SAKAFAT RESTURANTRUSHNA AWAN (MBA-III)

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“Sakafat” means culture. Our restaurant is representing the mix of Pakistani culture. You will find the delicious and mouth watering food of every province of Pakistan as well as wide variety of fast food. It will cater to the burgeoning upper middle class. This is an unexplored market since the majority of the cafes in Pakistan are either unaffordable or they do not provide an adequate facility

where friends can hang out and families can enjoy at low cost.

The idea of a theme restaurant was proposed by one of the students of the class and later all the other 25 students agreed to work on it as their business venture, in teams of eight, focusing on specific segments of the business. The restaurant

is slated to start up its operations in the 2nd half of coming year.

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The restaurant will start out as a LLC corporation, owned by its founders which are the 25 students of the class, and we are looking for a restaurant space of approximately 2,000 sq. ft. at Minara road, Sukkur.

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Startup Summary

• The management is seeking around Rs.4,802,700Rs.4,802,700 from SME Bank @ a markup of KIBOR + 4% and Rs.2058300 from investors to provide seed capital for the company.

• The start-up costs come to Rs.6,861,000 which is mostly expensed equipment, furniture, reconstruction, rent, start-up labor, licenses, operating cash, and legal and consulting costs associated with

opening the restaurant.

• The tax calculations are done at the corporate tax rate of 35%.

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Meal Periods

• Lunch: 12:00 p.m. – 4p.m• Dinner: 6p.m. – 12a.m

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Mission of the Venture

• Be recognized for our service par excellence, our exceptional food and amazing drinks.

• Conduct all our relationships with an emphasis on long term mutual success.

• To be a place of choice for dining for every Pakistani.

• To be instrumental in spreading the love for our culture in our community and to encourage an active and healthy lifestyle.

• To a place where people can come and enjoy cultural food and environment.

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Critical Success Factors

• The creation of a unique and innovative fine dining atmosphere will differentiate us from the competition. The restaurant will stand out from the other restaurants in the area because of the unique theme, design and decor. It will offer a fine dining experience in a cozy atmosphere.

• Product quality. Not only great food but great service and atmosphere.

• The menu will appeal to a wide and varied audience.

• Controlling costs at all times without exception.

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Products/ServicesThe business will focus on establishing a cultural theme restaurant

where people can enjoy their favorite dishes and cultural music and shows on the large screen TV, or just talk about it with friends while enjoying our tasty food and drinks.

LayoutTo accommodate the different groups of customers, we will use

tables for four that can be pushed together in areas where there is ample floor space. This gives us flexibility in accommodating both small and large parties. Booths for four to six people will be placed along the walls, and ample space would be reserved for receiving, storage, food preparation, cooking, baking, dishwashing, production aisles, trash storage purposes, as well as designated areas for employee facilities and an area for a small office where the staff can perform daily management duties

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EmployeesThe labor component of the project will be handled through

advertising in a nationwide newspaper of good standard tentatively which is expected to be Jang and Dawn. The management will be looking for a combination of individuals with past experience, excellent manners, a satisfactory level of language capability and enthusiasm. Since the management will be offering above average wages we expect to attract the crème of the workforce and hope for low employee turnover. Appendix can be referred to for salary structure and expenses.

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Marketing & SalesThe MarketThe target market for Sakafat is all culture loving people, belonging

to the upper middle and higher income classes. The target age group is between 17 and 35 years. It is located in an area that attracts most of their evenings out.

Our customer base will come from the following segments: People belonging to higher income groups from all over the city• Students (16 to 24 years)• Tourists• Offices in the vicinity

The concept and product image of Sakafat will attract 3 different customer profiles:

• Those who love local food. • Those who want to do more than just eat out.• The curious and the young at heart. ( because we are also

offering fast food for young group)

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Marketing Objectives and Goals:

Our marketing strategy, based upon our analysis of the strengths, weaknesses, opportunities and threats for Sakafat! Is designed to meet the following objectives:

• Offer an innovative product in a familiar style at a competitive price.

• To be the most exciting hangout for culture loving people.

• Focus on operational excellence.

• To be the customers’ first choice when it comes to spending an evening out.

