Mcknights Pub Was Established

Published Date: 02 Nov 2017

Introduction

McKnight's Pub has been a successful Irish bar in the heart of downtown Portland, Oregon for one hundred years. However, recently McKnight's has seen a drop in its clientele due to the rise of microbreweries in the Portland area. In order to successfully compete with this new threat, McKnight's objectives are to create its own microbrewery on-site and to offer superior kinds of beers than that of its new competitors.

The Company

McKnight's Pub was established in 1902 by Walter McKnight and over the years has become a well known fixture of Portland. Two years ago, Charles McKnight sold the pub. The establishment is now a sole proprietorship owned and operated by Ian Davis. The company is licensed in Oregon.

McKnight's Pub is located in one of the most outstanding downtown places in Portland as it is strategically located to attract the middle-class and upper middle-class working public during lunch and after quitting time. The building itself is one of the oldest still standing in Portland and has an old world style to it.

The Products

McKnight's Pub offers a wide variety of spirits, from domestic and imported beers to hard alcohol with concentration on imports from Ireland. In addition, the pub offers a limited menu of light food and snacks, and specialty items for holidays.

Once the brewery begins production, we will concentrate on ale production including wheat beers, stouts, and porters as these include the more traditional types of Irish brews. We intend to initially start with five different types of beer, eventually increasing to ten. All brews will have a different brand name.

The Market

Over the past five years, McKnight's has seen a declining trend in sales. Much of this is due to the rise of microbreweries in the Portland area. Many customers are taking advantage of the proliferation of beer varieties in the U.S. (due to changes in the law on alcohol production) by seeking establishments that have unique brew styles.

The market segmentation is divided into the leading target markets. The division reflects the differences in marketing strategy that will be used to target each different market.

Middle class, "white collar" office workers from the downtown area. Late nighters and weekend partiers.

Brew Connoisseur

McKnight's Pub exists in a highly competitive industry whose environment creates low margins due to the high amounts of pressure placed upon participants from customers, suppliers, other rivals, potential entrants, and substitute products. This has created a fragmented industry in which no one participant has significant market share.

Financial Considerations

Break-even analysis indicates that at the moment McKnight's is close to dropping below its level to produce profits unless margins are increased or the number of customers is increased. In order to finance the changes and expansion needed, McKnight's will secure a long-term loan of $390,000. This will keep initial growth slow and manageable, and will allow the management to maintain control. With the new expansion and the forecasted increase in clientele, McKnight's will remain profitable and keep a positive cash flow.

1.1 Objectives

McKnight's Pub has been a successful Irish bar in the heart of downtown Portland, Oregon for one hundred years. However, recently McKnight's has seen a drop in its clientele due to the rise of microbreweries in the Portland area. In order to successfully compete with this new threat, McKnight's objectives are to create its own microbrewery on-site and to offer superior kinds of beers than that of its new competitors.

1.2 Mission

In the past, McKnight's (soon to be called McKnight's Pub and Brewery) philosophy was to create an old world pub style atmosphere that attracted it high-end clientele and offered excellent customer service. With its new strategy to include a brewery, McKnight's also plans to offer specialty in-house, local, and international brands of beer to attract a new type of customer, the brew connoisseur.

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1.3 Keys to Success

To succeed McKnight's must:

Implement a successful advertisement and marketing campaign to inform the existing clientele and the public of our new image. Purchase new brewery equipment. Retain the services of a reputable brewmaster. Build brand image and brand equity through marketing.

Company Ownership

McKnight's Pub was established in 1902 by Walter McKnight and over the years has become a well known fixture of Portland. This includes having articles published in various travel magazines such asOregon Magazine and US Travels and recommended by Portland Online as one of the most popular drinking establishments in the city. Two years ago, Charles McKnight, Walter's grandson, sold the pub, citing poor health and lowering profits. McKnight's Pub is now a sole proprietorship owned and operated by Ian Davis. The company is licensed in Oregon.

2.1 Company Locations and Facilities

McKnight's Pub is located at the corner of SE Salmon St and SE 19th Ave. approximately four blocks from Ladd's Circle and within walking distance of the city's business district. This is one of the most outstanding places for a pub in Portland as it is strategically located to attract the middle-class and upper middle-class working public during lunch and after quitting time.

The building itself is one of the oldest still standing in Portland and has an old world style to it. Presently the establishment can seat 96 customers. McKnight's has secured the purchase of the adjacent storefront for its expansion, and with renovation, will have room for the brewery and another 24 persons. The current facilities, including two large bars and fireplace, kitchen, and plenty of room for darts, pool, and other amusements make this an excellent attraction. 3.1 Sales Literature

Although McKnight's has never printed or distributed sales literature by itself, it has certainly taken advantage of the various articles in the local paper and travel/entertainment magazines that have been written about the pub. With the change in focus to a pub and brewery, Mr. Davis, the owner, plans to insure that the press is made aware of the changes in the hopes that this will create additional articles and literature.

