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[answered] Milton Microbrewery Ltd. Milton Microbrewery, located in a

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Milton Microbrewery Ltd.


Milton Microbrewery, located in a small town in the ?golden horseshoe? area


of Ontario, was founded in 1989 as a family partnership that had begun when


Mr. and Mrs. Hopkins had both been forced into early retirement when the


major bank that they worked for had been downsized. They invested their


severance packages in the venture, and had hoped to see both a current


family income and growth in their initial investment by the time they were


ready to retire. The company was one of several small microbreweries in the


region, but had been quite successful since its inception, with sales in excess


of 20,000 barrels a year.


The beer industry in Canada may be divided into three major groups ? major


producers, regional producers, and imports. The two firms in the major


producer category ? Molson and Labatt ? accounted for almost 90% of the


nation?s beer sales, and their total market share had increased during the


?80s and ?90s. Some other firms comprised the category of regional brewers ?


firms that produced less than the majors but more than 20,000 barrels a year.


The regionals? total market share was about 7% and it had been declining for


the previous 3 years. The import-beer category ? comprised primarily of


premium beers from about 65 different countries -- had a market share of


about 3%. This share had also been declining in previous years, partially due


to the licensing arrangements negotiated by the two major producers,


enabling them to brew the most popular ?imports?.


The regional brewers included the Milton Microbrewery. The combined annual


production from all the regionals was less than what Molson produced for its


Coors line alone. However the Hopkins? believed that there was room for


growth in their segment. These small firms were geared to produce beers for


local tastes as well as for people who preferred super premium domestic or


imported beers.


The Milton Microbrewery currently produces four different beers. The sales


leader was Escarpment Extra Pale Ale, an amber-coloured brew that


accounted for 47% of the company?s total revenues. Escarpment Extra Brown


was a unique blend of extra-dark roasted malts and was suggested for use


with spicy or highly salted foods. Escarpment Extraordinaire, the newest


product, was a clearer, lighter-tasting beer. This was intended to be a lowerpriced direct competitor to the popular Corona and Heineken imports.


Extraordinaire quickly gained market acceptance in the area and currently


accounted for about 23% of the company?s sales. The fourth product,


Escarpment Dark was a much darker, stronger brew with an alcohol content


of 5.5 (higher than ?standard? beer). The Brown and Dark products each


represented about 15% of the company?s revenues. These two products had


won silver and gold medals at the Octoberfest held annually in Kitchener,


Ontario during the late 1990?s. They also had a satisfactory market share, in


relation to direct competitors, according to Hopkins.


-2- Milton Microbrewery products were currently sold in six of the ten provinces


of Canada as well as in several of the northern states, notably New York,


Michigan, Vermont and Pennsylvania. About 40% of total sales were from


Ontario. Milton Microbrewery established suggested retail prices for its


products, in line with the perceived competition.


Because the Milton Microbrewery was a small, family-owned company, its top


executives were very active in all aspects of the business, ranging from


strategic planning to operational details. Tony Hopkins, in addition to his role


as Chief Operating Officer, supervised an outside sales force of four people


whose compensation plan was a salary plus a commission based on sales


volume quotas. Although each of the four had different areas of


responsibility, each had equal rank within the organization, They included


Dick Davies, national sales manager, Jacquie Budd, national sales


coordinator, Henry Karsh, key account manager, and Barbara Eden, Ontario


sales coordinator.


Mrs. Sadie Hopkins, who has the titles of Chief Executive Officer and


Controller of Milton Microbrewery, met with her husband to discuss the


financial issues facing the brewery at present. Sadie had expected the


company to reach its breakeven point last July or August when Escarpment


Extraordinaire started to sell so well. Unfortunately the sales curve for


Extraordinaire has leveled off rather than continuing to climb. In addition, the


company?s expenses were still too high, even though production is nearly at


plant capacity.


Tony and Sadie both recognized that the company needed additional


financing for plant expansion. They also recognized that it would be very


difficult to get financing at reasonable rates until the company started


showing a profit. Tony pointed out that the entire beer industry had


experienced a relatively low growth rate pretty much throughout the 1990?s,


and the picture was not likely to change appreciably during the first few years


of the new millenium.


Agreeing with Tony?s projections, Sadie said, ?The only way for us to reach a


break-even point (and eventually a profitable position) is to reduce our costs.


We?ll simply have to make some cutbacks in personnel and other areas of our


operations. Tony, I hate to have to say this, especially given our experience


when the bank restructured, but we?ll have to cut at least one person from


the sales staff.?


