The Tapas Bar
Hannah and Jonathan discovered the idea of a tapas bar whilst on a business trip to Barcelona. They both had secure, well-paid jobs working for a leading insurance company. One evening, their Spanish colleagues had taken them to a tapas bar. Hannah and Jonathan noticed how popular the bars were with both city workers and tourists and thought that a tapas bar could be successful in their home of Leeds.
When they returned home, Jonathan conducted some secondary research. He found out that the market value for the UK restaurant market was £13.25 billion. This represented a market growth of 19% in the past four years. Furthermore, he contacted the Leeds Chamber of Commerce, who informed him that the Leeds economy was one of the fastest growing in the UK.
Hannah interviewed some of her work colleagues regarding the idea of a tapas bar. Their response was enthusiastic as they were always looking for ‘something different’ either for lunch or in the evening.
Hannah and Jonathan were convinced that their idea could be a success, so they contacted their local bank. They spoke to a small business advisor who discussed with them what to include in their business plan. She also recommended that the business should be a private limited company (ltd).
Hannah and Jonathan planned to spend £200,000 on the tapas bar. They would contribute £30,000 from their own savings and borrowed the remaining £170,000 from the bank, using their home as security for the loan.
A location was chosen near the Corn Exchange in Leeds city centre. Although the rent was expensive, there were plenty of restaurants nearby and the location was accessible for both shoppers and city workers. Hannah’s research led them to believe that an average customer would spend £20. She estimated that the variable costs per customer would be £10 and the weekly fixed costs £2,000.
The small business advisor had recommended that Hannah and Jonathan needed to set a budget. Jonathan used Hannah’s primary research findings, combined with some population statistics from the Leeds Chamber of Commerce to calculate the expected income. To calculate his expenditure, he obtained some cost data from a friend who ran an internet café.
Hannah and Jonathan gave up their jobs and hired a full-time chef and two part-time waitresses. Despite all their planning, the business struggled during its first weeks of trading. A rival tapas bar had opened a month earlier and had captured the market. As a consequence, the business was earning insufficient revenue to cover its costs. Consequently, the figures for their budget were wildly inaccurate. Furthermore, one of their suppliers proved to be unreliable, which meant that on many occasions a full menu could not be offered. Whilst conducting his research, Jonathan had discovered that one in every two restaurant start-ups fail – was the tapas bar heading the same way?
1. The UK restaurant market is worth £13.25 bn. If it is expected to grow by 5% next year calculate its market value. [4]
2. To what extent do you think a good location for Hannah and Jonathan’s restaurant is likely to guarantee business success? [15]
