1 Case Study: Chester & Kent Craft Beer MGT8002: Strategic Management © Bruce McKenzie Introduction In 2011 Chris and Jack Young returned to Brisbane to pursue their passion for brewing craft beer following successful executive careers in Sydney. Chris and Jack pooled their finances and purchased The Commercial Hotel in inner Brisbane's New Farm. Chris and Jack had a vision to turn the old hotel into an inner city tap house and brewery, taking advantage of emerging opportunities in the niche craft beer industry. The hotel had fallen into disrepair and appeared to have little to offer in financial return. The brother's true passion lay in the brewing of craft beer and they saw the reinvigoration of the hotel as a means to chase the dream of owning a craft beer label. Chris had been a management accountant, and Jack had worked as an account executive with a major advertising firm in Sydney. The previous owner of the hotel was a family friend, and it was time for him to retire. He handed over the keys and the history entrusting Chris and Jack to restore the hotel to her former glory. The first year for Chris and Jack was about renovations, refurbishment and building an integrated vision based on locality brewing. At the rear of the pub was an old storage hanger which had been leased out by the previous owner to various local entities. The brothers were keen to blend rustic heritage and contemporary brewing techniques incorporating full bottling and keg operations. The industrial ambience was retained by maintaining original fixtures and fittings, and bringing in modern brewing and bottling equipment. In order to fast track quality production and build knowledge on the science of brewing craft beer, Chris and Jack brought their cousin Michelle Dolan onto the team as Head Brewer. Chris and Jack realized that while they were interested in the brewing process, and keen to take the time to refine their skills they needed expertise in the short term. When it comes to brewing beer, consistency is critical - Michelle was a PhD Science Graduate, and brewer of renown on the local scene. Michelle had established her brewing reputation with another local success story and was looking for a new challenge following a merger between her former employer and a local hotel. Harnessing local landmarks the partnership came up with a new name – The Chester & Kent Tap House. In 2012 the team commenced small scale brewing at 600 litres per day of what would become their signature line – The Chester & Kent Pale. The global beer industry The global beer market experienced a moderate rate of growth for the period 2010 to 2014, and it is expected that this will be sustained through to 2019 (MarketLine 2015). The total revenue for the beer industry is reported at 494.4 billion in 2014, and optimism for strong growth in the emerging markets of China, India and Brazil is fueling capital investment from the major brewers. It is projected that global beer consumption will rise from 176.4 billion litres in 2014 to 183.1 billion litres in 2019. (Marketline 2015). N.B: The Chester & Kent Tap House and Brewery, as well as Hops & Barley Farmco are entirely fictional. The case is specifically designed for the purposes of students studying the MBA & Masters programs in Strategic Management or Corporate Strategy. Similar names, places or events described are purely coincidental. The background to the case has been researched based on publically available research data however third party reports and accuracy of the data cannot be guaranteed. Permission to use this case is required with the copyright, Bruce McKenzie, USQ Business School.2 The global beer industry is facing multiple threats placing this projected growth at risk. Since the global financial crisis there has been a perfect storm of falling demand, increased competition from substitutes, government focus on reducing alcohol consumption and highly consolidated distribution channels. As a result of these threats traditional global brewers are looking to invigorate the supply chain, create umbrella brands and drive strategic innovation in order to build market share While global beer manufacturing has grown significantly over the past twenty years (Carling 2016), this is largely due to the development of emerging markets - India, Brazil and China. In addition, high growth in high value craft beer brewing has also proved to be a positive contributor. Conversely overall production volumes in the key North American and European markets have seen relatively flat growth (Ibis World 2016a) when it comes to traditional brewing. Further investigation reveals a flattening of this consumption in many mature markets as identified in Figure 1. The mature markets of Germany, France, USA and the United Kingdom are identified as being in the 'chill-out zone'. The emerging 'Warm-up' and 'Hot' zones present current opportunities for brewers as increasingly sophisticated consumers emerge in these markets. Traditional brewers are profoundly aware of increasing middle class demographics in these emerging settings, and high willingness to experiment and engage with international brewing brands as well as craft and premium beer brands. Figure 1: Global beer consumption (Source: Rutishauser et al. 2015) According to Rutshauser et al. (2015) per- capita consumption in the United States, and Western European