The Olive Tree Restaurant Analysis - Essay Example

Number Contents Contents 2 Executive Summary 3 Introduction 4 Strengths and Weaknesses 4 Strengths 4 Weaknesses 6 Critical evaluation of the restaurant 7 Trading Position 8 Sales position 8 Average spend per head 9 Food gross profit 9 Wages 10 Summary of the restaurant’s position 10 How the facts compare to the interview 10 Make future recommendation for the restaurant. 11 Advise Angelo about opening another restaurant 11 Bibliography 12 Executive Summary The Olive Tree Restaurant is strategically situated within the fringes of Ealing area in a building that was formerly being used as a bank. A case study on the restaurant has been provided to analyse the business position of the restaurant. Reflecting on the case study, a thorough assessment was done on the operational systems for the effectiveness of the business after which the operational planning as well as implementation within the business’s hospitability units are critically appraised. It is confirmed that Angelo has not made any net profits so far, but the revenues generated from the restaurant are generally attractive. This is a good aspect for its business position (Porter, 2008). The initial costs that include £143,000 for annual rent, £445,000 for turning the bank into a restaurant, and a bank loan of £335,000 have not been covered especially considering that only sales amounting to £588,498 were realized in the entire trading period. Nevertheless, without considering all the costs of establishing the restaurant, a net loss amounting to £76,602 is recorded, further strengthening that the restaurant is yet to make profits. The Olive Tree Case Study Introduction This paper focuses on the Olive Tree Restaurant Case Study. The paper presents an analysis of its performance that give way to meaningful recommendations based on the business performance indicators. In this regard, the analysis is based on an interview conducted with Angelo, the restaurant owner, as the respondent. Some data on the restaurants progress in terms of sales, costs, rent, rates, fuel, wages, and other operating costs were collected. Analysis was done on this data in order to confirm the responses provided though the interview. Strengths and Weaknesses The Olive Tree Restaurant boasts of a number of strengths although, like any other business, there are various weaknesses associated with its operations. The major strength is its ability to recording large sales amounting to almost £600,000 (588,498 to be exact) within the first trading period. Strengths The strengths include: i. Loyal Customers: With regard to this strength, the restaurant management ensures that customer are warmly welcomed after entering the restaurant thus encouraging them to remain loyal to the business (McQuarrie, 2006). This aspect specifically generates the feeling of being special, appreciated and honoured by being a customer to the restaurant. In return, a customer is likely to feel important to seek the restaurant services a second time or even become a loyal customer (Chamberlain, 2010). ii. Effective restaurant operations: This strength is generated by the high morale among the restaurant’s staff. They even go to an extent of recognizing repeat customers by their real names or even understanding their respective needs. The management also uses unique methods of encouraging its staff to be able to achieve such effectiveness. The encouragement thereby boosts their moral and hence the quality of services offered. iii. High quality services: The restaurant generally promotes quality services and food products. The quality services are enhanced through swift services in which a customer gets served as fast as possible upon sending a request. The food is also of high quality as depicted through the high quality pizzas that are also considered to be of fair size. The quality of food is further attributed to few cases of left overs by satisfied customers. iv. Prime Shopping and Entertainment Area: Generally, the Ealing area is characterized by many activities that promote the restaurants business. Shopping and entertainment would often attract a number of customer who end up becoming the restaurant’s customer due to its proximity to shopping and entertainment centres. v. Decent environment: The location may not be the perfect placement, but it gives its amble space for green environment. This aspect adds value to its services especially for customers who prefer such kind of environment (Chamberlain, 2010). vi. Low rent: The restaurant is located in the edge of the business area where the cost of rent is relatively lower than in the central region. This has helped in widening the business profit margins (Chandler, 1962). vii. Green pastel shades: Another strength still related to its environment is its cool green pastel shades. These