case study

9 - 8 9 9 - 0 0 8

R E V : J U N E 1 4 , 2 0 1 3

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Professor Joseph B. Lassiter, III and Lecturer Michael J. Roberts prepared this case from a field study report prepared by Paul Conforti, MBA ‘97, Kristen Krzyzewski, MBA ‘97 and Kim Moore, MBA ‘97 under the supervision of Professor Ray A. Goldberg as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1998, 1999, 2005, 2013 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. 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 means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

J O S E P H B . L A S S I T E R I I I

M I C H A E L J . R O B E R T S

Business Plan for Room For Dessert™ Adding Unique Ingredients to life's balancing act

Confidential

Submitted to: 1997 HBS Business Plan Contest

Submitted by: Paul Conforti Kristen Krzyzewski Kim Moore

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Table of Contents

A Day in the Life of Room For Dessert ....................................................................................... pg. 3

Executive Summary ........................................................................................................................ pg. 3

The Concept ..................................................................................................................................... pg. 4

Value Proposition Differentiation & Sustainability Additional Products & Services

The Market ....................................................................................................................................... pg. 7

Context Target Customers Market Potential Industry Analysis

The Competition ........................................................................................................................... pg. 11

Fine Dining Casual Dining Quick-Service Potential Entrants & Encroaching Concepts

Marketing Strategy ....................................................................................................................... pg. 14

Operations & Facilities ................................................................................................................ pg. 15

Management .................................................................................................................................. pg. 16

Financials ........................................................................................................................................ pg. 17

Business Model Revenue Assumptions Cyclicality & Seasonality Other Major Assumptions Break-even & Sensitivity Analysis Financing Scenario Analysis Risks

Appendices ..................................................................................................................................... pg. 24

A. Sample Menu B. Concept Floor Plan C. Unit Proformas D. Team Member Resumes

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A Day in the Life of Room For Dessert

It’s 11:00 a.m. on a Thursday in January, and the doors open for business at the Room For

Dessert (RFD) restaurant on Newbury Street. The bakery phone rings, and an administrative assistant who works in the Hancock Tower places an order for a pastry tray for an afternoon meeting. As the lunch hour approaches, people working in the surrounding office buildings walk to the store to pick-up cakes and desserts they have previously ordered, to place orders, or to purchase some baking ingredients or liqueurs (for an upcoming weekend party) at the retail shop. Some of the shoppers, tourists, and locals come in from the cold for a light lunch and a small indulgence.

In the early afternoon, a business meeting is held in the special function room at the rear of the restaurant, where pastries and coffee are served. In the main dining room, shoppers and tourists stop

in for a treat and a warm drink after being on their feet for hours. For some, RFD offers the opportunity to indulge in “afternoon tea” without the attitude that usually accompanies it.

Around 4:30, the after work traffic begins to pick-up. Once again, office workers stop by on their way to the T to bring some delightful desserts home. Business people fill some of the tables as they

sip a cognac or scotch and talk shop—RFD provides a great alternative to a noisy bar. With the Boylston Street Green T stop only a few minutes from Copley or Arlington, some theatre-goers stop in for a quick sandwich before the show.

In the early evening, “dessert-desire” really kicks-in for many. After eating dinner at home, or at

the Friday’s or Joe’s American Cafe up the street, people come to RFD for a change of scenery or a

decadent dessert. John, a regular RFD customer, has called ahead for a reservation. His favorite table is prepared, and his personal bottle of port is readied. John has invited an old friend to meet

him at RFD so they can catch up. To him, the restaurant provides a time and monetarily cost effective alternative to meeting for a fine-dining meal at Morton’s, L’Espalier, or Sonsie, but has better atmosphere and service than Starbucks.

During the late evening, people come to RFD for dessert after a movie or the theatre. They watch the pastry artist put the finishing touches on each plate at the dining-room-exposed dessert station. As the store closes at midnight, the manager mentally prepares for the usual weekend rush that begins the following day...

Executive Summary

Room For Dessert (RFD) is a full service, fine dining restaurant serving desserts and beverages (coffee, tea, wine and spirits). The concept also includes a retail store featuring take-out desserts, wine, spirits, and signature ingredients. Units will be located in high foot-traffic areas in metropolitan markets and surrounding upscale communities. The management team has the following objectives:

 Secure $600,000 funding to open a start-up unit in Boston during the third quarter of 1997

 Prove the business model generates $1,000,000 in unit sales and 35% cash-on-cash returns

 Establish 10 units in the Northeast by the end of 1999

 Grow into a national chain, with over 40 units and $50 million in sales by the end of 2002

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RFD will offer Ritz-Carlton quality service by emphasizing a highly trained staff and information technology. This will be complemented by an unpretentiously elegant ambiance and premium quality products that are made on premise. Desserts will be available in sample sizes and individual portions, and will be prepared at a dessert station in the main dining room. This experience will be priced at $10 per person—at the high end for desserts, but value-priced when compared to fine dining alternatives.

Dessert, coffee, wine and spirits consumption in full-service restaurants is a $7.2 billion industry. Within this market, RFD’s concept targets upscale urban singles and couples without children. Target customers are 24-54 year old college graduates and professionals, earning upwards of $52,000 in household income. These consumers lead generally healthy lives, but also enjoy small indulgences. They seek eating experiences that are pampering and entertaining, and they search for new avenues of social interaction. A dessert-focused restaurant is uniquely suited to meeting these needs.

The business model RFD will use to compete in this niche emphasizes four elements: (1) multiple revenue streams, (2) high margins, (3) low investment cost, and (4) geographic expansion. Once a beach-head unit is established in a given market, the business model is further enhanced by increased economies of scale and capacity utilization in the initial unit.

The RFD founders are passionate about the food industry; experienced with service operations, public relations, and execution under pressure; and educated by Harvard Business School. They are also in the process of building a management team and board of directors with unparalleled restaurant industry experience. The resulting combination of professional management and restaurant savvy creates a team well-positioned to pursue this opportunity.

