South Valley Winery
Table of Contents
1.0 Introduction 4
1.1 Industry Overview 4
1.2 Mission Statement 5
1.3 Goals and Objectives 5
1.4 Project Benefits 5
2.0 Policy 6
2.1 The Cottage Winery 6
2.2 Sales and Marketing 6
3.0 Operations Plan 7
3.1 Location 7
3.2 Winemaking Process Plan 9
3.3 Floor Plan 12
3.4 Average Business Cycles 14
3.4.1 Average Business Day 14
3.4.2 Average Business Month 15
3.4.3 Average Business Year 15
3.5 Captial Budget 16
3.6 Operating Expenses 17
4.0 Human Resources Plan 18
4.1 Human Resource Strategy 18
4.2 Organizational Structure 19
4.3 Job Descriptions 20
4.4 Training 22
4.5 Future Human Resources 23
5.0 Marketing Plan 23
5.1 Current Market 23
5.2 Competition 26
5.2.1. Direct Wine Competition 26
5.2.2 Indirect Wine Competition 26
5.2.3 Indirect Tourist Competition 27
5.3 Product and Service Features 27
5.3.1 Product 27
5.3.2 Service 28
5.4 Customers and Target Markets 28
5.5 Promotion 30
5.6 Pricing Policy 32
5.7 Distribution Channels 33
5.8 Sales Objectives 33
5.9 SWOT Analysis 34
5.9.1 Strengths 34
5.9.2 Weaknesses 34
5.9.3 Opportunities 35
5.9.4 Threats 35
6.0 Financial Plan 35
6.1 Loan Amortization 36
6.2 Dividend Policy 37
6.3 Economic Forecast 38
6.4 Unit Cost Analysis 38
6.6 Summary of Financial Results 41
6.7 Sensitivity Analysis 42
6.8 Breakeven Analysis 44
7.0 Conclusion 46
8.0 References 47
Appendix A: Cottage Winery Policy 49
Appendix B: Financial Projections 50
Appendix C: Okanagan University College Wines Sales Course 51
List of Figures
Figure 3.1.1. Proposed site plan for the South Valley Winery. 8
Figure 3.2.1. Process Plan Flow Chart 9
Figure 3.2.2. Fruit Crusher and Primary Fermentation Tank 10
Figure 3.2.3. Basket Press and Storage Tanks with Floating Lids 11
Figure 3.2.4. Plate Filter 11
Figure 3.2.5. Wine Bottler 12
Figure 3.3.1. Floor Plan 13
Figure 3.4.1. Schedule of yearly business activities 15
Figure 4.2.1. Organizational Structure 19
Figure 5.1.1. Wine sales in Canada over ten years. 25
Figure 6.4.1. Distribution of costs per unit in various production years. 39
Figure 6.7.1. Sensitivity analysis of the IRR 44
Figure 6.8.1. Breakeven Analysis of Average Selling Price 45
Figure 6.8.2. Breakeven Analysis of Quantity of Cases Sold 46
List of Tables
Table 3.5.1. Capital Budget Summary 16
Table 3.6.1. Direct Material Purchases 17
Table 3.6.2. Direct Labour and Benefits 17
Table 3.6.3. Manufacturing Overhead Costs 18
Table 3.6.4. Cost of Goods Manufactured 18
Table 4.3.1. Labour cost projected for ten years. 22
Table 5.1.1. Prices of fruit wines in B.C and Ontario 23
Table 5.5.1. Marketing cost estimations for 10 years. 32
Table 5.6.1. Prices per bottle of production showing increases with inflation. 33
Table 5.8.1. Projected sales and revenues for South Valley Winery 33
Table 6.0.1. Financing 36
Table 6.1.1. Amortization Schedule 37
Table 6.2.1. Dividends Paid 38
Table 6.4.1. Unit cost breakdown of producing and selling wine. 39
Table 6.5.1. Summary of financial ratios 41
Table 6.6.1. Summary of Financial Results 41
Table 6.7.1. Scenario Analysis 42
1.0 Introduction
1.1 Industry Overview
The Saskatchewan fruit wine industry is in the beginning stages of the product lifecycle and is rather undeveloped. The Cottage Winery Policy formed in May 2002 has laid out regulations and rules for the development and operation of small fruit wineries in Saskatchewan. The policy outlines maximum and minimum production levels and provides the winemakers with a discounted liquor tax rate on their production. Currently there are two other fruit wineries in Saskatchewan that are not aggressively marketing and producing products.
