Jm Signature Restaurant

JM Signature Restaurant

Summary: • Successful restaurant owner plans to open new restaurant in entertainment district • He set a goal of $4M in revenue for first year of operations, which is said to be overly optimistic by his accountant. • Joshua has two choices: Should he open? And if he does what is the most appropriate marketing plan? • While there is considerable information about population, income levels, economic demographics, competition… the key here is to evaluate the likelihood of the restauranteur being accurate with his projections, validating reasonable figures using both his accountant’s approach and industry metrics. • Different scenarios based on “turns” and seating #s should be the base of the analysis… quantitative • Qualitative analysis is of merit in respect of some of his innovative ideas

KEY: • Assess the viability of launching a new restaurant in a competitive industry • Calculate and evaluate $ metrics • Develop a marketing plan for his proposal

Questions to be answered: • Recommend whether or not Joshua should proceed • Assuming he does, prepare a skeleton of a marketing plan for JMs

OVERVIEW: • JM is experienced, has a solid reputation with two famous restaurants: 1. Karma: located in the heart of Toronto downtown business community. 2. Lynx: focus on French dining trend. • Experienced with Business Clientel and their needs, imaginative menus, high level service and culinary experience • The new restaurant maybe overlapped with the Karma due to the overlapping of location and target market. • JM used his experience to set a target of $4mln in sales in yr 1(while the logic of this can be challenged we will assume that he knows what is appropriate) • He needs to convince himself (and his doubting accountant) that his estimate is indeed realistic and that with a good marketing plan he can go ahead • There is a high incidence of failure in new restaurants, 18%, while overall failure rates approx. 5%.... he is neither a novelty nor a beginner so it can be argued that his chance of failure is less than 18% (…even though he is batting .667!!) • He plans to deliver high quality, high service … not too dissimilar to his Lynx restaurant and Karma restaurant • His reputation and clientel support his profile • He will have lots of competition with some 71 restaurants in his price range and probably half directly comparable • He plans to offer “Bistro with London cool”, has hired a reputable chef, disclosed the use of a unique menu, specials, and internet contact … • His accountant has used industry figures and conservative assumptions to present a picture that leaves JM concerned…. Only a $28,400 profit potential in yr 1..

ANALYSIS: • You could spend a life time evaluation average incomes, number of restaurant visits, number of business people, number of theatre visits, etc. etc. there is lots of Toronto and region information given…. This will take you away from the question at hand… • His accountant has completed an analysis which suggests that the potential for revenue is much lower than Joshua’s projected $4 mln. • Lets look at the accountant’s work… o The revenues are based on a 1 turn operation (@20$ per lunch and $55 per dinner)…. This is based on “industry average” levels of “turns”. o Note that the industry avg. is based on 28 sq ft per seat o Costs and other financials are based on industry levels and applied to the JM projection. o Costs for rent and taxes are as provided o Staff costs are based on a modest $8 per hour and or annual salaries (without background data these really cannot be challenged) • Where there is some opportunity in our analysis is the opportunity to test (through scenarios) whether we can get to JMs revenue level of $4mln and what number of turns would be required to achieve this….. • There is also the opportunity to challenge the amount of space set aside for seats to see if higher density can be achieved while not compromising JMs “service and quality” model (he currently offers 60 sq ft (5800 / 96) or nearly 3X industry average… • Scenarios testing “turns” and testing number of seats could result in the level of sales that JM targets and may result in a financial projection that has more margin • In both above cases there is more need to focus on meals rather than the “bar” projections • What about the question of whether JM is projecting too many staff for his restaurant…. Industry average is $50,000 per employee …. What is it for JMs proposal? • All assumptions are in fact just that… what any scenario analysis needs to do is provide sufficient confidence and “head room” to justify a base case as being robust enough to proceed (lets not forget that economic or industry factors such as a downturn in the economy could affect operations for some period of a year or more) • Eventually the scenario analysis assuming a possible 1.25 to 1.5 turns per meal and / or increasing the number of seats to say 120 (48 sq. ft per seat, below his earlier projection of 60 but still above the industry 28) could result in sales closer to the $4 mln levels. • At $4 mln sales, and using the accountants other assumptions the profit JUMPS to $650,000+ in year 1 !!! Enough headroom to weather some loss of turns and or days of operation …..

o Assuming he proceeds now, what do we recommend as a Marketing Plan…. o While there is some ambiguity as to whether he is catering to the entertainment crowd or the business crowd or the tourist crowd, JM may in deed be able to cater to all simultaneously, not only because of proximity to all markets but also in providing a restaurant experience that appeals to all. o His M – F lunch and evening business surely appeals to the business market; His M – Sunday evening caters to the entertainment crowd; the Saturday – Sunday lunch could double up to both the tourist crowd and the matinee entertainment…. So it does look pretty solid o His business clientel could be resilient to economic downturn, more so than the entertainment and tourist markets o He can recruit some of his existing Karma and Lynx clientel (watching out for cannibalization) o He plans to advertise through his other restaurant customer bases… there is some risk though that if JM fails it could have ripple effect on his successful restaurants o That said maybe the successful Marketing Plan could contain: o Price…. This has been established o Promotion…..Brochures (a corporate program targeting the business market) $5,100….Newspapers.. GYM…$4,670 x say 4 times) $18,680…. Magazines $7,130 X 4 …. $28,500 ….. High quality and available to the eyes of the entertainment and business crowd…. And the magazines for the tourist crowd. Hotel programs could include brochures as well…another $5,000 – 6,000. The email is very innovative and he would need to build out a site, manage and maintain it… maybe say $20-30,000 in development and $1,000 a month to maintain (25 hrs at $40 per)…just a guess.. o Product…. His menu is a key differentiator and critical… the idea of a signature meal every two weeks and emails to clients is innovative… don’t spend a lot of time on the menus (unless you want to open your own restaurant and are looking for menu suggestions !!) o Distribution ….while the location is determined…the seating can be featured if indeed he goes with the 48 sq ft option… still nearly 40% more generous than the average..

o Think…does the above give some “buzz” and distinction to JMs business model? Is there enough “buzz” to make this a GO decision ….. if you think so ….. It’s a wrap !!!