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HomeMy WebLinkAbout7. Village Manager's Report 12/17/2013TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: FINANCE DIRECTOR DATE: DECEMBER 12, 2013 oou uuuu SUBJECT: 2014 PROPERTY AND WORKERS COMPENSATION INSURANCE PROG PURPOSE: To present a recommendation for the property and workers compensation policy year beginning January 1, 2014 and ending December 31, 2014, insurance program for the DISCUSSION: The Village's current property and workers compensation insurance policies are set to expire on December 31, 2013. With the assistance of the Village's insurance consultant, staff sought quotes with the existing broker and insurance companies to secure coverage for 2014. We did not seek alternative proposals for the 2014 renewal because of the continued narrow market for municipal risks. There remains just a single competitive insurer for the excess WC - Safety National. Federal Insurance (Chubb) has been the most competitive on cost and coverage for property. The following is a brief summary of our expiring insurance program, an analysis of the proposals received, and a summary of the insurance package being recommended by staff and its consultant. Expiring Program Attachment I provides a listing of the current schedule of insurance in force, showing the type of coverage, the carrier, policy limits, and the broker of record. Village buildings and vehicles were insured this past year by Federal Insurance (Chubb) Company. Property values on which the premium was based totaled $92,717,046. A $25,000 deductible is in place for this coverage. The annual premium was $99,466, The broker offering the coverage was Arthur J. Gallagher and Co. Excess workers compensation coverage was purchased from Safety National, which insured the Village for individual claims in excess of $600,000. There is a $1 million aggregate limit for worker compensation claims. The annual premium was $65,720. The broker again was Arthur J. Gallagher and Co. Proposal Received Nugent Consulting Group assisted the Village in securing proposals from our current broker and underwriters. Attachment II presents a summary of renewal options offered by Arthur J. Gallagher and Co. for the upcoming policy period. A breakdown of premium by coverage type for policy year 2012 and 2013 is also included. Property and Workers' Compensation Insurance Program December 12, 2012 Page 2 The renewal quote for property coverage increased 4.2% from the prior year and totals $103,676. Insurable values during the same period increased 2.8 %. The renewal quote for excess workers compensation coverage increased 30.2% from the prior year from $65,720 to $85,538 Costs for WC coverage continue to be driven by Safety National municipal book of business in Illinois as a whole. Due of the poor condition of the Illinois municipal WC marketplace and benefits in place for sworn police and fire personnel, there are no other competitive insurers doing excess WC. The total for all premiums and commissions for selected coverage levels is $201,596, an increase of 13.5% from the 2013 premium. Due to the size of the proposed increase we have requested Nugent Consulting to negotiate a lower premium, if possible, and /or obtain additional concessions from the broker to lower the overall cost of coverage. One method used in the past to reduce the premium was adjusting (upward) the self- insured retention (SIR) level. The SIR was most recently increased with the 2013 renewal and would not likely be a consideration for 2014. SIR /Deductible levels are found in Attachment ll. The insurance companies being recommended are very sound financially and have an excellent claims payment history. Federal Insurance is rated A + +, XV (Superior) by A.M. Best, a recognized insurance company rating service. Safety National Casualty Corp. is rated A, IX (Excellent). RECOMMENDATION: It is recommended the Village purchase property and excess workers compensation insurance from Arthur J. Gallagher and Co. with premiums and broker's fees not to exceed $201,596. David O. Erb Finance Director 060FA Attachments I: \Insurance \Renewals \2014 Renewal - Property and WC.docx Attachment I Type of Coverage Property & Inland Marine Workers' Compensation Self-insured Liability Program General Liability Auto Liability Employment Practices Liability Police Professional Liability Public Officials Liability (Errors and Omissions) Excess Liability Fiduciary Liability - Police Pension Fiduciary Liability - Fire Pension Public Employee