Core Mountain Man Brewing Company Bringing the Brand

Core merchandise Mountain spell Brewing Company Bringing the Brand to animated 1. Overview Mountain Man Brewing Company (MMBC, or the Client) is a family-run headache in West Virginia that has experienced much produce since launching its flagship superior beer Mountain Man lager beer (MMB) in 1925. Over the decades, brand loyalty, reference and brand aw areness have been the cornerstones of the Clients success the immensity of the MMBC brand among consumers has allowed the company to build its small but consistent foodstuff portion out in the East Central region (ECR), particularly in its home state, the lonesome(prenominal) when region it distributes in (7. % of the commercialize with more than 50 million USD in gross). 2. Challenges & Opportunities * Challenges MMBC currently faces a potentially identity-changing challenge The traditional premium beer merchandise has been declining at a compound annual vagabond of 4%, and MMB experienced a 2% drop in tax income e nhancement last year, the first drop in its entire history accordingly, MMBCs tail end aim is to recover from the 2% decrease in revenue that occurred in the prior year. * OpportunitiesThe light beer market popular with younger drinkers has in addition been growing at a CAGR of 4%. Although MMBC has been historically weak in the 35-years-and-under segment, on that point is luck to generate more sales by evacuant a new Mountain Man Light Beer (MML) line to target this younger market. However, there is the risk of negatively impacting their current distribution of MMB finished shelf-space understructurenibalization and higher costs as well as the risk of alienate their union segment of older, blue-collar drinkers. . Analysis MMBC faces potentially losing more revenue at the current reckoned compound annual decrease rate of 2% the projected decrease for MMB standalone in year-to-year net revenue from actual 520,000 pose sold in 2005 (USD 50. 4 m) to 470,039 barrels (approx imately USD 45. 6 m) by 2010 totals nigh 10% (see give away 1). According to the key age demographics among beer drinkers, MMBs node segmentation is currently as follows 64% for 45 years and up, and only 17% for 35 years and under.Yet the ECR breakdown for consumption by beer suit is the opposite 50. 4% for light and only 19. 7% for premium. Due to the kindle potential in the light beer market, we have prepared projections on offshoot in revenues and expenses for MMBC should they decide to move forward with brewing Mountain Man Light (see Exhibit 2A, 2B). * Making Mountain Man Lighter (and more than Profitable) Considerations have been made regarding MMB remaining as a stand-alone merchandise (again, see Exhibit 1).However, per the Clients instructions, this report will localise on projected performance examining MMBCs entry into the light beer market at their expected MMB diminution rate of 20%. According to our analysis, MML would unflurried result in a significant incr ease in revenue within two years With the new product mix, net income mete increases from an insignificant 0. 88% in MMLs first year to a robust 3. 7% by its second year (2007), even with considerations on the supererogatory expenses that would go into launching a new product manufacturing, advertizement, habitual operating (see Exhibit 2A). Additionally, the projected MMB+MML sales vividness after only two years would nearly match MMBCs current volume take aim 500,895 barrels to 520,000 and would eventually overtake the 2005 figure in 2008 piece standalone figures show a continuous decrease from the 2005 benchmark and eventually give back behind MML sales by 2011 (Exhibit 3). * Issues to Consider The forecast for MMB +MML sales are promising.However, JAFREM must none significant issues to consider with the presented data 1) Due to express sales volume for the first six years, impact on COGS has not been taken into consideration should the current production capacity le vels be exceeded, additional inputs regarding CAPEX (for example, for new plants) will be necessary. 2) With the forecasted MML growth rate, the Clients market share in the ERC amounts to 1. 5% after five years MMB has not achieved this level after more than 50 years in the trading and so considerations on the MMB reduction rate have also been provided (Exhibit 2B). 