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Technical and commercial viability study for Agricole
rum flavored with Valencia oranges (Citrus sinensis)
using "panela" and sugar cane juice
Juan Felipe Aldana 1and Santiago Caicedo 2, *
1 Chemical and food engineer student; [email protected] 2 Chemical and food engineer student; [email protected]
* Correspondence: [email protected]; [email protected]
Assessor: Nicolás Ríos Ratkovich
Abstract: Spirits play an important role in modern society due to their cultural, social, and economic
impact in different countries. This study aims to create an orange-flavored Agricole rum made with
sugar cane sub-products and flavored with Citrus sinensis using different raw materials and
flavoring methods. Once a product was chosen, its commercial viability was evaluated through a
business plan. The samples of rum were created in a factorial 22 experimental design where the
number of raw materials ("panela" and sugar cane juice) and a flavoring method (stripping and
infusion) was varied. The samples were compared with commercial brands through a taste sensing
system TS-5000Z to aim for statistical similarities in some flavor aspects. As a result, it was found
that a 50% panela and 50% sugar cane juice flavored through a stripping distillation was the sample
that will have the biggest impact. The business plan showed an excellent perspective and
approximation for the production and exportation of the sampled rum reaching a net present value
of the project of approximately USD 630,000 in a five year horizon, having earnings of USD 2,000,000
at the end of the fifth year of operation which made the project highly profitable.
Keywords: rum; distillation; oranges; sugar cane; experimental design; fermentation; a business
plan.
1. Introduction
In producing alcohol, specific yeasts are used that fulfill the function of bioreactors and
transform sugar into alcohol through a natural process named fermentation. Nowadays, alcoholic
fermentation can be classified as one of the essential categories in biotechnology because of the wide
variety of products that can be produced through it. Once the yeasts act for a specific time (at least
three days), it can be said that the result is a fermented or must. All fermented products have the
same fermentation process but differ in their raw material, making each product unique and
different. Figure 1 shows the primary metabolic route to produce alcohol through fermentation.
Figure 1. Alcoholic fermentation chemical process [1].
Distillation is the primary basis of all the beverages that we know today as spirits or liqueurs
that, by themselves, have taken on a crucial reputation due to their wide demand in the market. The
unitary distillation operation consists of separating a mixture from the application of energy in the
form of heat, thus achieving the mixture's components' boiling and then condensing them [2]. During
this process, it is essential to know the role of temperature for the distillation to be effective. Each
compound has a different boiling point; namely, compounds such as methanol, ethanol, propanol,
and other so-called congeners are part of the mixture, and each has a different boiling point. It is
essential to state that those congeners are products different from the primary alcohols produced
through fermentation and are present in the must. Table 1 and Table 2 show the different boiling
points for the primary alcohols and the main congeners.
Table 1. Boiling points of the primary alcohols are obtained through alcoholic fermentation [3].
Main alcohols Boiling temperature1 [°C]
Methanol 56.86
Ethanol 70.86
Table 2. The boiling point for some of the congeners obtained in the fermentation process [3].
Congeners Boiling temperature [°C]
Ethanal 20.2
Acetone 56.5
Ethyl acetate 77.1
2-propanol 82.0
1-propanol 97.1
Isobutanol 108.0
1-butanol 117.7
1 These values of temperatures are based in the city of Bogotá, Colombia. Which is ubicated in an
altitude of 2.644 m above sea level and an atmospheric pressure of approximately 0.75 atm [13]
Acetic acid 117.9
2-methyl-1-
butanol 125.7
1-pentanol 131.2
3-methyl-1-
butanol 131.2
Ethyl lactate 151.0
Furfural 161.7
Ethyl octanoate 206.0
Ethyl decanate 241.0
Therefore, there are three main parts in a distillation process of an alcoholic beverage: the head,
the heart, and the tail. The head is the first product of the distillation; when the temperature rises
around 56.86ºC, a set of substances is produced, mostly liquid methanol (although there are also other
minor alcohols), which has an alcohol content greater than 70% ABV. It is essential to discard this
mixture because methanol is toxic to humans, and high consumption of it could cause severe damage
because of its oxidation into formic acid. There are maximum permitted levels of methanol
depending on each country [4].
On the other hand, there is the heart with an ABV degree of 40% to 70%, here all the ethanol
(which is the desired product) is present; it is mixed with other compounds that, in the end, will
provide particular tones of flavor and aroma, as well as different physical properties to the spirit [5].
This part is achieved when they must reach a temperature of around 73ºC. Finally, the distillation
tail, which is found with longer carbonate chain alcohols such as propanol, butanol, and isobutanol,
is also characterized by aldehydes that generate strong odors such as burning and herbaceous. The
percentage of alcohol is 40% ABV or less and is obtained when the temperature exceeds 85ºC [5].
Many spirits tend to use a little of the tail when incorporating it into the heart so that the aromatic
notes are intensified; however, it depends on the producer itself since each person has different tastes
and recipes. It is essential to notice that each congener will have a different effect on the spirit's final
taste and organoleptic properties. After that, the drink is usually aged so that more flavors and
aromas are presented, contributing to a better taste and smell of the final product through a transport
phenomenon characterized by the mass transference between the spirit and the aging recipe (in most
of the cases oak or cherry barrels). Thereby, it depends on the barrel's material the organoleptic
properties that the product will finally acquire.
In addition to the above, it is essential to emphasize that the product made during the project's
development was orange rum. Rum is one of the most famous spirits in the world. Its primary raw
material is the Saccharum officinarum, more commonly known as sugar cane, which juice is composed
of carbohydrates such as glucose (3.24% w/w), sucrose (93.6% w/w), and fructose (3.14% w/w) [6].
Hence it is a rich sugar product that will be perfect for the fermentation process. It is essential to
differentiate the type of rum. The ones made using the sugar cane juice naturally are named Agricole,
and the ones produced from processed sugar cane juice are called industrial rum. The sugar cane
juice (or molasses) must be fermented to produce the spirit and distilled twice to intensify the ABV
and remove some undesired flavors or odors [7]. It is essential to talk about some of the Maillard
reactions in the sugar cane juice production and the "panela" because the chemical compounds
produced during these reactions will enhance the final product's aroma and flavors. Table 3 shows
some of the aromatic compounds present in "panela," which gives it a specific and enjoyable smell.
Table 3. Aromatic compounds present in "panela" [8] [9].
Compounds Quantity Unit
2-methyl-piranose 4.949 ±2.1 *10-6 mg/g of dry product
2,5-dimethylfurane 2.672 ± 0.0 *10-6 mg/g of dry product
Furfural 2.664 ±0.1 *10-6 mg/g of dry product
Propanoic acid 1.098 ±1.5 *10-6 mg/g of dry product
2-methyl-Propanoic acid 1.393 ±0.0 *10-6 mg/g of dry product
2-methyl-furane 8.18±1.9 *10-7 mg/g of dry product
The compound rum is when some flavors such as lemon, mint, or orange are added during the
process [10]. These flavored rums had a vital market target because they are widely used in
bartending and relating activities. Orange rum is widely consumed in the world because of the
smooth and complementing combination of their flavors. It is usually made from the dry peel of the
fruit [11], which has a high content in essential oils and other flavors that are released in the
distillation such as hexanal, α-pinene, β-myrcene, limonene, linalool, decanal, ethyl octanoate, ethyl
hexanoate, ethyl 3-phenylpropanoate, ethyl cinnamate, isoamyl alcohol, guaiacol, 4-ethylguaiacol, 4-
vinylguaiacol, 2,3-butanedione, and (E)-β-damascenone [12] [13]. Most of the orange rums in the
market are made with aged rum, which is the same base spirit with treatment through an oak or
cherry barrel, giving the spirit an intense color and some herbal notes [14]. However, this project aims
to produce a rum basing the flavor in the Agricole rum; hence, it will be translucid and transparent
and reflect all the natural odors of this type of rum. The orange flavor can be given to the rum through
different processes. Maceration and infusion are the most used in which a solid-liquid extraction
happens when the orange peel mix itself with the ethanol present in the first distillation of the rum
extracting the compounds of interest mentioned before [15]. Another method that is widely used is
stripping. In this process, the orange peel must be placed in the top of the distilling pot, and a vapor-
solid extraction will occur as soon as the vapors of the distillation carry out some vapors in the orange
peels, also extracting different chemical compounds and giving flavor to the spirit. One of the most
critical objectives in this project is to evaluate which of these methods will be significantly more
accurate than the other to achieve a specific desired flavor.
