Biz020 Burger Heaven Case solution

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

# A$ m, c/ A! z1 wCorporate Management: mystery shoppers- in order to test customer service;
; [. r' j! x6 Y2 v9 J' b                            future-focused marketing approach in a remarkable restoration
- H$ g# t  @" ]$ I: u                            of the franchisees’ confidence in the management abilities of the
                            parent company.
; n8 `/ O4 l' ], W5 d) Z: P
% `" P: ~6 W) P% iImplication / KSFs: Word of mouth is important in this small town

PEST
Political:
5 T, e7 R" e; C' n% }$ SEconomic: during the recessionary time people spend more money on fast food and
9 l7 D* `" D4 g% f. j, l               spend less money on fine dining. United States has experienced recession
/ B7 K8 e0 m7 L' d* v               since 2001.          
5 n" ?, a& {0 h1 T. p" `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.
6 a, ^* o2 [8 X6 a4 j* a" J! k9 ~  I        - “value pricing” and discounting popular menu items
        - “partnering their brands”, whereby two or more fast food chains operated out
0 X8 P7 m; |# G% A            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
& _1 S) e+ A$ ?# r3 O2 jTechnological:

4 D/ F  l2 T+ o; m) _Customer analysis
  N) V& {. b0 I: d; Z" ?Target market: historically, age 18-34, tasty meal, good services, good services, good employees, a good smile, and expand their menu, a healthy style.

- v, J3 O9 R' C, N8 bCompetitive analysis
Direct: other fast food chains
        Strength: new ideas,
        Weaknesses:

Indirect analysis
        Strength:
0 m( n. ]3 N9 M% E, [6 }        Weakness: improve service; make their contribution to the community in order to
                      Attract more local customer, put more signs on the highway
. ]$ ~7 ~7 O( b. {
3 I0 B6 O5 o/ r6 j/ v5 F. M% lCANs
, U( F+ Z1 K/ R% o- L: T        Strengths-KSFs        Weaknesses- KSFs
Finance                Poor finance situation; disappointed, 7% decrease in sale when the industry is growing at 3.5% (2000)
) {5 `1 ^. r) PMarketing        Have done a lot of promotion        Ineffective and insufficient national advertisement, less on discounting its feature products in advertising.
  [8 z4 Y& q6 v) C: tOperations        Drive through sales;         Similar to other competitor; no differentiation
' |+ n5 Y3 u( u/ ~" VHR               

Competitive advantages
. X. m$ Y5 ?& P+ Q$ q( v5 T-        location; highway; brand recognition; they are the only big fast food company in the small town; located between three towns
6 e# E+ }) K2 _. ^* q" b+ G4 Q7 Z-        this small town (population 3000) was part of Portage Country (population 148,000)
$ s. ?* ^" [, j" r# I. F
Sustainability/ Barriers to entry
0 k% |" \+ u$ X  R, G3 w-        good brand backed up with good service, good and healthy food
6 k3 r7 M+ R* ?7 m0 _& b
1. Close restaurant and sell
, \2 ?* d4 \, E( c; _; F  P, p-        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)
" R/ ^8 V. s* N(If they close the restaurant, they will not have any sales-----not sale no projected income statement)????????????????????????????????
-        We can not the economic appraisal???????????????
: @) S( d. T  F" v' ?# A3 b; X# c
) H( c2 e3 w( W' VAsset        Cost        Factor        Appraisal Value
- L) i  Z( M8 E+ Q+ ?4 ZLand         $99,000        Given        $150,000
Site Work        $114,000        --------        ----no future value
Building        $349,000        Given        $250,000
" r! ~( N$ O. r, ^Kitchen Equip.        $154,000        50%        $77,000
Décor        $25,000        25%        $6,250
5 f+ o. r: r% }# F: WFranchise fee        $65,000        No value-        ------intangible cost
0 w% r! q% ^+ ySignage        $20,000        10%        $2,000
Legal fee        $15,000        No value        ------
( S- ]& m" k) J. {/ b1 z  @, bPre-opening        $30,000        No value        ------
' X8 v; R& [* @/ gReal estate fee        $10,000        No value        ------
Total cost        $881,000                $485,250
  v6 f" E" p; o9 z                       
$ I- H$ _- J: m# a4 pLiability        March 30, 2000                Now
7 Y& |& l' z! l+ X- PLoan (land)        $562, 000        $562,000-($3122,22/month * 33months)=$458,967       
" F5 W3 `9 Z" i3 i. f* xLoan (equipment)        $319,000        $819,000-(3797.62/month * 33months)= $193,679       
. h9 v6 Q/ P& {4 R4 k1 J1 n2 XTotal Liability         $881,000                $652, 645
                       