The Concept

Room For Dessert (RFD) is a full-service, fine dining restaurant serving desserts and beverages such as coffee, tea, wine and spirits. (See Appendix A.) The concept also includes a retail store featuring take-out desserts, wine, spirits, and signature ingredients. The restaurant will have a 70 seat dining room, a private function room, and a small bar (See Appendix B.) This chart describes the essential components of the business:

Restaurant / Bar Retail

Primary Product

Offering

 desserts

 coffees & teas

 wines & spirits

 lighter fare—soups, salads,

sandwiches

 desserts

 coffees & teas

 wines & spirits

 cigars

 signature ingredients & supplies

Services  offer on-site educational classes and

tastings (e.g. wines, desserts, baking)

 host special events (e.g., baby

showers, corporate events, holiday

parties)

 sell made-to-order desserts and

pastries (e.g. birthday cakes,

wedding cakes)

 provide recommendations for

wine/dessert/food pairing & gifts

Like other restaurants, RFD’s business will be concentrated on weekends and evenings. RFD is also likely to see a robust late night business after most traditional eating establishments close their kitchens. RFD’s product offerings create an opportunity, however, to utilize the restaurant throughout the day, rather than only at the usual restaurant core business hours:

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Daypart

RFD

Weekday Activity

RFD

Weekend Activity

Avg. Restaurant

11am-2pm lunch, retail lunch, retail lunch

2pm-5pm afternoon tea, business

meetings, classes, retail

afternoon tea, bridal showers,

private parties

no activity

5pm-7pm* happy hour, after-work mtg,

pre-movie dinner

pre-theater dinner, desserts early dinner

7pm-9pm classes, special events, dinner,

desserts

pre-event dinner, desserts,

private parties

core business

9pm-2am core business, after theater

dessert/drinks, bar alternative,

lite dinner, occasions, private

parties

core business, after theater

dessert/drinks, bar alternative,

lite dinner, occasions, private

parties

typically close

kitchen at 11:00

p.m.

*Retail operations will close at 7pm

Value Proposition

The RFD mission is to add unique ingredients to life’s balancing act. RFD will use fine desserts and beverages to deliver frequent fine dining, unpretentious elegance, and a social alternative to consumers.

Frequent Fine-Dining A fine dining experience is an exercise of indulgence and reward. It is sometimes difficult, however, to justify spending the time and money associated with this special treat. RFD will offer the same quality food, service, and atmosphere as the nation’s best restaurants, but with a time commitment and cost that makes it easy to justify more frequent indulgence.

Unpretentious Elegance While many fine dining restaurants offer an almost “snobbish” experience, it is harder for a dessert focused restaurant to do so. Why? Because desserts are fun! This helps RFD ensure the customer has a relaxing yet refined dining experience—a true escape from life’s demands. Moreover, RFD can become a place to experience new things and satisfy curiosities. By hosting on- site educational classes and encouraging aspiring musicians/artists to share their work in the restaurant, RFD will make the so-called “finer things in life” accessible in an unpretentious environment.

A Social Alternative As a result of the individualistic “cocooning” trends of the 1990s (e.g. home videos, internet, grocery home delivery), consumer homes will no longer be a sanctuary from the pressures of the outside world. Instead, people will begin to search for an oasis outside of the home at which they can enjoy social interaction. RFD will be positioned as the target customers’ own Cheers, where “everybody knows their name.” By creating a restaurant that emphasizes service but requires a relatively low personal investment (time, money, etc.), RFD fills the gap in social options that exist between bars/cafes and full service restaurants.

Differentiation & Sustainability

RFD will deliver these ingredients as a complete experience that will be difficult to replicate. Significant elements of this experience include:

People All RFD servers will complete a comprehensive training program, and will be encouraged to pursue relevant professional designations (e.g. barista; sommelier; associate/bachelors degree in

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baking & pastry arts or restaurant & hospitality management). Pastry chefs, rather than playing the supporting role as they do in most restaurants, will be provided the space, equipment, and tools necessary to successfully showcase their artistic and baking skills. RFD’s emphasis on employee development will create a competitive advantage by allowing the company to attract and retain the highest caliber people.

Customized Service Guest specific information, such as previous orders, favorite drinks , or dietary needs will be compiled and stored in company databases. In addition, through the use of state-of- the-art Information Technology, or through voluntary means (such as sign-up forms for the monthly RFD newsletter), RFD will develop the capability to use direct mail marketing with the follow-up telephone contact to build customer loyalty. For example, RFD will be able to notify chocolate loving guests when a new chocolate dessert is introduced. In addition RFD will seek to personalize the guests’s experience to the point of allowing individuals to establish declining balance accounts or leave a bottle of liqueur at the restaurant for their future personal consumption.

Quality While technological advances in dessert baking have greatly improved the quality of frozen desserts, there is still nothing like the smell, presentation, and taste of a dessert baked on premise. Even if the difference is only perceived by the consumer, perception is reality. All of RFD’s desserts will be “baked fresh daily.” The restaurant will offer a 100% satisfaction guarantee on guests’ overall experience, reinforcing RFD’s quality positioning. This also allows each unit to track the sources of customer dissatisfaction and to take steps to eliminating these problems.

Portioning RFD will offer desserts in two portion sizes—individually plated and sample size. Sample size desserts allow the consumer to taste several desserts, and allow the RFD to manage food cost. RFD’s individually plated desserts will be portioned to maximize impact while minimizing the likelihood of customers splitting a single dessert between them.

Ambiance Although RFD will be upscale, the interior will create a comfortable and welcoming ambiance. Guests will enter the restaurant through an elegant store-front. Furniture and place settings will be sturdy and high quality. A combination of class and casual will attract customers wearing anything from jeans to dinner jackets. This environment is critical to delivering an unpretentiously elegant RFD experience.

Additional Products & Services

The management team envisions establishing RFD as the entertaining headquarters for our customers. Future opportunities for enhancing corporate revenues and same-store-sales include: catering, catalogue orders, kiosk sales, and supplying other local restaurants. For example, during an informal meeting with a group of potential investors, one women commented, “I would be willing to pay $20 per person for the convenience of someone coming into my house to cater the dessert portion of a dinner. It would allow me to enjoy the end of an evening with my guests, and would be much more cost effective than having the whole thing catered.” In addition supplying other restaurants with RFD’s fresh-baked product would increase capacity utilization for RFD and give local restaurants the ability to differentiate themselves from competitors who serve frozen desserts. Opportunities such as these will be weighed against RFD’s ability to control quality and limit over- exposure of the brand.

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The Market

The RFD founders conducted a comprehensive four-month study of the dessert restaurant niche in the fall of 1996. The following is a summary of the relevant food industry trends and market factors.

