Chili S Business Plan April 8, 2009MBA 851

Business Plan for a Chili’s Franchise

Prepared By

Nicky Cox Gary Houseman Tyrone Okrainetz

April 8, 2009 Chili’s Business Plan April 8, 2009 MBA 851

Executive Summary

The proposed business plan for a Chili’s franchise in Saskatoon, Saskatchewan has many advantages to an investor. This Chili’s franchise (referred to as Chili’s for the remainder of the report) will be located in the north end of the Preston Crossing Retail development. This location is visible and easily accessible from Circle Drive, the main thru fare in Saskatoon. This location is between the University of Saskatchewan campus and the expanding upscale residential areas of Silverspring, Erindale, and Willowgrove. Preston Crossing is also home to box stores such as Future Shop, Wal-Mart, and Canadian Tire which will attract customers to this area from every part of Saskatoon.

Chili’s is a high end family restaurant with great brand equity specializing in American and Tex- Mex cuisine. Chili’s offers a lunch and supper menu with products in 13 categories: starters, soups salads & sides, sandwiches, baby back ribs, steaks, fajitas, big mouth burgers, chicken, guiltless grill, seafood, create your own combo, desserts, and beverages. This wide variety of foods and beverages will attract all types of families throughout the city.

Since Chili’s is a franchise they already have an established brand name and the royalty fees will help attract customers from all over the city. Operating and marketing expenses are similar to any other restaurant with total expenses being under $1 million each year. Many staff members will be involved in the process to run a full time restaurant will 1 general manager and 2 assistant managers making most of the daily decisions for the other 60 employees. This establishment will be 3000 square feet and will have seating up to 300 people at a time and a maximum capacity of 3000 people per day. The average meal for dinner will be $25 and the average meal for lunch will be $15. Obviously a restaurant has many variables to consider such as sales, prices, staff and potential customers although a rough estimate was gathered to calculate sales which are the most critical variable. Being a new restaurant, it will be open for 360 days a year (which is average for this type of restaurant) and sales for the first year will be 1000 people per day. The second year will drop off slightly due to the restaurant not being new giving an average of 800 people per day. After the second year the quality of food and the exciting

2 Chili’s Business Plan April 8, 2009 MBA 851 atmosphere will have an affect on customer’s attendance causing daily visits to go back up to 900 people and level off for the remaining years in operation.

The analysis for this Chili’s restaurant was calculated over the next 6 years with a required return rate of 20% for investors. After extended financial documents were prepared, net income was over a million dollars every year. The net present value was established to be approximately $2.1 million with a return of 69.9% on an investment. There would also be dividends paid out throughout the years for investors to collect money at roughly 50% return.

With the strategic positioning of the restaurant and the steady economy in Saskatoon, Chili’s is another restaurant that can capture market share in the city. The high quality food and fun atmosphere that Chili’s will offer will allow customers to enjoy their meals and keep coming back in the future. This is a terrific opportunity for any investor since Chili’s can offer significant return on any investment. Even after a sensitivity analysis and break even analysis was conducted Chili’s is still seen as being highly profitable in almost all cases. Chili’s is a premiere franchise with many upsides and will be a great for Saskatchewan’s economy and for the culture and entertainment sector of Saskatoon.

Edwards School of Business, University of Saskatchewan 3 Cox, N., Houseman, G., Okrainetz, T. 2009 Chili’s Business Plan April 8, 2009 MBA 851

Table of Contents

Executive Summary 2

1.0 Introduction 6 1.1Industry Overview 7

1.2Mission Statement 7

1.3Goals and Objectives 7

1.4Financing 7

2.0Operations Plan 10 2.1 Location 10

2.2 Floor Plan 11 2.3 Quality Control Program 13 2.4 Average Business Day 13

3.0Human Resources 18 3.1 Organizational Strategy 21 3.2 Training 21

4.0 Marketing Plan 23 4.1 Competition 23 4.2 Customer and Target Markets 24 4.3 Product 25 4.4 Pricing Strategy 26 4.5 Place 26 4.6 Distribution 27 4.7 Promotional Strategy 27

5.0 Financial Plan 30

6.0 Conclusion 34

LIST OF TABLES Table 2.1 Shift Schedule by Hours 14 Table 2.2 Capital Budget 15 Table 2.3 Operating Expenses 16 Table 4.1 Competitive Locations 24 Table 4.2 Marketing Expenses 28 Table 5.1 Sensitivity Analysis 32 Table 5.2 Income Statement and Investment Analysis 33

