CASE 7

GOURMET TO GO

INTRODUCTION

Today, many households have two incomes. At the end of the day the questions arise, “Who will
cook?” or “What do I cook?” Time is limited. After a long day at work, few people want to face
the lines at the grocery store. Often the choice is to eat out. But the expense of dining out or the
boredom of fast food soon becomes unappealing. Pizza or fast-food delivery solves the problem
of going out but does not always satisfy the need for nutritious, high-quality meals. Some people
prefer a home-cooked meal, especially without the hassle of grocery shopping, menu planning,
and time-consuming preparation.

Jan Jones is one of those people. She is a hardworking professional who would like to come
home to a home-cooked meal. She would not mind fixing it herself but, once at home, making an
extra trip to the store is a major hassle.

Source: This case study was prepared by Robert D. Hisrich with the intention of providing a
basis for class discussion.

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Jones thought it would be great to have the meal planned and all the ingredients at her fingertips.
She thought of other people in her situation and realized there might be a market need for this
kind of service. After thinking about the types of meals that could be marketed, Jones discussed
the plan with her colleagues at work. The enthusiastic response led her to believe she had a good
idea. After months of marketing research, menu planning, and financial projections, Jones was
ready to launch her new business. The following is the business plan for Gourmet to Go.

EXECUTIVE SUMMARY

Gourmet to Go is a new concept in grocery marketing. The product is a combination of menu

planning and grocery delivery; a complete package of groceries and recipes for a week’s meals is
delivered to a customer’s door. The target market consists of young urban professionals living in
two-income households in which individuals have limited leisure time, high disposable income,
and a willingness to pay for services.

The objective is to develop a customer base of 400 households by the end of the third year after
start-up. This level of operation will produce a new income of about $120,000 per year and
provide a solid base for market penetration in the future.

The objective will be achieved by creating an awareness of the product through an intense
promotional campaign at start-up and by providing customers with first-class service and
premium-quality goods.
The capital required to achieve objectives is $258,000. Jones will invest $183,000 and will
manage and own the business. The remainder of the capital will be financed through bank loans.

PRODUCT

The product consists of meal-planning and grocery shopping services. It offers a limited
selection of preplanned five-dinner packages delivered directly to the customer.

The criteria for the meal packages will be balanced nutrition, easy preparation, and premium
quality. To ensure the nutritional requirements, Gourmet to Go will hire a nutritionist as a
consultant. Nutritional information will be included with each order. The most efficient method
for preparing the overall meal will be presented. Meals will be limited to recipes requiring no
more than 20 minutes to prepare. Premium-quality ingredients will be a selling feature. The
customer should feel that he or she is getting better-quality ingredients than could be obtained
from the grocery store.

MANUFACTURING AND PACKAGING

Since the customer will not be shopping on the premises, Gourmet to Go will require only a
warehouse-type space for the groceries. The store location or decor will be unimportant in
attracting business. There will be fewer inventory expenses since the customer will not be
choosing among various brands. Only premium brands will be offered.

It will be important to establish a reliable connection with a distributor for high-quality produce
and to maintain freshness for delivery to the customer.

As orders are processed, the dinners will be assembled. Meats will be wrapped and ready for the
home freezer. All ingredients will be labeled according to the dinner to which they belong. The
groceries will be sorted and bagged according to storage requirements: freezer, refrigerator, and
shelf. Everything possible will be done to minimize the customer’s task. Included in the
packaging will be the nutritional information and preparation instructions.

Customers will be given the option of selecting their own meals from the monthly menu list or
opting for a weekly selection from the company.

FUTURE GROWTH

Various options will be explored in order to expand the business. Some customers may prefer a
three- or four-meal plan if they eat out more often or travel frequently. Another possibility might
be the “last-minute gourmet”; that is, they can call any evening for one meal only.

Increasing the customer base will increase future sales. Expansion of Gourmet to Go can include
branches in other locations or even future franchising in other cities. With expansion and
success, Gourmet to Go might be a prime target for a larger food company to buy out.

INDUSTRY
The Gourmet to Go concept is a new idea with its own market niche. The closest competitors
would be grocery stores and restaurants with delivery services.

