MBA 992
Research
Project
Feasibility of a Potato
Based Vodka
Micro-Distillery in
Saskatchewan
Benita McNeill
MBA Candidate
Edwards School of Business
University of Saskatchewan
August 2008
MBA 992 Edwards School of Business, University of Saskatchewan
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Acknowledgements
I would like to acknowledge the support of my advisor, Marv Painter, Ph.D. at the Edwards School of
Business, at the University of Saskatchewan, while preparing this feasibility study. Additionally, I would
like to recognize Bob Harkins at Maine Distillers, Freeport, Maine and Frank Dieter of Okanagan Spirits,
Vernon, British Columbia for providing me a hands-on look at the nature of micro-distillation.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table of Contents
Acknowledgements................................................................................................................................... 3
Executive Summary....................................................................................................................................... 7
1.
Introduction .......................................................................................................................................... 9
1.1 Industry Overview ............................................................................................................................... 9
1.1.1 Canadian Alcohol Beverage Industry ........................................................................................... 9
1.1.2 The Canadian Distilling Industry ................................................................................................ 10
1.1.3 Micro distillery movement ......................................................................................................... 11
1.1.4 Key Trends and Developments .................................................................................................. 11
1.1.5 Vodka consumption in world ..................................................................................................... 12
1.1.6 Vodka consumption in Canada .................................................................................................. 12
1.1.7 Vodka consumption in Saskatchewan ....................................................................................... 13
1.1.8 Vodka market potential ............................................................................................................. 13
1. 2. Mission Statement .......................................................................................................................... 14
1.3. Goals and Objectives........................................................................................................................ 14
1.4. Project Benefits ................................................................................................................................ 14
2.
Policy/Regulations............................................................................................................................... 15
2.1 Federal Regulations........................................................................................................................... 15
2.1.1 Federal Taxation......................................................................................................................... 15
2.2 Saskatchewan Liquor and Gaming Authority .................................................................................... 16
2.3 SLGA Manufacturing Permit ............................................................................................................. 16
2.4 Sales and Marketing .......................................................................................................................... 17
2.5 Municipal Regulations....................................................................................................................... 17
2.6 Food Safety Act and Regulations ...................................................................................................... 18
2.7 The Canadian Food Inspection Agency (CFIA) .................................................................................. 18
2.8 Food Safety Enhancement Program (FSEP) ...................................................................................... 18
2.9 Consumer Packaging and Labeling Act ............................................................................................. 18
3.
Operations Plan................................................................................................................................... 19
3.1 Location ............................................................................................................................................. 19
3.2 Distillation Process Plan .................................................................................................................... 19
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
3.2.1 Direct Materials.......................................................................................................................... 19
3.2.2 Distillation Process ..................................................................................................................... 20
3.3 The Vodka Distilling Process ............................................................................................................. 21
3.3 Floor Plan .......................................................................................................................................... 25
3.4 Average Business Cycles ................................................................................................................... 26
3.4.1 Average Business Day/Week ..................................................................................................... 26
3.4.2 Average Business Month ........................................................................................................... 28
3.4.3 Average Business Year ............................................................................................................... 28
3.5 Capital Budget ................................................................................................................................... 29
3.6 Operating Expenses .......................................................................................................................... 30
4.
Human Resources Plan ....................................................................................................................... 32
4.1 Organizational Structure ................................................................................................................... 33
4.2 Job Descriptions ................................................................................................................................ 33
4.3 Training ............................................................................................................................................. 36
4.4 Future Human Resources .................................................................................................................. 37
5.
Marketing Plan .................................................................................................................................... 37
5.1 Current Market ................................................................................................................................. 38
5.2 Competition ...................................................................................................................................... 38
5.2.1 Direct Vodka Competition.......................................................................................................... 41
5.2.2 Indirect Vodka Competition ....................................................................................................... 41
5.2.3 Indirect Tourist Competition ...................................................................................................... 41
5.3 Customers and Target Markets......................................................................................................... 41
5.4 Promotion ......................................................................................................................................... 43
5.5 Pricing Policy ..................................................................................................................................... 46
5.6 Distribution ....................................................................................................................................... 48
5.7 Sales Objectives ................................................................................................................................ 50
5.8 SWOT Analysis................................................................................................................................... 50
5.8.1 Strengths .................................................................................................................................... 51
5.8.2 Weaknesses................................................................................................................................ 51
5.8.3 Opportunities ............................................................................................................................. 51
5.8.4 Threats ....................................................................................................................................... 52
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
5.9 Financial Plan ........................................................................................................................................ 53
5.9.1 Debt/Equity Structure ................................................................................................................ 53
5.9.2 Loan Amortization...................................................................................................................... 53
5.9.3 Dividend Policy ........................................................................................................................... 54
5.9.4 Economic Forecast ..................................................................................................................... 54
5.9.5 Unit Cost Analysis....................................................................................................................... 54
6.0 Ratio Analysis .................................................................................................................................... 57
6.1 Summary of Financial Results ........................................................................................................... 59
6.2 Sensitivity Analysis ............................................................................................................................ 60
6.3 Breakeven Analysis ........................................................................................................................... 61
7.0 Conclusion ............................................................................................................................................. 62
8.0 Recommendations ................................................................................................................................ 62
9.0 References ............................................................................................................................................ 63
Appendix A: ................................................................................................................................................. 66
Calculations for Mash Production and Ethyl Alcohol Quantities ................................................................ 66
Appendix B: ................................................................................................................................................. 68
Mentorship/Training ................................................................................................................................... 68
Appendix C: ................................................................................................................................................. 71
Provincial Fact Sheets ................................................................................................................................. 71
Taxation....................................................................................................................................................... 71
Appendix D: ................................................................................................................................................. 84
Financial ...................................................................................................................................................... 84
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Executive Summary
The intent of this report is to provide an economic and policy assessment of the feasibility of producing
micro-distilled potato based vodka in rural Saskatchewan. This report examines the feasibility and
demand for a super premium product; specifically it looks at converting cull potatoes into pure ethyl
alcohol (EA) by mashing, fermenting and then distilling the simple sugars from a mash of potatoes. The
market demand for super premium products is growing globally.
To evaluate production costs, a budget has been prepared. This includes a 250 liter pot still from
Germany capable of producing 3544 cases (45,528 750ml bottles) per year, as well as all other
equipment necessary to the process. In addition, a sensitivity and break even analysis was prepared.
Finally, this report addresses the feasibility of the operations, human resources and marketing aspects
of producing and selling potato based vodka in Saskatchewan.
Capital costs of $622,382 included land, building and production equipment; cost of goods
manufactured included direct materials, direct labor, and manufacturing overhead in the amount of
$208.689. Marketing costs of $88,769 included salary, wages, benefits and marketing expenses. Unit
costs (per case of 12 – 750 ml bottles) were estimated at $211.33. A formula was used to calculate
Federal and Provincial liquor taxes based on the supplier quote per case (no mark-up added) to
determine a retail price for the vodka product. This calculation resulted in a display (shelf) price in
Saskatchewan liquor stores of $61.41. An excel spreadsheet was used to calculate annual breakeven
costs per case units and determine the overall feasibility of the project.
Financial analysis was performed using the unit cost of $211.33 and cases sales of 1458 as the base case
for year one with inflationary growth of 2.3% for successive years. In addition, initial financing was
estimated at $750,000 and structured using $400,000 owner equity and $350,000 debt financing. This
resulted in a Net Present Value (NPV) of $16,486 and an Internal Rate of Return (IRR) of 20.7%. It can be
noted that the IRR meets the distilleries objective of achieving a 20% return on equity. The distillery
recognizes a positive net income in the third year and in each successive year.
The analysis indicated the project was not feasible from a marketing perspective. Grey Goose is the
super-premium price bench mark at a shelf price of $50.25 per 750 ml bottle. The potato based vodka
produced in the Outlook distillery suggests a shelf price of $61.41; this is well above the Gray Goose
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
price point. A suggested shelf price of $35-$38 for a super premium product is necessary in order for a
micro-distillery in Saskatchewan to be competitive from a marketing perspective. As long as provincial
taxation on spirits remains high small producers a micro-distiller cannot be competitive in
Saskatchewan.
It is recommended that a micro-distillery policy be created by SLGA which considers product tastings
and offers a flat liquor tax model such as that used in Alberta or low tax model such as the one used in
Nova Scotia.
This would allow small Saskatchewan producers to prosper in the midst of corporate
entities who have achieved economies of scale. If a micro-distillery policy can be established for
Saskatchewan, a more competitive shelf price of $35-$38 may be achieved and would warrant a review
of this feasibility study.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
1. Introduction
1.1 Industry Overview
1.1.1 Canadian Alcohol Beverage Industry
More than $18.0 billion dollars worth of alcoholic beverages was in Canada by beer, liquor stores and
agencies during the fiscal year ending March 31, 2007, up 4.9% from the previous year. This is due in
part to the 1.4% increase in the population aged 15 and over as well as a 0.9% increase in the alcoholic
beverage prices during the same period. In liters of absolute alcohol (not mixed drinks) the volume of
sales of alcoholic beverages increased 3.1% to 218.7 million liters. Among the three alcohol beverage
types, beer, spirits and wine, wine sales significantly outpaced the growth of beer and spirits sales from
2005-2007.
Alcohol beverages per capita, for Canadians 15 and over, amounted to $466.70 in
2006/2007, up $22 from the previous year. Net income to provincial and territorial liquor authorities,
combined with other alcohol-related revenue rose to $5 billion in 2006/2007, up 5.2% from the previous
period. (Canada, 2007)
Beer remains the alcoholic drink of choice for Canadians in terms of volume and dollar value, but its
dominance continues to decline as consumers turn more to wine. Canadians bought 2.3 billion liters of
beer, up 1.6% from the previous year, but per capita beer sales by Canadians 15 and older has declined
27% from its peak of 115.2 liters in 1976. Beer sales per capita amounted to $312 in 2006/2007, up
$1.60 from the year before. Additionally, sales volume of imported beer outpaced sales of domestic
brands by near 7% in 2006/2007. (Canada, 2007)
Wineries and liquor stores and agencies sold $5 billion worth of wines in 2006/2007, up 9.5% from
2005/2006. Canadians purchased 405.7 million liters of wine, up 7.1% from the previous year. Red wine
sales in particular have increased 130% since 2000 while white wine increased just 33% over the same
period. Per capita sales, for Canadians 15 and over, were $187 in 2006/2007, up $14 dollars from the
year previous. (Canada, 2007)
Liquor stores and agencies sold $4.5 billion worth of spirits in 2006/2007, up 5.8% from 2005/2006. This
gain was due mainly to a 10% sales increase in vodka. On a per capita base, for Canadians age 15 and
older, sales were $168 in 2006/2007, up $7 from the year previous. The volume of sales of spirits
increased 1.8% in 2006/2007 to 206.1 million liters and Canadian products represented 71% of those
sales. However, import sales increased 3.3% to 60.2 million liters. Vodka sales in 2006 surpassed the
sales of Canadian whisky for the first time, making vodka Canada’s favorite spirit. (Canada, 2007)
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1.1.2 The Canadian Distilling Industry
Canada’s first distillery of record was established in Quebec City in 1769. By 1840’s over 200 distilleries
were operating in the country, and Canada was gaining reputation as a producer of high quality whisky.
Prohibition was first enacted in Prince Edward Island in 1901 in an attempt to forbid by law the selling
and drinking of intoxicating beverages. The remaining provinces followed and by 1916-1917, alcohol was
limited for military purposes, eventually limited to medicinal, scientific, mechanical, industrial or
sacramental purposes.
Beginning in 1920, various provinces began to set up a legal system of
government sale and control beginning with Quebec in 1919 and ending with Prince Edward Island in
1948. (CBC, 2005)
Today the Canadian distilled spirits industry operates under strict health, safety and quality regulations
enforced by the federal government. This has helped Canadian distilled spirit products to earn an
international reputation for exceptionally high quality and unique tastes. (Distillers, 2008)
The distilling industry ranks second after the brewery sector in terms of the value of its production
among the alcoholic beverages, but first overall in its value of exports. In 2005, close to $358 million
dollars or 92% of global exports of Canadian distilled products was exported to the United States.
There were 22 distilleries in operation in 2003. That number has decreased as multi-national European
companies that are export oriented have merged or consolidated with larger Canadian-based companies
resulting in concentration of foreign ownership increases; domestic spirits production in Canada is now
essentially foreign-owned. However, multi-national corporations have maintained production facilities
in Canada in order to produce ‘appellation protected’ Canadian whisky which means by law it can only
be produced in Canada. (Distillers, 2008)
The ‘value added’ during production of branded spirits is high, a reflection of the large brand equity that
Canadians consumers are recognizing in the industry’s leading products as fits for their consumer
lifestyles. This separates commercial and or industrial alcohols which are being considered as a resource
commodity and the sale of commodities tend to be more price sensitive with competitive production
costs being of more critical importance than is the case with high value-added branded products.
(Canada A. , 2008)
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
1.1.3 Micro distillery movement
Micro-distilleries are somewhat of a new concept in Canada. They have become a growing trend
especially in the United States and are moving into Canada. Canada has approximately nine small scale
distilleries of which four are in BC, the first in 2005.
A micro-distillery can be best described as a
‘boutique distillery’ or ‘artisan distillery’ which produces less than 100,000 liters of spirits per year, much
of which can be produced daily in large corporate distilleries. A micro-distillery typically makes ‘super
premium’ spirits in small batches and finishes the process by hand bottling.
Micro-distilleries represent the newest growth segment in the specialty spirits industry across the
United States, a trend that is just beginning to appear in Canada. Having grown out of the microbrewing trend, many micro breweries and small wineries have established distilleries within the scope of
their brewing or winemaking operations. It can be noted, micro-distilleries don’t have a huge impact on
national sales as their production is minute in comparison to large corporate distillers. Most can be
described as specialty and niche producers who gain popularity through word of mouth. Many in the
micro-distillery industry see larger profits on the horizon as the evolving sophisticated tastes of
consumers grow with the maturing industry.

