Download 5-3 Marketing Plan

Salut LLC
November 2002
Business Plan Copy Number [01]
This document is confidential. It is not for re-distribution.
Joseph Kita
CEO, CMO, Director of Sales
524 North Burrowes Street
State College, PA
(814)404-2057
[email protected]
This is a business plan. It does not imply an offering of Securities.
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Table of Contents
Executive Summary
Mission
Company Overview
Legal Business Description
Legal Forms Necessary
Product
The Market
Customer Profile
Marketing Plan
Sales Strategy
Distribution Channels
Advertising, Promotion, PR
Competition
Risk/Opportunity
Management Team
Capital Requirements
Sales Strategy
Exit Strategy
Conclusion
Appendix
1-1
2-1
3-1
3-2
3-3
4-1
5-1
5-2
5-3
5-4
5-5
5-6
6-1
7-1
8-1
9-1
9-2
9-3
10-1
11-1
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A High Return Investment Opportunity in the Wine Industry
Executive Summary
Through marketing innovation in a competitive market, Salut LLC intends
to capture an often overlooked segment of the wine market. There are 1250
wineries in the US with five companies accounting for nearly 60% of the market.
These companies generally focus on a specific core wine consumer, which is
characterized by specific demographic, psycographic, and behavioral
characteristics. Rather than following the mold, Salut intends to target 21-35 year
olds in the marginal and non-adopter markets, who have expressed an unmet
need. By providing options in both quantity and variety, making the point-ofpurchase decision easier, clearly differentiating our product among the masses,
and promoting our product in an interactive business consumer fashion, Salut
plans on being profitable company in year 2 of the business.
Through operational efficiencies, which break the norm of the industry,
and a strong marketing plan Salute intends to be profitable with a high ROI, IRR,
and explosive growth after year 4. One of the major barriers to market is the
initial capital required to open a winery. Salute intends to outsource the wine
production to a winery, which will private label Salute’s various brands.
Functioning as a wholesaler without the capital-intensive investment of a winery,
Salut has an immediate cost advantage over the competition. All logistics will be
outsourced to a public warehouse to avoid the capital requirement of building,
maintaining, and staffing a warehouse.
With marketing growing the top line at 60% per year and a very lean cost
position, Salut is seeking $200,000 of angel capital seed money to get the
business up and running. Salut will recognize positive profits in year two, gross
margins of 53%, an IRR of 20%, a five year ROI of 46%, and a payback period of
4 years. At year 5, Salut will begin to recognize explosive growth as brand
awareness is created and Salut begins to expand outside of it’s immediate Albany
market. As Salut grows quickly through the growth cycle (years 5-7), the
opportunity to sell the company or to continue and modify operations exists. In
return for the $200,000 in seed capital, Salute is offering 50% of the company, an
additional 20% of the company will go to bootstrapping investors, and the
company as an incentive to current and future employees will retain 30%. The
following table indicates the cash flow of Salut projected to 2007.
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2003
2004
2005
2006
2007
$222,609
$463,917
$966,803
$1,762,965
$2,361,869
$117,599
$238,511
$482,964
$854,217
$1,107,883
-$15,892
$17,186
$84,187
$211,659
$341,224
-$15,892
$17,186
$84,187
$211,659
$341,224
Revenue
Gross Margin
Net Income
Free Cash
Flow
2-1 Mission
Salut strives to provide all stakeholders with a unique and wholisitic
opportunity by providing a quality product and memorable experience. Through
marketing innovation, Salut intends to bring people together in a communal
fashion to enjoy our wine amongst friends and family and redefine the way wine
is perceived.
3-1 Company
The Salut company concept was conceived in October of 2002 and will be
set up as an LLC. The nature of Salut’s business is acting as a wholesaler (BATF
form 5100.24 section 6) of it’s own branded wine in the New York marketplace.
Salute intends to outsource all product, packaging materials, and logistics, and
focus on it’s core business strength of the integrated marketing communications
of wine to the 21-35 year old segment that has an unmet need.
Salut’s principal offices will be located in Watervliet, NY and all products
will be warehoused in the adjacent facility. Further offices will be erected as
necessary to allow for efficient territory management and lean supply chains.
New York is an attractive market due to minimal government control and state
wine taxes as well as a host of exceptional wineries from which to outsource.
3-2 Business
Salut first and foremost is a wine marketing firm. We will initially
outsource 4 wine varieties from Pleasant Valley Winery in Hammondsport, NY.
