Feasibility Analysis of Hospitality Industry - Assignment Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Table of Content 1.0 INTRODUCTION 3 2.0 INDUSTRY ANALYSIS 3 2.0.1 DRIVING FORCES IN HOSPITALITY INDUSTRY 4 DISPOSABLE INCOME 4 POPULATION STRUCTURE 5 COST OF LIVING 6 TRAVEL FREEDOM AND COST 6 CONSUMER BEHAVIOR 7 3.0 PRODUCT DESCRIPTION 7 4.0 BUSINESS LOCATION 8 5.0 PRODUCT AND SERVICE PROCESS 9 Business life cycle 10 Niche player profile 11 6.0 Physical resources 12 7.0 INVENTORY MANAGEMENT 13 8.0 HUMAN RESOURCE PLANNING 14 9.0 LEGAL ANALYSIS 14 10.0 TECHNICAL FEASIBILITY 15 11.0 CONCLUSION 15 REFERENCE 16 1.0 INTRODUCTION The business operates on hospitality industry where will deal on a wide range of products and services that includes provision of meals and drinks, accommodation and tour service for tourist both local and international. The industry trend is very tricky and therefore, it requires one to have enough background information on the industry in order to be ready to deal with any challenge arising from the industry. In addition, background information will enable the company to ensure it understand condition required by regulators before entry into hospitality industry in order to avoid litigation by market regulators e.g. government ministry dealing with hospitality industry. Operational analysis is also important in budget estimation and determination of resources to run the business cost effectively and realize high profit from challenging but lucrative industry, this analysis involves labor force estimation and basis of employment as used by the existing competitors in the market. Location analysis is another factor which needs to be looked into carefully since failure to understand business location could automatically lead to business failure. Lastly, will look at the SWOT analysis of the business in order to find how suitable the business will suite in the industry taking consideration of all the factors attached to it. 2.0 INDUSTRY ANALYSIS The business will operate in hospitality industry providing products services such food, drinks, accommodation and tours. Currently, there is boom in domestic tourism in Australia due to fact the cost of living reduced by a great proportion from the previous year while, international tourist reduced due to increase in the strength of the country currency. Another negative impact that hinders growth in hospitality industry in Australia is cheaper mode of transport to Thailand which has diverted some of local tourist to travel to Thailand during holidays which is peak period for any business in hospitality industry. Though, there are negative impacts affecting the industry currently, industry has shown great recovery since 2008 downturn in hospitality industry, the upward trend was realized in the period 2009/2010 and the above trend has been constantly rising, showing motivating results and promising return through venturing into hospitality industry. The occupancy rate in all tourist and accommodation has hit 80% on average all across Australia in the past year (2013). Boom growth is experienced in the middle class level business in hospitality industry while first class experiencing little growth therefore, giving area on which, I should concentrate in by venturing into middle class product and service provision (Block, Martin P and Tamara Brezen Block. 2005). There are great prospects in future for the industry to expand since the industry implemented various regulations that will protect them from another downturn in future. The industry stakeholders have also collaborated with the government through relevant ministries and agencies to hospitality industry, the move is important to the industry since they are able to forward their grievances effectively and efficiently due to improved communication channel (Block, Martin P and Tamara Brezen Block. 2005). There are several opportunities that are associated with hospitality industry since there has been growth in the tourism industry, workshops, increased inter-country relation and high divorce or increasing proportion unmarried population in the country. Therefore, it is easy for a firm to enter into hospitality industry due to growing demand as a result of change in the above trends. 2.0.1 DRIVING FORCES IN HOSPITALITY INDUSTRY Positive trend has been noted on hotel occupancy since 2009, the above trend has been as a result of various factors that has lead to such trend being realized when other industries are experiencing harsh economic conditions for example due to rise in inflation. This factors includes, DISPOSABLE INCOME One of the factors that determine the level of spending of a consumer is the amount of disposable income since it major cause of existence of budget constrain. Increase in disposable income will result to increase in spending habit of the consumer and decrease in disposable income results to decrease in the level of spending of the consumer since you cannot spend more than what you earn and at the same time one need to save or invest (Worl, & Wilson, K. 1988). From the figure below, it is noted that there has been constant increase in the level of disposable income from January 2008- January 2014 thus increasing consumers spending levels. Research showed that the disposable income grew by 4.8% in the period 2009-2011. This trend shows the major reason for the increase in the returns of business in hospitality industry. Therefore, giving me a lot of confident in grasping a better part of the market to sustain the business and still remain in a competitive edge in highly lucrative industry. Source: http://www.tradingeconomics.com POPULATION STRUCTURE Population structure is the composition of people in category since spending habit is influenced by the age since old tend