Case Statement:
Our client is a retail chain with 36 convenience stores. Since the CEO of the chain changed in 2018, the client went on an expansion spree and opened 72 additional stores, but the client is seeing plateauing sales and reduced profitability. Identify the reason.
C: I’d like to start by understanding a little more about our client. Firstly, could you tell me a bit more about the location of the stores?
I: Our stores are prominently located in the most populated areas and are spread out evenly across Delhi-NCR.
C: Next, I would like to understand the any particular product category or customer segment we cater to?
I: Most of the products are high demand goods, available in all pack sizes. The product assortment is mostly targeted towards youth; however, we cater to the older age segment as well.
C: Alright. Do we also have any information about the performance of our competitors? This will help us understand whether the plateau in sales is happening industry wide or is isolated to our client.
I: All the other retail chains have seen a steady ~10-12% growth in revenues for the past few years. However, our client has only seen a ~2-3% growth despite opening the new stores.
C: Is there any major factor which differentiates our client from the competitors?
I: While there’s no major difference in terms of the product portfolio or the location of the stores, we are the only chain which operates 24x7.
C: Hmm, that’s interesting. I’ll just take a moment to process this information before deep diving into the case.
C: Alright. So, as I understand it, we have two major causes of concern. One, that our profitability is reducing, and two that our sales have plateaued despite opening new stores
C: The latter seems to be a precursor to the former, considering our costs (capital investment, utilities and other operating expenses) would’ve gone up too. Therefore, I’d like to start by addressing the sales issue first.
I: That’s right, let’s focus on the issue of stagnant sales only.
C: Sure. We can break down as (Sales per store)*(# of stores). We know that the # of stores have increased. Therefore, the sales per store would’ve reduced to keep the overall revenue constant. Do we know if the growth in sales for any specific stores of the 108 have reduced?
I: No, the issue persists for all of our convenience stores.
C: Alright. I’d like to further break down the sales per store as (# of customers)*(avg. # of orders per customer)*(avg. basket size per order). Do we have any information regarding the change in any of these metrics in the past year?
I: All of the three factors you mentioned have stayed the same.
C: Interesting. While I can imagine the avg. # of orders and the basket size to stay the same with the opening of new stores, I would’ve expected the # of customers to have gone up. I’d like to further explore into this.
I: Yes, that was the rationale behind opening new stores. Sure, go ahead!
C: I’d like to look at both the internal and external factors behind the stagnant customer base. In internal, I’d look at factors like awareness of our new stores, availability of desired products, and the in-store experience (quality standards, ambience etc.) and location of the new stores. Within external, I’d like to see the impact of change in demand, regulatory barriers and competition on our performance.
I: So, we’ve done our internal assessment, and the reasons you listed don’t seem to be the issue. Why don’t you focus on the external reasons for now?
C: Great. Do we know of any regulation changes lately, which might’ve caused hinderance in our operations, for example on opening stores at night etc.?
I: No, there hasn’t been any change in the government regulations.
C: Alright. Correct me if I’m wrong, but I’d like to rule out the possibility of any competitive moves which might have hampered our performance, since
their growth has stayed the same. This also brings me to the third aspect, which is demand. Since the competitors aren’t eating up our share of the market, there might be limited demand in the market, possible say in the youth segment, which forms our major revenue source.
I: Yes, there hasn’t been any change in competitor’s strategies which would provide them an edge. As you mentioned, our major source of revenue is youth. More importantly, it’s the youth that visits during the nighttime. ~80% of our revenue comes from the visits between 1am to 6am. However, this late-night market has been stagnant and had already been captured by us with the 36 stores we had. Therefore, opening the new stores didn’t bring us a lot of new customers during the night, thereby plateauing our revenues. Thank you, we can close the case here.
C: Thank you.
Background Information:
Company: Retail chain with 108 outlets
Competitors: We are the only chain which operates 24x7
Product: Most of the products are high demand goods, available in all pack sizes. The product assortment is mostly targeted towards youth.
Geography: stores are prominently located in the most populated areas and are spread out evenly across Delhi-NCR.
Case recommendations:
Focus on the fact that differentiates our client from the competitors.
Ask for some additional time to synthesize the information if you are stuck.
Scoping played a very crucial role in this case.
The case began with an introduction to the candidate and a few BQs.
