KAPAI NEW ZEALAND:

EAT YOUR GREENS!

Figure 1: Kapai Owners, James Irvine and Justin Lester

Two energetic young Kiwis1 came home from overseas to start a business. By August 2007,
the well-traveled 28 year olds, James Irvine and Justin Lester (see Figure 1) had opened their
second salad store in downtown Wellington, and had plans for more. They wanted to
establish Kapai New Zealand as a leading nationwide retailer of healthy fast-food (Kapai
New Zealand, 2007a, p.4).

The idea of going into business together had been a long-time dream for these soccer-playing
mates from school. James, a geography graduate, took care of Kapais day-to-day operations.
Justin, a qualified lawyer, retained his day job for a property management company and
worked after-hours on business development. Proud of their national heritage and having
learned from their overseas experience, the Kapai boys wanted to grow a strong New
Zealand business they could take to the world. They had little doubt that the Kapai salad store
business concept was good enough but were debating how they should continue to roll it
out, with whom, how fast and where next?

Developing a distinctly New Zealand business concept

James and Justin came up with the Kapai salad store business concept in August 2004. They
adopted the name Kapai, a term originally used by New Zealands indigenous Maori, and now
in more common use among New Zealanders, meaning good, well done. The name Kapai
evoked a relaxed national attitude to things, suggesting everything will be ok. James and
Justins hope was that everything would be ok - if people ate healthy food, presented by a
business that really did have their and the countrys interests at heart.

The Kapai boys had returned to New Zealand, aware of a gap in the market. Their business
plan pointed to:

the lack of healthy, reasonably-priced food in the New Zealand market. We

recognized that while New Zealand culinary restaurant and caf trends had
changed dramatically over the past decade, the fast-food market had largely
remained stagnant. At home New Zealanders had access to and were making
use of some of the freshest, highest quality produce in the world. But within our

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 business districts the healthy options were restricted, at best. We sought to
change this by bringing some hearty greens into the mainstream fast-food market
(Kapai New Zealand, 2007a, p. 3).

Justin had worked in downtown Wellington and knew what was available, and it was pretty
much stodge. You can get sushi, and outside of sushi there wasnt a lot on offer. With
James, he wanted to create a New Zealand iconic food outlet that was both healthy and
unique. Justin reflected:

Weve got McDonalds and Subway and weve got what the rest of the worlds
got. Great - but not that interesting. Whereas with Kapai, rather than mimic
what other people are doing, we wanted to create something of our own.

Kapai was based on the values of great food which was made in New Zealand for New
Zealanders (see Figure 2).

Figure 2: Kapai Values

Values Kapai values determine the way our stores are operated. To ensure the ongoing
success of Kapai we focus on the following:

Great Food
Our primary concern is the health and the welfare of New Zealanders. We aim to
promote healthy living and fitness by increasing awareness amongst all New
Zealanders of the value of eating real food produced in our own backyard. Our
definition of real food is pretty basic in that we require it to be sourced from the earth
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and grown conventionally. We will use our best efforts to supply only local products
that are produced without chemical or genetic modification.

We also consider it fundamental to provide our products at prices that are accessible
to all persons. We believe that wholesome food is not a commodity to be enjoyed only
by a select few; instead it has to be available to everybody.

Made in New Zealand

Kapai recognises the distinct employment, economic, environmental and social
benefits of buying locally made products and services and will endeavour to do so
wherever we can.

For New Zealanders

We believe there is no greater measure of success than the worth an organisation is
able to create within the community. For this reason we will use our resources to
contribute to our immediate living environment.

Kapai adopts socially responsible business practices that recognise the value of
community return and will:
Aim to return a portion of net profits to the local community
Aim to be a socially responsible employer
Promote sustainable environmental practices

(Kapai New Zealand, 2007a, pp. 6-7)

The Kapai concept involved a New Zealand identity, a social consciousness, and an
environmental awareness.

Kapais New Zealand image and cultural identity was evident in the name and logo which
incorporated the native flora of a koru (see Figure 3) or unfurling fern frond symbolizing
new life, growth, strength and peace (Wikipedia, 2007). The Kiwi version of DIY (do-it-
yourself)3 was an important attribute of the business. During his travels, Justin had thought

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about what made up New Zealand culture: You think of Maori, and the All Blacks [national
rugby team], sheep, clean, green environment, and outdoors-living. But he felt there was
more: a New Zealand cultural renaissance going on, where people are proud of their New
Zealand identity. He and James wanted to do something good for New Zealand and New
Zealanders.

