South Delaware Coors – Case Study 1 Question 1: What research should be conducted by Manson and Associates to allow Larry Brownlow to estimate the feasibility of a Coors beer distributorship in Delaware and why? Question 2: Would you recommend a go/ no go decision by Brownlow regarding his application and why/why not? A. Strategic issues and problems Larry Brownlow is considering whether or not to apply for the distributorship of Coors in South Delaware. Coors started as a small brewery back in 1873 and has since grown to become the 4th largest seller of beers in the country.
Coors focuses on high quality beer which is well known both to its suppliers and to its consuming public. Larry Brownlow is 29-year old and just completing his MBA studies, he also has $500,000 held in trust to be dispersed when he reaches 30 years. So the timing is very good for Larry and he is also keen to start his own business. Larry has contacted Manson and Associates who carries our feasibility studies and general research. They have put together a formal research proposal (Exhibit 1 on pages 130 and 131).
The hard choice is now for Larry to decide what research should be conducted by Manson and Associates to allow him to estimate the feasibility of a Coors beer distributorship in Delaware. Secondly, this case study will lead to the decision whether or not to apply for the distributorship. B. Analysis and evaluation I have recommended Larry Brownlow to purchase all the studies except Study G, Consumer Study. Study G is very expensive at $ 6,000 and would not allow us to purchase other very relevant information on the market size and retailer study.
It is also expected that a general view towards Coors beer from the consumers will be reflected in the view and intention to stock and sell Coors beer by the retailers. Purchasing all studies except G gives Larry total expenses of $ 12,549. 50 which is well within his budget of $15,000 for feasibility research and should provide him with sufficient information to carry out a break-even analysis and get a good overview of the market size and potential. With the information and research at hand the following calculations has been carried out:
Wholesale price per gallon for beers has been calculated on the basis of Study I and H. From Study H we learned that Coors beer is more expensive than the Miller, Miller Lite and Budweiser. From Study I we learned that Miller, Miller Lite and Budweiser is priced at US$ 3. 29 per 6-pack and the somewhat more expensive beer Michelob is priced at US$ 3. 68 per 6-pack. Figure 1 from Study H. Extremely Very Somewhat Somewhat Very Extremely________ CheapI M L B C Expensive Key: Coors=C Ideal=I Miller =M Miller Lite =L Budweiser=B
Figure 2 from Study I. Wholesale (a)Retail (b) Six-Pack PriceSix-Pack Price Beer(dollars)(dollars) Budweiser3. 293. 49 Miller Lite3. 293. 49 Miller3. 293. 49 Busch2. 572. 73 Bud Light3. 293. 49 Old Milwaukee2. 682. 85 Michelob3. 683. 91 It is therefore assumed that Coors beer will also be selling at US$ 3. 68 per 6-pack or US$ 6. 50 per gallon (3. 68×1. 77). According to the two wholesalers that Larry interviewed, beer in bottles and cans outsold keg beer by a three-to-one margin. Keg beer prices at wholesale level were about 45% of prices of beer in bottles and cans.
Weight is therefore set at 3 for bottle and cans and 1 for kegs in the calculations above. Wholesale price for kegs is calculated to US$ 2. 93 per gallon (6. 50×45%). To find the Wholesale cost prices per gallon we have looked at Study F. Here we find that Cost of sales is 77. 1% of the Net sales value. I have therefore used 77% as Cost of goods sold (COGS). Calculations for cost prices for bottles and cans equals US$ 5. 00 (6. 50×77%) and for kegs US$ 2. 26 (2. 93×77%). The Break-even analysis shows that Larry most sell 216,635 gallons of beer to break-even or gain what is equal to a market share of 2. %. With a forecasted market share for Coors beer of 8. 7% the break-even target looks very promising. In the Pro forma income statements below several values have been assumed for the pessimistic option: •Market size of 6,361,200 gallons (Optimistic market size x 0. 8). •Market growth: 3. 5% (based on the lowest growth year in Study X). •Weighted price per gallon US$ 5. 02 (based on selling at the lower prices of Miller, Miller Lite & Budweiser). •Fixed cost per year assumed to be 20% higher than in the optimistic option. •Estimated firm market share assumed to be 7. 0% per year. C. Recommendations
The previous analysis indicates a positive case for Larry Brownlow. Both the optimistic and the pessimistic options show that Larry will be making a good investment. First year income after tax shows US$ 410,445 in the optimistic option and US$ 120,684 in the pessimistic option. The market share break-even of 2. 7% against a forecasted 8. 7% is also a very comfortable margin to base the investment on and the timing of Larry’s trust and MBA graduation all adds to the overall positive view. It is therefore my recommendation that Larry sends his application for the Coors distributorship in South Delaware.