McKinsey Case Compettion
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The document discusses growth strategies for Porcini's, an Italian restaurant chain. It considers launching a new concept called Porcini's Pronto, targeting travelers. Three options for growing Pronto are evaluated: company owned-and-operated, franchising, and syndication. Company owned-and-operated is recommended as offering the highest long-term returns with least risk. A pilot test of 2 Pronto locations is suggested to determine the concept's potential before broader expansion.
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McKinsey Case Compettion
- 1. MCA - McKinsey Case Competition 2011 Porcini’s Pronto Team „PacKaGeD‟ November 19, 2011 Kitty Chow Pramod Jindal Derek Wenngatz Girish Chhatwani
- 2. Agenda MCA - McKinsey Case Competition 2011 • Executive Summary • Current Situation & Problem Statement • Ways Forward • Recipe for Success • Options for Growth • Company Own-and-Operate Model • Balanced Growth • Risks • Recommendations
- 3. Executive Summary MCA - McKinsey Case Competition 2011 • 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
- 4. Agenda MCA - McKinsey Case Competition 2011 • Executive Summary • Current Situation & Problem Statement • Ways Forward • Recipe for Success • Options for Growth • Company Own-and-Operate Model • Balanced Growth • Risks • Recommendations
- 5. Current Situation & Problem Statement MCA - McKinsey Case Competition 2011 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
- 6. Grow by Targeting Traveller Market: Porcini’s “Pronto” MCA - McKinsey Case Competition 2011 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
- 7. Recipe for Pronto’s Success MCA - McKinsey Case Competition 2011 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
- 8. Agenda MCA - McKinsey Case Competition 2011 • Executive Summary • Current Situation & Problem Statement • Ways Forward • Recipe for Success • Options for Growth • Company Own-and-Operate Model • Balanced Growth • Risks • Recommendations
- 9. Best Returns with Company Own-and-Operate Approach MCA - McKinsey Case Competition 2011 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
- 10. Pronto’s Potential MCA - McKinsey Case Competition 2011 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
- 11. Agenda MCA - McKinsey Case Competition 2011 • Executive Summary • Current Situation & Problem Statement • Ways Forward • Recipe for Success • Options for Growth • Company Own-and-Operate Model • Balanced Growth • Risks • Recommendations
- 12. Greatest Prospects with Company Own-and-Operate MCA - McKinsey Case Competition 2011 Company Syndicate Franchise Owned Short Run Return (1-3 years) Long Run Return (8 years) Pilot Concept Minimized Risk Protect Porcini Brand
- 13. Pronto Allows for Balanced Growth MCA - McKinsey Case Competition 2011 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
- 14. Agenda MCA - McKinsey Case Competition 2011 • Executive Summary • Current Situation & Problem Statement • Ways Forward • Recipe for Success • Options for Growth • Company Own-and-Operate Model • Balanced Growth • Risks • Recommendations
- 15. Risks & Mitigation MCA - McKinsey Case Competition 2011 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
- 16. Recommendations MCA - McKinsey Case Competition 2011 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
- 17. Questions MCA - McKinsey Case Competition 2011
- 18. Appendix A – Porcini’s Pronto Financials MCA - McKinsey Case Competition 2011 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
Editor's Notes
- Industry growth rate: 2.5% each year, till 2016Catering: Growth rate: 2 – 2.5% annuallyMargins:4-7% annuallyGrow Porcini’s: Cost of new restaurant: $4.3 MillionAverage revenue: $4.1 Million
- Industry growth rate: 2.5% each year, till 2016Catering: Growth rate: 2 – 2.5% annuallyMargins:4-7% annuallyGrow Porcini’s: Cost of new restaurant: $4.3 MillionAverage revenue: $4.1 Million
- On this slide for growth options, I want to bring your attention to the cumulative profits each year. Compared to Syndicate, franchise, we are opening the minimum no of new restraunts in company owned model. Even with the conservative growth in terms of no of new restaurants, Company Own and Operate model offers the consistently high cumulative profits.For the same risk failure for syndicate, franchise and company own model,if we go with company own-n-operate model, we can potentially have the strongest bottomline primarily because of higher profit margins.Our assumptions here are very conservative. We have assumed that Pronto will grow at just 2.5% which is the growth rate in a saturated market. With the strongest bottom line despite minimum no of total restraurant , Based on quantitative approach, Pronto should be launched in company owned approach.
- Since we are targeting a new segments which is not saturated, Pronto has higher potential to grow.Our base rate is the growth rate of full service in in-city and shopping malls, Given Porcini’s precise knowledge of customers, ability to maintain quality of food and service, we expect that Pronto has immense potential to grow beyond the industry average of 2.5% which reflects the growth rate of a saturated segment which would lead to higher profits.