What YGCC is Reading #139

McDonald’s U.S. Sales Revive Amid Stiff Competition (NYT)
McDonald’s Tweaks Its Recipes: Now, Real Butter in the McMuffin (NYT)
What’s new at McDonald’s? Possibly just about everything (Chicago Business)

Despite analysts’ lowered expectations due to stagnant growth over the past few years, McDonald’s outperformed the projected sales growth in the third quarter this year. McDonald’s is a fast food giant that serves nearly 70 million customers daily from over 100 countries. This world’s largest restaurant chain experienced steady growth throughout the past several decades, even during the Great Recession when its competitors suffered. But in 2014, McDonald’s faced a fall in quarterly sales for the first time in 17 years due to competition from other fast food chains and a consumer shift to healthier eating. As a result, Steve Easterbrook was appointed as the new CEO in 2015 to implement a turnaround plan. Easterbrook’s McComeback initiatives included heavy spending cuts by refranchising, introducing competitive items such as the all-day breakfast menu, appealing to health-conscious consumers by using healthier ingredients, and increasing efficiency by installing self-service kiosks.

  • As consumers become more health-conscious, fast food restaurants rebrand their company to better meet the demands. What other initiatives have fast food chains implemented? Alternatively, how do companies recover their growth following incidents that tarnish their brand image? For example, how are Volkswagen and Wells Fargo coping with the recent scandals?
  • McDonald’s generates two-thirds of its revenue from outside the US. How can Easterbrook cater his approaches to meet specific demands of consumers in its locations abroad (ie. McDonald’s in Asia vs. Europe vs. Africa)?

Pro-bono consulting opportunity with a Yale start-up

YGCC is excited to announce another semester long pro-bono projects and we’re now accepting applications to staff them. This is an opportunity to build your consulting experience, including the problem solving and communication skills required in a consulting career. Prior consulting experience is not required and all interested applicants are welcome to apply! If you’re interested in this opportunity, please see below for project and application details.

Project Description:
The client is a healthy frozen foods startup founded at Yale and is looking to find local food distributors to supply their products. YGCC pro-bono consulting team will be assembled to create a list of distributors and analyze this list to identify the most cost-effective distributor(s) for our client.   

Open Positions: 3 Pro-bono Project Associates.

How to apply

  • Send a 1-page resume and a brief statement of interest (<250 words) that should address both how you can contribute to the project as well as what you hope to gain from the experience. 
  • The statement should be sent as a single PDF document titled, “LastName_FirstName_Statement

Please email both the resume and the statement to yale.grad.consulting@gmail.com with the subject “Pro-bono Project Associate“.

Please submit your applications by 5:00PM, Thursday, October 20.
Selected candidates will be contacted for interview after Friday, October 21.

We look forward to your application!

What YGCC is Reading #138

De Beers Bets Big on Canadian Mine (WSJ)
Diamonds: Nothing lasts forever (FT)
The diamond industry is aiming its new ads at millennials who aren’t that into marriage (Quartz)

De Beers, the dominant supplier of rough diamonds for more than a century, is starting operations at a new $1B diamond mine, Gahcho Kué, located in the permafrost in the high north of Canada. The new mine is De Beers’ most significant bet on the long-term health of the diamond market for years — the largest new diamond mine in a decade and the company’s biggest outside its home region of Africa. Even though this mine needs some of the highest-cost extraction operations due to its remoteness, gems mined here have the advantage of being free of any taint of “blood diamonds” — stones whose profits fund conflict, an accusation associated with diamonds sourced from some countries in Africa. This investment comes at a time of upheaval and volatility for the diamond industry. Global sales of diamond jewelry fell in 2015 for the first time in six years, declining 2 per cent to $79B. Sales of rough diamonds fell 30 per cent. De Beers’ revenues fell by one-third and operating profits fell by more than half. Diamonds, which have traditionally held a strong share of luxury spending, are also facing stiff competition from newer alternatives, such as consumer devices and expensive holidays. Synthetic or lab-grown diamonds comprise another challenge to the industry; chemically identical to a mined diamond but created to order in weeks, these stones are a cheaper alternative for ethically minded consumers or an imitation that erodes trust in “real” stones.

  • Market research (FT) has revealed that millennials typically have less to spend than their parents, have a more casual approach to wearing jewelry, are getting married later, are increasingly eschewing social conventions such as engagement rings and anniversary gifts, are valuing experiences (such as attending concerts and exotic holidays) over material goods, and have been overexposed to traditional advertising messages. In light of these constraints, how would you structure a diamond-marketing approach aimed at millennials?

