Whole Sale - Distribution Agency (Rs. 1.25 Million)

Pre-Feasibility Study
(Distribution Agency)
Small and Medium Enterprises Development Authority

Ministry of Industries & Production
Government of Pakistan
www.smeda.org.pk
HEAD OFFICE
4th Floor, Building No. 3, Aiwan-e-Iqbal Complex, Egerton Road,
Lahore
Tel: (92 42) 111 111 456, Fax: (92 42) 36304926-7
helpdesk@smeda.org.pk
REGIONAL OFFICE
Punjab
REGIONAL OFFICE
Sindh
REGIONAL OFFICE
Khyber Pakhtunkhwa
REGIONAL OFFICE
Balochistan
3rd Floor, Building No. 3,

Aiwan-e-Iqbal Complex,
Egerton Road Lahore,
Tel: (042) 111-111-456
Fax: (042) 36304926-7
helpdesk.punjab@smeda.org.pk
5th Floor, Bahria

Complex II, M.T. Khan Road,
Karachi.
Tel: (021) 111-111-456
Fax: (021) 35610572
helpdesk-khi@smeda.org.pk
Ground Floor
State Life Building
The Mall, Peshawar.
Tel: (091) 111-111-456
Fax: (091) 5286908
helpdesk-pew@smeda.org.pk
Bungalow No. 15-A

Chaman Housing Scheme
Airport Road, Quetta.
Tel: (081) 2831623, 2831702
Fax: (081) 2831922
helpdesk-qta@smeda.org.pk
Note: All SMEDA Services / information related to PM's Youth Business Loan are Free of Cost
May, 2014
Distribution Agency (Rs.1.25 Million)
Table of Contents
1.
DISCLAIMER ....................................................................................................................... 2
2.
PURPOSE OF THE DOCUMENT ....................................................................................... 3
3.
INTRODUCTION TO SMEDA ............................................................................................ 3
4.
INTRODUCTION TO SCHEME .......................................................................................... 4
5.
EXECUTIVE SUMMARY ................................................................................................... 4
6.
BRIEF DESCRIPTION OF PROJECT ................................................................................. 5
7.
CRITICAL FACTORS .......................................................................................................... 5
8.
INSTALLED AND OPERATIONAL CAPACITIES ........................................................... 6
9.
GEOGRAPHICAL POTENTIAL FOR INVESTMENT ...................................................... 7
10. POTENTIAL TARGET MARKETS ..................................................................................... 7
11. DISTRIBUTION PROCESS FLOW ..................................................................................... 7
12. PROJECT COST SUMMARY .............................................................................................. 8
12.1
PROJECT ECONOMICS .................................................................................................. 8
12.2
PROJECT FINANCING .................................................................................................... 9
12.3
PROJECT COST............................................................................................................. 9
12.4
SPACE REQUIREMENT .................................................................................................. 9
12.5
HUMAN RESOURCE REQUIREMENT ............................................................................ 10
12.6
REVENUE GENERATION .............................................................................................. 10
12.7
OTHER COSTS ............................................................................................................ 11
13. CONTACT DETAILS OF CONSULTANS / EXPERTS ................................................... 12
14. ANNEXURES ..................................................................................................................... 13
14.1
INCOME STATEMENT .................................................................................................. 13
14.2
BALANCE SHEET ........................................................................................................ 14
14.3
CASH FLOW STATEMENT ........................................................................................... 15
14.4
USEFUL PROJECT MANAGEMENT TIPS ..................................................................... 16
14.5
USEFUL LINKS ............................................................................................................ 17
15. KEY ASSUMPTIONS......................................................................................................... 19
1.
DISCLAIMER
This information memorandum is to introduce the subject matter and provide a general
idea and information on the subject. Although, the material included in this document is
based on data / information gathered from various reliable sources; however, it is based
upon certain assumptions which may differ from case to case. The information has been
provided on as is where is basis without any warranties or assertions as to the
correctness or soundness thereof. Although, due care and diligence has been taken to
compile this document, the contained information may vary due to any change in any of
the concerned factors, and the actual results may differ substantially from the presented
information. SMEDA, its employees or agents do not assume any liability for any
financial or other loss resulting from this memorandum in consequence of undertaking
this activity. The contained information does not preclude any further professional
advice. The prospective user of this memorandum is encouraged to carry out additional
diligence and gather any information which is necessary for making an informed
decision, including taking professional advice from a qualified consultant / technical
expert before taking any decision to act upon the information.
For more information on services offered by SMEDA, please contact our website:
www.smeda.org.pk
SMEDA Services / Information related to PMs Youth Business Loan are FREE OF COST -
2.
PURPOSE OF THE DOCUMENT
The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs

in project identification for investment. The project pre-feasibility may form the basis of
an important investment decision and in order to serve this objective, the document /
study covers various aspects of project concept development, start-up, production,
marketing, finance and business management.
The purpose of this document is to facilitate potential investors in Distribution Agency
by providing them with a general understanding of the business with the intention of
supporting potential investors in crucial investment decisions.
The need to come up with pre-feasibility reports for undocumented or minimally
documented sectors attains greater imminence as the research that precedes such
reports reveal certain thumb rules; best practices developed by existing enterprises by
trial and error, and certain industrial norms that become a guiding source regarding
various aspects of business set-up and its successful management.
Apart from carefully studying the whole document, one must consider critical aspects
provided later on, which form basis of any investment decision.
3.
INTRODUCTION TO SMEDA
The Small and Medium Enterprises Development Authority (SMEDA) was established in
October 1998 with an objective to provide fresh impetus to the economy through
development of Small and Medium Enterprises (SMEs).
With a mission "to assist in employment generation and value addition to the national
income, through development of the SME sector, by helping increase the number, scale
and competitiveness of SMEs" , SMEDA has carried out sectoral research to identify
policy, access to finance, business development services, strategic initiatives and
institutional collaboration and networking initiatives.
Preparation and dissemination of prefeasibility studies in key areas of investment has
been a hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business development
services is also offered to the SMEs by SMEDA. These services include identification of
experts and consultants and delivery of need based capacity building programs of
different types in addition to business guidance through help desk services.
4.
INTRODUCTION TO SCHEME
Prime Ministers Youth Business Loan, for young entrepreneurs, with an allocated
budget of Rs. 5 Billion for the year 2013-14, is designed to provide subsidised financing
at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, by
designated financial institutions, initially through The National Bank of Pakistan (NBP)
and The First Women Bank Ltd. (FWBL).
Loans from Rs. 0.1 million to Rs. 2.0 million with tenure up to 8 years inclusive of 1 year
grace period, and a debt: equity of 90: 10 will be disbursed to SME beneficiaries+
across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan, Gilgit
Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA).
5.
EXECUTIVE SUMMARY
Distribution Agency is proposed to be located at any densely populated city such as

Karachi, Lahore, Rawalpindi, Peshawar or Quetta to distribute Fast Moving Consumer
Goods (FMCG) such as Branded Tea, Powdered Milk and Confectionary Items to the
Local market. This business can also be undertaken in all small 2nd tier towns, in
addition to suburban towns of large cities.
This proposed distribution agency will distribute around 06 tonnes each of tea and
powdered milk and 08 tonnes each of biscuits and chocolate / toffees etc per month to
the retailers. The assumed sales force has the capacity to distribute around 50 tonnes
of product and initially they will be utilizing 56% of proposed capacity.
Total Cost Estimate of the project is Rs. 1.249 million with Fixed Investment of Rs.
1.067 million and Working Capital of Rs. 0.182 million
Given the cost assumptions IRR and payback are 39 % and 3.4 years respectively.
The most critical considerations or factors for success of the project are
1. Product and Brands to be distributed
2. Negotiation and Marketing Skills
3. Credit Recovery
6.
BRIEF DESCRIPTION OF PROJECT
Product: It has been suggested that for the proposed distribution business, the
company would act as a main institutional distributor for Fast Moving Consumer
Goods (FMCG) products. The business would distribute; one established tea brand,
any one of packaged Milk, as new brands are growing in the market and any two of
confectionery products i.e. biscuits & toffees etc.
Location: Distribution Agency can be set-up in any major city with significant
population such as Karachi, Lahore, Rawalpindi, Peshawar and Quetta. This
business can also be done in all small second tier towns in addition to suburban
towns of large cities.
Target Market: The demand of distribution service providers is increasing which is

