Case

ChemCo Foods

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Problem Definition

A chemical producer is a major manufacturer of chemical products used to preserve foods in containers. The company has seen an increase in market share, but the company has also seen a decline in profits. Our client, the CEO is worried about this trend and hires you to investigate what is going on.


Comments

Candidate needs to understand qualitatively what is going on with the client's business without relying on quantitative calculations.

Asking the right questions should help candidate figure out what is going on in overall.


Short Solution (Expand)


Detailed Solution

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Suggested case structure:

I. Background

Ask candidate first if she understands the concept of an increase in market share before moving forward, as it can mean different things and it might not be so straightforward as candidate might think.

Information shared with candidate after asking the question 'what does increase in marketshare mean?'

  • A market share number is a percentage, not an absolute number.
  • It can mean that client has outbeat competition and increased his marketshare.
  • It can also mean that competition has left the market.
  • It can also mean that the overall market is shrinking, but client's sales are decreasing less than its competitors.

II. Analysis

From here on, candidate should lead the case by using the profit framework and asking questions on revenue, costs and competitor's moves.

Share Diagram 2 with candidate to view company's performance.

Based on candidate's question, interviewer can share the following information in case required:

  • Variable costs per item have not changed in the past years.
  • On the revenue-side, client has seen an increase in the volume output which is higher than the industry average, but prices have decreased.

Based on this information, candidate should ask to compare the revenue-insights with competitors.

  • Competition has decreased and some players have exited the industry.

Candidate should keep asking on the exiting of competitors to understand what is going on.

  • Competitors were losing money with a feeling that the market has saturated.
  • The industry on overall has seen negative numbers with a decrease in demand for the product.

Candidate should stick with the competition and the industry as a whole and should note that client might had to lower prices due to lower demand.

  • There are no substitute products on the market - consumers want fresh food now and not preserved food.
  • The food industry is also losing money and is pressuring suppliers to renegotiate raw material prices.
  • Client gained marketshare due to exit of existing suppliers.

III. Solution

Main findings:

  • Client has gained market share through exit of competitors.
  • Prices have gone down and costs stayed the same explaining the fall in profits.
  • Structural change in consumer trend that's affecting the entire industry and its suppliers negatively.
  • Preserved food as a product maybe at the end of its product life cycle.

Recommendation:

  • Client should focus on cost reduction to maintain profitability since prices are falling.
  • Client should look for partnerships with other suppliers to strengthen negotiation position.
  • Client should diversify its product portfolio and develop new products/enter new markets.


Difficult Questions

  • To secure a future, should client acquire direct competitors or food manufacturers?
    • Should acquisition be an option at all?
    • Under what circumstances?
Related consulting question(s)
Best answer so far out of 2 answers:
McKinsey / Accenture / Got all BIG3 offers / More than 300 real MBB cases / Harvard Business School

Hi, 1) You proactively ask in the beginning, even before drawing the structure (something like "What kind of products / revenue sources do we have) and then split the structure into price, qty,... (more)

Best answer so far:
McKinsey Engagement Manager & BCG Consultant | Interviewer at McK & BCG for 7 years | Coached 50+ candidates secure MBB offers

Hi Kay, this is indeed one of the fundamental things that you need to learn in order to rigorously disaggregate the value drivers of a business. The driver tree allows you to identify the numerical d... (more)

Hi Elisey, I would personally not recommend to use a single framework for all the so-called business situations (M&A, Entry, New product, Operations etc). Although this would help to more easil... (more)

Best answer so far out of 4 answers:
Bain & Company London | University of Cambridge | CV/Resume writing | 770 GMAT

Broadly agree with Jonathan. A couple extra suggestions: 1) Subscribe to Finimize: They will send you daily updates with recent business/finance news, and explain what is happening (and why) in Lay... (more)

Best answer so far out of 4 answers:
#1 Expert for coaching sessions (1600+) | Ex BCG | 800+ reviews with 100% recommendation rate

Hi Moji, it seems your issue is not the math computation, but rather how to structure the math part once you receive a question (that is, the logic behind that you should apply). This means you sho... (more)

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Case exhibits