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South Delaware Coors, Inc., Case Analysis Essay

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2086
Executive Summary

Larry Brownlow, soon to be completing his MBA, heard that Coors

would be expanding in two counties of South Delaware. Coors currently
does not have any distribution hubs in this or the surrounding areas.
Consumers in the area know the Coors brand and see the product as a
good tasting and quality product. The consumer interest in the Coors
product is high and will provide the demand for the product. Larry has
always believed that the best business opportunities and rewards are
in smaller owner operated businesses and is interested in the
Subject: opportunity to invest in one of the Coors distributorships in South
War
Delaware. Larry has $500,000.00 in a trust that will become available in
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Law a few months. Larry is very busy completing his MBA and with his
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investment opportunity so he enlisted the help of Manson and
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Manson and Associates is based in Wilmington, Delaware and conduct

general research; they have conducted other feasibility studies in the
South Atlantic region of the country. They are best known for their
computer modeling and simulations and they deliver quality work to
their customers. Larry has $15,000.00 available to spend on feasibility
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Larry will have to decide which research items provide him with the $13.90/page
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 right information. The research information will provide Larry with the
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proper data to decide whether or not he should invest in the Coors 
opportunity.
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Problem Statement

Larry Brownlow has been given the opportunity to invest in a new

Coors distributorship expansion in South Delaware. In this case there
exists two problems that Larry Brownlow must address. The first
problem identified in this case is Larry’s limited research budget of
$15,000.00. Larry’s research budget is not enough to cover all of the
research provided by Manson and Associates. Larry must decide what
research will be most beneficial to him for his decision of whether or
not to invest in the Coors distributorship opportunity. The second
problem is Larry must make a decision on whether or not to invest in
the business opportunity of starting a Coors distributorship.

Analysis and Evaluation

Since Larry has a limited research budget of $15,000.00. It is critical that

he selects the research that will assist him the most in his decision to
invest in the Coors opportunity. The required information to make a
well-informed decision will be comprised of the following components:
Industry demand, projected market share, consumer acceptance of
Coors, required investments, product pricing, costs, and potential
profits.

Industry Demand

To determine the demand on the beer industry the information from

Studies A & B is required to perform a per capita analysis. The cost for
these two studies is $2,500.00. The over age 21 population, in
Delaware, will be considered for both a per capita consumption along
with populations in both Kent and Sussex counties. The demand is
computed by multiplying gallons of per capita beer consumption by the
population in Kent and Sussex counties. For example, the demand for
the year 2000 would be: 39.4 gallons per capita x (75,200 + 85,300) =
6.324 million gallons of beer. In analyzing the data for Studies A & B the
data has a continuing growth trend so the demand should increase
year over year as well. The industry demand can also be computed by
using a tax-based approach.

The data from Study E, which costs $200.00, will be required to perform
this analysis. Study E only provides tax information for 1997 and 1998
so the tax will have to be projected forward to 2000. The tax increase
between 1997 and 1998 is 6.3%. Table 1 shows what the projected
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The Beer taxes are based on a volume sold basis and are taxed at $0.06$13.90/page
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per gallon. To determine the demand the taxes paid by each
 wholesaler in the year 2000 should be divided by $0.06 to determine
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how many gallons each wholesaler sold. Table 2 shows the number of 
gallons sold by each wholesaler and the total number of gallons sold by
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all wholesalers combined. The demand as computed by the tax-based
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approach is 5.758 million gallons of beer.

Now there are two demand calculations so one needs to be selected

for Larry and his decision. The best demand calculation is the tax-based
approach. The tax-based approach is better because it is determined
from the taxes that have been paid by wholesalers in the direct market
area so it more accurately reflects the demand in this market area.
Both of these demand estimates have some degree of error so
potentially a better demand forecast could be used, however, despite
many attempts at demand determination for beer it is difficult to
understand the nature of the demand generation (Fogarty, 2010). The
per capita approach is based upon the broader population of
Delaware.

