McKinsey Case Interview Walkthrough

McKinsey Case Interviews are some of the toughest with the most expectation for accurate case math and solid case structure. This case is led by Jenny Rae, ex-Bain consultant, and the candidate, Lisa, is an ex-McKinsey consultant. Read how Lisa goes through all the information given, and then creates a structure worthy of a McKinsey case interview. You can also watch the video at the end of the article if you’d rather not read. Take notes, and even ask questions in the comments to further your understanding of how to do a McKinsey case interview.

McKinsey Case Interview Walkthrough- Market Study

McKinsey Case Interview Walkthrough- YouTube Transcription:

Jenny Rae:

Hi, I’m Jenny Rae Le Roux, the Managing Director of Management Consulted, and I’m really excited. We have the privilege of getting to put Lisa Bright, one of our famous coaches, in the hot seat. So thanks for joining us Lisa. Thanks for being willing to walk through what a McKinsey expert looks like when they’re on camera. No pressure. No pressure.

Lisa:

Yeah, none at all.

Jenny Rae:

What we’re walking through today is a McKinsey-style case. It has six total parts, but of course as you know, there may be little rabbit trails that happen along the way. A couple of exhibits which we’ll be able to use as we go through. And overall, what we’re just looking for is your overall process. How do you think through what the issues are, how do you structure it, how do you write down your notes, how do you kind of do the key takeaways. And so without further ado, we’ll just dive through it. And then the end we’ll have a little bit of a chance to talk through it, okay?

Lisa:

All right, sounds good.

Case Prompt

Jenny Rae:

Awesome. So our client is a company called Beverage Company. McKinsey always makes the most exciting names, you know? Beverage Company is a top five beverage producer in the United States, and they’ve approached us for help in designing a product launch strategy. As an integrated beverage company, Beverage Company, right, leads its own brand design marketing and sales efforts.

In addition, the company owns the entire beverage supply chain, which includes distribution to retail outlets, production of concentrates, and bottling and packaging. They have a considerable number of brands across both non-carbonated and carbonated drinks, 10 total bottling plants around the world, including the US, and distribution agreements with most major retailers.

BevCo is evaluating the launch of a new product now, a prepackaged iced coffee drink called Power Up. Power Up comes in five different flavors, including one option that has a reduced sugar content compared to most other prepackaged iced coffee. The company expects the new beverage to capitalize on the recent trend toward flavored coffee drinks, and it has an objective to reach $4 million in profit in its second year of operations. Not by the end, but actually in. BevCo’s vice-president of marketing has asked us to help analyze the major factors surrounding the launch of Power Up, and its own internal capabilities to support the efforts. Do you have any questions about the background?

Lisa:

Yes, I think I caught most of it. I just want to recap and make sure I got the main gist of the case.

Jenny Rae:

Sounds good.

Lisa:

I love iced coffee by the way, so this will be an interesting one.

Jenny Rae:

Oh good.

Lisa:

So we’ve got Beverage Company. Very specific. They’re a top five beverage manufacturer located in the US, I believe you said.

Jenny Rae:

Yeah. Headquarters are in the US.

Lisa:

Okay. Are they interests – do they sell overseas at all?

Jenny Rae:

They do. Yeah, they have bottling plants and sales overseas.

Lisa:

Oh they do. Okay. All right, let me just write that down. Okay. And so they pretty much – they’re looking at a product launch. They own, what I would say, the end-to-end process of this whole thing.

Jenny Rae:

Yep.

Lisa:

All the way from production, the concentrates, the bottling, packaging, all the way through marketing, sales, distribution, etc.

Jenny Rae:

That’s right.

Lisa:

Okay, so they currently, so one question I had, they don’t currently sell any iced coffee, this is sort of a new segment?

Jenny Rae:

Exactly.

Lisa:

Okay.

Jenny Rae:

They do sell a lot of other drinks.

Lisa:

Okay, yeah. I mean you said two different types of products that they offer? Yeah.

Jenny Rae:

They segment them into carbonated and non-carbonated.

Lisa:

Okay, all right. And I think, and then when he talked about this, they’re looking to launch this new product, it’s called Power Up. It’s – did I catch this right? It’s a prepackaged iced coffee drink? So am I thinking about it right, like the Starbucks individual bottles-

Jenny Rae:

Exactly

Lisa:

-is what they’re looking to produce?

Jenny Rae:

Yep.

Lisa:

All right. And is that product kind of done already, or is it formulated, or that’s something that they want to figure out as well?

Jenny Rae:

Yeah, it hasn’t been formulated, so they haven’t really done the R&D on it. They’re just first of all identifying whether there’s a market potential for it.

Lisa:

All right, understood. And then just so I’m clear in terms of what our client’s objective is. They’re looking to reach $4 million dollars of profit in year two?

