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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 of Upstairs Renovation
Answer
The upstairs renovation presents several advantages. By doubling the number of covers from 24 to 48, the restaurant would significantly increase its potential revenue. Additionally, the cost of renovation (£140,000) is justified by the potential for increased customer capacity and the introduction of private party bookings, which would allow for higher revenue during peak seasons.
Moreover, extending the premises could create a long-term competitive advantage, as the increased seating capacity might attract more patrons, especially during busy periods. However, it is critical to consider the potential risks, such as possible delays in renovations that could disrupt business during peak months.
Furthermore, the additional cost for replacing the lighting with LED fixtures and redecoration (£600) appears minimal compared to the expected financial benefits.
Step 2
Evaluate the option of External Catering
Answer
The external catering option offers unique opportunities to tap into the local business market within the Cathedral Quarter of Derby. It presents less disruption as it does not require physical renovations to the restaurant. In this regard, the business can continue operations while generating additional revenue from catering services.
However, the closure of the restaurant for two weeks in December could be detrimental, as it coincides with a busy season. This could lead to lost sales and may alienate regular customers who rely on the restaurant for dining during the holidays. Moreover, there might be a learning curve for existing staff in managing external catering events, which could lead to unforeseen training costs and operational inefficiencies.
Despite these concerns, if properly managed, external catering could provide a diverse revenue stream, leveraging the restaurant's existing expertise in food preparation.
Step 3
Recommendation
Answer
After assessing both options, I would recommend that Holly and Andy proceed with the Upstairs Renovation. This option not only has the potential for immediate financial gains through increased seating capacity but also opens avenues for future growth. By enhancing the physical space of The Wonky Table, they would likely attract a wider customer base, including private parties and events.
While external catering is a viable option, it carries significant risks related to operational disruption during a key sales period and may not guarantee immediate financial returns. Prioritizing the renovation aligns with a long-term growth strategy, ensuring The Wonky Table remains competitive in the local market.