BUSINESS AND MANAGEMENT (HL)

INTERNAL ASSESSMENT

Should Blue Nile Restaurant expand in order to solve its capacity problems?

Exam session: May 2018

Word count (Research Proposal): 473 words

Word count (Written Report): 2010 words

 Acknowledgements

Firstly, I would like to thank Mr. Jafari, owner of the restaurant for giving me an

opportunity work at Blue Nile and also for granting me access to the confidential data

and workings of his restaurant. I would also like to extend my gratitude towards all the

customers who gave their time to filling out my questionnaires. I am also grateful for the

managers of the restaurant.

Lastly, I would also like to show my appreciation for my business management

facilitator, who guided at various stages over the course of my Internal Assessment.

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 Table of Contents

Acknowledgements ..........................................................................................................ii

Executive Summary ........................................................................................................iv

2.0 Written Report ........................................................................................................... 5

2.1 Introduction ............................................................................................................ 5

2.2 Procedure or Method ............................................................................................. 6

2.3 Main Results and Findings ..................................................................................... 7

2.4 Analysis and discussion ....................................................................................... 11

2.5 Conclusion and Recommendations ..................................................................... 14

Bibliography .................................................................................................................... v

Appendix .........................................................................................................................vi

iii
 Executive Summary

Blue Nile is facing a capacity crisis, and in order to counter this, the restaurant is

considering an expansion. My interviews with the owner and managers revealed that

waiting periods can exceed 30 minutes at peak timings, and they expect the demand to

increase further. By surveying and observing the customers, I learnt that 15-25 minutes

is a tolerable waiting period.

The plan to expand to a capacity of 400 would require 70 million rupees, not including

costs of extra labor, utilities and equipment for a larger area. Moreover, Blue Nile’s lack

of innovation to cater for newer trends or above-the-line promotion could create a

problem if it expands.

However, with intense competition in the market, Blue Nile may need to expand if it

wishes to keep its market standing. It may also benefit from economies of scale, and

may increase its revenues because of greater capacity.

I believe that a large expansion may be ill suited for it, but a smaller expansion, or hiring

or training staff may provide a less risky solution for the problem.

Word count: 177 words

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BUSINESS AND MANAGEMENT (HL)

RESEARCH PROPOSAL

Should Blue Nile Restaurant expand in order to solve its capacity problems?

Exam session: May 2018

Word count: 473 words

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Research Proposal

1.1 Research Question:

Should Blue Nile Restaurant expand in order to solve its capacity problems?

1.2 Proposed methodology

1.2.1 Rationale for study:

Blue Nile is a 42-year-old restaurant and hasn’t expanded substantially since its

inception. This has led to longer waiting periods for the customers. After a discussion

with the managers, I learnt that the restaurant is losing some customers and revenues

as a result. The owner is deciding whether to expand organically in order to tackle this

problem. As a business student, my curiosity was piqued and so I decided to study and

evaluate this decision.

1.2.2 Areas of syllabus to be covered:

1.3 Organisational Objectives- SWOT Analysis. This will help me evaluate the

decision along the lines of internal and external factors.

1.7 Organizational planning tools- Force field analysis. Through this, I will be able to

study the driving and restraining forces of the expansion

3.7 Cash Flow - A cash flow forecast can help me evaluate the feasibility of a large

capital expenditure on Blue Nile’s cash flow position.

4.5 The four Ps (product, price, promotion, place)- Branding and loyalty.

1.2.3 Possible sources of information:

 Primary- owner of the restaurant, managers, customers

 Secondary- Zomato.com, a food ordering website; The Economic Times

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1.2.4 Organizations and individuals to be approached:

1. Owner, Mr. Jafari, to understand the extent of the problem and financial data

2. Manager of the restaurant, to learn about the number of daily customers, the

average waiting period

3. Customers at the restaurant, to ascertain the extent of dissatisfaction caused by

the waiting period

4. Observing the customers who are waiting, to see how many actually leave.

1.2.5 Methods to be used to collect and analyses data and the reasons for

choosing them:

1. Interview of the owner, to get the predicted costs and revenues as well as any

other possible measures. I will analyse this using SWOT and force field analysis.

I will also use a cash flow forecast to understand the impact of an expansion on

its cash flow position

2. Interview of the manager, which may give me quantitative data such as the

number of customers and their average waiting period.

