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Relocation strategies for Al Reem Lebanese Grill Restaurant
There is nothing new or surprising when one comes across retailers and service store owners/managers who insist that location decisions are very important when it comes to their business lines profitability and survival issues. It has now become an accepted cliché that the three success factors for any retailing unit are “location, location and location” (Hamid, 2008). Over the past three decades, lot of research has been done on this issue and majority of results in literature does suggest that location decisions can be of primary importance for retailers especially for the ones whose nature of business essentially involves direct face-2-face customer dealings. In the light of this trend, there is an increasing demand by retailers for hiring the services of expert consultancy firms who provide recommendations and suggestions to their clients on strategic location and other business decisions.
Our client, Al Reem Lebanese Grill, has faced some difficulties in the past few years in maintaining sufficient profitability levels to keep it in the business. Reason has primarily been falling sales revenue. It has approached our firm to conduct a strategic analysis on its operations and suggest relocation strategies which could help revive its financial performance. Therefore, the objective of this report is to investigate and suggest relocation strategies which are customized for Al Reem Lebanese Grill and which may help it achieve its targeted sales and profit levels.
The report shall first briefly introduce the restaurant, its concept and history and what were its initial objectives and purpose of commencing operations. The challenges which were faced at the start would then be listed and it would be identified what strategies were then put in place by the owners to counter the challenges faced. Following this, a micro and current location’s macro analysis would be conducted to identify how things have changed over the years and what were the economic impacts on Al Reem Lebanese Grill as a result of such changes. Thus, this analysis would then give a list of new current challenges affecting the restaurant and my job as a consultant is to give expert suggestions on overcoming these challenges.
In order to provide the recommendations, I will first conduct a thorough literature review to analyze what researchers have uncovered and concluded in the research area of location strategies. These literatures are based on theoretical and empirical considerations and therefore help a consultant in preparing convincing recommendations based on literature evidence. After this, I would do a customized review of Al Reem Lebanese Grill and then provide recommendations on relocation strategies for them and also give some suggestions on its operational management aspects. Location falls under the department of operations management and therefore it is essential to ensure that the internal operational aspects are also carefully designed to achieve efficiency and support the overall business objectives.
Finally, conclusion would be given about the whole project and also an evaluation regarding the feasibility of the recommendations would be provided. The report then ends with listing of references used in the write up and completion of this project.
Client Background and Objectives
Al Reem Lebanese Grill is owned and operated by two brothers, Waleed El Hamdan and Omar El Hamdan, who originate from Lebanon but have been residing in Malaysia from the past 7 years. The restaurant has been named after their mother Reem El Hamdan.
Waleed had come to study in Malaysia 10 years ago pursuing a bachelor’s degree in hotel and culinary arts. His elder brother Omar was managing a restaurant back in Lebanon which he and his brother had inherited from their father. Once Waleed graduated, and due to violence in Lebanon, Omar decided to migrate to Malaysia and together with the fresh graduated Waleed, both decided to put their knowledge and know-how of restaurants and start Al Reem Lebanese Grill in Malaysia. As children, both brothers had actively worked and helped their father in their barbecue and grills restaurant in Lebanon and now wished to transform their knowledge and start the restaurant in Malaysia.
Back home, their restaurant tended to cater mainly middle income class families and it was a very personalized and traditional ambience setting environment. The restaurant had very loyal customers with some being frequent visitors from as long as 10 years ago. It mostly was a weekend crowd place where families came to relax and unwind while during weekdays the place was usually quiet. The brothers helped their father during the weekends while at weekdays attended school. The menu served traditional Lebanese food while some weekends, surprise dishes were also served not usually available on the menu. On weekends, sheesha (Arabic-pipe tobacco smoke) was a popular late night socializing activity.
Following the death of their father, Omar managed the restaurant full time while Waleed came to study further in Malaysia. Due to uncertain security conditions in Lebanon, both brothers planned that they would like to migrate and stay in Malaysia and start restaurant business there.
Waleed being a fresh graduate drew up several ambitious plans. He wanted to focus constantly on expansion and creating wealth for both the brothers. He wished to be aggressive and target only upscale high income segment customers in Malaysia. Foreign delicacies in Malaysia were costly and appealed an upper and middle class income segment that enjoyed spending money on food and dining activities. Waleed wished to capitalize on this population characteristic.
