Bambinelli’s Pizza & Pasta, Research Paper Example

This is paper pertains to supply and demand in analyzing the economic status for a small, family-owned restaurant—Bambinelli’s Pizza & Pasta. This will help determine the most efficient way to use the business’s resources. This includes considering the costs of resources and how they are used, as well as determining the business’s profit margin and competitiveness in the market. According to BusinessDictionary.com, an economic analysis considers “opportunity costs of resources employed and attempts to measure in monetary terms the private and social costs and benefits of a project to the community or economy” (Business Dictionary, 2014).

Restaurant History

Bambinelli’s Pizza & Pasta is a family-owned, Italian restaurant located in Atlanta, Georgia, and has been in business since 1980. There are two locations each owned by a Bambinelli family member. The restaurant was inspired by their mother’s, grandmother’s, and great-grandmother’s love for cooking Italian food. The great-grandmother was born in Torino, Italy in 1888 and was deeply into the culinary arts and preparing signature Italian sauces and dishes. Bambinelli’s website shows that it specializes in Italian cuisine for lunch and dinner and they are open seven days a week. The restaurant also offers catering services. In addition, it posts customer reviews on its website (Bambinelli’s, 2013).

Demand for Products

Restaurant products and services have specific consumer demand because it involves the consumers’ desire to eat meals outside of the home. According to the USDA, consumer consumption of food outside of the home is a large part of the American diet, and estimates that, as of 2012, up to 43.1% of consumer spending on food is for meals prepared outside of the home (USDA, 2014). Many factors influence demand for restaurant products and services. For example, factors influencing demand for Bambinelli’s products and services include market size, market competition, income of its customers, customer preferences, time spent preparing meals at home vs. time spent going out to eat, the location of the restaurant, and cost and quality of the food (Brookins, 2014). Additionally, trends that contribute to demand for food outside the home includes more women being employed outside of the home, higher incomes, convenience and affordability of food outside the home, smaller household sizes, and more advertising and promotion of restaurants (USDA, 2014).

Consumers pay attention to price when considering eating out at restaurants but they also consider other factors. This equates to their opportunity costs, which is related to scarcity and what consumers give up when they choose to eat out instead of cook at home (Mankiw, 2011). Consumers have a choice of how to make use of their time and how to spend their money; therefore, demand influences this.

Bambinelli’s offers a variety of food choices for those who choose Itailian cuisine, and they offer this to customers every day of the week. Therefore, the product offerings at Bambinelli’s satisfies its customers’ demand for Italian food outside the home, as well as convenience and time saved.

Product Supply

Factors that influence supply of products and services for restaurants include price, the  prices of alternative products and services, production costs and cost of materials, governmental regulations, and the goals of the business (Mankiw, 2011). In addition, the state of technology is a viable consideration in today’s business world. Supply pertains to how much of a product or service a seller will sell for a given price (Mankiw, 2011).

Factors that influence supply specifically for Bambinelli’s include how much product to store, materials, and inventory costs, because the restaurant must accommodate those consumers who choose Italian over an other type of food. Therefore, the quantity the restaurant supplies depends on price and other variables, such as production costs, as mentioned. Production costs include employee wages, cost of raw materials, cost of food products, cost of supplies for the restaurant, interest charges, etc. (Mankiw, 2011). This means that Bambinelli’s needs to be sure it has enough of its offerings to meet the demand of its customers.

Price Elasticity of Demand

The concepts of supply and demand are closely related to price elasticity of demand and income elasticity of demand. Price elasticity of demand measures the relationship between price fluctuations and product demand, which means a product will be either elastic or inelastic (Besanko & Braeutigam, 2010). For example, a product is inelastic if demand for it changes very little if the price changes or fluctuates. On the other hand, if demand for a product changes largely with price changes or fluctuations, then the product is considered elastic. For example, if a person went to a store to buy a pair of shoes that were on sale a week prior, but when that person went to purchase them, they were say $25 more than they had expected, then that person may no longer want to buy the shoes. This means the demand for the product is elastic because there are other substitutes for it (Mankiw, 2011). Inelastic products or services are those that tend to be necessities rather than luxuries, such as gas for the car. People will buy this product no matter what the price because they have to. Price elasticity of demand is calculated by dividing the change in quantity by the change in price (Mankiw, 2011).

Bambinelli’s prices are varied but are moderate as opposed to cheap. The menu shows offerings in categories according to type of food such as salads, sandwiches, calzones, seafood pasta, pizza, specialties, and desserts. The restaurant’s signature items are pizza and pasta. Elasticity of demand for Bambinelli’s pizza and pasta is most likely elastic. This is because even though food is a necessity, eating Italian food out of the home at a restaurant is a choice of luxury. In addition, Bambinelli’s has been in business for over 30 years (Bambinelli’s, 2013), so the prices most likely have fluctuated, but they still have customers who like their food, so demand is still there. Additionally, demand for Bambinelli’s  pizza and pasta is elastic because people can find substitutes elsewhere. However, drastically changing Bambinelli’s prices for its pizza and pasta is probably not a good idea, but allowing fluctuations according to what the competition is doing is always a good idea.

