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; jf.aldana@uniandes.edu.co 2 Chemical and food engineer student; s.caicedon@uniandes.edu.co

* Correspondence: jf.aldana@uniandes.edu.co; s.caicedon@uniandes.edu.co

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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