AMS Microbrewery Project 2014 Envisioning Proposal
Table of Contents I.
Executive Summary............................................................................................... 2 Introduction and Timeline Definitions
II.
Description of Business......................................................................................... 3 Company Ownership/Legal Entity Location Features Proposed Products
III.
Market Analysis ..................................................................................................... 5 British Columbia Market Analysis Online Survey Analysis Target Audience and Product Positioning Pricing
IV.
Sales and Revenue ................................................................................................. 8 Projected Draft Beer Sales Volumes Projected Revenues
V.
Operations and Costs ........................................................................................... 11 Operational Models
Executive Summary Introduction and Timeline Over the course of the last three years, the UBC Alma Mater Society Council has been actively exploring the idea of creating one of the first on campus establishments for brewing and supplying craft beer products to its constituents. The project was originally envisioned as an addition to the Pit Pub establishment being constructed within the new AMS Student Union Building, slated to open in late 2014. On the recommendation of AMS Council, First Key Consulting was engaged in May 2011 to conduct a comprehensive feasibility analysis and market assessment for an AMS Brewpub associated with the Pit Pub, and upon their recommendation, 1.1 million dollars from the Student Spaces Fund was earmarked by a Council resolution in 2013 to support the construction and operations of the business. As plans for the Student Union Building progressed, and the budget was further restricted, it was deemed that the Brewpub project would be financially unfeasible for the Society to pursue as a part of the New SUB due to limits on size and growth. However, due to continued support from students and Councillors, the project was reimagined as a component of the UBC Farm Centre, set to open in January 2017. Negotiations on behalf of the AMS with the UBC Farm were made by an ad-hoc Brewery Committee, and a Memorandum of Understanding was drafted in May 2013. At the AMS Council meeting on November 20th, 2013, the VP Finance noted that the original motion providing funds from the Student Spaces Project to the Farm Brewery initiative was no longer in order due to the specific mandates of the fund. In order to maintain momentum in
Description of Business Company Ownership/Legal Entity The AMS Microbrewery will be constructed as a component of the new UBC Farm Centre. As such, the land upon which the facility is built will be leased from the University of British Columbia according to terms outlined in the Memorandum of Understanding. The project will be led by a Microbrewery Steering Committee consisting of representatives from all three involved parties (the AMS, UBC, and any other partners). The Steering Committee will be responsible for creating Terms of Reference and overseeing construction and implementation of the AMS Microbrewery MOU.
Location The AMS Microbrewery would be located at the UBC Farm (3461 Ross Dr, Vancouver, BC V6T 1W5) on the south side of the UBC Vancouver Campus as a part of the proposed UBC Farm Centre. As the first AMS property on the south end of campus, the microbrewery presents a unique opportunity to draw student interest to an area of campus that is infrequently visited, currently. Below is a map showcasing the location of the proposed microbrewery, indicated by the red balloon:
Tasting Room Laboratory Space Lunch Counter Storage Area Malting Area Fermenting Area Processing Line Tapping Area Refrigerated storage Keg Inventory Area General Storage Loading Deck Waste Disposal Area Academic Space As such, the AMS Microbrewery would serve three main purposes 1. Production and sale of craft beer 2. Academic programming relating to Brewmastery, related Agriculture and Microbiology, and/or Fermentation Science/Engineering as lead by UBC 3. A vessel for partnership with UBC Farm initiatives and events, raising awareness and interest in the farm among UBC students.
Proposed Products Based on local beer consumption trends, First Key proposed a number of potential beers
Market Analysis British Columbia Market Analysis
Microbreweries in British Columbia exhibit the highest growth of all beer-producing sectors. From 2006 to 2010, the microbrewery sector grew at an average annual rate of 14.9% (BC Liquor Distribution Branch Quarterly Market Review December 2010). Although the overall beer market has been stagnant, microbreweries have seen increases in draft (7.65%) and packaged (40.12%) sales, indicating a shifting preference towards higher quality, locally produced brews.
