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Barb's BBQ Booth

Topic Difficulty Style
Market analysis Beginner Candidate-led (usual style)
Profitability analysis

One day you are grocery shopping when you are approached by Barb B.
Queue, the owner of the supermarket’s deli shop. Facing serious competition
from other supermarkets and fast food chains, Barb is worried whether his
shop is working alright, as lately profits have been stagnating. He had
figured that you work in a renowned consultancy and seeks your advice.
Because you are a consultant from the bottom of your heart, you agree and
sit together with Barb and have a look into his books.
Short Solution

The pulled pork burger is responsible for the stagnating profit margin.
I. Structure

Share diagram 1 with the interviewee.

II. Background / Data

The interviewee must understand the business of the client (Barb) and ask
questions. Here are some answers that you can give:

Revenue streams:
Deli meats & prepared foods.
Industry Growth:
deli meat: flat, slightly declining.
prepared food: 10%/year as people cook less.
Competition:
deli meat: supermarkets and discounters that spend more
money on advertising.
prepared food: fast food restaurants.

Share table 1 with the interviewee.

III. Analysis

At this point, the interviewee should ask questions to lay the ground for the
upcoming analysis:

1. Which one of the business lines is responsible for the lack of growth?
2. What are the reasons for the lack of profit growth (flat revenues,

increasing costs or both?)

3. What causes the flat revenues, increasing costs or both?

We can see that our client’s shop is in line with the industry-wide growth in
deli meat, i.e. low to zero growth, and outperforms the market in revenue
growth for prepared food with around fifteen percent (market: 10%.) This is
good; however, the growth doesn’t bring upon a higher overall profit, thus we
can assume that the margin is deteriorating. Furthermore, a flat margin in the
deli meat is acceptable, as growth is zero. In prepared food, there should be a
growing profit margin.

We will have to look more closely into the prepared food financials.

Ask: What could be a reason for deteriorating margins in prepared food?

We know that revenue is not a problem, as there is substantial growth. So,

either product mix has changed or labour/material costs have increased.

Product mix: Remained the same, except BBQ chicken wings and
pulled pork burgers which were introduced only lately and have
boosted prepared food sales.
Product info: BBQ chicken wings: take a little while longer to make
and a BBQ sauce is applied afterwards; The pulled pork burgers are
custom-made upon an order by a client and only available during
lunch and dinner time.

With the right amount of suspicion, the interviewee will want to investigate
those two new products more closely. Share tables 2 and 3 with the
interviewee.

The answers are to be found in tabes 4 & 5.

Calculating the values for the BBQ chicken wings, we find our profit margin to
be 50% of the revenue, which is a good value.

With the pulled pork burger, the situation is quite the opposite. Every day we
are losing 10 € with the burgers. Assuming that the employee cannot work
faster, this loss will get bigger the more our sales grow.

Ask the interviewee, what Barb can do about this.

Apart from eliminating this product from the portfolio, Barb could
increase the price of the burger (This will depend on the price elasticity).
Alternatively, material costs could be lowered.
Barb could find an employee that works faster.
The burgers could be limited to the busiest time.
 Optional question: How many burgers per hour must be sold to reach break-
even? How can Barb know during which times he had to offer the burger if
it was offered for one hour only?

The contribution margin of a single burger is 3€ without the employee cost. To

break even, the employee cost must be earned (25€). While 8 burgers/hour
still cause losses (8*3 = 24), from 9 burgers/hour on the business will be
profitable. (In fact, currently Barb sells 7.5 burgers per hour = unprofitable)

IV. Recommendation

Barb has asked us to identify the underlying reasons for the stagnation of
profits in the face of market and revenue growth. The reason for this is to be
found in the pulled pork burgers that are incurring losses.

Possible recommendations include:

Eliminate the pulled pork burger

Change prices/ material cost
Increase demand (advertising, promotions, …)