Mountain Man Brewing Company Case Study Essay Example For Free - Sample 2525 Words

22/06/2019 Mountain Man Brewing Company Case Study Essay Example for Free - Sample 2525 words
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Mountain Man Brewing Company Case
Study Essay
Essay Topic: Company, Brand
What is the current situation?
Mountain Man Brewing Company (MMBC) is a family business founded in West Virginia in
1925 by Guntar Prangel. The company is now operated by Guntar’s grandson, Oscar. Oscar’s
son, Chris, is slated to inherit the business in ve years when his father retires. Mountain Man
(MM) Lager is the agship product and the only beer currently produced by the company.
The recipe for the lager was based on a re ned family recipe and is known for its avorful,
bitter taste.
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By the s, 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
core drinkers. By 2005, the popularity of MM Lager in the East Central region of the U.S. had
grown to generate revenues of just over $50 million, and the beer held the top market
position among lagers in West Virginia. MM Lager won “Best Beer in West Virginia” in 2005
for the eighth year in a row.
What has made MMBC successful & distinguishes it?
MMBC has enjoyed success because of several factors. Although it is a regional brewer, it has
superb name recognition. A recent study showed that Mountain Man Lager was considered
by many to be West Virginia’s best known beer. In addition, it has very strong brand position
with consumers favoring MM Lager’s unique taste and quality ingredients from the family
recipe. Finally, MMBC has a trained sales force that is very adept and getting its product into
the right channels to compete with national breweries. The legacy of the company is its main
distinguishing trait from its competitors. As mentioned before, the very strong brand equity
has made MMBC stand out as a brewery that has experienced customer loyalty for successive
generations. Holding the title of “West Virginia’s Beer” allows MM Lager to have an
ingrained exposure to consumers in the region and act as a natural default for its blue collar
patrons.
What enabled MMBC to create such a strong brand?
To quote the Mission Statement, “Mountain Man is still standing because we manufacture
an exceptional beer with a great brand name, we’ve never lost sight of our core customer,
and we’ve never been seduced by the other guy’s market.” MMBC stands for such unique
qualities that have been the boilerplate for developing an enriched brand with strong equity.
For almost 50 years it held the top market share for lagers of West Virginia in the majority of
the states where it was distributed distinguishing them in prime position among
competitors. Research of working-class males determined that MMBC was as recognizable as
leading manufacturers Chevrolet and John Deere in the East Central region. Besides
successful branding e orts in a large market, MM Lager was priced with an extremely
competitive Every Day Value below specialty 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 revenues from the craft brewers like
Sam Adams. MMBC could generate increased turns at registers without having the deep
pockets of their competitors.
What has caused MMBC’s decline in spite of its strong brand? Analysis of MMBC’s business
model requires the backdrop of the U.S. beer industry. Since 2001, U.S. per capita beer
consumption has declined by 2.3% due to increasing competition from wine and spirits-
consumption has declined by 2.3% due to increasing competition from wine and spirits
based drinks. MMBC’s revenues are down 2% relative to the prior scal year. The current
state of the company and market conditions suggests that a single product line may be
unsustainable. As of 2005, MMBC was the only major regional beer company to not expand
beyond its agship lager product. A segment 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 going to replace a fraction of their current buyers. Distributors were
discriminating about which smaller brands they would carry, and the percentage of new
consumers by age group was continuing to decrease.
There have also been numerous uncontrollable circumstances that have been attributed to
MMBC’s decline despite their strong brand. Increased taxes and fees to manufacturers have
been clearly evident in the rising retail costs of goods in the marketplace. Companies cannot
a ord to absorb the added expenditures and therefore 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 decreasing
caloric intake has been one of those fairly recent health conscious changes being made. Beer
lovers are sticking with their choice of libation; however, substituting a light version of their
favorite brand. With these factors on the rise every day and the core demographic of MM
Lager reaching an age bracket were considerably less portions of income are dedicated to
alcohol purchases, the brewery has slowly lost market share to the larger domestic brewers
that have been fortunate enough to capital to invest on increased advertising and marketing.
Should MMBC introduce a light beer?
With sales declining and seeking new areas of business growth, Chris Prangel, a recent MBA
graduate, is considering a campaign to launch MM Light. Light beer sales in the U.S. have
been growing at a compound annual rate of 4%, while traditional premium beer sales, such
as MM Lager, have declined by the same percentage. The core age group for light 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 -to- male-to-female ratio while the light beer
category ratio is roughly -to- . Using current rates of decline with pro t margin down 6.2%
in 2005, 2010 sales of MM Lager will 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
will continue to accelerate in the future.
In 2005, MMBC was still pro table and could a ord to take on the costs of extending its
product line; however, each year that the company waited to do so jeopardized its ability to
