Manufacturing of water-absorbing packaging for food products

Short description of the business

Starting of expanded polystyrene packaging manufacturing, on the one hand is connected with the huge demand for this kind of product and on the other hand with launching of a new product on the Ukrainian market: Water-absorbing packaging which is made by using “VAMPIR” technology, is a domestic substitute, price of which is 30% lower

Manufacturing and suppliers

For the implementation of the project has been done:

1. Provision and outfitting of the production department
2. Building of the end product storage warehouse
3. There is a qualified personnel with extrusion experience

Works, which are needed to be done:

1. Purchasing of equipment for expanded polystyrene sheets and not reusable food packaging manufacturing (VFK Head Corp, Korea)
2. Assembling and commissioning of equipment
3. Personnel training
4. Raw material purchase

As a row material for packaging are used:

• crystalline polystyrene
• granular or pulverulent talc 1-5%
• propane/butane mix 8-10%
• yellow and black color concentrates

Raw material suppliers in Ukraine: nearly 7 main suppliers provide with raw material

Manufacturing technology consists of following stages:

• Manufacturing of expanded polystyrene sheet on the extrusion section by using tandem plastic profiling machine
• Maturation of produced package for foaming agent removal and substitution of it by air
• Thermal molding of the packaging with Thermforming machine

End product is packed in plastic bags and transported to the storage for offloading for consumers

Cutting wastes after perforation of Thermforming machines are fractionized by breaking machine and delivered to granulation line for production of secondary granola, which provides non waste trade cycle.

Information about the product

There are 2 types and 2 kinds of products, which are available on market:

Types of end product:

1. Ordinary package – is used for different goods
2. Moisture-absorbing package –is used for meat

Kinds of product packaging in stretch wrap:

1. Manual - packaging of the product in the stretch wrap
2. Automatic – automatic packaging of the product in the stretch wrap

As a result of project kick-off there will be 2 kinds of product:

1. Ordinary package for automatic packaging in stretch wrap
2. Water-absorbing package for automatic packaging in stretch wrap

There are only import packages for automatic packaging and water-absorbing packages on the market. Our production will be domestic substitute and 30% cheaper for a customer.

Competitive advantages of the product

Competitive advantages of the product reveal themselves through the             customer solution and advantages over analogical products.

Customer solution

Meat manufacturers are facing with following disadvantages while packaging meat products using ordinary packages with water-absorbing cloth:

1. Small amount of moisture is absorbed

Solution: water-absorbing package for a weight of only 5 g absorbs 50 g of liquid

2. If not changed in time, evolves unpleasant smell

Solution: water-absorbing package absorbs liquid and prevents unpleasant smell

3. Water-absorbing cloth has an unpresentable appearance

Solution: water-absorbing package raises a level of product confidence

4. Prohibition on export to the EU using water-absorbing cloth

Solution: Usage of water-absorbing package allows exporting the product to the EU and other countries.

5. Necessity of supermarkets to repack the product using water-absorbing cloth

Solution: Usage of water-absorbing package will prevent repacking

Market and competitive environment

Currently on the territory of Ukraine works only LLC “Novopak SV” (Rzhyshchiv city) – which is the monopolist on Ukrainian market, productive capacity of which allows providing the 40-45% of Ukrainian market and it is by manufacturing ordinary, non-absorbent package.

Import of similar products is performed by one of the biggest Russian manufacturers, namely “Protek” company, which provides 40% of Ukrainian market.

Distribution and marketing

Distribution system: direct sales

Advertising and marketing: corporate site, participation in specialized exhibitions, conferences.

Main consumers’ categories: meat and poultry manufacturers, distributing facilities, large shops.

Preparatory negotiations about product purchasing were held with:

1. “Myronovskiy khleboprodukt” Bakery Factory
2. “Agroprodservis”
3. “Myrgorodskiy myasokombynat” Meat Processing Plant
4. “Mriya” Meat Processing Plant

Finances

Self-cost summery calculation of 1 pc of product:

1. Material expenses – 0, 03147 UAH/pc
2. Depreciation costs – 0, 0015 UAH/pc
3. Labor payment expenditures – 0,00060 UAH/pc
4. Operating expenses – 0, 023 UAH/pc
5. Unforeseen costs- 0, 001 UAH/pc

Total sum: 0, 058 UAH/pc

Project guarantees profit, starting from the first year.

Clean profit for the first year of functioning of the project is estimated in $1,17 mln, for thesecond - $1, 423 mln, and for third - $2, 036 mln.

Total profit from project implementation for 3 years is estimated in $4, 6 mln

Potential risks

Risks:

1. Equipment breakage risk.

Risk is minimal. Equipment is of high-quality. VFK Head Corp, Korea manufacturer provides US, Indian, Chinese, Taiwan, Russian, Polish and Mexican markets with equipment. Warranty period: 3 years. Representative office in CIS countries is located in Ukraine, Kyiv

2. downside risk

Even when considering a pessimistic scenario the project guaranties positive money flows starting with the first year and it is profitable. This risk is estimated as average.

3. Risk of expanded polystyrene package`s decrease in price

Market analysis of expanded polystyrene package`s sales showed that demand for this kind of products has outreached supply. This risk is estimated as average.

4. Inner economic factors

Inner economic risks are estimated as average, as the demand for the product is stably increasing, and the product is import-substituting, which gives clients the opportunity to withdraw from foreign currency component.

Opportunities:

Production export, which is able to meet competition both in quality and price on European, CIS and other countries` markets.    

Management and personnel of the business

Project initiator: Sergei Mikhailovich

Key accomplishments:

1. Construction and startup of LLC _____ production. Introduction of products to the Ukrainian, European and CIS market. Currently the company takes the 1^st place in machinery manufacturing.
2. Construction and cooperative startup with Turkish company _____ of LLC _____(TM Wintech) production. PVC –profile manufacturing and sales construction on the markets of Ukraine and Europe. The company is in top 5 best companies in quality and value of PVC –profile manufacturing and sales.
3. Construction and startup of polystyrene manufacturing in Dniprodzerzhynsk. The company is in top 5 best polystyrene manufacturers, from 80 companies-participators of the market on the territory of Ukraine.
4. Startup of a similar polystyrene manufacturing in Georgia, Batumi in 2011. Conclusion of direct contracts of end product implementation. №1 polystyrene manufacturing enterprise in Georgia.
5. Cooperative startup of PVC –profile manufacturing under the contract with LLC “Lukoil” company. End product sale system construction on Ukrainian and CIS territory. The company successfully produces and sales the end product.

Description of the company-initiator of the project:

Location: Kyiv

Daily operations: LLC _____ is one of the leaders in paper cup (made of chemical board) manufacturing by using PMS machines, in Ukraine. Currently company can produce 300 mln pc per year. Paper cups can be used on vending chains, food outlets, marketing, cultural, sport and corporate events.

Enterprise assets: Property. Equipment. Transport

Business lifespan period: 10 y.

Headcount: 40 p.

Assets price: 7 000 000, 00 (prices for 2006)

Gross profit (last year): 52, 5 mln UAH

Success factors

1. Product - import-substituting product at a smaller price, which provides the solution of clients problems and is in requisition.
2. Manufacturing machinery of high quality.
3. Existence of management team for implementation of the project with a wide experience in similar sphere.
4. Ability to build the marketing and production distribution, including the markets of Europe and CIS countries.
5. Project management will be performed by initiator of the project himself, who has a wide experience in similar business
6. Initiator`s contribution to the project – all the needed property and funding equal to $300 000, 00, organization and startup of the project, business management.