markets have stagnated due to demographic changes, proliferation of substitutes in the wine and cider segments, tighter regulations and taxation measures as connected to the global financial crisis. Over the past five years traditional global markets in the United Kingdom, America and Australia have witnessed a renaissance of traditional approaches to the manufacturing and production of beer in small scale breweries. This is recognized across the globe as the craft beer industry, and is often discussed as a separate industry in of itself. Overall beer volume consumption continues to be dominated by Europe, Asia and the Americas (MarketLine 2015). In 2014 Europe accounts for 36.4 percent, Asia-Pacific 34.8 percent and The America's 27.3 of global beer consumption. The overall volume is purported to be worth $494, 834 million dollars as shown in Figure 2 below:3 Figure 2: Per capital beer volume consumption (Source: MarketLine 2015) The proliferation of product choice for consumers has been a double edged sword for the industry. An increase in competition has seen the major players in the European markets resort to private labels and heavy discounting at the lower end of the market (Rutshauser et al. 2015). This has led to raised expectation in the German market when it comes to low prices, and the traditional brewers are facing prices which have not been seen since the early 1990's. There are links here to the relative strength of European retailers which requires consideration. Low prices and strong distribution channels have allowed for overall consumption levels to hold steady; it has however had an impact on margins and profit at the lower end of the market. Consequently the major players are looking to the smaller niche based craft brewers, who are generating higher margins based on short run supply techniques, to solve their growth problems in the interest of shareholders. The rising of disposable global incomes (MarketLine 2015) and a preference for higher quality premium beer by consumers has the attention of global beer manufacturers. These traditional manufacturers see industry consolidation as their strategy for growth. Global players such as SAB Miller, InBev, Kirin, Asahi and Heineken see acquisition of craft beer competitors driving economies through distribution networks, scope of manufacturing and building knowledge and innovation in these mature markets; as well as expanding into the emerging markets of China, India and Brazil. The global beer market consists of the retail sale of five categories of beer – low/no alcohol, Ales, stouts and bitters, Specialty beer, Premium beer and Standard lager. Standard lager accounts for 57.9%of the beer market (MarketLine 2015) and is the basis for a consolidated market where five leading players dominate the market.4 Figure 3: Global beer product segmentation (Source: MarketLine 2015) The major brewing companies exhibit their market strength on the basis of global distribution networks and regionally focused breweries. As an example SABMiller sells more than 200 brands which can be categorized as premium, specialty or regional in focus. The company sells these brands in 75 countries, with its own brewing operations in 70 countries across six geographical segments (MarketLine 2015). Its Australian operations fall under the Asia Pacific umbrella and include local brands Victoria Bitter, Matilda Bay and Cascade Draught which are owned by its Foster's Group operation. Global distribution is dominated by the supermarket channel with 46.3% of market share (MarketLine 2015). The relationship between global brewing giants and multinational grocery organisations is a key barrier to entry for minor players. The market strength of these operators ensures that entry into new geographic markets requires the backing and support which comes with ownership by the likes of SABMiller. The challenge for the brewing giants is that with increased reliance on supermarket channels comes less bargaining power and higher rates of discounting. The challenge here is balancing the need of providing a full and diverse range, having global distribution networks to meet the needs of retailers, and accounting for competition driven discounting while maintaining profit margins.5 Figure 4: Global beer distribution channels (Source: MarketLine 2015) The global craft beer industry America is often touted as the original home of craft beer. In 2013 there were 2483 craft beer breweries with high rates of geographic expansion (MarketLine 2013). By definition the Americans consider craft beer to generally use traditional ingredients, and while being small in scale they are innovative in terms of the way these ingredients are blended (MarketLine 2013). Traditions of localism, community, and collaboration based on the benefits of small teams working together to produce a quality product, are tenets of the craft beer industry. A critical aspect in the niche craft beer segment is the reduced focus on economies of scale (Rutishauser et al. 2015). The ability of the craft beer manufacturer to charge a premium price allows production volumes to be reduced resulting in increased revenue based on raised perceptions of quality with consumers. Increased quality stems from the retention of traditional manufacturing philosophies, as well as innovation along the value chain – that is distribution, production, retailing