For A-Plus Writer Only

Hisrich, R.D., Pete's. _ Entrepreneurship (Laureate Custom

Ed - ~ -_- ~ -- _ -~w-Hill In\ in.

Custom Create Edition LAUREATE EDUCATION INC

516 l I Entrepreneursh ip _t ______ --·- ---- ·- ---------· -------------------- ------ ------ ---- -- --- ----------- --------------

CASE 7 GOURMET TO GO

CASE 7 GOURMET TO GO

INTRODUCTION Today, many households have two incomes. At the end o: the day the questions arise, "Who will cook?" or ''What do I cook?" Time is limited. After a long day at work, fev people want to face the lines at the grocery store. Often tre choice is to eat out. But the expense of dining out or the boredom of fast food soon becomes unappealing. Pizzz or fast-food delivery solves the problem of going out b does not always satisfy the need for nutritious, high- quality meals. Some people prefer a home-cooked meal especially without the hassle of grocery shopping, men-:: planning, and time-consuming preparation.

Jan Jones is one of those people. She is a hardwork- ing professional who would like to come home to home-cooked meal. She would not mind fixing it herself but, once at home, making an extra trip to the store is a major hassle. Jones thought it would be great to have the meal planned and all the ingredients at her fingertips.

'"'"'""'""h;p, E;gh<h Ed;tioo I 517 -- ·- --- -- -·-----·-·-------·--·- --·- ----- ---------·--- -~---- - ~---- ---- ---+·----· ..

496 PART 6 CASES

She thought of other people in her situation and realized there might be a market need for this kind of service. After thinking about the types of meals that could be marketed, Jones discussed the plan with her colleagues at work. The enthusiastic response led her to believe she had a good idea. After months of marketing research, menu planning, and financial projections, Jones was ready to launch her new business . The following is the business plan for Gourmet to Go.

EXECUTIVE SUMMARY Gourmet to Go is a new concept in grocery marketing. The product is a combination of menu planning and gro- cery delivery; a complete package of groceries and recipes for a week's meals is delivered to a customer's door. The target market consists of young urban professionals living in two-income households in which individuals have limited leisure time, high disposable income, and a will- ingness to pay for services.

The objective is to develop a customer base of 400 households by the end of the third year after start-up. This level of operation will produce a new income of about $120,000 per year and provide a solid base for market penetration in the future.

The objective will be achieved by creating an awareness of the product through an intense promo- tional campaign at start -up and by providing customers with first-class service and premium-quality goods.

The capital required to achieve objectives is $258,000. Jones will invest $183,000 and will manage and own the business. The remainder of the capital will be financed through bank loans.

PRODUCT The product consists of meal-planning and grocery shop- ping services. It offers a limited selection of preplanned five-dinner packages delivered directly to the customer.

The criteria for the meal packages will be balanced nutrition, easy preparation, and premium quality. To en- sure the nutritional requirements , Gourmet to Go will hire a nutritionist as a consultant. Nutritional informa- tion will be included with each order. The most efficient method for preparing the overall meal will be presented. Meals will be limited to recipes requiring no more than 20 minutes to prepare. Premium-quality ingredients will be a selling feature. The customer should feel that he or she is getting better-quality ingredients than could be obtained from the grocery store.

MANUFACTURING AND PACKAGING Since the customer will not be shopping on the prem- ises, Gourmet to Go will require only a warehouse-type space for the groceries. The store location or decor will be unimportant in attracting business. There will be fewer inventory expenses since the customer will not be choos- ing among various brands. Only premium brands will be offered.

It will be important to establish a reliable connection with a distributor for high-quality produce and to main- tain freshness for delivery to the customer.

As orders are processed, the dinners will be assembled. Meats will be wrapped and ready for the home freezer. All ingredients will be labeled according to the dinner to which they belong. The groceries will be sorted and bagged according to storage requirements: freezer, refrig- erator, and shelf. Everything possible will be done to min- imize the customer's task. Included in the packaging will be the nutritional information and preparation instructions.

Customers will be given the option of selecting their own meals from the monthly menu list or opting for a weekly selection from the company.

FUTURE GROWTH Various options will be explored in order to expand the business. Some customers may prefer a three- or four- meal plan if they eat out more often or travel frequently. Another possibility might be the "last-minute gourmet"; that is, they can call any evening for one meal only.

