The market we will engage in first is the downtown Yubetchatown district. Yubetchatown is centrally located in the Bigriver Valley, home to approximately 3.5 million people. It is an integral part of greater Megalopolis.
Yubetchatown is the seventh largest city in the state with a population of 84,560 and a geographic area of 29 square miles. With a growth rate of 8.5% Yubetchatown’s population is projected to grow well over 100,000 by 2008. It is anticipated that Yubetchatown will become the largest city in south Bigriver Valley.
Yubetchatown’s trade area consists of approximately 160,000 residents and is home to a diverse economic base including corporate offices, retail, industrial and manufacturing companies and one of the largest warehouse and distribution centers in North America.
The median household income in the Yubetchatown area is around $91,000 and the median age is 34 years old. Of the south Bigriver Valley population 13% are under 14, 14.5% are 15-24, 21.5 % are 25-34, 36% are 35-59 and 15% are over 60 years of age.
Demographically the UPer Crust Pie customer will come from all age and income levels of the market. Within this population we will focus on three separate groups with different needs: 15-24 year olds (including students), young adults and business people (25-34) and families with children under 14.
4.1 Market Segmentation
UPer Crust Pies intends to market to a wide customer base. However, we have defined the following groups as targeted segments that contribute to our growth projections:
15-24 Year Olds
Young Adults and Businesspeople
Families with Children
The largest target market is young adults and businesspeople. Our next largest market and the one with the greatest growth potential is families with children followed by the 15-24 year-old segment.
15-24 Year Olds
Young Adults and Businesspeople
Families with Children
4.2 Target Market Segment Strategy
15-24 year olds go out for fast food more than any other age group. They have disposable incomes which they tend to spend on immediate gratification items, especially food products they perceive to be unique, cosmopolitan or have an individuality value. Because these individuals are the most open to trying new foods they are vitally important in building an effective word-of-mouth marketing strategy.
Young adults and businesspeople have the potential of providing large volume sales to the company during the peak hours of 11 a.m. to 2 p.m. The lunch business is driven by individuals. Many go out to lunch to get out of the office setting or have business meetings at lunch either in or out of the office. We will endeavor to accommodate surrounding businesses placing phone-in orders for business meetings. Satisfaction of this group will provide a vital long-term revenue stream.
Families with children are a growing population, both numerically and in their choice for convenient foods. Two-income families have less time to prepare meals so they are an easy group to market to because their lifestyle is very specific. We will aggressively target single and working mothers who tend to turn to fast and convenient food choices to accommodate family demands. By targeting this group, we not only generate a large volume of immediate business, but also create long-term customers in their children.
Our downtown location and increasing customer base will probably draw in customers outside of our targeted groups to include visitors and downtown shoppers. We believe these customers will be glad to pay a reasonable price for our products in exchange for high quality, great taste and the uniqueness they receive.
4.3 Service Business Analysis
The United States Fast Food Industry
The U.S. has 277,208 fast-food outlets from coast to coast, that’s one for every 1,000 people. According to the U.S. department of Agriculture, consumption of food away from home accounted for 47% of total food expenditures in 2001, up from 45% in 1990 and 26% in 1960. The National Restaurant Association estimates that by 2010, total sales in the fast food industry will exceed $577 billion. At that time, consumers will spend 53% of every food dollar on meals, snacks and beverages away from home.
The strong demand for takeout food, prepared and packaged for busy customers to eat at home, should continue to grow solidly over the next few years, especially with a significant decline in the cost difference between dining out and cooking at home. The NPD Group, Inc.'s 2003 Consumer Spending Survey indicated the recent drop in the economy has encouraged more people to eat ‘on-the-go’ fast foods. Food on the run has now become the food of choice from executives to blue collar workers. According to Technomic Inc., a Chicago based research firm, take out sales accounted for 67% of total sales at the top 25 limited service chains.
The NPD 2003 Consumer Spending Survey also found that 18 to 34 year olds are turning towards new dining venues that are more likely to serve specialty foods like, sandwiches, Mexican wraps and home meal replacements instead of fried foods. NPD found that consumers frequenting these types of outlets are interested in higher quality food preparation and taste, better physical eating conditions and superior customer service, and are willing to pay a higher price.
