case study;Westlake Lanes:How Can This Business Be Saved?

Order Description

read the case study attached and answer the following two questions comprehensively:

1. Is WL a viable business? What is the required number of customers per day for WL to achieve breakeven in March 2010?

2. By the end point of the case, the business is cash flow positive. How should Givens evaluate whether to build, sell, or liquidate the business? What information does she need to make this decision?

RICHARD G. HAMERMESH ALISA ZALOSH Westlake Lanes: How Can This Busmess Be Saved? Introduction Shelby Givens, general manager of Westlake Bowling Lanes, sat in her cramped office in downtown Raleigh, North Carolina. It was March 10, 2010, two weeks before the scheduled meeting of Westlake’s board-Givens’s uncle and two close family friends. During her 9-month tenure as general manager, Givens, working 70-hour weeks, reined in costs and gradually grew revenues. As a result, the business generated its first month of profit in over two years (see Exhibit 1). Yet Westlake was not on track to soon repay the funds the board had loaned it 16 months before. Givens was proud of her achievements, but she worried that they had been too little, too late. Would the board even consider a different path for Westlake if the loaned funds could not soon be repaid? Givens believed that lucrative opportunities were in Westlake’s future, but right now that future seemed uncertain. The board and Westlake’s employees were looking to Givens for guidance. Shelby Givens: Background Shelby Givens was raised in Charlotte, North Carolina, and attended the University of Virginia, graduating in 2005 with a BA. in English. For the next three years, Givens worked as a copywriter and creative director for a boutique advertising agency in New York City. She then moved to the Midwest to attend a highly rated business school, from which she graduated in May 2009. As graduation approached, Givens considered several employment options, including consulting. Said Givens, “I liked consulting’s focus on business strategy and general management. The pay and the perks were nice. But I knew I’d miss working in a small entrepreneurial environment where my contributions directly impacted the business.” While home for spring break, Givens’s uncle spoke to her about the ongoing financial challenges faced by her family’s bowling alley, Westlake Lanes, where she had worked for two summers while in college. Westlake was founded by Givens’s maternal grandfather, Dane Sugar, who died in 2008. The once profitable bowling alley was struggling with declining sales and increasing costs. Since HBS Professor Richard G. Hamermesh and writer Alisa Zalosh prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http2//www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringem

Introduction

Westlake Lanes:

How Can This Business Be Saved?

Shelby Givens, general manager of Westlake Bowling Lanes, sat in her cramped office in

downtown Raleigh, North Carolina. It was March 10, 2010, two weeks before the scheduled meeting

of Westlake’s board—Givens’s uncle and two close family friends. During her 9-month tenure as

general manager, Givens, working 70-hour weeks, reined in costs and gradually grew revenues. As a

result, the business generated its first month of profit in over two years (see Exhibit 1). Yet Westlake

was not on track to soon repay the funds the board had loaned it 16 months before. Givens was

proud of her achievements, but she worried that they had been too little, too late. Would the board

even consider a different path for Westlake if the loaned funds could not soon be repaid? Givens

believed that lucrative opportunities were in Westlake’s future, but right now that future seemed

uncertain. The board and Westlake’s employees were looking to Givens for guidance.

Shelby Givens: Background

Shelby Givens was raised in Charlotte, North Carolina, and attended the University of Virginia,

graduating in 2005 with a B.A. in English. For the next three years, Givens worked as a copywriter

and creative director for a boutique advertising agency in New York City. She then moved to the

Midwest to attend a highly rated business school, from which she graduated in May 2009. As

graduation approached, Givens considered several employment options, including consulting. Said

Givens, “I liked consulting’s focus on business strategy and general management. The pay and the

perks were nice. But I knew I’d miss working in a small entrepreneurial environment where my

contributions directly impacted the business.”

While home for spring break, Givens’s uncle spoke to her about the ongoing financial challenges

faced by her family’s bowling alley, Westlake Lanes, where she had worked for two summers while

in college. Westlake was founded by Givens’s maternal grandfather, Dane Sugar, who died in 2008.

The once profitable bowling alley was struggling with declining sales and increasing costs. Since

________________________________________________________________________________________________________________

HBS Professor Richard G. Hamermesh and writer Alisa Zalosh prepared this case solely as a basis for class discussion and not as an

endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is

fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the

narration.

write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,

photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

4431 | Westlake Lanes: How Can This Business Be Saved?

2004, revenues had fallen by more than 40% while costs—especially for employee health insurance,

maintenance, and utilities—climbed. Sugar funded improvements in 2007 with a line of credit. In

late 2008 the board, motivated by sentiment more than profit, was forced to loan the business

$100,000 from personal savings accounts in order to sustain operations.

