Market Feasibilty Study on White Elephant Cuisine (Essay Sample)

Market Feasibility Study of White Elephant Cuisine Student Name Instructor Course Date Pricing Strategy Pricing is significant for a business because it determines the revenue generated and the possible profit the business could earn after factoring in all the expenses (Hague 2018). Therefore, it is important to come up with a competitive price strategy that is balanced between being friendly to potential consumers while contributing to the success of the business. Our business is a small restaurant dealing with Thai cuisine. It will certainly get heavy competition from already established Thai cuisines in the area such as Pai Northern Kitchen. We are going to incorporate different pricing strategies such as cost-based, dynamic, and value-based pricing for the restaurant to cater to all the demographics of the target audience and evaluate it over 3 years. In our pricing strategy, we first introduced the cost-based and value-based pricing strategy to help the business capitalize on factors that would influence our business. These factors include the competition that we will have when getting into the market, our unique selling point which is the use of technology to create a non-interactive dining service, and our target audience. We analyzed the cost-based pricing method which is factoring in all the expenses for making a dish and adding up the profit margin you expect. This is the most popular pricing strategy method used in business because it ensures that the business can make a profit. We also looked at the option of using a value-based pricing method. We researched our target audience to find the value they attribute to our food and services. Our findings show that the millennials are impressed with the idea of technology in restaurant service. They liked the idea of being able to reserve a seat using an application on your phone. A study done on the restaurant industry shows that perceived sacrifice of finances and perceived service quality is a precursor to the value of the restaurant (Thielemann 2018). Our pricing strategy will be based on value and we will ensure on delivering top-notch service quality because it determines the perceived value and overall customer satisfaction. In the restaurant business, it is crucial to have a dynamic pricing method to factor in the price elasticity of demand and income elasticity of demand. Dynamic pricing is changing the price of a product depending on the shift in demand. The restaurant will be pricing the food based on demand by looking at the price and income elasticity of demand. The price elasticity of demand is when the demand increases or decreases based on the price change and can either be elastic or inelastic. A necessity is inelastic while luxury is elastic. Our product could be either elastic or inelastic because it is healthy Thai food. From our research, some customers look at it as a luxury because of the technology and the availability of cheaper options while others look at it as a necessity because it is a healthy food that they could eat near campus. Income elasticity of demand is the effect of consumer income changes on the demand. Our target audience is mainly millennials aged 25-40 years who don’t have a huge change in their income. Dynamic pricing helps improve profitability and reduce the waste of resources (Svartbäck 2021). White Elephant Cuisine will adopt portion pricing to increase profit margin and cater to the customers that cannot or do not want to finish a whole plate of food. Pricing by portion is introducing small and medium-size meals and putting prices that have a higher profit on them. Pricing by portion strategy will help the company earn a higher profit margin from people who only want half of a dish. For example, the price of a full plate of spicy Thai Basil fried rice is $12.99, we are going to have an option of half a plate for $8.99. The price is 70% of a full plate while the size is only half. The strategy persuades customers to purchase a full plate because the price difference is small. If the customer chooses half-plate, the restaurant still earns a bigger profit. The White elephant restaurant will be in a win-win situation despite the choice of the customer. In addition to portion pricing, we will have a bundle pricing strategy which is selling a variety of products as one package. The restaurant menu will have options to order a combination of two meals and a beverage of your choice as one package. The bundle pricing strategy is proven to help businesses generate more revenue and make more profit. (Ettl 2020). The pricing strategies that we are going to adopt in our restaurant will ensure White Elephant Cuisine restaurant shows its value to potential customers. It is going to determine the profit margin of the restaurant which will determine the overall success of the business. It also helps the restaurant compete with the already established Thai cuisines in Toronto, Canada. Financial Goals and Projections The reason for having financial projections is to know whether starting the White Elephant restaurant business makes sense in terms of return on investment. We are going to calculate the cost of starting the business, the potential revenue, net profit, and how to fund the operations of the business over 3 years. Income Statements White Elephant Cuisine Pro Forma Income Statement January2023 - December 2023 Net Sales $1,800,000.00 Cost of food and beverages $720,000.00 Gross Income $1,080,000.00 Gross Margin (%) 40% Expenses Wages $230,400 Insurance $2,000 Utilities $40,000 Promotion $15,000.00 Transport Costs $20,000.00 Rent $36,000.00 Miscellaneous $20,000.00 Total Expenses $361,400.00 Net Income before Tax $716,600.00 Income Taxes $50,162.00 Net Profit $666,438.00 Assumptions The sales projections assume that White Elephant will get an average of 500 customers every day who will order a meal worth an average of $10 which will be subtracted from the cost of that meal which is $4 on average. We assume the economy will be stable throughout the first year and investors will reinvest all the proceeds for the first year. The cost of production is assumed to remain the same. Profit/Loss Year 1 Year 2 Year 3 Sales $1,800,000 $2,520,000 $3,456,000 Cost of Goods $720,000 $1,008,000 $1,440,000 Gross Income $1,080,000 $1,512,000 $2,016,000 Gross margin (%) 40% 60% 58.3% Expenses Wages $230,400 $331,200 $504,000 Insurance $2,000 $2,500 $3,000 Utilities $40,000 $45,000 $55,000 Promotion $15,000 $15,000 $20,000 Transport Costs $20,000 $25,000 $30,000 Rent $36,000 $36,000 $50,000 Miscellaneous $20,000 $30,000 $35,000 Total Expenses $361,400 $487,700 $697,000 N/I before Tax $716,600 $1,024,300 $1,946,300 Income Tax $50,162 $71,701 $136,241 Net profit $666,438 $952,599 $1,783,059 Cash flow Statements This is the amount of money flowing in and out of the business including the initial investment. Cash flow statements show the working capital we would have in our business to run day-to-day expenses while also investing in future endeavours. Cash Flow Year 1 Year 2 Year 3 Cash Inflow Investments $200,000 $0 $0 Cash from Sales $1,800,000 $2,520,000 $3,456,000 Total Cash Inflow $2,000,000 $2,520,000 $3,456,000 Cash Outflow Preliminary Expenses $80,000 $0 Direct cash Spending $1,080,000 $1,400,600 $1,990,300 Cash to payables $270,400 $367,200 $554,000 Inventory Increase $20,000 $9,000 $4,000 Long-term asset Purchase $90,000 $0 $0 Total Cash Outflow $1,450,400 $1,776,800 $2,548,300 Net Cash Flow $549,600 $743,200 $907,700 Balance Sheet In the balance sheet, we have all the company’s assets, liabilities, and owner’s equity. Assets are goods in the inventory, land, real estate, and capital while liabilities are any debt that the company owes. After all the liabilities are settled, the money remaining is the owner’s equity for White Elephant Thai Cuisine. Balance Sheet Year 1 Year 2 Year 3 Assets Cash $549,600 $743,200 $907,700 Inventory $20,000 $29,000 $33,000 Long term assets $90,000 $90,000 $90,000 Intangible assets $80,000 $80,000 $80,000 Total Assets $739,600 $942,200 $1,110,700 Liabilities and Capital Accounts Payable $27,400 $28,600 $34,000 Total liabilities $27,400 $28,600 $34,000 Total owner equity by the 3rd year is projected to be $1,076,700. Industry/Sector Analysis Market Overview Globally, the foodservice industry has been severely damaged by the COVID-19 pandemic, with varying degrees of impact on different segments (Hobbs 2020). The first industries affected by rising inflation were foodservice and catering. Rest...