Income Elasticity of Demand

According to Mankiw (2011), income elasticity of demand is a measurement of how demand changes with changes in income. Income elasticity is the change in the percentage of consumption with a change in income of 1%. According to Fuchs (1965), income elasticy of demand is demonstrated when a family’s income increases, then the family’s demand for products and services increases as well. “The ratio of the percentage increase in demand to the percentage increase in income is referred to as the income elasticity” (p. 8). Adversely, if a family’s income dccreases, then its demand will also decrease.

For Bambinelli’s, income elasticity of demand will affect its sales if the economy causes people to have less money. This is because people will most likely forego (opportunity costs) the luxury of eating out and stay home to prepare meals, if they are in an economic pinch. This is because food is a necessity but restaurant food is not. People often look for ways to save money when their incomes fall below what they are used to. Therefore, it remains that even though food is a necessity, as stated above, food at restaurants is not a necessity. However, if times become hard for families and they keep a tighter hold on their money, they may still come to Bambinelli’s to eat if Bambinelli’s offers substantial discounts or specials that would make it worth their while (opportunity costs).

Cross-Price Elasticity of Demand

According to Mankiw (2011), products and services can be categorized as substitutes, complements, or as being unrelated. This refers to cross-price elasticity of demand. As people demand a product according to how the price fluctuates, cross-price elastic of demand comes into play. For example, say the price of microwave ovens dropped to half of what they are today. Then the microwave food industry may see a spike in sales because people will likely want to buy more microwavable products to go along with their new microwaves. This is a logical assumption because microwave ovens and microwavable food products are complementary of each other, thus there is a cross-price elasticity of demand between them.

Bambinelli’s products are less likely complements of other products as much as they are substitutes. It is not like a burger complements fries and vice versa. Bambinelli’s food offerings are Italian and specialty dishes that people can get at other Italian restaurants. However, if Bambinelli’s offered good discounts and specials, then it could persuade customers to choose their Italian food offerings over other Italian restaurants’ food offerings. On its website, it shows that they offer a standing menu of lunch specials and they are all for $8.99 and they all include a drink and the house salad.

It appears that cross-price elasticity for Bambinelli’s is strong. This is likely due to repeat business from loyal customers, as it has been in business for over 30 years in its two locations. However, Bambinelli’s owners should ensure that they do not rest on their laurels in this regard, because people can be fickle. I would be sure to monitor what the competition was doing. It is always a good idea to keep abreast of their menu offerings and items, especially their specials and discounts. As a manager of the restaurant, I would use this information to structure Bambinelli’s discount and specials programs. This is important for retaining repeat customers and encouraging word-of-mouth advertising from those customers. In addition, I would ensure that my staff are well taken care of, feel appreciated, and are paid well. It would be a good idea for Bambinelli’s to pay at least a bit above the norm to attract and retain the best staff in the marketplace. Turnover is one of the most expensive costs for any business (Lucas, 2013). It is a good idea for the restaurant manager to collect and analyze price and wage data and to be sure to keep up with the competition and what they are doing in these areas. In addition, the condition of the economy is good to know about, because that could factor into how discounts and specials are designed for the business to keep up profits.

The manager should also be aware of the power of consumer choice and preference. People are aware of how and where they spend their money. Bambinelli’s should be sure to give good customer service and quality food offerings. I think I would have more than just the run-of-the-mill, ongoing specials shown on their website, because people may not see these as specials because they are always there. In addition, I noticed that the specials pricing is not far off from the regular pricing. Bambinelli’s needs to have deep discount specials on a regular basis, such as kids each free on Mondays or half-price Wednesdays.

Cost Concepts for Consideration

There are five specific cost concepts in economics—fixed costs, variable costs, explicit costs, implicit costs, and sunk costs.

Fixed costs are those that are incurred whether or not a business produces anything. These types of costs do not usually change and include rent or mortgage payments, utility bills and other bills, etc. Variable costs, on the other hand, fluctuate according to production volume. These costs include employee pay, raw materials, business supplies, etc. Variable costs are generated with a business produces (Mankiw, 2011).

Explicit costs include interest on loans, payroll and other taxes, etc. These costs must be paid when services are rendered, such as employees work then they get paid. Implicit costs are those incurred but are not like paid for services costs (Mankiw, 2011). These costs are more like not having to pay something or gaining something such as saving money on rent because the buildings are owned by the owners, such as with Bambinelli’s two locations.

Sunk costs are past costs that were incurred that do not affect current production. Mankiw states that sunk costs are already committed and a business cannot recover these costs. An example would be a copier a business purchased and paid for in full in the past. The only thing the business can do with this item is right off the depreciation.

Bambinelli’s management should definitely use these costs concepts to successfully manage the restaurants. Associated costs for restaurants have a lot to do with business operations. Bambinelli’s operational costs are mostly fixed and explicit because they pay bills and pay for equipment and supplies. It is not clear on the website that they own their locations, but if they do, then they do not have to worry about sunk costs such as rent. However, the restaurants do pay occupancy costs such as the building and land taxes and insurance.

