Fifth Underground Vodka FifthUnderground.com 5thUnderground.com - Business Plan
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Fifth Underground Vodka
Business Plan
FifthUnderground.com
5thUnderground.com
Prepared By:
M. G. Shell
April 7, 2011
Revised 4/18/11
TABLE OF CONTENTS
TABLE OF CONTENTS ............................................................................................ 2
EXECUTIVE SUMMARY ........................................................................ 3
INTRODUCTION ...................................................................................................... 5
BUSINESS DESCRIPTION ........................................................................................ 6
MANAGEMENT STRUCTURE................................................................................... 7
INDUSTRY ANALYSIS.............................................................................................. 7
EXHIBIT 1 ...................................................................................................... 7
EXHIBIT 2 ...................................................................................................... 8
EXHIBIT 3 .................................................................................................... 10
VISION STATEMENT................................................................................ 10
MISSION STATEMENT........................................................................................... 10
BUSINESS OBJECTIVES..................................................................................... 11
BUSINESS OPERATIONS................................................................................ 12
MARKETING........................................................................................... 12
FINANCIAL INFORMATION................................................................. 14
SUMMARY ........................................................................................... 15
2
Revised 4/18/11
EXECUTIVE SUMMARY
The purpose of this business plan is to support a request for a $750,000
equity stake investment in exchange for 20% ownership in the start-up “5th
Underground Distillery, Inc.”. The business will be co-owned by Mark Shell and
Aliaksei Pustavoitau and will be located in the state of West Virginia1. The
owners will provide a minimum of $50,000 in equity during the 2 year startup
phase in addition to the development of processes and production methodologies
to produce the 5th Underground brand of vodka.
The business will operate as a “Craft Distiller” under the classification as a
Distillery that produces distilled alcohol products in the state of West Virginia1 for
distribution in the United States. The business also retains the rights to outsource
distillery operations through contract distillation arrangements. Under the
outsource model of operations, 5th Underground Distillery, Inc. will supply mash
product and processing knowledge to the contract distillery which will produce
the distilled products for testing, bottling, inventory and distribution by the 5th
Underground Distillery Bottling Operations.
The owners will retain 100% control over all intellectual property and trade
secrets associated with ingredients, production processes and distillation
methodologies associated with the distillation of all 5th Underground distilled
products. 5th Underground Distillery, Inc. will license the distillation process from
the owners who will operate as either a Sole Proprietorship or LLC.
1 th
5 Underground Distillery, Inc. has chosen West Virginia as the primary production location.
However, an alternate location may be selected based off of regulatory requirements, licensing
and tax laws. Additional location selections include but are not limited to Virgin Islands, Ohio,
Virginia, Kentucky, Canada, Belarus, Russia and Ukraine.
3Revised 4/18/11
Significant investment is required during the first year of operation in order
to establish distillation capabilities, inventory management and product
distribution. Capital expenditures will exceed $500,000 and the expected net
income is a loss of $140,000. As a result cash and cash equivalents at the end of
the first year of operation are expected to decrease from $750,000 to under
$175,000. As sales increase to a projected 90,000 bottles per year by the fifth
year, sales are projected to exceed $2,500,000, net income is projected to
exceed $150,000 and we are projecting a dividend payment of $75,000 while
maintaining cash and cash equivalents of $375,000 or more.
Over our 10 year projected operating plan, 5th Underground Distillery, Inc.
expects to reach annual sales of $7,000,000 and a net income of $736,000.
Starting in year 5 of operations and continuing through year 10 we are projecting
paying out dividends of approximately $1,000,000, while increasing cash and
cash equivalents of over $1,900,000 and projected total assets of $2,292,254.
A capital investment of $750,000 will return a projected $850,000 in
dividends and $235,000 in retained earnings. Calculated projections have not
been made past the 10 year point, however based on projected net income we
anticipate paying a dividend of $150,000 per year thereafter.