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Competition & Competitive StrategyThese and other themed restaurants are the ones we will view as

our competitors e.g. Janbaz Bar B Que, Naz By Pass Motel, Day N Nite Bar B Que etc.

There are over 10 restaurants in Sukkur city. Although this presents an obvious challenge in terms of market share, it also indicates the presence of a large, strong potential. The newest competitors have made their successful entry based on an innovative concept or novelty. Capitalizing on an increasingly popular global trend of theme restaurants, Sakafat! will offer an innovative product in a familiar style at a competitive price.

There are three major ways in which we create a competitive advantage:

• Innovative concept making us the only one of its kind restaurant in Sukkur.

• Quality product at lower prices.• Other activities to engage the customer by allowing customers

an experience that entails much more than food.

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Pricing

The pricing strategy was prepared keeping in mind the high initial investment, competition and the target market. A number of restaurants that cater to similar target markets were visited in order to establish comparable prices. Also, prices had to be competitive, yet not so low as to put off the elite crowd Sakafat! Plans to attract which tends to feel that very low prices imply lower quality food. Moreover, the plan is to have a minimal cover charge as well, say Rs. 100. This is the amount charged in order to enter the restaurant, and may be redeemed for food items. 15% GST is included in these prices, so there are no

"hidden charges".

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Menu

The menu for Sakafat! has been designed to cater for people of all ages at all hours of the day. Menu is divided into two main groups:

• 1) Pakistani cultural food which is again sub divided into four groups representing cultural food of four provinces of Pakistan.

• 2) fast food items.

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Promotion

There are thousands of possible tactics that can be applied to drive revenues without any reliance on mass media advertising due to our budget restraints initially. Below are some of the proposed strategies for pre launch and later for the day to day promotion of our restaurant, summing up to an amount of Rs. 860,000 approximately. (This figure is only for the first year of launch).

Pre-Launch Promotional Activities include “Teaser Advertisements” (Estimated amount allotted: Rs.260,000), a Grand Opening (Estimated amount allotted: Rs. 50,000) and Customer Relations (Estimated amount: Rs.156,400)

After-Launch Promotional Activities include launching a Website (Estimated amount allotted: Nil), doing a Radio Review (Estimated amount allotted: 76,800), having Contests (Estimated amount allotted: Rs.60000), doing Sampling (Estimated amount allotted for transportation and meal preparation: Rs. 120,000), starting Menu Bingo (Estimated amount allotted for printing Bingo cards and free merchandise: Rs. 36,000), and a Birthday Program (Estimated amount allotted: Nil).

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Operational Plan Restaurant Equipment

The restaurant equipment includes:

1. Kitchen equipment2. Interior decor and multimedia 3. Other equipments like generators, WIFI terminals, Pocket

PCs for waiters etc.

Hours of Operations• The restaurant would be open 7 days a week from 12pm to

3pm and 6pm to12 midnight.

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Layout

Sakafat is divided into three main sections:

• Basement- Play land for children aging from 3 to 12 and computerized games section for children aging from 5 to 15.

• Dining Floor- It would house the dining hall where meals would be served during lunch and dinner time. A kitchen would be located adjacent to the dining hall on the ground floor to prevent any hassle and shorten the service time. The dining area which is the ground floor of the restaurant however is specifically reserved for most of the dishes in the main course while snacks could be had at other places.

• Television Room- This is the floor where screening of cultural shows would take place. During the weekends this floor is expected to witness a lot of visitors because fast food will be served at this floor so, the students and office workers are likely to visit this floor on weekends as they are free on weekends. Students are more fast food loving customers.

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Evaluation of management team: The management team is the most important part of any new venture and hence represents a major risk factor. Below we analyze the weaknesses and strengths of our management team and how we can overcome these

weaknesses. Strengths WeaknessesHave worked together before so know

each other well. Have no prior experience in the

restaurant business. Understanding of each other will result

in synergistic benefits. May not be able to manage rapid growth

due to inadequate experience 2 year of education at Pakistan’s

premier business school have equipped us with the knowledge to successfully run a venture.

Consensus and coordination can take a lot of time because 25 people have to agree on one point. This can delay important decisions.

