A Hospitality Business - Essay Example

INTRODUCTION Hospitality business refer to an entity aimed to provide one or more relaxing services to the guests (Brotherton, . Restaurants are one of major category of the said industry. Drastic increase in the global economic activities opened the growth opportunities for the said industry. Entrepreneurs and large businesses are focusing towards entry in the sector for achieving the economic goals (Goodall, and Ashworth, 2013). Specifically focusing on UK, eating out industry worth Euro 40billion (PwC, 2015) with the promising growth of different categories of restaurant (Hotel News Resource, 2015). Full and quick services restaurant growth for 2015 is forecasted up to 3.4% and 3.7% respectively (Technonic, 2014). The industry value in UK economy with around 35,032 business, 590,915 employees and value of £26.7billion in 2014 (IBIS World, 2014 and Department of Environment Food and Rural Affairs, 2014). The industry also witnessed an increase in distribution index on an average 1.3% with 4.7% increased outcome for 2014 (Office of National Statistics, 2014 and Office of National Statistics, 2015). The development of world’s deprived regions has widely captured the attention of opportunists for being early starters in the new markets via filling the spotted gap. One of such regions emerging regions offering fair opportunities is Cardiff Bay. The mining valley holds the status of world’ first industrialized city (Cardiff Caerdydd, N.d).The last two decades history of the region is adventurously full of growth events and developments. A forecasted population growth and heavily changed lifestyle are promising measures for services business industry (Cardiff Caerdydd, N.d). Ranked as the 10th largest UK city, Cardiff Bay attracts around 18 million visitors a year till 2012. From 1000 registered buildings, 547 are of food businesses including bar, café and restaurants in Cardiff Bay (Ruddick, 2012).Though, the region still needs huge reforms and administrative facilities but critics show positivity towards success of the growing entity. A new sole-proprietorship entity has developed a business plan for entering the Cardiff-Bay restaurant industry to capture opportunities. The plan is apparently developed but lacks the description of risks and challenges associated with the external environmental factors. It is agreed upon a fact, that developing an effective business plan is as challenging and attention seeking as the running a business (Mullins, 2012 and Chesbrough, 2012). Hence, below presented report is a comprehensively researched base description of the risk associated with the prospect opportunity in various aspects. SCENARIO OVERVIEW Considering the initial research, it can be suggested that the opportunity is feasible; however, two major considerations are lacking which are including the novelty of business entity and infancy of Cardiff Bay’s growth. Food related service industries are highly exposed to many inherent and environmental risks in the current era of competitive markets and the over challenging economic scenario (Epstein, and Buhovac, 2014). With most of the attractive growth majors, UK’s economy is currently in the phase of recovery from 2008’s shock. Furthermore, the restaurant industry of the country is also facing challenges of survival for the businesses with a reported CAGR of -2.2% for 2010 to 2015 (IBIS World, 2014). It is also reported that from around 90% of restaurants, 60% fail in the beginning three years while the number rises to 75% till five years (B.O’Dell Consulting, 2009). RISKS, CHALLENGES, AND ISSUES Collectively referring to the factors elaborated above, it is developed that the proposed business entity is highly exposed to many bearable and unbearable challenges from the multiple dimensions. Infancy of entrepreneur’s experience and business, UK and industry’s economic scenario, Cardiff Bay’s administrative conditions, and overall macro environmental factors possess the ability to throw multiple challenges for the business. Below presented is the deeper demonstration of the forecasted risks in the each dimension of the environment: (Parsa, et al., 2005) Challenges Regarding Capabilities First and the foremost there is a set of challenges that arises when a new entity starts (Thomas, Lorange, and Sheth, 2013). Most of the issues in the category are specifically related to the capabilities in dealing with the hygiene and health factors. It is also a technical factor for the entrepreneur itself, skills and abilities to develop, launch and maintain an entity (Malik, Willett, and Hu, 2013). Longenecker, et al., (2013) discussed that there are some specific characteristics of the entrepreneur that aid her entering into a new business. Highlighting the characteristics includes determination, obsession, risk tolerance, flexibility and motivation; Longenecker, et al., (2013) further suggested that reasons of failure of an entrepreneur are: An Overestimation of Capabilities. Overestimation of both opportunity and capabilities can become a strong risk for the entity that ultimately leads to failures. Elaborating to the said phenomena, a beginner entering in a business must keep cautious attention to the market, ability to critically judge the compatibility of the initial needs of the