Case Study 3: Hard Rock Caf Location Strategy

1.

From Mundays Standard Market Report Checklist, select any other four categories and provide three subcategories that should be evaluated? A. Demographics (local, city, region, SMSA), with trend analysis 2. Economic indicators: - Changes in foreign currencies - Inflation rates - Unemployment rates B. Visitor Market 2. Hotels - Current number of hotels in market area - Age of existing hotels in market area - Occupancy rate of current hotels, as well seasonality of occupancy - Rates of new hotel construction (could indicates per year during last ten years) E. Political Risk - What type of government system is in place - Nationalization of major industries - Reduction of foreign interest in local business ventures F. Real Estate Markets - Liquidity of real estate - Current vacancy rates/occupancy rates - Number of real estate properties owned by global companies - Real estate turnover rates (how often are properties sold and converted to new business venture) - Cost of buying versus leasing commercial real estate

2.

Which is the highest rated of the four European cities under construction? Answer: Country A has the highest rating.
European City under Consideration Importance of this factor at this time
20% 20% 20% 10% 10% 10% 10%

Factors weighted by its importance

A 14 16 20 8 9 6.5 7 81 B 14 12 10 9 6 7.5 6 65 C 12 18 10 9 6 7.5 6 69 D 18 15 18 6.5 7 7 8 80

A. Demographics B. Visitor market C. Transportation D. Restaurants/ Nightclubs E. Low political risk F. Real estate market G. Comparable market analysis

A 70 80 100 80 90 65 70

B 70 60 50 90 60 75 60

C 60 90 50 90 60 75 60

D 90 75 90 65 70 70 80

(Heizer & Render, 2011, p. 338) 3. Why does the Hard Rock put such serious effort into its location analysis? Location decisions for Hard Rock Caf begin with a global view which involves analyzing a country, then a region within the country and then finally a city location (Amer, 1999). Specifically within this assessment, it consists of studying and evaluating political risks, currency risks, social norms, social costs, local business practices and whether the brand will fit the market or not. The company must insure that the market will provide large enough long term populations with high enough levels of disposable income and tourism rates (Amer, 1999). Identifying the right location can have significant impact on the profitability of the Hard Rock Caf. The company must place serious effort into the city selection as they must be able to anticipate what cities will be able to offer the long term profitability needed. This anticipation involves understanding what long term direction the city is moving in, and recognizing whether a Hard Rock within this city will have the necessary long term relevance in the market. This is important as typically Hard Rock is required to sign long term leases that can range anywhere to 5 to 15 years (and at times even longer) (Amer, 1999). After a location is selected the company must conduct a break even analysis regarding the cost of purchasing and construction of a new site or the remodeling of an existing location (Amer, 1999). The break even analysis is conducted the company then determines what the

fixed and variable costs would be to determine if they break even analysis is attainable (Amer, 1999). If the site meets the long term strategies for the company and fits within the break even analysis, they then begin construction. 4. Under what conditions do you think Hard Rock prefers to franchise a caf? When Hard Rock does not have extensive experience within a particular market it prefers to franchise a caf. Establishing franchises assists the company as these local partners (franchise owners) have the relationships and experience within the market. It would be assumed that the other advantage within franchising is that it greatly reduces the amount of time that it takes for the company to actually enter into these markets, as the local franchisees have the connections and experience for market entrance into the specified area. Lastly, with franchising, the franchisees profitability is directly impacted by the success of the caf, and subsequently, this should naturally increase their personal investment in making the caf a success. References Amer, B. (2004). Where to place the Hard Rock Cafe. Retrieved from http://myomlab.mathxl.com/info/MediaPopup.aspx?origin=1&disciplineGroup=7&type= Video&loc=mediaphbp@bp_akamai/heizer/videos.php%3Ftitle%3DProduct%20Design %20at%20Regal%20Marine%26clip%3Dpandc/heizer/Regal_Prod_Design.flv&width=8 50&height=680&autoh=yes&centerwin=yes Heizer, J., & Render, B. (2011). Operations management. Upper Saddle River, NJ: Prentice Hall.