TEAM 4
MOUNTAIN M AN BREWING COMPANY
Introduction: Mountain Man Beer’s Success:
The United States is the largest beer consumer in the world with the East Central region having sales of 18.3%. Mountain Man Brewing Company is a family owned brewery located in West Virginia that has been strong presence as lager brand in this region since its establishment in 1925. Ever since, it has marketed towards the blue collar, co llar, middle to lower income population in the region with its bitter, higher alcohol content lager. Over the years its brand identity has been associated as an o ld school, regional brewing company and its consistency in taste and blend. There have been multiple instances where 3 generations of families have grown up consuming Mountain Man Beer and felt that Mountain Man Brewing Company has retained the quality ever since since its introduction. It has therefore, created a legacy as “West Virginia’s Beer” and a “Working man’s beer” and has not deviated from its core
branding, maintaining itself as a single product company.
Competitor Position:
Being solely a lager manufacturer, Mountain Man Brewing Company’s competitors in its
operating region are domestic, regional and import beer manufacturers. These manufacturers have a diverse portfolio manufacturing light beer, with the light beer market growing at an annual rate of 4% in the region. With its core identity as a lager, Mountain Man Beer has a strong st rong presence and respect among its customers who are in the age group of 45 plus. Among Mountain Man Beer’s competitors, domestic producers like Anheuser Busch, Miller Brewing Company and Adolf Coors ac counted totally for 74% of the beer shipment in the region. Apart from these Domestic powerhouses, ther e is a significant
presence among second tier brewers, import brewers and small craft/specialty in the region. While other regional competitors have faded away due to loss of brand identity over the last 30 years in conjunction with the state’s repealing of laws that prohibited discounts in retail stores, Mountain Man
Beer has survived because of its focus on its customer base and its brand equity.
Mountain Man Beer has established itself in the region as strong presence in the lager category and has been at the top in market position for the last 50 years with revenues just above $50 Million by 2005. In its pricing, Mountain Man Beer was positioned similar to premier domestic brands like Budweiser and Miller. It’s higher than average content of alcohol and bitter taste set it apart in the
region in the traditional lager category.
Mountain Man Beer, the Brand:
With its picture of mine workers from the Coal Miner’s Union on its bottles unchanged since
1925, Mountain Man Beer has a certain old school, working man feeling to it that it had built over the years. Along with the strong, bitter taste, this was the ideal working man’s beer and its authenticity and
quality that remained unchanged over the years added a sense of history to drinking lager. Unlike large producers, Mountain Man Brewing Company has done grass-root marketing in building its brand image among the heartland states. It has so far, thus, saved millions of dollars in advertising costs that the bigger brands spend.
Over the years, the Mountain Man Beer brand has built a large loyal customer base that vouch by its “drinkability”. With a brand loyalty rate at 53%, Mountain Man Beer makes other competitive
brands envious. Overall, with a loyal middle income, middle age customer base, and w ith a strong flavor that defines the character of West Virginia, Mountain Man Beer has grown steadily over the years as regional leader in lager. The brand identity is strong and well established and despite competition from domestic and import brands, $50 million revenue speaks for itself.
Declining Projections?
Despite building a brand identity and regional presence, Mountain Man Lager’s sales have
declined for the first time ever, by 2% in 2005(Appendix) compared to the previous fiscal year. There were a variety of reasons for this decline. Firstly, the customer base that has sustained Mountain Man Beer’s sales over the years (middle income, middle age: 45+), is fading away and the being
overshadowed by a young population between the age group of 21 and 27. This young population is key consumer base for the beer industry and is often categorized as “First time drinker demographic” and do not have a specific brand loyalty. More importantly, this group which accounted for 27% of total beer consumption preferred light beer, specifically mainstream brands. The light beer m arket is projected to grow at a rate of 4% annually, while the premium beer market is projected to decline at a rate of 4% (Appendix).
The light beer market in 2005 accounted for 50.4% of volume sales (Exhibit 5) and with a growing young population who have a preference for light beer, this percentage would grow. With mainstream brands making both premium beer and light beer, young c onsumers tended to go along with a “brand family”. This is hurting Mountain Man Beer’s prospects ; with only a single product and a perceived “old school” image, the young consumers would see it as a niche product. Also, Mountain
Man Beer is not sold in restaurants and pubs which were frequented most by a young drinking population.