directly proportionate to the increase in FMCG manufacturing companies which are
expanding substantially with the current economic growth and consumerism.
Therefore the potential target market for the proposed distribution agency setup is
retail stores in densely populated cities such as Karachi, Lahore, Peshawar, Quetta,
Rawalpindi, Islamabad and all second and third tier cities / towns of Pakistan.
Employment Generation: The proposed project will provide direct employment to 05

people. Financial analysis shows the unit shall be profitable from the very first year of
operation
7.
CRITICAL FACTORS
Critical success factors that affect the decision to invest in the proposed business are:
i)
Products and Brand
Product and Brands to be distributed would act as a key success factor for the proposed
distribution business. Greater the brand awareness in the market, higher would be the
chances of business success. It is suggested that prospective entrepreneur should
obtain distribution agreement for at least one successful brand.
ii)
Background Experience
Background experience plays an important role in operating a small to medium scale
Distribution Agency, especially when dealing with customers, deciding the business
development activities to be carried out and negotiating on commercial terms and
conditions, etc.
iii)
Marketing Skill
The entrepreneur must have effective PR & marketing skills. These marketing skills
should enable the entrepreneur to carryout business development activities to target
potential customers and also to maintain existing client base.
iv)
Strong Sub-distributor
A strong sub-distributor network also plays an important role in generating additional
business. Such a network is imperative in developing a strong customer base which
might remain restricted if operated alone.
v)
Skilled & Experienced Manpower
The knowledge and experience of the entrepreneur is not sufficient to run the business
smoothly. A major proportion of business development activities and accounts
receivables are managed by sales personnel employed by the agency. Therefore, it is
crucial for the distribution agency to hire experienced and skilled sales staff that can
bring in new business and retain existing customer base.
8.
INSTALLED AND OPERATIONAL CAPACITIES
For the proposed project it is assumed that 336 tonnes / annum of various consumer
goods will be distributed across the city where the distribution company is set-up with
5% sales volume growth assumption. For this purpose a staff of total 05 persons will be
justifying their job description in various capacities.
It has been suggested that for the proposed distribution business, the company would
act as a main institutional distributor for Fast Moving Consumer Goods (FMCG)
products. The business would distribute; one established tea brand, any one of
packaged Milk, as new brands are growing in the market and any two of confectionery
products i.e. biscuits & toffees etc.
Products for distribution have been selected for the proposed business by foreseeing
their high potential and anticipated expansion in the manufacturing of these products.
However, as these products are perishable, efficient distribution operations would be
necessary. In order to leverage the opportunity for further business expansion, intensive
distribution practice would be followed which means that the business would place its
products and services in as many outlets as possible, employing the First in First Out
method.
It is proposed that Milk should not be stored in the warehouse for more than 03 days,
whereas, tea and confectionery may remain in stock for 07 days at most. However, it is
suggested that time for a product to leave the warehouse and be distributed should be
as minimum as possible.
9.
GEOGRAPHICAL POTENTIAL FOR INVESTMENT
The growing trend of consumerism and increase in population has increased

opportunities for the FMCG distribution business in Pakistan. The influx of rural
population into urban areas has also increased the demand of consumer goods,
therefore, proposed Distribution Agency can be set-up in any major city with significant
population such as Karachi, Lahore, Rawalpindi, Peshawar and Quetta. This business
can also be done in all small second tier towns, in addition to suburban towns of large
cities.
10. POTENTIAL TARGET MARKETS

Pakistan has a domestic market of above 185 million consumers with growing incomes
& changing consumption habits. Population growth, increase in per capita income, and
urbanization have led to demand of distribution agencies. Consumerism and
introduction of new products have fuelled demand. The target market for the proposed
set-up is retail stores in densely populated cities such as Karachi, Lahore, Peshawar,
Quetta, Rawalpindi, Islamabad & all second and third tier cities / towns of Pakistan.
11. DISTRIBUTION PROCESS FLOW

Manufacturing or trading companies dealing in consumer goods when interested in
appointing a distributor for their products, advertise in newspapers and call for
expression of interest from local companies interested in the distribution. Companies
evaluate following capabilities of the interested distributors:
Location of distributors business premises.

