UBC Undergraduate Research

The Pit : strategic proposal Sewell, Emily; Mackie, Logan; Virani, Omar; Desjardins, Robert Aug 11, 2017

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 UBC Social Ecological Economic Development Studies (SEEDS) Student ReportEmily Sewell, Logan Mackie, Omar Virani, Robert DesjardinsThe Pit - Strategic ProposalCOMM 486MAugust 11, 201716272429University of British Columbia Disclaimer: “UBC SEEDS Program provides students with the opportunity to share the findings of their studies, as well as their opinions, conclusions and recommendations with the UBC community. The reader should bear in mind that this is a student project/report and is not an official document of UBC. Furthermore readers should bear in mind that these reports may not reflect the current status of activities at UBC. We urge you to contact the research persons mentioned in a report or a SEEDS team representative about the current status of the subject matter of a project/report”.Executive SummaryThe following report aims to give a situational analysis and, ultimately, recommend strategic operational changes to help address performance headwinds face by the newly renovated Pit Pub. Since its reintroduction in the new AMS Nest, The Pit has been struggling to meet its profit targets which is a stark contrast to the performance of the legacy location. While not an exhaustive list, we believe the primary culprits of these headwinds are as follows: traffic cannibalization from The Gallery, the decision to discontinue food and shorten hours of operations, and, most importantly, an overall lack of differentiation other than Pit Nights.In short, our strategic recommendations revolve around positioning The Pit as a modern sports bar to differentiate itself from adjacent pubs. This goes beyond simply playing games on screens, rather it is about establishing a culture that makes The Pit come to mind first when students consider where to watch a game. Due to its already open layout, abundance of screen space and audio set-up, we believe necessary changes to the venue, such as the addition of sports memorabilia and games tables, will be minimal and thus will not require much up-front investment. However, what will require a fair amount of resources is the expansion of The Pits marketing efforts. A key finding from our diligence process, and large contributor to the differentiation issue, is The Pit’s lack of effective marketing strategy. For example, 70% of students surveyed had no idea that The Pit stopped serving food or even knew it brought back food in the first place. This finding reaffirms our belief that The Pit has become complacent in its marketing efforts, leaning only on the historical success of Wednesday’s Pit Nights.Moreover, we believe that part of this complacency may be in part the result of where the marketing decision making occurs. Because marketing decisions occur at the AMS level we believe there may be agency issues overlapping with The Gallery, as well as a lack of responsiveness due to the bureaucracy that comes with a larger organization. Past our initial recommendations, a key step in the long term success in a new marketing strategy would be delegating marketing responsibilities to someone at The Pit level who understands the changing wants of its customer base.The team behind the consulting project for the Pit consisted of four members: Emily Sewell, Logan Mackie, Omar Virani, and Robert Desjardins. Emily Sewell was in charge of the strategic analysis of the Pit, which included analyzing its current operations and positioning in the market as well as identifying areas in which they could improve. She also played a key role in helping transform our research into presentable materialLogan Mackie used his past experience in the financial industry to primarily focus on the financial outlook. Diligence included analyzing historical financial statements as well as coming up with projectionsOmar Virani mainly focused on understanding the restaurant/pub market in order to provide insight on how the Pit should proceed. This included closely analyzing direct competitors as well as target customers Robert Desjardins was integral in designing the implementation process for the strategic initiatives that our group proposed to the Pit. This included working closely with Logan to determine the amount of funding that would be required for our proposed recommendations The main problem we identified is that the establishment has been unprofitable for the eight months ending December 31st, 2016 (contribution deficit of $61,421 compared to an originally budgeted surplus of $88,216). We believe that this problem stems from the following four issues: Issue 1) Limited Marketing: 36% of surveyed UBC students did not know that the Pit had reintroduced food while an additional 36% didn’t know that the Pit had even stopped serving food in the first place. Bringing us to the following conclusion that over 70% of students surveyed did not know that The Pit stopped serving food, or reintroduced it. Implication: The lack of awareness amongst UBC students about the Pit’s current operations has resulted in lost sales, additional costs being burdened, and potential foot traffic being lost to competitors. Issue 2) Lack of Differentiation: Other than Pit Nights, the Pit does not differentiate itself from competing restaurants/pubs on campus or near-campus. While the Pit does offer events such as Trivia Night, Mahony & Sons, The Bimini Public House and other establishments do so as well and even put on additional events on most days throughout the week. Implication: The lack of differentiation has resulted in fewer customers, which in turn has resulted in a significant fall in