Medley Deli: Choosing an Option for Growth and Diversification

The Situation

Alicia and Donovan own the successful Medley Deli in a suburb of Atlanta. The deli opened eight years ago in a shopping complex located near both residences and businesses where there is a steady flow of customers through the day all days of the week. The current operation has seating for 50 dine-in customers and can also handle many takeout orders. About four years ago, Alicia and Don purchased the neighboring unit in the shopping center so that they could expand the seating in the deli and open a market. The market sells bottled versions of Medley's sauces and other popular ingredients and snacks such as olive oils, cheeses, and potato chips along with pre-made, grab-and-go sandwiches. The market demonstrated that diversifying Medley's sales base was beneficial. Alicia and Don believe that Medley can expand and diversify even more to position themselves to navigate future economic downturns and shifts in consumer preferences. With that background, Alicia and Donovan sat down to review options for new growth opportunities and plan the future of Medley

The Environment and Objectives

In preparing to evaluate their options, Alicia and Don referred to their notes about their current business and their objectives for Medley's new venture

Trends:

They took note of the following trends related to food, food service, and customer interests:

Farm-to-table dining is popular. Consumers are interested in organic food and local farms. Sourcing from small farms close to where food is consumed is valued over large industrial farms that ship food long distances.

Workers need to be trained on the unique demands of food preparation and service.

More and more people are identifying as "foodies" who are interested in new foods, new ingredients, and new genres at all price levels.

People are interested in experiences and in sharing their unique adventures and accomplishments with others in person or through social media.

Efforts are increasing to address the challenges of food deserts in areas where there is little easy access to grocery stores with fresh vegetables.

Resources:

Alicia and Don know that Medley has some strong resources. Medley has an ability to create recipes with clever twists on traditional favorite dishes; an organizational culture that values input from employees and creativity and new approaches; respectful relationships between employees and management; good working relationships with suppliers; loyal customers who make frequent purchases; and a reputation for quality products and customer service. Some resources will match well with some opportunities but be less useful for others Medley might select. For example, Medley has a strong reputation as a great sandwich shop due to their creative recipes and good customer service. But will the association of the brand name with the restaurant make it difficult for customers to accept them in a new line of the industry? Since Medley has built its reputation for service, quality, and innovation in mostly face-to-face interactions with customers, will that ability come through online?

Objectives:

Alicia and Don have some goals in mind as Medley grows and develops in the community. With this new initiative, they hope to accomplish at least one of the following objectives: diversify the company's cash flows; build employment opportunities by training workers or developing jobs; reduce the risk in Medley's supply chain by controlling sources of supply; contribute to developing society's food supply chain; support the stability and advancement of people in the community; generate knowledge and education for the community and society about things such as the food supply, sustainable growing methods, organic foods, and the diversity of environments and foods around the world.

The Options Details of four options (A, B, C, and D) are explained below:

Option A-Bakery: The first proposal is for a bakery (Option A-Bakery). Roughly 60% of the deli sales involve bread, since sandwiches are a large component of the menu. Whole loaves of specialty bread have also sold well. By owning a bakery, the deli can gain greater control over the cost and quality of this key ingredient. The proposal explains how the deli could increase its sales of desserts and sweet snacks (cookies, brownies, etc.) by developing its own recipes and controlling the quantity produced. The bakery could be sized to allow it to supply the deli and produce enough to supply other restaurants for additional revenue. The current deli has no one with expertise in baking, so the proposal identifies some expert bakers who could act as consultants. Job opportunities in the bakery would provide training and experience in production and management. These are skills that are in high demand and offer high wages for the employees. On the cost side, this option for a commercial bakery will require a separate location and specialized equipment. An additional consideration is that owning a bakery would mean Medley would reduce its purchases from its current bread suppliers with whom it has good working relationships.

Option B-Urban farming: A second analysis addresses a key supply of ingredients by proposing an urban farming approach to supply greens and other vegetables (Option B-urban farming). Located in a densely populated suburb of Atlanta, Medley could employ highintensity growing methods on small plots of land. A more complicated but intriguing possibility would be to seek out building owners who would allow rooftop gardens on their buildings. With either in-ground or rooftop gardens located in communities, the deli can grow fresh produce for its menu items while also selling fresh produce to nearby residents and donating some to people without easy access to fresh vegetables. The farms could provide jobs and educate workers and visitors about farming techniques. The experience Medley acquires with responsible, sustainable farming such as managing water for irrigation and supporting habitats for pollinators such as bees could be shared with other local growers. Georgia weather is favorable for many months of the year, allowing the gardens to grow both warm and cold weather crops including tomatoes, carrots, green beans, zucchini, cucumbers, lettuce, kale, cabbage, mustard greens, microgreens, and herbs. This option lets Medley advertise that its specialty dishes include ingredients grown locally using organic methods. Medley would have greater control over the supply and quality of the produce ingredients, but would also encounter challenges caused by bad weather, insects, and disease that might decrease yields.

Option C-Food trucks: The third option would allow Medley to embrace the popularity of food trucks (Option C-food trucks). By improving its social media marketing, Medley would be able to notify fans and followers of a truck's location in advance or in real-time to generate business. Trucks could be located near businesses at lunchtime, provided that local regulations allow. While Alicia and Don understand the regulations for Medley's current deli operations, food trucks would involve additional considerations. However, the opportunities could be worth the effort since there are many fairs and festivals in the area and a growing trend of having food trucks at special events such as birthday parties and weddings. The food truck would allow Medley to expand its service area without committing to and investing in a fixed, brick-and-mortar location. But that doesn't eliminate the upfront and ongoing expenses estimated at $60,000 to acquire and outfit a food truck, with additional costs for operating and maintenance. Industry estimates indicate that one food truck can generate $300,000 in gross revenue (before any expenses). Alicia and Don wonder if the current popularity of food trucks is a short trend or a lasting development.

Option D-Management training: In recent years, Alicia and Don had received many requests from other businesses for instruction and guidance in Medley's successful methods of operating. By surviving and thriving for eight years, Medley had beaten the odds. Generally, 60% of restaurants do not survive their first year, and 80% last fewer than four years. Customers speak highly of Medley's customer service (prompt, courteous, accurate with orders) and product quality. Employees speak highly of the work environment and relationships with managers. The fourth proposal analyzes the opening of a management training business (Option D-management training) to provide training courses as well as specialized consulting requested by clients. This initiative would help other restaurants survive and support food service workers who want to open their own restaurants. Moreover, even though Medley's knowledge is in the restaurant industry, many of their customer service and employee-manager relations skills apply to other industries. Developing online training would expand the reach outside of the local area. This proposal suggests providing reduced-cost or free training services to neighborhood struggling startups and small businesses. Alicia and Don would need to work out the issue of training the consultants and trainers in the Medley ways of operating so that the consulting advice would be accurate and consistent.

1. Identify the strategic issues in this case

2. Identify alternative courses of action

3. Evaluate the alternatives and recommend one course of action. Justify your decision.