South Delaware Coors - Company Analysis PDF

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Company Analysis...

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Lisa D. Neumeyer Ldn0051

Individual Case Report for:

South Delaware Coors

MKTG 5150.077 Marketing Management Fall 2019

Attached is my report for the South Delaware Coors case. Included are five tables which provide supporting data for all recommendations.

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The Problem Larry Brownlow faces the following problems in regard to South Delaware Coors Distributorship:  

What research is necessary for Mr Brownlow to make a decision to pursue the Delaware Distributorship? Does the South Delaware Coors distributorship offer sufficient investment potential given Mr. Brownlow’s current business and personal situation?

Recommendation(s) Mr Brownlow should move forward with the application for distributorship in South Delaware. Based on the financial tables listed below, the distributorship could have a return on investment of up to $869,476 as best case or $243,545 as worst case in its first year. Mr Brownlow’s inheritance of $500,000 plus other committed loans would cover the initial investment required. The necessary studies from Manson & Associates required to complete an analysis of the Coors Distributorship include Study A, B, C, E, F, G, and I.

Profit Potential Market Potential. Study A and B provided the consumption of beer for Delaware and Kent / Sussex County. This data was divided into consumption for all population vs population over 21. The relevant data for analyzing the Coors Market and Sales potential was only based on the Over 21 Population. Market potential is the maximum (best case) sales in dollars and units for all Beer Distributors serving beer in the two Delaware Counties. The Market potential represented in Table 1 shows Coors market potential at 6,323,700 gallons of beer. This value was calculated by multiplying the Over 21 population in Kent and Sussex by the average gallons of beer drank. Study E also provided data to calculate Market Potential. Market Potential based on Total Tax Paid by Wholesalers divided by the .06 tax rate per Gallon. The estimation based on Taxes (study E) resulted in a 1.2 million gallons less sold than population basis total gallons (Study A & B). Sales Potential. Sales potential in Table 1 is the best case specifically for a Coors Distributorship sales in Kent and Sussex. Study C showed that market share forecasted for 2000 to be 8.9%, but declining through 2005. As with Market Potential, Study A and B compared to Study E could calculate the Sales Potential. Sales Potential in Dollars based on Kent Sussex Population over 21 was over $2.7 million vs $2.1 million. Study E, though based on historical data from Wholesalers is a limited view of the market. For additional calculations results from Population will be used. Fixed and Variable Costs. The variable costs for operating a Coors Distributorship is the cost of the beer from Coors. Fixed Costs and Investment costs were estimated by Mr Brownlow already at $250,000 and $800,000. Table 3. These numbers represent a based case scenario for Costs. An alternative view on higher costs is represented in the Proforma Income statement. Price Projections and Contribution Projections. Study I from Manson & Associates provides the needed data to estimates pricing information. The average Wholesale Six Pack Price is 3.16 among the 7 competing brands. Multiplied by 1.77 returns the gallon price of 5.59. A 70% COGS was used to estimate a cost of 3.91. Study As stated in the case study F, COGS for a wholesaler for Beer, Wine and Liquor was at 77.1%. Since this was for all alcohol and

