Author: @AppleEllie

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The Cost Of That Fizz In Your Cider

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It took us 4 years of making ice cider before we tried to produce a hard cider, or what people in every other country in the world just call cider.   In 2007, there were very few ciders on the market, and what most people knew as cider was mass produced, very sweet and low priced, not a market we had any intention of entering.  But by 2012 cider had become ‘a thing’, and people were starting to explore a broader variety of ciders, including the wonderful tannic, dry ciders being made by orchard-based cider makers like our friends at Farnum Hill Ciders (NH), Eve’s (NY) and Foggy Ridge (VA).

One of the most important decisions we had to make was how to produce fizz in the cider.  It’s not just ‘to fizz or not to fizz’.  How you produce fizz can make a big difference for other attributes of the cider, particularly cloudiness and the level of sweetness. The other big issue is how the cider gets into the bottle or can, because that has major implications for processing and equipment costs.

Left to its own devices in a vessel that allows gas to escape, fermenting apple juice, just like fermenting grape juice, will end up totally dry (all of its fruit sugars turned into alcohol), and still (all the CO2 produced by the yeast during fermentation having escaped into the atmosphere).

Here are choices one can make as a cider maker, and their implications and issues:

  1. Pet Nat: Finish fermentation in a heavy, pressure-rated bottle. The sealed bottle will capture natural CO2 from the fermentation process and the result will be a cloudy cider because the dead yeast (called ‘lees’) stay in the bottle. Depending on the quality and cleanliness of the process before bottling, there may be various degrees of stinkiness and/or haziness.  This is referred to as Petillant Naturelle (‘Pet Nat’) or ‘Methode Ancestrale’.
  2. Champagne method: Take a still, dry cider base and bottle it with the addition of yeast and sugar.  It will cause a new ‘secondary’ fermentation inside the bottle, which will capture the newly-formed CO2.  The bottles are stored upside down so that the yeast collect in the neck. Then a process called ‘disgorgement’ is used whereby the cap is removed, the yeast residues are exploded out by the pent up pressure, the bottle is quickly topped off and corked to capture the remaning CO2.  This results in a clean, naturally sparkling cider. A ‘dosage’ can be added after disgorgement while topping off to provide some sweetness.
  3. Charmat method: Add sugar and yeast to create a second fermentation in a pressure-rated (brite or Charmat) tank.  This enables natural CO2 to be produced in the cider that can be further processed before being bottled. However, any processing – sweetening, filtration, bottling – has to be done under pressure to avoid losing the CO2.
  4. Force-Carbonation: Dissolve pressurized CO2 gas from a cylinder into a finished still cider in a pressure tank using a relatively inexpensive piece of equipment called a carbonation stone.

 

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For any method that doesn’t capture natural CO2 in a bottle, you can’t get the cider into a bottle or can without some kind of counter-pressure filler, otherwise the gas will escape in the bottling process.  That means the least capital intensive approaches are the Pet Nat and Champagne methods, however the disgorging process for the champagne method is extremely labor intensive.  On the other hand the variability and funkiness of Pet Nats can be challenging for trade and consumers.

At some point, most small producers end up purchasing a brite tank and a counter-pressure filler, which allow for the production of clean, carbonated ciders with less labor cost.  That’s an investment of somewhere between $20K – $30K. Note we are still talking just semi-automation.  This equipment still requires people to put each bottle one at a time on the filler, to be handed-off to another person putting on the closure, and someone else putting on the label.  Automatic bottling lines begin at $100K and go up.  We once priced the smallest automated champagne ‘disgorging’ system at $250K.  You can rent a system by hiring a mobile bottling or canning line. The minimum size batch for a mobile-canning line to process is 2,300 gallons, which means you have to have a brite tank(s) that can hold that volume under pressure to connect to the canning line.

There are two other factors in costing these options – sweetness and taxation. Those are post-worthy topics in themselves and I’ll get there.  In the meantime, next time you are shopping for ciders, try to find an example of each of these four types and see what you think the differences are in taste and cost.

What choice did we make?  None of the above at the beginning.  We started a fermentation of Kingston Black using champagne yeast, and then added into it, bit by bit, an equal amount of already finished still dry cider from the prior year’s heirloom blend apple varieties that had been aged for eight months. Then we bottled the combined cider near the end of its active fermentation to capture naturally produced CO2.  The result is…a Pet Nat that we then disgorged by hand to remove the lees?…or a champagne method with a secondary fermentation done with new juice, not sugar?…or is it just something new, ‘Methode Leger’? Whatever it is, it certainly isn’t cheap.

 

Selling Cider: The Real, Rural Catch-22

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The phone rang about 8 times and then a harassed voice said ‘Hello?’  I had my pitch script ready. “Hi, my name is Eleanor, I’m calling from Eden Ice Cider Company up in West Charleston Vermont.  I’m coming through your area next week and am hoping I can set a time to stop by for just a few minutes and give you a taste. Is there a time on Tuesday or Wednesday that would work for you?”  “Uhhh, where are you from? Vermont? Okay. Umm Tuesday at 2PM – I can only give you 10 minutes.”

Thank God for the Vermont Fresh Network.  It was started back in 1996 to connect restaurants and institutions directly with local farmers who were shut out of the food distribution network. They practically invented the concept of farm-to-table.  My sales strategy was basically to look up the website of every restaurant on their list, check their wine and dessert lists and see if they had any sweet dessert wines listed.  I identified about 20 restaurants and 10 stores and started calling.  You could tell that had we not been from Vermont, these very busy folks would not have made time for us.  As it was, we were able to set up one trip down the West side of the state, and one trip down the East side, and see a total of 27 buyers.  Off we went to sell our little stock.  At the end of 3 weeks, we had visited everyone and 26 of the 27 had purchased! Very exciting indeed.

Then there came the call at 3PM on a Thursday from The Equinox Resort in Manchester – “We need three  more cases for an event this weekend.  Can you bring them tomorrow?”  Of course I said yes.  We couldn’t be difficult to deal with for this large account, it was bad enough they couldn’t just add it on to an order with one of their usual distributors.  I dropped everything on the schedule the next day and set off – down Route 91 to Rockingham, up Route 103 to Chester, and then Route 30 across to Manchester. 6 1/2 hours later I was back at the farm. You don’t need me to draw a cute chart to show that the economics of that don’t work!

It seemed so simple.  It’s pretty easy to sell  150 gallons of ice cider, or 500 gallons of hard cider just going to the local farmer’s market and self-distributing in an immediate radius, but unless the cider is one a part of a diversified farm, or a sideline for people who otherwise have day jobs, $5,000 take home pay for the year does not make a real business. How could we increase sales without increasing expenses more (see earlier post “Breaking Bad or Breaking Even“)?

THIS is the question that a lot of small food and drink businesses don’t spend enough time on up front, including my own.  Everyone focuses on the production economics, and they fail to look hard at the sales economics.  Here’s how to start.

There are five typical channels through which you can sell your brand – in person markets, on-premise at your site, direct shipping to consumers not near your site, self-distribution to stores and restaurants, and sales to distributors.  For each one of them, you need to estimate the likely sales volume, the price you will receive, and the likely expenses you will incur in that channel to support those sales.  Your variable production cost is generally the same, assuming you are selling the same bottles through the different channels.  So you can calculate the contribution that each channel makes to your overhead and profit. Also make note of which sales expenses are fixed versus variable.  You have the same break-even issues in sales channels that you do in production.

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So here’s the sales dilemma that underdogs face. I’ll go into more detail on each one of these channels in future posts, and they can be fine-tuned for sure, but this is the big picture:
– Farms are located where land is cheap, and people are scarce. Without population density and location traffic, the farm store and self-distribution options tend to be low volume.
– Direct shipping is hugely complicated by individual state laws, regulations, licensing and reporting requirements
–  Farmers markets are generally profitable, but limited in growth potential
–  Distributors are the lowest margin option, but hold the largest potential for growth, however the expenses required to support distribution relationships are higher than one might think, and achieving sell through for a niche product at a higher price point with low brand awareness requires a marketing budget and capability that is beyond most of us.

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Ideally you would be able to fine-tune your sales channels to achieve a decent contribution to overhead and profit, say 22%.  The problem is that the easy high profit channels are small and you don’t get enough from them to cover fixed costs and achieve your sustainable scale. The more you grow, the more you have to rely on low contribution channels which means you have to grow more than you would in higher contribution channels. This puts the pressure on to keep increasing scale, which means selling even more, and around you go again.

