Team FOctober 4, 2009

Increasing Sales and Profitability at Pala Restaurant

Situation •Pala, a boutique Italian Restaurant located on the 2nd floor of 1 Lan Kwai Fong, began operations in March 2009.

Complication •The restaurant has been suffering from low sales due to low consumer awareness, stiff competition, and the recessionary environment.

Question •What marketing strategy and tactics should Pala Italian Restaurant employ to increase sales and profit within six months?

Answer•Pala should focus on its mid-level position within the LKF restaurant industry, target

local companies and professional organizations through direct promotions, and encourage repeat customer visits by delivering on expectations and leveraging customer relationship management systems.

Rationale

• Pala’s current value proposition resonates with the corporate and professional organization target segment and few restaurants are targeting this segment.

•Pala can drive new sales growth by employing direct promotion to local corporations and professional organizations

•Pala can improve the alignment of its product with the target customer and leverage its CRM to drive repeat sales.

The Story

Point 1: Mid market is less saturated

20-100 100-250 250-5000

2

4

6

8

10

12

Range of Meal Price

Range of meal price

Num

ber o

f res

taur

ants

Pala’s mid-level position can be leveraged as there is less competition in this space.

Source: Competitive analysis

Point 1: Pala is well-positioned to serve local corporate clientele

Source: Consumer Survey

(Ei) How desirable are Food Quality, Service, Ambiance, Price, and Location when choosing a restaurant? (Bi) How would you rate Pala on Food Quality, Service, Ambiance, Price, and Location?

The local corporate clientele responses placed higher values in areas where Pala excelled at, whereas Expats placed higher values in areas Pala rated lower at.

(Scale: 1-10)Food

Quality Service Ambiance Price LocationExpats (Ei) 8 8 6 4 6Local HK (Ei) 7 5 4 8 6Customer Survey (Bi) 6 6 5 8 6

Point 1: Pala’s location does not attract tourists or expats

Consumer survey shows 9 out of 10 expats and walk-in traffic prefer ground floor restaurants in LKF

Source: Consumer Survey

Point 1: Pala’s signage is unnoticeable

Attracting tourists and walk-in may be difficult given that Pala cannot do much to change signage.

Source: Food blogger http://jason-bonvivant.blogspot.com/2009/05/pala-italian-restaurant-bar.html

“If it wasn't for my friend's reminder, I almost did not realize that Baci in LKF has changed to PALA a few months ago. Tonight we gave it a try. Its neon-lighted name on the building's wall is actually quite visible from afar and I am really surprised I did not notice it even when I had dinner earlier this week at Thai Lemongrass right across from it.”

Point 1: Expats refer to more expensive advertising methods

References used to choose a restaurant

Source: Consumer Survey

Source: Consumer Survey

Responses to: Would you try Pala if they offered your company a corporate discount?

Point 1: Opportunity to encourage sales and increase awareness through “Company of the Month” corporate discounts

Point 2: 45% of corporate employees eat dinner at restaurants

Percent

RestaurantsFast FoodConvenience StoreHomeN/A

Source: Published Industry Research

Percent of corporate employees who eat dinner at various venues.

Point 2: 15% of patrons attending a group event return to the restaurant within 3 months

3 Months 6 Months 12 Months

Never05

1015202530354045

% Returning

% Returning

Source: Restaurant Data

Percent of patrons who returned after attending an event at the restaurant.

Point 3: Customer experience is a primary driver of repeat sales

Source: Restaurant Industry Market Survey

Responses

0 1 2 3 4 5 6 7 8

LocationCustomer Expe-rienceType of Cuisine

Responses to: What factors are important when determining whether to visit a restaurant after the first visit?

Point 3: Customer perception can be improved by 10% by focusing on Service and Ambiance

Source: Customer Perception Analysis

Food Quality

Service Level

Ambiance Price Location

Actual 4 3 2 3 2

Expected 4 4 3 3 3

Rating from 0 to 5 of customer perceptions.

Point 3: An increase of $15,600 monthly profit can be achieved by implementing an effective CRM campaign

Source: Marketing Journal and Competitor Analysis

Approach Contacts Response Rate

Additional Customers

Average Spend

Margin Profit

Newsletter 12,000 1% 120 $250 15% $4,500

E-Coupon 12,000 2% 240 $350 10% $8,400

Event Promotion

12,000 0.5% 60 $300 15% $2,700

Profit generation from various CRM campaigns.

