SWOT and PESTEL Analysis of Seafood Restaurant

SUMMARY

Jack Sprat is the owner of seafood restaurant in a coastal town. He is 60 year old and doctor has advised him to take rest so he had appointed a Manager to look after the business operation and he use to come to see the business once in a week. But once he handed over the business to the manager his business is not doing well and there is continuous declining in the business.

So in order to find remedy owner has been approached to the author to analyse the case and suggest as what should be done to bring back the business of the restaurant.

Author has analysed the business with the tools of business (case) analysis-SWOT, and PESTLE and further financial data has also been taken into consideration to find out the declining trend and come to a conclusion as why business is going down.

In order to evaluate the business operation and put the findings in the report author has done extensive research-secondary research and analysed the case with his valuable suggestions.

ACKNOWLEDGEMENT

Author would like to convey his gratitude to those entire people who helped him to enhance his understanding of the case and analyzed the situation so that a valid conclusion of the case can be drawn. Author has completed this case successfully and has been presenting his findings with suggestion in this report. So author would like to thanks to the Module tutor for kind support and guidance.

INTRODUCTION

Jack Sprat is 63 year old owner of 60 seat licensed seafood restaurant that is situated in a costal town. Before starting this business Jack was simply a Manager at a local Bluebeckers Restaurant. But an inheritance left this restaurant to him. Since the opening of this restaurant business it has given very good return.

The belief of Jack towards success f this business is the Maintenance of high standards in fod production and presentation. Other fact is Menu and beverage list has been fairly constant since beginning of this restaurant. Jack did not change menu and beverage list because business was giving modest return since beginning.

But jack is not regular to the restaurant and he has appointed a Manager to manage the business operation and he use to come to the restaurant to see the business operation once in a week. This is because at this age (63) he has been suffering from health problem and his doctor has advised him to take rest. But business of this restaurant has gone down as soon as it was handed over to the manager. Absenteeism of the staff has been increased.

Keeping in mind the remedy of the situation author has established aim and objectives of this report, here are the aim and objectives written in detailed:

Aim of this report is to find remedy of the existing problem or discrepancies of the restaurant and give valuable suggestions to overcome from these problems so that business can be put on its old pattern-profitable.

Objectives are:

Finding most important problems

Identification of further information that would be helpful in making realistic plans for the future of the business

To list the priorities

Drawing an action Plan

The structure of this report is as follows: First of all main body has been presented wherein SWOT, PEST, and other detailed analysis has been done. Then conclusion has been drawn and bibliography (list of references) has been given followed by appendix section where additional informations has been provided.

MAIN SECTION

Aim and objective No.1: Finding important problems:

Before providing solution of anything one has to find the problems first. So to find problem related to any business it is very first step to conduct SWOT analysis and PEST or PESTLE analysis.

Before going for the SWOT analysis of the business concerned it is important to understand SWOT first. “SWOT ANALYSIS is the detailed search and listing of factors from situational analysis that might or will impact the business’s strategy. Strategic marketing is based on the SWOT analysis. The process by which SWOT factors are derived is to carefully review the internal analysis for strengths and weaknesses, and the environmental analysis for opportunities and threats, and to then record”. (Reich, Z.A, 1997)

According to (Morrison, J 2002) “The SWOT analysis is a commonly used planning tool, which assesses the firm’s strategic profile in terms of its strengths, weaknesses, opportunities and threats. Focusing on both internal and external environments, it serves to highlight a firm’s distinctive competences, which will enable it to gain competitive advantage”.

Based on the above information from the scholars it is true that business environment can be divided into two part-internal and external environments. Internal environment consists of all factors that is internal part of the business. These internal factors are within the control of the business. Strength and Weaknesses of the business can be found in the internal environment of the business. External factors are those factors which are not within the control of the business and to be into existence business houses has to change in their internal policy and adjust itself to cope with the external environment factors. Opportunities and Threats are the factors that are part of external environment of a business.

SWOT : Strength, Weakness, Opportunities and Threat Analysis of Seafood Restaurant Business of Jack Sprat:

STRENGTHS

WEAKNESSES

Earlier this business was profitable

It is established organization

Maintaining high standard in food and presentation

Staffs are familiar with their work

Customers feel that restaurant is conveniently placed and charges reasonable price

Owner is not able to give full time attention to the business

Manager is less empowered-as he feels less scope has been given to him for the development of this business

Number of staff has been increased-which is extra burden on payroll expenses of the business.

No refurbishment done properly & yearly

Maintenance and Hygiene problem

Insufficient fund/ resources for spending on maintenance and Hygiene

Menu choice is stale and boring

Improper management of food due to lack of proper forecasting of guests.

