Looking for examples of a declining profits case interview? Look no further!
In the video below, two Bain consultants - Edward (incoming Associate Consultant) and Jenny Rae (former Associate Consultant) - work through a first-round BCG-style case interview.
The "client" in the case is a manufacturer and seller of packaged cookies based in the United States. In recent years, the manufacturer has experienced declining profits while the rest of the industry has kept growing.
BCG has been brought in to develop a strategy to reverse this decline in profits. Can Edward ace the case? Let's find out.
Note: Pull out a pencil and paper and work through the case alongside Edward and Jenny Rae. What's better than free case practice?
Declining Profits Case Interview: Video Example
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Case Interview Transcription:
MC: Jenny Rae Le Roux
Hey Ed. I'm excited to walk through this case with you. Just for context, this is a BCG style case. And so I'm going to look for you to lead me through it. If there are numbers or exhibits, it'll be up to you to put some information in your structure, and then we will dive in from there.
Edward Collinson
Sounds good.
Case Prompt
MC: Jenny Rae Le Roux
Okay, awesome. So let's get started. Our client today is a national manufacturer and seller of packaged cookies in the United States called CookieCo. In the last two to three years, they've seen a decline in profits, whereas the rest of the industry has experienced healthy growth. They've come to us to identify the root cause of this issue and how they can reverse it.
Edward Collinson
Perfect. So just to clarify, our client today is CookieCo. They are a national manufacturer and seller of packaged cookies in the United States. And over the past two to three years, they've actually noticed a decline in profitability, whereas all their competitors in the market in general seems to actually be stagnant if not growing.
MC: Jenny Rae Le Roux
Exactly.
Clarifying Questions
Edward Collinson
Perfect. Okay. So just a few questions before I jump into my framework. Their scope for this is just the United States, correct?
MC: Jenny Rae Le Roux
Absolutely.
Edward Collinson
Okay, wonderful. And can we assume that they maybe just provide cookies, they don't sell any other sort of packaged goods? And if they do, we're just focusing on the cookies today.
MC: Jenny Rae Le Roux
So yes, they do sell other products. But our only focus today is on their cookie segment.
Edward Collinson
Wonderful. Sounds good. Do you mind if I take a few minutes to structure my thoughts?
MC: Jenny Rae Le Roux
Go for it.
Edward Collinson
So I'm ready to walk you through my thoughts for. When it comes to profitability, obviously, there's there's two main things that can increase or decrease profitability, the revenues and the costs. So they're actually two of the things that I want to include in my thoughts here, as well as the market itself. Thinking about competitors, consumer preferences.
Let's dive into revenues a little bit more. When it comes to revenues, two of the things that I think could really impact us are actually how many cookies they're selling, or the price at which they are selling them at. And I'm going to keep it a little bit surface level now. Maybe we can dive into them later if we have any information on that.
In terms of costs, there's fixed and variable. Fixed might include labor, or the warehousing costs, distribution, things like that. And variable would be ingredients and raw materials. In terms of the market itself, obviously, we've noticed that the competitors are actually increasing. So they are eating up our market share.
One thing that might be causing that is maybe some sort of innovation in the cookie space, maybe a new product or a new type of product. And linked to that could be some sort of consumer preference. Maybe consumers are trying to go sugar free now and we're not catering to that area of the market. So with that, let's maybe dive into revenues and cost. Do we have any information on that?
MC: Jenny Rae Le Roux
We do, but first of all, I just have a question about your hypothesis. So talk to me about whether you think it is revenues or costs that are the key issue here. As we know, they're declining in profitability, the market has been growing. What do you think's going on?
Edward Collinson
I my initial hypothesis with that would be if the market is growing itself, we are probably incurring either more costs or making less revenue per cost. I.e., our margin is probably decreasing. Again, if the whole market is improving and all our competitors are improving, we are probably selling just fine would be my initial guess. Obviously, I'd want some more information on that. But I would imagine that the root of that would be somewhere in the costs.
Additional Information
MC: Jenny Rae Le Roux
Okay, awesome. Well, I actually do have a breakdown of costs. Can you walk me through the costs that you talked through before? I know you mentioned some of them in your structure. And do the same thing, right? Just give me, what do you think are the costs for this business? And what do you think would be the first place you would look there?
Edward Collinson
Let's almost go on a chronological journey of the cookie, right? So they're making the cookie itself. That's where I think a lot of the variable costs are going to come in in terms of ingredients, maybe running some of the factories in terms of the per unit cost there.
