Delaware Coors Case

The purpose of this analysis is to evaluate the potential profitability and market share of the Coors brand upon its implementation into the state of Delaware. By using the data collected by Manson and Associates, our team was able to identify an optimal selling price, total fixed costs, estimated variable costs, the breakeven point in units and dollars, breakeven market share, as well as an overall profitability analysis for 6-pack sales as well as keg sales. Manson & Associates Research With the $15,000 Mr.

Brownlow allocated to feasibility research, the following studies were used during the analysis: •Table A: National and Delaware Resident Consumption Per Capita, 1998-2002 oHelped identify market by providing information regarding consumption demographics. •Table B: Population Estimates for 1996-2006 for two Delaware Counties in Market Area oProvided a combination of population estimates which allowed an efficient estimate of market share.

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•Table C: Coors Market Share Estimates for 2000-2005 Provided estimates for market share which aided in breakeven analysis. •Table F: Financial Statement Summary for 510 Wholesalers of Wine, Liquor, and Beer in Fiscal Year 1999 oThis study provided data for variable costs per net sales. •Table H: Retailer Questionnaire Results oProvided estimates of market share for competitors as well as attitudes towards brand and intent to sell. •Table I: Retail and Wholesale Prices for Selected Beers in the Market Area oGave information on average wholesale prices which determined prices used to analyze the profitability.

Analysis The calculations began with developing an understanding of the potential market the Coors distributors could realize based upon the population of people over the age of 21 in the two distribution counties while taking into consideration the average consumption of beer. As shown in Exhibit 1, the total market for these two counties was 6.

3 million gallons. The estimated Coors market share for those two counties is 8. 9%; therefore, the total Coors market is about 560,000, shown in Exhibit 2. Knowing this data, and aving information about competitors market share, simple calculations showed the market share in gallons for each competitor, keeping in mind that the Bud Light brand and Budweiser brand were grouped together under the Budweiser Co. This is the same for Miller and Miller Light. Budweiser Co.

had the largest market share at 34. 8% followed by Miller Co. at 20. 6%. Busch was below our expected market share at 6.

4%, meaning Coors is in a similar position as Busch. This information is shown in Exhibit 3.

After analyzing the market size and having a better understanding of the competition, the next step was to decide if it would be profitable to become the distributor for Coors. In order to begin the analysis, selling price must be determined. To find selling price the team looked at the average 6-pack price wholesalers were selling to retailers, which ended up being $3.

16, the prices used for the average were found in Table I. To determine the most feasible price for Coors to sell to retailers, analysis was performed on the average price of $3. 6 as well as 5% below the average ($3. 00) and 5% above the average ($3. 31). Price per keg was determined using the information gathered from discussions with wholesalers.

They said keg prices were 45% of 6-pack price per gallon (which is 177% more than the wholesaler price), making the average keg price per gallon $2. 51. Since there are 15. 5 gallons in a keg, the average keg price is $38. 96.

Using the same idea as the 6-packs, financial analysis was performed on the average as well as 5% below average ($37. 01) and 5% above average ($40. 91).

Variable costs were found using industry information mentioned in Table F, which stated that cost of goods sold was roughly 77. 1% of net sales.

Net sales were calculated by multiplying each price by the total Coors market share of about 560,000 mentioned above. The total net sales can be found in Exhibit 8. This calculation provided variable costs in gallons, which was required to be broken down into variable cost per gallon and variable cost per 6-pack and keg. The variable cost per 6-pack was determined by finding how many gallons are in a 6-pack (0. 63) and multiplying that price by the price per gallon.

The same is true for keg variable costs. This data is also shown in Exhibit 8. After finding the variable costs, the next step was to determine unit contribution margin for each selling price per product. As shown in Exhibit 9, the highest unit contribution margin was the premium selling price for both 6-packs and kegs. With knowledge of estimated variable costs and selling price, the next portion of the analysis was to project gross sales, as shown in Exhibit 10.

In order to do this, the price per gallon for 6-packs was needed as well as the price per gallon for keg beer. By using the estimated market share and the knowledge that 6-packs outsold keg beer by a three-to-one ratio. This determined total gross sales which were then used to estimate gross profit. Gross profit was found by subtracting fixed and variable costs from total gross sales, as shown in Exhibit 11. This showed that the premium price generated more gross profit than the alternatives.

Finally, a multiproduct breakeven analysis was performed using the different prices.

The multiproduct analysis uses a weighted average depending upon the sales mix. In this case, the sales mix was a three-to-one ratio. As Exhibit 12 shows, the lowest unit breakeven occurred when using premium prices. With this information, the team wanted to know the breakeven market share.

In order to do this, the breakeven units must be converted from 6-packs and kegs into a combined per gallon unit. This conversion is shown in Exhibit 5 where gallons per unit are found by taking the gallons per 6-pack multiplied by three plus the gallons per keg multiplied by one and averaged.

Using gallons per unit, breakeven market share was found to be lower than the estimated market share by nearly half. The full analysis is shown in Exhibit 12. Recommendations: Based on the analysis, we recommend that Mr.

Brownlow should pursue the opportunity to be the distributor for Coors in the selected Delaware counties. Based upon the projected sales compared to the breakeven analysis, the opportunity seems sound if the selling price to retailers is set at $3. 31 per 6-pack and $40. 91 per keg.

These prices indicate a premium price that was also depicted in the retailer attribute beliefs of the brand, located in Table H – Semantic Differential Scale. This showed that most retailers will certainly purchase Coors given that it is perceived to be a higher priced product.

We believe that Coors will be able to meet the 8. 9% projected market share, doubling the breakeven market share, thus providing a gross profit for the first year of $348,000 (Exhibit 11).

While this is profitable for the first year, it is also important to take nto consideration the growth in consumption per capita expressed in Table A and the decline in expected market share shown in Table C. The expected change from 2000 to 2002 in market share, population, and consumption results in a $72,489 estimated increase in gross profit. This is found by substituting the variables mentioned above, with the estimates for 2002 provided by Table A and Table B. With the above information taken into consideration, it is strongly recommended that Mr.

Brownlow pursue this opportunity.