Gianfranco Walsh, Institute for Management, University of Koblenz-Landau walsh@uni-koblenz.de Alexander Deseniss, Faculty of Business Management, University of Applied Science Flensburg alexander.deseniss@fh-flensburg.de Thomas Kilian, Institute for Management, University of Koblenz-Landau kilian@uni-koblenz.de Disclaimer: This case study is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources. case centre Distributed by The Case Centre North America Rest of the world www.thecasecentre.org t +1 781 239 5884 t +44 (0)1234 750903 All rights reserved f +1 781 239 5885 f +44 (0)1234 751125 e info.usa@thecasecentre.org e info@thecasecentre.org
1. The Company Founded in Hamburg, Germany, in 2002, Vapiano is the brainchild of entrepreneur Mark Korzilius, who wanted to take a new approach to the restaurant industry. With its menu of made-to-order pizzas, pastas, salads, and other specialties connotative of Italian cuisine, Vapiano combines efficient service with an atmosphere that entices customers to be part of their culinary experience. Meal preparations take place in open sight, the restaurant environment feels upscale and urban, and the focus is on service productivity. Thus the restaurant aims to appeal to consumers seeking a new definition of fine, affordable dining. In particular, it targets higher-income, white-collar workers, who value casual dining in an upscale ambience. More than 60% of its clientele are women, and Vapiano continually seeks customers with higher incomes in the 20 55 year age brackets. Furthermore, Vapiano restaurants rely on a unique payment method, such that customers charge purchases to an instore RFID chip card, then pay off the charges before they leave the restaurant. These unique features of Vapiano s business model suggest that it provides customers with forms of value that do not mark other restaurant contexts. From its grassroots start in northern Germany in 2002, the company has expanded its business model throughout Europe, Australia, North America, Asia, and Africa. The company s owner, Mark Korzilius, founded Vapiano AG with the support of additional investors, with the goal of continuously honing the Vapiano concept and expanding its business. After the first franchise opened in Düsseldorf in 2004, additional restaurant openings followed soon, both within and outside of Germany. It appeals to customers worldwide; as it expands further, Vapiano may need to improve its understanding of its target segments in different cultures and consider segmentation based on values and lifestyles rather than demographics alone. In Germany, the restaurant market is highly competitive, comprising a vast number of companies and widely varying concepts, from snack bars to gourmet restaurants. This range of suppliers includes very small, owner-managed businesses, as well as internationally listed, financially strong, worldwide operating groups such as McDonald's. Restaurants tailor their offerings to a wide range of target groups with varying demands. The dynamic German market also reflects meaningful recent social shifts, changing values and consumer lifestyles. For example, the general trend toward mobile lifestyles has led to more out-of-house meal consumption and less cooking at home. 2
This environment entails a wealth of challenges, such that it is not surprising that many companies and gastronomic concepts fail. Establishing a successful restaurant business often depends primarily on a substantiated, effective marketing concept. In this sense, Vapiano offers a prime example of success in launching a new gastronomic concept. In Germany, it has become synonymous with the so-called fast-casual segment in the franchised restaurant sector, which features many standardised restaurant concepts, set up at different locations with a consistent design and managed centrally. McDonald's or Pizza Hut offer well-known examples. Vapiano aims to achieve the economical efficiency of franchised restaurants but combine it with the pleasure of eating out at an independent restaurant. Thus despite its standardised food and processes, Vapiano aims to create the flair of a genuine restaurant. Its Italian menu consists mainly of pizzas, pastas and salad, prepared according to the company s slogan: Fresh-Fast-Fine. 2. Vapiano s marketing concept for market development Information management Every marketing concept is based on information pertaining to all areas that are relevant for the company. Beyond the company s strengths and weaknesses, necessary information includes details about customers, competitors and society. Regarding the environment and society, Vapiano s main focus is relevant emerging lifestyles that affect its target markets. In particular, trends toward more active societies have increased the amount that consumers eat meals outside their homes, which has supported continuous growth in restaurant industries. Individualisation, increasing mobility, and more single-person households also mean fewer people eat at home, especially in urban settings. These general social trends will likely continue, so the market for franchised restaurants that promise a quick meal to go should continue to grow in the future. The growing demand for fast casual food is a dominant consumer trend in both Germany and other markets. Fast casual food combines the functionality of American-style fast-food restaurants with the culinary quality of European and Asian cuisines. It solves dilemmas among the need for a quick meal, the desire to eat healthy foods and the preference not to lose access to culinary pleasures. 3
