R E S E A R C H R E P O R T : P o t e n t i a l D e m a n d f o r I n - n - O u t B u r g e r i n T o r o n t o

Prepared by: Annie O’Brien Geoff Gingerich Harluvleen Boparai Natalia Kolodenko Rasheed Gbajabiamila Sara Anderson Taylor Lush Date: December 1, 2014

     

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Table  of  Contents  Executive  Summary  .....................................................................................................................................................................................  3  Business  and  Research  Problems  ..........................................................................................................................................................  3  Research  Objectives  ....................................................................................................................................................................................  3  Methodology  ...................................................................................................................................................................................................  3  

Sampling Method  ............................................................................................................................................................................................  3  Sample Size  .......................................................................................................................................................................................................  3  

Key  Criterion  ..................................................................................................................................................................................................  4  Key  Findings  ...................................................................................................................................................................................................  4  Sales  forecast  ..................................................................................................................................................................................................  4  Conclusion  and  Recommendation  ........................................................................................................................................................  4  Detailed  Findings  ..........................................................................................................................................................................................  5  Appendix  1  Product  Concept  ................................................................................................................................................................  14        

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Executive Summary The purpose of this project was to evaluate the potential demand for In-N-Out Burgers in the GTA market. In-N-Out Burgers is an American burger chain that has been operating for over 60 years in the U.S.A. They offer high quality beef burgers that are never frozen and express through their motto “Quality you can taste.” As per our calculations, In-N-Out classic hamburgers could be sold in Canada for $3.05, and a combo for $6.25, which includes a burger, fries and a soft drink. We set a criterion, which states that if at least 18% of our respondents express interest in buying In-N-Out Burger combo at $6.25 giving us an opportunity to forecast a viable sales goal of $1,000,000. We would recommend launching In-N-Out Burger in the Canadian market. The result of the research demonstrated that the criterion was met with significant positive response. 67% of respondents stated the intention to buy burgers from In-N-Out Burger, which gives us sales forecast of $3,668,756. We can conclude that our concept is relevant to potential customers expectation in terms of price, competitive advantages and value perception. Thus, we recommend launching In-N-Out Burger in GTA market. Business and Research Problems The business problem for our research was formulated as “to determine whether or not In-N-Out Burger would be a viable contender in the Canadian fast-food market.” The research problem was stated as “to evaluate the potential demand for In-N-Out Burgers in the GTA market by answering the question “how much sales we can expect upon entering Toronto fast food market?” Research Objectives In order to resolve the research problem we set the following research objectives:

1. Estimate consumer behavior towards burgers: purchase frequency and amount of money spent on burgers;

2. Evaluate price perception; 3. Assess awareness about In-N-Out burger; 4. Determine concept perception of In-N-Out burger; 5. Assess buying/purchase intention toward the concept.

Methodology We chose the quantitative survey research method to forecast from appropriate numerical data. The online survey was the main method of data collection for our research due to budget and time limitation. The online questionnaire contained screener questions to confirm that all respondents meet our requirements like their age, burger consumption and living/studying/working in GTA.

Sampling Method We adopted non-probability sampling method due to time and budget limits. We adopted convenience snow-ball sampling by posting the link to the online survey through the Internet (Facebook pages, Facebook groups, e-mail, Skype)1. We asked our friends to fill out the questionnaire and to repost or to forward the link to their friend who met the screener requirements.

Sample Size We have built our analysis on the sample of 68 respondents2, which means that with confidence level of 95% we have confidence interval of 12%. This is based on an assumption that value of each variable in general population could be 12% less or more from the meaning stated in our report.                                                                                                                1 We are aware that this sampling method has serious biases as it’s limited by active Internet users as well as by younger people, students, educated people because we will send invitations to take part in survey through our social network. 2 We have received 76 responses on our questionnaire; however, eight respondents did not pass screener due to their age.  

