Practice cases: Australia and New Zealand
Three full cases set in Australia and New Zealand: online grocery delivery, an iron ore mine in a price fall, and fast chargers for electric cars on a highway.
Key takeaways
- Worked case: Pellowby Grocers: online orders doubled but profit fell.
- Worked case: Mirrabeena Iron: keep a small iron ore mine running?
- Worked case: Southlight Charging: fast chargers on a New Zealand highway.
Three full cases set in Australia and New Zealand: online grocery delivery, an iron ore mine in a price fall, and fast chargers for electric cars on a highway.
Cover the solution and run each case out loud, ideally with a partner playing the interviewer. Ask your own clarifying questions, state a hypothesis, build a structure, and do the math on paper before you look. Then compare your synthesis with the one given, and read the strong and weak candidate notes. Each case is labeled Starter, Standard, or Stretch.
Case 1: Pellowby Grocers: online orders doubled but profit fell
Worked case
Starter: Pellowby Grocers: online orders doubled but profit fell
The prompt
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?
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.
Clarifying questions, with the interviewer's answers
- Is this only the online business?Answer: Yes. Store sales are stable and are outside this case.
- 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.
- 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.
A hypothesis to say out loud: 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.
The structure
- 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
The exhibit
| 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 |
Working it through
1. Profit per order, last year
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 = 162. Profit per order, this year
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 = 63. Online profit, last year
2 million orders, in AUD million.
Online profit last year (AUD million):2 × (120 × 0.25 + 8 - 22) = 324. Online profit, this year
4 million orders, in AUD million.
Online profit this year (AUD million):4 × (120 × 0.25 + 4 - 28) = 245. Effect of the fee cut
AUD 4 less on each of this year's 4 million orders.
Fee effect (AUD million):(4 - 8) × 4 = -166. Effect of the higher cost to serve
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 = -247. Curveball: free delivery
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 = 28. Smallest basket that pays for free delivery
With no fee, the margin on the basket must cover the AUD 28 cost to serve.
Break-even basket (AUD):28 ÷ 0.25 = 112
What the exhibit shows
Orders doubled, but each order now earns much less because the fee halved and the cost to serve rose.
The 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: 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.
A strong candidate
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 candidate
Celebrated the doubling of orders and suggested more marketing, without checking the profit on each order.
Case 2: Mirrabeena Iron: keep a small iron ore mine running?
Worked case
Standard: Mirrabeena Iron: keep a small iron ore mine running?
The prompt
Mirrabeena Iron runs a small iron ore mine in Western Australia. The iron ore price has fallen, and the board asks whether it should keep the mine running or close it until prices recover. How would you approach this?
Difficulty: Standard. Format: candidate-led, with interviewer dialogue. Industry: Mining. Region: Australia (Western Australia). Interview length: about 30 minutes. The company is fictional and all figures are illustrative. Iron ore is usually priced in US dollars. All figures here are converted to Australian dollars (AUD), per tonne or per year.
Clarifying questions, with the interviewer's answers
- How much does the mine produce, and at what cost?Answer: About 10 million tonnes a year. Cash cost for mining, processing, rail, and port is about AUD 85 per tonne, plus about AUD 10 per tonne of sustaining capital to keep equipment running.
- What price does it get, and what else is paid?Answer: About AUD 110 per tonne on current forecasts, down from AUD 130. The state takes a royalty of 7.5 percent of the price (illustrative).
- What would closing cost?Answer: Keeping the mine safe while it is closed, called care and maintenance, costs about AUD 40 million a year, and restarting later costs about AUD 60 million. The rail and port contracts are take-or-pay: AUD 30 million a year is owed even if no ore is shipped.
A hypothesis to say out loud: At AUD 110 the mine probably still makes some cash. My hypothesis is that it should keep running, because closing has its own costs, but that a longer price fall would force it to cut costs.
