Santa Fe Grill Survey data analysis

MEMORANDUM

TO:                  Dr. Tracy Meyer, Associate Professor

FROM:            Jacob Loftis, Student

DATE:             November 27, 2012

SUBJECT:      Santa Fe Grill survey data analysis

The marketing communications and intelligence class has recently collected data from customers of Santa Fe Grill. The purpose of this data collection was to better understand customer perceptions of the services provided within the restaurant. The survey data measured customer opinion on various aspects of Santa Fe Grill in order to gather an overall picture of what each customer thought about the restaurant. We hope the data collected and the analysis prepared will help to identify which areas of service Santa Fe Grill will need to improve upon in the future and which areas of service go beyond customers’ expectations.

SPSS Data Analysis

Each customer was asked to rate 10 different aspects of restaurant service on a scale from 1 to 5, 1 being very unsatisfied and 5 being very satisfied. For the analysis of the data gathered, an independent samples t-test was performed. This compared the mean of each service aspect to determine if it was significantly different from the corporate average of 4.6. Only two of the aspects measured were not significantly different from the corporate average. The average rating of how large the portion sizes at Santa Fe Grill are (M= 4.51, SD= 1.313) is not significantly less than the corporate average of 4.6 (t(399), p> .05). Also, the average rating on the properness of the food temperature (M= 4.57, SD= 1.104) is not significantly less than the corporate average of 4.6 (t(399)= -.544, p< .05).

The next three aspects had an average that was significantly above the corporate average, this is a sign of areas the restaurant is doing well in in regards to service towards customers. First, the average rating of how fresh the food was (M= 5.76, SD= 1.194) is significantly more than the corporate average of 4.6 (t(399)= 19.428, p< .05). Next, the average rating of how excellent the food taste (M=5.31, SD= 1.088) is significantly more than the corporate average of 4.6 (t(399)= 13.103, p< .05). Last, the average rating of how fast the service was (M= 5.34, SD= .809) is significantly more than the corporate average of 4.6 (t(399)= 18.172, p< .05). From these aspects, customers thought Santa Fe Grill delivered a very high quality product that was delivered quickly to them. However, these are the only aspects of service that were shown to have a significantly higher average rating that the corporate average.

The rest of the aspects measured had an average customer rating that was significantly less than the corporate average. The first aspect was the friendliness of employees and the average rating from customers at Santa Fe Grill (M= 4.27, SD=.908) is significantly less than the corporate average of 4.6 (t(399)= -7.270, p< .05).  The second aspect was on how fun of a place the restaurant was to dine at; the average rating (M=3.96, SD=.859) is significantly less than the corporate average of 4.6 (t(399)= -14.963, p< .05). Third, was a measure of how reasonable the prices at Santa Fe Grill are; the average rating (M= 4.34, SD= 1.228) is significantly less than the corporate average of 4.6 (t(399)= -4.234, p< .05). The forth measured how much customers viewed the restaurant interior as attractive; the average rating (M= 4.05, SD= .996) is significantly less than the corporate average of 4.6 (t(399)= -11.090, p< .05). Last, was a measure of how much customers viewed the employees as knowledgeable; the average rating (M= 4.74, SD= .952) is significantly less than the corporate average of 4.6 (t(399)= 2.889, p< .05).

The next part of the analysis tested to determine if there were any significant differences in terms of satisfaction, likelihood returning, or likelihood of recommending Santa Fe Grill based on the gender of the survey participant. The amount of satisfaction was significantly different for men (M=4.83, SD= .966) verses women (M= 4.38, SD= .874), t(398)= 4.789, p< .05. Based on the differences of the average rating between men and women, men were more likely to be more satisfied from dining with the restaurant than women. The likelihood of returning to Santa Fe Grill was significantly different for men (M= 4.58, SD= .902) verses women (M= 4.01, SD= 1.130), t(398)= 5.623, p<. 05. Based on the average ratings, men were more likely to return than women. Lastly, the likelihood of recommending Santa Fe Grill to others was significantly different for men (M= 3.77, SD= .845) verses women (M=3.01, SD= .862), t(398)= 8.837,p< .05. Based on the average rating of this aspect of the restaurant, men were more likely to recommend this dinning establishment to others.

