ams brewery project plan 2

AMS Microbrewery

Project

2014 Envisioning Proposal

Aaron Bailey – AMS Councillor Michael Kingsmill – AMS Design

[email protected] [email protected]

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

Potential Partnerships/Tenancies

Construction and Equipment Costs

Production & Pre-production Costs

VI. Conclusion ............................................................................................................ 17

AMS MICROBREWERY PROJECT – JANUARY 2014 2

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

negotiations with the UBC Farm, the ad-hoc Brewery Committee once again appealed to AMS

Council with the support of the brUBC club and successfully passed a resolution on December 4th

to include a question in the upcoming referendum to support the Brewery initiative.

In order to prepare for the continuation of the project upon a successful referendum

outcome, this updated business proposal has been generated. Much of the information is contained

within the original First Key consultation and is complemented by in-house calculation completed

by the AMS Design Office pending additional funds to finance a full revaluation by First Key.

Definitions

A Microbrewery is a small-scale brewery that packages its beer in kegs, growlers, bottles, or

cans for on- and off-premises sales and off-premises consumption. A small-scale brewery in

Canada typically produces between 3,000 and 50,000, but no more than 150,000 hectoliters

of beer per annum.

A Brewpub is also a microbrewery, but with an on-site tavern component, where patrons

can purchase and consume beer on-site. A brewpub may also have significant off-site sales

revenue in addition to end-use sales to retail customers on-site.


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:

Features

The Microbrewery space will be partitioned into the following sections:

General Office Space

Administration Area

Commons Area


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

that would leverage the possibility of using locally grown ingredients, potentially from the UBC

Farm itself. Designed to be smooth, full-bodied, and easy drinking, the beers would complement

foods served at many on campus establishments, as well as serve to be a high-quality stand-alone

brew. The proposed beers (names pending) were the AMS Lager, AMS Ale, AMS Special Lager

(Bohemian Pilsner), AMS Special Ale (North American Wheat Ale); as well as two seasonal

options; a California Pale Ale and a North American Harvest Wet-Hopped Ale produced

using fresh, whole hops grown at the UBC Farm. Full details about proposed attributes and

flavour/aroma notes for each beer can be found in the original First Key consultation report.


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

2/3rds of those surveyed indicated a willingness to pay a premium for quality

products brewed on-site.

Further analysis may be necessary to better understand the interest in beer brewed on campus,

however the initial survey provides valuable insight into the beer culture that thrives at UBC.

Target Audience and Product Positioning

Currently, the AMS’ target market for beer sales is legal age, undergraduate drinkers through

the Pit Pub. Secondarily, the Gallery lounge also reaches to graduate students and UBC Faculty and

Staff. Ideally, the new AMS Microbrewery would maintain the same target markets by supplying its

products to both establishments in the New SUB, as well as the possibility to expand marketing

through keg sales to other on-campus establishments such as Koerner’s Pub and Mahoney and Sons.

The brewery would also offer two new and exciting opportunities for business revenue: reaching out

to the nearby communities in the UNA, Point Grey, and Kitsilano, as well as Special Occasion

License holders through off-site keg sales and commercial sales of small-volume growlers or

bottles/cans to students or community members.


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 products 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.

Prices were set for both potential on-tap supplies at the Pit Pub and Gallery locations, as

well as off-site keg sales. Prices for bottling/canning or growler sales require further consultation

with First Key.

Table 1 - Projected Price for On-Site Draft to Tap Products

2017 2018 2019 2020 2021

Price per 56oz Jug

AMS Lager $15.84 $16.16

AMS Ale $15.84 $16.16

AMS Special Lager $17.75 $18.11

AMS Special Ale $17.75 $18.11

AMS Seasonals $18.84 $19.22


Weighted Average per Jug $16.53 $16.82

Table 2 - Projected Price for Off-Site Keg Products

2017 2018 2019 2020 2021

Price per 50 liter Keg

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


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 2019 2020 2021 Total

Hectolitres On-Site – Draft

to Tap

AMS Lager 124 144

AMS Ale 106 119

AMS Special Lager 53 50

AMS Special Ale 47 44

AMS Seasonals 35 31

Total Hectolitres On-

Site

365 388

Table 4 - Volume of Keg Sales by Product

2017 2018 2019 2020 2021 Total

Hectolitres Off-Site – Keg

AMS Lager 31.5 33.0 34.5 34.5 34.5 168.1

AMS Ale 27.0 30.0 28.5 28.5 30.0 144.1

AMS Special Lager 13.5 12.0 12.0 12.0 10.5 60.0


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 On-

Site

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 2019 2020 2021 Total

Gross Revenue per

Brand On-Site – Draft

to Tap

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

Average Price per HL 958 1020

Table 6 - Gross Revenue per Brand Off-Site – Kegs

2017 2018 2019 2020 2021 Total

Gross Revenue per

Brand Off-Site – Kegs

AMS Lager 9,337 10,271 10,952 11,171 11,395 53,127

AMS Ale 8,003 9,337 9,048 9,229 9,909 45,525

AMS Special Lager 4,500 4,200 4,284 4,370 3,900 21,254

AMS Special Ale 4,000 3,675 3,749 3,277 3,343 18,044

AMS Seasonals 3,023 2,645 2,698 2,752 2,807 13,923


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 2019 2020 2021 Total

Revenue

Draft to Tap 349,983 395,529

Kegs 28,863 9,337

Gross Revenue 378,846 404,866

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 benefits. 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


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 decisions would be made by the tenant.

Benefits:


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


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

–––––––––––––––––––––––––––––


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 SUB TOTAL NOTES

A.1 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

SUB TOTAL

$632,655.00

F BREWERY

EQUIPMENT

F.1 EQUIPMENT PURCHASE $310,000.00 FIRST KEY REPORT

F.2 EQUIPMENT DELIVERY & PLACEMENT

$25,000.00

F.3 MINIMUM SUSTAINABILITY FEATURES

$10,000.00

SUB $345,000.00


TOTAL

G SOFT

COSTS

G.1 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 QUOTE

G.6 PERMIT FEES $632,655.00 5.00% $31,632.75

SUB TOTAL

$288,614.75

H 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

$1,380,769.09

H.4 PROJECT CONTINGENCY

$1,380,769.09 5% $69,038.45 $69,038.45

J TOTAL EST. PROJECT COSTS

$1,449,807.54


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 would 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 numbers for


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:

As shown, overall financial contribution to the Society from rental revenue alone would be $930,375.00 over a 5-year period.

Rental Cost/Square

Foot ($) Square Footage

Total

Rental

Revenue

per

Month

Total

Rental

Revenue

per

Annum

Rental Revenue

2017 $45.00 4,135 $15,506.25 $186,075.00

2018 $45.00 4,135 $15,506.25 $186,075.00

2019 $45.00 4,135 $15,506.25 $186,075.00

2020 $45.00 4,135 $15,506.25 $186,075.00

2021 $45.00 4,135 $15,506.25 $186,075.00

Total 5 Year Revenue $930,375.00

ams brewery project plan 2

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