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HONEYDEW MEADERY

BUSINESS PLAN

April 10, 2014

Lewis Clarke –

Marcus Aurelius –

OMMITTED FOR STEALTH

HONEYDEW MEADERY BUSINESS PLAN 1

CONFIDENTIALITY AGREEMENT

The undersigned reader acknowledges that the information provided by Honeydew

Meadery in this business plan is confidential; therefore, the reader agrees not to disclose it

without the express written permission of Lewis Clarke or Marcus Aurelius.

It is acknowledged by reader that information to be furnished in this business plan is in all

respects confidential in nature, other than information which is in the public domain through

other means and that any disclosure or use of same by reader, may cause serious harm or

damage to Honeydew Meadery.

Upon request, this document is to be immediately returned to Lewis Clarke or Marcus

Aurelius.

___________________

Signature

___________________

Name (typed or printed)

___________________

Date

This is a business plan. It does not imply an offering of securities.


TABLE OF CONTENTS

CONFIDENTIALITY AGREEMENT ............................................................................................................... 1 TABLE OF CONTENTS .................................................................................................................................... 2 EXECUTIVE SUMMARY .................................................................................................................................. 4 INDUSTRY ANALYSIS ..................................................................................................................................... 5

INDUSTRY TRENDS .......................................................................................................................................................... 5 The Mead Industry .......................................................................................................................................................... 5 The Cider Industry .......................................................................................................................................................... 6 The White Wine Industry ............................................................................................................................................. 6

PORTER’S FIVE FORCES MODEL ................................................................................................................................... 7

CUSTOMER ANALYSIS.................................................................................................................................... 8 Facebook Data-Mining (Primary Research) ....................................................................................................... 8

PRIMARY MARKET: MEAD DRINKERS ......................................................................................................................... 8 Mead Consumer Survey (Primary Research) ...................................................................................................... 9

SECONDARY MARKET: CIDER DRINKERS .................................................................................................................... 9 SECONDARY MARKET: WHITE WINE DRINKERS ..................................................................................................... 10

COMPETITOR ANALYSIS ............................................................................................................................ 11 DIRECT COMPETITORS ................................................................................................................................................. 11 IN-DIRECT COMPETITORS ........................................................................................................................................... 12 COMPETITIVE OBJECTIVES ANALYSIS ........................................................................................................................ 13 HONEYDEW’S COMPETITIVE ADVANTAGE ................................................................................................................ 13 STRATEGIC GROUP MAP .............................................................................................................................................. 14

COMPANY AND PRODUCT DESCRIPTION ............................................................................................ 15 COMPANY DESCRIPTION .............................................................................................................................................. 15 PRODUCT 1: APPLE/PEAR CYSER .............................................................................................................................. 15 PRODUCT 2: DRY MEAD ............................................................................................................................................... 16

MARKETING PLAN ....................................................................................................................................... 16 FOUNDATIONAL RESEARCH ......................................................................................................................................... 16 THE STRATEGY .............................................................................................................................................................. 17

Product Quality ............................................................................................................................................................. 17 Customer Involvement ............................................................................................................................................... 18 Creative Advertising .................................................................................................................................................... 18

TARGET AREA ................................................................................................................................................................ 18

OPERATIONS PLAN ..................................................................................................................................... 19 ORGANIZATIONAL STRUCTURE ................................................................................................................................... 19 JOB DESCRIPTIONS ........................................................................................................................................................ 20 WORK FLOW .................................................................................................................................................................. 21

Rolling vs. Bulk Fermentation ................................................................................................................................ 22 PRODUCTION SCALABILITY.......................................................................................................................................... 23 ADVISORY BOARD ......................................................................................................................................................... 23 HUMAN RESOURCES BUDGET ..................................................................................................................................... 24

PROPERTY SELECTION .............................................................................................................................. 25 PLACE OF OPERATION & LOCATION .......................................................................................................................... 25


ANALYSIS OF OPERATIONS AND PLANOGRAM .......................................................................................................... 25

REGULATIONS AND LICENSING............................................................................................................... 26 TEAM ................................................................................................................................................................ 27 LEGAL STRUCTURE ..................................................................................................................................... 28 CRITICAL RISKS ............................................................................................................................................ 29 FINANCIAL ANALYSIS ................................................................................................................................. 30

RAW MATERIAL COSTS ................................................................................................................................................ 30 IN-HOUSE VS. OUTSOURCING PRODUCTION ............................................................................................................. 30 DISTRIBUTION MARGIN ANALYSIS ............................................................................................................................. 31 BREAK-EVEN ANALYSIS ............................................................................................................................................... 33 CAPITAL STRUCTURE .................................................................................................................................................... 33

Stage One: Outsourcing ............................................................................................................................................. 33 Stage Two: In-House Production Facility .......................................................................................................... 34

PRO-FORMA FINANCIAL STATEMENTS................................................................................................ 35 CASH FLOW STATEMENTS ........................................................................................................................................... 35 INCOME STATEMENT .................................................................................................................................................... 42 BALANCE SHEET ............................................................................................................................................................ 43

EXIT STRATEGY ............................................................................................................................................ 44 CONTINGENCY STRATEGY ............................................................................................................................................ 44 FINANCIAL HARVEST STRATEGY ................................................................................................................................ 45

REFERENCES .................................................................................................................................................. 46 APPENDICES .................................................................................................................................................. 49

MEAD CONSUMER SURVEY RESULTS (PRIMARY RESEARCH) ............................................................................... 49 FACEBOOK DATA-MINING RESULTS (PRIMARY RESEARCH) ................................................................................ 53 INDUSTRY TRENDS CHARTS ........................................................................................................................................ 53 MODEL OF BRAND EQUITY FOR WINE ...................................................................................................................... 55 WORK BREAKDOWN ..................................................................................................................................................... 56 JOB DESCRIPTION: MEAD CONSULTANT / BREW MASTER .................................................................................... 57 JOB DESCRIPTION: BREW-HELPER (LABOR) ............................................................................................................ 58 JOB DESCRIPTION: PRODUCT AGENT ......................................................................................................................... 59 WATERLOO ZONING BY-LAW...................................................................................................................................... 60 MANAGEMENT RESUMES ............................................................................................................................................. 61 BREWING EQUIPMENT COST BREAKDOWN .............................................................................................................. 63 IN-HOUSE VS. OUTSOURCING DETAILED CHARTS ................................................................................................... 64 ONTARIO WINE MERGERS AND ACQUISITIONS ....................................................................................................... 65 130 FROBISHER PROPERTY LISTING ......................................................................................................................... 66 ARTICLES OF INCORPORATION .................................................................................................................................... 69


The millennial generation in Canada is showing a strong and

consistently growing trend towards buying sweeter, fruit-infused,

innovative, and more premium alcohol beverages. Honeydew

Meadery plans to provide just that; a honey wine product infused

with sweet Canadian-grown apples, a product currently not

offered anywhere in Canada. We will differentiate ourselves in the

marketplace through an endless pursuit of quality, extensive customer involvement and

catchy, creative marketing strategies.

The 19 to 24 age category in Canada has a growing interest in sweet white wines, sweeter

apple ciders, and innovative alcohol beverages they can experiment with tasting. In response

to this, our first product offering is a honey wine infused with apples, market-tested to meet

their exact desires for a sweet, interesting, and premium beverage. Our second product

capitalizes on trends in the 25 to 34 age category towards drinking semi-sweet white wines,

by offering a semi-sweet honey wine product at a fair price.

We will reach our customers by first introducing our product in the LCBO. We will

cultivate long-lasting and meaningful customer relationships through an extremely active

social media presence, one-to-one communication, positive on-site tasting experiences,

tasting events and an open-door, honest policy in doing business. We will produce our mead

first through outsourcing agreements to market-test our product, and later through a

company-owned fermentation facility with a focus on production quality and control. We will

build strong relationships with the farmers and apiaries (bee-cultivators) that supply our raw

materials by emphasizing their involvement in the entire process and in-turn promoting each

other’s products. Our products will be priced competitively with white wines and other

alcohol beverages whose sales we will cannibalize at $14.94 per 750ml bottle. Concentrating

on the facets of customer-involvement, innovation, product-quality, honesty in business

practice, and creative marketing will create the concrete foundation from which we will

nurture a long-lasting and sustainable competitive advantage.

Our team is comprised of two founders, Lewis Clarke and Marcus Aurelius. Lewis is an

avid mead-making hobbyist who has produced over 30 unique recipes himself. Lewis also

has a wealth of experience in the Ontario-based operations of a production facility, import

and export and contract-negotiation of sales to government organizations. Lewis brings with

him a network of sommeliers, craft-brewers, SME support staff and other mead-hobbyists to

the advisory board. Marcus has work experience in sales, project management, and

managing an online store. His experience and skills in planning and problem solving will be

a valuable asset to Honeydew Meadery.

Starting the company requires an initial equity investment of $22,000. This will be

financed by Marcus and Lewis. An additional $85,000 is required in year two, in order to

open an in-house production facility. This will be financed with a combination of debt from a

bank and equity from family members. When outsourcing in the first year, the company must

sell 1754 bottles of mead to break even. When manufacturing in-house, 10,791 bottles of

mead must be sold in order to break even. It is forecast that the company will lose around

EXECUTIVE

SUMMARY


$4000 in the first year of operations. In years two and three, there is an expected profit of

around $19,000 and $64,000, respectively.

Mergers and acquisition are very common in the alcohol industry. As Honeydew Meadery

expands it will become an attractive target for a merger or acquisition. This is likely the most

viable exit strategy.

INDUSTRY ANALYSIS

Industry Trends

The Mead Industry

There are very few statistics regarding international mead consumption, as the product is

somewhat niche. This analysis makes due with the available information. Andre Abi Raad,

production engineer and oenologue at Intermiel stated the following (as quoted in Cioletti,

NDA, 2006)

“Thirty years ago, if you talked to 10 people in Quebec, there were nine who

didn't know mead and one who did. Now, it's almost the inverse.”

Cioletti’s (NDA, prior to 2006) article suggests that there were roughly 200 meaderies

worldwide with 60 in the United States when the article was written. Cioletti also writes that

50% of those were launched within the past 5-7 years. Strong supplier growth suggests a

positive trend in consumption. Allen Breed (2010) writes that in the past decade, the number

of meaderies in the United states has tripled to around 150, again suggesting high supplier-

side growth. An article by CSP Daily News (2013) stated that there is an accelerated growth

of mead consumption in Canada. The article mentions there was an estimated four meaderies

in Canada in the mid-2000s. This number has now grown to over thirty (CSP Daily News,

2013). Megan Flynn’s article in Beer West Magazine wrote that in 2011 there were 150

commercial meaderies in the United States; she also writes that mead is making a comeback

(NDA, 2012).

An article by Rick Lyke (2007) of All About Beer Magazine writes that according to the

International Mead Association there are 100 United states meaderies up from 30 in 1998. 50

are traditional meaderies and the other 50 are typically wineries and breweries who use

honey in their products. He also writes that Bill Bailey of Desi Dew’s Meadery in

Rougemont, NC says mead’s challenge is one of public awareness, but that it’s awareness

has grown ten times since 2000. Lyke (2007) writes that the International Mead Association

estimates the commercial mead-making market in the US is a $20 million industry.

Summary

This data suggests that mead is a niche market segment that is on a strong upward growth

trend. Honeydew Meadery will be well positioned to capitalize on this growth in consumer

demand.


The Cider Industry

The cider industry has been analyzed because our apple cyser (mead made with apples)

will be positioned to cannibalize sweet cider sales. Canadean’s (2013) high-level market

research report contains significant analysis of the cider industry in the United States, which

is comparable to the Canadian market. First, the report asserts that the cider market is

experiencing strong growth in the double-digits similar to the craft beer market. 2012 growth

was predicted to be 30%. Imports account for 20% of cider-consumption. Prices have

increased 4% on average due to premium offerings, which account for one-quarter of overall

sales (Canadean, 2013). Some brands like Crispin, Canadean asserts, have seen over 300%

sales growth over the 2011-2012 years. It is postulated that growth in the market is driven by

product innovation (Canadean, 2013).

