Customer Feasibility Analysis for Restaurant Profit - Case Study Example

Feasibility Analysis SECTION Executive Summary The proposed hala restaurant intends to operate in the trendy location of Liverpool. It will be offering a variety of menu selection to the local people and the overseas visitors. The restaurant will operate as sole proprietorship and it will be owned by two founders. The mission of the restaurant is to achieve the objective of becoming one of the leading restaurants in the region of Liverpool. The restaurant intends to achieve the objective by offering superior quality food items and services to the customers visiting the restaurant. The plan for the proposed restaurant is divided into different sections Micro –Level Market Assessment This section reveals the target market intended by the restaurant to offer its products. Family with children and tourists of all age group irrespective of their appetite are the major target customers. Macro Level Market Assessments This section illustrates the market size and growth option for the restaurant. Accordingly, the population of the region is rising at a constant speed and the number of visitors also is increasing. Hence, the market size is relatively large and there also lies greater opportunities for the restaurant to expand the business. Macro Level Industry Assessment This section postulates the food and drink industry assessment. Accordingly, the bargaining power of customers, competition, threat of substitutes, threat of new entrants and suppliers bargaining power are moderate to high in the region. Micro Level Industry Assessment This particular section depicts the financial forecast for the proposed business. Accordingly, the start-up cost for the restaurant is estimated to be ?214,000. Accordingly, for the first four months of the start-up year, it is projected that there will be no profit. However, it is expected that the restaurant will gradually start earning substantial revenue and it is projected that the total revenue of the restaurant will exceed ?2 million. Team Assessment During the early stage of its commencement, 10 skilled and competent employees will be hired. The role of each staff will be to offer quality services to the potential customers. Summary and Conclusion This section summarizes the important points revealed in the report and duly concludes the report. To sum up, it has been ascertained that the idea of starting hala restaurant is projected to be immensely beneficial for the owners and at the same time it has potential opportunity to expand the business in the long run. SECTION 2 Micro –Level Market Assessment: Overview of Primary and Secondary Research Undertaken To start up a business, it is essential to conduct research as the basis for the business plan in order to forecast the potential sales and growth for the proposed business. Thus, in order to execute the business plan of opening a hala restaurant in Liverpool, both primary and secondary research were conducted for ascertaining the viability of the proposed business plan. Correspondingly, secondary research was conducted using industry profiles, newspapers, demographic profiles and magazines. Additionally, primary research was conducted using yellow pages to identify competitors existing in the target market. Target Market and Its Pain Identified The proposed hala restaurant intends to operate in Liverpool. This location has been chosen due to various reasons. One of the most imperative reasons for the selection of the target market is that there are not many hala restaurants operating in Liverpool. Another vital reason for choosing Liverpool as the target market can be attributed to the constant increase in the number of visitors to the city. Despite the fall in the number of travellers visiting the United Kingdom, there has been a significant increase in the number of visitors visiting Liverpool (BBC, “Liverpool Area Tourism Figures Increase”). Correspondingly, this restaurant will offer an attraction for the local population irrespective of the age or appetite. At the same time, families with school going children and individuals will be the major target population for the restaurant, Furthermore, domestic and international visitors to the city will also constitute a vital portion of the potential market for the proposed hala restaurant. However, the household income of the family is quite low as compared to other regions of the UK. Accordingly, during the year 2010, the average annual household income stood to be ?29,285 which is almost ?6,000 less than the average household income of the UK. Hence, the nature of low household income may act as a constraint for the proposed hala restaurant to acquire substantial revenue. It is for this reason that the proposed hala restaurant will apply the business concept of maximum profit through maximum sales. Consequently, reasonable price will be placed for the food items offered to the target market. The strategy of low price will facilitate the proposed hala restaurant to attain large customer base (Liverpool City Council, “Contrasting Outcomes in Liverpool”). Target Market Size and Growth Rate Liverpool, in the recent times, has emerged as a global tourism brand across the world. According to 2011 census, the population of the city stood to be 466,415. This figure reveals that there has been 6.1% increase in the population of the city over the last ten years. Moreover, this trend is estimated to increase in the upcoming years (Liverpool City Council, “Liverpool’s Population”). As stated earlier, tourism in Liverpool is growing at a rapid pace. The city ranks among the top five favourite tourists destinations in the UK for overseas visitors. Moreover, several business, cultural and sports events as well as festivals are organized in the city which attracts considerable number of domestic and international visitors (Liverpool City Council, “Liverpool Plan”). Hence, it can be stated that the size of the target market is relatively large and it is more likely to expand in the future years. The aspects such as the increasing number of visitors and the rapid growth in the