Executive Summary

Executive Summary
Sam’s Fast Foods, Inc. is a small food service company incorporated in 1997 in Illinois that specializes in providing high-quality fast food via company-owned portable carts in high-density urban office locations. The business is operated under the name Sam’s Chicago Dogs. This plan recommends that the board of directors approve borrowing $1 million from three current banks to expand marketing and distribution of its current six-cart operation in downtown Chicago. Net profit return on investment in three years is estimated at 243 percent for the $1 million in funding, after pay back.
Sam’s Chicago Dogs estimates 2000 sales to reach $3 million, with net earnings of $212,500 (7.1 percent of sales). Sales are expected to reach $12 million, with net earnings of $1,280,100 (10.7 percent), by the end of 2002. Sam’s has six contracts and options for 24 more contracts with office buildings on Michigan Avenue and other locations in Chicago for indoor/outdoor year-around food service. These high-traffic locations generate an average of $300,000 in annual sales per cart (i.e., 1,000 sales per week @$6.00 average per sale). Sam’s has grown to annual sales of $1.8 million in three years with net earnings of $128,900 (7.2 percent), from a single cart in 1995.
Sales Estimates (in $1,000’s)
Year
1999
2000
2001
2002
2003
Sales
$1,800
$3,000
$6,000
$9,000
$12,000
Cost of Goods
540
900
1,800
2,700
3,600
Gross sales revenues
1,260
2,100
4,200
6,300
8,400
Overhead
860
1,428
2,643
3,844
5,034
Marketing
180
300
600
900
1,200
Earnings before interest and taxes
220
372
957
1,555
2,166
Taxes and interest
91
159
445
663
886
Net
$129
$213
$512
$892
$1,280
Company Introduction
Sam’s Chicago Dogs sells premium-quality hot dogs and other ready-to-eat luncheon products to upscale business people in high-traffic urban locations. Sam’s Chicago Dogs is positioned versus other luncheon street vendors as the “best place to have a quick lunch.” Reasons why are that Sam’s Chicago Dogs have the cleanest carts, the most hygienic servers, the purest, freshest, products, and the best values. Prices are at a slight premium to reflect this superior vending service. Sam’s Chicago Dogs also is known for its fun and promotional personality, offering consumers something special every week for monetary savings and fun.
Each of the carts carries a sign saying “Sam’s Chicago Dogs—Satisfy yourself for $2.00! You deserve it!” The message is targeted to all passing potential customers who want to indulge themselves inexpensively with a hot dog. There also may be a subliminal message for sinful or forbidden indulgence, too, since most hot dogs are high in fat and unsaturated fats. This unique selling proposition is self-targeting since only consumers who like hot dogs and feel that they deserve an inexpensive indulgence will believe this message is meaningful to them. The benefits of this message are relatively unique: “inexpensive satisfaction plus indulgence.” Informal, qualitative research revealed that the target market of busy office workers are constantly
in conflict with themselves about wanting a juicy, delicious hot dog and trying to watch the fats and amount of meat in their diets.
Moreover, the hot dogs that Sam’s Chicago Dogs serves aren’t high in fat. They are high quality, all natural products with no preservatives or harmful chemicals. Sam’s Chicago Dogs vendors make it a point to let customers know that indulging themselves is both inexpensive and healthy. Although the signs emphasize hot dogs, each of Sam’s carts offers an extensive menu of healthy and reasonably priced food.
Sam’s Chicago Dogs has the highest quality of product image for any cart vendor or fast-food operation in the Chicago area, evidenced by numerous media editorials, customer surveys, and the company’s own competitive menu surveys of adjacent area competitive food service outlets. The company’s products are 100 percent all-natural, with 30 percent of meal items and snacks qualifying as “low fat,” at less than four grams fat per serving. Nutritional product information on all products is also available on request from consumers.
Sam’s Chicago Dogs varies menu items weekly, with three “specials” per day at a discounted price. Seasonal menu variations include more soups, chili, stews, and hot drinks during winter months, and more salads and frozen/cold items (e.g., Italian ices) during summer months.
Sam’s Chicago Dogs specializes in pre-packaged, all-natural breakfast and lunch sandwiches, salads, soups, and snacks. Low-fat mayonnaise, fresh vegetable toppings and fruits, low-sodium meats, fresh-baked whole-grain breads, and hand-made soups, stews and side dishes provide a unique menu selection for customers. All ingredients are made without artificial colors, additives, or preservatives, another source of product uniqueness when compared to the competition. Sam’s Chicago Dogs co-ops sales of all-natural beverages from existing office tobacco/candy shops in each building, increasing sales for both businesses.
