MBAX 6100 Entrepreneurship and Small Business Management Feasibility Plan – Parts I & II Auntie Carla’s Frozen Bread

1. MBAX 6100 Entrepreneurship and Small Business Management Feasibility Plan – Parts I & II Auntie Carla’s Frozen Bread Dough March 20, 2007 Carla Ooyen & Masashi Tsuchiya

2. Product Concept Frozen Premium Bread Dough The premium quality, flavor, and smell of homemade artisan bread without the hassle of mixing, kneading and forming the dough. • Premium quality bread dough sold in the freezer section. • At home, the consume thaws, rises, and bakes. • Product will be made of natural or organic ingredients • Manufacturing will use “old dough” techniques for premium flavor • May offer unusual, specialty or holiday selections such as panettone, stollen, or Greek Easter bread • May sell in an oven-safe, recyclable container for added baking convenience

3. Market Analysis – Size and Growth • Market value of all Bread and Roll retail sales in the World1 • $145.7 billion in 2004 (2.4% growth in the past five years) • Market value of all Bread and Roll retail sales in the United States2 • $13.5 billion in 2006 (1.3% growth in the past five years) • $14.1 billion projected by 2011 • Downturn in 2004 due to low-carb diet trend, but market rebounding by 2005 • Rhodes International reported in 2006 that “sales of Rhodes frozen white bread dough are increasing at 8% annually.” 3 • Bread market hit bottom in May 2004, demand is stronger now. Vice president of Hom’Ade Foods agrees sales of 2005 1st quarter have increased.4 • The U.S. government’s release of the revised food pyramid is reminding consumers of the importance of whole grains in their diet.5 • Market for bread and related products has been and is expected to continue to be almost flat for the next few years.6 (Difference in figures from other market size data is due to different source of data)

4. Market Analysis - Trends • Increasing gourmet “premium” market • According to Fortune magazine 7, a gourmet bakery in Paris, Poilane, sells about $18 million annually, to 50 different countries, to celebrities like Robert De Niro and Steven Spielberg, and to three star French chef Alaim Ducasse, who buys 5000 metric tons per year. Long distance distribution is done within 24 to 48 hours by FedEx, with price ranging from $10 in Paris to $47 in the U.S. • Artisan bread market is increasing • “By 2003 sales of premium breads totaled $933 million, or 16 percent of all bread sales, and were continuing to climb” 8 • Artisan and specialty bread sales have increased 23% from 1998 to 2003. 9 • “Specialty breads add cachet. People are looking for more sophisticated flavors” 10 • Increasing need for convenience • Experts interviewed all agreed that consumers of natural & organic products were looking for more convenience • Rhodes advertises convenience: “They are both freezer-to-oven rolls that come in a re-sealable laminate bag. They thaw, rise and bake in 30 minutes” 11

5. Market Analysis - Trends • Increasing market for healthy foods • Organic food is increasingly popular. • “(Bread) is not surging quite as aggressively as other organic segments, it’s showing respectable growth.” 12 • The consensus of the experts interviewed was that the Organic market is continuing to grow.13 • Anti-allergy food (non sugar, gluten free, etc) is increasingly popular. • Gluten free, sugar free, allergy free bread will sell.14 • Whole grain bread is increasingly popular. • Whole grain bread market was slow in 2000 to 2003, however in 2004 sales increased 3.3% from previous year’s sales.15 • In 2005, 73 new products were introduced with specialty grains such as spelt, buckwheat, kamut, quinoa, and pearl barley.16 • “In 2006, wellness will again be one of the industry’s top influences; the relationship between health and food has become big business….the comeback of carbs will add fuel to the growing interest in breads” 17 • Young mothers want to feed their babies better food.18 • People are looking for natural version of everyday products.19

6. Market Analysis – Market Segmentation • Industrial Bread and Artisan bread • Industrial bread • Mass produced bread • Mainly white bread • Frozen dough available • Artisan Bread • Bakery made rather than mass production • Premium gourmet bread • Organic, Sugar free, Gluten free, Allergy free • No frozen dough available • World Bread and Roll market in 2004 20 • Europe: $95.3 billion with artisan bread having a 60% share • The U.S: $13.1 billion with artisan bread having a 12% share • Asia-Pacific: $12.8 billion with artisan bread having a 30.5% share • Japan: $5.6 billion in 2006, which is about 48% of Asia-Pacific market, with artisan bread having a 20% share • India: $1.5 billion in 2006 • China: $1.1 billion in 2006 • Market Value of the U.S. Bread, Roll and Bun dough retail sales (Excluding in-store use such as restaurant) 21 • Refrigerated market = $252.4 million in 2003 • Frozen market = $443.0 Million in 2003