Context

There are a variety of trends in consumer tastes and behavior that create a favorable environment for the launch of a dessert-focused restaurant, including:

Moderation The “health craze” has subsided, as consumers lean toward more moderate eating habits. The Prevention Index, published by Prevention Magazine, shows the continuation of a downward trend over the last three years (from its peak in 1993) in 21 major health-promoting behaviors. A second study, conducted by Progressive Grocer magazine, reported a 4.4% increase in dessert and toppings sales, and a 5.0% increase in candy and gum sales, while total edible groceries grew only 2.9% in 1995. Third, Grocery Marketing magazine reported in September of 1996 in “21 Food Trends for the 21st Century” that, “People are realizing that no food is bad if consumed in moderation.” The first trend they identified in their list was “Expect A Backlash Against ‘Healthy’ Foods.” Finally, the National Restaurant Association (NRA) presents data categorizing consumers into three distinct groups:

 Unconcerned consumers are not concerned with health and nutrition.

 Vacillating consumers are concerned about health and nutrition, but are driven primarily by taste when dining out.

 Committed consumers exhibit behaviors and attitudes consistent with their commitment to good nutrition.

As summarized below, the number of consumers in the unconcerned category has grown significantly:

Segment 1992 1994

Unconcerned 32% 37%

Vacillating 31% 32%

Committed 37% 31%

All this evidence clearly shows consumers have brought moderation back to their food consumption.

Personal Gratification The appearance of premium whiskeys, cognacs, and ports on menus; the proliferation of specialty coffee, cigar, martini and microbrew concepts; the expansion of high-end steakhouses; and the increase in sales of prepared gourmet foods all show that time-starved consumers are willing to “take a time out” and pay to indulge in the best. As one noted researcher of consumer trends observed, “There’s a resurgence in people wanting to enjoy their lives. Customers are saying, ‘I want a new experience, I want a pleasant experience, and I want to be king for a little while.’”

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Convenience Customers are willing to pay for convenience, too. Nearly two-thirds of women are in the work force. Families don’t have time to prepare meals as they once did. The success of Home Meal Replacement (HMR) concepts (e.g. EatZi’s, Boston Market) and home delivery (e.g. Streamline, HomeRuns, Peapod) is clear evidence of this fact. Commercial foodservice and the prepared food segment are expected to account for virtually all growth in U.S. food sales until the year 2005.

Segment 1995 2005 Annual Growth

Non-commercial foodservice 9% 8% .2%

Commercial foodservice 35% 41% 3.4%

Prepared foods/meals 1% 3% 11.8%

Other retail 15% 12% -1.1%

Grocery stores 40% 36% .4%

Total market $635 billion $785 billion 1.4%

Relaxation & Comfort Forty-one percent of people surveyed in 1995 went out to eat as a way to relax, up from thirty-five percent in 1992. A study conducted by McKinsey & Company for the International Foodservice Distributors Association states, “Food-related activities are becoming more important sources of relaxation and comfort.” The report concludes that consumers are seeking more pleasure and fun from everyday life and will demand form and function from restaurants.

Eat-tertainment People want an entertaining eating experience. The growth of concepts such as Planet Hollywood and Hard Rock Cafe are two prime examples. One renowned Boston chef commented, “Now we have to entertain and stimulate in other ways. Unfortunately, restaurants that don’t entertain are going to have a harder time. People are looking for more open kitchens, more visuals.”

Target Customers

The management team believes two segments of the dessert-consuming population are the most likely to demand the eating experience offered by RFD.

Primary Segment The RFD target segment consists of upscale urban singles and couples without children, most of whom are college graduates with professional, managerial, or other white-collar occupations. They earn a median household income of $52,100 and live in multi-unit housing in urban uptown areas. Their predominant age ranges are 25-34 and 35-54. They are most densely concentrated in Northern and Southern California, Minnesota, Texas and the greater metropolitan areas surrounding New York, Philadelphia, Chicago, and Boston.

There are a number of variables that provide RFD with a deeper understanding of the target customer and his/her habits. A leading targeted marketing research firm, Claritas, Inc. (www.claritas.com) has found that these target customers are more likely to go scuba diving, attend the live theater, have a gold/premium credit card, read Metropolitan Home and watch The Simpsons. This psychographic data, as well as media consumption and product/service preference data, will allow RFD to market directly to the primary segment.

Management expects these customers will come to Room For Dessert after the theater, a movie, another social event, or eating at home. They will also identify RFD as a place to catch up with an old acquaintance, or to hold a business discussion. The concept provides a cost-effective, upscale alternative to going to a bar, full-service restaurant, or other meeting place. The consumer can also take advantage of RFD’s personalized services. For example, the service team can help the consumer

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develop the perfect match between a dessert and a dessert wine for a special occasion in the home. More frequent customers may have a personal bottle of liqueur held in a private locker at the restaurant.

Secondary Target Segment The secondary segment will be in the same age ranges as the primary, but will have less disposable income. These customers will view RFD as an affordable, approachable opportunity to get a taste of life’s finer things. For instance, a couple can leave their children with a baby-sitter for an hour and escape to RFD. A group of friends can choose to dine at a reasonably priced, casual dining restaurant (e.g. Chili’s, Applebee’s, T.G.I. Friday’s), and then upgrade to RFD for dessert. These customers will also think of RFD as a place to host a special event like a birthday party or a wedding shower. The members of this secondary segment generally can not afford to spend $50 to $100 per person for a four-star dining experience with any regularity, but will be able to justify spending $10 per person for an experience that is almost as good. This customer’s decision process is more deliberate—RFD will be visited relatively infrequently vis a vis the primary target segment.

Boston Demographics. Boston’s demographic make-up is good for RFD’s initial launch

RFD Target Segment Boston

(vs. US Avg. Index of 100)

Single w/o Kids* 114

Couples w/o Kids* 104

Education (College +) 141

Household Income (50,000 +) 128

Occupation (Professionals) 116

*measures 18-44 instead of 25-54 Source: Lifestyle Market Analyst 1995

Other lifestyle and demographic variables show Boston to have a higher than average levels of disposable income, interest in fine foods, and spending on food away from home. The first RFD store will be located in Boston’s upscale retail and restaurant area on Newbury street. Three additional units will be added in the Boston area by the end of 1998. Site considerations are shown below:

Target Market Characteristics

Average HH Inc.

