Lagos Nigeria Starting your own wine business is not the everyday business opportunity that everyone can simply jump into, because there are many aspects to consider in starting a winery. Conceivably the most fundamental problem an entrepreneur will face after expressing an interest in starting a new business or taking advantage of visible opportunity in an existing business or entirely new venture will be to conclude the feasibility study of the proposed venture and that study is simply the evaluation of a plan intended to determine the complexity in carrying out a selected task. (Hisrich, et al, 2008)
Before committing time and energy to preparing a business plan, the entrepreneur should do a quick feasibility study of the business concept to see whether there are any possible barriers to success (p. 04). In general the feasibility study paves the way for technical and project development implementation. One may wonder why take on a risk venture that is not the type of business that everyone would want to jump into; well, the answer is simply passion, the kind of obsession that generally drive people like myself who is not looking to becoming a multi-millionaire five years down the road. Demand – Given the insatiable taste and demand for alcohol and beverages in Nigeria, I have chosen Lagos Nigeria as the appropriate location for my new venture – Bendel Vineyard.
Demand for wine is driven by the restaurant and hotel industries, the level of entertainment spending, and consumer income. There are currently more than fifteen beer breweries in the country. (Obot, et al, 2002) By 1988 there were 13 winemakers and spirit distillers in the country. Both in terms of production volume and revenue, substantial increases were recorded between 1985 and 1988. However, like their beer counterpart, the spirit and wine industry was damaged as a result of the economic collapse which started in the 1980s (p. ).
Nigeria is a country of over 150 million people and the more reliable population figure of Lagos is given by the Lagos State Government as 17,553,934, based on well conducted census for social planning; it is the largest business and industrial city in Nigeria. More than 90% of the current wine consumed in the country is imported with majority of it coming from South Africa, China, and Europe. The demand for alcohol, particularly western alcohol and beverages continue to rise.
This is due in part to the striving democracy in the country. The country abandoned military dictatorship more than ten years ago and the social-economic and political atmosphere have brought about a total revitalization of the nation’s economy. All the negative economic policies there were imposed during the series of military regimes have been replaced with policies that encourage local and foreign capital investment.
Once again, the oil industry is striving and the standard of living continue to improve Objectives – Having traveled three times to Nigeria in the past nine months for the purpose of gathering information regarding Bendel Vineyard, I have concluded, in collaboration with couple friends and relatives who would-be partners in the winery venture that Lagos Nigeria will be the perfect place to implement the Vineyard. The objectives of this study are to identify a suitable location, identify the market, and identify the source of grapes and “concentrate” supply until the grapes are mature and ready to be harvested.
Also, the objectives include resources such as labor, land, and capital; likely entry barriers and modern production technologies and quality control in the wineries. Market – Nigerians consume a great deal of alcohol for almost every occasion. Weddings, funerals and burial ceremonies, routine socialization and all holidays demand significant use alcohol nationwide. It is believed that Moslems do not use alcohol, but the predominantly Moslems northerner part of Nigeria consume more alcohol than the Christians in the south.
It is believed the amount of wines imported into Nigeria annually is in hundreds of millions of dollars, however, effort to gather the exact statistic has not been possible because wine import is grouped along with food and beverages. Liquor houses and bars are open year round. From an economic standpoint demand for wine and other western alcoholic beverages continue to rise as the standard of living improves. Establishment – It takes roughly about four years to establish the proposed vineyard and bring grapes to full production.
Therefore the primary establishment costs must be carried forward to be ultimately offset by future income. Based on my investigation, the net cost for years 1 to 4 is amortized over the life of the vineyard. Since I do not have existing grape farm, for the first few years, my wine making will be purely based on licensing agreement with a South African winery to supply grape concentrate that I implement to produce both red and white wines.
While I anticipate very low revenue using the concentrate from South African, much emphasis will be placed working the vineyard. Resources – Land, labor and capital are the categories of means used in agricultural production. A fifty-acre land in the outskirt of Lagos has been proposed for the winery. The property is owned by the state government, and there is an incentive of tax break being proposed by the state government. The cost of leasing the 50-acre farm on a 100 year-lease with no lease payment due during the first ten years appears to be very attractive.
Currently a lot of tomatoes, water melon, lettuce, and pineapple are being cultivated in this part of the city. There is abundant supply of water for irrigation. The winery will be located not very far away from one of the seaports and it is also near the railway line and highways. Due to the scope and length of this feasibility study, some of the significant items not have statistical figures assigned to each element in the study, but be rest assured that due diligence has been taken to accommodate necessary measures.