A business plan will be created to evaluate the rum's commercial viability, starting from the
technical analysis results. In this business plan, items such as the business model, the market analysis,
the client profile, the competitors' profile, the operation plans, the risk analysis, and the financial
analysis will be discussed and analyzed basing the production in Colombia and the sales of the rum
in North America and Europe due to law issues with the production of alcohol in the home country.
2. Materials and Methods
2.1. Raw materials and equipment
2.1.1. Oranges
Citrus sinensis, commonly known as Valencia oranges, were chosen since they are among the
most cultivated species in Colombia, available all year round at an accessible price. A few
were purchased at the local store for $700 COP per pound. The ripeness level should show some
yellow and green color throughout the fruit, and the peel must be healthy [16]. These oranges
were adequately washed. Later the pulp and albedo were removed. Note that any albedo remaining
in the orange zest causes a bitter taste in the product. For stripped distillation, the orange zest should
be cut into small pieces and added to the chamber for this purpose. During maceration medium size
pieces of orange zest were implemented. For both processes, 7 g of orange zest was used for each
sample.
2.1.2. Yeast
Craft distilling yeast specialized for Agricole rum "white star" was used. This is a commercial
brand containing the yeast species Saccharomyces cerevisiae and sorbitan monostearate. The first is the
main component widely used in alcoholic beverages; this microorganism is responsible for the typical
fermentation. The latter component is a surfactant with emulsifying properties commonly used in
the food industry.
2.1.3. Sugar cane juice and raw sugar
For must preparation, 50°Brix sugar cane juice was poured among "panela," a traditional sweet
maroon solid block of raw sugar cane sugar with a specific flavor, commonly found in Colombia. It
could also be replaced by using brown raw sugar, although the taste profile would differ. Table 4
and Table 5 show some physical properties of both sugar cane sub-products.
Table 4. Physicochemical properties of "panela" [8].
Physicochemical data Quantity
pH 5.4-5.8
Total soluble solids (TSS) 94°Brix
Density 0.67-0.71 g/ml
Viscosity NA
Table 5. Physicochemical properties of sugar cane juice [8].
Physicochemical data Quantity
pH 5
Total soluble solids (TSS) 17.4°Brix
Density 1.1219-1.345 g/ml
Viscosity 1.8-105.2mPa*s
Specific heat 2.66-2.98 J/gK
2.1.4. equipment
For must preparation and fermentation, a 10 L fermenter is required. This container should
provide a hermetic seal for the must and have an airlock installed on top to monitor the fermentation's
progress. For the distillation process, a 2 L distiller must be assembled with a heat source
underneath. A temperature regulator included a thermometer, a pumped cold-water source, and a
heat intensity control installed. It should be noted that the latter equipment must include
a small stripping chamber for orange zest. For the infusion process, various 1L
glasses were implemented.
2.2. Methods
2.2.1. Fermentation
For this stage, two must batch were prepared. The first with equal parts by weight of "panela"
and sugar cane juice, the second had 80% by weight of sugar cane juice, and the remaining was
"panela" diluted. "Panela" can be heated and stirred in order to achieve complete dilution. To each
batch, 2L of water per kg of either "panela" or sugar cane juice was added. At this point, Brix
degrees were measured. Besides, 0,7g of "white star" yeast per liter of the must was carefully
activated by combining 30-40°C must sample with the yeast and rested for 10min, then carefully
poured into the fermenter. The must was gently stirred for homogeneous mixing. The containers
were sealed and kept in a 24-33°C room, protected from direct sunlight for about seven days. Note
that fermenters should not be filled due to carbon dioxide production during the fermentation
process that could pressurize the container. At the end of this process, Brix degrees were measured a
second time to obtain the process efficiency and reaction conversion using Equation 1 presented.
Equation 1. Fermentation efficiency.
𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 % =𝑖𝑛𝑖𝑡𝑖𝑎𝑙 °𝐵𝑟𝑖𝑥 − 𝑓𝑖𝑛𝑎𝑙°𝐵𝑟𝑖𝑥
𝑖𝑛𝑖𝑡𝑖𝑎𝑙°𝐵𝑟𝑖𝑥∗ 100
2.2.2. Distillation
The distiller's assembly was carefully done, considering the correct flow of cold water into the
condenser, so the temperature control worked correctly. The following process was carried out for
both must batches. The must was divided by half to do one distillation for infusion and a stripped
distillation with the orange zest in the chamber; otherwise, the process remained the same for each
sample. Stripped distillation involves a solid-vapor extraction in which the volatile compounds in
the mix, mostly ethanol, rise within the distiller and go through the solid matrix, the orange zest,
carrying compounds of interest. The multilevel factorial design yields four possible sample
combinations as detailed in Table 6 for better understanding. The must was distilled at 70-80°C
constant temperature, discarding the head of distillation not suitable for consumption, which is
about 10 mL per liter of the must. The following distillate was continuously monitored, measuring
accumulated ABV content until this measure reached 60%ABV. The remaining substance was
distilled but considered the tail and thus discarded. Note that constant temperature within the range
is required to guarantee a proper distillation. An increase in temperature above 80°C will affect the
ABV measurements and product quality [17].
Table 6. Experimental design samples.
Composition\Flavoring method Stripping
distillation Infusion
50-50% composition Sample 1 Sample 2
20-80% composition Sample 3 Sample 4
2.2.3. Infusion
At the end of the first distillation process, orange zest for infusion was added to the
corresponding containers then macerated to expel flavor and aroma. Maceration is a solid-liquid
extraction in which the spirit is a liquid solvent added to a solid matrix, orange zest, and dissolves
compounds of interest [15]. The infusion was carried out for seven days. During this time, the
stripped distillate was left to balance flavors and aromas in a container with filter paper on top so
that air could flow in, but dust particles kept out. At the end of this process, another distillation took
place to fulfill the rum-making process and remove any impurities from the infused spirit
samples. Figure 2 shows the experimental process for the making of the different samples
2.2.4. Statistical Analysis
The four samples were compared by their taste profiles composed of initial taste and aftertaste.
The first one contains sourness, bitterness, astringency, umami, and saltiness. On the other hand, the
aftertaste was analyzed by measuring aftertaste from bitterness, aftertaste from astringency, and
umami richness. This quantitative analysis was obtained using the Insert taste sensing system TS-
5000Z. The manufacturer has taste sensors that imitate the taste reception mechanism of living
organisms consisting of a lipid membrane (similar to that of the human tongue) that causes
electrostatic or hydrophobic interactions with various taste substances. Using the potential of a
reference solution (substitute for human saliva), the difference in potential with the sample liquid is
measured as the initial taste. The sensors are then lightly washed, and the difference in potential with
the reference solution is measured as the aftertaste [18]. These taste profiles are compared with Santa
Teresa orange rum and 472 spirits. All samples were diluted to 15% ABV to guarantee accurate results.
This equipment measures three profiles for each sample to ensure correct data.
Figure 2. Flow diagram for the experimental process
3. Results
3.1. Efficiency
The experiment was replicated in order to ensure consistency in the data. Before the
fermentation process begins and after the fermentation period was over, initial and final Brix degrees
were obtained to calculate the process efficiency. Mean values from both runs were used to yield the
following results in Table 7. Process efficiencies were calculated using Equation 1.
Table 7. Fermentation efficiency values.
Composition\Efficiency values Initial °Brix Final °Brix Efficiency %
50-50% composition 16.9 7.5 55.62
20-80% composition 14.4 6 58.33
Both must include compositions in run one and two yielded results in the range of 50-60%
efficiency, and all runs had consistent data. Having this in mind, must batches be considered
adequately fermented, and thus, the data obtained with these samples accepted. Table 7 shows that,
on average, the 20-80% composition must be more efficient in producing ethanol, although the
differences in values are only about 3%.
3.2. Statistical analysis
To determine which of the rum samples made has a taste profile similar to that of commercial
rum brands, the statistical analysis results are shown in Figure 3 and Figure 4. Rum samples are
compared with Santa Teresa orange rum and 472 spirits orange rum. The software used by the Insert
taste sensing system TS-5000Z to determine the analysis assigns zero to all sensorial characteristics to
the standard sample. For this study, Santa Teresa orange rum was the standard sample in both runs.