Catching 22%, it’s the rural-life version of Joseph Heller’s satirical double-bind.  Clearly we underdogs are crazy, we just can’t admit it.

 

 

 

 

Vintage (Cidrage?): The Surest Sign of a Cider Underdog

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We set up our first bottling line during June of 2008, seven months after pressing, and 8 months after the apples were harvested at Scott Farm and Champlain Orchards.  In our 800 square foot basement we had a pallet of bottles in cartons, a little bottle sparger that screwed onto the tap over our basement sink, a plastic bottle tree to dry the bottles, a hose that ran from the tank through a pump to a small filter to our little 4-head gravity filler, then finally a hand corker resting on a piece of plywood set on two saw horses.  Friends and family had volunteered to come and help our first bottling in return for ice cider.

The team:  One person sparging bottles, one person at the filler, one person on the corker, and a final person wiping the bottles and putting them back into the cartons.  We would pull them out again for labeling and capsuling another day.  Four people working a good eight hours to bottle a little over two thousand bottles.  Not to mention two hours to get everything sanitized and set up, and another ninety minutes at the end to clean everything up. Let’s just say that labor efficiency wasn’t our priority that day – although we noticed a clear linear relationship between good tunage on the boom box  and the pace of the line. The only casualty was the guy on the corker, who couldn’t raise his right arm above his waist for two days afterward.  As his wife I took a little heat for that. But hey, we were done for the year – one day of bottling for inventory with a retail value of a little over $26,000.  One day, one year, one batch of ice cider.

As a cider producer, we are technically a Winery, so we are subject to federal wine regulations, yet we cannot use a number of wine terms on our labels because we use apples instead of grapes.  We produce our ciders with the same techniques and values as used by vintage wine makers, one harvest = one cider, but are prevented from communicating that on our labels with a ‘vintage’ date.  Or maybe we need a new word, since ‘vintage’ itself has ‘vin’ referring to grape wine in it.  Perhaps we should argue for the ability to have a ‘cidrage’ date?

There are all sorts of differences between a cider made in one annual batch from fresh, harvest-pressed apples and aged for at least 6 months before release, versus a cider made from concentrate or from apples pressed out of cold storage, fermented quickly for 2 weeks and released 2 or 3 weeks after that.  Regardless of whether the outcome is pleasing to your palate in either case, a ‘cidrage’ cider is an underdog cider because of the significant economic disadvantages of producing one batch per year.  What are those disadvantages? One is lower asset utilization, the other is higher working capital requirements.  In this post I’m going to cover asset utilization.  I’ll cover working capital later.

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In my last post ‘Breaking Bad or Breaking Even‘, I described how equipment is considered an asset, to be expensed over 7 years.  Now consider the impact of producing multiple 4 week batches of cider one after the other throughout the year, rather than one batch per year for the same volume of product.  If Cidery A produces 2,000 gallons of  one ‘cidrage’ cider once per year, they might invest in two 2,000 gallon tanks, one of which will be full most of the year (the other is to pump into).  Cidery B produces 2,000 gallons of 4-week cider.  That means they can produce about 10-12 batches per year, so they only need to invest in two 200 gallon tanks.  Even though the cost of the 2,000 gallon cost is less than 10 times the cost of the 200 gallon tank, Cidery B has significantly lower equipment costs, so their fixed costs are lower, their break-even volume is lower, and their profitability is higher at each volume of production.

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Bottling equipment is a little more complicated, but basically Cidery  B can size their bottling equipment for a 200 gallon bottling day, whereas Cidery A may need to use larger equipment capable of bottling 2,000 gallons in only  1 or 2 days.  So just to reiterate, for the same annual gallons of production, a true ‘cidrage’ producer can incur 4 to 5 times the equipment cost of a 4-week cider producer. Now that’s an underdog for you.

 

 

Breaking Bad or Breaking Even

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It’s been lovely hearing from those of you who have signed up to follow Cidernomics.  A number of you have asked “So what scale IS sustainable?”  There is no easy answer. That’s the whole project I’m on.  This post gets at just some of the basics needed to start figuring it out.  Meanwhile, keep the questions and comments coming!

