LEE'S DINER[I]

Your company STRATEGIC MARKETING CONSULTANTS is presenting a set of business recommendations to Mark Vaz owner/manager/cook/dishwasher of LEE's Diner. Mark is the third generation in the Vaz family to run the popular diner in downtownSuburbville, Ontario.Sales and profitability at LEE's Diner peaked a decade ago and the competitive landscape inSuburbvillehas undergone a major change. Mark is open to a major business and marketing revamp with the only limitation that the diner's location be retained.

Background:

Lee Vazbought the building and started LEE's Diner in 1945 in her hometown ofSuburbville, Ontario, then population 8,000. Over the next thirty years she built a successful business and raised a family; both the business and the family continued to participate and support the local fastball, soccer and hockey leagues. After Lee died of a heart attack in 1974, her 28-year old son Jerry retired from a career in minor league hockey to take over Lee's Diner. He reinvented the diner to target the sports crowd in Suburbville, which now boasted a population closer to 18,000. Over the next forty-two years Jerry also grew the business, raised a family and watched Suburbville grow to a population of 75,000+. In 2016, Jerry retired from LEE's Diner to oversee his growing real-estate holdings (and growing number of grandchildren) and transferred all ownership, management, cooking and dishwashing duties to his son Mark.

Suburbville now has three Tim Hortons, two Starbucks, two McDonalds, an A&W, a Swiss Chalet, four other fast-food restaurants and a dozen family restaurants, all within 20 minutes of LEE's Diner. Mark studied Business Marketing at Seneca College and has worked in the diner since he was a teenager. Sales and profitability peaked ten years ago and has been slowly declining since. The largest losses have been in the breakfast and lunch traffic and revenues, which have always combined for 80% of the LEE's Diner profitability. The diner is open from 6 a.m. to 9:00 p.m. during the week and from 6 a.m. to 11:00 p.m. on weekends (Friday, Saturday and Sunday).Though LEE's diner has a physically well-maintained interior and exterior, its dcor is stale, and its vibe is flat. Mark realizes that he needs to revitalize his restaurant to survive the fierce competition in Suburbville.

The competitive landscape has been and still is dramatically changing, mostly driven by the Fast Food franchises and the growing "coffee shop culture."The Fast Food/ Quick-Service Restaurant (QSR) industry in Canada is dominated by Tim Horton's.[ii]There is one Tim Horton's for every 9,000 Canadians versus one McDonald's for every 25,000 Canadians and one Starbucks for every 26,000 Canadians.[iii]

According to market research thinktank NDP, visits to restaurants in Canada grew by 10% between 2002 and 2012.Quick-service restaurants (QSRs) attracted nearly two-thirds of food-service traffic in Canada, while full-service restaurants (FSRs) attracted 24% of the traffic. Millennials (18 to 34 years) accounted for most of the restaurant traffic; Millennials visits to restaurants increased by 157 million between 2006 and 2012, while Boomers' (45 to 64 years) and Mature Traditionalists' (65 years and older) visits increased by 241 million.[iv]

NDP classifies the restaurant industry into four segments - Quick Service, Fast Casual, Casual Dining and Upscale.Fast Casual is an emerging new segment that offers better quality food at slightly higher prices to Quick Service restaurants.Players in the 'Fast Casual' segment include Five Guys, Hero Certified Burgers and Mucho Burrito.[v]

Quick-service restaurants account for 79% of breakfast traffic in Canada.One-third of the breakfast traffic comes from drive-thru restaurants.[vi]Tim Hortons took over from McDonald's as Canada's top breakfast destination a year after it introduced breakfast sandwiches in 2007. Consumers are more likely to buy breakfast food at the same place they go for their favourite coffee and both franchises are aware that coffee drives the momentum of breakfast traffic. Second-place McDonald's hit back against the 'Roll Up the Rim' java giant with its popular premium roast coffee and McCafe offerings. McDonald's Canada also recently extended its breakfast hours - but earlier rather than later - from 4 a.m. instead of 5 a.m., to 11 a.m., seven days a week. Two years ago, Tim Hortons extended its breakfast hours until noon all week, including holidays.