Dishonesty Depositors Forgery Contingent Tax Interruption Employee & Retiree Health Ins. Third Party Administrators Workers' Comp Claims Administration Liability Claims Administration Carrier Federal Insurance / Chubb Safety National Insurance Co. VILLAGE OF MOUNT PROSPECT SCHEDULE OF INSURANCE IN FORCE December 31, 2013 Deductible/ Specific Aggregate $0 $0 N/A Self-insured Excess Excess Expiration Policy $2,000,000 Retention Limit Limit Date Number Broker Premium $25,000 $92,717,046 none 01/01/14 35826710 Arthur J. Gallagher $99,466 $600,000 Statutory $1,000,000 01/01/14 SP 4047829 Arthur J. Gallagher $65,720 N/A $2,000,000 $0 $0 $0 N/A $2,000,000 $0 $0 - $0 N/A $2,000,000 $0 $0 - $0 N/A $2,000,000 $0 $0 - $0 NIA $2,000,000 $0 $0 - $0 High-level Excess Liability Pool Federal Insurance/ Chubb Federal Insurance / Chubb Travelers Travelers Federal Insurance / Chubb Intergovernmental Personal Benefit Cooperative $2,000,000 $12,000,000 $12,000,000 04/30118 $25,000 $5,000,000 $5,000,000 08/01/14 $25,000 $5,000,000 $5,000,000 08101114 $5,000 $500,000 none 05/01114 $1,000 $100,000 none 05/01/14 $25,000 $9,000,000 $9,000,000 01/01/14 $30,000/ $75,000 none none 06/30/14 n/a n/a $74,699 8158-5499 Arthur J. Gallagher $11,500 8169-8992 Arthur J. Gallagher $12,600 105779765 Arthur J. Gallagher $2,678 105779765 Arthur J. Gallagher Ind. in above 35826710 Arthur J. Gallagher Ind. in Prop n/a n/a Varied ASC Gallagher Bassett 1:\Insurance\Schedule of Coverage0ecember 31, 2013.xlsx Attachment II VILLAGE OF MOUNT PROSPECT 2014 INSURANCE RENEWAL Expiring Renewal Coverage Type / Values 2012 2013 2014 Property & Inland Marine $ 93,500 $ 99,466 $ 103,676 Excess Workers Compensation 52,848 65,720 85,538 Gallagher Fee 12,382 12,382 12,382 $ 158,730 $ 177,568 $ 201,596 11.87% 13.53% Property Values $ 88,958,031 $ 92,717,046 $ 95,296,056 Property Deductible 25,000 25,000 25,000 Auto Physical Damage Deductible 100,000 100,000 100,000 WC Self- insured Retention - General Employees 550,000 600,000 600,000 WC Self- insured Retention - Police /Fire 550,000 600,000 600,000 fivffiount Prospect Village of Mount Prospect Mount Prospect, Illinois INTEROFFICE MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: FINANCE DIRECTOR DATE: NOVEMBER 25, 2013 SUBJECT: GENERAL AND AUTO LIABILITY THIRD -PARTY CLAIMS ADMINISTRATION `6 C:� 0 PURPOSE: To present a recommendation for renewal of the annual service agreement for third - party liability claims administration for the period January 1, 2014 - December 31, 2014. BACKGROUND: To assist in the administration of general and auto liability claims the Village has contracted out the service to a third -party administrator. The Village's current agreement for claims administration expires on December 31, 2013. A new agreement is needed at this time for the current provider to continue to service the Village. DISCUSSION: Gallagher Bassett Services (GBS) is the current service provider for general and auto liability claims administration. The agreement for 2014 contains no changes to the terms and conditions from the prior year. Below is a summary of fees for the prior year and 2014. � Service 2013 Rates . . ............................... 20 14 Rates Claims Admin $1,040 $1,082 Simms Bankin Fee 456 4 Minimum Annual Fee mmmITIT ITITITITITITIT 8,000 Total Fee $9,496 µµm - $9,492 The claims administration fee increased 4.0% from the prior year's program. The Simms Banking fee is an annual flat fee assessed for maintaining the escrow and processing and making payment on claims. This service relieves the Village from having to process payments internally. There was no change in the annual minimum fee from the 2013 program. General and Auto Liability Third -Party Claims Administration November 25, 2013 Page 2 The Village is subject to an $8,000 minimum annual fee. Time and expense charges are invoiced against the annual fee until the balance is exhausted. When the entire annual fee is depleted, the Village will begin making payments for charges incurred in managing the open claims. Our liability ends when all the claims for a particular period are closed. Our experience with GBS continues to be very positive. Communication between the Finance Department, Corporation Counsel and GBS continues to be strong, working to control overall claims costs. Based on our satisfaction with the service provided and no changes to the funding schedule I recommend we continue the relationship with GBS. RECOMMENDATION: It is recommended we approve the agreement for GBS to provide general and