Online Survey Analysis
As a component of their 2011 consultation, First Key conducted an online survey of 949 UBC Undergraduate students, mainly between the ages of 19 and 22 years old. 59% of respondents identified as male, while 41% identified as female . The survey was used to gauge interest in the possibility of a Brewpub, however many of the questions pertain to the construction of a microbrewery in general. Slightly more than half of the interviewees consume beer once or more per week 69% of respondents were in favour of converting the Pit Pub into an establishment including a microbrewery. Most concerns were centered around the potential loss of casual atmosphere associated with the Pit, which would not be an issue with a brewery establishment on the UBC Farm. 8 of 10 respondents who purchased keg beer did so from a microbrewery establishment
Based on results from the First Key online survey, lagers and ales were the most popular beer styles (24% and 23%, respectively), however there was also a very significant interest expressed for light, stout, wheat, and flavoured styles. The intention of a wide variety of products would be to slowly shift the beer culture on campus away from large-scale commercial beers and towards locally produced craft beers. For those with more developed palates, the seasonal option would provide and opportunity to appreciate diverse styles of brew making not frequently seen in British Columbia. Approximately half of surveyed individuals said that certified organic ingredients were very/somewhat important in their decision to support microbrewed pr oducts while 80% noted that beer produced in a sustainable manner was important to them. Locating the AMS Microbrewery at the UBC Farm provides beneficial gateways to satisfying both of these desires due to on-site hop cultivation and the existing drive for the UBC Farm Centre to achieve LEED-Gold certification upon its completion. Throughout development of the brewery project the AMS would strive to uphold the highest degree of sustainability in construction and operations as attainable by the Society’s budget for the initiative.
Pricing Pricing for the AMS Regular lager and ale was set to match comparable competitors such as Molson Canadian; while the AMS Special lager and ale were set to prices comparable other domestic specialty brews such as Rickard’s Red and White. The AMS Seasonal beers are priced to match mainstream craft beers such as Okanagan Springs 1516. As such, the AMS Microbrewery would offer quality, locally produced craft beers at prices as low as typical commercial brews. An indisputably great value for good beer, which we predict will help transition market demand towards AMS brand products.
Weighted Average per Jug
$16.53
$16.82
Table 2 - Projected Price for Off-Site Keg Products
2017
2018
AMS Lager
$162.84
$166.08
AMS Ale
$162.84
$166.08
AMS Special Lager
$182.00
$185.64
AMS Special Ale
$182.00
$185.64
AMS Seasonals
$183.37
$187.04
Average Price per Keg
$168.23
$171.26
Price per 50 liter Keg
2019
2020
2021
Sales and Revenue Projected Draft Beer Sales Volumes Original sales volumes predicted by First Key were based on declining trends in volume sold at the Pit Pub and Gallery over the last few years due to a changing demographic of student populace and the establishments ‘losing their luster’ since the Pit Pub’s renovation in the summer of 2006. Upon opening of the New Student Union Building and the proposed Brewpub, they predicted a spike in consumption and sales consistent with that following the Pit’s 2006 renovation. Considering that the brewery will be opening a few years following the New SUB’s grand opening, spikes in on-tap consumption have been downplayed slightly to still account for excitement around the new product while being realistic with patronage in the Pit and the Perch (formerly the Gallery). Keg sale predictions are extrapolated from the relatively constant original predictions made by First Key in 2011. Relevant historic sales volumes can be found in the First Key report. Table 3 - Volume of Draft to Tap Sales by Product
2017
2018
Hectolitres On-Site – Draft to Tap
AMS Lager
124
144
AMS Ale
106
119
2019
2020
2021
Total
AMS Special Ale
12.0
10.5
10.5
9.0
9.0
51.0
AMS Seasonals
9.0
7.5
7.5
7.5
7.5
39.0
Total Hectolitres OnSite
93.0
93.0
93.0
91.5
91.5
462.2
Projected Revenues Based on projected volumes and pricing structure, Gross Revenue Projections are as follows: Table 5 - Gross Revenue per Brand On-Site – Draft to Tap
2017
2018
AMS Lager
112,743
140,478
AMS Ale
96,637
116,047
AMS Special Lager
54,150
54,759
AMS Special Ale
48,133
47,914
AMS Seasonals
38,321
36,331
Total Revenue
349,983
395,529
Gross Revenue per Brand On-Site – Draft to Tap
2019
2020
2021
Total
Total Revenue
28,863
30,128
30,730
30,799
31,353
151,873
Average Revenue per HL
310.23
323.83
330.30
336.47
342.52
328.60
Table 7 – Total Revenue
2017
2018
Draft to Tap
349,983
395,529
Kegs
28,863
9,337
Gross Revenue
378,846
404,866
2019
2020
2021
Total
Revenue
Less BC Prov. Mark-up Net Revenue
Note that revenues listed do not include potential revenue from growler or small-container sales, which would require further investigation.
