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Franchise Sandwich Shop Business Plan

Market Analysis Summary

Our market consists of both tourists, downtown workers, and students from Southern Oregon University.   Over 362,000 tourists visit Ashland each year--100,000 for the Shakespearean Festival and 262,000 for other recreational/shopping activities. Tourist make up the largest segment of our target market, at about 85% of the total market for our products.  There are about 18,000 people living and working in Ashland.  If we can convince just 15% of those people to buy our sandwiches twice a month, we'll sell 65,000 sandwiches to that market alone in 2001.  Add that amount to 20% of all tourists to the Ashland area, and those two segments alone will buy 138,000 meals.

In addition, demographics have shifted in recent years from traditional households (two parents with children) to more non-traditional households; as a result, many adults feel they have less free time.  Consumers report that they are eating out more often in order to free up time normally spent cooking, and use that time to enjoy their families and to take advantage of other leisure activities. 

From the Ashland Chamber of Commerce:
Ashland (pop. 18,560) has built its economy on a resource base of timber, favorable climate, attractive landscape, cultural attractions, a well-educated labor force and education. In addition, Ashland's location off Interstate 5 and the Southern Pacific Railroad, and its proximity to the Rogue Valley International-Medford Airport, give it market access that is more favorable than usual for a rural town. To offset the risk that comes with dependence on one economic sector, the City of Ashland and the Chamber of Commerce encourage the diversification of markets. Establishment of light manufacturing firms with value-added components, sophisticated services catering to a geographically dispersed clientele, and retailing targeted to local residents are especially encouraged. The Oregon Shakespeare Festival attracts more than 100,000 visitors annually. And because Ashland is considered a "destination" city, an additional 258,427 people visit here for its other attractions such as recreation, shopping and sightseeing. Ashland, while widely known for the nine-month Shakespeare Festival, is also the location of the only federally funded wildlife forensics lab and research facility in the country. Southern Oregon University plays a large part in Ashland's economic health, with approximately 5,130 students, 576 faculty, 207 staff, 26 temps and 691 student employees.

The City of Ashland's population over the last four years has averaged 1.4% growth and is not expected to deviate from that rate The City of Ashland's "official population projections" show a 19,995 population projection for the year 2,005. Over the 10-year period 1995-2005, a total of 2,010 new residents to Ashland are expected. The City of Ashland's average household size is 2.22 (1990) persons per unit (12) compared to the average household size of 2.34 in 1980.

4.1 Market Segmentation

The largest market  is tourists.  Our next largest target market consists of downtown workers.   Weekend shoppers and students who work or visit downtown make up the remaining two percent of the total market.

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Geographic - Downtown Workers and Students 2% 17,000 17,255 17,514 17,777 18,044 1.50%
Students - Seasonal 3% 4,700 4,841 4,986 5,136 5,290 3.00%
Tourists 9% 362,000 394,580 430,092 468,800 510,992 9.00%
Weekend Shoppers 2% 3,500 3,553 3,606 3,660 3,715 1.50%
Total 8.57% 387,200 420,229 456,198 495,373 538,041 8.57%

4.2 Target Market Segment Strategy

Downtown Workers:
We will target downtown workers through local businesses, advertising, event sponsorship, and word of mouth advertising.

Ashland has a seasonal student population of around 4,700. We expect to reach students through campus activities and marketing, as well as by sponsoring special student events.

Over 100,000 tourists will visit the Oregon Shakespearean Festival in 2001. Approximately 262,000 people will visit Ashland for it's premier recreational activities. We will reach tourists at the time they visit Ashland. Most tourists aren't thinking, "Where am I going to find good, inexpensive lunches?" when they plan their trips because they know fast food venues are abundant everywhere in America. The strategy will be to stand out from the other venues available on the street, and letting people know our food is relatively inexpensive, but without degrading the premium ambience of shopping in Downtown Ashland.

Weekend Shoppers:
Weekend shoppers come from Medford to shop for clothes, gifts, and crafts in downtown Ashland. Over 40,000 people live and work in Medford, and we predict that at least 8% of those people will at some point shop in Downtown Ashland.

4.2.1 Market Needs

There are two market needs we are attempting to fill.  First, there's a need for a fast food restaurant that produces tasty fast food, at a low cost, in a clean environment.   There are many people, considered in the traditional sense to be "Middle Class" and above who will not set foot inside a fast food restaurant due to a) the restaurant's lack of cleanliness and b) the relative poverty and despair displayed by the people working in these fast food  restaurants. 