A Food and Drink Business (2012) article posted that cider sales grew 50% in Q4 2011 in

Australia. Cider makes up 2% of Australia’s alcohol market and 12% of the UK’s alcohol

market (Food and Drink Business, 2012). Cider is said to have kicked off in 2004 and is the

only alcohol category to have remained in constant growth since then in the UK. It is

predicted to grow another 45% through 2012-2017 (Food and Drink Business, 2012). One

brand, Magners was a small brewer in 2005 and now controls 7.5% of cider sales in the US

(The Economist, 2012). An article in TIME by Brad Tuttle (2012) suggests that cider has

seen astronomical growth following the boom of the craft beer market, which has consumers

in the habit of trying new and unusual alcoholic beverages. Though cider is overall a small

part of the US market, it grew in sales by 31.3% over 2011 (Tuttle, 2012). This information

suggests that the trend is sustaining, and is internationally growing; it is not a localized fad.

Summary

Cider is showing strong growth prospects and this indicates targeting the market for

cannibalization is a good strategy; especially with beverages similar in taste like our

proposed mead-cyser. Our demographic analysis and target market reflects a solid product

position and strategy in the marketplace.

The White Wine Industry

The white wine industry is being analyzed due to the taste-pallet similarities of honey

wine and white wine produced from grapes. Both our honey-cyser and medium-dry mead

products are positioned to cannibalize sales of white wine. An article by LuAnn LaSalle

(2012) in the Huffington Post stated that a recent study showed Canadians buy an average of

22 bottles of wine annually as of 2011, up from 13 in 1995. A third of wine consumed within

Canada is produced domestically, but the consumption of wine in Ontario is nearly 75%

domestic (LCBO, 2012) showing a strong trend for Canadian-made products (LaSalle 2012).

Over this same period, LaSalle (2012) says that wine rose from 18 to 30% of Canadian’s

alcohol consumption, detracting from beer and spirits sales.

Summary

Akin to the cider and mead markets, domestic wine is on the rise as well. All of this data

together gives us clear indication that opportunity exists. All markets are growing and


opportunity abounds within them. Growth predictions are strong and the market leans

towards purchasing craft-made products.

Porter’s Five Forces Model

This Porter’s Five-Forces Model will detail pressures on the industry we will encounter

when operating. It is specifically focusing on the mead industry, though it is important to

mention our product will compete directly against white wine, and cider producers – which

may skew these results in the future.

TABLE 1 Porter's Five Forces Summary

Overall Industry Rating Favorable Moderate Unfavorable

Threat of New Entrants

X

Bargaining Power of Buyers X

Threat of Substitutes

X

Bargaining Power of Suppliers X

Intensity of Rivalry Among Competitors X

Threat of New Entrants (low-medium)

There are significant barriers to entry in the Ontario alcohol production industry. The first

is a high-presence of government regulation through the Alcohol and Gaming Commission of

Ontario (AGCO). The second barrier is the relatively high cost of starting production. With

an inventory cycle approaching a half-year and significant capital costs, producing mead on a

commercial scale for sale to consumers through the LCBO requires an investment of nearly

$100,000; as detailed throughout this plan. In addition to costs, expert-level knowledge of

fermentation science and the manufacturing process is rare. Customer loyalty to established

brands of wines, and brand equity play a major role in product sales. Economies of scale are

nearly endless in the alcohol production industry as well. In contrast, switching costs are low

for consumers and capital costs can start much, much lower if the scale of the company at

launch is as a micro-producer.

Threat of Substitute Products of Services (high)

The LCBO (2014) lists 9,000 VINTAGES products in its “quick facts” section. White

wines are the secondary substitute products for Honeydew’s meads, and for that reason the

threat is very high. There are also established meads listed already. It is very easy for a

consumer to substitute for a new product. It is integral to Honeydew’s success that our

products become viable substitutes to white wines and ciders, in addition to the existing

mead market.

Bargaining Power of Customers (low)

Buyers have very little power over negotiations or to pressure Honeydew. They depend on

existing distribution channels, like the LCBO’s monopoly. They have no bargaining leverage


and relatively no leverage to choose other retailers in any significant way. It would be

prudent however to review buyer price-sensitivity to our products.

Bargaining Power of Supplier (low)

Suppliers for Honeydew are very numerous with many substitute products. Every type of

honey typically has multiple suppliers, as well as other materials like bottles, corks and

labels.

Intensity of Competitive Rivalry (medium)

The most important competitive advantage within this industry appears to be exposure.

Competitors with a stronger marketing presence appear to be more successful and have more

LCBO listings; although that may be a chicken or the egg situation. Our competitors appear

to invest a reasonable amount into marketing. Rosewood hosts several events annually at

their locations and around southern Ontario (Rosewood, 2014). Munro attends the Mazer

Cup as judges (Mazer Cup is North America’s most prestigious mead-awards) (Munro,

2014). Both have several award-winning products. Firms in the mead industry are not

concentrated at all, though there is significant firm consolidation in the cider and grape-wine

industries. No competitors in the mead industry have aggressive competitive strategies.

CUSTOMER ANALYSIS

Facebook Data-Mining (Primary Research)

In order to better understand customers that purchase mead, we conducted primary

research using Facebook. Our sample was 33,134 people who “liked” the pages of twelve

meaderies in the USA and Canada. Facebook makes public the most popular age group and

the most popular city of the people who like a page. Our research showed that by far, the

most popular age group of mead drinkers is 25-34 years old. This was the most popular age

group for ten of the twelve meaderies sampled. This research also showed that the city where

most of a meadery’s customers are located was either the same city or a city close to where

the meadery is located. This could suggest that consumers have a preference for locally

produced mead. It could also suggest that other meaderies are following a narrow local

distribution strategy instead of a wide distribution strategy. Detailed results of this research

can be found in Table 19 (Appendices, Page 53).

Honeydew Meadery’s strategy targets three separate consumer groups. Our primary and

most easily accessed market will be that of existing mead drinkers. Secondary markets

include the burgeoning cider market and white-wine market. We see these sales as strong

targets for cannibalization.

Primary Market: Mead Drinkers

There are few formal studies targeting mead consumers so this analysis has been put

together with available information. An article titled “Mead All About It!” by the CSP Daily

News (2013) wrote that there is a young demographic of consumers that are looking for new

and exciting beverages to try. This suggests “new” beverages have a strong sales position.


Mead Consumer Survey (Primary Research)

We chose to collect primary data by running a mead-consumer survey online. We

received 100 responses. The survey was distributed to Facebook Pages associated with mead-

consumption, as well as on meadery’s Facebook pages, to Reddit.com’s public message

board for mead enthusiasts and to the most popular online community-webpage for mead-

enthusiasts; GotMead.com. Our results are tabled in Figures 14-18 (Appendices, Pages 49-

52). The survey results are as follows:

Age: Mead-drinkers are primarily between the ages of 18 and 34, with 56% of survey

respondent within the 25-34 range, and 29% in the former. 13% of the demographic is

within the range of 35-54.

Gender: 88% of mead drinkers are male, and 12% are female.

Education: 95% of mead-drinkers have a college-diploma, degree, graduate school

degree or some college or graduate school education. 55% within that range, have a

4-year college or university degree or higher education.

Purchase Frequency: 20% of mead-drinkers purchase mead monthly, and 45% of

mead-drinkers purchase products a few times per year.

Occupation: Interestingly, 21% of mead-drinkers work within computer and

mathematical fields.

Summary

This data is useful for us. It means our target customer for early-sales cannibalization is

likely young (under 34), post-secondary educated men with many of them working in the IT

or mathematics field. However, we believe the survey may have been skewed due to a lack of

participation on the Internet from older generations, and/or a tendency for computer-related

occupational workers to use the internet and be males. We believe the survey was also

skewed due to the high concentration of men using the sites targeted. However, we feel

targeting a younger demographic is prudent because it is in line with our other research.

Discussions with Reddit and GotMead users revealed they believe a large portion of mead

drinkers have a fascination with Vikings, Scandinavian culture and medieval history – due to

the origin of the mead beverage. This may be why our results were skewed towards males in

the IT field as we feel these interests, subjectively, are strong within that demographic.

These results need to be tested further to define the true demographic of mead-consumers

and increase the reliability of surveys. Surveying consumers at mead trade shows and events

would provide a clearer picture of Honeydew’s ideal consumer.

Secondary Market: Cider Drinkers

An article written in The Economist (2012) states that, “A decade ago 35- to 44-year-olds

were the biggest cider consumers; now 18- to 24-year-olds are”. An article written by Brad

Tuttle (2012) suggests that one reason cider is experiencing a boom is because women will

drink it. Unlike beer, it’s not viewed as a primarily male drink. Tuttle (2012) also writes that


a typical case of cider has a higher price point average of $35 (in the US) compared to craft

beer at $33 and imported beer at $29. This suggests a willingness to pay a premium-level

price.

An article written by Food and Drink Business (2012) suggests that there is a shift

towards easy-drinking beverages, in contrast to bitter flavors. Generally, the market has

shifted towards sweeter beverages as food has become more processed. Younger generations

appear to have a sweeter palate than other generations, which aids the cider market (Food and

Drink Business, 2012). The core drinking demographic of cider appears to be consumers

under the age of 24, evenly spread between men and women, but appears to be broadening

(Food and Drink Business, 2012).

Canadean (2013) published a report, which stated, “Cider appeals to both men and women

and a relatively young demographic. Typically sweeter than beer, cider appeals to drinkers

who are entering the alcohol market.” This appears to fall in line with other writer’s analyses.

Summary

The cider market appears to be a young demographic of men and women (evenly split).

This is in contrast to the market for mead, which is slightly older. We believe our products

will be able to capture the taste-pallet demands of young cider-drinkers, especially by

marketing our mead cyser (an apple-infused mead) which will host very similar tasting notes

to comparable premium ciders.

Secondary Market: White Wine Drinkers

White wine drinkers are part of our target market because our products aim to replicate

similar flavours. An article by Megan Flynn (NDA, prior to 2012) in Beer West Magazine

writes,

“Take a sip of a dry mead, and you might think of sauvignon blanc, crisp, with

flavors ranging from grassy to tropical. A semi-sweet mead? Think pinot gris,

ripe with rich apple and pear flavors. Venture into a bottle of dry, fruit mead,

and you’ll be reminded of a tart lambic.”

This aids to confirm our belief that mead can be a substitute product for many white-wine

consumers.

A study from researchers at Sonoma University revealed many of our assumptions about

the white-wine industry to be true. Figures 20-22 (Appendices, Pages 53-54) reveal that

millennials (those born between ’77 – ’99, aged 15-37) drink and purchase more sweet

wines, fruit wines and coolers than all other generations combined (Olsen, Thach & Nowak,

2006). These statistics confirms that Honeydew’s intended mead, cider and white wine

customers tend to all lie within the same demographic of 18-34 and share a similar, sweet-

oriented, taste pallet. Figure 23 (Appendices, Page 55) shows that millennials associate white

wine with relaxation, sexiness, sensuality and sophistication (Olsen et al., 2006). A study by

Liz Thach (2012) on WineBusiness.com, reveals that gender-neutral promotions are very


important and a gender-selective approach may result in decreased market share overall. A

study completed by researchers in Denmark in 2001 indicates that wine drinking is

significantly associated with higher IQ, higher parental education levels and higher

socioeconomic status (Mortensen et al., 2001). This study appears to coincide with our

survey, which revealed mead drinkers are also, primarily, university or college educated.

Summary

The demographic of consumers purchasing sweet white wine are very similar to those

we’ve identified as cider and mead consumers. They are young with post-secondary

educations. This information will help us to structure our marketing campaign to be gender-

neutral to cannibalize sales from the larger cider and white wine markets. Similar flavours

and a tendency to experiment with new beverages will aid in the cannibalization of cider and

white wine sales.

COMPETITOR ANALYSIS

Direct Competitors

Vcelco S.R.O.

This Slovakian producer of mead has one product listing in the LCBO (2014) at a retail

price of $24.95 and an ABV of 13.5% called the, “Vcelovina Mead”. Information regarding

size was unavailable. Vcelco’s website is reasonably well done and minimalist (Vcelco,

2014). They have only one product. Searching their name on Google reveals no sidebar,

Google reference or map reference, which indicates they have a poor handle on their online

presence, though they have integrated their Facebook page (Google, 2014). They have 1800

followers on Facebook, a relatively significant number, but everything is in Slovakian and

the name is unsearchable from a US/UK/Canadian English keyboard (Facebook, 2014).

