Market sizing: Milk consumption

estimation estimation market sizing Market sizing milk consumption
New answer on Oct 10, 2019
3 Answers
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Anonymous A asked on Oct 10, 2019

Hi guys,

I need our input on two things;

  1. A general question: The population of Norway is 5.3 million. That is a very difficult number to use with mental math. Both 1/80 (each age group) and 1/3, ¼ (different segmentations) are not clean enough for me to use in the market sizing. Neither is 5.5 million. 5.2 million is OK. My question is basically; should I go with 5.2 million here, or is it possible to round down to 5 million? That would make my life considerably easier, but at the same time, I think it is somewhat a stretch in terms of rounding.
  2. Over to the market sizing; a friend got this market sizing in an interview recently, and I am not sure how to approach it. I give it a shot below:

How much milk is consumed in Norway each year?

  • Lets go with a population of 5.2 million
  • I do not think it makes sense to segment the population by age, as a 13 year old girl might on average drink as much milk as a 60 year old man. I will segment it by how much of a “milk-drinker” they are
    • Does not drink milk (20%)
    • Drink small amounts – 5 glasses a week – 1 every weekday (50%)
    • Drinks a lot of milk – two glasses every weekday – 10 glasses a week (30%)
  • This gives
    • Does not drink milk = 1 million x 0 = 0
    • Drink small amounts = 2.6 million x 5 = 13 million glasses
    • Drinks a lot of milk = 1.6 million x 10 = 16 million glasses
  • This gives a total of 29 million glasses a week, or round of to 30 million glasses a week.
  • One glass of milk is about 3 dl, so that gives 90 million dl, or 9 million litres a week
  • So the total consumption of milk then becomes 9m x 50 weeks a year = 450m litres a year

My problem is that consumption of regular liquid milk is not the only “source” of milk, and that was exactly what my friend was failing at during his case. How should I incorporate the fact that we consume A LOT of milk through other food? How would I structure/segment that?

Best

L

(edited)

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Antonello
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Content Creator
replied on Oct 10, 2019
McKinsey | MBA professor for consulting interviews

1. You can use 5m. With all the assumptions you are going to make, this first approximation is not important. I recommend asking the interviewer something like "Can I use 5m to facilitate the calculation?". 99% of the interviewers will not only let you go with it but also appreciate the simplification.

2. In every market sizing, you should always consider all the possible sources of revenue/ways of using the product. In this case, you should first of all divide in 2 the problem, in order to investigate all the milk consumption:

  • liquid milk
  • milk-based products: dairy products (cheese, yogurt, butter...), ice cream, chocolate, biscuits...

Now you can start to assess the first bullet. Your solution scheme is pretty good, maybe the numbers are too high. I would have added some details, to transform it in a great answer. E.g. when you mention the segment of people who do not drink milk you can make some customized examples (lactose intolerants, infants, some people on diet, vegans, ...). I think this segment is quite larger than 20% (maybe something like one third?), but here you do not need extreme accuracy, so 20% will be considered fine as well. Use common sense.

Completed the first sizing, you should go with the second bullet. It is more complex since all the market mentioned should be treated separately. You could ask the interviewer whether you can make a top-down estimation (like considering the whole point counting three times the first bullet). This is a very strong assumption and you will certainly lose a lot of accuracy, but at this point, the interviewer will have already assessed your problem-solving skills and common business sense, but at the same time, you do not miss any part of the problem. You can say something like "a further effort should be spent to address all the market, starting from its bigger missing parts, like dairy products and industrial milk-based products".

Best,

Antonello

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Vlad
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replied on Oct 10, 2019
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

1. You can use 5 m

2. The older the person gets the less is the milk tolerance, thus it depends on the age

3. You can use your personal example and calculate the average dairy products consumption during the week and then extrapolate

Best

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Giulia
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replied on Oct 10, 2019
McKinsey Business Analyst | 3+ years Experience | MBA at LBS

Hi,

For the general question, I would check with the interviewer. The interview is a conversation, thus try saying "I would like to approximate to 5 m, is it ok for you?". If the interviewer says yes, fine, if says no, go with 5.3. Afterward, when you are going to divide by 3 or 4, you are going to round up the result to make your life easier (always checking with the interviewer)

For the milk question, I would actually have approached it with households. Because, as you said, we can use milk to cook cakes, pasta, doing sauces and so on. Thus I would have considered in a household, saying 3 people per household, 3 meals per day. Then consider the percentage of these meals on a weekly basis are prepared with milk and then consider the amount of milk used per meal. And that's for households. Then, you have to consider corporates that use milk to produce other stuff (yogurts, cheese, energy drinks, ...). And this is another market size, taking quantities of products produced and how many liters of milk are needed per product into account.

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Antonello

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McKinsey | MBA professor for consulting interviews
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