Case Interview Question #00453: The client Classico is a wholly owned subsidiary of The H.J. Heinz Company (NYSE: HNZ). Best known for its ketchup (tomato sauce), condiments, frozen food, and soup products, Heinz is a billion dollar food company headquartered in Pittsburgh, Pennsylvania, United States, and employs more than 30,000 people world wide as of 2011.
The client Classico specializes in the manufacturing and preparation of high quality sauces. The client is based in the U.S. and caters only to the U.S. retail stores. Recently, the client has seen an increase in their volume of sales (by 20%). However, their profits have declined 10% in the same period. Your consulting firm has been brought in to investigate the issue. More specifically, the client wants you to address the following two questions:
- What is the cause for the decline in profits even though the unit volume increased?
- What can be done to reverse this trend?
Additional Information: (to be given to candidate only if asked)
The interviewer should wait to let the candidate ask for the following information before giving it to them.
- Products sold: Pasta sauce, tomato sauce, and salad dressing
- Overall price change: None
- Channel sales (volume, price): Only retailers, no problems here
- Product mix change: None
- Competitive pressure: None
- Substitutes: No new substitutes or change in customer taste
- Market conditions: No problems here
- Quality: No problems here
- Manufacturing cost: No change here
- Distribution cost (by channel): No change here
- Promotion cost: This has gone up!
3. Other Relevant Information
- Promotion cost is an important component of total cost in the food industry. The client started providing a 15% discount per product (across all products) for 40% of its products during this period.
- For the sake of simplicity, assume that all products are sold at the same price per case and the discount is across all 40% of its products.