Companion Brewing Company
“A Sign of Good Taste”
MBA Entrepreneurial Project – Business Plan
Candidate Numbers:
49489
49558
49728
50406
52582
17th April 2007
Said Business School, University of Oxford
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1.0 Table of Contents
1.0 Table of Contents ............................................................................................................................. 2
2.0 Executive Summary ......................................................................................................................... 4
3.0 The Opportunity ............................................................................................................................... 5
3.1 Changing Perception and Consumption Pattern: Food Pairing ................................................... 5
3.2 Exploding Growth in Premium Beer Market ............................................................................... 6
3.3 Overcapacity in Beer Mass Market.............................................................................................. 6
4.0 The Proposition ................................................................................................................................ 6
4.1 How we’re Different .................................................................................................................... 6
4.2 Consumers & Customers ............................................................................................................. 7
4.3 Our Flagship Products.................................................................................................................. 7
5.0 The Market and Competition ........................................................................................................... 9
5.1 Overall Beverage Market ............................................................................................................. 9
5.2 Dining .......................................................................................................................................... 9
5.3 Food Beer ................................................................................................................................... 10
6.0 The Business Model ....................................................................................................................... 10
6.1 Recipe Creation .......................................................................................................................... 11
6.2 Brewing and Bottling ................................................................................................................. 12
6.3 Placement and Distribution ........................................................................................................ 12
7.0 Marketing Strategy and Brand Positioning .................................................................................... 16
7.1 Target Market Selection ............................................................................................................. 16
7.2 Brand Positioning....................................................................................................................... 17
7.3 Developing the Companion Brewing Brand .............................................................................. 18
7.4 Packaging ................................................................................................................................... 19
7.5 Labelling .................................................................................................................................... 19
7.6 Selection and Naming ................................................................................................................ 20
7.7 Pricing ........................................................................................................................................ 20
8.0 Exit Strategy................................................................................................................................... 20
9.0 Financials ....................................................................................................................................... 21
8.1 Net Present Value ...................................................................................................................... 21
8.2 Income Statement....................................................................................................................... 21
8.3 Cash Flow Statement ................................................................................................................. 21
8.4 Balance Sheet ............................................................................................................................. 22
8.5 Scenario Analysis....................................................................................................................... 22
10.0 Risks and Contingencies .............................................................................................................. 22
10.1 Product Risks ........................................................................................................................... 22
10.2 Market Risks ............................................................................................................................ 23
10.3 Financial Risks ......................................................................................................................... 24
10.4 Competitive Risk ..................................................................................................................... 24
Appendices ........................................................................................................................................... 26
A. Traditional UK Dishes and Suggested Beer Pairings ................................................................. 26
B. Recent Examples of Brewer Food Pairing Advert. ..................................................................... 27
C. UK Market Size and Growth by Segment 2000–2005................................................................ 27
D. Overview of UK Contract Brewers by Capacity ........................................................................ 28
E. % of Consumers Eating Out at Least Once per Week................................................................. 28
G. Meligaard’s Beer Flavor Map ..................................................................................................... 29
H. List of Vendors............................................................................................................................ 29
I. Marketing Expenditures of Key Competitors ............................................................................... 30
J. Premium Single SKU Shelving at UK Off-trade Multiples ......................................................... 31
K. Inspirational Brands and Packaging for Companion Brewing.................................................... 31
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L. Off-trade Pricing of Companion Beers vs. Competitors ............................................................. 32
M. The Management Team .............................................................................................................. 33
N. Key Contacts and Advisors ......................................................................................................... 33
Financial Appendices ........................................................................................................................... 34
F1. 10 Year Annual Income Statement Projections ......................................................................... 34
F2. 10 Year Annual Balance Sheet Projections ............................................................................... 35
F3. 10 Year Project Balance Sheet .................................................................................................. 36
F4. Monthly Cashflows 2008 & 2009.............................................................................................. 37
F5. Financial Key Performance Indicators ...................................................................................... 37
F6. Break-Even Analysis ................................................................................................................. 38
F7. Consumption Projections for Companion Target Market ......................................................... 39
F8. Sensitivity Analysis for Core Financial Inputs .......................................................................... 40
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2.0 Executive Summary
The British brewing industry is a £17 billion market1 which is dominated by mass produced lagers,
ales and stouts. Although there are hundreds of regional brewers, mainstream brand ownership
within the industry is highly concentrated with 80% of volume shared between 4 companies
(Scottish & Newcastle, InBev, Coors & Carlsberg)2. Despite the size of the industry, change is
afoot. For years, beer has been losing share to other alcoholic beverages, principally wine. Even
within the beer segment, consumption patterns are moving from session3 drinking of standard lagers
to more moderate consumption of increasingly premium beer styles, such as Weissbier, Kriek,
Trappist, and craft Porters.
Companion Brewing Company seeks to build a modest beer business which will generate annual
sales of £2.8 million by year 5 on negligible capital investments and return a 4% operating profit
margin of £134,000. Whilst these returns are small when compared to the overall size of the
industry, they represent a satisfactory return for the five equity owners who embark on this venture
in order to make real their collective passion for food and beer. Profiles of the management team
can be found in Appendix M.
Companion Brewing Company will achieve this goal by exploiting synergies between three key
trends in the UK beer market: a changing perception and consumption pattern vis-à-vis beer and
dining, growth in the premium beer5 market, and brewing overcapacity due to a reduction in the
domestic beer mass market. The combination of these factors represents a unique opportunity,
albeit one with moderate financial returns, to pursue our passion for quality beer via a low capital,
virtual operation.
Our business model is predicated on initially outsourcing virtually all elements of the supply chain.
By reducing the need for capital investments for the provision of necessary infrastructure, we rely
heavily on the investments and expertise of our collaborators, the selection of whom is crucial to
our ultimate commercial success. In this vein, we have screened individuals and companies
operating in each part of the value chain and have identified preferred partners in areas of product
development, brewing, bottling and distribution. Personal selling and marketing activities will be
the responsibility of Companion Brewing Company’s founders.
Successful implementation of this virtual operations strategy is dependant on the effective
performance of each partner within the value chain. Getting the product recipe right is crucial and
will rely heavily on the expertise of reputed industry professionals Paul Hughes 6 and George
Phillisherk7. Recognizing the limitations of our size, we have identified a three tier growth strategy
focusing initially on highly targeted on-trade regional distribution in South-West England, where a
high percentage of our core target consumer (males from A/B socioeconomic skew aged between
25-34 yrs) reside. The second stage of growth, between years 3 and 5, will focus on increasing the
number of outlets stocking our products and embarking on initial distribution into specialty offtrade retailing, whilst during the third tier of growth (+5yrs) we will embark on national off-trade
distribution and extended on-trade penetration.
Key Note “Premium Lagers, Beers & Ciders” Market report, December 2005
Ibid
3
i.e. drinking a number of beers in a single setting
5
Premium beer may be defined as “specialty” or “craft” beers, having been brewed without adjuncts and with an eye to beer style rather than mass
appeal
6
Director of the Brewing Institute at the Herriott-Watt University
7
Director of the Beer Academy
1
2
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These plans deliver increasing annual revenues and result in a positive NPV of £886,000. Revenue
projections are based on an estimated target market penetration of 0.30% in year 2 and have been
contrasted with those of regional brewer “Cotswold Brewing Company” to ensure they are realistic.
As a consequence of having near zero sunk costs, primary investments needs from the outset will be
£100,000 to cover starting expenses and initial working capital requirements. This financing will be
provided by the owners in the form of equity investment. Consequently, there is no need for
external financing.
3.0 The Opportunity
Companion Brewing Company is a manifestation of the founders’ collective passion for food and
beer. A desire to build a beer brand that caters to a more discerning and demanding consumer and
which is differentiated from mass produced lagers that dominate the British brewing industry is
central to this project. Given the high concentration of ownership of mass brands, Companion
Brewing recognizes the difficulty in entering the industry in a large fashion. Accordingly, we intend
to take advantage of the relatively low barriers to entry and embark on a constrained, regional
growth plan.
The owner’s do not seek to build a voluminous business but rather intend to achieve moderate
returns that warrant each owner’s initial £20,000 equity investment. We do so in the expectation
that the business will generate annual sales of £2.8 million by year 5 on negligible capital
investments and will return a 4% operating profit margin of £134,000.
The company will deliver these results by exploiting synergies between three key trends in the UK
beer market: a changing perception and consumption pattern vis-à-vis beer and dining, growth in
the premium beer markets, and brewing overcapacity due to a reduction in the domestic beer mass
market. The combination of these factors represents a unique opportunity, albeit one with moderate
financial returns, to pursue our passion for quality beer via a low capital, virtual operation.
3.1 Changing Perception and Consumption Pattern: Food Pairing
Popular culture depicts wine as a necessary accompaniment to any sophisticated meal. Yet formal
wine and food pairing recommendations were not published until 19288, and not recognized by
Michelin Guides until 1931. While specific wines do pair better with certain foods, the
establishment of pairing has also provided additional benefits to consumers and restaurants. It
simplifies the wine purchasing process, increases wine consumption with meals, and allows
consumers to appear sophisticated without detailed education regarding the wines and dishes. It
also allows restaurant staff the capability to offer pairings without individual knowledge of wine.
The process of food pairing has been one of the major elements in the rejuvenation and growth on
on-trade wine sales at restaurants and continues to be a major trend-setter in menu, recipe, and
restaurant planning.
Beer is following wine’s lead. Premium restaurants like the Fat Duck in Bray and Aubergine in
Chelsea, the White Horse on Parson’s Green, and chain All Bar One offer food pairings suggestions
for each of their standard beer taps, or go as far as to print menus that include beer suggestions for
different dishes9. Grocery stores such as Tesco and Sainsbury’s are following this trend as well,
evidenced by the increasing number of premium boutique beers and their own label offering. Tesco
8
9
Johnson-Bell, Linda. Pairing Wine With Food. Burford Books, 1999
Field research
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doubled its premium beer SKU’s at the end of 2004 and has begun hiring beer “pairing experts.”
Consequently, premium beers are becoming more common at the dinner table, with consumers
displaying greater willingness to pay for premium beer products to drink with food.
Further, the complexity of flavour in beer covers a wider range than wine. Wine is limited by this
relatively shorter flavour range, its acidity, and mouth-drying tannin. Beer expert Stephen
Beaumont explains “…beer has bitterness to slice through fat, carbonation to refresh the palate,
caramelized flavors to match those in your food, and sweetness to quench the fire of chilies 10.” We
conclude that there exists a perfect beer to go with any food (Appendix A).
3.2 Exploding Growth in Premium Beer Market
Despite contrary trends in the domestic beer mass market, specialty and craft (premium) beers have
enjoyed growth in recent years, with CAGRs of 27.2% and 11.3% respectively11 during the 20002005 period (Appendix C). This trend is most evident among 25-34 year olds12. The effect of this
upon industry may be seen in establishments such as All Bar One, a national chain which has
recently removed all real ale taps in favor of longer lasting, higher CO2, premium beers. This
indicates that UK drinkers have been, and will continue to be ready to try new specialty beers.
