Executive Summary
Porcini’s is a very successful full-service chain restaurant that specializes in providing its customers with high quality Italian food and service. Having been found in 1969, through its attention to quality differentiation and its “success to uniformity high-quality food and service at each location” (Heskett & Luecke, 2011, p. 2), the family-oriented company was able to expand and opened Porcini’s in many locations including downtown and shopping malls in the Northeastern part of the United States. Due to being in a full-service chain market that is currently becoming heavily saturated, there is an opportunity for the company to venture off into the fast food market. The VP of Marketing is looking to open up several outlet restaurants called “Pronto” for customers on-the- go, but there is a great fear that the company will not have the financial capability to sustain rapid growth while still providing customers with high quality food and service as their full-service chain restaurants. The executive team has to make several important decisions regarding which type of growth acquisition deals they would like to invest in along with selecting the right food for the menu and the right people to staff each of Pronto’s locations. It is recommended that the company utilize the “company own-and- operated” approach to test out two sites for Pronto where they can closely monitor and control operations and finance. They will also be able to continue practicing and maintaining uniformity in high-quality food and service that are currently being provided at their full-service chain restaurants. Entering the fast-food market under the “company owned-and-operated approach” will give them the knowledge and experience that they need to continue expanding in the fast-food market in the future, which will result in an increase in brand recognition, revenue, profit and competitive advantage.
Background
Porcini’s Inc. is a small family-owned Italian restaurant that was established in 1969 in Boston. From the time Porcini’s opened up its doors for business in 1969, its success has been made possible due to the uniformity in high-quality foods and service. After about 20 years in business, Porcini’s expanded its doors to many locations including Hyannis, Massachusetts, Providence, Rhode Island and Connecticut. The company was able to a get an outside group of investors to buy out “Controlling interest in the enterprise, where they expanded to a number of downtown and shopping mall locations in Northeastern U.S” (Heskett & Luecke, 2011, p. 2) totaling up to 23 operating locations. The vast expansion of Porcini’s Inc. aided the company to generate over $94 million in 2010, over 900 hired employees in the organization and its high performance helped them to keep profit margins at an ultimate high, especially during the recessionary period in 2008 and 2009.
One of the most essential attributes that helped Porcini’s Inc. to reach its highest level of success was their attention to high quality food and service that they provided to customers. “Quality could be traced to the long experience of individual managers, supervisory personal, chefs, a relatively stable workforce, and the recipes of the chef Marianna Mouse” (Heskett & Luecke, 2011, p. 2). Together, Moises trained chefs of the outlet restaurants on cooking techniques while management trained waiters and the staff on high quality service methods and its relevance to the performance of the business. In addition to the food and service they provided, Porcini’s offered customers with a creative unique family-oriented ambiance and excellent table service. Porcini’s efforts in providing and maintaining high quality service has crowned the organization as one the most successful full-service-chain restaurants in the market, however there was a new market that needed to be explored. Tom Alessio, Marketing VP at Porcini’s “pondered on a potential expansion of the company’s restaurant business” (Heskett & Luecke, 2011, p. 1) being that the full-service chain market was becoming overly saturated. Alessio saw that there was an opportunity for them company to enter the fast food market by opening up a chain of “Porcini’s Pronto” at interstate highway exits as way of offering quality food and services to on-the-go business and vacation travelers. The idea of opening smaller outlet restaurants would be a great way to increase brand recognition, revenue and profit but the question that remained to be unanswered is if they firm can financially sustain themselves in a rapidly growing fast-food industry that was totally unfamiliar to them.
Problem Statement
Being that Porcini’s Inc. is trying to enter the fast-food market for the very first time, the major issue that the company is faced with is having both financial and human resources to provide high quality food and services to on-the-go customers, while still maintaining the company’s reputation as one the most successful full-service chain restaurants.
