Today, your company is presenting a set of strategic retail initiatives to Mark Ess, owner/manager, cook/dishwasher of LUKE'S Diner, Mark is the third generation in the Ess family to run the popular diner in downtown Everyvilie, Ontario. Sales and profitability at LUKE'S Diner peaked a decade ago and the competitive landscape has undergone a major change. Mark is open to a major marketing reboot with the only limitation that the name and the location be retained,

Luke Ess bought the building and started LUKE'S Diner in 1945, almost immediately upon returning from military service in Europe to his hometown of Everyville, Ontario, then population 8,000. Over the next thirty years he built a successful business and raised a family; both the business and the family continued to participate and support the local fastball and hockey leagues. After Luke died of a heart attack in 1974, his 28 year old son Jerry retired from a career in minor hockey to take over LUKE'S Diner. He re-invented the diner to target the sports crowd in Everyville, which boasted a population closer to 18,000. Over the next forty years Jerry also grew the business, raised a family and watched Everyville grow to a population of 40,000 +. In 2014 he retired from LUKE'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.

Everyville now has three Tim Hortons, two McDonalds, a Coffee Time, an A&w, a Pizza Hut, a Swiss Chalet, four other fast-food restaurants and a dozen family restaurants, all within 15 minutes of LUKE'S Diner. Mark studied business Georgian 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 larges losses have been in the breakfast and lunch traffic and revenues, which have always combined for 80% of the LUKE'S Diner profitability. Though the diner has been physically well maintained interior and exterior, Mark realizes that a

reboot, driven by a new retail marketing strategy, is overdue.

The competitive landscape has been and still is dramatically changing, mostly driven by the fast food franchises and the growing Tim Hortons' coffee shop culture. According to the latest research, lunch is now the most skipped meal of the day (only three years ago it was still breakfast). Today, Canadians pass up the mid-day meal an average of 44 times a year. Analysts attribute the switch mainly to the concerted effort from so-called 'quick serve' restaurants to get your day started with coffee in one hand and a portable sandwich in the other until late in the morning. People no longer take, or think they can afford, the time to a sit-down breakfast. The drive-through breakfast, which is so readily available, often carries them through to another mid-afternoon coffee run or even to supper. These factors have affected breakfast and lunch traffic at diners everywhere,

Today the fast food industry is quite saturated. Last year, the volume of traffic at fast food restaurants in Canada still grew by 7 percent; however closer analysis of market research from NPD Canada revels that lunch and after-eight sales were flat and supper actually declined by 4 percent; concluding that breakfast is the fasted growing 'day-part' of the industry in the last five years.

MAYO/WATSON/MACDONALD

MIT 2020-W21

LUKE'S DINER

STRATEGY CASE STUDY

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. Features like premium roast coffee, caf style extras, extended breakfast menu and all-day breakfast have dominated the market.

The competition is fierce, but the breakfast club is extremely lucrative and still growing; it now accounts for 20 percent of quick-serve restaurants' revenue, McDonald's added steak to its ever-growing breakfast menu; Tim Hortons just increased the size of its original hash brow by 35 percent; Burger King is pushing 25-cent coffee and its new Egg McMuffin clone; A&W now offers its own egg sandwich and is promoting a traditional bacon eggs-toast breakfast, even Starbucks has recently introduced its Sous Vide Egg Bites.

The breakfast trend has driven the proportion of Canadians who visit a restaurant daily to 47 percent. A big chunk of that is coffee. Canadians consume nearly 2 billion servings of coffee a year outside their home. The coveted Millennial customer base gravitates more to cheap but healthy food that they can eat on the go and most chains have responded by promoting healthier options like oatmeal, egg whites and turkey sausage on their signage, of course while still offering all the greasy, heavier items that weigh in as high as 700 calories,

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 Hortons and McDonald's for their morning socializing. As a result, Luke's closest competitor in town, Carol's Coffee has recently closed their doors. Into the first quarter of 2020, LUKE's Diner was still profitable and generating positive cash flow, though much

of this is because Mark owns the building. Like many food and service providers, LUKE's Diner has had closed

doors and physical distance requirements to face along with increased cleaning and safety protocols. Though

the traditional Canadian diner concept is dented and tarnished, Mark refuses to believe that LUKE's Diner is

done - but knows that he must respond these market forces with a new retail marketing strategy.

=

Part 2 - Conduct a brief SWOT of Luke's Diner (12 pts)

Part 3 - Identify which of the 4 growth strategies would be most effective for Luke's Diner. Support this choice by referencing the SWOT (3 pts)

Part 4 - Alternatives. Generate 3 possible alternatives to implement the growth strategy for LUKE'S Diner. Support each alternative with sustainable competitive advantages and referring to the SWOT and selected growth strategy. (5 Pts.)

Part 5 - The Retail Mix: Select the best alternative idea and generate a marketing mix to implement the growth strategy for LUKE'S Diner. Identify the 6 P's in the retail mix and how they would be used to implement the plan. (12Pts.)

Part 6- Pricing a cup of coffee can be a challenge. Luke's currently serves a basic blend of coffee that costs $10/1b. The current selling price of a cup of coffee is $2.00 for a 6oz up. Each Ib. of coffee produces 48 cups at this size (5 Pts)

1. What is the cost per cup of coffee?

2. What is the Markup % for a cup of coffee?

3. Based on the markup% would you classify coffee as an elastic of inelastic good? 4. If Luke's switches to a premium coffee to remain competitive. The premium coffee costs $15/lb., and sells an

8oz coffee for $3.00 per cup.

a. what is the cost per cup of coffee?

b. What is the markup % for premium coffee?

Part 7 - Types of Retailers Luke's has the following retailers as neighbours. What type of retailer are they? (2 pts)

a. Marshal's b. Penny's Pretty Pens & Paper

MKT 2020-W21 LUKE'S DINER STRATEGY CASE STUDY Luke's March 2019 Financial Statement (5 weeks) Gross sales Opening inventory, at cost Closing inventory, at cost New purchases, at cost Cash Discounts General overhead Advertising Salaries Customer returns and allowances Reductions $133,000 $ 59,500 $ 61,000 $ 78,500 3% $ 11,000 $ 9,000 $ 20,000 $ 8,000 2.5% Carol's Coffee: Profit 6% or $7,500, Operating expenses 40% Part 1 - Complete a skeletal statement for each competitor (30pts) Luke's Diner Skeletal Statement (15 pts) Carol's Coffee Skeletal Statement (15pts) MKT 2020-W21 LUKE'S DINER STRATEGY CASE STUDY Luke's March 2019 Financial Statement (5 weeks) Gross sales Opening inventory, at cost Closing inventory, at cost New purchases, at cost Cash Discounts General overhead Advertising Salaries Customer returns and allowances Reductions $133,000 $ 59,500 $ 61,000 $ 78,500 3% $ 11,000 $ 9,000 $ 20,000 $ 8,000 2.5% Carol's Coffee: Profit 6% or $7,500, Operating expenses 40% Part 1 - Complete a skeletal statement for each competitor (30pts) Luke's Diner Skeletal Statement (15 pts) Carol's Coffee Skeletal Statement (15pts)