4 Chili’s Business Plan April 8, 2009 MBA 851

LIST OF FIGURES Figure 2.1 Aerial View of Location 11 Figure 2.2 Floor Plan 12

LIST OF APPENDICES Appendix A: Income Statement with Investment Analysis Appendix B: Mortgage Appendix C: Balance Sheet Appendix D: Marketing Budget Appendix E: Capital Budget Appendix F: Cash Flow Statements Appendix G: Costs of Goods Sold and Staff Costs Appendix H: Ratio Analysis Appendix I: Best Case Scenario for a Sensitivity Analysis Appendix J: Worst Case Scenario for a Sensitivity Analysis Appendix K: Break Even Analysis Appendix L: Menu from a Chili’s

1.0 Introduction

The following business plan is for a Chili’s franchise to be established in Saskatoon, Saskatchewan. The Chili’s franchise will be located on the north aspect of the Preston Crossing retail area. This area is located on Preston Avenue North and is easily seen and accessed from Circle Drive, the main thru-fare in Saskatoon. Preston Crossing is situated between the University of Saskatchewan campus and the residential areas of Erindale, Silverspring, and Willowgrove. University students along with faculty and other staff commute past Preston Crossing every day. Preston Crossing includes many box stores which will attract customers to the area. Large names such as Wal-Mart, Future Shop, Old Navy, and Canadian Tire will bring customers to the area from most of the city. Chili’s will offer high quality American food influenced by Tex Mex cuisine in a relaxed fun environment. Chili’s offers a lunch menu consisting of appetizers, sandwiches, hamburgers, chicken and seafood, along with desert and drink menu. Chili’s supper menu consists of appetizers, burgers, steaks, ribs, chicken, and seafood along with drinks and alcohol.

The operating strategy and marketing is based on a financial analysis that demonstrates the viability of this business in Saskatoon. The key financials are as follows:

 Total revenue for 2008 is projected to reach $7,920,000.

 The gross profit margin from total revenue is estimated at 40%, this margin is expected to be remain consistent year over year.

 Net income, after taxes, in the first year of operations is expected to be $1,398,950 however by 2011 this will be maintained at $1,289,341.

 The ROI after taxes is 69.9%, for every $1 invested there is an earnings of $0.70.

 The Net Present Value is $ 2,098,507

 The expected internal rate of return on this investment is 69.9%.

 These are very positive returns given an initial equity investment of $500,000.

1.1 Industry Overview

The high quality family restaurant industry has many companies bidding for market share. In Saskatoon the main high quality family restaurant chains are Montana’s, Moxie’s, .The restaurant business in Saskatoon is growing based on the increased growth in population and increased economy of the Saskatoon region in the last few years. With a booming economy and new housing starts of 224 for 2008 there is a need for more restaurants in Saskatoon and this trend is expected to continue as Saskatoon has not experienced the economic slowdown affecting the rest of Canada With a median age of 35.5 years and an average income of $68, 000 customers in Saskatoon are looking for a high quality family restaurant to enjoy good food along with their children. Family restaurants are competing on high quality food and service at consistent levels for their customers. Chili’s has a great opportunity to benefit from this market.

1.2 Mission Statement

“ To be the leading Canadian Chili’s franchise in Saskatchewan, with a commitment to providing great food and service to the people of Saskatoon, while achieving growth through core competencies of our people.”

1.3 Goals and Objectives  To achieve a return on investment of not less than 20% per annum.  To provide high quality food and service in a fun enjoyable eating environment.  To gain some market share of customers that eat out in Saskatoon and maintaining sales set sales for a period of 6 years.

1.4 Financing

Gary Houseman, Nicky Cox and Tyrone Okrainetz are all MBA graduates in Saskatoon and are prepared to invest their hard earned money into a profitable business venture. Their commitment to the city and enthusiasm over good food has led these entrepreneurs to invest $500,000 on their own money and acquire financing through a bank for $1,000,000. Gary will be the sole proprietor of the business. The financial projections for this Chili’s Restaurant and their investment look very promising. (Table 1.1 below)

Table 1.1 Summary of Financial Results

Year 2009 2010 2011 2012 2013 2014

Sales 6,336,000 5,068,800 5,702,400 5,702,400 5,702,400 5,702,400 Cost of Goods Sold 4,752,000 3,801,600 4,276,800 4,276,800 4,276,800 4,276,800 Gross Profit 3,168,000 2,534,400 2,851,200 2,851,200 2,851,200 2,851,200 Expenses 1,015,770 852,926 867,598 867,598 867,598 867,598

Income Before Taxes 2,152,230 1,681,474 1,983,602 1,983,602 1,983,602 1,983,602 Income Taxes 753,281 588,516 694,261 694,261 694,261 694,261 Net Income(Loss) 1,398,950 1,092,958 1,289,341 1,289,341 1,289,341 1,289,341 Net Present Value of Equity Investment 2,098,507 Internal Rate of Return on Equity Investment at 20% 69.9%

OPERATIONS PLAN

2.0 Operations Plan

Chili’s is family high quality family orientated restaurant that will serve American style Tex- Mex lunch and supper meals along with alcoholic and non alcoholic beverages. The general manager and assistant manager will monitor the day to day operations with three supervisors to monitor both the kitchen and dining area staff. The kitchen will be composed of 8 chiefs, 2 food runners, and 1 exporter to prepare the meals. The serving staff will consist of 40 waiters/waitresses, with 10 being full time and 30 part time. The location chosen with consultation from Chili’s is in Preston Crossing.

