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Executive Summary
This paper is a business plan for a small-scale winery that will be located in the Hudson River region of New York. The plan proposes that the business will produce about 1000 bottles of wine in the first year of operation. After five years, this plan projects that the business will produce about 4000 bottles of wine, yearly. As a special product category, vinifera wines will be the main product category of wines that the proposed business will focus on producing.
The business expects to cash in on the sale of this premium brand of wine by selling it from its tasting room. However, as the production volume increases, the business will exploit other distribution channels to increase its sales. This business proposal pegs the success of the proposed business on premium branding. Therefore, the proposed business strives to maintain a premium brand that should appeal to many wine lovers in the country.
This business strategy stems from the fact that many traditional wine lovers are deviating towards premium and quality wines. The proposed business therefore strives to capitalize on this consumer trend. Through this understanding, customers should be able to distinguish the proposed business’s products from other wineries in the region because few wineries in the Hudson River region produce vinifera premium wines.
The initial capital investment of the business will pay for a five-year lease (subject to renewal), equipment, supplies, workers, and the plant. Through the adoption of elaborate business plans, this business plan estimates that it will be easy to realize the business’s mission – to produce the best quality wines in the Hudson River and to enrich the customers’ winery experiences.
Company Summary
This business proposal seeks to introduce a wine business in the Hudson River region of eastern New York. I have chosen this business venture because of my knowledge in the wine industry, the rich history of wine making in America, and the existence of a rich wine lifestyle in the United States (US).
My experience in the wine making industry stems from my close relationship with a friend who worked as a cellar rat in a local winery. Albeit the proposed wine business will be located in the Hudson River region of New York, other wine making businesses exist in the region. Nonetheless, most of these existing wine making businesses produce wine from native varieties and other varieties that native producers have developed through the mixing of French and American wine varieties.
Most of the existing wineries have an established market, locally, but I believe there will be an increased demand of premium vinifera wines in the future. This intuition stems from previous research, which say as traditional wine consumers develop more sophisticated tastes of wine, they gravitate towards premium wines (vinifera wines are premium brand wines) (Resnick 57).
Even though this business proposal indicates the business forecast, this paper contains the initial plan and forecast of the wine business. The winery will be a limited liability company because limited liability companies safeguard the business owners from personal liability.
Moreover, by being a limited liability company, the business will be more stable than businesses that have a personal liability clause and receive favorable tax treatments. Through the limited liability structure, the highest amount of money that could be lost in this venture is the amount invested to start the business.
Start-Up Summary
The winemaking business is usually a capital-intensive business. Moreover, it takes a lot of time for such businesses to break-even. Therefore, considering the start-up expenses of the business (as described below), it would be wise to refrain from withdrawing money from the business until it is stable. The table below classifies the startup expenses for the winery.
Competitor Analysis
Similar to many traditional businesses, the wine industry is highly competitive. The industry is also highly fragmented, as many businesses either engage in the production and sale of premium quality wines or “ordinary” wines. The concept of selling products from the wine tasting rooms however limits the competitive pressure for these businesses, as external market forces seldom affect it. Therefore, most of the competition that would face the proposed business would come from other small premium wineries in the region.
An analysis of the national wine industry in America shows that competition may also come from other wineries around the country. An analysis of the number of wines in the country shows that the numbers of wineries have increased from about 1,500 in the 1980s to about 3,000 today (Smith 69).
Notably, California is home to most of these wineries. In fact, Smith (69) says that about 51% of all wineries in the US market are located in California. The high number of wineries in the region explains why California wineries account for about 90% of the national production of wines (Smith 69). Nonetheless, the expansion of wineries in the industry shows that most entrepreneurs introduce about 80 new wineries every year to the market.
Research shows that a surge in the demand for wines in the region has expanded the opportunity for local wineries to increase the volume of their products and expand their product categories in the same manner (Smith 69). The expansion of the market is equally encouraging many businesses to venture into the production of premium wines because consumption trends favor this product category.
In the premium product category, researchers affirm that many businesses may enjoy double-digit growths and improved profit margins (Resnick 57). With the expansion of the market and the entrenchment of this consumer demand, many businesses (both domestic and international) are likely to fill this market gap. The proposed winery aims to exploit this market gap before the market readjusts.
