The Outlook distillery has the following objectives

MBA 992 Edwards School of Business, University of Saskatchewan

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

Feasibility Study of a Potato Vodka Micro-Distillery in Saskatchewan

MBA 992 Edwards School of Business, University of Saskatchewan Page 2


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.



Table of ContentsAcknowledgements.................................................................................................................................2

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



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



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



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

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.



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)

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)





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 micro-

brewing 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.



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



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.



1. 2. Mission Statement

The family operated Outlook micro-distillery will provide super-premium vodka to discerning quality-

conscious 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



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



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) $11.69640% per Liter ($11.696*0.4) 4.67750 ml ($4.67*0.75) 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 casePlus 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 depositEquals 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.



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.



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)



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.



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.



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



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



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





Figure 3.2.8 Six Valve Bottler

Figure 3.2.9 Filtration System



3.3 Floor Plan

Figure 3.3.1 Floor Plan – 2000 square feet (not done to scale)


Pot StillF/MF/M

Display Counter

Storage Tanks

W


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



Table 3.4.1 Thirty day mash/fermenting/distilling cycle.

Day 1 Day 2 Day 3 Day 4 Day 5Fermenter 14500 liter

2250 liters 2250 liters 2250 liters Distill Distill







Day 29 Day30Fermenter 14500 liter

2250 liters 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



Table 3.4.2 Thirty Day Case Production (numbers in red represent maximum capacity per week)

Day 1 Day 2 Day 3 Day 4 Day 5Mash 2250 liters 2250 liters 2250 liters 2250 litersDistill 1 225 225 225 225Distill 2 225 225 225 225Distill 3 225 225 225 225Distill 4 225 225 225 225Distill 5 225 225 225 225EA (at 95%) (liters)(quality EA) 78 78 78 7840% (liters) 173 173 173 173Bottles-750 ml 231 231 231 231Potential Cases per distilling per week

19.25 19.25 19.25 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.



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 Estimated Costs ($)

Source

Building 200,000 New - 2000 square feetLand 128,000Landscaping 10,000 Local – Oliver Green

Signage – Awning 3,000 Canopy Style – Saskatoon Awning and CanvasTotal Building Cost 341,000Production Equipment:Tanks: Blending and Storage 14,400

1,2004 – 550 gal (2500 liter) stainless steel –GW Kent4 – 330 gal (1500 liter) IBC plastic –GW Kent

Manual Bottle Rinser and & Sparger 2,795 GW Kent Brewery SupplyFiltration System 3,750 North American Brewing Services - Kelowna BCShell and Tube Heat Exchanger 1,642 30 bbl North American Brewing Services – Kelowna BCSix Valve Gravity Bottle Filler 1,995 A.O. Wilson Ltd. –BCMuller 250 Liter Pot Still/ 2 - 5000 liter mash/fermenter, accessories

243,000 Muller Co – Germany (includes freight + GST)

Forklift 9,000 Toyota SaskatoonConveyor 400 On hand (farm)Pallet Jack 200 On hand(farm)Office Equipment 3,000 Computer, cash register, desk/chair, filing systemTotal Production Equipment Cost 281,382Total Building and Equipment Costs $622,382



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 Amount Total Potatoes $0.09/kg

39 distill per yr @ 4950 kilograms

$17,375

Superstart yeast $195/20 kg ($9.75/kg)

39 ferments/yr*1.8 kilograms $ 684

Amylase Enzymes $26.40/kg

39 mashes per yr @ .45 kilograms $ 463

Charcoal Filters - @$50 12 bottlings $600Water $87/3 mo 12 months $ 348Bottles and Deco $3.75 delivered

10000 minimum order $68,445

Synthetic T-Top$0.40 delivered

10000 minimum order $7,300

Packaging - boxes $747/1000

5000 minimum order 0.74/box $1,126

Packaging – partitions$402/1000

5000 minimum order 0.40/partition $608

Total Direct Materials $96,949



Table 3.6.2 Direct Labor and Benefits for year 1

(Agency C. R., 2008) (Saskatchewan, Saskatchwan Workers' Compensation Board, 2008)