What YGCC is Reading #137

Here’s Why Twitter’s Share Price Is Plummeting (Forbes)
Salesforce To Acquire Twitter, Some Speculate (Fortune)
Salesforce Shareholders Besiege Possible Twitter Deal (NYT)

Twitter has had some difficulty rallying up potential buyers. Initially, tech conglomerates like Disney, Google, and Apple were thought to be fielding bids for the social media company. Given that Microsoft has just shelled out $26.2B for LinkedIn, many thought this would be déjà vu; Twitter has amassed not only a large professional network composed of prospective employees, large companies, and key opinion leaders but also a massive database on social behavior that could be invaluable for companies already involved in machine learning. However, recent reports have revealed that Salesforce is the only tech company considering an offer. Salesforce previously lost the bidding war for LinkedIn and may be looking for a secondary social network to supplement its service and cloud offerings. Salesforce has been using much of its capital this year to acquire several other tech companies, but Twitter would be its largest target at a price of $20B and some wonder if Salesforce’s shareholders would balk at such a figure.

  • Many believe that companies are shying away from Twitter because it has failed to turn a significant profit since its launch. Brainstorm potential new business models for a combined Twitter-Salesforce.
  • Consider all the potential data Twitter has acquired from its social media platform. How could it leverage such data in asking for a high price tag from other tech companies or private equity groups?

What YGCC is Reading #136

AP Moller-Maersk Splits Its Shipping, Energy Operations (NYT)
Maersk conglomerate to break up (FT)
Shipping Giant Maersk to Split Into Two Divisions (WSJ)

A.P. Moller-Maersk, the largest shipping operator in the world, is splitting its transport and energy businesses into separate companies. This shakeup is a response to years of declining oil prices, freight rates, and global trade volumes, which have severely depressed Maersk’s profits (down 89% from last year) and revenues (down 16%). Maersk’s shipping unit, Maersk Line, is the world’s largest (with a fleet of 600 ships transporting 16% of all manufactured goods worldwide), and its performance is commonly considered as a marker for the state of global trade. Low freight rates and oversupply of container ships have rocked the shipping industry, as top shipping companies, which invested heavily in “mega-ships” plying the Asia-Europe trade route, have been disproportionately hit by the weak shipping market as capacity growth outpaced trade; South Korea’s Hanjin Shipping Co was forced into bankruptcy last month (see Reading #133). Maersk’s new CEO, Soren Skou, is pessimistic about the rate of trade growth, attributing this slowdown to the saturation of containerization – “there’s not much more you can put in a container that is not already in a container.”

  • Mr. Skou has identified the lack of top-line growth as Maersk’s biggest issue. Maersk has cut costs by almost 40% since 2012; however revenues remain lower than they were a decade ago and have fallen consistently in the past five years. Given the lack of growth in global trade, what strategies are available to Maersk to boost its revenues.
  • Maersk managed to increase its volumes by 7% in the last quarter compared with a year earlier. However, a 24% drop in freight rates caused overall revenues to fall by 20%. Industry experts expect a wave of consolidation in the shipping business in the near future as companies attempt to raise freight rates. What are some benefits and risks for Maersk if it were to pursue this consolidation strategy?

What YGCC is Reading #135

Apple-Target McLaren Is a Tech Company Disguised as a Carmaker (Bloomberg)
Apple Looking to Bolster Car Project (WSJ)
Apple Kicks the Tires at McLaren (NYT)

Apple is looking for some outside help for its automotive arm. Project Titan, the car-making arm of Apple, has closed several projects and phased out several dozen employees at a time when many rivals Google, Ford, etc. have expanded their smart car investments. Now, Apple has been in talks with racecar developer McLaren for investment opportunities or even acquisition. At first glance, the two companies seem to have fundamentally different value propositions: Apple sells handheld technology to the masses while McLaren has best been known for its high-performance Formula One racecars and ultra-luxury cars. However, many believe that instead of investing wholesale into all of McLaren’s projects, Apple will instead leverage McLaren’s cutting-edge car technology software and analytics, while turning to other companies for manufacturing.

  • Consider the upcoming trends in the automotive industry (self-driving cars, ride-sharing, electric powertrains, etc.). What other companies could Apple invest in/partner with and what potential synergies could be derived as both companies move forward with smart cars.

What YGCC is Reading #134

HP Agrees to Acquire Samsung Printer Business for $1.05 Billion (WSJ)
Why HP Inc.’s Deal With Samsung Could Be a Game Changer (Motley Fool)
HP Inc. Goes Old School With Plans to Sell Copy Machines (Fortune)

HP Inc. recently announced a deal to purchase Samsung Electronics Co.’s printer business for $1.05 billion in an effort to bolster HP’s product line in the high-volume office printing and copying business. This transaction is a part of HP’s attempt to “disrupt and reinvent” the $55 billion office copier industry by replacing traditional office copy machines with multifunction printers. While HP is the leader in the desktop printer business with 36% of the market share, this is its first foray into the office copier industry (known as the A3-printing category), whose major players include Xerox Corp., Canon Inc., Ricoh Co. and Konica Minolta Inc. With this deal, HP will acquire Samsung’s business selling desktop printers and A3 machines, as well as 6,500 printing patents, 6,000 employees (including 1,500 researchers and engineers), and the technology to manufacture printing engines, which are crucial mechanisms inside laser printers. HP had so far been using external suppliers for this component, which can account for 10% to 15% of the cost of a printer.

