1 4 Cazba Express Restaurant within Alberta Ali Alipour Shalmani (1814341) Hooman

Cazba Express Restaurant within Alberta

Ali Alipour Shalmani (1814341)

Hooman Mashayekh (1913956)

Shohreh Tatari (1915422)

Yachica Jindal (1914669)

University Canada West

Strategic Management (MGMT 661)

Dr. Pegah Yaghmaie

19th September 2021

Executive summary

Introduction

Cazba is a family-owned Persian cuisine restaurant base on Vancouver, British Colombia. Cazba restaurant was founded in 1991 by Sigari family and after thirty years they are operating two restaurants, four express service in mall locations and one food truck within Lower Mainland. Cazba restaurant management is keen to expand its operation and market share in quick service sector through franchise approach in Lower Mainland and domestically in Canada. The intention of our research is giving management an overview of business and industry environment and growth opportunities via franchise and partnership in Alberta.

Problem Statement & Research Questions

Expanding a business integrates with decision making and risk. Management requires accurate information and analyses to make decisions and control risk. Since Cazba is interested in growing its business via franchise, the problem is lack of precise data and assessments regarding targeted region’s business external environment, industry and quick services division besides franchise models. To address this problem completely, we divide the problem into smaller component and design seven questions. Our questions to conduct the research are as follow:

What are the characteristics of Alberta for business?

What is the current and prospected future situation of food services and drinking places in Alberta?

What is the current and prospected future situation of limited-service eating places in Alberta?

What is the competition condition in Alberta and what are three main competitors?

What are main franchise models and their differences?

What are two potential locations for Cazba Express in Alberta?

What type of organization structure would be the best fit for Cazba to execute franchise model?

Methodology

We conduct qualitative research based on secondary data. In order to find our data, we use Google search engine, University Canada West’s online library and its databases, and Statistic Canada website. Also, we take advantage of keywords to execute our searching process. For example, “Alberta’s population”, “commercial property in Canada”, “restaurant industry in Canada”, “restaurant costumers behavior changes”, “shopping malls”, “asking rent per square”, “franchise models”, “franchise act”, “real estate in Alberta”, “organizational structure for franchise”. In addition, we use indexes and average as a measurement.

Our inclusion factors are: Located in Alberta Province/ Express restaurants/ Have franchise/ Located in Malls/Secondhand data/Restaurant industry in Canada and North America.

Our exclusion factors are: Outside of Alberta Province/ Any restaurant that is not Express/ Without franchise/ Located outside of Malls.

Findings

Region Overview (Alberta)

Alberta is one of Western Canada province and its capital is Edmonton. The population of Alberta as of April 2021 and its gross domestic product at basic prices in 2020 were 4,444,277 and $307.1 billion respectively (Government of Alberta, 2021). Also, Alberta maintains one of three types of sales taxes in Canada which is GST with the rate of 5 percent (Retail Council of Canada, 2021). Besides, people in Alberta across all income ranges continue to pay the lowest overall taxes in comparison with other provinces (Government of Alberta, 2021). So, this tax policy could attract people and businesses and drive economy. The charts and tables below would draw a better perspective of Alberta’s business external environment condition in present and future.

Note. Estimated and projected population of Alberta 1972- 2046 from “Population Projections Alberta and Census Divisions, 2021–2046” by Government of Alberta, 2021.

Figure 1. Population of Alberta 1972- 2046

Figure 2. Alberta’s Population by Age and Sex (Thousands) 2020 vs 2046

Note. Population of Alberta demography in 2020 vs 2046 from “Population Projections Alberta and Census Divisions, 2021–2046” by Government of Alberta, 2021.

Figure.1 shows a significant growth in Alberta’s population and according to Statistic Canada (2019), the growth rate of Alberta’s population would be the highest among Canadian provinces over next years. Additionally, the number of Alberta’s population would be between 5.6 million and 7.5 million, gains of 1.2 million and 3.0 million, respectively. Further, currently 77 percent of population live in the Census Metropolitan Areas of Edmonton and Calgary, as well as the city of Red Deer, known as Edmonton-Calgary Corrido. It is expected that 80 percent of Albertian live in this region by 2046 (Government of Alberta, 2021).

Note. Actual change in three important economy indicators from “A summary of Alberta’s economic forecast for the first quarter of Budget 2021” by Government of Alberta, 2021.

