Jimmy John's Business Plan in Sea-Tac Airport: Products, Pricing, and Competition, Study notes of History

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FRANCHISE BUSINESS PLAN EVENT

Skyline DECA

Skyline High School

TH

Avenue Southeast

Sammamish, WA 98075

Mariah Alexander

Marissa Carpenter

January 2017

Table of Contents

• I. EXECUTIVE SUMMARY
• II. BUSINESS HISTORY, BACKGROUND, AND OBJECTIVES
• III. BUSINESS ENVIRONMENT
• IV. PRODUCTS AND/OR SERVICES
• V. PRESENT MARKET
• VI. COMPETITION
• VII. MARKETING PLAN
• VIII. MANAGEMENT AND ORGANIZATION
• IX. BUSINESS RESOURCES
• X. FINANCIAL PLAN AND DATA
• XI. CONCLUSION
• XII. BIBLIOGRAPHY

Growth Potential of Market : The passenger traffic in the Sea-Tac airport is equal to the number of Las

Vegas visitors annually, and it will only increase. There are plans to build eight new gates in the Alaska

Airlines terminal by 2019, and by 2034, the airport is projected to have 66 million annual passengers.

With the continued increase of annual passengers through the Sea-Tac airport, Jimmy John's will see an

increase of sales from year to year based just on customer traffic.

Current Pricing Policy : Jimmy John's prices from region to region and are up to the discretion of the

franchisee. Using the average sales price of the Jimmy John's sandwiches in Seattle, we increased the

price to be 25%-30% because of inflated airport pricing standards. This price

increase will help us compensate for the higher lease and staffing expenses.

Seasonality : Seattle's peak tourism season from May-September correspond

with the Seattle-Alaska cruise season. During those months, the franchise will

expect a high customer traffic flow and will add an additional employee onto

the rotation to compensate.

Competition : There is only one other sandwich shop, Quiznos, in the Sea-Tac airport for Jimmy John's

to compete with for the same product, but Qdoba and Wendy's are the other two quick service

competitors. While the competition does have its strengths over Jimmy John's, such as customization of

food and a diverse selection, Jimmy John's has three key advantages over all three of its competitors:

Marketing Plan : Jimmy John's will have four different marketing expenses, the

franchise national advertising fee, the Sea-Tac Marketing Fund, the digit display in

the airport, and the logoed refrigerated cart. We will be conducting a delivery service

within the Sea-Tac airport using the Jimmy John's online ordering app. Customers

will input their order and a Jimmy John's employee with the logoed, refrigerated cart

will come to the specified gate to deliver the order. Extra sandwiches are available

for purchase off the delivery cart and all deliveries are guaranteed to arrive within 15

minutes of ordering. The logoed cart will provide a huge advertising advantage as it

is a mobile advertising agent within the Sea-Tac airport.

Management and Organization : The Sea-Tac Jimmy John's will consist of three levels of

organization:

Job Descriptions Position Responsibilities Owner Making the business plan and budget, reviewing the report of production in relationship with sales, directing the managers and employees Manager Leading the employees, planning and maintaining work systems, procedures, and policies, overseeing the operations, training the employees Employee Making sandwiches, serving customers, operating point-of-sale system, cleaning

• The customer service is quick, sandwiches often done before payment
• Very beneficial for people who are in a hurry in the airport Quick
• The simpleness of Jimmy John's is reflected in the menu and sandwiches Simple • There is no mess and sandwiches easily transported through the airport
• The sandwiches are fresh and the unwich provides a very healthy option Fresh • Gives travelers a healthy option in an otherwise unhealthy airport

Financial Request :

We are investing $50,000 into our business and are requesting a $150,000 loan with a seven year

payback period. Below is our supporting cash flow, profitability forecast, and sources of capital:

Our amortization schedule describes our payback plan for a $150,000 loan

at 6% of annual interest over a period of 7 years:

Thank you for considering our request for a $150,000 loan for Jimmy John's in the Sea-Tac airport. We

look forward to meeting you and further discussing this opportunity.