Projected Market Share

To determine the projected market share you need the industry

demand calculations and the data from Study C, which costs $2,000.00.
The market share data shows a very stable 8.8% market share. The
projected market share for Larry and his distributorship would be
6.3237 million gallons of beer multiplied by 8.8%, which equals 556,486
gallons of beer using the per capita demand calculations. Using the tax-
based demand calculations the projected market share is 506,733
gallons of beer. The data provided by Manson and Associates could be
evaluated and their computer models improved. Wilcox (2001)
computed the market share of all major US beer suppliers. The market
share for Coors is ~13%. Manson and Associate’s models could be
improved by periodically reviewing the model output with industry
trends and historical industry data. To this point Larry has spent $4,700
of his $15,000 research budget.

Customer Analysis

Customer acceptance is of vital importance for Larry’s success. The

data on public perceptions of the Coors brand and what people have to
say about the Coors product, this requires that Study G be performed
at a cost of $6,000 leaving $4,300 in the research budget. According to
Mosher (2012) the beer industry has been growing steadily especially in
the youth market; older patrons tend to be more drawn to spirits. With
this data Larry may want to target the majority of his advertising to the
younger (21 and over) demographic. Larry should not totally ignore the
older demographic, however, and should also apply some advertising
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Investments
 Larry estimated what his initial investments would be for the Coors
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opportunity and that investment would need to be $800,000, but he left 
out cash and accounts receivables. Data from Study F is required to
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estimate these line items. The costs the Larry did estimate account for
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74.1% of assets in Study F. A revised investment estimate can be found
in Exhibit 1. The total investment required is calculated by:
$800,000/0.741 = $1,079,622. The total investment is then multiplied by
11.1% for cash determination and 14.8% for accounts receivable
determination. Cash = $1,079,622 x .111 = $119,838. Accounts
receivable = $1,079,622 x 0.148 = $159,784.

In order to provide for this investment Larry has the opportunity for a
$400,000 loan from a bank as well as a $400,000 loan from family and
friends. Larry should leverage both of these loan options as well as
withdrawing $279,622 from his $500,000 trust. The data provided by
Study F may not be entirely valid for this market area. It is not clear
what regions the 510 wholesalers conduct business. If this information
is all based upon Midwest wholesalers the investment numbers for
Larry could be even higher.

Product Pricing

Product pricing will be on a gallon basis. The average wholesale price

per gallon for both bottles/cans and kegs needs to be determined. To
compute the wholesale gallon prices data from Study I, at a cost of
$2,000, will be required. The average wholesale price for six-packs of
bottles/cans is ($3.29+$3.29+$3.29+$2.57+$3.29+$2.68+$3.68)/7 =
$3.16 per-six pack. The wholesale gallon price for bottles/can can be
determined by multiplying $3.16 (wholesale six-pack price) by 1.77
(multiplier for wholesale gallon cost), which yields: $5.59 as the
wholesale per gallon price for bottles/cans. The wholesale per gallon
price needs to be determined for kegs.

The data in the case indicates that kegs are 45% of the wholesale price
of bottles/cans so the wholesale per gallon price for kegs is =
$5.59×0.45 = $2.52 per gallon. The overall average wholesale price per
gallon takes into account that bottles/cans sells at a three to one ratio
over kegs. Therefore, the overall average wholesale price per gallon is
(0.75 x $5.59) + (0.25 x $2.52) = $4.82 per gallon wholesale. Larry should
price his six-packs at least $3.16 each and for each keg, which contains
15.5 gallons, the wholesale price should be at least $39.09. With
information from Study I Larry should be able to price his six-packs
slightly higher than the minimum of $3.16.

