mountain manbrew beer
TRANSCRIPT
Harvard Business School’s Case Study Mountain Man Brewing Co.
DIVYATA JAISWAL
IIT Guwahati| IIML Internship| GUIDE : Prof S. Mathur
Case Study : overview Mountain Man Beer Company founded in 1925 by Guntar Prangel Chris Prangel , an MBA graduate wanted toinherit his father`s business. Mountain Man brewed one beer called Mountain Man Lager Also known as West Virginia`s beer Chris wanted to launch Mountain Man Lightamong the youngsters
For the past 6 years beer sales in US had beengrowing at a compound annual rate of 4% Also had decrease of traditional premium beer sales with same percentage The reputation quality beer was wellentrenched throughout the East Central regionof United
States By 2005, Mountain Man generated revenueover $50million and selling over 520,000barrels² of
Mountain Man Lager. Held in top market position in West Virginiaamong Lagers
Company Background
Family owned business, of brewery Founded in 1925 by Guntar Prangel Launched MOUNTAIN MAN LAGER Used old family recipe
Company Background Present Scenerio
Current owner, Oscar Prangel Strong reputation in centrel East region $50 million revenue by 2005 Best beer in West Virginia
Primary Customer
Blue collar people Low income men over the age of 45-54 53% customer loyalty rate
Product : Success & Specification (Mountain man Lager )
West Virginia’s top market position amoung best lagers for 50 years Voted “Beat Beer of Indiana” in 2005. Voted Best beer in West Virginia “ for eight continuous years. “American’s Championship Lager “ in 2005.
SUCCESS
Dark hued colour Packed in brown bottles, with original label Unique flavour Quality product Prices are similar to premium domestic brands
Product Specification
SWOT Analysis of Case Study
STRENGTHWEAKNESS
OPPORTUINTY THREATS
Strong brand equity Market leadership
Lack of financial resources to compete in the light beer advertising market
Improper utilization of funds in advertising
Market extenstion to younger demographic
Increase lifetime customer value
Dilutes Brand equity
Risk of canalization of core brand
Alienation of core customer through newbrand
Loyal Customers
New class of customer : Women lncrease Product Line Increase in manufacturing cost
Competitors
Main competitor
Major domestic producers
Other competitors
Second tier domestic producers
Anheuser Busch
Miller Brewing Company
Adolf Coors Company
Import beer companiesTogether , they accounted for 74% of 2005 beer
shipments in Mountain Man’s region
Pabst Brewing Company Genessee
Craft beer companies
Sam Adams Sierra Nevada Harpoon
Heineken Molson Corona
Emergent Situation
Light drinkers emerge Greater health awareness Drinkers preferences have changed Competition and Channel Development Key consumer segments changed to age 21-27 years
MARKET CHANGE
MARKET DECLINING FACTOR
Mainly drinkers are aged 45 years Neglecting the growing target audience of women Lack of variety Rise of light beer
Can introducing man brew light beer solve the problem of
decline ?
Introduction of “Light Beer”
Market will increase (Younger customers and females) Increase product line Increased revenue
WHY ? WHY NOT ?
Money will be spent in its advertisement. Dilute the brand name May lead to loss of brand integrity. May lead to loss of current loyal customers Increased competition with powerful brands.
Income statement : Mountain Man 2005
Revenue of next year = (1-2%) revenue of previous year Gross Margin = Net revenue - COGS Net Income = Net Revenue - (COGS + SG&A + Other Operational Expenses - Other Income + income Tax)
Future Analysis trends in market revenue : Mountain Man Beer
2006 2007 2008 2009 2010
Net Revenue $49431200.00 $48442576.00 $47473724.48 $46524249.99 $45593764.99
COGS $34107528.00 $33425377.44 $32756869.89 $32101732.49 $31459697.84
Gross Margin $15323672.00 $15017198.56 $14716854.59 $14422517.50 $14134067.15
SG&A $9391928.00 $9204089.44 $9020007.65 $8839607.50 $8662815.35
Other Operational Expenses
$1384073.00 $1356392.13 $1329264.29 $1302679.00 $1276625.42
Operating Margin $4547670.40 $4456716.99 $4367582.65 $4280231.00 $4194626.38
Other Income $14829.36 $14532.77 $14242.12 $13957.27 $13678.13
Net income before taxes
$4695964.00 $4602044.72 $4510003.83 $4419803.75 $4331407.67
Income tax $1631229.60 $1598605.01 $1566632.91 $1535300.25 $1504594.24
Net Income $3064734.40 $3003439.71 $2943370.92 $2884503.50 $2826813.43
** above data is calculated by formula shown in prev slide
Net income decreases every year
So what can be infer from tabulated data ?
“ LET'S CHECK FOR ALTERNATIVE SOLUTION i.e.. Mountain Man Light Beer ”
Introduction of new product : Light Beer
2005 data
Net Revenue $50440000
Barrels Sold 520000
Price per Barrel $97.00
Variable cost (per barrel Lager) $66.93
Variable cost (per barrel light ) $71.62
Margin (lager) $30.07
Margin (light ) $25.38
Price per barrel = Net Revenue/ Barrels Sold
Margin = Price per barrel - Variable Cost
Initial fixed costs of Mountain Man Light
Fixed cost calculation
Advertisement cost $750000
Annual incremental SG&A cost(2006)
$900000
Annual incremental SG&A cost(2007)
$900000
Total fixed cost $2550000
Best case scenario 2006-2007 Worst case scenario ( 2006-2007)
Fixed cost calculation (with 20% cannibalization* plus 2% last revenue base annually )
Advertisement cost $750000
Annual SG&A cost (2006) $900000
Annual SG&A cost (2007) $900000
Cost from cannibalisation $437226
Cost from cannibalisation $341036
Total fixed cost $3328262
*cannibalization refers to a reduction in sales volume, sales revenue, or market share of one product as a result of the introduction of a new product by the same producer
Breakdown analysis : 2006-2007
Breakdown analysis of Mountain Man Light Beer
Without cannibalization With cannibalization
Best case scenario Worst case scenario
Total breakeven volume (barrels) Fixed costs/ Net profit margin Fixed costs/ Net profit margin
$2550000/$25.38 $3328262/$25.38
100473 barrels 131137 barrels
Total breakeven revenue Total breakeven vol * price per barrel Total breakeven vol *price per barrel
$100473*$97 $131137*$97
$9745881 $12720308
Revenue with cannibalization
2006 2007 2008 2009 2010Lager Revenue $49431200 $48442576 $47473724 $46524249 $45593765
20% Cannibalization $39544960 $38754060 $37978979 $37219399 $36475012
Light beer Revenue $4727313 $9832811 $15339185 $21270337 $27651439
Net Revenue $39544960 $48586872 $53318165 $58489737 $64126451
2006 2007 2008 2009 2010
Net Revenue $49431200 $48442576 $47473724 $46524249.99 $45593764.99
Revenue with Mountain man Lager
Revenue with cannibalization
RESULT
Total breakeven revenue (TBR) Analysis (in both case , with & without cannibalization)
TBR is sufficient enough to meets its budget constraint within span of 2-3 years
Net Revenue Analysis
Light beer : net revenue increases every year Mountain beer : net revenue decreses every year
* assuming 0.5 % market share
Decision
The Mountain Man Light beer should be launched !
Increase the product line
Revenues also favour its
launch
Company will make greater
profits
Introduction of other new
products
With expected market share, budget can be managed