Feasibility Study for a Potato Based
Vodka Micro-Distillery in
Saskatchewan
Benita McNeill
MBA 992 Project
Aug. 12th
Advisor: Marv Painter
Agenda
•
•
•
•
•
•
•
Acknowledgements
Business Overview
Operations
Human Resources
Marketing Plan
Finances
Conclusion
Business Overview
• Micro-distillery
• Potato based vodka
• Incorporation
• Sole shareholders
• Family business
• Key success factors
–
–
–
–
Flat tax
tourism
Sales quantity
Branding/image
Mission Statement
• The Outlook micro-distillery will provide a
super-premium vodka to discerning qualityconscious consumers who desire a luxury
product.
Objectives
• Quality super premium vodka
• Establish an image
• Create use for non-usable potato production
• Value-added agricultural industry
• Develop a Saskatchewan micro-distillery policy
• Tourism attraction
• 20% ROI
Operations
Floor Plan
Distilling Process
Distillation 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
Day30
30 Day Case Production
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
Day 3
2250 liters
225
225
225
225
225
78
173
231
19.25
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
Organizational Structure
Directors/Shareholders
Assistant
Manager/Owner
Manager/Owner
Part-Time
(1)
Part-Time
Part-Time
Bookkeeper
Bottlers
(1)
(4)
Human Resources
• Family owned business
– Manager and assistant manager
• $67,200;$48,000 per year
• Part-time bottlers
– 4 people, 13 – 5 hour bottlings 1st year
• $12 per hour
• Part-time bookkeeper
– 4 hours per week
• $25 per hour/contract work
• Part-time Sales/Reception
– 16 hours per week/afternoons
• $12 per hour
Marketing
• National Market
– Vodka is Canada’s favourite spirit as of 2006
• Grew 6.66% in 2007 nationally
• Growth of 5.40% in Saskatchewan
» 182,255 9 litre cases sold in 2007
» Largest growth from imported spirits
• Target market
– Vodka drinkers in Saskatchewan
• 24-64 yrs. old
– Highest users in the 34-49 age group
• Household income after tax
– $41,000 (www12.statcan.ca)
– Disposable income growing at 6% per year nationally
Product
• Potato based vodka
– Local ingredients from field to table
– Handcrafted, small batch, triple distilled
– 40% alcohol by volume
– Extraordinary quality, subtle taste
– Gluten free
Promotion
• Establish an image, build awareness
– Consumer trade shows (3/yr)
– Billboards
– Saskatoon (corner of Idylwyld and 20th st)
» 90, 000 cars per day
• Establish relationships with restaurants, casinos, liquor
board stores;
• Connect with conference activities, local community
functions
• Liaise with tourism locally & provincially
• Web-site
• Brochure/posters
Place
• Two venues
– On micro-distillery site in Outlook
– Liquor board stores, franchises, outlets
• 700 outlets across Saskatchewan
– 79 SLGA liquor stores in 64 communities
– 189 + small franchisees
– 465 + off-sale outlets
– Proposed Sales
• 1.2% of 182,255 cases sold annually (1458 - 750 ml cases)
» Includes 5% of super-premium category
– 1000 cases SLGA
– 458 cases on site
Pricing
(based on unit cost)
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
$
$
$
0 $
0 $
$
0.0000% $
$
$
0.0000
42.1056 $
$
$
0.1200 $
$
28.280
1.00000
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
Competition
Top Sellers
Category - Standard Vodka Sold in Sask.
Units/
Cases
Bottle
Size (ml)
Total Unit Sales
(bottles)
Total Cases
Price
($)
Smirnoff
(P)(Domestic)
12
750
183,022
15,252
25.25
Polar Ice
(P)(Domestic)
12
750
90,474
7,540
24.99
Russian Prince
(E)( Domestic)
12
750
69,289
5,774
23.25
Alberta Pure Vodka
(E )(Domestic)
12
750
108,049
9,004
23.25
Troika
(E)(Domestic)
12
750
23,560
1,963
23.24
McGuiness Red Tassel
(E)(Domestic)
12
750
27365
2,280
23.25
Banff Ice Vodka
(P) (Domestic)
12
750
24415
2,034
24.45
Grey Goose Vodka
(D)(Imported)
12
750
11254
1,876
50.25
Skyy Vodka
(P)(Imported)
12
750
19830
1,656
25.23
Direct Competition
Super Premium Category
Vodka – Canada – Deluxe
Price
Cases sold
2007 (ltr)
Pearl Vodka (Highwood Distillers)
39.60
60
Smirnoff Blue (Diageo Canada)
27.46
574
Grey Goose ( France) (Sidney Frank Co)
50.25
1876
Wyborowa Exquisite Vodka ( Poland) (Wyborowa)
47.45
69
Stolichnaya ( Russia) (Spirits Int’l GMBH)
26.45
314
Level ( Sweden) (V&S Absolute)
50.25
43
Slava Ultra Premium Vodka (Ukraine) (Zoldtonosha)
28.99
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 Total
Cases
Vodka – Canada - Deluxe
Vodka – Imported - Deluxe
Finances
Capital Budget
Land
$ 128,000
Building
200,000
Landscaping
10,000
Signage/Awning
3,000
Production Equipment:
Manual Rinser and Sparger
2,795
Filtration System
3,750
Shell Tube Heat Exchanger
1,642
Six Valve Gravity Bottle Filler
1,995
Muller 250 liter Pot Still/distilling tools
243,000
Storage Tanks
15,600
Forklift
9,000
Conveyor
400
Pallet Jack
200
Office Equipment
3,000
281,382
Total Capital Costs
$ 622,382
Summary of Financial Results
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%
Break-Even Analysis
$61.41 Retail Shelf Price
2009 2010
211 216
211.23 227.90
Average Selling Price
Total Unit Cost per Case
2011
221
209.99
2012
226
196.08
2013
231
184.67
2014 2015
237 242
175.49 167.62
300
250
200
Average Selling Price
150
Total Unit Cost per
Case
100
50
2009 2010 2011 2012 2013 2014 2015 2016
2016
248
160.84
2017
253
155.35
2018
259
150.75
Debt/Equity Structure
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%
Conclusion
 Very difficult to compete in the super premium
space if shelf price is at $61.41
» Excise and SLGA taxes too high to compete
• Capital Costs are high
• Risk is high
• Unless…….
Possibility??
• Saskatchewan micro-distillery policy with flat
tax for on-site sales
SLGA - $4.00 EST
SGLC Mark Up 162%
PST 10% - $3.04
PST 10% - $3.04
Excise - $3.51
GST - $1.52
Excise - $3.51
GST - $1.52
Deposit - $.20
Distillery Revenue - $8.01
Deposit - $.20
Distillery Revenue $23.23
Based on a $35 bottle of vodka
Did you know…….
• During prohibition, one way to drink legally
was to be ‘ill’
• Doctors could give prescriptions to be filled at
drugstores.
• Abuse of the system resulted, with various
epidemics and long line-ups occurring during
the Christmas holiday season.