Business Plan for a
Chili’s Franchise
Prepared By
Nicky Cox
Gary Houseman
Tyrone Okrainetz
April 8, 2009
Chili’s Business Plan
April 8, 2009
MBA 851
Executive Summary
The proposed business plan for a Chili’s franchise in Saskatoon, Saskatchewan has many
advantages to an investor. This Chili’s franchise (referred to as Chili’s for the remainder of the
report) will be located in the north end of the Preston Crossing Retail development. This
location is visible and easily accessible from Circle Drive, the main thru fare in Saskatoon. This
location is between the University of Saskatchewan campus and the expanding upscale
residential areas of Silverspring, Erindale, and Willowgrove. Preston Crossing is also home to
box stores such as Future Shop, Wal-Mart, and Canadian Tire which will attract customers to
this area from every part of Saskatoon.
Chili’s is a high end family restaurant with great brand equity specializing in American and TexMex cuisine. Chili’s offers a lunch and supper menu with products in 13 categories: starters,
soups salads & sides, sandwiches, baby back ribs, steaks, fajitas, big mouth burgers, chicken,
guiltless grill, seafood, create your own combo, desserts, and beverages. This wide variety of
foods and beverages will attract all types of families throughout the city.
Since Chili’s is a franchise they already have an established brand name and the royalty fees will
help attract customers from all over the city. Operating and marketing expenses are similar to
any other restaurant with total expenses being under $1 million each year. Many staff members
will be involved in the process to run a full time restaurant will 1 general manager and 2 assistant
managers making most of the daily decisions for the other 60 employees. This establishment
will be 3000 square feet and will have seating up to 300 people at a time and a maximum
capacity of 3000 people per day. The average meal for dinner will be $25 and the average meal
for lunch will be $15. Obviously a restaurant has many variables to consider such as sales,
prices, staff and potential customers although a rough estimate was gathered to calculate sales
which are the most critical variable. Being a new restaurant, it will be open for 360 days a year
(which is average for this type of restaurant) and sales for the first year will be 1000 people per
day. The second year will drop off slightly due to the restaurant not being new giving an average
of 800 people per day. After the second year the quality of food and the exciting atmosphere
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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will have an affect on customer’s attendance causing daily visits to go back up to 900 people and
level off for the remaining years in operation.
The analysis for this Chili’s restaurant was calculated over the next 6 years with a required return
rate of 20% for investors. After extended financial documents were prepared, net income was
over a million dollars every year. The net present value was established to be approximately
$2.1 million with a return of 69.9% on an investment. There would also be dividends paid out
throughout the years for investors to collect money at roughly 50% return.
With the strategic positioning of the restaurant and the steady economy in Saskatoon, Chili’s is
another restaurant that can capture market share in the city. The high quality food and fun
atmosphere that Chili’s will offer will allow customers to enjoy their meals and keep coming
back in the future. This is a terrific opportunity for any investor since Chili’s can offer
significant return on any investment. Even after a sensitivity analysis and break even analysis
was conducted Chili’s is still seen as being highly profitable in almost all cases. Chili’s is a
premiere franchise with many upsides and will be a great for Saskatchewan’s economy and for
the culture and entertainment sector of Saskatoon.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
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Table of Contents
Executive Summary
2
1.0 Introduction
1.1Industry Overview
1.2Mission Statement
1.3Goals and Objectives
1.4Financing
6
7
7
7
7
2.0Operations Plan
2.1 Location
2.2 Floor Plan
2.3 Quality Control Program
2.4 Average Business Day
10
10
11
13
13
3.0Human Resources
3.1 Organizational Strategy
3.2 Training
18
21
21
4.0 Marketing Plan
4.1 Competition
4.2 Customer and Target Markets
4.3 Product
4.4 Pricing Strategy
4.5 Place
4.6 Distribution
4.7 Promotional Strategy
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24
25
26
26
27
27
5.0 Financial Plan
30
6.0 Conclusion
34
LIST OF TABLES
Table 2.1 Shift Schedule by Hours
Table 2.2 Capital Budget
Table 2.3 Operating Expenses
Table 4.1 Competitive Locations
Table 4.2 Marketing Expenses
Table 5.1 Sensitivity Analysis
Table 5.2 Income Statement and Investment Analysis
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15
16
24
28
32
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Edwards School of Business, University of Saskatchewan
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Chili’s Business Plan
April 8, 2009
LIST OF FIGURES
Figure 2.1 Aerial View of Location
Figure 2.2 Floor Plan
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LIST OF APPENDICES
Appendix A: Income Statement with Investment Analysis
Appendix B: Mortgage
Appendix C: Balance Sheet
Appendix D: Marketing Budget
Appendix E: Capital Budget
Appendix F: Cash Flow Statements
Appendix G: Costs of Goods Sold and Staff Costs
Appendix H: Ratio Analysis
Appendix I: Best Case Scenario for a Sensitivity Analysis
Appendix J: Worst Case Scenario for a Sensitivity Analysis
Appendix K: Break Even Analysis
Appendix L: Menu from a Chili’s
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
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1.0 Introduction
The following business plan is for a Chili’s franchise to be established in Saskatoon,
Saskatchewan. The Chili’s franchise will be located on the north aspect of the Preston Crossing
retail area. This area is located on Preston Avenue North and is easily seen and accessed from
Circle Drive, the main thru-fare in Saskatoon. Preston Crossing is situated between the
University of Saskatchewan campus and the residential areas of Erindale, Silverspring, and
Willowgrove. University students along with faculty and other staff commute past Preston
Crossing every day. Preston Crossing includes many box stores which will attract customers to
the area. Large names such as Wal-Mart, Future Shop, Old Navy, and Canadian Tire will bring
customers to the area from most of the city. Chili’s will offer high quality American food
influenced by Tex Mex cuisine in a relaxed fun environment. Chili’s offers a lunch menu
consisting of appetizers, sandwiches, hamburgers, chicken and seafood, along with desert and
drink menu. Chili’s supper menu consists of appetizers, burgers, steaks, ribs, chicken, and
seafood along with drinks and alcohol.
The operating strategy and marketing is based on a financial analysis that demonstrates the
viability of this business in Saskatoon. The key financials are as follows:

Total revenue for 2008 is projected to reach $7,920,000.

The gross profit margin from total revenue is estimated at 40%, this margin is expected to
be remain consistent year over year.

Net income, after taxes, in the first year of operations is expected to be $1,398,950
however by 2011 this will be maintained at $1,289,341.

The ROI after taxes is 69.9%, for every $1 invested there is an earnings of $0.70.

The Net Present Value is $ 2,098,507

The expected internal rate of return on this investment is 69.9%.

These are very positive returns given an initial equity investment of $500,000.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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1.1 Industry Overview
The high quality family restaurant industry has many companies bidding for market share. In
Saskatoon the main high quality family restaurant chains are Montana’s, Moxie’s, .The
restaurant business in Saskatoon is growing based on the increased growth in population and
increased economy of the Saskatoon region in the last few years. With a booming economy and
new housing starts of 224 for 2008 there is a need for more restaurants in Saskatoon and this
trend is expected to continue as Saskatoon has not experienced the economic slowdown affecting
the rest of Canada With a median age of 35.5 years and an average income of $68, 000
customers in Saskatoon are looking for a high quality family restaurant to enjoy good food along
with their children. Family restaurants are competing on high quality food and service at
consistent levels for their customers. Chili’s has a great opportunity to benefit from this market.
1.2 Mission Statement
“To be the leading Canadian Chili’s franchise in Saskatchewan, with a commitment to providing
great food and service to the people of Saskatoon, while achieving growth through
core
competencies of our people.”
1.3 Goals and Objectives

To achieve a return on investment of not less than 20% per annum.

To provide high quality food and service in a fun enjoyable eating environment.

