Read the following scenario and answer the THREE questions that follow.
Sundaram Stores operated in a gated community, situated about 30 Kilometers away from the main town. The store owner Mr. Sundareswaran Pichaimuthu, or Sundaram as he was called by everyone, secured a space in the gated society through a competitive bidding process. The residents’ association, led by Mr. Thangamoorthy Selvaganapathy, selected Sundaram over three other bidders, based on his willingness to pay the highest rent. Desperate to augment his post-retirement income, Sundaram agreed to pay a very high rent, banking on the prospect of generating exceptional revenue from the gated community. Sundaram was awarded the contract to establish the store, with provisions for a review every three years. Feeling elated during the meeting with the residents’ association to finalize the contract, he enthusiastically committed to offering a 15% discount on all groceries and stationary, cementing goodwill and reinforcing the partnership established through the contract. The association was delightedly taken aback by his generous assurance. Sundaram hoped to make up the difference through volume. Although his sales were strong during the initial months, he soon realized that the SUV-owning residents of the gated community primarily made their purchases at large, branded retail chains in the main town. These stores offered deeper discounts, which he could not afford to compete with. However, gradually, Sundaram store became their go-to store for daily essentials and occasional urgent big purchases such as replacing a broken mixer-grinder.
Q1
Decision Making MULTIPLE CHOICE
While reviewing his monthly accounts, Sundaram realized that he was barely breaking even, primarily due to the substantial rent he was paying to the residents’ association. He realized that while his sales were stagnated, the rental costs were contractually scheduled to increase every three years. He was determined to do something to increase his profits.
Which of the following will be the MOST sustainable way to increase Sundaram’s profits?
Answer: E
Stakeholders and criterion: Sundaram (owner) is barely breaking even, sales have stalled and rent will rise every three years. The question wants the most sustainable way to raise profit, i.e. a lasting improvement in margin, not a one-off fix.
Key facts: residents do their big, price-driven shopping at town chains that are cheaper than him anyway. They use Sundaram for daily essentials and urgent purchases. These are convenience buys, where price matters little. So the 15% discount is not winning him volume. It only cuts his margin on sales he would get anyway.
Why option 5 is best: removing the discount and selling at MRP raises the margin on every sale for good, and costs him no customers who are buying for convenience. It also keeps working as rent rises.
Option 1: errands to fetch items from 30 km away add cost and effort for a few occasional orders. It is not a lasting profit source.
Option 2: he won the space by bidding the highest rent, and the contract fixes the increases. The association has little reason to agree, and any cut would be one-time.
Option 3: a 40% discount day cuts margins further, which is the opposite of what he needs.
Option 4: residents already know the only store inside their community. Leaflets do not fix a margin problem.
