- Pages: 8
- Word count: 1848
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Coors is a familiar brand name to most beer drinkers or those that indulge in alcoholic beverages. What may not be known in detail are the positive and negatives business trials and tribulations that have been endured by the company. The company dates back to 1873, where two German immigrants partnered to establish the brewery in Golden, Colorado. One notable fact is that Coors, who only invested a ninth ($2000) of what his partner Schueler invested (18000) later bought out his partner; becoming the sole owner of the company (Coors Brewing Company, 2012). Currently, Coors Brewing Company is known for his operation of the Golden, Colorado brewery, which is the largest single brewing facility in the whole world. While Coors is most widely known as a positive economic stimulator, there have been cases of public scrutiny in terms of minority issues.
For example, Coors was part of a minority discrimination lawsuit in 1975, which ended in a settlement with Coors agreeing not to discriminate against blacks, Mexican-Americans, and women (Coors Brewing Company, 2012). The potential investor, Larry Brownlow, is faced with a decision that could change his life forever. Entrepreneurs most be willing to take risk, but those risk most be backed by firm and accurate data. Larry made a decision that he wants to invest in small business endeavors and not those associated with Corporate Giants. The decision to buy-into Coors distribution aligns with his personal business goals; however, Larry has a short-time span to make the final decision.
As part of the South Delaware Case Study, this case analysis will address several major problems that Larry encountered during his decision to submit his application for Coors distributorship. Larry’s first major hurdle is to decide the most efficient and beneficial research to purchase within the parameters of his 15k budget. Along with the initial dilemma comes a second decision or pressure point which involves a short three-day window to provide Manson & Associates Research with a decision in order to provide the company enough time to complete the research prior to the application deadline. The third and most critical problem that exists is the decision to submit the application for Coors distributorship or not to submit the application for Coors distributorship.
Given the above issues, this case analysis will dissect several key areas in order to make a firm, data-based recommendation to Larry Brownlow. The areas that will be analyzed all needed to answer two major questions: Profitability and Return on Investment. In order to access these areas and provide a thorough analysis, the case analysis will provide responses in terms of beer demand in South Delaware, right cost/price, break-even analysis, and a recommendation on the best use of research funds. Successful analysis in the above areas will allow a clear picture into the profitability of the Coors distribution. In order to fully assess these items the case study documented research in terms of the customer, the industry, market share projections, investments, and cost. The three recommendations that resulted from this case study are simple – details will be revealed in the recommendations section. First, is the correct mix of analytical research. Second, is the go/no-go decision on the distributorship. Finally, is the recommendation based on the analytics and the break-even analysis Problem Statement
Although implicitly stated, there are several minor issues that are present in this case study; however, the primary issues is Larry Brownlow’s decision to submit an application for Coor’s distributorship in South Delaware. Larry’s minor issues include selecting the best research mix to sub-contract with Manson & Associates Research, as well as the short time window to make this critical decision. Given the problems that are inhibiting Larry’s ability to make a fact-based decision, the case research will work to unfold the potential profits associated with the business venture, to understand the feasibility Coor’s success in the two county area of South Delaware, and to deem the importance of the proposed data that will be provided by Manson & Associates in order to minimize the cost of research. As part of the analysis for the Delaware case study, Larry will be able to understand the South Delaware market, the pertinent data needed to accurately access the pros and cons of the business venture, the variables needed for profit, and the marketability of the distribution area in question. Analysis and Evaluation
In 2000, the current population of the two counties in South Delaware (Kent and Sussex) was approximately, 229 thousand (based on Table B); of that population 39% of drinking age persons consumes beer. Therefore, the initial target market will be adults, above the age of 21 who currently drink beer; of the total beer consumer population the potential percentage of faithful Coors drinkers range from 12% to 20.5% based on questionnaire data in Table H. While the data shows that the population will continually increase over the next two years, and beer consumption should also increase, these percentages are predicted to increase with the population.
