Question Three: Based on the case study information and your knowledge about promotion, answer the following:

a) In your opinion, who will be the primary target market for this drive-through donut shop? Who will be the secondary target market? Please explain your rationale. (Maximum of five points)

b) What promotional approach(es) do you recommend that Geoff takes to pre-promote the upcoming opening of the drive-through donut shop? Please explain your rationale for the promotional strategy you propose. (Maximum of ten points)

c) Identify five specific external factors that Geoff needs to pay attention to as he opens and starts to operate this new business. (Maximum of five points)

d) How should Geoff position Delicious Donuts to differentiate his donut shop from his primary competitor, Danny's Donuts? Explain your rationale. (Maximum of five points)

Delicious Donuts Case Study Text

Geoff Jones is a graduate of McGill University in Montreal where he also ran a small business selling hats, scarves and t-shirts that were based on the university's colours. After graduating, Geoff went to New York City to seek work as a comedy writer, but this dream did not come true. His apartment in New York City was directly above a donut shop that was open 24 hours a day. Geoff watched how busy the shop was and discovered that the favorite type of donut the shop sold was a croissant donut (a "cro-nut").

After a year, Geoff decided to return to his hometown of Vernon, British Columbia and open a donut shop in a food truck. Geoff had no experience as a commercial cook or baker. Before he left New York, he found a man who had made croissant donuts in Paris before coming to New York. Geoff learned this art from him and purchased his recipe for the croissant donut delicacy.

Upon returning to Vernon, Geoff bought a food truck and a van to tow the food truck to two locations that he leased from the City of Vernon one location was outside of a coffee shop, and another was outside of a bar.

Geoff was concerned that he would have a difficult time gaining market share in Vernon because there was a donut shop that has been in the city for several years, called Danny's Donuts. This shop appears to have the majority of donut and coffee customers in Vernon (population: 100,000 people.)

Danny's Donuts has three locations in Vernon and operates from 5:00 a.m. to 1:00 pm Monday through Friday and from 5:00 am to 2:00 p.m. on the weekend. (This means that Danny's Donuts is not catering to people who want donuts at a later hour of the day.)

Geoff launched his donut food truck business in June 2018, and did better in the first year that he had expected. One of his key learnings from operating the food truck was that donut sales were steady all day, and strongest during the evenings.

Unfortunately, all food trucks in Vernon were shut down with the arrival of COVID 19 and restaurants are not permitted to have indoor dining. Restaurants are restricted to take out and delivery only.

Geoff has been thinking about the changes caused by COVID 19 and has decided to raise funds to open a drive through donut shop. Geoff reasons that consumers have gotten used to using food drive throughs during the pandemic and he believes that this pattern of behaviour will continue after the pandemic ends. (He also plans to expand the donut shop location to include a "sit in" location once the City of Vernon permits indoor dining again. This is not included in his first-year plan though as the pandemic is not over.)

Geoff has taken his experience from the food truck donut business and has developed a business plan for his drive through donut shop. An important element of the business plan is determining his cash flow needs.

Geoff has made various projections about his revenues and expenses for the drive through donut shop. When Geoff had the food truck, he sold an average of 1,000 donuts every day (with many of these sales happening in the late afternoon and evening.) With a store front location instead of a single food truck, Geoff believes that he can sell an average of 1,500 donuts a day at a retail price of $4 each. He plans to include coffee and tea on the menu and sell these beverages for $2.50 a cup. Geoff estimates that he will sell a total of 750 cups of coffee/tea each day. He is also determined to keep his food costs to no more than 30% of his projected revenues.

Geoff has $75,000 to invest in the new drive through donut shop, to be named Delicious Donuts. He will need to find financing for the remaining needed startup money.

Geoff has found a location with a commercial building that already has an old commercial kitchen that will need to be renovated, and plenty of room on the site for the drive through infrastructure. The location still needs significant renovations (especially for creating the drive through) and Geoff estimates that these will cost him approximately $325,000. He plans to expense the renovations fully in the pre-start month so that he does not have to carry a long-term depreciation expense. Geoff has negotiated a reasonable rent of $4,500 per month that includes a generous allowance for heat, electricity and commercial garbage pick-up. Rent will start at the beginning of Geoff's pre-start up month of May 2022.

Startup expenses in the month before his planned opening (June 2022) include cooking and baking equipment ($8,000), a business license ($350), business insurance ($300 per month), outside patio seating ($2,000), a desk and couple of chairs for a small office onsite ($1,200), computer and printer ($1,500), a three-line telephone system and cell phone ($1,100), building signage ($2,500), office supplies ($400), and pre-opening promotional costs ($5,000.)

Monthly operating expenses will include cellular phone and landline telephone service ($450), rent ($4,500), office supplies ($400), business insurance ($300 per month) and $1,750 a month for marketing expenses.

He will budget for 30% of projected sales to cover food costs and related paper items (e.g., paper cups, lids and stir sticks for coffee/tea, sugar and milk for coffee/tea, and brown bags for donuts.)

Geoff has determined that he will need the equivalent of 11 Full Time equivalent staff (35 hours/week for each FTE) to operate the drive through donut shop from 7 am to midnight daily. (He will experiment with a combination of full and part time employees.)

Knowing that the unemployment rate is low, Geoff plans to pay nine FTEs at $22 per hour and two supervisory employees at $28 per hour. He also must include a WorkSafe BC expense of 2 percent of the monthly payroll and a CPP/EI employer expense of 4 percent of the monthly payroll. He anticipates bringing staff on two weeks before his projected June 1 opening date, for orientation, training, and one or two trial runs with family and friends. Geoff plans to serve as the donut shop manager and will pay himself a salary of $6,000/month to start. (Note that WorkSafe BC and CPP/EI expenses apply to Geoff's salary also.)