Kangaroo Tail Winery Limited (A) Two Australian entrepreneurs, Anna Amphlett and Andrew Ferris, considered starting a ne
Posted: Wed Apr 27, 2022 2:09 pm
Kangaroo Tail Winery Limited (A)
Two Australian entrepreneurs, Anna Amphlett and Andrew Ferris,
considered starting a new venture to produce, market, and
distribute high-quality premium wine. Tasmania, an island off the
southern coast of Australia, produced wines with a distinctive
character drawn from the island’s soil and water formations.
Amphlett and Ferris initially conceived the idea of the business
based on a new brand to be called Kangaroo Tail. The brand would
reflect the distinctive local character of family-run wineries in
Tasmania. Soils in Tasmania were characterized as ferrosols that
were deep and well-structured with a red or red-brown color. Much
of the soils in Tasmania were formed from the weathering of basalt,
a volcanic rock extruded as lava by numerous small volcanoes in
northern Tasmania about 10-50 million years ago. Consequently, the
basalt had long periods to weather, which explained why the soils
were so deep, with usually more than one meter to unweathered
rock.1 Tasmania now produced elegant cool-climate wines such as
Pinot Noir, sparkling wines, Riesling, Chardonnay, Sauvignon Blanc,
Cabernet Sauvignon, and Pinot Grigio. Tasmania enjoyed a national
and international reputation as a leading producer of some of
Australia’s premium wines, with its Pinot Noir and sparkling wines,
in particular, winning high praise and plenty of trophies from wine
judges and critics.2
Amphlett and Ferris thought the Kangaroo Tail Winery could
operate from Richmond, Tasmania, Australia, about 27 kilometers
from Hobart, the capital city of Tasmania (see Exhibit 1). The area
around Richmond was situated about 350 meters above sea level and
experienced a relatively mild climate all year round. Richmond
received about 600 mm of precipitation per year, generally evenly
throughout the year but with slightly more in November and
December. The average high ( low) t emperature d uring t he winter
months (June-August) was around 11°C (5°C) Centigrade, while the
average high (low) temperature during the summer months
(November–January) was around 20°C (10°C). Forestry products,
agriculture, and tourism were the region’s other key industries.
Wineries and winemaking grew rapidly during the last five years,
offering several regions in the state for wine tours.3
Tasmanian Wines
Tasmania’s cool climate was heavily influenced by its position
in the cool waters of the Southern Ocean. The first commercial
vineyards were planted in Tasmania in 1865, but the industry
collapsed a decade later largely due to the gold rush on the
mainland of Australia. The modern wine industry in Tasmania began
as a rebirth in the late 1970s. Tasmania had a diverse set of wine
regions, from the Pipers River and Tamar Valley areas in the north,
to the Coal River, Derwent Valley, and Huon-Channel districts in
the south. It developed a reputation, both nationally and
internationally, for producing high-quality premium wine from its
pristine and natural environment.
With its cool climate of long, sunny, and dry autumns, Tasmania
experienced ideal growing conditions for developing naturally
elegant, intensely flavored, and aromatic wines, particularly
Chardonnay and Pinot Noir. As well as producing stunning wines,
Tasmania was also a picturesque gourmet paradise.4
Company Background
Ferris, a retired executive, spent more than twenty years at
Constellation Brands Inc., a leading global wine, beer, and spirits
company, with New Zealand headquarters in Auckland. After
graduating from the University of Sydney, Ferris began his career
as an accountant in the Controllers unit of Constellation Brands,
rising to chief financial officer (CFO) at his retirement. Amphlett
retired as a brand manager from Treasury Wine Estates, a spinoff
from Foster’s Brewing Company. Treasury Wine now managed the
various wine brands Foster’s had acquired over many years.
Amphlett, a marketing major at the University of Sydney, managed
many Foster’s brands, including Lindeman’s, Penfolds, Rawson’s
Retreat, Wynns, Rosemount, and Sterling.
They would purchase or lease a former dairy farm that had an old
farmhouse on the property, where they might live. The 100-hectare
property also had some barns with milking equipment. Amphlett and
Ferris believed that Kangaroo Tail Winery would operate from this
facility.
Production Techniques
The couple decided that Kangaroo Winery would initially be
focused on being a wine producer from grapes they would acquire
from local Tasmanian wineries. If wine production and marketing was
successful, the business might plant vines on the property and
become a wine grower, acquiring their grape stock from a variety of
growers located throughout Tasmania. Kangaroo Tail wines would be
made using old-world, labor-intensive techniques, in small batches
under carefully controlled conditions, with a minimum of
processing. No sulfites would be added to the red wines, and they
would be made in a natural unfiltered style.
The business would hand-sort all fruit as it was brought in and
put through a crusher/stemmer. Yeast would then be added as it was
transferred to small open-top containers that were carefully
hand-stirred several times a day during the primary fermentation
process. The output was to be transferred to small basket presses
that would be slowly ratcheted down by hand to carefully extract
the juice.
