Casper and Gambinis 2010 Case Notes Prepared by: Dr. Hala Khayr Yaacoub Case Author: Dr.

. Hala Khayr Yaacoub

A.

Case Abstract

Casper & Gambinis (C&G) (www.casperandgambinis.com) is a comprehensive business policy and strategic management case that includes the companys background, income statement, balance sheet for the year ended 2009 and more. The case time setting is 2010. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Beirut, Lebanon, C&G offers a unique restaurant-caf experience along with distinctive brand expansions into various related fields (Silver by C&G, Eatalian, Falafel Nadia, and From The Tree). Using franchising the company has been able to penetrate and establish presence in the Middle East with over 22 branches. Led by CEO Anthony Maalouf the company has experienced steady financial and physical growth ever since the firms inception in the year 1996. The major competitors of Casper & Gambinis are Paul, Linas and Starbucks.

B.

Vision Statement (Actual)

Through our continuous development and determination to expand within different cultures and countries, we, at Casper & Gambini's will successfully spread our distinctive all-day restaurant-caf concept worldwide.

C.

Mission Statement (Actual)

Commitment to offer high quality wholesome food and beverages in an environment that is both stimulating and liberating with warmth and passion, delivering a genuine experience. C&G aims at providing customers a reliable, quality-driven service, promoting a unique coffee culture by delivering quality coffee drinks, and serving as a hub where diverse target consumers meet in a casual setting to satisfy their different cravings, all day long. We We We We dont dont dont dont have have have have owners, we have ambassadors chefs, we have nutritional artists waiters, we have culinary guides guests, we have partners in success

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Mission Statement (proposed)

Casper and Gambinis mission is to provide the tastiest and healthiest food (2) to our customers (1) all around the world (3). We aim to exceed the customers expectations through offering continuous quality improvements and exceptional customer service (4, 5). Our customers, employees, stakeholders and publics will be taken into consideration in every decision made (6, 8, 9). We will strive to be environmentally conscious in everything we do (8) and hold true to our signature products (7). 1. 2. 3. 4. 5. 6. 7. 8. 9. Customer Products or services Markets Technology Concern for survival, profitability, growth Philosophy Self-concept Concern for public image Concern for employees

D.

External Audit
Opportunities 1. Consumers are interested in new eating habits (trend for urban living and international casual dining habits is earning more ground on the expense of the quick-service restaurants) 2. Consumers are striving for higher quality ethnic food (with growth in a desire for modern Lebanese food prepared and presented in a trendy design and ambiance) 3. The trend for healthy, low-calorie, and organic food and beverages is increasing 4. Expanding market (2009 figures show that the market for casual dining and quick service is estimated to be worth US$2.1 billion with an average yearly growth of 12 percent for the coming five years) 5. High population growth (estimated to be around 3.3 percent across the region) with higher standards of living 6. The illegality of consuming alcohol across the region renders restaurants a main leisure and socializing option 7. Prolific growth of shopping malls in the region where the need for food and beverage facilities is highly needed to complement the retail experience

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Threats 1. 2. 3. 4. 5. 6. 7. 8. Tough global economic conditions Regional geopolitical instabilities Local political and security difficulties Labor shortages (emigrating upper and middle level managers and shortages of lower-level employees) The scarcity of statistical data and information Exchange rates (high euro prices directly affect the food and beverage costs, since most of the raw materials are imported from Europe) Competition from established brands (Paul, Linas, Starbucks) Competitive threat of new entrants, especially given that consumers enjoy experiencing new formats.

