Stretch cases: profit to pricing, and entry to acquisition
An Australian pet-food maker's margin squeeze and a Singapore logistics company's move into Indonesia.
Key takeaways
- Real cases rarely stay one type. When the interviewer changes the question, say what the new question is, carry forward the numbers you already have, and build a small new structure for the new part.
- Name the switch: "So we have found the cause; now the question is what to charge."
- Carry forward: reuse the numbers you already computed, so the parts connect.
- Mini-structure: two or three buckets for the new question, said in under 30 seconds.
This is part of the expert track. It assumes you have worked through the foundation lessons (structuring, case math, exhibits, synthesis) and several case types, and that you have run a few cases out loud. If not, start there and come back.
Key idea
Real cases rarely stay one type. When the interviewer changes the question, say what the new question is, carry forward the numbers you already have, and build a small new structure for the new part.
Handling a switch in case type
- 1Name the switch: "So we have found the cause; now the question is what to charge."
- 2Carry forward: reuse the numbers you already computed, so the parts connect.
- 3Mini-structure: two or three buckets for the new question, said in under 30 seconds.
- 4Tie it back: the final recommendation should cover all parts in one answer.
These stretch cases are longer than most interview cases. Run them in Partner mode with a timer, or work through them alone one step at a time: cover each step and answer before you read it.
Stretch case 1: profitability, then pricing, then rollout
| Channel | Volume (thousand tonnes a year) | Revenue (AUD million a year) | Price elasticity (estimate) | Stores |
|---|---|---|---|---|
| Supermarkets | 40 | 200 | -3 | 4 chains |
| Pet specialty stores | 20 | 100 | -0.5 | 900 |
So-what
Both channels earn the same price per kg, but supermarket shoppers react far more to price, so a price rise works very differently in each channel.
Worked case
Stretch: an Australian pet-food maker, from margin squeeze to price rise to rollout
The prompt
Our client, an Australian maker of premium dry dog food, sells through supermarkets and pet specialty stores in every state. Operating profit fell from AUD 24 million to AUD 12 million a year while volume was flat. The exhibit shows the profit bridge. The CEO wants to know why, and what to do.
Stretch case, interviewer-led. It starts as profitability (steps 1 to 3), switches to pricing at step 4 when the CEO proposes a price rise, and switches to rollout at step 8 when the interviewer asks how to put the new prices in place.
Clarifying questions, with the interviewer's answers
- Did volume or price change?Answer: Volume was flat at about 60,000 tonnes a year, and revenue was flat at about AUD 300 million a year.
- Which costs are in operating profit?Answer: Ingredients, packaging, factory, freight, marketing, and overheads. The exhibit shows what changed.
- Is the goal to restore profit this year, or over time?Answer: The CEO wants a plan that restores most of the lost profit within 12 months.
A hypothesis to say out loud: With volume and revenue flat, the fall must come from costs, and in pet food that often means ingredients. My hypothesis is that an input cost rise explains most of the fall, and that the answer is a targeted price rise plus cost work, not a volume push.
The structure
- Restore the client's profit
- Key: Part 1, why profit fell: price, volume, and each cost line
- Part 2, pricing: how much, and in which channel
- Part 3, rollout: sequence, timing, and the gap that remains
The exhibit
Waterfall chart: Pet-food maker: operating profit, last year to this year (AUD million a year). Values in AUD million. Last year, total: 24; Ingredients, change: -10; Freight, change: -2; Promotions, change: -1; Price and mix, change: +1; This year, total: 12.
Working it through
1. Size the fall
Candidate: "Profit fell from AUD 24 million to AUD 12 million, so it halved:"
Fall in operating profit (%):(24 - 12) ÷ 24 × 100 = 502. Read the bridge
Candidate: "The bridge shows ingredients took AUD 10 million of the AUD 12 million fall. Freight and promotions are small, and price and mix helped a little. So ingredients explain this share of the fall:"
Ingredients as a share of the fall (%):10 ÷ 12 × 100 = 83.333. The cost per kg
Candidate: "Over 60,000 tonnes, which is 60 million kg, the ingredient rise is about 17 cents a kg, on a price of about AUD 5 a kg. That is only about 3 percent of the price, which suggests a small price rise could recover it." Interviewer: "The CEO agrees and wants to raise prices. Let us look at pricing."