Total Annual SalariesManager $5,600/month

$33,600

Assistant Manager$4,000/month

$24,000

Total Salaries $57,600

Hourly WorkersBottler Wages @$12.00/hr*4 people*5 hrs* 11 bottlings/yr

$2,651

Total Hourly Wages $2,651

Benefits for Annual Salary EmployeesEmployment Insurance $1,016Canada Pension Plan $2,079Workman’s Compensation $916Total Benefits for Salaries $4,011

Benefits for Hourly WorkersEmployment Insurance $64Canada Pension Plan $131Holiday Pay $153Workman’s Compensation $ 42Total Benefits for Hourly Workers $390

Total Direct Labor and Benefits $64,715


Table 3.6.3 Total Manufacturing Overhead Costs for Year 1

Variable Costs: $Maintenance – estimate 500Freight and Pallet Charges for 1000 casesFreight - $355/100 cases 3,076Natural Gas 2,400Electricity 150Mash Disposal 1000Total Variable Costs 7,639Fixed Costs: $Natural Gas 1,500Electricity 1,200Insurance 1,200Telephone/internet – estimate 600Property Tax 1,800Capital Cost Allowance 29,698Total Fixed Overhead Costs 35,998Total Manufacturing Overhead Costs $47,025

Table 3.6.4 Cost of Goods Manufactured for year 1

Direct Materials 96,949Direct Labor 64,715Manufacturing Overhead 47,025Total Cost of Goods Manufactured $208,689

4. Human Resources PlanThe 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 micro-

distilling 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



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.

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.


Directors/Shareholders

Benita and Grant McNeill

Manager

Benita McNeill

Part-Time

Tours/Retail

Part-Time

Bottling Help

Part-Time Bookkeeper

Assistant Manager

Grant McNeill


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. The distillery will seek out



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 2010 2012 2014 2016 2018Permanent Labor 58,925 61,546 64,284 67,143 70,130Benefits for Salary Employees 4103 4293 4490 4697 4913Total Salaries 63028 65,839 68,774 71,840 75,043Part-Time Bottler Wage 2983 3,777 4,783 6,057 7,670Hours 61 74 89 108 130Benefits for Wage-Earning Employees 513 656 838 1069 1360Total Direct Labor + Benefits 66,524 70,272 74,396 78,967 84,074 Marketing/Sales Labor Manager/Marketers 58,925 61,546 64,284 67,143 70,130Benefits 4,103 4,293 4,490 4,697 4,913Total Salary + Benefits 63,028 65,839 68,774 71,840 75,043 Part-Time Wage $12.28 $12.85 $13.44 $14.07 $14.73 Hours 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 Total Wage Benefits 10,665 11,187 11,702 12,250 12,824 Total Marketing/Sales Labour 73,693 77,026 80,476 84,090 87,867



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 high-

proof/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

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.

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

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 Total Sales ($)375 6707 24 $14.35 2,309,891750 15,252 12 $25.25 4,621,356

1140 10,750 12 $37.24 4,803,9601750 10,621 6 $58.95 3,756,648

Total Smirnoff Premium Brand Sales $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

Bottle Size (ml)

Total Unit Sales (bottles)

Total Cases Price($)

Smirnoff (P)(Domestic) 12 750 183,022 15,252 25.25Polar Ice (P)(Domestic) 12 750 90,474 7,540 24.99Russian Prince (E)( Domestic) 12 750 69,289 5,774 23.25Alberta Pure Vodka (E )(Domestic) 12 750 108,049 9,004 23.25Troika (E)(Domestic) 12 750 23,560 1,963 23.24McGuiness Red Tassel (E)(Domestic) 12 750 27365 2,280 23.25Banff Ice Vodka (P) (Domestic) 12 750 24415 2,034 24.45Grey Goose Vodka (D)(Imported) 12 750 11254 1,876 50.25Skyy Vodka (P)(Imported) 12 750 19830 1,656 25.23(D) Deluxe-super premium (P) Premium (E) Economy



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 (super-

premium) 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 Units/Case

Size (ml)

Base Price

GST

5%

LCT/ PST10%

ContainerDeposit

TotalPrice

CaseSales

Pearl Vodka(Highwood Distillers)

12 750 34.26 1.71 3.43 0.20 39.60 80

Smirnoff Blue (Diageo Canada)

12 750 23.70 1.19 2.37 0.20 27.46 765

Vodka – Imported – Deluxe Units/Case

Size (ml)

