Mountain Man Brewing Company - Case Analysis GROUP 9 – SECTION A Charithartha Reddy Chitivolu (FT161031) Bishwadeep Dhar (FT161029) Jibin P Rajan (FT163034) Mavath Praveen (FT163049) Anish K T (FT162012)

Introduction – Mountain Man Brewing Company  Mountain Man Beer Company (MMBC) is reputed for its Mountain Man Lager Beer which is well entrenched as a quality beer in the East Central region of the United States.  MMBC had held the top market position among lagers in West Virginia for the last 50 years and had earned the name of “West Virginia’s Beer”.  Brand awareness, brand loyalty, brand image, perception of good quality and authenticity led to the success of MMBC’s lager beer among blue collar and middle-to-lower income men over the age of 45.  Major attributes of Mountain Man lager beer contributing to the Brand Equity of MMBC – smoothness, percentage of water content, drinkability, bitter flavour and higher than average alcohol content.  Key data points on MMBC as of 2005:  Revenue Generated – $50.44 millions  Barrels of Mountain Man Lager sold – 520,000+  Key region wise distributors – West Virginia, Illinois, Indiana, Michigan and Ohio  Priced at par with premium domestic brands like Miller and Budweiser and below specialty brands like Sam Adams.

Mountain Man’s Competitors  MMBC faced competition from the following segments of the Beer Industry:  Major domestic producers – dominated by Anheuser Busch, Miller Brewing Company, and Adolf Coors Company, competed on the basis of economies of scale, accounted for 74% of 2005 beer shipments in Mountain Man’s region.  Second-tier domestic producers – consisted of medium-sized competitors like Pabst Brewing Company and Genessee, lacked the financial and marketing resources to defend their brands aggressively, accounted for 12.5% of shipments in the East Central region in  Import beer companies – consisted of players from Germany(Beck’s), Holland(Heineken), Canada(Molson), and Mexico(Corona), key consumer base – sophisticated beer drinkers, disadvantaged compared to domestic producers due to higher shipping costs, weaker distribution networks, product freshness issues, and margin reduction due to weakening of US dollars, controlled 12% of the region’s market.  Craft Beer Industry – consists of brewpubs, microbreweries, contact breweries and regional craft breweries, major players include Sam Adams, Sierra Nevada, and Harpoon, independently owned and uses traditional malt ingredients, accounted for 1.5% of East Central Region beer market.

Challenges  Market Competitiveness: Since 2001, U.S per capita beer consumption had declined by 2.3% due to competition from wine and spirits- based drinks, increase in federal excise tax, initiative encouraging moderation and personal responsibility, and increasing health concerns. Import and craft beer companies were becoming competitive and beginning to take hold in MMBC’s heartland regions. Some states in the East Central Region, including West Virginia, repealed arcane laws restricting the promotion of beer in retail establishments, leading to retail stores selling beer at deep discounts thus making the market competitive. Distributors started paying more attention to higher turnover and margins thereby dropping smaller brands like Mountain Man that contributed little to bottom line. This led to a 2% fall in Mountain Man’s 2005 revenues relative to the prior fiscal year.  Changes in Consumer Segments: The key consumer segment for beer companies had shifted to younger drinkers (21-27 years of age). This segment accounted for more than 27% of total beer consumption and spent twice as much per capita on alcoholic beverages than consumers over 35 years old, forecasted to grow by nearly 4 million by This segment preferred light beer to lager beer and thus light beer sales started gaining market share and accounted for 50.4% of total volume sales in Thus the changes in beer drinkers’ preferences led to the declining sales of MMBC’s lager beers. Light beer sales had been growing at compound annual rate of 4%, while lager beer sales declined annually by the same percentage.

 Industry experts believed that product line extensions leveraging the core brand name helped brewers to obtain greater shelf space for its products and created greater product focus among distributors and retailers.  In light of these developments, Mountain Man engaged a market research firm to evaluate its single brand product strategy and brand extension opportunities.  Key findings of the study: Mountain Man Lager was known for its authenticity, quality and toughness. Younger beer drinkers were well aware of the brand, yet perceived MMBC’s lager beer as ‘strong’ and a ‘working man’s beer’. Traditional advertising was not as effective as grass roots marketing in building beer brand awareness in the East Central region where MMBC had a stronghold. Mountain Man had always relied on grass roots marketing to spread its beer quality message by word of mouth. A small percentage of MMBC’s blue-collar customers accounted for a large percentage of sales, and these customers tended to be very loyal to Mountain Man Lager(high loyalty rate of 53%). The non-loyal customers occasionally spread their consumption to five other beer categories.  These findings reinforced Chris Prangel’s belief that Mountain Man’s brand recognition could lead to higher Mountain Man Light beer sales, If introduced, and in return Mountain Man Light’s popularity could boost the sales of it Lager beer. Market Research – Evaluation of Brand Extension opportunities

Mountain Man Light Beer –Potential problems  Mountain Man Light beer might cannibalize the sales of Mountain Man Lager as retailers would not grant incremental shelf space to accommodate both versions of Mountain Man Beer.  Introducing the light beer would alienate the core customer base and ultimately erode and dilute the Mountain Man brand equity.  The Light Beer may will add to the cost structure- more inventory, more packaging, more SG&A, thus reducing profits.  Launching the Light beer version entailed higher advertising costs -at least $ for 6 months ad campaign. This is an expensive endeavor for a lean company like Mountain Man.  Mountain Man light may not sustain the competition from larger light beer brands like Miller Lite and Coors Light and may be a failure thus eroding Mountain Man’s brand equity.

 MMBC should look forward to introducing the light beer as it would incur heavy losses with its Lager beer in the future considering a loss of 2% of revenue base annually.  The revenue growth prospects of the light beer at 4% annually looks promising for it to be introduced in the market.  It has to be ensured that the introduction of the light beer does not eat into the market of its successful lager beer in the East Central region.  However, marketing and distribution of Mountain Man Light beer needs to be evaluated strategically and tactically, if the light beer has to create awareness and loyalty among younger beer drinkers.  A fool-proof marketing strategy needs to devised for MMBC to compete with large, national and deep pocketed competitors in the light beer segment. Action Plan

Financial Prediction without launching Light Beer

Financials with Light Beer

Breakeven Sum of revenues of 2006 &2007 = $ Since the combined revenue of 2006 & 2007 is greater than the break even revenue with cannibalization. Chris can go ahead and launch new Light Beer.

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