Harvard Business Case Study “Sugar Bowl”

Shelby Givens is attempting to transition her grandfather’s forty year old, outdated bowling alley, Westlake Lanes into a more modern, and lively atmosphere that everyone can enjoy. With her entrepreneurial spirit she was able to convince Westlake’s board to transform the out dated bowling alley into a bowling lounge and nightclub. With new beginnings come new challenges such as, preparation for transformation, renovation, and operations. From Given’s new business Sugar Bowl, we will identify possible financial problems, strategic options from short term to long term decisions, and analyze the cause of thriving turnaround businesses.

During phase I of transition Givens was facing a 9-12 month renovation until her new Sugar Bowl could open shop. Until then transitioning would require Givens to hire more employees, research consumer trends corresponding to bowling, construct a new design plan, and changes sales of food/beverages. Current employees will likely see an increase in work hours because of the increase in customers attending the new bowling alley Sugar Bowl. Only one of three full-time employees from Westlake showed interest in working through the transformation, Shirly Smith. In response to only having just one returning experienced Westlake employee she gave Smith the reigns and made her manager until the temporary close. Research preparation was going to be imperative for Sugar Bowl to be successful because money needs to be put in correct places to maximize profits in the long run. Givens needed to gather the market data and consumer trends on which she could build a solid financial foundation on. She did just that and for 8 weeks gathered enough market information to create a predicted spending in March of 2010. Givens didn’t stop there, she met Michael Burke who was the general manager of “High Rollers” successful new age bowling alley in Washington D.C.. Burke was able to provide price per customer, revenue percentages, profit margin, and his marketing plan. Next, the most obvious challenge Given faced during transformation was creating a new design plan that will provide the greatest probability while maintaining a safe environment to meet building codes. This required Given’s to hire an architect for constructing a plan, and a general contractor to provide the labor necessary to complete the project. Hiring more people to complete the renovation was going to cost more money. To save project costs associated with design fees, Givens hired local graduate students with degrees in architecture and design to work the summer months in return for school credits. Once the plans were ready she hired Mike Walker a general contractor whose estimates were 25% lower than others she had seen. Even though Walker had only 3 years of experience under his belt, she felt he was motivated and driven to work on her high profile project. With more customers expected Givens decided to make the most out of the liquor and hot/cold food state issued licenses they had. Instead of rebuilding a kitchen to meet these new demands, which would cost her money she didn’t have, Givens opted to hire a Raleigh food caterer.

In phase II Givens closed Westlake bowling alley for renovation in fall 2010, and immediately encountered a series of time delays. Her contractor had missed the deadline for permit filing, ordered incorrect materials, and was short staff ultimately setting back the grand opening by 6 weeks. Not only was she set back time but only had 64,000 dollars of her original 100,000 dollars of her “incidentals” budget. Given’s was in a pickle she couldn’t hire a new contractor, it would only set her back more time and money which she was short on. In February Givens hired more staff, set catering menus, and developed a marketing plan. Givens encountered a number of staffing problems on top of her unexpected expenses. She was overwhelmed, working 18 hour days, eventually forcing her to entrust someone else with responsibilities. Burkes, Givens mentor referred his former bar manager Sara Petty. Along with this transfer of responsibilities, Sara received 3 % equity stake in the company, control of restaurant and catering operation, as well as a 55,000 dollar salary. Given’s lane machinist from Westlake opted for a raise as well. He received a 30% salary increase, and an extra 2 weeks of vacation time. Givens faced some tuff but crucial staff terminations of some of Westlake’s long term loyal employees in order to keep her tight budget. Her new staff eventually came together after new college and graduate students helped fill her wait staff positions.

Phase III began on Thursday, May 5^th 2011 when Sugar Bowl opened for business after an eventual 7 week delay. Sugar Bowl was behind time and money,” Each week’s delay, I calculated, would cost me a minimum of $30,000 in lost Sugar Bowl revenue” which amounts to 210,000 dollars (Hamermesh, R.G. & Zalosh, A.). The first weekend attendance rate averaged 60 % capacity which is about 270 customers (450 x .6), which is calculated from the table below.

She yet had another problem with Petty’s predictions, they were inconsistent. Friday night was close to exceeding maximum capacity at 425 customers, which dropped to 100 on that Sunday. During the second quarter that summer Givens was only averaging 35% capacity or 158 customers (450 x .35) Thursday- Sunday, and 15% or 68 customers (450 x .15) Monday-Wednesday.

