lunchplus case 1

7/31/2019 LunchPlus Case 1

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This case was written by Khalil Mohammad-Professor of Finance at FMS-UCP with assistance from Sidra Kanwal-Research Assistant for class

discussion only. The case is a property of Case Repository Cell at Faculty of Management Studies, University of Central Punjab, Lahore, Pakistan

Lunch-plus

It had been a very busy fall semester for Kalsoom Abbas, Bushra Haider, Faridah Tariq, Nayab Kanwal,

Lubna Aftab, and Rabia Faheem. All six students were nearing the completion of their MBA program atUCP and were contemplating their future career options. Most of the women had one year left in their

program and were considering launching Lunch-Plus, an entrepreneurial venture, during their final year of

studies. The Entrepreneurship course gave them high spirits and they started believing like all other

students that it was not a bad idea to have a small venture in their spare time. They worked in a group for all

assignments and the final group project gave them a real opportunity to know each others abilities to get

along towards the successful completion of an A-grade presentation. The partners wondered how much

funding would be required to start the business. They could arrange Rs.30,000 each to invest but needed to

know if additional financing would be required and the likelihood of obtaining external financing. It was

early February 2012 and the group wondered if they should proceed with the venture by the end of the

month.

LUNCH-PLUS

Lunch-Plus would be a healthy lunch preparation and delivery service, serving elementary schools withinthe ten Kilometer radius of their university. The business would be managed by a six-person partnership.

The Lunch-Plus would provide flexibility for parents and their children. Parents would select

a sandwich or alternative, snack, dessert and drink from a set menu of choices for their child (see Exhibit 1

for a sample of menu options). Parents would choose how regularly their child participated in the

program; for example, some parents might choose to order a lunch for their child every day of the month

while other parents might place one lunch order once a week. The food would be prepared and assembled

in the Lunch-Plus facility. For easy delivery, each lunch would be clearly labeled with the students nameand placed inside a classroom container labeled with the teachers name. The partners were consideringdonating a portion of the gross sales to the school which the management could use for financing needy

children.

The partners general business experience varied but was limited to customer service and basic

internship they did during last summer with different organizations. Of the partners, Bushra was the only

one who had significant experience in fast food when she worked for Coffee Tea & Company-a

famous coffee shop in Gulberg, Lahore, which was known for its variety of sandwiches and many

other types of snacks.

OBJECTIVES

Since all six partners would remain full-time university students for another two semesters, each wanted to

limit her involvement in the business to approximately 15 hours a week. Each partner wanted to withdraw atotal of 30,000 spread over the period of spring to fall semesters for compensation in running the business.

The partners also wanted to promote healthy eating habits for children and help reduce the parental stressinvolved with planning for and packing healthy lunches. Finally, the partners were interested ingaining business experience that would enable them to decide if they would pursue this or anotherentrepreneurial venture upon graduation.


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OTHER CONSIDERATIONS

Parenting Challenges

There has been a rapid increase in the number of families where both parents worked due to the constant

increase in cost of living during last ten years. As a result, maintaining an acceptable balance between work

and home was a constant challenge for all these parents. About two-thirds of full-time employed parentswith children were dissatisfied with the balance between their job and home life. Parents blamed theirdissatisfaction on not having enough time for family and spending too much time on the job. In addition,

the time spent with children did not always equate to what many parents would refer to as quality time.Many parents juggled their work and family duties by including children in their own leisure and free-time

activities.

Focus on Healthy Eating

The society was becoming increasingly concerned with healthy eating choices and for very good reason.The commonly spread stomach, and allergies related diseases, and obesity rates among children and adults

had increased substantially during the past 20 years. Offering children and youth nourishing food was afundamental component to enhancing their healthy development and ability to learn. According to PakistanMedical Association (PMA), during their recent pediatrics conference in Karachi, nutrition affectedchildrens physical and psychosocial well-being, as well as their academic accomplishments. Makinghealthy foods more readily available to children during the school day would likely have a positive impacton their learning.The increased usage of electronic gadgets such as i-Pods, MP4, video games, cell phones, TV, and

internet had already taken the children away from sports and physical activities. With reduced time in exercise and

increased usage of ready to eat snacks and junk food items had major impact on young childrens health.