Just up the road into Canada there is a medium sized producer of ice cider, run by an interesting woman who had succeeded in getting a contract to export to the Nicolas chain in France.  All of a sudden she was building out more space and putting in some much larger tanks.  We benefited from this because she was happy to part with 4 600L tanks and a 4-head gravity bottle-filler for less than $2,000.  We didn’t own a truck, so my man was going to take the Toyota Highlander SUV and bring the stuff back in 2 or 3 trips.

Our biggest concern was coming back across the border.  It’s not like you can hide a stainless steel tank under a coat in the back seat. We had no idea what kind of rigmarole we would need to go through – paperwork, exorbitant duty charges, official signatures, pledging of first-borns, etc. He eased up to the border guard in Lane 1 at the Port of Derby Line and rolled down the window.  Yup, he was told to pull into the parking area and go inside the border station to see the customs officer on duty.  Man, if this didn’t work our back up plan was pretty much unaffordable.

After waiting in line a mere 10 minutes or so, he got to the front and explained that he had two stainless steel wine tanks purchased second hand.  The border guard asked what price we had paid, and proceeded to hand him a form.  “Write a one sentence description here, put the value here, and sign it here.” he said, “That will be $10.75.”  Done! Piece of cake! We really were going to try this ice cider thing after all.  Three trips and three hours later, it was all in our basement.  If we’d had a big enough vehicle, it would have only cost us $10.75 for the one trip.  We were delighted to spend just $32.25.

Along with the tanks and the filler, we had purchased a small press and some plastic containers to freeze the juice outside for the ice cider process. We also needed a pump, small filter, hoses, some fittings, and some kind of corker, capsuler and labeler.  These all fall under the category of “plant & equipment” in the broader category of “fixed assets”.    Going back to the question at the end of the value chain post “Apples to Cider to You” – can I make money at $12.60 per bottle of ice cider FOB price? – knowing my fixed versus my variable costs is the key to the answer.

Variable production costs:  apples and/or apple juice, production supplies (yeast, filter pads, etc.), bottles, corks, labels, capsules, cartons, and any hourly labor cost for pressing, bottling, labeling etc.  Calculate these per bottle, and make sure to allow for some waste.

So, if my FOB price is $12.60 and my variable costs add up to $6.50, then the incremental money I’m going to bring in from each bottle I sell = $6.10. Also known as marginal contribution.

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Fixed production costs:  equipment, rent, utilities (mostly at our scale).

OK, so you don’t count the full cost of equipment in one year – that’s what depreciation is for.  Most equipment is assumed to have a useful life of 7 years, so take 1/7 of the equipment cost as your annual fixed equipment charge. (We’ll talk about the difference between cash flow and profitability later.)

Overhead: Then you have all sorts of things that are typically considered “overhead” – sales, marketing, general, administrative expenses.  For simplicity’s sake we’ll  just call this all fixed cost.  However, in future posts, I’m going to do a pretty deep dive on sales economics where we’ll parse that more finely.

The basic concept of break-even is the math that tells you how many bottles you have to sell at your marginal contribution rate to cover your fixed costs, after which the marginal contribution of each bottle goes toward your bottom line profit.  In this example, if my total equipment purchases are $18,000, and  I estimate that office, utilities, marketing and sales will cost me $5,000 per year, then I will need to sell  (($18,000/7) + $5,000)/$6.10 = 1,241 bottles of ice cider, or just about 100 12-bottle cases, to break even.

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You have to play around with this quite a bit, because 1) your variable costs per unit are different depending on the quantity you purchase, as we saw in the label example in “Economies of Scale, Cider Style“.  And 2) fixed costs are really only fixed for a certain range.  For example, you can make anywhere from 100 – 600 liters of cider in a 600 liter tank, after which you have to purchase a new tank.

The trick is to know where the ‘steps’ are in your fixed costs, and see if the volume at the steps will be sufficient to break even or better.  In the diagram below, you want to be in situation B as you grow.  Situation A is truly Breaking Bad.  This picture is one of the key issues I worry about with small food/drink businesses!