Operations and Costs Operational Models In order to accommodate changes in the microbrewery plans, the ad-hoc Brewery Committee reviewed and deliberated upon multiple models to manage the commercial operations of the space. They differ in amount of liability for the Society and financial ben efits. The various models are outlined below: 1. AMS Owned and Operated: This option would correspond to plans originally designed with First Key Consulting, where the AMS would be responsible for financing the construction, capital investment for equipment, pre-production costs, and labour/operational costs. The AMS would be sole proprietor of the microbrewery and responsible for in- house managing under the Society’s business portfolio. Benefits:
Full control over branding, marketing, and operational decision making for the microbrewery
Following payment of initial investment, 100% of generated profits would return to the society
Concerns:
Unlimited liability
Lack of knowledge pertaining to operating a Brewery
Substantially higher investment necessary from students (construction costs, equipment costs, and pre-production costs)
Production costs would have to be paid from the AMS operating budget before the business would be profitable
AMS MICROBREWERY PROJECT – JANUARY 2014
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2. AMS Owned and Operated with Managing Partner In this model, the AMS funds the construction, equipment, pre-production, and inputs to production, but production costs and management of the business, as well as branding and marketing, are done jointly with an experienced partner or partner organization. Revenues are divided between the partner and the Society based upon a predetermined contract. Benefits:
No labour or operational costs
Experienced partner will speed time spent in pre-production and streamline startup
Less liability for the Society in terms of management
Concerns
Inputs would still need to be provided from the AMS operating budget
Control of branding and marketing would be divided between the AMS and the partner
Revenue and profits would be divided, reducing the profit margin of the Society.
3. AMS Owned, Tenant Operated and Managed With this model, the AMS would be responsible for covering construction and equipment costs, but the partner would cover all other costs. In theory, the space would be leased to the tenant to produce beer to supply the UBC market, and in return the Society would collect monthly rent, and a negotiated percentage of sales revenue from the tenant. Ideally, the tenant would work with the Society to include some AMS branded beers in the product line-up, however all marketing and branding d ecisions would be made by the tenant. Benefits:
AMS MICROBREWERY PROJECT – JANUARY 2014
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Least liability for the Society
No added weight to the Society’s business portfolio
Upon repayment of the construction loan from the referendum fee levy, the business would immediately be profitable
Flexible, contractual control over tenants of the space
Concerns:
Smaller profit margins
Least control over branding and marketing
Potential Partnerships/Tenancies With regards to the second and third operational models proposed above, two different types of partnerships were envisioned, each with their advantages and disadvantages: 1. Established Microbrewery This agreement would involve an established microbrewery acting as a partner of the Society. Benefits to the partner would include access to a niche market of students, the opportunity to expand promotion through a satellite location, and positive PR associated with a unique project involving educational components. Advantages:
Easier to identify potential partners and negotiate Arguably more expertise and capital necessary to ease pre-production and start up
Disadvantages
AMS MICROBREWERY PROJECT – JANUARY 2014
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Less flexibility in terms of negotiated brand development and marketing
May have ulterior motives for expansion beyond commercial scope of the project
Potential source of concern on behalf of the University
2. Entrepreneurial Brewmaster A tenancy with a trained and experienced brewmaster seeking to begin their own mincrobrewery would serve as an alternative. Benefits to the tenant would include a low cost entry point into a thirsty, new market of University students and the support of an organized student union behind them. Ideally, we would be seeking an individual with 5 or more years working experience as an assistant or head brewmaster at an established microbrewery who was interested in branching off and beginning their own business. Advantages:
More enticing option for a new entrant into the industry versus an established brewery
Better opportunity to work with the partner towards brand development, marketing, and integration into the UBC community
Disadvantages:
A difficult prospect search relative to an established microbrewery Steeper learning curve for the partner as a new entrant –––––––––––––––––––––––––––––
AMS MICROBREWERY PROJECT – JANUARY 2014
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Out of the proposed operational models, our suggested model for implementation is number 3: AMS Owned, Tenant Operated and Managed, with an entrepreneurial brewmaster as the tenant. We believe that this option provides the most tangible benefits to the Society, while limiting liability, cost, and risk.
Construction and Equipment Costs The following table articulates estimates for structural construction costs run in-house, and equipment costs (plus applicable taxes) for the construction of the microbrewery. In following the suggested operational model above, the only cost to the Society would be that listed below, with the investment being repaid in time through the fee levy resulting from a successful referendum. The tenant would ideally cover all other costs, thus the AMS would simply be an investor of capital into the business venture. NO.
