Rainforest Cafe: A Themed Restaurant Chain For Adventure And Entertainment

Rainforest Cafe Story

Question:

Describe about the Pricing Strategy of Rain Forest Café ?

Rainforest Café is a restaurant chain that is owned by Landry’s Inc of Houston. In 2008, the chain of restaurants started their operations in UK. The Rainforest Café is spread in various parts of the world in United States, UK, Canada, France and Japan. The main source of income for Rain Café forest is the local tourism. Some features of the rain forest are depicted in the decorum of the Rainforest Café. The features include growth of plants, mists, waterfalls and figures of animals including frogs, tigers and elephants. The rooms of the restaurants are partitioned by means of rain curtains that run from the top of the partition walls and booths and the aquatic tanks. The food served by Rain Forest Café ranges from seafood, pizzas, pastas (Rainforestcafe.com, 2015).

The business was started in Texas in the year 1994. The café was started by entrepreneur Steven Schussler. By 1997 there was chain of six restaurants in United States. In 1998 the restaurant opened 10 more restaurants in United Stated. Later in the year 2008 the Café opened 22 restaurants of which seven were in Mexico and 5 were in UK. The company is spread across all parts of the world from United States, UK, France and Canada. The major source of income for the company is local tourism (Theme Park Insider, 2015).

Rainforest Café operates in the hospitality industry. It is a wild place to shop and eat. The family can enjoy at the café as it is adventurous, partly has features of restaurants and it is fully entertaining. The café of Rainforest re-creates a tropical rainforest which comprises of waterfalls, lush vegetation and indigenous creatures. At Rain Forest Café, everyday is an adventure. The Café organizes group events such as birthday parties and various other events (www.valiantmedia.com, 2015).

Rain Forest Café is visited by people of all age group. Families can organize birthday parties. The target market of the Café is wide. It is aimed at people belonging to all age group. Families form an integral part of the target market.

The strategy of the Rain Forest Café is to increase the market share the company in the next five years. This will be achieved by unwavering commitment towards customer service and meeting the need of the customers. The objective for the next five years is to maintain the same commitment. They promise to offer the guests with food items at reasonable prices. One of the major unique selling propositions of the café is the courteous service.

The mission of Rain Forest Café is to provide the customers with finest quality of food items at fair market price. The sustainable resources of the food items are collected via environmentally sensitive methods. Customer’s service is an important aspect of the organizational goal. The firm pledges to treat the customers with respect, efficiently and in a friendly manner. The mission will be accomplished by the support from the staff members. The support of the staff members is essential for the success of the business. It will foster the development of career and provide job satisfaction to the team members (Rainforest Cafe, 2015).

Adventurous and Entertaining Environment

Rain Forest café is committed to maintain long term relationship with the customers. Thus it has kept the prices of the food items lows. This has helped to attract more customers to the Café. The competitive advantage of the café has enhanced.

Existing Pricing Strategy

The pricing strategy of Rain Forest Café is focused to maximize the strength of the customers. This can be achieved if they price the food items at lower level. The target market of the café is families who find the coffee house a friendly place. Rain Forest Café utilizes competitive based pricing. It prices it products at cheaper rates depending on the prices set by the competing firms. They believe that the daily coffee consumers are not influenced by the discount program or the coupons. Pricing will directly affect the profitability of the Rain Forest Café, so it is crucial to set the right price in order to succeed. The pricing strategy for the café will take into account not only the costs that are the considered as the major expenses of the café. Apart from the major expenses of the café, the style of the café is crucial to address to the target market. The location of the café also plays a crucial role for competitive advantage of the café.

 The menu offered by the café has tremendous impact on the profitability. The pricing of the food items has to be made according to the menu. While setting the price of the menu it is important to identify the food items that will be offered in the menu. The pricing strategy will depend on the condiments that will be offered in the menu. For example for sand witches , fries and salads there will be a separate price. On the basis of the menu , the cost of the items in the menu is calculated(Magloff, 2015). This is the baseline for the cost of the food. Apart from this the fixed and variable cost has to be calculated to set the price of the food items. In case of Rain forest Café , there is a separate menu for the kids and separate menu for people visiting with families and  friends. The café offers food that range from range of mouth watering appetizers. The menu comprises of exotic salads. It also comprises of burgers, sea food items, pastas, chicken and steak. Apart from the snacks offered by the café, they also offer range of sparkling deserts. The menu is also set for people of the age group of 10 years. The prices of the food items offered in the menu are moderate to low. They follow competitive pricing strategy (rainforestcafe.com, 2015).

