Case Wooden Bakery

W16468
WOODEN BAKERY: SHOULD IT ENTER THE U.S. MARKET?
Hagop Panossian and Dima Jamali wrote this case solely to provide material for class discussion. The authors do not intend to
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Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-11-21
Wooden Bakery started in Lebanon in the early 1970s as a small traditional bakery and, over the course of
four decades, went on to become one of the leading companies in the industry. The founder, Edward Bou
Habib, had proudly witnessed every single phase of the business’s growth and expansion. His
determination to succeed, his dedication, and his hard work had certainly paid off.
In early 2015, in the company’s busy headquarters, which were situated 10 kilometres north of Beirut, the
board of directors had to meet and vote on a major strategic decision that would determine Wooden
Bakery’s future success or failure. A decision had to be made on whether the company was ready to
pursue growth opportunities in North America and enter the U.S. market, with Chicago, Illinois, standing
out as the potential location of choice.
Prior to the board meeting, from the window of his office on the top floor of Wooden Bakery’s
headquarters, Bou Habib looked down at the warm blue waters of the Mediterranean. He was
remembering the important milestones that had revolutionized the production of traditional Lebanese
bread. However, he never anticipated that the day would come when he would consider delivering
Lebanese bread to the other side of the Atlantic.
Bou Habib’s two sons, Assad and Ghassan Bou Habib, as well as the company’s general manager, Gilbert
Hobeika, and all the board members seemed highly enthusiastic about the Chicago proposition. But was
he? Bou Habib could clearly see further growth opportunities in Lebanon and the Arabian Gulf, where
cultural differences were insignificant and resources were readily available. Bou Habib strongly believed
that these were safer waters to navigate, and he wondered whether there was a real need to venture into
unknown territories, stretching thin the resources of the company. But again, on his desk, in black and
white, sat a handwritten quotation that had been sitting there for years, guiding his decision-making and
his actions: “What counts more than success is the willingness to succeed.”
This document is authorized for use only in Othon Leon's Fundamentals of Management ? l?USEK-H20 at HEC - Montreal from Feb 2020 to Jun 2020.
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WOODEN BAKERY
Modest Beginnings
Wooden Bakery started as a small, traditional Lebanese bakery with a limited production capacity of 700
to 800 kilograms of flour per day. The production process was manual (labour-intensive) and primitive. It
was virtually impossible to maintain the consistency of the quality of the bread in the absence of
standardized processes and qualified labour. The bakery was called “Wooden Bakery” to indicate that the
bread was baked the traditional way, as it had been in Lebanese villages in the old days.
The original decision to enter the bread-making industry had not been a haphazard one. Lebanon was on
the brink of a civil war in the early 1970s, and what could be a safer investment than a bakery during
periods of political unrest and civil wars? One of the main assets of the bakery was its location. Situated
on a main highway with a heavy traffic flow linking Beirut to the northern residential suburbs and north
Lebanon, Wooden Bakery targeted and attracted people crossing this busy thoroughfare, whether on their
way to or back home from work.
Frustrated with the inefficiencies in production and the long hours of hard work from 3 a.m. until 10 p.m.,
Bou Habib soon realized that automation of the production process was the only way to grow his
business. However, the European automated production lines, imported and tested by other bakeries, had
failed to produce good-quality Lebanese bread. The only remaining option was to develop similar
production lines in Lebanon and customize them to suit the production of traditional Lebanese pita bread.
To that end, in the late 1970s, Bou Habib initiated the cooperation of a Lebanese bakery-equipment
manufacturer called Saltek, and this partnership ultimately paid off. In 1980, the first automated pita
bread production-line equipment was ready for use, and the first unit was reserved for Wooden Bakery.
Garo Salkhanian, the general manager and owner of Saltek, clearly remembered his first meeting with
Bou Habib: “One morning, Edward came to our factory with a bag full of cash, while we were working
restlessly on designing and testing the prototype of the first automated pita bread production line. He
wanted to buy it way before it was produced.” Just a few months later, thanks to Saltek, Wooden Bakery
ushered in a new era of bread-making. Through his early insight, and taking action accordingly, Bou
