C ulvers Oper ati ng Strategy The basic operating strategy Culvers employed when it opened in 1984 remains the same strategy it uses today. Culvers advertises that its food its butter burgers, custard, cheese curd is made fresh to order, which deviates from the typical fast food concept where preprepared hot foods are assembled after the customer places an order. While this approach means a delayed order delivery time at Culvers, management feels the customersatisfaction with the food quality outweighs the delay. Additionally, other aspects of Culvers operating strategy, such as their timing of entry, target market, and product, contribute to their overall business model

Three years after opening, Culvers was approached with a franchising request to open another restaurant in nearby Richland Center. Culvers agreed, setting up a loose licensing agreement where they assessed no fees or royalties. This structure turned out to be a costly mistake as the franchisee walked away from the business less than a year later. My first franchise experience wasa failure, Culver recalled. Due to this experience, Culvers took three years to craft standard franchising procedures that still form the basis of the Culver Franchising System, Inc. In an article by Combs and Castriovani published in 1993 on franchising strategy, the authors state how Culvers went wrong with their first franchise attempt, A local franchisee has two strong incentives for maximizing the present value of the franchise. First, a franchisee often has a large proportion of personal wealth invested in a single unit. Second, in exchange for a franchise fee and sales royalties, the franchisor relinquishes residual claim on profits to the franchisee. This makes the franchisee motivated to maximize profits because after they pay the franchise and royalty fee, all money goes back into the franchisees pocket. Culvers first franchisee did not invest his own money and was not required to pay royalty fees. When Culvers gave franchising another go, they chose the town of Baraboo, a town that supported a middle to upper-middle-class population. There was a golf club as well as a good location for a restaurant near the state park and Lake Wisconsin. Plenty of traffic passed through the location from the highway along with seasonal tourists visiting Devils Lake State Park and Lake Wisconsin. The new location was only 17 miles from the original Culvers in Sauk City, making it easy to use the same sources for ingredients while supporting the local farm community. Business at the Baraboo site soon doubled, and with brand recognition established locally, Culvers then expanded to the nearby cities of Madison and Milwaukee. Following their success in Baraboo, strict requirements for Culvers franchises were created to deal with the real estate locations and site specifications. Though current requirements have evolved over the years, they are still quite specific as to what types of cities and towns are suitable for a Culvers franchise as well as the exact site specifications (such as 1. Site with good visibility from all angles. Locations at significant intersections are preferred. 2. Ability to build up to 4500 square feet 3. Proper zone for drive-thru and parking. The site selection criteria that every single franchise site must obtain official approval from Culver Franchising Systems, Inc. before they can go ahead with the purchase. Even the speed limit at the site front is limited to 35 miles per hour (which is the speed limit of cars running in the city or crowded area in the US). The Culvers procedure for franchising is not unique, but it is dissimilar to many other franchises. Culvers has a requirement that owners of franchises must actually work in the restaurant. Culvers expects nothing less than full-time, hands-on engagement from our owner-operators. As an owner-operator, youll work in the restaurant with your team to ensure excellence in execution because that is key to delivering the hometown hospitality and delicious food Culvers is famous for. Also, all owner-operators must complete an intense 16-week training program where they are required to learn every position in the restaurant including the most critical position of custard maker. Each owner-operator is trained how to make one of Culvers most signature dishes from scratch which is how it is made in every location, every day. During this training session, they also teach you how to open your own Culvers. Another requirement for new franchisees is to host a Culvers opening team where they work with the franchisee and their new hires for one week prior to opening as well as the first two weeks after opening to ensure everything is being done to Culvers high specifications and every guest leaves with a smile

