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Medium Profitability

Cheers

#CPG #Wine/Alcohol
ProHub Comment

This case teaches profitability analysis combined with cost-benefit optimization. The key insight is recognizing that ALSH's profit decline stems not from revenue issues but from hidden costs (fake wine refunds), and that investing in screening is cost-justified both financially and strategically for reputation recovery.

Estimated Time 15 minutes
Difficulty Medium
Source Columbia
50 / 100
Your client is the American Liquor Sales House (ALSH), an international company known for selling unique and prized wines. ALSH is concerned about their declining profitability over the past few years and have requested our help to figure out why and what they should do

Clarifying Information

  1. Does ALSH have a physical presence?: Yes, it has a few stores in major cities in the US, but the bulk of its sales occur online
  2. Is there a profitability target?: No – aim to increase as much as possible
  3. Timeframe?: As fast as possible
  4. Where does ALSH sell to?: Internationally – mainly to private collectors and enthusiasts
  5. Annual expenses incurred by ALSH total $34,500,000
  6. Wine sizes, number sold, price, and cost: Magnum (1,000,000 sold at $45 price, $30 cost), Liter (2,000,000 sold at $35 price, $25 cost), Standard (4,000,000 sold at $30 price, $25 cost)