Profitability case example: Ridgeway Cold Storage
Ridgeway runs six refrigerated warehouses for frozen-food companies. Revenue is flat but operating profit fell from $24M to $15M in three years, and the CEO wants to know why and what to do. The full solution is below: the structure, every exhibit, the math, a model answer and the mistakes to avoid.
- Type
- Profitability
- Difficulty
- Medium
- Length
- About 30 minutes
- Format
- Candidate led
The case
The interviewer reads this aloud. Try it before you read on.
Our client is Ridgeway Cold Storage, which owns six refrigerated warehouses in the US Midwest. Frozen-food producers and grocery distributors pay Ridgeway to store their pallets at minus 20 degrees. Three years ago Ridgeway made $24 million of operating profit on $120 million of revenue. This year revenue is still $120 million, but operating profit is down to $15 million. The CEO has asked us why profits have fallen and what Ridgeway should do about it.
Facts the interviewer gives if you ask
- How does Ridgeway charge customers?
- One rate: $25 per pallet per month of storage. Moving the pallet in and out is included in that rate.
- Has the number of warehouses or their size changed?
- No. Same six warehouses, and on average 400,000 pallet positions are full, both three years ago and today.
- Who are the customers?
- Two groups. Seasonal producers who store a harvest or a production run for months, and grocery distributors who use Ridgeway as a short stop before stores.
- Are competitors seeing the same thing?
- We don't have competitor data. Assume the market price for storage has not changed.
- What is the client's goal?
- Get operating profit back to at least $24 million without losing the warehouses' occupancy.
The solution, step by step
How the case runs in the interview, in 5 steps. Each step has the interviewer's question, the exhibit or data shown, and what a strong answer says.
- 1
Structure the problem
The interviewer asks: “How would you figure out why Ridgeway's profits have fallen and what it should do?”
A strong structure
- 1Revenue: price per pallet-month and pallets stored, by customer segment
- 2Costs: each cost line, fixed versus variable, and what drives it
- 3Customer and segment mix: who uses the warehouses, and how
- 4Market: competitor prices and how customers buy storage
A strong answer
A profit tree: revenue (price per pallet-month times pallets stored, by segment) and costs (each line, split into fixed and variable, with its driver). Because revenue is flat, a strong candidate says the drop must be on the cost side or in the mix, and plans to look at costs first, then at how each customer segment uses the warehouses. Also notes market and competitor pricing as a check.
- 2
Read the exhibits
The interviewer asks: “Here is Ridgeway's revenue and profit over four years, and the cost lines three years ago and today. What do you take from them?”
Exhibit 1
Ridgeway revenue and operating profit, last four years
Revenue and operating profit by year, $M. Year 4 is this year.
RevenueOperating profit$MRidgeway revenue and operating profit, last four years Category Revenue ($M) Operating profit ($M) Year 1 120 24 Year 2 121 21 Year 3 119 18 Year 4 120 15 What to notice
- Revenue is flat at about $120 million.
- Operating profit fell about $3 million a year, from $24 million to $15 million.
Exhibit 2
Ridgeway costs, three years ago and this year
Operating costs by line, $M.
Ridgeway costs, three years ago and this year Cost line 3 years ago This year Energy 30 30 Handling labor 36 45 Rent and depreciation 20 20 SG&A 10 10 Total costs 96 105 Revenue 120 120 Operating profit 24 15 What to notice
- Total costs rose $9 million, from $96 million to $105 million.
- Handling labor rose $9 million, from $36 million to $45 million, so it explains the whole drop.
- Every other line is flat.
A strong answer
Revenue is flat at about $120 million while profit fell steadily, $24M, $21M, $18M, $15M. Total costs rose from $96 million to $105 million, and the whole $9 million increase is handling labor, which went from $36 million to $45 million. Energy, rent and depreciation, and SG&A did not move. So the question becomes why handling grew 25% when the space in use did not change.
- 3
Do the math
The interviewer asks: “Here is how the stored pallets split by customer segment. Every pallet is moved twice, once in and once out. Handling cost $15.00 per movement three years ago and $12.50 per movement today. How many movements does Ridgeway handle now, and what profit does each segment make this year?”
The interviewer adds
- Revenue is $25 per pallet per month for both segments.
- Share energy, rent and depreciation, and SG&A ($60 million together) by pallets stored.
Exhibit 3
Pallets stored by customer segment
Average pallets in storage (thousands) and how long a pallet stays, by segment.
Pallets stored by customer segment Segment Pallets stored 3 years ago (k) Pallets stored now (k) Average stay (months) Long-stay producers 360 300 6 Short-stay distributors 40 100 1 Total 400 400 What to notice
- Space in use is flat at 400,000 pallets.
- Short-stay distributors went from 40,000 to 100,000 pallets, and their pallets stay one month against six for producers.
- So pallets moving through the warehouses went from 1.2 million to 1.8 million a year.
