BiB Business Plan Light

BIB SMART VENDING MACHINES

Business Plan

Text only version, abridged for Banter’s Business Plan Competition.

Pedro Parraguez Ruiz 21/02/2010

1. Executive summary: Character Limit: 2000 Traditionally vending machines have two constraints for the end user.Firstly, you must buy the product that you want in a predetermined amount, (constrained by the package size stocked inside the machine) and secondly, you must pay a fixed price according to the amount of product that you are retrieving, (in spite perhaps wanting to buy a lesser or greater amount). There are also problems from the vendor’s point of view. Firstly, it is difficult to plan the stock inside the machine, secondly, there is an important unused space between the items and thirdly many potential customers don’t buy simply because they don’t have enough cash, (for example they might have 90p instead of a pound).

BiB in alliance with major snack and drink producers wants to revolutionize the vending machines market by producing and implementing a network of smart machines to deliver drinks (in a post mix format) and other products in bulk; such as peanuts and dried fruits.

This would allow the customer to pay for the exact number of grams or millilitres that s/he is buying with any amount of cash that they choose.

Benefits for the end user: • Ecological, reduces the amount of packaging (recyclable bags and cups are provided by the machine).

• Healthy; natural snacks in bulk will be promoted.

• You buy how much you want so there is no waste!

Benefits for the vendor: • Increase in the amount of sales and revenues.

• Bulk stock is easier and cheaper to manage.

To compete in this US$66 Billion global market and initiate its first stage of operations in Chile and the UK, BiB has to make an initial investment of ÂŁ250,000, from which ÂŁ50,000 can come from Chilean government subsidies for innovation and ÂŁ200,000 from angel investors and the funding partners. The estimate investment payback time is 3 years, having at the 3rd year at least 40 fully operational machines.

Opportunities for licensing the technology are also an important strength for BiB.

2. Background: Character Limit: 1250 In 2008, the global retail was a US$11 trillion market and 0.6% of its sales were through automatic vending machines, transforming them in a US$66 Billion global market with sales of ÂŁ508 million in the UK. Reasons that can explain the rise and relative importance of vending machines are: -Its convenience: They are open 24/7 and can be located in multiple indoor locations.

-Changing lifestyles: the fast-paced lifestyles in both developed and emerging markets is resulting in growing demand for ‘on-the-go’ products.

Nevertheless, since 2008 the market seems to have arrived at a maturity point where sales are in relative stagnation, innovation is low and opportunities for new business models have emerged from the following trends: -New and better products and more payment options: This enables a greater variety of products and price points, positioning vending machines in new product categories.

-Technology: Better and cheaper technology is now available to improve product storage and delivery, but vending machines have not yet incorporated many of these advances.

-Changing consumption patterns and expectations: highly ecologically aware and price sensitive consumers demanding healthier food, require new and more creative strategies. *** Euromonitor International: UK Country Sector Briefing, May 2009 *** Euromonitor International: Global Retailing: Vending - The Future of Automated Retail, January 2009 *** Key Note: Automatic Vending Market Report 2010, 24th Edition January 2010

3. Management: Character Limit: 1250 The initial business will be organized as a cohesive international team of talented partners with expertise in finance, engineering and technology transfer.

As full time CEO, Pedro Parraguez (40%) would coordinate all the efforts, generate strategic alliances and lead the commercial work in the UK. His academic background in Management and Economic Sciences and a post graduate in Innovation and Technology Management in combination with professional experience in entrepreneurship and innovation lecturing, technology transfer consultancy, trade management and founding partner of Rnovo, clearly demonstrateshis strengths and fit forthis role.

Jorge Fuentes (30%) would act as the Chief Engineering Officer, in charge of the intellectual property, mechanics and design. He is a Mechanical Engineer and holds a MBA. Furthermore he has worked as chief patent auditor in Chile and is currently the patent manager of HarneckerCarey, one of the biggest Chilean law firms.

Allan Jarry (30%) would be the Chief Financial Officer and have the responsibility of raising funds, manage cash flow and contact potential investors. He also holds an MBA, is partner in HarneckerCarey and is a Chilean savvy serial entrepreneur, with more than 25 years of experience.

4. Product or service: Character Limit: 2500 “BiB, Smart Vending Machines”, offers a creative alternative to the traditional basic models of vending machines. Our business could provide the production, licensing and service of an innovative new type of machine.

The key features that distinct us are: -We sell in bulk: We specialize ourselves in creating machines capable of selling a variety of food and drink in bulk. In the case of drinks we would use the principle of “post mix dispensing”, where a freshly mixed cup of juice, soda or other beverage is made from concentrate and mixed with water prior to the dispensing. This method is widely used in fast food restaurants and hot coffee vending machines without any quality problem. Our proposal is to expand its use to automated vending machines where the amount of liquid or food dispensed will be proportional to the amount of money that the final customer wants to spend. In this way, the user will be able to spend its additional spare change (increasing the total sale) or buy even if s/he does not have enough money for a regular sized drink. In the case of food, the basic principles are the same, selling any granular or semi granular product, from a range of nuts, dried fruits and cereals.

-We are more economical and convenient: Given that the customer does not have to worry about having a specific amount of change, the experience is more pleasant and convenient. Furthermore by stocking in bulk inside the machines, and not in individual containers, the operation is significantly cheaper and part of the cost reduction can be transferred to the customer.

