An integral part of a development proposal for either a new catering business or additions to an existing business is to determine the feasibility of making a profit.
Owners and managers need to estimate the amount of revenue and profit that can be achieved by these efforts based on the projected volume of business.
While a restaurant can forecast the volume of business based on the num- ber of daily meal services and estimated table turnovers calculated according to the number of operating days annually, a catering business must forecast future business and have a function history. In addition, it must also identify the num- ber of catering functions available to be booked within the target area. This be- comes the projection for new business development. Forecasting is based on the number of functions, group size, and average check rather than table turnovers and daily receipts. Catering facility space is often left unused. The challenge is to capture as many catering sales opportunities as possible while maintaining a standard of quality and profitability.
The feasibility chart in Figure 3.4 is a format for projecting catering food-and- beverage revenue. When attempting to determine the feasibility of adding cater- ing services, estimating new business can be challenging. The more complete the information, the more accurate the revenue estimates. The discussion of breakeven point analysis in Chapter 7 provides the basis for calculation of total operating costs. The chart in Figure 3.4 is based on 300 operating days.
. ,
Applying Market Survey Information
Market survey information can be applied to catering menu management in a number of areas of a menu program and is particularly helpful in menu pricing.
Competitive catering menu pricing requires a thorough analysis of the competi- tion’s pricing. In order to develop a successful pricing structure, management should review the following questions:
, What is the competition charging for a similar catering menu? Are por- tion sizes and quality of food items similar to the competition?
, How important is this menu to the total menu program? Will a lower selling price and the resulting higher food cost of this menu cause the overall food cost to be too high? Will volume sales of this menu create the desired profit at the lower menu price?
, Will the average catering customer accept this price as meeting their perceived value of all of the menu items included in the menu?
, Will this menu price blend into the pricing range for the total menu program?
The responses to these questions will determine how the menu is finally priced. If the original price calculation is higher than that of the competition, management must carefully weigh the benefits and drawbacks of offering a lower price. Unless the average catering customer accepts the price as valid, the menu will not be selected. Management often determines price acceptability by using competitors’ efforts as an indication of the probable success of promoting the item for volume sales. The final menu price must blend with the other prices in the menu program to create a range from which customers can choose. Large
.Figure 3.4 ,
FEASIBILITY CHART FOR CATERING FOODSERVICE
FEASIBLITY ESTIMATES FOR CATERING FOODSERVICE DEVELOPMENT: ONE YEAR
Total Estimated Operating Costs 1,600,000.00
(including Food and Beverage)
20% of Total Costs as Built-in Profit Margin ____________380,000.00 Total Sales Needed to Cover Costs and Profits 1,980,000.00 FACILITY ________________________
Meal Services: Breakfast, Lunch, Dinner Operating Days: 300
Forecasted Number of Functions per Day:
Forecasted Number of Covers per Day:
Average Average Projected
Check* Function Size Revenue
Breakfast Lunch Dinner Reception
Projected Average Revenue per Day Annual Projected Revenue Total Sales Needed Feasibility Margin
* includes beverage
discrepancies, or too many similarities, in the range of menu prices can frustrate customers.
. Summary ,
Market survey research is essential to the success of every catering service. The four major interest segments that a market survey must investigate are the cus- tomer, the competition, the community, and the labor pool.
Statistics and data from the market survey yield information that can be used to assemble a profile of the average customer. The customer profile is a major means of identifying the target market on which to focus marketing efforts.
Customers base the decision on which catering service to use for a private function on four major factors: availability, location, facilities, and service. A thorough survey of the competition with respect to these factors identifies those restaurants and catering services that are directly competing for the same tar- get market.
The availability of trained foodservice personnel is a critical concern of every catering business. Catering service does, however, offer prospective employees the benefits of flexible hours and guaranteed income. Both of these factors have a significant perceived value in the part-time labor pool. Caterers who can de- velop a core of reliable part-time employees, both production and service, will be secure in their ability to service customers.
The application of market survey information throughout the menu program can increase sales, as well as customer volume. Menu pricing is one area in which this information can have a significant effect. By thoroughly analyzing the menu prices of the catering businesses identified as direct competition, a pricing struc- ture can be developed to reflect current acceptable menu prices and customer needs.
. Questions ,
1. What are the four market segments surveyed, and why is each important to the overall development plan for a foodservice operation?
2. What information does the customer profile provide that contributes to the development of a catering service?
3. The competition survey provides a range of information. What specific information might help determine whether you should proceed with a business concept?
4. What information is necessary to know or estimate in order to complete a feasibility statement?
5. On what information are menu prices based? How does the competition survey help determine actual selling prices?
. Chapter Four ,
Catering Sales
and Marketing
and Computer-
Software Support
. Key Terms ,
Marketing Customer interest Pricing strategies
Marketing cycle Customer response Concepts
Customer needs Product One-stop shop
Trends Place promotion
. What You Will Learn from This Chapter ,
Catering sales is a critical function of every catering business. How well sales efforts mirror the marketing plan of a business will help determine its ongoing success. This chapter reviews the concepts of marketing, outlining the market- ing cycle, and the marketing mix. Maximizing catering revenue management is a function of sales activity. Packaging catering services provides additional sources of revenue and profit by capturing a percentage of income of products and services from outside contract providers. Measuring customer satisfaction calls for methods that capture information that will help identify areas for im- provement. Computer software programs designed to support catering opera- tions include documents and reports that facilitate production and service in addition to sales efforts. This chapter reviews several Catermate system reports and documents that relate to sales and marketing activities.
Marketing is the key to the successful growth and development of catering businesses of all sizes, both in the United States and internationally. Marketing is the process of developing sales plans; recognizing industry trends; identify- ing customer needs; developing products, prices, advertising and promotion, sales (both direct and indirect); and measuring the success of all of these ef- forts combined.
Marketing is the activity that, for small businesses, is most often sacrificed to daily operations, in part because the operators are undertrained or inexperi- enced. Unfortunately, weak marketing plans can lead to business failure.
The principal goals of the marketing process are (1) to recognize trends in cuisine, entertainment, customer lifestyle, and other trends that shape cus- tomer needs, and (2) to develop products and services that respond to those needs. Accompanied by appropriate pricing strategies and measurement vehi- cles, this process is called the marketing cycle. The ability to be flexible and respond to customer needs in a timely manner is one of the primary reasons for the growth of the catering segment of the foodservice industry.
The success of a catering business also depends on management’s ability to measure profitability and customer satisfaction. While profitability is a measure of the success of business practices, customer response is an accurate gauge of quality performance.
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The Marketing Cycle
The American Marketing Association defines marketingas “the process of plan- ning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organiza- tional objectives.”1
The marketing cycle, or the process of achieving these objectives, is shown in Figure 4.1. In this process, customer needs are identified, products and serv- ices are developed to satisfy those needs, customer interest in the product or service is created, and the success of these efforts is measured against both fi- nancial goals and customer satisfaction. The information identified and devel- oped in this process is the basis of a marketing plan, the detailed process by which a business will reach its target market with products and services that re- spond to specific needs. Also included are prices determined to be both accept- able to customer value perceptions and simultaneously profitable to the business.
The ability of catering services to adapt to customer demands with an extensive product line and broad service appeal produces dynamic and profitable results.
. Figure 4.1, MARKETING CYCLE
Create Product or Service Measure Success
Develop Customer Interest Identify Customer Needs