Feasibility Study Essay
Fast food chains have grown at an incredible rate over the past couple of decades. There seems to be a McDonald’s or Burger King on every street corner. Fast food offers people in a rush an inexpensive way to grab food whenever they want. In the United States, fast food restaurants accounts for 46.7% of the total food service industry while sit-down restaurants have 39.3% (Bureau of Labor Statistics, 2009). This forces sit-down restaurants to target a different market, people that are looking for pleasure and a relaxing experience. The food services industry is considered to be the most known industry in the world. Sitdown restaurants typically offer full menus, which include appetizers, entrees, sides, desserts, and all types of beverages including alcohol. Most restaurants will have a host or hostess that will greet a person as they walk in and show them to the table that they will be sitting at for the duration of their meal. Sit-down restaurants typically will have trained chefs to cook and prepare the meals and servers that will completely take care of any needs that there will be while eating at the restaurant (Bureau of Labor Statistics, 2009).
It is important to have honest and hard working servers at a sit-down restaurant to ensure that people will have an enjoyable time at their establishment. If a restaurant has a unique reputation then the customers will come back time after time. For a restaurant to have a loyal customer group, it must be able to serve the customers with high quality food and service. The restaurant must also have different things that differentiate itself from other sit-down restaurants. Instead of just getting a bite to eat at a fast food chain, a person can go to a restaurant and enjoy him or herself with family and friends for an extended amount of time. The restaurant experience should become a form of entertainment for the customers. Some restaurants also offer a bar, which fast food chains do not. At a bar, people can come in and drink a few beers while watching a sports game on television. At night, the bar area can become a place for people to relax or enjoy themselves with some dancing.
Many college age people like to spend a little time at a bar to relieve stress and to dance. With two colleges in the area and an increase of tourism within the past decade, Tacloban City would be a logical place to open a new restaurant. Tacloban is a city in Leyte and has been revamping its image to attract more people to the downtown area. The city has been growing in population with many new housing tracks recently built along with those under construction. The city is considered a beach town with many people visiting the beach every spring and summer. There is also a large amount of foot traffic in the downtown area as well as near the mall and the major schools.
The problem with opening a new restaurant is being able to establish the business, while differentiating itself from others. A restaurant should be in a recognizable area which can be used as a landmark. In order to do so, the restaurant must find a theme and a strong following of customers. With the right marketing, good service, good management and strong financial information, a new restaurant can be a great business to start up. In order to open a restaurant, the owner should know the consumer characteristics of the area. For a restaurant to do well there must be people willing to spend money. That is why knowing the area’s workforce is important.
Ventura has a strong work force with only 4.5% of the population being unemployed who are over the age 16. The city’s largest work industry is educational services, health care and social assistance which is at 21%, followed by professional, scientific, management, administrative and waste management services at 12.3%, retail trade at 11.8%, arts, entertainment, recreation, accommodation and food services at 10.1% and manufacturing at 7.8%. Some of the most prominent occupations of people that live in Tacloban City are management, professional, and related occupations at 38.8%, sales and office occupations at 25.7% and service occupations at 17.2% (U.S. Census, 2009)
* Is opening a sit-down restaurant in downtown Ventura feasible?
A new restaurant in downtown Ventura will have a demand of at least 50% of the people surveyed. The new restaurant also will be able to cover its everyday operating expenses as well as its start-up cost while still making a profit.
1. To assess the feasibility of a sit-down restaurant in Ventura. 2. To conduct a survey to determine the interest of a new restaurant. 3. To determine the target market for a new restaurant.
A feasibility study for a sit-down restaurant in Tacloban City will be beneficial to anyone who would like to open a sit-down restaurant in downtown Tacloban City, as well as Palo due to the similar demographics throughout Tacloban City. The study will also be helpful to anyone who would like to open a fast food restaurant in the area because of the analysis of the desirability of the location of the new restaurant. The analysis of the amount of people that go downtown in Tacloban City will be able help other entrepreneurs that plan on opening a small business because the study will give them the knowledge of how many people go downtown on a regular basis which can give them an idea of how many potential customers they may have. This study will also help people planning to open a restaurant in an area with similar demographics as Tacloban City.
II. MARKETING STUDY
Opening a restaurant takes a lot of time and effort to be successful. One of the most important things to know when assessing the target market for a restaurant is who the competition is. The competition can range from fast food chains all the way to a high-class sitdown restaurant. Many people are in a rush at times or are too tired to cook for the family after work, which drives them to dine out. These people then have to decide if they want inexpensive fast food or go to a sit-down restaurant to be serviced.
That is why it is so important for restaurant owner to know who the target market is. Fast food restaurants target people in a hurry and that want an inexpensive meal, while sit-down restaurants target people that are there to take their time and be provided with good service (Brown, 1990). When assessing the competition Debruyne and Reibstein (2005) found it is important to know the technology and services that the competition has so that a company can keep up with them. Debruyne and Reibstein (2005) also went on to say that companies should consider approaches to avoid attracting competition to a new market. That is why having employees that can be trusted with company secrets is very important.