Financial position and credit standing of the distributor.
Knowledge and experience of the distributor.
Storage and showroom facilities of the distributor.
Ability of the distributor to secure adequate business and to cover the market.
Capacity of the distributor to provide after sale service.
General reputation of the distributor and his sales force.
Willingness of the distributor to handle the entrepreneurs products.
Degree of co-operation and promotion service he is willing to provide.
Nature of other products, if any handled by the distributor.

In a country like Pakistan one needs an effective distribution system that provides
market coverage and is economical. The choice of a channel by traders or
manufacturers depends upon the nature of the product e.g. for low priced consumer
products like soap, a vast network is needed and manufacturers prefer to hire the
services of a independent distributor rather than having their own distribution set-up,
which is a high cost option. For industrial goods, a direct channel or a very short
channel is considered to be appropriate. The nature of the product- whether it is bulky
or perishable, and the cost and efficiency of the distributors are some other factors that
manufacturers and traders consider while selecting a distributor.
12. PROJECT COST SUMMARY

A detailed financial model has been developed to analyze the commercial viability of
Distribution Agency under the Prime Ministers Youth Business Loan. Various cost and
revenue related assumptions along with results of the analysis are outlined in this
section.
The projected Income Statement, Cash Flow Statement and Balance Sheet are
attached as appendix
12.1 Project Economics
All the figures in this financial model have been calculated for distribution of 28 Tons /
Month of Packed Tea, Powdered Milk, Biscuits and Confectionary Items. Monthly Sales
of these items based on certain assumptions such as Distributors price and quantity of
sales are calculated to be Rs. 8.32 million.
Following table shows Internal Rate of Return, Net Present Value and Payback Period.
Table 1 - Project Economics
Description
Details
Internal Rate of Return (IRR)

Payback Period (yrs)
Net Present Value (NPV)
39%
3.4
3,269,732
Returns on the scheme and its profitability are highly dependent on effective
management of logistics, general reputation of distributor and its sales force.
12.2 Project Financing

Following table provides details of the equity required and variables related to bank
loan:
Table 2 - Project Financing
Description
Details
Total Equity (10%)
Rs.124,900
Bank Loan (90%)
Rs.1,124,100
Markup to the Borrower (%age/annum)
8%
Tenure of the Loan (Years)
08
Grace period (Year)
01
12.3 Project Cost

Following requirements have been identified for operations of the proposed business:
Table 3: Capital Investment for the Project
Capital Investment
Amount (Rs.)
Renovation (Office & Godown)
50,000
Office Equipments
67,000
Security Deposit
400,000
Furniture
50,000
Delivery Vehicles
400,000
Rent Deposit
100,000
Total Capital Costs
1,067,000
Working Capital
182,000
Total Project Cost
1,249,000
12.4 Space Requirement

Space required for Distribution Agency is 2,000 Sq. ft. where 200 Sq. ft. will be used for
Management Office and 1,800 Sq. ft. will be used as Godown.
Table 4: Space Requirement
Description
For Office & Godown

Total Rent
Area
Sq. Ft.
2,000
Monthly Rent
Charges (Rs.)
Yearly Rent(Rs.)
40,000
480,000
40,000
480,000
Table 5: Office Equipment & Furniture Costs
Description
Quantity
Cost
Amount
Computer & UPS
25,000
25,000
Printer
10,000
10,000
Fax & Telephone
12,000
12,000
UPS & Battery
20,000
20,000
Furniture
50,000
50,000
Total
117,000
12.5 Human Resource Requirement

Table 6: Human Resource Requirement
Description
Nos.
Salary per month
Total Salary
Owner Manager
Sales Staff / Outdoor Booking
01
01
20,000
12,000
20,000
12,000
Manager Accounts & Store

