Feasability Study Report - Assignment Example

Feasibility Study Report There are diverse businesses available in every region of any country present across the globe. But the aim of every business is common- 'Generating maximum possible return on the capital invested'. In this endeavor to achieve this aim to maximize returns on capital, a shrewd British Businessman can think of entering into the restaurant business primarily because:- 1. It is one of the most profitable segments with limited capital investment. 2. Most of the countries do not have a ceiling on the Foreign Direct Investment in this sector as it is not a security threat to them. If he or she decides to enter into the food business, he/she then has to decide on the prospective country for investment. Business environment:- Growing Business and Entrepreneurs (2008) suggests that India along with five countries account for nearly half the GDP of total world as measured in PPP. More than half of the world's total population lives in just two countries of the world -India and China. Moreover these are the developing countries of the world which offer higher growth rate as compared to the already developed markets; and the economically developed countries like US and Germany are facing greater heat of recession with surging economic crises. Therefore the investment can be in either of India and China finally. There are a few points, however, that work in favor of India as compared to China which are as follows:- 1. Most of the people in India are well versed with English. So there will be no communication gap while working with the people of India which may not be the case in China. 2. Indian economy is more or less insulated with the global economy so the repercussions of the global meltdown will be minimized. 3. Chinese population has a higher ratio of old people whereas Singhal (2006) suggests that in India more than half of total population is below 25 years of age. Target consumer for the restaurants generally being young and dynamic, India offers better market penetration. 4. China has a poor record on human rights. 5. India has a closer association with the British culture than China. Therefore Indian market can be preferred to Chinese market. Demand analysis:- It is worth noting that over 65% of the total population of India is below 35 years of age (Singhal, 2006). Globalization has entered India in the year 1992. With the emergence of globalization, the GDP of the country has grown many folds in just a few years. Most of the major brands started outsourcing their work to India owning to the younger population of the country and the difference in the cost. With number of companies operating from India, the spending capacity of the youth has increased many folds. There is a close association of the country with British culture as the English have ruled the country as recently as 1947 A.D. which will definitely be suited to an Englishman. Moreover India generally offering outsourcing to western nations has westernized a lot in the last five years and most of the youth have started preferring Western meals to the traditional Indian spicy food. Owing to the sudden surge in the spending capacity and the latest trends of westernization offer a huge potential of growth to any authentic British restaurant. 'The Diner's Park', an authentic British restaurant, can therefore be finalized to start in Pune, the city having highest number of youths in the country. Moreover, the city has largest number of IT companies, 212 registered IT companies in 2007 as per the data reported by India Design Festivals (2009), in India. Come to the Diners Park and Feel the difference!! British Dining at its Best... The current supply side:- Most of the Indians quite like the Western culture as represented in the modern day trends in India. Currently there is a dearth of an authentic British restaurant in the city and the young crowd of India is food savvy. This is quite apparent from their behavior where they are spending big bucks for Mexican, Thai, Italian and even Japanese food but a British restaurant seems missing. What could be easily observed is they can spend good amount on the food if they get three things in a restaurant:- 1. Good quality of food with moderately high prices. 2. Good Service 3. Good Ambience. There are high end hotels like 'Le Meridian' and 'Taj Blue Diamond' which do offer food close to authentic British food but the price for such food is exorbitant. Moreover the ambience of these restaurants is very mundane with soft music in the background more suited to business class and middle to old aged. With 'The Diner's Park' catering primarily to the young aged, its ambience will be more suited to young folks and even they would not have a hole in their pocket after eating at 'The Diner's Park'. The restaurant can have the burgers starting from INR 50 to give some credit to school/college growing crowds. Moreover with a British involved in the decision making process for the restaurant, the authenticity of the restaurant can never be questioned. There definitely will be having an advantage of being one of the first in the segment and therefore will soon create a brand name and with around approximately 5 million young people in Pune, good profits can be anticipated. Physical Evidence The major challenge is that most service