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My capacity at that point was 1600 liters (3 full tanks plus one to pump into, less some loss during fermentation). That’s 2,068 375ml bottles, and the variable costs of $6.50 per bottle are what I expected to pay to produce and bottle at that quantity.  So theoretically, I could generate $6.10 of incremental profit on every bottle over 1,241:  (2,068 – 1,241) x $6.10 = $5,044 of profit on a little over $26,000 in revenue.  I would be paying myself a little over $1,000 in hourly wages as part of my variable production cost, and I could pay 5% interest on the $18,000 I invested in equipment, and take home another $4,000 or so for the year that it would take to produce and sell the ice cider.  Sounds good, and might work as a secondary ‘hobby’ income, but it’s not going to support me at that level.  So I’ll need to grow beyond that. (SO easy to say…)

If you are being smart, you spend a lot of time calling vendors and asking for quotes at different quantities and building a sophisticated spreadsheet that lets you model the picture of growth with some precision. (If you don’t know how to use Excel, find someone who does!)  On the other hand if you are being romantic, what the hell.  This is why they say that to make a small fortune in the wine – or cider –  business it helps to start with a large one.

 

 

 

 

 

Apple choices: What’s in YOUR cider?

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It all started for me because I wanted to plant some apple trees. Just at the time I was mulling over what and how, we happened to visit my sister-in-law in Montreal. After dinner she pulled out a gorgeous skinny bottle and said “you must try this!” It was Neige, an ice cider from the original, premier producer in Southern Quebec, and it was freeking delicious. I looked at my better half across the table and said “yes we’ve got to try this!” Fateful words.

So, apples?  Yes…but.

Concentrate? Left-over storage grocery apples? Fresh-harvested grocery apples? Organic apples? Bio-dynamic apples? Heirloom apple varieties? Bittersweet cider apple varieties? Abandoned or un-managed apple trees? Wild apples?

There are apple trees involved in every one of those options, but it’s an amazing range of options. At one end of the spectrum: low cost, predictable supply, juice consistency, low flavor. At the other end: scarcity, biennial-ism, high cost, variability of sugar/acid/tannin levels, more flavor (hopefully?).

There is much to be discussed about the economics and markets for growing apples. I’m not going to deal with that now, but here’s a quick view of what’s out there from the perspective of someone deciding what kind of cider to make. And if you are growing your own apples, you have to do the same comparison, and recognize that farming apples and manufacturing cider are two VERY different businesses, although in the same value chain.

China is the largest apple grower in the world, producing 37 million tons per year, 70% of which is Fuji. The US is the second largest producer at a mere 4 million tons, with 67% grown for the fresh market – Red Delicious, Gala and Granny Smith being the top three varieties. The top 5 apple growers in the U.S. are all in Washington state, with over 5,000 acres each. The labor costs associated with picking mean that the US is not an efficient producer of apple juice concentrate. Most apple concentrate used in hard cider production comes from Argentina, Italy, France, Turkey, or Poland. US orchards work mightily to make sure as high a % as possible of their crop makes the grade for sales to the grocery market, as that is where they can get the highest price. The other 33% goes to processing. Washington State has enormous bulk juice processing and cold storage facilities. You can buy tanker trucks full of bulk juice pressed out of cold storage pretty much all year round.

The largest two apple growers in Vermont are 400 and 300 acres, respectively. Then there’s my friend Steve Wood, who back in the late 1980s top-grafted trees in his family’s 60 (not a typo, not 600, 60) acre New Hampshire orchard over to British bittersweet and American heirloom varieties that had NO possibility of being sold to the grocery store market, with the crazy idea that they might be better suited for making specialty hard ciders. Finally, at the far extreme, Andy Brennan at Aaron Burr cidery in the Hudson Valley of NY, makes a cider from apples foraged from a couple of trees growing wild on Maine’s Isle Au Haut. OK those apples were “free”…all like 5 bushels of them, all like 500 miles away of them.

