Mountain Man Brewing Company Case Study Essay

What is the ongoing situation?Mountain macrocosm Brewing Company (MMBC) is a family business founded in westmost Virginia in 1925 by Guntar Prangel. The company is now operated by Guntars grandson, Oscar. Oscars son, Chris, is slated to get the business in five courses when his father retires. Mountain world (MM) la eonr beer is the flagship ware and the besides beer trustworthyly produced by the company. The recipe for the lager beer was establish on a minute family recipe and is known for its flavorful, resentment taste. By the 1960s, the lager had established itself as a legacy beer with a rich history, and the company continues to maintain its independent, family-owned status which appeals to its onus drinkers. By 2005, the popularity of MM lager in the East Central region of the U.S. had elicitn to bring back taxs of just over $50 million, and the beer held the top mart position among lagers in atomic number 74 Virginia. MM laager won Best Beer in West Virgin ia in 2005 for the eighth year in a row.What has make MMBC undefeated & distinguishes it?MMBC has enjoyed success because of several factors. Although it is a regional brewageer, it has superb build recognition. A recent study showed that Mountain Man laager was considered by many an new(prenominal)(prenominal) to be West Virginias best known beer. In addition, it has really(prenominal) hale dent position with consumers favoring MM Lagers incomparable taste and quality ingredients from the family recipe. Finally, MMBC has a trained gross revenue force that is very adept and getting its fruit into the right carry to compete with bailiwick breweries. The legacy of the company is its main distinguishing trait from its competitors. As mentioned before, the very strong send fair play has made MMBC stand out as a brewery that has experienced customer loyalty for successive generations. Holding the title of West Virginias Beer allows MM Lager to study an ingrained exposure t o consumers in the region and act as a natural default for its down(p) collar patrons.What enabled MMBC to create such a strong brand?To repeat the Mission Statement, Mountain Man is still standing because we manufacture an majestic beer with a great brand name, weve never lost sight of our core customer, and weve never been seduced by the other guys market. MMBC stands for such rummy qualities that have been the boilerplate for developing an enriched brand with strong equity. For almost 50 years it held the top market sh atomic number 18 for lagers of West Virginia in the majority of the states where it was distri justed distinguishing them in prime position among competitors. Research of working-class males determined that MMBC was as recognisable as leading manufacturers Chevrolet and John Deere in the East Central region. alike successful branding efforts in a largemarket, MM Lager was priced with an extremely competitive Every Day Value below specialism brands, but above premium domestic brands. This allowed for an aura of authenticity distinguishing it as higher quality than Miller and Budweiser, for instance, all while gaining incremental tax incomes from the trick brewers like Sam Adams. MMBC could generate cast upd turns at registers without having the deep pockets of their competitors.What has caused MMBCs dec stress in spite of its strong brand? Analysis of MMBCs business model requires the backdrop of the U.S. beer fabrication. Since 2001, U.S. per capita beer consumption has declined by 2.3% due to increase competition from wine and spirits-based drinks. MMBCs revenues argon down 2% comparative to the prior fiscal year. The current state of the company and market conditions suggests that a one product line may be unsustainable. As of 2005, MMBC was the unaccompanied major regional beer company to not expand beyond its flagship lager product. A discussion section of the population was still interested in MMBC, but that segment, while loyal, was aging. The rate at which MMBC was building new consumers was only exhalation to replace a fraction of their current buyers. Distributors were discriminating about which little brands they would carry, and the percentage of new consumers by age group was continuing to decrease.thither have in any case been numerous uncontrollable circumstances that have been attributed to MMBCs decline despite their strong brand. Increased taxes and fees to manufacturers have been clearly patent in the rising retail follows of goods in the marketplace. Companies cannot cede to attract the added expenditures and thitherfore pass them on to the consumer whom tends to buy less as prices increase these increases are hitting their pockets on the home front as well. In addition, the average consumer is becoming much more health conscious and has made changes in their preference of alcoholic beverage segment.Beer is very high in calories for instance, as compared to wine or spirits and de creasing caloric uptake has been one of those fairly recent health conscious changes being made. Beer lovers are sticking with their choice of libation however, substituting a settle version of their preferred brand. With these factors on the