Habib managed to significantly increase Wooden Bakery’s production capacity (to 10 metric tons per
day), and the consistency of the quality was secured.
Growth through Bakery-Convenience Stores
Another important growth spurt for Wooden Bakery started in 1996, when Bou Habib’s two sons took the
initiative to plan, design, and introduce a new concept, thereby marking the beginning of yet another era
of successful metamorphosis for Wooden Bakery. Three years later, in 1999, Wooden Bakery launched
its first retail outlet, a bakery-convenience store, introducing a new and unique retail experience that met
or even exceeded the expectations of Lebanese consumers.
Situated in a prime location, just a few hundred metres away from the original bakery (i.e., on the same
main highway) and open 24/7, the bakery-convenience store carried a wide-ranging inventory that
consisted of an extensive variety of freshly baked Lebanese and French breads, different types of oriental
and European sweets, and ka’ak (a Lebanese delicacy). A fine selection of dairy products, local and
French cheeses, and Italian cold meats and charcuterie were also offered. In essence, the new store
provided 70 to 80 of the same food items that were the most sought-after in supermarkets, but Wooden
Bakery made them available through a one-stop shop. Moreover, in one of its corners, the 400- to 500-
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square-metre store operated a traditional Lebanese oven, baking and serving Lebanese delicacies, such as
mana’ish, pizzas, and sandwiches. The store also offered some basic seating arrangements next to the
oven and a few tables on the mezzanine to accommodate customers who wanted to eat on-site.
The new concept was immensely successful and went beyond all expectations, with the new bakery-
convenience store gradually evolving into Wooden Bakery’s flagship store. In 2015, 16 years after its
introduction, this location remained the most successful among Wooden Bakery’s 32 branches. It catered
to approximately 4,000 customers per day. The company owned the real estate, and the store offered
easily accessible parking space, which accommodated 3,000 cars per day. On average, customers spent
between five to 10 minutes inside the store, unless they decided to have lunch or dinner on-site. This
bakery-convenience store established Wooden Bakery as one of the big players in the bread industry in
Lebanon and helped the company to position itself beyond Lebanon as one of the leaders in the regional
industry (see Exhibits 1 and 2 for financial statements).
Franchising and a New Factory
In 2002, three years after the introduction of the first retail store, Wooden Bakery launched its first
franchised operation in Lebanon, and two other franchised stores opened in 2003. Since that time,
Wooden Bakery had been pursuing an aggressive growth strategy by opening, on average, two or three
franchised branches per year. Its business development unit worked hard to grow a pool of potential
franchisees from which it carefully selected the appropriate candidates and granted the franchising rights
only to those investors who met and exceeded a stringent set of requirements (see Exhibit 3). Wooden
Bakery was very successful in rolling out and adhering to those requirements across its 25 franchised
stores. This franchising strategy marked another successful milestone for Wooden Bakery, given that a
franchised store rarely failed, and the company remained ready to reacquire and manage any of the
fledgling stores should the need arise.
In 2007, to support its aggressive growth strategy, Wooden Bakery opened a large, central factory in
Antelias, a northern suburb of Beirut, just a few kilometres away from the flagship store. This state-of-
the-art factory processed 60 to 70 metric tons of flour per day (around 1,800 metric tons per month) and
operated on three shifts a day. The factory also housed a central kitchen that supplied products to all the
branches. This factory had acquired ISO 9001 quality management systems certification and had the
capacity to cater to 10 additional branches. Moreover, the company was considering building a second
factory in North Lebanon to strengthen its competitive positioning, increase volume, and alleviate
logistics-related costs and problems.
To sustain its rapid growth, Wooden Bakery also underwent a major restructuring and reorganizing
process. A group of highly accomplished directors with strong academic and professional credentials was
recruited to lead the newly created functional units. Operations were streamlined and professional
management practices were adopted, enabling the family-owned firm to make significant headway in
establishing the foundations of sound corporate governance.
By 2015, Wooden Bakery had grown significantly, mobilizing 750 employees, a sales and distribution
team of 60 employees, and a fleet of 100 vehicles and operating 32 branches scattered across Lebanon
(seven company-owned and 25 franchised). Moreover, on a daily basis, the company distributed
