Mountain Man Brewing Company

Group Members

Irfat Altaf

Gautam Bhardwaj

Achin Aggarwal

Rajanala Kumar

Rahul Goyal

Vikas Rana

Introduction

•Guntar Prangel started Mountain Man Brewing Co.(MMBC) in 1925.

• Co. Started in New River Coal region of West Virginia.

• Started with Mountain Man Lager a.k.a “West Virginia’s Beer”.

• Oscar Prangel, current President of MMBC

• Cris Prangel returned home in 2005 after completing his MBA.

Co. was experiencing declining sales for the first time in its history.

Chris wanted to diversify the Co. to light beer.

In the past years the sale of light beer had increased in the U.S by 4%.

The sale of strong beer had decreased by the same.

Chris met the advertising agency about marketing the “Mountain Man Light”

The reaction on 4 people in the age group of 21-55yrs was:

-Man in his 50’s said “Don’t mess with the Mountain Man Lager”

-Man in his mid 20’s said “Sounds pretty corporate…. I think the beer is too strong for me anyway”

-Women in her 20’s said “I like light beer. I would definitely try Mountain Man Light”

-Man in 30’s mocked about the ad “Fancy BBQ parties with puppies running around…What do they have to do with Mountain Man”

Could Mountain Man reposition the brand to drive sales of Mountain Man light to young people without eroding the core brand equity of Mountain Man Lager?

The Company and the Brand

Guntar Prangel founded the Mountain Man Beer Company(MMBC) in 1925.

The old family recipe of brewing was reformulated by Mr. Prangel.

Meticulous selection of rare, Bavarian hops and unusual strains of barley, resulting in a flavorful, bitter-tasting beer which the Prangel family launched as Mountain Man Lager.

Mountain Man Lager was a legacy brew in a mature business.

By 2005 MM was generating revenues just over $50 million and selling over 520,000 barrels of Mountain Man Lager.

MMBC held the top position for almost 50 years and had a respectable market share.

Mountain Man Lager price was typically $2.25 for a 12-ounce serving of draft beer in a bar and $4.99 for a six pack in a local convenience store.

Brand played a critical role in the beer purchasing decision.

Aura of Authenticity.

Who were the Mountain Man Consumers?

Mountain Man Lager was the best-known regional beer.

Mountain Man Lager’s Recognition.

Brand Awareness & Quality of Mountain Man

Market research showed that Mountain Man was as recognizable a brand among working-class males.

Quality of MML:

It’s smoothness

Percentage of water content

“drinkability”

MMBC and Their Branding Activities

“Brand Equity” with Core Consumers.

Mountain Man’s Distributers and their problems.

Introducing Mountain Man Brewing Company’s sales force.

Strengths

Market leader and established brand name – Held the top market Position among lagers in West Virginia for over 50 years. Won “American Champion Lager”

Strong Brand Equity – Distinctive bitter flavour and slight higher than average alcohol content uniquely contributed to company’s brand equity

Weaknesses

New Brand extension will spread already thin resources of the company – TV advertising estimated $10-$20 million. Likely to suffer Financial Crisis.

Company does not have the budget to compete in the light beer advertising market

Opportunities

To reach younger demographic

Increase lifetime customer value

Light beer category only category showing consistent growth

Threats

Risk of canalization of core brand – Fears that mountain man would not get incremental shelf space by the retailers

Alienation of core customer through new brand that might not be in line with their aspirations of MMBC – Alienating core customer base

Mountain Man’s Competition

The Competition in the U.S. Beer Market is generally divided into four categories.

◦Major domestic producers

◦Second tier domestic producers

◦Import beer companies

◦Specialty brewers

Major Domestic producers

Only a handful of companies who competed on the basis of economics of scale in production and advertising.

This segment is mainly dominated by three companies: Anheuser Busch, Miller Brewing and Adolf Coors company.

These companies account for 74% of 2005 beer shipments in Mountain Man region.

Second Tier Domestic producers

Medium sized competitors such as Pabst Brewing and Genessee and some other regional players.

Produced nearly between 15,000 and two million barrels of bear per year and they had a very limited distribution.

They lacked the financial and marketing resources to defend their brands.

They accounted for 12.5% of beer shipments.

Import beer Companies

They served the needs of sophisticated beer drinkers who desired flavorful and bitter tasting beer products.

They faced the problems of higher shipping costs, weaker distribution networks, inability to control freshness.

They controlled about 12% of the region’s market. Beck’s (Germany), Heineken(Holland) are some examples

Specialty Brewers

Brewpubs, microbreweries, contract breweries, regional craft breweries. Brewing of beer was made using traditional malt ingredients and

produced less than two million barrels annually. Brewpubs are restaurant/ bar establishments, and accounted for 10% of

the craft beer volume. Microbreweries were operated in limited distribution networks and

accounted for 12% of the craft beer volume

Contract breweries manufactured beer for client firms and they accounted for 16% of the craft beer volume.

Regional craft breweries such as Sam Adams and Harpoon produced nearly more than 15,000 barrels annually and they accounted for 62% of the craft beer volume.