Of the 660 grocery stores in the Tulsa/Tulsa County region, only two offer delivery service.
They are higher-priced stores and will deliver for $4, regardless of order size. However, they
offer no assistance in meal planning.

A number of pizza chains will deliver pizza as well as fried chicken. There is also a new service
that will pick up and deliver orders from various restaurants. However,

482

Gourmet to Go would not be in direct competition with these services because the meals
available from them are either of a fast-food type or far more expensive than a Gourmet to Go
meal.

SALES PREDICTION

The market segment will be households with an income of at least $65,000 per year. In
Tulsa/Tulsa County, this will cover an area including over 16,600 households that meet the target
requirements of income with an age range of 24 to 50 years. By the end of the third year, a
customer base of 400 households will be developed (2.3 percent of the target market). At a
growth rate of 2.73 percent a year, the target market of households should increase over three
years to 18,000.

FINANCIAL

Various financial statements are included in Exhibits 1 through 8.

EXHIBIT 1 Start-Up Expenses

Ad campaign
Ad agency* $3,000
Brochures† 7,000
Radio spots‡ 8,000
Newspaper ads§ 7,000
Total $25,000
Pre-start-up salaries** 16,000
Nutritionist consulting 6,000
Miscellaneous consulting (legal, etc.) 1,500
Pre-start-up rent and deposits 4,000
Pre-start-up utilities and miscellaneous supplies 2,000

$54,500
*40 hrs. @ $75/hr.
†
20,000 brochures; printing, development, etc. @ $0.35/ea.
‡
4-week intense campaign: 20 spots/week (30 seconds); $100/spot.
§
50 ads at an average of $100/ad.

**Jan Jones @ 3 months; clerks, two @ 2 weeks.

EXHIBIT 2 Capital Equipment List

Computers:
Apple, Macintosh Office System
3 Mac systems $3,000
Laser printer HP2300 series 1,000
Networking 2,000
Software 3,000
Total $ 9,000
Delivery vans, Chevrolet Astro 66,000
Food lockers and freezers 15,000
Phone system (AT&T) 1,500
Furniture and fixtures 3,500

$95,000
483

EXHIBIT 3 Pro Forma Income Statement

Year 1
Mo. 1 Mo. 2 Mo. 3 Mo. 4 Mo. 5 Mo. 6 Mo. 7 Mo. 8 Mo. 9 Mo. Mo. Mo.
10 11 12
1
Sales 2,600 3,900 6,500 13,00 19,50 23,40 26,00 28,60 31,20 33,80 36,40 39,00
0 0 0 0 0 0 0 0 0
Less: Cost 1,700 2,550 4,250 8,500 12,75 15,30 17,00 18,70 20,40 22,10 23,80 25,50
of goods 0 0 0 0 0 0 0 0
sold2
Gross 900 1,350 2,250 4,500 6,750 8,100 9,000 9,900 10,80 11,70 12,60 13,50
profit 0 0 0 0
Less:
Operating
expenses
Salaries 7,400 7,400 7,400 7,400 7,400 7,400 9,800 9,800 9,800 9,800 9,800 9,800
and wages3
Operating 300 300 300 300 300 300 300 300 300 300 300 300
supplies
Repairs 250 250 250 250 250 250 250 250 250 250 250 250
and
maintenanc
e
Advertisin 130 195 325 650 975 1,170 1,300 1,430 1,560 1,690 1,820 1,950
g and
promotion4
Bad debts 100 100 100 100 100 100 100 100 100 100 100 100
Rent5 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667
Utilities 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Insurance 600 600 600 600 600 600 600 600 600 600 600 600
General 150 150 150 150 150 150 150 150 150 150 150 150
office
Licenses 200 0 0 0 0 0 0 0 0 0 0 0
Interest6 310 310 310 310 310 310 530 530 530 530 530 530
Depreciatio 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271 1,271
n7
Total 13,378 13,243 13,373 13,69 14,02 14,21 16,96 17,09 17,22 17,35 17,48 17,61
operating 8 3 8 8 8 8 8 8 8
expenses
Profit (12,47 (11,89 (11,12 (9,19 (7,27 (6,11 (7,96 (7,19 (6,42 (5,65 (4,88 (4,11
(loss) 8) 3) 3) 8) 3) 8) 8) 8) 8) 8) 8) 8)
before
taxes
Less: 0 0 0 0 0 0 0 0 0 0 0 0
Taxes
Net profit (12,47 (11,89 (11,12 (9,19 (7,27 (6,11 (7,96 (7,19 (6,42 (5,65 (4,88 (4,11
(loss) 8) 3) 3) 8) 3) 8) 8) 8) 8) 8) 8) 8)