Jenny Rae:

That’s right.

Lisa:

Okay,

Jenny Rae:

Yeah, so not at the end of year two, kind of, they’re – they’re giving themselves one year to launch it. In the second year is where they want to make sure that they are profitable.

Lisa:

And they want to know, what are all the factors – let me just write this down here. So factors to consider, and they want to decide whether or not, like a yes or no, in terms of launching this product, and the factors that they would need to consider in their strategy.

Jenny Rae:

Absolutely.

Structuring The Case

Lisa:

Okay, great. I think those are all the questions I have for right now. Do you mind if I take a moment to kind of structure out how I’d approach this?

Jenny Rae:

Take as long as you need.

Lisa:

Okay, great. Thank you. All right, I think I have an approach laid out that I want to take for this case.

Jenny Rae:

Sounds great.

Lisa:

All right. So since our client is Beverage Company, and they’re trying to determine whether or not they should launch this new iced – prepackaged iced coffee drink, there’s a few main areas I’d like to look into, or questions I’d like to answer – have answered to determine if this is a good idea for them. And then if this is – if it is a good idea, the strategy that they should use. So first I’d like to evaluate the overall coffee, and specifically the iced coffee market, to determine if that’s an attractive market for them to get into or not. I think that’s a major question we need to answer.

Also I’d like to look at Beverage Company in more detail and look at their capabilities to actually do this since this is a new – new category for them. I want to look a little bit closer at Power Up, so from a formulation perspective, and looking at the financials. Is this the product they should be launching. And then lastly, I’d like to understand what kind of consumers we’re going after so we can design our marketing and our distribution strategy to go after them.

So as I look at the iced coffee market, or the coffee market in general, I want to understand the overall size of this market, whether or not it’s growing, what are the major trends. As we mentioned there’s like a trend towards lower sugar content, maybe more healthy drinks. So I think we – we need to get some information there. Also, I’d like to look at who are their key competitors in this space. I know this is a growing market. There’s a lot of competitors that offer this sort of drink. So who are they, what kind of market share do they have, do they have different niches that they focus on, whether or not they’re profitable, etc.

I’d take – next moving on to Beverage Company. I’d like to look at their branding. Does this fit with their current brand or not in terms of the other portfolio of drinks that they offer. Also their financing capability. In order to do this, seems like there’s gonna require some investment. And then I really want to focus on their operations. Can they actually execute this. Do they have the capabilities and the capacity necessary to make this happen.

So you mentioned they have a lot of different functions, so if they were to offer any product, obviously all those functions are gonna have to adjust. So manufacturing, distribution, sales, etc. And then also if they can’t, you know is partnering with someone, or like a JV, or something like that also in scope, or just in house. Looking at Power Up, I’d like to look at how this fits within their portfolio. I kind of mentioned that a little bit in the company bucket, but how this fits within their portfolio of drinks that they offer. Will this cannibalize any of their other sales. If they are a large beverage manufacturer, that could be an issue. Also like the packaging, the formulation, what does this look like from an R&D perspective.

What I’d really like to do though is do a financial analysis and really determine the revenues and the costs associated with Power Up. So we can calculate maybe a break-even point return on investment to really determine if this is financially a good decision, and will it hit their $4 million target that they’re looking for. And if all that looks good, looking at the consumers, what they want, who is our target, and we can figure out how to design our marketing and distribution to go after those different customer segments.

So I think those are the main areas I’d like to investigate. So I think the most important would be starting with the market, and understanding if it’s attractive market to get into or not. So do we have any information on size of the market, growth trends, anything like that?

Additional Information

Jenny Rae:

Lisa, I do have some information on that. In fact, I’ve got some visuals that I want to show you.

Lisa:

Oh great.

Jenny Rae:

All right. So first of all, I just want to give you this exhibit. I want you to take a look at it and tell me what you see. What your kind of key insights are from the exhibit.

Lisa:

Okay, so we’ve got two exhibits here. I’m just going to look at these each individually. So we’ve got the US iced coffee market, which is a 6.4 billion gallon market, and there’s – it looks like there’s two segments within it. So we have prepackaged iced coffee, and then other. Okay. So our client is looking to get in the prepackaged iced coffee segment, which represents five percent of the overall market. So pretty small as a part of the larger broader iced coffee market.

Jenny Rae:

Yep. What’s in the rest of that, so if it’s not pre-packaged, what are you –

Lisa:

That’s what I’m wondering. So within this other category, if you have any information on that that’d be great. But I’m assuming this would be iced coffee sold at places like Starbucks, or maybe you could make it at home, so it’s like the concentrate that you can purchase in the grocery store, maybe in larger volumes, like an individual pre-pack. Are there any other key areas within that other category?

Jenny Rae:

No, I think most of it would probably be, like you said, you know especially on the retail side.

