Formal interview case study

Wet shave Co

DRAFT
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent
 Overview: 1
Intro-
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Intro to
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Basic
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In Depth
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Case
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Struct- End
Wet shave blade manufacturer duction Case
uring
Section Review

Industry: • International wet shaving blade manufacturing

Information • Project working for Private Equity fund, investigating relatively new manufacturer of wet shaving
to candidate: blades
- Company has strong market share in several emerging markets
- Focuses on low-end blades and disposables (not higher-end systems)
- Forecasting strong growth in other emerging markets, but also in established markets such as the UK
• Private equity client asked Bain to look at the blades manufacturer. Our mandate was to assess
the business case for growth, particularly in the established UK market

Questions for 1. Understanding the business

Candidate: • First, we were asked during a meeting about what generically could be done to improve
profitability at a blade manufacturer
- What drives profitability of a blade manufacturer?
- What do you think are the types of things you could look into to improve the profitability at a blade manufacturer?

2. Establish implications of management forecasts on market share, in both an emerging and

established market
• We’ve just come back from a meeting with mgmt & have received the blade manufacturers
projections for growth in an emerging and established market
- Estimate the shape of the growth in the two types of market (emerging and established)
- Calculate the growth in the company’s revenue over the next 2 years
- Calculate the implied market share in the two types of market
3. Viability of management’s plan:
- Establish candidate understands situation: Could you summarise current position of the target?
- Establish candidate can argue opinion & understands trade-offs: What is your assessment of management
forecasts? Would you invest, if you were the PEG firm?

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 2
 HANDOUT
Wet shaving blades market: 3 main segments

“SYSTEM” RAZORS
DISPOSABLE RAZORS (WITH REPLACEABLE
INDIVIDUAL BLADES (WITH HANDLE) BLADES)

• Cheaper, individual blades • Razors with one or two • Razors with up to four or
which are bought in bulk blades encased, and five blades encased
and used in range of moulded to the handle • Can be detached from
handles handle and replaced when
• Older form of wet shaving blade has dulled

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 3
 1 2 3 4 5 6
Basic
Intro- Intro to In Depth Case
Q1: What drives profitability of blade duction Case
Struct-
uring
Section Review
End

manufacturer? What could look into to improve profitability?

Make sure candidate
NOT COMPREHENSIVE
identifies drivers of Increase
profitability before profits
talking about how to
increase profits

(alternative: Increase Decrease (alternative: fixed

market share1) revenue cost vs. variable)

Increase Increase Product Manufac- SG&A/

COGS R&D
volume avg. price mix turing marketing

Optimise Logistics
Sell more New pro- Increase New, Squeeze Cost
discount/ & pack- Complex-
existing ducts/ in- abs. retail premium retailer of raw
promo’l aging ity cost
products novation price products margins materials
activity cost

More Higher New Innovate Cheaper Focus on

Product
vol./ # of products/ existing RM (pur- most pro-
mix
POS POS brands brands chasing) fitable

Shelf Target The basics - will they make it?

New New
space/ broader Strong – a likely offer candidate
segments markets
retailer cust. base
Star
1) Market share is a much simpler framework – push them to really think through the issues

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 4
 Q2: Establish implications of management forecasts on
market share, in both emerging and established market
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Basic
Intro- Intro to In Depth Case
Struct- End
duction Case Section Review
uring

• We’ve just come back from a meeting with mgmt & have received the blade manufacturers
Context projections for growth in an emerging and established market

What will the relative market size look like in the emerging
and established markets? (sketch the approximate curves)

• Estimate the shape Relative

market size
HANDOUT

of the growth in Higher

the two types of

market (emerging
and established)
Lower
Calculate the growth in the company’s revenue over the
next 2 years HANDOUT

1 2 4 6 8 10
Year
Individual Disposable "System"
Total

• Calculate the
blades razors razors
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON Formal interview case study PL v1 6

3 sub-
Revenue: Year 0 (£M) £36M £16M £7M £59M

growth in the
Revenue: Year 1 (£M)
Emerging

questions
market
Revenue: Year 2 (£M)

company’s revenue
Management projected
11% 23% 14% n/a
revenue growth (per annum)

(and over the next 2 Revenue: Year 0 (£M) £22M £18M £10M £50M

handouts)
Revenue: Year 1 (£M) £28M £21M £18M £66M

years
Established
market
Revenue: Year 2 (£M) £34M £24M £31M £89M

Management projected
25% 15% 75% n/a
revenue growth (per annum)
Calculate the implied market share in the two types of
market HANDOUT

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON Formal interview case study PL v1 8
Individual Disposable "System"
Total
blades razors razors

Market size: Year 0 (£M) £103M £64M £70M £237M

Market size: Year 2 (£M)

Emerging

• Calculate the implied

market Company market share: Year 0 (%) 35% 25% 10% 25%

Company market share: Year 2 (%) 40% 33% 10% 28%

market size and share in Market size: Year 0 (£M) £180M £280M £410M £870M

the two types of market Established

market
Market size: Year 2 (£M) £170M £310M £460M £940M

Company market share: Year 0 (%) 12% 6% 2% 6%

Company market share: Year 2 (%)

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON Formal interview case study PL v1 9

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 5
 What will the relative market size look like in the emerging
and established markets? (sketch the approximate curves)

Relative HANDOUT
market size

Higher

Lower

1 2 4 6 8 10
Year

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 6
 Expected response: Relative market sizes over time
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Basic
Relative Intro-
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In Depth
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Case
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uring
market size
Established
Higher