Table 1. Economic Outlook

Data in Table.1 reveal positive GDP growth rate and lower unemployment rate forecast in the rest of 2021 and next year. These forecasts indicate despite uncertainty about COVID-19 exist, economy is adjusting and rebounding.

Sector Overview (food services and drinking places)

Despite the fact that Cazba’s objective is expanding Cazba Express in malls and shopping centers, having a big picture of sector is vital. According to North American Industry Classification System (NAICS) Canada (2017) Version 3.0, food services and drinking places is a subsector of accommodation and food services sector. Employment in the subsector dropped during the 2020 because of COVID-19. As a result, this subsector considered for 5.6% of all employer businesses in Canada as of December 2020. In addition, real gross domestic product (GDP) of food services and drinking places decreased 39.5% and 40.8% in March 2020 and April 2020 respectively. Sales in the subsector declined and most of food services and drinking places stated lower revenue in 2020 compared with 2019 (Sood, 2021). However, graph below shows sales of food services and drinking places is recovering and has an upward trend. Moreover, from technical analysis perspective we can find out a similar behavior in total sales of subsector and full-service restaurants which indicates positive covariance between these two. This pattern is the result of several re-openings and shutdowns. Yet, limited-service eating places industry has not affected noticeably by repeated re-openings and shutdowns and has almost recovered.

Industry Overview (limited-service eating places)

Full-service restaurants and limited-service eating places is the industry groups that Cazba operates in this section. The figure below shows how business model of restaurants is possible to change till 2022.

Figure 5. Most likely ways that restaurants will change their business model in the next two years in North America as of August 2020

Note. SWOT analysis for full-service restaurants and limited-service eating places industry created by authors

Figure 6. SWOT Analysis

Table 3. Porter’s five Forces Analysis

Table 3. Porter’s five Forces AnalysisCompetition Overview

Forces\ Degree

Intense

High

Moderate

Low

Threat of New Entrants

Bargaining Power of Customers

Bargaining Power of Suppliers

Threat of Substitution

Competitive Rivalry

Note. Porter’s five forces analysis for full-service restaurants and limited-service eating places industry created by authors.

Bargaining power of supplier: According to the project’s instruction (2021), Cazba’s slogan is “Always fresh, never frozen”, that leads Cazba highly depends on its suppliers to provide fresh foods regularly to avoid long-term storage that might spoil the taste of those food products. Therefore, the company has smaller options to switch between suppliers. Also, Cazba’s belief to use organic and local ingredients (Cazba Restaurant, 2021) limits number of suppliers.

Bargaining Power of Customers: Switching costs for the customers is low. OPA, Tahi, and Villa Madina are some of the top direct competitors in Alberta. They offer similar options for Cazba’s potential customers. Besides, there are many different express food restaurants for people to choose. Thus, the buyers have the power to bring Cazba down by migrating to rival restaurants.

Threat of Substitute product: The food industry has several substitutes as the clients can choose to prepare their meals or purchase from competition restaurants. However, as Cazba is going to operate in a mall, the availability of substitute products is low.

Figure 7. MTY Group Brands

Figure 7. MTY Group BrandsThe Threat of New Entrants: Because of effects and changes that COVID-19 has made in external business environment, this is most likely existing restaurants and new ones decide to enter the quick service restaurants industry.

Note. Some of MTY Group brands from its 2016 report (MTY Food Group Inc., 2016)

The figure above reveals some brands of MTY Group, one of Canada’s leading franchisors in the full-service restaurants and limited-service eating places industry, that two of our selected competitors belong to them. OPA!, Villa Madina, and Thai express are our selected competitors. Products of them are similar with Cazba’s meals because we believe Cazba mainly has to compete with them since customers would order one of them when they are looking for a meal with the characteristics of these companies’ products. Besides, all products of one of our choices, Villa Madina, are Halal certified (Villa Madina, 2021) which covers Muslim segmentation of customers in our comparison. Further, we identify that price of Cazba’s meals are in the similar rang with suggested competitors. Finally, all three companies have stores in malls or shopping centers located in Alberta and provide express service.