And then once we've actually made them, we need to do a few things with them. We need to store them somewhere, we need to package them, and we need to distribute them. And I would imagine that the root costs here are probably going to be somewhere in terms of the storing or the distribution of the cookies.
Actually, I might even steer more clear from the distribution just because that might be something that would affect the whole market instead of just our company, but I'd love to know if you have more information.
MC: Jenny Rae Le Roux
I think that's a good insight. Just talking back through some of the other things, talk about the macro economic environment that we've been in. 2020, 2021, 2022. Walk through some of what you think the context is. What costs would you expect to increase and which ones would you not expect to increase?
MC: Jenny Rae Le Roux
You mentioned distribution. I think that's really insightful. Can you just give us a little bit more layering on that?
Edward Collinson
We're talking about distribution in particular. Obviously, we've been through a lot in the past few years, whether it's been pandemics and and other sort of economic factors, maybe some sort of recession that's coming along. And I think that one of the big things there is that...
MC: Jenny Rae Le Roux
You say it so casually. [laughs] Just recessions and pandemics, earthquakes, and tornadoes.
Edward Collinson
[laughs] Luckily, I'm not the CEO of a cookie company, so I don't have to worry about it too much.
MC: Jenny Rae Le Roux
Not yet!
Edward Collinson
I think one of the big things with that would be when it comes to distribution with a pandemic, and with a recession, that's definitely a cost that could increase if the if the actual supply of labor for distribution, whether its drivers, whether it's some sort of freight operators, that is naturally going to be a little bit lower.
And so if that's the case, obviously, just with supply and demand, that's going to be something that's going to come at a premium compared to what it might have been three, four, or five years ago.
MC: Jenny Rae Le Roux
Yep. Okay, good. Just making a couple of notes here. Fantastic. Okay, so picking one, what's your number one area of cost that you'd want to look at here?
Edward Collinson
I know we've driven into the distribution channels, if we had any information on raw materials, or maybe a portfolio of the breakdown of costs, that would be really interesting. But if I had to say right now, I think distribution is probably where I'd be focusing.
Additional Exhibit
MC: Jenny Rae Le Roux
Okay, awesome. Well, I do have one exhibit, let me put this over in front of you. And so if you want to just kind of walk me through what you think the exhibit says here. We've got a break down of some of the costs you've requested. And so tell me what you think this exhibit is talking through.
Edward Collinson
This is great. So it looks here like we are talking about the previous three years in terms of a breakdown of costs, and actually what's happening over those three years. And immediately my eyes go into storage and warehousing. That's the seems like the biggest increase. I'm going to work through them left to right, as that seems a little bit easier.
So in terms of raw materials, that is incrementally increasing almost at a linear rate. That's not actually something I would be terrified about, just because I would expect that to happen given what's happened with COVID and with recessions. And so that would be something that's expected.
MC: Jenny Rae Le Roux
Why would you expect the raw materials to increase? I don't think you're wrong, but explain how that ties together.
Edward Collinson
Again, in a similar manner to the distribution channels, if there is a decrease in labor, or if there's an increase in demand with those things, I would imagine that raw materials naturally might just be a little bit more expensive. And if if the cookie industry is growing, as well, and more people are demanding those ingredients, that's probably going to lead to an increase.
In terms of storage and warehousing, that's actually increased the most. It looks like in 2020, it was around maybe 12%. And in 2022, we're looking at closer to 22%. There's quite a large increase over two years. And so that would be really interesting if we had a further breakdown of that. But we'll dive into that a little bit later.
But I would imagine, just from looking at this, that's probably now the biggest concern for me. I'm shifting a little bit more away from distribution just because, given it's the next one, that actually was stagnant for a year and then has only increased marginally. And that's the same with marketing and promotions.
So, not only could 2022 be some sort of anomaly with, again, macro economic factors contributing to that, but it doesn't seem like it's increasing that much. And if they're noticing that they've had a steady decline in profit, then it's probably not that.
SG&A is pretty stagnant. Maybe a later thing to look into would be actually increasing those costs in terms of trying to push more units. But I imagine that the root of the problem head lies within storage and warehousing, and maybe a tiny bit and raw materials.
MC: Jenny Rae Le Roux
Great. Is there anything in here that confirms that we are probably growing revenue like your hypothesis?
Edward Collinson
That's a really good point that you bring up. If raw materials are increasing, one possibility is that the actual price of raw materials is increasing. But it could also mean we're spending more.
But I think the biggest thing would be distribution, if we're spending more on distribution, one of the options for that, and one of the reasons that could be is actually we are distributing more products. And if we're distributing more products, we're probably growing revenue.
