RealLife Project Caracas Arepa Bar 2004 Section B

Real-Life Project: Caracas Arepa Bar, 2004 Section B Group 6 Claudie Chaumette Eirikur Jenson Hang-Tung Li Majugo Kamuntu Luís Viana Miguel Yanes

Caracas Arepa Bar, 2004 1. Company Overview 2. Strategic Diagnostic 3. Development Plan for the Business 4. Critical Assumptions

1. Company Overview

Timing April 2003: §Arístides and Maribel come up with the idea July 2003: §Birth of Caracas Arepas Bar §Caracas Restaurant LLC (Limited Liability Corporation) §Applause by NY media (NYT) Nowadays: §Congestion §Business propositions

Products and Services Food: § Arepas: traditional Venezuelan dish § Others: cachapas, empanadas, tequeños or chicha Distribution: § Diner with 20 seats, recreating Venezuelan typical experience § Take away/deliveries Extras: § Artisanal Venezuelan products on sale

2. Strategic Diagnostic External Analysis

Restaurant Performance in USA n We analyze the restaurant companies listed in the NYSE & NASDAQ and compare to Caracas Arepa Bar performance. Profitability Gross margin % 27. 3 Caracas Arepa Bar % 71. 8 Operating margin % Net profit margin % 12. 6 25. 3 11. 2 15. 8 (1) Source: Reuters Restaurant Industry % (1)

USA Growth Trends in the Restaurant Industry n The year 2004 will mark the 13 th consecutive year of real sales growth for the restaurant industry EATING PLACES (2) Full-service restaurants ’ 03 -‘ 04 Change ’ 03 -’ 04 Real Change ’ 01 -‘ 04 Compound Annual Growth 4. 6% 2. 1% 4. 1% 3. 9 1. 5 3. 5 -11. 1 -13. 5 -10. 2 Social Caterers 5. 0 2. 6 4. 3 Snack and nonalcoholic beverage bars 8. 1 5. 7 9. 3 TOTAL Eating Places 4. 4% 2. 0% 4. 0% Limited service restaurants Commercial Cafeterias (2) Source: National Restaurant Association

NYC Restaurant Industry Facts n n n (3) NYC restaurant industry turnover $9 billion Employing over 160, 000 individuals There about 17, 132 restaurants in the NYC area The average cost of a dinner is $37 Every year around 200 new restaurants are opened in NYC, and similar number closed during the same period (3) Sources: Zagat & State of the US Tourism Industry

Trends That May Affect Future Growth n n n Terrorist attacks Economic growth in US Food epidemic issues

2. Strategic Diagnostic (cont. ) Competition & Internal Analysis

Porter five forces Potential Entrants Industry Competitors Buyers Suppliers Rivalry Among existing firms Substitutes

Cost, Speed and Value Low cost q Speed q q Customer ee Sp Sp ee d q e/ q The food is fresh Superior service Ethnic ambiance lu q d Value Va n First to market with Arepas The food quick to serve lu e/ n Cost similar to fast food lower than middle range restaurants Va n Company Cost/Speed Competitor

Internal Diagnosis § A very market-oriented business § Energetic movers with the know-how

Internal Diagnosis Main competences: § Product innovation § Customer service § Product manufacturing / Manufacturing management § Supply Chain Management

SWOT Analysis Strengths: Weaknesses: § The founders § The product § Know how § The facilities § Exclusive relationships § Few barriers to entry with key suppliers

SWOT Analysis Opportunities: § Product § First mover advantage § Media attention § External offers of capital § New restaurants § Catering § Franchising Threats: § Economic outlook § Competition § Manage hype

3. Development plan for the Business Vision, Mission, Value Proposition & Value Engine

Development plan Vision n Establish Caracas Arepa Bar as an alternative to the selection of restaurants in the USA n Establish Venezuelan arepas as an alternative in the American gastronomy Mission n Open up two Caracas Arepa Bar restaurants during the next five years in New York City n If 1. is successful, then franchise Caracas Arepa Bar in every major city in the USA Value Proposition n Bring fresh, homemade style Venezuelan food, enveloped in a friendly Venezuelan ambiance at a price that compares to fast food

On the Mission Organic Expansion (medium term) n Two restaurants in the next five years n Ideal features: 10 tables (2 more), separated space for take-outs, very small kitchen

On the Mission Franchising (medium-long term) (3) n Expansion with lower investment n Flexibility n Entrepreneurial resources n Motivation q Deficient replication of original concept (3) Sources: KOTLER (2003) and GANT (2002)

On the Mission Franchising (medium-long term) – a possible supply model Caracas Arepa Bar 3 Caracas Arepa Bar 1 Arepas Factory Caracas Arepa Bar 2 Caracas Arepa Bar 4

Value Engine Market Segmentation: § § § Age: between 21 and 40 years old (70%) Income level: income level of 30, 000 to 45, 000 US$ a year (40%) Way of distribution: take out/ deliveries and inside diners (50% each) Expected predominance of value buyers

Value Engine Value Proposition Design § To bring fresh, homemade style Venezuelan food, enveloped in a friendly Venezuelan ambiance at a price that compares to fast food. § Stress: in value, providing that cost and speed are at acceptable levels

Value Engine Generic Value Proposition Naked Product: Fresh Venezuelan food Naked Product, with Options: Take-out, delivery, eat-in Augmented Product: Atmosphere, service

Value Engine Value Position / Cost Position Matrix Superior VALUE POSITION VALUE LEADER VALUE AND COST LEADER INFERIOR POSITION COST LEADER Inferior COST POSITION Superior

Value Engine Value Position / Price Matrix SUPERIOR VALUE High VALUE POSITION Low INFERIOR VALUE High Low PRICE

Product Life cycle Sales In 5 years Present Introduction ? Growth Maturity Time Decline

3. Development Plan (cont. ) Financials (medium term plan)

Forecasting Assumptions n n n Two new restaurants in the next five years New restaurants would be 30% bigger The price per transaction would be kept at historic base, US$ 10 Gross margin, labor cost, repair and maintenance, and other costs assumed as variable costs and based on historic patterns Investment required: US$ 90 k for each restaurant

Caracas Arepa Bar LLC Actual Performance

Forecast Analysis … Forecast

Cash Flow Analysis, NPV & Adjusted IRR Caracas Arepa Bar LLC Six years Forecast & Financial Analysis (US$ 000's omitted) Cash Flow Analysis Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Sales 411 547 913 1, 040 1, 390 1, 310 COGS 116 154 258 299 412 388 Gross Margin 295 393 655 741 978 922 Total Other Costs 231 318 542 618 833 796 Cash Flow from Operations 64 75 113 122 145 126 Depreciation 20 50 60 30 - Taxable Income 44 25 63 62 115 96 126 Income Tax (25%) 11 6 16 29 24 31 Net Cash Flow 53 69 97 107 116 102 94 Investments…. . (60) (90) 20% 21. 4% 8% … NPV $141 Expected return Adjusted IRR Alternative project return Forecast

4. Critical Assumptions Some factors may undermine the effectiveness of the strategy: n Replication: possible? n Management resources: feasible stretching? n Human resources: able to find desired profiles? Able to train and motivate? n Volatile market: arepas a mere ephemeral fad? n Competition: will they also grab the idea? n Real estate market: able to find adequate facilities?

Questions?