rP os t UV6539 Sept. 20, 2012 NOBULL BURGER op yo NoBull Burger1 (NoBull), a new Charlottesville-based vegetarian burger producer, was at a critical junction in its growth. While the business had a number of problems, including marketing, distribution, and cash flow issues, one major concern was that sales were expanding rapidly, and NoBull was unsure if current production could keep pace with demand. NoBull needed to examine the operations portion of its business to determine its current capacity, to identify potential improvements to the current operation, and to detail NoBull's future operational requirements. The analysis would be a key first step in NoBull's eventual goal to expand nationwide. Background tC NoBull was started by Charlottesville native Crissanne Raymond. Crissanne had run her own successful catering business for years when, in 2011, she saw an opportunity to start a new venture based on her vegetarian burger recipe, one that had been inspired by the memory of her mother's lentil soup. To launch NoBull, Crissanne had enlisted the help of two of her daughters, Heather and Elizabeth, both of whom left their own budding careers to help with the business. As Elizabeth said, \"[we] kept thinking, 'what if we don't do this?' We might miss out on a big adventure.\" No NoBull's target customers were a mix of vegetarians, health-conscious consumers, and people who were just looking for a tasty burger not made of meat. Broadly speaking, NoBull competed in the meat substitute category, which included such foods as tofu and tempeh as well as vegetarian burgers. In 2011, U.S. meat substitute sales grew to $277 million, an increase of 1 NoBull Burger was incorporated under the name \"Oh My Gosh...Yum!\" after the most common reaction to eating the burger. Do This case was prepared by Merritt Osborn (MBA '13) and Elizabeth Tang (MBA '13) under the supervision of Tim Kraft, Assistant Professor of Business Administration. The case is based on field research of an actual business situation. Some names, dates, and financial data are disguised, and some material is fictionalized for pedagogical reasons. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2012 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or otherwisewithout the permission of the Darden School Foundation. This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. rP os t -2- UV6539 10% since 2008.2 Within the vegetarian burger market, three companiesGardenburger, Morningstar Farms, and Boca Burgerdominated with 88% market share. The remaining 12% of vegetarian burger sales came from many smaller companies.3 op yo NoBull burgers were low-fat, whole-grain burgers, and as Crissanne said, \"[it's] dinner in under 10 minutes.\" From the customers' perspective, one of the major advantages of NoBull burgers compared to other vegetarian burgers was the homemade process used to make them. This hallmark style could be seen in the physical appearance of the burgers. Whereas competitors' burgers often looked processed with no distinguishable ingredients, customers could actually see the lentil beans, spinach, and other ingredients that went into NoBull burgers (Exhibit 1). To showcase this quality, NoBull burgers were packaged in clear plastic containers. Initially, Crissanne and her daughters had sold the burgers through the Charlottesville City Market and a few local health food stores and restaurants. But as NoBull saturated the Charlottesville market, demand spread, and the Raymonds expanded their reach to nearby cities. By performing demonstrations and offering free samples in stores and supermarkets, they were able to win over customers in these new locales. Within months, word spread, and NoBull's customer list grew exponentially with stores in Richmond and Washington, DC, requesting its product. While sales to retailers and wholesalers grew, NoBull still continued to sell directly to customers, with particularly strong sales still coming from the Charlottesville City Market. NoBull even received calls from customers across the country asking to buy the burgers. NoBull always satisfied these customers by shipping burgers in special frozen packaging. No tC Since 2011, NoBull had experienced tremendous growth, with sales increasing 65% per quarter (Exhibit 2). The company began to get calls from investors interested in financing the growing company. The Raymonds' ultimate goal was to take NoBull Burger nationwide, and given the high demand and positive customer feedback, they believed there was an opportunity to do so. Yet with so much capital already tied up in the business and minimal cash on hand, they were nervous about taking another step without first understanding the limits of their current operations. Current Operations Do NoBull's current production process consisted of four basic steps: (1) cooking the lentils; (2) cooking additional ingredients; (3) creating the burger mix and cooking the burgers; and (4) packaging and labeling the burgers. In its kitchen, NoBull had one stove and one grill. The stovetop was used to cook the lentils (step 1) and the additional ingredients (step 2). The grill was used to cook the burgers (step 3). Currently, NoBull made only two varieties: original and 2 Anne Marie Chaker, \"The Veggie Burger's New Dream: Be More Like Meat,\" Wall Street Journal, January 25, 2012. 