South Valley Winery
Table of Contents
1.0 Introduction ................................................................................................................... 4
1.1 Industry Overview ................................................................................................ 4
1.2 Mission Statement................................................................................................. 5
1.3 Goals and Objectives ............................................................................................ 5
1.4 Project Benefits ..................................................................................................... 5
2.0 Policy ............................................................................................................................ 6
2.1 The Cottage Winery .............................................................................................. 6
2.2 Sales and Marketing .............................................................................................. 6
3.0 Operations Plan ........................................................................................................... 7
3.1 Location ................................................................................................................ 7
3.2 Winemaking Process Plan..................................................................................... 9
3.3 Floor Plan ............................................................................................................ 12
3.4 Average Business Cycles .................................................................................... 14
3.4.1 Average Business Day ............................................................................. 14
3.4.2 Average Business Month ......................................................................... 15
3.4.3 Average Business Year ............................................................................ 15
3.5 Captial Budget .................................................................................................... 16
3.6 Operating Expenses ............................................................................................ 17
4.0 Human Resources Plan ............................................................................................. 18
4.1 Human Resource Strategy................................................................................... 18
4.2 Organizational Structure ..................................................................................... 19
4.3 Job Descriptions .................................................................................................. 20
4.4 Training ............................................................................................................... 22
4.5 Future Human Resources .................................................................................... 23
5.0 Marketing Plan .......................................................................................................... 23
5.1 Current Market .................................................................................................... 23
5.2 Competition......................................................................................................... 26
5.2.1. Direct Wine Competition ........................................................................ 26
5.2.2 Indirect Wine Competition ...................................................................... 26
5.2.3 Indirect Tourist Competition.................................................................... 27
5.3 Product and Service Features .............................................................................. 27
5.3.1 Product ..................................................................................................... 27
5.3.2 Service...................................................................................................... 28
5.4 Customers and Target Markets ........................................................................... 28
5.5 Promotion............................................................................................................ 30
5.6 Pricing Policy ...................................................................................................... 32
5.7 Distribution Channels ......................................................................................... 33
5.8 Sales Objectives .................................................................................................. 33
5.9 SWOT Analysis .................................................................................................. 34
5.9.1 Strengths .................................................................................................. 34
5.9.2 Weaknesses .............................................................................................. 34
5.9.3 Opportunities............................................................................................ 35
5.9.4 Threats...................................................................................................... 35
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South Valley Winery
6.0 Financial Plan.............................................................................................................. 35
6.1 Loan Amortization .............................................................................................. 36
6.2 Dividend Policy .................................................................................................. 37
6.3 Economic Forecast .............................................................................................. 38
6.4 Unit Cost Analysis .............................................................................................. 38
6.6 Summary of Financial Results ............................................................................ 41
6.7 Sensitivity Analysis ............................................................................................ 42
6.8 Breakeven Analysis ........................................................................................... 44
7.0 Conclusion .................................................................................................................. 46
8.0 References ................................................................................................................... 47
Appendix A: Cottage Winery Policy ................................................................................ 49
Appendix B: Financial Projections ................................................................................... 50
Appendix C: Okanagan University College Wines Sales Course .................................... 51
List of Figures
Figure 3.1.1. Proposed site plan for the South Valley Winery. .......................................... 8
Figure 3.2.1. Process Plan Flow Chart ................................................................................ 9
Figure 3.2.2. Fruit Crusher and Primary Fermentation Tank ........................................... 10
Figure 3.2.3. Basket Press and Storage Tanks with Floating Lids ................................... 11
Figure 3.2.4. Plate Filter ................................................................................................... 11
Figure 3.2.5. Wine Bottler ................................................................................................ 12
Figure 3.3.1. Floor Plan .................................................................................................... 13
Figure 3.4.1. Schedule of yearly business activities ......................................................... 15
Figure 4.2.1. Organizational Structure .............................................................................. 19
Figure 5.1.1. Wine sales in Canada over ten years. ......................................................... 25
Figure 6.4.1. Distribution of costs per unit in various production years. ......................... 39
Figure 6.7.1. Sensitivity analysis of the IRR .................................................................. 44
Figure 6.8.1. Breakeven Analysis of Average Selling Price............................................. 45
Figure 6.8.2. Breakeven Analysis of Quantity of Cases Sold ........................................... 46
List of Tables
Table 3.5.1. Capital Budget Summary ............................................................................. 16
Table 3.6.1. Direct Material Purchases ............................................................................. 17
Table 3.6.2. Direct Labour and Benefits ........................................................................... 17
Table 3.6.3. Manufacturing Overhead Costs .................................................................... 18
Table 3.6.4. Cost of Goods Manufactured ........................................................................ 18
Table 4.3.1. Labour cost projected for ten years.............................................................. 22
Table 5.1.1. Prices of fruit wines in B.C and Ontario ....................................................... 23
Table 5.5.1. Marketing cost estimations for 10 years. ...................................................... 32
Table 5.6.1. Prices per bottle of production showing increases with inflation. ................ 33
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South Valley Winery
Table 5.8.1. Projected sales and revenues for South Valley Winery ............................... 33
Table 6.0.1. Financing ...................................................................................................... 36
Table 6.1.1. Amortization Schedule ................................................................................. 37
Table 6.2.1. Dividends Paid .............................................................................................. 38
Table 6.4.1. Unit cost breakdown of producing and selling wine. ................................... 39
Table 6.5.1. Summary of financial ratios .......................................................................... 41
Table 6.6.1. Summary of Financial Results ...................................................................... 41
Table 6.7.1. Scenario Analysis ......................................................................................... 42
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South Valley Winery
1.0 Introduction
1.1 Industry Overview
The Saskatchewan fruit wine industry is in the beginning stages of the product lifecycle
and is rather undeveloped. The Cottage Winery Policy formed in May 2002 has laid out
regulations and rules for the development and operation of small fruit wineries in
Saskatchewan.
The policy outlines maximum and minimum production levels and
provides the winemakers with a discounted liquor tax rate on their production. Currently
there are two other fruit wineries in Saskatchewan that are not aggressively marketing
and producing products.
The fruit wine industry in Canada is becoming well developed in both British Columbia
and Ontario. Wineries have a broad product selection consisting of fruit wines, ice wines
and port wines. Besides selling wines, many wineries add tourist components to their
business such as tours, tasting, a restaurant, or a farmers’ market. The Fruit Wines of
Canada is a national producer’s association, which provides quality certification labeling
to its members modeled after the Vintner’s Quality Alliance. This organization promotes
Canadian fruit wine and creates markets both domestically and internationally for fruit
wine.
The grape wine industry is also a market in which fruit wine is competing. Currently it is
offering a diverse product line with a variety of high quality wines to choose from at
reasonable prices. The grape wine industry is well-developed with faithful customers
who preferentially purchase this type of wine.
Across Canada wine consumption has been increasing. Although wine consumption is
low in Saskatchewan, there is potential to initiate a trend in wine consumption and
increase the market share.
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South Valley Winery
1.2 Mission Statement
South Valley Winery will work as a family business to establish profitable value added
fruit products while facilitating the development of the fruit wine market in
Saskatchewan.
1.3 Goals and Objectives

Create a significant value-added agricultural industry

Establish an image and name for the product

Create a tourist attraction along one of Saskatchewan’s busiest highways

Maximize production at 5000 cases

Provide a diverse product line expanded from Rhubarb, Saskatoon, Chokecherry, and
Raspberry wines to include sour cherry, black current, port and ice wines

Provide at least 20% return on equity

Become a member of The Fruit Wines of Canada, producing recognized quality fruit
wine products
1.4 Project Benefits
The development of the fruit wine industry in Saskatchewan will bring numerous benefits
to the province:

The high quality of dry fruit wine will be a reasonably priced substitute for many of
the imported table wines, keeping money in Saskatchewan.

The Cottage Winery policy ensures that the fruit ingredients are Saskatchewan grown,
helping to provide market and demand for Saskatchewan fruit production.

The value-added nature of the wine product will help to diversify the economy and
increase the industry within Saskatchewan.

South Valley Winery will provide jobs for some area residents and attract tourists
along with their spending money to the area.
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South Valley Winery
2.0 Policy
The South Valley Winery will be regulated under the Saskatchewan Liquor and Gaming
Authority (SLGA) Cottage Winery Policy.
Introduced in May of 2002, the policy
(Appendix A) outlines the operations for the winery. In order to operate and sell wine
from a cottage winery, the owner and the SLGA must sign a contract made under the
policy. The discussion that follows outlines the main policy and how it will affect the
operations at the South Valley Winery.
2.1 The Cottage Winery
Under the SLGA’s policy, in order to have the designation of a “cottage winery” the
winery must:

Maintain a minimum annual production of 4,500 L (500 cases) and not
produce over a maximum of 45,000 L (5000 cases).