Products

McKnight's Pub offers a wide variety of spirits, concentrating on imports from Ireland such as Harps, Guiness, Erin's Rock, Murphy's Irish Stout, and Wild Irish Rouge on tap along with Baileys Irish Creme, St. Brendan's and other liquors. In addition the Pub offers domestic and other imported beers by the bottles and a full bar for mixed drinks. In the back the pub has a small kitchen that offers a limited menu of such things as sandwiches, fish and chips, etc. For St. Patrick's Day and other Irish holidays the pub offers traditional favorites such as Irish stew, leek and potato soup, and corned beef and cabbage. Once the brewery begins production, we will concentrate on ale production including wheat beers, stouts, and porters as these include the more traditional types of Irish brews. We intend to initially start with five different types of beer, eventually increasing to ten. All brews will have a different brand name.

3.1 Sales Literature

Although McKnight's has never printed or distributed sales literature by itself, it has certainly taken advantage of the various articles in the local paper and travel/entertainment magazines that have been written about the pub. With the change in focus to a pub and brewery, Mr. Davis, the owner, plans to insure that the press is made aware of the changes in the hopes that this will create additional articles and literature.

3.2 Sourcing

The Pub purchases large quantities of alcohol from local and regional distributors including Kitsap Distributors and Darian Beverages. Most of the inventories of food come from Portland Produce. McKnight's receives discounts when certain volumes are purchased. The pub seeks to maintain good relations with its distributors in order to insure high-quality products are delivered on time. McKnight's markup prices from that of wholesale generally runs between 15-20% depending on the drink or meal. Junkboxes, pool tables, and other amusements between are leased and serviced by the leasing company under existing contracts.

The new brewery equipment to be installed in March of 2003 will come from Key West Brewery Equipment. Much of this equipment will be secondhand, but all of it will be personally selected by our new brewmaster, Mark Hudson. Storage, kegging and bottling of our in-house brews will be done personally.

3.3 Technology

The pub as a whole is a relatively low-technology establishment in keeping with its old world personally. The establishment does use a computer to track inventory, sales and other crucial aspects of profitability. In addition there is an electronic cash register used to ring up sales.

Much of the brewing process done these days is computer controlled so as to insure that heat, pressure, fermentation, and other aspects of beer production stay constant and insure high quality. McKnight's will be investing in two top of the line Pentium three computers plus all the necessary gauges for production.

3.4 Competitive Comparison

McKnight's primary competitive advantages are its existing reputation, location, and high quality establishment with expensive and decorative exterior and interior that embraces the Irish motif.

3.5 Future Products

As stated earlier, McKnight's is currently expanding its products by including a microbrewery establishment gauges. This includes installation of a mash kettle, fermentation tanks, agitators, pumps, heat exchanger, refrigeration unit, etc.

Mr. Davis plans to observe how sales of in-house microbrews develop to determine if there is a future market for bottling the pub's homebrews for sale in the pub and in local beer stores.

At this time, Mr. Davis is also contemplating expanding the limited kitchen facilities so as to furnish a larger number of meals with greater variety. However, this expansion is not planned for the immediate future.

Market Analysis Summary

Over the past five years, McKnight's has seen a declining trend in sales. While some of this is due to the lack of initiative on behalf of the old management, much of this is due to the rise of microbreweries in the Portland area. Many customers are taking advantage of the proliferation of beer varieties in the U.S. (due to changes in the law on alcohol production) by seeking establishments that have unique brew styles. In this day and age of massive fragmentation and proliferation of brew recipes, innovation and experimentation is the name of the game.

4.1 Market Segmentation

The market segmentation is divided into the leading target markets. The division reflects the differences in marketing strategy that will be used to target each different market.

 Middle class, "white collar" office workers from the downtown area. These are people seeking to have a drink or some quick food during lunchtime and sometimes want to show out-of-towners some of the local highlights. In addition, the pub can expect to see these types of customers dropping in for some hours after work to unwind. The growth of this market segment as demonstrated in the Market Analysis table is based on the estimated growth of business establishments in the Portland downtown area.

 Late nighters and weekend partiers. These are the folks that drop by and stay for many hours socializing and drinking. Growth of this segment is based on the estimated population growth of Portland itself.