In the majority of cases, parents were responsible for planning and packing their elementary school-aged

childrens lunches. Parents wanted their children to eat healthy meals but also faced time constraintsassociated with planning and preparing lunches every day. Parental concerns associated with school-run

canteens and cafeterias inside premises included value for money, variety of choices available (especially forpicky eaters) and food preparation safety.

Current Lunch Options

Parents either chose to send a lunch with their child or give them cash to buy something from the schoolcafeteria. At home, the quick to prepare options were limited to mainly K&Ns, and a limited product choicefrom DAWN, and MENU. Only K&Ns offered microwave ready items for Deli sandwiches and sausages.The other items by all three companies, such as Shami Kebab, Seekh Kebab, Chappal Kebab, Burger Patties,and Nuggets, required either frying or reheating. This required considerable processing time which made ithard to manager for such parents in the morning. Cooking oil being the main processing ingredient in all suchitems again raised an issue of health for the parents.

Packaged Lunch Options

Local bakery chains such as Gourmet Foods, Cakes & Bakes, DOCE, and some others have offered lunchpacks for children, but that included items such as Burgers, Sandwiches, Pizza, Patties, Bread Rolls etc,which was generally nor perceived as healthy choice. Most of the schools have outsourced the campuscafeteria to outside vendors and hardly maintained a check on product quality and price. The children werenot allowed to leave the school premises during the working hours that left the children no choice but to


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select one of the few options.

Target Market

The partners decided to focus mainly on the children under the ages of ten. The menu was carefully selectedbased on a survey with approximately three hundred parents regarding their childrens eating habits. The

menu also focused on health and nutritious values therefore juice and milk were included in the combinationrather than soft drinks.

Sales Strategy

The partners needed to develop a sales pitch directed at both schools and parents and were wondering what

the most appropriate message was and how it should be delivered. Once decided on, the partners planned to

use backpack mail to distribute order forms directly for children to take home to their parents on amonthly basis. If parents decided to participate in the program, they would be required to fill out the form

and return it to the school along with the payment. The school would then forward orders to Lunch-Plus for

money reconciliation and order consolidation. The partners considered different methods of additional

promotion including a website, promotional packages for principals and teachers, and flyers distribution tochildren and parents at the start and close time of school session.

An informational website would cost approximately 10,000 to develop and 1,000 per year for hosting fees. If

this option was selected, the partners would need to decide what information to include on the website and

how to present the information.

The purpose of promotional packages for principals and teachers would be to introduce the business and

provide details about how the program would work, its benefits, the story behind the business, etc. These

could be distributed with the intent of scheduling a meeting or presentation with the school principal or

administrator. Costs to develop the package would amount to Rs.5,000 and the printing of each package

would cost Rs.100. the other method to promote the idea was to participate in schools festivities, fund raising

activities, and sports days. The cost to attend such activities was free but the partners would need to investin a quality display system to communicate a professional image if they were going to attend any such event.

A display system was estimated to cost Rs.20,000.

OPERATIONS

After considering commercial regulations imposed by municipal authority and Ministry of Health, thepartners decided that the best location for the business would be a 1,000 square foot commercial spacelocated in Township area. Rental costs for the space would amount to Rs.10,000 per month. The partnerswould be required to pay for six months in advance to sign a lease agreement. Significant renovations

totaling Rs. 20,000 would be required to meet minimum operational requirements. The renovationcosts would be amortized over a 5-year period using the straight-line method.

Lunch-Plus planned to offer lunches for 38 weeks of the school year from September to June (see Exhibit 2

for a breakdown of the number of weeks of operation for each month). Once orders were placed, the

lunches would be prepared on site. It was estimated a total of 100 lunches could be made per person each

hour. The completed lunches would be labeled appropriately and placed in the schools classroomcontainer. Two containers would be required for each classroom and would be used on a rotating basis.

The container from the previous day would be picked up when the lunches for the current day were

delivered. A delivery van, rented for Rs.20,000 per month (including fuel and maintenance) starting


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in September, would be required to deliver and pick up the containers. Two partners would be involved in

the distribution of lunches each day, which would take approximately two and a half hours.