Conduct, Performance, and Structure

Bambinelli’s obviously performs well in the industry. However, to maintain customer loyalty, the restaurant owners should act on trends revealed from doing ongoing market analyses on information and data tracked about the competition and the economy. Bambinell’s business structure should center on supply and demand for its product and service offerings. The managers should identify key favorites and customer preferences to capitalize on these for increased sales. In addition, it would be a good idea for Bambinelli’s to poll and survey its customers to be sure the restaurant is offering what the customers want and remedying any potential negatives.

What Type of Business is Bambinelli’s?

In competitive markets there are three types of businesses—monopolistic, oligopolistic,  and competitive. Businesses seeking competitive advantages vie for the attention of consumers to gain the largest share possible of their spending dollars (Mankiw, 2011).

A monopolistic competitive businesses, according to Merriam-Webster, are those with similar product offerings and compete with each other depending on the condition of the market (Merriam-Webster, 2014). With oligopolistic competition, whatever competing businesses do can affect each other. This is especially true with price changes (Merriam-Webster, 2013).

Bambinelli’s is a competitive business because there are other restaurants that people can choose from, particularly Italian restaurants. As it pertains to supply and demand, competitive businesses compete for consumer dollars spent on food spent outside the home. In Bambinelli’s case, it competes for money spent outside the home for Italian cuisine, specifically (Bambinelli’s, 2013).

How to Increase Bambinelli’s Profits

Bambinelli’s business managers are charged with making the right business decisions to increase profits for the two restaurants. This would be best achieved through effective and efficient strategic marketing initiatives. To increase profits for the restaurant, the managers should consider how they could best control costs. Additionally, profits can be increased by gaining more customers. Furthermore, the restaurant can increase profits by focusing on value and promoting new and novelty items (Grayson, 2013). People like specials and variety offerings. Additionally, the restaurant should focus on an effective pricing strategy for the business, keeping the competition in mind. This will entail good accounting capability on the part of the business manager. It is important to monitor and control costs and keep track of the amount of revenue coming in to the business (Brookins, 2014).

Bambinelli’s pricing strategy is not easily seen on its website. The menu shows prices on the regular schedule and then it shows a separate menu for lunch specials, which are all priced at $8.99. However, the specials do include the drink and a salad, which may be somewhat of a discount to customers. As noted above, it would be prudent for Bambinelli’s to offer more obvious discounts and specials and even make certain days special days. This may help the restaurant gain more customers through their current customers telling other people about the specials.

Government Regulatory Requirements

Bambinelli’s, as other restaurants in the market, must comply with strict food and safety regulations stipulated by the government. The Food and Drug Administration routinely sends inspectors to ensure restaurants are in compliance with rules and regulations of federal safety standards (SBA, 2012). This is for the purpose of protecting the health and safety of the public. Restaurants must meet safety standards for handling food, preparing food, and storing food properly. Restaurants are also graded on cleanliness and sanitary conditions and procedures followed to ensure no contamination are present around food. The restaurant’s building must be up to code standards as well (SBA, 2012). Bambinelli’s does not show any information about how they comply with government regulations, but they do report giving the best service possible, which should include following all required guidelines.

References

Bambinelli’s. (2013). About Us. Retrieved from Bambinellispizza.com: http://bambinellispizza.com/about-us/

Besanko, D., & Braeutigam, R. (2010). Microeconomics (4th ed.). Hoboken, NJ: Wiley & Sons.

Brookins, M. (2014). Factors That Affect Demand Curve. Retrieved from Houston Chronicle: http://smallbusiness.chron.com/factors-affect-demand-curve-11258.html

Business Dictionary. (2014). Economic Analysis. Retrieved from BusinessDictionary.com: http://www.businessdictionary.com/definition/economic-analysis.html

Fuchs, V. R. (1965). The Growing Importance of the Service Industries. National Bureau of Economic Research, 8-12.

Grayson, L. (2013). How to Improve Profits in a Fast Food Restaurant. Retrieved from Houston Chronicle: http://smallbusiness.chron.com/improve-profits-fast-food-restaurant-31525.html

Lucas, S. (2013). How Much Employee Turnover Really Costs You. Retrieved from Inc.com: http://www.inc.com/suzanne-lucas/why-employee-turnover-is-so-costly.html

Mankiw, G. (2011). Principles of Microeconomics (6th ed.). Mason, OH: Cengage Learning.

Merriam-Webster. (2013). Oligopoly. Retrieved from Merriam-Webster: http://www.merriam-webster.com/dictionary/oligopoly

Merriam-Webster. (2014). monopolistic competition. Retrieved from Merriam-Webster: http://www.merriam-webster.com/dictionary/monopolistic%20competition

SBA. (2012). Opening and Running a Restaurant – A Legal and Regulatory Checklist. Retrieved from U.S. Small Business Administration: https://www.sba.gov/blogs/opening-and-running-restaurant-legal-and-regulatory-checklist

USDA. (2014). Food-Away-from-Home. Retrieved from United States Department of Agriculture: http://www.ers.usda.gov/topics/food-choices-health/food-consumption-demand/food-away-from-home.aspx