2.1 Location

The location chosen with consultation from Chili’s is in Preston Crossing. This location is visible and easily accessible from both directions of Circle Drive. With Circle Drive being the main thru fare in Saskatoon, Chili’s will be able to attract customers travelling through Saskatoon from Edmonton, Regina, and Winnipeg. Preston Crossing is located on the main commuter route between the University of Saskatchewan campus and the some of the fastest growing residential areas of Saskatoon. The areas of Erindale, Silverspring, and Willowgrove have an estimated population of 30,000 and are expected to double to 62,000 by 2015. The average family income in these areas is $81,774. Preston Crossing is also home to many large sought after box stores. Business such as Canadian Tire, Wal-Mart, Future Shop, and Old Navy will bring customers into the area from all parts of Saskatoon. Figure 2.1 is an aerial map of the proposed location

Figure 2.1 Aerial View of Location

2.2 Floor Plan

The floor plan, seen in Figure 2.3, will accommodate 75 tables and 300 chairs. The layout includes an office, male and female washrooms, cold and dry storage, and a large kitchen. This is the floor plan that was provided by Chili’s. The actual blueprint drawings are not available at this time for confidentiality reasons. Even though this floor plan is basic it provides an overview of the use of space within the restaurant. Figure 2.2 is the floor plan made amiable by Chili’s.

Figure 2.2 Floor Plan

Back Entrance

Kitchen Office Mens Womens

Lounge

Restaurant

Hostess desk and Entrance

2.3 Quality Control Program

Ensuring that every meal and every customer’s experience at Chili’s meets their expectations along with the expectations of Chili’s is very important. Random quality tests of the food prepared for customers will be preformed one a month by the general manager to ensure consistent high quality. The general manager will also conduct random quality control evaluations on every month on selected serving staff to ensure that the customer receives the same high quality experience every time.

2.4 Average Business Day

The average business day is setup to serve two meals every day lunch form 10AM till 4PM and supper from 4PM till 11PM. The restaurant will be open to customers starting at 11AM and closing at 11PM daily. The restaurant will be staffed with different compliments of staff throughout the day based on duties and number of customers.

The above components are explained further below as follows:

 The assistant kitchen manager will start at 9AM in order to prepare the kitchen for the lunch serving.

 The first shift of cooks will start at 9AM till 4PM and the second shift will start at 3PM till 12PM.

 The general manager will start at 10 AM till 7PM and will attend to any administration duties including staff schedule, inventory, and prepare the day’s cash float.

 Servers will start work at 10AM and will have varying shifts based on customer volumes throughout the day till 12AM.

 The expos will start work at 10 AM and will be till 3PM, at 4PM the second shift will work till 11PM they will put the finishing touches on the food before it is sent out to the customers.

 Runners will work from 11AM till 2PM and from 5PM to 8PM to run food to the customers.

 A hostess will work during peak periods between 10AM to 2PM, and 5PM to 11PM to seat customers and help manage the till.

 The assistant front manager will start at 6PM till 12PM and will take over duties of the general manager and close the restaurant at night.

 The cash drop occurs after closing at the Bank located next door.

To support these hours of operation time schedules was determined to show how this the shifts will be formatted and could be adjusted for part time employees on a rotation for preferences of evenings or days or even after school for employees attending school. The following Table 2.1 Shift Schedule by Hours illustrates how each employee will be scheduled.

Table 2.1 Shift Schedule by Hours

General Front Kitchen Supervisors Cooks Servers Runners Expos Hostesses Manager Manager Manager Monday 10AM- 9AM- As needed (1)9AM- (1)10AM- (1)11AM- (1)10AM- (1)11AM- 7PM 6PM for relief 5PM 3PM 3PM 3PM 2PM (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM- 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM Tuesday 10AM- 9AM- As needed (1)9AM- (1)10AM- (1)11AM- 1)10AM- (1)11AM- 7PM 6PM for relief 5PM 3PM 3PM 3PM 2PM (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM- 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM Wednesda 10AM- 6PM- 9AM- As needed (1)9AM- (1)10AM- (1)11AM- 1)10AM- (1)11AM- y 7PM 12AM 6PM for relief 5PM 3PM 3PM 3PM 2PM (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM- 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM Thursday 10AM- 6PM- 9AM- As needed (1)9AM- (1)10AM- (1)11AM- 1)10AM- (1)11AM- 7PM 12AM 6PM for relief 5PM 3PM 3PM 3PM 2PM (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM- 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM Friday 10AM- 6PM- 9AM- As needed (1)9AM- (1)10AM- (1)11AM- 1)10AM- (1)11AM- 7PM 12AM 6PM for relief 5PM 3PM 3PM 3PM 2PM (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM- 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM Saturday 6PM- (1)10AM- (1)9AM- (1)10AM- (1)11AM- 1)10AM- (1)11AM- 12AM 7PM 5PM 3PM 3PM 3PM 2PM (2)6PM- (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM- 12AM 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM Sunday 6PM- (1)10AM- (1)9AM- (1)10AM- (1)11AM- 1)10AM- (1)11AM- 12AM 7PM 5PM 3PM 3PM 3PM 2PM (2)6PM- (2)4PM- (2)3PM- (2)5PM- (2)5PM- (2)5PM-