Be situated on principal farm property, and produce and sell $20,000 or more
in agricultural product annually, or derive 50% or more of its gross income
from its own agricultural production.

Obtain a Manufacturer’s Permit from the SLGA that is renewable on an
annual basis for $500.00. (A $200.00 one-time application fee at time of
initial application is also required).

Utilize no less than 65% of Saskatchewan grown fruit, and no less than 25%
of fruit grown by the winery on land owned or leased by the owner of the
winery. Outside sources can be blended to a maximum of 35%.
Providing the conditions are maintained, the winery will not be classified as commercial
and a reduced tax of $0.53 per litre will be paid.
2.2 Sales and Marketing
The policy outlines a strict guideline on how the product can be priced and marketed.
Any alcoholic products sold must be registered with the SLGA by completing a listing
application form. As part of the registration, a display price that includes the cost of the
wine, taxes and mark-up that the SLGA puts on the wine is established. This established
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South Valley Winery
price cannot be changed unless an agreement is made between the SLGA and owner of
the winery. Any wine sold must also have a Shipping Container Code and a Universal
Product Code.
Wine may be sold on premises from a retail store, through SLGA stores, and to special
occasion permit holders. The wine sold at the winery must be sold at a price equal to, or
exceeding the display price (as described above) and the winery pays only a $0.53 per
litre tax, retaining the difference between cost of manufacturing and selling price. If
selling wine through the SLGA, the SLGA will keep the difference between the cost of
the wine and display price. Sales to special occasion permit holders will be conducted
through the store and therefore be similar to the sales from the retail. Therefore, in order
to maximize profits, wine sales must be conducted through the retail store or to special
occasion permit holders.
To promote the product, the retail store will have a hospitality room for wine tasting and
will provide tours through the winery. Delivery of the wine may also be offered. Signs
may be displayed once approved by the SLGA and the Department of Highways if
located close to a highway. All external and media advertising must have prior approval
of the SLGA, which includes radio ads, brochures and web pages. The retail store may
be open in accordance with government and/or local municipal regulations (9.00am10:00pm Mon-Sat, 12:00am-6:00pm Sun).
3.0 Operations Plan
3.1 Location
The South Valley Winery will be located east of Regina on the No. 1 Trans-Canada
highway near Balgonie. The site was strategically placed in this location to attract
summer tourists that will be passing by during the busy months of June, July and August.
Off-ramps currently in place enable drivers to make an easy exit to the winery. The
winery site is three acres in size, two of which will be used for fruit production in future
years. Beautiful landscaping will envelop the main building, as well as the perimeter of
the yard, providing an aesthetically pleasing atmosphere enticing potential customers to
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South Valley Winery
stop in. The site plan is functional, as all the materials that are required can be loaded and
unloaded by a half-ton truck at the loading dock.
Tree Row
N
Parking
W
Enter
E
To Regina
Main Building
Highway #1
Tree Row
Tree Row
To Edenwold
To Balgonie
Rhubarb
Highway # 364
Raspberries
Raspberries
Saskatoon Berries
Saskatoon Berries
Loading Dock
S
Exit
Entrance
Entrance
To Pilot Butte
Highway #46
Figure 3.1.1. Proposed site plan for the South Valley Winery.
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South Valley Winery
3.2 Winemaking Process Plan
Fruit
Crusher
Fruit Delivery
In Crates
Primary
Fermentation
pump
Filter
3X
pump
Storage
Tank
pump
Ratchet
Press
pump
Bottler
Corker
Packaging
Distributed to Special Permits
Retail Sales
Storage
Figure 3.2.1. Process Plan Flow Chart
1.
The process of winemaking begins with the delivery of very ripe, or frozen fruit.
The berries are placed in a manually operated roller fruit crusher (Figure 3.2.2), and
crushed into a primary fermentation tank.
2.
The fermentation process begins by adding water, sugar, acid, pectic enzymes and
yeast to the refrigerated primary tank. For a batch of wine to yield 1000L, 1000L of water
is added to 1000 lbs of crushed fruit in the primary tank.
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South Valley Winery
The sugar is added to convert the yeast to alcohol. The amount of sugar added
will determine the final alcohol content of the wine. Acids are added to maintain the
desired pH of the wine. Wine low in acidity is often flat, while wine that is overly acidic
is usually tart. Wine acidity and pH have an inverse relationship, the lower the pH, the
higher the acidity. Pectic enzymes are added to consume pectin to clarify the wine and
help extract flavour and colour from the fruit.
The slurry remains in the primary tank for 15-20 days and is stirred twice a day,
meanwhile being monitored for sugar and alcohol content with a hydrometer. Once the
sugar has all been converted to alcohol, the wine is ready for the next step in the process.
www.beer-wine.com
www.vintekaus.com
Figure 3.2.2. Fruit Crusher and Primary Fermentation Tank
3.
The pulp and wine mixture is pumped into a ratchet basket press (Figure 3.2.3),
where the liquid is manually pressed off the pulp and then transferred to an air-tight
storage tank, where the wine will be stabilized and clarified over the next two to three
months.
4.
In the storage tank the wine is stabilized with sulfur dioxide (SO2) to inhibit wild
yeast growth and to protect from air oxidation and browning. SO2 levels are monitored
daily; once the wine is stabilized, it is clarified with Sparkalloid® to drop out any
remaining yeast cells, tannins and complex materials.
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South Valley Winery
www.midwestsupplies.com
http://crivellerbrew.com
Figure 3.2.3. Basket Press and Storage Tanks with Floating Lids
5.
Once the vintner is satisfied with the taste, colour and SO2 levels, the wine is
filtered through a plate filter (Figure 3.2.4). This filtration will occur three times prior to
bottling, each time with a filter of a smaller porosity.
Aspen Grove Winery
Figure 3.2.4. Plate Filter
6.
The finished wine is pumped back into a storage tank and is now ready to be
bottled. The wine flow is regulated into the reservoir of the bottler where it streams down
six spouts and into the bottles, which are manually removed and replaced with new
bottles (Figure 3.2.5).
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South Valley Winery
Aspen Grove Winery
Figure 3.2.5. Wine Bottler
7.
The bottled wine is then passed to the corker, where it is manually corked. Plastic
shrink-wrap is placed over the neck of the bottle and heated with a heat gun to seal the
wrap tightly. The adhesive labels are then applied to the bottles, and the finished product
is packaged in cases of twelve bottles. Finally, the cases are then moved into storage as
finished inventory.
3.3 Floor Plan
The floor plan of the winery is designed to make the process of winemaking flow as
smoothly as possible, as well as to facilitate tasting and tours. The front of the building
consists of a comfortable showroom where tasting and retail sales will occur. The
commercial area of the winery is spacious, and makes transferring of wine as easy as
possible. There is ample room for tours consisting of large numbers. The finished
inventory storage and cold storage are both located at the rear of the building, near the
loading dock, to ensure efficient transfer of inventory. The manager’s office is centrally
located so that he can easily access both the processing and the retail areas.
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South Valley Winery
42 feet
Loading
Dock
Cold
Storage
Finished
Inventory
Crusher
Filter
Pump
Primary
Fermentation
Tank
60 feet
Secondary
Fermentation
Tanks
Bottling
Area
Basket Press
Office
Office
Showroom
Retail
Counter
Figure 3.3.1. Floor Plan
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South Valley Winery
3.4 Average Business Cycles
South Valley Winery’s average business day, month, and year will vary throughout the
year due to the seasonality of the business. The retail store will only be open for a few
months during the summer, typically from June until September. Peak wine production
will be tied in with the growing season and will start when the first fruit is picked at
approximately the end of July, and continue throughout the fall and winter. In the first
few years with low amounts of production the winemaking process will conclude in the
