Sagebrush Sam's

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Steak Buffet Restaurant Business Plan

Market Analysis Summary

Sagebrush Sam's is faced with the exciting opportunity of being the first mover in the "all-you-can-eat steak buffet" concept to become a national player. The consistent popularity of steak, combined with a value price point in a buffet concept, has proven to be a winning concept in other markets and will produce the same results nationally.

In looking at our market analysis, we have defined the following groups as targeted segments. The only exception comes when we define our targeted segment for lunch. We firmly believe, and have witnessed, that a much broader appeal exists for this midday time slot because we have priced it so low and feature our Sam's Specialty Beefburger. Below are our targeted market segments.

  • Age -- Seniors, Baby-Boomers, young married couples with children, and blue-collar workers of all ages.
  • Family Unit -- We will appeal to young families with new babies or mature families with children under the driving age. Most of our family units will have two wage earners.
  • Gender -- We will equally target both sexes with a slight skew for males due to their heavy consumption of red meat.
  • Income -- We will appeal to the high side of low income individuals and to all in the middle income bracket.
  • Occupation -- We will target the blue-collar worker, young professionals with a family, and most of mid-America.
  • Education -- High school graduates, or individuals with some college.

By our definition, we will have very broad appeal for our concept. It is our goal to be the restaurant of choice for the largest dining audience in America.

Target Market Segment Strategy

Sagebrush Sam's intends to cater to the bulk of mid-America. We have chosen this group for several important reasons. First and foremost is the sheer size. With our restaurants seating almost 400 people, we will need a broad base and mass appeal to fill them. It is our goal to have "something for everyone" every day on our menu.

Secondly, it is a very heavy restaurant user group. Last year, Americans dined out an average of 3.7 times per week (that's once every other night). They are on limited or fixed incomes and seek a value/price relationship that will not stretch their budgets.

Lastly, this group will see a large growth in their numbers over the next decade. If we can continue to meet and exceed their expectations, we should witness same store sales growth over this time period. We will, however have to stay focused on their changing needs and menu choices to maintain their loyalty. For the most part, this group is in a hurry, due to heavy time demands at work and home, so our buffet style of service suits them to a "T."

Our lunch strategy is dual purposed. First, we are featuring fresh ground Sam's Specialty Beefburgers with all the fixin's to fill America's craving for hamburgers. Most folks' idea of lunch is a quick sandwich, not a heavy meal. Half of our hot food selection will be replaced with sliced tomatoes and onions, pickles and relish, and chopped or leaf lettuce. Our guests will pick up their Sam's Specialty Beefburger at our display grill, add melted cheese or hot BBQ sauce, and help themselves to the hottest french fries in town seasoned with our special blend of spices. What's not to like about a hot, juicy Sam's Specialty Beefburger served right off the grill!!!

Second, we want to keep the price point at lunch as low as possible to keep us in competition with fast-food restaurants. At $...(confidential or proprietary information deleted)...we are only slightly above the QSR segment and we offer much, much more. Not only do our guests get a sandwich, drink, and fries but also a salad, dessert and a selection of hot food items. By reducing the hot food assortment from dinner, we will be able to keep our food cost in line with the reduced price. All in all, this is a win-win strategy that will broaden our customer base at lunch to include singles, teens, and professionals while still maintaining our core market segment.

Market Analysis
Year 1 Year 2 Year 3 Year 4 Year 5
Potential Customers Growth CAGR
Lunch 6% 2,888 3,061 3,245 3,440 3,646 6.00%
Senior Dinner 6% 932 988 1,047 1,110 1,177 6.01%
Children (3-10) 6% 1,406 1,490 1,579 1,674 1,774 5.98%
Weekday Dinner 6% 2,172 2,302 2,440 2,586 2,741 5.99%
Weekend Dinner 6% 2,958 3,135 3,323 3,522 3,733 5.99%
Total 5.99% 10,356 10,976 11,634 12,332 13,071 5.99%

Market Needs

Sagebrush Sam's sees our targeted market group as having many dining dollar needs. Taken from a recent Consumer Reports on Eating Share Trends (CREST) survey, below are the needs we will focus on in Sagebrush Sam's. Our core group:

  • Seeks strong value.
  • Wants variety and flavor in its food.
  • Looks for speed of service.
  • Wants an entertaining dining experience.
  • Insists upon a clean, friendly, and attractive dining environment.