Figure 3: Kapai Logo

Social consciousness was inherent in Kapais effort to move away from processed, high-fat
content foods towards freshly made and nutritious products. Kapai provided healthy and
delicious food that also met convenience needs. For James, the emphasis was on providing
good quality and affordable products that are quick and easy. Along with offering a healthy
alternative to traditional fast-food at an affordable price, the Kapai boys were keen to
support the local community through buying locally, being good employers, connecting with
their customers, and giving to local causes. Kapais business plan stated the aim:

to maintain moderate pricing at all times. Kapai wishes to be accessible to all

walks of life. No single menu item shall cost more than the minimum wage
hourly rate4 for an adult (Kapai New Zealand, 2007a, p.11).

With a lot of Kapais prices ending in 95c and New Zealand having phased out its 5c coin
cash transactions were rounded up, with the 5c bonus going to the Karori Wildlife Sanctuary,
one of the Kapai boys favorite local places. According to James, its a great spot we
wanted to give back and do something that were proud of and our friends and employees are
proud of. Promotional material for the wildlife sanctuary sat prominently on store counters.

James and Justin also wanted Kapai to be environmentally responsible but Kapai did not have
any formal systems in place to assess environmental performance. As James stated, We love
nature, both of us ... love the outdoors. So were trying to be environmentally friendly. They
were feeling their way and had not sought outside help on the environmental side.

Also, like many other New Zealand business-owners, James and Justin saw that an important
element of the Kapai brand, particularly if they were to successfully take the Kapai concept to
the rest of the world, was New Zealands clean, green image.5 Justin noted:

Basically we want to make as small an impact on the environment as we

possibly can, so that by developing Kapai were not adversely affecting our
wider environment, or nature, so whether it be, for example, having
biodegradable packaging, recycling, having a zero waste policy and other things
like using environmentally friendly cleaning products to lessen our impact.

Armed with a business concept, a set of values and an enthusiasm for healthy living, James
and Justin set out to bring some hearty greens to the mainstream fast-food market (Kapai
New Zealand, 2007a, p. 3).

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 Store location, decor and layout
Rolling out the stores
James and Justin lived with their respective partners in Wellington, and had picked that citys
central business district as the location for Kapais first salad stores. As New Zealands
political capital, and reputedly also its cultural capital (Wellington City Council, 2007a),
Wellington boasted a regional population of nearly 450,000 in 2006 (Wellington City
Council, 2007a). The city itself had favorable demographics. Unemployment was
considerably lower than the national average of 7.5%. A greater percentage of the population
than the national average was working age, earning on average considerably higher than the
median income. A high proportion identified as professionals (Statistics New Zealand, 2001).

Kapais business plan noted visibility, foot traffic and surrounding population [as] key
drivers for determining the likely success of a site (Kapai New Zealand, 2007a, p.8).
Considerable thought had been given not only to location, but to getting the first store up-and-
running as a model for those to follow. Kapais first store opened in October 2006. It was
centrally located in the basement level of Lambton Square, a small mall with access from
Wellingtons main shopping street which boasted the highest pedestrian count in the country
(Katipo, 2003). The area was dominated by commercial office towers and government
offices.

The second downtown Wellington store opened less than a kilometer away in August 2007.
The location in the Willis/Bond Quarter of the city was the second busiest street in the city,
also home to a large number of businesses and somewhat limited in its choice of eateries in
comparison to other areas of Wellington (Kapai New Zealand, 2007a, p.8). There were
plans for another downtown store, a little further along in the Manners/Cuba quarter,
identified as having the highest weekend foot traffic in Wellington, and at fifth place during
the week (Kapai New Zealand, 2007a, p.8). This area attracted fewer professionals and
already had many eateries. James and Justin chose their sites carefully, but the reality was
that New Zealand city centers had many other cafes and restaurants, including fast-food
outlets. They were banking on there being none quite like Kapai.

This idea of something different and the potential to get in early with an exciting new
business opportunity appealed to one of Kapais customers who approached James and Justin
about taking on a franchise. Franchising had always been on the Kapai boys minds as a good
way to grow the business fast without the need to take on a lot of debt. The approach had
come a little early, however. According to Justin:

We said Were not ready to franchise yet, we dont have an ops manual, we
havent necessarily documented everything that we do. And they said, well
run with what youve got - and away they went. And so theyve been in
relatively close contact; theyre taking a lot upon themselves to get up and
running. And theyve had retail experience in the past, and theyre doing a
fantastic job of it so far.

The first franchise store was to be located in Westfields Queensgate shopping centre about
15km from Wellingtons CBD in Lower Hutt City, the largest mall in greater Wellington.
This shopping center had around 8 million customer visits per annum to its more than 140
retailers including its major retail anchors

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With two stores now running, a third planned, plus the first franchise due to open in
September 2007, the Kapai boys were extremely busy. Justin was writing the operations
manual at nights. And, they were finding one of the best times to talk about business was
before and after their soccer training and matches. While franchising involved a lot of up-
front work for them, they thought that it would ultimately leave James free to undertake more
of a general management role and Justin to concentrate on more strategic matters.