  • The overall market for A3-printing has been shrinking steadily as usage of paper has been increasingly supplanted by digital documents. Brainstorm how a new entrant such as HP can develop a competitive edge in such an environment. (Hint- product/price differentiation, innovative technology, tighter integration with existing products/channels)

What YGCC is Reading #133

Hanjin Bankruptcy Causes Global Shipping Chaos, Retail Fears (NYT)
Hanjin Group to Provide 100 Billion Won for Shipping Line (Bloomberg)
Hanjin Shipping gets U.S. court order, cash to unload ships (Reuters)

The Hanjin Group, the seventh-largest global shipping company, has filed for bankruptcy. Without necessary funds from creditors, dozens of Hanjin ships have been left just outside of ports unable to offload their goods. The unloading freeze raises concerns of starting a negative feedback loop of fees: the longer the goods are stranded, the more likely Hanjin’s retailer clients will sue for delays and damaged goods, thereby further exacerbating Hanjin’s financial woes. Hanjin has been able to raise some funds from its shareholders to unload some of the ships, but many retailers are worried that this disruption during peak shipping times will delay the Thanksgiving and Christmas holiday sales.

  • How will the Hanjin bankruptcy affect the rest of the world’s international shipping prices? How might it affect other distribution and transportation companies (ie. trucking, train, etc.)?
  • Hanjin has suggested that some of its clients—LG and Samsumg being some of the largest—pay for their goods to be unloaded. Besides significant pushback from LG and Samsung, how might these added costs affect both manufacturers (LG and Samsung) and end-consumers?
  • The Hanjin Group’s bankruptcy has illuminated the often invisible global forces which shape our everyday lives. Map out the value chain of any given retailer (Apple, Nordstrom’s, etc.) and identify key chokepoints which may affect the entire chain.

What YGCC is Reading #132

Mylan Faces Scrutiny Over EpiPen Price Increases (WSJ)
The EpiPen Drama Shows What’s Wrong With How Drugs Are Priced (Bloomberg)
Mylan Tries Again to Quell Pricing Outrage by Offering Generic EpiPen (NYT)

Mylan Inc. recently raised prices of its epinephrine auto-injector EpiPen (used to treat severe allergic reactions) to more than $600 for a pair of injectors right before an expected back-to-school sales surge. Mylan, which bought the marketing rights for the EpiPen from Merck in 2007 and contracts the manufacturing of the injector to Pfizer, had been raising EpiPen prices by 20 percent annually in recent years, but accelerated the increases to 32 percent in the last two years. At the same time, it has also invested heavily in a successful marketing and lobbying campaign to make EpiPens more widely available, especially in schools. Mylan has defended the regular price hikes in three main ways: (1) necessary recompense for its investment in the product, (2) most end customers are insured and therefore never pay the list price, and (3) middlemen, such as pharmacy benefit managers, realize a majority of the list price of the product. However, this latest price hike has triggered severe public and political backlash. In response, Mylan first offered coupons and discounts to some customers, and then followed up with the unprecedented move of introducing a $300 generic version of the EpiPen to compete directly with its own branded product.

What YGCC is Reading #131

Pfizer to Buy Medivation for $14 Billion (WSJ)
Pfizer boosts cancer drug roster with $14 billion Medivation deal (Reuters)
The Flaws in Pfizer’s Plan to Acquire Medivation (NYT)

After months of intense bidding between the world’s top pharma companies, Pfizer has bought Medivation for $14B. Medivation’s major source of revenue is Xtandi, a leading prostate cancer treatment, and many believe Pfizer is generally trying to bolster its high-margin cancer drug portfolio through this acquisition. This would align with Pfizer’s plan to potentially split into two companies: one focused on lucrative branded medicine and another specialized in marketing off-patent drugs. Still, some analysts are left debating whether Pfizer has overpaid for Medivation given the expected growth for the prostate cancer treatment market.

  • What are the synergies between Pfizer and Medivation beyond just their drug portfolios?
  • Brainstorm drivers of the sales for cancer treatments. Consider how external factors like regulation and new markets may affect potential revenues for Pfizer.
  • Consider growth strategies for Pfizer’s two potential companies (the branded medicine and the generic drugs).  How would you maximize revenues for each?