                              

The last part of the analysis concentrated on the effectiveness of advertising campaign for Santa Fe Grill. A chi-square test was performed in order to determine if there was a relationship between the ability to recall Santa Fe Grill ads and the age group viewing the ad. By splitting the age groups into 1- 49 years old and 50 and over, age did seem to make a significant difference on the ability to recall an ad, x² (1, N = 400) = 14.783, p = .000. Based on the chart from the Chi-squared analysis, the age group 1-49 was more likely to recall the ad for the restaurant than survey participants that were 50 and older.

Ad recall differences between age groups 1-49 and 50 and over
			X31 -- AgeLH		Total
			1-49	50 and over
X26 -- Ad Recall	Do Not Recall Ads	Count	168	93	261
		Expected Count	184.7	76.3	261.0
	Recall Ads	Count	115	24	139
		Expected Count	98.3	40.7	139.0
Total		Count	283	117	400
		Expected Count	283.0	117.0	400.0

The purpose of the service aspects measured was to gather customer’s opinion on their overall experience while dinning in Santa Fe Grill. When the survey data is compared to the corporate average, the restaurant delivers a product that was highly rated on average in terms of quality. Customer’s opinion on employees in the restaurant had mixed results. While the speed of their service was highly rated, their friendliness and knowledge had a low rating compared to the corporate average. Survey participants had a low average rating in regards to whether or not the products and services of Santa Fe Grill had a fair price. The reasonability of the prices had a low average rating compared to the corporate average. The next part of our analysis showed that there was a significant difference in term of restaurant satisfaction, likelihood of returning, and likelihood of recommending in relation to gender. Men were more likely to have higher satisfaction and more likely to return and recommend Santa Fe Grill to others. There are a number of possibilities as to why this is the case, one could be the menu items being geared toward men. A further analysis of the restaurant would be needed to determine the cause of this result. The last part of the survey analyzed the relationship between the ability to recall restaurant ads and the age group viewing the ad. Participants 49 years and younger were more likely to recall the ad than participants 50 and older. This result should be taken into consideration when deciding what target market to pinpoint the ad campaign towards. From the analysis discussion above, there are some aspects of the restaurant that could use improvement, and others that the dinning establishment is doing very well in. We hope this survey analysis has produced significant results that will impact future business decisions for Santa Fe Grill.

Financial Analysis of Ajeto

            The purpose of this financial analysis paper is to look at the current financing structure and estimated economic value of Ajeto in order to determine if expanding into other markets would be feasible. The company has a strong foundation since it has been in business for 19 years and involved in many different areas of glassworks.[1] In addition to being located near Novy Bor in Czech Republic, which is considered one of the center pieces of glass production, it has a substantial amount of intangible assets such as world famous designers and glass makers.[2] Ajeto offers products that are desirable to other markets, but a demand and cost analysis of each market must be done in order to determine which are feasible. Also, the company’s current financing structure is mostly of equity financing, which is a very expensive way to acquire additional capital. Ajeto must go after the market with the highest and consistent projected demand; in addition, it must restructure its financing structure toward more debt financing.

In order to gain additional financing for expansion, the company must show it will continue to have steady growth in the future. An analysis of past performance will be used in determining the risk associated with investing into this glassworks company. In performing a financial analysis of Ajeto during the current year and within the past couple of years, it’s clear that the global financial crisis has had a substantial effect on Ajeto’s business. Much of the company’s volatility during the crisis was due to their glass sales being substantially dependent on housing construction. Because the housing bubble burst in 2008 was a big reason for the economic downturn, the housing industry had a significant downturn as a result. Without housing construction maintaining the same level as before the financial crisis, Ajeto’s sales decreased along with the housing construction downturn. One year after the global economic downturn (2009), Ajeto’s revenues, profits, and free cash flow plummeted.[3] The crisis did not have an instantaneous effect on the company; it is common for a small cap company to lag behind the market.[4]By looking at the operating profit for 2005-2010, the company rebounded slightly after 2009. This is mostly because the global economic downturn had the lowest point in 2009. Despite the toll the financial crisis had on Ajeto, the company still has significant value and opportunity for growth.