Highland Wineries

Highland Wineries is a meadery located in Inverness, Scotland with one LCBO (2014)

product listing called “Moniack Mead” which retails for $21.95 in the LCBO at a 14.6%

ABV. It is estimated their annual sales are £231,000 and they have 4 employees (Amee,

2014). Highland Wineries’ website is reasonable but lacking in creativity and modern-style

(Highland Wineries, 2014). Searching their name on Google reveals no sidebar, Google

reference or map reference which indicates they have a poor handle on their online presence.

They have no social media links from their webpage (Google, 2014). Highland Wineries has

no Facebook page (Facebook, 2014).

Rosewood Estate

Rosewood is a small vineyard, vintner, apiary and meadery in Beamsville, Ontario (near

St. Catharines). They have a 5,000 case (60,000) bottle annual capacity for all wines +

meads, using 1,300 gallon (5,000 liter) fermentation tanks (Walker, 2010). Estimated 3

employees (Manta, 2014). With similar agency structure to us, retrieving roughly an average

of $6.00 per bottle, revenue is estimated to be $360,000. The retail price of Royale Honey


Wine (a fruit-mead), and Harvest Gold Mead (a honey wine) are both $14.95 (LCBO, 2014).

Rosewood Estates produces several other meads including a spiced mead called “2007

Ambrosia” retailing for $40.20 at the winery only and “2012 Mead Noir” a pyment (red-wine

mixed) mead retailing for $25.20 at the winery (Rosewood, 2014). Rosewood’s website is

well done and tasteful, it appears professional and well laid out. They have twitter-integration

as well, suggesting a strong social media presence (Rosewood, 2014). Searching their name

on Google reveals a full sidebar picture with map link and company information, suggesting

they have a handle on their online presence (Google, 2014). Rosewood Estate is active on

Facebook with a following of 2,500 and a few monthly posts (Facebook, 2014).

Munro Honey

Munro Honey is an apiary and meadery in Alvinston, Ontario (near London). Their

product is sold independently; not through the LCBO. Prices range from $15.12 to $16.70 for

both honey wines and melomels (fruit-infused meads) (Munro Honey, 2014). They have a

12,000ft2

facility producing processed honey and mead (Munro Honey, 2014). The company

appears to be comparatively larger than Rosewood, but still quite small. Munro has 3000 bee

colonies and produce 500,000 pounds of honey annually (Ontario Table, 2012). They appear

to primarily be an apiary. According to Wikipedia (2014), “sideliner” beekeepers may have

up to 300 colonies managed individually, so we think it is safe to assume Munro Honey has

less than 20 employees overall. Munro does not have any mead products listed in the LCBO.

Munro Honey’s website is bright and colorful. It is well done overall and they have links to

their social media pages (Munro Honey, 2014). A search on Google reveals a map and

limited company information on the sidebar, suggesting they have some grasp of creating an

online presence (Google, 2014). Munro does not seem very active on social media, their

Facebook posts are 3-6 weeks apart and they have only 500 followers (Facebook, 2014).

In-Direct Competitors

Rossignol

Rossignol is primarily a vineyard and vintner, but are also a meadery. They are located on

Prince Edwards Island. Rossignol has ten fruit wine listings, some of which are made with

honey (Rossignol, 2014). Retail prices range from $16.75 to $19.75 per bottle. Their

“Blackberry Mead Wine” (the only product described as mead) is listed at $19.75 (Rossignol,

2014). PEI Flavors (2014) lists Rossignol as having annual sales between $250,000 and

$1,000,000. The head winemaker, John Rossignol, is from Ontario (PEI Flavors, 2014). The

products are sold across the country and to a lesser extent, internationally. The Guardian’s

Jim Day (2011) says Rossignol produces 40,000 bottles of wine annually with 12 employees

at peak times. Rossignol does not have products currently listed in the LCBO.

Trafalgar

Trafalgar is a beer and mead producer. Their meads are clearly produced to cannibalizing

beer-drinkers as they are sold in 500 and 375ml bottles (Trafalgar, 2014). They are located in

Oakville, Ontario. Trafalgar has 3 mead products listed on their website which are all

represented in the LCBO. They are: the “Mead Braggot”, retail price of $9.95 in a 500ml

bottle (volume-price is equivalent to Honeydew at $14.95 per 750ml). “Lanark Blueberry

Mead” at $5.45 per 375ml bottle and the “Ginger Mead” at $9.95 per 500ml bottle (LCBO,


2014). Trafalgar meads are definitely targeting the beer market with their smaller volume

bottles and much lower ABV which ranges between 8.0-9.0% versus other competition-

produced meads which are 12.0%-14.6% ABV and in 750ml bottles.

The Lyme Bay Cider Company

This company is in England and produces two separate meads called the “Garden Mead”

and “Tournament Mead”. Neither are currently listed in the LCBO, however the LCBO

appears to have cross-listed this company as being the producer of “Moniack Mead”, which

it is not – perhaps they have other products listed or were previously listed, it is unclear

(2014).

Other Competitors of Note

British Columbia and Quebec have relatively more thriving mead cultures than Ontario,

but it is still all small producers or apiary off-shoots. Winesofcanada.com’s article titled

“Meaderies of Canada” (Bell, 2012) lists several competitors throughout the country. In

British Columbia: Campbell’s Gold Honey Farm, Mason Manor, Meadow Vista Honey

Wines, Middle Mountain Mead, Meadery at Planet Bee and Tugwell Creek Honey Farm and

Meadery. In Alberta: the Chinook Honey Co. In Nova Scotia: Midgrad Meadery. Throughout

Quebec: Le Clos Des Brumes, Meil Natural, Ferme Apicole Desrochers, Intermiel, Le

Rucher Bernard Bee Bec & Assoc des Hydromeliers du Quebec, Les Enterprises Prince-

Leclerc, Les Vins Mustier Gerzer, Muse’e de l’Abeille & Les Ruchers Pomiel, Rucher Les

Saules and Rucher Tete en Fluers.

In Summary

Competition in the mead industry is minimal. It’s a product that is primarily produced as

an addition to the revenue stream by existing apiaries. The vast majority of these companies

are run by families or couples and appear to be lifestyle-type ventures, with the exclusion of

Vcelcovina and to a lesser extent, Rosewood Estates.

Competitive Objectives Analysis

Honeydew’s competitors, excluding Vcelco, do not appear to have aggressive expansion

or growth efforts. Munro is 100 years old and yet has one location and is relatively small.

Rosewood Estates is similar though they are more prominent than Munro. Trafalgar is a

business run by a couple; Highland Wineries appears to be the same. Rossignol is a small-

batch winery run by one man. There are no competitors who appear to be “corporate” in

nature (excluding Vcelco). They tend to be more hobbyist-gone-commercial or family-owned

lifestyle-ventures in nature. Vcelco is often excluded from these analyses because they do not

appear to be competitive in North America or have a presence here other than their listing,

and are more focused on Slovakia.

Honeydew’s Competitive Advantage

Honeydew Meadery will build its sustainable, long-term, competitive advantage through

innovation, quality, involvement and creative advertising. We will focus these efforts on our

two target demographics: sweeter, fruit-infused products targeted at 19-24 year olds (gender-


neutral) who have post-secondary educations or some college education. Dryer or semi-sweet

products will be targeted at 25-34 year olds (gender-neutral) who have post-secondary

educations.

Customer involvement will be assured through camaraderie, social-media saturation,

relationship building, and tastings. Product quality will be emphasized through market testing

and the involvement of industry-professionals. The products will be offered at fair prices.

Product innovation will be a cornerstone of our competitive advantage, the first of which is

introducing a mead cyser product that is not yet available in Ontario or Canada. Creative

marketing will be emphasized through guerilla marketing tactics, innovative advertising

campaigns and quirky/catchy slogans that enhance our target’s image of the meadery. We

believe these three foundations, when built over the long-term, will build an irrefutable and

non-substitutable competitive advantage.

Strategic Group Map

This strategic group map analyses our direct and indirect competitors, but excludes those

outside the province without LCBO listings (such as Rossignol Winery and the Lyme Bay

Cider Company). The map compares two separate variables. The first (the y-axis) is the

flavor-focus of the meads produced. On the upper end there are sweet, apple infused honey

wines. On the lower end of the y-axis are producers focused on niche-types of mead with

earthier or bitter flavours, such as braggots (malted-grain), metheglins (spices), black meads

(currants), bochets (caramelized honey) or short meads (an ale-like mead). A producer of this

type would be Trafalgar with their ginger mead and braggot. The focus-scale will be from 1

to 5; a 5 indicating a focus on producing mead-cyser or similar products, a 1 indicating a

focus on niche, bitter or earthy meads. The second variable (x-axis) is the price-point of the

meadery’s products on a scale of $10 - $25.

FIGURE 2 Strategic Group Map

0

1

2

3

4

5

6

5 10 15 20 25 30

Me

ad

Fo

cus

Product Price Average

Vcelco SRO

Highland Wineries

Rosewood Estate

Munro Honey

Trafalgar Ales

Honeydew Meads


COMPANY AND PRODUCT DESCRIPTION

Company Description

Honeydew Meadery produces honey wine in Ontario. We will operate as a corporation,

with two original founders Lewis Clarke and Marcus Aurelius. We will operate out of our

location in Waterloo, Ontario, starting in the year 2016.

We seek to serve the growing demands of millennials for sweet, innovative alcohol

beverages as an alternative to white wine, cider and existing mead selections. We will

differentiate ourselves in the marketplace through an endless pursuit of quality, extensive

customer involvement and catchy, creative marketing strategies. We plan to introduce

interesting products through targeted market research, starting with honey-apple cyser and

medium-dry mead. We plan to operate a facility with a 33,300 bottle annual capacity, one

year after launching our products through outsourcing. Within five years, we plan to expand

the facility to approximately 100,000 bottles annually.

Our vision is to become a household name, premiere supplier of innovative, in-demand

alcohol beverages that are produced from honey in North America. With thorough customer

involvement we want to be considered an asset to the community we operate in, and a

respectable, honest company that consumers feel committed to supporting.

Product 1: Apple/Pear Cyser

The first of Honeydew Meadery’s offerings will be a mead-cyser. This product is a

fermentation of honey and apple-mash to produce a cider-like, sweet beverage. Later on, we

have also considered producing mead with a pear-mash to capitalize on a rise in sales of non-

apple, fruit ciders, explained within the demographics and industry analysis sections. This

product is not scheduled for introduction within our first three years of operation. Wholesale

Ontario apples retail for an average of $40 per 40lbs as of January 1st, 2014 (Agriculture and

Agri-Food Canada, 2014). This includes Honeycrisp, McIntosh, Paulared and Sweetango

varieties. Our exact selection has not been made as of yet, but prices are typically lateral for

all apples listed (Agriculture and Agri-Food Canada, 2014). Pears retail for a similar price of

$18.50-23.50 per 22lbs (Agriculture and Agri-Food Canda, 2014). We have included the

purchase of a Speidel Motorized Apple & Pear Crusher from MoreWineMaking.com to crush

these pome-fruits for use in fermentation (MoreWineMaking.com, 2014). We intend to use

approximately 940lbs of apples or pears, mashed, per cyser batch, which should yield 135

litres of apple/pear pomace using HardwoodCrafts.co.uk’s (Euleigh, P., 2014) yield ratio;

according to Agriculture and Agri-Food Canada (2014) at wholesale this should cost $940.

The recipe is as follows:

155 gallons, Dutch Gold Baker’s Special Honey. $3,875.00 (WebstaurantStore.com, 2014)

135 gallons, apple/pear pomace $940 (Agriculture and Agri-Foods Canada, 2014).

800 gallons, water


50 ounces, Lavlin 71B-1122 yeast; recommended for cysers ([Meadist, P., 2013]). $216.00

(WineMakingSuperStore.com, 2014).

