WOEM to Sell Unprofitable Wedding Clothing Business
Case Type: improve profitability; new business.
Consulting Firm: Accenture first round full time job interview.
Industry Coverage: food service; apparel, clothing, textiles.
Case Interview Question #01121: Your client is WOEM LLC, a small wedding cake and wedding clothing company located in Los Angeles, California, United States. The client WOEM has two separate business entities: WOEM cakes and WOEM clothing. As a whole company, WOEM was unprofitable last year (Year 2015).
Your consulting firm has been hired by WOEM to investigate. The CEO of WOEM believes that the creation of a third business entity, WOEM wedding planning, will lead to sustained profitability for the company. Is this a good idea? WOEM’s CEO wants your perspective on how to make WOEM profitable again. How would you go about this case?
Possible Answer:
1. Case Overview
Overall this is a profitability case, within the context of evaluating the current state of the company and expanding product/service offerings.
2. Additional Information: (to be provided only upon request)
* Major players in the wedding cake, wedding clothing and wedding planning industry were profitable last year.
* WOEM’s current customers include middle income individuals (40%) and wedding planners (60%).
* WOEM has no experience in wedding planning, but it understands the wedding business and have a network to pull this off.
* There is no specific goal for WOEM (no ROI or specific profit) — WOEM’s CEO just wants sustained profitability.
3. Suggested Framework
The candidate should break the case into two parts.
* Part A should focus on WOEM’s current operations, and
* part B should focus on understanding the wedding planning industry.
The interviewer should first ask the candidate to present a framework focusing on part A only. The candidate’s current operations framework should include questions on the industry, for example competitors and industry trends (no information available) and a basic profitability tree to understand why WOEM is unprofitable.
4. Detailed Analysis
Part A: Provide the candidate with the following financial information. Why was WOEM unprofitable last year (2015)?
WOEM Cakes:
* Year 2015:
– Sales: 900 cakes;
– Price: $1000 average per cake;
– Costs: $600 average per cake.
* Year 2014: Same average price and cost but number of cakes sold was 1,300
WOEM Clothing:
* 2015 Revenue: $150,000; Total Costs: $560,000
* 2014 Revenue: $140,000; Total Costs: $400,000
Possible Answer:
By glancing at the financials, a good candidate will state that WOEM was unprofitable in 2015 because of WOEM Clothing.
A good candidate will do the math quickly and state that in 2015 WOEM cakes sold about 30% fewer cakes than it did in 2014 and that although WOEM clothing’s revenue increased 7% in 2015, costs increased by 40%.
Ask the candidate why WOEM is selling 30% less cakes last year (Year 2015). Possible answers include:
* New competition
* Substitute: Customers are switching to other types of cakes that WOEM doesn’t offer
* Decreased income level: Customers are purchasing fewer cakes/having fewer weddings.
The interviewer could reveal to the candidate that consumers are switching from vanilla and chocolate cake to red velvet cake, WOEM doesn’t sell red velvet cake.
If the candidate asks why WOEM clothing is unprofitable: It has been unprofitable since its inception. It turns out that customers don’t associate WOEM with wedding clothing and Los Angeles customers are very brand conscious.
Part B: Ask the candidate how he or she will determine if WOEM should enter the wedding planning market.
Possible Answer:
The candidate’s framework on whether to enter the wedding planning business should cover the following:
* Industry (Understanding the key players in this market, market size and trends): 4 reputable players control 50% of the wedding planning market in Los Angeles. Reputation of wedding planners is the main purchase driver in this market. No market size or trend information is available (to make this case more advanced you can test candidate’s market sizing thought process.
* Company Capability (Understanding if the company WOEM has the resources to pull this off): Ask the candidate what he or she thinks. – WOEM has access to financing and can leverage its current customer base, but will need to hire wedding planners.
* Economics: Projected revenue and costs from entering this market (no information available).
* Risks associated with entering this market: Ask the candidate what he or she thinks – No experience, loss of current WOEM customers (since wedding planners make up 60% of WOEM’s current customer base) and opportunity costs are some of the risks.
5. Conclusion & Recommendation
Ask the candidate to make a final recommendation
Possible Answer:
The client WOEM should not expand into wedding planning business at this time. Instead, WOEM should expand its wedding cake line to include red velvet cake and sell its wedding clothing business in order to be profitable.
Supporting facts:
* Wedding planners make up 60% of WOEM’s customer base. WOEM will face intense competition from its current customers and thereby reduce profitability on current business. WOEM also doesn’t have a reputation in wedding planning market.
* Consumer tastes are changing, for WOEM to stay profitable it needs to enter the red velvet wedding cake market.
* WOEM’ wedding clothing business has been unprofitable since its inception, as WOEM is not associated with clothing.
Risks
* WOEM and competition might be leaving money on the table by not entering the wedding planning business
* Closing the wedding clothing business might affect the sales of WOEM wedding cakes
* Cannibalization
Immediate Next steps
* Expand wedding cake line to include red velvet cake (understand the costs associated with this)
* Start looking for buyers of the wedding clothing business.
6. Performance Evaluation
What does the case test?
* Structure and Strategy
What should a good candidate be doing/asking/providing throughout the case?
* candidate will develop a structured approach
* candidate will do the math accurately
* candidate will generate at least 3 ideas to explain why WOEM is selling fewer cakes
Provide examples of what exceptional candidates are doing throughout this case. In addition to what is above, an exceptional candidate should do the following:
* Be able to drive to insights within the case without prompting
* Be able to come up with a solid recommendation even though the case is unstructured and has limited financial information
* Be able to maintain poise under pressure from the interviewer.