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Pleasant Valley will private label the product in our bottles, labels, and packaging,
which all will synergistically create a vary high level of point-of-purchase
differentiation. Additionally, an active sales force will promote our wine in
various eating establishments that tend to host our target demographic. Salut’s
primary focus is on the price and promotion strategy of the wine as opposed to the
actual product, which most wineries tend to focus upon losing sight and resources
to support the marketing aspect.
Our company is at a concept/seed stage. At this point in time, some
additional marketing forecasting tools such as surveys, focus groups, and personal
interviews is a must to get the most accurate projections.
3-3 Legal Forms to File
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Federal Wine Wholesalers Permit form ATF F 5100.24
Federal Special Tax Registration and Return ATF F 5630.5 - $500
annual federal tax for wine wholesalers
New York State Form MT-40 – Return Tax on Wine at $.19 / gal
New York State Form DTF-17 – Application for Registration as a
Sales Tax Vendor
New York State Form TP-215 - Application for Registration as a
Distributor of Alcoholic Beverages
New York State Form TP-229 - Financial Statement of Distributors of
Alcoholic Beverages
New York State Wholesale Wine License WW303 – Authorizes
licensee to sell liquor and wine at wholesale. Fee = $1320; Bond =
$10,000 (1 year)
4-1 Product
Salut markets four varieties of wine, which are positioned and packaged to
clearly indicate their meal accompanying characteristics. Each variety will be
branded separately and fall under the Salut umbrella. Salut will function as a
house of brands. Although majority will be a true varietal (Merlot, Chardonnay,
White Zinfandel, Sangiovese) as defined by Title 27 CFR section 4.23 of the
Bureau of Alcohol Tobacco and Firearms, it will not be branded as such. Rather,
the labels will be comprised of brand names that subtly and humorously indicate
the appropriateness of the wine with a specific meal. The intention is to make the
purchasing decision painless, while creating brand recognition and awareness.
The following varieties will be initially included in the Salut’ line and extensions
may be amended as necessary to service an unmet demand.
.
Brand Name
Varietal
Functional Attributes
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Meat and Potatoes
Sips With the Fishes
Merlot or Merlot/Cab
blend
Chardonnay
Clucks and Squeals
Dryer White Zinfandel
Pasta
Sangiovese
Accompanies all red meat
Accompanies all Seafood,
and freshwater fish
Accompanies Pork and
Chicken
General accommodation
all pasta sauces
Bottle size and design is an additional important factor in point-ofpurchase decision. All Salut’ varieties will be packaged in 500 mL and 1000 mL
bottles as opposed to the standard 750 mL bottle. Since our product will be
promoted in a way to emphasize meal time consumption, it is important to know
that the 750 mL bottle is often seen as too much for two people and too little for
four. This factor not only brings attention to our size variations on the retail shelf
but also gives the consumer a choice in the purchase situation.
Presently, our product is in an introductory/sample stage as we intend to
sample and taste test the various wine varieties from the potential suppliers
(Glenora Winery and Pleasant Valley Winery). To accurately purchase the
correct wine, we tend to involve several sampling groups in the targeted 21-35
year old demographic to sample the wines in a mealtime setting. A 30 person,
cross cultural sample will be invited to two separate wine tasting events, where a
meal and the potential wines will be served. The sample will be given a brief
introductory in how to taste the wine and then asked to vote upon the best
accompanying wines to the various cuisine provided. In return for their
responses, they get a free meal and an opportunity to sample and taste some wine.
The current critical factors affecting are products are determining the
proper packaging and labeling to maximize point of purchase consumption and
our dependency on the wine supplier. Focus groups will be used to help us
determine exactly what it is that influences buying decisions of the target segment
so that we can best position our product in the point-of-purchase decision event.
To hedge our risks with suppliers, several may be selected each providing 1-3 of
the fore mentioned varieties. Thus if one of the suppliers should have the
misfortune of a poor yield, limited capacity, etc, Salut can fall back on the
alternate supplier to fill the gaps created.
5-1 The Market
Salut is a wholesaler and marketer of domestic table wines. The total
2001 wine market was valued at $19 billion. Of this, 2/3 were domestic table
wine, which is the product offered by Salut and equates to a $12.7 billion market
(Standard and Poor’s). The top 5 wine marketers: E&J Gallo Winery,
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Constellation Brands, The Wine Group Inc, Robert Mondavi Corp, and Beringer
Blass Wine Estates hold 60% of the total market (Standard and Poor's).