MC: Jenny Rae Le Roux
Okay, great. Anything else you want to talk about here before we move on?
Edward Collinson
No, I'm happy to move on.
MC: Jenny Rae Le Roux
Awesome. So I'll leave that there in case it's helpful context for you. Okay, what else do you want to talk about?
Creative Questions
Edward Collinson
Do we have any more information on storage and warehousing? That's again where my concern is more focused now.
MC: Jenny Rae Le Roux
Why don't you break it down? What do you think are the components of storage and warehousing if we click down a layer? Imagine that we were kind of creating an Excel spreadsheet breaking that down into its sub-components. What are the components of storage and warehousing here?
Edward Collinson
You have to forgive me, I'm not an expert in the storage industry. But I would imagine the biggest cost is probably just the rent itself, in terms of how much you're actually paying for this big storage and warehouse. If it's something like food, I would imagine, there's probably also some sort of climate control in there, you don't want it to be humid, you don't want it to be too hot. So maybe that's an element.
Another thing would be maybe in terms of actually inputting those and managing that storage facility. So my thought there immediately goes to Amazon, when they have, obviously, it's a much bigger scale there, but they have millions of products coming in and out every day. And so actually hiring the workers to go ahead and manage that and bring products in and out could be another thing. And then when it comes to cookie companies and, and food in general, there's probably some sort of cost associated with the loss of goods.
So obviously, if you're selling a sofa or a couch, it's not going to expire. Whereas a cookie, if we're not selling enough units, which may not actually be the issue here, but if we're not selling enough units, we might not actually be able to ship out all our products before they expire. So I don't know if that would be under Storage and warehousing or if that would be under raw materials or distribution. But that could be
MC: Jenny Rae Le Roux
it's interesting that you mentioned that they have products expiring piece. How is that cost? Is that? How would we actually put that on the books for the business?
Edward Collinson
So naturally, I would assume that if you're losing it, you're just not getting the revenue. And so you're, you're paying 100% of the cost, or maybe not 100%? Right? You're not paying for distribution, but you're paying for most of the cost, and you're incurring no revenue from that. So you are getting a negative revenue and negative profit with that. Am I on the right line?
MC: Jenny Rae Le Roux
Yeah, that makes sense. So let's poke into that a little bit more, we have noticed that inventory losses have spiked in the last two or three years, can you suggest a couple of ways to potentially bring them under control?
Edward Collinson
Yeah. Do you guys eventually take 20 seconds to organize my thoughts?
MC: Jenny Rae Le Roux
I'm gonna let you do that. Just this once.
Edward Collinson
Thank you. Okay, so I came up with a few ideas that let me just walk you walk you through those. When it comes to those inventory losses, and I actually forgot to include one on that there's three main categories, I'd look at the actual storage facility itself. So how are we how are we storing them? Is the storage or the storage conditions good enough? And the management of there are we tucking away a box of cookies in the back of the storage facility and forgetting about them until it's too late, as well as not selling enough.
So just not having enough turnover, maybe producing more than we can actually sell. Okay. And then the last thing would, would actually be in terms of the cookies themselves, are they if they're not fresh cookies, like crumble or something else, maybe they're maybe expiring too fast. And there's room for optimization there. But I would really want to drill down on the first two.
MC: Jenny Rae Le Roux
Awesome, how'd you fix them?
Edward Collinson
Yeah, so we're talking about the bad storage itself. The climate is one thing we could fix making sure the storage facility isn't getting too humid, making sure it's not getting too hot. An important caveat there is that that is something that the packaging itself should be doing. In terms of the management systems, maybe there are not in place, maybe the management systems are suboptimal.
But I would make sure that we're really adopting and not to get to accounting here, but a FIFO method in terms of - first in first out. Or sorry, we should actually do LIFO. Last In First Out, yes. Let me define it. And then we can make sure that whatever is going into the certify for whatever is going into the warehouse first should be the first to come out.
We don't want months where cookies are sitting in place where others turnover of other cookies, especially if we have one bad month of sales that could really pile up and make the issue worse. In terms of not selling enough. I think that the biggest solution, there would be some sort of analytics, just making sure we can predict more accurately how many units were forecasted to sell.
And then we just make that make a little bit more obviously than that. And make sure that we're not making way too many when maybe during a recession or during changing times. People aren't buying as many cookies again, I don't think that's the issue. It's probably one of the one of the first ones.