7. Market Analysis – Demographics • Demographic 1: Bread consumer consumption of bread in 200322 • Penetration rate is more than 95% across all following segments • Number of loaves consumed weekly • 45% of buyers purchase 1 loaf per week • 31% of buyers purchase 2 loaves per week • 12% of buyers purchase 3 loaves per week • Percentage of users by age group: • 21% are 35 to 44 • 19% are 45 to 54 • 19% are 25 to 34 • 13% are 18 to 24 • 12% are 55 to 64 • Bread consumers by gender: • 52% of buyers are Female • 48% of buyers are Male • Percentage of users by race/ethnic origin: • 72% are White/non Hispanic • 12% are Black • 12% are Hispanic • 4% are Asian • Bread consumption by region: • 36% live in the South • 23% live in the Midwest • 22% live in the West • 19% live in the Northeast

8. Market Analysis – Demographics • Demographics 2: White bread and Whole Grain bread 23 • White bread buyers tend to be: • Spanish, Hispanic • Young 18 to 34 years old • High school graduates • With children • Live in a rented property • Whole grain bread buyers tend to be: • 55 years or older • College or Graduate school graduates • Retired • No children • Live in own home

9. Market Analysis – Threats • Little growth in the bread market: currently between -3% to 3% per year • Raw material supply • Weather issues such as a drought could cause a raw ingredient shortage. • Possible insufficient ingredient supply. The demand for organic products is increasing faster than the supply of raw ingredients. 24 • Economic downturns reduce the demand for premium products.

10. Market Analysis - Market Structure • Retail route (major route) • Manufacturer (finished bread or dough) • Wholesaler • Retailer (sometimes bake from dough) • Consumer • In-store use • Manufacturer (finished bread or dough) • Wholesaler • Restaurant, Café, Sandwich shop, etc.(sometimes bake from dough) • Consumer • Own-production (Bakery) • Manufacturer = Retailer (all process by retailer) • Consumer

11. Market Analysis – Opportunities & Niches • Opportunity • Market trend for premium bread needs • Huge world market for bread – export opportunity • Higher share of artisan bread in Europe and Japan (than in the US) • Ocean freight = about $0.30/loaf 25 • Niches • No premium frozen bread dough in current bread market • Jason Vincent, Category Manager - Frozen Foods for Wild Oats, feels that there is a need for natural/organic frozen bread dough and is surprised that no one has yet entered that niche. The long shelf life is a key attractive characteristic. He feels the market is probably 2 to 3 units per week per store. • Adam Schneider, natural food broker, indicated that he could “sell the hell out of” a par-baked frozen bread product. • Increasing market segment for premium bread. • Internet e-commerce • Other form of direct sales to consumers • Export opportunity Market Analysis – New Distribution Channels

12. Market Analysis - Conclusion Feasible, there is a niche! • No direct competitors – no premium frozen bread dough manufactures exist currently. • Consumer interest is favorable - Increasing demand for healthy foods such as organic. Consumers are looking for natural substitutes for everyday products. • Growth opportunity - The U.S. share for artisan bread is lower than most other developed countries. As people get more health conscious and taste sensitive, the market will grow. • Export opportunity - Europe accounts for about 64% of world bread market. Japan accounts for about 48% of Asia-Pacific bread market. Both countries with higher artisan bread share than U.S.

13. Competitive Analysis – Industry Structure • Carrying Capacity • The bread industry is fairly slow growth (see Market Analysis section). • Frozen food section of grocery stores is limited in size. Securing space for a new product means that an existing product looses space (or is no longer carried). • Must have a niche product that fills a customer need. • Frozen premium bread dough could gain space by fulfilling an unmet need.26 • Degree of Stability • Fairly stable demand for bread from year to year. A staple of most people’s diets. • Seasonal variations in demand. Higher demand near holidays, such as Thanksgiving, Christmas, Easter and Mother’s Day.27 • Diet trends, such as the Atkin’s low carb craze in the early 2000’s, can have a serious negative effect. • Complexity • Grocery industry generally requires working with suppliers, distributors, brokers, and retailers. • For local market entry, it is sometimes possible to avoid working with distributors or brokers.28 • Selling in food service chain to restaurants would require same chain as grocery industry unless sales market is only local. • Obtaining necessary health department and FDA approval can be complicated. • Industry Evolution • Bread industry as a whole is mature. • Organic food segment is in the later stages of the high growth phase. Retailers are starting to see “me-too” products rather than new innovations.29 • Organic growth opportunities are tied to convenience and replication of traditional (not-so-healthy) products.

14. Competitive Analysis – Barriers to Entry • Economies of Scale • Large manufacturers • Receive discounts for buying ingredients in large volume. Power to affect supplier costs. • Marketing budgets are larger. Profits of large volume products can help support marketing and sales of lower volume or introductory products. • Entry level companies • Lack of volume equates to higher ingredient costs. • Marketing costs cannot be spread over product line. • Customer Loyalty • Because there is currently no retail frozen premium bread dough, customers would currently have no brand to be loyal to. First entry advantage might deter customers from switching brands if a new competitor entered the market. • If a known baked bread brand, such as Rudi’s, were to enter the market, customers would be more likely to buy known over unknown. • Loyalty to baked breads brand could deter customers from switching to frozen dough option. • Proprietary • Recipes – competitors may not be able to replicate that customer-winning flavor.

