business
in Cape Breton for the past eighteen years. His business was family-owned and had
earned a reputation for superior customer service since it was established by Finney’s
father over forty years before. In 1996, Finney became involved in property manage-
ment and owned several residential and commercial rental properties. In 2004, his
interests expanded into the tourism accommodation industry. Previously, Finney had
also designed and manufactured a micro-encapsulation assembly for one of Jobe’s proj-
ects with Purina.
Finney and Jobe had worked together on smaller projects in the past. However,
for several years they had discussed a variety of possible opportunities, but they had
never progressed beyond the idea stage. Ideally, they wanted to work together and for
themselves, using their acquired skills. When Jobe left Canada for the United States,
he intended it would be a five-year plan, which would allow him to gain some experi-
ence and make some contacts. It was now seven years since he had left Cape Breton.
When Finney learned of the newly formed CBIRC in July 2006, and the orga-
nization’s interest in finding alternative uses for the plant, he immediately contacted
Jobe about the idea of a frozen biscuit line. Jobe supplied the production and costing
information, and Finney set to work on the market research. A plan began to form,
and what resulted was the beginning of the By-the-Sea Biscuit Company. Finney’s and
Jobe’s idea was to utilize Clearwater Seafood’s fish processing plant as a frozen dough
plant, initially dedicated to manufacturing frozen, ready-to-bake biscuits, and poten-
tially making other similar products later. The name, By-the-Sea, was selected because
of Cape Breton’s island location.
Frozen Dough Industry Background

Finney’s research on the bread industry indicated the traditional methods of baking
bread often resulted in products with a relatively short shelf life that quickly became
stale. It was these shortcomings that led to the development of a manufacturing
method for frozen dough in the early 1960s. Although it was a great idea, a lack of
knowledge and manufacturing experience prevented the frozen dough from matching
the quality of fresh dough made by hand from scratch. By the 1970s, research into

2 Case Research Journal • Volume 35 • Issue 1 • Spring 2015
freezing techniques helped producers understand the characteristics of frozen dough.
As a result, researchers discovered how to retain the texture and extend the shelf life
of the product. By the 1980s, a better understanding of dough chemistry allowed the
quality of frozen dough to become more acceptable and marketable. By 2006, natu-
ral additives allowed manufacturers to produce frozen dough that was comparable in
quality to homemade dough. Another critical part of the production process related
to the need to employ a rapid freeze method to minimize yeast fermentation during
dough preparation. According to Finney’s and Jobe’s research, every indication was
that frozen dough would be the future of the bread industry.
The Bread Market in 2007

The Retail/Wholesale Biscuit and Bakery Market
Jobe knew from his recent contract work that the frozen dough market was strong
in the United States, but he really did not have an understanding of the situation in
Canada. Finney’s research revealed some surprising and promising information about
the bakery market in general. According to research by Agri-Food Canada, there were
many growth opportunities in North America’s biscuit and bakery market. In fact, the
organization went so far as to state that Canada was “the location of choice for manu-
facturers of biscuits and bakery products for the North American market.” Similarly,
a report by the Alberta Department of Agriculture, Food, and Rural Development
stated, “the opportunities for greatest expansion in the bread and dough market will
be in wheat-based, ready-to-eat baked goods in frozen, ready-baked or par-baked (par-
tially baked) frozen dough and mixes.”
Other research predicted growth in this market. Between 1998 and 2006, the retail
value for bakery products produced in Canada had increased by 43.8 percent. In 2004,
the retail market was estimated at $6.3 billion and the average Canadian household
spent $536 annually on bakery products, up from $135 in 1998. The United States,
UK, and Japan were the top three countries for Canadian exports of the product class.
The total value of bakery exports to the United States in 2005 was $545 million. This
figure did not include exports of frozen or par-baked products. Nova Scotia manufac-
turers accounted for $7,385,110 or less than 2 percent of this figure. From Finney’s
and Jobe’s research, it appeared that Canada’s comparative advantage in this industry
over the United States was based on an excess supply of high quality wheat, lower sugar
prices, lower energy costs, and competitive overhead costs.
The partners also conducted additional research on the domestic market, which
revealed that the wholesale commercial bakery/frozen bakery manufacturing market was
experiencing steady growth as well. According to Statistics Canada, these sales figures, as
outlined in Table 1, were calculated by adding manufacturing shipments to total imports
and subtracting total exports. With the exception of the slight decline between 2001 and
2003, which analysts attributed to the Atkins craze and carb-reduction diets, the overall
growth in the bakery industry, in general, was positive. These figures were reflective of
commercial bakeries, including those manufacturing frozen dough products.
The Frozen Dough Market