9. Intense global competition for making franchising deals (more competitive pressures from North American franchises since they are suffering and thus are more competitive in their prices)

External Factor Evaluation (EFE) Matrix

Key External Factors

Weight

Rating

Weighted Score

Opportunities 1. Consumers are interested in new eating habits 2. Consumers are striving for higher quality ethnic food 3. Trend for healthy, low-calorie, and organic food and beverages is increasing 4. Expanding Market at an average yearly growth rate of 12 percent for the coming five years 5. High population growth (estimated to be around 3.3 percent across the region) with higher standards of living 6. The illegality of consuming alcohol across the region renders restaurants a main leisure and socializing option 7. Prolific growth of shopping malls in the region where the need for food and beverage facilities is highly 0.04 0.04 0.07 3 3 3 0.12 0.12 0.21

0.1

0.2

0.09

0.18

0.07

0.21

0.05

0.1

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needed to complement the retail experience Threats 1. Tough global economic conditions 2. Regional geopolitical instabilities 3. Local political and security difficulties 4. Labor shortages (emigrating upper and middle level managers and shortages of lower-level employees) 5. The scarcity of statistical data and information 6. Exchange rates (high euro prices directly affect the food and beverage costs, since most of the raw materials are imported from Europe) 7. Competition from established brands (Paul, Linas, Starbucks) 8. Competitive threat of new entrants, especially that consumers enjoy experiencing new formats 9. Intense global competition for making franchising deals (more competitive pressures from North American franchises since they are suffering and thus are more competitive in their prices) Total 0.04 0.1 0.06 0.04 2 2 2 3 0.08 0.2 0.12 0.12

0.1 0.05

2 2

0.2 0.1

0.06 0.04

3 3

0.18 0.12

0.05

0.1

1.00

2.36

E.

Internal Audit
Strengths 1. Friendly setting that acts as a good socializing place for targeted consumers 2. C&G has received many awards for best quality coffee by many accrediting committees 3. Effective internal marketing mechanisms are put into place to ensure well trained and highly motivated workforce (through continuous learning endeavors, promotions from within and merit-based pay) 4. Customized formulas and menus for various restaurants and consumers to fit local tastes and preferences Copyright 2011 Pearson Education Limited

5. 6. 7. 8.

High investment in R & D to update menus regularly 24 percent growth in net income from 2008 to 2009 Consistent service guaranteed through a regional supply office. 75 percent of total sales are accounted for from the food department in harmony with C&Gs mission statement and identity Weaknesses

1. The company seems to be in a state of relative balance sheet insolvency despite being profitable 2. Increase in receivables and prepayments during 20082009 which will increase the risk of bad debt 3. Expansion mainly through franchising makes the company prone to losing control over franchised operations which in turn might hurt the company 4. Reduced total expenditure on salaries indicates a reduction in the number of employees, and perhaps redundancies Financial Reasoning Because of the scarcity of financial data and mainly the absence of competitive and industry financials, only limited analysis can be done. The growth in C&G net income from 2008 to 2009 is 24 percent, which is pretty remarkable especially that during that period the global economy was suffering a severe recession and most economies were recording either negative or zero growth at best. The increase in C&Gs receivables and prepayments from $169,612 to $530,071 is somewhat alarming. This will increase the risk of bad debt which means that there might be some franchisees that might not be able to fully pay back their amounts due, which in turn would put a strain on the companys liquidity. C&Gs long term debt seems to be reasonable given the fact that it is in a fast growth period and it is normal for companies to have long term debts in this phase. In addition, this debt might be good for the company if it decides to go public because it will help give it a very good debt rating. C&Gs cash flow is not expected to be high despite that fact that it is profitable; this is because it is in a high growth period where it is expanding in many countries at the same time, and because it is introducing new concepts like Eatalian. Based on that, we can assume that C&G is financing its growth using a mix of long term loans and auto financing. The decrease in C&Gs management salaries from 2008 to 2009 is indicative of potential layoffs that might have happened among the ranks of the employees. Given the growth endeavors and the introduction of a couple of new business offerings, this must be the other way around.