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Key Criterion We determined a viable sales goal of $1,000,000. In order to reach the sales goal we must sell the equivalent of 160,000 burger combos (at $6.25 for a burger, fries and a soft drink combo). The general population for our research is 889,396. We made following calculations to get our general population. Population of GTA in the age group of 18-25 years is 673,423 and the age of 25-34 years is 1,036,953, which makes 1,710,376 total population in age group of 18-34 years (Statistics Canada). According to PMB data 52% of GTA population are burgers eaters, giving us 889,396 (1,710,376*52%) potential consumers in age 18-34. In order to reach our viability criterion, we must sell burger combos to approximately 18% (160,000/889,396) of our chosen target market if we experience 0 customer retention. This implies that we need at least 18% of respondents to express intention to buy combos from In-N-Out Burger at a price of $6.25. Key Findings

• 60.29% of respondents eat fast-food burgers 1-2 times per month • 51.52%of respondents buy a combo (burger, fries and a soft drink) when they consume fast-food

burgers • 60.61% of respondents believe product freshness is extremely important for fast-food burgers • 75.76% of respondents believe that $6.25 is an agreeable price for a burger combo • 77.27% of respondents are either interested or very interested in having an In-N-Out burger

location in their city • 80% of respondents either agree or strongly agree that an In-N-Out burger location would be

popular in their city • 67% of respondents would purchase a burger combo at $6.25 • 75% of respondents would purchase a burger at $3.05.

Sales forecast3 We have exceeded our minimum criterion by 3.6 times. As 66% of respondents stated an intention to buy a burger combo from In-N-Out Burger at $6.25, we can forecast sales of 889,396 * 66% = 587,001 of burgers combos, which will make 587,001*$6.25= $3,668,756 sales. The expected sales are exceeding our minimum requirements of $1,000,000. Taking into consideration our confidence interval of 12%, we have estimated the best case and the worst-case scenario forecast. In the worst case, 54% (66%-12%) of target audience would buy 480,274 (889,396*54%) burger combos generating sales of $3,001,710 that significantly exceeds the minimum requirement of $1,000,000 sales. In the best-case scenario, we will have to be ready to satisfy the demand for 78% (66%+12%) of target group with 693,729 combos (889,396*78%) generating sales of $4,335,803 (693,729*$6.25). Conclusion and Recommendation We definitely recommend In-N-Out burger to enter GTA market as the sales forecast is exceeding our requirements. We also identified that pricing meets the expectations of the potential consumers. Moreover, the competitive advantage of fresh burgers, which is offered by In-N-Out Burger, is the most important factor for choosing a burger chain amongst the respondents. In addition, we observed that 61% of the target audience is already familiar with the brand. Considering the results of our research, we recommend to launch In-N-Out Burger in GTA market.  

                                                                                                               3 In our sales forecast we neglected frequency of consumption because it is unsure that if consumers would completely shift from the existing burger chains. So our forecast is based on the assumption that everyone, who stated the intention to buy our burgers, would buy a burger at least once a month.

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Detailed Findings

     

Answer Choices Responses (%) Responses (People) 18-24 years 69.12% 47 25-34 years 29.41% 20 35-49 years 1.47% 1 Total 100% 68

  This question was asked in order to ensure that people participating in our survey were part of our predetermined target market. Our target group was planned to consist of people from the ages of 18-49, separated into three separate groups as demonstrated in the table above. Based on the data we obtained we see that only one person belonging to the age group 35-49 completed the survey4. So we eliminated this group from our final analysis. Through these findings we see that the majority of respondents fall under our age group of 18-24 years of age (69.12%).    

                                                                                                               4 As we expected, the online survey gave us a significant alignment (biases) to the younger group of target audience. We were not able to receive acceptable number of respondents in the age of 35-49 (just one response). Expecting this representative issue we were planning to conduct face2face intercept survey on exit locations of our main competitors to cover the oldest age group, however due to the weather condition we had to reject this method. In order to broaden the conclusion on the age group of 35-49 years, we need to conduct an extra-survey, which would focus on this group.  

