Should Bhagat Tarachand Chain Of Restaurants Integrate Further?

The owner of Bhagat Tarachand, Mr. Prakash Chawla expressed his concern regarding the future options and opportunities that lie for the restaurant. This paper analyzes the question ‘Should Bhagat Tarachand chain of restaurants integrate further by opening an outlet in Bandra (west Mumbai), in order to penetrate the market of fast foods?

The paper starts off with research proposal that puts forward the rationale, theoretical framework and action plan, these should be put forward along with the possible problems that were faced in the answering of the research question. An introduction to the company is presented which gives us the history of the firm.

The analysis is based on the primary research and secondary research. All this research aided in the process of analyzing all the data.

The data calculation and analysis comes to a conclusion that Bhagat Tarachand should integrate into Bandra. They would have a payback period of 1 year 11 months, ARR of 41% and a NPV of Rs 38,52,94,000. This shows a future growth of their firm in the market.

Thus the report is ended with recommendations of what further research the firm should look into and the action that needs to be taken.

Research Proposal

Research Question:

Should Bhagat Tarachand chain of restaurants integrate further by opening an outlet in Bandra (west Mumbai), in order to penetrate the market of fast foods?

Rationale:

Since Bhagat Tarachand restaurants is a very highly established restaurant in South Mumbai, it would now like to open an outlet in Bandra also due to its well established brand image and high capability in attaining profitability. Also Bandra’s centralized location provides it with a large customer base. All these factors encourage Bhagat Tarachand to compete with the existing food outlets in Bandra.

Theoretical Framework:

I plan to analyze both financial and non-financial factors in my evaluation for the restaurant. Since the main aspect of my evaluation is whether the project is financially feasible, I would be mostly focusing on financial tools for the evaluation. The tools that I will be using are:

SWOT Analysis: To help to decide which areas to mainly focus on and to develop a business strategy

Investment Appraisal: To check the financial costs and benefits

Porters Five Forces Model: To assess the competition faced by Bhagat Tarachand in opening a new outlet in Bandra

Decision Tree: To compare with the present outlets and accordingly guide

Lewin’s Force Field: To identify the driving and restraining forces when looking at factors involved in planning and implementing an opening of a new outlet.

Key Areas of Syllabus:

1.5 – External Environment

1.6 – Organization Planning Tools

3.2- Investment Appraisal

1.7 – Growth and Evolution

Methodology

Primary Research:

An interview with Mr.Chawala the owner of Bhagat Tarachand chain of restaurants, on the reasons why they were looking to open a new outlet in Bandra due to the new opening opportunities and the flourishing fast food industry, along with other strategic decisions. Also how important it is for the business to expand form a business perspective

Secondary Research:

The use of online websites for the current competitors in the food sector

Statistics of population ,food habits etc

The pricing of the land where looked to build new outlet

Financial reports of Bhagat Tarachand restaurant to have an overall perspective of the firm and to find out its current market share.

Problems likely to be encountered and possible solutions:

Possible Problems

Solutions

Interview may not reveal all the aspects of the firm. And questions maybe be too specific

I have asked a variety of closed and open questions

Financial data may not be accurate as the firm would be hesitant

Confidentiality would be provided regarding all financial matters

Action Plan

Introduction

To Bhagat Tarachand [1] 

Tarachand Chawala first established Bhagat Tarchand in 1895 in Karachi, the main founder of the chain of restaurants. It was then moved to India after partition to Nasik in 1948. After having great success in Nasik this restaurant was then moved to South Mumbai. Since then it has been flourishing greatly and has been passed on from generation to generation in the Chawla family. Two partners, Mr Prakash Chawla and Mr Gurmukh Chawla, now own it [2] 

Bhagat Tarachand has expanded greatly since it opened its first outlet. It now has many outlets.

Zaveri Bazar in South Mumbai

Inorbit mall in Vashi

R City Mall in Ghatkopar

Pydhonie in Pune

Bhagat Tarachand is well known for its various foods. The main cuisine provided there is North Indian mainly although it does serve Gujarati also. The main dishes there are Chaas, Lassi, Sindhi Kadhi, Dal Fry, Alu Tuk, Papad Chura, Koki, Paneer Bhurji, Bhindi and Methi Malai Mutter. The restaurant is unmatched for price and quality of vegetarian food served quickly.

To the reasons to shift to Bandra

Bhagat Tarachan is a well-known restaurant in South Mumbai. It now wants to expand its horizons and increase their customer. Thus by integrating into Bandra they can accomplish these goals due to the high potential market for new restaurants in the area. This is because of the high density of youth in the area. According to surveys Bandra has the greatest number of people between the ages of 15-30. Thus considering all these options Bhagat Tarchand has started to analyze the process of whether or not they should consider opening a new outlet in Bandra

Thus arrives the research question:

Should Bhagat Tarachand chain of restaurants integrate further by opening an outlet in Bandra (west Mumbai), in order to penetrate the market of fast foods?

Procedure/ Methodology

Primary research involves a detailed interview with Mr. Chawala the owner of Bhagat Tarachand chain of restaurants. The objective of the interview is to obtain qualitative and quantitative information regarding the situation. This collection will involve stating the current position of the firm, checking its internal and external factors and the current business plan. Also checking out the current competition in food market and considering the factors that affect the taking of the decision by the firm. Also along with the financial reports from the firm, the decision can be taken about which option to go for

The secondary research involves the review of financial documents of Bhagat Tarachand , also accessing reports , statistics and economic data via many internet sites will help to analyze the decision finally for the conclusion

Limitation:

We must take into consideration the fact that all the financial data collected is only partially correct and is based on estimates.

Main Results and Findings

Current Food Outlets in Bandra

Bandra is very well known for the vast number of food outlets it provides for. There is high competition and initial sales may not be profitable as the investment may be greater than the income but if the customers are convinced to buy the product, this extensive market strategy proves to be very profitable in the years ahead. Also by providing a key product (Unique Selling Point) or a different style of food and opening in the key area can make beating the competition easier. Bandra is one of the few suburbs where there is a lot of social gathering. We can see people of all age groups. There is a lot of youth in bandra, hence the main target market of the firm should be the youth so as to maximize their profits.

There are a high number of restaurants competing in Bandra for the ‘top spot’

The various food outlets are [3] 

Vista

Atrium Lounge

Siddhartha Restaurant

Pot Pourri

Da Vinci’s

All these restaurants are with a 1km radius therefore it is very easy for customers to change between the restaurants according to their convenience and satisfaction

C:UsersIshaanPicturesbandra.JPG [4] 

Land Area looking to open restaurant on: [5] 

The price of land in Bandra is very high so that is one of the key things that will have to be looked upon. Bandra has a very strategic position as people of all age groups are seen.

Therefore in the land cost must also be taken into account. The area being looked upon now by the restaurant is that of Linking Road. The approximate price per square meter is about 160,000 INR. So looking at the land cost carefully we have to check the budget of the firm

SWOT [6] 

Strengths

Weaknesses

The product portfolio is wide hence failure of one product may not affect the others

Multiple distribution channels which increase customer base.

Use of machinery which increases efficiency and maintains the quality

Transportation cost is high as the suppliers are away from the restaurant

Sources of finance are very limited as it is a sole proprietorship

Opportunities

Threats

Food market growing rapidly due increased overall revenue of the consumers

Population rate is increasing, especially of the people between the age of 15 – 35, thus this is beneficial as this is the main target market of the firm

There is continuous technological development in equipment which aids in the production process which will lead to increase in sales

Increasing competition as all the companies will see these opportunities therefore Bhagat Tarachand must maximise on in before the others

Health issues are very prominent hence these days people are shifting to much healthier food products.

Analysis and Discussion

Investment Appraisal:

The annual cost and sales estimated by the firm [7] 

Investment Option

Continue with current chain

Integrate into Bandra

Amount Invested (Rs)

120000000

180000000

Cash Outflow (operating costs/year in Rs)

80000000

48000000

Cash Inflow = Sales – Cash Outflow

Integrate into Bandra

Cash Inflow = 140000000 – 48000000

= Rs 92000000

Payback Period

To figure out after how the cash inflow will be equal to the outflow from the option

Although option B requires a higher level of risk as if it fails it will lose Rs 2,00,00,000. But if it turns out to be successful then the profit made is much greater than the profit made from the success of Option A. The profit made is Rs 14,00,00,000. Therefore going with option B is a more feasible option.

Lewin’s Force Field Analysis

In order to check the feasibility of carrying out the option Bhagat Tarachand must take various factors into consideration. There are many restraining and driving forces that may influence the decision taken. Hence the use of Lewin’s Force Field Analysis can aid us in the process of whether or not to open a new outlet in West Mumbai

Listed below are various driving and restraining forces.

Driving Forces

Restraining Forces

Brand image has already been established therefore not much difficulty in setting up

Cost of land in Bandra is very high

Initial expenditure covered from the existing Bhagat Tarachand restaurants.

Large number of competitors in the current food market makes it very difficult for Bhagat Tarachand to penetrate into

High potential market in Bandra, which allows the firm to be very profitable

Large capital investment to create a USP would not be beneficial.

Increasing population between the age of 15-30 provides an incentive integrate

Bandra is home to many elite restaurants with a high brand image

Not a lot of research and development involved as it has already well established restaurants

Porters Five Forces Model

COMPETITIVE RIVALRY

There is high product differentiation in the food industry

Low barriers to entry signify that there is high intense competition between the different restaurants.

SUPPLIERS

Since the firm depends to outside sources for the supply of their raw material their overheads go up which results in the increasing in the price level of its goods

Any delay in the raw material reaching can result in faulty production, which can lead to loss of customer base.

BUYERS

The buyer behaviour is very important for the firm as with the analysis of this they can decide what changes they require or what the need to do.

The food sector is a very competitive one as the consumer influences the price of the good. This is because of the easy availability of substitutes.

SUBSTITUTES

Due to the large amount of restaurants present in Bandra, the firm must always keep their customers happy with the threat of them going to other substitutes

The firm must provide the food at which the customers do not mind paying, or there is a threat of them moving to new substitutes

NEW ENTRANTS

Barriers to entry are low

Skilled labour required is high

New firms are enticed by massive customer attraction possibilities

Optimal resource allocation as the distribution channels are easily accessible

Qualitative Analysis

Due to the increasing popularity of Bhagat Tarachand chain of restaurants in South Mumbai it should now consider shifting to the west (Bandra), this is because it is flourishing in terms of purchases, preferences and tastes. Also this market is greatly dominated by teenagers between the ages of 15- 30 [9] .

There is an overall market understanding and operational costs that is needed in order to integrate forward. Thus it acts as a barrier for entry of new firms into the tertiary sector. These new firms do not have an effect on Bhagat Tarachand as with the use of sophisticated technology and efficient production the quality of the food is maintained greatly. This is a very important factor in maintaining the customer base of the firm. If the food quality provided is very low it will lose all its existing customers. Since the cash flow for Bhagat Tarachand is positive and the firm is financially healthy, this will aid in the process of the firm borrowing loans for the use of investments in their new outlet. Thus all these factors seen here show us that forward integration is the right choice as they have a large customer base to serve.

Bandra is a suburb located right next to the sea, which gives it a hot and humid climate. This climate proves to be the perfect location of exploiting the environment. Since the main target market of the firm is the youth, and the presence of many schools and colleges in the vicinity. This increases the competition between the firms and encourages firms to set up new outlets. The food industry is completely dependent on the buyer behaviour. Due to the intense competition it is necessary for the firm to carry out extensive research and development, and advertise widely. Their product must be clearly differentiated from the others in the competition. The competition as of now in the food industry is at its maximum. One of the main problems that might be faced by the firm is that it does not produce its own supply; therefore they are heavily dependent on their suppliers. If the good are not received on it can lead to heavy losses and will affect the image of the firm very drastically. Also due to this the cost of their overheads will increase which leads to the fact that they cannot price their goods very low.

Also in a place like Bandra where the major population is that of the middle and the upper middle class [10] , they rely more on the quality of the product than the price. They require something different than the usual product. And since in Bandra almost everybody knows each other, word of mouth publicity is a very important method of advertisement for the firm. Hence the must keep their customers satisfied.

The owner must keep the delivery schedule more stringent in order to enable easy supply of inventories. This is because the food industry in known for its quickness and quality of production. Hence all the raw materials should be available on time and should pass the minimum quality requirements test. All this should be done to avoid the firm from going into losses at the time of shortages.

Thus all these no financial factors also play a very important role in the setting up of the restaurant. We cannot only view the financial aspects. We need to see the practicality of the situation and then only figure out whether carrying out such a procedure would actually be worthwhile or not.

Conclusion and Recommendation

Thus from all the analysis conducted above we can come to the conclusion that in order to continue expanding their chain and increase their revenue. Bhagat Tarachand chain of restaurants must integrate their outlet in Bandra. As it is seen from above that although in the short run the revenue generated may not be that high due to the loans and initial setting up cost, but in the long run the firm seems to be greatly profitable. As a restaurant can never run out of business as long as they provide their customers with variety and good quality products.