and merchandising. The blend of these approaches drives differentiation within the craft beer industry. The increase in sales and growth potential in the niche craft beer segment has ramifications along the value chain for industry players. Opportunities for vertical integration into wholesaling and agriculture is a tempting move for the big players, however care needs to be taken that traditional approaches which have driven growth are not forsaken for higher volumes and loss of focus in the search for profit. Large manufacturers are not normally equipped to produce small batch brews, nor a labour intense approach to packaging.6 When these factors of production are combined with the complexities of serving the fragmented segment of the market - one approach for the big players is to look to their smaller rivals for solutions. Alternatively the big players can look to combine a regional and global approach in order to overcome structural barriers. This can be achieved through micro-geographic segmentation techniques forming alliances and partnerships which connect with communities and drive initiatives for social responsibility and sustainability; thus retaining the basis for craft brewing at the business level of the organization. The Australian beer and craft beer markets The Australian beer market is steeped in the history of iconic brands such as XXXX, Victoria Bitter and Toohey's. These brands have deep connections with the state in which manufacturing originated and early growth opportunities were to develop interstate distribution networks. As international brands came into the Australian market in the 1980's and 1990's the likes of Foster's and XXXX took up export opportunities to closely aligned markets in the United Kingdom and Europe. As the industry consolidated companies such as Lion Nathan and Carlton & United Breweries (CUB) became the target of takeover initiatives by Kirin and SABMiller. Coopers of South Australia remains Australia's last Australian owned beer manufacturer not in the craft beer segment. Under the guidance of Kirin and SABMiller, Lion and CUB have fought for market supremacy in the traditional markets for the past twenty years. These two players have moved to position themselves to take advantage of increased focus on quality and locality brewing through acquisition strategies with Lion taking over Little Creatures, and CUB buying up the Fat Yak label. Figure 5: Major players in the Australian market (Source: IbisWorld 2016b) The growth of the supermarket giants is a key element in considering distribution channels in the Australian market. In the Queensland market, Woolworths own and operate Dan Murphy's and BWS liquor outlets. Coles which is owned by Wesfarmers, operates First Choice Liquor Barn. The basis for this is that Queensland does not allow the sale of alcohol from grocery stores, and is the only Australian state to have retained this law. The ownership of liquor outlets is on the basis of owning Hotel licenses which then enable operators to own off license liquor outlets, or as they are known locally – bottle shops. The challenge for traditional giants, and to a larger extent - smaller craft beer operators is to establish distribution deals with these supermarket giants through the liquor retailers. While this works well for the major brewers with high brand loyalty and budgets for marketing and sales, it can be difficult for the smaller operators to compete in this channel. The challenge is to establish shelf facings and build brand recognition in these environments, where pallet space and 'by the carton' is the preferred method for buying by highly educated customers. In addition the supermarkets, having seen possibilities for profit are also exploring their own private7 labels at the lower end of the beer market and following a formula which has been so successful in fast moving consumer goods. Beer distribution in the Australian market is guided by Liquor Licensing and the relationship traditional brewers have with the consolidated Australian supermarket industry. The relationship between the traditional brewers and Australia's Hoteliers is also critical for all operators. Craft beer brewers have smaller marketing budgets, and often are unable to put reps on the road to develop relationship with owners of Australian Hotels. The hoteliers have built up years of good will with the traditional brewers, know their product and are happy to have those lines on their hotel taps. This makes it difficult for the smaller operators to develop brand and name recognition in some markets, and therefore drive any kind of volume growth. The role of the Australian government is also critical for the smaller operators. Australia's tax system favours draught beer sold through kegs (to the tune of 40% over bottled beer) and the traditional brewers look to maintain the status quo through well entrenched arrangements with hoteliers. The traditional brewers have been buying up some of the original craft beer labels in order to establish a foothold in that market. Figure 6: Market segmentation in Australia (Source: IbisWorld 2016b) Over this time there has also been an increase in consumer demand for foreign labels, and a glut of international beer brands being supplied to the Australian market. Brands such as Heineken, Carlsberg, Stella Artois and Grolsch were