Omar on the other hand wanted to be cautious and was sceptical about Waleed’s ambitious plans. In order to realize this dream, he had to sell off everything back home in Lebanon and therefore did not want to take any foolish decision which will put him and his family on the verge of bankruptcy. He drew up a list of expected challenges and issues and then discussed with his brother regarding strategies with which they could overcome these challenges.
Beginning Challenges and Strategies Implemented to overcome these challenges
Based on the negotiated discussions, Al Reem Lebanese Grill objective was to start as an up-town pioneer Lebanese restaurant in Kuala Lumpur that provided fine-dining experience of Lebanese food. The aim was to promote the Lebanese food taste and develop a liking and strong customer loyalty for their menu as well to consistently make a profit which allowed for further expansion within Malaysia. Overall objective was to be amongst the leading fine-dining restaurant chains which served foreign delicacies in Malaysia.
There were several challenges to this objective. First, both brothers had limited market knowledge and were not experienced in any operational setting other than that of Lebanon. Secondly, their restaurant experience had been mainly with dealing with middle-income very loyal customer base which their father had already got on board long before Omar took control of the operations. Therefore, they had no marketing experience or know-how of how to get more customers and expand market base. Thirdly, they had operated in a very traditional setting with customers being treated more like close relatives rather than customers and the menu was regarded more as home-cooked style rather than commercial restaurant type. What will the new settings in Kuala Lumpur be like and how would the brothers manage? More importantly, finance was limited and therefore, location decision was restricted by budget limits.
The brothers planned several initial strategies in order to overcome the above challenges. First of all, they decided that the kitchen operations and menu planning will be the responsibility of Omar as he was more skilled in that area while the restaurant operational planning, marketing and other management aspects would be done by Waleed. Meanwhile, they hired Malaysian staff to work in the restaurant and also hired along a restaurant supervisor. The restaurant supervisor hired was a local Malaysian who had years of experience working in restaurants in Kuala Lumpur. The brothers believed that by hiring him and using his experience, they will be able to understand the local markets much better. They decided to retain the traditional experience they had in Lebanon by offering personalized services and a traditional Lebanese setting in the restaurant in Kuala Lumpur. The ambience reflected a suburban Lebanese restaurant although the furniture was tastefully decorated to appeal the upper-income segments. The location was selected to be an inner street off the main Bukit Bintang road. Butkit Bintang is a very busy happening place frequented by both tourists and locals alike and there are several lines of restaurants there. Locating on the street would have been an ideal choice, however due to budget restrictions, the brothers settled to locate in the inner street.
The restaurant had taken off to a good start and both brothers worked devotedly in advertising their place and giving customers a true traditional Lebanese experience along with good food. However, the sales always were just not good enough. Waleed was getting frustrated and initially Omar advised him to have patience. However, that was not happening and even Omar started questioning where were they going wrong? After a couple of years of mild and in some instances falling sales and profits, the brothers decided that it was time to shift their restaurant location. The other Arabic restaurants at main Bukit Bintang were always performing much better. However, to avoid any costly mistakes, the brothers decided to approach a management consulting firm seeking advice on location strategies and operations management for restaurants.
Current Challenges and Issues faced by the restaurant
The earlier sections were written up to give the background information on our client Al Reem Lebanese Grill. In this section, we do a current fact-finding and evaluation of all the location and operations management challenges being faced by the restaurant which are potentially limiting its sales and profitability levels. For this purpose, I will make use of Porter’s Five Forces Analysis and SWOT analysis at first to understand the industry and then list out the challenges being faced by the company. I will also be observing the practical environment and customer experience at the restaurant itself and reading through customer feedback form provided at every table at the restaurant.
In order to judge the attractiveness, profitability and viability of a firm in a particular industry, Michael Porter’s (1979) theory of five forces analysis is widely used. Porter in the Harvard Business School designed an analytical framework for evaluating any industry by considering five key forces that determine the competition intensity of a market and therefore its attractiveness. With results from this analysis, Porter argued effective business strategies can be developed to improve profitability in an industry identified as attractive. An unattractive industry would be where the five forces would be acting to push profit levels to zero economic profits level (Porter, 1980).
