Practice Cases

Great Burger


Introduction

To step through this case example, we will give you some information, ask a question, and then, when you are ready, give you a sample answer. We hope that the exercise will give you a sense of the flow of a case interview. (Please note, you can stop this exercise and pick up where you left off later. Your cookies must be on to use this feature).

In this exercise, you will answer a series of questions as the case unfolds. We provide our recommended answers after each question, with which you can compare your own answers. We want to emphasize that most questions in a case study do not have a single right answer. In a live case interview, we are more interested in your explanation of how you arrived at your answer, not just the answer itself. An interviewer can always assess different but equally valid ways of approaching an issue, and then bring you back to the particular line of inquiry that he or she wants to pursue.

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Finally, a live case interview would typically be completed in 30 - 45 minutes, depending on how the case evolves. In this on-line exercise, there is no time limit.

There are six questions in this on-line case study. This case study is designed to roughly simulate one during your interview, so you will not be able to skip ahead to the next question until you have answered the one you are on. You can refresh your memory of previous answers by clicking the highlighted Q&A links to the left. To print the answer, click on the print icon that appears in the TOP RIGHT corner. At the end, you can print the entire on-line case study at once.


Start Case Study

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Client Goal: Should Great Burger acquire Heavenly Donuts as part of its growth strategy?

Our client is Great Burger (GB) a fast food chain that competes head–to-head with McDonald‘s, Wendy‘s, Burger King, KFC, etc.

Description of Great Burger
GB is the fourth largest fast food chain worldwide, measured by the number of stores in operation. As most of its competitors do, GB offers food and "combos" for the three largest meal occasions: breakfast, lunch, and dinner.

Even though GB owns some of its stores, it operates under the franchising business model with 85 percent of its stores owned by franchisees (individuals own and manage stores, pay franchise fee to GB, but major business decisions (e.g., menu, look of store) controlled by GB).

McKinsey study
As part of its growth strategy GB has analyzed some potential acquisition targets including Heavenly Donuts (HD), a growing doughnut producer with both a U.S. and international store presence.

HD operates under the franchising business model too, though a little bit differently than GB. While GB franchises restaurants, HD franchises areas or regions in which the franchisee is required to open a certain number of stores.

GB‘s CEO has hired McKinsey to advise him on whether they should acquire HD or not.


QUESTION 1
What areas would you want to explore to determine whether GB should acquire HD?
ANSWER 1

Some possible areas are given below. Great job if you identified several of these and perhaps others.

Stand alone value of HDGrowth in market for doughnutsHD‘s past and projected future sales growth (break down into growth in number of stores, and growth in same store sales)Competition – are there any other major national chains that are doing better than HD in terms of growth/profit. What does this imply for future growth?Profitability/profit marginCapital required to fund growth (capital investment to open new stores, working capital)Synergies/strategic fitBrand quality similar? Would they enhance or detract from each other if marketed side by side?How much overlap of customer base? (very little overlap might cause concern that brands are not compatible, too much might imply little room to expand sales by cross-marketing)Synergies (Hint: do not dive deep on this, as it will be covered later)Management team/cultural fitCapabilities/skills of top, middle managementCultural fit, if very different, what percent of key management would likely be able to adjustAbility to execute merger/combine companiesGB experience with mergers in past/experience in integrating companiesFranchise structure differences. Detail “dive” into franchising structures. Would these different structures affect the deal? Can we manage two different franchising structures at the same time?
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The team started thinking about potential synergies that could be achieved by acquiring HD. Here are some key facts on GB and HD.

Exhibit 1
StoresGBHDTotal5,000 1,020 North America3,500 1000Europe1,000 20 Asia400 0 Other100 0 Annual growth in stores10% 15%Financials GBHDTotal store sales$5,500m$700mParent company revenue$1,900m$200mKey expenses (% sales)Cost of sales51%40%Restaurant operating costs24%26%Restaurant property & equipment costs4.6%8.5%Corporate general & administrative costs8%15%Profit as % of sales6.3%4.9%Sales/stores$1.1m$0.7mIndustry average$0.9m$0.8m