When a chain opens new stores and they trail the old ones, the temptation is to blame the menu or the prices. This management consulting case study shows how a structured set of questions leads somewhere else entirely.
Case Scenario
The client is a fast food restaurant chain whose newer stores are underperforming compared with its established ones. The client wants to understand why, and what to do about it.
Suggested Approach
First, make an effort to understand the precise nature of the issue at the underperforming stores. More specifically, are expenditures higher or revenues lower compared with the other stores?
Revenue
- Fewer customers
- Lower sales per customer (i.e. less or cheaper food purchased)
Costs
- Employment, real estate and facility costs
- Food ingredients and other variable expenses
Then concentrate on the reasons why fewer people are visiting the new stores.
Are Prices Too High?
- How are customers segmented?
- Are the various stores catering to different customer groups?
- What are the requirements of the various segments?
Where are the new and old shops located? In a neighbourhood? Drive-thrus, malls, or standalone stores?
Do All the Shops Serve the Same Food?
- Do some products sell better in the new or the old stores?
Are the Competitors the Same in Both Locations?
The analysis should identify location as the key factor here.
What the Analysis Found
The company's previous locations were mostly in low-income communities, where it had few rivals. The majority of the additional locations were in luxury malls, where there was greater competition and the company suffered from being perceived as a low-cost brand.
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