Mountain Man Brewing Company

Yeshna Ramessur15th December 2015

Mountain Man is experiencing a decrease in revenue from $50MM to $40MM for the first time due to lack of penetration with the youth segment

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 2

Mountain Man Lager Income Statement

2005 2006 2007 2008 2009 2010

Quantity 520000 528,641 496,881 467,028 438,969 412,596

Price $ 97.00 $ 97.00 $ 97.00 $ 97.00 $ 97.00 $ 97.00

UVC $ 66.93 $ 66.93 $ 66.93 $ 66.93 $ 66.93 $ 66.93

Revenue $ 50,440,000 51,278,201 48,197,422 45,301,735 42,580,020 $ 40,021,825

TVC $ 34,803,600 $ 35,381,959 $ 33,256,221 $ 31,258,197 $ 29,380,214 $ 27,615,059

Gross Margin $ 15,636,400 $ 15,896,242 14,941,201 14,043,538 13,199,806 $ 12,406,766

Fixed Cost $ 10,844,600 10,844,600 10,844,600 10,844,600 10,844,600 $ 10,844,600

Net Profit $ 4,791,800 5,051,642 4,096,601 3,198,938 2,355,206 $ 1,562,166

• The target market for Mountain Man has

always been the blue collar which accounted

for 60% of sales,

• But changing demography, changes in beer

preference, preference for wine and spirits have

increased, initiatives encouraging moderation

and personal responsibilities have caused

Mountain Man to rethink its product offering

• However, changing the beer offering which is

Mountain Man’s pride in order to capture a

bigger market, letting itself being seduced into

a segment that is not our core will only cause

losses to the company

• Hence, the same product will be kept but with

an adjusted marketing mix to appeal to youth.

• This will help gain new customers without

losing the old ones.

• The opportunity and challenge with youngsters

lie in the fact that they are not particularly

attracted to any brand. Adopting a first mover

position to capture them, will help to establish a

brand awareness to them

Who is Mountain Man Brewing Company? Do the Youth Care about it?

• Original old family recipe using a meticulous selection of rare,Bavarian hops and unusual strains of barley, resulting inflavourful, bitter-tasting beer

• A legacy, a pride, a tradition

• Top position among lagers in West Virginia for 50 years

• For an old school, regional brewery, Mountain Man heldrespectable market share, above 1.40% for years

• Positioned as an old man’s drink, the drink coal miners used todrink after a day of hard work in the sun

• Similarly priced as premium brands

• Won “Best Beer in West Virginia” for the 8th year straight

• “Best beer in Indiana”

• “America’s Championship Lager” at the American BeerChampionship

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 3

Exactly what they are looking for. Authenticity.

They don’t adhere to big corporates, so yes.

This translates into pride. Hence, the new positon will adoptimages of West Virginia Bridge, which signify more or a West-Virginian Pride than the coal mining.

Price is not so much of a factor for the youth.

The various prices won by Mountain Man are just anotheropportunity for the youth to discover and adopt Mountain ManLager.

Alternatives Criteria

Brand Price Occasion being

celebrated

Perceived

quality

Brand

Image

Tradition Local

Authenticity

Erosion from

Core Brand

Launch

Mountain

Man Light

May

damage

Eventually

will have

to increase

it

Personal events only, in

restaurants and on-

premise

Diluted

therefore

losing the

authenticity

Threatened

Position

Limited

to the

brand

name

only

Yes, but will

be diluted to

suit the youth

High risk

“Lager in

Kegger”Untouched

Rightly

priced

College events, Kegger

Parties, University

events

Great qualityGreat

image

Great

legacy-

family

owned –

80 years

Yes No risk at all

Mountain Man needs to sell Mountain Man Lager in kegs to capture untapped younger consumer segment who are still indecisive and haven’t established loyalty

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 4

For a lean company like Mountain Man which has established its name in high quality beer, with an impressive growth considering that

MMBC is an independent family brewery, trying to go in the same market as big players will just drain on financial resources, for an uncertain

position.

The best way to reach the youngsters and making them increase their trial rate of Mountain Man, is to reach out to them according to their likelihood to party, Kegger Parties are events in the life of youngsters.

