Larkspur Bakehouse: Profitability Case Study with Answer
Why did a growing bakery-café chain lose half its operating margin in two years, and how does it win it back? A free medium profitability case study with 6 questions, 2 exhibits and a model answer for every question. About 30 minutes. No login to read.
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Restaurants / Bakery-cafés · Interviewer-led · BCG style
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The case
Our client, Larkspur Bakehouse, runs 40 bakery-cafés across the US Midwest. Revenue grew from $44 million in 2022 to $48 million in 2024, but operating profit fell from $5.3 million to $2.9 million. The CEO wants to know why, and what to do about it within a year.
Larkspur sells fresh bread, pastries, breakfast sandwiches and coffee. Stores are company-owned, sit in suburban strip malls and downtown office districts, and open from 6 a.m. to 3 p.m.
Since 2022 the chain has added no new stores. Growth came from more orders per store and from delivery: Larkspur joined two third-party delivery apps in 2022 and promoted them heavily. The CEO suspects rising butter and flour prices, but the CFO thinks the delivery push is the bigger problem.
Interviewer's data, shared if asked
- Store count was 40 in both 2022 and 2024; no closures, no openings.
- Larkspur has not changed its menu since 2022 apart from a 4% price increase in March 2023.
- Competitors in the same malls (two national chains) raised menu prices about 9% over the same period.
- Delivery apps charge Larkspur a commission of about 25% of the order value; the menu price is the same on the apps as in store.
- The chain has 1.1 million members in its own pickup app, which charges no commission.
Question 1 · Structure
How would you structure your analysis of why Larkspur's profit fell while revenue grew?
Hint: Profit fell while revenue rose, so start from costs as a share of revenue, and split revenue into volume and price so you can test the CEO's and the CFO's theories.
Model answer
Profit = revenue minus costs, and revenue grew, so the question is which costs grew faster than revenue. I would look at every cost line as a percentage of revenue in 2022 and 2024 and find the lines whose share rose.
Then I would explain each moving line with its drivers: ingredient cost per order (input prices vs menu prices), labor per order, and the channel mix (delivery orders carry a commission that in-store orders do not).
- Revenue: transactions x average ticket, split by channel (in store, own pickup app, third-party delivery).
- Variable costs: ingredients per order, store labor per order, delivery commissions per delivery order.
- Fixed costs: rent, other store costs, head-office overhead.
- Hypotheses to test: input inflation not passed into menu prices (CEO); commission-heavy delivery growth (CFO).
What the interviewer is looking for
- Good: a revenue and cost split that is specific to a bakery chain, not a generic profitability tree.
- Strong: turns the CEO's and CFO's views into testable hypotheses and says which data would settle them.
- Excellent: notices that with flat store count, all growth is per-store and channel driven, so mix is a likely culprit.
Push-back: Both theories sound plausible. Which one would you test first, and with what number?
Question 2 · Math
Using Exhibit A, how many points of operating margin did Larkspur lose, and which cost lines explain it?
| Line | 2022 ($M) | 2024 ($M) |
|---|---|---|
| Revenue | 44.0 | 48.0 |
| Ingredients | 13.2 | 16.3 |
| Store labor | 13.6 | 15.4 |
| Rent and occupancy | 6.6 | 7.0 |
| Delivery app commissions | 0.9 | 2.4 |
| Other store costs | 2.0 | 2.2 |
| Head-office overhead | 2.4 | 1.8 |
| Operating profit | 5.3 | 2.9 |
$ millions. Totals may differ by 0.1 from rounding.
Hint: Turn every line into a percentage of that year's revenue, then compare the two years line by line.
Model answer
Operating margin fell from 12.0% (5.3 / 44.0) to 6.0% (2.9 / 48.0), a loss of 6.0 points.
Two lines explain almost all of it: ingredients rose from 30.0% to 34.0% of revenue (+4.0 points) and delivery commissions from 2.0% to 5.0% (+3.0 points). Labor added 1.2 points. Head-office overhead fell 1.7 points and rent 0.4 points, which softened the drop.
| Line | 2022 % of revenue | 2024 % of revenue | Change (points) |
|---|---|---|---|
| Ingredients | 30.0% | 34.0% | +4.0 |
| Delivery commissions | 2.0% | 5.0% | +3.0 |
| Store labor | 30.9% | 32.1% | +1.2 |
| Other store costs | 4.5% | 4.6% | +0.0 |
| Rent and occupancy | 15.0% | 14.6% | -0.4 |
| Head-office overhead | 5.5% | 3.8% | -1.7 |
| Operating margin | 12.0% | 6.0% | -6.0 |
What the interviewer is looking for
- Good: computes both margins correctly and states the 6-point drop.
- Strong: ranks the lines by points of margin, not by dollars, and names ingredients and delivery as the two drivers.
- Excellent: points out that overhead savings hid part of the problem, so store-level economics are worse than the headline.
Push-back: Ingredients rose by $3.1 million and labor by $1.8 million. Why do you rank ingredients so much higher than labor?
Question 3 · Exhibit
Look at Exhibit B. What does it tell you about the CEO's ingredient theory and the CFO's delivery theory?
| Metric | 2022 | 2024 |
|---|---|---|
| Transactions (millions) | 4.4 | 4.6 |
| Average ticket ($) | 10.00 | 10.43 |
| Delivery share of revenue | 8% | 20% |
| Ingredient cost per transaction ($) | 3.00 | 3.54 |
Average ticket = revenue / transactions.