to spend more than the middle age and young due to well established investment and pension scheme contributions than the middle age who are struggling to make their end meet and at the same time investing in order to established financial security in old age. On the other hand, spending by the young is low due to the reason that they are still provided for and their spending is highly monitored by their parents and guardians therefore, reducing spending levels of the young population (Worl, & Wilson, K. 1988). In Australia, there has been increase in the level of ageing population through statistics from 1995-2011 since in 1995 the country ageing population represents 4% but according to 2011 statistics the proportion improved to 14%. The 14% of the ageing population represent baby boomers group that were know of their habit of spending and need to enjoy life. Therefore, leading to increase in demand for hospitality products and service thus, making the industry attractive to venture into and earn high returns. COST OF LIVING Cost of living represents the purchasing power of the consumer and it is connected to countries monetary policy control and inflation arising from either within or outside the country. When inflation is low the spending level of consumer increases due to increased purchasing power but in high inflation, purchasing power of the consumer decreases an therefore, reducing spending habit of the consumer due to increase in cost of living. In Australia, cost of living has dropped significantly due to several measures put in place to control the economic conditions of the country as a way of improving the living standards of its citizens. The improvement has been realized after the 2008 economic crisis that faced a lot of countries worldwide mostly Europe region, this led to collapse of several business in various industries due to inadequate planning to shield itself from such shocks . Therefore, it is mandatory to take into condition the economic conditions of the country and other countries after which provision is provided for in order to enhance business survival in the industry during recession period (Worl, & Wilson, K. 1988). TRAVEL FREEDOM AND COST Government has influence in stimulating demand in hospitality industry both in stimulating local and foreign demand. For local demand, the government has encouraged domestic tourism by subsidizing entry fee for major tourist destination and carrying out extensive advertisement to encourage more of its citizens to tour around the country. In stimulation of international tourist, the government has reduced the procedures followed in obtaining travel documentation. Consequently, the government has joined hands in foreign countries to advertise some of the major attractive destination and also improve public relation with other countries to develop confidence of the potential tourist on their safety and reception in Australia. This factors has led to increase in hotel occupancy and the trend has been rising gradually thus increasing confidence of surviving and tapping great profit from the industry (Amstrong, R., Connie, M., Go, F. 1997). CONSUMER BEHAVIOR Consumer behavior tries to answer why, how and when consumers do spends or decides to purchase certain product or service. Hospitality industry depends more on the consumer attitude and desire to spend unlike other industries since touring and having dinner or lunch in a hotel is not necessity since one can avoid in one way or another in going into a hotel or visiting a tourist destination. Australian hospitality industry has developed ways to shape consumer behavior in many ways in order to increase impulse spending by the consumers. The strategies have proved to respond positively due to increased desire of the consumers to spend rather than only saving and investing money (Worl, & Wilson, K. 1988). 3.0 PRODUCT DESCRIPTION The business will provide customer needs under one roof in order to minimize customer movements since for a tourist he/she will need a tour guide and tour adviser which is part of our service line, one needs to eat and drink too thus forming our product line. Lastly, accommodation is required for the consumers e.g. tourist to rest thus accommodation forming part of my business service line. Provision of a complete hospitality products and service line improves customer satisfaction thus enabling constant increase and retention of customers(Worl, & Wilson, K. 1988). The current player in hospitality industry concentrates on high class consumers and thus neglecting lower and middle class consumers. Therefore, leaving unsatisfied middle and lower class return thus have designed products and services to satisfy the lower and middle class consumers but concentrate in on increasing the volumes of sales other than profit margin of a product or service. The strategy will enable the business to enter into the industry and grasp enough market shares to run normal operational activities and realize profit which is core reason of running a business (Barney, Jay. 1991). 