Download PDF Pre-feasibility Study of Potato Chips Manufacturing Industry Investment in Pakistan

1.Summary

chips production lineThe potato chips project involves starting a potato chips manufacturing industry in any big city of Pakistan which will produce premium quality potato chips to be sold in the local market, competing with a few existing brands. The industry will be equipped with modern automated machinery for all the processes in order to ensure the quality of the final products.
Potato chips are recently appeared in Pakistan and have a great market share as the snack food market is represented by different types of biscuits and corn-based products in this period. With the improvement of people’s living standards and the invasion of satellites, the demand for potato chips is rising. However, high demand and limited supply give a great chance for new chips producers to enter the Pakistan snack food market.
The proposed production capacity of the plant is 150kg potato chips per hour. It will work in two shifts and operate at 50% capacity in the first year. The maximum capacity attained is 95% and the plant would operate at this capacity in the sixth year.

2.Introduction to Pakistan

Pakistan potato production chartPakistan, officially the Islamic Republic of Pakistan, is a sovereign country in South Asia. With a population exceeding 180 million people, it is the sixth most populous country and with an area covering 796,095 k㎡ (307,374 sq mi), it is the 36th largest country in the world in terms of area. As the country is so big, the climate varies from tropical to temperate. so the wheat production is very high and rice, cotton is also exported to other countries.
With such a climate, the potatoes are harvested three times a year. Potatoes are usually exported to other countries. Potato farming systems in Pakistan are comparatively complex and diverse. The northern area of Pakistan is the main seed-producing area and supply seed to the rest of the country. Potato is the only source of income in the northern area.

3. Purpose of the Document

The purpose of this pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment.
In order to serve this purpose, the document covers the proposed unit setup, the production line, the market information,
marketing, finance and business management, sectoral information, and international scenario which have some bearing on the
project itself.
Before studying the document, the following SWOT analysis will give critical aspects in setting up a potato chips manufacturing industry.
The SWOT analysis is the basis for any investment decision-making.

4. Crucial Factors & Steps in Decision Making for Investment

To set up a potato chips manufacturing industry, crucial factors are important to be considered and have a great bearing on decision making.

4.1 SWOT Analysis

SWOT Analysis indicates important marketing information of setting up a potato chips manufacturing industry in Pakistan, including strengths,
weaknesses, opportunities, and threats. All these critical aspects give a whole market landscape and play an important role in
decision making.
Strengths

  • Continuous availability of raw material as potatoes in Pakistan is harvested three times a year
  • The fully automated plant which requires less labor
  • Easy availability of cheap labor
  • Tariff cuts under Trade Agreements increase the export market of potato chips.
  • The improvement in living standards and the changed lifestyle increase the demand for potato chips.
  • The price of potato chips is affordable to all income groups.
  • Great potential market
  • Low transaction cost
  • The strong agriculture base presents a great opportunity for the food business to expand in the future.

Weakness

  • Inexperienced technical staff compared with the existed industries
  • Expected loss at the beginning stages of the operation

Opportunities

  • Improvement in living standard changes in the current eating habits of the people
  • Most of the snack food market about 40% is owned by un-branded chips, which can be captured through market
    campaign and promotion.
  • With the influence of western lifestyles and tastes, youngsters tend more towards snacks, especially potato chips.
  • The favorable policy enables potato chips export to neighboring countries, such as Afghan, China.

