Hospitality Services at The University of Western Ontario Case Study

This case study examines the challenges faced by Hospitality Services (HS) at the University of Western Ontario, specifically focusing on the Centre Spot (CS), the largest foodservice on campus. The core issue is the congestion at CS due to high demand. As the associate director of HS, Kevin McCabe is tasked with choosing between two options: adding an eighth register at Tim Hortons or opening a new restaurant. The analysis involves evaluating the financial health of HS, including revenue growth and financial ratios. The study also considers the goals of the university administrator and the needs of the customers. The case provides a detailed breakdown of the costs, benefits, and potential impact of each option, including the addition of a new register at Tim Hortons and the introduction of new restaurants like The Wave, Williams, and Subway. The author recommends adding a new register at Tim Hortons, citing its potential to solve the lineup problem, increase sales, and offer convenience to both consumers and HS. The case study concludes with a financial and operational analysis of each option, providing a comprehensive overview to inform the decision-making process.

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Case: Hospitality Services – The University of Western Ontario
Student’s Name
Institution Affiliation
Course Name
Instructor Name
Date

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Case: Hospitality Services – The University of Western Ontario
Introduction
Hospital Services (HS) manages all food services (residences, vending machines) on the
University of Western Ontario – Western Campus. As the associate director of the HS, Kevin
McCabe is mandated to choose between two profitable opportunities that would improve the net
profit of the Centre Spot (CS). CS is the largest foodservice in campus generating a lot of income
to the campus; however, there is too much congestion due to the high demand. Based on the
presented proposals, there are two options to resolve this issue, either addition of an eighth
register or the addition of a new restaurant. This paper is meant to evaluate the benefits of either
option, based on the financial health of the HS, and the expected profit, depending on the options
available.
Financial Health of HS
The best way to measure the financial health of the HS is by evaluating the growth of revenue
using the statement of comprehensive income to determine the change over the years. There are
various tools, such as the financial ratios that can be used to determine the financial position of a
company. Beginning with the growth of sales, there is an increase in retail sales in 2002 from
$4,377,445 to $4,896,621. However, the overall net profit has greatly reduced from the $73,292
in 2001 to $36,865 in 2002. This can be due to various factors such as increased expenditure and
debt among other staff. Based on this data, I believe that HS is eligible for either option as it can
swing the expenses.

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Financial Ratios
Financial Ratios 2002 2001
Gross Margin 6.66% 6.55%
Net Profit Margin 0.7529% 1.6743%
Quick Ratio 0.22 0.22
Current Ratio 0.42 0.42
Debt to Equity Ratio 8.53 8.27
Days Sales Outstanding 6.53 7.15
Days Inventory
Outstanding
9.15 10.27
Receivables Turnover 56.51 50.52
Inventory Turnover 40.10 35.35
Inventory to Sales 0.02 0.02
Debt to asset ratio 0.90 0.89
Return on Assets 0.02 0.06
Return on Capital 0.02 0.06
Asset Turnover Ratio 3.57 3.19
Days Payable
Outstanding
45.76 51.70
Net profit margin = net income (after taxes) ÷ revenue
Gross margin = gross profit ÷ revenue
Quick Ratio = (Current Assets – Inventories) / Current Liabilities
Current Ratio = Current Assets / Current Liabilities
Debt to Equity Ratio = Total Liabilities / Shareholders Equity
Days Sales Outstanding = (Receivables / Revenue) x 365
Days Inventory Outstanding = (Inventory / COGS) x 365
Receivables Turnover = Revenue / Average Accounts Receivables
Inventory Turnover = COGS / Average of Inventory
Inventory to Sales = Inventory / Revenue
Debt to asset ratio=Total liabilities / total assets
Return on Assets=Net Income/Total Assets
Return on Capital= (Net Income-Dividends)/(Debt + Equity)
Asset Turnover Ratio = Net sales/Average Total Assets
Days Payable Outstanding = (Accounts Payable / COGS) x 365

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Goals of the University Administrator and the Customer Needs.
The goal of the food administrator is to solve the lineup problem at the CS. Additionally, they
need to increase the sales to boost the income that the HS receives form the CS. It is also the
focus of the administrator to ensure that all the students get to be served on time so that they are
focused on their studies. Moreover, the needs of customer segments for delivering an array of
foodservice alternatives is also a priority. The main need of the customers in the university is to
save time and money, fast delivery of well-cooked meals and more dining places. Furthermore,
there needs to be more people serving them, with excellent customer service skills so that they
can come back. On the food alternatives, it can be the delivery of food in a different location or
increased dining places due to more joints opening up at the Centre spot.
Analysis of the consumers of Centre Spot (CS).
The most important issue that HS should consider is the lineup problem. Sales at Centre Spot had
grown largely as a result of the increasing student population. Being that the CS is strategically
placed adjacent to the D.B. Weldon Library (the largest library on campus) and close to the
Social Science Centre, the University Community Centre (UCC) adding a register would be a
great option. However, Tim Horton’s proposal to get a new restaurant in a rent-free place, that is
the wave, would also solve this issue. This is because most of the students, faculty and staff have
the UCC as their popular destination point on the campus.
The dramatic growth in daily sales placed a strain on operations, and line-ups became
commonplace. In September 2002, two cash registers were added to improve the service at
checkout counters. Despite increasing the number of cash registers to seven in total to serve
students at Centre Spot, two at Tim Hortons, and five serving the remaining five restaurants,

