Hospitality Management Week 4
Hospitality Management Week 4 HOSP 1603
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This 3 page Class Notes was uploaded by Brandon Notetaker on Sunday October 2, 2016. The Class Notes belongs to HOSP 1603 at University of Arkansas taught by Kelly Way in Fall 2016. Since its upload, it has received 3 views. For similar materials see Intro to Hospitality Mgmt in Hospitality at University of Arkansas.
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Date Created: 10/02/16
Hospitality Management Week 4 (Week of 9/11/16) Chapter 5: Restaurant Industry: Chain, Independent or Franchise CHAINS Chains have strengths in seven areas: • Marketing and brand recognition • Site selection • Access to capital • Purchasing economies • Centrally administered control and information systems • New product development and • Human resource development Marketing and Brand Recognition • Chains are able to achieve a high level of brand recognition by keeping their messages simple, large marketing budgets and the additive effect (repeating the message) • The large cost of the marketing a national company is spread among a large number of units Site Selection Expertise • Much of a restaurant’s success is owed to choosing the proper site • It has become much more competitive to identify suitable sites • Choices are based upon a thorough examination of the feasibility of the site Access to Capital • This can be a challenge because of the rising costs of opening a restaurant coupled with lenders’ view that the restaurant business is risky • Options include loans from banks, friends and family, personal savings, limited investors, “going public” Purchasing Economies • The power of purchasing large quantities for distribution among different locations or entering into a contract with a company for multiple individual purchases • When one considers that food is a primary expense, the savings of 1% – 2% can be significant Control and Information Systems • Chains can also afford to purchase expensive systems with the justification that the cost will be spread across multiple units • Contrast this with the challenge of an individual operator purchasing a system beyond his or her means New Product Development • This is only becoming more important as competition increases • Large chains can afford to staff and equip development kitchens Human Resource Program Development • Again, the cost of recruiting, hiring, training, and developing is spread across multiple units • Also, human resource expertise can be centralized • There can also be disadvantages • Largely as a result these strengths, chain domination (as measured by market share) has grown over the last several years • The top 100 chains alone generate over 50% of all restaurant sales • This domination has increased from just 33% in 1975 2015 Independent Restaurants To survive independents must achieve differentiation that earn customer patronage. Flexibility and highly focused operation are Mom and pop Small operations • Marketing and Brand Recognition • Ronald McDonald • Colonel Sanders • Friendship with customers • Word of mouth advertising is more important to independents • Site Selection: ocation! • Access to Capital: bank, support from Small Business Administration (SBA) loans, venture capital groups, Initial Public Offerings (IPOs) • Purchasing Economies: have advantage to get topquality products consistently • Control and Information Systems: purchase POS systems with complex software—generates reports that are equivalent to those of chains • Human Resources: having close personal ties can reduce turnover, have high marketing to employees who are tied to community and family • Advantage: Flexibility! • Having only one boss or small partnership • Fast decisionmaking— marketing changes, menu changes, sustainability, uniforms, etc.… • Differentiation: • Personal identity of the owner • Reputation as a local firm • Choose a concept—menu, style of service, ambience & atmosphere FRANCHISED RESTAURANTS • 45% of all restaurants are franchised • QSR serving hamburgers make up the largest category of franchises • 2 kinds of franchises: – Product or trade name franchising (Coke, Toyota dealership) – Business format franchising (use of product and service—access to and use of other systems and standards) – This franchisee has a substantial investment beyond that has daytoday operating control and responsibility – The essence is an agreement between the franchise and franchisee to follow the franchise business system • Characteristics of a franchise agreement: – Use of trademark – Location of franchisee – Term of franchise – Franchisee’s fees and other payments – Obligations and duties of the franchisor – Obligations and duties of the franchisee – Restrictions on goods and services offered – Renewal, termination, and transfer of franchise agreement – Also: operating procedures, advertising and promotion, training and accounting services • A welldeveloped franchise minimizes risk • Offers the following services: – Screening – Financing – Site selection and planning – Preopening training – Operations manuals FRANCHISE SERVICES…. • Once a unit is up and running for a year or so, advice and assistance are most crucial • Such services are: – Operating and control procedures – Information management – Quality control – Training – Field support – Purchasing – Marketing – Advertising – New products – New concepts FRANCHISEE’S VIEW • Drawbacks from owning a franchise: – Loss of independence – Payment of substantial advertising assessments – Franchise fees • Advantages: – Recognizable brand – Attested product & service concepts – Technical assistance FRANCHISOR’S VIEW • Advantages: – Investment in a new unit – Expand rapidly w/out use of its own capital – Good source of knowhow • Disadvantages: – Find their own stores yield higher sales and profit margins – Higher profits from stores they own Chapter 5 Vocab 1. Publicly Traded Companies – Stock is traded can gain from investors 2. Small Business Administration – Helps small business get bank loans 3. Initial public offerings – Sale of stock through underwriting firm of stockbrokers 4. Business format Franchise – franchise used in hospitality. Requires use of product and any other services of the company 5.