QUICK CASE | TEACHING GUIDE
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Pure Indulgence:
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Growth At All Costs?
FEBRUARY 20, 2025 HBP NO. 8765
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Introduction to Quick Cases
Quick Cases are short scenarios that position students in a real-life, decision-making moment. They center
on a focused learning objective and are intended to encourage active student engagement and
participation. This teaching guide offers a suggested approach that will likely inspire alternate ways to use
this material; please share with us how you used this Quick Case here.
Synopsis
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Students are placed in a consultation with Elvin de Bruyn and Gary Crossley, the founders of Pure
Indulgence, an artisanal chocolate and gin manufacturer. They are debating whether to expand or
consolidate operations, weighing financial performance against social responsibility in the context of
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South Africa’s high unemployment rates. The scenario centers on understanding financial performance
metrics, such as return on invested capital (ROIC) and economic profit, and how to balance meeting these
goals with long-term growth and ethical considerations.
Learning Objectives
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• Understand the relationship between business growth and financial performance metrics,
particularly ROIC
• Analyze the trade-offs between growth and financial sustainability using metrics such as invested
capital and economic profit
• Develop recommendations that balance both financial and societal impact
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Sample Lesson Plan
Quick Cases can be used as homework assignments or in-class exercises, depending on your course
objectives and preferences. Whether students read through them in or out of class, we generally
recommend the following timeline:
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This teaching guide was prepared by Barry Van Zyl of Vipin Sreekumar of Henley Business School Africa for the sole purpose of aiding
classroom instructors in the use of Pure Indulgence: Growth At All Costs? (HBP No. 8764). It provides analysis and questions that are
intended to present alternative approaches to deepening students’ comprehension of business issues and energizing classroom discussion.
Harvard Business Publishing Quick Cases are developed solely as the basis for class discussion. They are not intended to serve as
endorsements, sources of primary data, or illustrations of effective or ineffective management. Although based on real industries and
despite occasional reference to actual companies, this Quick Case is fictitious and any resemblance to actual persons or entities is
coincidental.
© 2025 Harvard Business School Publishing. All rights reserved.
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QUICK CASE
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1. Introduce the Quick Case (2 minutes)
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2. Students read the Quick Case (10–20 minutes)
3. Debrief with the class (20–30 minutes)
For tips on how to teach Quick Cases in an online setting, please refer to the article “Teaching Quick Cases
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in an Online Setting.”
Potential Approaches to the Discussion
Preparation: Briefly introduce key financial concepts (ROIC, economic profit) before the discussion to
ensure students understand them.
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Group discussion: Divide the class into small groups and give them 15–20 minutes to analyze the data and
form recommendations.
Class discussion: Facilitate a larger group discussion focusing on both the financial and social implications
of the decision.
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For new educators: Walk students through each question, ensuring they understand how financial metrics
like ROIC, growth, and economic profit function in business decisions. Emphasize the tension between
financial outcomes and social responsibility. Encourage students to recognize the real-world balance
businesses must strike between financial sustainability and ethical/social concerns, especially in
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challenging economies like South Africa’s.
This approach ensures that each discussion question is supported with clear guidance on what educators
should look for and encourage, as well as how to steer the conversation when needed. It provides a
structured and clear framework, making it easier for educators—especially adjuncts or those new to case-
based teaching—to guide the discussion effectively
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Questions to Ask Students
1. Does the increase in ROIC from 20% to 21% justify closing underperforming stores?
Why or why not?
Look for the following: Students should recognize that while closing underperforming stores raises the
average ROIC, economic profit decreases. Even the underperforming stores with 14% ROIC are above
the 10% hurdle rate.
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Encourage the following: Prompt students to consider both short-term financial gains (improved
ROIC) and long-term effects on the business’s sustainability, especially the potential for job losses,
reputational damage, and decreases in the company’s ability to achieve its goal of social responsibility.
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Redirect if needed: If the discussion focuses solely on financial metrics, remind students to explore
other implications, such as reputational damage, job losses, and internal morale. Ask, what impact
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would store closures have on brand reputation and employee morale?
2. What are the broader implications of closing stores for Pure Indulgence beyond
financial metrics?
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Look for the following: Responses should go beyond the financial data and address social and ethical
implications, specifically job loss, reputational risk, and employee morale.
Encourage the following: Guide students to consider how Pure Indulgence’s brand, which operates in
a socially conscious market, could be affected by layoffs and store closures. Discuss potential long-term
effects on customer loyalty and public perception. Ask the class to share insights into possible root
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causes that could be driving the lower ROIC in certain stores, to be better equipped to suggest the
possibility of operational improvements.
Redirect if needed: If students focus too much on the economic outcomes, steer them towards
discussing the non-financial consequences, asking, how would this decision affect Pure Indulgence’s
standing in a tourism-driven and socially conscious city like Cape Town?
