McKinsey Case Compettion

MCA - McKinsey Case Competition 2011

Porcini’s Pronto
Team „PacKaGeD‟

November 19, 2011

Kitty Chow Pramod Jindal Derek Wenngatz Girish Chhatwani

Agenda

• Executive Summary
• Current Situation & Problem Statement
• Ways Forward
• Recipe for Success
• Options for Growth
• Company Own-and-Operate Model
• Balanced Growth
• Risks
• Recommendations

Executive Summary

• Procini‟s Growth Strategy
– Leveraging Porcini‟s strengths for growth

• Strategies and Options Considered
– Launch Porcini‟s Pronto Concept

– Company Owned-and-Operate

• Risks
– Mitigation strategies

Current Situation & Problem Statement

How can Porcini‟s grow their business at
greater than 5% annually, through to
2018?

Current domestic
segments saturated Overseas growth not Need new domestic
for full-service feasible segment for growth
restaurants

Grow by Targeting Traveller Market: Porcini’s “Pronto”

Maintain Porcini’s Pronto
Porcini‟s

• Target customers on
interstate highway with
Expand
Porcini‟s table-served meals, at
flagship
reasonable price
Options
– Segment not saturated
– Potential to grow beyond
Catering
industry average

Launch
Pronto

Recipe for Pronto’s Success

Value Drivers Core Competencies

• Innovative recipes
Quality Food • Fresh ingredients
• Artful presentation

• Hiring the right people
• Quality training program
Rapid Service • Wireless Technology
• “Great Italian Cuisine without the Wait”

Value & • Priced lower than Porcini
Convenience • Location

Best Returns with Company Own-and-Operate Approach

7,000

X $ 1000
Cumulative Profits (PV) each Year
6,000

Company-owned Franchise Syndicate 5,000

4,000

3,000

2,000

1,000

0
1 2 3 4 5 6 7 8

NPV @ 2.5% Assumptions:
Growth Rate • Financing costs included in 94% margin
Company Own-and-Operate $ 6.5 Million • Pronto growth rate = Industry rate = 2.5%
• Hurdle rate = 6%
Syndicate $ 4.4 Million • All values pre-tax
Franchise $ 3.2 Million

Pronto’s Potential

Sensitivity Analysis: NPV vs. Potential Growth Rate
25%
23%

20%

15% 14%

10%
10%

5%

0%
2.5% 6% 8%

Revenue Growth Rates

Porcini‟s Strengths + Matching Value Drivers = Potential for Above Average Growth

Greatest Prospects with Company Own-and-Operate

Company
Syndicate Franchise
Owned

Short Run Return (1-3 years) 

Long Run Return (8 years)  

Pilot Concept 

Minimized Risk  

Protect Porcini Brand  

Pronto Allows for Balanced Growth

Potential of Pronto’s Industry Risk

• Long run growth potential • 60% failure rate within 3 years *
• Rapid growth increases risk *

Managed Growth

• Ensure feasibility
• Assess ideal rate of growth
“measured risk”

* “Why Restaurants Fail”, Cornell Hotel and Restaurant Administration Quarterly, 2005

Risks & Mitigation

Failure of the • Two Pronto pilots
Pronto‟s Concept • Company owned-and-operate model

Damage to • Maintain strict quality control of food and
Porcini‟s service
Reputation • Direct management involvement

Improper Pronto‟s • Traffic study
Locations • Marketing / Branding

Market & Industry • Balanced expansion
Volatility • Value for money

Recommendations

How can Porcini grow their business at greater than 5%
annually through to 2018, in the domestic market?

1. Launch Porcini‟s Pronto concept

2. Grow via company owned-and-operated approach

3. Pilot to determine long run potential of the Pronto‟s concept

Questions

Appendix A – Porcini’s Pronto Financials

2011 2012 2013 2014 2015 2016 2017 2018
Company Owned
# of restaurants 2 2 4 6 8 10 12 14
Investment $ (4,200,000) $ - $ (4,200,000) $ (4,200,000) $ (4,200,000) $ (4,200,000) $ (4,200,000) $ (4,200,000)
Revenue $ 4,800,000 $ 4,920,000 $ 9,843,000 $ 15,138,150 $ 20,694,906 $ 26,523,038 $ 32,632,642 $ 39,034,150
Profits $ 288,000 $ 295,200 $ 590,580 $ 908,289 $ 1,241,694 $ 1,591,382 $ 1,957,959 $ 2,342,049
Present Value $ 271,698 $ 262,727 $ 495,862 $ 719,450 $ 927,866 $ 1,121,862 $ 1,302,154 $ 1,469,431
Cum Present Value $ 271,698 $ 534,425 $ 1,030,287 $ 1,749,737 $ 2,677,604 $ 3,799,465 $ 5,101,620 $ 6,571,050
Franchise
# of restaurants 0 0 4 8 12 17 22 28
Investment $ (1,000,000) $ - $ - $ - $ - $ - $ - $ -
Revenue $ - $ - $ 9,600,000 $ 19,440,000 $ 29,772,000 $ 43,014,450 $ 57,035,566 $ 74,138,354
Profits $ - $ - $ 192,000 $ 388,800 $ 595,440 $ 860,289 $ 1,140,711 $ 1,482,767
Present Value $ - $ - $ 161,207 $ 307,966 $ 444,947 $ 606,470 $ 758,638 $ 930,306
Cum Present Value $ - $ - $ 161,207 $ 469,173 $ 914,120 $ 1,520,590 $ 2,279,228 $ 3,209,535
Syndicate
# of restaurants 0 0 2 5 8 12 16 20
Investment $ (1,250,000) $ - $ (252,000) $ (378,000) $ (1,628,000) $ (504,000) $ (504,000) $ (504,000)
Revenue $ - $ - $ 4,800,000 $ 12,120,000 $ 19,807,500 $ 30,276,300 $ 41,389,811 $ 53,046,075
Profits $ - $ - $ 192,000 $ 484,800 $ 792,300 $ 1,211,052 $ 1,655,592 $ 2,121,843
Present Value $ - $ - $ 161,207 $ 384,007 $ 592,053 $ 853,744 $ 1,101,064 $ 1,331,271
Cum Present Value $ - $ - $ 161,207 $ 545,214 $ 1,137,267 $ 1,991,010 $ 3,092,074 $ 4,423,345

PARAMETERS COSTS REVENUES
Growth Rate 2.50% Cost per Pronto's (owned) $ 2,100,000 Rev Per Pronto's: $ 2,400,000
Discount Rate 6% Cost to syndicate $ 2,500,000
Cost to franchise $ 1,000,000

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Notes de l'éditeur