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Case Prompt:
Our client is an antique store located in downtown Chicago. The store has been struggling to meet sales targets and has recently started selling homemade sandwiches to attract customers. The sandwiches have become popular in the area and have increased profits. The client now wants to expand by opening new stores but is unsure if it's a viable strategy. They have approached us to develop a growth strategy that considers costs and business drivers.
Exhibit:
- 75% of the store's revenue is generated during lunchtime, with the remaining 25% after 1 pm.
- Sandwiches account for 50% of the revenue, desserts 10%, chips 10%, and drinks 30%.
- The store is fully utilized during lunch but underutilized at other times.
- Variable costs include raw materials, labor, and processing, while fixed costs consist of rent, SG&A, insurance, and depreciation.
Background:
The antique store has gained popularity by selling homemade sandwiches in addition to its antique items. However, the store struggles to meet sales targets and wants to expand by opening new stores. The client seeks a growth strategy that considers costs and business drivers.
Analysis:
To develop a growth strategy for the antique store, it is important to understand the competition and customers' value drivers. Key findings and assumptions include:
- Competitors are nearby restaurants that primarily serve lunch between 11:30 am and 1:30 pm.
- Rents in downtown Chicago are high, making it challenging to find available stores.
- The target customers are mainly working individuals seeking a quick lunch, as well as non-working people and students.
- Delivery service is currently not available but could generate additional revenue.
- Maintaining the store's reputation for delicious homemade sandwiches in an antique-decorated atmosphere is crucial.
Considering the direction and mode of growth, several alternatives can be evaluated:
Mode of Growth:
- With internal resources
- Alliances
- Mergers and acquisitions (M&A)
The direction of Growth:
- Internal business expansion
- Vertical integrations
- Diversification into related or unrelated businesses
- Expansion into new geographic areas
Given the high rents and limited availability of stores in downtown Chicago, opening new stores may be challenging. However, alternative growth strategies can be considered, such as:
- Modifying the store format to open smaller, non-antique decorated stores in strategic locations within Chicago.
- Supplying sandwiches to groceries and other fast food stores, expanding the client's reach and customer base.
- Introducing a delivery service to cater to customers outside of the lunchtime rush and increase revenue.
- Maintaining the original format for new stores in other big cities, focusing on one profitable store in each city.
- Adapting the product offerings based on location and customer preferences to attract a wider range of customers.
The growth strategy should prioritize profitability, cost considerations, and maintaining the store's reputation for homemade sandwiches in an antique atmosphere. It is essential to analyze each growth option's financial viability and break-even points before implementation.
Frequently asked questions
What challenges does the antique store face when expanding in downtown Chicago?
The biggest challenges are high downtown rents, limited available spaces, and intense competition during lunch hours. These factors make opening new antique-themed stores costly and risky without guaranteed foot traffic outside peak lunch times.
How much do sandwiches contribute to the antique store’s revenue?
Sandwiches are now the main revenue driver, contributing 50% of total sales. They attract a steady lunchtime crowd, filling the store to capacity during peak hours, but sales drop significantly after 1 pm, showing an opportunity to grow non-lunch revenue.
What alternative growth strategies could the antique store consider?
Instead of costly new stores, the client could expand through delivery, supply sandwiches to grocery stores, or open smaller outlets without antiques. These lower-cost options help reach new customers, increase sales outside lunch hours, and reduce dependency on downtown rents.
Why is delivery a good growth option for the antique store?
Introducing delivery can reach office workers, students, and residents who can’t visit during lunch hours. It boosts revenue during underutilized times, leverages existing kitchen capacity, and doesn’t require additional rent, making it a cost-effective way to grow profitably.
Should the antique store maintain its antique theme when expanding?
The antique decor is part of its unique appeal but may not be feasible everywhere. Keeping the original format for flagship stores while opening smaller sandwich-focused outlets elsewhere balances brand identity with lower costs, helping the business grow without sacrificing its charm.
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