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3. Given the difference in priorities between Elvin and Gary, what should you prioritize?
Why?
Look for the following: Students should offer a balanced analysis that acknowledges both founders’
perspectives. The best responses will propose a compromise, suggesting Pure Indulgence attempt
operational improvements in underperforming stores before it purses expansion or closures.
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Encourage the following: Ask students to explore how Pure Indulgence could balance financial
performance with De Bruyn’s commitment to social responsibility. Encourage solutions that maintain
business sustainability without compromising societal impact. Suggest that the founders should
discuss what an acceptable ROIC is. It seems like they haven’t had that dialogue.
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Redirect if needed: If the class leans too heavily towards one founder’s viewpoint, ask, what risks do
you see if you focus only on financial performance? What about if you pursue only social
responsibility?
4. What medium-term strategy would you recommend for Pure Indulgence?
Look for the following: Responses should suggest a balanced approach between optimizing existing
stores and exploring growth opportunities, such as selective expansion or export channels.
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Encourage the following: Push students to think in terms of phased growth—investing in high-
performing stores, improving underperformers, and carefully expanding. Ask them to discuss how
exports could provide a revenue stream without overextending domestic operations.
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Redirect if needed: If the conversation focuses too much on either rapid expansion or consolidation,
ask, what would be the risks of expanding too quickly without optimizing current operations? What
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might happen if the company remains too small in a competitive market?
5. What brand and reputational factors should be considered before Pure Indulgence
decides to close or expand stores?
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Look for the following: Student answers should touch on Pure Indulgence’s brand identity as an
artisanal, socially responsible business. Students should consider how growth, contraction, or job cuts
could impact customer loyalty, community perception, and overall brand strength.
Encourage the following: Push the conversation towards long-term brand management. How can Pure
Indulgence maintain its artisanal, high-quality image while balancing growth? Suggest that students
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consider the impact on stakeholders beyond shareholders, such as employees and customers.
Redirect if needed: If students focus too much on short-term financial outcomes, ask, how important is
brand reputation in the artisanal sector, especially for a company in Cape Town’s tourism-driven
market?
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Additional Materials: Key Terms
Return on invested capital (ROIC): A metric used to analyze how efficiently Pure Indulgence uses invested
capital to generate returns. We calculate the return the company makes above its cost of capital, which
diagnoses profitability and the ability to create economic value.
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ROIC is calculated as the company’s operating profit after taxes, divided by the total amount of capital
invested in the business (both equity and debt). Where
• Net operating profit after taxes is the profit Pure Indulgence generates from its operations after
taxes, excluding any financing costs.
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• Invested capital includes equity and debt—in other words, the total capital invested by
shareholders and debt holders.
Interpretation
A ROIC of 20% would indicate that for every rand of capital invested in Pure Indulgence, the company is
generating a return of 20 cents. If this ROIC is higher than Pure Indulgence’s cost of capital (10%), then
the company is creating value for its investors. Conversely, if the cost of capital is higher than 20%, it
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would suggest that the company is not using its capital efficiently.
Hurdle rate: The hurdle rate is the minimum rate of return that Pure Indulgence needs for an investment
to be worthwhile. It represents the company’s cost of capital, including for both debt and equity, adjusted
for risk. In the context of ROIC, the hurdle rate is a benchmark, and for an investment to create economic
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QUICK CASE
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profit, the ROIC should exceed this rate. If the ROIC falls below the hurdle rate, the investment will
destroy economic value.
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The hurdle rate can vary depending on factors including the company’s weighted average cost of capital
(WACC) and project-specific risks. In the artisanal gin, chocolate, and lifestyle sectors, brands aim for a
ROIC in the 10–20% range, benefitting from strong brand equity and high-margin products.
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Interpretation
If Pure Indulgence’s hurdle rate is 10%, this means any investment must generate a ROIC above 10% to
create economic profit. If a project shows a ROIC of 14%, it would be acceptable, since it exceeds the
hurdle rate. However, a ROIC below 10% would mean the investment is not covering the cost of capital,
thereby destroying economic value.
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Example for Pure Indulgence
The example uses invested capital of R12.5 million, ROIC of 20%, and hurdle rate (WACC) of 10%.
Calculate economic profit:
Economic profit = (ROIC - WACC) × invested capital
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= (0.20 - 0.10) × 12 500 000
= 0.10 × 12 500 000 = R1 250 000
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Interpretation
With an economic profit of R1.25 million, Pure Indulgence is generating value above the required return,
as its ROIC (20%) exceeds the hurdle rate of 10%. The positive economic profit confirms that Pure
Indulgence is using its invested capital efficiently, yielding a return greater than the cost of capital.
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This Teaching Note is authorized for use only by SUMAN MODWEL, Ecole des Ponts Business School until Mar 2025. Copying or posting is an infringement of copyright.
Permissions@[Link] or 617.783.7860.