Analysis of Honest Foods

Introduction

This episode of “The Profit” series focuses on a Chicago catering Business, Honest Food that is a middle of crisis in its attempt to make money. This has led to the creation of a hostile work environment emanating from the fact the fact that the owner is anxious which makes him frustrated and unleashes this to the employees.

Identification of the Problem

Honest Food is renowned for its great and delicious food in Chicago. However, the business has been experiencing shrinking revenue levels that threatens the operations of the business and job security of the employees. The main problem causing this situation is lack of diversification in the customer’s segmentation. 80% of the company’s revenue come from the film industry. Ted, notes that the business has been experiencing reduction in revenue by over 30%.

The other major problems facing Honest Food is employees’ relations. The business owner practice of dealing with employees creates unconducive environment. Ted, the owner and manager micro-manages everyone even for the smallest tasks. Ted puts pressure to the employees which creates a chaotic working environment. One employee even indicated that there might be a mutiny amongst some employees.

Analysis

The reliance on a single industry has had negative effects to the business revenues. The business has had reduction in revenues by approximately 30%. This makes the business have reduced activity in a time period that is normally considered as a peak season. This is a problem created by a limited customer base diversification.

The employees feel the pressure of intense working conditions, being shouted at, and low pay. All these reason affects the patience and morale of the employees. The poor performing business creates a problem of job security where they are unsure of their future.

The manager’s poor managerial skills creates unharmonious working relations. Ted has a tendency of micro-managing and wanting things done his way. The manager does everything in the business such accounting task, negotiating with suppliers, cooking, and serving. Ted biggest problem is fear of things not being right thereby making him put pressure on his employees.

The business has been performing well until recently when they experience over 30% loss in revenue. In 2015, the business had total revenue of $1312000. The cost of goods sold was $302,000 while the total annual expenses amounted to $905000. This meant that the return on investment was about 8.7%.

It is clear that the business is not carrying utilizing its capacity to the optimal. The business is capable of operating for 15 hours per day in 6 days per week. This results to 90hrs/week out of which the business is only using 60hrs/week which is equivalent to 3120 hours per year. With the $1.3 million annual revenue, this implies that the business generates $416 per hour from the hours utilized. At the current rate, the business only utilizes 60hrs/week against a capacity of 90hrs/week. This implies that 30 hours per week are left un-utilized leading to loss of revenue of $12480 per week. This can be solved by finding a business or clients to serve during the un-utilized hours.

One of the most critical component of the internal business is the product being offered by the company. Honest Food have managed to position itself due to high quality of food served. Marcus Lemonis, the investor who comes to the rescue of this business highlights three things about the product in the catering industry; product, efficiency, and presentation. Honest food was poorly performing in the section of presentation.

The other important component of the internal business environment is the employees. Employees in Honest Food were found to be on the verge of carrying out a mutiny. With diminishing returns, the employees pay has been shrinking. They are fears of job security among the employees. The working condition in this organization is not conducive and some employees have described it as being chaotic. The manager attitude of micro-managing limits their level of creativity as everything has to be done as per his way.

External business environment

Competition is a key component of the external business industry affecting the industry. To successfully maintain a competitive advantage, Honest Food has perfected the art of producing quality products. The customers have always given a good rating for this. One area that the business was lacking to gain a higher competitive edge is on the visual presentation of the products (Yong Kim, 2004).

Technology forms another important component of the external business environment. In the catering industries technology affects the manner in which different products are produced which affects their quality. The nature of ovens used in this business, forms part of technology adopted, and affects the efficiency of the organization. The effects trickles down to determine how well and timely the customers’ orders would be met (Adeoye & Elegunde, 2012).

Alternatives

The investor, Marcus Lemonis, helps the business increase its resources by taking advantage of its un-utilized capacity hours and exploring extra-services to offer for thereby maximizing its returns. The recommended plan for this is acquisition of food trucks. This would help the business have predictive revenue models.  This was an alternative for diversifying the products. From the two trucks, the revenue would increase by $600,000 and with gross margin of 70%, this would result to a gross revenue of $420,000 and consequently a net income of $180,000. This also gives an opportunity of exploring wider client base thereby reducing the risks associated with reliance on customers from a single industry.

Corrective action plan

The business took a number of steps to remedy the issues affecting it. The key correction actions plans were diversification of the customer base through venturing into the truck catering business. The investor injected more money for the implementation of this and provision of working capital. The employees were tasked with a responsibilities of not worrying whether they would have a job to do to creating the job themselves. To achieve this, they were given a room of being creative without the interference of the Ted. This meant increase revenues and better employee relationship.

References

Adeoye, A. O., & Elegunde, A. F. (2012). Impacts of external business environment on organizational performance in the food and beverage industry in Nigeria. British Journal of Arts and Social Sciences, 6(2), 56-65.

Yong Kim, B., & Oh, H. (2004). How do hotel firms obtain a competitive advantage?. International Journal of Contemporary Hospitality Management, 16(1), 65-71.