The pricing strategy used at Rainforest Café is flexible in nature. They set the prices according to the charge that is required to break even. Management of supply chain is essential for the success of the business (Paley, 2008). A network of suppliers has been built by the company. This has helped the organization to grow(HAVALDAR, 2015). The company uses a flexible strategy of pricing so that it can raise the price of the food items whenever necessary in order to maximize the profit. By ranging the profit in small increments, the high profit has been displayed as daily specials which will deisgn the prices that will increase the sales of the café (Vashisht, 2015); (Paley, 2015).

Food Menu

Pricing Strategy Objectives

The objectives of the pricing strategy will be to maximize the sales of the organization. It will maximize the profitability of the organization. The coffee shop will target people from all age group. This will increase the sales of the coffee shop. Flexible pricing strategy is presented adopted by Rain Forest Café. They can adopt value based pricing strategy to boost the margin of sales.

The target of the strategy of pricing is to maximize the sales of the café. This can be achieved by offering quality food items at reasonable prices. However the prices of the food items can be increased if there is decline in the sales of the café during lean season. Even there is increase in price; the sales of the café shop will not decline if they offer quality food items. The menu offers unique food items which range from sea food to eclectic deserts.

Rain Forest Café can employ the strategy of value based pricing to maximize the profits. They can use extensive research and perform customer analysis in order to set the target price for the food items (Ferrell and Hartline, 2015). In order to address to maximum customers, the company has to set the price of the food items on the basis of extensive research (Macdivitt and Wilkinson, 2012). Maximization profit is the strategy deployed by the company to determine the output level of the price and the product that will generate maximum profit (Liozu and Hinterhuber, n.d.). Value based pricing strategy is not applied by various firms. It is used to uncover maximum amount of customers who are willing to pay for the products (Nagle and Hagen, 2009).

Price cutting cannot be the prime strategy used by the organization to target to a wide range of customers. But the practice is based on deeper analysis of the actual base of customers. Prices can be raised by the coffee shop to maximize the profit margin. The customers who value the food on the basis of the quality offered they will remain loyal to Rain Forest Café. The demand curve can be kept inelastic in nature. The small change in price of the food items can increase the profit margin to a considerable extent. But the café can target only certain regions of the menu to increase the price. The price of the food items will also vary according to the prices set by the current markets.

Rainforest Café can increase the price of the specific drinks and sizes rather than raising the price of price of whole lot of food items offered in the menu. The increase in price of the food items must be communicated to the customers in order to manipulate the perception of the customers. The hike in the price of the food items can be based on the analysis of the willingness of the customers to pay for the product. The hike in price of the food item must not look insignificant (Sec.edgar-online.com, 2015).

	Budgeted Income Statement
	Year 1 ( millions euro)	Year 2 ( millions euro)
Sales	€                                         7,186.00	€                          7,235.00
Cost of Sales	€                                         4,328.00	€                          4,354.00
Other	€                                                      –	€                                       –
Gross Margin	€                                         2,858.00	€                          2,881.00
Gross Margin %	€                                               39.77	€                                39.82
Expenses
Payroll	€                                         3,220.00	€                          3,220.00
Sales and Marketing Expenses	€                                            808.00	€                              808.00
Depreciation	€                                            260.00	€                              260.00
Utilities	€                                         2,400.00	€                          2,400.00
Insurance	€                                         2,094.00	€                          2,200.00
Other Taxes	€                                         7,084.00	€                          7,084.00
Total Operating expenses	€                                      15,866.00	€                        15,972.00
Profit Before Interest and Tax	€                                      13,008.00	€                        13,091.00
Interest Expense	€                                            480.00	€                              432.00
Tax Incurred	€                                            556.00	€                              570.00
Net Profit	€                                      11,972.00	€                        12,089.00
Net Profit Percentage / Sales	€                                                 1.67	€                                   1.67

	Budgeted Balance Sheet
	Year 1 (millions euro)	Year 2 (millions euro)
Assets
Current Assets
Cash	€                               2,802.00	€                          5,764.00
Inventory	€                               1,296.00	€                          1,228.00
Other current assets	€                                            –	€                                       –
Total current assets	€                               4,098.00	€                          6,992.00
Long term assets	€                               5,950.00	€                          5,950.00
Accumulated Depreciation	€                                   690.00	€                          1,380.00
Total long term assets	€                               5,260.00	€                          4,570.00
Total assets	€                               9,358.00	€                       11,562.00
Liabilities and Capital
Current Liability
Accounts Payable	€                               1,496.00	€                          1,368.00
Current Borrowing	€                                   669.00	€                           (197.00)
Other current Liabilities	€                                            –	€                                       –
Subtotal of current liabilities	€                               2,165.00	€                          1,171.00
Long term liabilities	€                               6,679.00	€                          6,386.00
Total Liabilities	€                               8,844.00	€                          7,557.00
Paid capital	€                               9,800.00	€                          9,800.00
Retained Earnings	€                             (9,667.00)	€                          7,575.00
Earnings	€                               1,724.00	€                          3,510.00
Total Capital	€                               1,857.00	€                       20,885.00
Total Liabilities and Capital	€                             10,701.00	€                       28,442.00