-We are healthy: One important characteristic of our products is that natural and healthy products have a priority. A variety of juices low in sugar and nutritious snacks will be the main way of positioning BiB as synonymous with an affordable and healthy “on the go” diet.

-We are ecological: All our products are sold in recyclable cups and containers unlike most vending machines. We also have a lower carbon

impact because better utilization of the space in the machine, leads to less transportation costs and more energy efficiency when cooling the products.

Considerations: -The design and first prototype of the machine can be made in Chile at a convenient price. Manufacturing can be done in the UK by Seaga once we have the intellectual property rights.

-There will be a selection of 3 Cup sizes with a cap and straw. A reusable optional plastic mug will be on sale. The customer will be able to use their own mug.

5. Marketing strategy: Character Limit: 1250 Our final target customers can be broadly divided into two kinds. Firstly, the current user of food and drink vending machines and secondly those who do not currently buy from vending machines. This group can be divided into: those who don’t buy because are looking for healthier options and those who consider them poor value for money. In monetary terms this means that there is a total available market, just in the UK, of more than £301 million a year (2008) without considering the potential of growth from new customers.

Demographically, the average customer would be between 13 and 35 years old, live or works in urban areas desiring convenience, a healthy lifestyle and the desire for affordable food on the go.

Besides the final customer that is the actual user of the machine, other equally important customers for our company are the potential machine operators; food producers and institutions who want to licence the machine to stock their own products and build their brands. This group represents the fastest way of increasing the size of the operation globally and companies like Coca-Cola, with whom we have already had promising conversations, are always interested in innovative and profitable ways of distributing their products. ***Packaged and unpackaged drinks plus packaged food, Euromonitor International: UK Country Sector Briefing, May 2009

6. Selling: Character Limit: 2000 Depending on who operates the machines the selling strategy would change. Therefore below the different strategies are described for 1) where self operated machines are under the direct control of BiB, 2) where a third party operator pays a monthly fee and 3)where a licence for the technology or brand is issued.

Self operated machines: In this modality we sell the products directly and the machines become our channel. This would give us great flexibility to set our pricing strategy and since we are not easily comparable price wise with other products (because we sell in bulk) the flexibility is even greater. Industry average gross margin for vending machines is always above 50%, and considering that our products have lower costs because of the absence of packaging, we are confident that we can beat the price per gram or millilitre of any traditional retailer or other vending machines. This would therefore generate a higher demand for what. The complexity in this case is higher because the location must be arranged and the risk of fluctuating demand is completely absorbed by us.

Third party operated machines: In this case, we rent or lease our machines and they become our products. This means that we get paid a monthly fee per each machine that covers its rental, basic service and maintenance. The average monthly revenue per machine for this service has been calculated to be around ÂŁ200 pounds, but it will depend on the location and the amount of required services.

A third way of visualizing the selling process is by selling the brand as a franchise or licensing the intellectual property (patents and or industrial designs). This way of selling would enable us to generate a rapid expansion to countries that otherwise would be too difficult to reach and is a quick way of increasing revenue.

7. Operations: Character Limit: 1000 BiB starts with an initial investment for R&D purposes, which includes designing and prototyping the machines as well as the application for intellectual property rights. This first phase would be done in Chile, in alliance with the engineering lab from DICTUC (Part of one of the most important Chilean Universities), where the overall costs can be lower compared to the UK and governmental subsidies can be raised. This means that as soon as we secure the funding there would be at least one full year of intensive R&D. After the R&D had finished and we had issued the application for the respective intellectual property rights, we could start working in manufacturing the machines. Specialized companies like Seaga, which has offices in the US and the UK could manufacture the machines and we could arrange strategic alliances to ensure our incentives were fully aligned.

Once we were fully operative, the machines we would require service which could be done with specialized subcontractors.

8. Financials: Character Limit: 1000 As any technology intensive venture, cash flow estimates are at most good guesses. Nevertheless, the following data can illustrate roughly the characteristics of our cash flow:  Sources of initial funding: o Chilean innovation subsidies in the form of seed funding up to £50,000 o Chilean angel investors up to £150,000 o Partners initial investment up to £100,000 o TOTAL: £300,000 to start up without using any bank credit  Initial R&D requirements: o 1 year office rent + related costs (Chile): £12,000 o Design, engineering and prototyping costs: £120,000 o Intellectual property protection at least in Chile, the US and the UK: £20,000 o Technology Acquisitions: £50,000 o TOTAL: £202,000  Initial marketing, legal and other expenses: £48,000  TOTAL start-up costs: £250,000  Estimated cost per machine: £5,000  Cost to serve a machine: £15 per visit  Each machine should generate a monthly gross profit of at least £400 pounds/month

9. Prospects: Character Limit: 1250

Even though we expect to start the business in the UK and Chile for trial purposes, our operation aims to be global. The future of our company is firstly issuing licences for the technology to world players like Coca-Cola, who would provide the financial stability to develop our self-operated business further and invest in more technology. Secondly, once we have built a recognizable brand and developed our proprietary technology, franchising in Europe the US and flagship vending markets like Japan.

This strategy would allow us to diversify our cash streams and have an early buffer that would protect the most fragile beginnings of the company.

From this point of view, the exit strategy for potential investors could be selling back their shares to the original partners, for which money from the licences or an IPO could be used, or simply selling their shares privately to an agreed third party.

Finally, the company should mantain as its assets the machines and the intellectual property, wich means that if it is required, part of the company could be sold.