Styling the stores

Kapais two stores had a distinct dcor based on the Kapai boys interpretation of a New
Zealand environmental theme. For James, the subtle greens and browns were inspired by
New Zealands landscape and linked to the salad product as well: our fertile pastures where
the vegetables are grown. Natural timbers featured in the decor. For Justin, there was quite
an earthy feel to the store. The colors, the name Kapai, the logo and slogans on the walls,
the staffs brown T-shirts incorporating the koru design all contributed to this feel. The
customers love the colors, and they love the furniture, its smooth and funky lines they just
love seeing something different, commented James. The plan was to use similar dcor in
Kapais future stores, with perhaps a twist here and there.

The stores had a large menu board above the servery counter where all the salad ingredients
were on view. Cold beverages were available for self-selection from an adjacent fridge.
Fairtrade coffee was available for pick-up at the end of the salad line. The emphasis was on
simple, fresh and largely unprocessed ingredients, served without undue fuss or packaging.

The first store had its own customer seating area, for around 20 people. Regular caf-style
tables and chairs as well as more comfortable lounge style seating were available. Daily
newspapers and Kapai newsletters were on hand. The overall ambiance was a cross between
a fast-food outlet and a regular caf. The second store was located in a food-court which had
its own seating. The majority of customers across both stores were take-away customers.
Store opening hours were 8am-4pm Monday to Friday and 10am-2pm on Saturdays for the
first store, and an hour less each day for the second in its start-up phase.

Menu choices and prices

James and Justin crafted the Kapai menu with the aim of developing food which was both
nutritious and fast. Salads were the main fare on the Kapai menu (see Appendix 1). James
noted the emphasis on giving the customer control DIY, do-it-yourself salads so the
customer can choose exactly what goes in, and knows exactly what theyre getting.

The salad base was a choice of mesclun, baby spinach, cos lettuce, or rocket (also known as
arugula) lettuce. There were 22 regular fillings (e.g., roasted pumpkin, cucumber, field
mushrooms, and sundried tomatoes), 8 gourmet fillings (e.g., chili chicken, honey ginger
beef, and grilled bacon), and 11 dressings (e.g., lime, chili and soy, balsamic, and blue cheese
and chive). Customers could combine these as they liked, with prices starting at $NZ6.506 for
a small salad. Alternatively, they could choose an advertised salad, or Kapai Favorite.

For larger appetites, Kapai allowed customers to have a choice of salad in toasted pid bread.
Prices for these started at $6.95. Kapai also offered soup served in a freshly-baked hollowed
bread bowl, and breakfast food options to cater for the early pedestrian crowd. The soup
choice, priced at $6.95, was designed as a salad alternative for the cooler winter periods.
Breakfast included honey hotcakes, yoghurt and fruit and muesli. Also available were juice,
coffee and a range of teas.

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Along with DIY, other Kapai values influenced the menu. The salads were served in
biodegradable potato pack containers while the bread-casings were entirely edible. For take-
aways, bread bowl soups were wrapped in paper, and brown paper bags were given on
request. Coffee was served in cardboard cups, as recyclable cups were not readily available in
New Zealand.

Operations
Management and staffing
From the beginning, James and Justin took on different roles. As General Manager, James
focused on getting the first store up-and-running. He had since hired a manager for the first
store, and was busy getting the second store fully operational. He spent time sourcing
ingredients, cooking and preparing food in the new offsite kitchen, and managing staffing.
Justin, as Business Development Manager, concentrated on strategic development. He noted
sometimes the day-to-day reality was a bit different: I do payroll and invoicing and the like
as well, but more focusing on growing the company as quickly as we can. James saw this
arrangement as working well:

We really liked the idea of working together, and still do. We complement each
other quite well. Justin is very much an ideas sort of man; Im sort of more at-
the-coalface, getting things done. So we balance each other well.

It had been tricky at first making sure they had the right number of staff to deal with the
increasing customer numbers in the beginning months, until customer numbers settled. But
staffing was now quite stable and James was extremely happy with the Kapai employees.

I think we attract people who are young, and vibrant. They are into healthy food,
and into the outdoors and are well-educated. I think they just sort of like what
were doing and I think they see it as being quite a funky sort of place as well.

Many Kapai staff were university students wanting part-time work. They suited Kapai, which
needed flexible staff willing to work short 2-4 hour shifts over the busy lunch period. Justin
felt that the vibe at Kapai stores often attracts the type of people we want and also noted
that a lot of new staff come via word of mouth through other satisfied staff members.

Getting supplies
In line with the Kapai values, social responsibility and environmental awareness were
considered when getting supplies. Kapai sourced many of its products from within New
Zealand. Where we can, we try to support local, James said. However, he did have to
balance this aim at times with his desire for quality.

Like 90% of it is local, but then theres the odd thing, like at the moment, its
very difficult to get decent New Zealand tomatoes, so theres some tomatoes
over from Australia, but you just cant really not do that.