3.3 Overcapacity in Beer Mass Market
Recent declines13 in the domestic beer mass market14 have led large brewers to offer excess
capacity on a contract basis (Appendix D). Start-up brewers may take advantage of the large
brewers’ experience and economies of scale to bring new products to market without the overhead
associated with self-brewing. This “virtual” operation affords start-ups flexibility and low
investment opportunities once available only to large brewers.
4.0 The Proposition
We believe in the power and appeal of a beer designed around food, which is why Companion
Brewing propose to meet consumers’ demand for premium beers and their demand for food pairing
by creating a line of premium beers which complement specific foods, using spare capacity at
established mass beer market brewers.
Our product development strategy will bring together top brewers and leading chefs to create
“companion” beers for specific foods and accordingly we have sought out a leading Master Brewer,
Paul Hughes, and key industry expert George Phillisherk, Director of the Beer Academy, to work
with leading chefs in order to create three distinctive beers designed around 3 broad food groups:
beef, chicken, and seafood.
4.1 How We Are Different
The Beer industry is dominated by lagers (69% volume) 15 and in turn by mass market brands such
as Carlsberg and Carling which command a strong retail presence because they combine heavy
above-the-line communications investments with strong trade promotion spending, broad product
10
Beaumont, S. Brewpub Cookbook: 100 Great Recipes from 30 Great North American Brewpubs. Siris Books, 1998. pp. 3-4
“Lagers – United Kingdom.” Mintel, June 2006
12
“Beer – United Kingdom”, Mintel, 21 April 2006
13
“Lagers – United Kingdom.” Mintel, June 2006
14
i.e. Carlsburg, Carling, Guinness, Stella Artois, Heineken, etc.
15
Key Note “Premium Lagers, Beers & Ciders” Market report, December 2005
11
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range propositions supported by timely and effective product distribution. These brands succeed
because they cater to a mass audience which therefore requires little effort from the trade to sell the
products. We are not a mass brand and we will not cater to a mass audience.
Flanking the mainstream mass lager segment are “real ales”. The real ale movement in the UK is
pushed strongly by the CAMRA movement. However, despite extensive promotion, real ale is still
very much a niche segment dominated by male consumers aged 50+. Whilst we do classify
ourselves as a niche player, we are by no means a real ale and we will not exclusively concentrate
on men aged over 50.
Beer is a masterful product. It quenches thirsts and enhances confidence. It engages conversation
and is non-exclusionary. Beer is best drunk in a convivial atmosphere, yet there is a distinct absence
of beers designed around specific occasions. As lovers of food and lovers of beer, the founders of
Companion Brewing believe this wrong ought to be righted. We believe in the power of creating a
beer that is ideally matched to particular styles of food. We believe that people who don’t want to
drink wine should have a choice beyond which brand of mass produced lager or ale they want to
drink. We believe that consumers deserve a product that creates a meal that is greater than the sum
of its parts.
4.2 Consumers & Customers
Our consumer is the person who will drink our product, yet our customer will be the one that buys
the product from us. We rely on our customers to help convey our superiority and uniqueness to
their customers and we in turn expect their customers (our consumers) to relay their experience to
their family and friends.
Our target consumer hails from an A/B socio economic skew and is more likely to be male. He has
an appreciation of quality goods and is more willing than the general public (34% to 24%) to pay a
premium for quality products s16. Our core consumer is more likely to be aged between 25 and 34
and is more likely to enjoy a drink with their meal17. The core consumption occasion is most likely
to be a sociable dining occasion. Although generally confident, when it comes to ordering drinks
with his food he often will enquire of the waiter or restaurant manager for a recommendation on an
accompanying wine. If he is aware of Companion Brewing’s beers, he has a higher likelihood of
ordering them than a standard beer drinker. However, if he lacks awareness he will rely on either
the menu card or on the advice of the waiting staff to order our beer.
Companion Brewing is not a mass brand and so our route to market is not the same as a mass brand.
Our initial focus will be on Gastropubs and restaurants that fall within the general classification of
“European” style cooking (British, Modern British, French and Italian). As our consumers are
discerning and of a higher socio-economic skew then our choice of establishments will need to have
a high representation of such consumers. An initial screening criteria of “average price per main
course” (no less than £8) will be used as a safeguard (additional criteria included in “Placement
and Distribution”).
4.3 Our Flagship Products
16
17
Source: BRMI/Mintel
Ibid
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Blue Angus Porter is designed to complement red meat. The rich
tones of our porter are designed to complement both an aged
tenderloin or a juicy burger.
The Porter is named after the Black Angus breed, which is
originated in Scotland in the areas of Aberdeenshire and Angus.
Certified Angus Beef is selected carefully for the superior color,
texture and marbling. The rich, yet delicate flavors of our porter
have been just as carefully selected. The shift to Blue denotes
Companion’s sense of fun and difference from the ordinary. It
also refers to the term “blue steak” used to order very rare steak
that is generally ordered with only the finest cuts of beef by
discerning epicureans.
Half Shell is a Weisse beer designed to complement shellfish.
The refreshing citrus notes of this fine wheat beer will be an ideal
accompaniment to most seafood, though is best served with
oysters, mussels, crab and lobster.
Weisse beer has long been recognized as an ideal summer beer
and the perfect accompaniment to summer foods, of which
seafood is the quintessential food group. The term “Half Shell”
refers to the serving of lobster on the half shell, hence the choice
of the visual on the label. The coloring reflects the colors of
cooked shellfish such as Lobster, Crab and Prawns as well as
being indicative of the pale, cloudy appearance of the beer.
Buck Eye Pale Ale is designed as an excellent pairing for
chicken, quail, poussin and other white meat birds. The
moderate citrus and hoppy tones compliment the succulent juicy
meats of the white birds and cleanses the palate without
overpowering the meal.
The name “Buck Eye” comes from a heritage dual purpose breed
of chicken known for its robust flavour and friendly demeanour.
It is widely recognized by culinary experts as the breed of choice
for eating. Cost precludes the variety from being used extensively
in commercial hospitality and as such, these birds are not reared
by large scale commercial breeding programs. Given their
boutique nature, the name was seen as a perfect choice for
Companion Brewing.
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5.0 The Market and Competition
5.1 Overall Beverage Market
In 2005, the beer segment yielded a massive £17 billion in revenues in the UK, 18 as much as the
next two largest alcoholic beverage segments combined. Despite beer losing ground relative to
other beverages, such as wine and Ready-to-drink products like Bacardi Breezer, in recent years,
the total value of the beer continues to grow. The popularity of premium and high-end beer
segments acts as the primary driver of this growth19.
Alcohol in the UK in 2005
Sources: Consumer Trends/National Statistics/Key Note/Mintel
5.2 Dining
Within the retail dining sector, competition comes primarily from two sources: existing beer brands
and table wines. In order to gain share of throat, Companion Brewing must convey our unique
brand benefits to the purchasing managers / owners of the on-trade establishments that we hope will
stock our product.
Vis-à-vis existing beers Companion Brewing has the advantage of having been especially
developed alongside specific food pairings and therefore delivers added value to a restaurant by
reinforcing the quality of its food. This value will be reflected in premium pricing and higher
margins to the establishment. It is also an additional means by which certain establishments can
differentiate themselves from the standard high street restaurant.
18
19
Ibid.
Ibid.
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Companion Brewing does not seek to replace wine, but rather to become a permissible alternative
for those diners that do not necessarily wish to drink wine with their dinner. Whereas in the current
dining climate wine is seen as the de facto partner for fine dining, Companion Brewing will seek to
alter this status quo through a two prong tactical switching program – inclusion of suggested beer
pairing on the menu alongside recommended wines (menus to be printed gratis by Companion
Brewing) and the supply of specially developed glassware in which to serve our beers, therefore
legitimizing our beer as a serious alternative to wine at the dining table.
5.3 Food Beer
Some brewers are directly or indirectly capitalizing on the rising trend to pair beer with food.
Specific brands that have been successfully associated with food include Innis & Gunn Oak Aged
Beer (spun as “an ideal accompaniment to [UK] puddings”20) and Joseph Holt’s Humdinger honey
flavoured pale ale “…to enjoy with meat.”21 Neither is marketed specifically as a “food beer,” but
each is commonly recognized by connoisseurs as an excellent accompaniment to a meal 22.
Brewers such as SAB Miller, Samuel Adams, and Greene King have also recently embarked on
print, web, and TV advertising campaigns suggesting food pairings for their products, as well as
sponsoring pairing events. As beer pairing with food is still in its nascent stage, the impact of these
will be primarily co-opetitive, increasing the overall market knowledge and interest in beers to be
paired with food. (Appendix B).
The only prominent competitor to offer a product billed as a “beer to drink with food” is Greene
King’s Beer To Dine For. Launched in May 2002, Beer to Dine For is supposed to be consumed
with spicy foods like Indian and Mexican. Greene King originally released a large table-sized
660ml bottle, and has since switched exclusively to a 750ml size. The beer is a medium-strength
(5% ABV) pale ale and uses American Tettnang hops that create a fruity, slightly citrus flavour,
intended to be a substitute for a squeeze of lemon or lime.
Beer to Dine For is stocked by Asda’s, Booth’s, Tesco’s, Sainsbury and as of 2005, has achieved
40% grocery distribution23. Interestingly, Greene King has licensed excess capacity at Meantime
Brewing to produce Beer To Dine For24, similar to the manner in which we intend to produce our
products.
6.0 The Business Model
On Outsourcing and Virtual Production
Our production strategy is to primarily outsource all elements of the supply chain, including Recipe
Creation, Brewing & Bottling, Placement & Distribution. As the infrastructure required to provide
each of these services is expensive and largely commoditized, we aim to take advantage of the
investments others have made wherever possible. As a turn-key operation, selection of a value-add
collaborator is crucial at all stages of the value chain.
20
Tesco Press Release, 12/04/2005, http://www.tescocorporate.com
Ibid
22
Bright, Gabrielle. “Yum! Beer and Food Pairings.” Canadian Test Kitchen. June 2006
23
Greene King Annual Report 2005, http://ww7.investorrelations.co.uk/greeneking/uploads/press/1AR_2004_2005_web.pdf
24
Meantime Brewing History, http://www.meantimebrewing.com/history.html
21
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6.1 Recipe Creation
The key to the recipe creation process is the pairing of our master brewers with a “master chef” to
materialize the high level “flavor maps” the team has envisioned. As none of the founders is a brew
master, we intend to retain the services of master brewer, Paul Hughes and his team at the Brewing
Institute based out of the Herriott-Watt University and George Phillisherk at the Beer Academy as
consultants at weekly rates of £700 each.