Canadians love their coffee and their passion for coffee has driven breakfast traffic at fast food restaurants. A 2015 Euromonitor International study showed that Canada ranked #1 out of 80 countries for the number of litres of coffeeper capita consumed at fast food restaurants.[vii]

Canadian love for coffee has sparked the proliferation of independently owned and family run coffee houses in urban and rural areas.These coffee houses, some with funky vibes, have become community social hubs and meeting places.The coffee houses are differentiated from each other with their unique value propositions.Many of these coffee houses serve breakfast and lunch.Some coffee houses feature occasional live entertainment and events.

The traditional Canadian diner, found in most every town and city neighbourhood in Ontario, has not participated in this growth of restaurant traffic, on the contrary, sales are declining as even the seniors are flocking to Tim Horton's and McDonalds for their morning socializing.

LEE's Diner is still profitable and generating positive cash flow, though much of this is since Mark owns the building and does not charge himself rent. Mark expects to run into cash flow issues within the year and will need to secure equity or debt financing. He is also wondering if he should change the ownership structure of the diner from a sole proprietorship to a partnership. Mark has learned that UberEats and Skip The Dishes is expanding into Suburbville and are looking for food partners.Mark does not have a website for his diner and has no time to develop or manage a social media content marketing strategy.

Though the traditional Canadian diner concept is tarnished, Mark refuses to believe that LEE's Diner is done and knows that he must respond to the changing market forces with a new retail strategy.He is determined to revamp LEE's Diner and reignite its growth.

[i]Case adapted from OCMC Ontario Colleges Marketing Competition retail case study, Georgian College 2014.

[ii]Sturgeon Jamie. "In Canada, a new breed of fast food chains are eating McDonald's lunch."Globalnews.ca18 June 2015https://globalnews.ca/news/2061932/in-canada-new-breed-of-fast-food-chains-are-eating-mcdonalds-lunch/.. Accessed 25 Sept. 2017.

[iii]Harris, Sophia."Why Canadians drink more coffee than most people in the world." Cbc.ca 5 Sept. 2016 http://www.cbc.ca/news/business/canada-coffee-tim-hortons-1.3745971. Accessed 25 Sept. 2017.

[iv]"Fast Food Still King in Canada."Ndpgroup.ca4 July 2013. https://www.npdgroup.ca/wps/portal/npd/ca/news/press-releases/fast-food-still-king-in-canada/. Accessed 25 Sept. 2017.

[v]Sturgeon Jamie. "In Canada, a new breed of fast food chains are eating McDonald's lunch."Globalnews.ca18 June 2015https://globalnews.ca/news/2061932/in-canada-new-breed-of-fast-food-chains-are-eating-mcdonalds-lunch/.. Accessed 25 Sept. 2017.

[vi]"The Evolution of Breakfast in Canada 2016 Infographic."Ndpgroup.ca.https://www.npdgroup.ca/go/pdf/evolution-of-breakfast-canada.pdf?utm_source=newsletter&utm_medium=email&utm_campaign=epicAccessed 25 Sept. 2017.

[vii]Harris, Sophia."Why Canadians drink more coffee than most people in the world." Cbc.ca 5 Sept. 2016 http://www.cbc.ca/news/business/canada-coffee-tim-hortons-1.3745971. Accessed 25 Sept. 2017.

Question:

a.Product Strategy: Recommend thebreadthand depth of menu items (in terms of limited or broad number of menu items) that Mark should carry and why. (2 marks)

b.Pricing Strategy:Which of the four pricing approaches do you recommend that Mark use and why? (2 marks)

c.Integrated Marketing Communications Strategy:

i.What stage of the product life cycle will Mark's revitalized restaurant be in? (1 mark)

ii.Identify one communication objectivefor Mark's IMC strategy.(1 mark)

iii.With Mark's meagre $20,000 Marketing Budget, what should he do to promote his restaurant? Give three reasons why your recommendation makes sense. (4 marks)

Recommendation:

Rationale:

1.

2.

3.