Industry Analysis
The restaurant industry is experiencing steady growth. Industry sales should reach $320 billion in 1997 and will comprise 4% of the United States Gross Domestic Product. Of the total dollars spent on food by consumers 43% goes to meals and snacks away from home. This is a huge jump from 1955 when only 25% was spent away from home. In a single day, almost one-half of all adults are food service customers.
The restaurant industry plays a strong part in everyday life. A typical person consumed 4.1 commercially prepared meals in 1996 per week. Five years earlier the average was 3.8 meals per week. No wonder 40% of all adults agree that fewer meals are being prepared at home than was the case two years ago. Commercially prepared meals are considered a very important part of the lifestyle of 38% of all consumers.
Due to these statistics the restaurant industry should realize sales growth of 1.4% in 1997. Specifically growth in fast food restaurants is projected to increase 5.8% annually. Fast food restaurants should account for 47.6% of eating-place sales in 1997 up from 43.8% ten years earlier.
Customers
A recent study published by the National Restaurant Association highlighted some important characteristics of our target market. Two out of three adults feel that food at their favorite restaurant provides flavor and taste that cannot be duplicated at home. Three out of ten adults say that they are not eating at restaurants or purchasing takeout/delivery foods as often as they wish. When purchasing fresh food prepared elsewhere consumers balance three separate goals: social pleasure or togetherness, eating pleasure, lifestyle support or convenience.
Consumers also listed the characteristics of a great place to eat (check size of less than $10).
• Great tasting food – 65%
• Fresh food/Ingredients – 50%
• Comfortable atmosphere – 48%
• Friendly people/service – 45%
• Variety of menu choices – 40%
Another survey conducted by the National Restaurant Association focused on lunchtime customers. 45% of employed adults stated that they do not take a lunch break. Factors shaping how the lunch hour is spent and the way food is consumed include a more hectic lifestyle and the perception that every moment must be filled with a productive endeavor.
What people eat is a direct reflection on how they eat – foods that can be held in the hand and eaten on the move. Approximately 62% eat such a meal making it easier to work through the lunch hour or on the go easier. A typical lunch for 39% of working adults is a sandwich and 14% eat a hamburger.
Competition
Sam’s Chicago Dogs experiences competition from all restaurants in the area. All eating establishments compete for the same consumer dollars, however Sam’s, is most concerned with similar fast food outlets such as McDonald’s, Wendy’s, Burger King, Taco Bell, and Kentucky Fried Chicken. All of these franchises have locations within a short walk of Sam’s. Sam’s differentiates and positions its business from the competitive fast food and other take-out restaurants with its products (providing high-nutrition, 100 percent all-natural, no artificial ingredients, colors, additives or preservatives convenience foods and snacks), its concern for the environment (biodegradable, recyclable containers/wrappers and PR tie-ins), and its service (a no-questions-asked money-back guarantee of all products sold and the best-trained company server personnel in the category). Sam’s Chicago Dogs food products are priced at parity with, or at a slight premium over, competitive offerings, whether all-natural or not. Extensive promotional activity, including free samples and daily specials, help to ensure that Sam’s customers perceive that they are receiving higher quality products and prompt, courteous service in exchange for the slight premium in price
Marketing Plan
Sam’s Chicago Dogs was created to attain leadership of mobile, cart serving-units in large urban business centers. Sam’s targets upscale, urban office workers seeking fast, convenient, portable, breakfast and lunch meals. Each cart, which costs about $20,000, is capable of housing enough food to serve about 200 to 250 meals per day.
Sam’s Chicago Dogs has been successful in establishing contract alliances with real estate management companies for permanent lease sites inside and outside key office buildings, and for cooperative sale of beverages and minor snack items through existing lobby shops. All existing leases permit storage of the vending cart at a secure site within the building in which it operates.
Customer loyalty is encouraged with development and promotion of new and revolving seasonal menu selections each quarter, daily customer sampling, and bonus specials. Training includes “friendly personality” recruiting, a minimum of six hours of company training, mentoring, and apprentice management programs.
To support its expansion efforts, Sam’s Chicago Dogs considered using popular media, such as
TV, radio, and newspapers to advertise, along with promotional free product samples and coupons. However, informal discussions with suppliers revealed that competitors in the downtown office area were spending little or no money to promote and advertise their cart luncheon business. It appears that the most successful hot dog cart operations spent about 5 percent of net sales revenue for promotion and advertising. Because this business plan anticipates rapid growth through the addition of new carts, Sam’s Chicago Dogs plans to spend at least 10 percent of net sales during the first year.
