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Home delivery for a South African grocer
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
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
A grocery chain with 120 stores in Gauteng, South Africa, wants to add home delivery in Johannesburg, a new channel for the same customers and products. Should it, and how?
Format note: Candidate-led: you set the structure and ask for data; the interviewer answers only what you ask.
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 the goal more revenue, or more profit?
Answer: More profit; the board will not fund a channel that loses money after two years.
If asked: Who would order online: new customers, or people who already shop in our stores?
Answer: Good question. Ask me for the data when you need it.
If asked: Would we deliver ourselves or use a partner?
Answer: The plan is our own pickers and drivers from a central hub.
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.
Grocery margins are thin and delivery is costly, so my hypothesis is that each order barely makes money, and that orders from existing store customers, which replace a store visit, could make the channel lose money overall.
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.
- Does the channel add profit after the sales it takes from our stores?This comes from added profit = new orders x contribution per order, minus the store sales it replaces, minus the fixed cost of the hub and app.
- Contribution per order from a new customer
- Key: Effect of an order that replaces a store visit
- Fixed cost of the hub and app, and break-even orders
- Levers: delivery fee, where to offer delivery
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: One order from a new customer
What a strong candidate does: Candidate: "What does an average order look like?" Interviewer: "A basket of ZAR 700 at a 20 percent gross margin. We charge a ZAR 40 delivery fee, and picking plus delivery costs ZAR 110 per order."
Contribution per new-customer order (ZAR): 700 × 0.2 + 40 - 110 = 70
Step 2: One order that replaces a store visit
What a strong candidate does: Candidate: "If an existing customer switches from the store, we earn the same gross margin either way, so the channel only adds the fee and the delivery cost."
Effect of a replacing order (ZAR): 40 - 110 = -70
Step 3: Blend the two
What a strong candidate does: Candidate: "What share of orders would replace a store visit?" Interviewer: "Our survey says about 40 percent."
Added contribution per order (ZAR): 0.6 × 70 + 0.4 × (40 - 110) = 14
Step 4: The year-two picture
What a strong candidate does: Interviewer: "We expect 500,000 orders a year by year two, and the hub and app cost ZAR 21 million a year." Candidate: "Then the channel loses about ZAR 14 million a year."
Yearly result (ZAR): 500,000 × 14 - 21,000,000 = -14,000,000
Step 5: Break-even orders
What a strong candidate does: At ZAR 14 of added contribution per order, the hub needs 1.5 million orders a year, three times the plan.
Break-even orders a year: 21,000,000 ÷ 14 = 1,500,000
Step 6: Lever 1: a higher fee
What a strong candidate does: Candidate: "Could we charge ZAR 60?" Interviewer: "Research says order numbers would hold." Candidate: "That helps, but the channel still loses money."
Yearly result with a ZAR 60 fee (ZAR): 500,000 × (0.6 × (700 × 0.2 + 60 - 110) + 0.4 × (60 - 110)) - 21,000,000 = -4,000,000
Step 7: Lever 2: offer delivery where we have no store
What a strong candidate does: Candidate: "What if we deliver only to suburbs without one of our stores nearby?" Interviewer: "Then only about 10 percent of orders would replace a store visit, but orders fall to about 350,000 a year." Candidate: "With the ZAR 60 fee as well, the channel makes money."
Yearly result, targeted areas and ZAR 60 fee (ZAR): 350,000 × (0.9 × (700 × 0.2 + 60 - 110) + 0.1 × (60 - 110)) - 21,000,000 = 5,600,000
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Do not launch delivery across Johannesburg as planned; launch it only in suburbs without a nearby store, with a ZAR 60 fee. First, an order from a new customer adds ZAR 70, but an order that replaces a store visit costs us ZAR 70, so with 40 percent replacing orders each order adds only ZAR 14 and the plan loses about ZAR 14 million a year. Second, a higher fee alone is not enough: the loss shrinks to about ZAR 4 million. Third, in areas without our stores only about 10 percent of orders replace a store visit, and with the higher fee the channel makes about ZAR 5.6 million a year even at 350,000 orders. Test it in three suburbs for six months before building the full hub.
Risks a strong answer names: The survey may understate how many orders would come from our own store customers; Rivals may offer free delivery, making a ZAR 60 fee hard to hold; Picking and delivery cost may be higher at low volume in the test.
Next steps: Map suburbs more than 5 km from our stores and size demand there; Run a six-month test using store stock before committing to a central hub.
Strong versus weak
A strong answer
Separated new-customer orders from orders that replace store visits, found that the channel barely adds profit, and found two levers that make it work before recommending a limited test.
A weak answer
Treated every online order as new revenue, found about ZAR 35 million of contribution, and recommended a city-wide launch that would lose money.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?
Total
0 out of 25
Score all five criteria to see the band and the feedback template.