Recommendation:Mountain Man Brewing should create a new market strategy and introduce a line extension of Light Beer to expand their portfolio and create new sales among non-existing customers. This line extension will target the younger drinkers and women in the East Central Region and will increase sales and create profit within 2 years.Rationale:1.Light beer sales will be profitable within 2 years. The first year MMBC will lose $486,374. However, in 2007, the second year, MMBC will gain $1,520,341 in profit. See Appendices 6 and 7.2.
Currently, MMBC can afford the line extension. If MMBC were to wait a few years, there might not be any profit to pay for a line extension.3.
Light beer sales are growing at a 4% CAGR. In 2001, light beer accounted for 29.8% of beer sales. In 2005, light beer now accounts for 50.4% of beer sales.
See Appendix 3.4.Women are included in the target market for Light Beer making up 42% of sales. In the East Central Region, women consume 21% of the barrels sold and 27% of the Light Beer Barrels sold. See Appendix 9.5.The young drinkers (age 21-27) consist of 13% of the population and 27% of beer sales.
This age group mainly consumes light beer and has not established any brand loyalty. Ages 21-35 also consume 20% of the barrels sold in the East Central Region. See Appendix 9.6.MMBC sales are declining by 2% annually. Introducing a light beer would increase revenue. See Appendices 1 and 2 for sales declining.
See Appendix 4 for potential profits for Light Beer.7.The young drinkers send two times as much per capita on alcoholicbeverages than the consumers over 35 years of age. This age group is expected to grow by almost four million by 2010.8.
MMBC has high awareness among young drinkers but low purchasing preference. This shows that there is an opportunity for MMBC to capture this group with a new light beer.9.MMBC is a regional second tier beer and many young adults appreciate that it is an independent brewery.10.Currently, MMBC’s consumers are very loyal, but are aging. Most MMBC’s drinkers are above the age of 45.11.
MMBC has high brand equity. Mainly for its quality, smoothness, water content percentage, bitter taste, and alcohol percentage and that will help the light beer sales because new users will associate the brand name and quality with the product.12.MMBC does not want to lose any brand equity by introducing a light beer. Light beer sales are growing and targeting a different market segment.
13.Advertising for a line extension for a light beer will cost $900,000 additional SG&A costs as well as $750,000 for an intense six-month ad campaign. No additional capital expenditures in plant and equipment in the short term because the current MMBC’s facility has excess capacity. See Appendices 6 and 7.14.The Light Beer with cannibalize 5-20% of MMBC Lager’s sales.
See Appendix 5.15.Most beer companies have expanded their product lines to contain more than their flagship brands, except MMBC.16.
Currently, 70% of MMBC’s sales are at off-premise locations. Bringing in a light beer can bring more sales to restaurants and bars since most youngdrinkers drink there. 17.Per capita beer consumption is declining by 2.
3%. This is due to other competition, like wine, increase in excise tax, the encouragement of moderation, and health concerns. Therefore, beer sales in general are declining.
See Appendices 1 and 2 for MMBC’s declining sales.Appendices:Appendix 1: Status Quo- MMBC’s Projected RevenueProjecting RevenueYearRevenue2005$50,440,0002006$49,431,200.002007$48,442,576.002008$47,473,724.482009$46,524,249.992010$45,593,764.99•Decrease in Revenue by 2% annually.Appendix 2: Status Quo- Partial Income StatementYear200520062007Net Revenue$50,440,000 $49,431,200.
00 $48,442,576.00COGS $ 34,803,600 $ 34,107,528 $ 33,425,377 NI Before Tax $ 3,114,670 $ 3,052,377 $ 2,991,329 Year200820092010Net Revenue$47,473,724.48 $46,524,249.99 $45,593,764.99COGS $ 32,756,870 $ 32,101,732 $ 31,459,698 NI Before Tax $ 2,931,502 $ 2,872,872 $ 2,815,415-NI is declining at a 2% annual rate.
