Case Study – Gin Rummy

Gin Rummy Distillery:

Ink Gin – a flavoured/infused gin – has curious colour-changing properties.   The distiller – Paul – has firmly believed that it will be a hit from the get-go.  He first came across the pH-sensitive butterfly pea flower in 2011, and began what has now been years of research and trials to perfect the product.  All the while, he had another product – an agricole-style rum – maturing in barrels and already on the market.  The rum is made from sugar cane from Paul’s family farm as well as surrounding farms near his distillery.  The distillery is currently in an old run-down shed on the farm.  The rum has been on the market for a few years and growing in popularity.  Once the gin is ready, soon, Paul will have two excellent products.

Paul’s vision for his distillery is to produce of top quality spirits produced organically from as many locally sourced ingredients as possible.

His mission is to provide consumers with home style recipes that recreate an authentic experience.

The trading hours are Mon-Fri 9-5 for the wholesale liquor production, bottling and shipping.

Paul really believes in these products and wants help growing the business.  He needs financial backing to do so.

The rum is wholesaled to resellers in South East Queensland and Northern NSW.  Paul is excited by the reception to his quality rum and he feels positive about the new gin.

Now to take the business to the next level!  Not only does he want to introduce this new product, but he wants larger scale distillery equipment so as to increase production and to stimulate higher demand.   Furthermore, he believes that with a cellar upgrade he could welcome visitors to the farm and distillery from Tuesdays to Sundays – midday to 5pm.

To help realise these goals, Paul has hired you as a full-time business manager.

He has big plans and needs expert help.  As a start, you help him prepare a business plan which will act not only as an internal guide but will also carefully document the financial side of the business. 

To secure the backing of a third party like a bank, investors, or partners, a well-constructed business plan is essential.   Investors need not only financial information but a “whole package” look at the idea as well. 

You set up your first business meeting with Paul and start by clarifying his mission and vision for the business as well as short and long term goals. You want to identify and assess business requirements, objectives, competitors and Paul’s established plans.  He tells you that his first short term goal is to introduce the gin to the market and then to increase production of both the rum and of the gin.  Higher productivity will lead to more products on more shelves and increased revenue.

After that, and since the products are so unique and the cane farm is in a very picturesque area, he wants the old shed where the distillery is currently located to be replaced and to build a restaurant, bar and gift shop so as to welcome visitors.

This dream can be realised if Paul can attract $6M investment dollars in the meantime. 

The timeline for his plan is as follows.

CURENT SITUATION
It’s now April ; so the January, February and March figures are in for the rum sales.  They’re on track.   So far Paul has been able to grow sales by 15% per quarter. 

PHASE 1 ( April-June)
It’s now April and the gin is bottled and ready. There are 30,000 litres of each spirit in stock – enough for the next 15 months of trading.

Now to introduce the gin to the market.  The current rum wholesalers will stock the gin so gin sales are projected to start at $50,000 for the months of April, May and June and to steadily increase by 15% per quarter – in line with the rum sales’ growth.

From this month on, a business manager is hired at $10,000 per month.

Part of the Phase 1 goal is to gain financial backing so as to purchase and use bigger distilling systems from July onwards.

PHASE 2 (July) With funding, install a larger scale distillery systems ($350K)  and hire a production assistant who will cost $4000 per month. With the larger scale distilling systems, the business will be able to increase its production into the following years, meeting demand as the business grows. In this phase too, the plan is to build facilities for visitors.

PHASE 3  (October) Open a restaurant, a bar and gift shop.   Paul wants to open the “Cellar Doors” (this is the name of the restaurant, bar and gift shop only) to the public on October 1st.   This will increase retail sales as well as grow the brand and increase the profit margin. A 1 litre bottle of either spirit costs $25 to produce and bottle.  The wholesale price is $50.  This translates to marking up the wholesale price by 100%.  The retail price is almost double the wholesale – $99.    Staff wages for running this side of the business are estimated thus:-   The chef will cost $6000 per month.  The total for 4 hospitality staff per month is estimated at $10,000.

To summarise Paul’s goals in productivity and performance terms, the business is on track to turn over $750,000 in rum sales during the current financial year.  He believes that wholesale sales revenue can comfortably be doubled with the introduction of the gin.

Furthermore, opening the Cellar Doors to the public, growing the brand, conducting retail sales from both the distillery and online offer a whole new realm of possibilities for growing this business.  Paul is aiming for a turnover of at least $2.5M in the next financial year and, once larger distilling systems are in place, he expects continued growth thereafter.

He has set aside $20,000 to launch the new gin and the same amount for launching the opening of the Cellar Doors to the public. He consulted a marketing expert at one time who suggested that he budget for $2000 per month for ongoing promotions and advertising for the business from April to the end of the coming financial year – 15 months.

You make further enquiries about the business.

Its ABN is 012345678.