The private distilleries are distinguished from mass distillers by the small-scale nature of their
work, their use of only local and often organic ingredients and the experimental nature of some
of their products. (Saulny, 2007)

Private artisanal distilleries are opening at a rate of about 10-20 a year. There are about 100
across the country. (Saulny, 2007)

The national demand for high-end spirits has soared over the last several years along with the
general consumer craving for artisanal products with local. (Saulny, 2007)
1.1.4 Key Trends and Developments
There are a number of key trends and developments in the spirits industry. Premiumization and
increasing super- ultra premiumization trends are driving the spirits markets globally. Demand for this
quality is being generated by sophisticated branding strategies attaching high status to high quality and
high priced brands. The US has been the driving force of the trend towards premiumization, specifically
the Absolute brand that pioneered this trend and drove the consumer awareness, followed by the Grey
Goose brands that successfully pioneered the super-premium vodka segment.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Women and young consumers are driving growth in spirits and in particular flavored vodka, particularly
unique and exotic flavors, a trend due primarily to the emerging cocktail culture. The current health
trend is resulting in consumers to be aware of the harmful effects of alcohol; as a result they are seeking
out quality products that are better, cleaner and more pure alcohol. (International, Spirits World, 2008)
Premium and super-premium products accounted for over 27% of total US vodka volume sales in 2006,
up from 24% in 2001. While super-premium vodka originated in the US, the end of the review period
saw its growing importance in a number of developed markets, including the UK, France, Germany and
Canada. Increasing competition means that defined or labeled ingredients could offer a perceived
advantage to a brand. The quest for hard-to-get, regionally produced brands, specially distilled from
organic ingredients will develop to drive super-premium sales, and more and more niche offerings can
be expected. (International, Spirits World, 2008)
1.1.5 Vodka consumption in world
Global vodka sales are forecast to register a decline of 1% in volume sales between 2006 and 2011 due
largely by a weakness in Eastern Europe. However, vodka is forecast to register a stronger performance
in the rest of the world, driven by the persistence of the trends such as the growing popularity of mixing
spirits in cocktails. A growing commitment to the premium and super-premium segments has been
noted.
The development of premium and super-premium vodkas has extended from the US to Western Europe
and this trend is expected to continue between 2006 and 2011, as consumers increasingly shift towards
brands such as Absolut, Belvédère, Finlandia, Grey Goose, Skyy and Wyborowa. The ongoing demand
for higher quality products, as consumers become increasingly sophisticated in their tastes and
increasingly sensitive to the status associations of various brands, is set to drive value at a faster pace
than volume growth in most regional markets over the forecast period (International, Spirits World,
2008)
1.1.6 Vodka consumption in Canada
Volume sales of spirits rose by 3% in 2007, bringing sales to almost 150 million liters. The national
performance of vodka was 6.66%. (Saskatchewan Liquor and Gaming Authority, 2007) Cocktails and
premium beverages are driving these sales in Canada. Volume growth is expected to achieve healthy
growth at an average of 3% per year. As disposable incomes rise and as palates mature, consumers are
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
moving away from beer and ready-to-drinks in favor of premium and super-premium spirits.
(International, Spirits Canada, 2008)
Liquor stores and agencies sold $4.5 billion dollars worth of spirits in 2006/07, representing an increase
of 5.8 % from the previous year. This gain was primarily due to a 10% increase in vodka sales. Spirit
sales on a per capita basis, for Canadians aged 15 and over, amounted to $168 dollars in 2006/07, up
approximately $7 dollars from 2006. The volume of sales of spirits increased 1.8% in 2006/07 to 206.1
million liters with Canadian products representing 71% of these sales. While domestic producers
represented this space, the sales volume of imported spirits increased 3.3% to 60.2 million liters while
domestic spirits rose 1.2% to 146.0 million liters. (Canada, 2007)
1.1.7 Vodka consumption in Saskatchewan
Overall spirits sales volumes rose 4.08% to 666,462 cases. Of those, 182,255 cases were vodka. This
reflects a growth of 5.40% from 2006. Over half this consumption was an increase were premium and
super-premium products. Potential demand for a Saskatchewan based super-premium spirit
The potential demand for potato based vodka in Saskatchewan is based upon its ability to substitute for
other super premium (deluxe) based vodka products currently in the market. This will depend upon the
quality, and marketability of promoting a local quality super-premium based product. Marketing will be
key to the success of the Outlook micro-distillery.
1.1.8 Vodka market potential
Current projections indicate that the rate of growth and the underlying demand for vodka are likely to
increase in the future. The basic components of vodka demand include consumer population, consumer
income and distribution, prices and availability of other comparative products and consumer tastes and
preferences. Both population and incomes are expected to increase and thus increasing demand, while
the influence of tastes and preferences is also increasing. Based on current trends, consumers appear
willing to pay a premium for premium and super-premium products including their alcohol purchases.
Reasons for this willingness is suggested by the fact of rising income levels and the prestige of being able
to do so.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
1. 2. Mission Statement
The family operated Outlook micro-distillery will provide super-premium vodka to discerning qualityconscious consumers who desire a luxury product. The focus of the company is the production of high
quality spirits for local and regional consumption.
1.3. Goals and Objectives

To create a significant value-added agricultural industry

To create use for unused surplus potato production and deliver a real price for undervalued
potatoes

Establish an image and name for the potato based product

To create a tourist attraction in rural Saskatchewan

Maximize production at 3,794 cases

To provide a diverse range of products expanded from potatoes

To provide at least a 20% return on equity

To initiate a micro-distillery artisan guild in Saskatchewan

To produce a recognizable Saskatchewan based product

To create demand for Saskatchewan based, locally grown food products
1.4. Project Benefits

The micro-distillery will provide jobs for some area residents

The project will attract tourists and foster local sales

The value added nature of using cull potatoes based to create a product

Diversify the local economy and hopefully encourage more micro-distillery artisan
entrepreneurs

To generate revenue for the farm and tax revenue for the province

To help preserve our agricultural lifestyle by strengthening the family farm

The distillery will help promote agricultural uses for our land

The distillery will help foster a sense of local pride and increase awareness and appreciation of
our regional heritage of agricultural production
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
2. Policy/Regulations
The distilled spirits industry is heavily regulated and thus provides an excellent source of revenue for the
federal and provincial governments and the Canadian economy, one of which they do not want to
change. Legal sales of spirits products generate revenues of more than 2.5 billion for federal and
provincial governments each year. (Association of Canadian Distillers, 2008)
2.1 Federal Regulations
All liquor manufacturers in Canada must be licensed by the Canada Revenue Agency under Canada’s
Excise Act 2001 which generally deals with the process of manufacturing liquor. Liquor manufacturers
must also meet the requirements of the Consumer Packaging and Food Labeling Act and other
legislations related to liquor, including Canada’s Importation of Intoxicating Liquors’ Act. Health and
Safety and Quality control issues related to liquor manufacturing are addressed in Canada Food and
Drug Act and other policies established by Canada Food Inspection Agency (CFIA), specifically, under
CFIA’s General Principles of Food Hygiene Code of Practice. These outline a manufacturers requirements
for controlling product formulation, process design, ingredients, packaging, product preparation and
blending, verification of product safety (testing), equipment, premises, pest control, sanitation,, water
and steam quality, storage, transportation, record keeping, employee training and hygiene etc. (Agency
C. R., Canada Revenue Agency Excise Duty, 2007) (Agency C. F., Canadian Food Inspection Agency - Food,
2007)
2.1.1 Federal Taxation
The government of Canada levies four distinct taxes on distilled spirits products.

Customs Import Duties: levied on spirits products imported into Canada

Customs Duty: equivalent to Excise duty, levied on spirits imported into Canada

Excise Duty: levied on domestic spirits products

GST: Goods and Services Tax levied at 5% of base price
Customs duty equivalent to Excise duty on imports and the excise duty on domestic spirits are identical
and are based on alcohol content. The current rate is $11.696 per liter of absolute alcohol (100% Ethyl
Alcohol). Most spirits are blended down to 40% and sold as such which means that the federal
government receives $3.51 from each standard 750 ml bottle sold in Canada from this levy. (Distillers,
2008) Taxes on distilled spirits account for 71% of the consumer price while they account for 56% of the
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
price of wine and 49% of the price of beer. (Distillers, 2008) (Agency C. R., Canada Revenue Agency
Excise Duty, 2007)
Table 2.1.1 Excise Tax Calculation per 750 liter 40% alcohol
Excise = 11.96 LTR at 100% (EA)
40% per Liter ($11.696*0.4)
750 ml ($4.67*0.75)
$11.696
4.67
3.51
2.2 Saskatchewan Liquor and Gaming Authority
The Saskatchewan Liquor and Gaming Authority have a standard mark-up rate on spirits of 162% on the
base price from the supplier (includes excise tax). GST at 5%, Liquor Consumption Tax at 10% and
container deposits/fees of approximately $0.20 would then be added, arriving at the retail price on their
shelves. (Engel, 2008)
Table 2.2.2 Formula for Calculating Saskatchewan SLGA retail price for product sold in Saskatchewan
Supplier quote per case
Plus custom duty (if applicable)
Plus excise (see table 2.2.1 )
Plus freight (if applicable)
Equals ‘landed cost’
Plus SLGA mark-up 162 %
Plus cost of inventory (if applicable)
Plus non-refundable environmental container
surcharge
Equals ‘base price’
Plus GST (base price x 5%)
Plus LCT (base price x 10%)
Plus refundable container deposit
Equals retail price
2.3 SLGA Manufacturing Permit
SLGA requires and may issue a manufacturing permit respecting any premises where the primary
business is that of a brewery, distillery or winery and is renewable on an annual basis at a permit fee of
$500 dollars per year. A onetime fee of $200 dollars is required at the time of initial application. As such
the Outlook distillery will submit an application for a manufacturers permit and will follow the guidelines
under which it operates. (Barber, 2008) These yearly costs have been included in administration, legal
and licensing.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
2.4 Sales and Marketing
SLGA outlines a listing policy which involves an application form to be completed by the supplier for
each product that is to be considered. Applications are considered twice per year, February and August
and evaluation consideration is based on a variety of criteria based on product quality, marketing and
promotional plans, anticipated customer acceptance, fit with the SLGA product portfolio, unique
characteristics, container and packaging (as approved by government of Canada, Department of
Agriculture), supplier and shipping arrangements, and shelf life. (SLGA, Saskatchewan Liquor and
Gaming Authority Listing Policy, 2007)
Advertising of alcoholic products is legislated according to type (print or broadcasting) and is controlled
at both the federal and the provincial levels. Each province passes its own legislations on broadcast and
print advertising, but must act within the federal regulations for TV and Radio advertising.
The
Canadian Radio-Television and Telecom Commission (CRTC) is responsible for the code for Broadcast
Advertising of alcoholic beverages; the most recent 1996 act permits all alcohol to be advertised
however it has several stipulations regarding the promotion of safe, moderate and legal consumption.
(Commission, 2008)
SLGA has strict guidelines regarding pricing and promotional purposes; a display price for the spirit
includes the cost of the spirit, taxes and mark-up as mentioned above. This display price can only be
changed if an agreement is made between SLGA and the owner of the distillery; advertising must have
prior approval of the SLGA; the distillery can establish a web-site highlighting its operations, tours and
production selection. (SLGA, Saskatchewan Liquor and Gaming Authority, 1995)
2.5 Municipal Regulations
The distillery will be located in rural Saskatchewan at Outlook. There will be some municipal regulations
which will include building/renovating permits, zoning, and sewer and water. The initial site for the
distillery is zoned commercial and therefore fits well within the zoning requirements.
The potato is
composed of approximately 80% water and will be ground-up during the mashing process; residual
water from the distilling will be re-cycled back to use for heating the next mash cycle. Any other residual
water from the mashing and distilling process can be eliminated through the sewer system.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
2.6 Food Safety Act and Regulations
Food Safety Regulations are laws which must be followed by the food processor. In Canada, these
fundamental food regulations are found in the Food and Drug Act and Regulations and can be found on
the Department of Justice Canada website.
All processors, regardless of size, must follow the
regulations as outlined in the act. (Justice, 2008)
2.7 The Canadian Food Inspection Agency (CFIA)
Federal inspection falls under the Canadian Food Inspection Agency (CFIA) jurisdiction. Various Acts and
Regulations, which are found on the CFIA website, must be followed depending upon the commodity
processed. CFIA is a government agency dedicated to safeguarding food, animals and plants, which
enhances the health and well-being of Canada’s people, environment and economy. CFIA delivers
programs and services designed to protect Canadians from preventable food safety hazards and to
ensure that food safety emergencies are effectively managed. (Agency C. F., 2007) The Outlook distillery
will ensure that it follows the regulations set forth by CFIA.
2.8 Food Safety Enhancement Program (FSEP)
The Food Safety Enhancement Program was set up to encourage the development, maintenance and
implementation of Hazard Analysis Critical Control Points (HACCP) into federally registered facilities for a
variety of manufactured consumables including processed fruits and vegetables. While CFIA has not yet
required mandatory HACCP in any facility other than meat facilities as of 2005, it may be beneficial to
have a HACCP plan in place in the Outlook micro-distillery. Food processors are responsible for the
quality and safety of the food they produce, therefore quality assurance programs such as HACCP will
insure the quality of its product to its consumer either here or abroad. (Agency C. F., Hazard Analysis
Critical Control Points / Food Safety Enhancement Program, 2007)
2.9 Consumer Packaging and Labeling Act
The Outlook distillery will comply with all regulations regarding correct labeling properly identifying
contents and quantity. (Justice, 2008)
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
3. Operations Plan
3.1 Location
Outlook Distillers micro-distillery will be located outside the town of Outlook, Saskatchewan.
A new 2000 square foot building will be built and the surroundings will be suitably landscaped.
The building will include an operations area, hospitality and show room area to accommodate
visitors, as well as an office and washroom.
3.2 Distillation Process Plan
3.2.1 Direct Materials
Feedstock
For the purpose of this study, cull (non-usable) potatoes were used as the convertible feedstock.
Potatoes are bulky, high in moisture content (water) and have to be stored in specially designed sheds
to avoid quality loss. They are harvested from July to November and have a storage life of approximately
one year. The quality of the potato for alcohol production is not important but the potato must
maintain its chemical composition over time. Potatoes with changed chemical composition do not
convert to alcohol on a weight basis the same as fresh potatoes. (Agricultural Experiment Station
Oregon State University, January 1982) It will be important to determine the specific potato varieties
containing the highest starch levels so as to achieve the highest percentage of EA. Approximately 4950
pounds of potatoes will be necessary for each batch of mash.
Water
The town of Outlook is situated along the South Saskatchewan River and as such this water will be used
via the town of Outlook water system which has under gone strict water quality regulations. For both
the mash process and blending, filtered water will be used to remove chlorine and heavy metals to
ensure the water is of the utmost pristine nature. Water plays a huge role in the quality and flavor of
the distilled product.
Yeast
The distilling process will require super start yeast in order to yield the highest level of alcohol prior to
distilling. Each 2250 liter mash requires approximately four pounds of yeast.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Enzymes
As potatoes contain starch and limited sugar, amylase enzymes are needed to convert the starch into
sugars. Each 2250 liter mash will require approximately 1 pound of enzymes.
3.2.2 Distillation Process
The process of distilling alcohol is relatively straight forward. It involves grinding, cooking, fermenting
and distilling potato mash to produce ethyl alcohol. See figure 3.2.1 below.
Figure 3.2.1 Distillation Process (modified) (Distilleries, 2008)

Step One: The Conversion Process
Raw feed stock is chemically broken down by a process which may involve cooking and adding
enzymes in order to convert carbohydrates (starches) into sugars. Hot water (approximately 70
degrees F) is then added in an amount to just cover the mash and an enzyme (alpha amylase) is
added in order to turn the mixture into slurry liquid. This process of conversion takes
approximately four hours after which it undergoes a two to three hour cooling process.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan

Step Two: Fermentation
The liquid is transferred into a fermentation tank to which high yielding alcohol yeast is added
in order to turn the mash into a potato wine. This process will take approximately twenty-four
to forty-eight hours depending on the sugar content of the feed stock.

Step Three: Simple Pot Still Type Distillation
The fermented solution is transferred into a pot still to extract the alcohol from the potato wine.
During this process the water will separate from the alcohol such that the liquid with the lowest
boiling point will separate first, the temperature will remain constant until that substance has
completely distilled. The vapor is led into the condenser where, on being cooled, it reverts to
the liquid (condenses) and runs off into a receiving vessel. This product is called the ‘distillate’.
Those substances having a higher boiling point will remain in the pot still and constitute the
residue. In this case the ethanol alcohol will boil at approximately 78.4 degrees Celsius while
water will boil at 100 degrees Celsius. Since a perfect separation is never effected, the distillate
is often redistilled to increase its purity.

