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2.2 Marketing Management and Decision Making:

In order to achieve a successful marketing response, marketing management is an important business aspect that focuses on the coordination and review of goods, costs, promotions, sales forecasts, and target market. To satisfy growing competition and the need for better sales strategies to minimize costs and raise revenues, marketing strategy has gained prominence. Therefore by evaluating goods, costs, target market size, advertisements, and revenue forecasts, it is important for us to control the market. In detail, we are going to serve the mainstream beer and locally sourced craft beer prices ranging from $5.50 to $6.50 retail and $3.50 wholesale depending on the distribution channels and brand. As predicted, the two flagship and signature beer brands, Pilsner and Bavarian Lager would consume more target market size than the other standard products. Furthermore, Pilsner, Bavarian Lager, and Light Wheat will largely rise when the summertime starts, both of them experienced over 2% increase. Besides, we decide to invest a comparatively moderate marketing cost for various advertising channels, such as local advertising, social media, and setting up a website.

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2.3 Financial Management for Decision Making:

Because of the superior location and position as a high-end restaurant, but affordable for local office workers and college students, the major monthly fixed expenditures are rent, material cost and labor. As the passive expectation of the Covid-19 pandemic, the volume of customers would be relatively lower than before. However, our business strategy is to keep the growth level the same even though business shrinks this year. We take two basic approaches to increase the intrinsic value: increase the Free Cash Flow and decrease the weighted average cost of capital (WACC) at the same time. To increase the Free Cash Flow, we will consider the options such as raising the price of drinks, slightly decreasing the portion of marketing since the brand name is more mature, and entering the food delivery market to expense the target consumer. At the same time, we will cut the expense by setting up the digital payment system to cut the labor cost and adjusting the investment of the items according to the sell performance. Additionally, reducing the loan to save the interests since we have a good operating performance to generate more profits. Seeking a more beneficial interest rate loan if we plan to expand the size of the restaurant. Because the revenue of the restaurant is seasonal, we can hire the employees flexibly, hiring part-time employees during June to September, and keeping the minimum employees to meet the demand in winter.

 

3.0 Methodology for Applying Decision Tools per Cycles

Swot analysis:

SWOT analysis is an extremely useful decision support tool that allows us to examine both internal and external factors when making a decision. From an internal standpoint, we will take a look at our own strengths and weaknesses as a business. To evaluate external factors, we weigh the opportunities versus the threats that exist with regards to our brewpub. Below we explore each of these factors in more detail.

PESTELE is another useful decision tool and acronym for Political, Economic, Social, Technological, Environmental, Legal, and Ethical factors that may affect a business decision. The last category, Ethical, is actually a recent addition to the framework but one that is of growing importance in today’s society.

SWOT Analysis:

Strengths: One of the main strengths of our brewpub is our location. Located near the Boston Aquarium on the waterfront. we have a prime location that will see a high level of foot traffic on a daily basis. The level of foot traffic both domestic and tourist based can help provide a steady demand for our business. A second strength is our unique offering of locally sourced craft beer. While large breweries exist in Boston. there are few locations that provide the intimate craft beer experience of a brewpub such as ours. Lastly, a strength of ours is our strong marketing. Again capitalizing on our location and the high level of traffic, we plan to invest heavily in our local advertising in order to appeal to a local audience.

Weaknesses:

As with any new business there will of course be weaknesses. One of our weaknesses will be a lack of experience. While we have experience operating a service business in the current restaurant, we do not have any experience running and managing a brewpub. This is a weakness that we will need to address with retraining of employees as well as through the outside hiring of personnel with the expertise we need. Another weakness we have is that due to our small operation size, we cannot afford to produce large quantities without appropriate expected demand. The cutoff points we must rely on are determined by expected demand and limit our production flexibility which could lead to issues with meeting different levels of demand. Lastly, our wholesale production will require 200sq feet in additional space in order to implement. This additional space will drive our fixed costs and overhead up as we have to pay for an addition to the current location increasing our rent and utilities costs. We deem this to be a necessary evil however, since our wholesale business has the potential to be quite lucrative.

Opportunities:

One of the primary opportunities with pursuing the brewpub business is that we will be able to capitalize on growing craft beer demand in the US. The average industry growth rate since 2015 has been 4.4% and is even projected to see 2.1% growth in 2020 despite complications with COVID-19, indicating the industry is as enticing as ever from an entrance standpoint (Reference 1). There is clearly demand for craft beer with 175 craft breweries in the state (Figure 2) and multiple in Boston’s Seaport district alone (Cisco, Harpoon, Trillium, etc.) which is an encouraging sign in making the decision to start our brewpub. Our smaller scale puts us in a position to focus on customer turnover and ensuring we keep a steady stream of traffic flowing through the pub. Lastly, being a new business in the area we can use this to our advantage as we market the business as a “new experience” in Boston attracting locals and tourists.

Threats:

A major threat that stands out to us is definitely malfunctioning equipment. Our fixed costs upfront in FY1 will be high with the addition of the brewpub since we will be starting from scratch purchasing all of the needed equipment. The possibility of malfunction serves to be a major threat since we have little to no experience operating the equipment it will be difficult for us to troubleshoot issues that may arise, especially early on. Another threat that comes with the northeast environment is the weather. With our brewpub being located in Boston, the frigid winter weather can prove to be very costly as we ensure temperatures remain appropriate to have our operation continue year round. This could prove to be easier said than done as we can see other breweries like Cisco Brewers in the Seaport, operate on a seasonal basis. Included in the threat of inclement weather is changing consumer preferences. We will do our best to account for seasonal changes in demand but it is impossible to completely eliminate uncertainty when it comes to how the demand will adjust depending on the season.

