The market potential
This paper is aimed at estimating the market potential and market share of the restaurant named Lebanese Flower that has recently been opened in Sydney, Nova Scotia. These projections will reflect the financial performance of this business in 2015. On the whole, this calculation requires the management to examine various economic and demographic characteristics of the community. According to the census, carried out in 2011, the population of this community equals 108,724 people (Nova Scotia Community Counts, 2014).
This is the most recent estimation and it should be used in this paper. The target audience of this restaurant will include individuals aged between 18 and 65; the potential customers will be both male and female. These people are the most likely visitors to this restaurant. It should be mentioned that the target audience comprises approximately 59.5 percent of the total population (Nova Scotia Community Counts, 2014). Therefore, the organization may potentially serve 64 690 people.
Additionally, it is important to know the annual amount of money that people can spend on such services. In this case, one can use the data about commercial foodservice sales. The average per capita expenditures equaled $ 1,416 in 2013 (GE Capital, 2014, p. 13). In this case, it is critical to mention that this information was related to Nova Scotia, in general (GE Capital, 2014, p. 13). Nevertheless, this figure can be a very good approximation of the potential revenues that restaurants derive from serving clients.
Admittedly, buyers can differ in terms of their purchasing power and income level, but under such circumstances, one should focus on the average estimations. Additionally, the managers of this restaurant should make an adjustment for the inflation rates in the country. According to the Bank of Canada, the expected inflation rate will be kept at 2 percent (Bank of Canada, 2015).
It is possible to use this particular value of this variable, but one should keep in mind that it can fluctuate during this year. Overall, this information is sufficient for calculating the market potential. In this case, this indicator can be estimated with the help of such formula as
Market Potential = Target Audience × Per Capita Expenditures × Inflation Rate= 64 690 × $ 1416 ×1.02 = $ 93433060.8
This estimation includes the factor 1.02; it has been included to make the adjustment for the inflation rate projected by the Bank of Canada. Admittedly, there can be some inaccuracies in these calculations. In particular, the estimation of the target audience does not include the immigration to and from Sydney because the existing sources do not provide information about the age of people who come to and from this community.
Furthermore, at this point, it is impossible to obtain the estimation of growth trends in the foodservice industry for 2015. These are some of the limitations that should be taken into account by the management. Nevertheless, these calculations should be considered by business administrators in order to estimate the potential profitability of the enterprise.
The market share
The second task involves the calculation of the market share. In order to do it, one should know the service capacity of this particular restaurant and the service capacity of other restaurants located in Sydney. It should be noted that the service capacity of restaurants can be measured as the number of seats.
This indicator can be selected because it shows the number of clients that a restaurant can serve. As a rule, it is more accurate than the square footage or the number of tables which do not really show how many people a certain business can serve. This is one of the aspects that should be taken into account.
The service capacity of Lebanese Flower equals 35 seats. Furthermore, one should keep in mind that there are seven other restaurants located in this city. Among them, one can distinguish Boston Pizza and East Side Maria because they can host from 150 to 200 visitors. In turn, other restaurants have similar service capacity; in particular, they can host from 20 to 40 people. These data are critical for determining the market share.
It should be noted that the service capacity can vary. For instance, on various occasions such as holidays, the management of restaurants can make arrangements in order to provide accommodations for a greater number of visitors. These calculations were based on the maximum service capacity of these restaurants. This is one of the details that should be taken into account. In this case, one should speak about the following formula:
Percentage of market share= Proposed Service Capacity ÷ Total Service Capacity = 35 ÷ 800 = 0.04375 %
In this case, the percentage of the market share should be slightly reduced because this restaurant has been opened only recently. Therefore, in the beginning, this organization will need to establish its reputation in the market. The management may need to spend more time to win the loyalty of clients. In particular, one can reduce this indicator from 0.04375 percent to 0.03 percent.
Admittedly, this reduction is arbitrary; however, very often entrepreneurs make similar adjustments while estimating the market share; otherwise their expectations about their financial performance of their businesses can become unrealistic. Thus, the market share can be estimated in the following way:
Market Share= Market Potential × Percentage of the Market Share = $93433060.8 × 0. 03 % = $ 2 802 991.824.
There are several details that should not be overlooked. In particular, new restaurants can be opened in this community. Moreover, their service capacity is unknown. Therefore, the management should consider the possibility that their market share can be eroded. Additionally, one should keep in mind that the competitive strength of various businesses can change with time passing; thus, they may have more resources for attracting clients. In turn, this change can significantly affect the financial performance of other businesses.
One should also note that Lebanese Flower is the only restaurant that specializes in Arab cuisine. Yet, at this point, it may be difficult to determine how this attribute will influence the competitive strength of this business. These are some of the main issues that can be distinguished.
Discussion
This example indicates the estimation of market potential and market share requires the consideration of various economic and demographic factors. In particular, it is important to consider per capita expenditures, inflation rates, and estimation of the target audience.
Moreover, one should take into account such a factor as competition since it can shape the profitability of an organization. Finally, the management should remember that the number of businesses in the market and their competitive strength can change since these factors influence the validity of estimations made by the management. Despite these limitations, these projections should be included in the business plan.
Reference List
Bank of Canada. (2015). Inflation. Web
GE Capital. (2014). 2013 Canadian Chain Restaurant Industry Review. Web.
Nova Scotia Community Counts. (2014). Sydney: Nova Scotia. Web.