15. Competitive Analysis – Barriers to Entry • Capital Requirements • Building a manufacturing facility from scratch is costly. For example, a 18’x24’x12’ freezer space would cost about $90K for parts and installation.30 • Copackaging agreements with licensed manufacturers are a means of avoiding the necessity to build a factory. • Unused capacity can be rented from manufacturers or restaurateurs (approximately $10 to $14/hour).31 This is a low capital way for a small company to test the business concept without major investment. • Cold storage facilities, such as Atlas Cold Storage, offer storage and inventory management, thus reducing the need for on-site freezer space. • Cold storage freight services alleviate need for company purchase of refrigerated truck fleet. • Access to distribution channels • Must convince retailers and distributors to carry your product. They may not be interested in dealing with small manufacturers. • Do not have direct access to customer if using standard distribution channels. • Government Regulation • Must follow state and local Department of Health commercial food safety requirements (can’t start a food business in your garage). • Must register with the FDA and follow food labeling guidelines.32

16. Competitive Analysis – Degree of Rivalry • Price point issues • Variety of entrants in bread market means that price comparison is inevitable. • Premium, natural, and organic breads generally sell in the range of $3-$5 for a 1 pound loaf of bread. • If frozen bread dough is priced significantly above baked options, consumers will substitute. • Rivalry is somewhat “friendly”. Competitors provide coupons and promotions to encourage consumers to purchase their produce, but price wars are not an issue. • Big manufacturers, such as Pillsbury or Wonder, that have the power to squish competition wouldn’t be interested in a small niche market like frozen premium bread dough.

17. Competitive Analysis – Major Competitors There are no direct competitors in the premium frozen bread dough category, so we focus on indirect competitors. Key indirect competitors include: • Frozen traditional bread dough • Rhodes International - frozen loaves in white or wheat. The white bread compares to a traditional sandwich loaf – little flavor, soft texture. • Frozen pre-baked traditional • Pillsbury “Oven Baked Crusty French Mini Loaves” – a household brand name producing an extremely average convenience bread product. • Frozen pre-baked natural or organic • Alexia - frozen baked artisan bread rolls. Known for producing a quality product. • Fresh natural or organic • Rudi’s Organic Bakery – produces a wide array of certified organic breads, primarily sandwich style. • Grocery bakeries • Grocery bakeries produce a large variety of fresh baked breads of varying qualities. Natural food grocers generally produce a higher quality product. See the Competition Matrix in Appendix 2 for a detailed comparison of competitors. Possible Future Competitors: • Current baked bread manufacturers could easily produce a frozen dough product. It’s really just a matter of making slight modifications to production and packaging. • Food service companies, such as Bridgford, Ralcorp Frozen Bakery Products, and Rich’s, produce frozen dough or par-baked bread and could fairly easily offer a retail product.

18. Competitive Analysis - Competitor Self Perception • Rhodes Bake-N-Serv 33 • “Enjoy hot, homemade quality white bread fresh from your own oven. Available in three or five loaves per package. Just thaw, let rise, & bake!” • Family owned company committed to quality • Rudi’s Organic Bakery 34 • “Our Mission is to be the leading manufacturer and supplier of branded certified organic breads. We are dedicated to the highest standards of quality, taste, packaging and communications. We are committed to the families we serve and look to bring warmth, sincerity, joy and a higher quality of life to our people, our customers and the world.” • Alexia 35 • “Alexia® Foods, Inc. produces a full line of 100% all natural, trans fat free, premium frozen products for the oven, microwave or fryer that deliver outstanding gourmet flavor from freezer to table in just minutes.“ • “Convenient and versatile, Alexia Artisan Breads bake up beautifully and complement any dish. “

19. Competitive Analysis – Basis of Competition • Convenience vs. Quality • Shelf bread is part of a weekly shopping trip. Sacrifice freshness and quality for a product that will easily last a week. • Frozen (pre or par baked) bread products offer the convenience of “fresh baked” bread without an immediate trip to the store. Sacrifice immediate use, and sometimes flavor, for a product with a longer life. • Fresh bakery products come in 2 categories: • Cheap and not so tasty. Good if you are already making a quick trip to the store. • Higher quality products may have a very good artisan flavor, but freshness deteriorates quickly and an on-demand trip to the store is required. • Frozen bread dough requires some planning, but allows one to make fresh bread without the hassle of mixing, kneading, or forming, and no on-demand store trip is required. • Premium frozen bread dough offers high quality ingredients and flavor and medium convenience. • The level of convenience is tied closely to one’s proximity to a store (rural populations). • Reputation – For big industry players, like Rudi’s or Rhodes, their reputation is a key competitive factor. • Consumers will try product based on name alone. • New ventures do not have brand recognition • Specialty – Offering specialty products, such as gluten free or vegetarian, is a key competitive factor for many small bread makers.

