Mountain Man Brewing CompanyCase Submission

Group 15

Q1. What is Chris considering doing and what factors will he have to align to be
successful? What goal should MMBC (Chris) have?
Chris Prangel, heir to the family-owned business Mountain Man Brewing Company, was
contemplating the launch of a new product line - Mountain Man Light. Mountain Mans
revenues had been on a downward spiral in recent years. Since being founded in 1925 by Mr.
Guntar Prengel, Mountain Man produced and distributed only one variety of beer Mountain
Man Lager a flavored bitter-tasting beer popular among the blue collar middle class working
population. Beer as a product commanded significant brand loyalty. However, this target group
of population was shrinking by the day and overall lager market in US was also declining due to
growth in the light beer segment. Many analysts believe that the key target segment for beer
companies was the younger generation 21-27 years of age who had yet not developed loyalty for
any particular brand, and thus could be swayed in any direction. Lager beers taste was perceived
as being too strong for the younger drinkers and the women drinkers. And since the light beer
market was also growing at a steady rate, it made sense for MMBC to introduce a new light beer
product. However, there were several considerations to be made. Firstly, MMBC had to make
sure that introducing a new product line would not alienate the core customers and eventually
lead to erosion and decay of Mountain Mans brand equity. A small percentage of loyal blue
collar customers accounted for a large percentage of the total sales of Mountain Man Lager, and
MMBC could not afford to lose this loyal customer base. Secondly, the overall beer market in
US was on a level trend. Further, retailers might not be willing to give more shelf space for
products of a regional beer company. All this effectively meant that introducing a new light beer
product would eventually eat into the sales of MMBCs core product lager. Thus incremental
returns generated by the light beer product would have to compensate for the loss in sales of
lager. Thirdly, although MMBC would not have to make any capital investment to introduce the
new product line because of excess capacity in MMBC existing plant, the variable cost per barrel
would increase by $4.99 leading to smaller margins as compared to Mountain Man Lager. This
coupled with the high advertising expenses for launch and the additional SG&A costs related to
the product line meant that MM Light would have to generate significant volume sales to breakeven in two years. Chris had to align all these factors with the core brand image before coming to
any conclusion as regards the product line extension.
Q2. What has made MMBC successful? What distinguishes it from its competitors? What
enabled MMBC to create such a strong brand image?
Mountain Man Lager was known as West Virginias Beer characterized by authenticity,
quality and a unique West Virginia toughness. In the East Central region of US Mountain Man
Lager was as recognized a brand as some of the national bigwigs like Anheusch or Miller among
the working middle class population. It cultivated a good perception of quality and a strong
brand loyalty, and was priced similar to Budweiser or Miller. One of the factors that made
Mountain Man so successful was that they never lost sight of their core customers. As such it
was never tempted to modify the product or introduce a new product that would alienate core
customers. Consistency and uniqueness of taste and quality enabled to develop a very loyal
customer base. Furthermore, its status as a family owned independent business created an aura of

Mountain Man Brewing CompanyCase Submission

Group 15

authenticity among the target consumer segment. Lastly, MMBC believed in grass roots
marketing in building beer brand awareness. While national beer brands used lifestyle
advertisements to woo customers, MMBC relied on word of mouth to spread its beer quality
message. In East Central MMBC develop a strong brand image among the regional customers.
Q3. What has caused MMBCs decline in spite of its strong brand?
MMBC traditionally targeted blue collar middle class working population with its
Mountain Man Lager. 32% of the total MM Lager sales were accounted for by consumers
between the age of 45-54 and another 32% above the age of 55. In fact, 83% of the total sales for
Mountain Man Lager was accounted for by people of age more than 35. Aging target
demographic and shrinking per-capita consumption of beer by the MMBCs target consumer
segment led to declining revenues for MMBC. One of the major reasons for the sales decline was
also the rapid growth in light beer category where MMBC had no presence. Moreover, light
beers were more favored by the younger generations 21-35 years of age and by the women
population. Although this segment represented only 13% of the total adult population in US, they
accounted for more than 27% of the total beer consumption. Even the per-capita spending of the
aforementioned on beer was almost twice as much as that of people above 35 years of age. Thus,
absence of a light beer product was significantly hurting MMBCs growth prospects. Another
reason for decline can also be attributed to the level trend in the entire beer market. Total beer
sales in US increased by only about 3% between 2000 and 2005, mainly driven by the
tremendous growth in the light beer segment which was expected to grow at a CAGR of 4%
annually.
MMBC also faced serious competition from national beer companies with very deep
pockets. For years MMBCs strong brand image helped it to survive among the bigger national
players. In the past, imported beer brands didnt have significant presence in the markets served
by MMBC. So they had only to contend with Anheusch, Miller and the likes. Recently, however,
markets like West Virginia has become super-competitive owing to repeal of arcane laws. As a
result, retailers are now more concerned about margins and were only willing to allot shelf space
for those local and regional brands that contributed to their bottom line. Also large national
breweries, who maintained economies of scale in production, marketing and distribution, put
great pressure on regional competitors like Mountain Man.
Q4. Should MMBC introduce light beer?
Pros: 1. Increase sales volume and market share
2. Tap into the growing light beer market
3. Leverage its strong brand image to create a loyal customer base among the younger
generation
Cons: 1. It could potentially cannibalize MM Lager sales
2. It could potentially alienate Mountain Mans core customer base and erode the
companys brand equity