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 5

• The best way to reach youngsters is to solve their problem of heavy consumption, buying dozens of cans and bottles is

cumbersome, and costly.

• Since we can’t increase the market size, the best way is to adjust the product to suit the new potential target

• Hypothetically, a 10% that is having trouble to sell in retail locations

• So the production of cans and bottles (in barrels still) will be brought to equilibrium point, so the supply and demand

match (at 60% of production). We sell those as kegs, and the revenue is $55MM, which clearly proves there is a future

for the product.

• We can increase production from 52000 barrels to 600000 barrels will be sold since we have a new distribution

strategy.

Total production 520,000

On premise 30% 156,000

Off premise 70% 364,000

When Keg is distributed 2006

Total Production Price per barrel Revenue

600,000

On premise 30% 180,000 97 17,460,000

Off Premise - cans/bottles 60% 360,000 97 34,920,000

off Premise - kegs 10% 60,000 48.5 2,910,000

Total 55,290,000

Base-Innovation-Delta for Kegs

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 6

2005 2006 2007 2008 2009 2010

BASE CASE – MOUNTAIN MAN TOTAL

Quantity 520000 528641.25 496880.64 467028.20 438969.28 412596.14

Price $ 97.00 97.00 97.00 97.00 97.00 97.00

UVC $ 66.93 66.93 66.93 66.93 66.93 66.93

Revenue $ 50,440,000 51278201.37 48197422.15 45301735.23 42580020.33 40021825.26

TVC $ 34,803,600 35381958.94 33256221.28 31258197.31 29380214.03 27615059.43

Gross Margin $ 15,636,400 15896242.42 14941200.86 14043537.92 13199806.30 12406765.83

Fixed Cost $ 10,844,600 10844600.00 10844600.00 10844600.00 10844600.00 10844600.00

Net Profit $ 4,791,800 5051642.42 4096600.86 3198937.92 2355206.30 1562165.83

INNOVATION CASE – MOUNTAIN MAN TOTAL

Quantity 600000 670967.74 630656.20 592766.56 557153.32 523679.71

Price $ 145.50 145.50 145.50 145.50 145.50 145.50

UVC $ 100.40 100.40 100.40 100.40 100.40 100.40

Revenue $ 55,290,000 62125513.20 58393030.68 54884794.60 51587332.32 48487980.60

TVC $ 38,150,100 42866604.11 40291191.17 37870508.28 35595259.30 33456706.62

Gross Margin $ 17,139,900 19258909.09 18101839.51 17014286.33 15992073.02 15031273.99

Fixed Cost $ 11,446,000 11446000.00 11446000.00 11446000.00 11446000.00 11446000.00

Net Profit $ 5,693,900 7812909.09 6655839.51 5568286.33 4546073.02 3585273.99

DELTA CASE – MOUNTAIN MAN TOTAL

Quantity 80000 142326.4907 133775.5571 125738.3611 118184.0374 111083.5753

Price 48.5 48.5 48.5 48.5 48.5 48.5

UVC 33.465 33.465 33.465 33.465 33.465 33.465

Revenue 4850000 10847311.83 10195608.53 9583059.375 9007311.993 8466155.343

TVC 3346500 7484645.161 7034969.886 6612310.969 6215045.275 5841647.187

Gross Margin 1503500 3362666.667 3160638.645 2970748.406 2792266.718 2624508.156

Fixed Cost 601400 601400 601400 601400 601400 601400

Net Profit 902100 2761266.667 2559238.645 2369348.406 2190866.718 2023108.156

Recommendation for Mountain Man Lager in Kegs

Positioning

• It is time for Mountain Man to innovate, but moving away from its core product, Mountain Man Lager, will cause brand confusion.

• Lager is perceived as being too strong, but the message behind the advertising should be aligned to tell the target that the reason behind thestrong taste is that it is not diluted, it is made from authentic ingredients (barley, and Bavarian hops), this sense will modify their taste, whichis nothing but a perception.

• Beer is a product consumed for its particular taste which Mountain Man Lager performs; once the youth are encouraged to try, they willadopt it. Also, due to its addictive peculiarity, beer is easily adopted after increased consumption. Due to high demand, retailers will carry theMountain Man kegs. The highly-competent sales team will succeed in pushing the product.

