Joshua Mathew Signature Restaurant Case

22 J.M.'S SIGNATURE RESTAURANT

Joshua Mathew had just finished reviewing his accountant's evaluation of his plan to open a new high-class restaurant, J.M.'s Signature Restaurant, in the entertainment district in Toronto. He was troubled to see that his accountant considered his goals to be overly optimistic. Mathew, an experienced restaurant owner, had the idea for the new restaurant when he learned that a restaurant had recently failed in a location directly across from the Cedarcroft Centre, one of Toronto's largest and best known theatres. He liked the downtown location and the landlord was offering a very attractive lease. While the area was heavily populated with restaurants, Mathew felt the opportunity was too good to pass up - a great location with a low lease rate. He knew he would have to move quickly to obtain the space.

Based on his previous success in the restaurant business, Mathew had set a goal of $4 million in revenue in J.M.'s Signature Restaurant's first year of operations. However, he knew he should carefully review his plan in light of his accountant's comments to determine if he should move forward as well as determine the most appropriate marketing plan to ensure J.M.'s Signature Restaurant success.

Restaurant Industry

The total Canadian restaurant industry was estimated at $38 billion in annual sales with growth in the 2% to 4% range in recent years. The growth could be attributed, in part, to a shift in consumption patterns with more of the household food dollar being spent in the fast food segment. It was estimated that 15% of all personal expenditures were spent on food and 34.6% of every dollar spent on food was spent in restaurants. The industry was highly competitive with over 63,000 restaurants offering consumers everything from fast food to fine dining where the bill could exceed $100 per person. The majority, 65%, of restaurants were independently owned and operated. Of these, approximately 5% failed in 2000. Industry data revealed an interesting phenomena. New independent restaurants had a higher failure rate, 18%, in their first year of operation.

Overall, the restaurant industry catered to virtually every taste and consumer; from ethnic to fast food; from chains to independents; from low to high price; and from middle of the road to trendy. As well, the industry could be broadly delineated into two different markets; full service and partial service, and was often further categorized by bill size per person. Selected financial information on full service restaurants in Canada is provided in Exhibit 1.

J.M.'s Signature Restaurant would be competing in the full service - higher bill size per person segment. In this highly competitive segment, traditional areas of competitive advantage including food quality and service were rapidly becoming a strategic necessity. Today, high class restaurants often sought a competitive advantage through alternative means such as dйcor. It was not unusual for restaurants with an average bill over $50 per person to spend over $4500 on dйcor per seat. Reputation was another key factor; a strong positive reputation was an intangible asset that could translate into real value, especially in an industry that was heavily influenced by hot trends and fickle customers. As well, 70% of annual restaurant sales were from repeat customers.

Toronto and The Entertainment District

Toronto, with a city population of approximately one million residents, was Canada's largest urban centre. Approximately 5.2 million people resided within a one hour drive of the downtown core, and 22 million tourists visited Toronto each year. Selected demographic and income based statistics for Toronto are provided in Exhibit 2.

Toronto's entertainment district was located in downtown Toronto, bordered by Queen Street to the North, Lakeshore Boulevard to the south, Spadina Avenue to the west and Jarvis Street to the east (Exhibit 3). This district partially overlapped with, and extended slightly south, of the Toronto downtown business district. Major entertainment centers in the theatre district included: the Cedarcroft Centre, a 3,200 seat house for ballet, opera, concerts and musicals; the Sky Dome, home of Toronto's baseball and football teams; the Air Canada Centre, home of Toronto's hockey and basketball teams, the historic Elgin & Winter theatre center; the Pantages theatre, best known as the home of Andrew Lloyd Webber's "The Phantom of the Opera"; Roy Thompson Hall, home of the Toronto Symphony Orchestra, and the Royal Alexandra Theatre. This downtown area, which included the financial district, supported the largest business workforce in Canada, with thousands of individuals commuting from surrounding communities to work in the downtown core. It was well populated with hotels and amenities. Approximately 12,000 first class hotel rooms were within walking distance of the theatre district.

Within this district there were over one hundred restaurants, each offering a different dining experience. One critic commented about the district that there were "so many restaurants, bars and shops that on some streets they are stacked on top of each other." The recent economic prosperity of the late 1990s and early 2000's were causing new restaurants to "spring up like mushrooms after rain". There were approximately 71 prominently advertised restaurants in downtown Toronto that fell within a similar price range to J. M.'s Signature Restaurant. Of these restaurants, 12 showcased a European or French atmosphere. Specifically in the theatre district, 29 restaurants with average bills per person greater than $41, were being advertised over the Internet on Toronto restaurant guide web sites. Over 55% of these restaurants had average bills per person greater than $50.

One key to being successful in this segment was "style". A popular food critic for a Toronto paper commented that a restaurant with great food and no style (or the wrong style for the moment) will flunk out faster than you can say, "Pass the crиme brыlйe". It could be perilous to ignore the latest fashion and trend. One of J.M.'s Signature Restaurant main competitors would be Reds - a bistro located in the First Canadian Place in the heart of Toronto's financial district. Its ultra cool bistro brand had become the darling of the young downtown business crowd since it opened in October 2000. Even though some critics found the food itself to be unappealing, the restaurant was always packed, except on Saturday nights when the financial district became