MKTG 3552 MARKETING STRATEGIES AND DECISIONS Winter 2016

Xiaochen Song

Cynthia Poon

Irene Liu

Isaac Lee

Tom Chien

Table of Contents

Background and Market overview 1

Customer Analysis and Segmentation 1

Competitors and Company analysis 2

Business Problems 4

Decision Alternatives 5

Recommendations 6

Product 7

Promotion 8

Price 9

Place 9

Financial Projection 10

Exhibits

I. Geography of Financial District

II. Customer Segmentation Scheme

III. Market Size Calculation Flow chart

IV. Competitive Analysis

V. 2016-2018 Financial Projection

VI. Calculation on Projected Profit

VII.Survey Questions and Results

References

Background

People call Easta “food for future” and “robot restaurants”, its first location

opened in 2015 in the financial district in San Francisco.[1] With a second location that

just opened in Los Angeles early 2016, Eatsa is innovating the way fast casual dining is

experienced.

Quinoa, a high protein grain, is the main ingredient in Eatsa. Customers can cus-

tomize their own meal by adding different toppings and sauces or choose from the eight

prepared bowls in Eatsa’s menu. Eatsa is differentiated than most restaurants in that

their customers use iPads to view the menu, place an order and pay with the swipe of a

credit or debit card. The screen will then guide them to a wall of glass cubbies. In min-

utes, customers’ name appear on the screen of one of the cubbies, and by tapping the

screen twice, the glass door lifts and food appears in front of the customer.[2]

Fast casual restaurants have been expanding rapidly and sales reached $23 bil-

lion in 2010, a 30% increase since 2006. In 2009 there were 600 fast casual concepts in

the $580 billion restaurant industry. Growth in the fast casual segment led the industry

by a wide margin in 2008 when the extremely popular fast casual franchises Chipotle

and Wingstop grew 20.7% and 17.8%, respectively.[8]

Customer Segmentation

Eatsa is the first automated restaurant in San Francisco, it’s customers have

segmented by their willingness to try new ideas. Segmentation refers to diffusion of in-

novation[4] among potential customers population. There are five categories which are

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innovators, early adopters, early majority, late majority and laggards. This has been out-

lined in the segmentation scheme (see Exhibit 2).

According to The Consumer Behavior and Travel Choices report[5], the average

walking distances that people are willing to travel is 0.7 miles. On average combined for

biking, driving, walking, and transit, consumers are willing to travel 3.0 miles to pur-

chase food. The map to display relative distance to Eatsa can be found in Exhibit 1.

Competitive Analysis

Within the fast-casual food industry, Easta is competing with many similar restau-

rants in various sizes from fast food restaurant chains to local fast-casual diners. The

chain restaurants have instant brand recognition and trust of their customers. Moreover,

they have established a menu choice and operation line. The local diners win cus-

tomers’ through home made food, hospitality and homey decor. In this case, based on

the geography factor, we will take Chipotle, McDonald’s and local diners like Freshroll

Vietnamese Rolls & Bowls as the main competitors (see Exhibit 4).

Chipotle is a Mexican Grill restaurant chain. It owns more than 1,900 fast-casual

restaurants. Customers can build their own meal from a lineup that includes chicken,

steak, barbecue or free-range pork. They offer options such as beans, rice, guacamole

and various other vegetables and salsas. It opened more than 200 new restaurants in

the past five years.Chipotle also differentiated itself from others through what they

called “food with integrity” , meaning using naturally grown ingredients and classic cook-

ing techniques. We consider Chipotle to be in the Early Majority segment because they

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have been established as a fast casual restaurant for many years. They offer a unique

menu where every burrito or bowl is customized to the customer's preference.

The reason we include McDonald in our competitive landscape due to its fast

service speed and its low price. 70% of McDonald’s revenue comes from its drive

through. This service provides convenience for customers on the go and this is not

something provided by Eatsa. McDonald has put more focus on making nutritious food

and balance diet by serving more menu items that includes fruits, vegetables, low-fat

dairy and whole grains. Moreover, McDonald is adding self-service kiosk inside the

restaurant hoping to increase sales by allowing its customers to customize their meals.