Porter’s Five Forces – Source: The Marketers (2010)
A quick five forces analysis illustrates that the food and dining market in Malaysia is very competitive and restaurant suppliers have to be on their toes always to survive. The bargaining power of customers is immense as there are lots and lots of different kinds of restaurants to choose from and therefore any one restaurant has to really convince its customers why they should give their food a try. Competition is also intense since there are many other Arabic restaurants located on the main Bukit Bintang road which by default have a location advantage over Al Reem Lebanese Grill. Meanwhile, threat of new entrants is of course always there, but in this case the market area already seems to be saturated. The threat of substitute products is also very high as there tons of other kinds of eateries offering fast food, local food, other types of international cuisines such as Indian, Japanese, Western, etc. Also, since Al Reem is a small restaurant with lower quantity of supplies orders, the bargaining power of suppliers is also greater on them rather than they having power over their suppliers.
By analyzing the feedback forms left by customers at their tables in Al Reem, I can summarize several conclusions regarding the operations efficiency of the restaurant. First of all, on a positive note, everyone seems to like the taste of the food which is given good ratings. Yet, everything else seems to be lower than expectations or leaving customers dissatisfied. Pricing is quite criticized and this gives an indication that the restaurant is not really visited by the higher income segment people but more on the middle income side. The service timings for the food being prepared and delivered are also criticized as being ridiculously long. In his defence, Omar states that all the cooking is done in orthodox and traditional methods which are not quick enough to match the speeds of latest machines in kitchen. He argues taste will be compromised if modern equipment takes precedence over traditional methods of cooking. Furthermore, the service of waiters is also severely criticized. There seems to be lot of noise and confusion and it’s hard to get the attraction of waiters who are busy hustling and bustling around. Complains are also made about location and lack of parking space at the adjacent areas.
All the above points represent glaring challenges being currently faced by Al Reem and also explain why there is low customer loyalty as was enjoyed by the brothers’ restaurant in Lebanon. It makes sense for us to conduct a SWOT analysis of Al Reem to evaluate the current state of affairs and future opportunities and then we will follow with recommendations.
From the above SWOT analysis, we can conclude that Al Reem has serious operational management and location issues which it needs to address. There are good opportunities for the business to do well since its product; the menu is liked by majority of the customers. It just has to refocus on its positioning and overall objectives and has to reconsider its operational issues including location. We will now do a literature review on restaurant location strategies in order to help make better decisions on relocation strategies for Al Reem.
Literature Review on Location Strategies
First we need to answer why are location decisions so important? To answer this, Guy (1998) stated that the location of a retail store creates the defining relationship which a retailer will have with its market segment and other competing retailers. What does Guy mean? Karande and Lombard (2005) explain this fundamental influence of location on the other aspects of a retail outlet. A distinction first needs to be made between service points which have a need for direct face-2-face interactions with customers and other instances where the need for customer to be physically present is not required. For example, places such as call centres, production plants, distribution centres, etc do not require the customer to by physically present on site and therefore, location decisions of such service outlets require little consumer focus. However, other outlets such as coffee shops, supermarkets, bank branches, restaurants, etc have an essential need for face-2-face customer dealings and in their cases, consumer focus is highly essential when deciding on location decisions (Karande and Lombard, 2005).
Therefore, Rogers (2005) provides a neat five-point summary as to why are location decisions so important for businesses, especially ones in services dealing, and why would owners/managers go great lengths in spending time and money in evaluating location decisions.
1.) To avoid inefficient and expensive location sites which lead to higher costs for businesses resulting in lower profits.
2.) To avoid locating in an area which is not in close proximity to prospective customers leading to lower sales revenues and profits.
3.) To evaluate longer-term feasibility of a location, that is, consider possible government rules or changes in local demography and incomes which might adversely affect sales of the business.
4.) To ensure the business is strategically located in comparison to competitors and ensure no advantage is given out to the competitor on the basis of visibility, access, etc.
5.) Finally, to ensure the operations can run smoothly for the foreseeable future without disruptions in supplies, labour, infrastructure, etc.
All the above points are significantly important because once a location decision is made and operations commenced, relocation are not only costly, but time consuming and difficult. Therefore, location decisions are strategic decisions which need to be made carefully.
