Feasibility Analysis Report on Opening a Pizza Hut Restaurant Company - Case Study Example

BUSINESS DECISION MAKING Contents BUSINESS DECISION MAKING 1 Feasibility Analysis Report on Opening a Pizza Hut Restaurant Company Outlet near Coventry University Campus 3 1.3.Questionnaire 7 Dear Sir/Madam 7 We are conducting the study as part of carrying out a feasibility analysis on opening a Pizza Hut near the Coventry University. The purpose of the survey is to study the 7 “Feasibility Analysis Report on Opening a Pizza Hut Restaurant Company Outlet near Coventry University Campus”. 7 We would be grateful if you filled up this questionnaire: 7 Q1.How many times do you usually go to restaurant in a month? 7 Once Twice Thrice 4 times More than 4 times 7 Q2. What is the reason for going to a restaurant? 7 Family Engagement party Birthday party for enjoyment Others (specify)…………….. 7 Q3. What factors attract you to go to a restaurant? (tick in the boxes) 7 Q4. 8 How much do you spend on an average per visit? (tick in the boxes) 8 Q5. If Pizza Hut Restaurant Company opens up an outlet with the above mentioned features/attributes then, will you eat in the outlet? Yes ( ) No ( ) 8 Q8. Will you be free to eat at Pizza Hut Restaurant. Yes ( ) No ( ) 8 Q9. At what time will you be eating at the Restaurant. Morning ( ) Lunch Time ( ) Supper Time ( ) 8 Q10. Will you encourange other people to eat at Pizza Hut Restaurant. Yes ( ) No ( ) 8 Q11. If the food will be sold at high cost, will you eat at Pizza Hut Restaurant and not the cheapest restaurant. Yes ( ) No ( ) 8 Q12. What kind of gender will you like to be served by at Pizza Hut Restaurant. Male ( ) Female ( ) 8 Q13. Do you think Pizza Hut Restaurant will progress in the region. Yes ( ) No ( ) 8 Q14. How frequent will you be visiting the restaurant. Freequently ( ) Rarely ( ) Occationally ( ) 8 Q15. What is your age? 8 Less Than 18 ( ) 18-25 years ( ) 25-35 years ( ) 35-45 ( ) Greater Than 45 years ( ) 8 Name……………………… 8 Mobile No……………………… 8 Physical Address…………… 8 Sales of the pizza hut are expected to increase annually at the rate of 14% with the cost of raw materials projected to increase at 9%. Increase in the student population and upward review of the menu charges are expected to drive the sales up. To calculate the gross revenue of the Pizza Hut, billing rate per customer willed or appli be used. Table 8 below shows the expected sales breakup contribution. 12 Revenue stream 12 Total Revenue Contribution 12 Take away 12 21% 12 Dine in 12 58% 12 Home delivery 12 21% 12 Total revenue 12 100% 12 The above projections are based on the assumption that the minimum cost of order is $10. Delivery cost is standard at $4 per order within the university. For home delivery and take away orders, an addition 2% of added cost will be charged due to packaging material used (Katsigris and Thomas, 2008, p. 23). 12 Graph 1: Showing Future Projections of Sales Growth in the Next 5 Years 12 13 3.1.Table 4: How Much Students Spend per average visit in a Pizza Hut 13 Percent 14 Valid percent 14 Cumulative percent 14 Yes 14 180 14 90 14 90 14 9 14 No 14 20 14 10 14 10 14 100 14 Total 14 200 14 100 14 100 14 14 Analysis of figure above 5: - majority of the students at 86% replied affirmatively that they would visit the new pizza hut if establiAd. The positive response means that the Pizza Hut if established will succeed (Fullen, 2005, p. 1). 14 Project Investment 14 Table 6 shows the projected total cost of the project. 15 Items 15 Cost 15 Working capital 15 $42,000 15 Advance rent 15 $25,000 15 Equipment and machinery 15 $35,000 15 Construction cost 15 $40,000 15 Assorted dinning and office furniture 15 $19, 500 15 Preliminary expenses 15 $12,000 15 Total 15 $142,000 15 Proposed Menu 15 Pizza 15 Price 15 Non-Vegetarian Menu 15 Chicken Mexicano 15 $20 15 Spicy Chicken Magic 15 $20 15 Vegetarian Menu 15 Paneer & Spice 15 $14 15 Veg Spicy Twist 15 $14 15 Farm Hut 15 $14 15 Italian Treat 15 $14 15 Mushroom & Corn Delight 15 $10 15 New items such as pasta and French fries will be introduced to the existing product line as sales pick up (Mullin, et al., 2007, p. 115). 15 Recommended Project Parameters 15 The manager will be overseeing the overall running of the pizza hut. He/she is required to process and also check invoices, bills and maintain records. The cashier will only be receiving cash but the drawer for control purposes will be under the manager (Baraban and Durocher, 2010, p. 299). 