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BCG Medium Market Entry

Hawaiian Smoothies

#Retail #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 26 minutes
Difficulty Medium
Source Chicago Booth
48 / 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.
Mock Interview
Interviewer

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.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

AI Score
Structure Analysis Communication Business Sense Quantitative
Practicing...
Score coming soon
Practice this case with AI Mock Interview

Dan is evaluating whether to invest $30,000 for a 50% stake in a new smoothie shop. The candidate must analyze whether the store can break even within two years and generate sufficient returns. Through a framework examining revenues, fixed costs, and variable costs, the analysis shows the store would generate $48,600 in annual profits (before equipment repayment), allowing Dan to recover his investment in the second year and earn $24,300 annually thereafter.

Key Insights:

  1. The key to this case is performing accurate daily operating calculations: 150 smoothies/day at $3.50 margin minus $390 daily fixed costs equals $135 profit/day
  2. Critical insight that breakeven is achievable at only ~11 smoothies/hour (versus expected 15/hour), providing a substantial margin of safety
  3. Equipment cost repayment in year one reduces first-year profits to $28,600, but Dan still recovers his $30,000 investment by mid-year two
  4. The candidate should consider external factors like competitive response and growth opportunities through franchising, not just quantitative breakeven analysis