Eager to work in a small business environment and to exercise her newly acquired management

skills, Givens formally proposed to Westlake’s board that they hire her to resolve its problems. She

requested $75,000 (her grandfather’s salary) and a 25% equity share to be awarded if the business

returned to profitability within one year. The board agreed and granted Givens the authority to

manage the business, but the stakes were high. If profitability was not attained by mid-2010, all

agreed Westlake Lanes would be sold—most likely at a loss—resulting in a cousin’s depleted college

savings and a nearly insolvent and unemployed Givens burdened with student loans.

Westlake Lanes Background

Givens’s grandfather was an avid bowler. In the early 1970s Sugar secured a long-term lease for

11,000 square feet on the first floor of an old mill in downtown Raleigh. With a $150,000 bank loan

and $100,000 drawn from savings, he renovated the property and installed 16 Ten-Pin bowling lanes.

During the 1970s and 1980s Westlake hosted a steady stream of family bowlers and birthday parties.

Mr. Sugar also cultivated popular bowling leagues, 32 weeks in duration, for his Raleigh friends and

neighbors. After Dane Sugar’s unexpected death in October 2008, his Raleigh-based son, along with

a pair of his close friends, became the business’s owners and board members.

Dane Sugar managed all aspects of the business, drawing a salary plus company earnings, which

fluctuated year to year. He wanted to pass on the business to family, but his children, with careers of

their own, declined. After Sugar’s death, the board needed someone to step in and run Westlake.

They offered longtime employee Shirley Smith the chance to be general manager (along with a 30%

raise) even though she lacked formal managerial experience.

Westlake Operations (June 2009)

Though three other bowling alleys operated within a few miles, Westlake was the only one in

downtown Raleigh close to lively neighborhoods and restaurants. To Sugar, Westlake’s competition

wasn’t other bowling alleys, but a wide range of activities—including soccer practice and happy

hour—that competed for his customers’ increasingly limited time.

A 2007 business profile in a Raleigh paper stated: “Stepping inside Raleigh’s only downtown

bowling facility—Westlake Lanes—is like taking a step back in time. Seventies and eighties music

plays loudly while families gather to play and eat pizza. On weeknights, league bowlers convene to

practice and compete. Loyal patrons and friends of founder Dane Sugar have been bowling here for

more than thirty years.”

Westlake Lanes Employees

In 2009 Westlake Lanes employed a staff of four; each had an annual salary and was provided

with health insurance. See Table 1 for details on employee salaries and responsibilities.

BRIEFCASES | HARVARD BUSINESS SCHOOL

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Table 1

Westlake Lanes: How Can This Business Be Saved? | 4431

Employee Salaries and Responsibilities

Employee

Salary

Gary Spalding (50)

Shirley Smith (41)

Daniel Sinclair (27)

Jenny Bullock (28)

Responsibility

$40K

$31K

$24K

$26K

Tenure

Maintenance of grounds, buildings & machinery

Back office, sales and marketing

Kitchen/bar supplies, cooking and serving food

Lane/shoe rental, customer service

15 yrs.

23 yrs.

10 yrs.

9 yrs.

Westlake Lanes’s staff also included a revolving roster of four part-time employees to assist

Bullock and Sinclair with customers. Each received an hourly wage of $8.25 and worked an average

of 20 hours each week.

Hours of Operation and Pricing

Westlake Lanes was open 7 days a week, 362 days a year. During an average week, more than

75% of Westlake’s business came from evening and weekend attendance. During roughly eight

weeks during summer vacation and school vacations, daytime attendance was significantly higher.1

Each lane accommodated up to four players. Bowling shoes were mandatory; most league

bowlers owned shoes, while recreational patrons rented. Westlake charged recreational players by

the game, and each game consisted of 10 strings. Recreational players averaged two games (or 90

minutes of playing) each. League bowlers reserved all lanes on weeknights for tournaments and

practices.

Westlake’s menu consisted of pizza, soda and beer; due to low demand Westlake refrained from

selling hard alcohol (though they held a license for it). Please refer to Table 2 for hours and pricing

information.

Pricing for Lane/Shoe Rental, League Bowling, Food & Beverage

Table 2

Bowling Fees

Monday – Thursday

12pm – 6pm

6pm – 9pm (League Flat Fee)

Friday – Sunday

12pm – 6pm

6pm – 9pm

Recreational

$3.80

n/a

$4.10

League

n/a

$10

n/a

Other Fees:

Shoe Rental

Food Prices:

Pizza Pie

Pizza Slice

Soda

Draught Beer

$2.00

$12.00

$3.00

$1.50

$3.75

Ambience

As Shirley Smith explained, “When I started working for Mr. Sugar in 1986, the décor was

sparse—just the alleys and a few vending machines. By the late 1980s, we had food and liquor

licenses, a simple kitchen and some formica-topped tables for eating. We served plain and pepperoni

pizza, draught beer and soda, and our menu hasn’t changed much since then.”