Buyers at stores and restaurants sometimes screw up the courage to ask me why the ciders in 750ml wine bottles are SO expensive. Here’s an approximate price comparison (vetted with other producers so a pretty good ballpark) for a gallon of liquid going into a tank to be fermented into cider –
– Frozen foreign concentrate, reconstituted with water                              = $0.70
– Bulk juice from left-over grocery apples, pressed out of cold storage = $1.80+
– Harvest-pressed grocery store apples in New England                            = $4.00+
– Heirloom and Cider variety apples, harvest-pressed at small scale    = $10.00+

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In the case of ice cider, we use our Vermont winter weather to do a natural concentration outdoors before fermentation during which we lose 80% of the volume of juice we started with. That increases the cost of the gallon of liquid going into the tank by a factor of 5 times.

And all of this begs the question “does it taste any better”?  Hmmm, depends what the cider maker does with it, and who’s tasting.

The worst-case scenario is when you plant 1,000 trees of 42 different varieties on 3 acres in a biodynamic management program and hire someone 3 days per week during the season to do the work. That’s the route we chose of course. The $64 tomato has nothing on the $100 bushel of apples!  While we wait for the trees to grow and start producing apples at their full potential (soon? I hope?), we purchase fresh apples – a mix of heirloom, cider, and grocery varieties – from 4 other regional orchards and press them, usually within 6 – 10 weeks of harvest. So we’re operating at the base cost of somewhere in between the two bars on the right hand side of the chart, MULTIPLIED BY 5.

It makes it especially rewarding when you are giving a tasting of ice cider at the farmer’s market and the elegant lady who’s been listening and nodding to your explanation finally takes a sip and says “That’s delicious! What grapes do you make this from?”

 

 

 

 

Economies of scale, cider style

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Living a mile up a dead-end dirt road in an area that has more cows than people presents a few challenges when you start a garage, or in this case basement, business. Things like how does an 18-wheeler truck delivering a pallet of bottles actually get to your place? The answer: very carefully, with a lift gate, and not during Mud Season. Or being stuck with satellite internet that goes out every time it rains hard (although interestingly not when there’s a blizzard of snow), and did I mention no cell service?  There’s one spot on the property where we can get cell service, which is out on the road about 200 ft. from the barn.  Every time you drive up the road from the rural highway and hit that spot, you get a text message that says ‘Welcome Abroad’.  Did I mention we are 8 miles from Canada?  So it’s a good thing this isn’t a tech start up.

Back to said pallet of bottles.  Everything in manufacturing is delivered on pallets, those ubiquitous slatted wooden 40 x 48 inch, 6 inch high frames that are like little mobile pieces of floor.  You can pack anything on to them, and people do: bottles, cartons, corks, cleaning supplies, tanks,  machinery…finished cases of ice cider.  A pallet is like a unit of measure.  Don’t ever buy a pallet and a 1/4 of something.  You’ll pay almost as much in trucking cost for the 1/4 as you will for the full one.  The cost per pallet of anything will be lower per unit than the cost per unit of some lesser amount.  If you are buying more than one pallet, as long as you keep buying by the pallet, you don’t usually see the cost per unit get lower until you buy a full trailer load.  Then if you are buying by the trailer load on a regular basis, you can usually get stuff even cheaper.  This is just one factor among all the various economies of scale that affect every aspect of business.

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I think many people would like to pretend that economies of scale don’t exist, or that somehow it’s an economic theory that is just a theory with which you can choose to disagree.  Unfortunately that’s not the case.  Economies of scale are in everything, because some costs or resources just don’t increase 1 to 1 with an increase in quantity.  Labels are a great example.  For a label printer, there’s a significant amount of cost involved in setting up a print job, and it doesn’t make much difference whether the print job is for 500 labels or for 5,000 labels.  Once the job is set up, the incremental cost of printing 501 labels vs. 500 labels is pretty much just the cost of the ink and the paper for the one extra label – probably less than 5 cents, but let’s assume it’s 5 cents.  If it costs $200 to set up the job, it’s going to cost $200 + 500 x $0.05 to print the labels, or $225.  Add some % to cover the printer’s overhead and profit, say 50%, and the price you will pay for 500 labels is $337.50 ($225 x 1.5).  That works out to 67 1/2 cents ($0.675) per label.  On the other hand if you print 5,000 labels, the printer’s cost is $200 + 5,000 x $0.05, or $450, the price you will pay is $675.00 ($450 x 1.5), and that works out to $0.135 per label.  That is an 80% decrease in the cost per label!

