Evaluating Expansion at the Eaton Restaurant Corporation

The Eaton Restaurant Corporation is considering building a new restaurant in the growing city of New Bethel. The city is a fast growing Midwestern town in the United Stated. There has been an influx of successful business development and a significant investment in industrial areas to stabilize the city's economic future. The Eaton Restaurant Corporation has purchased land adjacent to the newly opened corporate park, the Great States Plaza. During the past year, Eaton Restaurant Corporation opened three new restaurants in cities with similar demographic and economic factors. If the New Bethel restaurant is as successful as the other Eaton restaurants, management is considering the creation of a national franchising company.

The managers of the Eaton Restaurant Corporation have determined the preliminary feasibility of this investment and are now studying near future restaurants. They have projected the following financial data for the presentation at their next Board of Directors meeting:

Furniture, Fixtures, and Equipment (FF&E) $3,200,000
Land 6,000,000
Building 18,000,000
Pre-opening Expenses 480,000
___________
Total Capital $27,680,000

The Board of Directors, having reviewed these financial data, has voted to approve construction of the proposed New Bethel restaurant. During its Board presentation, the Eaton Restaurant Corporation management team listed the following planning assumptions:

1. Restaurant occupancy will likely open at 60% and increase by 1.75 percentage points annually throughout the first five years. Restaurant occupancy is expected to remain relatively flat beyond the start-up years.
2. The necessary expenditures for restaurant maintenance and related expenses will average 22% of food and beverage revenue.
3. The restaurant anticipates having an average check of $50 during its first year of operation. It will be expected to increase its average check by $5 in each of the second and third years and $7 during each succeeding year.


Discussion Questions

1. How much food and beverage revenue should be expected for each of the first five years of operation? Assume 365 operating days per year.
2. What operating ratios and related statistical information might benefit the Eaton Restaurant Corporation management team in its continuous review of new restaurant development?
3. Create a SWOT analysis for the new restaurant location in New Bethel for their first year of operation based on the data you have available from the case study. Feel free to make relevant assumptions in your SWOT analysis.