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Starter: Pellowby Grocers: online orders doubled but profit fell

You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.

Case timer

00:00

Target length:

1. Read the prompt aloud

Read it slowly, then pause. Let the candidate ask questions before they structure.

Pellowby Grocers, an Australian supermarket chain, doubled its online orders this year, but its online business made less money than last year. The exhibit shows the key figures for each year. What happened, and what should Pellowby do?

Format note: Difficulty: Starter. Format: interviewer-led, with an exhibit. Industry: Grocery retail. Region: Australia. Interview length: about 25 minutes. The company is fictional and all figures are illustrative.

2. Answers to clarifying questions

Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.

If asked: Is this only the online business?
Answer: Yes. Store sales are stable and are outside this case.
If asked: Did prices or the delivery fee change?
Answer: Shelf prices did not change, but the delivery fee was cut from AUD 8 to AUD 4 per order to grow online sales.
If asked: Did anything change in how orders are picked and delivered?
Answer: More orders now come from outer suburbs with longer drives, and busy stores pick online orders more slowly.

3. The hypothesis a strong candidate states

Listen for an early, testable guess like this one. It does not need to match word for word.

Orders doubled, so the fall must come from the profit on each order. My hypothesis is that the lower delivery fee and a higher cost to pick and deliver each order more than cancelled out the extra volume.

4. A model structure

Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.

Online profit = orders x (basket x margin + delivery fee - picking and delivery cost)
- Number of orders
- Key: Profit on each order: margin on goods, delivery fee, cost to serve
- Customer choices: basket size, delivery area, delivery or pickup

Exhibit 1

Reveal to candidate: when they ask for this data, say "Open Exhibit 1" (they press "Show exhibit 1" on their screen).

Pellowby online business, last year and this year (illustrative)

Pellowby online business, last year and this year (illustrative)
Measure	Last year	This year
Online orders (millions)	2	4
Average basket (AUD)	120	120
Gross margin on goods (%)	25	25
Delivery fee charged per order (AUD)	8	4
Picking and delivery cost per order (AUD)	22	28

So-what

Orders doubled, but each order now earns much less because the fee halved and the cost to serve rose.

5. The working, step by step

Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.

Step 1: Profit per order, last year
What a strong candidate does: Margin on an AUD 120 basket at 25 percent, plus the AUD 8 fee, minus AUD 22 to pick and deliver.
Profit per order last year (AUD): 120 × 0.25 + 8 - 22 = 16
Step 2: Profit per order, this year
What a strong candidate does: The fee fell to AUD 4 and the cost to serve rose to AUD 28.
Profit per order this year (AUD): 120 × 0.25 + 4 - 28 = 6
Step 3: Online profit, last year
What a strong candidate does: 2 million orders, in AUD million.
Online profit last year (AUD million): 2 × (120 × 0.25 + 8 - 22) = 32
Step 4: Online profit, this year
What a strong candidate does: 4 million orders, in AUD million.
Online profit this year (AUD million): 4 × (120 × 0.25 + 4 - 28) = 24
Step 5: Effect of the fee cut
What a strong candidate does: AUD 4 less on each of this year's 4 million orders.
Fee effect (AUD million): (4 - 8) × 4 = -16
Step 6: Effect of the higher cost to serve
What a strong candidate does: AUD 6 more on each of this year's 4 million orders. The extra 2 million orders at last year's AUD 16 each added AUD 32 million, so the total change is 32 minus 16 minus 24, a fall of AUD 8 million.
Cost effect (AUD million): -(28 - 22) × 4 = -24
Step 7: Curveball: free delivery
What a strong candidate does: Interviewer: "Marketing wants to make delivery free to win more customers. What would each order make?"
Profit per order with free delivery (AUD): 120 × 0.25 + 0 - 28 = 2
Step 8: Smallest basket that pays for free delivery
What a strong candidate does: With no fee, the margin on the basket must cover the AUD 28 cost to serve.
Break-even basket (AUD): 28 ÷ 0.25 = 112

The recommendation to listen for

At the end, say: "The CEO walks in. What is your recommendation?"

Online profit fell from AUD 32 million to AUD 24 million because each order now makes AUD 6 instead of AUD 16. First, the cost to pick and deliver an order rose from AUD 22 to AUD 28, which costs AUD 24 million at this year's volume. Second, halving the delivery fee to AUD 4 cost another AUD 16 million. Third, the extra 2 million orders added AUD 32 million, not enough to make up for the lower profit per order. Pellowby should not make delivery free: at AUD 28 of cost, a free-delivery order needs a basket of at least AUD 112 just to break even. Instead it should price delivery by time window and distance, offer free delivery only on large baskets, such as AUD 150 and above, promote click-and-collect, and move picking in its busiest areas from stores to a dedicated picking site.

Risks a strong answer names: Customers may move to rivals that offer cheaper delivery; A dedicated picking site needs high volume to pay off.

Next steps: Split cost per order by suburb and by store; Test delivery fees by time window in two cities.

Strong versus weak

A strong answer

Split profit per order into its parts, sized the fee and cost effects separately, and found the break-even basket before answering the free-delivery idea.

A weak answer

Celebrated the doubling of orders and suggested more marketing, without checking the profit on each order.

Score the candidate

Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.

Structuring

1: No clear structure, or a memorized framework that does not fit the problem.
3: A sensible structure, but with some overlap, a gap, or no clear priority.
5: A structure built for this problem, with no overlap and no gaps, a stated hypothesis, and a clear first step.

Math

1: Frequent errors, no units, or needed heavy help to finish.
3: Right answers but slow or messy working, or one error caught late.
5: Accurate and clearly narrated, with units, a sense check, and what the number means.

Exhibit reading

1: Read the chart aloud without finding the number that matters.
3: Found the key number but gave only part of the so-what.
5: Pulled the right number quickly and said what it means for the case.

Synthesis

1: Summarized what was done, with no clear answer.
3: Gave an answer, but with weak reasons or no next step.
5: Answer first, then two or three reasons with numbers, the main risk, and next steps.

Communication

1: Hard to follow: long silences, no signposting.
3: Clear most of the time, with some rambling.
5: Calm and concise, signposted each step, and checked in with the interviewer.

Total

0 out of 25

Score all five criteria to see the band and the feedback template.