The master brewers consulting tasks will include defining and adjusting the recipe, testing the
initial pilot batches, and engaging with the outsourced brewer to ensure they are able to reliably
produce the initial Companion product line unassisted.
With regards to the “master chef” we have targeted three chefs with a publicly recognized affinity
for beer, Michelin-Star status, and fame.
Heston Blumenthal
Raymond Blanc
Michel Roux, Jr.











Chef at Fat Duck: 3 Star Michelin, and “World’s Best Restaurant 2006”
Regular “Multi-Beer” Dinners
Passion for the “Science of Food”
Honorary Doctor of Science from University of Reading
Relationship with Oxford University
Chef at Le Manoir aux Quaix Saison: 2 Star Michelin
In 2/2007 interview stated “Beer will be one of several big changes at Le
Manoir”
Located in Oxfordshire
Chef at Le Gavroche
Extensive Beer selection at Restaurant and regular “Beer Dinners”
Latest book “Matching Food and Wine” contains beer pairings for 12 of the
recipes
Source: The Journal, Restaurant Magazine, Fatduck.co.uk, Interview Notes, Sunday Times (London)
As an alternative, celebritychefsUK.co.uk provides a linking service between organizations seeking
celebrity chefs for events and sponsorships with a network of ~15 chefs of varying degrees of
international fame and acclaim. The cost of securing the chef for a 1-2 day tasting session and
subsequent events will be between £5-10K depending on chef secured and their interest in
additional sponsoring benefits in lieu of consulting fees. Sponsorship benefits would include
exclusive launches of new Companion Brewing (hereafter CB) products at their restaurants and
related publicity. Ongoing usage of the chef’s name in advertising and P.O.S. promotions would
also need to be negotiated.
The beer development process involves three key stages:
Stage 1: the origination of a high-level flavour map from the founders to provide the chef and
brewer initial guidance regarding the product and brand requirements CB has for each of the
products. These include character of the product, raw material constraints, and processing
requirements (e.g. German purity laws).
Stage 2: is the detailing of the flavour map with the combined efforts of the founders, the master
brewers, and master chef. Usage of Dr. Morton Meligaard’s Flavor Wheel (Appendix G) and
initial recipe/material discussions will facilitate this process.
Stage 3: is prototyping and refining, and will take place over 2 to 3 rounds of tasting. Prototype
batches will be run at the Herriott-Watt School in Scotland. The final rounds of tasting will involve
promotional “development tasting” activities included featuring at the celebrity Chef’s Beer nights
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for selected patrons, and promotion on shows such as BBC’s “Good Food.” Each of the 3 beers will
require approximately 3-5 prototype batches at a cost of £100/batch25.
Total development costs are estimated at £10,000 including the master brewers and Celebrity
Chef’s fees, materials, and prototype batch runs.
6.2 Brewing and Bottling
Several UK breweries currently have spare capacity, offsetting the cost of downtime by offering
contract brewing services. By using a contract brewer, we will avoid the high fixed costs26
associated with purchasing, housing, operating and maintaining brewing and bottling equipment.
Further, we will also gain their proven quality control expertise.
Order qualifying criteria for a suitable contract brewer include location, quality standards, bottling
expertise, and capacity, the order winning criteria is price. Location is key because of the high cost
of transport, therefore the brewer must be located in or near our initial 9 county target area. Quality
must meet a minimum industry standard of .01 defects per bottle and .001 defects per keg. It
should be noted that reject bottles and kegs are replaced at the contract brewer’s expense, so the
defect rate does not factor into our financial projects. As we intend to sell in bottle and keg format,
the ability to produce both is required. Bottling expertise drives quality by reducing the
defect/spoilage rate. Capacity requirements are expected to shift over the course of our 3 Placement
and Distribution Stages from <5000 hL, to 5-30000 hL, to >30000 hL, and qualifying contract
brewers must be able to meet our volume requirements. The order winning criteria will be price.
Based on these criteria, Meantime, Caines and Wells and Young’s have been selected as qualified,
with Wells and Young’s winning the order for phases 1 and 2 (Appendix H). A Phase 3 brewer
has yet to be identified, and will not be needed until year 13. Price per litre during phase 1 and 2 is
£0.24, generating the following per unit costs, assuming returnable kegs:
£0.24/litre x 50 litre/keg + 0 packaging27 = £12.00/keg
£0.24/litre x 500 ml/bottle x 12 bottles/case + £4.50 packaging/case = £5.94/case
6.3 Placement and Distribution
Companion Brewing plans to use a three stage repeatable process to approach the market in order to
capitalize on the varied demands of on-trade gastro-pubs and restaurants, specialty retailers such as
Waitrose, and large grocers (i.e. Tesco and Sainsbury’s).
25
Normal fees up to £400/batch. However, consultants access special fees due to relationship with Herriott-Watt University
For example, the Cotswold Brewing company, a small, two tank brewery, paid £500,000 for its used brewing equipment
27
Assumes returnable keg
26
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Stage 1:Sustainability
& Credibility
Stage 2: Market and Margin
Repeat Cycle
Source of Growth
National Grocers (i.e. Tesco)
10,000+ hL
Regional Specialty Grocers
3,000-10,000 hL
Independent Pubs &
Restaurants
0-3,000 hL
•Local Distribution
•Target ~75 establishments
•On-trade
•Relationships
•POS and marketing support
•Tax Credits
0-2 Years
Stage 3: Low Margin
High Volume
•National Distribution w/wholesaler
•~1 National Grocer (i.e. Tesco)
•Proven market and distribution
•Regional Distribution w/wholesaler
•~2 midsize Specialty grocers
•Off-trade
•Proven market
•Unique product offering
•SKU profitability/turnover
2-4 Years
5+ Years
6.3.1 Stage 1: Achieve Sustainability & Credibility
Companion Brewing will build scale organically in the first two years, relying on the part time
marketing efforts of the five founders and the single FTE to gain distribution in 75 select locations
in stage 1. During this period Companion Brewing will employ a fully virtual model by outsourcing
distribution, billing and credit risk to a distributor (Waverley TBS).
In stage 1, Companion will employ one full time staff equivalent to help with logistics, marketing
and customer support. To meet the costs of the single FTE and part time staff as needed, it is
necessary to reach ~5,000hL p.a. in volume. This target is inline with the experiences at Cotswold
Brewery (est. 2005) and requires weekly consumption of 2 barrels or equivalent in the 75
establishments. Additional benefits at <5,000hL are lower duties imposed by the UK government
due to the contribution of local brewers to community life. Duties for breweries producing
<5,000hL are 50% of the standard rate, which contributes to savings of £33.15/hL28.
Independent gastro-pubs & restaurants in London and the surrounding counties to the southwest
provide the best initial placement for our product based on their clientele and purchasing attributes.
These gastro-pubs and restaurants will provide access to the higher-income (AB per Mintel) 25-34
year-olds who are most likely to try new alcoholic products and see value in premium products and
have purchasing criteria that better fits our value proposition during the first phase.
Additional criteria we have defined on-trade locations to ensure matching with our target
consumers and branding are:

Demonstrated commitment to a quality dining experience
28
Schedule 1 Section 4 Beer From Small Breweries: Reduced Rate Of Duty, http://www.parliament.the-stationeryoffice.co.uk/pa/cm200102/cmbills/125/2002125c.pdf
- 13 -



Are willing to buy direct and accept arranged deliveries
Change their menu seasonally
Publish a wine list of no more than 4 pages or have a sommelier on hand
9 counties have been chosen based on income/capita, independent pubs & restaurants, gastro-pubs
and fine dining establishments in specific, and geographic proximities.
65
66
Income/
Capita [£K]
Pubs [#]
01 – Inner London
65
1400
02 – Outer London
48
3370
44 – Surrey
41
1086
11 – Berkshire
33
441
12 – Buckinghamshire
33
349
39 – Oxfordshire
33
660
24 – Gloucestershire
29
218
1st
Tier Counties
67
61
60
Selection Factors:
• Income/Capita
• Geographic Proximity
• Independent Breweries
• Gastro-Pubs
64
41 – Somerset
57
59
63
62
56
29
71
72
70
58
36
69
06
74
73
17
21
68
418
15
37
47 – Wiltshire
29
376
31
08
Excluded (Geographic Distance)
05
33
14
48
51
03 – Greater Manchester
28
03
04
18
409
38
33
42
40
32
22 – East Sussex
41
468
46 – West Sussex
41
599
07
53
34
49
45
26
55
52
35
13
43
10
50
24
39
54
12
27
23
09
11
02
47
41
16
01
44
25
19
20
30
46
22
29
London and the surrounding counties such as Oxfordshire are the most interesting because they can
be accessed independently via a single delivery route. While Greater Manchester, East Sussex, and
West Sussex also have attractive income/capita and pub accessibility, they have been excluded from
the first phase of growth.
Shipping (brewer to distributor)
Movement of product from the brewer to the distributor is accomplished via a pallet shipping firm.
This obviates the need for trucks, truckers, and loading equipment. This process can be scheduled
in concert with brewing and distribution schedules. Order qualifying criteria for shippers is a
reasonable degree of timeliness and shipping range. The order winning criteria is cost. Timeliness
may be defined as within 2 days of bottling/kegging, and shipping range is within the initial 9
county target area.
Based on these criteria, we have selected Palletline (Appendix H), a shipper with outlets across the
UK, a two day guarantee, and a shipping price of £35 per 18 keg pallet.
Distribution
Outsourced distribution is the final link in our supply chain, freeing us from fixed costs associated
with shipping and storage, as well as variable costs associated with inventory management and
account collection. Order qualifying criteria for distributors are, as with shippers, range and
timeliness. The order winning criteria is number of relationships with retail outlets. Practically
speaking, we are somewhat at the mercy of distributors, as they are more rare, and may choose
which brands to carry. Therefore we are forced to be less selective in building this part of the
supply chain. As keg and bottle distribution are distinct entities requiring different vendors, they
are addressed separately.
- 14 -
6.3.1.1 Keg Distribution
Based on the order winning and qualifying criteria above, we have selected the Brewer’s
Wholesale, who provide independent breweries with timely Keg distribution to our initial target
area, offering brewers £77 for kegs, and then selling them to pubs and restaurants for £88. This
results in a £1.05 per pint price to the consumer.
6.3.1.2 Bottle Distribution
Similarly, we have selected Waverly TBS for bottles, who provide national and international
breweries with timely bottle distribution to pubs, grocery stores, and off licenses across the UK.
Their standard mark up of 20% will bring us £0.77 per bottle, deliver our bottles to retail outlets at
£0.925 per bottle, resulting in a £3.70 per bottle price to the consumer (assuming a typical 75%
margin for a restaurateur).