Additionally, imported wines account for $2 billion of the market. Since 1975,
the market has grown at a 7.5% CAGR however this number is dependent on the
current grape crop, which in recent years has caused for an increase in pricing
(wineindustry.com). Additionally, per capita consumption is projected to increase
at a 4.9% CAGR ( www.arec.wsu.edu/projects/winegrape.htm ). The increasing
costs of grapes seem to have reached its zenith and is currently decreasing hence
the 4-5% increases in annual operating profits.
Barriers to entry exist in the wine industry due to high taxation, intensive
capital investments, and restricted advertising (Standard and Poor’s). Creating
strong brand awareness, gaining market share, and being operationally efficient
are the keys to succeeding in the industry.
Behaviorally the market is broken down into core, marginal, and nonadopters. Core consumers are defined as those that consume wine weekly,
marginal consumers consume at least every 2-3 months and enjoy wine, and nonadopters, who drink wine on average once every 2-3 months but do not like wine.
Targeting the marginal and non-adopters is key for Salut’s penetration. The
following table profiles the various behavioral segments.
Profile of Consumer Segments (www.winemarketcouncil.com)
Demographics
Attitudes
Consumption
63% female, majority (51%)
79% prefer wine to
Special occasions, after
40 year old +, live in suburbs, alternative, 92% say
work, weekday dinner
85% Caucasian, avg annual
“encourages friendly
(69%), red wine (48%),
Core (19.2 million
income = $78,100
atmosphere”, 38% wine is
white wine (41%), blush
people)
formal,
wine (11%), 45% spend
$6.00-$9.99 per 750 mL,
33% spend $10.00 - $14.99
64% female, majority (49%)
57% prefer wine to
Special occasions, away
are 30 – 49 years old, live in
alternative, 83% say
from home, white wine
suburbs, Caucasian, avg
“encourages friendly
(46%), red wine (35%),
annual income = $63,800
atmosphere”, 50% wine is
blush (19%), 32% spend
Marginal (28.9 million
formal, confusion over
$6.00 - $10.99, 23% spend
people)
wine selection, food
$10.00 - $14.99
pairings, misinformed about
packaging, serving and
keeping
45% female, majority 21-29,
Not determined
Not determined
Non-Adopter (63.5
live in cities, Caucasian, avg
million)
annual income = $57,600
Segment
Four price segments are currently recognized for wine ( > 7% alcohol by
volume) and are based on price per 750 mL. They include: jug wine (<$3.00),
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popular premium ($3.00-$7.00), super premium ($7.01-$14.00), and ultra
premium (>$14.00). The consumption of wine tends to stay pretty constant
through economic recession and economic growth however consumers tend to
purchase less premium products during recession times as disposable personal
income decreases (Standard and Poor’s).
5-2 Customer Profile
Salut is specifically targeting the 21-35 year old demographic that makes
up approximately 20% of the US population or approximately 56.2 million
people. Even further, Salute’ will initially create brand awareness in NY prior to
extending the products into other states. NY has an average (~ 18.5%) 21-35 year
old population yielding a market size of 3.7 million people (New York State Data
Center). It should also be noted that in 1999 the 21-24 year old age bracket
increased for the first time in two decades and is expected to contribute an
additional 1% to beer gains over the next several years. Beer tends to be the
favored beverage of this age group (Standard and Poor’s). Marginal and nonadopters make up majority of this age group and tend not to consume wine due to
brand image, lack of knowledge, serving and keeping misunderstandings.
5-3 Marketing Plan
Before anything else is considered, Salut will conduct market research to
determine the trial and retention rates of the targeted consumer. Through the use
of focus groups comprised of the targeted segment, salute will determine what
drives consumer purchases decision from both a trial and retention aspect.
Additionally, we will then be in a position to better understand the wine price /
quality payoff thus allowing us to price even more accurately so as to maximize
profits. Surveys will also be conducted in order to reach a higher quantity of
respondents most efficiently and to determine the magnitude of importance of
each attribute of our product. Given our immediate research and assumptions are
correct, the following plan outlines our strategy.
To keep logistical cost to a minimum and create brand awareness, Salut
intends to geographically expand from it’s central Albany location once certain
benchmark are achieved. Appendix 1 indicates the total US, New York, and
immediate target market, which is the accumulation of the individual counties
listed. The market is even further segmented by age and domestic table wine.