3. Survey of customers using questionnaires which will give me data regarding the

waiting period and the extent of dissatisfaction and the competition

4. Observation of the customers can give me data about how many customers

leave because of the waiting period, their behavior and mannerisms

1.2.6 The order of activities and timescale of the project:

I will be doing activities in the following order:

1. Interview of the manager

2. Observation of customers
 4

3. Survey of customers

4. Interview of the owner

The entire project will take about 8-9 months

1.2.7 Anticipated difficulties:

I may get skewed results because of the following;

 The owner’s reluctance to disclose some financial data

 Owner’s bias may affect the data that he reveals, affecting the force-field

analysis.

 Management’s unwillingness to admit the restaurant’s weaknesses

 The strengths of the restaurant may be over emphasized

 Customers may give unreliable data depending on their preference toward the

restaurant

 My observations may be skewed because of fluctuations and variations, as my

observation and survey are only limited to a few days

1.2.8 Action Plan:

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2.0 Written Report

2.1 Introduction:

Founded in 1975, Blue Nile is a family restaurant. It has not expanded significantly

during the 42 years following its inception. Pune has been experiencing a cultural

change ever since it became an IT hub. With a rise in the number of jobs available and

high salaries but long working hours, people have started eating out more. An

exponential rise in the affluence of the middle class has led to a boom in the number of

customers Blue Nile gets every week. The influx of new patrons has forced growth to

become a priority. A small renovation took place in 2007, increasing the capacity by a

meager 30 people, but the danger of losing customers was far from averted.

The average waiting time for dinner on weekdays alone is over 15 minutes, while on Commented [AM1]: Afternoon or evening?

weekends, this can easily quadruple. With a sharp increase in the number of options

available to customers, the management of Blue Nile has been spurred into action and

plans for solving the problem have been put forth, one of them being organic growth by

constructing a new building. However, I feel that numerous other factors affecting

customer dissatisfaction can come into play and this leads me to my research question:

Should Blue Nile Restaurant expand in order to solve its capacity problems?
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2.2 Methodology employed:

First, I conducted an interview of the manager of Blue Nile, in order to get quantitative

data such as the restaurant’s seating capacity, the busiest days and the average waiting

period, and the extent of the capacity problem.

Next, I took a survey of the customers waiting outside the restaurant at dinner times all

days and also in the afternoon on the weekend over the course of seven days to Commented [AM2]: Afternoon or evening?

measure their level of discontent and their brand loyalty. My questionnaire was filled out

by about 10 people – at random - every day, thus helping me identify a pattern for all

the days of the week.

I waited outside the restaurant for a week and observed the people in the waiting area.

This gave me rich qualitative data about the mannerisms and behaviour of the patrons

who were waiting. However, some of the instances I recorded could have been one off

behaviour, which could give me spurious results.

Lastly, I conducted an interview of the owner of the restaurant. My interview with the

owner gave me the restaurant’s promotional strategies, predicted costs of the new

building, and their estimations on the amount of period they expect the investment

recouped.
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2.3 Main Results and Findings:

From my interview with the owner, I found out that Blue Nile expects the number of

customers to increase, with a majority being corporate clients. He believes that an

expansion is imperative for the business to keep up their level of customer satisfaction.

He estimates that an ideal size would be around 400 from the current 200, taking about

30-35 months and costing 70 million rupees to construct. He also believes that the cost

can be recouped within 7 years.

I discovered from the interview that Blue Nile relies predominantly not on above-the-line,

but on word of mouth promotion and recently, online publicity and reviews, which it

believes are more than sufficient. Blue Nile has only a few major rivals, 2 cafes in its Commented [AM3]: What is the relevance of this to your
study?

vicinity. However, fast food chains such as McDonald’s and Pizza Hut, also pose a Commented [AM4]: How can these be competitors when the
food is so different?

threat, especially because of changing trends of the youth. I also learnt that the owner is

concerned about online platforms that provides customers with a wider choice of

restaurants and an option to stay at home and order, a major disadvantage to

conventional restaurants.