While the owners aren’t directly distributing the product, they will be very active in selling and
point of sale promotion of the product with the current and targeted establishments. This is because
the maintenance of the personal relationship is key to maintaining and growing the volume at the
independent establishments.
The purchase criteria, versus that of Pub-owning groups and national grocers, is based less upon the
firm’s distribution experience and regional coverage, but personal relationship, uniqueness, and
personal impression of the products. >60% of pubs we chatted with indicated they prefer to carry at
least a couple specialty beers. Even pubs within pub-owning groups often have 1-3 taps and 3-5
bottle SKU’s which are selected based on the decision of local staff and generally filled by smaller
brewers.
6.3.2 Stage 2: Market and Margin
At around the 3 year mark, Companion will focus on expanding regionally into further on-trade
establishments and into at least one off-trade establishment such as Waitrose. At this point our
proven market, and established profitability/SKU in the on-trade business should make us an
attractive product for off-trade multiples, further on-trade establishments and for outlets with
higher-end focuses and a large offering of premium single-package beers.
Our projected volumes at this point will be at or above the threshold (5000hL) where Companion
Breweries free cash flows can self-finance an internalized distribution system. This entails the
purchase of a lorry and hiring two additional full-time staff to support our widening distribution and
billing requirements. The key benefits of the internal distribution are the higher margins and
improved linkage to our customer base. This internal system will complement, not replace the
outsourced shipping and distribution which will still be used to cover further afield and lower
volume customers.
6.3.3 Stage 3: Low Margin High Volume
The final stage is bringing at least one of our SKU’s to high volume grocers such as Tesco and
Sainsbury. Both continue to show interest in growing and expanding their premium beer SKU’s.
Furthermore, as Companion’s products are made to be paired with food they are a perfect
complimentary product to be shelved near a store’s deli segment in addition to the traditional
premium beer SKU’s. Growth into this segment is targeted at the 5+ year segment. Additionally,
- 15 -
success at a smaller off-trade such as Waitrose is required to prove the ability to handle the quality
and distribution requirements of large-scale grocers.
6.3.4 Renewal
As beers enter the “Market and Margin” stage they create enough profit to develop and launch
additional brands to expand the Companion line or launch separate breweries in other specialty beer
products to maintain the tax benefits of small brewery ownership.
Key products the team has identified for future growth include extending the companion label to
further products and pairings, a health line under a different label, and a “sweet” line including
fruit, chocolate, and caffeine-infused beers.
First thoughts on additional food pairings include a Vienna lager paired to pork, a Scottish ale
paired to lamb, a Belgian Kriek paired to deserts, and a palate cleansing IPA for post-meal or
between courses. The order of these additions and specific product decisions will need to be
refined based on the input of our consumers and customers.
The health line would target growing health concerns and disorders. Examples include gluten-free
for coeliacs and gluten-sensitive, low sugar for diabetics, and low carbohydrates for general health
appeal.
Finally, the “sweet” line could target the growing popularity of more exotic flavoured beers. The
UK palate is becoming more accustomed to non-traditional beers and the growth of alcopops as a
substitute for beer has propelled this shift. As an example, two recent successful launches by Wells
& Young’s include Banana Beer and Double Chocolate Stout.
7.0 Marketing Strategy and Brand Positioning
7.1 Target Market Selection
Our primary consumer focus will be on males from an A/B socio economic skew aged between 2534. 93% of consumers in this group drink beer and they have a higher propensity than the average
population to drink alcohol with meals. They also have a higher frequency of eating out than the
general population. These consumers are characterized by a higher education, a willingness to pay
extra for quality products, and are appearance conscious. They are upwardly mobile and are
confident in their purchasing decisions though not averse to trying something new.
The UK’s wealth is highly concentrated, with 20 counties accounting for greater than 76% of the
wealth29. Nine of the top twelve counties in terms of income per capita are centred Southwest
London, extending west from London30. Accordingly, our geographic focus at launch will be on
this area.
The core focus of our marketing strategy however will be the on-trade establishments that we seek
to stock our products. These establishments are likely to be either a gastro pub or European style
restaurant. These establishments are more likely to be privately owned, often with the chef as the
owner. The establishments will exude a passion for their produce which matches the passion that
the owners of Companion Brewing have for our products. The establishments will be required to
29
30
Barclays Wealth Insights, “UK Landscape of Wealth”, March 2007
Ledbury Research
- 16 -
hold a liquor license and will be accede to requests that stocking our beer also requires updated
menu printing and stocking of specific glassware (at Companion’s cost).
7.2 Brand Positioning
The Companion Brewing Company has identified emergent market and consumer trends as well as
examined the comparative brand positions of competitive products. Our core area of differentiation
is that our beers have been specifically developed with food in mind as opposed to the notion of
developing a “session” beer.
Our brand position is best described as follows:
For discerning food lovers who like to show their knowledge and good taste.
Companion Brewing Company offers a range of distinctive premium beers that enhance the
quality of your dining experience.
Unlike most beers, our product has been specially crafted by chefs and master brewers to be
paired alongside your favourite foods.
To assist in tailoring the right messages for the selling in of the product, as well as to position the
product for growth in future years, we have developed a brand positioning framework which has
been used as the mirror against which creative work such as packaging design has been measured.
This tool will also be consulted for all aspects of the marketing mix to ensure that we are being true
to the brand essence and communicating consistent branding cues irrespective of the tool of
delivery. Our core essence of “sharing passion, craftsmanship and good taste” should permeate all
aspects of our organization and should underpin all corporate decisions.
- 17 -
Rational
WHAT THE PRODUCT
DOES FOR ME
HOW I WOULD
DESCRIBE THE PRODUCT
Sensory frisson
Intense
Striking
& bold
Memorable Meals
FACTS AND SYMBOLS
Hand crafted
Facilitates social
bonding
Knowledgeable
Symbolic imagery
Sharing passion,
craftsmanship &
good taste
Chef / master
brewer
relationship
Charismatic
Independent
Intelligent
BRAND PERSONALITY
Confident
Emotional
Distinctive
Authoritative
Inquisitive
Discerning
Rewarding
Alluring
Smart
In Control
Interesting
HOW THE BRAND
MAKES ME LOOK
Unique
HOW THE BRAND
MAKES ME FEEL
7.3 Developing the Companion Brewing Brand
The marketing approach that will be used will be one of gradual build rather than of a big bang. Our
highly targeted push marketing strategy will focus on convincing key on-trade establishments of the
value of stocking our product and thereafter using their influence and elements within their control
(menus, specific food & beer pairings, wait staff) to exert influence on their customers. Our build
strategy will have two stages – the first aimed at creating awareness and intrigue within the industry
supported by personal selling and the second aimed at generating trial and creating an element of
targeted pull marketing though principally remaining a push activity aimed at enhancing the
number of outlets selling Companion Brewing Company beers. Details of the activities at each
stage are shown below.
Our advertising spend will equal 7% of gross sales, a level of expenditure which is based on
standard industry spends in consumer goods and alcoholic beverages. As initial launch activities are
primarily relational in nature, there is not the same level of overinvestment at launch as often
accompanies major brand launches. Initial spending will be focused on launch kits and PR, with
initial PR fees of £5,000 negotiated with R&R Teamwork (Appendix H). Additional monies will
be used to personalize menus and create in-restaurant table A-cards to promote our product in our
launch establishments.
Stage 2 growth will be supported with increasing annual spends of approximately £100,000 in year
3 and £200,000 in year 5. Given our highly targeted growth plans, our marketing expenditure will
have similar highly targeted vehicles and will avoid mainstream above-the-line campaigns which
are the standard tool of larger mainstream brands (see Appendix I for comparative levels of
expenditure). Despite the relatively high marketing expenditure of the A-brands, there are national
brands such as Old Speckled Hen and Spitfire which spend £400,000 and £200,000 per annum
respectively and as such, the levels of spend outlined in our financial statements (see Appendix F1)
are deemed appropriate to support the growth plans of Companion Brewing.
- 18 -
Strategy
Key objectives
 Achieve awareness amongst
 Focus on influencing industry
trade journalists & key figures
key trade journalists & top 200
targeted restaurateurs of 30%
Stage 1
within restaurant industry
(chefs, critics, industry
associations, sommeliers)
 Secure product ranging in 75
outlets
Activities
 Engage R&R Teamwork PR to
coordinate launch event & PR
strategy
 Send launch packs to top 50 trade
and consumer “food” journalists
 Develop personal relationships
 Targeted mailing to target accounts
with key industry figureheads
as supporters / endorsers
 Stage weekly food / beer dinners at
proposed restaurants
 Make personal visits to key accounts
for sampling & education
 Achieve trial amongst key A/B
 Create awareness amongst key  Targeted advertising & advertorials
demographic in key urban areas
of 0.5%
Stage 2
 Extend distribution by 100% to
A/B target segment in South
in food review sections of broad
West England
sheet newspapers
 Gain endorsement by key
150 outlets
 Seed product in TV cooking shows
industry figures (chefs, food
writers)
and Cooking magazines (eg.
 Build association with leading
 Create presence at major food
food events
Delicious)
exhibitions and leading regional
food events
7.4 Packaging
Companion Brewing’s beers will be packaged in two glass bottle size formats - 500ml and 750ml,
and in keg format. The 500 mL size will be the primary packaging size sold both on and off trade.
This packaging size indicates the product’s premium positioning, and places it in the single SKU
segment alongside other premium beers in off trade establishments. The shape of the bottle will be
slightly longer with more sloped shoulders than most beer offerings. This will more closely denote
its substitutability with wine as a premium meal-time offering and emphasise its difference from
other beers. It will also tie the appearance of the two packaging sizes more closely together. The
750 ml will only be offered in ~100 establishments during the first three years of expansion –
focused on high end restaurants where wine is currently the primary beverage of choice at mealtime. This sizing will provide Companion beers with preferable table position at meal-time and
enhance the expectation for “French service,” with the waiter keeping the patron’s glass filled.
In addition to the two packaging sizes, specialized glassware will be provided to on-trade
establishments for each of the three products. Glassware will be provided at the half-pint size for
the Buck Eye and Half Shell, but full pint for the Angus. The smaller sizing for the glasses will
ensure that patrons keep the glass while drinking the beer, increasing the branding opportunity and
prolonging the “pour experience” – one of the stronger sensory experiences during the enjoyment of
a great beer.
7.5 Labelling
- 19 -
The label of the beer has been designed to contrast the reds, blacks, yellows, and whites,
predominant on off-trade shelves in the premium segment today and illustrate our brand
positioning. As can be seen in the attached images from Tesco, Wine Rack, and Oddbins
(Appendix K), the few blues, purples, and orange shades “pop.” The bluish purple of the
“Companion Brewing” label is also chosen because of Purple’s links to royalty and prestige and
blue’s links to “relaxation” and “friendship” in the Colour Personality Matrix31. Black was chosen
as the background to each of the beers due to its matching with multiple colours and capability for
expansion to further labels.
