Expert answer:To maintain strengths, improve weaknesses, capitalize on opportunities, and respond to threats requires the organization to have the right people. In this journal, consider the type of workforce changes you would recommend to reach your company’s strategic goal. Read through the case study of the company you have chosen to focus on for your strategy and change management plan and address the items below, based on the information provided in the case study document and your TOWS analysis in Module Two.Review the resources for this module and the analysis you did on your chosen company. Then, complete the following for your journal: Describe what kind of talent your chosen company needs. Support your answer with information from the case study. Explain how the company can attract, retain, motivate, and develop the workforce to achieve its goals. Support your answer. Attachment TOWS Case Study Deep Roots Distillery Link to book chapters 2, 8, 9 http://ezproxy.snhu.edu/login?url=http://search.eb…
case_study_deep_root_dis.pdf
tows_of_deep_roots_distillery_2_1_discussion_question.docx
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W16113
DEEP ROOTS DISTILLERY
Professor Paul Beamish wrote this case solely to provide material for class discussion. The author does not intend to illustrate either
effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying
information to protect confidentiality.
This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.
Copyright © 2016, Richard Ivey School of Business Foundation
Version: 2016-03-09
INTRODUCTION
By September 2015, Deep Roots Distillery (DRD) had been operating for 22 months. While the start-up
had taken a little longer than originally estimated, material progress was now in evidence. By November,
the company expected to have six of its products (either spirits or liqueurs) available in the Prince Edward
Island Liquor Control Commission (PEILCC) outlets.
However, numerous questions remained for Mike Beamish and his small, family-run business. Given
capital and resource constraints, how could DRD grow into a competitive business? How should time be
allocated between research and development, production, marketing, and administration? Would the startup’s current product/market strategy allow it to achieve its goals? If not, which expansion route should
DRD take?
BACKGROUND
DRD was located in Warren Grove, Prince Edward Island (PEI), a village about 15 kilometres outside
Charlottetown, the largest city in Canada’s smallest province. PEI’s population was only 140,000, but the
province was a popular tourist destination, with 1.3 million visitors annually. The tourists were mostly
from Canada (87.7 per cent), but with material numbers from the United States (7.7 per cent) and other
countries (4.6 per cent). Most tourists visited from June to September, and tended to enjoy the area’s laidback lifestyle, beaches, fresh seafood, music, and scenery.
The family-owned Beamish Orchard had been growing tree and field fruit since 1990. With over 500 apple
trees, and by 1995, the orchard started to sell its apples by the roadside. As production grew, the family
opened the farm to customers looking to pick their own fruit (u-pick). With a consumer trend toward more
organically grown food products, the family decided in 2004 to move away from conventional agricultural
practices. In 2005 the Beamish Orchard acquired full organic certification from Atlantic Certified Organic.
The Department of Agriculture and Fisheries stated:
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2017 to May 2018.
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Page 2
9B16M032
Fruit production was very diverse on Prince Edward Island. Lowbush blueberries made up the
largest acreage of commercial fruit crops at 13,000 acres. Commercial cranberry bogs and
strawberry fields were located across the province. Strawberry nursery stock was produced for
export to the Southern [United States]. Twenty-thousand apple trees filled Island orchards, and
the industry was expanding rapidly. Specialty fruits including raspberry, gooseberry, rose hips,
black currants, and highbush blueberry were produced on small acreages. Rising interests in
grape and the haskap berry had resulted in new developments of these crops. PEI had an active
honey bee industry, which supplied approximately 6,000 colonies towards pollination services to
the Island’s fruit crops annually. High-quality honey was also produced by the PEI beekeepers. 1
By 2012, the Beamish family fruit business had steadily grown, with sales reaching CA$17,000. 2 That year
Mike Beamish retired from his full-time teaching job. His plan was to develop value-added products to
increase the profitability of the farm. The business had previously introduced non-alcoholic apple cider,
apple/fruit preserves, and apple butter.
The idea of operating a distillery had been “fermenting” with Beamish for some time as a “fun retirement
project,” and as a succession-planning business venture to ensure a viable future for younger family
members. With increasing consumer demand for specialty alcoholic beverages, Beamish felt that a niche
opportunity existed to produce and market a selection of “organically certified” vodka spirits and flavoured
liqueurs. It would utilize fresh local fruit, contribute to PEI’s agri-culinary tourism, and add to the
increased economic performance of the PEI organic food sector.