population of the city represent high potential of growth rate for the proposed business. Options to Grow Into Other Segments The region of Liverpool city is a key economic engine for the North West of England. Food and drink industry in the UK is the major contributor to national economy. The proportion of food and drink industry is more likely to increase in the coming years. This offers a significant opportunity for the hala restaurant to expand its operations beyond Liverpool to other adjoining regions. The proposed hala restaurant also has the option to expand its business operation within the restaurant industry such as fast-food and lounges segments (Spary, “Food Industry Worth ?96.1bn to UK Economy”). At the same time, business individuals and university students will also offer the proposed hala restaurant with an option to expand its business operations and increase its revenue generation capacity. SECTION 3 Macro Level Market Assessments: Overall Market Size and Growth Rate and Macro-Trends Analysis to Assess Future Market Growth and Attractiveness There have been considerable changes occurring in the UK in terms of eating habits of the people. Correspondingly, consumers in the UK are passionate about food and the demand for the quality food and better value is constantly rising. The low cost market for the food is rapidly growing in the UK (Hospitality & Catering News, “UK Branded Restaurant Market to Grow by ?5.6 Billion”). Accordingly, it has been ascertained that around 27% of the consumer expenditure is consumed by restaurants and other food outlets. Furthermore, it has been observed that around 40% of the Liverpool residents eat from restaurants and other food outlets. Consequently, it can be affirmed that the overall market size is favourable for the proposed hala restaurant to operate in Liverpool. It can be affirmed that the proposed hala restaurant possesses an extensive potential to attain a considerable growth rate as the consumer expenditure on food drink and catering is constantly rising despite the recent economic downturn. Evidently, it has been observed that there was nearly 3.5% increase in 2011as compared to the immediate previous year 2010 (Heart of Mersey, “Takeaway Food: A Brie?ng Paper”; Department for Environment, Food and Rural Affairs, “Food Statistics Pocketbook 2012 - in year update”). SECTION 4 Macro Level Industry Assessment: Bargaining Power of Customers There are several domestic and international competitors offering different types of food items in Liverpool. Moreover, customers in Liverpool are price sensitive. Thus, the bargaining power of buyers is relatively high due to the stiff competition prevailing in the market (Live & Breathe, “Food For Thought”). It is estimated that the bargaining power of customers is more likely to increase in future. Bargaining Power of Suppliers There are numerous suppliers operating in the market which makes it quite easy for proposed hala restaurant to procure the requirements needed for its operations. Hence, with an increase in competitiveness in supply chain, the bargaining power of suppliers is moderate (Macmillan Publishers Limited Logistics and Supply Chains”). Nonetheless, the bargaining power of suppliers is projected to decline with the increase in the number of suppliers in the upcoming years. Competitive Rivalry within the Industry There are other restaurants offering, Chinese/Thai, Indian, Moroccan and Lebanese food that may have a significant impact on the sales forecast of the proposed business. Moreover, the existence of international fast-food restaurants such as KFC and McDonald’s may also impose significant competition for the proposed business. Hence, the level of competition is moderate to high in the food and drink industry (Live & Breathe, “Food For Thought”). It is projected that competition will become more intense in future years. Threat of Substitutes Due to the presence of number of competitors in the industry offering a variety of food items, the threat of substitutes is moderate to high. Customers are offered with a wide assortment of food items such as Chinese/Thai, Indian, Moroccan and Lebanese food which increases the threat of substitutes for the proposed hala restaurant. Customers can switch to competitors products and services with minimum switching costs (Live & Breathe, “Food For Thought”). In the years to come, it is estimated that the level of threat of substitutes will increase. Threat of New Entrants There is ample scope for growth in the industry due to certain factors such as growing tourism and increasing spending of customers which may fascinate new firms to enter into the industry. Hence, the threat of new entrants is quite high (Live & Breathe, “Food For Thought”). There is a high possibility that more new firms will be attracted to avail the increasing opportunity in the food and retail sector in the market of Liverpool in the upcoming years. SECTION 5 Micro Level Industry Assessment: Superior Organisational Process and Capabilities The proposed hala restaurant will focus on serving generous Western and East Mediterranean favourite food items. Food items such as chicken shish, chicken wings liver, Pepper Beef and Turkish pastry and salads with kebabs among others will be generously served all at a reasonable price ranging from low price to high price. The interior of the restaurant will also be decorated according to Western and East Mediterranean cultural designs. Furnishing of the proposed hala restaurant will reflect restaurant concepts. At the same time, attentive services will be offered by enthusiastic and friendly staff so that customers are motivated to repeat their eating experiences. The proposed hala restaurant will have ample space for parking as well. Economic Viability of Business Model Established The economic viability of the proposed business model is being ascertained through below presented projection. Revenue Forecast The important elements of the revenue forecast are represented below in the table. In this regard, revenue from the sales of food, drinks and merchandise may gradually increase but it is estimated to be ?2million in the third year. Customer Acquisition and Retention Costs, and Time Required To Obtain A Customer Understanding the customer acquisition cost is crucial for the success of the proposed hala restaurant. At the initial stage of the commencement of the proposed hala restaurant, it will make extensive expenditures on promotion and advertisement activities for acquiring customers for the restaurant. Later on, the restaurant will focus on improving the quality and services offered to the customers for ensuring successful retention of them. It is projected that acquiring considerable number of customers will take a few months due to the presence of large competitors at the market place. Expected Gross Margins The projected gross margin for the proposed hala restaurant is represented below. Accordingly, for the first five months the restaurant will incur loss, afterwards it is projected that restaurant will gradually start earning profits. Capital Investment Required The capital required for the operations of the proposed hala restaurant is estimated to be ?2,14,000. In order to meet the required capital, loan amounting to ?100,000 will be taken. Furthermore, the two founders will contribute ?60,000 and ?40,000 respectively. Expected Break-Even Point At the initial stage of its commencement, the restaurant will incur loss for the first four months. Gradually, in the fifth month of its commencement, the hala restaurant will start earning profits. Operating Cash Cycle Characteristics Operating cycle and cash cycle are the two major components of working capital management. Operating cash cycle for the proposed hala restaurant will consider the financial items such as inventory, account receivables, account payables, net sales and cost of goods sold. The proposed hala business will maintain the shortest possible operating cash life cycle for its efficient performance. SECTION 6 Team Assessment: Mission, Aspiration and Prosperity for Risk The mission of the proposed hala restaurant will be to offer superior quality food and services to the discriminating customers. Through exceeding the expectations of the customers the proposed hala restaurant aspire to establish itself as one of the most recognized and profitable restaurants in the food and drink industry of Liverpool. Although there are certain risks such as stiff competition from local and international brands but the proposed hala restaurant will be committed to provide exceptional customer services and higher quality food items for effectively dealing with the threat imposed by competitors in the market. Teams Ability to Execute on the CSF’s In the Industry The proposed hala restaurant will start out as a sole proprietorship business which would be owned by its two founders. The proposed hala restaurant will assemble highly skilled and talented management team. At the initial stage of its commencement, 10 employees will be hired. The two founders will be responsible for managing all the activities of the proposed hala restaurant. Notably, the critical success factors (CSF) will be achieved by offering superior quality food items and providing attentive services to the customers visiting the restaurant. Teams Connectedness Up, Down and Across the Value Chain The proposed hala restaurant will strive to establish strong relationship with the suppliers across the value chain. Furthermore, procurement of quality materials at reasonable price will be ensured. Additionally, all the activities of the restaurant and its teams will be directed towards providing increased level of satisfaction to its customers. SECTION 7 Summary and Conclusion The proposed hala restaurant will be located at an upmarket location of Liverpool. The restaurant will be offering a variety of food items, both vegetarian and non-vegetarian. The mission of the restaurant will be to offer superior quality foods and services for achieving its objective of becoming one of the most revered restaurants in the food and drink industry in Liverpool. The restaurant will be a sole proprietorship form of business owned by two founders. Furthermore, it will be a VAT registered business. The restaurant will target customers of all age group regardless of their appetite. However, family with children and visitors both domestic and overseas will be emphasized. The founders will be responsible for managing all the activities of the restaurant. Additionally, 10 skilled and talented employees will be hired initially to operate the business. In order to attract the customers and effectively deal with the stiff competition in the marketplace, extensive promotion and advertisement will be undertaken. The start-up capital is projected to be ?214,000. At the initial stage of its commencement, it is projected that the restaurant will incur loss. However, as the business matures, its total revenue after three years is estimated to be around ? 2 million. It can be concluded that the idea of starting hala restaurant in Liverpool is indeed very attractive. Correspondingly, there also lie numerous areas for the business to expand in the later years. Works Cited “Liverpool Area Tourism Figures Increase”. BBC. 2011. Web. 19 Oct. 2013. “Food Statistics Pocketbook 2012 - In Year Update.” Department for Environment, Food and Rural Affairs. 2012. Web. 19 Oct. 2013. “UK Branded Restaurant Market to Grow by ?5.6 Billion.” Hospitality & Catering News. 2013. Web. 19 Oct. 2013. “Takeaway Food: A Brie?ng Paper.” Heart of Mersey. 2011. Web. 19 Oct. 2013. “Contrasting Outcomes in Liverpool.” Liverpool City Council. n.d. Web. 19 Oct. 2013. “Liverpool’s Population.” Liverpool City Council. 2011. Web. 19 Oct. 2013. “Liverpool Pan.” Liverpool City Council. 2010. Web. 19 Oct. 2013. “Food For Thought.” Live & Breathe. 2011. Web. 19 Oct. 2013. “Logistics and Supply Chains.” Macmillan Publishers Limited. 2013. Web. 19 Oct. 2013. Spary, Sara. Food Industry Worth ?96.1bn to UK Economy. 2013.Web. 19 Oct. 2013. Appendices Fig 1: Menu Fig 2: Forecasted Monthly Revenue Fig 3: Forcesated Three years Rvenue Fig 4: Expected Break-Even Point Fig 5: Projected Gross margin Fig 6: Projected Balance Sheet Read More