Regarding relevant competitors, Vapiano confronts two main groups. First, it competes with classical, non-franchise gastronomy, such as standard Italian restaurants. The main competitive advantage of these traditional restaurants, from the customer s point of view, is their high emotional value, such that these restaurants can earn comparatively high price margins. Second, national and multinational companies in the fast-food segment provide the fast preparation of standard, affordable meals. Their efficient, highly standardised processes give these competitors a high potential for cost reductions. Compared with both traditional and fast-food restaurants, Vapiano enjoys several unique strengths. Currently no comparable gastronomic concept exists in Germany, such that Vapiano has a quasi-monopoly in the market. Furthermore, its atypical promise of fresh food includes a commitment to providing no industrially finished convenience items but only selling freshly made products. Furthermore it enjoys a broad target market and high profit margins, earned from its simple, low-price main ingredients (i.e. pizza and pasta dough, for which the main ingredients are flour and water). Yet the company also suffers some weaknesses. During peak hours, customers must deal with longer wait times, because every meal is freshly prepared. In extreme cases, business rush periods even can ruin its preferred restaurant atmosphere. Compared with companies such as McDonald's or Subway, it also maintains relatively little capital, and it has experienced a relatively short learning curve with its new gastronomic concept. Marketing planning and control On the basis of these considerations, Vapiano has detailed actions that it believes are necessary to achieve its marking objectives. In particular, for its strategic marketing efforts, it attempts to answer a basic question: Which parts of the market should we target, and how? In turn, it must determine primarily the relevant target groups to address and secondarily which competitive advantages it can achieve over its competitors. Vapiano defines its target customers using demographic and psychographic variables: people living in urban regions, aged 20 to 50 years, who are time poor, style conscious and accustomed to good design, with high culinary demands but who at the same time prefer healthy food. In practice though, much of the wider population finds the Vapiano concept appealing too. In addition, Vapiano has begun to target new customer groups with new offerings, including extending its pasta menu by offering organic, wholemeal pasta to appeal to health-conscious consumers. 4
To define its strategic position and competitive advantages relative to important competitors Vapiano has used so-called positioning models to understand consumers perception of the company and reveal any market niches it might fill (see Figure 1). The positioning model clearly indicates that Vapiano stands out from its competitors with its gastronomic concept. By offering fresh Italian food and quick service, Vapiano occupies an attractive market space. The prices at Vapiano restaurants are not much higher than those charged by traditional fastfood restaurants (e.g., kebab-shops) or chains (e.g., McDonald's, Subway). However, Vapiano offers an experience similar to that of an Italian restaurant. Furthermore, compared with full service providers in the casual segment (e.g., Pizza Hut, Maredo), Vapiano offers a much more appealing experience (mainly through its display of real-time meal preparations) but at a lower price. Budget price segment Tradition al fast food restaurant Fast food chain Focus on eating Focus on experience dining Full service Italian restaurants Premium price segment Figure 1: Vapiano s competitive positioning The company s product policy centres on its service offerings, which benefit customers and set Vapiano apart from its competitors. The main product line, pizza/pasta/salad, is the same as the product line in classical Italian restaurants, but its efficient standardized process makes 5