Appendix: Interview Status

Role Name Interviewer Date

CompetitionRavi Beryar (Manager of Tuscany by H) Kevin  Done

Competition Jojit Au Yeung at Fat Angelo’s Todd Marchal Done

Customer/Potential Customer

Customer/Potential Customer

Anthony  30-Sep

Person on Street Random person Ana 6-Oct (rescheduled due to rain)

Food CriticJoanne Baker(freelance writer and occasional food critic)

Andy 01-Oct

ManagementJoanne Leong(PR/marketing manager of Pala)

Anthony, Ana Done

Appendix: Interview Guide for Management Interview with Joanne Leong at Pala restaurant, 6:30 pm, September 24Build rapport, thank her for her time in advance, introduce new people to the team, explain that she is a very important resource and we would like to tap into her expertise and knowledge of the business.Recap what we already know about their goals- to increase sales, build brand awareness…Aside from the goals we mentioned, are there any other areas of improvement you would like to look at, any strengths you want to capitalize on?Management Views:On consumers:Who is your target market? (there may be multiple potential markets) Please cite these and put in order of preference.

Could there be any tension between the different segments/demographics she is targeting? In a few sentences, what is Pala’s UNIQUE selling point? Isn’t this their boutique Italian restaurant proposition? What is its competitive advantage? Why do your customers choose to come to Pala rather than to your competitors?Describe customer you would like to attract (e.g. businessman, family, age, local or expat, living close by,)? Can you give us the stories of three typical customers that come in; name age background industry sector and the way the use the restaurant etc?What is the profile of customer who currently come to the restaurant? Do you see a lot of familiar faces? Do a large number make reservations before coming? Are they walk-ins? How did they find out about the restaurant? (Was it through flyers? Word of mouth? Passing by?)What %age of customers return after their 1st visit?How do you think consumers perceive Pala restaurant? How do you think they perceive food? Location? Service? Ambiance? Price? What has led you to think that that is how they perceive it? Have you received customer feedback you could share with us?Would you mind if we gathered separate independent customer feedback [at this stage perhaps seek consent in order to do the interviews etc?Given that you would like to increase sales in the restaurant, what do you think are the best solutions? Have you tried any before? if yes, did it work? if not, how do you think it will help?On competition:Who do you view as competition? (aside from restaurant across street) Do you view competition as other Italian restaurants or all restaurants in the area?How do you feel about restaurants in the rest of Central – Hollywood road or SOHO- do you view them as competition?What are your competitors main strengths? In relation to these how do their customer offerings differ from your own?How do you feel about location? Being on first or 2nd floor? What is advantage and disadvantage of being on 1st floor? What is advantage of being on 2nd floor?What tactics are other 2nd floor restaurants taking to increase sales?

Appendix: Interview Guide for Management continuedOTHERS:

How did the name Pala get chosen? Any meaning behind it?Strengths/weaknesses of Pala?What do you think is the best way to create awareness for the restaurant? What options can you explore within the building to build more awareness? E.g. Can you put a bigger sign? Could you put someone at reception downstairs?What elements of change do you think would be automatically ruled out in any recommendations that we made?Who designs menu? Both food choice and design of menu? Has the menu changed since opening?What techniques are employed for improving the quality of the food/dining experience?How are waiters trained? Do you give out manuals?What sales tactics are employed? Are your waiters encouraged to sell certain items? Any tactic employed to sell wine/alcoholic drinks in any way?Are your waiters incentivized to maximize sales or paid fixed salaries? How does this compare to competition?Have you tried to get listed on restaurant review websites? Guidebooks? Do you think this is important in getting the name out?Have you had any English spoken restaurant reviews?What events have been held at Pala in the past?Would you cater to host business meetings at the venue? Has it been done in the past?

Financials:

What are the major financial goals set for the restaurant? E.g. sales growth target for the 1 st year, 2nd year etc?How are the staff judged? Do they have appraisals? What are their KPIs? What are your KPI’s?Ask if she would be will to share specific financial data as below. A range is ok.

Number of sales receipts per month, Total Sales per month in $, Weekday Sales per month in $, Number of weekday sales receipts, Weekend Sales per month in $, Number of weekend sales receipts, Total food sales per month in $,Total Alcohol/Wine sales per month in $ Gross Margin for Food Sales in %, Gross Margin for Alcohol/Wine Sales in %, Total Advertising (posters/flyers) Expense in $

Total Number of employees, Number of managers, Number of servers, Number of chefs, Number of kitchen staff

Appendix: Interview Guide Food Critic

Restaurant Critic Interview GuideInterview with Joanne Baker, September 30 -Establish rapport; recognition that they are the expert in the field. They can really help. Thanks-Determine time limits etc.Broad intro: What are the key elements of a good restaurant?Taking me through the whole dining experience what do you look for at each step as a marker of quality?Using a chronological structure I’ve attempted to map the dining experience best as possible. What are the main drivers behind each section, what are the hallmarks of quality, please cite examples of restaurants that do a particularly good job. Choosing

What elements do you look at when choosing your choice of restaurant for personal dining?What resources do you use?For a new restaurant what do you think are the low hanging fruit for getting ‘chosen’ by a customer in HK?Getting Reservations What makes for a efficient reservation system?Any novelties when you’ve made a reservation that have made an impact?Entering

The Facade What grabs your attention about the façade of restaurantWhen a restaurant is not on ground level what things resonate with you to try it?How would you optimise the street presence of a 2nd Fl restaurant?Welcome

What do you expect in a welcome?Can you recount the last time a welcome in a restaurant really resonated with you? Can you recap the key elements of this?For a welcome to be memorable what would you do if you owned a restaurant? 