Though Givens felt that the building’s interior was outdated aesthetically, she was relieved that its

infrastructure, for which they paid $9.80 per square foot annually, was healthy. At the end of each

1 Weather impacted revenues also; on rainy and steamy hot summer afternoons there was often a waitlist to play.

HARVARD BUSINESS SCHOOL | BRIEFCASES

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

4431 | Westlake Lanes: How Can This Business Be Saved?

lane was a round table and vinyl booth that seated six comfortably. Fluorescent lights shone above,

and a dark wall-to-wall carpet covered the area behind the booths.

Understanding Operations

Givens arrived at the bowling alley on June 5, 2009. She re-introduced herself to each full-time

employee, and then headed to the manager’s office—a small warren containing a metal desk covered

with urgently worded sticky notes from Shirley Smith, stacks of unpaid invoices, and unopened mail.

As she tallied the invoices, Givens quickly realized that payables were 50% higher than the estimate

given to her by the board. Also concerning was a month-old voice message left by an insurance

broker, communicating an 8% increase in employee health insurance premiums. Givens said:

“That first day was overwhelming. There were so many pressing problems, I didn’t know where

to begin. I started by organizing unpaid invoices into two piles: those that could threaten operations

if left unsettled and those that could wait.”

Gaining Control of Finances

Organizing the invoices provided an ancillary benefit. “As I studied the line items,” Givens

explained, “many charges seemed excessive. Had anyone performed competitive research for

routine services like carpet cleaning?” She organized the invoices and listened to a slew of voicemails

regarding outstanding payments, then resolved to personally visit each local vendor and call those

further away. “Speaking directly with vendors made me uncomfortable, but many of these folks had

known my grandfather and were sympathetic. Most agreed to waive penalties and institute payment

plans for us at no cost.”

Many expenses, from bowling shoes to cups for the bar to floor wax, were lumped into a general

“supplies” category. Confused by the financials, Givens wanted to clarify which costs were fixed and

which were variable. (See Exhibit 2, 2004–2009 income statements, and Exhibit 3, 2006–2009 balance

sheets).

Employee Morale

Spalding, Smith, Sinclair, and Bullock were full-time employees. They had been close with Sugar

and had kept the business running without any significant direction from the board for two years.

Each had assumed Givens had arrived to liquidate assets and close the business.

“I remembered Shelby from my early days at the bowling alley,” said Spalding. “Was she now

here to fire me? I’d worked to keep everything running but had no idea if my performance was up to

par, or if the alley was to close. I was grateful for my job during tough economic times, but a few

kind words from the board to thank me for my honesty and loyalty would have been nice.”

Givens scheduled one-on-one meetings at the beginning of her second week. It quickly became

clear that everyone was aware of the business’s financial troubles. Yet the board’s infrequent

communication left employees disgruntled. With no job descriptions they simply executed routine

tasks, not knowing whether they had any authority to do things differently. Givens noticed if

business was slow, Bullock and Sinclair took time to read the paper or wandered outside to talk on

their cell phones.

Givens said, “For some reason, the thing that bothered me most was this small corner of vinyl

wallpaper that had come unstuck and now hung down about a foot, right next to the snack bar. Any

BRIEFCASES | HARVARD BUSINESS SCHOOL

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Westlake Lanes: How Can This Business Be Saved? | 4431

of the employees could have pulled out the ladder and used adhesive to paste it back into place, but

none had done it. Maybe they hadn’t even noticed it.”

During the slower afternoons, Givens often bowled a few rounds to help clear her head and

ponder the challenges she, and the bowling alley, faced. She wanted to quickly write a mission

statement, outline roles and responsibilities for each employee, and engage them in the turnaround.

“Can I energize this team,” Givens wondered, “or is it too late?”

Food and Beverage

Maintenance

Givens met with Sinclair and learned pizza was served from 4pm to closing on weekdays, and all

day on weekends. The pizza was purchased from a food supplier, delivered frozen and heated onsite. Looking at just revenue and costs, pizza delivered a gross profit margin of 65%, draught beer

77%, and soda 86%. Though Sinclair felt the pizza was only “so-so,” he wasn’t sure if he could

research new suppliers. Pizza sales were declining (on average less than 30% of patrons ordered it)

and Sinclair felt this might be attributable to the recent opening of a few inexpensive eating

establishments within walking distance of Westlake.

Westlake’s on-site maintenance employee, Gary Spalding, was a former auto mechanic. He kept

the building, machinery, and grounds in good shape, and ensured that the bowling machinery was

regularly serviced and the lanes polished daily. A “jack-of-all-trades,” he resolved plumbing and air

conditioning issues, repaired leaks, and kept the building up to code.

