Butter packing business plan, or equipment payback

Where to start?

The business idea is to buy ready-made butter wholesale (in 20 kg blocks) and pack the finished product into the customer's packaging (180, 200 and 250 g packs).

Business options

Butter is a food product made from milk cream by separating or churning it. Butter is a staple and an everyday consumer product bought by practically everyone in Russia.

The Russian butter market itself is quite large — annual production exceeds 200,000 tonnes and grows every year. In 2014, for example, Russia produced more than 251,000 tonnes (Rosstat data).

Large producers have long been established in the market, so small and medium-sized businesses have several options:

First, there is the "economy" niche (no brand and no attractive packaging, packed in ordinary plastic film), which can be sold at markets. Its consumers are people in low-income regions.

Second, a more promising option is cooperation with grocery supermarkets that sell products under their own brands (private labels). In this case the entrepreneur acts as a production base for the supermarket, making the finished product to order and packing it in the customer's packaging. With good product quality and strict adherence to delivery schedules, this second option looks very promising.

The process

Butter packing involves a few simple steps:

1. Buying ready-made butter wholesale in 20 kg blocks (very good, inexpensive butter comes from Belarus).

2. 8–20 hours before packing, the butter blocks are taken out of the freezer and fed to the butter homogenizer, which evens out the consistency and moisture and thus improves the product's quality for the consumer. The homogenizer feeds the butter to the packing machine, which portions it (in our case into 180–250 g packs), wraps it and prints the date; the finished packs are then taken from the machine's outfeed conveyor and placed in cardboard boxes for shipping to the shop.

What equipment is needed?

Both foreign and Russian manufacturers of this equipment are present in Russia. There is also a large choice of used machines, but it is very hard to find a reliable, working one among them: as a rule, such machines are sold because of frequent breakdowns and downtime caused by heavy wear. Downtime and frequent repairs are very expensive, because you have to diagnose the fault, wait for spare parts and repair a complex machine. That means missed delivery deadlines, damage to your reputation and penalties. So we will focus on buying new equipment with a spare parts kit, a warranty and service support.

So, for reliable, uninterrupted operation we need the following modern equipment:

1. Butter packing machine.

2. Butter homogenizer.

3. Freezing unit with a chamber of up to 10 m³.

4. Scales, a computer, etc.

Feasibility study

The start-up costs are as follows.

One-off costs:

Stainless steel butter packing machine — €66,700;

Homogenizer — €13,400;

Refrigeration unit — €1,200;

Initial product stock — €3,400;

Other expenses — €2,300;

Total one-off costs — €86,700.

Monthly costs:

Operating mode — 2 shifts a day, 30 days a month

Rent of a 50 m² former canteen building in Yekaterinburg — €1,200/month

Salaries — €5,600

Electricity: 3,840 kWh × approx. €0.03/kWh — €200

Water, heating, etc. — €200

Contingencies — €400

Total monthly costs — €7,300

Butter packing: profit and payback

• Output per shift (8 hours of machine operation), packing into 200 g packs at a machine speed of 50 packs/minute:

4,800 kg/shift

• Number of shifts per month:

60

• Monthly output:

288,000 kg

• Price per 1 kg of product:

In the shop: €4.44/kg (5 packs of 200 g at €0.89/pack)

Shop mark-up and other costs — 20%

So the price at which the shop buys packed butter from us is €3.56/kg

Wholesale price of good-quality butter in 20 kg blocks: €2.44/kg

Packaging material (foil), 20% of the cost of 1 kg of butter: €0.67/kg

• Profit:

Per kg of packed butter: €3.56 − €2.44 − €0.67 = €0.44 per kg packed

Per month at 100% plan fulfilment: €0.44 × 288,000 kg/month = €127,800/month

Taxes and other costs, 30% — €38,900

• Net profit per month:

€127,800 − €38,900 − €7,300 = approx. €81,700/month

*It is important to note that this profit is calculated assuming uninterrupted equipment operation (no breakdowns or downtime) in two-shift mode (100% load); advertising and branding costs, as well as transport costs, are not included.

Taking into account the start-up phase (with the equipment not fully loaded and a low selling price for the butter to stimulate demand):

The estimated payback period of the equipment is 1.5 to 6 months.