Most franchises have fewer criteria for the required training, requirement to actually work in the franchise, set-up requirements, or approval of new locations. Most of the criteria found in other franchises centers solely around the initial investment capital as well as ensuring a certain distance from other locations. There is no focus on the amount of time a franchisee actually works in the business nor are there many 4-month training programs for new franchisees. For example, the McDonalds corporate website lists three criteria for acquiring a franchise: down payment financing and ongoing fees. This is a different franchising operation than Culvers with different priorities. Timing of Entry and Target Market While the first Culvers opened in the mid-1980s, true expansionary efforts did not begin until the mid-1990s when Culvers opened the first location outside of the state of Wisconsin. Culvers growth has been slow over the past 30 years, but this has been by design. Craig Culver kept growth slow to ensure that each franchise implemented the same quality of product and customer service and the franchisees shared the same values as the founders. Culvers executives focused their decision to move into any community with an analysis of a potential franchisee and the specifications of the target market. Culvers locations perform best in communities of average to slightly above average incomes. Preference is given to locations within the communities where at least 10,000 cars pass every day, where there is weekend tourism or travel, and where the restaurant can cater to a business lunch clientele. Additionally, Culvers has promoted an image to consumers as a family restaurant. They sponsor community groups or events, offer kids night promotions, and promote agriculture and the Future Farmers of America organization. Managing a Product Line in Different Region Culvers maintains that their ButterBurger and frozen custard is a signature combination. One industry analyst has noted that their product combination allows Culvers to occupy an odd niche in the market: because about one-third of the chains sales come from frozen custard revenues, the model may be difficult for competitors to reproduce due to challenges with franchising frozen custard. In discussing frozen custard, George Culver said, you have to be so hands on. Making custard is almost an art. The owner had to be there all the time, and you couldnt replicate it. Culvers continues to train its owner-operators in the craft of custard-making, which upholds Culvers uniqueness in menu offerings. Culvers menu is diverse, offering traditional fast food items such as burgers, fries, chicken sandwiches, onion rings, as well as regional-specific Midwest items, such as cheese curds and frozen custard. For those unfamiliar with these Midwestern delicacies, frozen custard is often described as more decadent than ice cream because in addition to real cream, eggs give it a thicker, smoother texture and richer flavor. The cheese curds sold at Culvers are cheese bites coated in a batter and deep-fried to a golden brown creating a crunchy outer coating with a melted cheesy core. To gain acceptance of its menu beyond the Midwest, Culvers controlled growth, beginning in Dallas, Texas in 1997. Texas was a big test for Culvers products due to differences between traditional Texas cuisine and Midwestern fare. The expansion was mildly successful, and soon after a second location opened in Dallas and a third in Houston. There are now 12 Culvers in Texas: four in Dallas four in Houston two in Austin one in San Antonio and one in Kerrville. However, compared to other states, Texas has not been the most successful expansion site for Culvers. Rather than continuing to expand to states closest to the Midwest, Culvers management decided to try expanding into two states farther away where many Midwesterners choose to retire: Arizona, and Florida. The first opened in Peoria, Arizona, a suburb of Phoenix in 2007. There are now 16 Culvers in and around Phoenix with an additional 11 scattered throughout the state for a total of 27 locations. In Florida, there are now 38 Culvers locations and an additional six opening shortly. This is the highest number of any state outside the Midwest and Florida is the state slatted for the most growth. Culvers attributed the success of their expansions in Arizona and Florida to the word-of-mouth advertising: residents had been customers of Culvers prior to retiring and moving and they were ready to patronize the chain in their new home. According to a news interview with Craig Culver during the grand opening for one Florida restaurant, Culvers parents were seasonal residents in Lee County, and he remembers long road trips driving south from Wisconsin before I-75 linked the regions. Southwest Florida is filled with cheeseheads, Culver said, making it the ideal location to open up shop. There are so many Midwesterners here that know our name, Culver said. In another article in the newspaper, Tampa Bay Times, which interviewed Teresa Brydon, a redevelopment director in Largo, Florida, Brydon recalled that when she was first contacted about Culvers interest in adding a franchise in that area, she wasnt familiar with the chain. But there were people in the office from the Midwest who knew it and immediately got excited. At another Culvers launch in Florida, the real estate developer attributed Culvers rapid success in Florida to word-of-mouth advertising. I think word-of mouth will spread pretty quickly, Cain said. Theres a reason why theyve had such phenomenal success. Based on successful operations in Arizona and Florida, Culvers has continued expansion into South Carolina, Kentucky, and Colorado and other locations with proximity to an existing Culvers location or a high retired population, to slowly expose consumers to its regionally-specific menu items. Culvers management recognized the difference in the rate of expansion and success between states like Arizona and Florida compared to Texas. Now, their plans for future expansion occur in states with more Midwestern retirees. The lower rate of expansion and success in Texas has been attributed to the lack of local knowledge about Culvers as a brand as well as a difference in regional tastes. As of now, there are no plans for further expansion into Texas. C ulvers Branding While Culvers is branded on fresh, made-to-order burgers and frozen custard, it became difficult to differentiate the restaurant on quality of ingredients alone. With the strategy of food delivered with a smile and a thank you, Culvers upholds the importance of a high level of customer service for its business model. Employees are required to smile, offer greetings and welcome to Culvers, use please and thank you for requests, and in response to a customer saying thank you, Culvers employees must reply My pleasure. In an interview, Craig Culver said, Its the pleases, the thank yous and the smiles. If you attach those to service, youre going to be a force. I dont care what youre selling. You could be selling bleach and youre going to sell a lot of it.

Culvers reached 611 locations in early 2017, and plans to continue growth in a steady, methodical manner of approximately 40 new locations per year. They have no immediate plans to alter their 30-year-old business model, focused on quality ingredients, strict franchisee selection, and a focus on customer service. While Culvers Franchising System, Inc. remains a private company and their full financials are not released, the company netted $28.5 million on its operations in 2015, up $3.6 million, or 14.7%, from its 2014 net income. Based on opening more locations and what appear to be strong net income measures, is Culvers strategy working? Compared with Five Guys, a burger franchise that also focuses on fresh, quality, made-to-order burgers the Culvers growth may appear sluggish. Five Guys is the fastest-growing franchise in the US they started franchising in 2003, and now have over 2,000 locations including 27 in the UK as well as others in Canada, Ireland, Kuwait, Saudi Arabia, and the United Arab Emirates. The net income for Five Guys in 2016 was $57.68 million. Culvers, however, has been named number 1 in franchisee satisfaction, as well as the top franchise of 2016 by the Franchise Business Review. Culvers remains a private, family-owned company and management wants it to stay that way. While plans are to continue operating in a similar fashion as before, Culvers still faces challenges. Firms operating in the limited-service restaurant or fast food industry continue to compete on price because differentiation in the industry is difficult. Additionally, upholding a high level of customer service is subject to personnel resources, and continued expansion results in less oversight of the owner-operators. Finally, the domestic market has become saturated with restaurant options, resulting in some restaurant chains expanding internationally. Culvers may have to alter future strategies to react to these challenges to ensure viability in the restaurant industry.

Answer all Questions

2.1) Do the SWOT analysis for the Culvers Burger in this case.

2.2) What aspects of the Culvers current business model would you change to fit with new generation consumers, the current COVID crisis, and High Inflation problem in the USA?

2.3) What aspects of the Culvers current business model would you maintain, because they seem to fit with new generation consumers, the current COVID crisis, and High Inflation problem in the USA?

2.4) Suppose you are a business consultant of Culver, and during this COVID crisis time, Culver wants to create a new business from the existing Burger business that he has. Give one possible business that Culver can expand with your support reasons. Make sure that you can logically link the new proposed business with the existing support facilities of the Culver Burger business