Question

For the last 10 years you have been working in the health food business. You have talked to many customers who have suggested a new restaurant concept. The restaurant would feature a variety of low calorie meals ( under 500) made from healthy ingredients ( e.g. organic fruits and vegetables and steroid/hormone free meat). The restaurant would include a bar with an extensive organic wine list and trendy décor. There would be an emphasis on high quality, friendly service, and colorful meal presentation. You customers suggest that they would be willing to pay around $50 to eat a meal and have a glass of wine at this type of restaurant. They Lament the fact that their community has no upscale restaurants that offer this type of fare. You have conducted a detailed financial analysis of this potential business opportunity. You believe that you have good information on the costs of starring and operating the restaurant. You project that with a $50 meal price and anticipated demand you would earn a high profit and an excellent rate of return on your investment. You have the equity capital to start the business. Several friends with MBAs argue that you would be crazy to start this business. They claim that there are few entry barriers to the restaurant industry and that “every person with business training knows that you can’t make profits in a competitive industry. ” Are your friends’ arguments convincing ? Should you drop the idea of opening the new business based on their argument? Using what you learn from this class ( e.g. market structure, pricing strategy, how to create and capture values etc ) , evaluate this business idea and explain how you would successfully run the business. Please focus on your economic reasoning.

Answer 1

In this day and age,food business is one of the most profitable businesses because going by the statistics,people in most of the countries spend the most in food rather than clothing,travelling etc. Also,food is one of the basic amenities that we need to survive on daily basis and food business is something where you do not necessarily need to find a target market since food can be served to people of all age,gender,nationality,religion,caste,financial background.

If we plan our business properly,we can run it successfully and make good profit out of it.Let's see what all we can do to make it profitable.

1. Health food industry is competitive but we cannot call it perfectly competitive where no barriers to entry is there and homogeneous products are offered which are perfect substitutes of each other.Health food industry can be said to have monopolistic market structure where many firms can exist but there are entry barriers as in health food business requires a good amount of investment and not everyone is having the source to finance such a business which in itself deters the entry.Moreover,unlike perfectly competitive market,products offered here are differentiated.So,you can choose to offer unique and innovative products which can attract consumers easily which will help you to make abnormal(high) profits.

2.Before starting any business SWOT Analysis must be done to identify the Strengths(S),Weaknesses(W),Opportunities(O) and Threats(T) to your business.Talking about the specifications : Strengths-you should list down the positive aspects of your business such as unique and innovative menu items that you will be offering. Weaknesses- you should list down the areas where you feel you are at disadvantage and work on them to improve them such as hiring inexperienced staff or having a limited marketing budget to promote your business.Opportunities-these are areas where you see possibilities to increase sales such as purchasing your shop in a busy market to get high footfall.Threats-these are unforeseen circumstances which can hamper your business such as increase in the price of raw materials.

3.Promotion or marketing plays a very important role behind the success of your business.You should have an Unique Selling Proposition(USP) to justify uniqueness of your business.In this case offering food made up of organic fruits and vegetables can be your USP because not everyone does that.People these days are very health conscious,so it would be easy to convince them to buy your food.Nowadays,social media is a great platform to promote your food.You can increase your sales by making your website where people can order online to get their food delivered at their home.

4.Apart from the food you offer,the factors which can make your restaurant stand out are

(a)interiors and decor since people value ambience

(b)friendly customer service

(c)maintaining high quality

(d)meal presentation at a reasonable price

Initially it is difficult to get customers,but here it seems like you already have a customer base i.e the people who have suggested you to start this business and are willing to pay a decent amount for good food.So,you have an added advantage.

5.If your business does well for some time,you can also franchise your business which will multiply your earnings.

6.As a restaurant owner you can get tax benefits by contributing to society in some way such as hiring hearing-impaired employees or donating some percentage of your profit to the underprivileged.All these activities come under Corporate Social Responsibility(CSR).