search
Highlights

    Enhance your problem-solving skills with this medium-level practice case. This sample will familiarize you with question types and boost your readiness, preparing you for the interview process.

    Understanding the client’s goal

    Your client owns a supermarket and is trying to decide if they should open a pharmacy inside the store to increase profitability.

    Description of the case situation

    Your client owns a single supermarket and is thinking of opening a pharmacy in one corner of the store to increase overall store profitability. Your client is tight on capital and requires a payback period of two years or less.

    Should your client open the pharmacy? Develop an approach and structure to solve the problem.

    Helpful hints:

    • Identify the main objective
    • Write down key facts and important information that may be used now or later in the case
    • Feel free to ask the interviewer for an explanation over anything that is not clear to you
    • Ask for a few minutes to gather your thoughts and write down a framework for addressing the main case question/objective

    Evaluation criteria:

    • Ability to identify the key question and pertinent information
    • Ability to structure a problem in a clear and effective manner
    • Ability to verbally communicate problem structure in a succinct format

    The main objective is to evaluate the business case for opening a pharmacy. A sample framework may look like the following:

     

    Pharmacy profitability potential:

    • New revenue opportunities: For instance, potential increase in foot traffic from new pharmacy customers, increased pharmacy purchases from current grocery customers, potential increase in pharmacy-adjacent products such as electrolytes, tissues, or heating pads from existing customers, and so forth.
    • Costs: For instance, upfront investment required for pharmacy setup and operational costs, including salaries for pharmacists and technicians.
    • Payback period and return on investment (ROI).
    • Opportunity costs: For instance, identifying alternative investments for the supermarket and comparing potential returns.

     

    Pharmacy demand assessment:

    • Market size and growth in pharmacy and pharmacy-adjacent products such as local population and demographics estimates.
    • Customer demand for prescription drugs, such as interest in pharmacy services among existing grocery customers and overlap with current customers.
    • Customer demand growth for over-the-counter drugs and pharmacy-adjacent items, for instance thermometers, electrolytes, humidifiers, and more.
    • Local pharmacy competitive landscape, including existing pharmacies and other incoming entrants.

     

    Supermarket’s capabilities to build and manage a new pharmacy business unit:

    • Internal capabilities: For instance, existing organizational structure and existing supply chain capabilities for pharmacy inventory.
    • Execution risks: Such as compliance with health and pharmaceutical regulations, potential operational challenges, and more.
    • Execution strategy: For instance, cross-promotional strategies with the supermarket, partnerships with health practices, and so forth. 

    The main objective is to evaluate the business case for opening a pharmacy. A sample framework may look like the following:

     

    Pharmacy profitability potential:

    • New revenue opportunities: For instance, potential increase in foot traffic from new pharmacy customers, increased pharmacy purchases from current grocery customers, potential increase in pharmacy-adjacent products such as electrolytes, tissues, or heating pads from existing customers, and so forth.
    • Costs: For instance, upfront investment required for pharmacy setup and operational costs, including salaries for pharmacists and technicians.
    • Payback period and return on investment (ROI).
    • Opportunity costs: For instance, identifying alternative investments for the supermarket and comparing potential returns.

     

    Pharmacy demand assessment:

    • Market size and growth in pharmacy and pharmacy-adjacent products such as local population and demographics estimates.
    • Customer demand for prescription drugs, such as interest in pharmacy services among existing grocery customers and overlap with current customers.
    • Customer demand growth for over-the-counter drugs and pharmacy-adjacent items, for instance thermometers, electrolytes, humidifiers, and more.
    • Local pharmacy competitive landscape, including existing pharmacies and other incoming entrants.

     

    Supermarket’s capabilities to build and manage a new pharmacy business unit:

    • Internal capabilities: For instance, existing organizational structure and existing supply chain capabilities for pharmacy inventory.
    • Execution risks: Such as compliance with health and pharmaceutical regulations, potential operational challenges, and more.
    • Execution strategy: For instance, cross-promotional strategies with the supermarket, partnerships with health practices, and so forth. 

    Question 1: Assess market demand and pharmacy profitability

    How would you evaluate the market demand for pharmacy services in the local area? What key financial metrics or indicators should your client focus on to determine the potential profitability of the pharmacy venture within a payback period of two years or less?