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Answer Choices Responses (%) Responses (People) Daily 2.94% 2 2-3 times per week 13.24% 9 Once per week 16.18% 11 1-2 per month 60.29% 41 Less than once per month 7.35% 5 I do not consume fast-food burger 0% 0 Total 100% 68

   We used this question in order to determine the frequency in which our target group consumes fast-food burgers. We were targeting those who consume them at least 1-2 times per month. Therefore the 5 (7.35%) people chose less than once per month were asked to exit the survey, leaving us with 63 people. Based on the findings we see that the majority of respondents (60.29%) consume fast-food burgers 1-2 times per month. Those who consume fast-food burgers once per week, constitute 16.8%, and 13.34% of respondents consume them 2-3 times per week. We observed that the majority of the people consume fast-food burgers, thus our sample size represents right people who would consumer our product.    

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Answer Choices Responses (%) Responses (People) Just Burger – Answer question 5.1 13.64% 9 Combo - Answer question 5.2 51.52% 34 Depends on Situation - Answer both 5.1. And 5.2 34.85% 23 Total 100% 66

       We asked this question to determine the purchase behavior of existing burger eaters. We determined that a majority of respondents (51.52%) frequently purchase the entire combo when dining at burger restaurants. This indicates that we can expect In-N-Out Burger customers to purchase the combo option when visiting a potential location. This is an important factor because the single burger price is much lower than the competition however the combo price is competitive when compared to other burger chains. The In-N-Out experience is more fulfilling when the meal is purchased as a combo, allowing the customer to enjoy more of the product offerings in a single meal. When interpreting the third response option, “Depends on Situation” we believe that if the customer is directly offered the combo from a sales representative, they will most likely purchase it. In conclusion, we determined that the average burger consumer in GTA would most likely spend on a combo.        

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This question was asked to determine the internal price reference maintained by existing burger consumers. In order to target the intended market, a detailed understanding of price expectations and competition is necessary. We observed a general trend towards combo purchases at price range of $8- $9.99. Furthermore, the question helped us reveal a strong majority of burger consumers expect to spend less than $6.00 for a single hamburger. Thus, we determined that In-N-Out prices fall within or below the expected cost for both a single burger and burger combo.

0%  5%  10%  15%  20%  25%  30%  35%  40%  45%  

Less  than  $2   $2-­‐$3.99   $4-­‐$5.99   $6-­‐$7.99   $8-­‐$9.99   $10  or  more  

5.2. How much did you spend on the last purchase of Combo

0%  5%  10%  15%  20%  25%  30%  35%  40%  45%  

Less  than  $2   $2-­‐$3.99   $4-­‐$5.99   $6-­‐$7.99   $8-­‐$9.99   $10  or  more  

5.1. How much did you spend on the last purchase of Single Burger

Less than $2

$2-$3.99 $4-$5.99 $6-$7.99 $8-$9.99 $10 or more

Total

5.1. Single Burger 4.26% 29.79% 40.43% 8.51% 12.77% 4.26% 47 5.2. Combo 0.00% 0.00% 23.21% 21.43% 41.07% 14.29% 56

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                             We asked this question to determine the internal price reference for burger consumers. This helped us to we determine that In-N-Out has a positive price perception among burger consumers. The majority of respondents (75.76%) believe that the combo price of $6.25 is “Good” which indicates a perception of fair pricing and satisfactory quality. Very few respondents believed that the price was “Questionably Low” (7.58%) which suggests that the competitively low price of an In-N-Out burger combo does not indicate low quality based on its value pricing. In conclusion we have determined that In-N-Out maintains a positive price perception among a significant majority of burger consumers.                  

Answer Choices Responses (%) Responses (People) Questionably Low 7.58% 5 Good 75.76% 50 High But Affordable 16.67% 11 Too High 0.00% 0 Total 100% 68

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Q6: How important are the next factors for you when you choose a burger chain to visit?