A strong answer
Pallets through per year: long-stay 300,000 times 12 divided by 6 is 600,000, short-stay 100,000 times 12 divided by 1 is 1.2 million. Movements: 1.8 million pallets times 2 is 3.6 million, up from 2.4 million three years ago. At $12.50, handling is $45 million: $15 million for long-stay and $30 million for short-stay. Revenue: long-stay $90 million, short-stay $30 million. Other costs are $150 per pallet-year, so $45 million and $15 million. Long-stay profit is $90M minus $15M minus $45M, which is $30 million. Short-stay is $30M minus $30M minus $15M, a $15 million loss. Short-stay customers fill 25% of the space but cause two thirds of the movements.
Every number, worked out26 calculations
Every number, worked out Number Worked out Result Profit drop ($M) 24 − 15 9 Costs three years ago ($M) 30 + 36 + 20 + 10 96 Costs this year ($M) 30 + 45 + 20 + 10 105 Revenue ($M) 400 × 25 × 12 ÷ 1,000 120 Long-stay pallets through per year (k) 300 × 12 ÷ 6 600 Short-stay pallets through per year (k) 100 × 12 ÷ 1 1,200 Movements now (M) (600 + 1,200) × 2 ÷ 1,000 3.6 Movements three years ago (M) (360 × 12 ÷ 6 + 40 × 12 ÷ 1) × 2 ÷ 1,000 2.4 Handling now ($M) 3.6 × 12.5 45 Handling three years ago ($M) 2.4 × 15 36 Long-stay revenue ($M) 300 × 25 × 12 ÷ 1,000 90 Short-stay revenue ($M) 100 × 25 × 12 ÷ 1,000 30 Long-stay handling ($M) 1.2 × 12.5 15 Short-stay handling ($M) 2.4 × 12.5 30 Other costs per pallet-year ($) 60,000,000 ÷ 400,000 150 Long-stay profit ($M) 90 − 15 − 300 × 150 ÷ 1,000 30 Short-stay profit ($M) 30 − 30 − 100 × 150 ÷ 1,000 −15 Break-even fee per movement ($) 15 ÷ 2.4 6.25 Profit if the segment breaks even ($M) 30 + 0 30 Profit drop per year ($M) (24 − 15) ÷ 3 3 Handling labor growth (%) (45 ÷ 36 − 1) × 100 25 Pallets through per year now (k) 600 + 1,200 1,800 Pallets through per year three years ago (k) 360 × 12 ÷ 6 + 40 × 12 ÷ 1 1,200 Movements growth (%) (3.6 ÷ 2.4 − 1) × 100 50 Short-stay share of space (%) 100 ÷ 400 × 100 25 Short-stay share of movements (%) 2.4 ÷ 3.6 × 100 66.7 - 4
Brainstorm the options
The interviewer asks: “What could Ridgeway do about the short-stay customers?”
A strong answer
Organized ideas: pricing (charge a fee per movement, or a minimum stay, or tiered rates by stay length), operations (cross-dock lanes or a dedicated fast-turn zone to cut handling cost, scheduling inbound and outbound in batches, automation), customer mix (refill space with long-stay producers, renegotiate or exit the least profitable short-stay contracts), and risks (distributors moving to a competitor, empty pallet positions, contract terms that lock the price). A strong candidate says which matters most: pricing for handling, because the cost is real and the price ignores it.
- 5
Make the recommendation
The interviewer asks: “The CEO is walking in. What do you recommend?”
A strong recommendation
Unbundle handling from storage. Keep the $25 storage rate and add a per-movement fee for short-stay customers, at least the $6.25 break-even and a little above it in practice, which would take the segment from a $15 million loss to a small profit and Ridgeway back to just over $30 million, above its $24 million goal, if volumes hold. Name the risk that distributors leave and the mitigations: roll the fee out at contract renewals, refill freed space with long-stay producers, and cut the cost per movement with a fast-turn zone. Next steps: competitors' handling fees, contract renewal dates, a pilot in one warehouse.
The model answer
A strong candidate's whole answer, as it sounds out loud. The marked phrases are explained below.
- 1Goal and structureConfirm the goal, then a profit tree with revenue by segment, costs by driver and the customer mix, and a hypothesis that costs are the problem.
- 2Read the exhibitsFind that handling labor explains the whole $9 million drop and ask what drives it.
- 3Movements and segment mathTurn pallets stored into movements, tie handling back to $45 million, and show short-stay loses $15 million.
- 4IdeasPricing, operations and customer mix, with the main risk named.
- 5RecommendationUnbundle handling with a fee above $6.25 per movement, the risks, and next steps.
Thanks. So Ridgeway's revenue is flat at $120 million, but operating profit fell from $24 million to $15 million over three years, and the CEO wants to know why and what to do. Let me check I have the goal right. We want profit back to at least $24 million, without emptying the warehouses. Is that fair? Great.
Here is how I'd structure it. Profit is revenue minus costs. On revenue, I'd look at the price per pallet-month and the number of pallets stored, split by customer segment. On costs, I'd go line by line, separate fixed from variable, and find what drives each one. Then I'd look at the customer mix, because two customers who pay the same can cost very different amounts to serve. Finally, a quick check on the market, to see whether competitors price differently. Since revenue is flat, my hypothesis is that the problem is on the cost side, so I'd like to start there.