16 Taxation 16 Tax rate applicable for the business is the same as of sole proprietorship. The assumption is that the tax rate is the same as of a salaried individual (Walker, 2007, p. 72). 16 Critical Path Analysis for the Project Plan 16 Task 16 Period 16 Dependent on 16 A 16 Write a business plan 16 6 weeks 16 A 16 B 16 Consider target clientele 16 1 week 16 A 16 C 16 Apply for local licenses and permits 16 1 week 16 A 16 D 16 Hire and train staff 16 8 weeks 16 A, B &C 16 E 17 Devise menu 17 3 days 17 A, B, C &D 17 F 17 Lay out interior design of the restaurant 17 5 weeks 17 A, B, C & E 17 G 17 Advertise in local media 17 3 days 17 A, B, C, D, E &F 17 H 17 Organise a concert for the opening occasion 17 1 day 17 A, B, C, D, E, F &G 17 CPM diagram 17 Bibliography 17 Baraban, ‎R. & Durocher, J. 2010. Successful Restaurant Design. New York: John Wiley & Sons. Page 299 17 Fullen. S. 2005. “Opening A Restaurant Or Other Food Businesses Starter Kit: How To Prepare A Restaurant Business Plan & Feasibility Study Ocala,” F1: Atlantic Pub. Group 17 Katsigris, C. & Thomas, C. 2008. Design and Equipment for Restaurants and Foodservice: A Management View. New York: John Wiley & Sons. 18 Melaniphy, R. 1992. “Restaurant &fast food site selection” New York, NY: John Wiley & Sons, Inc. 18 Mullin, ‎B., Hardy, ‎S. & Sutton, W. 2007. Sport Marketing - Volume 13. New York: Human Kinetics. Page 115 18 National Restaurant Association. 1998. Retrieved from https://restaurant.org/tools/magazines/rusa/magArchive/.../article/ 18 Walker, J. 2007. The Restaurant: From Concept to Operation. New York: John Wiley and Sons. Page 72 18 Feasibility Analysis Report on Opening a Pizza Hut Restaurant Company Outlet near Coventry University Campus On the response to a request by Pizza Hut Restaurant Company, the business and management consultancy firm I work for was hired to carry out a feasibility analysis for them to open up an outlet close to the Coventry University campus. I was assigned to lead the study and present the finding in two months. Pizza Hut Restaurant Company is a Restaurant chain in America that is renowned for offering pizza packages of different styles. It also offers salads, buffalo wings, garlic breads and pasta. Results of this analysis will be used to decide whether the project will be executed or not (Walker, 2007, p. 73). A Pizza Hut Restaurant Company outlet is an ideal outlet to start near the campus due the high demand of fast food by students. A huge population of the campus also make a business idea viable. In particular, the analysis will enable the investors understand the purpose of the study, methods to be used or applied in data collection, analysis and presentation. They will also understand the survey methodology and sampling frame used in the analysis. Growth forecast of the business will be estimated, and trend lines included in the analysis to enhance the forecasts (Baraban and Durocher, 2010, p. 298). 1.1. Literature Review To determine whether the idea of opening up a Pizza Hut Restaurant Company outlet near the campus is viable, both primary and secondary sources were reviewed. Primary Sources Primary sources were reviewed by use of questionnaires in order to determine the different dimensions exhibited by students while choosing a restaurant. The questionnaire was also designed to collect information that would be used to understand the wants and needs of customers in this market segment. The first section of the questionnaire aims to collect data on: the students’ monthly frequency of eating out, reasons for eating out, factors that attract them to eat out and average spending when they eat out. The questionnaire also aims at finding out if the students would eat at the pizza hut if it is established (Mullin, Hardy and Sutton, 2007, p. 115). Secondary Sources Secondary sources reviewed were extracted from the internet and articles from magazines. To study the feasibility steps that an individual can use while setting up a restaurant of a food outlet, an article by National Restaurant Association (1998) was reviewed. The article was extracted from their website and divides feasibility study of the restaurant into four major steps. The steps or procedure to be followed are: first, identify the area where to set the business and gather the