Environmental Scan and Cost Estimation for Catering Business

Task 1: Environmental Scan

•    You plan to start your business from your parents’ home. You live in a small apartment with two roommates, so your home kitchen is too small. Your parents have a bigger kitchen and more storage space for supplies. You will operate out of their kitchen while saving money to eventually lease a commercial kitchen/bakery. While operating out of your parents’ home, you have agreed to pay them a modest monthly payment to help cover additional costs (such as utilities and insurance).
•    You plan to be self-employed (with no employees) in the beginning. Your parents and roommates will lend a hand if needed, which they are happy to do. Your father has offered to help with cooking (non-paid). Your mother has offered to help with deliveries and bookkeeping (non-paid). If you need assistance with serving at catered events, your roommates will help in exchange for some free food and a share of gratuities (i.e., tips from clients).
•    After your business has been successfully operating for three or four years, you plan to lease space in a commercial bakery/kitchen. At that time, you will hire a few kitchen workers and a general manager.
•    At this time, you are looking for small-contract catering jobs – holiday parties, birthdays, anniversaries, and so on. You expect that your typical catering events will have 20 or fewer guests.

You made the decision to open your business now, for three reasons. First, two months ago you had the good luck of winning $20,000 in a regional cooking competition. Second, you recently graduated from college, with a diploma in culinary arts. Third, you love cooking and can’t imagine doing anything else for your career.

The four assignments in this course are designed to help you accomplish your dream. You will be making many business plans and decisions, but you are hopeful that your business will be a success.

There are three main tasks in Assignment 1. The assignment is out of a total of 40 points. Up to 5 points may be deducted for errors in spelling/grammar or errors in your referencing format.  You will need to do some external research for Task 1. If you do not insert APA referencing (in-text citations and full references at the end), you WILL receive a grade of zero for Task 1 on this assignment.

If you wish, you can complete the tasks in this assignment using the tables that I’ve prepared in these instructions. However, please add a title page to your submission containing appropriate information (name of student, course number, title of assignment, and so on).

Also, if you wish to complete this assignment in a small group (up to four students per group), you must also submit a Team Participation Minutes file.

To help you make better business decisions as you start your new business, you want to conduct an environmental scan. You will need to do some internet research and also use your imagination/ common sense/ and creativity for this task. Create TWO points/comments for each component of the PESTLE analysis and TWO points/comments for each component of the 5-Forces analysis. Then, based on the findings from your analysis, write a brief paragraph (3 to 5 sentences) to comment about your overall prediction for success.

Some tips for completing this task:
•    The points in your analysis must be detailed – it is not acceptable to write “inflation” without providing a brief analysis (What do we mean by “inflation”? Is it rising or falling? How will this impact your business?). I’m expecting to see more than one or two words in each of your points! The information in each of your points must allow you to come to a conclusion about the potential success of your business.
•    I have posted an example in the Module 1 materials in FOL Content – review that example to get an idea of my expectations for this task.
•    Remember that a PESTLE and Five Forces analysis is an analysis of your external environment – don’t analyze your internal operations or make operating plans/decisions in this analysis!
•    A reminder: If you are inserting information from an external source, you must cite it (put an in-text citation after the information, and put a full reference entry at the end of your assignment).  If you paste word-for-word any text from an external source, you must enclose the pasted text in quotation marks and then add the in-text citation. (Guidelines for APA referencing can be found in FOL Content in the Assignments module.)

When you prepare cost estimate for customers, you will charge customers a fixed amount to cover the cost of raw materials plus an hourly rate (your hourly labour fee) for your services. The question is, how much should you charge your customers for your time? If your fees are too low, you won’t earn a profit and your business will fail. If you earn a high profit, you’ll be able to grow your business more quickly. On the other hand, if your fees are too high, you will lose potential customers.

Your hourly rate will be determined by factors such as:
• Operating costs (utilities, purchasing additional catering equipment/supplies, advertising, insurance, your salary)
• Estimated customer demand (the predicted number of customers and work hours for each client project)

You have estimated that your operating costs are $55 per hour

The next question is: What is the estimated demand for your services? Remember, if you charge a low fee for your services, you’ll get more customers (demand will increase and you’ll earn more revenues). If you charge a high fee for your services, you’ll get fewer customers (demand will decrease and you’ll earn less revenues).

To help you estimate demand more precisely, you hired a local marketing firm to conduct a market survey. The marketing firm surveyed a sample of 100 random homeowners. Each homeowner was asked how much he/she would be willing to pay (per hour) for professional catering services for a small event (up to 20 guests). The results of the market survey are shown in the first two columns of the table on the next page. As you expected, if you charge a lower fee, demand increases and you have more customers. If you charge a higher fee, demand decreases and you will have fewer customers.

You must analyze the data in the market survey. How many billable work hours would you expect for each level of demand? What is your potential profit at each level of demand? To help you do this analysis, you did some estimating in your head and you determined that it would likely take you 12 hours to complete an average small catering event for a customer. Now you can estimate your potential profit at each level of demand by completing the analysis in the table on the next page. I’ve filled in the first row for you. (6 points, deduct .25 for each error).

Task 3 (5 points): Make some predictions about changes in supply and demand for your services. (No APA referencing required for this task)

In this course, we learned that many different factors can affect supply and demand for a product/service. Read the scenarios in the first column of the table on the next page. Then, apply concepts of supply/demand that we learned in Module 2 to answer the questions beside each scenario. (.25pt each = 5 points total)

One hundred and fifty students recently graduated from the culinary arts program at the local college in your city. This is the highest number of graduates that this program has ever produced.    1.    Will this cause an increase in the supply for catering services? (yes or no)
2.    Will this cause a decrease in the supply for catering services? (yes or no)
3.    Will this cause an increase in the demand for catering services? (yes or no)
4.    Will this cause a decrease in the demand for catering services? (yes or no)
5.    According to supply/demand dynamics, should you increase or decrease your hourly fees? (increase or decrease)
Food science engineers have recently developed an innovative ‘cook-chill’ technology that will improve productivity, significantly reducing food preparation time for professional cooks (and caterers).    1.    Will this cause an increase in the supply for catering services? (yes or no)
2.    Will this cause a decrease in the supply for catering services? (yes or no)
3.    Will this cause an increase in the demand for catering services? (yes or no)
4.    Will this cause a decrease in the demand for catering services? (yes or no)
5.    According to supply/demand dynamics, should you increase or decrease your hourly fees? (increase or decrease)
Headline of a recent news article: “Catering-in-a-box” meal kit delivery services (such as HelloFresh and Chef’s Plate) are a hot trend this year    1.    Will this cause an increase in the supply for catering services? (yes or no)
2.    Will this cause a decrease in the supply for catering services? (yes or no)
3.    Will this cause an increase in the demand for catering services? (yes or no)
4.    Will this cause a decrease in the demand for catering services? (yes or no)
5.    According to supply/demand dynamics, should you increase or decrease your hourly fees? (increase or decrease)
Headline of a recent news article: Local public health department discourages community potluck events after dozens of people experience food-poisoning (botulism) caused by poorly prepared food at church dinner      1.    Will this cause an increase in the supply for catering services? (yes or no)
2.    Will this cause a decrease in the supply for catering services? (yes or no)
3.    Will this cause an increase in the demand for catering services? (yes or no)
4.    Will this cause a decrease in the demand for catering services? (yes or no)
5.    According to supply/demand dynamics, should you increase or decrease your hourly fees? (increase or decrease).