shades are used to generate more space that can be occupied by customer especially during peak seasons. Weaknesses The restaurant is however faces with various weaknesses with the key weakness being its inability to make profits within its first trading period. i. Realized Losses: The Company has made a loss amounting to £76,602. It has a lot off expenses to cover even during its second trading period. This weakness further exerts more pressure to the restaurant’s operations. ii. Periphery Location: Its periphery location is not the best for its business activities. The restaurant’s location in the fringes of Ealing area makes it difficult for many potential customer to avoid the restaurant or simply lack the capacity to travel to it. This aspect happens to be a key weakness that deteriorates business opportunities of Olive Tree Restaurant. iii. Business History of the Building: The building was not specifically designed to suit restaurant related activities but rather banking activities. It thus follows that a number of people may still consider the building to have banking operations instead of restaurant businesses. A person who had used the banking services and never recognized the change in business may never have knowledge regarding the restaurant’s existence. Some other customer may also consider the restaurant as substandard due to this aspect. iv. Noise pollution: Another key weakness is associated with the high level of noise as well as bustle from the restaurant’s staff and kitchen equipment. Some potential customer may never return to the restaurant simply because they cannot withstand the level of noise pollution in the restaurant. v. Limitations in access resources: Given the location of the restaurant at the edge of the business area, there are associated time limitation in accessing raw materials. The time spent in travelling to the business center to buy such material adds to its total costs. vi. Increased transport costs: The business location at the edge of Baling contributes to high transport cost of raw material. This further adds to the total cost of running the restaurant business. vii. Low involvement of staff in decision-making: Most of the decisions are made by the restaurant own. The fact that the workers have some better understand of some of the prevailing operation than the owner is hardly considered. Critical evaluation of the restaurant After evaluating of the Olive Tree Restaurant business, it can be ascertained that Angelo has not yet made any money out of the restaurant business. The restaurant currently relies on the revenue generated through the sale of food and drinks only. Such revenue is far much less than the cost of running the restaurant. The overhead costs are relatively too high to be covered by the sales on food and drinks only. The initial costs of structuring the complete restaurant business included rent that amounted to £143,000 per year and £445,000 for turning the bank into a restaurant, and a bank loan of £335,000. Besides the investment costs, most businesses are bound to face challenges during their first phase. It is typically difficult to establish the duration of each phase in a business operational curve, but it happens to be a normal phenomenon that the initial phase is characterized by losses (GGomediafix, 2015). Further considering that the restaurant has only made a total revenue of £588,498, this amount is far from the restaurant’s sale to cover the operating costs not including the starting expenses. This would only be possible in the second phase where the restaurant is not only likely to grow at an increasing rate but also the profits would be increasing significantly. Not all businesses go through the three phases, but based on the owners experience and interview claims, the business will cover all the expenses in its second phase. To make realizable profits, the restaurant needs to cover all these initial costs. It generally need to reduce its daily expenses in order to realize some net profits. Based on the revenue generated from April 2014 to May 2015, the restaurant has recorded a loss of £ 76,602, but this is only attributed to its initial phase in its business growth curve (GGomediafix, 2015). Trading Position The restaurant trading position is generally good. For instance, this could be seen in the case of stability in the first quarter of trading. In the first quarter, the business remained consistent with sales of an average of about £12,000 each week. Its strong trading position also contributed to various expectations such as initial increase in sales and perhaps a fall in sales after the new novelty of the business wears off. Besides, many customers seem to be loyal to the restaurant business. Angelo, the restaurant own has even been targeting an increase of 15% for the operation year of 2013-2014. Sales position