HH w/o Children (% of Trade Area)

White Collar Workers (% Trade Area)

Newbury Street Location $40,000 80.9% 85.4%

Lexington, MA $76,775 66.6% 83.2%

Newton, MA $71,117 76.2% 81.7%

Chestnut Hill, MA $55,600 81.0% 79.7%

Cambridge, MA $42,173 81.7% 74.3%

Market Potential

Dessert, coffee, wine and spirits consumption nationally in full-service restaurants is a $7.2 billion industry, with annual growth projected at 4.2%. However, it is more meaningful to analyze a restaurant opportunity by looking for a percentage of market share in an individual city rather than a national market. For instance, RFD expects to capture a 2.6% share of the Boston market by the end of 1998:

Boston, Projected Market Share Share Sales MM

Dessert Sales in Full-Service Restaurants 100% $91

RFD Market Share - End of 1998 (4 locations) 2.6% $2.4

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Market Rank & Size Demographics

Region

Market

US Rank

Dessert Sales

Full Service

Dessert Sales

($MM)

50,000+ %

Professio

nal

Aged 25-

54 Years

New England Boston

Hartford/New Haven

Fairfield County, CT

Providence, RI

New England

7

n/a

n/a

n/a

n/a

91

22

17

16

267

39.6%

42.2%

54.2%

29.9%

n/a

28.6%

28.9%

26.1%

22.8%

n/a

60.9%

60.3%

59.9%

57.3%

n/a

Northern, CA

Southern, CA

Midwest

Southwest

Southeast

Northwest

Mid-Atlantic

San Francisco

Los Angeles

Orange County

Chicago

Detroit

Minneapolis - St. Paul

Houston

Dallas

Atlanta

Seattle

Philadelphia

Washington

15

2

14

1

5

13

9

11

6

18

8

4

59

169

62

187

105

67

85

67

93

57

90

113

47.8%

37.9%

47.5%

33.0%

38.3%

39.6%

38.0%

33.5%

33.5%

38.7%

38.0%

48.0%

30.5%

27.4%

28.5%

24.8%

23.3%

25.1%

30.2%

27.4%

26.5%

28.2%

26.2%

35.5%

64.7%

64.9%

66.3%

62.4%

61.8%

63.4%

68.6%

66.7%

67.3%

63.8%

58.7%

67.6%

With individual unit sales of approximately $1 million, RFD will seek to capture between 5% and 10% of the market in smaller cities. Larger cities will support multiple units to achieve a similar share.

Industry Analysis

The dessert restaurant industry presents ample opportunity for an upscale dessert restaurant to carve out an attractive niche. First, switching costs for buyers are relatively low, so a successful competitor must differentiate their product/service offering and build customer loyalty. Second, barriers to entry in the restaurant business are relatively low. As a result, first mover advantage in core markets is critical to success. Third, substitutes (e.g., bars, coffee-shops, full-service restaurants, other social venues/events, staying at home) do not offer any price/performance advantage. Fourth, suppliers are generally providing commodity goods, and generally position themselves as partners with the restaurants they serve. However, some companies are able to obtain exclusive arrangements with high quality branded ingredients (e.g. Godiva) to set apart their offerings from others. Finally, as discussed in greater detail in the following section, while existing rivals are intensifying competition in the quick-service and casual segments, the upscale segment is characterized by fragmented and unfocused players.

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11

The Competition

The analysis of dessert-niche competitors will be organized according to the three prominent service-segments of the industry: Fine Dining, Casual, and Quick-Serve. Tables following this discussion summarize our research of specific competitive concepts.

Fine Dining

This segment consists of three types of competitors: (1) upscale national chains (e.g., Morton’s, Capital Grille, Ruth’s Chris, The Palm), (2) full-menu independents with outstanding pastry chefs, and (3) dessert-focused independent operators. However, none of the national competitors place significant emphasis on the dessert portion of their business. In fact, these competitors increasingly offer desserts that are baked in dessert “factories,” frozen, and shipped to their location for decoration. In addition, most full-menu independent operators fail to allocate sufficient resources (space, equipment, etc.) to attract and retain high quality pastry chefs. Restaurants that successfully do so, such as Boston’s Sonsie (pastry chef Art Welch) and Olives (Paige Retus), lack economies of scale in purchasing, production, real estate, and advertising that a dessert-focused chain competitor would possess. Finally, none of the current dessert-focused independents have any geographic expansion plans. Examples include L’Elizabeth in Providence, RI, serving six dessert selections and a variety of wine and spirits, and Side Berns in Tampa, FL (affiliated with Berns Steakhouse) offering 30 dessert selections, wine and spirits, cigars, and a retail wine shop. These operators provide proof

that an RFD-type concept is viable, and minimize the risk associated with consumer acceptance of

the concept. As mentioned above, however, a dessert chain would achieve economies of scale and

provide a new addition to this underexploited niche.

Casual Dining

The casual segment of the dessert niche is also fragmented, but poised for increased competition. Nationally, casual chain restaurants place varying degrees of emphasis on desserts. Cheesecake Factory has established themselves as a formidable player in the upscale end of the casual segment with their dessert-theme and wide selection of namesake products. Other national, full-menu chains are placing increased emphasis on desserts as a means of increasing average check. However, most of these operators, including Cheesecake Factory, serve desserts that were produced in national dessert “factories,” frozen, and shipped to the restaurant. Local, dessert-focused operators are also playing an increasingly important role in the niche. Jeff’s Desserts of Tampa, Florida has seven units in that area, and corporate parent Just Desserts (Toronto, Canada) is looking for partners to expand into other U.S. regions. Another operator, Cafe Intermezzo in Atlanta, has two locations and a strong local reputation. Casual European cafes, like Cafe Lalo and Cafe Edgar in New York City, or Dolce Vita and Caffe Vittoria in Boston’s North End, are the classic examples of competitors in this segment—independently-owned, individual units with no plans for expansion. Many of these competitors obtain their desserts from local bakeries, and provide poor ambiance and service. For example, during an examination of eight dessert cafes in New York City, only one baked their desserts on premise, and most offered only counter service.

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12

Quick-Service

Finally, the quick service segment is the one with the greatest amount of competition. Most current quick-serve operators are bakeries. They place varying degrees of emphasis on take-out sales, restaurant supply, and on-premise consumption (but usually in that order). Local operators with growth plans include Just Desserts in San Francisco (10 units) and William Greenburg Jr. Desserts & Cafes in New York (with 3 retail locations and seven kiosk units in Macy’s stores). In Boston, examples would include Rosie’s Bakery (3 locations), Mike’s Pastry (North End), and Sweet Endings (Watertown). In this segment, though product quality is usually quite abundant, service is not.