Ingredient cost rise (AUD per kg):10,000,000 ÷ 60,000,000 = 0.16674. Switch to pricing: the rise needed at flat volume
Candidate: "The question is now what to charge. Three parts: how much we need, how customers react in each channel, and the net effect on profit. If volume held, recovering AUD 12 million on AUD 300 million of revenue needs:" Interviewer: "The CEO wants 8 percent everywhere, to be safe. Here is the channel data." (The interviewer shares the channel table: supermarkets 40,000 tonnes and elasticity of minus 3; pet specialty 20,000 tonnes and elasticity of minus 0.5. Contribution today is about AUD 1.50 a kg on a price of AUD 5.)
Price rise needed at flat volume (%):12,000,000 ÷ 300,000,000 × 100 = 45. How much volume an 8 percent rise can lose
Candidate: "An 8 percent rise adds 40 cents a kg, so contribution rises from AUD 1.50 to AUD 1.90 a kg. The rise pays as long as we lose less than this share of volume:"
Break-even volume loss for an 8 percent rise (%):0.4 ÷ (1.5 + 0.4) × 100 = 21.056. Pet specialty stores
Candidate: "With elasticity of minus 0.5, an 8 percent rise loses about 4 percent of volume, well under 21 percent. Contribution in the channel changes by:"
Change in specialty contribution (AUD a year):20,000,000 × 0.96 × 1.9 - 20,000,000 × 1.5 = 6,480,0007. Supermarkets
Candidate: "With elasticity of minus 3, the same rise loses about 24 percent of volume, more than the 21 percent break-even. Contribution changes by:" Interviewer: "So the CEO's 8 percent everywhere?" Candidate: "I would not do it. In supermarkets it loses about AUD 2.2 million a year. I would raise specialty prices 8 percent and hold supermarket prices while we fix cost."
Change in supermarket contribution (AUD a year):40,000,000 × 0.76 × 1.9 - 40,000,000 × 1.5 = -2,240,0008. Switch to rollout: how long it takes
Interviewer: "The CEO accepts. Specialty stores need new price lists and talks with the sales team, which can cover about 150 stores a month. There are 900 stores. How would you roll it out?" Candidate: "Now the question is sequence and speed. Store by store, it takes:"
Months to reach every specialty store:900 ÷ 150 = 69. The cost of delay
Candidate: "Each month of delay costs about one twelfth of the AUD 6.48 million gain:"
Gain lost per month of delay (AUD):6,480,000 ÷ 12 = 540,00010. Start with the two big chains
Interviewer: "Two specialty chains sell 60 percent of specialty volume." Candidate: "Then I would agree the new prices with those two head offices in the first month. That locks in most of the gain at once:"
Annual gain secured from the two chains (AUD):6,480,000 × 0.6 = 3,888,00011. The gap that remains
Candidate: "The price rise recovers about AUD 6.5 million. The rest must come from cost: ingredient contracts, recipe changes that keep quality, and freight. The gap is:"
Profit gap left after the price rise (AUD a year):12,000,000 - 6,480,000 = 5,520,000
What the exhibit shows
Ingredient costs explain most of the fall; the other lines are small.
The recommendation
Raise prices 8 percent in pet specialty stores only, starting with the two big chains, and close the rest of the gap through cost. First, ingredients explain about 83 percent of the AUD 12 million fall in profit, about 17 cents a kg. Second, an 8 percent rise pays unless volume falls more than about 21 percent: in specialty stores (elasticity of minus 0.5) it adds about AUD 6.5 million a year, but in supermarkets (elasticity of minus 3) it would lose about AUD 2.2 million, so hold supermarket prices. Third, agreeing prices with the two chains that hold 60 percent of specialty volume secures about AUD 3.9 million a year in the first month; the other stores follow over about six months. The main risks are that elasticity estimates are wrong and that rivals do not follow. Next steps: open talks with the two chains, set an ingredient cost target to close the remaining AUD 5.5 million, and track weekly volume by channel after the rise.
Risks: The elasticity estimates may be wrong, especially in specialty stores if rivals hold their prices; Supermarkets may ask for better terms if they learn specialty prices rose; Ingredient costs may rise further before the cost work delivers.
