The Break-Even Point and the Cash Flow Statement - Case Study Example

Executive Summary This assignment has discussed the launch of a restaurant in London that is focused on serving healthy foods for its The uniqueness of the restaurant lies in the fact that it will gather information from customers and serve them according to their nutritional needs. Organic ingredients will be mainly used in the raw materials. On analysing, it has been revealed that there is a growing trend among people in United Kingdom, including London, to eat more organic food. This is evident both in the data collected from secondary sources as well as primary research that has been conducted for the purpose of this project covering 50 people. The research has revealed that the target market with respect to customers, including fitness trainers, diabetic and obese patients and health conscious people, are constantly broadening. The macro-environment analysis has indicated that the country is quite stable politically and economically and has shown improvement post-crisis. The legal formalities for starting the business are also less. The analysis of competitive forces in the market has suggested that there are few restaurants in the city that offer similar products, which indicates that competition will be high. The analysis of the break-even point and the cash flow statement has also been discussed. Contents Executive Summary 1 Business Opportunity 4 Feasibility: Micro-market analysis 7 Dynamics 8 Target Profile 8 Target Behaviour 8 Customer Profile 8 Macro Market and Drivers 9 Industry Domain 9 Market Domain 9 PESTLE Analysis 9 Competitive Environment & Direct Competitors 11 Sustainability 12 Start‐up Finances 12 Post Start‐up Finances 13 SWOT analysis 13 Strength 13 Weakness 13 Opportunity 13 Threats 14 Personal Traits 15 Appendices 20 Appendix 3 26 The proposed business opportunity The business plan is to build a restaurant in London that will serve its customers with customized food suited to their health. This means that the restaurant will maintain all the necessary details of existing customers, including vital statistics of their body like, height, weight and personal illness, if any, so that it can serve the customers accurately according to their body type and nutritional requirements. The walk-in customers can also enjoy services of the restaurant by registering their details on the first visit. The restaurant is focused on serving foods based on organic products, which have low fat and calorie content. The focus of this restaurant is creating a healthy lifestyle for customers while optimizing the taste of the food served. It will be perfect for health conscious people who want to enjoy healthy eating. Business Opportunity Market Gap: In U.K., demand for organic food has been on a rise reflecting need of the people to shift to healthier eating habits. The following graph shows rise of organic food sales in U.K. from 1995 to 2012. Figure 1: Graph showing rise of organic food sales (Source: Soil Association, 2013) Though the sale shows decline after 2010, yet recent reports suggest that growth of the organic food products grew by 2.8% in 2013 compared to 2012; indicating the recovery of growth trajectory, after falling for four years. Though demand for organic foods is high, yet the share of restaurants serving organic foods is low (Soil Association, 2013). The following pie chart shows the share of restaurants serving organic foods. Figure 2: Graph showing the share of businesses who sell organic food (Source: Soil Association, 2013) The small share of restaurants serving organic foods implies a sufficient market gap in the market to make this venture reliable. The following chart shows growth in the sales of restaurants serving organic foods. (Source: Soil Association, 2014) This graph shows that the growth is quite promising for setting up the business venture. Recently, in England, percentage of obesity and diabetes related to the population (both children and adult) are quite high. The following chart shows the main findings about health conditions in U.K. from 1993 to 2011. Figure 3: Share of patients in UK (Source: NHS, 2013) The above chart clearly reflects the need of healthy eating habits among people and there has been an increase in percentage of people eating healthy food in U.K. as is evident from the rising sales, over the years. Though recession had caused a marginal decline in the trend, yet the numbers are rising again. Product Offering: The product offering of this restaurant will clearly add value to the customers purchasing the products. The range of product will include delicious nutritional food items with mostly organic ingredients in order to supplement the diet needs of customers. Moreover, the service is customized as the restaurant will take personal care of each customer by maintaining a file of their health conditions. A group of established nutritionists will be constantly engaged to look into the exact nutritional needs of customers. This restaurant attempts to fill this gap. Apart from the health conscious people, people suffering from obesity and diabetes will also be directly benefitted from the products offered by this restaurant. Feasibility: Micro-market analysis Target Market: The target market of the restaurant can be divided into three broad segments, namely the health professionals like, gym instructors, vegetarians and individuals who focus on healthy eating as well as people with health related issues like, obesity and diabetes. It has been observed that there has been a marginal rise in the market size of health and fitness segment in United Kingdom, including London and the market value of this sector has grown by only 1.5% in 2013 from the previous year. Though this value had fallen sharply during the recession in 2008, yet the number has been rising over the years. In 2013, the number of fitness facilities went up by 2% and that of membership was up by 4.5% (IBIS World, 2014). Current Trend: The current market trend signifies that health conscious eating is likely to increase. The market size of diabetic customers is likely to broaden in the forthcoming years. Current statistics show that alone in England, the number of people affected with diabetes is 5.6 million and in 2009, 2.6 million were diagnosed with diabetes (Diabetes UK, 2010). This implies that almost three people in every 17 minutes are being affected by diabetes. Healthy eating habits are extremely important to curtail this trend. The current consumer statistics had shown that 87% of the consumers preferred eating healthier and organic foods (EVD, 2009). A primary research has also been conducted for the purpose of this research, which has been provided in the appendix. A sample of 50 people was selected and a questionnaire based survey was conducted. The results obtained from the analysis showed a considerable preference among people to eat healthy and organic foods. An increasing trend in health consciousness has also been noted from the survey. Dynamics The current situation shows that people in London had developed healthy eating habits. The number of customers in the restaurants serving low-calorie menu had experienced a surge in the number of customers. The habit of eating organic food had fallen during the period of recession yet marginal rise in recent times still indicates that the recovery is occurring. During the time of recession, most people had to cancel their gym memberships and exercise independently without cost. These people can now also benefit from a supplementary diet, which is exactly what the restaurant offers. Target Profile The target profile for my restaurant is middle class, upper middle class and the upper class. This is because owing to the higher price of the organic foods the upper income and the upper middle income have the wherewithal to visit restaurants which serves this type of food. The upper middle income and middle income can definitely be occasional customers availing the take home service delivery. Target Behaviour According to both the primary research that has been conducted for the purpose of research and reports of the secondary data, consumers are foregrounding a tendency to eat healthier foods. The rising demand for organic foods also indicates that consumers are willing to shift to healthy eating (Doward, 2014). The behaviour of the target customer shows that there is a high tendency among them to visit restaurants serving healthy food. Customer Profile It has been observed that people under the age of 35 have mostly increased their consumption of organic foods. In U.K., the proportion of this segment of population is rising and is likely to have considerable impact on the organic food industry. The per capita income of customers reached a peak during 2008, after which it has fallen. In 2014, per capita income of the people is 38302 U.S. dollars. Geographically, it has been observed that England has 4.4% of land under organic farming. Macro Market and Drivers Industry Domain Economic: The state of economic development of a country is extremely crucial for the well being of any business operating in it. U.K. is one of the developed countries in the world and the people have disposable income for spending on luxury items. Though the economy of the country has been severely weakened by the global financial crisis of 2008 yet over the subsequent years the country has been recovering slowly but steadily. In 2014 the economy of the country is expected to grow by 2.4% which is highest among the other European Nations. The food service and the hospitality industry is expected to reach 90 billion in the next five years (Sagitter One, 2013). Political: The political forces in a country also play a very important role in the development of a business. It has been observed particularly for the restaurant industry that the government has imposed restrictions on the restaurant business to bring down the carbon footprint of industry. This may raise the operating cost of the business. The introduction of the Goods and Services Tax can have changed the prices of the goods which has impacted restaurant industry. Social: Dining outside has become very popular in U.K. as most of the consumers prefer to eat outside and eat healthy. Almost 19 million adult U.K. populations is visiting restaurants and opting to eat healthy. Statistics in 2013 has shown that 1 in 7.5 million people are eating outside. Sophisticated eating environments are also becoming very common (Sagitter One, 2013). Market Domain PESTLE Analysis Political: The political environment of England is quite stable and the current policies of the government uphold a tendency of the government to encourage organic farming among farmers. The government is also supporting programs on healthy eating of the public. It has been observed that most countries of the European Union are supporting the conversion to organic farming methods (Stolzea and Lampkin, 2009). There is also government support organic grasslands maintenance and U.K. receives one of the highest payments. Economic: The gross domestic product of England was $2440 billion dollars in 2012. The country has been deeply affected by the global financial crisis of 2008. Currently, the economy is slowly recovering from the crisis and GDP has only risen