To gain some market share of customers that eat out in Saskatoon and maintaining sales
set sales for a period of 6 years.
1.4 Financing
Gary Houseman, Nicky Cox and Tyrone Okrainetz are all MBA graduates in Saskatoon and are
prepared to invest their hard earned money into a profitable business venture. Their commitment
to the city and enthusiasm over good food has led these entrepreneurs to invest $500,000 on their
own money and acquire financing through a bank for $1,000,000. Gary will be the sole
proprietor of the business. The financial projections for this Chili’s Restaurant and their
investment look very promising. (Table 1.1 below)
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Table 1.1 Summary of Financial Results
Year
2009
2010
2011
2012
2013
2014
Sales
6,336,000
5,068,800
5,702,400
5,702,400
5,702,400
5,702,400
Cost of Goods Sold
4,752,000
3,801,600
4,276,800
4,276,800
4,276,800
4,276,800
Gross Profit
3,168,000
2,534,400
2,851,200
2,851,200
2,851,200
2,851,200
Expenses
1,015,770
852,926
867,598
867,598
867,598
867,598
Income Before Taxes
2,152,230
1,681,474
1,983,602
1,983,602
1,983,602
1,983,602
Income Taxes
753,281
588,516
694,261
694,261
694,261
694,261
Net Income(Loss)
1,398,950
1,092,958
1,289,341
1,289,341
1,289,341
1,289,341
Net Present Value of Equity Investment
2,098,507
Internal Rate of Return on Equity Investment at 20%
69.9%
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Chili’s Business Plan
April 8, 2009
MBA 851
OPERATIONS PLAN
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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MBA 851
2.0 Operations Plan
Chili’s is family high quality family orientated restaurant that will serve American style TexMex lunch and supper meals along with alcoholic and non alcoholic beverages. The general
manager and assistant manager will monitor the day to day operations with three supervisors to
monitor both the kitchen and dining area staff. The kitchen will be composed of 8 chiefs, 2 food
runners, and 1 exporter to prepare the meals. The serving staff will consist of 40
waiters/waitresses, with 10 being full time and 30 part time. The location chosen with
consultation from Chili’s is in Preston Crossing.
2.1 Location
The location chosen with consultation from Chili’s is in Preston Crossing. This location is visible
and easily accessible from both directions of Circle Drive. With Circle Drive being the main
thru fare in Saskatoon, Chili’s will be able to attract customers travelling through Saskatoon
from Edmonton, Regina, and Winnipeg. Preston Crossing is located on the main commuter route
between the University of Saskatchewan campus and the some of the fastest growing residential
areas of Saskatoon. The areas of Erindale, Silverspring, and Willowgrove have an estimated
population of 30,000 and are expected to double to 62,000 by 2015. The average family income
in these areas is $81,774. Preston Crossing is also home to many large sought after box stores.
Business such as Canadian Tire, Wal-Mart, Future Shop, and Old Navy will bring customers into
the area from all parts of Saskatoon. Figure 2.1 is an aerial map of the proposed location
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Figure 2.1 Aerial View of Location
C
2.2 Floor Plan
The floor plan, seen in Figure 2.3, will accommodate 75 tables and 300 chairs. The layout
includes an office, male and female washrooms, cold and dry storage, and a large kitchen. This is
the floor plan that was provided by Chili’s. The actual blueprint drawings are not available at this
time for confidentiality reasons. Even though this floor plan is basic it provides an overview of
the use of space within the restaurant. Figure 2.2 is the floor plan made amiable by Chili’s.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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MBA 851
Figure 2.2 Floor Plan
Back Entrance
Kitchen
Office
Mens
Womens
Bar
Lounge
Restaurant
Hostess desk and Entrance
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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2.3 Quality Control Program
Ensuring that every meal and every customer’s experience at Chili’s meets their expectations
along with the expectations of Chili’s is very important. Random quality tests of the food
prepared for customers will be preformed one a month by the general manager to ensure
consistent high quality. The general manager will also conduct random quality control
evaluations on every month on selected serving staff to ensure that the customer receives the
same high quality experience every time.
2.4 Average Business Day
The average business day is setup to serve two meals every day lunch form 10AM till 4PM and
supper from 4PM till 11PM. The restaurant will be open to customers starting at 11AM and
closing at 11PM daily. The restaurant will be staffed with different compliments of staff
throughout the day based on duties and number of customers.
The above components are explained further below as follows:

The assistant kitchen manager will start at 9AM in order to prepare the kitchen for the
lunch serving.

The first shift of cooks will start at 9AM till 4PM and the second shift will start at
3PM till 12PM.

The general manager will start at 10 AM till 7PM and will attend to any
administration duties including staff schedule, inventory, and prepare the day’s cash
float.

Servers will start work at 10AM and will have varying shifts based on customer
volumes throughout the day till 12AM.

The expos will start work at 10 AM and will be till 3PM, at 4PM the second shift will
work till 11PM they will put the finishing touches on the food before it is sent out to
the customers.

Runners will work from 11AM till 2PM and from 5PM to 8PM to run food to the
customers.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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A hostess will work during peak periods between 10AM to 2PM, and 5PM to 11PM
to seat customers and help manage the till.

The assistant front manager will start at 6PM till 12PM and will take over duties of
the general manager and close the restaurant at night.