Westlake’s lane machinery was from the 1970s; scoring technology was added in the late 1980s.

With a life expectancy of 30 years, machine maintenance and replacement costs had begun to spike in

the late 1990s. Machinery for 11 of 16 lanes was replaced at a cost of $19,000 per lane, and in early

2007, Sugar upgraded scoring and screen technology for all 16 lanes at a cost of $120,000. Spalding

expected at least three additional machines to expire by the end of 2010.

Back Office and Customer Service

Shirley Smith had found it hard to prioritize payables and was uncomfortable making operational

changes. Givens could see that she was a hard-working employee but needed direction. When asked

her for details on revenue—how many customers per hour, average spent per customer, etc.—Smith

said it was too time consuming to continually track. See Exhibit 4 for snapshots of weekly customer

attendance and spending habits.

Jenny Bullock appreciated the simplicity and consistency of her job at the cash register and shoe

rental counter. She was friendly with customers and trained part-time employees. Givens noticed

that Bullock often read magazines discreetly behind the counter when business was slow.

Sales and Marketing

Despite any strategic marketing effort, there was a consistent weekly flow of walk-in and league

bowlers. Dane Sugar recruited many of Westlake’s league patrons himself. Though league bowlers

spent little on food and drink, they ensured an ongoing revenue stream on slower weeknights for

nine months of the year. Advertising to promote recreational bowling included thrice-weekly print

advertisements, coupon inserts in local newspapers, and print coupons distributed to customers.

HARVARD BUSINESS SCHOOL | BRIEFCASES

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

4431 | Westlake Lanes: How Can This Business Be Saved?

Using the 2008 income statement, weekly attendance snapshots and average per-person revenue,

Givens projected the number of weekly customers required to break even. Increasing both the

number of customers and the average expenditure per customer was critical.

According to Smith, two distinct groups formed the bulk of customers: league bowlers and

families with children. Beyond this, Smith had no detailed insights.

Through a few days of

observation, Givens estimated that 70% of league bowlers were male and that the average league

bowler was roughly 65. Family bowlers ranged from ages 4 to 90.

Table 3

To collect more credible data, Givens had Bullock distribute an anonymous demographic survey

to incoming customers. Results showed that average income was $55,000; those over 55 were the

largest segment (33%) of customers, followed by 16 and under (15%). The remaining 52% of

customers were distributed fairly evenly among 16-54 year olds. See Table 3 for responses to

questions related to bowling frequency:

Bowling frequency

How often do you bowl?

5x or more per month:

2x – 5x per month

1x per month

1-2x every 6 months

1x per year or less

If your response was 1x per month or less, what

is preventing you from bowling more?

24%

19%

32%

20%

I don’t have enough time

I prefer other activities

It’s too expensive

I don’t like to bowl

45%

35%

17%

Understanding the Locale

Givens left Raleigh to attend college in 2001, and during her absence Raleigh had blossomed. The

city was well-kept, and an array of new shops, galleries, and restaurants enhanced several newly

gentrified downtown neighborhoods. Givens suspected that she could leverage Raleigh’s active

Small Business Association to garner free or inexpensive consultative advice.

The Research Triangle2 expanded steadily during the first decade of the 21st century and by 2009

was a hub for both high-tech and life sciences employers. Businesses valued proximity to students,

engineers, scientists, and research facilities at Duke University, UNC Chapel Hill, and NC State. In

turn, young professionals flocked to the region for high-growth jobs and an affordable standard of

living.

According to the US 2010 Census, Raleigh was one of the ten fastest-growing cities in the United

States. Between 2000 and 2010, the population grew by 46.3% to 404,000.3 Raleigh’s median age was

31.9, and those aged 25–44 accounted for one third of the population. Forty-seven percent of

residents 25 years or older possessed a college degree (or higher), and nearly one-third of all Raleigh

households earned between $50,000 and $100,000 per year. More than 46% of Raleigh’s citizens

worked in a professional or managerial capacity.4

2 Refers to the three North Carolina cities of Raleigh, Durham, and Chapel Hill

3 US Census: http://quickfacts.census.gov/qfd/states/37/3755000.html

4 US Census: http://factfinder.census.gov/servlet/QTTable?_bm=y&-qr_name=DEC_2000_SF3_U_DP3&ds_name=DEC_2000_SF3_U&-_lang=en&-_sse=on&-geo_id=16000US3755000

BRIEFCASES | HARVARD BUSINESS SCHOOL

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Nine Months Later: March 2010

Establishing Financial Control

Westlake Lanes: How Can This Business Be Saved? | 4431

By seeking competitive rates from suppliers, renegotiating contracts, and canceling nonessential

services, Givens had cut fixed expenses by 8% in 2009 and was on track to save another 8% in 2010.

