Business Strategy of Joes Enterprises for Fast Food Inc - Essay Example

Joe’s Enterprises JOE’S ENTERPRISES FOR FAST FOOD Joe’s Enterprises For Fast Food Subhajit Som Academia Research Executive Summary Joe’s Enterprises for Fast Food Inc., more popularly known as Joe’s Redhots is a growing fast food company which sells its food through the unique concept of food carts. The company is under the able hands of Joe Hirasawa, who is an experienced and well traveled expert in the business of fast food. His concept and way of selling fast food, especially hot dogs have earned the accolades of the Chicago business and office going people the company believes in quality, hygiene and health, hence all its products bear this unique blend. Like any other business, Joe’s Enterprises also has its own set of advantages and disadvantages, especially more so in the highly competitive market of fast foods. The following study will analyze and deduce the feasibility of the company and its requirement of $1 million. Analysis of the companys business strategy Joe’s Enterprises for Fast Food is a premium brand in the market of fast foods. It has gained immense popularity in the downtown Chicago, even though it does not have many selling points or carts at present. The USP of Joe’s is to provide healthy, natural and fresh food at competitive prices. It has grown impressively from a single cart company to a more than a million dollar enterprise. The company is primarily targeting the office workers with competitively priced fast food, which are high in nutritional value and are fresh and hygienic. The company wants to Joe’s Enterprises 2 operate on a relatively small and profitable structure unlike its competitors like McDonald’s, Burger King or Kentucky Fried Chicken. SWOT Analysis On analyzing the company on its SWOT the following deduction has come across Strength – Joe’s Enterprises has the following strengths: 1. Availability of fresh and healthy ingredients and raw materials 2. Company owned cold-storage vehicle 3. Variety of the food 4. Portable carts allowing mobility in the distribution of products Weakness – Despite its strong market presence it has the following weakness 1. Concentration only on a single market of office goers of Chicago 2. The market is limited to only a few hours of office schedules 3. The company is controlled by the owner himself 4. It is presently charging a premium rate to the customers Opportunity – The Company has created its own opportunity, but it only needs to utilize it: 1. Its brand image is popular and well respected 2. The company can expand its business to other avenues of food business, like restaurants 3. Joe’s Enterprises can expand its business to the neighboring towns and districts for more market coverage 4. It can create its own unique food items, similar to the ones promoted by Mc Donald’s or Kentucky fried Chicken Joe’s Enterprises 3 Threats – The Company can face a few threats which should not be ignored: 1. The government may ban food carts on the streets 2. Competitors can emulate the concept 3. The company is not keen on advertisement and promotions, since its competitors are also not keen 4. The personnel employed are aware of the intricacies of the business and might get sabotaged by the competitors Critical problems As mentioned the company is looking at a micro but profitable market. But again, it is a risky proposition to depend on a single market, even though it is competitively priced and has gained popularity. The present market may be the “star” for the company, but it still requires “cash cows” to boost its revenue and operating profit. Possible Solutions & Financial Analysis Joe’s Enterprises should look beyond its present market and should implement plans to venture into new markets with innovative distribution system. The company can foray into restaurants and take away outlets to have a large bas of customers. And with its popularity will definitely reap returns in the long run. The company’s financials also looks good in the present scenario: Year 2004 The Current Ratio of Joe’s Enterprises is as follows: Current Ratio= (Current Assets)/Current Liabilities) = 0.647359455 Joe’s Enterprises 4 The current ratio is a very popular ratio and measures the ability of the firm to manage current liabilities. The higher the current ration the higher the short-term solvency. The current ratio of the firm is not high and hence it is looking for the loan for expansion. The valuation of the firm is high at $7.7 million to $12.8 million and it can give the advantage to the firm to get the required capital. Total Assets Turnover Ratio for the year 2004 is as follows: Net Sales/Total Assets= (1800000) / (374375) = 4.808013356 This ratio measures how efficiently assets are employed. This ratio is also akin to the output-capital ratio used in financial analysis. At the current rate we can assume that there is a proper utilization of assets and this may also help the firm to get the loan of $1 million. Net Profit Margin Ratio Net Profit margin ratio=Net Profit/Net Sales=129000/1800000=0.0716=7.16% This ratio shows the earnings left for shareholders (both equity and preference) as a percentage of net sales. It measures the overall efficiency of production, administration, selling, financing, pricing and tax management. At the current figure institutions may agree to give the required loan of $1million to the company. ROI (Return on Investments) Return on Investments=EBIT/Total Assets= (220000) /(374375)= 0.5876= 58% Joe’s Enterprises 5 The return on Investments is a measure of business performance which is not affected by interest charges and tax payments. It abstracts away the effect of financial structure and tax rate and focuses on operating performance. Hence, it is very much suited for inter-firm comparisons. At a high ROI Joe’s Enterprises should get all the advantages of getting the loan amount of $1 million that it is seeking. Recommend solutions and action plan Keeping in mind the structure of the company and its way of operating the business, it will be a feasible idea to look forward to acquisitions. Merger is not recommended as the way of management will differ and lead to unstable situation. It should acquire a small size restaurant chain located at vantage points and build on its market coverage coupled with Joe’s own quality of food. This will leverage its market capitalization and it will be able to counter the competition. The advantage is also on their side as the company is also valued more than twice its annual sales, between $7.7 million to $12.8 million. It should also invest in technology to have instant stock updates and a kind of automatic stock replenishment system. This will help the company to have an edge over its competitors and also serve the customers more efficiently. Keeping the marketing and sales strategy apart, the company should ponder about possible issuance of stock to the market, so that it can have substantial capital to expand. This will also leverage their market share and it will have less dependency on the debt capital. Read More