Bain Food Chain Case
Bain Food Chain Case
Bain Food Chain Case
In this case, we will provide you with information regarding a client situation and ask you questions regarding
the case issues. After you submit your answer, we'll provide a detailed Bain answer that you can compare with
your ideas.
Remember, in case interviews there is no "right answer": interviewers look for problem-solving skills,
creativity and common sense. You will not be able to skip questions in this online case, so take your time and
have fun!
Question 1
A large fast food chain has hired Bain to improve the company’s profitability. You’re about to have an initial
brainstorming session with your team around your client’s options, and you want to collect your thoughts
first.
Your answer:
For example:
Where Revenue = Price * Quantity and Costs = Fixed Costs + Quantity * (Variable Costs).
In order for the company to improve its profitability, management needs to increase revenues and/or decrease
costs.
So to begin tackling my client’s profit problem I am going to look at these two sides of the equation:
Question 2
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At your case team meeting, your manager informs the team the customer is price sensitive, the market is fairly
saturated, and that the fixed costs are pretty stable. Thus Bain and the client agree that the team should focus
on lowering variable costs. Specifically the client wants to reduce their spending on purchased items (items
the client buys from others and then uses or offers to their customers, like the meat in the hamburgers or the
ketchup packets).
Without knowing much more about the situation, what would you suggest are some ways to do so?
Which ideas seem the most attractive and why?
Your answer:
Food:
We could negotiate lower food prices with our suppliers (consolidate our purchasing, etc.).
We could look for cheaper ingredients. This sounds risky because it could lower the quality of the food
that we sell.
We could reduce the volume used. For the same reason, this sounds risky because it would change our
recipes, one of our competitive advantages in producing winning recipes.
Packaging:
We could negotiate lower prices with our suppliers or look for cheaper alternatives.
We could reduce the volume used.
Recommendation:
Most attractive ideas are: negotiating lower food prices or packaging prices, looking for cheaper
packaging materials, or reducing the volume used.
Question 3
At this point in the brainstorming session, the VP adds that two years ago, the company launched a program
to centralize purchasing and successfully negotiated much lower prices. Therefore, it is critical to determine if
you could reduce the volume of goods that the client purchases. How could you reduce the volume of
purchased goods?
Your answer:
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Can the client reduce the weight of the packaging while still protecting the food?
Can the client reduce other qualities of the packaging including degree of color or logo prevalence
without sacrificing their brand?
Can the client lock bathrooms so that non-customers do not waste toilet paper and towels?
Can the client charge for extra condiments?
Can the client reduce the size or number of napkins they purchase?
Question 4
Bain focuses on components that make up large portions of a company’s costs: reductions in these areas will
have the largest impact on a client’s overall costs. Bain’s philosophy is to always focus on where the value is.
At first glance, napkins would not appear to fall within this category because they are so low cost. But there is
a new napkin dispensing technology on the market that you have heard about and think could save the client
some money. You decide to investigate.
One way to reduce volume is to reduce how many napkins a customer takes. Customers in fast food chains
often take many more napkins than are needed for the meal, or actively hoard them to take home. One action
some chains have taken to combat this is to switch their napkin dispensers from small metal dispensers (from
which you pull napkins out in bunches) to larger plastic dispensers (from which you pull napkins one at a
time, like a reverse Kleenex box). These dispensers are produced by major paper manufacturers.
Let’s assume your chain came to you with the following question:
How much money could we save per year in the US from using the new type of napkin dispenser in all
restaurants?
What information would you like to know from the company? (Do not take into account the cost of the
dispensers for now.)
Your answer:
Number of restaurants
Number of customer visits per store per year
Number of napkins used per customer now
Number of napkins used per customer after the switch
Price per napkin
Question 5
As you talk through the data points that you would need to gather with your colleagues, you learn from a
fellow AC who worked for a local restaurant that a case of 6000 napkins cost his client $28. Thus, a
reasonable price per napkin is about $0.005.
Conduct your estimates as if your client is similar to McDonald's in terms of the number of outlets.
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Your manager calls you for a quick estimation of the market size before getting the actual data from
your client. Use creative approaches to hypothesize values for each of the above pieces of information
and then calculate the estimated savings.
Your answer:
Number of restaurants
Other approaches:
Estimate the entire fast food market and then estimate McDonald's share
Estimate the area covered per McDonald's across the United States.
Note: With this approach, be careful to account for population differences between 10 square miles of
NYC and 10 square miles of Utah.
Actual answer: Fast food restaurants expect around 1,500 customers a day.
Other approaches:
One might take this a step further during a case interview and attempt to segment these customers. For
example, one might assume 50% of the restaurants customers are drive-through and 25% of the
remaining take their food "to go." Drive-through customers do not take, but are given napkins. "To go"
customers may be more likely to "hoard napkins" as they can not go back to the counter for more.
Note: This would influence potential answers to the next question - but for now, assume you did not
take this step and all customers are the same.
Actual answer: Five napkins with old dispensers and two napkins with prohibitive dispensers for a savings of
three napkins per customer.
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During a case interview you would most likely just use personal experience here - how many napkins do you
take or see others take when you're at a fast food restaurant?
Other approaches:
Bain would send people to the chain to watch napkin taking behavior or call fast food restaurants with
both kinds of dispensers to find out how many napkins they go through a day.
Calculations
$0.005 per napkin * 3 napkins * 1500 customers * 365 days per year * 12,000 restaurants = $98.6M dollars
saved in napkin purchases.
Question 6
How would you go about feeling comfortable with this figure and pressure checking your
assumptions?
What would you want to flag for your manager as factors that might significantly alter the
answer?
Your answer:
Looking at a comparable company’s operating income to see what percentage of the expense napkins
account for.
Find out what your client currently spends per restaurant per year on napkins.
Keep in mind that with a company of this size any small changes in assumptions will significantly alter your
answer. Some things to flag for your manager:
The chain you work for probably gets a significantly better deal on napkin pricing due to the magnitude
of their orders (in contrast to the single-location restaurant napkin price estimate you received)
Up to 50% of customers are drive-through and their napkin behavior should not change. This would
reduce the savings by up to 50%
The three napkin reduction estimate needs refining. Perhaps a pilot program would need to be done to
see if the dispensers really have the desired effect
Question 7
Assume you would need 10 dispensers per store for a total of 120,000 dispensers. Also note that napkins in
these dispensers cost more at a price of $.01 per napkin (remember it is the paper companies that make the
new dispensers).
At what price per dispenser would the investment not be worth doing?
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Your answer:
$275
The most you would be willing to pay per dispenser would be $273.
Note: In an actual case interview you can use round number estimates so that mental math is easier.
Question 8
Can you see any other factors your client should consider before making a decision?
What other advantages and disadvantages might there be to this switch? (Impact on costs and
customers.)
How might you evaluate the impact of the extraneous factors?
Your answer:
1) because of higher cost/napkin now, the client should do a pilot to ascertain for sure that the usage will
decrease 2)
Advantages:
Fewer napkins used per day leads to less restocking which may mean better customer service or lower
labor cost.
Better relationship with paper manufacturer (potential for better pricing).
Disadvantages:
With the new dispenser locking you into a paper provider you may lose buyer power. There is the
potential for additional napkin price increases in the future.
Customer reaction: Will a customer find this to be poor service? What if he or she needs to grab a
handful of napkins after a spill?
Implementation:
Management will need to negotiate a contract that includes limits on future pricing.
Bain will need to do customer research and pilot programs to evaluate customer reaction.
And many, many more! As you can see, the keys to a good case interview are logical assumptions, creative
thinking, and basic quantitative ability. Take time to think through problems and share your thought process
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