Salut plans to gain 1%, 2%, 3%, 5%, 5% in years 1-5 respectively. Once Salut
reaches the 3% market share level, Salut will expand marketing and if need be
logistical operations to another geographic location, which would be
representative of the first geographic location (approximately 5 million 21-35 year
olds). Once we reach a 5% market share in each region, our goal is then to
maintain this share and commit the necessary resources to other regions. It is our
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impression that this strategy will allow us to faster progress through the learning
curve and become optimally efficient. Sales personnel will be added accordingly
to sustain and maximize growth.
Lean costs allow Salut to price very competitively in the super-premium
market segment. With COGS of $1.87 and $3.10 for the 500 and 1000 mL
bottles respectively, Salut can recognize a gross profit of 53% by pricing to
retailers at $4.00 and $6.50 for the 500mL and 1000 mL bottles respectively.
Salut’s initial recipe for success is to alter the image of wine from a “formal”
perception to a “casual” perception by creating strong, unique, and favorable
brand associations to various Salut brands. All packaging and promotion will fill
in the gaps with regard to the concerns marginal and non-adopters have including:
food pairings, serving size indicated on package, 2 different bottle sizes, and
clearly differentiated packaging. The goal is to make purchase very user friendly.
5-4 Sales Strategy
Direct selling is another key promotional aspect of our product. A sales force
comprised of outgoing, young, and attractive wine connoisseurs will promote our
product at the point of consumption. By proactively promoting our wine in
specific restaurants that tend to host our researched demographic, the sales force
will be trained to make the meal occasion memorable through subtly entertaining
the tables of restaurant patrons while offering those over 21 a sample glass of
Salute’s wines. In addition to the samples administered, the restaurant would
feature both the 500 mL and 1000 mL bottles of wine that evening at a discounted
price, while the sales rep reinforces the communal connotations of sharing wine
with a meal. It is at this point that the memorable product, packaging, and sales
person’s antics create the overall experience.
5-5 Distribution Channels
One barrier to entry that exists in the wine industry is the initial capitalintensive investment in processing, packaging, and shipping. By outsourcing
product and warehousing, keeping a lean supply chain, and eliminating a
middleman, Salut has a very good cost position. The following schematic
illustrates a typical wine supply chain.
Winery
Wholesaler
Retailer
Consumer
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Winery – The manufacturer of the wine itself. Salut will outsource and have the
wineries private label for Salut. Currently Pleasant Valley Winery,
Hammondsport, NY and Glenora Winery, Dundee, NY are potential suppliers
offering wine at approximately $5.00 / gallon plus an additional handling and
packaging fee of $2.50/ case.
Wholesaler – Salut’s function. Sells to Retailers and Discounters buy from
Wineries normally at a higher cost position than Salut, since they sell the winery
branded product.
Retailers – Sell to end use consumers. Two types: Discounters, who sell at a
35% mark up and Retailers, who sell at a 50% mark up.
Salute will lease both warehouse and office space from Stone
Management, Watervliet, NY. Again, to avoid the high capital cost of warehouse
construction, fleet purchase and maintenance, and labor. Stone management
charges bases upon pallet handling and storage at a rate of $4.25 in per pallet,
$4.25 out per pallet, and $4.50 per month storage per pallet (a pallet consists of
approximately 50 cases). Given a three-week lead-time and a safety stock of 1
week, Salut’s distribution and handling costs per year are indicated in Appendix
2.
5-6 Advertising and Promotion
Salut’s sales force will initially act as the promotional force behind Salut.
Through sampling and featuring Salut wine at targeted restaurants, Salut will
create brand awareness through human intervention and point of purchase
advertising.
6-1 Competition
There are approximately 1250 wineries in the United States concentrated
mainly in California. California accounts for 90% of US production followed by
New York (4%) and Northwest states (3%)
(www.fas.usda.gov/htp/horticulture/wine ). The five major players: E&J Gallo
Winery, Constellation Brands, The Wine Group Inc, Robert Mondavi Corp, and
Beringer Blass Wine Estates, who combined hold 60% share, compete on a
national level. Other wineries compete on local, state, and regional levels.
Additionally, wine imports have been on the rise since 1994 growing nearly 100%
since that time.
Our products are unique because we specifically target a younger
demographic, which also tend to have a lower frequency purchase behavior.
Additionally, to my knowledge, Salut will be the only wine company that samples
their wine to consumers in restaurants, which is a legal practice in New York.
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Our low cost position and lean supply chain gives us quite a bit of margin to play
with in our pricing strategy. With no capital tied into plant, equipment, or
manufacturing, Salut doesn’t require high margins to return a profit.