auto liability claims administration services during 2014 according to the proposed funding and fee schedule. David O. Erb Finance Director DOE/ Attachment I: \Insurance \GAB -GBS \Renewal - 2014.docx Village of Mount Prospect - #007474 0 4 L. L A G 1/1/2014 - 1/1/2015 PRICING OPTION: TIME & EXPENSE HANDLING *Please see Claim Charges outlined in footnote 7 under Program Specific Terms and Conditions. Claims will be handled on a Time & Expense basis. If you should decide to stop using GB in a specific state, the existing open files will be returned to the client (contingent upon Carrier approval) at the client's expense. There will be additional charges for ongoing Data Management (RISX- FACS risxfacs.com users, Administration, Banking fees and monthly reports for as long as GB handles claims. There may be an additional fee charged by the carrier(s) for data transfers as a pass- through to client. New Business Cost & Terms (Revision date: 6/27/2013) Page 1 This program is quoted at a total minimum of $9,492 (including administration and banking fees). Village of Mount Prospect - #007474 1/1/2014 - 1/1/2015 % 0 1 ,LLAG OTHER SERVICES New Business Cost & Terms (Revision date: 6/27/2013) Page 2 .- risxfacs.com - Additional Users $1,000 per user (full); $500 per user (inquiry) GB International Claims Services Varies by Country (pricing provided upon request) Consultative Services Loss Control Consultinq Services $140 p hou Ap praisa l Services TBD MountainView ClaimZone RMIS Module TBD Fraud Prevention — Gallagher Bassett Investigative Services (GBIS) Special Fraud Inve stigations - SIU $85 per hour plus expenses ...... .............._.� Sur veillance Investigations $70 per hour plus expenses Targe Field Investiqati $80 per hour plus expenses Targeted Database Investiqations Rate per report Medinsi MSA/MSP Compliance Services S Social Security _ _ .............�...�......�.__ Verification (Entitle�ment $175.00 per verification Determination) M edi ca re Li en Evaluation __ ._ Conditional Paym ent Search $250 per search Manual Medicare Eliqibility Inquiry (Rush Request) $35 Condi tional Payment Lien Ne $150 per hour Medical Cost Protection $125 per hour MSA Resolution Unit Service $450 Fee Pharmaceutical Drug Review $450 per review (If PDR doesn't prove to reduce lifetime costs by $5,000 the fee reduced to $35) Medicare Set - Asides Workers Compensation Medicare Set -Aside $2,300 per allocation Allocation (WCM Rush Fees (MSA completed within 7 days) $450 per case mmm Revisions: $150 per hour (One free revision within six months of subm Liabili Medicare Set -Aside Allocation (LMSA) $1,535 Fee ....... MSA Submission to CMS $850 Fee Taxes All applicable taxes will be added to the service fees where required New Business Cost & Terms (Revision date: 6/27/2013) Page 2 Village of Mount Prospect Community Development Department MEMORANDUM TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF COMMUNITY DEVELOPMENT DATE: DECEMBER 10, 2013 1 li SUBJECT: REQUEST FOR FACADE REBATE REIMBURSEMENT — STARBUCKS The Village has established the Fagade Rebate Program in the downtown Tax Increment Financing District that offers matching grants to businesses that make improvements to storefronts in the downtown district. The maximum Village contribution is $10,000 per storefront for retail operations. Starbucks will be moving from their current location at the Clocktower Shopping Center on NW Highway to the former Caribou location at 90 E. NW Highway. They are looking for reimbursement for costs associated with the buildout of the coffee shop. The total project costs are estimated at over $450,000. Starbucks is seeking reimbursement for $10,000 of eligible expenses related to this project. The Village currently has sufficient funds budgeted in account # 022.40.90.00.0.710.636.007 (page 322 of the Budget) for the 2013 budget year. Please forward this memorandum and attachments to the Village Board for their review and consideration at their December 17th meeting. Staff will be at that meeting to answer any questions related to this matter. William J. dooney Jr. Village oun rospec Facade Improvement & Interior Build Out Program Starbucks Coffee Company Tax Identification Number For Mount Prospect: 52490 Property owner and business owner contact information: Starbucks Global Development Phillip Golding 564 West Randolph, 3" Floor Chicago, IL 60661 Overall: Starbucks is very excited about the new store in Mount Prospect.and look forward to working with the city on all related matters. Description of