Mountain Man Brewing Company Yeshna Ramessur 15 th December 2015
Mountain Man is experiencing a decrease in revenue from $50MM to $40MM for the first time due to lack of penetration with the youth segment Mountain Man Lager Income Statement 2005 2006 2007 2008 2009 2010 Quantity 520000 528,641 496,881 467,028 438,969 412,596 Price $ 97.00 $ 97.00 $ 97.00 $ 97.00 $ 97.00 $ 97.00 UVC $ 66.93 $ 66.93 $ 66.93 $ 66.93 $ 66.93 $ 66.93 Revenue $ 50,440,000 51,278,201 48,197,422 45,301,735 42,580,020 $ 40,021,825 TVC $ 34,803,600 $ 35,381,959 $ 33,256,221 $ 31,258,197 $ 29,380,214 $ 27,615,059 Gross Margin $ 15,636,400 $ 15,896,242 14,941,201 14,043,538 13,199,806 $ 12,406,766 Fixed Cost $ 10,844,600 10,844,600 10,844,600 10,844,600 10,844,600 $ 10,844,600 Net Profit $ 4,791,800 5,051,642 4,096,601 3,198,938 2,355,206 $ 1,562,166 The target market for Mountain Man has always been the blue collar which accounted for 60% of sales, But changing demography, changes in beer preference, preference for wine and spirits have increased, initiatives encouraging moderation and personal responsibilities have caused Mountain Man to rethink its product offering However, changing the beer offering which is Mountain Man s pride in order to capture a bigger market, letting itself being seduced into a segment that is not our core will only cause losses to the company Hence, the same product will be kept but with an adjusted marketing mix to appeal to youth. This will help gain new customers without losing the old ones. The opportunity and challenge with youngsters lie in the fact that they are not particularly attracted to any brand. Adopting a first mover position to capture them, will help to establish a brand awareness to them Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 2
Who is Mountain Man Brewing Company? Do the Youth Care about it? Original old family recipe using a meticulous selection of rare, Bavarian hops and unusual strains of barley, resulting in flavourful, bitter-tasting beer A legacy, a pride, a tradition Top position among lagers inwest Virginia for 50 years For an old school, regional brewery, Mountain Man held respectable market share, above 1.40% for years Positioned as an old man s drink, the drink coal miners used to drink after a day of hard work in the sun Similarly priced as premium brands Won Best Beer in West Virginia for the 8 th year straight Best beer in Indiana America s Championship Lager at the American Beer Championship Exactly what they are looking for. Authenticity. They don t adhere to big corporates, so yes. This translates into pride. Hence, the new positon will adopt images of West Virginia Bridge, which signify more or a West- Virginian Pride than the coal mining. Price is not so much of a factor for the youth. The various prices won by Mountain Man are just another opportunity for the youth to discover and adopt Mountain Man Lager. Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 3
Mountain Man needs to sell Mountain Man Lager in kegs to capture untapped younger consumer segment who are still indecisive and haven t established loyalty For a lean company like Mountain Man which has established its name in high quality beer, with an impressive growth considering that MMBC is an independent family brewery, trying to go in the same market as big players will just drain on financial resources, for an uncertain position. Alternatives Criteria Brand Price Occasion being celebrated Perceived quality Brand Image Tradition Local Authenticity Erosion from Core Brand Launch Mountain Man Light May damage Eventually will have to increase it Personal events only, in restaurants and onpremise Diluted therefore losing the authenticity Threatened Position Limited to the brand name only Yes, but will be diluted to suit the youth High risk Lager in Kegger Untouched Rightly priced College events, Kegger Parties, University events Great quality Great image Great legacyfamily owned 80 years Yes No risk at all Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 4