traditional Lebanese bread to 1,300 sales points (to supermarkets and mid-size and small grocery stores)
spread across Lebanon, but with varying concentration in different geographical areas and a visibly heavy
presence in one of Lebanon’s largest governorates, Mount Lebanon.
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LEBANON AND THE BREAD INDUSTRY
Lebanon was a very small country (10,452 square kilometres), and in 2014, its population was estimated
to be around five million. Almost half the population lived in the capital city of Beirut and in its
immediate suburbs, which were part of the Mount Lebanon governorate. Eighteen religious groups
coexisted in Lebanon, made possible in part through the crafting of a unique political system based on
proportional sectarian representation. Some geographic areas in the country had mixed populations, as in
the capital city of Beirut, while others had heavy concentrations of a single religious group or sect. This
population distribution resulted in regional and territorial strongholds for different companies, even in the
bread industry. For example, Wooden Bakery’s stronghold was the Mount Lebanon governorate, where
25 of its 32 branches were located, while one of its main competitors, Chamsine, had a stronger presence
in South Lebanon and the Beqaa Valley, two other large governorates.
Lebanese pita bread was considered the dominant staple of the world-famous Lebanese cuisine. Pita bread
was served as an accompaniment to various dishes; moreover, it was used to scoop sauces or dips, such as
hummus and foul, and to wrap sandwiches like falafel, kebabs, or shawarma. The average consumption of
a Lebanese family of four to five members was a pack of bread per day (the standard pack contained
seven loaves, weighed 900 to 950 grams, and was sold at £1,5001). Bread was widely consumed across
the country, regardless of residential area or income level.
Since pita bread was an absolute necessity in the Lebanese diet, its production was regulated by the
government. For example, the number of loaves in a pack, the weight, and the price of a pack were all
fixed by the government. Government scrutiny and intervention were triggered by fluctuations in the
market price of flour, which constituted 70 per cent of the production costs of bread. When the market
price of a metric ton of flour exceeded £600,000 (US$400), the government stepped in and subsidized the
cost by covering the difference, thus allowing bakeries to reduce the weight of a pack to 900 grams and
the number of loaves to seven. When the price of flour dropped below £600,000, the government
commanded bakeries to increase the weight to 950 or 1,000 grams and, accordingly, to increase the
number of loaves in a pack. It was therefore not surprising that the price of a pack of bread had been kept
constant at £1,500 for more than two decades. This stringent monitoring and the accompanying price
ceiling were applicable only to traditional white pita bread. All bakeries offered a huge variety of healthy
breads, such as brown, oat, full grain, and French breads, at market prices and with hefty profit margins.
The introduction of automated bread-production processes in the 1980s vastly altered the structure of the
Lebanese bread industry. A few bakeries grew fast enough to transform the industry at the expense of
most of the small, traditional bakeries operating in every single neighbourhood and village in Lebanon.
However, starting in 2012, with the influx of one million Syrian refugees who were fleeing the war and
violence in their country, Lebanon’s bread consumption increased significantly, creating growth
opportunities for most bakeries. In fact, the 2014–2015 monthly surge in bread production and
consumption was gauged through the 17,000 metric tons of flour used by the industry.
THE COMPETITION
Aside from Wooden Bakery, a few other bakeries had also grown and become strongholds across
different parts of the country, particularly the Chamsine Bakery, Moulin D’Or, and Pain D’Or.
1
£ = LBP = Lebanese pound; all dollar amounts are in U.S. dollars unless otherwise specified; US$1 = £1,500 as of April
2016.
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Chamsine Bakery
Chamsine Bakery was owned by the El Kaderi family and was the largest traditional pita bread producer
in Lebanon (around 80 metric tons of flour used per day; 2,200 to 2,500 metric tons per month). Its
primary focus concerned the production of traditional pita bread and ka’ak, which constituted the primary
source of Chamsine Bakery’s competitive advantage, unlike its competitors, who had more-diversified
product offerings. Chamsine Bakery had around 10 branches in Lebanon and a few thousand sales points.
The flagship branch was located in the Khaldeh southern suburb of Beirut and served around 6,000 to
7,000 customers a day. The company had built a new factory in the Halat area to strengthen its
