Anderson School of Management

University of California, Los Angeles

Case A
QuickDash Convenience Stores
Assessing the Current Portfolio using Financial Analysis

As the new CFO of QuickDash, Astrid Emkes has been tasked by Company CEO Rich Richlak to perform a
thorough strategic and financial review of the business. Until today, the company has grown organically
without much thought to a purposeful strategy. Rich has asked Astrid to evaluate the company’s
product mix and overall strategy for the company’s board.
For the initial analysis, Rich has asked Astrid to focus on the
company’s value drivers, namely product growth rates and
returns on capital. It may require a few late nights, but the
leadership team would like to hear her initial impressions by
the end of the week.

Company Background
Founded in 2010, QuickDash started with a single store in Forest Park, a western village on the outskirts
of Chicago. Rich Richlak saw an opportunity for a simple convenience store that could offer food, drinks,
and other miscellaneous items to commuters heading into the city on public transportation. By not
selling gas or having restaurants in the store, the company could keep operations lean with fewer
employees. By 2013, QuickDash was a hit in Forest Park, and Rich had started to seek additional
financing to open more locations.

This case study was prepared by Anderson MBA Candidate Joseph A. Schibi and Professor David Wessels for
the purpose of internal training, not as an analysis of a company or its industry. Case facts have been modified
and data synthesized to accomplish teaching goals. This case study is for use by classroom participants only.
No part of it may be circulated, quoted, or reproduced for distribution outside the classroom session without
permission. Copyright © 2020.
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Today, the company has 35 stores across the western and southern Chicago suburbs and generates
$37.1 million in annual sales. Over the last three years, QuickDash has added five additional stores each
year and plans to do the same in 2020.

QuickDash’s Current Mix

In each store, QuickDash offers products across 10 categories. Each category has its own revenues, gross
profits, inventory costs, and allocated square footage in the store, as shown in Exhibit 1. Each store is
identical in product mix and size, offering 2,450 square feet of retail space to stock products for sale.
The allocation of square feet across product categories has been more of an art than a science thus far
with the company’s product mix remaining largely unchanged since 2010.

In general, the company has prioritized offering products across fewer categories because of the
relationship between number of product categories and the complexity of operations. Exhibit 2a details
the impact of this complexity on the company’s labor cost per store. However, QuickDash is now
considering whether it should expand its product mix and is evaluating five additional product
categories: Automotive Products, Frozen Food, Liquor, Packaged Ice Cream, and Wine.

In determining the optimal product mix at each store, it is important to understand the incremental
revenue associated with expanding the footprint of a given product category. Exhibit 2b presents the
estimated category revenue based on four different space allocations: 50 sq. ft., 200 sq. ft., 500 sq. ft.,
and 800 square feet. Each number is based on different allocations in similar stores throughout Chicago.
In Astrid’s review of the data with the department, the team emphasized how the effect on revenue of
increasing square footage varied by product category.

Assessing the Business Strategically

To analyze the business, Astrid decides she should answer the following questions:

Overall Assessment

1. What is the company’s return on capital? If the company’s weighted average cost of capital
(WACC) of 12%, is QuickDash creating value?

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Profitability by Product Line

2. What is the company’s gross margin by product category? How does this compare with the
National Association of Convenience Stores (NACS) benchmarking data? Are there any
conclusions she can draw from the company’s performance relative to its peers?
3. What is the company’s operating margin by product category? How should labor costs be
allocated across product categories?
4. Which view, gross margin by product category or operating margin by product category, is
more relevant for this analysis?

Adding Capital to the Analysis

5. What is the gross margin return on investment (GMROI) by capital line (note: capital lines are
identified in Exhibit 1 – inventory, property and building, and equipment)?
6. What is the return on capital for each product category? How should building and equipment
costs be allocated across product categories? How should selling expenses be allocated across
product categories?
7. Which of these two views, GMROI or return on capital, is more relevant for this analysis?