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line-ups persisted early into 2003. Consumers did not like waiting in line and often avoided the
line-ups because of time constraints.
Analysis of CS Restaurants
First is Harvey that represented 16.4 percent of total sales at the Centre Spot. I believe that if it
can cut the 42.8 %, it spends on salaries and benefits that the profit can be a bit higher and even
increase to 20%. However, an increase in sales would also improve profit. Next is Manchu Wok,
I believe the profit is 11.5% of the CS sales, f the 38.8% spent on food cost can be reduced, then
the income can increase. Next is Mr. SUB which only contributes 5.8% of the CS sales; I believe
it causes the low profits and changes should be made like a deduction in the 40% spent on food
cost and the 38% spent on salaries and benefits. The same case applies to PITA PIT, which only
contributes 10% of the CS sales but has very high food costs and salaries and benefits. Tim
Horton is the most significant contribution to CS sales which is 20%.
Analysis on the Addition of a New Register
Based on Tim Horton’s proposal, the addition of a new register will increase Tim Hortons’ sales
by 20 percent. The only additional costs to operate the third cash register would be the direct
costs of food, salaries and benefits, special paper supplies and branded royalties. McCabe
believed the remaining expenses would not change, due to economies of scale. As shown below,
Tim Horton’s profit contributes a 20% increase in the CS profits, which in turn leads to an
increase in the HS profits. This would be very huge for the HS profits as there would be much
gain.

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Renovation Costs Required For an Additional Cash Register at Tim Hortons
Centre Spot redesign $ 14,600
Mill work equipment 43,800
Mechanical/electrical renovations 29,200
Total costs $ 87,600
TIM HORTONS
• Canada’s largest quick-service restaurant
specializing in coffee
• Foods offered: a variety of fresh coffees,
donuts, muffins, danishes, and croissants
• Prepared in advance, coffee replaced
every 20 minutes
• Represented 20.0 percent of Centre Spot
sales
Costing Information Percent of Tim Hortons Sales
Food Costs 38.8
Salaries & Benefits 34.6
Franchise Royalty 7.0
Analysis of the Addition of a New Restaurant
Based on the case study, there are three options; one is The Wave, located on the second floor in
the UCC, offered one of three on-campus bars, a wide variety of meals, and a sit-down
restaurant. The place is rent-free and the expected income is expected to be $150, 000 in the next
year. This would solve the line problem in the CS without affecting the sales at the CS.
The second option would be the Williams, had an off-campus location, approximately 2.2
kilometers from the Western main entrance, which attracted many students living nearby.
However, it was too far from the UCC, and the library meaning lots of students would miss out
on food delivery due to the distance as it would not save time. It would not solve the CS line up
problem. Its expected sales are $255, 000; however, in addition to the upfront cost, it would
require additional costs such as $6,300 for maintenance fees, $13,120 for paper supplies and
$11,315 for amortization. All investments were amortized using the straight-line method over a

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useful life of 10 years. Telephone charges were also anticipated at $336 per year, with a one-time
$200 set-up fee in September.
Lastly is the Subway, whose popularity among students would likely result in higher sales in
comparison to Williams with an expected $383,250 in sales. Subway commanded a royalty of
12.5 percent, applied to gross sales, and a franchise start-up fee of $50,000. McCabe believed
that Subway’s popularity would reduce sales at Centre Spot by approximately five percent. I
would not recommend it.
In either of the three options, the upfront cost would be:
Construction $ 58,400
Equipment 43,800
Signage 10,950
Training 10,950
Total costs $ 124,100
This is excluding the $3000 expected to be spent on the promotion of the restaurant.
Conclusion & Recommendations
Conclusively, my recommendation would be on Tim Horton’s proposal, on the addition of a new
register. The process is short, the cost will be less, and this will increase Tim Hortons’ sales by
20 percent. This choice would solve the lineup problem at the CS, as well as increase the CS
sales as Horton contributes like 20% of the sales. The location of the register is till at the UCC
meaning that it is strategically placed and no promotional costs. It is a win-win situation for both
the consumers and HS in terms of convenience and profit.