Here are some of the accommodations that we have made for Manufacturing, Processing, and Packaging Human Food as required by the Lagos State to operate a facility to process food, wine and beverages; Capital and Labor – Bendel Vineyard is intended to be and will remain family business. Based on preliminary estimates, $4. 8 million will lead the venture into full production, but the initial capital of $900,000 is expected to be raised among four partners that consist of two family members and two close friends.
The Lagos State government has promised an interest-free loan up to $2 million dollars if certain number of employment is guaranteed, and also if the wines will be sold locally instead of exporting. There is available cheap labor market but they will have to be bargain-for employees (union). Desired Income – My purpose of including the desired income in the feasibility study is to demonstrate that I and my would-be partners are going into wine-making business for the sole purpose of making a decent living, so this is not at all intended to become our hobby.
The rate of return on our investment may not be as lucrative as in other high risk ventures; however, the dynamics of investing in vineyard has significantly turned positive for more than a decade. Burton & Jacobson (2001, Jul) Wine has recently been proposed an exception to this apparent rule, with casual observers submitting that wine has outperformed the Dow throughout the 1990s (Thomas, 1998). For example, Greaser (1993) has asserted that although collectibles are generally “a poor long-term investment” fine wine constitutes “a possible exception to the negative assessment” (pg. 37, 14 pgs).
In the business plan, a five-year preliminary income and expense projection has been summed up. Market Analysis – I and my would-be partners have done extensive market analysis and have concluded that given the lack of genuine customer focus throughout businesses in the Nigerian business environment, Bendel Winery is destined to prosper if the feasibility study that resulted in the business plan is executed with strict discipline, resiliency, and dedication, particularly doing everything possible to perfect the “Customer” experience.
The demand for wines in Nigeria is huge and it is complimented by unquenchable thirst. There are various types of bars, restaurants, hotels, and traditional places that can sell and distribute alcohol. Residential homes can obtain licenses to sell alcohol of all types but clients can’t drink the alcohol there. There are 36 states and one federal capital (Abuja) in Nigeria and most of the states do not have laws for drinking age limit. There are many breweries in the country, among them the Nigerian Breweries (the largest) with several plants across the country.
Their business strategy is how fast they can get the different brands of beer into the market. I don’t have the skill nor experience for brewing beer, however, the process of wine-making may take more time than brewing a beer, therefore, the larger breweries may not want to watch their product age for as long as two years before the product is brought to the market for consumers. Osmond, S. J. (1998, Aug) After fermentation the wine is moved to a new, clean containers and left to age.
Sediments settle to the bottom of the barrels, and the wine is again drawn off, or racked, and moved to another clean barrel (pg. 226). This process may be repeated several times as the wine matures. That’s one of the very reason the wine import business is booming; the breweries and other competitors would rather import than engage in a winery venture may hold than their capital. Products, Operations and Technology – Bendel Winery’s primary purpose is manufacture wine through fermentation of grapes and other fruits.
There are no grapevines to start with, however, under licensing agreement with two of South Africa’s best wineries, (partner agency relationship), the startup is projected to produce about 30,000 (12 bottle) cases during the first year using grape-concentrate, 40,000 (12 bottle) cases the second year and 50,000 (12 bottle cases) the third years This agency relationship is likely to continue into several years with declining production concentrate supply coming from South Africa as the grapes cultivated during the first year begins to mature.
Even if the grapes are matured in the fourth year, the process takes much longer to produce wine. Industry Overview (2009) Higher quality wine is aged in oak casks for up to two years before bottling (p. 1) This means producing high quality wines using the South African agency relationship may provide Bendel Winery experience in the industry and also enough time to cultivate and nurture it’s grapes to wine production. Entrepreneurial Dilemmas – Moving from the United States to Nigeria after more than twenty years is a dilemma in itself.
Having to occasionally spend months in Nigeria may pose some family problems to my beautiful wife and a 4-year old son whom I adore so much; issues that I have to contend with. The lack of experience and possibility of failure would always be a constant reminder of the risk I have undertaken. Hisrich, et al, (2008) “One of the dilemmas faced by entrepreneurs is defining a “new” product or identifying what is actually new or unique in an idea”. “Fashion jeans became very popular even though the concept of blue jeans was not new.
