Nova Southeastern University
Wayne Huizenga Graduate School
of Business & Entrepreneurship
Assignment for Course: MGT 5107 – Applying Strategy for Managers
Submitted to: Dr. Jason Cavich
Submitted by: Ixchel Larios
Date of Submission: 11/18/2018
Title of Assignment: Case Study Two: Potbelly Corporation
CERTIFICATION OF AUTHORSHIP: I certify that I am the author of this paper and that any assistance I received in its preparation is fully acknowledge and disclosed in the paper. I have also cited any sources from which I used data, ideas of words, whether quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course.
Student Signature: Ixchel Larios
Instructor’s Grade on Assignment:
Potbelly Corporation faces a complicated situation because of the rate at which their sales have fallen in the open market; Therefore, strategic plans should be devised to rescue the Sandwich Corporation and restore their long-lost glory in the hands of the competitors. Financial analysis is also inclusive because the numbers will give a detailed account of the situation of the firm and the changes that should be affected in the long run.
The strategic analysis will be based on the macro-environment and the industry, and external and internal issues.
• The company has a high concentration in few cities
• Opening a new store could require a cash investment of $600,000
• Potbelly needs to become well-known nationwide
• Strong competition due to locations, prices, and quality
• Technology is playing a huge role in younger generations, Potbelly should penetrate in deep in the social media era and provide delivery option
• The company should focus on improving current products and possibly reducing the number of items in the menu; upgrading product would let to generating a better product with preferences of the current generation such as healthy subs
• To become a leader in the industry, Potbelly should expand the number of stores to the coast such as California and Seattle; the two big cities have a similar culture as Chicago’s and the store can be highly successful. Also, people are very health conscious in California and in South California there is a lot of tourist due to theme parks
• The company should build a strong customer loyalty program since customers are more tempting to buy when they know they will get rewarded and increasing penetration in social media will highly target millennials
Potbelly Corporation should consider the solutions enfranchised above to regain their lost glory as far as comparative sales are concerned. Many solutions outlined are based on the changes that are proposed by the new head Allan Johnson in his bid to make profits and not losses at Potbelly. Expanding to more states and cities would allow Potbelly Corporation to first gain nation-wide recognition, second it will gain more customers and target new markets, and third it would become a competition for other chains such as Panera Bread, Subway, and other areas such as McDonald and Five Guys. In addition, more sales would generate, leading to an increase in profit and the overall financial health of the company.
Potbelly looks forward to attracting, hire and retain smart, talented and outgoing people.
The organization ensures employees develop high efficiency on what they do; thus, using the most talented people in Marketing, they should start research on target cities where the shops can be highly successful. The company should take into consideration several factors such as healthy leaving, economic status, unemployment, population preferences when it comes to food. The best candidate city should be the first place to implement a new store.
The research exercise will conceptualize solutions to the problems at Potbelly, and most of the proposed solutions will be strong on increasing sales. The corporation has stood the test of time for decades, and there is no point falling now with the opportunities in the market.
The four-decade sandwich company is currently in jeopardy because of the reduction in sales; the 2018 quarter ending on April showed a decrease in sales of 3.6% and shares were up less than 1% this year. The sales reportedly fell significantly in 2017 that the CEO was forced to step down and the organization considered selling itself.
Potbelly Corporation has been beaten by its competitors Jersey Mike and Jimmy John’s Sandwiches. While Potbelly is struggling, the firms have amassed over 50 million dollars in annual sales (Potbelly Sandwich Works – Recent News & Activity | Crunchbase, n.d.).
Five Forces Analysis
The barriers for new entry to the fast-casual dining business is high due to government regulations related to food, the capital investment to open the store, and licenses. According to potbelly 2017 annual report, opening a new store could require a cash investment of $600,000. The shops are subject to federal, state, local, and international laws that might affect the business; stores are subject to licensing in different areas, including health and safety, nutritional menu labeling, health care, environmental and fire (POTBELLY CORP (PBPB) 2017 Annual Report).
Due to the high availability of sandwiches shops for buyers in the market, there is a lot of adjustment of prices that Potbelly has to keep in mind. Potbelly not only needs to offer competitive prices, but it also has to offer products that meets customers expectations. In addition, most shops are located in a high paced city, Chicago, where customers probably have a short lunch; thus, price elasticity is significant to be successful and increase sales (POTBELLY CORP (PBPB) 2017 Annual Report).
