1 of 72 Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 2 of 72 TABLE OF CONTENTS A. Executive Summary .............................................................................................................................. 5 1. Introduction/Project Overview ..................................................................................................... 5 2. Economic Feasibility Determination/Opinion ............................................................................... 6 3. Technical Feasibility Determination/opinion ................................................................................ 7 4. Market Feasibility Determination/Opinion ................................................................................... 7 5. Financial Feasibility Determination/Opinion ................................................................................ 8 Figure (1): Proposed Project Costs ....................................................................................................... 9 6. Management Feasibility Determination/Opinion ......................................................................... 9 7. Recommendations for Implementation ..................................................................................... 10 B. Economic Feasibility ........................................................................................................................... 10 1. Information regarding project site; site description and linkages .............................................. 10 Figure (2): Map Showing Location of Mount Horeb, WI ................................................................... 11 Figure (3): Viking Plaza Site Plan ....................................................................................................... 12 2. Availability of infrastructure ....................................................................................................... 13 3. Availability of trained or trainable labor ..................................................................................... 13 Figure (4): Madison, WI, Designated Market Area ........................................................................... 13 Figure (5): Designated Market Area Employment Profile ................................................................. 14 Figure (6): Madison, WI Metropolitan Area Median Hourly Wage ................................................... 14 4. Overall economic impact; property taxes paid, tourism created, other local suppliers utilized, jobs created. ....................................................................................................................................... 15 5. Agriculture Value & Economic Impact by Counties In Target Market ........................................ 16 Figure (7): Agriculture Impact in MHAFE Primary Geographic Market ............................................. 16 6. Shared Facilities, Incubator Space & Research Centers .............................................................. 20 Figure (8): Shared Facilities, Incubator Space, and Research Centers ................................................ 21 7. Community Supported Agriculture (CSA) Programs ................................................................... 22 8. Farmers Markets ......................................................................................................................... 23 9. Wisconsin Food Processing Facilities .......................................................................................... 23 10. Supplier Network .................................................................................................................... 24 Figure (9): Regional Supply Chain ...................................................................................................... 25 C. Market Feasibility ............................................................................................................................... 26 1. Information on the organization and management ................................................................... 26 2. Nature and extent of market and market area........................................................................... 26 Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 3 of 72 Figure (10): Range of Value-Added Food Processing ........................................................................ 27 Figure (11): 30 Mile Radius around Mount Horeb, WI ...................................................................... 28 3. Marketing plans for Community Outreach ................................................................................. 28 4. Secondary Market Research ....................................................................................................... 30 Figure (12): Blue Mountain Station Artisan Food Center Floor Plan ................................................. 33 Figure (13): Food Hub Value Chain .................................................................................................... 35 5. Extent of competition including other similar facilities in the market area ............................... 35 Figure (14): Location of the Viroqua Food Enterprise Center 83 Miles from Mount Horeb .............. 36 Figure (15): Location of the Madison Enterprise Center 30 Miles from Mount Horeb ...................... 38 Figure (16): Baum Development Site Plan for Garver Feed Mill ........................................................ 41 6. Primary Market Research ........................................................................................................... 41 Summary Survey Findings .................................................................................................................. 41 Survey Results .................................................................................................................................... 42 Figure (17): What type of food production do you plan to do? Check all that apply ....................... 42 Figure (18): Relative Importance of Building Features in Base Rent ................................................. 43 Figure (19): Expected Rent per Square Foot ...................................................................................... 44 Figure (20): Proprietary Space Required ........................................................................................... 44 Figure (21): Shared Space Required................................................................................................... 45 D. Technical Feasibility ........................................................................................................................... 45 1. Suitability of the selected site for the intended use ................................................................... 45 2. Facility design and/or process plan ............................................................................................. 46 Figure (22): Preliminary Floor Plan .................................................................................................... 46 3. Development costs and sources of assumptions ........................................................................ 