Business and Management Internal Assessment (HL)

To what extent will moving to a new location help Mirch Masala increase revenue?

Candidate Name: Varsha Raghav Candidate Number: 001123 013 Word Count: 1989 School: Beijing BISS International School Session: May 2012

Table of content:
1. Executive Summary .......... 3

2. Research Proposal ............. 4 3. Methodology ............... 5 4. Key areas of syllabus .......... 6 Findings and analysis: 5. Survey results ............. 6-8 6. Financial Data .......... 10 7. Profitability Ration ........ 11 8. Comments from SWOT ......... 12 - 13 9. Conclusion .............. 14 10. Appendix. ............. 15-16

Executive Summary
After having a talk with the with the owner of Mirch Masala, it was evident that this business was struggling with finance after having a look at the financial data presented. Keeping this in mind the research question To what extent will moving to a new location help Mirch Masala increase revenue? seemed like a possible investigation to undertake. The method by which this investigation took place is by using the various aspect of business such as surveying the potential as well as existing customers. Certain set of questions were presented to the customers. Also, a SWOT analysis for Mirch Masala was made highlighting the Strengths, Weaknesses, Opportunities and Threats. Financial data was used in creating the Gross Profit Margin and the Net Profit Margin. In conclusion, the recommendation made to Mirch Masala was not to move to a new location as that would be rather costly seeing that the current net profits was decreasing. Instead Mirch Masala, should focus on improving the management of the staff and take in consideration of a better lighting as well in the restaurant.

Research Proposal:
Mirch Masala an Indian/Pakistani restaurant that is situated at the North gate of Ritan Park, Beijing, China. It serves the authentic flavors from India Pakistan along with other regions located nearby making it a restaurant often dined at. The former owner Daya Shanker was from New Delhi but recently he handed the restaurant over to Al Najeeb who is ethnically from Pakistan but lived in London and has a Chinese wife. It was an Indian based restaurant before when Daya was handling the business but with Al Najeeb in charge he has decided to add Pakistani flavors to the dishes. Generally speaking, everyone has his or her own preference of food yet if our favorite restaurant moves to a new location we find an alternative to the preferred item. I decided to do this business because I am a food lover and Indian cuisine is one of my favorite types of cuisine that I can have. As a customer to Mirch Masala, I put some thought into the location as well as to question myself what made me a loyal customer. It will be interesting to see if a change in the location of Mirch Masala and will have an effect to its revenue as location plays an important role in the running of a business because with a good location a business can flourish or wither because of a bad one. The change in location is an important aspect because low revenue in a business for the long term will lead to Mirch Masala having to exit the market because of the high competition around the restaurant. After the change in ownership from Daya to Al-Najeeb there is a significant drop in the sales revenue in low thereby creating a low profit for the business. During the interview with Al-Najeeb, he mentioned this decrease in profit from Yuan 168600 in 2009 to Yuan

40988 in 2011. As an opinion, I fear that the location isnt that great of this business hence the formulates research question: To what extent will moving to a new location help Mirch Masala increase revenue?

Methodology:
Primary research:
1. Interview with Al Najeeb
Interview is a primary resource method; this method will allow me to gain some crucial information about Mirch Masala. This is vial to the assignment because based on the facts presented about the business I can find and analyze what the relation with the location and the revenue earned will be. The advantages of primary research are that it is confidential in respect to the other competitive business and it is usually up to date. The interview will allow me to verify as well as make spontaneous questions.

2. Survey + questionnaires
Qualitative survey will be conducted which will help in understanding the reasons why people picked Mirch Masala over any other business. This type of survey aims at understanding the workings of the people and the reason why they do something that they do. There will be a few qualitative questions in order to aid the research question in terms of the revenue received.

Secondary Research:
3. SWOT
SWOT is a strategic planning tool that businesses and organizations use assess the current and future situation of a product, brand, company, proposal or decision. There are internal factors, namely Strengths and weaknesses that a company can focus on and try to make better their position in the market. There are also external factors, namely Opportunities and Threats that a company cannot control and just have to find a way to get around a particular hurdle.

4. Location analysis
Location plays a vital role in the success of a business because a location is a fixed asset in terms of rent. If the rent is high and the revenue is low then it would do no good to the business because having a high cost and low revenue is pointless. Survival is key and to survive, profit plays an important part. The business might also be situated in a posh area ensuring that residences with highincome band would visit the business more often.