12AM 12PM 6PM 8PM 11PM 10PM (3)6PM- 12AM

Table 2.2 Capital Budget

Income 2009 2010 2011 2012 2013 2014 Revenue 7,920,000 6,336,000 7,128,000 7,128,000 7,128,000 7,128,000 COGS 4,752,000 3,801,600 4,276,800 4,276,800 4,276,800 4,276,800 Expenses 1,015,770 852,926 867,598 867,598 867,598 867,598 EBIT 2,152,230 1,681,474 1,983,602 1,983,602 1,983,602 1,983,602 Net Income 1,398,950 1,092,958 1,289,341 1,289,341 1,289,341 1,289,341 Cash Flows 1,203,524 907,966 1,098,296 1,093,229 1,089,932 1,087,549 Net Present Value 2,098,507 Return on Investment 69.9%

Table 2.3 Operating Expenses

2009 2010 2011 2012 2013 2014

HUMAN RESOURCE PLAN

3.0 Human Resources

As the owner and primary equity investors Gary Houseman, Tyrone Okrainetz, and Nicky Cox will oversee restaurant productivity and performance, but will leave the day to day operations to his general manager.

The staff at Chili’s will consist of the following: 1. General Manager

2. Assistant Manager for Kitchen

3. Assistant Manager for Dining Room

4. Supervisors ~ 3 full time

5. Servers ~ 10 full time and 30 part time

6. Hostesses ~ 10 part time

7. Expo ~ 8 part time

8. Food Runners ~ 10 part time

9. Cooks ~ 15 part time

The General Manager and Assistant Manager positions will require individuals that are highly skilled and educated for the position with experience in management within the food industry. Supervisors will be hired based on their experience working in a similar restaurant in a supervisory position or a highly experienced server. All other positions will be hired as entry level positions. It would be preferred to hire individuals with experience; however training will be provided to ensure that staff will conduct themselves according to Chili’s customer service policy. It will be important to hire happy and energetic staff that are hard working and possess skills in working in a team atmosphere and in dealing with the public.

Job Descriptions: 1. General Manager

Will oversee all functioning of restaurant to ensure it is running at optimal performance and report back to the owner, Gary Houseman. He/she will be scheduled as the acting floor manager for the dining room Monday to Friday during the daytime hours. Expected hours of work equate to 40 hours a week with occasional overtime required. He/she will be paid by salary. 2. Assistant Managers

They will maintain efficient operations and handle all scheduling of staff for their respective areas. They will be primarily involved in the praise and reprimand of staff due to closer working conditions. Each will work an expected 40 hours a week with occasional overtime required. They will each be paid by salary. 3. Supervisors

Supervisors will act as managers when the GM and assistant managers are not scheduled. They will handle all customer related issues, determining staff hours and will ensure the smooth running of the restaurant while they are in charge. They will be responsible for the open/close of the restaurant including all monetary responsibilities. Supervisors will also be scheduled for inventory duties. 4. Servers

It is the servers that are primarily responsible for customer service requirements. They guide the customers through their dining experience offering suggestions that may make their time with Chili’s more pleasant. They will be extensively trained by senior servers upon hire and are expected to possess a great deal of knowledge regarding the menu, operations and customer service policies endorsed by Chili’s previous to working alone. They are expected to encompass all duties related to serving, hosting, running food, bartending, cleaning tables and the expo position when not busy. 5. Hostesses

It is the job of the hostess to meet and greet the guests arriving and seat them at tables. They must ensure at the time of seating the guests are left with everything they may need, such as coloring supplies for the children, and that the server is aware they have received a table. The hostess must manage the guests arriving and seat them in such a way that

they are equally distributed among the server sections to ensure the best service possible. In addition they will be required to clean and set tables after customers leave in preparation for the arrival of new guests. 6. Bartenders

Servers will be scheduled into this position as part of their general rotation. They will be required to prepare drinks for all servers working in the dining room as well as serve those individuals choosing to sit at the bar. 7. Expos

