CASE STUDY 2
MARK’S SANDWICH SHOP
SANDWICH SHOP
THE PROBLEM
Mark Redland is facing a decision concerning his company, MARK'S SANDWICH CAFE.
Mark wants to expand his company. He has several choices open to him butthe main two he is
considering are:
- to redecorate and expand his current sandwich café
- to open a new sandwich cafe
He wants help on deciding which option he should take.
You have 60 minutes to prepare and 10 minutes to make your presentation. It should include your
recommendation for which option Mark should choose, how you feel he can improve his business
and your reasons behind your decision. You are expected toprovide financial analysis to support
your decision.
BACKGROUND
MARK'S SANDWICH CAFE was set up three years ago by Mark Redland. Mark'sfamily has
been involved in the catering industry for 25 years and runs three successful restaurants. Mark
has worked in the family business for the past 20 yearsand he managed one of the restaurants
before deciding to set up on his own. His contacts with suppliers and the training he has received
have been invaluable in helping him start his solo venture.
Mark is highly ambitious and would like to develop a chain of sandwich cafes. He isaware of the
difficulties, as well as the opportunities, because his father opened a restaurant which failed.
MARK'S SANDWICH CAFE is highly profitable but even after overheads are accounted for, a
large proportion of the profit is committed. Mark took out an extraloan on his house to set up his
original sandwich cafe. Repayments on the loan are
£1,000 per month. Two of his four children have started college and one of them is training as
a doctor. Mark's company is now firmly established and he believes it is time to expand.
His accountant has advised him that he can spend up to £65,000 in his first year. Mark is
sceptical about his budget and wants to be sure of his financial position before making a
decision. He has found a new site, about the same size as his existing sandwich cafe, costing
£50,000 per annum which needs fitting out and Mark estimates this would cost about £9,000. It
is very close to his present business but is on the corner of three roads rather than in a side street.
There is a constant flow of people passing by and the roads are busy. Mark believes it has a
good chance of success but will take at least six months to break even. His current sandwich cafe
canabsorb the losses for this period but cannot subsidise it beyond then.
CASE STUDY 3
MARK’S SANDWICH SHOP
PRESENT POSITION
He has one sandwich cafe near a busy main street in the centre of London, which he
rents for £45,000 per annum. The floor area is 700 square feet and in addition to the
take-away service, there is seating for 18 people. In the summer, another two tables
can be used on the pavement outside the front of the cafe. 70% of his customers buy
take-away food.
Mark has problems in finding committed, good staff. He has tried going through
agencies but they charge large fees and the results are no better than advertising
himself. He has little time to interview or train new staff. He employs two permanent
staff apart from himself, and takes on casual labour as and when necessary because he
finds it very difficult to find good staff who will stay for any length of time. The
work is very hard and hours are long. Wages for his staff cost him £40,000 per year
and overheads such as lighting and heating come to about £45,000.
This sandwich cafe was started on a very small budget of £40,000, which was spent
on modernising the kitchen and buying up-to-date equipment. Mark bought the tables
and chairs from his father when one of the family restaurants was re-decorated. The
interior has not been altered from when it was bought. There is a non-structural wall
which could be knocked down to create room for extending the take-away section or
expanding the seating capacity. The decor is traditional but looks a bit worn out and
could do with repainting. Alternatively the whole sandwich cafe could be stripped
and modernised.
The sandwich cafe caters mainly for office clientele but is open six days a week from
7 a.m. until 8 p.m. The busiest times are 7 to 9 a.m. and 12 to 2 p.m. At the busiest
times the seating area is full but at other times of the day is relatively empty. The
people who do eat on the premises tend to order cold drinks and coffee. The take-
away section is always busy.
CASE STUDY 4
MARK’S SANDWICH SHOP
PRODUCTS
It serves food such as sandwiches, pastas, salads and cakes. Milkshakes, Turkish and
Italian coffees were introduced after the first six months and have sold very well. It is
now attracting 250 customers a day, spending roughly £4 each. All the food is
available, at the same prices, to eat in or take away. The cafe has no license for
alcohol, which is part of the reason for not opening in the evenings.
Number
Products Currently
Price per item Profit per item sold per
offered week
Chicken Sandwiches £1.40 £1.10 250
Tuna/Lamb/Beef £2.40 £2.10 750
Sandwiches
Egg/Cheese £2.30 £2.10 500
Sandwiches
Pasta plus choice of £4.25 £3.50 300
sauce
Green/Bean/Mixed £3.95 £3.25 100
Salads
Assorted Danish £0.85 £0.50 200
Cakes
Banana/Vanilla/ £1.00 £0.60 300
Chocolate Milkshakes
Turkish/Italian Coffee £0.50 £0.30 1,500
Canned Drinks £0.40 £0.10 600
All products are made on the premises apart from Danish cakes and canned drinks
which are bought in. Salads and sandwiches are very time-consuming but
milkshakes, coffee and pasta are easy to make.
THE MARKET AND COMPETITION
The sandwich cafe has a core of regular customers from the surrounding office
blocks. It also serves shoppers and has some seasonal tourist trade. There have been
some changes during the past three years. There has been a move away from eating
in to take-away foods. Rents have gone up greatly and many companies, in particular
the smaller ones, have been forced to move out from the centre to the edge of the city.
However Mark relies heavily on his regular customers and word of mouth means that
more people are finding out about the sandwich cafe. It has a good reputation
because of the high quality of the food and the relaxed and friendly atmosphere.
Mark makes a point of knowing the names of his regular customers.
During the time Mark has been running MARK'S SANDWICH CAFE the
competition has also shifted emphasis. His major competitors used to be established,
often family-run, sandwich cafes. Recently, many more sandwich cafes and take-
aways have opened. Many of them have been set up by people with little or no
knowledge of the catering trade. Enterprise schemes and loans for potential
businesses are more easily available so people are more likely to follow through an
CASE STUDY 5
MARK’S SANDWICH SHOP
initial idea and actually set up a take-away or sandwich cafe. Most of these venturesfail
very quickly. There are three main reasons: Lack of knowledge, loss of interest once the
amount of work involved comes to light, or a bad choice of products.
However, in the short term they do take custom away and it takes time before it isregained.
Large chains such as MacDonald's or Pizza Hut also take custom away. People are
attracted by the speed of service and the convenience these fast food restaurants offer.
The other main competition is linked to trends in the market. The past few years have
seen a boom in the fitness and health industries and this is reflected in the catering trade
too. Customers are increasingly health conscious and, consequently, vegetarian and
healthfood restaurants are taking trade from the traditional type of sandwich cafe.
Whilst Mark's business is doing very well, there have been many changes since it started.
He does have a highly successful formula but he is aware of the need to keepup with the
competition and respond to trends in the market. Although he could remain profitable by
simply carrying on as he is, he wants to use his success in the best possible way to ensure
his business continued to expand.
In view of all this information, Mark believes the time is now right to expand. Youare a
small business adviser and he has approached you to help him decide between re-
decorating and expanding his current sandwich cafe and opening a new one.
Whichever option he chooses he would like advice on how he can improve his
business further.