a ord new costs. At rst glance, there appears to be an obvious opportunity 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 pro table
company. MM Light will add additional capital expenditures for plant and equipment
upgrades and could potentially hurt sales of the lager as brand loyalty may become
upgrades and could potentially hurt sales of the lager as brand loyalty may become
threatened. To arrive at a well-informed decision supported by strong nancial calculations,
it is rst necessary to perform a SWOT (Strengths, Weaknesses, Opportunities, Threats)
analysis (Exhibit 1).
While weaknesses and threats identi with our cookie policy
ed 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 region’s 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 MMBC’s East Central region. Even a small percentage of the biggest market
had the potential to be valuable for MMBC.
Is MM Light nancially feasible for MMBC?
MMBC must produce a light beer product in order to remain a competitive player in the beer
industry. This decision is based on nancial projections of sustained pro tability. Both
industry and company data 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% annually. Additionally, the number of
barrels of MM Lager sold in 2005 was approximately 520,000. Regional light beer sales totaled
just over . M 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 Point (BEP) Analysis
In an attempt to demonstrate the viability of extending MMBC’s 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 will comprise MMBC’s total revenue in years to
come (Exhibit 3). It is important to note that MMBC’s xed costs were partially comprised of
aforementioned nancial assumptions. SG&A costs for each product line were given,
however we chose to allocate an additional $ K in xed costs for MM Light to help with label
design. Advertising remained consistent with 2005 data for MM Lager, but an additional
$ K was added for MM Light as part of an intensive six month marketing campaign.
This incurred cost is signi cant 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 Lager must be produced in order for
MMBC to break even (Exhibit 3). At a cost of $ /barrel, this is possible for MMBC to achieve
by 2008. The following cannibalization analysis provides added detail to support this
assertion.
MM Lager Cannibalization
An increase in MM Light production will require shelf space that had previously be devoted to
the MM Lager product. This will directly impact the sales of MM Lager to some degree.
Analysis of cannibalization is necessary in order to show sustained pro tability despite an
anticipated 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 o set by the
revenue gained from MM Light. Of particular interest is a comparison of Total Revenue (with
MM Light) and Total Revenue (without MM Light). Although higher levels of cannibalization
negatively a ect MMBC’s 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, MMBC’s total revenue with MM 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 o ers
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 MMBC’s sales were already
declining due to erosion by other brewers light beers. Also a brewer with a broad product
o ering 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 brand’s 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 e ort that supported their single
product could be going to support multiple products from a di erent brewery because MM
Light would not require capital expenditures in plant and equipment in the short term due to
existing excess capacity in MMBC’s facility Product line extensions help brewers obtain
greater shelf space for products and created greater product focus among distributors and
retailers.
MM Light Marketing Strategies
The 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 rst six months of
production. We examined marketing strategies for introducing MM Light to not only MMBC’s
current customers, but also to the growing population of light beer consumers. Basing our
calculations o of industry advertising expenditure data from 2005, we segmented our $ K
advertising budget for the rst 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 con dence in
our new product primarily through the medium of television.
After the rst six months of 2006, a re ned analysis of marketing alternatives will be

necessary in order to judge MMBC’s 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
introduction of light beer will cause a 7% increase in per barrel cost but given current trends
the company needs 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 in U.S. have been growing at a compound annual rate of 4% whereas
traditional premium beer sales had declined annually by 4%. Also, younger beer drinkers
view MMBC as strong and a “working man’s beer”. This represents younger people‘s
general dislike of “big business”. It would be e ective 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 perspective 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, chie y with a
trained sales force. What is required is a strategy founded on the principle that MM Light
should have a new product name and logo to di erentiate it from MM Lager. For example, a
bold new label with a subtle, “by Mountain Man Beer Company” would help further this
cause. MM Light should also be marketed as a reducedcalorie beer brought to consumers by
the legendary craftsman of MMBC. MM Light needs to set itself apart from the light beer
crowd with quality ingredients and complement the bitterness of MM Lager by delivering a
rich distinct avor 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 be aggressive in developing a light beer to
take advantage of its brand power, the economic conditions, and its current ability to a ord
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.
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After the rst six months of 2006, a re ned analysis of marketing alternatives will be

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