South Delaware Coors Case - Part 2 - Costs Essay Example
The Coors Brewing Company is the fourth-largest brewer in the United States - South Delaware Coors Case introduction. Coors is also renowned for operating the Golden, Colorado brewery, the largest single brewery facility in the world. When Larry Brownlow wanted to open a new Coors beer distributorship for a two-county area in southern Delaware, he was faced with the decision of which research he needed Manson and Associates to complete for determining the market potential of a two-county area in southern Delaware. Brownlow was fully behind the building of a distributor in Delaware and quit his sales job and used the money from his annual trust income.
Brownlow and his wife believed this was the best investment because of Coors history and popularity with many consumers in adjacent states to Delaware region. Although Brownlow believed Coors was the best choice, he still faced a few problems. There was the issue that Coors’ corporate management was seen by some consumers to hold antiunion beliefs due to a labor disagreement at the brewery some time ago. Another issue Brownlow faced was the consumer perception that the brewery was insensitive to minority issues, primarily unemployment and distribution.
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The result of these attitudes, along with other aspects of consumer behavior in the Delaware area meant that Coors’ sales would depend greatly on the efforts of the two wholesalers planned for the state. Due to the pressing issues of consumer behavior, Brownlow hired Manson and Associates to do some market research for him in order to see if these perceptions still linger. Brownlow chose Manson and Associates for their reputation for quality work, as well as past projects. Larry contacted Manson and Associates in early January and they met and discussed the Coors opportunity and appropriate research.
Once Brownlow received the formal research proposal, he faced the challenge of choosing the more relevant research from the proposal, because he could not afford to pay for all of it. This was hands down the most important decision for Brownlow and he only had two days to decide which information to choose. Although all the research would certainly be useful, he knew he could not afford it all and had to make a choice. He began weighing the decision and though of what would be the most useful. He knew he needed an estimate of sales and costs in a form allowing for managerial analysis, but what data in what form did he need?
Everything seemed important and Brownlow knew he had to make a decision. He was overwhelmed and thought maybe he could do some of the research himself to cut back on costs, but there just was not time with him getting his MBA and other matters, not to mention the Manson and Associates research results were from an unbiased source. The situation deserved much thought and I believe it is a golden opportunity and Brownlow should review the data and make a decision. Brownlow has roughly $15,000 to use for feasible research and he believes all this information to be crucial and worth the cost but he cannot afford all of it.
So, I am going to recommend the following choices to best ready Brownlow for opening his beer distributorship. First off, I would recommend the Consumer Study (G) because it captures the local populations’ drinking preferences. The benefit of this study is that it will tell Brownlow whether or not consumers will purchase Coors beer. Not only will it tell us if people will buy it, but it will indicate if there are still any negative perceptions about the Coors company in general that exist. However, we must look at the pros and cons of each study since we only have limited money to spend on the information at hand.
A drawback of the Consumer Study would be that it only analyzes a focus group of 300 people and that may have some inconsistencies due to a low return rate of the questionnaire. Even so, I still think the study is worth it because it will provide Brownlow with primary data on consumers’ perceptions of Coors beer. In addition to the Consumer Study, I strongly believe Brownlow should invest in the Retailer Study (H). This will provide him with an estimate of sales to retailers as well as data on competitors’ beer sales to retailers.
This way he can compare his sales and see where they are at relative to where they should be. Of course there are drawbacks to this study, as it is expensive and only six retailers will be interviewed with a chance of a low rate of response. With that being said, I would still recommend Brownlow choose this study, so he has an idea of where his sales should be. Next, I would recommend the Survey of Retail and Wholesale Beer Prices (I). I feel this is important as well, because it would give Brownlow an idea of how much profit he can expect from the southern Delaware market.
This study is important because it targets a large sample of retailers in the southern Delaware region. This puts Brownlow at roughly $13,000 leaving us with a few more studies to spare. I believe the first three are the most important, but we still have room to work with and I will include a few more in my recommendations. The Estimates Liquor and Beer Licenses for the Market Study (D) area are important and relatively affordable. This will help Brownlow determine the level of competition he will be facing from other beer distributorships in the area.
Next, I would recommend that Brownlow invest in the Financial Statement Summary of Wine, Liquor, and Beer Wholesalers Study (F). This will help Brownlow asses his potential profit, as well as capital structure of opening his beer distributorship. This is an essential piece of information that Brownlow can use to compare his balance sheet to see how his assets and liabilities compare with other beer distributors around the United States. Finally, I would recommend the Beer Taxes Paid by Delaware Wholesalers Study (E) because it is very cheap and would provide Brownlow with the volume of beer sold in the two county market.
The only drawback of this is that it is from 1997, but this will help him determine the volume of beer he can sell in this market as well as how much to stock. In conclusion, the studies I recommend Brownlow choose are studies D, E, F, G, H and I. Although the studies are costly ($14,049. 50), they are within his budget and will provide him with important information that he can use to save him time and help him determine whether or not he should use his trust fund money to open a Coors beer distributorship.
This will leave him with roughly $900 left over which he can use towards an opening day promotional sale or display. Exhibits Larry Brownlow wants his business to be profitable and he should roughly want to make a profit of $40,000 in order to equal his yearly annual trust fund income. In my opinion he should want to make more than $40,000 since he was doing no work and getting the money and no he will be running a business and spending time to earn that $40,000, instead of it just being handed to him.
However, he quit his sales job so he did not have to work for someone and could go back and complete his MBA, so that is his primary incentive and it is rationale that he only needs to equal the $40,000. In order to do this he needs to apply to following methods we used in class to figure this out. To achieve his profit goal he must take his: (Total fixed Costs + Profit Goal)/ Contribution per unit ($160,000 + $40,000)/ (Selling Price*Variable Costs) Profit Goal= $40,000 Fixed Costs = See Exhibit II in case
Variable Costs = See Exhibit II in case Selling Price= bottles and cans outsell Kegs 3 to 1 margin. Keg Beer 45% of price of bottles/cans Total Sales = Break Even Analysis= TOTAL REVENUES = TOTAL COSTS (Price * Quantity) = (Fixed Costs + Variable Costs*Quantity) Those are the equations Brownlow must use to figure out if his business is rationale or not. I think he will be successful in his business venture and it is a good idea for him to pursue it, especially if he wants to be his own boss and do something with his trust money.