Getting quality produce required James constant attention because of the large amount of
greens we have. He considered that Kapai had established a good relationship with a local
produce supplier, and recognized that new relationships with other suppliers would likely be
needed when the business grew into different regions.

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Drinks available at Kapai were also sourced with a social conscience. Fairtrade coffee was
chosen. Preservative-free fruit juice was made by a small producer, just north of Wellington.
As Kapai was its only major customer of bottled juice, it supplied the juice in glass bottles
with Kapai labels. James and Justin were satisfied with these arrangements but were unsure
how long this producer could continue to supply the amount of product that Kapai required.
The producer would either need to grow with Kapai or the Kapai boys would have to
investigate other suppliers of preservative-free, and even possibly organic beverages.

Sourcing biodegradable packaging for the salads had not been straightforward. The
packaging was originally obtained through a supplier from a Malaysian company. It was
difficult to ensure continuous supply. With the Kapai boys wanting to support local suppliers
and reduce the miles behind their product in an age of increasing food miles consciousness,7
an international company was not their first choice. As James stated theres a New Zealand
place called Potatopak who we wanted to go with, but the containers didnt have any lids,
which is kind of crucial for us.

With the third store on the way, Kapai had reached a capacity where it was feasible for
Potatopak to produce potato-based containers and lids for Kapai. Working with a small local
producer had once again resulted in opportunities for Kapai. It now had a reliable supply of
biodegradable containers and, as the lids had been made for Kapai, its logo was embossed on
the top of the container. Getting these economies of scale helped Kapais finances as well.

Money matters
While traveling and working overseas, James and Justin had each managed to save some
money which helped finance their first store. They were equal partners in the business, and
had two smaller shareholders, each with a 5% share. With James and Justin doing a lot of the
set-up work themselves, they had also reduced the amount of start-up capital needed. At their
stage of life, establishing Kapai was a relatively big investment.

The first Kapai store performed better than originally forecast (Kapai New Zealand, 2007, p.
11). The location had proved effective, at times exceeding 300 customers a day. On average,
customers spent $8.82. Earlier in 2007, monthly turnover figures were approximately
$63,569 with around $10,806 of that being profit (Kapai New Zealand, 2007, pp. 10-11).
James drew a salary as a company employee; Justin did not.

The business plan outlined a number of operational assumptions developed by researching

industry best practice (see Figure 4) and Kapais own financial analysis.

Figure 4: Restaurant and Cafe Cost Structure 20058

Item %
Salaries and wages 28.17
Food and beverage purchases 32.80
Other purchases and operating expenses 22.12
Rent and rates 6.41
Depreciation 3.78
Interest and indirect taxes 2.01

Total costs 95.29

Operating profit before tax 4.71

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These functioned as a guide to the set-up of future stores and a means to assess the
performance of existing stores. Operational assumptions were:

Rent costs should account for no more than 12% of turnover;

Stock and raw materials will account for no more than 33% of overall costs;
Staff costs should account for no more than 30% of turnover;
Daily store customer numbers should reach 200 people at a minimum; and
Average customer sale will be no less than $8.30 (Kapai New Zealand, 2007a, p. 12).

Attracting customers
Marketing was another DIY affair for Kapai. Its business plan stated:

We do not intend to use paid advertising campaigns in the media as we believe

that any benefits are disproportionate to the costs. We believe that there are
more effective ways to advertise, such as guerrilla advertising that draws
attention to the store in the stores vicinity through antics, art and innovative
ideas (Kapai New Zealand, 2007a, p. 10).

It was difficult to know what antics the pair had in mind but they had been clever with their
wall art (see Figure 5). The walls and cabinets of the stores were sparingly decorated with
Maori proverbs and quotes from early New Zealand settlers. These had attracted attention in
the news articles on Kapai.

Figure 5: Kapai Wall and Cabinet Art Samples9

James and Justin had done several newspaper, magazine and radio interviews. Their plan was
to gain exposure in all forms of the media through our exuberance, vitality and unique ideas
(Kapai New Zealand, 2007a, p. 4).

Getting customers involved was another Kapai strategy. A monthly competition for best
salad combination invited customers to further develop the Kapai Favorite menu. A Kapai
newsletter covered relevant global and New Zealand issues, along with recipes and events.

Kapais website came up at the top of many keyword searches,10 was professionally presented
and contained information targeted mainly at customers such as menus and basic nutritional
content. The website had received more than 130,000 hits and 2,000 visitors within the first
six weeks of opening (Kapai New Zealand, 2007a, p. 4) and continued to attract good
patronage.

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 Fast-foods and salad stores in New Zealand
Justin saw Kapai as an alternative fast-food to fish and chips, hamburgers, pizzas and the
like. Kapai was a new entrant operating in the established fast-food industry and the
emerging salad store segment. It was just a tiny business up against some major competition.