7.6 Selection and Naming
Naming for the three initial products has been implemented so as to indicate the types of foods they
are best paired with, to denote the quality and locality of the product, and convey Companion
Brewing’s sense of fun. Product details may be seen in Section 4.3 above.
7.7 Pricing
Companion Products are priced at the high-end of the Premium Beer market with a pricing
comparable to premium products such as Hoegaarden or Guinness Draught.
In the off-trade category, the 500ml bottle will sell at ~£2.90/bottle and the 750ml at
~£4.30/bottle32. On a per bottle basis, both are in the top quartile, ranked 4th and 9th in a
comparison set of 37 off trade beer products. On a price/litre basis, Companion beers are priced
more modestly at ~£5.90/litre, placing Companion at 12th of 37 in the comparative data set.
(Appendix L)
In the on-trade business Companion will price around £4.20/pint, with a 75% contribution margin
for the on-trade customers.33 While at the high-end of the premium beer market, this is still well
below the new ultra premium segment of beers, such as “vintage” and “aged” beers which can sell
for up to £12 per 330mL bottle34.
8.0 Exit Strategy
As Companion Brewing Company expands beyond the 5+ year mark we plan to begin looking for
investment realization opportunities through international licensing and/or outright sale(s).
Companion’s virtual model means that is relatively easy to license the rights to the Companion
products for production and sale in Foreign countries with similar consumption trends and capacity
situation - such as the USA or Australia. While we would also consider directly exporting, the
lower risk involved in licensing and ability to more rapidly expand make it the preferable option.
Additionally, the process of creating additional breweries without legal or explicit branding ties to
Companion Breweries make it possible to realize some of the gains by selling off individual
breweries, without completely exiting the market.
31
http://www.colorconnections.com/colorconnections_2007/huemeanings.html
Based on a mark-up of 55%. Typical mark-up estimate used by Diageo plc.
Contribution margin of 75% based on estimate used by Diageo plc.
34
Romano, Andrew. Newsweek. “Beer by the Year”, 16 February 2007
32
33
- 20 -
9.0 Financials
8.1 Net Present Value
Using a 15% discount rate on NOPLAT, we calculate a positive NPV of £600,000 after year 5 and
£1,490,000 after year 10. The rate is approximately 50% larger than the WACC’s of CB’s public
brewery competitors, a reasonable discount given the small nature of the operations. This level was
deemed reasonable given the very modest start-up capital required by our virtual strategy and the
low risk nature of the operations.
8.2 Income Statement
Revenue: Our revenue projections are a composite of two different sources. The first is an estimate
of target market penetration (Appendix F7). We estimate 5% of the type AB drinker population in
the target area will try our beer at least once. Applying our consumption projections (Appendix F7)
for the target market, our revenue projections yield a penetration of ~3% of “experimenters” 35 in
Y1 and 6% in Y2 as we ramp up distribution, or 0.15% and 0.30% of the total target market. The
second source is based on Cotswold Brewery’s growth, which achieved approximately 4500hL in
the first 18 months. We conservatively assume CB’s initial growth rate at two-thirds that level.
Year 3 is pivotal in our model as it builds in two factors. The first is attaining distribution through a
multiple (i.e. Waitrose). The second is the acquisition of our own distribution capabilities. At
roughly 5000 hL (50bps penetration) enough free cash flow is being spun out by the business to
self-finance the costs of internalizing distribution. This allows CB to capture the 20% margin being
absorbed by our distributor in phase 1. All other periods assume 15% growth, or roughly 60% of
the trailing 5-Year Speciality Beer CAGR.
Operating Leverage: Gross profit margins are notable for their (a) stability and (b) their slight “U”
shape over the forecast horizon. The first phenomenon is a direct result of CB’s virtual model. The
trade off from having near zero sunk costs is minimal operating leverage. The model assumes that
all scale gains will approximately offset the rise in inflation over the forecast horizon. The second
phenomenon is a result of the change in product mix over time. Given CB’s growth is largely
fuelled by off-trade bottles in later years, the model assumes keg sales as a proportion of all sales
fall from 50% in Y1 to 20% Y4 where they stabilise. It is reasonable to assume that CB will need to
absorb some portion of the higher production costs of bottles (£1.13/litre). The base case scenario
assumes 25% of this cost in order to gain wider off-trade distribution. Once stabilised, economies of
scale gains see gross margins begin to rise, starting in Y5.
Bad Debt Expense: Part of the value proposition of distributors is that they assume credit risk.
Low bad debt expenses in Y1 & Y2 are a conservative estimate that some risk will be borne by CB.
Once acquiring a distribution platform, bad debt expense is assumed to be 3% of sales.
Duty: As a small brewer (<30,000hL/annum) CB is required to only pay 50% of the duty on the
first 5000hL. A 5% ABV strength beer would normally amount to £66.30/hL. This tax provision
allows CB to produce an economically competitive product without the economies of scale enjoyed
by the macro breweries.
8.3 Cash Flow Statement
Working Capital: Due to the forecasted growth of CB, relative absence of fixed costs and short
inventory holding periods, working capital is the predominant source of cash burn. The monthly
cash flow statements for Y1 anticipate that CB will pay cash-on-delivery (COD) to our contract
35
Experimenters are defined as AB Drinkers in our target market who are willing to try our beer at least once
- 21 -
brewer for the first three months. In Q2, it will be possible to defer 25% of costs for 15 days, and
50% in Q3 and beyond. Accounts receivable are assumed to be 30 days.
Cash: The annual cash flow statement shows the £100,000 cash injection is sufficient to cover all
starting expenses and working capital requirements, while still leaving approximately 2 months of
forward operating costs. Cash balances grow to nearly £1 million at the end of the forecast horizon.
We do not include a terminal value calculation beyond this horizon.
8.4 Balance Sheet
The virtual nature of CB means that all balance sheet items are predominantly confined to current
assets and liabilities.
8.5 Scenario Analysis
Appendix F8 shows the beta sensitivities of each of the variable cost’s to NPV. The attached table
gives an approximation of the degree of control CB has over NPV. CB exerts a meaningful degree
of control on four of the top five most sensitive variables while one (inflation), is completely
outside the control of CB. Also in Appendix F are the results of a Monte Carlo simulation using
5000 iterations. It is worth noting that the distribution displays positive skewedness, with the mode
greater than the mean. Further, the net present value is still greater than are initial £100,000
investment at the 5th percentile level.
10.0 Risks and Contingencies
10.1 Product Risks
Our product’s success is dependent on the success of each of our collaborations. We intend
spending the necessary time and resources researching and partnering with companies experienced
in outsourced activities which offer an appropriate level of assurance as to their competence. Whilst
we are unable to brew the beer ourselves, we do know how to identify appropriate partners and
have already made advances in doing so already (for a list of contacts and collaborators see
Appendix H).


Quality – We run the risk of creating a beer that consumers do not perceive as being
sufficiently premium and not appropriate as a food accompaniment. Without a beer that
delivers a differentiated and satisfactory taste and which is consistent with the promise made
in the packaging, sales rates are likely to be negatively affected. We intend to mitigate this
risk with the assistance of our consultant master brewer, an experienced professional well
aware of consumer trends and who has many years brewing experience. We have also
sought assurances in our contract discussions pertaining to the inclusion of quality
guarantees that ensure we do not pay for faulty batches.
Timing – Despite guarantees, safeguards and well-prepared plans, there remains a risk of
not being able to deliver product quickly enough to market to meet customer orders and
sustain the business. Once again, we are relying on the experience of our production
contractors to meet our volume requirements in a timely manner. Distribution and delivery
of our product to our customers depends heavily on efficient order collection and
management, effective production scheduling and distribution systems that follow optimal
- 22 -
routes and are timely. This is especially important because costs to develop the beer will
already have been incurred.
10.2 Market Risks
The market and other trends out of our control could affect our success. We intend to identify and
plan for each in advance.

Penetration Estimates – Although all figures relating to the universe of beer drinkers,
frequency of beer drinking and other habits of beer drinkers are based on available market
data, our estimated market share capture (modest though it may be) might still be too
optimistic. This could happen for a number of reasons:
o Stigma – Certain people may not perceive beer as a beverage that is sophisticated
enough to be paired with an upscale meal. While we do not explicitly intend to
convert wine drinkers, beer drinkers may still be hesitant to consume a bottle of beer
with their meal when surrounding tables are drinking wine. We have sought to
address possible concerns of this nature in our packaging development, with a wine
bottle shaped 750ml SKU and accompanying glassware, both of which we hope will
help alleviate this concern.
o Drinking Habits – Our target consumer age bracket is 25-34 years, although by
virtue of our selective distribution we expect that there will be a broader section of
35-59 years. Both groups may have existing drinking preferences that conflict with
our product offering – younger consumers might prefer sweeter products as their
palette is evolving whilst older consumers may have a more sophisticated palette that
is not sufficiently excited by our product. We will rely on the influence of serving
staff and menu cards to educate consumers, highlighting the variety of our product
range and suggesting trial of our alternate SKU’s should the initial sample be
disliked.
o Marketing Investment – Our marketing financial plans may not be robust enough to
effectively establish our brand, trigger a working word-of-mouth marketing strategy,
or convince busy bar or restaurant owners to try carrying our brand. We rely heavily
on personal relationships at the outset and have held initial discussions with R&R
Teamwork, a pre-eminent liquor industry public relations firm who have indicated a
willingness to support a venture aimed at educating consumers. Our ongoing
financial investment of 7% of gross sales is in line with other consumer goods and
alcoholic beverage companies and our absolute investment amounts in our growth
stages are comparable to established national ale brands such as Old Speckled Hen
and Spitfire.
o Ineffective Brand Management – It is possible we will not be accepted because we
are outsourcing the brewing (i.e. the beer is not “handcrafted”), because our idea is
misunderstood or cynically viewed, or perhaps because our owners are foreign. Pubs
and punters alike prefer to sample local beer, and “buying local” is a popular trend in
Britain. The success of others that have used a local approach, like the Cotswold
Brewing Company, have benefited from a good story and face-to-face exposure that
helps relay this story. We intend to offset this risk by emphasizing the positive
aspects of our worldliness and drinking experience. We will emphasize our
commitment to making great beer to go with great food and have allocated the
necessary resources at launch to spread this message early and often via meetings
with pub owners and restaurateurs. Also, publicly available information suggests
that other brewers (Greene King, etc.) have been successful using excess brewing
- 23 -

capacity at Meantime Brewing Company, indicating that despite buying fads, buying
great beer is, and will continue to be, a favourite hobby of British consumers.
