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Strategies for Building Business Success - Essay Example

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As per reports of National Restaurant Association of the USA, Restaurant-industry sales are projected at five percent growth in 2007 and that equal 4% of the U.S. GDP. The present report discusses various factors that have been taken into account while planning this expansion…
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Executive Summary As per reports of National Restaurant Association of the USA, Restaurant-industry sales are projected at five percent growth in 2007 and that equal 4% of the U.S. GDP. This translates into the overall economic impact of the restaurant industry in excess of $1.3 trillion in 2007, including sales in other associated industries such as agriculture, transportation and manufacturing. For every added $1 million in restaurant sales creates 37 more jobs. “The Average sales per restaurant in 2004 were $795,000 at full service restaurants and $671,000 at limited-service restaurants while the average household expenditure for food away from home in 2005 was $2,634, or $1,054 per person”. More than 70% restaurants are independent firms. Zaika is another existing profit making restaurant in Atlanta and the management plans to ride the growth wave in the industry with expanding the operations. Currently it’s an ethnic Indian Restaurant. However, with current trends of cosmopolitan clientage, the management has planned to revamp the setup and conducted a study to find the best strategy for expansion. The present report discusses various factors that have been taken into account while planning this expansion. Contents Company 3 The Menu 3 Industry Analysis 4 Key Success Factors 5 Internal And External Factors 5 Porter’s 5 Forces 7 Market Analysis 9 Market Segmentation 10 Competitor Analysis 12 Marketing Strategies 13 Competitive Advantages 15 Conclusion 16 Strategies for Building Business Success Company: Zaika Restaurant is exceptional to Atlanta. From just being an Indian restaurant since its inception, the company plans to make it a multi cuisine restaurant with a sophisticated bar. The new planned restaurant meets the criteria of Multi Branding since it will have three eating-places in single premises: A fast food lounge, a sophisticated Bar, and a full service Dining that served Indian, Chinese, Thai, Spanish, Mexican and Continental dishes. This concept presents customers with more options of multiple dining and entertainment. The spatial and menu divisions add to the appeal and offer the customers a special experience on each visit. The ambiance also caters to a young but grown-up adult crowd. This is not just a family dining establishment. With a total space of about 3,000 square feet, the restaurant will expand to provide seating for 110 persons. There is sufficient parking space available to accommodate enough number of vehicles. The Menu Zaika is targeting on Atlantas growing demand for an ethnic multi-cuisine restaurant, a concept that fulfils the Atlantas need for choice and ambience at economic prices. While it was found that most of the Indian restaurants served mainly ‘Chicken Tikka Masala’ and other Mougali and non-vegetarian dishes, most of the Indian vegetarian delicacies were missing. The new menu filled the void by adding several new preparations with mouth-watering aroma. From just being an Indian restaurant, new business plan envisaged to make Zaika an ethnic restaurant that had flavors of traditional Chinese, Thai, Spanish, Mexican and Continental food to target the cosmopolitan customers from diverse backgrounds. Different eating sections ensured that the ambience matched the expectations of customers of different age groups. Menu also included ‘fixed meals’ or Thali as they call it in India, for the customer seeking value for their money. It also had mini-meals to take care of small hungers. Industry Analysis The restaurant and catering industry plays a major part in the economy of the United States. The industry size is $537 billion and its contribution is 4% of the Gross National Product (National Restaurant Association, 2007). The industry has registered impressive growth over past few years and further growth is projected in the future. This industry is also the biggest “non-governmental” employer of persons and teenagers. More importantly, the restaurant industry has become an essential part of the American life with nearly 50% of all adults eating out at restaurants at least one meal a day (National Restaurant Association & Deloitte & Touche, 2000). The restaurants are classified into four categories by The National Restaurant Association (NRA). These are: Full service - average check under $10 Full service - average check between $10 and $25 Full service - average check more than $25 Limited service - fast food The biggest of these segments is fast-food sector (also known as quick service) consisting of 48.7% of all eating joints. Full-service restaurants are the second largest section with 30.3% of the market share (NRA, et. al., 2007). Fast food restaurants are known for offering value for the money. Full-service restaurants offer environment where customers can entertain with family and friends. (NRA 2007) The Restaurant industry is a vibrant industry. The demographics of its customer base are rapidly renewing. The average age of adults will be 37.2 in 2010, versus 32.3 in 1990 (NRA et. al., 2000). The workers pool of teenagers has also been shrinking