Case Study Question

MAGLOM KITCHEN + BREWERY: A QUEST FOR SURVIVAL

On the evening of September 30, 2016, Michael Beechie was standing in front of his newly opened microbrewery and restaurant on Windsor Avenue, Kingston, Jamaica: Maglom Kitchen + Brewery (Maglom). The business was a dream come true for him, and Beechie reflected on the journey he had taken since laying the foundations for Maglom. He had put a great deal of hard work, time, and money into this venture; over the past two years, Maglom had required an investment of US$1 million. Beechie had not only built a world-class restaurant, but also hired the best possible team to run Maglom. This team comprised a highly experienced general manager, 10 specialty chefs, three front desk managers, and 20 service staff.

Beechie had selected his restaurant's name, "Maglom," from an African recipe book: it meant "just right" not too much and not too little. True to its name, the quality of craft beer and food served in Maglom were of the highest class, boasting high-quality ingredients, perfect flavours, and innovative presentation (see Exhibits 1 and 2). Maglom had a British-manufactured microbrewery unit capable of producing three types of beer. With seating for 140 customers, the restaurant had a lively ambience with a state-of-the-art music system and a wide collection of albums. Maglom was situated in Kingston, along with many business parks and malls.

Upon opening Maglom, Beechie had expected to recover his initial capital investment within three years. However, within only nine months of the restaurant's opening, he had to revise this estimate to five years. He pondered the business environment changes since he had first started working on this venture. The growth of sales had been slower than he had anticipated. In light of the changing external environment, Beechie wondered about various strategic options. Should he alter Maglom's product offerings, or increase the price of the menu items? Should he increase the focus on corporate customers by undertaking exclusive tie-ups, or should he increase Maglom's social marketing efforts to attract customers from nearby condominiums? Beechie had only two weeks to act before the situation became critical.

THE BEER INDUSRTY IN JAMAICA

According to Jamaica's 2011 census, the country was home to 2.9 million people, and 50 per cent of Jamaica's population was below the age of 25. In 2016, Jamaica's estimated annual beer consumption was 18 litres per capita, compared to Trinidad's 40 litres per capita. Trinidad had seen strong growth in beer consumption since 1995, but Jamaica had not seen much growth in this area. Beer consumption in Jamaica lagged behind the same in Trinidad for two reasons, social and cultural.

Despite these factors, Jamaica's large youth population still presented an opportunity in the beer market. As per one estimate, Jamaica's beer market was nearly doubling every five years; 200 million cases of beer

were sold in Jamaica in 2013, and 300 million were sold in 2015. These figures clearly indicated a high- growth pattern. If Jamaica's per capita consumption grew by one litre, 400 new large breweries producing 1 million hectolitres would be required to meet this demand. Thus, Jamaica's largely untapped potential made it a choice location for large breweries looking to expand.

There were three major beer companies operating in Jamaica: Desnoes and Geddes (Diageo PLC), Ecofarms Meadery, and Red Stripe Distribution Centre. Other major beer brands in Jamaica included Kingfisher, and Heineken.

The Microbrewery Industry

Over the past few years, Jamaica's beer industry had changed rapidly because of the introduction of craft beer and microbreweries. In Jamaica, a microbrewery was defined as a brewery that produced limited amounts of beer, typically consumed on its own premises; these operations were also called craft breweries. Microbreweries or craft breweries were known for their quality, freshness, and brewing techniques. In 2016, entrepreneurs indicate that there is a cult, around microbreweries and craft beer is growing. Once you have had this [craft beer], you will never have that yellow, fizzy, industrial stuff they call beer.

Since its inception in Jamaica in 2009, the microbrewery industry had witnessed unprecedented growth. Jamaica has been witnessing the cultural rise of weekend parties and eating out. In metropolitan area, large numbers of people preferred to eat out during weekends, and even during the workweek. The culture around beer consumption was also changing: many women began showing an inclination towards beer and social drinking. Beer was considered safe to drink among youths, and craft beer was gaining popularity as a favourite drink for parties.

The wide availability and implementation of microbrewing technologies led many restaurants to install microbrewery units, and as a result, the market witnessed intensified competition. "The beer market is the fastest-growing alcohol segment in Jamaica by consumption and revenue change, especially with the entry of microbreweries about five years ago, and microbreweries' growth is a result of the easy availability of technology from other Caribbean countries including Trinidad," said Beechie in one interview.