offerings and innovations are easily copied. But the company that continuously introduces innovations will gain a succession over temporary advantages over competitors (Kotler, 2003). And here comes the role of physical evidence which is the most important attribute in positioning the service and communicating the service quality. At The Diners Park a separate small room for the kids of young couples which will be full of toys is suggested. Happy kids will in turn lead to happy young parents driving them to the restaurant. People- At 'The Diners Park', 20 people including the two managers, one accountant, two chief chefs and 15 other employees will be employed. They will be trained for a month on how to treat the customers and have formal etiquettes and command over language. They have pleasing personality and they are treated as the important asset of our organization. Expected Return on Investment:- As per the definition from Investopedia (2009) Expected Revenue FY09-10:- The seating capacity of Diner's Park can be 80 people at a time. The restaurant can be open for 5 hours in the evening from 7 p.m. to 12 p.m. and 3 hours in afternoon 12 a.m. to 3 p.m. In the evening of any weekend, the restaurant is expected to be completely packed for four hours and expected to be occupied by around 25 people in the last hour. On an average a group spend around 1 hour on dinner. The bill generated will be approx. 5 GBP per person at any given point in time. In the afternoon of the weekends generally 25 people can be seen in any particular hour. For the normal days the occupancy is around 25 people in the evening at any point in time and around 10 people in the afternoon. So the estimated revenue in FY09-10 is:- Estimated Expected Revenue = (Revenue in a week in the evenings + Revenue in a week in the afternoon) * 4 *12 (as there are 4 weeks in a month and 12 months in an year) Expected Revenue in a week in the evenings = (80*4*2*5 + 25*1*2*5 + 5*25*5*5) GBP Expected Revenue in a week in the afternoon= (50*3*2*5 + 5*10*3*5) GBP Expected Total Revenue in FY09-10 = GBP 423600 Estimated Cost: Each price will lead to a different level of demand and therefore have a different impact on a company's marketing objectives. Demand and price are inversely related: higher the price, lower the demand. On an average 'The Diners Park' will employ around 20 employees in a month and the salary cost of all employees will be around 10,000GBP every month (Note that the remuneration paid to less technical job in India is quite low and an average non technical worker gets an amount equal to around INR 5000 that is around 65 GBP per month for any expert. The average cost has been taken as 500GBP per employee averaging out for higher costs of manager and chief chefs). The cost of raw material will be around 4500 GBP per month and the water and electricity bill will cost around 1000GBP per month. Apart from this, the miscellaneous cost will be around 500GBP per month. The cost of capital employed for the project will be around 1000,000 GBP at the start which will include the higher promotional cost of around 20,000GBP and 80,000 for other work. The promotional cost is a bit higher because the market penetration can be huge. Number of young guys in Pune being around 5 million, the higher promotional cost offers good future prospects. Taking the rate of interest to be around 6% per annum, the interest cost will be around 60,000GBP per annum. Therefore, Total Estimated Cost = 16,000 * 12 + 60000 GBP Total Estimated Cost = GBP 252,000 Estimated Net Profit and ROCE:- Estimated Net Profit = Estimated Total Revenue - Estimated Total Cost Estimated Net Profit = GBP 423600 - GBP 252000 Estimated Net Profit = $ 171600 per annum. ROCE = 171600/ 1000000 * 100 Expected ROCE = 17.16% Thus, Diner's Park is expected to perform a healthy business of 17.16% in FY09-10. Market entry strategy India Pakistan Trade Unit (2009) claims that foreign investors can enter into the business in India either as a foreign company in the form of a liaison office/ representative office, a project office and a branch office by registering themselves with Registrar of Companies (ROC), New Delhi within 30 days of setting up a place of business in India or as an Indian company in the form of a Joint Venture and wholly owned subsidiary. As suggested by Investing in India (2009), it is quite easy to enter the Indian market in JV with an Indian partner. With an Indian on the board, most of the cultural hindrance could be easily resolved. Moreover, for starting a new project, a number of approvals/clearances are required from different authorities such as Pollution Control Board, Chief Inspector of Factories, Electricity Board, Municipal Corporations, etc. With an Indian partner on board, all such issues will be resolved quite easily and the functioning of the restaurant can start pretty soon. Also, with his contacts in the local markets with suppliers, things will be really easy. Having a British partner again will have its benefits. Knowledge of British ambience and British cuisines will be more than beneficial for the smooth functioning of a British restaurant as an English will know all the nitty-gritty's of restaurant and the smooth functioning and his presence and suggestions will give the requisite British flavor to the restaurant. As such the FDI rules of the