your business and industry a. The Starbucks story began in 1971. At that time, we were a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle's Pike Place Market. Today, we are privileged to connect with millions of customers every day with exceptional products and nearly 18,000 retail stores in 60 countries. Our mission is to inspire and nurture the human spirit — one person, one cup and one neighborhood at a time. 2. Features and advantages of your project a. Starbucks believes in serving the best coffee possible. It's our goal for all of our coffee to be grown under the highest standards of quality, using ethical sourcing practices. b. Our coffee buyers personally travel to coffee farms in Latin America, Africa and Asia to select the highest quality beans. And our master roasters bring out the balance and rich flavor of the beans through the signature Starbucks Roast. c. In addition, Starbucks builds authentic connections with our customers in each community we serve. One way we do this is by designing and building stores that are locally relevant to each community, which builds trust in our company and brand. This trust is what enables us to continue to grow our company and our brand. e an �ci a e avm p g Z0,UU0 sores on six continents by e p an o, over the next five years, open 3,000 new stores in the Americas region alone. 3. Market research and analysis a. Our objective is to maintain Starbucks standing as one of the most recognized and respected brands in the world. To achieve this goal, we are continuing the disciplined expansion of our global store base. In addition, by leveraging the experience gained through our traditional store model, we continue to offer consumers new coffee products in a variety of forms, across new categories, and through diverse channels. Starbucks Global Responsibility strategy and commitments related to coffee and the communities we do business in, as well as our focus on being an employer of choice, are also key complements to our business strategies. b. Our primary competitors for coffee beverage sales are quick - service restaurants and specialty coffee shops. In almost all markets in which we do business, there are numerous competitors in the specialty coffee beverage business. We believe that our customers choose among specialty coffee retailers primarily on the basis of product quality, service and convenience, as well as price. We continue to experience direct competition from large competitors in the US quick - service restaurant sector and the US ready -to -drink coffee beverage market. We also continue to face competition from well- established companies in many international markets. 4. Estimated market share and sales a. Starbucks results for fiscal 2012 reflect the strength of our global business model. We continue to execute on our new regional operating model which we implemented at the beginning of fiscal 2012. We now have four reportable operating segments: Americas; Europe, Middle East, and Africa ( °EMEA "); China 1 Asia Pacific ( "CAP ") and Channel Development. Each segment is managed by an operating segment president. Total net revenues increased 14% to $13.3 billion driven by global comparable store sales growth of 7% and a 50% increase in Channel Development revenue. This growth drove increased sales leverage and resulted in higher operating margin and net earnings compared to fiscal 2011. This helped mitigate the impact of higher commodity costs, mostly coffee, which negatively impacted operating income by approximately $214 million for the year, equivalent to approximately 160 basis points of impact on operating margin. Our Americas business continued its strong momentum and contributed 75% of total net revenues in fiscal 2012. The revenue growth for the year was driven by an 8% increase in comparable store sales, comprised of a 6% increase in traffic and a 2% increase in average ticket. This sales growth, combined with a continued focus on operational efficiencies, drove increased sales leverage that offset the impact of higher commodity costs. Looking forward, we expect to continue driving sales growth and profitability through continued store efficiency 2 e orts, new storo eve opmen , an expan ing our pipe one o new pro uc offerings to increase revenues throughout all dayparts. S. Design and development plans a. Each store location is specifically designed to fit into the culture of the location. Each store design features color palettes, furniture and artwork that is locally relevant to the surrounding community. b. Difficulties and risks associated with a store opening are constructions costs, the impact of competitor initiatives, unfavorable general economic conditions, and customers trading down to lower priced products within the company and/or shifting to competitors with lower priced products. 