3 Data for 52 weeks ended November 4, 2007, for Frozen Meat Substitutes, from Information Resources Inc. This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. rP os t -3- UV V6539 mushroom To analy the produ m. yze uction proce the Ray ess, ymonds chos to focus o the mush se on hroom burger. See Figure 1 for the pr S rocess flow diagram for one batch of mushroo burgers. Each r om batch con nsisted of ap pproximately 80 burgers The batch size had been determined roughly b y s. based on grill space and po sizes as well as concer about the impact a g s ot rns e greater numb of burger per ber rs batch cou have on quality. uld tC op yo Figure 1. Pr rocess flow diagram for mushroom b d burgers. The first step in the proce was to co the lenti which fo T ess ook ils, ormed the ba for the b ase burger mix. One pot of lent was use per batch of 80 burge and a p took abo 45 minut to e tils ed ers, pot out tes cook. Wi the curren stovetop, up to four pots of lentils could be co ith nt s ooked simult taneously.4 Do No Next, the add N ditional ingre edients that would be ad w dded to the c cooked lentil were prep ls pared. For the mushroom bu m urger, both mushrooms and onions n m needed to be cut and co e ooked. One w whole pot of mushrooms an one who pot of on m nd ole nions were r required for each batch of 80 mush hroom burgers. A pot of mushrooms to about 7 minutes to cut and pr m ook o repare for co ooking. A p of pot onions al took abou 7 minutes to cut and prepare. For the cooking phase of th step, one cook lso ut s p r g his placed bo the pot of mushroom and the pot of onion on the sto to boil a the same time. oth o ms p ns ove at Mushroo required 8 minutes of cooking, and onions r oms d o required 12 minutes. Th herefore, the total e time requ uired for the onion and mushroom preparation step was t total set time for both e d m n the tup ingredien plus the longest coo time of either the m nts ok e mushrooms o the onion In the cu or ns. urrent 4 Altho ough cooking items did not necessarily req quire a cook's full attention, cooks typical did not mu s , lly ultitask process ste Instead, they cleaned and organized the kitchen to pre eps. d e epare for the ne steps in the process. ext e This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. rP os t -4- UV6539 kitchen, there was only space on the stovetop for one pot of mushrooms and one pot of onions to be cooked at the same time. After the mushrooms and onions were cooked, they were added to the cooked lentils along with spinach, carrots, and some proprietary spices to complete the mushroom burger mixture. The ingredients were mixed together for approximately 5 minutes. Then, each burger was molded by hand into a patty and placed on the grill (which was separate from the stovetop that was used to cook the lentils, mushrooms, and onions). The grilling process took about 25 minutes per batch; this included the time required to mold each burger and place it on the grill. After cooking, the burgers were removed, stacked on a sheet pan, and ready to be packaged. op yo For the packaging process, burgers were grouped into sets of four. Each group of four burgers was wrapped in plastic and sealed using a vacuum sealer. A label was then applied by hand to the package, and the final product was placed in a freezer, ready to be sold.5 The vacuum sealer took about 10 minutes per batch of 80 burgers to operate and required about 5 minutes of preparation time to set up before each batch. The labeling process was completely manual and took about 7 minutes per batch. Details for all the steps in the process are provided in Exhibit 3. Note that at the end of each day, any burgers or ingredients (e.g., a batch of burger mix) that were not completed (i.e., packaged and labeled) were refrigerated overnight for use the next day. tC NoBull currently employed two cooks, five days per week for five hours per day. The unusually short days were due to unbearable temperatures in the kitchen in the afternoon. The cooks were paid $12.00 an hour. Each cook specialized in different tasks in the production process. One cook exclusively cooked the lentils, mixed the ingredients, and cooked the burgers. The other cook focused solely on preparing and cooking the onions and mushrooms as well as packaging and labeling the finished product. Do No NoBull sold the four-packs of burgers to multiple channels including the Charlottesville City Market, Charlottesville's Whole Foods Market (Whole Foods), Bodo's Bagels, and other local restaurants. While each channel had different costs and quantity discounts associated with it, the most common channels were wholesale (including local mom-and-pop stores, health food stores, and restaurants) and the Charlottesville City Market. For their analysis, the Raymonds assumed a four-pack of burgers sold for $6.00 and currently cost NoBull $4.50 to make. Of that cost, $2.50 was attributable to raw materials, and $2.00 was from labor, rent, and other miscellaneous costs. 