Mountain Man Brewery Case
08 Fall 08 Fall 1) What is Mountain Man Brewing Company’s positioning relative to its competitors? Mountain Man Brewing Company brewed a beer called “Mountain Man Lager” beer. “Mountain Man Lager” held the top market position among lagers in West Virginia for almost 50 years. It was also known as “West Virginia’s Beer”. It was a legacy brew in the mature beer brewing business and had managed to maintain a respectable market position in most of the states where the beer was distributed. “Mountain Man Lager” was a dark colored beer, priced similar to premium domestic brands such as Miller and Budweiser.
Its core audience was blue collar, middle-to-lower income men over the age of 45. It was categorized as a second tier domestic producer that had very high brand popularity and brand awareness. “Mountain Man Lager” was known for its quality (smoothness, percent of water content and drinkability) and brand loyalty and sold most (70%) of its beer for off-premise consumption. Blue-collar males, who liked “Mountain Man Lager’s” bitter flavor and slightly higher-than-average alcohol content, formed its main customer base. ) What factors have contributed to making MMBC a strong brand? A brand can be defined as a “name” or any other feature (trademark) that identifies a seller’s good or service as distinct from those of other sellers. Mountain Man Brewing Company had, over more than 50 years, managed to build a very strong and successful brand in the brewing Industry. Below are the factors that contributed to making MMBC a strong brand: a) Target Audience: MMBC had identified a target audience- Blue-collar males from the middle and lower income classes.
The logo of Mountain Man Lager was its 1925 design of a crew of miners printed on the front. b) Built a Perception: MMBC had built a perception that its beer was strong. Its dark color, bitter flavor and slightly higher-than-average alcohol content gave proof that it lived up to its perception. c) Awareness: Over the years, MMBC had built an amazing air of awareness. It was not the most selling brand, but it had won multiple awards for best beer. And even though its sales were down, it had still maintained a very high level of awareness among the beer drinking community. ) Built brand loyalty: By providing quality, maintaining its authenticity and keeping true to its single exclusive brew, MMBC had built a strong brand Loyalty, which was the Best among all the brewing companies. 3) What factors have contributed to the decline of MMBC? Data from the past few years (2001 to 2005) clearly shows that newer trends have begun to emerge. In this period, MMBC has continued to sell its flagship product “Mountain Man Lager”; however the newer trends have finally started to catch up and MMBC finds its sales are started going down by 2% each year.
Even though the profit margin is the same, there is a huge concern about the sales going down. The reasons for decline in sales are: a) There has been a surge in the popularity of the Light beer brands. Light beer sales are expected to increase by 4% each year, whereas the traditional beer sales are expected to decline by 4%. b) “Mountain Man Lager” is perceived to be a “working man’s” drink and the younger generation is not able to identify with this brand. MMBC is considered as authentic brand that their parents and grand parents drink, which is strong. ) Although the Mountain Man Brewing Company had the traditional stronghold in the East central region, the craft and import beer brands were also gaining a hold in this area. d) Various states had also removed old laws that limited the promotion of beer in retail establishments. Thus retail stores started storing beers. The Big brewing companies started adding pressure on MMBC by advertising and reducing costs. e) The MMBC customer base (45+ males) was aging and their market share was shrinking. Therefore, MMBC struggled to maintain a steady share of the market segment. ) The younger generation, even though a lesser share in numbers (13%), spent more on beers (27 %) and MMBC did not have a product to cater to them. g) The “light beer” category had seen significant growth in sales. It accounted for 50. 4% of the total volume sales, and was seen to be growing steadily. MMBC did not compete in this category at all. h) The younger generation, mainly purchased beer at pubs and bars. MMBC had not been successful in targeting these markets for distribution and sales. 4) Assume the company decides to introduce “Mountain Man Light”.
Conduct a one-year and two year analysis of the “Mountain Man Light” and Use the information to discuss breakeven analysis within your options grid. Calculation of Break Even Volumes Required | Year 1| Year 2| | | | Current Revenues of MM Beer| $50,440,000| | Projected Revenues of MM Beer Next Year| $49,431,200| $48,442,576| Projected Contribution from MM Beer| $15,323,672| $15,017,199| Projected Loss of Sales from Introduction of MM Light| $2,471,560| $2,422,129| Projected Loss of Contribution from Launch of MM Light| $766,184| $750,860| # Barrels of MM Light Needed to recover Loss of Contribution | 30,188. 8| 29,584. 71| Cost of Advertising MM Light| $750,000| 0. 00| Incremental SG;A cost| $900,000| $900,000| # Barrels of MM Light Needed to recover new Advertising Costs + SG;A| 65,011. 82| 35,460. 99| | | | # Barrels of MM Light Needed to Break-Even in First Year| 95,200. 30| | | | | Sales Forecast| 48,735. 19| 101,369. 19| Calculation of Break Even Volumes Required – Two Year Breakeven| | | | Two Years of Lost Contribution | $1,517,044| Initial Advertising Costs (One Time only)| $750,000| Two Years of Incremental SG;A| $1,800,000|
Contribution per Barrel of MM Light| $25. 38| # Barrels of MM Light Needed to Break-Even in Two Years| 160,246. 00| | | Sales Forecast for 2 years| 150,104. 38| From the above analysis, we see that “Mountain Man Light”, if introduced, will need to sell a volume of 160,246 units to break-even in two years. The forecasted sales will be 150104 units. Therefore, “Mountain Man Light”, if introduced, will not be able to break even in two years. 5) Should MMBC introduce Mountain Man Light? Complete an options grid, and include your recommendation regarding the appropriate course of action.
Please make sure you incorporate the numbers from the above breakeven analysis in analyzing the options. Describe whether Mountain Man Brewing Company, given the facts from the case, can achieve the breakeven volume. Under noteworthy risks, highlight the key assumptions underlying your case analysis and how your decision may be changed if the assumptions do not hold true. | Option 1| Option 2| Description of Option| Launch “Mountain Man Light”| Do not launch “Mountain Man Light”| Overall Assessment / Benefit of option| Recommend this option as: * Enter new and growing segment. Chance to regain market share. * Change perception of product in the younger generation. * Improve sales and profits. * Can be marketed and sold via new channels, like bars and pubs. | Do not recommend this option as: * The segment is on a downward trend. * Brand has started to lose market share. Forecasts show the same trend will continue. * Aging customer demographics * Brand not preferred by the younger generation| Strategic Fit| * Not much overhead for new product. * Recognized for its Quality. * Performed well against the big brands. * “Anti big brand” will work to its advantage. Continue its rich legacy, with a product to cater to the masses. | * High brand awareness and loyalty * Competitive price against other brands * Well-defined target audience. * Maintains authenticity of brand. | Financial Attractiveness| After initial losses in the first year, MM Light has shown a huge rise in profits from the second year. Even though it does not breakeven, it is expected to make huge profits from year 3 onwards. | Although the current drop in sales has not resulted in losses for the company, the trend, if it continues further, will result in losses for the company, if forecasted for 5 years. Noteworthy Risks| * Cannibalization of Products within the Brand is assumed to be 5 %, which might be very low. * Assumed that the Light Beer market will grow each year for the next few years. * Assumed market trends to continue as current. | * Loss in sales. * Loss in market share. * Lack of reach in the newer and younger market. * Perceived as a working man’s beer, which may not fit with the current market segment. * Pressure from big brands has been increasing. |
