Consulting Industry Overviews

Airline Industry

Summary of Business: Provide transport services for individuals or commercial freight. Typically provide different tiers of service dependent on price point

Market/Industry: Low-cost carriers (no frills service). Consolidations, lots of of M&A. Competitive market as its easy to compare prices

Customers: Individual customers (leisure/vacation), corporate customers (business) or travel websites (3rd party vendors)

Distribution Channels: Telephone, Online (direct or 3rd party), or Directly at airport

Competition: Established domestic carriers in the US, compete over price. Have local base of strength where profitability on certain routes is higher. International destinations used to attract customers

Profitability Overview: Revenues = ticket sales, baggage and services, food and beverage, credit card fee. Costs = Fixed: plane purchases/leases, some employees, gate slots, airport royalties Variable: fuel, hourly employees, food and beverages

Consumer Packaged Goods (CPG) Industry

Summary of Business: Manufacture and market a wide variety of goods and household products. Grouped into food and beverages, toiletries and cosmetics, and small appliances

Market/Industry: Success based on successful branding and marketing, which creates different segments and unique selling points. To maintain profits, CPG companies form alliances. Investments in R&D and technology for better customer experience

Customers: Individual customers, wholesalers (Costco), large retailers (Walmart or Target), convenience retailers (CVS, Walgreens, 7/11)

Distribution Channels: Retail, wholesalers, online & direct

Competition: Majority of brands and product is owned by a small number of global conglomerates with subsidiaries. Proctor & Gamble, Unilever, Kellogg’s, Frito Lay, Coca-Cola, Pepsi, L’Oreal, Colgate

Profitability Overview: Revenues = volume of goods sold, premium pricing often, product portfolio mix Costs = Fixed: marketing budget, R&D, salaried employees Variable: cost of manufacturing each unit (COGS), labor, transportation

Energy / Utilities Industry

Summary of Business: Vertically consolidated and are involved from extraction of oil to refining, distribution, and shipping. Products include oil, gas, biodiesel, nuclear, and renewable. Heavily regulated or owned by federal/state government

Market/Industry: Many countries trying to reduce dependence on fossil fuels, environment and sustainable energy sources are a concern to most companies, governments with long-tern sustainability goals, OPEC retains control of the market, and fossil fuels still account for a majority of energy

Customers: Governments, corporates, individuals. Residential consumers typically pay more given high infrastructure costs required to distribute. Governments and corporates often purchase in bulk ahead of time to hedge at lower costs

Distribution Channels: Retail and wholesale, depending on customer, telephone, and online

Competition: History of M&A in 1990s and 2000s, ExxonMobil, Royal Dutch Shell, BP. Utilities competition is somewhat limited, high barriers to entry, low but stable profits, regulated monopolies

Profitability Overview: Revenues = demand for electricity from population growth, higher wealth levels globally Costs = Fixed: high investment in infrastructure to generate and maintain, power plans, labor, and distribution networks

Financial Services Industry

Summary of Business: Includes commercial, retail, and investments banking, and types of asset management. Retail and commercial banks provide deposit, credit cards, loans, and payment services. Investment banking tends to be institutional advisory, corporate transactions and financing

Market/Industry: Consolidation of many large global banks. Recession of ‘08 brought many more mergers and alliances, high levels of regulation from government, lower profitability levels, and risker activities are curtailed

Customers: Individuals require retail banking services vs corporations and governments that will utilize commercial and investment banking. Financial products for institutions are far more complicated than retail

Distribution Channels: Individuals now bank online, using live chats. Face-to-face is still popular and increased use of ATMs to carry out the services. Corporates more often have ongoing and active relationship. Banks will often use credit cards and other credit services to deepen relationships

Competition: Bulge bracket include large global and universal banks like JPM, Citigroups and BAML, specialized investment banks include Goldman Sachs and Morgan Stanley. Boutique banks tend to be smaller, regional, and more specialized

Profitability Overview: Revenues = net spread between interest rate on loans and deposits, fees from advisory Costs = overhead like costs of branches, online platforms, insurance, security

Manufacturing Industry Overview

Summary of Business: Any company that has mechanical, chemical, or technological processes to turn raw material into a different finished product. Includes aerospace, automobile, chemicals, electronics, industrial, medical, and biotech

Market/Industry: Traditionally large part of US economy, and size has waned in recent years as services has grown. Higher cost structure in US compared with some developing countries. Cyclical with strength of economy, stalwart conglomerates still backbone of industry. Outsourcing, lean production, and six sigma are concepts to eliminate waste/cost.

