POP! Business Expansion

Client goal: Our client is POP! POP! has approached us to determine which direction they should grow their business in

Situation description: POP! Is an organic soda manufacturer set up in the early 2000s when organic soda was still a new business without the current ‘hip’ factor. POP! is a hugely popular brand but it sales largely to smaller, local supermarkets and stores. In recent years growth has slowed down as the market is becoming saturated. POP! is looking into opening a chain of stores that sell their product directly to their customers.

Study: POP! Would like to know whether taking the direct route sales as well would add profit for the company

Question 1 

POP! Would like to reorganize their sales personnel rather than hire new salespeople. They would to retrain some of their account managers for direct sales and concentrate existing accounts into the hands of the remaining ones. What should they consider when making this transition?

Question 2

Let’s crunch some numbers. POP! would like to achieve an extra $20m in profit from their stores. A POP! Cola bottle is priced at $10 with a contribution margin of $2. Below we have the market size and concentration. Would this be achievable?

Question 1 

POP! Would like to reorganize their sales personnel rather than hire new salespeople. They would retrain some of their account managers for direct sales and concentrate existing accounts into the hands of the remaining ones. What should they consider when making this transition?

Candidate: Is there any reason - financial or otherwise - why POP! wants to retrain its employees rather than hire?

Interviewer: Good question. POP! Considers that fit is very important for the brand and that existing Account Managers already have years of experience and brand knowledge, that would not be easily acquired.

Candidate: In that case, I would like to consider the impact of the strategy on the existing workforce and customers. 

With respect to the workforce, I would like to examine the skillset of current employees against the requirements of the direct-sales proposition, as well as their current workload to determine whether the reassignment of a part of staff would be feasible.

With respect to customers, I would like to examine whether the new model would in any way impact customer satisfaction and whether a chain of POP! stores would impact the existing distribution model negatively.

I would like to start my analysis with the skillset of the workforce. I would like to determine whether skills suited for business-to-business sales are suited for direct sales and whether there are employees that have direct sales experience.

Interviewer: The number of employees with some direct sales experience is about 50%, furthermore POP! Management has determined that the sales skills required are transferable and therefore we don’t need to consider hiring extra personnel. 

Candidate: In this case, I would like to assess the impact of this strategy on the workload of remaining B2B account managers and their customers. Firstly can we expect the employees to handle the extra workload? Secondly, will the customers receive the same level of service and can we expect any loss of revenue? Thirdly, what reaction can we expect from supermarkets when learning that essentially POP! will become their competitor?

Interviewer: Employees spend about 50% of their time managing existing clients, 30% of the time performing administrative tasks and have 20% downtime. POP! Will automate some of the admin freeing up 10% of their time and will increase workload by 10%, reducing downtime by 10%. POP! Has assessed that this setup will ensure that customers receive the same service and will not affect the revenue stream.

However, there is the risk of cutting into the supermarket business with the chain of stores? How would you address this issue?

Candidate: POP! Could give their supermarket partners an increased bulk-purchase discount and make sure that the prices they offer in their own stores match the ones in supermarkets. As such, the stores would be an added distribution channel rather than a competitor to existing ones, and one where POP! could focus on increasing brand visibility.

Interviewer: That sounds good.

Question 2

Let’s crunch some numbers. POP! would like to achieve an extra $20m in profit from their stores. A POP! Cola bottle is priced at $10 with a contribution margin of $2. Below we have the market size and concentration. Would this be achievable?

Candidate: Can we assume that the fixed costs will not increase with extra production?

Interviewer: No, they will not

Candidate: So to achieve $20m profit they would need to sell 20m/2 =10m bottles of POP! This would mean a revenue of 10m x $10 per bottle = $100m. To achieve that they would need 100m/6bn = 1,7% penetration rate (we can approximate to 2%)

The industry seems fairly concentrated, with POP controlling most of the market, therefore a 2% increase should be more than doable in their position.