The primary risks an investor in Hawaii Cider Co. should consider are risks from competition, risks associated with market assumptions, risks associated with financing and interest rates, risks of acquisitions and joint ventures, and risks associated with costs of raw materials, packaging and shipping.
Hawaii Cider Co., being based on a remote island, will require a wide range of imported raw materials to produce and package our products. Raw commodities are subject to significant price increases resulting from a number of possible factors. While the common and increasing concern of water risk (fresh water supplies being pinched by increasing demand) is not an issue for our company, certain materials such as bottles, aluminum for cans, and flavor compounds not made on island may, at times, be difficult to source. Related—Oil and gas prices can significantly impact the costs associated with packaging and shipping, especially being an island-based company.
An additional risk associated with product packaging is Hawaii Cider Co.’s reliance on the Hawaii division of Ball’s can manufacturing location to produce many of its cans for lower priced products in the pipeline. This plant represents the only on-island location capable of producing cans locally. There is risk for the company in the plant closing because it would require the use of an alternative source, likely from the mainland, which will come with additional costs associated with logistics.
The alcoholic beverage sector, in which Hawaii Cider Co operates, is a highly competitive market, where competition risks are significant. To succeed, Hawaii Cider Co. must be able to respond quickly to changes in consumer preferences. For example, Hawaii Cider Company may have to adjust to an increased consumer emphasis on lower sugar content. Hawaii Cider Co. will work to anticipating market shifts and respond accordingly to actions by competitors.
Hawaii Cider Co. has made certain assumptions about alcoholic and non-alcoholic markets in order to create financial projections for the business. There is risk associated with the accuracy of these projections being compromised due to sharp changes in key assumptions such as cider market growth, the energy drink market in Hawaii, and other related variables. In order to mitigate this risk, Hawaii Cider Co. has taken great care to ensure the reliability and source quality of key assumptions used in the business plan.
Hawaii Cider Co., like many comparable alcoholic beverage companies, may make substantial capital expenditures in such areas as research and development, and production facilities. Therefore, management of working capital, strategic planning of capital expenditures and the company's debt position are all of major importance. Various risks are associated with interest rates and financing—these risks must to be managed well to ensure profitability. Hawaii Cider Co. understands that the company must invest in growth while working to avoid taking on excessive debt levels, especially at high interest rate levels.
A source of revenues for Hawaii Cider Co may be found in emerging-market economies. Emerging markets represent substantial opportunities but also have accompanying risks. Penetrating emerging markets is often accomplished through acquisitions or joint venture partnerships. For Hawaii Cider Co. to effectively profit from gaining access to new markets, we must identify the best acquisition or partnership opportunities, be able to obtain adequate funding for market expansion, and negotiate favorable deals. An additional risk arising from doing business in foreign countries is currency exchange-rate risk.