Feasibility Analysis of a New Sit-Down Restaurant in Victoria - Case Study Example

Feasibility analysis of a new sit-down restaurant in Victoria Table of Contents Feasibility analysis of a new sit-down restaurant in Victoria 1 Table of Contents 1 Key driving forces and key success factors 3 Product descriptions and services 4 References 10 Introduction Fast food has witnessed an incredible growth in the last few decades. There is a fast food joint on almost every street. Fast food is a choice among people who are on a rush and want to grab food in an inexpensive way. In Australia, approximately a little over 25,000 fast food establishments have been listed, which employ more than 300,000 people with monthly wages over $16 billion. New South Wales accounts for a greater percentage of 32.5 in comparison with Western Australia that has 9 percent establishments. The food market has seen umpteen numbers of changes over the last decade or two and food choices have, by and large, been influenced by overseas trends as well. Add to this the most unique Australian eating out preferences. In all, the popularity of chain outlets has grown but, at the same time, consumers have been looking up for various ways in which their eating out experiences are mixed with some level of relaxation too - relaxation while eating. This is because fast food, while offering convenience to the consumers to pick and eat on the go, has also robbed them the pleasure of chatting over with friends and families while sitting down over food. That means sit-down restaurants would need to target consumers from a different market, which comprises of people who are not in a rush, or who are so much in a rush that they want a relaxing experience while eating out. Throughout the world, food is known to be the most popular industry. Sit-down restaurants are known to offer full but typical menus, which include entrees, appetizers, desserts, sides and different types of beverages which may or may not include alcohol. Depending on how the owners prefer to layout the restaurant, sit-down restaurants will normally have a hostess or a host who greets and guides customers to their tables. It is a pre-requisite for such restaurants to have experienced chefs; chefs who are known for their culinary skills and who know how to take care of customers' gastronomic needs. It is important of sit-down restaurants to make the eating-out experience of guests as relaxing and as pleasurable as they can since the popularity of these restaurants does, to a large extent, depend on word-of-mouth publicity too. Unique reputation for the restaurant would mean more referrals and thus greater walk-in to the restaurant. The quality and service are of utmost importance and no compromise on these two things can be affordable. Sit-down restaurants generally harp on a unique selling proposition which differentiate them from the rest - those of their own kind or those of fast food nature - just across the street. Key driving forces and key success factors Success of a restaurant cannot be an overnight affair; it takes a lot of time to establish it and make it a profit-making venture. But if the key driving forces and key success factors are taken into account from the very stage of its conception, the success cannot be far-fetched; it can come sooner than expected. One foremost requirement is that the target market and nearest competition should be clearly identified. The competition can be from a small fast food outlet to a large sit-down restaurant in the vicinity. It is to be born in mind that people who are in too much of rush otherwise prefer to take their families for dining out so that they can steal a moment of peace for themselves. A sit-down restaurant will be a clear choice for such people as they carry an intention to relax while dining. Brown (1990) has remarked that people in a hurry prefer fast food restaurants, while people who want to take their time and enjoy food over a good service prefer sit-down restaurants. Debruyne and Reibstein (2005) have stated that in order to make the sit-down restaurant a success it is important for a new venture to study the type of services or technology the competition uses. Not only these, there are also critical success factors that play a major role in the success of a sit-down restaurant. Brotherton (2004a; 2004b) has suggested that these factors provide the greatest leverage to a business venture on which it is able to rest competitively against others in the segment. It is these factors that the venture needs to keep its focus on. To add further to this statement, Flanagan (2005) has remarked that one of the most important critical factors is the pricing strategy. The pricing should be such that it is appealing to every customer that walks into the venture and yet the venture is able to outstrip competition in terms of its service capability. Brotherton, (2004a; 2004b) sees this factor