Potbelly is committed to use high quality ingredients on its products while offering reasonable prices to customers. The organization set up contracts with DMA or Distribution Market advantage, Inc., a cooperative that runs multiple food distributors across the nation; Furthermore, Potbelly has pressure on having enough and all ingredients for the menu as it offers all the sandwiches at all times, this generates more pressure on the organizations since it must offer customers the sandwich of its preferences. The number of suppliers that potbelly currently rely on is limited, making it difficult to negotiates prices that could improve the organization’s profitability (POTBELLY CORP (PBPB) 2017 Annual Report).
The saturated market makes it easier for consumers to have substitutes since significant factors such as price, location, and food quality plays a vital role in consumers’ decisions. Customers have many options such as subway, Panera bread, and local super markets’ deli where customers can choose from. For example, Safeway and Publix supermarkets have their own in-house delis where they offer variety of sandwiches, food, and desserts made out of fresh products that they sell; Thus, there is a high propensity for switching from a shop to another (POTBELLY CORP (PBPB) 2017 Annual Report).
Potbelly internal rivalry is high-pitched due to strong competition across the nation that have numerous shops. Subway has a total of 24,849 stores in the United States only and is well-known world-wide; moreover, Panera Bread runs locations in 47 states and it has franchises in Canada and the company owns Au Bon Pain that supplies stores across the nation; on the other hand, Jimmy John’s Gourmet is one of the biggest competitors in Chicago area accounting for over 100 stores; furthermore, even though the company offer healthy products, fast food restaurants such as McDonalds and Five guys play as competitors.
Potbelly focus on providing high quality products, made out of high-quality ingredients, including fresh vegetable, hearth-baked bread, and natural chicken. A mobile app for iPhone and Android provides an easier service for customers who usually order from Potbelly; the app also allows customers to find a location easier and it has a greater impact in social media. The potbelly stores provide a welcome culture for customers and personnel is highly train providing superior customer services. The company has a socially responsible vision since it continuously engages in fundraising events which helps to attack more customers (POTBELLY CORP (PBPB) 2017 Annual Report).
Potbelly has a high concentration in the Chicago area which might be a disadvantage against competitors such as subways that has a lot of locations across the nation. The company is currently struggling financially, this could be due to transitional period that is currently going through. Customers are having a hard time differentiating their product and identify the high quality that comes with it.
Customers in the United States, especially millennials, are becoming more health concisions; thus, it’s a great opportunity to advertise healthy products from Potbelly and it is a great time to implement new products based on low number of calories and carbs. Technology is playing a huge role in younger generations, Potbelly should penetrate in deep in the social media era and provide delivery using Uber eats, Doordash, Task Rabbits, or implement its own delivery system.
According to the Agriculture Department, the price of chicken has increased 4.6% in the past year, other products’ price is rising as well. Higher wages are hitting the market, which Potbelly has to take in consideration while predicting revenue and profitability. As mentioned before there is a strong competition due to locations, prices, and quality. In addition, independent coffee shops that serve meals are also competing with Potbelly.
The annual report of the company is the most important in this instance since changes cannot be affected without active financial analysis of the 10-k plan. The annual financial results of the year 2017 were released, and the following was noted. Firstly, comparative sales decreased by 2.4% compared to the 10-k plan in 2016. Second, the revenues increased from 102.4 million to 112.1 million. Despite the revenues increase, the GAAP net loss was $7.3 million and the loss per share was 0.29% (POTBELLY CORP (PBPB) 10K Annual Reports & 10Q SEC Filings | Last10K, n.d.). Additionally, fifteen more Potbelly outlets were opened in the year 2017 with three franchised shops and twelve company operated; Therefore, the firm should solicit for ways to increase comparative sales in the company while reducing the GAAP net loss to the company. Solutions to the financial problems should also ensure that revenues rise beyond the levels that are outlined above; Furthermore, Potbelly earned a total revenue of $106,996 and reported a net loss of $1,961. The EBIT decreased 38.8% from 2017 to 2018 and 10 new stores opened (POTBELLY CORP (PBPB) 10K Annual Reports & 10Q SEC Filings | Last10K, n.d.).
The following are some of the alternatives that should be considered at the firm as far as the problems are concerned. The firm should focus on upgrading products, instead of expanding the menu. Potbelly should expand the number of stores to the coast such as California and Seattle. Lastly, the company should build a strong customer loyalty program with high penetration in social media.
Recommendation and Implementation Plan
Potbelly should focus on expansion since a lot of stores are highly concentrated in Chicago and Washington. Since the company can perform well in big cities with a lot of traffic, it should incorporate new outlets in San Francisco, Seattle, and New York, but first it has to perform and evaluate a research if population would be appealing to consume their products. Also, the company should look into the economic growth of the state, tourism, and unemployment rate; Furthermore, the company should look for a way to support franchise to reduce their cost, since competitors like Jersey Mike, Jimmy John’s, and Subway requires a significant lower investment. After successfully testing these factors, the company can start with one city at a time, this would give the company an opportunity to reach new regions and to become well-known across the nation.