5th Underground Distillery, Inc. has two primary vodka lines which include
a sugar based craft vodka which will be priced in the Premium2 vodka category
and a grain based craft vodka priced in the Ultra Premium2 vodka category. Our
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product strategy is to produce both lines of vodka under the 5th Underground
Distillery, Inc. brand name labeling the products as 5th No. 1 (sugar based) and
5th No. 7 (grain based). These “Craft Distilled” products will be hand bottled and
inspected for quality prior to distribution through licensed alcohol distributors
across the United States.
The owners, Mark Shell and Aliaksei Pustavoitau have experience in
operations management, production operations, marketing, information
technologies, financial management, and the practice of medicine. Together they
possess education which includes a Doctor of Medicine, MBA and MS in
Information Systems. The products were developed and tested with process
refinement completed in the country of Belarus under the close supervision and
control of chemical engineer Pavel Shibeko over a 15 year period. The product
was test marketed in the Belarus region of Molodechno and received positive
acceptance ratings for flavor, tasting and quality.
INTRODUCTION
People often say that nothing draws us together more than alcohol. Sitting
down and having a drink with your friends will usually lead to merriment, laughter,
and an all-around good time. The same has been true for as long as alcoholic
beverages have been around. That’s why vodka has had some huge cultural
influences throughout its history. 5th Underground Distillery, Inc. wants to improve
upon this experience by providing premium and ultra premium vodka distilled to
produce a unique flavor and drinking experience that is talked about globally.
5Revised 4/18/11
Russia is infamous for its vodka. Depending on who you ask, you may
hear that the drink was pioneered in that country. There is a long-standing
debate between historians over which country truly invented it. One thing is
definitely true of Russia though, and that is that vodka has become quite a
national icon. Vodka consumption in Russia is greater than any other country in
the world. Our distillation processes were designed and developed in Russia
based on distillation recipes dating from the 18th century, when distillation
techniques were perfected.
BUSINESS DESCRIPTION
5th Underground Distillery, Inc. will be a craft distiller of vodka with two primary vodka’s
which include a sugar based craft vodka which will be priced in the premium
range ($30-$40) and a grain based craft vodka priced in the ultra premium range
($50-$60). 5th Underground Vodka’s are differentiated from other vodka’s through
our mash enhancement processes, MultiStill™, and hand bottling processes. Our
MultiStill™ process is a proprietary process by which the vodka is distilled in
multiple stages to ensure purity and consistency of taste. 5th Underground
Distillery, Inc. will craft distill vodka which will be hand bottled and distributed
throughout the United States. 5th Underground Distillery, Inc. will operate one
distillery located in the state of West Virginia1 which will produce vodka for
distribution within the United States. Two products will be produced, which will
include “Premium” and “Ultra Premium” versions differentiated by the MultiStill™
process utilized, filtration processes utilized and the blending processes utilized.
6Revised 4/18/11
During the first year of operation 5th Underground Distillery, Inc. will select
and purchase a site for the distillery location, obtain all permits and licensing for
distillery operation, construct and test the distillation equipment, refine distillation
operations and begin production of distilled and bottled products with a capacity
of 500 gallons per month. The company will produce up to 5000 gallons per year
of distilled and bottled products during the first two years of operation (the
introductory stage).
MANAGEMENT STRUCTURE
President /
CEO
Mark G. Shell
Operations Managing Director Director Product
Director Aliaksei Engineering
TBD Pustavoitau Pavel Shibeko
INDUSTRY ANALYSIS
Competition in the Vodka Distillation industry is immense with over 500 commercially
produced product brands and production in nearly every country. Competition includes well known
names such as Absolut, Alexi, Finlandia, Grey Goose, Pirat, Patron, Skyy, Smirnoff, Stolichnaya
and Tito’s with new products being introduced each year. The good news for Vodka is that
consumption remains strong and is growing against traditional distilled spirits such as Whiskey.
EXHIBIT 1
World map showing countries by alcohol consumption per capita.
7Revised 4/18/11
EXHIBIT 2
This is a list of the top 50 countries by alcohol consumption measured in
liter’s of pure alcohol consumed per capita a given year, according to the most
recent data from the World Health Organization. Methodology used by the WHO
counted use by persons 15 years of age or older.