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Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Strengths 1. Friendly setting that acts as a good socializing place for targeted consumers 2. C&G has received many awards for best quality coffee by accrediting committees 3. Effective internal marketing mechanisms are put into place to ensure well trained and highly motivated workforce (through continuous learning endeavors, promotions and merit-based pay) 4. Customized formulas and menus for various restaurants and consumers to fit local tastes and preferences 5. High investment in R & D to update menus regularly 6. 24 percent growth in net income from 2008 to 2009 7. Consistent service guaranteed through a regional supply office 8. 75 percent of total sales are accounted for from the food department in harmony with C&Gs mission statement and identity Weaknesses 1. The company seems to be in a state of relative balance sheet insolvency despite being profitable 2. Increase in receivables and prepayments during 2008-2009 which will increase the risk of bad debt 3. Expansion mainly through franchising makes the company prone to losing control over franchised operations which in turn might hurt the company 4. Reduced total expenditure on salaries indicates a reduction in the number of employees, and perhaps redundancies

Weight

Rating

Weighted Score

0.06 0.05

3 3

0.18 0.15

0.05

0.15

0.08

0.32

0.08 0.2 0.09 0.06

3 4 3 3

0.24 0.8 0.27 0.18

0.07

0.07

0.1

0.1

0.08

0.16

0.08

0.16

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TOTAL

1.00

2.78

F.

SWOT Strategies

Strengths 1. Friendly setting that acts as a good socializing place for targeted consumers 2. C&G has received many awards for best quality coffee by many accrediting committees 3. Effective internal marketing mechanisms are put into place to ensure well trained and highly motivated workforce (through continuous learning endeavors, promotions from within and meritbased pay) 4. Customized formulas and menus for various restaurants and consumers to fit local tastes and preferences 5. High investment in R & D to update menus regularly 6. 24 percent growth in net income from 2008 to 2009 7. Consistent service guaranteed through a regional supply office. 75 percent of total sales are accounted for from the food department in harmony with C&Gs mission statement and identity

Weaknesses 1. The company seems to be in a state of relative balance sheet insolvency despite being profitable 2. Increase in receivables and prepayments during 20082009 which will increase the risk of bad debt 3. Expansion mainly through franchising makes the company prone to losing control over franchised operations which in turn might hurt the company 4. Reduced total expenditure on salaries indicates a reduction in the number of employees, and perhaps redundancies

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Opportunities 1. Consumers are interested in new eating habits (trend for urban living and international casual dining habits is earning more ground on the expense of the quickservice restaurants) 2. Consumers are striving for higher quality ethnic food (with growth in a desire for modern Lebanese food prepared and presented in a trendy design and ambiance) 3. The trend for healthy, low-calorie, and organic food and beverages is increasing 4. Expanding market (2009 figures show that the market for casual dining and quick service is estimated to be worth US$2.1 billion with an average yearly growth of 12 percent for the coming five years) 5. High population growth (estimated to be around 3.3 percent across the region) with higher standards of living 6. The illegality of consuming alcohol across the region renders restaurants a main leisure and socializing option 7. Prolific growth of shopping malls in the region where the need for food and beverage facilities is highly needed to complement

S-O Strategies 1. Sell C&Gs idea to entrepreneurs by targeting malls with a specially designed setting and offerings for them (S1, S4, O7) 2. Introduce more fun, healthy drinks to attract consumers (S2, O6)

W-O Strategies 1. Purse market penetration strategy by offering discounts and wider presence to strengthen its position in the market (W1, W2, O4, O5) 2. Use cause-related marketing by sponsoring a certain cause related to a healthy lifestyle (W1, O2, O3)

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the retail experience

Threats
1. Tough global economic conditions 2. Regional geopolitical instabilities 3. Local political and security difficulties 4. Labor shortages (emigrating upper and middle level managers and shortages of lower-level employees) 5. The scarcity of statistical data and information 6. Exchange rates (high euro prices directly affect the food and beverage costs, since most of the raw materials are imported from Europe) 7. Competition from established brands (Paul, Linas, Starbucks) 8. Competitive threat of new entrants, especially given that consumers enjoy experiencing new formats. 9. Intense global competition for making franchising deals (more competitive pressures from North American franchises since they are suffering and thus are more competitive in their prices)

S -T Strategies
1. Sell C&Gs idea to entrepreneurs by targeting malls with a specially designed setting and offerings for them (S5, T9) 2. Pursue product development strategy to differentiate its offering (S4, S5, T7, T8)

W-T Strategies
1. Sell C&Gs idea to entrepreneurs by targeting malls with a specially designed setting and offerings for them (S5, T9) 2. Pursue product development strategy to differentiate its offering (S4, S5, T7, T8)

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G.