by 0.7% in the last quarter of 2013 (Trading Economics, 2014). Though the agricultural sector contributes marginally to the GDP as U.K. is an industrialized country, yet it has been observed that the country has one of the largest areas under organic farming and current statistics show growth of this sector. Social: The societal alterations are one of the main drivers of change in the market. One of the basic requirements in marketing is to understand changes occurring in the social trends. Consumer trends in England have directly pointed out a growing preference among the consumers to purchase organic food. For U.K., it has been observed that the with higher income category have a very strong preference towards purchasing the organic products. It has been observed that 88% of the households had purchased organic products in some form or the other (Timmins, 2010). These factors signify that the prospect of the restaurant industry, once it starts operation, will be bright. Technological: Technology is extremely important for organic farming as the organic farmers require superior technology of farming, compared to traditional farmers. The cost of organic production is higher than conventional methods because of labour-intensive methods of production, better lifestyle of livestock and extensive demand. The higher costs of production translate into higher prices of end products. Technological improvement can play a crucial role in bringing down the costs. The reduction of costs of raw materials is essential for profitability of the business. Legal: Department for Environment, Food and Rural Affairs is responsible for certification of the organic products. The overall legal stability to start business in the U.K. is favourable and no permission is required for starting the restaurant. This makes the process of starting a new business easy and that of the restaurant business will require no licensing. Environmental: The environmental factors are becoming extremely important for the restaurant industry. The carbon footprint of the restaurant industry is very high and restaurants are constantly striving to reduce carbon emissions. This means that when the restaurant opens up, it will have to take care about the ecological footprint standards in order to meet the environmental goal of the country. Competitive Environment & Direct Competitors Threat of rivalry: This poses a considerable threat in the restaurant industry as there are a large number of restaurants all over London. The business is likely to face steep competition from Gym’s kitchen, Bread Street Kitchen, Amico Bio, Nopi, and Saf Kensington (Evans, 2013). All of these restaurants serve nutritional and calorie-regulated food to their customers. The rivalry among these players is high as they directly compete for customers. Threat of substitutes: The threat of substitute can come directly from other restaurants serving similar products or retailers selling organic foods. Although the departmental stores mainly serve uncooked food, customers can still access them easily. Healthy home-made food can also act as a substitute for eating outside in a restaurant. Threat of new entrants: The threat of new entrants in the restaurant industry is very high as barriers to entry in this industry are not very high. Additionally, start-up cost of the business is also not steep, thereby encouraging new entrants in the market. Threat of suppliers: The threat of suppliers in the restaurant industry is not very strong as there are a large number of suppliers who can be contacted for supply of raw materials. As most of the raw materials for the restaurant industry is obtained from butchers and farmers growing organic products, there is a wide range of option to choose from. Additionally, relationship with the supplier is very important in order to acquire superior quality products at an effective cost. Threat of buyers: Threat of buyers is high as customers can easily switch between restaurants, which offer similar products at lower price. Product differentiation and maintenance of quality at reasonable prices are the keys to survive in this industry. The direct competitors of the business make the list of available options to the buyers wide so that they can choose from more options. However, as the number of restaurants serving organic food is relatively smaller so the threat of the buyers is not very high Sustainability USP: The biggest USP of this restaurant is that it will provide personal attention to all of its clients who are visiting the restaurant. The group of nutritionists will check the vital information about customers before suggesting the kind of dish that they must order for themselves. Another unique feature of this restaurant is that even diabetic patients will have a wide range of options to choose from. Critical Success Factors (CSF): This table has summarized the key factors that will be required for successful running of the business venture. Start‐up Finances For initiating this project, there are two sources of initial financing. The first one is my personal saving that I have saved for this work and the second one is financed by the bank. Though this is a seed-capital, yet obtaining the loan is not difficult as my father has arranged for the required collateral that needs to be put up against the huge loan. The main start-up cost will be incurred in renting an appropriate place for the restaurant and properly decorating it. The contract for this has already been given to Kribensis Leisure Contracts owing to a long standing relationship with the company. The profit margin is expected to be 98.9% and the average cost for a five course