 Brew Connoisseur. These customers are a relatively new type to the American scene. Although there have been beer connoisseur all over since beer was invented, until recently government regulation was such that the industry was concentrated within a few national companies such as Anheuser Busch, Coors, etc. These companies had few product lines and sought to produce large amounts of beer over very short time periods. This made for an overall low quality of domestic beers available to Americans at reasonable prices. Since deregulation the industry has rapidly fragmented, allowing small brewers to compete against the larger established companies on a local and even national level. All this has inspired new connoisseur in brewing that has revolutionized the industry. With so many new types and brands of beer available, the customer that wants to try new types is being wooed by all industry participants.

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Market Analysis

2003

2004

2005

2006

2007

Potential Customers

Growth

CAGR

"white collar" workers

3%

75,000

77,250

79,568

81,955

84,414

3.00%

Late niters and weekend partiers

3%

435,000

448,050

461,492

475,337

489,597

3.00%

Beer connoisseur

8%

120,000

129,600

139,968

151,165

163,258

8.00%

Total

4.01%

630,000

654,900

681,028

708,457

737,269

4.01%

4.2 Target Market Segment Strategy

McKnight's Pub exists in a highly competitive industry whose environment creates low margins due to the high amounts of pressure placed upon participants from customers, suppliers, other rivals, potential entrants, and participants products. This has created a fragmented industry in which no one participant has significant market share.

Customers have an great deal of power and influence in this industry since there are virtually no switching costs.

Customers regularly go to more than one pub or bar to socialize and drink. In addition, while this pastime is very popular, the overall quality of the customer's life is unaffected if they choose to forgo pursuing it.

Finally, even with the rise of microbreweries, many customers still find that most pubs have the products that they seek, making the pub visit itself undifferentiated.

Suppliers also have a great deal of power in relation to the pubs and taverns. Almost all suppliers are regional companies that have a wide variety of customers including grocery stores, liquor stores, restaurants, caterers, etc.

This means that any one customer of these distributors makes up a fraction of their sales and has little influence on their prices, quality and terms.

Furthermore, while these distributors often sell a wide variety of products such as produce, poultry and meat products, tobacco, and others, pubs and taverns are solely dependant upon the distributors for all their merchandise. The only real way to offset the distributor's influence is to backward-integrate by brewing and marketing the alcohol itself.

The rivalry among other taverns, bars, pubs, etc. is especially intense. This is because there is a large number of them in the Portland area who are more or less equally balanced in terms of size, popularity, and resources.

Since industry growth is small, there is strong moves by all competitors to gain market share at the expense of others. The lack of a differentiated product or service by most pubs or taverns only makes this worse.

In this type of environment, each firm tries to cut prices, increase services and products and cut costs. This in turn creates retaliation among rivals and leads to lower profits.

There are relatively few barriers to entry in the pub/tavern industry, making the threat of new entrants to the market very real. The capital costs of starting up a bar or tavern are low and access to distribution channels is quite easy.

Where firms seek advantages is in gaining a favorable location, building brand equity through customer loyalty, creating a unique environment, or backward-integration by producing unique products. All this takes luck, persistence, and awareness of customer needs.

Finally, the existance of substitutes creates a great deal of pressure on pubs and taverns to attract and retain customers. Restaurants, breweries, and any other place where drinking and socializing goes on is a direct threat to McKnight's and other rivals.

In addition, grocery and liquor stores that sell alcohol are an indirect threat that offers alternatives to potential customers. These substitutes, who often offer lower costs, decrease the overall potential of the pub and tavern industry as a whole.

4.2.1 Main Competitors

There are a wide variety of bars, restaurants, nightclubs and other direct and indirect competitors in the Portland area. Some of the closest in terms of location and quality include the following:

1. Columbia River Alehouse and Brewery. Columbia River offers the largest threat to McKnight's as it has created an excellent reputation for its microbrews by retaining the services of Michael Evan, a former brewmaster for Henry Weinhards. Columbia River specializes in beers with lots of hops, such as hefeweisens. Furthermore the establishment has just had a very favorable article written about its cuisine in the Oregonian. Its separate bar has an established clientele that attracts the young college crowd.

2. Fitzgerald's Sportsbar. This establishment is located only one block from McKnight's Pub. It attracts a niche market of sports fans especially as it has widescreen TV's and hosts parties during Portland Trailblazer games. During other times it attracts some of the customers that McKnight's is targeting such as the late night crowd.

3. Argosy Brewery. Argosy is local brewery more oriented toward production and distribution of its premier lagers and stouts in the pacific northwest region. However, its tasting room has recently been expanded into a full-time pub and has gotten great reviews. Its location close to the waterfront draws a large crowd.