20. Competitive Analysis – Control over Prices, Costs, & Channels • Prices • Consumers know what bread costs. Limited ability to charge a premium price. • Consumers are highly unlikely to buy bread that cost more than $5 a loaf, based on what is already competitively available. • Costs • A start-up is going to have a difficult time getting price breaks from suppliers. With the relative shortage of natural and organic ingredients, suppliers have a fair amount of power. • Conversely, some market factors have made standard ingredients more expensive, which means there is less marginal cost to going organic. For example, due to natural disasters, regular sugar is currently only slightly cheaper than organic sugar (40¢/lb. vs. 50¢/lb.).36 • Channels of Distribution • Large grocery chains require distributor relationships. • Introduction in local stores can provide a means for bypassing the distributor. • Internet sales could be a creative means of connecting directly to retail customers. Competitive Analysis – Market Domination • No direct competitor • Many small businesses in the natural and organic bread market • In the Frozen Bread/Rolls/Pastry Dough category, Rhodes International has 40% market share, Hom’ade Foods Inc. has 44% and General Mills (including Pillsbury) has 10%.37

21. Competitive Analysis – Conclusion • Bread manufacturers are not currently addressing the market niche for premium frozen bread dough. • Existing indirect competitors could enter this niche market fairly easily if they wanted. • Future competitors, such as food service companies, could also enter this niche. • Market size is small so there is little incentive for large companies to enter the market. There is a market opportunity for premium frozen bread dough, and currently no direct competition, but there is no barrier for future entry.

22. Endnotes 1 ”Global - Bread and Rolls,” Datamonitor industry market research, October 31, 2005. 2 ”Japan – Bread and Rolls,” Datamonitor industry market research, December 1, 2006. 3 D. Gail Fleenor, “Rising Sales: The Comfort and Aroma of Home-Baked Bread, Rolls, and Biscuits are Available From a Wide Array of Tasty, Convenient Items in the Freezer Aisle,” Frozen Food Age, December 2006. Vol.55, p18. 4 Renee M Covino, “Bread is Back: Oh What a Difference a Year--and the Return to Balanced Eating--Makes on the Frozen Bread/Dough Category,” Frozen Food Age, April 2005, Vol.53, p28. 5 “Baby Boomers and the U.S. Food and Beverage Industry”, December 2005, p95. 6 Market Trends: Fresh Bread and Related Products, August 2004, p2, p9 7 Tom Sancton, Fortune magazine, Jun 22, 2007, Vol.115, p157 8 “Bread, Cake, and related products” Encyclopedia of American Industries. Online Edition, Thomson Gale, 2006 9 Market Trends: Fresh Bread and Related Products, August 2004, p7 10 Market Trends: Food Flavors and Ingredients Outlook, February 2006, p114 11 “Baby Boomers and the U.S. Food and Beverage Industry”, December 2005, p83 12 See Call Reports - Lind Iggi, Jason Vincent, and Scott Roy 13 See Call Report - Tom, Vitamin Cottage 14 The U.S. Market for Whole Grain and High Fiber Foods, April 2005 15 Market Trends: Food Flavors and Ingredients Outlook, February 2006, p117 16 Market Trends: Food Flavors and Ingredients Outlook, February 2006, p21 17 See Call Report - Adam Schneider 18 See Call Reports - Adam Schneider, Jason Vincent 19 Renee M Covino, “Bread and Dough for a Crisp Fall: Get Customers Ready for the Autumn Baking Season with More Frozen Bread, Dough and Rolls--Now Highlighted with Extra Health and Convenience,” Frozen Food Age, June 2006, Vol.54, p24 20 Market Trends: “Fresh Bread and Related Products”, August 2004, p61.

23. Endnotes 21 Simmons Market Research Bureau, “Study of Media and Markets” Fall 2004 22 ”Global – Bread and Rolls,” Datamonitor industry market research, October 31, 2005 23 Market Trends: Convenience Home Baking Products, February 2004, pp84-86. 24 See Call Report - Jason Vincent 25 See Call Report - Mr. Sato 26 See Call Report - Jason Vincent 27 Frozen Dough Handbook, Volume 61, p10, Rhodes International Inc. 28 See Call Report – Scott Roy 29 See Call Report - Jason Vincent 30 See Call Report – Scott Roy 31 See Call Report – Lind Iggi 32http://www.cfsan.fda.gov/list.html 33http://www.rhodesbread.com/ 34http://www.rudisbakery.com/about_us/mission.jsp 35http://www.alexiafoods.com/index.html 36 See Call Report – Scott Roy 37 Market Trends: Convenience Home Baking Products, p51, February 2004.

24. MBAX 6100 Entrepreneurship and Small Business Management Feasibility Plan – Part III Auntie Carla’s Frozen Bread Dough April 24, 2007 Carla Ooyen & Masashi Tsuchiya

25. Market Analysis Summary – Market Trends • Size and Growth • Market size of all Bread and Roll in the United States is more than $10 billion. Low future growth rate. Details as follows; • Increasing gourmet “premium” market • Artisan bread market is increasing • By 2003 sales of premium breads in the United States are about 16 percent of all bread sales, and continue to increase. 1 • Artisan and specialty bread sales have increased 23% from 1998 to 2003. 2 • “Specialty breads add cachet” People are looking for more sophisticated flavors 3 • Increasing market for healthy foods • Organic food is increasingly popular. • Anti-allergy food (non sugar, gluten free, etc) is increasingly popular. • Whole grain bread is increasingly popular. • Young mothers want to feed their babies better food. 4 • People are looking for natural version of everyday products. 5