imported from Europe, and then the majors realized that brewing under license could provide cost saving opportunities. The example of Stella Artois being brewed under license by Foster's for the Australian market is a good example of diverse distribution arrangements. Brewed under license Stella Artois is often available at $45 - $50 per carton at First Choice and BWS liquor outlets, while Dan Murphy's are importing Stella Artois from the United Kingdom and selling a carton at around the same price point. Consumer demand for international beer from point of origin remains high, and Dan Murphy's accentuate this point by stocking 600ml cans at $60 a case to meet the needs of these consumers who feel 'brewed under license' is not an international premium alternative. The fact that Stella Artois is a Belgium beer and the imported version comes from the United Kingdom is also of interest. The pervasiveness of these well-known local and international brands now faces the challenge of small scale operators focused on high quality and high price. In Australia, The Craft Beer Industry Association defines a craft brewer as a brewer producing less than 40 million litres of beer per annum (CBIA 2016). Craft beer production is based on production methods which focus on colour, aroma, flavor and alcohol content in order to drive a unique taste experience for the consumer. While overall sales have grown significantly in the Australian market over the past twenty years, there has however been an overall decrease in beer consumption between 2010 and 2013 (ABC a), whilst simultaneously8 there has been an increase in the consumption of craft beer which is worth an estimated $400 million or 10.9% of the Australian market in 2015 – 16 (Ledovskikh 2016b). Figure 6: Product segmentation in the Australian market (Source: Ledovskikh a 2016) There are opportunities for vertical integration in the Australian craft beer market. Australia has a growing hop farm agricultural economy which has primarily served the major brewers for the past thirty years. A number of new agri-business' focused on hops, wheat and barley are creating a name as industry innovators through unique production techniques focused on growing demand from ever sophisticated consumers in the growing Australian craft beer scene. The industry is aligned with and growing in unison with the craft beer scene in Australia. Agri-business operations like Hops & Barley Farmco. are small on a global scale, but are well placed to serve the niche craft beer industry in Australia. Established Hop farms have been watching orders from the big players slowly decreasing in recent years as the demand for traditional brewing stagnates. Hops & Barley Farmco. have seized the initiative and looked to move on from the instability of the past, and grab this new opportunity. This is evidenced by reinvigoration of paddocks and provision of new hop varieties based on regional perspectives; this stems from growing demand for greater aroma and flavor from the market, and are critical factors for success in this market. In rural settings, this means farms of around 250 hectares are being harvested, each year and owners are investing in research and development to identify the next big hop variety. With a long gestation period farms look to generate 30 new crosses each year, and are planting upward of 1000 seedlings in any given year (ABC c). The business is heavily reliant on weather, water and nutrition – elements beyond the control of the Hop farmer, but vital to the success of developing unique hops varieties. Craft beer production in the Australian context has grown in recent years to cover every state and territory. Despite the presence of major players such as SABMiller the craft beer industry is considered highly fragmented; despite multiple acquisitions by large scale traditional brewers, the number of new market entrants continues to grow. Each state is developing its own narrative and associated success stories based on climate and culture. At the forefront is Western Australia with its legacy success story Matilda Bay. Matilda Bay was under the Foster's Group umbrella, when it was acquired by SABMiller in 2011. Melbourne's craft beer scene is driven by increasing demand from sophisticated consumers for fine dining and premium refreshments and is the home of Mountain Gate and Thunder Road among others. In New South Wales Murray's Brewing have created a name for themselves as an innovative brewer developing unique flavours and lines such as Angry Man and Sea Monster. In Queensland traditional giant XXXX dominate the market, but local establishments such as Newstead Brewing and Burleigh Brewing are fast making names for themselves. The South Australian market9 is dominated by grape growing and Wine production in the Barossa and McLaren Vale regions. South Australia is also the home of the last Australian owned brewer, Coopers. The sale of craft beer has gone against broader industry trends of falling per capita consumption, on the basis of shifting consumer trends (Ledovskikh 2016 b). Industry revenue is expected to increase by 14% in the current year and is expected to reach 454.2 million through the 2016/17 year (Ledovskikh 2016 b). The Chester & Kent Tap House and Brewery On the 1 July 2012 The Chester & Kent Tap House opened its doors offering experiential based dining and craft