Loan Amount Interest Rate Term Start Date $150,000 6% 7 years January 2017 Payment Schedule for Jimmy John's Year Principal Paid Interest Paid Loan Balance Begin $0 $0 $150, 2017 $17,779 $8,516 $132, 2018 $18,876 $7,420 $113, 2019 $20,040 $6,256 $93, 2020 $21,276 $5,020 $72, 2021 $22,588 $3,707 $49, 2022 $23,981 $2,314 $25, 2023 $25,460 $835 $ Totals $150,000 $34,

Summary of Payments and Interests

Monthly Payment: $2,

Total Interest Paid Over Life of Loan $34,

Interest Paid in 2017 $8,

Interest Paid in 2018 $7,

stores in 46 states (See Graphic A), all embedded with Jimmy John Liatud's philosophy: "Work hard. Push forward. Learn from mistakes."^3 B. Short and Long-Term Objectives An email interview with Mallory Haas, Franchise Development Manager, conducted on November 3, 2016 revealed that there are no performance metrics for Jimmy John's franchisees, nor any long-term goals for the Jimmy John's brand. The goals for the franchises are determined and set by the franchisee. In 2017, the short-term goals for this company are to add a franchise within the Seattle- Tacoma International Airport and to make a $90,000 profit in the first year. The long-term goals include increasing the profit made in the first year by 15% and then using profits from the first five years to open a Jimmy John's franchise within another large airport such as Los Angeles. According to the Franchise Development Manager, Mallory Hass, Jimmy John's is committed to "being the best that we can be at what we do – making fast, accurate and delicious sandwiches" and they trust in their carefully selected franchisees to run profitable businesses. The goals for the franchise are important because they will provide the business with guidance and purpose for functioning. C. Major Successes and Achievements to Date In 2016, the company was also named the number among the top ten Most Popular Restaurants for Business Meals by Certify, an expense-reporting program.^4 The company has over 2,500 locations in (^3) http://www.franchising.com/jimmyjohnsgourmetsan/ (^4) https://www.certify.com/CertifySpendSmartReport.aspx

Short-term Goals Long-term Goals

Gain $150,000 in financing to open a Jimmy

John’s franchise in Seattle, Washington,

specifically within the Sea-Tac airport.

Make a 15% profit increase from the first

year of operation in 2018.

Make a $90,000 profit in the first year of

Accumulate $600,000 through the first five

years to finance another Jimmy John’s

franchise within the Los Angeles airport.

Graphic B : Jimmy John’s Franchise 500 rank since

46 states across the country since opening in 1983,^5 and according to the National Restaurant News Top 100, it is one of the fastest growing chains.^6 Jimmy John's plans to continue their success and expand their franchise business. D. Challenges and Obstacles One challenge that Jimmy John's will have is breaking into the airport restaurant location. Sea- Tac airport only has a set amount of food and beverage business spaces, many of which have 5-10 year leases on them. However, according to the Sea-Tac shops website, Sea-Tac now has two open lease spots in the main food terminal and are accepting business proposals. The main requirements for the business proposal are as follows:

1. $50,000 proposal guarantee to SeaTac airport

2. 3 years of prior experience in the development, management, and operation of

restaurants at airports, shopping centers and business districts

3. Financial capacity for the initial investment of the business

4. Specific costs for the company: debt service, renovation, expenses by line item, and

salary of employees

5. Expected gross profit and expected sales per enplanement

(^5) https://www.entrepreneur.com/franchises/jimmyjohnssandwiches/ (^6) https://www.jimmyjohns.com/about-us/our-owner-founder/ 2016: Jimmy John's was named among the top ten Most Popular Restaurants for Business Meals by Certify, an expense reporting program. 2016: The company was named the number one top franchise on Entrepreneur's Franchise 500 List. 2015: Entrepreneur listed them as one of the top ten Promising Franchises for Ambitious Entrepreneurs.

2014: The 2,000th Jimmy John's franchise opened.

