Question 1 Environmental analysis

Required:

1. Discuss how undertaking an environmental analysis can assist the management of Sustainable Restaurants Inc. in developing its future strategy.

(7 marks)

2. Using models and frameworks of your choice, prepare an environmental analysis for Sustainable Restaurants Inc.

(12 marks)

3. Critically evaluate how the management accountant can contribute to an environmental analysis.

(6 marks)

(Total 25 marks)

'1 Introduction Following a successful career as a city trader Buck Rogers and his partner Bethan, who was a successful executive recruitment consultant and head hunter, decided they wanted to do something different. After serious discussions with their family (two children - a boy and a girl aged 9 and 10 respectively - and a dog), they left New York City in 1981 and started an organic farm in California. | The first thing they did was to hire Russ Trafford as the farm manager. Russ had been in farming all his life and brought a wealth of experience and expertise about the industry and was also passionate about organic farming methods. His knowledge of farming complemented the financial and people management skills of Buck and Bethan. Organic farming was in its infancy when they started, and costs were much higher than the intensive farming methods that had become common place in the USA in the 1980's. After five years of hard work they had established a customer list which included providing fresh organic farm produce to some of the finest restaurants in the area and their reputation was spreading fast. Their passion for good food and wine led them to purchase a small vineyard which under the guidance of Kerry Mills, who was hired as a consultant due to her knowledge of the industry, now produces some excellent award-winning wines. They were now becoming more and more involved in developing trends in farming that they embraced the concept of sustainable farming, not all of which involved organic farming methods, but has a strong focus on the farming techniques that have high yields of high quality crops that work with and lives alongside the natural environment. Techniques such as encouraging natural weed and pest controls, prevention of land erosion, maintenance of high soil quality, and provision of land cover necessary to sustain wildlife. Their passion for good food and wine did not stop there, and in 1990 Buck and Bethan opened their first restaurant in Sacramento called 'Sustainable'. The restaurant was a huge success and under the guidance of Alejandra Hermaneth, a successful restaurant entrepreneur, they now have 41 restaurants in 41 states in the USA. A company called Sustainable Restaurants was established to manage the restaurant business and is part of the holding company B2 Inc. (a name derived from Buck and Bethan and pronounced B squared) at that time comprising the restaurant business, the farm and the vineyard. 2. Expansion As the movement for sustainability gained strength Buck and Bethan immersed themselves in developing B2 Inc. into a truly diversified company with interests in: Farming, which now includes arable, dairy and animal (mainly beef) farms Vineyards and wine production reputation of the chef so getting the right staff can also be a factor of success, as much as quality of service. The rise of the celebrity chef (who may or not be available to prepare food) is still very much a trend in the industry, as is achieving the Michelin Stars in the Michelin restaurant guide, a guide based on the quality of restaurant experience including value for money. Restaurants can be classified in several ways. Full-service restaurants offer a full menu and seating facilities; quick service restaurants offer a more limited menu with limited seating and take away options; cafeterias and buffets offer a more casual approach to dining often with an element of self-service. Snack bars can also be classed as competitors depending on the style of menu offered, e.g. snack bars can be a competitor for the lunch menu. There are also fine dining restaurants, casual/branded dining - more usually offered by restaurant chains, and restaurants can also be classified by type of cuisine, e.g. Thai, Mexican, Chinese, Indian, English etc. Restaurant chains are a significant part of the industry where a common theme or brand and common menu items are present in all their restaurants. Local flavour, however, is also significant so a good restaurant chain will exchange information amongst its restaurants, e.g. what worked well or didn't. A significant element of managing a chain is the 'comps' - comparison between restaurants, which can put pressure on restaurant managers to perform, but if used well can also encourage a learning approach between restaurants. The industry is sensitive to the economy as consumers often trade down when times are hard, e.g. move to less expensive options or reduce the number of times they eat out. Demographics of the catchment area impacts on the style of restaurant that will do well in certain areas, as does the personal income of the people in the target customer group. For example, is the target customer mainly business people or families? The catchment area and location will impact on the number of customers in target groups so location and target customer groups must match. A high proportion of restaurant failures are due to the menu options or pricing not matching the target customer. For example, a city restaurant may well need to offer a business-oriented lunch menu, but a more family friendly evening menu. The long business lunch is also on the decline with businesses favouring lighter, healthier and less liquid lunches. Health and safety legislation is also significant and food hygiene and cleanliness levels can be expensive to maintain and even more expensive if they are not adhered to. Trends such as healthy eating, with an emphasis on fresher and more natural ingredients is also on the increase, as is promoting the use of local produce. Costs can, however, be affected by aspects such as crop yields, or weather conditions, i.e. the physical environment, and seasonal factors need to be taken. into account in menu design, particularly if using locally produced ingredients. Supply of labour is also governed by minimum wage legislation. Many employees are not paid much more than the minimum wage and staff waiting tables often rely on tips to supplement their wages. Some restaurants pool their tips and share them among the