However, although bread consumption patterns were important, Finney and Jobe
were particularly interested in trends within the frozen bakery market. Unfortunately,

they could not find any industry statistics other than those reported by various gov-
ernment departments, and they wondered how much faith they could place in those
figures. They felt uncomfortable using data from only one source and the information
was not specific to frozen biscuits.
Based on anecdotal information, it appeared to Finney and Jobe that the frozen
biscuit market was more developed in the United States. Jobe said it was commonplace
to see shoppers with a “bag of a dozen frozen biscuits” in their carts. As well, many
U.S. restaurants served a complimentary southern-style biscuit before any meal. Jobe
observed that biscuits had become a staple food in certain U.S. regions. In Canada,
the biscuit market appeared less developed. However, there was indication it was grow-
ing. Finney noted that one of the local supermarket chains recently began to carry a
limited line of frozen bakery items, including croissants, pizza dough, and rolls. Finney
thought these unbranded products appeared to be manufactured or at least repackaged
by the retailer. While calculation of the actual percentage of final household consumers
that had used this kind of product before was difficult to determine, it was safe to say
it was more widely consumed in the United States, but was gaining entry in Canada.
As an example, Tim Hortons, a fast-food restaurant chain best known for its coffee
and donuts, was testing a sandwich breakfast item featuring a biscuit with an egg and a
choice of sausage, bacon, or cheese in its test markets in New England and certain mar-
kets in Canada. Recently in conversation, one of Cape Breton’s Tim Hortons franchise
owners had indicated to Finney that other provincial stores were now test marketing
the biscuit/egg product and that he expected to have them in his stores soon.
This anecdotal information alone was not enough, though, so Finney turned to
secondary sources. Sales figures for Canada had been difficult to find. However, in
the United States, a 1997 report stated that, “biscuit dough accounts for 41 percent
of refrigerated/frozen dough product sales. Biscuit dough sales are expected to have an
increase of 6.5 percent annually, with forecasted sales of $3.2 billion by the year 2000.”
Finney was disappointed the data were so dated, but at least it was a starting point.
In trying to determine market size, he felt he would be conservative if he assumed an
annual growth rate of around 5%. Based on this assumption, Finney calculated the
average U.S. per capita expenditure in the product class to be approximately $14.33.
He calculated this figure by dividing the projected annual sales value for 2006 by the
U.S. population ($4.29 billion/299,344,150). According to an Agriculture Canada
Comparative Consumer Profile report, Finney knew that in 2004, U.S. consumers
spent 17.7 percent of annual food consumption on bread products, while Canadians
spent approximately 15.4 percent in the same category. This represented a difference of
about 15 percent. Finney really had no concrete information to go by for the Canadian
frozen dough market, but believed he would be very conservative in his estimate if he
projected the average per capita expenditure by Canadians would be around $12.20
(or about 15 percent less than that of U.S. customers).
With respect to purchasing habits of the final household consumer, further research
was required to determine exactly what percentage could be expected to be repeat
purchasers. A secondary consideration related to how people used the biscuits. For
instance, if it was positioned as a “breakfast” item or before meal biscuit, regular pur-
chases could be expected by a segment of the market. Finney also learned, however,
that another segment of the population associated this kind of product with special
occasions only (i.e., Christmas holiday, Thanksgiving, and summertime gatherings).

