Introduction
Relevant Economic Principles
Opening a restaurant and maintaining its profitability involves compliance to regulations for food safety and the good quality of food. The managers of the restaurant must also have the knowledge and appropriate experience for this business. The menu of the restaurant has to be diverse and the work force must have the skills for customer service and are given sufficient training (Harrison 1). The successful opening of the restaurant depends on the name of the restaurant, the time of the year, and its location. The owner of Central Food in Spokane claimed that it is better for a newly introduced restaurant to operate in limited hours during the opening week rather than operating in full hours where people are lined up at the door. The owner asserted that working in full hours and having people lined up at the door makes it difficult for the employees to interact with the customers about their products and services. The employees will also not be that efficient (National Restaurant Association 1).
DEMAND
The demand is the desire of the customers to purchase the goods at some movable prices. The demand will be the basis for the target population of the business. The household income, location of the restaurant, convenient time, age, gender of the consumer, and the consumer price index are observed in the consideration of demand because this will become the foundation for creating a target market for the restaurant. The target market involves the customers that the business operation will focus on. The target consumers are one of the important elements in a successful restaurant. Catering to target market is more effective than attempting to appeal to everyone because every customer has their own interest and preferences. The demand determinants for this case study are the type of families, the household income, the price elasticity of demand, the age of the consumers, and the consumer price index.
Demand Determinants and Research Data
Types of Families (Nutritional Diet as of 2010)
Selected Serviced Related Industries – Full Service Restaurants (2007)
Sources: U.S Census Bureau
Household Income
Price Elasticity of Demand
The price elasticity of restaurant meals is 2.27%, with the consideration that restaurant meals are more price sensitive. In this view, if restaurant meal prices improved by 10 percent, then the demand quantity will be reduced by 22.7 percent (Candela Learning n.d)
Graph of Demand
Sources: US Bureau of Labor Statistics
Family of Two
Family of Four
Consumers Go Local
72 percent of restaurants asserted that the customers are more interested in materials that are locally sourced unlike two years ago. Majority of restaurant customers demand materials that are locally sourced; thus, most of restaurants produce meals, which are locally sourced. In addition, consumers want restaurants that are environmentally friendly and that provide fresh and healthy meals.
Source: National Restaurant Association
SUPPLY
The Supply is the supply of the raw materials delivered to the restaurant and to produce a product. The managers should manage the supply because if the products and services, the suppliers will suffer financial failures. The supply consists of raw materials needed for production and the productivity of the work force that will meet the expectations of the consumers. The supply determinants for this case study are products and services segmentation, commodities raised and delivered under production contract, max and/or cost of production analysis, and price elasticity of supply.
Supply Determinants and Research Data
Products and Services Segmentation as of 2010
In 2009, the overall revenues of restaurants decreased by 2.7 percent as a result of the recession in the economy that struck the locally owned stores, which resulted in the sales of products and services slumping and the revenue from domestic franchise stores becoming stagnant. In 2008, the overall sales of the same domestic franchised stores dropped by 5.2 percent whereas the sales of domestically owned companies dropped by 2.2 percent. It is reported that the overall sale of the domestic store and the revenue of the domestic supply chain dropped by 7.4 percent but has increased by 12.3 percent in the international stores (Zwolak 11).
Commodities Raised and Delivered Under Production Contract: 2012
Commodities Raised and Delivered Under Production Contract: 2007
Source: U.S Government Consensus
Max/Cost of Production Analysis
Capital Expenditures for Structures and Equipment by Companies with and without Employees as of 2013
Source: US Government Census
Price Elasticity of Supply
Price elasticity of supply refers to the quantity of the supply, which is affected by the changes in price. Given that most of the items needed for the restaurant came from the agricultural sector, this study includes the commodities produced by the agricultural sector. The prices are high if the supplies are low at the beginning of the season for harvesting. The prices are low if the crop has reached the maturity stage in the primary production areas. The prices generally increase again when the supply reduces at the end of the season (Food and Agricultural Organization 1).
Supply Graph
Products and Services Segmentation as of 2010
Max/Cost of Production Analysis
Recommendations
The owner must take into account several factors when opening a restaurant. These include the supply and demand, the customer preferences, risk, costs, and financial performance. In addition, the owner must maintain the average rate of revenues and profits in order to sustain the business. The owner of the restaurant must take time n interacting with the customers to learn about their preferences and incorporate their suggestions customers in order to meet their expectations. The owners must take into account the location, the time of opening, and the name of the restaurant. The owner must create a name and logo that would attract the consumers. Moreover, knowing the location enables the owner to know identify the population before defining a target market. The owner should create a schedule for the introduction of his restaurant, and he has to make sure that the time of the restaurant opening is convenient for the restaurant’s target market. The restaurant must have objectives and goals because without these, the restaurant will have no system. The owner must employ workers that ha the capability and sufficient training to attain the restaurant’s objectives. Given that the consumers want a restaurant that is environmental friendly and provides meals that are locally sourced, the restaurant must implement local sourcing strategies to meet the customer’s demands.
Works Cited
Candela Learning. Elasticity and Pricing. candelalearning.com. Candela Learning, n.d. Web. 19
Jan 2016 <https://courses.candelalearning.com/microecon/chapter/742/>
Food and Agricultural Organization. “Supply and Demand” fao.org. FAO, n.d. Web. 19 Jan
2016 <http://www.fao.org/docrep/008/a0185e/a0185e04.htm
Harrison, John. “Operating a Successful Restaurant.” Innovation and Empowerment: SNU
Research Journal 3.1 (n.d). Web. 19 Jan 2016
<http://home.snu.edu/dept/tulsa/snuie/Harrison.pdf>
National Restaurant Association. “Soft Openings: Practice Makes Perfect.” restaurant.org.
National Restaurant Association, n.d. Web. 19 Jan 2016
<http://www.restaurant.org/Manage-My-Restaurant/Operations/Front-of-House/Soft-openings-Practice-makes-perfect-1>
Zwolak, Roman. “Fast-Food Fallout: Health- Conscious and Cash Poor Consumers Serve as an
Industry Challenge, 2010. PDF File. Web. 19 Jan 2016
<https://virtualbutterfly.files.wordpress.com/2010/04/72221-fast-food-restaurants-in-the-us-industry-report.pdf>
The Outline of the Case Study: Microeconomic Paper
Introduction
The problem
The elements of the case study
Relevant Economic Principles
Demand
Introduction
Demand Determinants and Research Data
Price Elasticity of Demand
Graph of Demand
Supply
Introduction
Supply Determinants and Research Data
Price Elasticity of Supply
Max/Cost of Production Analysis
Graph of Supply
Recommendation
References