Final Recommendation
MC: Jenny Rae Le Roux
Okay, love it. So great. At this point, I think we are getting pretty close to time in the case, I'm going to ask you just to provide a final recommendation for the client. I know that of course there are things that we could look at if we had more time, but if we were just here, you're in it elevator in the CEOs there. What would you say?
Edward Collinson
Yeah, well, thanks for meeting me. I think the the most important thing to note here is that the storage and warehousing costs are getting too high, and are actually creating an issue for the profitability of the company. And I think to fix this, we really need to look into the root of that.
And I think one of the biggest routes could be the climate, and also the management systems in place. So in terms of next steps, I think developing, if we don't already have it, some sort of management system to make sure that all of our inventory is getting out in the right time, and it's not getting clogged by other units. I think that's going to be the best way to solve this problem.
Now, I will say that the risk with that is if we start incurring even more money on this, and we can't find the issue soon enough, we could potentially be driving our profits even further.
Feedback
MC: Jenny Rae Le Roux
Fantastic. Thank you. All right. So let me write some feedback. You ready for this? Yeah. First of all, just what were your thoughts? How do you feel? What did you like? What do you think you could have done better?
Edward Collinson
Yeah, as a pretty math focused person. I always love it when there's more calculations involved, and maybe less of the creativity side. But I really enjoyed this case, I thought the exhibit itself wasn't too difficult to read into. I definitely had to pivot once or twice, I think we noticed that throughout the case that you, I almost felt like I was led into one place.
And that was like, actually, with this piece of information, I need to just quickly pull in. So and that's really good practice to be able to do that. Because that's what happens a lot of time, both in case interviews and in the real world. But I think I'd maybe could have been a little bit more structured in terms of the once we knew it was storage and warehousing, figuring out the potential solutions, I probably could have listed a few more than maybe dug into those.
MC: Jenny Rae Le Roux
Love it. So I'll just provide you with my feedback. Again, overall, really good job, got the general sense that you knew it was happening, that you were being insightful that you were layering on those insights. Of course, you know that every consultant can find something that they can improve on. So I'm going to just go through this.
I thought with your beginning, I thought you did a really good job. Both the recap was clear, concise, this is a very short one doesn't need to be long. And you know, the only thing that I might have enhanced there was just really making sure that you reflected on this question of whether you thought if it was a macroeconomic issue, where others were doing well, was it because they had been cost cutting? Or was it because they had been, you know, punching revenue growth?
And if I'm expecting that, based on what we've seen the last couple of years with inflation, but also, with the improvement in consumer goods purchasing like that, it's probably going to be a cost issue. I think it could have identified that earlier. And you know, you don't even have to necessarily ask it as a clarifying question. But just giving me that context, as a heads up would have, would have really kind of improved that.
And it would have helped me make sure that you're focusing on profitability, because actually, when you went to your structure, I wasn't 100% sure. I also just thought you could have maybe provided me some of the context for your questions. So really good questions. But right, here's why I'm asking. If we need to look outside of the US, obviously, there'll be a much broader scope of this, there's a lot of complexity in the way that we think about our supply chain. So I'm assuming we're gonna focus on the US, right, so giving me just a little bit more of that background.
You had more time, but you were rushing to get into the structure, and there's a difference between kind of command and rushing at the beginning. So I think you have a little bit more time to sit back into it, like really marinate on the issues, and also explain to me what those are with your structure. I think, again, really good kind of core questions, I give you a three on the structure, I've actually gave you the ratings for everything relates back to that. Ratings out of four. So in the MC case, scoring, right, three and a half for the case recap and a three for the clarifying questions, and then maybe a three for the case structure.
And the guidance here, right, is that it has at least three buckets. The buckets have three ideas that focus on data, a little bit light on that, but the ideas are MECE, I felt like that was pretty good. I would have liked to have seen two different things to make it a four. One is I wanted you to present the costs first, right?
When I asked you the question, you got there, but you had a full extra minute in your preparation time, or you could have thought about it punched a little deeper on the costs and presented it even if you wrote down revenues costs market, you could have presented the cost first. I would have liked to have seen that anytime. We were doing a profitability case and you're able to just not walk me through here's what the profitability is and kind of more like, here's what I think the issue is. I'm going to appreciate that especially when I'm in BCG.
And then in addition, you kind of said you know I'm going to keep it at a high level I don't want a high level actually do really want a more comprehensive structure here. So I would have wanted for your revenues to highlight not just the units sold and the price of sold but maybe product mix or something else kind of focused on the revenue side right or discounting inflation right like impacts of of those things. And so in fact, I think that here, you could have actually broken out revenues into prices and, and quantities, or I think you could have broken out costs.
