Mountain Man Brewing Company: Scenario Analyzer Harvard Business School Publishing Brief Case 2072 Case Software

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Instructions This Spreadsheet contains the Exhibits from the Mountain Man Case Study and an interactive forecasting model which allows users to evaluate the effects of launching the MM Light Product. Clicking on any of the Radio Buttons contained in the Scenario Option Box will Change the Assumptions to reflect the scenario chosen. Alternative scenarios can be evaluated by changing the yellow or orange assumption cells directly. Changes made to orange cells will be overwritten when a Scenario option is reselected

Exhibit 1 Mountain Man 2005 Income Statement

Net Revenues Cost of Goods Sold Gross Margin Sales, General & Administrative Other Operating Expenses Operating Margin Other Income Net Income Before Taxes Provision for Income Taxes Net Income After Taxes

$50,440,000 $34,803,600 $15,636,400 $9,583,600 $1,412,320 $4,640,480 $151,320 $4,791,800 $1,677,130 $3,114,670

100.00% 69.00% 31.00% 19.00% 2.80% 9.20% 0.30% 9.50% 3.30% 6.20%

Exhibit 3 Competitive Market Shares in Barrels by Brewer East Central Region Anheuser-Busch Miller Coors Other 2nd tier Premium & Popular Brewers Craft / Specialty Brewers Imports Total 15,620,252 8,553,948 3,347,197 4,648,885 557,866 4,462,929 37,191,077 42.00% 23.00% 9.00% 12.50% 1.50% 12.00% 100%

Exhibit 4 Beer Consumption by State (2000 to 2005 Shipments in Barrels) STATE ILLINOIS INDIANA KENTUCKY MICHIGAN OHIO WEST VIRGINIA WISCONSIN EAST CENTRAL REGION TOTAL U.S. Source: Beer Institute

2000

2001

2002

2003

2004

2005

9,038,323 9,165,381 9,268,188 9,108,157 9,032,851 9,063,267 3,954,209 3,947,446 4,021,685 3,905,265 3,993,643 3,998,855 2,517,894 2,486,731 2,564,013 2,490,928 2,591,949 2,555,739 6,761,561 6,695,665 6,854,064 6,774,702 6,746,578 6,700,174 8,493,144 8,601,604 8,682,331 8,760,272 8,702,382 8,584,283 1,274,626 1,311,838 1,360,589 1,348,527 1,373,205 1,359,231 4,741,019 4,784,791 4,890,122 4,855,313 4,877,662 4,929,529 36,780,776 36,993,456 37,640,992 37,243,163 37,318,269 37,191,077 197,609,645 200,146,800 202,605,792 202,586,016 204,318,220 203,515,149

Exhibit 5 Consumption by Type of Beer (2005) Light Beer Premium Beer Popular Imported Premium Superpremium (craft and high-end domestics) Total Barrels Source: Extrapolated from Beverage Marketing Corp. Data EAST CENTRAL REGION 18,744,303 7,326,642 4,351,356 4,462,929 2,305,847 37,191,077 % Total 6-year CAGR 50.40% 4% 19.70% -4% 11.70% -5% 12.00% 6% 6.20% 9% 100.00%

Consumption by Origin / Packaging (2005) Imported Domestic - Packaged Domestic - Draught Total Barrels Source: Freedonia Analyst Report EAST CENTRAL REGION 4,462,929 29,618,974 3,109,174 37,191,077 % Total 12.00% 79.60% 8.40% 100.00%

Exhibit 5: Light Beer Market Shares and Dominant Brands Light Beer Competitive Market Shares East Central Region Anheuser-Busch Miller Coors Other brands Imports Total Light Beer

2005 Market Share 49% 24% 11% 14% 2% 100%

Leading Domestic Light Beer Brands Brand Bud Light Miller Lite Coors Light Natural Light Busch Light Michelob Ultra Milwaukees Best Light Other domestic brands Total

2005 Market Share 32.90% 17.80% 14.70% 9.80% 6.40% 5.60% 3.40% 9.40% 100%

Leading Imported Light Beer Brands Brand Corona Light Amstel Light Labatt Blue Light Other imported brands Total

2005 Market Share 57% 26% 15% 2% 100%

Scenario
No MM Light

MM Light with 5% Loss of Revenue MM Light with 20% Loss of Revenue

Case Facts Used in this Scenario Revenues from MM Beer in 2005 Contribution Margin Annual Change in MM Beer Revenues East Central Light Beer Market in 2005 Annual Change East Central Light Beer Market # Barrels of MM Beer Variable Cost per Barrel MM Beer Increase in Cost of MM Light Beer (If launched) $50,440,000 31.0% -2.0% 18,744,303 4.0% 520,000 $66.93 $4.69

Source Exhibit 1 Exhibit 1 Case Fact Exhibit 5 Exhibit 5 Case Fact Case Fact Case Fact

Page 6

Page 3 Page 6 Page 6

Assumptions Used In this Scenario Is MM Light Actually Launched? Loss of Contribution (only applies if MM Light Launched) Advertising Cost of MM Light (only applies if MM Light is Launched) Incremental Sales General & Administration Costs Initial Market Share for MM Light in East Central Light Beer Market Growth in Market Share for MM Light in East Central Light Beer Market Discount Rate Perpetuity Growth Rate for 'Net Change in Contribution' YES 5.00% $750,000 $900,000 0.25% 0.25% 12.00% 3.00%

Case Fact From Page 7 Case Fact From Page 6 Case Fact From Page 6 Case Fact From Page 6 Case Fact From Page 6 Case Fact Footnote Page 8 Assumption

