Peanut Valley Cafe: what to do next?

Weyant, Lee E. ; Steslow, Donna

CASE DESCRIPTION

The primary subject matter of this case involves the management of a quick service restaurant (QSR). The case has a difficulty level of three, appropriate for junior level courses in management or hospitality management. The case is designed to be taught in 1, 75 minute class period and is expected to require 2 hours of outside preparation by students.

CASE SYNOPSIS

This case focuses on the operational and strategic management issues faced by a family owned quick service restaurant (QSR). The case explores the operational issues with a multiunit restaurant. What are the operational decisions necessary to effectively manage QSR facilities? What are the strategic issues facing a QSR owner?

[NOTE: This case is a fictionalized version of a real-life situation. Names and other potentially identifying information have been changed to protect identities. The applicable fact situation is true to the real case.]

THE PEANUT VALLEY CAFE

Peanut Valley Cafe is a family owned, ethnic food quick service restaurant (QSR). The company has two locations in the southwestern part of the United States. The two facilities are 20 miles apart with one facility located in Plainsville and the other in Pleasant Valley. Both facilities are equidistant, about 8 miles, from a major military base that is in the process of expanding operations. The population of Plainsville is nearly 33,000 and the population of Pleasant Valley is approximately 11,000. Plainsville is the county seat for Mountain County. The city has a small, regional shopping mall, a civic center, a hospital, and Mountain Community College. Pleasant Valley is the county seat for Lovely County. The town has an ethanol processing plant, milk processing facility, several peanut processing facilities, and Regional State University (RSU). RSU is a small regional university providing undergraduate and graduate programs for approximately 4,000 students. Both cities are about 100 miles from a metropolitan area with a population greater than 50,000 and more than 120 miles from a population centers greater than 150,000. (See Appendix C: Map).

Peanut Valley Cafe started in 1967 serving Mexican-American fast food. Sam Snow joined the company in 1969 as a management trainee after graduating from a prestigious land-grant college with a degree in Hotel, Restaurant Management (HRM). By 1970, Peanut Valley Cafe had grown to five locations. In 1971, the owner of Peanut Valley Cafe offered Sam the opportunity to buy the Plainsville restaurant. This facility was located in front of a new shopping center, across the street from the Plainsville Park, and within a block of the Plainsville High School. In 1971, this was an ideal location since the highway had been expanded to three lanes to handle the traffic to the hospital and the military base located west of town. In 1975, Sam received permission from Peanut Valley Cafe general management to open a restaurant in Pleasant Valley across the street from a RSU dormitory and the RSU administrative building. Additionally, this location was along the main highway to Desert Sun, a city of 55,000 located about 90 miles southwest of Pleasant Valley.

In 1979, Peanut Valley Cafe's operations were facing financial difficulties. Originally, the locations in small towns resulted in little competition with national franchise operations such as McDonald's and Burger King. With increased competition from national chains, three of the five Peanut Valley Cafes reported their third consecutive annual loss. Only Sam's operations in Plainsville and Pleasant Valley posted profits during this time. When Peanut Valley Cafe's general management decided to close the business, Sam offered to buy the company's name and continue operating his two facilities. On January 1, 1980, Peanut Valley Cafe was officially sold to Sam Snow's new corporation--High Plains Restaurant Management, Inc., dba Peanut Valley Cafe. Sam has operated the two restaurants in the same location since 1975. Over the years Sam has experienced the typical business cycles of all small businesses. Likewise he has experienced his share of attempting new projects. For example, from 1998 to late 2004 Sam operated a food court version of his cafe in the local mall with a limited menu. Also, during this time period, his corporation owned an Orange Julius franchise in the local mall. For simplicity, the gross revenue figures for the Plainsville operation during those years reflect these additional ventures. Moreover, in 1996 Sam was offered the opportunity to buy the gas station adjacent to the Pleasant Valley facility. This venture accounts for approximately 10% of the total revenue at the Pleasant Valley facility. (See Appendix A for current organizational chart and Appendix B for selected financials.)

Last July, Sam met with Dr. Abraham, Associate Professor of Management, RSU. Dr. Abraham was designing the curriculum to support a new Hospitality Management degree at RSU and needed the input of industry leaders such as Sam Snow. Their initial conversation covered a variety of topics including the local economy, community growth, entrepreneurship, and the need for a hospitality degree in the area. During this conversation, Sam stated that he wished he had the time to implement the systems that would really help his business. "My managers are not a part of this operation. Sure, they try, but there is no follow through on items. I feel like we are not on the same page." Sam asked Dr. Abraham if he could help in facilitating a discussion between Sam and his managers. Dr. Abraham agreed to assist Sam, but wanted to observe the operation before conducting the meeting. Over the next several months, Dr. Abraham visited each facility, met with the employees, and received a tour of the operation. By November, it was agreed that Dr. Abraham would attend the employee meetings being conducted by Sam.

