Surf 'n' Turf

You can share with the interviewee the following information: Product lines are Fine meats (High-quality meat, e.g. Steak / Filet cuts), Sausages (Lower quality meat sausages), Sauces (Mustard / Ketchup)

Sales channels are Wholesalers + Supermarket chains

An excellent interviewee would ask clarifying questions to understand the situation better. Some good questions would be:

• "I understand the client has a limited product portfolio. Is there already additional information on what types of products are included in the portfolio?"
• "Do we already know if there has been a specific one-time event or if there was a general downwards trend in the client's profitability"
• "Do we have historical information on the clients' profit?"
• "What are the clients' distribution channels?"

A good structure could be tailored along the profitability framework:

1. Understand revenue
   • Prices
   • Volumes
2. Understand cost
   • Fix cost
   • Variable cost

An excellent candidate would analyze the following

• The clients' revenue is growing healthily
• There seems to be a cost problem
• Next step: It would make sense to analyze in-depth each of the three business segments for their profitability

A good candidate would analyze the following:

• Business segments Sausages and Sauces are both profitable and growing
• The fine meats segment is growing but has recently seen increased cost leading to a negative margin- this seems to be where the overall problem comes from
• (Excellent candidates only) Next step: It would make sense to analyze in-depth the cost structure of the fine meats business segment

Possible options to analyze the cost structure are:

• Fix / Variable cost analysis
• Unit economics analysis
• Value chain analysis
• Benchmarking

If the candidate asks for information about revenue and costs estimations you can share the corresponding parts of Exhibit 3.

The candidate can assume for simplicity that the production capacity equals exactly what the fish farm operator would be ready to purchase.

Additionally, need to take into account the savings from not having to pay the $ 3 million in fines for the disposal of the side products. 

Overall, EBIT contribution of $ 3,205,450 (~ $ 3.2 million) to be expected. 

The candidate should wrap up the case and recommend to start producing fish food. Good answers would include:

• Summary:
  • Advised CEO of US-based butchery company on a profitability problem
  • It results that profitability issue is caused by cost problem within one of their business segments, fine meats
  • The cost problem is rooted in a new environmental law, through which the client has to pay $ 3 million per year in fines for disposing of side products
• Recommendation
  • Start a fish food production operation using the side products as input materials to offset the $ 3 million
  • This will bring an additional EBIT of ~ $ 200 thousand (in addition to offsetting the $ 3 million) per year
• Risks
  • Large invest ($ 10 million) for machinery
  • Fish farm client could stop procuring from our client in the future
• Next steps
  • Secure machine financing
  • Initiate hiring process for production workers