Mean values of initial and aftertaste profiles for run one are shown in Annex 1 and Annex 2,
respectively. For run two results are shown in Annex 3 and Annex 4, respectively.
A comparison was made using Minitab software. Results show that with a confidence
interval of 95% for the samples studied, the means statistically differ in their sensorial characteristics
of aftertaste-B, umami, sourness, saltiness, and bitterness only for Sample 2 in Table 6 using as
reference Santa Teresa orange rum. This data is shown in Annex 5. Means statistically differ in their
sensorial characteristics of bitterness, sourness, aftertaste-A, saltiness, and richness only for Sample
2 in Table 6 using reference 472 spirits orange rum. This data is shown in Annex 6Annex 5. These results
helped to analyze the samples tested. However, since both references differ in most sensorial
characteristics, a visual representation is seen in Figure 3 and Figure 4, showing that Santa Teresa orange
rum and 472 spirits orange rum data as an acceptable range for the samples' taste profiles aid the
comprehension of the Minitab comparison.
Figure 3. Samples taste profiles compared to Santa Teresa orange rum. Run one.
Figure 4. Samples taste profiles compared to Santa Teresa orange rum. Run two.
Figure 3 is shown the data collected for run one. All samples analyzed obtained similar results
in most sensorial characteristics, which translates to similar mouthfeel overall compared to the
references. There are some noticeable differences between Santa Teresa orange rum and 472 spirits in
sourness, with the Santa Teresa orange rum being the sourest of both for 13,77 points measured.
Results obtained for the rum samples' sourness are within the references' range, which is the
acceptable range for sourness. Sensorial perception of saltiness in the samples analyzed proved to be
higher than the references with a difference close to 5 points measured. This difference is attributed
to the fact that the commercial brands include added sugars in their formulation. Umami sensorial
perception of the samples differs 3 to 4 points measured from the Santa Teresa orange rum but are
considerably close to 472 spirits; thus, these are acceptable results. Bitterness data for the samples are
closer to Santa Teresa orange rum than 472 spirits. The latter has an increase of about 3-4 points
measured in this characteristic relative to the samples. As previously mentioned, a second run was
done in order to ensure the reproducibility of the experiment. Results for run two are shown in
Figure 4. The overall behavior of samples and references remained the same. This is an indicator to
ratify the results to be accurate and the experimental method reproducible. Most remarks did
previously for run one also apply for the second run. During run two, 472 spirits showed a noticeable
increase in umami flavor of 2,68 points; this new data places the sample measurements within the
acceptable range composed of results for both references. Sensorial perception of saltiness remained
higher for the samples as mentioned for run one due to added sugar in the formulation of Santa Teresa
orange rum and 472 spirits.
The previous analysis concludes that the four samples reviewed are valid options compared to
commercial brands, and none of them are discarded due to their sensorial characteristics. Previous
studies show the successful employment of the Insent taste sensing system TS-5000Z or similar
electronic tongue systems to evaluate different food types. Some authors have worked with the
system to analyze umami taste in mushroom extracts [19], taste characterization of green tea [20], and
evaluating the taste of tea with different degrees of fermentation [21]. They also mention previous
studies made by other authors that worked with apple juice quality and tea [22] [23] [24], taste
analysis of brown rice [25], and evaluation of processed strawberry juice [26]. This study uses the
electronic tongue system data as a reliable source to evaluate the sensorial perception of different
types of foods with varying taste profiles, which provides a solid background to base this analysis on
the Insent taste sensing system results in TS-5000Z.
It is necessary to formulate a numerical analysis to establish the best option of the four samples.
Statistical error for each sample relative to the references is calculated for all sensorial characteristics
analyzed. Considering the entirety error of each sample's taste profile, proximity to the reference can
be determined. The sample with the smaller value of proximity is then the closest to the reference.
The sample closest to Santa Teresa orange rum is Sample 4 in
Table 6 with a score of the proximity of 19,40 to the reference mentioned. On the other hand, Sample
1 in
Table 6 is the closest to 472 spirits with 15,69 points of proximity. Sample 1, which is infused
with orange flavor by stripping distillation, is the best option. The value of proximity to the 472 spirits
is significantly lower than the other option considered. In conclusion, this formulation will provide
the best final product, similar to a commercial brand.
The slight difference between the flavor of the samples of the different rums is relevant because
they are almost the same; an economic analysis can be made to produce the cheapest rum that
enriches the organoleptic perception of it. Therefore, this economic analysis was made by comparing
the gross production cost (only considering raw materials and the efficiency obtained in Table 7 of a
single 1L bottle if other factors such as water, energy, and equipment remain constant. Table 8 shows
the prices of the raw materials and production for one single bottle of rum.
Table 8. Comparison of raw material prices to produce 1 L bottle.
Raw material\Sample
Price($COP)
80-20%
Stripping
80-20%
Infusion
50-50%
Stripping
50-50%
Infusion
Sugar cane juice 2210 2210 1500 1500
“Panela” 248 348 900 900
Yeast 495 495 495 495
Orange 350 350 350 350
TOTAL 3405 3405 3245 3245
Regarding this comparison, it is relevant to demonstrate a certain tendency to produce the
cheapest rum, which will be any of the 50%-50% products despite the prices' similarity. Another
important statement is that the stripping nor the infusion will differ in the number of raw materials.
These methods will only interfere in the production time but not in the economy because infusion
will take a longer time (approximately three days) longer than the stripping process. However,
considering time as an essential agent in the production of rum, it will be better to produce a
significant rum at lower and lower prices.
Considering all the above, a decision regarding the best rum to produce was made; the 50-50%
composition infused by stripping distillation is chosen as the best option. Favored by the economic
analysis and the sensorial characterization as the closest sample to the commercial brand 472 spirit.
3.3. Business plan
A business plan was created starting from the best option of rum-based on this study (See Annex
5. Minitab comparison of means of taste profile with Santa Teresa orange rum as reference.
Annex 6. Minitab comparison of means of taste profile with 472 spirits orange rum as reference.
Appendix A). Therefore, an entire product, market, operational, and financial analysis was made
to mass production of this new orange rum. This business plan aims to enhance the Colombian
farmer's community to support some abandoned by the country's social reinsertion. Thus, a new
Colombian product that highlights those people's hard and tenacious job is an exciting approach for
the Colombian social justice problem. Considering this, the last name decided for the product was
Guaia Orange Rum, the antique Chibcha (a Latin American antique community) word for "mother
nature". In Colombia, there is a particular situation with alcohol production. Legally it is impossible
to distillate spirits and sells them if the company is not part of the state's liquor production monopoly.
Therefore, this project aims to sell the product in North America and Europe.
The business plan also indicates a potential market value of USD 119.1406,06 million and
identifies a type of customer named as "liberal household," which is the kind of person that, based
on their principles and tastes, will like our final product. The company will be based in Bogotá and
will count on five principal organic areas: production, marketing & sales, investigation &
development, management, and financial. Regarding the financial analysis, considering an
opportunity cost of 19.84% based on the cost of investing in this project rejecting other opportunities
and products, it was estimated a net present value of COP 2,145,414,720.3, which is approximately
USD 630,000 in a five-year horizon. Each bottle costs about USD 18.38, including all production,
bottling, and exportation fees, and will be sold for USD 42.99. With that in a realistic growing scenario
of 9% each year for year 5 of operations, there will be approximately USD 2,000,000. The annexed
business plan contains more highly detailed information for the company, the product, the market
analysis (including positioning and marketing strategies), a complete SWOT analysis of the company
and the sector, and a more in-depth financial investigation.
4. Conclusions
The usage of an analysis tool such as an electronic tongue is vital to the investigation due to its
mathematical precision to compare two flavor profiles. Without this type of tool, the conclusions
would be subjective and will differ from the scientific method's relevance to prove a theory.
Therefore, it is essential to keep in mind these types of technological tools in future investigations.
Specifically, creating this rum will be essential to analyze the volatile and aromatic compounds that
a tool such as an electronic nose will determine. Thus, creating a new spirit can be guided by pure
instinct and how the final consumer will feel the product to its nose and mouth, reaching an optimal
point in product and process design.