The following factors may have accounted for the fast growth in microbreweries across Jamaica: the product was freshly made with excellent taste, and was considered less harmful to health than other alcoholic products; the culture around craft beer was growing, as many young people enjoyed it; and Jamaican consumers were experiencing an increase in disposable income.

The Microbrewery Industry: Outlook and Challenges

While the microbrewery industry was growing, microbreweries still faced many operational and external environmental challenges. Beer in Jamaica was highly taxed, and each parish had a complicated tax structure. Additionally, there were stringent liquor laws, licensing difficulties, high real estate costs, and a lack of skilled labour for the highly technical job of brewingonly one school in Jamaica provided a degree in brewing technology. Training even a microbiologist student in brewing techniques took two years. Further, because of the high ingredient costs, craft beer was more expensive to make than bottled beer.

Demographically, metropolitan cities in Jamaica, such as Kingston and Montego Bay, were best suited for the industry, as these cities were home to many young professionals with higher disposable incomes. According to estimates, Jamaica's craft beer market was expected to reach $35 million in 2016.

The Microbrewing Process

Most consumers saw craft beer as an all-natural product that was made using four ingredients: malt, hops, yeast, and water. Commercial beers, in contrast, used sugar, maize, rice, and other adjuncts, along with enzymes and preservatives, which some argued made it less healthy. Craft beer was also unfiltered, which left it with a higher protein content. Each type and style of craft beer had its own unique character. Bill Blang, brewmaster at Maglom, explained, "There are four primary factors for judging the profile of a beer: appearance, aroma, taste, and finish. One that is perfectly balanced and has all these characteristics is a beer you [will] enjoy drinking." Microbrewing involved eight steps (see Exhibit 2). Though these steps were typically used in most microbrewery units, it was said that brewing was an art rather than a technique.

Microbrewery Unit Set-up: Licensing in Jamaica

Some parishes in Jamaica had allowed licensing for microbrewery units: Kingston, Montego Bay, Portland St. Catherine, and St. Andrew. The excise commissioner of the Government of Jamaica, stated, he had permitted at the airport a couple of years ago, but the concept didn't take off. With the increase in disposable income and lifestyle changes, the government has now extended the facility in the National Capital Region (NCR) where there are quite a few restaurants and pubs. There were two types of licensing options; one was for serving fresh beer in a restaurant, and the other additionally allowed the bottling of fresh beer.

MAGLOM KITCHEN + BREWERY

Maglom opened in March of 2016 on Waterloo Road in Kingston. The restaurant's location was ideal, as it was situated at the centre of a corporate hub that served as the headquarters of many information technology companies. Among young consumers, Maglom was known as a good place for food and drinks. The restaurant offered three freshly brewed craft beer options: German Wheat, Fantastic Lager, and Dark Knight (see Exhibit 1).

The restaurant offered a relaxing fine dining experience that emphasized entertainment and a family atmosphere. Guests could spend a cheerful evening socializing, enjoying craft beer and delicious food, and listening to a live band. Maglom earned $15 revenue per customer (which was more revenue than its competitors earned), and each customer spent an average of $10 on craft beer and $5 on food and snacks (see Exhibits 4, and 5).

According to Jamaica's 2011 census, Kingston, had a population of about 1.244 million people, and was one of the fastest-growing corporate cities in Jamaica. Many Fortune Global 500 companies were headquartered in Kingston, and owing to high employment rates, income levels were increasing. Waterloo and Windsor Roads were key destinations in Kingston for food and entertainment.

Marketing Strategy

Maglom had hired a dedicated marketing manager to create demand and promote its unique selling point. The company relied on social media as its main marketing platform, and it had received positive reviews on various review websites. Still, Maglom was unable to secure the required footfall to make the operation profitable.

Operation

Maglom had installed its microbrewery units in an area to one side of the restaurant, protected by a glass window so that customers could see the brewing process in action. On the opposite side of the restaurant was a bar, and a seating area filled the middle. Maglom also had space for private parties of up to 50 people. Overall, the company's operations were divided into five parts: (1) craft beer production was managed by the operation manager, and the key responsibility of this department was to ensure the quality and production of the craft beer; (2) the cooking department was responsible for cooking various dishes served in the restaurant; (3) the purchasing department was responsible for buying all raw materials; (4) the marketing department was responsible for increasing footfall; and (5) the service department, which had the most employees, was responsible for handling customer interactions, and taking and delivering orders (see Exhibit 5).

