Module 4: The External Environment

Case Study: The Pub: Survive, Thrive or Die?

MGMT 5135
Fall2012
Team 2
September 23, 2012

Team Members
Conway, Ashley
Heasty, Mark
Johnson, Laura
McDonald, Adrian
Sarkis, Christine

Business Goals
The Pub, officially known as the Tantramarsh Club, was located in the basement of the University Center at Mount Allison University in Sackville, New Brunswick, Canada. The Pub operates as a separate nonprofit organization from the university, but it must comply with the university’s lease agreement and “not create an adverse reflection of the university”. The 15-17 members of the Board of Directors for the Pub include students, administrators, alumni, faculty, and other university representatives. The pub employed two full time managers and the remaining 20 staff members are part-time student employees.
The Board meeting of April 2008 presented manager Jonathan Clark with two challenging tasks. The Pub was going to be relocated to a new University Center closer to downtown Sackville in August 2008 and Clark needed to present the Board with the design plans for the Pub’s interior layout and a new business model for operating. The Pub had been operating at a loss for the past five years and was heading toward bankruptcy. The University was going to be responsible for construction of the new University Center and costs related to relocating the Pub. However, the Pub would be given loan by the university to buy new equipment and furniture.

S.W.O.T. Analysis
The following SWOT analysis captures the key strengths and weaknesses within the company and describes the opportunities and threats facing the Tantramarsh Club.
Strengths
* Customer Base - Available customer base due to location on campus. The Pub had a special connection with the students as the campus pub and was a symbol of tradition on campus for both current students and alumni (p. 49 & 51). * Clear Hierarchy with an organic management structure- The hierarchy of The Pub was clearly understood by all employees and worked really well. Seniority and experience played a large role (p. 53). Most employees moved between positions depending on what needed to get done, “roles are not entrenched or established within contracts or job descriptions” (p. 52-53). * Manager - Jonathan Clark, known as Scooter, was the manager since 1993. He graduated from the commerce program at Mount Allison, had strong ties to the community, owned and operated a local restaurant in town, and had a “pleasant disposition”. He endeared himself to the students and alumni (p 54). * Diverse Staff - The Pub was the “most social workplace on campus” and employed all students except the manager and the doorman. The staff included students from different areas of education focus, teams/groups, bilingual and international students, and also students with diverse sexual orientations (p. 52). * Revenues and Competitive Advantage - 80-90% of revenue earned on Friday and Saturday nights when dance parties are held. Tuesday “Trivia Nights” were successful, too. The Pub offered the lowest prices on alcoholic beverages in town (p. 59).
Weaknesses
* Financial Difficulties - The Pub had experience financial difficulties over the past several years and the likelihood of it becoming profitable in the future was unclear (p. 49). The Pub’s expected financial statement for 2008 is based on a 44.3% increased growth in revenues which had never been achieved between 1992-2007 (max growth was 24.6% in 1995) (p. 57-58). * Employee Retention - Retaining employees created a problem due to high turnover as most employees were part-time students (p. 53). * Lack of Management in Summer - Student manager operated the Pub during the summer time and was less consistent in operating the Pub. Jonathan Clark was out of town during the summer months (p. 54). * The Pub’s current physical condition – The current physical condition of The Pub was run-down. (p. 51-52). The dilapidated conditions of the Pub are driving away business, especially alumni and summer conference attendees. * Restricted Capacity- Due to fire regulations, capacity was 175 patrons; and customers often complained about waiting in line to enter the Pub in its current location. The new Pub would be 500 square feet smaller (from 3300 to 2800 sq. ft.) and according to fire regulations hold 25 less people at maximum capacity (from 175 to 150). * Advertising –No profit is generated from the VIP membership program which offered coupons and other perks (p. 55). There is no signage on the building (p. 51). The Argosy offered free ads, but Pub never did ads. Competing bars were allowed to advertise prices, however, the Pub was not allowed to due to university policy (p. 59).
Opportunities
* Opportunity to Reinvent their concept – The Pub has the unique opportunity to reinvent their image. Strain described the space saying, “the university designed a space that was as flexible as possible, so that The Pub can be anything it wants to be” (p. 62). * New Construction and Modern Technologies –The Pub can save money on repairs, can shed its “run down,” image and can potentially allow access to students with disabilities (p. 62). The University Centre would house all non-academic services including the Pub, the campus radio station, the bookstore, café, and registrar’s office. This would potentially allow for more traffic and customers for The Pub and make it easy for students to be able to find The Pub (p. 52). * Partnerships on Campus - Opportunity for partnership with student café which would be located directly across from the Pub in the University Center. By offering food, The Pub could increase the weekday traffic during usually slow time (p. 63). Active community at Mount Allison which have conducted joint events with the Pub. There are over 140 clubs and societies. * Advertising potential is high - New construction may allow for signage to be placed on the exterior, the school newspaper, the Argosy, has offered free advertising for the Pub, and opportunities to place ads/coupons on campus wide events and summer conferences could be explored. * Competitor Closed - The closure of one bar in town could increase the number of customers coming to The Pub (p. 59).
Threats
* More competition could potentially arise in the new location – Downtown location placed the Pub closer to the three existing competitors. The manager of The Pub estimated that each competitor took away about 10% of potential sales and revenue from The Pub and affected its contribution margin by $15,000. The local liquor store was approximately one kilometer from The Pub (p. 59). * University - Pub does not operate fully at arm’s length from the University and the University dictates major purchases and other major decisions for The Pub. The University could terminate The Pub’s lease at any point they do not comply with the rules of the University (p. 51). * Decreases in Alcohol Consumption - Competition among bars had increased as alcohol consumption patterns in Canada changed. The Drinking Places industry in Canada is experiencing a 6.2% decline in operating revenues. Students were becoming more studious, health conscious and money minded. Students preferred to spend time socializing at campus coffee shops rather than at campus pubs (p. 59). * Financial Threats - Minimum wage had recently increased along with insurance costs (p. 56). As stated above, the Canadian pub industry was seeing declining revenue (p. 59).

