This summary deals with a German company planning to enter the US market. The company “Oettinger Brauerei GmbH” 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. 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.
Table of Contents
1. Introduction
2. Breaking Even on the US Market
2.1 Strategic issues
2.2 Calculating the BEP for Oettinger
3. Recommendation
Objectives and Topics
This executive summary investigates the economic feasibility of the German brewery "Oettinger" entering the US market by applying a break-even analysis to evaluate cost structures and revenue potential.
- Strategic analysis of market entry for German breweries in the US.
- Application of the Break-Even Point (BEP) concept to manufacturing business scenarios.
- Evaluation of fixed and variable cost structures in an international context.
- Assessment of the margin of safety to determine financial risk thresholds.
- Strategic recommendations based on cost-leadership and profit zone attainment.
Excerpt from the Book
2.2 Calculating the BEP for Oettinger
To calculate the BEP one has to know about estimated sales revenues and costs per unit. These should be delivered by market research. The related functions will be set equal and the resulting point symbolizes the beginning of Oettinger’s profit zone.
First, sales numbers are estimated. Therefore, a certain target market has to be determined. For purposes of this summary it is assumed that the potential US target market will buy 1,000,000 bottles of Oettinger’s standard brand in 2010. The price in € is 0.49, which equals $0.64. Therefore, revenues per bottle are $0.64, total revenues equal $640,000. The related linear function is f(x) = 0.64*x.
At this point it is important to keep an eye on the accounting period. Here, for simplicity reasons, it is one year. Referring to the matching concept, one has to account for the related expenses in the external accounting frame – as break-even analysis is an internal concept, it does not refer to related expenses but to the fixed and variable costs incurred per unit produced. This implies the possibility to depict the related costs with a (linear) function within the same graph as the sales revenues function.
Chapter Summaries
1. Introduction: This chapter introduces Oettinger’s plan to enter the US market to counteract declining domestic beer consumption and highlights the necessity of a break-even analysis.
2. Breaking Even on the US Market: This section details the strategic importance of market research and defines the mathematical approach to calculating the break-even point for the US expansion.
2.1 Strategic issues: This chapter discusses the necessity of defining marketing strategies and production capacities before calculating the break-even point to ensure a successful market entry.
2.2 Calculating the BEP for Oettinger: This chapter applies specific cost estimations and linear functions to determine the exact number of units required for Oettinger to cover costs and enter the profit zone.
3. Recommendation: This section concludes that, based on the break-even analysis and supporting financial metrics, Oettinger should proceed with its entry into the US market.
Keywords
Oettinger, US market entry, Break-Even Point, BEP, contribution margin, fixed costs, variable costs, margin of safety, profit zone, cost leadership, managerial accounting, market research, beer brewing, financial risk, relevant range
Frequently Asked Questions
What is the primary focus of this paper?
The paper focuses on the economic viability of the German brewery Oettinger entering the United States market, specifically utilizing break-even analysis to assess financial feasibility.
What are the central topics discussed in the summary?
The central topics include cost-leadership strategies, calculation of break-even points, management of fixed and variable costs, and the importance of market research for international expansion.
What is the main research question or goal?
The primary goal is to determine if Oettinger can successfully break even in the US market and to evaluate the financial requirements and risks associated with local production.
Which methodology is used to evaluate the brewery's prospects?
The author uses a managerial accounting approach, specifically applying break-even analysis (BEP) and defining cost functions (fixed vs. variable) to evaluate potential profitability.
What does the main body of the document cover?
The main body covers the strategic challenges of entering a new market, the mathematical calculation of the break-even point for Oettinger's products, and the interpretation of the margin of safety.
Which keywords best characterize this work?
Key terms include Oettinger, Break-Even Point, US market entry, cost leadership, contribution margin, and financial risk assessment.
What is the calculated break-even point for Oettinger in this scenario?
Based on the provided assumptions of $0.64 revenue per unit and $0.40 variable cost per unit, the calculation concludes that Oettinger must sell 625,000 units to reach the break-even point.
How does the "margin of safety" impact Oettinger’s strategy?
The margin of safety shows that sales could drop by 375,000 units (37.5%) compared to the 1,000,000 target before the company incurs a loss, providing a buffer for management's decision-making.
- Quote paper
- Erik Silge (Author), 2009, Breaking Even in the US Market: The Oettinger Brewery, Munich, GRIN Verlag, https://www.grin.com/document/129809