Drinking Trends – There has been an increase in sales of cider in recent years. It is possible
that drinking trends could dramatically shift in the UK so that wine, cider or alcopops
achieve preference over beer. It is also possible that alcohol consumption in general could
decline, shrinking the overall market. Although declining beer consumption is a risk,
increasing sales of premium beer in recent years suggest that were beer declines to continue,
consumers might well look for more unique and distinctly positioned beers to ensure that
their decreased consumption is more rewarding to their palette.
10.3 Financial Risks
We recognize that a number of our financial model inputs could be subject to change for a variety
of reasons. To weigh how significant changes in the different inputs might impact the overall
business model, we ran a sensitivity analysis on the major inputs.
Appendix F is a tornado diagram representing
all of the relevant variables in our financial
model. The table below highlights the results of
our analysis and gives an approximation of the
degree of control that we have over each
variable. Companion Brewing exerts a
meaningful degree of control on four of the top
five most sensitive variables while one,
inflation, is completely outside of our control.
Also included in Appendix F are the results of
a Monte Carlo simulation run over 5000
iterations. Importantly, the net present value is
greater than our initial £100,000 investment at
the 5th percentile level.
Factor
Level of Control Beta Co-Efficient
Price Per Litre
Inflation
Bottling Cost Deferral
Alcohol %'age
Marketing Intensity
Bad Debt Provision
Materials Per Litre
Packaging Per Litre
Transportation Costs
2
1
2
3
3
1
1
1
1
-0.489
-0.436
-0.436
-0.367
-0.343
-0.327
-0.176
-0.11
-0.059
Legend
1 CBC has no level of control
2 CBC exerts a meaningful degree of influence
3 CBC has virtually complete control
10.4 Competitive Risk
Most of the competitive risk we face stems from the low barriers to entry and ease of launching a
new product via our virtual model. We could be affected in a number of ways:


Competition from Large Brewers – Existing larger brewers have the necessary R&D, capital
funds and existing infrastructure to develop and gain widespread distribution for new
products. We fully anticipate that if our market demand materially outstrips our forecasts,
large brewers will take note and respond with rival products and a far higher marketing
spend. Although we would be at a financial disadvantage, larger brewers are more likely to
chase larger volume accounts, ensuring that there will not necessarily be a straight overlap
in accounts. Additionally, a key focus of our marketing strategy is to build effective and
personal relationships with each of our core accounts in the launch phase. As our business
model is not subject to the same rigorous hurdle rates of larger publicly listed companies,
we can also build our presence over a longer time period than our larger rivals are able.
Competition from Small Brewers – While small brewers may not have the cash to
aggressively compete, they will likely have established reputation and might even have
existing products (like Innis & Gunn) that already go well with food. We are confident that
we can compete with these brewers if we make sure we do not sacrifice quality and if we
- 24 -
hold true to our unique and more overt brand positioning. If our brand becomes successful
enough to attract competition, we believe that we can sustain it by continuing to offer a
premium product and by supplementing our launch offer with new products and seasonal
offers.
Although brewers of all sizes are competition, their relationship within the food-beer pairing space
is much closer to co-opetition. We firmly believe that the actions of the industry in pushing beer
and food pairing can be of benefit to all players. One case in point is Coors, who is investing in a
£1,000,000 marketing campaign starting this year to promote food and beer pairing36. We are
confident in the beer and food pairing trend, and believe rival success could bring the trend to the
forefront, fuelling additional food beer sales for all.
36
“Lagers – United Kingdom.” Mintel, 2006
- 25 -
Appendices
A. Traditional UK Dishes and Suggested Beer Pairings
Source: Beaumont, S. Brewpub Cookbook: 100 Great Recipes from 30 Great North American Brewpubs. Siris Books, 1998.
- 26 -
B. Recent Examples of Brewer Food Pairing Advert.
Pilsner Urquell – Print & Web Advert.
Samuel Adams – Print, TV, and Web Advert.
Greene King – Web & Event Advert.
C. UK Market Size and Growth by Segment 2000–2005
[%, Litres MM]
Market
BeerGrowth
Segment& Size
35%
Speciality Beer
27.6%
70*
5CAGR
Year 2000
CAGR
- 2005
30%
25%
20%
15%
10%
Total Beer
0.7%
5,966*
Premium
3.6%
2,044*
Craft Beer
11.2%
97*
5%
0%
*Millions of litres
-5%
- 27 -
D. Overview of UK Contract Brewers by Capacity
Contract Brewer
Size [K bbl]
Carlserg Tetley
Large >1,000
Coors Brewers
Interbrew
Wells & Young’s
Medium
Federation Brewery
100 – 1,000
Wolverhampton
Greene King
Caine’s
Robinson’s Brewery
Meantime
Small
Hook Norton Brewery
25 – 100
Wychwood Brewery
Badge Brewery
Preliminary Interviews and/or Pricing Provided
E. % of Consumers Eating Out at Least Once per Week
% Change in Socio-Economic Structure
2005-2010
2000-2005
Eat Out
1/Week +
AB
AB: 30%
C1
C1: 25%
C2: 30%
C2
D: 30%
D
E: 30%
E
-15%
-10%
-5%
0%
5%
10%
15%
2000-2005 vs. 2005 – 2010 by Economic Segment, Mintel National Statistics
Source: Mintel/National Statistics
- 28 -
20%
G. Meligaard’s Beer Flavor Map
Developed by:
• Dr. Morten Meligaard.
Adopted by:
• European Brewery Convention
• Amer. Society of Brewing Chemistry
• Master Brewers Assoc. of America
Source: Beerandpoetry.com
H. List of Vendors
Following are the Vendors we have contacted regarding various components of the production and
distribution process. Some are employed in the actual project and some are used for comparison. Specific
vendor choices are detailed in the Business Model.
Vendor
Activity
Contact
Website
Caine’s Brewing
Meantime Brewing
Wells and Young’s
Palletline
Brewer’s Wholesale
Waverly TBS
R & R Teamwork
Contract Brewer
Contract Brewer
Contract Brewer
Shipper
Distributor
Distributor
Marketing
Ajmail Tusanj
Lars Huser
Colin Stewart
John Hackling
Mark Hill
Chris O’Grady
Rupert Ponsonby
www.cains.co.uk/index/index.html
www.meantimebrewing.com
www.wellsandyoungs.co.uk
www.palletline.co.uk
www.thebrewerswholesale.co.uk
www.waverley-group.co.uk
www.randr.co.uk
- 29 -
I. Marketing Expenditures of Key Competitors
Main Brands
Premium Lager
Stella Artois
Budweiser
Grolsch
Heineken
Carlsberg Export
Coors Fine Light
Nastro Azzurro
Michelob Ultra
Kronenbourg 1664
Holsten Pils
Other Lager
Foster’s
Carling
Carlsberg Lager
Castlemaine XXXX
Tennent’s
Other brands
Total lager
Premium Beers
Abbot Ale
Bombardier
Old Speckled Hen
London Pride
Wadworth 6X
Bass
Spitfire
Marston’s Pedigree
Other Beers
Guinness
John Smith’s
Boddington’s
Tetley
Greene King IPA
Other brands
Total beers
Cider/Perry
Strongbow
Bulmers
Other brands
Total cider/perry
Brewer or UK Licensee
Value
(£000)
Interbrew
Anheuser-Busch
Coors Brewing
Heineken UK
Carlsberg UK
Coors Brewing
Peroni
Anheuser-Busch
Scottish & Newcastle
Carlsberg UK
10,716
9,140
5,309
4,203
4,202
1,626
1,122
976
782
609
Scottish & Newcastle
Coors Brewing
Carlsberg UK
Interbrew
Interbrew
8,733
8,257
5,524
1,554
961
3,986
68,571
Greene King
Charles Wells
Greene King
Fuller Smith & Turner
Wadworth & Co
Coors Brewers
Shepherd Neame
Wolverhampton & Dudley
Diageo
Scottish Courage
Interbrew
Carlsberg-Tetley
Greene King
850
589
440
396
307
268
240
237
12,958
4,209
3,527
2,692
1,676
2,547
30,936
Scottish & Newcastle
Scottish & Newcastle
Total
2,251
664
321
3,236
102,743
June Media
2003 to June
2004, Neilsen Media
Source:£000’s,
Nielsen
Research/Key
NoteResearch
- 30 -
J. Premium Single SKU Shelving at UK Off-trade Multiples
Waitrose, Odd Bins, Tesco, and The Rack
K. Inspirational Brands and Packaging for Companion Brewing
- 31 -
L. Off-trade Pricing of Companion Beers vs. Competitors
Segment
Weissbier
Stout
Dom. Econ. Lager
Prem. Ale
Dom. Std. Lager
Prem. Ale
Prem. Ale
Std. Ale
Prem. Ale
Dom. Std. Lager
Dom. Econ. Lager
Dom. Prem. Lager
Weissbier
Dom. Prem. Lager
Stout
Stout
Dom. Prem. Lager
Prem. Ale
Dom. Prem. Lager
Std. Ale
Dom. Std. Lager
Std. Ale
Std. Ale
Dom. Std. Lager
Std. Ale
Prem. Ale
Imp. Std. Lager
Dom. Std. Lager
Imp. Prem. Lager
Product
Hoegaarden
Guinness Draught
Tennent's Super
Companion Products
Carling Premier
Newcastle Brown Ale
Caffrey's
Local company
Interbrew UK
Diageo Plc
Coors Brewers
Companion Brewing Co.
Coors Brewers
Scottish Courage Ltd
Coors Brewers
John Smith's Extra
Smooth
Companion Products
Castlemaine XXXX
Skol
Budweiser
Leffe Blonde
Budweiser
Guinness Original
Dragon Stout
Stella Artois
Fuller's London Pride
Carlsberg Export
Directors Bitter
Carlsberg
Best Bitter
Bishops Finger
Carling
Abbot Ale
Abbot Ale
Zyweic
Foster's
Budweiser Budvar
Marston's Pedigree
Scottish Courage Ltd
Prem. Ale
Dom. Prem. Lager Kronenbourg 1664
Imp. Prem. Lager Beck's
Imp. Prem. Lager Holsten Pils
Companion Brewing Co.