Rank Country Volume
1 Uganda 19.47
2 Luxembourg 17.54
3 Czech Republic 16.21
4 Ireland 14.45
5 Moldova 13.88
6 Hungary 11.92
7 France 13.54
8 Réunion 13.39
9 Bermuda 12.92
10 Germany 12.89
11 Croatia 12.66
12 Austria 12.58
13 Portugal 12.49
14 Slovakia 12.41
15 Lithuania 12.32
16 Spain 12.25
8Revised 4/18/11
17 Denmark 11.93
18 United Kingdom 10.39
19 Switzerland 11.53
20 Cyprus 6.67
21 Saint Lucia 10.45
22 Belgium 10.06
23 Russia 10.58
24 Nigeria 10.04
25 Finland 10.43
26 Netherlands Antilles 9.94
27 Estonia 9.85
28 New Zealand 9.79
29 Netherlands 9.74
30 Romania 7.63
31 Latvia 9.31
32 Swaziland 9.51
33 Niue
34 Burundi 9.33
35 Greece 9.30
36 Bahamas 9.21
37 Australia 9.19
38 Dominica 9.19
39 Italy 9.14
40 Bosnia and Herzegovina 8.62
41 Venezuela 8.78
42 Poland 8.68
43 United States 8.51
44 Argentina 8.55
45 Thailand 8.47
46 Haiti 6.51
47 Canada 8.26
48 Belarus 8.12
49 Gabon 7.97
50 South Korea 7.71
9Revised 4/18/11
EXHIBIT 3
Fifth Underground Distillery, Inc. will introduce the product for distribution and sales in the
state of Maryland and will continue promotion and growth of distribution throughout 40 states across
the 10 year period. Initial growth will be in the East Coast market, moving into the Mid West around
year 6 and into the Western states around year 8.
VISION STATEMENT
In three years, 5th Underground Distillery, Inc. will become a full scale distillery with a
production capacity of 10,000 gallons per year and product distribution throughout 9 states and an
established brand name that is recognized in the US consumer market.
MISSION STATEMENT
5th Underground Distillery, Inc.’s mission is to produce and distribute craft vodka’s in the US
market and to develop international production and distribution to grow business operations
annually to achieve production and distribution levels of 250,000 bottles per year.
5th Underground Distillery, Inc., makes the following commitments:
• To establish a brand name known for flavor and quality
10Revised 4/18/11
• To produce and distribute high quality vodka
• To ensure the safety of all products
• To provide consumer products that are valued and respected by the purchasers
• To manage ingredients and maintain records of birth history for all products
• To provide financial growth opportunities for investors
• To reward employees, product developers and management for successful
product development and sales growth
BUSINESS OBJECTIVES
5th Underground Distillery, Inc. will achieve the following objectives by the end of its third year
of operations:
1. Annual gross revenue of $1,130,000
2. Net income of $15,589
3. Cash and cash equivalents of $241,079
4. Net cash flow increase of $92,732
11Revised 4/18/11
BUSINESS OPERATIONS
The operation of 5th Underground Distillery, Inc. will be described using
the main functions of the business: marketing, competitive analysis, legal
structure, management expertise, support personnel, and financial information.
MARKETING
Fifth Underground is poised to take advantage of social networking media
such as MicroBlogging, Tweeting, Social Networking, Streaming Video and Viral
Marketing. Fifth Underground will produce a series of short films and full length
feature films to embed product placement within eContent movies in order to
build brand name recognition as a Vodka company with a Film problem. Fifth
Underground will maintain a strong web presence utilizing Web 2.0 technologies
and developing technologies to distribute product information, marketing
information and to encourage discussion chains to distribute information globally
in an effort to establish a brand name and create product recognition and
demand.
In addition to Web 2.0 marketing, we will employ traditional marketing
techniques such as print advertising, television advertisements, radio
advertisements and promotional events to create demand for our products. We
realize that marketing is a critical success factor in creating demand for our
products and expect to invest significant financial resources into marketing efforts
during our first five years of operations.