revenues dueto difficulties filling the large capacity (407 people)  5, 6, or 7 nights a week. For a venture that has what we believe to be a very large fixed cost base (lease, utilities, licenses) this can hamper profitability margins significantly.Issue 3) The Gallery 2.0: When the Pit first opened in the new AMS Nest, the Perch (now called the Gallery) opened soon after. According to AMS officials, the thought process here was that people would attend the Gallery to eat and then make the trek down to the Pit. However, there has been a cannibalization of customers, as students end up just spending time at the Gallery rather than also going to the Pit.Implication: The Pit has lost sales to the Gallery, and because both establishments are managed by the same staff there is the possibility that more attention is being allocated towards the Gallery as it is actually seeing revenue growth (81.8% Y/Y growth in January 2017 compared to the Pit which saw a Y/Y decline of 40.4%) and thus appears to have more potential.Issue 4) Food/Hours of Operation: The decision to stop serving food was a major issue we originally identified, and although the Pit has brought it back during afternoons, we do believe that the Pit still faces the problem of not sourcing food from its own kitchen as well as not operating during the same hours in which its competitors do.Implication: Since the Pit sources its food from Flipside, it is subject to Flipside’s menu (burgers, fried chicken etc.) and hours (closeat 6pm). This prevents the Pit from designing its own menu that caters to what the students want, as well as from offering food at prime hours of the day (after classes once restaraunts/pubs tend to get busier).Based on our situational overview we have come up with one primary initiative and two secondary initiatives. We believe that the combination of these initiatives will help mitigate the issues we outlined. Primary Initiative: Convert the Pit to a Sports BarOur primary strategic initiative recommendation is to convert the Pit to a Sports Bar that will operate during the day and on the majority of evenings. We believe that there are two main reasons why the Pit should function as a Sports Bar. The first is that according to our survey, 55% of students are in favour of an option on campus where they can go and watch a sports game. The second reason is because of the fact that there are currently no other true sports bars on campus, and this will serve as the differentiator we previously mentioned was lacking that will help the Pit win customers over its competitors on normal days of the week. The Pit already has a significant amount of the required infrastructure for a sports bar (large television screens, smaller individual screens at each table booth, large floor space etc.) and thus the cost of this initiative would not be substantial. This change would also introduce a new revenue stream to the Pit in the form of cover charges during big events with high demand. However, this should only be introduced once the Pit is more popular. Secondary Initiative 1) Create a New Menu and Cook Food in Idle Kitchen, Expand Operating HoursBy introducing food that is cooked in the kitchen, we believe that the Pit will be able to see an increase in revenues. Staff from the Pit have communicated to us that about $330 of food is sold each day, and if we compare this to the average amount of spend by each customer at the Pit ($10.67) this indicates that the Pit is seeing approximately 30 customers a day purchase food which is very low based on the total number of students that attend UBC (60,000+). The Pit tends to get busier after 8pm (once students finish class) and by sourcing food from their own kitchen, the Pit will be able to cater to these students since they won’t be subject to Flipside’s hours. In addition, aside from Wednesday Pit Nights, the Pit closes at 11pm on Monday-Thursday, 1am on Friday’s and is closed on Saturday and Sunday. Briefly looking at other competitors, Mahony & Sons is open until Midnight or 1am on most evenings, and is open on both Saturday and Sunday. The same goes for the Coppertank Grill, which is open until 1am or 2am 7 days a week. By being open when its competitors are, the Pit will have a higher chance of building a loyal customer base. Secondary Initiative 2) Introduce New Marketing PlanThe Pit has historically relied on its name selling itself, and this clearly has not been working recently. As a result, we recommend that the Pit introduce a new marketing plan that consists of a three pronged strategy. Please see slide 9 for more detailed information.Strengths● Strong brand equity● Large capacity (407 people) ● Flexible floor space● Ability to undercut competitors on pricing due to its association with the AMSWeaknesses● Close proximity to other food/drink options including but not limited to The Gallery 2.0, Mahony’s and UBC Food Services● Shared menu with FlipSide means no incentive for students to eat at the Pit● Shared management team with The Gallery 2.0● High cyclicality combined with a large fixed cost base can result in margins and cash flows significantly suffering in any sort of down period● Difficulty hiring and maintaining staff members ● Currently sharing a kitchen with one of the AMS run restaurantsOpportunities● Reintroduce food throughout the day● Expand operating hours to include weekends● Create ancillary sources of revenues ● Brand itself as both a functioning sports bar and nightclub on certain evenings Threats● Opening of new nightclubs in Vancouver, which has seen an increasing number be introduced to the city over the past few years● Other competitors on campus attracting customers throughout the day (such as Koerner’s with their everyday