ConstableBadgerMaster492
Read the case and do SWOT analysis for Business and for Drake….
Read the case and do SWOT analysis for Business and for Drake. Please write 4 to 5 points for each Strengths, weakness, opportunities and threats’ for both business and for drake.
Also do Porter’s five factors.
REQUIRED: SOWT analysis for Business and for Drake AND Porter’s five factors.
CASE:
The Milton Pub (2023)
Drake Grant had retired early from his position as office manager in a large company. At
age 57; he had a reasonable pension and some capital that he had saved. Drake had lived
in Milton for 30 years and was reasonably well known in the community. He was active
in a service club, on the executive of a soccer league and a hockey league and worked
with some local charities and fund-raising activities. He was a physically fit and active
man who enjoyed challenges and was growing restless in his retirement.
Drake wanted to invest in a small business, not only to add to his income, but also as an
entrepreneurial venture that would be challenging and interesting for him. He was
considering buying The Milton Pub, a British pub located in Milton, Ontario. The pub
was located on the edge of town, on the main road running through Milton. It was a five-
minute walk from the GO train station.
Milton is an Ontario town of 110,000 people about 70km from Toronto. In recent years,
its population has grown quite rapidly as people have moved from the Greater Toronto
Area (GTA) into less crowded communities with lower real estate prices and a
community lifestyle that suits them. Most of these recent arrivals are reasonably
prosperous family people who commute daily to professional jobs in the GTA.
The Milton Pub is presently owned by Jake Carey, who lives in Georgeburgh, which is
30 km from Milton. Carey was a corporate lawyer in Toronto. He bought the pub as an
investment in 2010 after his investment portfolio of stocks lost 50% of its value, as a
result of the 2009 financial crisis.
The previous owner had been Henry Montagu, who had managed it himself and had
actually lived on the premises, in a modest apartment over the pub. Henry sold The
Milton Pub to Carey before retiring and moving back to Hull, England. In the five years
before the sale, the pub’s sales had been rising and profits had been good. In fact, as a
percentage of sales, profits had been better than the industry average over the last two
years that Montagu owned it.
Carey’s impression was that while the business was profitable, profits could be increased,
mainly through better control of expenses. Montagu had spent a considerable amount on
things that Carey found questionable. In particular, labour costs seemed high. Wage
expenses (mostly for the servers) were 25% of sales, as compared to only 20% for chains
like Boston Pizza and Milestones; the difference in 2009 being nearly $40,000 per year.
Also, sponsorship of local sports teams alone cost $20,000 per year, and the pub’s
participation in a wide variety of community events such as baseball and golf
tournaments was costing another $10,000 to $15,000 per year. Carey was not interested
in running the pub himself, so he hired a manager from out of town for $50,000 per year
plus one percent of the gross sales. Carey regarded Montagu as an old, out-of-date2
amateur who had been careless with expenses and fortunate to be as successful as he was
with The Milton Pub. He believed that with modern, professional management, the pub
might even become profitable enough to allow him to buy a 42-foot yacht like the one a
lawyer friend of his owned.
To help pay for the manager’s salary, Carey rented out the apartment over the pub for
$1,000 per month and reduced spending on “incidentals” such as team sponsorships,
community events and so on. In addition, he directed the manager to reduce wage
expenses from 25 % of sales to 20%, and reduced expenditures on entertainment by 15%.
However, Carey found himself disappointed with his investment. In 2013, three years
after he bought the pub, sales were actually slightly lower than in 2009, and profits had
decreased. From 2013 to 2015, Carey decided to further cut expenses. He reduced
staffing in order to cut labour costs, and postponed planned renovations involving
replacement of worn upholstery on furniture and new paint and wallpaper. He directed
the manager to concentrate more on providing high-volume, lower-cost beer and reduced
offerings of more expensive imported brews. However, both sales and profits continued
on their gradual downward trend, and Carey eventually concluded that this business was
at the end of its product life cycle. Carey decided to put Milton up for sale.
Drake Grant read up on the market for pubs and learned that it is a market that has
changed considerably in recent years. From the 1990’s through the 2000’s, the market
was dominated by “roadhouse” bars and restaurants such as Kelsey’s or Boston Pizza.
