Tuquituqui Bar & Lounge

Business Proposal - Economic Analysis
ECO/561

Instructor
Alan Lane Murcia

Student
Diana Montenegro
March 15, 2014
Abstract
Tuquituqui is an upscale venue/bar where indie music lovers and art enthusiast can gather and enjoy the Chelsea area in New York. Offering a variety of top industry live acts and guest DJs, this venue will bring an urban chic ambiance in a casual setting where all can feel its artistic influence. At 4500 sq ft in size, Tuquituqui offers a full stock bar with reasonably priced drinks, which would include a great variety of domestic, imported and specialty beers, and assorted cocktails. Tuquituqui is a getaway to drink, dance and talk the night away while viding to the best selection of house and indie rock music. A unique experience of L.A. meets NY —Tuquituqui will surely be the preferred location for the alternative NY night going crowd. Tuquituqui will be opened Tuesday through Sunday, and its operating hours will be Sun, Tue-Wed: 8pm to 3am, Thurs-Sat: 8pm to 5am.
Our objective is to be ahead of the competition in the Chelsea Area in terms of music, artistic environment, and most importantly, service. Each customer will be given VIP treatment without any discrimination or judgments. Tuquituqui will be known as the only bar in the area able to satisfy the changing tastes of its target customers and will also be a supporter of the arts and upcoming musicians.