Ambience Given that our target demographic is x x x x; what things would expect to see in the following categories of ambiance? Given the nature of the restaurant as a boutique Italian restaurant what would you expect?Music Decor Lighting Crowd

Appendix: Interview Guide Food Critic continued Dining Service

What are the main contact points between you and the waiting staff?Go through these individually Waiting staff knowledge Menuappetizers, entrees , wine list, desserts The Dining ExperiencePresentation

Table LayoutWine glassesCutlery

Preparation Freshness Variety Originality or conceptualization Paying PriceValue Presentation of the BillConsidering another visit What are the key drivers and factors?How have restaurants effectively managed to bring you back in?Are there any restaurants that you’ve been to and were unimpressed yet returned to regularly? If so, why?What makes good VIP card etc?Other meals served--lunch brunch Special eventsWhat events that you know of are currently put on by restaurants?Which have most impact?Why are these successful?Italian Restaurant Specific Questions

What specific elements things in all of these categories would you look for in an Italian restaurant? Have you ever been to Pala Restaurant? If so go through the above…

Appendix: Interview Guide Person on the Street

Person on the Street Interview GuideInterview with Random People in LKF, September 30

- purpose is to get insight what factors he/she considers in choosing a restaurant by walking by? Also to test awareness of Pala and get some suggestions. -Establish rapport; introduce as a student conducting a study and that it shouldn’t take much of their time. Thanks  Choosing a restaurant

If you were looking for a restaurant to eat at in Lan Kwai Fong, what elements would you consider in choosing the restaurant? If responses are not rich or specific try to probe as follows: Does cuisine matter?What would grab your attention about the façade of restaurant?Does location matter? 1st vs 2nd floor? How?Does price matter? How?Does menu selection matter? How?Would having a server call you in matter?Would you respond to promotion i.e. discount coupon? Pala Specific Questions:

While walking by did you notice there is a restaurant called Pala there?What type of food do you think they serve?Would you try it?What would make you want to try it? Ask if HK resident or not.

Appendix: Interview Guide Competition

Purpose:Acquire a multi-angle picture about the restaurant industry in the area.Learn how Pala’s main competitors operate and differentiate their businessSee how other restaurant look at Pala

Interviewee candidate:The restaurants located around Pala, especially Italian foods:Tutto Meglio Sapore FiorentinoTuscany by HIl MercatoDiVino Wine Bar & RestaurantTivoBistecca Italian Steak HouseW52IL PADRINO

ProcedureMake an appointment with one of candidates availableIntroduce ourselves as MBAs undergoing marketing surveyDirectory conversationAsk for questions and suggestionsThank-you note

Targeting issues:

Background and picture of the restaurantThe overall situation dining industry in LKFIts marketing and business strategies: positioning, customers, promotion and strengthWho are their competitors and how to compete themThe prospects of LKF dining industry

Appendix: Interview Guide ConsumersAge: Gender: Occupation: HK local, Expat, Tourist:How often do you eat out? ____ days a week ______ meals a dayWhat day of the week do you eat out? Have you eaten at Pala Italian Restaurant?  When choosing a restaurant, how desirable is good customer service?Undesirable -3 -2 -1 0 1 2 3 Desirable When choosing a restaurant, how desirable is good food?Undesirable -3 -2 -1 0 1 2 3 Desirable When choosing a restaurant, how desirable is a nice ambiance?Undesirable -3 -2 -1 0 1 2 3 Desirable When choosing a restaurant, how desirable is a good location?Undesirable -3 -2 -1 0 1 2 3 Desirable When choosing a restaurant, how desirable are low prices?Undesirable -3 -2 -1 0 1 2 3 Desirable ----------------------------------------------------------------------------------------------------How likely is it that Pala’s food is good?Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Pala is in a good location? Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Pala’s has low prices?Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Pala’s ambiance is nice?Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Pala’s customer service is good?Unlikely -3 -2 -1 0 1 2 3 Highly Likely --------------------------------------------------------------------------------------------------- How likely is it that Tuscany’s food is good?Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Tuscany’s is in a good location? Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Tuscany’s has low prices?Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Tuscany’s ambiance is nice?Unlikely -3 -2 -1 0 1 2 3 Highly Likely How likely is it that Tuscany’s customer service is good?Unlikely -3 -2 -1 0 1 2 3 Highly Likely  ------------------------------------------------------------------------------------------------------------------------------------------What resources do you use to pick a restaurant to eat in?  When you think of an Italian restaurant, what do you think of? When you think of an Italian restaurant in Hong Kong, what restaurant do you think of first? How did you learn about Pala?  If you had to choose between eating at Pala and eating elsewhere, where would that be? Would you recommend Pala to your friends?

Appendix: Live Workplan

Microsoft Office Excel 97-2003 Worksheet