14 ounces, Diammonium Phosphate yeast nutrient, $3.95 (MoreBeer.com, 2014)

This mead will endure a 50-day primary fermentation, followed by a filtration process and

two further 50-day bulk-racking periods. This recipe will produce 4,600 x 750ml bottles with

an ABV between 13.0 and 13.5%.

Product 2: Dry Mead

We are also planning to launch a dryer mead product, aiming to simulate the flavors of

semi-sweet white wines like Pinot Grigio. We believe wine to be a market that may be easily

cannibalized in addition to the existing mead market based on finding in our demographic

and industry analysis sections.

The recipe is as follows:

155 gallons, Dutch Gold Baker’s Special Honey. $3,875.00 (WebstaurantStore.com, 2014)

935 gallons, water

50 ounces, Lavlin D-47 yeast; recommended for cysers ([Meadist, P., 2013]). $216.00

(WineMakingSuperStore.com, 2014).

14 ounces, Diammonium Phosphate yeast nutrient, $3.95 (MoreBeer.com, 2014)

This mead will endure a 50-day primary fermentation, followed by a filtration process and

2 further 50-day bulk-racking periods. This recipe will produce close to 4,700 x 750ml

bottles with an ABV between 13.5 and 14.0%. The higher yield in bottles is due no pomace

being filtered out during filtration.

MARKETING PLAN

Foundational Research

A study done by Nowak, Thach and Olsen of the Sonoma State University (2006)

predicted that customer commitment was the strongest driver of brand equity in the wine

industry when trying to attract millennial consumers. They suggest,

“If a winery is able to help a customer feel a strong sense of belonging and

makes them feel like part of the family, then a feeling of commitment towards

the relationship with the winery starts to be cultivated. Commitment is defined

as a consumer’s belief that an ongoing relationship is worth investing time,

energy, and money in (Sharma and Patterson, 2000). Hirschmann and

Holbrook (1982) proposed that extremely positive, consumption-related

emotions are likely to lead to very high levels of commitment.” (p. 318)


The researchers suggest that positive emotions associated with tasting room experiences

were the best predictors of building long-term, profitable relationships with wineries. They

stress that customers must always feel they are truly cared about to feel a sense of belonging

and camaraderie (Nowak et al., 2006, p. 320). Nowak et al. (2006) suggest seasonal events,

special invitations, birthday greetings, gift coupons and involving customers in activities (p.

320). They also found that product quality, excellent service and fair pricing contribute

significantly to brand equity (p. 321). Kickstarter (2014) campaigns for meaderies have all

tended to include customer-involving packages, which are in-demand. These include the

Fringe Meadery, Fenwyr Cellars Meadery, Mead Magic, RVA Mead Lab, Golden Coast

Mead and Bos Meadery (Kickstarter, 2014). This solidifies that customer-involvement is key

to a successful long-term marketing strategy in the mead and wine industries.

Lockashin and Spawton’s (2001) study found several factors contributing to winery

success which are displayed in Figure 24 (Appendices, Page 55). These included familiarity

and commitment, which our customer involvement strategy maximizes. Nowak and

Washburn’s (2002) study found that quality was the most significant predictor of success but

pro-active environmental policies, trust and brand equity were also very significant

contributors to long-term sustainability. We plan to operate an open-door style, honest

business practice that adds to the community to capitalize on this factor of success.

Alcohol products have seen success with creative marketing techniques. One example is

Bud Lite Lime’s introduction which included guerilla marketing, flash mobs and an online

contest. The campaign mobilized Canadians to start Facebook pages demanding the

introduction of the product. Bud Lite Lime sent them “ambassador packages” to promote it

(Wegert, T., 2009). Captain Morgan launched an interactive-online-media “pose-off”

competition (Wegert, T., 2009). Many alcohol products use extremely interesting ads to get

attention. Bulmer’s chiseled messages on blocks of ice, The Chosen One launched an ad

listing 999 names of approving beer-tasters, Hendrick’s gin has 1800s circus-ad inspired

word of mouth marketing (Naslau, S., 2011). The Internet Advertising Competition (2013)

awarded MXM Social (a marketing company) an award for outstanding achievement when

creating “The Wine Bar” Facebook page to engage customers and promote Diageo Chateau

& Estate Wines. They net 31,000 users with a 10% engagement rate, which is 10 to 50 times

industry standard (Internet Advertising Competition, 2013). Wacky, eye-catching, interesting

and innovative slogans, campaigns and graphic ads are integral to alcohol marketers.

The Strategy

Our marketing approach has been developed based on research-proven success factors and

successful competitors within comparable industries. We are planning our strategy around

three key foundations: product quality, customer-involvement and creative advertising.

Product Quality

Product quality is paramount to success. The most significant cornerstone of ensuring

product quality is having a long-term commitment to market-testing products prior to release.

Prior to launch we plan to market-test ten mead recipe variations of each of our proposed

products. We currently possess the equipment to do this. After launch, we will ideally have


twenty meads fermenting at any given time in 25 x 750ml bottle batches. These products will

be market-tested at hosted events, through our honey suppliers, in restaurant partners as

tasting events, through professionals (Lewis has a family-connection with an oenologist and

a trained wine-taster), in our on-site tasting room, and wherever else we can find our target-

demographic. We believe a long-term focus to fine-tuning and introducing innovative

products is a key to success in the craft-alcohol industry as is suggested in our industry

analysis section.

Customer Involvement

Customer involvement is our second key building block. We intend to involve customers

on every level feasible. Our primary goal is to treat every involved customer with care,

respect, and camaraderie. We want to be very transparent to enable our customers to involve

themselves and form relationships with employees of the meadery. We plan to have an on-

site tasting room on the first-floor of our facility, with the office upstairs. We will offer

facility tours, drop-in tasting hours (or scheduled), mead-classes for excited hobbyists and

other involving activities. We will ensure we have a multi-weekly social media presence on

every platform available and respond to every question posed by clients in a thoughtful and

thorough manner. Involving customers in a thoughtful, diverse, and multi-faceted approach

is a key to success in the alcohol industry.

Creative Advertising

Creative advertising is our third building block. We would like to create marketing

campaigns that differentiate our product from competition in interesting ways. The first of

which is a directed guerilla marketing effort that will contain viral marketing, sticker

bombing, and Internet advertising. We will put a strong focus on the creation of interesting

slogans for our products, designing catchy bottle-labels and product names. We are

considering sealing every bottle of our product in beeswax, similar to red wax-sealed wine

bottles, to make it a more interesting product.

Our meadery competitors appear to have a relatively poor target-market focus. They

typically have generic import-wine-like and/or Viking-focused or medieval-focused

marketing. We believe a directed focus towards a gender-neutral demographic of people aged

19 to 24 for our cyser, and age 25 to 34 for our medium-dry mead will do very well. Olsen et

al.’s (2006) Figure 23 (Appendices, Page 55) may act as a guide to the image we seek to

present to millennials, with a focus on relaxation, sensuality and sophistication.

Target Area

Our initial target area is Ontario. In the 2011-2012 year there was $1.2 billion in wine

sales in Ontario through the LCBO with the expectation to grow 4.4% year-over-year

(LCBO, 2012). White wines make up 11% of the overall sales of Canadian wine, compared

to 7.4% from red wines and in addition, VQA (Ontario) wines were up 9.4% (LCBO, 2012).

Beer and cider sales were $909 million over that period, with cider growing in interest by

15.8%. Cider is expected to continue growing by 15.1% year-over-year (LCBO, 2012). A

report from the George Morris Center found that cider sales in Canada were over $120

million in 2011, up from $60 million in 2007 (Grier, Sweetland, Rajcan, 2013). Mead


statistics are unavailable. All of this leads us to the conclusion that we have a significant

target market and our products are aimed directly at the cannibalization of rapidly growing

product categories.

Our secondary potential market is Canada, where the alcohol market is growing

substantially, especially in wine consumption. Statistics Canada (2011) found that the beer

market in all of Canada was $9.1 billion in 2011, with a 3.1% increase in Ontario sales. The

wine market in all of Canada saw $6.1 billion of sales in 2011. From 2000 to 2011, sales of

white wine have increased 66% (Statistics Canada, 2011). Again, we are seeing rapid-growth

trends in our targeted categories.

OPERATIONS PLAN

Organizational Structure

Figure 3 displays Honeydew Meadery’s organizational structure. It is important to note

that Honeydew Meadery will be outsourcing production within its first year to test the market

with it’s products. For this reason, the majority of production is in the hands of third parties

in year one. Table 25 (Appendices, Page 56) displays the separation of duties related to the

organizational structure. Note that there are two scenarios - outsourced and in-house. For the

purpose of this business plan, separate positions have been created to better show the

scalability of the idea.

FIGURE 3


Lewis will be handling the role of “Mead Consultant”. Both Lewis and Marcus will

handle the role of “Laborer / Brew-helper” until production increases significantly. This is

due to the fact that positions can be fulfilled without requiring full-time employees. Even as

the business grows, it has a long way to go before it will require more than two full-time

employees. Fermentation runs on a check-up basis and transfer/cleaning/administrative duties

can be completed at any time of the week. They are very flexible.

Job Descriptions

The positions in Figure 3 are explained below:

The Mead Consultant: this person’s role is the creation of recipes and regulation

of the fermentation process. They are the supervisor of brew-helpers. The job

description for this position is listed in Appendices (Page 57).

The Pillitteri Estate Agency: This position is that of a sales representative to the

LCBO. They charge 10% on top of our quoted price and only if the sale goes

through with the LCBO. They also ask for 0% to 40% (optional, our choice)

percentage of sales to spend on LCBO marketing, because the LCBO offers a full

set of marketing options from end-of-shelf displays to highlights within the

Vintages magazine. Due to our lack of LCBO connections, it is best we employ

their services to handle sales to the LCBO. They also market the product to each

individual store manager (there are 512 in Ontario) because even if the LCBO

accepts the product, it is at the discretion of each LCBO store manager to order

and stock it. It is unfeasible for Marcus or I to handle this. The future job

description of a product agent is shown in Appendices (Page 59)

The Spirit Tree Cidery: This position has been listed in connection with the mead

consultant to handle our production, mixing, fermentation, bottling, and labelling

needs. The mead consultant will handle interacting with Spirit Tree to adjust

fermentations appropriately throughout their life.

Labourers / Brew-helpers: These employees handle the unskilled work integral to

brewing. It is inadvisable to pay the mead consultant for these tasks. They

include: setting up, using, cleaning and monitoring pumps, filters, cooling

systems, tanks, mixers and the general floor space. A job description is shown in

Appendices (Page 58)

Lewis/Marcus: This position in the organizational structure will serve as the

president/owner. We will handle the majority of administrative, purchasing, HR,

legal, bookkeeping, and other related tasks for the foreseeable future.


Work Flow

Honeydew Meadery’s workflow is described in Figure 4. This diagram also highlights

duties that will be conducted by third parties after the meadery’s production is entirely in-

house. Raw materials will be delivered by freight shippers (smaller, locally sourced materials

will be picked up personally if feasible). Product pick-up is handled by the LCBO. They pick

up local producers’ product and ship it to their warehouses for distribution. This significantly

cuts down on our shipping costs.

FIGURE 4 Work Flow Diagram

The in-house stages of the workflow are as follows:

1. Storage: raw materials are brought into the warehouse via the rear loading dock

(truck-height). They are unloaded with the pallet truck and stored within the staging

area.

2. Mixing: raw materials (honey) and water are transferred into the mixing tank. The

gear-motor is then turned on and the materials are blended for a specified time based

on the recipe. Honey and water is gradually added. After this, dried yeast (type

specified in recipe) is warmed in a large pot over a conventional heater to 100oF in a

water and honey solution. This activates the yeast culture. This mixture is added to


the mixing tank and mixed in with the honey and water mixture. The mix is allowed

to rest for a time (recipe-specific).

3. Cleaning/Transfer: This process takes place between every transfer. The destination

tank is first cleaned with a water + sulfite solution using a pressure washer and scrub

brushes. The solution is drained via an outlet vale on the conical bottom of the tank

using a regular pipefitting. It is allowed to air-dry. The product is pumped from the

original tank into the new tank.

4. Fermentation: This is a process of waiting and measuring. Measurements are taken

for target gravity and ABV readings, use of cell-analyzers to see sugar content etc.