The best way to reach the youngsters and making them increase their trial rate of Mountain Man, is to reach out to them according to their likelihood to party, Kegger Parties are events in the life of youngsters. The best way to reach youngsters is to solve their problem of heavy consumption, buying dozens of cans and bottles is cumbersome, and costly. Since we can t increase the market size, the best way is to adjust the product to suit the new potential target Hypothetically, a 10% that is having trouble to sell in retail locations So the production of cans and bottles (in barrels still) will be brought to equilibrium point, so the supply and demand match (at 60% of production). We sell those as kegs, and the revenue is $55MM, which clearly proves there is a future for the product. We can increase production from 52000 barrels to 600000 barrels will be sold since we have a new distribution strategy. Total production 520,000 On premise 30% 156,000 Off premise 70% 364,000 When Keg is distributed 2006 Total Production Price per barrel Revenue 600,000 On premise 30% 180,000 97 17,460,000 Off Premise - cans/bottles 60% 360,000 97 34,920,000 off Premise - kegs 10% 60,000 48.5 2,910,000 Total 55,290,000 Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 5
Base-Innovation-Delta for Kegs 2005 2006 2007 2008 2009 2010 BASE CASE MOUNTAIN MAN TOTAL Quantity 520000 528641.25 496880.64 467028.20 438969.28 412596.14 Price $ 97.00 97.00 97.00 97.00 97.00 97.00 UVC $ 66.93 66.93 66.93 66.93 66.93 66.93 Revenue $ 50,440,000 51278201.37 48197422.15 45301735.23 42580020.33 40021825.26 TVC $ 34,803,600 35381958.94 33256221.28 31258197.31 29380214.03 27615059.43 Gross Margin $ 15,636,400 15896242.42 14941200.86 14043537.92 13199806.30 12406765.83 Fixed Cost $ 10,844,600 10844600.00 10844600.00 10844600.00 10844600.00 10844600.00 Net Profit $ 4,791,800 5051642.42 4096600.86 3198937.92 2355206.30 1562165.83 INNOVATION CASE MOUNTAIN MAN TOTAL Quantity 600000 670967.74 630656.20 592766.56 557153.32 523679.71 Price $ 145.50 145.50 145.50 145.50 145.50 145.50 UVC $ 100.40 100.40 100.40 100.40 100.40 100.40 Revenue $ 55,290,000 62125513.20 58393030.68 54884794.60 51587332.32 48487980.60 TVC $ 38,150,100 42866604.11 40291191.17 37870508.28 35595259.30 33456706.62 Gross Margin $ 17,139,900 19258909.09 18101839.51 17014286.33 15992073.02 15031273.99 Fixed Cost $ 11,446,000 11446000.00 11446000.00 11446000.00 11446000.00 11446000.00 Net Profit $ 5,693,900 7812909.09 6655839.51 5568286.33 4546073.02 3585273.99 DELTA CASE MOUNTAIN MAN TOTAL Quantity 80000 142326.4907 133775.5571 125738.3611 118184.0374 111083.5753 Price 48.5 48.5 48.5 48.5 48.5 48.5 UVC 33.465 33.465 33.465 33.465 33.465 33.465 Revenue 4850000 10847311.83 10195608.53 9583059.375 9007311.993 8466155.343 TVC 3346500 7484645.161 7034969.886 6612310.969 6215045.275 5841647.187 Gross Margin 1503500 3362666.667 3160638.645 2970748.406 2792266.718 2624508.156 Fixed Cost 601400 601400 601400 601400 601400 601400 Net Profit 902100 2761266.667 2559238.645 2369348.406 2190866.718 2023108.156 Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 6
Recommendation for Mountain Man Lager in Kegs Positioning It is time for Mountain Man to innovate, but moving away from its core product, Mountain Man Lager, will cause brand confusion. Lager is perceived as being too strong, but the message behind the advertising should be aligned to tell the target that the reason behind the strong taste is that it is not diluted, it is made from authentic ingredients (barley, and Bavarian hops), this sense will modify their taste, which is nothing but a perception. Beer is a product consumed for its particular taste which Mountain Man Lager performs; once the youth are encouraged to try, they will adopt it. Also, due to its addictive peculiarity, beer is easily adopted after increased consumption. Due to high demand, retailers will carry the Mountain Man kegs. The highly-competent sales team will succeed in pushing the product. Mountain Man is already positioned as West Virginia s Beer. It represents the toughness of West Virginia, which attracted the old crowd, but today youngster do not identity which this idea. Hence, Mountain Man should bear images and messages about the pride of Virginia, The Bridge of Virginia. Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 7
