as it will increase the revenues of the Dollarama stores by increasing the average basket site of the consumers. Increase In consumables - This refers to the product mix strategy where the purpose would be to drive the repeat purchases & increase the basket size. In Canada, consumers are more want-focused unlike in America where they are more need-focused. Here, a great strategy could be that Dollarama starts dry packaged food offering which would only require the shelf space to get displayed. Optimization to the best performance products is also very essential to the new segment over the time. Choosing a slow strategy to introduce such package would allow Bain & Dollarama to control its cost affectively this could also be aligned to Dollarama’s traditional seasonal goods strategy, during the initial period. Improvements in Inventory Management & Payment Options could very well be the strategies to reduce operational costs of labor (in manually taking inventory), monitoring product performances & updating the business as per the needs of customers. Issues, Risks & Recommendations Bain Capital sees capability to double the size of Dollarama to over 600 shops in next 5 years. Bain expects to enhance the EBITDA of Dollarama to over $200-million with the incorporation of new strategies among all 600 stores. There selling at an exit multiple of 11 times will let Bain Capital raise about $2.2-billion in capital. After all the debts are paid, Bain Capital sees its original investment increase more than threefold 1 . Some Issues & risks around the model are: From Dollarama’s perspective Introducing multi-price point strategy could instigate consumers in perceiving Dollarama no longer being a “Value” store or Bain may insist on selling to its competitor which may or may not be in agreement with Larry Rossy. While from Bain’s view- the Asian companies that make all the merchandise sold at Dollarama could raise their prices, or the consumer demographics & market change leading to the crunch in Value retail industry. Also, (acc. appendix section -1 ) there is substantial risk that competition to Dollarama could crop up, & Bain have to suspect some retailer to target a sector that boasts such high margins. Even with a high-risk potential cropping up due to the issues surrounding the leverage buyout where more than $600 million is funded by banks, Dollarma’s well established finances as well as its market position makes it a lucrative Leveraged Buyout for Bain to acquire. As per the appendix section-3 , Dollarama has the secure future cash flows that would yield high returns in the upcoming years. Keeping in mind the Dollarama was able to maintain its gross profit in the previous years also important factor for Bain to consider putting its money in the deal.
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- Fall '15
- Leveraged buyout, Variety store, Bain, Bain Capital