(1)
Average unit sale for groceries is about $43.00, plus $10.00 per week for delivery (Exhibit 1),
making the monthly unit sales per household (2 people) about $212.00.
(2)
Cost of goods sold—80 percent of retail grocery price, or $32.00 per household per week
($170.00/month household). (80 percent an average margin on groceries.)

Salaries and wages—Ms. Jones’s salary will be $5,000/month. Order clerks will be paid
(3)

$1,300/month, and delivery clerks will be paid $1,100/month. One additional order clerk and
delivery clerk each will be added once sales reach 100 households, and again at 200 households.
Salaries will escalate at 6 percent/year.
(4)
Advertising and promotion—The grocery industry standard is 1 percent of sales. However,
Gourmet to Go, being a new business, will require more than that level; 5 percent of sales is used
in this plan. (Special pre-start-up advertising is covered with other start-up expenses.)
(5)
Rent—2,000/ft.2 @ $10.00/ft.2; $1,667/month; escalate at 6 percent/year.
(6)
Interest—Loans on computer ($10,000) and delivery vehicles ($22,000 ea.) at 12.0
percent/year. (Delivery vehicles will be added with delivery clerks.) (Debt service—based on
three-year amortization of loans with payments of 1/3 at the end of each of three years.)
(7)
Depreciation—All equipment will be depreciated per ACRS schedules: vehicles and
computers—3 years; furniture and fixtures—10 years.

484

EXHIBIT 4 Pro Forma Income Statement

Year 2 Year 3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Sales1 136,500 156,000 194,698 234,000 253,500 273,000 292,500 312,000
Less: Cost of goods sold2 89,250 102,000 127,302 153,000 165,750 178,500 191,250 204,000
Gross profit 47,250 54,000 67,395 81,000 87,750 94,500 101,250 108,000
Less: Operating expenses
Salaries and wages3 31,164 38,796 38,796 38,796 41,124 41,124 41,124 41,124
Operating supplies 900 900 900 900 900 900 900 900
Repairs and maintenance 750 750 750 750 750 750 750 750
Advertising and 6,825 7,800 9,735 11,700 12,675 13,650 14,625 15,600
promotion4
Bad debts 300 300 300 300 300 300 300 300
Rent5 5,301 5,301 5,301 5,301 5,619 5,619 5,619 5,619
Utilities 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Insurance 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800
General office 450 450 450 450 450 450 450 450
Interest6 1,280 1,940 1,720 1,720 1,410 1,190 970 970
Depreciation7 6,910 6,910 6,910 6,910 7,493 7,493 7,493 7,493
Total operating expenses 58,680 67,947 69,662 71,627 75,520 76,275 77,030 78,005
Profit (loss) before taxes (11,430) (13,947) (2,267) 9,373 12,230 18,225 24,220 29,995
Less: Taxes 0
Net profit (loss) (11,430) (13,947) (2,267) 9,373 12,230 18,225 24,220 29,995

(1)
Average unit sale for groceries is about $43.00, plus $10.00 per week for delivery (Exhibit 1),
making the monthly unit sales per household (2 people) about $212.00.
(2)
Cost of goods sold—80 percent of retail grocery price, or $32.00 per household per week
($138.00/month household). (80 percent an average margin on groceries—Progressive Grocer;
April 1984; p. 94.)

