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Submitted By:

Group-2, BM-Section-B, XIMB

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u111067 Ankur Agrawal

u111108 Shilpi Jain

u111082 Khusboo Sinha

u111081 Abhijeet Pattnaik

u111083 Lakshay Katyal

u111072 Braj Sundar Das

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Flowy Introduction to X Caf Business

y Introduction to Data Collected

y Methodology for Data Analysisy Major Hurdles in Revenue Growth

y Suggestions

y References

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Introduction to X Caf Businessy X-caf caters to the needs of the residents of XIMB via two

Operations:y Restaurant Business

y Groceriesy There are provisions of room delivery within the campus

for food itemsy Most of the accounts run on credit to the residents with a

monthly payment routine

y Food is served from lunch onwards and the store operatesfrom 11 AM to 11 PM on all days.y Operations are shut down during summer holidays for

close to two months.

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Introduction to X Caf BusinessyAbout 40% of its revenues are contributed by the

groceries business and the rest 60% from the

restaurant business (2011 Data)yX Caf employs 14 workers and pays them for 12

months in the year.

yX Caf runs on a contract mode and also pays rent

@Rs 10,000 per month (including electricity) for all the12 months in the year.

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Introduction to Data Collected

(Grocery)y Data has been collected as per the template attached

in the spread sheet.

yWe have selected a spectrum of 39 SKUs from theapproximate 50 SKUs on the basis of representingmajority revenue sources of the grocery items in XCaf.

yRevenue from the 39 SKUs selected = 38.8% of 40 %expected revenue from Grocery business.

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Introduction of Data Collected

(Restaurant)y Fixed Cost

y Rent paid for the infrastructure

y ElectricityyVariable Cost

y Raw materials for daily consumption (perishable itemslike chicken, vegetables, paneer, etc)

y Raw materials for monthly consumption (Cooking gas,edible oil, pulses etc)

y Labor (Accountant, Chefs and workers)

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Methodology for Data Analysisy Most of the preliminary data has been collected by

checking the products details available at the store

and exhaustive inputs from the X caf contractor.y Landed Cost estimation using Margins

y Landed cost for retailer = MRP (1-retailer Margin)

y MRP = Mfg. price (1/1-Dist. Margin)(1/1-Ret. Margin)

y Transportation & handling costs born by the distributor.

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Methodology for Data Analysisy Inventory Model

y All the ordering happens based on a fixed order

Quantity model

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Methodology for Data Analysisy Order Quantity per period = Q

y Stock left at reorder point (S) = Q Sales during the

periody Average inventory level during the period = (Q/2 + S)

y Lead time is 1 2 days for most SKUs

y Reorder done weekly, bi-monthly and monthly based on

the sales pattern of respective SKU.

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Methodology for Data Analysisy Human Resource Allocation between Grocery and

Restaurant business:

yCh Chef, Ac Accountant, W Worker.

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Man Power Allocation

Cost Head Allocation Costs (Monthly) Annual Cost

Restaurant

3 Ch + 2 Ac + 7

W 35000 420000

Groceries 1 Ac + 1 W 6000 72000

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Methodology for Data Analysis

y COGSCOGS for grocery items = sales revenue (1- Retailer Margin)

y Contribution Margin RatioUnit Contribution Margin = Unit price (P) - Unit Variable

Cost (V)

Contribution Margin Ratio =

(P-V)/P = (Total Contribution Margin)/ (Total Revenue)

We have used this profit indicator to determinecontribution of Restaurant and Grocery business separatelyto offset the fixed costs and further contribution in grossprofit.

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Methodology for Data AnalysisBy this ratio, we can comment like which business is moreprofitable. As per calculations results are as following:

Restaurant contribution margin Ratio = [Restaurantrevenue (Raw material + Labor Cost)]/Restaurant Revenue

Grocery contribution margin Ratio = [Grocery revenue (COGS + Labor Cost)]/Grocery revenue

y Restaurant -> 26.80%

Groceries -> 4.29%Which shows Restaurant business profit margin is muchhigher than grocery business.

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Major Hurdles in Revenue GrowthWorking Capital Constraints:

y Credit Period from Suppliers

y Market Credit = 7-8 days (on most goods and cashborrowed from lenders)

y Advance payment needed for chocolates, deodorantsand some cosmetics.

y

7 Days credit on certain items only if purchase is over Rs25000-30000

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Major Hurdles in Revenue GrowthPayment from Debtors (Customers)

yAs per standard mode of operation consumers are

expected to pay at the end of the month routinelyas per the bills published by X Caf.

yActual on-time receipts of payments = 20-30%every month.

yAccrued due payments to the order of 8 lakhs

y Bad debt / default happens due to studentsdropping out of the course untimely.

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Major Hurdles in Revenue GrowthImplications due to payment irregularity and so theworking capital constraints... Regular stock-outs of products in demand

Unable to expand to more product categories despiteexisting demand

Growth opportunities in restaurant business Unable to extend breakfast services as workers end the day

at 1-2 AM every morning Breakfast services were started but could not be sustainedas menu was limited resulting in uncertain demand

Losses were high as perishable items like bread had to bedisposed due to fluctuating demand

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Suggestionsy More robust mechanism to collect payments on-time to

counter the major issue of working capital constraint.

y Currently no late fine till 1 month

y Levy Late fine of Rs.10/day after 10th of month

y Account closure after 2 month default

y More focus should be laid on the expansion of restaurantbusiness as returns are much higher than grocery business.

y Competition in grocery business is more due to shops justoutside the campus but single player in restaurant businessas mess serves only routine items.

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Suggestions contd..y Introduction of happy hours where-in food can be served at attractive

discounted prices and quicker services but these benefits can be availedonly on cash payment. This would boost collections.

y More focus should be laid on efficient human resource allocation forseamless start of further services like breakfast with a complete menu.

y Introduce Snacks special menu: samosa, kachori, bread roll, bhel puri

y different from mess

y displayed for impulse buying from 5-6 pm

y Sandwich offering- invest in grillery Bakery items: puffs, patties, mini pizza: invest in OTG/ Microwave

y Invest in mixer grinder: mango shake, flavoured shakes, cold coffee andlassi in summers

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Suggestions contd..y Brand building: pamphlets on notice boards of GR and

MTR at the beginning of session communicating to

new students the list of attractive items with phonenumbers for room/hostel delivery.

y Pamphlets for new additions in menu and everyday'sspecial- today's and tomorrow's

y

Offerings at beginning of session: pillow, mattresses,racks, mirror, buckets, mugs etc.

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ReferencesyWorkers and Owner of X Caf

y http://en.wikipedia.org/wiki/Contribution_margin

y http://www.anderson.ucla.edu/faculty/dick.rumelt/Docs/Notes/101_margins.pdf

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