Another factor that potential investors of Ajeto will consider is the estimated economic value of the company. Since future cash flows are the main aspect investors look into, the income approach will probably be considered when looking at the economic value. This is done by taking the forecasted future cash flow (the average of the cash flows from 2005-2010 in this case) and dividing it by the difference between the rate of return and the growth rate for this glassworks business. In determining the rate of return, the weighted average cost of capital formula is used. The average weight of debt from 2005-2010 is determined, as well as the average weight of equity, by dividing total debt and equity by the total value of the firm. The weight of debt and equity was taken from 2005-2010; the average of each was then used. Next, the cost of debt and equity must be determined. For the cost of debt, the average rate of a corporate bond is used since debt financing consist of bonds. For the cost of equity, the capital asset pricing model is used to determine the required return on equity. A small stock premium and a company specific risk are taken into account when determining the final cost of equity. The last piece of information needed is the tax rate since interest expense for debt financing is tax deductible; the average tax rate for 2005-2010 is used.[5] Based on this information, the weighted average cost of capital comes to 23.37%. In order to find the growth rate for Ajeto, the case study took the negative free cash flows in the past and the lack of privately held direct competitors into account to arrive at 2.57%. With this information, the estimated value using the income approach comes to 6,947,000 CZK.

WACC = 0.2152 * 0.8(1 - 0.2355) + 0.7848 * 0.2810

WACC = 23.37%

Present value =

Present value = CZK 6,947,000

            There is a significant difference in the three valuation methods used to estimate the economic value of the firm.[6] The market approach, using sales, estimates the average value being 41,946,510 CZK and the market approach, using BVIC, estimates the average value being 57,528,200.  The net asset value method estimates the value at 36,612,000, and the income approach estimates the value at 6,947,000 CZK. There are two reasons for the large difference between the income approach estimation and the other methods. First, the income approach uses future income streams in calculating the value of the firm; with negative free cash flows in 2008, 2009, and 2010, it is difficult to say the company will have positive free cash flow in the future.[7] Second, this company is a very asset-rich one with 37,381,000 CZK in net tangible assets and 4,054,000 CZK in intangible assets. The net asset value method takes the assets less liabilities and gives a “fair market value”, emphasis is not put on cash flow. Although Ajeto has the potential to be a profitable company, it is overvalued when just looking at the assets on the balance sheet. The main reason for this is because of the large value of intangible assets, these could consist of designers, glassblowers, the brand image, or the technology used. The problem with these assets is the fact that they are intangible, without physical presents or consistent financial figures; it is difficult to place an accurate estimation on these assets. In order for the free cash flows to become more consistent and positive, either costs must be cut or search for additional sources of revenue.

            One possible opportunity to increase revenue for Ajeto is by expanding its sales into other markets outside of Czech Republic. Although expanding into other markets would require some additional upfront cost in the short term, if the demand for their product is constant and positive, it would ensure additional sales for the company that would help to ensure the long term viability of Ajeto. Because of the housing crisis within the last couple of years, it is important to analyze which markets will bring steady and positive demand. Because products from this company are for mostly home use, product demand is deeply tied to demand for housing. The implication from this observation is that housing market size and growth within the expansion area must be researched.[8] For example, housing prices in Spain were declining at 11% in 2011, because of the grim outlook for the housing market in this area; the Spanish market should be avoided at this time. Markets with stable and positive future growth should be considered; because of the current financial crisis, this criterion eliminates a substantial amount of possibilities. Large and stable product demand is needed for this company’s next expansion; this will ensure an adequate return from the company’s investment into the expansion.

