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
. Q. J7 d* o, f% P0 d" y+ w$ z5 K  U
9 ]+ `) J$ |' @" y+ L% yCorporate 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
2 i& `+ L8 j3 o4 x/ k" q                            parent company.

& P8 x3 ]2 B% ^7 k' nImplication / KSFs: Word of mouth is important in this small town

1 ~8 O: C9 C" ]' V1 cPEST
0 b! m" U" U$ o3 hPolitical:
" s3 W) Z5 b) I) r5 OEconomic: during the recessionary time people spend more money on fast food and
6 L$ D$ ?) q9 m' q; C' U, V               spend less money on fine dining. United States has experienced recession
' X& X) W$ e2 d7 K% |: L, F               since 2001.          
9 }: X; P: F* r/ s0 `7 Z5 MSocial: - 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
5 Q% l' H- w7 H9 H: t  n4 N. p, X% `            of the same location in order to share the costs such as shared rent, employees,
) O/ v4 @7 h  \            and storage and production space.       
        - Social trend towards a fresh, healthy, tasty and different product, and the pace
; }1 \" S% i: s% A$ U4 ?' T* z           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.
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Competitive analysis
Direct: other fast food chains
        Strength: new ideas,
        Weaknesses:

9 p0 Q' m  t. A2 E1 W$ N6 e% vIndirect analysis
        Strength:
        Weakness: improve service; make their contribution to the community in order to
, l! Q" z% B2 D                      Attract more local customer, put more signs on the highway

8 o: l& P# N( Z( H, ECANs
- J$ u2 ?" V; T) D# r( M+ J1 f        Strengths-KSFs        Weaknesses- KSFs
Finance                Poor finance situation; disappointed, 7% decrease in sale when the industry is growing at 3.5% (2000)
# l$ Z% r' U& u/ W7 x8 L4 UMarketing        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
+ U/ r  E0 M; g4 G; {- ~3 lHR               

& ~0 V2 F) Y, A, WCompetitive advantages
* X  x! B2 k; s7 U% G# Y% H3 R-        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
4 A+ R" I9 s0 G
1. Close restaurant and sell
. r0 D: k% A+ J-        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

9 ~+ [2 W( \! x5 K-        Valuation - which methods are applicable?
Net book value = Asset – Liability (Regular value- $881,000)
1 M& T9 F+ s- O) S1 x(If they close the restaurant, they will not have any sales-----not sale no projected income statement)????????????????????????????????
, _% i' N9 M% g7 N-        We can not the economic appraisal???????????????

; n# m2 l; ~6 ?" zAsset        Cost        Factor        Appraisal Value
Land         $99,000        Given        $150,000
" w9 H# C1 J6 c  gSite Work        $114,000        --------        ----no future value
Building        $349,000        Given        $250,000
+ H6 b2 K4 C9 ?8 R8 k: {* XKitchen 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        $15,000        No value        ------
9 S- M- K9 ^$ K- FPre-opening        $30,000        No value        ------
Real estate fee        $10,000        No value        ------
Total cost        $881,000                $485,250
( h# D1 e* e0 h                       
Liability        March 30, 2000                Now
$ y! l' F4 g; H2 Z. Y! G/ nLoan (land)        $562, 000        $562,000-($3122,22/month * 33months)=$458,967       
Loan (equipment)        $319,000        $819,000-(3797.62/month * 33months)= $193,679       
5 S+ L/ @) |1 t/ f' o7 E- NTotal Liability         $881,000                $652, 645
) e: B% L! a/ q3 s7 A& h# N                       
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
/ M; j. G! ], h0 j2 ?-        Pros /cons: they will have cash in-flow; summer is coming; summer-peak time;
1 D9 K  a% b" w. r, p       Continue to lose money
-        Valuation
  e% Y- `3 J: e6 j) B" l4 L“Want” $50,000 profit target…is this possible?
+ Q( X. b$ u4 F1.        Currently, each $1 in revenue has $.70 variable cost and therefore $.30
2.        What is our breakeven revenue? (Breakeven=Total Fixed cost / UC)
# P( m/ D) V: B# H5 z- ^Unit Contribution= Price- Viable cost
& _4 i! U% P: P, F" qTotal Fixed Cost in 2000= $233,121/ $.30= $777,070
Total Fixed Cost in 2001= $255,684/ $.30= $852,280

! b7 A& m& j, B3.        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
" v6 b+ Q' H# t/ `# s2001= ($255,684 + $50,000) / $.30= $850,280

       
-        Projected income statement for the 8monthe period May1 – December 31, 2002
) \. U/ ^" t& r, P: l' Q        Assumption        2002 projected        2003 projected        May - Dec
1 J: l( O$ Y7 B7 C- A- |Sales        Inc 5% from2001 $373,720 (footnotes15)        $548,442        $588,609        $392,406
! G' Q3 X' }3 Y$ f% T" ]4 yCOGS        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
$ R+ x  T# q+ J* r7 D9 QOp. Profit                $20,774        $35,008        $23,339
                               
! L$ N7 \% y* R+ R9 B* FOther income        Same $ as (2001/12)*8        $2,290        $2,748        $1,832
7 ^0 R1 G1 Y1 {. V. |                               
( B' g1 x5 [+ W  J( D5 AAdministrative expense                                
+ L" F% y6 a: R: jGroup Insurance        Same $ as (May)/ 8*12        $7,487        $7,811        $5,207
Interest expense                $52,526        $39,723        $30,612
  i! J8 c6 ?8 h' z+ a$ IMgnt services                $43,264        $43,878        $29,252
Employees                $4,489        $3,331        $2,221
Total Admin Exp.                 $107,766        $94,743        $67,292
, E, O* e" i& z5 ]3 M$ j9 Y2 ?" ?                               
. t, S. X5 w: C& X, A+ O/ P/ _* i' HNet 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

0 @$ T6 P3 E5 V/ p2 KValuation-with negative earnings
-        Multiple can be based on revenue- see www.bizbuysell.com
-        Classic fast food restaurant
Price / Sales = $400,000/ $550,000= .73       
& ?/ U# i. [; j' p; [( j& I8 fValuation= $548,442 * $.73= $400,362

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

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" j3 n# ~) g& M
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
' O* S5 ^1 j9 R5 y* zCons:


6 ]" [+ [: u$ F' w. T1 `Decision and Action Plan
) h& o4 r( w  I" O. n8 S" ^& ^3 `-        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”
6 L6 m+ f% \* v) i  v& A-        He was optimistic about HHC’s new product and marketing initiatives
6 A4 |% {* ~6 a4 {-        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！

: S" y* [0 Q" f0 F, h :d

nightknight

非常支持! 感谢搂主,对留学生的无限帮助! 谢谢你!