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‘Big Sky Brewing Company has been in expansion mode. They are in need of huge financing. BSBC tied up with Montana Business Capital
Corporation(MBCC). MBCC is a Boutique Investment Firm. Mr. Swenson of MBCC is working on this proposal. Lack of an organized report denied them the loan approval
from USDA. However, the company is confident of getting it with little
more efforts. Currently, they are planning to showcase a more organized
report to convince the USDA about feasibility on their expansion plan.
BSBC is a craft – brewing company Located in Missoula, Montana Sales of $729309 growth of 57% over the past year. Need of Capital for expansion for “ In house bottling” capacity MBCC a boutique investment firm for raising capital through USDA BSBC signed a contract with Portland Brewing Company(PBC) Excess capacity to meet BSBC needs. First 10 month of contract bottled beer surpassed draft sales by 10% Unable to meet the demand during the months of June, July and
August. BSBC vast majority of sales came from “4” brands Moose Drool Brown Ale, Scape Goat Plae Ale, Powder Hound Winter
Ale, and Slow Elk Oatmeat Stout. 97% of beer sales through “4” brand of which 80% was accpunted
nearly by Moose Drool.
BSBC was founded in 1993 producing and selling craft brewed ales.
Largest brewery in the Northern Rockies region. Strong sales growth rates of 52% in 1997, 30% in 1998,
18% in 1999 and 57% in 2000. Main brewery and distribution center near Orange Street
Bridge in downtown Missoula, Montana. Change in the product mix sales. ( 44% keg beer to 28% ,
55% bottled beer to 70% and 1% taproom beer to 2%) BSBC generated revenue through sales of branded
merchandise. Sold more merchandise than craft brewery Acted as a advertisement - T- shirts, drinking glass and
hat. Sold $380000 of merchandise and generated $ 2 million in
gross revenue.
BSBC signed a contract with Portland Brewing Company(PBC)
Excess capacity to meet BSBC needs. First 10 month of contract bottled beer surpassed
draft sales by 10% Unable to meet the demand during the months of
June, July and August. BSBC vast majority of sales came from “4” brands Moose Drool Brown Ale, Scape Goat Pale Ale,
Powder Hound Winter Ale, and Slow Elk Oatmeat Stout.
97% of beer sales through “4” brand of which 80% was accpunted nearly by Moose Drool.
“4” largest National breweries accounted for 87% of beer in US.
They are Anheuser Busch, Miller, Coors and Pabst
Profits realized by using Inexpensive ingredients, Large stock of purchase, Production Distribution economies of scales. Imported beer were consider as Premium , high quality ingredients, variety of styles and flavor. Priced at double the rate of “ National breweries” Regional breweries were small, local, geographic region. 15000 to 2 million barrel brewing capacity Profits through sales of large quantities of inexpensive beer. Micro Breweries is a truly local product. <15000 barrel , using top quality ingredients Quality similar to Imported beers( advantage being of fresh) . Flexibility in production of variety of beer styles.
Craft Brewing Industry Both microbreweries and regional breweries High Quality and favorable beers 48% market share in US Rapid sales growth of 30 to 50% per year from 1990-94 Contract brewing companies provide bottling and brewing facilities Enough capital expenditure for facilities and equipment On site by brewpubs and sold as draft beers. 3 tier system of structure. Brewers to Distributors Distributors to individual or chain of retail outlets Retail outlets to consumer. Distributors – High sales of volume of brands ( Portfolio of brands) Retailers – High sales volume ( Shelf space and low margin) Consumer - On premise consumer and Off premise consumer On premise consumer – Draft beers, Taste and quality great concern. Off premise consumer – Image as an important factor.
BSBC constraint growth due to contract forced them for expansion
Bottling every three weeks , minimum order size of 1750 cases.
Lead times for orders 6 weeks, Net 20 payment terms
Total capacity – 34000 barrels BSBC operation after expansion Bottling every weeks, 450 cases, 2 week or less Net 30 payment terms , total capacity of 100000
barrels.
BSBC’S contract with PBC offered certain constraints to their growth, such as following :
Bottling every three weeks , minimum order size of 1750 cases.
Lead times for orders 6 weeks, Net 20 payment terms Total capacity – 34000 barrels
Due to above constraints , BSBC thought about organizing an In House Bottling facility.
This would help them in following ways: BSBC operation can expand. They can plan for bigger orders at a time. Bottling every weeks, 450 cases, 2 week or less Net 30 payment terms , total capacity of 100000 barrels. Unlike before , there would be no travelling expenses for
the Team Managers
• If they go for In House Bottling:
Parameter Current Operations Operations after expansion
Bottling Every three weeks Every week
Minimum size orders 1750 cases 450 cases
Lead time for orders 6 weeks 2 weeks or less
Payment terms Net 20 on all orders Net 30 is standard
Total Capacity 34,000 barrels Up to 100,000 barrels
In home state, following competitors:• Bayern• Deschutes• New BelgiumIn western Washington, following competitors:• Redhook• Pyramid• Full Sail
• In the home state, New Belgium’s Brewing Fat Tire Ale was a major threat in 1999.
• But in 2000, BSBC beer outsold the New Belgium comfortably.
• In Washington market, BSBC ranked among top 20 craft brewers in 2000.
• Drool was the flagship brand of BSBC.
Brand Price in dollar
Big Sky 6.49
Alaskan 7.6
Bayern 6
Deschutes 6.1
New Belgium 6.1
Pyramid 6.8
Windmer 5.8
Sierra 5.8
Retail prices per 6 pack
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