in terms of the desired outcomes. He remarks that a combination of processes and activities determines the achievements of these factors towards the desired goal which, in this case of a new sit-down restaurant, is meeting customers' expectations in terms of quality and service. That means it can also be measured in terms of performance management; how well does the restaurant perform would determine its success. So, in other words, success factors, performance management and even measurement are intrinsically intertwined. Kellen (2003) has stated in order to provide focus for measurement and performance management, critical success factors need to be identified. Haktanir and Harris (2005) find a discerning link between these factors, performance management and industry context. The success factors, remark Said et al. (2003) and Farmer (2004), emerge from competitive strategy; Andersen, Cobbols and Lawrie (2001) say they do so from stage of the product life cycle; Hoque and James, (2000) say it is size; Neely (2004) and Rejc (2005) say it is culture, values and beliefs, and Flanagan (2005) says it is management style, cost structure, location, financial strength , position, and competitor activity. A study done in March this year (Holroyd, 2014) revealed that Average Australian dines out four times month. The study said that young Australians were more likely to dine out than the old, and this bracket was highest between 14-29 years of age. The national average dining out is 45 percent. The study contacted 54,000 people who were 14 years and above. NSW residents were most likely to eat out and spend money at 83 percent compared with 81 percent which is the national average. Convenience and price are two major determinants as to where they would prefer to eat; while taste stands at a low 8 percent among top choices of customers eating out. Product descriptions and services The restaurant will follow Robert Appelbaum's work on food studies and going by what he has propounded the restaurant will be categorised on the basis of social parameters and polar opposites. It has to be one of these: cheap or dear, high or low, exotic or familiar, informal or formal, and so on. Going deeper into these parameters, at the moment what seems wise is that instead of sticking to two opposites, the restaurant would mix one opposite from each category, like informal and exotic. The same theme will run across its style too; at the end of the experience customers must cherish the fact that there is one restaurant around that despite being cheap is exotic. There would not be any fast food culture in the restaurant; it would be casual, family style dining, with a touch of finesse thrown in. This is to give the customers an exclusive feeling of good dining; so alcohol might be kept away. The focus is on the food, and not drinks. The greatest benefit to the customers would be a relaxing atmosphere; soft music on one side and possibly an LCD television on the other if in the long run the management feels that live coverage of the day's news interests customers more than the melodies in air. But this is likely not to happen as the restaurant targets the market segment that wants an evening off from the routine humdrum of life. This is going to set the differentiation between this and other restaurants in the vicinity; which are too noisy to bear at times. The main component of the restaurant and its products would be to create an appreciate style, a quality that is talked about, and a service that is both affordable and convenient. Attempts will be made to connect with the customers emotionally. This will entail taking care of many attributes, some of which are explained below: Branding The customer must know from day one who are the people that the restaurant is managed by and what differentiates it from the rest. This can be achieved by developing the restaurant's understanding thoroughly and sticking to it for at least as long as the restaurant doesn't become self-sustainable. Promotional campaigns will be developed to create this brand awareness and reaching the target segment. The restaurant can create a USP for it by tying up with; say, a vegetable company involved in organic farming. Customer service The restaurant will understand the vitality of excellent customer service. It must be gracious to develop a positive and long-lasting rapport with the customers. The regulars must be addressed by name and greeted warmly. Feedback as well as complaints would need to be taken and addressed respectively. Quality and consistency Even as taste is last on customers' minds (as mentioned above quoting a study), it does not imply that customers would be more than willing to gulp down anything served to them. taste is important and customers normally such food as great that they found tasty. Quality and consistency, thus, is essential. Customers must enjoy the food. And enjoyment depends on the