mountain man brewing company: case analysis

MOUNTAIN MAN BREWING COMPANY:

BRINGING THE BRAND TO LIGHT

Harvard business school case

What is Mountain Man

Brewing Company?

Who is Chris Prangel?

Mountain Man Brewing Company

Founded by Guntar Prangel in 1925.

Located in New River Coal Region in West Virginia.

Launched MOUNTAIN MAN LAGER by reformulating

an old family brew recipe.

By 2005, mountain man beer company was generating

$50 million in revenue and selling over 520,000 barrels.

Known as West Virginia’s beer.

Popular among blue collar working men.

Chris Prangel

Recent MBA graduate.

Stood to inherit Mountain Man Beer Company in

five years.

Taken the responsibility to manage the marketing

operations of Mountain Man Beer Company

(MMBC).

Why is MMBC a success?

Family owned

History

Authenticity

Reputation

Bitter flavor

Bottling

Higher than average alcohol content

Promotion

Promoted mostly in retail

stores located in the east

central US. “Heartland” states.

Relies heavily on brand loyalty

and word of mouth

“grassroots” advertising.

Packaged in old style brown

bottle, original 1925 label

featuring coal miners.

What is the

present

situation?

Situation analysis (1/4)

Company experience declining

sales for the first time.

2% drop in revenue relative

to prior fiscal year.

4% annual growth in light beer

segment due to youth preference.

US per capita beer consumption

had declined by 2.3% since 2001.


Competitive Market Shares in Barrels by Brewer:


Consumption by Type of Beer and by Origin/Packaging, 2005:

Situational analysis (4/4)

Light beer competitive market shares:

Why study

this case?

Objective of this case (1/3)

The MMBC wants to

know if they should

branch out and tap into

this light beer market.


Evaluating the effect of light

beer on brand value and

current product (Mountain

Man Lager).


Investments and return

on the new product

In how many years the company

will break even after launching

Mountain man Light Beer?

Mountain Man Light Launch: PROS

Diversify brand

portfolio

Appeal to female

drinkers

Leveraging the core brand

name by creating a new

beer

Increased

revenues

Expand consumer

market by attracting

younger drinkers

between ages 21-27

Mountain Man Light Launch: CONS

Increased cost of

production and

advertising

Create brand

implications

Distracting

focus away from

current lager

Alienate the

current customer

base

Competing against

deep pocketed

competitors

Mountain Man Light Revenue Forecast for Mountain Man Light Beer:

Year 2005 2006 2007 2008 2009

Light beer consumption in

barrels (East Central

Region)

18,744,303 19,494,075 20,273,838 21,084,792 21,928,184

CAGR (compound annual

growth rate)

4% 4% 4% 4%

Mountain man light

estimated growth year on

year (0.25% of base market

share)

0.25% 0.50% 0.75% 1.00%

Mountain man light

estimated sales in barrels

48,735 101,369 159,136 219,282

Mountain man light

estimated revenues (@$97

per barrel)

$4,727,295 $9,832,793 $15,339,192 $21,270,338

Mountain Man LightBreakeven analysis for mountain man light beer (2006-2007):

Variable cost calculations:

Variable cost for mountain man lager = $66.93

Variable cost for mountain man light = $71.62 ($66.93+$4.69)

Price per barrel = $97($50,440,000/520,000)

2005 Sales Revenue = $50,440,000

2005 Sales Volume = 520,000

Net profit margin = $25.38 ($97-$71.62)

Mountain man lightBreakeven analysis for mountain man light beer(2006-2007)

(Contd..)

Best case scenario-

Fixed cost calculation (without cannibalization):

Initial advertising cost = $750,000

Annual incremental SG&A cost(2006) = $900,000


Total fixed cost = $2,550,000

(without cannibalization)


(Contd..)

To breakeven without cannibalization:

Total breakeven volume = fixed cost/net profit margin

= $2,550,000/$25.38

= 100,473 barrels

Total breakeven revenue = total breakeven volume*price per barrel

= 100,473*$97

= $9,745,881

Best case scenario-


(Contd..)

Worst case scenario-

Fixed cost calculation(with 20% cannibalization plus 2% lost revenue base annually):

Initial advertising campaign cost = $750,000



Cost from cannibalization(2006) = $437,226

(22% from 2005 net revenues)

Cost from cannibalization(2007) =$314,036

(22% from 2006 net revenues)

Total fixed cost =$3,328,262

(with cannibalization)


(Contd..)

Worst case scenario-

To breakeven (with 20% cannibalization plus the 2% lost revenue base

annually):

Total breakeven volume = fixed cost/net profit margin

= $3,328,262/$25.38

= 131,137 barrels

Total breakeven revenue = total breakeven volume*price per barrel

= 131,137*97

= $12,720,308


(Contd..)

Mountain man light beer will breakeven in both scenarios by the end of

2007:

Revenue needed to breakeven(best case scenario) = $9,745,881

Revenue needed to breakeven(worst case scenario)= $12,720,308

Estimated revenue for mountain man light beer:

2006 revenues= $4,727,295

2007 revenues= $9,832,793

Total revenues at the end of 2007= $14,560,088

We would take a loss in 2006 but

our 2007 projections put us at

$1,839,780 net revenues for the two

years even in worst case scenario.

Analysis

The product is expected to

cover all its investment cost

and become profitable past

2007.

Launching mountain man light

beer can also increase

awareness and uplift the brand

value.

Conclusion

Yes, Chris Prangel should go ahead and launch

Mountain Man Light.

Created by Shashank Srivastava, IET Lucknow, during a marketing

internship under the guidance of Prof. Sameer Mathur, IIM Lucknow.

mountain man brewing company: case analysis

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