In terms of the strategic location decision making, Ghosh and McLafferty (1987) suggest a straightforward three-stage process which any owner/manager or consultant may follow. They state that the first process of selecting a location is market selection which involves the choice of which region, city or metropolitan area to locate in. Next, a trade area analysis needs to be conducted which involves a spatial economic, demographic and geographic study of different areas to select the one which is most suitable for the business. And finally, a site evaluation needs to be done on individual characteristics of each site on the basis of efficiency and suitability and convenience to the specific needs of the business.
In modern literature, the stages remain arguably the same but more insights and angles are provided by different researchers into looking at the factors in the three stages of location selection. White (2004) suggests that a restaurant should first determine the style and nature of its food and dining it wishes to offer and then select which type of market segment it is aiming to provide for. This is to ensure that the restaurant is positioned in a geographic location which would provide the best match between the local consumer demands and the restaurant’s supplies. In the operational setting itself, White (2004) suggests that significant amount of research has to be done to study the demographics, characteristics and spending habits of the population and also evaluate the site’s ease of accessibility for customers, parking availability, visibility from the main roads, junctions, etc as well as signage possibilities. He suggests that there are three groups of customers which a restaurant is able to attract: residential customers of the area, commercial traffic passer bys and other types of visitors/workforce in the area. A restaurant should be strategically located to capture business from all three types of groups.
Stys (2006) also comprehensively advises on possible factors to consider when evaluating location decisions. Some of his main suggestions are summarized below:
Follow the market: Stys suggests that the concept of food courts/streets/villages have become very popular and it is commonly observed that people go into areas where there are multiple restaurant choices. This provides a strong strategic reasoning for restaurants to locate in restaurant packed areas even though it might appear that they will face strong competition. This is because the increased number of customers offset the competition loss and costs.
Know Your Customers: As White (2004) suggested, Stys also states that positioning of the restaurant to match its segment is important. He also adds that the restaurant owners also need to identify what crowd of customers they are targeting. For example, if the restaurant is specialized for dinner and weekend crowds, then locating in downtown areas which are empty on weekends is not advised. Similarly, if the target is lunch crowd, then locating near large corporate and commercial buildings and other similar areas are suggested to target the audience for lunch during working hours.
Know the Costs: There are several external costs involved with the operations of a restaurant such as delivery supplies, trash collections and etc. The location should be able to cheaply attract labour and suppliers without the need for providing hefty transportation allowances and delivery costs. There should also be accessibility for garbage collection trucks and stopping/parking points for delivery trucks, etc.
Signage Opportunities: In order to attract attention of customers, restaurants rely on sign boards and neon-light signs and several other creative methods. When selecting a location decision, research should be done to check what are the local community’s requirements and restrictions on signage and display. For example are there specific limits to the size of display boards? Limits to the number of signs allowed? Limits to the illumination and brightness levels? Landlords and local governments conditions, etc?
Visibility, accessibility, and parking: The location should importantly be visible, ideally on main boulevards or front line places in shopping centres, etc. Apart from being visible, it should also be easily accessible to traffic and pedestrians alike and should not cause inconvenience of reaching the venue to customers. There should also be ample parking available for driving-in customers. This is to ensure no advantage is given over to competitors who provide more convenient accessibility and parking opportunities.
More recently, Katz (2010) provides a critical analysis of modern day restaurant location decision making being practised in the industry. He states that it is understood and known by everyone that area demographic and economic analyses as well as restaurant positioning and segment matching with the area are essential location factors. However, it not being rigorously applied and many owners/managers make the mistake of loosely factoring decision making on certain figures without insight. For example he states that many restaurateurs claim that they have done extensive research and matched their restaurants offerings with the needs of the local population. They would also quote demographic figures such as average age of the population, average income, and number of people within a certain radius to the restaurant and etc. From these statistics, they would get convinced that their restaurant will be successful.
Katz (2010) argues that in modern world, restaurateurs’ need to focus on researching more on the ‘lifestyle’ characteristics of the local population before basing location decisions. That is, research needs to answer what are the motivations behind spending and levels of spending habits of the people in the area. What types of services to they prefer and how often and where often would they shop for these services? How many people in the trading area actually like and frequently spend their money and time on the owned/managed restaurant’s style and menu of food? Do the people prefer casual-dining, fine-dining, fast food, etc? Do they have a taste for local cuisine or like international cuisine?