• Mountain Man is already positioned as “West Virginia’s Beer”. It represents the toughness of West Virginia, which attracted the old crowd,but today youngster do not identity which this idea.

• Hence, Mountain Man should bear images and messages about the pride of Virginia, The Bridge of Virginia.

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 7

Mountain Man Kegs Distribution strategy

• Although kegs carry less margin than the Mountain Man lager,retailers will not carry the product, however, they can takeorders for Mountain Man, and get paid for that. They won’thave to carry inventory for Mountain Man, in fact they willonly carry 60% of the lager in cans and bottles.

• Mountain Man will distribute to college residences, universitybars, as well as on personal order. (see picture 1)

• A sales team will be set in the headquarter of Mountain ManBrewery to take and monitor sales of kegs.

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 8

Sales team

No. of Sales person 2

Salary for a month $ 760.00

Salary for a year $ 182,400.00

Picture 1

Mountain Man will succeed at reaching the young demography, as it will help them solve a very important issue when it comes to beer consumption: that of convenience.

• Flaws in the market research, only 6 respondents formed part of the focus group, it is too uncertain to consider for such an endeavour, and it was conducted by an advertising firm.

• Market research conducted by an actual firm, demonstrated opinions in favour of Mountain Man.

• Age demography: 21-27 years

• First time drinker

• They have not yet established loyalty to any brand, their main concern is to find the perfect beer that is easy to consume

• They consume twice as much than any other consumer group (27%)

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 9

What are the youth looking for?

Awareness Authenticity Consumption Quantity Style of Beer

Does Mountain Man Lager in Kegs have it?

Not established; but they recognise the brand

Yes Yes Yes, Stylish Kegs

Does Mountain Man Light have it?

Only mainstream brand, therefore Mountain Man being a new player doesn’t guarantee success as well. Not yet No No. Same old brown bottle

Recommendation for Mountain Man Light

• Mountain Man Light needs to establish itself first before coming into the market.

• For Mountain Man Brewing Co, launching light could be more detrimental than actually boost sales:

It will have to compete with national brands that have a budget to launch and push their light product

Beer is the type of product that can be pushed to like: the perception can be modified through powerful advertising, which in Mountain Man’s case would cost between $10MM-$20MM, a budget we cannot afford.

It would move away from its original taste, something not even the “bigger” brands have. Mountain Man has more to lose in launching Light that it might not actually recover from. It could lose the brand equity it has acquired for 80 years. Since beer purchasing depends a lot on brand, it will damage Mountain Man Lager’s position.

Launching light will cause Mountain Man to find new ways of distributing, since retailers will have to choose between Mountain Man lager and Mountain Man light, one of them will have to be dropped. There are more chances of dropping lager as retailers will gain more margin on light and there is a demand for that.

Therefore light is not a solution for Mountain Man Brewing Co.

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 10

Base- Innovation – Delta Case if Mountain Man is launched shows considerable loss in profit

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 11

Mountain Man – Total – BASE CASE2005 2006 2007 2008 2009 2010

Quantity 520,000 509,804 499,808 490,008 480,400 470,980

Price $ 97 $ 97 $ 97 97 $ 97 $ 97

UVC $ 67 $ 67 $ 67 $ 67 $ 67 $ 67

Revenue $ 50,440,000 $ 49,450,980 $ 48,481,353 $ 47,530,739 $ 46,598,763 $ 45,685,062

TVC $ 34,803,600 $ 34,121,176 $ 33,452,134 $ 32,796,210 $ 32,153,147 $ 31,522,693

Gross Margin $ 15,636,400 $ 15,329,804 $ 15,029,220 $ 14,734,529 $ 14,445,617 $ 14,162,369

Fixed Cost $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600

Net Profit $ 4,791,800 $ 4,485,204 $ 4,184,620 $ 3,889,929 $ 3,601,017 $ 3,317,769

