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Medium Profitability

Drug Store Profitability

#Retail #Healthcare
ProHub Comment

This case tests a candidate's ability to structure profitability problems across three key dimensions (product mix, store mix, and location) while incorporating brainstorming. The interviewer guides candidates through a discussion format rather than direct questioning, pushing them to draw insights from retail industry experience and identify both opportunities and execution risks.

Estimated Time 26 minutes
Difficulty Medium
Source UCLA
10 / 100
Our client is a drug store chain, similar to CVS, they have been losing profits for the last few years. Can you help us identify the reasons and means to improve the profits?

Clarifying Information

  1. Stores are typical to CVS, located in several areas.
  2. Stores have three key business areas: Pharmacy, Health + Beauty, General Merchandise
  3. Pharmacy: $20,000 Sales/Sq Ft, 5% Profit Margin
  4. Health and Beauty: $10,000 Sales/Sq Ft, 20% Profit Margin
  5. General Merchandise: $5,000 Sales/Sq Ft, 10% Profit Margin
  6. 60% of the stores are located near hospitals, in areas with heavy competition and in high crime infested areas – these stores make 10% loss
  7. Remaining stores make 25% profits
Mock Interview
Interviewer

Our client is a drug store chain, similar to CVS, they have been losing profits for the last few years. Can you help us identify the reasons and means to improve the profits?

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

A drug store chain similar to CVS is losing profitability across its store network. Candidates must diagnose root causes across product mix, store locations, and cost structure, then recommend strategic actions including product mix optimization, store closure decisions, and location-based improvements.

Key Insights:

  1. Health and Beauty generates highest profit per sq ft ($2K) despite lower sales, suggesting product mix shift opportunity
  2. 60% of stores in poor locations (hospitals, competition, crime) are unprofitable at -10%, while other stores achieve 25% profit - indicating location strategy is critical
  3. General Merchandise may serve tactical foot traffic purpose but has lowest profitability ($0.5K/sq ft) - requires cost management especially on perishables like milk
  4. Store closure decisions involve tradeoffs: losing unprofitable locations vs. losing customer segments (Health and Beauty shoppers) and supplier backlash