Eatery Restaurant Group: Cost Accounting Analysis

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Case Analysis

To: Board of Directors

From: Accounting manager

Subject: Recommendations for Cost Reduction and Further Growth

Please find attached my report specifying the cost reduction opportunities you have requested.

Introduction

Eatery Restaurant Group is formed by seven restaurants chains. Acquiring various small restaurants during last five year, the company has grown up to one of the largest restaurant chains and having 1,124 restaurants in Canada. Within Eatery Group, there are three types of ownerships, which are company owned and managed, company owned and franchisee managed, and franchisee owned and managed. All the restaurants under Seafood & Steak Eatery and Up Eatery are company owned and managed. Under Fun Eatery and Wilderness Eatery, about 60% and 70% restaurants are company owned and managed, others are franchisee owned and managed. Within Family Eatery, Quick Eatery, and Fountain of Youth, all three kinds of ownerships are existing, and the majority restaurants are franchisee managed.

Issue

The brands Wilderness Eatery, Seafood and Steak Eatery, Fountain of Youth and Up Eatery operate below the level of benchmarking and therefore they can reduce their operating costs and increase the profits.

Analysis

In 2010, Eatery Group has a total system sale of $2,400 million, which has a 14% growth comparing to the year of 2009. One third of the system sales are generated by Family Eatery. Quick Eatery, Fun Eatery, Fountain of Youth (franchised owned and managed), and Up Eatery separately generated 12% to 20% of sales. Also, Wilderness Eatery produced 9% of sales. Seafood & Steak Eatery (company owned and managed) only created 3% of sales to the company. Comparing the sales to sales in 2009, branch of Family Eatery, Quick Eatery, Wilderness Eatery, and Up Eatery have certain sales growth within last year. In the other hand, Fun Eatery, Seafood & Steak Eatery, and Fountain of Youth have a declining sale in 2010. However, Seafood & Steak Eatery has a continuous declining sale, to which is 4.7% in 2009, and 6% in 2010.

Based on the benchmark result, it shows that the sale of Seafood & Steak Eatery, Fountain of Youth, and Up Eatery are lower than the level of benchmarking. Comparing the percentage earning of sale to benchmarking level, except Family Eatery, Quick eatery, and Fun Eatery have a higher level than the benchmarking, the rest of branches are lower, especially Seafood & Steak Eatery, which is 21 times lower than the benchmarking. And, Fountain of Youth is 4.16 times lower than the benchmarking. Up Eatery is 2.28 times lower. We can say that there was not much difference in sales and earnings between owned and operated restaurants and franchised restaurants as managers implied (“ ..non company owned restaurants are successful at their level of sales and earning per store”). Some restaurants perform much better (Family Eatery, Quick Eatery and Fun eatery) than others, regardless of their ownership type (based on exhibit 6). For example, Quick Eatery is operating above benchmarking level, its sales are $1.37m compared to the benchmark of $1.1m, while earning are$ 8.9m compared to$ 8.4m benchmark.

Overview of the industry:

Research from the Canadian Restaurant and Foodservices Association shows that “dining out is one of the top three tourists activities in Canada”, it “generates 60 billion in annual sales and accounts for 4% of the national economy” and on top of it “every dollar spent at a restaurant generates an additional 1.85$ in spending in the rest of the economy – well above the average for all industries in Canada”. This statistics shows us the importance and economic impact of restaurants on Canada. The site also shows that there are more than 35% chain restaurants currently operating in our country. Bureau of Labour Statistics and CRFA`s also state that “The average Canadian household spends 23.1% of its total food dollar on foodservice”. (Retrieved from:...
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