Based on this decision, advertising and promotional possibilities were prioritized in order of probable effectiveness, with estimated costs:
Advertising
Promotion
TV ($500/30-second ad/station)
Free samples ($25/day @$0.25 each)
Radio ($50-100/60-second ad/station)
Coupons ($5/day @$.025 each)
Newspaper ads ($500/ad)
Frequent purchase book ($15/day)
Cart signage ($100)
Soft drink premiums (supplied by drink companies)
Flyers ($100 @$0.10 each)
In performing the research into advertising and promotions, it was determined that any broadcast option involved additional production costs that were at least as much as the cost of running a single ad. In addition, at least four or five ads had to be run per station to be effective. Breakeven cost coverage would be exorbitant, with over a year’s estimated sales needed just to pay for a small TV and radio campaign. And it would be difficult to advertise with available media just to the target group of office workers within a radius of six city blocks. All electronic and print media expenses were also well over the 10 percent budget limit.
Based on this analysis, Sam’s Chicago Dogs decided to have each cart painted ($100) with a clever message, hand out 1,000 flyers ($100) over three months to offices, and do the soft drink premium program (collect can tabs for free gifts provided by local soft drink distributors). Beyond that, efforts would be made to get free PR coverage through local newspapers and downtown TV and radio stations by sending free samples to editorial staff before lunch. Sam’s Chicago Dogs can afford to hand out flyers and samples all year long and stay within the 10 percent budget limit. If business is better than expected, the extra income will be used to accelerate the purchase of additional carts.
Promotions that will be undertaken to support the business expansion will consist of free samples of prepackaged breakfast and lunch items, bonus days (e.g., free salad days with meal purchase). Other marketing expenditures will be for items such as coupons and frequent buyer card promotions.
These activities will help establish Sam’s Chicago Dogs as the only fast food operator in the greater Chicago area that gives out free samples continuously throughout the year, and provides a bonus day free side dish program. In the past, this program has been instrumental in growing the business and maintaining loyal customers despite lower price “value meal” promotions with other area fast food restaurants (e.g., McDonald’s, Burger King, Kentucky Fried Chicken, White Hen Pantry, etc.).
Operations
The company has a unique advantage in the food service market when compared to regular restaurants and other cart vendor operators. Indoor/outdoor location mobility, efficiency in size, significantly lower overhead, pre-packed portion control products, elimination of cooks or chefs, lower cost-of-goods, elimination of cooking and accompanying equipment and elimination of wait/bus staff provide an overall savings in basic cost of goods and services estimated at 50 percent when compared to ordinary restaurants offering similar pricing per meal.
Sam’s Chicago Dogs is also protected from existing and new competitors via an aggressive space lease contract and option program in key high-traffic office buildings in Chicago. The company is also the only food cart operation with a company-owned mobile cold-storage vehicle to supply company carts as needed. The company is also exploring the possibility of starting its own canteen warehouse to prepare and supply food items, to further lower the cost of goods and expand new menu selections as new cart locations are achieved.
Human Resources
Sam Logan, company founder and president, graduated from the University of Wisconsin and has several years of food service experience as a chef and restaurant manager, in several of the Chicago area’s top restaurants. His family owns a convenience food products company that sells primarily to distributors, and utilizes sales brokers. Sam grew up with work experience in almost every phase of the family business. He has traveled the world extensively, studying food service techniques and food nutrition as practiced by restaurants worldwide. He is fluent in Spanish and Italian, and is an active member of the Food Industry Advisory Board for the Pan-American Restaurant Association. In 1995, he was the recipient of the Entrepreneur-of-the-Year award from the Chicago Restaurant Owners Association.
All Sam’s Chicago Dogs employees and cart operators are screened for scholastic achievement (i.e., top 30 percent of students) and receive six hours of entry-level customer service training. Cart managers must have a minimum of one year of experience and training with the company.
Financial Information
Sam’s Chicago Dogs is committed to increasing shareholder valuation by increasing sales and net profits, along with consideration of sale, merger, joint-ventures and possible issuance of stock in public markets at a future date. Company valuation is estimated conservatively at $7.7 million to $12.8 million (i.e., six to 10 times net earnings) in five years.