The experimental design proposed, and statistical analysis carried out using the electronic
tongue allowed the best formulation of an orange rum for its proximity to a commercial brand. An
economic study of raw materials needed ratified the decision of using a 50-50% composition of sugar
cane juice and raw sugar cane sugar, infused by stripping distillation. The technical viability for this
formulation led to the creation of a business plan for the final product. It is essential to state that
despite the similarity to a commercial brand, the chosen rum will have organoleptic and physic
characteristics that differentiate it from other rums types. Not using added-sugar content will
develop a modern product that will enter the market with almost no competence.
The business plan made a precise approximation for creating entrepreneurship based on the
production of this rum that was studied. The social, economic, and market analysis made was vital
for analyzing the commercial viability of this orange rum produced in Colombia. It is essential to
exploit the potential of local products such as sugar cane juice and derivatives to reactive a country's
economy, trying its best to achieve necessary economic standards. Therefore, it is relevant to conclude
that creating an orange rum with no sugar added will be a product that will be well received as a
new entrant to the market. However, this project must succeed due to its legal conditions, considering
that the final project will be sold in other countries upside the globe. It is essential to keep working
with all the legal tools to face the impediments that commercialize alcoholic drinks inside the country.
It is known that, although it is not a simple issue, it can be achieved under the legal framework, as
well as competitors (that are not direct) as "Hechicera" and "Parce" achieved in their respective time.
Annexes and Appendix
Annex 1. Initial taste profiles. First run.
Sample Sourness Bitterness Astringency Umami Saltiness
Santa
Teresa
0.00
0.00 0.00 0.00 0.00
472 spirits -13.77 2.78 0.22 2.85 -0.51
Stripped
20-80%
-4.68 -1.84 2.65 2.87 4.99
Infusion
20-80%
-6.89 0.41 1.49 3.36 4.71
Stripped
50-50%
-7.33 -1.73 2.67 3.77 4.99
Infusion
50-50%
-7.88 -1.71 0.92 3.83 4.89
Annex 2. Aftertaste profiles. First run.
Sample Aftertaste-B Aftertaste-A Richness
Santa Teresa 0.00 0.00 0.00
472 spirits -1.52 -0.23 0.07
Stripped 20-80% -0.45 -0.19 0.22
Infusion 20-80% -0.74 -0.32 0.10
Stripped 50-50% -1.33 -0.36 0.13
Infusion 50-50% -1.70 -0.31 0.10
Annex 3. Initial taste profiles. Replica.
Sample Sourness Bitterness Astringency Umami Saltiness
Santa
Teresa
0,00
0.00 0.00 0.00 0.00
472 spirits -13.66 2.38 0.23 5.53 -0.63
Stripped
20-80%
-11.00 0.37 -1.72 4.13 2.71
Infusion
20-80%
-10.28 -0.76 -1.71 3.85 1.52
Stripped
50-50%
-12.49 -0.03 -1.17 4.00 1.57
Infusion
50-50%
-9.20 -1.80 -2.03 3.59 0.99
Annex 4. Aftertaste profiles. Replica.
Sample Aftertaste-B Aftertaste-A Richness
Santa Teresa 0,00 0.00 0.00
472 spirits -1.42 0.93 0.33
Stripped 20-80% -2.12 -0.34 0.02
Infusion 20-80% -2.31 -0.32 0.00
Stripped 50-50% -2.34 -0.24 -0.03
Infusion 50-50% -2.36 -0.25 -0.10
Annex 5. Minitab comparison of means of taste profile with Santa Teresa orange rum as reference.
Annex 6. Minitab comparison of means of taste profile with 472 spirits orange rum as reference.
Appendix A. Business plan for Guaia Rum.
BUSINESS PLAN
GUAIA ORANGE RUM
JUAN FELIPE ALDANA HEREDIA
SANTIAGO CAICEDO NARVAEZ
DECEMBER 2020
INDEX
Executive summary
1. The product
2. The business model
3. Market analysis
3.1. Client profile
3.2. Market size and value
3.3. Competitors analysis
3.4. Marketing plan
4. Production
5. Organizational structure
5.1. General structure
5.2. Managerial team
5.3. Legal constitution
6. Risk analysis
7. Financial analysis
8. Conclusion
Annexes
EXECUTIVE SUMMARY
Guaia orange rum is an alcoholic beverage created from a unique mix of raw materials, namely,
Valencia orange (Citrus sinensis), sugar cane juice, and raw sugar cane. Moreover, our spirit gives the
consumer the sensation of tasting difference and perfection in just a little drop through its flavors.
This beverage is made through fermentation, a double distillation of the sugar cane must, and a
stripping process which will add the final orange flavor. Hence, the acid, sweet, and bitter flavors
given by the octyl acetate, a chemical compound present in the orange peel, will carry out the final
product body. This specific process ensures that the spirit will be a translucid, transparent, and
particle-free product that our customers will consume neat or use in the most famous cocktails.
The final product will be characterized by the virtues of being an artisan product; every relish in
it can relate to the natural origin of all raw materials. The name Guaia means mother nature in the
old Chibcha language in our territory, which represents the unique components that our spirit is
using. Additionally, the organization is fully compromised with having a social impact in Colombia,
specifically in a rural zone in Valle de Tenza in southern Boyacá. Furthermore, the raw materials will
be acquired from local farmers placed in zones forgotten by the state. This specific characteristic will
give the consumer a satisfying feeling of being helpful in a country where opportunities are taken
away from some people.
The profile identified for Guaia orange rum clients was defined as a "liberal household". This is
an adult whose family has more excellent value for them than anything in the world. These types of
persons love to try new and exotic despite the possible high prices of the product. They also are
looking forward to having a significant impact on social, political, and environmental issues through
their daily actions. They usually found their products in local stores or the internet, but the preference
will always be online. Thus, this type of client usually feels that they can have a better status quo
through their actions, thereby buying products according to this avant-garde life description.
A five-year (2025) projection was made using information from Passport's databasesto quantify
the market's size and value. Then, to calculate the potential size, the number of spirits, i.e., distillates,
sold in Western Europe and North America, was defined. By 2025, this value denotes the market size
and is equal to 4'467,976,500 Liters. To calculate the market value, the size is multiplied by the average
value of a 750 mL liquor bottle: US $202. The value of the potential market is equal to US $119,146.06
million. To calculate the available market, we multiply the share of the rum in the available market.
Rum's share in these regions by 2025 represents the US $5,735.30 million, with a market size of
215'073,750 Liters3. We set ourselves that we want to appropriate 1% of the consumers we define as
liberal households in these regions within three years. Knowing that these consumers' market share
is 31%4, a US $17.78 million market value was calculated, which translates into a market size of
451'654.88 Liters.
2 Retrieved from: https://vinepair.com/buy-this-booze/best-rums-2019/ 3 Retrieved from: https://www.worldatlas.com/articles/countries-that-drink-the-most-rum.html 4 Retrieved from: https://blog.euromonitor.com/global-consumer-types-conservative-homebody
The product's quality standards are summarized in the organoleptic properties of the rum, the
uniqueness of the raw materials, and the novelty of the country. It must have an aroma, color, texture,
and body that highlights the odoriferous tones of Valencia orange, sugar cane, and panela. The final
product must have an alcohol percentage of 35% with the least presence of traces of methanol in the
drink regarding the specific requirements. The product must be sealed before consumption and must
have the sanitary registration of the country of destination.
The project's net present value considering an opportunity cost of 19.84% will be COP $
2’145,414,720.3168 at the end of year 5. We arrived at this value of opportunity cost because this rate
is what it costs us to invest in this project by missing out on other opportunities that we studied and
that give us a 12% return. On the other hand, the internal rate of return for this project under the
projections used is 31%, which is higher than the opportunity cost set at 19.84%. It is essential to state
that it was assumed market inflation of 7%. It is essential to say that the marketing cost was assumed
to be 10% of the production costs. Guaia Orange Rum Will be divided into five different functional
areas within the company. Those areas are a response to the business need and the quest for reaching
the objectives.
Keeping in mind previous considerations is essential to conclude with the importance of this
project. We are two people with knowledge in administration, economy, engendering, and science.
We saw the opportunity to create a product that breaks the country's standards of spirituous drinks
production and gathered knowledge about producing artisanal drinks with a unique quality
considering social, legal, and environmental factors. Finally, we want to keep the three pillars that
form Guaia rum constant despite any changes made. The first one is social responsibility with the
country's population. The second one is the environmental responsibility with the raw materials we
are using, and finally, that handcraft characteristic makes our product unique and worthy of being
recognized worldwide as the country's ambassador.
