Short presentation in UNR's BADM 701 about possibility of exporting bottling operations for Silver Peak Brewery in Reno, Nevada.

1. Outsourcing
Beer Bottling
Presented by:
Ann McKenzie
Jeff Bennett
Daniel Herr

2. OVERVIEW & HISTORY
Ann McKenzie

3. Overview
• History/Background
• Process/operation to outsource
• Challenges
• Outsourcing Analysis
• Conclusion

4. History
• Silver Peak Brewery
• Founded 1999
• Three Reno locations
• Owners: Trent Schmidt, Brewmaster, and Dave
Silverman, Chef

5. Process to Bottle
• Pump beer from storage tanks into bottles
• Cap, label and pack bottles
• Refrigerated storage facility
• Refrigerated distribution trucks

6. Bottling Options
1. Build facility:
• Bottling equipment
• Refrigerated storage facility
2. Outsource to a bottler
3. Mobile bottling provider
• Build refrigerated storage facility

7. CHALLENGES & SETUP
Jeff Bennett

8. Challenges

9. Challenges
• Production Capacity
• Refrigeration / Storage Capacity
• Distribution Channels
• Forecasting / Demand Management
• Product Mix
• Fermentation Lead Times
• Capital financing
• Sales and Marketing

10. Challenges
• Bottling process is specific to beer
• Distribution costs are highly variable
• Shelf space is a premium and negotiated on a high level
• No glass bottles. Plastic and can bottling only.
• Typically only subcontract for distribution and private
labels.

11. Assumptions
• 1 U.S. Gallon = 128 oz.
• 1 Barrel = 31 Gallons
• 1 Barrel = 3,968 oz.
(330.67 - 12 oz. Beers) (55.11 – 6 pack 12 oz. Beers)
• Estimated bottled beer demand would require between
6000 and 8000 additional barrels to be produced.

12. WHAT SHOULD WE DO?
To outsource bottling or not to…

13. Outsourcing Solutions
• Mobile Bottling Solution - .045 cents per bottle
• Includes bottles, caps and labels.

14. Outsourcing Solutions
• Eliminates new facility (Estimated Cost $65.00 per sq. ft)
• Eliminates the entire bottling line (Estimated cost $50,000)
Rotary Rinser
Long Tube Filler
Head Crowner
Exterior Bottle Rinser
Air Wash Dryer
Rotary Labeler

15. THE PROBLEM; THE SOLUTION
Daniel Herr

16. • We’ve established:
• We want to grow market penetration
• We want to bottle the beer
• There are many factors & decisions involved
• Determine Outsourcing with Break Even analysis
• Based upon number of Bottles
To Outsource or Not to…

17. Built it Outsource it
• Act. cost of $287k in yr 1 • $0.045 / bottle
• Zoning & Permitting
• Building Construction
• Limited no. bottling
• Bottling Equipment
operation times per year
• Full Time Employee
• + Annual Costs
• Inconvenience for
• Assumes virtually customers
unlimited production
capacity
• Needs more warehousing
Break Even

18. $1,200,000.00
$1,000,000.00
$800,000.00
Cost of Bottling
$600,000.00
Build It
Outsource
$400,000.00
$200,000.00
$-
0 2 4 6 8 10 12
Year
• Outsource if:
• < 361,352 six-packs per year
Break Even

19. Research

20. Research

21. Research

22. Research

23. Cost of Canning / Bottling
10%
11%
34%
Cans
Syrup
Overhead (Water, Labor, Prod.)
Can Lids
15%
Cardboard Cases
30%
7up Pricing

24. Silver Peak Pricing
$0.30
$0.25
$0.20
$ / Volume
$0.15
Price / oz
Profit / oz
$0.10
$0.05
$-
1.0 10.0 100.0 1,000.0 10,000.0
Volume
Silver Peak Pricing

25. Variables Constants
Inventory Turns 18.00 /year 31.00 gallons / barrel
Cold Storage (Usable) 250.00 sq-ft 15.50 gallons / keg
Increase Product Capacity 7,000.00 barrels 12.00 oz / bottle
Kegs in Circulation 6,000.00 kegs 128.00 oz / gallon
Local Store Shelf Space 60,000.00 sq-ft 6.00 bottle / pack
Cans / Pallet 8,169.00 cans / pallet
Pallet Size 11.06 sq-ft
Pattlet Stack Height 2.00 pallets
Keg Stack Height 3.00 kegs
Standard Keg Footprint 2.04 sq-ft
Buffer Arround Storage 6%
Pack Footprint 0.17 sq-ft
Profit - Kegs $ 0.065 /oz
Profit - Bottles $ 0.020 /oz
Production Optimization

26. Bottle 6-Packs Kegs
Produce 243,907.15 5,148.53 per year
Maximize $ 1.44 $ 128.96 profits / item
Total Profits $ 1,015,180.83
X = 6-packs Y = Kegs Maximim Current Value
Production Cap (gal) 0.5625 15.5000 217,000.0000 217,000.00
Cold Storage * Turns (sq-ft) 0.0041 0.6816 4,500.0000 4,500.00
kegs available - 1.0000 6,000.0000 5,148.53
local store space 0.1667 - 60,000.0000 40,651.19
Minimum
Kegs - 1.0000 - 5,148.53
Bottle 6-Packs 1.0000 - - 243,907.15
Example Profit Line 1.4400 128.9600 900,000.0000
Production Optimization

27. 16,000.00
14,000.00
12,000.00
10,000.00
Kegs (#)
8,000.00 Production
Storage
Max Kegs
6,000.00
$900,000 Profit Line
4,000.00
2,000.00
-
0 50000 100000 150000 200000 250000 300000 350000 400000 450000
6-Packs
Production Optimization

28. Bottle 6-Packs Kegs
Produce 243,907.15 5,148.53 per year
Maximize $ 1.44 $ 128.96 profits / item
Total Profits $ 351,226.30 $ 663,954.53 $ 1,015,180.83
Results

29. • Outsource if:
• Less than 361,352 six-packs per year
• Results
Bottle 6-Packs Kegs
Produce 243,907.15 5,148.53 per year
Maximize $ 1.44 $ 128.96 profits / item
Total Profits $ 351,226.30 $ 663,954.53 $ 1,015,180.83
• Outsource = YES!!!
• For Now..
Recommendations

30. QUESTIONS?
Ann, Jeff & Dan