5 NoBull's freezer was large enough to store well over 50 batches and was more than adequate for its current capacity needs. This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. Future Growth Strategy rP os t -5- UV6539 op yo NoBull's current growth strategy was to continue to expand and establish its brand throughout Virginia and the D.C. area, targeting retailers and restaurants that were similar to its current customer base. NoBull believed it was worthwhile to use its existing relationship with Charlottesville's Whole Foods to gain access to additional locations in Northern Virginia. The Raymonds reached out to the Northern Virginia Whole Foods regional manager, and five additional stores in the Northern Virginia/D.C. area agreed to stock NoBull burgers. This would allow NoBull to test new markets and to see how well its product could penetrate a more metropolitan area. While accounting for only 4% of its sales in 2011, NoBull expected its sales to Whole Foods to grow to 9% of overall sales by the end of 2012 with this expansion. The company currently sold approximately 20 four-packs of burgers to the Charlottesville Whole Foods each week and estimated sales in each new Whole Foods store to initially be about half that. Overall, the company expected total sales growth of 50% in 2012 over the previous year (Exhibit 4). tC At the time, NoBull was physically driving its product on a weekly basis to Northern Virginia and DC to perform sample demonstrations. To expand beyond these areas and to reach its eventual goal of selling nationwide, the company would likely need to partner with a national distributor to continue growth. NoBull was still grappling with whether this was a commitment it should make. The tremendous success it had seen in its local market through word of mouth, demonstrations, and a community presence did not guarantee success outside the greater Charlottesville area. Yet if NoBull did want to become a national brand, it would need to push outside its comfort zone. Besides the operational challenges, it would also require large investments in marketing, distribution, and personnel, not to mention a need for fresh capital to make it all happen. Options for Increasing Capacity Do No While NoBull did not expect to continue growing at its current pace forever, if it continued to grow at a reasonable rate, the Raymonds knew they would eventually need more space. Their current location was extremely cramped. At most, they could add one more cook to the current process; they did not have the space to add an additional grill or stove. They started to look for new kitchens in the Charlottesville area, and one in particular caught their eye. It was solar-powered, had a walk-in refrigerator/freezer area, and was at least three times the size of their current facility. It cost about $500 a month more in rent than their current facility, but it had room for four cooks, each of whom would have a dedicated work space. What was particularly enticing was that the kitchen had two stoves, so the lentils and the additional ingredients could be cooked on separate stovetops. As demand increased, another option for NoBull to explore was to improve operations through automation. There were many options within the food industryautomatic cookers, cooling racks, packagers, and so on. One such machine the company was considering was a lentil This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. rP os t -6- UV6539 steamer that would steam six batches of lentils in just 15 minutes without the use of a stovetop burner. This machine cost around $20,000. But the company had to be sure that any automation employed would not affect the \"handmade\" appeal of its burgers. op yo Finally, NoBull thought it might be possible to increase capacity by increasing the number of burgers in a batch. While the Raymonds were unsure of how this might affect the quality of their burgers, increasing the batch size might delay the need for a new facility or automation. If NoBull increased the number of burgers in a batch, then the cook time for each process step would increase proportionally to the increase in batch size (the setup time would not change). For example, a 25% increase in batch size from 80 to 100 burgers would increase the cook time for a batch from 25 minutes to 31.25 minutes. What to Do? NoBull was only producing five to six batches a day, but the Raymonds thought the kitchen might be able to produce