What was new was the use of names such as Sassoon, Vanderbilt, and Chic on the jeans (p. 150). Another concern with regards to entrepreneurial dilemma is the ability to spot honest workers in a society that is engulfed in corruption and greed. These are some of the potential dilemmas which I believe I can overcome as I navigate the local business contacts with the assistance of close friends and relatives who have experienced the British and American business philosophy. The most excruciating dilemma is defining what sets my wine product from wine imports from Italy, France, South Africa, and Britain.
According to Hisrich, Peters, & Shepherd (2008) One of the dilemmas faced by entrepreneurs is defining a “new” product or identifying what is actually new or unique in an idea (p. 150). For example, Nigeria has several oil refineries; yet imported oil products dominate the market because the import moguls always find ways to sabotage the local oil refineries so that their oil products imports can flourish. Another dilemma that may emerge in an attempt to secure financing is the conditions under which such deal is consummated.
Investors may find the potential for my winery and that I am desperate for capital and willing to invest with strings attached and I may be pushed aside as soon as the winery starts generating the desired profits. According to Levine, J. J. (2008, Apr. 2) It turns out that this is just the type of issue that many start-up founders face, one that Harvard Business School’s Prof. Noam Wasserman describes as the “rich” vs. “king” dilemma. The founder in our scenario can take the money from venture capitalists – the “rich” option – or he can stay as “king” and keep the reins of the company firmly in his hands.
My idea is to gradually build and grow the winery by keeping the reins of the winery firmly in my hands. Given the likely known dilemmas, I will develop a strategy with action steps to resolve, or at least address them. Blunders and Fallacy – Throughout the feasibility study, we have realized that starting your own wine business is not an easy task; we are unlike some vineyard entrepreneurs who started making wines in their basements for several years before they decided to start their own vineyard, until we started the feasibility study, we did not have any information about starting a winery.
We simply drank wines at dinners and social events without actually knowing the complexities that are involved in wine-making. Throughout the investigative process, we have learned quite a lot of skills, but not quite enough for everyone on the team to let his or her guards down. We have realized what is ideal, what our initial and subsequent capital will allow and how we will proceed. Nothing is given, we have to earn the success that we have projected in the business plan, and it is a road map that we will use to the advantage of the business.
We have taken into consideration certain fundamental pieces of information that we should always consider before committing large investment with persistent reminder to think ahead and not to shortcut the strategic needs of the winery. In order to have first-hand information about starting a vineyard, two of my relatives who will be partners in the business have made couple trips to South Africa to actually see several vineyards and how they operate.
Although couple visits to wineries may not provide all the information and skills required to running a wine-making ntrepreneurship, but it did serve the feasibility study rationale. As I conclude the Bendel Winery Feasibility Study, I wanted to emphasize the emerging improving standard of living in several developing countries including Nigeria. The trend is due in part to the gradual reversal of dictatorship that is paving the way for democratic rule in these societies. Democratic practices influence freedom at all levels and the result is free market economy. With the world economy that seems like the “Mall of America” in Minneapolis/St.
Paul, there is always a place for anyone who wants to participate in buying and selling. In all the instrument of socialization for mankind, wine drives my obsession and I cherish it. Dutton, G (1997, May) “Baby boomers are entering middle age, slowing down and becoming more health-conscious,” says Carolyn Martini, president and CEO of Louis M. Martini Winery. “Many have realized that ‘there is only one CEO in the company and it won’t be me. ’ So they’re taking more interest in life outside of work. Wine is part of the civilizing of a nation. (pg. 55, 6 pgs).
In my quest, including my partners to fulfill the dream of fully realizing our desired objectives of a successful winery, we shall make the consumer (customer) the center-piece of our goal, dedicate to serve the customer so they can have a stake in our product by surrendering their loyalty and in return we shall perfect the customer experience.
References
- Hisrich, R. D. , Peters, M. P. , & Shepherd, D. A (2008). Entrepreneurship, Seventh Edition. McGraw-Hill Irwin. McGraw-Hill Companies, Inc. Global Policy Alliance. 2002) Retrieved December 07, 2009 from http://www. ias. org. uk/resources/publications/theglobe/globe200202/gl200202_p6. html
- Burton, B. J. & Jacobsen, J. P. (2001, Jul). The rate of return on investment in wine. Economic Inquiry Huntington Beach Osmond, S. J. (1998, Aug). The wine-making process. The World & I. Washington. Industry Overview. (2009) Retrieved December 07, 2009 from http://www. hoovers. com/wineries