2012: Jimmy John Liautaud was awarded Nation's Restaurant News Golden Chain Award. 2007: The 500th Jimmy John's franchise opened. Jimmy John’s Achievements to Date

previous year.^9 The Sea-Tac airport set a passenger traffic record for the fifth straight year in 2015 with over 42. million travelers, an increase of 12.9% from the last year.^10 Frequency has increased annually in 12 of the past 13 years, with the only decrease seen in 2009 due to the national economic downturn. This increase means more people in the airport, and, consequently, more traffic through the restaurants within the Sea-Tac airport. For the past two years, Sea-Tac has been the fastest growing Top 20 airport in the U.S.^11 With all of these tourists, the demand for a quick place to get food that can easily be brought onto a plane is high. Sales for restaurants, shops, and passenger services increased 9.7% from 2014, with sales totaling over $241 million. Anthony's Restaurant, located in the main terminal, is the highest grossing airport restaurant in North America with over $14 million in sales in 2015.^12 A Jimmy John's would thrive in this setting where most restaurants find success, providing higher profit margins than regular franchises. IV. PRODUCTS AND/OR SERVICES A. Products and Services Offered Jimmy John's offers a main product of delicious sandwiches made with fresh ingredients from local, small businesses. There are four different types of sandwiches offered^13 : (^9) http://www.visitseattle.org/press/press-releases/seattle-tourism-statistics-announced/. (^10) http://www.highlinetimes.com/2016/02/03/news/sea-tac-airport-growth-continues-%E2%80%A8fifth-straight- (^11) http://www.highlinetimes.com/2016/02/03/news/sea-tac-airport-growth-continues-%E2%80%A8fifth-straight- (^12) http://www.highlinetimes.com/2016/02/03/news/sea-tac-airport-growth-continues-%E2%80%A8fifth-straight- (^13) https://www.jimmyjohns.com/menu/#/ Sandwiches Offered Price and Description Plain Slims $6.50 – Jimmy John’s famous bread with meat and cheese, nothing extra Sub Sandiwiches $8.00 - Bread with various meats, cheese, and vegetables. Heartier than the slims. Giant Club Sandwiches $9.00 – Basically the 8” subs with more meat and cheese. Heartier than 8” subs. The J.J Gargantuan $12.00 – The largest sandwich offered with 5 different types of meat, vegetables and cheese. 0 20 40 60 Number of Passengers Millions Year

Sea-Tac Passenger Traffic

Graphic C : Graph of number of Sea-Tac Passengers 2002- 2014

Jimmy John's also offers three different sides: different types of Jimmy Chips, cookies, and jumbo kosher pickles. Unlike any other sandwich shops, Jimmy John's offers delivery services within a two-mile radius of their shops. B. Planned Changes to the Present Line of Products/Services Within the Next Year Jimmy John's sandwich prices inconsistent throughout the country and are determined by the franchisee. There will be a price increase for the sandwiches, sides and beverages offered, as most airport food is inflated 25%-30% than regular retail value.^14 We will be keeping the delivery service that Jimmy John's provides , as it is a huge competitive advantage. To incorporate delivery at the airport, we will have a rotating employee with a refrigerated cart delivering sandwiches to gates. Customers will place their order via the Jimmy John's app, and the sandwich will be guaranteed to arrive within 15 minutes of ordering. There will also be extra, pre-made sub sandwiches (as they are the most popular out of the three sizes) for purchase right at the gate, so if customers see the cart and feel inclined to buy one instantly, they can. Lastly, instead of offering fountain drinks, this franchise will be implementing bottled soda drinks and water because they are more durable for the airport environment. V. PRESENT MARKET A. The Present Market The stereotypical customer is a middle class business person on the go. The airport location is the perfect place to reach the target market, as many travelers are middle class business people. The peak hours of the SeaTac airport are between 5am-11am and 7pm-9pm, this is when most of the passengers pass through the airport.^15 Jimmy John's will not open until 7am, as they do not serve (^14) http://www.wsj.com/articles/the-price-you-pay-for-water-at-the-airport- 1429709430 (^15) http://www.ifly.com/seattle-tacoma-international Graphic D : Example of mobile refrigerated cart used to deliver sandwiches