6. Operation Plans a. Our strategy for expanding our global retail business is to increase our market share in a disciplined manner, by selectively opening additional stores in new and existing markets, as well as increasing sales in existing stores, to support our long -term strategic objective to maintain Starbucks standing as one of the most recognized and respected brands in the world. Store growth in specific existing markets will vary due to many factors, including the maturity of the market. b. Starbucks company- operated stores are typically located in high - traffic, high - visibility locations. Our ability to vary the size and format of our stores allows us to locate them in or near a variety of settings, including downtown and suburban retail centers, office buildings, university campuses, and in select rural and off - highway locations. To provide a greater degree of access and convenience for non - pedestrian customers, we continue to selectively expand development of drive -thru stores. c. Starbucks stores offer a choice of regular and decaffeinated coffee beverages, a broad selection of Italian -style espresso beverages, cold blended beverages, iced shaken refreshment beverages, a selection of premium Tazo® teas, distinctively packaged roasted whole bean and ground coffees, a variety of Starbucks VIA® Ready Brew soluble coffees, Starbucks® coffee and Tazo® tea K -Cup® portion packs, Starbucks Refreshers TM beverages, juices and bottled water. Starbucks stores also offer an assortment of fresh food items, including selections focusing on high - quality ingredients, nutritional value and great flavor. Food items include pastries, prepared breakfast and lunch sandwiches, oatmeal and salads. A focused selection of beverage - making equipment and accessories are also sold in our stores. Each Starbucks store varies its product mix depending upon the size of the store and its location. To complement the in -store experience, our US company - operated .Starbucks stores also provide customers free access to wireless internet. 7. Management Team a. Please see attached 2012 Annual Report. 3 8. Overall Schedule a. Lease: Executed. b. Permits: Starbucks submitted for permits on October 22, 2013. c. Starbucks Construction Start: Estimated for December 23, 2013. d. Starbucks Projected Open Date: Estimated for February 28, 2014. 9. Critical risks and problems a. As a retailer that is dependent upon consumer discretionary spending, our results of operations are sensitive to changes in macro - economic conditions. Our customers may have less money for discretionary purchases as a result of job losses, foreclosures, bankruptcies, increased fuel and energy costs, higher interest rates, higher taxes, reduced access to credit and lower home prices. Any resulting decreases in customer traffic and/or average value per transaction will negatively impact our financial performance as reduced revenues result in sales de- leveraging which creates downward pressure on margins. There is also a risk that if negative economic conditions persist for a long period of time or worsen, consumers may make long- lasting changes to their discretionary purchasing behavior, including less frequent discretionary purchases on a more permanent basis. Our financial performance is highly dependent on our Americas operating segment, as it comprised approximately 75% of consolidated total net revenues in fiscal 2012. if revenue trends slow or decline, our business and financial results could be adversely affected, and because the Americas segment is relatively mature and produces the large majority of our operating cash flows, could result in reduced cash flows for funding the expansion of our international business and for returning cash to shareholders. b. We believe we have built an excellent reputation globally for the quality of our products, for delivery of a consistently positive consumer experience and for our corporate social responsibility programs. The Starbucks brand has been highly rated in several global brand value studies. To be successful in the future, particularly outside of US, where the Starbucks brand and our other brands are less well- known, we believe we must preserve, grow and leverage