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The larger the ratio of fixed (set up cost in this example) to variable cost (ink and paper) in a process, the more significant the economies of scale.  And they are everywhere. A 620 Liter stainless steel wine tank costs $2,295, a 1,100L one costs $3,095 – a 35% increase in price for a tank that will hold 77% more volume.  A 500g package of commercial yeast will cost you more per g than if you buy a 2kg package.  A pallet of bottles will cost you more per bottle than if you buy them by the trailer load.  Brochures, corks, capsules, even office paper for god’s sake.  It’s relentless.  And these amounts that I’m giving as examples are still tiny in the overall context of the cider market.  Imagine how much lower the cost to produce a bottle of cider – any cider, or beer or wine for that matter – is for a 600,000 gallon operation vs a 6,000 gallon operation, just by virtue of being 100 times larger in quantity.  How can a small producer hope to compete?

That’s what we are going to explore more…

 

 

Apples to Cider to You

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The timer on my computer rang out and I pushed myself back from the table and rose to go down to the basement and check on the progress of filtration. I was alone in the house for the week, trying to get the ice cider filtered and stabilized so we could leave it sit until we were ready to figure out bottling.  The problem with making an alcoholic cider with so much residual sugar left in it is that the fermentation can restart.  By that I mean that the yeast would come back to life, start eating the remaining sugar in the cider and turn it into alcohol, resulting in a completely out of balance drink.   We were trying to arrest the fermentation by freezing the cider, hoping to kill the yeast.  I would drag the containers of the ice cider outside where at least the weather was a cooperative -5F, all the murky yeasty stuff would settle to the bottom, then after a few days I’d bring it back in the basement, and then suddenly three days later it would be all murky again.I knew I needed to filter it, and so I got my hands on a little home brew vacuum filter apparatus.  It came with three different grades of circular pads.  One pad at a time, every drop of ice cider had to be filtered through each grade of pad.  The little vacuum pump would create a vacuum in a thick-walled glass 3 gallon carboy with a heavy rubber plug, and the cider would be drawn out of the fermentation container, through the pad and into the carboy.  The first stage was the toughest. In some cases it took an hour to filter 3 gallons.  I had 120 gallons of ice cider that had to be filtered 3 times.  I was avoiding doing the math so I wouldn’t feel too sorry for myself. 40 straight hours of filtration, not to mention all the time it took to stop and clean and replace the filter pad. Oh the romance of a cold basement, the soothing sound of the pump, the trickle of the cider falling brilliant and clear into the carboy.  NOT.

While I waited for the next 3 gallons of cider to push though the filter, I went back to working on my estimates for how all the costs of producing and selling the cider would add up, and what kind of price I should be putting on a bottle of it.  Well, that’s the way a lot of small producers would think about it as they got started.  But it’s not necessarily the best or only way to look at it.

In fact, it was pretty easy to know what the price ought to be for one beautiful 375ml bottle of ice cider.  I had only to look at the prices being charged by the Canadian ice cider producers right to my North.  I also checked the prices of other sweet dessert wines – Ice Wines from Ontario, Sauternes, late-harvest wines, and my favorite name – Trockenbeerenauslese, the super sweet reisling from the Rhine Valley.  Appropriately, ice cider is less expensive than those noble tipples.  The midpoint of the Canadian ice wines was about C$27/bottle, or US$24.  I expected to make something of similar quality, so asking a consumer to pay more than that seemed likely to increase barriers to sales, while asking less would just be leaving money on the table.

But could I make money at $24/bottle?  To answer that question, I couldn’t just assume that a customer would come to the door or the farmers market and I would collect $24 in cash from her.  I can’t just add up all my product costs and subtract that from $24.  If I ever hoped to sell more than 100 cases of ice cider, I need to think about the whole process of getting the cider from apples all the way to the bottle at your table.

