It was April 1, 1999. Brenda DeMorea, financial manager for

the Opossum

Property Management Group (OPMG), had received a tenant proposal from Jane

Foley outlining her plan to re-open Foley's End. Foley's End had closed two

months earlier under Foley's management as a result of a personal conflict she and

her business partner were unable to resolve. Now on her own, Foley appeared

confident that Foley's End would be successful and she hoped to re-open on May

1, 1999. Since OPMG owned the property and building in which Foley's End was

located, it was now up to DeMorea to decide by the end of the day whether to

grant a new five-year lease.

THE LOCATION

Foley's End was located in Chase, British Columbia. Chase was a small, rural

community with a population of 2,000 surrounded by an additional 750 people

within a three-kilometre radius. The town of Chase included a grocery store,

library, lumber yard, fitness gym, public swimming pool, doughnut shop, gas

stations, two variety stores, restaurants, doctor and chiropractor offices, flower

shop and a local Royal Canadian Mounted Police station. As in many rural

Canadian towns, hockey was a major fall/winter community event. Fortunate to

have its own hockey arena, the town had many recreational hockey leagues.

During the summer, baseball and soccer leagues provided a major pastime. The

closest city, population 81,000, was 26 kilometres west of Chase. Although

Page 2 9B00B010

residents often worked or did their major shopping in the city, the town itself met

most of its residents' daily needs.

There were five other restaurants in town: two take-out establishments, a Chinese

food restaurant seating 36, a summer burger stop and a family restaurant that

seated 35. Apart from the burger stop, no restaurant had been operating for more

than three consecutive years. The town's restaurants' average meal price was

similar to that of Foley's End. One other area of competition was the local legion.

A town landmark, the legion had a sizable, dedicated member base and, as a not-

for-profit organization, could serve inexpensive alcoholic beverages and advertise

free-of-charge on the local cable channel.

Foley considered her biggest competitor to be The Edge, a new pub and grill,

located at the edge of the city, approximately a 20-minute drive away. She

speculated that customers enjoyed the diverse entertainment schedule, as well as

the larger-sized establishment. She also noted that beer was the same price. Other

entertainment establishments within the city were not a competitive factor due to

the additional 10-to-15-minute drive and parking fees.

HISTORY

The building was a two-unit complex built in 1990 and was located in the south

end of town. A doughnut shop had occupied the other unit since the building was

constructed. The restaurant unit, however, had had two previous tenants. The first

tenant operated a family restaurant that remained open one year before closing due

to excessive financial losses. At this time, OPMG had made a sufficient return on

its initial investment and, hence, decided to take on the $110,000 outstanding loan

from the first tenant and repossess the restaurant's equipment. Any new tenants

then entered into a lease-to-own agreement with OPMG for the equipment.

OPMG was forced to close on the second tenant for breach of contract after three

years. Although operations had been profitable, this tenant's refusal to pay the

common area maintenance fee led to the closure. The second tenant offered a

town pub, serving similar foods but focusing on a different target market. To date,

no renovations had been made to the original tenant space. Foley's End was

OPMG's third tenant.

Recently, OPMG had also considered renovating the space into offices. Currently,

there were no vacant office spaces in town; however, there were three or four

commercial spaces for lease. Initial estimates to renovate the restaurant into

offices were pegged at $100,000. If OPMG did convert the space into offices, the

rent would be the same. DeMorea was not confident of the local demand for this

space and she considered this to be a viable option only if OPMG needed the space

for its own expansion, something it was not currently considering The original agreement between OPMG and Foley had specified that Foley would

purchase all the restaurant equipment from OPMG on credit at an interest rate of

10 per cent. The February closing had caused a breach of contract and the

ownership of all the contents of Foley's End again reverted to OPMG. The

equipment had been appraised at $35,000, but DeMorea knew there was little

market for used restaurant equipment and estimated that a more realistic evaluation

would be one-third of this appraised value.

Because the complex had been originally built as an investment, DeMorea

wondered if OPMG should reject the proposal and keep it closed. Nine years of

rental income

1

combined with falling interest rates, from 14 per cent in 1990 to

4 per cent in 1998, had allowed OPMG to renegotiate its original 25-year

mortgage which was now close to being paid off. DeMorea was confident the

rental income from the Donut Shop would be sufficient to cover this remaining

portion. Annual costs, including property tax, mortgage payments and insurance

associated with the building and property amounted to approximately $2,000.