Emerging

Lower

1 2 4 6 8 10
Year

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 7
 Calculate the growth in the company’s revenue over the
next 2 years HANDOUT

Individual Disposable "System"

Total
blades razors razors

Revenue: Year 0 (£M) £36.0M £16.0M £7.0M £59.0M

Revenue: Year 1 (£M)

Emerging
market
Revenue: Year 2 (£M)

Management projected
11% 23% 14% n/a
revenue growth (per annum)

Revenue: Year 0 (£M) £22.0M £18.0M £10.0M £50.0M

Revenue: Year 1 (£M) £27.5M £20.7M £17.5M £65.7M

Established
market
Revenue: Year 2 (£M) £34.4M £23.8M £30.6M £88.8M

Management projected
25% 15% 75% n/a
revenue growth (per annum)

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 8
 Calculate the implied market size and share in the two
types of market HANDOUT

Individual Disposable "System"

Total
blades razors razors

Market size: Year 0 (£M) £102.9M £64.0M £70.0M £236.9M

Market size: Year 2 (£M)

Emerging
market Company market share: Year 0 (%) 35% 25% 10% 25%

Company market share: Year 2 (%) 40% 33% 10% 28%

Market size: Year 0 (£M) £180.0M £280.0M £410.0M £870.0M

Market size: Year 2 (£M) £170.0M £310.0M £460.0M £940.0M

Established
market Company market share: Year 0 (%) 12% 6% 2% 6%

Company market share: Year 2 (%)

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 9
 Expected response: revenue 1 2 3 4 5 6
growth calculation
Basic
Intro- Intro to In Depth Case
Struct- End
duction Case Section Review
uring

Individual Disposable "System"

Total
blades razors razors

Revenue: Year 0 (£M) £36.0M £16.0M £7.0M £59.0M

Revenue: Year 1 (£M) £40.0M £19.7M £8.0M £67.6M

Emerging
market
Revenue: Year 2 (£M) £44.4M £24.2M £9.1M £77.7M

Management projected
11% 23% 14% n/a
revenue growth (per annum)

Revenue: Year 0 (£M) £22.0M £18.0M £10.0M £50.0M

Revenue: Year 1 (£M) £27.5M £20.7M £17.5M £65.7M

Established
market
Revenue: Year 2 (£M) £34.4M £23.8M £30.6M £88.8M

Management projected
25% 15% 75% n/a
revenue growth (per annum)

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 10
 Expected response: market 1 2 3 4 5 6
share calculation
Basic
Intro- Intro to In Depth Case
Struct- End
duction Case Section Review
uring

Company revenue size = Total Market size * % company market share

Individual Disposable "System"
44.4m = Total market size x 40% blades razors razors
Total

Market size: Year 0 (£M) £102.9M £64.0M £70.0M £236.9M

Market size: Year 2 (£M) £111.0M £72.6M £91.0M £274.6M

Emerging
market Company market share: Year 0 (%) 35% 25% 10% 25%

Company market share: Year 2 (%) 40% 33% 10% 28%

Market size: Year 0 (£M) £180.0M £280.0M £410.0M £870.0M

Market size: Year 2 (£M) £170.0M £310.0M £460.0M £940.0M

Established
market Company market share: Year 0 (%) 12% 6% 2% 6%

Company market share: Year 2 (%) 20% 8% 7% 9%

Company revenue size = Total Market size * % company market share

34.4/170 = ~20%
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 11
 Q3: What is current position of the target? What is your
initial assessment of management’s forecasts?

What is your initial

assessment of management’s Would you invest in the
What is the current position
forecasts? Are they feasible? target, if you were the PE
of the target?
What follow up questions firm?
would you ask?

• Target currently has much • Established market: Growth • Potential reasoning for “Yes”:
higher share in Emerging seems particularly aggressive - Company clearly has a strong
Market than Established in the “Systems” segment, foot-hold in Emerging Market
Market (which is 3.5x as big) which will be difficult to across Individual and
Disposables – this could be built
• Within both markets, it has penetrate given likely upon
the highest share in Individual established players – more - Systems in emerging market
Blades (followed by Disposable than triple market share has strong growth forecast –
Razors and then Systems): a predicted likely to be lucrative if more
- Growth also seems aggressive in share can be gained
particular concern in the
Individual segment, particularly - Though established market likely
Established Market, where the as this market is declining to be competitive, this company
Individual Blades market is could position itself as low-cost
forecast to decline • Emerging market: Growth alternative (especially with
- It is also a concern in the
highest in the Disposable current economic environment)
Emerging Market, where growth razors segment: what actions
• Potential reasoning for “No”:
looks to be stagnating would mgmt be taking to
- Unclear the mgmt has a firm
boost this segment? grip on forecasts
- Why is share forecast to be flat - Established market likely to be
in Systems segment? Is there difficult to break into –
nothing that could be done to particularly if there is a drive
capture share here? towards premium
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Basic
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duction Case Section Review
uring

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 12
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Basic
Intro- Intro to In Depth Case

What actually happened…

Struct- End
duction Case Section Review
uring

• Bain recommended focusing attention on emerging markets, rather than

attempting to combine this with further inroads into established market
• Developed priority list of emerging markets, with likely success
• Established most effective price points
• Also recommended continued focus on lower-end razors

• Overall, Bain identified sufficient opportunity to drive growth in

emerging markets. The private equity firm bought the target in an
auction

• PEG client has since been in discussions with Bain re. follow-on work at
target to implement some of the recommendations made

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent LON AC Lindsay Peter - Razor Blades (2) 13