Analysis
Currently, Porcini’s restaurant business has been performing quiet well as a full-service chain restaurant, exceling in providing customers with high quality food and service. Its success in the full-service chain market has allowed the company to not only dominate competitors such as Olive Garden Bartica’s and Buca di Beppo, it has allowed them the financial ability to expand in various locations including the Northeastern part of the United States. Porcini’s attention and differentiation in high quality food and service has gained them a substantial amount of revenue and profit, high customer satisfaction rates and competitive advantage over its competitors in the same industry. A lot of credit can be given to the extensive trainings that are given to the employees and management team in the organization, which has help them to develop a culture geared towards quality assurance and customer satisfaction. Now that “The domestic market for full-service chain restaurants is nearing its saturation point at both in-city and shopping mall locations” ( (Heskett & Luecke, 2011, p. 8), Tom Alessio, the VP of Marketing is looking to invest in faster outlet restaurants called “Pronto”, a smaller version of “Porcini”. The initial objective for opening up “Pronto” is to provide business and vacation travelers with the best tasting Italian food that is on-the-go, without compromising the uniformity of high quality service and food that they currently have at their full-service chain restaurants. They also want to make sure that they are maintaining their reputation, while increasing brand recognition and financial growth.
There are multiple options Alessio and the company’s executive team can take when it comes down to deciding whether or not they are going to expand and how they are going to expand in the rapidly growing fast-food market. The first initial option that they can take is to do absolutely nothing. Alessio and the executive team can keep the company functioning the way it currently is without having to spend any extra funds in investing in an expansion project. All of the revenue and the profit that is generated can remain in the company business and can be used for other things like employee raises or restaurant renovations. The one problem with the “Do nothing “ option is that it will cause the company to miss out on the opportunity to increase their revenue and profit in another market outside of the full-service chain market and they will miss out on the chance to gain brand recognition which is critical for maintaining competitive advantage.
The second option that Alessio and the executive company can take to make plans to invest in another full-service chain restaurant just like the ones that they currently have. Being that they already have experience opening “Porcini” full-service restaurants in various locations, this expansion should not take them very long nor should it cost them as much money. Conducting and reviewing strategic building and financial plans from previously opened “Porcinis’ would give them a great advantage being that will they already know what to expect. One aspect that they have to keep in mind is in strategically picking the ideal location of the restaurant. The location of the restaurant is a very important because that if they choose to open the restaurant an economically low area, it can cause them to lose a lot on their investment which could eventually turn into sunk costs that cannot be recouped. The location of the restaurant should be near a busy economic area that is assessable to local businesses, travelers, tourists and local customers living in the area.
The third and ideal option for growth is to invest in opening Porcini’s Pronto. The company should start of slow by open only two “Pronto” outlet test restaurants in the busiest interstate locations that can afford. The ideal location would be the rest stop areas, where travelers stop to eat, use the restroom and gas up, lodging areas or an area near large building offices. One of the most important factors that must be determined is: what growth option deal would best fit the company and its financial capabilities? The three acquisition growth deals that are being considered for expansion are: company owned -and- operated, franchising and syndication. All three options have great advantages but they also come with some consequences that can become a financial burden to the success of the company. If the executive team chose to remain company owned and operated, they would only have to spend $2.1 million for the land, building and fitting for each Pronto unit that is built, totaling up to $4.2 million for two test sites, and it is less than opening up another Porcini’s. This acquisition approach “would give Porcini’s total control over operations and customer experience” (Heskett & Luecke, 2011, p. 8). There would also be a 6% gain in revenue profit margin which will help recoup some of the costs spent on land and construction. However, one concern is that the company isn’t sure if they will be financially able to sustain the rapid growth that may occur if they were to go this route.
Franchising is another alternative for growth, where a franchisee would take over the operations of the restaurant. “Franchising is an organizational form which combines the decentralized ownership and control at the production stage of service together with centralized provision of know-how and promotion of the brand name” (Thompson, 1992, p. 31). The company would be represented as the franchiser and they would appoint a franchisee who pays to use the name of the brand. Some of the advantages of having a franchise is that “the company would be able to shift its attention and limited capital from the restaurant level to system wide marketing and brand building” (Heskett & Luecke, 2011, p. 8) which is what they currently need. The company would be able to avoid costs associated with construction, site acquisition and fitting. “The franchiser would normally be compensated through a mixture of fixed fee and revenue –based royalty payments” (Thompson, 1992, p. 31). The franchisor would be able to enforce standards and regulations in regards to how the business model should be implemented and operated and it is the franchisee’s duty to make sure that they are abiding by the standards and practices stipulated in the contract. Some of the disadvantages to franchising are that the company has to spend roughly “$1 million on legal and staff resources to develop franchising agreements and franchise system supports” (Heskett & Luecke, 2011, p. 8). They are also responsible for providing marketing support and training which could be very costly depending on who they hire and how they go about advertising the restaurant. The greatest disadvantage with going through with a franchising deal is that the fact that there are no guarantees “To extracting high fees and royalty from franchising” (Heskett & Luecke, 2011, p. 8) and they run the risk of losing returns on the investment if they do not select an experienced person as their franchisee.