It shows the fast casual industry is incorporating more technology in order to funnel cus-

tomers to their product. McDonald’s is considered to be in the Late Majority segment

due to its long history and good reputation. One of their core competencies is consis-

tency, their product has the same taste and quality to them in every McDonald’s restau-

rant around the world. McDonald’s also offers a large dining area for customers to sit

down with friends and families to enjoy their meal.

Other than the chain restaurants, Eatsa is also competing with local diners in its

area. Most of the diners features certain unique cuisines that is differentiated from

restaurant chains. We choose Freshroll as an example because it has similar concept in

menu design, ingredients, price range and location with Eatsa. Freshroll is a vietnamese

restaurant and it claims to use authentic vietnamese family receipt for their meat and

sauces. They cook their pho broth from scratch and prepare homemade taro chips daily.

Customer orders through a 4-step process: picking main dish, protein, vegetables and

sauces. In Freshroll, you can find ingredients that are avoided by other vietnamese

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restaurants due to high expense such as pineapple. Its dedication is not only reflected

through better tasting food but also providing convenience for busy workers by online

order option. In the financial district, there are more than 20 local restaurants like this.

Freshroll would be in the Laggard segment, they cater to ore traditional type of con-

sumer who is looking for a “home cooked” meal. These consumers are not likely to

change and are not willing to try new things.

Business Problem

Eatsa stands out for its high-quality, vegetarian ingredients and fast service. We

realize that more and more fast-casual restaurants are adopting high-tech methods to

improve customer experience and service speed. Although the vegetarian ingredients

help Easta differentiate itself from other fast-casual restaurants but also could be a hin-

der to attract diverse customers in the long run.

Large chains like McDonald’s is introducing touch pad ordering to speed up the

process and attract more customers. Chipotle and Wingstop are also offering online or-

dering to attract more fast casual customers by offering the ability to order online and

pick up at the store. This can be an issue for Eatsa because their business is based on

the ability to order and receive food quickly at the store without offering online ordering.

Decision Alternatives

In order to efficiently penetrate the marketing, Eatsa needs to target the most

valuable customer segments. Based on our customer segmentation scheme, we will not

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consider Late Majority and Laggards. The reason is that the restaurant concept of Eatsa

is new and non-traditional. The willingness of Late Majority and Laggards to try new

things are low. Thus, we will focus on Innovators, Early Adopters and Early Majority.

Decision Alternative 1 (Innovators):

The Innovator likes the new ideas and new concepts. They are the first to try new

products, Eatsa’s automated restaurant concept can attract them to try the new tech-

nology. Their willingness to try a new restaurant is very high and they are willing to take

risks. Because of this, the cost to attract these customers are very low. Eatsa has a digi-

tal wall which show customer's name when they pick up the food. The digital wall is a

creative idea which can attract the innovator. However, the innovator market is very lim-

ited, only 2.5% of our market size, which is only around 36,740 people within 3 miles of

Eatsa.

Decision Alternative 2 (Early Adopters):

Although Early Adopters might not be the first ones to try a new idea, they are

more influential as opinion leaders. According to the research, Early Adopters tend to

have a high awareness towards new ideas and they are very willing to accept them. Ac-

cording to our survey, 50% of Eatsa’s customers showed that they would try a restau-

rant after they heard recommendations from friends. We categorized this group of peo-

ple as “Early Adopters”. Based on our segmentation, the early adopters are in high edu-

cational level, they own bachelor or Master’s degree. This type of people are not only

sensitive to the healthy factors towards their food but also like to be educated on food

quality. Therefore Eatsa’s premium ingredients could have a bigger impact on them.

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Moreover, according to our research, there are 49,595 potential customers within 3

miles of Eatsa, more than 5 times of the Innovator group.

Decision Alternative 3 (Early Majority):

The major advantage of the Early Majority segment is their large participation in

the market. According to our research, the market size for this segment is roughly

124,000 consumers around the 3.0 mile radius of the restaurant. There are more people

in the Early Majority segment than both Innovator and Early Adopters combined. They

are more knowledgeable when it comes to trying new things. This segment is mostly at-

tracted to word-of-mouth and upcoming popular restaurants that have many positive re-

views. The basic Early Majority consumer will have no problem in deciding if Eatsa is

right for them. However, the Early Majority consumer will cost more to attract because

their willingness to try a product is only moderate when compared to the Early Adopters

and Innovators.