business, and personal resources and capabilities. All these have to play an effective role specifically in case the location is also under the infancy stage of development; hence, will be offering limited support. Mismanagement in terms of Human Resource and Process History reported that many of the promising launched entities’ failed due to the operational inefficiency of management of those firms (Barberá, et al. 2012). The entrepreneur must be capable of managing the business with an open mind for accepting uncertainties, flexible needs of business and value workforce. For example, chefs, quality of waiters; cashier, etc. all play an effective role in giving customers a complete experience. Lack of knowledge about the market The most important considerations of an entrepreneur should be a bit extra gathering of market data and trends and critical analysis of that information for taking the initiative. For instance, identifying the reasons for the customers’ preference for a certain restaurant and the reason of avoidance for the other will provide deeper insight for the success. Discussed reasons are all alive for the underlying project. Specifically at very beginning a deeper market analysis seems critical due to the matter of novelty of region(market) selected for initiating the business. As described above, Cardiff Bay is in the beginning stages of reformation and growth thus enjoying opportunities of consumers’ changing preferences. Being in the infancy stage of change and limited information about market, it is crucial to forecasting actual outcomes of such businesses. Further, the business also needs sound investment and strong operational capabilities related to the perishable product serving entity. Technically sound people with a related educational, tactical and experienced background is the initial need for the business, as well as dexterity of top management about the business rudiments, is important. Lack of these traits can aggravate challenges instead of reaping the opportunity. Moreover, the business should be started with a balanced capability and opportunity match otherwise the risk will increase (Longenecker, et al., 2013Top of Form Bottom of Form ). Challenges for Starting a New Business The issues defined above were solely related to the cause-effect attributes of the entrepreneur and team’s capability. Assuming that entrepreneur effectively planned the entity with cautious detailed analysis for rationale of the moves; it is always possible that she faces issues during establishment procedure of the entity. (CCH, 2009) suggested that starting a new business take up many issues including: Business structure development Structural development for business needs high understanding of chosen industry and specialized skills for designing the physical and operational infrastructure of the business. The limited information available about the industry exert much pressure on the entrepreneur to self extract the data from other sources such as suggestions from related industry people and observation, etc Funding for the venture Another important matter is about funding for the business. Usually, very small businesses start up with 100% equity to avoid associated lawsuit in case of inability to pay-off. However, in the current scenario the business is of high worth and need a comparatively heavy funding. The risk of unavailability of funding is higher for the business as reported that Cardiff Bay is facing challenges in funding the businesses and also in attracting FDI (Cardiff Caerdydd, N.d ). Issues regarding administer the business A newly starting business entity faces many viable administrative issues that drastically reduces the attraction of a sighted opportunity. For instance in a very beginning of the procedure, business needs a firm knowledge and operational capability for filing the legal applications and business analysis plan. At each and every stage of administrative growth, business inherits variety of risks. For instance, business may fail to gain the permission due to some reasons. Legalities issues Legalities in terms governmental implications, regulations, lawsuits, tax matters and other environmental and administrative implications are a costly challenge. For example, requires hiring an expert lawyer for dealing with the legal matters. Considering the underlying business, it is highly exposed to such issues as well as associated risks are higher due to perishable sensitivity and hygiene obligations of the category. Organizational Life-Cycle Restaurants like other business entities go through certain stages of organizational- life cycle (Parsa, et al., 2005). By default, every life stage inherits some risks of failure that are higher in the beginning stage due to many important concerns. Further, restaurant business is vulnerable to the only single unpleasant or an uncertain incident to be closed or engaged in lawsuits due to the nature of business. UK ECONOMIC CLIMATE With the attributes of the entrepreneur and starting procedure discussed above, the business is also highly exposed to the environmental positive and negative factors of UK and specifically the region selected for the purpose. Widely discussed economic recession of 2008 deeply damaged most of the European economies including UK, due to which the country’s