The opportunity of the snack food business was almost unknown to the investors of Pakistan up to the mid-eighties and since then the investment in this sector has been fairly moderate. Even during that time, the Pakistani snacks market was represented by biscuits and corn-based products. Potato chips have recently appeared on the snacks market and taken up a major share. Over the past few years the demand for snacks in general and potato chips has been on the rise, causing a gap between demand and supply. This gap opens up an opportunity to set up units to produce good quality snacks at optimum production level. Most of the snack manufacturing units are set-up in Lahore and Karachi.
Pakistan is one of the largest potato producing countries, yet it has very limited adequate storage and processing facilities, due to which a substantial proportion of production is wasted. The combination of inadequate storage facilities and an under-developed processing industry leads to volatility in prices, given that not all of the excess production can be stored or processed for consumption during the off-season.
Potatoes are improperly stored at temperatures negative 3-4 degree Celsius mainly for seed storage purpose. These temperatures are maintained only to avoid sprouting since no humidity levels are administered, which is a vital factor for proper storage of potatoes for consumption and processing. About 5% of total potato production is being exported and 18% of the production is stored for potato seeds. Pakistan produces three potato crops per year. The major produce of the Potato Crop is harvested in the autumn season. In the absence of adequate storage facilities, at the time of harvest, there is a huge supply of potatoes, which drives prices down. If storage facilities are available price volatility could be stabilized through consistent supply year around
Machinery Required for Potato Chips Manufacturing Unit
This proposed unit with modern processing machines including potato washer peeler, potato cutter, blanching machine, de-watering machine, fryer machine, de-oiling machine, flavoring machine, etc. will produce a variety of flavored, premium quality potato chips. The unit would be located in any major city of Pakistan like Lahore, Karachi, Peshawar and Rawalpindi, also in an area where raw material is easily available.
The proposed project will be producing branded potato chips in different packet sizes. 50% of the production will be flavored with salt, the remaining 50% will have other flavors. During school, when children tend to choose their own snacks, 70% select crisps and savory snacks compared to lunchboxes, which mothers generally pack. Some 44% of consumers prefer to buy children’s snacks in multi-packs while nearly half of all consumers say they are price motivated in their snack purchasing.
The production process of Potato Chips Manufacturing Unit requires the following machinery;
- Washing & Shelling Machine – For washing of Fresh Potatoes
- Peeling Machine – For peeling of Potatoes
- Slicing Machine – For slicing Potatoes into Chips
- Chips Washing Machine – For washing and rinsing of Potato Chips in hot water for excessive starch removal before frying
- Flavoring Machine – For flavoring fried chips
- Packing Machine – For packing Finished Potato Chips in packets
Deciding the project capacity is a critical factor. After thorough market research, the production capacity of this particular study is decided to be 150 kg per hour of finished potato chips, which is the minimum viable size for a Chips Manufacturing Unit. There is huge demand of Potato Chips (Snacks Food Industry) in and outside Pakistan; therefore, a sizable production is required. The proposed project can also be started with production capacity of more than 150 kg per plant hour.
The proposed Potato Chips Manufacturing Unit will have a maximum capacity to process 1,800 tons of Raw Potatoes (750 kgs / hour) a year based on 300 working days, which will produce 360,000 Kgs of Potato Chips (20% of the Potatoes) annually. Remaining will be sold to local market as Burnt Chips, Under-fried or Chura Chips. However, for the sake of this Pre-feasibility study only Chura Chips will be sold to local market which is 25% of the processing of the potatoes.
Factors for Success of Potato Chips Business in Pakistan
One of the key success factors for the proposed project would be to control and carefully monitor the entire production process as it involves high waste production in the form of burnt and chura chips. Another important aspect of this proposed feasibility is the marketing and promotion of potato chips in the local as well as foreign market. This involves allocating a heavy budget towards promotional activities.
Key success factors will be:
- Utmost care should be taken while selecting potatoes. Only the best quality and carefully handled potatoes should be used.
- Waste production should be kept at minimum and production process needs to be monitored very carefully.
- Selected potatoes should be delicately sliced, quick fried in the finest vegetable oil and seasoned with delicious flavors.
- A variety of flavors should be introduced.
- Advance sale orders can ensure the success of the business.
- Product should be offered in different price ranges so it is affordable to all income groups creating a wide range of target market.
- About 40% of the potato chips market share comprises of un-branded chips, this share can be gained through heavy marketing campaign.
- It is recommended to estimate the potato requirements for the year and this should be contracted for in advance with the suppliers so as to secure from the drastic changes in the prices of Potatoes.
- Quality maintenance will play an important role as it is evident from the behavior of the general consumers that they are more specific towards health issues than ever before.
- Cost Accounting system should be strengthened so as to monitor the entire process and determine the reasons for major variances in the process such as Material, Labor and Factory Overhead Variances.
Raw Material Required for Potato Chips Production
Pakistan is a potato growing country and has a major advantage of availability and lower prices. Potatoes produced in Pakistan are appropriate and ideal to produce quality potato chips. Potatoes will be procured twice a year directly from farms and transported to the rented cold storage facility for storage. Raw materials used in Potato Chips Manufacturing include;
- Vegetable Ghee / Cooking Oil
- Packing / Packaging material
Investment Required for Potato Chips Business in Pakistan
Total Cost Estimates is Rs. 52.20 million with Capital Cost Rs. 26.78 million and working capital Rs. 25.42 million. Given the cost assumptions IRR, payback and NPV are 34%, 4.17 years and Rs. 78.08 million respectively. Details of these financials can be studied in the business plan of potato chips manufacturing unit in Pakistan by SMEDA.