Fast food restaurant Essay Example for Free

Fast food restaurant Essay Description of Great Burger GB is the fourth largest fast food chain worldwide, measured by the number of stores in operation. As most of its competitors do, GB offers food and combos for the three largest meal occasions: breakfast, lunch, and dinner. Even though GB owns some of its stores, it operates under the franchising business model with 85 percent of its stores owned by franchisees (individuals own and manage stores, pay franchise fee to GB, but major business decisions (e.g. , menu, look of store) controlled by GB). McKinsey study As part of its growth strategy GB has analyzed some potential acquisition targets including Heavenly Donuts (HD), a growing doughnut producer with both a U. S. and international store presence. HD operates under the franchising business model too, though a little bit differently than GB. While GB franchises restaurants, HD franchises areas or regions in which the franchisee is required to open a certain number of stores. GBs CEO has hired McKinsey to advise him on whether they should acquire HD or not. 1. What areas would you want to explore to determine whether GB should acquire HD? The team started thinking about potential synergies that could be achieved by acquiring HD. Here are some key facts on GB and HD. Exhibit 1 |Stores |GB |HD | |[pic]Total |5,000 |1,020 | |[pic][pic]North America |3,500 |1000 | |[pic][pic]Europe |1,000 |20 | |[pic][pic]Asia |400 |0 | |[pic][pic]Other |100 |0 | |[pic]Annual growth in stores |10% |15% |. |Financials |GB |HD | |[pic]Total store sales |$5,500m |$700m | |[pic]Parent company revenue |$1,900m |$200m | |[pic]Key expenses (% sales) | | | |[pic][pic]Cost of sales |51% |40% | |[pic][pic]Restaurant operating costs |24% |26% | |[pic][pic]Restaurant property equipment costs |4. 6% |8. 5% | |[pic][pic]Corporate general administrative costs |8% |15% | |[pic]Profit as % of sales |6. 3% |4. 9% | |[pic]Sales/stores |$1. 1m |$0. 7m | |[pic]Industry average |$0. 9m |$0. 8m | [pic] 2. What potential synergies can you think of between GB and HD? 3. The team thinks that with synergies, it should be possible to double HD’s U. S. market share in the next 5 years, and that GB’s access to capital will allow it to expand the number of HD stores by 2. 5 times. What sales per store will HD require in 5 years in order for GB to achieve these goals? Does this seem reasonable? Use any data from Exhibit 1 you need, additionally, make the following assumptions: †¢ Doughnut consumption/capita in the U. S. is $10/year today, and is projected to grow to $20/year in 5 years. †¢ For ease of calculation, assume U. S. population is 300m. 4. One of the synergies that the team thinks might have a big potential is the idea of increasing the businesses overall profitability by selling doughnuts in GB stores. How would you assess the profitability impact of this synergy? 5. What would be the incremental profit per store if we think we are going to sell 50,000 doughnuts per store at a price of $2 per doughnut at a 60 percent margin with a cannibalization rate of 10 percent of GBs sales? Exhibit 2 |Sales and profitability per store | | |Units of GB sold per store |300 thousand | |Sales price per unit |$3 per unit | |Margin |50 percent | | | |Units of HD sold in GB stores |50 thousand | |Sales price per unit |$2 per unit | |Margin |60 percent | |Cannibalization rate of HD products to GB products |10 percent | 6. You run into the CEO of GB in the hall. He asks you to summarize McKinsey’s perspective so far on whether GB should acquire HD. Pretend the interviewer is the CEO–what would you say?