ROI for the original 1992 paid-in common stockholders (i.e., 1 million shares @$0.50 = $500,000, or 20 percent of outstanding company shares at the time of the original investment in Year 1) is estimated to be 300 percent to over 500 percent by 1999, based upon a six to ten times P/E ratio (e.g., 20 percent of $7.7—$12.8 million), and a conservative valuation for similar food companies. Dividend issuance is another means of increasing stockholder ROI that the company may consider as early as 1996.
Sam’s Chicago Dogs 5-Year Forecast ( in $1,000’s)
YEAR
‘99
%
‘00
%
‘01
%
‘02
%
‘03
%
SALES
$3,000
100
$6,000
100
$9,000
100
$12,000
100
$15,000
100
Cost of Goods
900
30
1800
30
2700
30
3600
30
4500
30
GROSS MARGIN
$2,100
70.0
$4,200
70.0
$6,300
70.0
$8,400
70.0
$10,500
70.0
OPERATING EXPENSES
Ads/Promotion
300
10.0
600
10.0
900
10.0
1200
10.0
1500
10.0
R & D
15
0.5
15
0.3
23
0.3
30
0.3
37
0.3
Dues/Subscriptions
3
0.1
6
0.1
9
0.1
12
0.1
15
0.1
Freight
12
0.4
24
0.4
36
0.4
48
0.4
60
0.4
Insurance
30
1.0
39
0.7
45
0.5
60
0.5
75
0.5
Maintenance
3
0.1
6
0.1
9
0.1
12
0.1
15
0.1
Materials
150
5.0
300
5.0
450
5.0
600
5.0
750
5.0
Miscellaneous
60
2.0
78
1.3
85
1.0
90
0.8
105
0.7
Office Supplies
90
3.0
120
2.0
135
1.5
150
1.3
150
1.0
Outside Services
30
1.0
60
1.0
90
1.0
120
1.0
150
1.0
Accounting/Legal
30
1.0
45
0.8
67
0.8
72
0.6
75
0.5
Lease Equipment
45
1.5
90
1.5
135
1.5
180
1.5
225
1.5
Lease Facilities
45
1.5
90
1.5
135
1.5
180
1.5
225
1.5
Telephone
15
0.5
30
0.5
45
0.5
60
0.5
75
0.5
Travel/Entertainment
15
0.5
30
0.5
45
0.5
60
0.5
75
0.5
Utilities
15
0.5
30
0.5
45
0.5
60
0.5
75
0.5
Sales Commissions
150
5.0
300
5.0
450
5.0
600
5.0
750
5.0
Wages and Salaries
600
20.0
1200
20.0
1800
20.0
2400
20.0
3000
20.0
Total Expenses
$1,608
53.6
$3,063
51.1
$4,504
50.1
$5,934
49.5
$7,357
49.1
EBDIT*
$492
16.4
$1,137
19.0
$1,796
20.0
$2,466
20.6
$3,143
21.0
Depreciation
120
4.0
180
3.0
240
2.7
300
2.5
360
2.4
EBIT**
$372
12.4
$957
16.0
1,556
17.3
$2,166
18.1
$2,783
18.6
Interest Expense
45
1.5
67
1.1
90
1.0
113
0.9
135
0.9
Pretax Earnings
$327
10.9
$890
14.8
$1,466
16.3
$2,053
17.1
$2,648
17.7
Income Taxes
114
3.8
378
6.3
573
6.4
773
6.4
975
6.5
Net Income (Loss)
$213
7.1
$512
8.5
$893
9.9
$1,280
10.7
$1,673
11.1
*Earnings before depreciation, interest, and taxes
**Earnings before interest and taxes
Balance Sheet as of 6/30/99
Assets
Liabilities
Current assets
Current liabilities
Cash
$5,000
Accounts payable
$11,650
Accounts receivable
0
Short-term notes payable
0
Inventory
10,400
Long-term notes payable
7,450
Prepaid expenses
3,600
Current site leases payable
1,200
Temporary investments
0
Sales taxes payable
2500
Total current assets
$19,000
Employment taxes payable
2150
Long-term assets
Accrued payroll
4,400
real property
$185,000
Total current liabilities
$29,350
vehicles
38,000
Long-term liabilities
vending carts
120,000
Vending cart loans
$32,000
food preparation equipment
24,350
Mobile storage vehicle loan
26,750
food storage equipment
13,500
Mortgage
144,700
furniture and equipment
7,400
Total long-term liabilities
$203,450
(less depreciation)
(32,875)
Total liabilities
$232,800
Total long-term assets
$355,375
Owner’s equity
$141,575
Total assets
$374,375
Total liabilities & owner’s equity
$374,375