Mountain Man Brewing Company

Running Head: MOUNTAIN MAN Mountain Man Brewing Company Case The purpose of this case study is to explore the implications for expanding the products offered by Mountain Man Brewing Company (MMBC) from one product, Mountain Man Lager, to adding a Light version of the beer. This paper will evaluate the following: 1. The positioning statement of MMBC; including what has made MMBC successful and how MMBC distinguishes itself from competitors.

I will argue that quality and authentic West Virginia family recipe created a brand that differentiates the lager from competitors. 2. How these factors enabled MMBC to create such a strong brand; and why, despite its strong brand, MMBC was experiencing a decline in 2005. I will show that the decline is due to changes in beer drinking patterns, markets, and demographics in the region as well as the U. S. in general. 3. An evaluation of whether or not to launch Mountain Man Light.

I will explore the pros and cons of creating a light version of the brew and other strategic options for growth if this brand extension is not launched or if the launch is unsuccessful. I will demonstrate that launching a light beer product shows promise for improved profit through 2010, but that another strategy should be under development during that time frame if MMBC wants to remain competitive for the long term. Mountain Man Brewing Company’s Positioning in the East Central Market According to Alvin J.

Silk, a positioning statement is designed to define who are a company’s customers, what set of needs does the product fulfill, and why is the product the best one to fill those needs (2006, p. 90). I found this question challenging because a positioning statement should define “the place the firm wishes to occupy in its’ target customers’ minds” (Silk, 2006, p. 90). In the case of MMBC, the definition of the target customer was under discussion.

For purposes of the first question, I developed the following positioning statement based on what I believe was the historical perspective of MMBC. Mountain Man Brewing Company produces Mountain Man Lager; the most authentic regional beer for working class East Central Americans, among all premium domestic beers, because of its distinctive quality, bitter flavor, slightly higher than average alcohol content and competitive price (Abelli, 2007, pp. 2-3). This positioning statement would help MMBC to target its product toward the blue collar worker in the East Central region.

While not specifically stated in the case, I believe Mountain Man Lager met the following needs of this target audience: a need to feel toughness, pride in an East Central quality product, and an affordable price. MMBC’s strategic focus on this target audience helped it to be successful in the highly competitive market for premium beers, even when other local brewers went out of business. Their success was due to a loyal customer base, high brand recognition and support, and a product with high perceived quality.

The sole brand loyalty rate for Mountain Man Lager was 53% which was higher than the rates of competitive products such as Budweiser at 42%, and Bud Light at 36% (Abelli, 2007, p. 5). The case states that the Mountain Man brand was as recognizable as Chevrolet and John Deere among working-class males in the East Central region (Abelli, 2007, p. 2). The quality of the brew was defined mostly by the distinctive flavor and slightly higher than average alcohol content that set Mountain Man Lager apart from its competitors (Abelli, 2007, p. ). The beer is distinguishable from competitors because of the brand recognition as West Virginia’s beer. The following unique traits further helped differentiate the brand: Independent, family owned business; Authentic West Virginia old family brew recipe; Quality, including a distinctive bitter flavor with slightly higher alcohol content; Their own small sales force pushed the sales at off-premise locations; Grass roots marketing of the brand; Established relationships with retailers in the East Central Region (Abelli, 2007, pp. -7). These factors along with the fact that they served a large enough market, helped MMBC compete with major domestic premium brands such as Miller and Budweiser, as well as second-tier domestic producers when other breweries were going out of business in Virginia (Abelli, 2007, pp. 2-4). The Decline of Mountain Man Lager Despite the strong brand and strategic position that MMBC created, the company experienced a decline in revenue of 2% in 2005 (Abelli, 2007, p. 4).

The decline is due to changes in beer drinking patterns, markets, and demographics in the region as well as the U. S. in general. The change in beer drinking in 2005 included a decrease in intake of beer in general. This was due to competition from wine and spirits as well as new national health recommendations to decrease alcohol consumption for improved health (Abelli, 2007, p. 4). Premium beer consumption was down 4%, but light beer use was up 4% (Abelli, 2007, p. 10).

This movement of consumer purchasing practice, makes adding a light beer product attractive. Overall beer consumption was down in the U. S. , and this trend was true in MMBC’s region as well. See Figure 1. This graph shows beer consumption in West Virginia, MMBC’s home state, Figure 1: Based on data from Abelli, 2007, p. 9. compared to consumption in the East Central Region. Both follow the same curve as total U. S. consumption. This curve is similar to maturity stage of the product life cycle curve presented by Alvin Silk (2006, p. 06). This makes sense because the case states, “Mountain Man Lager was a legacy brew in a mature market” (Abelli, 2007, p. 2). The normal next phase of a product life cycle is a decline. Silk points out that during the decline stage of the product life cycle, sales fall and profitability disappears and he notes that at this point a firm works to reduce expenses and “milk the brand” (2006, p. 106). There was also new competition from imports and craft beers which were growing at a rate of 6% and 9% respectively (Abelli, 2007, p. 0). Retail stores were selling beer at deep discounts and large national brewers were spending more money to maintain their sales (Abelli, 2007, p. 4). Should MMBC launch Mountain Man Light? I believe that Chris should make a case to launch a light beer product, but I am not convinced that Mountain Man Light is an appropriate name for the product. The financial benefits to launching a light product could help offset the projected decline of the Mountain Man Lager product of 2% per year.