Base Price

GST

5%

LCT/ PST10%

ContainerDeposit

TotalPrice

Case Sales

Grey Goose ( France)(Sidney Frank Co)

12 750 43.52 2.18 4.35 0.20 50.25 1949

Wyborowa Exquisite Vodka ( Poland)(Wyborowa)

12 750 41.09 2.05 4.11 0.20 47.45 92

Stolichnaya ( Russia)Spirits Int’l GMBH)

12 750 22.83 1.14 2.28 0.20 26.45 418

Level ( Sweden)(V&S Absolute)

12 750 43.52 2.18 4.35 0.20 50.25 57

Slava Ultra Premium Vodka (Ukraine)(Zoldtonosha)

12 750 25.04 1.25 2.5 0.20 28.99 207

Three Olives Vodka (United Kingdom)(Whiterock Inc.)

12 750 23.49 1.17 2.35 0.20 27.21 207

Zodiac Luxury Potato Vodka ( USA)(Zodiac Spirits)

12 750 41.16 2.06 4.12 0.20 47.54 276

Total 9 liter cases in super premium (deluxe) category 4051 cases (5401-750ml cases) Average price of $38.33



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.



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 34-

49 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.

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

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

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 $300Duration0 – 13 $75/wk14 – 26 $70/wk27 – 39 $65/wk40 - 52 $60/wkCost per Year: $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.



Table 5.4.2 Marketing Expenses estimation for 10 years

Marketing and Admin Expenses 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Sample 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 Salaries and Wages $62,208

Benefits for Salary Earners 7,285Benefits for Wage Earners 692Total Benefits 7,977Total Salary/Wages/Benefits $70,185


Total Annual SalariesManager $5,600/month

$33,600

Assistant Manager$4,000/month

$24,000

Total Salaries $57,600

Part-Time Wages

Sales Staff – @$12.00/hr*1 person 4 hrs/day *16 days/mo*6

$4,608

Total Part Time Wages $4,608


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 Price Cases sold 2007 (ltr)

Vodka – Canada - Deluxe $ CasesPearl Vodka (Highwood Distillers) 39.60 60Smirnoff Blue (Diageo Canada) 27.46 574Vodka – Imported - DeluxeGrey Goose ( France) (Sidney Frank Co) 50.25 1876Wyborowa Exquisite Vodka ( Poland) (Wyborowa) 47.45 69Stolichnaya ( Russia) (Spirits Int’l GMBH) 26.45 314Level ( Sweden) (V&S Absolute) 50.25 43Slava 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



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

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.



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 ESTPST 10% - $3.04Excise - $3.51GST - $1.52Deposit - $.20Distillery Revenue - $23.23

Figure 5.6.1 SLGA flat tax of $3.50 (based on a $35.00 shelf price)



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% - $3.04Excise - $3.51GST - $1.52Deposit - $.20Distillery 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

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.



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 super-

premium 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



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

Key Problems:

Costs of entering a niche market is high

Lack of sales



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

Original 25/75 75/25 50/50Debt 350,000 187,500 562,500 375,000Equity 400,000 562,500 187,500 375,000NPV 16,486 -51,182 103,940 26,789IRR 20.70% 18.82% 27.30% 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



Table 5.9.2 Amortization Schedule

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Interest Rate 10 yr 7.75% 7.75% 7.75% 7.75% 7.75% 7.75% 7.75% 7.75% 7.75% 7.75%Payment Period 10

Beg Balance - 325,551 299,208 270,823 240,238 207,283 171,773 133,512 92,286 47,864 New Debt 350,000 - - - - - - - - - Payment 51,574 51,574 51,574 51,574 51,574 51,574 51,574 51,574 51,574 51,574 Interest 27,125 25,230 23,189 20,989 18,618 16,064 13,312 10,347 7,152 3,709 Principal Reduction 24,449 26,343 28,385 30,585 32,955 35,509 38,261 41,226 44,422 47,864 End Balance 325,551 299,208 270,823 240,238 207,283 171,773 133,512 92,286 47,864 -

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.



