Melissa Anderson, Nicholas Zane,

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Melissa Anderson, Nicholas Zane, Jon Stehle, and
Alquedania Diaz
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Outline

• I. History of the Texas Roadhouse
• II. Comparative Advantages
• A. Determination of specialization
• B. Specific Duties of Employees
• III. Expenses
• A. Weekly Expenses and Liabilities
• B. Staff adjustment for business conditions
• IV. Alcoholic Beverages vs. Food Which is More
  Profitable?
• A. Taxes Levied on Alcoholic Beverages
• B. How the tax affects the supply the restaurant
  is willing to sell
• V. Consumer Choice
• A. Reasons for Happy Hour
• B. No Discounts on Appetizers

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Outline - Part 2

• VI. A Roadhouse Monopoly
• A. Why 12 Per Person
• B. The Effects of the New Red Lobster
• VII. Comparative Advantages
• A. Different Roles for Different People
• B. Differences between Front and Back Labor
• VIII. Short run costs
• A. Shipments of Goods
• B. How the Roadhouse chooses to get rid of
  excess goods
• XI. Income Inequality
• A. How wages are determined
• B. What wage differences exist?
• X. Labor Market
• A. How seasons vary the labor force at the
  Roadhouse
• B. Summer vs. Full Time Employees

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The History of Texas Roadhouse

• Kent Taylor opened the first Texas Roadhouse on
  February 17, 1993 in Clarksville, Indiana

• Motto Legendary Food and Legendary Service
  through Legendary People!

• Currently over 140 locations in 28 states.

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Texas Roadhouse Washington, PA

• Cliff Nickisher Managing Partner

• Opened in 2001
• Startup Capital 2.5 Million

• 178 Employees
• Average of 20,000 in food supplies on hand daily

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Concept behind Service Offered

• Give the customer the best value in terms of
  value per dollar spent

• Legendary Texas sized portions at a reasonable
  price.
• Medium-cost restaurant in the area average of
  12 per plate
• All food is created from scratch from only the
  highest quality ingredients.

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Weekly Expenses

• In the week observed, The Texas Roadhouse
  experienced 68,311.40 in total sales.
• During that same week the cost of sales was a
  total of 21,879.10 which covered
• Meats, Produces, and other food products
• Beer, Liquor, and other various alcohol products
• Cost of Sales subtracted from Total sales gives a
  gross profit of
• 68,311.40 - 21,879.10 46,432.30

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Liabilities Expenses

• Wage Liabilities
• Base wages 16,578.20
• Benefits 3,650.52
• Total Payroll 20,228.70
• Controllable expenses
• Various expenses (i.e. uniforms, utilities,
  travel, postage, etc) 11,106.20
• Advertising 750.00
• Peanuts 448.50
• Total Liabilities expense 32,533.40
• Net Profit
• 46,432.20 - 32,533.40 13,898.80

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Staff adjustment for business conditions
Monday Night VS.
Saturday Night
As number of guests decreases, staff is adjusted
accordingly At approximate closing time there
should be 6 servers remaining
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Alcoholic Beverages vs. Food Which is more
profitable?

• Government levies a 6 luxury tax on all alcohol
  purchased by the restaurant

• Roadhouse does not charge additional luxury tax
  when it sells to the customer

• By purchasing alcoholic beverages in bulk (100
  or more) from its supplier, Roadhouse receives
  12 discount

• The cost of the tax and any increases in the
  price of alcohol are passed onto the consumer and
  not absorbed

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How the Tax Affects the Supply

• Without the tax, the Roadhouse could pass the
  whole 12 bulk discount onto the customer
• Shifts the supply curve upward by 6 from the
  perspective of the consumer
• Ad Valorem Tax - Changes the slope of the supply
  curve as it shifts up by the percentage of the tax

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Consumer Choice

• Average total revenue per drink Average total
  revenue per meal
• Could make greater profit by selling 100 of
  alcohol than 100 of food
• Liquor sales make up 11.7 of the total Roadhouse
  Budget, but 24.4 of total sales
• Alcohol at the Roadhouse is a normal good people
  buy more when the price goes down and less when
  the price goes up

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Reasons for Happy Hour

• Demand for Alcohol is Elastic
• Reduction the price of alcohol by 1/3 causes
  movement along the demand curve
• The ATR per drink is no longer ATR per meal
• Tie-In Sales People come for cheaper drinks, but
  stay for a meal and order more drinks during the
  meal

2.50
Price of Drinks
Demand
Quantity
Q1
Q2
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No Discounts on Appetizers

• Tried discounting appetizers as well as drinks,
  but it reduced profits
• When appetizers are discounted, people buy fewer
  meals and more appetizers
• ATR of reduced appetizers
• Meals and appetizers are seen as substitutes by
  customers
• Thus As the price of appetizers falls, the
  demand for meals decreases

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Relationship of Demand for Appetizers and Dinners
Quantity of Appetizers
Quantity of Dinners
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A Roadhouse Monopoly

• Defining a Market Washington, PA
• The Texas Roadhouse is a monopolistic competitor
  in the restaurant food market
• Many buyers and sellers
• No significant barriers to exit/entry
• Differentiated product
• The Roadhouse is the only Southwestern style
  steak house in the area

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Why 12 Per Person?

• Roadhouse attempts to keep the average check to
  about 12 per person
• The Demand Curve is kinked because
• If Roadhouse raises its prices, the other area
  restaurants will not follow suit and customers
  will go to them instead
• If Roadhouse lowers its prices, other area
  restaurants will lower their prices to compete

Price
Elastic
12
Inelastic
Demand
Quantity per Month
5,450
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Effects of the New Red Lobster

• New Red Lobster opening in Summer 2003
• Located across the street from Texas Roadhouse
• Old Red Lobster in Mt. Lebanon will close
• The arrival of Red Lobster will actually INCREASE
  business for the Texas Roadhouse
• Roadhouse price is 5 less on average than Red
  Lobster
• Mt. Lebanon residents will travel to Washington
  to go for seafood, but the Roadhouse prices will
  be less... The competition in the area is raising
  prices, but the Roadhouse is staying the same

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Comparative Advantages
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• Each person plays a different roll
• Managers, Front Labor and Back Labor
• Front and Back Labor are then further broken down

Back Labor Chefs, Kitchen Crew
Front Labor Hosts, Wait Staff, Bar Tenders, Bus
Staff, Food Runners
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• Front Labor
• 6195.07
• Manager
• 2413

• Back Labor
• 7970.15
• Through specialization, each group can perform a
  certain task therefore maximizing opportunity
  costs.

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Short Run Costs
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Short Run Costs

• Fixed costs remain
• Variable costs can change

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Types of Beer

• A large variety offered
• Sold Coors Light, Yuengling, Corona, Miller
  Light, Rolling Rock, Bud Light
• Ordered Coors Light, Yuengling, Bud Light,
  Corona, Iron City, Miller Light
• Short Run Change is Rolling Rock versus Iron City

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Changing the Beers!

• Rolling Rock
• 0.59
• Previous Inventory 31
• Total Sold 79
• Total Left 0

• Iron City
• 0.57
• Previous Inventory 0
• Total Sold 20
• Total Left 52

The change saves on costs, increases the amount
of one type of beer sold and most importantly
changes the selection of beer in the short run.
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• Rolling Rock

Iron Citry
Price
Price
Quantity
Quantity
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INCOME INEQUALITY
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• Wage differences create incentives for the
• Roadhouse because the front workers, wait staff,
• bartender and host/hostess, make tips. The back
• workers, chefs, and cleaners get some of the tips
  
• the wait staff makes and thus everybody tries to
• perform at their best performance level. If they
  treat the
• customers well, then they get a better tip and
  the customer
• will probably come back again sometime. This
  scenario
• creates a win-win situation for the workers and
  the
• restaurant.

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• The wait staff makes different amounts on
  different
• nights because the tip total is divided among
  them. If the
• heavy tippers all come in on the weekend, then
  those who
• work during the weekend will make more money then
  the
• rest who work during the week.

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LABOR MARKET
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How do seasons vary the labor force at the
Roadhouse?

• Season varies the labor force because during the
  summer the Roadhouse is really busy due to the
  hot weather and people not wanting to cook at
  home so they go out to restaurants more often to
  eat therefore they need more staff on hand to
  attend the customers more quickly.

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• Summer Help vs. Full time
• During the winter, there are number of students
  working at the Roadhouse however, during the
  summer these students might want to take a
  vacation, thus, leaving for a few weeks. That is
  the reason why new staff comes on during the
  summer to substitute for the workers on vacation.
  

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Legendary Conclusion

• Friendly Atmosphere
• Energetic People
• Personal Interaction
• Texas Style
• Lots of Fun

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Do You Remember?
What is the Name of the Texas Roadhouse Mascot?
Andy the Armadillo
Say Hello! to Andy!