The fast-food industry

Whether the actual food was good for them or not, approximately 50% of New Zealanders
regularly consumed fast-food (The Food Industry Group, 2006, p. 16). Branded fast-food
stores could be found throughout the country, and small owner-operated outlets were also
popular.

Burger chains dominated New Zealands fast-food landscape. McDonalds golden arches
could be seen in all major cities and many towns. McDonalds New Zealand boasted 139
stores, with 19 in the Wellington region (McDonalds, 2007a). Burger King, another
franchised chain, had 67 stores throughout New Zealand (Burger King, 2007). Burger Fuel, a
gourmet burger store, had 21 New Zealand stores (Burger Fuel, 2007) and was quickly
expanding since listing on the New Zealand Stock Exchange. Wendys Old Fashioned
Hamburgers had yet to expand beyond Auckland. Other burger offerings came from smaller
branded stores and locally-owned operations, including from fish and chips shops in virtually
every city and town.

Other major fast-food segments included pizza and to a lesser extent, chicken. Restaurant
Brands was a prominent company in the New Zealand fast-food industry in both these
segments. It operated Pizza Hut, KFC and Starbucks, in New Zealand. Pizza Hut had 101
stores throughout the country (Restaurant Brands, 2007). Other big competitors in the pizza
market included Dominos with 65 stores (Dominos Pizza Enterprises Ltd, 2007, p.3) and
New Zealand-based sensation, Hell Pizza with 67 stores (Hell Pizza, 2007). Competitors to
Restaurant Brands 86 KFC restaurants (KFC, 2007) included Oportos six Auckland stores
(Oporto, 2007) and countless smaller chicken joint operators.

Then there were the fish and chips and pie segments of the industry. Both were traditional
Kiwi favorites linked to New Zealands British heritage. The vast majority were single owner-
operated businesses. Notable exceptions were LJS Seafood Restaurants with 15 franchised
fish and chip outlets in shopping malls, and Jesters Pies (Jesters Pies, 2007), a franchise based
on healthier pies, expanding throughout the country.

These mainstream fast-food offerings of burgers, pizzas, fried chicken, fish and chips, and
pies faced expanding competition from food-courts, ethnic restaurants and take-away bars
(The Food Industry Group, 2006, p.16). Many of these alternatives catered for the more
health-conscious convenience buyer. In city centers, sushi bars were common, as were
sandwich stores. Subway, the worlds largest submarine sandwich franchise, had obtained a
big market presence with 193 outlets in New Zealand (The Food Industry Group, 2006, p.
16). Subway was located in cities and large towns as well as in rural towns positioned on
major highways. Subways menu was made up of a range of sandwiches and salads. On a
smaller scale, but with multiple channels Wishbone targeted health conscious convenience
buyers with a gourmet sandwich selection and ready-made meals including salads
(Wellington City Council, 2007b). Wishbone had quickly grown to 9 stores in Wellington
and 3 in Auckland (Scoop, 2006), predominantly in busy CBD areas. It planned to open more
stores, in other New Zealand cities (Unlimited, 2004), and internationally. Wishbone also

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supplied ready-to-heat meals to supermarkets and in-flight catering for New Zealands
national airline, Air New Zealand.

The health conscious consumer was beginning to be taken notice of, by a variety of players.

Health concerns and industry responses

With more than 50 per cent of New Zealand adults being overweight or obese, and this
percentage doubling between 1977 and 2003 (Stuff, 2007), diet and health was a major
concern reflected in national health policy and the promotion of healthy eating guidelines.

Many major fast-food chains had made attempts to balance their menus with a range of
salad products, low fat mayonnaise, diet drinks and water (The Food Industry Group, 2006, p.
16). However, healthy offerings on most menus were limited with KFC offering only one
salad priced at $7.00. McDonalds had revamped its menu adding a range of salads ($6-$8),
deli rolls ($5-$6), cereals and yoghurts, fruit snacks and beverages (McDonalds, 2007b).
Nutritional and allergy information was available on most of these fast food chains websites;
sport and community sponsorship and social marketing programs were also part of these
companies health and social campaigns.

Many customers still did not routinely make healthy fast-food choices. LJ Seafood admitted
its healthier options such as grilled not fried, battered or crumbed fish, and its salad offering
were not really profitable items as yet (Lord, 2007). Despite the efforts of fast-food chains
and others, there was still work to be done to make the words fast-food and healthy go
together.

Salad store competitors

Like Kapai, others had noted that gap in the market. Many cafs now provided salads, both
eat-in and take-away. And while Kapai had been the first mover in the fast-food salad market
in Wellington, other New Zealand entrepreneurs had the same idea.