OPPORTUNITIES

THREATS

Restaurant is old so having established market

Market Image is good- reasonable price and consistent standard

Dilution of market share due to inability to refurbishment

Environment Health officer may not be informal in future and there will be time when formal notice will be issued.

PEST ANALYSIS

Before analyzing PEST or PESTLE factors from a business point of view it is important to understand these factors: (Political, Economical, Socio cultural, Technological and Legal).

“A PEST analysis is an analysis of an external macro environment that affects all firms. Such external factors usually are beyond the firms control and sometimes present themselves as threats. For this reason, some say that pest is an appropriate term for these factors. However changes in the external environment also create new opportunities and letters sometimes are rearranged to construct the more optimistic terms of STEP ANALYSIS. Many macro environmental factors are country specific and the pest analysis will need to be a performed for all countries of interest”.

“Political Factors

Tax policy

Employment laws

Environmental regulations

Trade restrictions and tariffs

Political stability

Economic Factors

Economic growth

Interest rates

Exchange rates

Inflation rate

Social Factors

Health consciousness

Population growth rate

Age distribution

Career attitudes

Emphasis on safety”

Technological Factors

R&D activity

Automation

Technology incentives

Rate of technological change

www.netmba.com/strategy/pest/ Accessed on 2/01/2011

Aim and objective No.2: Identification of further information that would be helpful in making realistic plans for the future of the business:

Information needed towards market segmentation-target market:

Information to the case is very important to analyze any business health or problem. It is equally important like medical tests are important for human body for remedy of any kind of complain of a patient.

There are other tests or scanning is needed for business analysis. Market segmentation is one of them. Market segmentation: – “market consists of buyers differ in one or more ways. They may differ in their wants, resources, locations, buying attitudes and buying practices. Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then a seller might design a separate marketing program for each buyer. For example a caterer can customize the menu, entertainment, and the setting to meet the needs of specific clients. However, most companies are unable to offer complete segmentation. The cost of complete segmentation is high and most customers cannot afford completely customized products. Companies therefore, look for broad class of buyers who differ in their product needs or buying responses. The restaurant industry offers many examples of segmentation by a variety of variables”. (kotler,p 2004)

The reason behind knowledge of market segmentation is needed because until unless its not known that which segment is being targeted by the organization concerned (in this case Restaurant of Jack Sprat), it would be very difficult to compare the strength of that segment for the business. In this case its not given in the case so its important to analyse this business from its segment point of view.

Information Needed for competitor analysis:

“To get success of the business it’s needed to deal with customers, suppliers, employees, and others. In almost all cases there will also be other organizations offering similar products to similar customers. These other organizations are competitors. Objective of the other organizations is the same as yours – to grow, make money and succeed. Effectively, the businesses are at war – fighting to gain the same resource and territory; the customer. And like in war, it is necessary to understand the enemy: How he thinks; What his strengths are; What his weaknesses are; Where he can be attacked; Where the risk of attack is too great….. And so on. And like in war, the competitor will have secrets that can be the difference between profit and loss, expansion or bankruptcy for the business. Identifying these secrets is thus crucial for business survival’. (http://dspace.dial.pipex.com) accessed on 2/01/2011

Other information needed is about its competitors. Information of competitors is very important to know the business of competitors and further business concerned can be compared with the competitors. So competitor analysis is very important.

Aim and objective No.3: To list the priorities:

First of all instant action should be taken to solve Hygiene problem.

Proper forecasting of guests so that underproduction and overproduction both can be kept under control

Extra manpower has to be reduced so that there will be less burden on payroll cost

Choice of menu has to be increased

Manager should be empowered or can be changed (as information is not given properly and in detailed so it is impossible to say to change)

Somehow owner has to be in touch even over the phone to monitor the business operation and if possible frequency to visit may be increased.

Local bank should be approached for short term loan for the refurbishment activities.

Aim and objective No.4: Drawing an Action Plan:

Action plan is a process that includes assessments of own strengths, available resources and market opportunities. There must be idea about marketing objective of the organization concerned then a plan can be prepared and further implemented to achieve the determined objective. In other words these informations are basic and needed at very first step towards making action plan:

Market and trading environment of the business concerned

Decision about market business is targeting to

Knowledge about differentiation or advantage of uniqueness of own product and services

Deciding marketing mix

Estimation of Fund etc.

ACTION PLAN:

PRODUCT: Option in Menu list will be given

PRICING : May charge little higher than what has been charging

PROMOTION: There is need to promote the product and create awareness to remove the negative image of the organization. So it can be done through normal aids of advertisement-News papers or T.V Channels. Through T.V Channels it may little costly affair in that point of view daily is better.

Other Actions to be taken:

It could have opened even on Sunday to attract customers want to utilize their holidays. So it will be open all 7 days.

Fund should be managed instantly- It can be done by approaching Commercial Banks for short term loans.