Additionally, having a distribution center in the local area should increase the per capita number of people purchasing beer. Additionally, research shows that the Coors brand is already in 99% of stores in the local area. It is also important to note here that the features that can help to market the product include good taste, upper-class feel, masculinity, and note of healthfulness (if possible in the beer industry – maybe things such as low calorie). If marketed corrected, these items can help to steal some non-Coors beers drinkers and allow them to patron the Coors brand. Lastly, it is important to keep a competitive price point, and market the product as more for less. Industry Demand
For analytical purposes, the case study researcher has taken data from tables provided as part of the research from Manson & Associates Research. Based on data provided in the case appendix, the best approach to determine industry demand is a flip of the coin. This is said because the Delta in the two numbers was nominal given the per capita approach and taxes paid approach. Given the per capital approach (based on 1998 statistics), the consumption demand is 5.9 M gallons for the overall population and 5.8 M gallons for the drinking age population. Using the taxes paid approach (explained by Times 100, 2012) (1998 data); the industry demand is ~5.1 M gallons. The positives aspect of the tax approach is that it shows actual taxes paid; therefore, Larry knows that taxes are only paid on what is sold (these are not estimates). On the other hand, the per capita approach, while not concrete, gives a roadmap or forecast view into future. While I feel that either method is beneficial, I would advise Larry to use the tax method because it documents actuals and not estimates; additionally, he knows that Coors has ~8% of these sales and can break these numbers down into firmer data that the estimated per capita approach. Market Share Projections
Market share projections are critical in determining and estimating the future sales. Although, the data does not need any extraneous calculations – it is straight forward; it is extremely important for sales predictions. As previously discussed in the industry demand portion of the analysis, Table C provides the accurate representation that will allow Larry to dissect the Coor’s portion of the market out of the generalized numbers and forecast. In terms of accuracy Table C can be compared to Table G to get a second opinion on the accuracy of the data. Investments
The key item to note in terms of investment capital is simple; Larry has 400,000 dollars that he can invest in case, additionally, he can get a loan up to 400,000 from local banks. I think it is important that Larry get the loans as he will not have to totally deplete his trust funds as soon as he receives them. Using the data in Table F, Larry can assume ~ 2.2% in profits each year; however, there are a few items that Larry has not taken into account in his initial startup and direct cost that will need to be accounted for. While Table F provides a great overall picture for Larry’s projection, the table is a general table for the entire beer, wine, and liquor industry; thus, accounting for more than just beer. Larry’s total investments vary from those accounted for in Table F, and are higher than the cash and equivalents segment in the table. It is important that Larry use the table as a reference point and ensure he has taken each of the categories into account in his personal business picture for the distributorship. Given my re-calculation of the numbers based on the direct cost, the missed direct cost, and the variable cost in Table F, I estimate that the capital required to be significantly greater than Larry has suggested. See my adjusted capital requirements for reference: Fixed CostAnnual Cost
Interest rate 20000
Advertising /Marketing 40000
Accounts Receivables at 30 days65000
Utilities and Telephone12000
Personal Property Taxes10000
Maintenance and Janitorial5600
Total Capital Required687000
Given the revision of capital requirements as calculated above, the direct cost will increase dramatically. As stated in the initial case, the cost are 160k and 90k, totaling 250k; however, given the items that were inadvertently not accounted for, the new direct cost are ~687k. In order to get a valid estimate of the variable cost, I used Tables F and I; Table F shows that the cost of goods are estimated at 77% for the industry, while Table I allows me the data to calculate the average cost of a six pack to be $3.16 (which equates to $5.60 a gallon), and the averages of that rate with the keg rate (as detailed below). (Calculation method according to Entrepreneur, 2002) Cost Breakdown Table to Understand Go/No-Go Decision
Sales Price per Gallon:
Cost of Goods Sold = 77.1% of sales
Average wholesale price/gallon = 3.16
3.16 * 1.771 = 5.59 wholesale price/gallon (bottles)
5.59 * .45 = 2.52 wholesale price/gallon (kegs)
Average wholesale price/gallon = (.75)(5.59) + (.25)(2.52)
Average wholesale price/gallon = 4.82
VC = (5.59)(.771) = 4.31 (bottles)
VC = (5.59)(.771)(.45) = 1.94 (kegs)
Average variable costs = (.75)(4.31) + (.25)(1.94) * (1.04) = 3.87 Break-Even Analysis:
BE Volume = 687,000/ (4.82 – 3.87)
BE Volume = 723,157 gallons
Conclusion & Recommendation
It is my recommendation that Larry Brownlow should submit the application for the distributorship; this will allow him to achieve his career entrepreneurial goals with a low potential of failure and high potential for success. My response to the minor problem is as follows: Larry should purchase studies A, B, C, F, and I to allow him adequate data to make his decision. The other studies are not needed to make the decision for distributorship this data will cost Larry ~6,500 dollars – which is under budget.
Coors Brewing Company. (2012). Retrieved from http://en.wikipedia.org/wiki/ Coors_Brewing_Company
Entrepreneur. (2002). How to Calculate Your Breakeven Point. Retrieved from http://www.entrepreneur.com/article/52102
The Times 100. (2012). Fixed, variable costs and break-even. Retrieved from http://businesscasestudies.co.uk/business-theory/finance/fixed-variable-costs-and- break-even.html#axzz2JfzJFHcv