Auckland, New Zealands largest city and its commercial capital, was home to fast-food salad
stores, Saladworks and Toss. Each had two stores. Unlike Kapai, Saladworks and Toss had
chosen stand-alone stores (as opposed to food-courts or malls), but were similarly placed in
relation to high pedestrian counts and proximity to office buildings. Their menus also
featured house and DIY salads, soup, breakfast items and a range of beverages. Saladworks
was lower priced on some items (salads ranging from $6.50-$7.00) and had received a
number of accolades.11 Toss, with salads priced at around $9.50-$10, had a comprehensive
on-line ordering and delivery system but did not yet have nutritional information available for
its products. Neither business had an environmental or social focus beyond providing an
alternative to high-fat fast-food. Tosss menu included several less-healthy items such as
chocolates and cookies. Saladworks and Toss had not publicly indicated plans for expansion.

Reload started out as a coffee and juice bar. In 2005, it introduced a salad menu creating what
it called a HEALTH.fuelstop. Reload now had two stores in Dunedin and two in
Christchurch, and was set to launch in Singapore and China in 2007 (Reload,2007).
According to its website, Reload is New Zealands most innovative fast-food outlet. Reload
prides itself on offering something unique in the fast-food industry (Reload, 2007). While
salads were a key menu item, juice options were prominent. Health supplements could be
added with Reload suggesting the addition of Wheatgrass to juice in order to drink your
greens (Reload, 2007). Reload stores were situated in street-front locations and in malls and

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food-courts. The company aggressively promoted expansion through franchising. Reload
had extensive franchise information available on its website and featured in the Franchise
New Zealand magazine.

Between these salad store companies and other one-store businesses, salad stores had begun
to establish a presence in at least four major New Zealand cities. An Australian-based
franchise Sumo Salad was also looking at entering the New Zealand market (Franchise,
2007). The question was which company would grow to capture the biggest share of this
emerging market.

The economics of taking Kapai forward

Profit margins were often hard to achieve in caf and fast-food businesses. The Kapai boys
knew that a close eye on overheads and other costs was essential. They recognized that the
operational assumptions in their business plan needed to be considered further, especially
with their plans to franchise and the need to offset franchise costs and ensure a profit for both
Kapai and franchise owners. Similar fast food franchises in New Zealand ranged from around
$100 000 to $350 000.12 James and Justin were deliberating the price of a Kapai franchise.

Getting the right locations was key. However they came at considerable cost. Kapais
operational assumptions set a maximum rent cost of no more than 12% of turnover, noting
rent as a major expense and indicating the preference for good locations. Rent prices in
central Wellington were averaged $800-$2,600m, with similar prices in Auckland. Other
locations such as Whangarei, Hamilton, Tauranga, Christchurch and Dunedin carried a much
lower price tag (averaging $400-1,000m), according to property industry sources. James and
Justin wondered whether the maximum rent cost could be reduced to 8-10% bringing it more
in line with the industry norm,13 while still locating stores in the prime real estate positions
required to meet their other operational assumptions. Or perhaps they should take a risk on
the higher rents being offset by turnover.

Stock and raw materials, as with all food operators, also represented a big expense for Kapai.
The fluctuating cost of produce between seasons needed to be considered, although it could
potentially be minimized in the future through agreements with some suppliers to set a
standard price across the entire year. Supporting local produce growers could limit the
economies of scale Kapai could achieve through expansion.

Menu item prices and staff costs were also important. Kapais social responsibility included
an aim of having no menu item priced higher than the current minimum wage. Could prices
be sustained and ensure future profitability for both Kapai and franchisees or would they need
to be increased to offset franchise fees? Would staff costs be able to be reduced from a
maximum of 30% in other locations? These were just some of the issues the Kapai boys
needed to consider as they looked at opportunities for growth.

Opportunities for growing Kapai

James and Justins long term objectives for Kapai included it becoming New Zealands
signature fast-food outlet with stores across New Zealand, an iconic brand that New
Zealanders are proud to call their own (Kapai New Zealand, 2007a, p. 5). Both were keen
for the business to grow.

We have put significant effort into the development of the Kapai brand to
distinguish us from competitors and create a concept that we and our customers

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 are proud of. Through our marketing and physical environment we have also
positioned ourselves as a uniquely New Zealand alternative amongst retail food
operators, which we believe will offer us a significant advantage in the domestic
market (Kapai New Zealand, 2007a, p. 2).

James reflected: It was always the idea to go bigger, although you have to take steps, one
step at a time, and basically the first store, we saw that as being our first step, but then our aim
was to have three stores open within a year. And were going to achieve that. The current
business plan pointed to a further 5 - 10 stores nationally within the next three years and
noted seeking strategic partners to work with to grow the business and ensure its continued
success (Kapai New Zealand, 2007a, p. 2). Beyond that the plan was silent.