If I sell the bottle of ice cider to Willy at the local general store, then I have to charge the store something less than $24.  The store has to pay rent, employees, insurance, supplies, utilities, advertising, and make some money.  It turns out most stores need 25 – 50% of the retail price.  Fortunately in Vermont, it’s typically closer to 25%.  So that means I’ll get $18 when I sell it to Willy.   But what if I want to sell it to my friend’s fancy restaurant in New York City?  Then I have to sell it to a New York distributor, who will then sell it to the restaurant.  The distributor has trucks, a warehouse, employees, order and inventory systems, and all those other expenses, plus he needs to make some money too.  Typical wine distributors need to make somewhere between 26 – 35% of the wholesale price.  At 30%, that means I will be selling it to a distributor for $12.60.  From that I need to pay some part of my mortgage, utilities, insurance, my or some future employee’s labor…and looking backward, that set of costs and profit is also built into all the prices I pay for what goes into the finished cider – the grower from whom I buy the apples, the suppliers of winery equipment and supplies, the packaging producers, etc.  This is what is meant by a’value chain‘: the whole chain of costs involved in every aspect of getting from the apple to cider, and from the cider to you.

Here’s my attempt at a visual rendering –

20161208_165421

So, can I make money at $12.60 per bottle?  More on that next time…

 

 

What is Cidernomics?

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“How do the economics of small, low-tech, agriculture-based manufacturing work?  There is so much romance about these kinds of businesses, but really, what does it take to ensure a happy ever after?”

It had snowed 8 inches overnight as predicted.  I was glad I had parked the UHaul truck on the side of the highway where at least I had a chance of getting it going.  I scraped the snow off our old Toyota Highlander, started it up and drove very slowly down the mile of ice-covered dirt road from our farm, down and up and down again, the last hill having a grade of about 8% and landing abruptly perpendicular to the rural highway.  If you lose control coming down the hill, you have to be grateful for the lack of traffic in Vermont’s Northeast Kingdom that allows you to just come to a stop right across the middle of a State highway without worrying about being obliterated, or even just cursed out.  This morning I used the engine braking feature and only slid a few feet as I turned at the end, managing to line myself right up behind where I parked the truck on the shoulder of the South-bound side.  I left the Toyota, hauled myself into the truck, started it up (it was a balmy 28F), and got on my way.

So began my first foray into buying apples to produce Ice Cider in the basement of our farmhouse, perhaps to sell commercially, although at that point we didn’t have grand plans.  Ice Cider is a sweet, dessert-wine style alcoholic cider that was developed in Southern Quebec in the late 1990s.  It was November 2007, we had acquired an abandoned farm that Spring about 8 miles from the Canadian border, and we thought Ice Cider should be a Vermont product too. I thought it would be fun to try it out ourselves.  I took a short course on cider making at Cornell, I ran some numbers, I bought an apple press, and now it was Thanksgiving week, the weather could be relied upon to be below freezing for the next four months, and I was ready to get started.

I wanted to buy enough apples to make about a 100 gallons of Ice Cider.  That turns out to be more apples than you would ever buy as a consumer, but not enough to make you a meaningful wholesale customer for an orchard.  It took me multiple times calling the two orchards I was interested in for them to return my calls, answer my questions, and agree to sell me the apples in the packing format I could handle – no 600 lb. bins that would require a fork lift to unload.  Commercial orchards will pack apples in bushel boxes (40 lbs.) for stores and restaurants, but they sell those packed onto pallets to a distributor who does the actual selling to said stores and restaurants.  The orchards themselves don’t deal with the individual accounts and aren’t necessarily set up to respond.  They certainly don’t deliver!

Therefore the truck.

What would these apples end up costing by the time I had retrieved them from the sunny, snow-free Champlain Valley and got them back up the icy hill to my Northeast Kingdom basement?  How much would that mean once they were pressed, the juice frozen outside, a small bit of super concentrated juice extracted, then partially fermented?  What about packaging – bottles, corks, labels, capsules, boxes?  Then equipment, labor, and marketing?  It was one big question whether we could actually make something that tasted good enough for someone who didn’t know and love us to hand over real American dollars for it.  It was a whole other question whether doing so would be something that would ever prove to be financially sustainable.

How do the economics of small, low-tech, agriculture-based manufacturing work?  There is so much romance about these kinds of businesses, but really, what does it take to ensure a happy ever after?  What are the key success factors?  What are they up against?  From a broader perspective, is it a viable rural economic development strategy to encourage more of them?  I don’t know all the answers, but I’ve learned a lot.  So I’m going to share my experiences, and perhaps we can start a dialogue that leads to some useful insights.

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