Oak Grill Case Study Assingment Analysis Help With Solution

Posted on April 20, 2017

Oak Grill Case Study Assingment Analysis Help With Solution

 
Of particular concern is the loss being incurred by the food segment, which is traceable largely to the restaurant.
 
• The Oak Grill is run by Emile LeGasbag, a prominent French chef noted for his avant-garde cuisine and the high quality of his ingredients, who is also a local celebrity largely because of his cooking program on local television.
• The restaurant was locally trendy at one time
• was expanded at the expense of the adjacent lounge in 2000, but local business has declined in recent years.
• For security reasons, the street entrance to the restaurant and lounge was closed in 2004.
 
Does the chef need the salary he’s making if not trendy any more? Was it worth the loss of lounge space? Access could be an issue for customers?
 
The Carnival Lounge does a good business.
• One quarter of the space in the lounge is taken up with a stage for live music.
• Music has never been featured regularly in the lounge, and in recent years has been offered only on New Years Eve.
• The lounge manager, Jack Daniels, would like to offer live jazz on weekends seasonally.
• He estimates that if he were given an additional $35,000 in his budget for live music, he could increase sales volume by 25%.
• In response, Posada points out that the lounge is often crowded already, and could not absorb the additional customers, especially on weekends.

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What if cover was charged? Maybe do the accounting and see for sure? Give back the space that the restaurant took over since it’s not doing that well whereas the lounge is crowded often?

The losses incurred by room service are typical of hotels of this type.
• A four-star hotel has to offer room service 24/7, and kitchen and wait staff are often idle.
• The minibar food and beverage are supplied by an outside vendor under a long-term contract, but are serviced by a full-time senior room service waiter (base pay $38,000/year).
 
Can doing away with mini-bar help? Are they getting any money from the vendor on this? Can the kitchen/wait staff do other jobs?
 
The large, ornate lobby is a hallmark of the Bentley.
• There is a small shop off the lobby, which has been leased on an annual renewable lease to an independent operator at a rental of $1,000/month since 1990.
• The tenant is the brother-in-law of the long-time president of the union local.
• Even at this low rent, the shop is only modestly profitable, as there are numerous small shops and convenience stores within a few blocks.
Increase the rent or cancel the lease and have the hotel run it?
 
While the rooms’ portion of the operation is profitable, occupancy rates and the key “revenue per available room” (REVPAR) metric are both below those of key competitors.
• The hotel is full about 40 nights per year, which is above average nationally but low for this market.
• Phil Spaess, director of marketing, has chosen to focus recently on the high-rate “leisure” segment.
• He hired an additional staff person to coordinate this effort, and devoted $150,000 of his media budget to Internet popup ads, GDS campaign (to travel agents), and direct email to former guests.
• He estimates that 10% of 2006 leisure guests were the result of this campaign. In order to fund this initiative, he discontinued local advertising of the restaurant and lounge.
Do the analysis to see if the budget taken from local advertising for restaurant will make a difference? The lounge seems crowded already so think okay.
 
Like many urban hotels, the Bentley has long offered bargain-rate contracts to airlines to provide rooms to flight crews on layovers.
• This business is considered desirable because of its volume and regularity.
• In 2006, Spaess negotiated a contract with a major carrier, Disunited Airlines, resulting in a large increase in volume in this segment.
• It was also necessary to renegotiate the contract with an existing client, Gamma Airlines, to provide for the same rate as that given Disunited.
• For the convenience of flight crews and tour groups waiting for transportation, the Bentley provides a waiting room called the City Club, located between the lobby and the Carnival Lounge.
• Despite its name, it is not a club and provides no services, other than free coffee.
Not sure this is relevant if the volume stays high without offering services. But maybe it could increase if basics like Wi-Fi, water, coffee, or other is provided.
 
The front desk personnel are salaried non-union employees.
• On average, they are paid $38,000/year.
• At normal levels of activity, there are four desk agents for a 24-hour period.
• Another agent would be added for each additional 40 check-ins or 80 check-outs.
Do the analysis on this and see the cost vs maybe a longer period of wait for customers? See about staffing down to one or two for late and overnight hours since no one is checking in our out typically.

Because the Bentley has relatively small conference facilities, they are rarely successful in hosting conventions.
• Their strategy has been to serve as second or third hotel for conventions, providing overflow meeting and lodging space.
• Spaess has a policy of charging more than the host hotel conference rate, taking the opportunistic position that late registrants are often “desperate” and will pay a higher rate.
Consider anything to lower the rate and take some of the meetings?
 
As with most major hotels, the telephone department is a major source of profit.
• Revenues of this segment are enhanced by the $12/night charge for Internet access to one’s room.
• The Bentley is one of only two large hotels in the city that still charges for Internet access.
This may have to be reduced or canceled to pull customers in as a perk. Do analysis of how much loss compared to potential customer gain.

The Bentley owns the adjacent parking structure, which is managed under contract by a firm that specializes in parking management.
• In 2005, daily rates were raised 15%, and are now among the highest in the city.
• As a result, the structure is rarely full. Hotel guests receive a 20% discount when using Bentley parking.
See what the yearly cost/revenue is for the hotel guests based on the # per year. Consider dropping it to fill up. There isn’t a reason why it says to go up.
 
A new labor contract took effect in 2006, resulting in considerable cost increases, particularly in housekeeping.
• Housekeeping staff clean on average 10.5 rooms per shift.
Do the analysis on this and see if # of staff is adequate or too many?
 
In the new contract, the union agreed to allow outsourcing of the reservations function to a firm in Fargo, ND that specializes in hotel reservations.
• This firm is paid a flat rate of $20,000/month.
• Two positions were eliminated because of retirements, and the remaining staff were reassigned, as the union contract does not allow layoffs.
• LaPoudre is generally pleased with the change, though he acknowledges that there has have been some “rough spots” in dealing with last minute reservation changes.
• LaPoudre hopes that cost savings will eventually result.
See about negotiating a rate that is reservation driven vs flat. Offer to meet in the middle on ideas?
 
The employee café serves all employees, and is open 24/7.
• The union contract provides that two meals per employee per shift be provided gratis; management employees receive the same benefit.
• The facility is adjacent to the kitchen, where all the food is prepared.
• Labor and food costs of the café are traced separately.
• The cafe is staffed by servers most of the time, but is self-service for a few hours during the night.
See if the Kitchen staff and waiters that aren’t being used for the room service can help here and reduce the cost of servers to self-service only. Just the meals are part of contract, not the kitchen workers?
 
The hotel also provides uniforms and periodic laundering of the uniforms for all staff.
 
• This is outsourced to a commercial uniform and laundering service.
Analyze the cost and see about making the employees launder their own clothes.
 
Required:
 
Your consulting firm has been hired by the owners of the hotel (not HHH) to address the profitability of the hotel: how it is measured, and how it may be improved. You are to prepare a report, addressed to Board of Directors, Bentley Hotel, expressing your findings. The report should be about 15 pages in length, including exhibits. A well-organized excel file showing any adjustments and updates also needs to be submitted. Follow presentation guidelines given in the syllabus and in class.
 
Your report should include an assessment of the Bentley’s internal accounting system, with a focus on measurement of segment profitability. You should recommend any changes in the system you deem appropriate. Provide revised calculations to the extent feasible. Your report should also recommend courses of action to enhance profitability. Provide persuasive argument for your recommendations, including calculations where appropriate. If insufficient data are available, provide your preliminary findings, and specify additional data neededto complete your analysis.
 
The work of the team will be evaluated based upon: clarity and professionalism of presentation; understanding and application of accounting concepts; persuasiveness and relevance of recommendations

 

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