1. The product
Guaia orange rum is an alcoholic beverage created from a unique mix of raw materials, namely,
Valencia orange (Citrus sinensis), sugar cane juice, and raw sugar cane. Moreover, our spirit gives the
consumer the sensation of tasting difference and perfection in just a little drop through its flavors.
This beverage is made through fermentation, a double distillation of the sugar cane must, and a
stripping process that will add the final orange flavor. Hence, the acid, sweet, and bitter flavors given
by the octyl acetate, a chemical compound present in the orange peel, will carry out the final product
body. This specific process ensures that the spirit will be a translucid, transparent, and particle-free
product that our customers will consume neat or use in the most famous cocktails.
Guaia orange rum will be characterized by the virtues of being an artisan product; every relish
in it can relate to the natural origin of all raw materials. The name Guaia means mother nature in the
old Chibcha language in our territory, which represents the unique components that our spirit is
using. Additionally, our organization is fully compromised with having a social impact in Colombia.
Furthermore, the raw materials will be acquired from local farmers placed in zones forgotten by the
state, namely, rural zones in southern Boyacá in Valle de Tenza. This specific characteristic will give
the consumer a satisfying feeling of being helpful in a country where opportunities are taken away
from some people which historical background is full of ancestors that pass away all of the
knowledge of rural activities and productions of different products such as sugar cane juice and
"panela".
As stated before, our spirit will be translucid, transparent, no aged and without any chemical
compound added after distillation. It will have 40% ABV (Alcohol by Volume) and will be exclusive
for sale outside Colombia due to the legal problems of selling distilled alcohol in the country. The
product's presentation will be in 750ml bottles with a unique bubble design that will represent our
product's exclusivity and the quality of the rum. Each bottle will have a value of EUR 35, considering
that our product has premium quality. Each bottle's production cost is approximately EUR 15,
including all the production, bottling, and exportation costs. Therefore, the utility for each bottle will
be about EUR 20. It is widely known that nowadays, flavored spirits are consumed in a large amount
and principally used in mixology.
On the one hand, comparing this data to our principal competitors shows that Bacardi rum, with
all its variety of flavors, does not have an orange rum. However, it is essential to know that each
bottle of Bacardi is worth EUR$ 15. On the other hand, in Latin America, orange rums such as Santa
Teresa are worth EUR 35 in the international market
Consequently, the main competitive advantage of Guaia orange rum will be the natural origin of
our raw materials, our social impact in a country that is trying to get through a rough situation, and
the uniqueness and exoticism of our final product. This will give the consumer the sensation of
drinking an exclusive, versatile, and helpful product that will haunt their emotions with its organic
flavors.
2. The business model
The business model for the Guaia orange rum will be an intermediate sale. This is due
because of the geo-localization of the potential costumers that, in our case, will be North America
and Europe, making it necessary to find a specific and reliable way to sell the product basing our
operations in Colombia. However, the export process also implies a significant risk for the company
because we will not have total sales and commercialization control. At this moment, we will have
strategic allies that can place the product in these markets, assuming the less possible risk. This
business model is congruent with its chain value because its distribution in other markets is different
from that of Colombia's will maintain a fair and coherent price, considering the parties involved in
the production.
As it was stated before, one of the most differentiating elements of Guaia orange rum is the
nature of the raw material and the impact that we are having in the local communities. This means
that the product's final price should reflect those competitive advantages without being much
different from our competitors. Thereby, after an in-depth investigation in the market of different
brands of similar products, we concluded that each bottle of 750 ml would cost EUR 30, reflecting the
high quality of the spirit.
Therefore, the income of the company will be principally through the sale of the individual
bottle. The business model's principal idea is to let the company sell the product in a considerable
amount in North America and Europe, assuming the cost of exportation of the freight and having
incomes as the sales are concreted. This is also a strategy directed to customers because they will
not have to pay any shipping or wait a long time to have their product. It is essential to clarify that
this business model should be fully complemented with the marketing and positioning strategy that
will ease the sales once the product achieves its objective market.
3. Market analysis
3.1 Client profile
The profile identified for Guaia orange rum clients was defined as a "liberal household". This is
an adult whose family has more excellent value for them than anything in the world. These types of
persons love to try new and exotic despite the possible high prices of the product. They also are
looking forward to having a significant impact on social, political, and environmental issues through
their daily actions. They usually found their products in local stores or the internet, but the preference
will always be online. Thus, this type of client usually feels that they can have a better status quo
through their actions, thereby buying products according to this avant-garde life description.
On the other hand, a large segmentation was made in order to identify those possible clients.
This will be a demographic segmentation, including two variables: the age and the country of
residence. Therefore, our segment will be people from the U.S.A, Canada, and occidental Europe,
which have more than 21 (or 18) years, considering legal restrictions of some of the countries
mentioned. It is essential to mention that this segmentation is based on the legal restrictions
regarding liquor production in the country where Guaia Rum is produced. This segment is also
known to enjoy the particular benefit of consuming Guaia rum due to its quality, social impact, or
novelty.
3.2. Size and value of the market
To quantify the market's size and value, a five-year (2025) projection was made using
information from Passport's databases5. Then, to calculate the potential size, the number of spirits,
i.e., distillates, sold in Western Europe and North America, was defined. By 2025, this value denotes
the market size and is equal to 4'467,976,500 Liters. To calculate the market value, the size is
multiplied by the average value of a 750 mL liquor bottle: US $206. The value of the potential market
is equal to US 119'146.06 million. To calculate the available market, we multiply the share of the rum
in the available market. Rum's share in these regions by 2025 represents the US $5,735.30 million,
with a market size of 215'073,750 Liters7. We set ourselves that we want to appropriate 1% of the
consumers we define as liberal households in these regions within three years. Knowing that these
consumers' market share is 31%8, a market value of US $17.78 million was calculated, which translates
into a market size of 451'654.88 Liters.
It should be noted that the flavored rum market worldwide is characterized by a few
powerful brands that capture most customers. Besides, it is an established market since the largest
competitors have been leading for many years. However, the client sector that Guaia orange rum
seeks to reach consists of consumers who are looking for smaller and more luxurious brands, which
are rare characteristics in the world of flavored rums, which means that it is a segment that has not
been over-exploited and has less competition than the market for more commercial rums.
3.3 Competitors analysis
As was stated before, due to Gauia orange rum's exclusivity, no direct competitor is making
the same product considering the nature of the raw materials. However, there are different indirect
competitors in the market that make orange rum but not offering the same characteristics. In the first
place, starting from Colombia, a little company named 472 spirits base their operations on the
productions of spirits made from local Colombian fruits such as feijoa, banana, or guanabana.
5 Retrieved from: https://www-portal-euromonitor-
com.ezproxy.uniandes.edu.co:8443/portal/statisticsevolution/index 6 Retrieved from: https://vinepair.com/buy-this-booze/best-rums-2019/ 7 Retrieved from: https://www.worldatlas.com/articles/countries-that-drink-the-most-rum.html 8 Retrieved from: https://blog.euromonitor.com/global-consumer-types-conservative-homebody
Currently, 472 spirits are also producing orange rum, which is the addition of sugar and aged rum,
giving the final product an amber color. 472 spirits had produced approximately 8000 liters of exotic
spirits and exported almost 4500 liters. From these exportations, only 4.4% (200L) correspond to
orange rum. Each bottle is worth EUR 20 in the European market.
On the other hand, another indirect competitor is located in Venezuela. Santa Teresa Orange
rum is the most famous product of this company because of the complexity of its flavors. However,
the orange rum from 472 spirits is made with aged rum instead of Agricole rum, making the final
product different. However, Santa Teresa Orange rum is a company that is stable since 1796 and
export their products to 164 countries. Due to their alliances with the international Bacardi, Santa
Teresa rum has exponential growth (186% in 2019) in the international market. Finally, the last
competitor is the ally of Santa Teresa in the world, namely, Barcadi. Their product Bacardi Orange is
a spirit with a strong orange flavor and a high alcohol presence because of industrial rum. In
America's 2019 rum industry produced almost 213 million litters, Bacardi produced 6.5%.