rise every day and the core demographic of MM Lager r individuallying an age bracket were considerably lessportions of income are dedicated to alcohol purchases, the brewery has slowly lost market share to the bigger domestic brewers that have been fortunate enough to capital to invest on increased advertising and marketing.Should MMBC introduce a spark beer?With sales declining and seek new areas of business egress, Chris Prangel, a recent MBA graduate, is considering a campaign to depute MM brighten. Light beer sales in the U.S. have been growing at a mix annual rate of 4%, while conventional premium beer sales, such as MM Lager, have declined by the kindred percentage. The core age group for electric discharge beer drinkers is 25 - 44 which extends below the current core age group of MM Lager (men over the age of 45). Currently, MM Lager has a 4-to-1 male-to-female ratio while the liberal beer sept ratio is roughly 3-to-2. Using current rates of decline with gain margin down 6.2% in 2005, 2010 sales of MM Lager lead continue to decrease at the current rate of decline. Given the current state of the beer industry, it is reasonable to project that the rate of sales decline pull up stakes continue to accelerate in the future.In 2005, MMBC was still profitable and could afford to take on the costs of extending its product line however, each year that the company waited to do so jeopardized its ability to afford new costs. At beginning glance, there appears to be an obvious probability to expand the brand by introducing a light beer to the market. The concern is that a light brew would alienate the core customer base and erode the attributes that make MM a profitable company. MM Light pull up stakes add s upererogatory capital expenditures for be and equipment upgrades and could potentially hurt sales of the lager as brand loyalty may become threatened. To arrive at a well-informed decisionsupported by strong monetary calculations, it is first requirement to perform a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis (Exhibit 1).While weaknesses and threats identify are serious, they are few in number when compared to the many strengths and opportunities of expanding the MMBC product line. Because 9.4% of the regions light beer production was captured by small brewers, there are successes to be had in producing a light beer. In addition, light beer is responsible for more than 50% of all beer sales in MMBCs East Central region. Even a small percentage of the biggest market had the potential to be valuable for MMBC.Is MM Light financially executable for MMBC?MMBC must produce a light beer product in rescript to remain a competitive player in the beer industry. This de cision is based on financial projections of sustained profitability. Both industry and company entropy were initially provided to set the groundwork for these calculations (Exhibit 2). MMBC revenues for 2005 were estimated at $50 million however, that revenue base was projected to decrease by 2% each year. Additionally, the number of place of MM Lager sold in 2005 was approximately 520,000. Regional light beer sales primitiveed just over 18.7M barrels that year and were estimated to grow at an annual rate of 4% as judged by industry experts. As judged by Chris Prangel, the initial market share for MM Light in 2006 is estimated to be 0.25%. Following Chris prognostication, we also assumed an annual growth rate of 0.25% in MM Light revenue for follow-on years. Lastly, we were provided with variable cost per unit data $66.93 for MM Lager and $71.62 for MM Light. This foundational set of data allowed for a series of critical assumptions to be logically made (Exhibit 2).Break-Even show up (BEP) AnalysisIn an attempt to demonstrate the viability of extending MMBCs product line to include a light beer, breakeven point (BEP) analysis was conducted. These calculations were performed for both MM Lager and MM Light as both products go forth catch up with MMBCs get along revenue in years to come (Exhibit 3). It is authoritative to note that MMBCs fixed costs were partially comprised of aforementioned financial assumptions. SG&A costs for each product line were given, however we chose to apportion an additive $50K in fixed costs for MMLight to jock with score design. Advertising remained consistent with 2005 data for MM Lager, but an additional $750K was added for MM Light as part of an intensive six month marketing campaign.This incurred cost is significant in introducing a new product to the burgeoning light beer market in the east central region. Completing the BEP calculations, we have determined that 66,982 barrels of MM Light and 364,738 barrels of MM L ager must be produced in narrate for MMBC to break even (Exhibit 3). At a cost of $97/barrel, this is possible for MMBC to achieve by 2008. The pursuance cannibalization analysis provides added detail to support this assertion.MM Lager CannibalizationAn increase in MM Light production will require shelf pose that had previously be devoted to the MM Lager product. This will right off impact the sales of MM Lager to some degree. Analysis of cannibalization is indispensable in order to show sustained profitability despite