In February 2013, an Artisan Distillery Workshop was offered through the PEI BioFoodTech, a
government unit that provided technical services to PEI food and bioprocessing industries. Mike Beamish
and his son, Paul, participated in this one-week comprehensive course from the Artisan Craft Distilling
Institute of Washington State. It covered the fundamental technical aspects of distilling, equipment,
licencing, processing, marketing, and sales. Additional workshops were offered in PEI in January and
February of 2014.
DRD was incorporated as a craft distillery in November 2013, using its own and other organically grown
PEI fruit from which to generate distilled beverages. It used its own equipment and facilities, plus some
newly purchased equipment. DRD already had access to a recently constructed Beamish Orchard building
for its manufacturing and tasting area, which had cost the Beamish family $85,000 to build. The family
also put together a budget of $58,000 for distilling equipment and some lease hold improvements, and was
able to access a provincial grant to cover half this amount. Distillation required less space and equipment
than the production of hard cider or wine.
DRD complied with the prescribed PEILCC and Canadian Food Inspection Agency regulatory
requirements to acquire a manufacturers licence. The business was a member of the PEI Vintners/Distilled
Beverages Association and certified as Atlantic Certified Organic. It took about 18 months to obtain all the
regulatory approvals for the distillery.
DRD as a craft distiller featured hands-on operation in the making of small-batch spirits and liqueurs.
Using craft pot/column distillery technology, it allowed for finer control over flavours and gave broad
room for experimentation. In some instances, DRD used its own organically certified fruit and
incorporated other local organic ingredients and employed unusual techniques to make small batches of
1
Prince Edward Island Department of Agriculture and Fisheries, “Agriculture on Prince Edward Island,” revised July 2015,
accessed December 31, 2015, www.gov.pe.ca/agriculture/AgonPEI.
2
All currency amounts are in Canadian dollars unless specified otherwise.
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2017 to May 2018.
For the exclusive use of C. Hendrickson, 2017.
Page 3
9B16M032
high-quality liqueurs and spirits. In a few instances, the product was crafted with locally sourced but not
certified organic produce.
The production process included the harvesting of fruit, the pressing of fruit to dispel the fruit cider, the
fermenting of this cider liquid, and the distilling of the fermented liquid to produce 180-proof ethanol
alcohol (90 per cent). DRD’s distilled spirits resulted from the collection of the ethanol (alcohol) that had
been made by heating the liquid resulting from the initial fermentation of apple cider so that it became a
vapour. The vapour was condensed on a cold surface and collected. A portion of the produced ethanol was
bottled and sold as a pure vodka-type beverage (45 per cent alcohol), and the remainder was blended with
fruit or liquid flavours to generate 25 per cent alcohol liqueurs.
COMPETITION
In the last 20 years the PEI alcohol beverage processing sector had grown considerably. By March 2014,
there were three small distilleries, four wineries, and a growing number of craft brewing companies in PEI.
The wineries were: Rossignol Estate Winery, Little Sands; Newman Estate Winery, Murray River; Matos
Winery, St. Catherine’s; Honeydew Apiaries/Winery, Canoe Cove. The distilleries were: Prince Edward
Distillery, Hermanville; Myriad View Artisan Distillery, Rollo Bay; and Matos Distillery, St. Catherine’s.
Per capita sales of spirits and alcohol in PEI were $226, versus a national average of $182.
Prince Edward Distillery was founded in 2007, and was best known for a vodka it produced using PEI
potatoes. Its vodka was available in the PEILCC and some of PEI’s better-known restaurants and pubs.
Between 2009 and 2014, the company had received a grant from the provincial government of over
$70,000 for marketing and trade assistance, and a “conditionally repayable grant from the Atlantic Canada
Opportunities Agency of $75,000 to build markets in Germany and Japan.” In March 2014, the owners
announced that they were personally moving to Nova Scotia to open a second distillery, but planned to
continue to operate the PEI distillery. 3
The Myriad View Artisan Distillery was founded in 2006. Overlooking the Northumberland Strait (the
body of water separating PEI from the provinces of Nova Scotia and New Brunswick), it was advertised as
the “Producers of Canada’s First Legal Moonshine and PEI and Atlantic Canada’s First Vodka, Gin, and
Rum.” The pride of its distillery was a hand-crafted copper still from Germany.
Matos Winery & Distillery had its start in 2007, when the two owners (both of Portuguese descent),
purchased 50 acres of land and began planting Chardonnay and Gamay-Noir vines. Matos was best known
for its award winning wines. It also had a distillery, and produced Portuguese-style alcohols such as
licorice-flavoured anisette liqueur, a version of grappa, and a light port or sherry. Its products were
available in PEI liquor stores and many restaurants on the island.