Analysis of Potential Profit
There are many things that need to be taken into consideration when projecting a company’s potential income. The location of a restaurant can have a large effect on the amount of income that a restaurant obtains, which is why finding a good location for a restaurant is important (Coats, 1986). The better the location, the more people will know about it and want to stop in. Having a restaurant in a place where foot traffic is heavy can be beneficial to the restaurant’s success because people walking down the street could see the restaurant and decide to stop in and eat. In order to see how much money could be made, a business should develop projected financial statements so they can see how much the business would cost to run the restaurant (Newman, 2008). Besides projecting income and expenses, there are many other things that a restaurant owner should take into consideration when trying to figure out if the restaurant will be profitable.
Sweasey (1987) found a restaurant had a better chance of being profitable if it has a creative menu. This is very important for a sit-down restaurant because potential customers could order food from a well-known place like Domino’s Pizza, or a McDonalds. The key to success would be to offer many different types of food that would be unique to a particular restaurant. Another thing that indirectly affects a restaurant’s potential income is the relationship that the employees have with their managers (Davis, Schoorman, Mayer and Tan, 2000). Their study found that trust between management and employees can affect the restaurant financially because employees are willing to work harder for a manager that they can trust. A restaurant’s profit can also be affected by inventory control.
Archibald, Betts, Johnston and Thomas (2002) stated that for a new business to survive it should be conservative with their inventory. This is very important with restaurants because there are many types of foods and ingredients that can go bad if not used in a short amount of time, which causes the restaurant to lose money from having to waste their inventory. The price of items on the menu is also very important according to Becker (1991). He found if prices of food are too high then customers will feel that they are being treated unfairly, which will keep them from coming back to the restaurant. It is important for a restaurant to have consistent customers because they will help bring in new business by telling others how good the restaurant is.
City of Tacloban
People that know the area and the interest of the people in the area tend to have more success operating a restaurant than people that do not know the area. Tacloban City is continually growing with new housing tracks recently built and some currently being constructed. The city is also rising in popularity and marketing towards becoming a tourist destination. Tacloban City has 3 large high schools and a junior college. Tacloban City restaurants also receive business from Channel Island students who live on campus and near campus that just want to get away from their area and eat somewhere nice.
Tacloban City also attracts people to its downtown area with many places to shop and eat. Downtown seems to be a good location for a new restaurant because of the heavy foot traffic throughout the week. The city also has a shopping mall near downtown, which attracts even more people to the area. Tacloban City is known as a beach town as well, which helps bring more tourists to the city. A restaurant near the beach could be a good location assuming that people will see the restaurant on the way to the beach.
III. TECHNICAL STUDY
Procedures for Data Collection
To determine if a restaurant will be feasible, a projected income statement must be made to figure out if expenses will be covered and if profits can be made. This will be done by going to different restaurants and talking to the owners and managers about the financial aspects of the restaurant along with how to run the operation smoothly. If the owners decide not to provide the financial information needed, then research online for standard restaurant financials will be collected. There will also be a survey made to determine Tacloban City demographics, and personal interests. The survey will be given out at random at mostly downtown Ventura.
Two other places that the survey will be given out is at Leyte Normal University and Eastern Visayas State University. The survey will be administered for about four hours at each location The survey will also provide information about the type of food that should be on the menu and finding out if people would rather go to a dive bar or dance club at night. The survey can also be used to determine what type of theme the restaurant should have. One other thing that will be used from the surveys is to determine the target market so that the restaurant can be marketed to those that would be most likely to try the new sit-down restaurant in Tacloban City.
Procedure for Data Analysis
When the financial information is obtained, the data will be analyzed and provide projected numbers for a new sit-down restaurant.Once the projected financial statements are made, there will be several tests to see if the restaurant will survive and be profitable. Once the survey is completed, the information will be analyzed in SPSS. Using the information from the collection of data will create a better understanding of the restaurant market in downtown Tacloban City.
The analysis should show an accurate description of the individuals who represent the population of Ventura. The data will show the people that like to go downtown, what age groups there are, their education level and income level. The data from the surveys should be able to show who the target market is for restaurants in downtown Ventura. Overall, the information that is obtained from the survey should be able to show an accurate target market and interest for a new restaurant in Tacloban City.
This study assumes that Tacloban City economy will remain stable and the growth rate of the city will remain consistent. The study also assumes that the observations conducted will be an accurate measurement of the desirability of restaurants in Tacloban City.
The study that was conducted will be helpful to other cities in Leyte, but the actual analysis of the target market will be solely for Tacloban City due to the unique demographics of the city.
