Using industry averages for fast casual / premium casual dining, assume that Famosos overall base revenues this year across 25 locations will be $25 million, cost of goods sold (food and beverages) is 30% of revenue, variable labour costs (e.g. restaurant staff) are also 30% of revenue, marketing costs are $1 million, occupancy and equipment costs are $5 million, and home office administration costs are $2 million. Assume average revenue per transaction of $50.

Opportunity 1: Product improvement Famoso would like to consider taking an even stronger product quality positioning by using organic food ingredients. This is expected to increase food and beverage costs as a percent of sales by 5%. They would make a one-time investment of $100,000 in marketing communications to promote this offering. They believe they could see a sales increase of 10% under this opportunity.

Opportunity 2: Sales promotion Famoso wants your perspective on a free pizza promotion to generate trial and new customer acquisition. They would market the offer via direct email, using address lists likely to avoid current customers. The campaign would reach 300,000 people at a cost of $75,000. They expect that 1% of those who receive the direct mail/email would take advantage of the offer, and spend $25 on their visit beyond the free pizza. For promotion cost purposes, assume that the average retail price of a Famoso pizza is $15. Famoso expects that half of those who participate in the promo would become a regular customer, going on to have two more transactions per year.

Opportunity 3: Third-party delivery service Famoso has decided to consider a new distribution option: rolling out the use of a third party service such as Just-eat.ca, Skipthedishes.com, or UberEATS for food deliveries. They have been conducting a market test of this service at one of their 25 locations. The test achieved 1,000 deliveries with an average purchase of $25. Famoso pays the third-party service $5 for each delivery, and will spend $10,000 on in-store signage to promote the delivery option

. 5. Construct a basic income statement for Famosos current business using the hypothetical information provided. A basic income statement would include line items such as revenue, variable costs, gross margin, fixed costs and net margin. It is useful to also note the average unit revenue and number of units (e.g. transactions) above the income statement to see how the revenue occurs.

a) How many transactions did Famoso have last year?

b) What is Famosos current net margin in dollar and as a percent of sales?

6. Now create new columns next to your basic income statement for each of the three opportunities. In doing so, consider that each opportunity changes one or more of the following: the total number of transactions, the average transaction value, variable costs, fixed costs. The result of these changes will impact Famosos overall revenues, margin dollars and percentage values.

a) Which of the opportunities are expected to result in the highest and lowest revenue gains? Be sure to discuss the revenue changes in percentage terms.

b) Which of the opportunities results in the worst net margin outcome?

c) Consider the three opportunities based not only on the quantitative analysis performed, but also on the qualitative considerations noted at the start of this caselet and long-term quantitative considerations. Given this more fulsome assessment, which opportunity would you recommend Famoso management prioritizes? Why?