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Coors would just distribute beer, it is assumed a lower COGS due to focused product sales. Beer outsells Kegs at a 3:1 ratio. Using the weighted average of .75 and .25 the weighted price of $4.82 and weighted cost of $3.71. This results in a contribution of $1.10 per gallon. (Table 2) Investment Costs. Initial Investment Costs are estimated to be $800,000. (Table 3) This estimate is based on the research Mr. Brownlow captured by interviewing Anheuser-Busch and Miller Distributors. Mr. Brownlow will have $500,000 from his trust, as well as $400,000 from other sources. He also has an open line of credit at a bank for another $400,000. This should cover his expected Investment Costs. Break Even Analysis. Based on the Break-Even analysis in Table 4, the total breakeven in gallons of beer and dollar volume is 227,273 gallons and $1,095,456 respectively. The Market Share break even is 3.56%. Given Coors market forecast for 2000-2005 is averaged to be 8.7%, it is feasible for Mr. Brownlow to meet the breakeven market share, and even exceed it for a profit. Proforma Income Statements in Table 5 compare an optimistic and pessimistic view of the Coors Distribution for a 3 year period. The Optimistic view used the cost estimated by Mr. Brownlow already. The pessimistic view estimated a 10% increase in costs. Sales in the Optimistic view are based on the 6,323,700 gallons calculated in Table 1. The pessimistic view of 5,100,000 gallons for Sales is based on Market Sales using Tax Data. Both views showed a profit, even estimating a decline in market share over the next three years. Even if Coors market share was to decrease over the next three years, Mr. Brownlow could try to streamline costs as to offset increases. Market and Competitive Environments Other considerations with respect to the market and competitive environments in determining a decision on Mr. Brownlow perusing a Coors Distributorship. Experience in Business Ownership. Mr. Brownlow, though educated with an MBA, has not operated a business of his own. This is a new endeavor will result in growing pains of starting a business. When estimating profit potential Mr. Brownlow should consider a conservative approach for calculations. Consumer Brand Perception. The Coors Brand may be negatively seen by consumers who hold pro-union beliefs. In the past Coors has had to deal with labor disagreements and currently uses nonunion labor force. Other setbacks to the brand include insensitivities to minorities with respect to distribution and employment. As more than a third of the consumers polled (Table G) notes Brand Name as important when buying beer. Brand Loyalty could be a challenge for Mr. Brownlow’s sales. However, the same poll showed that 70% of Consumers said they would be open to trying Coors, and 62% had already tried Coors.

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Table 1: Market and Sales Potential Prospective Buyers 1 Average Consumption per Buyer in Gallons 2 Average Wholesale Price Per Gallon 3 Market Potential in Gallons Market Potential in Dollars Sales Potential in Gallons Sales Potential in Dollars 1

160,500 39.4 $4.82 Study A&B Study E 6,323,700 4 5,100,000 8 $30,480,234 5 $24,582,000 9 6 562,810 453,900 10 7 $2,712,744 $2,187,798 11

75,300+85,300 = 160,500 (Table B, Yr 2000) Population Age 21 and Over Table A Year 2000 Resident Consumption per Capita 3 Weighted Average of Wholesale Price Per Gallon (See Table 2) 4 160,500 x 39.4 (Prospective Buyers x Avg Delaware Consumption) = 6,323,700 Gallons 5 6,323,700 (Market Potential Gallons) x $4.82 (Avg Wholesale Price Per Gallon) = 30,480,234 6 6,323,700 (Market Potential Gallons) x .089 (Coors Market Share, Table C) = 562,810 7 562,810 (Sales Potential Gallons) x $4.82 (Avg Wholesale Price Per Gallon) = $2,712,744 8 $306,000 (Total Wholesale Tax) / .06 (Delaware Tax Rate) = 5,100,000 Gallons 9 5,100,000 (Market Potential in Gallons) x $4.82 (Avg Price per Gallon) = $24,582,000 10 5,100,000 (Market Potential Gallons) x 8.9% (Yr 2000 Market Share) = 453,900 Gallons 11 453,900 (Sales Potential Gallons) x $4.82 (Avg Wholesale Price Per Gallon) = $2,187,798 2

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Table 2: Weighted Average of Wholesales Price per Gallon Beer

Weight

Wholesale Cost

Wholesale Price

Contribution

Bottles and Cans

75%

$3.91

$5.59

$1.68

Kegs

25%

$1.94

$2.52

$.58

Weighted Avg

$3.71

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$4.82

Wholesale Cost Cans: Table I Average Wholesale Price: $3.91 / .70 (Case % for Cost) = 5.5857 3 Avg Weighted Wholesale Cost: (3.91*.75) + (1.94 *.25) = 3.71 4 Keg Wholesale Price: 5.59*.45 (% listed in Case Study) = $2.5155 5 Weighted Avg Contribution: $4.82 - $3.72 = $1.10 2

