The research paper focusses on examining investment strategies that should be considered for starting a restaurant business in the UK. Precisely, the paper will answer the research question by providing a detailed explanation to the bilateral influences on investment strategies. The research question is important because it allows the investor to learn something new about the market. Entering a new market requires one to have enough knowledge about the past and current market conditions (Basu 2011, pp. 13). The paper will focus on defining key terms, assessing external environmental factors that influence decision-making and explaining internal factors that may affect investment strategies.
An investment refers to the current commitment of resource by an individual, organization or government for a particular time with the motive to gain more resources in the future. The investor will obtain compensation for the time the resources are committed, the anticipated inflation rate and the uncertainty of future payments (Reilly & Brown 2012, pp. 4). Similarly, an investment strategy encompasses a set of rules or procedures that guides an investor to select the portfolio to commit the resources. It is essential for an investor to use long-term strategies that support the creation of a more secure financial future. Moreover, in the case of a potential investor, an investment strategy bases on a risk-return tradeoff.
A small business refers to the business that exhibits the following features. The business is small compared to bigger firms in the industry, excluding the marketing role; the business has geographically localized activities, a few individuals finance the business operations, and the management team is small (Longenecker, Petty, Palich & Hoy 2012, pp. 6). Operating a restaurant business in the UK will meet the standards for a small business. Besides, portraying an entrepreneurial mindset is valuable to the success of a restaurant business.
External environmental factors play a critical role in making decisions regarding investment strategies. For instance, the UK economic condition entails the economic growth, income consumers spend on leisure and eating out. Due to the slow global growth, the UK economic growth decreased from 3% in 2014 to 2% in 2016 before the Brexit (Goodwin & Beck 2016, pp. 24). On the same note, the economic and political uncertainty drives the decline in business investment (PwC 2016, pp. 7) Although the economy of the UK is slowing down, consumer’s spending growth is expected to hold up better while the growth in business sectors will decline but should remain positive (PwC 2016, pp. 7). Therefore, decisions on investment strategies should focus on assessing the economic trend in the UK.
The behavior exhibited by the leisure consumer indicates the prospects of the economic conditions in the UK. Spending on leisure requires consumers to show confidence and their personal financial situations should be able to provide disposable income for non-essential operations. Over the past two years, the decrease in oil and commodity prices has reduced the UK inflation rate to near record low (Deloitte 2016, pp. 4). Besides, the drop in inflation has coincided with the time the country is experiencing a strong job growth that increases real wages. With lower inflation, consumers’ spending has shifted from needs to wants (Deloitte 2016, pp. 4). It would be ideal to start a restaurant in the UK because; low inflation rate and high consumer confidence indicates that consumers will start to spend more on discretionary categories such as alcoholic beverages thus benefiting the leisure sector.
The eating out market includes coffee shops, pubs, and fast food restaurants. Although the industry contributes a lot to the UK economy, its effect on people’s lifestyle, job creation, and economic prospects are hardly considered. It is important to examine the trend in the eating out market because with overcapacity; there would be slow growth in the sector. According to Gerrard (2014, pp. 11), the food-serving outlets have recorded highest number in the pub sector over the last decade. Similarly, the 2013 Mintel report indicates that 57% of consumers prioritize pubs when eating out (Gerrard 2014, pp. 11). Consumers always have the desire for quality, value for their money and social experience (Gerrard 2014, pp. 7). Consistency portrayed by casual dining ranks it among the best in the eating out market. Therefore, when starting a restaurant business, it is essential to consider the quality of services to offer because consumers are time sensitive and price conscious.
When making decisions regarding investment strategies, it is important to study competitors and market saturation. Market saturation in a restaurant venture entails situation when the supply of goods equals or does not meet the demand of the customers. Operating in a saturated market limits the possibility of the business to realize profits and potential growth (Basu 2011, pp. 14). Competition among restaurant operators indicates that there will be a struggle in ensuring the prices are affordable to consumers. Business owners will have to consider the prevailing competition for staff and market share. According to Longenecker, Petty, Palich and Hoy (2012, pp. 34), employers will hold for good staff in the market if they pay the recommended hourly minimum wage. Similarly, due to stiff competition, the wages will inevitably reach the recommended rates. Reports indicate that casual dining restaurants and food-led pubs have increased their number in the UK (Gerrard 2014, pp. 4). The prevailing trend in the restaurant sector is mainly due to the emergence of ambitious and aspiring branded chains.