Customers: Automotive: individuals or company use; Metals: aerospace, automotive, heavy machinery manufacturing; Plastics: medical industry, consumer packaged goods; Infrastructure: governments/utilities

Distribution Channels: Retail: any industry where individual is the end consumer (apparel, automotive, electronics). Wholesale: where end consumer is another company (chemical, pharmaceutical, semiconductor, heavy machinery manufacture, infrastructure)

Competition: GM, Ford, Toyota, VW, BMW, Boeing, Airbus, GE, Samsung, Sony, Phillips

Profitability Overview: Revenues = variety of underlying consumers (volume high or low) move to emerging markets. Costs = labor and machinery for transformation (possible outsourcing), quality control, inventory management, storage and primary raw material

Media and Entertainment Industry Overview

Summary of Business: Includes everything from print to audio, movies, video games, and online. Sub-sectors have a great deal of overlap but exist mainly to inform (online news, print newspapers), entertain (moves and online sites like YouTube) and interact (Facebook, Linkedin, Yelp)

Market/Industry: Trend to digitalization and the internet negative for traditional print and media companies, requiring large investment to online. Google still dominating search but high competition for “clicks” and online attention, new competition for online services and social media

Customers: End users or individuals seen as customer but also have become part of the product. Ratings on websites like Yelp and reviews on Amazon are used by media companies to sell advertising. Advertising companies are target market for most media companies

Distribution Channels: Print (traditional newspapers, magazines, posters), but now with online/mobile substitutes, Television (cable, streamed via the internet, online content only (Netflix), mobile options), Online (news channels, social media website, blogs, networking platforms)

Competition: Traditional media conglomerates like Comcast, Fox, Time Warner, BSB, New tech and search firms like Google, Apple, Facebook competing for online attention and advertising revenue to create new online platforms

Profitability Overview: Revenues = advertising, subscriptions, fees for exclusive content and traffic to other websites Costs = infrastructure for website design and maintenance, cloud storage, app development Fixed Costs = overhead for studios, marketing budgets, royalties for content / actors / performers

Pharmaceuticals Industry Overview

Summary of Business: Research, develop and sell drugs / vaccines / medicines for the cure and prevention of human disease. Initially protected by patents, then generically produced by copy cats. Generics gifted formula and only need clinical trials, R&D already been done

Market/Industry: Profitable industry, billions spend on R&D and the recouped by patents and successful adoption by customers. Significant consolidation in recent years, large firms need to split high costs, pricing is a key component of pharma — who will pay for the cost of drug development?

Customers: Doctors and medical practitioners who prescribe drugs to patients, insurance companies who pay for a majority of the cost, and end patients and consumers

Distribution Channels: Retailers can sell over the counter (OTC) products and prescriptions - Walgreens, CVS, Prescription drugs dispensed at licensed pharmacies and hospitals, and large distributors / intermediaries sell to end consumer also

Competition: Diversified companies include Johnson & Johnson, Wyeth, Merck (non-diversified). Success of these companies comes down to how successful their products are, how many people adopt them, and side effects and costs of alternatives

Profitability Overview: Revenues = size of potential customers, efficacy of the drug in terms of premium, length and strength of patent obtained, competitor or substitute products currently available Costs = R&D, threat of generic rivals, sales and marketing to doctors and hospitals

Private Equity Industry Overview

Summary of Business: Purchase and investment in firms that are not publicly traded. Private investors provide financing and cash to target companies, normally in exchange for an element of operational financial control

Market/Industry: Highly cyclical, success dependent partly on strength of the economy and availability of credit. Pure play PE shops now venturing into other forms of alternative investment like credit and hedge funds

Customers: Investors (Limited Partners) in PE firms can be wealthy individuals, pension, and insurance funds, asset managers, governments, sovereign wealth funds and other institutional investors

Distribution Channels: LBO (borrow debt and invest equity to control a company, typically exit after 5 years) VC (earlier stage, give cash in exchange for equity, more actively involved with investment Mezzanine (shorter term higher yield debt and financing containing equity-like options) Source (direct to larger institutional investors, indirectly via banks and wealth managers)

Competition: Depends on time in the cycle, industry is now reasonably mature thus large PE firms compete for deals. Firms often co-invest to split financial burden and risk of investment. Large firms include KKR, Blackstone, TPG, Carlyle, Bain Capital

Profitability Overview: Revenues = “2 and 20” - typically an annual 2% fee on assets committed to PE firm, then 20% share in profits that underlying investments hopefully generate Costs = salary and renumeration to PE firm employees and partners, research, and diligence