                                                Not at

All Somewhat Important

Moderately Important

Significantly Important

Extremely Important

Total

Freshness of Product 0.00% 1.52% 6.06% 31.82% 60.61% 66 Price 1.52%

13.64% 27.2% 33.33% 24.24% 66

Variety of Options 1.52% 6.06% 31.82% 31.82% 28.79% 66

Delivery Time 9.09% 4.55% 27.27% 37.88% 21.21% 66

Portion Size 1.52% 3.03% 28.79% 36.36% 30.30% 66

Staff Service 6.06% 19.70% 28.79% 30.30% 15.15% 66

Reputation of Company 1.54% 10.77% 20.00% 43.08% 24.62% 66  This data was collected to determine the favorable factors our target groups perceive when choosing a burger chain. We observed that over half of the respondents (60.61%), view the freshness of the product to be an extremely important factor. The importance of price, variety of options, delivery time, portion size, staff service, reputation of company are averaged between moderately important, significantly important, and extremely important. In regards to staff service, 13 (19.70%) of respondents as only somewhat important. Other than that, few respondents view any factor as somewhat important or not important at all.          

20%  

5%  

14%  

11%  

6%  

3%  

2%  

29%  

27%  

27%  

20%  

32%  

29%  

6%  

30%  

38%  

33%  

42%  

32%  

36%  

32%  

15%  

21%  

24%  

24%  

29%  

30%  

61%  

0%   10%   20%   30%   40%   50%   60%   70%   80%   90%   100%  

Staff  Service  

Delivery  Time  

Price  

Reputation  of  Company  

Variety  of  Options  

Portion  Size  

Freshness  of  Product  

Not  at  All   Somewhat  Important   Moderately  Important  

SigniYicantly  Important   Extremely  Important  

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Answer Choices Responses (%) Responses (People) Yes 60.94% 39 No 32.81% 21 Not Sure 6.25% 4 Total 100% 64

    This question was important in determining the preexisting awareness of In-N-Out Burger. The answers show that 61% (the majority) of respondents have heard of In-N-Out Burger, 33% have not heard of In-n-Out Burger, and that 6% are not sure if they have heard of In-N-Out Burger. We can conclude that the majority of respondents have heard of In-N-Out Burger and are aware of the brand. Thus, we can say that the majority of the respondents display considerable interest to eat burgers at burger chains.                        

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Q9: In-n-Out Burger is an American burger chain that has been operating for over 60 years in the US. They offer high quality beef burgers that are never frozen. Their motto is “Quality you can taste.” In-N-Out classic burgers can be sold in Canada for $3.05, adding fries and a drink will total cost $6.25. How do you feel about In-N-Out burger? Identify to what extend do you agree or disagree with the next statements:    

      Strongly

Disagree Disagree Neither

Disagree Nor Agree

Agree Strongly Agree

Total

I am interested to have In-N-Out in my city 3.03% 4.55% 15.15% 37.88% 39.39% 66

In-N-Out would be popular in my city

0.00%

3.08%

16.92%

44.62%

35.38% 65

 This question helps us to evaluate the criteria that we have set for our research proposal. Majority of the respondents i.e. 39% strongly agreed to the statement, “I am interested to have In-N-Out Burger in my city”, 38% agreed, 15% were neutral, 5 % disagreed, and 3% strongly disagreed. This helped us to conclude that majority of the respondents have a positive perception of In-N-Out Burger and they are interested to have In-N-Out Burger in GTA. When looking at the statement, “In-N-Out Burger would be popular in my city”, 35% of the majority responded strongly agreed, 45% agreed, 17% were neutral, 3% disagreed, and 0% of respondents strongly disagreed. This question helped us to determine that the majority of the respondents believe that In-N-Out Burger has a potential to succeed in GTA.        