Considering these high sales, Bacardi can lower their prices at a minimum profit for the company
and still earn a considerable amount of money.
3.4. Marketing plan
The sales projection was made, considering three different scenarios in which Guaia rum can
be in the future. Thus, a moderate scenario was chosen with a monthly growth of 9% for the first
year. From this moment on, a growth of 25% was used for year 2, 20% for year 3, 15% for year 4, 10%
for year 5, and 10% for year 6. In this way, we obtained that for year 6 of operations, revenues of 740
million pesos can be expected, as shown in Figure A 1.
It is necessary to emphasize that to fulfill this projection; two fundamental activities must be
carried out. Firstly, we have the product development, which must comply with the highest quality
standards to capture our target customers; it is expected that this design and development will make
our customers prefer our rum bottle. Besides, special attention must be paid to the product's market,
since being an export rum, we must look for an intermediary that guarantees the best distribution
and promotion of the rum from Colombia. In this regard, it is expected that the promotion carried
out by such an intermediary will succeed in introducing the product most effectively in the target
countries.
Moreover, these activities will support the projection made by giving the client a unique rum,
which can be highly differentiated from the competence. Further, marketing plays an essential role
in this projection. The most marketing we made means the most potential clients reached. Guia rum
will achieve the expected sales in the optimistic scenario through a value and attribute positioning in
the market, as seen in Figure A 1.
Figure A 1. Expected sales of the product in different scenarios
4. Production
Regarding the supply chain, the inputs we require are the following: sugar cane juice, "panela",
orange zest, yeast, bottles, brands, and distributors. The water and energy of the process are obtained
from the physical plant's services located in Guasca. The sugar cane juice and the "panela" will be
provided by Cider Colombia, a company with a vast history producing sugarcane sub-products. We
will buy the orange from local farmers in the department of Antioquia (which is the larger producer
in the country) and the yeast from the company Adventures in Homebrewing. Simultaneously, the
entire bottling process containing the bottles and brands will be acquired through a third party.
Figure A 2 shows the flow diagram of the process. Finally, the distribution will be contracted through
three companies that will allow the shipment from the plant to the port, from the port to the country
of destination, and from the destination country to the different distribution points. As for
agreements, we will require a fixed amount each month that would vary depending on the demand
for the product.
The product's quality standards are summarized in the organoleptic properties of the rum, the
uniqueness of the raw materials, and the novelty of the country. It must have an aroma, color, texture,
and body that highlights the odoriferous tones of Valencia orange, sugar cane, and panela. The final
product must have an alcohol percentage of 35% with the least presence of traces of methanol in the
drink regarding the specific requirements. The product must be sealed before consumption and must
have the sanitary registration of the country of destination.
0
200
400
600
800
1000
1200
1400
1600
0 10 20 30 40 50 60
Hu
nd
red
lit
ers
Month
Expected sales of the project in different scenarios
Moderate (9%) Optimistic (11%) Pesimistic (3%)
Figure A 2. Flow diagram of the process
Going into detail, the distribution will be done by a third party because the associated
logistics is complex and requires a substantial investment to have that service from the company. The
first stage corresponds to the distribution of the product up to the port. Here is contained the process
of packaging, land freight, and transportation costs. The next stage defines the product's
transportation via sea, where the import duty, sea freight, and travel insurance operations are
located. Finally, the last stage corresponds to the product's delivery to the final recipient. Land
transportation operations to the fulfillment center, processing and supply in the warehouse, land
transportation, loading and unloading, and shipment to the final consumer are contained. The final
consumer can be the user who acquired the product by electronic means or the physical distribution
channels such as specialized stores and liquor stores. Third parties operate the latter.
Research and Development activities are carried out within the company in the physical plant.
The activities are summarized in quality control and innovation and development of new products.
In the quality control, the quality standards and specific requirements mentioned above are
guaranteed. In the development part, we will work on everything related to creating new products
and improving the rum's formulation. Thus, it is necessary to make characterization curves of the
organoleptic properties of rum and other alcoholic beverages according to the inputs used. Likewise,
these activities seek to optimize the production process in order to maximize the operation's income.
Annex A 2 shows the whole operations plans for Guaia rum.
5. Organizational structure
5.1. General Structure
Guaia Orange Rum Will be divided into five different functional areas within the company.
Those areas are a response to the business need and the quest for reaching the objectives. Table A 1
shows the different functional areas and explains the processes that are considered in each area.
Table A 1. Description of the different functional areas
Functional area Description
Production
This is the most critical area in the company because it is based on producing a quality spirit.
This area manages all the elaboration activities such as fermentation, distillation, and
bottling.
Marketing and
sales
It is the area in charge of all the marketing plan, market investigation, sales promotions,
distribution, and logistic in general; here, activities such as price and location are defined
Investigation &
Development
This area oversees being avant-garde in all the technological processes. Due to Guaia orange
rum's organoleptic properties, it is essential to be familiar with new technologies.
Management This area is a combination of management and administration. The objective is to regulate
activities of other areas, direct and plan the future of the company
Financial The objective is the search and management of the capital. Here the economy of the company
is directed.
5.2. Management team
Due to its nature and the idea of being a new starter, the organization chart will only show
how the company will be functioning before it reaches the equilibrium point. Thereby, there will be
not so many specialized areas. However, the five functional areas will be covered. Also, due to the
novelty of the idea, there are just two founding partners. Therefore, the organization chart will only
consider the positions and the profiles we will be bearing in mind for each job.
First, considering the two founding partners (that also will be the whole directive board) level
of studies in engineering, production, administration, and commitment with the business, it is
essential to state that they will oversee two of the most critical areas of general management
production. Starting from there, for the other areas, it will be needed some specific profiles. For
example, in the marketing and sales area, someone with marketing studies will need knowledge in
finances and understand the relationship between the consumer mind and the product. In the
investigation & Development area, it will need some person familiar with technology advances,
engineering processes, and a considerable investigation background in the topic of artisanal
distillation. Finally, it will be considered a person with financial and economic knowledge for the
financial area, someone who can manage results state, a profit and loss state, and know the basics of
public accountancy. Figure A 3 shows the organizational chart.
Figure A 3. Organization chart of Guaia Rum before equilibrium point
As for the additional key positions, as mentioned in the organization chart, each area's
directors are expected to have operational assistance that will allow them to focus the managerial
position on pursuing the company's global goals from their area. The financial department will have
a financial analyst, the research and development and production department will have a creative
assistant and a plant manager who will ease the burden on the director of this area. Finally, the
marketing and sales department will have a head of marketing and sales and an analyst for each sub-
area (marketing and sales).
Ge
ne
ral
ma
na
ge
r
Financial area Public Accountant
Production areaProcessing plant
chief
Marketing & Sales area
Marketing director
Investigation & Development area
Senior investigator
A table of salaries, wages, bonuses, and fees for the management team and key positions in the
company is included in Annex A 1.
5.3. Legal constitution
Ron Guaia will be constituted under the legal concept of a limited company, which from its
creation will be called "Ron Guaia LTDA". The primary domicile will be Bogota, but the partners'
board may create agencies or branches within the national territory. The duration of the company is
6 (six) years, counting from the date of incorporation. The company's corporate purpose will be the
manufacture, export, and international marketing of distillates with degrees of alcohol higher than
15 (fifteen) and the provision of all kinds of services related to the industry of manufactured
beverages.
The society's capital is the sum of $400'000.000 (Four hundred million pesos) represented in
2 social parts of a nominal value of $200'000.000 (two hundred million pesos) each one, as seen in
Table A 2. This capital will be paid in full by the partners, in cash or in-kind, to the satisfaction of the
company and the partners:
Table A 2. Capital distribution by partners
Partner No. of fees Value [$COP]
Juan Felipe Aldana 1 $ 200'000.000
Santiago Caicedo 1 $ 200'000.000
Given an equitable share of capital by the partners, each one's responsibility on the business
obligations is equally equitable but limited to its contribution. The company will have the following
governing bodies: the general meeting of partners, manager, and assistant manager. Juan Felipe
Aldana has been appointed as manager and Santiago Caicedo as sub-manager. They will carry out
their duties according to the will and interests of the general meeting of partners on the company.
There will be a quorum to deliberate both in ordinary and extraordinary sessions with a plural
number of partners representing the absolute majority: 2 (two) votes in favor given equal capital
participation. Juan Felipe Aldana was determined as the legal representative of this company. He
will be legally empowered to act on behalf of Guaia rum.