47 Figure (23): Preliminary Project Budget ............................................................................................ 47 4. Business Practices ....................................................................................................................... 48 E. Financial Feasibility ............................................................................................................................ 49 1. Three years projected balance sheets, income statements and cash flow statements ............. 49 Figure (24): Projected Profit and Loss Statement .............................................................................. 50 Figure (25): Projected Balance Sheet................................................................................................. 51 2. Financial Assumptions................................................................................................................. 52 F. Management Feasibility ..................................................................................................................... 53 1. Continuity and adequacy of management.................................................................................. 53 2. Conflicts of interest ..................................................................................................................... 53 Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 4 of 72 G. Acknowledgements ............................................................................................................................ 53 Artisan Food Emporium Committee: ................................................................................................. 53 Project Partners & Core Project Team: .............................................................................................. 53 Planning Assistance: ........................................................................................................................... 53 H. Partial List of Applicable Grant Programs .......................................................................................... 54 I. Viking Plaza Real Estate Listing........................................................................................................... 58 J. Survey Questions ................................................................................................................................ 60 K. Mt Horeb Area Economic Development Corporation 2015 Annual Report ...................................... 62 l. Letters of Interest ............................................................................................................................... 64 Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 5 of 72 A. EXECUTIVE SUMMARY Funding for this project was made possible by the Local Food Promotion Program (LFPP), managed by the Agricultural Marketing Service, U.S. Department of Agriculture in addition to local matching funds. 1. INTRODUCTION/PROJECT OVERVIEW This study is the result of an interest by Southwestern Wisconsin Community Action, Inc. (SWCAP) and the Mount Horeb Area Economic Development Corporation (MHAEDC) in starting an artisan food emporium for local, organic, or sustainable food production or processing businesses in Mount Horeb, WI. The emporium would be called Mount Horeb Artisan Food Emporium (MHAFE). MHAFE would function as a virtual food hub to help local food producers or processors grow and prosper. The emporium would include both proprietary and shared space that developing and established local food businesses could rent to process and sell their products, as well as, take advantage of shared marketing and management services. The ultimate goal of the MHAFE is to be a catalyst, stimulating a vibrant agricultural food chain in southwestern Wisconsin. The vision is to support the creation and expansion of other food-related businesses in the region. MHAFE also intends to provide jobs and job training for low income people. At least ten established local producers and processors have expressed an interest in renting space in the new emporium, which will include common spaces for office and retail. This study showed that a shared facility is needed in the southwestern Wisconsin food production sector. In the proposed emporium, each participant may share in the financial and time burden for space planning, equipment acquisition, marketing, and trucking. These potential synergies would save participants both time and money. MHAFE intends to provide the following value-added services for participants:  Marketing and promotion  Facilitation of sharing opportunities and joint ventures  Seeking grant funds Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 6 of 72  Promoting food tourism  Forming strategic partnerships with outside organizations  Facilitating vertical integration among MHAFE participants  Supporting MHAFE participants with brand development and enhancement 2. ECONOMIC FEASIBILITY DETERMINATION/OPINION The Village of Mount Horeb has many valuable assets that make this proposed project economically feasible. Mount Horeb is in Dane County, WI, located on US Highway 151, a major traffic artery that runs through the states of Iowa and Wisconsin. The Village is part of the Madison Metropolitan Statistical Area, which consists of Dane, Columbia and Iowa Counties. Therefore, a large part of the MHAFE’s consumer market is based in Madison. The geographic positioning of Mount Horeb, between rural food producers (in southwestern Wisconsin) and consumers (in Madison), makes it a good location for an artisan food processing emporium. There is an adequate supply of trained or trainable labor. The proposed site is the existing Viking Plaza shopping center located on Main Street in Mount Horeb, WI. This shopping center is 29,100 total square feet. There is vacant space amounting to 11,500 square feet currently available to lease, which is the former location of World of Variety. MHAFE has the potential to revitalize Viking Plaza and create meaningful synergies with other businesses in the mall and the Village. Its anticipated economic impact includes the following:  Existing Business Expansion – MHAFE will support the expansion of at least five established food production or processing businesses. MHAEDC is currently negotiating lease agreements with two participants that intend to expand their businesses to gross $6 to $10 million in annual sales.  Jobs Created – The local food producers or processors participating in MHAFE will create jobs. Two potential participants interviewed for this feasibility study indicated they will create 18 to 22 full-time and four to six seasonal jobs over five years. Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 7 of 72  Property Taxes Paid – Real estate taxes paid for the proposed space are estimated at $9,000 per year.1  Local Suppliers Utilized - Employees working in the MHAFE will create a multiplier effect and contribute to the local economy. They will buy houses, rent apartments, shop at local stores, buy gasoline, eat at restaurants, and purchase professional services. Participants in the space will contract for snow plowing and insurance in addition to other services.  