Company

Franchising requirements in Mall

Price & Dishes Similarity

Calgary

Edmonton

Thai Express Food

Initial Franchise Fee: $ 30,000

New Store Marketing: N/A

Liquid Capital Required: $150,000

Net Worth Needed: $400,000

Total Investment: $ 454,040 – $726,700

Royalty Fee: 6% of sales monthly

Advertising Contribution: % of sales monthly

Similar

9 stores in malls

10 stores in malls

OPA

Initial Franchise Fee: $25,000

New Store Marketing: $5,000

Equipment: $150,000 – $200,000

Leaseholds: $175,000 – $250,000

Total Investment: $355,000 – $480,000

Royalty Fee: 6% of sales monthly

Advertising Contribution: 3% of sales monthly

Similar But Cheaper

7 stores in malls

4 stores in malls

Villa Madina

Initial Franchise Fee: $30,000-$40,000

New Store Marketing: N/A

Equipment: N/A

Leaseholds: N/A

Total Investment: $175,000-$500,000

Royalty Fee: N/A

Advertising Contribution: N/A

Very similar

2 stores in malls

1 store in the malls

Note. Comparing three selected rivals and pointing each one franchise terms & conditions created by authors based one each company website. (OPA! Souvlaki Franchise Group, 2017), (Villa Madina, 2021) (Thai Express, 2021)

Table 4. Competitors Key points

OPA is the oldest among the rivals as it has operated since 1998, while both Villa Madina and Thai Express have existed in the Canadian market since 2004. Cazba’s initial closure meant that the current restaurant has operated since 2008 and is the youngest in the market. The study further established that each of the four companies has drawn its inspiration from different cultures. OPA has a strong connection with Greek food, while Thai Express provides Thai dishes. Villa Madina tries to provide Mediterranean meals while Cazba restaurant serves Iranian-inspired dishes. Finally, the analysis established that all the three rivals operate through franchise business, a milestone that Cazba tries to achieve in the future. The minimum average of initial franchise fee for three competitors is [30,000+25,000+30,000]/ 3 which is $28,333 which might be a measure to set initial fee in the Cazba’s franchise agreement.

Discussion

Franchise Models

Figure 8. Franchise Models

Figure 8. Franchise ModelsChoosing the right type of franchise is vital for success. So, to make a good choice first we need to know about different type of franchise agreement. Figure.7 shows four types of franchise agreement and key characteristics of each one.

Note. Four type of franchise agreement and their key points form (Purim & Purim, n.d.)

Generally, franchisor obligates the entity to open and operate a minimum and/or maximum number of locations during a define time. The usual term for franchise agreement is ten years and each location required a separate agreement. Also, the range of initial franchise and royalty fees generally are from $25,000 to $50,000 and 4.5% to 7% of gross sales respectively (MTY Food Group Inc., 2016).

Franchisor receives all initial franchise and royalty fees in three types of agreement except master franchise. Initial franchise and royalty fees split between franchisor and master franchisee, and master franchisee collects a specific portion of initial franchise and royalty fees upon the agreement.

We recommend Cazba to use master franchise model.

Use of Trademark/logo

Main Responsibilities of each side/partnership

The duration of the agreement

Transferability and renewals

Figure 9. SWOT Analysis

Figure 9. SWOT AnalysisSWOT analysis (Master franchise)

Note. SWOT analysis for Mater Franchise model

Two Potential Locations

We select Southgate Centre in Edmonton and CF Chinook Centre in Calgary, that are among the Canada’s top 10 most productive shopping centres (Retail Council, 2020) to compare and analyze. Based on our assessment, we recommend CF Chinook centre as the best place for Cazba Express to start business in Alberta because this mall has a better condition for customers convenience and this mall has more attraction for customers such as Cineplex (movie theatre) (Retail Council, 2020). In addition, its number of foot traffic is almost double.

Factors in deciding franchising location

Edmonton: Southgate Centre

Calgary: CF Chinook Centre

Customer accessibility:

Access by a target customer

Customer’s convenience

Demographics: Male and female in Edmonton, generation X and Millennial

Population base: 25%

Transportation: Freeway, major roadway, LRT station, buses

Demographics: Male and female in Calgary, generation X and Millennial

Population base: 30%

Transportation: Highway, major roadway, bus, and ‘C-Train light rail transit station connecting to the centre via a pedestrian bridge.

Environmental business conditions:

Business environment factors.