country do not have any upper cap on the ceiling with respect to maximum FDI in the sector which will be added benefit in case any of the partners wish to completely hold the business in future. Although Joint Venture indeed is a risky proposition but with higher profit margin and better return on investment, it makes business sense taking the risk. Adapting to local market:- There can be two chief chefs, one British and another Indian. Each of the dishes in the menu can be having multiple options against its name indicating the degree of authenticity to the British taste. If a customer wants a purely British dish with some additions of Indian spices, that can be tailor made to suit his needs. There can be a few dishes that will be entirely British and a very few that will be entirely Indian (although entirely Indian will be very limited since the USP is authentic British). With downturn even effecting British market to some extent, it is relatively easier to get a few British chefs who will be interested in working in India. Proper tests could be taken before selecting any of them as one the two Chief Chefs for the restaurant. Now, choosing a very popular young chef who has recently been a finalist on a television cooking program in India has can be recommended as the second Chief Chef who can primarily head the Indian cuisines department. The Diner's Park can have the facility of an open Kitchen Restaurant so that one can see through a glass, the making of his/her delicious, and mouth watering food. Moreover there can be two sections in the same kitchen one for pure vegetarian and the other for non vegetarian plus vegetarian. This is because a sub caste of Hindu culture only has vegetarian food and does not even like their food be made in the same containers of the non vegetarian food. With an open Kitchen, the subsection will be quite visible and will guarantee a respect for their feelings, thus inviting them in greater number to the restaurant. Even launching a website named as thedinerspark.com can be thought as technology plays a very important role especially in India where most of the target consumers for the restaurant are in the field of IT. Also the orders for breakfast, lunch dinner or for just a Pizza could be taken via internet. Menu cards including today's special could be created and posted on the website and promoted through Pop-Up screens. Customers can mark their preference in a special request textbox placed at the end of the form. Price: Pricing although can be one of the toughest tasks for the business owner, the basic process is to arrive at the price by taking into consideration the cost price; estimating the benefits to customers and the limits on how much they're willing to pay; and comparing your products, services, and prices to others that are similar i.e. with the competitors (Sengupta, 2006). Kotler suggests that the five major objectives through pricing are:- Maximum current profit- here marketer estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow, or return on investment (ROI). Survival- it is a short- term objective and for the long run the company must be able to add values or face extinction. To arrive at a realistic expectation of desired cost savings, organizations must plan for a long term period and go in for a larger engagement(Bhagwat,2007) . Maximum market share- here marketer thinks that higher sales volume will lead to unit costs and higher long-run profit. So they set the lowest price. Maximum market skimming- here marketer sets high price to 'skim' the market as he considers that high price communicates the image of a superior service. Product/service quality leadership- providing high quality services at higher price specially targets premium customers. Here marketer believes in perfection with no compromise and thus offers his service at higher price. A price is being established on the basis of owner's own choice by following any of the above major objectives and also by the willingness of the consumers on how much they can pay, what are the substitutes available to them, is your competitor offering the same or better service that too on a lower cost than your service, you have to evaluate and then set the price of the product. At Diner's Park, the pricing strategy could be such that it targets the consumers in higher middle class and the middle class section. Burgers can be started at Rs. 50 to cater to the school going young ones and an authentic British delight with a price tag of around 800 rupees can also be available. (Note that the conversion rate is 1 GBP= approx. 