cost–volume analysis

Some people would say that Oliver Munday, Hard Rock’s vice president for cafe development, has the best job in the world. Travel the world to pick a country for Hard Rock’s next cafe, select a city, and find the ideal site. It’s true that selecting a site involves lots of incognito walking around, visiting nice restaurants, and drinking in bars. But that is not where Mr. Munday’s work begins, nor where it ends. At the front end, selecting the country and city first involves a great deal of research. At the back end, Munday not only picks the final site and negotiates the deal but then works with architects and planners and stays with the project through the opening and first year’s sales.

Munday is currently looking heavily into global expansion in Europe, Latin America, and Asia. “We’ve got to look at political risk, currency, and social norms—how does our brand fit into the country,” he says. Once the country is selected, Munday focuses on the region and city. His research checklist is extensive, as seen in the accompanying table.

Site location now tends to focus on the tremendous resurgence of “city centers,” where nightlife tends to concentrate. That’s what Munday selected in Moscow and Bogota, although in both locations he chose to find a local partner and franchise the operation. In these two political environments, “Hard Rock wouldn’t dream of operating by ourselves,” says Munday. The location decision also is at least a 10- to 15-year commitment by Hard Rock, which employs tools such as locational cost–volume analysis to help decide whether to purchase land and build, or to remodel an existing facility.

Currently, Munday is considering four European cities for Hard Rock’s next expansion. Although he could not provide the names, for competitive reasons, the following is known:

FACTOR EUROPEAN CITY UNDER CONSIDERATION IMPORTANCE OF THIS FACTOR AT THIS TIME

A B C D

A. Demographics 70 70 60 90 20

B. Visitor market 80 60 90 75 20

C. Transportation 100 50 75 90 20

D. Restaurants/nightclubs 80 90 65 65 10

E. Low political risk 90 60 50 70 10

F. Real estate market 65 75 85 70 10

G. Comparable market analysis 70 60 65 80 10

Case Study Questions

  1. From Munday’s Standard Market Research checklist, select any other four categories, such as population (A1), hotels (B2), or restaurants/nightclub (D), and provide three subcategories that should be evaluated. (See item C1 [airport] for a guide.)
  2. Why does Hard Rock put such serious effort into its location analysis?
  3. Under what conditions do you think Hard Rock prefers to franchise a café?

All key elements of the assignment are covered in a substantive way.

  • Introduction
  • Problem identification
  • Analysis (pros and cons)
  • Solution choice and rationale
  • Conclusion
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