26. Market Analysis Summary • Segmentation • Industrial Bread (mass produced, mainly white bread) • Artisan Bread (bakery made, premium gourmet, organic, natural, etc) • Bread penetration rate is more than 95% 6 • Typical whole grain bread consumer: 55 years or older, College graduate or higher education, retired, no children, and homeowner • Market Threats • Little growth in bread market. • Raw material supply – weather issues or surge in organic ingredient demand could cause supply shortage • Economic downturns reduces the demand for premium products. • Market structure • Retail route : majority of bread products • Manufacture → Wholesaler → Retailer → Consumer • In store use : • Manufacture → Wholesaler → Restaurant/Cafe → Consumer • Own Production : Bakery • Manufacture/Retailer → Consumer

27. Market Analysis Summary – Opportunity and Niches • Opportunity • Increasing market trend for premium artisan bread • Huge world market (opportunity for export) • Niches • No premium frozen bread dough in current bread market. • New Distribution channel • Internet e-commerce • Other form of direct sales to consumers • Export opportunity

28. Competitive Analysis Summary • Industry Structure • Carrying Capacity - limited space in the frozen food section, must find a niche • Degree of Stability - Fairly stable year-to-year demand. Diet trends can have a serious negative effect • Complexity - have to work with suppliers, distributors, brokers, and retailers. • Industry Evolution • Organic food segment is in the later stages of the high growth phase. Retailers are starting to see “me-too” products rather than new innovations.7 • Organic growth opportunities are tied to convenience and replication of traditional products. • Barriers to Entry • Economies of Scale – large manufacturers can get volume discounts • Customer loyalty to existing brands • Capital Requirements – must secure necessary product space & equipment • Distribution Access - Must convince retailers and distributors to carry your product • Government Regulation – must meet State Department of Health & FDA requirements • Degree of Rivalry • Price Point – must be competitive with other bread options • Power – big manufacturers have power to control market if desired

29. Competitive Analysis Summary – Major Competitors Key competitors in the bread industry include: • Frozen traditional bread dough • Rhodes International - frozen loaves in white or wheat. The white bread compares to a traditional sandwich loaf – little flavor, soft texture. • Frozen pre-baked traditional • Pillsbury “Oven Baked Crusty French Mini Loaves” – a household brand name producing an extremely average convenience bread product. • Frozen pre-baked natural or organic • Alexia - frozen baked artisan bread rolls. Known for producing a quality product. • Fresh natural or organic • Rudi’s Organic Bakery – produces a wide array of certified organic breads, primarily sandwich style. • Grocery bakeries • Grocery bakeries produce a large variety of fresh baked breads of varying qualities. Natural food grocers generally produce a higher quality product. See the Competition Matrix in Appendix 3 for a detailed comparison of competitors. Possible Future Competitors: • Current baked bread manufacturers could easily produce a frozen dough product. It’s really just a matter of making slight modifications to production and packaging. • Food service companies, such as Bridgford, Ralcorp Frozen Bakery Products, and Rich’s, produce frozen dough or par-baked bread and could fairly easily offer a retail product.

30. Competitive Analysis Summary • Basis of Competition • Convenience vs. Quality - Shelf bread with long life vs. Fresh bakery product with better taste but shorter life • Reputation - For big industry players, like Rudi’s or Rhodes, their reputation is a key competitive factor. New ventures do not have brand recognition • Specialty – Offering specialty products, such as gluten free or vegetarian, is a key competitive factor for many small bread makers. • Control over Prices, Costs, & Channels • Consumers know what bread costs. Limited ability to charge a premium price. • A start-up is going to have a difficult time getting price breaks from suppliers. With the relative shortage of natural and organic ingredients, suppliers have a fair amount of power. • Large grocery chains require distributor relationships, but there may be creative alternatives to the traditional channel, such as local stores or internet sales. • Market Domination • No premium frozen bread dough in U.S. retail market • Many small businesses in the natural and organic bread market • Conclusions • Bread manufacturers are not currently addressing the market niche for premium frozen bread dough. • Existing indirect competitors could enter this niche market fairly easily if they wanted. • Future competitors, such as food service companies, could also enter this niche. • Market size is small so there is little incentive for large companies to enter the market.