Market Growth

Lisa:

Okay, yeah, definitely like the Starbucks and things like that. Okay, so overall they’re going after a pretty small percentage of the overall market, so there might be some opportunity to look at alternatives, and not just looking at the pre-pack, but since that’s what we’re evaluating we’ll take a look at that. One thing that I’m curious. It’s a small market, but I wonder if it’s growing. So if we have any information on maybe the growth of these different segments that might be helpful.

Jenny Rae:

So the other iced coffee market is projected to grow at about 7% across the next five years, and that the prepackaged iced coffee market is projected to grow at about 2% over the – yeah, sorry. Same time frame.

Lisa:

Okay, well that’s interesting because it’s a small market and not growing that quickly. So overall, it seems like the opportunity there might not be really attractive, but I think will have to look at the numbers and see how that plays out in terms of can they hit their target.

Jenny Rae:

Sounds good.

Lisa:

So that’s my thoughts on the first one. The second exhibit here, we’ve got the prepackaged iced coffee market by brand name. Okay, so we’ve got the different brands. We have Robuck’s which is at 15%, the Ice Café at 10%, and then we have other. Would it be safe to assume that all the other ones are smaller than 10%, so they are even smaller than those two main players?

Jenny Rae:

I think that’s a reasonable assumption, yeah.

Lisa:

Okay. So it looks like this market is quite fragmented, so we have two major players. Even, I mean they are major players, but they are still not that large. 10% to 15% respectively. And so given that we’re a number – I believe we’re a number five beverage producer, I think we can have to know more about this market in terms of who owns Robuck’s and Ice Café, and see if they are larger than us, is this market growing, barriers to entry, things like that to really determine how possible this might be. And whether or not they are profitable. So I think those are some areas that we can investigate. It seems like it could be an opportunity, given that it’s quite fragmented, but like I said, it is kind of a small market and growing slowly.

Jenny Rae:

What kind of calculations would you want to do to actually make that get, or head us in a direction of one of the decisions?

Case Math

Lisa:

So our main objective is to hit $4 million of profit in year number two. So I think I’d like to understand to hit that $4 million, how much would we need to sell in order to hit the $4 million, and if that’s reasonable or not.

Jenny Rae:

Okay, so you are right on target with what our client would like. They actually asked us to determine what share of the prepackaged iced coffee market they would need to capture to reach their profit target in year two. Very specifically the prepackaged iced coffee market. And so basically, how would you calculate that, and is there any additional data that you would need?

Lisa:

So we want to calculate what share of the prepackaged iced coffee market required to reach $4 million profit in year two. So just on an annual basis, basically. So let’s see. What I’d like to do is, well, first we need to calculate – so we have the market size in terms of volume, so what I’d like to do is calculate the volume that we need to reach $4 million of profit, and then to get to market share, I also need to know the size of the market. So then if I have the size of the prepackaged iced coffee market, so size of market, if I had those two things, I could then take the volume, our volume divided by the market volume. That would give us our market share. So that’s my overall approach.

All right, so let me just start with the size of the market, since I have information there already, and then will get to the volume that we need. So the size of the market is 6.4 billion gallons, and specifically the prepackaged iced coffee market is 5% of that. So I need to take 5% multiplied by the 6.4 billion gallons. So 10% would be 640 million, so 5%, or half of that would get me to 320 million gallons.

Jenny Rae:

That sounds like a lot of gallons.

Lisa:

That is a lot of gallons. That is a lot. So that’s a size of the prepack iced coffee market. However, it’s still pretty small relative to the overall iced coffee market. Okay. So now I need to calculate the volume that we need to reach $4 million. So what I want to do is approach this kind of like a breakeven calculation, except I’m going to set this equal to $4 million equals price minus variable costs times ask minus fixed costs. I’m basically the breaking formula but trying to reach $4 million of profit. So I don’t have any of that – do we have any of that information in terms of the price that we might charge, the variable cost associated with it, or the fixed costs associated with this as well on an annual basis?

Jenny Rae:

Sure. So the price we are estimating we would sell it to each retailer for $2.49. We estimate that each bottle would cost $2.29 to produce and deliver in our newly established process, and that it would be about $60 million in annual fixed costs, which includes marketing, and increased cost to set up new distribution and production.

Lisa:

Okay, and that’s total fixed costs in terms of there’s no other –

Jenny Rae:

Total new fixed costs.

Lisa:

New fixed costs.

Jenny Rae:

Yeah, so there would be some other fixed cost that would potentially be able to be utilized, but anything incremental is included in that.

Lisa:

Incremental, okay. All right. Okay, so I kind of have the formula laid out already, so let me just calculate this. So we have $4 million equals, so $.20 is our margin per bottle, and we’ve got $60 million. So we need to cover $60 million of fixed costs, plus we need $4 million of profit. So that gives us $64 million in total that we need.

