Executive Summary
The profits of Sylvia’s bar have dropped significantly, showing that its performance is poor. This is attributed to the following: high priced low-quality food and drinks, poor old entertainment services, high labor wages and increased competition. These factors have led to reduced number of customers due to low demand of the firm’s products and under-utilization of the staff, hence lower productivity and reduced profits (Hulten 2000: 25). This calls for specific measures to reduce the effects of these trends. First, the firm should used appropriate economic tools to ensure that the prices of food and drinks are reduced. Secondly, new fashioned entertainment services should be introduced. Thirdly, the staff’s wages should be reduced. Alternatively, some of the employees can be laid off. Finally, the bar may relocate to a good location where customers prefer over the current site. It may also improve its quality and create unique brands to reduce competition.
Introduction
All businesses around the globe aim at making a substantial profit for the entire life of the business. Simply, they should give the business owner good returns on their investments for a long period into the unforeseen future (Fort 2001: 3). However, this is not the case in our case study. Sylvia’s bar used to do quite well in its initial stages of operation, but is now in its downward trend in most of its business aspects. While it is plausible to postulate that the ultimate goal of a business is to make profits, Sylvia’s bar seems to be operating in a reverse direction – making losses. This notwithstanding, Sylvia’s competitors are flourishing with success. From the table of profits provided we see that the profits of Sylvia’s bar fell drastically over the years from 2005 to 2011. This is against the purpose and expectations of any business. This report, therefore, looks into the pros and cons that Sylvia’s bar needs to address in its attempt to redeem its past glory of profit making. In this regard, the right procedures and mechanisms have been used to arrive at a conclusive opinion on the status of the case study.
The first step taken was to study the bar’s position as provided by Sylvia. The various aspects given were studied in depth while considering several guidelines of running a successful business. The relationship that exists between a business and its stakeholders was then considered. This was boosted by a survey of the staff and the customers of Sylvia’s bar. By linking the services provided by Sylvia’s bar to the needs of its customers we arrived at the flaws and strengths of this firm. This business reforms paper finally provides recommendations on how to deal with the obstacles implicit in the business aspect of Sylvia’s Bar. However, the provisions of this paper will not be conclusively drafted as the only solution to Sylvia’s problem. It is just a guide to help her in the quest to bring the business back on its foot.
Findings
From the analysis of the data provided by Sylvia’s bar regarding its profitability, it is evident that the profits of the bar have been dropping each year since 2005, reducing from 3500 sterling pounds in 2005 to -400 in 2011. This decrease in profits has been attributed to various problems: High costs and expensive food and drinks, underutilized and costly staff, reduced customer base and competition from other bars and clubs. Sylvia’s bar is offering very expensive menu. For instance, the cocktail menu has drinks starting at 8 sterling pounds and goes up to 12 sterling pounds. The food menu is also high. This is why there is a fallen demand for food in the bar over the years. In fact, the analysis of the bar shows that the bar often throws away some of its ingredients resulting in a loss of 350 sterling pounds per month. Therefore, in order to maintain its customers and increase the demand of its food and drinks, the bar should work towards the reduction of the menu prices so as to increase demand for the food offered. This is in accordance with the theory of demand which suggests that as prices fall demand rises (Silberberg & Suen 2001: 65). However, reducing menu prices may result in further losses if other costs of preparing a dish are kept constant. Therefore, the bar should reduce the cost of preparing a meal. This can be done by applying the process of portion control (Wansink 2005: 12). In this process, the cooks should use an effective way of preparing a cost-effective mix of ingredients that is used in every dish. This portion of ingredients should be used equally in each dish served. The bar may also purchase pre-portioned food materials so as to save the money on staff and reduce food waste.