Step Four: Filtration
The distillate is then transferred into a blending tank where it will pass through a filtration
system to get rid of excess organic volatiles.

Step Five: Blending
Pure filtered water is added to the 95% EA to reduce it to 40 percent which will be a more
consumable product.
3.3 The Vodka Distilling Process
The process begins at the farm where the potatoes are grown, harvested and transported to the
distillery. Approximately 9.08 kilograms of potatoes will yield one liter of vodka. Approximately 4950
pounds of washed cull potatoes will be systematically dropped into a 50 pound per minute 2 HP meat
grinder which will in turn empty into a combination 5000 liter mash/fermenter containing four to five
hundred gallons of hot water.
The kettle/fermenting tank will maintain a cooking temperature of approximately 70 degrees. The
potato slurry will cook approximately one hour. Amylase enzymes are added in the cooking process in
order to break down the starches in the potatoes and convert them to sugar. Because starch is king, it
will be important through research and development to determine which potato varieties will deliver
the best yield of converting starch to sugar. The slurry will undergo a two to three hour cooling process
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
via a heat exchange system located near the mash/fermenting tank. High yielding alcohol yeast will be
added, after which the slurry will be allowed to ferment to yield a seven to nine percent potato wine.
This will take approximately three days. The potato mash which has become a potato wine through the
fermentation process is then pumped into a pot still.
The pot still will boil the potato wine and begin to strip out as much water as possible. The alcohol
vapors travel into the rectifying column where the ethanol vapors will be separated out from the water
via a plated rectifying column and will give an ethanol of about 95%. This will be achieved through three
distillations. The ethanol will be transfer (pumped) over to either storage/ or blending tanks. It will be
blended with filtered water drawn from the South Saskatchewan River in order to reduce it to 40%
alcohol. Prior to bottling, the blended vodka will be undergoing a charcoal filtration process which will
remove any impurities and render a clean pure vodka product.
Figure 3.2.2 2HP Grinder
Figure 3.2.3 Mash Kettle/fermenting tank
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Figure 3.2.4 Heat Exchanger
Figure 3.2.5 Fermenter
Figure 3.2.7 Blending and Storage Tanks
Figure 3.2.6 Pot Still with rectifying column
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Figure 3.2.8 Six Valve Bottler
Figure 3.2.9 Filtration System
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
3.3 Floor Plan
F/M
F/M
Pot Still
W
Display
Counter
Storage Tanks
Figure 3.3.1 Floor Plan – 2000 square feet (not done to scale)
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
3.4 Average Business Cycles
The Outlook distillery will operate five days per week, twenty days per month, ten and a half months per
year and two hundred and ten days per year. The retail store will be open during weekday afternoons
from one until four pm. It will be important to build up inventory during the first three months prior to
opening the distillery for business and tours. An average small batch of spirits will take approximately
four days, including mash preparation, cooking, fermenting and distilling. The blending down to 40%
alcohol will take place as needed to supply SLGA and on site sales. The distillery will consist of two full
time workers which are the owners of the business; both owners will manufacture and market the
product, each dedicating half their time between distilling and marketing efforts. A part time
bookkeeper will come in once per week for three hours to input data and prepare bills for payment.
Additionally, family members and interested ‘bottling’ groups of four plus the owners will help with
bottling as required by sales. The 95% EA can easily be stored in bulk until needed.
3.4.1 Average Business Day/Week
An average business day will begin at eight thirty in the morning. Both owners will be work Monday
through Friday beginning at eight thirty am. Either owner will begin the first mash/fermenting cycle
preparations on a Day 1 by grinding the potato through grinder into mash kettle, cooking, and
transferring cooled mash into fermenter number one. This preparation will take approximately four
hours on Day 1. The potato wine will be allowed to ferment for approximately three days and then
requiring distilling on the fourth and fifth day. (There will be a total of two days of distilling per 2250 liter
fermented mash) This will allow for triple distilling, accommodating the quality EA. See table 3.4.1
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 3.4.1 Thirty day mash/fermenting/distilling cycle.
Fermenter 1
4500 liter
Fermenter 1
4500 liter
Fermenter 1
4500 liter
Fermenter 1
4500 liter
Fermenter 1
4500 liter
Day 1
2250 liters
Day 2
2250 liters
Day 3
2250 liters
Day 4
Distill
Day 5
Distill
Day 8
2250 liters
Day 9
2250 liters
Day 10
2250 liters
Day 11
Distill
Day 12
Distill
Day 15
2250 liters
Day 16
2250 liters
Day 17
2250 liters
Day 18
Distill
Day 19
Distill
Day 22
2250 liters
Day 23
2250 liters
Day 24
2250 liters
Day 25
Distill
Day 26
Distill
Day 29
2250 liters
Day30
2250 liters
There will be other day to day tasks which might include handling on site sales, tours, maintenance,
clean-up, and regulation logging of distilled spirit batches. Additionally, the manager will attend to office
details regarding sales and marketing; both owners will divide their time accordingly, fulfilling marketing
strategies and operational plans on a daily basis. Bottling will be done as sales necessitate, however, at
the end of the second week of operations, bottling will take place for approximately five hours on day
12, following the blending down to 40% and filtering to remove impurities. One hundred and thirty-two
cases can easily be bottled in five hours by 6 people using a six spout gravity fed bottling dispenser. The
distillery has the capacity to produce 77 cases per weekly distillation based on eleven and a half months
which will yield 3544 cases per year. See table 3.4.2
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 3.4.2 Thirty Day Case Production (numbers in red represent maximum capacity per week)
Day 1
Mash
2250 liters
Distill 1
225
Distill 2
225
Distill 3
225
Distill 4
225
Distill 5
225
EA (at 95%) (liters)(quality EA)
78
40% (liters)
173
Bottles-750 ml
231
Potential Cases per distilling per 19.25
week
Day 2
2250 liters
225
225
225
225
225
78
173
231
19.25
Day 3
Day 4
2250 liters
225
225
225
225
225
78
173
231
19.25
Day 5
2250 liters
225
225
225
225
225
78
173
231
19.25
3.4.2 Average Business Month
Every business month the manager will be responsible to pay monthly bills such as utilities. The manager
will arrange supply inventory, produce monthly financial statements, evaluate profit margins, and
implement required changes for continual profit margin improvement.
Additionally, regulatory
documents will be filed, the strategic company plan will be evaluated which will provide the basis for the
strategic marketing planning. Realistic goals will be established and a series of manageable strategies
will be set up to facilitate the accomplishment of the objectives of the business. Schedules will be set up
regarding the attendance to various marketing venues such as trade shows; arranging site visitations to
potential markets such as restaurants, tourism venues; and other potential spaces that will increase the
awareness and sales of the product as well as arranging bottling sessions when required.
3.4.3 Average Business Year
The average business year will consist of conducting yearend inventory, forward tax paperwork to the
accountant and renew annual licenses. The managers will continually assess financial results and in
progressive years with the current year in contrast to previous year’s sales and evaluate actions required
to move the business forward. It will be extremely important to build awareness of the product in the
Saskatchewan market place and as such a great deal of time will be spent on marketing efforts as well as
creating an inventory related to sales.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
3.5 Capital Budget
The total capital start-up costs will be estimated at $622,382. This cost includes the building set-up and
production equipment. See table 3.5.1
Table 3.5.1 Estimated Capital Costs
Description
Building
Land
Landscaping
Signage – Awning
Total Building Cost
Production Equipment:
Tanks: Blending and Storage
Manual Bottle Rinser and & Sparger
Filtration System
Shell and Tube Heat Exchanger
Six Valve Gravity Bottle Filler
Muller 250 Liter Pot Still/ 2 - 5000 liter
mash/fermenter, accessories
Forklift
Conveyor
Pallet Jack
Office Equipment
Total Production Equipment Cost
Total Building and Equipment Costs
Estimated Source
Costs ($)
200,000 New - 2000 square feet
128,000
10,000 Local – Oliver Green
3,000 Canopy Style – Saskatoon Awning and Canvas
341,000
14,400
1,200
2,795
3,750
1,642
1,995
243,000
4 – 550 gal (2500 liter) stainless steel –GW Kent
4 – 330 gal (1500 liter) IBC plastic –GW Kent
GW Kent Brewery Supply
North American Brewing Services - Kelowna BC
30 bbl North American Brewing Services – Kelowna BC
A.O. Wilson Ltd. –BC
Muller Co – Germany (includes freight + GST)
9,000
400
200
3,000
281,382
Toyota Saskatoon
On hand (farm)
On hand(farm)
Computer, cash register, desk/chair, filing system
$622,382
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
3.6 Operating Expenses
Operating Expenses consist of direct material, salary and overhead manufacturing costs. See tables
3.6.1 - 3.6.3 below for estimations of direct material purchases, labor costs, and manufacturing
overhead costs.
Table 3.6.1 Direct Material Purchases for year 1
Direct Material Purchases
Potatoes
$0.09/kg
Superstart yeast $195/20 kg
($9.75/kg)
Amylase Enzymes
$26.40/kg
Charcoal Filters - @$50
Water $87/3 mo
Bottles and Deco
$3.75 delivered
Synthetic T-Top
$0.40 delivered
Packaging - boxes
$747/1000
Packaging – partitions
$402/1000
Total Direct Materials
Amount
39 distill per yr @ 4950 kilograms
Total
$17,375
39 ferments/yr*1.8 kilograms
$ 684
39 mashes per yr @ .45 kilograms
$ 463
12 bottlings
12 months
10000 minimum order
$600
$ 348
$68,445
10000 minimum order
$7,300
5000 minimum order 0.74/box
$1,126
5000 minimum order 0.40/partition
MBA 992 Edwards School of Business, University of Saskatchewan
$608
$96,949
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 3.6.2 Direct Labor and Benefits for year 1
Total Annual Salaries
Manager
$5,600/month
Assistant Manager
$4,000/month
Total Salaries
$33,600
$24,000
$57,600
Hourly Workers
Bottler Wages @$12.00/hr*4 people*5 hrs*
11 bottlings/yr
$2,651
Total Hourly Wages
$2,651
Benefits for Annual Salary Employees
Employment Insurance
Canada Pension Plan
Workman’s Compensation
Total Benefits for Salaries
$1,016
$2,079
$916
$4,011
Benefits for Hourly Workers
Employment Insurance
Canada Pension Plan
Holiday Pay
Workman’s Compensation
Total Benefits for Hourly Workers
$64
$131
$153
$ 42
$390
Total Direct Labor and Benefits
$64,715
(Agency C. R., 2008) (Saskatchewan, Saskatchwan Workers' Compensation Board, 2008)
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 3.6.3 Total Manufacturing Overhead Costs for Year 1
Variable Costs:
Maintenance – estimate
$
Freight and Pallet Charges for 1000 cases
Freight - $355/100 cases
Natural Gas
Electricity
Mash Disposal
Total Variable Costs
Fixed Costs:
Natural Gas
Electricity
Insurance
Telephone/internet – estimate
Property Tax
Capital Cost Allowance
Total Fixed Overhead Costs
Total Manufacturing Overhead Costs
500
3,076
2,400
150
1000
7,639
$
1,500
1,200
1,200
600
1,800
29,698
35,998
$47,025
Table 3.6.4 Cost of Goods Manufactured for year 1
Direct Materials
Direct Labor
Manufacturing Overhead
Total Cost of Goods Manufactured
96,949
64,715
47,025
$208,689
4. Human Resources Plan
The Outlook based distillery will be a family operated business. Both the owner and her husband will
operate the distillery and will bring in additional family members as required for the bottling process.
Additionally, the distillery will seek out individuals interested in occasional bottling who would like to
experience the process. This creative practice is being used by a similar micro-distillery in Washington
State by DryFly Distillers and is being met with success. (Poffenroth, 2008) However a calculation has
been made to include a wage for four bottlers for eleven bottling sessions the first year. Because microdistilling is a hands-on small batch craft, the distillery can be operated by the owners. Both the owners
will learn the art of micro-distilling and both will undertake the opportunity to market the crafted
product in Saskatchewan. In order to sell the product, it will be extremely important to create an image
and build awareness of the product and therefore it is imperative that the owner’s undertake this
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
important task to begin with. Because both owners have ownership in the distillery, they will be equally
motivated to make the business a successful venture.
4.1 Organizational Structure
The Outlook Distillery will be a corporation owned by Benita and Grant McNeill. Benita will be
responsible for the day to day management. Both will be responsible for the operations of the distillery
and marketing the product. A part-time person will be hired for tours and retail sales on the distillery
site once brand awareness has been established. This is anticipated to happen beginning the second
year in operation.
Directors/Shareholders
Benita and Grant McNeill
Manager
Assistant Manager
Benita McNeill
Grant McNeill
Part-Time
Tours/Retail Sales
Part-Time
Bookkeeper
Part-Time
Bottling Help
CC
Figure 4.1.1 Organizational Structure
4.2 Job Descriptions
Shareholders/Directors: Both Benita and Grant McNeill will be involved in the daily operations of the
distillery. Specifically, both will be trained in the fine art of distilling and therefore each will have the
ability to produce high quality spirits. Additionally, each has previous experience in owning, operating
and managing a business in which they have developed a skill set. Each will spend equal time on
operations and marketing. The combined yearly salary is $115,200 with benefits of $8011.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Shareholder/Manager: Benita will perform the day to day management of the micro-distillery. This will
involve a number of tasks specific to the business regarding the following activities:
Spirits Production: the distilling process involves various steps from sourcing the potatoes,
grinding the potatoes into the mash kettle, cooking, fermenting, distilling, blending, filtering and
bottling. Both Benita and Grant will be involved in this process at various stages.
Marketing: Creating an image and building awareness of a new product will be extremely
important to the success of the micro-distillery with respect to sales revenue. Both co-owners have
marketing experience from their respective businesses. Each will pursue sales while building brand
awareness on a daily basis; each will devote half time to this process. This will involve seeking out and
developing relationships with Saskatchewan Liquor and Gaming Authority (SLGA) and their respective
liquor board stores, Saskatchewan Tourism, restaurants, consumer trade shows, Regional Economic
Development Associations, and any and all available venues that will help promote the Saskatchewan
made product.
Tours/Retail On-site Sales: On site retail sales will be extremely important to the success of the
distillery. As such, tours will be offered year round Tuesday through Friday by one of the owners of the
Outlook based micro-distillery. The manager will be responsible in setting the hours and allocating the
task. Beginning the sixth month of operations, a part-time tour/on site sales person will be hired for
approximately four hours per day, four days per week.
Book-Keeping/Log-Keeping: A part-time book-keeper will provide general book-keeping skills
on a weekly basis. This includes data entry and bill payment preparation and run monthly financial
statements, filing GST and PST forms. This position is considered contract work and thus will be billed at
$20 per hour plus GST at approximately five hours per week. The manager will perform monthly and
yearly financial assessments, and strategic planning for the business. In addition, SLGA requires a
recording log on each distilling of product as per government regulations and therefore will be done by
the person distilling.
Part-Time Bottling Staff: As discussed in the 4.1 Human Resource Strategy, additional family
members will come in as required for the bottling process. (It has been noted earlier that a financial
calculation has been made to include four bottler positions) Bottles will be prepared by rinsing, filling,
capping
and
applying
tamper-proof
labels
to
lid
area.
MBA 992 Edwards School of Business, University of Saskatchewan
The
distillery
will
seek
out
Page 34
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
individual/groups/businesses interested in occasional bottling who would like to experience the process.
As this practice has been successful in another micro-distillery, it is the aim of the Outlook distillery to
do the same. A social time with refreshments and snacks will be provided following the completion of
the bottling. This will further enhance the marketing process and endear community members as they
may feel inclined to share a connection to the brand. Six people, including the owners, will be able to
bottle approximately 132 cases (360- 750ml bottles) in five hours using a six-bottle gravity fed filling
station. These positions will pay an hourly wage of $12.00 per hour, 5 hours per bottling session at 11