the value of our brands across all sales channels. Brand value is based in part on consumer perceptions on a variety of subjective qualities. Even isolated business incidents that erode consumer trust, such as contaminated food, recalls or privacy breaches, particularly if the incidents receive considerable publicity or result in litigation, can significantly reduce brand value and have a negative impact on our financial results. Consumer demand for our products and our brand equity could diminish significantly if we or our licensees fail to preserve the quality of our products, are perceived to act in an unethical or socially irresponsible manner or fail to deliver a consistently positive consumer experience in each of our markets. Additionally, inconsistent uses of our brand and other of our intellectual property assets, as well as failure to protect our intellectual property, including from unauthorized uses of our brand or other of our intellectual property assets, can financial results. 10. Financial Plan a/b/c. All confidential. a `�]Ll► II�[��[II U1 W P � W A A A A A A A A A A W W W W W W W W W F` Q �IP(nA W N N O C ;D W �I m U'tA NY N T m C7 m Z 9= C VS W n n= w> ll m „�oo°AnnmTA'�p�Ax n��Dn3�" - r' r r B x ZnoQ�`A� A Z O flZ'c� c � i c °�� 0 Cl°� A m x mN�x C � 22, °m �;O Mz O (n z ,y ; ~ 00 Z En o � rtl m m m m Z cn CF) E m O m A m u O a U) m z m M I F l � CC l* 0 NN NN NN 4 (O F`Nh` WN W NNF+0 pW�1 V1 p. 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W NNm VI A lJ N t-- O� +I Q� fT1 A W N F-` _ zT] AF+�Ot y C a �n �T r GpQ �C)N 6�1y C3 z � O N{nD A2C -D4CG x my Tm mAzflQnn,mti�Z �� GI WX D xmc� °T - 00 jCW 1 III min ��,�m�AA��nmm O Q mr Z� oDm; 'o � (n Z OA 0m Qcz �mm ^�oH� ° moo ov 0 O Nm m�CNaZ� ZZ D ° 0 0u' iO3 d mD ma Z z Cl '" cn z N " m A M o�041 = A m p 0 C] o� 0 m 0 0 ( D T] > T r ?1 A ° b m S1 m m� a) g (n ` cn v � � � v m m rnjxl m z,,o oa�nA z ap A ° ° °�, A� —z o I — °� -�o�oo R,o c �j� A m m A a O!�: Z N i0 113 r Qma IZ 0 +"b O i,z v m 0 T E ti m z O q M n O N m a ij n z n C m 3 0 W N O w W Village of Mount Prospect Community Development Department MEMORANDUM 1 1 "1 TO: MICHAEL E. JANONIS, VILLAGE MANAGER FROM: DIRECTOR OF COMMUNITY DEVELOPMENT DATE: DECEMBER 10, 2013 SUBJECT: REQUEST FOR FACADE REBATE REIMBURSEMENT — EDIBLE ARRANGEMENTS The Village has established the Facade Rebate Program in the downtown Tax Increment Financing District that offers matching grants to businesses that make improvements to storefronts in the downtown district. The maximum Village contribution is $10,000 per storefront for retail operations. Edible Arrangements will be moving to the former Real Deals location at 117 S. Emerson Street. They are looking for reimbursement for costs associated with the buildout of their facility. The total project costs are estimated at over $100,000. Edible Arrangements is seeking reimbursement for $10,000 of eligible expenses related to this project. The Village currently has sufficient funds budgeted in account # 022.40.90.00.0.710.636.007 (page 322 of the Budget) for the 2013 budget year. Please forward this memorandum and attachments to the Village Board for their review and consideration at their December 3rd meeting. Staff will be at that meeting to answer any questions related to this matter. William J. tooney Jr. ime Arran ements Jacklin Serafin- Olszowv and Anthony Adams Edible Arrangements . mwmo� Mt. Prospect. IL Table of Contents Executive Summary 3 Description of the Market 5 Target Markets 6 General Competitive Analysis 7 Detailed Competitive Analysis 8 Description of Service 12 The Management Team and Staff 13 Objectives and Goals 14 Short-Term Objectives 14 Long -Term Objectives 14 Ventures and Strategies 15 Initial Market Penetration Strategy 15 Marketing Strategy 15 Service Strategy 16 Human Resource Strategy 16 Sourcing Strategy 17 Overall Strategy for Growth 18 Financial Data 2 EXECUTIVE SUMMARY Edible Arrangements International, LLC is a Connecticut corporation established in 1999. Jacklin Serafin- ©lszowy and Anthony Adams have been doing business as an Edible Arrangements franchise of Mt. Prospect, IL, since June 2009. They are company that sells fresh fruit bouquets and dipped fruit boxes. The plan is for the store to open at 117 S. Emerson by the end of 2013 under the Edible Arrangements name. Edible Arrangements creates fresh fruit arrangements and gourmet chocolate fruit dipped to order for pickup or delivery. We are the creator and leader in fresh fruit bouquets. Every arrangement is filled with fresh