Salaries and wages—Ms. Jones’s salary will be $5,000/month. Order clerks will be paid
(3)

$1,300/month, and delivery clerks will be paid $1,100/month. One additional order clerk and
delivery clerk each will be added once sales reach 100 households, and again at 200 households.
Salaries will escalate at 6 percent/year.
(4)
Advertising and promotion—The grocery industry standard is 1 percent of sales. However,
Gourmet to Go, being a new business, will require more than that level; 5 percent of sales is used
in this plan. (Special pre-start-up advertising is covered with other start-up expenses.)
(5)
Rent—2,000/ft.2 @ $8.00/ft.2; 1,333 $1/month; escalate at 6 percent/year.
(6)
Interest—Loans on computer ($10,000) and delivery vehicles ($12,000 ea.) at 12.5 percent
year. (Delivery vehicles will be added with delivery clerks.) (Debt service—based on three-year
amortization of loans with payments of 1/3 at the end of each of three years.)
(7)
Depreciation—All equipment will be depreciated per ACRS schedules: vehicles and
computers—3 years; furniture and fixtures—10 years.

485

EXHIBIT 5 Pro Forma Cash Flow Statement

Yearl
Mo. 1 Mo. 2 Mo. Mo. Mo. Mo. Mo. Mo. Mo. Mo. Mo. Mo. Total
3 4 5 6 7 8 9 10 11 12
Cash
receipts
Sales 2,600 3,900 6,500 13,00 19,50 23,40 26,00 28,60 31,20 33,80 36,40 39,00 263,9
0 0 0 0 0 0 0 0 0 00
Other
Total cash 2,600 3,900 6,500 13,00 19,50 23,40 26,00 28,60 31,20 33,80 36,40 39,00 263,9
receipts 0 0 0 0 0 0 0 0 0 00
Cash
disbursem
ents
Cost of 1,700 2,550 4,250 8,500 12,75 15,30 17,00 18,70 20,40 22,10 23,80 25,50 172,5
goods sold 0 0 0 0 0 0 0 0 50
Salaries 7,400 7,400 7,400 7,400 7,400 7,400 9,800 9,800 9,800 9,800 9,800 9,800 103,2
and wages 00
Operating 300 300 300 300 300 300 300 300 300 300 300 300 3,600
supplies
Repairs 250 250 250 250 250 250 250 250 250 250 250 250 3,000
and
maintenan
ce
Advertisin 130 195 325 650 975 1,170 1,300 1,430 1,560 1,690 1,820 1,950 13,19
g and 5
promotion
Bad debts 100 100 100 100 100 100 100 100 100 100 100 100 1,200
Rent 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 1,667 20,00
4
Utilities 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 12,00
0
Insurance 600 600 600 600 600 600 600 600 600 600 600 600 7,200
General 150 150 150 150 150 150 150 150 150 150 150 150 1,800
office
Licenses 200 0 0 0 0 0 0 0 0 0 0 0 200
Interest 310 310 310 310 310 310 530 530 530 530 530 530 5,040
Debt 10,33 10,33
service 3 3
(principal)
Total cash 13,80 14,52 16,35 20,92 25,50 28,24 32,69 34,52 36,35 38,18 40,01 52,18 353,3
disbursem 7 2 2 7 2 7 7 7 7 7 7 0 22
ents
Net cash (11,20 (10,62 (9,85 (7,92 (6,00 (4,84 (6,69 (5,92 (5,15 (4,38 (3,61 (13,18 (89,42
flow 7) 2) 2) 7) 2) 7) 7) 7) 7) 7) 7) 0) 2)