Increasing the customer base will increase future sales. Expansion of Gourmet to Go can include branches in other locations or even future franchising in other cities. With expansion and success, Gourmet to Go might be a prime target for a larger food company to buy out.

INDUSTRY The Gourmet to Go concept is a new idea with its own market niche. The closest competitors would be grocery stores and restaurants with delivery services.

Of the 660 grocery stores in the Thlsa!Tulsa County region, only two offer delivery service. They are higher- priced stores and will deliver for $4, regardless of order size. However, they offer no assistance in meal planning.

A number of pizza chains will deliver pizza as well as fried chicken. There is also a new service that will pick up and deliver orders from various restaurants . However,

518 I '""'P""'""h;p ~--~----~·--- --·------- ---- ·- -·-·- -·--·-----·------

Gourmet to Go would not be in direct competition with these services because the meals available from them are either of a fast-food type or far more expensive than a Gourmet to Go meal.

SALES PREDICTION The market segment will be households with an in- come of at least $65,000 per year. In Tulsa/Tulsa County, this will cover an area including over 16,600 households that meet the target requirements of income

EXHIBIT 1 Start-Up Expenses

Ad campaign

Ad agency*

Brochurest

Radio spots•

Newspaper ads§

Total

Pre-start-up salaries**

Nutritionist consulting

Misce llaneous consulting (legal, etc.)

Pre-start-up rent and deposits

Pre-start-up utilities and miscellaneous supplies

*40 hrs. @ $75/hr.

CASE 7 GOURMET TO GO 4:

with an age range of 24 to 50 years. By the end of.-.. third year, a customer base of 400 households will developed (2.3 percent of the target market). A: • growth rate of 2. 73 percent a year, the target m of households should increase over three years 18,000.

FINANCIAL Various financial statements are included in Exhibb through 8.

$3,000

7,000

8,000

7,000

$25,000

16,000

6,000

1,500

4,000

2,000

$54,500

120,000 brochures; printing, development, etc. @ $0.35/ea.

*4-week intense campaign: 20 spots/week (30 seconds); $100/spot.

150 ads at an average of $1 00/ad.

**Jan Jones @ 3 months; clerks, two@ 2 weeks.

EXHIBIT 2 Capital Equipment List

Computers:

Apple, Macintosh Office System

3 Mac systems

Laser printer HP2300 series

Networking

Software

Total

Delivery vans, Chevrolet Astro

Food lockers and freezers

Phone system (AT&n

Furniture and fixtures

$3,000

1,000

2,000

3,000

$ 9,000

66,000

15,000

1,500

3,500

$95,000

I '"'~'~'"C"""~, E;ghth ";"'"- ~ j - 5 JL

498 PART 6 CASES

EXHIBIT 3 Pro Forma Income Statement

Year 1

Mo.1 Mo.2 Mo.3 Mo.4 Mo.5 Mo.6 Mo. 7 Mo.S Mo.9 Mo.10 Mo.11 Mo.12

Sales 1 2,600 3,900 6,500 13,000 19,500 23.400 26,000 28,600 31,200 33,800 36,400 39,000

Less: Cost of goods sold 2 1,700 2,550 4,250 8,500 12,750 15,300 17,000 18,700 20,400 22,100 23,800 25,500

Gross profit 900 1,350 2,250 4,500 6,750 8,100 9,000 9,900 10,800 11,700 12,600 13,500

Less: Operating expenses

Salaries and wages3 7.400 7,400 7,400 7.400 7,400 7,400 9,800 9,800 9,800 9,800 9,800 9,800

Operating supplies 300 300 300 300 300 300 300 300 300 300 300 300

Repairs and maintenance 250 250 250 250 250 250 250 250 250 250 250 250

Advertising and promotion4 130 195 325 650 975 1,170 1,300 1,430 1,560 1,690 1,820 1,950

Bad debts 100 100 100 100 100 100 100 100 100 100 100 100

Rent5 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667

Utilities 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000

Insurance 600 600 600 600 600 600 600 600 600 600 600 600

General office 150 150 150 150 150 150 150 150 150 150 150 150

Licenses 200 0 0 0 0 0 0 0 0 0 0 0

lnterest6 310 310 310 310 310 310 530 530 530 530 530 530

Depreciation 7 ____ldl1 ____1,_ll1 ____1,_ll1 1,271 1,271 ___1lli ___!dZ_! 1,271 1,271 1,271 1,271 1,271