Mountain Man Kegs Distribution strategy Although kegs carry less margin than the Mountain Man lager, retailers will not carry the product, however, they can take orders for Mountain Man, and get paid for that. They won t have to carry inventory for Mountain Man, in fact they will only carry 60% of the lager in cans and bottles. Mountain Man will distribute to college residences, university bars, as well as on personal order. (see picture 1) A sales team will be set in the headquarter of Mountain Man Brewery to take and monitor sales of kegs. Picture 1 Sales team No. of Sales person 2 Salary for a month $ 760.00 Salary for a year $ 182,400.00 Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 8
Mountain Man will succeed at reaching the young demography, as it will help them solve a very important issue when it comes to beer consumption: that of convenience. Flaws in the market research, only 6 respondents formed part of the focus group, it is too uncertain to consider for such an endeavour, and it was conducted by an advertising firm. Market research conducted by an actual firm, demonstrated opinions in favour of Mountain Man. Age demography: 21-27 years First time drinker They have not yet established loyalty to any brand, their main concern is to find the perfect beer that is easy to consume They consume twice as much than any other consumer group (27%) What are the youth looking for? Awareness Authenticity Consumption Quantity Style of Beer Does Mountain Man Lager in Kegs have it? Not established; but they recognise the brand Yes Yes Yes, Stylish Kegs Does Mountain Man Light have it? Only mainstream brand, therefore Mountain Man being a new player doesn t guarantee success as well. Not yet No No. Same old brown bottle Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 9
Recommendation for Mountain Man Light Mountain Man Light needs to establish itself first before coming into the market. For Mountain Man Brewing Co, launching light could be more detrimental than actually boost sales: It will have to compete with national brands that have a budget to launch and push their light product Beer is the type of product that can be pushed to like: the perception can be modified through powerful advertising, which in Mountain Man s case would cost between $10MM-$20MM, a budget we cannot afford. It would move away from its original taste, something not even the bigger brands have. Mountain Man has more to lose in launching Light that it might not actually recover from. It could lose the brand equity it has acquired for 80 years. Since beer purchasing depends a lot on brand, it will damage Mountain Man Lager s position. Launching light will cause Mountain Man to find new ways of distributing, since retailers will have to choose between Mountain Man lager and Mountain Man light, one of them will have to be dropped. There are more chances of dropping lager as retailers will gain more margin on light and there is a demand for that. Therefore light is not a solution for Mountain Man Brewing Co. Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 10