middle of April. Once production increases, winemaking will become a year round
procedure with the average batch taking approximately 12 weeks to complete. South
Valley Winery will consist of two full time workers including the manager and the
marketer, as well as part time seasonal staff helping in the busy times of the year. The
seasonal staff will include two part-time employees to operate the retail counter from
June until September as well as five part-time employees to help with bottling and
packaging of the wine at various times throughout the year.
3.4.1 Average Business Day
As mentioned earlier, the average business day will vary due to the seasonality of the
business. During the summer months the retail store will operate seven days a week,
with two part-time employees working shifts at the retail counter. The manager will be in
charge of human resources, winemaking operations, conducting wine tours, as well as
being in charge of all of the day to day decisions of the business. The manager will have
to budget his time between these tasks as he is also required to obtain market share, and
attract new customers to the business. The full time marketer will also be in charge of
obtaining new clients, and will spend a great portion of the day on the phone, and on the
road promoting South Valley’s product to the public.
Marketing strategies will be
implemented in a team atmosphere by both the manager and the marketer in an attempt to
attract not only tourists and locals to the business, but to make South Valley Winery
accessible to the province through special event permits as well as promotional bus tours.
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South Valley Winery
3.4.2 Average Business Month
The average business month will also vary throughout the year with the summer months
being the busiest for sales, and the fall and winter months being the busiest for
production. The manager will be in charge of ordering inventories, paying bills, as well
as continuing on with wine production. Winemaking supplies will be bought in bulk and
typically purchased once in the summer. Monthly financial statements will be produced
and analyzed by the manager to show where the business is strong and what areas need
improvement. These financial statements will be very critical in making all decisions in
this ever-changing business, as well as developing a targeted marketing strategy for the
upcoming months. The marketer will be responsible for implementing the marketing
strategy by attending trade shows, conducting wine tasting in restaurants, and by
promotion throughout the province. Depending on the individual situation, the manager
or the marketer will conduct wine deliveries to special event permit holders.
3.4.3 Average Business Year
The average business year will consist of retail sales occurring during the summer
months along with winemaking, special permit sales and marketing occurring throughout
the year.
In South Valley Winery’s initial years the bulk of the focus will be on
marketing and developing the fruit wine market. The later years will focus on
maintaining and increasing this market, in order to reach maximum production.
Wine Production
Jan
Feb
Mar April
Promotion and
Marketing
Wine Production
May June July
Aug Sept Oct
Nov
Dec
Retail and tours on
location
Figure 3.4.1. Schedule of yearly business activities
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South Valley Winery
3.5 Captial Budget
Table 3.5.1 shows that the total capital expenses will be $214,268. This cost includes the
land, building, equipment, and working capital.
The maximum capacity of wine
production for the beginning capital budget is 1000 cases of wine per year. If expansion
of production is 1000 cases every second year, additional capital expenses of
approximately $5,000 will be required for additional storage tanks. This is because the
tanks are the limiting factor in production. Expanding to 3000 cases will also require
another primary fermenter for the price of about $6,500. Costs were estimated from
reputable businesses and suppliers. All sources of equipment are in Table 3.5.1. A
detailed outline of capital expenses over a 10 year period is in Schedule 6 (Appendix B).
Table 3.5.1. Capital Budget Summary
Description
Land
Site Setup:
Building
Sewage System
Natural Gas Installation
Electricity Installation
Town Water Installation
Landscaping
Total Cost
Production Equipment:
Primary Fermenter
Basket Press
Filter
Pump
Storage Tanks
Bottle Filler
Bottle Corker
Hydrometer, Thermometer
pH meter and probe
SO2 detector
Fruit Crusher
Walk in Freezer
Used Garden Tractor
Pallet Jack
Irrigation
Office Equipment
Total Equipment Costs
Total Working Capital
Total Capital Costs
Estimated
Cost ($)
10,000
63,000
3,500
8,000
25,000
14,300
3,500
127,300
6,500
1,000
5,600
1,000
4,800
800
50
500
600
500
400
14,000
5,000
429
700
3,000
44,879
41,986
214,165
Source
Goodon Industries
Wigs Pumps and Waterworks
Sask Energy
Sask Power
Balgonie
Lakeshore Garden Centre (Saskatoon)
Capacity/Quantity/Source
800 gal. - 1 - Dairyland Agro
110 Litre - 1 - The Compleat Winemaker
20 plates - Criveller Co. (Ont.)
20 gpm - 1 - The Compleat Winemaker
1000 Litre - 4 - Criveller Co. (Ont.)
4 nozzle - 1 - The Compleat Winemaker
Single corker - 1 - Wine Kitz
1 – Fisher Scientific
1 – Coal Parmer (Montreal)
1 - R & D Equipment (California)
33" x 22" x 14" - The Compleat Winemaker
1 - 9'x9' - D & C Refrigeration (Saskatoon)
20 hp mower and rototiller - Private Deal
2 ton capacity - 1 - Princess Auto
Drip – Rainmaker Irrigation (Outlook)
Desk, Computer, Filing System
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South Valley Winery
3.6 Operating Expenses
Operating expenses consist of direct materials, labour, and overhead manufacturing costs.
Direct material costs were obtained from unit costs.
Table 3.6.1. Direct Material Purchases for year 1
Fruit Purchased (lb)
Rhubarb
Raspberries
Saskatoon berries
Chokecherries
Sugar (Kg)
Yeast (Package)
Acid Blend (g)
Pectic Enzyme (g)
Yeast Energizer (g)
Campden (tablet)
Clarifier (g)
Cost ($)
2,250
6,750
6,750
2,250
1,152
288
457
364
281
110
257
Water
25
Labels
3,000
Corks
3,540
Bottles
Shrink Wrap
Filters
Total Direct Materials
7,080
1,200
405
36,160
Table 3.6.2. Direct Labour and Benefits for year 1
Permanent Labourer
Benefits for Salary Employees
Bottler wage
Benefits for bottlers
Total Direct Labour + Benefits
15,000
1,617
1,800
298
18,715
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South Valley Winery
Table 3.6.3. Manufacturing Overhead Costs for year 1
Variable
Freight and Pallet Charges
Maintenance
Total Variable Overhead
Fixed
Natural Gas
Insurance
Property Taxes
Capital Cost Allowance
Electricity
Total Fixed Overhead
Total Manufacturing Overhead
360
300
660
1,250
750
1,000
8,104
1,440
12,544
13,204
The total cost of goods manufactured can be seen in Table 3.6.4. These values are also
available in schedule 3 of the financial model in Appendix B.
Table 3.6.4. Cost of Goods Manufactured
Direct Materials
Direct Labour Used
Manufacturing Overhead
Total Cost of Goods Manufactured
36,160
18,715
13,204
68,079
4.0 Human Resources Plan
4.1 Human Resource Strategy
South Valley Winery, as laid out in its mission statement, is a family oriented business.
This is reflected in the organization of the human resources and the employees. With
restricted production levels, a cottage winery will never reach a size where highly
automated equipment is required. Although a very manual process, one person, with the
exception of a few production steps requiring some extra help, can feasibly complete the
tasks to run the winery. Due to the nature and size of the business South Valley Winery’s
employee numbers are low, but skills high. Marketing plays a central role in the success
of the business, and due to the great importance of marketing, a separate position will be
in place to address this issue.
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South Valley Winery
In order to ensure that employees are working to their full potential to benefit the winery
and its sales, an incentive program for the manager and marketing position will be
implemented. Using gross margin as a performance measure, the marketer and manager
will receive a wage plus a bonus of 2.5% of gross margin. Gross margin being directly
tied to amount of product sold, revenues, and the cost of goods manufactured, the
marketer and manager will get higher wages providing they sell more product, and
produce it as efficiently as possible.
The salaries for part-time workers are above
minimum wage and quite competitive for retail part-time work and therefore should
allow for selection of quality employees.
4.2 Organizational Structure
South Valley Winery will be a corporation owned by Rod and Jeanne Flaman. Their son