Appendix 3: Light Beer Sale’s GrowthLight Beer Growth Barrels200518,744,3032006 19,494,0752007 20,273,8382008 21,084,7922009 21,928,1832010 22,805,311Appendix 4: MMBC Introduces Light Beer- ProfitMMBC’s ShareBarrelsat $97/BarrelProfitMarket Share2006 48,735 $ 4,727,313 $ 1,236,899 0.25% 2007 101,369 $ 9,832,811 $ 2,572,750 0.52% 2008 158,136 $ 15,339,186 $ 4,013,490 0.78% 2009 219,282 $ 21,270,338 $ 5,565,373 1.04% 2010 285,066 $ 27,651,439 $ 7,234,985 1.30%-MMBC starts out with .25% share of market-MMBC’s share of market grows by .
25% each year-MMBC’s Market Share will be taken from other Light Beer competitors in the East Central Region among the second-tier brands. -The second-tier brands consist of 12.5% of the shipments to the ECR.Appendix 5: Cannibalization of Lager Beer by Introducing Light BeerCannibalizationBarrels LostRevenue LostProfit Lost2006 2,436.76 $ 236,365.66 $ 61,844.
95 2007 5,068.46 $ 491,640.57 $ 128,637.50 2008 7,906.80 $ 766,959.30 $ 200,674.50 2009 10,964.09 $ 1,063,516.
89 $ 278,268.65 2010 14,253.32 $ 1,382,571.96 $ 361,749.
24-Assuming the CR= 5%-I chose the lower cannibalization rate because the majority of MMBC’s current consumers are loyal to the lager.Appendix 6: Projected Sales for 2006- Current Brand vs. Introducing Light Beer2006Current SituationWith Light BeerDifference(Light-Current) Sales $ 49,431,200 $ 53,922,148 $ 4,490,948 COGS $ 34,107,528 $ 37,434,850 $ 3,327,322 Margin $ 15,323,672 $ 16,487,298 $ 1,163,626 $ -Fixed Costs $ -SG;A $ 9,583,600 $ 10,483,600 $ 900,000 Additional Adv $ – $ 750,000 $ 750,000 Other $ 1,412,320 $ 1,412,320 $ – Total Expense $ 10,995,920 $ 12,645,920 $ 1,650,000 $ -NI before Tax $ 4,327,752 $ 3,841,378 $ (486,374)-In the year 2006, MMBC will lose $486,374 on their investment in Light Beer.Appendix 7: Projected Sales for 2006- Current Brand vs.
Introducing Light Beer2007Current SituationWith Light BeerDifference(Light-Current) Sales $ 48,442,576 $ 57,783,747 $ 9,341,171 COGS $ 33,425,377 $ 40,346,207 $ 6,920,829 Margin $ 15,017,199 $ 17,437,540 $ 2,420,341 $ -Fixed Costs $ -SG;A $ 9,583,600 $ 10,483,600 $ 900,000 Additional Adv $ -Other $ 1,412,320 $ 1,412,320 $- Total Expense $ 10,995,920 $ 11,895,920 $ 900,000 $ -NI before Tax $ 4,021,279 $ 5,541,620 $ 1,520,341-In 2007, MMBC will make a profit and gain back what they invested into the Light Beer. -The Light Beer will remain growing once it is introduced by the .25% rate and therefore bring more profit to the company.Appendix 8: CAGR of Current Sales and Light Beer 2006-20072006-2007 CAGRPercentageLight Beer44.26%Current Sales-7%Appendix 9: East Central Region- Comparing Category PercentagesECRLight BeerBarrelsDom.
Prm BeerBarrelsCat. Total% of Tot BarlsTotal= 18,744,303 Total= 7,326,642Male 10,871,696 Male 4,982,117 15,853,812 43%Female 7,872,607 Female 2,344,525 10,217,133 27%-Age 21-24 1,686,987 Age 21-24 586,131 2,273,119 6% Age 25-34 3,748,861 Age 25-34 1,465,328 5,214,189 14%-Women make up 27% of East Central Region Barrel sales.-Men account for 43% of total barrels of beer sold.-Women consume 7,878,607 barrels of light beer in the ECR.
oThis would be 21% of the total amount of barrels sold in the ECR.- Women are a huge part of the Light Beer audience. (42%)