Hard Rock is one of the most globally trademarks in the world with 40 years history . At the beginning, it was a small café located in London. What have made Hard Rock to be success, and their business cover all the world consisting of 169 venues in more than 50 countries.Hard Rock has become a truly phenomenon. We could evaluate how Hard Rock Cafe achieved that phenomenon in many points of view .One of these is operation management strategy of Hard Rock .Now we study and analyse the strategy to manage its operation.
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1. Location selection
With the first place in London, Hard Rock expands its cafes to major big “destination” cities on the world where there are huge population and tourist.” Mr Oliver Munday, Hard Rock’s vice president is heavily looking into global expansion in Europe, Latin American and Asia ” He said that “We’ve got to look at political risk, currency, and social norm-how does our brand fit into the country ” [i] . Therefore, the new choice for Hard Rock Cafe is to locate in other cities, they focus on the tremendous resurgence of the central of the city where nightlife is concentrated like Bang Coc, Ho Chi Minh…. which are not rush tourist cities in order to less depend on such a fragile business.
For the good position to be chose, markets research is deeply surveyed and analyzed base on Hard Rock’s Standard market report. The analysis is based on these following fundamental elements including demographics, visitor market trend, transportations, restaurants and nightclubs, risk of politics, real estate market and comparable market, t. This serious quantitative market research supports Hard Rock Cafe to make right decisions for its business. Moreover, the success of every cafe in each location is also contributing the useful information for Hard Rock café to expand these other one and also to improve their efficiency of the whole chain’s success.
“Hard Rock now aims to the area of Europe, Latin America and Asia. Not all cities selected Hard Rock café operated by itself but choose to franchise because of risks, economic challenges such as culture, inflation, exchange rate, may affect its operating. Hard Rock chose to expand its chain to 2 big and busy cities (Bogota and Moscow) in nightlife , but they had both franchise to local partners there. Other Hard Rock Cafes in other place like Honolulu, Dubai .. will be opening soon.
2. Goods and service design:
With the name of Hard Rock Café we can image the a typical their service with an electronic guitar and a simple logo, Hard Rock Cafe impress all people entering its places the environment full of rock music which We can’t see in any other kind of Café or pubs and bars. Hard Rock Cafe not only serves its clients food, rock enthusiasm but also the special type of enjoying .. Environment is also very typical way of Hard Rock Café. It is easy to recognize from its outside or inside even other advertising that make its client remember Hard rock café.
Food and drinking do not mean that they are not taken into consideration, courses in Hard Rock’s menu are modified, upgraded and concentrated to fit client where it located For example, Thai Snack Combo is added into Hard Rock Cafe Bangkok.
Regardless of age, class or gender, Hard Rock Cafe slogan “Love all – Serve all” has been going together with its development throughout the years. All people putting their steps into Hard Rock’s door feel that they are always welcome by an enthusiastic attitude, good quality of service.
3. Quality
As other business, Hard Rock café’s quality is one of the most important factor during their operating. Keeping food, drinking and service quality ( employee’s behavior …) as well as music, environment …is carried out regularly and it is required to get the highest assessment from customers. Improving quality at the cafe is always ensured and achieved their quality in the highest scale – basing on the customer evaluation.
Besides that, Hard Rock Cafe always update by time the music as well as change menus, environment, layouts, memorabilia, services and strategy to improve quality and adapt with the demand as its clients’ responses.
4. Process and capacity design. Hard Rock is a very big chain of cafes which provides 100,000 meals per day only referring within the U.S. (3,500 at Orlando’s Universal Studios), therefore it has to consider very carefully and carry out effectively. Non-current asset is always well managed and renewed. Labor, materials, inventory, other current asset, scheduling are all elements related, which are described with more details in the following decisions. It depends on the location and culture where Hard Rock café is located, but the design of capacity and its process must follow standards of Hard Rock café.
5. Layout design
Layout is the most key factor to make decisions in the long-term operation of Hard Rock café. It depends on the scales which follow the market demand or the social norms in different areas. Café module is differently designed in each city, such as Hard Rock Cafe in Las Vegas is decorated by a huge, outstanding guitar in front of the building and most of the seats are organized in a large space for outside view while the cafe in Ho Chi Minh is designed according to a little eastern style with ceiling lights and chairs. Hard Rock café design is considered whether they must lease in a long term, the structure of construction should be set up or remodeled for its operation smoothly and efficiently. Its places do not show the same module design of Hard Rock Café’s chain.
