uh ready to dive into the case yeah let's do it great so here's the case question so your client is a publicly traded casual dining operator so their portfolio includes about 1600 restaurants in the American comfort food chain comfort food genre so it's organized under three banners all of the restaurants serve three meals per day and provide Full Table service so you know wait stop taking orders bringing meals to the table clearing up afterwards there's a small percentage of locations that offer call ahead takeout or curbside pickup but it's not really a material portion of revenues today um so the client is concerned they've experienced a five percent Revenue decline each of the last two fiscal years uh so worsen their peers but it's reflective of stagnation in the industry overall but despite this in their most recent conference call the CEO of the client announced a five-year vision of returning to two and a half percent Revenue growth uh so the the CEO is Keen on this fast casual segment right and that sits between casual dining where the client is now and fast casual so it offers intermediate price point food um at a quality that would be superior to fast food but it doesn't really do table service at all so customers typically order at the counter and then they'll take the majority of those meals to eat off-premises so we've been brought in the team here has been brought in to evaluate the attractiveness of entering this Market the fast casual Market so how would you propose to structure a work plan for that okay great um there's a lot of information do you mind if I just repeat back the key point so it sounds like a client is a restaurant in the United States a restaurant chain with about 1600 locations three different banners sounds like it's a traditional dine in uh setting business-wise they've experienced five percent Revenue decline in the last two years that's worse than their peers but overall the industry is sounds like it's slowing growth or or losing growth and their target is within five years from the CEO wants to see 2. 5 percent Revenue gross and they're looking at a fast casual segment as a way to meet that goal is that correct that's right yeah okay um so I guess to get sort of happy to put together a case here it looks like the Mandate that the CEO wants is around revenue is there any uh desire or metric to keep in mind when it comes to uh profitability um I think right now uh let's let's keep it on Top Line and focus on Revenue that's a great question okay and then our scope is just going to be the fast casual segment um any any other growth levers to consider um I think for now we'll just think about fast casual yeah okay sounds good do you mind if I take a minute to put together a structure yeah absolutely okay great so I have um three buckets that I want to look into the first is the overall Market the fast casual Market in the United States so um I want to look at its size and growth to see if it will be attractive enough to meet our 2. 5 percent growth Target I would also love to get some competitor profiles to understand a little more about who's in the market today um I think the key thing there might be to look at it geographically uh it's some fast casual change or national but you know they look different in different regions so and we could see different Dynamics there you might also want to look at it different types of food that that are being you know served in the market today there's a lot of fast casual burrito change so just try to get an understanding of maybe what's what's already taken what's missing like where could we find a niche um then would want to look at you know the market share uh I would assume it's a pretty fragmented Market from what I see so um it eventually could become a concern in terms of profitability uh and then also want to look at barriers to entry so I think the biggest ones would be acquiring new customers and in real estate a lot of fast casual is well convenience is a big part of the value proposition so you have to find locations where it's on the way home from work for a lot of people Etc um and the second bucket would be the customers so I want to know you know who who are they and why do they buy basically so who are they just their demographic um information different segments of the market it would be good to I think do a segmentation analysis and try to see who would be the best customer um and then maybe look at their buying pattern so you know are they how sensitive are they to discounts or Price or you know what what are the things that lead to the purchase is it is it really just convenient is it more than that um then why do they buy so so what drives their their purchasing decision maybe do some ethnographic research on kind of the the you know the the thing the thoughts that are going through their head when they actually decide on past casual and then a specific restaurant uh and then maybe what are their pain points today with the current um the current market participants the last thing I would look at is capabilities which I think would be different if we're doing a build versus a buy so build out we'd have to look at branding do we leverage our current brand start a new brand um you know how we set up a different operating model for a fast casual restaurant than a dine in restaurant right uh we need to do some hire some you know wait staff some some corporate staff too probably uh buying we would need to do it an m a scan uh lineup financing and think about integration capabilities got it so that that is what I would consider and at first I'd love to start first with the market if we have any information on the overall market in terms of its size or growth would be great that's great I like the structure you laid out that feels messy to me feels like there's a lot of really good analysis in there um yeah let's dive into the market okay so actually uh a colleague on your team has emailed around a report on the fast casual market and as you're flipping through it on Monday morning the cab to the airport you see this chart on Market size and growth I'm going to pull up a chart here okay well I'd like you to have a look at this chart and tell me do you think this is uh growing fast enough to achieve the CEO's goals yeah so um first of all looks like that uh about a 30 billion dollar market today the the goal is to get to 2.