Jenny Rae:

When are you assuming, so if you are doing that, when are you assuming that the actual like breaking point would happen in year two?

Lisa:

Sorry what – can you clarify your question?

Jenny Rae:

So if you’re assuming that we reach the $4 million and then we spent the $60 million, are you assuming that the breakeven point happens at the beginning, in the middle, in the end of year two? When in particular?

Lisa:

It would be end of year two because they’ve got to cover all that fixed cost and then get the profit is what I would assume.

Jenny Rae:

Okay.

Figuring Unit Production

Lisa:

So they’re getting – given that it’s 64 in total to cover the fixed cost is a large portion of that, so they are looking at quite a ways to break even I would say. All right. So we’ve got $64 million, and that equals $.20 times x, so 64,000,000÷20 cents, so that would be basically 20% of 64 million, so 10% would get me let me see here. So 64,000,000÷$.20. So divided by $.10 that would give me 640 million, and we’re in bottles here, and then half – we are divided by 20 so half of that would be 320 million bottles is what we would need to hit the $4 million profit mark.

All right. So we have 320 million bottles is what is required, and then we have 320 million gallons is our market size. So the problem here is these two are in different units. So do we have any information on how, I’m assuming that you’d have more bottles per gallon, so how many bottles per gallon the ratio would be?

Jenny Rae:

Absolutely. So it will launch in the 16 ounce presentation.

Lisa:

Okay, so one bottle is 16 ounces.

Jenny Rae:

That’s right.

Lisa:

Okay. So I know there’s 128 ounces per gallon.

Jenny Rae:

How did you know that?

Lisa:

Memory.

Jenny Rae:

Well very good.

Lisa:

So we’ve got 128 ounces in a gallon, and then so we have 16/128. Let’s see here. I believe that would be – so divide each by two so we get 8/64 – 8/64, so 1/8. Okay. So one bottle is equal to 1/8 of a gallon. All right. So I need to figure out how many bottles. So there’s eight bottles in a gallon. So to get to the number of gallons I need to divide that by eight. So 320÷8 gives me 40, so I have 40 million bottles over, sorry. 40 million gallons divided by 320 million gallons. So now I get 40/320, so that’s 4 over 32, which is 1/8. 1/8 – one fourth is 25%, so 1/8 would be 12.5% of the market.

Okay. So we need to capture 12.5% of the market to hit our target of $4 million of profit in year two. It’s in year two. Okay. So let me look back at this chart here and kinda put this 12.5% in perspective. So we have – we would kind of becoming in between Robuck’s and Ice Café. So we’re right in the middle. So we’d be the number two player in this market, and then keeping in mind that we’re the number five beverage producer. So I think that’s a fair chunk of the market at 12.5%, especially given that we are number five top five beverage producer in the US.

So I think what, honestly, I don’t know if that’s achievable or not, so I think we need to get some more information to determine whether or not it’s an achievable number for our client to reach. So I think –

Jenny Rae:

What kinds of information?

Market Entrants

Lisa:

Yeah, to do that I think I’d like to get some information on, you know, the overall – what has been the history of new entrants in this market. How long have Robuck’s and Ice Café been in this particular market? How long did it take them to get that kind of market share, whether or not they are even profitable. So if Ice Café is profitable at 10%, it might suggest that our cost structure is a little bit high if we’re not profitable at that point. Who owns them, you know, if there are the top two beverage manufacturers and we’re coming in at number five, it might be kind of hard to compete and we need to look at the competitive response and what they’re going to do as a result of that.

And our own marketing efforts, you know, whether or not we’ve ever achieved like 5% in any market is something that we need to understand in terms of do we have that capability. But in addition to that, I think you’ve got some other – so overall, I would say it could be achievable, I’d say it’s pretty aggressive given that we’re at number five and we’re trying to become number two, and that’s just to make $4 million of profit. So overall, I don’t think that looks the most attractive.

So let me just write down – let me just kind of summarize that here. So we’ve got – it’s kind of a small – this particular market is a small market. It’s 5% of the total. It’s kind of growing slowly at 2%, and we would need 12.5% to hit the target. And we are the number five player. We need to be number two in order to hit our target. Okay. But I’ve also got some other interesting data points here that I just want to take a quick look at.

So we now have a price point – let me just write a couple of these down here. So we have a price point of $2.49, and that’s price to the retailer, and we now have a margin of I believe $.20 on a price of $2.49. And we also – what else did we calculate. We need 320 million bottles to be sold. So I think there’s some interesting data points that we might want to take a look at. So the price of the retail are at $2.49. I’d want to benchmark that to maybe Robuck’s or Ice Café and see if that’s in line or not, if we are overpriced.