The expo is responsible for ensuring all food leaving the kitchen is up to the standards required by Chili’s Bar & Grill policy. They have complete discretion to return food to the kitchen to be redone should they feel the quality is inadequate. Upon approval they are required to garnish the meals. It is their job to determine if all meals for a table are prepared and ready to be sent out. They will then have a food runner take the meals to the appropriate table. In addition they are responsible for preparing all desserts. 8. Food Runners

It is the job of food runners to carry food to the appropriate tables and ensure the guests have everything they need previous to delivering food to another table. When busy they are expected to assist the expo in preparing food for delivery to tables and help servers to clean tables in the dining room. 9. Cooks

The cooks are responsible for their assigned station during open kitchen hours. Day staff scheduled appropriately will be responsible for the preparation of foods for kitchen use. They are also responsible for cleaning and closing the kitchen down at night and preparing the kitchen for a day ahead in the morning.

Chili’s Bar & Grill is a team atmosphere and all staff are expected to work together to make the guest experience as pleasurable as possible regardless of how busy staff members are. This is accomplished through the development of the skills needed for each position in their respective areas of the restaurant.

For financial information regarding wage costs please refer to Appendix G.

3.1 Organizational Strategy

3.2 Training Initial training of all new staff is provided by a head office near our location as part of the franchise agreement. New employees hired following the grand opening will be trained in house by experienced staff members. Ongoing training to ensure a high level of customer service would be provided by management. Annual visits from head office compliment this ongoing training and ensure this franchise is operating at Chili’s standards.

MARKETING PLAN

4.0 Marketing Plan

In 2006 Saskatchewan was home to 813 restaurants with approximately 300 restaurants ranging from fine dining to fast food located in Saskatoon alone. With a population of over 200,000 Saskatoon has established its reputation of possessing more restaurants per capita than anywhere else in North America. Despite this abundance of places to dine out, Saskatoon continues to support and maintain new establishments that move into the area. Only recently have we begun to accept and support the finer dining establishments that are modelled on those existing in larger centers. The staple survivor for past decades has been the family restaurant offering basic large portion meals at an affordable price. In past years as the movement to accept more fine dining establishments has grown, it has afforded the opportunity for family style establishments to offer higher quality food with increased prices and more modern atmosphere.

Saskatoon is a University and city and as such has a significant younger population throughout the school months. For this reason Saskatoon has been able to also support a high number of night clubs and lounges. Many of the restaurants that enter the market here do so with both a dining room and lounge option for seating. Lounges often remain open past the dining room to cater to the younger crowd enjoying the night life. With the large number of choices existing is Saskatoon aspects of atmosphere and location can make or break a business and have become primary competitive advantages between businesses. The large number of establishments choosing to renovate in the recent years has opened up the opportunity for entry into the market.

4.1 Competition

Indirect competition is fierce in Saskatoon in the restaurant industry with the large number of restaurants. Direct competition for Chili’s will include the upscale family restaurants working to attract families and younger people wishing to partake in a pseudo fine dining experience. These include the established businesses in the chart below:

Table 4.1: Competitive Locations NAME LOCATION PRICES Moxie’s Classic Grill 3134 8th St E Competitive Mano’s Restaurant 200-1820 8th St E Competitive Montana’s 1510 8th St E Competitive Boston Pizza 1601 8th St E Competitive Boston Pizza 826 51st St E Competitive Boston Pizza 515 Nelson Rd Competitive Boston Pizza 329 Herold Rd Competitive

The above restaurants that Chili’s will be in direct competition with are all successful and busy restaurants, likely with clientele ready to try something new. A new establishment opening in Saskatoon commands much of the market for its first several month open as eager diners rush to

24 Chili’s Business Plan April 8, 2009 MBA 851 enjoy a new experience. To capture a significant corner of the market and ensure success following this initial boom, Chili’s must provide an enjoyable and memorable experience to keep people coming back.

4.2 Customers and Target Markets

The City of Saskatoon currently flourishes with a large population of University students and young professionals with families, particularly in the areas surrounding the chosen location for Chili’s. We wish to primarily target young professionals earning a higher income with families. This segment of the market is busy and willing to spend their income on the luxury and convenience of not having to cook for themselves. The areas surrounding the Preston Crossing location are highly inhabited by such families, such as Sutherland and Erindale.

These areas are also highly populated by the younger University student crowd that Chili’s will try to attract to the lounge area. By providing good food and a fun and inviting atmosphere we will be able to capture this segment of the market largely on convenience alone. Those living in the area will frequent the establishment as it is ‘on the way home’ for them. The convenient location will attract students not living in the area that are looking for something to eat and drink following classes.

