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Feasibility Study for a Small Farm Cidery in Nelson County, VA

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Feasibility Study for a Small Farm Cidery in Nelson County, VA Feasibility Study For A Small Farm Cidery in Nelson County, VA Prepared by: Matson Consulting PO Box 661 Aiken SC 29802 Phone: 803-233-7134 Fax: 803-233-7938 www.Matsonconsult.com In Coordination with: VAFAIRS P.O. Box 27552 Richmond VA 23261 Phone: 804-290-1160 www.vafairs.org October, 2012 This document contains privileged and confidential information intended only for the use of Nelson County. You are hereby notified that any use, dissemination, distribution or reproduction of this document, either in its entirety or in part, without the express written permission of Nelson County or VAFAIRS is prohibited. EXECUTIVE SUMMARY Nelson County is located in Northwest Virginia and is gathering information on the feasibility of a small farm-sized cidery producing alcoholic hard cider located within the county limits. This study reviews the economic and technical possibilities of a small farm-based cidery business venture. The Virginia Foundation for Agriculture, Innovation, and Rural Sustainability (VAFAIRS) has been hired to undertake the study. Matson Consulting has completed the study on behalf of VAFAIRS. This feasibility study has determined that the venture CAN BE both technically and economically viable. The venture experiences losses in the first year of the study, but these are overcome with the projected profits in the following two years. Though potentially feasible, the prototypical assumptions used to evaluate the project are subject to change depending on market circumstances and the ultimate business structure and product mix decided on by the potential cidery. The cost or ability to produce or source quality hard cider apples from primarily local orchards, though equally critical for the ultimate success of the venture, is outside of the scope of this study. Its impact and risk is not evaluated or considered. The general technology for hard cider production is well established and has been in use for centuries. The process itself is both legally and technically feasible. This operation may face a series of risk factors and uncertainties that will need to be surmounted in order to establish a successful enterprise. These risks include an increasingly competitive marketplace with existing players, and operating costs which are higher than commercial competitors’ costs (processing operations). A list of several potential risks is included in this report. The model shows that the cidery will require $95,000 of additional capital to counteract negative cash flows. Most of this equity will be used to fund the purchase of about $187,000 of equipment. During the first year of the study, the cidery functions at a net income basis of $1,400 for the level of 4,400 gallons of hard cider. By year three, the cidery has a net profit of over $46,000 based on sales of 8,000 gallons of hard cider. Sensitivity analyses are provided that show that feasibility is impacted by labor costs, total sales volumes sold, sales price, percentage of product mix, price of apple variety inputs, equipment purchases, and product sold through various sales venues. Considering the scale of the cidery’s production, variations in some variables, particularly sales price and volume, negatively impact feasibility. The hard cider industry continues to show signs of significant growth. However, as a whole, the hard cider industry is a very small part of the overall alcoholic industry. As such, while growth Nelson County Hard Cider Page ii October 2012 within the hard cider segment may substantial, overall, the segment of alcoholic market share remains small. This study attempts to analyze a prototypical cidery, rather than any operation currently in business. Through analysis of the wine and hard cider industries, and examination of existing hard cider businesses, the study was based on a prototypical cidery comprised of a broad range of industry factors and components. The analysis in this report is based on market research and the best estimates of the client and the consultants. There will be differences between the projected and actual results, due to unforeseen events and circumstances, as well as the prototypical nature of the study. Numbers may not always exactly add or compare due to rounding errors, but the small differences do not affect financial results. Nelson County Hard Cider Page iii October 2012 TABLE OF CONTENTS EXECUTIVE SUMMARY ......................................................................................................... II TABLE OF CONTENTS ........................................................................................................... IV TASK LIST.................................................................................................................................. IX FEASIBILITY STUDY FOR NELSON COUNTY ................................................................. 10 INTRODUCTION .......................................................................................................................... 10 GENERAL SETTING AND NEED FOR THE PROJECT .................................................... 10 PROJECT DEFINITION AND OBJECTIVES ...................................................................................... 11 EVALUATION CRITERIA ............................................................................................................. 12 PROJECT RATIONALE ........................................................................................................... 12 THE MID-ATLANTIC CONSUMER MARKETPLACE....................................................................... 13 Table 1: Metropolitan Areas Within Nelson County's Marketing Arena ..................................... 13 NELSON AND ALBEMARLE COUNTY VIRGINIA ........................................................... 14 NELSON COUNTY VIRGINIA ....................................................................................................... 14 Table 2: Nelson County Virginia Farm Statistics ......................................................................... 15 Table 3: Nelson County Overview. Part of Charlottesville, VA Metropolitan Area .................... 15 ALBEMARLE COUNTY VIRGINIA ................................................................................................ 16 Table 4: Albemarle County Virginia Farm Statistics ................................................................... 16 Table 5: Albemarle County Overview. Part of: Charlottesville VA, Metropolitan Area ............. 17 CONTEXT OF THE ALCOHOLIC BEVERAGE MARKET: U.S. AND VIRGINIA .................................. 17 POSSIBLE BUSINESS ORGANIZATIONAL STRUCTURE OF THE CIDERY ............. 18 LEGAL ORGANIZATION .............................................................................................................. 18 NON-MEMBER PARTICIPATION .................................................................................................. 21 SUPPLY ARRANGEMENTS ........................................................................................................... 21 PROJECT COMPONENT BACKGROUND .......................................................................... 22 THE VIRGINIA AGRICULTURAL INDUSTRY ................................................................................. 22 THE WINE MARKET: U.S. AND VIRGINIA ................................................................................... 22 Figure 1: Global Wine Imports Share Percentages 2011 ............................................................ 23 Figure 2: World Wine Export Leaders 2011 ................................................................................ 23 Table 6: U.S. Wine Region Statistics ............................................................................................ 23 WINE MARKET CONCLUSIONS ................................................................................................... 24 U.S. HARD CIDER ...................................................................................................................... 24 Table 7: Total U.S. Hard Cider Production by Fiscal Year ......................................................... 25 Table 8: Top Ten Cider Production States by Fiscal Year ........................................................... 26 Table 9: U.S. Calendar Year Cider Statistics ............................................................................... 27 Table 10: U.S. 2011 and 2012 First and Second Quarter Comparison ....................................... 27 INTERNATIONAL MARKETS ........................................................................................................ 27 Table 11: UK Cider Consumption Trends: 1956-2007 ................................................................ 28 CIDER MARKET CONCLUSIONS .................................................................................................. 28 GENERAL OPERATING PROCEDURES ............................................................................. 28 LOCATION AND SITE SPECIFICATIONS ........................................................................................ 29 ZONING – GENERAL REQUIREMENTS ......................................................................................... 29 EQUIPMENT SPECIFICATIONS ..................................................................................................... 30 Table 12: Cidery and Tasting Room Equipment Categories Years 1-3-3 .................................... 30 CIDERY - HUMAN RESOURCES ..................................................................................................
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