556187211-Isaac-Spoon-FALL-8w2-South-Delaware-Coors-Case-Analysis

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Isaac Spoon EUID: IAS0032 Individual Case Report for: South Delaware Coors, Inc. Marketing Management MKTG 5150 Fall 2021 8W2 Attached is my report for the South Delaware Coors case. Included are eight tables which provide supporting data for all recommendations.

2 The Problem South Delaware Coors, Inc. faces the following problem with respect to their distribution:  “Due to Mr. Brownlow’s situation both personal and in business, can there be sufficient investment potential for South Delaware Coors distributorship.” Recommendation(s) It would not be a financially sound decision to elect South Delaware Coors as their distributor, so this decision is not recommended. Findings of this case in the subsequent sections are reasons as to considerations and reasons for the recommendation: Financial Analysis Market Potential. Market potential is an estimate of money planned to make from the region with all things considered, this analysis can only be as good as the information used to make this decision. Beer has a market potential (in gallons) of 6,323,700 as shown in Table 1 below. In the year 2000, just between both counties of Kent and Sussex, there would be over 6,000,000 gallons for use. The excess of beer gallons could go to any other beer company in the region. After the Delaware beer tax of $379,422 is taken out, there is $30,100,812 USD in market potential. Since there is an excess, this provides us with the information showing that any beer seller(s) within these two counties would be able to make a total theoretical combined profit of $32,503,818 USD. Sales Potential. The sales potential is best describes as the total quantity of a particular item to potentially be sold in a market or geographic region. Simplified, potential sales of one product sold by one company. Using some of the same methods as used above in market potential, Table 1 shows us that in the two country region, the Coors brand would have 562,809 gallons. This equates to roughly 8.9% market share that Mr. Brownlow can expect to receive with a consumption rate of 39.4 per capita average consumption of Delaware. With a theoretical potential in sales of $2,678,970 USD, coming from the price per gallon ($4.82) and the removal of taxes being $33,769 USD. Fixed Costs. The estimated fixed costs for this case have been provided by Larry Brownlow. When calculating these expenses, fixed costs most definitely need to be contemplated. The case also provides us with the estimate Mr. Brownlow was looking at, while the actual calculated fixed costs are depicted in table 5. While Larry Brownlow was taking into account costs like salaries and depreciation, he failed to account for some other major essential costs that must be considered like travel and unplanned costs. According to the successive variable costs sector, when sales is multiplied by 20.1%, $1,904,708 using this tax method. Variable Costs. We must use the projections provided by report from Manson and Associates due to lack of understanding when it comes to variable costs and financial reporting in the given case. Focusing on Table F of that report, we can see that 77.1% of sales comes from the actual cost of sales. Using the tax method directly pulled from the case, we multiply 77.1%

3 by the sales number, giving us $1,904,708 USD in variable costs. Alternatively, if we use the population method found in the case, we come to $2,230,378 USD. Price and Contribution Projections. Larry Brownlow should have used the weighted average cost of a gallon of beer for Coors at $5.14 as Table 8 shows below. Additionally, $3.96 as a weighted average should have been the number used to calculate cost of goods sold. All considered, this leaves Mr. Brownlow with a $1.18 contribution margin. With this knowledge, we will use $5.14 in the rest of this analysis. Investment Costs and Available Resources. Investment costs are roughly $800,000 USD for Mr. Brownlow as depicted in Table 7. Noted in the case given to us, he is only able to pay cash out of pocket up to $500,000 because of the trust. Because of this, Larry Brownlow will have to finance or source $300,000 USD (excess in investment expense) since he can only use $500,000 USD upfront of the investment costs due to the stipulations of the trust. Pro-forma Income Statements. Accounting for the sales projected for in 2001, 2002, and 2003, we have produced two Proforma income statements. Larry Brownlow would need to recoup his initial investment within three years under the best case scenario which is not a very likely outcome to expect and plan for. This is shown in Table 5 below. The numbers presented in the chart below are in fact pre-tax numbers. Actual net operating income would realistically be lower than pre-tax NOI of $562,587USD highlighted in year 2003 of the table. Again, referencing the year 2003 in Table 5 below, the operating income pre-tax is narrowly over $60,000 USD. Mr. Brownlow, in the worst case scenario, would barley be showing any profit on his $500,000 USD investment. With this knowledge, it is reasonable to assume that the $500,000 USD would better benefit Mr. Brownlow in other ways not allocating his funds to this investment and is not recommended Larry Brownlow follow through with Coors. Break-even Analysis. Tables 3&6 below depict what is needed for Larry Brownlow to break even for market share in gallons of beer and USD. Exploring a best and worst case scenario is important in determining a recommendation for plan of action. These analysis are outlined here: Best Case : These projections have tax included and is calculated with a 4% market share to break even as well as roughly 8.9% of market share in total. With these numbers in mind shown in Table 6, the amount of gallons of beer needed to break even is 237,288 equaling a profit of $1,219,661 USD. Worst Case : The projection used for this worst case scenario is calculated with an 8% market share to break even while still only at an actual market share of 8.9%. With this model, again shown in Table 6, 433,374 beer gallons are needed to break even producing $2,227,541 USD in profits. Evaluation of Studies. It must be noted that the sample sized used to for this case analysis was only 300 people as depicted in Table F from the case itself. It will be hard to determine if this small of a sample size is sufficient enough to draw accurate projections from. This could lead to unwanted or unforeseen deviations to our initial projections if larger sample

