Interviewer view · keep this screen to yourself
Standard: Kaiyuan Tea: should a Taipei chain enter Hong Kong?
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
Kaiyuan Tea, a bubble tea chain with 80 shops in Taiwan, wants to enter Hong Kong. It can open its own shops or sign a franchise partner. The exhibit shows the numbers for one shop. Should it enter, and how?
Format note: Difficulty: Standard. Format: interviewer-led, with an exhibit. Industry: Food and drink retail. Region: Taiwan and Hong Kong. Interview length: about 30 minutes. The company is fictional and all figures are illustrative.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: What would an own shop cost?
Answer: About HKD 1.5 million to fit out, and HKD 360,000 a month to run: rent HKD 150,000, staff HKD 180,000 and other costs HKD 30,000 (illustrative).
If asked: What does a franchise partner offer?
Answer: A Hong Kong food group would open and run the shops itself and pay Kaiyuan 6 percent of sales as a royalty (illustrative).
If asked: How many drinks would a shop sell?
Answer: Similar shops in busy districts sell about 600 drinks a day at HKD 32 each. Ingredients and cups cost HKD 9 a drink (illustrative).
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
Hong Kong rents are high, so my hypothesis is that an own shop only just covers its costs, and that a franchise partner gives Kaiyuan a safer way in.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Profit per shop for Kaiyuan = own shop: drinks x contribution - running costs; franchise: sales x royalty
- Contribution per drink and drinks per day
- Key: Own shop: rent, staff, fit-out and break-even volume
- Franchise: royalty with no fit-out cost
- What happens if sales come in lower
Exhibit 1
Reveal to candidate: when they ask for this data, say "Open Exhibit 1" (they press "Show exhibit 1" on their screen).
| Item | Value |
|---|---|
| Price per drink (HKD) | 32 |
| Ingredient and cup cost per drink (HKD) | 9 |
| Expected drinks a day | 600 |
| Rent (HKD a month) | 150,000 |
| Staff (HKD a month) | 180,000 |
| Other costs (HKD a month) | 30,000 |
| Fit-out cost of an own shop (HKD) | 1,500,000 |
| Franchise royalty (% of sales) | 6 |
So-what
An own shop needs about 522 drinks a day just to cover its costs, so a small shortfall in sales wipes out its profit.
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Contribution per drink
What a strong candidate does: HKD 32 minus HKD 9 of ingredients and cup.
Contribution per drink (HKD): 32 - 9 = 23
Step 2: Monthly running cost
What a strong candidate does: Rent, staff and other costs.
Running cost of an own shop (HKD a month): 150,000 + 180,000 + 30,000 = 360,000
Step 3: Break-even volume
What a strong candidate does: Drinks a day to cover the running cost, over 30 days.
Break-even drinks a day: (150,000 + 180,000 + 30,000) ÷ (32 - 9) ÷ 30 = 522
Step 4: Own shop profit
What a strong candidate does: At 600 drinks a day.
Own shop profit (HKD a month): 600 × 30 × (32 - 9) - (150,000 + 180,000 + 30,000) = 54,000
Step 5: Months to recover the fit-out
What a strong candidate does: HKD 1.5 million divided by the monthly profit.
Months to recover the fit-out: 1,500,000 ÷ (600 × 30 × (32 - 9) - (150,000 + 180,000 + 30,000)) = 27.78
Step 6: Franchise royalty
What a strong candidate does: 6 percent of the same shop's sales, with no outlay for Kaiyuan.
Royalty per franchise shop (HKD a month): 600 × 30 × 32 × 0.06 = 34,560
Step 7: Curveball: a rival opens nearby
What a strong candidate does: Interviewer: "A rival chain has just opened next to our best site. Similar shops now expect 500 drinks a day." Candidate: "An own shop would then make:"
Own shop profit at 500 drinks a day (HKD a month): 500 × 30 × (32 - 9) - (150,000 + 180,000 + 30,000) = -15,000
Step 8: Royalty at the lower volume
What a strong candidate does: Candidate: "And the royalty from a franchise shop:"
Royalty at 500 drinks a day (HKD a month): 500 × 30 × 32 × 0.06 = 28,800
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Kaiyuan should enter Hong Kong through the franchise partner first, and keep the option to open its own shops later. First, an own shop needs about 522 drinks a day to cover its HKD 360,000 of monthly costs, close to the 600 expected. Second, at 600 drinks it earns HKD 54,000 a month and takes about 27.8 months to recover its fit-out. A franchise shop pays a royalty of HKD 34,560 a month with no outlay. Third, at 500 drinks an own shop loses HKD 15,000 a month, but the royalty still brings HKD 28,800. Agree sales targets per shop with the partner, and a right to buy shops back after three years.
Risks a strong answer names: A partner may not keep Kaiyuan's drink quality and service; Royalties give Kaiyuan less profit than own shops if sales turn out strong.
Next steps: Set quality checks and sales targets in the franchise contract; Track drinks a day in the first five franchise shops before planning more.
Strong versus weak
A strong answer
Found the break-even volume for an own shop, compared it with the royalty on the same sales, and tested both at a lower volume.
A weak answer
Chose own shops because they earn more per shop at 600 drinks, without asking what happens if sales come in lower.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
Total
0 out of 25
Score all five criteria to see the band and the feedback template.
Next: another case in Partner mode
Swap roles and run the next case, so you both practise answering and scoring.