Adjustment in the form of adding or diluting ingredients takes place here. During the

fermentation process, glycol systems are used to pump a cooled water/glycol fluid

throughout the tank’s cooling jackets to control the temperature of fermentations.

5. Bulk-Racking 1 & 2: After 50 days of fermentation, the mixture is pumped using the

Noryl-plate filter arrangement and 317GPH pump, into a holding tank which is a

simple, water + sulfite cleaned, 1100 gallon polypropylene tank. The steel tank is

water and sulfite cleaned, air-dried, then the product is pumped using the 1200GPH

Gorman Rupp pump back into its tank, for a bulk-aging and possible secondary

fermentation (which is the addition of new sugars and/or yeast(s)). Again, the

cleaning/transfer process applies between these stages.

6. Bottling: When the product has finished its bulk-racking it is pumped using the noryl-

plate-pump and filter arrangement into the bottle-filling spouts. Bottles are filled with

product here. Each filled bottle is corked using the manual floor-standing corker. We

are considering using melted bees-wax in place of standard bottle-wax to add a

premium-product feel to our bottles.

7. Labelling: Each bottle is placed on the labelling machine and labelled.

8. Storage: Bottles are transferred into cases and sealed for storage then pick-up.

*It is important to mention that our 1100 gallon fermenters will produce 4,600 bottles of

finished product due to the volume of later-disposed, filtered-out ingredients and slight

spillage allowances*

Rolling vs. Bulk Fermentation

We plan to implement a “rolling” fermentation production versus lateral “bulk”

fermentation. This means we will begin fermentation in one vat, on day 1 and 50 days later

begin another. This way, when production reaches full-capacity (after 150 days) we will

produce 4,600 bottles of product every 50 days for release, instead of 13,800 bottles every

150 days, with 2.34 production cycles annually. We have chosen this for three reasons. First,

we significantly reduce our monthly labour requirements by spreading them out over the

year. Second, we mitigate the risk of batch-spoilage in the case of contaminated ingredients.

Third, we have far lower storage requirements due to fewer bottles and materials in storage at

any given time. Since we are already purchasing pallet quantities, our volume discounts for


purchase are not affected by using this method. It is important to mention these calculations

are all based on our at-launch capacity, having 3 fermenters.

Production Scalability

The facility we have chosen at 130 Frobisher Drive (Appendix, P.66-68) has the ability to

scale from three fermenters to nine fermenters, based on our factory floor layout (Figure 7,

Page 26). On average, we will produce 4,600 bottles of product every 150 days for each

fermenter we own. For simplicity and the allowance of delays, we refer to this as 2 and 1/3

production runs annually. Our capacity at outset is therefore 3 x 4,600 bottles x 2.3 which is

33,300 bottles annually, or 11,100 bottles per fermenter.

To expand our facility by one more fermenter, we would need to purchase: one glycol

cooling system and one fermentation tank. The cost of these two items, including shipping is

$9,300 (based on our capital equipment purchase table, (Table 27, Page 63) and a shipping

estimate). The majority of equipment purchases are overhead equipment that is used to

support the fermentation process (such as measurement tools, operations equipment,

materials processing equipment, and cleaning supplies). Therefore, to expand from our initial

capacity of 33,300 bottles annually (3 fermenters) to a maximum capacity of 99,900 bottles

annually (9 fermenters) at 130 Frobisher Drive we will incur capital costs of $55,800. To

expand beyond 99,900 bottles annually would require a new, larger facility or second facility.

Advisory Board

Honeydew Meadery’s advisory board is based on available connections the entrepreneurs

currently have as well as whom they intend, or hope to, bring on in the future. The

connections Lewis would like to bring on board are:

David Pawlett: long-time family friend and the accountant of UCEL, David is a CGA.

Mark Corbo: a friend of Lewis’s, Mark has a degree in wine-tasting and is an avid

hobbyist who makes, and tastes, wine.

Matthew Myers: a long-time friend of Lewis’s, Matthew has experience making mead

for over four years and has produced 40-50 recipes himself.

Matty Turner: a friend of Lewis’s girlfriend, Matty has a degree in oenology and

viticulture from Brock University and diplomas from Niagara College and the

Foreigner’s University of Sienna in Bologna, Italy. He has experience as a winemaker

in New Zealand, B.C. and Australia.

Julian Morana: Julian is a friend of Lewis’s that operates a small-cask beer brewery

called “Cask Days” who serve their beer at Toronto’s BarVolo. He also operates

Keep6 Imports, a beer importation company.

Marcus would like to bring the following connection on board:

Daniel Hernden: Daniel is a friend of Marcus’s who is currently a marketing

professional at Young and Rubicam. He will be able to provide valuable expertise on

the branding and marketing of products.


We feel that the addition of someone with the following characteristics after our third

year of operations would be beneficial:

Mead Consultant: A person with thorough technical and scientific understanding of

the mead fermentation process.

Human Resources Budget

Details of the time required for each process on a monthly basis are listed in Labour

Commitments figures 5 and 6. They display labour hour commitments over a standard year

with production outsourced and production in-house. We felt it was best to highlight hourly

commitments as we plan to avoid salaried employees for quite some time.

The hourly commitments described in Figure 6 are based on several factors. First, we are

planning on using three fermenters and rotating between fermentation and bulk-racking every

50 days (7.3 times annually). Second, our filtration system’s pump runs at 317 gallons per

hour maximum, which indicates a three hour, 25 minute pump time per filtered transfer

(three filtered transfers required per 50-day period, because we have three vats). Each

fermentation requires one un-filtered transfer, at 1,200 gallons per hour, which will take 55

minutes (a total of four hours, twenty minutes pumping). For this reason, we’ve allotted ten

hours (two people, five hours) per 50-day period, per vat.

Budget commitments for Honeydew Meadery’s human resources will escalate over time.

Prior to a capacity of over 99,900 bottles annually (triple our initial setup) we will not be

hiring full-time employees and will conduct the labour and operations ourselves. We do not

expect to reach this production within our first three years of operation, as our initial setup is

for 33,300 bottles annually. Our strategy is to focus on low-capital intensity forms of

operation in the company’s infancy. This includes many sales-commission and variable-cost

type arrangements, such as outsourcing and sales-agency contracts. During the first three

years, labour costs will be zero as the two owners, Lewis and Marcus, will handle tasks, this

is because we can have full-time jobs during this period and still run the meadery. The

fermentation of mead is a very low labour-intense process as it is primarily a waiting game.

We expect our labour commitments to scale almost directly with the number of fermenters

we have.

FIGURE 5

TASK Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Selection of Materials 20 4 4

Delivery of Materials 8 8 8

Pick-up of Finished Goods 16 16

Administration 8 8 8 8 8 8 8 8 8 8 8 8

Social-media Marketing 4 4 4 4 4 4 4 4 4 4 4 4

TOTAL 32 20 12 12 12 16 36 12 12 12 16 36

Hour Commitment of Labour when Outsourcing (annual, in hours)


FIGURE 6

TASK Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

Selection of Materials 2 2 2

Delivery of Materials 4 4 4

Prep and Mixing 4 4 4 4

Initial Fermentation 10 10 10 10

Bi-Weekly Measure 4 4 4 4 4 4 4 4 4 4 4 4

Bulk-Rack and Transfer 20 20 20 20

Bottle & Label 4 4 4 4

Administration 8 8 8 8 8 8 8 8 8 8 8 8

Social-media Marketing 4 4 4 4 4 4 4 4 4 4 4 4

TOTAL 54 16 22 54 16 16 22 54 16 22 54 16

Hour Commitment of Labour when In-House (in hours)

PROPERTY SELECTION

Place of Operation & Location

Scouring real-estate databases for commercial properties enabling brew on premise

resulted in finding an ideal property. 130 Frobisher Drive, Unit 9-10, in Waterloo Ontario is

displayed in the Appendices (Page 66-68).

The property is 4,758ft2

with a 600ft2

2-floor office in front. The zoning for this property

is listed as Industrial I-2. Section 23B of the City of Waterloo’s Zoning Bylaw Document,

1418_I2 (Appendices, Page 60) shows that this zoning permits brewing on premise

establishments and the manufacture of beverages. The Lease rate of this property is listed as

$5.65 per ft2

which translates to a monthly payment of $2,240.23. The property also has a

600 volt, 100 amp electrical service, which is more than sufficient to run our several 230 volt

pumps, air compressor, and glycol systems. A ceiling height of 13’8” (at the joists, not full

ceiling) is sufficient to fit our fermentation tanks, which are 2.7 meters tall (8’10”). In

addition, the loading bay has a 10’ clearance, which means our tanks can be brought in

upright and installed upright. The loading bay will also facilitate materials delivery and pick-

up, so we may use a pump-truck to load/unload instead of needing a forklift with certified

operator. The location is right beside an arterial highway and the location in Waterloo locates

us within one hour of many apiaries and honey wholesale locations (such as the Kingsburgh

Apiaries (30 minutes), and Oxford Honey and Supplies (50 minutes)).

Analysis of Operations and Planogram

An industrial floor plan of the location is shown in Figure 7 using information from the

property listing and its pictures. As mentioned on the floor plan, this location allows us to

expand from our 33,300 bottle annual capacity up to 99,900 bottle annual capacity by


introducing up to 6 more 1,100 gallon fermentation tanks. The layout designed is a process-

line layout, which is meant to enhance ease-of-use for the mixing tank and staging area.

We found this location to be suitable, since we don’t require close proximity to our target

market. Proximity to our suppliers, favourable lease rates, appropriate infrastructure and a

flexible space are more important factors. The 1st floor of the office will be designed as a

tasting-room. Labour force requirements in the future are limited to those with some brewing

experience or general labour – so Waterloo will serve adequately for that purpose. Our

competitors are located two hours west past London, and two competitors are located just

two hours east of Hamilton. The location has adequate parking for our small staff.

FIGURE 7 Industrial Floor Plan

REGULATIONS AND LICENSING

Municipal

Operating within any municipality requires adherence to local law. Our property selection

at 130 Frobisher Drive in Waterloo, Ontario, permits brew on premise operations and the

manufacturing of beverages. For this reason, we are cleared with municipal legislation.

Provincial

The provincial body for the regulation of manufacturing and sale of alcohol products in

Ontario is the Alcohol and Gaming Commission of Ontario (AGCO). The first license we


must apply for is the “Manufacturer of Wine – New application (two years)” which costs

$1,260 (Alcohol and Gaming Commission of Ontario, 2014). This license will permit us to

manufacture wine and sell it to the LCBO or a manufacturer representative (such as the

Pillitteri International Wine Agency). The manufacturer’s license also permits us to give free

sample of products to patrons while they are indoors at our manufacturing site (Alcohol and

Gaming Commission of Ontario, 2013)

The second license we will pursue is the “Manufacturer’s Limited Liquor Sales License

Application” which permits us to sell wine in glass-quantities of 5 oz on our production

premises, indoors (Alcohol and Gaming Commission of Ontario, 2013). The bi-annual cost

of this license is $450. Every employee (2) who serves products under this license will

require a “smartserve” license, which is a 4-hour course costing a one-time fee of $35

(SmartServe.ca, 2014).

The third license we will need to seek on sporadic occasions from the AGCO, is the

“Special Occasion Permit” for sales. This will be sought whenever we choose to host a

publicized tasting event in a different locality other than our premises. It costs $75 (AGCO,

2014).

The taxes and duties levied by the LCBO on each case of product are listed in Table 11

(Page 32). These are variable costs incurred with the sale of product.

Federal

In Canada, prior to 2006, every wine product was taxed per liter. As of July 1, 2006 any

wine-producer who produces wine from 100% Canadian products is exempt from the $0.62

per liter excise duty (Department of Finance Canada, 2014). Since our product will be made

from 100% Canadian materials, we are exempt from taxation under the federal excise duty

on wine.

In total, we will spend $1,780 at the outset to be certified and $1,710 every 2 years for

renewal.

