Reference no: EM133438102

Case Study: Italian Eatery, a fairly large restaurant of about 2,000 square feet is owned and operated by Rebecca Mecker. The eatery is located in the heart of a small shopping center in a residential section of a growing suburb, along a heavily traveled major traffic route. Rebecca sells mainly full-course "home-cooked" Italian-style dinners (no bar) at competitive prices. In addition to Rebecca's restaurant, other businesses in the shopping center include a supermarket, a hair salon, a liquor store, a video rental store, a skating rink, a home décor Store and a vacant space that used to be a hardware store. Rebecca learned that a pizzeria was considering locating there soon. She wonders how that competition will affect her. Ample parking space is available at the shopping center.

Rebecca graduated with honours degree in Culinary Arts from a well-known Community College and later an MBA from a popular University. Since her graduation from the community college, she lived in the town with her husband and two children. She has been self-employed in the restaurant business since her graduation from college. Her most recent venture-before opening Italian Eatery was a large restaurant that she operated successfully with her brother for six years after which she had to sell out her share of the business because of illness. Following her recovery, she was anxious for something to do and opened Italian Eatery four years later. Rebecca felt that her plans for the business and her opening were well thought out. When she was ready to start her new restaurant, she looked at several possible locations before finally deciding on the present one.

Rebecca explained: "I looked everywhere, but here I particularly noticed the heavy traffic when I first looked at it. This is the crossroads for almost every main road in this section of the Island. So obviously the potential is here." Having decided on the location, Rebecca signed a 10-year lease with the option to renew for 10 more years. She eagerly attacked the problem of outfitting the almost empty store space in the newly constructed building. She tiled the floor, put in walls of polished wood, installed plumbing and electrical fixtures and an extra washroom, and purchased the necessary restaurant equipment. In addition, she purchased glassware, an initial food stock, and paid for three quarter-page advertisements in the local newspaper. All these expenditures came from her personal savings. She also hired five waitresses and one chef. Then, with $500,000 cash reserved for the business, she was ready to open.

Rebecca knew she would need a substantial cash reserve to fall back on until the business got on its feet. She expected this to take about one year. Her husband-a high school teacher-was willing to support the family until the restaurant caught on.

The first six months after the opening business was very slow. Rebecca was a little discouraged by this, but she was still able to meet all her operating expenses without investing any new money in the business. Four months later the business was still slow, and Rebecca had to invest an additional $1, 000000 just to survive. Rebecca stepped up her advertising-hoping this would help. In December, she spent $800 of her cash reserve for radio advertising; 10 late-evening spots on a news program at a station that aims at middle-income patrons. Rebecca also spent $200,000 more during the next several weeks for some metro newspaper ads.

By April of the next year, the situation began to improve; her revenue increased steadily for the next four months. Rebecca increased the working hours of her staff from six to seven hours a week and added another cook in order to handle the increasing number of customers. She was more optimistic about the future because she was finally doing a little better than breaking even. Her full-time involvement in the restaurant seemed to have paid off. She had not put any new money into the business in the last eight months and expected business to continue to rise.

She did not take any salary for herself, even though she had built up a small surplus. Instead, she planned to put in a bigger air-conditioning system. She also plans to use what salary she might have taken for herself to hire two new waitresses to handle the growing volume of business.

Rebecca is not certain what to do; she is reviewing the slow growth of her restaurant. She thought about the future of the restaurant and wondered if she should change her strategy. Although sales have not been robust, she is still making a small profit and has a relatively good base of repeat customers-primarily families. An important question that Rebecca is debating is whether there really is a big enough market in her area for Italian cuisine.

In particular, she wondered if she should join a fast-food or a family restaurant franchise chain. After doing some research on the Internet, she has learned that with help from franchisors, her business could gross $20 to $30 million a year. Of course, she would have to follow someone else's strategy and thereby lose her independence. But those sales figures do sound good, and she also found out that the returns to the owner-manager (including salary) per year could be very attractive. She also considering putting a web page for the restaurant on the Internet but she is not sure how that will help.

Discussion questions

Rebecca employed you as a marketing consultant to advise her as to what decisions she needs to take regarding the future of her restaurant.

Question 1

Conduct a situation analysis of the scenario and advise Rebecca as to the central role a situation analysis may play in her business decisions.

Question 2

Identify and discuss three external environmental factors that could impact the success of her business. Highlight the significance of the factors in her marketing decisions.