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Case

Case prompt

Our client, NutraCo. is a UK based manufacturer of vitamin supplements. They primarily supply their products which include vitamin pills, tonics, etc. to pharmacies. They are facing growth and margin pressure in their existing segment.


They are considering entering the health food and beverages market and have approached you to help them evaluate this decision.


Detailed solution

Paragraphs highlighted in orange indicate hints for you on how to guide the interviewee through the case.

Paragraphs highlighted in blue can be verbally communicated to the interviewee.

Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.


Suggested case structure

Key question: Should the company enter the health food and beverages segment?

Brainstorm with the interviewee on a possible structure to solve the case.


Below would be the steps to solve the case:
  1. Context: The candidate should attempt to understand the client's current business context and the challenges being faced.
  2. Market/Competitor analysis: The candidate should analyse the market size, growth outlook etc. of the new market segment.
  3. Competitor analysis: The candidate should attempt to understand the competitive landscape of the new market segment being evaluated.
  4. Synergies: The candidate should evaluate potential synergies between the existing segment and new segment.
  5. Recommendation: The candidate must give a concrete recommendation on the basis of the above analysis.

1. Context

The interviewee should at the outset try to understand the client's current business context and the challenges being faced.

Share the following information with the interviewee if enquired:

    • NutraCo's revenues have been stagnating and profits have been declining over the past few years.
    • Consumers are shifting focus from vitamin supplements in the form of pills to healthy food and beverages.

Share the following diagrams with the interviewee if enquired:

    • Exhibit 1 if the candidate enquires about the operating numbers of the client
    • Exhibit 2 if the candidate enquires about the industry growth rate

Exhibit 1 

 

Exhibit 2 


Key insights:
  1. The company's revenues have stagnated. Rising costs have affected the profit margins - margins have dropped from 20% in 2013 to 6% in 2017.
  2. The market growth rate itself is low at approximately 3%. However, the revenue growth of the company is below the market as well at about 1-2%.
  3. The company needs to change its business model in the existing segment or find additional avenues of growth in order to sustain.

2. Market

The interviewee should now try to understand the new business segment being evaluated - market size, trends, growth outlook etc.

Allow the interviewee to think aloud and lay out the list of information required in order to understand the market segment.

Share the following information with the interviewee if enquired:

    • The estimated market size of the health food and beverages segment is £ 15 B
    • The estimated market size of the vitamin health supplements segment is £ 5 B
    • Given the increasing focus on healthy food and beverages, the segment has a very healthy growth rate. Also, as it is a direct to consumer business with a potentially higher retail reach, the market is expected to continue to boom.

Share Exhibit 3 with the interviewee if he/she enquires about the growth rate of the health food and beverages market segment.

Exhibit 3

 

Key insights:
  1. The health food and beverages segment seems to be attractive.
  2. The health food and beverages segment is much larger than the existing segment that the client operates in.
  3. The growth rate in the new segment is much higher than the vitamin supplements segment and the growth is expected to continue.

3. Competitor analysis

The interviewee should now try to understand the competitive landscape of the market segment being evaluated.

Allow the interviewee to think aloud and lay out the list of information required in order to understand the competitive landscape.

Share the following diagrams with the interviewee if enquired:

    • Exhibit 4 if the candidate enquires about the market share in the vitamin supplements segment
    • Exhibit 5 if the candidate enquires about the market share in the health food and beverages segment

Exhibit 4

 

Exhibit 5

 

Key insights:
  1. The health food and beverages segment is extremely fragmented.
  2. The largest player has a market share of 11%.
  3. HealthE is present in both the vitamin segment and the health food and beverages segment and could be used as a benchmark to build out the operations in the new segment.

4. Synergies

The interviewee should now try to understand the synergies if any between the two segments.

Share the following information with the interviewee if enquired:

    • There are no cost synergies between the two segments. The production facility for the food and beverages segment would need to be built afresh. The company has sufficient capital to invest in this segment.
    • There are some revenue synergies as pharmacies, health stores would also be the primary customers for the food and beverages segment.

Key insight:
  1. There are potential of revenue synergies between the two segments. The competitor HealthE can be studied in detail in order to understand best practices.

4. Conclusion

Prompt the candidate to lay out a concrete recommendation and next steps for the client. Also, prompt the candidate to detail potential risks if any.

The candidate must succinctly lay out the recommendation for the client as follows:
Recommendation:
  1. The company should consider entering the health food and beverages segment because:
    1. Market growth in the existing vitamins segment has stagnated. Rising costs and lower than industry growth has led to profitability pressure in the existing business.
    2. Health food and beverages segment is attractive. The market is larger (~3x) than the existing segment. It is a high growth segment with a positive outlook in the near future.
    3. The health food and beverages market is fragmented and there is room to enter. 
    4. There are potential revenue synergies between the two segments.
Next steps, the company should:
  1. Evaluate the best entry option - organic entry vs. inorganic route.
  2. Build a business plan and estimate the capital requirements to finance the entry.
  3. Investigate the cause for the lower than industry growth in its existing business segment.
Potential risks:
  1. The company is moving into a high growth segment which requires additional core competencies - consumer branding, wider retail distribution etc. The company might not be able to build these competencies in order to succeed.
  2. FMCG companies could potentially enter this segment and intensify competition.


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