The motivation of this buyer was convenience and freshness. Unfortunately, consumer
behavior information was not readily available, but informal market observations indi-
cated a very strong movement to position biscuits as convenient breakfast alternatives,
making them available in such locations as gas stations and fast-food franchises.
Market Trends
There were also several demographic and social/cultural shifts that were occurring,
which had an impact on this market. One trend within the United States, and quite
possibly Canada, was increased demand for products for the single-person house-
hold, which has resulted in higher demand for single portion/convenience packaging.
Consumers were also moving away from traditional breads toward premium healthy
and natural foods that also provided a different eating experience. Analysts expected
demand for whole grain breads to surge and there was also an increased interest in
artisan breads, which were burgeoning in popularity among Canadians, due in part to
Canada’s diverse population. While Finney had no hard data to support this growth,
he knew he had seen the changes himself in the range of bread products carried at local
grocery stores. As with many product classes, convenience was cited consistently as one
of the hottest food trends, and frozen dough and previously frozen fresh baked bread
products were not an exception. Finney’s and Jobe’s research revealed that custom-
ers wanted high quality products that they could prepare quickly. Added to this was
the growth in the number of on-the-go consumers who wanted portability in bakery
products. To meet this demand, bite-sized bakery products in innovative, portable
packaging were becoming popular. Finally, with the increasing awareness of various
food intolerance conditions and unsafe imported food, demand for organic products
was experiencing rapid growth. Finney had learned that by 2001, demand for organic
food in Canada had experienced an annual growth rate of 20 percent. Research by Sta-
tistics Canada had also revealed, “the majority of Canadians are willing to spend more
for chemical-free food, and 25 percent would spend up to 50 percent more.”
Major Players
With a better understanding of the market, Finney and Jobe tried to learn more about
the competitive situation. They found a report by Statistics Canada called a Com-
pany Directory for Commercial Bakeries and Frozen Bakery Product Manufacturing
(NAICS 311814) Facilities. After a careful review of all the companies listed in that
directory, they learned that only twenty-three of the 140 listed were actually involved
in frozen or partly baked manufacturing. Four of these businesses were in New Bruns-
wick and one was in Nova Scotia. The same report also showed information about
the export market. Specifically, the report stated Canada Bread Company Limited,
a multinational firm that operated in Canada, the United States, and England, had
positioned itself as the leader in par-baked breads in the U.S. market, with a 50 percent
market share. All research of the par-baked industry within Atlantic Canada, however,
revealed no players, specifically when it came to biscuits. There were other dough
products being sold in the grocery outlets (rolls, crust, and croissants), but biscuits had
not yet been offered in the marketplace.

The Marketing Plan
Target Markets
Geographically, Finney and Jobe saw their target markets as initially being Atlan-
tic Canada, particularly New Brunswick, Nova Scotia, Prince Edward Island and
Newfoundland, and the six New England states plus New York state (see Table 2
for population figures). Finney found published reports that stated the United States
continued to be the primary export market for Canadian bakery products. The same
reports further stated that Canadian firms were among the first in North America to
develop quality frozen dough, and many of these firms had established a strong pres-
ence in the U.S. market for their frozen products. Canada Bread Company was the
only manufacturer specifically mentioned.
Many of the regional markets in the United States were large, geographically close
to Canada, and continued to exhibit potential, particularly in the categories that
related to serving the growing in-store bakery segment of U.S. retail grocery chains.
While Finney and Jobe intended to concentrate their efforts in these regions initially
because of their proximity, they were certainly interested in looking to other inter-
national markets later. From their research on major players, they saw that several
Canadian operations were already actively involved in exporting their products to the
United States and locations as far away as Australia. Finney also found a report that
mentioned Japan, Singapore, Hong Kong, and the UK as promising frozen dough
export markets.
Once they had decided on geographic territories, the partners next turned their
attention to possible buyers within those regions. Finney’s and Jobe’s research revealed
that in-store bakeries were considered the leading users of frozen dough in terms of
business and total dollar sales. As a result, they extended their investigation to consider
possible B2B (business-to-business) outlets. Research of the Atlantic Canadian mar-
ket had revealed three major wholesale grocery chains: Atlantic Wholesalers, Sobeys,
and Co-op Atlantic. Finney and Jobe would have to do some additional research to
determine how many grocery outlets had in-store bakeries. However, stores that did
not have in-store bakeries would also represent a segment of the market, as they would
sell the biscuits in their frozen form to final household consumers. They were fairly
confident that of the three large players in Atlantic Canada, they could land a supply
contract with at least one.
The wholesale and retail operations of Atlantic Wholesalers Ltd. included the
following stores: Atlantic Superstore, Atlantic SuperValu, IGA, Atlantic Save Easy,
Omni, Red & White, Foodtown, Foodmaster, Quik Mart, Smart Cart, and Valu-
Mart. Its modern distribution centers in Halifax, NS, and Moncton, NB, supported
the retail network, franchise group stores, large independent retailers, and Cash &
Carry outlets.
In the Atlantic region, Sobeys operated eighty-three corporate Sobeys supermar-
kets, forty-one Foodland stores, thirty Price Chopper stores, 143 Needs convenience
stores, and three Sobeys Express and sixty Lawton’s drug stores. Sobeys also operated
ten distribution centers in Atlantic Canada.
Co-op Atlantic operated seventy-five full-service Co-op, sixteen Co-op Basics and
nineteen Valufoods stores in Atlantic Canada and Magdalen Islands, PQ. The part-
ners felt that Co-op Atlantic might be the most appealing customer because it was an
operation that focused on local producers. The Co-op believed that local communities

