Feasibility Study for Fast Food Restaurant

I would first like to thank Mrs Sumaira Hamid for giving us the opportunity to conduct this project which has enabled me to understand fast food restaurants more closely and thus it defiantly increases my knowledge about the subject. I would also like to thank my friends, as without their cooperation this project would not have been completed.

Executive summary

This project is purely based on economic and financial analysis. Here I have conducted a feasibility study for a fast food restaurant. I have tried to cover all the aspects, economically related and financially related to the proposed project. There are two main parts in this project. first one is the pre-feasibility study and second is feasibility study. In the first part I have analyzed the scenario in the sector and market potential. In the second part I have tried to cover the financially related aspects of the project.

Introduction

Definition of fast food:

Inexpensive food, such as hamburgers and fried chicken, prepared and served quickly.

Food prepared and served quickly.

A fast food restaurant is the one that after ordering supplies food quickly and with minimum service. Generally all restaurants are characterized as fast food restaurant. The food in these restaurants is pre prepared and kept warm. The food is produced in a huge quantity. There are some fast food restaurants, which even don’t provide sitting area to its costumers.

Main characteristics of a fast food restaurant

The main aim of fast food outlet is to focus on consumer convenience. The increasing number of outlets clearly states the demand of consumer for fast food in the country. The company increases its accessibility by increasing number of outlets. The concept of free home delivery and take away has increased the sales, a major increase has been seen in satellite outlets such as airports, railway stations, gas station etc.

The fast food is popular among consumer for several reasons. Some of them are as following;

• Deliver food to costumer at a low price.
• Accessibility for consumer.
• Good reputation for cleanliness.
• Fast service.
• Child friendly atmosphere.
• Break from routine cooking.

Another aim of fast food restaurant is to decrease the cost and time consumed for food consumption. The rise in population, employment and increasing work schedule has increased the value of time. Thus our economy is increasingly becoming service oriented. Fast food industry is becoming an important part our life. In these scenarios fast food industry will grow with a moderate speed. Fast food industry is becoming an important part our life.

Scrotal analysis

Fast food industry is very popular in Pakistan, as many international fast food chains like K.F.C, McDonalds, Pizza-hut, Subway, etc are based here. These international corporations cater to high income segment and modify their menu according to the taste of their potential consumer. These international chains are not the only source of fast food in the country. Many local chains (AFC, Bryani express, cock and bull, Lahore brost) has been developed over time, to give a good competition to these international chains by lowering their prices and hence increasing their sales by catering middle income and low income level consumers.

The behavioral change in food consumption among people has attracted many international organizations. Fast food industry in Pakistan insures a promising return. It has shown impressive progress in the past, and will continue in the future. The presence of international organization operating in the region is a clear shade of investment opportunity in the country. The

Market of fast food industry in Pakistan has a room for many more. With the little help of government, much more can be done attract more international organization, or to bring up the local ones.

Presence of SME

Small and Medium Enterprises (SMEs) play a pivotal role in giving necessary impetus to employment generation, GDP growth and poverty alleviation and hence have been recognized increasingly all over the world. Although the performance of SME sector in Pakistan is quite encouraging, however due to some inherent and structural weaknesses and problems, its access to credit from the formal sector has been inadequate. The analysis of quality of loan portfolio reveals that, the quality of SME loans has improved over the year in this sector.

List of some popular fast food restaurants in Pakistan

• McDonalds
• Pizza Hut
• KFC
• Subway
• Nandos
• Al Baik
• Al-Najam Fried Chicken [50]
• Arizona Grill
• Chicken Cottage
• Gino’s
• Mr. Burger
• PapaSallis Pizza
• A&W
• Papa John’s
• Pizza Express
• Pizza Next
• Domino’s
• Dunkin Donuts

Investment opportunity

As the value of time in Pakistan is increasing day by day due to hectic work schedule, people are trying to save their time from any mean they can, and thus are becoming increasingly service oriented. Fast food industry gives a good opportunity to save their time by providing fast and healthy food to its costumers. The food service industries that offer the highest levels of convenience have, been rewarded with strong sales growth. The value of consumer time, as well as the demand for consistent, high-quality food products, will continue to shape the fast food industry. Fast food is becoming an increasingly significant part of the young generation’s diet. The role of convenience in this dietary shift cannot be over-emphasized, and the future growth of the rest of the food service industry will be driven in large part by its ability to find new ways to save consumers’ time.

Another important fact is the increase in food consumption due to increase in population. Considering these factors, investment in fast food restaurant is a good opportunity

There are some critical important factors, which if acted upon properly will provide a promising investment opportunity.

Identify goals and ways to measure them.

Adjustments according to change in consumer habits.

Implementation system and ensure consistency of operation.

Points of difference that enables them to dominant their market nitch.

Consistency of quality and service, and operating systems and management procedure.

Menu selection and pricing.

The specific location within your target area.

Conduct market survey.

In depth investigation

Pakistan, currently ranked as 6th in terms of total population, is characterized by a high Population growth rate of 1.9% (Pakistan Economic Survey 2005) and is set to take the top Three positions in terms of total population with already 153.4 Million people registered in 2005. With this, the per capita income has increased to US$ 736 while the productive age group (15 to 64) years is said to take the major chunk of population (67% of total population) by 2020.

The growth rate in food consumption is also augmented by the rapid increase in the employment rate for males / female population aging between 20 to 29 years (fast food goers) hence the greater income contribution to the overall income generated is expected to be higher.

The growth in

Risks

There are certain risks involved in this sector. Some of them are stated below.

Increase in pieces of raw material.

Political instability

Change of trend in consumption pattern.

Required machinery and other equipment

The quality of food is highly affected by the technology used in its production. The machinery required for production of fast food products is easily available in international market as well as in local market. It is up to the owner weather to purchase expensive branded ones or the cheaper ones. This decision depends on the question “how much importance the owner gives to the quality of food being served to the consumer?”. As fast food industry is growing day by day, so is the technology being used in it.

Branded equipment (first hand and second hand) is available in the market. The minimum delivery time required is three months, if ordered through an internet vendor. There are also re-conditioned machines available in the market. Some outlets, before closing their business sell their machinery at low cost.

Maintenance of machinery is very important for maximum quality and long life of the equipment. The machine requires routine cleaning, maintenance and annual service.

We will use new machinery with latest technology in our project. This would help us in producing good quality food products, high efficiency, low labor and operating cost and would reduce human errors. The machinery required for the plant is easily available in local market, so all the purchases will be done locally. Local purchases would help us in clams of default piece, would prevent us from high transportation costs and government taxes and would reduce our time to start the project.

Raw material

The raw material required for the production in a fast food restaurant is easily available locally. In every city there is a local market from where these material are easily available at cheap prices. Thus the raw material for the proposed project will be purchased from the city local market .the list of raw material is given bellow with their nit prices, total units required and total cost.

Items

Quantity

Per unit or per kilogram price

Total price

Eggs

100

50

5,000

Sugar

70

30

2,100

Spices

250

300

75,000

Flour for batter

100

70

7,000

Chicken

1000

115

115,000

Meat

400

250

100,000

Beef

400

150

60,000

Cheese

300

250

75,000

Oil

400

100

40,000

Sauces

250

200

50,000

Corn

50

80

4,000

Carrot

50

15

750

Cabbage

60

20

1,200

Tomatoes

70

24

1,680

Onion

100

18

1,8000

Lettuce

60

15

900

Total

539,430

Human resource

Hiring right employee for the right job dose not only contributes to your sales but also creates a good image in the sight of consumer. There are several categories of personnel in the restaurant business: manager, cooks, servers and cleaners. The manager is the most important part of any organization. The manager for the proposed project should be skilled, should know about the area, supplies buying sources and most importantly should know about the buying behaviors of customers. At initial stage of a restaurant five people are required to carry out the work at kitchen. Another important part of a restaurant is servers. The servers will have the most interaction with customers, so they need to make a favorable impression, work well under pressure and meeting the demands for customers.

Land requirement for the project

The outlet of a fast food restaurant should be in such place where the traffic of its potential costumer is maximum. In the distribution of land for different areas in a restaurant, it is recommended that the largest part should be donated to the dining hall and second preference should be given to kitchen. The land requirement in our project is 4475 sq.ft. The area should be populated and should have proper utilities and facilities.

The construction cost totally depends on the size of land the amount of work to be done on it. In our project the construction requirement in different parts of the restaurant is different. For example construction cost for kids playing area would be lower than construction cost for waiting area, as less has to be done in waiting area as compared to dining area.

Location

The location chosen for the required project is “JOHER TOWN MAIN BUALIVORD”.The traffic of potential costumer is maximum there .the construction of micro shopping mall and Pakistan trade center would bring a huge wave of potential costumers

Rent

The rent at Johet Town Main Boulevard for a double storied building is 125,000 per month.

Plant capacity

The area required for this restaurant is 4500 sq feet. The seating arraignment is for 100 people. There are 25 dieing tables, and four people can sit on one table. The total management in the restaurant comprises of 23 people. Ten people can be seated at the waiting lung. Hence in total, the restaurant can shelter up-to 130 to 140 at a time.

Utilities

Assumptions

Rent increases by 5% after every year.

Salaries increase by 2% after every year.

Residual value is zero.

Capital utilization differs in four years, and remains constant afterwards.

Debt-equity ratio is 50-50.

Straight-line method is used for depreciation.

Current interest rate is 20%..

Tax rate is 20%..

150 people visit the restaurant every day.

Average purchase amounts RS.120.

Do-ability of the project

The proposed project can show high returns. the project perfectly sets to the changing patterns of the country. If the gets good reorganization among its potential costumers, the project can show amazing result, and can prove a good investment for the investor.

Comparative advantage

As the demand for fast-food increases, the prices increase with it. The only comparative advantage is that, the owner will offer low prices to the costumers. This would increase its sales.

ACCABILITY OF THE PROJECT

As shown, that the NPVs and IRRs calculated above are negative in most of the cases, except the resource statement. This shows that the project is not acceptable. On the other hand if the revenues assumed above are increased, the returns will increase, and thus will end up with positive NPV. This can be done by proper marketing of the restaurant.