beer. The establishment fast developed a reputation for blending quality local food, entertainment and a community flavour. The approach focused on the experience of craft beer in an authentic rustic setting – quality over quantity in line with the narrative the craft beer sector has firmly established. Within the first year customers were offered tours of the brew house and an education on the production process harmonising their unique blend of hops, malt, grain and yeast. This was the process for their flagship line – The Chester & Kent Pale. The first year brought a production level of 161,567 litres. This was sold through two channels – the first was over the bar at the Chester & Kent Tap House and aligned with 'spicy food' offerings from the kitchen. This incorporated a Queensland focused paddock to plate initiative promoting locally grown produce and emphasizing the low carbon footprint through from this approach. The second channel was through other independently owned Brisbane Hotels where 'cross tap' initiatives and 'by the bottle' initiatives were in place to collaborate and cross sell local craft beers and compete against the large marketing budgets of the big brewers. The partnership had established a productive working relationship with a niche Agrifirm – Hops & Barley in Tasmania. The importance of the agriculture aspect of the supply chain is central to the unique blends and flavours for craft beer. Forecasting future trends is important and Head Brewer Michelle was working closely with the Hops farmer to develop a variety of hops coming through to diversify the Chester & Kent range of craft beers. The relationship with Hops & Barley comes from their philosophy of sustainable farm practices. This fits with Chester & Kent's approach to 'innovative collaboration' and minimizing the negative environmental impact of pesticides, sustainable land practices and reduced transport pollution by developing co-op based sustainable logistics capabilities. This approach targets a young 'urban thinking' market who recognize the value in minimizing distance and environmental impact when taking the product from the land and delivering it to the customer. This is part of a broader movement based in part on ideas of 'hipsterism' and customized 'bespoke' consumerism. By 2014 the accent of the Craft Beer Industry and recognition of growth opportunities was filtering through to the mainstream media. With recent attention on 'community based' enterprises and sustainability based on the idea of localism, stories such as Chester & Kent made good press coverage for the partnership. New local breweries were utilizing similar 'acting local' strategies in Toowoomba and on the Sunshine Coast, developing capabilities in sourcing ingredients, brewing techniques and driving capacity by selling through their local geographic markets. They were small, but creating a name for themselves none-the-less. With business growing in a controlled and sustainable manner, Jack and Chris realized that new horizons were emerging. The partnership had leveraged Michele's knowledge and expanded its range of craft beer to include a Summer Ale, The Chestnut Amber Ale and Wild Oats Stout. The strong growth in the Craft Beer industry has been met by challenges. In the Brisbane market the Queensland Government successfully introduced legislation commonly referred to as 'lock-out laws'. On July 1 2016 establishments in 'safe precincts' had to stop selling alcohol at 2:00 am, and in February 2017 this will move to a 1:00am lock-out for some establishments. A reported increase in alcohol related violence had resulted in negative publicity for the precinct surrounding the Chester & Kent. Community expectations related to the responsible consumption of alcohol was an important topic for the Brisbane community. Another challenge lies in the growth of the Cider market - young male consumers are part of the target market and the extent to which10 this is impacting on craft beer sales is not yet evident. Further research in the local market is required; however the large brewers were using their market power to secure taps and facings as an alternative to traditional and craft beer. The increase in overall brewery production in 2014 to 172,652 litres meant that other outlets would be required in the future. The hotel including brewery tours had gone also gone from strength to strength. Bringing in a Hospitality Manager became a priority and maintaining the family connections was vital to the story for Chester & Kent. Sarah Young had been working in hospitality sales for ten years and brought to the operation the knowledge and vitality for growing this side of the business. Sarah believed that the future for Chester & Kent lay in market development opportunities in the southern states. Sarah had developed an interactive app that customers could use to match flavours between food and beverage. The feedback from customers was positive – this was cause for optimism based on Sarah's experience of trends in the hospitality sector, and she argued that this was building brand loyalty which would continue to drive brewery sales over time. The allocation of resources for this initiative should be the focus as far as Sarah was concerned. The 2016 year saw production drop to 173,379 litres. In order to find new markets a Business Development Manager had been