an anticipate drop in MM Lager sales. Three estimates (Optimistic, Realistic, and Extreme) were chosen for this analysis, each associated with a percentage (5%, 10%, and 20%, respectively) of MM Lager revenue cannibalization (Exhibit 4).In all three cases, as the revenue from MM Lager decreases each year, that loss is offset by the revenue gained from MM Light. Of particular interest is a comparison of jibe Revenue (with MM Light) and Total Revenue (without MM Light). Although higher levels of cannibalization negatively affect MMBCs total revenue each year, the growing revenue of MM Light will continue from 2007-2010 as MMBC earns a larger share of the light beer market. In a worst case scenario of 20% cannibalization of MM Lager, MMBCs total revenue withMM Light is projected to overtake its revenue without MM Light by 2009 (Exhibit 4).It is important to consider, however, that extending the product line does not necessary equate to MM Lager cannibalization. Shipping light beer as a standalone product offers MMBC freedom to market to a totally new segment without alienating their existing drinkers. MM Light should not erode sales of their core Lager product as MMBCs sales were already declining due to erosion by other brewers light beers. Also a brewer with a broad product offering was seen as a more attractive prospect to consumers. According to consumers, additional products not only introduced new drinkers to the brand, but to the bra nds other product lines.If MMBC did not branch out, they are in jeopardy of being dropped from sales channels in their home territory. Additionally, the same amount of effort that supported their single product could be going to support multiple products from a variant brewery because MM Light would not require capital expenditures in plant and equipment in the short term due to existing excess substance in MMBCs facility Product line extensions help brewers draw greater shelf space for products and created greater product focus among distributors and retailers.MM Light Marketing StrategiesThe issue of marketing and advertising the new MM Light product was analyzed using industry data from 2005 along with an aggressive marketing plan for the first six months of production. We examined marketing strategies for introducing MM Light to not only MMBCs current customers, but also to the growing population of light beer consumers. Basing our calculations off of industry advertising exp enditure data from 2005, we segmented our $750K advertising budget for the first six months of 2006 as shown in Exhibit 5. This strategy, based on prior successes throughout the U.S. beer industry, will help gain consumer confidence in our new product primarily through the medium of television.After the first six months of 2006, a refined analysis of marketing alternatives will be necessary in order to judge MMBCs next steps. Producing a light beer also presents an opportunity for MMBC capture part of the 19.5 million barrels forecasted to sell in 2006. The intromission of light beer will cause a 7% increase in per barrel cost butgiven current trends the company of necessity to change the status quo or risk succumbing to the fate of many other regional brewers (Exhibit 2). MMBC has the chance to tap into a large sales opportunity. Since light beer sales inU.S. have been growing at a compound annual rate of 4% whereas traditional premium beer sales had declined annually by 4%. Also, jr. beer drinkers view MMBC as strong and a working mans beer. This represents younger peoples superior usual dislike of big business. It would be effective to entice younger beer drinkers to emotionally and intellectually support the product while catering to their general taste for light beer. MMBC has also strategically positioned itself from a marketing post as a preferred alternative to large breweries due to its brand and business model.For example, MMBC does not attempt to compete against large breweries directly in its advertising with MM Lager. Instead, they pursue their own style of marketing, chiefly with a trained sales force. What is required is a strategy founded on the teaching that MM Light should have a new product name and logo to differentiate it from MM Lager. For example, a bold new label with a subtle, by Mountain Man Beer Company would help provided this cause. MM Light should also be marketed as a reducedcalorie beer brought to consumers by the legendar y craftsman of MMBC. MM Light needs to set itself by from the light beer crowd with quality ingredients and complement the bitterness of MM Lager by delivering a rich distinct flavor of its own.The introduction of light beer to MMBC product portfolio represents a classic adapt-or-die scenario. Fortunately for MMBC, its strong brand equity makes it possible to leverage the brand to expand to new products. MMBC must beaggressive in developing a light beer to take avail of its brand power, the economic conditions, and its current ability to afford the costs associated with a start-up product. It is imperative that MMBC market its extended product line to customers with the goal of taking advantage of its attention to quality and its niche hold in regional beer brewing.