HEADING
ITEM
DETAIL
UNITS
RATE
BUDGET
ARCHITECTURAL
BREWERY INTERIOR FINISHES
4,135.00
$15.00
$62,025.00
B.1
STRUCTURAL
STRUCTURAL WORK
4,135.00
$85.00
$351,475.00
C.1
MECHANICAL
MECH. SOW AS PER FIRST KEY REPORT
4,135.00
$15.00
$62,025.00
D.1
PLUMBING
PLUMB. SOW AS PER FIRST KEY REPORT
4,135.00
$20.00
$82,700.00
E.1
ELECTRICAL
ELEC. SOW AS PER FIRST KEY REPORT
4,135.00
$18.00
$74,430.00
A.1
SUB TOTAL
SUB TOTAL
NOTES
$632,655.00
BREWERY EQUIPMENT
F
F.1
EQUIPMENT PURCHASE
$310,000.00
F.2
EQUIPMENT DELIVERY & PLACEMENT
$25,000.00
F.3
MINIMUM SUSTAINABILITY FEATURES
$10,000.00
SUB
AMS MICROBREWERY PROJECT – JANUARY 2014
FIRST KEY REPORT
$345,000.00
15
TOTAL G
SOFT COSTS ARCHITECTURAL FEES
$632,655.00
15%
$94,898.25
G.2
STRUCT. ENGINEERING FEES
$351,475.00
20%
$70,295.00
G.3
MECH. ENGINEERING FEES
$144,725.00
25%
$36,181.25
G.4
ELEC. ENGINEERING FEES
$74,430.00
25%
$18,607.50
G.5
FIRST KEY DESIGN FEES
LS
$37,000.00
G.6
PERMIT FEES
5.00%
$31,632.75
G.1
$632,655.00
SUB TOTAL H
QUOTE
$288,614.75
RECAP
H.1
GST TAX
GST CHARGE
$921,269.75
5%
$46,063.49
$46,063.49
BASE BUILDING + CONSULTANTS
H.2
PST TAX
NET PST CHARGE
$977,655.00
7%
$68,435.85
$68,435.85
BASE BUILDING + BREWERY EQUIP.
H.3
TOTAL EST. PROJECT COSTS
H.4
PROJECT CONTINGENCY
J
TOTAL EST. PROJECT COSTS
AMS MICROBREWERY PROJECT – JANUARY 2014
$1,380,769.09 $1,380,769.09
5%
$69,038.45
$69,038.45 $1,449,807.54
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Please note that the above costs do not incorporate legal fees and associated with reviewing the MOU, signing tenancy agreements, or any other unforeseen expenses. We predict an additional $25,000 as a liberal estimate. Also, the cost of federal and provincial taxes as shown require further professional consultation, but serve as estimates for our present purposes.
Production & Pre-production Costs Although the location and layout of the proposed AMS Microbrewery has changed, the specifications and associated costs of operations and production should fall in line with those proposed in the initial First Key report. Differences in net profits and results wo uld stem from only a few distinct areas:
Slightly modified sales numbers in lieu of an opening not coupled with the New SUB. A lack of consideration of growler and small-container sales, pending consultation.
Ideally, further consultation will be conducted in subsequent months following the referendum in order to better update costs of construction, pre-production, and ongoing operations. Following our proposed operational model, these costs would be the responsibility of the tenant, and as such, would not be factored into final profits generated by the Society. For now, please refer to the First Key report for best estimates.
Conclusion As per the suggested operational model, total cost to the Society would be $1,449,807.54 , for construction, equipment, and installation costs. The investment by the Society would initially come from a loan agreement with the University and be repaid through the fee levy in the upcoming 2014 AMS Referendum. Return to the Society would be immediate, and would be comprised primarily of rental fees estimated at $45/square foot per annum, as well as a to-be-determined percentage of revenue as a return on the capital investment (equipment cost) in the tenant’s business. Until updated numb ers for
AMS MICROBREWERY PROJECT – JANUARY 2014
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volume and revenue are available, the net benefit to the Society’s endowment is presented below based simply on constant rental fees alone over a
5-year period:
Rental Cost/Square Foot ($)
Square Footage
Total Rental Revenue per Month
Total Rental Revenue per Annum
4,135 4,135 4,135 4,135 4,135
$15,506.25 $15,506.25 $15,506.25 $15,506.25 $15,506.25
$186,075.00 $186,075.00 $186,075.00 $186,075.00 $186,075.00 $930,375.00
Rental Revenue
2017 2018 2019 2020 2021 Total 5 Year Revenue
$45.00 $45.00 $45.00 $45.00 $45.00
As shown, overall financial contribution to the Society from rental revenue alone would be $930,375.00 over a 5-year period.
AMS MICROBREWERY PROJECT – JANUARY 2014
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