Interviewer's data, shared if asked
- Supplier contracts show the butter, flour and coffee basket up about 17% since 2022.
- Delivery orders use the same recipes and portion sizes as in-store orders.
Hint: Compare how fast ingredient cost per order grew with how fast the average ticket grew, then look at what the channel shift does to commissions.
Model answer
Both theories hold. Ingredient cost per transaction rose 18% ($3.00 to $3.54), close to the 17% input inflation, while the average ticket rose only 4.3% ($10.00 to $10.43). Larkspur absorbed input inflation instead of pricing for it, while competitors raised prices about 9%.
Delivery grew from 8% to 20% of revenue, from about $3.5 million to $9.6 million. At a 25% commission, every dollar that moves from the counter to an app gives up 25 cents, so the channel shift alone cost about 3 points of margin.
What the interviewer is looking for
- Good: reads both rows correctly and links them to the two theories.
- Strong: compares cost-per-order growth with ticket growth, which is the real test of pricing power.
- Excellent: says both effects are real and roughly similar in size, so the fix needs two levers, not one.
Question 4 · Brainstorm
What could Larkspur do in the next 12 months to recover margin? Give me a structured list.
Hint: Organise ideas by the two drivers you found, plus one bucket for everything else, and say which are fast and which are slow.
Model answer
I would group ideas by the driver they fix, then rank by speed and size.
- Pricing (ingredient squeeze): a targeted menu increase of 4-6% on items where Larkspur sits below the two mall competitors; re-engineer the menu toward higher-margin items such as coffee and add-ons.
- Channel (delivery squeeze): charge a higher menu price on delivery apps to cover part of the commission; move regular customers to the own pickup app with a loyalty reward; cap app promotions.
- Input costs: renegotiate butter and flour contracts or lock prices for 12 months; reduce waste from end-of-day bread.
- Labor: match staffing to the 6-10 a.m. peak with scheduling software.
What the interviewer is looking for
- Good: covers price, channel and cost ideas.
- Strong: ties each idea to a driver found in the data and flags quick wins.
- Excellent: notes the risk of each lever (volume loss on price, app ranking on delivery pricing).
Question 5 · Math
Suppose Larkspur raises delivery-app menu prices by 15% and loses 10% of its delivery orders as a result. Does delivery profit go up or down, and by how much?
Interviewer's data, shared if asked
- Use 2024 delivery revenue of $9.6 million.
- Commission stays 25% of order value.
- Ingredients are 34% of revenue at 2024 prices and scale with the number of orders, not the menu price.
Hint: Write delivery contribution = revenue - commission - ingredients for today and for the new prices, then compare.
Model answer
Today: revenue $9.6M, commission $2.4M, ingredients $3.26M (34% of $9.6M), so delivery contributes about $3.94M.
After the change: revenue $9.6M x 1.15 x 0.9 = $9.94M, commission 25% = $2.48M, ingredients $3.26M x 0.9 = $2.94M (fewer orders, same cost per order). Contribution is about $4.51M.
Delivery profit rises by about $0.58 million, roughly 1.2 points of margin. The price rise more than pays for the lost orders because each lost order was only earning about 41 cents per revenue dollar.
What the interviewer is looking for
- Good: sets up before and after correctly and gets about +$0.6 million.
- Strong: keeps ingredients tied to order volume and the commission tied to price.
- Excellent: computes the break-even volume loss or says how much higher the loss could be before the move stops paying.
Push-back: What if the apps push Larkspur down their rankings and you lose 25% of delivery orders instead of 10%?
Question 6 · Synthesis
The CEO walks in. Give me your recommendation in 60 seconds.
Hint: Answer first, then two or three reasons with numbers, then risks and next steps.
Model answer
Larkspur lost 6 points of margin because it absorbed 17% input inflation with only a 4% price rise (about 4 points) and shifted a fifth of its sales to apps that take 25% (about 3 points). I recommend two moves this quarter: price delivery orders 15% higher, worth about $0.6 million, and a targeted 4-6% menu increase where we sit below competitors, while moving regulars to our own pickup app.
Risks are lost delivery orders and app ranking; we should test the delivery price in 10 stores for six weeks before rolling it out.
What the interviewer is looking for
- Good: gives a clear recommendation with the two drivers.
- Strong: quantifies the size of each driver and of the main lever.
- Excellent: proposes a test before rollout and names what would change the recommendation.
Model recommendation
Show the recommendation
Recover margin with two levers: charge more for delivery orders and reprice the menu where Larkspur is cheaper than its competitors.
The margin fell 6 points: about 4 from ingredient inflation not passed into prices and about 3 from the shift to delivery apps that take a 25% commission, partly offset by lower head-office costs.
A 15% delivery price premium adds about $0.6 million even if 10% of delivery orders are lost. A 4-6% targeted menu increase and moving regular customers to the commission-free pickup app close more of the gap.
Next steps: test delivery pricing in 10 stores for six weeks, lock butter and flour prices for 12 months, and track margin by channel every month.
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Written by Road to Offer. Updated November 6, 2026. Every client and number in this case is made up for practice.