Total Mountain Man – INNOVATION CASE

Quantity 566,861 559,757 553,058 546,773 540,911 535,485

Price $ 194 $ 194 $ 194 $ 194 $ 194 $ 194

UVC $ 139 $ 139 $ 139 $ 139 $ 139 $ 139

Revenue $ 54,985,493 $ 54,296,476 $ 53,646,652 $ 53,036,947 $ 52,468,382 $ 51,942,075

TVC $ 38,159,767 $ 37,698,851 $ 37,265,935 $ 36,861,721 $ 36,486,982 $ 36,142,562

Gross Margin $ 16,825,726 $ 16,597,625 $ 16,380,717 $ 16,175,226 $ 15,981,399 $ 15,799,513

Fixed Cost $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600 $ 10,844,600

Net Profit $ 5,981,126 $ 5,753,025 $ 5,536,117 $ 5,330,626 $ 5,136,799 $ 4,954,913

Total Mountain Man – DELTA CASE

Quantity 46860.7575 114043.2033 124486.8406 134684.738 144672.7731 139246.9335

Price 97 97 97 97 97 97

UVC 71.62 71.62 71.62 71.62 71.62 71.62

Revenue 4545493.478 4845496.047 5165298.786 5506208.506 5869618.267 6257013.073

TVC 3356167.452 7867193.832 8581649.102 9280677.535 9966747.769 9622327.068

Gross Margin 1189326.025 -3021697.78 -3416350.32 -3774469.03 -4097129.5 -3365313.99

Fixed Cost 0 0 0 0 0 0

Net Profit 1189326.025 -3021697.78 -3416350.32 -3774469.03 -4097129.5 -3365313.99

NPV to sell Mountain Man Lager in kegs is higher than launching Mountain Man light, the target is the same.

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 12

NPV To launch light

NPV before investment -$10,207,208.83

Advertisement Cost to launch Light $ 750,000.00

NPV After investment -$10,957,208.83

NPV To launch keg

NPV before Investment $ 8,602,216.74

Investment cost (sales team + MM

house pub ) $ 464,900.00

NPV after investment $ 8,137,316.74

• The NPV to launch Mountain Man light is negative

$10MM with an investment of $750,000 of a 6-

month advertising only.

• The NPV for Mountain Man to start launching kegs

indicates that at the end of 5 year, Mountain Man

will make $8MM.

• With this venture, Mountain Man doesn’t have

much investment cost

What is Mountain Man keeping?

Brand Name

Legacy

Market Size

Quality

Authenticity

Blue Collar

Youngsters

Core Product

Future Project for Mountain Man

• Eventually, Mountain Man could set up its own brewpub, and turn the brewery into aMountain Man House and encourage visit

• To increase community involvement, Mountain Man could launch an experiential eventfor its 80 years:

1. Invite the community, especially the Coal Miners who have stayed by MountainMan’s side for years

2. Get the community involved in building a small brewpub that would accommodate30 people

3. Everyone involved will be entitled to write their name on a brick they will settle,on the wall of fame that we will settle

4. It will be more symbolical as a means of reviving the brand name, than generatingmoney.

5. Investment cost will be lower, only the raw materials will be needed, with theprofit generated from the Kegs, Mountain Man could easily afford that.

6. Mountain Man should hire a beer chemist to come up with the exact formula tomake craft beers and light beers to be sold only in the Mountain Man Brew Pub. Asa means of exclusivity, this will increase interest.

7. It will also invite people to come visit the traditional making of beer; they will seethe non-commercial activity, which will create another point of difference, andestablish that MMBC is not a corporate.

8. All of these, will help nurture the youth and establish long term loyalty towardsMMBC.

9. Mountain Man being an independent small brewery should focus on keeping it as afamily business and not turn into a big corporate. This will go in light with whatthe Management of Mountain Man care more about: the legacy.

Mountain Man Brewing Co., Y.Ramessur, 15th December 2015 13

Cost Breakdown to invest in a MM House Pub

No. of customers to accommodate 30

no. of bartenders 2

Cost of bartenders @ $15/hr- part time $ 86,400

Insurance – in case of injury $ 25000

Raw materials $ 25,000

Food - snacks $ 50,000

Beer Chemist @25/hour - full time $ 90,000

Misc. $ 50,000

Total cost $ 316400

NPV $282,500