Next steps: Agree new prices with the two large specialty chains in the first month; Set a cost program target of about AUD 5.5 million a year across ingredients and freight; Track volume by channel weekly and review the supermarket price after three months.
A strong candidate
Found the cause from the bridge in two steps, named each switch, carried forward the contribution per kg into pricing, tested the CEO's idea channel by channel, pushed back with numbers, and sequenced the rollout by value. The final answer covered all three parts.
A weak candidate
Agreed to 8 percent everywhere because it was more than the 4 percent needed, without checking elasticity by channel, then treated the rollout as a list of tasks rather than a sequence driven by value.
Stretch case 2: market entry, then an acquisition
Worked case
Stretch: Tellavo enters Indonesia, from market entry to an acquisition
The prompt
Tellavo, a Singapore cold-chain logistics company, is considering entering Indonesia. Should it, and how? Partway through, the interviewer shares figures on a possible target, Dinginjaya, in the table.
Stretch case, candidate-led. It starts as market entry (steps 1 to 4) and switches to M&A at step 5, when the interviewer adds the board's goal of profit within two years and names an acquisition target.
Clarifying questions, with the interviewer's answers
- What does Tellavo do today, and why Indonesia?Answer: It runs refrigerated warehouses and trucks for food and medicine companies in Singapore and Malaysia. Several customers want the same service in Indonesia.
- How big is the Indonesian market?Answer: About SGD 3 billion a year for cold-chain logistics, growing about 12 percent a year.
- What does success look like?Answer: At least 5 percent of the market within three years, at a return above Tellavo's cost of capital of about 9 percent.
A hypothesis to say out loud: A fast-growing market with customers who already know us looks attractive, so my hypothesis is that entering makes sense, and that the harder question is whether to build or buy.
The structure
- Enter Indonesia, and how?
- Part 1, entry: market size, share, and the economics of building our own network
- Key: Part 2, acquisition: the target's quality, synergies, and price
- Part 3, decision: build, buy, or both, and at what price to walk away
The exhibit
| Year | Revenue (SGD million) | EBITDA (SGD million) | Warehouse utilization (%) | Top 3 customers (% of revenue) |
|---|---|---|---|---|
| FY2023 | 120 | 16 | 88 | 52 |
| FY2024 | 135 | 20 | 90 | 48 |
| FY2025 | 150 | 24 | 91 | 45 |
Working it through
1. The market in three years
Candidate: "SGD 3 billion growing 12 percent a year for three years reaches about SGD 4.2 billion a year:"
Market in three years (SGD million a year):3,000 × 1.12 × 1.12 × 1.12 = 4,2152. Revenue at the target share
Candidate: "At 5 percent of that market, Tellavo would earn about:"
Revenue at 5 percent share (SGD million a year):3,000 × 1.12 × 1.12 × 1.12 × 0.05 = 2113. Building our own network
Candidate: "Can I ask what a new network would cost?" Interviewer: "About six warehouses at SGD 40 million each, so SGD 240 million, with about four years to reach full volume and an EBITDA margin of about 20 percent at maturity." Candidate: "Then at full volume we would earn about:"
EBITDA at maturity, building (SGD million a year):3,000 × 1.12 × 1.12 × 1.12 × 0.05 × 0.2 = 42.154. Payback on building
Candidate: "SGD 240 million pays back in about 5.7 years of full profit, and full profit only starts after a ramp of about four years. So building works in the long run but is slow: even counting some profit during the ramp, payback takes roughly seven to ten years."
Payback at full profit (years):240 ÷ (3,000 × 1.12 × 1.12 × 1.12 × 0.05 × 0.2) = 5.695. Switch to M&A: the asking price
Interviewer: "The board wants Indonesia to be profitable within two years. A local company, Dinginjaya, is for sale. The owners ask ten times last year's EBITDA. The table has its figures." Candidate: "So the question is now whether to buy, and at what price. I will look at the target's quality, the synergies, and the most we should pay. Ten times SGD 24 million is:"
Asking price (SGD million):24 × 10 = 2406. Quality: margin
Candidate: "Using the table, FY2025 EBITDA margin is:" Candidate: "That is up from about 13 percent in FY2023, a good sign."
