Rainforest Cafe, Inc Essay, Research Paper

RAINFOREST CAFE, INC.

OUTLINE TO RAINFOREST CAFE RESEARCH REPORT

CORPORATE BACKGROUND

History

Formation

Rainforest Cafe, Inc. was incorporated in Minnesota on February 3, 1994 to own

and operate restaurant and retail facilities under the name of “Rainforest Cafe – A

Wild Place to Shop and Eat.”

Chairman of the Board and Chief Executive Officer

Election. Lyle Berman was elected Chairman and CEO of Rainforest Cafe at its

inception in February 1994.

Background. Berman has been Chairman and CEO of Grand Casinos, Inc. and

its predecessor since October 1990. He is also CEO and a director of

Stratosphere Corporation, and a director of G-III Apparel Group Ltd., Innovative

Gaming Corporation of America and New Horizon Kids Quest, Inc. He previously

was the President and CEO of Berman Specialty Stores, Inc. (”Bermans”) from

1978 until November 1988 when Bermans was acquired by Wilson Suede and

Leather, a subsidiary of Melville Corporation.

President and Chief Operating Officer

Election. Martin J. O’Dowd was elected in May of 1995. He is the first to hold

this position. As of November 18, 1996 O’Dowd has taken a 30 day leave of

absence for personal reasons. Dennis Nielson, analyst for R. J. Steichen,

predicts that if the leave is only 30 days there should not be a lasting impact on

the company (Nielson, November 18, 1996).

Background. O’Dowd is a director of Elephant and Castle Group, Inc. He was

previously the Corporate Director, Food & Beverage Services for Holiday Inn

Worldwide from July 1987 to May 1995. From August 1985 to July 1987, O’Dowd

was Vice President and General Operations Manager for the Hard Rock Cafe in

New York.

Management Philosophy. Berman and O’Dowd stated that they are committed

to identifying and acquiring the resources that will allow them to continue their

high rate of growth.

Main Activities

Rainforest Cafe has two areas of each facility, the restaurant and the retail area.

Restaurant

The company believes that its large menu selection is an important factor in the

appeal of its restaurants. The restaurant serves lunch and dinner entrees which

range in price from $7.95 to $15.95. The theme of the company is mirrored on

the menu with all food and beverage selections including a jungle reference

(Annual Report, 1995).

The restaurant derived approximately 74 percent of the companies total revenue

during the 52 week period ending December 31, 1995.

Retail Area

In order to enter the restaurant, all customers must pass through the retail area.

The inventory includes apparel and gifts with the Rainforest Cafe logo and other

items with a rainforest theme such as toys and educational games.

The retail area derived approximately 26 percent of the companies total revenue

during the 52 week period ending December 31, 1995.

Corporate Financial Results

Net Profits and Net Sales

The company incurred a net loss during its first year, February 3, 1994 (inception)

through January 1, 1995. It did not have any revenues during the period from the

inception through October 3, 1994. At that point it had only one operating unit, at

the Mall of America, until October 20, 1995, when the Woodfield Mall unit began

operations. Much of the loss is attributed to development expenses (Hoover’s,

August 25, 1996).

On April 7, 1995 the company converted $1,222,500 of promissory notes into

share of Common Stock at a conversion price of $4.00 per share. This

conversion resulted in a charge to earnings of $1,053,128, or $0.22 per share.

YearNet Profits (millions)Net Sales (millions)

1994$(1,628)$ 2,066

1995$ 112$13,451

Net Sales By Segment

Locations

Headquarters

The executive offices of Rainforest Cafe, Inc. are located at 720 South Fifth

Street, Hopkins, Minnesota 55343. The telephone number is 612 945-5400.

Current Operating Units

Mall of America, Bloomington, MN. This unit, which opened October 3, 1994,

is 14,900 square feet with a seating capacity of 295.

Woodfield Mall, Schaumburg, IL. This unit, which opened October 20, 1995, is

23,000 square feet with a seating capacity of 425.

Gurnee Mills, Gurnee, IL. This unit, which opened June 2, 1996, is 20,000

square feet with a seating capacity of 300.