5%  

3%  

15%  

17%  

38%  

45%  

39%  

35%  

0%   20%   40%   60%   80%   100%  

I  am  interested  to  have  In-­‐n-­‐Out  Burger  in  my  city  

In-­‐n-­‐Out  burger  would  be  popular  in  my  city  

Strongly  Disagree   Disagree   Neither  Disagree  Nor  Agree   Agree   Strongly  Agree  

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Q10: Evaluate to what extent do you agree with the following statement:  

   

 This question helped us to determine the potential purchasing intention of consumers in GTA for In-N-Out Burger. Majority of the respondents (41%) strongly agreed to the statement, “ I would try burgers from In-N-Out Burger”, 33% agreed, 14% somewhat agreed, 5% somewhat disagreed, 6% disagreed, and 1% strongly disagreed. Thus, giving us a suitable majority of respondents who may turn into consumers. For the statement, “I would buy a combo from In-N-Out Burger if the combo cost is $6.25” 36% of the respondents strongly agreed, 30% agreed, 20% somewhat agreed, 8% somewhat disagreed, 3% disagreed, and 3% strongly disagreed. This question helped us to identify the purchasing intention in terms of pricing. We can now use this information to further help pricing decisions for combos. I would buy burgers from In-N-Out Burger if the burger cost $3.05: 44% (the majority) strongly agreed, 31% agreed, 11% somewhat agreed, 9% somewhat disagreed, 3% disagreed, and 2% strongly disagreed. The question helped us to identify that the majority of the respondents would like to buy burgers at In-N-Out. The overall concept perception is positive, with the majority of respondents showing the desire to purchase and be In-N-Out Burger consumers.

6%  

3%  

3%  

5%  

8%  

9%  

14%  

20%  

11%  

33%  

30%  

30%  

41%  

36%  

42%  

0%   20%   40%   60%   80%   100%  

I  would  try  burgers  from  In-­‐n-­‐Out  Burger  

I  would  buy  combo  from  In-­‐n-­‐Out  Burger  if  the  combo  cost  $6.25  

I  would  buy  burgers  from  In-­‐n-­‐Out  Burger  if  the  burger  cost  $3.05  

Strongly  Disagree   Disagree   Somewhat  Disagree   Somewhat  Agree   Agree   Strongly  Agree  

Strongly Disagree

Disagree Somewhat Disagree

Somewhat Agree

Agree Strongly Agree

Total

I would try burgers from In-N-Out Burger

1.52%

6.06%

4.55%

13.64%

33.33%

40.91%

66

I would buy combo from In-N-Out Burger if the combo cost $6.25

3.03%

3.03%

7.58%

19.70%

30.30%

36.36% 66

I would buy burgers from In-N-Out Burger if the burger cost $3.05

1.56%

3.13%

9.38%

10.94%

31.25%

43.75%

64

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Appendix 1 Product Concept In-N-Out Burger is an American burger chain owned and operated by Snyder family, which have been operating over 60 years in U.S.A. The Snyder family tradition of providing our beloved customers with the highest quality beef, produce and refreshments continues today across all 264 locations in California, Nevada, Arizona and Texas. Our personal philosophy towards our products demands the highest quality and the best customer experience. This is why our beef is hand selected by our butchers, ground fresh daily, and never ever frozen. To ensure high standards of customer service we compensate our stuff above State and Federal minimum wage legislation. With subtle adjustments for the Canadian market, we are offering our menu to Canadian consumers at the same affordable rates. Our classic hamburger will be offered for $3.05. Adding fries and a drink will total $6.25. Our menu is almost identical to the original location, the only addition being the “Double-Double” burger. Maintaining our original menu including Hamburgers, Cheeseburgers, French Fries and Milkshakes, ensures that each and every meal is prepared fresh and always will be. Although our menu is small, it has big personality for those of our customers with particular tastes and appetites. Our famous “Not-So-Secret” Menu including “Animal Style” Hamburger and French Fries or “Protein Style” Hamburger."