Increases in income, especially when coupled with exposure to new and different foods, will stimulate Americans' continuing quest for increased variety in their diets. Technomic Inc. suggests the most successful food companies in 2020 are likely to be those that tap most effectively into Americans' appreciation for diversity in their lives, especially the insatiable desire for new and different food choices.
The United States Pie Industry
The U.S. Retailer's Bakery Association stated in 2001 that bakeries will become the new springboard for successful retail meal programs. The Association believes there are unlimited opportunities for fresh pizza, quiche, pot pies, vegetable pies, soup, pasta and sandwiches.
According to the Bakery Production & Marketing Red Book, total U.S. fresh pie sales for 2003 were $204,567,600 compared to fresh pie sales in 2000 which totaled $182,602,096. Total U.S. frozen pie sales were $339,121,696 in 2003, a substantial increase when compared to 2000 sales of $141,488,000.
An estimated 70% of total pie sales in the U.S., including both frozen and fresh pies, are sweet pies. Although statistics complied by the American Institute of Baking stated that frozen pot pies contributed $68,705,000 to the total figure of $141,488,000 frozen pie sales in 2000.
An increase in consumer demand for the convenience of pot pies corresponds with U.S. consumer’s passion for meat and poultry. In 2002 total meat consumption (red meat, poultry and fish) reached 195 pounds per person, 57 pounds more than the average annual consumption in the 1950s. Each American consumed an average of 7 pounds more red meat than in the 1950s, 46 pounds more poultry and 4 pounds more fish and shellfish.
The Upper Peninsula Pie Industry
The pie is considered the national food of Michigan's Upper Peninsula and the pie making business is a serious endeavor. Pie sales contributed substantially to the UP's economy according to a statistics report in 2002.
UP brand Chequamegon is the present market leader in fresh pies with a 54.7% market share, well ahead of their closest competitor on 15% share. Chequamegon offers fresh single and multi-pack pies in as well as a range of sausage rolls and savories. Chequamegon also produces frozen family pies, single pies, frozen single sausage rolls and unbaked sausage rolls.
According to Rosemary Ontonagon, marketing manager for Chequamegon, frozen family pies and multi-pack pies are being used as convenient value-for-money family meal solutions. Single pies are purchased with snacking in mind, being a handy product for households to have on hand for hungry family members. Sausage rolls and savories are being used for more social occasions.
4.3.1 Competition and Buying Patterns
Within the restaurant and fast food industry there are several different segments:
Fast food: McDonald's, Burger King
Pizza: delivery and dine in
Buffets: all you can eat
Lounges: combining food and alcohol
Fine dining: typically restaurants at the highest price point
Fast-casual: combination of fast service and sit down dining
The Tintagel Pasty Company
The Tintagel Pasty Company has been operating since 1998. The company recently opened its second store, a small retail outlet on Bass Street in the heart of downtown which is supplied by their original store. The company is owned and operated by Anne Thracite, a Cornish woman with no previous baking or relevant industry experience.
Limited planning and organization have affected the company and there are no procedures or sufficient systems in place to deal with rapid expansion or substantial increases in production. The company is presently struggling to fulfill the demands of having a second retail outlet, regularly running out of product or unable to fulfill customer requests during peak times of the year. The quality of the company’s products can vary from week to week. Product is sometimes overcooked or very dry and equipment is not reliable. Product is sometimes baked twice and then sold frozen to customers in order to fulfill demands.
Business hours at the home store are 9:00 am to 5:30 pm Tuesday to Saturday and at Bass Street 10:00 am to 6:00 pm Monday to Sunday. Although the atmosphere is relaxed and inviting at both stores, a lack of seating has affected customer choice at the Bass Street location. Punch cards (buy nine get one free) have been adopted in the last two years and have aided in sales and repeat business. Customers include a variety of curious first timers and local business people. There is a strong expatriate base and loyal customer following at both stores. Of the customers that have entered both stores, one in 20 has enquired as to whether the company offers franchise opportunities.