TEAM

Lewis Clarke

Lewis brings a wealth of knowledge about mead making and Ontario small business to the

table. He has created over 750 bottles of mead using thirty different recipes. He has

experience using advanced fermentation techniques and processes including: temperature-

control, ebuliometer-use, colouring analysis, yeast nutrient & energizing and clarification

ingredients. His experience within SME’s is in a 40-employee, multi-faceted company, with

international sales, SRED, inter-provincial work, a production facility and multiple Toronto

field-crew operations. He has experience handling international and domestic imports and

exports, as well as logistics/operations networks, shipping & receiving, inventory

management, and freight. Lewis also has experience negotiating high-value contracts with


government organizations, successful social-media marketing and general full-service

knowledge in running an Ontario SME. A full resume can be found in Appendices (Page 61)

Marcus Aurelius

Marcus has over five years of experience in sales and managing an online store at

Manafest Productions. He also gained experience in project management while working at

Lategig Productions. He will be graduating with a Bachelor of Commerce from Ryerson

University shortly in May 2014. His skills in planning and project management will be a

valuable asset to Honeydew Meadery. A full resume can be found in Appendices (Page 62)

The Pillitteri Estate Agency

The Pillitteri Estate Agency has nearly twenty years of experience working with the

LCBO. They have the connections and relationships that are necessary to get products on

LBCO’s shelves. Their extensive industry knowledge will be extremely valuable to

Honeydew Meadery. More information about Pillitteri Estate Agency can be found at

www.pillitteri.com.

The Spirit Tree Estate Cidery

Spirit Tree is a brewer of high quality alcoholic beverages, located in Caledon, Ontario

(about an hour northwest of Toronto). They will serve as our contract manufacturer. They

have high quality equipment and the necessary expertise to meet our high quality standards.

More information about Spirit Tree Estate Cidery can be found at www.spirittreecider.com

LEGAL STRUCTURE

Honeydew Meadery has the option of operating either as a partnership or as a corporation.

Incorporation is more costly than a partnership and has more onerous regulations that must

be abided by, but it offers the added benefit of limited liability. It creates a legal entity that is

separate from the owners of the business. As owners of the business we believe it is

necessary to shield our personal assets from any liabilities or judgments against the business.

It is a way to manage risk. For these reasons, Honeydew Meadery will be incorporated

immediately upon starting the business.

Articles of incorporation can be found in the Appendices (Pages 69-74).

http://www.pillitteri.com/

http://www.spirittreecider.com/


CRITICAL RISKS

We have identified three critical risks that Honeydew Meadery faces.

The first and most paramount critical risk is that our products are not accepted by the

LCBO. The most concerning part of the LCBO’s supplier selection program is their

requirements for filling orders accurately and on time, as well as ensuring consistent product

quality. We believe that this risk can be mitigated by our rolling inventory program, which

allows us to better fill orders in the short-term, as well as by producing more than is needed

for the period. However, this remains a risk.

The second risk is that we are unable to secure loan financing from the business

development bank of Canada or a similarly advantageous lender. If we are unable to secure

this financing we may have to continue outsourcing product for some years to build capital

prior to launching a mead production facility. It may be possible to mitigate this risk by

securing larger start-up funding from the founder’s friends and family, in the process

lowering our reliance on third party lenders.

The third critical risk is the inherent risk of spoiled batches. If a batch of our product

becomes spoiled through mold or contaminated ingredients in the infancy of the company,

our production volume will suffer significantly, as will our revenue. This may have financial

implications resulting in the need for extended lines of credit or loans. We believe this risk

can be mitigated by having an advisor or consultant with thorough experience in monitoring

and controlling commercial fermentations.


FINANCIAL ANALYSIS

Raw Material Costs

The following table shows raw material costs for both the Cyser product that will be

introduced at the start of the business and the Dry Mead that will be introduced in year two.

These raw material costs are used throughout the following analysis.

TABLE 8 Raw Materials Cost (Per 750ml Bottle)

Material Cyser Dry Mead

Honey 0.842 0.842

Apple/Pear Pomace 0.204 0.000

Yeast 0.047 0.047

Diammonium Phosphate 0.001 0.001

Water 0.002 0.002

Glass Bottle 0.300 0.300

Cork 0.090 0.090

Label 0.250 0.250

Total Raw Materials Cost 1.74 1.53

In-House vs. Outsourcing Production

Honeydew Meadery has two options to produce products. We can produce the recipe and

outsource the production, or we can produce the recipe and manufacture it ourselves.

Outsourcing production has the benefit of lowering fixed costs but it increases variable costs

per unit. There is also a certain amount of control that is lost when outsourcing. The

following chart shows the cost per bottle for our Cyser product at different levels of

production. The break-even between outsourcing and manufacturing the product ourselves is

15,448 bottles or $107,363 in sales. Below this number, outsourcing is more cost effective,

and above this number, manufacturing in-house is more cost effective. Outsourcing to Spirit

Tree Cidery costs $2.25 per bottle plus the cost of materials, and has a minimum order

quantity of 1000 Gallons (approx. 4500 bottles). The detailed tables that this chart is derived

from can be found in the Tables 28 and 29 (Appendices, Page 64)


TABLE 9

If is forecast that in year two, we will surpass the breakeven of 15,448 bottles. Assuming

that sales forecasts are met, we will be opening a production facility the beginning of year

two that will have an annual production capacity of 33,300 bottles per year. By starting off

outsourcing all production, it also allows us to reduce our risk. It allows us to test the market

response to the product before investing significant amounts of capital in a production

facility.

Distribution Margin Analysis

The following chart shows prices and mark-ups for Honeydew Meadery and our primary

distribution channel LCBO. This table assumes all in-house manufacturing. Only direct

variable costs are included in “Our Cost” (including raw materials and shipping). As can be

seen from the relatively low variable production cost and high markup, many of the

production costs are fixed costs.

TABLE 10 Prices and Mark-ups

Our Cost Our Price Retail (LCBO)

Price $1.76 $6.96 $14.94

Mark-up 295.5% *Refer to Table 11

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Co

st P

er

Bo

ttle

Annual Volume (Bottles)

In-House vs. Outsourcing

In-House

Outsourced


The following table shows the various taxes and markup that are applied by the LCBO to

get to the final retail price. Both the Cyser and Dry Mead will retail for $14.94 (including

tax).

TABLE 11 LCBO Mark-up and Tax Model

Bottle Size (L) 0.75 Flat Tax ($/L) 1.62 Levy Rate ($/L) 0.29 LCBO Markup 65.5% Enviro tax ($/Bottle) 0.09 H.S.T. Rate 13.0% Container Deposit Rate 0.20

Supplier Quote (Our Price) 6.96

Duty + Excise 0.00 Standard Freight 0.00

Landed Cost 6.96 LCBO Mark Up 4.56 Flat Tax 1.22 Levy 0.22 Enviro-tax 0.09

Retail Price 13.04 H.S.T. 1.70 Deposit 0.20

Final Retail Price 14.94 Source: LCBO (2010)


Break-Even Analysis

The following table shows the breakeven in volume and dollar sales for two different

scenarios. The first scenario is production entirely outsourced, and the second scenario is

production entirely performed in-house. When outsourcing we must sell 1754 bottles to

break-even and when manufacturing in-house we must sell 10,791 bottles to break-even.

TABLE 12

BREAK-EVEN ANALYSIS Outsourced In-House

Variable Cost (per bottle) Raw Materials 1.74 1.74

Outsourced Manufacturer Costs 2.25 0.00

Agent Fees 0.696 0.696

Marketing 1.044 1.044

Shipping and Handling 0.05 0.02

Total Variable Cost (per bottle) 5.78 3.50

Annual Fixed Cost

Rent 0 26883

Utilities 0 3600

Insurance 1800 3000

Travel 270 270

Equipment Depreciation 0 3588

Salaries 0 0

Miscellaneous Expenses 532 532

Total Annual Fixed Costs 2070 37340

Selling Price/Unit 6.96 6.96

Contribution Margin/Unit 1.18 3.46

Break-even Volume (Bottles) 1754 10791

Break-even Sales $12,209 $75,103

Capital Structure

Stage One: Outsourcing

In the first stage of the business, all production is outsourced to Spirit Tree Estate Cidery.

For this reason, capital expenditures are lower in this stage. This serves to reduce risk and

test market demand before moving on to stage two. Fixed costs are lower because we will be

making use of our garages for storage, and we will not be taking salaries until the business is

more developed.

This stage requires an initial equity investment of $22,000 in working capital. This

number was calculated by forecasting the future cash flows to determine how much working

capital is required to maintain a positive bank balance. Marcus and Lewis will finance this

using personal savings. They will each invest $11,000 in return for a 50% stake in the

business.


Stage Two: In-House Production Facility

Assuming that sales forecasts are met, the company will open a production facility at the

beginning of year two. This will require an investment of $53,816 in equipment purchases

and $31,184 in additional working capital, for a total of $85,000. For a detailed breakdown of

equipment costs, please refer to Table 27 (Appendices, Page 63). The reason there is a large

amount of working capital required is because there are five months of brewing time before

the facility produces any finished goods. Based on current forecasts, a short-term loan of

$7,000 for one month will be required in year 2-month 7 in order to avoid cash flow issues.

The $85,000 investment in equipment and working capital will be financed by $42,000 of

debt and $43,000 of equity. The debt will be financed by a bank. The brewing equipment has

a very long life span and will be used to secure the debt. The $43,000 equity investment will

be provided by wealthy family members related to Lewis, in exchange for a portion of the

company (to be negotiated). The following table provides a summary of the capital required

and where it will come from.

TABLE 13 Capital Structure Summary

Date Required Amount Type Source

Year 1-Month 1 $22,000 Equity Marcus and Lewis

Year 2-Month 1 $42,000 Long-term Loan Bank

Year 2-Month 1 $43,000 Equity Family

Year 2-Month 7 $7,000 Short-term Loan Bank


PRO-FORMA FINANCIAL STATEMENTS

Cash Flow Statements

The following forecasted drivers have been used to determine the values in the pro-forma

financial statements.

DRIVERS

Product

Cyser: Price 6.96

Cyser: Raw Materials Cost 1.74

Dry Mead: Price 6.96

Dry Mead: Raw Materials Cost 1.53

Accounts Receivable Aging

Cash Sales 0%

Payments Received After 1 Month 75%

Payments Received After 2 Months 20%

Payments Received After 3 Months 5%

Accounts Payable Aging

Payments made within 1 Month 100%

Other

Equipment Depreciation 15 Year (straight

line)

Borrowing Interest Rate 6.0%

Tax rate 15.5%

Avg. Monthly Travel ($0.45/km) 50km

Initial Startup Fees

Articles of Incorporation filing fee 200.00

NUANS name search report 75.00

Ongoing Expenses

Monthly:

Business Bank Account 17.00

Quickbooks Online 9.00

Annual:

Tax Return (Turbotax) 200.00

Annual Return Filing 20.00

Notes

There are two products; the Cyser and the Dry Mead. The Cyser will be launched

immediately and the Dry Mead is expected to launch around the middle of year two.

It is assumed that we will claim the Small Business Deduction for Canadian controlled

private corporations, giving us a lower tax rate of 15.5% (Canada Revenue Agency, 2014).

There is an additional $6000 marketing expense in Year 2-Month 1, which is allocated to

convert an office room into a mead tasting room at our Waterloo manufacturing facility.

It is important to keep in mind that brewing time is five months. For this reason, many cash

transactions are offset five months prior to an activity (ie. Raw materials purchased five

months before finished inventory added)


Year 1 - Drivers Prior to each Cash Flow Statement there is the following table of monthly drivers. These include the forecasts and calculations of sales, inventory, and labor, which the financial statements are derived from.

