Breaking Even in the US Market: The Oettinger Brewery


Essay, 2009
9 Pages, Grade: 1,0

Excerpt

Table of Content:

1. Introduction

2. Breaking Even on the US Market
2.1 Strategic issues
2.2 Calculating the BEP for Oettinger

3. Recommendation

Literature

1. Introduction

This summary deals with a German company planning to enter the US market. The company “Oettinger Brauerei GmbH”[1] is engaged in the business of beer brewing. It is a well established brand on the German market with a rapidly growing market share. The company has discovered a competitive gap in brewing a brand beer and distributing / selling it at a low price – they promote their products with the slogan “Germany’s price-worthiest brand beer”. The same strategy could be pursued on the US market, as there are already foreign beers (e.g. from Belgium, Netherlands, and from Germany), but those are relatively expensive. This is due to the fact that only upper scale brands from Europe have yet entered the American beer market. Furthermore, as the total percentage of beer brewed in Germany is declining, there is an upcoming need for German beer producers to search for new markets abroad.[2] A strategy including new markets will help the German company to extend its safety margin. Therefore, it is essential that it is sufficiently sure that the company is able to break even with its products in a new market.

To successfully transfer its strategy of cost leadership, Oettinger will have to produce its beer locally in the USA to save import fees and distribution costs. There are some issues that arise with this option concerning accounting, taxes, finance, and law – this summary will concentrate on the facets and problems the company may face before breaking even in the US market.

Additionally, because the company is a rather small brewery considering its market capitalization, it has not the financial strength like for example the giant brewer Inbev. The economic side of entering this new market should include both economic and risk related aspects. This paper will therefore primarily deal with the concept of the break-even point (BEP) and some options to reach it. Therefore, the German business approach will be taken into account to depict Oettinger’s cost-saving strategies.

2. Breaking Even on the US Market

2.1 Strategic issues

Reaching the BEP is essential in every business. Especially in manufacturing businesses the numbers e.g. for production costs are relatively easy to quantify. Nevertheless, there are certain strategic issues a company will have to deal with when considering entering a new market. Among these are especially marketing strategies – Oettinger will have to scrutinize the US market potential to come up with realistic sales numbers for the break even analysis. Therefore, the strategy to reach this amount of sales has to be defined – this is a key issue of the BEP, which exactly allows determining the amount needed to enter the profit zone. Therefore, a precedent condition for this analysis is market research, followed by the analysis itself, which helps setting up a strategy to enter a new market. On the other hand, it shows whether it makes sense at all to enter a new market or to introduce a new product, respectively, and which production capacities will be needed. Speaking more general, the BEP is the point in which “gains equal losses”.[3]

Another approach is to describe the BEP as the point in which fixed costs equal the contribution margin – this in particular means that in this point the total fixed costs are exactly offset by sales revenues minus variable cost.[4] This is a more useful approach to the understanding of this managerial instrument as it refers to the sales needed to cover the fixed costs. On this basis, the strategic requirements and future success of a certain business idea can be evaluated.

[...]


[1] This company will be referred to as “Oettinger” in the rest of this text for simplicity reasons.

[2] Compare to canadean.com and beveragemarketing.com.

[3] Source: Investopedia.com.

[4] Compare Anthony / Hawkins / Merchant (2007), p. 488ff.

Excerpt out of 9 pages

Details

Title
Breaking Even in the US Market: The Oettinger Brewery
College
Pfeiffer University, Charlotte Campus
Course
Accounting
Grade
1,0
Author
Year
2009
Pages
9
Catalog Number
V129809
ISBN (eBook)
9783640392445
ISBN (Book)
9783656415855
File size
418 KB
Language
English
Notes
This essay deals with a hypothetical Break Even Analysis of a German company, considering the market environment in the USA.
Tags
Breaking, Even, Market
Quote paper
Erik Silge (Author), 2009, Breaking Even in the US Market: The Oettinger Brewery, Munich, GRIN Verlag, https://www.grin.com/document/129809

Comments

  • No comments yet.
Read the ebook
Title: Breaking Even in the US Market: The Oettinger Brewery


Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free