benefited by supporting and buying local products. It was also a smaller operation,
with only 20 percent of the market, as self-reported. Finney and Jobe were more con-
fident in their ability to provide constant supply to a smaller retailer located within
their immediate geography. Sobeys and Atlantic SuperValu also purchased from local
suppliers, but it was part of the mandate of the Co-op to proactively support local sup-
pliers. Currently, Co-op did not have a supply of frozen bread products.
For the six New England and New York states, or northeastern U.S. market, the
most viable outlet appeared to be Price Chopper, a regional cooperative. Price Chop-
per had 112 stores in these regions and held market shares ranging from 6 to 36
percent (see Table 3). Based on research, Finney and Jobe believed they should avoid
targeting national and/or regional chains (i.e., WalMart). They agreed, at the onset at
least, that supplying a national chain was beyond their capabilities and interest. Price
Chopper seemed to be a viable market for them. Geographically, it was accessible, and
Jobe had a good handle on what the U.S. buyers were paying. He knew By-the-Sea
could compete on price and he also believed they could differentiate with a healthy
biscuit alternative.
For Co-op Atlantic and Price Chopper, Finney projected that By-the-Sea would
be able to capture 50 percent of the frozen biscuit sales of both retail chains in their
respective geographic markets. He based this projection on Jobe’s market experience
and the fact that with little or no competition and their ability to offer competitive
prices, a significant share of the market should be possible. Reaching this 50 percent
share figure would probably take several months, however. Finney felt comfortable in
projecting a 10 percent share in the first month, followed by a 10 percentage point
increase each month thereafter until 50 percent was reached. Finney was also aware
that fluctuating currency exchange rates would have an important impact on their
ability to sell to U.S. markets. Recently, the Canadian dollar was gaining strength and
as of January 2007, the U.S. dollar was valued at $1.16 CAD.
Products and/or Services and Unique Selling Proposition

After their investigation of the market, Finney and Jobe had decided on their initial
product offering and positioning. By-the-Sea’s frozen dough biscuit line would include
two variations: a “traditional country” white flour biscuit and a “healthy Omega 3”
flax-enriched biscuit. Jobe perfected the recipe for the white flour biscuit and pro-
duction could begin immediately. The product had undergone a limited number of
trial tests with consumers. Finney and Jobe needed to conduct additional research to
develop the recipe for the flax version. But that would be down the road. With respect
to the appearance of the biscuit, it would be “puck” shaped, and would measure
approximately three inches in diameter and 5/8 inches in height, in its frozen form.
As the partners envisioned, the main benefits or services provided to consumers
through this product included savings, convenience, freshness, and health benefits. For
the busy mother who wanted to provide a “home-baked” biscuit with dinner for her
family, the frozen version allowed her to pop three or four in the oven, 10–12 minutes
before supper, and they would be ready just in time to be placed “hot on the table.”
Finally, they saw two competitive advantages of By-the-Sea’s product: (1) lower
ingredient, labor, and operating costs would allow the company to be price competi-
tive with most other Canadian and U.S. producers and (2) the company planned to
offer a flax-enriched biscuit product that would be appealing to the health-conscious