Tourism Created – Mount Horeb, WI is a tourist destination because of its Norwegian heritage, vibrant downtown, proximity to Madison, and it strategic location on the US Highway 151 traffic corridor to southwestern WI. MHAFE is expected to increase interest in food tourism. Mount Horeb’s main street already features at least two other local food producers, Fisher King Winery and Sjölinds Chocolate House. 3. TECHNICAL FEASIBILITY DETERMINATION/OPINION The technical advisors for this project were Craig Stanley, CCIM (Certified Commercial Investment Member), Broadwing Advisors, LLC, Madison, WI and building contractor Jeff Grundahl, NCI-Roberts Construction, Inc., Blue Mounds, WI. These technical advisors have inspected the site and developed construction budgets based on their assessment of the suitability of the proposed site. 4. MARKET FEASIBILITY DETERMINATION/OPINION There is an adequate market to support the proposed project. At this time, MHAFE has identified two potential anchor tenants, a frozen fish distributor and a local meat producer, and has started lease negotiations with them. Two other likely tenants, both cheese producers, have also expressed an interest in a shared space. In addition to production space, the meat producer would maintain a retail space that would sell products of other participating producers. 1 Equals total shopping center property taxes of $22,766 divided by 29,100 s.f. in the center times 11,500 s.f. proposed in the MHAFE Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 8 of 72 In November and December 2014, an e-mail survey was constructed using eSurveysPro.com to determine whether local food producers or processors perceive a need for MHAFE. Seventeen questions were sent to 400 regional food producers or processors after testing the survey instrument with five sample respondents. There was a 10% response rate to the survey (40 responses were received). The survey results showed strong market demand for a place in Mount Horeb featuring a commercial kitchen, freezer storage, refrigeration, dry storage and marketing included in base rent not to exceed $12 per square foot. According to the survey, the typical food producer or processor has been in business more than five years, manufactures a branded local product, has three employees and would rent less than 500 square feet.  Six respondents had a medium or high level of interest in relocating their existing business to MHAFE. These respondents are in addition to the four potential participants MHAEDC is currently negotiating with.  Fourteen respondents said they would be willing to sign a non-binding letter of interest. Within MHAFE’s geographic target market, there are current and planned facilities that relate to the operational area of MHAFE. However, none of them competes directly with MHAFE's proposed business model. For example, the focus of the anticipated Madison Public Market is largely retail. It lacks the business, marketing and value-added services MHAFE plans to provide. Although several local food production or processing businesses are located in The Madison Enterprise Center, it operates as a general business incubator for start-up companies. MHAFE plans to work primarily with established businesses. 5. FINANCIAL FEASIBILITY DETERMINATION/OPINION In order to offer what prospective participants perceive as affordable rent, MHAFE will need to seek a grant or other subsidy to fund all or part of an estimated net $329,750 in needed leasehold improvements (see Figure 1). Since all the comparable businesses reviewed for this feasibility study received substantial grants or subsidies in order to make their building rents more affordable for small food producers or processors, the real estate project gap identified for MHAFE is not unexpected. Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 9 of 72 The projected real estate project gap is based on total estimated project costs of $630,000 less $300,250 in assumed landlord provided improvements. The real estate project gap excludes approximately $170,000 of additional, tenant-specific costs which will vary according to the final tenant mix. It also excludes a commercial kitchen, which most survey respondents requested. MHAEDC has indicated it will add a commercial kitchen when funds become available. FIGURE (1): PROPOSED PROJECT COSTS Line Item Estimated Project Costs Interior Build-out $340,000 Refrigeration $125,000 Loading Dock Improvements $50,000 Design/Engineering $20,000 Water/Fire Protection Supply $20,000 Upgrade Electrical Service $25,000 Contingency $50,000 Base Project Cost $630,000 Less: Landlord Provided Items Bathrooms $(25,000) Loading Dock Improvements $(25,000) Floor Preparation $(40,250) Facade Makeover $(150,000) Signage $(20,000) Demising of Space $(40,000) Total Landlord Contribution $(300,250) Real Estate Project Gap $329,750 6. MANAGEMENT FEASIBILITY DETERMINATION/OPINION MHAEDC’s Executive Director, Brad Murphy, will provide project management oversight. He is a senior executive with strong leadership skills including strategic planning, marketing and sales, board/committee relations, public speaking and business/project management. In its second full year of operations under Murphy’s direction, the MHAEDC continues to have a positive impact on Mount Horeb in its mission to expand the business base, reduce the tax burden on existing businesses and residents, and increase employment opportunities. Its core group has now grown to over forty local business leaders who share ideas, networks and Mount Horeb Artisan Food Emporium Feasibility Study, July 2015 10 of 72 resources. Successful projects include the Mount Horeb Innovation Center (October 2014) and the GrandStay Hotel and Suites (May 2015). In addition to Murphy’s project management oversight, MHAEDC or its for-profit subsidiary, Mount Horeb Enterprises, LLC also intends to hire a part-time manager to coordinate and provide tenant services including but not limited to marketing, community outreach, grant writing and property management. 7. RECOMMENDATIONS FOR IMPLEMENTATION A business plan is normally developed when a firm direction for the business can be established and/or there is a need for outside financing that requires the development of a business plan. This feasibility study identified no factors that limit the ability to proceed to a business plan. It is therefore recommended that a business plan be developed for MHAFE. B. ECONOMIC FEASIBILITY 1. INFORMATION REGARDING PROJECT SITE; SITE DESCRIPTION AND LINKAGES Mount Horeb is a village in Dane County, WI, located on US Highway 151, a major traffic artery that runs through the states of Iowa and Wisconsin (see Figure 2). Mount Horeb is part of the Madison Metropolitan Statistical Area, which consists of Dane, Columbia and Iowa Counties. The nearest city with a population over 50,000 is Madison, WI (17.8 miles, population 208,054) and the nearest city with a population over 1,000,000 is Chicago (132.3 miles, population 2,896,016). Mount Horeb Artisan Food Emporium Feasibility Study, July 2015