The fruit wine industry in Canada is becoming well developed in both British Columbia and Ontario. Wineries have a broad product selection consisting of fruit wines, ice wines and port wines. Besides selling wines, many wineries add tourist components to their business such as tours, tasting, a restaurant, or a farmers’ market. The Fruit Wines of Canada is a national producer’s association, which provides quality certification labeling to its members modeled after the Vintner’s Quality Alliance. This organization promotes Canadian fruit wine and creates markets both domestically and internationally for fruit wine.
The grape wine industry is also a market in which fruit wine is competing. Currently it is offering a diverse product line with a variety of high quality wines to choose from at reasonable prices. The grape wine industry is well-developed with faithful customers who preferentially purchase this type of wine.
Across Canada wine consumption has been increasing. Although wine consumption is low in Saskatchewan, there is potential to initiate a trend in wine consumption and increase the market share.
1.2 Mission Statement
South Valley Winery will work as a family business to establish profitable value added fruit products while facilitating the development of the fruit wine market in Saskatchewan.
1.3 Goals and Objectives
· Create a significant value-added agricultural industry
· Establish an image and name for the product
· Create a tourist attraction along one of Saskatchewan’s busiest highways
· Maximize production at 5000 cases
· Provide a diverse product line expanded from Rhubarb, Saskatoon, Chokecherry, and Raspberry wines to include sour cherry, black current, port and ice wines
· Provide at least 20% return on equity
· Become a member of The Fruit Wines of Canada, producing recognized quality fruit wine products
1.4 Project Benefits
The development of the fruit wine industry in Saskatchewan will bring numerous benefits to the province:
· The high quality of dry fruit wine will be a reasonably priced substitute for many of the imported table wines, keeping money in Saskatchewan.
· The Cottage Winery policy ensures that the fruit ingredients are Saskatchewan grown, helping to provide market and demand for Saskatchewan fruit production.
· The value-added nature of the wine product will help to diversify the economy and increase the industry within Saskatchewan.
· South Valley Winery will provide jobs for some area residents and attract tourists along with their spending money to the area.
2.0 Policy
The South Valley Winery will be regulated under the Saskatchewan Liquor and Gaming Authority (SLGA) Cottage Winery Policy. Introduced in May of 2002, the policy (Appendix A) outlines the operations for the winery. In order to operate and sell wine from a cottage winery, the owner and the SLGA must sign a contract made under the policy. The discussion that follows outlines the main policy and how it will affect the operations at the South Valley Winery.
2.1 The Cottage Winery
Under the SLGA’s policy, in order to have the designation of a “cottage winery” the winery must:
· Maintain a minimum annual production of 4,500 L (500 cases) and not produce over a maximum of 45,000 L (5000 cases).
· Be situated on principal farm property, and produce and sell $20,000 or more in agricultural product annually, or derive 50% or more of its gross income from its own agricultural production.
· Obtain a Manufacturer’s Permit from the SLGA that is renewable on an annual basis for $500.00. (A $200.00 one-time application fee at time of initial application is also required).
· Utilize no less than 65% of Saskatchewan grown fruit, and no less than 25% of fruit grown by the winery on land owned or leased by the owner of the winery. Outside sources can be blended to a maximum of 35%.
Providing the conditions are maintained, the winery will not be classified as commercial and a reduced tax of $0.53 per litre will be paid.
2.2 Sales and Marketing
The policy outlines a strict guideline on how the product can be priced and marketed. Any alcoholic products sold must be registered with the SLGA by completing a listing application form. As part of the registration, a display price that includes the cost of the wine, taxes and mark-up that the SLGA puts on the wine is established. This established price cannot be changed unless an agreement is made between the SLGA and owner of the winery. Any wine sold must also have a Shipping Container Code and a Universal Product Code.
Wine may be sold on premises from a retail store, through SLGA stores, and to special occasion permit holders. The wine sold at the winery must be sold at a price equal to, or exceeding the display price (as described above) and the winery pays only a $0.53 per litre tax, retaining the difference between cost of manufacturing and selling price. If selling wine through the SLGA, the SLGA will keep the difference between the cost of the wine and display price. Sales to special occasion permit holders will be conducted through the store and therefore be similar to the sales from the retail. Therefore, in order to maximize profits, wine sales must be conducted through the retail store or to special occasion permit holders.