Nick Flaman will be responsible for the management, a marketer will be hired and a few
part-time positions will be available during peak sales and busy production times.
Directors/Shareholders
Rod and Jeanne Flaman
Manager
Nick Flaman
Part-time
Tours/retail sales
(2)
Part-time
Bottling help
(5)
Full-time
Marketer
(1)
Figure 4.2.1. Organizational Structure
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South Valley Winery
4.3 Job Descriptions
Shareholders/Directors: Rod and Jeanne Flaman will primarily be involved with
the winery by aiding the manager with decisions regarding winery objectives and
production levels.
Manager: The most intensive position, the manager, Nick Flaman must be able to
perform a large variety of tasks. Due to the small size of the business and the time each
task takes it is most realistic to have one person perform all of these tasks to save on
costs. Nick’s time will need to be divided between the following activities:
Wine Production: During wine production periods the wine needs to be monitored
daily, stirred and transfers completed as outlined in the production section. Nick will be
responsible for performing the daily checks and scheduling extra help when needed.
Securing outside berry supply and wine ingredients will also be the manager’s
responsibility.
Marketing: Marketing will prove to be one of the more challenging activities and
key to the success of the business. Although there is a full time marketing position, Nick
will need to allocate some of his time to marketing to ensure adequate sales.
Overseeing retail sale: During the summer months when the winery is open for
retail sales and tours, Nick will be responsible for hiring a part-time employee to conduct
tours, run tasting sessions, sell wine and accessories from the store, and look after site
maintenance.
Book-keeping: The manager will keep track of the finances and complete monthly
and yearly assessments of financial goals.
Starting salary for the manager will be $35,000, with a bonus of 2.5% of gross
margin. His salary will be allocated as $15,000 for production work and $20,000 for
work with management and marketing.
Marketer: Without product sales the winery will not succeed. In order to ensure
that there is a market for wine production a marketer will be hired. The main goals of the
marketer will be to create a product image to increase demand for authentic
Saskatchewan fruit wine and source out new markets. Looking into developing markets
with restaurants, tour buses and other promotional activities will be imperative. The
marketer will be responsible for attending various trade-shows, bridal shows, and
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South Valley Winery
promoting the fruit wine industry development in Saskatchewan. The marketer will be
hired for only half of the first year as the business begins production. Afterwards it will
be a full time position. Salary for the first year will be $17,500 and there after be
$35,000 plus a bonus of 2.5% of gross margin.
Part-time Retail staff: Two part-time positions will be filled to run the winery
retail store for the months of June, July and August. Besides selling wine their duties will
include conducting tours and tasting, maintaining store cleanliness, and site maintenance.
An hourly wage of $9.00 will be paid. Open for three months, the part-time retail sales
will have approximately 700 hours divided between the two positions to allow for time
off. The winery should not have a problem filling this position as it is located close to
Regina and it pays a sufficient wage.
Part-time bottling staff: As bottling is a very labour intensive step in winemaking,
additional help will need to be hired. Jobs will include bottle preparation, labeling,
corking, and shrink-wrapping bottles for distribution. A wage of $8.00 an hour will be
paid to each of the five employees. In the first year ten batches will require 80 hours of
labour per person.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Table 4.3.1. Labour cost projected for ten years.
2004
Marketing/Sales Labour
Manager
Marketer
Benefits
Total Salaries
Seasonal Retail Student Wage
Hours
Benefits
Total Season Wage
Total Marketing/Sales Labour +
Benefits
Production Labour
Permanent Labourer
Benefits for Salary Employees
Total Salaries
Part-Time Bottler Wage
Hours
Benefits for Wage-Earning
Employees
Total bottler wage
Total Direct Labour + Benefits
2006
2008
2010
2012
$20,000
$17,500
$3,293
$40,793
$9.00
700
$919
$7,219
$24,279
$40,039
$5,647
$69,965
$9.46
700
$965
$7,584
$27,480
$44,037
$6,279
$77,796
$9.93
700
$1,014
$7,968
$31,700
$49,096
$7,094
$87,890
$10.44
700
$1,065
$8,371
$36,219
$54,495
$7,965
$98,679
$10.97
700
$1,119
$8,795
$48,011
$77,549
$85,764
$96,262
$107,474
$15,000
$1,617
$16,617
$8.00
225
$15,759
$1,699
$17,458
$8.41
450
$16,557
$1,785
$18,342
$8.83
675
$17,395
$1,875
$19,271
$9.28
900
$18,276
$1,970
$20,246
$9.75
1125
$298
$2,098
$18,715
$627
$4,409
$21,868
$988
$6,949
$25,291
$1,384
$9,734
$29,005
$1,818
$12,784
$33,030
4.4 Training
In order for a business to succeed, it must have the right people to carry out the daily
activities and promote the business. The manager will be the key person in ensuring the
success of the business.
Nick Flaman is a recent graduate from the University of
Saskatchewan with an Agriculture Degree. In order to market the product and produce
consistent high quality wine he will need to be trained. A professional vintner, Dominic
Rivard, routinely helps people develop recipes and learn to make fruit wines. Dominic
will be hired to assist Nick with the technical aspects of wine production. A course in
wine sales is also available at the Okanagan University College (OUC) in Penticton
(Appendix C). The 117 hour course covers winemaking, wine store promotions, wine
marketing and wine sales at a tuition cost of $970 (OUC Course Calendar). The other
positions will be trained effectively on the job.
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South Valley Winery
4.5 Future Human Resources
As long as the winery remains a cottage winery, no additional positions are planned. If
the winery expands to maximum production and finds that current human resources are
insufficient, the situation will be re-evaluated and perhaps extra positions will be added.
5.0 Marketing Plan
5.1 Current Market
Fruit wines are commercially produced by more than 53 licensed wineries in nine
provinces (including Saskatchewan), making the fruit wine industry truly national in
scope. Canada is commonly regarded as one of the world’s leading fruit wine producing
countries. However, the development of this industry has not been without setbacks. In
the past, fruit wines made from loganberries, blackberries and apples dominated British
Columbia’s wine market. Initially these fruit wines were regarded as undesirable and
much too sweet. This reputation tarnished the industry for a considerable period of time
and is still a common perception among consumers in the western regions of Canada.
The fruit wine industry in the eastern regions of Canada tends to be stronger with a welldeveloped industry in Ontario. Wineries in this region market high quality dry fruit
wines, dessert wines, ice wines and ports at highly competitive prices comparable to
grape wines (Table 5.1.1.).
Table 5.1.1. Prices of fruit wines in B.C and Ontario
Eastern
Type of Wine
B.C Prices*
Prices*
Apple
$10.09
$ 9.95
Raspberry
$11.95
$ 11.95
Strawberry
$13.95
$ 11.95
Pear
$13.95
$ 12.95
*Prices averaged from Bellamere Country Wines, Archibald Orchards Estate and Cox
Creek Winery for Eastern prices, Columbia Valley Classics Winery, Elephant Island
Orchard Wines and Fort Wines wineries for B.C prices.
The strength of the fruit wine market is growing throughout Canada, in both eastern and
western areas thanks to the establishment of the Fruit Wines of Canada in March 2000.
The Fruit Wines of Canada, a national producers' association, was formed from the
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
existing Fruit Wines of Ontario association. The Federal department of Agriculture and
Agri-Food provided $84,000 through the Agri-Food Trade 2000 program to help with
strategic planning, benchmarking of the current industry, and identifying domestic and
international market opportunities. The goal of the Fruit Wines of Canada is to establish
standards for the production of quality 100% Canadian fruit wines. The organization
developed national fruit wine standards, a certification process, an audit process, a quality
certification logo and a generic marketing strategy to address domestic and international
needs. The Quality Certified (QC) standards, modeled on the highly successful Vintners
Quality Alliance (VQA) quality standards system of the Canadian grape wine industry
ensures that certified wines meet and exceed the strict standards set by the QC. Some of
the standards included:

Wine must be made from an authorized fruit species. Grapes are not authorized.

Wine must be made from 100% fruit or juice from the region specified

Wine must pass a stringent lab test.

A qualified tasting panel must evaluate wine and deem the wine to be free of
faults including ensuring the fruit species character is expressed in the aroma and
flavour of the wine.
Acting as a guarantee of quality for consumers, the establishment and recognition of the
QC quality standards is essential for increased sales in Canada and internationally. The
association has 16 representatives from all of Canada's fruit wine producing regions.
Two representatives from Western Canada, seven from Ontario, three from Quebec and
four from the Atlantic Provinces; representatives per region are based on the current
number of licensed fruit wineries in each region. The association also has annual awards
to showcase premium wines from the member wineries.
Further information on
standards and how to become a member can be obtained by calling (877) 839-6447 or
visiting http://www.fruitwinesofontario.com/standards.htm.
Current fruit wineries in both eastern and western regions of the country boast much
more than simply wine sales. Almost all wineries include tours, tasting and special
events on location. Often wineries are combined with retail stores, country markets or
restaurants to create a tourist attraction as well as a wine store. When implementing tours
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
and tasting, wineries take different approaches. For example, some provide the services
for free, while established wineries on well-traveled routes charge tour fees.
The wine market as a whole, consisting of grape and fruit wines, is small in
Saskatchewan. Annual consumption of all types of wine is well below the national
average. Canadians consume 12.2 L per capita annually, compared to Saskatchewan
where 4.9 L is consumed. According the SLGA’s year end review of sales, total wine
sales slipped 0.44% during 2001 in Saskatchewan, while they increased 4.88% nationally
(Figure 5.1.1.). When buying grape wines, the trend is to purchase imported wines. The
red table wines of Australia have seen significant growth in past years. However, the
increase in sales of domestic ice wines and the Canadian Vintners Quality Alliance wines
provides hope to expanding the market in Saskatchewan.
It is possible that when
marketed correctly, fruit wine grown locally could enter this niche. One thing remains
clear from analyzing the market, it will be essential to provide a strong product image and
Sales ($ millions)
provide exceptional services to ensure sales.
3300
3100
2900
2700
2500
2300
2100
1900
1700
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
19
91
1500
Year
Figure 5.1.1. Wine sales in Canada over ten years.
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South Valley Winery
5.2 Competition
The competition for South Valley Winery can be broken into two categories, including
the competition from other wineries and substitute wine products, as well as the indirect
competition from other tourist industries in the province.
5.2.1. Direct Wine Competition
Direct competition for South Valley will come from the Aspen Grove Winery located
south of White City, 10 km from the South Valley location. Comparable to South Valley,
Aspen Grove is a family operated fruit winery, and has similar product and service goals.
Both wineries will be selling their product to tourists on site, but South Valley feels they
can capture a larger share of this market being located on a major highway with heavier
traffic. Aspen Grove is taking a different approach to marketing by selling their product
to liquor board stores, as opposed to the special permits market that South Valley is
pursuing. With the full time marketer aggressively promoting South Valley’s product to
the public, there is currently no strong direct competition.
5.2.2 Indirect Wine Competition
Indirect competition poses more of a threat and will include products other than fruit
wines that are substitutes. These products include grape wines and wine coolers sold at
liquor board stores and off-sale locations, in addition to winemaking ingredients and wine
kits sold to consumers who produce their own wine. Bottled wines in which South
Valley will be competing with in liquor stores are priced from $6.00 to $20.00. South
Valley’s average selling price is $10.30 per bottle. The marketer will try to attract
potential consumers to pay this price by promoting a differentiated product and by
making the product available by free delivery to special permit customers.
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South Valley Winery
5.2.3 Indirect Tourist Competition
Indirect tourist competitors include other businesses and facilities along highways and in
cities that may indirectly attract potential customers away from the winery. If a family is
travelling past the winery and has recently made a stop from their travels to visit another
tourist establishment, they are less likely to come and see the winery. These types of
attractions include the Craft-Tea Elevator Restaurant in Indian Head, the Regina Science
Centre and Parliament buildings, the Moose Jaw Tunnels and Western Development
Museum, and the Chaplain Lake Shorebird Preserve in Chaplain.
Similar to South
Valley Winery, the Chaplain Lake Shorebird Preserve and the Craft-Tea Elevator are
located on the No. 1 highway and are designed to appeal to drivers passing by. It is the
winery’s aim to have the majority of traveler’s stop in to tour its venue as opposed to the
others. This goal will be attained by large, attractive signage, in addition to the novelty
of having a winery, with free tasting and tours, on a Saskatchewan highway. If a
vacationer recently visited a tourist attraction in one of the neighboring cities it is
probable that they were charged an admission of some sort. South Valley’s hope is that
by offering a novel and free experience the appeal will be large enough for the customer
to visit before continuing on with their voyage.
5.3 Product and Service Features
5.3.1 Product
South Valley Winery will sell a physical product of Rhubarb, Saskatoon, Chokecherry,
and Raspberry fruit wines with a two-year shelf life, but it will also sell much more than
the physical product. South Valley Wine is unique because it is made in Saskatchewan
with native and locally grown fruits.
Customers can experience a taste that is
authentically Saskatchewan. Not only is it made from fruit grown in Saskatchewan, but
also each bottle is carefully made directly by the vintner, a local Saskatchewan resident.
The wine at South Valley Winery comes directly from the vintner’s home to yours.
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South Valley Winery
5.3.2 Service
People who buy the wine directly from the winery can come away with a memorable
experience. There will be taste sessions available, along with tours of the winery so each
customer can understand how their wine was produced. The winery will also be a
pleasant area to visit. Boasting beautifully landscaped grounds and picnic areas, it makes
the winery an interesting and pleasant roadside stop for tourists on their way by.
Residents of Regina and surrounding area can enjoy stopping by the winery to see what is
new and visit with the vintner--an escape from regular routines. One might come to buy
wine, but will leave with fond memories in addition to the wine.
Customers with large orders and special occasion permit holders can enjoy free delivery
of the wine to their event. South Valley’s wine will be sure to satisfy the guests’ tastes
while being an attraction for out of province guests.
In the future, an expansion of the product line will hopefully provide greater selection
and the potential to secure more sales. Hopeful expansions include the addition of sour
cherry, black current, Port, and ice wines.
5.4 Customers and Target Markets
Wine is a luxury good that people do not need. Therefore it is South Valley’s job to
make them want to buy wine. With this in mind it is important to carefully define the
target customer profile.
People who purchase wines are typically both males and females aged 35-64, with an
income of $35,000+ to allow for disposable income (Al Barber, SLGA Retail Services
Branch). Other wine purchases are made by individuals and groups for special functions
like dances, socials, weddings, anniversaries and other special events.
South Valley Winery will specifically be targeting two customer groups in specific
markets; sightseers and special event permit holders. Sightseers include tourist traffic
along the highway and area residents. The target market population in a 25-mile radius
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South Valley Winery
around the winery including the cities of Regina and Moose Jaw is approximately 80,000
representing a large potential base of customers. Last year 1,407,000 people visited
Regina and generated $194.9 million in consumer spending. The reasons that people
traveled to Regina varied from: visiting friends and relatives (38%), pleasure trips (28%)
and business trips (21%). The majority of these tourists travel between the months of
May to August. Being open from June to August aims to attract a number of these
visitors on their travel down one of the busiest tourist highways in Saskatchewan, the
Trans Canada Highway. Based on the traffic that other tourist attractions in the area
receive, including the Craft-Tea Elevator at Indian Head, and the Western Development
Museum in Moose Jaw, an average of 50 visitors is expected per day. Providing that
sixty percent of the people that visit the winery will purchase one bottle of wine, in the
summer approximately 225 cases of wine could be sold directly to tourists, not including
the local market. With the local market running year round, wine sales directly from the
winery could approach 300 cases, with expansion as the market is developed.
In the province of Saskatchewan the liquor board grants roughly 20,000 permits annually
for liquor at private functions. Typically these functions average wine consumption of 68 cases. By capturing only one percent of the permits granted, the winery could sell
approximately 1400 cases of wine. The potential for growth into this market is great and
the winery could access a greater number of permits as production increases. South
Valley Winery wants to service these customers by offering free delivery of a premium
fruit wine product with a unique Saskatchewan touch.
There are other potential markets that the wine could be sold into in order to increase
demand as production increases. The winery would look very closely at supplying
locally owned licensed restaurants, such as Harwood’s located in the Mineral Spa in
Moose Jaw. The limitation on this would be to insure that demand would not grow
greater than the supply that is capped by the Cottage Winery Policy. Other markets
include exporting the wine out of province and selling through the SLGA stores. Sales
through the SLGA stores are avoided due to the difficulty of making a profit.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
5.5 Promotion
As the success of the winery lies primarily on how well the wine is marketed to create
sales; it is crucial to have strong advertising activities to raise awareness. The two target
markets require different tactics in order to reach customers.
The sightseer consumer group requires traditional advertising avenues to raise awareness:

Billboards located on the highway to attract the attention of passing motorists.

Radio ads will be run on local radio stations targeting listeners aged 35-64, such as
Country 600 am.
The cost of a weekend package is $350, which includes 21
advertisements from Friday to Sunday evening.

Newspaper ads will be run in the Regina Leader Post and Western Producer for the
summer months.

As with any small business, word of mouth will play a very important role to generate
consumer awareness. The service at the winery must be friendly, the atmosphere
aesthetically pleasing, and the wine of consistently high quality to ensure that the
word of mouth advertising is beneficial.

Posters and brochures will supplement this advertising as well.
To access the special occasion permit holders it will be very important to attend events
where people are planning for their occasion:

To secure wedding permits a booth will be set up at Bridal Shows.

Other local fall fairs and trade shows such as the Farm Progress Show in Regina will
be attended to raise awareness of the product and services available.

Advertising at the farmer’s market where fruit production from South Valley Farms is
sold would also be an excellent way to create an image for the product.

