MM Case Analysis Group12 Mountain Man

MOUNTAIN MAN BREWING COMPANY

MOUNTAIN MAN BREWING COMPANYCASE ANALYSIS BYGROUP 12 SECTION AAkash VashishthaFT161009Amal GoswamiFT161012Ankush BallalFT161019Utkarsh SethiFT161099Vineet KhandelwalFT161105BackgroundFounded in 1925 by Guntar Prangle.A brand as famous as John Deere among working-class male.Presence in West Virginia, Illinois, Ohio, Michigan and Indiana.By 2005, revenue generated was just over $50 million and selling over 520,000 barrels.Observing declining sales in recent year.

Success FactorsPeople associate authenticity as it is family owned.Well reputed among blue collar personnel.Bitter flavor.Famous for its rugged image.Higher than average alcohol content.Packaging in brown bottle with the image of coal miners.Awards & RecognitionStayed as the Best Lager in West Virginia for over 50 years.Voted as the Best Beer for 8 years straight in West Virginia.Elected as Best Beer in Indiana in 2005.Younger beer drinkers were well aware of the brand.Sole brand loyalty of 53% - higher than any competitor.Decline in SalesShift in preference of beer from Strong to Light.The market for Light Beer was estimated to grow at 4% CAGR for the next 6 years.2% Decline in sales revenue.Increase in federal taxes.Growing health consciousness among consumers.Younger generation of beer drinkers preferred light over strong as they considered strong beer as corporate.Light Beer comprised of 50.4% of market share of Beers.Impact of the LaunchNumbersCalculating Cost of Each BarrelRevenue in 2005 by selling lager = $50,440,000Number of Barrels sold = 520,000Price of each barrel = $97 ($50,440,000/520,000)Price of Premium beer = Price of light beerCost per barrel of light beer = $97

Numbers (Contd)20052006200720082009Light Beer Sales in Barrels18,744,30319,494,07520,273,83821,084,79221,928,183CAGR4%4%4%4%Estimated market share of Mountain Man Light0.25%0.50%0.75%1.00%Estimated barrel sales of Mountain Man48,735101,369158,136219,282Revenue (@ $97/Barrel)$4,727,313$9,832,811$15,339,186$21,270,338Revenue Estimation of Mountain Man Light.Numbers (Contd)Contribution Margin per barrelPrice per barrel=$97Variable cost per barrel=($66.93)Additional cost per barrel=($4.69)Contribution Margin=$25.38Numbers (Contd)Break even Calculations (2006 & 2007)Scenario 1: No Cannibalization (Best Case)Initial advertising cost =$750,000Incremental SG & A (2006)=$900,000Incremental SG & A (2007)=$900,000Total fixed cost=$2,550,000Breakeven Volume=Fixed cost/CM=$2,550,000/25.38=100,473 BarrelsBreakeven Revenue=BEV * Cost=100,473*97=$9,745,881Numbers (Contd)Break even Calculations (2006 & 2007)Scenario 2: Cannibalization (20% )+ 2% decline in sales

20052006200720082009Revenue from Sale$50,440,000$49,431,200$48,442,576$47,473,724$46,524,250Contribution (31% from Exhibit 1)$15,323,672$15,017,199$14,716,855$14,422,517Cannibalization (Assuming 20%)-$3,064,734-$3,003,440-$2,943,371-$2,884,503Advertising Cost-$750,000000Incremental SG&A-$900,000-$900,000-$900,000-$900,000Total Cost-$4,714,734-$3,903,440-$3,843,371-$3,784,503Contribution from sale of light beer$1,236,899$2,572,750$4,013,490$5,565,373Net Change in Contribution-$3,477,835-$1,330,690$170,119$1,780,869Here as we observe the break even is slightly after 2 years.InferencesIn both the scenarios there is a high possibility that the company achieves break even point within 2 years.As the company has good brand image, a 0.25% increase in market share per year seems plausible.The launch of MM Light will bring diversification in the offerings of the company.

ConclusionsBased on the pros and the financials, the company should launch the MM Light Beer.It should probably launch the beer with a different brand to avoid deteriorating the brand image of mountain man.The main focus should be on the supply chain, so that the light beer is available in the strategic locations like restaurants, pubs etc.Target the marketing to the younger generation and not much for the elderly.

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