EXPORTING CANADIAN ICEWINE

Prepared by

Marcio Silva

COMPANY OVERVIEW• MBP Fine Wine Export is a medium-sized export merchant company, which buys the local producer’s wine and then sell these products overseas. MBP specializes in a particular line of wine, Icewine.

• Company’s Goal’sI. To increase sales and profits II.To gain market shareIII.To increase brand awarenessIV.To prepare the company to enter the international markets such as China

CANADA & ICEWINE• Canada discovered the icewine some decades ago from crushing the grapes frozen in the vines, and picked in the winter.

• Icewine has always been expensive and will remain so in the near of future.

• Canada annually exports an average $22 million in icewine varieties to over 30 countries worldwide.

• Icewine is often purchased when visiting Canada as gifts or investments, not just alone for drinking. Icewine has become the most feasible opportunity for Canadian companies in this market at present.

• Approximately 48% of Canadian Icewine is exported to Asian Market, a value of over $ 10 million in 2008.

GOVERNMENT SUPPORT• Government of Canada contributes to the wine industry through the Canadian Wine Market Development Program and has done so for the past 12 years. This program contributed over 4.5 million dollars to Canadian wineries, assisting them to adjust and create opening for the domestic market to export.

REQUIREMENT FOR EXPORTING• The Icewine exporters must be reported to Canada custom department before they can be exported from Canada.

•The following pieces of information are mandatory:I.Nature of Goods: Commercial II. The goods are valued at CAN $2,000.00 or moreIII. The final destination of the goods is a country other than the U.S.A. (including Puerto Rico and U.S. Virgin Islands).

ICEWINE PRODUCERS• The volume of Icewine produced in Ontario has risen from 25,000 bottles in 1997 to a estimated 120,000 bottles in 2007.

• According to statistics, there are more than 130 licensed wineries in Ontario, which together cover 16,000 acres.

• The average price Canada is $ 25.00 - $ 60.00 (overseas price is usually over $100)

• Canada’s best known producers are: Pillitteri Estates, Jackson-Triggs, Inniskillin and Peller Estates.

• MBP will buy Icewine from Pillitteri. This producer have won numerous awards in domestic competitions and international wine competitions

MARKET OVERVIEW : CHINA• Icewine has proved particularly popular in China’s market in recent years. Canadian wine exports to China reached $ 3 millions in 2008, this a 100% increased from 2005.

• Fifteen years ago wine consumption in China was close to zero. Today Chinese demand for imported wine is growing at about 30% annually.

• 8.3% of the population can afford to drink Icewine today, its represents approximately 100 million.

• 80% of all wine consumed is red (it's perceived as healthier and red is the colour for good luck), white wine consumption is also slowly rising, especially in south China.

• Beijing, Shanghai and Guangzhou currently have the highest concentration of imported wine products.

KEY LOCATION: GUANGZHOU

KEY LOCATION: GUANGZHOU• Targeting the Guangzhou’s market, because is a promising market for Canadian wine exporters and consumers in this region have the largest disposable incomes in the country, high living standards, and a willingness to spend money on luxury items.

• Both on- and off-trade sales are strong; many consumers enjoy socializing eating out, raising the demand for alcoholic beverages.

• This city is not fit to plan grapes, so, has no domestic/local wine. They are dependent on import wines.

• The city is well positioned with close proximity to major shipping ports (Hong Kong).

• There are more than 200 star-rated hotels, 100 supermarkets, 100 imported wine, with about U$ 800 million in wines sales in 2008.

MARKET ENTRY STRATEGY

Target Markets: MBP’s seeks the consumers with high income and education, because they are more likely to drink Icewine.

Competitors: MBP do not have much direct competitors.

Improving Competitiveness: MBP is considering entering the market with a local partner.

Pricing: Same price from the producers, $ 25 - $60.

Terms of Sale: FOB is considered as a fair and safe method to use, in this venture.

Terms of Payment: it shows letter of credit terms account for almost 80% of trade transactions in China.

PROMOTION STRATEGY• Promotion is major form of communication in International Business. It transfers a message from the seller to the customer. MBP promotion strategy consists of: Advertising, public relations, sales promotion, personal selling and internet.