Key Areas of Syllabus:

1.6 Organizational Planning Tools SWOT Analysis 3.6 Ration analysis Gross Profit Margin Net Profit Margin 5.5 Location 4.2 Marketing planning Interview Surveys Questioners

Findings and Analysis:

Survey results
In order to conduct a survey, a questioner was made with the questions relevant to the research question. A total of 80 people were surveyed over the course of time that included both the customers of Mirch Masala and the non- customers of Mirch Masala as to have an overall idea about the weaknesses and the reason for their disinterest in the business. With the information gathered from these questions shown below are the results of the questions in order that was asked.

Figure 1.
The results of the regularity to the restaurant is depicted with the help of a pie chart as to make it more evident that 40% f the 80 people that were surveyed were regular customers to Mirch Masala who dined once a week which made up most of the answer. The second most common answer was once every 2 weeks with 30% followed up with 20% people stating that they dined 3 times a week. From this result it is safe to state that the regularity of the customers to Mirch Masala is a appreciated and that Mirch Masala has a sense of customer loyalty.

Which brings us to the second question in which they were asked the main reason to visit Mirch Masala and the most common answers were related to the quality of food and their interest in Indian cuisine as well as the fact that this was the closest restaurant to their place. So in, it is evident that the quality of food is not the problem and in order to have a boost in sales revenue Mirch Masala does not need to change the menu or even hire a new Chef.

Figure 2.
The third question revolved around the location of the restaurant and from figure 2, the 60% of the regular customers lived within 1-2kms from Mirch Masala and 25% people lived in a range of 2-5 kms. 10% lived 5kms or more and 5% didnt even live in Beijing. For the regular customer might be a normal occurrence to dine at Mirch Masala while taking a stroll. And in the fourth question a majority with 80% people said that they would no longer be interested in Mirch Masala if they moved to a new location being An Zhen Xi Li. Therefore, it is safe to say that the location is a vital part in the sales revenue.

Figure 3.

Question five is a follow for the people who would still visit Mirch Masala despite the change in location. This is a positive aspect of the business because this gives them the insight to the good doings and the positives of the business. A majority of people with 75% said that they would still visit Mirch Masala for the quality of food which they serve. 10% said that is would be of convenience to them if Mirch Masala moved locations and 5% stated for the quality of service. Whereas in question 6, all of the surveyed people replied with the same answer: too far of

a distance.

Financial data
2009 Sales Revenue Fixed costs Costs of sales Other costs Profit/Loss 298000 45000 75000 9400 168600 2010 220000 49000 80000 10480 80520 2011 176000 50000 75000 10012 40988

Figure 5.
From the financial data presented it can be noted that when Daya was in charge, the profit was relatively high in the year of 2009 with Yuan 168,600 as opposed to the profit in 2011 of Yuan 40, 988 when Al Najeeb is in charge. In addition, there was an overall decrease in the sales revenue with Al-Najeeb. This might be because of the new ownership of the business that he needs to get used to the ethics and the framework of the business. Mirch Masala needs to focus on its weakness to overcome this problem of a lower profit in comparison to the previous years. Also, due to a good reputation in the international market, Mirch Masala does not need a heavy promotion to lure in customer. It might not be a good idea to change locations because a large amount of revenue comes from the residence of the area and there is no telling about the uncertainty if they shift to another far location. Seeing the increase in fixed costs, the restaurant might be expanding its business with more machinery or the rent might have increased due to the inflation in rent. This is not good because the other costs are increasing.

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Profitability Ratio:
Gross Profit Margin
Gross Profit margin (GPM) shows the value of gross profit as a percentage of sales revenue. It can be found in the firms profit and loss accounts with the formula:

The Gross Profit margin for 2009 is 74.9% The Gross Profit margin for 2010 is 63.7% The Gross Profit margin for 2011 is 57.4%

Net Profit Margin

New profit margin shows the percentage of sales turnover that is turned into net profit. This is the profit that is left after all the costs of production (direct as well as indirect) have been taken into account. It can be found in the firms profit and loss accounts
with the formula:

The Net Profit margin for 2009 is 56.6% The Net Profit margin for 2010 is 36.7% The Net Profit margin for 2011 is 23.3%

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Comments from SWOT

Strengths
Good Quality of food Good customer Loyalty Location Cuisine style (Indian, Pakistani with surrounding regions) Internationally well known

Weaknesses
Poor service The loss of customers Too dependent on the existing customer body.