Period Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month

10 Month

11 Month

12 Year 1 Total

DRIVERS (Year 1 Monthly)

Income

Cyser: Units Sold 1500 2000 2000 5500

Cyser: Sales 0 0 0 0 0 0 10440 0 13920 0 13920 0 38280

Dry Mead: Units Sold 0

Dry Mead: Sales 0 0 0 0 0 0 0 0 0 0 0 0 0

Total Sales 0 0 0 0 0 0 10440 0 13920 0 13920 0 38280

Inventory

Cyser: Finished Inventory Added (Outsourced) 4500 4500 9000

Cyser: Finished Inventory Added (In-House) 0

Cyser: Inventory Level 0 0 0 0 4500 3000 3000 1000 5500 3500 3500

Dry Mead: Finished Inventory Added (Outsourced) 0

Dry Mead: Finished Inventory Added (In-House) 0

Dry Mead: Inventory Level 0 0 0 0 0 0 0 0 0 0 0


Year 1 – Cash Flow Statement


10 Month

11 Month

12 Year 1 Total

CASH FLOW STATEMENT (Year 1 Monthly)

Sales 0 0 0 0 0 0 10440 0 13920 0 13920 0 38280

Cash In-Flow

Cash Sales 0 0 0 0 0 0 0 0 0 0 0 0 0

Payments Rec. After 1 m 0 0 0 0 0 0 0 7830 0 10440 0 10440 28710



Other Cash Received 0 0 0 0 0 0 0 0 0 0 0 0 0

Loan Received 0 0 0 0 0 0 0 0 0 0 0 0 0

Investment 22000 0 0 0 0 0 0 0 0 0 0 0 22000

Total Cash In-Flow 22000 0 0 0 0 0 0 7830 2088 10962 2784 11136 56800

OPENING Cash Balance 0 19747 19548 19350 19151 18953 18457 304 6752 8033 16903 755 0

Cash Out-Flow

Equipment Purchased 0 0 0 0 0 0 0 0 0 0 0 0 0

Outsourced Manufacturer Costs 0 0 0 0 0 0 10125 0 0 0 10125 0 20250

Raw Materials Purchased 0 0 0 0 0 0 7830 0 0 0 7830 0 15660

Rent Paid 0 0 0 0 0 0 0 0 0 0 0 0 0

Utilities Paid 0 0 0 0 0 0 0 0 0 0 0 0 0

Salaries 0 0 0 0 0 0 0 0 0 0 0 0 0

Shipping and Handling 0 0 0 0 0 297 0 0 0 297 0 0 594

Insurance 150 150 150 150 150 150 150 150 150 150 150 150 1800

Agent fees 0 0 0 0 0 0 0 783 209 1096 278 1114 3480

Marketing 0 0 0 0 0 0 0 400 400 500 500 600 2400

Travel 23 23 23 23 23 23 23 23 23 23 23 23 270

Gov. Licensing Fees 1780 0 0 0 0 0 0 0 0 0 0 0 1780

Taxes Paid 0 0 0 0 0 0 0 0 0 0 0 0 0

Loan Payments 0 0 0 0 0 0 0 0 0 0 0 0 0

Miscellaneous Expenses 301 26 26 26 26 26 26 26 26 26 26 26 587

Total Cash Out-Flow 2254 199 199 199 199 496 18154 1382 807 2092 18932 1912 46821

CLOSING Cash Balance 19747 19548 19350 19151 18953 18457 304 6752 8033 16903 755 9979 9979


Year 2 - Drivers


10 Month

11 Month

12 Year 2 Total


Income

Cyser: Units Sold 3000 3100 3200 3300 3400 3500 19500

Cyser: Sales 20880 0 21576 0 22272 0 22968 0 23664 0 24360 0 135720

Dry Mead: Units Sold 2000 2100 2200 6300

Dry Mead: Sales 0 0 0 0 0 0 13920 0 14616 0 15312 0 43848

Total Sales 20880 0 21576 0 22272 0 36888 0 38280 0 39672 0 179568

Inventory

Cyser: Finished Inventory Added (Outsourced) 4500 4500 4500 13500

Cyser: Finished Inventory Added (In-House) 4600 4600

Cyser: Inventory Level 500 5000 1900 6400 3200 7700 4400 4400 5600 5600 2100 2100


Dry Mead: Finished Inventory Added (In-House) 4700 4700 9400

Dry Mead: Inventory Level 0 0 0 0 0 0 2700 2700 600 600 3100 3100




10 Month

11 Month

12 Year 2 Total


Sales 20880 0 21576 0 22272 0 36888 0 38280 0 39672 0 179568

Cash In-Flow

Cash Sales 0 0 0 0 0 0 0 0 0 0 0 0 0





Loan Received 42000 0 0 0 0 0 7000 0 0 0 0 0 49000

Investment 43000 0 0 0 0 0 0 0 0 0 0 0 43000



Cash Out-Flow




Rent Paid 0 2240 2240 2240 2240 2240 2240 2240 2240 2240 2240 2240 24643

Utilities Paid 0 300 300 300 300 300 300 300 300 300 300 300 3300

Salaries 0 0 0 0 0 0 0 0 0 0 0 0 0

Shipping 0 297 0 297 0 297 0 90 0 90 0 90 1161

Insurance 150 250 250 250 250 250 250 250 250 250 250 250 2900

Agent fees 278 1636 418 1723 432 1778 445 2878 738 3055 766 3167 17313

Marketing 6500 500 500 600 600 700 700 800 800 1000 1000 1000 14700

Travel 23 23 23 23 23 23 23 23 23 23 23 23 270


Taxes Paid 0 0 0 0 0 0 0 0 0 0 0 0 0

Loan Payments 466 466 466 466 466 466 466 7466 466 466 466 466 12595





Year 3 - Drivers


10 Month

11 Month

12 Year 3 Total


Income

Cyser: Units Sold 3600 3700 3800 3900 4000 4100 23100

Cyser: Sales 25056 0 25752 0 26448 0 27144 0 27840 0 28536 0 160776

Dry Mead: Units Sold 2300 2400 2500 2600 2700 2800 15300

Dry Mead: Sales 16008 0 16704 0 17400 0 18096 0 18792 0 19488 0 106488

Total Sales 41064 0 42456 0 43848 0 45240 0 46632 0 48024 0 267264

Inventory

Cyser: Finished Inventory Added (Outsourced) 4500 4500 9000

Cyser: Finished Inventory Added (In-House) 4600 4600 4600 13800

Cyser: Inventory Level 3100 3100 3900 3900 4700 4700 800 800 1300 5900 1800 1800


Dry Mead: Finished Inventory Added (In-House) 4700 4700 4700 4700 18800

Dry Mead: Inventory Level 800 800 3100 3100 600 600 2700 2700 4700 4700 1900 6600




10 Month

11 Month

12 Year 3 Total


Sales 41064 0 42456 0 43848 0 45240 0 46632 0 48024 0 267264

Cash In-Flow

Cash Sales 0 0 0 0 0 0 0 0 0 0 0 0 0





Loan Received 0 0 0 0 0 0 0 0 0 0 0 0 0

Investment 0 0 0 0 0 0 0 0 0 0 0 0 0



Cash Out-Flow




Rent Paid 2240 2240 2240 2240 2240 2240 2240 2240 2240 2240 2240 2240 26883

Utilities Paid 300 300 300 300 300 300 300 300 300 300 300 300 3600

Salaries 0 0 0 0 0 0 0 0 0 0 0 0 0

Shipping 0 90 297 90 90 0 90 90 90 90 0 90 1017

Insurance 250 250 250 250 250 250 250 250 250 250 250 250 3000

Agent fees 793 3278 821 3390 849 3501 877 3612 905 3724 933 3835 26518

Marketing 1200 1200 1400 1400 1600 1600 1800 1800 2000 2000 2200 2200 20400

Travel 23 23 23 23 23 23 23 23 23 23 23 23 270


Taxes Paid 0 0 0 3547 0 0 0 0 0 0 0 0 3547

Loan Payments 466 466 466 466 466 466 466 466 466 466 466 466 5595





Income Statement

Period Year 1 Year 2 Year 3

INCOME STATEMENT

Sales

Sales from Cyser 38280 135720 160776

Sales from Dry Mead 0 43848 106488

Total Sales 38280 179568 267264

Cost of Goods Sold 30414 75105 84870

Gross Profit 7866 104463 182394

Operating Expenses

Rent 0 24643 26883

Utilities 0 3300 3600

Equipment Depreciation 0 3289 3588

Insurance 1800 2900 3000

Agent fees 3828 17957 26726

Marketing 5742 26935 40090

Travel 270 270 270

Gov. Licensing Fees 1780 0 1710

Miscellaneous Expenses 587 532 532

Total Opertaing Expenses 11640 79293 104156

EBIT (3774) 25170 78238

Interest Expense 0 2288 2256

Income Before Tax (3774) 22881 75982

Tax Expense 0 3547 11777

NET INCOME (3774) 19335 64205


Balance Sheet

Period Ending Year 1 Year 2 Year 3

BALANCE SHEET

Assets

Current Assets

Cash and Equivalents 9979 52433 136332

Accounts Receivable 3480 9918 12006

Inventory 10150 15080 24360

Total Current Assets 23609 77431 172698

Fixed Assets

Equipment 0 50527 46940

Total Fixed Assets 0 50527 46940

Total Assets 23609 127958 219637

Liabilities

Current Liabilities

Accounts Payable 0 8004 7830

Short-Term Loans Payable 0 0 0

Taxes Payable 0 3547 11777

Total Current Liabilities 0 11551 19607

Long-Term Liabilities

Long-Term Loans Payable 0 39109 35770

Total Long-Term Liabilities 0 39109 35770

Total Liabilities 0 50660 55377

Owner's Equity

Capital Investment 22000 65000 65000

Retained Earnings 1609 12298 99260

Total Owner's Equity 23609 77298 164260


EXIT STRATEGY

Contingency Strategy

In the event of a failure of Honeydew Meadery, our contingency exit strategy has two

indicators. The first is the possibility that the meadery will become a notorious “zombie start-

up” (Morrill, 2013) with relative stagnation. The second is the possibility that the meadery is

a complete failure.

The Zombie Start-up

In the event that the Meadery is not able to grow revenues at a pace of over 30% or more

per year in its first 3-6 years, we believe this exit strategy must be utilized. Our first strategy

in this case is to look for a buyer of the facility and brand. It may be probable that this new

buyer will need to conduct a leveraged buy-out in this scenario. This is because it is unlikely

that an acquisition-focused corporation would buy that type of company. It would more

likely be a person in the brewing industry, interested in their own venture. Since the revenue

growth will be positive and the business will generally appear to be in good standing, we

believe the offer would be attractive for a modest buy-out, which would recover initial

investments and a small sum above that. The alternative to seeking a buyer will be a

divesture of equipment, explained below.

The Failure

We will consider the venture a failure if in year three to four, the cash flow does not turn

positive. We would be operating at a financial loss. In this case, the equipment and any

materials are to be divested at the highest price possible, first and foremost to cover loans

taken out by Honeydew Meadery. An analysis of, “Used Stainless Steel Fermenter” on eBay

(2014), as well as the Mountain Meadows Mead Equipment sale (2014), shows that three to

four year old fermentation equipment is sold at roughly 80% of its initial value. This applies

to all equipment in the capital purchases list in Table 27 (Appendices, Page 63).

The first step would be to remove all equipment from the meadery and load it onto an

enclosed trailer, to be stored on a property owned by Lewis’s family. Freight cost would be

roughly $900. Of the capital purchases made, the shipping costs and cost of filter pads will

not be recovered. Therefore we would be selling equipment with an initial value of

$48,689.46. We would expect to recover 75-80% of that, which is approximately $36,500 to

$39,000. This should cover the principal payments and penalty to close the loan. It is unlikely

any of the original investment will be recovered.


Financial Harvest Strategy

Industry Norms

In the alcohol industry, acquisitions are very common. 33% of the market share in the

wine and spirits industry is controlled by the top five firms, indicating immense consolidation

in the USA (Barnes, 2002). A recent article in the Vancouver Sun by Clementine Fletcher

(2014), mentioned that “Less than a month into 2014, big beverage companies have already

spent almost three times as much buying competitors as they did all last year” and “It’s a

sector where mergers and acquisitions makes sense”. Table 30 (Appendices, Page 65) from a

study by Carew & Fjorkowski (2012) shows a list of recent mergers and acquisitions in the

Ontario wine industry alone. However, this study does not include Andrew Peller’s 2012

acquisition of Small Winemaker’s Collection Inc. (Andrew Peller, 2012, p. 67), or

Magnotta’s 2013 acquisition of Kittling Ridge (Rideout, J., 2013). Since 2000, Diamond

Estates Wine & Spirits Ltd. has acquired the brands of Boka Wine & Spirits, Birchwood

Estate and Lakeview Cellars Estate Winery – each in the Niagara region (Diamond Estates,

2014). This information shows trends in the Ontario wine industry that justify our target

financial exit strategy.