	Budgeted Cash Flow Statement
	Year 1 (millions in euro)	Year 2 (millions in euro)
Cash Received
Cash from Operations
Cash Sales	€                                                    5,840.00	€                              6,420.00
Sub Total of cash from Operations	€                                                    5,840.00	€                             6,420.00
Additional Cash Received
Receipt of sales Tax /GST	€                                                                 –	€                                           –
New other liabilties	€                                                                 –	€                                           –
New current borrowing	€                                                                 –	€                                           –
Sale of long term assets	€                                                                 –	€                                           –
Sale of other current assets	€                                                                 –	€                                           –
Subtotal of cash received	€                                                                 –	€                                          –
Expenditure
Expenditure from operations
Spending in cash	€                                                    1,246.00	€                              1,438.00
Payment of Bills	€                                                    3,278.00	€                              3,887.00
Subtotal spent on Operations	€                                                    4,524.00	€                             5,325.00
Additional Cash Spent
Payment of Principal for Current Borrowing	€                                                        330.00	€                                 330.00
Principle Payment of other liabilities	€                                                                 –	€                                           –
Repayment of other liabilities	€                                                                 –	€                                 358.00
Long term asset purchase	€                                                                 –	€                                 200.00
Dividends	€                                                                 –	€                                          –
Subtotal of cash spent	€                                                        330.00	€                                888.00
Net Cash Flow	€                                                    4,854.00	€                             6,213.00
Balance of cash	€                                                        986.00	€                                207.00

References

Ferrell, O. and Hartline, M. (2015). Marketing Strategy. pp.150-170.

HAVALDAR, (2015). Business Marketing: Text and Cases. pp.350-450.

Liozu, S. and Hinterhuber, A. (n.d.). The ROI of pricing.

Macdivitt, H. and Wilkinson, M. (2012). Value-based pricing. New York: McGraw-Hill.

Magloff, L. (2015). Cafe Pricing Strategy. [online] Small Business – Chron.com. Available at: https://smallbusiness.chron.com/cafe-pricing-strategy-2722.html [Accessed 11 Feb. 2015].

Nagle, T. and Hagen, J. (2009). The Strategy And Tactics Of Pricing: A Guide To Growing More Profitably. pp.17-200.

Paley, N. (2008). Mastering the rules of competitive strategy. New York: Auerbach Publications.

Paley, N. (2015). The Marketing Strategy Desktop Guide. pp.200-300.

Rainforest Cafe, I. (2015). History of Rainforest Cafe, Inc. – FundingUniverse. [online] Fundinguniverse.com. Available at: https://www.fundinguniverse.com/company-histories/rainforest-cafe-inc-history/ [Accessed 11 Feb. 2015].

rainforestcafe.com, (2015). Rain Forest Cafe. [online] Available at: https://www.rainforestcafe.com/pdf/menus/menu.pdf [Accessed 11 Feb. 2015].

Rainforestcafe.com, (2015). Rainforest Cafe – A Wild Place to Shop and Eat!. [online] Available at: https://www.rainforestcafe.com/locations.asp [Accessed 11 Feb. 2015].

Sec.edgar-online.com, (2015). EDGAR Online. [online] Available at: https://sec.edgar-online.com/rainforest-cafe-inc/10-k-annual-report/1999/04/02/section2.aspx [Accessed 11 Feb. 2015].

Theme Park Insider, (2015). TPI ORLANDO – Rainforest Cafe. [online] Available at: https://www.themeparkinsider.com/news/response.cfm?ID=1480 [Accessed 11 Feb. 2015].

Vashisht, K. (2015). A Practical Approach to Marketing Management. pp.160-180.

www.valiantmedia.com, W. (2015). Landry’s Inc. – The Leader in Dining, Hospitality and Entertainment. [online] Landrysinc.com. Available at: https://www.landrysinc.com/concepts/familyDestinations/rainforest.asp [Accessed 11 Feb. 2015].