Products/Services
As earlier mentioned in this proposal, the main product category that the proposed business will produce will be premium vinifera wines. Customers will have the option of choosing either red or white wines from this product category.
Although this proposal suggests that the business should expand the products under this category (when the demand increases), some of the notable brands that the business will market under the vinifera wine categories include Pinot Noir and Cabarnet Franc. For example, the business should produce about 1000 cases of wine in the first year.
After five years, this number should increase to about 4000 cases of wine. Besides the wine bottles, the proposed company may provide the customers with supplementary wine production services like wine tasting. The main purpose of providing this service is to entice more customers to frequent the winery and sample other types of wines that they may be unfamiliar to them. The proposed business intends for this service to develop their consumer’s palate.
The business will also provide its customers with educational tours in one designated day of the week so that the customers can better understand the process of winemaking. Occasionally, the business will also host harvest parties and barbecues to offer the employees an opportunity to interact more intimately with their customers, increase the business’s customer pool, and create brand loyalty.
Market Analysis Summary
The target market for the proposed business comprise of two groups. The first group is high-end customers. Mainly, the demographics of this target market is comprised of college-educated baby boomers that have a keen eye for quality wines. The pass time for this group of customers is wining and dining, or entertaining friends over a bottle of wine.
The assumption here is that this target group also has adequate knowledge regarding wines. The second target market for the proposed business is comprised of different business groups. Wholesale distributors comprise one such group. This target market will be important for the business because the business needs a group of distributors who will sell the wines to several high-end restaurants in New York. A close relationship with restaurant managers will be important in ensuring that this marketing strategy works.
Strategy and Implementation Summary
This strategy and implementation strategy follow Philip Kotler’s (a renowned marketing guru) marketing strategy that focuses on the 4Ps of marketing – promotion, price, place, and product (Learn Marketing 1). These factors outline the framework for the evaluation of the proposed marketing strategy and implementation process
Product
White and red wines will be the main vinifera varieties produced by the proposed company. Although the initial production targets the production of about 1000 wine cases, the production of wine cases should improve as the products become more popular in the market. However, because the proposed business is a premium business, the business should expect a stagnation of wine production numbers after about five years. The business may distribute the products through a two-label strategy where the highest premium brands make up the “first label” and lower quality wines will comprise the “second label.”
The business will market a bulk of the production (about 85%) under the “second label” strategy. Conversely, the business will market about 15% of the wines produced as “first label” products. This “label” strategy will be a strategic attempt of preserving the quality and reputation of the business’s premium brands, as it provides an opportunity for the business to market lower quality brands (in a special category), while marketing premium brands in a different category as well.
Besides the two-label strategy, there will be an auxiliary packaging strategy to help popularize the products in the market. Packaging is a very important factor to consider in this marketing strategy because a product’s packaging strategy largely determines how appealing the product would be (Hein 12).
Indeed, an attractively packaged product may make the wines more exciting and appealing to the customers. After considering the importance of a good packaging strategy, several crucial factors, such as the design of the bottle, the product’s label, and the appeal of the cork, suffice as important ingredients of a successful packaging strategy.
Some researchers say that these details help to improve the customers’ consumption experiences (Soares 105). Other researchers say that a great finesse in these details helps to cement the idea that the product is of high quality. More specifically, Meyers (86) singles out the wine label as an important feature that almost automatically attracts, or repulses, customers.
Through this strong conviction that the label is highly important in the success of a wine brand’s marketing strategy, Meyers (86) adds that a wine bottle’s label is equally important to the quality of the wine (inside the bottle). Since there will be a lot of emphasis on the importance of the label in the formulation of the product plan, the proposed business will have inviting and esthetically produced labels that should represent the “premium” identity of the company.
In line with the goal of appealing to traditional wine lovers, the design of the wine bottle will follow the conventional European-styled wine bottle. The bottles will be 750 ml and will have a natural cork. The adoption of the natural cork blends well with European-styled bottles because European tradition also prefers the selection of natural corks for its complementing romance and sophisticated attributes. Besides the cork, the design of the bottle capsules will blend with the bottle packaging design.
