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Risk and return analysis
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Ice Delights Case Study
1. Evaluate the “Deal” as it is presented in the case
As outlined below, ICEDELIGHTS is willing to provide an acceptable option to the franchisees due to their inability to commit to the venture immediately. The revisions to the deal allow the franchisees flexibility in their timeline for raising capital and financing the deal. Regardless of the timeline, the situation presents a concern with the franchisees ability to raise the amount of capital required to open their first three stores in a timely manner.
• ICEDELIGHTS did not want to be legally bound to the Florida franchise because they felt they might not have sufficient resources to accommodate the franchisees.
• A deal was proposed that would provide the franchisee and franchisor security
o Pay $200,000 up front for development fees and franchise fees for the first five stores
o Pay $20,000 per store opened after the first five stores
o Pay a 5% royalty on sales
• ICEDELIGHTS would then allow the franchisees to use their brand name and product, would train the franchisees and one manager per store, and would provide support for finding locations and construction of the stores.
• The deal would come with an option because of ICEDELIGHTS inability to commit to the Florida franchise up front
o The franchisees would make a deposit of $75,000 up front
o The remaining $125,000 up front charge would not be owed until ICEDELIGHTS provided one acceptable location and the lease was signed
o The franchisee would have the opportunity to build a production facility if ICEDELIGHTS was unable to provide the product to the new stores
• The franchisees have two weeks to make a decision on the deal
• Compared to other franchise opportunities, ICEDELIGHTS seemed expensive for an unproven concept
• The profitability of the concept appeared to be very enticing to the franchisees
• The franchisees would have to raise approximately $750,000 of outside financing to fund the venture
2. Evaluate the positive and negative features of the business opportunity
Positive features:
• Provides the potential entrepreneurs a business opportunity in a timely manner
o They would be involved in the franchise before they had a lot to lose
• Franchisees believe that they have the skill set to run a food franchise
o The idea also seemed fun and financially rewarding
• The management team at ICEDELIGHTS impressed the franchisees
• The product, systems, and management were standardized by the franchisor
• The franchisees could leverage the ICEDELIGHTS brand, product, training capabilities, and real estate experience once ICEDELIGHTS could provide the support
• Franchisees could obtain rights to the entire state of Florida
Negative features:
• The franchise was new and not yet proven in the industry or the potential market
It may not be practical to enter a completely new market alone, without any help from existing companies who are already established there.
will have to make sure that they get enough profit to be able to open
Ice-Fili is a traditional Russian manufactured who has been the market leader in the Russian ice-cream industry but over the years the supremacy and competitive edge has been declining. Due to its traditional competency it has a lot of capacity, much of which is lying unutilized. Out of its capacity of 200 tons/day, it is utilizing only about 25% (with an annual production 16000 tons, assuming 300 working days).
PepsiCo can potentially acquire California Pizza Kitchen and integrate it in the company’s decentralized management approach. Since PepsiCo executives have experience in the quick service food industry, it should not be a reach for the company to successfully run this casual dining restaurant. For this venture to be successful, it is imperative that management cut down the operating costs at California Pizza Kitchen through the PepsiCo Food Systems distribution network and improve on the 3.1% operating margin that California Pizza Kitchen is currently operating at.
Evaluating Cooper’s Ice Center’s situation, Claude Cooper is looking to increase his profits. He is doing a few things right. For instance, his hockey program is doing well and is contributing largely to his profits. Along with keeping his hockey program, Cooper should also keep the public skating. While this is not bringing in revenue now, there is a great potential in the program. Over 700 hundred people could attend this event and it would increase revenue in concessions. Their facility is the only ice rink located in the northern city with 450,000 people. This means there is a great market for public skating. Once he figures out how to promote it, he can easily fill his 700 people rink capacity. Cooper also has the right concept for
Happy Hat, a U.S. national chain of frozen yogurt stores with about 500 stores in 40 states is asking for assistance with its business processes. The average number of visitors per store has held constant over the past several years, but revenues per store are down by an average of 10%, and many stores are no longer profitable. The client suspects that a large amount of inventory is being thrown away unused at the end of each day. At the same time, customer polling suggests that the yogurt flavor customers want is often not available, even when the flavor is posted on the menu. People also complain about stores being closed when they visit. Now, the chain is facing increased competition from frozen yogurt sold in 24-hour grocery stores. Happy
This allows the company itself to make any further changes to the product, and ensures that they have the best available menu options to cater to the customers as well as compete with their competitor, Jose’s Southwestern Cafe. This is a very important step in the process because if you do not offer menu items that customers enjoy, there is a good chance your business will fall to the
In the end, the owners must agree and commit to a plan. If the owners stand firm with their decision and remain flexible and dedicated to the plan, success is imminent.
Availability of online ordering facility presents the franchise with a competitive edge over its rivals.
In “Venture Capital” alternative, a sum of $3.5 million will be traded in exchange for 750,000 shares and 50% of the board seats, which will result in a weighted average outstanding shares of 1,375,000. Net income will come to $514,500 and EPS will be 0.29.
BR was sold to Delta Foods in 1996 for US $2 billion. At this time, it was one of the largest fast-food chains in the world generating sales of US $6.8 billion. DF purchase of BR brought in a new cultural paradigm. DF is an individualistic, aggressive growth company with brands they believe are strong enough to support entry into new overseas markets without the need for local partnership. The DF strategy is one of direct acquisition and JV’s were not part of their strong suit. DF strategic implementation is based on hiring local managers directly or transferring seasoned managers from their soft drink and snack food divisions. The DF disdain for JVs is clearly reflected by their participation in only those JVs where local partnering was mandatory (e.g. China) to overcome regulatory barriers to entry. JVs had been the predominant strategy for BR which was unlike the DF outlook. Terralumen’s strategy was misaligned and out of sync with the DF strategy. This was unlike the complementarity that existed with BR’s strategy. This misalignment began to affect the JV relationship that had worked well with BR in the initial years. The failure of Terralumen and DF to recognize this fundamental cultural difference between their operational strategy styles i.e. Individualistic and Collectivism leads to their inability to proactively create steps for better alignment in the early period after acquisition, creating uncertainties and difficulties for both corporations. There is a lack of communication and virtually absence of trust between two new partners. DF appeared to be flexing its muscles in the relationship and using a more masculine approach compared to Terralumen’s more feminine approach. Both the corporations are strategically involved in a complex situation where they appear reluctant to address the issues at stake and move ahead together. The DF strategy of
Clients are to see the item mostly as reported by abovementioned aspects, in addition, frozen yogurt expected to ...
Being part of a franchise is like receiving a business starter kit with proof that it can work. A franchise allows a new establishment to sell winning brands. Franchises have all of their logistics and suppliers established which reduces costs and typical analysis. A franchise will receive the same media attention and marketing effects that the entire business is involved in. For the 12th consecutive year, The Keg has been ranked as one of Canada’s 50 best employers (Wilson, 2014). Franchising gives you the opportunity to become part of a legacy with the aid of those who have created it.
A supply chain provides the means by which a company brings its products or services to the market. For a supply chain to be effective, all of the involved parties must be aligned to common goals and the company’s supply chain strategy. For the value of the supply chain to be maximized and cost savings realized, a company supply chain strategy must be executed efficiently. Many parts of the supply chain contribute to help the franchise system achieve quality goals. It can be achieved by offering uniform, high quality products and services to its customers.
such a scenario, it becomes necessary that these people get necessary finance to open and