CASE South Delaware Coors, Inc. Larry Brownlow was just beginning to realize the problem was more complex than he thought. The problem was giving direction to Manson and Associates regarding which research should be completed by February 20,2000, to determine market potential of a Coors beer distributorship for a two-county area in southern Delaware. With data from this research, Larry would be able to estimate the feasibility of such an operation before the March 5 application deadline. Larry knew his decision on whether or not to apply for the distributorship was the most important career choice heshadiever faced. LARRY BROWNLOW Larry was just completing his MBAand, from his standpoint, the Coors announcement of expansion into Delaware could hardly have been better timed. He had long ago decided that the best opportunities and rewards were in smaller, self-owned busi- nesses and not in the jungles of corporate giants. Because of a family tragedy some three years ago, Larry found himself in a position to consider small business opportu- nities such as the Coors distributorship. Over $500,000 was held in trust for Larry, to be dispersed when he reached age 30. Until then, Larry and his family lived on an annual trust income of about $40,000. It was on this income that Larry decided to leave his sales engineering job and return to graduate school for his MBA. The decision to complete a graduate program and operate his own business had been easy to make. While he could avoid such challenges, find an "easy" job, and live comfortably using his investment income, Larry knew such a life would not be to his liking. Working with people and the challenge of making it on his own, Larry thought, were far more preferable than enduring a boring job and taking an early retirement. Larry would be 30 in July, about the time that money would be needed to start the business. In the meantime, he had access to about $15,000 for feasibility research. While there certainly were other places to spend the money, Larry and his wife agreed the distributorship opportunity could not be overlooked. COORS, INC. Coors' history dated back to 1873, when Adolph Coors built a small brewery in Golden, Colorado. Since then, the brewery had prospered and become the fourth- largest seller of beer in the country. Coors' operating philosophy could lie summed up as "hard work, saving money,devotion to the quality of the product, caring about the 128 This case was written by Professor James E. Nelson, University of Colorado at Boulder. It is intended for use as a basis for class discussion rather than to illustrate either effective or ineffective administrative decision making. Some data are disguised. Used with permission.
Transcript
C A S E
South Delaware Coors, Inc.
Larry Brownlow was just beginning to realize the problem was more complex than hethought. The problem was giving direction to Manson and Associates regarding whichresearch should be completed by February 20,2000, to determine market potential ofa Coors beer distributorship for a two-county area in southern Delaware. With datafrom this research, Larry would be able to estimate the feasibility of such an operationbefore the March 5 application deadline. Larry knew his decision on whether or not toapply for the distributorship was the most important career choice heshadiever faced.
LARRY BROWNLOW
Larry was just completing his MBA and, from his standpoint, the Coors announcementof expansion into Delaware could hardly have been better timed. He had long agodecided that the best opportunities and rewards were in smaller, self-owned busi-nesses and not in the jungles of corporate giants. Because of a family tragedy somethree years ago, Larry found himself in a position to consider small business opportu-nities such as the Coors distributorship. Over $500,000 was held in trust for Larry, tobe dispersed when he reached age 30. Until then, Larry and his family lived on anannual trust income of about $40,000. It was on this income that Larry decided toleave his sales engineering job and return to graduate school for his MBA.
The decision to complete a graduate program and operate his own business hadbeen easy to make. While he could avoid such challenges, find an "easy" job, and livecomfortably using his investment income, Larry knew such a life would not be to hisliking. Working with people and the challenge of making it on his own, Larrythought, were far more preferable than enduring a boring job and taking an earlyretirement.
Larry would be 30 in July, about the time that money would be needed to start thebusiness. In the meantime, he had access to about $15,000 for feasibility research.While there certainly were other places to spend the money, Larry and his wife agreedthe distributorship opportunity could not be overlooked.
COORS, INC.
Coors' history dated back to 1873, when Adolph Coors built a small brewery inGolden, Colorado. Since then, the brewery had prospered and become the fourth-largest seller of beer in the country. Coors' operating philosophy could lie summed upas "hard work, saving money, devotion to the quality of the product, caring about the
128
This case was written by Professor James E. Nelson, University of Colorado at Boulder. It is intended foruse as a basis for class discussion rather than to illustrate either effective or ineffective administrativedecision making. Some data are disguised. Used with permission.