All the craft brewers together controlled 1.5% of the total beer market.

THE SITUATION AT MOUNTAIN MAN IN 2005

• US was the largest beer consuming market in the world , $75 million annual sales in 2005

• Per capita beer consumption declined by 2.3 % since 2001 (largely due to competition from Wine and Spirits based drinks)

• Increase in federal service tax and increasing health concerns were also one of the reasons

• 18.3% U.S beer sales took place in each central region • Some states in the region ,west Virginia , had become

competitor • The state repealed arcane laws that had sharply limited the

promotion ,retail stores become selling at deep discounts • Distributors started discriminating about smaller brands they

would continue to carry ,attentions to turn over and margins

• Large national brewers who maintained economies of scale in brewing ,put great pressure on smaller breweries like Mountain man

• This pressure led to the closing of many independent breweries in the east central region

• MMBC’s survival was due to the fact that it served the large market with a very strong brand

• Therefore could continue to compete against big players such as ANHEUSER BUSCH

• There were only four breweries left in 2005 in west Virginia ,Mountain man’s revenue were down 2%

• Company was still profitable in spite of sales declined • Facing an aging demographic in the shrinking premier

segment of the beer market ,company was ready and spending heavily to maintain their sales

• Most industry observers agreed the key consumer was 21-27 years of age

• Since they are first time drinkers brand loyalty is not there

• This particular segment was 30% in 2005,later on became 27 %

• This young group spent twice than the consumers over 35 years of age and was forecasted to grow by 4 million by 2010

• “ Light beer “ came in trend gaining market share for 50.4% in 2005 compared with 29.8% in 2001

• Light beer segment was rated high in terms of awareness , lager beer tracked very low

• Mountain man was now among the major and regional beer companies

• MMBC’s engaged a market research and found three interesting facts -

1. Mountain man lager was known as “West Virginias Beer”

2. Traditional was not as effective as grass root marketing

3. A small %age of MMBC’s blue color customers accounted for a large %age of sales

Challenges ahead at MMBC

• Product preferences changing in the market

• Light beer showing consistent growth – appealing to young adults and women.

• Popularity could change demand in mountain man lager

• Criticism for launching mountain man light

• Erosion of core customer base because of young drinkers

• Cannibalization of sales of mountain man lager

• Oscar thought a new product line would add to the cost and reduce profit

“This is our chance to play in the light beer sandbox but stay true to the Mountain Man brand by playing on the strengths of our core product.”

• No requirement for new purchase of plant and machinery for mountain man light

• Expensive to launch it on a big scale as it would cost more than a $10 - $20 million

• To launch it even regionally it would require a $750000 for a six month campaign which would further cost a $900000 dollar annually.

• Also Cris projected that It would add to cost the expenditure on product manager, sales staff and marketing expenditure.

• Mountain man light would cost $4.69 more per barrel as in comparison to mountain man lager because of the contribution margin

• Challenge to convince the senior management team that mountain man light would generate enough funds in 2 years

• Mountain man light will never achieve the volume of sales of larger light beer like miller lite or coors light

• Mountain man light would not be able to compete with other big brands but will only be able to replace or able to draw attention from mountain man lager which is not doing well.

Chris Prangel analyzed the projections developed and pondered over the “status quo” strategy.

Estimations showed regional revenue growth of light beer product at 4% and MMBC growing share at 0.25% every year.

Still he had to think further on how to present a formal plan to his father about how mountain man light will market and distribute to a new customer segment

Some concerns were –

◦ Alienating existing customers & erosion of core brand equity◦ Getting the same loyalty amongst young beer drinkers that it had from blue-

collar workers◦ How to compete with against deep-pocketed competitors◦ Optimism of his projections of the light beer market

Chris Prangel’s Decisions’

Mountain man is still standing compared to other breweries from 40’s and 50’s ( Neuweiler, Horlacher, etc.) because –

◦Great beer with a great brand name◦Never lost sight of their core customer◦Never been seduced by competitors’ market

Chris himself did not want to lead MMBC down, but he had to do something about the revenue downfall and a secure future.

Conclusion

1. What has made MMBC successful? What distinguishes it from competitors?

Brand LoyaltyOlder working class, blue collarEffective marketingSales team - "Grass roots" marketing70% consumed at homeHigher alcohol %

2. What has caused MMBC’s decline in spite of its strong brand?

Lets think in terms of the beer market in general, as well as the market MMBC serves –

Alternate beveragesHealth concernsTax incrementsConsumer changes or shift in tastes towards

light beer.Limited distribution channels - shelf spaceVery Competitive industry and Capital intensive

3. Should MMBC introduce a light beer? Pros –

Gaining younger demographics

Diverse product portfolio

May be MMBC could create a unique Light beer

Cons –

Alienate existing customers.

Dilute the existing brand equity in terms of image - particularly the brand stands for Lager with higher alcohol %.

Decrease/ cannibalize shelf space.

More expensive to produce.

Light beer already has a strong presence.