Potential Entrants & Encroaching Concepts

In the recent past, the restaurant business has seen a proliferation of casual cafe concepts. Many of these stores follow the traditional bakery model, focusing on homemade breads. (See table of restaurant/eatery alternatives below.) Au Bon Pain, St. Louis Bread, La Madeleine and Corner Bakery are a few of the successful models that compete in this segment. While they offer cafeteria style service with a flair, none of these concepts focuses on desserts. However, they could view desserts as complementary products to be used to bolster same store sales.

In addition, it is worth noting the increase in niched, beverage-focused concepts. The market has seen growth in the number of night-time venues including bars focused on martinis, champagne, scotches, ports and cigars. Arguably, these bar concepts, however, are burdened with a short life— few faddish concepts last beyond two years. Microbrew pubs have also seen a great deal of growth over the past few years. These competitors steal share in the late night hours when RFD will be doing its core business. They could also consider adding desserts to their menus to satisfy customers’ “late night munchies.”

The most successful of the new beverage concepts are the premium coffee and espresso bars like Starbucks, Second Cup, and Coffee Beanery. Although most players in this category are not focused on desserts as a competitive advantage, we anticipate increasing interest in this area given the intense competitive pressures. As these competitors saturate desirable markets, growth opportunities through geographic expansion (especially in the U.S.) will decline. Once this happens, much more pressure will be placed on increasing same store sales through new product introductions and brand extensions.

Finally, restaurant chain companies like Brinker International (national) or Back Bay Restaurant Group (Northeast), who currently do not have dessert-focused concepts, could decide it was time to create one. These types of competitors have the resources (people, capital, infrastructure, alliances) and track records (management & industry experience, operational expertise) to attempt entry into a niche like desserts. They also compete with niche players by offering desserts on their current restaurant menus. These players could in fact be valuable sources of capital, or could provide RFD with an exit strategy.

All the added focus on the casual and quick-service segments described above reinforces management’s assessment of them as unattractive for entry. In the underexploited dessert-focused fine dining segment, however, companies that achieve first-mover advantage in a given market will capitalize on the opportunity described in this plan.

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This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

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For the exclusive use of J. STUDENT, 2015.

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899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

14

Marketing Strategy

The following strategic marketing tools will allow RFD to create consumer awareness of its value proposition and encourage trial:

Location Each RFD unit will act as a billboard for the business. Locations will have a high degree of pedestrian traffic, and a high concentration of the target customer (demographic & psychographic). The flexibility of the RFD concept allows the Company to develop successful restaurants near a variety of locations, including: (1) theatre, movie, or music venues; (2) high-end hotels; (3) high foot-traffic residential areas; (4) large universities; (5) upscale shopping centers; and (6) busy downtown areas.

Pricing RFD’s prices are positioned at the high end of the dessert niche. Consumers in the target market are willing to pay for quality, and will therefore be tempted to try the “best dessert” in town. This pricing strategy builds on Starbucks’ positioning of charging a premium for relatively low cost “feel-good” items. See the sample menu in Appendix A for proposed prices.

Advertising/Promotion The management team will work to obtain positive reviews in local papers, publications, and web sites (e.g. The Boston Phoenix, The Boston Globe, Boston.com, Zagat’s Restaurant Review). In addition, influential word-of-mouth advocates (e.g. Four Seasons’ concierge, executive assistants) will be reached via telephone or personally. Nationally, features in magazines read by target customers and frequent diners out (e.g. Bon Appetit, Martha Stewart Living, Conde Nast Traveler, major airline magazines) will build prestige in early markets and pull for the concept in potential markets.

Grand Opening Events The week prior to a location’s opening RFD will host private parties for groups with a high concentration of target customers, including: graduate schools, professional services companies (consulting, banking, trading), charities, etc. These events will introduce our restaurant to opinion leaders and jump start influential word-of-mouth referrals.

Restaurant & Hotel Alliances Full menu restaurants might choose to refer customers to RFD for dessert to increase their table turns (as frequently occurs in Boston’s North End). Hotels can use RFD’s space to augment their conference facilities. As influential word-of-mouth advocates, hotel concierges will be given free trial of RFD so they can give unqualified recommendations of the restaurant to guests.

Community Involvement RFD will encourage local artists and musicians to display their work at the restaurant. In addition, the company will donate facilities and product worthy charities to defray costs of fund-raising dinners, etc. These activities also increase consumer awareness of the concept.

Special Events & Meeting Space Administrative assistants will be provided incentives (e.g. free product, free classes) to consider RFD for company “off-site” meetings. Guests will be unobtrusivly informed that RFD will host wedding showers, birthday parties, and other private functions.

These strategic marketing tools are low risk and low cost, but provide significant benefits to the consumer and to RFD.

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Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act. 899-008

15

Operations & Facilities

Though a restaurant concept may be sound and its competitive positioning may be clear, all is for naught if service is slow, food quality is poor, presentation is sloppy, and "the little things" are ignored.

Interior Design RFD is not about linen tablecloths or trendy fixtures, but instead is represented by timeless and classic design. Furniture will be cherry-colored wood with a matte-gloss finish. The seating arrangement, combined with a well-lit dining room, will allow customers to have a clear view of the pastry station. A prototype layout is included in Appendix B.

Restaurant Operations Before being seated, customers will be able to browse a pastry display of the chef’s featured selections. Once seated, guests will also be able to review a menu and obtain recommendations about their order. Servers will have process time goals for making initial contact with a table, and for checking to ensure the customer’s experience is satisfactory.

Baking Operations RFD’s kitchen requires only 25% of the unit’s space, versus an industry norm of 40%. Baking inputs will be purchased in bulk when appropriate. In some instances, RFD will negotiate exclusive arrangements with ingredient suppliers to create signature items. Initial preparation of ingredients, batters, etc. will occur prior to rush periods to facilitate short lead times. Recipes and processes will be highly standardized, which is facilitated by a dessert-focused menu. The pastry station, which is adjacent to the kitchen, will be a functional facility used to dazzle patrons with a dessert decorating show” Pastry artists will have process time goals measured from order receipt to completion.

