Assignment: Restaurant Better Food
You are the manager of Restaurant Better Food, which can seat up 50 guests, and is located in a town of about 25,000 inhabitants. The restaurant is well attended, but this poses a problem, as it can be difficult to serve all would-be diners during some weekends. While the restaurant has a unique location at the town centre, featuring a pleasing view of the harbour and the sea, it is also part of a concern (business group), which owns 10 restaurants in Denmark. As the manager, you are responsible for running the restaurant, and the concern which owns it does not mandate any specific concept, leaving you a fairly free hand in how you choose to manage the restaurant's affairs. However, the top management of the concern must approve any major strategic or economic decisions.
The current, overall strategy within the concern focuses on expanding its business concept, while still keeping to its designated core competency: Food preparation.
The restaurant's current kitchen does not live up to the government-mandated specifications, leading to the necessity of refurbishing it. Together with the concern's top management, you have narrowed the options down to a choice of two different solutions, in which solution B is meant to support the top management's expansion strategy. The solutions are as follows:
A) A refurbishment costing DKK 300,000.00 (VAT not included), which updates the existing equipment, bringing it in line with the government-mandated specifications, while making sure that it will be able to serve up to 50 guests. The staff requirement after the refurbishment is complete will be five persons.
B) A combined refurbishment and expansion of the kitchen, which not only will bring it into line with the government-mandated specifications and serve up to 50 guests, but will also allow the production of another 50 meals per hour for a total of 100 meals per hour. Following this refurbishment, staff requirement will be eight persons and the cost of the refurbishment and expansion of the kitchen will be DKK 500,000.00 (VAT not included).
Hourly wages, incl. costs to the employer (social contributions etc.), are DKK 175.00.
Regardless of which type of refurbishment is chosen, it will be financed through a bank loan with an annual interest rate of 8%, repaid over 7 years with annual payments of 1/7 of the loan paid at the end of the year
Question 1
Choosing solution B will allow you to bid on a municipal contract for the deliverance of meals to 75 local citizens. This "meals on wheels" contract stipulates that the meals must be delivered in the hours between 16:00 and 18:00 and must still be warm on arrival. You must expect an average distance of 1 kilometre between each meal recipient and a delivery time at each citizens' home of 1 minute (from parking over delivery to leaving for the next customer). The meal in question will be the same for all 75 citizens and should be something simple and fairly ordinary, e.g. meat, potatoes and gravy. The price per meal, incl. delivery, is DK 49.00 (VAT not included) and the duration of the contract is three years, whereupon it must be renegotiated.
You must calculate the costs and benefits of choosing solution B, based on winning the municipal contract. Your calculations must include:
1. Calculating and describing the costs (raw materials, preparation, delivery etc.) so that you are able to calculate your costs of production.
2. A budget describing your fixed and variable costs.
3. A budget covering the star up costs (investment) needed to start delivering food as well as the cash flow.
In order to be able to deliver the food, you must acquire transportation - delivery vehicle. Company policy is that such vehicles must be leased and you must use the leasing agreement below in your estimated budget:
• Nissan NV200
• Leasing agreement - all amounts are excl. VAT
• Initial payment: DKK 12,000.00
• Monthly payments: DKK 1,285.00
• Duration of the lease: 36 months
• Kilometres driven per year included in the agreement: 15,000.00
• Distance driven above the annual amount included incurs a fee of DKK 1.25 per kilometre
• Fuel efficiency: 19.2 kilometres per litre of diesel (ECE norm)
Question 2
Assuming that you do indeed win the municipal contract, you might consider using your existing materiel to deliver food to other customers as well. Develop a concept for such a scheme, describing what you will offer and how you envision it working in practice, and make an estimated budget for your chosen concept. You must remember to factor in all the relevant processes in order to estimate the accompanying costs.
You must calculate a budget of the costs as well as a sales budget. Also comment on the risks as well as the sensibility of this concept.
Your goal is to develop a concept which is both economically viable (i.e. it will generate profits for the restaurant) and which will support the concern's overall strategy focusing on expansion.
Question 3
Being the manager of one of the ten restaurants owned by the concern, you have been summoned to a meeting with the managers of the other nine restaurants. The agenda of this meeting is to find a series of relevant key figures and other parameters, which will allow comparisons of all ten restaurants as part of a new benchmarking initiative. In preparation for this meeting, you must identify the relevant key figures as well as describe which advantages and disadvantages of each number incl. data quality (i.e. whether will it be possible to acquire reliable data). Based on this analysis, you must choose the five key figures that you estimate to be the most relevant, as well as discuss other measurements that may supplement your chosen five key figures when benchmarking the restaurants.