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) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Unit cost of Potato 11.42 12.19 12.47 12.76 13.05 13.35 13.66 13.97 14.29 14.62Unit cost of filter 0.39 0.42 0.43 0.44 0.45 0.46 0.47 0.48 0.49 0.50Unit Cost of Ingredients 0.98 1.05 1.07 1.10 1.12 1.15 1.18 1.20 1.23 1.26Unit Cost of Packaging Materials 50.94 54.36 55.61 56.89 58.20 59.54 60.91 62.31 63.74 65.21Total Unit Cost of Direct Materials 63.74 68.02 69.59 71.19 72.83 74.50 76.21 77.97 79.76 81.60Unit Cost of Manufacturing Overhead 30.92 46.37 36.06 29.11 23.95 20.35 17.45 15.06 13.43 12.20 Total Unit Cost of Direct Labor 42.55 41.48 38.75 36.21 33.86 31.68 29.66 27.79 26.06 24.46 Total Unit Cost of Production 137.20 155.88 144.39 136.51 130.63 126.54 123.33 120.82 119.25 118.25Unit Marketing and Admin Cost 74.03 72.02 65.60 59.57 54.03 48.95 44.29 40.02 36.09 32.50 Total Unit Cost per Case 211.23 227.90 209.99 196.08 184.67 175.49 167.62 160.84 155.35 150.75Quantity of Sales 1,458 1,604 1,764 1,941 2,135 2,348 2,583 2,841 3,125 3,438 Average Selling Price 211 216 221 226 231 237 242 248 253 259 Average Unit Margin 0 (12) 11 30 47 61 75 87 98 109

The following pie charts reflect how unit costs are distributed over the forecast period.

2010

Unit cost of PotatoUnit cost of filterUnit Cost of IngredientsUnit Cost of Packaging MaterialsTotal Unit Cost of Direct MaterialsUnit Cost of Manufacturing OverheadTotal Unit Cost of Direct LaborTotal Unit Cost of ProductionUnit Marketing and Admin CostTotal Unit Cost per CaseAverage Selling Price

Figure 5.9.5 Distribution of costs per unit in 2010



2012



2014





2016


Table 5.9.8 Distribution of costs per unit in 2016

2018


Table 5.9.10 Distribution of costs per unit in 2018

6.0 Ratio AnalysisThe 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



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.



Table 6.0.1 Summary of financial ratios

2010 2012 2014### 2016 2018Liquidity RatiosCurrent Ratio 7.10 9.12 10.73### 12.38 13.78Activity and Operating RatiosTotal Asset Turnover 0.51 0.69 0.86 ### 1.03 1.16 Inventory Turnover 4.67 4.70 5.11 ### 5.71 6.57 Average Days Inventory 78 78 71 ### 64 56 Leverage Ratios 2010 2012 2014 ### 2016 2018Debt Ratio 47.5% 41.0% 30.5%### 17.5% 4.4%Debt to Equity 90.3% 69.4% 43.9%### 21.3% 4.6%Profitability RatiosGross Profit Margin 26.1% 39.7% 46.6%### 51.2% 54.4%Net Profit Margin -7.2% 11.6% 21.9%### 29.7% 35.4%Return on Total Assets -3.7% 8.0% 18.9%### 30.4% 41.1%Return on Equity -7.1% 13.5% 27.2%### 36.9% 43.0%

6.1 Summary of Financial ResultsTable 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 2018Sales 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

Income Before Taxes (4,518) (24,966) 19,711 58,557 99,877 143,911 192,688 247,068 306,741 373,261

Income Taxes - - - 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

External Rate of Return on Equity Investment 17.6%


Net Present Value of Equity Investment 16,486

Internal Rate of Return on Equity Investment 20.7%


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

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Sales 211,330 237,810 267,607 301,138 338,871 381,332 429,112 482,880 543,385 611,471

Cost of Goods Sold 198,320 254,085 252,454 262,344 275,974 293,879 314,903 339,166 368,080 401,332 Gross Margin 13,010 (16,275) 15,153 38,794 62,897 87,452 114,210 143,714 175,305 210,139 Total Expenses 112,591 115,507 115,725 115,592 115,336 114,942 114,399 113,692 112,806 111,723 Income Before Taxes (99,581) (131,782) (100,572) (76,798) (52,438) (27,490) (189) 30,022 62,500 98,416 Income Taxes - - - - - - - - - - Net Income (Loss) (99,581) (131,782) (100,572) (76,798) (52,438) (27,490) (189) 30,022 62,500 98,416 Increase (decrease) in Cash (20,467) (118,714) (84,683) (70,391) (55,381) (39,250) (18,190) 4,572 30,669 60,431

