CHOCOHOLICS

Two cousins, Krissy Karklins and Ingo Pavelson decided to take their passion for chocolate and turn it into a profession. Both were recent graduates of the Ryerson hospitality program, where Ingo demonstrated a passion for cooking while Krissy, a competent chef in her own right, enjoyed the managerial side of restaurant operations. After graduation they decided to open a unique chocolate-themed restaurant, where all products (from appetizers to mains to desserts and even beverages) incorporated chocolate in some way. Their first restaurant opened in their hometown of Haliburton in 1998 to rave reviews. Two years later, they established a second restaurant in Gravenhurst.

By 2008 they were confident enough in their business model that they were ready to try their luck in a larger market. The third store opened in Brampton in April 2008. But no business is without its struggles - 2009 was a particularly difficult year. Ingo took an extended sabbatical from the business to deal with personal matters after the passing of his father. When an early spring thaw resulted in flooding damage to both the Gravenhurst and Haliburton stores in mid March, Krissy was left to manage the required repairs and renovations. To make sure the stores would be ready for the busy summer season, it was decided to close for renovations. The Gravenhurst store reopened in late May, but the Haliburton store saw its first customers back only on June 10^th.

With the difficult times behind them, Ingo and Krissy were ready to open another store, this time on Hess St. in downtown Hamilton in 2010 and another in Cambridge in 2011. By 2012 it was clear to the pair that the Hamilton market was unique in many ways (including a lack of demand for chocolate-based foods other than donuts) and the decision was made not to renew the lease when it came up for renewal at the end of the year.

The loss of the Hamilton store was a disappointment, but by 2014 they were ready to try again. This time they were going all out - a store right in the heart of Mississauga. With access to a market this large, they suspected this store would either be a tremendous success or an absolute failure.

The quarterly sales figures for each store for 2007-2015, as well as the total combined sales for all stores are provided in Table 1. Data is also available for the first quarter of 2016, but only partial data (April and May) is included in the quarter 2 results as June's totals haven't yet been realized. Krissy and Ingo have hired your team to provide them with a sales forecast for the rest of 2016 and all of 2017. In your initial conversations with them (over chocolate martinis and chicken mole), Ingo explains they would also like to learn as much as they can about the nature of their business and the relative performance of each of their stores.Later (over a shared slice of chocolate ganache torte accompanied by a generous shot of Godiva liqueur) Krissy reveals that she and Ingo have been agonizing over the question of whether or not to open up another store in 2017, and if so, where.

You politely decline the offer of a chocolate flavoured cigar to seal the deal, but agree to have your team showcase a report for Krissy and Ingo based on the information they have provided.

Analysis

Your task is to:

• fully analyze the situation using line graphs and simple linear regression (time index) and multiple regression (time index and binary variables for seasonality), and
• to present the results of your analysis along with your resulting recommendations in a brief memo to the owners.

Your conclusions may be based on one or several regression time series analyses. These should be included in the appendices of your report and should be BRIEFLY documented:

• a brief statement of why the model was chosen for evaluation,
• the model result (equation),
• summary comments on the quality of the model results.

Your goal in the analysis is to try to learn as much as you can about the business environment and Chocoholics' degree of success, in order to help you better advise the owners.

Ideally, the owners would like as much guidance as possible on:

1. How each restaurant is likely to perform;
2. An indication of the influence of seasonality on the business in general and on a store by store basis;
3. Potential trouble spots in terms of anticipated under-performing establishments.
4. The advisability of their opening another store in 2017 and (if recommended) guidance regarding where such a store should be located.

Deliverables

Your report will consist of 2 parts. The first part is a memo to the owners, written in language they will appreciate and focused on forecasts, insights and recommendations arising from your analysis.Your goal is to provide the owners with a practical and meaningful document they can use to guide them going forward.

The second part is an Excel document containing:

1. a line graph showing the sales of each individual restaurant over time
2. a line graph showing the total sales for Chocoholics over time
3. the linear regression models you built to understand the business. Clearly label each model. Summarize your conclusions regarding the quality of the model in a SINGLE STATEMENT directly in the regression output. While you may find the Regression Templates useful for your personal analysis, DO NOT submit templates for each model - provide only a SUMMARY CONCLUSION regarding the model quality considering all relevant aspects of model quality.

Report - MEMO

The body of the report consists of a memo to the owners outlining the findings of your analysis, insights about the business based on your analysis, and suggestions to the owners about how they should proceed. This is your main communication tool - use it effectively.

Your report should include:

• an ANNUAL sales forecast for the business for the next two years (perhaps under more than one scenario),
• insights or comparisons regarding the individual stores,
• comments and suggestions regarding business strategies (including possible expansion plans).

You are free to (and may wish to) use graphs, tables or other visual representations to support your arguments. These may be placed as appendices at the end of the memo and must be referred to in the body of the memo. As in any case report, the focus should be on analysis and conclusions. It does not need to (and should not) contain a summary of the case facts - these are well known to both the owners and the reader.

Remember that the owners are not experts in regression analysis. That is why they hired you. Your memo should be written in terms that the owners will understand and appreciate. Focus on business issues, not quantitative methods, in the body of your report.

Appendices - SCATTER PLOTS AND SIMPLE LINEAR REGRESSION MODELS

The appendices are the place to provide the graphs and models you used to develop your conclusions. You should include ONLY the models relevant to your conclusions, clearly but succinctly labeling and documenting each model. Indicate what model you built (what variables were included and what was being predicted) and provide a short evaluation of the model quality (a one sentence overview after having considered the relevant measures of model evaluation). You can assume the audience for the appendices is well versed in statistical analysis and terminology.

=================== DATA ===================

Sales Data For Chocoholics
	(thousands of dollars)
Year	Quarter	Store 1	Store 2	Store 3	Store 4	Store 5	Store 6
2007	1	403.75	216.3
	2	353	274.575
	3	494.25	369.6
	4	407	311.325
2008	1	462.15	257.25
	2	406	266.175	218.5
	3	510.8	393.75	249.5
	4	427.7	336	405.5
2009	1	522.9	290.85	374.5
	2	221.85	111.325	240
	3	463.75	325.25	299.5
	4	510.8	346.5	495
2010	1	560.7	337.05	486.5
	2	492.65	373.275	280
	3	638.9	488.775	329.5	296.5
	4	553.15	460.425	584	317
2011	1	595.35	404.775	617.5	358.5
	2	583	433.125	283	305.5
	3	662.8	576.975	313	269.5	193.5
	4	571.0588	451.5	525.5	246	236
2012	1	589.8517	416.85	696	201.5	155
	2	560.7	437.325	370	157	129.5
	3	672.25	645.75	375.5	130.5	209
	4	587.9	510.3	841	68	261
2013	1	650.5	437.85	765.5		176
	2	626.5	485.625	405.5		141
	3	693.95	742.875	461.5		234
	4	555.0094	576.45	757		284.5
2014	1	643.65	459.375	861.5		220.5
	2	572.3	539.175	337		166.5	205.5
	3	704.2	854.175	387.5		278.5	223
	4	621.6	562.48	908.5		338.5	408.5
2015	1	672.55	528.22	882		257.5	578
	2	612.8	569.887	370.5		203	365.5
	3	712.75	849.76	465		319	386.5
	4	630.25	523.84	1011.5		379	601
2016	1	689.23	551.36	896.2		272.1	621.3
	2 *	356.2	398.77	212.5		170	298
* Note: 2016 Quarter 2 sales consist of only April and May results (June has not yet been incorporated into the totals).