Leadership Team

Maglom was founded by four partners: Beechie, Bob Lake, John Singh, and Robert Foster. Beechie, the founder and chief executive officer of Maglom, had 15 years of experience in the hotel industry. The other founders were not actively involved in the business. Beechie had worked with several top hotel brands, such as the Grand Hyatt, Sandals Hotels, Pegasus, and Park Hotels. He had immense experience in managing restaurants, and his passion for quality and innovation was evident at Maglom. Beechie had initiated the new concept of turning the restaurant into a nightclub on Saturdays.

Pete Davey was Maglom's general manager and a very experienced professional. He had 12 years of hospitality industry experience, and he had worked at renowned hotels in Kingston and Montego Bay. Davey described Maglom's appeal: "There are some regular customers who have a preference for our craft beer and some of the specialty food we serve. We also have very relaxing environment to ensure that customers feel relaxed after a full day of work."

COMPETITION

The microbrewery Doolally was launched by two graduates of the Institute of Marketing & Management who had pioneered the microbrewery concept in Jamaica in 2009 and worked hard to lobby regulators to allow microbreweries to operate in the country. After running a microbrewery in Kingston, they opened two Doolally outlets in Portland and St Catherine.

Montego Bay and Kingston were the fastest-growing locations in Jamaica for microbreweries. In 2013, Kingston had 10 microbreweries; by 2016, this number had grown to 33. Waterloo Road was quickly becoming the top business destination in Kingston because of the large availability of corporate space. Kingston had three main areas for food and dining: New Kingston, Hope Road, and Waterloo Road. Waterloo Road, in particular, had many top microbreweries and restaurants, including the following firms, which posed significant competition for Maglom.

Crown Brewpub

Located at Mall Plaza on Waterloo Road, Crown Brewpub (Crown) was the 10th microbrewery in Kingston. It was a popular destination in Kingston for beer lovers. Crown had European-made microbrewery equipment and offered four types of beer. Mall Plaza contained Grand Cinemas and restaurants that attracted good footfall, and Crown offered discounts and commercial tie-ups to further increase footfall.

There was increased footfall from younger customers on weekends because, according to the restaurant's manager, they enjoyed the freshly made beer. Crown also had a branch in Chandigarh, North Jamaica.

Real Tap

Real Tap was another popular microbrewery on Waterloo Road in Kingston. It had seven branches, and the Waterloo Road branch was located at Vatika Business Park, one of the corporate hubs there. The company was especially popular among families because of its high-quality food. The microbrewery, which used a Chinese microbrewery unit for brewing, served three types of craft beer, and at times offered live music. Real Tap had positive reviews on social media. Open Tap's manager said, "People come to Real Tap for good-quality food and music."

Fortune Select Global

Fortune Select Global was a five-star hotel situated on Waterloo Road. Due to the popularity of craft beer, the hotel had installed a microbrewery unit in its hotel caf so that it could serve fresh beer to its guests. The caf was known for its weekend offerings. Its marketing strategy focused on attracting families.

EXHIBIT 1: MAGLOM CRAFT BEER MENUE (INR)

Maglom Beer Types German Wheat

A traditional wheat beer originating from Germany with a refreshing and distinctive flavour of banana and clove.

Pint (330mL)80

Mug (500mL) 150

Pitcher (1.5L)415

Tower (3L)795

Fantastic Lager

A light-bodied lager with high notes of malt brewed according to German purity laws; its unique malt flavour will leave a long-lasting flavour on the palate.

Pint (330mL)80

Mug (500mL)150

Pitcher (1.5L)415

Tower (3L)795

Dark Knight

As the name suggests, a beer dark in colour mixed with special German chocolate malt; a heavy-bodied beer that leaves a hint of roasted malt.

Pint (330mL)80

Mug (500mL)150

Pitcher (1.5L)415

Tower (3L)795

EXHIBIT 2: THE MICROBREWING PROCESS

Milling Whole-malted grain is milled (portioned and cracked) to allow it to absorb water. This in turn helps to extract sugars from the malt.

Brew Water Preparation Large copper tanks are used to delicately prepare and store treated hot and cold water, which are essential components in the later stages of the brewing process.