31. Venture Analysis – Opportunity and Need • Opportunity for Frozen Bread Dough • Market trend for premium bread needs • Huge world market for bread – export opportunity. Higher share of artisan bread in Europe and Japan (than in the US)8 • No premium frozen bread dough in current retail bread market. • Jason Vincent, Category Manager - Frozen Foods for Wild Oats, feels that there is a need for natural/organic frozen bread dough and is surprised that no one has yet entered that niche. The long shelf life is a key attractive characteristic. He feels the market is probably 2 to 3 units per week per store. 9 • Adam Schneider, natural food broker, indicated that he could “sell the hell out of” a par-baked frozen bread product. 10 • In 2004, the natural foods “bread and baked goods” category grew 14.1%. 11 • Problem: Not everyone has the joy of experiencing fresh baked bread • No time to make nutritious, great tasting bread. • May not live near a bakery where premium, natural, or organic bread is made. • Not everyone has the skill or desire to make good bread from scratch

32. Venture Analysis – Opportunity and Need • Compelling Need • Physical – we all need food to survive, and bread is a major part of the American diet. • Physiological – Faced with increasing obesity and health concerns, Americans have a need for healthier products • Shoppers want to see “high levels of specific nutrients and specific health claims” on Nutrition Facts labels and “whole grain” is one of the most important claims. 12 [reaffirmed by customer survey data] • Emotional • Want the satisfaction of feeding a nutritious product to loved ones • Fresh baked bread makes people feel warm and comfortable • Relieve the stress of needing to find time to make the product oneself • To relieve the stress of hectic lifestyle, want convenient, fast and fresh products: “As lifestyles change and people having lesser time for baking, refrigerated and frozen categories seem to be more convenient to bakers rather than preparing from mixes.” 13 • Social • Consumers want to join peers in showing increased concern for sustainable practices. They want products that show their “Awareness of earth-friendly farming practices and desire to recycle and conserve energy” 14 • Want a fresh, homemade product to serve friends at dinner parties.15 16

33. Venture Analysis - Product • Product Description • Performance • Product will rise and bake dependably to produce a consistent taste and texture. • Ingredients will be natural or organic. Nutritious whole grain options will be offered. No unpronounceable ingredients. • Dough is made using old-world multi-day build processes to provide optimum flavor complexity. • Packaging will protect product from freezer burn to guarantee taste and texture once baked. • Loaves will be sold in packages of 2-1 lb. loaves or 3-10 oz. loaves. • Cost • Target retail price per package is $7.99 [for 2-1lb or 3-10 oz.]. • Promotional discounts or coupons would be available (generally required by distributors and grocers). • Discount price (such as 90% retail) could be offered for direct sales (such as internet). • Availability • Carried by natural grocers and mainstream grocers, specialty shops • On-line purchases available for local customers or those willing to pay for refrigerated/dry-ice freight. • Consumers required to make cash purchases, but Company will have to maintain credit terms with distributors or other commercial purchasers. • Social • Use product performance superiority to build a name that people can trust. • Fun brand that consumers of all ages can enjoy • Customer as marketer, spreading the word to family & friends • Service • Money-back product quality guarantee • Possible organic certification • Comprehensive, easy-to-use website with long list of categorized FAQ’s • Specialized instructions to meet variety of customer cooking styles • Customer’s feedback actively solicited and acted upon.

34. Venture Analysis - Product • Product Range (based on consumer survey results) • Flavors • Stage 1: Whole wheat, multigrain, sourdough • Stage 2: Rye, bagels, specialty such as cinnamon raisin • Sizes • Stage 1: Package of 2-1 lb. loaves • Stage 2: Package of 3-10 oz. loaves • Shapes • Traditional loaf shape • Consumer option to cook without pan for an artisanal, free-form shape. Stage 1: First stage of introduction Stage 2: Product expansion phase • Meeting Customer Needs • Product targets need for healthier, convenient products. [See Opportunity/Need and Unique Benefits sections for more details] • Production & Delivery • Rented bakery & warehouse space, used bakery equipment (if not pre-equipped space) • Contract refrigerated freight services for transportation. • Internet sales will require overnight shipping w/special packaging (customer pays shipping premium) • Product Design Refinement • Investigation of freezing techniques, such as flash freezing, to optimize stability of product quality. • Investigation of partial proofing before freezing to speed thaw times.

35. Venture Analysis – Customer Survey Summary & Conclusions • General Survey • Mixed response to idea: • Many like the idea and thought it seemed simple: “Seems just like laying out meat.” • Others hated it: “I pay people to bake for me” • Concerns - The time involved and the possibility that the bread won’t taste good in the end • Varieties • Whole wheat was clearly the top choice. • Multigrain & Sourdough were the secondary selections • Limited interest in other varieties such as rye, bagels, white, pita, and cinnamon raisin • Price • Standard Loaf: $2-6 • Small Loaf: $1-3 • What’s Important • Superior flavor is very important • Natural/Organic, Whole grain, & Freshness are fairly important • Price & Shelf Life are only somewhat important • Most bread is purchased in the supermarket bread aisle

36. Venture Analysis – Customer Survey Summary & Conclusions “It tasted like the best store-bought bread or bakery bread that I have ever had. My husband would like to put in an order already!” • “Prototype” samples survey • Liked the appearance, taste of the loaf • One respondent felt more likely to purchase after trying. • Felt that a bigger loaf was probably better given thaw/proof time. • Including pan added to convenience • Concerned about the bread taking a long time to thaw and rise • “Would purchase the bread for special occasions, like dinner parties.” • Good for people who don’t know how to bake. • Suggestions • “Consider making bread rings of sectioned bread to speed up the proofing.” • “Really soft doughs proof much more quickly than dense wheat and rye doughs.” • “To attract attention, I might put seeds on and in some of your breads “ • Conclusions • There is consumer interest in the product. • Need to investigate methods that might allow much quicker thaw/proof times – perhaps partial proofing. • One surveyor left the bread in backpack overnight, refroze, and then tried again. Flavor was still good. This suggests that a partial rise might be an option. • Really great directions and website are needed to meet different customer’s needs. Some want detailed directions, some go by feel, etc.