Appendix A – Five forces Analysis
Appendix B – Five forces Analysis
-Strong quality food – Several Locations in the same region
-Mobile Apps – Lack of rewards for customers
-Different Stores’ Atmosphere -Slow Revenue Growth
– Community Involvement -Product differentiation
-Higher Supply cost -Change in consumers preferences
-Higher Wages -Technology
-Strong Competition -Delivery Option for Customers
-Increasing Competitors -New Products and services
2017 Annual Report Potbelly Corporation (pp. 3-72, Rep. No. 2017). (2017). Chicago, IL.
All Panera Bread Locations | bread, soup, salad, coffee, dessert. (n.d.). Retrieved November 17, 2018, from https://locations.panerabread.com/
POTBELLY CORP (PBPB) 10K Annual Reports & 10Q SEC Filings | Last10K. (n.d.). Retrieved from https://www.last10k.com/sec-filings/pbpb
Potbelly Sandwich Shop – Good vibes, great sandwiches. (2018, November 15). Retrieved from https://www.potbelly.com/franchising/investment
Potbelly Sandwich Works – Recent News & Activity | Crunchbase. (n.d.). Retrieved from https://www.crunchbase.com/organization/potbelly-sandwich-works/timeline/timeline
Rodríguez, G. M. (2016). Valuation Potbelly Corporation.
WE’RE RAISINGTHE STEAKS. (n.d.). Retrieved November 17, 2018, from https://www.subway.com/en-us
Works, L. P. (2018, November 09). Potbelly Corporation Reports Results for Third Fiscal Quarter 2018. Retrieved November 17, 2018, from https://globenewswire.com/news-release/2018/11/09/1648858/0/en/Potbelly-Corporation-Reports-Results-for-Third-Fiscal-Quarter-2018.html
Yaukey, J. (n.d.). When will food prices stop rising? No time soon, experts say. Retrieved November 16, 2018, from https://abcnews.go.com/Business/story?id=5017914;page=1
Yaukey, J. (2018, November 15). When will food prices stop rising? No time soon, experts say. Retrieved from https://abcnews.go.com/Business/story?id=5017914;page=1
TITLE OF RUBRIC: Strategy Case Study Course: MGT 5170
LEARNING OUTCOME/S: See attached (CC 1, 2, 3, 4 and 6) Date: 11/18/2018
PURPOSE: Applying theory to practice and consistently using Strategy Name of Professor: Dr. Cavich
VALIDITY: Strategy Best Practices Name of Student: Ixchel Larios
COMPANION DOCUMENTS: Individual Cases
Earning maximum points in each box in ‘PROFICIENT’ column and / or
points in columns to the right of ‘PROFICIENT’ meets standard.
Performance Criteria Basic
States Problem Effectively
Does not identify the problem
(0 pts) Identifies a symptom
(4 pts) Identifies a significant problem
(6 pts) Identifies a critical problem
(8pts) Effectively identifies the crucial problem
Analyzes the Situation using Tools and Concepts of Strategic Management Does not present analysis
(0 pts) Vaguely analyzes material
(12 pts) Generally analyzes the situation
(16 pts) Analyzes some key strategic factors
(24 pts) Insightfully analyzes key strategic factors
Analyzes Quantitative Factors Does not present quantitative analysis
(0 pts) Presents
irrelevant quantitative analysis
(4pts) Generally analyzes the situation
(6 pts) Analyzes some key quantitative measures
(8pts) Insightfully analyzes key quantitative measures
Generates Realistic Strategic alternative Solutions Provides no realistic strategic
(0 pts) Provides ambiguous strategic
(4 pts) Provides
(6 pts) Provides realistic strategic
(8 pts) Provides realistic strategic solutions related to the problem
Selects without evaluation
(0pts) Selects with little evaluation
(8 pts) Evaluates alternatives and selects one
(12 pts) Evaluates alternatives and explains rationale for selection
(16pts) Evaluates alternatives, provides rationale, and selects optimal Strategic solution for the main problem
Generates an Implementation
Provides no plan
(0pt) Provides cursory plan
(4 pts) Provides an implementation plan
(6 pts) Provides realistic implementation
(8pts) Provides implementation
plan considering major factors
Writes at the
Does not use designated format or standard
(0 pt) Uses designated format, but does not write clearly or in an organized fashion
(4 pts) Uses designated format, style, grammar, punctuation, and references
(6 pts) Uses designated format and writes at the graduate level
(8 pts) Uses designated format and writes at the publishable level