Answering the CEO’s Questions

8. Is QuickDash’s product mix and square footage allocation optimal? If not, how should the
company adjust its strategy (note: for simplicity, use the incremental margin that can be
derived from Exhibit 2a and Exhibit 2b to answer the CEO’s question).

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Exhibit 1: Store-Level Financial Statements ($) Assessing the Product Portfolio
Tax rate 24%
Cost of capital 12%
2016 2017 2018 2019 2020E
Stores: 20 25 30 35 40

INCOME STATEMENT for Store BALANCE SHEET for Store

Gross Category Square

Number SKU Category Revenues profit Growth Category Inventory Feet
1 23 Alternative Snacks 19,000 9,006 14.0% Alternative Snacks 1,692 50
2 764 Beer 246,989 51,127 4.5% Beer 23,684 800
3 796 Cigarettes 399,000 57,456 -0.8% Cigarettes 43,726 200
4 1332 Fluid Milk Products 26,350 7,088 3.4% Fluid Milk Products 722 200
5 1482 Health and Beauty Care 15,000 8,475 2.2% Health and Beauty Care 2,466 50
6 1673 Other Tobacco 64,750 21,238 5.3% Other Tobacco 8,870 200
7 2145 Packaged Beverages 224,440 96,060 6.4% Packaged Beverages 18,447 500
8 3110 Packaged Sweet Snacks 30,800 11,889 7.8% Packaged Sweet Snacks 3,375 200
9 4565 Publications 15,000 4,395 -2.6% Publications 822 50
10 5094 Salty Snacks 58,125 24,703 9.4% Salty Snacks 8,759 200
Total 1,099,454 291,437 Total inventory 112,562 2,450

Labor costs (170,000) Property and building 450,000

Depreciation (35,000) Equipment 60,000
Operating profit 86,437 Invested capital 622,562

Operating taxes (20,745)

After-tax operating profit 65,692

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 UCLA Anderson Assessing the Product Portfolio

Exhibit 2a: Incremental Cost Analysis

Number Required Labor

of categories FTEs Costs Average Labor Cost
3 3 102,000 per FTE: 34,000
7 4 136,000
10 5 170,000
12 6 204,000
14 7 238,000
15 8 272,000

Exhibit 2b: Incremental Revenue Analysis

Estimated Revenue Based on Coverage NACS
Current Gross
Number SKU Category SqFt Revenues 50 SqFt 200 SqFt 500 SqFt 800 SqFt Margin
1 23 Alternative Snacks 50 19,000 19,000 53,200 94,240 118,864 45.2%
2 764 Beer 800 246,989 30,500 94,550 184,220 246,989 19.8%
3 796 Cigarettes 200 399,000 210,000 399,000 512,400 546,420 16.2%
4 1332 Fluid Milk Products 200 26,350 8,500 26,350 51,340 68,833 27.1%
5 1482 Health and Beauty Care 50 15,000 15,000 51,000 108,600 154,680 54.8%
6 1673 Other Tobacco 200 64,750 17,500 64,750 149,800 226,345 30.9%
7 2145 Packaged Beverages 500 224,440 31,000 105,400 224,440 319,672 43.7%
8 3110 Packaged Sweet Snacks 200 30,800 11,000 30,800 54,560 68,816 40.6%
9 4565 Publications 50 15,000 15,000 33,000 47,400 53,160 27.0%
10 5094 Salty Snacks 200 58,125 18,750 58,125 113,250 151,838 42.6% Inventory
Turns
11 450 Automotive Products 12,500 42,500 90,500 128,900 45.6% 6.08
12 1401 Frozen Food 5,500 17,050 33,220 44,539 45.8% 12.17
13 1505 Liquor 50,000 125,000 200,000 237,500 24.6% 8.11
14 2435 Packaged Ice Cream 17,500 64,750 149,800 226,345 44.4% 9.13
15 5910 Wine 7,500 23,250 45,300 60,735 28.6% 7.30
Total 2,450 1,099,454