Threats

  • Lack of storage facilities leads to fluctuation in price and large production of potatoes wasted.
  • With the improvement of living standards, high-quality potato chips are needed.
  • Poverty is still very at large in Pakistan.
  • Competition exists between the new producers and the already established Multinationals in the potato chips market
  • Energy shortage
  • High inflation

4.2 Key Success Factors

Referring to key success factors for the proposed project, one of them would be to monitor the whole production process
carefully and technically in order to reduce material waste, oil waste, and energy waste to save cost.
The marketing and promotion of potato chips are other essential factors. In order to capture the market share and attract
customers, heavy promotion activities, advertisements, and marketing are obbligato and are the main ways to compete with the
established ones.
60% of the current potato chips market is occupied by Lay’s, Super Crisp, Golden Crisps, Smith, Kolson, and Kringles. The
remaining 40% is owned by the un-branded potato chips, and this share can only be captured through the aggressive marketing
campaign. A heavy budget is needed to enter the market.
Following are the key success factors:

  • Select the good raw material as the only best quality material can the producer produce high-quality potato chips.
  • Reduce waste production to save cost.
  • Monitor the whole production process carefully and technically with the best suitable technical parameters.
  • Innovation on the taste by using a variety of flavors.
  • Advance sale orders ensure the success of the business.
  • Estimate the material, potatoes, the requirement for the year, and contract for it in advance with the suppliers to avoid the
    fluctuation in prices of the potatoes.
  • Maintain the good quality to gain the brand loyalty of the customers
  • Strength the cost accounting system so as to monitor the whole process fluently.

4.3 Practical Tips

Before production, some factors also are needed to research. The most important factor in successful new product introduction
is a good match between the product and market needs — as the marketing concept would predict. Developing new products goes
through many stages before going to the market.

  • The roadmap of the future market
  • Generation of ideas coming from customers, distributors, competitors, research, and development
  • Business analysis
  • Research of competition and market to determine future profitability
  • Development of the product performance and safety
  • Introduce to test market to evaluate consumers response.
  • Commercialization
  • New products enter the market

5. Project Profile

5.1 Opportunity Rationale

With the invasion of satellites and the development of globalization, people in Pakistan have been influenced by western eating
habits, especially the youngsters who tend to emulate those of the west and consider it as a fashion. Currently, people tend to
consume western snacks and consumption is on the rise. Therefore, the potato chips market is also increasing at a high speed.
Before the launch of Lay’s, the Pakistan snacks food market is represented by biscuits, corn-based, and non-potato snacks. With
the improvement of people’s living standards, premium quality and internationally recognized potato chips are needed. With the launch
of Lay’s, high-quality potato chips appear in the Pakistani snacks scenario. As a very few local potato chip manufacturers in the
market that consumers are aware of and a single international producer-Lay’s, a new player has a great chance to enter the
market through heavy campaign and promotion activities.

5.2 The Project Brief

The project describes starting a potato chips manufacturing factory in any big city of Pakistan. The plant will produce high-quality
potato chips with a variety of flavors and good tastes that customers prefer.
For the proposed business legal status, it can either be sole proprietorship or partnership. It depends on the investor. This
pre-feasibility assumes the legal status to be the sole proprietorship.

5.3 Project Capacity and Rationale

The capacity selection is a critical matter that should be decided through market research. In this pre-feasibility study, the capacity
is 150 per hour of potato chips, which is the minimum viable size for the potato chips manufacturing industry.

5.4 Project Investment

The total initial cost of the project is estimated as follows:

Rupees
Capital Investment
36,886,430
Working Capital
26,650,806
Total Investment
63,537,236

The financing of the initial stage is as follows:

Percentage
Rupees
Debt
50
31,768,618
Equity
50
31,768,618
Total Investment
100
63,537,236

Returns Period is as follows

IRR
45%
NPV @ 20%
Rs. 211,063,976
Pay Back Period
4.18 years

5.5 Location

Integrated with all aspects of the market and economic development, the proposed industry can be set up in an industrial area of
a big city like Lahore, Karachi, or Islamabad, where the raw material is easily available and infrastructure exists. In this
pre-feasibility, this project is suggested to be located in Karachi.

6. The Market of Potatoes of Pakistan

Pakistan Potato Production

production potatoes tons of pakistan

Due to its favorable climate, Pakistan’s potatoes production is quite generous. Pakistan is one of the largest potato-producing countries. However, Pakistan as one developing country is lacking storage and processing facilities, which leads to lots of potatoes being wasted and the products being of poor quality. Lack of storage facilities also leads to fluctuation in price during the off-season.

