CURRENT SITUATION AT TARWI'A No business is problem free, but even small problems have to be...

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CURRENT SITUATION AT TARWI'A No business is problem free, but even small problems have to be dealt with as quickly as possible to prevent further repercussions. Tarwi'a has started to gain popularity on campus: students like the idea and find it very practical, and they especially appreciate the good service at the cart, the high-quality food, and the fact that students can get anything they want very quickly when they're running between classes. However, they still face the significant problem that demand on campus is not stable. This has made it difficult to balance costs and revenues, thus costs have been 30 percent higher than revenues. Tarwi'a is not able to guarantee stable revenue or demand for its products because of the many breaks students take off campus; because most sales occur during the day and demand at night is low; and because of the long summer vacations. Meanwhile, rent has to be paid to Delicious Inc. every month, even during vacations and breaks. Primary costs are the fixed items such as rent, and variable expenses include wages, utilities, and transportation for the workers (they have to pay for a car to transport workers from and to the university, since public transportation is not yet available at New Cairo). The high costs have been an issue since June 2010, when the summer break started and demand decreased tremendously. Since then, the three partners have been thinking of ways to overcome the problem. They know they should have expected and planned for it from the beginning, but it has happened, so what are they to do? Quitting is not an option, since they are very passionate about what they're doing and they have dreams of making their business grow and flourish. They also would lose their initial investment, which would be a severe loss. Therefore, they have to think of ways to reduce costs and increase revenues. Moreover, they have to do so as quickly as possible because competition is starting to get fierce on the new campus as new outlets are opening that serve more types of food. If Tarwi'a is unable to improve its situation and get on firm ground soon, they won't be able to compete with the newcomers to the campus market. Here is a breakdown of the costs of running Tarwi'a: Rent & utilities 5-10% Marketing Varies Food cost 25-40% Labor cost MISC Varies 30% Image source: https://theboldbusinessexpert.com 8- Propose ways that can help Osama and his team sustain their startup and survive the competition on Campus. TARWI'A, THE OUTLET By November 2009, the three partners had finished writing the business plan for their food outlet, which they called Tarwi'a, an Arabic word that means refreshment. They decided to specialize in selling Lebanese food, such as shawerma (thinly sliced cuts of meat) sandwiches, spring rolls, and kobeba (a fried meatball made with ground lamb, bulgur, and onion). The main characteristic of their products is that they can be prepared and served quickly so that any student passing by can grab a small plate containing the assortment he or she chooses. They were also keen to offer their products at reasonable prices, and they agreed that all food items would be prepared daily to ensure freshness and high quality. This strategy would enable Tarwi'a to distinguish itself from other outlets in terms of both cost and product. The young entrepreneurs also decided to run their outlet from a portable cart so they would be able to serve the wide area of the campus and go to students wherever they were. To finance the business, they decided to depend on their own resources instead of getting loans; having three partners made each partner's share relatively affordable. They started negotiating with Delicious Inc., first to learn the procedures for renting an outlet on campus and then to discuss the possibility of having their outlet in the form of a cart. Moreover, it was important for them to get kitchen rights to prepare the food on campus so they could ensure the freshness of their products. However, it wasn't easy for them to reach an agreement with Delicious Inc. They were told that no slots were available, and they had to negotiate for some time to convince the company that they could operate from a portable cart instead of a fixed slot. After a long series of discussions, in January 2010 they got the license from Delicious Inc. to start their outlet on a portable cart and were able to execute their business plan. Preparations to open the business took them nearly one month, during which time they had to sign contracts with suppliers, get the required appliances, and find reliable workers for the kitchen and salespeople for the cart. The business started its operations in March 2010. The outlet was first placed near the dorms, where no other food outlets were available; however, they soon learned that demand at the dorms was mainly at night, after students finished their classes and returned to the dorms. They decided to move the cart to the middle of the university campus during the day, and at night they moved it near the dorms. They hired six employees, three in the kitchen and another three at the cart. They also were allowed to use university club cars to deliver food from the kitchen to their cart, and at the outlet itself they had their own equipment, including a refrigerator for drinks and water, a microwave, and a large steel hot box where the food was kept warm. 7-Could you anticipate some of the potential problems that could face this business model? CONCLUSION After a five-hour meeting, Osama, Mina, and Hammam came up with three possible solutions to the problem of cost-revenue balance. The first option was to decrease their costs by reducing the number of workers and shifts. They thought they might limit operations to the morning hours until they are able to reduce their costs, which they estimate would decrease costs by 15 percent. Another option would be to keep shifts as they are but reduce workers' wages or stop paying transportation fees, which is one of their main costs. However, that might affect workers' satisfaction and reduce the quality of their work, or even lead them to leave their jobs. Risky as it is, this approach could reduce costs as much as 25 percent, and with so many people looking for jobs, if their workers leave they will be able to replace them easily. The third option was to increase revenues. They thought of expanding their activities on campus by catering events and adding new items to their menu. This would mean incurring more costs and increasing their investment, but only in the short run. They estimated that these actions would increase revenues within eight months by more than 50 percent, which would cover their costs and create reasonable profits. Osama and his partners face a difficult dilemma and haven't made a decision yet. They are not sure whether to focus on cost reductions in the short run, or to live with higher costs for the short run until they're able to increase revenues. They have big dreams for growing their business and expanding beyond the university. Will they be able to achieve their dreams? Meanwhile, there is Osama, sitting in the library garden, sipping his coffee and thinking deeply... what should they do? 9- What should they do? Select a strategy of the mentioned ones and give good reasons for choosing it. CURRENT SITUATION AT TARWI'A No business is problem free, but even small problems have to be dealt with as quickly as possible to prevent further repercussions. Tarwi'a has started to gain popularity on campus: students like the idea and find it very practical, and they especially appreciate the good service at the cart, the high-quality food, and the fact that students can get anything they want very quickly when they're running between classes. However, they still face the significant problem that demand on campus is not stable. This has made it difficult to balance costs and revenues, thus costs have been 30 percent higher than revenues. Tarwi'a is not able to guarantee stable revenue or demand for its products because of the many breaks students take off campus; because most sales occur during the day and demand at night is low; and because of the long summer vacations. Meanwhile, rent has to be paid to Delicious Inc. every month, even during vacations and breaks. Primary costs are the fixed items such as rent, and variable expenses include wages, utilities, and transportation for the workers (they have to pay for a car to transport workers from and to the university, since public transportation is not yet available at New Cairo). The high costs have been an issue since June 2010, when the summer break started and demand decreased tremendously. Since then, the three partners have been thinking of ways to overcome the problem. They know they should have expected and planned for it from the beginning, but it has happened, so what are they to do? Quitting is not an option, since they are very passionate about what they're doing and they have dreams of making their business grow and flourish. They also would lose their initial investment, which would be a severe loss. Therefore, they have to think of ways to reduce costs and increase revenues. Moreover, they have to do so as quickly as possible because competition is starting to get fierce on the new campus as new outlets are opening that serve more types of food. If Tarwi'a is unable to improve its situation and get on firm ground soon, they won't be able to compete with the newcomers to the campus market. Here is a breakdown of the costs of running Tarwi'a: Rent & utilities 5-10% Marketing Varies Food cost 25-40% Labor cost MISC Varies 30% Image source: https://theboldbusinessexpert.com 8- Propose ways that can help Osama and his team sustain their startup and survive the competition on Campus. TARWI'A, THE OUTLET By November 2009, the three partners had finished writing the business plan for their food outlet, which they called Tarwi'a, an Arabic word that means refreshment. They decided to specialize in selling Lebanese food, such as shawerma (thinly sliced cuts of meat) sandwiches, spring rolls, and kobeba (a fried meatball made with ground lamb, bulgur, and onion). The main characteristic of their products is that they can be prepared and served quickly so that any student passing by can grab a small plate containing the assortment he or she chooses. They were also keen to offer their products at reasonable prices, and they agreed that all food items would be prepared daily to ensure freshness and high quality. This strategy would enable Tarwi'a to distinguish itself from other outlets in terms of both cost and product. The young entrepreneurs also decided to run their outlet from a portable cart so they would be able to serve the wide area of the campus and go to students wherever they were. To finance the business, they decided to depend on their own resources instead of getting loans; having three partners made each partner's share relatively affordable. They started negotiating with Delicious Inc., first to learn the procedures for renting an outlet on campus and then to discuss the possibility of having their outlet in the form of a cart. Moreover, it was important for them to get kitchen rights to prepare the food on campus so they could ensure the freshness of their products. However, it wasn't easy for them to reach an agreement with Delicious Inc. They were told that no slots were available, and they had to negotiate for some time to convince the company that they could operate from a portable cart instead of a fixed slot. After a long series of discussions, in January 2010 they got the license from Delicious Inc. to start their outlet on a portable cart and were able to execute their business plan. Preparations to open the business took them nearly one month, during which time they had to sign contracts with suppliers, get the required appliances, and find reliable workers for the kitchen and salespeople for the cart. The business started its operations in March 2010. The outlet was first placed near the dorms, where no other food outlets were available; however, they soon learned that demand at the dorms was mainly at night, after students finished their classes and returned to the dorms. They decided to move the cart to the middle of the university campus during the day, and at night they moved it near the dorms. They hired six employees, three in the kitchen and another three at the cart. They also were allowed to use university club cars to deliver food from the kitchen to their cart, and at the outlet itself they had their own equipment, including a refrigerator for drinks and water, a microwave, and a large steel hot box where the food was kept warm. 7-Could you anticipate some of the potential problems that could face this business model? CONCLUSION After a five-hour meeting, Osama, Mina, and Hammam came up with three possible solutions to the problem of cost-revenue balance. The first option was to decrease their costs by reducing the number of workers and shifts. They thought they might limit operations to the morning hours until they are able to reduce their costs, which they estimate would decrease costs by 15 percent. Another option would be to keep shifts as they are but reduce workers' wages or stop paying transportation fees, which is one of their main costs. However, that might affect workers' satisfaction and reduce the quality of their work, or even lead them to leave their jobs. Risky as it is, this approach could reduce costs as much as 25 percent, and with so many people looking for jobs, if their workers leave they will be able to replace them easily. The third option was to increase revenues. They thought of expanding their activities on campus by catering events and adding new items to their menu. This would mean incurring more costs and increasing their investment, but only in the short run. They estimated that these actions would increase revenues within eight months by more than 50 percent, which would cover their costs and create reasonable profits. Osama and his partners face a difficult dilemma and haven't made a decision yet. They are not sure whether to focus on cost reductions in the short run, or to live with higher costs for the short run until they're able to increase revenues. They have big dreams for growing their business and expanding beyond the university. Will they be able to achieve their dreams? Meanwhile, there is Osama, sitting in the library garden, sipping his coffee and thinking deeply... what should they do? 9- What should they do? Select a strategy of the mentioned ones and give good reasons for choosing it.