Characteristics

Current situation

Future trend

Main fixed costs

Main fixed costs are rent (or cost of estate), equipment, renovation and furniture. For luxury restaurants it is very important to be located in the center of the city and to have only high class furniture. Even furniture for a medium class restaurant may cost up to more than 20 million rubles. The additional costs are licenses (for example for alcohols) and cutlery.

The rent would very probably rise gradually over time because the costs of all types of real estate tend to rise if the overall economic situation is stable or improving.

Equipment and furniture costs are more likely to stay at the current level except for minor adjustments in specific cases, for example, a special kind of equipment for cooking some really exotic dishes might be very popular among restaurants and the price may go up for a while due to the strong demand.

Main variable costs

As it always was, delicious food eaten with high prestige is costly. It is expensive to transport many of the main ingredients of the dishes from far away. Furthermore, serving is sometimes variable cost also (you pay your stuff as much as many clients were served).

Probably in the future the ingredients would be more available in St.Petersburg and the variable cost would decrease, but not significantly. Also expenditures on the stuff may rise because there will be more professionally trained people ready to be hired.

Economy of scale (scope)

It is hard to organize economy of scale in a luxury restaurant – everything you do you do at a high cost – many dishes are cooked only a few times and it is really hard to spread the costs to many serves of the same dish. You can decrease your organizational and advertising costs, but no more than by 10% (according to the owner of a very admired restaurants of St.Petersburg).

The same situation will likely to remain in the future.

Are there minimum efficient scale (MES)?

What is the efficient growth mode?

According to the opinion of a restaurant owner it is unprofitable to have restaurant for less than 50 (approximately) persons. But it seriously depends on the type of the restaurant.

It is unlikely that in the foreseeable future that the MES is going to change because the market size will remain the same and the long-term average cost will not change also

Sensitivity of costs to capacity utilization

The sensitivity of costs to capacity utilization is very low. Because about 80 per cent of cost are incurred even when the capacity is under-utilized. Therefor even if we put our capacity at 100 per cent utilization it will not bring us that much costs (not that much fixed costs would be incurred, growth of variable costs will be limited by the capacity itself).

The same situation is likely to remain in the future.

Behavior of marginal cost

The more clients are served the less additional cost will be incurred. Thus, when the revenue is high, the marginal cost is low.

No changes are foreseen in the future.

Exit barriers

It is hard to sell furniture or equipment at good prices, because they are usually customized. It is more likely to sell the entire business. There are enough potential buyers who want to have luxury restaurants, simply it adds more prestige to their name. And it would be even more attractive if the restaurant was profitable.

As the time passes by only few people would be willing to by the restaurants established by some other people because the wealth of potential buyers would rise and they would simply open their own restaurants.

Characteristics

Current situation

Future trend

Segmentation of customers

Possible segmentation: local community customers and wealthy tourists. Local customers may also be divided into groups: people who have talks in the restaurant or just come to eat during the break at work and people who come at their free time. Though the same person may belong to each group in different moments, the consuming patterns of two groups may differ significantly.

Same.

Does a buyer's purchase volume represent large fraction of typical seller's sales revenue?

Yes.

Same.

Switching cost

No switching cost in monetary terms, also there are no or very low psychological, effort- and time-based switching costs.

Same.

Can buyers find substitutes for industry's product?

Yes, cheaper mid-priced restaurants. As soon as visiting the restaurant is a form of entertainment, it is possible to find other ways to spend your time luxuriously.

It is possible that the number of ways for elite time spending outside the restaurants will increase.

Price elasticity of market demand

Rather low: consumers of elite restaurants are less sensitive to price changes than those of middle and low-end restaurants, but significant price increment may force some part of consumers to switch to other market segment.

Depends on purchasing power of customers, changes in their income, which depends on economic situation in the world and in the country and region in particular.

Price elasticity of demand for typical firm

Low: if people choose elite restaurants, price is not the main factor influencing the choice of a particular restaurant, so some price changes won’t significantly affect the demand.

No changes are expected. For some firms price elasticity of demand may even fall (for example, if the restaurant is the trendiest place in the city and it will be overcrowded regardless of the prices), but for the typical firm nothing will change.

Price elasticity of various customers

Price elasticity is lower for the business people who handle talks in the restaurants if their expenditures are refunded by their companies. For customers who pay for their food and drinks themselves price elasticity is higher. Price elasticity for tourists is also very low: many of them would prefer a restaurant inside their hotel: even if it is more expensive than competitors in the city, they are more confident in it.

If the overall situation in the economy changes, price elasticity of the first group may change (e.g., if the company is in the turbulent situation, it will force its employees to handle talks in cheaper places).

Price discrimination(actual and potential)

No.

Same.

Versioning (actual and potential)

No.

Same.

Bundling and Tie-ins(actual and potential)

No.

Same.

Are prices negotiated on each individual transaction or set as take-it-or-leave-it" for all transactions?

“Take-it-or-leave-it" for all transactions.

Same.

Do buyers pose credible threat of backward integration? (for B2B)

Sometimes it is possible. But we do not expect very often that somebody, even with a deep pocket, would establish his or her own restaurant once he has eaten in one of those. But it is still possible (for example, Roman Abramovich could decide to open his own high-end restaurant somewhere in London just because he loves good cuisines) .

Same.

Does product represent significant fraction of cost in buyer's business? (for B2B)

No.

Same.