fruit that has been hand sculpted to look like fresh flowers. These arrangements are given as gifts from person to person for Valentine's Day, Mother's Day, etc. and also for special events such as weddings, family dinners and gatherings during the holidays and events held in local communities. There are multiple benefits to these arrangements. First, each bouquet makes a tremendous impact on every recipient, as each basket is hand sculpted and made with all natural ingredients and no preservatives. Second every basket is filled with the best quality and freshest fruit. Third, because the consumer receives a fruit bouquet, they are given a nutritious treat as opposed to fattening cookies and candies. As a result, these fruit baskets have multiple applications from holidays to special events. EA's venture potential is great. All EA franchises are located in exclusive territories in their delivery area. Moreover, the demographics in these areas are well- suited for an Edible Arrangements product which might be considered high -end products. While there is a low barrier to entry from rival competitors, there is a high barrier to entry from other established Edible Arrangements franchisees, given Edible Arrangements franchisee policy. Territory exclusivity gives Edible Arrangements the opportunity to develop the existing markets. To grow the business, Edible Arrangements will seek to develop contractual agreements and establish corporate accounts. m -DESCRIPTION OF THE MARKET People buy gifts to show that they care, love, or think about someone. These gifts have traditionally been flowers. For certain holidays like Valentine's Day, Easter, Thanksgiving and Christmas, flowers have been the centerpiece of a table. In 1999, Americans consumed on average, 102 pounds of fruit per person, the third highest level in two decades. Add that to a $55- billion gift- giving industry. One company alone, FTD, has grossed more than $200 million dollars a year in floral arrangements and related products. However, other companies have entered the gift giving market through their introduction of cookie baskets, fruit baskets, candy sculptures, etc. Edible Arrangements is a breakthrough product and franchise system that can replace flowers as the staple of gift giving. Its creative floral -like fruit arrangements are not only beautiful to see, but are refreshing and nutritious to eat. As a centerpiece, an arrangement brings people together fostering fruitful conversations. In planning certain events, flowers may be inappropriate. An Edible Arrangement, however, can decorate and serve as a healthy appetizer for an event, meeting or party. The arrangement provides new functionality compared to traditional floral arrangements and a healthy alternative when compared to candy /cookie baskets. 5 TARGET. MARKETS._ .. I 1. Prospective retail buyer demographics a. Targets buyers between ages of 20 and 65 years of age b. Median income greater than $50,000 c. Couples, extended families, single professionals 2. Prospective commercial buyer demographics a. Service industry professionals L Wedding planners, caterers, funeral directors, real estate agents, etc. b. Sales- focused companies and professionals c. Office personnel d. Medical /dental, salons, travel agencies e. Corporate event coordinators B. Prime Occasions a. Special holidays i. Valentine's Day, Mother's Day, Easter, Administrative Days, Thanksgiving, Christmas, New Years Eve b. Special events L Weddings, Births, Baptisms, Graduations, Birthdays, Bar /Bat Mitvahs, Bridal /Baby Showers c. Somber moments L funerals /Wakes, Get Well, Memorial, etc. C GENERAL COMPETITIVE ANALYSIS_ The competitive analysis below identifies local, as well as national competitors and discusses their respective services, strengths and weaknesses. Although EA is in many ways a unique product, first mover advantage is critical in the markets we seek to develop. The first mover advantage is particularly important because of the low barrier to entry from rival competitors and new entrants. Additionally, any existing competitor, i.e. florist, can add floral fruit arrangements to their business. Some indirect sources of competition include substitutes such as wines and spirits, cakes and baked goods, candy and greeting cards. These various products can be used for holidays, special events and gatherings, but often have limited audiences. Certain environmental elements can result in added competitive pressure. Those elements can be regulations and adverse weather conditions. Because EA is selling fruit as its base product and these fruits come from different regions and even countries, any ban on particular country's export of fruit can result in higher prices and /or no availability of a particular fruit. Adverse weather conditions can negatively impact the supply of fruit, thereby resulting in higher retail prices as other sources are sought and used. In both instances, EA may realize competitive pressure. 