competitive position in the governorates of North Lebanon and Mount Lebanon. Moreover, Chamsine
Bakery had private-label agreements with companies in Canada and Australia, operated two branches in
Syria, and had recently expanded into Turkey under the name Amaren (or, “two moons”).
Moulin D’Or
Moulin D’Or was founded in 1984. The owners were brothers: Antoine and Adel Seif. The business
model and the growth story of Moulin D’Or were similar to Wooden Bakery’s, and for that reason, the
company was one of Wooden Bakery’s major competitors. Moulin D’Or offered differentiated products
(Lebanese and French bread, ka’ak, pastries, and catering services) and outstanding customer service. Its
stronghold was the Kesrwen district in the Mount Lebanon governorate, which was Wooden Bakery’s
stronghold as well. Moulin D’Or’s flagship store and factory were located in the Jeita area, but the
company also maintained a strong presence in Beirut, El-Metn, Byblos, and North Lebanon. In 2015,
Moulin D’Or operated eight franchises and two company-owned branches. It supplied McDonald’s
Lebanon with burger buns, and it exported Kaa’ak to the United States.
Pain D’Or
Pain D’Or, founded in 1986, was part of a larger group called Malco, owned by the Koussa family. Its
competitive strength was in the production of French bread, sweets, and pastries. In 1988, the company’s
first retail shop was opened with a full-fledged pastry section. Pain D’Or produced a wide range of
products (bread, French bread, pastry, doughnuts, viennoiseries, ice cream, and chocolate), had a catering
department, and operated 18 branches spread across Lebanon. While Pain D’Or had been contemplating
entering the Arabian Gulf market, its expansion plans in Saudi Arabia had been curtailed at some point
due to tough competition triggered by its aggressive market entry strategy. Pain D’Or was preparing to
enter the lucrative United Arab Emirates (UAE) market.
Market Share
Wooden Bakery and the above-mentioned competitors controlled around 40 per cent of the Lebanese
bakery market. The remaining 60 per cent was controlled by other regional producers and small bakeries
in villages and towns. Some of those companies were Farhat in South Lebanon; Al Wafaa in the southern
suburbs of Beirut; Baydoun in Ashrafieh Beirut; and Green Lebanon in North Lebanon, Yammine,
Keyrouz, Dagher, and Al Omara. The influx of refugees during the years leading up to 2015 had
contributed to the rapid growth of some of these bakery chains.
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REGIONAL EXPANSION IN THE ARABIAN GULF
In 2009, Wooden Bakery started its regional expansion in the Arabian Gulf region through an area-
development franchise agreement with a Saudi company that was owned by Abdel Mohsen Mohaisen.
The related development was intended to cover the Riyadh area, and the development rights were initially
granted for a period of 10 years, renewable for another 10 years after that. All partners had to be well-
established companies with sufficient resources and remarkable industry-relevant knowledge and
experience.
The operational model that the Riyadh area-developing franchisee adopted was similar to the model
Wooden Bakery had established in Lebanon, with a central factory catering to all the branches operating
in a given area. The criteria and terms of the franchise agreement had been carefully thought through,
with a requirement for the area-developing franchisee to initially pay Wooden Bakery a development fee
equivalent to $1.5 million as well as royalty fees, which were described as “management service fees.”
The royalty fees amounted to 4 per cent of branch-generated sales and 2 per cent of factory-generated
sales. These royalty fees were slightly different than the royalty fees of 2.5 per cent applied in Lebanon
(see Exhibit 3). In return, Wooden Bakery had to provide the franchisee with the right to use Wooden
Bakery’s brand, trademarks, know-how, expertise, business operating systems, operation manuals,
training methods, architectural services, design manuals, and whatever else was needed to ensure a
smooth start to the new operations (see Exhibits 4 and 5).
In 2015, six years after signing the first area-development agreement, Wooden Bakery had established a
strong presence in the Riyadh area, with six franchised branches supported by a central factory. A second
area-development agreement was signed in early 2015 with KAF Group–UAE. Operations were expected
to start in 2016 and would cover major cities like Dubai and Abu Dhabi. Moreover, Wooden Bakery was
expecting to sign a third agreement by the end of 2015 with a Qatari company, Al Tahouna Bakery, and
was considering expanding to Oman and Kuwait as well.
WHY CHICAGO?
Chicago was considered to be the eighth richest city in the world and the third richest city in the United
States, after New York and Los Angeles. It had a gross domestic product of around $600 billion and an
estimated population of 2,722,389 (2014 estimates).2 The number of households in the city was