The priority was to finalize the operations and franchise details for the new Queensgate
franchise operation and get that store and the third Kapai store up-and-running effectively.
Then, the Kapai boys intended to actively seek people interested in both master franchises for
different areas, or single store franchises. Justin noted:

Well actually put up on the website if people are interested in franchising, they
should contact us; well start advertising locations where we want to set up
Kapai stores such as Christchurch, larger towns and cities in New Zealand,
initially. Weve got people quite keen to do something in Queenstown it
would work quite well, because youve got that fast moving public, a lot of
tourists eating and they want something different as well. They dont want to go
to McDonalds. Yes, Christchurch and Auckland, Hawkes Bay, Palmerston
North perhaps.

James mentioned a preference, too, for the bigger centers for future stores but was also
hopeful that they would get into the likes of Invercargill and Blenheim. They had a lot of
contacts, even a mate in London who was keen to try the idea out there at a later stage. They
were keen on having at least one international store within the next five years.

There needed to be some research done on which New Zealand cities and towns to take Kapai
next (see Figure 6) and also internationally in places like London or Sydney where there
were a lot of expatriate New Zealanders. Decisions needed to be made on general locations.
Should Kapai focus on space in food-courts or malls, or stores in city center or suburban
blocks, or stand-alone stores, maybe even mobile outlets? In terms of specific locations there
would have to be a strong eye kept on rent levels. The Kapai boys felt that the opportunities
were there, but they needed to move ahead of other competitors in getting the best locations.

12
Figure 6: Main New Zealand Urban Area Populations

City (by geographical position Population

north to south)
Auckland Region 1,074,507 1.3 million
Hamilton 138,792
Tauranga 95,694
Rotorua 52,608
Taupo 20,310
Napier 54,537
Hastings 59,139
New Plymouth 47,763
Wanganui 39,423
Palmerston North 72,681
Wellington 292,530
Nelson 53,688
Blenheim 26,550
Christchurch 334,107
Queenstown 8,538
Dunedin 107,088
Invercargill 46,305

(Statistics New Zealand, 2006)

Meanwhile, there were plenty of other things to think about. Maybe the Kapai menu could be
altered by adding or deleting ingredients and product offerings. There were some product line
extensions that could boost sales. Healthy food items such as a range of condiments had been
considered. Clothing (e.g. the brown staff t-shirts featuring the logo or some variation), salad
bowls and servers were other ideas. Catering for office lunches was an option too it was
advertised on the website but had only moderate take-up of one or two orders a week.

The Kapai boys also wondered whether their premises could be made to work outside
breakfast and lunch times. Options for the stores included providing quick take-home salads
for commuters after work, opening later for dinners, or especially for community groups or
other meetings. They could even rent out their kitchen.

Another possibility was to move more into organics. James and Justin thought their customers
sometimes saw their business as more organic and more environmental than it perhaps was.
Because of the limited supplies of organic produce available locally, going wholly organic
was not going to be easy and the boys wondered if it could end up causing more problems if
they could not consistently deliver on it. There was an option to buy key supplies in bulk and
redistribute them. This approach might have worked for the disposable wooden forks and
biodegradable cups available overseas, but which were simply not economic right now in the
small quantities Kapai needed.

And then there were all the other great extension ideas the pair had for the Kapai brand. But
it was early days, and would-be investors were not falling over themselves yet. James and
Justin were also keen to decide on the model they wanted to use to expand before pursuing
further enquiries.

Updating the business plan and moving forward

James and Justin recognized Kapai as having a bit of a first-mover advantage in Wellington at
least. But they didnt necessarily think that advantage would last long, or exist everywhere.

13
James acknowledged, There was room for competition but were just trying to stay ahead
of them in terms of rolling out ours as quickly as we can. It was time to update Kapais
business plan to provide important details on where the business should go next, when, and
with whom it might partner. There was also the problem for the energetic yet time-strapped
Kapai boys of deciding which of their ideas they should hold on to or let go of.

The Kapai boys saw franchising as the way to grow faster as they dont have to be actively
involved on site doing all the nitty gritty work for each store, according to Justin. Itll be
alright if things keep going to plan, but one never really knows, he said. For James, opening
stores throughout New Zealand and then taking Kapai international was the ultimate goal
but whether or not it happens is another story.

James and Justin were examples of what had been referred to as New Zealands brain-drain
generation skilled graduates leaving the country to travel with many never returning.
However, they had chosen to come home and settle with, as James put it, better skills and
different ways of looking at things. Would their mix of skills and ideas be good enough to
help them stand out in a market awash with global fast-food giants, established local players
and emerging salad store competitors? There was an issue about how they could grow the
business while still holding true to the Kapai values and maintaining work-life balance.
James and Justin wondered how they could enhance Kapais environmental and social
responsiveness without detracting from potential franchisee interest. Whatever options they
chose, they needed to not only be good for business, but to stay true to its Kiwi spirit and to
be practicable as well.