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4 sizes are ever evaluated and different findings are the outcome of those surveys. A small change in the survey could have a much larger impact on the financial projections for Mr. Brownlow. Market Knowledge. Taking into account Larry Brownlow has no prior experience in this industry, even with possible positive and beneficial financial analysis, there will be a learning curve on Mr. Brownlow’s part. This cannot accurately be defined or calculated but there inevitably be unforeseen costs associated with his decision to start a new business venture. With this knowledge, and reviewing the worst case scenario analysis, it leaves very little room to be confident in this recommendation as there was already very little profit margin. With this in mind, we cannot accurately evaluate the capitol needed to effectively get this venture up and running correctly. Introduction of Substitutes. While many new substitutes for beer are always emerging such as healthier and lower calorie alcoholic beverages like seltzers, beers are getting put on the back burner. Pair that challenge with large distributing corporations such as Molson Coors and Anheuser-Busch, entering into a market dominated by these beer moguls leaves us with high entrant barriers. While small microbreweries have also become popular in recent times, that is highly dependent on location and population demographics. With the financials considered alongside these mentioned substitutes, it is recommended to place Larry Brownlow’s’ investment money elsewhere.

5 Table 1 Tax Method 1998 1999 2000 Target Market Taxes Paid (wholesalers’) $287,980 $306,000 $324,020 Market Potential (Gallons) 1 4,799,667 5,100,000 5,400,000 Market Potential (USD) 2 $27,757,712 Market Potential (Beer, Kent and Sussex Counties) Population Consumption Method for 2000 County Population both Kent and Sussex 160,500 Delaware Average Consumption (Per Capita) 39.4 Market Potential (Gallons) 1 6,323,700 Price (Gallon) 3 $4.82 Estimated Taxes $379,422 Market Potential (USD) 2 $30,100,812 Sales Potential (Coors, Kent and Sussex Counties) County Population (Kent + Sussex) 160,500 Estimated Market Share 0.089 Delaware Avg. Consumption (Per Capita) 39.4 Sales Potential (Gallons) 562,809 Price (Gallon) 3 $4.82 Estimated Taxes $33,769 Sales Potential (USD) $2,678,970 1 Gallons per capita * population of both Kent & Sussex 2 $0.06 per Gallon = Tax on Beer 3 Gallons per capita * population of both Kent & Sussex * weighted average price per gallon – state beer tax

6 Table 2 Fixed Costs Best and Worst Cases Best Case 1 Worst Case 2 Utilities $12,000 $14,484 Depreciation (Warehouse) $15,000 $18,105 Depreciation (Equipment) $35,000 $42,245 Salaries $160,000 $193,120 Property Tax $10,000 $12,070 Maintenance $5,600 $6,759 Insurance $10,000 $12,070 Travel & Advertising $34,721 $41,908 Loan Interest $40,000 $48,280 Misc. $2,400 $2,897 Total $324,721 $391,938 1 Mr. Brownlow estimates 2 Case of Beer + an additional 20.7%