The restaurant sales on foods have been increasing from April to September 2014. There has then been a consistent sales decrease on foods from October 2014 to February 2015 before the sales raised in March. This could project another increase of sales based on the initial trend. The sales on drinks did not depict a specific trend but an alternating trend in terms of increase and decrease. This makes the trend unpredictable. Nevertheless, the trading position is generally good since sales are good and slowly increasing. The fact that the business is making losses is attributed to the normal business curve in which the first of the three phases a business’ expenses are more than the generated revenues (GGomediafix, 2015). This is shown in the figure below where the first phase the business makes losses. Figure 1: Typical Business Curve (GGomediafix, 2015) The owner seems to be targeting a 15% of sales increase, which could be possible based on the three phases of business success, but still, making profits may still be impossible. The notion of making profits is unrealistic since the restaurant is still making losses. Average spend per head Based on the total cost of both food and drinks, the amount spend per head seemed to change slight each month. The change is however not consistent. The amount spend per head showed an increasing trend frim May 2014 to December 2014. The average spent per head per month was 9.185221, while the total spending per head on food and drinks was 110.2226. Food gross profit The gross profit from constitutes the difference between the revenue generated from the sale of food and the cost of purchasing the food. In this regard, the gross profit shows an increasing trend from April 2014 to August 2014. It then falls consistently from September to December. In this regard, the percentage increase from Aril to May 2014 is 3.24%, 1.63% from May to June, 5.74% from June to July, and 0.78% from July to August. The other months depicting some percentage increase in the food gross profits are February and March 2015 where the gross profit on food increased by 3.04% and 10.19% respectively. Wages Wages did not seem to have a particular trend throughout the trading period, although there was an increasing trend from May to September 2014. The highest spending on wages was on the month of September. Nevertheless, the trend in wage changes showed positive increase in June, July, August, and September 2014 by 9.09%, 8.62%, 19.41%, and 0.33% respectively. The months of February and March 2015 also showed 6.38% and 2.39% respectively. The totals wages for the entire trading period was 154,231. Summary of the restaurant’s position The restaurant is generally doing well. Its profits are gradually increasing. However, the restaurant seems to be doing best during the months of April to October. The gross profit from food and drinks sales is highest during this period. The restaurant has good position to improve. However, it faces low sales and low gross profits during the months of January, February and March. How the facts compare to the interview The facts compares to the interview since the as Angelo claimed about the revenue trends, the restaurant sales are at least £12,000 per week. This is generally a good trend although the restaurant has not yet covered all the costs of its establishment. The number of customers is also consistent. The restaurant seems to maintain a good number of loyal customer implying that both the good services offered and Angelo’s experience in the restaurant business are major contributions. His assertions as depicted through the interview are seemingly correct. The facts however provide finer details for actual analysis. Regarding the budgeting position, the restaurant has a high budget per customer. And average of £9.19 is seemingly high given the current returns. However, this could be based on the business aim of improving quality (Oracle, 2015). Make future recommendation for the restaurant. The restaurant has a lot of things to adjust in order to improve its competitiveness. First, it should focus on enhancing its strengths and eliminating its weaknesses (Haynes, 2014). Besides, given its location, which is faced by many disadvantages as mentioned earlier in this paper, the restaurant need to invest heavily on advertisement. In this case, it should ensure that whatever is advertised is real, but negative aspects should definitely be excluded in the advertisement (Chamberlain, 2010). Advise Angelo about opening another restaurant Angelo should not rush into opening another restaurant. The best thing he should do first is to focus on promoting the restaurants brand name so that by the time he thinks of starting another restaurant, he can utilize the same brand for all its future restaurant chains (Haynes, 2014). Opening another restaurant immediately