These were big bars, 500 square meters (5,000 square feet) or larger with no intimacy,
high noise levels and food menus that offered standard items with no product
differentiation – a sort of “mass-production” approach to the business.
A few years after the recession of 2009-2010 had damaged sales and profits of almost all
restaurants and bars, customers began to venture out again. Now, the trend was away
from hard liquor and big, noisy bars and toward smaller, more intimate neighbourhood
pubs and premium craft and imported beers. As the baby boomers aged, people were
spending more time at home, and near home, in their neighbourhood. The over-40 age
group, with its high spending power, spends considerable time with its elaborate home
entertainment systems, and does almost all of its basic shopping within a 10 km radius of
home. These people wanted to socialize close to home in a comfortable, cozy and
friendly atmosphere. To these people, service, quality and a welcoming atmosphere were
more important than price. A neighbourhood pub, close to home, and with the “flavour of
England” — a place “where everybody knows your name”could provide just this,
according to the literature Drake had read.
The price of the pub would be about $250,0001. Since Drake Grant had about $100,000
of his own money, he would have to borrow about $150,000, which would add interest
expenses of approximately $12,000 per year to the pub’s income statement.
1 Businesses such as these tend to sell for 30-40% of gross sales.3
Drake discussed the matter with a friend, who told Drake that he wished that he had seen
that The Milton was for sale first. He thought that the pub had real potential, especially if
it were managed by its owner and managed well. He noted that this would involve a lot of
work, but could be quite rewarding financially.
Drake then consulted with his bank manager, who was noticeably less enthusiastic about
the pub as an investment. He confirmed that the bank would loan Drake the funds needed
to buy the pub; however, the bank manager pointed out that this was a very competitive
and high-risk industry. He suggested that Drake consider carefully whether a man his age
should go that far into debt. The bank manager also pointed out that Drake could invest
his savings with the bank at a guaranteed annual interest rates of approximately 3.0%,
and thus earn another $3,000 per year rather than pay about $12,000 annually in interest
on a loan. He observed that, together with Drake’s pension, this would provide him with
a secure income for his retirement years.
HE MILTON PUB Income Statement 2009 2015
(#x27;000) % (#x27;000) %
Sales $ 830 100.0% $ 705 100.0%
Cost of Goods Sold 332 40. 315 44.7%
Gross Profit 498 60.0% 390 55.3%
Expenses:
Management Salaries 40 4.8% 57 8.1%
Labour: Wages 205 24.7% 133 18.9%
Payroll Taxes 17 2.0% 13 1.8%
Rent 66 8.0% 74 10.5%
Common Area 5 0.6% 7 1.0%
Promotion 42 5.1% 13 1.8%
Insurance 7 0.8% 12 1.7%
Hydro 12 1.4% 25 3.5%
Natural Gas 13 1.6% 13 1.8%
Telephone 2 0.2% 2 0.3%
Depreciation 10 1.2% 6 0.9%
Miscellaneous 2 0.2% 2 0.3%
Total Expenses 421 50.7% 357 50.6%
Operating Profit 77 9.3% 33 4.7%
Other Income 0 0.0% 12 1.7%
Other Expenses 0 0.0% 3 0.4%
Earnings before Tax 77 9.3% 42 0
Income Tax 23 2.8% 11 0
Net Income $ 54 6.5% $ 32 4.5%
Notes:
1. Other Income of $12,000 in 2008 is the rent on the apartment. Expenses related to this
Income are in the Miscellaneous Expenses line.
2. Management Salaries. In 2009, Montague paid himself a salary of $40,000 as owner/
manager. In 2015, a salary of $50,000 was paid to the hired manager (plus 1% of gross sales)
3. Rent. 2,000 square feet at $33 pre square foot in 2003 and $37 in 2008.
4. Common area costs. Refers to upkeep, snow removal, etc
I ADDED THE CASE STUDY. PLEASE READ THE CASE STUDY AND DO FOLLOWING:
SWOT ANALYSIS FOR BUSINESS AND FOR DRAKE
( 4 TO 5 PONIS FOR EACH WITH PROPER EXPLANATION)
PORTER’S FIVE FACTORES.