Total operating expenses 13,378 13,243 13,373 13,698 14,023 14,218 16,968 17,098 17,228 17,358 17,488 17,618

Profit (loss) before taxes (12,478) (11,893) (11,123) (9,198) (7,273) (6,118} (7,968) (7, 198} (6,428} (5,658} (4,888) (4, 118)

Less: Taxes 0 0 0 0 0 0 0 0 0 0 0 0 ----- ----- ----- ---- ----- ---- ----- ---- ---- ---- ---- ---- Net profit (loss) (12,478) (11,893) (11, 123) (9, 198) (7,273) (6, 118) (7,968) (7,198} (6.428) (5,658) (4,888} (4,118)

<1lAverage unit sale for groceries is about $43 ,00, plus $10 .00 per week for delivery (Exhibit 1), making the monthly unit sales per household (2 people) about

S2 12,00.

12lCost of goods sold-80% of retail grocery price, or $32.00 per household per week ($170.00/month household) . (80% an average margin on groceries .)

<3lSalaries and wages-Ms . Jones's salary will be $5 ,000/month. Order clerks will be paid $1 ,300/month, and delivery clerks will be paid $1 ,100/month. One

additional order clerk and delivery clerk each will be added once sales reach I 00 households, and again at 200 households. Salaries will escalate at 6%/year.

<•> Advertising and promotion-The grocery industry standard is I% of sales. However, Gourmet to Go, being a new business, will require more than that level; 5% of sales is used in this plan. (Special pre-start-up advertising is covered with other start-up expenses.)

5lRent- 2,000/ft2 @ $10.00/ft? ; $1,667/month; escalate at 6%/year.

6l!:nterest-Loans on computer ($10,000) and delivery vehicles ($22,000 ea.) at 12.0%/year. (Delivery vehicles will be added with delivery clerks.) (Debt service- based on three-year amortization of loans with payments of y, at the end of each of three years.) '7lDepreciation-All equipment will be depreciated per ACRS schedules: vehicles and computers-3 years; furniture and fixmres-10 years.

I -·" 52Li Entrepreneurship I -------~·------ ------ ------ --------------

CASE 7 GOURMET TOG

EXHIBIT 4 Pro Forma Income Statement

Year 2 Year 3

Q1 Q2 Q3 Q4 Q1 Q2 Q3

Sales 1 136,500 156,000 194,698 234,000 253,500 273,000 292,500

Less: Cost of goqds sold2 89,250 102,000 127,302 153,000 165,750 178,500 191,250 204

Gross profit 47,250 54,000 67,395 81,000 87,750 94,500 101,250 108,

Less: Operating expenses

Salaries and wages3 31 '164 38,796 38,796 38,796 41,124 41,124 41,124 4 \, ·:-

Operating supplies 900 900 900 900 900 900 900

Repairs and maintenance 750 750 750 750 750 750 750

Advertising and promotion 4 6,825 7,800 9,735 11,700 12,675 13,650 14,625 15,~

Bad debts 300 300 300 300 300 300 300 - Rent5 5,301 5,301 5,301 5,301 5,619 5,619 5,619 5,:: -

Utilities 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3 :, ,---

Insurance 1,800 1,800 1,800 1,800 1,800 1,800 1,800 t . ~~

General office 450 450 450 450 450 450 450

lnterest6 1,280 1,940 1,720 1,720 1,410 1,190 970

Depreciation 7 6,910 6,910 ~ 6,910 7,493 7,493 7,493 7,.!E:

Total operating expenses 58,680 67,947 69,662 71,627 75,520 76,275 77,030 78,o:=

Profit (loss) before taxes (11,430) (13,947) (2,267) 9,373 12,230 18,225 24,220 29.9==

Less: Taxes 0 - -- --- --- --- --- --- Net profit (loss) (11,430) (13,947) (2,267) 9,373 12,230 18,225 24,220

L____

<1lAverage unit sale for groceries is about $43 ,00, plus $10.00 per week for delivery (Exhibit I), making the monthly unit sales per household (2 people)

$212,00.

