Market Sizing Approach in 7-Eleven Case

Cases Market analysis market entry Market sizing
New answer on Apr 30, 2020
6 Answers
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Anonymous A asked on Apr 14, 2020

Hi there,

I'd like to hear your thoughts on how to answer to market sizing in limited geographies, such as in this 7-Eleven Case I was given.
I performed so and so, therefore I decided to restructure my answer, and I want to hear your point of view.

Question (simplified): what's the market sizing (number of customers) of a new 7-Eleven in an urban neighborhood of 100K residents? Assume no tourists, no non-resident workers. 7-Eleven does not typically have capacity issues.

My answer (revised)
I can think of four ways:

  1. I can estimate the market share: starting from the potential market, I can estimate a market share based on the number/positioning of similar shops
  2. If we don't have such information, I can base my estimate starting from product/service, by: a) Estimating the potential market and the penetration rate for our cafeteria services (product area 1) b) Estimating the potential market and the penetration rate for our small shop services (product area 2) c) Considering the intersection between a and b
  3. If those estimates seem too blurred, I can base my estimate starting from customers, by assuming a penetration rate for different customer segments (divided by e.g. age, income, proximity, etc.) I can also mix approaches 3 and 4, by basing my product-centered analysis on different customer segments
  4. If none of these approaches are doable, I can estimate the number of hourly/daily customers based on my experience in similar shops

Is this approach good? Would you add/remove/modify something?
I have tried to tailor it to the case.

Thank you

VJ

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Adam
Expert
updated an answer on Apr 16, 2020
Ex Bain/ A.T. Kearney: Principal with >10 years global consulting and recruiting experience and >150 interviews

Hi,

I think I would start with customer segments (broad buckets) and then make some assumptions about basket size and store traffic.

You could think about customer segments linked to the time of day (i.e. 'use-case'):

  • There are probably a few peak times in the day where we might have commuters shopping on their way to and from work. Perhaps in the morning buying coffee, snacks etc and in the evening buying bread milk etc, on their way home.
  • There is probably another segment purchasing around lunchtime, buying soft drinks, sandwiches etc.
  • There is probably a steady flow of 'convenience' customers through the day buying miscellaneous items

With this type of problem, it’s always best to keep it as simple as possible. Here I would allocate a % of population to each segment (i.e. penetration), multiply by frequency to get traffic and then assume a basket size for each purchase occasion.

Hope this is helpful!

Kind Regards,

Adam

Edited to remove typos!

(edited)

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Vlad
Expert
Content Creator
replied on Apr 15, 2020
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

It will depend on wether 7-11 is at the gas station or standalone:

  • For standalone you need to assume the % of use cases (7-11 is a convenience store, so more for day to day small grocery shopping) and then the geographical area it covers and % market share
  • For the gas station - you need to calculate the total number of gas stations in the city and the traffic for one. Then you add the % of those who do the in-store purchases

Best

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Clara
Expert
Content Creator
replied on Apr 15, 2020
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Agree with Vlad, depends on whether it´s attached or not to a gas station (+ other factors such as location, competition -and when is this open-, etc.)

Cheers,

Clara

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Antonello
Expert
Content Creator
replied on Apr 30, 2020
McKinsey | MBA professor for consulting interviews

Hi, in addition to the solutions proposed by the other coaches in the discussion, I would like to suggest similar cases in the platform to practice with:

Hope it helps,
Antonello

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RUBEN updated an answer on Apr 16, 2020
Junior Strategy Consultant, London - Looking for New Opportunities

I favour Vlad´s answer. First, I will ask whether the 7-11 is standalone or is a gas station. Let´s assume it is not a gas station as Vlad covered that perfectly in two lines.

I would investigate three critical points:

  • Location
    • I would ask if it is a neighbourhood of detached/semi-detached houses or big buildings. For example, if you assume 100 people per building, that is an area of 1,000 buildings to cover 100k residents. Unless people drive everywhere it seems unlikely that the store will be able to cover more than 50% of the residents. We assume the store is not next to a mall or an important landmark
  • Demographics
    • Average size of a household in the neighbourhood. If it is a family-oriented neighbourhood, consider that the kids are likely to buy sodas and slurpees
    • Is it a bedroom community or a commercial area?
    • Income level: for example, you can argue that low income families are more likely to have night-shifts and be more drawn to what the store offers
  • Competition: You will have to consider the % market share. You could enquire about the number of convenience stores and small-basket supermarkets around your area

Just in case, I would ask if they want you to provide the # of unique customers or elaborate on a # of visits per period. If you must elaborate, just multiply the addressable market by a daily frequency factor taking into account the demographics and the location - and adjust it by competition.

Best

(edited)

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Thomas
CoachingPlus Expert
Content Creator
replied on Apr 16, 2020
150+ interviews | 5+ years experience | Kearney & Accenture | Sold consulting startup| London Business School

Hi there,

A segmented demand approach would be best here. Purely looking at standalone stores, there will be a significant difference (e.g. small neighborhood store vs store in a mall). I would hypothesize that location is one of the most critical elements and it is also an easy way to segment.

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Adam gave the best answer

Adam

Ex Bain/ A.T. Kearney: Principal with >10 years global consulting and recruiting experience and >150 interviews
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