6. Human resources and job design
Good human resource strategies are expensive, difficult to achieve, and hard to sustain, like other many organizations, Hard Rock café concentrate to build the human resource strategy. The purpose of human resource is that how employees contribute to firm and set up a reasonable quality of work life. Service industry is a industry employing around 75% of the people in the U.S, and Hard Rock have had huge network which creates a lot of jobs for people in the area it stands. All staff of Hard Rock Cafe must be required to have not only job skills, job description but also passion of rock music as well as to engage their personalities. Before working for Hard Rock Cafe, they are trained by Hard Rock café and received a “Hard Rock value” card. Hard Rock employees will be proud to joint in a unique working environment and culture which appreciates the substantial diversity and individuality, personal and professional manner. Hard Rock has their promotion policies as well to encourage their employees’ loyalty, 60% managers of Hard Rock Cafe are promoted from their worker. Managers’ performance is evaluated by a target, and they will receive bonus when exceeding the target. It encourages all managers of Hard Rock Cafe to become better not only depend on the available data, but also they have to forecast other impacts and effects on sales then set up these countermeasure to improve or prevent for their operating .
All of above human resource policy always helps Hard Rock take a competitive advantage, increase more revenues and saving costs for their success.
7. Supply-chain management
Outsourcing is a creative management strategy that is popular method that a big-scale company, like Hard Rock, using for its supply-chain management to improve efficiency working such as capital, inventory management and operating margins. Qualified suppliers or vendors are chosen and controlled to ensure enough, fresh and quality meals. Risk of outsourcing is considered carefully for Hard Rock café operation
Hard Rock café also manage the supply-chain risk by “Hard Rock café is reducing environment ( political) risk by franchising and licensing, rather than owning, when the political barriers seem significant” [ii] Hard Rock café in 2003 had the successful engagement of Avicon – architects of the new supply chain and provided expertise in logistics for Hard Rock.
8. Inventory
All company must establish system for managing inventory. Costs and expenditure can be substantial to store and move inventory. The way to manage inventory by ABC analysis, record accuracy… make Just-in-Time inventory control, can save costs and let products and services to customers more quickly. The best management of supply-chain support Hard Rock to keep a safe and effective inventory. Foods and drinking need to be fresh and provided on time. Also Hard Rock café manage inventory base on the market demand to avoid long-term stock. A huge valued memorabilia are controlled by locations and catalogues and are renewed every few years.
9. Scheduling
Types of scheduling decisions depend on type of company and its operating. Hard Rock Cafe applies shot-term forecasting scheduling to their services. It can be based on the real daily activities and data from whole restaurants in right Hard Rock chain. Every manager of each cafe set up its database to prepare the daily forecast which is recorded daily working. Next other factors, like upcoming events, major conventions, concerts, etc. are referred to. And then hourly sales are examined and Hard Rock is possible to calculate the time for rush or low hours in order to allocate suitable jobs for all employees..
This way of above managing schedule support Hard Rock Cafe managers Who can predict the volume of people, theirs feeling may get in and enjoy in its restaurants and prepare a right human, foods and services to serve Hard Rock’s people with the way, Just-In-Time to save the costs.
10. Maintenance
Maintenance is the way to keep quality that is the key to success in all industry sectors. Hard Rock Café use preventive maintenance for inspection and serving to keep their facilities in good condition. They also adjusted its menus and music time by time, it depend on locations, basing on the survey done. All kitchens, bar, restaurants or other equipments are maintained regularly under supervising.
In order to strengthen the brand name, Hard Rock Cafe creates its own website: www.hardrock.com and maintain a cable television program weekly on VH-1.
Task 2: In the light of the above, discuss the operations management challenges and opportunities for Hard Rock when considering an expansion of its business into Hanoi.