<2lCost of goods sold-80% of retail grocery price, or $32.00 per household per week ($138.00/month household). (80% an average margin on groceries-

Progressive Grocer; April 1984; p. 94.) <3lSalaries and wages-Ms. Jones's salary will be $5 ,000/month . Order clerks will be paid $1,300/month, and delivery clerks will be paid $1,100/month. O.Z additional order clerk and delivery clerk each will be added once sales reach 100 households , and again at 200 households. Salaries will escalate at 6%/y=.

<4l Advertising and promotion-The grocery industry standard is I % of sales. However, Gourmet to Go, being a new business , will require more than that I=

5% of sales is used in this plan. (Special pre-start-up advertising is covered with other start-up expenses.)

<5lRent-2,000/ft.2 @ $8.00/ft.Z; 1,333 $! /month; escalate at 6%/year.

<6Jinterest-Loans on computer ($10,000) and delivery vehicles ($12,000 ea.) at 12.5% year. (Delivery vehicles will be added with delivery clerks.) (Debt

service-based on three-year amortization of loans with payments of II at the end of each of three years.)

<7lDepreciation-All equipment will be depreciated per ACRS schedules: vehicles and computers-3 years; furniture and fixtures-10 years .

EXHIBIT 5 Pro Forma Cash Flow Statement

Year 1

Mo.1 Mo.2 Mo.3 Mo.4 Mo.S Mo.6 Mo. 7 Mo.S Mo.9 Mo.10 Mo.11 Mo.12 Total

Cash receipts

Sales 2,600 3,900 6,500 13,000 19,500 23,400 26,000 28,600 31,200 33,800 36,400 39,000 263,900

Other

Total cash receipts 2,600 3,900 6,500 13,000 19,500 23,400 26,000 28,600 31,200 33,800 36,400 39,000 263,900

Cash disbursements

Cost of goods sold 1,700 2,550 4,250 8,500 12,750 15,300 17,000 18.700 20,400 22,100 23,800 25,500 172,550

Salaries and wages 7,400 7,400 7,400 7,400 7,400 7,400 9,800 9,800 9,800 9,800 9,800 9,800 103,200

Operating supplies 300 300 300 300 300 300 300 300 300 300 300 300 3,600

Repairs and maintenance 250 250 250 250 250 250 250 250 250 250 250 250 3,000

Advertising and promotion 130 195 325 650 975 1,170 1,300 1,430 1,560 1,690 1,820 1,950 13,195

Bad debts 100 100 100 100 100 100 100 100 100 100 100 100 1,200

Rent 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 20,004

Utilities 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,000

Insurance 600 600 600 600 600 600 600 600 600 600 600 600 7,200 I

General office 150 150 150 150 150 150 150 150 150 150 150 150 1,800

Licenses 200 0 0 0 0 0 0 0 0 0 0 0 200 m ;a

310 310 310 310 310 310 530 530 530 530 530 530 5,040 ii) Interest -o ii)

Debt service ::J ' 11> .

(principal) 10,333 10,333 I C: ! (;;

Total cash disbursements 13,807 14,522 16,352 20,927 25,502 28,247 32,697 ~ 36,357 38,187 40,017 52,180 353,322 1-5-lg Net cash flow (11,207) (10,622) (9,852) (7,927) (6,002} (4,847) (6,697) (5,927) (5, 157) (4,387) (3,617) (13, 180) (89,422) l ::r I g. , m I a. I a-: lg

