Zorbas Bakeries (Cyprus): An Option to Expand?
Zorbas Bakeries Case presents a decision situation. The case setting is Nicosia (Cyprus, EU), December 2014. Zorbas Bakeries, a large family-owned Cypriot company, was considering a bold new initiative - opening a new concept store abroad, in New York. Moreover, it wasn't just about opening one shop, but the shop that would be used as the pattern for all future international franchise stores. Such a project would be most unorthodox for a local family-owned company and would involve multiple risks. The managing director of the company Demetris Zorbas took up the responsibility for this project in early 2014. He had to finalize the plan before the decision by the management team at the end of 2014. "Are we fully ready to go to New York? Will we be able to compete in this difficult market? What are the projected financials for the new 'test case' store? Will this project add value?" The case requires students to do first a standard NPV analysis, and then presents an opportunity to introduce students, in a relatively easy way, to the rather complex but increasingly important concept of 'real options' in finance, an extension of the traditional DCF analysis. Students who are aware of the limitations of the standard NPV model, and can identify and understand real options, become ultimately more sophisticated users of the traditional DCF analysis and are ultimately able to make better investment decisions. The case also emphasizes that a financial analysis is an important determinant of the future strategy, although clearly not the only determinant. It is crucial for students to understand the strong link between finance and strategy.