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Containers GmbH - Case 9 (IC2)

Case 9 (IC2) -- Containers GmbH

CLIENT SITUATION

Our client is Containers GmbH, a German manufacturer of plastic storage boxes with €150M in revenue and
€12M in profit. Containers GmbH boasts that they offer “boxes for your every storage need.” To make better on
this promise, the Containers GmbH CEO is considering expanding their product offerings to include cardboard
boxes. Should they do it?

NOTES FOR INTERVIEWER

(Phase 1) Ask candidate: So, what’s your initial best guess on whether this idea’s a winner? Why is that?

(Phase 2) Ask candidate: What are the most critical issues we must explore in order to validate or invalidate
your guess?

INSIGHT Candidate notes the importance of

#1: customers and distribution channels.

Ask candidate: Why is it important to understand the competitors in the cardboard market?

Candidate notes that current

cardboard players’ relative market
INSIGHT #2: share impacts our ability to access
the market, with highly consolidated
Relevant facts (reveal one-by-one
players being unfavorable for
when asked): Containers GmbH.
1) Say to candidate: OK, let’s
start with customers first. Take a look at Exhibit 1. (Reveal Exhibit 1) What jumps out at you?

2) The plastic box customer names refer mostly to brick-and-mortar retailers. Jungle.de is the German division
of an international online retailer.

There is no overlap between the

INSIGHT major customers for cardboard boxes
#3: and plastic boxes. It will be hard to
leverage our existing customer
relationships to quickly penetrate this
market.

Customers of plastic boxes are

INSIGHT largely retailers looking to re-sell to
Say to candidate: OK, now let’s #4: consumers, whereas customers of
talk about Containers GmbH itself. cardboard boxes engage in more
3) Containers GmbH’s strongest B2B-style (business-to-business)
capabilities are cost-effectively transactions.
acquiring and molding plastic into
any shape imaginable and
designing containers that delight enthusiastic organizers of their homes.

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INSIGHT These strengths are not leverage-

#5: able in cardboard boxes, as they
don’t involve plastic and that industry
4) Say to candidate: All right,
is more business-facing and less
now let’s move on to competitors. consumer-facing.
Take a look at Exhibit 2 and tell me
what’s most relevant for the question at hand. (Reveal Exhibit 2.)

INSIGHT The cardboard box market is

#6: dominated by three major players.

Each player in the cardboard box

INSIGHT market is has revenue that exceeds
#7: ours; to be a scale player here, we’d
need additional revenues that mean
we’re doubling in size. This will be
5) Cardboard box manufacturing difficult.
tends to be fairly local business,
since transportation is a major component of the cost.

6) None of Containers GmbH’s direct competitors in plastic boxes also offer cardboard boxes

(Phase 3) Ask candidate: While looking at this exhibit, let’s assume that we’d earn a 3% margin on sales of
cardboard boxes. We’ll further assume that the total investment to enter this market amounts to €12M. Finally,
let’s assume and we wish to breakeven on that investment within three years. Given these assumptions, what’s
the average market share of cardboard boxes we’d have to attain during these three years in order to meet the
breakeven objective?

We would need €133M in annual

INSIGHT
revenue or about 23% market share.
#8:
That’s very unlikely.
(Phase 4) Ask candidate: So,
other than cardboard boxes, can you brainstorm some other revenue expansion opportunities that would be a
better fit for us, given everything you’ve learned so far? (Prompt candidate: What else? What else?)

Candidate mentions other product

areas that dovetail nicely with
Containers GmbH’s strengths: A)
INSIGHT Products that are interesting to
#9: organization-minded consumers; B)
Products typically sold through retail
distribution channels; C) Products
(Phase 5) Ask candidate: Okay,
the CEO just dropped in and wants
whose composition is mostly plastic.
an update. What do you tell her? Ideas include plastic clothes drawers,
CALCULATIONS
plastic closet organization devices,
plastic hangers, plastic tackle boxes,
1) Compute the average amount of
profit Containers should earn in plastic desk organizers etc.
cardboard in a given year to offset
the investment cost by dividing the investment cost by the breakeven period number of years (€12M
investment / 3 years to breakeven) = €4M profit per year.

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2) Compute the amount of revenue required to derive this profit by dividing the profit by the assumed profit
margin (€4M profit / 3% profit margin) =€133.3M.

3) Express this amount of revenue as a proportion of the whole market (€133.3M required revenue / €580M
current market size) = approximately 23% market share.

Copyright Victor Cheng / All Rights Reserved 2012 / Not for use by unauthorized parties
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