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$1.10

Table 3: Fixed and Investment Costs Fixed Costs Salaries Equipment Depreciation Warehouse Depreciation Utilities and Telephone Insurance Maintenance Property Taxes Miscellaneous Total Fixed Cost Initial Setup Costs Inventory Equipment Delivery Trucks Forklift Recycling and Misc Office Equipment Total Equipment Warehouse Land Total Investment

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$160,000 $ 35,000 $ 15,000 $ 12,000 $ 10,000 $ 5,600 $ 10,000 $ 2,400 $ 250,000

$ 240,000 $ 150,000 $ 20,000 $ 10,000 $ 20,000 $ 200,000 $ 320,000 $ 40,000 $ 800,000

Table 4: Break Even Analysis Fixed Costs Salaries Equipment Depreciation Warehouse Depreciation Utilities and Telephone Property Tax Insurance Maintenance Miscellaneous Total Fixed Cost Unit Break-Even Volume1 Dollar Break-Even Volume 2 Market Share Break-Even 3 1

$160,000 $ 35,000 $ 15,000 $ 12,000 $10,000 $ 10,000 $ 5,600 $ 2,400 $ 250,000 227,273 $1,095,456 3.56%

$250,000 / ($4.82-$3.72) = 227,272.727 227,273 * $4.82 = $1,095,455.86 3 227,273 / (39.4 x 160,500) = .03594 2

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Variable Cost / Contribution Product Variable Cost / Gallon Cans $ 4.91 Keg $ 1.94 Average $ 3.72

Can Keg Average

Contribution / Gallon $1.28 $.58 $ 1.10

Table 5: Proforma Income Statement (Projection of next 3 years)

OPTIMISTIC PROJECTIONS: PROFORMA INCOME STATEMENT SOUTH DELAWARE COORS, INC PROFORMA INCOME STATEMENT YEAR 1

YEAR 2

YEAR 3

$2,814,047

$2,752,185

$2,753,561

1,266,321

1,238,483

1,239,102

$1,547,726

$1,513,702

$1,514,459

$160,000

$164,800

$169,744

Depreciation

50,000

$51,500

$53,045

Utilities & Tel

12,000

$12,360

$12,731

Sales Cost Of Goods Sold Gross Profit Operating Expenses: Salaries

Insurance

10,000

$10,300

$10,609

Property Taxes

10,000

$10,300

$10,609

5,600

$5,768

$5,941

Maintenance Miscellaneous Total Operating Exp. Net Income From Operations Estimated Income Taxes Net Income After Tax

2,400

$2,472

$2,546

$250,000 $1,297,726

$257,500 $1,256,202

$265,225 $1,249,234

428,249

414,547

412,247

$869,476

$841,655

$836,986

PESSIMISTIC PROJECTIONS: PROFORMA INCOME STATEMENT SOUTH DELAWARE COORS, INC PROFORMA INCOME STATEMENT YEAR 1

YEAR 2

YEAR 3

$1,377,000

$1,377,689

$1,378,377

Cost Of Goods Sold

688,500

688,844

689,189

Gross Profit

688,500

688,844

689,189

208,000

214,240

220,667

Depreciation

65,000

66,950

68,959

Utilities & Tel

15,600

16,068

16,550

Insurance

13,000

13,390

13,792

Property Taxes

13,000

13,390

13,792

7,280

7,498

7,723

Sales

Operating Expenses: Salaries

Maintenance

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Miscellaneous

3,120

3,214

3,310

Total Operating Exp.

325,000

334,750

344,793

Net Income From Operations

363,500

354,094

344,396

Estimated Income Taxes Net Income After Tax

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119,955

116,851

113,651

$243,545

$237,243

$230,745...