    Helpful hints:

    • Take time to organize your thoughts
    • Develop and communicate your overall approach
    • Ask the interviewer for information or data points you need to effectively answer the question

    Evaluation criteria:

    • Ability to develop and verbally communicate a thought-out approach
    • Ability to identify and ask for key information needed
    • Ability to perform calculations and quantitative analysis
    • Ability to synthesize information into a meaningful insight and drive the case forward

    • The city has a population of 50,000, remaining relatively constant over the years. 
    • This supermarket sees 10,000 visitors per month, which results in $10 million in monthly sales.
    • There are three other pharmacies in the neighborhood, and all serve the same types of prescription drugs.
    • There are no statistics on what percentage of the city’s population takes prescription drugs, but on average, 66% of the US population takes prescription drugs.
    • Average monthly out-of-pocket drug bill is $100/person.
    • Initial investment required is $4 million.
    • Expected profit margin for selling prescriptions drugs at a pharmacy is 25%.

    Evaluate the market demand:

    Calculate the total number of potential pharmacy customers from the supermarket’s existing customer pool:

     

    Number of store customers per month * percentage of US population that takes prescription drugs = 10,000 * 66% = 6,600 potential pharmacy customers per month

     

    Assess potential profitability and payback period of the pharmacy venture:

    Calculate the pharmacy revenue:

    Total pharmacy customers per month * average monthly drug bill per person = 6,600 * $100 = $660,000 pharmacy revenues per month

     

    Calculate the pharmacy profits:

    Profit margin * pharmacy revenue per month = 25% * $660,000 = $165,000 in pharmacy profits per month 

     

    Calculate the payback period:

    Initial investment / operating profit = $4,000,000 / $165,000 monthly profit =  approximately 24 months 

     

    Conclusion

    Assuming the market demand for prescription drugs in this area mirrors that of the general US population, this investment just falls within the desired payback period window. Additional information will be needed to make a recommendation.

     

    Example of additional creative thinking: However, there may be some variability in this number. Perhaps existing store customers prefer to remain at their current pharmacy, or some current non-customers may come to the new store pharmacy for convenience.  

    • The city has a population of 50,000, remaining relatively constant over the years. 
    • This supermarket sees 10,000 visitors per month, which results in $10 million in monthly sales.
    • There are three other pharmacies in the neighborhood, and all serve the same types of prescription drugs.
    • There are no statistics on what percentage of the city’s population takes prescription drugs, but on average, 66% of the US population takes prescription drugs.
    • Average monthly out-of-pocket drug bill is $100/person.
    • Initial investment required is $4 million.
    • Expected profit margin for selling prescriptions drugs at a pharmacy is 25%.

    Evaluate the market demand:

    Calculate the total number of potential pharmacy customers from the supermarket’s existing customer pool:

     

    Number of store customers per month * percentage of US population that takes prescription drugs = 10,000 * 66% = 6,600 potential pharmacy customers per month

     

    Assess potential profitability and payback period of the pharmacy venture:

    Calculate the pharmacy revenue:

    Total pharmacy customers per month * average monthly drug bill per person = 6,600 * $100 = $660,000 pharmacy revenues per month

     

    Calculate the pharmacy profits:

    Profit margin * pharmacy revenue per month = 25% * $660,000 = $165,000 in pharmacy profits per month 

     

    Calculate the payback period:

    Initial investment / operating profit = $4,000,000 / $165,000 monthly profit =  approximately 24 months 

     

    Conclusion

    Assuming the market demand for prescription drugs in this area mirrors that of the general US population, this investment just falls within the desired payback period window. Additional information will be needed to make a recommendation.

     

    Example of additional creative thinking: However, there may be some variability in this number. Perhaps existing store customers prefer to remain at their current pharmacy, or some current non-customers may come to the new store pharmacy for convenience.  

    Question 2: Assess execution and promotion strategies

    What execution strategies would you suggest to encourage customers to purchase drugs at the grocery store pharmacy? How would you approach marketing and promoting pharmacy services to attract customers and drive sales?