Opportunity Living in a possibly high revenue

receiving area Shopping area

Threats
A new business entering the food business. Inflation in the rent prices

Figure 4.
SWOT is a strategic planning tool that businesses and organizations use assess the current and future situation of a product, brand, company, proposal or decision. There are internal factors, namely Strengths and weaknesses that a company can focus on and try to make better their position in the market. There are also external factors, namely Opportunities and Threats that a company cannot control and just have to find a way to get around a particular hurdle.

The main strength of Mirch masala is the high quality of food that they serve. Majority of the customers were satisfied with the food that was offered to them. Based on the surveys, Mirch Masala seems to have a fairly good customer loyalty due to the location in which the restaurant is located. The strengths of the business is an internal achievement and to ensure a firm state in the intentional market as well as the local markets. The style of the cuisine (Indian with Pakistani) seems to be popular amongst the foreigners along with the native Indians living abroad; it gives them a feeling of being back home and having their own spices.

The reason for the potential customer going with the alternative of this is because of the poor quality of service. After Al Najeeb took charge of the business, he didnt hire any waitress which slowed down the serving of the food and led to the poor quality of service. From experience, when I dined at Mirch Masala, the wife of Al Najeeb was serving for the whole restaurant, which of course delayed the food, and it came to us in a cold manner. If the existing customers leave the business then it would be a problem for them as most of the customers are the residence of the Ritan Lu area.

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An Opportunity for the business is situated at an area that might provide Mirch masala high revenue. In relation to this, the Ritan area has a lot of shopping malls and is a relatively shopping sight for the tourists. This is an opportunity because shopping can be considered as a tiresome activity.

The threats to this business is that with the establishment of new Indian cuisine restaurants there is a possibility that Mirch Masala might loose its customers to clustering of business. Also with the high possible inflation in China regarding rent, this could be an obstacle in the growth of Mirch Masala where its Average Total Cost might be higher than its Profit. In this situation the business has to formulate a plan to ensure the high potential profit.

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Conclusion:
To answer the research question of To what extent will moving to a new location help Mirch Masala increase revenue? and based on the findings and results, it is not advisable for Mirch masala to move to a new location. Based on the survey conducted with the customer that visited Mirch Masala, about 40% people said that they lived within 1-2 kms of the restaurant hence it was fairly common for them to dine there over any other restaurant in the Ritan Lu area. One of the other reasons that ensured customers to keep coming to the restaurant was because of the magnificent quality of food that consists of the spices of India and the cuisine of Pakistan. Location is important for Mirch Masala because many of its customers are within walking distance and they often visit while on a stroll. Also a majority of customers such as 80% said they would no longer visit Mirch Masala and find alternatives for Indian/Pakistani cuisine because of the distance itself. They believe that the new location would be too far for them to travel. It is also evident from the research that the location is not the only reason for the low customer loyalty but also because of the poor quality of service along with the poor lighting. With Al-Najeeb in charge, he hasnt got any waitress to cater the serving of the food item. So, a suggestion to Mirch Masala would be that as it a positive aspect that it serves a high quality of food but to ensure a more customer body, they should focus on improving the quality of service and lighting to bring back the former customers.

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Appendix.
Survey results:
1. How often do you visit Mirch Masala? i. 3 times per week - 20% ii. Once a week 40% iii. Once every 2 weeks 30% iv. First time 10%

2. Why did you pick Mirch Masala for lunch over other restaurants in the area? Love Indian food Closest restaurant Visited before and liked it 3. Where do you live/work? i. 1-2 kms from Mirch Masala 60% ii. 2-5 Kms from Mirch Masala 25% iii. 5+ Kms from Mirch Masala 10% iv. Not in Beijing 5%

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4. Would you still visit Mirch Masala is it moved to An Xin Shi Li? If yes, answer 4. If no, answer 5. 80% replied with a negative answer. 5. Why would you visit Mirch Masala even if they moved to An Xin Shi Li? i. Quality of service 5 % ii. Quality of food 75% iii. Convenience 10% iv. Other 10%

6. Why wouldnt you visit Mirch Masala if they move to An Xin Shi Li? Too far of a distance.

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