During this time frame Sugar Bowl was averaging 35 dollars per person which was lower than what Givens had expected. The college waiters weren’t panning out for Givens and Petty, 2 quit because their earnings (including tips) were lower than expected, and one other was caught giving away free drinks. Her decision to hire college students proved to be an issue. Givens and Petty’s only choice was to sacrifice their time to cover the positions themselves until they could hire 3 more employees, which amassed a loss of 2250 dollars ($750 training cost x 3 employees). Givens continued to struggle with her previous hiring decisions. Shirly Smith the event sales agent was having difficulty with the jobs she was tasked with doing, and quit. Quickly Givens replaced Smith with Charlie Campbell who had more sales experience, and access to a larger personal network from his previous jobs. Not only were there problems with employees, machinery for two lanes stopped working while Givens one and only machinist was using his 2 week extra vacation time. The eventual fix tolled 26,000 dollars, because an out of state company had to be used. With spring and summer’s revenues diminishing cash, Given and Petty came up with multiple methods for increasing their profit margin. They came up with a specialty drinks menu with high profitability, also narrowed the catering menu, renegotiated catering costs, and increased prices. As a result of these minor but important changes, they were able to increase their revenue from 35 dollars per person in Q2, to 50 dollars by the end of Q4.

With the many number of staffing problems, and unexpected expenses Givens managed to turn Westlake Lanes into a profitable Sugar Bowl. This accomplishment is greatly accredited to Givens cost control efforts which have been the most important factor in Sugar Bowl’s success. Givens saved money in many areas; 90k on design by using architect students from a university, negotiated lower salaries for full time employees, and eliminated health benefits. The most noticeable decision in regards to cutting expenses was the lowering of salaries. As seen below in the table the salary/ income percent is trending down, meaning salaries are staying relatively the same, while sales goes up. This graph can be interpreted to explain a higher workload for the employees, but Givens is saving a significant amount by cutting her staffing costs. Given’s decision to make Michael Burke her mentor turned out to be a good one. Not only did she find her sense of financial vision for Sugar Bowl but was able to get one of Burkes former wait staff supervisors and bar manager Sara Petty. She was able to take some of Givens responsibilities, and do a good job working with Given on profitability and sales- just 8 weeks during Q2 Sugar Bowl had surpassed Westlake’s Q3 sales by 120,548 dollars.

On the other hand, close examination of some of Given’s cost saving decisions didn’t end up panning out like she had expected. The first bad decision she made was hiring Mike Walker because he had a 25% lower estimate than other contractors. Her contractor had missed the deadline for permit filing, ordered incorrect materials, and was short staff ultimately setting back the grand opening by 6 weeks. That was 6 weeks of lost revenue which she calculated to be 30,000 a week. If she had hired an experienced contractor that knew exactly what needed to be done, and how to get it done in a timely manner it would have saved Givens quite a lot of money in the long run. Givens has also relied heavily on the catering company to control food costs. It wasn’t doing well, and her “controls” implemented to reduce and prevent “shrinkage” were not working. The catering company was beginning to add up, so by having a restaurant cost of food and beverages would be lower in the long run. Staffing issues arose from hiring college and graduate students to work her wait staff positions. Two of them quit abruptly, and one other was caught giving away drinks, which left Givens and Petty to sacrifice their time to wait tables. This eventually cost them 2250 dollars, and 10 days time to train more employees. If Givens had hired acceptable workers not just college students to save a buck, she would have been able to avoid that kind of predicament. Unexpected issues with the bowling lanes occurred when their only machinist was out on his extra 2 week vacation, delegated to him by Givens at the time of hiring. This decision to give Gary Spalding an extra 2 weeks’ vacation time ended up costing Givens 26,000 dollars in repairs to another company. It was an unnecessary addition to Gary’s contract, even as unexpected as this incident was; there should have been a mechanic able to fix most anything in the bowling alley at a time. Another mechanic in addition to Gary would allow for some personal time in between working, while making sure things are able to get fixed in a timely affordable manner.    