    Helpful hints:

    • Be creative and think outside the box while keeping your ideas structured
    • Write down as many ideas as possible

    Evaluation criteria:

    • Ability to brainstorm and be creative
    • Ability to come up with multiple innovative ideas 

    • Cross-promotion: Utilize the existing foot traffic in the supermarket by cross-promoting pharmacy services with other departments. For example, offer discounts on groceries with a prescription purchase or vice versa.
    • In-store promotions: Run in-store promotions such as “Wellness Wednesdays” or “Senior Discount Days” to attract different customer segments and encourage them to use the pharmacy services.
    • Advertising and educational campaigns: Conduct advertising and educational campaigns within the supermarket to raise awareness about the pharmacy services offered. This could include informational flyers, in-store signage, and even hosting health-related events or seminars.
    • Personalized marketing: Implement personalized marketing strategies by leveraging customer data to send targeted promotions and offers to customers based on their purchase history or health needs.
    • Online presence: Establish a strong online presence for the pharmacy, including a dedicated website or app where customers can refill prescriptions, access health resources, and learn about available services.
    • Community engagement: Engage with the local community by participating in health fairs, partnering with local healthcare providers for events, or sponsoring health-related initiatives. This can help build trust and loyalty among customers.
    • Customer loyalty programs: Implement a customer loyalty program specifically for pharmacy customers, offering rewards or discounts for repeat prescriptions or referrals.
    • Patient care programs and counselling: Offer additional health services such as health screenings, vaccinations, or counselling to attract customers looking for comprehensive healthcare solutions.

    • Cross-promotion: Utilize the existing foot traffic in the supermarket by cross-promoting pharmacy services with other departments. For example, offer discounts on groceries with a prescription purchase or vice versa.
    • In-store promotions: Run in-store promotions such as “Wellness Wednesdays” or “Senior Discount Days” to attract different customer segments and encourage them to use the pharmacy services.
    • Advertising and educational campaigns: Conduct advertising and educational campaigns within the supermarket to raise awareness about the pharmacy services offered. This could include informational flyers, in-store signage, and even hosting health-related events or seminars.
    • Personalized marketing: Implement personalized marketing strategies by leveraging customer data to send targeted promotions and offers to customers based on their purchase history or health needs.
    • Online presence: Establish a strong online presence for the pharmacy, including a dedicated website or app where customers can refill prescriptions, access health resources, and learn about available services.
    • Community engagement: Engage with the local community by participating in health fairs, partnering with local healthcare providers for events, or sponsoring health-related initiatives. This can help build trust and loyalty among customers.
    • Customer loyalty programs: Implement a customer loyalty program specifically for pharmacy customers, offering rewards or discounts for repeat prescriptions or referrals.
    • Patient care programs and counselling: Offer additional health services such as health screenings, vaccinations, or counselling to attract customers looking for comprehensive healthcare solutions.

    Question 3: Determine pharmacy opening impact on supermarket profitability

    What are some key factors that impact the overall profitability of a supermarket? What, if any, would be the contribution to the store’s overall profit from opening the pharmacy?

    Helpful hints:

    • Take a moment to gather your thoughts
    • Use your existing knowledge of the industry and personal experience to inform your ideas

    Evaluation criteria:

    • Ability to come up with multiple factors
    • Ability to be flexible and adapt ideas as needed and as data is presented

    • Another supermarket that recently opened a pharmacy reported that overall supermarket sales (excluding drugs) went up by 10%.
    • There is an overall profit margin of 5% across all supermarket products.

    Calculate the average grocery sales per customer:

    Monthly sales / total customers per month = $10 million / 10,000 = $1,000 average monthly sales per customer 

     

    Calculate the incremental sales from pharmacy customers:

    Total pharmacy customers * average grocery sales per month * incremental sales % = 6,600 * $1,000 * (1 + 10%) = ~$7.3 million incremental sales per month

     

    Calculate the incremental profit (rounded for ease of math):

    Incremental sales per month * profit margin = $7.5 million * 5% = $375,000 incremental profit per month  

     

    Additional sample key factors that may impact overall supermarket profitability (non-exhaustive):

    • Customer loyalty and retention: Customers who regularly fill their prescriptions at the supermarket’s pharmacy are more likely to continue shopping at the supermarket for their other needs, increasing overall profitability.
    • Basket-splitting: Customers are likely to shop and therefore split their spending across multiple supermarkets for specific item needs, which may affect sales and profitability.
    • Competitive advantage: Having a pharmacy inside a supermarket can give it a competitive advantage over other supermarkets that do not offer pharmacy services.
    • Operational costs: Opening and operating a pharmacy involves additional costs such as hiring pharmacists and pharmacy technicians and maintaining inventory. These added costs need to be carefully managed to ensure profitability.
    • Regulatory requirements: Pharmacies are subject to various regulatory requirements, including licensing, compliance with healthcare laws, and adherence to patient privacy regulations. Complying with these requirements can impact the supermarket’s profitability.
    • Collaboration with healthcare providers: Establishing partnerships with healthcare providers, such as doctors and clinics, can further enhance the profitability of the supermarket’s pharmacy. This can lead to increased referrals and collaborative healthcare services.