Our Strategy

In the event that Honeydew Meadery becomes a financial success by achieving year-over-

year revenue growth of 30% or more, we will seek out interested parties for an acquisition or

merger. We believe this to be the most viable financial harvest for this venture.


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http://www.agco.on.ca/en/whatwedo/fees_alcohol.aspx

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Retrieved from website:

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0472da4e78c4db9e1d5e6.e38ObxmNahuKci0Nbxn0

Agriculture and Agri-Food Canada, (2014). Daily wholesale to retail market prices: Wholesale-toronto, Pears.

Retrieved from website:

http://www4.agr.gc.ca/IH5_Reports/faces/cognosSubmitter.jsp;jsessionid=c0a8d07830db124344e03de

0472da4e78c4db9e1d5e6.e38ObxmNahuKci0Nbxn0

Amee. (2014, April 07). Highland Wineries. Retrieved from: https://www.amee.com/companies/001726150-

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31

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APPENDICES

Mead Consumer Survey Results (Primary Research)

FIGURE 14


FIGURE 15

FIGURE 16


FIGURE 17


TABLE 18


Facebook Data-Mining Results (Primary Research)

TABLE 19

Industry Trends Charts

TABLE 20

Source: Olsen, Thach & Nowak, 2006


TABLE 21


FIGURE 22



FIGURE 23


Model of Brand Equity for Wine

FIGURE 24

Source: Lockashin and Spawton (2001)


Work Breakdown

TABLE 25

*Bulk-racking is the process of transferring the first fermentation into another fermentation vat. It is also called "secondary-fermentation". It is called "bulk"- because it is an aging process done in tanks, similar to wine in large casks.

WORK BREAKDOWN (DUTY-RESPONSIBILITIES)

ITEM OURSOURCED (Yr 1) IN-HOUSE (Yr 2-3)

PRODUCTION PROCESS

Raw Materials (ingredient, bottles, labels etc.)

Selection / purchase Lewis / Marcus Lewis / Marcus

Pickup / delivery Lewis / Marcus Labourer

Storage Spirit Tree Cidery Labourer

Mixture (in bulk-fermentation) Spirit Tree Cidery Consultant / Labourer

Disposal Spirit Tree Cidery Labourer

Fermentation (in tanks, pump-transfer etc.)

Calibration & recipe Mead Consultant (Lewis) Consultant

Ongoing measurement Spirit Tree Cidery Consultant / Labourer

Adjustment Spirit Tree Cidery Consultant / Labourer

Filtration Spirit Tree Cidery Labourer

Bulk-racking* Spirit Tree Cidery Labourer

Cleaning Spirit Tree Cidery Labourer

Bottling

Bottle selection / purchase Lewis / Marcus Lewis / Marcus

Bottle delivery Lewis / Marcus Labourer

Filtration Spirit Tree Cidery Labourer

Bottling Spirit Tree Cidery Labourer

Labelling

Label design Designer Designer

Label purchase Lewis / Marcus Lewis / Marcus

Labelling Bottles Spirit Tree Cidery Labourer

Distribution

Storage Lewis (garage) Labourer (on-site)

Pick-up / delivery Handled by LCBO Handled by the LCBO

Overhead

Sales Pillitteri Estates Agency Pillitteri Estates Agency

Administration Lewis / Marcus Lewis / Marcus


Job Description: Mead Consultant / Brew master

General Description:

Head vintner or brew master for the meadery. Candidate will possess deep technical

knowledge of the mead-making process and the preparation & follow-through of mead

recipes.

Primary Job Functions:

Required to produce recipes for marketable honey-wine products. Will decide types of

ingredients and fermentation schedule. Will be required to advise other parties and

employees of necessary adjustments to fermentations. Will be required to read and analyze

measurements of fermentations and adjust accordingly.

Required Skills: - strong understanding of the sugar-fermentation process as well as use of glycol cooling

systems and fermentation adjustments

- very strong technical and analytical skills

- interpersonal skills to communicate with brew-helpers and 3rd parties regarding

fermentations

- strong writing skills to record progress and be thorough

- Fluent English-speaking

- Organizational skills to track multiple fermentations at once, in detail

Experience:

3-5 years of experience in the mead industry in a similar position, or equivalent.

Education:

Candidate should possess a post-secondary (2+ year degree or diploma) in oenology (wine-

science), chemistry or the beer-making and malting process.

Work Status & Schedule:

Required to work 2 hours per week for first year of employment on part-time or consultancy-

contract basis. 1 trip to site per week for measurement and adjustment of fermentations.

Position will advance in requirements over time.

Travel:

Required to travel from meadery to outsource location, if required. Own transportation is an

asset.

Reporting:

Reports directly to the owners of the company.


Job Description: Brew-helper (Labor)


Assistants to the head vintner / brew master of the meadery. Responsible for heavy lifting,

cleaning, ingredient mixture and other general labour type skills.


This person will often act as an assistant to the head brew master to carry out their

recommendations. This will include the use of electronic liquid pumps, setup, use and

dismantle of filtration devices, cleaning of stainless steel tanks, lifting and pouring of

ingredients, bottling and labelling products, storing items in inventory and other associated

tasks in the brewing process. Moving items around will include the use of pump pallet-

trucks, lifting-dolly and other small lifting devices. This brew-helper will be responsible for

taking fermentation measurements and relaying them to the brew master.

Required Skills: - Capable of heavy-lifting crates from floor to waist height, then walking, weighing 10kg

or 22lbs.

- Strong technical skills to be able to follow detailed instruction of electrical equipment

- The ability to mount and climb ladders safely

- Strong vocal skills to communicate with other workers, often

- Proficiency in speaking English

Experience:

2 years’ experience in a similar role or other role in the brewing industry is an asset.

Experience within any food-processing plant or similar is an asset. Experience working in

plant-like or industrial environments with tools and in teams is required.

Education:

A high-school diploma is required for this position.


This is a part-time position of 10-15 hours per week. Over the course of 2 years this

schedule will increase to full time, 40 hours per week.

Travel:

No travel, other than to site, is required.

Reporting:

This person reports directly to the owners of the company and the head vintner


Job Description: Product Agent


This person is responsible for the sale and marketing of products to the LCBO and LCBO

store managers.


Responsible for marketing meadery products to the LCBO organization to accept the

product. Secondary responsibility is to encourage individual LCBO store managers (512 in

Ontario) to accept the product and stock in on their shelves.

Required Skills: - Strong sales skills

- Strong interpersonal skills to maintain lasting and strong relationships with customers

- Strong marketing skills to introduce effectual campaigns which will enhance the power

of the brand within the province and potentially abroad

- Strong vocal and written skills for communication and recording of sales progress and

prospecting

Experience:

3-5 years of sales experience is required. 1-2 years of experience selling products in the

brewing or wine industry is an asset. 1-2 years sales experience selling to consumers is

required.

Education:

A high school diploma is required for this position. A post-secondary diploma or degree in

sales or marketing is an asset.


This is a part-time 10-15 hour per week position which will advance into a full-time position

in 2-3 years’ time as the business grows.

Travel:

Significant travel is required for these positions. The product agent must meet with 100s of

clients in different locations around the province of Ontario annually. Own transportation is

required and will be compensated for.

Reporting:

This person reports directly to the owners of the company.


Waterloo Zoning By-law

FIGURE 26

Source: City of Waterloo


Management Resumes

OMMITTED CUZ I’M A NINJA


M A R C U S A U R E L I U S

NINJAAAAAAA


Brewing Equipment Cost Breakdown

TABLE 27

CAPITAL EQUIPMENT PURCHASE

This analysis is based on producing 5,000litres of product per Quarter, 6600 x 750ml - bottles

ITEM QTY UNIT COST TOTAL

Purchased from MoreBeerPro.com

40-Plate "MoreWine!" Noryl Filter for 0.45 micron 1 $1,560.00 $1,560.00

20x20cm 0.45Micron Filter Sheets (Pack of 100) 10 $115.00 $1,150.00

MoreBeerPro Shipping to Niagara, USA and P.O. Rental 1 $231.62 $231.62

Subtotals included due to possible negotiability with suppliers - *subtotal (no s/h) $2,941.62

Purchased from St.Pat's of Texas

1100 Gal, Z4150C, Letina Concical Bottom Tank + Jacket 3 $6,295.00 $18,885.00

1060 Gal, M2000, Letina Mixing Tank with Gearbox 1 $9,995.00 $9,995.00

Shipping to bring in Tanks from TX(Quote from Logistics 101) 1 $1,850.00 $1,850.00

subtotal (no s/h) $30,730.00

Purchased from Mountain Meadow Meadery Liquidation

7-Spout TVW Bottle Filler 1 $3,000.00 $3,000.00

Rinser-Sparger from TCW (24 bottle/min) 1 $1,800.00 $1,800.00

Labeller from Dana 1 $2,200.00 $2,200.00

Heat-Shrink Applicator 1 $400.00 $400.00

Shipping LTL from Westwood California (Logistics 101 quote) 1 $1,025.00 $1,025.00


Assorted Purchasing Locations, primarily used

Milawaukee MA871 Digital Sugar Refractometer (BRIX) 1 $101.47 $101.47

Manual pump-truck, Double-roller, 7,700lb capacity (Transarya) 1 $350.00 $350.00

Vestil Lo-Profile Drum-Caddy; 1200 lbs (northern tool) 1 $152.99 $152.99

Karcher HDS DE Hot Water Pressure Washer (4000PSI), Kijiji 1 $800.00 $800.00

TechQuip 7.5hp 220V Single Phase Air Compressor, kijiji 1 $1,500.00 $1,500.00

Portugeuse Style Manual Floor-Corker 1 $80.00 $80.00

Gorman-Rupp O-Series 2" Self-Priming Centrifugal Pump, ebay 1 $500.00 $500.00

Assorted Shipping Costs, mostly local purchase 1 $450.00 $450.00

Purchased From "MoreWine!", possibly associated with MoreBeerPro.com

Micromatic Glycol Cooling System, 115V 3 $2,150.00 $6,450.00

Speidel Motorized Apple & Pear Crusher, 220V 1 $915.00 $915.00

Shipping Glycol Cooling 1 $420.00 $420.00


TOTAL COST : $53,816.08


In-House vs. Outsourcing Detailed Charts

TABLE 28 In-House vs. Outsourcing Variable and Fixed Cost

In-House Outsourced

Variable Cost (per bottle)

Manufacturer price 0.00 2.25

Raw Materials 1.74 1.74

Shipping and Handling 0.02 0.05

Total Variable Cost (per bottle) 1.76 4.04

Annual Fixed Cost

Rent 26833 0

Equipment Depreciation 3527 0

Labour 7240 4560

Total Annual Fixed Costs 37600 4560

TABLE 29 In-House vs. Outsourcing Cost by Volume

In-House Outsourced

Annual Volume (bottles) Total Cost Per Bottle Cost Total Cost Per Bottle Cost

8000 51680 6.46

36848 4.61

9000 53440 5.94 40884 4.54

10000 55200 5.52

44920 4.49

11000 56960 5.18 48956 4.45

12000 58720 4.89

52992 4.42

13000 60480 4.65 57028 4.39

14000 62240 4.45

61064 4.36

15000 64000 4.27 65100 4.34

16000 65760 4.11

69136 4.32

17000 67520 3.97 73172 4.30

18000 69280 3.85

77208 4.29

19000 71040 3.74 81244 4.28

20000 72800 3.64

85280 4.26

21000 74560 3.55 89316 4.25

22000 76320 3.47

93352 4.24

23000 78080 3.39 97388 4.23

24000 79840 3.33

101424 4.23

25000 81600 3.26 105460 4.22

26000 83360 3.21

109496 4.21


Ontario Wine Mergers and Acquisitions

TABLE 30

Source: Carew & Fjorkowski’s (2012)

27000 85120 3.15 113532 4.20

28000 86880 3.10

117568 4.20

29000 88640 3.06 121604 4.19

30000 90400 3.01

125640 4.19

31000 92160 2.97 129676 4.18

32000 93920 2.94

133712 4.18

33000 95680 2.90 137748 4.17