4.0 BUSINESS LOCATION Location of the business is very crucial for business success, it is therefore, important to take into consideration all the factors that enhance suitability of the location of the business. The location should take into consideration the following factors, Population of the location where it should ensure that the area is densely populated in order to increase demand since the higher the population, the higher the demand for goods and services. Therefore, I should choose an area with high population to tap from excess demand. Endowment of natural resources and touring places within the region is also another factor which I need to take into consideration before deciding where to locate my business since it should be near in order to reduce transport cost and tap from the demand around the tourist destination point (Barney, Jay. 1991). Number of Competitors in the region is another factor where one is required to locate business in region where other competitors operate. This has advantage to my business since I will be able to take advantage of marketing advertisements of other big hotels which are able to plough in a lot of capital for domestic and international advertisements. Consequently, I will be able to tap unsatisfied demand from those consumers who are looking for middle and low class hotel for food and drinks, accommodation and tourism guide services. The business is a niche player since am satisfying unsatisfied demand (Barney, Jay. 1991). Level of income and spending habits of the people in the location is also important. Therefore, the region should have characteristics of spend drifters and also earning considerably higher income that enable them to gather for basic needs and remain with some to spend for leisure such as night out dinner or touring a place. Security of the region is another key factor since one should ensure the place is safe to do business and for consumers. Therefore, it is important to consider terrorist attack exposure and other minor thefts. A secure location is a great deal in locating a business for it to pick up faster and record high sales (Kotler, P. & Sidney J. Levy. 1969). Taking into consideration of the above factors, I settled at locating my business in Sydney city near Opera house, due to high population, tourist endowments such as marine aquarium, Jenolan Caves and Hunter Valley Wineries where tourist can tour. It is also a great deal to the business since the place is secure to carry out business with high concentration of hotels in the region to help in advertising the business. 5.0 PRODUCT AND SERVICE PROCESS It is very important to understand flow of products and services from raw material into transformation to the point of satisfaction of the customer. The important part is understanding consumer reaction and consumer feedback (Dr. sc. Jasmina Gržinić. 2007). The flow chart below shows elaborative product and services process in the business, Product and service process flow chart The above flow chart is crucial in understanding consumer needs which helps in reaching consumer point of expectation. Thus consumer retention and advertising through evangelism to other potential consumers. This will increase business reputation and level of sales that enables business grasp a competitive market share in hospitality industry (Dr. sc. Jasmina Gržinić. 2007). The other factor to consider in product and service delivery to consumers is the life cycle of the business. Therefore, it is important to understand the circle in which the business is in order to grow the demand and maintain market share through development of suitable strategy in each level of business cycle (Baum, J., & McGahan, A. 2004). Business life cycle At introduction stage, I will have to carry out background information on what customers need and satisfy the niche in the market. Growth stage is the part of the product life cycle where demand of business product and services keep on increasing at an increasing rate, at this point the business is suppose to maintain its product and service standard. Research and development should also be introduced but not intensive since the demand is still growing at an increasing rate (Baum, J., & McGahan, A. 2004). At maturity stage, the demand of the product and services increases with a decreasing rate to a point where the demand stagnates. There is need to increase concentration on research and development in order to maintain the demand at peak, through maintenance of the current market share (Baum, J., & McGahan, A. 2004). Decline stage is where the demand of the business products and services starts to decrease. Therefore, there is need to understand the trend in order to avoid unnecessary losses occurring, at this point the businesses can do rebranding, venturing into other fields or divesting business assets. The stage can be avoided by implementation of sound strategies during maturity stage (Baum, J., & McGahan, A. 2004). The business establishment in Sydney city is more of satisfying the niche of middle and low class earners and therefore the company niche profile is as shown in the flow chart below, Niche player profile 6.0 Physical resources These are tangible business resources and they include buildings, motor vehicles, beddings, tables, chairs etc. The nature of ownership is key factor to examined taking into consideration the cost, product life and innovation affecting the property. The table shows the asset, ownership status, monetary attachment and reason behind the choice of the decision. Property Acquisition Reason for acquisition mode Quantity Amount Source of finance Building Lease(Finance) It is expensive to acquire at once but we intend to buy it fully at the end of the lease since it won’t be obsolete. 