Mountain Man Beer Company

Mountain Man Brewing Company is a family owned brewery located in West Virginia that has been strong presence as
lager brand in this region. Ever since, it has marketed towards the blue collar, middle to lower income population in the
region with its bitter, higher alcohol content lager. Over the years its brand identity has been associated as an old
school, regional brewing company and its consistency in taste and blend. It has therefore, created a legacy as “West
Virginia’s Beer” and a “Working man’s beer” and has not deviated from its core branding, maintaining itself as a single
product company.

Problem Statement :
 Between 2000 and 2006, light beer sales in the US had been growing at 4% CAGR and traditional premium beer
sales have declined 4% CAGR.
 In 2005, the premium segment of beer market was shrinking and MMBC’s revenues fell by 2% relative to last
fiscal year. More than 27% of beer consumption came from the first time drinker demographic (21-27 years)
who preferred light beer.
 MMBC wants to introduce Mountain Man Light beer to address the growing demand. However, the senior
management believes that this launch will incur SG&A expenses, alienate the core customers and cannibalize
MM lager because of limited shelf space in retail outlets.

Available Actions :

 Scenario 1 : If they are not doing anything then in Upcoming 5 years their company will be in quite different
position from current position due to the continuous decline of 2% sale in every year.
Mountain Man Lager Contribution in Year Total Sales Revenue Gross Margin
revenue %age
2005 520000 $5,04,40,000 $1,56,36,400.00
Total Barrels Sold 520000
2006 509600 $4,94,31,200 $1,53,23,672.00
Total Revenue $5,04,40,000
Price Per Barrel $97 100.00%
2007 499408 $4,84,42,576 $1,50,17,198.56
2008 489420 $4,74,73,724 $1,47,16,854.59
Variable Cost per Barrel $66.93 69.00% 2009 479631 $4,65,24,250 $1,44,22,517.50
2010 470039 $4,55,93,765 $1,41,34,067.15
Net Profit Margin per
$30.07 Expected loss in next 5 years
barel 31.00% $1,47,34,484.54 $45,67,690.21

 Scenario 2: Another option is they can launch Mountain man light beer with substantiate investment, but this
increase the risk of Cannibalization of Mountain man Lager.
Sale 2005 520000
Revenue 2005 $5,04,40,000.00
Sales Revenue Sales Revenue Sales Revenue
Cannibalisation rate 2% 7% 22%

2006 509600 $4,94,31,200 483600 $4,69,09,200 405600 $3,93,43,200

2007 499408 $4,84,42,576 449748 $4,36,25,556 316368 $3,06,87,696

Total Revenue from MM Lager $9,78,73,776 $9,05,34,756 $7,00,30,896

Loss $73,39,020 $2,78,42,880

Decline in Profit Margin $22,75,096.20 $86,31,292.80

This Cannibalization rate is inclusive of Annual decline in the sale of Beer..
 Mountain Man Light Contribution in Cannibalisation Rate 2% 7% 22%
AD Campaign $7,50,000 $7,50,000 $7,50,000
revenue %age Annual Incremental Cost, 2006 $9,00,000 $9,00,000 $9,00,000
Annual Incremental Cost, 2007 $9,00,000 $9,00,000 $9,00,000

Price Per Barrel $97 100.00% Total Loss Due to cannibalisation $0 $22,75,096 $86,31,293

Total Cost $25,50,000 $48,25,096 $1,11,81,293

Variable Cost per Barrel $71.62 73.84%
BreakEven Volume in Barrels $1,00,473 $1,90,114 $4,40,555

Net Profit Margin per barel $25.38 26.16% BreakEven Revenue $97,45,863 $1,84,41,069 $4,27,33,861
This Cannibalization loss is inclusive of Annual decline in the sale of Beer

Revenue Forecast of Mountain Man Light

Year 2005 2006 2007 2008 2009 2010

Light Beer Consumption in ECR 18744303 19494075.12 20273838.12 21084791.65 21928183.32 22805310.65
Compound Annual Growth rate 4% 4% 4% 4% 4%
MM Light Estimated YOY Growth 0.25% 0.50% 0.75% 1% 1.25%
MM Light estimted Sales in Barrels 48735 101369 158136 219282 285066
MM Lights Estimated Revenue $47,27,313 $98,32,811 $1,53,39,186 $2,12,70,338 $2,76,51,439

MM Light Estimated Profit $12,36,899 $25,72,750 $40,13,490 $55,65,373 $72,34,985

MM Lights Estimated Revenue
Year wise 2006 2007 2008 2009 2010
Y-O-Y revenue $ 47,27,313.22 $ 98,32,811.49 $ 1,53,39,185.93 $ 2,12,70,337.82 $ 2,76,51,439.16
Cummulative Revenue from Launch $ 47,27,313.22 $ 1,45,60,124.71 $ 2,98,99,310.63 $ 5,11,69,648.45 $ 7,88,21,087.61
Cannibalisation Rate BreakEven Revenue
2% $97,45,863 -$50,18,550 $48,14,262 $2,01,53,448 $4,14,23,785 $6,90,75,225
7% $1,84,41,069 -$1,37,13,756 -$38,80,944 $1,14,58,242 $3,27,28,579 $6,03,80,019
22% $4,27,33,861 -$3,80,06,548 -$2,81,73,736 -$1,28,34,550 $84,35,787 $3,60,87,227

Conclusion :
Under all conditions, we will cover the losses within the first Four years of Launch. By working diligently as it always has,
to satisfy its new customer base, Mountain Man Light has a great potential to grow based on the reputation of the
company as well as the growth in the market itself. We strongly advice launching MM Light Beer, it will be profitable
under any circumstance!.