As it is evident, the above mentioned questions are very critical and useful for the success of the restaurant. Katz suggests two methods of basing location decisions from the above research. First, a location can already be identified and then the above research conducted to understand the needs and habits of the local market. From the results of the location analysis, a concept and style of the restaurant could then be devised which most suits the local population. The second method is where the restaurateur already has detailed plans of the concept and objectives of what it wishes to achieve and provide from his/her restaurant. Now, he/she conducts the research to identify which location would best suit the concept and style of restaurant which they wish to implement and offer. From either of the methods, the objective is to provide the best match between the local population needs and the restaurant offerings in order to achieve greater sales and profits.
Finally, it is warranted to present some barriers which restrict location choices. Prewitt (2004) lists down some of the common barriers faced by restaurateurs. First of all, cost factors greatly limit choice. It is narrated here that any restaurant spending more than 8% of its sales revenue on rental costs is likely to have a tough time generating profits. Next the quality of the workforce available is another issue. There could be great locations available but then the restaurateur has to incur expensive costs to train local workers up the expected standards of serving or pay high transportation allowances to attract workers from other further localities. Certain areas, the local community might up resistance to prevent restaurants from locating for example if they serve alcohol and play music and are open till late nights. In other locations, the local government might by sluggish and slow in processing things while infrastructure might be poor or there could be prolonged public works and repairs in the area.
The report will now present recommendations to our client on relocation and amended operations decisions.
Recommendations to overcome current challenges
From the above literature review, several conclusions regarding the current location of Al Reem can be made. First of all, by locating away from competition, it has not been able to attract customers which prefer to go where there are many competing restaurants located next to each other and this is exactly the point made by Stys (2006) when he suggested to follow the market (Arabic restaurants on main Bukit Bintang road doing well while Al Reem away from them and not doing well). Next it seems Al Reem located as a fine-dining restaurant targeting upper income crowd is a mismatch in that area since customers have consistently claimed dissatisfaction with the higher prices being charged. Meanwhile, visibility, accessibility and parking issues are also considerable here since customers complained about inconvenience in reaching the restaurant and it was extensive advertising which actually informed people about the existence of Al Reem. Thus, the report will recommend relocation for Al Reem.
Speaking in terms of relocation, following Katz (2010) literature, here we already have a concept, style and menu of the restaurant ready. So using the second method of Katz restaurant location research, we need to find a suitable location which provides the best match between the restaurants offerings and the local population characteristics. We’ll use the straightforward simple three-stage process of selecting the location decision as advocated by Ghosh and McLafferty (1987).
For the first process, Al Reem is without much deliberation recommended to locate in Kuala Lumpur and its nearby adjacent areas. This is primarily because it is KL and its nearby areas which have a high influx of foreign population as well as a lot of international influence amongst the locals. Thus, foreign food such as Arabic which is not very common in East Asia stands a better chance to do well in this area. Besides, this urban area reflects some of the highest income earnings in the country as well as expenditures on food and drinks in this city is also quite high. Other than that, Al Reem already has established contacts with suppliers and workforce in the area and has done extensive marketing here. So they have some brand recognition and therefore relocating some other place elsewhere would mean a complete start up from scratch which could be very costly.
For the second stage of specific area selection, Al Reem is recommended to adopt the ‘follow the market’ strategy; that is locate where all other competing restaurants are located nearby. This is suggested on two grounds; first being evidence in literature of this being the popular new trend amongst customers and second practical observation of Arabic restaurants located next to each other attracting huge amounts of customers. In Kuala Lumpur and its immediate surrounding areas, there are only two streets famous for having several Arabic restaurants located next to each other and therefore attracting lots of crowds who specifically wish to have Arabic cuisine. One is on main Bukit Bintang Road and the other one is on Jalan Damai which is off Jalan Ampang (Dyvallion, 2010). Thus Al Reem has a choice between these two locations. Let’s analyze further.
In terms of customers, the restaurants at Bukit Bintang attract commonly two sorts of customers as distinguished by White (2004): residential and others. As a result, the Arabic restaurants here are closed during lunch hours and open early evening onwards. The location in Jalan Damai attracts all three sorts of customers including lots of commercial/working customers from nearby hospitals, embassies, shopping malls and there is also a strong delivery/takeaway customer base and these restaurants supply lunches/dinners for parties, events, offices, etc. Therefore, they are also open during the afternoon lunch hours. From this perspective, Jalan Damai location has advantage.