1 $2,300,500 Loan Computers Lease(Operating) Computers easily get obsolete there is no need to buy. 6 $990 Equity Printers Cash payment Lack of leased printer 5 $850 Equity Tour Van Lease(Operating) Obsolescence so no need to buy since consumers require resent makes 3 $150,000 Loan Chairs Cash payment No lease policy on it 200 Equity Tables Cash payment No lease policy on it 90 $4,950 Equity Bedding Cash payment No lease policy on it 100 sets $9,000 Equity Beds Cash payment No lease policy on it 100 $10,000 Equity Refrigerators Lease(Operating) High maintenance cost at latter years 3 $1,500 Loan Total Budget $2,477,790 7.0 INVENTORY MANAGEMENT Inventory management is the ability of the management to match between demand and supply in order to avoid incurrence of unnecessary cost such as shortage cost and holding cost. Shortage cost results from lack of preparedness to meet customer need at that time of demand and this may lead to dissatisfaction and permanent shift of customer to another competitor offering the same product and service line. Holding cost occurs as a result of having excess stock leading to loss due spoilage, theft and obsolescence of the products (George, S., Weimerskirch, A .1994). The inventories required includes oils, vegetables, milk, coffees etc. some of this inventories are highly perishable therefore it is important to estimate a cost effective stock level. Economic quantity can be reached by demand prediction through use of forecasting techniques such as seasonal method of forecast (George, S., Weimerskirch, A .1994). The pricing is another factor used in controlling inventory in the business. I noted that the business should adopt dynamic pricing where prices are increased at peak season and reduced during low demand. This stimulates demand and ensures there is no wastage by disposing spoiled inventory (George, S., Weimerskirch, A .1994). Economic quantity model is used in determining the best level of order, re-order period and level of re-order quantity. The model is suitable for those goods which are not perishable such as oils and grains (George, S., Weimerskirch, A .1994). The model is given in the formula below, EOQ = Where, EOQ- economic order quantity R- Annual demand Cp- Order cost Ch – Holding cost 8.0 HUMAN RESOURCE PLANNING Human resource need to be analyzed in order to avoid understaffing or overstaffing. This hinders service delivery and increases the cost of operation thus reducing profit margin of the business. I will consider using few staff in management level and increase subordinates since the business is at introduction stage but increase as the business grows due to ability to pay its workforce and need to fully satisfy the growing demand. In addition, management staff should be increased due decision made in order to keep company quality standards improving and maintaining the market share (Smith, B., Boroski, J., & Davis, G. (1992). The employees will work on shift basis since I intend to have a 24hour hotel service. The table below shows human resource composition, terms of employment and responsibilities in the business. Level No Employment basis Recruitment Induction Management 5 Full time From other organization Development packages in order to improve management ability Subordinates 50 Casual and part time Advertisement(media) Training package- To ensure they are equipped with technical knowledge. Recruitment and selection will be done in a fair and transparent way in order to avoid violation of the Australian laws (Campion, J. E., &Arvey, R. D. 1989). Medical checkup should be done too since it is part of the requirement across all the industries in the market. 9.0 LEGAL ANALYSIS It is a requirement of Australian business to obtain all trading permits and licenses before starting operation. In hospitality industry, it is mandatory for a business to obtain health permit and ensures employees take several health test such as hepatitis B. The other requirement is tax identification number to be used in filling tax return. The other policy is to establish required wage rate for the employees in order to avoid violation of labor laws (Worl, & Wilson, K. 1988). 10.0 TECHNICAL FEASIBILITY Technical feasibility is the ability to meet the required resources required to start and run the business before it starts making profit to sustain itself. The estimated cost projection is estimated to be $15,000,000 where, $7,000,000 will incurred once while the remaining $8,000,000 is operating expenditure. The funds available for investment are $25,000,000 and it is financed by both debt and equity. Therefore, $10,000,000 remains in order to gather for contingent expenditure and unexpected demand since we are new in the industry. 11.0 CONCLUSION After due consideration, I have established that the venture is feasible due to lucrative and growth of industry product demand. The capital base required is also within reach and skilled labor is also available to run the business before it achieves profitability level. REFERENCE Baum, J., & McGahan, A. (2004). Business strategy over the industry life cycle (1st ed.). Amsterdam: Elsevier JAI. Buckley, Peter J and Mark Casson. (1996). “An economic model of international joint venture strategy." Journal of international business studies: 849--876. Print. Block, Martin P and Tamara Brezen Block. (2005). Business-to-business market research. Mason, Ohio: TexerePrint. Porter, Michael E. (1976). "Interbrand choice, media mix and market performance." The American Economic Review, 66. 2: 398--406. Print Vandegrift, G. F, Donald Timothy Reed and I. R Tasker. Environmental remediation. Washington, DC: American Chemical Society, 1992. Print. Barney, Jay. (1991). "Firm resources and sustained competitive advantage." Journal of management, 17. 1. Print. Els, G. 2012. Fundamentals of cost and managment accounting. Durban: LexisNexis. Dr. sc. Jasmina Gržinić. (2007). Concepts of service quality measurement in hotel industry. University Jurja Dobrile in Pula George, S., Weimerskirch, A .(1994). Total Quality Management, John Wiley and Sons, New York. Amstrong, R., Connie, M., Go, F. (1997). The Importance of cross-culture expectations in the Measurement of Service Quality Perceptions in the Hotel Industry, Int. J. Hospitality Management. Smith, B., Boroski, J., & Davis, G. (1992). Human resource planning. Human Resource Management, 31(1-2), 81--93. Kotler, P. & Sidney J. Levy (1969). Broadening the Concept of Marketing. 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