Carlsberg-Tetley Brewing Ltd
Carlsberg-Tetley Brewing Ltd
Anheuser-Busch Cos Inc
Interbrew UK
Anheuser-Busch Cos Inc
Diageo Plc
Red Stripe Ltd
Interbrew UK
Fuller, Smith & Turner Plc
Carlsberg-Tetley Brewing Ltd
Scottish Courage Ltd
Carlsberg-Tetley Brewing Ltd
T & R Theakston Ltd
Shepherd Neame Ltd
Coors Brewers
Greene King Plc
Greene King Plc
Zyweic Group
Scottish Courage Ltd
BB Suply Centre
Wolverhampton & Dudley
Breweries Plc
Scottish Courage Ltd
Scottish Courage Ltd
Holsten (UK) Ltd
Price/
Pack size Price [£] Unit [£]
750 ml
5.1
5.1
6 x 440 ml
20.0
5.0
4 x 500 ml
4.7
4.7
1 x 750 ml
4.3
4.3
440 ml
3.6
3.6
550 ml
3.6
3.6
#
1
2
3
4
6
5
Price/L
[£]
#
6.8 7
11.4 1
9.4 2
5.7 12
8.2 3
6.5 8
568 ml
3.5
3.5
7
6.2 10
4 x 440 ml
1 x 500 ml
4 x 440 ml
4 x 500 ml
6 x 500 ml
750 ml
330 ml
4 x 440 ml
284 ml
6 x 500 ml
568 ml
6 x 500 ml
568 ml
8 x 500 ml
568 ml
568 ml
8 x 500 ml
568 ml
500 ml
500 ml
8 x 500 ml
12 x 440 ml
13.5
2.9
11.0
10.0
15.0
2.5
2.4
9.6
2.2
13.0
2.1
12.0
1.9
15.0
1.8
1.8
13.0
1.6
1.5
1.5
11.0
11.7
3.4
2.9
2.8
2.5
2.5
2.5
2.4
2.4
2.2
2.2
2.1
2.0
1.9
1.9
1.8
1.8
1.6
1.6
1.5
1.5
1.4
1.0
8
9
10
12
13
11
15
14
16
17
18
19
20
21
22
23
24
25
26
27
28
29
7.7
5.7
6.3
5.0
5.0
3.3
7.3
5.5
7.7
4.3
3.7
4.0
3.3
3.8
3.2
3.2
3.3
2.8
3.0
3.0
2.8
2.2
4 x 500 ml
6 x 500 ml
6 x 500 ml
3.5
5.0
5.0
0.9 30
0.8 32
0.8 33
5
11
9
14
15
21
6
13
4
16
19
17
20
18
23
24
22
27
25
26
28
29
1.8 30
1.7 31
1.7 32
6 x 500 ml
5.0
0.8 34
1.7 33
Spaten-Franziskaner-Bräu
6 x 500 ml
5.0
Imp. Prem. Lager
0.8 35
1.7 34
KGaA
6 x 568 ml
5.0
Stout
0.8 31
1.5 35
Murphy's Irish Stout
Coors Brewers
4 x 500 ml
2.4
Dom. Econ. Lager Tesco Lager
0.6 36
1.2 36
Tesco Plc
24 x 330 ml
2.0
Imp. Prem. Lager Asahi
0.1 37
0.3 37
Asahi Breweries Ltd
Source: Trade associations (BBPA, WSA), Interbrew Market Reports 2001-2005, Trade press (Checkout, The Grocer, mad.co.uk,
The Publican), Company research, Store checks, Trade interviews, Euromonitor International estimates
Löwenbräu
- 32 -
M. The Management Team
The management team of Companion Brewing Company consists of five equity partners, each of
whom brings a different professional background and competency.
Mr 50406 (insert student number) is Companion Brewing Company’s Chief Sales Officer. Mr
50406 has extensive experience in Business-to-Business sales of high value IT systems and has
successfully established and maintained important accounts for his former employer, XYZ
Corporation. In his spare time, 50406 likes to play heavy metal rock and is the lead guitarist and
singer in a band.
Mr. 49728 is Companion Brewing Company’s Chief Operating Officer (COO). A Management
Consultant with extensive operations experience in the automotive and industrial space and has
experience with establishing virtual turnkey operations. He also has entrepreneurial experience
with a wine retailing start-up and innovative alcopop beverage company.
Mr 52582 is Companion Brewing Company’s Chief Customer Officer (CCO) has extensive
experience as an Internet Entrepreneur. Formerly based in Silicon Valley, Mr 52582 has started
several successful businesses each of which he has built to a size that has attracted the interest of
larger competitors and which have subsequently been sold. Mr 52582’s strengths lie in
understanding consumer motivations and tailoring products and services to meet those needs. In
his spare time, Mr 52582 likes to dabble in new online ventures and has recently established
several consumer leisure sites.
Mr 49489 is Companion Brewing’s CFO. Having worked extensively in Canada’s Capital
Markets industry, Mr 49489 is an experienced financial practitioner and qualified CPA. His
extensive experience in structured finance and private equity brings a great degree of financial
competence to bear. In his spare time, Mr 49489 likes to escape from the demands of the
financial world by indulging in his love of adventure sports.
Mr 49558 is Companion Brewing’s CMO. Mr 49558 has more than ten years marketing
experience in leading consumer goods multinationals and has worked in Australia and in Europe.
Applying his strengths in branding and equity positioning, Mr 49558 has helped develop the
brand positioning of the Companion Brewing Brand and will lead the company’s effort in
building a unique market position. Outside of work, Mr 49558 collects wine, loves to cook and
plays competitive rugby union.
N. Key Contacts and Advisors
•
•
•
•
•
•
•
•
•
•
Colin Stewart [Director], Wells and Young's Brewery
Lars Huser [Brewer], Meantime Brewing
David Arnold [Instructor], SBS
Chris McKenna [Don], SBS
Rick Greene [Brewer, CEO], Cotswold Brewing
Andy Thompson [CEO], eCasks
George Phillisherk [MD], Beer Academy
Paul Hughs [Director], of Int.Center for Brewing and Distilling Herriot Watt University
Rupert Ponsonby [Director], R&R Teamwork
Christopher Shaw [Marketer], Diageo
- 33 -
Financial Appendices
F1. 10 Year Annual Income Statement Projections
£273.3
1500
50%
100.0
2008
64.2%
-£72.0
-£135.0
-£207.0
£370.5
£577.5
3000
40%
102.5
2009
67.5%
-£144.0
-£315.0
-£459.0
£954.5
£1,413.5
6000
30%
105.1
2010
66.1%
-£172.8
-£432.0
-£604.8
£1,177.4
£1,782.2
7200
20%
107.7
2011
66.9%
-£241.9
-£604.8
-£846.7
£1,710.8
£2,557.5
10080
20%
110.4
2012
67.7%
-£278.2
-£695.5
-£973.7
£2,040.9
£3,014.7
11592
20%
113.1
2013
IRR
68.5%
-£319.9
-£799.8
-£1,119.8
£2,433.8
£3,553.5
13330.8
20%
116.0
2014
£1,490
74%
Year 10
69.3%
-£367.9
-£919.8
-£1,287.8
£2,901.0
£4,188.7
15330
20%
118.9
2015
£600
61%
Year 5
70.0%
-£423.1
-£1,057.8
-£1,480.9
£3,456.6
£4,937.5
17630
20%
121.8
2016
70.7%
-£486.6
-£1,216.5
-£1,703.1
£4,117.0
£5,820.0
20274
20%
124.9
2017
% Keg
Inflation Index
SALES
Materials
COGS
Packaging
8.9%
-£19.1
-£6.1
1.0
-£30.0
£0.0
-£2.7
£34.0
-£51.0
-£47.8
-£156.7
£24.3
-£14.3
£61.2
£0.0
£75.5
13.1%
-£40.4
-£12.5
1.0
-£30.8
£0.0
-£5.8
£34.8
-£104.5
-£101.1
-£295.0
£75.5
9.6%
-£31.8
£135.7
£0.0
£167.5
11.9%
-£98.9
-£51.1
£3.0
-£94.6
-£2.7
-£42.4
£41.6
-£249.9
-£247.4
-£787.0
£167.5
£0.0
£137.8
7.7%
-£32.3
£137.8
-£10.8
£170.1
10.1%
-£124.8
-£62.9
£3.0
-£96.9
-£2.7
-£53.5
£47.8
-£344.0
-£311.9
-£996.6
£180.9
2.01
£86.0
£0.0
£172.9
6.8%
-£40.6
£172.9
£0.0
£213.5
8.3%
-£179.0
-£90.2
£4.0
-£132.5
-£2.7
-£76.7
£56.4
-£568.6
-£447.6
-£1,497.3
£213.5
2.31
£93.8
£0.0
£217.1
7.2%
-£50.9
£217.1
£0.0
£268.0
8.9%
-£211.0
-£106.4
£4.0
-£135.8
-£2.7
-£90.4
£60.3
-£699.1
-£527.6
-£1,772.9
£268.0
2.66
£102.2
£0.0
£271.9
7.7%
-£63.8
£271.9
£0.0
£335.7
9.4%
-£248.7
-£125.4
£4.0
-£139.2
-£2.7
-£106.6
£64.0
-£853.6
-£621.9
-£2,098.1
£335.7
3.06
£101.6
£0.0
£310.9
7.4%
-£72.9
£310.9
£0.0
£383.8
9.2%
-£293.2
-£147.8
£5.0
-£178.3
-£2.7
-£125.7
£67.6
-£1,036.4
-£733.0
-£2,517.2
£383.8
3.52
£112.0
£0.0
£393.9
8.0%
-£92.4
£393.9
£0.0
£486.3
9.8%
-£345.6
-£174.2
£5.0
-£182.8
-£2.7
-£148.1
£71.1
-£1,252.8
-£864.1
-£2,970.3
£486.3
4.05
£122.5
£0.0
£495.8
8.5%
-£116.3
£495.8
£0.0
£612.0
10.5%
-£407.4
-£205.4
£5.0
-£187.3
-£3.2
-£174.6
£74.4
-£1,508.5
-£1,018.5
-£3,504.9
£612.0
NPV
66.2%
-£36.0
-£56.3
-£92.3
£181.0
Volume (HL)
Gross Profit
Income Statement (000's £)
Gross Profit Margin
-£10.0
£14.3
10.6%
£0.0
£135.7
1.75
£78.8
Marketing
4.2%
-£2.7
£11.6
£0.0
£61.2
1.52
£89.2
OPERATING COSTS Before Extraordinary Items
Net Income
£0.0
£11.6
1.32
£46.3
RETAINTED EARNINGS
DIVIDENDS
TAXES
Profit Before Tax
Product Development
NON-RECURRING OPERATIONS
Operating Profit Margin
Operating Profit
VAT
Duty
Duty Rate: £/Hectalitre
Bad Debt Expense
Depreciation
Administrative
FTE
Distribution
Net Income Margin
1.15
£10.1
Discount Factor
Cashflow
- 34 -
F2. 10 Year Annual Balance Sheet Projections
2,008
115.4
2,009
171.0
2,010
276.8
2,011
393.3
2,012
575.0
2,013
53.7
287.2
804.9