consistency of the good food served. Customers expect repeat of their food experience on their subsequent visits. Location This is central to a restaurant's success. The right location provides the competitive advantage in the first go. The type of clientele that this restaurant wants to attract is the one that should be either living or working around it. All said, ample foot traffic and parking space is as much vital to a restaurant's success as other requirements. Why Victoria Primarily because it is the most densely populated state in south-east Australia. The restaurant will be located around Port Phillip Bay area, where the concentrated of population is further dense. Victoria is also bearing a lot of political clout, having 12 seats in the Australian senate and 37 in Australian House of Representatives. This place's economy is highly diverse and concentration of service sectors the maximum. These include health, financial and property services, education, hospitality, retail, wholesale and manufacturing units. These sectors constitute employment avenues for a majority of people, thus greater level of activity. Australia's number two GSP - gross state product is ranked in Victoria. Given its close vicinity to Melbourne, the hub of tourist activity and its capital, makes Victoria a place where culture thrives. Food, as has been said, is part of culture and that way restaurants the culture's backbone. Coats (1986) has stated that location of a restaurant determine the type of income a restaurant is slated to make. More people stop at a better location. Add to this low-fat, low-salt food being served with fish and sea-food on the late and the restaurant has its share of success. In order to be successful, Sweasey (1987) has remarked, the menu needs to be creative. But the only perceivable disadvantage could be the advantage that the restaurant wants to generate for its customers – that is the low cost of service. Sometimes customers tend to equate low cost of a service with flaws in quality and fail to read the real intentions behind such witty pricing move. Another disadvantage would be the stiff competition that the restaurant will face in the beginning from well-known restaurants already operating in the area or around. These include Lobster Cave, True South, Sazio Restaurant, The Cerberus Beach House, Citrus at Beaumaris, Zakia Indian Restaurant and Taco Bill Mexican restaurant. These restaurants have great customer base which might be difficult to penetrate in the beginning. Operations objectives Keep food cost under a specific percentage of revenue Handle employee labour cost effectively Maintain small restaurant image but with an excellent food tag Set a yearly average sales target Promote the restaurant by not crossing but complementing what others in the segment do Acquiring of premises The premises will be acquired on rent with preference to a double-fronted property with kitchen and washroom facility. The expected per annum rent would be around $500,000, interiors worth $50,000 and furniture around $50,000. Service flow chart Facilities and operations requirements An average checklist of setting up a new restaurant runs up to 300 items which cannot be listed here for sake of limitation of space. Furthermore, Small Business Development Corporation would need to be consulted to work cost and other details of each product/ equipment needed to start this venture. Process to be followed for maintenance Actual or impending failure predicts the need for maintenance of equipment. Ideally, equipment should keep running effectively at least until its designated period of life by the manufacturer. So, maintenance is a time-based function and would vary from one equipment to another. The cost, again, would vary from equipment to equipment. However, the restaurant management must be acquainted with the fact that maintenance is reactive, preventive or predictive. Criteria for selection for restaurant suppliers These could run into a long list, but chiefly the following: Competitive pricing. Adherence to quality standards and specifications. Delivery methods that can be trusted. Credit strength and financial stability. Contracts would need to be signed and executed as per the Australian Consumer Law. Inventory management systems Highly skilled computer programmes have made management of inventory easier nowadays for restaurants. However, a word of caution is: restaurants lose money in a strange drain off if their inventories are not handled well. Smaller inventory means greater scope to invest elsewhere, like in marketing. In this venture, it is expected that inventory will be kept low but highly moving in the beginning. Dealing with seasonal variations Seasonal variations in demand are stable rather than occasional in nature (Witt & Moutinho 1995). It has been suggested that managers, knowing the predictability of these variations, can manage them according to