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Case: 2 Red Horse Tavern: A business in its environment.
Mr. Man and Mr. Liu, owner-managers of Red Horse Tavern, have been running the business in turbulent environments. Recently, they have troubles with the law enforcing bodies.
Red Horse Tavern is a fairly large restaurant covering about 2,000 square feet of floor space. It is located in the center of a small suburban shopping area in a residential section of Luen Wo Hui, Fanling. The shopping area and restaurant are situated along a heavily major traffic artery. The residential population is composed largely of middle-income families, and, although the ethnic background of the residents is fairly heterogeneous, a large proportion of British Servicemen at the Sek Kong Military Base in the neighborhood. Some smaller restaurants are located down the Main Street so that competition is very keen.
Red Horse Tavern opened its doors on March 18, 1954. It was set up as a restaurant with licensed full bar service. It was the intention of the proprietors, Mr. Man and Mr. Liu, native clansmen, to run a nice, respectable eating place to serve a regular customers from the barracks and westernized villagers in the vicinity; today some of these affluent regulars are still with them.
The business began quite slowly. The gross for the month of August 1954 was only about $800. However, they did not seem to be discouraged. They vividly recalled that some forty years ago, the beers were English lines; today traditional beers are still popular but there is more drinking of Continental, American and Mexican lagers. In the past, the Tavern served beers from the wooden barrels; today most beers are sold from metal casks or as bottled beers. The brewery lorries would make regular monthly deliveries; today it is the practice to make smaller deliveries at frequent intervals. As customers have become more affluent, the demand for taverns has increased.
Although the proprietors have high hope for the future success of their business, they have no illusions about “getting rich over night.” Mr. Man and Mr. Liu make the Tavern available for service every day and night. The business has not shown any substantial improvement. They advertise their restaurant service with a full course meal in a number of regional newspaper ‘Sing Pao’. In addition, they run a Country and Western night in the Tavern on Friday and a Disco on Saturday nights to boost the sales. As a result of their promotional effort, it is noticeable that customers come in for a meal, and then come back regularly, bringing their friends with them. Therefore, the Tavern is generally full throughout the seasons.
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It is apparent at this time that the business is on a very sound footing. As a community is getting affluent, people begin to examine their living environments. Recently, neighbours have complained about the noises coming from the Tavern at the weekends. In addition, a petition has been launched by residents complaining about heavy traffic congestions in the streets around the Tavern. The police carry enforcement on neighbourhood noise and illegal parking. During 1995, the police dealt with 260 complaints against the Tavern and issued a lot of tickets on illegal parked vehicles in the streets around the Tavern. The Regional Council has warned the Tavern to rectify the noise level; otherwise the Council will advise the Liquor License Committee not to renew its license when it is expired.
Purchasing power is low because earnings maintain a steady increase but show virtually no change in real terms. Besides, a sewage services charging scheme was introduced in 1995 under which users will contribute to the system’s operation and maintenance costs. Households pay modest charges. Industry and commerce, producing more polluting discharges, have to pay for the added costs of sewage treatment through a trade effluent surcharge. This application of the ‘polluter pays’ principle imposes heavy cost burden on restaurant business.
Taxes on alcoholic beverages and methyl alcohol are too high. Mr. Man and Mr. Liu point out that beers and wines are the drinks of ordinary working people after work. They urge that a lenient government should not tax beers and wines so high that will affect restaurant industry.
Question for consideration:
Identify from this case, the business environment which has constrained or encouraged business activity at the Red Horse Tavern. Consider in turn the social, legal, economic, technical, cultural and competitive environments.
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Instructor s manual:
Topic covered: The aspects of the business environmental forces at work.
Suggested solution:
This case helps you understand how the business environment influences business activity. The external environment constrains business activities. Managers therefore need to know how to minimize these constraints. In many cases the external environment will also encourage business activities. Managers need to explore the opportunities presented by that environment.
The social system consists of the fabric of ideas, attitudes and behaviour patterns that are involved in human relationships. In this case, it is encouraging that there has been an increase in beer drinking which is all part of a trend of which the number of young women drinking beers is on the increase.
Every society is governed by a set of laws and codes established by the legal and political framework. These laws affect the running of organizations. Every organization, and all individuals working for one, must have a clear picture of their rights and responsibilities. Many organizations even employ in-house lawyers whose job is to be familiar with relevant laws and to communicate appropriate information to other members of the organization. In this case, taxes on beer are much lower that encourage more people to drink beers. On the other hand, taxes on spirits are so high that people are no longer afford to drink more which have reduced wine sales and force into new lines. The warning from the Regional Council over the parking facilities and the noise levels which puts heavy financial burden on the tavern.
The economic environment is a major influence on business activity. In a boom period unemployment starts to fall, more businesses start up, sales of goods expand, output increases and prices start to rise or vice versa. In this case, there are evidence that the economy continues to experience periods of boom. For example, affluent regulars are still around and the tavern is generally full throughout the seasons, new restaurants with full bar services are opened in the vicinity and people begin to concern with their living environment.
Throughout history, society has experienced change. A number of industries have experienced major technological revolution, e.g. the revolutions in packaging. In this case, in the past beers were stored in the wooden barrels; today most beers are sold from metal casks or as bottled beers.
Culture arises from the traditions, beliefs and values of the community in which we live. Cultural values can be very strong and can impose important constraints on business activity. It includes people’s attitudes towards alcohol. In this case, fortunately, the tavern is supported by a group of regular customers from the barracks and westernized villagers in the vicinity.
Competition is always present in business. It should be seen as a threat. To be competitive means to get ahead of the competition. In this case, the tavern directly competes with other bars and indirectly with restaurants in the area.
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