Middl Corporation
Our client, Middl Corporation, is a leading Germany based retailer. They operate more than 1000 stores ranging from hypermarkets to neighbourhood stores across the major cities in Germany.
Revenues of the firm have started becoming stagnant over the last 5 years and in the last 2 years the revenues have started declining. The profitability has followed the same trend as revenue; however the percentage drop in profits has been sharper.
They have also lost market share over the last 5 years. Although they are still the largest players with 30% market share, the second largest retailer is getting close with a 27% market share.
They have asked you to analyse the situation and develop a plan to boost revenues and profits.
This case hinges on two key pieces of information - discount retailers and internet proliferation. The client has failed to adapt its business model to both these market trends.
The interviewer should not give these two key pieces of information away too easily. Prompt the candidate to follow a structured case process and encourage him/ her to come up with potential issues.
Suggested case structure
- Market / customer analysis: The candidate should analyse the market trends, target customers, their buying behaviour, preferences etc.
- Company context: The candidate should try to understand the product, sales and distribution mix of the client.
- Competitor analysis: The candidate should try to understand the competitive dynamics.
- Conclusion: The candidate must give a concrete recommendation on the basis of the above analysis.
1. Market / customer analysis
The interviewee should at the outset try to understand the market - growth, trends, target consumers and their needs etc.
Share the following information with the interviewee if enquired:
- There is no information available about the market size; however, we know that the market is growing at 5 percent per annum
- Detailed customer segmentation is not available with the client. However, the broad target customer profile pegs the customers as primarily upper middle income earners who reside in the major urban cities
2. Company context
The interviewee should now try to understand the company in greater detail in order to analyse the root cause for the stagnating growth
Share the following information with the interviewee if enquired:
- The company has one million customers and the number of customers hasn't changed over the last few years.
- The average spend per customer per week has been declining over the last few years. The current spend per customer per week is € 10.
- The total costs per annum for Middl amount to about € 550 m per annum. The company has consciously worked to reduce the costs because of the stagnating growth; however, the drop in costs is not in line with the drop in revenues.
- Middl stocks a wide range of products; however, as expected the margins on the high value products are the highest. The product mix has remained unchanged over the last few years.The typical product mix across the different categories is available and can be shared with the interviewee.
- Middl has a wide range of suppliers and is able to negotiate with them effectively. There is no significant concentration of power with any supplier group.
- Middl's distribution network currently consists of 1000 physical stores. It has no online distribution channel.
Share the following exhibits with the interviewee if enquired:
- Share Exhibit 1 if the interviewee enquires about the cost structure of the client
- Share Exhibit 2 if the interviewee enquires about the product distribution of the client
Exhibit 1
Exhibit 2
- The company's annual revenue is 520 million (current spend per customer per week € 10 x 52 weeks x 1 m customer), however, the costs are 550 million. The company has already implemented cost reduction measures.
- The company's distribution network consists of only physical stores. Given the boom in internet shopping, the lack of an internet distribution channel could be a major lacuna and needs to compared with competitors.
- The company's product range is concentrated in the lower price segment (~50% of the products). The product range has also not changed in the last few years. This needs to be evaluated in the context of competition and consumer preferences.
3. Competitor analysis
The interviewee should now try to understand the competitive scenario in greater detail.
Share the following information with the interviewee if enquired:
- Maldi Group and MEWE Corporation are the two largest competitors of our client.
- The sales of the competitors have been consistently growing over the past 5 years. Maldi Group's sales have increased at a CAGR of 5% per annum in this period. MEWE's sales have grown at a 4% CAGR during this period.
- All the three companies target a similar profile of customers and are located in similar cities and neighbourhoods throughout Germany.
- Middl had initiated a consumer study recently to understand consumer preferences especially after the discount retailers had started becoming prominent. The survey revealed that over 80% of the consumers who buy from Middl also buy from Maldi and MEWE outlets. Of these consumers, 90% of the consumers prefer the high-end product range at Maldi or MEWE.
- Both Maldi and MEWE Corporation have built a strong internet distribution channel in the last 3 years. Internet sales have grown at a CAGR of over 18% for both the competitors.
Share the following exhibits with the interviewee if enquired:
- Share Exhibit 3 if the interviewee enquires about the market share of the different competitors
- Share Exhibit 4 if the interviewee enquires about the product distribution of the competitors
Exhibit 3
Exhibit 4
- The stagnating growth of the client cannot be due to any market trends. The closest competitors of our client have been growing and have not seen a drop in revenue or profits over the past few years. These competitors operate in similar neighbourhoods and target a similar profile of customers.
- The two key points of difference between the operating model of our client and its competitors are - internet distribution and product mix.
- The competitors have evolved with the changing consumer preferences and have built a strong internet distribution channel.
- The competitors seem to focus on mid and high-end products which also yield better margins. The consumers prefer their range in this segment over our client.
4. Recommendation
- The two key reasons for the stagnating growth of the client are the lack of an internet distribution channel and the absence of a strong range in the mid to high-end product segments.
- Middl corporation should re-evaluate its product mix to be in line with consumer preferences. Strengthening the mid to high-end product segment would also boost profitability as the margins are higher in these segments.
- Middl corporation should also start efforts to build an internet distribution channel given the success experienced by its competitors.
- In addition to the above, Middl corporation should conduct focused group discussions with customers and try to innovate on shopping experience / customer service or some other parameters in order to differentiate itself from its closest competitors.