Mashing The milled grain is then added to hot water, where it is mashed and steeped to extract the soluble goodness from the grain and create the character of the beer.

Wort Boiling The mashed liquid is then transferred to the second copper tank, where the spent grain is filtered from the still-hot liquid to obtain the wort. Here, hops are added to the wort, and it is boiled further.

Cooling The wort, once brewed, is cooled rapidly to the ideal fermentation temperature (16-22 degrees Celsius). The cold water that was prepared and stored earlier is used as a coolant in this process.

Fermentation The cooled wort is transferred into a sterile fermenter filled with fresh yeast. The yeast cells quickly metabolize the sugars into alcohol, natural carbon dioxide, and flavour esters, transforming the wort into beer.

Conditioning The beer is filtered from the yeast and transferred to the serving tanks, where it is conditioned for a couple of days to achieve flavour improvisation and the optimum level of carbonation.

Finished Beer About 60 days after the start of the conditioning process, the beer is ready to be served. Ideally, it should be consumed at seven degrees Celsius.

EXHIBIT 3: MAGLOM COST DETAILS

Cost Detail

Cost in US$

Microbrewery Equipment

410,448

Kitchen Equipment

186,567

Air Conditioners

29,851

Licensing Cost

7,463

Music Systems and Televisions

29,627

Furniture

74,627

Operational Expenses per year

Staffing

179,104

Rent and Electricity

74,627

Licence Renewal Fee (every second year)

7,463

Maintenance

8,955

EXHIBIT 4: PROFITS AND LOSSES (IN US$)

Month

Jan

Feb

Mar

April

May

Jun

Jul

Aug

Sept

Sales

14, 925

22,388

29,851

37,313

44,776

41,791

44,791

44,776

47,761

Raw Material

Costs

5,970

10,448

13,433

16,418

20,896

19,403

22,388

23,881

25,373

Variable Margin

Costs

8,955

11,940

16,418

20,896

23,881

22,388

22,388

20,896

22,388

Operation Costs

21,891

21,891

21,891

21,891

21,891

21,891

21,891

21,891

21,891

Gross Margin

-12,935

-9950

-5,473

-995

1,990

498

498

-995

498

Interest Cost

6,157

6,157

6,157

6,157

6,157

6,157

6,157

6,157

6,157

Earnings after Interest

-19,092

-16,107

-11,629

-7,152

-4,167

-5,659

-5659

-7152

-5,659

EXHIBIT 5 - MAGLOM ORGANIZATIONAL CHART

EXHIBIT 6: ANALYSIS OF MAGLOM AND ITS COMPETITORS

Maglom Kitchen Brewery

Open Tap

Crown Brewpub

Fortune Select Global

Food Quality/Cuisine

Very good, Jamaican, intercontinental, Chinese, Mexican

food

Very good, known for its Chinese food

Very good North Jamaican food

Very good Jamaican and intercontinental food

Beer/Quality/Types

Very good, three types

Three types

Very good, four types

Good

Seating Capacity

140

100

100

120

Ambience

Very good

Excellent (inside a corporate hub)

Excellent (inside a shopping mall)

Very good

Social Media Presence

Excellent

Good

Very Good

Good

Music

Excellent

Excellent

Marketing Strategy

Social Marketing

Word of mouth

Social Marketing

Offer to nearby

condominium residents

Professional Attitude

Excellent, 5- star hotel

Good

Good

Excellent

Based on the above Beechie has asked you to present a "Detailed One Year Growth Plan" within the next two weeks that will enable him to achieve his objective.

questions

1.An analysis of the Problems/Issues

2.Strategic Objectives. Ensure these objectives are SMART. And be aligned with the problems/issues and recommendations.

3.Recommended Strategies. Be sure to consider and assess Beechie's strategic options that he seemed to have explored. You can make assumptions in this instance

4.A risk analysis when considering your recommended strategies

5.Implementation Plan

6.A Budget Forecast/Financial Plan

Your plan must also address/assess the following key elements:

7.Assess the main environmental changes (according to the PESTEL) analysis happening to

the microbrewery in Kingston

8.Use the Porters five forces model to determine how profitable is the microbrewery industry in Jamaica

9.Complete a SWOT analysis that will inform your plan for achieving Maglom's objective

10.Why does it seem that Maglom will not achieve a return on investment (ROI) in three years as planned?