consumer. Jobe knew they could be price competitive based on his current knowledge
of similar U.S. competitors. Labor costs would be less in Cape Breton and the rental
rate at the CBIRC facility was significantly less. Further, in Finney’s and Jobe’s research,
they had not found evidence of another manufacturer of frozen biscuit dough which
had differentiated its product by offering a “healthy” alternative.
Pricing
From Jobe’s recent contract work setting up a production line in Tennessee, he became
familiar with the cost to produce one case of 216 white flour biscuits. Accordingly, he
was able to estimate costs to produce the same quantity in a Cape Breton location (see
Table 4). Based on knowledge of wholesale prices in the industry and awareness of the
need to be competitive, he proposed that By-the-Sea would price its traditional biscuit
variety at $13.50 per case. Even considering shipping costs, this price allowed the com-
pany to be competitive. Jobe knew from his experience that a leading United States
competing branded product wholesaled for approximately $25/case of 216 biscuits
(exclusive of shipping). It was important for By-the-Sea to be competitive in its pricing
because shipping costs were to be paid by the buyer and given the location of By-the-
Sea, this was certainly an important consideration. Although the leading competitor’s
price did not include shipping, its manufacturing facilities were significantly closer to
the U.S. market. Jobe felt there might be a bit of room to move on their price, but he
preferred to enter the market at the $13.50 level. Finney and Jobe also discussed the
need to have different pricing levels for wholesalers and smaller retailers. This needed
more research, but they expected the overall average to be near the $13.50 price level.
A bag containing a dozen biscuits typically retailed for $2.99 to the final consumer.
Distribution Plan
For the Atlantic Canadian market, Finney and Jobe proposed that distribution would
occur principally by selling direct to grocery retailers. Two potential retailers had been
identified: Co-op Atlantic in the Canadian market and Price Chopper in the United
States. Actual discussions, however, had not been held with either.
Typically, biscuits would be packed in bulk, 216 per case and cases would be pal-
letized. This quantity was the industry standard. Pallets were cold-stored for shipment.
Shipment would occur by refrigerated truck to Maritime destinations. The Maritimes
included Nova Scotia, New Brunswick, and Prince Edward Island. Refrigerated ship
containers might be a cost-effective alternative for U.S. Eastern Seaboard destinations,
as Finney learned from discussions with other local manufacturers of frozen product.
Shipments would be direct to a wholesale customer’s central warehouse. From there
it was the responsibility of the wholesaler/distributor to repackage and distribute to
retail stores. The delivery terms would be F.O.B. shipping point (North Sydney, NS).
Promotional Mix
Because By-the-Sea Biscuit Company’s initial product strategy was to offer an
unbranded product to channel intermediaries only, the promotional mix needed to be
different than it would be if the company had decided to focus on strong consumer
acceptance. Based on the partners’ research, they proposed the following promotional
campaign.

One of the more popular approaches in food promotion was direct solicitation
to the wholesaler/retailer. Usually, this was done by phone and potential buyers were
asked if they would like to receive a case of product samples. According to Jobe’s
experience, this offer usually was not refused. Along with the product sample, product
information including pricing was provided to potential buyers. For most buyers, price
was the number one consideration, followed very closely by quality. Potential buyers
were able to sample the product themselves and were assured of the quality.
Jobe also knew that another proven approach for gaining leads was to participate in
domestic and international food trade shows. At many of the international events, the
Canadian government sponsored a Canadian Pavilion and invited vendors to apply
for space. Participation at these events could be very costly, so it was very important
to conduct careful research to determine the profile of the tradeshow attendee before
selection. Finney had identified five possibilities and figured the company could budget
to attend two in the first year of operation. He also came across a report by Agri-food
Canada that stated, “Canadian frozen food manufacturers should target the Private
Label Manufacturers’ Association (PLMA) show in Chicago in lieu of The Fancy Food
Show. The PLMA show has significant foodservice and retail appeal for buyers in
the growing frozen food industry. Therefore, more Canadian exporters should use the
PLMA to demonstrate their strengths in frozen food manufacturing.” See Appendix
for a list of possible trade shows of interest.
A final component of By-the-Sea’s promotional campaign was the design and
promotion of a website to create leads for the company. By-the-Sea would supply
information and target it toward the retailer/wholesaler. Site visitors would be able
to obtain contact information for the company and information on how they could
receive samples, once verified as an approved buyer. Another thought was to incor-
porate a shipping cost calculator, so that buyers would be able to determine quickly
if By-the-Sea’s product, including shipping costs, allowed for an acceptable margin.
Obtaining listings on other industry sites would also be beneficial. Retailers would be
made aware of the website through personal selling efforts.
Finney and Jobe decided that if in the future, they decided to use a branded prod-
uct approach for By-the-Sea Biscuit Company, the promotional mix would change to
include a combined push/pull strategy. Initially, they intended to focus solely on sales
to grocery retailers for their own private labels. There were no immediate plans for any
consumer-based advertising.
Operations Plan
Physical Plant and Requirements
The Clearwater plant building was approximately 59,000 sq. ft. in area, of which
56,000 sq. ft. was on the ground floor. By-the-Sea’s total required floor space in this
plant was 9,000 sq. ft. (see Table 5). Because the company would be utilizing an exist-
ing plant designed for food processing (specifically seafood), Jobe expected that all
equipment specific to the production of frozen dough would be readily adaptable. The
partners had spent time reviewing a document outlining the existing physical plant
regarding water, power, refrigeration and cold storage, drainage, and sterilizing. They
did not foresee any special requirements or major modifications to the existing facility
to accommodate their needs. Further, the facilities of the Clearwater plant would be