The last and final growth deal that the executive can look into is called syndication. What sets the process of syndication apart from franchising and company owned and operated businesses is that ownership is directly transferred over to the investors. “In a syndication deal, the Chain identifies and purchases a number of sites, builds and furnished a facility each and them sells the portfolio of properties to an investment group, thereby recouping and recycling its capital into another syndication” (Heskett & Luecke, 2011, p. 9). The chain will be able to gain 4% in returned revenue for operating the properties on behalf of the investors if they are chosen as the operators, however there is great possibly that the company won’t be able to gain financial growth as much as franchising or remaining company owned and operated. One critical problem that may come as a result of syndication is that investors may have the option to conduct unauthorized modifications to fit their likings which can have a direct effect on the quality of food and service being providing to the customers. An addition problem is that there would have to be a substantial amount of money spent on transaction costs for: an investment banker, lawyers and closing cost, which can amount to 6% of the actual value of the property.
Besides deciding on the type of growth deal they would like to invest in for the expansion of Porcini’s Pronto, the executive team must focus their attention on the food menu and they have to be very critical during the recruitment process for the hiring of management and staff employees that will be working at Porcini’s Pronto. Menu selection is very important when it comes to opening a restaurant because it determines how much revenue and profit will be generated and it also determines whether or not customers will be come back to eat again. The taste and quality of the food is such a critical part to the success of s restaurant due to the fact that if customers are highly satisfied, they are more than like willing to return again and they will be compelled to also spread the word on how great the food taste. The same concept goes for the service and the delivery of the food. Management staff and employee selection is very important being that they are required to provide fast and efficient service to customers’ on-the-go. Not only do staff members need to have experience in the food and beverage industry, they also need to be able to keep up with fast operations especially during peak traveling season. Therefore it is very important for the executive team to implement customer feedback survey questionnaires for feedback on customer’s expectations and experience and an individual performance metric system specifically for measuring the performance of employees. Both the survey and the metric system can help the company in determining areas that need improvement and can help foster a productive and efficient working environment.
Recommendations & Conclusion
To successfully expand and open “Porcini’s Pronto” in the fast growing food-food market, Alessio and the executive team have several developmental growth options they can choose. After reviewing all of the advantages and disadvantages for each growth option, I strongly recommend to choose the option to remain company owned and operated. Due to the fact that they are relatively new to the rapidly growing fast food industry, it would be best for them to start of slow by opening no more than two Porcini Pronto restaurants. From a financial standpoint, it would cost them must less to open each unit of “Porcini Pronto” being that they will have total control over location sites, building and constructing costs. They will have total control over operational costs, marketing and they will be able to implement some of the same tools and strategies used in their existing restaurants. Having total control over operations will help them to maintain uniformity in high quality of food and service, which will be very critical to how well they are able to gain revenue, profit, customer satisfaction and competitive advantage in the fast food market. An additional advantage to choosing the “company own-operate” approach is that they will have the highest gain in profit revenue reaching a total of 6% which can be reinvested into the company for future expansions, rewards for the performance of the employees or it can be used towards new innovations. The final advantage to the choosing the “company own-operate” approach, is that if gives the company extra time to gain brand recognition at their own pace, where they will be able to easily manage each unit of Porcini’s Pronto. As mentioned by Thompson (1992) “size and growth have been hypothesized to favor company ownership” (p.32) and the company as a whole can pick and monitor the size and growth of each unit, leading to the development in maturity that will be needed for future openings in the fast food market.