Net Present Value of Equity Investment -539,378

Internal Rate of Return on Equity Investment -5.6%



Table 6.2.3 Best Case Scenario based on 2000 cases sold year 1 at unit cost price of $211.33

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Sales 422,660 475,619 535,214 602,277 677,742 762,663 858,225 965,760 1,086,770 1,222,942

Cost of Goods Sold 202,086 258,668 257,428 267,942 282,273 300,968 322,879 348,142 378,180 412,698 Gross Margin 220,574 216,952 277,786 334,335 395,469 461,695 535,346 617,619 708,590 810,245 Total Expenses 112,596 115,512 115,731 115,598 115,341 114,948 114,405 113,698 112,812 111,730 Income Before Taxes 107,979 101,440 162,055 218,737 280,128 346,748 420,941 503,921 595,778 698,515 Income Taxes 16,737 15,723 25,119 33,904 43,420 53,746 66,083 82,480 105,445 131,129 Net Income (Loss) 91,242 85,716 136,937 184,833 236,708 293,002 354,857 421,441 490,334 567,386 Increase (decrease) in Cash 153,147 32,955 15,293 37,553 42,297 47,194 55,245 58,702 62,032 70,333

Net Present Value of Equity Investment 611,751

Internal Rate of Return on Equity Investment 46.2%

6.3 Breakeven AnalysisThe breakeven analysis was calculated using the average selling price and total unit cost per case. See Figure 6.7.1

2009 2010 2011 2012 2013 2014 2015 2016 -

50

100

150

200

250

300

Average Selling Price Total Unit Cost per Case

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



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.



9.0 References

Agency, C. F. (2007, November 02). Canadian Food Inspection Agency - Food. Retrieved July 13, 2008, 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 # 63-202-x. 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



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: http://www.nytimes.com/2007/11/25/us/25distilleries.html?_r=2&adxnnl=1&oref=slogin&ref=us&adxnnlx=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.



Appendix A:

Calculations for Mash Production and Ethyl Alcohol Quantities



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



Appendix B:

Mentorship/Training



Appendix B – Mentorship/Training

Department of Chemical EngineeringKris Berglund, Ph.D.206 Farrall Hall, MSUEast Lansing, MI [email protected] MSU distilling program is aimed at research, education and outreach for the advancementof artisan distilling.

Enology Extension/Cornell UniversityDragana Dimitrijevic, M.Sc.Food Research Laboratory630 West North StreetGeneva, NY [email protected] Distilling Workshop at Geneva Experiment Station.

Ethanol Technology InstituteLiz Ward6120 W. Douglas AvenueMilwaukee, WI [email protected] program covers the science of alcohol production through a combination of lectures, seminars and laboratory demonstrations.

Institute of Brewing & DistillingRoger Putman33 Clarges StreetLondon W1J 7EEUK44 20 7499 8144ibd.org.uk



Brewing and distilling education and qualifications.Executive Director: Simon Jackson, [email protected] inquiries: Andrea Williams, [email protected] inquiries: Rekha Sandal, [email protected] of the IBD magazine: Roger Putman, [email protected]

International Centre for Brewing and DistillingPaul HughesHeriot-Watt UniversityRiccartonEdinburgh EH14 4ASSCOTLAND011 44 131 451 [email protected]/staff/hughes.htmHeriot-Watt runs brewing and distilling workshops.

UC Davis ExtensionDebbie Roberts1333 Research Park DriveDavis, CA 95616-4852530-757-8691





Appendix C:

Provincial Fact Sheets

Taxation



The following information represents individual provincial liquor taxation. (Distillers, 2008)

Newfoundland Tax

Category Size Mark-UpSpirits 750 ml $6.92 +72% of LCProof & Over Proof 750 ml $7.92 + 72% of LC

Liqueurs 750 ml $6.52 + 62.7% of LCWines 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 $1.95 per liter

Newfoundland Beer 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 costOther Spirits 1 litre $8.29 plus 32.56% of landed cost

Spirit Coolers <7% 90.00% of landed cost7% - 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



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¢/btlOther 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%Bulk/Draft in kegs 97% 65% 65%

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)