happy hour) and building loyalty with them for other events● The current construction of new restaurant options at Central In an attempt to analyze the Pit’s competitors, we considered and compared two on campus locations and two off campus locations that the same students frequent. In order to identify what the Pit needed to improve on, we compared the following five metrics:Metric #1: AtmosphereIn comparison with its competitors, the Pit fell short on it’s ability to provide a favourable atmosphere. The main reason for this was the fact that the Pit appears to almost always be empty other than on Pit Night’s.Metric #2: Food/Drink PriceThe Pit seemed to outperform its competitors in this category. We believe that this is a result of the already established relationships the Pit has with its key partners through being part of the AMS, and thus being able to purchase food, drinks, and other key resources at favourable prices.Metric #3: Food/Drink QualityThe Pit seemed to be lacking quality in comparison to its competitors. This could be a result of previous difficulty finding kitchen staff and borrowing food from other venues, such as Flipside, which is designed to be fast service rather than table service. Metric #4: EventsIn comparison with its competitors, The Pit was quite average. On Wednesdays the Pit seems to have a sold out venue, but it struggles to maintain these numbers on other days of the week. Metric #5: Proximity to CampusThe Pit has an excellent location for attracting their main target audience, which is students, as it is directly on campus.Trend 1)Food and beverage sales are slowing, as the 1.7% real growth that is expected to be seen in 2017 is the lowest in almost 8 years. There are many reasons as to why the restaurant industry is facing these headwinds. One reason is because grocery stores have recently been cutting their prices due to intense competition from players such as Amazon, and this makes eating in more attractive to consumers. In British Columbia specifically, the Province recently implemented new liquor regulations that make it easier for liquor to be served at places other than restaurants and bars. Although the Pit is not a traditional restaurant due to its on campus location and specific target market of students, we can make the assumption that if the Pit hopes to simply capitalize on industry growth, not much will be achieved. Trend 2)The second major market trend that has an impact on the Pit’s strategy going forward is the trend toward healthier living. Mintel, a Market Research and Market Intel company based out of London recently completed a study just earlier this month that analyzed Canadians and their views on healthy eating habits. According to the results, 45% of Canadians would like to try the “latest healthy food claims” while 35% already aim to incorporate healthy foods into their meals. These numbers correspond with what we are seeing with UBC students, as 55% of surveyed students wished that there were more healthy options on campus.. Looking directly at the AMS Nest, there aren’t many healthy offerings and thus if the Pit is able to create a new menu and make it more health conscious, we believe that this would sit well with students.When determining possible future scenarios for the Pit, we came up with four main options - all of which were a variety of a restaurant/food offerings. In addition, all four offerings would have kept a flexible floor plan/layout to continue to offer Pit Nights on certain evenings. The reason is because of the tradition these events uphold with students, as well as the cash flows they generate. The transformation to a sports bar requires three main steps to be taken.1) Addition of Sports Memorabilia While the Pit already has the big screen televisions that are necessary for a sports bar, sports memorabilia is needed to enhance the atmosphere. The Pit will need to purchase autographed sports jerseys, hats, pictures, and equipment and distribute it across the establishment. This memorabilia should be a celebration of not only famous athletes, but also local athletes. Having one area of the Pit dedicated to all of the National Championship Teams of UBC for example would be both a tribute, as well as a customer engagement tactic.2) Floor/Arcade GamesBy lining the floor with pool tables, foosball tables, and arcade games, the Pit will accomplish many things. One thing that it will accomplish is that it will help die-hard sports fans be engaged and excited during intermissions or half-times, and prompt them to continue ordering food and/or drinks. Another is that it will help attract a different audience to the Pit, as there are many individuals who aren’t huge sports fans but are interested in playing a game of pool with their friends. By having these games in place, the Pit will also be able to create in-house competitions between its customers to also supplement customer engagement.3) Themed PartiesWhenever big games are on television, the Pit should make an event out of it. Whether this is the Stanley Cup Playoffs or the Super Bowl, making a party out of the event will help grow the Pit’s revenues. By also broadcasting events that are only on Pay Per View (such as UFC Fights) the Pit can also attract the group of students who are hoping to watch the event at a discounted price. 