perfect for conducting the quick freeze method. To outfit a facility with this equip-
ment would require such a significant capital expenditure that it would probably make
the venture too risky, otherwise. All required freezing equipment was in place if Finney
and Jobe decided to rent the Clearwater plant.
Jobe estimated that the time period between receiving the necessary equipment
and production start-up would be 4–5 months. This was the time taken to assemble a
similar biscuit production line in Cookeville, Tennessee.
Production Capacity
When the equipment was operating at 50–60 percent capacity, the average daily pro-
duction would be approximately 700 cases at 216 biscuits per case, 30 lbs. per case of
a 2.2 oz. frozen biscuit. The proposed production line was capable of producing more;
however, the freezing process could sometimes slow the production line. Although
it was very likely the freezing capacity of the refrigeration equipment at Clearwater
would allow for a more efficient freezing rate, Finney and Jobe felt comfortable making
their projections at this percentage.
Human Resources Plan

Administration and Staffing
According to Finney’s industry research, the average commercial bakery/frozen dough
manufacturing facility operated with an approximate 80/20 staff/admin ratio. Keep-
ing with the standard, Finney and Jobe believed their operation would have personnel
requirements as follows.
Business Manager—This individual would be responsible for the day-to-day
administration of the business including shipping/receiving, bookkeeping, payroll,
employee recruitment, training, health and safety, and production line equipment
monitoring. In addition, this individual would spend a portion of his/her time over-
seeing the production line, which would involve monitoring output, quality control,
and health standards. Finney would assume this role.
Product/Market Development Manager—This individual would be directly
accountable for product management, product planning, and overall delivery of new
product innovations to address the growing trends in the bakery market. This individ-
ual would spend some of his/her time on new product R&D. From a sales perspective,
the manager would also be responsible for generating and/or following up on leads and
servicing accounts. This position would also require a significant amount of time for
travel in order to attend trade shows and service accounts. Jobe would assume this role.
Production Line Personnel—Ten staff would be required to operate the production
line. Education requirements would be minimal. Training would be provided.
Financing Requirements
Finney had done some preliminary estimates of start-up expenses and they included
costs for equipment, initial inventory, and working capital. The cost for new equip-
ment was $158,000 and therefore, represented the maximum cost (see Table 6). But,
Finney and Jobe were confident they could locate good, used equipment and the esti-
mated cost would be approximately $100,000. Jobe had already located two used

commercial bakery lines for sale in Minnesota. The prices were $74,000 and $80,000.
They expected to finance this part of the project. They calculated initial raw mate-
rial costs for training purposes, testing, and first order to be approximately $30,000.
Finally, they expected working capital requirements to be in the range of $100,000.
Finney and Jobe would invest $30,000 each and the remaining capital would be
financed through an operating line of credit.
Finney had also generated a list of other anticipated operating expenses, which
included the following:
Operating Expense Category Expense Details