Recommendations

From our analysis, we recommend Eatsa pursue the Early Adopter segment. Al-

though this market segment is not as large as Early Majority, the Early Adopter con-

sumers are highly influential and more likely to try new things. On the other hand, inno-

vators like to explore new things and keep seeking new restaurants, so it is not critical

for Eatsa to target this segment, the consumers in the Innovator segment are too willing

to switch to new things. It will be too costly for Eatsa to spend resources to retain these

customers.

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Marketing towards the Early Adopter segment will enable Eatsa to quickly and

easily obtain new customers. Eatsa should implement a strategy to acquire as many

customers in this segment as possible and retain them through promotional activities.

The reason we recommend the Early Adopter rather than the Early Majority is that de-

spite the Early Majority has the greatest number in the market, it takes more efforts and

cost to attract them to Eatsa because of the lower willingness to try new things. There-

fore, we decide to focus on the Early Adopters, and utilize their influence to attract oth-

ers.

Implementation

Product: According to our survey, 66.7% from survey A and 67.7% from survey B

claimed that food is the most important factor to attract them to a restaurant. In addition,

half early adopters consider taste as the most important factor and the other half think

healthy ingredients was. Currently, Eatsa describes its product as a better and faster

food. In order to increase the awareness of early adopters, Eatsa should describe its

products as healthy and green beyond better and fast by using words such as healthy,

light and vegan.

Also, 43% people in our survey complained Eatsa’s products do not contain

meat. However, we do not recommend the addition of meat products in their bowls, be-

cause Eatsa is a vegetarian restaurant that utilizes nutritional energy production from

quinoa rather than animals. Thus, we want to keep it as one of their characteristics . In-

stead of adding meat, we plan to add the vegetarian meat which has similar taste and

texture as meat, but is derived from soy beans. It would give more variety to customers,

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so they can choose to add the extra vegetarian meat option on their quinoa bowl. In our

survey, less than 1% people choose Chili con quinoa and Perfect pearing salad bowls.

Eatsa can modify their ingredients composition in order to increase the sale of these two

bowls.

Promotion:

Early adopters can be easily attracted by mass promotions and recommenda-

tions from friends. They can have an easier time attracting customers in the Early

Adopter segment who are willing to try new things. One method of promotion Eatsa can

utilize to acquire more customers, is to offer a reward program that tracks number of

bowls purchased. After a certain number of bowls customers can receive a free meal.

This will help customers familiarize with Eatsa and build a habit of a healthier lifestyle.

Also, spending more resources to develop their online ordering system will enable Eat-

sa to track product trends and customer habits better. They will have more data avail-

able to better serve their segment and have a higher rate of retaining customers.

Eatsa can also utilize their electronic system so people can refer their friends or

family to try Eatsa. Both parties, the person who gave the referral and the person who

received the referral, can receive points or other free items like drinks, sides, etc. Eatsa

is a new restaurant with a unique spin on how customers order and receive food, they

would want to spend a lot of resources promoting their restaurant and acquiring as

many customers as possible.

Another promotional strategy Eatsa can implement is the idea of a contest to

create a new bowl. This can be created as part of their online system, customers can

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login to create a bowl. Popular bowls are then chosen to vote on, customers will be able

to participate and the bowl with the most votes can be published on the menu.

Price:

When consumers become more discerning with their discretionary dollars, they

sought to spend them on healthier but still relatively inexpensive restaurant options.

Sales at these franchises are strongest at lunch and have nearly the same share of

lunch customers as casual dining.[3] Consumers are seeking fast, healthy options, and

often cannot find it in our fast food nation. According to our survey, 46% of people(15

from survey A, 14 from survey B) are not willing to spend more than $10 for lunch which

puts Eatsa on a good pricing position at $6.95. Giving customers the opportunity of

adding vegetarian meat can yield to more cost for certain customers. In order to keep

the average price low, we suggest on introducing vegetarian meat as a customization.