The structure
- Keep running or close: compare the cash from each option
- Key: Cash margin per tonne: price, royalty, cash cost, sustaining capital
- Break-even price
- Cost of closing: care and maintenance, take-or-pay contracts, restart
- How long prices stay low
Working it through
1. Royalty per tonne
Candidate: "At AUD 110, the 7.5 percent royalty is:"
Royalty (AUD per tonne):110 × 0.075 = 8.252. Cash margin per tonne
Candidate: "Price minus royalty, cash cost, and sustaining capital."
Cash margin (AUD per tonne):110 - 110 × 0.075 - 85 - 10 = 6.753. Yearly cash flow
Candidate: "On 10 million tonnes, in AUD million:"
Yearly cash flow (AUD million):10 × (110 - 110 × 0.075 - 85 - 10) = 67.54. Break-even price
Candidate: "The mine covers its costs when the price after royalty equals the AUD 95 of cash cost and sustaining capital."
Break-even price (AUD per tonne):(85 + 10) ÷ (1 - 0.075) = 1035. Curveball: two years at AUD 95
Interviewer: "Analysts now expect AUD 95 per tonne for the next two years." Candidate: "Then each year the mine loses, in AUD million:"
Yearly cash flow at AUD 95 (AUD million):10 × (95 - 95 × 0.075 - 85 - 10) = -71.256. Two years of running at a loss
Candidate: "Over the two years, running costs us:"
Cash over two years if running (AUD million):2 × 10 × (95 - 95 × 0.075 - 85 - 10) = -1427. Two years of closing
Candidate: "Closing is not free: two years of care and maintenance and take-or-pay payments, plus the restart."
Cost of closing for two years (AUD million):2 × (40 + 30) + 60 = 2008. Cost cut that restores break-even
Candidate: "To break even at AUD 95, costs must fall by about AUD 7 per tonne, which is this share of the AUD 85 cash cost:"
Cash cost cut needed (%):(85 + 10 - 95 × (1 - 0.075)) ÷ 85 × 100 = 8.38
The recommendation
Keep the mine running and start a cost program now. First, at AUD 110 per tonne the mine still earns about AUD 7 per tonne, or about AUD 68 million a year, because its break-even price is about AUD 103. Second, even if the price falls to AUD 95 for two years, running loses about AUD 143 million over that time, while closing costs about AUD 200 million, because the take-or-pay rail and port contracts must be paid anyway and restarting is expensive. Third, cutting cash cost by about 8 percent would bring the break-even price down to about AUD 95, so the mine would not lose cash even in the downturn. Look first at contractor rates, fuel use, and the mine plan, for example mining lower-cost areas first.
Risks: Prices could stay low for longer than two years; Cost cuts that delay maintenance can cause breakdowns later.
Next steps: Build a cost curve for each part of the mine; Ask whether the rail and port contracts can be reduced or shared with a neighbor.
A strong candidate
Worked out the break-even price, then compared running and closing on cash, including the costs that do not stop when the mine stops.
A weak candidate
Said "close the mine because the price is falling," without counting the take-or-pay contracts or the restart cost.
Case 3: Southlight Charging: fast chargers on a New Zealand highway
Worked case
Stretch: Southlight Charging: fast chargers on a New Zealand highway
The prompt
First, estimate how many public fast chargers New Zealand needs when 10 percent of its cars and vans are electric. Then: Southlight Charging, a New Zealand charging company, is thinking about building a six-charger site on a main highway. Should it build?
Difficulty: Stretch. Format: market-sizing opener, then a business question. Industry: Energy and transport. Region: New Zealand. Interview length: about 35 minutes. The company is fictional and all figures are illustrative.
Clarifying questions, with the interviewer's answers
- Which vehicles, and what share will be electric?Answer: Cars and vans. Use about 4 million light vehicles (rounded, illustrative) and plan for the point when 10 percent are electric.
- How much energy does an electric car use, and where is it charged?Answer: About 2,000 kWh a year. About 10 percent of that energy comes from public fast chargers; the rest is charged at home or at work.