The cash drop occurs after closing at the Bank located next door.
To support these hours of operation time schedules was determined to show how this the shifts
will be formatted and could be adjusted for part time employees on a rotation for preferences of
evenings or days or even after school for employees attending school. The following Table 2.1
Shift Schedule by Hours illustrates how each employee will be scheduled.
Table 2.1 Shift Schedule by Hours
Monday
General
Manager
10AM7PM
Front
Manager
Kitchen
Manager
9AM6PM
Supervisors
Cooks
Servers
Runners
Expos
Hostesses
As needed
for relief
(1)9AM5PM
(2)4PM12PM
(1)11AM3PM
(2)5PM8PM
(1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
9AM6PM
As needed
for relief
(1)9AM5PM
(2)4PM12PM
(1)10AM3PM
(2)3PM6PM
(3)6PM12AM
(1)10AM3PM
(2)3PM6PM
(3)6PM12AM
(1)10AM3PM
(2)3PM6PM
(3)6PM12AM
(1)10AM3PM
(2)3PM6PM
(3)6PM12AM
(1)10AM3PM
(2)3PM6PM
(3)6PM-
(1)11AM3PM
(2)5PM8PM
1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
(1)11AM3PM
(2)5PM8PM
1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
(1)11AM3PM
(2)5PM8PM
1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
(1)11AM3PM
(2)5PM8PM
1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
Tuesday
10AM7PM
Wednesday
10AM7PM
6PM12AM
9AM6PM
As needed
for relief
(1)9AM5PM
(2)4PM12PM
Thursday
10AM7PM
6PM12AM
9AM6PM
As needed
for relief
(1)9AM5PM
(2)4PM12PM
Friday
10AM7PM
6PM12AM
9AM6PM
As needed
for relief
(1)9AM5PM
(2)4PM12PM
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Saturday
6PM12AM
(1)10AM7PM
(2)6PM12AM
(1)9AM5PM
(2)4PM12PM
Sunday
6PM12AM
(1)10AM7PM
(2)6PM12AM
(1)9AM5PM
(2)4PM12PM
12AM
(1)10AM3PM
(2)3PM6PM
(3)6PM12AM
(1)10AM3PM
(2)3PM6PM
(3)6PM12AM
(1)11AM3PM
(2)5PM8PM
1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
(1)11AM3PM
(2)5PM8PM
1)10AM3PM
(2)5PM11PM
(1)11AM2PM
(2)5PM10PM
Table 2.2 Capital Budget
Income
2009
2010
2011
2012
2013
2014
Revenue
7,920,000
6,336,000
7,128,000
7,128,000
7,128,000
7,128,000
COGS
4,752,000
3,801,600
4,276,800
4,276,800
4,276,800
4,276,800
Expenses
1,015,770
852,926
867,598
867,598
867,598
867,598
EBIT
2,152,230
1,681,474
1,983,602
1,983,602
1,983,602
1,983,602
Net Income
1,398,950
1,092,958
1,289,341
1,289,341
1,289,341
1,289,341
Cash Flows
1,203,524
907,966
1,098,296
1,093,229
1,089,932
1,087,549
Net Present Value
2,098,507
Return on Investment
69.9%
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Table 2.3 Operating Expenses
2009
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
2010
2011
2012
2013
2014
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HUMAN RESOURCE PLAN
Edwards School of Business, University of Saskatchewan
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3.0 Human Resources
As the owner and primary equity investors Gary Houseman, Tyrone Okrainetz, and Nicky Cox
will oversee restaurant productivity and performance, but will leave the day to day operations to
his general manager.
The staff at Chili’s will consist of the following:
1. General Manager
2. Assistant Manager for Kitchen
3. Assistant Manager for Dining Room
4. Supervisors ~ 3 full time
5. Servers ~ 10 full time and 30 part time
6. Hostesses ~ 10 part time
7. Expo ~ 8 part time
8. Food Runners ~ 10 part time
9. Cooks ~ 15 part time
The General Manager and Assistant Manager positions will require individuals that are highly
skilled and educated for the position with experience in management within the food industry.
Supervisors will be hired based on their experience working in a similar restaurant in a
supervisory position or a highly experienced server. All other positions will be hired as entry
level positions. It would be preferred to hire individuals with experience; however training will
be provided to ensure that staff will conduct themselves according to Chili’s customer service
policy. It will be important to hire happy and energetic staff that are hard working and possess
skills in working in a team atmosphere and in dealing with the public.
Job Descriptions:
1. General Manager
Will oversee all functioning of restaurant to ensure it is running at optimal performance
and report back to the owner, Gary Houseman. He/she will be scheduled as the acting
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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floor manager for the dining room Monday to Friday during the daytime hours. Expected
hours of work equate to 40 hours a week with occasional overtime required. He/she will
be paid by salary.
2. Assistant Managers
They will maintain efficient operations and handle all scheduling of staff for their
respective areas. They will be primarily involved in the praise and reprimand of staff due
to closer working conditions. Each will work an expected 40 hours a week with
occasional overtime required. They will each be paid by salary.
3. Supervisors
Supervisors will act as managers when the GM and assistant managers are not scheduled.
They will handle all customer related issues, determining staff hours and will ensure the
smooth running of the restaurant while they are in charge. They will be responsible for
the open/close of the restaurant including all monetary responsibilities. Supervisors will
also be scheduled for inventory duties.
4. Servers
It is the servers that are primarily responsible for customer service requirements. They
guide the customers through their dining experience offering suggestions that may make
their time with Chili’s more pleasant. They will be extensively trained by senior servers
upon hire and are expected to possess a great deal of knowledge regarding the menu,
operations and customer service policies endorsed by Chili’s previous to working alone.
They are expected to encompass all duties related to serving, hosting, running food,
bartending, cleaning tables and the expo position when not busy.
5. Hostesses
It is the job of the hostess to meet and greet the guests arriving and seat them at tables.
They must ensure at the time of seating the guests are left with everything they may need,
such as coloring supplies for the children, and that the server is aware they have received
a table. The hostess must manage the guests arriving and seat them in such a way that
they are equally distributed among the server sections to ensure the best service possible.
Edwards School of Business, University of Saskatchewan
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In addition they will be required to clean and set tables after customers leave in
preparation for the arrival of new guests.
6. Bartenders
Servers will be scheduled into this position as part of their general rotation. They will be
required to prepare drinks for all servers working in the dining room as well as serve
those individuals choosing to sit at the bar.
7. Expos
The expo is responsible for ensuring all food leaving the kitchen is up to the standards
required by Chili’s Bar & Grill policy. They have complete discretion to return food to
the kitchen to be redone should they feel the quality is inadequate. Upon approval they
are required to garnish the meals. It is their job to determine if all meals for a table are
prepared and ready to be sent out. They will then have a food runner take the meals to
the appropriate table. In addition they are responsible for preparing all desserts.
8. Food Runners
It is the job of food runners to carry food to the appropriate tables and ensure the guests
have everything they need previous to delivering food to another table. When busy they
are expected to assist the expo in preparing food for delivery to tables and help servers to
