MMBC

Mountain Man Brewing CompanyCase Submission

Group 15

Q1. Q1. Wh What at is Chri Chriss cons consid ider erin ing g doin doing g and and what what fact factor orss will will he have have to alig align n to be successful? What goal should MMBC (Chris) have?

Chris Prangel, heir to the family-owned business Mountain Man Brewing Company, was contem contempla platin ting g the launch of a new produc productt line line - Mou Mountai ntain n Man Light. Light. Mou Mounta ntain in Man’ Man’s revenues had been on a downward spiral in recent years. ince being founded in !"#$ by Mr. %untar Prengel, Mountain Man produced and distributed only one variety of beer & Mountain Man Lager & a flavored bitter-tasting beer popular among the blue collar middle class wor'ing  population. Beer as a product commanded significant brand loyalty. (owever, this target group of population was shrin'ing by the day and overall lager mar'et in ) was also declining due to growth in the light beer segment. Many analysts believe that the 'ey target segment for beer  companies was the younger generation #!-#* years of age who had yet not developed loyalty for  any particular brand, and thus could be swayed in any direction. Lager beer’s taste was perceived as being too strong for the younger drin'ers and the women drin'ers. +nd since the light beer  mar'et was also growing at a steady rate, it made sense for MMBC to introduce a new light beer   product. (owever, there were several considerations to be made. irstly, irstly, MMBC had to ma'e sure that introducing a new product line would not alienate the core customers and eventually lead to erosion and decay of Mountain Man’s brand euity. + small percentage of loyal blue collar customers accounted for a large percentage of the total sales of Mountain Man Lager, and MMBC could not afford to lose this loyal customer base. econdly, the overall beer mar'et in ) was on a level trend. urther, retailers might not be willing to give more shelf space for   products of a regional beer company. +ll +ll this effectively meant that introducing a new light beer   product would eventually eat into the sales of MMBC’s core co re product lager. hus incremental returns generated by the light beer product would have to compensate for the loss in sales of  lager. hirdly, although MMBC would not have to ma'e any capital investment to introduce the new product line because of e/cess capacity in MMBC e/isting plant, the variable cost per barrel would increase increase by b y 01."" leading leading to smaller margins margins as compared compared to Mountain Mountain Man Lager. Lager. his coupled with the high advertising e/penses for launch and the additional %2+ costs related to the product line meant that MM Light would have to generate significant volume sales to brea'even in two years. Chris had to align all these factors with the core brand image before coming to any conclusion as regards the product line e/tension. Q2. What has made MMBC successful? What distinguishes it from its cometitors? What enabled MMBC to create such a strong brand image?

Mountain Man Lager was 'nown as 34est 34est 5irginia’s 5irginia’s Beer6 characteri7ed by authenticity, uality and a uniue 4est 5irginia 3toughness6. 8n the 9ast Central region of ) Mountain Man Lager was as recogni7ed a brand as some of the national bigwigs li'e +nheusch or Miller among the wor'ing middle class population. 8t cultivated a good perception of uality and a strong  brand loyalty, and was priced similar to Budweiser or Miller. :ne of the factors that made Mountain Man so successful was that they never lost sight of their core customers. +s such it was never tempted to modify the product or introduce a new product that would alienate core customers. Consistency and uniueness of taste and uality enabled to develop a very loyal customer base. urthermore, its status as a family owned independent business created an aura of 

Mountain Man Brewing CompanyCase Submission

Group 15

authenticity among the target consumer segment. Lastly, MMBC believed in grass roots mar'eting in building beer brand awareness. 4hile national beer brands used lifestyle advertisements to woo customers, MMBC relied on word of mouth to spread its beer uality message. 8n 9ast Central MMBC develop a strong brand image among the regional customers. Q!. What has caused MMBC"s decline in site of its strong brand?

MMBC traditionally targeted blue collar middle class wor'ing population with its Mountain Man Lager. ;#< of the total MM Lager sales were accounted for by consumers  between the age of 1$-$1 and another ;#< above the age of $$. 8n fact, =;< of the total sales for  Mountain Man Lager was accounted for by people of age more than ;$. +ging target demographic and shrin'ing per-capita consumption of beer by the MMBC’s target consumer  segment led to declining revenues for MMBC. :ne of the ma>or reasons for the sales decline was also the rapid growth in light beer category where MMBC had no presence. Moreover, light  beers were more favored by the younger generations #!-;$ years of age and by the women  population. +lthough this segment represented only !;< of the total adult population in ), they accounted for more than #*< of the total beer consumption. 9ven the per-capita spending of the aforementioned on beer was almost twice as much as that of people above ;$ years of age. hus, absence of a light beer product was significantly hurting MMBC’s growth prospects. +nother  reason for decline can also be attributed to the level trend in the entire beer mar'et. otal beer  sales in ) increased by only about ;< between #??? and #??$, mainly driven by the tremendous growth in the light beer segment which was e/pected to grow at a C+%@ of 1< annually. MMBC also faced serious competition from national beer companies with very deep  poc'ets. or years MMBC’s strong brand image helped it to survive among the bigger national  players. 8n the past, imported beer brands didn’t have significant presence in the mar'ets served  by MMBC. o they had only to contend with +nheusch, Miller and the li'es. @ecently, however, mar'ets li'e 4est 5irginia has become super-competitive owing to repeal of arcane laws. +s a result, retailers are now more concerned about margins and were only willing to allot shelf space for those local and regional brands that contributed to their bottom line. +lso large national  breweries, who maintained economies of scale in production, mar'eting and distribution, put great pressure on regional competitors li'e Mountain Man. Q#. $hould MMBC introduce light beer?

ProsA !. 8ncrease sales volume and mar'et share #. ap into the growing light beer mar'et ;. Leverage its strong brand image to create a loyal customer base among the younger  generation ConsA !. 8t could potentially cannibali7e MM Lager sales #. 8t could potentially alienate Mountain Man’s core customer base and erode the company’s brand euity

Mountain Man Brewing CompanyCase Submission

Group 15

;. Mountain Man’s bottom line may decline further if the new product is not able to generate sufficient volume sales.

Q%. &s Mountain Man 'ight feasible for MMBC?

he following pro>ections are for #?? assuming a 1< growth in the light beer mar'et in 9ast Central region and a #< cannibali7ation rate annually. orecasts

+ll figures million )

in

#??$

#??

Profit

#??* 0

D?.$1E ! MM Lager Fet @evenues

#??= 0

!.;# #

#.1; ;

0 $?.11

Cannibali7ed ales of MM Lager

0 !.?!

Contribution from MM Light

0 !.?!

0

!.?! 0

Cost of capital

D!.$$E *.?$<

?.;! *.?$<

!.1# *.?$



?.";

?.=*

?.=#

 NPV(2 year)

$ (1.18)

 NPV(5 year)

$ 4.49

his figure indicates that Mountain Man can ta'e advantage of the growing mar'et for light beer  in 9ast Central region to actually increase its revenue and mar'et share. Based on these values it can be said that Mountain Man Light would not only be a successful launch, but will actually do uite well in the mar'et. he growth estimates in mar'et share is assumed to be ?.#$< per year  which seems li'e a reasonable and uite conservative estimate. he # year FP5 is negative for  the MM Light launch. his can be attributed to the fact introduction of MM Light might result in cannibali7ation of MM Lager sales. he cannibali7ation rate is assumed to be #