XAT 2019 — Decision Making Question 13
Read the following caselet and answer questions that follow
Divya grew up in a business family in Hyderabad. As a Systems engineer she travelled extensively on business deals and later settled in her in-law’s place in Warangal. Once during her visit to Thailand she got to taste some roll over ice cream. Interestingly, a few weeks later, she came across an advertisement from a reputed Bangalore based Rollover Handcrafted Ice Cream Company calling for expression of interest from potential franchises.
Warangal did not have any quality ice cream parlour. The company wanted the potential franchisees to invest Rs. 20 lacs and 700 square feet space. Profits were to be shared in 3:7 ratio between the company and the franchisee. Divya was excited, but was wondering if Rs. 20 lacs was too much to invest. Further, she did not have the entire amount and was thinking of taking a loan. She enquired with the Rollover franchisees and found that a franchisee in Hyderabad had sales revenue varying between 5 and 6 lacs rupees per month with a profit margin between 25-30%. Divya decided to go ahead.
Warangal had three main areas –Kazipet, Jangaon and Warangal. All areas were linked by good roads. Kazipet was a business area where most high end retail formats were located. It was also the education hub of the city. Jangaon, on the other hand, was a growing lower middle class business area and Warangal was mostly residential.
Divya favoured Kazipet. However, she soon encountered problems. Not only was it difficult to obtain space in Kazipet but property rentals touched 30-40 rupees per square feet per month as against Jangaon and Warangal where it was 15-20 rupees per square feet per month. Divya’s friend, who lived in Jangaon, told her that a few branded outlets were opening in Jangaon and it appeared to be the fastest growing market in Warangal with the highest percentage of teenagers. But, Divya was not in favour of Jangaon. She hoped to target college going crowd of Kazipet. High real estate prices in Kazipet and lower profitability estimate in Jangaon market confused Divya.
Which of the following options, if true, would most likely interest Divya to start a franchise?
Answer & solution
- A
Her friend who runs a restaurant recently in Kazipet is doing good business.
- B
Doctors of the area do not consider Ice cream to be a major cause of obesity.
- C
A bank is ready to give her a quick loan.
She can charge high prices for her ice creams without losing customers.
- E
In recent times, a couple of franchisees shut down within months of starting.
Divya is mulling over operating Rollover Handcrafted Ice Cream Company’s franchise in Warangal. The most important criteria in such an endeavour would be profitability and revenue. However, should she go ahead and start a franchise? [2] is irrelevant to the question at hand. [5] would be contrary to what Divya wants to do. The situation of the friend who runs a restaurant in Kazipet is not a good reason or Divya to launch an Ice Cream franchise in the same place. Hence, [1] is not a good reason. Between [2] and [4], the former would just take care of her capital/investments. However, [4] assures her a good source of income and can lead to good profits if Divya continues to fetchhigh prices for her ice creams without losing customers. Hence, [4] is a better choice.
Hence, the correct answer is option 4.