Bistro Cafe

Introduction

With its grand opening just a week away, Bistro 2010 faces the daunting task of determining the final prices of its dinner menu. As a part of Hotel Britannique, a brand-new luxury hotel located at the centre of the shopping and financial districts of downtown Toronto, Bistro 2010 aims to cater an upscale clientele. The pricing strategy employed must therefore reflect the restaurant's fine image while ensuring profitability.

Dubois, maitre d'hotel and manager of the new restaurant, realizes the need to determine the (1) cost of raw materials, (2) preparation time, (3) minimum number of servings per preparation, and (4) the difficulty level of preparing each dish. It has also been stated that as an estimate 30% of the kitchen staff's time is spent on prior preparations of intermediates, which can be used in numerous dishes. In practice, the cost of raw materials increases due to wastage during preparation, imperfections in measurement, fixing up recipes, and mistakes during preparation. He has also made provisions to accommodate the cost of feeding the kitchen and dining staff, spoilage of raw materials, and pilferage.

In establishing prices for the dinner menu, Dubois realizes the importance of using the appropriate pricing strategy. Since his and the restaurant's performance will be measured based on the effective utilization of the assigned budget, Dubois must conduct a thorough analysis of the restaurant's potential clients, as well as its competitors. This report outlines the steps that must be taken to develop an effective pricing strategy while considering the internal and external factors that play a role in determining the restaurant's success. The strategic analysis involves a discussion of the strengths, weaknesses, opportunities, and threats associated with opening a new restaurant in the downtown core (Appendix A). An industry analysis was also conducted in order to better understand the level of competition faced by Bistro 2010 (Appendix A). This analysis was then applied to the overall pricing strategy in order to determine competitive rates for the dishes offered at Bistro 2010.

Strategic Analysis

Final menu prices for Bistro 2010 are reflective of both quantitative and qualitative considerations as the restaurant's future is directly impacted by raw data calculations and by economic and social trends. SWOT [Appendix A] and Porter's Five Forces [Appendix B] are the two industry tools which will be utilized for analysis. The results of the analyses are presented in the following.

Bistro 2010 is associated with the network of L'Union des Grands Hotels (UGH), a highly reputable hotel chain which has wealth of experience and resources to manage luxury restaurants and hotels. Furthermore, the maitre d'hôtel and manager, Adrien Dubois is a long-time employee of UGH with ten years of experience in European restaurants of the first rank. The location of Bistro 2010 at the center of the shopping and financial districts of Downtown Toronto makes it very visible, accessible, convenient and attractive to launch an upscale restaurant. Downtown Toronto has young, educated, full-time employed residents less than 40 years of age with high levels of disposable income which Bistro 2010 can tap into (Living in Toronto, 2009).

The pricing of the menu is mainly based on a normalized estimate of the target cost of individual dishes, disregarding wastage and spoilages, which accounts for significant cost in fine dining expectations. The restaurant purchases its raw materials from a variety of suppliers, as there is little differentiation for most inputs. It has a low cost of switching suppliers and can negotiate better prices with those suppliers that depend on bulk purchases. On the other hand, allocations of overhead can be inaccurate if Bistro 2010 chooses to use a normal costing system without any historical basis for using standard costs. Since the restaurant already has high overhead cost for its affiliation with the hotel, it will result in repeated adjustments to the allocation rates and inflated overhead assigned to jobs.

The restaurant industry is highly saturated (Datamonitor ? Global Restaurants, Industry Profile, March 2009) and Bistro 2010 can differentiate itself from others by creating a brand, offering exceptional customer-service and delicious cuisine. Bistro 2010 can also leverage the UGH premium brand to promote its presence. The entry barriers into the fine dining market for competitors are high as it requires high start-up costs and significant capital expenditures. Hotel Britannique and other larger established restaurants deter new entrants because of the investments involved and the unavailability of prime downtown location. Government regulations such as food standards and zoning regulations may also discourage entry.

Bistro 2010 can capitalize on wine sales by being in control of handling its own wine and liquor inventory. Since wine is an integral part of fine dining, the restaurant can even consider establishing an "after hours special" as another source of revenue. Furthermore, Bistro 2010 can expand its lunch menu, since location wise, it can attract potential clientele from the financial districts to hold business lunch meetings. Since the restaurant is fairly new-to-market at the start of summer, it has the opportunity to develop its menu, image, pricing strategies to appeal to not only local Torontonians but also target visitors (estimate of one million) to the city who will be attending upcoming key events such as the G20 Summit, Caribana Festival and the International Film Festival (Invest in Toronto, 2010)

Cost of food will be subject to unpredictable and seasonal variations. Such variations have to be factored in the budget to estimate the price. In fine dining, buyers' power is high as demand for high-priced cuisine is elastic and there is also a low cost of switching restaurants for clients. Patrons have the option of choosing to dine elsewhere, dine in or cook a meal themselves. The demand elasticity coupled with higher disposable income encourages the propensity to substitute.

Factors Affecting Pricing

There