Retail Store Operations One wall of the unit (and some adjacent floor space) will be dedicated to retail sales. Restaurant servers or dedicated retail staff will assist the customer in making selections. The counter at which check-out occurs is also where customers will place orders for and pick up baked-to-order cakes and other baked goods that are purchased for take-out.

Commissary Since desserts are conducive to being partially produced in one location and finished in another, RFD may build regional commissaries as the concept expands. This will allow units in a region to eliminate most of their baking equipment investment, and free up or reduce space. Since the baking industry is characterized by excess capacity, RFD could avoid equipment investment entirely by purchasing capacity from other producers (e.g. Boston Beer’s Sam Adams production strategy). In no circumstance, however, will RFD jeopardize the fresh-baked, high quality positioning of the concept.

Process Management The operational elements outlined above will be integrated with a comprehensive information management system (including Efficient Food Replenishment links with suppliers). The end result will create an operation that can be standardized, measured, and managed as a single process. Even so, the creativity that is injected into the Final Decoration phase of the process will give the customer the perception that they are receiving a work of art instead of a product of science.

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899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

16

Management

Two RFD founders and a store-level management team will launch the business. The board of directors will be composed of a group of accomplished industry experts. The resulting combination of professional management and restaurant savvy creates a team well-positioned to pursue this opportunity.

Paul Conforti, President Paul is the originator of the RFD Concept. His interest in foodservice began in 1985, when he was an ice-cream cone maker and dishwasher at Celebration! Ice Cream in Warwick, RI. Paul has over ten years of experience leading organizations, including three years of people-intensive service management in insurance claim/call centers. In June, 1997 Paul earned his MBA at Harvard Business School, where he focused his studies on entrepreneurship. He also completed a year-long research project on the restaurant industry, resulting in this business plan. He has an undergraduate degree in Management (Finance and Operations) from Rensselaer Polytechnic Institute.

Kim Moore, Vice-President Kim is a founding member of the RFD team. She started pursuing her lifelong interest in food at H.E. Butt Grocery of San Antonio, Texas, the nation’s tenth largest grocery chain. There, Kim led an internal consulting project developing strategy, operations, and marketing for ten underperforming Houston stores. Prior to that, as an Associate Producer (journalist) at ABC News, she developed skills core to operating a successful restaurant: attention to detail, execution under pressure, and working with people to accomplish goals. Kim earned a B.A. in Journalism from the University of Texas, Austin, and an HBS MBA focused on entrepreneurship and service management.

Unit Management Team The individual unit management team will include a General Manager, an Assistant Manager, and two Pastry Chefs/Kitchen Managers. These employees will all have significant restaurant and baking experience. The founders have already begun using an extensive industry network developed over the last year to identify and interview potential candidates for these roles.

Additional Corporate Management RFD will eventually recruit additional industry experience into the management team. If necessary, the founders will hire a CEO to lead geographic expansion. A CFO/CIO will be hired to manage supplier relations, financial reporting & control, and IT. A Corporate Chef with a degree from a culinary institution and significant pastry/baking experience will be hired to develop innovative menu items that balance artistry with ease of replication. Other positions to be filled include Regional VPs, a Human Resource Manager, a Corporate Trainer, and a Purchasing Director.

Board of Directors/Advisors Realizing that the founders need to augment their restaurant industry experience, the board will primarily be composed of strategic members in addition to significant equity holders. Potential members of the board include:

 Jim Kern, Retired Chairman, Creative Food Management

 Mike Nardozza, General Manager - Restaurant Operations, Windy City International LTD

 Michael Roberts, CFO, Baldini’s Restaurants (former HBS professor)

 Leonard A. Schlesinger, Service Management Professor, HBS (former EVP of Au Bon Pain Cafes)

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Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act. 899-008

17

Financials

RFD’s corporate financial projections are based on the strength of the individual restaurant unit’s cash-on-cash return (EBITDA / Initial Investment). Industry analysts expect chain concepts to produce returns in the 30-40% range. The following table shows RFD’s unit economics compare favorably to some of the country’s most successful national chains.

Room For Dessert Cheesecake Factory

Starbucks

Seats

Square Feet

Investment Cost

70

2,450

$480,452

400

12,000

$4,750,000

60

1,500

$250,000

Sales

Sales/Investment

$1,091,052

2.27

$8,650,000

1.82

$840,000

3.36

Average Check

Customers Per Day

Customers Per Seat

$10.31

210

3

$13.75

1,724

4

$3.00

767

13

EBITDA

% of Sales

% of Investment

$178,487

16.4%

37.1%

$1,660,000

19.2%

34.9%

$90,000

10.7%

36.0%

As the following graphs illustrate, an individual RFD unit will have “paid back” its investment within two years of beginning operations, as positive cash flow is achieved almost immediately. These projections are supported by the comments of the COO of a successful dessert-themed restaurant, “Within a few months after we opened we were able to get each store [five in the Tampa area] into the black.”

-400

-200

0

200

400

600

800

1000

1200

1997 1998 1999 2000 2001 2002

Annual Cash Cumulative

-200

0

200

400

600

800

1000

1200

1400

1997 1998 1999 2000 2001 2002

Revenue Gross Margin Net Income

Business Model

There are four important elements driving the economics of the RFD concept:

Multiple Revenue Streams RFD has three revenue streams (restaurant sales, retail sales, and special events). As the concept builds brand equity, a second tier of additional revenue streams, including

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899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

18

catering, kiosks, restaurant supply, and catalogue sales, could be pursued. To ensure conservative projections, the management team has excluded these second tier revenue streams from our unit analysis. Revenue is distributed between the restaurant, retail, and special functions as follows:

Revenue By Ser vice Offered

Retai l

21 %

Restau ra nt

72 %

S pec ia l

Fu ncti ons

7%

Restaurant Retail Special Function Total

$779,323 $233,797 $77,932 $1,091,052

Proforma projections assume a unit will be able to add six percent additional sales on this total sales number after 18 months of operation. This increase is attributed to increased traffic and average check.

High Gross Margins Desserts and beverages are the two highest gross margin items on any restaurant menu. Most desserts require relatively low cost, commodity ingredients, and are not very labor intensive to cook or serve. Though these advantages will be somewhat offset by the concept’s high quality, margins will still be more attractive than the “average” full-service restaurant:

Margin Analysis

Restaurant Sales Retail Sales

Special Functions Desserts/Food Soft Bev. Hard Bev.