The results of the analysis are summarized in the table below

Lewin’s Force Field

Driving Forces greater than Restraining forces

After the study carried out on the various aspects, on whether to open a new outlet in Bandra for Bhagat Tarachand. I feel that the research carried out may not be enough and that the owner will have to carry out a more extensive research. The demographic analysis shows that there is an increasing customer base for the food market and it has not yet reached its saturation point. Considering the data collected above we would expect that if they do open an outlet in Bandra, the firm would pay back in approximately 1 year and 11 months. They would have a high net present value of Rs 38,52,94,000 and an average rate of return of 41.1% . Thus we can see that these are just few of the reasons showing that integrating into Bandra is a good option

Recommendations

Thus after viewing all the factors, I feel it would be idea for Bhagat Tarachand to open a new outlet in Bandra in order to maximise its revenue and increase its customer base. Thus I strongly feel that the answer to the research question ‘Should Bhagat Tarachand chain of restaurants integrate further by opening an outlet in Bandra (west Mumbai), in order to penetrate the market of fast foods?’ is Yes, they should integrate into Bandra.

Future Action to address the limitation

Unresolved Issues

Based on my research I would recommend to the owner to study the following unresolved issues.

There should be an increase in the research and development to have a better market understanding. They should capitalize on the niche opportunities such as looking out for those who are the more health conscious.

There should be a more in depth research of the costs involved in establishing the restaurant. Also consider the available sources of income.

A well planned market strategy should be adopted in order to establish Bhagat Tarachand as a brand name in Bandra

A detailed analysis of the customers should be carried out to figure out their need and their wants since the consumers drive this entire market.

Limitations

All the values provided by the firm are all mainly estimates. Hence they are not completely reliable.

The food market in India is dynamic in nature therefore only financial statistics are not reliable.

Bibliography

Hoang, P. (2007). Business and Management. Victoria: IBID Press.

Simpson, P. (2006). Business Studies. Cambridge: Cambridge University Press.

Bandra Mumbai Restaurant Guide – Reviews of the Best Bandra Restaurants in Mumbai, India | NileGuide.” Free Trip Planner and Personalized Travel Guide | NileGuide. Web. 13 Jan. 2011.

Google Map Maker.” Google. Web. 19 Jan. 2011.

Commercial Property Rates in Bandra West, Mumbai | Price of Property in Bandra West.” India Real Estate Services | Sell, Rent, Buy Properties in Delhi NCR, Gurgaon, Noida, Bangalore, Hyderabad, Mumbai at Zamanzar. Web. 21 Jan. 2011. .

Bandra Where Everybody Knows Everybody.” India’s Best Tabloid Stories. Web. 12 Jan. 2011. .

Interview with Mr. Prakash Chawla the part owner of Bhagat Tarachand chain of restaurants

When was Bhagat Tarachand started and what is the whole background behind it

Bhagat Tarachand was started by Trachand Chawla in 1895 in Karachi. Then a new restaurant was opened in Nasik and then in Mumbai. Since then the ownership has been passed down to me and my partner.

What are the reasons for you planning to open a new outlet in Bandra

The reasons mainly are that in today’s time almost half of the youth in Mumbai stays in Bandra. It has a high growing potential for the food industry as people are never really going to stop eating food. Thus considering this we felt that it would be a good option to move forward

What have you considered about the threats that are going to be faced by Bhagat Tarachand?

It has been noted that since the food market is flourishing greatly many new firms are going to be attracted to it. Thus careful measures have to be taken in order to maintain the image of the firm. So in order to that we must provide the good at the most minimal that we can and provide the best quality we can

Does the fact of having already having such a large customer base have its advantages?

Yes of course having a large customer base does help the image of the firm. Due to word of mouth publicity does help in gaining customers. As people hear it from their friends and family as to how good or bad the food is at particular restaurants. This compels the people to go and try out the good restaurants for themselves

Is gaining high profit levels in the food industry difficult?

Yes I feel that high profit levels are almost impossible for restaurants to attain. This is because, especially for a restaurant like ours we do not produce our own supply. And hence we are responsible to pay our suppliers their amount. After covering the basic cost we cannot keep the price of the food very high as then not many consumers will buy it. As for the competition there are so many other restaurants providing the same food at a cheaper price therefore all the customers will shift there. Thus we need to maintain an equilibrium level where the goods are also cheap and the supplies are also paid for.