4.2.1.1 Market Growth

McKnight's opens at 11 a.m. each day to catch the lunch crowd and closes at 2 a.m.. Revenues are quite variable in the short-term with the majority of sales occuring on the weekends between the hours of 8 p.m.-midnight. Seasonally, McKnight's is usually more busy during the summer months due to the heat and with more people wishing to be outside during this time.

Strategy and Implementation Summary

McKnight's strategy is to leverage its existing advantages of location, attractive 8 p.m., established clientele, and reputation; and couple this with its new brewery to create a value added product/service experience to its existing customers and to enhance appeal to attract the beer appeal to McKnight's. In short, the company seeks to create a value-added approach to its drinking establishment and bring in new customers to achieve both a higher margin than previously experienced and increase overall profitability through new customers.

5.1 Marketing Strategy

McKnight's plans to advertise its new brew pub through newspaper and magazine articles, focusing primarily on entertainment and lifestyle publications. In addition the pub will run ads in local journals and plans to put up four billboard advertisements. Past experience with other taverns and brew pubs indicates that radio is an especially useful tool to this industry and management plans to run ads with three of the local radio stations most listened to by young professionals aged 25-40. In order to ensure the maximum efficiency from this campaign, McKnight's has retained the services of an advertising consulting firm. Ads and articles are scheduled to begin approximately one month after the brewery begins operation.

5.1.1 Pricing Strategy

Pricing of our products must remain initially competitive with our rivals. Management does however plan to price our in-house beers somewhat more than our other products to reflect production costs. This is typical within the industry and can create higher margins. If McKnight's is able to capture a significant number of newer customers, then management will consider a rise in overall prices to reflect our established unique position.

5.2 Sales Forecast

These illustrations and tables show our present sales forecast.

Sales Forecasthttp://www.bplans.com/irish_pub_bar_business_plan/images/9cbf294880434503958bdde408ddd190.png

2003

2004

2005

Sales

Sales

$1,017,000

$1,307,000

$1,410,000

Other

$0

$0

$0

Total Sales

$1,017,000

$1,307,000

$1,410,000

Direct Cost of Sales

2003

2004

2005

Sales

$457,650

$562,010

$578,100

Other

$0

$0

$0

Subtotal Direct Cost of Sales

$457,650

$562,010

$578,100

5.3 Milestones

This table lists important program milestones, with dates and managers in charge and budgets for each. The milestone schedule indicates our emphasis on planning for implementation.

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Milestones

Milestone

Start Date

End Date

Budget

Manager

Department

Business Plan

6/16/2001

8/15/2001

$4,000

Davis

N/A

Secure Loan

8/15/2001

12/15/2001

$0

Davis

N/A

Brewery Installation/Renovation

1/1/2002

3/15/2002

$390,000

Davis

N/A

Advertising Campaign

4/15/2002

8/15/2002

$9,000

Davis

N/A

Totals

$403,000

Management Summary

Currently McKnight's Pub has five employees including Mr. Davis and four bartenders and table attendants. Starting in March of this year Mr. Mark Hudson will be hired as Brewmaster and Miss Tracy Sherman, one of our table attendants, will be trained by him as an assistant. There are no further plans for personnel changes and all bookkeeping, accounting and advertising will be outsourced.

6.1 Management Team

Mr. Ian Davis is a native to Oregon, having graduated from the University of Oregon in 1981 with degree in English. He subsequently worked with a number of firms in the food industry including Shari's, Smith and Taylor specialty foods, and Hosmer's Distributors Ltd. In 1997 Mr. Davis completed an MBA at the University of Washington with honors.

6.2 Personnel Plan

The following table shows the Personnel Plan for McKnight's Pub.

Personnel Plan

2003

2004

2005

Mr. Davis, Owner and Manger

$60,000

$60,000

$75,000

Mr. Hudson, Brewmaster

$54,000

$55,000

$65,000

Miss Sherman, Assistant Brewmaster

$24,000

$30,000

$33,000

Bartender

$18,000

$18,000

$22,000

Bartender

$18,000

$18,000

$22,000

Table Attendant

$14,400

$18,000

$18,000

Table Attendant

$14,400

$118,000

$118,000

Total People

7

7

7

Total Payroll

$202,800

$317,000

$353,000

Financial Plan

Growth will be supported by a long-term loan of $390,000 for the proposed brewery expansion and owner investment. This will keep initial growth slow and manageable, and will allow the management to have complete control over the pub.

 

7.1 Important Assumptions

McKnight's Financial Plan relies on several important assumptions - most of which are shown in the following table.

The key assumptions are:

 Sufficient access to capital.

 Steady economy without a major recession.

 No unforeseen drastic consumer changes.

General Assumptions