Biz020 Burger Heaven Case solution

ccscshirley · 发表于 2006-4-10 17:28

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Role and Issue: the fast food restaurant was unprofitable
Options: close the restaurant or operate it

Corporate Management: mystery shoppers- in order to test customer service;
      future-focused marketing approach in a remarkable restoration
      of the franchisees’ confidence in the management abilities of the
      parent company.

Implication / KSFs: Word of mouth is important in this small town

PEST
Political:
Economic: during the recessionary time people spend more money on fast food and
         spend less money on fine dining. United States has experienced recession
         since 2001.
Social: - 50% of people spend their money in fast food industry, which has a growing
   trend
- Even in recession, people still spend money on fast food, cheap.
- “value pricing” and discounting popular menu items
- “partnering their brands”, whereby two or more fast food chains operated out
      of the same location in order to share the costs such as shared rent, employees,
      and storage and production space.
- Social trend towards a fresh, healthy, tasty and different product, and the pace
   of the fast food industry
Technological:

Customer analysis
Target market: historically, age 18-34, tasty meal, good services, good services, good employees, a good smile, and expand their menu, a healthy style.

Competitive analysis
Direct: other fast food chains
Strength: new ideas,
Weaknesses:

Indirect analysis
Strength:
Weakness: improve service; make their contribution to the community in order to
      Attract more local customer, put more signs on the highway

CANs
Strengths-KSFs Weaknesses- KSFs
Finance Poor finance situation; disappointed, 7% decrease in sale when the industry is growing at 3.5% (2000)
Marketing Have done a lot of promotion Ineffective and insufficient national advertisement, less on discounting its feature products in advertising.
Operations Drive through sales; Similar to other competitor; no differentiation
HR

Competitive advantages
- location; highway; brand recognition; they are the only big fast food company in the small town; located between three towns
- this small town (population 3000) was part of Portage Country (population 148,000)

Sustainability/ Barriers to entry
- good brand backed up with good service, good and healthy food

1. Close restaurant and sell
- pro/cons: too many closure in this company; they still have fixed cost no matter the restaurant is open or not; close now may be not pre-mature; summer will be the peak of the year; if they close the store now, they cannot experience any benefit from this summer and  the growth in the industry

- Valuation - which methods are applicable?
Net book value = Asset – Liability (Regular value- $881,000)
(If they close the restaurant, they will not have any sales-----not sale no projected income statement)????????????????????????????????
- We can not the economic appraisal???????????????

Asset Cost Factor Appraisal Value
Land $99,000 Given $150,000
Site Work $114,000 -------- ----no future value
Building $349,000 Given $250,000
Kitchen Equip. $154,000 50% $77,000
Décor $25,000 25% $6,250
Franchise fee $65,000 No value- ------intangible cost
Signage $20,000 10% $2,000
Legal fee $15,000 No value ------
Pre-opening $30,000 No value ------
Real estate fee $10,000 No value ------
Total cost $881,000 $485,250

Liability March 30, 2000 Now
Loan (land) $562, 000 $562,000-($3122,22/month * 33months)=$458,967
Loan (equipment) $319,000 $819,000-(3797.62/month * 33months)= $193,679
Total Liability $881,000 $652, 645

Total Economic Appraisal $485,250-$652,645= ($167,395)
Implication: ……Current Net Book Value= Current Asset Value- Original Liability

2. Continue the operations and sell
- Pros /cons: they will have cash in-flow; summer is coming; summer-peak time;
   Continue to lose money
- Valuation
“Want” $50,000 profit target…is this possible?
1. Currently, each $1 in revenue has $.70 variable cost and therefore $.30
2. What is our breakeven revenue? (Breakeven=Total Fixed cost / UC)
Unit Contribution= Price- Viable cost
Total Fixed Cost in 2000= $233,121/ $.30= $777,070
Total Fixed Cost in 2001= $255,684/ $.30= $852,280

3. What is our breakeven revenue with $50,000 profit target?????????????
Year= (total fixed cost + profit target / unit contribution)
2000= ($233,121 + $50,000) / $.30= $777,070
2001= ($255,684 + $50,000) / $.30= $850,280

- Projected income statement for the 8monthe period May1 – December 31, 2002
Assumption 2002 projected 2003 projected May - Dec
Sales Inc 5% from2001 $373,720 (footnotes15) $548,442 $588,609 $392,406
COGS Same sale% as 2001-30.3% $165,552 $178,349 $118,899
Gross Profit $383,280 $410,260 $237,507

Controllable Op. expense Same %2001-38.7%virable $218,098 $227,792 $151,861
Other Op. expense Same%:147,461/12*8(fixed) $144,408 $147,461 $98,307
Op. Profit $20,774 $35,008 $23,339

Other income Same $ as (2001/12)*8 $2,290 $2,748 $1,832

Administrative expense
Group Insurance Same $ as (May)/ 8*12 $7,487 $7,811 $5,207
Interest expense $52,526 $39,723 $30,612
Mgnt services $43,264 $43,878 $29,252
Employees $4,489 $3,331 $2,221
Total Admin Exp. $107,766 $94,743 $67,292

Net Profit (loss) before tax $-56,987 $-42,121

Earning before income tax: capital intensive; multiple revenue in order to determine the value of this firm like pharmaritial industry

Valuation-with negative earnings
- Multiple can be based on revenue- see www.bizbuysell.com
- Classic fast food restaurant
Price / Sales = $400,000/ $550,000= .73
Valuation= $548,442 * $.73= $400,362

What is our breakeven revenue with $50,000 profit target
2000= (total fixed cost + profit target / unit contribution)

Start new marketing efforts
Pros: join community service and involvement; motivation; reward employees in order    to re-store employees’ enthusiasm; baseball team; unique conditions: highway
Cons:

Decision and Action Plan
- no matter what, it appeared to McCormich that the restaurant would be unprofitable
- However, he recommended that operations continue because it was the “lesser of two evils”
- He was optimistic about HHC’s new product and marketing initiatives
- McCormick and Patterson agreed to monitor the restaurant for the next few months for the next few months, and if sales didn’t improve, they would sell as soon as they could find a buyer

Darren · 发表于 2006-4-17 12:10

支持LZ一下！

:d

nightknight · 发表于 2007-10-25 16:15

非常支持! 感谢搂主,对留学生的无限帮助! 谢谢你!

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