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Room For Dessert Case Summary

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Category: Business

Autor: andrey 29 March 2011

Words: 1063 | Pages: 5

"Room for Dessert" Case Summary

Situation

This case presents a business plan for a startup company called "Room for Dessert" (RFD), which is a fine dining restaurant focused on serving a niche market that includes desserts and beverages such as tea, wine and spirits. RFD has created a business model which provides a strategy to differentiate itself from typical fine dining restaurants by offering an unpretentious atmosphere focused on serving affordable, high-quality desserts. The company expects to serve areas of high traffic, such as downtown Boston, and will target college graduates and professionals who earn a significant amount of income and enjoy socially interactive environments.

From a venture capitalist perspective, there are several appealing and unappealing markets for RFD:

Appealing Markets

• "Unconcerned consumers": those who generally not concerned with health and nutrition and therefore seek out decadent desserts

• "Vacillating consumers": those consumers who are moderately concerned with health and nutrition but are driven by taste when selecting restaurants

• "Upscale urban singles and couples without children": generally have sufficient income and white-collared occupations and are socially driven

Unappealing Markets

• "Committed consumers": those are remain health conscious; generally will not seek out bakeries and dessert-oriented restaurants

• Consumers with less disposable income: will not be frequent visitors to RFD as they will be more stringent on expenditures for luxury items

Complication

The underlying complications faced by RFD is how to capitalize on the opportunities they have identified as well as whether or not they should pursue each of the potential revenue streams. Like many entrepreneurs, the management of RFD has identified multiple solutions and potential sources of revenue; however, realistically, it is not possible to pursue every potential opportunity. RFD, therefore, must narrow their focus to the most profitable and reachable solutions.

The company has identified numerous opportunities for generating revenue, including:

• Restaurant sales

• Retail sales

• Special events

• Kiosks

• Catering

• Restaurant supply

• Catalogue sales

As previously mentioned, it may not be plausible to pursue each one of the opportunities identified by RFD. Therefore, I believe the company should hold off on several of the potential revenue streams until much later, if they even plan to pursue it at all. The following streams should be revisited by management and either delayed for the future or eliminated completely:

• Catering: The catering business contains a very different model than RFD plans to implement. The complications of offering such a service include increasing the number of employees, expanding product offerings, and potentially losing focus on the core aspect of RFD, which is a social, fine-dining experience.

• Restaurant supply: This strategy would require excess production of RFD's products, as well as the potential sacrifice of trade secrets. Also, because the company wants to focus on growth within their business, offering their products in other restaurants may cannibalize profits within their own restaurants.

• Kiosks: The use of kiosks as a potential revenue stream may result in a loss of perceived quality of the products, as fine-dining establishments are often viewed as a luxury item and therefore have limited availability.

• Catalogue sales: This stream may create similar results as the use of kiosks in that the product may lose its perceived quality by end consumers.

Resolution

In order to capitalize on the opportunities presented, I think the company should follow a more narrow-scope approach in order to capitalize on the potential sources of revenue. In short, the company should place nearly all of its focus on creating a strong brand image to drive restaurant sales, which appears to be the most significant source of income. Since desserts and the type of beverages served present high gross margins, the company should be able to generate a sufficient amount of income through restaurant sales.

After illustrating the potential revenue streams presented by RFD, we can analyze the strengths and weaknesses of the business plan.

Strengths of the plan

• RFD has considered and accepted a number of risks faced by the business and the potential harmful effects each of the risks may create

• The plan clearly illustrates key aspects of operations for the business as well as marketing strategies they plan to pursue

• RFD has successfully analyzed the industry it will play a role in, acknowledging the somewhat unattractiveness of the industry (high buyer power, low barriers to entry, intensifying competition), but explaining the prospect of a successful niche strategy, which they plan to pursue

• The plan exemplifies a strong understanding of the potential market for the company and the target market appears to be large enough to generate sufficient profits

Weaknesses of the plan

• The company seems to be overly optimistic regarding the number of customers with respect to restaurant sales, expecting three turns per seat per day, each day of operation

• Although RFD presents a number of risks, they do not explain any plans to mitigate these risks to preserve company profits

• The labor costs appear to be largely underestimated, as I would expect salaries of experienced and professional pastry artists and chefs to be much greater

• The management team of RFD does not seem like they have enough management experience in the industry or experience in managing a potential national company

In conclusion, the projections that RFD presents seem to be overly optimistic in regards to growth in sales and number of stores, as well as expected brand creation. For example, the company expects total revenue to jump from $0.3 million in Year 1 to nearly $20 million in Year 4 and nearly $50 million in Year 6. These projections do not seem possible, provided that the concept and business model or RFD has not yet been tested in the market. In addition, the company expects to create a strong brand identity, which may be difficult in an industry that contains a variety of competitors. Although this niche strategy appears to be a successful venture, more research must be done with respect to the market need and viability of the business model. As a consultant to the company, I would recommend delaying expansion of the business for several years, in order to successfully establish the brand by focusing effort on creating a concrete business model. Once the business model can be proven at one particular site, such as Boston, the company can then venture out and expand geographically. Furthermore, the company needs to place more effort on determining if the market timing is in favor of the venture and they need to revisit the financial projections to take these aspects into consideration. I believe this is a very good idea and with a little more market research, RFD may be able to become a highly successful and national company.

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