14
Appendix 1: Kapai Menu

(Kapai New Zealand, 2007b)

15
 References
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Penguin.
Burger Fuel. (2007). Store Info. www.burgerfuel.com Accessed 1 November 2007.
Burger King. (2007). Locations. www.burgerking.co.nz Accessed 1 November 2007.
Dominos Pizza Enterprises Ltd. (2007). Annual Report 2006-2007.
Franchise Business. (2007). Buy a Franchise. www.franchisebusiness.co.nz Accessed 30
October 2008.
Hell Pizza. (2007). Stores: Hell Hole Locations. www.hell.co.nz Accessed 1 November 2007.
Jesters Pies. (2007). About Jesters. www.jesters-pies.co.nz Accessed 1 November 2007.
Kapai New Zealand. (2007a). Kapai New Zealand Business Plan. (Confidential document
made available to authors and quoted with permission).
Kapai New Zealand. (2007b). Menu. www.kapaisalads.co.nz Accessed 13 September 2007.
Katipo, (2003, December 5). CafeNET Lambton Quay Extension Launched Today.
KFC. (2007). KFC Store Location. www.kfc.co.nz Accessed 1 November 2007.
Landcare Research. (2007). Landcare Research Manaaki Whenua
www.landcareresearch.co.nz
Lord, S. (2007). Healthy Eating Franchises Offer Fresh Options. Franchise New Zealand,
15(3), 5pp. Available at www.franchise.co.nz/article/view/414 Accessed 20 October 2008
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2007.
McDonalds. (2007b). Our Food. www.mcdonalds.co.nz Accessed 14 November 2007.
Oporto. (2007). Oporto Home Page. www.oporto.co.nz Accessed 1 November 2007.
Reload. (2007). Reload Home Page. www.reloadhealth.com Accessed 31 October 2007.
Restaurant Brands. (2007). Company Profile. www.restuarantbrands.co.nz Accessed 1
November 2007.
Saladworks. (2007). Saladworks because. www.saladworks.co.nz Accessed 1 November
2007.
Scoop, (2006, October 4). Wishbone onboard at Wellington Airport.
www.scoop.co.nz/stories/BU0610/S00057.htm Accessed 7 December 2007.
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Accessed 11 September 2007.
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1
The term Kiwi is often used nationally and internationally to refer to a New Zealander. It is perhaps the most
prominent and widely-known way in which the New Zealand people gain a sense of identity through drawing on
nature (Bell, 1996).
2
Justin explained the term conventionally referred to food grown naturally, without modification or any
processing.

16
3
The Kiwi DIY mentality refers to the tendency of New Zealanders to have a go at doing things themselves
rather than paying an expert to do something for them. There is a resultant sense of pride in the personal
achievement that this brings.
4
The minimum wage in New Zealand in 2007 was $11.25 an hour.
5
The phrase clean and green, while its accuracy is debated, is often heard when talking about New Zealands
natural environment. While many New Zealand businesses and industries leverage off this image (e.g. the
tourism and dairy industries), it is arguable as to how many businesses and industries really add substance to the
image through activity and action.
6
In August 2007, $NZ1 was valued at approximately 0.5 Euro and around US 70 cents.
7
Food miles (the distance food travels from the place of its production to the consumer) is a topic of
international debate and an issue receiving significant attention in New Zealand due to its potential trade
implications for exporters. For further information and a New Zealand perspective on the topic (see Landcare
Research, 2007).
8
Figures are derived from Statistics New Zealand and were obtained from The Restaurant Association of New
Zealand. Statistics are an amalgam of data from all sorts of operations (e.g. a la carte, buffet, over the counter
service and table service) and are provided to indicate industry averages. Individual establishments could vary
significantly from these figures. The authors thank an anonymous reviewer for suggesting this table.
9
Kumara is New Zealands native sweet potato.
10
Google New Zealand keyword searches with which Kapai New Zealand features either first, or on the first
page of results, include kapai, eat your greens, and salad bar.
11
Awards included the New Zealand Herald on Sunday 2006 #1 Gourmet Health Food Take-away and New
Zealand Retailers Association Top Shop 2006 Award (Saladworks, 2007).
12
Two fast-food salad store franchises were listed on the Official Directory of the Franchise Association of New
Zealand website. Reload Salad and Juice Bar franchise was listed in the $100,000-$250,000 category while
Sumo Salads was priced higher at $300,000-$350,000 (Franchise Business, 2007).
13
Industry averages are identified in Figure 3, which indicate rent and rates to be 6.41%; arguably, a more
realistic target for Kapai New Zealand is 8-10% due to the nature of the operation and the location requirements
(i.e. high pedestrian count and visibility).

Reference for case study as of 2 Nov. 09

Tregidga, H. , Kearins, K. & Collins, E. (forthcoming - accepted for publication) Kapai New Zealand: Eat
your greens! Business Case Journal.

17