The light beer market – popular with younger drinkers – has also been growing at a CAGR of 4%. Although MMBC has been historically weak in the 35-years-and-under segment, there is opportunity to generate more sales by releasing a new Mountain Man Light Beer (MML) line to target this younger market. However, there is the risk of negatively impacting their current distribution of MMB through shelf-space cannibalization and higher costs; as well as the risk of alienating their core segment of older, blue-collar drinkers. . Analysis MMBC faces potentially losing more revenue at the current forecasted compound annual decrease rate of 2% – the projected decrease for MMB standalone in year-to-year net revenue from actual 520,000 barrels sold in 2005 (USD 50. 4 m) to 470,039 barrels (approximately USD 45. 6 m) by 2010 totals nearly 10% (see Exhibit 1). According to the key age demographics among beer drinkers, MMB’s customer segmentation is currently as follows: 64% for 45 years and up, and only 17% for 35 years and under.
Yet the ECR breakdown for consumption by beer type is the opposite: 50. 4% for light and only 19. 7% for premium. Due to the overwhelming potential in the light beer market, we have prepared projections on growth in revenues and expenses for MMBC should they decide to move forward with brewing Mountain Man Light (see Exhibit 2A, 2B). * Making Mountain Man Lighter (and More Profitable) Considerations have been made regarding MMB remaining as a stand-alone product (again, see Exhibit 1).
However, per the Client’s instructions, this report will focus on projected performance examining MMBC’s entry into the light beer market at their expected MMB reduction rate of 20%. According to our analysis, MML would still result in a significant increase in revenue within two years: With the new product mix, net income margin increases from an insignificant 0. 88% in MML’s first year to a robust 3. 7% by its second year (2007), even with considerations on the additional expenses that would go into launching a new product – manufacturing, advertising, general operating (see Exhibit 2A). Additionally, the projected MMB+MML sales volume after only two years would nearly match MMBC’s current volume level – 500,895 barrels to 520,000 – and would eventually overtake the 2005 figure in 2008; while standalone figures show a continuous decrease from the 2005 benchmark and eventually fall behind MML sales by 2011 (Exhibit 3). * Issues to Consider The forecast for MMB +MML sales are promising.
However, JAFREM must note significant issues to consider with the presented data: 1) Due to limited sales volume for the first six years, impact on COGS has not been taken into consideration; should the current production capacity levels be exceeded, additional inputs regarding CAPEX (for example, for new plants) will be necessary. 2) With the forecasted MML growth rate, the Client’s market share in the ERC amounts to 1. 5% after five years; MMB has not achieved this level after more than 50 years in the business and so considerations on the MMB reduction rate have also been provided (Exhibit 2B). 4. Recommendations
Light beer is an attractive proposition for MMBC, especially with the decrease in the premium beer segment. Accordingly, ignoring the dynamic growth in the light segment is simply too much of an opportunity to let pass. In order to reduce the risks that come with launching MML (alienating core customers, promoting a failed product), we recommends the following measures: * To avoid losing brand equity at the consumer level for MMB, pilot the MML launch outside West Virginia, as this is MMBC’s strongest and most loyal market; should the testing prove successful, then consideration can be made on moving into West Virginia. Should the MML growth forecast not be realized after two years, return focus to MMB distribution at a national level; while advertising and sales at the grass roots level has been good for MMBC, there has been no attempt to reach a larger marketing through the traditional channel of television media. * Despite the expected decrease in the premium beer market, MMB still has potential to capture more market share by expanding its advertising activities and consumer base outside the ERC.