Strategic management case study Westlake Lanes
Dr. Jonathan Lee
10/15/2012
David Standel 103454850 |
Key Issue:
Westlake Lanes a family business operating since the 1970s has been losing money since 2007 and has been declining since 2004. The owners have invested 100,000 of additional equity in 2008 but continued to lose money until 2010. Shelby Givens, general manager of Westlake Bowling lanes has been able to turn Westlake from red to black by reducing costs and raising prices. This has brought Westlake out of the red, but to grow the business new investment would have to be made. Shelby wants to grow the business by complementing the bowling business with a family entertainment centre with bowling a part of the entertainment experience. There would be kid-friendly video and arcade games, and designated private party space to complement existing lanes. The second idea is to complement the lanes with a plush intimate space for well educated, well paid young professionals to gather. This space would include a full bar with tapas-style appetizers, table service pool tables and music. The issue is which path to take, stay on course with the bowling alley and keep cutting cost or invest more to grow the business. We need to look at the internal and external forces of Westlake to help make our decision.
Internal Analysis:
Looking into Westlake lanes and its internal resources we see that revenues have been decreasing the past 5 years. The Building is leased long term the décor needs to be redone no matter which direction the board decides to take. The machinery for 11 of the 16 lanes has been replaced at 19,000 per lane with 3 more due by the end of the year. The projected annual net income for 2010 is 19,892 with all the cost cutting measures in place. I have done a VRINE analysis for all three options I have addressed to help with my decision.
(VRINE Stand Pat)
Valuable:
This resource is valuable a 7 billion dollar industry in the United States.
Rarity:
Bowling alleys in Raleigh are not rare there are 3 in the city but Westlake lane is the only one in the downtown area so it is rare for its location.
Inimitable and/or non-substitutable: Bowling centre’s can be imitated but are expensive to build and can be substituted for other forms of recreation.
Exploitable: Givens wants to exploit Westlake lanes to its full potential by adding a bowling lounge or a family entertainment centre. Westlake has been in business in Raleigh for 40 years and can exploit the relationship it has with the community.
Internal Analysis: (VRINE for upscale bowling lounge)
Valuable:
This resource is valuable because of the location (downtown) but it is not exploiting its potential by complementing its core business. Adding an upscale lounge to cater to the single young professionals in Raleigh would tap into the growing population in downtown Raleigh.
Rarity: Bowling alleys are not rare the location of the bowling alley is rare (Westlake is the only one downtown).
Inimitable and/or non-substitutable:
This can be imitated and or substituted by competitors in the industry and competitors are always looking for entertainment dollars. Bars and restaurants, shows compete for theses dollars. Inimitable no, can be imitated and can be substituted for other forms of leisure.
Is it Exploitable?
This can be exploited in the downtown area where young professional people are moving in, a census in 2010 said population growth in Raleigh grew by 46.3%. The median age was 31.9 with people 25-44 accounting for 1/3 of the population.
VRINE (Family Entertainment Centre)
Valuable:
Bowling alley with kid friendly arcade and video games along with a designated party area would enhance the value of existing bowling centre. So yes this resource would be valuable
Rarity: Would be the only bowling alley/arcade party space in the downtown area. This and the cost of a new bowling establishment downtown would make it rare.
Inimitable and or non-substitutable:
Family entertainment centre is not inimitable can be imitated for a cost. This is substitutable with existing establishments such as laser tag and rock-climbing centers.
Exploitable:
Kid friendly family entertainment centre would be exploitable in Raleigh as Westlake has been in business for 40 years.
External analysis:
Westlake Lanes is situated in downtown Raleigh, North Carolina. Westlake is one of four bowling establishments in the area but Westlake is the only one in the downtown area. The downtown area has been well kept with new shops and restaurants along with newly gentrified downtown neighborhoods. Raleigh is one of the top ten fastest-growing cities in the United States growing 46.3% in the last ten years. High tech and life science employers have populated the area as businesses value the proximity to students, engineers, and research facilities at Duke, UNC and NC State universities. This has young professionals flocking to the area for high-growth jobs and a good standard of living. Almost 50% of all residents over 25 have a college degree or higher and 1/3 of all households earn between 50,000 and 100,000 per year. In Raleigh the median age is 31.9 and people between the ages of 25 to 44 accounted for 1/3 of the population.
Demographic Survey results (Bowlers)
Average income $ 55,000 AGE 55 and over 33% followed by 16 and under at 15% and 16 to 54 at 52%.
External Analysis: All three (Porters five forces model)
Rivalry:
There are 3 other bowling centers in Raleigh competing for bowling revenue. Shelby Givens has placed Westlake in a favorable position by cutting cost and bringing Westlake back to profitability. Westlake can compete for entertainment and leisure dollars in downtown Raleigh by adding a family entertainment centre and go up against rock climbing and laser tag. With an upscale lounge in the bowling centre they can compete with bars, lounges, and restaurants in the downtown core.
Threat of New Entry: There is not much threat of new entry in Raleigh for bowling establishments there are 4 including Westlake. The capitol required to open a new bowling establishment along with the declining participation in bowling does not bode well for new entrants. With the investment of the family entertainment centre or lounge to complement the bowling the threat of new entry in the downtown core diminishes because of cost.
