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The Regional Dairy Cooperative

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.

Structure & Hypothesis

Use the profitability tree, but lead with cost and mix given the flat-revenue signal.

The case-specific tree — revenue is flat only because +4% volume hides −5% price/mix. The squeeze lives in the blend.

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."

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