Asset Valuation Paper: Piggly Wiggly, Inc.

Essay by tiernyUniversity, Master'sA+, November 2005

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Piggly Wiggly, Inc. is a national chain of convenience stores. They sell franchise stores to independent owners. Because Piggly Wiggly is a large national chain, individual franchised stores receive corporate buying power, provided they continue to pay a yearly franchise fee. This buying power allows the independent owners discounted prices on goods, mutual advertisements, and rebates from large venders such as Pepsi Co., and Coke. By retaining a Piggly Wiggly franchise, independent owners are also provided with access to a computerized inventory system that aids the store in re-ordering sold goods.

The inventory at Piggly Wiggly will contain both perishable and non-perishable items. All items will be ordered by the store manager on a weekly basis. The majority of non-perishable goods will be inventoried and returned to stock by store employees. Perishable items provided by large, well-known venders such as Coke, Pepsi, Beer, Chips, etc., will be stocked and inventoried by the vender.

The vender order will be verified by the store manager prior to allowing the outside vender access to shelf the product. Piggly Wiggly also offers the ability to purchase gasoline to its customers.

Piggly Wiggly, Inc. sold a franchise store six months ago to the Bakers, who live in Florida. Prior to the purchase, the Bakers received detailed reports attesting to their potential first year revenues from Piggly Wiggly, Inc. The Bakers' franchise is located on a major highway. Their store is the last stop for gasoline prior to a three-mile-long bridge. The next rest area is 15 miles past the bridge. The Bakers completed the store build-out and spent thousands of dollars in equipment. After six months of business, the Bakers' store is experiencing significant losses, with increasing monthly inventory costs.

The Bakers have hired a team of consultants to analyze and recommend...