CASE STUDY ANALYSIS

QUESTION:

1. Give your recommendations AND reasoning whether CrispDrink should or should not go ahead with this new business opportunity?

Give your opinion on the CrispDrink. (50 marks)

(Please provide a long answers)

INFORMATION ABOUT Crisp Drink International Crisp Drink is an international beverage company which operates in 25 countries across the world. Its core and primary business is basically in the production and marketing of tea and coffee. Crisp Drink is a world leader in tea and is also a leading producer of coffee for some emerging countries such as Vietnam and India. Crisp Drink was a number of the world's best selling brands of tea. In Tanyos, Crisp Drink markets the GoldBrow and Classic Tea brands. Crisp Drink has 4 major divisions for its tea business unit- East Central, West Central, Northern, and Southern. The main functions operating independently in each division are Leaf Growing and Processing. Tea Blending and Packing Marketing and Research and Development. In addition, each Division is supported by Information Technology, Finance and Human Resources functions. La addition, Crisp Drink also has a strategic business unit which is set-up primarily to source for suitable businesses to either buy or build. Chief Executive Officer International Business Worldwide Operations N Strategic Business East Central Division West Central Division Northern Division Southern Division Crisp Drink Corporate Vision lo be a learling global bearerage corporation, providing precincts that brings joy and well being te ORT CORmers Crisp Drink is committed to the continued development of the corporate vision of a global marketplace in which every employee in every country plays their part, working effectively as a team in a multinational and multicultural context. Crisp Drink top management adopted the following core values as critical for achieving future business success Customer Focus-providing superior service to our customers * Imovation & Contimates Improvement - passion in imoration de continuous improvement Teamwort-working together with al respect for all members Honesty - honesty de integrity before all else Brexiness & Financial Excellence-francially prudent & highly productive Community Involvement - it is our duty to give back to the Community Crisp Drink has a very proactive approach to the market and has very active research departments which monitor and predict consumer preferences and develop new products to bring to the market. In the last 5 years Crisp Drink has developed and marketed new ranges of flavored teas in varying packagings such as bottled tea, as well as attractive designs for tea bags and new brands. Research is also carried out by Crisp Drink scientists to examine the relationship between health and te drinking and what are the health implications of long term consumption of tea. Crisp Drink's tea operations in Tanyos office The rapid development of Tanyos is anticipated to provide exciting business opportunities for Crisp Drink Curently. Crisp Drink office in Tanyos bas the fall facilities of the tea production from growing. processing, blending, and packing to selling The tea production of Crisp Drink in Taayos is supported by the following sources: From Crisp Drink owned tea estates in Tanyos 27% From cooperatives in Tanpas. Crisp Drinit has longstanding agreements with the cooperatives to buy all their tea production at pre-agreed prices From other tea estates within and outside Tanyos 44% Crisp Drink cwrently owns three separate tea ostates in Tanyos, One ostate is responsible for about half of Crisp Drink's tea growing and the other two for about one quarter each. Each of Tanyos's tea estate is equipped with its own tea processing facilities. The other supporting sources also have its own processing facilities to process the tea produced before sending it to Tanyos office for blending and packing. CrispDrink has only one blanding and packaging facility in Tamyos. Currently, this facility bleed and package ce of the main brand of tea for sale in Tanyos. Crisp Drink Products marketed in Tanyos Gold Brew Tea This is the top range of Crisp Drink's product. It is grown and processed in Tanyos, but send to a Deighboring Crisp Drink facility outside Tanyos to be blended and packed. It is a high quality tea blend which is available in 2003 packets. Currently it is sold to retailers at Ty$1 per packet Classic Tea This is a blend of variable quality produced fully in Tamyos. Classic Tea is available in Skg boxes and also sold loose in local markets. It is sold to retailers at Ty$10 per box. 75% of tea sold in Tanyos by Crisp Drink is Classac Tes Premier Coffee This is produced by Crisp Drink outside Tanyos and imported into the country INFORMATION ABOUT TANYOS Capital Haihiti Land Area 198.441.17 km2 Population 55 million (increasing at 1% per annum) Annual GDP Growth 6.5% Povesty Rate 8.53% Currency Tanyos Dollar (Ty$) Exchange rate: Ty52 = USSI Climate Tropical climate with two seasons. May-Oct: dry season: Nov-April rainy season. Geographical Longcoastline with sandy beaches Mountains (to 6,000 metros) Small areas of tropical rainforest Desort in the east REN Ethnic & Culture - There is an enormous degree of linguistic, religious, cultual and social diversity between the various regicus in Taayos. Culturally, rather traditional and conservative with strong family support structures The younger and more affluent city dwellers lead a more independent, consumerist lifestyle Economic - The economy of Tanyos is characterized by a beavy dependence on agricultura, particularly on tea growing - Other economic activities include the extraction of minerals and natural resources, mainly oil, natural gas and logging Undergoing rapid modernization and industrialization with the recent discovery of oil INFORMATION ABOUT NATURIN TEA A task force was set up to collect more information about the Naturin Tea and growing it in Tamyos. Here are excerpts from the information collected