12Revised 4/18/11
Price
5th Underground Distilleries, Inc. will produce and distribute premium and ultra premium
vodka for sale in the United States and internationally as demand for our product
increases. Our two primary vodka’s include a sugar based craft vodka which will be
priced in the premium range ($30-$40) and a grain based craft vodka priced in
the ultra premium range ($50-$60).
Sales Strategy
5th Underground Distilleries, Inc. will partner with liquor distributors in the
Baltimore – Washington metropolitan region such as Churchill Distributors LLC,
Charmer-Sunbelt group, The Bees Distributing Company, HTR Maryland
Wholesale, Winner Distributing Company and Harford Beverage Company to
effectively distribute our products to regional retail outlet stores. Distributors will
receive invitations to sampling and promotions events intended to create an
interest in our products and to drive sales through wide scale distribution.
Place
Our products will initially be sold in the Baltimore - Washington
metropolitan area through distributors and through large corporate retail stores
such as Total Wine & More. As sales of our products increases, we will continue
to develop relationships and partnerships with distributors along the East Coast
to increase our sales and distribution.
LEGAL STRUCTURE
5th Underground Distillery, Inc. will operate as a Corporation incorporated
in the state of West Virginia1.
13Revised 4/18/11
FINANCIAL INFORMATION
Production and Sales Estimates
Projected Income
Projected Cash Flows
14Revised 4/18/11
Projected Balance Sheet
SUMMARY
5th Underground Distillery, Inc. will be successful. This business plan has
documented that the establishment of 5th Underground Distillery, Inc. is feasible.
All of the critical factors such as industry trends, marketing analysis, business
operations, competitive analysis, management expertise, and financial analysis
support this conclusion.
We invite you to review our website at www.5thunderground.com
www.fifthunderground.com and www.wix.com/kasart/5th-underground where you
15Revised 4/18/11
can find out about product development and product sampling and tasting in your
area.
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Supporting
http://www.wvabca.com/download/minidistillery/Mini%20Distiller
y%20Licensing%20Packet.pdf
http://www.legis.state.wv.us/Bill_Status/Bills_text.cfm?billdoc=s
b234%20intr.htm&i=234&yr=2005&sesstype=RS&btype=bill
http://www.wvsos.com/csrdocs/pdfdocs/175-10.pdf
§60-4-3a. Special mini-distillery license to manufacture and sell.
(a) Sales of liquor- An operator of a mini-distillery may offer liquor for retail sale to
customers from the mini-distillery for consumption off premises only. Except for
free complimentary samples offered pursuant to section one, article six of this
chapter, customers are prohibited from consuming any liquor on the premises of
the mini-distillery.
(b) Retail sales- Every licensed mini-distillery shall comply with the provisions of
sections nine, eleven, thirteen, sixteen, seventeen, eighteen, nineteen, twenty-
two, twenty-three, twenty-four, twenty-five and twenty-six of article three-a of this
chapter, and the provisions of article three and four of this chapter applicable to
liquor retailers and distillers.
(c) Payment of taxes and fees- The mini-distillery shall pay all taxes and fees
required of licensed retailers and meet applicable licensing provisions as
17Revised 4/18/11
required by this chapter and by rule of the Commissioner.
(d) Payments to market zone retailers- Each mini-distillery shall submit to the
Commissioner ten percent of the gross sales price or each retail liquor sale for
the value of all sales at the mini-distillery each month. This collection shall be
distributed by the Commissioner, at least quarterly, to each market zone retailer
located in the mini-distillery's market zone, proportionate to each market zone
retailer's annual gross prior years pre-tax value sales.
(e) Limitations on licensees - No mini-distillery may sell more than three
thousand gallons of product at the mini-distillery location the initial two years of
licensure. The mini-distillery may increase sales at the mini-distillery location by
two thousand gallons following the initial twenty-four month period of licensure,
and may increase sales at the mini-distillery location each subsequent twenty-
four month period by two thousand gallons, not to exceed ten thousand gallons a
year of total sales at the mini-distillery location. No licensed mini-distillery may
produce more than twenty thousand gallons per calendar year at the mini-
distillery location. No more than one mini-distillery license may be issued to a
single person or entity
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