meal has been estimated to be around 81 pounds. Post Start‐up Finances Similar to any normal business, the initial years will be difficult for the business as it is crucial for establishing a good relationship with the suppliers and customers. The publicity of the restaurant is also equally important as customers need to be fully aware of the product offerings of the restaurant, which will develop over time. The cash flow statement that has been provided in the appendix clearly shows the break-up of expenditure and income that can be generated from the business. The analysis on basis of the projected sales figure has revealed that 1112.735 units of goods are to be sold, which will generate revenue of 15592700 (15 million pounds). The contribution per unit is expected to be around 807.02 pounds. The assumptions regarding the sales and price to be charged per unit is based on the current price trends in the market. SWOT analysis Strength The biggest strength for this business is the rising health consciousness among people, which has been confirmed on the basis of primary and secondary research. The finances required to start the business can also be easily gathered from the ongoing family business. There are some useful contacts that can prove to be resourceful for the business as these will provide a head-start for the business. Weakness Due to the high operating expenses, the product is priced slightly higher compared to that of the existing competitors. The products of the competitors can also provide stiff competition for the business. The cost of material inputs is high due to high nutritional value of the raw materials. Opportunity The recovery of high demand of organic food in U.K. provides a huge potential for the business. The result from the survey has directly shown preference of the people towards low-calorie diets. There is ample gap in the market for the business as the number of direct competitors is not too high. Threats The lack of proper contacts in the advertisement industry may hamper publicity of the restaurant. The threat of new entrants in the industry is quite high as there may be a large of interested entrants owing to the potential of the market. Managerial Capabilities Personal Traits I have always been keen on venturing in new enterprises that involve considerable risk and my family owns two successful businesses. The data from the secondary research and the primary research that had been conducted by me points out that this will be a profitable business venture. The opportunities in this field are growing due to the rising health conscious nature of people; this acts as an encouragement. The break-even point calculated for this business venture is also feasible according to the resources that I presently own, thereby making this plan feasible. Business and Social Networks 
 The following jobs are extremely important for success of the business venture: Contractor For making sure that the place is chosen at a convenient location in a populous place     Interior Designor To make sure that the ambience is comfortable and inviting     Chefs Hire the best chefs to produce good quality food     Staff Friendly staff with good manners     Nutritionists To understand the correct calorie requirement of the client     Accountants afor maintaining the finances of the company and auditing     Media Journalists to provide positive feedback and reviews There are few contacts which I have who can be quite resourceful in success of the business. It is always better to use known contacts in a business venture as unknown people becomes difficult to trust. As we already have two family businesses, some of the people can be of real help in launching the restaurant and as far as others are concerned, new contacts will have to be established. The following list provides the detail of the key contacts for the project and their portfolio of work. A new relationship needs to be developed with a renowned journalist to ensure positive reviews. Reference List Diabetes UK, 2010. Diabetes in the UK 2010: Key statistics on diabetes. [pdf] Diabetes UK. Available at: < http://www.diabetes.org.uk/Documents/Reports/Diabetes_in_the_UK_2010.pdf> [Accessed 15 March 2014]. Doward, J., 2014. Organic food back in vogue as sales increase. [online] Available at: [Accessed 15 March 2014]. Evans, N., 2013. London’s 10 best diet-friendly restaurants. [online] Available at: [Accessed 15 March 2014]. EVD, 2009. Market survey UK - Health Foods. [pdf] The ministry of Economic Affairs. Available at: [Accessed 15 March 2014]. IBIS World, 2014. Gyms & fitness centres in the UK: market research report. [online] Available at: [Accessed 15 March 2014]. NHS, 2013. Statistics on Obesity, Physical Activity and Diet: England, 2013. [pdf] The Health and Social Care Information Centre. Available at: [Accessed 15 March 2014]. Soil Association, 2013. Organic market report 2013. [pdf] Soil Association. Available at: [Accessed 15 March 2014]. Sagitter One, 2013. London restaurants industry. [pdf] London Chamber of Commerce and Industry. . Available at: [Accessed 15 March 2014]. Soil Association, 2014. Organic market report 2014. [pdf] Soil Association. Available at: [Accessed 15 March 2014]. Stolzea, M. and Lampkin, N., 2009. Policy for organic farming: Rationale and concepts. Food Policy, 34, pp. 237-244. 9 Timmins, C., 2010, Consumer Attitudes towards Organic Food. [pdf] BOBL. Available at: [Accessed 15 March 2014]. Trading Economics, 2014. United Kingdom Gdp. [online] Available at: [Accessed 15 March 2014]. Appendices Appendix 1- Survey Questions Appendix 2- Representation through Pie Charts Appendix 3 Cash Flow Statement Read More