72 Indian Rupees) Such pricing strategy will automatically remove the people in very low income bracket that can be a potential nuisance to the ambience of restaurant. While the burgers at rupees 50 can find good response with college students who scout for such kind of a restaurant during their lunch break and will come in bulk in the school breaks, the higher end dishes will be made to suit the needs of young couples who visit the restaurant primarily on a weekend. Distribution Options:- Promotion and making aware of what is available to the customers and what the offerings are is the vital part of any marketing strategy; keeping this in mind The Diners Park restaurant, can barge heavily on the Unique Selling Proposition (USP) i.e. good quality authentic British Food at an affordable price with great ambience to the customers. A logo can be designed:- And the Punch line- Come to the Diners Park and Feel the difference!! British Dining at its Best... Also, Hiring a designing team to create attractive pamphlets and distribute that through the volunteers to our target customers can be thought upon. Publishing & telecasting a print or an electronic advertisement of 'The Diners Park' can be initiated. Various food coupons can be offered through contests or college fests. Endorsing of the restaurant in IT and BPO industries. Offering of free goodies like soft toy or a coffee mug to food lovers especially to kids. Most importantly, making the customer feel great through ambience and aroma of the food so that a good word of mouth can be spread is the key point. How much do you adapt the promotional and communications strategies for your product The very first thing is to look at the target consumer for the product. Since the target consumer is generally the young and dynamic of India, therefore focus should be on pamphlets distribution in IT, BPO companies and the colleges. Not only is it a cheaper means of communication but also productive. Moreover internet can be chosen as a means of communication because with the help of internet the major target consumers- IT guys could directly hit. Most of the young crowds in India prefer electronic media; therefore advertisements for that as well should be created. In order to promote the brand and products made at Diner's Park Visi coolers could be provided to canteens and pubs which will display the range of several snacks with the Brand name DP. Customers can have a look and choose which type of snack they want. But providing Visi coolers need an extra capital and an investment. Also the pubs, Canteens, mess and other restaurants must assure to take a good care of the VISI coolers. VISI COOLER: Monitoring and controlling For Monitoring and Controlling of the services so that it they are smooth and without any hassles provided to the customer, two On the floor Managers could be engaged who make sure of delivering more than what is required. Apart from this a quality check test will be performed and a Feedback form will be made to be filled by the customers so as to know the Strengths to be celebrated and the weakness to be improved. Technology for Database maintenance- The making of new customers and retention of the old one; maintaining their database as their DOB, Address, Occupation etc. is really a Herculean task. But because of technology, the maintenance of the database of customers and the software which even reminds of the coming event to congratulate them. Thus, the use of technology to enable or facilitate the delivery of services has the potential to benefit customers and service providers as well which in turn helps in making profit to the service provider (Wirth, 2009). Darker Side of the coin:- There are a few points however, that may work against the hypothesis of good returns. India is having upcoming elections in the coming year and the last few years of election has resulted in a coalition government. With the change in government, the business policies of the government are expected to change significantly and therefore it a significant risk to enter into Indian market at this point in time. Moreover, with coalition government giving heed to each and every small regional party's thinking, the chances of a leftist party which is more orthodox in its belief and actions is expected to have more dominance in the governance. It therefore poses even sharper risk to enter into the market of India at this juncture. Also the banks in the country have become extremely cautious with lending to any new business venture following the downturn. Managing this much capital with other lending institutions will increase the interest cost substantially and will not leave much margin for business. It therefore makes business sense to wait until the situation with governance and financial institutions becomes clearer. References: Bhagwat, Lokesh. Key cost influencers of an offshore outsourcing program. Last modified- 06 Aug, 2007. Available from: NASSCOM, Growing Businesses & Entrepreneurs. < http://www.business88.asia/category/featured/>. Last modified- 06 Nov, 2008 India Design Festival About Pune. < http://www.indiadesignfestival.org/about_pune.html > [Accessed 27 February 2009]. India Pakistan Trade Unit. < http://www.iptu.co.uk/content/india_investment.asp> [Accessed 25 February 2009]. Investing in India. http://www.indianembassybudapest.org/index.phpoption=com_content&id=38 [Accessed 26 February 2009]. Investopedia A Forbes Digital Company. http://www.investopedia.com/terms/r/returnoninvestment.aspviewed=1 [Accessed 27 February 2009]. Kotler, Philip. 11th ed. (2003) Marketing Management. New Delhi: Pearson Education (Singapore). P.425-P.495. Sengupta, Subroto. (2006) Brand Positioning; Strategies for Competitive Advantage. New Delhi: Tata McGraw Hill. P.17 Singhal, Arvind. Made for a young India. Last modified- 30 Mar, 2006. Available from: Rediff News, < http://www.rediff.com/money/2006/mar/30guest.htm> Wirth, Ross A., Ph. D. Integrated Marketing Communication. Last modified- September 23, 2008 Available from: Entarga.com, < http://www.entarga.com/mktgplan/imc.htm> [Accessed 11 February 2009]. Read More