All of the management team has strong family support to help them in difficult times

Members have good contacts and networks

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Marketing• Product: Taste and serving size of food may not appeal to

people manual orders taken by waiters in a noisy surrounding may lead to confusion and inefficiency.

• Price: Is high considering locality and service.

• Promotion: A great deal of planning required. High budget of certain advertising plans. Anything going wrong in the promotional activities may reflect negatively on the image of the restaurant. Sampling may backfire if customers do not find food up to the mark.

• Placement: If décor is not trendy and differentiating, it will fail to leave an impact. The seating order and ambience may be uncomfortable and noisy because of loud volume of television.

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Financial Risk:The business will find it difficult to attract investors to a new venture

because the amount of investment we need is huge i.e. Rs.4,802,700.1. In analyzing costs, we find that our cost of goods sold account for 73% of our revenue. Any high rise in inflation will result in deteriorating gross profit, hence active management of supplies needs to be carried out. High amount of current assets indicate excess liquidity hence better cash management is required. The return on assets and equity are negative in the first year of operations.

Production & Operations: Unreliability of suppliers is a major risk. Research on suppliers of

only two hotels has been conducted, which is not a comprehensive assessment. Poorly trained workforce is another big risk. We will need to plan a strategy based on operational innovation in order to avoid operational risk.

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Exit Strategy The most simple exit strategy would be to convert our theme restaurant into a boutique of traditional dresses. Harvesting is another option that is, selling the business to an employee or an outsider. One of the methods of harvesting is Direct Sale. This is especially common as small businesses are in demand by larger companies, who wish to grow by acquisition. We can also merge with another restaurant to gain synergistic benefits. Financial Plan

Breakeven Analysis 

Price 400

Cost 320

Fixed Costs 3,644,416

   

Break Even Customers 45555.2

Break Even Revenue 18222080

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DCF ValuationFree Cash Flow Year 1 Year 2 Year 3

Net Income (151,623.51) 804,065.54 2,001,162.70

Depreciation 1121660 1121660 1121660

Change in Working Capital 135749 45497.716 58545.56734

Less: Capital Expenditure 5761000 0 0

Free Cash Flow (4,655,214.51) 1,971,223.25 3,181,368.26

Growth Rate 10%

Terminal Value 134725893.8

DCF Based Fair Value 94,025,714.60

DCF Value / Partnership Unit 11,753,214.33

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Ratio Analysis Year 1 Year 2 Year 3

Current Ratio 9.00 8.32 23.32

Quick Ratio 8.92 8.26 23.27Cash Ratio 0.08 0.30 0.75

Receivables Turnover 400.00 400.00 400.00

Receivable Collection Period 0.91 0.91 0.91

Inventory Turnover 1182.72 1518.61 1949.90

Inventory Processing Period 0.31 0.24 0.19

Payables Turnover 100.00 100.00 100.00Payables Payment Period 3.65 3.65 3.65

Asset Turnover 5.28 7.60 4.80

Fixed Asset Turnover 8.10 14.29 29.82Equity Turnover 15.70 19.11 6.48

Gross Profit Margin 0.27 0.26 0.25

EBIT Margin 0.04 0.07 0.09Net Profit Margin 0.00 0.02 0.04

Return on Assets -0.02 0.15 0.18

Return on Equity -0.07 0.37 0.25

LT Debt-Equity Ratio 1.86 1.27 0.18

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Income Summary Year 1 Year 2 Year 3

Total Revenue 32318000 40990312 52074961

Cost of Goods Sold 23654400 30372250 38997968

Gross Profit 8663600 10618062 13076992

Sales & Marketing Expenses 423200 465520 512072

Security Expenses 248400 273240 300564

Salaries Expenses 2618000 2879800 3167780

Administrative & Misc. Expenses 354816 455584 584970

Rent Expenses 2400000 2520000 2646000

Interest Income 65556 0 0

EBITDA 2553628 4023919 5865607

Depreciation Expense 1121660 1121660 1121660

EBIT 1431968 2902259 4743947

Interest Expense 1665235 1665235 1665235

EBT -233267 1237024 3078712

Income Taxes @ 35% -81643 432958 1077549

Net Income -151624 804066 2001163