Supplier Power: There are few suppliers for bowling material and machinery so you and your competitors are at the mercy of the supplier. Shelby Givens has negotiated with other suppliers and has reduced cost but machinery for bowling is supplied by few suppliers.
Buyer Power:
Customers can go to your competitors and prices are generally the same throughout the industry you have league bowlers who have a set price and usually have their own equipment. Recreational bowlers rent shoes and alleys and do not have much buying power. Threat of Substitutes:
There are many threats for the recreation dollars in Raleigh, some of the substitutes that she mentions besides bowling at other establishments are soccer, happy hour to name a few. There are rock climbing places and restaurants and bars all over downtown competing for those limited recreation dollars.
Complementor:
This section adds value to the existing business pizza, pop and liquor sales adds value to the bowling business. The addition of an upscale lounge would increase the volume of people in the bowling alley. Party rooms with arcade and video games would also be a complementor to the bowling alley.
The pros and cons of all three alternatives:
Pros and Cons (Staying Pat)
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PROS CONS
Limited investment needed Limited growth
Easier exit strategy Expected profits will need to be re-invested (19,000 per lane machinery)
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Pros and Cons (Upscale Lounge)
PROS CONS
Growth possibilities Cost 700,000 -1,000.000
New atmosphere Long term is it sustainable?
Increased revenue Higher costs, insurance, damages
Compliment existing core business More Capitol into declining business
Exploits high margin alcohol sales Major remodeling cost
Adult atmosphere Major restructuring of staff Estimates that each patron at trendy new bowling-and-cocktail lounges attract young professional that spend of $60 per night on bowling and drinks alone. Annual projected traffic for the new lounge is 40,000 x 60 annual revenues would increase by 2,400.000.
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Pros and Cons (Family Entertainment)
PROS CONS Growth possibilities Could interfere with core business
Limited upfront cost Less income per patron
No major structural remodel cost Manager not enthusiastic
Lower Damage cost Estimates that each child would spend 20 dollars on kid focused entertainment at the new family entertainment center, and given the annual projected traffic of 52,000 x 20 per child annual revenues would increase by 1,040.000.
Financial:
Westlake lanes is family owned the business has been losing money since 2007 and has had to inject new capitol in 2008 to stay afloat. Cost cutting measures have returned Westlake to profitability but not enough to return equity to the owners. The past ratios show the company is highly leveraged and the return on equity is in the negative.
Financial
2009 2008 2007
Current ratio 1.24 1.80 1.19
Debt to asset .81 .55 .84
Return on equity - .45 - .22 - .78
Recommendation:
Standing pat if the owners are looking for an exit strategy makes sense but if you look at the opportunities available the one that stands out is a bowling alley with an upscale lounge. Shelby Givens could be enticed to stay on and manage such a place, which is a major resource in itself she has a stake in its success. Givens is not sure that she would like to work with kids all day long and her heart would not be in it. By moving to an upscale lounge you could tap into the growing population of young professionals that have flocked to the region in the last 10 years. This in turn would not upset the leagues that run during the week, and would offer drinks and food for adults that compete with the fine eateries in the downtown core. The new Westlake lanes would offer sit down dining with table service, pool tables and music catered to young adults. Bowling to popular music can be an alternative to bars and lounges in the downtown core. Location is the reason for this strategy as the downtown core typically attracts young adults and Westlake can exploit their location by adding an upscale lounge. The increased traffic of young professionals with money to spend would offset extra investment it would take to get the lounge started. The lounge and bar area would attract league bowlers stay and enjoy the amenities the New Westlake Lounge N Bowling centre would offer. The days could still attract students during the summer and weekend days during the year for recreational bowling. If you look at the demographics young professionals have flocked to the region, and 1/3 of the population make between 50 and 100 thousand a year. Another statistic I looked at coming to my recommendation is the demographic surveys of incoming customers which the results showed 52% of bowlers were between the ages of 16-54 which is our target market with the upscale lounge.
Alternatives:
Stand pat as mentioned above is one alternative although the cost of 5 new bowling lanes is 95,000 and would need to be done in the near future. Upgrade menu bolster marketing to increase revenue this could generate up to an additional 40,000 this year. The family entertainment centre is also another alternative with a 300,000 dollar investment.
Implementation:
For implementation of the new lounge/bowling centre we need to organize everything around league bowlers we have 20 weeks that they do not bowl. The 20 weeks should be divided into 4 quarter.
Q1
* Hire designer to design new lounge and bowling area (with sound system) * Negotiate bank loan * Hire construction company
Q2
* Start construction
Q3
* Start hiring process to have employees in and trained by middle of fourth quarter * Construction finished by end of quarter
Q4
* Advertise grand opening * Implement marketing plan online
Contingency Plan:
If the above recommendation is not satisfactory to the board, the board can decide to do nothing and sell the bowling establishment most likely at a loss. Once a decision is made to proceed with the upscale bowling lounge there is no turning back. Selling the business with the lease most likely would produce a loss to the shareholders unless business is at a premium and the business is a success.