This will help retain almost half of our customers (47%) by giving them more choices

without impacting our standardized product line.

Place:

Base on the survey result and our own observation, the line at Eatsa was very

long(more than 20 people) during the peak hour (11:30-1:00). Even though Eatsa

promised less than 8 minutes waiting time, the line still could be intimidating and drove

potential customers away. Moreover, Eatsa was not located on a striking point, it took us

a while to find the restaurant. According to survey B, 90.3% people living and working

nearby Eatsa claimed that they have never heard about or been to Eatsa. Therefore,

Eatsa should focus its attention on attracting more customers.

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We recommend Eatsa to expend more restaurants in order to increase the ac-

cessibility, to decrease the waiting time and to raise customer awareness. We will show

our calculation and logic flow below (Exhibit 6). We have calculated Eatsa’s current

market share within Financial district, which is only 2.15%. Base on our competitor

study, we found that one of our competitor Chipotle has three stores in financial district

which proves that there is customer demand in restaurants like Eatsa. This data sug-

gests that Eatsa could expand two more stores, one in 2017 and one in 2018, which will

provide better accessibility and decrease the waiting time even further. According to the

unit growth of the fast casual restaurant sector in 2014, fast casual restaurant market

has a growth rate of 14.3%.[9] After expanding the branch store in Financial District in

2017 and 2018 respectively, we could estimate that within the samearea, Easta could

have a market share of 4.41% and 6.95% in 2017 and 2018 respectively. What we want

to highlight is that Eatsa develops a more efficient working process which gives them an

advantage in having a higher market penetration.

Financial Projection:

Eatsa is a newly opened restaurant, unfortunately, there are no financial state-

ments that we could provide. However, we actually went to the store around 5:00 pm,

which is the time the store usually closed. The last bowl they sold was number 853, so

we assume Eatsa sold 853 bowls based on the single-purchase assumption. The price

of every favor is firm, $6.95, and we assume the cost of a bowl is $3. Hence, we roughly

estimate Eatsa at $1,541,371 as revenue, $665,340 as cost of goods sold, and

$876,031 as gross profit in 2016.

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Since Eatsa is too new to the market with limited information, we decide to find

the financial statement from a similar fast casual restaurant Kababayan as reference.

This restaurant has the similar food price to Eatsa (both has one $ sign for $10 and be-

low on Yelp), and they located in the same area - Financial District. Base on

Kababayan’s common size financial statement, they spend 2.3% of sales on advertising

cost[11]. We searched Eatsa and Kababayan on Google News to find out how many

news or blogs they published, and obtain the results of 22,000 and 4,050, respectively

in a past year. Therefore, we believe that Eatsa spent 5.43 times on Kababayan’s ad-

vertising and promotion expense - 2.2% of revenue. Eatsa spent about 12% of sales in

advertising and promotion expense, which is $184,132. Because it’s in introduction

stage of product life cycle, they will need to spend mass advertisement in the first year.

In the following two years, the lower amount of advertising can switch to promotion ex-

pense such as loyalty system or referral system.

Eatsa is currently operating a loss of $1,795 for its first fiscal year. However, Eat-

sa will yield a profit of $231,596 in 2017 by the marketing penetration schedule by open-

ing a branch for the Financial District. In 2018, we anticipate Eatsa could keep doing

market penetration, open second branch in Financial District, with a profit of $526,763

within a fiscal year.

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Exhibit 1. Within 0.7 miles radius (small circle) and 3 miles radius (large circle) around

Eatsa

�

Exhibit 2. Customer Segmentation Scheme

a)

�

b)

�

*Everett Rogers 1983[4]

**United States Census Bureau[6]

***LivingSocial Dining Survey[7]

Exhibit 3. Market Size Calculation

�

Exhibit 4. Competitive Analysis

�

Exhibit 5. 2016-2018 Financial Projection

Exhibit 6. Calculation on Projected Profit

• According to “Unit Growth of the Fast Casual Restaurant”[9], the market size is

growing 14% a year.

• Assume in 2017, Eatsa will have 2 stores. Market share = [(sales/day x 5

days) x 1.14(growth rate)] / (2016 market size) x 1.14(growth rate)

• The market share of 2018 follows the same calculation procedure as 2017.