The wine would then be moved into oak barrels to finish its
fermentation and aging process. The wines would be gently racked
from barrel to barrel several times to remove the spent yeast that
settled to the bottom. The wines would be aged in a variety of
French oak, Hungarian oak, and American oak barrels for a minimum
of one year (see Exhibit 2). They would then be bottled and corked,
and held for a minimum of an additional six months before
release.
Costing and Pricing
For over a year, Amphlett and Ferris experimented with a variety
of grapes, different crushing and pressing techniques, and several
types of barrels to store and age the wine they had blended.
Finally, they hit upon a recipe that yielded wines with the right
aroma, taste, and color. To their many family members and friends,
the entrepreneurs had a winning premium wine.
Based on commercial Australian dollar ($AUD) prices, they
estimated that per liter of wine it would cost $7.45 of grapes,
direct labor of $3.20, utilities and power of $0.50, and labeling
and packaging about $1.30. Based on extensive market research, they
estimated that the wine could wholesale for about $25.50 per liter.
Annual rent costs would be $560,000 for the oak barrels, $745,000
for the crushing equipment, and $1,355,000 for the production
facility. Amphlett and Ferris would each draw annual salaries of
$60,000 per year. A production supervisor would be hired and paid
$65,000 per year. A marketing and sales person would be paid a base
salary of $80,000 per year plus a commission of $0.05 per liter.
Amphlett and Ferris would lease the dairy farm in Richmond for
about $1,900,000 per year for the wine operation. They would engage
an advertising agency to promote Kangaroo Tail for about $50,000
per year. They estimated that with these production and marketing
arrangements, the winery had the capacity to produce about 550,000
liters per year. Market research suggested that the market size of
quality premium Tasmanian wines was about one (1) million liters
per year, but expected to grow at 15 percent per year over the next
ten (10) years. They estimated about 250,000 liters of premium wine
per year was already produced by the two largest existing winery
operators.
Case 17: Kangaroo Tail Winery (Costing)
Two entrepreneurs considered starting a new venture to produce,
market, and distribute premium wine on the island of
Tasmania. As part of their planning, they developed estimates for
production costs, marketing, and salaries.
The student assigned to present this case will:
1. Identify which of the proposed costs are variable and which are
fixed.
2. Based on these calculations compute the firm’s breakeven point
in liters of wine and present the results in a
breakeven graph.
3. Compute the firm’s profit before taxes if the winery operates at
full capacity. The student will compute and
present appropriate calculations, showing appropriate formulas.
Please respond in at least 300 words, citing
external references as appropriate.
Two Australian entrepreneurs, Anna Amphlett and Andrew Ferris,
considered starting a new venture to produce, market, and
distribute high-quality premium wine. Tasmania, an island off the
southern coast of Australia, produced wines with a distinctive
character drawn from the island’s soil and water formations.
Amphlett and Ferris initially conceived the idea of the business
based on a new brand to be called Kangaroo Tail. The brand would
reflect the distinctive local character of family-run wineries in
Tasmania. Soils in Tasmania were characterized as ferrosols that
were deep and well-structured with a red or red-brown color. Much
of the soils in Tasmania were formed from the weathering of basalt,
a volcanic rock extruded as lava by numerous small volcanoes in
northern Tasmania about 10-50 million years ago. Consequently, the
basalt had long periods to weather, which explained why the soils
were so deep, with usually more than one meter to unweathered
rock.1 Tasmania now produced elegant cool-climate wines such as
Pinot Noir, sparkling wines, Riesling, Chardonnay, Sauvignon Blanc,
Cabernet Sauvignon, and Pinot Grigio. Tasmania enjoyed a national
and international reputation as a leading producer of some of
Australia’s premium wines, with its Pinot Noir and sparkling wines,
in particular, winning high praise and plenty of trophies from wine
judges and critics.2
Amphlett and Ferris thought the Kangaroo Tail Winery could
operate from Richmond, Tasmania, Australia, about 27 kilometers
from Hobart, the capital city of Tasmania (see Exhibit 1). The area
around Richmond was situated about 350 meters above sea level and
experienced a relatively mild climate all year round. Richmond
received about 600 mm of precipitation per year, generally evenly
throughout the year but with slightly more in November and
December. The average high ( low) t emperature d uring t he winter
months (June-August) was around 11°C (5°C) Centigrade, while the
average high (low) temperature during the summer months
(November–January) was around 20°C (10°C). Forestry products,
agriculture, and tourism were the region’s other key industries.
Wineries and winemaking grew rapidly during the last five years,
offering several regions in the state for wine tours.3
Tasmanian Wines
Tasmania’s cool climate was heavily influenced by its position
in the cool waters of the Southern Ocean. The first commercial
vineyards were planted in Tasmania in 1865, but the industry
collapsed a decade later largely due to the gold rush on the
mainland of Australia. The modern wine industry in Tasmania began
as a rebirth in the late 1970s. Tasmania had a diverse set of wine
regions, from the Pipers River and Tamar Valley areas in the north,
to the Coal River, Derwent Valley, and Huon-Channel districts in
the south. It developed a reputation, both nationally and
internationally, for producing high-quality premium wine from its
pristine and natural environment.
