Service-Development Challenge:
Internet-Based Meal-Order and Delivery System
Preface
This is a fictional case study to serve as the basis for an educational service-development
exercise. Even though the inspiration for features of the case can be mapped in part to the
current marketplace, no element of this case (products, services, companies, statistics, or
regulations) should be considered factual.
Product Concept and Market Review
Industry Background
The food-service industry in the form of fast-food or table-service restaurants is
forecast to advance 4.4% in 2009 and to constitute 4% of the U.S. gross domestic
product. The overall economic impact of such businesses is expected to exceed $1.2
trillion in 2009, including sales in related industries such as agriculture, transportation,
and manufacturing. Between 1970 and 2009, restaurant- and fast-food-industry sales have
posted a compound annual growth rate of 7.1%. This industry’s share of the food dollar is
estimated at 46.4%, up from 25% in 1955. This year, the nation’s 878,000 restaurants
should hit $440 billion in sales according to the National Dining Association’s 2009
Dining Industry Forecast.
Restaurants are the nation's largest private-sector employer, with one-third of all
adults having worked in the restaurant industry at some time during their lives. Nine out
of ten salaried employees at table-service restaurants started as hourly employees. The
number of food-service managers is projected to increase 15% in the next ten years.
The trend to eat out shows no sign of abating. Seven out of ten adults agree that
there are more nutritious foods available to them in restaurants now than there were five
years ago.
The Internet is changing the competitive environment for restaurants and fast-
food outlets. A full 40% of consumers at restaurants and fast-food outlets have used e-
mail or the Internet to find out information about establishments they haven't patronized
before.
Company Profile
Culinease Corporation is a food-distribution company delivering foodstuffs and
partially-prepared meal items to restaurants. It has been in business since 1992. By means
of its excellent production and distribution system, broad product line, competitive
pricing, and rapid-response deliveries, Culinease has been successful in establishing
strong relationships with its customers, the table-service restaurants. As the restaurant
business has grown, Culinease has increased its warehousing capacity, and is currently
offering the highest variety of foodstuffs and meal items of any restaurant supplier in the
country.
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Although Culinease’s sales have been growing an average of 10% per year since
1998, the future appears uncertain. Several competitors have recently entered the market
and eroded Culinease’s market share, currently at 18%. Two competitor corporations,
TasteRight and BudgetShrinker, have successfully captured 15% and 14% of the market,
respectively. TasteRight offers excellent customer support and reliability, while
BudgetShrinker offers the lowest prices.
Culinease has eight production facilities and over two dozen warehouse facilities.
It has over 50 suppliers and serves over 7500 restaurants. In 2007, Culinease installed
enterprise data management software in all of its facilities, which helped improve its
overall efficiency. In an effort to extend its reach, Culinease has made several attempts to
establish its presence on the Internet; however, its investments have not been fruitful.
Unfortunately for Culinease, most of its facilities are underutilized. The Culinease
management has been looking at its options for expanding the business. In the past,
Culinease has grown by evolving its product line. However, such opportunities are
becoming rarer. Despite 9% growth in 2008, Culinease’s market share dropped by 2%.
Market Opportunity
To maintain its standing as market leader, Culinease plans to enter the promising
new arena of restaurant-meal home delivery by coordinating a meal-preparation and
delivery service that will involve over 4000 restaurants all over the U.S. The name it has
chosen to give this new business is NetMeals Tonight.
The initial system concept is for users to register on a Culinease Web site, where
they will enter their postal zip code and then have access to all the possible menus
available in their area. These menus will include both Culinease-brand meals and custom
meals from the individual restaurants. Not all zip codes will be served. Some menu items
will be available for immediate delivery as in the traditional take-out business. Other
menu items, such as Peking duck, will need to be ordered at least 24 hours in advance to
allow the Culinease logistics system time to complete the order. Once customers place
their orders, the Culinease meal-plan system will assign each order to a particular
restaurant, and the local delivery system will be alerted to schedule both pickup and
delivery. The delivery system will be operated like a taxi service with vehicles and
drivers serving multiple restaurants and consumers within a well-defined geographical
region. In addition to offering consumers a wide variety of menu choices, the Culinease
Meal Plan will also enable its users to customize meal preparation by noting their food
allergies, favorite ingredients, and spice preferences. Users will be able to schedule and
update meal orders up to a month in advance.
NetMeals Tonight will consist of two basic subsystems: the front end and the
back end. The front end will deal with the customer interface to the system: the Web site
and database and the ordering, payment, and user-tracking functions. The back end will
deal with the restaurants and local delivery systems. The back-end system will interface
with the existing Culinease system that manages all of the upstream operations (raw-
material supply, production, warehousing, and distribution to restaurants).
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The advantages of NetMeals Tonight from the individual restaurant’s perspective
will be a) to increase its meal-preparation volume without having to increase its wait
staff, dining facility, or delivery staff and b) to gain greater publicity for its unique menu.