Rent and Electricity 9,000 sq. ft. Commercial rental rates in Nova Scotia ranged
from $8–14/sq. ft., so he assumed a negotiated rate of $10/sq. ft.
including electricity. He assumed that business occupancy taxes
would be paid by the landlord as part of the lease.
Salaries Managers—$40,000 annually.
Production Labor $10/hour or $21,000 annually, which was reflective of the
industry according to Statistics Canada.
Mandatory Employer Related 12%—This amount covered employment insurance premiums,
Costs pension plan premiums, and Workers’ Compensation premiums.
Marketing and Travel Expense Business cards, trade show attendance and displays (two shows
for the first year), website development. Total allocated budget
of $19,000.
Office Equipment Purchase of office furniture, computers, software. $200 per month.
COGS Expense Inventory expense would vary according to production levels.
COGS expense included the product itself as well as all packag-
ing costs ($7.78 variable cost/case).
Shipping Costs Shipping costs were included in all raw material ingredient prices.
Interest Payments Interest-only payments on $100,000 loan. Annual interest rate
of 7.5%; monthly interest payments of $625.
Conclusion
At this point during the phone call with Jobe, Finney became slightly distracted as he
began to contemplate the vast amount of data and information collected over the past
several months. He quickly brought himself into check and back to the conversation.
Jobe was responding to his plea to move the plan forward: “You’re right, Paul. I really
want to do this, but I can’t take the chance of leaving my work here and moving the
family back home unless I know the market is there.”
Finney agreed wholeheartedly. He offered to do some number crunching over the
weekend to see if he could get a better idea of the market size and sales potential in the
chosen markets. He also offered to put together a projected sales forecast and income
statement for the first year of operations and determine a breakeven point for sales. He
concluded the call, “Call me on Sunday night and we can hash this over. We really can’t
keep Lenus and his board waiting much longer. We need to make a decision on this.”
“Okay, talk to you Sunday,” Jobe replied.
Finney gathered his research material and began to pore over the figures. His pro-
jections would be based on his assumptions and his assumptions were only as good as
the market research he had done. He was excited at the prospect of the new business,
but knew that he could not let his excitement cloud his judgment. Finney immediately
focused on the task at hand so he would be ready for Jobe’s call on Sunday night.

Table 1: Sales of Commercial Bakeries and Frozen Bakery Product Manufacturing
(Value in Millions of Canadian Dollars)
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
NAICS 311814—Commercial
Bakeries and Frozen Bakery
Product Manufacturing 2,011 1,980 2,013 2,142 2,124 2,290 2,158 2,534 2,446 2,428
Source: Statistics Canada—NAICS 311814—Report Date: 26-Jul-2006
Table 2: Target Market Population Figures

Population in 2006
Relevant U.S. Market Figures
United States 299,344,150
New England States 13,922,517
New York State 18,976,457
Relevant Canadian Market Figures
Canada 32,623,490
Atlantic Canada 2,285,729
Source: U.S. Census and Statistics Canada websites
Table 3: New England and New York State—Market Share Held by Price Chopper
Market Share Percentage City Populations
Albany, NY 36% 95,658
Worcester, MA 19.5% 172,648
Utica-Rome, NY 17.6% 299,896
Burlington, VT 11.6% 608,827
Poughkeepsie, NY 6.7% 29,871
Syracuse, NY 12% 147,306
Source: Wikipedia, “Price Chopper,” Available URL: http://en.wikipedia.org/wiki/Price_Chopper. Accessed July 2006.

Table 4: Production Costs to Produce 700 Cases
Amount Unit Cost Total
Biscuit Flakes 840.00 Lbs. $ 0.53 $ 447.72
Cartons 700.00 Ea. $ 0.64 $ 445.90
Country Bake Biscuit Mix 6,961.50 Lbs. $ 0.38 $ 2,645.37
Flour 3,748.50 Lbs. $ .20 $ 730.96
Nitrogen – Gal. $ .59 $–
Poly Bags 700.00 Ea. $ .14 $ 100.10
Total Dough Weight 21,000.00 Lbs. $ 4,370.05
Total Material Cost (Cost/Case) $ 6.24
($4,370.05/700)
Production and Cleaning Labor to Produce 700 Cases 108.0 Hours $ 10.00 $ 1,080.00
$ 1,080.00
Operation Costs (Cost/Case) $ 1.54
($1,080.00/700)
Total Variable Cost Per Case w/o Fixed $ 7.78
Source: Pat Jobe
Table 5: Required Square Footage for Operations

