Coors Inc Case Analysis

The Problem(s). Does the South Delaware Coors distributorship offer sufficient investment potential given Mt. Brownlow’s current business and personal situation?

Recommendation(s). Mr. Brownlow should apply for the South Delaware Coors distributorship license based on projected profitability of this venture. Further, this venture will allow Mr. Brownlow to put his entrepreneurial drive to good use. Justification for the recommendation is based on four decision factors derived from the case.

Profit Potential. Mr. Brownlow’s distributorship venture will be successful if he recovers the initial investment and earns an annual income that exceeds his current annual trust income of $40,000.

 Pricing

Based on the Research Study I from the case, average wholesale-to-retail price for a six-pack is $3.16. The wholesale-to-retail gallon price is about 1.77 times the six-pack price, or $5.59 per gallon. In addition to selling bottles and cans, wholesalers also sell kegs at the 3-to-1 ratio (on gallon basis). Further, a gallon of keg is sold at 45% of gallon price for bottles/cans.

Using the information above, weighted average wholesale-to-retail price per gallon is computed as follows: (45% x $5.59) x 25% + $5.59 x 75% = $4.82

 Sales Potential

Total market size/sales potential (in gallons) can be derived based on the information provided in the Research Study E from the case. Detailed calculation is provided in Table 1. Total market size (in gallons sold) is projected to gradually increase to 7.8MM in 2005. Table 2 outlines the Coors market share/sales potential (in gallons) based on the estimates calculated in Table 1 and Research Study C data form the case. Total projected sales revenue and cost of sales for Coors are calculated in Table 3.

 Breakeven and NPV

Breakdown for $800,000 investment needed to start up a distributorship was provided in the case (based on Mr. Brownlow’s conversation with two distributors in Chester). Other fixed operating costs and minimum (fixed) salaries total $250,000 as outlined in the case. Average inflation rate of 3% is assumed for all of the fixed expenses except $50,000 depreciation expenses. It should be noted that equipment and warehouse depreciation expenses are excluded from the NPV (cash