appointed; opportunities for a producer/wholesaler model were becoming increasingly attractive, but this would require further investment in land and equipment. The building next door was available; however Chris was concerned about over-reaching from a capital investment perspective. In addition recent developments in the production of cans had made these popular with customers again – the argument from some quarters was that the can was lighter, keeps beer cooler and has the ability to protect beer better than glass. Chris and Jack could see new marketing opportunities and increased facings in the local bottle shop market. Their local packaging partner's operation was looking tired, and although Chris and Jack were loyal the opportunity to acquire this business might be in the interest of all parties. There had been a call from SABMiller to set up a meeting. Asia pacific and European export markets beckon - the partnership would need to consider what the traditional craft beer values of Chester & Kent would look like under the umbrella of an international brewing giant. The strategy challenge lay in retaining the core fabric of the Chester & Kent – conveying value in minimized environmental impact, localized and customized offerings focused on the customer experience at each opportunity; and working with a multi-national leveraging new efficiencies in logistics, economies of scale and scope in production and opening up new markets. Chris and Jack decided that perhaps being so close to the context was not helping them arrive at an objective decision. In order to provide a new set of perspectives they make the decision to contact a Strategy Consultant and call you to arrange a meeting.11 List of References Australian Broadcasting Commission (ABC) 2016a, Craft beer and Australia's changing alcohol consumption habits, viewed 29 September 2016, Australian Broadcasting Commission (ABC) 2016b, Hops: Craft Beer, viewed 20 October 2016, Australian Broadcasting Commission (ABC) 2016c, The women making their mark on the craft beer scene, viewed 20 October 2016, Carling, J 2016, The Beer Professor, viewed 24 October 2016, http://www.thebeerprofessor.com/?p=1827 Craft Beer Industry Association (CBIA) 2016, viewed 23 October 2016, Ledovskikh, A 2016a, IBISWorld Report Industry Report C1212: Beer Manufacturing in Australia. Available from: IBISWorld. [21 September 2016]. Ledovskikh, A 2016b, IBISWorld Report Industry Report OD5071: Craft Beer Production in Australia. Available from: IBISWorld. [22 September 2016]. MarketLine 2013, MarketLine Case Study: Craft beer – A Fast Growing Market. Available from: MarketLine. [22 September 2016] MarketLine 2015, MarketLine Industry Profile: Global Beer. Available from: MarketLine. [22 September 2016] Rutishauser S, Rickert, S & Sanger F 2015, A perfect storm brewing in the global beer business, McKinsey & Company12 Appendix 1: Forecasted Profit and Loss - Chester & Kent Tap house and Brewery 2012 – 2020 Forecasted Profit and Loss for Chester & Kent Craft Beer 2012 - 2020 PROFIT & LOSS 2012 2013 2014 2015 2016 2017 2018 2019 2020 $AUD $AUD $AUD $AUD $AUD $AUD $AUD $AUD $AUD Hotel Revenue 735,000 845,000 955,000 1,050,000 1,100,000 1,210,000 1,330,000 1,440,000 1,550,000 Brewery Revenue 1,130,970 1,153,509 1,208,567 1,244,614 1,213,653 1,300,000 1,450,000 1,600,000 1,800,000 Cost of goods sold Hotel -147,000 -169,000 -191,000 -210,000 -220,000 -242,000 -266,000 -288,000 -310,000 Gross Profit 1,718,970 1,829,509 1,972,567 2,084,614 2,093,653 2,268,000 2,514,000 2,752,000 3,040,000 EXPENSES Raw materials (Brewery) 395,839 426,798 410,912 460,507 424,778 455,000 507,500 550,000 630,000 Operating consumables 12,564 13,258 14,546 15,675 16,473 17,900 19,700 20,800 21,900 Logistics 84,632 86,982 92,675 93,872 94,512 98,000 102,000 106,000 110,000 Hotel Consumables 1,867 1,987 2,189 2,489 2,598 2,700 3,000 3,300 3,600 Repairs & Replacements 3,567 2,456 1,345 2,456 1,678 2,000 2,000 2,000 2,000 Sales and marketing 8,787 6,800 7,654 8,956 7,675 8,000 8,000 8,000 8,000 Administration 4,762 5,456 4,345 3,623 4,567 5,000 5,000 5,000 5,000 Utilities (Water,power,phone) 61,600 62,220 65,332 68,595 78,775 80,000 85,000 90,000 95,000 Insurance 45,678 47,225 49,358 50,900 52,800 54,000 56,000 58,000 60,000 Wages (Inc. PAYG) 300,410 330,652 460,832 580,890 720,734 740,000 800,000 850,000 900,000 Excise tax 305,361 311,447 326,313 336,045 327,686 351,000 391,500 432,000 486,000 Capital required 4,000,000 Bank Interest/Repayment 150,000 150,000 150,000 150,000 TOTAL EXPENSES 1,225,067 1,295,281 1,435,051 1,624,008 1,732,276 1,963,600 2,129,700 2,275,100 2,471,500 NET PROFIT 493,903 534,228 537,516 361,377 304,400 384,300 476,900 568,50013 Appendix 2: Forecasted Growth - Chester & Kent Tap House and Brewery 2016 – 2021 SBU 1: C & K Hotel in AUS dollars 000,s 2016 2017 2018 2019 2020 2021 Revenue 1,100,000 1,210,000 1,330,000 1,440,000 1,550,000 ? Profit % 54% 57% 57.5% 59% 60% ? SBU 2: C & K Brewery 2016 2017 2018 2019 2020 2021 Litres 173,379 185,714 193,333 213,333 225,000 ? Avg price per unit $AUD 7.00 7.00 7.50 7.50 8.00 ? Revenue 1,213,653 1,300,000 1,450,000 1,600,000 1,800,000 ? Capital Required 4,000,000 Rate of Interest 5 5 5 5 Interest 150,000 150,000 150,000 150,000 Total Forecasted Growth 2,313,653 2,510,000 2,780,000 3,040,000 3,350,000 ? % growth rate 100.82 108.49 120.190 131.39 144.79 ?