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Using the data in Extract G and SWOT analysis, evaluate each option and recommend to Holly and Andy which one might be better for them to increase profits - Edexcel - A-Level Business - Question 2 - 2022 - Paper 3
Question 2
Using the data in Extract G and SWOT analysis, evaluate each option and recommend to Holly and Andy which one might be better for them to increase profits. Extract ... show full transcript
Worked Solution & Example Answer:Using the data in Extract G and SWOT analysis, evaluate each option and recommend to Holly and Andy which one might be better for them to increase profits - Edexcel - A-Level Business - Question 2 - 2022 - Paper 3
Step 1
Evaluate the option: Upstairs renovation
Answer
The upstairs renovation aims to increase the number of covers from 24 to 48, thus potentially doubling the revenue during peak times. This strategy aligns with increasing customer capacity, which can lead to higher overall sales. However, it comes with a hefty investment of £140,000, which may require significant time to yield a return on investment. Additionally, the added costs of redecorating and upgrading to more efficient lighting, amounting to £600, must be considered.
Strengths of this option include:
- Potential to boost sales significantly and enhance reputation through the improved service environment.
Weaknesses include:
- The high initial investment and risk involved if the renovation does not result in expected customer increase.
Moreover, delays in obtaining furniture could affect profitability, especially during busy months.
Step 2
Evaluate the option: External catering
Answer
Providing external catering presents a lower risk option with a possible immediate demand from local businesses. This approach enables The Wonky Table to tap into additional revenue streams without the need for a significant capital investment upfront. The estimated cost for enhancing the facilities needed for this service is £8,000, which is far less than the renovation costs. This option allows flexibility and minimizes disruption to the existing restaurant operations.
Strengths include:
- Less financial risk and the ability to start generating income quickly.
Weaknesses include:
- The necessity for trained staff who may not currently possess the right skills for external catering, requiring additional training time and resources.
Furthermore, the loss of restaurant sales during the weeks of closure for renovation could hurt The Wonky Table’s optimal performance, particularly during December, a peak month.
Step 3
Recommendation
Answer
Based on the SWOT analysis and evaluation of both options, the external catering option seems more viable for Holly and Andy to increase their profits. It offers a lower risk, an immediate alternative revenue stream, and less financial commitment compared to the extensive renovation. This way, they can preserve money and potentially re-evaluate the renovation strategy in the future when the business matures or when funds allow for a more feasible renovation plan.