You recommend that the business register as a Pty Ltd Company.  In this way investor(s) can be a shareholder or even a director.  Company registration will also have some tax and legal benefits as well.

Paul takes your advice and the business’s ACN is 987654321.

It is registered for GST (Goods and Services Tax)

It has a registered domain name.  www.ginrummy.comLinks to an external site.  (THIS is the business name)

The business is located on a cane farm near the banks of the Tweed River in Northern NSW.

It has the appropriate licences for producing and selling alcohol.

You enquire about the staff running the business at the moment.   You find out the Paul and his father have covered all areas until now and that in the near future, Paul’s father wishes to retire.  You both agree that once you have secured the financial backing, the business will need more skilled staff.

For example, a full-time marketing manager/brand expert, a supply chain/warehouse manager, an accounts/admin manager, a production assistant.  For Phase 3, when the business opens up to visitors, a chef, a tour guide as well as restaurant and bar staff will be needed.

For the purposes of conducting a SWOT analysis, you ask Paul about the business’s

• strengths – what do they do well?
• weaknesses – what could be improved?
• opportunities – what trends could be taken advantage of?
• threats – what the competition does, is the business exposed to any threats?

He responds by saying that the business has two unique, high quality products.  Also that he has established a few boutique resellers in SE Qld and Nthn NSW who love the product.

Improvements are needed in the administration and manufacturing areas. The business is constrained by production quantities at the moment.  If it could step up its production with larger scale distilling systems, it could reach out to big national wholesalers such as Dan Murphy’s, BWS and the like.

As far as opportunities go, he thinks that, with financial backing and a revamped distillery, that the distillery could become a tourist destination as well.  He believes too that there’s a resurgence of interest in both rum and gin.  You will research this to gather some statistics about people’s resurgent interest in these two spirits – Google Trends Links to an external site.

There are other gin and rum makers in Australia who make quality products which are more freely available and which are cheaper.  There are other local distillers too who welcome people on cellar tours.

Having conducted the SWOT analysis, you then hone in on operational and technical requirements.   Paul responds by again saying that the business needs higher capacity distillery equipment.

You ask Paul about

• Strategic plan – he says that up till now, that’s been in his head.
• Operational plan – this will need some work.
• Organisational structure – he has enough money to put the manpower in place to step things up.

 

You tell Paul that in preparing a business plan for the Distillery, you need to do some competitor analysis. You ask him to nominate two competitors and he says Lord Byron Distillery Links to an external site.which has cellar door tours and also produces gin and rum.  The other is and Cape Byron Distillery Links to an external site.which also does tours and produces gin.   He’s glad you will do a competitor analysis.  He wants to ensure that Gin Rummy tours are at least  equal to his competitors.

You ask about quality control.  Paul responds that as the distiller, he is the quality controller.  He explains that he ensures the quality of his rum by its taste. He says, you “take a small sip and swoosh it around in your mouth.  Is alcohol the first thing you taste? If so that sharp burn is often indicative of lesser quality.  His rum delivers a complexity immediately: it’s sweet, smoky, and super smooth.”   We have rules and regulations for aging, final proof.  As for the gin, he tells you that great gins are all about the juniper (main ingredient) being up front – they need to reflect the place they’re from.  He uses unique native ingredients to produce a distinctive tasting and coloured gin.  He’s very sure of his products’ quality and that both rum and gin drinkers are going to love it.

Use the information provided in this Case Study to guide you in the assessment tasks.

Refer back to the Case study OFTEN!

 

 

Task 6 Performance Review

Update:

Having completed the Business Plan and the Expected Cash Flows in your Finances spreadsheet, you should have projected a quarterly increase in sales of 15% up to the end of the subsequent financial year (June) in order to meet the desired $2.5M turnover.  Having done so, you have completed the planning stage of the Plan-Do-Check-Act (PDCA) cycle.

Some time has passed.   It’s now mid-December.  You have succeeded in attracting an investor who has injected $6M into the business.

The distillery systems have been upgraded, there’s a restaurant and cellar tours are run daily.

Although you achieved the growth projections for the April-June and July-September quarters, wholesale sales have not risen for the last quarter (October to December).

They have levelled and only equalled the July-September quarter.  This is worrying.

One issue around the drop in sales is the dispatch and shipping times.

You investigate and find out that goods are not getting dispatched in the usual timely manner and also that shipping times have not been met by couriers.

These issues have affected sales volumes as the suppliers have turned to competitors in order to meet the increased demand over the Christmas period.   You also find out that warehouse staff have been pulled away from their normal duties due to the restaurant opening and cellar tours.

YOUR TASK:

Download and complete the Performance Review template here:  Task 6 Performance Review TemplateDownload Task 6 Performance Review Template

Wherein you analyse performance against planned objectives, and you identify, solve and report on any:

• system failures,
• product or service failures and
• variances to the business plan.

(With regard to a variance from the business plan, you should report on the drop in revenue in monetary terms.)

Complete the provided template and upload for grading by the due date.