Saladz Bar Case

SALADZ

Early in 2000, David Sellis, the Manager for the largest Saladz fresh salad bar in Los Angeles, USA (Saladz is a fast growing chain of fresh salad outlets across the nation) came up with an idea for chilled salad kits but had done nothing about the idea or even discussed it with senior management of this national chain of fast food lunch/salad stores. He had heard several suppliers and retailers talk about how fresh salad ingredients were difficult to preserve and sometimes were wasted because they were not sold right away. Sellis considered that one option was to add preservatives to the ingredients but felt that concerned consumers would dismiss the idea. Then he thought about �chilling’ fresh salads, that is, reducing the storage temperature just above freezing point. He felt that the advantages of a minimally chilled salad kit with individually packaged ingredients included a longer shelf life and easy storage and handling.

His fresh salads had been selling very well in the West Coast of the USA, that is, San Francisco, Los Angeles and San Diego areas, which was currently the only geographic areas of coverage. Sellis was aware of the opportuÐ'¬nities: Consumers were spending more of their disposable income eating out, fastÐ'¬ food sales were growing, and consumers were becoming very much more health conscious. None of the competitors were selling chilled salad kits, and he felt the kit could meet the conÐ'¬sumer need by being reasonably priced, ready to eat, and free of preservatives. He wanted to position the product at the high-quality end of the market. He also thought it would be a good idea to commence wholesaling to the fresh fast food market to include a selected few retail food accounts in the San Francisco and Los Angeles areas outside the Saladz chain of outlets. Furthermore, he felt is was time to expand his business overseas and targeted the GCC region, initially the United Arab Emirates through Dubai and/or Abu Dhabi as likely markets because of the hot climate, large expatriate populations with an interest in healthy foods and who often desire fresh salads. He was confident the standard fresh salad bar would appeal to consumers in the UAE. But he was greatly excited by the prospects of selling a chilled fresh salad in a hot and sometimes humid climate вЂ" this he thought would be a great вЂ?hit’ in this market and with potential to generate excellent profits.

Sellis's major concern was that Saladz had limited financial resources to expand nationally, let alone internationally. However, he was sure his concept would catch on in both the national and international markets (particularly the UAE market), but the business and legal situations needed to be analyzed. He was confident that he could raise the necessary capital in the UAE to expand there, and with a little finessing, he thought he could draw some of those funds through the �back door’ into the North American operation.

THE SALAD INDUSTRY

COMPETITION

The North American population is approximately 300 million and the prepared salad market is estimated to be a $US1Billion market (All dollars are quoted in US dollars - $US). Salads can accompany most meals and, therefore, can compete in the foodservice industry for the consumer's dolÐ'¬lar. The major segments within the growing $50billion retail fast food market are retail, commercial contract, and institutional internal along with special events.

There are several competitors in the prepared salad market. Sales for the two largest firms account for 40 percent of the $1b million market. Most of their volume comes from inexpensively priced macaroni, potato, and coleslaw salads. They both have strong positions in the foodservice and retail markets and offer a limited line of fresh salads. Wholesale distribution occurs mainly through brokers and food distributors.

ENVIRONMENTAL ANALYSIS

Saladz's target market is the 18 вЂ" 40 age groups. This group tends to include single adults (often students) through to two-income-earners that devote less time to the kitchen and more time to life-style, thus they conÐ'¬sider convenience to be important. They are generally more health conscious, which suggests a ready market for prepared foods such as salads, however, the student population is also very price conscious.

Capital costs for the fresh salad product are low at Saladz because the physical plant is not highly technical. Their technology is easily movable, and so good economies of scale should be possible. However, because competitors could easily imitate the fresh salad product, Saladz would need to quickly create and penetrate the market. However, the chilled salad operation is different in that temperature sensitive chilled storage is critical to the operation. If fresh salads are over-chilled they freeze and when unfrozen the leaves of the salad base, such as lettuce, �burn’ and become slimy and inedible. Conversely, if the salad is not chilled to a safe level harmful bacteria invade very quickly and the consumer will become ill: the consequences would destroy the business. Through much experimentation, David Sellis had discovered the successful processing technique and optimal narrow temperature band within which the salad could be successfully chilled, stored and sold to the public without bacteria and lettuce �burn’ problems.

FINANCIAL CONSIDERATIONS

In 2000, Saladz principles had invested $250,000 in capital to set up the Los Angeles fresh salad outlet and due to the vigorous efforts of the principals and the outlet management, business had grown substantially over time. Sellis was concerned about the cash flow situation, especially since Saladz Los Angeles experienced a negative cash flow from operations of $75,000 in 2000, following the opening of the outlet in June of that year. This loss was due primarily to start-up costs. To accommodate their chilled salad line, David thought an investment of $1 million would be required for new plant to increase chiller capacity where Saladz could process salads and non-red meats based salad kits.

SALES PROJECTIONS

When Sellis began selling a few chilled kits in mid-2002 to trial the idea, he achieved a great deal of acceptance in the Los Angeles outlet. He had also passed a few cartons to some friends he has in the major food retail stores who especially liked the product's long shelf life. David envisaged that the product line would eventually grow to