The employee meeting for the Pleasant Valley facility was scheduled for late November. Following his normal procedure for these meetings, Sam decided to close the facility at 8:30PM versus 10. About ten minutes into the meeting a bus from Mountain Plains University arrived with the women's basketball team and coaches. The team had played the RSU women's team earlier in the evening. When the coach came to the door, a member of Sam's management team answered the door and told the coach they were closed. Without prompting, the Peanut Valley Cafe employees asked Sam to open the restaurant for the team. Sam agreed and the team was invited into the facility. While the restaurant employees were busy preparing the food for the team, Sam overheard one of his Assistant Manager's remark "We can't afford to let that much revenue be turned away. I can't believe this meeting is more important than servicing the community!" After the team completed their meal, Sam resumed the employee meeting. During a conversation about hours, one of the morning managers, Jesus, started complaining about the lack of support from the other managers, especially Daniel. This continued for several minutes with both managers and their respective subordinates trading barbs about the operational procedures. Finally Sam stopped the meeting and looking at Jesus stated "We'll continue this conversation in private after the meeting." The meeting ended with Sam and Jesus going to the manager's office. As Dr. Abraham was collecting his materials, several employees stopped to talk. One employee commented, "This has been brewing for some time. Jesus and Daniel have not gotten along since Daniel was promoted to manager. Jesus is a great cook, but he is not a strong manager." Another employee added, "You know this all began when Daniel started going to RSU for his management degree and doesn't have to work the early morning shifts." The next day Sam called Dr. Abraham to apologize for the incident with Jesus. "He probably has the best overall culinary skills of all my managers. But he is very narrow-minded about what needs to be done. He is not a good manager and tries to tell the others how things should be done. I had planned to talk to him about his overall performance for several weeks but never got the time to drive to Pleasant Valley for the talk". About a week later, Sam and Dr. Abraham were coordinating a time for Sam to be a guest speaker in a hospitality management class when Sam stated, "Well, Jesus quit. Called me at 6:25AM last Tuesday and quit. That hurt since we open at 6:30AM. I had a young employee waiting outside the door for about 45 minutes until I got there to open. The young man was upset that he had to wait and tersely told me about 20 people stopped by and wanted to know why the restaurant was closed. When I explained what happened, he added 'I should have known. Jesus and Daniel had words yesterday'."

During the spring, Sam and Dr. Abraham met to discuss managerial operations. They discussed the employee training programs. They reviewed the various videotapes Sam had collected over the years concerning customer service, sales, and safety. Sam stated that the Plainsville facility has an extra room above the restaurant that can be used for small groups or individuals to view the tapes. "Unfortunately, I do not have the same luxury in Pleasant Valley. It's a space issue. So I will periodically show a tape at Pleasant Valley as part of the employee meeting." When asked who is responsible for the training, Sam stated it was the General Manager and Assistant Manager's responsibility. "But they don't have time to do the training. We get done what we can. I know some of my people are not very good at teaching others, but when you live on the margins, you do what you have to." Additionally, Sam and Dr. Abraham discussed the menu. Dr. Abraham raised the issue, "Sam, there appears to be a lot of items on the menu from traditional Mexican cuisine of tacos and burritos to American cuisine of hamburgers and fried chicken. Doesn't this cause inventory and production issues?" Sam responded "Not really. I use the same ground beef for the hamburgers that I use in the tacos and burritos. There is a longer prep time for the hamburger, but it's not a big seller and whoever wants a burger is willing to wait." As they talked about the size of the menu, Sam stated that he was proud of the fish taco. "I was in Hawaii for a conference and saw a restaurant similar to mine offering a fish taco. It's been great, though not a big seller. I think we sold 10 fish tacos last week between the 2 facilities. I use fresh fish and created my own seasonings. Since we are using fresh fish, I've created a separate prep area to eliminate any cross contamination."

During a meeting in April, Sam lamented that he was 62. He had been in this business for is entire life. "I started with this venture on a lark. No clear plan. This was just a stopover until I found what I really wanted back in the northeast. Here I am 40 years later. I've done well. Had several years when I did not take a salary. Man, that was the closest to bankruptcy I've ever been. I enjoy this business, but for how long? I know I need help. I'm sorry my son lost his job with a major corporation. But he got a good buyout and has decided to come live with us for the next six months to help me get some of the systems I've always wanted to do in place."

About a month later, Dr. Abraham was ready to facilitate the meeting between Sam and his managers. Sam arranged to have the meeting in a location away from the restaurants. After introductions, Dr. Abraham started the meeting.

"The purpose of today's meeting is to discuss Peanut Valley Cafe--where you are, where you want to go, and your role in the journey. To start we will begin with "Through the Looking Glass". Our initial goal is to identify as many items as possible. So please hold your comments until later. We will list the ideas on the flip chart and post these on the wall for ease of reference. Let's begin. Where do you see Peanut Valley Cafe five years from now?"

Please refer to Figure 1.

"Look out the window. What do you see?"

Please refer to Figure 2.

Figure 1
Through the Looking Glass--Peanut Valley Cafe in 5 years

Participate in city events
More automation
Better advertising
Tours by elementary schools
Training programs
More family friendly
Higher presence in community
Keeping up with IT
More managers
Bigger Pleasant Valley store
Double sales--customer count
Work with Military base
General Manager
Faster service
Menu redesign/simplify
Advertise birthday parties
Online orders
Expand

Figure 2
Out the Window--What do we see?