To promote the product, the retail store will have a hospitality room for wine tasting and will provide tours through the winery. Delivery of the wine may also be offered. Signs may be displayed once approved by the SLGA and the Department of Highways if located close to a highway. All external and media advertising must have prior approval of the SLGA, which includes radio ads, brochures and web pages. The retail store may be open in accordance with government and/or local municipal regulations (9.00am-10:00pm Mon-Sat, 12:00am-6:00pm Sun).
3.0 Operations Plan
3.1 Location
The South Valley Winery will be located east of Regina on the No. 1 Trans-Canada highway near Balgonie. The site was strategically placed in this location to attract summer tourists that will be passing by during the busy months of June, July and August. Off-ramps currently in place enable drivers to make an easy exit to the winery. The winery site is three acres in size, two of which will be used for fruit production in future years. Beautiful landscaping will envelop the main building, as well as the perimeter of the yard, providing an aesthetically pleasing atmosphere enticing potential customers to stop in. The site plan is functional, as all the materials that are required can be loaded and unloaded by a half-ton truck at the loading dock.
Figure 3.1.1. Proposed site plan for the South Valley Winery.
3.2 Winemaking Process Plan
pump
pump pump
pump
Corker
Distributed to Special Permits
Retail Sales
Storage
Figure 3.2.1. Process Plan Flow Chart
1. The process of winemaking begins with the delivery of very ripe, or frozen fruit. The berries are placed in a manually operated roller fruit crusher (Figure 3.2.2), and crushed into a primary fermentation tank.
2. The fermentation process begins by adding water, sugar, acid, pectic enzymes and yeast to the refrigerated primary tank. For a batch of wine to yield 1000L, 1000L of water is added to 1000 lbs of crushed fruit in the primary tank.
The sugar is added to convert the yeast to alcohol. The amount of sugar added will determine the final alcohol content of the wine. Acids are added to maintain the desired pH of the wine. Wine low in acidity is often flat, while wine that is overly acidic is usually tart. Wine acidity and pH have an inverse relationship, the lower the pH, the higher the acidity. Pectic enzymes are added to consume pectin to clarify the wine and help extract flavour and colour from the fruit.
The slurry remains in the primary tank for 15-20 days and is stirred twice a day, meanwhile being monitored for sugar and alcohol content with a hydrometer. Once the sugar has all been converted to alcohol, the wine is ready for the next step in the process.
Figure 3.2.2. Fruit Crusher and Primary Fermentation Tank
3. The pulp and wine mixture is pumped into a ratchet basket press (Figure 3.2.3), where the liquid is manually pressed off the pulp and then transferred to an air-tight storage tank, where the wine will be stabilized and clarified over the next two to three months.
4. In the storage tank the wine is stabilized with sulfur dioxide (SO2) to inhibit wild yeast growth and to protect from air oxidation and browning. SO2 levels are monitored daily; once the wine is stabilized, it is clarified with Sparkalloid® to drop out any remaining yeast cells, tannins and complex materials.
Figure 3.2.3. Basket Press and Storage Tanks with Floating Lids
5. Once the vintner is satisfied with the taste, colour and SO2 levels, the wine is filtered through a plate filter (Figure 3.2.4). This filtration will occur three times prior to bottling, each time with a filter of a smaller porosity.
Figure 3.2.4. Plate Filter
6. The finished wine is pumped back into a storage tank and is now ready to be bottled. The wine flow is regulated into the reservoir of the bottler where it streams down six spouts and into the bottles, which are manually removed and replaced with new bottles (Figure 3.2.5).
Figure 3.2.5. Wine Bottler
7. The bottled wine is then passed to the corker, where it is manually corked. Plastic shrink-wrap is placed over the neck of the bottle and heated with a heat gun to seal the wrap tightly. The adhesive labels are then applied to the bottles, and the finished product is packaged in cases of twelve bottles. Finally, the cases are then moved into storage as finished inventory.
3.3 Floor Plan
The floor plan of the winery is designed to make the process of winemaking flow as smoothly as possible, as well as to facilitate tasting and tours. The front of the building consists of a comfortable showroom where tasting and retail sales will occur. The commercial area of the winery is spacious, and makes transferring of wine as easy as possible. There is ample room for tours consisting of large numbers. The finished inventory storage and cold storage are both located at the rear of the building, near the loading dock, to ensure efficient transfer of inventory. The manager’s office is centrally located so that he can easily access both the processing and the retail areas.