A grocery chain with $30M revenue wants to build a smartphone app for pick-ups. The candidate must calculate the payback period given a $1.1M investment, 30% gross margin, and projected financial impacts (2% basket size increase, 4% customer growth, $60k marketing savings, $50k annual maintenance). The answer is 2 years based on $550k in annual additional profits.
Key Insights:
- Payback period calculation: Investment divided by incremental annual profits (Annual profits = Revenue impact × Gross margin + Savings - Maintenance costs)
- The case demonstrates the importance of clearly structuring the approach before diving into calculations and asking for missing data points proactively
- Advanced candidates should contextualize by noting that app development typically takes 1 year and that $1.1M is substantial relative to expected net profits of $1-2M for a grocery retailer with thin margins
- Industry context matters: grocery apps have become standard post-pandemic, making this a defensive investment rather than purely growth-driven