7-1 Risk/Opportunity
The greatest risks we have in our business today are not selling the predicted
quantities. Even in the worst-case scenario, we feel that we could sell off all of
our product at cost therefore recovering are COGS expenses. We feel we can
overcome these risks because of openness to the end user and focusing first and
foremost on the consumer’s needs as opposed to the supplier’s product, which is
the downfall of too many wineries - too much focus on product without truly
understanding the customer.
The opportunities before us are significant; we have the opportunity to
penetrate and dominate a segment of the population, which is not currently
targeted if we can expand strategically and retain focus on the specific segment
we have targeted. Identifying and rectifying our target’s low purchase behavior
will be a key to our positioning strategy.
8-1 Management Team
Salute’ is set up as an LLC, with Joseph Kita as the general partner, CEO,
CMO, and director of sales. Additional partners are needed to fulfill the goals and
objective of Salute’ they include:
 CFO – to initially analyze feasibility of various capital expenditure options as
the business expands, project revenues, costs, net income, and budgeting.
 Legal Counsel – to advise on legal issues and provisions related to the
business, which tends to be saturated with various legalities.
 Wine Counselor – advise on selecting, pricing, tasting, and other various
aspects of the product itself. A marketing and sales background is a plus.
As Salute grows other positions that will need to be filled are sales,
administration, product delivery, and accounting. A COO may be needed as Salut
expands, however at this point our logistics are being outsourced and managed by
a third party. Salut’ will also set up stipulations and contracts in the event that a
partner or team member leaves the company. Whether through buyouts, death,
etc, they bylaws and voting rights will be written to ensure the perseverance of the
company. Salut will purchase Directors and Officer’s insurance.
Employee salaries are embedded in SG&A expenses. Additionally, all
employees will have an equity stake in the company as an incentive to produce
bottom line results.
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9-1 Capital Requirements
Salut seeks $200, 000 of Angel funding in order to grow at a selfsustaining rate of 60% volume growth per year, 20% IRR, positive cash flow in
year two, 46% five year ROI, payback between year 4 and 5. After year five,
Salut sales will take off exponentially. Additionally by setting up accounts
receivables at 30 days and Account Payable at 60 days, Salut will be able to take
advantage of supplier financing.
The investors will take an equity stake in the company of 70%. Salut
reserves a 30% stake to be distributed as a payment incentive to all employees
both current and future.
9-2 Sales Summary
Salut’s sales will grow at a CAGR of 60% per year for the first five years.
This number is conservative as it only takes into consideration a per capita
consumption CAGR of 4.9%. Price has not been adjusted for inflation or in
regard to grape crop supply and demand.
Revenue
Gross Profit
Operating Profit
2003
$222,609
$117,599
-$26,487
2004
$463,917
$238,511
$28,643
2005
$966,803
$482,964
$140,312
2006
$1,762,965
$854,217
$352,766
2007
$2,361,869
$1,107,883
$568,707
Additional financial considerations can be found in Appendix 3.
9-3 Exit Strategy
Several options are viable as exit strategies for Salute. The first option is to
sell Salut outright either as an entire entity or sell each branded product to a larger
various wine conglomerates. Secondly, Salut can function as a capital cow and
continue to expand operations on a regional, statewide, and ultimately
countrywide basis. At various points, capital expenditures will be necessary to
construct independent bottling facilities and perhaps wine making facilities to take
advantage of economies of scales thereby minimizing variable costs. This
strategy would ultimately entail an IPO.
Finally, it would be written in the LLC bylaws that if after a specific period
of time, a certain partner wants to leave the partnership, his/her position may be
purchased by another partner based upon certain valuation criteria set up by our
CFO.
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10-1 Conclusions
Recognizing that a market segment exists, whose needs are not met and by
focusing on these consumers needs as opposed to the products, Salut strongly
believes that a profitable and sustainable company can be created. Current wine
companies tend to invest a lot in product development without ever listening to
the consumer. These firms compete in a competitive market because majority of
the companies tend to focus on core wine consumers as opposed to marginal
consumers and non-adopters. Information has shown that the marginal and nonadopters make up a large percentage of the population but have some hesitations,
concerns, and images around the consumption of wine. By focusing on these
concerns and marketing to a younger, often overlooked demographics, Salut
intends to gain share and create brand awareness in the market, through the
implementation of an innovative marketing strategy. Packaging and promotion
are the key to this strategy as well as having a minimally capital intensive
business model.
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