would lead his to the same difficulties he is currently facing. Bibliography Balakrishnan, N., 2010. Methods and Applications of Statistics in Business, Finance, and Management Science. New York: John Wiley & Sons, Inc.. Chamberlain, G. P., 2010. Understanding Strategy, CreateSpace, Charleston. Chandler, A. D., 1962. Strategy and Structure: Chapters in the History of the American Industrial Enterprise. Cambridge, MA: MIT Press.. GGomediafix, 2015. The Growth Curve: Why Our Focus on The Growth Curve Helps You. [Online] Available at: http://www.gomediafix.com/tools/the-growth-curve/ [Accessed 12 May 2015]. Haynes, M., 2014. Tim Hortons’ evolving approach to ‘True Stories’: Strategy got the skinny on the brands latest experiential stunt - a transformed home in Calgary - and how this marks an evolution in the iconic campaign. [Online] Available at: http://strategyonline.ca/2014/09/24/tim-hortons-evolving-approach-to- true-stories/ [Accessed 10 May 2015]. Lake, L., 2015. How To Develop a Marketing Strategy in 5 Easy Steps. [Online] [Accessed 13 Jan 2015]. McQuarrie, E., 2005. The market research toolbox: a concise guide for beginners (2nd ed.). London: SAGE. Oracle, 2015. Understanding Position Budgeting. [Online] Available at: https://docs.oracle.com/cd/E41507_01/epm91pbr3/eng/epm/pbpd/concept_Understan dingPositionBudgeting-d17c2f.html [Accessed 10 May 2015]. Porter, M. E., 2008. The Five Competitive Forces that Shape Strategy",. Harvard Business Review, pp. 86-104. U.S Small Business Administration, 2015. Understand Your Market. [Online] [Accessed 25 January 2015]. Appendix Food sales 33,844 35,565 36,090 37,600 38,919 37,188 34,545 33,978 31,957 29,277 29,277 30,493 408,733 COS Food 10,729 11,701 11,838 11,957 13,077 12,012 11,020 11,077 11,665 11,633 11,096 10,460 138,265   23,115 23,864 24,252 25,643 25,842 25,176 23,525 22,901 20,292 17,644 18,181 20,033 270,468                               23,115 23,864 24,252 25,643 25,842 25,176 23,525 22,901 20,292 17,644 18,181 20,033   COS Food 0 11,701 11,838 11,957 13,077 12,012 11,020 11,077 11,665 11,633 11,096 10,460   COS drink 4,366 4,595 5,408 5,122 4,022 3,617 4,423 3,890 6,289 4,286 3,589 3,916   Food sales 33,844 35,565 36,090 37,600 38,919 37,188 34,545 33,978 31,957 29,277 29,277 30,493 408,733   Drink sales 15,816 15,629 17,114 16,905 16,484 16,003 14,695 14,092 17,089 12,351 12,003 11,584       49,660 51,194 53,204 54,505 55,403 53,191 49,240 48,070 49,046 41,628 41,280 42,077       5,669 5,898 6,005 6,016 5,951 5,695 5,156 4,893 4,533 4,921 4,707 4,787       8.759922 8.679891 8.85995 9.060007 9.309864 9.339947 9.550039 9.824239 10.81977 8.459256 8.769917 8.789848 9.185221 110.2226   April May June July Aug Sept Oct Nov Dec Jan Feb March Food sales 33,844 35,565 36,090 37,600 38,919 37,188 34,545 33,978 31,957 29,277 29,277 30,493 Drink sales 15,816 15,629 17,114 16,905 16,484 16,003 14,695 14,092 17,089 12,351 12,003 11,584   49,660 51,194 53,204 54,505 55,403 53,191 49,240 48,070 49,046 41,628 41,280 42,077 49,042 COS Food 0 11,701 11,838 11,957 13,077 12,012 11,020 11,077 11,665 11,633 11,096 10,460 COS drink 4,366 4,595 5,408 5,122 4,022 3,617 4,423 3,890 6,289 4,286 3,589 3,916 Wages 13,110 11,314 12,343 13,408 16,011 16,064 12,900 12,450 12,163 10,932 11,629 11,907 154,231 Rent 35,750     35,750     35,750     35,750     Rates     47,500           47,500       Fuel 4,529     4,692     4,721     4,862     Other operating expenses                                                 1,526 1,106 321 2,409 1,001 927 847 1,289 2,421 2,079 1,071 1,032                                                 Interest payments                                                 3,354 3,354 3,354 3,354 3,354 3,354 3,354 3,354 3,354 3,354 3,354 3,354                                                                           Marketing 500 500 500 500 500 500 500 500 500 500 500 500 No of customers 73,864 32,570 81,264 77,192 37,965 36,474 73,515 32,560 83,892 73,396 31,239 31,169 665,100                         5,669 5,898 6,005 6,016 5,951 5,695 5,156 4,893 4,533 4,921 4,707 4,787 Food sales 33,844 35,565 36,090 37,600 38,919 37,188 34,545 33,978 31,957 29,277 29,277 30,493 COS Food 10,729 11,701 11,838 11,957 13,077 12,012 11,020 11,077 11,665 11,633 11,096 10,460 23,115 23,864 24,252 25,643 25,842 25,176 23,525 22,901 20,292 17,644 18,181 20,033 0 749 388 1,391 199 -666 -1,651 -624 -2,609 -2,648 537 1,852 0.032403 0.016259 0.057356 0.00776 -0.02577 -0.06558 -0.02652 -0.11393 -0.13049 0.030435 0.101865 3.24032 1.62588 5.735609 0.77604 -2.5772 -6.55783 -2.6525 -11.3925 -13.0495 3.043528 10.18646 Wages 13,110 11,314 12,343 13,408 16,011 16,064 12,900 12,450 12,163 10,932 11,629 11,907 -1,796 1,029 1,065 2,603 53 -3,164 -450 -287 -1,231 697 278 -13.6995 9.094927 8.628372 19.41378 0.331022 -19.6962 -3.48837 -2.30522 -10.1209 6.375778 2.390575 Read More