Where Larkfield should invest $60M
Chapter 1The answer
Capital plan · Oct 2026
Convert 24 stores to Fresh Kitchen instead of new builds.Convert, don’t build.
Ostrander Hale’s advice to Larkfield’s leadership: spend $48M of the $60M budget on the conversion, repaid in 3.3 years, and hold $12M in reserve.
Our recommendation to Larkfield Grocers is to convert 24 existing stores to a Fresh Kitchen format rather than open new ones. The conversion costs $48M of the $60M capital budget and pays back in 3.3 years. The remaining $12M stays in reserve. The next slides show the pressure on the business, how the options compare, the pilot evidence and the plan.
But the margin behind it has been shrinking
The situation
Larkfield keeps $2.40 of every $100 it sells, down from $3.60.Margin fell $1.20 per $100.
Sales are large, but the margin is thin and still falling. A thin margin cannot absorb a poor investment.
- of operating margin lost in three years
- −1.2 pts = 2.4% − 3.6%
- from 3.6% to 2.4% of sales
- operating margin today
- 2.4%
- annual sales
- $1.18B
- stores
- 62
Larkfield Grocers sells $1.18B a year across 62 stores. Three years ago it kept $3.60 of every $100 as operating profit. Today it keeps $2.40, a fall of 1.2 percentage points. A margin this thin leaves little room for a poor investment, so the choice of where to put $60M matters a great deal.
So where the $60M goes matters
Chapter 2The case
The options
Of the three ways to spend the capital, conversion pays back fastest.Conversion pays back fastest.
All three come out of the same $60M budget, and doing nothing is the baseline. We rank them by how quickly each earns the capital back.
| Option | Capital | Profit a year | Payback | Biggest risk |
|---|---|---|---|---|
| A. Open 10 new stores | $60M | $7.5M | 8 yrs | Sites take years to open |
| B. Convert 24 to Fresh Kitchen | $48M | $14.4M | 3.3 yrs | Shoppers may not trade up |
| C. Add home delivery | $36M | $3.0M | 12 yrs | Delivery margins are thin |
| D. Do nothing | $0 | $0 | Never | The margin keeps sliding |
Consultancy estimate. Profit is the yearly lift at full run-rate; payback is capital ÷ yearly profit.
There are three ways to spend the capital. Opening 10 new stores costs $60M and adds $7.5M of profit a year, paying back in 8 years. Converting 24 stores to Fresh Kitchen costs $48M, adds $14.4M a year and pays back in 3.3 years. Adding home delivery costs $36M, adds $3.0M a year and takes 12 years to pay back. Conversion wins on speed and size.
So here is what the winning option is
The format
Fresh Kitchen puts prepared food where the aisles used to start.Prepared food at the front.
A converted store keeps its aisles but changes what shoppers meet first.
- 01
A kitchen at the entrance: meals, bakery and grab-and-go made in view of shoppers.
- 02
A tighter range: fewer packaged lines make room for fresh and ready-to-eat food.
- 03
Local teams: chefs and fresh managers run each kitchen, not head office.
Fresh Kitchen changes what shoppers meet first. A kitchen at the entrance makes meals, bread and grab-and-go food in view of customers. A tighter range of packaged goods makes room for fresh and ready-to-eat food. And local chefs and fresh managers run each kitchen, so decisions stay close to the customer rather than at head office.
And a pilot already shows it works
The evidence
Pilot stores sold 1.8× as much prepared food in a year.Pilot sales up 1.8× in a year.
| Category | Value |
|---|---|
| Oct 2025 | $47,888 (implied) |
| Nov 2025 | $50,282 (implied) |
| Dec 2025 | $52,797 (implied) |
| Jan 2026 | $55,436 (implied) |
| Feb 2026 | $58,208 (implied) |
| Mar 2026 | $61,119 (implied) |
| Apr 2026 | $64,175 (implied) |
| May 2026 | $67,383 (implied) |
| Jun 2026 | $70,752 (implied) |
| Jul 2026 | $74,290 (implied) |
| Aug 2026 | $78,005 (implied) |
| Sep 2026 | $81,905 (implied) |
| Oct 2026 | $86,000 |
Average of the three Fresh Kitchen pilot stores.