Givens recounted:

My first challenge was health insurance, growing 8% year over year. I researched new

providers and different plans, and ultimately selected an in-network plan that reduced 2010’s

projected expense by 13%. The impact on financials was significant, and I aspired to focus on

costs—big and small—every day.

We canceled the corporate cleaning service and replaced it with a small local team for half

the price (plus bowling credits) and purchased cleaning supplies ourselves. A governmentsponsored rebate for commercial compact fluorescent lighting subsidized 60% of our electric

bills for 24 months. Our monthly electricity expense dropped by 30% as a result.

A meeting with a member of Raleigh’s Small Business Association introduced Givens to an

industry association—the Bowling Proprietors Association of America. The annual membership

provided pre-negotiated, discounted rates on nearly every small business service. Givens canceled

most of the existing service providers, whose contracts had been renewed automatically for years,

and leveraged the membership discounts to save nearly $11,000 annually.

Maintaining Employee Morale

Shortly after starting as manager, Givens invited her full-time employees to help define a mission

statement and job descriptions. She instituted a weekly meeting, followed by a round of bowling for

which she baked homemade treats. “I wanted to establish a personal rapport and to encourage idea

generation in a comfortable setting,” said Givens. “On a personal level, this small effort helped.”

Givens grew close to Spaulding and Smith, who welcomed her enthusiasm. Sinclair and Bullock,

however, resisted change. “Should I fire them,” Givens wondered, “and will they find new jobs in

this economy?” Though revenues were in decline, Givens resisted meddling with loyal employee

wages or eliminating health insurance. “My grandfather felt insurance was a moral obligation, and I

wanted to honor that legacy,” said Givens. “But it wasn’t an easy decision, especially when Bullock

and Sinclair grumbled when asked to do something above and beyond their daily duties.”

After six months Givens was ready to make changes to the full-time staff. She’d keep Spalding;

his technical/repair skills would be difficult (and expensive) to replace and he was a good sounding

board for the business. Smith would stay for the short term, as she understood many elements of the

business that Givens had not yet mastered. Givens, though, was unsure about Sinclair. After she

spoke to him about his cellphone breaks he ceased using his phone at work. Perhaps sensing

Givens’s dissatisfaction, he contacted a handful of gourmet distributors, reviewed and tasted

products, and proposed to Givens two delicious, similarly priced thin-crust pizza alternatives.

Givens decided to keep him, at least for the short term. Bullock’s behavior unfortunately did not

change after warnings about her cellphone breaks and magazine reading. Though she performed her

duties, she wasn’t engaged in her work or with her colleagues. Givens dismissed her, asking Smith

and Spalding to help fill the gap while she sought a replacement

HARVARD BUSINESS SCHOOL | BRIEFCASES

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

4431 | Westlake Lanes: How Can This Business Be Saved?

Growing the Customer Base

“We desperately needed more customers, but our advertising expense was too high,” said Givens.

“I dreamed of cost-efficient online and email advertising. Were enough of our core customers techsavvy?” Givens questioned the efficacy of overpriced newspaper advertising, but resisted

discontinuing it altogether. “By the end of 2009 I’d cut the advertising expense by more than half. I

needed some efficient ideas to attract new customers.”

Spalding thought that league participation might increase if required commitments shrunk from

32 weeks to 8 weeks. Givens agreed, and advertised new leagues in print ads and in-house flyers.

She cold-called HR departments of nearby corporations, pitching the short leagues as a way to foster

camaraderie in the workplace. With deal coupons as incentives, two biotech firms instituted a

Wednesday night league as a result.

Givens wanted to learn more about the mindsets of non-customers, too. She arranged for a group

of business students from nearby UNC to conduct a market positioning exercise targeting university

students. Though reluctant to bowl on their own time, students responded favorably to the idea of

private group bowling events for clubs and organizations with outside catering. Givens awaited the

student team’s recommendation for pricing and catering partners.

Pricing and Hours of Operation

League, lane, and shoe rental prices had not increased in six years; in December 2009 Givens

implemented a 20% price increase. She left food and beverage prices unchanged. Shortly after the

price increase, league participation shrank by 10%, recreational traffic dropped by 12%, and food and

beverage sales dropped by 19%. The price increase mostly offset these declines; Givens estimated

that December revenues fell by just 3%. She felt the increase had been appropriate and that losses

would be quickly recouped.

Based on the high energy level at closing on Friday and Saturday night closings, Givens extended

Westlake’s hours, beginning in January 2010; Westlake remained open until midnight on those

evenings. Bowling capacity was steady during the extra three hours, though food and beverage

consumption dropped; weekly attendance increased by roughly 285 customers per week. Opening

hours on weekdays shifted from 12pm to 2pm due to low attendance. See Exhibit 5 for an attendance

snapshot from the first week of February 2010.