5 Revenue growth and by year five so I'm just gonna take a look at the Delta between your four and five and it looks like it's about um 500 million over a base of about 40 billion that's yeah that's about 12 I mean certainly would meet the Target and then just you know with the next year it looks like a comparable jump um yeah I mean it looks like about 10 growth throughout this period so okay that's uh much more attractive than um well that's better than their current performance do we know anything about the um their peer set performance yeah that's a great next place to dive into it lines up with your framework um so yeah in in one of the team meetings the partner in the case reminds you that however focused the CEO is on Top Line growth uh we are scoped to analyze the market holistically and uh we're asked to start investigating the profitability in a segment and uh pull out the top 10 public fast food competitors and compile a p l Benchmark um as you begin to do so you quickly line up the client's p l up against the first competitor whose financials you've pulled uh and I am going to change to that slide now here we go so this is our client against a fast casual competitor what differences do do You observe here okay so it looks like they have about the same number of restaurants a similar footprint um um what is auv oh average unit volume yeah the second line is per store average unit volume yeah okay um great yeah okay we see the growth difference here 10 for fast casual about negative five for us uh ticket price is much higher for our client about four times higher a little more so I mean that that's maybe uh the average ticket price of about fifty dollars must be a nice restaurant so this is not really adjacent to fast casual so that could pose some risk down the road for um from actually executing this but uh looking at the income statement looks like our client average restaurant is about seven uh seven billion um the fast casual about 4 billion um we have higher Cog higher labor uh higher costs throughout and about similar ebitda but we actually have a much higher base so actually a much smaller margin yeah I'd like to just calculate uh the ebitda margin to do an Apples to Apples comparison if that works sure yeah that's great uh and uh well I'll do the store level margin of so their stores about a thousand over four thousand about 25 percent and we have about 14 over 70 about 20 percent so um and then ebitda is about 20 margin for fast casual and about 12 to 13 for us so six significantly higher um so this tells me that both from a revenue perspective and a profit perspective fast casual is a much better environment to be in got it got it no those are great insights So based on this that the market or the the partner feels really good about the market fundamentals the growth and the profitability it really compares favorably to the client's performance so as we've already seen though the players and the core competencies in the fasc Casual segment are uh a little different so he's worried about the feasibility of Market entry so I'm hoping to do a little brainstorm here on uh what what are some potential barriers to entry that the client might face okay um yeah that that makes sense I think the biggest thing or one really big thing is going to be customer acquisition so um you know it's nice that we have a current sizable footprint and a list of customers but that we can use but they don't really know the the brand of fast casual if we start one and then we have to think about do we use our current brand in any way or do we establish an entirely different brand but um either way you look at it trying to acquire new customers in this space I think it's going to be difficult um because it is so fragmented at least from my perspective uh I think operationally there could be some challenges because it seems to be so different than their current operations given the average ticket price is like four times higher uh it's an entirely different environment setting um staff you know and so um there's that that is a consideration um okay I think getting getting to know the customer so it's you know to a point where we can differentiate we have to understand you know what really matters to the customer so we have to spend some time on that and then I think I mentioned this before real estate I think a lot of this is going to be about getting a good location so it it could be hard to do that if you know there are um you know we're entering cities where there's already a fast casual restaurant on every corner so to speak got it those are those are really good do you have any uh any other suggestions you can give me um as far as barriers entry I think um you know regulation we should I don't think we'll have any problems with that because we're already you know obviously a restaurant familiar with serving food sure um I mean it's a tight labor market so potentially could be difficult to find uh uh staff for the restaurant okay that's great that's really good um so okay moving on to to one other more quantitative piece during the midpoint check-in discussion on barriers to entry the CEO comments that in the current employment environment access to labor has already challenged The Core Business and uh has forced uh wages to to rise so we've been asked to investigate how acute the issue will be in fast casual so the partner proposes to run a sensitivity analysis on the impact of a one dollar increase in hourly wages on profit margin for both the client as well as the fast casual operator so you're given the data uh you know you don't really have to to have it live in the meeting here um yeah the the typical fast casual store has 40 hourly employees so that's one piece of data here 40 hourly employees uh the typical client store has 90 hourly employees uh the typical fast casual hourly employee Works 25 hours a week and the typical client hourly employee Works 30 hours per week got it so just to make sure I understood the client typical hourly employee uh 30 hours a week and there are 90 of them the fast casual chain has about 40 hourly employees and they work 25 hours a week and our objective is to look at like how the I'd say the overall cost would increase with a one dollar wage increase that's right okay yeah um so then I'm going to look at an end like an annual on an annual basis and we have for the client 90 hourly employees 30 hours a week so it's 2700 um employee hours weekly and then I'm going to assume uh 50 weeks in a year to get the annual okay that's great yeah so I get 135 000 hours for the client and for the fast casual chain I'm going to do 40 times 25 which is a thousand times 50 weeks which is 50 000 um hours and then we're talking about a one dollar an hour increase so please easily just convert to dollars so you have 135 thousand dollars more in labor costs for our client and 50 000 more for the Casual uh chain this would be per store so if uh I remember this correctly from earlier the client average uh sales for stores like 4. 5 million and the uh fast casual was it was it 2. 5 you know what maybe I should bring the data back up here okay yeah yeah okay um yeah the auv I'm looking at 2.
5 for the for the client for fast casual excuse me yeah and I'm going to say 4.