My initial sense, I drink iced coffee all the time. I can usually buy a prepack iced coffee for that, or a little bit less. So the fact that they’re selling it to the retailer, that seems a bit high. So price, I’d want to verify that by benchmarking it, but that’s kind of my initial thought.

Jenny Rae:

And what do you think having higher than average price might mean for them in terms of their goals here?

Lisa:

Yeah, I mean if Robuck’s and Ice Café are priced lower than that, unless we have some significant selling point to charge a higher amount, like it’s all natural or everything, we might have a hard time competing in this market and gaining market share. Also, we’ve got the margin at $.20. $.20 in a price of $2.49, and that’s the gross margin. So that is less then 10%, it’s around – it’s around 6% or so. I’m not an expert in the beverage market, but I’m going to guess and say 6% or so as a gross margin is pretty bad. I’d want to benchmark that again to Robuck’s and Ice Café. Maybe some of our own internal products, if that’s an acceptable gross margin, but my guess is the gross margin is very low at 6%.

Jenny Rae:

How did you get the 6%?

Lisa:

So it’s $.20 out of $2.49, so 10% would’ve been about 25-ish cents, so it’s a little bit more, a little bit more than 6%, maybe around 7% – 8%. But overall, I think that’s a pretty low gross margin. Usually as a manufacturer you want something closer in the 20, 30, 40% gross margin and then take out your fixed costs. Okay, so that’s in terms of gross margin. And then I mentioned also we calculated the volume, which is 320 million bottles. That’s a lot of bottles of iced coffee, it’s about one per person in the US.

I think that what I’d like to do there is maybe look at what our total volume is that we sell. We are number five beverage manufacturer, so what percentage change would that be in terms of our operation. So that the 2% bump in our operations, it’s not too significant, but it could be a 50% increase, in which case it’s a lot of risk for this one particular product. So do we have the capability, the manufacturing capacity, etc., to hit that number. So overall, I think based on this it’s not looking too favorable at this point.

Jenny Rae:

What other information would we want, Lisa, to try to help drive it home?

Market Research Study With Charts

Lisa:

I mean the thing is is that if they could sell a lot, if there’s a lot of demand in this market, even though it’s kind of a slower market, growing slowly, if they could capture that kind of market share, it – I mean they can hit their target if they can reach that 12.5%. So I think understanding demand and consumers and their behavior a little bit more might help us determine if that’s a good opportunity or not.

Jenny Rae:

Okay, so Lisa, we actually commissioned a market research study, and this is focused on helping to identify whether or not it’s going to make sense to launch the new Power Up product if they want to proceed with the launch. So I’ve got some data as the results from this.

Lisa:

Okay.

Jenny Rae:

Now just let me highlight in the data, as I was reviewing it I noticed that the numbers did not actually add up to 100%. This first one is a 100% bar chart, so it represents 100% of the market broken down into the different current competitors that are in the market. And then the second one focuses on the channels, and the channels are basically, you know, iced coffee plus all of the other beverages as well. So in case you can’t read this number, just ask me about this.

Lisa:

Okay, great. So let me just kind of look at these two charts individually. So the first one says Identify Product X with either leisure, healthy natural, or energy booster. And just so I’m clear, these are segments within the broader iced coffee market, or within this specific.

Jenny Rae:

There are actually segments inside the prepack market, in particular.

Lisa:

Okay, so there prepack segments, and that makes sense given that the two main competitors are the main competitors from before.

Jenny Rae:

Exactly.

Lisa:

Okay. So let’s take a look here. So we’ve got within the leisure segment, it looks like the main player is Ice Café. So 75% of the market, of the leisure drink market is kind of in the mind of the consumer as Ice Café as the main player. The healthy natural drink market that looks like that one’s quite fragmented, so we’ve got the two main players only making up 30%, but 70% of the market is other smaller players from this category over here that we have. And then the energy booster market, that one is sort of dominated by Robuck’s.

Jenny Rae:

That’s right.

Lisa:

Okay. So looking at this, if we think about how we’d want to brand power up, it looks as if the leisure drink market and the energy booster market are both sort of already taken up by the two main competitors. What’s interesting though is that I was thinking about the name of our drink. It’s called Power Up, which kind of sounds like an energy booster type drink.

Jenny Rae:

It totally does.

Lisa:

So I wonder if, you know, in terms of the naming and branding, going after more of a healthy natural drink might be easier to capture market share, considering there’s no one that sort of dominates that market yet. So we might have to look at sort of rethinking the branding, so rethink brand. But there is an opportunity in that healthy natural drink space. So while not ideal, because were already called Power Up, we can adjust that since the formulation isn’t set. Okay. But I think it also works well because I leave earlier in the prompt, you mentioned that it was reduced sugar content as well.