1) FoodWe have already previously mentioned that we believe the Pit should terminate both its relationships with Flipside and Sprouts so that they can utilize the entire kitchen. By having access to the kitchen, they will be able to offer its customers a wide variety of food options, including “bar food” as well as the more healthy options that are in demand. By cooking food in-house, the Pit will likely have to both hire and train new chefs and waiters.2) HoursBy staying open later into the evening and on weekends, a few different things will be accomplished. The first is that the Pit will now offer more similar hours to its competitors. With the current operating hours, the Pit is essentially forcing students to go to their competitors during the hours in which they are not open. In addition, the Pit will be able to broadcast more sporting events. By being open on weekends for example, events such as Hockey Night in Canada and NFL Sundays will be able to be celebrated and attract students. 1) Transition Phase: The marketing that will be done during this part of the timeline will be focused on making students aware of the major changes that are taking place at the Pit. Advertisements will be done around campus through the Ubyssey, Facebook, and other mediums. We suggest that aggressive marketing is done to promote the fact that the Pit is not only a place for students to come on Pit Nights, but rather a place for students to come socialize with friends, grab lunch or dinner, or simply catch a game with friends.2) Post Reopening: After the Pit reopens following the changes we have suggested, we don’t want to see interest die down immediately after only a couple of months. As a result of this, the advertising will now be more focused on promoting events that are happening at the Pit such as big sporting events and Pit Nights. The recommended plan includes posting flyers on designated spots around campus, partnering with UBC sports teams, and still continuing to advertise through social media and campus newspapers.3) Changing the Pit’s Image: Ultimately, the goal of this marketing plan is to change the Pit’s image amongst UBC students. We want to rebrand the Pit from being perceived as a generic, cheap drinking establishment which most students only consider going to for Pit Nights to a sports bar that offers good food, drinks, and a lively atmosphere that is open until late 7 days a week. Based on the survey we conducted amongst UBC students, many students are already in favour of the proposed changes we are making to the Pit and thus our advertising and rebranding will be focused on acquiring new customers. By creating a space which students enjoy, along with offering affordable food and drinks, word of mouth advertising around campus will also be a main factor in customer and revenue growth.In addition, we believe that over the long-term the Pit would be more succesful if the marketing decisions were made at a level closer to the Pit rather than at the AMS level. We believe this will help with the Pit’s responsiveness to the changing wants of students and prevent headwinds like what the Pit is currently facing from happening again in the future.For our implementation, we focused on answering 3 main questions. These were, how will we acquire customers, how will we retain those customers, and how will we grow our amount of customers. How will we acquire customers:For this we took a survey of UBC students and found out that over half wanted to see a sports bar on campus (See appendix F on Slide 25). We wish to provide students with an environment that they want, which is why we are proposing to turn the Pit into a sports bar. However, this is not enough to acquire a lot of customers. We also need to get the word out about the changes we’re making to the Pit, which is why we’re using our three pronged marketing approach which is described on Slide 12. How will we retain customers:Once the pit has reopened, and gathered its initial customers, we need to be able to hold onto those customers. Based on our research, a majority of students want high quality, healthy, and sustainable food options. This is why we suggest that the Pit continues to use its local, sustainable suppliers such as Oceanwise and hires expert chefs to provide food which will keep students coming back. Also, we recommend that the Pit holds contests and giveaways with things such as sports trivia to keep customers engaged and excited. Obviously very important to a sports bar, the Pit should consistently show sporting events which will keep sports fans coming back. Finally, these changes will hopefully create a lively atmosphere as more students visit the Pit. How will we grow:Due to providing a service which students want, and providing high customer satisfaction, we believe that students will talk to their friends about the Pit and, therefore, more customers will come from the positive word of mouth. However, we still suggest continuing advertising, especially during major sporting events, to keep the customer base growing. This financial analysis breaks down the costs of our proposal into four categories: Renovations, new equipment, training, and the marketing plan. The marketing plan covers the first year, however, after checking performance metrics, the advertising budget can be adjusted accordingly. Based on our cost analysis, not only do we think our plan is financially feasible, it is very cost efficient for the amount of revenue we believe it will bring in. We do note however that the costs mentioned above are just the fixed costs. Variable costs will also increase due to hiring more staff and servers, and being open for longer hours and during the weekends. A more detailed breakdown of our costs can be found in Appendix A, which explains how we reached our costs. We believe that an appropriate timeline for the implementation of our recommendations is one year. The transition to a sports bar involves the renovations, as well as purchasing and installing new equipment. During this transition phase from May to the end of July, many things will need to happen simultaneously. This includes