RSU
Businesses
Banks
Fire department
Hospital
Schools: Public and Private
Travelers
Military Base
School Athletic teams
Competitors (Partial List)
   McDonald's
   Dairy Queen
   Burger King
   Taco Bell
   Wendy's
   Juan's Authentic Mexican Restaurant
Price of Gas Increasing

"What are the roles the people in the room should have?"

Please refer to Figure 3.

Figure 3
Managerial Roles

Sam
   Face of the Business
   Provide vision leadership
   Be supportive
   Marketing
   Vendor support
   Update stores
   Moral support
Son
   Implement programs/IT
   Short term--implementation
   Training development
Your
   Face of the store--true managers
   Hiring employees
   Smoother running crews
   Better customer service
   Follow through--see beyond the shift
   Administrative Organizer--Rose

Sam called Dr. Abraham, a week after the manager's meeting. "Dr. Abraham, I'd like to meet with you next week to discuss what I plan to do next." At this meeting, Dr. Abraham presented Sam a copy of the notes made during the manager's meeting. After discussing their general impressions of the manager's meeting, Dr. Abraham asked Sam, "What is next for Peanut Valley Cafe?" Sam expressed doubt on what should be the next step. Dr. Abraham discussed with Sam that the manager's meeting provided a basis for doing a strategic analysis of Peanut Valley Cafe. Dr. Abraham stated, "At least at the end of the analysis, Sam, you will have the framework to make an informed decision." Dr. Abraham provided Sam with a handout outlining the strategic analysis process. They decided to meet in a month after Sam had worked on the analysis.

Appendix A: Peanut Valley Cafe's Organizational Chart

[ILLUSTRATION OMITTED]

Rose, Purchasing and Accounting Rose was one of Sam's first hires in 1975. Rose became an Assistant Manager at the Plainsville facility within six months. By 1977 Sam had promoted Rose to General Manager for the Plainsville restaurant. Rose served in this capacity until 1991.

Sally, General Manager at the Plainsville facility Sally was hired in 1981 as a Cashier/Cook at the Plainsville restaurant. After a year, she was promoted to Assistant Manager. When Rose was promoted in 1991, Sally was promoted to replace Rose as General Manager.

Assistant Managers The Assistant Managers are responsible for the operations of the facility during their shift. They open and close their respective facility. These individuals are responsible for training the individuals assigned to their shifts.

Appendix B: Peanut Valley Cafe Income Statement 1998-2007

                     Pleasant        Total
      Plainville       Valley      Revenue     Expenses          P/L

1980    $250,000      $50,000     $300,000     $285,000      $15,000
1981    $275,000      $50,000     $325,000     $308,750      $16,250
1982    $290,000      $60,000     $350,000     $332,500      $17,500
1983    $325,000      $70,000     $395,000     $375,250      $19,750
1984    $310,000      $55,000     $365,000     $346,750      $18,250
1985    $325,000      $65,000     $390,000     $370,500      $19,500
1986    $350,000      $70,000     $420,000     $399,000      $21,000
1987    $375,000      $75,000     $450,000     $427,500      $22,500
1988    $400,000      $80,000     $480,000     $456,000      $24,000
1989    $410,000      $90,000     $500,000     $475,000      $25,000
1990    $400,000      $75,000     $475,000     $451,250      $23,750
1991    $425,000      $80,000     $505,000     $479,750      $25,250
1992    $430,000      $90,000     $520,000     $494,000      $26,000
1993    $445,000      $90,000     $535,000     $508,250      $26,750
1994    $460,000     $100,000     $560,000     $532,000      $28,000
1995    $450,000     $105,000     $555,000     $543,900      $11,100
1996    $475,000     $120,000     $595,000     $583,100      $11,900
1997    $500,000     $140,000     $640,000     $627,200      $12,800
1998    $550,000     $150,000     $700,000     $686,000      $14,000
1999    $650,000     $160,000     $810,000     $830,250    ($20,250)
2000    $800,000     $150,000     $950,000     $973,750    ($23,750)
2001    $900,000     $150,000   $1,050,000   $1,102,500    ($52,500)
2002  $1,000,000     $175,000   $1,175,000   $1,233,750    ($58,750)
2003    $875,000     $190,000   $1,065,000   $1,043,700      $21,300
2004    $800,000     $190,000     $990,000     $970,200      $19,800
2005    $775,000     $210,000     $985,000     $935,750      $49,250
2006    $775,000     $210,000     $985,000     $935,750      $49,250
2007    $750,000     $250,000   $1,000,000     $950,000      $50,000

These financials are not the actual figures from the company upon which the case is based. However, they do represent the general trends that the owner expressed to the author over the time period covered.

Appendix C: Map of Plainsville/Pleasant Valley

[ILLUSTRATION OMITTED]

Lee E. Weyant, Kutztown University

Donna Steslow, Kutztown University