Base- Innovation Delta Case if Mountain Man is launched shows considerable loss in profit Mountain Man Total BASE CASE 2005 2006 2007 2008 2009 2010 Quantity 520,000 509,804 499,808 490,008 480,400 470,980 Price $ 97 $ 97 $ 97 97 $ 97 $ 97 UVC $ 67 $ 67 $ 67 $ 67 $ 67 $ 67 Revenue $ 50,440,000 $ 49,450,980 $ 48,481,353 $ 47,530,739 $ 46,598,763 $ 45,685,062 TVC $ 34,803,600 $ 34,121,176 $ 33,452,134 $ 32,796,210 $ 32,153,147 $ 31,522,693 Gross Margin $ 15,636,400 $ 15,329,804 $ 15,029,220 $ 14,734,529 $ 14,445,617 $ 14,162,369 Fixed Cost $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 Net Profit $ 4,791,800 $ 4,485,204 $ 4,184,620 $ 3,889,929 $ 3,601,017 $ 3,317,769 Total Mountain Man INNOVATION CASE Quantity 566,861 559,757 553,058 546,773 540,911 535,485 Price $ 194 $ 194 $ 194 $ 194 $ 194 $ 194 UVC $ 139 $ 139 $ 139 $ 139 $ 139 $ 139 Revenue $ 54,985,493 $ 54,296,476 $ 53,646,652 $ 53,036,947 $ 52,468,382 $ 51,942,075 TVC $ 38,159,767 $ 37,698,851 $ 37,265,935 $ 36,861,721 $ 36,486,982 $ 36,142,562 Gross Margin $ 16,825,726 $ 16,597,625 $ 16,380,717 $ 16,175,226 $ 15,981,399 $ 15,799,513 Fixed Cost $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 Net Profit $ 5,981,126 $ 5,753,025 $ 5,536,117 $ 5,330,626 $ 5,136,799 $ 4,954,913 Total Mountain Man DELTA CASE Quantity 46860.7575 114043.2033 124486.8406 134684.738 144672.7731 139246.9335 Price 97 97 97 97 97 97 UVC 71.62 71.62 71.62 71.62 71.62 71.62 Revenue 4545493.478 4845496.047 5165298.786 5506208.506 5869618.267 6257013.073 TVC 3356167.452 7867193.832 8581649.102 9280677.535 9966747.769 9622327.068 Gross Margin 1189326.025-3021697.78-3416350.32-3774469.03-4097129.5-3365313.99 Fixed Cost 0 0 0 0 0 0 Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 Net Profit 1189326.025-3021697.78-3416350.32-3774469.03-4097129.5-3365313.99 11
NPV to sell Mountain Man Lager in kegs is higher than launching Mountain Man light, the target is the same. NPV To launch light NPV before investment -$10,207,208.83 Advertisement Cost to launch Light $ 750,000.00 NPV After investment -$10,957,208.83 NPV To launch keg NPV before Investment $ 8,602,216.74 Investment cost (sales team + MM house pub ) $ 464,900.00 The NPV to launch Mountain Man light is negative $10MM with an investment of $750,000 of a 6- month advertising only. The NPV for Mountain Man to start launching kegs indicates that at the end of 5 year, Mountain Man will make $8MM. With this venture, Mountain Man doesn t have much investment cost What is Mountain Man keeping? Brand Name Legacy Market Size Quality NPV after investment $ 8,137,316.74 Authenticity Blue Collar Youngsters Core Product Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 12
Future Project for Mountain Man Eventually, Mountain Man could set up its own brewpub, and turn the brewery into a Mountain Man House and encourage visit To increase community involvement, Mountain Man could launch an experiential event for its 80 years: 1. Invite the community, especially the Coal Miners who have stayed by Mountain Man s side for years 2. Get the community involved in building a small brewpub that would accommodate 30 people 3. Everyone involved will be entitled to write their name on a brick they will settle, on the wall of fame that we will settle 4. It will be more symbolical as a means of reviving the brand name, than generating money. 5. Investment cost will be lower, only the raw materials will be needed, with the profit generated from the Kegs, Mountain Man could easily afford that. 6. Mountain Man should hire a beer chemist to come up with the exact formula to make craft beers and light beers to be sold only in the Mountain Man Brew Pub. As a means of exclusivity, this will increase interest. 7. It will also invite people to come visit the traditional making of beer; they will see the non-commercial activity, which will create another point of difference, and establish that MMBC is not a corporate. 8. All of these, will help nurture the youth and establish long term loyalty towards MMBC. 9. Mountain Man being an independent small brewery should focus on keeping it as a family business and not turn into a big corporate. This will go in light with what the Management of Mountain Man care more about: the legacy. Cost Breakdown to invest in a MM House Pub No. of customers to accommodate 30 no. of bartenders 2 Cost of bartenders @ $15/hr- part time $ 86,400 Insurance in case of injury $ 25000 Raw materials $ 25,000 Food - snacks $ 50,000 Beer Chemist @25/hour - full time $ 90,000 Misc. $ 50,000 Total cost $ 316400 NPV $282,500 Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 13