BCG Case Style - Online Groceries [NEW]

Information to be shared only under request:

• The client operates 5 large-to-moderate-sized supermarkets across San Francisco and is one of the major players in the city.
• The client sells a whole range of products through its stores, from apparel and groceries to electronics and kitchenware; however, only groceries will be sold online.
• The client will be setting up the online grocery delivery business from scratch without any acquisitions or partnerships.
• The goal of the client is to increase profits by $5M from this venture in the first year.
• The client does not have a specific budget constraint; as long as the initiative generates an attractive rate of return, the firm can raise the necessary funding.

Example of an excellent answer (score: 2)

GOAL CLARIFICATION

An excellent candidate would clarify the objective in terms of amount and timeframe, budget constraints, and better understand the supermarket’s operations.

STRUCTURE

A great candidate would include in the analysis the following elements:

1. Profit potential of the online groceries business:
   1. Direct results
      1. Revenue potential (derived from market size and share that the client may reach)
      2. Associated costs
   2. Synergies/cannibalization (mention possible cannibalization of in-store grocery sales)
2. Capabilities of the client to launch:
   1. Financial
   2. Non-financial
3. Risks and next steps

The candidate may include additional elements, but there should be a rationale related to the objective of the client.

COMMUNICATION

An excellent candidate should present clearly the different areas in a structured way.

Moreover, the candidate should clearly present the rationale for why he/she wants to explore a particular point, connecting the answer to the objective of the client.

Suggested score

An excellent candidate should:

1. Clarify the goal of the client
2. Include the main elements in the structure as presented above
3. Communicate the structure in a clear way

Recommended score calculation: starting from 2, decrease the score by 0,5 points down to 0 for any of the following:

• The candidate did not clarify the objective
• The candidate missed points 1 or 2 in the structure (not including risks and next steps is tolerable)
• The candidate included several useless elements in the structure (i.e., boiling the ocean)
• The candidate communicated the structure in a disorganized way or without a clear connection to the goal

Information to be shared only under request:

• Estimate the market in US Dollars.
• San Francisco population (metro area) = 3.3M
• Do not consider the online sales of other goods beyond groceries (e.g., electronics, apparel)

Possible structure:

• Average spend per order (1), times
• Number of online grocery orders per year
  • Number of households ordering groceries online (2), times
  • Number of online grocery orders per year per household (3)
     

1. Average spend per order = $80
2. Possible way to estimate the number of households ordering groceries online:
   • San Francisco population = 3.3M
   • People per household = 3
   • Households = 1.1M
   • % of households interested in online groceries = 20%
   • Market in households = 220k
3. Number of online grocery orders per year per household - calculated as for the following table:

Number of online grocery orders per year = 220k * 24 = 5.28M

Total market = 5.28M * $80 = $422.4M

Suggested score

An excellent candidate should: 

1. Take a reasonable amount of time to think of a structure
2. Present the structure clearly
3. Perform the computation without mistakes and present it clearly
4. Do a sanity check of the results

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not identify a reasonable structure
• The candidate made mistakes in the computation
• The candidate did not clearly communicate the structure or computation
• The candidate did not comment on the result / consider if it is reasonable

Information to be shared only under request:

• The candidate can assume a market size of $400M for simplicity (instead of the result estimated earlier)
• The average delivery costs are inclusive of everything (e.g., transport, labor, packaging) and is borne by the client
• The client is currently planning to offer free deliveries

Example of an excellent answer (score: 2)

Approach:

1. Revenue from venture = market size * expected market share = $400M * 20% = $80M
2. Contribution margin on online grocery deliveries = (avg. spend per order – avg. cost of goods sold – avg. delivery cost) / avg. spend per order = ($80 - $50 - $6) / $ 80 = $24 / $80 = 30%
3. Contribution from venture = revenue from venture * contribution margin on online grocery deliveries = $80M * 30% = $24M
4. Profit from venture = contribution from venture – fixed costs = $24M - $20M = $4M

The profit from launching online grocery delivery ($4M) is less than our profit target of $5M; therefore, this opportunity alone is not enough to reach the target and we should look into how we can improve profits as a next step. 

Suggested score

An excellent candidate should: 

1. Take time to structure the approach
2. Communicate the structure to follow before starting computations
3. Perform the computations correctly
4. Contextualize the profit in terms of the profit target

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not set up the right analysis
• The candidate did not communicate the approach before beginning with the computation
• The candidate made mistakes in the computation
• The candidate did not contextualize the final profit figure

Example of an excellent answer (score: 2)

An excellent candidate would identify at least 6 ideas. Possible answers are the following:

Profit Improvement:

1. Improving revenues
   1. Increasing order size
      1. Leveraging recommendation algorithms to upsell customers (e.g., you might also be interested in…)
      2. Introduce buy-now-pay-later to promote more spending
      3. Offer promos such as bundling
   2. Increasing number of orders
      1. Leverage newsletters to inform customers of new offers
      2. Set up a recurring order function
   3. Additional fees / charges
      1. Charging delivery fees
      2. Charging extra for immediate delivery
2. Reducing costs
   1. Offer a pick-up option with some financial benefits (e.g., cash rebates if you collect in person)
   2. Increase delivery range time so more orders can be consolidated per trip

Suggested score

An excellent candidate should: 

1. Take some time to think of the question
2. Identify at least 6 possible ideas
3. Structure the ideas and illustrate them clearly
4. Present ideas that are tailored to the situation of the client

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following:

• The candidate did not take time to answer
• The candidate did not provide a structure to brainstorm
• The candidate provided few answers / answers that are too generic / answers that are not focused on the objective
• The candidate did not present the answer clearly

Example of an excellent answer (score: 2)

The candidate should:

1. Recap the objective
2. Provide an answer-first approach to the question asked
3. Mention risks and the next steps to take

RECAP OF THE OBJECTIVE

“Our client asked us to help assess whether they should enter the online grocery deliveries market.”

ANSWER-FIRST APPROACH TO THE QUESTION

“Based on our initial analyses, our preliminary recommendation is that they should not enter. This is because the venture will only generate $4M in profit in Year 1, which is 20% lower than the target of $5M"

RISKS AND NEXT STEPS

“Furthermore, there are some key risks associated with such a move, the main ones being:

• The assumption of a 20% market share in Year 1 might not be realistic given that we would be starting from scratch
• We have no prior knowledge/know-how on operating a delivery business and would need to build up the necessary capabilities

That being said, there is potential to make this financially feasible. Hence, we would like to analyze additional elements before making a final recommendation, such as: 

• Exploring some of the profit improvement ideas such as recommendation algorithms, recurring orders, and passing on delivery fees in more depth
• Double check the numbers underlying our business case (especially on expected market share)
• Conducting a more rigorous risk analysis and coming up with mitigation strategies for the identified risks”

Suggested score

An excellent candidate should: 

• Recap the objective of the case
• Recommend not to enter the market unless additional profits are identified as the goal would not be met otherwise
• Mention possible risks and propose next steps related to the original structure and/or to implement the suggested approach

Recommended score calculation: starting from 2, decrease the score by 0.5 points down to 0 for any of the following: 

• The candidate did not have an answer-first approach
• The candidate presented the conclusion in a disorganized way
• The candidate did not provide reasons why the client should not go ahead with the online groceries venture
• The candidate did not conclude the recommendation proactively, mentioning the next steps