Porcini’s is a very successful full-service chain restaurant that specializes in providing its customers with high quality Italian food and service. Having been found in 1969, through its attention to quality differentiation and its “success to uniformity high-quality food and service at each location” (Heskett & Luecke, 2011, p. 2), the family-oriented company was able to expand and opened Porcini’s in many locations including downtown and shopping malls in the Northeastern part of the United States. Due to being in a full-service chain market that is currently becoming heavily saturated, there is an opportunity for the company to venture off into the fast food market. The VP of Marketing is looking to open up several outlet restaurants called “Pronto” for customers on-the- go, but there is a great fear that the company will not have the financial capability to sustain rapid growth while still providing customers with high quality food and service as their full-service chain restaurants. The executive team has to make several important decisions regarding which type of growth acquisition deals they would like to invest in along with selecting the right food for the menu and the right people to staff each of Pronto’s locations. It is recommended that the company utilize the “company own-and- operated” approach to test out two sites for Pronto where they can closely monitor and control operations and finance. They will also be able to continue practicing and maintaining uniformity in high-quality food and service that are currently being provided at their full-service chain restaurants. Entering the fast-food market under the “company owned-and-operated approach” will give them the knowledge and experience that they need to continue expanding in the fast-food market in the future, which will result in an increase in brand recognition, revenue, profit and competitive advantage.
Background
Porcini’s Inc. is a small family-owned Italian restaurant that was established in 1969 in Boston. From the time Porcini’s opened up its doors for business in 1969, its success has been made possible due to the uniformity in high-quality foods and service. After about 20 years in business, Porcini’s expanded its doors to many locations including Hyannis, Massachusetts, Providence, Rhode Island and Connecticut. The company was able to a get an outside group of investors to buy out “Controlling interest in the enterprise, where they expanded to a number of downtown and shopping mall locations in Northeastern U.S” (Heskett & Luecke, 2011, p. 2) totaling up to 23 operating locations. The vast expansion of Porcini’s Inc. aided the company to generate over $94 million in 2010, over 900 hired employees in the organization and its high performance helped them to keep profit margins at an ultimate high, especially during the recessionary period in 2008 and 2009.
One of the most essential attributes that helped Porcini’s Inc. to reach its highest level of success was their attention to high quality food and service that they provided to customers. “Quality could be traced to the long experience of individual managers, supervisory personal, chefs, a relatively stable workforce, and the recipes of the chef Marianna Mouse” (Heskett & Luecke, 2011, p. 2). Together, Moises trained chefs of the outlet restaurants on cooking techniques while management trained waiters and the staff on high quality service methods and its relevance to the performance of the business. In addition to the food and service they provided, Porcini’s offered customers with a creative unique family-oriented ambiance and excellent table service. Porcini’s efforts in providing and maintaining high quality service has crowned the organization as one the most successful full-service-chain restaurants in the market, however there was a new market that needed to be explored. Tom Alessio, Marketing VP at Porcini’s “pondered on a potential expansion of the company’s restaurant business” (Heskett & Luecke, 2011, p. 1) being that the full-service chain market was becoming overly saturated. Alessio saw that there was an opportunity for them company to enter the fast food market by opening up a chain of “Porcini’s Pronto” at interstate highway exits as way of offering quality food and services to on-the-go business and vacation travelers. The idea of opening smaller outlet restaurants would be a great way to increase brand recognition, revenue and profit but the question that remained to be unanswered is if they firm can financially sustain themselves in a rapidly growing fast-food industry that was totally unfamiliar to them.
Problem Statement
Being that Porcini’s Inc. is trying to enter the fast-food market for the very first time, the major issue that the company is faced with is having both financial and human resources to provide high quality food and services to on-the-go customers, while still maintaining the company’s reputation as one the most successful full-service chain restaurants.