            [9] The first country Ajeto should consider offering products is the U.S. because blown glass makes up 18.7% of the glass industry with expected growth of 2.3% over the next five years in this market. This growth, along with expected consumer spending growth of 2.6% per year, ensures a positive demand outlook for Ajeto’s products in the U.S. What separate this market from a lot of other countries are the high percentage of home ownership and a high median income of the population.[10] With 68% of the population owning a home and a median income at $49,000 per year, the housing market is the biggest advantage this country has.[11] Even though the import penetration of glass products into this market decreased from 24.4% in 2007 to 17.7% in 2011, this was in large part to the financial crisis that occurred during this period. Although the glass and housing industry decreased as a result of the crisis, the U.S. economy is currently on the rebound, so the decrease in growth is unlikely to continue in the future. As the housing market begins to have positive growth, both new and current homeowners will be looking for furniture and crafts. An important note to make about the U.S. population is the large amount of disposable income that a sizable amount of the population have. A lot of Ajeto’s products are considered luxury goods, with a high percentage of the population as homeowners and having a large amount of disposable income, a high demand for luxury goods from this glassworks company would exist.[12]With the top-fifth of households targeted for Ajeto’s sales accounting for 50.2% of pre-tax income, high income individual will have the greatest impact on the revenue for this market. This income class has a strong demand for glasswork luxury goods, of which is largely unaffected by economic downturns.

            It is proven that this area would have substantial demand for Ajeto’s products, but the cost of going into this market must be considered. The first question concerns if the company will make and ship products to the U.S. or build a factory located in the country. Building a factory is not a feasible option for Ajeto, and there are two main reasons why. First, the company’s current financing structure consist of using mostly equity, acquiring capital through equity is typically more expensive than debt. To prove this point, consider what the weighted average cost of capital would be using a 50/50 split between debt and equity financing.[13] The cost of equity from the case study will have to be recalculated first by using the 10 year U.S. T-bill rate (1.67%) in the CAPM formula since the U.S. market is being considered. Using the new cost of equity rate, cost of debt rate, and tax rate used in the case study, the new WACC would be 17.27%. With a difference of 6.1% from the original WACC of 23.37%, this would be a substantial decrease in financing cost. Because the past negative free cash flows increase the risk of investing into Ajeto, acquiring capital for a new factory through equity would be very expensive. The interest rate for equity financing would be high because of the risk perceived from the past free cash flow performance. Second, the projected demand in the U.S. for Ajeto’s products will require a significant amount of output from the factory. Building a factory large enough to handle U.S. demand would require a large initial investment in equipment, plant, and property in addition to the labor and overhead cost to run it. The most feasible option is to export products to other markets, even with the transportation cost involved. [14]Also, with tariffs between the U.S. and European Union averaging around 3%, the import cost for the company would not be enough for building a new factory inside the country to be worthwhile. The overall reason why expansion into the U.S. should be implemented is because of the high demand for import luxury goods now and in the near future for this market, this makes the cost of expanding worthwhile for Ajeto.                                      

CAPM using 10 year U.S. t-bill rate	.0167 + 2.4(.0887-.0167)= 18.95%
Add: Small stock prenium	3.47%
Add: Company-specific risk adjustment	6.00%
Return on Equity	28.42

WACC using 50% debt and 50% equity                      .5 * .08(1-.2355) + .5 * .2842 = .1727