- How busy is a fast charger?Answer: A 150 kW charger is in use, on average, about 10 percent of the hours in a year.
- For the site, what are the costs and prices?Answer: A six-charger highway site costs NZD 1.2 million, including the grid connection. Southlight sells power at NZD 0.75 per kWh, pays NZD 0.35 per kWh for electricity and network charges, and spends NZD 60,000 a year on other running costs. It wants payback within seven years.
A hypothesis to say out loud: Electric cars mostly charge at home, so the need for public fast chargers is modest. My hypothesis is that New Zealand needs a few hundred fast chargers at that point, and that a highway site pays back only if it is busy enough.
The structure
- Size the need, then test one site
- Electric vehicles x energy per vehicle x share charged at fast chargers
- Energy one charger delivers in a year
- Key: Site cash flow and payback
- How busy the site must be
Working it through
1. Electric vehicles
10 percent of about 4 million light vehicles.
Electric vehicles:4,000,000 × 0.1 = 400,0002. Energy from public fast chargers
400,000 vehicles x 2,000 kWh x 10 percent.
Fast-charging energy (kWh a year):4,000,000 × 0.1 × 2,000 × 0.1 = 80,000,0003. Energy per charger
150 kW, in use 10 percent of the 8,760 hours in a year.
Energy per charger (kWh a year):150 × 0.1 × 8,760 = 131,4004. Chargers needed
Total fast-charging energy divided by what one charger delivers: roughly 600.
Fast chargers needed:4,000,000 × 0.1 × 2,000 × 0.1 ÷ (150 × 0.1 × 8,760) = 6095. Site cash flow
Six chargers at 10 percent use and a margin of NZD 0.40 per kWh, minus NZD 60,000 of running costs.
Yearly cash (NZD):6 × 150 × 0.1 × 8,760 × (0.75 - 0.35) - 60,000 = 255,3606. Payback
NZD 1.2 million divided by the yearly cash.
Payback (years):1,200,000 ÷ (6 × 150 × 0.1 × 8,760 × (0.75 - 0.35) - 60,000) = 4.77. Curveball: a quieter highway
Interviewer: "Traffic data shows this highway is busy on holidays and quiet the rest of the year. Expect only 6 percent use for the first years."
Payback at 6 percent use (years):1,200,000 ÷ (6 × 150 × 0.06 × 8,760 × (0.75 - 0.35) - 60,000) = 9.298. Use needed for a seven-year payback
The site must earn NZD 1.2 million divided by 7 each year, plus its running costs, from a margin of NZD 0.40 per kWh.
Use needed (%):(1,200,000 ÷ 7 + 60,000) ÷ (0.75 - 0.35) ÷ (6 × 150 × 8,760) × 100 = 7.34
The recommendation
On these illustrative inputs, New Zealand needs roughly 600 public fast chargers when 10 percent of its cars and vans are electric. Southlight should build this site, but in stages. First, at 10 percent use a six-charger site earns about NZD 255,000 a year and pays back in about 4.7 years. Second, if the highway is quiet outside holidays and use is only 6 percent, payback stretches to about 9.3 years, beyond Southlight's seven-year rule. Third, the site needs about 7.3 percent use to pay back in seven years, so the decision depends on traffic. Install two chargers now with a grid connection sized for six, add chargers as use passes about 7 percent, and look for a host business such as a service station or café to share costs.
Risks: Holiday peaks may leave drivers queuing even when average use is low; Electricity network charges could rise.
Next steps: Get traffic counts by month for the highway; Ask the network company for the cost of a connection sized for six chargers.
A strong candidate
Built a clear sizing chain, then tested the site on payback and found the use level it needs before recommending a staged build.
A weak candidate
Gave a charger count with no steps, then said "build, because electric cars are growing," without testing how busy the site would be.
Sources for this lesson (1)
- Recognized public explanations of case-interview concepts and frameworks
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