The last element of the product strategy will be stocking 12 bottles of wines in a carbon box because this is the conventional packaging standard for most wineries.
Price
Since the proposed business is a high-end venture, the pricing strategy will equally be high-end. The premium-pricing model is an indication of the premium products sold by the company. As mentioned in earlier sections of this paper, two premium products will outline the company’s product category – Pinot Noir and Cabernet Franc.
The pricing model for the two brands categorize into two distinct sections – “first label” price and “second label” price. The “first label” price for Pinot Noir brand will retail for $22 and the “second label” retail price will retail for $15. The “first label” price for Cabernet Franc will retail for $19, while the “second label” retail price for the same product will be $12. The proposed business derives these prices after evaluating the current retail selling prices for premium wines in the market.
Research shows that most wines produced in the Hudson River region fetch low prices, as customers have started to prefer lighter and fruity blends of wine (Boehmer 108). Since vinifera wines are a complex blend of wines, it may become somewhat difficult to charge “higher than normal” prices for this type of wine.
Since the company’s sales will mainly rely on the tasting room concept, it would also be prudent to have a more realistic projection of the number of sales that the company may realize through the above price projections. Nonetheless, since consumer tastes and preferences keep changing with different seasons, there is still a high possibility that the company may adjust prices upwards, if the shift in consumer taste is preferable.
Since this proposal is privy to the influences of distribution channels on wine prices, a suitable distribution channel will be preferred for the proposed business. This is the reason the business chooses the wine tasting rooms as a primary selling strategy because it provides the best way for the business to sell its products directly to the customers.
Comparatively, the choice of selling the products to restaurants and wine stores in the city occurs by charging wholesale prices, which significantly reduce the profit margins of the business. Similarly, sales made through the distributors also imply low profit margins for the producers because distributor prices are about a half of the retail price. A direct selling strategy is therefore preferable.
Promotion
Different producers use unique promotion strategies to sell their products to customers. However, as Morton (35) observes, the choice of promotion strategy must appeal to the business and the products sold. The preferred promotional strategy for the wine business promotes the goal of differentiation because the business’s main selling point is premium branding.
The main points of contact for this promotion strategy include the end consumers and all the intermediaries that form part of the distribution channel. These two target groups will receive different communication strategies through the promotion strategy.
The target consumers will be enticed to visit the winery (more), to enjoy the winery, and to learn more about the winemaking business. The promotional strategy intended for the distribution intermediaries will aim to build better relationships and re-establish reliable work contacts that could improve their relationships with the business. The greater focus of the promotional strategy would therefore be to promote good public relations between the business and its stakeholders.
Since the proposed business intends to have an elaborate and multifaceted promotional plan, the proposed business will not sell all the wine it produces; instead, the business will use some of the wines for promotional purposes, especially in its first year of business when many people have not experienced its products. In detail, the business may divert about 10% of the wines to the tasting room, so that the customers can have a sample of the variety of wines produced by the business.
The business may withhold about 2% of the wines produced for purposes of giving to staff and investors in the business. The business will also distribute about 0.5% of the wines at media fairs and tasting events and reserve the same percentage of wines for charities. Lastly, to expand the scope of the promotional strategy, the business may join the New York Wine and Grape Foundation. Being a member of this group should expand the promotional networks for the business.
Place
As mentioned in this paper, the preferable wine distribution strategy for the proposed winery will be direct selling (because this is the only way that the business can sell its products at retail prices). The wine tasting rooms will provide an opportunity for the business to exploit this marketing strategy. Many wineries across the country also sell their products through this type of direct selling method and many have succeeded in the same venture.
The second selling strategy aims to avail the products to third party agents that specialize in wine retail business. The benefit of this type of place strategy is a higher product presence in the market and possibly higher margins for the business. This selling strategy also helps to build sales networks for the business. The greatest drawback for this type of place strategy is the fact that this selling strategy is time-consuming, as the business will have to consult its retailers and service their accounts, severally.