demographic data on the population such as income, gender and age (Fullen, 2005, p. 1). Second step is developing a concept whereby data on the area population is used to determine the preferences and area needs of the customers. The third step comprise of analysing the site in order to determine whether the site characteristics and environment will support the business idea. The last step involves analysing the competitor by use of an analysis worksheet in order to determine their strengths and weaknesses (Melaniphy, 1992, p. 1). The second material reviewed under this category is an article by Melaniphy (1992, p. 1) titled ‘Restaurant and Fast Food Site Selection’. The author discusses on how to select a market area According to the author, market area is an area from which a unit can capture about 85% of the business it is operating. The author concludes and indicates that it is not difficult for an established food outlet to obtain information about its market area. They can use surveys to gather information about where the customers come from. For a proposed pizza hut, it is not difficult to obtain the market area since information is available about the customers. Most customers will be students and visitors mostly on academic visits to the university. Hence, the market area will be static and stable, and the business can be set around the students needs (Melaniphy, 1992, p. 2). The third material to be reviewed will be an e-book retrieved from the internet and titled ‘Restaurant Market Analysis’. This author discusses the importance of a thorough analysis of the market before setting up a business. The book also emphasises on the significance market conditions can have on the profitability of the business. For the pizza hut project, the local market strength will determine the number of customers served daily, and the prices charged on the menu. The potential of the Pizza Hut can be analysed as guided in the e-book due to better investment decisions being made (Walker, 2007, p. 72). According to Fullen (2005), the demographic profile of the customers should be determined as well as their spending habits in the identified market area. The consumers’ demographic profile is a major determining factor as to whether the pizza hut will be opened. To come up with the demographic profile, Fullen recommends that it should include the market area total population, working women, population age, income level, employed person, family and housing structure. To make any decision about the Pizza Hut, age and income distribution are the most important considerations (Walker, 2007, p. 74). The author has identified these two factors as contributing greatly to how people eat out. To determine the eating habits of the targeted population, National Restaurant Association came up with guidelines. These are, 8 years or older people do eat out 4.1 times in a week. Couple with no children eats out mostly as compared to a couple with children. While with an increase in income, people eat out more often, and people in the age group of 18-24 years are more likely to eat out than other age groups. However, the targeted consumers for this project are student who eats out due to their settings. To come up with the spending habits of the consumers and also the population profile, a survey will be carried out in the university. This survey is necessitated by the lack of official figures from the university or the government about students’ consumer habits of in Coventry University (Katsigris and Thomas, 2008, p. 24). 1.2. Survey Methodology and Sampling Frame Observational research method was used to collect data to be used in the feasibility study. Data collected regarded site selection, feeding habits of the students and menu to be presented. Information about operation hours and the mean check price was also collected. A sample size of 200 respondent selected randomly was used. Participants were recruited from the campus through friend referrals. Identified participants were given the questionnaires to fill out after which they were to be collected back after a period of two weeks (Walker, 2007, p. 72). 