Market Survey

A market survey was conducted in February, 2000 (seven months after the opening of the second ...(confidential or proprietary information deleted)...steak buffet restaurant by Sam Brooks. Key questions were asked of 505 customers called at random in the surrounding area to determine how they rated their dining experience at the steak buffet concept. Some key findings include: (confidential or proprietary information deleted).

Service Business Analysis

The restaurant industry in the U.S. has experienced rapid growth in the last 20 years and is now moving into the mature stage of its life cycle. Many factors contributed to the large demand for good restaurants in the U.S. today. People want more leisure time. There are more two-wage earner families today, and more discretionary income. The competition is strong, with many formidable chains competing for the consumer dollar. It is almost impossible today to strike off into a new, unique, untried venue. Only the strong will survive and prosper.

Due to intense competition, restauranteurs must look for ways to differentiate their place of business in order to achieve and maintain a competitive advantage. The founder of Sagebrush Sam's realizes the need for differentiation and strongly believes that combining the popularity of steak with the buffet concept is the key to success. The fact that no other national chain has entered this arena as yet presents us with a window of opportunity and an entrance into a profitable niche in the market.

Competition and Buying Patterns

1999 was a prosperous year for the restaurant industry. While not every chain was as successful as it could be, consumers stepped up and continued to increase their use of restaurants. They appeared to have happily paid a bit more for a meal. They don't seem to need promotions to be inspired to buy. At the same time, operators, particularly chains, appeared fairly cautious. No incremental units were built for the first time since the early 1990's. Though there were some rocky points in the American economy over the course of the year, things finished up on a high note, and prospects bode well for 2000.

Gross Domestic Product (GDP) percolated along at a growth rate of roughly 4%. The remarkable thing about the GDP is how strongly it finished the year. Disposable personal income grew a little under the pace it set the past two years. The unemployment rate continued to decline throughout the year, and the Consumer Price Index (CPI) popped above 2% but stayed remarkably low.

Concerns about the sustainability of the current economic boom appear to have had a strong impact on the restaurant industry within the operator community. In 1998, after three years of strong increases, the rate of growth for restaurant units dropped to zero! This is the first time since the recession at the start of the 1990's that the number of restaurants did not grow.

Among chains as a whole, however, smaller chains (under 99 units) were the ones that saw unit counts decline. The most aggressive growth group remains the chains that number between 100 and 500 units.

The conservative behavior of the operator community might have led to a lackluster year for the industry if it weren't for the fact that consumers kept right on buying more restaurant prepared foods. In 1999, the number of meals and snacks purchased from a restaurant per person grew to 158 occasions per year (nearly half the days in a year), another all-time high!

The combined boosts in traffic counts and guest check averages resulted in a 6.5% increase in consumer spending at restaurants. The industry has achieved the longest and strongest expenditures growth ever recorded in the 25-year history of CREST.

All in all, 1999 has been a great year for the restaurant industry. Sales are increasing, consumers continue to use restaurants more often and in more situations, and the restaurant companies have managed themselves so that, on balance, they are in a fairly healthy condition. Every segment and every category grew.

Industry Marketing Overview: 1999

In 1999, campaigns focused on the classic themes of value and quality. As a result of the thriving economy, however, chains added additional elements to their campaigns. For instance, chains approached advertising with greater creativity to differentiate themselves within the marketplace. Chains also focused more on customer service.

(Confidential or proprietary information deleted.)

Regardless of the message, consumers perceived operators to be dealing less this year. For the third year in a row, the rate of dealing did not increase. The trend that had never been seen before continues to stretch! This is not all a case of operators offering fewer deals, however. Many of the deals that are offered have been in place for many years. Consumers may no longer perceive combination meals and $0.99 premium sandwiches as deals. The upside of this is that consumers may be sensitive to special deals when they are introduced. The downside is that it's tough to come up with a price with more magic appeal than $0.99.

Restaurant Industry Long-Term Future

In the near term, it looks as though two things are likely to happen: restaurants may not have the resources to expand as fast as they did in the early 1990's, and consumers are likely to continue to increase their demand for prepared meals and snacks. Well-thought-out and well-managed restaurant companies have not enjoyed the market valuations that the dot-coms have in the past year. It seems that nothing the industry can do will attract capital the way it did earlier in the 1990's. In spite of continued same store sales increases, the lack of interest that the industry generates in the financial markets could keep restaurant operators in a conservative frame of mind in the near term. That lack of financial resources combined with the restrictions faced in the labor market should hold unit development back.