The company’s products include six varieties of beef pie, three varieties of Chicken pie and one vegetable pie. Pies come in Lunch size (5 inch, $3.25 to $3.75), Family size (9 inch, $10.75) and Party size (2 inch, $10.00 per dozen). There are also spinach and sausage rolls ($2.50 each) and rotational weekly specials that include, Thai Curry Chicken, Indian Butter Chicken, plain Chicken, Ham and Brie, and Beef Stroganoff. Of the customers that have entered both stores, one in five has asked for sweet pies and desserts.
All product ingredients are presently bought by the owner and purchased at locally. Beverages are out-sourced and delivered weekly by Fizzy Beverage also locally based. Cornish dry foods sold through the store are imported by the owner through her brother in Falmouth, Cornwall, U.K.
The estimated gross profit for the company after the cost of goods in 2000 was $70,185, in 2001 $69,531, 2002 $82,029, in 2003 $100,729 and in 2004 around $132,353. Shipping of frozen product accounts for around 30% of the gross profit for each year. These figures show a healthy growth rate of over 20% in the last 3 years of business. Based on income and expenses over the last five years, wages have averaged between 25-30%, cost of goods around 20% and rent around 20%.
These figures do not take into account the gross profit of the new Bass Street store which started operations in late October 2004. Gross profit after three months of business at this store was $22,730. Based on the present growth rate and an influx of tourists during the summer months the annual gross profit of the Pike Street store alone is estimated to be between $90,000 and $100,000 gross.
The Quern Flour Bakery (Tidalborestad)
The Quern Flour Bakery is based in Tidalborestad, on the East Coast and has been operating since December 2003. Maltese owner and operator Siggiewi Gozo is a former corporate recruiter with an Masters Degree in Psychology who originally came to Tidalborestad for a job with a national sportswear company. He has no previous baking or relevant industry experience.
A one man shoe-string operation, Siggiewi works 15 hour days to make between 700 and 900 pies per week. In early 2004 Gozo was making and selling about 400 pies per month. In January of 2005 he sold 4,000 in bars and Irish pubs alone. Business is now good enough for him to take on extra staff and to scout a bigger location for the bakery. Currently he operates out of a rented nightclub kitchen after hours.
Quern Flour produces seven varieties for the Tidalborestad market, including steak and mushroom, beef and cheese and a shepherd’s pie. He also makes a breakfast egg and bacon pie and a sausage roll. He sells his pies to several midtown pubs, caters events around town and delivers by the dozen directly to customers' homes by bicycle or subway. Quern Flour Bakery now offers overnight shipping via FedEx anywhere in the country.
The majority of his clientele hail from British Mediterranean areas. There are around 2,300 Maltese and Gibraltarian customers in Tidalborestad that make up the company's customer base. Quern Flour supplies around six restaurants and pubs with frozen and hot pies within the Tidalborestad area. Gozo also caters for holiday parties and his pies were served at some consulates during morning tea in 2004.
All the ingredients considered carefully. The flagship ‘chunky steak’ pie is made from sirloin steak and all cuts of meat are inspected to make sure there is no gristle. To develop the perfect pie crust, Quern Flour Bakery sources special margarine directly from Malta.
Quern Flour Bakery pies retail for up to $5.00, and last year the company turned over $90,000 gross. Based on the current market Siggiewi Gozo expects the company to quadruple turnovers by 2005.
The most difficult function in predicting customer buying patterns is following the fine line of baking too much product or not having enough product left to serve customers late in the day. Despite implementing sophisticated POS systems that track hourly sales figures, there is no predictable pattern of daily activity. One Tuesday could be a sellout and the next Tuesday there could be pie warmers left full of product.
Despite customer unpredictability, buying patterns typically revolve around several different factors:
Quality. The menu items must meet minimum levels of quality for people to be willing to spend money on the food, particularly when there are so many different options available.
Location. Proximity to home or work is very important; so is convenient parking for the end-of-workday traffic stopping to pick up hot food to go or frozen meal solutions.
Price. Low price or lowest price is not essential. Many customers associate low price with lower quality.
Convenience. People tend to eat out because it’s quicker than preparing a meal themselves.
Uniqueness. As consumers seek variety and new experiences, the challenge is to stand out from competitors, not only as an alternative fast food option, but as one that offers consistently high-quality food and a distinctive atmosphere.