over the last ten years or so. For multi-cuisine restaurants, availability of quality chefs is as important as service oriented waiting staff. Key Success Factors A restaurant’s sustained success is reliant on the effective administration of many factors: “restaurant theme, brand recognition, site location, ambiance, the competition, employee recruitment and retention, food quality, technology, and service quality”, to name a few. Internal and External Factors: All companies work within compound environments—but those facing the hospitality industry are more dynamic, uncertain, and complex (Tung, 1979; DeNoble & Olsen, 1986). Companies normally depend upon their environments for both endurance and accomplishment, and therefore, the acquisition of information about happenings outside the company can be used to retort successfully to changes in the surroundings (Culnan, 1983). Structured environmental analysis consisting of “socio-cultural, economic, technological, and political and/or ecological environments” is therefore absolutely crucial. (Chung, Yea 2005) Among the above-mentioned environments, the economic environment is what management has little control over as wide economic improbability affects the performances of the companies within an industry. Therefore, managers must envisage their economic environments with respect to their businesses; recognize the relationships, and then try to understand what drives industry performance from an economic outlook. Restaurant industry’s performance is dependent upon transformation in such internal economic variables as “purchasing power (revenue), operational expenses, and investment”. Depending upon economic environmental events, these changes may vary and result in unanticipated outcomes. For example, because of the depressed economy, there has been unusually cautious consumer spending within the food service sector (Chung, Yea 2005). Due to uncertain economy, direct expenses within the restaurant industry fluctuate, making it difficult to project the value of new investments with accuracy. In such a situation, unexpected costs may well reduce the earnings. Therefore, identifying ‘economic value drivers’ in business surroundings and understanding their effects on a company or an industry are significant for success and endurance. Business environment consists of “political, socio-cultural, economic, ecological, technological categories, customers, suppliers, competitors, and regulators”. The management at Zaika has years of experience in the industry and has been able to cope up with these uncertainties through strategic planning, market research, innovation and focus on customer. Value drivers are of two types: external and internal. External value drivers being out of company or industry control, influence the firm’s value. Internal value drivers on the other hand stay within the firm and thus the company can have some level of monitoring over them. Commodity prices are external economic factors that affect the direct expenses in the restaurant industry and restaurant cannot control these. On the other hand, the profit margin can be controlled by a restaurant through pricing, and would thus be considered an internal factor. Other factors suggested by different scholars include: Copeland et al. (1996), proposed return on investment, free cash flow, and profit as major internal factors. Being an old, successfully running restaurant, Zaika, has enough financial reserves and an experienced management to take care of smooth operations. More internal factors in the hospitality industry were identified by Olsen et al. (1998) such as cash flow per share, return on assets, return on investment, and customer service. Management of Zaika has ensured profitability at all times through cost controls and efficient operations. Porter’s 5 Forces: Restaurant companies are driven by multifaceted market forces as they compete for market share. Porter’s (1985) five forces model of competition demonstrates the dynamics of competition. The competitive atmosphere consists of the rivalry among existing firms competing with new entrants, substitutes, and the bargaining power of suppliers and customers. As more consumers purchase food away from home, rivals try to gain market share as new companies try to enter the market. For example, many supermarkets have penetrated the market by presenting home replacement meals as substitutes to dining out. In addition to that, many family and upscale restaurants have included independent entrances and counters to serve carryout customers and hence becoming more competitive with rival fast food restaurants. The bargaining power of suppliers and customers also adds to the competition. The fewer the suppliers, the more control they can usually exert to influence prices, terms, and quality (Porter, 1985). The customer serves as an additional powerful market force. The industry’s product has two constituents – food and service. If dissatisfied with either, though the customers can easily change from one restaurant to another however, it hardly affects the pricing strategy of the restaurant. (Chen,Guo, Pei 2005) Studies have provided information that reasons of dissatisfaction are multiple, from the obvious- poor food quality – to such as customers not liking their waiters’ approach (Chang & Hoffman, 1998). Due to high mobility and low switching costs, customers do have some bargaining power in the Porter competitive forces model. Considering the highly competitive nature of the industry, restaurant operators are