Competitors: OPA, Villa Madina etc.
Legal requirements: Health&Safety laws, Franchise Act,

Tax structure: 5% GST only

Competitors: OPA, Thai express etc.
Legal requirements: Health&Safety laws, Franchise Act,

Tax structure: 5% GST only

Resource availability:

Nearest to raw materials/potential supplier: High

Availability of suitable labor supply: Normal

Nearest to raw materials/potential supplier: High

Availability of suitable labor supply: Normal

Site availability & cost:

hurdles in finding a suitable site: High

Visibility: High

Affordability: High

lease option, costs and terms:

Lease purchase: instead of property taxes, property insurance, maintenance, utilities, landscaping:

Price per sq: $35-$55 per sq.

#Foot traffic: 9 million annually

# Surrounding sales in mall: 160

Distance to indirect competitors: Low

Retail management team/ point of contact:

Director, Leasing

Pamela Granum

(604) 269.2803

pamela.granum@ivanhoecambridge.com

Manager, Specialty Leasing & Partnerships

Emmy Diamond

(780) 702.4129 Fax: (780) 430.0372

emmy.diamond@ivanhoecambridge.com

hurdles in finding a suitable site: High

Visibility: High

Affordability: High

lease option, costs and terms:

Lease purchase: instead of property taxes, property insurance, maintenance, utilities, landscaping:

Price per sq: $40-$60 per sq.

#Foot traffic: 16 million annually

# Surrounding sales in mall: 200+

Distance to indirect competitors: Low

Retail management team/ point of contact:

Senior Director, Leasing

Nancy Ridley

Phone: 403-247-5905

Email: nancy.ridley@cadillacfairview.com

Senior Manager, Leasing

Murray Kavanagh

Phone: 403-247-5926

murray.kavanagh@cadillacfairview.com

Table 5. Factors in deciding franchising location

Table 5. Factors in deciding franchising locationMost Applicable Organization Structure

According to organizational structure chart that Cazba company provides us, currently Cazba operates under functional organizational structure which is one of four traditional approaches. So, as Cazbi plan is to enter new markets in Canada, this strategy should lead Cazba to apply divisional structure (Dess et al., 2019). However, since Cazba is expanding in new regions and based on suggested franchize model, master franchise, it is likely geographic-area division structure would be a better option for Cazba. Therefore, our recommended organizational structure is geographic-area division structure.

Strategic Alliance

Strategic partners could accelerate growth and help company to be successful. We recommend Cazba to choose real estate developers and restaurant service provider and supplier companies as partner. Real estate developers are a good alliance because vacancy rate of retail spaces and shopping centers are low. And finding a place to lease or buy out is difficult. So, Cazba would have chance to be first company to have access to new available locations.

Restaurant service provider and supplier companies are next potential partner because they could help Cazba to maintain and control its standards more easily and reduce risk of ingredients shortage for its franchisees. Specially, as Cazba’s Moto and beliefs requirements are very hard to apply.

Conclusion

References

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Cazba Restaurant. (2021). cazbarestaurant.com. Retrieved from cazbarestaurant.com: https://www.cazbarestaurant.com/

Dess, G. G., McNamara, G., Eisner, A. B., & Lee, S.-H. (2019). STRATEGIC MANAGEMENT (9th ed.). New York: McGraw-Hill Education.

Government of Alberta. (2021). Alberta’s tax advantage. Retrieved from alberta.ca: https://www.alberta.ca/alberta-tax-advantage.aspx

Government of Alberta. (2021, 05 03). Gross Domestic Product. Retrieved from economicdashboard.alberta.ca: https://economicdashboard.alberta.ca/grossdomesticproduct

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Jones Lang LaSalle IP, Inc. (2019). Retail Outlook. Retrieved from jll.ca: https://www.jll.ca/content/dam/jll-com/documents/pdf/research/jll-am-retail-outlook-mid-year-2019.pdf

MTY Food Group Inc. (2016, 02 15). Microsoft Word – MTY aif 51-102F2 Nov 30 2015 v3. Retrieved from mtygroup.com: https://mtygroup.com/wp-content/uploads/2015/06/MTY-aif-51-102F2-Nov-30-2015-final.pdf

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Purim, S., & Purim, D. (n.d.). Understand the 4 Different Types of Franchise Arrangements (and which one is a Hidden Gem!). Retrieved from franchisewizardsblog.com: https://franchisewizardsblog.com/2017/05/19/franchise-arrangement-types/

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