it possible for Vapiano to offer such meals quickly and inexpensively. A visit to Vapiano thus differs greatly from a trip to a classic Italian restaurant. When a customer first enters the restaurant, she receives a chip card and then can proceed to move around the restaurant to visit different food counters. She might decide to order a drink in the separate bar-lounge, wait for friends or colleagues, or order dinner immediately. Directly behind the entrance area sit 6 12 cooking stations spanning a service counter. After the customer places an order, the meals are prepared directly in front of her ( in-front cooking ). The clearly structured meal offerings include an assortment of popular Italian foods that appeal to a broad audience. By combining the menu elements to her liking (e.g. 12 types of pasta, 20 dressing varieties), the customer achieves a certain degree of individualisation, though the offerings are still standard. A core element of the restaurant is its glass-walled Pasta-Manifattura, the site of daily production of fresh noodles. Vapiano s pricing strongly distinguishes it from competitors. The price ranges for pasta and pizza dishes are 5.50 ($7.60) to 8.50 ($11.70); if the customer also orders a soft drink, the entire meal price falls in the range of 7.75 to 11.75. Therefore Vapiano lies, as per its design, between the classical fast-food market and standard Italian restaurants (see Figure 2). Pizza Hut Subway McDonald's Italian restaurant (standard) 0 2 4 6 8 10 12 14 16 Ū Figure 2: Price levels of Vapiano and competitors (standard dish and soft drink) 6
The average sales volume per guest reflects this price strategy. For example, in a fast-food restaurant, the average sales per customer is approximately 6,00, and in a traditional German Italian restaurant, it averages around 14,50. Average sales at Vapiano equal 11. For a service provider that offers its services directly to customers, the question of location is highly important. According to its target group definition, Vapiano has a clear preference in its choice of appropriate locations: in cities with more than 100,000 inhabitants, where it demands a top in-town location, often in the urban catchment area of an exclusive shopping mall with first-class boutiques and numerous offices. Within a radius of 1 km, there must be 8,000 to 10,000 clerical employees and 10,000 to 20,000 residents with at least average income levels. The average age of these residents should be between 25 and 40 years of age. Regarding its communication policy, during any new market development phase, Vapiano refrains from expensive communication campaigns. It relies instead on appealing to and satisfying walk-in customers, who in turn will engage in word of mouth, raise buzz, and thus ensure brand awareness in the market. Once a restaurant is established in a local market though, broadband communication gains importance. Marketing implementation With its marketing plan in hand, Vapiano undertook a target-oriented implementation of the plan. For service providers in the restaurant sector, organisational and personnel policies are particularly important. The personnel policy in services marketing is important because employees largely define the quality of the experience, as perceived by customers. Personnel costs, together with rent, contribute most to restaurants overall costs. Therefore, recruiting personnel with appropriate qualifications and then ensuring employee development is a key success factor for service firms. From a customer s point of view, the interaction with personnel is of primary importance, because it determines the customer s opinion about the speed, friendliness, and quality of the service overall. A unique element for Vapiano is the interaction between cooks and customers during the in-front cooking process. The company therefore invests in efforts to select, instruct and train all cooking personnel. New staff undergo motivational training aimed at teaching them ways to resist work stress and prepare meals quickly, especially during peak times. Furthermore, the cooks are specially trained in interacting with guests. 7
Any service company also needs effective process management. Vapiano, as much as any other service provider, confronts the challenge of finding an adequate balance between process standardisation (to guarantee efficiency and consistent quality standards) and individualisation (to respond to each customer). Vapiano s process manual is typical of companies that provide systematic gastronomy offerings, in that it defines in detail all operational front-office and back-office processes. Particularly with regard to cooking, the process steps are as simplified as possible, to avoid the need for special training for cooks. Yet at this critical customer contact point, the employees also have some performance freedom; for example, they respond in their own ways, though always appropriately, to customer requests (e.g. more herbs or less garlic) while the food is being prepared. Thus Vapiano works to reconcile efficiency with customer orientation ideals. 