Zoes Kitchen

Company History

Zoлs Kitchen opened its first store in 1995 serving lunch five days a week. The restaurant entered the fast-casual segment of the already mature restaurant industry. The fast-casual division was the newest emerging segment at the time, proving to be more than a fad. Zoлs son, John Cassimus, was responsible for the growth Zoлs Kitchen experienced during its first ten years of existence. The restaurant, which intended to be an extension of the family's own kitchen, expanded its operations to sixteen locations by the fourth quarter of 2005. In 2002, the brand image and restaurant facilities of Zoлs Kitchen underwent an extensive makeover following the results of a consumer survey analysis. Strategic growth became the company's main priority. Its main focuses were: growing and achieving economies of scale, finding excellent site locations, and obtaining a steady and predictable cash flow.

The Macro-Environment

In 2005, giant fast-food chains dominated the restaurant industry in the United States. The industry included over 870,000 restaurants, more than 70% of which were independent, single-unit businesses. That same year, growth became stagnant and the restaurant industry became regarded as mature. In the mid-1990's, the fast-casual segment of the restaurant industry emerged and was able to experience growth by recognizing consumer demands and adjusting offerings to meet such demands. This segment had no single definition, as each chain was unique. Some common characteristics existed in the fast-casual segment, including high quality fresh food and an extensive selection of menu options. Consumers viewed these characteristics as valuable and the segment was expected to account for the majority of food service growth. By 2003, the total number of restaurants in the United States remained constant, however, in that same year, unit expansion had increased and customer traffic rose. One explanation for the increase in customer traffic was the growing tendency for consumers to have restaurant prepared meals as opposed to home-cooked meals. Consumers typically demanded high levels of quality, service, and speed, to accommodate and simplify their busy, complicated schedules. In 2004, 62.5% of fast-casual customers had an average income of $40,000 or more. That same year, 37% of customers visited restaurants from home, while 23% came from work. A major challenge for the fast-casual restaurants was how to benefit from economies of scale, while purchasing from small, specialized food suppliers, and maintaining a high level of quality. If fast food companies attempted to move into the fast-casual segment, they would face many obstacles, despite their experience and innovative strategy. Many fast-food companies recognized the challenges of moving to a new segment and therefore, benefited by entering the market through a merger with an already existing company in the fast-casual segment.

Major Competitors

Zoлs Kitchen differentiated itself from competitors based on its unique format and Greek menu items, which were not emulated, by its national competitors. Its major competitors were other restaurants within five minutes of its locations, regardless of the type of restaurant. Some fast-food restaurants turned out to be competitors of Zoлs Kitchen, not only by offering healthier menu items, but also through mergers and acquisitions of fast-casual restaurants. For example: Wendy's bought Cafй Express and acquired Baja Fresh, McDonald's purchased a majority interest in Chipotle Mexican Grille. Subway attempted to alter the company image and re-emerge as a fast-casual restaurant. Some other competitors of Zoлs Kitchen were Panera Bread, Qdoba Mexican Grill, Baja Fresh, Moe's Southwestern Grill.

Key Issues

When Zoлs Kitchen first opened its first restaurant, mothers with children and white-collar employees were its most loyal customers, a trend that is typical in the fast-casual segment. John Cassimus had the vision, and set goals, to develop the company by operating like a world-class organization. He also desired to keep the company on a path that would allow it to develop in such a way that selling the company would be a viable option in the future. One area that the company needed to improve was its dinner sales. Seventy-percent of Zoлs Kitchen sales were occurring during the lunch hours at a time when dinner was the meal most often prepared outside the home. Zoлs Kitchen could explore the option to franchise, if rapid expansion is desired, however, the intangible costs of franchising should be considered.

The Problem

The problem that Zoлs Kitchen is facing is what to do next. The company must continue to focus on site selection, increasing dinner sales, and continuing to expand, all while deciding where to go from its current position.

SWOT Analysis

Strengths

* Cassimus- knowledge, experience, etc.

* Invested in people, brand image, and system

* High company morale, low employee turnover

* Strong customer loyalty

* Described as: fresh, healthy, tasty, unique

* Customer recommendations

* Quality training program

* Market research surveys and suggestions

* Meet consumer demands: quality, service, speed

* Warm family like environment

* Growth from one to 16 locations in ten years

* Sirrus company plane for convenient travel

* System to manage food costs, inventory, labor

* Tight food ordering processes

* Cash controls mitigate risk

* Menu different from national competitors

Weaknesses

* Centralized, success depends on one person

* Difficult to identify competition

* Not in top ten fastest growing chains

* Most purchases consumed off premises

* High cost, low economies of scale, suppliers

* Dependent