Quebec

Category Fixed† Mark-Up

Ad Valorem‡ Mark-Up

Educ'* Alcooltive Fee**

Collect Sélec- Tax‡‡

Specific Service*** Charge (per case)

Spirits $117.65 120% 36¢ 2¢ $0.89 $1.73to $2.03

Liqueurs $105.90 120% 24¢ 2¢ $0.89 $1.73to $2.03

Wine $27.00 118% 12¢ 2¢ $0.89 $1.59to $1.89

I. Beer $10.00 50% 12¢ N/A $0.40 $3.83to $4.42

D. Beer N/A N/A N/A N/A $0.40 $2.85to $3.15

† 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



Ontario

Category Mark-Up

Wine Levy†

Bottle Levy†

Env. Fee‡

COS †In Store

COS †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.



Manitoba

Size

Markup

Per PackageMinimum Markup

Per Package Surcharge

Imports OnlyCommercial ConsiderationPer package

Package equalization 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

Rum 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

Liqueurs 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

Other Spirits 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 .25



1750 152 23.487 0.555 0.775 0.683 .30 3000 152 38.504 0.951 1.329 1.170

3750 152 46.975 1.189 1.661 1.463

Ready to Drink Cocktails (6%-15% Alc./Vol)

750

131

5.308

0.238

0.194

0.068

1140 131 7.585 0.361 0.295 0.103 .25

Wine

(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

Size

Markup

Per PackageMinimum Markup

Per Package Surcharge

Imports OnlyCommercial ConsiderationPer package

Package equalization per unit

U.S. Other

ml % $ $ $ $ Coolers & Ciders

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

Beer (Bottles-Singles) (All



sizes) 1000 75 1.70 0.071 0.512 0.512

(Bottles-Packages)

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

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.



Saskatchewan

Category Ad Valorem Mark-Up

Minimum Mark-Up†

Maximum Mark-Up

COS Fee ‡ Cda/USA

COS Fee ‡ Other

Spirits 162% $11.47 $24.29 $0.36 $0.653Brandy & Cognac

162% $9.61 $24.29 $0.36 $0.653

LIqueurs 162% $9.00 $15.50 $0.36 $0.653Cocktails (7% to 13.7%)

135% $5.05 N/A $0.36 $0.653

Cocktails (over 13.7%)

162% $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 $0.593Domestic Wine 121% $2.83 $9.45 Cider (litre) 107% $1.75 N/A $0.151 $0.151Wine Coolers (litre)

107% $2.00 N/A $0.151 $0.151

Spirits Coolers (litre

107% $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.



Alberta

Category Flat Tax†Spirits (>22.1%) $13.30

Spirits (< 22%) $9.90Wine (< 16%) $3.45

Wine (> 16.1%) $6.10Coolers/Ciders $1.35

Sake (< 16%) $3.45Sake (> 16.1%) $6.10

Beer - first 50,000 hectolitres .40Beer - next 20,000 hectolitres .40

Beer - next 30,000 hectolitres .40Beer - 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.



British Columbia

Category Volume Mark-Up†

Ad Valorem Mark-Up‡

COS* Differential

Spirits: Cdn. $0.12 159% U.S. $0.12 159% $0.31

Other $0.12 159% $0.39

Fortified Wine: Cdn. $0.12 129% U.S. $0.12 129% $0.56

Other $0.12 129% $0.56

Table Wine: Cdn. $0.12 110% U.S. $0.12 110% $0.56

Other $0.12 110% $0.56

Coolers/Cider: B.C. $0.06 92% All Other $0.06 92% $0.20

Draught $0.06 69% --

Beer - Packaged** B.C. COMMERCIAL.

4.1% - 5.7%

$0.06 74% --

5.8% - 6.5%

$0.06 77% --

6.6% - 8.7%

$0.06 87% --

Beer - Packaged** All Other COMMERCIAL

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

Beer - Draught $0.06 57% Beer - B. C. Packaged Regional

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



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

Beer - Draught $0.04 53%

† 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

SpiritsWill 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.

WineWill 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 CoolersWill 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 litreCider/Coolers $1.27 per litre

Packaged Beer $1.13 per litreDraught Cider $0.89 per litre

Draught Beer $0.65 per litre



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 $23.49Wine $6.99Beer $1.74 Coolers $2.73Cider $1.78



Appendix D:

Financial


Documents

The Outlook distillery has the following objectives