bottlings per year for a total of 55 hrs. See table 4.2.1
Part-time Retail Staff: One part-time position will be available beginning the sixth month of
first year of operations for a minimum of four hours per day, four days per week. (See above
Tours/Retail On-site Sales) This will allow time for the owners to take some personal free time away
from the distillery. The part-time staff will conduct tours and maintain on-site sales of the product. This
position will pay an hourly wage of $12.00 per hour, four hours per day, and twenty days per month for
a total of $4608 plus benefits of $692 per year total of $5,300 per year.
Table 4.2.1. Ten year labor cost projection
Production Labor
Permanent Labor
2010
2012
2014
2016
2018
58,925
61,546
64,284
67,143
70,130
4103
4293
4490
4697
4913
63028
65,839
68,774
71,840
75,043
2983
3,777
4,783
6,057
7,670
61
74
89
108
130
513
656
838
1069
1360
66,524
70,272
74,396
78,967
84,074
58,925
61,546
64,284
67,143
70,130
4,103
4,293
4,490
4,697
4,913
63,028
65,839
68,774
71,840
75,043
$12.28
$12.85
$13.44
$14.07
$14.73
768
768
768
768
768
Total Wage
9,431
9,869
10,322
10,806
11,313
Benefits
1,234
1,318
1,380
1,444
1,511
10,665
11,187
11,702
12,250
12,824
73,693
77,026
80,476
84,090
87,867
Benefits for Salary Employees
Total Salaries
Part-Time Bottler Wage
Hours
Benefits for Wage-Earning Employees
Total Direct Labor + Benefits
Marketing/Sales Labor
Manager/Marketers
Benefits
Total Salary + Benefits
Part-Time Wage
Hours
Total Wage Benefits
Total Marketing/Sales Labour
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
4.3 Training
Producing a quality product and being able to market it at a super-premium price is very important to
the success of the business, therefore it is imperative the owners are very well trained in the art of small
batch distillation. There are a number of educational opportunities with North America where one can
achieve some excellent training. As the owners have no experience in artisan distilling they will require
training and will seek out such. Many of the well known and respected pot-still manufacturers offer
short courses; specifically Bavarian-Holstein Partners offers four day hands-on workshops such as
Distillery 101 and Distillery 202. These courses require a tuition cost of $485.00 and are held in Culver
City, California. (Distilleries, 2008) These courses cover a series of lectures such as basic theory and
applications, hands-in distilling process, lab analysis, practice of sanitation and sensory evaluation. Carl
Distilleries, in conjunction with B&D Technologies, and in cooperation with Michigan State University
Department of Chemical and Agricultural Engineering, hold Artisan Distilling Workshops over a weekend
two times per year in Michigan. These workshops are a cooperative and comprehensive primer that
looks at all aspects and techniques of artisan distillation, including brandy and eau-de-vie production.
The fall of 2008 workshop has an added bonus of grain mash whiskey double-distillation and highproof/vodka distillation. Additionally, many of the pot still manufacturers will offer training should one
purchase that particular company’s pot-still. The Outlook distillery owners will be accessing Muller’s
training on their pot still and is included in price of the still. See a more complete list of educational
opportunities in Appendix B.
Both owners have a wide array of skill sets. Grant McNeill has a strong agricultural background
combined with mechanical skills and management expertise. Benita is a graduate of the University of
Saskatchewan with a degree in Fine Arts and in Art History. She will graduate with a Masters in Business
Administration in management from the Edwards School of Business in October of 2008. Benita is an
accomplished stylist who has owned and operated a salon for a number of years as well as having had a
retail clothing store; as such understands the merits of customer service, satisfaction and management
of a business.
Additionally, she has complimented her academic education over the years with a
diverse range of educational components that will enhance the micro-distillery operation; these
included professional development and leadership classes such as Dale Carnegie; credit classes in
business law, small business management, marketing, merchandising, salesmanship and accounting; a
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
diverse range of artistic skill sets; and authorship of a Canadian best seller cookbook which included
travel and promotional engagements across Canada.
4.4 Future Human Resources
The micro-distillery will consider training a person in the art of distillation at some point in the future;
this position will be offered as a combination of salary and warrants in the business in order to
encourage quality control and support ownership in the company. This will allow for respite in which
the owners will be able to leave the distillery for vacations and/or personal leave and offer the
possibility of an exit strategy should the owners decide to sell the business. The position will offer
hands-on training in all aspects of the business by the owners.
5. Marketing Plan
Marketing is a key component to the success of the Outlook distillery. Currently there are very few
micro-distilleries in Canada; however that number is increasing as potential participants are observing a
trend towards premiumization and super-premiumization of products in all categories. As incomes
continue to increase at record levels, Canadians are motivated to make premium and super-premium
purchases.
In order for the Outlook distillery to enter the super-premium market space, it is implicit that the
product is of super premium quality and that Outlook distillery undertakes a strong position in
marketing the product to develop awareness, market an image in order to move toward strong growth
in sales over the long term. As such, the Outlook distillery will focus on a variety of venues in which to
build brand awareness such as attending consumer trade shows including bridal, food, sports, and other
venues that may allow for marketing of the product.
Trade shows rank 3rd to advertising and
promotion and as such offers another opportunity to build relationships with face to face contact. As
well, the Outlook distillery will want to establish connections with conference activities in the province,
liaise with Saskatchewan tourism to establish tour routes, build relationships with any and all
Saskatchewan based casinos, restaurants, liquor board stores and franchise members, small community
promotions, and other possible options that could be considered. In addition, the Outlook distillery will
host a website to highlight its products along with a blog which will highlight ongoing activities past,
present and future similar to a ‘face book’ as well as to ‘communicate’ with individual e-customers.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
The Outlook based distillery will market its products through two different venues. The first will focus on
the sales through the onsite retail store in the distillery while the second will be through the SLGA board
distribution system. Selling on site will personalize marketing efforts by providing opportunities to
market face to face with potential customers. The on-site sales area will be a part of the distillery itself
and will have a suitable décor that would promote sales through visuals such as stocked shelves, large
posters and marketing brochures and business cards.
Selling through the Saskatchewan Liquor board stores through-out Saskatchewan will provide access to
the product on a larger scale. Shelf space in retail outlets is finite and as such retailers may not wish to
substitute the shelf space dedicated to known brands for new, unproved ones which will make entry
difficult. As well, it should be noted that SLGA is in no way obligated to sell the product should it decide
not to do so and is based on application process requirements regarding quality and quantities.
However, SLGA has expressed the desire to promote Saskatchewan based products and are very willing
to work with the Outlook distillery and other potential entrants to establish a ‘micro-distillery’ policy
that is beneficial to small producers such as the one in place for the cottage wine industry. Therefore it
is imperative that all marketing efforts concentrate on creating an image and a brand awareness of a
high quality, locally produced Saskatchewan super-premium agricultural value added product that
consumers will continually want to purchase.
5.1 Current Market
There are very few micro-distilleries in Canada, four of which are in British Columbia, one in Nova Scotia,
PEI, Ontario and the NWT. Most are producing super-premium eau-de-vies and brandies from fruit,
whisky from malt barley, and one mixing coolers mixed from bulk purchased white spirits and fruit
flavors (not technically considered a micro-distillery). However, potato vodka has not yet been produced
in Canada although it is believed a newly created small micro-distillery in Prince Edward Island is in the
process of creating Canada’s first potato based vodka and will be in the PEI Liquor Board stores in the
winter 2008.
5.2 Competition
Canada produces and imports various brands of vodka. Produced around the world, most vodka is
distilled from grain, corn, wheat or rye, using the cheapest or least costly grain available and, generally,
is produced in industrial alcohol plants using a continuous distillation method which renders a pure,
clean, tasteless and odorless product. The alcohol is sold to industrial users of ethanol, as well as to the
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
alcoholic beverage industry for use as a blending spirit, or after filtration and dilution with water, as
vodka. (ivodka, 2008)
Competition will come from a number of these large scale manufacturers who have successfully
marketed and branded their specific vodka product. A total of 182,255 – 9 liter cases (or 243,007- 750
ml cases) of all brands of vodka were sold in Saskatchewan during the 2007.
Of that number
approximately half represents the premium and super premium category. It will be the objective of the
Outlook distillery to convert 1.2% or 1458 cases (750 ml) to the super-premium potato vodka product.
This includes 5% or 270 cases (750 ml) from the deluxe super-premium category)
An estimation of vodka sales in Saskatchewan for 2007 at an average price point of $25 represents an
approximate $5.47 million dollar market. Smirnoff is the benchmark vodka; it is the most purchased
premium vodka in Saskatchewan (and in Canada) for 2007 at a price point of $25.25 (750 ml). (See table
5.2.1 for Smirnoff sizes, volumes and sales)
Table 5.2.1 Smirnoff Sales – Premium benchmark brand
Size (ml)
Cases Sold in 2007 Units per Case
Total Price
375
6707
24
750
15,252
12
1140
10,750
12
1750
10,621
6
Total Smirnoff Premium Brand Sales
$14.35
$25.25
$37.24
$58.95
Total Sales ($)
2,309,891
4,621,356
4,803,960
3,756,648
$15,491,855
Table 5.2.2. Volume, quality, and imported/domestic of top selling vodkas sold in Saskatchewan for
2007 in 750 ml size. Table generated from data reviewed in SLGA 2007 in Review booklet.
(Saskatchewan Liquor and Gaming Authority, 2007)
Category - Standard Vodka Sold in Sask.
Units/
Cases
Smirnoff
(P)(Domestic)
12
Polar Ice
(P)(Domestic)
12
Russian Prince
(E)( Domestic)
12
Alberta Pure Vodka
(E )(Domestic)
12
Troika
(E)(Domestic)
12
McGuiness Red Tassel
(E)(Domestic)
12
Banff Ice Vodka
(P) (Domestic)
12
Grey Goose Vodka
(D)(Imported)
12
Skyy Vodka
(P)(Imported)
12
(D) Deluxe-super premium (P) Premium (E) Economy
Bottle
Total
Unit Total Cases Price
Size
Sales (bottles)
($)
(ml)
750
183,022
15,252
25.25
750
90,474
7,540
24.99
750
69,289
5,774
23.25
750
108,049
9,004
23.25
750
23,560
1,963
23.24
750
27365
2,280
23.25
750
24415
2,034
24.45
750
11254
1,876
50.25
750
19830
1,656
25.23
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
As it is the desire of the Outlook distillery to produce super-premium vodka, it will fit within the deluxe
(super-premium) category of vodkas in sold in Saskatchewan. Table 5.2.2 represents the deluxe (superpremium) brands with their respective price points and case sales.
Tables 5.2.3 Deluxe (super-premium) vodka listed in SLGA Official Price List (2008) sold by quality,
quantity, manufacturer, domain, and price point. (Authority, 2008)(9 liter cases were converted into 750
ml size)(Sales as of June 21, 2008 updated-this table only) (Barber, 2008)
Vodka – Canada - Deluxe
Pearl Vodka
(Highwood Distillers)
12
750
34.26
LCT/ Container Total Case
PST Deposit
Price Sales
5%
10%
1.71 3.43
0.20 39.60
80
Smirnoff Blue
(Diageo Canada)
12
750
23.70
1.19
Vodka – Imported – Deluxe
Units/
Case
Units/
Case
Size
(ml)
Size
(ml)
Base
Price
Base
Price
Grey Goose ( France)
12 750
(Sidney Frank Co)
Wyborowa Exquisite Vodka (
12 750
Poland)
(Wyborowa)
Stolichnaya ( Russia)
12 750
Spirits Int’l GMBH)
Level ( Sweden)
12 750
(V&S Absolute)
Slava Ultra Premium Vodka
12 750
(Ukraine)
(Zoldtonosha)
Three Olives Vodka (United
12 750
Kingdom)
(Whiterock Inc.)
Zodiac Luxury Potato Vodka (
12 750
USA)
(Zodiac Spirits)
Total 9 liter cases in super premium (deluxe) category
Average price of $38.33
GST
2.37
0.20 27.46
765
GST
43.52
LCT/ Container Total Case
PST Deposit
Price Sales
5%
10%
2.18 4.35
0.20 50.25
1949
41.09
2.05
4.11
0.20 47.45
92
22.83
1.14
2.28
0.20 26.45
418
43.52
2.18
4.35
0.20 50.25
57
25.04
1.25
2.5
0.20 28.99
207
23.49
1.17
2.35
0.20 27.21
207
41.16
2.06
4.12
0.20 47.54
276
MBA 992 Edwards School of Business, University of Saskatchewan
4051 cases (5401-750ml cases)
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
In order for the Outlook distilled super-premium potato based vodka to compete within the deluxe
category, it will need to be priced accordingly. As such the Outlook distillery should consider a selling
price point of $35 - $38 dollars.
Of the top 200 selling products listed in SLGA year in review 2007, Grey Goose sells 1878- 9 liter cases
per year. Approximately, 4051 9-liter cases, combined of the nine deluxe brands, were sold as of June
2008. It is the objective of the Outlook distillery to acquire a 5% (202.5 9-liter cases or 270 cases – 750
ml cases) market share of this deluxe category. This number is included in the total proposed cases to
be sold as calculated in 5.2.
5.2.1 Direct Vodka Competition
Smirnoff is the benchmark vodka in the Saskatchewan market place and is premium priced at $25.25.
Grey Goose is the top selling deluxe (super-premium) vodka sold at $50.25. Both of these vodkas rate in
the top 200 products selling products listed in SLGA.
5.2.2 Indirect Vodka Competition
While vodka is the most sold spirit in Canada, it shares competition with all other alcoholic beverages.
5.2.3 Indirect Tourist Competition
Saskatchewan has a variety of tourist attractions and as such will compete for disposable income dollars
spent on tourism activities and purchases.
5.3 Customers and Target Markets
In 2006, vodka surpassed Canadian whisky as the largest spirit in terms of volume sold and in 2007
widened the gap. A forecasted sale of total volume growth of vodka at a compounded annual growth
rate of 4.6% is expected to continue through the forecast period 2007-2012. (International, Alcoholic
Drinks - Canada, 2008) In 2007 alone, vodka sales grew 6.66%. (Saskatchewan Liquor and Gaming
Authority, 2007) Part of its’ allure is it’s clean, simple flavour and it’s suitability for mixing and
experimentation, particularly giving it the flexibility to be mixed into a variety of different cocktails due
to the emergence of the cocktail trend that has spread across North America in the last few years and
is being enjoyed by various aged consumers.
In Saskatchewan, in 2007, vodka sales experienced a growth in sales of 5.40% with the largest gains
coming from imported vodkas. (Saskatchewan Liquor and Gaming Authority, 2007) Over 182,255 9 litre
cases of vodka were sold in 2007.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
The target market Outlook Distillers wishes to cater to are vodka drinkers in Saskatchewan who are
typically between the ages of 24-64 years old and specifically to the highest users in this group aged 3449 years.
Saskatchewan‘s population was 1,010,146 as April 1, 2008. (Saskatchewan Bureau of Statistics, 2008)
Real GDP increased by 4.3 percent in 2007 and real personal expenditure on consumer goods and
services increased by 6.4 percent. Household income after tax was $41,000 in Saskatchewan based on
the 2006 census; disposable incomes are growing at 6% per year nationally. (Canada S. , 2008) Personal
income in Saskatchewan rose by 9.1 percent in 2007 and as a result personal expenditure disposable
income also rose 9.1 percent after subtracting direct taxes and contributions to pension and social
insurance plans. (Saskatchewan Bureau of Statistics, 2008)
A total of 431 million dollars of personal expenditure was spent on alcoholic beverages purchased in
Saskatchewan stores. (Saskatchewan Bureau of Statistics, 2008) During 2007, total spirits volume sales
rose 4.08%, the result of a 3.18% increase in domestic spirits sales volume and a 7.54% jump in imported
spirit sales; specifically, domestic vodka volume sales increased by 3.88% while imported vodka sales
volume increased by 19.38%, attributing to a category performance of 5.4%. There has been a general
consumer migration toward deluxe and premium brands in most categories and will continue into 2008.
(Saskatchewan Liquor and Gaming Authority, 2007)
The Outlook micro-distillery will target visitors and tourists to Outlook. Outlook is located 100 km south
of Saskatoon and has a population base of approximately 2000. In addition, within 100 km radius,
Outlook is surrounded by several communities which increase the population draw by an additional
213420 people within a 100 km including Saskatoon. (Saskatchewan, 2007)
Outlook is host to a number of major attractions.