Sales Forecast
The table below shows a five-year forecast for the proposed business. The company’s sales forecast divides into three types of sales including the retail, wholesale, and distributor sales. The direct cost of sales further divides into three main types of cost – raw materials, labor, and packaging as shown below
Table: Sales Forecast
Net Cash Flow ($113,000) ($56,000) $129,800 $229,600 $442,610
The table above shows that in the first year, there will be no expected sales. This is because the first year will be mainly devoted to setting up the business and establishing business connections. The net cash flow for the same year is also “negative” because the business may incur several costs, but no sales. The business should however start realizing profits during the third year and the subsequent years.
Milestones
The table below shows that the main milestones for the proposed business include, obtaining financing, securing location, purchasing equipment, purchasing supplies, hiring staff, product development, grand opening, and opening doors for business. These milestones highlight the main projects of the entire business plan as they set out how the business will start, until it opens up to the public. These milestones also highlight the main activities that would happen in the first year of opening business.
Table: Milestones
Management Summary
A general manager will head the management team. Under this position, vacancies exist for the wine maker and the sales/tasting room manager. This management structure should be appropriate for the first five years of operation. Its expansion would depend on the success of the business.
Future positions that the business may fill include human resource manager and marketing manager. The management structure will therefore be lean, as the business will only hire a few people that need to start the business. At this point, it is difficult to estimate the number of employees that each manager may need, but at the start of the business, each manager should have about five employees.
Financial planning
The main source of financing will be a loan. The money obtained should be able to finance the construction of the winery and the purchase of equipments and supplies that the business will use to start the business. From the same source of financing, the business should be able to cover the operational expenses for the first and second years. However, the business should incur a specific amount of annual operational costs as outlined below
The business should be able to realize profits in the third year of operation. Based on the net cash flow defined above, the business should continue to realize profits up to the fifth year, when the business will break-even. Therefore, in the fifth year, the business should have recovered all the money that it used to purchase equipment and other expenses.
A sensitivity analysis to explain what factors would most likely change the financial plan above analyzed different factors that would directly affect the plan (including bottle prices, cost of capital, depreciation, success of the marketing strategy, and operational expenses) showed that bottle prices have the greatest effect on the financial plan.
The operating expenses came second in the sensitivity analysis. From these findings, the business will pay a close attention to ensure it manages the operational expenses and the deviations in bottle prices.
Start-up Funding
As outlined in this paper, the proposed business will source funding through a loan. Additional funding will however be sourced from personal savings and friends – to bridge the funding gap witnessed from the deficit in planning investments. The following table explains the details of the start-up funding by showing the total capital and liabilities intended for the business
Table: Start-up Funding
Projected Profit and Loss
The projected profit and loss table, as outlined below, shows that the proposed business will not make a profit, until its fifth year. However, this estimation is just an indicator of the operations of the business and not necessarily, what will occur. Nonetheless, we estimate that the business should post profits within the fourth and fifth years of operation. The five-year projections of the profit and loss statement outline below
Table: Profit and Loss
Through the above profit and loss statement, the business should be profitable in the end, as the costs of operations reduce and the revenues increase
Works Cited
Boehmer, Alan. Knack Wine Basics: A Complete Illustrated Guide to Understanding, Selecting and Enjoying Wine, New York, US: Globe Pequot, 2009. Print.
Hein, Kenneth. “Gallo Turns Over New Leaf For One of Its Top Brands.” Brandweek 49.41 (2008): 12-12. Print.
Learn Marketing 2013, The Marketing Mix. Web. <http://www.learnmarketing.net/marketingmix.htm>.
Meyers, Herbert. The Visionary Package, London, UK: Palgrave Macmillan, 2004. Print.
Morton, Karen. “Implementing Evidence-Based Health Promotion Strategies.” Nursing Standard 27.33 (2013): 35-42. Print.
Resnick, Evelyne. Wine Brands: Success Strategies for New Markets, New Consumers and New Trends, New York, US: Palgrave Macmillan, 2008. Print.
Smith, David. The Business of Wine: A Global Perspective, Copenhagen: Copenhagen Business School Press DK, 2008. Print.
Soares, Eric. Promotional Feats: The Role of Planned Events in the Marketing Communications Mix, London, UK: Greenwood Publishing Group, 1991. Print.
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