Driver / Loader
01
01
12,000
10,000
12,000
10,000
01
05
10,000
64,000
10,000
64,000
Security Guard
Total Staff
The table above provides detail of human resources required to run a Distribution
Agency of Small and Medium Scale. Salaries of all employees are estimated to increase
at 10% annually.
12.6 Revenue Generation
The revenues are based on assumption of monthly Sale Proceeds of Rs. 8.32 Million of
Branded Tea, Powdered Milk, Biscuits and Confectionary items with an annual sales
volume growth rate of 5% and price growth rate of 7%. On an average distribution
margin is 2% of total sale proceeds.
10
Table 7 - Project Economics
Distribution of Items
Monthly Sales
Commission
on Sales (2%)
Incentives on
Sales-Monthly
Branded Tea
3,000,000
60,000
15,000
Powdered Milk
3,000,000
60,000
15,000
Biscuits / Cookies
1,040,000
20,800
6,240
Candy / Toffee / Chocolates
1,280,000
25,600
7,680
166,400
43,920
Sub-Total
Total Sales
8,320,000
210,320
12.7 Other Costs

An essential cost to be borne by the company is maintenance of vehicles as delivery
vans have to cover a number of remote areas in different part of the city. On an average
Rs. 45,500 is assumed to be monthly fuel and vehicle maintenance expense.
Working Capital Requirements: It is estimated that an additional amount of
approximately Rs. 182,000 will be required as cash in hand to meet the initial working
capital requirements during operation. The requirement is based on the utilities,
salaries, fuel, office rent, insurance expense, maintenance and miscellaneous expense
for at least one month. The following table gives the break up.
Table 8 Working Capital Requirement
Salaries
Rent
Utilities
Maintenance & Fuel for Vehicle
Office Expenses
Life Insurance Expense
Total
Months
01
01
01
01
01
01
Charges (Rs.)
64,000
40,000
20,000
45,500
10,000
2,500
182,000
11
13. CONTACT DETAILS OF CONSULTANS / EXPERTS

Following are a few significant distributors with sub-distribution options:
Universal Distributors Limited (UDL), www.universaldistribution.org/

International Brands Limited (IBL), www.iblgrp.com/
Burque Corporation, Premier Distributor, www.burque.com.pk/
Muller & Phipps (M & P), www.mulphico.pk/
12
14. ANNEXURES
14.1
Income Statement
13
14.2
Balance Sheet
14
14.3
Cash Flow Statement
15
14.4
Useful Project Management Tips
Technology
List of Machinery & Equipment
Computer & UPS
Printer
Fax & Telephone
UPS & Battery
Furniture
Energy Requirement: Should not be overlooked and alternate source of energy for
critical operations be arranged in advance
Marketing
Sales & Distribution Network: Expert's advice and distribution agreements are
required with distributors & retailers.
Price - Bulk Discounts, Cost plus Introductory Discounts: Price should never be
allowed to compromise on quality. Price during introductory phase may be lower and
used as a promotional tool. Service cost estimates should be carefully documented
before price setting. Government controlled prices should be displayed, where
applicable.
Human Resources
List of Human Resource
Owner
Sales Staff / Outdoor Booking
Manager Accounts & Store
Driver / Loader
Security Guard
Adequacy & Competencies: Recruitment of skilled and experienced staff should

be considered an investment.
Performance Based Remuneration: Attempt to manage human resource cost

should be focused through performance measurement and performance based
compensation.
16
Training & Skill Development: Encouraging training and skill of self & employees
through experts and exposure to best practices is a route to success. Least cost
options for Training and Skill Development (T&SD) may be linked with compensation
benefits and awards.
14.5
Useful Links
Prime Ministers Office