Outlook and District Regional Park situated along the South Saskatchewan River

Outlook is home to Canada’s Longest Pedestrian Bridge, the Skytrail, which stretches 3000 feet
across and stands 150 feet above the South Saskatchewan River.

The Canada Saskatchewan Irrigation diversification Center is a research facility which tests
different crops, diseases, chemicals under dryland and irrigation

The outlook Recreation Complex, hosts a skating rink and curling rink and bowling alley as well
as several ball diamonds nearby.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan

The outlook and district Heritage Museum located in a former railroad station.

Outlook is located on the banks of the South Saskatchewan River and is situated only 35 miles
from Lake Diefenbaker and Gardiner Dam.

Outlook is known as the irrigation capital of Saskatchewan which is the largest irrigation project
in the province.

Outlook is home to four schools and colleges, Outlook Elementary, Outlook High School
Lutheran Collegiate Bible Institute and Prairie West Regional College.

Outlook has several churches;

Dakota Dunes Casino and Golf course is 30 minutes

Saskatchewan Tourism is creating a destination initiative for the Lake Diefenbaker of which
Outlook will be included in the proposed casino loop
It is important to note that the micro-distillation industry is a relatively new industry with less than ten
micro distilleries across Canada in comparison with the United States which has well over 140 micro
distilleries. As such, the Outlook micro-distillery will be the first of its kind in Saskatchewan and
therefore represents a unique tourist attraction.
5.4 Promotion
As discussed under marketing, the Outlook distillery will use a number of options available in order to
increase awareness of its product. These options will be important in the success of the distillery in
terms of creating sales. As the vodka product will be sold on-site as well as in SLGA and franchisees
stores, a combination of promotional activities will be specific to each market. The following list of
activities will determine specific promotional solutions.

attend consumer trade shows including bridal, food, and recreational (three per year)

establish connections with conference activities in the province

liaise with Saskatchewan tourism, locally and provincially, to establish tour routes

build relationships with Saskatchewan casinos

establish connections with fine dining restaurants to encourage them to carry and recommend
the product

establish connections and educate various liquor board stores and franchise members on the
product so they can recommend the product to their customers

collaborate with local community functions
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan

host a website to highlight its products along with a blog which will highlight ongoing activities
past, present and future similar to a ‘face book’ as well as to ‘communicate’ with individual ecustomers
In order to increase awareness of the Outlook distillery, the following promotional tools will be used:

Outdoor billboard signage in Saskatoon
A ten by ten foot outdoor sign on corner of 22nd street and Idywyld which represents one of
the busiest corners in Saskatoon. Well over 93,000 vehicles pass through this corridor daily for
which a large group of potential consumers will have access to the image and brand. (Hill, 2008)
Prices for this advertising have been formulated in the following table 5.4.1.
Table 5.4.1 10’ x 10’ Billboard Advertising for Year 1
Design Mock-up
Duration
0 – 13
14 – 26
27 – 39
40 - 52
Cost per Year:
$300
$75/wk
$70/wk
$65/wk
$60/wk
$2,880 plus m $300 = $3,180
It will be extremely important to build awareness of the product. Therefore the marketers will travel to
various locations in Saskatchewan to promote the vodka product. Specifically, they will make monthly
trips to both Saskatoon and Regina to build relationships with restaurants, and liquor board stores. A
cost of $0.45 per kilometer has been allowed for this promotional activity for a total cost of $3,780 for
the first year. See Table 5.5.2 for a listing of costs for 10 years.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 5.4.2 Marketing Expenses estimation for 10 years
Marketing and Admin Expenses
2009 2010
2011
2012
2013
2014
2015
2016
2017
2018
Sample Vodka/Liquors Costs
274
281
287
294
301
307
315
322
329
337
Vehicle Mileage
3,780 3,867 3,956 4,047 4,140 4,235 4,333 4,432 4,534 4,638
Telephone
1,200 1,228 1,256 1,285 1,314 1,344 1,375 1,407 1,439 1,473
Billboards
3,180 3,253 3,328 3,405 3,483 3,563 3,645 3,729 3,814 3,902
Brochures/business cards
1,200 1,228 1,256 1,285 1,314 1,344 1,375 1,407 1,439 1,473
Trade Shows
6,300 6,445 6,593 6,745 6,900 7,059 7,221 7,387 7,557 7,731
Trade Show Backdrop
1,500
Webpage
750
300
307
314
321
329
336
344
352
360
Posters
400
200
205
209
214
219
224
229
235
240
Incorporation
1,000
Accounting and Legal
5,600 5,729 5,861 5,995 6,133 6,274 6,419 6,566 6,717 6,872
Total Marketing and Admin Expense18,584 16,801 17,187 17,583 17,987 18,401 18,824 19,257 19,700 20,153
Table 5.4.3 Marketing Salary, Wages and Benefits for year 1
Total Annual Salaries
Manager
$5,600/month
Assistant Manager
$4,000/month
$33,600
$24,000
Total Salaries
$57,600
Part-Time Wages
Sales Staff – @$12.00/hr*1 person 4 hrs/day
*16 days/mo*6
Total Part Time Wages
Benefits for Salary Earners
Benefits for Wage Earners
Total Benefits
Total Salary/Wages/Benefits
$4,608
$4,608
Total Salaries and Wages
$62,208
7,285
692
7,977
$70,185
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
5.5 Pricing Policy
The Outlook distillery wishes to take advantage of the growing trend towards premiumization and
super-premiumization. Therefore the distillery will price its product accordingly. The average retail price
in the deluxe (super-premium) category is approximately $38 dollars for 750 ml size. See table 5.5.1.
Table 5.5.1 Deluxe Vodka category by brand, manufacturer, domicile, price, and cases sold during 2007
Vodka – Canada – Deluxe
39.60
27.46
Cases sold
2007 (ltr)
Cases
60
574
50.25
47.45
26.45
50.25
28.99
1876
69
314
43
155
Three Olives Vodka (United Kingdom) (Whiterock Inc.)
27.21
207
Zodiac Luxury Potato Vodka ( USA) (Zodiac Spirits)
47.54
14
Avg Price $38
3,312
Vodka – Canada - Deluxe
Pearl Vodka (Highwood Distillers)
Smirnoff Blue (Diageo Canada)
Vodka – Imported - Deluxe
Grey Goose ( France) (Sidney Frank Co)
Wyborowa Exquisite Vodka ( Poland) (Wyborowa)
Stolichnaya ( Russia) (Spirits Int’l GMBH)
Level ( Sweden) (V&S Absolute)
Slava Ultra Premium Vodka (Ukraine) (Zoldtonosha)
Price
$
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
The price point for the vodka product will be determined by SLGA using a pricing formula that allows for
SLGA mark-up. Table 5.5.2 outlines the formula used to calculate the retail and display (shelf) price once
a supplier quote is provided to SLGA. The supplier quote is based on year 1 unit costs of $211.33. The
formula indicates the minimum acceptable retail price of $ 53.40 ($61.41 shelf or display price) that is
needed in order to cover unit costs.
Table 5.5.2 SLGA pricing formula
Insert Litres/case B2, Bottles/Case C2
Price of Wine in Foreign Currency
Enter Cdn conversion rate
Canadian Equivalent (Prime Cost Cdn)
Freight Charges
Domestic Charges
Landed in Warehouse cost
Margin - Specify percent
Total Domestic Charges
What LBD pays agent = In Bond Cost
Plus Duty (litres/bottles*percent alcohol)
Plus Excise (litres/bottles*percent alcohol)
Duty Paid Cost Per Case
Duty Paid Cost per Selling Unit
Add provincial upcharge = 0.12/L
Adjusted cost
Dollars per liter
Apply lower markup amount over $21.00/L
Advalorem Markup Percentage =< $21.00/L
Advalorem Markup Percentage =< $29.20/L
Advalorem Markup Percentage =< $37.40/L
Advalorem Markup Percentage > $37.40/L
Cost of Container
Retail price
Combined GST +Prov SST
Display price
9
$
1.00000 $
$
0 $
0 $
$
0.0000% $
$
$
0.0000
42.1056 $
$
$
0.1200 $
$
28.280
12
211.33
211.33
211.33 *****
211.33
*****
211.33
42.11
253.44
21.12
0.09
21.21
$
$
$
$
$
$
15 $
$
25.52
6.63
0.04
53.40
8.01
61.41
17.61
$
3.51
Display
Price
$
162.000%
121.500%
81.000%
56.700%
% Alcohol
40.00% $
61.41
7.28
-0.92
-9.12
It can be noted that the display price of $61.41 is well above the benchmark super-premium brand of
Grey Goose by over $11.00 and therefore will take intensive marketing to sell the product.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
5.6 Distribution
Spirits in Saskatchewan are marked-up 162% in addition to federal excise, PST and GST. However, SLGA
would like to work with small producers in order to create a micro-distillery policy that would allow
greater profit potential as well as allowing for on-site tastings such as the policy for small cottage
wineries and micro-breweries. The Outlook distillery will work very hard and in collaboration with SLGA
to move this new policy forward. Figure 5.6.1 indicates how a supportive micro-distillery policy would
look in terms of pricing and profits using an estimated flat tax of $3.40 per 740 ml. Some provinces are
much more supportive to business than others in terms of how each taxes spirits. Alberta offers a flat
tax system of $13.30 litre, while Nova Scotia has the lowest tax (ad valorem) of 13% per litre and is
applied to the full landed cost. Of all the provinces, Saskatchewan applies the highest tax at 162% which
is applied to landed costs. Appendix C includes a complete listing of each provinces approach to liquor
taxation.
SLGA - $3.50 EST
PST 10% - $3.04
Excise - $3.51
GST - $1.52
Deposit - $.20
Distillery Revenue $23.23
Figure 5.6.1 SLGA flat tax of $3.50 (based on a $35.00 shelf price)
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Figure 5.6.2 reflects how large a component the SLGA taxes are in relation to distillery revenue when
selling on-site or through the liquor board stores.
SLGA Mark Up 162%
PST 10% - $3.04
Excise - $3.51
GST - $1.52
Deposit - $.20
Distillery Revenue - $8.01
Figure 5.6.2 SLGA Mark-up of 162%
Saskatchewan Liquor and Gaming Authority (SLGA) is the main distributor of, and sole licensing agent
for, the sale of beverage alcohol in Saskatchewan. Its head office is in Regina as is the liquor distribution
centre for the province. There are more than 700 liquor outlets across Saskatchewan with SGLA
operating 79 liquor stores in 64 communities across the province. Well over 189 small businesses in
rural Saskatchewan have been granted a franchise to sell beverage alcohol on its behalf. There are also
approximately 465 off-sale outlets in Saskatchewan. (Saskatchewan Liquor and Gaming Authority, 2007)
Additionally, purchasing volumes by SLGA vary depending on the price of the product and the
anticipated sales (typically higher priced products are slower sellers) and the source of purchase.
For a priced product sourced locally, SLGA has agreed to manage with a small quantity, possibly as little
as twenty-eight cases (at 12 bottles per case or 336 bottles) which are half of a standard shipping pallet.
This would be enough to have a supply at the warehouse and on shelves at the stores that would carry
the product. (Engel, 2008) The vodka product will also be sold on-site at the distillery directly to
customers. It is possible to deliver directly to in-town and local franchise and off-sale outlets. This can
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
be done by stopping by the local Liquor Board store and obtaining a signature from the store attendant
verifying the product amounts prior to delivery destination. Future distribution channels may include,
restaurants, Saskatchewan casinos other provincial markets and possible export markets such as the
United States.
5.7 Sales Objectives
The Outlook distillery has the following objectives:

Work with SLGA to create a micro-distillery policy which will allow small producers to
keep more of their profits and also allow for on-site tastings

build up the micro-distillery industry in Canada

build awareness of the ‘buy local’ ‘quality’ super-premium vodka product

achieve 1.2 % of total Saskatchewan vodka sales at a number of 1458 -750 ml liter cases

achieve a 10% growth in case sales each year over the next 10 years representing total
case sales of approximately 3,438 cases

Sell 438 cases directly to tourists and visitors, build a regional, and provincial reputation
for Saskatchewan value-added products.