SOUTH DELAWARE COORS, INC. 129
environment, and giving people something to believe in." Company operation is con-sistent with this philosophy. Headquarters and most production facilities are stilllocated in Golden, Colorado, with a new Shenandoah, Virginia, facility aiding innationwide distribution. Coors is still family operated and controlled. The companyhad issued its first public stock, $ 127 million worth of nonvoting shares, in 1975. Theissue was enthusiastically received by the financial community despite its beingoffered during a recession.
Coors' unwillingness to compromise on the high quality of its product is wellknown both to its suppliers and to its consuming public. Coors beer requires constant
, refrigeration to maintain this quality, and wholesalers' facilities are closely controlled*"to ensure proper temperatures are maintained. Wholesalers are also required to installand use aluminum can recycling equipment. Coors was one of the first breweries in
- the industry to recycle its cans.Larry was aware of Coors' popularity with many consumers in adjacent states.
Most beer consumers considered Coors beer to be a high quality, standard beer, hav-ing a light, zesty taste and similar to standard beers from Budweiser or Miller. How-ever, Coors' corporate management was seen by some consumers to hold antiunionbeliefs (because of a labor disagreement at the brewery some time ago). A few otherconsumers perceived the brewery to be somewhat insensitive to minority issues, pri-marily unemployment and distribution. The result of these attitudes—plus otheraspects of consumer behavior—meant that Coors' sales in Delaware would dependgreatly on efforts of the two wholesalers planned for the state.
MANSON RESEARCH PROPOSAL
Because of the press of his studies, Larry had contacted Manson and Associates inearly January for their assistance. The firm was a Wilmington-based general researchsupplier that had conducted other feasibility studies in the South Atlantic region.
*Manson was well known for the quality of its work, particularly with respect to com-puter modeling. The firm had developed special expertise in modeling such things aspopulation and employment levels for cities, counties, and other units of area forperiods of up to 10 years into the future.
Larry had met John Rome, senior research analyst for Manson, and discussed theCoors opportunity and appropriate research extensively in the January meeting.Rome promised a formal research proposal (Exhibit 1 on pages 130 and 131) for theproject that Larry now held in his hand. It certainly was extensive, Larry thought,and reflected the professionalism he expected. Now came the hard part—choosingthe more relevant research from the proposal—because he certainly couldn't affordto pay for it all. Rome had suggested a meeting for Friday, giving Larry only twomore days to decide.
Larry was at first overwhelmed. All the research would certainly be useful. Hewas sure he needed estimates of sales and costs in a form allowing managerial analy-sis, but what data in what form? Knowledge of competing operations' experience,retailer support, and consumer acceptance also seemed important for feasibilityanalysis. For example, "what if consumers were excited about Coors and retailers indif-ferent or the other way around? Finally, several of the studies would provide informa-tion that could be useful in later months of operation in the areas of promotion andpricing, for example. The problem now appeared more difficult than before!
It would have been nice, Larry thought, to have had some time to perform part ofthe suggested research himself. However, there just was too much in the way of classassignments and other matters to allow him that luxury. Besides, using Manson andAssociates would give him research results from an unbiased source.
130 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING
E X H I B I T 1
Manson and Associates Research Proposal
January 16,2000
Mr. Larry Brownlow1198 West LamarChester, PA 12345
Dear Larry:v It was a pleasure meeting you last week and discussing your business and research
interests in Coors wholesaling. From further thought and discussion with my colleagues, theCoors wholesaling opportunity appears even more attractive than when we met.