In terms of costing, the locations in Bukit Bintang road are very costly and compact. This is due Bukit Bintang being one of the most popular areas in Kuala Lumpur which attracts huge amounts of customers. Jalan Damai is a much cheaper option and the restaurant spaces available are also much larger. However, the numbers of crowds attracted in the area are not as high as Bukit Bintang. But then again, all people attracted towards Jalan Damai are genuine customers for Arabic food who make an effort to go there. In terms of costing, again Jalan Damai will be given the advantage.
Speaking in terms of visibility, Bukit Bintang is by far better place then Jalan Damai, since Jalan Damai is off the main road of Jalan Ampang. Therefore, Al Reem is definitely expected to get much more visibility by people by locating in Bukit Bintang and so the advantage is given to this location. Also in terms of accessibility, again Bukit Bintang scores an advantage as there are several modes of public transport access to the place while Jalan Damai is only accessible by taxi or 10-15mins walk from the nearest public transport stop. But then Jalan Damai has more signage and parking facilities since Bukit Bintang is congested and parking and signage opportunities are limited. Other issues such as labour, local community, infrastructure government rules, etc are same between the two locations and so do not pose any problems.
After reviewing everything above and more importantly including the results from the SWOT analysis, the report recommends that Al Reem should locate in Jalan Damai. There are several reasons for this. Firstly, since the objective of Al Reem is to be classified as a fine-dining restaurant, Jalan Damai suits it as people who frequent that area are upper or middle income class people who drive in with their cars. These customers are also loyalists to Arabic food who make special efforts to come to the area particularly for the cuisine. Since Al Reem provides traditionally made Lebanese food which has been accepted to be good in taste by previous customers, this location can offset several of the earlier mentioned weaknesses: High price; Parking Space, Location Disadvantage. Lack of public transportation should also not be an issue as customers are people having their own means of transport and would like parking facilities and don’t mind the high prices. This way, Al Reem also does not have to compromise on its restaurant objectives of a fine-dining restaurant by having to lower its prices and therefore quality of service. Also it can cover up for lower customer numbers and visibility in the area by catering to more lunch and events orders and providing efficient delivery services. Finally, greater emphasis has to be placed on customer loyalty and positive word of mouth publicity.
For the weaknesses of inefficient service and long serving times, it can make use of modern I.T. equipments to overcome these challenges. Possible solutions include having an online ordering system where customers can access the full menu and place an order in advance and indicate what time they would like to be served. The system will then alert the chef regarding the order who can plan in advance. At the tables itself, modern systems can be introduced which have button systems in place that on pressing alert a waiter which table needs serving and so there is no need to try hard to get an attention of a waiter. The kitchen can still retain its traditional cooking methods but provide alternate arrangements which can make the experience of customers more pleasant. To divert attention of customers from the long waiting times, live music or other sorts of entertainment aspects such as televisions can be set up.
Overall, with the above strategies and recommendations, the weaknesses and threats of Al Reem can be overcome and the strengths and opportunities can be capitalized upon.
This report was designed to evaluate the operational challenges being faced by Al Reem Lebanese Grill Restaurant and to suggest it strategies to overcome location and operative inefficiencies. The report made use of extensive literature from the restaurant and other retailing industries to analytically evaluate the mistakes being made by Al Reem at its current location and accordingly present a suitable alternative for it to relocate and create better fortunes for itself.
Evidence to support the recommendations is based on literature results and other observations in practical context when findings from literature were applied in the specific case. For example, when literature suggested that customers for food like to go into locations where there are many competing restaurants together, this was observed in our case here in competing locations of main Bukit Bintang Road and Jalan Damai. Furthermore, the literature findings and suggestions made use of in this report stem since as early as 1980s till as recent as the year 2010. Thus, the recommendations are considered highly feasible.
However, caution still needs to be taken by the owners of Al Reem as both the internal and external industry conditions keep changing. Thus, there has to be continued review of strategies in place and monitoring of internal and external changes and how it impacts the restaurant. As Theodoridis and Benison (2009) commented that several successful restaurants and retailed outlets eventually go bankrupt as they fail to account for changes in their competitive and operational conditions. Therefore, the report ends with caution against complacency.
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