continually looking for ways to perk up their sales and profitability. Monitoring food and labor costs often leads to higher profits. Technology is also used to automate the processes to improve efficiencies. Automation can take place in both the food preparation as well as the decision-making processes. Foodservice equipment such as microwaves, ovens and fryers can be automated for “cooking times, quantities, and temperatures”. Decision-making processes such as projections or ordering can be automated by using IT. Market Analysis Instead of building a business around a preconceived concept, the company conducted market research and built a concept around the consumers. The market analysis identified the following key drivers as areas of opportunity to service Atlantas restaurant customers: Buffets: Nearly 95% of the surveyed focus group endorsed having a choice of different size portions. This statistic is in line with findings reported by the Tableservice Operator Survey. Zaikas Mini-Meals and Thali concepts are built to offer different-sized portions. The customers want the option to choose what satisfies their appetite. Buffets offered at Zaika are an answer to that. Variety: Ethnic restaurants are increasing in Atlanta. The promulgation of international Recipe books, recipe magazines, TV cooking programs and imported goods offer enough evidence that the USA, as a whole, has become an international food hub. As a matter of fact, eating places that identified themselves, as ethnic restaurants were nearly 78,000 in 1999 and registered sales of $30.5 billion. The market research results do not project any single ethnic style of restaurant as in vogue, but rather proposes that integrating strong multi-ethnic influences in the menu selection will be highly acceptable. Again, variety is the bottom line for this concept. The Eating Out Experience: Though customer satisfaction with quality food and service continues to be most important, market study suggests that the ambiance, lighting, bar, and other options to improve the dining experience are also factors in customer decisions. Zaika takes all these factors in consideration for the design of this ethnic-cosmopolitan restaurant. Pricing: This was no surprise given the economic tide. Although the restaurant industry as a whole has seen growth in 2002/2003, customers are demanding value for their dining dollar. Zaikas menu is priced at a mid-tier level, with nothing priced at over $20. In addition the company plans to have an extended Appetizer selection priced between $3.50 and $9.50, allowing budget dining in a full-service restaurant. Market Segmentation Zaikas Restaurant & Bar intends to cater to a wide customer base. The company wants everyone to feel welcome and entertained. The company has defined the following groups as targeted segments that contribute to the restaurant’s growth projections: The Business Class individuals Downtown Local Couples “The Destination Customer” High income group Singles Floating segment of Tourists These targeted market segments are 25-45 years old, have disposable income, and look for upscale, vogue, and comfortable restaurant options. These are the kind of people who visit other food joints and bars in the city. They are likely to spend more on experiences they perceive as exclusive, cosmopolitan, and stylish. They are also open to trying something new, food wise, and will accept this new international fusion cuisine. Zaikas ethnic cum cosmopolitan flair and comfortable ambiance will be perfect for stylish business people, whether they live in and around Atlanta or are there for work. Further, The restaurant will have a warm, romantic, enticing adult atmosphere that would hint "date." Zaika will be positioned as the best date location in town. The young Midtown couples are generally successful working professionals with disposable incomes. Most of the times, they are spending to eat out on a regular basis, since they dont have the time to cook food nightly. Normally in Atlanta, the consumers often visit their own neighborhoods for restaurant options. Zaika will change these habits, using marketing to draw customers from outside. Zaika will be a destination restaurant. The restaurant will attract the high singles from the society with its diverse atmosphere and layout. The international menu, outstanding decor, entertainment and events, excellent service and engaging clientele will authenticate the sentiments of being in "the in place" in Atlanta. During the summers, Atlanta attracts many vacationers. Zaika will be positioned as a destination-dining restaurant, with its attractive environment, international menu, and bar. A major percentage of the tourists are vacationing singles, who visit Atlanta to socialize and for entertainment. Competitor Analysis The Kitchen Restaurant: Market research on competitors concluded that: 1) Keep the menu pricing modest but offer superior food quality and presentation. The company plans to keep the menu prices under $20; 2) Midtown is a prime restaurant location. One Midtown restaurant in spite of being in an obscure location has thrived as one of the more successful restaurants in the area; and 3) The customer segment in this part of Atlanta is ready for after-hours dining out, and is willing to travel to establishments that accommodate their needs. Restaurant - Lunaci This restaurant is a main competitor for Zaika, a casual dining restaurant that has evolved to be a great success story for the Midtown district. This restaurant served to validate 1) the Mini-Meals