Jenny Rae:

There is one option of the five that we have that is reduced sugar content, yeah.

Lisa:

Okay. So it’s possible that we’d want to look at maybe doing all of them as a reduced sugar for branding all of them as a healthy natural drink, so we might have to look at the product more closely in terms of what we want to launch. Okay, so moving onto the next exhibit, it says I Would Buy Beverage X In. So we’ve got other beverages as one category, and that we have the iced coffee market, and they’re buying them in either supermarkets, convenience stores, coffee shops, or this other category. So when it says other beverages, I’m assuming that would be kind of Beverage Companies’ typical product.

Jenny Rae:

Exactly. That includes their carbonated and non-carbonated drinks. Everything outside of the iced coffee market. So that’s – and the bottom one is not just prepack iced that’s actually all iced coffee.

Lisa:

Okay. So as I look at this, it looks like the other beverages’ category, this would kind of give us our distribution channel breakdown. So BevCo’s breakdown versus the iced coffee market. Do we know if the iced coffee market, the prepack iced coffee market, I’m assuming could be different than this because like, for example, coffee shops are probably selling more of the typical retail.

Jenny Rae:

It could be, but that is the only information that we were really able to garner at this point in the market.

Understanding A Fragmented Market

Lisa:

Okay. So let’s look at this based on this is kind of being the typical breakdown, but realizing that we might want to do some more nuanced analysis to kinda break down the prepack market, if that’s different. So let’s take a look at the difference between these two. I think what I’d like to do is kind of do a comparison of where Beverage Company currently sells, versus where they would need to sell if they were to enter this new segment. So it looks like supermarkets is kind of where our stronghold is at the moment. And, you know, 30% of iced coffee is still sold through there, so it’s a sizable piece. But the other three segments is where it gets a little bit different.

On this other category is about the same, but the major difference here is in this coffee shop category. So we’re only 10% sold in coffee shops, versus 40% in with iced coffee. So what that tells me is the distribution channels are going to be significantly different if we were to enter this particular market. So either we can kind of focus on where we – our current distribution channels, however that means we’re going after a smaller portion of the iced coffee market. We’re not addressing some of these other areas. Or we would need to spend maybe more fixed cost to go after that, unless that’s already included. Is that included in the fixed cost from earlier?

Jenny Rae:

We haven’t actually thought this far, so we thought about distribution in terms of getting it to those places, but not the agreements or the relationships.

Lisa:

Okay. So what that tells me is there’s probably higher fixed costs required. So I think – so the branding seems like there’s an opportunity there, but we have an issue with distribution channels. There is a good opportunity to leverage what we currently have in supermarkets and convenience stores and some of the other places. But 40% of the market is sort of untapped at the moment. So I think that’s a little bit concerning. So I think we have a couple more points to say this might be the best – the best launch.

Jenny Rae:

Let’s say we did want to focus on, you know, essentially what is 50% of the market that we really don’t have great exposure to right now, which is that coffee shop segment and the other segment. How would we actually – what are some ways that you can think of that we could tackle building distribution relationships inside those markets?

Lisa:

Well, I think we definitely have to prioritize which kind of customers we want to go after, not consumers as the end consumer, but within that, are there – it could be that there is one big coffee chain, let’s say it’s Starbucks for example, that we’d want to sell through in those coffee shop channels. That could be a good opportunity.

Jenny Rae:

Do you think that would be a good opportunity, just as a question?

Lisa:

A potential. The thing is we’re selling those prepack, which is different. So I think if we were to go after those markets, but I’m just thinking Starbucks, they do have like the prepack iced coffee but it’s usually their brand.

Jenny Rae:

Do you think they would want to sell ours? Exactly.

Lisa:

So I’m thinking that is concerning, but there might be some in there like smaller coffee shops that they make their own coffee, but they don’t want to deal with the bottling and everything. So I think it would be a much smaller section of that. But if we wanted to do that, I think there’s a couple things we’d want to consider. So one is sort of the attractiveness of those different – of those different coffee shops, and where other, I’m thinking this might be like small cafés and things like that. So the attractiveness versus kind of our capabilities, I think those are the two things we’d really want to evaluate. So the attractiveness being there size, you know, whether or not they are interested in their not selling their own brand. Are they growing could be something that would want to look at if we were to choose different retailers or coffee shops to sell through.

And sort of who are the other – if they offer different brands, what kind of competitors do they also offer. So are they kind of the at the same price point as us, we’d want to look at what’s being sold. And I think that would apply to any new channels that we’d want to sell through. Want to look at the attractiveness of that versus looking at our capabilities of, you know, we do sell through some already, so you know, if we sell there already, like already selling through those channels, that would definitely be a priority. As well as like locations. Maybe we don’t sell there, but we deliver very close nearby and that could be easy to do, to kind of drop it off in a similar location. Or like their delivery schedules, anything like that that would work with our current operations.