4.3 Product

Chili’s offers high quality foods at a reasonable price in an atmosphere suitable for families, couples and groups of friends. Superior customer service will be required to maintain competitive in Saskatoon, but Chili’s will rise to the challenge. The atmosphere provided is one of fun and relaxation. This is a place you can go to forget your worries and ‘Pepper in Some Fun’. This brand offers its customers a refuge from daily trials and tribulations with a short escape of fun and relaxation with the convenience of being served a meal.

Chili’s offers a wide range of foods from soups and sandwiches to burgers, ribs and steaks. In keeping with the family friendly environment they also offer a children’s menu. The focus in

Edwards School of Business, University of Saskatchewan 25 Cox, N., Houseman, G., Okrainetz, T. 2009 Chili’s Business Plan April 8, 2009 MBA 851 advertising is the option of creating combo meals from several options on the menu when the customer cannot decide what they want to eat. Please see menu in Appendix L for more specific menu offerings. The website construction for Chili’s is excellent (http://www.chilis.com/). It is easy to navigate and offers more information than the majority of other restaurant sites. One can easily look at the menu with prices listed, learn about employment, find your nearest location and even purchase custom design gift cards for friends and family. The website also offers easily downloadable packages of information regarding the nutritional value and allergy information should you have dietary concerns. To make it easier for their vegetarian customers, they also have a specified vegetarian menu that one can download. Chili’s makes it easy for you to want to dine with us! You are also encouraged on the website to fill out a customer survey so that you can share comments about your visit. Enforcing that Chili’s is a brand that cares about your happiness with their service.

Chili’s is also part of your community! They are proud supporters of the St Jude Children’s Research Hospital raising millions of dollars annually for the cause. Their website posts information on this special cause whose slogan is ‘Pepper in Some Hope’. Brand equity is raised by this promotion as we become a company who offers a service, but also cares about customers and their well being within the community.

4.4 Pricing Strategy

Chili’s Bar & Grill offers high quality food at a premium price for family dining. These prices maintain brand in regards to quality of food and service. Individuals choosing to come to Chili’s are paying not only for high quality food and service, however. The atmosphere is one of fun and relaxation. A place where someone can go, unwind and forget their worries while they enjoy a meal with friends and family. In the high paced society in which we live this place has become few and far between. For this reason people are willing to pay a premium price for the promise a good time.

This pricing strategy is competitive among the directly competitive restaurants in the Saskatoon area.

4.5 Place

The restaurant location is convenient to attract families living in the areas surrounding the Preston Crossing area, students on campus and shoppers at the nearby box stores. Each of the surrounding areas is highly populated by the target market segments that Chili’s Bar & Grill hopes to attract and maintain as long term customers. It is location on Preston Avenue puts it on a main road in Saskatoon with high traffic throughout the day. Preston Avenue also crosses over Circle Drive; a main highway that travellers pass through the city on. This makes the restaurant widely available to individuals not located in Saskatoon and simply passing through. Preston also crosses College Drive, another main road in Saskatoon joining the downtown area to the East Side of the city. This makes Chili’s easily accessible from several areas of the city. It is a premium location. In addition to its location, Chili’s furthers its level of convenience to its customers by providing a large area for available parking while at the establishment. The majority of the population in Saskatoon travels by vehicle and this is a factor considered when choosing where to dine.

4.6 Distribution

All food items will be supplied by the franchise provider and delivered by Bridge Brand trucks. All alcohol will be ordered following inventory and will be delivered by the liquor board store located on 8th Street East.

4.7 Promotional Strategy

Although new restaurants opening is Saskatoon have a successful initial business they will lose customers if they do not give them a reason to return. It is important that Chili’s promote their brand previous to opening their doors and throughout the first year that they are open. The excellent website and national television advertising are considered part of the franchise deal and are therefore supplied by head office. These are both integral to promoting the Chili’s

Edwards School of Business, University of Saskatchewan 27 Cox, N., Houseman, G., Okrainetz, T. 2009 Chili’s Business Plan April 8, 2009 MBA 851 brand image to the general public, but with the new restaurant location it is important to conduct additional promotional ventures in the local areas.

Radio promotions on the local stations C95 and WIRED 96.3 will begin approximately 2 weeks prior to opening to and continue throughout the year to announce special promotions. Newspaper advertisement will also be run to announce the Grand Opening and announce special promotions. These advertisements will not only promote the restaurant itself, but raise awareness of the Chili’s Bar & Grill website. Once reaching the website consumers can learn about the Chili’s email club to receive emails about upcoming promotions and exclusive offers. They can also visit and add to the Chili’s MySpace page and listen online to the Chili’s radio network. Therefore advertising the website locally is equally important as advertising the restaurant location as it reinforces the brand equity and encourages customers to return for more than just the food. Radio advertising will be particularly important over the Christmas season to promote the custom design gift certificates available and capture a portion of the market for Christmas get-togethers. As we are located on a main thoroughfare in an extremely visible location to the box stores and drivers on Preston Avenue, there is little need for street advertising. The building itself will take the notice of those passing by. It is important that the exterior of the building be well maintained and has adequate signage to capture the eye of those nearby. We are also located very close to Circle Drive and College Drive; two primary roadways in Saskatoon that lead easily to the Chili’s location and are often driven by individuals travelling through Saskatoon. Therefore these are prime locations where billboards will be useful in promoting the location of the restaurant. One billboard advertisement will be placed year round on College Drive near Preston Avenue and one will be placed year round on Circle Drive previous to the Preston Avenue/Attridge Drive exit.