Approximate % capacity utilisation at peak times

through the week
100
90
80
70
60
50
40
30
20
10
0
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
 8

Approximate % capacity utilisation at non peak

times through the week
90
80
70
60
50
40
30
20
10
0
Monday Tuesday Wednesday Thursday Friday Saturday Sunday

The manager informed me that Fridays, Saturdays and Sundays were the busiest days,

mainly in the evening, with waiting periods sometimes exceeding 30 minutes. The

restaurant has a seating capacity of 200, but this quickly fills up during the peak hours.

Blue Nile considers its quick service and customer loyalty its main strengths since many

customers wait for a while to be seated. However, some leave, especially those in large

groups. This was corroborated by my observations.

From 2 such groups, I learnt that Blue Nile didn’t have the capacity, mainly at the peak

times, to seat all of them together. Through my survey and observations, I noted that

the waiting period that most customers found bearable was 15-25 minutes, after which

they started getting impatient, and sometimes, leaving. My survey further revealed that

customers liked the fast service and high quality of food at Blue Nile. Customers

however suggested that there should be some sort of promotional schemes given,

particularly because of the large rise in the number of options available now.
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Customer Waiting Period

15% 10%
Leave within 5 minutes

Wait for 5-15 minutes

30%
Wait for more 15-25
minutes
Wait for more than 25
45%
minutes

My survey also revealed the upcoming fast food joints are becoming more of a threat,

which ratified what the owner told me. The reason behind this is the changing trend in

the new generation.

While observing the customers, I noticed a high degree of loyalty among the patrons,

mainly the older ones, who I was later informed by the manager, were regulars. They

preferred to wait for extended amounts of time. Some people left, but refused to answer

my questions about the reason or alternate destination.

There has also been a rise of online platforms that collect food from the restaurant and

deliver directly to the customer’s homes. This, along with customers taking away their

own food helps ease some of Blue Nile’s capacity burden. The manager estimates

about 25% of its sales happening in this manner.

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Customer Distribution

10%
Sitting at the restaurant
15%
Take away

Online
75%
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2.4 Analysis and discussion: Commented [AM5]: Where is the data for analysis? There is
absolutely no financial data for an expansion that requires financial
investment. This is a major drawback in your work.
Strengths Weaknesses
Commented [AM6]: Use graphs to show the quantitative data
that you have gathered
Opportunities Threats

SWOT analysis can be very helpful in the decision-making process. By analysis of Blue

Nile’s internal favourable and unfavourable internal factors, and the external factors that

could benefit or harm the business, I could evaluate the feasibility of an expansion.

Blue Nile’s greatest strengths are its customer loyalty and fast service. Coupled with its

well-established customer base, Blue Nile is a formidable player in the local market. If it

expands, it can also take advantage of economies of scale, such as technological

economies, that can increase productivity and improve quality of the food. An additional

opportunity is that, GST rates have been brought down to an all-time low of 5%, and this

could potentially increase demand in the future. Also, the restaurant industry is

expected to grow 10% a year, to Rs 5,00,000 crore by 2021 1, which holds a lot of

potential for Blue Nile if it expands to cope with the growing demand.

However, the potential for growth in the industry could also mean that competition could

increase substantially in the future, in addition to the 5500 restaurants that already exist

in the city.2

Blue Nile’s lack of above-the-line promotion could be quite disastrous as it could lead to

fall in consumer demand in the future. This is a very big threat, especially because of

1
Anoothi Vishal, “Restaurants are operating in an increasingly tough environment,” The Economic Times,
August 21, 2016, accessed August 19, 2017, https://economictimes.indiatimes.com/industry/cons-
products/food/restaurants-are-operating-in-an-increasingly-tough-environment/articleshow/53788412.cms
2
“Pune Restaurants,” Zomato, accessed August 20, 2017, https://www.zomato.com/pune/restaurants
 12

the changing trends in the industry and increasing inclination towards fast food. This

effect could be further worsened because of the lack of innovation, as Blue Nile’s

management is reluctant to revamp the menu to accommodate for rapidly changing

trends among the youth. The complacency could cost Blue Nile in the form of reduced

demand in the long term, making the decision to expand meaningless.

Also, the increasing number of online platforms for comparing and reviewing restaurants

poses a threat as it offers a much wider choice to consumers, and can also spread

negative publicity more easily.