6. Risk analysis
The main weakness of the project is the low scalability of the product due to its artisan qualities.
Likewise, the cash flows are highly influenced by the costs of export and distribution of the product
since this is the highest cost and has the most impact on its margins. Finally, the cost of acquiring a
new client through digital media is much higher compared to physical spaces, so much of the
marketing budget would be directed to digital formats.
Guaia rum has a comparative advantage in terms of advantages and strengths because of the
low-cost artisanal process and the social contribution that the company makes. Besides, there are
excellent opportunities to penetrate the target market through specialized Market Places. Likewise,
the project presents low fixed costs thanks to the self-provision of inputs, reduced payroll, and
minimum leasing costs since the physical plant is owned.
Simultaneously, the main threat we see is that regular competition may prevent our potential
consumers from changing their behavior patterns to other types of flavored rums and opting for the
traditional brands on the market. Similarly, there may be risks of disruptive trade sanctions in the
countries where the product will be exported.
The target market opportunities overshadow the above threats because it has a high payment
capacity that matches our premium artisanal product. It is highly willing to try non-traditional exotic
products, with a positive social responsibility effect on the purchase decision. Together, there is low
direct competition because there are no Colombian companies that have the same product. Similarly,
tax exemptions allow the brand's consolidation, among other benefits offered by the orange economy
(category 1).
Based on the above risk analysis, it can be stated that the main internal risk of the company is the
agreements with distributors and intermediaries to export the product because the most considerable
portion of the costs depends entirely on them. The strategy to mitigate this risk is to have a combined
sale between direct and distributor to reduce dependence on these third parties. As for external risk,
we found a global economic slowdown that reduces demand. This directly affects cash flow and
would cause us to reach the break-even point in more time than budgeted. To mitigate the above, we
propose to have greater liquidity in the company from the first day of operation.
7. Financial analysis
The present business model is structured under a six-year time horizon. The financial analysis
presented here is based on the sales projections already discussed in previous sections. As shown,
the income projection has an increasing trend but marginally decreasing in time, showing a natural
stabilization towards the industry's long-term growth rates. The cash flow of this project is
summarized below in Table A 3.
Table A 3. Cash flow calculation [$COP]
Flow\Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Operational
incomes
- 937.615.000,
00
2.721.040.00
0,00
7.937.370.00
0,00
23.178.505.0
00,00
67.725.000.0
00,00
Total costs - 1.209.561.22
2,00
2.885.595.91
2,00
7.463.419.80
9,60
20.230.543.6
63,97
57.362.590.1
69,38
Operative
utility
- -
283.743.602,
00
-
164.555.912,
00
-
42.049.809,6
0
2.947.961.33
6,03
10.362.409.8
30,62
Taxes - - - - 910.323.627,
53
3.282.947.14
5,80
Net utility - -
283.743.602,
00
-
164.555.912,
00
-
42.049.809,6
0
2.037.637.70
8,50
7.079.462.68
4,82
Initial
partners
capital
400.000.000,00 - - - - -
Loan 330.000.000,00 - - - - -
Machinery
and
adaptation
cost
-
937.615.000,
00
2.721.040.00
0,00
7.937.370.00
0,00
23.178.505.0
00,00
67.725.000.0
00,00
FCF before
debt
- 1.209.561.22
2,00
2.885.595.91
2,00
7.463.419.80
9,60
20.230.543.6
63,97
57.362.590.1
69,38
Pay of debt
fees
- -
283.743.602,
00
-
164.555.912,
00
-
42.049.809,6
0
2.947.961.33
6,03
10.362.409.8
30,62
FCF after
debt
- - - - 910.323.627,
53
3.282.947.14
5,80
The project's net present value considering an opportunity cost of 19.84% will be $
2.145.414.720,3168 at the end of year 5. We arrived at this value of opportunity cost because this rate
is what it costs us to invest in this project by missing out on other opportunities that we studied and
that give us a 12% return. On the other hand, the internal rate of return for this project under the
projections used is 31%, which is higher than the opportunity cost set at 19.84%It is essential to state
that it was assumed market inflation of 7%. It is essential to say that the marketing cost was assumed
to be 10% of the production costs. Figure A 4 shows the flow of cash for the first years of operation.
Figure A 4. Free cash flow diagram for the project
Considering this, Guaia rum will reach the equilibrium point between years 3 and 4 of
operations considering a realistic scenario. It should be noted that this break-even point is achieved
by using a reduced payroll (see Annex A 1 and Annex A 2) where the hiring of Lawyers, Accountant,
Bosses, and Assistants is excluded. Salaries are adjusted to those established initially as of the third
year since profits are reported. On the one hand, the total unitary costs are around EUR 14.59, and
the final price sale is EUR 35, which gives a gross margin of 41.68%. On the other hand, the most
critical operational cost is the distribution cost (total landed at the warehouse) since it represents 39%
of the sales revenue. Table A 4 presents the different margins for the project in the first five years.
Table A 4. Margins for each year of operation
Margin\Year Year 1 Year 2 Year 3 Year 4 Year 5
Gross margin 22,10% 30,47% 24,90% 24,90% 24,90%
Operation
margin -30,26% -6,05% -0,53% 12,72% 15,30%
Net margin -30,26% -6,05% -7,03% 8,79% 10,45%
Both the gross margin and the operational margin are consistently growing; the gross margin
always remains positive, which means that the company has no difficulty in covering its production
costs, and the growth in the company's expected profitability is very satisfactory as it manages to go
from a negative net margin of -9.82% to a positive one of 17.55% for the sixth year of operation. This
margin is very satisfactory compared to the industry benchmark since, according to CSI Market, the
average net margin is 18.43%.
To finance the project, COP 770,000,000 must be used in order to have enough money for the
purchase of equipment, raw materials, facilities, salary payments, operating and administrative costs
for the first months until the break-even point is reached (because as we see in the cash flow, the first
year's operation must be subsidized). It should be noted that the resources will be needed in year 0
(before operations), and during the process, no further investment will be required. The financing
will be divided into two essential parts; there will be an initial investment of COP 200,000,000 from
each of the partners, thus achieving a total of COP 400,000,000. A loan will be requested from a bank
for COP 280,000,000 with a grace period of 2 years and an effective annual interest rate of 17.46%.
This grace period is intended to give the company time to generate enough income to start paying
off the debt so that no more considerable losses are generated in the first few months.
8. Conclusions and strategy to be followed
To continue with this project, it is vital to continue supporting the communities in the country.
Just as they make sugar cane honey, other products can be used as raw material within the making
of Guaia Rum. On the other hand, it is expected that the exterior's growth will not only be in the
western zone of Europe and North America. As a company, we want to reach all continents with a
stellar product for the Colombian market.
On the other hand, we will be working with all the legal tools to face the impediments that
commercialize alcoholic drinks inside the country. We know that, although it is not a simple issue, it
can be achieved under the legal framework, as well as our competitors as Hechicera and Parce
achieved in their respective time.
Taking this into account, we expect to grow financially for the next years; our sales projection is
very accommodated to reality, therefore, if we achieve it, we know that we could have a more
optimistic scenario taking into account the market expansion and the good adaptation that
consumers have to our product.
Finally, we want to keep the three pillars that form Guaia rum constant despite any changes
made. The first one is social responsibility with the country's population. The second one is the
environmental responsibility with the raw materials we are using, and finally, that handcraft
characteristic makes our product unique and worthy of being recognized worldwide as the country's
ambassador.
Annexes
Annex A 1. Positions of Guia Rum and the payment of each
Position
Basic functions Contract
type
Monthly
payment
[$COP]
Benefits
[$COP]
Total
[$COP]
Executive
director
Make administrative
decisions about the
company in charge of
payroll and hiring.
Indefinite-
term
contract.
7’000,000 4’380,833 11’380,833
Operations
director/ Plant
chief
In charge of the company's
production process and
purchase of raw materials.
Indefinite-
term
contract.
5’000,000 3’129,167 8’129,167
Marketing
director
Make recommendations
about sales channels,
distribution suggested
prices, and marketing
decisions.
Indefinite-
term
contract.
3’500,000 2’190,417 5’690,417
Finances
director
Make recommendations
about the company's
financial decisions and the
company's resources
safeguard.
