Reference no: EM132113841
Case:
When BRG partnered with Stephanie Izard for developing Girl and the Goat, she had just won a Top Chef award, and she was armed with a specific concept in mind. At the time, the economy had just taken a nosedive into the recession, which somewhat altered the concept discussion, thus bringing the idea of middle class sensibility into the picture. The company wanted to create a concept that offered guests a sense of perceived value; therefore, opening up a smaller restaurant with moderately priced dishes was important to them. According to the owners, determining the status of the economy is extremely important before opening a restaurant, because of the industry’s high rate of failure.
Because rent per square footage had dropped as a result of the recession, the economic situation allowed the owners to look for a building in a neighborhood that had a higher profile than some of the BRG’s previous restaurants. The owners determined that the West Loop area was an upand- coming urban neighborhood and poised to be the next big foodie mecca of Chicago, making Girl and the Goat the right concept to succeed in that environment. The area has a great proximity to downtown Chicago; it is located relatively close to the expressway for ease of access; and people are taking advantage of lower prices in the area to purchase property. Currently, the neighborhood is one of the hottest real estate areas in the United States, bringing new companies of all sorts to the area.
The owners purchased a building that was 4,400 square feet, which included 2,100 square feet of restaurant space that can hold 122 seats in the dining room and 22 seats at the bar. In regard to size, Girl and the Goat falls in the middle of BRG’s portfolio of restaurants, the company’s largest restaurant as of this time, is 10,000 square feet and can seat 180 guests, the company’s smallest restaurant, GT Fish & Oyster, is 3,100 square feet and seats up to 110 guests.
The overall budget to open Girl and the Goat was $1.4 million. Upon opening, the owners projected the restaurant approximately $5 million in its first year; however, the restaurant significantly exceeded expectations, raking in $10 million in its first year of operation, allowing the owners to pay off their investment debt in 9 months. The restaurant is unique in that it does on average the same amount of covers every night of the year.
Question:
How much profit per month would BOKA restaurant need to make to pay back BRG’s five investment partners in the following scenarios: (a) 3 years (not taking any costs into consideration); (b) Once the principal amount is paid off, if the monthly profit remains the same, how much profit would the investment partners make over an additional five years given the new contract terms; (c) How much profit would the owners make over this entire eight year period of existence, and what percentage of total revenue are they receiving?