Business Models and Planning

Case Analysis
Business Plan for Room for Dessert

Submitted by: Group 4

Student Name Student SAP ID Student Roll No.
S.G Pratik 80512100020 B030
P Sethuram 80512100542 C003
Dibyajyoti Biswal 80512100095 C063
Deeptaneel Bhattacharya 80512100249 H014
Swati Gupta 80512100431 H049
Sanskriti Sarangi 80512100999 H061
Q1. Analyse the business plans for marketing and Operations.

RFD is aiming to employ budget practices that also involve low risk in terms of its marketing strategy. The
idea behind keeping a simplistic approach for the same is that given the demographics of its target market
and the fact that the organisation aims to focus on a wide range of offerings, both in casual and fine dining,
sticking to traditional methods is viable. Since a restaurant caters to one of the most basic forms of
entertainment for customers, it makes RFD’s approach feasible and more effective especially in the face of
extensive and ever-growing competition. Billboards near famous hotel chains to encourage customers to
move to a different store for high-end, sophisticated desserts. Even near residential areas, shopping centres
and theatres, billboards help create recall to further the ‘feel-good’ necessity of customers via quenching
sugar cravings. The pricing is aimed at high-end customers since shifting to a different store for a dessert is
mostly an occurrence amongst affluent households and young professionals. With companies looking for
spaces for off-site meetings, RFD capitalised on the new trend of meeting at restaurants to discuss
professional matters and hosts many corporate events at a small-scale. Even collaborating with hotel and
restaurant chains, by setting up a small kiosk in their property and occupying a separate section in the menu,
can help increase visibility of the chain. CSR maybe a legal mandate but it is also smart business to increase
customer trust and loyalty and RFD’s involvement in community initiatives can further help building their
image. Through events, features and reviews in local and national newspapers and magazines, RFD can
reach more customers.

In terms of its décor, employing local artists and using classic and old-school furniture and design, RFD
gives a unique, antique experience to customers. In terms of operations, desserts can be highly customisable
and that can be a defining and differentiating value proposition that RFD is aiming to provide. Special
offering by chefs prior to being seated, exclusive arrangements with suppliers to create signature dishes,
specific station to display dessert decorations and staff to help customer in menu selection are other add-ons.
Optimising operations through partial investment in equipment and integrating the entire process to an
information system to keep tracking the processes and ensuring standardization can help in furthering
customer satisfaction through smooth functioning and quick service.

The restaurant might appeal to different groups of people throughout the day making it busy when other
restaurants might slow down. Meals, desserts, a bar and a café with afternoon tea time are just a few of the
segments addressed by the offers that build demand throughout the day. RFD must make it simple for
customers to understand the value-added goods and services they offer. To achieve this, RFD should create a
comprehensive menu and ensure that every member of the serving crew can clearly describe the flavour and
appearance of each item. RDF must also teach its pastry chef and support employees to maximise the
effectiveness of the ordering and delivery process. To make sure that expected profit margins are feasible
based on low and high sales predictions, a complete pricing analysis should be carried out.
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Q2. Analyse the business plan model for financials

  RFD Cheesecake Factory Starbucks

Seats 70 400 60
Square feet 2450 12000 1500
Investment Cost 480452 4750000 250000
Sales 1091052 8650000 840000
Sales/Investment 2.27 1.82 3.36
EBITA 178487 1660000 90000
% of sales 16.40% 19.20% 10.70%
% of investments 37.10% 34.90% 36%
Average Check 10.31 13.75 3
Customers per day 210 1724 767
Customers per seat 3 4 13
       
Square feet/seats 35 30 25
Investment cost/square feet 196.1029 395.8333333 166.6667

The investment cost per square feet for RFD is close to $196, which is a little more when compared to
Starbucks but significantly lower than Cheesecake Factory ($395). At the same time, the number of square
feet utilized per seat is the highest for RFD and is the lowest for Starbucks. EBITDA as a percentage of sales
is 16.4% for RFD which is less than Starbucks but higher than Cheesecake factory. EBITDA as a percentage
of investment reveals that RFD is most aggressive when it comes to investments in plant and equipment.
They are able to generate $2.27 of sales per dollar spending on investments, therefore spending on
investments is a good idea at this stage, as it will increase the absolute numbers in the long term.

The revenues and gross margin have broadly stagnated over the last few years, although there is a slight
increase in the net income, which is a positive cue as it displays that RFD is able to achieve operational
efficiency over the past few years.