A web page will also be set up on the Internet to provide one more way of increasing
awareness.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Wine tasting and tours of the winery will be the largest promotional activities at the
winery. Tours will be run during the summer months by the retail staff along with tasting
sessions as requested by customers. The retail store will also contain wine accessories
such as bottle openers and other Saskatchewan made products. In order to increase sales,
the winery must create an image for its product, as there are many substitute and
alternative products. Wine from South Valley Winery will carry the logo “From the
Vintner’s Home to Yours”. A Saskatchewan made product from unique fruit ingredients,
with a direct link from consumer to producer. When a customer purchases a bottle of
South Valley’s wine, they will be able to talk directly to the vintner, see exactly how their
wine was produced and even taste it before purchase. Once at home, opening his or her
bottle of wine, the consumer can remember the pleasant experience and savor the unique
homegrown taste of a quality dry fruit wine. The shop and the area surrounding the
winery will be aesthetically pleasing and provide a picnic area to make it an ideal place
for a roadside stop in the country before reaching the noise of the city. Once people stop,
they are much more likely to wander into the shop and make a purchase.
In the future, promotional activities will grow to include tour buses. Casino bus tours in
the area heading for Moose Jaw and Regina provide an opportunity to obtain customers
as they pass by. South Valley could coordinate tours with these buses. Independent
winery tours could also be run on a schedule out of Regina, offering a free activity for the
afternoon.
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South Valley Winery
Table 5.5.1. Marketing cost estimations for 10 years.
Sample Wine Costs
Mileage for deliveries
(cost)
Vehicle (Lease)
Telephone
Billboards
Radio Ads
Brochures
Newspaper ads
Bridal Shows
Trade Shows
Travelling backdrop
Webpage
Future Bus Tours
Posters
Total Marketing
Expense
2004
$960
2006
$1,220
2008
$1,551
$3,960
$8,321
$12,177
$250
$1,500
$4,000
$1,197
$5,443
$250
$500
$500
$325
$263
$1,576
$4,203
$1,455
$5,719
$263
$525
$103
$341
$350
$368
$276
$1,656
$4,415
$1,769
$6,008
$276
$552
$108
$359
$5,673
$386
$19,235
$24,356
$35,206
2010
$1,972
2012
$2,507
$14,000
$290
$1,740
$4,639
$2,150
$6,312
$290
$580
$113
$377
$6,262
$406
$16,000
$305
$1,828
$4,874
$2,613
$6,632
$305
$609
$119
$396
$6,912
$426
$39,130
$43,525
5.6 Pricing Policy
The wine will be priced at par to the fruit wine markets in eastern Canada and B.C. A
unique product and Saskatchewan made, people purchasing South Valley wine can see
the profits supporting a local business, value added processing within the province and
creating jobs for people in the area.
The unique appeal should support pricing in
Saskatchewan, an area where the fruit wine market is being established. The Saskatoon
and Raspberry wines are priced higher than the Rhubarb and Chokecherry wines for a
number of reasons. Primarily the cost of Saskatoon berries and raspberries are higher
than that of rhubarb and chokecherry. Also, Saskatoon berries have been marketed in
other industries as a unique Saskatchewan fruit and people have been willing to pay
elevated prices for Saskatoon jams, pies and other confectionaries that include Saskatoon
berries.
Table 5.6.1 shows changes in wine prices over nine years. The pricing of wine will
remain constant, increasing only with inflation. The market will support these changes,
but an increasing sales price cannot be justified in a developing market.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Table 5.6.1.
Prices per bottle over 9 years of production showing increases with
inflation.
Year
Saskatoon Berry Wine
Raspberry Wine
Chokecherry Wine
Rhubarb Wine
2004
$11.35
$10.45
$9.45
$9.95
2006
$11.92
$10.98
$9.93
$10.45
2008
$12.53
$11.53
$10.43
$10.98
2010
$13.16
$12.12
$10.96
$11.54
2012
$13.83
$12.73
$11.51
$12.12
5.7 Distribution Channels
In order to maximize profits, wine will primarily be sold from the winery directly to
visiting customers and will not be marketed through the SLGA. A portion of sales will
be delivered directly to special permit customers purchasing large volumes of wine.
Future distribution channels may include restaurants and out of province markets.
5.8 Sales Objectives

Build a market that will demand a production level that maximizes the Cottage
Winery Policy production of 5000 cases.

Obtain 2-3% of the special occasion permits in ten years representing total case sales
of approximately 4300 cases.

Sell 700 cases directly from the winery to tourist traffic, build a local reputation, and
supply one or two locally owned restaurants with wine.

Obtain a return on equity of 20%.
Table 5.8.1. Projected sales and revenues for South Valley Winery
Quantity of Sales (cases)
Sales Revenue
Saskatoon Berry Wine
Raspberry Wine
Chokecherry Wine
Rhubarb Wine
Total
2004
428
2006
1856
Year
2008
2578
$14,583
$13,426
$12,142
$12,784
$52,935
$66,396
$61,131
$55,281
$58,206
$241,015
$96,902
$89,218
$80,680
$84,949
$351,749
2010
3623
2012
4575
$143,045
$131,702
$119,099
$125,401
$519,248
$189,781
$174,732
$158,011
$166,372
$688,896
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
5.9 SWOT Analysis
The SWOT analysis (strengths, weaknesses, opportunities and threats) of South Valley
Winery will examine the strong qualities and challenges of the business by considering
both internal and external aspects of the winery. Strengths and weaknesses study the
internal facets, whereas opportunities and threats investigate the effect of external forces
on the business.
5.9.1 Strengths
1. There is little direct competition for fruit wines in Saskatchewan.
2. South Valley has a production equipment cost advantage over other wineries by using
manual equipment.
3. Low staff requirements.
4. Small family oriented business HRM structure with a single view.
5. Direct distribution channel to customers – “from the vintner’s home to yours”.
6. Wine is available at the winery on the No. 1 highway, which is unique to
Saskatchewan.
5.9.2 Weaknesses
1. The manager is not trained in marketing, which is the most important obstacle of this
business.

This will be overcome by sending the manager to Okanagan University College to
receive a wine sales certificate (Appendix C).

A full time marketer will be hired to increase the marketing focus.
2. Narrow product line.

As the business expands, more fruit wines will be added to the product line as
well as port wines and ice wines.
3. No experience in commercial wine production.

A vintner will be hired to spend a week with the manager to give him a hands-on
understanding of fruit wine production and the vintner will be available for
consulting throughout the wine making process.
4. South Valley needs a strong product image to sell its product.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery

The marketer’s goal is to develop the product image. An incentive to do this well
will be based on a bonus program derived from gross margin.
5. There is limited distribution of the product within the province.

As the market expands, the product will be available at more venues throughout
the province.
5.9.3 Opportunities
1. Sell the product to tourists and to the special permits market.
2. Expand the product line to include black current and sour cherry wine.
3. Offer more Saskatchewan items in the gift shop such as wine bottle openers, jams,
and other specialty items.
4. Add a restaurant to the business to expand products, services and appeal.
5. The winery is located on the No. 1 highway close to a major center increasing
potential sales.
5.9.4 Threats
1. Government policy restricting the potential market to liquor board stores due to the
large mark up.

Create another marketing position to develop alternative markets.
2. Competition from other fruit wineries such as Aspen Grove.

South Valley will have a strong marketing approach to their business, as well as
the competitive advantage of a superior location.
3. Competition from liquor board stores.