Mountain Man Brewing CompanyCase Submission

Group 15

3. Mountain Mans bottom line may decline further if the new product is not able to
generate sufficient volume sales.

Q5. Is Mountain Man Light feasible for MMBC?

The following projections are for 2006 assuming a 4% growth in the light beer market in
East Central region and a 2% cannibalization rate annually.
Forecasts

All
figures
million USD

in

2005

2006

Profit

2007
$

(0.54)
1
MM Lager Net Revenues

2008
$

1.32
2

2.43
3

$
50.44

Cannibalized Sales of MM Lager

$
1.01

Contribution from MM Light

Cost of capital
DF

$
1.01

$
(1.55)
7.05%
0.93

NPV(2 year)

$
0.31
7.05%
0.87

$
(1.18)

NPV(5 year)

1.01

$
4.49

This figure indicates that Mountain Man can take advantage of the growing market for light beer
in East Central region to actually increase its revenue and market share. Based on these values it
can be said that Mountain Man Light would not only be a successful launch, but will actually do
quite well in the market. The growth estimates in market share is assumed to be 0.25% per year
which seems like a reasonable and quite conservative estimate. The 2 year NPV is negative for
the MM Light launch. This can be attributed to the fact introduction of MM Light might result in
cannibalization of MM Lager sales. The cannibalization rate is assumed to be 2%. However,
excellent growth prospects in the market would significantly increase Mountain Mans revenue
and increase its market share in the light beer category resulting in a positive 5 year NPV.
Mountain Man would need to sell only 10,400 barrels of light beer in the first year to recover the
lost revenue due to cannibalization.
Starting with a base market share of 0.25%, market share of Mountain Man Light would
need to increase by 0.55% annually if it is to break even in two years. The rate at which MM
Light might cannibalize MM Lager sales is assumed to be 2% in our analysis. However, if the
cannibalization rate were to be 4% then it would take Mountain Man 5 years to recover

1.42
7.05%
0.82

Mountain Man Brewing CompanyCase Submission

Group 15

investment on Mountain Man Light. On the other hand if somehow cannibalization can be
reduced to below 0.7% of revenue, then Mountain Man can break even in two years on launch of
MM Light. Thus, while launching MM Light care must be taken to ensure cannibalization of
MM Lager is minimum. From all these, it can be concluded that MM Light launch is
economically feasible and Chris Prengel should go ahead with the launch.

Exhibit A:
All figures in million USD
US Beer Sales

2005
$
75,000.0
0
$
13,725.0
0
$
6,917.40

US beer Sales(East Central Region)

US light beer sales(East Central Region)

Market share growth

Market share MM Light

Variable cost per barrel

SG&A
Advertising cost

Profit

MM Lager Net Revenues

Cannibalized Sales of MM Lager

20

$
7,194.1
0

$
7,481.8
6

7,7
3

0.25%

0.5000
%

0.7
%

48,735

97,470

14

18,744,3
03
In USD

$
97.00

All figures
million USD
In USD

in

All figures
million USD
All figures
million USD
All figures
million USD

in

All figures
million USD

in

4.73
$

9.45

71.62

71.62

71
$

6.98
$

0.90
in

14
$

in

97
$

3.49

10
$

0.90
$

0.88

All figures in
million USD
Cannibalization
rate

$
97.00

71.62
Total variable cost

2007

0.25%

US East Central Light beer barrels sold

MM Light barrels sold
Price of MM Light(assumed equal to price
per barrel of MM Lager)
MM Light sales

2006

0.9
$

0.26
$

(0.54)
1

0.3
$

1.32
2

2.4
3

$
50.44
2%

$
1.01

$
1.01

1.0

Mountain Man Brewing CompanyCase Submission

Group 15

Contribution from MM Light

$
(1.55)
7.05%
0.93

Cost of capital
DF
NPV(2 year)
NPV(5 year)

No. of bottles to be sold in first year to

recover cannibalized sales of MM Lager

All figures
million USD
All figures
million USD

in

$
(1.18)

in

$
4.49
10400

$
0.31
7.05%
0.87

1.4
7.0
0.8