Refurbishment will have to be done as soon as loan is approved.

Employees have to be re-motivated so that absenteeism of staff can be kept under control.

REVENUE (SALES) POINT OF VIEW:

Food sales has been increased in 2007-8 by 4.3% compared to 2006-7, and it gone down in the financial year 2008-9 by 3.95% compared to 2007-8 sales of food.

Liquor Sales has been increased in 2007-8 by 5.97% compared to 2006-7 and further it increase by 15.59% in the year 2008-9 compared to 2007-8.

Overall Total Sales has been increasing in the financial year by 4.67% in the financial year 2007-8 compared to 2006-7, and further increased by 6.57% in the financial year 2008-9 compared to 2007-8.

DIRECT COST POINT OF VIEW:

In the financial year 2006-7 food cost was 42.05% of its sales and in 2007-8 it became little favorable by going down to 41.16% of its sales figure and in the year 2008-9 in again gone up to 43.63%

Direct cost of Liquor is 59.72% of its sales in the financial year 2006-7, and 57.70% in 2007-8 and further 57.91% in 2008-9. So its favorable as its in declining trend.

Total direct cost is 54.01%, 55.11% and 52.88% in the financial year 2006-7, 7-8, and 2008-9 respectively which also seems favorable because in 7-8 it gone little up but again it gone down by good margin-around 2 to 3%

GROSS PROFIT POINT OF VIEW:

Gross profit of food is 57.95%, 58.84% and 56.37% in the financial year 2006-7, 7-8, 8-9. This shows increase in 7-8 and further decline in 8-9.

Gross profit of Liquor is 40.28%, 42.30% and 42.09% in the financial year 6-7, 7-8, and 2008-9 respectively. Overall it is in favorable trend.

Gross profit in the financial year 2006-7 is 54.01%, 55.11% in 2007-8 and 52.88% in 2008-9 which seems declining trend. In the year 2007-8 it gone up but in 208-9 it came down. This is because there was declining of sales of food in the financial year 2008-9 by 3.95%, otherwise sale of liquor in this financial year was good and direct costs were also behaving favorably.

INDIRECT EXPENSES POINT OF VIEW:

There are three component of indirect expenses-labour, overheads and operating expenses and maintenance expenses. Amount spent in labour is in increasing order i.e., 29.76%, 31.51% and 33.21% in the year 6-7, 7-8, and 2008-9 respectively. This shows restaurant is spending more % every year in its staffing.

Overheads and Operating expenses seems within control as its 8.78%, 7.21% and 8.36% in the year 2006-7, 2007-8, and 2008-9 respectively.

Maintenance expenses is 1.61% of sales in the financial year 2006-7, 1.40% in the financial year 2007-8 and 0.91% of sales of financial year 2008-9. This shows that organization is spending very less on maintenance expenses.

Overall total indirect expenses is 40.15% of its sales in the financial year 2006-7, 40.12% in 2007-08 and gone up in the financial year 2008-9 to 42.48%

NET PROFIT POINT OF VIEW:

Net profit is 13.86%, 14.99% and 10.40% in the financial years 2006-7, 7-8, and 8-9 respectively. This shows that Net profit has going down, and in the financial year its gone down with huge gap compared to previous years percentage.

Overall it’s a matter of discussion and management should pay attention to the indirect costs as percentage of indirect cost is very high. As gross profit is in 50% so almost 40% of sales are being spent for indirect expenses. Although management is not spending much in maintenance component of indirect expenses but other components i.e., overhead and operating expense, and payroll expenses are very high that is the reason Net profit of the restaurant is not attractive.

CONCLUSION

Author has analysed the case of Jack Sprat’s restaurant and found that major problem is its hygiene and maintenance and indirect expenses. These two of the factors has to be kept under control and converted into favorable mode only then this organization can earn profit like previous time.

There are other areas also that needs attention i.e., arrangement of fund, manpower management, empowering manager etc.

BIBLIOGRAPHY

Britton, C and Worthington. I (2003) The business environment, 4th Edition, UK:Prentice hall.

Hooley.G(2004) Marketing strategy and competitive positioning, 3rd edition: UK: Prentice Hall

Kotler, P. (2004) marketing for hospitality and tourism, 3rd Edition, Delhi:Person

Luck.D and Rubin, S.R (1996) Marketing Research,7th Edition, USA:Prentice hall

Morrison, J (2002) the international business environment, 1st Edition, New York; Pal grave.

Reich, Z.A (1997) Marketing Management for the hospitality Industry,1st Edition,: Wiley and sons Canada.

Wearne.N (2001) Hospitality Management, 1st Edition, New Delhi: Global

www.netmba.com/strategy/pest/ Accessed on 2/01/2011

http://dspace.dial.pipex.com) Accessed on 2/01/2011