SPACE Matrix
Conservative FS 6 5 4 3 2 1 CA IS Aggressive

-6

-5

-4

-3

-2

-1 -1 -2 -3 -4 -5 -6

Defensive

ES

Competitive

Financial Strength (FS) Return on Assets (ROA) Leverage Net Income Income/Employee Inventory Turnover Financial Strength (FS) Average

5 4 5 4 4

Environmental Stability (ES) Rate of Inflation Technological Changes Price Elasticity of Demand Competitive Pressure Barriers to Entry into Market

-3 -2 -3 -6 -4 -3.6

4.4 Environmental Stability (ES) Average

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Competitive Advantage (CA) Market Share Product Quality Customer Loyalty Technological know-how Control over Suppliers and Distributors

-2 -1 -2 -2 -3

Industry Strength (IS) Growth Potential Financial Stability Ease of Entry into Market Resource Utilization Profit Potential Industry Strength (IS) Average

5 4 5 5 5 4.8

Competitive Advantage (CA) Average -2

x-axis: -2 + 4.8 = 2.8 y-axis: 4.4 + -3.6 = 0.8

Thus, Coordinate: (2.8, 0.8)

H.

Grand Strategy Matrix

Rapid Market Growth Quadrant II Quadrant I

Weak Competitive Position

Strong Competitive Position

Quadrant III Slow Market Growth

Quadrant IV

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I.

The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong 3.0 to 4.0 High 3.0 to 3.99 I

Average 2.0 to 2.99 II

Weak 1.0 to 1.99 III

Medium The EFE Total Weighted Score 2.0 to 2.99

IV

VI

C&Gs

Low 1.0 to 1.99

VII

VIII

IX

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Hold and maintain

J. QSPM

Strategic Alternatives Key Internal Factors New product Development Weight 0.06 TAS 0.18 New market entries AS 2 TAS 0.12

Strengths 1. Friendly setting that acts as a good socializing place for targeted consumers 2. C&G has received many awards for best quality coffee by many accrediting committees 3. Effective internal marketing mechanisms are put into place to ensure well trained and highly motivated workforce (through continuous learning endeavors, promotions from within and meritbased pay) 4. Customized formulas and menus for various restaurants and consumers to fit local tastes and preferences 5. High investment in R & D to update menus regularly 6. 24 percent growth in net income from 2008 to 2009 7. Consistent service guaranteed through a regional supply office 8. 75 percent of total sales are accounted for from the food

AS 3

0.05

0.15

0.1

0.05

0.15

0.05

0.08

0.32

0.24

0.08 0.2 0.09

4 4 1

0.32 0.8 0.09 3 4

0.16 0.6 0.36

0.06

---

---

---

---

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department in harmony with C&Gs mission statement and identity Weaknesses 1. The company seems to be in a state of relative balance sheet insolvency despite being profitable 2. Increase in receivables and prepayments during 20082009 which will increase the risk of bad debt 3. Expansion mainly through franchising makes the company prone to losing control over franchised operations which in turn might hurt the company 4. Reduced total expenditure on salaries indicates a reduction in the number of employees, and perhaps redundancies SUBTOTAL

0.07

---

---

---

---

0.10

0.4

0.1

0.08

---

---

0.08

---

---

---

---

1.00

2.41

1.73

Key External Factors

New product Development Weight 0.04 0.04 0.07 AS 2 2 3 TAS 0.08 0.08 0.21

New market entries AS 1 1 1 TAS 0.04 0.04 0.07

Opportunities 1. Consumers are interested in new eating habits 2. Consumers are striving for higher quality ethnic food 3. Trend for healthy, low-calorie, and organic food and beverages is increasing 4. Expanding Market at an average yearly growth rate of 12 percent for the coming five years 5. High population growth (estimated to be around 3.3 percent across the region) with higher standards of living 6. The illegality of consuming alcohol across the region renders restaurants a main leisure and socializing option 7. Prolific growth of shopping malls in the region where the need for food and beverage facilities is highly needed to complement the retail

0.1

0.1

0.3

0.09

0.09

0.27

0.07

0.14

0.07

0.05

0.05

0.15

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experience Threats 1. Tough global economic conditions 2. Regional geopolitical instabilities 3. Local political and security difficulties 4. Labor shortages (emigrating upper and middle level managers and shortages of lower-level employees) 5. The scarcity of statistical data and information 6. Exchange rates (high euro prices directly affect the food and beverage costs, since most of the raw materials are imported from Europe) 7. Competition from established brands (Paul, Linas, Starbucks) 8. Competitive threat of new entrants, especially that consumers enjoy experiencing new formats 9. Intense global competition for making franchising deals (More competitive pressures from North American franchises since they are suffering and thus are more competitive in their prices) SUB TOTAL SUM TOTAL ATTRACTIVENESS SCORE 0.04 0.1 0.06 --2 1 --0.2 0.06 --1 2 --0.1 0.12

0.04 0.1 0.05

-------

-------

-------

-------

0.06 0.04

-----

-----

-----

-----

0.05

0.1

0.05

1.11 3.52

1.21 2.94

K. Recommendations
The QSPM assessed whether C&G should introduce new products into already existing markets or enter into new markets. The scores produced show that new product developments into already existing markets is a better option than pursuing new markets. Market entries should not be disregarded, but probably C&G should be more cautious pursuing these, because of geopolitical instabilities in the area, lost control over franchising arrangements, inability of some franchises to pay back due amounts, and saturation in the Western markets.

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L.

Epilogue

Casper and Gambinis has been continuously expanding and evolving ever since its inception in 1996. Through the formulation and implementation of strategies in light of its pre-set goals, C&G has managed to open more than 22 branches in the Middle East, with goals to open more branches in countries that are not yet penetrated, such as Russia and the United Arab Emirates among others. Its growth came as a result of both a vision for growth and a market need. Similar to the situation of Walmart, whose cost-cutting strategies came as a result of need rather than creativity as implied numerously by its founder, C&G in its pursuit for growth was obliged to seek market development strategies, since market penetration is not totally viable given the small size of the Lebanese market. C&G wanted to grow, so it pursued every available growth strategy, from market penetration to product development, to market development and concentric diversification, to forward and backward integration strategies. However, the utilization of this multi-strategy growth is not without big risks. Every strategy has its own risks, and since C&G pursued many strategies, it was automatically prone to the risks of all. Market penetration is less risky than other options, however given the small size of the market, it was impossible for C&G to rely on it solely. Thus, it was pushed to take bigger risks at a very young stage of its growth. Market development often exposes firms to international competition, not to mention that deep awareness of market differences is key for success. Product development obliged C&G to invest heavily in research and development to come up with new offerings and menus. Backward integration was accomplished through starting new ventures such as Roaster and MainSpring which played heavily on its finances. It had to spread its resources on various endeavors to implement its strategies, which left it in a weakened liquid position, which is to be expected given its quick growth. Accordingly, C&G sought franchising agreements to grow faster, whereby it exports the concept and the know-how in return for financing of the franchised establishments. However, growing mainly through franchises makes C&G prone to the risk of lost control over the franchised operations. This is expressed in terms of less controlled operations at particular franchised stores, less consistency among different franchises, as well as the risk of becoming less identity focused in terms of its missions at such an early stage of its development.