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7 Table 3 Break-even Analysis Fixed Costs Action Amount (in USD) Salaries 160,000 Depreciation (Equipment) 35,000 Depreciation (Warehouse) 15,000 Utilities 12,000 Insurance 10,000 Maintenance 5,600 Misc. 2,400 Fixed Costs TOTAL: $250,000

8 Table 4 Taxes Paid Market and Sales Potential 2001 2002 2003 Total Taxes Paid $342,020 $360,040 $378,060 Market Potential (Gallons) 5,700,667 6,001,000 6,301,000 Market Potential (USD) $29,301,429 $30,845,140 $32,387,140 Market Share 1 0.087 0.087 0.088 Sales Potential (Gallons) 495,958 522,087 554,488 Sales Potential (USD) $2,549,224 $2,863,527 $2,850,068 Cost of Goods Sold $1,965,452 $2,068,999 $2,197,402 1 This number was given in provided case material

9 Table 5 Pro Forma Income Statements Best Case Scenario January 1 st , 2001 through December 31 st , 2003 Year 2001 Year 2002 Year 2003 Sales 1 $3,040,053 $3,410,195 $3,838,005 Cost of Goods Sold 2 $2,343,881 $2,629,260 $2,959,102 Gross Margin $696,172 $780,935 $878,903 Operating Expenses Salaries $160,000 $164,800 $169,744 Depreciation 12,000 12,240 12,484 Utilities 10,000 10,100 10,201 Insurance 30,000 30,000 30,000 Loan Interest 10,000 10,000 10,000 Property Taxes 5,600 5,712 5,826 Maintenance 24,000 25,200 26,460 Miscellaneous 50,000 50,800 51,600 Total Operating Expenses $301,600 $308,852 $316,316 Pretax NOI $394,572 $472,083 $562,587 1 Assuming growth being linear 2 10% interest on loan with assuming no growth Worst Case Scenario January 1 st , 2001 through December 31 st , 2003 Year 2001 Year 2002 Year 2003 Sales 1 $2,470,436 $2,607,827 $2,745,217 Cost of Goods Sold 2 $1,904,708 $2,010,635 $2,116,562 Gross Margin $565,730 $597,192 $ 628,655 Operating Expenses $511,380 $539,820 $568,260 Salaries Depreciation Utilities Insurance Loan Interest Property Taxes Maintenance Miscellaneous Total Operating Expenses $511,380 $539,820 $568,260 Pretax NOI $54,350 $57,372 $ 60,395 1 Assume growth is linear 2 10% interest on loan with assuming no growth

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10 Table 6 Break-even Projections BE (Gallons) 1 BE (USD) 2 BE (Market Share) 3 Estimated Market Share 4 Best Case BE Projections 237,288 $1,219,661 0.04 0.089 Worst Case BE Projections 433,374 $2,227,541 0.08 0.089 1 Fixed Costs / Contribution per Gallon 2 Breakeven Gallons * Average Weighted Price Per Gallon 3 Breakeven Gallons * Total Market Potential 4 Estimated Market Share

11 Table 7 Investment Costs 1 Best Case Population Consumption Method Sales (21 and Over) Inventory $240,000 Equipment: Delivery Trucks $150,000 Forklift $20,000 Recycling & Other Equipment $20,000 Office Equipment $10,000 Total Equipment $200,000 Warehouse $320,000 Land $40,000 Total Investment $800,000 1 Reference chart on page 132 of case report Worst Case Beer Tax Method Cash & Receivables $279,622 Inventory $240,000 Equipment: Delivery Trucks $150,000 Forklift $20,000 Recycling & Other Equipment $20,000 Office Equipment $10,000 Total Equipment $200,000 Warehouse $320,000 Land $40,000 Total Investment $1,079,622

12 Table 8 Pricing Sales Mix Wholesale PPG (in USD) Retail PPG (in USD) Retail Price (6 pk.) (in USD) COGS (USD) Contribution (USD) Bottles & Cans 0.75 $5.96 $6.33 $3.57 $4.60 $1.36 Kegs 0.25 $2.68 $2.85 $2.07 $0.61 Avg. Weighted Price per Gallon $5.14 $5.46 $3.96 $1.18

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556187211-Isaac-Spoon-FALL-8w2-South-Delaware-Coors-Case-Analysis

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