staff equally, others allow individual staff to keep the tips they collect personally. A few restaurant chains have been criticised recently for Restaurants Fish farmse Renewable energy, e.g. wind farms and hydro generation Forestry and land management schemes Waste management- . B2 Inc. has based its business philosophy on developing the portfolio with a focus on environmental businesses, with maybe the exception of the restaurants, but recognise that sustainability is about much more than environmental issues. They are very keen on the 'planet, people, and profit' philosophy and view profit-making as an opportunity to invest more in the environmental and sustainable aspects of the business. The group website states unashamedly that they are in it to make a profit to enable them to invest in more sustainable and environmentally friendly projects. Note that B2 Inc. is not listed on the stock exchange and is still a private company, but they now have private investors in the company who have the same aims and beliefs. The current shareholdings are as follows. Buck and Bethan Rogers 55% Sustainable Venture Capital Limited 20% Employee share scheme 10%- Other directors 10% Friends and family 5% '3. The restaurant business The restaurant business is intensely competitive with lots of alternatives. It is not just other restaurants that you are competing against for the customer but alternatives such as home cooking, take-away and convenience foods. In good times alternative forms of spending a night out with friends and family become the competition. The restaurant business in the US is worth in the region of $710bn per annum and now that the economy is picking up it is expected to grow by about 4% p.a. or 2% in real terms (inflation adjusted). There are over 1m restaurant locations in the US employing about 14m people. The industry attracts many new entrants to the market, but the restaurant business is an industry where the failure rate can be very high. People believe that because they like cooking for friends, and their friends are always very complementary about their cooking, they can start a restaurant, forgetting it is a business not a hobby. Managing costs such as portion control, and wastage rates are crucial to running a profitable restaurant and making a return on the initial investment. Awareness marketing is required to get the restaurant noticed but word of mouth can be just as important in getting new business. Customer satisfaction and customer retention is also important so adding new dishes to the menu on a regular basis and menu variety is important. Many restaurants are based on the retaining part of the tips as a corporate body and not passing all of the tips on to the staff. -4. Sustainable Restaurants Inc. - original development and operation of the companye Sustainable Restaurants Inc. is part of B? Inc. The philosophy of Sustainable Restaurants Inc. is based on attention to detail and focus on quality. All ingredients are sourced locally from sustainable and organic producers. They work very closely with the suppliers to ensure that the US environmental guidelines are followed, and that food is produced using sustainable, high benchmarked farming methods i.e. best practice), to high standards of animal welfare and low intensity (i.e. as opposed to high intensity farming techniques used, for example, by many chicken farms). The 41 restaurants all serve lunch and dinner menus and would be classed as 'fine dining' restaurants. Although all the restaurants are owned by Sustainable Restaurants Inc., they all have different names and their own identity. There is a reference to Sustainable Restaurants Inc. on the restaurant paperwork, such as menus, receipts and letter headed paper, but many customers would not necessarily notice unless they were specifically interested in who owned the restaurant. The restaurants are all situated in city centres or fashionable urban areas that can attract a range of business customers as well as people going for a night out in the city. Four restaurants have boutique hotel rooms attached and in these four restaurants breakfast menus are offered. A boutique hotel is a stylish small hotel, typically situated in fashionable urban areas. All of the restaurants are in amazing buildings which adds to the whole dining experience. The one downside to this is that the establishment costs are high, meaning the restaurants need to attract a reasonable volume of customers to break even. Both Buck and Bethan are keen on staff development and have invested a lot of time and effort in training their staff. Bethan states that the restaurant business is as much about the people as it is the food. Having the right staff in the right job is a key element to delivering the perfect restaurant experience. The guests are in your hands from arriving and being greeted correctly to leaving and going safely on their way. The restaurants are all managed independently with a high degree of autonomy given to the staff, i.e. they were not run as a chain of restaurants with common menus. Each Restaurant Manager and Chief Chef were given leeway to create the menu targeted for their particular location. There are similarities in the locations with them all being in fashionable urban areas, with a good mix of residential and business accommodation. This ensures a good business lunch clientele can be attracted as well as the evening diners. Buck encourages the Chefs and Managers to exchange ideas and is known to have encouraged them to strike out on their own if they wish (i.e. set up their own restaurant). This ensures that the key staff were always highly motivated and committed to trying new things, keeping the menu and restaurants fresh and The restaurants do awareness advertising when starting up but have found that word of mouth spreads quite quickly and hotels are happy to recommend the restaurants, so apart from the fees to be listed in restaurant guides the need for high levels of marketing expenditure is low. Each restaurant has its own website and individual restaurant managers can adjust the content to reflect the local character and ambience (atmosphere and feel) of the restaurants. There is a Sustainable Restaurants website, but this is limited to corporate style information linked to B? Inc. Although the restaurants are owned by the company each restaurant has its own identity consistent with fine dining restaurants, and they try to avoid being seen as a branded restaurant chain. +