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CASE It was a regular working day in April'21, when four business partners gathered together for strategy session for their organization: Food for Thought (FFT).
CASE It was a regular working day in April'21, when four business partners gathered together for strategy session for their organization: Food for Thought (FFT). Background: FFT operated a chain of Quick Service Restaurants (QSR) in business localities in the GTA, Mississauga, Brampton, Oakville, Kitchener, Waterloo, and Cambridge. Their first outlet opened in 2007 in Vaughn and then continued to expand to other areas. FFT outlets offered food and beverages for takeout and delivery only. There was no dine in option available. The rapid expansion of food delivery service provided a strong tailwind for FFT. Since their outlets did not require a prominent location, the leasing costs were minimized. The above factors contributed to the success and growth of FFT till Covid struck in early 2020. Most the revenue generated by FFT was from lunch items, afternoon snacks and early evening dinners consumed by clients working in their offices. With 90% of client working from home, the demand for such services almost disappeared overnight. FFT had to downsize its operations, close outlets, and lay off nearly 60% of its workforce. Positive news began to appear in April 21 with the arrival of vaccines in Canada. Both the Federal and Provincial governments expressed confidence of vaccinating a majority of the population by Fall'21 and allow restaurant businesses to function normally by November 21. About business partners Sonia Jimenez (Sonia) is the Senior Vice President- Marketing. She spent over fifteen years with Fortune 500 companies in the Consumer-Packaged Goods sector. She developed multi channel marketing strategies for FFT which led to FFT being positioned as an agile, innovating enterprise. Erin Smith (Erin) was the Corporate Chef of FFT. She spent nearly twenty years with leading hotel chains in Western Canada before taking on the current role in FFT. She displayed exemplary skills at developing new products which contributed to the profitability of FFT. Noah Wiseman (Noah) was the Chief Financial Officer of FFT. He too came from a hospitality background, having worked with leading hotel chains in Toronto. His expertise was in Capital Budgeting and product costing, which worked well in conjunction with the culinary skills of Erin when new products were being developed. Babatunde Jones (Tunde) was the Senior Vice President-Operations. His background was as a General Manager in Fast Food Outlets. With his exemplary people skills and ability to train new hires, FFT was able to hire operations staff with little or no experience and develop them to high performing team members.Resha ping business strategy The four business partners set up their meeting with a view to rerrient their business strategy in the context of changes coming to how work would look like when the economy reopened after the pandemic. The goal was to develop a business model which would be relevant with the hybrid work model which was likely to be the norm once post pandemic recovery takes shape. Sonia began the meeting with a discussion what work would look like in the post pandemic era. Clients of FFT were in all age groups ranging from 25 43 and were ofce workers. Due to their workload theyr preferred to buy food from a Quick Service Restaurant so that they can consume the food as and when their work schedule allowed for. With the hybrid work model, they would be attending ofce two or three days a week and work from home for the remainder. The food consumption pattern would shift from consumption only in the ofcei'prepandemic], to consumption both at ofce and home llpostapandemic]. The question therefore was: how can FFT adapt to this change in consumer behaviour? Erin thanked Sonia for her insight and began her discussion. She pointed out at this time, there was a very short time lag between food being prepared at FFT and being consumed bythe client. The time lag possibly was no more than two hours. As a result, consumers were able to eat freshly prepared food which was packed to retain the attributes of the cooked meal till it reached the consumer. She expressed opinion that the food production process needed a transformation. In addition to the food being prepared and delivered to the client for consumption, there has to be a secondary process where food would be prepared and packed. The packed food would retain its original attributes for 48 hours. Therefore. a client can order two versions of the same meal. One, which she can consume in the ofce within the next two hours and second, the packed version, which can be taken home, kept in the refrigerator, and consumed on the following day. She would come up with a list of menu items which could be cooked and packed. She requested Sonia to explore the possibility of building a new brand based on the packed meals. At this point, Noah tool: over and pointed out that to implement this strategy, the following steps would be necessary: a A new facility, where food preparation and food packaging can happen 0 Benchmarking studies to analyze performance of similar companies 0 Product costing and estimation of manufacturing volume to meet nancial goals 0 Multiechannel marketing of packed food Tunde, pointed out that implementing the above, would lead to several operational issues as well. In order to resolve them, it may be necessaryto incur additional re-d expenses. As a next step, they decided to retain the services of Conestoga Consulting {CC}, a reputed consulting agency. The scope of work for CC would be to develop nancial projections based on the above issues and provide a recommendation as to the best way fonivard for FFT. Appendix Three (CostVolumeProfit Analysis} Objective: Based on the following Contribution Margin Income Statement the consulting group would like to evaluate if adding sales expenses as a fixed cost would be a beneficial strategy. Scenario: Projected Contribution Margin Income Statement Sales volume of -acka-ed food itemslunits} 50,000 Revenue Variable expenses Contribution margin Fixed Expenses S 200.000 Net Operating Income S 100,000 Methodology: The consulting group would assume that all packaged food items sell at the same price per unit. The above model assumes that sales commission is a variable expense and that salespersons are paid for each unit the; sell. In order to incentivize salespersons, the consulting group is proposing that salespersons be hired on salary and not on commission basis. Combine this with additional advertising, the fixed expenses would increase to S 250,000. This would also lead to an increase in revenue to the extent of 50% and net operating income by 25%. Variable expenses would not increase at the same rate as revenue. The group will calculate the breakeven sales under the above scenario and breakeven sales dollars at that level. They will also advise the business partners on potential risks that may arise in this case and recommend if this approach of adding xed cost related to selling is recommended.
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