• Revenue = $6.95/bowl x 853bowls/day x 260 days (2017 and 2018 is following

with 14% growth rate)

• COGS = $3/bowlx 853bowls[11]/day x 260days (Since the Burrito bowl is the

most popular favor based on our survey(Exhibit 7 - Survey A), we calculated the cost

of ingredients based on the recipe[11] and derived $3 per bowl. Because the price is

firmly at $6.95 for every favors they provided, we assume that the cost is also stan-

dardized in every favors.)

• Advertising&Promotion expense = 22000/4050(multiple of google results) x

2.2%(Advertising&Promotion expense of Kababayan’s sales) x Revenue

• All the other operating expenses are refer to “Restaurant expenses as a share

of gross margin”[8], and the total operating expense would be $877,826. Since Eatsa

has low cost in labor but high cost in utility expense, we assume that their sales,

wages and benefits cut down to half and utilities expense doubles.

Exhibition 7. Survey Questions and Results

Survey A : targets the customers who went to Eatsa (30 people)

Survey B: target the customer who did not go in to Eatsa but went by (31 people)

References

i. Constine, J. (2015, August 31). Eatsa, A Futuristic Restaurant Where Robot Cubbies Serve Quinoa. Retrieved February 10, 2016, from http://techcrunch.com/2015/08/31/eat-sa/

ii. Steinmetz, K. (2015, September 4). Hate People? Love Quinoa? Your Dream Restaurant Just Opened. Retrieved February 10, 2016, from http://time.com/4022130/eatsa-san-francisco/

iii. Eating out behavior in the U.S. - Statista Dossier | Statista. (n.d.). Retrieved February 10, 2016, from http://www.statista.com/study/21812/eating-out-behavior-in-the-us-statista-dossier/

iv. Rogers, E. M. (1983). Diffusion of innovations. New York: Free Press.

v. Clifton, K., Currans, K. M., Muhs, C. D., Ritter, C., Morrissey, S., & Roughton, C. (2012, August 1). Consumer Behavior and Travel Choices: A Focus on Cyclists and Pedestrians. Retrieved February 10, 2016, from http://nacto.org/docs/usdg/consumer_behavior_and_-travel_choices_clifton.pdf

vi. American Community Survey. (2006-2010). San Francisco Neighborhoods. Socio-Eco-nomic Profiles, from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwiDza-zR3OzKAhVC0GMKHUS4Ax4QFggdMAA&url=http%3A%2F%2Fwww.sf-planning.org%2Fmodules%2Fshowdocument.aspx%3Fdocumentid%3D8779&usg=AFQjCNHU-LolT_5Llr4EMsY7kdJFUzM2_Bg&sig2=5_ks88wEB1rzGgSMHSKC4Q

vii. LivingSocial. (2011, September 15). Reservation Nation? Despite Recession, Americans Eat Whopping 250 Restaurant Meals Per Year, Says LivingSocial Dining Survey. Re-trieved February 10, 2016, from http://www.prnewswire.com/news-releases/reservation-nation-despite-recession-americans-eat-whopping-250-restaurant-meals-per-year-says-livingsocial-dining-survey-129868323.html

viii. FranchiseHelp. (n.d.). Fast Casual Industry Analysis 2016 - Cost & Trends. Retrieved February 10, 2016, from https://www.franchisehelp.com/industry-reports/fast-casual-in-dustry-report/

ix. Statista. (2014). Unit Growth of the Fast Casual Restaurant Sector in the US. Retrieved March 12, 2016, from http://www.statista.com.libproxy.scu.edu/statistics/420760/unit-growth-of-fast-casual-restaurant-sector-by-category-us/

x. Hoovers. (2015). Kababayan Fast Food Financial Statement. Retrieved March 12, 2016, from http://subscriber.hoovers.com.libproxy.scu.edu/H/industry360/financials.html?indus-tryId=2003

xi. Project Sunny. (2015, September 16). DIY Healthy Burrito Bowl. Retrieved March 14, 2016, from http://www.project-sunny.com/blog/diy-healthy-burrito-bowl