Exhibit 1 provides a selection of the products (and prices) of some of the locally (and off-PEI) produced
spirits and liqueurs.
COMPANY PRODUCTS
By September 2015, DRD had four products for sale in-house and at the PEILCC:
3
Teresa Wright, “Vodka Distillery Owners Leaving P.E.I.,” The Guardian, March 21, 2014.
This document is authorized for use only by Carmen Hendrickson in OL-501 Business Foundations 17TW2 taught by Lindsay Conole, Southern New Hampshire University from November
2017 to May 2018.
For the exclusive use of C. Hendrickson, 2017.
Page 4
•
•
•
•
9B16M032
Island Tide — 45 per cent spirit similar to a moonshine or vodka
Blueberry — 45 per cent single-release spirit from a one-time available supply of wild blueberry wine
Maple Liqueur — 25 per cent liqueur with maple syrup
Camerise Liqueur — 26.5 per cent liqueur made from the haskap berry (edible blue honeysuckle)
In addition, the company offered a gift pack containing 50-millilitre (ml) mini bottles of the first three
products
DRD expected to have two additional products for release by late November 2015 (both had gone through
the required analysis and approval processes):
•
•
Spiced Apple Liqueur — 33 per cent liqueur made from organic apples and flavours
Absinthe — 72 per cent spirit from a blend of herbs and spices (small batch)
Furthermore, before December 1, 2015, DRD expected to have all products available in individual 50-ml
minis so as to take advantage of the tourist trade and the increased demand for small Christmas gift items.
The choice to produce spirits versus liqueurs (or both), and mainstream versus more niche products, was
motivated by a combination of founder preference, opportunity (in the case of converting blueberry wine
into a liqueur), experimentation, and a perceived link to PEI.
FINANCIALS
In order to initiate production, DRD had incurred approximately $21,200 in capital costs to obtain the
required equipment. Its production facility was leased from Beamish Orchard at $500 per month.
In 2014, its first year of operation, DRD had a financial loss of $16,822 (see Exhibit 2). This was in line
with expectations.
In 2015, DRD expected to have a slightly larger net gain than forecast. Early expectations were that the
company would break even for its first full year of sales; however, this estimate proved to be slightly
conservative. The financial gain for 2015 was estimated to be $62,600, but this excluded all salaries and
included $40,000 of year-end inventory (see Exhibit 2). The company balance sheet was also expected to
improve in 2015 (see Exhibit 3).
The price of the product sold to the PEILCC was $8.37 per bottle. The “final retail” price was just below
$20.00 per 350-ml bottle. The remaining $11.58 went towards bottle deposit, provincial health tax,
harmonized sales tax (HST), PEILCC mark-ups, and excise tax.
For bottles sold at DRD’s retail store (or the Charlottetown Farmer’s Market), DRD earned approximately
$12.24 per bottle, before production costs. For each of the four products, the production cost was $4.73 per
350 ml of spirits or fruit-flavoured liqueur. This $4.73 included ingredients for the production of the liquor,
the bottle, label, cork, and boxes (approximately $3.50) (see Exhibit 4). Sales forecasts were $53,000, at
retail, for 2015.
No employee salaries had been paid to date. Mike Beamish wanted to first create a stable operation with
sustainable income before withdrawing additional funds or paying salaries from the business. In practice,
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2017 to May 2018.
For the exclusive use of C. Hendrickson, 2017.
Page 5
9B16M032
this meant that any of his children could work evenings and weekends to help out, but would require paid
full-time work elsewhere until the business grew in scale.
MARKETING
The company had lots of ideas for promoting and advertising its products (see Exhibit 5), and had earlier
developed a marketing budget of $17,150 for the period from October 2013 to December 2014. Budgets
were tight however, so the company was unclear about where its relative emphasis ought to go. Its website
(http://deeprootsdistillery.com/) provided a history of the company, new product details, drink recipes,
information on tours, and a map to its location.
SUCCESS TO DATE
DRD’s four products had been well received in the marketplace and had begun to develop a loyal client
base. The original expectation was that Island Tide would be the number one product. However, the Maple
Liqueur was outselling the other currently available products by a factor of approximately five to one. Its
success was in part based on the use of pure maple syrup and the versatility of the liqueur in beverages as
well as cooking. The liqueur had been widely promoted to Island chefs and was used in some meals and
drinks at various restaurants.
With the release of the Camerise Liqueur in July, uptake had been encouraging but it was too soon to know
if there were going to be a significant number of repeat purchases (see Exhibits 6 and 7). Again, the
popularity was based (at least in part) on the uniqueness of the flavor, as well as the versatility of use.
