What problem we were asked to solve

With a tightening economy and demanding customers, the leadership wants to have a razor-sharp focus to grow the brand while sustaining the brand quality. They engaged Gravitas as their trusted advisor to create a strategic and structured approach toward increasing company-owned stores.

Our approach

• We created a two-step approach – the first step pre-qualifies franchisee locations that are attractive for acquisition based on financial and real estate parameters, and the second step involves a deeper analysis of store performance to suggest an acquisition price to the leadership. 

• The first step began by collaborating with the CFO’s office to identify key attributes upon which to base the acquisition decision, both quantitative (financial) and qualitative (real estate) attributes. The financial metrics included attributes such as Net Sales, EBITDA, COGS, etc. Based on the subjective business knowledge of the leadership, we established the performance thresholds necessary for a store to qualify for acquisition. For the qualitative metrics, we had 16 real estate data points (such as store size, seating, store and location format etc.) for each location across the ecosystem. We ran multiple iterations of increasingly complex statistical analyses (based on Regression and Random Forests) to identify the most relevant real estate parameters impacting the sales performance of the stores. 

  
  

• The second step involved calculating the acquisition price. We determined the financial analysis required to ascertain a fair acquisition price at which the investment will be profitable. We then partnered with the leadership and their private equity advisory firm to seek consensus on the proposed approach.

• A scoring model was developed, that assigned a score from 0 to 5 for each performance threshold, for each attribute. These scores were weighted relative to their importance, based on both objective statistical data analysis and subjective business understanding.
  

• Finally, we combined the financial and real estate parameters into a singular framework to assign Attractiveness and Cost of Acquisition scores using our Business Value Rating (BVR) assessment. When visualized on a 2x2 grid, the BVR assessment helps to prioritize and rank each store’s acquisition.

Outcomes

We validated the model’s performance for highlighting high-value stores (along with providing acquisition prices) with the CFO by testing it against the available data for current company-owned stores.

Utilizing PowerBI, we created a visual dashboard for the leadership to view the acquisition opportunities on the BVR grid and ascertain the prioritization and ranking of acquisition opportunities with a glance. Providing various perspectives on the same location – review status, sales variance %, location risk categories, sales cohorts, and NPV – allows the leadership to take a more nuanced approach to their strategy. The leadership is now deploying the model to not only consider buying-back franchisee locations but also to consider M&A opportunities with a competitor chain.