Analysis
Currently, Porcini’s restaurant business has been performing quiet well as a full-service chain restaurant, exceling in providing customers with high quality food and service. Its success in the full-service chain market has allowed the company to not only dominate competitors such as Olive Garden Bartica’s and Buca di Beppo, it has allowed them the financial ability to expand in various locations including the Northeastern part of the United States. Porcini’s attention and differentiation in high quality food and service has gained them a substantial amount of revenue and profit, high customer satisfaction rates and competitive advantage over its competitors in the same industry. A lot of credit can be given to the extensive trainings that are given to the employees and management team in the organization, which has help them to develop a culture geared towards quality assurance and customer satisfaction. Now that “The domestic market for full-service chain restaurants is nearing its saturation point at both in-city and shopping mall locations” ( (Heskett & Luecke, 2011, p. 8), Tom Alessio, the VP of Marketing is looking to invest in faster outlet restaurants called “Pronto”, a smaller version of “Porcini”. The initial objective for opening up “Pronto” is to provide business and vacation travelers with the best tasting Italian food that is on-the-go, without compromising the uniformity of high quality service and food that they currently have at their full-service chain restaurants. They also want to make sure that they are maintaining their reputation, while increasing brand recognition and financial growth.
There are multiple options Alessio and the company’s executive team can take when it comes down to deciding whether or not they are going to expand and how they are going to expand in the rapidly growing fast-food market. The first initial option that they can take is to do absolutely nothing. Alessio and the executive team can keep the company functioning the way it currently is without having to spend any extra funds in investing in an expansion project. All of the revenue and the profit that is generated can remain in the company business and can be used for other things like employee raises or restaurant renovations. The one problem with the “Do nothing “ option is that it will cause the company to miss out on the opportunity to increase their revenue and profit in another market outside of the full-service chain market and they will miss out on the chance to gain brand recognition which is critical for maintaining competitive advantage.
The second option that Alessio and the executive company can take to make plans to invest in another full-service chain restaurant just like the ones that they currently have. Being that they already have experience opening “Porcini” full-service restaurants in various locations, this expansion should not take them very long nor should it cost them as much money. Conducting and reviewing strategic building and financial plans from previously opened “Porcinis’ would give them a great advantage being that will they already know what to expect. One aspect that they have to keep in mind is in strategically picking the ideal location of the restaurant. The location of the restaurant is a very important because that if they choose to open the restaurant an economically low area, it can cause them to lose a lot on their investment which could eventually turn into sunk costs that cannot be recouped. The location of the restaurant should be near a busy economic area that is assessable to local businesses, travelers, tourists and local customers living in the area.
The third and ideal option for growth is to invest in opening Porcini’s Pronto. The company should start of slow by open only two “Pronto” outlet test restaurants in the busiest interstate locations that can afford. The ideal location would be the rest stop areas, where travelers stop to eat, use the restroom and gas up, lodging areas or an area near large building offices. One of the most important factors that must be determined is: what growth option deal would best fit the company and its financial capabilities? The three acquisition growth deals that are being considered for expansion are: company owned -and- operated, franchising and syndication. All three options have great advantages but they also come with some consequences that can become a financial burden to the success of the company. If the executive team chose to remain company owned and operated, they would only have to spend $2.1 million for the land, building and fitting for each Pronto unit that is built, totaling up to $4.2 million for two test sites, and it is less than opening up another Porcini’s. This acquisition approach “would give Porcini’s total control over operations and customer experience” (Heskett & Luecke, 2011, p. 8). There would also be a 6% gain in revenue profit margin which will help recoup some of the costs spent on land and construction. However, one concern is that the company isn’t sure if they will be financially able to sustain the rapid growth that may occur if they were to go this route.
Franchising is another alternative for growth, where a franchisee would take over the operations of the restaurant. “Franchising is an organizational form which combines the decentralized ownership and control at the production stage of service together with centralized provision of know-how and promotion of the brand name” (Thompson, 1992, p. 31). The company would be represented as the franchiser and they would appoint a franchisee who pays to use the name of the brand. Some of the advantages of having a franchise is that “the company would be able to shift its attention and limited capital from the restaurant level to system wide marketing and brand building” (Heskett & Luecke, 2011, p. 8) which is what they currently need. The company would be able to avoid costs associated with construction, site acquisition and fitting. “The franchiser would normally be compensated through a mixture of fixed fee and revenue –based royalty payments” (Thompson, 1992, p. 31). The franchisor would be able to enforce standards and regulations in regards to how the business model should be implemented and operated and it is the franchisee’s duty to make sure that they are abiding by the standards and practices stipulated in the contract. Some of the disadvantages to franchising are that the company has to spend roughly “$1 million on legal and staff resources to develop franchising agreements and franchise system supports” (Heskett & Luecke, 2011, p. 8). They are also responsible for providing marketing support and training which could be very costly depending on who they hire and how they go about advertising the restaurant. The greatest disadvantage with going through with a franchising deal is that the fact that there are no guarantees “To extracting high fees and royalty from franchising” (Heskett & Luecke, 2011, p. 8) and they run the risk of losing returns on the investment if they do not select an experienced person as their franchisee.