Shopping, cleaning and food preparation (outside of the time it would take to assemble the lunches) would

take approximately 10 hours each week at the expected sales levels. The partners determined thatadministrative duties, including order collection and processing, banking and inquiry handling, would take

approximately 20 hours per week. If the number of hours required to spend working for the businessexceeded the partners maximum, they would hire an administrative assistant at a rate of Rs.8,000 per month.

PROJECTED COSTS AND SALES

Sales

Twenty schools located in close proximity to the business location would be targeted initially. Preliminary

conversations with principals and administrators from these schools indicated a strong interest

in learning more about the Lunch-Plus offering. The average population for these twenty schools was

200 students. (initial target market)

The selling price per lunch would be Rs.100. The estimates of the expected number of lunches ordered

per week can be found in Exhibit 3. These figures were based on the survey conducted during last onemonth through meetings with school administration, and personal observation. Also, the partners wanted to

project the results if sales were 10 per cent less than estimated.

Costs

Lunch-Plus would need to purchase equipment in August in order to prepare for the September orders. The

company would require two refrigerators at a cost of Rs.20,000 each and two ovens at a cost of

Rs.15,000 each. They also needed two microwave ovens at a cost of Rs.10,000 each. It was expected that the

appliances would last for 5 years. Office equipment, which included a computer, printer, desk and chair,would total Rs.25,000 and would be amortized over a three-year period. All equipment was planned to be

taken on 6-months easy installments from AR Electronics. Kitchen utensils would cost Rs.10,000 and a

business license would be required for a fee of Rs.1,000.

Beginning in August, telephone and Internet charges of Rs.2,000 and utilities charges of Rs.10,000 willbe incurred monthly but paid approximately 15 days after the end of the month. Cleaning and office supplieswould total Rs.3,000 per month starting in September. The company bank account would be set up in earlySeptember and the partners thought it best to estimate two per cent of sales for bad cheques.

The partners calculated that the cost to produce a lunch would average Rs.65 including packaging costs. A

food, cleaning supply and packaging inventory of Rs.50,000 would be established in September and

maintained throughout the year. Reusable transportation containers would cost Rs.4,000 per school and orderforms would cost Rs.300 each month for each school served. These costs would start in September and the

containers were expected to last for three years. The supplier of containers agreed on granting a credit for 30

days. The partners decided to position the lunch program through social media and planned to endow five

per cent of sales to the participating schools.


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CONCLUSION

The partners knew it was time to get down working and doing the necessary analysis that would enable

them to finalize their decision. Given that all six partners planned to continue their studies on a full-time

basis, they wanted to make sure each partner would not exceed the set time commitment. In addition

to the number of decisions they had yet to make, the partners were also interested in assessing theoverall riskiness of the venture. The major challenge would be to price the lunch which will be affordable for

the parents as well as give an attractive return for the partners to pursue the venture.

Exhibit 1

SAMPLE MENU

Exhibit 2

NUMBER OF OPERATIONAL WEEKS PER MONTH

Note: The number of weeks are expected to be approximately 38 based on the holidays such as Eid-ul Fitr, Eid-ul-

Azha, Ashoora etc.

Monday Tuesday Wednesday Thursday Friday

Chicken Burger Fries Juice Cookie

250gms of Chicken

and vegetablenoodles

Milk Chocolate Brownie

A 4.5 pizza slice Juice Pastry

Egg & Vegetable

Sandwich Cole Slaw Juice Cake Slice

Chicken Shawarma Milk Fruit Yogurt

Month # Weeks

September 4

October 5November 5

December 4

January 5

February 4

March 5

April 5

May 4

TOTAL 41


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Exhibit 3

SALES ESTIMATES

Learning Outcomes

Students are expected to:

1. Prepare detailed cash flow statement incorporating monthly figures.2. Prepare projected financial statements.3. Perform a breakeven analysis to assess the riskiness of the venture. (FC/(P-VC))

4. Make a recommendation on whether to proceed with the business including any alterations to theoriginal plans.

# of Lunches Per Week Proportion of Students

0 50%

1 30%

2 10%

3 6%

4 2%

5 2%

lunchplus case 1

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