clean tables in the dining room.
9. Cooks
The cooks are responsible for their assigned station during open kitchen hours. Day staff
scheduled appropriately will be responsible for the preparation of foods for kitchen use.
They are also responsible for cleaning and closing the kitchen down at night and
preparing the kitchen for a day ahead in the morning.
Chili’s Bar & Grill is a team atmosphere and all staff are expected to work together to make the
guest experience as pleasurable as possible regardless of how busy staff members are. This is
accomplished through the development of the skills needed for each position in their respective
areas of the restaurant.
For financial information regarding wage costs please refer to Appendix G.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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3.1 Organizational Strategy
General
Manager
Hostesses
Dining Room
Assistant
Manager
Kitchen
Assistant
Manager
Supervisor
Supervisor
Food Runners
Servers
Cooks
Expos
3.2 Training
Initial training of all new staff is provided by a head office near our location as part of the
franchise agreement. New employees hired following the grand opening will be trained in house
by experienced staff members. Ongoing training to ensure a high level of customer service
would be provided by management. Annual visits from head office compliment this ongoing
training and ensure this franchise is operating at Chili’s standards.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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MARKETING PLAN
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Cox, N., Houseman, G., Okrainetz, T. 2009
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4.0 Marketing Plan
In 2006 Saskatchewan was home to 813 restaurants with approximately 300 restaurants ranging
from fine dining to fast food located in Saskatoon alone. With a population of over 200,000
Saskatoon has established its reputation of possessing more restaurants per capita than anywhere
else in North America. Despite this abundance of places to dine out, Saskatoon continues to
support and maintain new establishments that move into the area. Only recently have we begun
to accept and support the finer dining establishments that are modelled on those existing in larger
centers. The staple survivor for past decades has been the family restaurant offering basic large
portion meals at an affordable price. In past years as the movement to accept more fine dining
establishments has grown, it has afforded the opportunity for family style establishments to offer
higher quality food with increased prices and more modern atmosphere.
Saskatoon is a University and city and as such has a significant younger population throughout
the school months. For this reason Saskatoon has been able to also support a high number of
night clubs and lounges. Many of the restaurants that enter the market here do so with both a
dining room and lounge option for seating. Lounges often remain open past the dining room to
cater to the younger crowd enjoying the night life. With the large number of choices existing is
Saskatoon aspects of atmosphere and location can make or break a business and have become
primary competitive advantages between businesses. The large number of establishments
choosing to renovate in the recent years has opened up the opportunity for entry into the market.
4.1 Competition
Indirect competition is fierce in Saskatoon in the restaurant industry with the large number of
restaurants. Direct competition for Chili’s will include the upscale family restaurants working to
attract families and younger people wishing to partake in a pseudo fine dining experience. These
include the established businesses in the chart below:
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Table 4.1: Competitive Locations
NAME
LOCATION
PRICES
Moxie’s Classic Grill
3134 8th St E
Competitive
Mano’s Restaurant
200-1820 8th St E
Competitive
Montana’s
1510 8th St E
Competitive
Boston Pizza
1601 8th St E
Competitive
Boston Pizza
826 51st St E
Competitive
Boston Pizza
515 Nelson Rd
Competitive
Boston Pizza
329 Herold Rd
Competitive
The above restaurants that Chili’s will be in direct competition with are all successful and busy
restaurants, likely with clientele ready to try something new. A new establishment opening in
Saskatoon commands much of the market for its first several month open as eager diners rush to
enjoy a new experience. To capture a significant corner of the market and ensure success
following this initial boom, Chili’s must provide an enjoyable and memorable experience to keep
people coming back.
4.2 Customers and Target Markets
The City of Saskatoon currently flourishes with a large population of University students and
young professionals with families, particularly in the areas surrounding the chosen location for
Chili’s. We wish to primarily target young professionals earning a higher income with families.
This segment of the market is busy and willing to spend their income on the luxury and
convenience of not having to cook for themselves. The areas surrounding the Preston Crossing
location are highly inhabited by such families, such as Sutherland and Erindale.
These areas are also highly populated by the younger University student crowd that Chili’s will
try to attract to the lounge area. By providing good food and a fun and inviting atmosphere we
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
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will be able to capture this segment of the market largely on convenience alone. Those living in
the area will frequent the establishment as it is ‘on the way home’ for them. The convenient
location will attract students not living in the area that are looking for something to eat and drink
following classes.
4.3 Product
Chili’s offers high quality foods at a reasonable price in an atmosphere suitable for families,
couples and groups of friends. Superior customer service will be required to maintain
competitive in Saskatoon, but Chili’s will rise to the challenge. The atmosphere provided is one
of fun and relaxation. This is a place you can go to forget your worries and ‘Pepper in Some
Fun’. This brand offers its customers a refuge from daily trials and tribulations with a short
escape of fun and relaxation with the convenience of being served a meal.
Chili’s offers a wide range of foods from soups and sandwiches to burgers, ribs and steaks. In
keeping with the family friendly environment they also offer a children’s menu. The focus in
advertising is the option of creating combo meals from several options on the menu when the
customer cannot decide what they want to eat. Please see menu in Appendix L for more specific
menu offerings.
The website construction for Chili’s is excellent (http://www.chilis.com/). It is easy to navigate
and offers more information than the majority of other restaurant sites. One can easily look at
the menu with prices listed, learn about employment, find your nearest location and even
purchase custom design gift cards for friends and family. The website also offers easily
downloadable packages of information regarding the nutritional value and allergy information
should you have dietary concerns. To make it easier for their vegetarian customers, they also
have a specified vegetarian menu that one can download. Chili’s makes it easy for you to want
to dine with us! You are also encouraged on the website to fill out a customer survey so that you