Hard Rock Cafe just established in Ho Chi Minh city. When expanding business into Hanoi, Hard Rock needs to survey the Hanoi market.Hard Rock’s Standard market report following conditions:
A- Demographics
As Hard Rock’s focus, Hanoi is the city center and have the nightlife with many small satellite cities to be built around like Ha Dong, Trung hoa – Nhan chinh, Bac Thang long. Total is over 6,000,000 people (See table 2 below) with rapid urbanization , so tendency of population will surely increase in near future. Hard Rock may have is more and more people (Foreigner and Vietnamese) in Hanoi love Rock & Roll music in Hanoi. And Hanoi is a choosier market for all cultural activities than Ho Chi Minh, it has quite loyal audiences if Hard Rock café can convince them by the unique culture, interesting activities. Moreover, the cheap labor is an important advantage that affects to its cost and particular the company’s human resources strategy (See table1 below). Beside that the economic indicator of Hanoi and Hanoi area is attractive for all business sector(See table 1 below)
Table 1 (Economic index of Hanoi)
Content
2009
2010
2011 ( forecast)
GDP per capita (UD$)
1710
1900
2120
GDP growth rate (%)
6.70%
11%
11.50%
CPI
8.22%
9.56%
10%
Exchange rate (VND/US$)
17500
19500
21000
“Source: VnEconomic-December 2010” [iii]
B-Visitor market and market trend
“Hanoi have Tourists and business visitor growth rate increasing with 20,5% for foreigner ( 1.227 million people) and 10% for Vietnamese(7.392 million people) in the year 2010. Total revenue in tourist industry increased 26.9% in Hanoi” -Report of Hanoi general statistic office’s data – December 2010(See table 2 below)
Table 2 (Population and tourist of Hanoi
Content
2009
2010
2011 ( forecast)
Population (1000)
6480
6617
6750
Population growth rate (%)
2%
2.10%
2%
Tourist
Foreigner (1000)
1080
1227
1472
Foreigner growth rate(%)
11%
20.50%
20%
Local tourist (1000)
6720
7392
8130
Local tourist growth rate (%)
5%
10%
10%
“Source: Report of Hanoi general statistic office’s data – December 2010.” [iv]
As above data, Hanoi market of population and visitors is potential market for all kind of business, especially for service industry
C-Transportation
Because Both population and tourist/ visitor have been increasing, so the trend of infrastructure suck as Hotel, Convention center, Entertainment service place .. to be increased . Transportation is concentrated priority, Phase two of Noibai airport is going to start within 2011 with ODA fund from Japan. Four lines subway are studying to build soon and some bridges have been built crossing Red river. Also Hanoi have expanded the wide of many road and built the new road with high standard from Northern part to southern part, from eastern part to western part, they try to connecting center Hanoi to the rest of Hanoi by road, subway, rail…
D-Restaurants and nightclubs
Right location is a very important element for Hard Rock cafe to be successful in Hanoi, where is the most tourist to stay and also there are many restaurants and nightclubs located, that is HoanKiem district in the center Hanoi which is called tourist town. But the lease cost for a centre position is too high and most of them are dominated by both foreign and local cafe brands, consist of Highland, Trung Nguyen with trademark G7….. There are also many potential competitors such as Coffee Bean and other foreign brands who really want to enter Hanoi markets as well like Gloria Jean’s Coffee, etc.
E-Political risk
Besides, Vietnam is evaluated one of the most stably politic regimes. This situation allows Hard Rock café to feel safe to invest the business in Hanoi. Vietnam government established a system of open policies, encouraging foreign investors to invest by foreign country investment law, develop Vietnam country and create jobs for local people.
However, many environment challenges that Hard Rock Cafe has to consider before entering in Hanoi. Hanoian has the way to drink coffee and enjoy it in differently way. Almost them like to sit in a street-cafe with a cheap cup of coffee, making cafe by the traditional and simple method, talk each other, read newspapers and look people passing by. There are not many people to spend high price ( around VND 80,000,000 )on drinking a cup of coffee that Hard Rock may serve that average price for its items. One thing, the local people’s taste of coffee and foods in is different. They are drinking stronger taste than the other countries. Robusta coffee in Viet Nam is more popular than Arabica. The type of cafe with live-music is more and more popular in Hanoi and its price is various from low-end to high-end level. With Hard Rock’s price set (Hard Rock Ho Chi Minh), it can not only aim to rich people but also change client’s mind or their consumption behavior.
Local labor will be a issue that Hard Rock need to care about . The labor cost is cheap, but the tendency of labor cost is increasing year by year and local people are not familiar with the high international working intensiveness, style of unique business of Hard Rock cafe and they may not satisfy with standard required. Hard Rock café must train them and change their thinking, all labor need to be trained regularly and intensively. Furthermore, the Vietnamese is too modest, so they may not feel confident to show their thinking, personality as expected by Hard Rock Café.