The second country Ajeto should expand into is China, this country has a positive outlook for future demand of glassworks along with low expansion cost for the company. In analyzing which country the glassworks company should expand into, China was compared along with Brazil. Although Brazil does show signs of being a strong market for the glasswork products of Ajeto, there are two reasons why China was chosen.[15] First, both countries have had a very strong GDP growth rate over the past couple of years and are both one of the fastest-growing economies in the world with an average annual GDP growth rate of over 5%. China outperformed brazil in this analysis with an astonishing GDP growth rate of 10% per year that has occurred for the past 20 years, while brazil has only a GDP growth rate of 7.5% and is still considered an emerging economy. This is an important factor in determining which area to expand because of the relationship between a countries’ GDP and the average income of its citizens. The average income of citizens typically rises along with increases in GDP, which usually means a greater amount of disposable income. The more disposable income a person has, the more likely they are to purchase luxury goods such as glassworks. It is also important to note the amount of middle and upper income individuals in China, individuals within these income brackets tend to have a high demand for luxury goods. [16]With a poverty headcount ratio of 13.1%, this means very few citizens are not considered middle or upper income. A high demand for Ajeto’s product is predicted for the present and long-term future from this data. The second reason why China was chosen is based on the cost the company would have to incur as a result of expanding into each country. It would not be feasible to build a factory within the market for the same reasons explained in the U.S. market analysis; therefore, import tariffs for each country must be taken into consideration. [17]China has an import tax rate of 12% and Brazil has a high import tariff of 18% for lead crystal and similar products. The glasswork products Ajeto produces would have to be priced higher in the Brazilian market than in the Chinese market because of the higher import tariff. The demand in China will potentially be higher than in Brazil because of the lower price offered in China. [18]With a current GDP of 11.3 trillion USD, China is considered to be a sizable market for glasswork products. The size of China’s economy, along with projected future growth of the Chinese economy and expansion cost for the company, is why this country should be the second area for expansion.

            Ajeto has a positive outlook in the near and long-term future based on its current and historical performance. Although the free cash flows within the past couple of years have been means for concern, it can be tied to the global economic crisis. Many companies in all industries have seen poor performance during the financial crisis, so this doesn’t insist Ajeto’s poor performance is from the companies own doing. The company should have better results for profit and free cash flows as the recovery takes place; however, the company’s future can be improved by expanding into the U.S. and Chinese markets. [19]The company already has a small presence in the U.S. and the data shows this country will have a strong demand for glasswork products. China presents a big market with strong demand for glasswork products as well; therefore, this market should be the second area for expansion. Before any expansion can occur, the company must restructure it financing sources towards using more debt instead of equity. Financing expansion through debt will lower the cost of expansion for Ajeto. One way of restructuring could be through buyout payments of its common stock, the cost of buying back some stock could be financed through debt, which would shift the debt/equity balance of the company. By expanding into these markets, the company has the potential to become a key player in the global glassworks industry.

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[1] Ajeto Consulting Paper. Rep. SauterRentsch Investment Services, 12 Mar. 2012. Web. 16 Oct. 2012. 8

[2] Ibid, 8

[3] Ibid, 8.

[4] Ibid, 9.

[5] Ibid, 14-15.

[6] Ibid, 18.

[7] Ibid, 18.

[8] “European Economic Forecast.” Ec.europa.eu. European Commission, 2012. Web. 17 Oct. 2012, 73.

[9]  Ajeto Consulting Paper. Rep. SauterRentsch Investment Services, 12 Mar. 2012. Web. 16 Oct. 2012. 20

[10] Ibid, 21

[11] Ibid, 20

[12] Ibid, 21

[13] "Resource Center." Daily Treasury Bill Rates Data. U.S. Department of the Treasury, 16 Oct. 2012. Web. 16 Oct. 2012

[14] Ajeto Consulting Paper. Rep. SauterRentsch Investment Services, 12 Mar. 2012. Web. 16 Oct. 2012. 20

[15] Ibid, 22-23

[16] "Poverty Headcount Ratio at $1.25 a Day (PPP) (% of Population)." Data. The World Bank, n.d. Web. 17 Oct. 2012

[17] Ajeto Consulting Paper. Rep. SauterRentsch Investment Services, 12 Mar. 2012. Web. 16 Oct. 2012. 22-23

[18] Ibid, 23

[19] Ibid, 38