economic climate possess numerous uncertainties associated with many business categories UK is a $2.2 trillion GDP country with 3.7 times higher GDP per capita and 63 million people with 92% employment rate (Find The Data, 2015). Resultantly, UK is considered as fruitful economy for businesses due its supporting business environment. The country is also attracting FDI for numerous sectors including food and beverages (Institute of Foreign Economy, National Development and Reform Commission, 2014). Despite the said attractive scenario, there are challenges that businesses are facing specifically in the restaurant businesses. The most important issues in starting a new business in the category are presented below. Legal Measures Being a territory of Europe, UK possesses a considerably larger set of obligations for businesses. These obligations are imposed by governments, EU legal authorities as well as other official and civil regulations. In general, registration, minimum wages implications and VAT (PwC, 2015) and tax regulations are putting businesses in high operational cost scenario (Centre for Retail Research Website, (n.d.). Further, as reported “the Affordable care act” of 2010 largely impact on the restaurant businesses due intensive induction of employees as being a service industry (National Restaurant Association, 2014). Safety and Hygiene Regulations The business is related to the food industry that is of higher concerns for the regulatory authorities due to health concerns of consumers. A number of local, regional, governmental and official authorities of EU impose implications for the purpose as depicted below. For instance, reforms of 2002 in the industry raised higher concerns for safety regards. They were addressed in 2005 in Wales with a wider spectrum of law enforcement obligatory landscape as depicted below. (Hutter, and Amodu, 2009) Socio-Economic Scenario The post-recessionary inflation resulted in the price hike by18% inraw ingredients for food. Also, individual related categories witnessed a rise in between 22% to 57% for 2014. The impact in turn affected the purchasing power of consumers that declined significantly. Both of the implications are risky for the said business; hence, increase the time to achieve the breakeven and profits (Department of Environment Food and Rural Affairs, 2014). Consumer Preferences As the consumer buying pattern has changed due inflation, consumer preferences has also changed and 88% people consider prices as first influence for purchasing food (Department of Environment Food and Rural Affairs, 2014). Secondly, the growing concerns about safety, quality, health, diet and green impact are shaping the behaviors towards more consciousness (EY, 2014). HSBC survey reported rankings and claimed that the UK stands on the 33th rank for diet concern, 19th on healthcare, 26th for social life, 24th on enjoying local food and 10th on adopting changed lifestyles (HSBC Group, 2014). Further, it is evident that whether total spending on the category is increasing but number of visits by consumers is decreasing (EY, 2014). The scenario throws challenges about cautious pricing of the offered categories. Further, the risks of failing in a variety of aspects including attracting market, quality, pricing and lesser profit margins are higher in the said scenario. Competition scenario Huge chains with heritage of centuries and a numerous local, mid and small players are the part of giant industry with a number of 35, 032 registered businesses. Key Notes, (2013) indicates the fierce competition level of the industry which in turn lowers attraction of industry for entry. Despite this fact, attractive indicators continue in contracting new entrants. In addition to competitive pressures from large players, there will higher threat of substitute from home-made and ready-to-eat products. Inflation factor indicates higher bargaining power of buyers in terms of switching to lower cost substitutes. Suppliers, on the other hand, possess moderate power. Thus, the competition level of the industry lowered the attraction to entry as measured below on 1=low to 5=high scale. The scenario indicates higher challenges in terms of generating business and brand name for the business and survival in a highly cluttered market. Only a well-planned resource savvy business can survive in the environment. Portion size definition and waste control There is an organized structure in UK for waste management, which reveals high contribution in waste from restaurants in 2014. These wastes result either from the larger portion size, extra luxury added in plate or excessive orders placed (Department of Environment Food and Rural Affairs, 2014). The scenario implies that the challenges for operational management. Instead of following the market trends, business would need to offer more viable plates combination with extremely balanced portion size to create price for value image for the brand. Environmental obligations The environment is another growing concern of the economy and has after-effect for consumers. Greenhouse implications on the businesses are highly discussed in today’s scenario. Along with CO2 emission, other implication for the food sector includes in urban food, HGV, and air food. Due to such implications, with the risks of subject to laws