Monthly values implied from $86K and 5% growth; only $86K is reported.
- growth a month, for 12 months
- 5%
- stores in the pilot, averaged
- 3
The three pilot stores now sell $86,000 a week of prepared food each. They have grown 5% every month for twelve months, which means weekly sales are about 1.8 times what they were a year ago. Only today's figure is reported; the earlier months on the chart are implied from the growth rate, and the chart is labelled to say so.
If asked
Three stores is a small sample, so Wave 1 is the real test.Wave 1 is the real test.
The pilot proves the idea, not the average store. The first 8 conversions are picked to look like the other 16, in size and neighbourhood, and Wave 2 money is released only if they match the pilot.
So here is what it pays back
The economics
$48M buys $14.4M a year of profit, so it pays back in 3.3 years.Pays back in 3.3 years.
Simple payback: capital divided by yearly profit, at full run-rate. The next card tests a weaker case.
- years to earn the capital back
- 3.3 = $48M ÷ $14.4M
- $48M ÷ $14.4M a year
- of the $60M budget
- 80%
- more profit a year at maturity
- $14.4M
- held in reserve
- $12M
Converting 24 stores costs $48M, which is 80% of the $60M budget and leaves $12M in reserve. At full run-rate the converted stores earn $14.4M more profit a year. Divide the capital by the yearly profit and the programme pays back in 3.3 years. That is the simple payback at full run-rate; the next card tests a weaker case.
If asked
Even with a third less profit, conversion still beats new stores.A bad case still wins.
| Category | Value |
|---|---|
| Convert, as planned | 3.3 yrs |
| Convert, a third less profit | 5 yrs |
| New stores, as planned | 8 yrs |
Consultancy estimate. Payback is capital ÷ yearly profit; the weaker case uses $9.6M a year.
So here is how we stage it safely
Chapter 3The plan
The plan
Two waves convert all 24 stores in 18 months and pause at a gate.24 stores in 18 months.
Capital for Wave 2 is released only when the first 8 stores match the pilot.
- Now: Board approves
- Upcoming: Wave 1: 8 stores
- Upcoming: Gate review
- Upcoming: Wave 2: 16 stores
- Upcoming: All 24 converted
The plan runs for 18 months. The board approves in the last quarter of 2026. Wave 1 converts the first 8 stores in the first quarter of 2027. A gate review in the third quarter checks whether those stores match the pilot. Only then does Wave 2 convert the remaining 16 stores, and all 24 are done by the second quarter of 2028.
If asked
Our recommendation changes if Wave 1 fails to match the pilot.If Wave 1 misses the pilot.
We carry on if
- Wave 1 stores grow like the pilot
- Fresh margins stay above the store average
- Shoppers come back for the meals
We pause or switch if
- Wave 1 growth stalls for two quarters
- Conversions run well over budget
- A rival opens a fresh format nearby
And the gate also limits how much is at risk
The safeguard
Only $16M is released on day one; Wave 2’s $32M waits for the gate.Only $16M at risk on day one.
Each dot is $1M of the $60M budget. If the gate review passes, $48M is released and $12M stays in reserve.
- 1648Released to stores
- 4412Held back
60 $1M blocks of capital, one dot each
| After the board vote | After the gate review | |
|---|---|---|
| Released to stores | 16 | 48 |
| Held back | 44 | 12 |
- released for Wave 1
- $16M
The plan limits what is at risk. Wave 1 is 8 of the 24 stores, which is $16M of the $60M budget, so only that amount is released after the board vote. If the gate review shows Wave 1 matching the pilot, $48M in total is released and $12M stays in reserve. The other $32M of the programme waits for that evidence.
So we need three decisions this month
Decisions needed by 31 October
Three decisions this month start the clock on a payback of 3.3 years.Three decisions this month.
- 01
Approve: the $48M programme, released in two waves.
- 02
Fund: Wave 1, the first 8 stores, now.
- 03
Name: one executive who owns fresh food and the gate review.
We need three decisions by 31 October. First, approve the $48M Fresh Kitchen programme, to be released in two waves. Second, fund Wave 1, the first 8 stores, now so they can open in the first quarter of 2027. Third, name one executive who owns fresh food and the gate review. Together these start the clock on a payback of about 3.3 years.