1,028,746, and the city was densely populated with 12,750 people per square mile (4,923 per square
kilometre). The real median household income was $61,598, compared to a median American household
income of $53,657 (all 2014 estimates). Moreover, Chicago had a relatively young population, with
around 65 per cent of its residents between the ages of 18 and 65. All of these demographic factors were
likely to work in Wooden Bakery’s favour (see Exhibits 6 and 7).
Chicago, Illinois, and Detroit, in the neighbouring state of Michigan, had a high concentration of
Americans of Arab and Lebanese descent. This factor represented an important consideration, although
Wooden Bakery did not want to position itself as a bakery that provided pita bread primarily or
exclusively to Middle Eastern communities; it wanted to position itself as a player in the food market
serving almost everyone.
2
“Chicago Metro Area – GDP 2014,” Statista, accessed July 7, 2016, www.statista.com/statistics/183827/gdp-of-the-
chicago-metro-area.
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Other potential locations included New York and Los Angeles. While New York had its appeal, the
running costs in New York were estimated to be significantly higher than those of the other cities under
consideration. Los Angeles was also a potential option, with a notable immigrant population with Middle
Eastern roots. However, managing the logistics of a growing start-up across a large geographic area, such
as Los Angeles, was potentially more challenging.
Chicago had long remained a culturally and ethnically diverse city, and this diversity was reflected in all
facets of everyday life, especially food, and was believed to be conducive to the introduction of novel
ideas and concepts. Moreover, Chicago was the home of 11 Fortune 500 companies, and the rest of the
metropolitan area of Chicago hosted an additional 21 Fortune 500 companies. McDonald’s, Walgreens,
and Mondelez International were just a few examples. Chicago was also a major world financial and trade
centre, which implied that the minimum requisites of vibrancy and economic health were available to
justify the differentiation food strategy that Wooden Bakery was considering (see Exhibits 6 and 7).
Finally, Chicago had numerous supermarket chains, convenience stores, and bakeries; however, the way
Wooden Bakery chose to define the industry and position itself would eventually determine the
competitive arena and identify the company’s direct and indirect competition. Chains like Panera Bread,
Mariano’s, and Corner Bakery Cafe would no doubt be among the potential competitors. The
management of Wooden Bakery believed that capturing 7 to 10 per cent of the pita bread market in
Chicago would be sufficient to break even, while anticipating that revenues from pita bread would
constitute only 10 to 15 per cent of the company’s total revenues.
THE DECISION AND LOOKING AHEAD
On that sunny morning in early 2015, Wooden Bakery’s board of directors had to make a crucial strategic
decision related to entering the U.S. market. The group’s great expectations of success were somehow
overshadowed by the daunting prospect of the project’s immense risks and challenges. However, the
decision-makers were well aware that a “No” vote would imply narrowing the horizons of Wooden
Bakery’s growth opportunities to Lebanon and the region, while a “Yes” vote would mark the beginning
of a new era and possibly the start of a metaphorical roller coaster ride, with the accompanying
apprehensions and exhilaration.
As Bou Habib contemplated the various options for Wooden Bakery’s future, he was fully cognizant that
the family-owned company had managed over the span of a few decades not only to become a leading
bakery chain, a powerful brand, and a fast-growing company in Lebanon and the surrounding region but
also a professionally managed company with sound corporate governance and a competent management
team. But in spite of all that operational excellence and Bou Habib’s unfailing entrepreneurial spirit, the
days ahead were likely to be very challenging if the board approved the growth strategy in the United
States. How should Wooden Bakery deploy its strengths and capabilities acquired in Lebanon in a totally
new environment? How should Wooden Bakery go about entering the U.S. market? What would be the
inevitable challenges of the new environment, and how would Wooden Bakery handle those challenges?
What would be the key success factors? How should Wooden Bakery implement its growth strategy and
secure and allocate the required resources? As Bou Habib gazed out his office window, all of these
questions remained, as yet, unanswered.
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EXHIBIT 1: WOODEN BAKERY INCOME STATEMENT (IN U.S. DOLLARS)
Year 2010 2011 2012 2013 2014
Sales 23,621,913 30,441,954 34,059,687 38,388,172 42,284,807
Cost of Goods Sold 15,855,426 20,749,239 22,130,943 25,820,124 26,585,504