Together, changes in pricing and hours of operation boosted revenues. January and February

2010 figures indicated that patronage had increased by 26%. But getting customers to linger while

eating and drinking was crucial to sustained success. “Should we offer a daily happy hour?” thought

Givens, “or revamp the menu?”

Preparing for the Board Meeting

Givens began her memo to the board by summarizing her 2009/Q1 2010 achievements:

•

6% revenue increase

8.5% cost reduction

Forecasted 2010 net income: $20K

•

Corporate outreach

Customer (& non-customer) demographic data

Increased patronage (30%)

“By paying close attention to costs,” she wrote, “we have returned Westlake to profitability. It’s

my belief that continued cost scrutiny, along with profit-enhancing changes to our menu, staff

changes and new marketing plans could generate up to an additional $40K this year.”

BRIEFCASES | HARVARD BUSINESS SCHOOL

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Westlake Lanes: How Can This Business Be Saved? | 4431

Givens paused. Westlake’s progress would please the board and likely secure another year of

employment—and equity—for Givens. But the thought of grinding away at Westlake for another

year made her uneasy. After spending nine months making small changes, she had begun

ruminating on some big ideas. But were they the right ones—and was the board ready for them and

the costs they would entail? What would happen to her existing employees? Was the best path

instead for Givens to search for a suitable replacement for herself at Westlake?

Givens had two compelling ideas for updating the business. “I was excited by both strategies,”

Givens explains. “I guess I’m an entrepreneur at heart. I knew the work, stress, and responsibility

surrounding either strategy would be overwhelming, but I wanted to pursue them anyway.”

The first strategy targeted families and involved adding kid- friendly video and arcade games and

a designated private party space to complement the existing lanes. The second idea, aimed at wellpaid, single young professionals in Raleigh, was to create an urban bowling lounge—a plush,

intimate space with a full bar, tapas-style appetizers, table service, and room for events. Several

upscale bars and restaurants catering to that market segment had opened close to Westlake’s location

within the last five years and were successful.

Entertainment venues for kids had fared well despite the economic recession. Judging from

admission rates to nearby laser tag and rock-climbing centers, popular sites for birthday parties,

parents paid a premium, up to $20 per child, for kid-focused entertainment, even while they were

spending less on themselves. Similarly, Givens learned that trendy bowling-and-cocktail lounges

consistently attracted swaths of young professionals who spent upwards of $60 per night on bowling

and drinks alone.

Convincing the Board

Givens wanted the board to back a new strategy. So to quantify Westlake’s ongoing financial

challenges, she readied two breakeven analyses: one based on 2008 figures and a second based on

results from January and February 2010. She then projected aggressive and conservative revenue and

cost scenarios for both kid-friendly and lounge options. Givens projected annual traffic could reach

52,000 and 40,000 for kid/lounge strategies, respectively.

She wanted to follow these formal analyses with her personal recommendation. To guide her

thoughts, she jotted down a more personal list of pros and cons:

Kid-Friendly ($200K-300K investment)

*Limited upfront costs, free arcade games with

revenue share model.

*No major structural remodel costs

*Lower damages (no alcohol)

*Minor food/bev changes

* Increase PT staff to 8

*Higher advertising expense

*Not sure I know what kids, or parents, want

*Do I want to be around kids all day?

Upscale Bowling Lounge ($700K-$1M investment)

*Exploits liquor license & high-margin alcohol sales

*Customers less price sensitive

*Low marketing expense (online & pr)

*I understand the target market and would enjoy

working here

*Higher costs: Rehab, insurance, damages

*Food: We’d need a professional chef

* Staff: Replace most of existing full-time and

increase PT employees to 15

*Longevity: Is this a trend or LT business?

Now it was up to the board. Would they stand pat, sell, or support one of her bold new ideas?

HARVARD BUSINESS SCHOOL | BRIEFCASES

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

4431 | Westlake Lanes: How Can This Business Be Saved?

Appendix

Overview of Bowling Industry in 20115

Current figures show there are more than 100 million bowlers in 90 countries worldwide, and

more than 70 million in the United States alone; this makes bowling, a $7 billion industry in the

United States, the most popular played sport in the United States today. Increased participation from

both women and children has fueled bowling’s growth over the last decade. The sport’s average

customer boasts a household income of nearly $68,000.

The most widespread form of bowling in the U.S. is Ten-Pin Bowling. One game consists of 10

“frames” of 10 pins each. With each frame, each player receives two chances (or rolls) to knock down

pins, and on the tenth and final frame, three chances. A perfect score—an extremely rare event—is

300. Frequent recreational bowlers generally average between 120 and 175 points per game.

Bowling’s popularity in the United States exploded in the 1950s, mostly due to television coverage

of bowling tournaments. In the 1960s, improvements in lane machinery and technology fueled

additional growth, which continued through the 1970s as widespread participation in league bowling

spread. Typically, league bowlers committed to weekly bowling sessions for 32 weeks, ensuring a

consistent revenue stream for bowling centers.

Beginning in the late 1980s, however, industry growth stagnated as league participation declined.

Bowling centers turned to recreational bowlers for revenues, competing for their dollars against other

forms of family entertainment. Also during this time the bowling industry grappled with its

reputation as an outdated, old-timers activity. This image was fueled in part by old, worn facilities

and an aging customer base.

Over the last 15 years, many bowling centers have updated their facilities with one of two markets

in mind—families or young urbanites. Those pursuing families often create family entertainment

centers, with bowling providing just one part of a larger entertainment experience. The “upscale

bowling lounge” has grown in popularity since roughly 2000 in larger urban markets. These facilities

target 21- to 35-year-old urban dwellers, providing an alternative to bars and live music venues.

Often with creative lighting displays and themed entertainment they are as much night- and danceclub as they are bowling alley. They may feature pool or billiards as well as bowling, and provide

upscale dining options and a full bar.

In the United States, there are 5,350 bowling centers, with an average of 20 lanes each. The

industry is highly fragmented. Together, the five largest owners own just 8% of total bowling

facilities. Bowling centers are predominantly family-owned.

5 Sources include: Hansell & Associates, Bowl.com, US Bowler magazine

BRIEFCASES | HARVARD BUSINESS SCHOOL

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Exhibit 1

Westlake Lanes: How Can This Business Be Saved? | 4431

Westlake Lanes: Monthly Income Statement, January & February, 2010

2010

January

2010

February

YTD

39,885

5,692

6,989

52,566

38,975.00

5,741.00

6,725.00

51,441.00

78,860

11,433

13,714

104,007

Variable Cost of Sales

Food Purchased

Liquor Purchased

Food & Beverage Supplies

Total

1,708

1,398

1,268

4,374

1,722

1,345

1,247

4,314

3,430

2,743

2,515

8,687

General Overhead Expenses

Salaries: Full Time

Salaries: Part Time

Coupons

Legal and Audit

License & Permits

Office Supplies

Rent

Repair & Maintenance Labor

Repair & Maintenance Supplies

Utilities

Travel & Promotion

Insurance

Miscellaneous

Total General

925

9,800

3,080

709

704

147

274

8,983

2,470

6,750

2,377

4,900

150

41,269

955

9,800

3,080

850

704

147

255

8,983

6,755

9,820

2,377

175

4,900

150

48,951

1,880

19,600

6,160

1,559

1,408

293

529

17,966

9,225

16,570

4,754

175

9,800

300

90,219

Interest

Depreciation & Amortization

632

700

632

700

1,265

1,400

Operating Income (Loss)

6,924

(1,823)

5,101

Tax

2,423

(638)

1,785

4,501

(1,185)

3,315

Net Income

Income

Lane Rental

Food Sale

Liquor Sale

Total

HARVARD BUSINESS SCHOOL | BRIEFCASES

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Exhibit 2

4431 | Westlake Lanes: How Can This Business Be Saved?

Westlake Lanes Annual Income Statements, 2004–2009

2005

2007

2008

Income

Lane and Shoe Rentals

Food & Soda Sales

Beer Sales

Total

$ 708,765.00

$ 191,366.55

$ 134,624.00

$ 1,034,755.55

$ 637,888.50

$ 159,472.13

$ 165,851.01

$ 963,211.64

$ 521,154.90

$ 145,923.37

$ 114,654.08

$ 781,732.36

$ 489,705.00

$ 137,889.00

$ 126,456.00

$ 754,050.00

417,533.00

87,681.93

83,506.60

588,721.53

Cost of Sales

Food

Alcohol

Supplies

Coupons and Discounts

Total Cost of Sales

$ 66,978.29

$ 30,963.52

$ 98,301.78

$ 31,042.67

$ 227,286.26

55,815.24

38,145.73

91,505.11

28,896.35

214,362.43

$ 53,761.24

$ 27,758.36

$ 78,173.24

$ 24,686.28

$ 184,379.12

51,073.18

26,370.44

78,173.24

23,451.97

179,068.83

48,261.15

29,084.88

90,486.00

22,621.50

190,453.53

26,304.58

16,701.32

47,097.72

17,661.65

107,765.27

Gross Profit

$ 807,469.29

748,849.20

$ 638,497.05

602,663.53

563,596.47

480,956.26

General Expenses

Employee Wages

Advertising

Legal and Audit

Licenses and Permits

Office Expenses

Repairs and Maintenance

Utilities

Insurance

Rent

Miscellaneous

Total General Expenses

$ 231,960.00

$ 31,042.67

8,898.90

2,276.46

3,104.27

$ 77,606.67

$ 51,737.78

$ 50,000.00

$ 107,800.00

3,104.27

$ 567,531.00

$ 236,599.20

31,973.95

8,453.95

2,299.23

3,414.69

$ 100,888.67

52,255.16

54,000.00

$ 107,800.00

3,166.35

$ 600,851.19

$ 234,233.21

$ 32,293.69

8,623.03

2,345.21

3,482.99

$ 70,622.07

$ 53,822.81

$ 58,320.00

$ 107,800.00

2,374.76

$ 573,917.76

231,890.88

32,616.62

10,951.25

2,368.66

4,702.03

115,447.00

54,899.27

62,985.60

107,800.00

2,422.26

626,083.57

$ 219,390.00

29,354.96

24,648.96

2,392.35

6,112.64

76,974.00

55,448.26

68,024.45

$ 107,800.00

3,148.94

$ 593,294.56

205,390.00

15,865.00

15,900.00

2,416.27

3,346.00

86,432.00

36,672.00

63,412.00

107,800.00

3,510.00

540,743.27

Interest

Depreciation & Amortization

2,400.00

1,200.00

2,800.00

1,200.00

3,200.00

1,200.00

3,200.00

1,782.23

9,725.36

4,359.40

7,588.00

6,076.01

Operating Income (Loss)

$ 239,938.29

147,998.01

64,579.28

(23,420.04)

(29,698.09)

(59,787.01)

Tax

83,978.40

51,799.30

22,602.75

$ 155,959.89

96,198.71

41,976.53

(23,420.04)

(29,698.09)

(59,787.01)

96,198.71

41,976.53

Net Income (Loss)

548,584.11

153,603.55

120,688.50

822,876.17

$ 155,959.89

2009

Dividend

2006

2004

BRIEFCASES | HARVARD BUSINESS SCHOOL

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Exhibit 3

Westlake Lanes Balance Sheet, 2006–2009

December 31, 2006-2009

2006

Westlake Lanes: How Can This Business Be Saved? | 4431

2007

2008

2009

35,488

15,412

24,473

6,571

29,667

2,943

Fixed Assets

Property, Plant & Equipment

Total Assets

54,007

104,907

132,103

163,147

184,122

216,732

LIABILITIES

Accounts Payable

Debt

Total Liabilities

EQUITY

Common Stock

Retained Earnings

Total Equity

14,907

40,000

54,907

15,000

121,567

136,567

30,000

20,000

50,000

30,000

(3,420)

26,580

–

9,057

4,200

$ 178,046

$ 191,303

25,000

94,850

119,850

$ 30,000

$ 124,208

$ 154,208

$ 130,000

$ (33,118)

96,882

$ 130,000

$ (92,905)

$ 37,095

(0)

Check

ASSETS

Current Assets

Cash

Inventory

HARVARD BUSINESS SCHOOL | BRIEFCASES

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

This document is authorized for educator review use only by MARIOS KATSIOLOUDES, Qatar University until July 2015. Copying or posting is an infringement of copyright.

Permissions@hbsp.harvard.edu or 617.783.7860

Annually

Time of day

2pm – 6pm

6pm – 9

9pm – 12am

Total

Week 1 February

Tuesday

Monday

24,304

32,752

145

Tuesday

100

115

215

Thursday

190

265

146

234

Friday

Wed.

Thursday

146

139

212

Friday

115

156

154

271

199

115

350

572

293

1215

Weekly

$5.80

$6.10

$1.20

$2.75

$1.20

$3.50

120

160

280

129

214

Sunday

673

926

1599

430

576

1006

Weekly

4431

Sunday

188

176

364

185

284

Saturday

Lane & Shoe Weekday 12-6

Lane & Shoe Eve/Wknd

Average Food Spend 12pm-6pm

Average Food Spend 6pm- 9pm

Average Beverage Spend 12pm-6pm

Average Beverage Spend 6pm-9pm

Customer Spending Averages

104

194

Wed.

136

Weekly Customer Attendance Snapshot, 2010

467

630

Weekly

12pm – 6pm

6pm – 9

Total

12pm – 6pm

6pm – 9

Total

Monday

2010 Weekly Attendance Snapshot

Exhibit 5

Average # Customers: 12pm-6pm

Average # Customers: 6pm – 9pm

Averages

Week 1 August

(Vacation Week)

Week 1 February

Time of day

Weekly Customer Attendance Snapshot, 2009

Weekly Attendance Snapshot

Exhibit 4

-14-