Estimate the number of branches a burger joint should open in a certain city?

estimation Market sizing
New answer on Mar 02, 2021
5 Answers
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Anonymous A asked on Feb 19, 2021

Hello,

I just want to make sure that this general formula to solve this question is valid:

# of branches = (number of people that go out to eat burgers during peak hours * potential market share) / number of customers 1 burger joint can accommodate during peak hours

(edited)

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Clara
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replied on Feb 19, 2021
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

This is a very typical market sizing case, where the key steps are:

  • Calculate the total population
  • Calculate the % of population that could be interested in this product (this could be done by clustering -the classical ones are age groups, purchaching power, etc.-)
  • Calculate the % of the total adressable market that any firm in particular could have -in case it´s asked only-.

For that cited market share, consider how many restaurants need to be open.

I see you only take into consideration rush hour and accomodation during it, but what about take out? It´s huge, and growing.

I would then rather estimate the # of shops considering kitchen outocme capacity during rush hour.

Hope it helps!

Cheers,

Clara

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Henning
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updated an answer on Feb 20, 2021
Bain | passed >15 MBB interviews as a candidate

This makes sense.

However, the potential market share is a complex one. You should not just make up a number (e.g. "I think they can get to 10% market share"), but break it out further. There are a myriad of dimensions you could look at, but a few important ones could be:

  • What's the current supply in the market? How many joints are there already?
  • What is the client's market share in other markets where they are more established?
  • Is the new city comparable to others in their customer preferences and does that resonate with the client's brand? (e.g. is the client's brand playing to testosterone-fuled, BBQ-loving cave men, while the new city is a center for veggie-loving hipster culture?)

(edited)

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Ian
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replied on Feb 19, 2021
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

This is about right. However, I'm not sure I agree with potential market share. Rather, I'd try to estimate demand vs supply (i.e. how many people exist + eat burgers versus # stores and store throughput)

Additionally, when it comes to market sizing you of course need to break this equation down even further to get reasonable estimates!

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Denis
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replied on Mar 02, 2021
Ex-Bain 5 yrs | Goldman Sachs Investment Banker NYC | MBA Chicago Booth | Passed > 13 MBB > 20 IB interviews

2 points on market sizing in addition to everything that has already been mentioned:

1) communicate the overall approach clearly before you even go into the details (before you take a minute off for your formula). Most candidates immediately lose themselves in a jungle of formulas, approaches, formulas, etc. without making sure that the interview is in the picture of what is going on what you are doing. There is nothing worse than going down the math rabbit hole while your interview (or client on a case for that matter) is already lost or does not agree with the approach. Tell the interviewer you will be:

  1. think about different approaches, both bottom-up / top-down (e.g. population is typical bottom-up approach, top-down in this case would be to apply a top-down proxy such as ppl per burger joint in a city you grew up with to have a 80/20 range). Pick the best approach, which is typically the one requiring you to make the fewest number of assumptions and which is the quickest.
  2. take a minute to come up with formula / algorth / logic tree or whatever you want to call it. tell the interviewer you will discuss your formula with him
  3. discuss required assumptions (either specific numbers or ranges), as well as what is driving those assumptions. actually discuss the assumptions and pause here and there to see if your interviewers wants to speak up - do not just go through the case lost in your little bubble
  4. do the math. transparenty.
  5. tell the interviewer once you have a result you will sense-check it. e.g. by using the 2nd best approach you identified earlier or by stress-testing the assumptions used earlier.
  6. next steps: if you had more time, what would you do to improve the quality of your result.

2) Really make sure that steps 1-3 are solid. Most candidates have the urge to tackle every possible market sizing by going the bottom-up population approach. Yes, this may be the best approach for some market estimations, but certainly not for all. Justify why you pick a certain approach and what exactly you d do to get to the result. Ideally you are in agreement with your interviewer even before you go into the math.

Best,
Denis

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Gaurav
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Content Creator
replied on Mar 01, 2021
Ex-Mckinsey|Certified Career Coach |Placed 500+ candidates at MBB & other consultancies

Hi there,

I think it's a good approach for the start! However, don't miss out on the suggestions of the coaches.

If you want to practice more market sizing questions:

  • https://www.preplounge.com/en/consulting-forum/estimate-number-of-traffic-lights-in-a-london-5692
  • https://www.preplounge.com/en/consulting-forum/how-to-estimate-the-size-of-the-bottled-water-market-in-france-9286
  • https://www.preplounge.com/en/consulting-forum/estimating-of-cryptocurrency-owners-market-sizing-9180
  • https://www.preplounge.com/en/consulting-forum/how-many-wealthy-people-are-in-the-uk-8819
  • https://www.preplounge.com/en/consulting-forum/how-would-you-estimate-the-market-size-for-video-games-in-the-usa-9427

Hope that helps!

GB

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Clara gave the best answer

Clara

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