A “Do nothing” Strategy:
An underlying fact of life for Mountain Man Beer is that lager sales are projected to decline by a minimum of 2% annually(Appendix). The highest growth segment in the beer industry is light bee r and Mountain Man Beer would need to diversify its product portfolio in or der to compensate for a potential
decline in lager sales in the future. However, to introduce Mountain Man Light, the company would have to consider a possible cannibalization of Mountain Man Lager by Mountain Man Light that would end up hurting the sales of its core brand. An advertising campaign in the east central region would cost a onetime fee of $750,000. The incremental selling, general, and administrative (SG&A) costs would be an annual $900,000 (not accounted for inflation). As for production costs, Mountain Man Light would cost $4.69 more per barrel than the core brand. Even considering a 5% loss in sales for Mountain Man Lager, there should be enough barrels of Mountain Man Light sold to compensate. While a short term investment could be avoided under a “do-nothing” strategy, over a period of time, t he revenue from Mountain Man Lager would eventually only reduce assuming the beer market grows based on its segment projections and based on revenue decline compared to previous years (2% decline in revenue) (Appendix). While the light beer market would continue to grow, Mountain Man Beer would be at risk of fading away from public conscience and due to low visibility amongst newer, yo unger consumers. By 2010, Mountain Man revenues would have declined by 9.6% compared to 2005 (Based on revenue in 2005 and projected revenue of $45,593,765 in 2010 from an annual revenue loss of 2%). While Mountain Man may keep its existing customer base satisfied, that c ustomer base is being replaced in the coming years, and Mountain Man Brewing Company needs to r eposition itself as beer manufacturer in region.
Mountain Man Light, Prospects:
While the initial investment and the increased production costs and SG&A c osts would cause a dent in the first year of introduction, considering an annual market share growth by a quarter point by the introduction of Mountain Man Light, the company positions itself as a diverse player in the beer industry. It can then capture restaurants and pubs that it has never penetrated before and thereby cater to a young, growing population who are already aware of the legacy of the company. By considering a
5% loss in sales in Mountain Man Lager and based on C hris’s projections in SG&A, revenue percentage
loss annually and fixed costs for introducing Mountain Man Light, there would need to be 160,246 barrels manufactured by the end of the second year to break even for the investment costs. This could be achieved in terms of volume sales by limiting the annual revenue loss due to the intro duction of Mountain Man Light to 4.15% instead of 5% (Appendix). At a 4.15% worst case revenue loss in Mountain Man Lager, the number of barrels of Mountain Man Light needed to break even by the second year would be 150,085(Appendix). And by projecting the number of Mountain Man Light barrels based on an annual increase of 0.25% in market share, Mountain Man can manufacture 150,104 barrels of Mountain Man Light.
By penetrating the restaurant and pub market with Mountain Man Light, the company will have a small yet a potential entry for its core brand, Mountain Man Lager as well. It can do so without additional branding and marketing efforts and thus limits its revenue loss in lager to a ceiling of 4.15%
Conclusion:
In conclusion, it would be fair to say that a well-established regional powerhouse in the manufacture of Lager beer is at risk of being lost due to dwindling sales, shrinking market share and redefined beer industry. Great companies embrace change as part of growth and for Mountain Man Brewing Company to grow, it has to change and diversify its core business to c atch up with changing times and characterize the strength and toughness that its lager has always defined. And by wor king digilently as it always has, to satisfy its new customer base, Mountain Man Light has a great potential to grow based on the reputation of the company as well as the growth in the market itself. And they can do so by limiting the revenue loss in their core brand due to the new brand to 4.15%. This is Mountain Man’s moment of tryst with its destiny and they should make full use of it.
Appendix PROJECTING REVENUES:
Assuming 2% drop in revenue every year:
Year
Revenue
2006
$49,431,200
2007
$48,442,576
2008
$47,473,724
2009
$46,524,250
Revenue Calculations:
2007
2008
2009
$48,442,576
$47,473,724
$46,524,250
COGS
$33,425,377
$32,756,870
$32,101,732
Income
$2,991,320
$2,931,502
$2,872,872
Net Revenue
after tax
FEASIBILITY ANALYSIS: Continuing with 4.15% CAGR and MMBC increasing its market share at 0.25%/year, we get the projected revenue from light beer:
Year
Revenue from Light Beer
2005
$4,916,405
2006
$10,226,123
2007
$15,952,753
Projecting new revenues:
2007
2008
2009
$53,358,952
$57,699,848
$62,477,003
COGS
$37,063,518
$40,324,202
$43,906,770
Income
$2,669,810
$3,908,543
$4,724,656
Net Revenue
after tax
Comparing YoY:
Breakeven Calculation:
