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CASE STUDY REPORT

Restaurant Management in The U.S. : In Case of Thai Restaurants in 2005

Parinya Maglin

EDWARD S. AGENO SCHOOL OF BUSINESS GOLDEN GATE UNIVERSITY

Date: September 17, 2005

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EXECUTIVE SUMMARY

The purpose of this case study was to motivate the owners or managers of Thai restaurants to increase their definitions of Thai restaurant management and get the edge to make their restaurants a going concern and to provide some insight into many issues and some value for the management of Thai restaurants. The primary goal of the study was to increase awareness of the areas in which the owners or managers of Thai restaurants in the U.S. could be further improved. This case study utilized the qualitative research methodology. All of interviewees are owners or managers of Thai restaurant in the U.S., a total of 10 participated in the study consisting of 9 owners and 1 manager. Data for the study was collected from various evidences gathered by systematic interview, direct observation, and participant observation. Information from the data collected confirmed the need for owners or managers of Thai restaurants to increase their definitions of Thai restaurant management, get the edge to make their restaurants a going concern, and increase awareness of the further improvement. There are such an analysis and conclusion provided with some useful recommendations for the owners or managers of Thai restaurants in the U.S.

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INTRODUCTION

Many people dream that someday they will open their own restaurants. They attempt to translate their dreams into reality because they might think that opening a new restaurant is an easy task. Unfortunately, managing a new restaurant is not an easy task. Being able to cook very well to perfection doesn’t mean that possession of all the talent needed to translate their dreams into reality. But dreams can become reality only for those who are willing to acknowledge that along with reality comes hard work because planning, opening and running a successful restaurant requires determination, skill and hard work (Ware & Rudnick, 1986). In order to increase their odds of success, they need to take a close look at some of the myths associated with the restaurant business. Clearly, the highly competitive nature of the industry makes success difficult and the failure rate for restaurants is higher than for most other businesses. Half fail or change management every five years (Siegel, p. 3). Thai restaurants in the U.S. have no exception. Unlike any other small business, Thai restaurants are considered easy by novices such as Thai students who came from Thailand, Thai people who got married with the American citizens, or even Thai people who just want to start their own businesses. Some of Thai restaurants fail or change management. The interesting questions are: Why? How can they improve their management? How can they survive in this industry? How can they compete against other competitors? This study proposes a suitable and interesting case study focusing on how the owners or managers manage their restaurants based on two research questions: 1) How do the owners or managers define their Thai restaurant management? and 2) What can the edge the owners or managers of Thai restaurants get to make their restaurants a going concern and what do they believe will make them a going concern? The purpose of this case study was to motivate the owners or managers of Thai restaurants to increase their definitions of Thai restaurant management and get the edge to make their restaurants a going concern and to provide some insight into many issues and some value for the management of Thai restaurants. This case study utilized the qualitative research methodology. All of interviewees are owners or managers of Thai restaurant in the U.S., a total of 10 participated in the study consisting of 9 owners and 1 manager. Data for the study was collected from various evidences gathered by systematic interview, direct observation, and participant observation.

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Findings Nine owners and one manager were dominated by women. Seven out of 10 were female. All of the interviewees are Thai. Two were born in the U.S. and just speak Thai a little. One restaurant owned by a Chinese businessman hired a Thai manager to run the restaurant. Seven out of 10 had their business background before they started to run the restaurants. Five out of seven got their degrees in the field of business background. Two out of seven have got the certificate of food and restaurant management from Thailand. It’s interesting that all of them (100%) earned at least a bachelor degree. Two of them (20%) earned their Master’s degree. It’s also surprising that one Chinese person who can not speak Thai and never lives in Thailand has owned four Thai restaurants in the Bay area (Fremont, San Jose, Milpitas, and San Mateo). The majority of ten restaurants were still young, not more than 5 years old. Only three were older than five years old. All restaurants had at least 2 cooks and 2 waitresses. One busy restaurant with 100 seats had six cooks. Most of them have increased their seats after running for years. Only three fixed the number of seats mostly because of their space limit. One owner was so proud of her restaurant that all of original employees still worked there. Two out of 10 were forced to make their careers change even though they did not have any restaurant experience and restaurant businesses had a rough start owing to several factors, in particular the economic slowdown and intense competition in the market. Most of 10 interviewees just wanted to have their own businesses and felt free from the repeated cycle of salary people. Six restaurants (60%) were owned by their families due to the preference of sharing their lives with the least complexity and arguments. Most of restaurants were really family or individual businesses. Four (40%) out of 10 chose the locations based on parking and the territory of residential and commercial area. Three (30%) liked to work near home and have the smooth traffic flow. No one (0%) mentioned about municipal regulations. Nine out of 10 didn’t analyze their financial statement. Four (40%) just prepared the financial statements for tax purpose. Three (30%) had background about financial statements, but they didn’t analyze the financial statements. One restaurant had the financial statements prepared and used by a professional accountant. In order to get their customers back when a competitor had a special menu, all of them (100%) firstly responded this situation by giving the customers a special menu. Only a person (10%) wanted to do market research in order to know about where his business came from, where his customers lived, what the customers liked in general, and what the customers liked or disliked about their restaurants. Normally, the majority of

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the interviewees always asked customers about food and their opinions in order to get some information from customers. Half of 10 understood that all restaurants were their competitors. Three out of 10 thought that non-Thai restaurants didn’t present the kind of competition to a Thai restaurant. Two (20%) thought theirs didn’t have any competitors. All (100%) established cleaning routines due to their fear from the strict inspection. Three owners still helped employees clean the station. 3 out of Six who thought their kitchen and walkway of their restaurants were too small wanted to redesign the restaurants. Four observed that their waitresses collided with the cook. Four saw that their waitresses collided each other. Six of 10 interviewees (60%) didn’t see any collision. Four of 10 (40%) got a complaint about slow service approximately once a week. Three of 10 (30%) got once in three or four months. Two (20%) never got a complaint. One of 10 (10%) got two or three times a week. One interesting solution for the slow service was to tell customers that Thai food needed to be prepared neatly. It might need more time compared to the other foods. There was one owner who said that two secrets for good service were: (1) Customers are always right and (2) Make sure that food meet a same high quality every time. One secret from the other was to take care of customers by himself in order to ensure his service was doing OK. Six out of 10 (60%) said that the small one was not different from the large one. 2 out of 10 said large-restaurant owners needed to pay attention to the details of planning their operations more than small-restaurant owners with some reasons. The other two didn’t know how to compare them. Except for one interviewee, nine of 10 said their menus were easy to read and clear. The menus already gave every food a flavor all its own. All of 10 used the red pepper or red star to represent the spicy. One red pepper/star meant a little spicy. A few said two red peppers /stars meant a medium spicy in their food. Eight out of 10 stated that their menu should be changed or revised consistently. Two out of 10 didn’t want to change the menu. One was so afraid that his frequent customers would feel confused if he changed it. The other reasoned that his menu had already done everything he wanted it to. Seven provided some appetizing pictures of recommended meals. The majority didn’t provide their special menus very often. Six offered their special menus once a month or more than a month. Two never offered any special menu. One offered on weekend. One offered once a week. Eight of 10 (80%) didn’t get any help from the nearest restaurant association. Two of them said that they got some useful advice long time ago.

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All of them (100%) believed an applied trust system worked for employees. All (100%) believed that all employees didn’t steal food. Eight of them (80%) had activated ADP theft systems linked to the police station. Five (50%) had active closed-circuit TV in 24 hours. One (10%) didn’t activate ADP system. The other one (10%) already sold the closed-circuit TV out. Five of 10 (50%) said that the beverage quality of taste was certainty important. The other five of 10 (50%) never control the quality of taste. Based on the quality of beverage service, three out of 10 thought that all beverages needed to be served first. Only two of 10 had controlled beverage revenues by separating beverage revenues from total revenues. The other eight just thought about total revenues. Except for one interviewee, most of them didn’t mention about saving cost. However, the one who mentioned it was not serious about it. Only one restaurant had software for controlling revenue and cost of food and beverage; however, they were still learning how to use it. Only one knew how many percentages of his beverage sales and cost from his accountant. Except for one restaurant, 9 out of 10 (90%) purchased their supplies from suppliers not less than 70%. Four out of 10 (40%) purchased all from suppliers. 6 out of 10 (60%) would switch to another supplier in case of low quality. 2 out of 10 (20%) would switch in case of not lowest price. Four would possibly switch to the lowest price even though they preferred long term relationship with supplier. Seven out of 10 (70%) never thought about the percentage of food cost, labor cost, overhead cost, and profit. Two out of 10 (20%) analyzed it. The one (10%) said all percentage was prepared and used by the accountant from the main office. All of restaurants (100%) clearly stated the criteria for the position, salary, and benefits, what is expected of them and their position before hiring employees. Also, all always thought the first priority of employees is their benefits. Eight out of 10 tried to make employees feel that they were in the same boats. All five out of those eight persons who wanted employees to be in the same boats made employees feel happy. 6 out of 10 knew the importance of employee retention. One said if her employees still didn’t want to help each other when the restaurant was busy, she might keep the better person. Four out of 10 always hired experienced workers. Only two out of 10 provided outside training programs such as food preparation course and nutrition course. Eight out of 10 trained their employees on the job. Six out of 10 didn’t hire only Thai people. What they needed was a person who could accept hard works and work well.

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RECOMMENDATIONS Based on the purpose of this case study project, the researcher has reviewed the related literature and employed the qualitative method to collect data. A total of nine owners and one manager were interviewed. The direct observations and participant observations were applied. The findings were presented and followed by conclusions. In order to motivate the owners or managers of Thai restaurants to increase their definitions of Thai restaurant management and get the edge to make their restaurants a going concern, the researcher would like to make the following recommendations. 1. It is recommended that the locations of their restaurants are hard to change once they’ve committed themselves to it. However, many restaurants that seem to be in very poor locations are very successful because the owners or managers don’t lose sight of the goal of planning that is to serve the customer effectively and quickly. How to build up customers and provide good food and service to keep them should be the top priority. The faster customers are served, the sooner they eat, the happier they will be, and the sooner new customers can take their seats. Keep in mind that there is nothing in the saying that people have got to eat in their place. 2. It is recommended that understanding the importance of the ratio of cost to sales expressed as a percentage should be an essential management skill. Managing costs requires that standards for purchasing as well as specific procedures for receiving, distribution, billing, and accountability be established throughout an operation. Sales on the statement are represented as a total revenue. Costs are broken down into three major areas: cost of sales, operating expenses, and administrative expenses. It would be obvious that labor is the area of cost that is causing the greatest outflow on profit. 3. It is recommended that the owners or managers should take full advantage of the things that small businesses can do best-get to know your customers’ wants and needs and serve them well. To establish steady local customers and serve good food at reasonable prices is a key to survival in this business. Consistency of quality and service can lead to success. Let customers like when they get here and let customers want to be here again. Attempts to take advantage of the customers’ advices always give them invaluable assets. 4. It is recommended that in the broad sense, the owners or managers should handle the competition by convincing customers that their restaurants are exactly what the customers want to go when all restaurants are competing for customers. They are trying to attract customers out of other places and into theirs. One hot innovation for Thai restaurants is to make an own website for their restaurants. If their restaurant has a waiting line very often, they should consider having a lobby or a bar with a space as big as possible where waiting guests can sit down inside instead of standing outside, rain or shine. Drawing a happy face on customers’ checks

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also helps to increase the amount of tips received by a waitress. Always, the waitstaff should have time for a personal word and an honest smile for customers. 5. It is recommended that all employees should get into the habit of cleaning up. A list on the employee’s notice board would help. Be careful with any kind of dirt that will be a potential source of infection. Even though, it is absolutely a big task to keep any eating establishment clean, the owners or managers should make sure that sanitation is in mind of their employees. 6. It is recommended that when a lot of problems are coming out, these problems may not be from employees, but probably from the design of the restaurant. For example, waitresses collide with the cook or each other. Customers at the far end of the restaurant complain about slow service. The cook’s station is dirty. One crucial concern for the owners and managers should be to provide the customer with a meal quickly and efficiently by the smooth and uncomplicated process of getting food from the kitchen to the customer. If their waitress has to check the kitchen in person six or seven times for her orders, they should overlook every single detail in each area as follows: receiving, storage, food preparation, the cooking area, sanitation, dishwashing, service, dining area, rest rooms, and parking. What type of equipment, where it will go, and what layout will best facilitate service should be answered in each area. 7. It is recommended that the owners or managers should not think that smallrestaurant owners pay attention to the details of planning their operations less than the large-restaurant owners. Actually, the size doesn’t matter. Every detail should be the same. They should not think that their restaurants aren’t large enough to matter. 8. It is recommended that a menu should be the single most important item in their restaurants because the menu can provide a link between them and their customers. It would be recommended that their menu never be a static, unchanging, dull list. If they don’t have any plan to change it because it is already excellent, please plan to revise it consistently. Actually, the menu also tells the owners what to purchase and when. How much should they charge? They must take advantage of seasons, holidays to offer their special menu. The special menu’s list should be on a blackboard in order to tell customers what the restaurants offer. Basically, they should try to have a price mix as well as an entree mix. While high-cost food can scare customers, low-cost food may leave out some good items. Experimentation would help restaurants, even for an experienced owner. If it works, please keep it; otherwise they can save and try at a more opportune time. With a proper menu, a fantastic selling device, they will be more in touch with customer wants. They could drop half the items on menus in order to lower their food cost. The fresh foods would raise the quality of their dishes. An improving menu may surprise and attract more customers and keep customers coming back. Texture, flavor, color should be considered.

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However, before they decide on a final price, they must look at what their competitors charge for similar meals. Some concerns should be included: (1) Make the menu easy to read, clear, and exciting. Give it a flavor all its own and try to catch customers with it; (2) Please mix up the entries; (3) Breakfast and luncheon menus deserve as much as the dinner menu. 9. It is recommended that the owners or managers should make plans for protecting their restaurants against thefts of all kinds-robbery, burglary, employee stealing. They shouldn’t save money in order to pay more later without necessity when something happens from ignoring the protection. Service fee for the protection cannot be compared with the money loss from thefts of all kinds; especially in possible frequent events. 10. It is recommended that the important task such as the food purchasing should fall to the owners with some following reasons. First, purchasing requires learning to know food grades, how to order, quantities, market fluctuations, and price. Secondly, no one can do better than the owners do in order to save money. A dishonest employee could overorder and resell the extra, or a honest employee may order from a convenient but expensive suppliers. Thirdly, it is strongly recommended that the owners of small restaurants should be the best one who knows what sold last week, where the waste was, and when the menu is changed. They should control beverage revenues by separating from total revenue and manage total quality of beverage service. 11. It is recommended that there should be many things they need to be concerned between the time the raw foods leave the warehouse and the time the owners or managers serve them to customers. It makes sense to the researcher to say that many handle the buying personally because they know that if the suppliers deliver more often, the cost is theirs. In order to fix the lowest prices with the highest quality, the researcher would recommend that they should contact three or four different suppliers even though long-term contracts are profitable for items needed on a daily basis. The important point is how to make the best possible guess to decide how much they should buy. If they can guess effectively, they don’t need to go shopping themselves in the case of supply shortage. It is essential that they know exactly what they want to order. Be certain their suppliers have their exact orders, the amount, the quantity, and the quality. Keeping track of their inventory can tell them when it is time to order more and how much to order/buy most of their stock from a few suppliers rather than a little from many, running can-cutting tests in case of using a large amount of canned foods in order to identify the supplier that provides the highest quality at the best price, and overseeing every item before they sign for the shipment. In addition, they should save some money by buying secondhand equipment and comparing the prices and credit terms of different suppliers. It is recommended that they need to keep in mind as follows: (1) Not let anything be taken straight from the delivery truck to the storage room, freezers, or refrigerators; (2) Use supplies in the order they were received; (3) Store food systematically by auditing stocks constantly.

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12. It is recommended that the spirit of teamwork among the employees should be enhanced. Every position should have a job description. The owners or managers should clearly specify lines of authority, communication, responsibility, promotion, and work so that inconsistency, miscommunication, and low productivity will be easily identified no matter how small the restaurants are. They should think that a plan for training their employees as a reward will return their benefit and enhance the spirit of teamwork. It is recommended that employees be given the opportunity for professional development and enrichment. Training should be an ongoing concern. It doesn’t look professionally if the owners have to be able to do everything. For example, when a waitress was ill, they became a waitress. When a cook was out, they went to work in the kitchen. They should manage something else rather than do these kinds of easy tasks. 13. It is recommended that the network of Thai restaurant community should be enhanced in the Bay area. It would be a good time for having Thai restaurant Associations of the Bay area or Northern California. As far as I know, the California Restaurant Association in Sacramento is doing a very good job. It already proves that it is essential that Thai restaurant community should do the same. The better the network of the Thai restaurants, the more effective Thai restaurants. Shared vision and enhanced negotiating power would be recommended. 14. It is recommended that if they want to make their restaurants big, expansion should start a chain or develop a franchise. They must not only know themselves and their capabilities, but keep in mind that it is always dangerous to do too much at the same time. They should be aware that many failures result from over-expansion. In the best of circumstances, the researcher would guarantee that the owners and managers are going in excellent shape if everyday they try to put themselves in the above recommendations with their own goals of running successful restaurants. ****************************

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BIBLIOGRAPHY

Alonzo, R. S. (1996). The Upstart Guide to Owning and Managing a Restaurant. Upstart Publishing Company, Inc. Pavesic, D. V. (1998). Restaurant Manager’s Pocket Handbook: 25 Keys to Profitable Success. Cost Controls. Lebhar-Friedman Books, New York. Rainsford, P. & Bangs, D. H. (2000). The Restaurant Start-UP Guide. Dearborn Trade, A Kaplan Professional Company, Chicago. Restaurant Industry Profile. Retrieved March 18, 2005, from http://www.firstresearch.com/industry-research/restaurant. Scanlon N. (1992). Restaurant Management. Van Nostrand Reinhold, New York. Siegel L. W., (1980). How to Run A Successful Restaurant. John Wiley & Sons, Inc, New York. Ware R. & Rudnick J., (1986). The Definitive Guide to Starting Your Own Restaurant: The Restaurant Book. Facts on File Publications, New York. Yin R. K. (2002). Case Study Research: Design and Methods. Applied Social Research Methods Series, Vol 5: Sage Publications, Inc.

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