gross sales to square feet ratio for the food service in Sea-Tac airport is $1,363 per square foot (See Graphic H). "Over the next few years, the Airport has plans for significant expansion of the facilities. The North Satellite, used exclusively by Alaska Airlines, will undergo a complete renovation and expansion that will add 8 gates to the existing 12 gates. Completion of this project is slated for the 2019- 202 0 timeframe".^21 With the 42.3 million people passing through the airport, all of who can obtain a sandwich with the delivery service, Jimmy John's has the ability to reach all the passengers in the airport. In 2034, the airport is projected to reach 66 million annual passengers, a 57% increase from the 42 million passengers in 2015.^22 With an increase in the number of people passing through the Sea-Tac airport, the number of Jimmy John's customers at this franchise is likely to increase, therefore providing an incredible growth and profit potential for the business. Besides Quiznos, which has slow service and is located off in the B terminal, Jimmy John's will be one of two sandwich shops in the entirety of the Sea-Tac airport. The store will be located in the central terminal of the airport, where most travelers have to pass through (^21) Sea-Tac Airport RFP Exhibit 14 – Capital Investment Form (^22) https://www.portseattle.org/Business/Construction-Projects/Airport-Projects/Pages/airport-master-plan.aspx Graphic H : Total amount of gross sales for food service post security in 2015: $ 127,298, Graphic I : Number of Sea-Tac passengers projected in 2034 Graphic J : Map of the Sea-Tac airport, Quiznos is in B Gates, while Jimmy John’s would be central terminal.

to reach their gates. This will give Jimmy John's a competitive advantage, creating a high growth potential. C. Current Pricing Policy Prices are inconsistent at Jimmy John's locations and are up to the discretion of the franchisee. As outlined in section IVA, the prices are going to be 25%-30% higher than the Jimmy John's in the surrounding Seattle area because of the airport location. Our pricing is based off nearby competitors in the airport. Pallino Pasta entrees range from $6.50- $12.50, Qdoba $5.00-$8.00, Quiznos $5.00-$8. and Wendy's $5.00-$8.00.^23 Jimmy John's is in the middle-high end of their competitor's price range, falling between $6.50-$9.00 for a sandwich (see Graphic L). Jimmy John's is a higher quality restaurant compared to Quiznos, Qdoba, and Wendy's because of their cleanliness, fresh ingredients, franchise quality control requirements, locally purchased produce, and daily baked bread.^24 D. Seasonality As a sandwich shop, Jimmy John's itself is not seasonal. However, the business will be located at the Sea- Tac airport, where the number of travelers passing through is seasonal. May through September are the months with the highest passenger volumes.^25 One reason for this influx is that many people land in (^23) http://seatacshops.com/merchants/central-terminal/pallino-pastaria/ (^24) https://www.jimmyjohns.com/about-us/our-food (^25) https://infogr.am/ceeb0f9e-6fea- 4794 - 9602 - 28f47e7f047a Sandwich/Product Price Average Plain Slim $6.50 $4. Club Sandwich $8.00 $6. Giant Club Sandwich $9.00 $7. Cookie $2.30 $1. Chips $2.25 $1. Pickle $2.00 $1. Beverages $3.00 $1. Graphic K : Table of planned menu prices Graphic L : Positioning map of Jimmy John’s and their competitors

The competition within the airport are: Qdoba, Wendy's and Quiznos, all with their different competitive advantages. Jimmy John's will acknowledge the competitive advantage each company brings and create a marketing plan to counter them. B. Advantages over Competitors Jimmy John's excels because of it is simple, quick service and delicious sandwiches. As the slogan of Jimmy John's, "Subs so Fast You'll Freak" suggests, Jimmy John's is committed to excellent, quick customer service. The quick service of the sub shop is extremely helpful to customers in a rush to their gate. Similarly, the simple sandwiches produce no mess and are therefore easily brought onto planes, cars, trams and buses. The freshly made sandwiches also label Jimmy John's as a healthy, fresh option. C. Disadvantages Compared to Competitors One of the main disadvantages of Jimmy John's is its inability to customize the sandwiches. There are a few add-ons to the sandwiches like condiments and hot peppers, but otherwise, the sandwiches come as ordered. Many customers like the ability to choose what goes on their food: it gives them a sense of freedom and individuality. However, customization leads to slow customer service, which is not ideal in the bustling airport setting. Another disadvantage is the cost of employees of Jimmy John's. To maintain the excellent customer service, Jimmy John's hires more employees than most fast-food chains, leading to a higher operating costs. However, the profit margin between the inflated airport sales price and the cost of the sandwich will make up for the higher employee cost.