37. Venture Analysis – Targeted Consumer Market • Targeted Consumer • Demographics • Cook of the family, generally women • Parents in their late 20’s to late 30’s • College educated professionals • Baby Boomers (Early 40’s to early 60’s) • High income households ($50K+) • Semi-rural to rural consumers where bakeries are less accessible • Psychographics • Believe in a healthy lifestyle which is supported by nutritious foods • Believe in the benefits of regularly purchasing natural/organic products because they are good for them and good for the environment • Want to feed their family (especially children) a quality product • Want to replace traditional products with healthy alternatives • Social status • Grew up in a lower to middle income family (more likely to have experienced fresh baked bread) • Middle class values with an upper income • Family is important, but the rest of life gets in the way

38. Venture Analysis – Targeted Consumer Market • Distribution • Retail Route: Manufacturer → Distributor → Grocer → Consumer • Food Service: Manufacturer → Distributor → Food service/Restaurant as Consumer • Internet or Local Sales: Manufacturer → Consumer • Target market’s opinions on current offerings17: • Generally satisfied • “Decent, but not always fresh or tasty – doesn’t last long…artisan breads… are hard to come by” • “There’s a lot of choice out there; but not much when it comes to baking at home” • Consumers appear willing to try the product as long as performance concerns can be mitigated. • Buying decisions are made by the family grocery shopper. Survey results indicate that: • Superior flavor is very important • Natural/Organic, Whole grain, & Freshness are fairly important • Price & Shelf life are only somewhat important

39. Venture Analysis – Unique Benefits • Major Benefits • Health • Nutrition - natural/organic ingredients, whole grains, lack of processed ingredients are better for the body • Taste – like going to a French bakery, not the day-old section • Emotional • Love – serving quality ingredients to family and friends • Achievement – for those who haven’t had success making own bread from scratch • Convenience – don’t have to make a mess mixing or forming. No flour to clean off the counter. No run to the store for bread. • Comfort – can enjoy warm fresh bread straight from the oven • Memories - smell of fresh bread baking takes you back to Grandma’s kitchen • Social • Sustainability – organic ingredients are good for the environment, as is recyclable pans and packaging • Personal Relationships – make friends think you slaved all day and are an amazing baker! • Service • Helping hand – website and customer support line are like cooking with a professional chef in the kitchen. You’ll always have answers to problems and questions.

40. Venture Analysis – Unique Benefits • Uniqueness of Benefits • Rhodes’ frozen bread dough can also provide convenience, achievement, comfort, & memories benefits • Organic bread makers, such as Rudi’s, provide health, convenience, and sustainability benefits • Only Auntie Carla’s can provide all of these benefits through its quality manufacturing, packaging, and excellent customer service! • Educating the Market • Teaching them that bread can be in the frozen aisle • In-store demonstrations • Website information • Sampling product to prove that it’s dependable, easy, and tasty

41. Venture’s resources Financial Low capital requirement to start and run the venture Founders have personal savings to commit to starting venture Founders can take personal loans and use credit cards to provide additional financing Spouses to keep food (in addition to bread) on the table Physical assets Low requirement for plant and equipment No incoming ownership of physical assets Rent kitchen space to avoid initial capital requirements Recipe Ability to produce nutritious & tasty product Location (Boulder) Health sensitive consumers who would buy healthy food Healthy image of the town Easy access to local Natural Food industry New idea New frozen dough product that is easy to bake Venture Analysis–Sustainable Competitive Advantage

42. Venture’s capabilities Knowledge Management – Two CU Leeds MBAs! Product expertise and production experience - Carla Export experience – Masashi Contacts CU Alumni network, Deming Center, entrepreneurship professors Access to the knowledge of Boulder’s natural food experts Website Family & Friends to help build a full service website that will help to draw & keep customers Barriers to entry that venture faces Regulatory Must meet state board of health regulations. This is easy if renting shared/incubator kitchen space that is already certified. Proprietary Bread is not high technology, so there are no trade copyrights or patents to battle. Customer Loyalty Loyalty to baked bread brands could deter customers from switching to frozen dough option. Getting customers to look in the frozen section for bread Distribution Have to convince grocers to find room in limited freezer space to carry our product. Have to convince distributors to carry product line. Competitor Response If a known baked bread brand, such as Rudi’s, were to enter the market, customers would be more likely to buy known over unknown. Venture Analysis–Sustainable Competitive Advantage