Table 4.2: Marketing Expenses 2009 2010 2011 2012 2013 2014 Franchise marketing 126,720.0 101,376.00 114,048.00 114,048.00 114,048.00 114,048.00 fees (4%) 0 Local advertising

Radio ads 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 Billboards 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 3,000.00 Newspaper ads 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 Total 141,720.0 116,376.00 129,048.00 129,048.00 129,048.00 129,048.00 0

FINANCIAL PLAN

5.0 Financial Plan

Chili’s is a commonly known restaurant within North America and by having a franchise in Saskatoon it has the potential to be quite profitable. Restaurants are normally seen as risky investments especially in Saskatoon since we do have the most restaurants and bars per capita within Canada. The location in Preston Crossing provides for maximum traffic from people all around the city since it is right off of Circle Drive, one of the main freeways around the city. Restaurant are tricky to evaluate financially since one of the key variables is who is going to come to your restaurant and how busy is it going to be. This means that sales will be the number one critical variable. Like any new restaurant people tend to want to go and try it out. This means that the restaurant will be busy for the first year, then in year two it will die down and hopefully in year three attendance will come back up a bit and level off for some time.

We estimated this restaurant to be purchased and built for $1.5 million with $500,000 of personal equity and $1 million from a bank loan (refer to Appendix B) which will be paid off within the 6 year business plan. We then assumed that we would require a 20% return on our investment since restaurants are fairly risky within Saskatoon. There are several critical

30 Chili’s Business Plan April 8, 2009 MBA 851 variables that needed to be assumed to make this business plan as accurate as possible and some of them are as follows:

 Sales- How much is Chili’s going to sell in a given year?

 Capacity- How busy is Chili’s going to be and how big is the place going to be?

 Average meal- How much are people going to spend on a meal?

 Staff- How much are staff going to get paid?

 Convenience- How long is the restaurant going to be open?

 Cost of Goods- How much will food and other items be to purchase?

 Distribution- What are people going to buy; food, drinks, alcohol or merchandise?

Chili’s will be approximately 3000 square feet and will have roughly 75 tables with an average seating arrangement of four per table. This puts our average customers per day at 300 people. We calculated the maximum turnover at full capacity throughout a business day with an average meal taking an hour to be around 3000 people per day. The restaurant will be open 360 days per year since this is the common work year for most restaurants like this. Our first year estimates were calculated to have approximately 1000 people per day eating in Chili’s. After the first year the new restaurant isn’t new anymore and people are less inclined to stop in therefore we set the daily average at 800 per day. After the second year the quality of food and brand value come into play and revenues rise again and level off for several years at 900 people per day. On average Chili’s menu will have a wide variety of products and prices but we assumed that an average Chili’s lunch would be $15 and an average supper would be $25. Now there will be more turnover for supper then lunch therefore an appropriate 70% to 30% distribution of pricing was calibrated for supper to lunch respectively giving a total average meal of $22 per customer. This is also another critical variable since it depends on the meal setting and what people are willing to order but $22 is a reasonable assumption. When using the seating per day along with the average price per meal and days open in a year, the first year will bring revenues of $7.92

Edwards School of Business, University of Saskatchewan 31 Cox, N., Houseman, G., Okrainetz, T. 2009 Chili’s Business Plan April 8, 2009 MBA 851 million. After this was calculated an estimate was made to what people are going to be purchasing at Chili’s. The following distribution was used:

 Food = 80% of revenues

 Alcohol = 10% of revenues

 Drinks = 9% of revenues

 Merchandise = 15 of revenues

This would be an accurate assessment since most people are coming to eat and will have normally 1 drink whether alcoholic or not within their visit. Refer to Appendix G for a breakdown of all the revenue for these areas.

Inflation was not used in this analysis since we assumed that inflation would be calculated on a proportional basis and would be consistent will all the figures in the balance sheet and income statement. Cost of goods sold was calculated to be 60% of revenues which is fairly conservative for a restaurant business. A mark up of only 40% in a restaurant business is reasonable. When referring to Appendix H you can see that Chili’s profit margin over the next six years sits around 18%. This is very good considering that we assumed that we would be paying out a 50% of net income per year in dividends to the investors after the first year.

