You should have read the case “Steel String case “ and prepared an NPV analysis for the Steel String bottling proposal. To make the analysis slightly easier assume the following:
· The company has 250 ba
els/year excess capacity
· The run for the bottling machine will be 60 cases/day, 12 oz bottles. Assume 5% wastage on production
· The monthly vehicle cost of $450 ($5,400 annually) is completely expensed (this is an allowable expense plus insurance/gas, there is no imputed interest)
· The training ($1,500) is considered an allowable installation cost at t0, as such it should be capitalized and amortized over the anticipated 4 year life of the equipment. The company uses straight-line depreciation
· The tax rate is 30%
· The company has not calculated a cost of capital but management knows a close competitor has been using 8%
You should complete this analysis using EXCEL. I suggest you convert production, material, and labour costs to a per case basis as the information indicates the company intends on selling its product at $38.00 per case.
Put your valuation on only one EXCEL worksheet. The maximum footprint for the worksheet is no more than 35 rows and 11 columns (column K). Do not hide columns or rows.
The EXCEL spreadsheet (PDF will NOT be accepted) w
Upload your NPV analysis (excel file) that contains your NPV analysis of the Steel String bottling proposal titled “Steel String Excel file.”
Microsoft Word - 9B18M010.docx
9B18M010
STEEL STRING: TO BOTTLE OR NOT TO BOTTLE
Ca
i R. Tolmie and Thomas Tiemann wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors 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 XXXXXXXXXX; (e) XXXXXXXXXX; www.iveycases.com.
Copyright © 2018, Ivey Business School Foundation Version: XXXXXXXXXX
Inspired by the agricultural bounty of the North Carolina Piedmont and the funky, free-spirited
vibes of Ca
oro, Steel String adapts modern American
ewing styles and techniques into a
unique North Carolina vernacular. Steel String aims to
ew beer that represents the culture and
character of our local community.
“Welcome,” Steel String Brewery
Three-year-old Steel String Brewery was owned by three friends—Will Isley, the
ewer; Andrew
Scharfenberg, the business manager; and Eric Knight, planner for events and promotion. By July 2016, they
had established a successful pub in downtown Ca
oro, North Carolina, just a mile or two from the
University of North Carolina at Chapel Hill campus. With an active craft-
ewing scene, North Carolina
had lots of people looking for good, local beer in bars, restaurants, and bottle shops. Therefore, it was not
surprising that Steel String had faced fierce competition from other craft
eweries in their first few years
of operation. However, their determination led to continued growth, which allowed them to hire three other
egular employees—Jesus Koesling, the assistant
ewer; Steven Horton, the pub manager; and Alfred
Kilzi, the odd-job man. They also had a group of bartenders who worked a shift or two each week. However,
at the start of 2017, the co-owners had been grappling with several questions: Should they invest in the
machinery and labour to start bottling their beer? Further, should they consider different pricing strategies?
And finally, what additional ways could they look at for giving back to their community through their social
esponsibility efforts?
CRAFT BREWING AT ITS BEST
The
ewery was in the same space as the pub, and while crowded, had a capacity of 600 ba
els of beer a
year. The beer was sold in three ways. First, and by far the most profitable, was through the pub. Second,
some beer was sold in half-ba
els to restaurants and other pubs in the area. Third, some specialty beers
were sold in half-litre bottles to bottle shops—stores in the area that catered to the growing audience of
people looking for an interesting beer or searching for a special taste. With this continued growth and
success (see Exhibit 1), Isley, Scharfenberg, and Knight wondered what their next steps should be.
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Page 2 9B18M010
Pints in the Pub
In the pub, a 12- or 16-ounce glass of beer sold for US$51 to $6, depending on the beer. Their biggest seller,
Big Mon IPA, sold for $5.50 for 16 ounces; Ru
er Room Session Ale was $5.25 for 16 ounces. High-
alcohol beers and specialty beers were often sold at a higher price in the smaller glass, so the
ewery’s
strong Thick Freakness Stout was $6 for 12 ounces. The pub usually had eight or more of its own beers and
one or two guest beers from other
eweries on tap. Bottled hard cider, a limited selection of wine, and
various soft drinks were also sold. The only foods sold were chips and nuts; however, North Carolina law
allowed food from outside to be consumed in pubs, if the location did not have a kitchen. One of the regular
specials was on one weeknight—if customers ordered a pizza from a certain food truck parked nea
y, they
got a dollar off their pizza if they bought a beer. The pub opened at 4 p.m. Monday through Wednesday, at
2 p.m. on Thursday and Friday, and at noon on Saturday and Sunday. There was seating for 55 inside and
a shaded patio out front that sat about 35. Winter days were mild in Ca
oro, and the patio was often
crowded, even in January and Fe
uary—its coldest months.
Half-ba
els in Restaurants and Specialty Beers in Bottle Shops
Selling half-ba
els to restaurants and other pubs was more difficult than most people thought. There were
only so many taps in any area; if someone added a new beer, someone else’s beer had to be eliminated. Many
places had a “rotating tap” that featured different beers at different times; if a
ewery sold a half- ba
el to be
featured in that rotation, it could sell to that place only occasionally. On the other hand, filling and delivering
half-ba
els was easy, and
eweries could rent empty ba
els for almost nothing. Steel String charged $190
for a half-ba
el of their beers. Big Mon IPA was the beer most often sold in half-ba
els.
The specialty beers that Steel String bottled were aimed at beer aficionados. The
ewery bottled sour beers,
eers with fruit flavours, and beers aged for many months in used wooden wine or bou
on ba
els. These
were bottled using a home-made rig of lumber and tubing. Steel String sold these to bottle shops at a high
price, often over $75 for a case of 12 half-litre (roughly 17 ounce) bottles. On the shelf, these bottles retailed
for $8 or more. While profitable, putting these beers in bottles using this homemade bottling rig was slow
and labour-intensive, and the market for beer at such high prices was limited.
In North Carolina, small
ewers could deliver packaged beer to stores directly; however, larger
ewers, like
all
ewers in many states, had to use a distributor—a middle-man. This law allowed Steel String to sell its
half-ba
els and specialty beers directly to restaurants and retailers in the area and get to know the customers
directly—a competitive advantage in a market where knowing the target audience was key. Given the active
craft
ew scene in Ca
oro and the su
ounding area, the Steel String partners wanted to determine the best
way to capitalize on locals’ willingness to pay a premium for good craft beer. Altogether, Steel String sold
about 350 ba
els of beer through these three channels. The
ewery was profitable, but that excess capacity
was tempting to the three partners. They really liked making beer, so if they could sell the extra they would
happily
ew the extra. They also saw it as a business opportunity. More and more, small
eweries were
putting their beers into 12-ounce bottles and cans—the size most Americans were used to. These smaller
containers were then sold in four- or six-packs, just like mass produced beer, though at higher prices.
1 All cu
ency amounts are in US$ unless otherwise specified.
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Page 3 9B18M010
Beer in Bottles