43. Barriers venture can create New distribution and retail system If we can create our own private distribution or/and retail channel which other manufactures can not imitate, this would function as a barrier. Customer brand loyalty Because there is currently no retail frozen premium bread dough, customers would currently have no brand to be loyal to. First entry advantage might deter customers from switching brands if a new competitor entered the market. Create a taste that consumers cannot forget Build consumer trust in the quality of ingredients Build complete product line – one stop purchase of all frozen baked products Create website that consumers like to visit, builds camaraderie, and answers all of their questions. Trade secrets Create unique recipes and baking processes– competitors may not be able to replicate that customer-winning flavor. Venture Analysis–Sustainable Competitive Advantage

44. Venture Analysis–Risks • Marketing • Will the consumers buy? • With current financial projection, break-even sale volume is about 250-1 lb. loaves per day. Based on an initial sales estimate of 3 loaves/variety/store per week [based on Jason Vincent interview] and assuming 4 initial product varieties, product would have to be in 146 stores to reach break even volume. • If this break-even volume cannot be obtained before savings are depleted, the venture will fail. • Another low-carb diet craze could kill the venture before it gets off the ground. • Price structure • Every dollar change in sale price has a huge impact on revenue. $1 increase in retail price reduces break-even sales to 175 units per day. On the other hand, $1 decrease in sale price increases break- even volume to 450 units per day. • By decreasing retailer’s or distributor’s mark up by 5% (from 35% to 30%), it will decrease break even sales unit by 15. On the other hand, increasing 5% will increase the break even number by 20 units. • Distribution and Grocer acceptance • Even with creative marketing strategies, venture is unlikely to achieve necessary volumes if acceptance in traditional grocery channel cannot be quickly obtained. • Finance • Assuming founders can finance $100,000, the venture will not last more than three years without achieving the break even sales volume. Sales must grow above break even number within three years or the venture needs to be re-financed.

45. Venture Analysis–Risks • Competitors • If existing well established bakery such as Rudi’s entered the market, consumers may prefer Rudi’s because of brand familiarity. The venture needs time to create its good brand image before facing competition. • Economy • Bread is a commodity product, thus less economic impact on total consumption of bread. However... • Consumers may shift to low priced bread in sluggish market. • High quality, high priced bread is price sensitive. • The venture cannot reduce price and stay profitable.

46. Venture Analysis – Financial Projections See Appendix 1 for Financial Projection Assumptions

47. Venture Analysis - Conclusion • Compelling needs • Physical need for food • Physiological need for better ingredients • Emotional need for increased convenience, connection to loved ones • Social need for special occasions • Proof of the target market’s interest • Survey suggests that (potential) consumers are interested. • Benefits • Frozen bread dough has unique benefit of easy baking at home environment. • Sustainable advantages • Almost no barrier to entry • How to create barrier is the key question. • Opportunity to expand. • Profitability and Investment • Relatively low investment required • High gross margin • Final profitability depends on the sales volume • Break even sales volume is about 250 loaves per day, can we achieve it?

48. Venture Analysis - Recommendations • Recommended further research • Possible barrier to entry that can be created • Distribution channel • Retail channel • Recipe • Regulation • FDA Organic requirement • International Organic requirement • Opportunity of sales • Possible sales volume • Opportunity for expansion • Export market research • Other (similar) products such as cookies, cakes, pet treats, religious needs (Jewish people bake religious bread every week) • Sale to business customers such as restaurant, cafe, or even local bakery • Prepare prototype • Prepare a unforgettably delicious organic bread dough. • Investigate freezing/thaw procedures that are more convenient. • Prepare business plan • Prepare a business plan • Take MBAX 6170

49. Endnotes 1 ”Bread, Cake, and Related Products,” Encyclopedia of American Industries. On line Edition, Thomson Gale, 2006. 2 Market Trends: Fresh Bread and Related Products, August 2004, p7. 3 Market Trends: Food Flavors and Ingredients Outlook, February 2006, p102. 4 See Call Report- Adam Schneider 5 See Call Report- Adam Schneider 6 Market Trend, Fresh Bread and related products, August 2004, p67. 7 See Call Report - Jason Vincent 8 ”Global – Bread and Rolls,” Datamonitor industry market research, October 31, 2005. 9 See Call Report - Jason Vincent 10 See Call Report- Adam Schneider 11 The U.S. Market for Whole Grain and High Fiber Foods, April 2005, p66. 12 ibid, p68. 13 Market Trends: Convenience Home Baking Products, February 2004, p58. 14 “Baby Boomers and the U.S. Food and Beverage Industry”, December 2005, p89. 15 See customer survey results 16 Market Trends: Food Flavors and Ingredients Outlook, February 2006, p72. 17 See customer survey results 18 Panera Bread Corporate web site, www.panerabread.com 19 “National Average of Baking Industry”, www.BizStats.com 20 Great Harvest Corporate web site, www.greatharvest.com

50. Appendix – Contents • Appendix 1: Financial Projection Assumptions………………………………….. 29 • Appendix 2: Customer Survey…………………………………………………….. 33 • Appendix 3: Competition Matrix…………………………………………………….36 • Appendix 4: Call Reports……………………………………………………………37 • Appendix 5: Feasibility Plan Parts I & II……………………………………………70