can share comments about your visit. Enforcing that Chili’s is a brand that cares about your
happiness with their service.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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Chili’s is also part of your community! They are proud supporters of the St Jude Children’s
Research Hospital raising millions of dollars annually for the cause. Their website posts
information on this special cause whose slogan is ‘Pepper in Some Hope’. Brand equity is raised
by this promotion as we become a company who offers a service, but also cares about customers
and their well being within the community.
4.4 Pricing Strategy
Chili’s Bar & Grill offers high quality food at a premium price for family dining. These prices
maintain brand in regards to quality of food and service. Individuals choosing to come to Chili’s
are paying not only for high quality food and service, however. The atmosphere is one of fun
and relaxation. A place where someone can go, unwind and forget their worries while they enjoy
a meal with friends and family. In the high paced society in which we live this place has become
few and far between. For this reason people are willing to pay a premium price for the promise a
good time.
This pricing strategy is competitive among the directly competitive restaurants in the Saskatoon
area.
4.5 Place
The restaurant location is convenient to attract families living in the areas surrounding the
Preston Crossing area, students on campus and shoppers at the nearby box stores. Each of the
surrounding areas is highly populated by the target market segments that Chili’s Bar & Grill
hopes to attract and maintain as long term customers. It is location on Preston Avenue puts it on
a main road in Saskatoon with high traffic throughout the day. Preston Avenue also crosses over
Circle Drive; a main highway that travellers pass through the city on. This makes the restaurant
widely available to individuals not located in Saskatoon and simply passing through. Preston
also crosses College Drive, another main road in Saskatoon joining the downtown area to the
East Side of the city. This makes Chili’s easily accessible from several areas of the city. It is a
premium location.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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In addition to its location, Chili’s furthers its level of convenience to its customers by providing a
large area for available parking while at the establishment. The majority of the population in
Saskatoon travels by vehicle and this is a factor considered when choosing where to dine.
4.6 Distribution
All food items will be supplied by the franchise provider and delivered by Bridge Brand trucks.
All alcohol will be ordered following inventory and will be delivered by the liquor board store
located on 8th Street East.
4.7 Promotional Strategy
Although new restaurants opening is Saskatoon have a successful initial business they will lose
customers if they do not give them a reason to return. It is important that Chili’s promote their
brand previous to opening their doors and throughout the first year that they are open.
The excellent website and national television advertising are considered part of the franchise deal
and are therefore supplied by head office. These are both integral to promoting the Chili’s brand
image to the general public, but with the new restaurant location it is important to conduct
additional promotional ventures in the local areas.
Radio promotions on the local stations C95 and WIRED 96.3 will begin approximately 2 weeks
prior to opening to and continue throughout the year to announce special promotions.
Newspaper advertisement will also be run to announce the Grand Opening and announce special
promotions. These advertisements will not only promote the restaurant itself, but raise
awareness of the Chili’s Bar & Grill website. Once reaching the website consumers can learn
about the Chili’s email club to receive emails about upcoming promotions and exclusive offers.
They can also visit and add to the Chili’s MySpace page and listen online to the Chili’s radio
network. Therefore advertising the website locally is equally important as advertising the
restaurant location as it reinforces the brand equity and encourages customers to return for more
than just the food. Radio advertising will be particularly important over the Christmas season to
promote the custom design gift certificates available and capture a portion of the market for
Christmas get-togethers.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
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As we are located on a main thoroughfare in an extremely visible location to the box stores and
drivers on Preston Avenue, there is little need for street advertising. The building itself will take
the notice of those passing by. It is important that the exterior of the building be well maintained
and has adequate signage to capture the eye of those nearby.
We are also located very close to Circle Drive and College Drive; two primary roadways in
Saskatoon that lead easily to the Chili’s location and are often driven by individuals travelling
through Saskatoon. Therefore these are prime locations where billboards will be useful in
promoting the location of the restaurant. One billboard advertisement will be placed year round
on College Drive near Preston Avenue and one will be placed year round on Circle Drive
previous to the Preston Avenue/Attridge Drive exit.
Table 4.2: Marketing Expenses
2009
2010
2011
2012
2013
2014
114,048.00
114,048.00
114,048.00
114,048.00
Franchise
marketing
126,720.00 101,376.00
fees (4%)
Local advertising
Radio ads
10,000.00
10,000.00
10,000.00
10,000.00
10,000.00
10,000.00
3,000.00
3,000.00
3,000.00
3,000.00
3,000.00
3,000.00
2,000.00
2,000.00
2,000.00
2,000.00
2,000.00
2,000.00
129,048.00
129,048.00
129,048.00
129,048.00
Billboards
Newspaper
ads
Total
141,720.00 116,376.00
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
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FINANCIAL PLAN
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
MBA 851
5.0 Financial Plan
Chili’s is a commonly known restaurant within North America and by having a franchise in
Saskatoon it has the potential to be quite profitable. Restaurants are normally seen as risky
investments especially in Saskatoon since we do have the most restaurants and bars per capita
within Canada. The location in Preston Crossing provides for maximum traffic from people all
around the city since it is right off of Circle Drive, one of the main freeways around the city.
Restaurant are tricky to evaluate financially since one of the key variables is who is going to
come to your restaurant and how busy is it going to be. This means that sales will be the number
one critical variable. Like any new restaurant people tend to want to go and try it out. This
means that the restaurant will be busy for the first year, then in year two it will die down and
hopefully in year three attendance will come back up a bit and level off for some time.
We estimated this restaurant to be purchased and built for $1.5 million with $500,000 of personal
equity and $1 million from a bank loan (refer to Appendix B) which will be paid off within the 6
year business plan. We then assumed that we would require a 20% return on our investment
since restaurants are fairly risky within Saskatoon. There are several critical variables that
needed to be assumed to make this business plan as accurate as possible and some of them are as
follows:

Sales- How much is Chili’s going to sell in a given year?

Capacity- How busy is Chili’s going to be and how big is the place going to be?

Average meal- How much are people going to spend on a meal?

Staff- How much are staff going to get paid?

Convenience- How long is the restaurant going to be open?

Cost of Goods- How much will food and other items be to purchase?

Distribution- What are people going to buy; food, drinks, alcohol or merchandise?
Chili’s will be approximately 3000 square feet and will have roughly 75 tables with an average
seating arrangement of four per table. This puts our average customers per day at 300 people.
We calculated the maximum turnover at full capacity throughout a business day with an average
meal taking an hour to be around 3000 people per day. The restaurant will be open 360 days per
year since this is the common work year for most restaurants like this. Our first year estimates
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
MBA 851
were calculated to have approximately 1000 people per day eating in Chili’s. After the first year
the new restaurant isn’t new anymore and people are less inclined to stop in therefore we set the
daily average at 800 per day. After the second year the quality of food and brand value come into
play and revenues rise again and level off for several years at 900 people per day. On average
Chili’s menu will have a wide variety of products and prices but we assumed that an average
Chili’s lunch would be $15 and an average supper would be $25. Now there will be more
turnover for supper then lunch therefore an appropriate 70% to 30% distribution of pricing was
calibrated for supper to lunch respectively giving a total average meal of $22 per customer. This
is also another critical variable since it depends on the meal setting and what people are willing
to order but $22 is a reasonable assumption. When using the seating per day along with the
average price per meal and days open in a year, the first year will bring revenues of $7.92 million.
After this was calculated an estimate was made to what people are going to be purchasing at
Chili’s. The following distribution was used:

Food = 80% of revenues

Alcohol = 10% of revenues

Drinks = 9% of revenues

Merchandise = 15 of revenues
This would be an accurate assessment since most people are coming to eat and will have
normally 1 drink whether alcoholic or not within their visit. Refer to Appendix G for a
breakdown of all the revenue for these areas.
Inflation was not used in this analysis since we assumed that inflation would be calculated on a
proportional basis and would be consistent will all the figures in the balance sheet and income
statement. Cost of goods sold was calculated to be 60% of revenues which is fairly conservative
for a restaurant business. A mark up of only 40% in a restaurant business is reasonable. When
referring to Appendix H you can see that Chili’s profit margin over the next six years sits around
18%. This is very good considering that we assumed that we would be paying out a 50% of net
income per year in dividends to the investors after the first year.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
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April 8, 2009
MBA 851
When calculating all of these variable and looking at the income statement in Appendix A we
calculated our net present value of the company (what the company has made in cash flows over
6 years minus the initial investment) to be $2.1 million with a return on investment at 69.9% per
year. This is well above our projected 20% which can be attributed to a little bit of leverage as
well as using a franchise for an already very successful restaurant brand name and using their
marketing to promote our location in Saskatoon.
Our assumption and overall projections were modest but a sensitivity analysis was still done.
We already established that the maximum capacity would be 3000 people therefore we took the
most crucial variable as being sales and used it to evaluate our best and worst cases. The best
scenario would be 1500 people per day for 6 years which would be a 50% capacity for the year
and the worst scenario was 500 people per day for 6 years which would be 17% capacity for the
year (refer to Appendix I and J). The table for the sensitivity is as follows:
Table 5.1: Sensitivity Analysis
Scenario
NPV
IRR
Sales per year
Best Case
6,015,435
148.1%
11,880,000
Base Case
2,098,507
69.9%
7,920,000
Worst Case
(558,539)
4.2%
3,960,000
As you can see if the sales drops drastically to 500 people per day then the restaurant will start to
be less profitable. We feel that the numbers calculated were very conservative and with a
franchise name restaurant the worst case scenario is highly unfeasible. A break even analysis
was also constructed with a 20% return and that ended up being 585 people per day for 360 days
a year. The likely hood of the base case is highly possible and even within the first year the best
case scenario could be a potential goal that isn’t too unfeasible. Overall with the sensitivity
analysis we can assume that the Chili’s will be profitable as long as it doesn’t go below 585
people per day as customers.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
32
Chili’s Business Plan
April 8, 2009
MBA 851
With our base case mentioned earlier we have the projected income statement and values shown
in detail (more information in Appendix A and C).
Table 5.2: Income Statement and Investment Analysis
Income
2009
2010
2011
2012
2013
2014
Revenue
7,920,000
6,336,000
7,128,000
7,128,000
7,128,000
7,128,000
COGS
4,752,000
3,801,600
4,276,800
4,276,800
4,276,800
4,276,800
Expenses
1,015,770
852,926
867,598
867,598
867,598
867,598
EBIT
2,152,230
1,681,474
1,983,602
1,983,602
1,983,602
1,983,602
Net Income
1,398,950
1,092,958
1,289,341
1,289,341
1,289,341
1,289,341
Cash Flows
1,203,524
907,966
1,098,296
1,093,229
1,089,932
1,087,549
Net Present Value
2,098,507
Return on Investment
69.9%
As this data illustrates, the Chili’s restaurant will have success in its present location and with the
presumed assumptions that were made. Cash flows seem to be quite positive as well as having a
substantial net income accompanying it. This Chili’s will have more than enough cash on hand
not only to pay out dividends every year but also to have at their disposal for any type of
renovation or maintenance that is needed by the franchise. An extended cash flow analysis is in
Appendix F.
After an analysis of all the present ratios for the year 2009 this project seems to be highly
profitable with the conservative numbers that we implemented. All ratios are positive for an
investor except for the inventory turnover but this can be explained by some of the sauces, spices
and merchandise that are kept for extended periods of time. All other ratios show a great return
on investment and can be seen in Appendix H.
After a careful analysis of the financials, Chili’s Restaurant seems to be quite profitable and a
great investment. Obviously the main variables will have some play on the financial projections
although after a sensitivity analysis Chili’s still seems to be a great restaurant to open.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
33
Chili’s Business Plan
April 8, 2009
MBA 851
6.0 Conclusion
Chili’s restaurant has a long standing reputation with quality food and a fun atmosphere. Chili’s
new destination in Saskatoon within the Preston Crossing district should attract many visitors
from all over the city due to it being off of the major freeway, Circle Drive. By having this
company as a franchise the brand value of the restaurant name has already been established and
most of the advertising is already in place from our franchise fees. Despite Saskatoon having the
highest restaurant ratio per capita in all of Canada, Chili’s would have a profound effect on the
city and could capture substantial market share due to its already established brand name. After
calculating a thorough business plan Chili’s can be seen as a great investment that will return
approximately 69.9% per year on an investment. All cash flows of Chili’s are positive and the
net present value of this company over the next six years is more than desirable at over $2
million.
After a sensitivity analysis was conducted it seems more then feasible with our modest projection
for all variables that Chili’s will be profitable. A break even analysis was also conducted to
show that the restaurant would only need 585 visiting per day for 360 days a year for the
restaurant to make a return of 20% on their investment (Appendix K). This is more than feasible
as an average per day since the overall maximum capacity for a day would be 3000 visitors.
This investment is seen as being highly profitable and should be considered by anyone that has
the equity to invest in it. The return on the investment only grows above 20% when more than
585 people visit per day and as equity holder’s dividends will be paid out as an extra added
bonus for having shares in the company. After showing the operations plan, marketing plan,
human resource plan and financial plan in this business plan there is no doubt in an investors
mind that this is a great opportunity that can be highly rewarding on many levels. Chili’s is a
great opportunity and a great investment for Saskatoon not only in the short term but also in the
extended future.
Edwards School of Business, University of Saskatchewan
Cox, N., Houseman, G., Okrainetz, T. 2009
34