Achieve a return on equity of 20%
5.8 SWOT Analysis
As part of strategic planning process, a situation analysis known as SWOT has been prepared to examine
the Strengths, Weaknesses, Opportunities and Threats of the Outlook micro-distillery in order to meet
the distillery’s objectives. The Opportunities and Threats are more external to the business and will look
at items outside of the distillery for which the distillery has little or no control over. The Strengths and
Weaknesses will look at items that are within the business, those which the distillery can have control
over. It is the desire to match the strengths and weaknesses of the business with the opportunities and
threats which the business can react to.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
5.8.1 Strengths

Niche market

Quality product

Customer service/personal contact with customer creates sales

Gift packages for tourist

Capitalizing on area that is a tourist destination – Lake Diefenbaker Tourism destination Plan

Both partners have years of experience in managing a business specific to agriculture and
personal sales

Both business partners are ambitious , committed and will be motivated to make the business a
success

The micro-distillery will be the first of its kind in Saskatchewan

The distillery can be operated as a family business with few employees

Provide a value-added superior quality product with a ‘made in Saskatchewan’ appeal

The distillery can cater to the local community
5.8.2 Weaknesses

Neither partners have training in the distilling process, however both are eager to learn the fine
art and develop it to its fullest

The distillery will only have one product offer, however the owners will consider options of
products to add to the line

The product does not have an image or brand awareness as it is a new product, however great
efforts will be made to build that awareness and image of a local produced, quality superpremium product

The distillery cannot participate in tastings at this time which might not inhibit on-site sales
5.8.3 Opportunities

Possibility of expanding into new markets such as neighboring provinces

Customers are consuming better quality and more healthier beverages

The distillery can tap into the super-premium trend

Distillery located in a potential tourist loop from Saskatoon through Moose Jaw, through Swift
Current , through Outlook and back to Saskatoon
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan

Personalized one on one service

Equipment has option to add other products to line including the growing trend in liqueurs,
brandies and Canadian ‘appellation protected’ whiskey

Potential to add ‘purified’ water sales to distillery to fully utilize its water filter system

Tourism is increasing per year
Situational analysis:

Great product quality

Higher priced than competitor but quality will not be compromised

Compete with other super premium vodkas in market space
Customer:

Target market is tourist industry

Target market is super-premium vodka drinkers

Target market is premium vodka drinkers wishing to move up

Target market is consumers between the age of 34-49

Target market is consumers with a large disposable income
Competitive analysis:
Industry type – super- premium alcoholic spirits
Industry structure – micro-distillery industry
5.8.4 Threats

Large scale heavily branded vodka producers have majority of vodka sales in Saskatchewan

Possibility of new entrants into market place

Financial constraints

Cost of doing business

High federal and provincial taxation

Costs of entering a niche market is high

Lack of sales
Key Problems:
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Recommendations:

Get financing

Maintain high quality products and continue to enhance customer service

Develop a micro-distillery policy
5.9 Financial Plan
5.9.1 Debt/Equity Structure
In order for the Outlook distillery to meet initial capital expenditures and maintain a positive cash flow, a
total of $750,000 of long term debt and owners equity is required. Long term debt of $350,000 can be
sought through lending institutions while the owners will supply $400,000 of owner’s equity. Table
5.9.1 reflects the various financing structures and their respective NPV’s and IRR’s.
Table 5.9.1 Debt to Equity financing structures
Debt
Equity
NPV
IRR
Original
25/75
75/25
50/50
350,000
400,000
16,486
20.70%
187,500
562,500
-51,182
18.82%
562,500
187,500
103,940
27.30%
375,000
375,000
26,789
21.30%
5.9.2 Loan Amortization
The loan of $350,000 will be amortized over 10 years at 7.75%. The loan is set up as regular principle
payments of $51,574 each year for ten years. See table 5.9.2
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 5.9.2 Amortization Schedule
Interest Rate
Payment Period
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
7.75%
7.75%
7.75%
7.75%
7.75%
7.75%
7.75%
7.75%
7.75%
7.75%
325,551 299,208 270,823 240,238 207,283 171,773 133,512
350,000
51,574 51,574 51,574 51,574 51,574 51,574 51,574 51,574
27,125 25,230 23,189 20,989 18,618 16,064 13,312 10,347
24,449 26,343 28,385 30,585 32,955 35,509 38,261 41,226
325,551 299,208 270,823 240,238 207,283 171,773 133,512 92,286
92,286
51,574
7,152
44,422
47,864
47,864
51,574
3,709
47,864
-
10 yr
10
Beg Balance
New Debt
Payment
Interest
Principal Reduction
End Balance
5.9.3 Dividend Policy
A dividend policy has been set up to pay equity investors when profits and cash flow increase
sufficiently. It will be important that the Outlook distillery ensure there is adequate cash for operating
each successive 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
the following calculation could be paid out to equity investors or used to pay down debt.
Dividend Paid: If Cash minus (Working Capital X 1.15) > 0
5.9.4 Economic Forecast
A ten year projection has been made using and inflation rate of 2.30%. This rate has been used to derive
all wages, supplies and expenses.
5.9.5 Unit Cost Analysis
Unit costs include all costs associated with manufacturing the vodka product including direct material
costs, total labor, overhead costs (fixed and variable) and marketing costs. It is important to be able to
make well informed management decisions in a business. As such, it is imperative to evaluate the
distribution of costs associated with the production, marketing and selling of a product. As well, it is
important to establish where the majority of the costs per unit lay and consider where costs can be
reduced. By monitoring where costs are increasing, one can decide where change need to occur,
whether that be in production methods or in selling processes.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
The highest costs are related, in order, to marketing and administration, packaging and to labor. Table
5.9.5 illustrates the unit cost breakdown of producing and selling the vodka product over the 10 year
financial projection.
Table 5.9.5 Unit cost breakdown of producing and selling potato based vodka
Unit Cost Analysis ($per case)
Unit cost of Potato
Unit cost of filter
Unit Cost of Ingredients
Unit Cost of Packaging Materials
Total Unit Cost of Direct Materials
Unit Cost of Manufacturing Overhead
Total Unit Cost of Direct Labor
Total Unit Cost of Production
Unit Marketing and Admin Cost
Total Unit Cost per Case
Quantity of Sales
Average Selling Price
Average Unit Margin
2009
11.42
0.39
0.98
50.94
63.74
30.92
42.55
137.20
74.03
211.23
1,458
211
0
2010
12.19
0.42
1.05
54.36
68.02
46.37
41.48
155.88
72.02
227.90
1,604
216
(12)
2011
12.47
0.43
1.07
55.61
69.59
36.06
38.75
144.39
65.60
209.99
1,764
221
11
2012
12.76
0.44
1.10
56.89
71.19
29.11
36.21
136.51
59.57
196.08
1,941
226
30
2013
13.05
0.45
1.12
58.20
72.83
23.95
33.86
130.63
54.03
184.67
2,135
231
47
2014
13.35
0.46
1.15
59.54
74.50
20.35
31.68
126.54
48.95
175.49
2,348
237
61
2015
13.66
0.47
1.18
60.91
76.21
17.45
29.66
123.33
44.29
167.62
2,583
242
75
2016
13.97
0.48
1.20
62.31
77.97
15.06
27.79
120.82
40.02
160.84
2,841
248
87
2017
14.29
0.49
1.23
63.74
79.76
13.43
26.06
119.25
36.09
155.35
3,125
253
98
The following pie charts reflect how unit costs are distributed over the forecast period.
2010
Unit cost of Potato
Unit cost of filter
Unit Cost of Ingredients
Unit Cost of Packaging
Materials
Total Unit Cost of Direct
Materials
Figure 5.9.5 Distribution of costs per unit in 2010
MBA 992 Edwards School of Business, University of Saskatchewan
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2018
14.62
0.50
1.26
65.21
81.60
12.20
24.46
118.25
32.50
150.75
3,438
259
109
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
2012
Unit cost of Potato
Unit cost of filter
Unit Cost of Ingredients
Unit Cost of Packaging
Materials
Total Unit Cost of Direct
Materials
Figure 5.9.6 Distribution of costs per unit in 2012
2014
Unit cost of Potato
Unit cost of filter
Unit Cost of Ingredients
Unit Cost of Packaging
Materials
Total Unit Cost of Direct
Materials
Figure 5.9.7 Distribution of costs per unit in 2014
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
2016
Unit cost of Potato
Unit cost of filter
Unit Cost of Ingredients
Unit Cost of Packaging
Materials
Total Unit Cost of Direct
Materials
Table 5.9.8 Distribution of costs per unit in 2016
2018
Unit cost of Potato
Unit cost of filter
Unit Cost of Ingredients
Unit Cost of Packaging
Materials
Total Unit Cost of Direct
Materials
Table 5.9.10 Distribution of costs per unit in 2018
6.0 Ratio Analysis
The projected performance ratios for the Outlook distillery is shown in table 6.0.1. Detailed analysis can
be found in Schedule 11 in Appendix D.
Measuring liquidity by the current ratio, the current assets over the current liabilities are used. The
current ratio compares the assets that will turn into cash within the year to the liabilities that must be
paid within the year. The current ratio for the Outlook distillery has a low current ratio indicating that
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
the business lacks liquidity in the sense it cannot reduce its current assets for cash to meet maturing
obligations. It is important to note, that while this ratio increases over the long term, it suggest the
business may have to rely on operating income and outside financing.
The leverage ratios measure the financial leverage. The Outlook distillery is leveraged at 47% debt to
53% equally. The debt ratio is calculated by total liabilities over total assets. In this case, the ratio
illustrates that money to pay for 47.5% of the Outlook distillery assets, in book value terms, comes from
the creditors. The debt to equity ratio is calculated by total over total liabilities over shareholders equity.
In this case, the ratio illustrates that creditors supply the Outlook distillery with $0.90 cents for every
dollar supplied by shareholders. This amount decreases over time and by year 2014; the ratio is more in
line to the amount of debt to equity a business wishes to maintain. It will be imperative to maintain
sales in order for the business to meet its financial obligations.
The profitability ratios indicate the percentage of each dollar that trickles down through the income
statement to profits. The ratio is particularly important to operating managers because it reflects the
company’s pricing strategy and its ability to control operating costs. Gross profit margin is calculated by
gross profit over sales. In this case, 26.1% of the Outlook distillery sales dollars is a contribution to fixed
costs and profits; $0.26 cents of every sales dollar is available to pay for fixed costs and to add to profits.
Net Profit margin is calculated by net income over sales. In this case, the ratio is negative until 2011,
after which it experiences growth over the projection period. The return on assets is calculated by net
income over assets. The return on assets for the Outlook distillery is negative until 2011 in which it
earns 3% or $0.03 cents on each dollar tied up in the business. By year 2018, the distillery will earn
$0.41 cents for every dollar tied up in the business which indicates the measure of efficiency on how the
business allocates and manages its’ resources. Lastly, the return on equity is calculated by assets over
shareholders equity. It is popular yardstick of financial performance for investors and managers. In this
case, the Outlook distillery will not realize a return on equity until 2011, after which that return grows
substantially in the forecast period. The return on equity is a measure of earnings per dollar of invested
equity capital or a percentage return to the owners or investors on their investment.
During the first few years, the Outlook distillery will have lower profitability because of lower sales and
high start up costs. As production and sales increase, the distillery will achieve better profitability ratios
as fixed costs are spread over more units sold.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 6.0.1 Summary of financial ratios
2010
2012
2014
2016
2018
7.10
9.12
10.73
12.38
13.78
0.51
4.67
78
2010
47.5%
90.3%
0.69
4.70
78
2012
41.0%
69.4%
0.86
5.11
71
2014
30.5%
43.9%
1.03
5.71
64
2016
17.5%
21.3%
1.16
6.57
56
2018
4.4%
4.6%
26.1%
-7.2%
-3.7%
-7.1%
39.7%
11.6%
8.0%
13.5%
46.6%
21.9%
18.9%
27.2%
51.2%
29.7%
30.4%
36.9%
54.4%
35.4%
41.1%
43.0%
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
6.1 Summary of Financial Results
Table 6.1.1 provides an overview of several key values in the financial plan over the 10 year period.
Table 6.1.1 Summary of Financial Results based on case sales of 1458 at unit cost price of $211.33
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Sales
308,119
346,726
390,171
439,060
494,074
555,981
625,646
704,039
792,255
891,525
COGS
200,045
256,184
254,732
264,908
278,859
297,126
318,556
343,277
372,706
406,538
Gross Margin
108,074
90,543
135,439
174,152
215,215
258,856
307,090
360,762
419,550
484,988
Total Expenses
112,593
115,509
115,728
115,595
115,338
114,945
114,402
113,695
112,808
111,726
(4,518)
(24,966)
19,711
58,557
99,877
143,911
192,688
247,068
306,741
373,261
-
-
-
7,561
15,481
22,306
29,867
38,296
47,545
57,856
Net Income (Loss)
(4,518)
(24,966)
19,711
50,995
84,396
121,605
162,822
208,772
259,197
315,406
Increase (decrease) in Cash
66,714
(4,832)
23,228
21,313
23,965
28,279
34,817
38,312
43,834
49,804
Income Before Taxes
Income Taxes
Net Present Value of Equity Investment
16,486
Internal Rate of Return on Equity Investment
20.7%
External Rate of Return on Equity Investment
17.6%
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
6.2 Sensitivity Analysis
The sensitivity analysis shows how sensitive the Internal Rate of Return (IRR) is to changes in various
critical variables. Table 6.2.1 shows the percent changes in the four important critical variables for the
Outlook distillery creating the best and worst case scenarios. The first significant variable is quantity of
sales. As noted from the tables below, a decrease in sales to 1000 will result in a negative Net Present
Value of equity investment of -$539,378. In addition, the Internal Rate of Return on equity Investment
is also negative at -5.6%. At this rate, the business is will require cash additional cash and/or financing
to move it forward or face bankruptcy. In the best case scenario, an increase in case sales to 2000 in
year 1 will result in a positive Net Present Value of equity investment of $611,751. As well, the Internal
Rate of Return is positive at 46.2%, well above the expected return on investment of 20% the business
has indicated it wishes to achieve.
The other critical variable is the unit cost price which has been calculated to be $211.33. By adding a
mark-up to this number will yield a higher NPV and IRR. However any decrease in the unit cost price will
be reflected by a lower or negative NPV and IRR. It has been noted in the pricing component of this
study that in order for the Outlook distillery to be competitive, a shelf price of $35 - $38 is necessary.
This can be achieved by either lowering the unit cost price to $96, which is not feasible, or by increasing
sales; until such a time that a micro-distillery policy is in place one should not proceed with this
investment as it will be extremely difficult, if not impossible to sell the vodka product at $61.41, which is
well above the benchmark Grey Goose brand.
Table 6.2.1 Worst Case Scenario based on 1000 cases sold year 1 at unit cost price of $211.33
Sales
Cost of Goods Sold
Gross Margin
Total Expenses
Income Before Taxes
Income Taxes
Net Income (Loss)
Increase (decrease) in Cash
2009
211,330
198,320
13,010
112,591
(99,581)
(99,581)
(20,467)
2010
237,810
254,085
(16,275)
115,507
(131,782)
(131,782)
(118,714)
2011
2012
2013
2014
267,607 301,138 338,871 381,332
252,454 262,344 275,974 293,879
15,153
38,794
62,897
87,452
115,725 115,592 115,336 114,942
(100,572) (76,798) (52,438) (27,490)
(100,572) (76,798) (52,438) (27,490)
(84,683) (70,391) (55,381) (39,250)
Net Present Value of Equity Investment
Internal Rate of Return on Equity Investment
MBA 992 Edwards School of Business, University of Saskatchewan
2015
429,112
314,903
114,210
114,399
(189)
(189)
(18,190)
2016
482,880
339,166
143,714
113,692
30,022
30,022
4,572
2017
543,385
368,080
175,305
112,806
62,500
62,500
30,669
2018
611,471
401,332
210,139
111,723
98,416
98,416
60,431
-539,378
-5.6%
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Table 6.2.3 Best Case Scenario based on 2000 cases sold year 1 at unit cost price of $211.33
Sales
Cost of Goods Sold
Gross Margin
Total Expenses
Income Before Taxes
Income Taxes
Net Income (Loss)
Increase (decrease) in Cash
2009
422,660
202,086
220,574
112,596
107,979
16,737
91,242
153,147
2010
475,619
258,668
216,952
115,512
101,440
15,723
85,716
32,955
2011
535,214
257,428
277,786
115,731
162,055
25,119
136,937
15,293
2012
602,277
267,942
334,335
115,598
218,737
33,904
184,833
37,553
2013
677,742
282,273
395,469
115,341
280,128
43,420
236,708
42,297
2014
762,663
300,968
461,695
114,948
346,748
53,746
293,002
47,194
2015
858,225
322,879
535,346
114,405
420,941
66,083
354,857
55,245
Net Present Value of Equity Investment
2016
2017
2018
965,760 1,086,770 1,222,942
348,142
378,180
412,698
617,619
708,590
810,245
113,698
112,812
111,730
503,921
595,778
698,515
82,480
105,445
131,129
421,441
490,334
567,386
58,702
62,032
70,333
611,751
Internal Rate of Return on Equity Investment
46.2%
6.3 Breakeven Analysis
The breakeven analysis was calculated using the average selling price and total unit cost per case. See
Figure 6.7.1
300
250
200
Average Selling Price
150
Total Unit Cost per
Case
100
50
2009 2010 2011 2012 2013 2014 2015 2016
Figure 6.3.1 Breakeven analysis based on base case of $211.33 unit cost price
As shown in figure 6.3.1, the total unit cost per case increases in the first few years and then begins to
decline after 2010 as the average selling price increases and fix costs are spread over a larger number of
units sold. The base case average selling price increases throughout the years based solely on the basis
of inflation. It should be noted again, that ultimately, sales are predicated on a $61.41 shelf price. This is
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
the tragic flaw in this feasibility study as encumbering provincial liquor taxation has contributed to high
price point, which in turn, renders the product near impossible to sell.
7.0 Conclusion
After completing the feasibility study for the Outlook micro-distillery, it has been concluded that under
the present conditions this business is not feasible for the following reasons:

Unit costs predicate a shelf price of $61.41 after federal and provincial liquor taxes have been
added; this price point is not in line with competitors in the same super-premium category

The most critical variable is quantity of sales based on the shelf price of $61.41; failure to meet
projected sales may result in an unattractive IRR jeopardizing the feasibility of the business

Capital costs are very high at $622,382; a substantial equity and financing contribution is
necessary and may be difficult obtain

While the base case of 1458 cases sales at a unit price of $211.33 in year 1, yields a positive NPV
of $16,486 and an IRR of 20.7%, it only just meets our objective of a 20% return on equity

It may be difficult to obtain debt financing needed for the project based on the above numbers
8.0 Recommendations
Because of the current provincial taxation situation on alcohol, it would be worthwhile considering
working with SLGA to establish a micro-distillery policy; one which would be conducive to small spirit
producers who wish to start this type of business and be successful. An overall flat tax or a low tax
would be beneficial. Unless changes are made to the existing tax structure, it is not feasible to produce
spirits in Saskatchewan. By establishing guidelines that would be mutually beneficial respective of
provincial liquor consumption tax, small business can move forward in Saskatchewan and as such would
warrant having another look at the feasibility of a micro-distillery in Saskatchewan.
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
9.0 References
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from Canadian Food Inspection Agency: http://www.inspection.gc.ca/english/fssa/fssae.shtml
Agency, C. F. (2007, July 02). Hazard Analysis Critical Control Points / Food Safety Enhancement Program.
Retrieved July 14, 2008, from Canadian Food Inspection Agency:
http://www.inspection.gc.ca/english/fssa/polstrat/haccp/haccpe.shtml
Agency, C. R. (2007, September 19). Canada Revenue Agency Excise Duty. Retrieved July 16, 2008, from
Canada Revenue Agency: http://www.cra-arc.gc.ca/tx/tchncl/exciseduty-eng.html
Agency, C. R. (2008, June 30). Payroll Online Deductions Calculator. Retrieved July 14, 2008, from Canada
Revenue Agency: http/www.cra.gc.ca//ebci/rhpd/calculatePayrollDeductionsJan08.do#tphp
Agricultural Experiment Station Oregon State University, C. (January 1982). Economic and Policy
Assessment of the Potential for Ethanol and distillers'Feeds in Oregon. Corvallis: Oregon State University.
Authority, S. L. (2008, May 25). Saskatchewan Liquor and Gaming Authority Official Price List 2008.
Regina, Saskatchewan, Canada: SLGA.
Barber, A. (2008, July 30). Product Listings and Administration. (B. McNeill, Interviewer)
Canada, A. (2008, February 02). The Canadian Distillery Industry. Retrieved June 7, 2008, from
Agriculture and Agri-Food Canada: http://www.agr.gc.ca
Canada, S. (2008, June). Statistics Canada- Data. Retrieved June 8, 2008, from Statistics Canada:
http://www12.statcan.ca/english/census06/data/profiles/community/Details/Page.cfm?Lang=E&Geo1=
CSD&Code1=4711066&Geo2=PR&Code2=47&Data=Count&SearchText=saskatoon
Canada, S. (2007, March 31). The Control and Sale of Alcoholic Beverages in Canada-Catalogue # 63-202x. Ottawa, Ontario, Canada: Statistics Canada.
CBC. (2005, June 30). Indepth: Prohibition A timeline of prohibition and liquor legislation in Canada.
Retrieved June 12, 2008, from CBC News Online: http://www.cbc.ca/news/background/prohibition
Commission, C. R.-t. (2008, July). News Release. Retrieved July 18, 2008, from CRTC:
http://www.crtc.gc.ca/ENG/NEWS/RELEASES/1996/r960801.htm
Distilleries, B. B. (2008, July 25). Bavarian-Holstein Partners. Retrieved July July 2, 2008, 2008, from
bavarian breweries and Distilleries: http://www.bavarianbrewerytech.com
Distillers, A. o. (2008, July 20). Association of Canadian Distillers. Retrieved July 20, 2008, from
Association of Canadian Distillers: www.canadiandistillers.com
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Engel, J. (2008, July 23). On-site Retail Store Operations. (B. McNeill, Interviewer)
Heffernan, A. (2008, July ). Sales- Bavarian Holstein Partners. (B. McNeill, Interviewer)
Hill, D. (2008, July). Equity Capital. (B. McNeill, Interviewer)
International, E. (2008, January 23). Alcoholic Drinks - Canada. Retrieved June 8, 2008, from
Euromonitor International: http://www.portal.euromonitor.com.cyber.usask.ca
International, E. (2006, May 25). Consumer Lifestyles Canada. Retrieved June 10, 2008, from University
of Saskatchewan GMID-Golbal Market Information Database:
http://www.portal.euromonitor.com.cyber.usask.ca/porta
International, E. (2008, January 23). Spirits Canada. Retrieved June 3, 2008, from University of
Saskatchewan GMID - Global Market Informantion Database:
http://www.portal.euromonitor.com.cyber.usask.ca/portal
International, E. (2008, January 16). Spirits World. Retrieved May 29, 2008, from University of
Saskatchewan GMID - Global Markets Information Database:
http://www.portal.euromonitor.com.cyber.usask.ca/portal
ivodka. (2008). Retrieved June 20, 2008, from ivodka: http://www.ivodka.com
Justice, D. o. (2008, July 22). Food and Drug Act and Regulations (1995). Retrieved July 03, 2008, from
Department of Justice: http://www.canada.justice.gc.ca
Peabody, J. (2006, December 15). East Bay Business Times. Retrieved June 5, 2008
Poffenroth, D. (2008, Jully). DryFly Distilling. Retrieved July 4, 2008, from DryFly Distilling:
http://dryflydistilling.com
Saskatchewan Bureau of Statistics. (2008, July). Retrieved July July 19, 2008, from Saskatchewan
Government Web site: http://www.stats.gov.sk.ca
Saskatchewan Liquor and Gaming Authority. (2007). Saskatchewan Liquor and Gaming Authority 2007 in
Review. Regina: Government of Saskatchewan.
Saskatchewan, G. o. (2007, March 13). 2006 Community Profiles. 2006 Concensus. Retrieved July 5,
2008, from Statistics Canada:
http/::12.statcan.ca/english/census06/data/profiles/community/Index.cfm?Lang=E
Saskatchewan, G. o. (2008, July 14). Saskatchwan Workers' Compensation Board. Retrieved July 14,
2008, from Saskatchwan Workers' Compensation Board: http://www.wcbsask.com
Saulny, S. (2007, November 25). Farmyard Stills Quench a Thirst For Local Spirits. Retrieved June 2008,
from New York Times:
MBA 992 Edwards School of Business, University of Saskatchewan
Page 64
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
http://www.nytimes.com/2007/11/25/us/25distilleries.html?_r=2&adxnnl=1&oref=slogin&ref=us&adxn
nlx=1219691631-7ot6BNr3sks0VmuOy/kRVA
SLGA. (2007, March). Government of Saskatchewan: Food Safety Regulations. Retrieved July 15, 2008,
from Government of Saskatchewan: http://www.agriculture.gov.sk.ca
SLGA. (1995, September). Saskatchewan Liquor and Gaming Authority. Saskatchewan Liquor and
Gaming Advertising Policiy Manual . Regina, Saskatchewan, Canada: SLGA.
SLGA. (2007). Saskatchewan Liquor and Gaming Authority Listing Policy. Regina: SLGA.
MBA 992 Edwards School of Business, University of Saskatchewan
Page 65
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Appendix A:
Calculations for Mash Production and Ethyl Alcohol Quantities
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Appendix A: Calculations for Mash Production and Ethyl Alcohol Quantities
Kilograms are equal to liters when water is at 1 degree Celsius
1 kg = 1 liter
1 kg = 2.2 lbs
1 cwt = 100 lbs = 45.4 kg
1 kg potatoes = 1 liter of mash
2250 liters mash = 2.2 kg X 2250 = 4950 kg potatoes per mash needed
Assumes starch content of potatoes is between 12% and 18% (Heffernan, 2008)
45.4 kg potatoes yields 1.1 gallons real Ethyl Alcohol (EA) or 3.546 US liters (Agricultural Experiment Station
Oregon State University, January 1982)
45. 4 kg (100 cwt) = (1.1 gal x 3.78 (US) = 4.16 liters of quality Ethyl Alcohol
2250 liters mash/45.4 = 49.55 X 4.16 liters =206 liters minus 25% for heads and tails equals 156 liters
quality EA at 95%
156 liters EA at 95% blended down to 40% = 347 liters at 40%
45.4 kilograms mash / 4.16 liters (US) EA = 10.9 kg potatoes per liter EA or (8.1kg (18 lbs) per 750 ml
Maximum Capacity – 11.5 months X 43 cases X 2 distilling per week X 4 weeks = 3956 cases/year or
92 distills per year
Sales: 1458 cases/year divided by 43 cases/week = 38 distillings/year
MBA 992 Edwards School of Business, University of Saskatchewan
Page 67
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Appendix B:
Mentorship/Training
MBA 992 Edwards School of Business, University of Saskatchewan
Page 68
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Appendix B – Mentorship/Training
Department of Chemical Engineering
Kris Berglund, Ph.D.
206 Farrall Hall, MSU
East Lansing, MI 48824
517-353-4565
Berglund@msu.edu
The MSU distilling program is aimed at research, education and outreach for the advancement
of artisan distilling.
Enology Extension/Cornell University
Dragana Dimitrijevic, M.Sc.
Food Research Laboratory
630 West North Street
Geneva, NY 14456-0462
315-787-2262
dd233@nysales.cornell.edu
Artisan Distilling Workshop at Geneva Experiment Station.
Ethanol Technology Institute
Liz Ward
6120 W. Douglas Avenue
Milwaukee, WI 53218
800-583-6484
institute@ethanoltech.com
ethanoltech.com
The program covers the science of alcohol production through a combination of lectures, seminars and
laboratory demonstrations.
Institute of Brewing & Distilling
Roger Putman
33 Clarges Street
London W1J 7EE
UK
44 20 7499 8144
ibd.org.uk
Brewing and distilling education and qualifications.
Executive Director: Simon Jackson, simon.jackson@ibd.org.uk
MBA 992 Edwards School of Business, University of Saskatchewan
Page 69
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Training inquiries: Andrea Williams, training@ibd.org.uk
Examinations inquiries: Rekha Sandal, exams@ibd.org.uk
Editor of the IBD magazine: Roger Putman, editor@ibd.org.uk
International Centre for Brewing and Distilling
Paul Hughes
Heriot-Watt University
Riccarton
Edinburgh EH14 4AS
SCOTLAND
011 44 131 451 3184
p.s.hughes@hw.ac.uk
sls.hw.ac.uk/staff/hughes.htm
Heriot-Watt runs brewing and distilling workshops.
UC Davis Extension
Debbie Roberts
1333 Research Park Drive
Davis, CA 95616-4852
530-757-8691
MBA 992 Edwards School of Business, University of Saskatchewan
Page 70
Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Appendix C:
Provincial Fact Sheets
Taxation
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
The following information represents individual provincial liquor taxation. (Distillers, 2008)
Newfoundland Tax
Category
Size
Mark-Up
Spirits
750 ml
$6.92 +72% of LC
Proof & Over Proof
750 ml
$7.92 + 72% of LC
Liqueurs
750 ml
$6.52 + 62.7% of LC
Wines
750 ml
$2.45 + 67.3% of LC*
Cider
341 ml
$1.12
Coolers
341 ml
$1.12
Miniatures
50 ml
$1.17
Cocktails-for-Two
750 ml
$6.70
Imported Beer
Newfoundland Beer
$1.95 per liter
12x341 ml
$9.96 per 24 btls
* LC = landed cost - (includes cost of service fee)
Prince Edward Island
SPIRITS: PER BOTTLE MARKUP
DOMESTIC:
Whisky
1
litre
$7.71 plus 32.56% of landed cost
Rum
1
litre
$7.71 plus 32.56% of landed cost
Other Spirits
1
litre
$8.29 plus 32.56% of landed cost
Spirit Coolers <7%
90.00% of landed cost
7% - 13.7%
125.00% of landed cost
Ready to drink
90.00% of landed cost
Wine
125.00% of landed cost
Wine Coolers <500 ml
84.50% of landed cost
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Nova Scotia
Category
Std. Cost
Std. Profit
Ad
Valorem*
Mark-Up
Spirits (1 litre)
N/A
$15.45
13%
Wine (1 litre)
$3.66
$5.39
100%
Beer (12 pack)
$1.672
$1.236
70.9%
Cost of Service**
Spirits
Wine
Beer
U.S.A.
5.57%
10.06%
12¢/btl
Other
3.8%
9.64%
11¢/btl
* The ad valorem mark-up is applied to all products, other than spirits, whose landed cost is greater than
the standard cost per litre and is applied at 100% of the difference between the landed cost and the
standard cost. For spirits, the Ad Valorem mark up is applied to the full landed cost.
** The cost of service fee is added after the mark-up has been applied on all imported products.
New Brunswick
Category
Spirits Wine
Beer
Misc <7% Misc
>7.1%
New Brunswick
153%
131%
78.6%
93%
122%
Canadian
153%
131%
78.6%
104%
122%
American
158%
141%
78.6%
106%
127%
Other Imported
159%
142%
78.6%
106%
128%
97%
65%
65%
Bulk/Draft in kegs
SPIRITS: Base markups (table above) are applied to landed cost up to $11.19 per litre.
On landed cost of $11.20 - $41.05 the markup is 40%.
On landed cost in excess of $41.05
the markup is 20%.
Minimum profit level for spirit products is $14.34 per litre.
