Deutsche Brauerei

Deutsche Brauerei Case Analysis and Proposal

Company Background

Deutsche Brauerei is a German brewery founded in 1737 and owned by the Schweitzer family for 12 generations. Headquartered in a village outside of Munich, the company expanded into the Ukraine in 1998 following the dissolution of the U.S.S.R due to surplus production capacity and resolved to penetrate the new market that had developed in Eastern Europe.

In January 2001, Greta Schweitzer joined the board of directors. She requires assistance in determining how the company should proceed into the future to achieve optimum financial results and maximize future profit. Approval of the 2001 financial budget, the declaration of the quarterly dividend policy, and evaluation of the compensation package of Oleg Pinchuk are the issues being addressed in the January board meeting.

Expansion into the Ukraine

The Ukraine was strategically attractive given its relatively large population of 52 million and its location within Central and Eastern Europe and was entered by Deutsche using a network of independent distributors. When the Russian debt crisis hit in 1998, the Ukrainian hryvna depreciated around 50% against the Deutsche mark within three months. Deutsche Brauerei overcame the effects by increased sales volume. By early 2001, Ukraine accounted for 28% of the Company’s sales. Thus, the sales volume growth over the past three years can primarily be attributed to Ukrainian sales.

To handle the increased sales volume, the financial plan includes a €7 million investment in new plant and equipment for the Ukrainian operations in 2001, followed by a €6.8 million investment in 2002 for a new Ukrainian warehouse and distribution center. This is a significant endeavor, and further funding to the Ukraine in this manner needs to be fully assessed before Deutsche Brauerei undertakes such an expensive investment.

Oleg Pinchuk

Although Pinchuk was able to set up a distribution line from scratch in the Ukraine,...