in many dimensions business is also subjected to health, safety and regulatory concerns of consumers. ELABORATED CARDIFF BAY SCENARIO In additon to UK economic climate, Cardiff Bay’s economic scenario is also important for the business in many aspects (Cardiff Caerdydd, N.d). These aspects are discussed in below section: Underdeveloped Infrastructure The city still needs to be developed in terms of infrastructure. For instance, there is still lack of transit systems. It is a big issue for the business with a huge workforce. It can also cause daily in supply chain management and attracting wider audiences. Developing Business Environment Being in the infancy stage of development, there is a lack formal business culture. Understanding and aligning with that culture that may emerge as risk for needed exceptional operational processes for the business, is very crucial. Increased Unemployment Koellinger and Thurik, (2012) entrepreneur cycle is affected by unemployment. Worsen unemployment conditions and lowered disposable income levels developed a bit harsh economic climate for the businesses in the region after downturn of 2008. Difficult to attract funding or inward investment Higher operational costs are the reason that is not allowing region to attract the inward investment. This is despite the fact that the UK is attracting FDI via policy relaxation and support. Further, recession and absence of solid grounds for forecasted growth are not convincing funding authorities to invest in the new businesses. The situation can create a challenge of funding for the novel business. Locally focused and Lacking urbanization policy Both of the two are underestimating the potential of the city in competing with other cities in UK as well as a global economy. The measures not considered by Wales’ administration can either slower or inverse the prospect economic growth of the city. Depressive image of the city and Connectivity concerns Developed world is still not accepting the potential of the city due to remaining far behind from the worldly economic trends. Further, not efficient infrastructure for connecting the city with world is not developed till now. It will take time to be considered widely as growth opportunity for attracting businesses and expatriates. Growing population and ethnicity Massive population growth rate should for taking out the country from poverty level. Secondly, as the society is still raw in nature and socio-cultural preferences, so there will be a risk not accepting new ideas and tastes. The challenge is to cater the local market with ethnic taste and preferences while risk of failure in doing so is high if expertise of technical staff is not regionally aligned. Hygiene Rating Act 2013 Wales Maintaining standards in such type of industry raise higher challenges for novel businesses. RESTAURANT INDUSTRY CHALLENGES IN UK Key Notes Ltd, (2013) suggests that the category is in a retrieval stage after the crises restaurant industry faced in 2009. However, there are multiple risks associated with the initiation and survival in the category. Key Notes Ltd, (2013) further presented the promising forecasted growth of the industry of around 8.5% till 2017 but with decisive landscape of issues current industry is facing as listed below. Horsemeat scandal that badly affected the restaurant business in the country. Pestle scenario in terms of all direction as depicted below. Political The government is taking helpful measure in terms of relaxed tourism policies and tax cuts. However, still the scenario of higher competition in hospitality substitute is challenging. Economic VAT, other tax measures, and price hike are affecting the industry Social Increased unemployment, lower disposable income, and changing preferences are considerable issues Technology Creating a need for the technological presence Internet as well as providing the delivery services are important. Legal Government laws, EU regulations and Wales’s law enforcements are also considerable. Environmental “Green” obligations, health, hygiene and safety concerns. Concerning with ethnic category as preferences of Cardiff Bay indicates, (Ford, 2015) indicated the lower percentage of people who find a price for value attainment via eating in ethnic restaurants. Secondly, he indicated that people think it better to order via internet instead of eating in the ethnic restaurant. This in turns create challenging scenery for the business to add facilities for internet ordering and delivery in business model in case of ethnic food category exploitation as dining in and takeaway facilities might be not enough to attract more audiences. CONCLUSION AND RECOMMENDATIONS The report critically evaluates the potential of the opportunity in terms of country, region, city and industry and risks associated. It is concluded that the proposed business is a sound opportunity, but there are a lot of risks associated with economic scenario of country, environmental scenario with the industry and administrative scenario of the proposed location Cardiff Bay. Considering the discussed issues above, it is recommended that the entrepreneur should cautiously design the business model with viable mitigating strategies focused individually on each of the risks discussed. 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