So I think we have to do more digging there. But overall, it looks like we would – I don’t think that we’re going to be able to address the coffee shop market that much, because I’m thinking it’s mostly like Starbucks and things like that that would sell their own, not Beverage Company’s coffee brands.

Jenny Rae:

I would say that there are – there is a hugely fragmented portion of that market. Like if you look at where the prepack is currently being sold, that would represent their lots of mom and pop coffee shops. But that obviously is a different situation.

Lisa:

Yes. And it sounds kind of fragmented and difficult to go after. So a lot of fixed costs, complex distribution channels. It’s possible that the supermarket might be a larger segment of the 5%, so I think that’s something we could dig into to maybe see if it’s attractive. But overall, I think we’re seeing a lot of points that lean to may be this isn’t the most attractive market overall.

Recommendation

Jenny Rae:

So I think that at this point, they are interested – BevCo is interested in an evaluation of what we should do with Power Up. What would be your recommendation after going through the analysis today?

Lisa:

So let me take a look here. I was writing down some of my key thoughts as I went. I think it’s pretty clear, so far, that we’ve seen it’s a lot of points aren’t the most positive. So I would recommend that they don’t proceed with the launch of Power Up for a few main reasons. So as we identified, it’s a much smaller portion of the overall iced coffee market, and it’s kind of growing slower than some of those other segments. So it’s not the most attractive market to begin with. But not only that, we need to hit 12.5% to hit our target, which seems pretty aggressive, given that we’re a number five beverage producer. Prices seem a little bit high, the margins aren’t really strong, so it’s a lot of points kinda pointing towards this may not be their best opportunity.

It seems like there is an opportunity to brand as a healthy natural drink, so there’s a couple positives, but overall I’d say it’s going to be very difficult to hit their target that they’re looking for. If they are looking for growth opportunities, maybe they could explore alternatives, such as how they can serve – I know when we first started talking about this, how they could serve the larger like concentrated things that they can maybe sell to the retail segments, as opposed to the prepacks. Or maybe other segments of the iced coffee market, or sports drinks, things like that that might be more attractive for them.

Candidate Feedback

Jenny Rae:

Great. Fantastic. Awesome. You can relax. Great. So what we’ll do is just do a quick diagnostic. You’re a coach, coach yourself. What do you think? How do you think it went, what did you do well, and if you had the opportunity to do it over again, which of course we would never do, but, you know, wouldn’t that be nice? What would you do differently.

Lisa:

Okay, so can I look at – let me just get my papers. I’ve got a bunch of papers here, so let me get these organized. All right. So I’m going to start kind of at the beginning of this case. So there’s a bunch of information given. I didn’t capture all of it, but I think I got the main points, so I think that was okay.

Jenny Rae:

Interestingly, that was probably the most uncertain part of your case was the opening just because there was so much information there.

Lisa:

Yes, and you were reading it pretty quickly, so I was trying to jot down like the main buzzwords, but I think I got the gist of it as I went through, so that was pretty good I think. I think I captured most of the information. In terms of structure, I think I was pretty structured going throughout this case. I was trying to do one sheet of paper for like my takeaways, and the opening structure. I didn’t come back to that structure throughout the case, which I could have done.

Jenny Rae:

Interestingly, you kind of did follow a little bit on it, and we touched on a lot of the key pieces, but we actually ended up going more through some of the sub segments as opposed to the bigger categories, and that’s not completely abnormal, especially in a McKinsey case when I’m telling you what we’re going to do, and I’m giving you a lot of the options.

Lisa:

I could have driven it maybe a little bit, it’s different for a McKinsey case, but you can kind of come back and drive when it maybe you asked me a question later on. I had said well, let me think about if anything else I missed, or things like that I could’ve looked back.

Jenny Rae:

Yeah, reference back to the structure, yeah, exactly.

Lisa:

So I didn’t reference that too much throughout the case, but in a McKinsey case that can happen at times. Let’s see. I like that I kept track of my takeaways as I went through that.

Jenny Rae:

Used for summaries, for sure.

Lisa:

Yes, and I had all those down, and I was synthesizing as I went along.

Jenny Rae:

Would you say this is a normal style that you’d use for your upfront kind of like master page?

Lisa:

Yeah, typically keep like one sheet, because I did refer back to the prompt I think with the sugar and something else. I could have referred back to the structure more, especially in like a BCG or Bain case, that would have helped. But that one page is like a nice summary. I love whiteboards because you can see everything real plain, but I have my one sheet. Because you kinda get lost in all the stuff here, so like this is my home page and it all comes back to that. So let’s see. Then we kind of went into the math.

Jenny Rae:

Yeah, what about the data interpretation and the math part?