When looking to see if a company is profitable the income sheet tells a story. By looking at the income sheet for Sugar Bowl net income is ultimately the number that matters the most. By taking the quarterly revenue and subtracting the quarterly costs we can Sugar Bowl’s net income by quarter as seen below. Sugar Bowl obviously started in the negative as most businesses do because of start-up costs, but progressively increased its net income becoming more profitable as time went on. The fifth tick mark represents the 1^st quarter of the new year, and as you can see it is lower than the 4^th quarter. By analyzing the data it was noticed that food, and beverage sales declined significantly. The numbers on the far right are calculated by taking the Q41 2012 value, and subtracting it by the Q4 2011 value. Declining sales in these two areas displays a problem

possibly with the pricing, most likely being that the price points were off leading to a decline in sales. Sugar Bowl has a unique business model, and seems to have found its niche in Raleigh. It still maintains opportunities for growth; it won’t ever age out as long as it maintains a modern feel. There are rooms for improvements, which can help create a more profitable business, but overall the numbers say this is a profitable business none the less.

Given’s decisions to only keep Sugar Bowl open from 6pm- 2pm is a mistake. The numbers show that Thursday-Sunday brings the highest number of customers, but there is potential for daytime business on the weekends at least. Also regarding food and beverage, Sugar Bowl should get rid of their catering service to make way for their own restaurant. They would be able to meet the demands of customers during the day as well as the night. Sugar Bowl could lower costs and increase their revenues in the long run. Bar management should be implemented, to maintain a full time bar during daytime hours. Also the key to happy and long term employees are benefits, which Givens took away to cut cost. Benefits should be given back to employees, increased wages, and more staff should be hired. This will allow for trained, motivated employees stepping up in customer service, and ultimately happy returning customers. Her labor costs will rise but by having a kitchen and a restaurant, food and beverage costs will decrease, and overall profits will rise.

Given’s has come up with two extra possibly options of entertainment for returning extra revenues and profits on Wednesday night; booking a band Zulu, and developing a dating service bowling league. The band charges 1500 dollars every time they play a show. The fixed fee for entry is 10 dollars and will be able to sell 75 tickets a night, giving Sugar Bowl a net of 750 dollars (75 tickets x $10). This leaves 750 dollars left to break even, which will have to be made up in drinks and food. The problem with this option is that there is no guarantee Givens will break even. But the second option the dating service bowling league can get 60 singles to participate at 120 dollars per night totaling 7,200 dollars ($120 x 60) for 8 weeks ($7,200 x 8) or 57,000 dollars. People who participate in the 8 week program get a free t-shirt that cost Sugar Bowl 5 dollars/ shirt ($5 x 60 x 8) totaling 14,400 over 8 weeks. Before any of the league’s bowlers buy tapas, or order an extra drink (after 50% off their first drink) they will net 42,000 dollars. On top of that it is estimated that 50% will become repeat bowlers. Overall the singles bowling league is the obvious choice. On the contrary if both activities can be integrated in the same night, the Zulu show after bowling, singles may be more inclined to stay leading to more revenue.

Givens is offered 1 million dollars by an investor for Sugar Bowl. Personally she would be able to pay off her student loans, but has a personal connection with the business because she made it through the tough years of operation. On top of the offer to buy Sugar Bowl, Givens is offered a job in NYC focused on small business operations, which would more than double her current salary plus an extra signing bonus. This job would give her a nice path while reliving stress of running Sugar Bowl, and allowing her to have more personal time. Givens must decide whether or not she can run Sugar Bowl for another 3 years, required to pay off the dept she from the her loans. If she is to keep Sugar Bowl, shed have to get better guidance, hire specialized help to cut some of her food and beverage costs. There is potential in this business for long term profitability, but without the right guidance Sugar Bowl may well end up just like Westlake. After evaluating the pros and cons Givens should take the job in NYC, and settle for the best sale price of Sugar Bowl. Sale of the business at the right price will immediately help, not only pay off her student loans, but allow her family, and co-workers to reap in the financial benefits. She has a personal tie to the business, because of her very challenging start-up adventure. If Givens can make a decision without emotional involvement, I think she will sell Sugar Bowl, and double her salary working in NYC.

Measuring success of a business isn’t just measured in overall revenue, the profit margins are going to make or break the success of a business. If a company spends more to keep the business running than they able to make (revenue) whether that is measured in quarters or months then ultimately it is not profitable.

Daily Break Even Customers Per Day

Actual Customer Count and weekly analysis

References   

Hamermesh, R.G. & Zalosh, A. (2013). Sugar Bowl. Harvard Business School Brief Case, 9-913-537 (Rev. May 16, 2013). Boston: Harvard Business School Publishing.