Indefinite-
term
contract.
3,600,000 2’253,000 5,853,000
Attorney Make recommendations to
the Executive Director;
solve any legal issue related
to the company.
Indefinite-
term
contract.
2’500,000 1’564,583 4’064,583
Accountant Guarantee that resources
are correctly used, in charge
of accounting issues related
to the company.
Indefinite-
term
contract.
2’300,000 1’439,417 3’739,417
Plant operator Operate and take care of
equipment used in Guaia
Orange Rum production.
Indefinite-
term
contract.
1’500,000 938,750 2’438,750
Clerk Aid Executive Director in
daily tasks. Indefinite-
term
contract.
1’000,000 625,833 1’625,833
Maintenance
manager
Maintain workplace up to
the higher standards, Indefinite-
term
contract.
1’500,000 938,750 2’438,750
Creative
assistant
Maintain technology,
processes, and rum-making
industry preferences up to
date.
Indefinite-
term
contract.
2'000,000
1'250,000
3'250,000
Plant chief Maintain and guarantee
plant processes, quality
control, and high standards
of the final product.
Indefinite-
term
contract.
2'000,000
1'250,000
3'250,000
Finance
analyst
In charge of monthly
financial status, decision
making advisor for
strategic solutions related
to finances.
Indefinite-
term
contract.
2'000,000
1'250,000
3'250,000
Sales chief Leads marketing and sales
projects and carries out
marketing strategies
defined by the marketing
director.
Indefinite-
term
contract.
3'000,000
1'875,000
4'875,000
Marketing
assistant
In charge of operations in
projects delegated by
respective chiefs and
directors related to
marketing strategies.
Indefinite-
term
contract.
2'000,000
1'250,000
3'250,000
Sales assistant In charge of operations in
projects delegated by
respective chiefs and
directors related to sales
strategies.
Indefinite-
term
contract.
2'000,000
1'250,000
3'250,000
Annex A 2. Operations plans for Guaia Rum
1st trimester 2nd trimester 3rd trimester 4th trimester 2nd year 3rd year 4th year 5th year Physical Human Physical COP Human Monthly cost One time cost
1. General secretary Company managmentCompany
managmentCompany
managmentCompany
managmentCompany
managmentCompany
managmentCompany
managmentCompany
managment
2. International relations
International suppliers & partners scouting
N/A N/A
International suppliers &
partners feedback
International suppliers &
partners scouting
& feedback
International suppliers &
partners scouting
& feedback
International suppliers &
partners
scouting &
feedback
International suppliers &
partners scouting
& feedback
3. Legal advisory
Health register management for
operation & to export
Health register management for
operation & to
export
Health register management for
operation & to
export
Health register management for
operation & to
export
Solve legal issues Solve legal issuesSolve legal
issuesSolve legal
issues1 Attorney
$2,500,000/mo
1. RecruitmentHire employees with
annual contractsN/A N/A N/A
Hire employees with annual
contracts
Hire employees with annual
contracts
Hire employees with annual
contracts
Hire employees with annual
contracts
2. Payroll Payroll Payroll Payroll Payroll Payroll Payroll Payroll Payroll
3. PurchasesRM & equipment
purchaseRM purchase RM purchase RM purchase RM purchase RM purchase RM purchase RM purchase Raw material
$15,000,000 /mo
4. Maintenance N/A
Infrastructure & equipment
managementN/A
Infrastructure & equipment
management
Infrastructure & equipment
management
Infrastructure & equipment
management
Infrastructure & equipment
management
Infrastructure & equipment
management
5. General services Equipment instalationDelegate general
servicesDelegate general
servicesDelegate general
servicesDelegate general
servicesDelegate general
servicesDelegate general
servicesDelegate general
services
1. Process authorization
Fermentation & distillation processes
start up
Fermentation & distillation
processes start up
Fermentation & distillation
processes start up
Fermentation & distillation
processes start up
Fermentation & distillation
processes start up
Fermentation & distillation
processes start
up
Fermentation & distillation
processes start
up
Fermentation & distillation
processes start
up
1 processes plant (distiller,
fermentation
drums,
storage
barrels)
2 Operators
$ 600.000.000$3,000,000
/mo
2. Control
Product quality control (measurements, taste,
profiles)
Product quality control
(measurements,
taste, profiles)
Product quality control
(measurements,
taste, profiles)
Product quality control
(measurements,
taste, profiles)
Product quality control
(measurements,
taste, profiles)
Product quality control
(measurements,
taste, profiles)
Product quality control
(measurements,
taste, profiles)
Product quality control
(measurements,
taste, profiles)
Equipment (1 densimeter, 1
refractometer)$ 3.000.000
3. Process optimization
N/A N/A N/A
Processes overview &
optimization
(power supply,
water, etc)
N/A
Processes overview &
optimization
(power supply,
water, etc)
N/A
Processes overview &
optimization
(power supply,
water, etc)
N/A N/A
4. Training Train operators N/A N/A N/A N/A N/A N/A N/A 1 boardroom $ 1.000.000
1. DistributionDistribution routes
planningVerify distribution Verify distribution Verify distribution Verify distribution
Locate new distribution routes
Verify distribution
Locate new distribution
routes
2. Discounts N/A N/A N/A
Create discounts acording to sales
performance
Create discounts acording to sales
performance
Create discounts acording to sales
performance
Create discounts acording to sales
performance
Create discounts acording to sales
performance
3. Sales Sales agreement Sales agreement Sales agreement Sales agreement Sales agreement Sales agreement Sales agreement Sales agreement
4. Marketing plan N/A N/A N/A
Modify marketing plan according to
BP
Modify marketing plan according to
BP
Modify marketing plan according to
BP
Modify marketing plan according to
BP
Modify marketing plan according to
BP
5. Propaganda
Design & publishing of graphic pieces with
"call to action"
Design & publishing of graphic pieces
with "call to action"
Design & publishing of
graphic pieces
with "call to
action"
Design & publishing of
graphic pieces with
"call to action"
Enphasize propaganda to
customer profile
Enphasize propaganda to
customer profile
Enphasize propaganda to
customer profile
Enphasize propaganda to
customer profile
6. Customer serviceRespond custumer
PCCsCustumer
satisfaction surveyRespond custumer
PCCsCustumer
satisfaction surveyRespond custumer
PCCs
Custumer satisfaction
survey
Respond custumer PCCs
Custumer satisfaction
survey1 clerk
$1,000,000/mo
1.Analysis N/A
Sales analysis(¿low,mode
rate, optimistic?)N/A
Sales analysis(¿low,mod
erate, optimistic?)
Sales analysis(¿low,mod
erate, optimistic?)
Sales analysis(¿low,mod
erate, optimistic?)
Sales analysis(¿low,mo
derate,
optimistic?)
Sales analysis(¿low,mo
derate,
optimistic?)
1 financial director
$3,600,000/mo
2. Sales projection N/A N/A N/A
Sales projection with real market
data
Sales projection with real market
data
Sales projection with real market
data
Sales projection with real market
data
Sales projection with real market
data
3. Utilities N/A N/A N/ADetermine product
utility per saleDetermine product
utility per saleDetermine product
utility per sale
Determine product utility
per sale
Determine product utility per
sale
$5,900,000/mo
1 office ( 1 pc equipment,
infrastructure,
etc)
$ 4.000.000
Total costs
$ 6.000.000
$ 5.000.000
$ 604.000.000
$ 6.000.000
$ 6.000.000
Operations manager
(chemical or
processes
engineer)
$5,000,000 /mo
CEO
$9,500,000/mo
$18,000,000/mo
$8,000,000/mo
$4,500,000/mo
$2,300,000/mo
1 office ( 2 pc equipment,
infrastructure,
etc)
2 industrial equipment
cleaning kits
1 office (2 pc equipment,
infrastructure,
etc)
1 office (2 pc equipment,
infrastructure,
etc)
$ 6.000.000
$ 1.000.000
$ 6.000.000
$ 6.000.000
$7,000,000/mo
$3,000,000/mo
$3,500,000/mo
1 CEO
1 Accountant
1 marketing director
PRODUCTION
FINANCES
EXCECUTIVE
MARKETING & SALES
2nd year & above Cost of resources
ACTIVITIES
First year, trimesters
2 employees
FUNCTIONAL AREAS
MANAGEMENT
Amount of resources
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