Tony?s response was predictable. ?I can?t afford to lose any of my sales staff,


Sadie. They are the ones in the field generating the sales that will make us


the profits ? not to mention that they are all working at 110% effort.? Sadie


responded, ?To leave your staff intact when the manufacturing and other


areas are cutting would cause unacceptable morale problems. They?d feel we


were favouring your ?pets?. Besides, we are so close to our goal that it could


be that just one person we let go will make the difference between profit and loss and will cause us to make it or break it. With the bank financing so


critical to our future, we have no choice.?


-3Finally, recognizing that he really had no alternative other than making a cut,


Tony went back to his office to review each of his salespeople.


Dick Davies, national sales manager. Dick was 37, married with two


children and another expected in four months. He had a master?s degree in


geology. Prior to joining Milton Microbrewery, Davies had been in charge of


selling joint ventures in the mining business for Bre-X. When Bre-X folded,


Davies went to work for a smaller company in Bancroft. After one year,


however, he and his wife decided that the change in lifestyle was too great,


and they were delighted to return to Mississauga, where they had previously


lived in the Bre-X days, when Dick got the job at Milton Microbreweries. His


responsibilities included the distribution of the product and ?pushing? the


product at the wholesale level. Most of his time was spent making sales


presentations. The job required him to be away at least one week a month;


however, as Milton Microbreweries became more established he had


anticipated being away for less time. Tony had received very positive


feedback about Davies? relationships with his clients, particularly with the


out-of-province people.


Jacquie Budd, national sales coordinator. Jacquie was 27, divorced, with


one child. Prior to joining Milton Microbrewery, Jacquie was an accountant for


Sleep Country Canada. She learned about the position at Milton Microbrewery


through its president, Christine McGee, with whom Sadie Hopkins played


tennis. She and Christine had remained good friends during the three years


that Jacquie had been with the company. Jacquie?s responsibilities were to


follow up orders with the distributors and wholesalers and to do the


accounting of all sales. Most of her work could be done on the phone, but she


did try to go into the field at least once a month for a few days. Tony felt that


Budd?s work went unsung: few others in the company realized how crucial it


was to have someone who could deal with the daily problems associated with


a complex distribution system.


Henry Karsh, key account manager. Henry was 45, married with three


children and a transplant from Montreal where he had been a commercial real


estate broker. Karsh moved to Ontario four years ago to accept a


management position with the relocation department of Remax. But when


the real estate market went through a downturn, Karsh?s remuneration was


drastically cut and he left to take the position at Milton Microbrewery. He felt


that he could be very happy working for a smaller company with a bright


future. Karsh?s job consisted of creating interest and demand for the products


at several levels. Most important were the large accounts across the country


and in the United States. Any one of these accounts could potentially order so


much product that production levels would have to be adjusted to


accommodate the account. He had created significant demand in New York


and Michigan for Extraordinaire. Additional responsibilities were to call on local trade organizations and to cover trade shows and events. Tony Hopkins


felt strongly that it was important to give the large accounts special


attention, and he also used feedback from Henry to develop various


promotional activities.


-4Barbara Eden, Ontario coordinator. Barbara was 35, single, with an MBA


in marketing. She was originally hired as an assistant to Dick Davies, but her


ambition and energy were such that she was given the Ontario region as her


own. Currently she was responsible for accounts receivable, licensing, and, in


Tony?s words, ?everything else that goes on in our backyard?. She spent up to


two weeks a month travelling around the province, which accounted for 40%


of the total company sales. The executive officers agreed that Eden was one


of the best at developing and keeping accounts. Recently she was given, with


Henry Karsh?s blessing, two key accounts that had reduced their reorders


over the last six months. Eden convinced them that the ?new? was not


wearing off Extraordinaire, and they did increase their orders. Unfortunately,


much of the product went unsold at the retail level. She was now


investigating ways to employ odd lot pricing that might be used to reduce


prices to certain accounts while adhering to the Competition Act


requirements. Of the four, Eden was the rep with whom Tony worked most




Tony and Sadie discussed the whole situation over breakfast the next


morning. Tony volunteered that Eden might be the logical choice to go


because the others together were in a good position to take over her work in


Ontario. Sadie countered that sales in Ontario were more important now than


ever because of the lower local distribution costs. Sadie also reminded Tony


that 40% of the company?s sales revenues came from Ontario. For these


reasons, she argued, Eden should be maintained in her present position. They


then briefly discussed each of the other three salespersons. Sadie admitted


that Tony was in a no-win situation regarding which of his people should be


let go. However, Sadie did point out that Tony could reassure the person that


he or she would be re-hired as soon as it was financially feasible to do so. MiltonCase


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