It has been pointed out that it’s been a year since this Blog was last updated. And what a year for most!
It is easy to blame Covid for a year of stagnation but there are other reasons why advancement has been slow. The response of governments around the world to the pandemic have imposed restrictions on travel, the movement of goods, any ability to make money by providing services and they have created an environment of uncertainty.
How has this impacted our plans?
February ’20 – More effort must be spent courting international sales. Funding for such a budget is now in place. Whether this turns out to be more suicidal expenditure we cannot say but it is clear that the rather limited ability we have had to date has left us with zero sales and we will never sell on credit the way the local agents seem to require. We need to get behind the agents and find the end customers. This is easier said than done in what we now understand to be quite an arcane and cliquey industry.
Several more trips to hubs such as Singapore will be within the budget and also we have obtained a database of companies involved with agarwood (some ninety or so potential new contacts outside of our existing network) and we will be systematically working through that list contacting them, arranging samples and looking for wholesale sales.
Sadly, trips to Singapore in the immediate future will be curtailed until the novel coronavirus is properly understood and / or controlled. A budget will be set aside to attend the Dubai Perfume Expo at the end of May 2020 to access a global audience (and obviously whilst in the Middle East to court local vendors too). We are hoping to share costs with another producer and we should have confirmation within the next couple of weeks on whether we have to go it alone or not.
I am sure that no-one reading this would have expected anyone to risk being trapped somewhere expensive away from home such as Dubai or Singapore. In the past twelve months the most adventurous traveling exploit has been a meeting in Bangkok which was productive in terms of solidifying a thought process but unproductive in terms of advancing the cause.
Had this update been written six months ago it might have contained optimism over pent up demand being unleashed and a potential opportunity there but then governments around the world doubled down in their reactions. The Dubai Expo was moved from March to July to November and then cancelled. To be honest, had it gone ahead the metrics surrounding a calculation as to the cost vs benefit vs risk of attendance would have quashed any plans.
And so to a greater or lesser extent, things were put on hold. The trip to Bangkok was in connection with sorting potential warehousing and shipping solutions to go hand in hand with an online sales strategy which now seems to be all we have available for at least the next year being realistic.
We have long understood and related to a view that in terms of the overall Agarwood model the higher up the chain you go the more money there is… Assuming you can get there. Growing risk (farmers) are not well remunerated at all. Processors more so but it’s quite tight. Wholesalers make a better margin and then retail is where the real profit is.
Aequus had put together an arrangement wherein we took the growing risk but made it pay because it allowed Touchwood to fund their upstream activities by releasing capital during the growing phase for the trees when capital is dead. Our investors would cash out with a healthy profit in return and Aequus as a business managing investment in the Agarwood was never supposed to be anywhere near trying to find and deal with wholesalers, processors and retailers.
If we are going online then we are going retail. Whether this is done informally or via a more formal structure is a decision to be made.
Structuring the retail venture as a company is to provide the following benefits:
Simplicity – Ease of linking CITES certification to export paperwork
Protection – From personal liability up to a point (e.g. we ship contaminated oil and get sued because someone has an allergic reaction or something… I’m not suggesting such a thing would be likely but I cannot predict what might happen so a limited liability vehicle makes sense in this venture
Transparency – Thailand requires audited annual financial statements which stakeholders can then inspect freely
Formality – most interactions over the past few years have been decidedly informal and based on trust rather than contracts and that’s far from commercial
“Skin in the game” – There are people who have gone above and beyond the call of duty to safeguard assets and such a corporate structure presents an opportunity to give the forestry manager a share in a business which, even if only moderately successful in relation to shipping the Aequus product, will give him a platform to continue with Agarwood on a cottage industry basis which is something he wishes to do
The downside is the set up costs for the company and the need to involve lawyers as company paperwork in Thailand must be produced in Thai so as a foreigner you wind up signing a multitude of documents where you don’t know which certainty what they say…. A D.I.Y. company formation is out of the question unlike, say in the United Kingdom where such things are remarkably straightforward.
If incorporation is the direction of travel, the company will need to be established with working capital to fund a website, branding, SEO management, Social Media marketing, click bait, search engines and what have you.
Beyond natty gift-type presentation boxes containing our oil, we will also be using our web presence to offer oil wholesale; but the idea of the website is an online store where people (target market is the GCC countries in the main) can order presentation gift boxes containing Agarwood oil.
This was an early mock up but we have refined our ideas since then and this Blog will be updated once we have the new ones in hand and the website is ready.
Suppliers are lined up for the vials and the boxes but each comes with a minimum order quantity so the company will need to take the plunge and buy containers in the hope that the concept works and we get to fill them and sell them.
Legal fees for company establishment and the opening of a bank account, sorting the export licensing, the online store and the marketing and basic presentation and shipping materials entails an initial capital injection of at least £6,000 and more likely close to £8,000. Thereafter monthly costs for the online retail should be relatively modest although if we do establish a market then the processing costs of attacking our remaining stocks of unprocessed wood chip will need to be factored in.
Since the alternative is to sell it all off and walk away with the costs of the wind-up barely covered this approach is still the better option; although if readers of this Blog communicate a willingness to attempt the same results in a less formalised structure then please do provide that feedback. Either way, the funding for this retail approach will not come out of thin air. If the venture is a success then there should be a reimbursement of such costs to the founders. If the venture is unsuccessful then it will be time time to firesafe the assets and call time on the rescue project.
That’s not simply a note of pessimism being thrown in here for the sake of it.
We were recently contacted by a company with which we have had dealings and exploratory discussions in the past. They have invested heavily in building a brand and have taken it online. They have distributors in multiple locations and a range of products (not just oil, which is all we have).
Here’s the thing though… they approached us because they wanted funding. For us to become part of a bigger whole. They are seeking around £125,000 as a capital injection. So on the face of it you have a company with a presence, a brand and an order book. But they are not making money.
That is in part because prices for plantation produced Agarwood remain remarkably low. By going down the retail model we will in theory be selling at a price point which would represent profitability to us on a per tola or per kilo basis… but unless the sales volume is sufficient then any profit per unit still represents a loss to the business and so it would be disingenuous to paint this endeavour as anything less than potentially a “last hurrah!”.
If the site works at a modest level then it will provide an exit over the long term for investors as sales = cash flow and cash in the bank over and above costs can be distributed. When we know the general success levels we can predict the time to finality but in truth, if we don’t secure some wholesale deals along the way then this could grind on for many, many years. And, if like our potential suitors we find that we can sell online but not in sufficient volumes to make it pay then the end writes itself.
As ever, we welcome feedback if anyone has any views on how we can make this work better for all.