Biscuit Line (40 ft. x 60 ft.) 2,400
Dry Ingredient Warehouse 2,000
Refrigeration Storage and Biscuit Freezing 3,000
Office and Maintenance 1,500
Total 8,900 sq. ft.
Source: Pat Jobe and Paul Finney
Table 6: Required Equipment List—Purchased New

Description Cost ($)
Blender 50,000
Incline Conveyor 10,000
Flour Dusters 3,000
Extruder and Conveyor 22,000
Sheet Rollers 25,000
Cutter 5,000
Scrap Return Conveyors 10,000
Shoot/Conveyor 8,000
Accumulation Table 5,000
Packaging Equipment 20,000
Total: All Equipment is Subject to Annual Depreciation of 10% 158,000
Source: Pat Jobe and Paul Finney

Appendix: Finney’s Notes on Potential Trade Shows
• Private Label Manufacturer’s Association (PLMA) 2006—November 12–14,
2006 (Chicago, Illinois). Canada has its own pavilion at this show. The show
normally features more than 2,300 exhibit booths, covering both food and
non-food products and attendees have included executives from the leading
supermarket and drug store chains, mass merchandisers, warehouse clubs and
convenience stores. It will be the largest concentration of private label buy-
ers of any show with more than fifteen international pavilions from Europe,
South America, and Asia. All-inclusive participation fees are:
(a) 10 x 10 corner single booth = $5,750
(b) 10 x 10 standard single booth = $5,350
(c) 20 x 10 corner double booth = $11,000
(d) 20 x 10 inside double booth = $10,000
• The Canadian Food & Beverage Show is the annual showcase dedicated exclu-
sively to suppliers of food and beverage products for the hospitality industry. The
F&B Show offers attendees the opportunity to develop new menu ideas from
over 630 exhibits as they prepare for the busy spring and summer seasons. The
2005 Food & Beverage Show attracted 9,776 qualified attendees, giving them
an opportunity to visit international, national, and local suppliers of branded,
specialty, niche, and commodity products. Booth spaces are sold in units of
10' x 10'. $2,200 per 10' x 10' (plus 7% GST) corner premium $150.00.
• HostEx is Canada’s largest hospitality trade show that combines restaurant
and accommodation operators from across the country with the leading sup-
pliers producing a dynamic once-a-year event. This national stage is an ideal
environment to understand the key trends influencing consumer tastes that
will attract more customers and operational efficiencies that reduce costs.
Nearly 9,000 foodservice professionals attend the Toronto-based show each
October, representing quick-service restaurants, full-service restaurants, bars,
caterers, and more. Available booth sizes: 10' x 12' (120 sq.ft.) and 10' x 10'
(100 sq.ft.) $2,200.
• ApEx is Atlantic Canada’s largest hospitality trade show, attracting leading
suppliers and foodservice professionals from throughout the region. A com-
plete range of food and beverage products and services are on display at the
show’s 350 booths. Held every April in Halifax, ApEx is the region’s biggest
annual foodservice event. Booths are a basic 10' x 10' pipe and drape (8' back-
wall and 3' sidewall). $1249.00 per booth Canadian funds (plus 15% HST)
• New England Food Service & Lodging, Boston, MA. NEFS provides access
to over ten thousand buyers from the New England Foodservice Market, rep-
resenting a cross section of the region’s foodservice industry, including buyers
from chains, restaurants, caterers, hotels, institutions such as hospitals, univer-
sities, and corrections facilities, distributors, wholesalers, and brokers. Rates are:
100–399 sq. ft. $23.75 per square foot
400–799 sq. ft. $23.25 per square foot
800 sq. ft. and over $22.85 per square foot
All leads obtained through trade shows will be followed up through either direct
marketing efforts or personal selling visits.


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By-the-Sea Biscuit Company: A Decision

Frozen Dough Industry Background

The Bread Market in 2007

The Frozen Dough Market

Products and/or Services and Unique Selling Proposition

Human Resources Plan

Operating Expense Category Expense Details

Table 2: Target Market Population Figures

Table 5: Required Square Footage for Operations

Table 6: Required Equipment List—Purchased New

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