[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

 

closely.

 

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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