Gross Margin 74.5% 85.0% 80.0% 65.0% 75.0%

% of Sales 50.0% 14.3% 7.1% 21.4% 7.1%

Margin Contribution 37.3% 12.1% 5.7% 13.9% 5.4%

Wt’d Avg. RFD Margin 74.4% Nat’l Restaurant Assoc. Full Service Avg. 66.9%

Dollar margins will also be preserved with a premium pricing strategy. Relative to four-star, fine dining establishments, the RFD experience is value-priced. However, compared to other desserts offered in restaurants, the concept is positioned in the upper quartile of prices. Use of a prix fixe menu focused on sampler portions and a minimum per guest charge will ensure margin goals are achieved. The attached proformas assume production efficiencies facilitate an additional 10% reduction in COGS, spread across years 3-5.

Low Per Unit Investment Costs RFD’s lite entree menu (salads, soups, sandwiches, etc.) eliminates the need for traditional kitchen equipment and preparation space, lowering the investment required in each unit. Additionally, much of the required baking equipment can be leased, further lowering capital requirements and up-front cash investment. Working capital needs are also low given the

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Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act. 899-008

19

cash nature of the business. These factors combine to produce per unit investment costs below $500,000.

Property, Plant, & Equip.

Furnishings $42,000

Baking Equipment $70,000

Leasehold Improvements $245,000

Information Systems $10,000

Deposits & Prepaids

Rent $20,417

Utilities $2,455

Insurance $5,000

Other Capitalized Costs

Professional Services $25,000

Grand Opening Promotions $11,031

Licenses & Permits $50,000

Total Investment $480,902

Working Capital $58,558

Training $18,388

Opening Inventory $4,686

Contingency $50,000

Total Start-Up Cost $612,534

The attached proformas assume all units require purchase of brand new baking equipment. To the extent used equipment is acquired, equipment is lease-financed, or commissary production is used, financial projections will appear more favorable.

Geographic Expansion Once the economics presented above are substantiated by the performance of the first location, the company will seek to expand regionally. By the end of 1999, ten units will be opened throughout New England. Thereafter, expansion of corporate owned stores will continue in other regions of the country. By the end of year five (2002), RFD will have built national brand recognition as a fine-dining chain with 44 units and $48 million in sales.

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

0. 3 2. 4

7. 6

17. 9

31. 9

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30. 0

40. 0

50. 0

60. 0

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

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T otal Rev en u es (millio n s $)

1997 1998 1999 2000 2001 2002

1 4

10

20

32

44

0

10

20

30

40

50

1997 1998 1999 2000 2001 2002

T otal Un its

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899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

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Ann u al Gro wth -- All Un its

(5,000)

0

5, 000

10, 000

15, 000

20, 000

25, 000

30, 000

35, 000

40, 000

45, 000

50, 000

1997 1998 1999 2000 2001 2002

$ 000s

Revenues G ross Margin Net Income

Cash F lo w -- All Units

(6,000)

(4,000)

(2,000)

0

2, 000

4, 000

6, 000

8, 000

10, 000

97 98 99 00 01 02 03 04

$ 000s

Annual Cash F low Cummulat ive CF

Although the individual unit economics are compelling, the company as a whole will not achieve significant profitability or cash flow until year five. RFD has elected to incur the expenses associated with opening locations in new geographic areas as soon as possible. Management believes the benefits that can be obtained by early market penetration and economies of scale will create critical long-term competitive advantages, such as:

 obtaining better real-state

 building brand recognition and customer loyalty before competition arrives

 reducing COGS through corporate purchasing and commissary production

 facilitating an exit strategy of an IPO or a sale to a large chain restaurant company

Following the growth strategy proposed here, by the end of 2002 the value of the company could be in the range established by previous industry transactions:

Valuation Criteria .4x Sales 14 P/E 15x EBIT 25 P/E 10x EBITDA 1.5x Sales

Enterprise Value ($mm) 19.2 21.3 35.2 38.1 59.5 72.1

The proformas that are attached represent only the financial performance of an individual unit, as RFD’s first financial stage is for the purpose of launching this unit. (See Appendix C.) The revenue and cash flow projections shown above assume unit growth according to the accompanying chart. Each new unit added exhibits the same characteristics as the initial unit (though RFD management will move down a learning curve for efficiency and effectiveness in opening new stores). Corporate overhead as a percent of sales is assumed to be the following (spike in 1999 is due to launch of national expansion plan):

1997 1998 1999 2000 2001 2002

12.7% 3.5% 5.4% 3.6% 2.5% 1.8%

Revenue Assumptions

The following assumptions were used to develop the attached proforma financial statements, and reflect management’s conservative estimation of each variable.

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Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act. 899-008

21

Restaurant Sales Restaurant sales are driven by the following formula:

Average Check Per Person ($10) x Number of Seats (70) x Number of Turns per Seat per Day (3) x Days Open (360)

The $10 average check is based on the use of a prix fixe menu options with a check minimum per person requirement. Meeting this check goal is not an unreasonable assumption. A survey of 25 individuals in the RFD target market, using the sample menu presented in Appendix A, yielded an average check transaction of $10.37 per person. Eighty-five percent of respondents envisioned being on a date. Some saw the experience as a special occasion and were more willing to pay for quality products and services. Even when participants chose to share a single dessert, the average check goal was met. Below are the results:

Items

Ordered

Drinks

Ordered

Total

Sales

Customer

Count

Average Check/

Person

21 25 $259.20 25 $10.37

Considering retail, restaurant and back-room operations, 70 seats yields space requirements below 2,500 square feet – an upper boundary given the high cost of real estate in high traffic locations. These high traffic locations, however, are one of the drivers the turns/seats assumption of three times per day. The other driver is the ability to rapidly turn over tables with short production lead times and fast table service. The seats and turns assumptions result in customer traffic expectations of 210 per day, or approximately 1500 per week. This compares favorably with the following benchmarks:

Side Berns Jeff’s Desserts Pastiche

Customers/Week 1400 1700 1500

Retail Sales RFD will sell cakes and pies, bottled liqueurs and spirits, and the special ingredients we use in our recipes. Our proforma financial statements assume the concept sells only 12 cakes per day at $40 per cake (versus 25 cakes per day sold at each Rosie’s Bakery in the Boston area), and five bottles of wine and spirits per day at $15 per bottle (versus 12 bottles per day of cognac sold at Martinetti’s liquor store in Brighton). Any additional sales of cakes, wine and spirits, or any other signature ingredients would augment RFD’s unit revenues.