The product must be differentiated to attract customers.
6.0 Financial Plan
In order for South Valley winery to meet initial capital expenditures, and maintain a
positive cash flow, a total of $329,165 of long-term debt and owner’s equity will be
required.
The long-term debt will be financed with a loan from the Farm Credit
Corporation (FCC) and Rod Flaman will supply the owner’s equity (Table 6.0.1). South
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South Valley Winery
Valley does not have enough assets to obtain more than $75,000 of financing. Therefore,
in order to secure the loan from FCC, Rod Flaman will have to utilize some of his
farmland as additional collateral to obtain the total debt financing required.
Table 6.0.1. Financing
Long Term Debt
Owner's Equity
Total Financing
$164,583
$164,583
$329,165
6.1 Loan Amortization
The loan will be secured with FCC. The total of $164,583 will be amortized over 15
years with an average interest rate of 7.4%. The loan is set up as a constant period
payment at $18,529 over the 15 years.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Table 6.1.1. Amortization Schedule
Year
2004
Debt Rate
2005
2006
2007
2008
7.4%
7.4%
7.4%
7.4%
7.4%
Beginning Balance
Addition
Interest
Debt Payment
0
164,583
12,179
18,529
158,232
0
11,709
18,529
151,412
0
11,204
18,529
144,087
0
10,662
18,529
136,220
0
10,080
18,529
Ending Balance
158,232
151,412
144,087
136,220
127,771
Year
2009
2010
2011
2012
2013
Debt Rate
7.4%
7.4%
7.4%
7.4%
7.4%
Beginning Balance
Addition
Interest
Debt Payment
127,771
0
9,455
18,529
118,696
0
8,784
18,529
108,950
0
8,062
18,529
98,483
0
7,288
18,529
87,241
0
6,456
18,529
Ending Balance
118,696
108,950
98,483
87,241
75,168
Year
2014
2015
Debt Rate
2016
2017
2018
7.4%
7.4%
7.4%
7.4%
7.4%
Beginning Balance
Addition
Interest
Debt Payment
75,168
0
5,562
18,529
62,201
0
4,603
18,529
48,274
0
3,572
18,529
33,317
0
2,465
18,529
17,253
0
1,277
18,529
Ending Balance
62,201
48,274
33,317
17,253
0
6.2 Dividend Policy
Dividends will be paid to the equity investors when profits and cash flow increase
sufficiently. Before paying dividends South Valley needs to ensure that there will be
sufficient cash for operating the following year. Therefore, a calculation of cash, minus
working capital increased by a factor of 1.15 to allow for unexpected expenses will be
used to calculate dividends paid. Any positive value from this calculation will be paid
out to equity investors (Table 6.2.1).
Dividend Paid: If Cash - (Working Captial x 1.15) >0
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Table 6.2.1. Dividends Paid
2010
6.988
2011
103,642
2012
122,164
2013
166,885
6.3 Economic Forecast
A 10-year projection has been made using an inflation rate of 2.5%. This rate has been
used to derive all wages, supplies, and expenses.
6.4 Unit Cost Analysis
In order to make accurate decisions regarding management of a business it is important to
evaluate the distribution of the costs associated with the production, marketing and
selling of the product. Understanding what represents the majority of the costs per unit
allows a manager to evaluate where costs could be reduced and monitor if costs are
increasing to the point where there is a need to change production methods or selling
tactics. In winemaking significant unit costs are represented by key direct materials. The
direct material costs can be allocated as approximately half of the cost for fruit and the
other half packaging. The other ingredients including yeast, sugars and additives do not
represent significant costs. The overhead costs are also relatively low, but the selling and
administration costs, which include the marketing costs, represent the largest cost
associated with the production and selling of wine. These costs decrease with increasing
production because they are fixed costs, whereas the direct material costs, which are
variable costs, remain relatively constant per unit (Table 6.4.1 and Figure 6.4.1.).
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Table 6.4.1. Unit cost breakdown of producing and selling wine.
Unit Cost per Case
Fruit
Ingredients
Packaging Materials
Total Unit Cost of Direct Materials
Direct Labour
Overhead
Total Unit Cost of Labour and
Overhead
Total Unit Cost of Production
Selling and Administration
Total Unit Cost of Selling
Expected Average Selling Price
Year 2004
2004
$18.00
$2.93
$15.23
$36.16
$18.72
$13.20
$31.92
2006
$18.91
$3.08
$16.00
$37.99
$10.93
$8.44
$19.37
2008
$19.87
$3.24
$16.81
$39.91
$8.43
$5.51
$13.94
2010
$20.87
$3.40
$17.66
$41.93
$7.25
$4.13
$11.38
2012
$21.93
$3.58
$18.55
$44.06
$6.61
$3.27
$9.88
$68.08 $57.37 $53.85 $53.31 $53.93
$80.40 $56.55 $43.68 $36.04 $31.66
$148.47 $113.92 $97.54 $89.36 $85.59
$123.60 $129.86 $136.43 $143.34 $150.59
Year: 2008
Fruit
12%
Ingredients
2%
Packaging
Materials
10%
Selling and
Administration
54%
Fruit
19%
Selling and
Administration
47%
Ingredients
3%
Packaging
Materials
16%
Direct Labour
13%
Overhead
6%
Overhead
9%
Direct Labour
9%
Year: 2010
Year: 2006
Fruit
16%
Ingredients
3%
Packaging
Materials
14%
Selling and
Administration
51%
Direct Labour
9%
Fruit
22%
Selling and
Administration
41%
Ingredients
4%
Overhead
5%
Direct Labour
9%
Packaging
Materials
19%
Overhead
7%
Figure 6.4.1. Distribution of costs per unit in various production years.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
6.5 Ratio Analysis
The projected performance ratios for South Valley Winery show a successful business
over time and are summarized in Table 6.5.1. Detailed analysis can be found in Schedule
11 of Appendix B. When interpreting the ratios it is important to remember the nature of
the business and the values on which they are based.
Measuring liquidity by the current ratio, the current assets over the current liabilities are
used. The high value indicates that the winery has a very strong ability to meet short-term
obligations. Although this should be looked at critically, the values taken from the
balance sheet represent a point in time when direct materials have already been purchased
and paid for. The remaining short-term obligations consist only of labour and overhead
monthly payments. Therefore, at different times of the year this ratio will vary.
Half of the initial financing for the winery is debt financing; the solvency of the winery
reflects this. Initially, the debt ratio and the debt to equity ratio are both quite high
indicating a significant financial risk, however, based on projections the ratios decrease to
acceptable levels. The business should be able to make debt payments and internal
financing can be used for future expansions.
The investment utilization ratios are high largely due to the nature of the business. The
period from raw fruit to finished product is lengthy due to the time wine is in production.
Inventory turnover ratios and average day’s inventory reflect this.
In the first year of production output is low resulting in high costs per unit. The first year
the winery is in business will have lower profitability because of the low sales and high
start up costs. After the initial sales are underway and production increases, the winery
recognizes good profitability ratios. Profitability is expected to improve as the winery
expands because of increased sales and lower unit costs.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Table 6.5.1. Summary of financial ratios
Liquidity Ratios
Current Ratio
Activity and Operating Ratios
Total Asset Turnover
Inventory Turnover
Average Days Inventory
Leverage Ratios
Debt Ratio
Debt to Equity
Profitability Ratios
Gross Profit Margin
Net Profit Margin
Return on Total Assets
Return on Equity
2004
2006
2008
2010
2012
33.67
13.27
26.52
70.23
86.47
0.20
0.67
543
1.16
1.85
198
1.25
1.61
227
1.10
1.69
216
1.16
1.69
217
0.61
1.52
0.72
2.56
0.47
0.90
0.24
0.32
0.16
0.19
0.41
-1.11
-0.22
-0.55
0.53
0.06
0.06
0.23
0.58
0.21
0.26
0.49
0.60
0.26
0.29
0.38
0.62
0.30
0.35
0.42
6.6 Summary of Financial Results
Table 6.6.1 provides an overview of several key values in the financial plan over the 10year period.
Table 6.6.1. Summary of Financial Results
Year
Sales
COGS
Gross Margin
Expenses
Net Income Before Tax
Income Tax
Net Income After Tax
Net Cash Flow to Equity
Year
Sales
COGS
Gross Margin
Expenses
Net Income Before Tax
Income Tax
Net Income After Tax
Net Cash Flow to Equity
2004
2005
2006
2007
2008
52,935
29,156
21,735
80,395
-58,660
0
-58,660
64,221
111,746
66,411
41,128
102,220
-61,093
0
-61,093
-62,037
241,015
105,709
126,453
113,109
13,344
0
13,344
3,809
264,457
115,609
139,371
121,473
17,898
0
17,898
19,459
351,749
136,390
203,061
131,050
72,011
0
72,011
37,171
2009
2010
2011
2012
2013
408,820
161,085
233,790
136,122
97,668
15,520
82,149
77,764
519,248
189,252
312,716
144,175
168,540
32,225
136,315
106,686
581,253
215,420
346,962
149,927
197,034
37,673
159,361
154,956
688,896
241,504
425,572
158,287
267,285
59,664
207,621
171,003
762,621
272,635
466,420
164,744
301,676
70,614
231,062
522,828
Net Present Value (NPV)
Internal Rate of Return on Equity Investment
External Rate of Return on Equity Investment
81,817
26.7%
21.8%
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
6.7 Sensitivity Analysis
The sensitivity analysis shows how sensitive the IRR is to changes in various critical
variables. Table 6.7.1 shows the percent changes in the four important critical variables
for South Valley Winery creating the best and worst case scenarios. The base case
represents the best estimate of the expected results.
Table 6.7.1. Scenario Analysis
Variable
Worst
Case
Quantity of
50%
Sales
Avg. Selling
75%
Price
Avg. Fruit
150%
Prices
Rate of Growth
A
Base
Case
100%
Best
Case
105%
100%
125%
100%
75%
B
C
NOTE:
A - Start at 1000 cases increase constantly by 250
cases/year
B - Start at 1000 cases and increase every 2
years by 1000 cases
C - Start at 1000 cases and increase constantly
by 500 cases/year
The first significant variable to South Valley Winery is the amount of product that will be
