GEORGI O’ S GELA TO

Growth strategy Medium difficulty

Food & beverage Interviewer-led case

This case considers the growth strategy for an ice cream company based in Sydney, Australia.

All elements of the case interview scorecard are assessed.

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Problem definition

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Georgio’s Gelato is a small chain of ice cream shops operating 15 locations in the Sydney area. They
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sell a selection of ~50 homemade flavours direct to consumers in either a cup or cone. Georgio’s is seen
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as a premium brand with indulgent high-end flavours and strong sustainability attributes. All products are
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vegetarian and organic and ingredients are sourced from local farmers.
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The current sites are located either in shopping malls or on promenades close to Sydney’s famous
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beaches. After strong growth initially, sales have stalled over the past 18 months and Georgio has asked
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for our help in understanding what he can do to drive revenue growth over the coming 3 years.
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How can Georgio’s Gelato drive further revenue improvement in the next 3 years?
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 Question 1 (Structuring)

How would you structure your approach to the question?

Additional information
• Ideally, the candidate will take the current company size into account; for example, at this size,
acquisitions (while possible) would have to be quite small.

Possible answer

1. Grow existing operating model

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a. Increase number of customers (e.g., open new stores)

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b. Increase average number of visits per customer (e.g., offer loyalty schemes, offer discounts at less

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c. Increase average spend per customer visit (e.g., increase prices, upsell, expand product mix, etc.)
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2. Create new operating model

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a. New service/experience, e.g.:

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• Transform from counter to sit-down restaurant to increase price and product mix
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• Offer ice-cream making classes

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b. Move into B2B space

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• Provide bulk orders to catering operations

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• Provide retail products to supermarkets

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c. Grow through M&A/franchising

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• Acquire existing gelato business in another city and expand brand into these stores
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• Create franchise model to allow partners to buy into brand and product

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 Question 2 (Numeracy)

Georgio’s good friend recently suggested that he look into franchising the brand and Georgio has now
become very excited by the prospect. Georgio would franchise the brand to locations outside of Sydney
and wants to understand the financial return he could get from such a business model. Exhibit 1 shows
the costs of a typical store within Sydney.

Georgio expects that:

• Sales volume will be 20% lower in cities outside of Sydney due to the brand being less well-known;
• The franchise owner will take the role of the manager, and that a 20% profit before tax is required to
attract franchisees;
• He will charge franchisees a $0.4m upfront fee, including store set up and capital equipment costs,

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that franchisees will expect to recoup over 5 years.

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Can you estimate what franchise commission % Georgio could charge on sales, whilst still

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providing a good incentive to franchisees who are investing their money in the brand?
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Additional information
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• If asked, clarify that the manager salary should be excluded, since the franchise owner is expected
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to act as manager rather than hire an external candidate

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If asked, confirm that the ingredients costs shown do scale down in line with revenue
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Possible answer
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Estimated revenue of new store = $1.2m ($1.5m x 80%)

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Estimated cost = rent + other staff + ingredients + utilities + misc + upfront fee amortization
= $200k + $200k + $400k x 80% + $60k + $20k + $400k / 5
= $880k

Expected profit = 20% x 1.2m = $240k

Potential franchise commission = (Gross profit – expected profit) / revenue

= (Revenue – costs – expected profit) / revenue
= ($1.2m - $880k - $240k) / $1.2m
= $80k / $1.2m
= 6.7%

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Exhibit 1: Typical costs for a Georgio’s Gelato store in Sydney

Item $m
Revenue 1.5
Costs
Rent 0.2
Manager 0.1
Other staff 0.2
Ingredients 0.4
Utilities 0.06
Misc. 0.02

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Question 3 (Judgement & Insights)

This figure seems reasonable to Georgio but the Partner on the project is a little nervous and wants to
understand how this stacks up against other similar opportunities for potential franchisees.

What factors do you think potential franchisees would care about? Please consider factors that
could in principle be compared or benchmarked against other franchise options.

Additional information
• Structuring the answer is not important; the candidate should be able to think of at least three
important consideration factors.

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Possible answer

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• The most important factor for a franchisee would be return on investment. Therefore, the ROIC or
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ratio between their ongoing profit and their upfront franchise fee is key
• More qualitive metrics around revenue such as risk, seasonality and stability of earning would also
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be important
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• The degree of upfront capital required may also come into account, as individuals will often have
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capital constraints
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• Last, I think the degree to which franchisees feel supported in their investment would be important
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e.g., training, manuals and mentoring

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Question 4 (Creativity)

Building on these points, what could we do to attract potential franchisees and to stand out
against other options, without changing our fee structure?

Possible answer
• Gain an edge on reaching potential franchisees (e.g., events, targeted advertising, referral
incentives)
• Gain an edge on getting our marketing message across (e.g., emphasize a story of growth and
opportunity, provide great marketing materials, focus on the healthy aspect of the product)
• Compete on service (e.g., provide great staff training, provide fast, easy-to-use and responsive
service for stocking consumables, high quality ingredients)

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Question 5 (Judgement & Insight)

One of Georgio’s management team has proposed moving to cheaper properties now the brand is
established in order to maximise profitability.

How would you evaluate this proposal?

Possible answer

Direct profit impact:

• Cost - expect to be better
• Traffic - expect to both be lower, assuming cheaper locations are cheap for a reason
• Spend per customer – also expected to be lower if located in less affluent area

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Impact on brand:

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Locations - expect to be a negative impact as Georgio’s is currently positioned as premium and a
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cheaper location is likely to be in a less affluent area
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• Quality of properties – probably a negative impact again

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Question 6 (Synthesis)

How do you recommend Georgio proceeds?

Possible answer

Based on my analysis so far, I recommend Georgio goes into franchising to grow the business whilst
creating good returns for both himself and the franchisees.

Using conservative assumptions, franchisees could achieve a 20% return whilst paying almost 7% in
royalties to Georgio, as well as a $400k upfront franchise fee for 5 years.

In terms of next steps, I suggest we need to further develop the value proposition and do additional

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benchmarking against other franchise opportunities to ensure Georgio’s offer is attractive to investors.

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If we had more time, I would want to look into other growth strategies to ensure we were not missing out
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on any other opportunities.
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