the resource function of a restaurant or an establishment (Hartmann (1986) and Phelps (1988)). But, overall, these variations can be effectively managed by making correct alterations in employment, facilities, environment and cost of a restaurant. Legalities on starting a restaurant Department of Health, Victoria, Australia's Food Act governs the starting of a food business in the place. There are several food laws that the acts enforces on anyone willing to start a food business. The Food Act was subjected a number of changes in July 2010. Local council is the first authority from whom further guidance is to be sought. It is the council that is empowered to register the business following its satisfaction that all requirements have been met. Staffing needs Staffing needs will have to be determined as accurately as possible. This is a small restaurant and thus would require at least two chefs and four waiters, two people at the desk, one person to manage inventory and one accounts person. More elaborate the menu, more employees are required. But being a start-up, the attempt should be made to keep the costs from shooting through the roof. A hiring service is the best place to consult for staffing requirements. Staff, style and size of the restaurant will affect the cost. Training needs Chefs must be recruited on the basis of their previous experience and allied staff trained in hospitality management. Assessment parameters and continual monitoring can be set to assess employee performance. Justifying salaries Average yearly minimum salary in Victoria as on Oct-Dec 2013 has been calculated at $50,759.9 (Mycareer.com.au, 2013). Keeping in view the labour rules of the country, care will have to be taken not to digress from the salaries specified as per law. Similarly, salaries for rest of the staff have to be fixed according to the Australian Government's Fair Work rules. Ensuring employee compliance Employees are bound by legal terms with their employers - in this case the restaurant owner. Australian law specifies terms and conditions for both. Employees need to know in detail the Fair Work Act 2009 which gives an overview of both the rights and the responsibilities they have. References Andersen, K. Cobbols, I. and Lawrie, G. (2001). Balanced Scorecard: Implications for SME’s. Reflections in Literature and Practice. SMESME Conference Copenhagen. May 2001. Brown, D. M. (1990). The Restaurant and Fast Food Race: Who's Winning?. Southern Economic Journal (56:4) April. pp. 984-995. Brotherton, B. (2004a). Critical Success Factors in UK Budget Hotel Operations. International Journal of Operations and Production Management. Vol. 24 No. 9 pp 944-969. Brotherton, B. (2004b). Critical Success Factors in UK Corporate Hotels. The Service Industries Journal Vol. 24 No. 3 pp 19-42. Coats, C. (1986). The Feasibility of an Assembly Line Restaurant in Santa Barbara, California. Unpublished Senior Project. California Polytechnic State University, San Luis Obispo. Project #86-0670. Debruyne, M. and Reibstein, D.J. (2005). Competitor See, Competitor Do: Incumbent Entry in New Market Niches. Marketing Science (24:1) Winter. pp. 329-337. Flanagan, C. (2005). An Investigation into the Performance Measurement Practices of Irish Hotel Groups. Unpublished M. Sc Thesis. Dublin Institute of Technology, Dublin. Farmer, S. A. (2004). A Performance Measurement Framework for Internal Audit. Thesis submitted for MSc. University of Central England Business School. Haktanir, M. and Harris, P. (2005). Performance Measurement Practice in an Independent Hotel Context: A Case Study Approach. International Journal of Contemporary Hospitality Management. Vol. 17 No. 1 pp 39-50. Hoque, Z. and James, W. (2000). Linking Balanced Scorecard Measures to Size and Market Factors: Impact on Organisational Performance. Journal of Management Accounting Research. Vol. 12 pp 1-17. Haktanir, M. and Harris, P. (2005). Performance Measurement Practice in an Independent Hotel Context: A Case Study Approach. International Journal of Contemporary Hospitality Management. Vol. 17 No. 1 pp 39-50. Holroyd, J. (2014). Average Australian eats fast food nearly every week. Available http://www.goodfood.com.au/good-food/food-news/average-australian-eats-fast-food-nearly-every-week-20140311-34k15.html. Accessed April 24, 2014. Hartmann, R. (1986). Tourism, Seasonality and Social Change, Leisure Studies, 5(1): 25-33. Neely, A. (2004). The Challenges of Performance Measurement. Management Decisions. Vol. 42 No. 8 pp 1017-1023. Mycareer.com.au. (2013). Chef Salary Centre. Available: http://content.mycareer.com.au/salary-centre/hospitality-travel-tourism/chef/vic. Accessed April 24, 2014. Phelps, A. (1988). Seasonality in Tourism and Recreation: The Study of Visitor Patterns. A Comment on Hartman, Leisure Studies, 7(1): 33-39. Said, A. A. Hassabelnaby, H. R. and Wier, B. (2003). 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