Appearances can be deceiving, as you know, and I fully agree some formal research isneeded before you make an application. Research that we recommend would proceed in twodistinct stages and is described below: ' f~ *
Stage One Research, Based on Secondary Data and Manson Computer Models:
Study A: National and Delaware Per Capita Beer Consumption for 1998-2002.Description: Per capita annual consumption of beer for the total population andpopulation age 21 and over in gallons is provided.Source". Various publications, Manson computer modelCost: $1,000
Study B: Population Estimates for 1996-2006 for Two Delaware Counties in Market Area.Description: Annual estimates of total population and-population age 21 andover are provided for the period 1996-2006.Source: U.S. Bureau of Census, Sales Management Annual Survey of BuyingPower, Manson computer modelCosf. $1,500
Study C: Coors Market Share Estimates for 2000-2005-Description: Coors market share for the two-county market area based on totalgallons consumed is estimated for each year in the period 2000-2005. This datawill be projected from Coors' nationwide experience.Source: Various publications. Manson computer modelCosf. $2,000
Study D: Estimates Liquor and Beer Licenses for the Market Area, 2000-2005-Description: Projections of the number of on-premise sale operations and off-premise sale operations is provided.Source: Delaware Department of Revenue, Manson computer modelCost: $1,000
Study E: Beer Taxes Paid by Delaware Wholesalers for 1997 and 1998 in MarketArea.Description: Beer taxes paid by each of the six presently operating competingbeer •wholesalers are provided. This can be converted to gallons sold byapplying the state gallonage tax rate ($.06 per gallon).^. -Source: Delaware Department of RevenueCost. $200
Study F: Financial Statement Summary of Wine, Liquor, and Beer Wholesalers for 1999.Description: Composite balance sheets, income statements, anel relevantmeasures of performance provided for 510 similar •wholesaling operations in theUnited States.Source: Robert Morris Associates Annual Statement Studies, 2000 ed.Cosf. $49.50
(continued)
SOUTH DELAWARE COOKS, INC. 131
E X H I B I T 1 (Continued)
Stage Two Research, Based on Primary Data:
Study G: Consumer StudyDescription: Study G involves focus group interviews and a mail questionnaireto determine consumers'past experience, acceptance, and intention to buyCoors beer. Three focus group interviews would be conducted in the twocounties in the market area. From these data, a questionnaire would bedeveloped and sent to 300 adult residents in the market area, utilizing direct
% questions and a semantic differential scale to measure attitudes toward Coors"•* beer, competing beers, and an ideal beer.
Source: Manson and AssociatesCost: $6,000
Study H: Retailer StudyDescription: Group interviews would be conducted with six potential retailersof Coors beer in one county in the market area to determine their past beer salesand experience and their intention to stock and sell Coors. From these data, apersonal interview questionnaire would be developed and executed at allappropriate retailers in the market area to determine similar data.Source: Manson and AssociatesCost: $4,800
Study I: Survey of Retail and Wholesale Beer PricesDescription: In-store interviews with a representative sample of 50 retailers in themarket area to estimate retail and wholesale prices for Budweiser, Miller Lite,Miller, Busch, Bud Light, Old Milwaukee, and Michelob.Source: Manson and AssociatesCost. $2,000
Examples of the form of final report tables are attached [Exhibit 2, pages 132-136]. This shouldgive you a better idea of the data you will receive.
As you can see, the research is extensive and> I might add, not cheap. However, the research"as outlined will supply you with sufficient information to make an estimate of the feasibility of aCoors distributorship, the investment for which is substantial.
I have scheduled 9:00 A.M. next Friday as a time to meet with you to discuss the proposal inmore detail. Time is short, but we firmly feel the study can be completed by February 20,2000.If you need more information in the meantime, please feel free to call.
Sincerely,
John RomeSenior Research Analyst
INVESTING AND OPERATING DATA
Larry was not completely in the dark regarding investment and operating data for thedistributorship. In the past two weeks he 'had^ visited two beer wholesalers in hishometown of Chester, Pennsylvania, who handled Anheuser-Busch and Miller beer, toget a feel for their operation and marketing experience. It would have been nice tointerview a Coors wholesaler, but Coors management had strictly informed all of theirdistributors to provide no information to prospective applicants.
132 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING
E X H I B I T 2
Examples of Final Research Report Tables
Table ANational and Delaware Resident Annual BeerConsumption Per Capita, 1998-2002 (Gallons)
Year1998
199920002001
2002
Source-:
U.S. Consumption
Based on Based onEntire Population
'Population over Age 21
. - • - • ' ' . - • -*•
Study A,
Delaware Consumption
Based onEntire
Population
Based onPopulationover Age 21
TableBPopulation Estimates for 1996-2006 for the Two Delaware Counties
in Market AreaEntire Population
County 1996 1998 2000 2002 2004 2006
KentSussex
County
Population Age 21 and Over
1996 1998 2000 2002 2004 2006
KentSussex
Source: Study B.
Table CCoors Market Share Estimates for 2000-2005
Year Market Share (%)
2000
2001
2002
2003
2004
2005
«•„V
Source: Study C.
(continued)
SOUTH DELAWARE COORS, INC. 133
E X H I B I T 2 (Con tinned)
Table D; V Liquor and Beer License Estimates for Market Area for 2000-2005
Type of License 20OO 2001 2OO2 2O03 2004 2005
Alf beverages
Rfctaii beer and wine
Off-premise beer only
4 Veterans beer and liquor
"fraternal
Resort beer and liquor
Source: Study D.