Walt Disney World Marketplace, Lake Buena Vista, FL. This unit, which

opened July 25, 1996, is 29,000 square feet with a seating capacity of 550.

Tysons Corner Center I, McLean, VA. This unit, which opened October 3,

1996, is 17,400 square feet with a seating capacity of 375.

Sawgrass Mills, Fort Lauderdale, FL. This unit, which opened November 21,

1996, is 19,800 square feet with a seating capacity of 400.

Future Operating Units

The company plans to open 10 new units in the US by fourth quarter 1998. In

addition it has two newly signed licensing agreements with two separate

companies.

The first agreement, with Empresas de comunicacion y Entretenimiento, a

Mexican based company, is to develop seven Rainforest Cafes in Mexico over a

ten year period. The first unit of this agreement will open in Cancun during the

second quarter of 1997.

The second agreement, with Glendola Leisure, Ltd., a London based company, is

to develop five Rainforest Cafes in the United Kingdom and Ireland over a ten

year period. The first unit of this agreement will open in London during the third

quarter of 1997 (Berry, September 6, 1996).

THE RESTAURANT AND SPECIALTY RETAIL INDUSTRY

Present Environmental Conditions

Operational

The restaurant and specialty retail businesses are highly competitive, with the

competition based primarily upon price, service, food quality, location, and theme.

There are many well-established restaurant chains which possess great financial,

marketing, personnel, and other resources.

Theme restaurants have their own highly competitive and developing market.

This market is much more susceptible to shifts in consumer preferences and

frequently experience a decline of revenue growth or of actual revenues as

consumers tire of the related theme (Hoovers, August 25, 1996).

In the retail industry competition is based primarily upon merchandise selection,

price, and consumer service.

Comparison of Rainforest Cafe, Inc. with the Industry

Rainforest Cafe, Inc. competes on a general basis with a large variety of national

and regional restaurant operations, as well as locally owned restaurants, diners,

and other establishments that offer moderately priced food. The company also

competes with a number of well-established specialty retailers. There can be no

assurance that the company will be able to respond to various competitive factors

affecting the restaurant and specialty retail industries.

At this point Rainforest Cafe, Inc. has performed considerably well in the

restaurant and specialty retail industry considering their size in the market. They

have teamed with Walt Disney World in a shrewd business move that should

change them in a very positive way. The large pull that Walt Disney World has

as an theme park should boost their marketability in other areas of the country

and possibly on an international level (Melcher, September 5, 1996).

CORPORATE STRATEGY

In their 1995 Annual Report Berman and O’Dowd state that, “Rainforest Cafe is

committed to operating in an environmentally friendly manner and to raising the

awareness of environmental and wildlife issues both in its units and through

educational outreach programs.”

Strategic Goals

The report also states that they have a commitment to a broad based appeal,

high profile unit locations, high quality food, the retail area, a focus on customer

satisfaction, and attracting and retaining quality employees. They continue a

rapid expansion of locations while continuing to update their menu selections.

Marketing and Promotion

To date, Rainforest Cafe has primarily relied upon “word of mouth” advertising to

attract customers to its units. They also utilize limited outdoor billboards and

distinctive exterior signage.

Employee History

Rainforest Cafe has had no layoffs or closing of units to date.

CONCLUSION

Although I am not currently seeking a career in the restaurant industry, I would

certainly consider applying for a position in the retail area of Rainforest Cafe.

They are a growing business which seems to be taking advantage of their

resources in the best possible manner. A person who climbs the ladder in a

Rainforest Cafe is sure to have job security for years to come.

In March 1996 I purchased shares of Rainforest Cafe. I plan to hold onto the

shares as they continue to grow and increase my investment.

Berry, Kate. “Rainforest Cafe Makes A Splash.” Investors Business Daily

September 6, 1996.

Melcher, Richard A. and Dale Kurschner. “Entrepreneurs: Lyle Berman.”

Business Week September 5, 1996.

Nielson, Dennis. “Rainforest Cafe,” Reuter’s Money Network Online. November

18, 1996.

Rainforest Cafe – A Wild Place to Shop and Eat, Annual Report. Minneapolis:

1995.

“Rainforest Cafe, Inc.” Hoover’s Master List Database August 25, 1996.