Looking at the exhibits, revenue has stayed around $120 million for four years, while profit fell about $3 million a year. In the cost table, total costs went from $96 million to $105 million. That $9 million increase is entirely handling labor, which went from $36 million to $45 million. Energy, rent and depreciation, and SG&A are flat. So the real question is why handling grew 25% when the warehouses are just as full.
Handling labor should follow how often pallets are moved, not how many sit in storage. So I'd want to know how many pallets move in and out, and whether that changed.
Thanks, so every pallet is moved twice and handling costs $12.50 per movement now, against $15.00 three years ago. Let me work out the movements. Long-stay producers have 300,000 pallets stored with a six-month stay, so 300,000 times 12 divided by 6 is 600,000 pallets a year. Short-stay distributors have 100,000 pallets that stay one month, so 1.2 million pallets a year. That is 1.8 million pallets, or 3.6 million movements. Three years ago it was 360,000 times 2 plus 40,000 times 12, which is 1.2 million pallets, or 2.4 million movements. So movements are up 50%. Handling actually got cheaper per movement, but 3.6 million times $12.50 is $45 million, against 2.4 million times $15.00, which is $36 million. That ties back to the exhibit.
Now the segment profit. Revenue is $25 per pallet-month, so long-stay brings in 300,000 times $25 times 12, which is $90 million, and short-stay brings in $30 million. Handling splits as 1.2 million movements times $12.50, $15 million for long-stay, and 2.4 million times $12.50, $30 million for short-stay. The other $60 million of cost works out to $150 per pallet-year, so $45 million and $15 million. Long-stay makes $90 million minus $15 million minus $45 million, which is $30 million. Short-stay makes $30 million minus $30 million minus $15 million, a loss of $15 million. The key insight is that short-stay customers fill a quarter of the space but cause two thirds of the movements, and the bundled price never charges them for that.
On what Ridgeway could do, I'd group the ideas into three buckets. First, pricing: a fee per movement, a minimum stay, or rates that fall as the stay gets longer. Second, operations: a fast-turn zone near the docks or cross-dock lanes so a short-stay pallet costs less to move, and batching inbound and outbound trucks. Third, customer mix: refill space with long-stay producers, and renegotiate or exit the worst short-stay contracts. The biggest risk is that distributors leave, so I'd want to know when their contracts renew and what competitors charge for handling.
So my recommendation to the CEO is to unbundle handling from storage. Keep the $25 storage rate and add a fee per movement for short-stay customers. The break-even fee is $15 million over 2.4 million movements, which is $6.25, so a fee a little above that would turn the segment profitable and, if volumes hold, take Ridgeway to just over $30 million, above the $24 million goal. The main risk is losing distributors, so I'd roll the fee out at contract renewals, start in one warehouse, and line up long-stay producers to take any space that frees up. Next steps are to check competitors' handling fees, map contract renewal dates, and pilot a fast-turn zone to bring the cost per movement down further.
Why this answer works
Find the driver, not just the line
Knowing handling labor rose is half the answer. The case turns on what drives it: movements, which grew 50% while pallets stored stayed flat.
A cheaper unit cost can still mean a bigger bill
Cost per movement fell from $15.00 to $12.50, yet the bill rose because volume of movements rose faster. Always split a cost into rate times volume.
Bundled prices hide unprofitable customers
When one price covers two services, customers who use more of the unpriced one can lose money. Segment profit shows it.
The phrases that do the work
“Since revenue is flat, my hypothesis is that the problem is on the cost side”
Hypothesis from the facts. Using the flat revenue to point at costs saves time and shows the interviewer where the case is going.
“Handling labor should follow how often pallets are moved, not how many sit in storage.”
Cost driver. Naming the driver of the cost line is what unlocks the case.
“That ties back to the exhibit.”
Sanity check. Reconciling the math to the $45 million in the exhibit shows the candidate checks their own numbers.
“short-stay customers fill a quarter of the space but cause two thirds of the movements”
The so-what. Turning the math into one plain sentence is what the CEO will remember.
Common mistakes on this case
- 1Stopping at 'labor costs went up, cut labor' without asking what drives handling labor.
- 2Treating handling as a fixed cost shared by pallets stored, which hides the short-stay segment's loss.
- 3Forgetting that each pallet is moved twice, which halves the movements and the handling per segment.
- 4Recommending a higher storage rate for everyone, which punishes the profitable long-stay producers.
- 5Recommending a fee without sizing the break-even of $6.25 per movement or naming the risk of distributors leaving.
Now run this case out loud
Soreno's AI interviewer gives you this case, shows each exhibit when you ask, follows up on your math and scores each part.
Questions people ask
Is Ridgeway Cold Storage a real company?
No. Ridgeway Cold Storage is an invented client, and every number is case data written for practice. The numbers reconcile, so you can check your math against the solution.
How long does this case take?
About 30 minutes out loud, the length of one interview case. It is rated medium.
How should I use this solution?
Try the case first. Read the prompt and the facts, write your structure and work the numbers, then compare each step with the walkthrough and the model answer.
Can I practice this profitability case out loud?
Yes. Soreno's AI interviewer runs this case with you, shows the exhibits when you ask, follows up on your answers and scores each part.