However, keeping in mind the immense competition in the market, I believe that Blue

Nile may need to expand if they want to retain their customer base and keep them

satisfied. The waiting period often exceeds 30 minutes, especially on weekends, which

are crucial to the business, owing to the fact that nearly 60% revenues are earned on

these days. As I found out in my survey, a majority of the patrons found a waiting period

between 15 and 25 minutes tolerable, but beyond that, unacceptable. The waiting area

too can accommodate at most 50 people, and this is one of the major problems Blue

Nile has to deal with. If the restaurant does not expand, it could adversely affect the

establishment which has fastidiously built up its reputation and loyalty over the past four

decades.

The costs of such an expansion may run very high, which may go well over the

estimates. Increased utilities because of a considerably larger area, along with

increased wage costs, both for new workers and for existing workers for increased

workload has the potential to create significant cash flow problems for Blue Nile.

Similarly, capital expenditure is also likely to increase due to more equipment needed
 13

for greater number of customers. This problem may be worsened if the demand for Blue

Nile falls in the future, which is a possibility owing to the fact that Blue Nile doesn’t have

any above the line promotion.

At the current capacity, promotions may not be necessary, but to fill up about twice the

capacity, effective promotion will be required. ATL can be very expensive, and this will

add to the costs of expansion. Lastly, the high expenditure makes little sense if full

capacity utilization is achieved only 3 or 4 days a week.

The fast service that the restaurant provides and customers appreciate can be further

improved to provide an alternate solution for the problem. At present, a single waiter

handles 5-6 tables and only a single captain/manager watches over the entire

restaurant. By hiring more staff or through the training and development of existing staff

to handle more responsibilities and become more productive, Blue Nile can resolve the

capacity issue, at least in the short run. This will be much cheaper than an expansion

and a lot less risky. As said before, Blue Nile could face a major cash flow problem if it

invests a significant amount into the expansion and the level of demand falls.

(cash flow forecast)

Another threat Blue Nile faces is the increasing number of online platforms for as the

offer more choice to consumers, and negative publicity can spread more easily. For

instance, Zomato is a very popular app that allows customers to rate and compare

restaurants. Multiple reviews stated that the physical environment of Blue Nile is its

least appeasing aspect.3 This could easily be remedied while expanding, making it more

appealing and spacious for the consumers. Blue Nile can further benefit from the

3
“Blue Nile,” Zomato, accessed August 25, 2017, https://www.zomato.com/pune/blue-nile-camp-area
 14

improved physical environment by charging higher prices, playing and consumer

perceptions.

According to the force field analysis, the driving forces supporting the decision are less

than the restraining forces. The weights attached to each of the forces are at best

estimates based on the data the owner revealed, and to this extent, the conclusion

drawn may be flawed.

2.5 Conclusion and Recommendations:

The fast-growing restaurant market presents a lot of opportunities to Blue Nile, making

an expansion a very sensible decision. By further building on its strengths of high quality

food and fast service, the lower waiting periods because of the expansion will help the

restaurant enhance its reputation and brand loyalty. This in turn, can help in boosting

revenues, and in the long run, be very beneficial for Blue Nile. But, the cost of the

expansion is a significant obstruction, as it can pose a very big threat to the restaurant’s

cash flow.
 15

Therefore, I believe that Blue Nile should not invest in an expansion. I think that the

costs and risks of the expansion, especially such a large one, outweigh the potential

benefits. A smaller expansion, with considerably lower costs would be much more

suitable for Blue Nile.

However, my conclusion may be flawed because I collected data over 2 weeks only,

and for this reason, my data such as the capacity utilization and waiting period may be

offset due to a number of factors, for instance seasonal variations.

According to the data I collected, I believe that a large expansion like the one being

proposed is likely to be disastrous for Blue Nile; a less risky solution could be a smaller

expansion or training and development of existing employees or hiring more staff, which

could reduce the waiting period.

 Bibliography

 Vishal, Anoothi. “Restaurants are operating in an increasingly tough

environment.” The Economic Times. August 21, 2016. Accessed August 19,

2017. https://economictimes.indiatimes.com/industry/cons-

products/food/restaurants-are-operating-in-an-increasingly-tough-

environment/articleshow/53788412.cms

 “Pune Restaurants.” Zomato. Accessed August 20, 2017.

https://www.zomato.com/pune/restaurants.

 “Blue Nile.” Zomato. Accessed August 25, 2017.

https://www.zomato.com/pune/blue-nile-camp-area.

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Appendix

vi