Calculation of Contribution per Barrel of MM Light Sold Revenue received in 2005 # Barrels of MM Beer Revenue per Barrel of MM Beer Variable Cost per Barrel MM Beer Contribution per Barrel of MM Beer Increase in Cost of MM Light Beer (If launched) Contribution per Barrel of MM Light $50,440,000 520,000 $97.00 $66.93 $30.07 $4.69 $25.38

Calculation of Break Even Volumes Required - First Year Breakeven Current Revenues of MM Beer Projected Revenues of MM Beer Next Year Projected Contribution from MM Beer Projected Loss of Sales from Introduction of MM Light Projected Loss of Contribution from Launch of MM Light # Barrels of MM Light Needed to recover Loss of Contribution Cost of Advertising MM Light Incremental SG&A cost # Barrels of MM Light Needed to recover new Advertising Costs + SG&A # Barrels of MM Light Needed to Break-Even in First Year Compared to forecast sales in the first year of Which Represents % Share of E.C. Beer Consumption from Premium & Popular Brewers % Share of E.C. Beer Consumption % Share of E.C. Light Beer Consumption % Share of 'Other Brand' E.C. Light Beer Consumption 0 $50,440,000 $49,431,200 31% 5% $12,852,112 $750,000 $900,000 Assuming a -2.0% annual change in MM Beer Sales Next Year Change this cell to 0 to assume no change in market size

Using Data from Using Data from Using Data from Using Data from

Exhibit Exhibit Exhibit Exhibit

3 5 5 5

Calculation of Break Even Volumes Required - Two Year Breakeven Two Years of Lost Contribution (from One Year Breakeven Calculation) Initial Advertising Costs (One Time only) Two Years of Incremental SG&A Contribution per Barrel of MM Light # Barrels of MM Light Needed to Break-Even in First Year Compared to forecast sales over the first two years of Which Represents Average % Share of E.C. Beer Consumption from Premium & Popular Brewers Average % Share of E.C. Beer Consumption Average % Share of E.C. Light Beer Consumption Average % Share of 'Other Brand' E.C. Light Beer Consumption Assuming MM Lager Market continues to change at -2.0% per annum or Barrels per annum

Using Data from Using Data from Using Data from Using Data from

Exhibit Exhibit Exhibit Exhibit

3 5 5 5

More Advanced 2 and 5 Year NPV Calculations Taking Assumption of Market Change from Assumption Section at top of Spreadsheet Year 2006 2007 2008 2009 2010 Revenues from MMBeer $49,431,200 $48,442,576 $47,473,724 $46,524,250 $45,593,765 Contribution $15,323,672 $15,017,199 $14,716,855 $14,422,517 $14,134,067 Loss of Contribution ($766,184) ($750,860) ($735,843) ($721,126) ($706,703) Launch Advertising Cost of MM Light ($750,000) $0 $0 $0 $0 Incremental SG&A ($900,000) ($900,000) ($900,000) ($900,000) ($900,000) Total Incremental Costs associated with MM Light ($2,416,184) ($1,650,860) ($1,635,843) ($1,621,126) ($1,606,703) East Central Light Market Assumed Market for Light Beer $0 $0 $0 $0 Market Share for MM Light 0.25% 0.50% 0.75% 1.00% 1.25% Barrels Sold MM Light Contribution Net Change in Contribution Discount Factor 1 1.12 1.25 1.40 1.57 1.76 Present Value 2 Year NPV of Launch Effect 5 Year NPV of Launch Effect $0 $0 Break-even Not Achieved within 2 years

NPV Calculation in Perpetuity Annual Change in MM Beer Revenues Annual Change in Net Change in Contribution Terminal Value of Contribution from Original MM Beer Business from year 6 onwards NPV of Terminal Value of Contribution from Original MM Beer Business from year 6 onwards NPV of MM Beer Business Overall assuming no MM Light Launch Terminal Value of Net Change in Contribtion from Launch of New Beer (Year 6 onwards) NPV of Terminal Value of Net Change in Contribtion from Launch of New Beer (Year 6 onwards) NPV of Contribution to MM Beer Business Overall given Assumptions used here Change in Company Value from Original Case which assumed no launch of MM Light -2.0% 3.0% 98,938,470 56,140,345 109,454,800 0 0 109,454,800 0

PROVEEDORES PODER: ALTO * Distribuidores manejan numerosos productos cerveceros de muchas empresas * Restaurantes y Bares distribuyen marcas mas conocidas de acuerdo a propios objetivos * Redes limitadas de distribucion para empresas seguidoras

POTENCIALES ENTRANTES PODER: BAJO * Economias de Escala/Alta Inversion en MKT de cias lideres * Reputacin y Tradicion de marcas cerveceras independientes como variables claves generan altas barreras a la entrada

RIVALIDAD
INTENSIDAD: ALTA * Nuevas Tendencias en el consumo de Cerveza 2000-2006 (Ventas Light suben 4% y Premium Tradicionales caen 4% al ao) * Altas Inversiones en MKT y promocin por parte de lideres * Ciclo de Madurez del Mercado * Aumento en el consumo de Sustitutos * Presion de los lideres hacia los Distribuidores por espacios

PRODUCTOS SUSTITUTOS PODER: ALTO 1. Cerveza Light. Crecimiento Intenso de su Preferencia 2. Vino y Bebidas Espiritosas. Gran aumento en su consumo 3. Cervezas Importadas se posicionan

INDUSTRIA CERVECERA

CONSUMIDORES PODER: MEDIO 1. No estan Concentrados Geograficamente 2. No tienen capacidad de organizacin masiva o integracion vertical 3. El Producto cuenta con variantes (light, premium internacional, artesanal) es diversificado 4. Fidelidad frente a marca factor importante 5. Cambios en las Preferencias afectan Rentabilidad