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For growth strategies to be effective in light of the external environment, Casper and Gambinis has aligned itself with the current market trends prevailing among its targeted urban sophisticated young and middle-aged consumers. C&G has responded fairly well to the increased demands for ethnic food by the creation of Falafel from Nadia and Eatalian. It has also responded to the increased demands for quality healthy food and beverages by the inception of From the Tree. This helped C&G to capture a share of heart, share of mind and thus share of market. This was achieved through C&Gs own efforts put into R&D to get a deeper understanding of the market. No external or public sources of data are available to rely upon to get a deeper insight into the companys moves and forecasts, and this point is already listed as a main threat under which companies in the region are operating. Furthermore, with respect to the operational strategies, C&G has paid close attention to the quality of its service and products, partly through the possessing of a central production and delivery unit that is set to maintain standard quality service. C&G has also supplied catering services on a tailor-made premium menus basis to fit the needs of the corporate and individual needs of the consumers. The food department accounts for 75 percent of total sales revenues, which indicates that the revenues are being gained from operations that directly relate to the mission and the identity of the firm. This is a huge contrast to the case of Starbucks, where the CEO Howard Schultz was annoyed at the fact that most of Starbucks revenues do not directly relate to the core identity of the business, which has to do with selling coffee. Schultz is afraid of losing focus since most of its revenues are being made from various merchandise such as mugs and teddy bears rather than coffee that is aimed to fill the mind rather than fill the belly. The marketing strategies implemented, below-the-line in Lebanon and above-theline in other countries, are likewise implemented by other companies in the region such as the Etihad Airlines. This seems a common practice among regional companies, since each country has its own circumstances. Moreover, these companies do not have the financial potentials of the big multinationals to use saturation advertising which is very costly, thus using such a combination of marketing strategies seems logical. However, C&G should make more use of guerrilla marketing, since these could produce bigger returns at a lower cost. It should also harness the potential of social networks, since more young and middle-aged consumers are active on social networks such as Facebook and Twitter. It could use the power of blogs to spread the word about its developments, offerings, and contests. In this way, it could engage its consumers and benefit by correcting any bad publicity, and have a platform for accumulating data and marketing research information which is much needed. Faced with a shortage of semi-skilled laborers and the emigration of middle and upper level managers, C&G is facing a common problem in the area. It seems to be coping with that by the recruitment of adjunct workers, who are mainly Copyright 2011 Pearson Education Limited

university students. In its international facilities, it is dependent on the recruitment of locals and Asian workers to fill any employment need. However, having a permanent body of motivated workers is essential for the company. To retain its workers, C&G is giving awards and offering promotion from within, however these practices seem to be on the decrease, despite the growth endeavors and the new ventures that C&G is going into. The financial statements reveal that the incentives given to employees, as well as the amounts pertaining to salaries and wages, had decreased between 2008 and 2009. As with respect to the implementation of the internal marketing philosophy, C&G is doing well on most of its aspects, but still more needs to be done. It is placing high importance on delivering consistent high quality service. For this purpose, it is offering education and training for its employees. It is also giving them rewards to ensure satisfaction. However, one more thing could be done which is the treatment of employees as customers. By doing that, employees themselves become better predictors of customer needs as well as becoming more active in designing ways and offerings that could delight the consumers. In summary, employee satisfaction leads to customer satisfaction. The growth in C&G net income from 2008 to 2009 is 24 percent, which is pretty remarkable especially as during that period the global economy was suffering from a severe recession and most economies were recording either negative or zero growth at best. The rationale for this is that the GCC region was not heavily affected by the financial and economic crisis that hit the world during that time period, with the exception of Dubai which was hit hard. The CSO of C&G should be more careful when considering North America and Europe for expansionary projects, because they both suffered more than the GCC in the recent crisis. This is in addition to the basic fact that C&Gs would be venturing into an already mature, saturated and highly competitive market in both continents. This concern particularly pertains to its latest concept From The Tree where it will be competing head to head with the likes of Starbucks, Dunkin Donuts and McCafe among others.

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