6.1 Pakistan Potato Production

Potato as a cash crop is grown in Pakistan on about 145,000 hectares distributed over eight different agro-ecological zones. About 70 to 80 percent of the production is concentrated in the irrigated plains of central Punjab and Southeast northwest Frontier Province. There are three seasons of potato cultivation, i.e.autumn, spring, and summer.

The potato harvest seasons and the production volumes which differ from crop to crop are as follows:

Season
Production
November-March (Autumn Crop)
— (Punjab & NWFP plains)
Jan-Feb (peak harvest)
85% of the national potato production
April-May (Summer Crop)
5% (Punjab & NWFP plains)
July-September (High hills)
5% (Northern Areas)
September- October (High hills)
5% (NWFP & Balochistan)

The above chart indicates that the bulk of the potato crop is harvested from January to March. And the off-season is November to
March. This results in the fluctuation in prices. The market prices from January to March are lower than the remaining months.
This encourages exports which too are mostly made from the autumn crop.

6.2 Pakistan Potato Exports

The potential export market for snacks existed in the Middle East, Gulf countries, and the Central Asian states which have not been
explored, for example, Afghan and China. For the next decade, the export prospects are very bright. Besides that, tariff cuts
under Trade Agreements are anticipated, which will increase the benefits in exports.
Pakistan’s total export of potatoes in 2007 was $34.5 million and in 2008 was $20.6 million. Sri Lanka was the major importing
country of potatoes with a share of 56.4% of Pakistan’s total potato export in 2008. Iran was the second major country and the
share was 17.1%. Malaysia was the third. Pakistan also exports potatoes to Afghanistan, U.A.E, Iraq, Singapore, Oman, etc.

7. Market Information about Potato Chips

7.1 The Current Potato Chips Market

With the advent of globalization and adoption of the western culture, potato chips have become a major part of the snacks
industry. The current potato chips market is owned by a few local potato chips brands and a single international brand lay’s.
Lay’s, Super Crisps, Golden Chips, Smiths, Kolson, and Krincles lead the potato chips market and own 60% of the potato chips
market. The remaining market share is owned by local unbranded potato chips.

7.2 Market Research & Trend & Analysis

With the improvement of living standards and the advent of globalization, demand for high-quality and international quality snacks
is growing. People pay more attention to health issues and require a healthier snack. However, only a few industries, such as Lay’s,
can meet this demand. This gives a potential market for the new player to enter. The new player can gain the remaining market share
through producing high-quality potato chips and heavy promotion campaigns and advertisements.

8. Pakistan Snacks Industry

Pakistan, being an “impressive great country” for foreign investors from multinational companies (MNCs) like PepsiCo
International, still has great potential in snacks market, especially potato chips market in nowadays.
In 2009 the global savory snacks market was worth $74.7bn. This growth is observed in emerging markets. The market is set
to grow in value by $10.8bn to $85.4bn by 2012. The market for savory snacks in Pakistan increased at a compound annual
growth rate of 7.4% between 2004 and 2009. The potato chips category led the savory snacks market in Pakistan, accounting
for a share of 48.1%, which came from the changing of lifestyles and traditional eating habits.

8.1 Demand and Supply

According to the survey carried out by SMEDA, the market segment with respect to age is as follows. It indicates that 65%
consumers are in the age group of 5 to20 years old as they are influenced by the media advertisement. This group may
become loyal to the brand.
Market Segmentation

Age Group (Years)
% Share
5-10
30
11-12
35
21-35
20
36-above
15

Based on market research, about 60% of the customers are brand loyal and the remaining is unbranded loyal which can gain
through heavy promotion activities and advertisement campaigns.
Segmentation–Snacks Industry

Segments
% Share
Branded
60
Unbranded
40
Total
100

8.2 Target Customers

Pakistan_population___group2The target market for potato chips is children, teenagers, and youngsters. 70% of children eat snacks at school and potato chips are their first choice as they are easy to carry and have unique and delicious tastes.
By the method of market segmentation, one of the major target markets is children and young audiences of sports and entertainment such as consumers in theaters or stadiums even at home. With the development of globalization and the media, the western lifestyle and taste have influenced the natives a lot and have a big attraction towards them about western things. People are more interested in western food, especially potato chips.