When calculating all of these variable and looking at the income statement in Appendix A we calculated our net present value of the company (what the company has made in cash flows over 6 years minus the initial investment) to be $2.1 million with a return on investment at 69.9% per year. This is well above our projected 20% which can be attributed to a little bit of leverage as

32 Chili’s Business Plan April 8, 2009 MBA 851 well as using a franchise for an already very successful restaurant brand name and using their marketing to promote our location in Saskatoon.

Our assumption and overall projections were modest but a sensitivity analysis was still done. We already established that the maximum capacity would be 3000 people therefore we took the most crucial variable as being sales and used it to evaluate our best and worst cases. The best scenario would be 1500 people per day for 6 years which would be a 50% capacity for the year and the worst scenario was 500 people per day for 6 years which would be 17% capacity for the year (refer to Appendix I and J). The table for the sensitivity is as follows:

Table 5.1: Sensitivity Analysis

Scenario NPV IRR Sales per year

Best Case 6,015,435 148.1% 11,880,000

Base Case 2,098,507 69.9% 7,920,000

Worst Case (558,539) 4.2% 3,960,000

As you can see if the sales drops drastically to 500 people per day then the restaurant will start to be less profitable. We feel that the numbers calculated were very conservative and with a franchise name restaurant the worst case scenario is highly unfeasible. A break even analysis was also constructed with a 20% return and that ended up being 585 people per day for 360 days a year. The likely hood of the base case is highly possible and even within the first year the best case scenario could be a potential goal that isn’t too unfeasible. Overall with the sensitivity analysis we can assume that the Chili’s will be profitable as long as it doesn’t go below 585 people per day as customers.

With our base case mentioned earlier we have the projected income statement and values shown in detail (more information in Appendix A and C).

Table 5.2: Income Statement and Investment Analysis

Income 2009 2010 2011 2012 2013 2014 Revenue 7,920,000 6,336,000 7,128,000 7,128,000 7,128,000 7,128,000 COGS 4,752,000 3,801,600 4,276,800 4,276,800 4,276,800 4,276,800 Expenses 1,015,770 852,926 867,598 867,598 867,598 867,598 EBIT 2,152,230 1,681,474 1,983,602 1,983,602 1,983,602 1,983,602 Net Income 1,398,950 1,092,958 1,289,341 1,289,341 1,289,341 1,289,341 Cash Flows 1,203,524 907,966 1,098,296 1,093,229 1,089,932 1,087,549 Net Present Value 2,098,507 Return on Investment 69.9%

As this data illustrates, the Chili’s restaurant will have success in its present location and with the presumed assumptions that were made. Cash flows seem to be quite positive as well as having a substantial net income accompanying it. This Chili’s will have more than enough cash on hand not only to pay out dividends every year but also to have at their disposal for any type of renovation or maintenance that is needed by the franchise. An extended cash flow analysis is in Appendix F.

After an analysis of all the present ratios for the year 2009 this project seems to be highly profitable with the conservative numbers that we implemented. All ratios are positive for an investor except for the inventory turnover but this can be explained by some of the sauces, spices and merchandise that are kept for extended periods of time. All other ratios show a great return on investment and can be seen in Appendix H.

After a careful analysis of the financials, Chili’s Restaurant seems to be quite profitable and a great investment. Obviously the main variables will have some play on the financial projections although after a sensitivity analysis Chili’s still seems to be a great restaurant to open.

6.0 Conclusion

Chili’s restaurant has a long standing reputation with quality food and a fun atmosphere. Chili’s new destination in Saskatoon within the Preston Crossing district should attract many visitors from all over the city due to it being off of the major freeway, Circle Drive. By having this company as a franchise the brand value of the restaurant name has already been established and most of the advertising is already in place from our franchise fees. Despite Saskatoon having the highest restaurant ratio per capita in all of Canada, Chili’s would have a profound effect on the city and could capture substantial market share due to its already established brand name. After calculating a thorough business plan Chili’s can be seen as a great investment that will return approximately 69.9% per year on an investment. All cash flows of Chili’s are positive and the net present value of this company over the next six years is more than desirable at over $2 million.

After a sensitivity analysis was conducted it seems more then feasible with our modest projection for all variables that Chili’s will be profitable. A break even analysis was also conducted to show that the restaurant would only need 585 visiting per day for 360 days a year for the restaurant to make a return of 20% on their investment (Appendix K). This is more than feasible as an average per day since the overall maximum capacity for a day would be 3000 visitors. This investment is seen as being highly profitable and should be considered by anyone that has the equity to invest in it. The return on the investment only grows above 20% when more than 585 people visit per day and as equity holder’s dividends will be paid out as an extra added bonus for having shares in the company. After showing the operations plan, marketing plan, human resource plan and financial plan in this business plan there is no doubt in an investors mind that this is a great opportunity that can be highly rewarding on many levels.

Chili’s is a great opportunity and a great investment for Saskatoon not only in the short term but also in the extended future.