EBITDA margin FY2025 (%):24 ÷ 150 × 100 = 167. Quality: growth
Candidate: "Revenue grew about 12.5 percent in FY2024 and about 11 percent in FY2025, in line with the market:"
Revenue growth FY2025 (%):(150 - 135) ÷ 135 × 100 = 11.118. Quality: customers
Candidate: "The top three customers still bring 45 percent of revenue, so about SGD 67.5 million depends on three contracts. I would check how long each contract runs before signing." Interviewer: "Two of the three run for another four years."
Revenue from the top 3 customers (SGD million a year):150 × 0.45 = 67.59. Synergies
Interviewer: "The deal team sees SGD 4 million a year of cost savings from shared buying of trucks and energy, and SGD 30 million a year of new medicine contracts from Tellavo's customers at a 25 percent EBITDA margin." Candidate: "The warehouses are 91 percent full, so the new contracts need one more warehouse, about SGD 40 million. With both synergies, EBITDA becomes:"
EBITDA with synergies (SGD million a year):24 + 4 + 30 × 0.25 = 35.510. The real multiple
Candidate: "Including the extra warehouse, we would invest SGD 280 million for SGD 35.5 million of EBITDA, a multiple of about 7.9 times, and profit from year one rather than year five."
Multiple paid including the new warehouse and synergies:(240 + 40) ÷ (24 + 4 + 30 × 0.25) = 7.8911. The walk-away price
Interviewer: "Tellavo's rule is to pay no more than the standalone value at the peer multiple of 9 times EBITDA, plus half the value of cost savings. What is the most it should pay?" Candidate: "Standalone is 9 times 24, which is SGD 216 million. Half of SGD 4 million of savings valued at 9 times is SGD 18 million. So the walk-away price is SGD 234 million, below the SGD 240 million asked."
Walk-away price (SGD million):9 × 24 + 0.5 × 9 × 4 = 234
What the exhibit shows
Revenue and margins are growing and customer concentration is falling, but the warehouses are almost full, so growth needs new capacity.
The recommendation
Enter Indonesia by buying Dinginjaya, but at no more than about SGD 234 million, then add warehouses from there. First, the market should reach about SGD 4.2 billion a year in three years, and 5 percent of it is about SGD 210 million of revenue. Second, building alone would cost about SGD 240 million and take roughly seven to ten years to pay back, which misses the board's two-year profit goal. Third, Dinginjaya is growing about 11 percent a year at a 16 percent margin, and with synergies and one new warehouse Tellavo would invest about SGD 280 million for about SGD 35.5 million of EBITDA, about 7.9 times. The asking price of SGD 240 million is above the SGD 234 million walk-away price, so open lower, near the SGD 216 million standalone value. The main risks are customer concentration (45 percent of revenue from three customers) and full warehouses. Next steps: due diligence on the three largest contracts, a site plan for the new warehouse, and an offer near SGD 216 million.
Risks: The third large customer contract may not renew; The new medicine contracts may take longer to win than planned, while the new warehouse is already built; Integration may distract Tellavo's management from its home markets; The return test is not finished: SGD 35.5 million of EBITDA on SGD 280 million is about 12.7 percent a year before tax and upkeep spending, so due diligence must confirm that the cash return after both stays above the 9 percent cost of capital.
Next steps: Due diligence on the top three customer contracts and warehouse condition; Choose a site for the extra warehouse before signing; Open negotiations near SGD 216 million and walk away above SGD 234 million.
A strong candidate
Sized the market and the build option first, so the switch to M&A had a benchmark. Used the table to test the target's growth, margin, and customers, spotted that 91 percent utilization means synergies need capital, and ended with a clear walk-away price.
A weak candidate
Accepted the asking price because the market is growing, counted the new contracts without noticing the warehouses are full, and gave no price above which to walk away.
Practice
A product earns AUD 2 of contribution on a price of AUD 10. You raise the price by 10 percent. What share of volume can you lose before profit falls, in percent? Answer to one decimal place.
A target has EBITDA of EUR 18 million a year. The buyer expects EUR 6 million a year of synergies and pays EUR 192 million. What multiple of EBITDA including synergies is that?
A market of SGD 500 million a year grows 10 percent a year. How big is it after two years, in SGD millions a year?
The interviewer switches from profitability to pricing. What should you do first?
In the pet-food case, why hold supermarket prices?
In the Tellavo case, why does 91 percent warehouse utilization matter?
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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