r-

~~~2J Entrepreneurship I

CASE 7 GOURMET TO GO

EXHIBIT 6 Pro Forma Cash Flow Statement

Year 2 Year 3

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Cash receipts

Sales 136,500 156,000 194,698 234,000 253,500 273,000 292,500 312,000

Other

Total cash receipts 136,500 156,000 194,698 234,000 253,500 273,000 292,500 312,000

Cash disbursements

Cost of goods sold 89,250 102,000 127,302 153,000 165,750 178,500 191,250 204,000

Salaries and wages 31,164 38,796 38,796 38,796 41,124 41,124 41,124 41,124

Operating supplies 900 900 900 900 900 900 900 900

Repairs and maintenance 750 750 750 750 750 750 750 750

Advertising and promotion 6,825 7,800 9,735 11,700 12,675 13,650 14,625 15,600

Bad debts 300 300 300 300 300 300 300 300

Rent 5,301 5,301 5,301 5,301 5,619 5,619 5,619 5,619

Utilities 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000

Insurance 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800

General office 450 450 450 450 450 450 450 450

Licenses 0 0 0 0 0 0 0 0

Interest 1,280 1,940 1,720 1,720 1,410 1,190 970 970

Debt service (principal) 7,333 10,333 7,333 7,333 10,333

Total cash disbursements 141,020 170,370 190,054 228,050 241,111 254,616 260,788 284,846

Net cash flow (4,520) (14,370) 4,643 5,950 12,389 18,384 31,712 27,154

EXHIBIT 7 Pro Forma Balance Sheets

End of: Year 1 Year 2 Year 3 Year 1 Year 2 Year 3

Assets Liabilities

Current assets Accounts payable 12,750 21,217 31,875

Cash 3,000 5,000 7,000 Notes payable 0 0 0

Accounts receivable 19,500 32,450 48,750 Total current liabilities 12,750 21,217 31,875

Inventory 12,750 21,217 31,875 Long-term liabilities

Supplies 300 _1Q.Q 300 Bank loans payable 42,667 47,000 22,000

Prepaid expenses 1,667 1,767 1,873 Personal loans payable 0 0 0

Total current assets 37,217 60,734 89,798 Total long-term liabilities 42,667 47,000 22,000

Fixed assets Total liabilities 55,417 68,217 53,875

Furniture and fixtures 18,000 16,000 14,000 Owner's equity

Vehicles 33,000 32,780 8,140 Paid-in capital 133,889 62,897 28,068

Equipment 6,750 3,330 0 Retained earnings (94,339) (18,271) 29,995

Tota l fixed assets 57,750 52,110 22,140 Total owner's equity 39,550 44,627 58,063

Total assets 94,967 112,844 111,938 Total liabilities and equity 94,967 112,844 111,938

502 PART 6 CASES

Sources of Funds

Jan Jones (personal funds)

Bank loans for computer and vehicles

Total sources

Uses of Funds

Computer, peripherals, and software

Food lockers and freezers

Delivery vehicles*

Phone system

Miscellaneous furniture and fixtures

Start-up expenses

Working capita lt

Total uses*

*See detail, following.

$182,913

75,000

$257,913

$9,000

15,000

66,000

1,500

3,500

54,600

108,313

$257,913

tTo cover negative cash flow over first I V2 years of operation. (See pro forma cash flow statements.)

*Total for initial 3-year period. Computer and one delivery van will be acquired prior to start-up, one delivery van will be added 6 months after start- up, and another will be added 15 months after start-up. Financing will be handled simultaneously with procurement

MARKETING Distribution The product will be delivered directly to the customer.

Sales Strategy Advertising will include newspaper ads , radio spots, an Internet Web page, and direct-mail brochures. All four will be used during normal operations, but an intense campaign will precede start-up. A series of "teaser" newspaper ads will be run prior to start-up, announcing a revolution in grocery shopping. At start-up, the news- paper ads will have evolved into actually introducing the product, and radio spots will begin as well. A heavy ad- vertising schedule will be used during the first four weeks of business. After start-up, a direct mailing will detail the description of the service and a menu plan.

Newspaper ads aimed at the target markets will be placed in entertainment and business sections. Radio spots will be geared to stations most appealing to the tar- get market. Since the product is new, it may be possible to do interviews with newspapers and obtain free publicity.

'"'"'""'""";p, E;gh'h Ed;,;'" I 523 ·- -- .. -- ----- -·· -· -·-·- ·- ·----- - - . - -------- - - . ---~-------~

Sales promotions will offer large discounts to first- time customers . These promotions will continue for the first six months of operations.

The service will be priced at $10 per week for deliv- ery and planning, with the groceries priced at full retail level. According to the phone survey, most people who were interested in the service would be willing to pay the weekly service charge.

MANAGEMENT The management will consist of the owner/manager. Other employees will be delivery clerks and order clerks. It is anticipated that after the business grows, an operations manager might be added to supervise the employees .