Figure 2 assumes that a light beer product will capture 0. 25% of the light beer market, beginning midway through 2006. Continued loss in volume of lager sales of 2% per year is assumed. This projection also assumes that sales of a light beer product will cannibalize 5% of the sales of Mountain Man Lager. According to these projections, adding a Projected Income Statement With Addition of Light Beer Product, Capture . 25% Light Beer Market 200520062007200820092010

Lose 2% Lager / year50,440,000 49,431,200 48,442,576 47,473,724 46,524,250 45,593,765 Cannabilize 5% Lager Sales(1,235,780)(2,422,129)(2,373,686)(2,326,212)(2,279,688) Net Revenues-Lager48,195,420 46,020,447 45,100,038 44,198,037 43,314,077 Net Revenues-Light0 2,363,657 4,909,133 5,090,953 5,272,772 5,454,592 Total Net Revenues50,559,077 50,929,580 50,190,991 49,470,810 48,768,669 COGS – Lager34,803,600 33,254,840 31,754,109 31,119,026 30,496,646 29,886,713 COGS – Light1,745,207 3,624,661 3,758,908 3,893,154 4,027,401 Total COGS35,000,047 35,378,769 34,877,934 34,389,800 33,914,114 Gross Margin Lager15,636,400 14,940,580 14,266,339 13,981,012 13,701,392 13,427,364 Gross Margin Light618,450 1,284,472 1,332,045 1,379,618 1,427,191 Total Gross Margin15,559,030 15,550,811 15,313,057 15,081,010 14,854,555 SG&A – Lager fix at 2007 level9,583,600 9,157,130 8,743,885 8,743,885 8,743,885 8,743,885 Advertising – Light750,000 SG&A – Light900,000 900,000 900,000 900,000 900,000

Other Operating Expenses1,412,320 1,415,654 1,426,028 1,405,348 1,385,183 1,365,523 Operating Margin – Lager4,640,480 4,986,246 5,380,898 5,163,824 4,951,942 4,745,147 Operating Margin – Light(1,031,550)384,472 432,045 479,618 527,191 Total Operating Margin3,954,695 5,765,370 5,595,869 5,431,560 5,272,339 Other Income151,320 151,677 152,789 150,573 148,412 146,306 Net Income Before Taxes4,791,800 4,106,373 5,918,158 5,746,442 5,579,973 5,418,645 Provision for Income Taxes1,677,130 1,681,089 1,693,409 1,668,850 1,644,904 1,621,558 Net Income After Taxes3,114,670 2,425,283 4,224,750 4,077,592 3,935,068 3,797,086 Figure 2: Based on data from Abelli, 2007, pp. 1-10. light beer product midyear 2006, will have a positive impact on net income after taxes by 2007. Some crucial variables would need to be managed in order for this to happen. This model assumes some of the Salaries, General, and Administrative (SG&A) funds from the lager product would be moved to the light product. The cost of SG&A would increase in 2006, but a goal to decrease this fixed expense would need to be realized.

As the case points out, a major consideration for MMBC is whether or not a light product could actually capture a new target audience. The light beer would be designed to meet the taste preferences of the younger generation, especially those who have not yet established loyalty to a particular brand of beer. A goal could be to gain the same brand loyalty to a light product that MMBC was able to obtain with its lager product. This would require creating a new positioning statement and a different method of targeting customers. I believe MMBC could tap into the quality and independent brewery status of the Mountain Man brand. But they would need to get past the image of Mountain Man being a strong flavored beer for the working class. This presents a challenge.

If the target market becomes the backyard BBQ, “techie”, “yuppie” crowd, (as was hinted in the case) this could destroy the tough image that has helped Mountain Man Lager maintain its position with the working class. I think a better market is the young, adventurous, backpacking, kayaking crowd who would appreciate a quality light product that promote the image they desire. Other options Even with the launch of the light product, the financial projections show that the decline in the lager market will eventually impact net income if MMBC is only able to capture 0. 25% of the light beer market. I believe that in order to continue growing in this highly competitive market, Chris will need to explore other options. One option is to analyze options for controlling costs in the Lager business. As this market declines, cost control will be crucial.

I fixed SG&A costs at 2007 for the lager business, but incorporating systems to streamline operations may improve the future for MMBC. Another option would be to compete in the smaller craft beer market. Rather than competing with the major premium light beers, such as Bud Light and Coors Light, MMBC could produce beers that would appeal to those who are switching to a lighter beer, but appreciate the quality that a smaller brewer can assure. Perhaps rather than Mountain Man Light, create products like Mountain Man Pale Ale, or Mountain Man Porter. I believe these types of products would tap into the quality that Mountain Man Lager is known for and seem like a better fit with the Brand Mountain Man is famous for.

This would also open up opportunities to extend the brand into brew pub restaurants, which have become very popular in recent years. I think that Mountain Man’s unique distinctive history and brand recognition could be used to create a memorable restaurant experience. The main point of this argument is that MMBC should continue to explore opportunities to improve profit. In a mature market, I believe the worst thing MMBC could do is to settle for the “status quo”. References Abelli, H. (2007). Mountain Man Brewing Company: Bringing the brand to light. (2069) Boston, MA: Harvard Business School Publishing. Silk, A. J. (2006). What is Marketing? Boston, MA: Harvard Business School Publishing.