These operators will be wondering how to get more out of the real estate they already have. One of the ways to do this is to raise prices. They have been doing this with fair success for the past couple of years and are likely to continue to push the envelope in this respect. In addition, they are likely to want to get into new business segments: expand into breakfast, offer takeout or delivery service, experiment with snacks. Those ideas will require partnership with manufacturers to develop and design those new concepts within the existing chains.

Fortunately, consumers are likely to continue to do their part in the market. Over the long term, consumers have spent about 5% of their disposable personal income on food away from home. That number has stayed almost flat since 1930. Given the stability of this number, you can expect that total spending in the industry will grow no more than a shade faster than income. All prospects look good for income growth so we are likely to see continued 3%-5% growth. That should be plenty of room for everyone, provided people/money are available.

Meeting Tomorrow's Needs

We must first look at how our population is segmented in order to understand tomorrow's needs. Below is typically how we segment the various generations.

Generation

Birth Years

Population

Baby Boomers

1946-1964

78 Million

Gen X/Baby Bust

1965-1978

44 Million

Gen Y/Echo Boom

1979-1994

70 Million

The good news is that Gen Y is almost the same size as the Baby Boomers. With their numbers so large, our industry will have to cater to their tastes more in the future to continue increasing revenue. This generation will have different tastes and interests; therefore, we will also need to market to them differently.

We will see a gradual menu evolution. Mexican, Tex-Mex, and Italian will play an even larger part in the future. Hot and spicy foods will continue to increase their presence. Chinese and Asian recipes will be the growth of the future. Two very important reasons exist for the rise in food temperature and menu expansion: 81% of the teens today like spicy food, and 79% are very likely to try new foods. (Sagebrush Sam's "Theme Nights" will cater to these trends.)

We will also see that tomorrow's consumer will not be as fussy about eating healthy. Below is a table depicting recent consumer trends concerning diet and calorie counting:

1990

1998

Always watch calories

39%

26%

Limited snacking

41%

29%

Avoid fat

51%

41%

Avoid fried foods

60%

52%

We will see an increase in the trend of putting family and food together. The future generations will frequent family-style dining more often. Gen Y sees itself as more stressed, having more time demands, and putting more value on fun. They like customer inter-activity, fun environments, and watching their food cooked to order. This generation is both brand aware and brand loyal.

The biggest challenge facing the restaurant industry in the future will be proper staffing. Not only at issue will be how to recruit a work force, but also how to retain it. Good news, however, is on the horizon, with Gen Y easing the labor crunch. The number of 16-24 year olds in the work force:

  • 1982: 24.0 Million
  • 1994: 21.6 Million
  • 2005: 24.0 Million

With the arrival of the new worker will also come more body piercing and facial hair, as well as the demand for more schedule flexibility and free time. The largest growth area of the labor market will come from the Hispanic-Americans. We will continue to see a decline of the white-American laborer in food service, as this table indicates:

1994

2005

White-American

71.0%

66.5%

African-American

11.4%

11.7%

Hispanic-American

13.1%

15.3%

Asian-American

4.5%

6.3%

It will be up to the wise food service operators to find the right buttons to push in order to retain tomorrow's worker. What has worked in the past will not work tomorrow. What was once an exceptional benefit yesterday is now the norm or minimum standard today.

What will be the right buttons to push?

  • Unlimited options.
  • Instant gratification.
  • Social consciousness.
  • Time pressures.
  • Global perspective.
  • Complex...
  • ...and Challenging.
  • Ready or not, here they come.

Main Competitors

Everyone that sells prepared meals is our competition because we all compete for the same home meal replacement dollar. However, there are two segments of the restaurant industry that are our main competition: the casual dining steakhouse concept and the family value steak restaurant.

Business Participants

In the United States today, there are 3,349 chain restaurants that compete for the U.S. restaurant dollar. This number does not take into account the thousands of sole proprietor restaurants that dot the American landscape. These chain restaurants accounted for $108,238,150,121 dollars of business in 1999. In the segments that competed against us there were:

  • 40 chains in the cafeteria segment
  • 1,421 chains in the casual dining segment
  • 274 chains in the family dining segment
  • 1,676 chains in the quick service segment

Among our closest competitors, six are listed in the largest 200 restaurant chains, ranked by sales volume. All have a large national or strong regional presence.

(Confidential or proprietary information deleted.)