Special Events RFD will have a special function room for meetings, showers, parties, etc. In addition, the pastry preparation station located in the main dining room will facilitate hosting special classes about baking, selecting wines, and other topics that interest our target market. We expect to offer eight classes per year of six sessions each, at $20 per session (yielding $120 per person per class). We assume a subscription rate of 40 people per class. These assumptions are consistent with the experience of Side Bern’s in offering a similar program.

Cyclicality & Seasonality

Many restaurant analysts believe the cyclicality of the industry will dissipate as the proportion of food dollars spent on meals eaten outside of the home exceeds 50% of the total food budget (which occurred in 1996). Management believes this concept can be positioned as even more “recession- proof” than the average restaurant, because of our emphasis on “affordable indulgences.” During the great depression, movie ticket sales boomed. Historians hypothesize this occurred because people needed to find an affordable indulgence—a way to escape the hardship that surrounded them. Though this is an extreme example, it illustrates our point. If and when a full-menu fine dining experience becomes too great a luxury, a trip to RFD can be an affordable alternative.

For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

22

Seasonality will also affect RFD’s business to some extent, and is reflected in the Unit Proformas. Aggregate NRA data shows most retailers see a dip in sales after the traditional holiday season. After February, eating and drinking establishments have typically seen sales increase steadily throughout the warmer months. At the onset of the school year in September, sales take another dip. At year end (December and the holiday season) there is a slight jump up in restaurant activity. Understanding these chronic industry swings, we will be able to plan accordingly for labor, purchasing, inventory and other operational concerns.

Other Major Assumptions

Labor Having a focused menu limits the need for professional chefs in each unit. In addition, though our service will be fine-dining quality, our emphasis on “one-course” will allow us to increase the utilization of our servers because they will have to make less trips to each table for which they are responsible. The following table summarizes our anticipated staff for each unit:

Position Salary # Req’d

General Manager $ 40,000 1

Assistant Manager $ 30,000 1

Servers (40hrs, excl. tips) $ 5,200 8

Bartender $ 16,640 1.5

Maitre D’ $ 14,560 1.5

Pastry Artists $ 20,000 4

Busboys $ 10,400 2

Chef/Kitchen Manager $ 35,000 1

Rent RFD’s concept relies upon locations that have high foot traffic and/or a high concentration of high disposable income people. This translates into relatively expensive real estate costs. Our projections assume an average cost per square foot of $50. Super-premium areas, like Newbury Street in Boston, will cost $60/sq. ft. or more.

Balance Sheet Items Required cash is assumed at 2% of sales, a relatively low number due to the cash nature of the business. Receivables are at 3 days sales, representing sales made on credit cards. Inventory turns 4 times per month, showing an average between higher perishable food turns and lower turns of merchandise for sale in the retail portion of the store. Accounts payable are estimated at 30 days COGS, an industry average. Other assumption are stated on the proformas.

Break-even & Sensitivity Analysis

At the bottom of the cash flow statement for the prototype unit, a break-even analysis is presented for the first 5+ years of operation. The results are summarized here:

1997 1998 1999 2000 2001 2002

B-E Sales Level $661,669 $940,243 $929,249 $925,422 $912,617 $847,141

% of Expected Sales 208% 87% 82% 77% 76% 71%

After the initial year’s ramp-up period, the unit’s break-even point versus expected level of sales becomes increasingly favorable. The break-even is sensitive to numerous variables, the two most important of which are average check and table turns/ traffic. RFD’s break/even average check, holding all other variables constant, is approximately $8. RFD’s break-even table turns, holding all

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Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act. 899-008

23

other variable constant, is approximately 2.25. The management team is confident that these numbers are attainable.

Financing

The unit-level proformas that are attached assume the start-up capital of $600,000 (see use of proceeds in investment section above) is financed by private placed convertible debt (70%) and equity (30%). RFD management seeks accredited investors who either (1) have restaurant experience, understand the nature of the industry, and seek an opportunity to add value to management team as advisors or (2) view this investment as an addition to their diversified portfolio of angel capital investments. Investors in the initial round will receive common stock and debt convertible into common stock based on certain investor or management triggers (described in a separate document). The initial round of financing buys the management team the ability to launch and prove the concepts viability with an initial unit. Once this is accomplished, an additional $4,000,000 will need to be raised in two separate financing rounds that occur in 1998 and 2000. The first of these rounds will most likely be privately placed debt and equity. The second round will be presented to venture capitalists, who generally refuse to examine restaurant deals until the restaurant concept and economics are fine tuned.

Scenario Analysis

If the first unit performs below expectations, management will forgo expansion plans and focus all energies on this unit. In this case, the concept and marketing mix will be modified to maximize cash flow. This could result in either (1) a simple delay in regional/national roll-out as fine-tuning occurs, (2) a decision to operate a single unit only, using cash-flow to payback investors, or (3) a decision to discontinue operations, in which case investors will receive the proceeds from liquidation of the firm’s assets. If, on the other hand, performance far exceeds management’s estimation, expansion capital will be sought sooner and a national roll-out will be pursued aggressively.

Risks

Certain negative events can cause RFD’s performance to fall below expectations. These include:

 Economic Model doesn’t work: RFD’s assumptions about average check and table turns fall far below management estimates.

 Competition intensifies: Other competitors seek to enter the Dessert-Focused Fine Dining segment, either in RFD’s immediate market, or in other markets (limiting opportunities for expansion).

 Consumer trends shift: If eating in moderation is actually only a “fad,” and the health craze becomes a health norm, a dessert-focused concept will have limited appeal.

 Real Estate is difficult to obtain: RFD’s economic model assumes $50/sq. ft. annual rent. To the extent that quality locations cost significantly more that this, RFD’s economic model deteriorates.

The management team and board of directors will promptly respond to these risks should they occur.

For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

24

Appendix A Sample Menu

For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

8 9

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For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

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For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

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For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

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For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

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For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

30

Appendix D Team Member Resumes

For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act. 899-008

31

Appendix D Team Member Resumes (continued)

For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.

899-008 Business Plan for Room For Dessert: Adding Unique Ingredients to life's balancing act.

32

Appendix D Team Member Resumes (continued)

For the exclusive use of J. STUDENT, 2015.

This document is authorized for use only by JWMI STUDENT in 575 taught by JWMI FACULTY, Strayer University from April 2015 to October 2015.