Case 015Forecasting and modellingCore

Run a whitespace analysis for Tamrika Pharmacies: 900 stores in 60 cities, mature cities at one store per 60,000 urban people, and 150 target cities holding 170 million urban people. How many stores can the network hold?

Viking Global InvestorsNew York · 2024

The situation

Tamrika Pharmacies runs 900 pharmacy stores in 60 cities. In its 20 most mature cities, with 30 million urban people, it has 500 stores, one per 60,000 people, and new stores there now mostly take sales from existing ones. In its other 40 cities, with 40 million people, it has 400 stores, one per 100,000.

Management's target list is 150 cities with 170 million urban people: the 60 where it already operates and 90 smaller cities with 100 million people and no stores. Incomes and prescriptions per head in the 90 new cities are lower than in the mature ones. Tamrika opens about 150 net new stores a year.

Your task

How many stores can the network hold, how much whitespace is left, and how long is the runway at today's pace?

Quick check

The simple answer is 170 million divided by 60,000, about 2,833 stores. What is the biggest thing wrong with it?

Worked solution

Try it on paper, then open one step at a time.

30-second answerThe answer to give first

Room for about 2,278 stores, so about 1,378 of whitespace, roughly 9 years at 150 openings a year. The naive benchmark of one store per 60,000 across 170 million people gives about 2,833 stores and 1,933 of whitespace. Adjusting the 90 smaller cities to one per 90,000 cuts that. The existing 40 underpenetrated cities hold only about 267 more stores; most of the runway is in cities Tamrika has never operated in.

Step 1What is whitespace, and how is it built?

A tea stall owner who knows that one stall thrives per busy street corner can count the corners in a new town and subtract the stalls already there. Whitespace is benchmark density times addressable population, minus stores already open. The benchmark comes from places where the business is mature, meaning new stores there mostly cannibalise old ones; for Tamrika that is one store per 60,000 urban people. The addressable populationThe people who could realistically become customers, here the urban population of the target cities, not the whole country. is 170 million.

The naive answer: 170 million over 60,000 is about 2,833 stores, less 900 open, about 1,933 of whitespace. That is a ceiling, because it assumes a small city with lower incomes supports stores as densely as the richest metro. Split the population by type before applying any benchmark.

Of Tamrika's 150 target cities, 20 are at the mature density of one store per 60,000, 40 are at one per 100,000 and 90 have no stores; the network can hold about 2,278 stores once smaller cities are held to one per 90,000, against about 2,833 on the naive benchmark and 900 today.

Step 2How does splitting the cities change the answer?

The 60 current cities hold 70 million people; at one per 60,000 that is about 1,167 stores, and the 20 mature cities are already there, so the room is all in the 40 underpenetrated cities: about 667 stores against 400 today, 267 more. The 90 new cities, at a lower one per 90,000 to reflect fewer prescriptions per head, hold about 1,111 stores, which is most of the runway. Total capacity is about 2,278, whitespace about 1,378.

City group	Urban people, million	Benchmark	Capacity	Stores today	Whitespace
20 mature cities	30	1 per 60,000	500	500	0
40 underpenetrated cities	40	1 per 60,000	667	400	267
90 new cities	100	1 per 90,000	1,111	0	1,111
Total	170		2,278	900	1,378

Splitting the 150 cities by maturity puts Tamrika's capacity at about 2,278 stores and its whitespace at about 1,378, of which 1,111 sits in 90 cities where it has no stores yet.

Step 3What does the runway mean for the stock?

At 150 net openings a year, about 1,378 stores is roughly 9 years of growth. The quality of that runway is lower than the headline, because almost 81% of it is in new cities where Tamrika has no brand, no supply chain and no proof that stores earn their return. The research step that matters is to find two or three new cities it has already entered and check store-level sales per square foot against mature cities. That turns the 90,000 benchmark from an assumption into evidence.

State the limits of the method: whitespace counts room for stores, not demand for them. Online pharmacy delivery, competitor openings and regulation on who may run a pharmacy can all shrink the effective benchmark over the runway.

Where candidates lose it

The standard miss is applying the mature benchmark to every city and presenting about 1,900 stores of whitespace as fact. The benchmark was learned in the richest cities and does not travel unchanged to smaller ones.

The second is forgetting that the mature cities are already full. Candidates often count whitespace in all 60 existing cities, when the 20 mature ones have none left.

What the interviewer asks next

How would you estimate the right benchmark for a city Tamrika has not entered?
A competitor opens 300 stores in the same 90 cities. How does your answer change?
How would you turn the store runway into a revenue forecast?
What store-level numbers would you ask management for?

Asked at Viking Global Investors, Quantitative Research, New York, 2024 (Wall Street Oasis): How would you perform whitespace analysis

Company names and figures are illustrative.