case study.

BestPizza has been operating a successful business of five takeaway pizza stores in a mid-size city in Australia for eight

years. There are differences between the costs of each premises - partly due to the differing size between each store

and also due to the differences in the location of each store.

The business has been successful and has positive cash flows. This has allowed the business to pay appropriate

salaries to the owner as the overall manager and enable the business to replace the equipment when required without

raising debt.

The External Environment

There has been intensive competition in the industry in this city.

According to IBISWorld, the industry should expect only modest growth of 'an annualised 2.2% over the five years

through 2021-22.' (Vuong, Bao. 'Pizza Restaurants and Takeaway in Australia', IBISWorld Industry Report OD 4025,

2017, page 7.)

This is expected to be accompanied by intensive competition over the next five years. This will likely mean frequent

introduction of new products - looking for the latest trends, lower prices and margins - and an increased use of

technology to reduce costs and attract customers. The industry expects that unsuccessful operators will close, and

that new operators will enter the industry to challenge the existing operators. Competition will be tough.

Key indicators of success for pizza stores are:

1. Store location - convenience for customers.

2. Use of new technology to connect to customers.

3. Ability to bring new products to the market.

4. Effectiveness of marketing campaigns, especially for gaining new customers and brand recognition.

5. Speed and accuracy of order-fulfilment.

6. Ability to upsell, especially in relation to selling sides (e.g. beverages and desserts). Often sides have a

greater margin than the pizzas.

7. A strong regular and loyal customer base - industry estimates this to mean 60% of customers are returning

customers.

While the first four indicators above are considered to be beyond the control of the manager of the stores, indicators 5-7

are considered to be heavily influenced by management and how they manage staff making pizzas and interacting with

customers.

The increasing use of apps and websites has reduced the ability to upsell. Upselling involves customers purchasing

items in response to staff suggestions, (e.g. 'did you want a drink as well?'). However, face-to-face ordering and inperson collection of orders still provide for the opportunity to upsell through staff interaction with customers. Upselling is

important as most suggestions from staff are for the higher margin products, including sides.

The most successful upsellers are generally the longer serving staff members as they have greater familiarity with the

product range and stronger relationships with regular customers.

Two key costs to manage are labour and ingredients, making up approximately 16% and 55% of revenue respectively.

Ingredients are a variable cost. Labour costs are considered to be fixed costs because they are based on expected

demand for specific shifts. Other fixed costs (i.e. not including labour) are equivalent to approximately 10% of revenue.

Internal Operations

The five stores offer the same menu, purchase the same ingredients, and use the same recipes and the same pricing.

Store revenues range between $250,000 and $710,000 per year.

Since staff are so important to both customer interaction and the making of pizza, the store managers are given

responsibility for staffing. This includes hiring, training and rostering. Training new staff can be very time and resource

consuming for the first few weeks of each new staff member.

New staff often make mistakes with taking orders and/or making of pizzas, and therefore need to be supervised by

experienced staff. After a few weeks, the number of these mistakes reduces dramatically.

Customer complaints are generally dealt with at the store level, with staff expected to deal with complaints before they

become big issues - thus minimising the risk of losing repeat customers. The most frequent method of resolving disputes

is the use of complimentary pizza vouchers for use at the time of the next visit at that store only. For example, a

customer who complains that their meal took too long to make or was incorrect.

Equipment is replaced on an as-needed basis (at end of economic life). Most equipment lease life has between five and

seven years. Each new generation of equipment is more specialised than the previous, reducing the need for labour and

facilitating greater uniformity in the ingredients applied to each pizza. Although the new equipment is more expensive,

savings are expected over its lifespan. Efficiency of the newer equipment is most pronounced during the busy periods.

.

Today

Industry insiders are openly suggesting that one of the larger competitors in the city, la Pizza, is about to close down due

to financial difficulties. La Pizza operates in a similar market to that in which BestPizza operates, with stores physically

close to BestPizza's stores. However, la Pizza has a stronger presence online with significantly less sales from walk-in

business. Industry insiders suggest that while taking a significant volume of the city's pizza trade, la Pizza sells

considerably less sides than competitors, as la Pizza focuses on pizzas and online sales.

The owner of BestPizza is hoping to gain from the closure of la Pizza. He recognises that such an increase in business

will not come without effort, but is still keen to do so.

Appendix

Table 1: Key metrics

Revenue $

Labour costs % of revenue

Ingredients costs $ of revenue

Regular customers % of customers

Upselling % of revenue

Complimentary orders redeemed $ of revenue

Production capacity used - total Number of pizzas made / max production capacity for total hours open (%)

Production capacity used - peak

periods

Number of pizzas made during peak periods / maximum production capacity

for peak periods (%)

Age of store equipment Years

Staff turnover Times per year

Table 2: Store-specific key information as of 14 April 2018

Metric Businesswide

Store 1 Store 2 Store 3 Store 4 Store 5

Revenue $2,525,450 $625,000 $705,450 $350,000 $595,000 $250,000

Labour costs $395,673 $112,500 $90,298 $52,500 $104,125 $36,250

Labour costs/revenue 15.7% 18.0% 12.8% 15.0% 17.5% 14.5%

Ingredients costs $1,401,825 $375,000 $352,725 $189,000 $345,100 $140,000

Ingredients costs/revenue 55.5% 60.0% 50.0% 54.0% 58.0% 56.0%

Regular customers $1,624,711 $425,000 $486,761 $175,000 $362,950 $175,000

Regular customers/revenue 64.3% 68.0% 69.0% 50.0% 61.0% 70.0%

Upselling $299,277 $93,750 $42,327 $28,000 $95,200 $40,000

Upselling/revenue 11.9% 15.0% 6.0% 8.0% 16.0% 16.0%

Complimentary orders redeemed $53,672 $18,125 $11,287 $9,800 $10,710 $3,750

Complimentary orders

redeemed/revenue 2.1% 2.9% 1.6% 2.8% 1.8% 1.5%

Production capacity used - total 35% 35% 36% 30% 45% 28%

Production capacity used - peak

periods 60% 85% 60% 70% 55% 32%

Age of store equipment (years) various 6.5 1.2 3 5.9 3.5

Staff turnover (times per year) 1.7 0.9 1.3 3.1 2.1 1.1

what kind of question will be asked in the assessment centre? Please help, thank you.