But if you're if you're going to do the market piece, just make sure that you don't include I think, I think what was challenging about this specific structure is that you have to make sure it's messy. So you can't go to details on the revenue side and include the exact plus as well. So you might have just wanted to go a little bit more granular on a traditional market profitability structure, but just reorganize it a little bit. So you could go a little bit more detailed, and so good job, but I think there was a great there that you could have attained on the case math question. You know, you I can tell you were thrilled about the case.
Obviously, with BCG, you have to leave yourself into it, which is why, at the end of the structure, I asked you the question about costs, I asked you to delineate what the costs were, you could have done that independently a little bit better. Also, I don't think at one point, you mentioned that I don't know if it was misspeaking. But you mentioned that the it was percentage increase. And I don't know if you were making a calculation, or if you were reading this as percentage instead of millions of dollars. So just make sure that as you're talking through it, I would just give the context at the beginning, right, this is in dollars.
So these are real increases, right. And I'm and and then I will calculate the percentage. It's just maybe, for me, the interviewer laid out for me, because a lot of those insights I thought were pretty good. And and then I also you mentioned that there might have been a decrease in labor on the raw material side. Again, I think it may have been misspeaking, I think you were talking about decreasing labor availability, is that right? Price Increase Yes, of labor. And so but there were a few things that kind of didn't follow linear thinking there.
And so again, I gave you a three under five minutes, actually, maybe too little time. But I really wanted you to begin to punch into those extra things that I asked you about, on the end, when I asked you to the job. For the case, creative stuff, when you started to break this down, I got a little nervous, you have a pretty great mental recall. But you didn't write down the brainstorming list of the different factors.
So in a couple times, you have like putting the cap on the pen and putting it down. Yeah. And so I would just say maybe keep yourself poised at the ready, especially in a BCG case, because of the brainstorming and the leading. If you're in a McKinsey case, you're going to know and they're moving on in a BCG case, maybe not so. So just just to think about that,
Edward Collinson
When it comes to that, I can't remember if I asked for more time, then maybe like 30 seconds.
MC: Jenny Rae Le Roux
You did? Yeah.
Edward Collinson
Is that is that the right step then for someone to do?
MC: Jenny Rae Le Roux
Always do it. I would just say if we're practicing there, I you know, I was tempted because in BCG, I generally would take no this conversational and so so contextually, in McKinsey, yes. And BCG no in Bain maybe practice it both ways. And so I was I was tempted to say no, but I felt like giving you a break on this one.
So it could have gone either way for you can always it's fine to ask, just be ready to say no. And if they say no, the first time never ask again. That's a really good piece of advice. Yeah. And then finally, on the case, creative question. So again, I thought you did a good job of listing out the initial level. But it was really just a brainstorming lesson. It didn't address what I asked you. I think you could have clarified what I asked what I asked specifically was, can you suggest some ways to bring them under control.
And so you gave me what the problems could be, but not the solutions. And so we had to go back to that. And you also you didn't write down what the solutions were, as you were talking through it. So I feel like that will lead me into my final piece. So kind of three, three across the board there too. And then on the final recommendation, I felt like that was like a 2.5.
I think that at the beginning, you could have just given one sentence of context, right, we're looking at profitability that's out of line with market growth of other competitors, we found that the issue was right, just a little bit more of a story format. And I felt like if you had had the the notes and the responses, you might have been able to tick a few of those things a little bit more clearly. I would also just recommend in your risks in next steps that you number them for me, yeah, I was taking notes.
And I actually don't know if you had one, two or three, I don't know if you were subheading, or if you are moving on. And so just, you know, right at the very end, right, when you know, I'm gonna walk out and score you on whether you are structured or not give me the most structured final recommendation. Yeah. Wonderful. Other than that, final questions?
Edward Collinson
I guess in terms of the conclusion there straight into it, no time to formulate or anything given it's a BCG case.
MC: Jenny Rae Le Roux
Yeah. And good that way, I guess.
Edward Collinson
So should I keep the pen capped there and just give you a verbally with the structure?
MC: Jenny Rae Le Roux
I think that's fine. I wouldn't I wouldn't normally have you write down anything during the final recommendation. It's really just during the brainstorming. And so if I asked you a question and and you're thinking through things, if you what I what you risk if you don't write it down is that you talk through them, you have great ideas and you forget them when you move on to the next section. So just in terms of organization and structure just trying to keep everything together.
Edward Collinson
Wonderful.
MC: Jenny Rae Le Roux
Awesome. Thank you. Thank you