I. Market Structure
Bar establishments form part of the US food service market industry which comprises a large and varied range of away-from home eating and drinking facilities: everything from commercial eating and drinking places (i.e., restaurants and bars) to food contractors and institutional providers. The bar establishments market is a monopolistic market situation since there is a large number of sellers and large number of buyers instead of just one single seller.
The bars and alcoholic beverages market industry comprises establishments that primarily purchase, store, sell and distribute alcoholic beverages including beer, distilled spirits, and wine. The alcoholic beverages and bars market is in the mature stage of its life cycle, with relatively steady annualized revenue growth of 1.8% to 64.3 billion over the years to 2016. II. Elasticity of demand
Products are said to be inelastic if consumers will continue to demand the good, regardless of the price. Products are considered inelastic if consumers stop demanding the product as prices increase. Alcoholic beverages are considered an elastic product since most consumers will frequent bars less as the price of drinks offered increases. III. Methods to Increase Revenue
Our target markets are mainly graduate students, young professionals and trendsetters, male and females, ages 22 -35. On average, a client spends $ 30 to $40 dollars a night, and goes out two to three times a week. The client’s average annual income is $40K to $60K. The typical client is not fond of bottle service, yet he is very willing to spend $6 to $8 dollars on beer and $10 to $12 dollars on a cocktail or drink. The client is price sensitive, but is also conscientious on the value of the experience he is getting.
In order for Tuquituqui to maximize its profits we must use several techniques such as pricing our products at competitive prices, offering high quality service to our customers, combined with pricing and non-pricing strategies intended to increase profit maximization (explained in the next section). IV. Profit Maximization of Quantity / Marginal Cost and Revenue
The pricing of the drinks to be offered at Tuquituqui depend on the costs related to acquiring, storing, and distributing beverages to customers. Our focus will be to provide the highest quality of service in town while offering competitive prices to our customers. In order to do so, we will implement several non-pricing strategies such as marketing and promotional advertising which will help increase the flow of customers visiting our facilities and therefore increase total revenues. V. Pricing and Non-Pricing Strategy
The bar industry is highly competitive. This has forced operators to find ways to boost market share, to find and retain employees, and to controls costs, as they strive to maximize profits. The largest US restaurant and bar chains as a group continued to recover in 2012 from the great recession. The Standard and Poor’s firm projects that sales at bars and restaurant establishments will increase 0.5% to $202.6 billion in 2014. a. Marketing
Venue & Music Line-up: The overall atmosphere will be the main reason for consumers to come. We will take our customer to a place vastly different from what NY has always been. Our venue will have that feel and decor of brick walls, wooden bars, urban settings, etc. Our clientele will also be drawn in by the music line-ups that are presented on a weekly basis in the venue. This will rely strongly on our booking agent that will bring the up and coming indie groups that are doing college tours, as well as open format DJs that have gained popularity in the indie realm. These venues tend to have a greater life expectancy than ordinary bars due to the target and the variety of musical selection. They tend to have a 10 year life cycle without the need for any major remodeling and can become a landmark with locals for the years to come.
Pricing: In order to attract a loyal crowd, drinks will be priced competitively; $5-$7 beers, $10-$12 mixed drinks.
Strategic Alliance: The University of New York has the only indie radio station that plays in NY—WVUM 90.8. Tuquituqui plans to give away tickets to monthly concerts for the station’s listeners, as well as allow the radio hosts to interview the artists when booked at our venue. b. Promotional and Advertising Strategy
Tuquituqui, as a high end bar, will become popular mainly thanks to the Word of Mouth. In other words, we will be promoted by previous customers and influences from the nightlife who will be invited to host their exclusive events at our venue. Art Walks will also be fundamental in our strategy to promote Tuquituqui to our niche market. These Art Walks are held every second Saturday of the month and bring hundreds of people interested in the galleries, artistic events and restaurants in the area.
On Tuesday and Wednesday nights we will have special prices in selected drinks and imported beers, Wines and Vodkas. The discounted price will depend on agreements with our vendor and it will be an opportunity for new brands or products to be promoted.
We will advertise in magazines focused in arts, radio programs that promote Indie music, newspapers, and also create profiles in Facebook and Twitter. By choosing these channels we promote our brand and inform customers who belong to our target market. We will not advertise in television considering this will not achieve only our specific market which would result in a lower return per dollar spent in advertisement. Additionally, we will not advertise in Facebook (banners or flyers) considering the unknown return of these channels so far.
In the initial four to five months we will have promoters who will be sent to selected areas and inform customers of the new venue in the Chelsea area. It will not be a massive approach. We will study the most appropriate regions and times to contact the target consumers in an individual basis. VI. Non-Price Barriers to Entry
The most important barrier to entry is licensing. A variety of state and federal industry regulations delay the speed at which new distribution businesses can be opened and further dampen prospective entrants by requiring thorough information about those who wish to enter the industry. The complex network of regulations varies from state to state, and provides an inherent market barrier to entry that protects the few large establishments that operate in the market. Exclusivity contracts and long-term distribution agreements strengthen the foothold of these more established operators. VII. Methods to increase product differentiation
It is necessary for Tuquituqui to be differentiated from its competitors wince it will be operating in a monopolistic market competing with several other establishments in the area. In order to differentiate our products and services we will look to negotiate with top spirits brands and/or up and coming ones, different deals that will benefit our brand and also our venue. We will also sponsor special events like anniversaries, Halloween events, Concerts. This will bring visibility of our brand while differentiating us from our competitors. We will be negotiating to have these brands help us on the days that we have drink specials (Tuesday and Wednesday,) as well as to help us with certain costs for our monthly concerts and advertising costs. VIII. Methods to Minimize Cost for the Product
In order to minimize product costs we will maintain an organized and efficient inventory system where we will track every single expense related to the operation of the business so that we can avoid unnecessary expenses and reduce operative expenses. Additionally, as explained before, we will negotiate deals with product distributors in order to obtain products at discounted prices. This savings will be passed along to our customers who will have access to high quality products at prices lowers than the ones offered by our competitors. IX. Estimated Economic Costs Estimated Economic Costs | | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Marketing | $30,000 | $24,075 | $24,075 | $19,950 | $10,574 | Maintenance & Miscellaneous | $200,000 | $170,000 | $178,500 | $187,425 | $196,796 | Bar Supplies | $50,000 | $52,500 | $55,125 | $57,881 | $60,775 | Music Band and Talent | $250,000 | $180,000 | $180,000 | $180,000 | $180,000 | Liquor License & Permits | $10,000 | $10,000 | $10,000 | $10,000 | $10,000 | Labor | $350,000 | $300,000 | $312,000 | $324,480 | $337,459 | Payroll Taxes | $50,000 | $42,857 | $44,571 | $46,354 | $48,208 | Rent | $150,000 | $156,000 | $162,240 | $168,730 | $175,479 | Utilities | $55,000 | $25,000 | $25,000 | $25,000 | $25,000 | Insurance | $18,000 | $18,000 | $18,000 | $18,000 | $18,000 | Total Estimated Economic Costs | $1,163,000 | $978,432 | $1,009,511 | $1,037,821 | $1,062,292 |

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[ 1 ]. IbisWorld Industry Report, bars and Alcoholic Beverages in the US, January 2014.
[ 2 ]. As Markets and markets Systems: Price Elasticity of Demand,” accessed March 14, 2014. www.tutur2u.net/economics.
[ 3 ]. Ibid.
[ 4 ]. IbisWorld Industry Report, bars and Alcoholic Beverages in the US, January 2014.