With its cool climate of long, sunny, and dry autumns, Tasmania
experienced ideal growing conditions for developing naturally
elegant, intensely flavored, and aromatic wines, particularly
Chardonnay and Pinot Noir. As well as producing stunning wines,
Tasmania was also a picturesque gourmet paradise.4
Company Background
Ferris, a retired executive, spent more than twenty years at
Constellation Brands Inc., a leading global wine, beer, and spirits
company, with New Zealand headquarters in Auckland. After
graduating from the University of Sydney, Ferris began his career
as an accountant in the Controllers unit of Constellation Brands,
rising to chief financial officer (CFO) at his retirement. Amphlett
retired as a brand manager from Treasury Wine Estates, a spinoff
from Foster’s Brewing Company. Treasury Wine now managed the
various wine brands Foster’s had acquired over many years.
Amphlett, a marketing major at the University of Sydney, managed
many Foster’s brands, including Lindeman’s, Penfolds, Rawson’s
Retreat, Wynns, Rosemount, and Sterling.
They would purchase or lease a former dairy farm that had an old
farmhouse on the property, where they might live. The 100-hectare
property also had some barns with milking equipment. Amphlett and
Ferris believed that Kangaroo Tail Winery would operate from this
facility.
Production Techniques
The couple decided that Kangaroo Winery would initially be
focused on being a wine producer from grapes they would acquire
from local Tasmanian wineries. If wine production and marketing was
successful, the business might plant vines on the property and
become a wine grower, acquiring their grape stock from a variety of
growers located throughout Tasmania. Kangaroo Tail wines would be
made using old-world, labor-intensive techniques, in small batches
under carefully controlled conditions, with a minimum of
processing. No sulfites would be added to the red wines, and they
would be made in a natural unfiltered style.
The business would hand-sort all fruit as it was brought in and
put through a crusher/stemmer. Yeast would then be added as it was
transferred to small open-top containers that were carefully
hand-stirred several times a day during the primary fermentation
process. The output was to be transferred to small basket presses
that would be slowly ratcheted down by hand to carefully extract
the juice.
The wine would then be moved into oak barrels to finish its
fermentation and aging process. The wines would be gently racked
from barrel to barrel several times to remove the spent yeast that
settled to the bottom. The wines would be aged in a variety of
French oak, Hungarian oak, and American oak barrels for a minimum
of one year (see Exhibit 2). They would then be bottled and corked,
and held for a minimum of an additional six months before
release.
Costing and Pricing
For over a year, Amphlett and Ferris experimented with a variety
of grapes, different crushing and pressing techniques, and several
types of barrels to store and age the wine they had blended.
Finally, they hit upon a recipe that yielded wines with the right
aroma, taste, and color. To their many family members and friends,
the entrepreneurs had a winning premium wine.
Based on commercial Australian dollar ($AUD) prices, they
estimated that per liter of wine it would cost $7.45 of grapes,
direct labor of $3.20, utilities and power of $0.50, and labeling
and packaging about $1.30. Based on extensive market research, they
estimated that the wine could wholesale for about $25.50 per liter.
Annual rent costs would be $560,000 for the oak barrels, $745,000
for the crushing equipment, and $1,355,000 for the production
facility. Amphlett and Ferris would each draw annual salaries of
$60,000 per year. A production supervisor would be hired and paid
$65,000 per year. A marketing and sales person would be paid a base
salary of $80,000 per year plus a commission of $0.05 per liter.
Amphlett and Ferris would lease the dairy farm in Richmond for
about $1,900,000 per year for the wine operation. They would engage
an advertising agency to promote Kangaroo Tail for about $50,000
per year. They estimated that with these production and marketing
arrangements, the winery had the capacity to produce about 550,000
liters per year. Market research suggested that the market size of
quality premium Tasmanian wines was about one (1) million liters
per year, but expected to grow at 15 percent per year over the next
ten (10) years. They estimated about 250,000 liters of premium wine
per year was already produced by the two largest existing winery
operators.
Case 17: Kangaroo Tail Winery (Costing)
Two entrepreneurs considered starting a new venture to produce,
market, and distribute premium wine on the island of
Tasmania. As part of their planning, they developed estimates for
production costs, marketing, and salaries.
The student assigned to present this case will:
1. Identify which of the proposed costs are variable and which are
fixed.
2. Based on these calculations compute the firm’s breakeven point
in liters of wine and present the results in a
breakeven graph.
3. Compute the firm’s profit before taxes if the winery operates at
full capacity. The student will compute and
present appropriate calculations, showing appropriate formulas.
Please respond in at least 300 words, citing
external references as appropriate.