Environmental Analysis of New Restaurant

Environmental Analysis

The global foodservice sector continues to feel the pressures of the economic recession, unstable food and energy prices, a fragile housing sector, and depleted consumer confidence. Industry players continue to focus on brand differentiation and value-added products to attract consumers. Food demand is rising in tandem with the global population. Increasing urbanization and a general population shift from rural areas to urban areas is causing a change in lifestyle trends, especially eating habits. With an increasing number of people working in office environments and growing family households with two parents in the workforce, time to prepare food at home is limited. Consumers under time constraints are opting to eat outside in cafés and restaurants, with price-conscious consumers often turning to fast-food options such as mobile trucks and street stalls.

Restaurant industry has four general segments according to the service customers receive: full service, quick service, eating and drinking place and retail host. Full service dining locations do not require any food preparation by customer as well as service of food. Fast-food chains that offer buffets and take-out service represent quick service locations. Eating and drinking place sector includes caterers and refreshment stand vendors. And the retail host is located within the gas stations and retail-host restaurants.

Fine dining restaurants are full-service restaurants with an upscale menu and extensive beverage offerings. The restaurants generally have a more sophisticated décor and ambiance, the wait staff is usually highly trained and often wears more formal attire, and there is often a dress code for patrons. The most important factors that customers expect from the upscale dining establishment are food quality, service and VIP treatment.

The profit of fine dining establishments depends for the most part on business entertaining, and the volume of the business people that charge their dinners on expense accounts declined dramatically after the recession. As a result, the upscale dining segment is reconsidering their offerings very carefully in order to be able to compete in the market and attract customers. Since the consumers are still watching their spending, a majority of upscale dining restaurants went in the direction of new pricing strategies and innovations as well as creating casual dining environments. Trends of casual fine dining have led to the implementation of two different concepts within one establishment: casual bar areas with small-plate offerings and formal dining spaces for the whole experience. Key trends that help the restaurant industry to keep the balance and improve the sales are mergers and acquisitions, driven by private equity firms with greater access to the capital markets; open credit markets with improved rates, terms and required equity contributions and the focus on the local sourcing, sustainability, and nutrition that top menu trends. The environment that a company operates in goes far beyond the industry and even farther than the industry segment where company has business. That environment is defined as company’s macro-environment and is composed of seven components that have the potential to affect the company and its competitive environment: trends of technology, demographics, economic conditions, political and regulatory factors, social forces and global factors. These entire factors can influence the company in different ways and to different degrees.

External drivers of the upscale dining segment in the restaurant industry are per capita disposable income, employment status, healthy eating index, consumer spending and consumer sentiment index. Per capita disposable income determines the ability of the population to spend money on goods and services. Wealthy populations will be influenced by the tax rate and rising prices on the high end and luxury goods that could slow down the real income growth in 2013-2017. Employment status is positively correlated with the dining out and choice of where and how often. Rising national unemployment rate can negatively affect the restaurant traffic, the upscale segment specifically.

Healthy eating index is the percentage of a recommended diet that an average American consumes. The overall trend towards eating vegetables drove up the vegetable prices as well as produce prices. Another trend is low carbohydrate and high protein diets that will increase meat consumption.

Consumer spending is defined as amounts spent by the population on services and goods inside the country and abroad. A brighter outlook of the economic recovery and higher employment drive the increase in consumer spending rather than savings. Consumer sentiment index was affected by growing corporate profits in the last two years and ability of businesses to keep wage costs down. All of that stimulated the customer sentiment. In April 2012 consumer sentiment index reaches its’ highest for the last year that will be reflected hopefully later in the increase of restaurants visits.

Technology Factors Going mobile and moving faster is the technology trend in the restaurant industry that shapes all the segments through different innovations. The use of a smart phone and ability to access restaurant booking system from mobile platforms decreased the number of phone calls for reservations as well as allowed the restaurant operators to gather data for marketing purposes. Another trend is “check in services” like Foursquare that represents “context-aware” type of advertising and attracts the customer with its sophistication. Mobile payment systems like GOOGLE wallet that stores your credit cards and loyalty cards as well as promotional offers will speed up the payment process and secure customer information. Demographic Factors In June 2011 persons aged from 24-35 were the most frequent visitor to the fine dining establishments. This age group represents 31 percent of the population visiting fine dining restaurants. In regards to household income, those who earn one hundred thousand dollars or more are the most frequent visitors to fine dining establishments. That is great insight for the marketing department of the fine dining segment to study the preferences and address them as well as it is a clear target for customer attraction. Economic Factors The economic situation should improve cautiously through 2014 with positive outcome for all the industries as well as fine dining sector of food service. The industry still shows low measures of consumer sentiment and cautiousness of firms about full-speed operations. There is also the presence of weak labor market conditions and slight gains in manufacturing production as well as elevated risk premiums. All these factors result in the slow process of economic upturn. Political Factors

There are many policies and regulations that can affect the upscale segment of the restaurant industry, many of them related to the health and food issues, jobs and career as well as profitability of the business. If final regulations that are related to nutrition disclosure issues will be published in 2012, when the law takes effect, restaurants with 20 or more locations will be required to provide caloric information on menus. There are two bills still pending in Congress to make the 15-year restaurant depreciation schedule permanent, which will allow restaurants to write off, or depreciate, the cost of improvements and new construction over 15 years, rather than 39 years. This uncertainty is holding many companies from capital expenditures since it reduces the cash flow by approximately four thousand a year. Business meal deduction from 100 percent to 50 percent in 1992 decreased the profitability of restaurants and affected the upscale segment that is heavily relies on conference room business. A proposed 80 percent business meal deduction could increase business meal sales by 7 billion dollars. Socio-cultural Factors Socio-cultural forces that include attitude of the society, families’ lifestyles and change in values impact the industry over time. Shift in preferences is obvious: people are looking for healthy and freshly prepared food, leaning towards premium products and value. Another trend is that people prefer to eat at home instead of dining out, which was the consequence of the economic downturn. It could be said that there exists two different mindsets when it comes to spending: people that spend free and those who cannot. It is clear that dichotomy between these two groups shapes the restaurant segment of upscale dining. Global Factors

Global forces correlate with the economic situation in the world that is slowly reviving and demonstrating healthy indicators. Another factor that can influence the industry is change in climate. Environmental matters lead to new initiatives of reducing water consumption and taxing based on the emissions of companies. Paying out the tax and possible requirements of equipment change can create extra operational costs for the companies.

SWOT Analysis Strengths | Weaknesses | • Professional customer service | • High price point | • High quality Food | • High operations costs | • Newestrestaurantintown | • Limited amount of experience | Opportunities | Threats | • Expand locally and nationwide | • Slow economic recovery | • Look for alternative vendors and make price arrangements | • Government regulations | • Leading restaurant | • Increasing competition | •Becomeawell established business with strong brand name company in upscale segment | |

Best case/Worst case Scenario Analysis | Customers | Competitors | Internal | Market | Summary | Best Case | | | | | | Technology | Enhances customer experience with a WOW factor not found elsewhere | Allows our restaurant to stay ahead of the competition | Improves efficiencyDrives cost downAllows money to be spent on food quality | Become a leader in the market and develop relationships with tech companies to do so | Balance between traditional offerings and new technology makes our restaurant attractive | Regs. & Laws | Attracts customers interested in sustainability | We excel and competition falls short of building codes and food safety laws developing an easy decision for customers | Educated staff supports change and adapts easily leading to smooth transitions | Inspectors give high ratings and promote our restaurant without our direct financial investment | Sustainability and safety lead to an outstanding public image | Economy | Economy improves to a point where customers have unlimited disposable income and restaurant industry booms | Competitors increase price while we stay put and customers are drawn to the value of our restaurant | Employees are more satisfied with their job due to increase in business and tips, restaurants success allows us to do more educational programs | Market promotes our ethnic/casual style of restaurant and gives incentives to dine with us | Economy booms, customers are worry free and restaurant thrives as a result | Worst Case | | | | | | Technology | Confuses customers resulting in their search of a more familiar experience | Allows competition the opportunity to learn from our mistakes and find the right balance | Uneducated staff leading to mistakes with new tech and slower service as a resultExpensive Tech | Tech companies lose confidence in our establishment and take their offerings to competition | Use of too much tech. or tech. used in the wrong way takes away from traditional dining | Regs. & Laws | Expense of change causes us to fall behind and customers take notice fearing for their safety | Allows competition to stand out due to better appearance of building and better safety ratings | Management ignores changes or doesn’t inform staff and customers safety is jeopardized | Restaurants safety rating is degraded or restaurant is shut down due to code failure or health of customers | Ignorance leads to major health and safety issues for customers costing us more than we can afford | Economy | Economy crashes again and disposable income becomes nonexistent | Fail to adjust prices and what customer base is left takes their money elsewhere | Due to lack of income, we lose the edge on food and service quality | Restaurant industry crashes and our restaurant decides to close the doors | Failure to adjust operations to the economy makes our restaurant irrelevant |