The advantages from the consumer’s perspective will be a dining Web site that is
available at all times, remembers individual preferences, and vastly simplifies the meal-
planning process. For those who are interested, the Web site could enhance the menu-
planning process with suggestions, nutrition calculations, and side journeys into such
things as the history of particular recipes. For Culinease, the system will put the company
into direct contact with consumers and enable it to both grow its brand of prepared meals
and accumulate a large database of consumer preferences and behaviors. The cost per
delivered meal will be kept low because the system will make effective use of both large
Culinease kitchens, which enjoy economies of scale, and local restaurant kitchens which
can add last-minute meal customizations, such as fresh vegetables. By encouraging
consumers to schedule orders days and weeks in advance, Culinease will have superior
forecasting abilities that will enable it to optimize production schedules and to deliver
prepared meals to restaurants in time to meet customer orders. Of course, a certain
percentage of orders will be subject to cancellation and change at the last minute, so the
system will require some safety stock.
With the implementation of NetMeals Tonight, Culinease forecasts its growth rate
will exceed 15% the first year and exceed 25% the next.
The two major competitors to Culinease, TasteRight and BudgetShrinker, are
likely to enter this market themselves with similar offerings. The competitive analysis
below is a projection of how their services are likely to compare, based on their current
business practices.
Market Conditions
Competitive Analysis
The following is a brief comparison of the services provided by the competitors of
Culinease, based on their anticipated features:
a) Company Name – Culinease Corporation
Service name – NetMeals Tonight
Delivery charges – Moderate
Items on the menu – Exceeding 700
On-time delivery – Excellent
Delivered food quality – Very good to excellent
Web-site interface – Superior consumer experience
Threats and weaknesses – Lack of experience in consumer market (but
competitors have similar lack of experience)
Strengths and opportunities – Long-standing market leader; experienced in
preparing basic meals and providing raw materials to restaurants; competitive
(if not lowest) prices; high reliability; and customer support
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b) Company Name – TasteRight Corporation
Service name – Web Diner Deluxe, a name emphasizing its up-scale nature
Delivery charge – $8 on minimum order of $20; $10 or more for out-of-zone
orders
Restaurant database – 2000 restaurants nationwide, typically high priced and
gourmet style
Items on the menu – Exceeding 500
On-time delivery – Excellent
Delivered food quality – Very good. TasteRight claims to preserve the
original restaurant taste of the meal even after transport to the consumer.
Web-site interface – Well designed, interesting, reasonably fast
Threats and weaknesses – High delivery charge; limited variety of restaurants
Strengths and opportunities – TasteRight has established a reputation with
customers for on-time delivery
Culinease’s response to TasteRight:
Match quality at a lower price and emphasize value.
c) Company Name – BudgetShrinker Corporation
Service name – Cyberfood 2U, a name emphasizing mass appeal
Delivery charges – Free delivery within zone
Restaurant database – 3000 restaurants, typically lower priced and family
style
Items on the menu – Exceeding 250
On-time delivery – Poor
Delivered food quality – Mediocre (frequently cold)
Web-site interface – Reasonably fast but not interesting
Threats and weaknesses – Lowest prices on meals and deliveries; cuts corners
on quality; Web-site look and feel says “cheap”
Strengths and opportunities – Established reputation among budget-conscious
consumers for guaranteeing the lowest price
Culinease’s response to BudgetShrinker:
Emphasize quality in both back-end and front-end consumer experience.
Customer Profile
The target market for this new service will consist of singles, couples, and families who
frequently eat out at table-service restaurants but who would eat at home if the quality of
food matched in-restaurant meals and if the planning, ordering, and delivery of meals
were simple and reliable.
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Market Strategy
Success in this new market will require excellence in both back-end and front-end
systems. The front-end system must be both engaging to consumers and efficient at
taking them through the order-entry process. The back-end process must be effective in
transmitting the order throughout the supply chain to ensure rapid meal preparation and
delivery as well as stock replenishment. Meal-preparation and delivery processes must be
designed and performed so as to ensure consistent quality and exceptional food safety.
Meal price and delivery charges must be within the range identified by competitive
analysis.
Investment. No capital expenditures are required for food production or delivery. The
new business will use the existing Culinease production and distribution system and the
kitchens of Culinease’s current customer base of restaurants. Delivery to consumers will
be contracted to third-party delivery companies, such as local taxi services. Quality-of-
service guarantees (such as “98% of deliveries shall be on time”) will be negotiated in the
contracts with these third parties. The major investment will be in the development of the
front-end Internet-based menu browser and order-placement system. The basic system is
projected to cost $1 million to develop and populate with data. Ongoing annual
maintenance and support is expected to be 10% of that figure.
Sales projections. Culinease estimates that a typical restaurant participating in the
NetMeals Tonight system will generate $96,000 in sales of delivered meals per year. Of
this, the sales revenue to Culinease will be 15%, or $14,400 per year. Over five years,
Culinease will increase the number of restaurants participating from 1000 in 2009 to
7000 in 2013. The table and graph below plots its anticipated growth in sales over these
next five years.
Projected sales for NetMeals Tonight service.
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