www.pmo.gov.pk
Small & Medium Enterprises Development Authority (SMEDA)
www.smeda.org.pk
National Bank of Pakistan (NBP)
www.nbp.com.pk
First Women Bank Limited (FWBL)
www.fwbl.com.pk
Government of Pakistan
www.pakistan.gov.pk
Ministry of Industries & Production
www.moip.gov.pk
Ministry of Education, Training & Standards in Higher Education
http://moptt.gov.pk
Government of Punjab
www.punjab.gov.pk
Government of Sindh
www.sindh.gov.pk
Government of Khyber Pakhtunkhwa
www.khyberpakhtunkhwa.gov.pk
Government of Balochistan
www.balochistan.gov.pk
Government of Gilgit Baltistan
www.gilgitbaltistan.gov.pk
Government of Azad Jammu & Kashmir
17
www.ajk.gov.pk
Trade Development Authority of Pakistan (TDAP)
www.tdap.gov.pk
Securities & Exchange Commission of Pakistan (SECP)
www.secp.gov.pk
Federation of Pakistan Chambers of Commerce and Industry (FPCCI)
www.fpcci.com.pk
State Bank of Pakistan (SBP)
www.sbp.org.pk
18
15. KEY ASSUMPTIONS

Item
Sales Volume Increase
Sales Price Increase
Increase in Cost of Sales
Increase in Staff Salaries
Increase in Utilities
Increase in Rent
Increase in Office Expenses
Debt / Equity Ratio
Depreciation: Premises Renovation
Furniture
Loan Period
Loan Installments
Financial Charges (Loan Rate)
Bad Debts
Assumption(s)
5%
7%
10 %
10 % per year
10 % per year
10 % per year
10 % per year
90 : 10
10 % per annum (Diminishing Balance)
10 % per annum (Diminishing Balance)
8 Years, inclusive of 1 year grace
period
Monthly
8 % per annum
3% of Sales
19

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Pre-Feasibility Study

Small and Medium Enterprises Development Authority

3rd Floor, Building No. 3,

5th Floor, Bahria

Bungalow No. 15-A

Distribution Agency (Rs.1.25 Million)

Distribution Agency (Rs.1.25 Million)

Distribution Agency (Rs.1.25 Million)

PURPOSE OF THE DOCUMENT

The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs

Distribution Agency (Rs.1.25 Million)

Distribution Agency is proposed to be located at any densely populated city such as

Distribution Agency (Rs.1.25 Million)

BRIEF DESCRIPTION OF PROJECT

Target Market: The demand of distribution service providers is increasing which is

Employment Generation: The proposed project will provide direct employment to 05

Distribution Agency (Rs.1.25 Million)

INSTALLED AND OPERATIONAL CAPACITIES

Distribution Agency (Rs.1.25 Million)

GEOGRAPHICAL POTENTIAL FOR INVESTMENT

The growing trend of consumerism and increase in population has increased

10. POTENTIAL TARGET MARKETS

11. DISTRIBUTION PROCESS FLOW

Location of distributors business premises.

Distribution Agency (Rs.1.25 Million)

Nature of other products, if any handled by the distributor.

12. PROJECT COST SUMMARY

Internal Rate of Return (IRR)

Distribution Agency (Rs.1.25 Million)

12.2 Project Financing

Total Equity (10%)

Bank Loan (90%)

Markup to the Borrower (%age/annum)

Tenure of the Loan (Years)

Grace period (Year)

12.3 Project Cost

Renovation (Office & Godown)

Total Capital Costs

Total Project Cost

12.4 Space Requirement

For Office & Godown

Distribution Agency (Rs.1.25 Million)

Table 5: Office Equipment & Furniture Costs

Computer & UPS

Fax & Telephone

UPS & Battery

12.5 Human Resource Requirement

Salary per month

Manager Accounts & Store

Distribution Agency (Rs.1.25 Million)

Table 7 - Project Economics

Candy / Toffee / Chocolates

12.7 Other Costs

Distribution Agency (Rs.1.25 Million)

13. CONTACT DETAILS OF CONSULTANS / EXPERTS

Universal Distributors Limited (UDL), www.universaldistribution.org/

Distribution Agency (Rs.1.25 Million)

Distribution Agency (Rs.1.25 Million)

Distribution Agency (Rs.1.25 Million)

Cash Flow Statement

Distribution Agency (Rs.1.25 Million)

Useful Project Management Tips

List of Machinery & Equipment