Root Causal Analysis
Problem #1 – Financial Problems
Causes
* The continual increase in minimum wage and the sudden increase in insurance coverage had increased The Pub’s costs significantly over the past few years (p. 56). * The fundamental business structure is flawed financially. With negative operating, investing and financing activities and a steady decline in all revenue generating categories for five years, relocation alone will not save the Pub from bankruptcy (p. 57-58). Adding a loan of >$100,000 will increase its financial burden (p. 63). * The Board of Directors is heavily weighted toward inexperienced business representatives. At least one-third of the voting members are students. None of the voting members is required to have any financial training. The one accountant is a non-voting member (p. 50). * Unfavorable economic indicators: more health and money-conscious consumers resulting in less spending on alcohol; discounts and free drink tickets eating into profits; rising minimum wage; increases in insurance costs; restaurant industry experienced growth while drinking places were on the decline. Decrease in student population (p. 50)
Problem #2 - Detriments of the new location
Causes
* One of the student’s biggest complaints of the current location is the wait in line to enter The Pub. Capacity is further restricted in the new location. The bar was designed to serve up to 300 guests but the new location only had the capacity for 150 (p. 62) * The weekend dance parties account for 80 to 90 percent of The Pub’s current revenue but the dance floor will be smaller and there is not a permanent DJ booth (p. 52) * Anxiety, anticipation, uncertainties, and apprehension for staff and customers about new location (p. 52).
Problem #3 - The Pub’s relationship with the University Causes * The Pub was intended to operate as a separate entity from the University but did not operate completely at arm’s length (page 50 &51) * The Pub was under the discretion of the University. If they did not like what The Pub was doing, they could terminate the lease (page 51) * The University told The Pub whether or not they could make large purchases for new appliances or other upgrades (page 51) * The University seemed to have a lot of say over the layout of the new location without totally understanding the needs of The Pub (page 62)