Costs

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interest payments, advertising, and travel. The data from Study F, which
 costs $49.50, will be required to assist in determining Larry’s fixed
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costs. After all research Larry has $2,250.50 remaining in his research 
budget. Exhibit 2 provides a revised fixed costs estimate. The loan
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repayment is broken into two line items. The first is the $400,000 line of
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credit from the bank with a 15-year term at 7% interest rate. The
second is a loan from family and friends of $400,000 with at 15-year
term at 5% interest rate. Advertising budget is 1% of the net sales from
the projected market share, average gallon price, and demand
calculations. (506,733 gallons x $4.82 per gallon) x 0.01 = ~$24,000.

This advertising budget is higher than what other wholesalers are

currently spending but in order to let that customers and retailers
know Larry is ready for business some advertising needs to be done.
Travel has been entered at $10,000 annual expenditure. There will be
quarterly visits for Larry to Coors’ headquarters. These trips will include
airfare, lodging, and rental car. Variable costs need to be determined.
The variable costs incorporated here will be cost of goods sold (COGS)
and incentive compensation. From Study F the COGS for the beer
wholesale industry are 77.1%. Exhibit 3 shows the table for estimated
variable cost. The total COGS = $4.82(.771) + 4.82(0.03) = $3.86 per
gallon that includes the $0.06 per gallon beer tax.

Profits

Break-even volume and dollar analysis can be calculated. Break-even

volume = (total fixed costs)/(unit gallon selling price – unit gallon
variable costs). Placing the data into the equation yields break-even
volume = 364,400/($4.82-$3.86) = 379,583 gallons is the break-even
volume that Larry needs to achieve. The break-even dollar volume is
379,583 x $4.82 = ~$1.83 million dollars. Once the break-even volume is
achieved Larry would be making profit for his business since all costs
should be paid for in the given year. This should be easily achieved due
to the expected market share of 506,733 gallons.

The break-even volume is at 75% of his overall estimated market share

and by achieving this market share Larry will have a profit determined
by (506,733 gallons – 379,583 gallons x $4.82/gallon) = $612,863 for the
year and with the data from Study F the average wholesaler gross profit
is 22.9%. In dollars the average wholesaler gross profit is: 506,733
gallons x $4.82 x 0.229 = $559,321 on this level of sales. Larry would be
on the high end of the gross profits as compared to his competitors.
His gross profit percentage of net sales is $612,863/(506,733 x $4.82) =
25.1% which is 2.2% greater than the average gross profit for
wholesalers in this market area. Larry’s net profit, before taxes, would
be (506,733 x $4.82 x 0.022) = $53,734.

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 To help visually see the pros and cons a Strengths, Weaknesses,
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Opportunities, and Threats (SWOT) analysis is provided in Exhibit 4. 
SWOT is a method of identifying and structuring relevant data in order
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to facilitate the decision making process (Kerin & Petersen, 2013). After
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analyzing the data and the calculations Larry should invest in the Coors
opportunity. Larry, in his first year of business will result in a nice profit
and with his larger than average advertising budget he has the
opportunity to grow his market share to 13% or better per Wilcox
(2001) and his beer industry market share research. 81.2% of
consumers in the market area will try the Coors brand so the market
demand is good.

References
Coors, A. (2000, January 1). Molson Coors Corporate Website. Retrieved
January 22, 2013, from Molson Coors Investor Relations:
http://phx.corporate-ir.net/phoenix.zhtml?c=101929&p=irol-
reportsannual Fogarty, J. (2010). The demand for beer, wine, and spirits:
A survey of the literature. Journal of Economic Surveys , 24 (3), 428-478.
Kerin, R. A., & Petersen, R. A. (2013). Strategic marketing problems:
Cases and comments (13th ed.). Boston, MA, USA: Pearson. Mosher, J.
F. (2012). Joe camel in a bottle: Diageo, the Smirnoff brand, and the
transformation of the youth alcohol market. American Journal of Public
Health , 102 (1), 56-63. Wilcox, G. B. (2001). Beer brand advertising and
market share in the United States: 1977 to 1998. International Journal
of Advertising (20), 149-168.

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