PESTELE Analysis:

Political:

Political factors to be considered in pursuing the brewpub business opportunity include local government expectations and regulations for restaurants and businesses. Understanding the local political landscape is important as it can have a significant effect in times of uncertainty such as what we are living through now in COVID-19. In accordance with Governor Baker’s Order No. 53 (Reference 2), we saw a curfew of 9:30 implemented across the state which significantly impacts restaurants’ ability to generate revenue.

Economic: Understanding the economic impact of the craft beer market and the restaurant industry in general within the state is extremely important to take into account when making a decision on whether we want to open this brewpub. The craft beer industry continues to see steady growth in the United States Market. Despite a 2% decline in beer volume sales in the US, craft beer sales grew 4% by volume reaching a total of 13.6% share of the U.S. beer market by volume (Reference 4). Further, the craft beer industry in Massachusetts ranks 14th in the country with an economic impact of $2,124 million (Figure 2). With that being said, rising labor costs could prove to be costly and would definitely be a factor to keep a close eye on moving forward.

Social:

The true value of the brewpub business is the experience it provides to the consumer. You can get craft beer at the liquor store on the corner but you come to the brewpub for the experience, to have a social outing and enjoy those craft beers amongst friends. The location of our brewpub is subject to high levels of foot traffic with the Boston Aquarium and waterfront attractions, which is beneficial as groups of people look for a place to continue their social outing. Adding the brewpub to our business portfolio diversifies our offering as 9/10 consumers say they enjoy going out to eat at restaurants and 3/4 consumers say dining out is a better use of their leisure time than cooking and cleaning up. The number of craft breweries in the US has been trending upwards since 2015 and most recently saw 9.1% growth from 2018 to 2019 with the number of brewpubs specifically growing by 7.3%. An encouraging trend that would appear to indicate a significant opportunity to market our business as a local craft beer experience, in line with the consumption of craft beer continuing to grow in the country and locally.

Technological:

A significant technological factor that we must consider is the need for appropriate equipment in order to produce our craft beer offerings. We do not have any experience or existing expertise with this equipment so it will be extremely important to stay up to date with appropriate brewing technology. Another form of technology to keep in mind is the payment platform. We likely have existing infrastructure from our restaurant that could be transferred to the brewpub but it is also an area that we can lower our labor costs by providing table-side electronic ordering. This can contribute to the overall customer experience as 26% of consumers indicated they would choose one restaurant over another based on the availability of tableside ordering and payment technology.

Break-Even Point

In the cycle 5, the break-even point is 7.82 months, which is efficient and fast in the beer industry. You can see in the break-even analysis chart, our total fixed cost stayed stable that illustrated we control the expenses and plan it ahead. The total cost was increasing at a moderate rate, and it reflected we made several institutional decisions like hire more salesman and workers to expand the business. The total revenue was growing at a fast-rate speed, which means our investments increased the productivity and stimulated sales. The profits showed the brewery was developing healthily.

In cycle 2, we have total revenue of $1,267,685 and total expenses of $391,721. The total contribution is $875,965 with a 69.10% contribution margin. That brings us a 3.34 months break-even period with $352,408 sales. Then in the cycle 3, we got total revenue of $1,349,538 and total expenses of $419,059. The total contribution is $930,479 with a 68.95% contribution margin. That brings us a 3.14 months break-even period with $353,044 sales. Our break-even point reduced from 3.34 months to 3.14 months which means we need to spend more time to get our initial investment back. This decision is not only good for break-even point but also increases our Return on Investment (ROI) from 8.32 to 8.95.

· BEP unit is 5.58 months and in dollars it is $$379553

· Total revenue increased from $735492 to $816172, breakeven point reduced from 7 to 5.95, breakeven sales also reduced from $428870 to $404584

· From cycle 6 to Cycle 10, Total fixed decreased from $282862 to $265362, breakeven point reduced from 5.95 to 5.58, breakeven sales also reduced from $404584 to $379553.

 

What-if Analysis

Assuming other variables that will influence the company finance stays stable, such as policies, tax rate, costs, prices, quantities, transportations, and then increase the fixed cost from $602,891 to $650,000, the break-even month will be 8.38 months instead of originally 7.82 months, and the break-even revenue will be $942,740. If reduce the fixed cost to $500,000, the break-even month will be 6.45, and the break-even revenue will be $752,185.

From these data we can recognize the trends that when the fixed cost increased, the break-even months increased by 0.56 month, and revenue dropped. When the fixed cost decreased, the revenue increased and the break-even months shortened by 1.37 month. It tells us that keep a steady fixed cost will help the business to grow on a stable rate. It means the breakeven months will be shortened to the optimum quantity, and revenue will be maximized to the ideal amount. Regulate the fixed cost to the minimum will also leave large space for our company to use the revenue to develop new products, hire more employees, and more publicity

· In what if analysis, we changed the value of the variable and then observes the resulting changes in the outcome variable.

· For cycle 10, if We increase the fixed cost to $250000; the revenue will not change and it will same as $816172.82, The breakeven quantity will decrease to 5.25 months and Breakeven sales also decrease to $357021

· If We decrease the fixed cost to $230000; the revenue will not change and it will same as $816172.82, The breakeven quantity will decrease to 4.83 months and Breakeven sales also decrease to $328459

· If we change the variable cost of a BR01-01 to $1.50, the break-even point will change into 5.78 and the revenue is $392850

· If we change the selling price per unit in BR01-01 to $6, the break-even point will change into 5.24 and the revenue is $372213.

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