FastFood Chain Turnaround

Note for Interviewer

The candidate's initial structure could be a typical profitability framework which should cover both revenue and cost.

• Under revenue, the candidate should further breakdown to average price, quantity (i.e., # of transactions), and sales mix. Some candidates might miss out on the mix, in which situation the interviewer can push the candidate to think what he/she has missed out. There are multiple possible ways to cut the mix, by channel, store, etc., as long as the candidate can propose one reasonable way.

• On the cost front, the candidate should be able to list down a few common cost items including COGS (mainly raw materials), rent, SG&A etc.

The candidate might ask a few clarifying questions before putting down a structure. When asked, the following can be provided to the candidate.

• Products: the main product is fried chicken, with sides and drinks

• Stores: the client has > 20 stores in the city. These stores are in similar type of locations and are with similar sizes (in terms of space)

• Channel: the client sells both offline in the physical store and online on a delivery platform

Note for Interviewer

After the candidate puts down the structure and starts asking about sales performance, share Exhibit 1 with the candidate. A good candidate should be able to identify a few key insights:

• Sales was relatively stable until a significant drop in 2024

• Gross margin % remains stable, which implies COGS (as % of sales) has not changed much and is not a big issue

• Net profit is a lot worse. This is driven by the combination of (1) significant sales drop, and (2) not enough reduction on costs below COGS to cope with sales drop

The candidate should then further break down sales to its components. When asked about price, you can share with the candidate that the average price or translation size (in $) has remained the same. With this information, the candidate should realize that the main issue lies with transaction volume drop. The candidate should ask further on breakdown of the transaction volume, ideally proposing a few potential ways to slice the data (e.g., by channel, by store etc.).

Next, share Exhibit 2 with the candidate and ask for his/her observations. The candidate should be able to observe that compared to competition, FastFood Co is lagging behind in delivery sales (in volume). They need to catch up on increasing their delivery sales. When asked, you can share with the candidate that FastFood Co has been on a delivery platform since 2020, but they haven’t really paid much attention to whether they are getting the best out of it. Because they are getting orders online, so they assume it is working well.

Ask the candidate to brainstorm what can be done to increase the delivery sales. 

Note for Interviewer

After the candidate finished analysis on sales, he/she should remember to move to the cost part. Remind the candidate if he/she forgets to do so. Share Exhibit 3 with the candidate and ask for his/her insights. When asked, the following information can be shared with the candidate:

• Assume competitors are similar in scale with client

• Depreciation is predefined in earlier years and hard to change

The candidate should spot that FastFood Co has higher costs, compared to benchmark, particularity on rent and depreciation. Depreciation is hard to change, but there should be levers to improve on rent.

Ask the candidate what the client could potentially do to reduce rent costs. Potential answers include re-negotiating with the landlord for a special discount, exploring closure/consolidation of uneconomical stores, consider cloud kitchen that caters only for delivery etc.

Note for Interviewer

Once the cost part of the case is sufficiently discussed, ask the candidate to summarize his/her findings and make recommendations to the client.