     

    Conclusion

    The additional profit of $375,000 per month from the incremental grocery sales will help accelerate the payback period in less than eight months, compared to the original 24. This makes the investment even more attractive. However, there are other factors that may impact profitability — including customer loyalty and retention, operating costs, and regulatory requirements — that should be monitored and managed as well. 

    • Another supermarket that recently opened a pharmacy reported that overall supermarket sales (excluding drugs) went up by 10%.
    • There is an overall profit margin of 5% across all supermarket products.

    Calculate the average grocery sales per customer:

    Monthly sales / total customers per month = $10 million / 10,000 = $1,000 average monthly sales per customer 

     

    Calculate the incremental sales from pharmacy customers:

    Total pharmacy customers * average grocery sales per month * incremental sales % = 6,600 * $1,000 * (1 + 10%) = ~$7.3 million incremental sales per month

     

    Calculate the incremental profit (rounded for ease of math):

    Incremental sales per month * profit margin = $7.5 million * 5% = $375,000 incremental profit per month  

     

    Additional sample key factors that may impact overall supermarket profitability (non-exhaustive):

    • Customer loyalty and retention: Customers who regularly fill their prescriptions at the supermarket’s pharmacy are more likely to continue shopping at the supermarket for their other needs, increasing overall profitability.
    • Basket-splitting: Customers are likely to shop and therefore split their spending across multiple supermarkets for specific item needs, which may affect sales and profitability.
    • Competitive advantage: Having a pharmacy inside a supermarket can give it a competitive advantage over other supermarkets that do not offer pharmacy services.
    • Operational costs: Opening and operating a pharmacy involves additional costs such as hiring pharmacists and pharmacy technicians and maintaining inventory. These added costs need to be carefully managed to ensure profitability.
    • Regulatory requirements: Pharmacies are subject to various regulatory requirements, including licensing, compliance with healthcare laws, and adherence to patient privacy regulations. Complying with these requirements can impact the supermarket’s profitability.
    • Collaboration with healthcare providers: Establishing partnerships with healthcare providers, such as doctors and clinics, can further enhance the profitability of the supermarket’s pharmacy. This can lead to increased referrals and collaborative healthcare services.

     

    Conclusion

    The additional profit of $375,000 per month from the incremental grocery sales will help accelerate the payback period in less than eight months, compared to the original 24. This makes the investment even more attractive. However, there are other factors that may impact profitability — including customer loyalty and retention, operating costs, and regulatory requirements — that should be monitored and managed as well. 

    Question 4: Provide a recommendation

    What is your final recommendation to your client? Should he open the pharmacy?

    Helpful hints:

    • Take a moment to gather your thoughts and review your findings from each part of the case
    • Start with a clear answer and follow with supporting details
    • Keep it concise (30-60 seconds)

    Evaluation criteria:

    • Ability to synthesize information from the entire case and highlight the most critical components
    • Ability to verbally communicate a concise recommendation in an effective, confident, and persuasive manner 

    Yes, open the pharmacy.

     

    The pharmacy is a profitable investment, yielding $16,500 in monthly profit. The pharmacy’s monthly profits along with incremental additional grocery sales will help recoup the $400,000 investment within the desired two-year payback period.

     

    It offers additional benefits such as increased revenue from foot traffic, enhanced customer loyalty, and a competitive advantage in the market. To maximize these benefits, it is advisable to consider implementing customer loyalty programs and cross-promotions between pharmacy and broader supermarket.

     

    However, before proceeding, it is crucial to thoroughly investigate the legal and regulatory requirements of opening a pharmacy to ensure its impact does not affect profitability calculations and the overall viability of the solution.

    Yes, open the pharmacy.

     

    The pharmacy is a profitable investment, yielding $16,500 in monthly profit. The pharmacy’s monthly profits along with incremental additional grocery sales will help recoup the $400,000 investment within the desired two-year payback period.

     

    It offers additional benefits such as increased revenue from foot traffic, enhanced customer loyalty, and a competitive advantage in the market. To maximize these benefits, it is advisable to consider implementing customer loyalty programs and cross-promotions between pharmacy and broader supermarket.

     

    However, before proceeding, it is crucial to thoroughly investigate the legal and regulatory requirements of opening a pharmacy to ensure its impact does not affect profitability calculations and the overall viability of the solution.