7 DETAILED CQMUTITIVE.ANALYSIS 1. Edible Arrangements a. Strengths i. Efficient proven system ii. Strong Integrated internet system iii. Clever alternative to flowers iv. Preferred by the health- conscious consumer V. Nutritious gift vi. Versatile use vii. Very fresh product viii. Delivery service ix. Endless creative possibilities X. High profit margin A. Over 1,100 stores world wide b. Weaknesses i. Low number of franchises in certain parts of the country. ii. High -end product (lower income might not buy) iii. Overcoming traditional purchase of flowers iv. Lacks strong retail presence V. Fruit only vi. Limited shelf life c. Opportunities 8 L There are no other Edible Arrangements in Mt. Prospect. ii. Prime market space is available at reasonable rent prices. d. Threats L Current rival competition: Fannie Mae has recently started offering fresh fruit arrangements. ii. Deep pockets can fund competitive products to share the market. iii. Increased regulations can raise costs. iv. Weather can threaten fruit availability and impact prices. 2. Florists -Local and National competition a. Strengths i. Delivery services ii. Extensive network iii. Traditionally viewed by the public as the product to buy. iv. High accessibility, i.e. FTD b. Weaknesses i. Saturated market ii. Little differentiation iii. Only one retail item iv. No other practical use V. Limited application 3. Candy boxes /Baked goods a. Strengths 9 i. Can be delivered ii. Longer shelf life iii. Wide variety iv. Edible V. Can be shipped b. Weaknesses i. Not everyone can eat them (certain diabetics, allergies) ii. Low nutritional value iii. Melt under high temperatures iv. Can be perishable V. Can be expensive vi. Creative limitations 4. Mom and Pop gift shops a. Strengths i. Independent ii. Can alter or customize products and services iii. No franchise fees iv. Set their own rules b. Weaknesses i. Lack of procedural system H. Poor internet presence iii. Limited scope and focus of product 10 iv. Financial support is low V. Low credibility and market penetration A. Weaker negotiating ability 11 DESCRIPTION . OF. _SERVICE Through the new location at 117 S. Emerson in Mt. Prospect, IL, Edible Arrangements will sell nutritious sculpted floral fruit baskets to consumers for special events, holidays or other occasions. These arrangements will be either delivered or picked up by the consumer. Orders will be taken over the phone, internet or by customer walk -ins. The arrangements range in price from $35 to more than $300 depending on the size and features of the basket. The fruit baskets will include strawberries, cantaloupe, honeydew, pineapple, and grapes, and other seasonal fruit. The fruit is sculpted to resemble flowers, which can be consumed by the customer. Deliveries will be made several times during the day. The first round of deliveries will occur in the morning hours and as needed throughout the day. Basket production will begin at 8a.m. and end around Sp.m. Store hours will be Monday thru Friday, from Ba.m. until 7p.m. On Saturday, the hours of 9a.m. until Sp.m. The store will be closed on Sundays with the exception of holidays. 12 THE MANAGEMENT TEAM AND STATE 1. Managers a.) Implement and modify as necessary, Edible Arrangements marketing plan tactical and strategic plan, and financial plan, all of which includes growing Edible Arrangement's business. b.) Actively market Edible Arrangements through promotions, approved positioning strategies and advertising. c.) Act as manager of store #984, Mt. Prospect, IL. d.) Implement Edible Arrangements standardized policies and procedures. e.) Develop and cultivate strategic alliances with complementary businesses. f.) Monitor the external business environment for demographic shifts and modify growth strategy accordingly. g.) Perform financial analysis to ensure that Edible Arrangement franchises meet targeted financial projections. h.) Implement management directives. Q Oversee daily operations. j.) Train new hires to follow established policies and procedures. k.) Address customer inquiries. I.) Cultivate employee relations and morale. 13