This case tests the candidate's ability to structure a capital allocation decision with quantitative analysis across two operational initiatives. Both projects yield identical $10M cost savings over 10 years, requiring candidates to move beyond pure financial metrics to evaluate strategic alignment with the client's growth objectives and assess non-financial risks like operational complexity and technological obsolescence.
Our client is a large craft brewery that primarily sells beer nationally through its distribution network. The brewery has grown from an annual production of 100,000 BBL (beer barrels) three years ago to 500,000 BBL today. The brewery packages its beer in kegs, which are used to serve beer on tap at bars and restaurants, and into 24-pack cases of cans, which are purchased at stores and consumed later.
The CEO is preparing for the annual board meeting and has asked us to investigate two initiatives. There are currently $20 million available in the budget and the company would like to identify how to best employ these funds. While they are always interested in new opportunities for growth, the two initiatives focus on making their current processes more efficient. The first initiative is a recommendation to purchase kegs outright rather than renewing a long-term agreement to lease them from a national provider. The second is a recommendation to purchase an upgraded canning and packaging system.
How would you advise our client?
What are the brewery’s primary goals moving forward? The CEO is primarily interested in identifying which option provides the best opportunity for cost savings. Given the company’s trajectory over the last three years, they are also interested in projects that support future growth.
What portion of the brewery’s production is packaged in kegs vs. cans? Of the 500,000 BBL produced, 60% is packaged in cases of cans and 40% is packaged in kegs.
How many kegs and cases are in one BBL? Each BBL (approximately 31 gallons) produces two kegs or fourteen 24-can cases of beer.
How does the value chain work? The brewery will produce beer and package it in either kegs or cases of cans. Nearly all the kegs and cans are then sold to a network of national distributors, who in turn sell them to restaurants, bars, and retail stores, who sell them to the end consumer.