ENVIRONMENTAL ISSUESLabels for Icewine: It must have information in Mandarin Chinese.

Modes of Transportation: The physical characteristics of Icewine make it a good candidate for ocean freight. The average cost per bottle is less than $1.

Trade Documentation: MBP must acquire a V1 1 form. This form is issued by the VQA (Vintners Quality Alliance). Only VQA wines are allowed being exported.

Use of Trade Service: MBP should consider the use of freight forwards. It can reduce time and unnecessary mistakes.

RISKS FACTORSMarket Risks: Chinese consumers are extremely price sensitive: wines over $ 12 are considered expensive.

Credit and Currency Risks: China had about US$ 189 billion external debt, China currency has a pegged exchange rate with US currency. China is fighting inflationary pressures . Credit and currency risks are moderate and should be monitored closely.

Political and Other Risks: Basically, China is a peaceful country. However, China has a potential security risk with Taiwan. The immediate danger to foreigners is being caught up in anti-foreign violent public disorders that can create higher international tension.

IMPLEMENTATION PLAN FOR CHINA• Working closely with the Canadian trade commissioner services.

• Potential partners for distribution:1.Guangzhou You Yi Food Chain Co., Ltd.Add: 662 Dong Hua Dong Road, GuangzhouTel:(8620) 8765-8593E-mail: youyic@agebiz.comWeb: http://youyic.agebiz.com

2.Oliver SupermarketAdd: A2, 1/F, Clifford Mansion, Ming Yue Yi Road, Guangzhou, ChinaTel: +8620-87539202E-mail: oliversm@163.comContact: Mr. Vincent Ou

• Build a good relationship with Chinese.

• Organizing senior managements to visit China.

FINANCIAL PLAN

　

1700 cases(12 bottle per case)

Per Bottle

COGS ( based on 2006 Vidal icewine 20.400 bottles) $306,000.00 $15.00 Other Expenses 　 　export preparation (2%) $6,120.00 $0.36 transportation and freight forwarder charges (1.5%) $4,590.00 $0.27 documentation & licensing (2%) $6,120.00 $0.36 cargo insurance (1.07%) $3,274.20 $0.19 packaging and labelling (1%) $3,060.00 $0.18 Total expenses $23,164.20 $1.36Total Cost $329,164.20 $16.36 Price to Dealer 　 $25 Gross Profit Margin per unit 　 $8.64 Total Allotted Operating Budget from MBP 　 $44,500Number of Units To Be Sold to Break Even 　 20,400Minimum Number of Units Need To Be Sold Per Month 　 1,700

COGS:Cost of Goods Sold = Cost of Goods Sold for Domestic + Other Expenses = $15.00 + $1.36 = $16.36

Total Cost on buying 1700 cases $306,000.00

Cost Per Case $180.00

Cost Per Bottle (12 bottles per case)

$15.00

　 2009 2010 2011

Total Number of Sales 20,400 22,440 24,684Total COGS Per Year(cost is $16.36 per bottle) $333,744

$367,118.40

$403,830.24

Revenue Per Year $510,000 $561,000 $617,100

　 2009 2010 2011Advertising in Papers (newspapers and periodicals) $10,000 $5,000 $5,000Travel $4,000 $4,000 $4,000Internet $500 $500 $500Trade Fairs and Exhibition $4,000 $4,000 $4,000Total Cost $18,500 $13,500

$13,500

COST OF GOODS:2006 Vidal icewine price setting

TOTAL SALES COST

MARKETING AND PROMOTION COSTS

Customer Service $5,000

Miscellaneous Costs $1,000

Staffs Salary Per year $20,000

Total Cost $26,000

　 2009 2010 2011

Revenues $510,000 $561,000 $617,100

Cost of Sales $333,744 $367,118.40 $403,830.24Marketing and Promotion $18,500 $13,500 $13,500

Other Expenses $26,000 $26,000 $26,000

Total Expenses $378,244 $406,618.4 $443,330.24 Budget Surplus or Deficit $131,756 $154,381.6 $173,769.76

OTHER EXPENSES OR EXPENDITURES

OPERATING BUDGET