creating a marketing plan, hiring new staff and providing adequate training, and choosing the food selection and partners. We want the Pit to be fully operational by August, so that any issues that arise can be dealt with before the start of the winter semester in September. After the reopening of the Pit near the end of July, the marketing strategy will still continue and will focus on promoting the changes made to the Pit for another month to get the word out to as many people as possible. Once September starts, the marketing will shift to focus more on the events which are taking place at the Pit such as big sporting matches. During this time, continuous training will be provided for employees as well as performance reviews to ensure top performance. Finally, the menu will be updated frequently to keep it fresh, and specials will be provided and advertised to keep students interested.In the near term, our primary financial objective is to return the pit to break even point in operations, which, based on our product margin assumptions, equates to a sales level of $350,067.In the longer run, which is more indicative of the success of our plan, we hope to see the Pit hit its budgeted profit levels so that it is meaningfully contributing to the AMS capital funding pool. With a net contribution target of $88,126, assuming a pro-forma expansion in overhead, and a 70% contribution margin, the Pit would need to hit $604,202 in sales1) Financial- By looking at revenue growth, the Pit will be able to analyze their market position. If it is determined that the Pit is growing faster than the industry, then it can be inferred that they are taking market share from their competitors. We will also be able to see whether or not the Pit is hitting its budgeted and break-even targets.- Dollar contribution to the AMS capital funding pool is important because it will allow the Pit to perform different strategic initiatives without taking on debt, which is something that we believe the AMS already has a considerable amount of.- Return on Invested Capital will help determine whether or not the Pit is earning a return that is greater than its cost of capital, and ultimately creating value.2) Customer Engagement- As a sports bar, one of the differentiators compared to a normal restaurant will be the large television screens, numerous sports themed contests and giveaways, as well as floor games. The primary reason for implementing these are to build brand loyalty with customers, and if we see an increase in the number of customers participating in these events and games then we can determine that engagement is increasing.3) Marketing- While in theory social media likes/views may not be an ideal metric to analyze given the fact that they do not always translate into actual customers, for the purpose of our intentions we believe they are satisfactory. The reason is because one of the issues the Pit is currently facing is the fact that there simply isn’t enough awareness amongst the students about the Pit’s operations. Thus, by charting how social media posts are performing, we will be able to determine whether or not people are aware of the Pit’s rebranding.We have identified three main risks the Pit faces with our proposed recommendations, as well as some possible mitigants Risk #1 - The Sports Bar is not welcomed by UBC students Prior to the implementation of the sports Bar we issued a survey to 100 random UBC students. The results showed us that more than half of the students favoured the idea of changing the Pit into a sports bar. Therefore, moving forward we see this as a low severity risk. Post-implementation if the risk still persists we will implement food and drink deals as well as a formal analysis of the audience the sports bar had unsuccessfully met. By doing this, we can find a way to meet their needs by offering a menu or games that offers them another reason to attend. Risk #2 - The Pit Nights lose popularity as a result of the Pit’s rebranding In order to mitigate this risk, when implementing the sports bar we will ensure that Pit Nights still take precedence over conflicting sporting events. We feel that there will be little clash between sports games and the nightclub at this hour. If the issue persists however, we plan on increasing marketing on social media and during the day at the venue. Risk #3 - Other establishments on campus pursue similar ideas attracting our target audience We feel as though the risk of establishments pursuing this risk is relatively low because prior to the implementation we have done research that concluded none of the current restaurants or pubs have the necessary infrastructure to make this happen. If we do see this risk come to fruition however, we will attempt to win back our customers by offering more contests, adding new floor games, and new decor.Brief re-cap of the issues facing the Pit and our recommendations on how to solve these issues. The breakdown above shows how we arrived at our estimated $103,840 cost that will be required to fund our proposed recommendations. The items in blue font represent the Pit’s current operations. The items in black font are functions of our proposed recommendations. The Petal Analysis is an effective tool to identify local competitors. By identifying the competitors in the five categories (Restaurants, Sports Bars, Cafes, Clubs, Pubs) it helped us to better assess what the possible risks and mitigation strategies were that was explained on Slide 15.The PEST Analysis above aims to help us understand some of the external factors that have an impact on the Pit.The above graphs show the results of some of the questions we asked in our survey

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