The last and final growth deal that the executive can look into is called syndication. What sets the process of syndication apart from franchising and company owned and operated businesses is that ownership is directly transferred over to the investors. “In a syndication deal, the Chain identifies and purchases a number of sites, builds and furnished a facility each and them sells the portfolio of properties to an investment group, thereby recouping and recycling its capital into another syndication” (Heskett & Luecke, 2011, p. 9). The chain will be able to gain 4% in returned revenue for operating the properties on behalf of the investors if they are chosen as the operators, however there is great possibly that the company won’t be able to gain financial growth as much as franchising or remaining company owned and operated. One critical problem that may come as a result of syndication is that investors may have the option to conduct unauthorized modifications to fit their likings which can have a direct effect on the quality of food and service being providing to the customers. An addition problem is that there would have to be a substantial amount of money spent on transaction costs for: an investment banker, lawyers and closing cost, which can amount to 6% of the actual value of the property.
Besides deciding on the type of growth deal they would like to invest in for the expansion of Porcini’s Pronto, the executive team must focus their attention on the food menu and they have to be very critical during the recruitment process for the hiring of management and staff employees that will be working at Porcini’s Pronto. Menu selection is very important when it comes to opening a restaurant because it determines how much revenue and profit will be generated and it also determines whether or not customers will be come back to eat again. The taste and quality of the food is such a critical part to the success of s restaurant due to the fact that if customers are highly satisfied, they are more than like willing to return again and they will be compelled to also spread the word on how great the food taste. The same concept goes for the service and the delivery of the food. Management staff and employee selection is very important being that they are required to provide fast and efficient service to customers’ on-the-go. Not only do staff members need to have experience in the food and beverage industry, they also need to be able to keep up with fast operations especially during peak traveling season. Therefore it is very important for the executive team to implement customer feedback survey questionnaires for feedback on customer’s expectations and experience and an individual performance metric system specifically for measuring the performance of employees. Both the survey and the metric system can help the company in determining areas that need improvement and can help foster a productive and efficient working environment.
Recommendations & Conclusion
To successfully expand and open “Porcini’s Pronto” in the fast growing food-food market, Alessio and the executive team have several developmental growth options they can choose. After reviewing all of the advantages and disadvantages for each growth option, I strongly recommend to choose the option to remain company owned and operated. Due to the fact that they are relatively new to the rapidly growing fast food industry, it would be best for them to start of slow by opening no more than two Porcini Pronto restaurants. From a financial standpoint, it would cost them must less to open each unit of “Porcini Pronto” being that they will have total control over location sites, building and constructing costs. They will have total control over operational costs, marketing and they will be able to implement some of the same tools and strategies used in their existing restaurants. Having total control over operations will help them to maintain uniformity in high quality of food and service, which will be very critical to how well they are able to gain revenue, profit, customer satisfaction and competitive advantage in the fast food market. An additional advantage to choosing the “company own-operate” approach is that they will have the highest gain in profit revenue reaching a total of 6% which can be reinvested into the company for future expansions, rewards for the performance of the employees or it can be used towards new innovations. The final advantage to the choosing the “company own-operate” approach, is that if gives the company extra time to gain brand recognition at their own pace, where they will be able to easily manage each unit of Porcini’s Pronto. As mentioned by Thompson (1992) “size and growth have been hypothesized to favor company ownership” (p.32) and the company as a whole can pick and monitor the size and growth of each unit, leading to the development in maturity that will be needed for future openings in the fast food market.
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