Cost of Goods Sold as % of
Sales 67.12 68.16 64.98 67.26 62.87
Labour Cost 2,590,465 3,254,925 3,911,624 4,161,776 4,647,823

Labour Cost as % of Sales 10.97 10.69 11.48 10.84 10.99
Operational & Overhead

Costs 1,826,668 2,531,817 2,694,124 3,005,833 4,031,594
Operational & Overhead
Costs as % of Sales 7.73 8.32 7.91 7.83 9.53
Depreciation 1,121,396 1,393,133 1,545,507 1,434,247 1,685,366

Depreciation as % of Sales 4.75 4.58 4.54 3.74 3.99
Net Profit 2,227,959 2,512,839 3,777,489 3,966,191 5,334,521

Net Profit as % of Sales 9.43 8.25 11.09 10.33 12.62
Source: Prepared by authors with company information.
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EXHIBIT 2: WOODEN BAKERY BALANCE SHEET (IN U.S. DOLLARS)
DESCRIPTION 2010 2011 2012 2013 2014

Assets
Current Assets
Cash 65,000 83,000 93,000 105,000 115,000
Banks 2,493,091 2,189,307 2,039,556 2,596,775 1,876,409
Deposits &
90,000 100,000 115,000 120,000 130,000
Guarantees
Accounts
1,747,374 2,251,871 2,519,484 2,839,673 3,127,917
Receivable
Total Current
4,395,466 4,624,178 4,767,040 5,661,448 5,249,326
Assets
Fixed Assets
Fixed Assets 15,500,000 16,275,000 17,414,250 18,981,533 19,361,163
Less
Accumulated 1,121,396 1,393,133 1,545,507 1,434,247 1,685,366
Depreciation
Net Fixed
14,378,604 14,881,867 15,868,743 17,547,285 17,675,798
Assets
Total Assets 18,774,070 19,506,045 20,635,782 23,208,733 22,925,123
Liabilities
Current
Liabilities
Accounts
1,954,779 2,558,125 2,728,472 3,183,303 3,277,665
Payable
Government
145,000 152,250 175,088 196,098 229,435
Dues
Pre-Payments
125,000 128,750 135,188 148,706 151,680
& Accruals
Salaries Due 215,872 271,244 325,969 346,815 387,319
Total Current
2,440,651 3,110,369 3,364,716 3,874,922 4,046,098
Liabilities
Long-Term
2,197,733 3,082,785 3,236,925 3,538,405 3,499,551
Loans
Total Liabilities 4,638,383 6,193,155 6,601,641 7,413,327 7,545,649
Shareholders’
Equity
Paid-In Capital 100,000 100,000 100,000 100,000 100,000
Retained
5,650,000 5,650,000 5,650,000 5,650,000 5,650,000
Earnings
Partners’
6,157,728 5,050,051 4,506,653 6,079,216 4,294,954
Accounts
Yearly Net
2,227,959 2,512,839 3,777,489 3,966,191 5,334,521
Results
Total
Shareholders’ 14,135,687 13,312,890 14,034,142 15,795,406 15,379,474
Equity
Total Equities 18,774,070 19,506,045 20,635,782 23,208,733 22,925,123
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EXHIBIT 3: WOODEN BAKERY’S BASIC FRANCHISING REQUIREMENTS IN LEBANON
Location No franchise agreement is signed unless the location of a new store is available
and approved; the location should have the potential to attract a minimum of 400
to 500 customers per day; the ideal choices for a prime location are
 on a main highway to attract 3% of the cars crossing it;
 on a main road in a high-traffic area;
 on the central square of a town or village; and
 easily accessible and offering car-parking facilities.
Targeted  Wealthy and middle-class neighbourhoods
Neighbourhoods  Low-income areas have been avoided so far
 The average ticket per customer does not vary much between a high-income
residential area and a middle-class area
Financial  The franchisee has to have the required financial resources ($350,000 to
Resources and $800,000)
Obligations  A due-diligence report should be done to ensure the reliability and the credit
history of the franchisee
 An initial fee of $50,000 to be paid upon signing the agreement
 Royalty fees are 2.5% of revenues
Management Basic retail management experience is required from the franchisee as a crucial
Experience factor of success
Threshold for To break even, daily sales should exceed 4.5 million Lebanese pounds ($3,000)
Sales
Development  It starts once a memorandum of understanding is signed.
Process  Wooden Bakery provides all the necessary resources (e.g., company-
approved architects, suppliers of capital goods, inputs).
 It usually takes six to 18 months to open a new branch after signing a
franchise agreement.
 Securing construction licences issued by the government can cause further
delays.
 Wooden Bakery also provides pre-opening training for a period of two to three
months to both owners and employees of a new franchise; a team of four
area managers, one training manager, and one quality control officer is in
charge of the training.
 Routine visits and quality inspections are also part of the process after the
new branch starts operating; the quality inspection officer visits the branches
regularly to ensure that the quality standards are met and to provide his
recommendations to the area manager who, in turn, implements the
corrective measures in coordination with the branch manager and the owner
of the franchise.
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EXHIBIT 4: INVESTMENT REQUIREMENTS — AREA-DEVELOPMENT FRANCHISE — ARABIAN

