Required: Use the case approach to identify and solve the profit problems facing the model restaurant.

You are a member of an independent consulting firm that specializes in serving the restaurant industry. Unlike many consulting firms that are extensions of audit firms, your firm has serious and in$-$depth expertise with the restaurant industry. The following is a typical assignment.

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"Pasta, etc." is a chain of Italian casual dining restaurants located in southern Ontario. The restaurants are at the top end of the casual dining segment; guests are offered many of the benefits of fine dining without the formality. The menu is limited to approximately $20$ entrees to ensure a high level of execution and service. Menu items such as steaks, pork chops, ribs, roast beef, chicken, seafood and salads are complemented by a wide assortment of alcoholic and other beverages.

The chain is only five years old, but already there are $74$ outlets. The owners had planned to expand the number of outlets to $100$ in Ontario over the next two years and then expand across Canada and into the United States. However, recent performance has been disappointing.

Some background is useful. The Torra family arrived in Toronto from Italy in $1955.$ Tony worked in an Italian restaurant immediately upon arrival in Canada. After one year he started his own restaurant, which provided him and Enza and their two children with a very good livelihood. Both boys $$ Joe and Donnie $$went to univer$-$sity. Joe became a high school mathematics teacher, while Donnie became a dietician and joined the family restaurant.

As the original restaurant was not large enough for Tony and Enza, plus Donnie with his growing family, Donnie persuaded the other members of the family that expansion was necessary. It took three years to convert the original restaurant into an expansionary "model restaurant" that would be relatively simple and, therefore, could be managed by a non$-$family member.

The excitement of expanding the family business encouraged Joe to give up teaching high school mathematics in order to return to the family business. In the following five years, Joe and Donnie went from one to the current $74$ restaurants. They are now wondering what happened.

All $74$ restaurants are basically the same. Sales have exceeded expectations, but profits are much less than expected. There is some variability in sales among the $74$ restaurants. There is a scheduling model that, based on sales, assigns the optimal number of employees to be on staff for each restaurant $($i$.$e$.,$ restaurants with higher sales will require more employees in order to maintain service quality$).$ The planning, budgeting, and financial reporting systems are meeting current requirements. Employees are remunerated with basic wages, plus incentives tied to sales. These incentives account for about $20$ percent of the average employee's remuneration, and thus there is a keenness among employees to maximize sales.

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In your consulting assignment, your focus is with what is going wrong with the restaurants. You suspect operational problems; thus, you and your associates study a random sample of five of the $74$ restaurants. All five are very similar, with the restaurant in Exhibit $1$ being representative.

As Joe and Donnie cannot agree on the reasons for the profit shortcomings, and thereby on the solutions, your consulting firm has been hired. Joe believes that sales improvements will solve the profit shortcomings. Donnie, in contrast, believes the inadequate cost control has caused the profit shortcomings. However, neithe$-$ has been able to gather convincing evidence.

Pasta, etc. is fortunate in having a specialized restaurant enterprise resource planning $($ERP$)$ system that has the potential for linking all systems. Although the potential of the ERP system is just starting to be utilized, it can calculate the price and variable costs for the $20$ entrees that are being sold. This information is shown in Exhibit $2.$

Required: Use the case approach to identify and solve the profit problems facing the model restaurant.