3. Company development Customers responded very favourably to the first restaurant. The business plan anticipated 350 guests per day, with a receipt average of 6.50. But less than a year after the Hamburg opening, the restaurant had greatly exceeded these figures; in February 2003, it reached an average of 500 guests per day and average receipts of 8.30. However, some weaknesses also emerged regarding Vapiano s capabilities. Deficiencies in its operating process efficiency meant the first restaurant barely broke even. At the end of 2003, the company recruited experienced personnel from McDonald s, which established a basis for expanding the Vapiano concept by ensuring that the company s processes could be systemised and standardised. The original concept was refined with optimizations of operative procedures, including a new enterprise resource planning system and improved training and motivation for employees throughout the potential franchise system. The goal of all optimization measures was to create a positive impact on the bottom line by increasing process efficiency and thus restaurant profitability. Today, the typical Vapiano restaurant has total annual operating costs of 0.9 1.2 million. Material costs account for approximately 27% of operating costs, and labour costs run to 28 32%. This cost structure supports profitable restaurant operations at varying degrees of capacity utilisation. It also leaves enough margin for the restaurant operator to disburse Vapiano franchise licence fees, which are 7% of sales volume. The optimization of Vapiano's operations concept, in terms of 8
restaurant efficiency and profitability, thus was a necessary prerequisite for extending into a franchise model. Expansion began after the concept refinement; the first franchise business opened at the end of 2004 in Düsseldorf, a full two years after the first restaurant opened. Since then though, Vapiano has grown rapidly (Figure 3). 100 93 90 80 70 60 50 40 30 20 5 10 04/2005 68 44 25 10 05/2006 10/2007 12/2008 12/2009 12/2010 Figure 3: Number of Vapiano restaurants by date Of the 93 outlets currently operating, 41 are in Germany, and the 52 outlets in other countries span North America, the Middle East, and the Asia Pacific region. The focus of future expansion efforts will be increased growth in Germany and spreading throughout the United States, which is the largest restaurant market in the world. Vapiano has 9 U.S. restaurants already in operation and 9 scheduled openings in 2011. Its concept has already caused buzz; the company won the Hot Concepts Award in 2008 from the U.S.-based Nation s Restaurant News. This designation represented the first time a German franchise concept had received the renowned U.S. prize. In addition to increasing the number of restaurants, Vapiano hopes to improve business volume per restaurant. With an average annual turnover of 2.04 million per restaurant in 2007, Vapiano nearly matched the business volume of the market leader McDonald s 9
( 2.07m) and easily surpassed competitors like Pizza Hut ( 0.97m) and Subway ( 0.26m). Total business volume reflect both the increasing number of outlets and increased sales per restaurant; it has increased steadily from 72.2m in 2008 to 90.0m in 2009 to an estimated 125.0m in 2010. 4. Key Lessons Vapiano has managed to establish a new, successful gastronomic concept and brand in a highly competitive market with financially strong competitors. The company s success appears based largely on an exclusive marketing concept that Vapiano developed and implemented to maintain an alignment with the requirements of the market and business environment. This case therefore highlights some central elements of marketing: Marketing comprises much more than just advertising. Vapiano was able to introduce a new product (i.e. new gastronomic concept) in the market with great success, without undertaking any costly communication activities. Decisive for the company s success has been its stringent overall marketing concept, which aligns the company s structures and processes to the requirements and needs of the market, customers, and society. Vapiano s success is based largely on its systematic analysis of all relevant basic conditions. It thereby confirms the importance of extending information horizons by going beyond narrow market categories and considering general social developments. The values and lifestyles of urban consumers of the Starbucks generation created the demand for a fast casual dining concept that Vapiano could fulfil. Marketing does not demand customer orientation in the sense of an unconditional alignment with the wishes and requirements of the target audience. In addition to effectiveness, in the form of ensuring customer satisfaction, marketing must consider economic efficiency. In its initial phase Vapiano was effective (large attendance, satisfied customers) but not efficient (poor financial performance). Not until it adjusted its internal processes with the help of experts did the company begin to achieve significant growth. Competitive advantages are dynamic, which means they also may be lost due to changing market conditions or new competitors. The success of the concept today is no guarantee of successful expansions tomorrow. But Vapiano continues to use market and target group analyses to stay abreast of relevant changes and respond accordingly. For example, its new, 10
enlarged menu (e.g. organic wholemeal pasta) appeals to target groups in the health-food sector, which largely have been neglected by mainstream restaurants. In addition, the company plans to launch breakfast items and take-out meals, in an attempt to attract new target groups. Despite its sweeping success thus far, the company considers further activities designed to change and expand its offer essential to secure the future success of the company s business model. 11