Naturin Tea Crisp Drink believes it has unearthed a new variety of tea plant called the Naturia Tea. Initial research appears to indicate that Naturin toa bas very distinctive and extremely attractive taste properties. The tea has a very pleasant taste which is very different Eom any other type of tea. La addition, it also seems to have the effect of relaxing people, of easing their tensions. The Naturin Toa variaty was discovered by Crisp Drink's R&D team growing in a remote country called Naturi. As Naturi is located in a very remote part of the world, it has very little industry and there is no commercial production of tea in this country. Majority of its population are rural, sustaining mostly on what they produce in their own small holdings. . Most of the people in Naturi grow Naturin Tea for their own consumption while a minority pick it wild Recent research results revealed that the population in Naturi, on the whole are more relaxed and experience less stress as compared to five other similar populations in the neighbouring areas. Crisp Drinks researchers are hopeful that this is attributed, at least partly to the fact that most of the people in Naturi drink the Naturin Tea. Crisp Drink has obtained exclusive rights from the Naturi Government to cultivate the Naturin Tea in Tanyos. However, the contract stipulates that for the next 10 years, Crisp Drink is to produce the Naturin Tea for consumption only within Tanyos. Growing Naturin Tea in Tanyos Recent testing suggests that the Naturia Tea plants will grow healthily in Tanyos. However there are still some dombts as to bow well it would grow and whether it will taste the same as those grown in Naturi Extra care from the staff are required in order to grow the new tea plants in a controlled way as previously this Naturin tea plants have only grown wild in Naturi. Staff will need to be trained in skills for growing the Naturin Tea variety Researchers also found that the amount of tea harvested from the Naturin Tea variety is estimated to be about 75% of that harvested from normal tea plants as the Naturin variety produces leaves more slowly The Research Department has already cultivated a large number of immature plants of the Naturin Tea variety outdoors. These are ready for planting out on the tea estates and will be ready for harvesting in one year . The climate and soil in the Tamyos tea growing regions are similar to that of Natui. However, extensive tests have not been carried out on Naturis soil properties. Naturin Tea grows in various locations in Naturi, mostly between 200 and 1500m above sea level: Crisp Drink's tea estates in Tanyos are within 200-500m above sea level. Quality of Naturin Tea planted in Tanyos The Crisp Drink research team believes that the Naturin Tea gown in Tanyos will taste very similar to that grown in Naturi. However this cam only be confirmed when the first barvest has been gathered, as taste depends on soil, climate and processing methods. CrispDrink can carry out test to determine the relaxing affect of the Naturin Tea gonz in Tanyos by using the immature plants. However this test has yet to be conducted The Crisp Drink research team has yet to identify the property in the Naturin Tea variety which is responsible for the relaxing effect of the tea. Tea gows wild in Naturi and is processed by hand. It is not gown or processed commercially. No tests have been conducted to determine whether mechanical processing will change the taste of the tea in any way, although Crisp Drink believes significant change is unlikely INFORMATION ABOUT Crisp Drink TEA PRODUCTION CAPACITY in TANYOS The task force also reviewed the capacity of Crisp Drink's office in Tanyos to produce this sew tea variety. Below are excerpts about Crisp Drink Tanyos office's tea production capacity Growing Naturia Tea Plants CrispDrink curently owns 3 tea estates in Tanyos, each with its own processing facilities. One of the estate produces about half of Crisp Drink's total output, while the two for about a quarter each Crisp Drink does not have spare cultivation capacity in its estates. The Naturin Tea plants which are ready to be planted out require about one quarter of the total area mdar cultivation in Crisp Drink's estates. Each year, about 5% of the oldest tea plants are removed and planted with immature tea plants which will be ready for barvesting in one year. It is possible to use this land for the Naturin Tea rather than planting it with the standard tea plants. Other possible options would be to buy to ostatos complete with processing facilities from other producers or purchase suitable farm land and convert it to be growing. Another option would be to negotiate with cooperatives to grow Natuin Tea for them. This latter option would require guarantees of good price as well as upfront investment from Crisp Drink Processing Naturin Ten Each Crisp Drink estate is equipped with a processing plant which is operating at full capacity. Cwrently, all of Crisp Drink's Classic toa in Tanyos are blond and pack within one single facility. which are operating at full capacity. The introduction of new brands would require the building of now blending and packing facilities, as brands cannot be alternated on one piece of equipment. The new equipment would also be capable of processing only a single brand of tea. CONSUMER & COMPETITOR INFORMATION Tea and coffee are the only significant bot drinks consumed in Tanyos. Tanyos has a very strong te drinking culture. Tea has been grown and drunk for decades in Tanyos and it is customary to offer a visitor tea. Coffee is a fairly recent phenomenon in Tanyos. It's consumption has increased by 50% over the last 10 years while tea consumption has fallen by 15% in the same period. Coffee is seen as a modern drink which is associated with affluent and young lifestyle, and is mostly drunk in towns and cities. Preferences of te vervas coffee drinking among adult Tamyos: - 50% of als drink tea cas their main hor drink 20% of achilts drink coffee as their main for drink - 25% of cults drink tea & coffee in almost equal comounts 5% of adults do not drink hot drinks Orient Drinks is the main competitor in Tanyos and the only other company selling hot drinks. They are importers of tea and coffee To date, there is no evidence that Orient Drinks are planning to launch any new products or will they discover that Crisp Drink is developing a new variety of tea until Crisp Drink launches it. The graph below depicts Crisp Drink and Orient Drinks's market share of coffee and to in Tanyos. 90% 80% 70%- 60%- 50% 40% 30% 20% 10% 0% Crisp Tea Orient Drinks Coffee Tea . A market survey was carried out to determine whether the people in Tanyos like the Nahwin Tea. The survey was conducted using unblended Naturin Tea variety that was harvested and processed in Naturi The survey was conducted on 100 coffee drinkers and 100 standard te drinkers. They were given samples of both the Naturin Tea variety and the GoldTea (the higher quality blend produced by Crisp Drink) to taste. Some of the key findings from the survey were: 87 of the coffee drinkers and 41 of the tea drinkers preferred the Naturin Tea variety - 50% of the coffee and see drinkers said they would consider buying the Naturin Tea variety even if it cost more than the standard te Two other surveys were carried out to compare the "Relaxing Effect of the Naturin Tea. . In the first survey, 200 people were asked to rate how relaxed they felt after drinking the tea in comparison with how they felt beforehand. The results are as shown below: 50% 40% 30% 4 Less relaxed Just as relaxed A bit more relaxed A lot more relaxed 20N 10% 0 In the second survey. 200 respondents were asked to compare how they felt between drinking standard tea with the Naturin Tea. Below are the results. 60% 50% 40% 30% Less relaxed Just as relaxed DA bit more relaxed D A lot more relaxed 20% 10%- 0 Qualitative data was also collected during the surveys. Below are excerpts of the data: Asked "how do you feel" after drinking the Naturin Tea; - Happy - Very refreshed Ready for another cup - Ok Soothed - Like other te Asked regarding the taste of the Naturin Tea; typical comments from coffee drinkers were: - usually don't drink tea, but this is less bitter than most tea that I have tried mwy consider drinking this tea Nor bad quite like it, however will not stop drinking coffee - Tastes good. I would be happy drinking either this or coffee Typical comments from tas drinkers were: - It's really nice, where can I buy it? - Very interesting and conique feste - A nice drink after a mal - Very different from the tea that I used to take, comizing taste I prefer the standard tea, probably that's what I am used to BENIN FINANCIAL INFORMATION Nutrin Tea Profit Forecast (Year One) Tr3000 Operating Expenses Growing costs (labour wages & training: fertilizers) 9,650 Processing costs labour, equipment maintenance) 2,280 2,820 Blending & Packaging costs (labour, equipment maintenance, packaging materials, distribution costs) 3,258 18.005 - Selling costs (labour marketing distribution costs, royalties) Total Operating Expenses Forecasted Sales (income from Nutrin Toa sales) Profit (forecasted sales less total operating expenses) 20,900 2,892 Profit Forecast: Assumptious Made Forecasted Sales Naturin Toa will be sold at TYS5.50 par ks. packed in 200g boxes. This price is deliberately set lower in order to break into the market. Crisp Drink may eventually increase the price to Ty$6.00 per kg With all the mature cutting planted out, and a full harvest the following year. Crisp Drinks expects to produce approximately 3,800 tonnes of Naturia Tes in the first year. Operating Expenses Growing Costs The current Nutrin Tea plants bave been partly paid for in a small up-front payment; this cost has been written off as research costs in the previous financial year. Royalties to the Nutri Government are payable upon sales of the Nutrin Tea. Crisp Drink will not buy any more plants from Nutri. Any further new plants will need to be grown from cuttings taken from Crisp Drink's existing Nutrin Ton plants. Crisp Drink plans to take one cutting from each of the plants obtained from Nutri before these are planted out, such that during the coming year, there will be exactly the same number of cuttings as those planted. New cuttings have to be kept in research nursery fields for 3 years before they can be planted out in the plantations. Cuttings in the nursery fields and the mature cuttings once planted out will require much more attention than standard tea plants. This is due to the fact that these tea plants grow wild and have not been cultivated in Nutri. Significant amormt of time will be required to train the plants to grow in a controlled way. Employees will thus need to be trained to grow the Nutrin Tea plants. Crisp Drink experts from overseas can provide the necessary training. The operating expenses are estimated based on the assumption that so new employees will be recruited. Additional time required will be provided by overtime. Employees are paid partly on a fixed salary basis and partly on an hourly rate. Average pay among the growers is: - Basic salary 7783000 per contam, phes - Hourly pay Ty$2.00 per hour (overtime is also paid at this rute). Expected profits for the coming year for the 2 types of tea produced are: - Nutrin Tea Ty$0.76 perky - GoldBrow & Classic Tea taken together Ty$0.39 per kg AL Financial estimates beyond next year are not yet available. Processing Costs Each of Crisp Drink's estates has a single processing facility with the capacity to process the ostate's harvest, and is operating at full capacity, . Teamst be processed in batches, each batch from a single variety of tea plant. The processing facilities can handle two different varieties of tea in alternating batches if the two varieties are of about equal volumes. In other words, if Natrin Tea is grown on 20 estate, it will have to be either the only variaty groun, or it will have to constitute one half of the estate's capacity. New processing machinery has an expected life of 15 years and the cost ranges from Ty$0.6 million to Ty$3.4 million, depending on the capacity of tea to be processed. In order to process the amount of Nutrin Tea to be planted out this year will require a Ty80.6 million machine. The costs of buying now equipment have not been included in the profit forecast. Equipment maintenance costs amount to approximately 40% of the processing blending & packaging costs, regardless of whether it is old or new equipment. Blending and Packaging Costs The blonding and packaging of Classic Tea in Tamyos are managed within the single facility with cae packing machine, one boxing machine and one blonding machine. These machines 270 operating at virtually full capacity The introduction of new brands will require building of ww blanding and packing facilities as brands cannot be alterated on one piece of equipment. Now equipment has an expected life of 15 years and cost around Ty$1.2 million and will also be capable of processing only a single brand of tea. The cost of purchasing this equipment has not been included in the profit forecast. Predicted packaging material costs are high as quality attractive packaging will be used to increase appeal of consumers to the new product. Selling Costs Labour costs are wages of the sales and marketing staff Substantial marketing/PR expenses to launch and advertise the new tea, at least for the first year. Distribution costs are cost of transporting the finished product to retail outlets. Royalties are due to the Nutri Government at 3% of sales of the Nutrin Tea. Memo from CrispDrink, International Business, Worldwide Operations, Head Office MEMO To: All Crisp Drink Companies around the world From: The CEO. Crisp Drink International Business, Worldwide Operations, Head Office We are pleased to announce that Crisp Drink continues to lead in the tea drinking industry around the world. Thank you to all of you for your dedication and contribution for this positive performance. While each of the Crisp Drink company has excelled within their local markets, we also begin to see these companies now tend to operate independently in pursuing its own goals. We see an urgent need to increase the communication between the Crisp Drink companies around the world, especially in exploring the possibilities of marketing brands and products in other markets worldwide, The relative independence of operation among the Crisp Drink companies has also resulted in divergence of quality and safety standards between the companies operating in different countries. In today's globalization of business and communication, the adverse publicity in one Crisp Drink business can be a threat to Crisp Drink's sales across the world As an immediate measure, we seek the cooperation of all local Crisp Drink companies to review their operation in the light of this. On a longer term. management and communication structures will be designed to enhance the communication among the Crisp Drink companies HEALTH AND REGULATORY ISSUES FOR NUTRIN TEA VARIETY Health Issues The Crisp Drink researchers have yet to discover the properties of the Nutrin Tea variety which cause the feeling of well-being. Trials conducted over the last six months of the Nutrin Toa variety on both rats and people have not shown any negative medical effects nor any effects on the sleep patterns. There is also no evidence that the Nutrin Toa variety is physically addictive. TAL Regulatory Issues No requirement to apply for additional license Eom the Tanyos Ministry of Food to market the Nutrin Tea variety as the plant is of the tea family, which is covered by Crisp Drink's existing licenses. INFORMATION ABOUT TEA PRODUCTION The tea plant is an evergreen tropical plant which grows best in a warm, humid climate with at least 100 cms of rain per year. It will grow in areas from sea-level up to altitudes as high as 2,100 metres above sez-level. There is essentially, ce type of tea plant which has a number of variaties. The flavow of the tea will depend on climate and soil conditions and on how it is processed as much as it does on the variety Tea is grown on a range of farms, from privately owned small-holdings as little as 0.5 hectares to large self-contained tea estates of 100's bectares. Tea estates are very large farms dedicated to growing to, often with their own housing, hospitals, schools and tea factories. Tea is harvested by hand throughout the year. Every 7-14 days, the new leaf shoots and buds are plucked, 20 only a small quantity of tea leaf is taken from each plant at each placking A skilled plucker can gather 30-35 kilogrammes of plucked leaf in a day, which is sufficient to produce 7-9 kilogrammes of processed toa. Pluckars are usually paid according to the amount of tea they barvest. There are four main aspects to tea production: Growing which is the cultivation and harvesting of the tea planer Processing - which is the shredeling and drying of the harvested tea Blending - which is the process of mixing the tea leaves from a number of different tea plants ar growing areas to create a particular inte Packing - which is the process of putting the tea irao tea bags and for cartones for selling to the Customer Tea is processed in factories which are closely associated with the growing area, but the blending and packaging is often came out in completely different locations. In fact tea grown and processed on one continents may be blended and packed in another. The tea companies then blend tea from different states, or even from different countries. The blended tea is the packed into packets of loose tea, or into boxes of tea bags, and then sold all over the world under a range of brand names. Specialist tea blending and packing companies asually buy the processed tea at auctions and have a direct involvement in growing and processing. Other companies, including Crisp Drink, own tea estates, or have special arrangements to buy tea from private ostates or cooperatives of small-holders, and are involved in the product from growing through to marketing INFORMATION ABOUT Crisp Drink International Crisp Drink is an international beverage company which operates in 25 countries across the world. Its core and primary business is basically in the production and marketing of tea and coffee. Crisp Drink is a world leader in tea and is also a leading producer of coffee for some emerging countries such as Vietnam and India. Crisp Drink was a number of the world's best selling brands of tea. In Tanyos, Crisp Drink markets the GoldBrow and Classic Tea brands. Crisp Drink has 4 major divisions for its tea business unit- East Central, West Central, Northern, and Southern. The main functions operating independently in each division are Leaf Growing and Processing. Tea Blending and Packing Marketing and Research and Development. In addition, each Division is supported by Information Technology, Finance and Human Resources functions. La addition, Crisp Drink also has a strategic business unit which is set-up primarily to source for suitable businesses to either buy or build. Chief Executive Officer International Business Worldwide Operations N Strategic Business East Central Division West Central Division Northern Division Southern Division Crisp Drink Corporate Vision lo be a learling global bearerage corporation, providing precincts that brings joy and well being te ORT CORmers Crisp Drink is committed to the continued development of the corporate vision of a global marketplace in which every employee in every country plays their part, working effectively as a team in a multinational and multicultural context. Crisp Drink top management adopted the following core values as critical for achieving future business success Customer Focus-providing superior service to our customers * Imovation & Contimates Improvement - passion in imoration de continuous improvement Teamwort-working together with al respect for all members Honesty - honesty de integrity before all else Brexiness & Financial Excellence-francially prudent & highly productive Community Involvement - it is our duty to give back to the Community Crisp Drink has a very proactive approach to the market and has very active research departments which monitor and predict consumer preferences and develop new products to bring to the market. In the last 5 years Crisp Drink has developed and marketed new ranges of flavored teas in varying packagings such as bottled tea, as well as attractive designs for tea bags and new brands. Research is also carried out by Crisp Drink scientists to examine the relationship between health and te drinking and what are the health implications of long term consumption of tea. Crisp Drink's tea operations in Tanyos office The rapid development of Tanyos is anticipated to provide exciting business opportunities for Crisp Drink Curently. Crisp Drink office in Tanyos bas the fall facilities of the tea production from growing. processing, blending, and packing to selling The tea production of Crisp Drink in Taayos is supported by the following sources: From Crisp Drink owned tea estates in Tanyos 27% From cooperatives in Tanpas. Crisp Drinit has longstanding agreements with the cooperatives to buy all their tea production at pre-agreed prices From other tea estates within and outside Tanyos 44% Crisp Drink cwrently owns three separate tea ostates in Tanyos, One ostate is responsible for about half of Crisp Drink's tea growing and the other two for about one quarter each. Each of Tanyos's tea estate is equipped with its own tea processing facilities. The other supporting sources also have its own processing facilities to process the tea produced before sending it to Tanyos office for blending and packing. CrispDrink has only one blanding and packaging facility in Tamyos. Currently, this facility bleed and package ce of the main brand of tea for sale in Tanyos. Crisp Drink Products marketed in Tanyos Gold Brew Tea This is the top range of Crisp Drink's product. It is grown and processed in Tanyos, but send to a Deighboring Crisp Drink facility outside Tanyos to be blended and packed. It is a high quality tea blend which is available in 2003 packets. Currently it is sold to retailers at Ty$1 per packet Classic Tea This is a blend of variable quality produced fully in Tamyos. Classic Tea is available in Skg boxes and also sold loose in local markets. It is sold to retailers at Ty$10 per box. 75% of tea sold in Tanyos by Crisp Drink is Classac Tes Premier Coffee This is produced by Crisp Drink outside Tanyos and imported into the country INFORMATION ABOUT TANYOS Capital Haihiti Land Area 198.441.17 km2 Population 55 million (increasing at 1% per annum) Annual GDP Growth 6.5% Povesty Rate 8.53% Currency Tanyos Dollar (Ty$) Exchange rate: Ty52 = USSI Climate Tropical climate with two seasons. May-Oct: dry season: Nov-April rainy season. Geographical Longcoastline with sandy beaches Mountains (to 6,000 metros) Small areas of tropical rainforest Desort in the east REN Ethnic & Culture - There is an enormous degree of linguistic, religious, cultual and social diversity between the various regicus in Taayos. Culturally, rather traditional and conservative with strong family support structures The younger and more affluent city dwellers lead a more independent, consumerist lifestyle Economic - The economy of Tanyos is characterized by a beavy dependence on agricultura, particularly on tea growing - Other economic activities include the extraction of minerals and natural resources, mainly oil, natural gas and logging Undergoing rapid modernization and industrialization with the recent discovery of oil INFORMATION ABOUT NATURIN TEA A task force was set up to collect more information about the Naturin Tea and growing it in Tamyos. Here are excerpts from the information collected Naturin Tea Crisp Drink believes it has unearthed a new variety of tea plant called the Naturia Tea. Initial research appears to indicate that Naturin toa bas very distinctive and extremely attractive taste properties. The tea has a very pleasant taste which is very different Eom any other type of tea. La addition, it also seems to have the effect of relaxing people, of easing their tensions. The Naturin Toa variaty was discovered by Crisp Drink's R&D team growing in a remote country called Naturi. As Naturi is located in a very remote part of the world, it has very little industry and there is no commercial production of tea in this country. Majority of its population are rural, sustaining mostly on what they produce in their own small holdings. . Most of the people in Naturi grow Naturin Tea for their own consumption while a minority pick it wild Recent research results revealed that the population in Naturi, on the whole are more relaxed and experience less stress as compared to five other similar populations in the neighbouring areas. Crisp Drinks researchers are hopeful that this is attributed, at least partly to the fact that most of the people in Naturi drink the Naturin Tea. Crisp Drink has obtained exclusive rights from the Naturi Government to cultivate the Naturin Tea in Tanyos. However, the contract stipulates that for the next 10 years, Crisp Drink is to produce the Naturin Tea for consumption only within Tanyos. Growing Naturin Tea in Tanyos Recent testing suggests that the Naturia Tea plants will grow healthily in Tanyos. However there are still some dombts as to bow well it would grow and whether it will taste the same as those grown in Naturi Extra care from the staff are required in order to grow the new tea plants in a controlled way as previously this Naturin tea plants have only grown wild in Naturi. Staff will need to be trained in skills for growing the Naturin Tea variety Researchers also found that the amount of tea harvested from the Naturin Tea variety is estimated to be about 75% of that harvested from normal tea plants as the Naturin variety produces leaves more slowly The Research Department has already cultivated a large number of immature plants of the Naturin Tea variety outdoors. These are ready for planting out on the tea estates and will be ready for harvesting in one year . The climate and soil in the Tamyos tea growing regions are similar to that of Natui. However, extensive tests have not been carried out on Naturis soil properties. Naturin Tea grows in various locations in Naturi, mostly between 200 and 1500m above sea level: Crisp Drink's tea estates in Tanyos are within 200-500m above sea level. Quality of Naturin Tea planted in Tanyos The Crisp Drink research team believes that the Naturin Tea gown in Tanyos will taste very similar to that grown in Naturi. However this cam only be confirmed when the first barvest has been gathered, as taste depends on soil, climate and processing methods. CrispDrink can carry out test to determine the relaxing affect of the Naturin Tea gonz in Tanyos by using the immature plants. However this test has yet to be conducted The Crisp Drink research team has yet to identify the property in the Naturin Tea variety which is responsible for the relaxing effect of the tea. Tea gows wild in Naturi and is processed by hand. It is not gown or processed commercially. No tests have been conducted to determine whether mechanical processing will change the taste of the tea in any way, although Crisp Drink believes significant change is unlikely INFORMATION ABOUT Crisp Drink TEA PRODUCTION CAPACITY in TANYOS The task force also reviewed the capacity of Crisp Drink's office in Tanyos to produce this sew tea variety. Below are excerpts about Crisp Drink Tanyos office's tea production capacity Growing Naturia Tea Plants CrispDrink curently owns 3 tea estates in Tanyos, each with its own processing facilities. One of the estate produces about half of Crisp Drink's total output, while the two for about a quarter each Crisp Drink does not have spare cultivation capacity in its estates. The Naturin Tea plants which are ready to be planted out require about one quarter of the total area mdar cultivation in Crisp Drink's estates. Each year, about 5% of the oldest tea plants are removed and planted with immature tea plants which will be ready for barvesting in one year. It is possible to use this land for the Naturin Tea rather than planting it with the standard tea plants. Other possible options would be to buy to ostatos complete with processing facilities from other producers or purchase suitable farm land and convert it to be growing. Another option would be to negotiate with cooperatives to grow Natuin Tea for them. This latter option would require guarantees of good price as well as upfront investment from Crisp Drink Processing Naturin Ten Each Crisp Drink estate is equipped with a processing plant which is operating at full capacity. Cwrently, all of Crisp Drink's Classic toa in Tanyos are blond and pack within one single facility. which are operating at full capacity. The introduction of new brands would require the building of now blending and packing facilities, as brands cannot be alternated on one piece of equipment. The new equipment would also be capable of processing only a single brand of tea. CONSUMER & COMPETITOR INFORMATION Tea and coffee are the only significant bot drinks consumed in Tanyos. Tanyos has a very strong te drinking culture. Tea has been grown and drunk for decades in Tanyos and it is customary to offer a visitor tea. Coffee is a fairly recent phenomenon in Tanyos. It's consumption has increased by 50% over the last 10 years while tea consumption has fallen by 15% in the same period. Coffee is seen as a modern drink which is associated with affluent and young lifestyle, and is mostly drunk in towns and cities. Preferences of te vervas coffee drinking among adult Tamyos: - 50% of als drink tea cas their main hor drink 20% of achilts drink coffee as their main for drink - 25% of cults drink tea & coffee in almost equal comounts 5% of adults do not drink hot drinks Orient Drinks is the main competitor in Tanyos and the only other company selling hot drinks. They are importers of tea and coffee To date, there is no evidence that Orient Drinks are planning to launch any new products or will they discover that Crisp Drink is developing a new variety of tea until Crisp Drink launches it. The graph below depicts Crisp Drink and Orient Drinks's market share of coffee and to in Tanyos. 90% 80% 70%- 60%- 50% 40% 30% 20% 10% 0% Crisp Tea Orient Drinks Coffee Tea . A market survey was carried out to determine whether the people in Tanyos like the Nahwin Tea. The survey was conducted using unblended Naturin Tea variety that was harvested and processed in Naturi The survey was conducted on 100 coffee drinkers and 100 standard te drinkers. They were given samples of both the Naturin Tea variety and the GoldTea (the higher quality blend produced by Crisp Drink) to taste. Some of the key findings from the survey were: 87 of the coffee drinkers and 41 of the tea drinkers preferred the Naturin Tea variety - 50% of the coffee and see drinkers said they would consider buying the Naturin Tea variety even if it cost more than the standard te Two other surveys were carried out to compare the "Relaxing Effect of the Naturin Tea. . In the first survey, 200 people were asked to rate how relaxed they felt after drinking the tea in comparison with how they felt beforehand. The results are as shown below: 50% 40% 30% 4 Less relaxed Just as relaxed A bit more relaxed A lot more relaxed 20N 10% 0 In the second survey. 200 respondents were asked to compare how they felt between drinking standard tea with the Naturin Tea. Below are the results. 60% 50% 40% 30% Less relaxed Just as relaxed DA bit more relaxed D A lot more relaxed 20% 10%- 0 Qualitative data was also collected during the surveys. Below are excerpts of the data: Asked "how do you feel" after drinking the Naturin Tea; - Happy - Very refreshed Ready for another cup - Ok Soothed - Like other te Asked regarding the taste of the Naturin Tea; typical comments from coffee drinkers were: - usually don't drink tea, but this is less bitter than most tea that I have tried mwy consider drinking this tea Nor bad quite like it, however will not stop drinking coffee - Tastes good. I would be happy drinking either this or coffee Typical comments from tas drinkers were: - It's really nice, where can I buy it? - Very interesting and conique feste - A nice drink after a mal - Very different from the tea that I used to take, comizing taste I prefer the standard tea, probably that's what I am used to BENIN FINANCIAL INFORMATION Nutrin Tea Profit Forecast (Year One) Tr3000 Operating Expenses Growing costs (labour wages & training: fertilizers) 9,650 Processing costs labour, equipment maintenance) 2,280 2,820 Blending & Packaging costs (labour, equipment maintenance, packaging materials, distribution costs) 3,258 18.005 - Selling costs (labour marketing distribution costs, royalties) Total Operating Expenses Forecasted Sales (income from Nutrin Toa sales) Profit (forecasted sales less total operating expenses) 20,900 2,892 Profit Forecast: Assumptious Made Forecasted Sales Naturin Toa will be sold at TYS5.50 par ks. packed in 200g boxes. This price is deliberately set lower in order to break into the market. Crisp Drink may eventually increase the price to Ty$6.00 per kg With all the mature cutting planted out, and a full harvest the following year. Crisp Drinks expects to produce approximately 3,800 tonnes of Naturia Tes in the first year. Operating Expenses Growing Costs The current Nutrin Tea plants bave been partly paid for in a small up-front payment; this cost has been written off as research costs in the previous financial year. Royalties to the Nutri Government are payable upon sales of the Nutrin Tea. Crisp Drink will not buy any more plants from Nutri. Any further new plants will need to be grown from cuttings taken from Crisp Drink's existing Nutrin Ton plants. Crisp Drink plans to take one cutting from each of the plants obtained from Nutri before these are planted out, such that during the coming year, there will be exactly the same number of cuttings as those planted. New cuttings have to be kept in research nursery fields for 3 years before they can be planted out in the plantations. Cuttings in the nursery fields and the mature cuttings once planted out will require much more attention than standard tea plants. This is due to the fact that these tea plants grow wild and have not been cultivated in Nutri. Significant amormt of time will be required to train the plants to grow in a controlled way. Employees will thus need to be trained to grow the Nutrin Tea plants. Crisp Drink experts from overseas can provide the necessary training. The operating expenses are estimated based on the assumption that so new employees will be recruited. Additional time required will be provided by overtime. Employees are paid partly on a fixed salary basis and partly on an hourly rate. Average pay among the growers is: - Basic salary 7783000 per contam, phes - Hourly pay Ty$2.00 per hour (overtime is also paid at this rute). Expected profits for the coming year for the 2 types of tea produced are: - Nutrin Tea Ty$0.76 perky - GoldBrow & Classic Tea taken together Ty$0.39 per kg AL Financial estimates beyond next year are not yet available. Processing Costs Each of Crisp Drink's estates has a single processing facility with the capacity to process the ostate's harvest, and is operating at full capacity, . Teamst be processed in batches, each batch from a single variety of tea plant. The processing facilities can handle two different varieties of tea in alternating batches if the two varieties are of about equal volumes. In other words, if Natrin Tea is grown on 20 estate, it will have to be either the only variaty groun, or it will have to constitute one half of the estate's capacity. New processing machinery has an expected life of 15 years and the cost ranges from Ty$0.6 million to Ty$3.4 million, depending on the capacity of tea to be processed. In order to process the amount of Nutrin Tea to be planted out this year will require a Ty80.6 million machine. The costs of buying now equipment have not been included in the profit forecast. Equipment maintenance costs amount to approximately 40% of the processing blending & packaging costs, regardless of whether it is old or new equipment. Blending and Packaging Costs The blonding and packaging of Classic Tea in Tamyos are managed within the single facility with cae packing machine, one boxing machine and one blonding machine. These machines 270 operating at virtually full capacity The introduction of new brands will require building of ww blanding and packing facilities as brands cannot be alterated on one piece of equipment. Now equipment has an expected life of 15 years and cost around Ty$1.2 million and will also be capable of processing only a single brand of tea. The cost of purchasing this equipment has not been included in the profit forecast. Predicted packaging material costs are high as quality attractive packaging will be used to increase appeal of consumers to the new product. Selling Costs Labour costs are wages of the sales and marketing staff Substantial marketing/PR expenses to launch and advertise the new tea, at least for the first year. Distribution costs are cost of transporting the finished product to retail outlets. Royalties are due to the Nutri Government at 3% of sales of the Nutrin Tea. Memo from CrispDrink, International Business, Worldwide Operations, Head Office MEMO To: All Crisp Drink Companies around the world From: The CEO. Crisp Drink International Business, Worldwide Operations, Head Office We are pleased to announce that Crisp Drink continues to lead in the tea drinking industry around the world. Thank you to all of you for your dedication and contribution for this positive performance. While each of the Crisp Drink company has excelled within their local markets, we also begin to see these companies now tend to operate independently in pursuing its own goals. We see an urgent need to increase the communication between the Crisp Drink companies around the world, especially in exploring the possibilities of marketing brands and products in other markets worldwide, The relative independence of operation among the Crisp Drink companies has also resulted in divergence of quality and safety standards between the companies operating in different countries. In today's globalization of business and communication, the adverse publicity in one Crisp Drink business can be a threat to Crisp Drink's sales across the world As an immediate measure, we seek the cooperation of all local Crisp Drink companies to review their operation in the light of this. On a longer term. management and communication structures will be designed to enhance the communication among the Crisp Drink companies HEALTH AND REGULATORY ISSUES FOR NUTRIN TEA VARIETY Health Issues The Crisp Drink researchers have yet to discover the properties of the Nutrin Tea variety which cause the feeling of well-being. Trials conducted over the last six months of the Nutrin Toa variety on both rats and people have not shown any negative medical effects nor any effects on the sleep patterns. There is also no evidence that the Nutrin Toa variety is physically addictive. TAL Regulatory Issues No requirement to apply for additional license Eom the Tanyos Ministry of Food to market the Nutrin Tea variety as the plant is of the tea family, which is covered by Crisp Drink's existing licenses. INFORMATION ABOUT TEA PRODUCTION The tea plant is an evergreen tropical plant which grows best in a warm, humid climate with at least 100 cms of rain per year. It will grow in areas from sea-level up to altitudes as high as 2,100 metres above sez-level. There is essentially, ce type of tea plant which has a number of variaties. The flavow of the tea will depend on climate and soil conditions and on how it is processed as much as it does on the variety Tea is grown on a range of farms, from privately owned small-holdings as little as 0.5 hectares to large self-contained tea estates of 100's bectares. Tea estates are very large farms dedicated to growing to, often with their own housing, hospitals, schools and tea factories. Tea is harvested by hand throughout the year. Every 7-14 days, the new leaf shoots and buds are plucked, 20 only a small quantity of tea leaf is taken from each plant at each placking A skilled plucker can gather 30-35 kilogrammes of plucked leaf in a day, which is sufficient to produce 7-9 kilogrammes of processed toa. Pluckars are usually paid according to the amount of tea they barvest. There are four main aspects to tea production: Growing which is the cultivation and harvesting of the tea planer Processing - which is the shredeling and drying of the harvested tea Blending - which is the process of mixing the tea leaves from a number of different tea plants ar growing areas to create a particular inte Packing - which is the process of putting the tea irao tea bags and for cartones for selling to the Customer Tea is processed in factories which are closely associated with the growing area, but the blending and packaging is often came out in completely different locations. In fact tea grown and processed on one continents may be blended and packed in another. The tea companies then blend tea from different states, or even from different countries. The blended tea is the packed into packets of loose tea, or into boxes of tea bags, and then sold all over the world under a range of brand names. Specialist tea blending and packing companies asually buy the processed tea at auctions and have a direct involvement in growing and processing. Other companies, including Crisp Drink, own tea estates, or have special arrangements to buy tea from private ostates or cooperatives of small-holders, and are involved in the product from growing through to marketing