* q/ ?2 @* p; e- ^/ M; \" A, HTotal Economic Appraisal                        $485,250-$652,645= ($167,395)
4 w% Q1 L4 b1 H& YImplication: ……Current Net Book Value= Current Asset Value- Original Liability

2. Continue the operations and sell
. D" l# U2 Z- K$ }-        Pros /cons: they will have cash in-flow; summer is coming; summer-peak time;
  ]( D  Y, {- {( R: S5 R4 Q       Continue to lose money
-        Valuation
“Want” $50,000 profit target…is this possible?
3 Q! k6 x1 u7 J) P: F1.        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
. V; D- m  r: a; ^0 N/ O
3.        What is our breakeven revenue with $50,000 profit target?????????????
0 q0 n( ]% f; l" C4 h% QYear= (total fixed cost + profit target / unit contribution)
0 x5 E8 b- q; D5 v9 g' m2000= ($233,121 + $50,000) / $.30= $777,070
2001= ($255,684 + $50,000) / $.30= $850,280

8 p  ?! ?! T3 u/ G9 j, Z       
& w" U* Y, W7 J: e/ u# f* x3 Y-        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
' {# m" ]2 x  Y, U+ _3 |5 eCOGS        Same sale% as 2001-30.3%        $165,552        $178,349        $118,899
, H7 D+ b9 J% s0 V- Y  iGross 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
- f5 X2 k. I; ?( [) tOp. Profit                $20,774        $35,008        $23,339
8 |) k4 d2 W! j1 W3 U9 y                               
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
! G1 H2 O; P4 @- t. U" h: F& _Interest expense                $52,526        $39,723        $30,612
3 y/ P& ?  Q+ V; }Mgnt services                $43,264        $43,878        $29,252
- f( |7 w3 ~% p) J  N/ i' ZEmployees                $4,489        $3,331        $2,221
+ o$ x6 N0 l$ `! u* Y! D1 BTotal Admin Exp.                 $107,766        $94,743        $67,292
                               
0 e' R. X9 G# Y3 J1 yNet Profit (loss) before tax                        $-56,987        $-42,121
2 _7 C- Q% c! m: K* S: }
& N* O% V# u. j9 _1 X

/ M- m* q5 V+ c$ rEarning before income tax: capital intensive; multiple revenue in order to determine the value of this firm like pharmaritial industry

; H: @5 t; u; I, J9 D2 EValuation-with negative earnings
+ h% k. x. ]' ]2 p+ x-        Multiple can be based on revenue- see www.bizbuysell.com
: M) r# w6 T5 Y' r& M0 T-        Classic fast food restaurant
Price / Sales = $400,000/ $550,000= .73       
Valuation= $548,442 * $.73= $400,362
0 H, a3 ?* X* j1 ~& J. q2 s# @
What is our breakeven revenue with $50,000 profit target
7 ?& y5 v- k1 k/ M2000= (total fixed cost + profit target / unit contribution)
/ Z+ P% N* |7 g7 }& u9 E, b
% k0 d1 o, K% d4 ?6 L
6 [0 V% {) p6 d) ~! G2 D       

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:

& \, D2 g+ f2 h
4 t9 A; M7 s, B1 iDecision and Action Plan
-        no matter what, it appeared to McCormich that the restaurant would be unprofitable
" J6 n) k( T2 S: _-        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

支持LZ一下！

:d

nightknight

非常支持! 感谢搂主,对留学生的无限帮助! 谢谢你!