Lisa:

Yeah, so let’s take a look at these exhibits. So I think I was kind of structured and going through the exhibits. I wrote down some notes here that I put the summary over here, so I think that was good, and I was trying to dive into these different areas. I think I asked some good clarifying questions to understand the data.

Jenny Rae:

I thought so too.

Lisa:

Because it’s kind of vague, they’re not labeled really well. So asking some questions is good to make sure that I do that. I think the insights I talked through for each of these, I think it may be a little more succinct on this one, that what kind of dove into some different areas. But overall, okay on the graphs. So as I was going through the math, I think one thing is that I kept that pretty structured. I was trying to think of my approach before I started, and then kind of dived into each of those sections. So I think that was pretty good. And then the insights and next steps, I think I got to some of those extra insights, not necessarily that final number, but I think those are kind of telling in terms of framing the overall case kind of looking at those.

Jenny Rae:

I think so too. And in terms of McKinsey like “level two” insights think that they always do and talk about in the coaching, right? Going beyond the raw information, I thought that that was – this stuff right here was like the best example of those level two insights because you were saying hey, I got the information, and there are different ways that you could of done it. You could’ve said it when you got the information originally, or you could’ve said it at the end without rewriting it out. So just depending on time, there could be other ways and you could’ve presented that these were amazing in terms of the actual numbers.

I did laugh a little bit when you are doing that spontaneous math and you’re like 6%, wait, hold on. You know, obviously, that’s like when we are advising people it’s like spontaneous math is dangerous. Be careful. And so that was kind of a funny key takeaway. But overall, I really liked the way you structured it. I thought it was super clear. I loved how you avoided incorporating the extra data that wasn’t actually necessary, and I loved, loved, loved how you kept the gallons and bottles separate because people just – have you noticed this when you are coaching, they never write down the units, or they miss that one piece.

Lisa:

Units are way then than anything, whether it’s week, month, units, whatever it is. It can definitely screw you up on the case.

Jenny Rae:

And McKinsey seems to love those more than anybody.

Lisa:

Yes.

Jenny Rae:

So I thought that was a really great way that you handle that as well. Yeah, anything else overall?

Lisa:

The last question, in terms of how they go after the other category, I think that one’s a little bit different because there’s a lot of different nuances to that, so I was trying to structure that out, and I came up with a couple of buckets that I think worked, but I don’t know, what are your thoughts on that one?

Jenny Rae:

I mean overall, I thought that it really made sense. I think the key thing was that like I was pointing out a few of these along the way so they kind of got peppered in there, but assuming that Starbucks is like all of that coffee shop market, I think they are a big player, but definitely not big enough. And then just talking about, what I liked was how you kept bringing it back to like what it would take, not just whether it was possible, but that it would take more fixed costs to set it up. So I thought that was really clear.

And I liked your structure that you put on the paper down there in terms of the brainstorming with the attractiveness, and the capabilities. So overall, I thought it was really good. I just thought like there were some insights that you could have continued to mention as you’re going. But that’s normal. We always think about those things afterwards. Right?

Lisa:

I know, afterwards. The one thing that it was thinking about was I didn’t – I don’t think I mentioned this one, is if they need to spend more money, or they go after smaller portion of the market, either way that’s going to impact their market share, so they’re going to need even more percentage of the market.

Jenny Rae:

Exactly.

Lisa:

And, even if they’re going after the healthy natural drink market, I don’t have the percentage breakdown of those, so it could be that healthy natural drink market is 2% of the 5% market.

Jenny Rae:

Exactly.

Lisa:

In which case it’s just an even further.

Jenny Rae:

Well, then the final thing that I really liked that you did, which is very classic McKinsey, was your “answer first” answer at the end. So you kind of said hey, we’ve got all this information, my recommendation is not to go after it, here’s why. But then you went straight into the next step, so your conclusion was like textbook McKinsey. Obviously, as we coach people for the different styles, they can adjust that, but I really liked you came out pretty strong with that. Interestingly though, even though you lead with it, you used very diplomatic language, can I say? Right? It wasn’t like this is a terrible idea.

Lisa:

Because the thing is on a case, you never know if it’s a 40 minute version, there could be a lot more that you didn’t know, so it’s a little bit open for maybe some further analysis.

Jenny Rae:

So you, I thought you measured out the like a very strong, this is a really bad idea, and presenting it as though this is probably not a good idea, and the combination of that was really good. So yeah, thank you for all that you demonstrated. I thought that was really fun.

Lisa:

Awesome.

Jenny Rae:

I hope you had fun going through it in the hot seat.

Lisa:

Yes, always good being in the hot seat every now and then. It’s like different side of the equation, I guess.

Jenny Rae:

Exactly. Thanks, Lisa.

Lisa:

Yep, great.

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