Real-Life Project:Caracas Arepa Bar, 2004

Section BGroup 6

Claudie ChaumetteEirikur JensonHang-Tung Li

Majugo KamuntuLuís Viana

Miguel Yanes

Caracas Arepa Bar, 2004

1.Company Overview2.Strategic Diagnostic3.Development Plan for the Business

4.Critical Assumptions

1. Company Overview

TimingApril 2003:Arístides and Maribel come up with the idea

July 2003: Birth of Caracas Arepas BarCaracas Restaurant LLC (Limited Liability Corporation)Applause by NY media (NYT)

Nowadays: CongestionBusiness propositions

Products and ServicesFood: Arepas: traditional Venezuelan dish Others: cachapas, empanadas,

tequeños or chichaDistribution: Diner with 20 seats, recreating

Venezuelan typical experience Take away/deliveriesExtras: Artisanal Venezuelan products on sale

2. Strategic Diagnostic

External Analysis

Restaurant Performance in USA We analyze the restaurant companies listed

in the NYSE & NASDAQ and compare to Caracas Arepa Bar performance.

Profitability Restaurant Industry

% (1)

Caracas Arepa Bar

%Gross margin %

27.3 71.8

Operating margin %

12.6 25.3

Net profit margin %

11.2 15.8(1) Source: Reuters

USA Growth Trends in the Restaurant Industry The year 2004 will mark the 13th consecutive year

of real sales growth for the restaurant industry

EATING PLACES (2)’03-‘04Change

’03-’04 Real

Change

’01-‘04Compound

Annual Growth

Full-service restaurants 4.6% 2.1% 4.1%

Limited service restaurants

3.9 1.5 3.5

Commercial Cafeterias -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%(2) Source: National Restaurant Association

NYC Restaurant Industry Facts (3)

NYC restaurant industry turnover $9 billion

Employing over 160,000 individuals There are 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

Terrorist attacks Economic growth in US Food epidemic issues

2. Strategic Diagnostic (cont.)

Competition & Internal Analysis

Industry Competitors

Rivalry Among existing firms

Suppliers

Potential Entrants

Buyers

Substitutes

Porter five forces

Cost, Speed and Value

Low cost Cost similar to fast food lower than middle

range restaurants Speed

First to market with Arepas The food quick to serve

Value The food is fresh Superior service Ethnic ambiance

Customer

Company Competitor

Value/

Speed Value/Speed

Cost/Speed

Internal Diagnosis

A very market-oriented business

Energetic movers with the know-how

Main competences: Product innovation Customer service Product manufacturing /

Manufacturing management Supply Chain Management

Internal Diagnosis

Strengths: The founders The product Know how Exclusive

relationships with key suppliers

SWOT Analysis

Weaknesses: The founders The product The facilities Few barriers to

entry

SWOT AnalysisOpportunities: 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 planVision Establish Caracas Arepa Bar as an alternative to

the selection of restaurants in the USA Establish Venezuelan arepas as an alternative in

the American gastronomy Mission Open up two Caracas Arepa Bar restaurants during

the next five years in New York City If 1. is successful, then franchise Caracas Arepa

Bar in every major city in the USAValue Proposition 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) Two restaurants in the next five years Ideal features: 10 tables (2 more),

separated space for take-outs, very small kitchen

On the Mission

Franchising (medium-long term) (3)

Expansion with lower investment Flexibility Entrepreneurial resources Motivation

Deficient replication of original concept

(3) Sources: KOTLER (2003) and GANT (2002)

Caracas Arepa Bar 1

Caracas Arepa Bar 2

Caracas Arepa Bar 3

Caracas Arepa Bar 4

Arepas Factory

On the MissionFranchising (medium-long term) – a possible supply model

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 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

Value Engine

Naked Product:

Fresh Venezuelan

food Naked Product,

with Options: Take-out,

delivery, eat-in

Augmented Product:

Atmosphere, service

Value EngineValue Position / Cost Position

Matrix

VALUE LEADER VALUE AND COST LEADER

INFERIOR POSITION

COST LEADER

Superior

Inferior

VALUE POSITION

Inferior Superior COST

POSITION

Value EngineValue Position / Price

Matrix

SUPERIOR VALUE

INFERIOR VALUE

High

Low

VALUE POSITION

High PRICE

Low

Introduction Growth Maturity Decline

Time

Sal

es

Present

In 5 years

Product Life cycle

?

3. Development Plan (cont.)

Financials (medium term plan)

Forecasting Assumptions

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$ 90k for each restaurant

Caracas Arepa Bar LLCActual Performance

Caracas Arepa Bar LLC(P&L Analysis)

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Net Income

Sales

GrossMargin

Forecast AnalysisCaracas Arepa Bar LLC

Forecast Analysis

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140

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Net CashFlow

Sales

GrossMargin

… Forecast

Cash Flow Analysis, NPV & Adjusted IRRCaracas 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 1,310

COGS   116 154 258 299 412 388 388

Gross Margin   295 393 655 741 978 922 922

Total Other Costs   231 318 542 618 833 796 796

Cash Flow from Operations   64 75 113 122 145 126 126

Depreciation   20 50 50 60 30 30 -

Taxable Income   44 25 63 62 115 96 126

Income Tax (25%)   11 6 16 16 29 24 31

Net Cash Flow   53 69 97 107 116 102 94

Investments….. (60)   (90)   (90)      

NPV $141              

Expected return 20%              

Adjusted IRR 21.4%              

Alternative project return 8%     … Forecast      

                 

4. Critical Assumptions

Some factors may undermine the effectiveness of the strategy:

Replication: possible? Management resources: feasible stretching? Human resources: able to find desired

profiles? Able to train and motivate? Volatile market: arepas a mere ephemeral

fad? Competition: will they also grab the idea? Real estate market: able to find adequate

facilities?

Questions?