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BCG Medium Market Entry

Hawaiian Smoothies

#Retail & Apparel #Restaurants, Food & Beverage
ProHub Comment

This is a classic breakeven analysis case that tests a candidate's ability to structure a market entry problem and perform financial calculations. The case is deliberately candidate-led, requiring the interviewee to drive the analysis rather than simply respond to provided information. Strong performance requires identifying key revenue and cost drivers, performing accurate daily and annual profit calculations, and then considering strategic implications such as competitive response and growth opportunities.

Estimated Time 15 minutes
Difficulty Medium
Source Chicago Booth
50 / 100
It is the year 1990. Your client, Dan, was approached by an entrepreneur, Jim, who wanted to discuss the possibility of Dan investing in one of his ideas. Jim has a history of successfully launching new business ideas, but Dan is not sure whether to invest. The idea Jim is proposing is to open a new “smoothie” shop, a type of drink he saw when he was recently in Hawaii. He thinks that smoothies could be a big business and he wants to get the first store opened up soon so that he can start rolling out franchises if they are successful. Jim has asked Dan to invest $30,000 in the concept, for which he will get a 50% ownership stake in the business. As a result of his 50% ownership stake, he will receive 50% of the profit or loss generated by the business. Dan wants to know what you think he should consider when deciding whether to invest.

Clarifying Information

  1. Store hours: 11am – 9pm
  2. Open days: 360 days per year (30 days per month)
  3. Price: $5 per smoothie, only one size
  4. Sales: 15 smoothies per hour, on average
  5. Real Estate – the store will be located in a suburban strip mall. Rent will cost $7,200/month.
  6. Equipment – juicers, cash registers, freezers, refrigerators. Equipment will cost $20,000 at the outset, and it will have to be repaid at the end of the first year.
  7. Advertising and marketing – print ads, mailers, radio spots, promotions. Advertising and marketing will cost $10,800/year.
  8. Employees – two employees, likely high-school or college age kids making the minimum wage in 1990. Employees will cost $6/hr. each.
  9. Raw materials – fruits, milk, juices, add-ins. Raw materials will cost of $1.50 per smoothie.