real-life project: caracas arepa bar, 2004 section b group 6 claudie chaumette eirikur jenson...
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Real-Life Project:Caracas Arepa Bar, 2004
Section BGroup 6
Claudie ChaumetteEirikur JensonHang-Tung Li
Majugo KamuntuLuís Viana
Miguel Yanes
Caracas Arepa Bar, 2004
1.Company Overview2.Strategic Diagnostic3.Development Plan for the Business
4.Critical Assumptions
TimingApril 2003:Arístides and Maribel come up with the idea
July 2003: Birth of Caracas Arepas BarCaracas Restaurant LLC (Limited Liability Corporation)Applause by NY media (NYT)
Nowadays: CongestionBusiness propositions
Products and ServicesFood: Arepas: traditional Venezuelan dish Others: cachapas, empanadas,
tequeños or chichaDistribution: Diner with 20 seats, recreating
Venezuelan typical experience Take away/deliveriesExtras: Artisanal Venezuelan products on sale
Restaurant Performance in USA We analyze the restaurant companies listed
in the NYSE & NASDAQ and compare to Caracas Arepa Bar performance.
Profitability Restaurant Industry
% (1)
Caracas Arepa Bar
%Gross margin %
27.3 71.8
Operating margin %
12.6 25.3
Net profit margin %
11.2 15.8(1) Source: Reuters
USA Growth Trends in the Restaurant Industry The year 2004 will mark the 13th consecutive year
of real sales growth for the restaurant industry
EATING PLACES (2)’03-‘04Change
’03-’04 Real
Change
’01-‘04Compound
Annual Growth
Full-service restaurants 4.6% 2.1% 4.1%
Limited service restaurants
3.9 1.5 3.5
Commercial Cafeterias -11.1 -13.5 -10.2
Social Caterers 5.0 2.6 4.3
Snack and nonalcoholic beverage bars
8.1 5.7 9.3
TOTAL Eating Places 4.4% 2.0% 4.0%(2) Source: National Restaurant Association
NYC Restaurant Industry Facts (3)
NYC restaurant industry turnover $9 billion
Employing over 160,000 individuals There are about 17,132 restaurants in
the NYC area The average cost of a dinner is $37 Every year around 200 new restaurants
are opened in NYC, and similar number closed during the same period
(3) Sources: Zagat & State of the US Tourism Industry
Industry Competitors
Rivalry Among existing firms
Suppliers
Potential Entrants
Buyers
Substitutes
Porter five forces
Cost, Speed and Value
Low cost Cost similar to fast food lower than middle
range restaurants Speed
First to market with Arepas The food quick to serve
Value The food is fresh Superior service Ethnic ambiance
Customer
Company Competitor
Value/
Speed Value/Speed
Cost/Speed
Main competences: Product innovation Customer service Product manufacturing /
Manufacturing management Supply Chain Management
Internal Diagnosis
Strengths: The founders The product Know how Exclusive
relationships with key suppliers
SWOT Analysis
Weaknesses: The founders The product The facilities Few barriers to
entry
SWOT AnalysisOpportunities: Product First mover
advantage Media attention External offers of
capital New restaurants Catering Franchising
Threats: Economic outlook Competition Manage hype
Development planVision Establish Caracas Arepa Bar as an alternative to
the selection of restaurants in the USA Establish Venezuelan arepas as an alternative in
the American gastronomy Mission Open up two Caracas Arepa Bar restaurants during
the next five years in New York City If 1. is successful, then franchise Caracas Arepa
Bar in every major city in the USAValue Proposition Bring fresh, homemade style Venezuelan food,
enveloped in a friendly Venezuelan ambiance at a price that compares to fast food
On the Mission
Organic Expansion (medium term) Two restaurants in the next five years Ideal features: 10 tables (2 more),
separated space for take-outs, very small kitchen
On the Mission
Franchising (medium-long term) (3)
Expansion with lower investment Flexibility Entrepreneurial resources Motivation
Deficient replication of original concept
(3) Sources: KOTLER (2003) and GANT (2002)
Caracas Arepa Bar 1
Caracas Arepa Bar 2
Caracas Arepa Bar 3
Caracas Arepa Bar 4
Arepas Factory
On the MissionFranchising (medium-long term) – a possible supply model
Value Engine
Market Segmentation:
Age: between 21 and 40 years old (70%) Income level: income level of 30,000 to
45,000 US$ a year (40%) Way of distribution: take out/ deliveries
and inside diners (50% each)
Expected predominance of value buyers
Value Proposition Design To bring fresh, homemade style
Venezuelan food, enveloped in a friendly Venezuelan ambiance at a price that compares to fast food.
Stress: in value, providing that cost and speed are at acceptable levels
Value Engine
Generic Value Proposition
Value Engine
Naked Product:
Fresh Venezuelan
food Naked Product,
with Options: Take-out,
delivery, eat-in
Augmented Product:
Atmosphere, service
Value EngineValue Position / Cost Position
Matrix
VALUE LEADER VALUE AND COST LEADER
INFERIOR POSITION
COST LEADER
Superior
Inferior
VALUE POSITION
Inferior Superior COST
POSITION
Value EngineValue Position / Price
Matrix
SUPERIOR VALUE
INFERIOR VALUE
High
Low
VALUE POSITION
High PRICE
Low
Forecasting Assumptions
Two new restaurants in the next five years New restaurants would be 30% bigger The price per transaction would be kept at
historic base, US$ 10 Gross margin, labor cost, repair and
maintenance, and other costs assumed as variable costs and based on historic patterns
Investment required: US$ 90k for each restaurant
Caracas Arepa Bar LLCActual Performance
Caracas Arepa Bar LLC(P&L Analysis)
-2
0
2
4
6
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16
US
$ (
00
0's
om
ite
d)
0
10
20
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Net Income
Sales
GrossMargin
Forecast AnalysisCaracas Arepa Bar LLC
Forecast Analysis
-
20
40
60
80
100
120
140
US
$ (
00
0's
om
itte
d)
-
200
400
600
800
1,000
1,200
1,400
1,600
Net CashFlow
Sales
GrossMargin
… Forecast
Cash Flow Analysis, NPV & Adjusted IRRCaracas Arepa Bar LLC
Six years Forecast & Financial Analysis
(US$ 000's omitted)
Cash Flow Analysis Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Sales 411 547 913 1,040 1,390 1,310 1,310
COGS 116 154 258 299 412 388 388
Gross Margin 295 393 655 741 978 922 922
Total Other Costs 231 318 542 618 833 796 796
Cash Flow from Operations 64 75 113 122 145 126 126
Depreciation 20 50 50 60 30 30 -
Taxable Income 44 25 63 62 115 96 126
Income Tax (25%) 11 6 16 16 29 24 31
Net Cash Flow 53 69 97 107 116 102 94
Investments….. (60) (90) (90)
NPV $141
Expected return 20%
Adjusted IRR 21.4%
Alternative project return 8% … Forecast
4. Critical Assumptions
Some factors may undermine the effectiveness of the strategy:
Replication: possible? Management resources: feasible stretching? Human resources: able to find desired
profiles? Able to train and motivate? Volatile market: arepas a mere ephemeral
fad? Competition: will they also grab the idea? Real estate market: able to find adequate
facilities?