• The customer service is quick, sandwiches often done before payment
• Very beneficial for people who are in a hurry in the airport

Quick

• The simpleness of Jimmy John's is reflected in the menu and sandwiches
• There is no mess and sandwiches easily transported through the airport

Simple

• The sandwiches are fresh and the unwich provides a very healthy option
• Gives travelers a healthy option in an otherwise unhealthy airport

Fresh

VII. MARKETING PLAN

A. Description of Customers and Geographic Area to be Targeted for Marketing Efforts As outlined in Section III, the geographic area that is going to be targeted is the Seattle-Tacoma International airport in Seattle, Washington (see Graphic O). The Sea-Tac airport has over 40 million passengers annually, creating a huge customer base for the Jimmy John's. The passenger demographic of Sea-Tac -- the demographic that Jimmy John's will try and market to – is outlined in Graphic P. The ideal customer of Jimmy John's is a busy middle class person who does not have time to stop and wait for food. Using the demographics of Jimmy John's ideal customer and the customers of the Sea-Tac airport, we will create a marketing plan to target this specific demographic. B. Marketing Techniques Employed to Promote Business As part of the Jimmy John’s franchise “package” every franchisee must pay a yearly 4.5% of gross profit for national advertising fee to the Jimmy John’s corporation. This fee will cover large advertising such as sponsorships, radio ads, commercials, large-scale media advertising. Also, as part of the Sea-Tac tenant association, the franchise will pay a yearly 0.5% of gross profit to the Sea-Tac Marketing Fund for in-airport advertising. This fee will include advertising Jimmy John’s on the Sea-Tac website, on all the airport maps and signs, and in the magazines on airplanes. The logoed refrigerated cart will provide mobile advertising throughout the airport for Jimmy John’s. As mentioned in Section II. D, there will be extra sandwiches in the cart for customers who see the cart and want a sandwich right there. The cost of the mobile cart advertising is not included in the advertising fee, for the costs fall in employee salary and fixed assets (for the cart) categories. Graphic O : location of Sea-Tac airport Graphic P : 2015 Passenger demographic of Sea- Tac Airport

VIII. MANAGEMENT AND ORGANIZATION

A. Strengths and Weaknesses of Management Team As a national company, Jimmy John's provides the necessary support needed for franchisees to find success. The regulations provide structure to the business, but may also detract from the personal connections between the management team and the franchisor. Strengths of Management Team Weaknesses of Management Team The franchisor provides a 7-week training program, so the franchisee will be properly prepared. The franchisor does not provide training to the low- level employees, so the franchisee must do so. Franchisees receive regular updates to their training. As a national company, the communication between the franchisor and franchisee will not be as personal. With three managers and ten employees, the managers will easily be able to oversee the operations of the business. The employees do not have the freedom to create their own work schedules. Although the franchisor does provide three weeks of training and four weeks of real life management experience by way of their apprenticeship program, the owner is responsible for identifying a third party to train the managers. There is a cost of $10,000 to use a third party business to train the three managers on how to manage a Jimmy John's, promote a positive working atmosphere, make the sandwiches, and be personable to other team members. According to a former Jimmy John's area manager in Portland Oregon on Glassdoor "If owners send managers to training, it helps the store".^28 B. Plans for Development of Management Team Jimmy John's will begin with two owners, three managers and ten employees. We have gone through a 7-week training program, three weeks of training and four weeks of live management via an apprenticeship program so as to be prepared for owning our own business. We will continually receive training updates, so we know the latest corporate Jimmy John's instructions. The managers will be subject to a two-week managerial training by a third party to learn the Jimmy John's culture and management procedures. (^28) https://www.glassdoor.com/Benefits/Jimmy-John-s-Job-Training-US-BNFT43_E15876_N1.htm

C. Management Succession Plan In the event of a continued absence or incapacity of any manager, an owner will be required to take their place until either a new employee is hired or the manager returns from their absence. In the case of a continued absence or incapacity of an owner, the Jimmy John's may be sold to another proprietor. This new owner would take full responsibility for the franchise. D. Acquisition of Additional Management Based on Future Sales As previously stated, more personnel as part of the management team may be needed as the business gains popularity in the airport setting. If the management team is unable to handle the number of customers walking through the door, then a new employee will be hired to fit this demand. We project that Jimmy John's Sea-Tac will be prepared to hire an additional manager by the year 2023 to help the Sea-Tac Jimmy John's, as we hope to have a second location in Los Angeles. IX. BUSINESS RESOURCES A. Operating Equipment The franchisor will supply the standard operating kitchen equipment needed to run the Jimmy John's. Outlined below is the fixed assets that will be purchased and their depreciated value over time: