Bleu Lavande On June 24, 2015, one week before Bleu Lavande was opened to the public, Adrien Dubois, maitre

d’hotel and manager of the new restaurant, faced the problem of determining final prices of the menu. Dubois did not believe he could relinquish the task of setting prices to a subordinate or an accountant, for it required the delicate balancing of factors of profitability, volume, and restaurant image. Because the prices were printed on a large, artistic menu which was both difficult and expensive to reprint, the prices A. Dubois determined in July would have to stand, except for extremely minor alterations, for at least six months. The initial six months of a restaurant's operation were known to be crucial in determining its reputation and the size of its clientele for months and years to come.

Bleu Lavande was the major showpiece restaurant of the Hotel Britannique, a brand-new luxury hotel in downtown Toronto, which would open its doors in July 2015 in anticipation of the Toronto 2015 Pan Am & Parapan American Games. The Hotel Britannique was owned by a consortium of European investors, mainly French, and was managed by L'Union des Grands Hotels (UGH), a highly respected French hotel chain which had a substantial equity investment in the enterprise.

Adrien Dubois, 33, was a long-time employee of UGH with ten years of experience in European restaurants of the first rank. He was generally recognized as having a bright future in restaurant and hotel management with a flair for atmosphere and presentation as well as the ability to work within a budget and make profits.

To facilitate the pricing of individual items on the menu, A. Dubois prepared (with the cooperation of M. Bernard Fortin, the chef, as well as Gilles and Roger, the sous-chefs) the menu fact sheet shown in Exhibit 1. The fact sheet held for each dish on the menu an estimate of (1) cost of raw materials, (2) preparation time (time for a moderately experienced chef to prepare a batch of the dish in question), (3) minimum number of servings per preparation (the nature of some dishes made it impossible to prepare a single serving although there was usually no problem in stretching the number of servings per batch), and (4) difficulty - rated from least difficult to most difficult on a scale from 1 to 5.

In conversation with A. Dubois on the subject of the fact sheet, chef Fortin emphasized two points. First, the cost of raw materials shown was a normalized estimate of the target cost of an individual dish, as of July 2015. In general, the cost of food varies greatly from week to week and month to month. Some fluctuations are seasonally determined and predictable, others are random: Fortin's estimates took into account foreseeable fluctuations from July to December (i.e., they were normalized over the six months starting July 2015). Fortin's normalized estimates were further idealized in that they reflected the theoretical cost of the food content of an individual serving. In practice, raw food usage, and therefore cost, would be increased by waste in preparation, imperfections in measurement, fix-ups (usually necessitating the addition of butter or cream to a recipe), and simple mistakes. Even after adjustment for such considerations, the total cost of food served would understate the restaurant's total expenditure on food, since provision would have to be made for feeding the kitchen and dining staffs, spoilage, and pilfering. Chef Fortin had indicated with extreme vehemence that management of food, including forecasts, purchasing, utilization of leftovers, and food control, was a major responsibility of the chef and an extremely important dimension of his skill.

Chef Fortin's second point with regard to the fact sheet was that preparation time as shown represented

time spent on an individual dish and did not take into account time spent on prior preparations. In any well-

managed restaurant, to minimize final preparation time, the kitchen keeps on hand many intermediate

preparations - stocks, sauces, dough, etc. These preparations are made in large quantities at times when the kitchen

is relatively free and are used in numerous dishes. Chef Fortin felt it almost impossible to include time spent on

prior preparations in the estimates of preparation time for individual dishes. When pressed by A. Dubois, the chef

indicated that as much as 30% of his staff’s time would be spent on prior preparations.

This case was adapted from La Grande Alliance Restaurant Francaise,© prepared by Research Assisstant Carliss Y. Baldwin (under the

direction of Assistant Professor B. Malone).

Copyright © 1975 by the President and Fellows of Harvard College. Harvard Business School case 175-255.

2

Bleu Lavande could seat 100 people at one time in the Salle Bordeaux and Salle Rouen dining rooms combined. Given its location near the center of the shopping and financial districts of downtown Toronto, A. Dubois and executives of the Hotel Britannique felt they could expect to serve 1½ seatings (150 people) at lunch on every working day. For dinner (including Sunday dinner at noon), they expected to accommodate, on average, 700 people per week; but they expected that the pattern of weekly usage would on average be as follows:

Day Number of Meals Served

Sunday (noon) 60 Monday 85 Tuesday 85 Wednesday 85 Thursday 85 Friday 150 Saturday 150 700

Thus, plans and budgets for Bleu Lavande were based on volume projections of 750 lunches and 700 dinners served per week, 4.3 weeks per month. A rough rule of thumb which A. Dubois felt could be applied in Toronto held that in the customers’ eyes, lunch is half of dinner; in other words, that people generally spend one half as much on lunch as they would in the same restaurant on a full-course dinner. A. Dubois was of the opinion that, as a fine restaurant in a sophisticated urban setting, Bleu Lavande could aim for an average check of $120.00 for dinner and $60.00 for lunch (not including liquor). (Lunch and dinner menus were separate and substantially different at Bleu Lavande; the dinner menu alone is the subject of this case.)

When making the menu price decision in June 2015, A. Dubois had already received from the hotel's accounting department the restaurant's projected expense budget for July 2015 (Exhibit 2). The budget, which had been drawn up by the accounting department in consultation with A. Dubois, reflected the restaurant's present staffing (as of the day it opened) and projected raw food costs based on forecast number of meals served. The budget also included charges for breakage and supply replacement, depreciation of kitchen equipment (brand-new), and an assessment for advertising and for general overhead. As part of a large hotel establishment, Bleu Lavande did not pay directly for a number of services shared with other hotel areas (e.g., laundry, cleaning); thus the overhead assess-ment was naturally quite large.

The budget did not provide for the cost of sommeliers (wine waiters) nor for the cost of wine and liquor served in the restaurant. It was standard UGH practice for the wine cellar to be managed by the beverage department, which also managed all liquor inventories and the hotel bars. Although Bleu Lavande would receive a partial credit for wine and whiskey sold through the restaurant, it was not within A. Dubois's power (except as a consultant) to determine either the wine list or wine prices. It was Dubois's goal, therefore, that Bleu Lavande be sustained (financially, that is) by food alone - that the restaurant would not use food as a loss leader in the purveyance of liquor.

Although Bleu Lavande was a new restaurant in a new hotel, the internal accounting staff of UGH had

considerable experience in budgeting for restaurants within hotels. A. Dubois had been consulted in detail on the preparation of the budget and believed it to be fair. Dubois was willing that the profitability of Bleu Lavande as well as his own success as maitre d’hotel and manager of the restaurant be measured according to the budgeted format.

In reviewing the pricing strategy, A. Dubois was aware of two not mutually exclusive goals. First he was

ambitious to run a profitable centre within the UGH establishment. Second, he was eager that Bleu Lavande be known as the finest restaurant in Toronto.

Required: Prepare the dinner menu for Bleu Lavande. You are required to include a five-page report (double-spaced, 1” margin, font size 11) on the strategic analysis and pricing decisions recommended. An analysis on Porter’s Five Forces related to the restaurant industry and the restaurant’s SWOT (Strengths, Weaknesses, Opportunities and Threats) should be used in support of Bleu Lavande’s strategy. You may include as many as three one-page exhibits (double-spaced, 1” margin, font size 11) to support the analysis.

3

EXHIBIT 1

BLEU LAVANDE

Selected Menu Costs - Dinner

Cost of raw

materials per

serving

Recipe

preparation time

in minutes

Recipe

number of

servings per

preparation

Difficult

(1-5)

Appetizers

Artichoke Hearts Biarritz $4.15 30 10 3

** Quiche Lorraine 3.85 20 10 2

Escargots a la Bourguignonne (6) 7.55 5 1 1

Oyster Cocktail (6) 5.00 10 1 2

**Pate de Foie en Brioche 4.55 45 15 4

Soups

Consomme a la Royale (hot) 3.55 10 20* 2

Soupe a 1'Oignon, Gratinee (hot) 3.55 35 20* 3

Creme Vichyssoise Glacee (cold) 3.55 3 20* 2

Entrees

Filet of Sole Duglere 12.05 40 6 2

"Crab Creole en Casserole 14.30 20 1* 2

"Coquilles St. Jacques Florentine 13.25 30 1* 2

Poulet Poche a 1'Estragon 10.90 40 10 4

** Duckling, Sauce Bigarde 13.25 40 2* 4

Escalope de Veau Parisien 15.80 10 1* 3

**Lamb Ragout Printaniere 14.25 60 10* 4

Tournedos Rossini 20.05 10 1* 2

"Roast Filet de Boeuf, Beamaise 18.90 20 10* 2

All entrees include:

Salad 3.40 15 10* 1

Potato 3.40 15 10* 3

Vegetable 3.60 10 10* 2

Desserts

Strawberries Parisienne 3.55 Purchased

from outside supplier

Creme Bavaroise 3.00

Pastry assortment 4.15

Bananes Flambees 3.65 5 2 1

*Up to three or four recipes of these items may be prepared with no additional preparation time.

**These items require prior preparation.

4

EXHIBIT 2

BLEU LAVANDE

Monthly Expense Budget

Sales

700 dinners1 $352,170

750 lunches2 188,658 $540,828

Cost of food3

700 dinners $117,390

750 lunches 62,886 180,276

Gross profits $360,552

Salaries

1 chef @ $8,000 $8,000

2 sous-chefs @ $5,000 10,000

2 apprentice chefs @ $3,000 6,000

1 maitre d’hotel @ $4,500 4,500

2 captains $3,000 6,000

8 waiters @ $2,5004 20,000

2.5 busboys @ $2,2005 5,500

3 dishwashers @ $2,000 6,000 66,000

Materials, breakage, and supplies $7,200

Depreciation of kitchen equipment 8,000

Advertising of promotion (first six months)6 40,000

Allocation for general overhead:

Includes charges for laundry, cleaning, heat

electricity, maintenance, depreciation (on

building), and general administration

65,000

120,200

Total expenses $186,200

Profits before taxes $174,352

Net investment in restaurant

$1,500,000

1 Assumes 4.3 weeks per month, average dinner check $120.00. 2 Assumes 4.3 weeks per month, average lunch check $60.00. 3 Assumes raw food cost to average one-third of sales. 4 The restaurants average one waiter to every 10 or 15 customers. 5 Busboys are hired on a part-time basis. Their schedules may be made to coincide with the restaurant’s busiest hours. 6 For the first six months of its operation, Hotel Britannique was committed to a nationwide advertising and promotion

campaign, a portion of which expense was allocated to Le Gavroche. The restaurant had also been given discretional funds

for local advertising. As the hotel became well established, both national and local advertising would decrease (A. Dubois

believed) to an average of $4,000 per month.