College - Author 1

College of Agriculture, Food and Environmental Sciences

Department - Author 1

Agribusiness Department

Degree Name - Author 1

BS in Agricultural Business

Date

6-2012

Primary Advisor

Charles Nicholson, College of Agricultural, Food, and Environmental Sciences, Agribusiness Department

Abstract/Summary

Recent events in the California dairy have left many dairy producers with high feed costs, low profits, and low (sometimes negative) margins. Some producers have transitioned to producing value-added or artisanal dairy products to help increase the revenues earned from farm milk, particularly in Sonoma County. Because limited research exists on the business opportunities in response to a rapidly growing market for value-added products, this project explores the feasibility of starting a gelato production and retail business in the Petaluma area. To assess business feasibility, a consumer survey was created to estimate the percent of residents and non-residents who would have an interest in purchasing locally-produced gelato, as one component of estimating potential retail sales. The initial investment and operating costs associated with starting a gelato scoop shop in Petaluma were also estimated using secondary data from retail space lessors and equipment suppliers and previous studies of value-added dairy operations.

Many survey respondents have interest in purchasing a gelato product; 66% and 64% of residents and non-residents expressed at least a moderate interest, respectively. Based on this interest and their stated frequency of visits to other scoop shops, estimated monthly sales for a retail gelato shop ranged from 6,454 to 21,299 scoops. At an assumed $3.50/scoop based on stated consumer willingness to pay, this could generate estimated annual revenues between $271,068 and $894,558. Based on the estimated sales volumes, the variable cost per unit sold would be $0.20, which would result in a gross margin of $3.30 per unit sold. The estimated annual income over key operating expenses of ingredient costs per batch, packaging and materials, monthly rent, utility, repair and maintenance, and labor expenses could generate between $229,178 and $484,796, depending on the amount of units sold per visit. Thus, a gelato scoop shop could be a feasible and profitable business in the Petaluma area, and further detailed study and development of a business plan appears justified. The values for demand and operating expenses listed in this project are initial estimates and a refined analysis is appropriate as a part of a more comprehensive business plan.

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