Deutsche Braueri
I. Introductory Paragraph
Deutsche Brauerei has been a family owned and operated corporation for 12 generations,
which has created a high level of focus and control. Each generation has kept the
management and operations processes relatively simple, centered on brewing practices and
quality. Deutsche Brauereis rapid growth in recent years can be attributed to several
factors. First and foremost, the companys success is centered on the product itself, which
has won numerous quality awards and is quite popular in Germany. Another contributing
factor to the recent growth may have been a bit inadvertent. The purchase of new
equipment in 1994, which was necessary as a result of a fire that destroyed the old
equipment, allowed the company to increase brewing capacity and efficiency. Finally,
Deutsche Brauereis decision to enter the Ukranian market in 1998 contributed significantly
to the rapid growth. The collapse of the U.S.S.R. brought market reforms, and Deutsche
Brauerei jumped on the opportunity to enter the fragmented beer industry, capture the large
population and capitalize on the prime location in Europe. Lukas Schweitzer was savvy
enough to hire local expert Oleg Pinchuk away from a competitor as the marketing
manager, and Oleg was instrumental in building the business in Ukraine by securing
accounts and implementing the field warehousing to support distributors. Deutsches beer
was hugely popular in the Ukraine almost immediately, and volume sales more than offset
the depreciation of the Ukrainian currency. Sales in Ukraine accounted for 28% of
Deutsches total sales, and skyrocketed from 4,262 euros in 1998 to 25,847 euros in 2001.
II. Statement of the Case Problem
Greta, niece of Lukas and a recent MBA graduate, has newly joined Deutsches board of
directors and must make a recommendation on three issues: the financial plan for 2001, the
declaration of a quarterly dividend, and adoption of the proposed incentive and
compensation package for Oleg. The financial plan includes a 7 million euro investment in
new plant and equipment for the Ukrainian operations in 2001, followed by a 6.8 million
euro investment in 2002 for a new Ukranian warehouse and distribution center. This is a
significant investment, and the practicality of rooting themselves in the Ukraine in this
manner needs to be fully assessed before Deutsche commits to such an expensive
endeavor.
The quarterly dividend proposed is 698,000 euro, an amount equal to 25% of the projected
2001 dividends. However, this dividend increase is based on projected earnings, and
several factors affect whether those earnings will materialize.