GULF (IN U.S. DOLLARS)
Estimated Estimated When Method of

Payment to
Low Range High Range Payable Payment
Area-Development Rights
Upon
Area-Development Fee 1 1,500,000 1,500,000 Lump Sum Wooden Bakery
Execution
Subtotal 1,500,000 1,500,000
Franchise Package
Upon
Training & Opening Support 2 6,000 10,000 Lump Sum Wooden Bakery
Execution
Subtotal 6,000 10,000
Establishment Costs (Outlet)
Property Finding Fee 3 8,000 15,000 As Incurred As Billed Local Agent
As Billed Lawyer &
Premises Lease 4 excl. excl. As Incurred
Landlord
As Incurred As Billed Advisors &
Planning Applications 5 excl. excl.
Government
Architectural Services 6 15,000 30,000 As Incurred As Billed Architect
Building Work 7 in fit-out in fit-out As Incurred As Billed Contractors
Store Fit-Out 8 350,000 1,000,000 As Incurred As Billed Contractors
Initial Stock 9 50,000 150,000 As Incurred As Billed Suppliers
Electronic Point of Sale (EPOS) As Incurred As Billed
10 12,000 17,000 Suppliers
Equipment
Other 11 35,000 100,000 As Incurred As Billed Suppliers
Subtotal 470,000 1,312,000 As Incurred
Establishment Costs (Factory) As Incurred
Property Finding Fee 12 60,000 80,000 As Incurred As Billed Local Agent
As Incurred As Billed Lawyer &
Premises Lease 13 excl. excl.
Landlord
Planning Applications 14 excl. excl.
Government
Architectural Services 15 80,000 100,000 As Incurred As Billed Architect
Building Work 16 in fit-out in fit-out As Incurred As Billed Contractors
Store Fit-Out 17 4,500,000 7,000,000 As Incurred As Billed Contractors
Initial Stock 18 200,000 350,000 As Incurred As Billed Suppliers
EPOS Equipment 19 200,000 350,000
Government
Other 20 50,000 100,000
Government
Subtotal 5,090,000 7,980,000
Other Initial Costs
Outlet
Legal & Accounting Fees 21 5,000 10,000
Accountant
Health & Safety Advice 22 500 1,000 As Incurred As Billed H & S Advisor
As Incurred As Billed Supplier/
Staff Recruitment & Training 23 25,000 200,000
Employees
Launch Promotion 24 20,000 100,000 As Incurred As Billed Suppliers
Miscellaneous Costs 25 5,000 15,000 As Incurred As Billed Suppliers
Other 26 As Incurred As Billed Suppliers
Working Capital Provision 27 50,000 150,000 As Incurred As Billed Suppliers
Factory As Incurred As Billed
Legal & Accounting Fees 28 25,000 30,000
Accountant
Health & Safety Advice 29 in fit-out in fit-out As Incurred As Billed H & S advisor
As Incurred As Billed Suppliers/
Staff Recruitment & Training 30 400,000 400,000
Employees
Working Capital Provision 31 1,000,000 2,000,000 As Incurred As Billed Suppliers
Subtotal 1,530,500 2,906,000
Total investment 32 8,596,500 13,708,000
Page 12 9B16M128
EXHIBIT 5: FINANCIAL STATEMENT, THEORETICAL PROFIT & LOSS ILLUSTRATIONS OF AN

OUTLET FOR THE AREA DEVELOPER (IN U.S. DOLLARS)
Non-
Traditional
Income traditional
Outlet
Outlet
Sales
1 5,500,000 1,790,000
Gross Profit
2 2,035,000 662,000
Gross Profit (%) 37.00 37.00
Overheads
Rent
3 150,000 86,667
Utilities
4 220,000 69,333
Insurance
5 4,000 2,667
Occupancy Costs 374,000 158,667
% of Turnover 6.87 8.86
Staff Numbers
70 26
Staff Costs
6 765,000 220,000
Employment Costs
765,000 220,000
Local Marketing at 2%
7 110,000 35,800
Marketing Costs
110,000 35,800
Delivery Service
8 4,000 2,333
Sundries
9 55,000 17,333
Other Costs
59,000 19,666
Management Service
Fee @ 4% 220,000 71,600
Total Overheads
1,528,000 505,733
% of Turnover 28 28
Operating Profit
507,000 156,267
Operating Profit (%) 9 9
*All figures in U.S. dollars (US$)
Page 13 9B16M128
EXHIBIT 6: CHICAGO INCOME (IN U.S. DOLLARS)
Real Per Capita Income

