This is a data-heavy management consulting case study of the kind you meet in second-round interviews: a market leader with slipping profitability, a growth promise made to Wall Street, and a page of facts about competitors, channels and costs to organise before you can say anything useful.
Case Scenario
Downtown Lawn and Gardening (L&G) is a consumer packaged goods company that specialises in lawn and garden consumable products such as lawn and plant fertilisers, grass seeds, and weed and insect control products. This accounts for the majority of its business, at $1.9 billion of its $2.7 billion annual sales. It also has other divisions in the outdoor living category, such as professional lawn services and retail stores with outdoor furniture, garden tools and accessories, which earn the remaining revenue.
Recently, L&G has seen its profitability in the CPG business decline and has approached you as a consultant to find out why and recommend a solution. Additionally, as a publicly traded company, L&G has promised top-line growth in the near term to its Wall Street investors, and as a consultant you need to come up with a solution for achieving this.
Industry Landscape
- The lawn and garden product category is mature, with growth of 4% per year.
- L&G is the market leader, with about 61% market share on average across its categories.
- The other two major players in the market are Midtown L&G and Uptown L&G.
- Some additional smaller players also exist.
Competition
- Midtown L&G: annual sales of $800 million, market share of approximately 26%, known for producing private label or exclusive lines for Home Depot, Lowe’s and Wal-Mart; a lower-cost producer of value products.
- Uptown L&G: annual sales of $500 million, market share of approximately 16%, strong in the grass seed segment, primarily in the South.
Retail Distribution Channels
- 75% of CPG sales are through Home Depot, Walmart and Lowe’s.
- The remaining 25% of sales are through independent stores: hardware stores, nursery centres, regional chain mass merchants, and grocery and drug stores.
- Retail sales continue to be up slightly at Home Depot, but wholesale sales have been flat to declining because it built up excessive inventory and is now unloading that before purchasing more. This is expected to continue in 2008.
- Sales are increasing quickly at Lowe’s, mostly following its store expansion and also because more of L&G's products are being sold there.
- Sales at Wal-Mart are growing, but slower than the growth estimated for the overall market.
- Sales at independent retailers are growing slightly, even though these outlets are losing market share to Home Depot, Lowe’s and Wal-Mart overall. This growth is due to the optimisation of the go-to-market approach (selling direct to bigger accounts and going through distributors for others, with a pay-for-performance incentive for distributors).
Product Customer
- Consumers who buy L&G's products are traditionally male, but increasingly female, or the purchases are influenced by women.
- They are predominantly homeowners.
Company: Downtown L&G
- Annual sales: $1.9 billion
- Market share: 61%
- Revenue: has been increasing over the past few years.
- Price: increased for the first time in a few years on the premium product segment.
- Volume: total product sales have increased.
- Variable costs: have increased due to rises in raw material costs and freight. L&G has been able to pass these along on the premium product.
- Fixed costs: have stayed constant.
- Distribution regions: stronger in the Northeast and Midwest because its core products align with the climate and growing conditions there. L&G has been expanding its presence in other regions.
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