more. They wanted to figure out how much NoBull could really produce without moving locations, purchasing equipment, or hiring more cooks. tC Given NoBull's tremendous first-year growth and its expected future growth, the Raymonds also figured that NoBull's demand could quickly outpace its current capacity, even if it was able to become more efficient. There was an argument to be made for renting the new facility in the near future, but it was not clear how soon they should make this investment. The Raymonds also thought that automating some of the process could help to increase NoBull's capacity, but they were wary of how that might affect NoBull's signature handmade quality. Do No What could NoBull do to improve its current operations? What steps would it need to take if it were to continue growing to ensure that its production capacity would allow for this growth? Did it even make sense for NoBull to expand outside of the Charlottesville market where it was not as well known? The Raymonds had some difficult decisions to make. This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. Exhibit 1 E rP os t -7- UV6539 V NOBU ULL BURGE ER op yo NoB Burgers Bull s Do No tC Sour NoBull Bu rce: urger. Used wit permission. th This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. Exhibit 2 rP os t -8- UV6539 NOBULL BURGER 2011 Sales $40,000 op yo $35,000 $30,000 $25,000 $20,000 $15,000 $35,913 $23,096 $10,000 $0 $12,060 tC $5,000 $8,159 1Q11 2Q11 3Q11 4Q11 Do No Data source: Company documents. This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. Exhibit 3 rP os t -9- UV6539 NOBULL BURGER Cooking and Cooling Time for Burger Production Labor 5 5 2 op yo Days/Week Hours/Day Workers Standard Batch Size (# of Burgers) Burgers/Package Step 1 Lentils Setup Time (min.) No Cook Cook 1 Cook 2 Capacity (batches) 4 Cook Time (min.) 8 12 Capacity (batches) 1 1 Setup Time (min.) 5 Cook Time (min.) 25 Capacity (batches) 1 tC Step 3 Cooking Burgers Cook Time (min.) 45 Setup Time (min.) 7 7 Step 2 Mushrooms Onions Step 4 Packaging Labeling 80 4 Setup Time (min.) Operation Time (min.) 5 10 7 Task Assignment Cooking the Lentils and Mixing and Cooking the Burgers Mushrooms, Onions and Packaging and Labeling Do Data source: Company documents. This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. Exhibit 4 E rP os t -10- UV6539 V NOBU ULL BURGE ER No tC op yo Projecte Sales Gro ed owth Do Data source: Company documents. c d This document is authorized for use only by Eric Thompson at UNIV OF COLORADO AT DENVER until July 2014. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860. Problem 1 Capacity for Batch Size of 80 With One Cook Calculated Values Total Values Available min./week one cook: Time for One Batch Setup Time Run Time Total Assume that cooks could work 40 hrs/wk. Cook Lentils Cook M&O 0 14 45 12 Grill Cook Lentils Cook M&O 0 11.25 Grill Pkg. & Label 5 5 25 17 Total Avg. Time/Batch Total Avg. Time/Batch Batches/week Burgers/week Time for Four Batches Setup Time Run Time Total Batches/week Burgers/week Pkg. & Label Problem 2 Capacity By Number of Cooks & Batch Size Available min./week one cook: Assume that cooks could work 40 hrs/wk Batch Size Cook Time (4 Batches) Step: One Cook Lentils M&O Grill Pack Total Time Batches/wk. Burgers/wk. Two Cooks Batches/wk. Burgers/wk. Three Cooks Batches/wk. Burgers/wk. Four Cooks Batches/wk. Burgers/wk. 60 80 11.25 Calculated Values Total Values 100 Note: Capacity is maximized by cooking four pots of lentils at a time, so all calculations are made assuming cooking four pots at a Problem 3 Capacity for Stovetop, Oven & Grill Available min./week (equipment): Assume that equipment could work 40 hrs/wk Batch Size Equipment Time (4 batches): 60 80 StoveTop Batches/wk. Burgers/wk. 45 Stove Oven Batches/wk. Burgers/wk. 12 Grill Batches/wk. Burgers/wk. 25.0 Capacity Utilization (1 cook): Capacity Utilization (1 cook): Capacity Utilization (1 cook): 100 Calculated Values Total Values Problem 4 Capacity with Two Cooks Available min./week (one cook): Assume that equipment could work 40 hrs/wk Batch Size Cook Time (4 batches) Cook 1 Lentils M&O Total Time Batches/wk. Burgers/wk. Cook 2 Grill Pack Total Time Batches/wk. Burgers/wk. Capacity Batches/wk. Burgers/wk. Reassigned to Maximize Capacity? Cook Time (4 batches) Cook 1 ? ? Total Time Batches/wk. Burgers/wk. Cook 2 ? ? Total Time Batches/wk. Burgers/wk. Capacity Batches/wk. Burgers/wk. 60 80 45 Calculated Values Total Values 100 Remember- these values you calculated in problem 2... Remember- these values you calculated in problem 2... Problem 5 Capacity with Lentil Steamer Available min./week (one cook): Assume that equipment could work 40 hrs/wk Batch Size Cook Time (4 batches) Step: One Cook Two Cooks Lentils M&O Grill Pack Total Time Batches/wk. Burgers/wk. Batches/wk. Burgers/wk. 60 80 100 10 Remember: you have calculated these values before... Calculated Values Total Values