1.3. Questionnaire Dear Sir/Madam We are conducting the study as part of carrying out a feasibility analysis on opening a Pizza Hut near the Coventry University. The purpose of the survey is to study the “Feasibility Analysis Report on Opening a Pizza Hut Restaurant Company Outlet near Coventry University Campus”. We would be grateful if you filled up this questionnaire: Q1.How many times do you usually go to restaurant in a month? Once Twice Thrice 4 times More than 4 times Q2. What is the reason for going to a restaurant? Family Engagement party Birthday party for enjoyment Others (specify)…………….. Q3. What factors attract you to go to a restaurant? (tick in the boxes)   Strongly Agree Agree Neutral Disagree Strongly Disagree Brand Name Location Visibility Accessibility Theme (ethnic, regional etc.) Ambience Service Quality Price Hours of operation Q4. How much do you spend on an average per visit? (tick in the boxes)  Cash Spent Frequency Up to $20 $20-50 $50-80 More than $80 Q5. If Pizza Hut Restaurant Company opens up an outlet with the above mentioned features/attributes then, will you eat in the outlet? Yes ( ) No ( ) Q8. Will you be free to eat at Pizza Hut Restaurant. Yes ( ) No ( ) Q9. At what time will you be eating at the Restaurant. Morning ( ) Lunch Time ( ) Supper Time ( ) Q10. Will you encourange other people to eat at Pizza Hut Restaurant. Yes ( ) No ( ) Q11. If the food will be sold at high cost, will you eat at Pizza Hut Restaurant and not the cheapest restaurant. Yes ( ) No ( ) Q12. What kind of gender will you like to be served by at Pizza Hut Restaurant. Male ( ) Female ( ) Q13. Do you think Pizza Hut Restaurant will progress in the region. Yes ( ) No ( ) Q14. How frequent will you be visiting the restaurant. Freequently ( ) Rarely ( ) Occationally ( ) Q15. What is your age? Less Than 18 ( ) 18-25 years ( ) 25-35 years ( ) 35-45 ( ) Greater Than 45 years ( ) Name……………………… Mobile No……………………… Physical Address…………… 2.1. Results and Data Analysis To analyse market potential and spending habits of consumers, a number of statistical tools were used. The Statistical Program for Social Sciences or SPSS version 15.0 was used. Factor analysis was used due to the likert nature of the questions answered by the respondents. Statistical techniques such as line graphs, bar charts were used to present the information. Table 1: Showing the Number of the Number of Times the Students Visit a Pizza Hut in a Month   Frequency Percent Valid Percent Cumulative Percent Valid Once 20 10 10 10 Twice 38 19 19 29 Thrice 31 15.5 15.5 44.5 Four times 45 22.5 22.5 67 More than four times 66 33 33 100 Total 200 100 100   Analysis of figure 1 above: - 33% of the respondents frequent a Pizza Hut more than four times in a month, 10% once in a month, 19% twice in a month, 15% three times in a month and 23 % four times in a month. 2.2. Table 2: Reasons for Students Going To a Pizza Hut   Frequency Percent Valid Percent Cumulative Percent Valid family 20 10 10 10 Engagement party 8 4 4 14 Birthday party 12 6 6 20 For enjoyment 150 75 75 95 Other 10 5 5 100 Total 200 100 100   Analysis of figure 2 above: - most of the respondents at 76% responded to going to a Pizza Hut for enjoyment, 5% go for other reason, 10% go to a Pizza Hut for family reasons, 4 % for engagement parties and 6% for birthday parties (National Restaurant Association, 1998, p. 1). 2.3. Factor Analysis Table 3: Factors That Attract Students to Visit Pizza Huts   Strongly Agree Agree Neutral Disagree Strongly Disagree Brand Name 48 58 21 64 5 Location 42 8 14 132 1 Visibility 45 37 15 81 19 Accessibility 70 36 19 74 1 Theme (ethnic, regional etc.) 43 45 14 68 25 Ambience 46 51 12 84 5 Service 101 74 6 8 10 Quality 111 75 3 2 6 Price 87 89 8 4 5 Hours of operation 78 89 4 19 9 Analysis for table 3 above: the students identified quality, service and cost of eating as the three main factors attracting them to eat out.v Tueyvisobility,nsider lo andation, ambility as the least factors that they consider when making the choice to eat out. This can be attributed to the fact that students have scarce resources as they are funded by parents and sponsors. 