1 Year 3 Year
U.S. $28,889 +0.85% +2.75%
Illinois $30,417 +0.24% +3.64%
Chicago $31,885 +0.22% +3.49%
Real Median Household Income

1 Year 3 Year
U.S. $53,657 +1.04% +0.93%
Illinois $57,444 +0.55% +2.51%
Chicago $61,598 +0.07% +2.18%
Real Median Family Income

1 Year 3 Year
U.S. $65,910 +1.28% +1.88%
Illinois $71,796 +1.56% +4.00%
Chicago $75,522 +1.22% +3.07%
Source: Department of Numbers, accessed April 24, 2016, www.deptofnumbers.com/income/illinois/chicago.
EXHIBIT 7: CHICAGO DEMOGRAPHICS (2014)
Population 2,722,389 (2014 estimates - a growth of 1% since 2010)

Density: 12,750.3 people per square mile (4,923.0/km²)
Below 18: 23.1%
Above 65: 10.3%
Households in Chicago: 1,028,829
Average persons in household: 2.58
Visitors: 40 million/year
45.0% White (31.7% non-Hispanic whites)
32.9% Black or African-American
28.9% Hispanic or Latino (of any race)
13.4% from some other race
5.5% Asian (1.6% Chinese, 1.1% Indian, 1.1% Filipino, 0.4% Korean,
0.3% Pakistani, 0.3% Vietnamese, 0.2% Japanese, 0.1% Thai)
2.7% from two or more races
0.5% American Indian
Ethnic Groups Irish, German, Italian, Mexican, Assyrian, Armenian, Arab, Jewish,
English, Bosnian, Croatian, Bulgarian, Czech, Greek, Black, Korean,
Chinese, Indian, Filipino, Vietnamese, Lithuanian, Macedonian,
Albanian, Pakistani, Polish, Romanian, Russian, Serbian, Slovak,
Swedish, Ukrainian, Dutch, Belgian, Cuban, and Puerto Rican.
Note: Chicago is a city with significant ethnic and cultural diversity. This diversity is a variable that cannot be ignored by
players in the food industry.
Source: United States Census Bureau, accessed April 24, 2016, www.census.gov/quickfacts/table/PST045215/1714000.

Case Wooden Bakery

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WOODEN BAKERY: SHOULD IT ENTER THE U.S. MARKET?

Copyright © 2016, Richard Ivey School of Business Foundation Version: 2016-11-21

Growth through Bakery-Convenience Stores

Franchising and a New Factory

LEBANON AND THE BREAD INDUSTRY

REGIONAL EXPANSION IN THE ARABIAN GULF

THE DECISION AND LOOKING AHEAD

EXHIBIT 1: WOODEN BAKERY INCOME STATEMENT (IN U.S. DOLLARS)

Year 2010 2011 2012 2013 2014

Sales 23,621,913 30,441,954 34,059,687 38,388,172 42,284,807

Cost of Goods Sold 15,855,426 20,749,239 22,130,943 25,820,124 26,585,504

Labour Cost 2,590,465 3,254,925 3,911,624 4,161,776 4,647,823

Operational & Overhead

Depreciation 1,121,396 1,393,133 1,545,507 1,434,247 1,685,366

Net Profit 2,227,959 2,512,839 3,777,489 3,966,191 5,334,521

Source: Prepared by authors with company information.

EXHIBIT 2: WOODEN BAKERY BALANCE SHEET (IN U.S. DOLLARS)

DESCRIPTION 2010 2011 2012 2013 2014

Source: Prepared by authors with company information.

EXHIBIT 3: WOODEN BAKERY’S BASIC FRANCHISING REQUIREMENTS IN LEBANON

Source: Prepared by authors with company information.

EXHIBIT 4: INVESTMENT REQUIREMENTS — AREA-DEVELOPMENT FRANCHISE — ARABIAN

Estimated Estimated When Method of

Source: Prepared by authors with company information.

EXHIBIT 5: FINANCIAL STATEMENT, THEORETICAL PROFIT & LOSS ILLUSTRATIONS OF AN

Source: Prepared by authors with company information.

EXHIBIT 6: CHICAGO INCOME (IN U.S. DOLLARS)

Real Per Capita Income

Real Median Household Income

Real Median Family Income

Source: Department of Numbers, accessed April 24, 2016, www.deptofnumbers.com/income/illinois/chicago.

EXHIBIT 7: CHICAGO DEMOGRAPHICS (2014)

Population 2,722,389 (2014 estimates - a growth of 1% since 2010)

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