Questions and Assumptions:
Questions:
* In the new location, would The Pub serve as competition for The Olive Branch? And would this be a conflict of interest seeing as Scooter has a vested interested in the success of both establishments? We will assume that Scooter will maintain his employment at the Pub going forward and that The Olive Branch will not be a direct competitor for the Pub’s drinking business. * What ideas had the pub’s management/directors already tried to increase revenue/profits? Which initiatives were most successful, and which were least successful? We will assume The Pub has not really focused on increasing revenue or profits in the past. They have just been trying to survive and work on moving to the new location. * What were the alcohol consumption pattern changes in Canada mentioned on page 49? Could there possibly be more changes in the future that would cause even greater competition among bars or vice versa? We will assume that it is unclear what motivated the increase in competition and that the next couple of years do not promise to bring any changes in the alcoholic consumption patterns of Canadians.
Assumptions:
* “Social” employee behavior does not negatively impact revenue, and therefore is not noted as an inefficiency; change of employee base from part-time student workers to fewer full-time staff is not a cost-effective change for the Pub. These assumptions rule out employment practices as a possible root cause of reduced profit, since such practices have been employed since the Pub began and significant losses have only occurred in the past decade. * We know little about the demographics of the Sackville community. This is a potential market to solicit with the new location of the Pub closer to downtown. We will assume that the Pub will focus its efforts on increasing revenue with its core student, faculty and alumni customer base.

Recommendations:
According to the textbook, uncertain environments require planning and environmental forecasting as a critical way to keep the organization prepared for a coordinated, speedy response. The common causes of manager failure is not confronting reality, filtered information, selective hearing, wishful thinking, fear, emotional overinvestment in a failing course of action, and unrealistic expectations. The Pub needs a new business model to fit reality. The Pub operates in a simple and unstable environment which is referred to as a high-moderate uncertainty level.
Building relationships and partnerships are going to be critical for the Pub’s survival. I would recommend developing strategic partnerships with the university café and clubs on campus such as Student Administrative Council (SAC) for joint events. Currently, the most popular nights are Friday/Saturday dance parties and Tuesday trivia nights. By partnering with other organizations, The Pub could increase traffic on weekdays and other weeknights. I would also recommend designing the layout of the new location of The Pub to to be more flexible and capitalize on parties/conferences. Guests, student organizations, and staff could all rent out The Pub for parties or conferences in order to increase their revenue. Attracting the conference crowd during the summer months will be extremely helpful in increasing revenue for the summer months.
Ongoing boundary spanning activities need to be added to the current business model. Scooter should join trade organizations which can keep him updated on local trends in the drinking places industry and partner with the various academic departments for research opportunities. Students from the psychology department could conduct research studies or questionnaires to find exactly what the customer's want and expect from the Pub and survey behavior patterns in the student population.
The Pub should also consider expanding advertising in the form of exterior signage, newspaper ads, and flyers. Minimizing profit losing coupons and emphasizing entertainment or drawings for prizes should be the focus. Scooter should take advantage of the student newspaper, The Argosy, and the student radio station, CHMA to advertise special events at along with the new features at the new location. It would also be beneficial for Scooter to find a graphic design student who would be willing to volunteer to help design attractive flyers or signs.
The Pub is also going to have to reconsider its current financial situation and its plan for the future. They should recalculate financial statements based on realistic estimates. Scooter should again take advantage of the student population by finding a business major that could help recalculate these statements, along with a professor to supervise. This could serve as an internship. To minimize expenses, the Pub should reduce the amount of employee discounts and drink tickets given out, and perhaps even slightly increase drink prices. In order to increase revenues, The Pub should consider a partnership with the café in order to sell food other than the snack food they are currently serving. A supplier agreement with the café might also be necessary in which the Café gets a percentage of the profits from the sale of food. This model has worked well for several campus pubs including the University of Windsor and Carleton University (p. 61).
The Pub should also consider re-structuring its relationship with the University. The board of directors should not have such a great influence on the happenings of The Pub. Scooter should be able to make decisions about the major purchases and events of The Pub without running them by the board first as long as he continues to uphold the image of the University in a respectable way.