2.4. Revenue and Cost Projection Sales of the pizza hut are expected to increase annually at the rate of 14% with the cost of raw materials projected to increase at 9%. Increase in the student population and upward review of the menu charges are expected to drive the sales up. To calculate the gross revenue of the Pizza Hut, billing rate per customer willed or appli be used. Table 8 below shows the expected sales breakup contribution. Revenue stream Total Revenue Contribution Take away 21% Dine in 58% Home delivery 21% Total revenue 100% The above projections are based on the assumption that the minimum cost of order is $10. Delivery cost is standard at $4 per order within the university. For home delivery and take away orders, an addition 2% of added cost will be charged due to packaging material used (Katsigris and Thomas, 2008, p. 23). Graph 1: Showing Future Projections of Sales Growth in the Next 5 Years 3.1. Table 4: How Much Students Spend per average visit in a Pizza Hut   Frequency Percent Valid percent Cumulative percent Up to $20 99 49.5 49.5 49.5 $20-50 31 15.5 15.5 65 $50-80 35 17.5 17.5 82.5 More than $80 35 17.5 17.5 100 Total 200 100 100   Analysis of figure 4 above: - most of the students at 49% spend an average of up to $20 when they t in a pizza hut. 15% of the students spend $20-50 wherever thevisit s pizza, 18% spend $50-80 and 18 % spend more than $80 in a single visit to a pizza hut. This calls for the pizza hut being established to have a menu targeting the low spenders who form half thee university’s population (Melaniphy, 1992, p. 1). 3.2. Table 5: showing the students response on whether they would visit the new pizza hut if established Frequency Percent Valid percent Cumulative percent Yes 180 90 90 9 No 20 10 10 100 Total 200 100 100 Analysis of figure above 5: - majority of the students at 86% replied affirmatively that they would visit the new pizza hut if establiAd. The positive response means that the Pizza Hut if established will succeed (Fullen, 2005, p. 1). Project Investment Table 6 shows the projected total cost of the project. Items Cost Working capital $42,000 Advance rent $25,000 Equipment and machinery $35,000 Construction cost $40,000 Assorted dinning and office furniture $19, 500 Preliminary expenses $12,000 Total $142,000 Proposed Menu Pizza Price Non-Vegetarian Menu Chicken Mexicano $20 Spicy Chicken Magic $20 Vegetarian Menu Paneer & Spice $14 Veg Spicy Twist $14 Farm Hut $14 Italian Treat $14 Mushroom & Corn Delight $10 New items such as pasta and French fries will be introduced to the existing product line as sales pick up (Mullin, et al., 2007, p. 115). Recommended Project Parameters Capacity Human Resource Equipment Location 180 Customers per day 14 Local Near Coventry University Financial Summary Project Cost IRR NPV Payback Period Cost of Capital (WACC) $142,000 58% $299, 054 3.2 years 19.5% Human Resource Requirement Human resource requirement for the project is as shown in table 7 below. Designation Number Manager 1 Kitchen supervisor 1 cooks 3 Servers 4 Take away cashier 2 Dish washer 1 Guard (12 hour) 1 The manager will be overseeing the overall running of the pizza hut. He/she is required to process and also check invoices, bills and maintain records. The cashier will only be receiving cash but the drawer for control purposes will be under the manager (Baraban and Durocher, 2010, p. 299). Taxation Tax rate applicable for the business is the same as of sole proprietorship. The assumption is that the tax rate is the same as of a salaried individual (Walker, 2007, p. 72). Critical Path Analysis for the Project Plan Task Period Dependent on A Write a business plan 6 weeks A B Consider target clientele 1 week A C Apply for local licenses and permits 1 week A D Hire and train staff 8 weeks A, B &C E Devise menu 3 days A, B, C &D F Lay out interior design of the restaurant 5 weeks A, B, C & E G Advertise in local media 3 days A, B, C, D, E &F H Organise a concert for the opening occasion 1 day A, B, C, D, E, F &G CPM diagram Bibliography Baraban, ‎R. & Durocher, J. 2010. Successful Restaurant Design. New York: John Wiley & Sons. Page 299 Fullen. S. 2005. “Opening A Restaurant Or Other Food Businesses Starter Kit: How To Prepare A Restaurant Business Plan & Feasibility Study Ocala,” F1: Atlantic Pub. Group Katsigris, C. & Thomas, C. 2008. Design and Equipment for Restaurants and Foodservice: A Management View. New York: John Wiley & Sons. Melaniphy, R. 1992. “Restaurant &fast food site selection” New York, NY: John Wiley & Sons, Inc. Mullin, ‎B., Hardy, ‎S. & Sutton, W. 2007. Sport Marketing - Volume 13. New York: Human Kinetics. Page 115 National Restaurant Association. 1998. Retrieved from https://restaurant.org/tools/magazines/rusa/magArchive/.../article/ Walker, J. 2007. The Restaurant: From Concept to Operation. New York: John Wiley and Sons. Page 72 Read More