The Regional Dairy Cooperative
Profits are down two years running. Find out why.
The Prompt
Your client is a farmer-owned dairy cooperative selling milk, curd, and butter across three districts. Profit has fallen for two straight years even though revenue is flat. The board wants to know why — and what to do.
Good clarifying questions
Is revenue truly flat, or is a volume drop being masked by a price increase?
Which products — is the decline broad or concentrated in one line (e.g., butter)?
Has anything changed structurally — input prices, a new competitor, a plant or route change?
Flat revenue + falling profit points hard at the cost side or an adverse mix shift. Signal that hypothesis early.
Structure & Hypothesis
Use the profitability tree, but lead with cost and mix given the flat-revenue signal.
Analysis & Data
Suppose the interviewer reveals: volume is up 4%, but average realised price fell 5% because the high-margin butter line lost share to a branded entrant, while low-margin liquid milk grew. Meanwhile feed costs (a variable input) rose 8%.
Recommendation
Recommend
- Defend the butter line: targeted marketing / packaging vs the new entrant, since margin recovery there beats cost cuts.
- Hedge or renegotiate feed contracts to blunt the 8% input rise.
- Track product mix as a board KPI so margin erosion can't hide behind flat revenue again.
Key Takeaway
What this case teaches
Flat top-line can conceal a mix + cost squeeze. Always decompose realised price into volume and mix before concluding "revenue is fine."