9. Production Process

9.1 Production Equipment

To start a potato chips manufacturing industry, the processing line should be equipped with the following machines, which are highly automatic and can produce premium quality potato chips.

9.2 Production Process Flow

The technological process flow is as follow:

  • Material Selection: Select fresh potatoes with high dry matter content, pure varieties, light eyes, regular shape, free from
    mildew rot, sprouting and insect infestations, and other phenomena, 50~70mm in diameter.
  • Washing and Peeling: Use a potato washing and peeling machine to remove the dirt, sand, and other debris. Feed 30~40kg
    each time, the peeling time is determined by the degree of freshness of the material, usually 3~8min. Peeling time should not
    be too long or the potatoes will be excessively peeled.
  • Potato Slicing: Feed the material into the potato chips machine, feeding at a constant speed, the thickness should be 1~2mm.
  • Blanching: Use potato chips blanching machine. The potato slices should be immersed in water to blanch, in order to
    prevent browning in the air, and wash away the free starch of the surface to avoid the starch dissolving into the oil and
    shorten the life of frying oil.
  • Potato Chips De-watering: Use potato chips dehydration machine. Remove surface water, to avoid increasing the frying
    time and increase the oil content of the final product.
  • Potato Chips Frying: Use potato chips frying machine. The potato slices should be put into the oil at a constant speed.
    The oil temperature should be at 180~200℃. The chips should pass the frying pan in 2min. Palm oil is usually used in this
    process.
  • Potato Chips De-oiling: Use potato chips de-oiling machine. After frying, use the de-oiling machine to remove the oil from the
    surface and it can extend the shelf life of the product.
  • Potato Chips Flavoring: Use potato chips seasoning machine. After being flavored by a seasoning machine, the different flavors of
    potato chips are made.
  • Weighing and Packaging: Use Nitrogen-Filled Potato Chips Packaging Machine. The product needs quantitative packaging,
    net content error <±10%. To extend the shelf life, it needs the use of aluminum-plastic composite bag vacuum-nitrogen
    packaging.

10. Land and Building Requirement

10.1 Land

The total land required is about 20,600 Sq. ft or 5 kanals. The land price per kanal is calculated at Rs 1.0 million. The total cost of
purchasing the land is estimated at Rs 5.0 million which may be different from location to location and city to city.

10.2 Building

The break up of the area requirement is as follows:

Building & Civil Works
Space Reqd. (Sq.ft)
Cost/Sq.ft (Rs.)
Total Cost (Rs.)
Plant Area
4,000
900
3,600,000
Generator Area
600
400
240,000
Air Compressor Room
600
400
240,000
Management Office
500
1200
600,000
Accessories Store
600
500
300,000
Potato Store
750
500
375,000
Finished Goods Store
1,000
500
500,000
Toilets
600
500
300,000
Grounds
9,000
60
540,000
Water Tank
400,000
Total Space Requirement (Sq. ft)
20,600
7,635,000
Boundary Wall
6,000
150
900,000
Total Infrastructure Cost
8,535,000

 


11. Human Resource Requirement

The total number of employees is 65, including:

  • Chief executive officer — 1
  • Administrative staffs — 14
  • Marketing staffs — 13
  • Production staffs — 37

12. Conclusion

Market research and analysis show Pakistan has a great potential market of potato chips for a new producer to enter. With the increase of population and the influence of western eating habits, the demand for premium quality and international quality potato chips is increasing, yet only a few industries and a single multinational corporation can meet the requirement. Therefore, a new producer which can produce high-quality potato chips is badly in need.

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