successfully marketed. This is very important for this business because the fruit wine
market is undeveloped and is the reason that the worst case scenario looks at 50% of the
estimated base case sales. The best case scenario is only raised slightly due to a limited
amount of product available for sale, and is 105% of the base case. Figure 6.7.1 shows
that the quantity of sales is an important variable to this business as the worst case
scenario results in an IRR of –13.7%. The best case scenario results in a slightly higher
IRR but it is not substantial due to the small increase in the amount of sales looked at for
the best case.
The next critical variable looked at is the change in the average selling price of the wine.
This is also a very important variable as selling price is essential in developing market
share and directly results in the gross revenue for this business. The worst case scenario
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
looks at 75% of the base case selling price, whereas the best case looks at a 25% increase
in the base case selling price. The change in IRR for the best and worst case scenarios is
shown in Figure 6.7.1. The IRR shows great sensitivity to changing selling price as it
ranges from 44.9% in the best case to 12.7% in the worst case.
The change in the purchase price of fruit was also examined as a critical variable as it is
the main direct material cost when producing wine. The worst case scenario showed fruit
prices increasing to 150% of the base case purchase price, and the best case scenario
showed fruit prices decreasing to 75% of the base case purchase price. The changes were
made with the rationale that fruit prices are more likely to increase substantially, rather
than decrease, in the future. As Figure 6.7.1 shows, the changes in IRR were not
significant between the best and the worst case scenarios. This shows that although fruit
is a major input, fluctuation in fruit prices do not drastically change South Valley
Winery’s economic feasibility.
The last critical variable studied was the differences in the rate of growth this company
could possibly experience. The base case begins at 1000 cases in year one and increases
every second year by 1000 cases reaching a maximum of 5000 cases. The reason for
following this expansion plan rather than having a constant growth rate is to give a longer
period of time to develop the market before expanding the business. The worst case
scenario looks at a slower rate of growth where the business starts at 1000 cases in year
one and increases constantly by 250 cases a year. The best case scenario looks at a faster
rate of growth where the business starts at 1000 cases and increases constantly by 500
cases a year. As shown in Figure 6.7.1 the change in growth rate moderately affects the
IRR ranging from 34.8% for the best case to 18.7% for the worst case.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
50.0%
40.0%
IRR
30.0%
20.0%
Worst Case
Base Case
Best Case
10.0%
0.0%
1
2
3
4
-10.0%
-20.0%
Quantity of
Sales
Ave. Selling
Price
Ave Fruit
Prices
Rate of
Growth
Figure 6.7.1. Sensitivity analysis of the IRR for the worst, base and best case scenarios
6.8 Breakeven Analysis
The breakeven analysis was calculated for five different years accounting for the changes
in the growth of South Valley Winery. Both accounting and economic breakeven analysis
was performed on the two most critical variables for this business. Economic breakeven
was based on a desired IRR of 20%, with accounting breakeven based on net income
being equal to zero. The two most critical variables for South Valley Winery determined
from the sensitivity analysis are average selling price and the quantity of cases sold.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Selling Price per Case
$300.00
Accounting
Breakeven Ave
Selling Price
Base Case Ave
Selling Price
$250.00
$200.00
$150.00
$100.00
Economic 20% IRR
Breakeven Selling
Price
$50.00
$0.00
2004
2006
2008
2010
2012
Year
Figure 6.8.1. Breakeven Analysis of Average Selling Price
As shown in figure 6.8.1, accounting breakeven for average selling price is very high in
year 1 and is above the base case selling price. It then decreases in the following years to
remain below the base case selling price. This is due to the fact that in year one South
Valley Winery has a negative net income, therefore the price must be raised above the
base case selling price to result in a net income of zero. In subsequent years the average
selling price continues to decrease as a result of economies of scale and increased
production.
The base case average selling price increases throughout the years solely on the basis of
inflation. Economic breakeven was calculated on a desired IRR of 20 % over a 10-year
period. To achieve economic breakeven, 85% of the base case selling price is required,
on average. Since the base case IRR is calculated at 26.7%, with an average selling price
of 123.60, the economic breakeven price at an IRR of 20% is lower at $105.06 per case
in year one.
IRR is calculated for a 10 year period and the increase in economic
breakeven price throughout the years is due to inflation.
College of Agriculture and College of Commerce, University of Saskatchewan
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# of Cases Sold
South Valley Winery
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Accounting
Breakeven Total
Quanity Sold
Base Case Total
Quantity Sold
Economic 20% IRR
Breakeven Quantity
Sold
2004
2006
2008
2010
2012
Year
Figure 6.8.2. Breakeven Analysis of Quantity of Cases Sold
The accounting and economic breakeven was also calculated for the quantity of cases
sold. For accounting breakeven in year one, the number of cases sold is above the base
case quantity sold, due to negative net income. For the 10 year period, the accounting
break even is, on average, 24% below the base case expected sales level. In following
years the number of cases sold to break even increases as a result of expanding
production, and is lower than the base case sales resulting in profits for those years. The
economic breakeven for quantity of product sold is lower than the base case, and
increases with production throughout the years.
7.0 Conclusion
After completing the business plan for South Valley Winery it has been concluded that it
is a feasible enterprise. The financial model has demonstrated that South Valley Winery
will be receiving an IRR of 26.7%, at the given projected sales and prices. The
business’s main obstacle in achieving economic success will be reaching the desired level
of sales in an undeveloped fruit wine market. Failure to meet projected sales may result
in an unattractive IRR jeopardizing the feasibility of the business. South Valley Winery
will ensure that sales are met by extensive marketing to tourists and to the special permits
market resulting in a profitable Saskatchewan business.
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
8.0 References
Archibald Orchards Estate
Bomanville Ontario
http://www.archibaldsestatewinery.on.ca
Basic Winemaking Procedures
http://www.wyeastlab.com/education/ed
wiprod.htm
Bellamere Wines
London Ontario
http://www.bellamere.com
British Columbia Wines
http://www.bcwine.com
Columbia Valley Classics Winery
Chilliwack British Columbia
http://www.cvcwines.com
Cox Creek Cellars
Guelph Ontario
http://www.coxcreekcellars.on.ca
Criveller Company Canada
6935 Oakwood Drive, Niagra Falls, ON
L2E 6S5
Ph (905) 357-2930
D & C Refrigeration Sales and Service
122 Stone Terrace
Saskatoon, SK S7M 4J5
(306) 384-9133
Dairyland Agro Supply Ltd.
Saskatoon SK
242-5850
Elephant Island Orchard Wines
Naramata British Columbia.
http://www.elephantislandwine.com
Farm Credit Corporation
Saskatoon SK
306-975-4248
Fischer Scientific – Lab Equipment
80 Iroquois Drive
Brightwaters, N.Y. 11718-1602
Fax: 631.666.3873
http://www.fischersci.com
Fort Wines
Fort Langley British Columbia
http://www.thefortwineco.com
Goodon Industries
Box 777,
Boissevain, MB. Canada, R0K 0E0
Toll Free 1-800-665-0470
Lakeshore Garden Centre
Hwy 16 & Boychuck Dr. Saskatoon
(306) 477-0713
Massaccesi, Raymond. 1976.
Winemaker’s Recipe Handbook.
Okanagan University College Homepage
– Wine Sales Certificate
http://www.ouc.bc.ca/ce/winestudies/sal
es.htm
Regina Saskatchewan Homepage –
Transportation Link
http://regina.foundlocally.com/Trans/Tra
ns-BusesListing.htm
Dominic Rivard
Fort Langley B.C.
Roger’s Sugar
Taber AB
College of Agriculture and College of Commerce, University of Saskatchewan
47
South Valley Winery
403-223-3535
R.M of Edenwold
Balgonie SK
771-2522
http://www.winemakersemporium.com/
Advanced%20Winemaking.htm
Wigs Pumps and Waterworks
Saskatoon SK
652-4276
Saskenergy
Regina SK
1-800-567-8899
World of Water
Saskatoon, SK
306-653-0099
Saskpower
Regina SK
1-800-757-6937
WYEAST USA
http://www.wyeastlab.com
Saskwater
Watrous SK
946-3200
Saskatchewan Liquor and Gaming
Authority
Mr. Al Barber, Retail Services Branch
(306)-787-4236
Statistics Canada - Control and sale of
alcoholic beverages
http://www.statcan.ca/Daily/English/020
712/d020712b.htm
Town of Balgonie
Balgonie SK
771-2284
Brian and Cherry Topp
Aspen Grove Cottage Winery
White City, Saskatchewan
306-771-2921
Vinquiry - Analytical Services,
Consulting & Supplies for the Wine
Industry
http://www.vinquiry.com/products.htm
Winemakers Emporium - Advanced
Winemaking Procedures
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Appendix A:
Cottage Winery Policy
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Appendix B:
Financial Projections
College of Agriculture and College of Commerce, University of Saskatchewan
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South Valley Winery
Appendix C:
Okanagan University College Wines Sales Course
College of Agriculture and College of Commerce, University of Saskatchewan
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