DeMorea wondered what effect, if any, remaining closed would have on finding a

new tenant and how the Donut Shop's business would be affected,

FOLEY'S END

Foley's End first opened in October 1996 under Foley's management. The menu

offered typical roadhouse cuisine at affordable prices. Hours of operation were

Monday to Wednesday, 11 a.m. to 12 a.m., Thursday to Saturday, 11 a.m. to 1

a.m., and Sunday, 12 p.m. to 11 p.m.

In an attempt to boost sales, Foley

introduced tele-theatre horse racing

2

on Monday and Tuesday nights. Foley's End

could serve up to 80 patrons at one time.

Foley's background included 15 years in the food services industry; of these, 10

years were spent in a managerial role. As well as serving, her duties included staff

scheduling and cost control. She had no financial management experience (her

business partner had always managed the finances and accounting aspects of the

business). Foley defined success as not having to cover shifts and being able to

focus her time and energy on advertising and other management aspects of the

business. Foley hoped to eventually draw a salary of $50,000.

The problems started when a trustworthy staff member went on maternity leave.

Soon after, food inventory counts and food sales receipts were not reconciling. As

a result, Foley fired the cook and found herself short-staffed. These complications,

compounded by the growing personal differences between Foley and her business

partner, finally resulted in the February closing.

A "NEW" FOLEY'S END

In the new tenant proposal, Foley outlined her ideas to revamp the restaurant. The

tele-theatre horse races would be replaced with Friday night karaoke

3

. Foley had

noted that, although the horse racing customers stayed all evening, they spent most

of their money on bets and not on food or beverages.

Additionally, an advertising strategy was in the process of being finalized. Phase

one included a flyer announcing daily food and beverage specials and theme

nights. Further advertising would depend on available funding.

Foley also had future plans for a patio. She hoped it would draw more summer

business, enticing customers to stay in town rather than head into the city for the

evening. Changing her hours to open at noon on Monday, Tuesday, Wednesday

and Sunday, and 11:30 a.m. every other day, as well as closing at 2 a.m. on Friday

and 8 p.m. on Sunday, was also expected to bring positive results.

Foley believed she would be successful now that she had dealt with the major

problems: hiring a new staff and vowing to take a more active role in the financial

and accounting aspects.

FINANCIAL PROJECTIONS

Having reviewed Foley's last two years of financial statements (see Exhibits 1 and

2), DeMorea knew Foley would need additional financing to re-open the

restaurant. Foley's proposal predicted a two per cent increase in sales. Costs of

goods sold were also projected to decrease by two per cent with better inventory

controls in place. Most expenses would remain the same, with the exception of

advertising and insurance (the latter expense was expected to decrease by $150 per

month). Advertising (see Exhibit 3 for various advertising prices) was going to

depend on cash flow. Foley's liquor license had to be renewed by February 4,

2000 for an additional three-year period at a cost of $555.

Foley was content with her days of payables and her days of inventory. Currently,

Foley's End accepted debit cards, cash, and three major credit cards Visa,

MasterCard and American Express. Approximately five per cent of customers

paid by credit card. Each credit card company charged a 1.8 per cent fee. Industry

ratios can be seen in Exhibit 4.

OPMG was prepared to loan Foley the money needed to "get back on her feet".

DeMorea was unclear exactly how much Foley would need, but was prepared to

loan up to $15,000 at the current interest rate of eight per cent. As well, OPMG was prepared to forgo principal repayments from Foley until a time when it was

financially viable.

THE DECISION

In doing some additional research, DeMorea found that estimated total receipts of

Canadian restaurants, caterers and taverns in April 1999 totalled $2.3 billion, an

increase of 5.8 per cent over the April 1998 estimate

4

. She wondered if this

positive sign was applicable to Chase and, more specifically, to Foley's End or

other potential restaurant tenants. It had also recently been announced that there

would be no local summer baseball league since only five teams had registered.

The league in Chase had thus amalgamated with other leagues to the east and west

of the town. How was that going to affect Foley's projections? As well, OPMG

had recently received an unsolicited offer to clean and take all the contents out of

the unit for $25,000. Should OPMG take that offer and exit the restaurant

business? And, most importantly, could Foley turn the restaurant around?

DeMorea had a decision to make and not a lot of time. It was going to be a long night.

https://www.studocu.com/en-ca/document/brock-university/principles-of-communication-in-the-business-environment/other/case-package-for-case-study/9264342/view

This is the link to the case study- FOLEY'S END. I need a quantitative case analysis