Potential Viability of a Business - Centum - Case Study Example

Introduction

In April 1st, 2016, a property development company called Centum acquired an iconic building in London. The structure in London has unique features and it was the headquarters of Grey Financial. There are plans underway to transform the building structure into a five star hotel. Centum plans to convert the hotel into a luxury Five Star Hotel.

There were plans to do a feasibility study on the project. The focus in the study is to perform a micro and macro environment of the corporation where it factored the local hotel industry, the trading performance estimates, and the competitive set provided by the industry (Hoagland & Williamson 2000). The project includes important elements of study, which include the analysis of the 110 guests’ rooms, which are designed as superior rooms. The other model under consideration is the inclusion of 40 suits, which include the presidential, executive, and junior suites, which range in size from 90-200 SQ m. Other notable features include a bar and restaurant, a champagne bar and an executive lounge, a top of the class roof top bar, meeting and conference room, the state of the art gym, wine cellars, and three different swimming pools.

Furthermore, there will be provision of parking spots in the public garage adjacent to the hotel. The facility will provide a space for 500 cars. The study will cover the economic overview of the location, the market analysis which will include the hotel demand and supply, and the position of the product. The other thing that will be under consideration is the trading estimated and the financial analysis. The study has its basis from the secondary data and the inspection of the property. During the drawing of this research, the project was in the stage of planning.

Assessment

The primary effort of this study is to provide a qualified and professional opinion through a strict analysis of the project plan. All the assumptions that have been laid out in the scheme which include the size, the layout of the hotel, and the design are based on the presented plans that were made available by the Centum Company. It should be noted that the architect and the design team have measured the plans of the hotel.

The study will examine the market circumstances during its inspection, the relevant issues of the economy, and the market research for it to be successful. The study will also rely on the data that it has been provided both primary and secondary data (Truit 2002). It should be noted that the legal terms that include the ownership of the building, the fiscal terms, and the business is not subjected to be part of this study.

Location Analysis

Economic overview

The United Kingdom economy according to a summary showed that it experienced a 1.9 percent increase every year after a decrease of 0.5 percent in the previous year. The sudden growth after the decline is attributed to the economic crisis that rocked the world. In 2015, the city received approximately 5.1 million visitors between April and June (London & Partners 2015).

The current economic conditions are favorable since, in 2012 and 2013, the economy had experienced a growth rate of approximately 1.9 percent. According to the government in 2011, it had decided to push the inflation down to lower levels. However, it should be noted that the London economy greatly benefitted from the global economic recovery especially those that were experienced in the German market and other European markets.

With reports from the International Monetary Fund, London was ranked among the countries that were considered wealthy when we consider the Gross Domestic Product. The GDP of the country is estimated to be 565 billion US dollars, which is ranked to be 13th in the world (Marcellino & Schumacher 2008). Its economic situation is supported by the growing tourism industry and the standards of living, which are high.

Operational Analysis

Location Analysis London

London is the capital city of United Kingdom. It is a city which was made up of two ancient cities. It is the financial hub of the world due to it being strategically located especially when we consider the currency trading. U.K is the active member of the European Union where its location is at the centre of Europe (European Cities Marketing 2011). The city is primarily located as the seat of the government where the central points of the region are endowed with historical and government buildings and sites which serve as the main tourist attraction (European Travel Commission 2011). The figures presented accounted that the population of the city is more than 7 million inhabitants. The city also represents the location of more than 300 multinationals which include Coca-Cola, Opel, and IBM. The city is considered to be both a cultural, political, and economic gateway of U.K (Clark, 2015). Its geographical positioning is excellent because it is connected to major European Highways. The city is accessible to the Heathrow International Airport which serves as the busiest airport in the world (Wicks 2014). The city is also linked to a suitable underground railway transport network through the London train Station with routes to France and other European countries Coiley (2009).