All DRD products enjoyed steady repeat sales both from PEI residents and from visitors. The company had
received many requests to introduce a mail-order option.
The fall 2015 edition of the Food Island Partnership 4 publication had opened up networking and
promotional opportunities for all Island businesses. PEI, as a whole was becoming recognized as a
destination for all food-related services. DRD was included in the “Culinary Trail Guide to PEI Flavours,”
and this had resulted in significant interest. DRD also tracked several visits resulting from its appearance in
Trip Advisor with positive recommendations.
CURRENT CHALLENGE
Mike and Carol Beamish had five children ranging from ages 22 to 31. An overarching objective was for
DRD to become a viable business that was sufficient to generate a net business income of $36,000 during
the initial year of operation, and ultimately, to support at least two people with a combined annual salary of
at least $80,000 for the long term. The big question was how to get there.
4
Foodland Partnership, accessed December 31, 2015, http://foodislandpei.ca/.
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2017 to May 2018.
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Page 6
9B16M032
EXHIBIT 1: SELECTIVE COMPETITIVE PRODUCTS, 2014
Company/Brand
Arlington Orchards (PEI)
Rossignol Winery (PEI)
Honeydew Apiaries (PEI)
Myriad View Artisan Distillery (PEI)
Prince Edward Distillery (PEI)
Matos Winery & Distillery (PEI)
Sheridan’s (Ireland)
O’Darby (Ireland)
Sangster’s (Jamaica)
Amarula (South Africa)
Cadbury (United States)
Bailey’s (Ireland)
Kahlua (United States)
Tia Maria (Italy)
Kamora (United States)
Grand Marnier (France)
Cointreau (France)
Irish Mist (Ireland)
Gurtler Schloss Kirsch (Austria)
Sour Puss (United States)
Dom B & B (France)
Jagermeister (Germany)
Smirnoff (Canada)
Polar Ice (Canada)
Iron Works (Lunenburg, Nova Scotia)
Products
Hard Cider
Wild Rose Liqueur
Mead
Strait Rum
Strait Shine
Strait Vodka
Potato Vodka
Gin
Anisette
Bacago
Irish Coffee Liqueur
Irish Cream Liqueur
Rum Cream Liqueur
Marula Fruit Liqueur
Cream Liqueur
Irish Cream Liqueur
Coffee Liqueur
Cinnamon Spice Liqueur
Cream Liqueur
Coffee Liqueur
Liqueur
Liqueur
Liqueur
Cherry Liqueur
Watermelon Liqueur
Liqueur
Herb Liqueur
Vodka
Vodka
Vodka
Blueberry Liqueur
Cranberry Liqueur
Volume/ml
750
375
375
750
750
750
750
750
750
500
750
375
750
750
750
375
375
375
375
375
375
375
375
375
750
375
375
375
375
375
375
375
% Alcohol
7.5
15
12
40
50
40
40
40
31.8
40
15.5
17
15
17
17
17
20
20
20
20
40
40
35
40
15
40
35
40
40
40
26
26
Price $
14.95
42.00
8.50
35.00
27.95
27.95
55.25
49.85
34.95
29.95
31.95
14.00
29.45
26.90
29.90
16.95
16.95
16.73
14.00
14.00
23.95
21.25
18.90
19.00
23.50
19.95
15.65
14.50
14.50
25.00
25.00
25.00
Source: PEI LCC retail stores/company websites.
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EXHIBIT 2: DEEP ROOTS DISTILLERY
Unaudited Statement of Income and Deficit for the Year Ended December 31
Revenue
Cost of goods sold
Purchases
Inventory – end of year
Subtotal
Gross profit 2014 – 41.5%
Expenses
Advertising
Bank charges and interest
Credit card commissions
Depreciation
Dues and fees
Office
Product development
Professional fees
Rent
Repairs and maintenance
Small tools and supplies
Training
Travel
Subtotal
Net gain (loss) for the year
Gain (deficit) – beginning of year
Gain (deficit) – end of year
2014
$
14,480
Estimate 2015
$
53,000
24,819
16,341
8,478
6,002
10,500
40,000
(29,500)
82,500
2,996
205
151
3,783
1,044
251
3,582
1,780
6,000
927
1,457
250
398
22,824
(16,822)
(3,640)
(20,462)
1,000
200
150
4,000
1,000
500
2,000
500
6,000
1,000
2,000
50
1,500
19,900
62,600
(20,462)
42,138
*Excludes salaries
Source: Company records.
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