A well balanced menu may also be designed to diversify on the kind of food and ingredients used. As prices of some items rise, it is advisable to balance them with other less expensive items while preparing a meal. This creates a portfolio of items that will reduce the risk of loss when the prices of some items rise. Therefore, a balanced menu helps the bar to keep its menu prices low so as to increase demand for its meals. The second cause of the reduced profitability of Sylvia’s bar is the use of classically trained cocktail bar staff who demand high wages. (Deakin & Wilkinson 2005: 67) suggests that when a firm experiences profitability problems the first target in attempting to reverse the situation is labor. Reducing labor costs requires the staff to be laid off or their wages to be reduced. Currently, the staff working for Sylvia’s bar demand high wages, yet the firm is making losses. If this business is meant to make profit, then one of the most viable alternatives is to lay-off some of the staff workers or persuade them to accept a cut in their wages, at least in the short run before the business starts to make profits (Dhyne & Druant 2010: 15). It is unrealistic to keep workers who demand high wages yet they have little to do after customers have opted to go to other sides of town where they receive high quality services. In a survey of the staff, it has been noted that customers are always idle especially during the night because they rarely receive customers. This is an ideal example of underutilized labor. For a firm to receive full value of its workers, it should ensure that they are productive at all times.
One of the staff members also complained that the kind of uniform they wear is not fashionable for a bar. In fact, she says that she feels as though she works for a church and not a bar. This clearly indicates that the staff requires more motivation through provision of a better environment and favorable terms and conditions of work. (Robbins & Judge 2007: 89) argue that motivating employees enables them to perform better, attract more customers and increase productivity. From the interviews of customers, it was also found that the problem leading to decreased profits in this firm is the reduced customer base attributed to two factors; the use of old fashioned mechanisms to attract customers, poor quality services and high prices. Some interviewees cited the quality of food and the environment in which the bar is situated to be the reasons for them not to use their services. In this regard, the Sylvia’s bar should resolve to better ways of attracting its customers. For instance, the use of old music to entertain customers should be phased off and a new music system and style introduced. This is aimed at meeting the demands of the majority of customers. In economic theory, the main function of a firm is to prioritize the interests of its customers and clients (Anthony 2005: 72). The firm should strive to satisfy the needs of its customers over those of other stakeholders.
Finally, one of the major issues of concern is the persistent competition prevalent in the industry. Firms offering the same services as those provided by Sylvia’s bar have come up. In fact, they are situated in good environments preferred by customers by customers over the High Street. Furthermore, they offer quality food and good recent entertainment services. Sylvia’s bar needs to react fast to this competition. One way of doing this is by re-locating to a new environment that can attract customers, most preferably to the fashionable canal district. However, this is not a sufficient way to compete well in the market. After all, many bars and pubs are already established in that area. The firm may further re-structure its operations to include new fashionable entertainment services, quality food at relatively lower prices and suitable uniforms for bars. This way, the bar will be able to compete equitably with other firms in the industry. Mulcaster (2009: 69) points out that it may even consider using more marketing services such as advertisements, offering discounts, internet marketing among others.
Conclusion and Recommendations
It is theoretically and practically evident that the current situation in the case of Sylvia’s hotel is not a problem of no possibility but just lack of flexibility to adjust to the changing times and trends. While other successful businesses operate in good environments where customers are many, Sylvia’s bar still operates in the old High Street where customers no longer prefer. Furthermore, it offers old fashioned services which are of little taste to the current customers. The bar also offers highly priced food and drinks and pays relatively high wages. These practices have impacted negatively on the profitability of Sylvia’s bar.
With this view, therefore, this report recommends that the bar should relocate to new areas preferred by customers, use new entertainment systems and styles, provide quality services, cut the wages of the staff or trim them, reduce the prices of their food and drinks and change the staff’s uniform. This is enables the bar to compete equitably in the industry (Johnson, Scholes and Whittington 2008: 72). The reason why customers prefer other bars and pubs is because Sylvia’s bar has not satisfied their needs fully. That being the case, the recommendations provided here should be adopted if the firm is to realize maximum benefits.