Micro Location

Accessibility and Visibility

The property which part of it is under renovation is located in Am Hof, which is a prestigious location in the city since most of the historical evidence exists in this region. The place also has churches, residential buildings, palaces, and monuments. UNESCO has listed the inner part of the city as one of the sites for World Heritage (UNESCO 2011)

Currently, there are only two hotels, which have the privilege of the site. The first hotel is the Haftop Hotel and the Crasacher London Hotel. When we compare the accessibility of the two hotels and that of the proposed hotel, it has an inconvenience since it is only served by a one-way lane. One main benefit of the site is that since it has access to the inner ring road, the location makes it convenient since it supports a short distance drive through the public and private mode of travel.

By considering the location, the hotel will face a lot of competition that will come from established luxury hotels that have had their presence in the city for a long time. The aspect of competition is a matter that should not be underestimated. However, the location of the hotel is unique which is supported by the fact that the architecture of the building is grand. This important aspect will allow the hotel to establish itself primarily as one of the best hotels. This will allow the hotel to compete favorably with other luxurious hotels.

Market Research and Competition Analysis

Hotel Supply

Within the next few years, the five-star hotel industry in the city is expected to grow with the construction of four different hotels. The hotels that are being built are the Hilton Sky fall, Kempinski, San Siro Hotel, and the Magna Carta. The approximate bed capacity for each of the new ventures is expected to be approximately 200 beds. Despite the fact that the new hotel will provide increased competition for the hotel, none of the hotels will scale the size and ambition of the current project under study. The other notable feature is that the project is located in an exclusive location, which has limited space but a large supply of consumers. Therefore, it can be considered that the project will secure a long-term position and sustain itself in the premium location.

Competition Analysis

Considering the current situation in the hotel industry in London, the proposed hotel will have competition from five main rivals. The identified list sums up as among the leading hotel players in the industry. The assessment of the competitors was based on considering the location, facilities, the number of rooms; it is pricing, the size of the hotel, product attributes, and the size of the rooms. After a careful review of all these factors, the study identified the primary competitors of the proposed hotel. The hotels include Imperial Hotel, Eiffel-Sofia Hotel, Grand Station Hotel, Palamo Hotel, and Oxen-Vienna Hotel.

Financial Analysis and Pricing

After considering the market analysis, the hotel market segment in London presents a strong growth for any hotel that plans to venture into the market after the World economic crisis. As earlier indicated, the hotel will present itself as a luxury product situated near historical sites with the best services that London can offer. Through the financial report, it is estimated that during its opening, the occupancy is expected to be 75 percent with the average rate of $700 for each customer. The situation is expected to stabilize in the next six months when the hotel will be able to reach the break-even point. The standard room revenue is anticipated to take up the largest portion of the revenue generate where it is expected to total or cover 60 percent of the total revenue. Each standard room will be priced at around $300 on the price basis of 2016.

The revenue from beverages and food will cover the restaurants and bars both found on the main floor and the roof top bar. Other revenues will come from the wine cellar and the income from the conference rooms. Since the hotel is expected to attract mainly foreign and business guests for drinks and dinners, the expected income or income from the whole operation is expected to be $15 million. The primary driver for this numbers is supported by the fact that the design of the hotel will be unique which will host functions that are high quality.

The minor operations department is expected to collect approximately $3 million, which will account for around 4 percent of the total revenue in any given year. Most of the revenue will come from minor services such as telephone calls, the spa, and other recreational activities. The cost from all the departments is expected to run at around 30 percent, which is expected to reduce in the next two years. The operational costs were calculated to cover 20 percent of the revenue of the department. Undistributed expenses are estimated to be 18 percent, which will stabilize by the end of 2016. The costs will include sales and marketing, systems costs, repair and maintenance cost, heat and power costs, and the administrative expenses. In the first year of operation the expected gross operating profit is approximated to account for 30 percent of the total revenue where in the next five years, the revenue will grow or total to $70 million.

Conclusion

The world is experiencing a boom in the hotel industry. Major entrepreneurs are taking advantage of this situation considering the fact most economies are still recovering from the economic meltdown. In the European Union, a few hotels can match up to providing luxury services. London is ready to accept a new hotel with an excellent design and exceptional services. The primary success of this project will be on its location and the unique design of the building. By the concept of addressing issues of exceptional services, the traditional services, and accepting trends to be part of its tradition, the proposed hotel will be a major revenue generator in the next three years.