Table EDelaware Beer Taxes Paid by Beer Wholesalers in the Market Area,
Nate. Delaware beer tax is $0.06 cents per gallon.
% TableFFinancial Statement Summary for 510 Wholesalers of Wine, Liquor,
and Beer in Fiscal Year 1999Assets Percentage
Gash and equivalents
Accounts and notes receivable, net
Inventory
All other current
Total current
Fixed assets, net
Intangibles, net
All other noncurrent
total 100.0
(continued)
134 CHAPTER 4 OPPORTUNITY ANALYSIS, MARKET SEGMENTATION, AND MARKET TARGETING
E X H I B I T 2 (Continued)
Table F (Continued)
Liabilities Percentage
Notes payable, short-term
Current maturity long-term debt
Accounts and notes payable, trade
Accrued expenses
All other current
Total current
Long-term debt
All other noncurrent
Net worth
Total liabilities and net worth
Income Data
Net sales
Cost of sales
Gross profit
Operating expenses
Operating profit
All other expenses, net
Profit before taxes
Ratios
Quick
Current
Debt/worth
Sales/receivables
Cost sales/inventory
Percentage profit before taxes, based on total assets
Interpretation of Statement Studies Figures:RMA recommends that Statement Studies data be regarded only as general guidelines and not as absoluteindustry norms. There are several reasons why the data may not be fully representative of a given industry:1. The financial statements used in the Statement Studies are not selected by any random or statistically
reliable method. RMA member banks voluntarily submit the raw data they have available each year,with these being the only constraints; (a) The fiscal year-ends of the companies reported may not befrom April 1 through June 29, and (b) their total assets must be less than $100 million.
2. Many companies have varied product lines; however, the Statement Studies categorize them by theirprimary product Standard Industrial Classification (SIQ number only.
3. Some of our industry samples are rather small in relation to the total number of firms in a givenindustry. A relatively small sample can increase the chances that some of our composites do not fullyrepresent an industry.
4. There is the chance that an extreme statement can be present in a sample, causing a disproportionateinfluence on the industry composite. This is particularly true in a relativel/'small sample.
5. Companies within the same industry may differ in their method of operations, which in turn candirectly influence their financial statements. Since they are included in our sample, too, thesestatements can significantly affect our composite calculations.
6. Other considerations that can result in variations among different companies engagedin the samegeneral line of business are different labor markets, geographical location, different accountingmethods, quality of products handled, sources and methods of financing, and terms 66sale.
For these reasons, RMA does not recommend that Statement Studies figures be considered as absolutenorms for a given industry. Rather, the figures should be used only as general guidelines and in additionto the other methods of financial analysis. RMA makes no claim as to the representativeness of thefigures printed in this book.
While no specific financial data was discussed, general information had been pro-vided in a cordial fashion because of the noncompetitive nature of Larry's plans.Based on his conversations, Larry had made the following estimates:
InventoryEquipment:
Delivery trucksForkliftRecycling and miscellaneous equipmentOffice equipment
Total equipmentWarehouseLand
Total investment
$240,000$150,000
20,00020,00010,000
200,000320,00040,000
$800,000
A local banker had reviewed Larry's financial capabilities and saw no problem inextending a line of credit on the order of $400,000. Other sources also might loan asmuch as $400,000 to the business.
As a rough estimate of fixed expenses, Larry planned on having four route sales-people, a secretary, and a warehouse manager. Salaries for these people and himselfwould run about $160,000 annually, plus some form of incentive compensation hehad yet to determine. Other fixed or semifixed expenses were estimated as follows:
Equipment depreciationWarehouse depreciationUtilities and telephoneInsurancePersonal property taxesMaintenance and janitorialMiscellaneous
$35,00015,00012,00010,000
10,0005,6002,400
$90,000
According to the two wholesalers, beer in bottles and cans outsold keg beer by athree-to-one margin. Keg beer prices at the wholesale level were about 45 percent ofprices for beer in bottles and cans.
MEETING
The entire matter deserved much thought. Maybe it was a golden opportunity, maybenot. The only thing certain was that research was needed, Manson and Associates wasready, and Larry needed time to think. Today is Tuesday, Larry thought—only threedays until he and John Rome would get together for direction.