Also, we can observe from the costs table that majority of the investment cost is being spent towards long
term assets like leasehold improvements, baking equipment, furnishings and licenses. They have also kept a
significant amount towards provisions which gives a cover against any future risks arising out of
complexity.

The total revenue from different segments has been increasing over the years, which is a positive sign as it
displays the strength of the business and the margins in the various segments are also quite attractive.

The team estimated that in order to launch the first restaurant, they would require $600K in funding. They
would have to pitch the idea to their secondary audience, VCs/Angel Investors, in order to accomplish this
(assuming they did not receive the cash from family or friends). With an objective to increase both market
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share and profitability, the management team aims to achieve 35% cash-on-cash returns. The target is to
generate $1000000 unit sales. However, with the presence of well-established businesses, the probability of
RFD failing as a result their action plan failing is a risk worth considering. Revenue and cost drivers are both
important aspects of the business's economics. The average check price, the number of seats available, the
daily turn rate, the number of open days, the number of corporate events, classes, and retail sales are the
main revenue generators. The primary cost factors include labour, food, rising rent in upscale
neighbourhoods, utilities, equipment, marketing, and licences. Although not everyone orders food or drinks,
the business's economics are largely predicated on an average ticket price of $10 per customer (which was
determined from a study of only 25 people). No matter how portions are divided up, it seems unfair that
each seat will cost so much per person, especially for those who arrive in the afternoon.

With three revenue streams (restaurant, retail and special functions, with restaurants engaging in 72% of the
revenue generation), RFD aims to diversify its avenues of profit generation. With a premium pricing
strategy which might offset the high profit margins as is the case with desserts and beverages on any
restaurant menu, small food portions with a minimal per guest charge can help make up for the reduced
margins. With leasing of baking equipment and requirement of simplistic machinery to cook simple entrees,
along with the cash transactions thus reducing the need for working capital helps keep the investment below
$500000. Corporate purchasing, commissary production, assumption of similar units established in the
future, thus attaining economies of scale and reducing corporate overheads overtime are achievable given
the assumptions of similar operational units and reduced COGS which can be accounted for, year-on-year.
However, the assumptions for both revenue and cost are based on the best case scenarios that make the
reduction of COGS certain. The benchmark customer defined is also on the basis of a well-established
business, as opposed to how a startup approaches their segmentation.

In terms of financial viability, the fact that the case study provides all the relevant facts and figures,
including information regarding the total cash needed by the startup alongwith its allocation. Comparative
analysis with businesses in the same industry is essential to assess the expected performance and financial
standing of the company, atleast for the first few years of its establishment. Information related to salaries
and shares of the company (in its equity listing) could have been more resourceful.

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Q3. Analyse overall the ambitious business plan versus realistic business plan in this case.

The business plan generally followed a good structure and covered all the important topics, including value
proposition, target market, competition, risks, and financials. The RFD business plan did a good job of
analysing the market, recognising the low entry barrier, the challenge of client retention, and the requirement
for a prime location with lots of foot traffic. Additionally, they did an excellent job of realising that, because
their freshly baked sweets and high-end beverage options had significant gross margins, they needed to offer
a distinctive value proposition.

Below are certain details in RFD’s business models which seemed unrealistic and overexaggerated

1. Lack of Customer Research: many of the potential revenue projections and assumptions on average
customer check prices were based on a survey of only 25 people which we believe is very less.
While the marketing strategy was well thought-out, there seemed to be very little knowledge of
current, local customer insights.
2. Lack of Focus: In general, there are very few barriers to entry, significant startup capital equipment
expenses, and fierce competition in the restaurant industry. The restaurant's menu is dispersed and
includes dessert, coffee, a bar, a limited selection of salads and sandwiches, as well as retail and
catering options, catalogue sales, kiosks, special events, and workshops. RFD should concentrate on
pursuing one primary source of income and put the other concepts on hold until they can demonstrate
the viability of their main notion.
3. Unrealistic Projections: Although the founders of RFD were aware of the possible risks the
company faced, they were overly enthusiastic about the numbers of customers and sales they would
generate in the first year of operation. They have compared themselves to well established brands
like Starbucks and Cheesecake factory. RFD generating numbers like these established brands in first
year of operations seems unlikely.
4. Expansion Strategy: RFD intend to open 44 stores within 5 years. Which turns out to be almost 10
additional stores per year beginning in the third year without even giving enough time to prove the
concept with their first restaurant.
5. Mitigation Plans: Management team in RFD has very rightly pointed out the risks in this business
model. But they have not mentioned how they have planned to tackle these risks. Even their financial
projections are best case projections not considering uncertainties.

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