The results of the U.K. vote that favored leaving the European Union came as a surprise to the global financial markets. Although the food and drinks sector will continue to experience growth despite the vote to leave the EU, the success rate of the industry depends on their access to laborers from the European Union (Ough 2016, pp. 1). Restaurants in the UK depend on labor from the immigrants because they work for low pay and are more productive. For instance, if you visit any restaurant in the UK, the chance is that employees who will serve you or check you in are non-British. Brexit is a concern for restaurant owners because its restriction on migration will create staff shortage. Besides, restaurant workers in the UK are unsure about their future due to the Brexit vote (Alderman 2016, pp. 1). Therefore, Brexit will increase the cost of operating a restaurant business in the UK. The business owner will have to use the limited labor resources that seem costly.
Internal/Restaurant and SME Specific Research
Branding encompasses the impression the business owner would like to make. In the case of starting a restaurant business, branding should convey the special thing about the business (Bowie & Buttle 2013, pp. 133). When developing a business brand, investors often target to create a strong brand that will position the firm as an irreplaceable long-term partner with the customers. Precisely, a strong brand should appeal customers, and this will enhance their loyalty to the business (Ozdemir & Caliskan 2014, pp. 10). In addition, the firm’s strong brand and marketing style will help it protect its ecosystem. Decisions regarding the restaurant’s brand should examine the emotional relationship it will have with customers. Irrespective of the size of the business, investors should consider employing effective marketing styles that would take into consideration customers’ expectations. Promotions and advertisements should as well appeal and convey the right message to customers.
Managers should not only portray expertise and administration skills, but they should also show concern to employees and be strategic partners of the firm. Management practices are critical in determining the productivity of employees (Nawaz, A.S 2011, pp. 5548). When starting a restaurant business, the influence of management practices on the investment strategies would reflect on the performance of the business. Therefore, the restaurant business will achieve effective investment strategy by implementing effective management practices. The investing strategies should focus on utilizing the minimum resources available and facilitating the business operations.
This literature review has provided insights into investment strategies that investors should consider when starting a restaurant business in the UK. However, based on the information from the review, there are gaps regarding Brexit, consumer expenditure, and branding and marketing style that we have identified. First, the literature provides limited information on the future economic prospects of UK. There is no information on how restaurant businesses would cope with the challenges presented by Brexit. Similarly, the literature does not explain the economic benefits restaurant businesses would derive from UK’s trading relationship with the rest of the world. Second, there is little studies regarding consumers’ spending pattern and data; therefore, it is difficult for businesses to determine the demand gaps in the market. Third, regarding the marketing style, the literature talks about advertisements and promotions; however, it does not provide information on other marketing styles such as the use of mobile apps, online and community marketing.
Alderman, Liz., 2016. Brexit vote has European workers in Britain unsure of future. The New York Times, [online] 13 June. Available at :< http://www.nytimes.com/2016/06/14/business/brexit-vote-has-foreign-workers-in-service-jobs-on-edge.html?_r=0> [Accessed 11 October 2016]
Basu, A., 2011. From’Break Out’to’Breakthrough’: Successful Market Strategies of Immigrant Entrepreneurs in the UK. International Journal of Entrepreneurship, 15, p.1-23.
Bowie, D. and Buttle, F., 2013. Hospitality marketing. Taylor & Francis.
Deloitte., 2016. Passion for leisure: A view of the UK leisure consumer. [online] Available at :< http://www2.deloitte.com/content/dam/Deloitte/uk/Documents/consumer-business/deloitte-uk-cip-leisureconsumer.pdf> [Accessed 11 October 206]
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Goodwin, A. and Beck, M., 2016. The UK economic outlook. The IFS Green Budget. [online] Available at: <https://www.ifs.org.uk/uploads/gb/gb2016/gb2016ch2.pdf>[Accessed 12 October 2016].
Nawaz, A.S., 2011. Employee motivation: A study on some selected McDonalds in the UK. African Journal of Business Management, 5(14), p.5541-5550.
Longenecker, J.G., Petty, J.W., Palich, L.E. and Hoy, F., 2012. Small business management: launching and growing entrepreneurial ventures. Mason, OH, South-Western Cengage Learning.
Ough, T., 2016. UK’s food and drinks sector warns bright future will depend on EU workers, The Telegraph, [online] Available at: <http://www.telegraph.co.uk/business/2016/09/06/uks-food-and-drink-sector-warns-bright-future-will-depend-on-eu/>[Accessed 12 October 2016]
Ozdemir, B. and Caliskan, O., 2014. A review of literature on restaurant menus: Specifying the managerial issues. International Journal of Gastronomy and Food Science, 2(1), pp.3-13.
PwC., 2016. UK economic outlook, [online] Available at: <http://www.pwc.co.uk/assets/pdf/ukeo/uk-economic-outlook-july-2016.pdf>[Accessed 18 October 2016 2016]
Reilly, F. K., & Brown, K. C., 2012. Investment analysis & portfolio management. Mason, OH, South-Western Cengage Learning.
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