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MRK718 – Seneca College Presenting Complex Material – Read The Case and Answer Questions


Read the following case and review/answer the questions below:
Maria’s Ristorante
Marie Trevia, the owner and manager of Marie’s Ristorante, is reviewing the slow growth of her
restaurant. She’s also thinking about the future and wondering if she should change her
strategy. In particular, she is wondering if she should join a fast-food or family restaurant
franchise chain. Several are located near her, but there are many franchisors without local
restaurants. After doing some research on the Internet, she has learned that with help from the
franchisors, some of these places gross $500,000 to $1 million a year. Of course, she would
have to follow someone else’s strategy and thereby lose her independence, which she doesn’t
like to think about. But those sales figures do sound good, and she has also heard that the
return to the owner-manager (including salary) can be over $150,000 per year. She has also
considered putting a Web page for Marie’s Ristorante on the Internet but is not sure how that
will help.
Marie’s Ristorante is a fairly large restaurant—about 836 square metres—located in the centre
of a small shopping centre completed early in 2002. Marie’s sells mainly full-course “home-
cooked” Italian-style dinners (no bar) at moderate prices. In addition to Marie’s restaurant, other
businesses in the shopping centre include a supermarket, a hair salon, a 5. Marie’s Ristorante
liquor store, a video rental store, and a vacant space that used to be a hardware store. The
hardware store failed when a Home Depot located nearby. Marie has learned that a pizzeria is
considering locating there soon. She wonders how that competition will affect her. Ample
parking space is available at the shopping centre, which is located in a residential section of a
growing suburb in the East, along a heavily travelled major traffic route.
Marie graduated from a local high school and a nearby university and has lived in this town with
her husband and two children for many years. She has been self-employed in the restaurant
business since her graduation from college in 1985. Her most recent venture before opening
Marie’s was a large restaurant that she operated successfully with her brother from 1993 to
1999. In 1999, Marie sold out her share because of illness. Following her recovery, she was
anxious for something to do and opened the present restaurant in April 2002. Marie feels her
plans for the business and her opening were well thought out. When she was ready to start her
new restaurant, she looked at several possible locations before finally deciding on the present
one. Marie explained: “I looked everywhere, but here I particularly noticed the heavy traffic when
I first looked at it. This is the crossroads for three major highways. So obviously the potential is
Having decided on the location, Marie signed a 10-year lease with option to renew for 10 more
years, and then eagerly attacked the problem of outfitting the almost empty store space in the
newly constructed building. She tiled the floor, put in walls of surfwood, installed plumbing and
electrical fixtures and an extra washroom, and purchased the necessary restaurant equipment.
All this cost $120,000—which came from her own cash savings. She then spent an additional
$1,500 for glassware, $2,000 for an initial food stock, and $2,125 to advertise Marie’s
Ristorante’s opening in the local newspaper. The paper serves the whole metro area, so the$2,125 bought only three quarter-page ads. These expenditures also came from her own
personal savings. Next she hired five waitresses at $275 a week and one chef at $550 a week.
Then, with $24,000 cash reserve for the business, she was ready to open. Reflecting her sound
business sense, Marie knew she would need a substantial cash reserve to fall back on until the
business got on its feet. She expected this to take about one year. She had no expectations of
getting rich overnight. (Her husband, a high school teacher, was willing to support the family
until the restaurant caught on.)
The restaurant opened in April and by August had a weekly gross revenue of only $2,400. Marie
was a little discouraged with this, but she was still able to meet all her operating expenses
without investing any new money in the business. By September business was still slow, and
Marie had to invest an additional $3,000 in the business just to survive.
Business had not improved in November, and Marie stepped up her advertising—hoping this
would help. In December, she spent $1,200 of her cash reserve for radio advertising—10 late-
evening spots on a news program at a station that aims at middle-income earners. Marie also
spent $1,600 more during the next several weeks for some metro newspaper ads.
By April 2003, the situation had begun to improve, and by June her weekly gross was up to
between $3,100 and $3,300. By March 2004, the weekly gross had risen to about $4,200.
Marie increased the working hours of her staff six to seven hours a week and added another
cook to handle the increasing number of customers. Marie was more optimistic for the future
because she was finally doing a little better than breaking even. Her full-time involvement
seemed to be paying off. She had not put any new money into the business since summer 2003
and expected business to continue to rise. She had not yet taken any salary for herself, even
though she had built up a small surplus of about $9,000. Instead, she planned to put in a bigger
air-conditioning system at a cost of $5,000 and was also planning to use what salary she might
have taken for herself to hire two new waitresses to handle the growing volume of business.
And she saw that if business increased much more she would have to add another cook.

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