2,014
61.7
338.6
1,065.3
2,015
71.0
399.1
1,399.9
2,016
81.6
470.5
1,803.4
2,017
Balance Sheet
65.3
46.7
243.7
CURRENT ASSETS
Cash
40.6
14.6
206.7
12.3
2,370.0
35.3
10.5
1,882.3
144.1
8.9
1,476.0
25.2
7.5
1,154.7
114.3
6.4
872.9
46.7
4.5
647.0
19.1
3.5
460.6
8.6
1.4
314.0
45.9
0.5
182.6
71.0
120.2
9.7
19.3
61.7
80.7
0.0
7.7
2.7
53.7
69.4
5.4
6.1
8.1
46.7
59.7
10.8
5.3
13.5
40.6
52.0
16.2
4.2
0.0
35.3
44.8
0.0
3.4
2,389.3
25.2
38.7
1,882.3
2.7
100.0
1,478.7
19.1
27.9
2,208.7
1,160.1
2.7
100.0
881.0
8.6
21.8
1,712.9
657.8
1.3
100.0
474.1
7.8
9.9
1,319.0
330.2
0.8
100.0
182.6
Accounts Payable
8.7
1,008.1
120.2
Accounts Receivable
Inventory
Bad Debt Provision
Truck
FIXED ASSETS
TOTAL ASSETS
Tax Payable
100.0
CURRENT LIABILITIES
TOTAL LIABILITIES
736.2
EQUITY
100.0
2,308.7
519.1
1,812.9
100.0
1,419.0
346.2
1,108.1
100.0
836.2
208.4
619.1
72.7
446.2
100.0
308.4
11.6
172.7
100.0
Paid in Capital
Retained Earnings
111.6
- 35 -
F3. 10 Year Project Balance Sheet
Increase in Tax Payable
Depreciation
Tax
EBIT
0.0
100.0
0.0
100.0
-34.7
-8.6
-38.5
0.8
0.0
-2.7
14.3
2,008
50.1
0.0
0.0
0.0
0.0
50.1
-10.5
-1.0
0.4
0.0
-14.3
75.5
2,009
55.6
-18.9
0.0
0.0
0.0
74.5
-6.1
-59.2
1.4
2.7
-31.8
167.5
2,010
105.8
0.0
0.0
0.0
0.0
105.8
-10.1
-24.7
0.0
2.7
-32.3
170.1
2,011
116.5
0.0
0.0
0.0
0.0
116.5
-5.3
-54.5
0.7
2.7
-40.6
213.5
2,012
181.7
0.0
0.0
0.0
0.0
181.7
-6.1
-32.8
0.9
2.7
-50.9
268.0
2,013
229.9
0.0
0.0
0.0
0.0
229.9
-7.0
-38.8
1.1
2.7
-63.8
335.7
2,014
260.4
0.0
0.0
0.0
0.0
260.4
-8.0
-45.9
0.8
2.7
-72.9
383.8
2,015
334.6
0.0
0.0
0.0
0.0
334.6
-9.3
-54.3
1.6
2.7
-92.4
486.3
2,016
403.5
-22.5
0.0
0.0
0.0
426.0
-10.6
-64.3
2.0
3.2
-116.3
612.0
2,017
Cash Flow Statement (000's £)
CASHFLOW FROM FINANCING
65.3
NOPLAT
FREE CASH FLOW
1.8
65.3
11.6
1.2
115.4
61.2
1.3
171.0
135.7
1.4
276.8
137.8
1.7
393.3
172.9
2.1
575.0
217.1
2.5
804.9
271.9
2.9
1,065.3
310.9
3.2
1,399.9
393.9
4.0
1,803.4
495.8
Dividend
Share Capital
CASHFLOW FROM OPERATIONS
Change in Inventory
Changes in Working Capital
CASHFLOW FROM INVESTING
Cash
Cash/Projected Op. Costs (Months)
- 36 -
F4. Monthly Cashflows 2008 & 2009
MONTHLY CASHFLOWS (2008)
January
February
March
April
May
June
July
October
November
December
Operating ProfitOperations
Non-Recurring
£1.1
-£10.0
£0.0
-£12.2
£0.0
-£2.2
-£23.3
£1.2
£0.0
£0.0
-£0.9
£0.0
-£0.2
£0.1
£1.3
£0.0
£0.0
-£1.0
£0.0
-£0.2
£0.0
£1.4
£0.0
£0.0
-£1.2
£1.3
-£0.2
£1.2
£1.5
£0.0
£0.0
-£1.4
£0.1
-£0.3
-£0.1
£1.6
£0.0
£0.0
-£1.7
£0.1
-£0.3
-£0.3
£1.8
£0.0
£0.0
-£2.1
£1.9
-£0.4
£1.2
£2.0
£0.0
£0.0
-£2.6
£0.4
-£0.6
-£0.7
£2.3
£0.0
-£0.4
-£3.3
£0.6
-£0.7
-£1.6
£2.7
£0.0
-£0.4
-£4.4
£0.7
-£1.1
-£2.4
£3.3
£0.0
-£0.5
-£6.2
£1.1
-£1.6
-£4.0
£4.1
£0.0
-£0.6
-£9.4
£1.6
-£0.8
-£5.1
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£100.0
£0.0
£100.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
Net Tax1
Change in Accounts Receivable2
Change in Accounts Payable3
Change in Inventory
CASHFLOW FROM OPERATIONS
CASHFLOW FROM INVESTING
Share Capital
Dividends
CASHFLOW FROM FINANCING
August September
FREE CASH FLOW
£76.7
£0.1
£0.0
£1.2
-£0.1
-£0.3
£1.2
-£0.7
-£1.6
-£2.4
-£4.0
-£5.1
CASH & LIQUID ASSETS4
£76.7
£76.8
£76.8
£78.1
£78.0
£77.7
£78.9
£78.3
£76.7
£74.3
£70.3
£65.3
January
February
March
April
May
June
July
August September
October
November
December
£6.3
£0.0
-£0.8
-£1.8
£0.8
£0.0
£4.5
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
£0.0
£5.1
£6.3
£0.0
-£1.2
£0.0
£0.0
-£10.5
-£5.4
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
£0.0
MONTHLY CASHFLOWS (2009)
Operating Profit5
Non-Recurring Operations
Tax
Change in Accounts Receivable
Change in Accounts Payable
Change in Inventory
CASHFLOW FROM OPERATIONS
CASHFLOW FROM INVESTING
Share Capital
Dividends
CASHFLOW FROM FINANCING
FREE CASH FLOW
CASH & LIQUID ASSETS
£4.5
£5.1
£5.1
£5.1
£5.1
£5.1
£5.1
£5.1
£5.1
£5.1
£5.1
-£5.4
£69.8
£74.9
£80.0
£85.1
£90.2
£95.3
£100.4
£105.5
£110.6
£115.7
£120.8
£115.5
1. Tax: Taxes are paid month after they are incurred, includes increase in tax payable
2. Change In Accounts Receivable: Assume that accounts receivable turnover is 30 days
3. Change In Accounts Payable: First 3 months COGS are paid COD, next 3 months 25% are deferred for 30 days, 50% thereafter
4. CASH & LIQUID ASSETS: Cash and Liquid Assets represent on average ≈ 4.5 months projected operating costs
5. Year end volume 2008 is the runrate for 2009
F5. Financial Key Performance Indicators
Operating Ratios
Inventory Turnover (days)
5-yr ROA
ROE
ROCE
Profit Margins
Gross
Earnings
S-T Solvency
18.8
25.8%
29.7%
29.7%
66.2%
7.8%
- 37 -
Current Ratio
Acid-Test
Debtors Coll. Per.
Creditors Coll. Per.
Inventory Hold Per.
5 Year NPV (£000's)
10 Year NPV (£000's)
*No terminal value
16.0
14.7
32.6
-16.6
-22.2
599.8
1490.205
F6. Break-Even Analysis
Keg
£2.36
£1.54
0.24
0.39
0.13
0.07
0.00
0.34
0.32
1.48
50%
1.95
1,500
Materials
Packaging
Marketing
Distribution
Administrative
Duty
VAT
Variable costs per unit
0.34
Initial Mix (Keg:Bottle)
Sales Price Per Litre:
Sales volume per period (units)
Total Sales
2x500ml Bottles
Sales Price Per Litre:
Breakeven Analysis
Sales
Variable Costs
Unit contribution margin
Gross Margin
Fixed Costs Per Period
Net Profit (Loss)
February
7177.7
1.8
0.0
10618.0
10618.0
13076.0
(5,248.62)
292
Development Costs
10,000.00
Insurance
0.00
Property tax
0.00
Rent
0.00
Other fixed costs
0.00
Total Fixed Costs per period
Results:
January
6697.1
1.8
0.0
9906.9
9906.9
12200.3
(7,706.62)
Breakeven Point (hL):
Sales volume analysis:
Period
0
Sales volume per period (units) 0.0
Sales price per unit
1.8
Fixed costs per period
10000.0
Variable costs
0.0
Total costs
10000.0
Total sales
0.0
Net profit (loss)
(10,000.00)
2,732.61
0.0%
10,000.00
(10,000.00)
March
7732.8
1.8
0.0
11439.1
11439.1
14087.2
(2,600.55)
19%
81%
Unit Contribution Margin
22%
0%
9%
May
9147.5
1.8
0.0
13531.9
13531.9
16664.4
3,401.97
5%
25%
Variable costs per unit
Unit contribution margin
Materials
Packaging
Marketing
Distribution
Administrative
Duty
VAT
June
July
August September
October
10068.5
11195.8
12607.2
14426.0
16857.9
1.8
1.8
1.8
1.8
1.8
0.0
0.0
0.0
0.0
0.0
14894.3
16561.9
18649.9
21340.3
24937.8
14894.3
16561.9
18649.9
21340.3
24937.8
18342.3
20395.8
22967.2
26280.4
30710.7
6,849.91 10,683.86 15,001.17 19,941.29 25,714.21
16%
Variable Costs Per Unit
23%
April
8380.9
1.8
0.0
12397.8
12397.8
15267.8
269.44
- 38 -
F7. Consumption Projections for Companion Target Market
inputs (editable)
experimenters
adorers
loyalists
regulars
occasionals
hated it
% of all AB type drinkers in target area
bottle size
bottles consumed per sitting
liters per sitting
5%
10%
30%
30%
20%
10%
50%
0.5
1
0.5
Basic Data (calculated)
uk population
total target area population
total AB type drinkers in UK
average income in target area
average income outside of target area
income ratio in/out of target area
% of UK population in target area
total AB type drinkers in target area
60,209,000
26,655,000
22,278,000
35,316
15,188
2.33
44%
11,139,000
folks willing to try our beer once
drink it once/week
drink it once/fortnight
drink it once/month
drink it once / 2 months
didn't drink it again
liters
bottles
Potential Consumtion by drinker type (calculated)
drinker type
# of drinkers
liters/yr consumed
experimenters
556,950
adorers
55,695
1,448,070
loyalists
167,085
2,172,105
regulars
167,085
1,002,510
occasionals
111,390
334,170
total drinkers of our beer -------------------->
501,255
Source: UK National Statistics Regional Household Income 2006
- 39 -
4,956,855 liters
49,569 hectaliters
F8. Sensitivity Analysis for Core Financial Inputs
Where STDB = standard deviations between or standard deviations / mean value
- 40 -