4. RecommendationsLight beer is an pleasing proposition for MMBC, especially with the decrease in the premium beer segment. Accordingly, ignoring the dynamic growth in the light segment is simply too much of an opportunity to let pass. In order to reduce the risks that come with launching MML (alienating core customers, promoting a failed product), we recommends the following measures * To avoid losing brand equity at the consumer level for MMB, pilot the MML launch outside West Virginia, as this is MMBCs strongest and around loyal market should the testing prove successful, then consideration can be made on moving in to West Virginia. Should the MML growth forecast not be realized after two years, return focalise to MMB distribution at a national level while advertising and sales at the grass roots level has been good for MMBC, there has been no attempt to reach a larger marketing through and through the traditional channel of television media. * Despite the expected decrease in the premium beer market, MMB still has potential to capture more market share by expanding its advertising activities and consumer base outside the ERC. Exhibit 1 Lager Standalone Projections MMB Standalone (next five years) 2005 2006 2007 2008 2009 2010 Barrels 520,000 509,600 499,408 489,420 479,631 470,039 Price per Barrel $97. 00 $97. 00 $97. 00 $97. 00 $97. 00 $97. 00 straighten out Revenue 50,440,000 49,431,200 48,442,576 47,473,724 46,524,250 45,593,765 COGS 34,803,600 34,107,528 33,425,377 32,756,870 32, one hundred one,732 31,459,698 rough-cut edge 15,636,four hundred 15,323,672 15,017,199 14,716,855 14,42 2,517 14,134,067 SG&A 9,583,600 9,583,600 9,583,600 9,583,600 9,583,600 9,583,600 otherwise Op. Exp. 1,412,320 1,412,320 1,412,320 1,412,320 1,412,320 1,412,320 run Margin 4,640,480 4,327,752 4,021,279 3,720,935 3,426,597 3,138,147 Other Income 151,320 151,320 151,320 151,320 151,320 151,320 sugar Income before Tax 4,791,800 4,479,072 4,172,599 3,872,255 3,577,917 3,289,467 Prov. Income Tax 1,677,130 1,567,675 1,460,409 1,355,289 1,252,271 1,151,314 Net Income After Tax 3,114,670 2,911,397 2,712,189 2,516,965 2,325,646 2,138,154 Net Present Value 3,114,670 2,599,461 2,162,141 1,791,526 1,477,990 1,213,246Exhibit 2A MMB + MML Projections 2005 2006 2007 2008 2009 2010 2011 MML Barrels 0 48735 101369 158136 219282 285066 355763 MMB Barrels 520000 407680 399526 391536 383705 376031 368510 Growth% -12% 10% 10% 10% 10% 10% Price per Barrel $97 $97 $97 $97 $97 $97 $97 Net Revenue 50440000 44272273 48586872 53318166 58489738 64126451 70254508 COGS 34803600 30776437 34000363 37531192 4 1386351 45584213 50144138 COGS/Revenue 69. 00% 69. 52% 69. 98% 70. 39% 70. 6% 71. 08% 71. 37% Gross Margin 15636400 13495837 14586509 15786974 17103387 18542239 20110370 SG&A 9583600 11233600 10483600 10483600 10483600 10483600 10483600 Other Op. Expenses2 1412320 1412320 1412320 1412320 1412320 1412320 1412320 MML, Extra Ad Expenses 0 400000 400000 400000 400000 400000 400000 Op. Expenses 10995920 13045920 12295920 12295920 12295920 12295920 12295920 % 18. 64% -5. 75% 0. 00% 0. 00% 0. 00% 0. 00% Op.Profit 4640480 449917 2290589 3491054 4807467 6246319 7814450 Op. Margin -90. 30% 409. 11% 52. 41% 37. 71% 29. 93% 25. 10% Other Income 151320 151320 151320 151320 151320 151320 151320 Net Income before Tax 4791800 601237 2441909 3642374 4958787 6397639 7965770 Prov. Income Tax 1677130 210433 854668 1274831 1735575 2239173 2788019 Net Income After Tax 3114670 390804 1587241 2367543 3223212 4158465 5177750 Net Income Margin 6. 18% 0. 88% 3. 27% 4. 44% 5. 51% 6. 48% 7. 7% NPV 3114670 348 932 1265339 1685170 2048409 2359625 2623209 Exhibit 2B Inputs & Stress Test Results Inputs Stress scenario MMB, Avg. Market Share Growth 0. 25% Year MML, Avg. Market Share Growth Reduction Rate MMB, Var. bell per Barrel 66. 93 2006 0. 04% 30. 19% MML, Var. Cost per Barrel 4. 69 2010 0. 28% 17. 28% Reduction Rate 20% 2011 0. 23% 21. 80% discount rate Rate 12% MMB, Growth Rate -2% Price per Barrel $97 MMB, Extra Ad Expenses $0 MML Growth Rate 2% MML, SG&A in 2006 $900,000 MML, SG&A Extra Launch $750,000 Exhibit 3 MMB (stand alone) vs. MMB + MML 1 . Forecast prepared according to the 2% compound annual decrease rate provided by the Client 2 . SG&A and Other Operating Expenses are quantity independent in the consider range of production. 3 . The Stress Scenarios included in this Exhibit denote the maximum reduction rate possible in order to achieve the target market growth desired by the Client should they move ahead with MML in order to remain p rofitable, these are the reduction rate ceilings.