EXHIBIT 6 Pro Forma Cash Flow Statement

Year 2 Year 3
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Cash receipts
Sales 136,500 156,000 194,698 234,000 253,500 273,000 292,500 312,000
Other
Total cash receipts 136,500 156,000 194,698 234,000 253,500 273,000 292,500 312,000
Cash disbursements
Cost of goods sold 89,250 102,000 127,302 153,000 165,750 178,500 191,250 204,000
Salaries and wages 31,164 38,796 38,796 38,796 41,124 41,124 41,124 41,124
Operating supplies 900 900 900 900 900 900 900 900
Repairs and maintenance 750 750 750 750 750 750 750 750
Advertising and promotion 6,825 7,800 9,735 11,700 12,675 13,650 14,625 15,600
Bad debts 300 300 300 300 300 300 300 300
Rent 5,301 5,301 5,301 5,301 5,619 5,619 5,619 5,619
Utilities 3,000 3,000 3,000 3,000 3,000 3,000 3,000 3,000
Insurance 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800
General office 450 450 450 450 450 450 450 450
Licenses 0 0 0 0 0 0 0 0
Interest 1,280 1,940 1,720 1,720 1,410 1,190 970 970
Debt service (principal) 7,333 10,333 7,333 7,333 10,333
Total cash disbursements 141,020 170,370 190,054 228,050 241,111 254,616 260,788 284,846
Net cash flow (4,520) (14,370) 4,643 5,950 12,389 18,384 31,712 27,154

EXHIBIT 7 Pro Forma Balance Sheets

End of: Year Year 2 Year 3 Year 1 Year 2 Year 3

1
Assets Liabilities
Current assets Accounts payable 12,750 21,217 31,875
Cash 3,000 5,000 7,000 Notes payable 0 0 0
Accounts receivable 19,500 32,450 48,750 Total current liabilities 12,750 21,217 31,875
Inventory 12,750 21,217 31,875 Long-term liabilities 22,000 42,667 47,000
Supplies
300 300 300 Bank loans payable
Prepaid expenses 1,667 1,767 1,873 Personal loans payable 0 0 0
Total current assets 37,217 60,734 89,798 Total long-term 42,667 47,000 22,000
liabilities
Fixed assets Total liabilities 55,417 68,217 53,875
Furniture and 18,000 16,000 14,000 Owner’s equity
fixtures
Vehicles 33,000 32,780 8,140 Paid-in capital 133,889 62,897 28,068
Equipment 6,750 3,330 0 Retained earnings (94,339) (18,271) 29,995
Total fixed assets 57,750 52,110 22,140 Total owner’s equity 39,550 44,627 58,063
Total assets 94,967 112,844 111,938 Total liabilities and 94,967 112,844 111,938
equity
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EXHIBIT 8 Sources and Uses of Funds

Sources of Funds
Jan Jones (personal funds) $182,913
Bank loans for computer and vehicles 75,000
Total sources $257,913
Uses of Funds
Computer, peripherals, and software $9,000
Food lockers and freezers 15,000
Delivery vehicles* 66,000
Phone system 1,500
Miscellaneous furniture and fixtures 3,500
Start-up expenses 54,600
Working capital 108,313
Total uses‡ $257,913

*See detail, following.

†
To cover negative cash flow over first 1½ years of operation. (See pro forma cash flow
statements.)
‡
Total for initial 3-year period. Computer and one delivery van will be acquired prior to start-up,
one delivery van will be added 6 months after start up, and another will be added 15 months after
start-up. Financing will be handled simultaneously with procurement.

MARKETING
Distribution

The product will be delivered directly to the customer.

Sales Strategy

Advertising will include newspaper ads, radio spots, an Internet Web page, and direct-mail
brochures. All four will be used during normal operations, but an intense campaign will precede
start-up. A series of “teaser” newspaper ads will be run prior to start-up, announcing a revolution
in grocery shopping. At start-up, the newspaper ads will have evolved into actually introducing
the product, and radio spots will begin as well. A heavy advertising schedule will be used during
the first four weeks of business. After start-up, a direct mailing will detail the description of the
service and a menu plan.

Newspaper ads aimed at the target markets will be placed in entertainment and business sections.
Radio spots will be geared to stations most appealing to the target market. Since the product is
new, it may be possible to do interviews with newspapers and obtain free publicity.

Sales promotions will offer large discounts to first-time customers. These promotions will
continue for the first six months of operations.
The service will be priced at $10 per week for delivery and planning, with the groceries priced at
full retail level. According to the phone survey, most people who were interested in the service
would be willing to pay the weekly service charge.

MANAGEMENT

The management will consist of the owner/manager. Other employees will be delivery clerks and
order clerks. It is anticipated that after the business grows, an operations manager might be
added to supervise the employees.