Floor retail prices apply to the spirits category and are based on flat rate per size values as follows (tax
and deposit included)
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Quebec
Category
Fixed†
Mark-Up
Spirits
Educ'*
Alcooltive
Fee**
Collect Specific
SélecTax‡‡
Service***
Charge (per
case)
$117.65 120%
36¢
2¢
$0.89
$1.73
to $2.03
Liqueurs $105.90 120%
24¢
2¢
$0.89
$1.73
to $2.03
Wine
$27.00
118%
12¢
2¢
$0.89
$1.59
to $1.89
I. Beer
$10.00
50%
12¢
N/A
$0.40
$3.83
to $4.42
N/A
N/A
N/A
$0.40
$2.85
to $3.15
D. Beer N/A
Ad
Valorem‡
Mark-Up
† The specified fixed mark-up is calculated on standard 12x750 ml bottles per case for spirits and wine.
The SAQ applies various fixed mark-ups depending on the category and product container size.
‡ The ad valorem mark-up is applied on the a range of values for the basic price of the product which
includes the supplier FOB price + federal excise + freight + service charge +Educ' alcool + collecte
sélective fee. For the case of spirits the 120% noted above is applied to that portion of the basic price
which is over $78 & less than $110 per case of 12x750 ml standard bottles. If the basic price is greater
than $110 per case then that portion is marked up at 110%. Similar rules apply for wine.
* The educ' alcool fee is calculated on a per case basis for spirits and wine.
** The collecte sélective fee is an environmental fee which is applied on a per container basis and is not
applied to beer.
*** For Wine and Spirits these fees are for domestic products and the actual fee depends on the value of
the product.
‡‡ The specific tax is calculated on a per litre basis
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Ontario
Category MarkUp
Wine Bottle
Levy† Levy†
Env.
Fee‡
COS †In COS
Store
†Out of
Store
Whisky:
Cdn.
131.0% N/A
$0.29
$0.0893 N/A
N/A
U.S.
138.1% N/A
$0.29
$0.0893 N/A
N/A
Other
138.0% N/A
$0.29
$0.0893 N/A
N/A
Spirits:
Cdn.
138.0% N/A
$0.29
$0.0893 N/A
N/A
U.S.
145.1% N/A
$0.29
$0.0893 N/A
N/A
Other
145.0% N/A
$0.29
$0.0893 N/A
N/A
Brandy:
Cdn.
136.0% N/A
$0.29
$0.0893 N/A
N/A
Ontario
136.0% N/A
$0.29
$0.0893 N/A
N/A
U.S.
140.0% N/A
$0.29
$0.0893 N/A
N/A
Other
140.0% N/A
$0.29
$0.0893 N/A
N/A
The wine and bottle levies and the COS charges are calculated on a per litre basis.
‡ The environment fee applies to containers which cannot be returned for refilling by manufacturers.
Beer
*Beer shipped in containers with a capacity of less than 18 litres is a flat 51.05 cents per litre. Beer
shipped in containers with a capacity equal to or greater than 18 litres is 36.05 cents per litre.
Microbreweries (less than 100,000 hectolitres produced annually)
Rates on the first 25,000 hectolitres of beer shipped in Ontario is 33.69 cents per litre for regular beer and
23.79 cents per litre for draught.
Rates for the next 50,000 hectolitres of beer shipped in Ontario is 45.94 cents per litre for regular beer
and 32.44 cents for draught beer.
Shipments of over 75,000 hectolitres, 51.05 cents per litre for regular beer and 36.05 cents per litre for
draught beer.
Note: Spirits are subject to floor pricing, wine purchased by the LCBO is subject to a Non-Discriminatory
Reference Price, and beer is subject to a Minimum Retail Price.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Manitoba
Size
Per
Package Per
Minimum Package
Markup Markup Surcharge
Imports Only
Commercial
Package
Consideration equalization
Per package
per unit
U.S.
Other
$
Spirits
ml
%
$
$
$
Whiskies
50
152
0.946
0.016
0.022 0.020
200
152
3.26
0.063
0.089 0.078
375
152
5.965
0.119
0.166 0.146
750
152
10.834
0.238
0.332 0.293
1000
152
13.371
0.317
0.443 0.390
1140
152
15.651
0.361
0.505 0.445
.25
1750
152
24.095
0.555
0.775 0.683
.30
3000
152
39.615
0.951
1.329 1.170
3750
152
48.333
1.189
1.661 1.463
50
152
0.945
0.016
0.022 0.020
200
152
3.250
0.063
0.089 0.078
375
152
5.967
0.119
0.166 0.146
750
152
10.834
0.238
0.332 0.293
1000
152
13.373
0.317
0.443 0.390
1140
152
15.979
0.361
0.505 0.445
.25
1750
152
24.168
0.555
0.775 0.683
.30
3000
152
39.620
0.951
1.329 1.170
3750
152
48.337
1.189
1.661 1.463
50
152
0.907
0.016
0.013 0.005
375
152
5.640
0.119
0.097 0.034
750
152
10.358
0.238
0.194 0.068
1000
152
13.000
0.317
0.259 0.090
1140
152
15.203
0.361
0.295 0.103
.25
1750
152
23.301
0.555
0.453 0.158
.30
50
152
0.919
0.016
0.022 0.020
200
152
3.169
0.063
0.089 0.078
375
152
5.799
0.119
0.166 0.146
750
152
10.526
0.238
0.332 0.293
1000
152
12.996
0.317
0.443 0.390
1140
152
15.529
0.361
0.505 0.445
Rum
Liqueurs
Other Spirits
MBA 992 Edwards School of Business, University of Saskatchewan
.25
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
1750
152
23.487
0.555
0.775 0.683
3000
152
38.504
0.951
1.329 1.170
3750
152
46.975
1.189
1.661 1.463
750
131
5.308
0.238
0.194 0.068
1140
131
7.585
0.361
0.295 0.103
(Still, Fortified
&
Effervescent) 375
91
1.387
0.540
0.077 0.131
750
91
2.339
1.081
0.153 0.262
1000
91
2.663
1.441
0.204 0.349
1500
91
3.868
2.162
0.306 0.524
.20
2000
91
4.983
2.882
0.408 0.698
.25
3000
91
7.222
4.323
0.612 1.047
.25
4000
91
8.883
5.764
0.816 1.396
1.030
10000 91
18.991
14.410
2.040 3.490
16000 91
30.832
23.056
3.264 5.584
Ready to
Drink
Cocktails
(6%-15%
Alc./Vol)
.30
.25
Wine
Size
Per
Package Per
Minimum Package
Markup Markup Surcharge
Imports Only
Commercial
Package
Consideration equalization
Per package
per unit
U.S.
Other
$
ml
%
$
$
$
330
95
0.788
0.046
0.122 0.392
.05
341
95
0.814
0.047
0.126 0.405
.05
355
95
0.848
0.049
0.131 0.422
.05
750
95
1.725
0.104
0.277 0.891
.11
1000
95
2.300
0.138
0.369 1.188
.14
1364
95
2.814
0.188
0.503 1.620
.20
2000
95
3.152
0.276
0.738 2.376
.28
2046
95
3.588
0.282
0.754 2.430
.30
Coolers &
Ciders
Beer (BottlesSingles) (All
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
sizes)
1000
75
1.70
0.071
0.512 0.512
2046
75
2.910
0.145
1.048 1.048
4092
75
5.490
0.291
2.095 2.095
6138
75
7.960
0.436
3.143 3.143
8184
75
10.360 0.581
4.190 4.190
(Cans,
Singles &
Packages)
1000
75
1.370
0.071
0.512 0.512
(P.E.T.Singles &
Packages)
1000
75
1.320
0.071
0.512 0.512
(Kegs-All
Sizes)
Licensee
Only
1000
75
1.050
0.071
0.512 0.512
(BottlesPackages)
1. Calculations of the per package surcharge and commercial consideration for each category are done
on a per litre basis.
2. Calculations of the Package Equalization Assessment for each category are done on a per package
basis unique to each size in the category.
3. Calculations of commercial consideration for each category are done on a per litre basis. Commercial
consideration is applied to all import products as well as domestic beer distributed out of MLCC
warehouse.
4. Retail prices are calculated by applying the greater of the minimum dollar markup as above, or markup
percentage as above, on the duty paid per bottle or per can cost. The surcharges, #1 & 2, are then added
to this amount. For imported products and MLCC distributed domestic beer, a fixed dollar-per-litre
"commercial consideration" is then added. Provincial sales tax of 7% and Goods and Services Tax of 7%
is then applied.
5. All alcoholic beverages, excluding beer which are in non-deposit but recyclable containers, have an
environmental protection tax built into the pricing structure ($0.05 for bottles less than 750 ml and $0.10
for bottles of 750 ml or more). There is also a recycling charge of $0.02 for each unit sold, regardless of
size.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Saskatchewan
Category
Ad
Minimum Maximum COS Fee COS
Valorem MarkMark-Up ‡
Fee ‡
MarkUp†
Cda/USA Other
Up
Spirits
162%
$11.47
$24.29
$0.36
$0.653
Brandy &
Cognac
162%
$9.61
$24.29
$0.36
$0.653
LIqueurs
162%
$9.00
$15.50
$0.36
$0.653
Cocktails (7%
to 13.7%)
135%
$5.05
N/A
$0.36
$0.653
Cocktails (over 162%
13.7%)
$9.80
N/A
$0.389
$0.593
Apéritifs
158%
N/A
N/A
$0.389
$0.593
Std Fortified
Wine
184%
$3.99
N/A
$0.389
$0.593
Prem Fortified
Wine
158%
$3.99
$10.90
$0.389
$0.593
Sparkling Wine 121%
$2.83
$9.45
$0.389
$0.593
Domestic Wine 121%
$2.83
$9.45
Cider (litre)
107%
$1.75
N/A
$0.151
$0.151
Wine Coolers
(litre)
107%
$2.00
N/A
$0.151
$0.151
Spirits Coolers 107%
(litre
$3.05
N/A
$0.151
$0.151
Malt Coolers
(litre)
107%
$1.75
N/A
$0.151
$0.151
Beer (litre)
$1.20
N/A
N/A
$0.327
$0.327
Beer cans
(litre)
$1.441 N/A
N/A
$0.327
$0.327
† The value of the specified minimum mark-up is determined on the
basis of category and product container size. For the above, spirits and
wine minimum mark-ups are based on std. 750 ml btls, cider and
coolers are based on 1000 ml containers. Similar rules apply for the
maximum mark-up.
‡ The COS fee is based on the number of units per case This fee is
applied after the ad valorem mark-up.
Retail prices are calculated by applying the greater of the minimum
dollar mark-up or the ad valorem mark-up on the duty paid per bottle
cost (including a standard freight rate charge). For imported products
the COS per case charge is then added. Provincial retail sales tax of
10% and goods and services tax of 7% is then applied, followed by
refundable container deposit.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Alberta
Category
Flat Tax†
Spirits (>22.1%)
$13.30
Spirits (< 22%)
$9.90
Wine (< 16%)
$3.45
Wine (> 16.1%)
$6.10
Coolers/Ciders
$1.35
Sake (< 16%)
$3.45
Sake (> 16.1%)
$6.10
Beer - first 50,000 hectolitres
.40
Beer - next 20,000 hectolitres
.40
Beer - next 30,000 hectolitres
.40
Beer - over 200,000 hectolitres
.98
Ready To Drink & Cocktails: markup rate
for Wine <16% per litre
4.05
Cooler/Ciders per litre 1% alcohol products 1.35
Dealcoholized products:
markup is NOT
applicable
† The AGLC's flat tax is specified on a per litre of product basis regardless of the landed value. AGLC
does not differentiate between domestically sourced and imported goods.
MBA 992 Edwards School of Business, University of Saskatchewan
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
British Columbia
Category Volume
Ad
COS*
Mark-Up† Valorem Differential
Mark-Up‡
Spirits:
Fortified Wine:
Table Wine:
Coolers/Cider:
Cdn.
$0.12
159%
U.S.
$0.12
159%
$0.31
Other
$0.12
159%
$0.39
Cdn.
$0.12
129%
U.S.
$0.12
129%
$0.56
Other
$0.12
129%
$0.56
Cdn.
$0.12
110%
U.S.
$0.12
110%
$0.56
Other
$0.12
110%
$0.56
B.C.
$0.06
92%
All Other $0.06
92%
$0.20
Draught
$0.06
69%
--
4.1% 5.7%
$0.06
74%
--
5.8% 6.5%
$0.06
77%
--
6.6% 8.7%
$0.06
87%
--
4.1% 5.7%
$0.06
74%
$0.24
5.8% 6.5%
$0.06
77%
$0.24
6.6% 8.5%
$0.06
87%
$0.24
$0.06
57%
4.1% 5.7%
$0.04
70%
$0.24
5.8% 6.5%
$0.04
73%
$0.24
6.6% -
$0.04
83%
$0.24
Beer - Packaged**
B.C. COMMERCIAL.
Beer - Packaged**
All Other
COMMERCIAL
Beer - Draught
Beer - B. C.
Packaged Regional
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
8.5%
Beer - Other
Packaged Regional
4.1% 5.7%
$0.04
70%
$0.24
5.8% 6.5%
$0.04
73%
$0.24
6.6% 8.5%
$0.04
83%
$0.24
$0.04
53%
Beer - Draught
† The volume mark-up is calculated on a per litre basis.
‡ The ad valorem mark-up is applied to the landed cost + volume mark-up + distribution charge, if any.
* The COS differential is calculated on a per litre basis and is applied after the ad valorem mark-up.
** All packaged beer distributed by the LDB is subject to a distribution charge of $0.10 per litre applied
before the ad valorem mark-up.
Minimum Prices
Spirits
Will not be sold below a display price of $25.91 per litre.
Liqueurs will not be sold below a display price of $16.15 per litre.
Wine
Will not be sold below a display price of $7.20 per litre for package sizes smaller than 10 litres.
Will not be sold below a display price of $6.45 per litre for package sizes of 10 litres and greater.
Packaged Beer, Cider and Coolers
Will not be sold below a display price of $3.00 per litre.
Draught cider will not be sold below a display price of $2.45 per litre.
Draught beer will not be sold below a display price of $2.05 per litre.
Minimum Mark-ups
In no event will the application of normal ad valorem mark-up to the adjusted landed cost of a product be
less than the following absolute dollar amounts:
Spirits / Liqueurs
$13.12 per litre
Wine
$3.00 per litre
Cider/Coolers
$1.27 per litre
Packaged Beer
$1.13 per litre
Draught Cider
$0.89 per litre
Draught Beer
$0.65 per litre
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Nunavut
Mark-Up
Domestic Spirits
$21.35 litre
Domestic Wine
$ 6.35 litre
Domestic Beer
$ 1.58 litre
North West Territories
Mark-Up
Per litre mark up
Spirits $23.49
Wine
$6.99
Beer
$1.74
Coolers $2.73
Cider
$1.78
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Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan
Appendix D:
Financial
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