1. Different Channel
For example, the firm could start selling bottled water.
The interviewer should keep challenging the candidate for more ideas. For instance, you could reject this idea saying it would be difficult to implement without incurring additional costs for distribution, packaging, branding, etc.
2. Expand into other regions
Currently, the firm serves the southwest region of the USA. Since the company has additional capacity, it should consider expanding into other regions of the country. Regulatory concerns come into play when discussing such a geographical expansion.
Past history suggests that local people and businesses are not very supportive with respect to the expansion of German firms.
3. Merge with another firm
Merging with a local firm and dropping the German name should be considered.
The case is designed to be presented to the candidate by an interviewer, who plays the role of a representative of the German owned water company.
There is no real answer to the problem, hence the candidate should be evaluated on the type of suggestions he makes.