concept appeal for Midtown customers; 2) the evolving need for after-hours dining; 3) Mini Meals as a good food concept for after-hours dining (smaller portions, smaller price); 4) the appeal of live Entertainment. Cumulus Bar & Restaurant This restaurant has grown in reputation over the years, and has gained popularity as a destination restaurant that can cater to business professionals and the local residents. The menu is though formal for this market segment, but the bar draws great rush. During this study it was evident that some customers came solely to sit at the bar, without any intent of dining in the restaurant. Cumulus is more of a formal dining restaurant and meets a certain need within the community however, Zaika being a multi-cuisine bar and restaurant, goes into a higher bracket. Marketing Strategies: Zaika Bar & Restaurant’s marketing strategy will be to promote the exciting food, excellent service, and electrifying concepts to draw in the local repeat customers. Marketing initiatives will concentrate on the following: - Signage at Exteriors: The most important Marketing tool that company has is the exterior of the building, and signage. The company has budgeted for the renovations and decor to generate the aesthetic appeal of Zaika. - Customer Service: Within the restaurant industry, customer service has always been the major attraction for the dining clientele. Food and ambiance is over-shadowed by excellent customer service that turns a new customer into a repeat customer. - Advertising & Promotion: The company has budgeted for advertising and promotions for targeting customers directly through local publications aimed at, respectively, singles, couples, and destination customers. The company also plans to conduct periodic customer surveys and weekly menu item sales evaluations that will help the company in understanding the effects of advertising. - Word-of-mouth Publicity: Dating Days: With the increasing penchant of Internet and speed dating, the restaurant will offer monthly dating nights. In addition to food and beverages, dating packages would be up for auctions for the customers to choose from. The restaurant will have special provisions for out door catering at parties and functions, while special days will be celebrated at the restaurant itself. For example- Valentine’s Day, Halloweens party, Wine tasting weekends, New Year party etc. Zaika Bar & Restaurant will have a dedicated website. It will be the virtual business card and portfolio for the company, depicting the ethnic schemata, exotic ambiance and style. The site will display menus, prices, reviews and happenings at Zaika. The company will also have a monthly Newspaper Review about happenings at Zaika. Competitive Advantages: Zaikas competitive advantages are: The promoters thorough understandings of running a restaurant and experienced management. An excellent, stylish ambiance and restaurant design Cosmopolitan menu with featured menu changes every 3 months Unique, three-Tiered spatial layout Research based Marketing campaign Employee Training, Incentive and Retention program to keep happy and loyal customers Conclusion The restaurant market is growing in Atlanta. It is therefore an obvious step on part of Zaika to expand the operations to target a bigger market segment and thereby increase the revenue. The top ten Atlanta restaurants have common two things: plush, trendy interiors and reasonably priced menus. Only one of them offered traditional food. And half of them were located in Midtown. Though the competitors are moving in the right direction, but Zaika is expanding on the basis of sound market research in the local market. Atlanta consumers are seeking diversity and new occurrence. Location is undoubtedly important, but so is environment and uniqueness. The marketing challenge is thus to stand out from major competitors, not only as an ethnic restaurant, but as one that offers consistently high quality food, menu variety, and a unique atmosphere. Maintaining the edge will depend partly on marketing not to forget a ‘delighting experience’ for the customer at the restaurant. References Chen,Guo, Pei(2005) “Rice or Fried Chicken?” accessed on April 29,2007 from http://www.hss.caltech.edu/~mcafee/Classes/BEM106/Papers/2007/KFC.pdf Chung, Yea (2005); “Identification Of Economic Value Drivers Impacting Operational Cash Flows In The Casual Theme Restaurant Industry” Virginia Polytechnic Institute and State University accessed on April 29,2007 from http://scholar.lib.vt.edu/theses/available/etd-05112005-125529/unrestricted/ychung2005_thesis.pdf Copeland, T., Koller, T., & Murrin, J. (1996). “Valuation: Measuring and Managing the Value of Companies” (2nd ed.). New York: John Wiley & Sons. DeNoble, A. F., & Olsen, M. D. (1986). “The Foodservice Industry Environment: Market” Volatility Analysis. Hospitality Review, 4(2), 89-100. Dev, C., & Olsen, M. D. (1989). “Environmental Uncertainty, Business Strategy and Financial Performance: An empirical study of the U.S. Lodging industry”. Hospitality Education and Research Journal, 13(2). Hume, S. (2002). “Segment Rankings 400 Restaurants & Institutions”, 112(16), 93-97. National Resturant Association (2007) accessed on April 30,2007 from http://www.restaurant.org/research/ind_glance.cfm Olsen, M. D., Tse, E., & West, J. J. (1992). “Strategic Management In The Hospitality Industry”. New York: Van Nostrand Reinhold. Porter, M. E. (1980). “Competitive strategy”. New York: The Free Press. Read More
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