To fill the needs of these customers, we will market products that appeal to their healthy lifestyles, their taste buds, and their sense of "place."  In addition, our food line, tables, floors, and counters will be cleaned constantly throughout the day, and we will maintain a very high standard of cleanliness.

The market for fast food is becoming more demanding. While fast food chains such as D-Lite and others in the mid-1980s failed in their attempt to market low calorie fast food, since the 90's, some companies have found that healthy fast food pays off. Garden burgers have become prevalent at many fast food restaurants, and even some fast food burger franchises are beginning to offer gardenburgers, and other soy alternatives.  

While marketing fast food only as "healthy" would be corporate suicide, there is a trend towards quality in both food and ambiance. As mentioned in the Market Needs topic, many people are heading for restaurants that offer fast food at a slightly higher price, but at a much higher quality, and delivered by employees who do not feel degraded or otherwise fatalistic about their role at work. While the latter issue may be debated by intellectuals in Management 410 B-school courses or  readers of the current bestselling book, "Fast Food Nation," the fact remains that American society will continue to want more for less. If we pursue the niche of customers that reside between the bargain-hunters and the spendthrifts, and of those, the ones that are repulsed by standard fast food practices, lack of cleanliness, and the total lack ambiance inherent to most fast food restaurants, we will do a brisk business. 

Consumers spend about 46% of their food budget on eating out.

4.2.3 Market Growth

The National Restaurant Association predicts that the QSR market will grow slightly slower than the overall market for food services. This is due to reduced discretionary income, and recessionary economic pressures in 2000 and 2001. The overall growth rate in the fast food business is expected to be 4.4% in 2001. Growth in catering services is expected to be at around 6.5%. Based on the fact that only about 20% of our sales will be generated from catering services, and that our franchise resides in the QSR sub-market of the fast food market, a slower growing market during a recession, we have pegged our overall market growth rate at a weighted 4.82%.  However, because of the faster than average growth of the Ashland area, and the increase in tourism in Jackson County over the last few years, we have estimated that our potential customer base will grow at a healthy 8.57% clip.

4.3 Industry Analysis

Food service industry sales will reach an estimated $30 billion in 2010, or over 3% of Gross Domestic Product.  Within this industry, the QSR (Quick Service Restaurant) segment represents over 2/3 of total traffic and over half of restaurant sales.  QSRs are defined by the industry primarily based upon menu item, with the burger and pizza sub-segments accounting for over half of total QSR sales.  QSR sales are estimated to reach $15 billion by 2010.

4.3.1 Industry Participants

The industry is composed of several large brand-name restaurants, and a large number of local fast food chains. Depending on where you look in any given year, 4-5 new fast food outlets may open and close their doors. The industry is always changing and is a highly competitive arena where staying power and customer loyalty is difficult to acquire. The participants in the Ashland market include Burger King, McDonald's, Taco Bell, Taco Time. In the QSR market, Blimpie, Subway, and several local sub-shops are industry participants most likely to compete directly with The Sub Shop.

4.3.2 Distribution Patterns

We distribute our products direct to customers, both through retail and through our catering service. We don't rely on a channel of resellers or distributors to get our products into the hands of consumers.

4.3.3 Competition and Buying Patterns

The fast-food business is based largely on the impulsive choice of consumers. Many people buy their business lunch, lunch, or family dinners at a fast food restaurant, and those fast food restaurants offer not necessarily the best selection, but the most reliable menu and the fastest order completion time. Customers will try other fast food restaurants, and shop around, but the majority of their fast food purchases are from one of their favorite fast food or QSR restaurants. Our goal is to capture those customers, and to build loyalty to the product through purchase punch cards, consistent daily specials, and a direct mail list.

4.3.4 Main Competitors

Our main competitors are the major national fast food franchises.  SubSub is our largest competitor, with 12,868 franchises in the U.S. alone.  

SubSub licenses franchises throughout the nation, and offers two locations in the Ashland Metro area. McDonald's only has one store in the Ashland area. 

SubSub contributes to the growth in our market by advocating for healthy eating habits via online, TV, and radio advertising. They are our largest competitor, yet they also contribute to the nationwide growth of the healthy food segment of this market. We can count on them to bring people into our stores, and will target their local operations through direct mail flyers that offer specials to customer that bring in their SubSub 10-sandwich punch cards.