F-Real estate market
The real estate market is rapidly increasing in recent years in whole country , particularly in Hanoi and Hochiminh City, the tendency of market is also increasing of capital investment, sector investment , source investment as well as management investment. The real estate price is too high where is good location (See table 3 below)
Table 3 (Rental fee of office and shopping mall of Hanoi)
Content
2009
2010
2011 ( forecast)
Rental fee ( $/m2/month)
Office ($/m2/month)
35.7
34
35
Office growth rate (%)
-6%
-5%
3%
Shopping mall ($/m2/month)
40.1
42.2
45
Shopping mall growth rate(%)
-13%
5%
7%
“Source : CB Richarsd Ellis Viet Nam -December -2010” [v]
These information of the market brings information to Hard Rock if managers want to study and set up its business in Hanoi. They must have a comparable market analysis carefully then making their decision whether Hard Rock café expand its business in Hanoi or not. Vietnam has not developed the information system and its information is some time not unclear, so it is difficult for researchers to collect exactly data for studying all business.
In summary, all above information which mention in this topic is only for us to have a look of Hanoi market, that is surely a potential market for doing business, but it is not sure for Hard Rock café or other business to be successful when they set up business in Hanoi.
So Hard rock need to analyse many factors and index such as breakeven point, IRR,RCE,ROCE…inflation, exchange rate, GDP, GDP growth rate.. before they make final decision for expand their business in Hanoi
In this topic we only concentrate to analyse the breakeven point and we assume that all data collect from all sources to be accepted
Assumption that We will set up Har rock café in Hanoi with capacity as follow:
-Area : 400 m2, Labor : 16 persons ( 2 shift/day),Facility investment : 200,000 USD, design and reconstruction:100,000USD, training cost : 30,000USD and other: 16,500 USD, other figure refer Table 1,2,3 above.
Option 1
Option 2
Definition
Description
Explanation
Change rental fee
Change cost/unit
50
42.2
35
1.5
1.25
1
Area (400 m2)
400
Labor ( 2 shift)/day total 16 persons, 8persons/shift
Non-current asset
Design and construction ( 400m2)
250$/m2
100,000
100,000
100,000
100,000
100,000
100,000
Total Facility (USD)
Full set
200,000
200,000
200,000
200,000
200,000
200,000
Training (USD)
Full course
30,000
30,000
30,000
30,000
30,000
30,000
Other ( 5%)(USD)
Allowance
16,500
16,500
16,500
16,500
16,500
16,500
Total(USD)
346,500
346,500
346,500
346,500
346,500
346,500
Depreciation ( 10 years)
Depreciation/month(USD)
Straight-line
2,888
2,888
2,888
2,888
2,888
2,888
Fixed cost
Rental fee ( 500m2)(USD)
Option 1
20,000
16,880
14,000
16,880
16,880
16,880
Labor cost for 16 employees
200$/p/month
3,200
3,200
3,200
3,200
3,200
3,200
power consumption ( lighting..
per /month
500
500
500
500
500
500
Depreciation(USD)
per /month
2,888
2,888
2,888
2,888
2,888
2,888
Total fixed cost / month(USD)
26,588
23,468
20,588
23,468
23,468
23,468
Variable cost
Raw material ( coffee, ice, sugar…)(USD)
cost /unit
1
1
1
1
0.75
0.75
Material consumption ( Gas ,tissue …(USD)
cost /unit
0.5
0.5
0.5
0.5
0.5
0.25
Total cost /unit(USD)
Option 2
1.5
1.5
1.5
1.5
1.25
1.00
Sale price
Sale price/unit(USD)
4
4
4
4
4
4
Breakeven point
Breakeven point
Total fixed cost + total variable cost= total revenue; X : breakeven point
How many units will be sold/month
10,635
9,387
8,235
9,387
8,534
7,823
How many units will be / day
355
313
275
313
284
261
Above analysis just give Hard Rock a data about the breakeven point which depend on the difference level of rental fee and unit cost, they must analysis more other variable. So Hard Rock café should compare with its data of Hard Rock Café’s chain. Hard Rock’ decision maker will make decision whether they are going to expand their business in Hanoi or not.
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