IV. FINANCIAL STUDY
DEVELPOMENT OF STUDY
Surveys can be a great tool to find out information from consumers. They can show the interest of the people, who the target market is and the demographics of the area. The survey was distributed mostly in downtown Ventura do to the heavy foot traffic of the area as well as the potential location of the new restaurant. 118 responses were collected and then analyzed in SPSS. The following charts and analysis will show the results of the survey conducted. The first question asked how many times a month a person eats at a restaurant. It is important to know how often people like to eat at a sit-down restaurant because the people that go out to eat often will be more likely to actually try a new eating establishment. The majority of responses were 1-3 times a month at 36% and 4-7 times a month at 32%.
Only about 2% of the responses said that they never eat at a restaurant. The next question asked how often the individual went to the downtown area of Tacloban City? Knowing how often people go downtown is essential because the more foot traffic an area has the more likely someone is willing to stop in and check out a new business. The largest response was 0-3 times a month; however 52% of surveyees said that they do go downtown at least 4 times in a month. On average, how many times each month do you eat at a sit-down restaurant?
When the respondents were asked what their favorite restaurant in Ventura was, 35% of the respondents answered Aloha Steak House and 25% said Andria’s Seafood Restaurant. When asked how likely the respondent would be to try a new sit-down restaurant in Ventura, 32% said they would certainly try it and 52% said that there was a good possibility they would try a new eating establishment. Only 2% of the respondents said that they would not be willing to try the restaurant out. People willing to try a new restaurant are the most important people to market towards. These individuals can become loyal customers and even help thebusiness out by telling others about the restaurant. What is you favorite restaurant in Ventura?
The next question asked how many people lived in their current household. This response was spread out with the three largest responses being four people at 25%, three people at 22% and two people at 21%. People tend to eat in groups, whether it’s with family, friends, roommates or even co-workers. Most people are likely to bring members of their household with them while eating at a restaurant, which increases sales. This information can help when determining whom the target market will could be.
This next question asked how desirable the social atmosphere, reasonable prices, variety of food, time food takes to be ready and service at a restaurant or bar is.? The averages were 3.93 for social atmosphere, 4.3 for reasonable prices, 3.84 for variety of food, 3.87 for time food takes to be ready and 4.5 for service. These attributes are important to know in order to have the right type of atmosphere, employees and management style needed for the establishment to succeed. When the people surveyed were asked what publications they read at least once a week? 59% said that they preferred to read the Philippine Daily Star. This information is critical when deciding where to advertise. Establishing a new business’s name is one of most difficult things to do, which is why knowing where reach the public to advertise is important.
The next question asked the type of music the respondents liked to listen to? Rock and roll had the highest response and next was hip-hop and rap with 54% with 37%, respectively. Knowing the type of music people prefer to listen to can help when advertising by having announcements on radio stations with that type of music. The type of music the surveyees like to listen to can also be helpful when determining the music that will be played at night in the bar area of the restaurant. The next question asked if people would rather go to a dive bar or dance club at night. Over 60% said they would rather go to a dive type of bar atmosphere that consumers like at night is important for a restaurant owner to know.
This will help drive in more customers at night, which may increase the amount of sales. Knowing the type of bar atmosphere that consumers like at night is important for a restaurant owner to know. This will help drive in more customers at night, which may increase the amount of sales. The following question asked the individuals where they would most like to see another restaurant. 47% said that they would like to see a new restaurant downtown with 35% saying Main Street would be the best location in the downtown area. The next two places people would like to see a restaurant open at would be near Century theaters or near LNU which were both at 20%. The location of the restaurant is vital to its success.
Location of new restaurant
People want to eat where they often are at on a regular basis. Many people go downtown, and Main Street is the street with the most traffic of people. The place with a lot of foot traffic will not only be a great place for the shoppers that want to eat, but also employees of other businesses that need to eat something on their break. Knowing people also would like to see a restaurant near Century Theaters and LNU can be helpful if the restaurant owner ever wanted to expand and open up a new location. Further analysis was conducted using crosstabs in SPSS. Critical questions where compared to other questions to reveal specific behaviors of potential restaurant customers. This analysis can give a more precise showing of the preferences and atmosphere of restaurant people are willing to try.The most useful information from these tests were discovering the respondent’s preferences who responded that they would certainly or have a good possibility of trying a new restaurant in Tacloban City.
The following crosstabs used in the analysis of the survey are significantly valid using chi-squared testing. Of the people who indicated they would be likely to try the new restaurant, 80% said they eat at a restaurant 1-3 or 4-7 times a month. Of the 15% of respondents that said they go to a restaurant 12-15 and 16-20 times a month, 89% of them said that they were likely to try a new restaurant in Tacloban City (P = .027). When comparing people that like American food to people that like ethnic food, 79% of people that like American food said they would like to see a dive bar over a dance club (P = .035). Due to the individuals’ preference of a dive bar over a dance club, traditional American food would be an excellent choice of food for the menu. The menu should also be broad and have a bit of variety to it in order to attract more customers. This is why the menu should also include Mexican and Italian entries due to the high preference according to the survey results.
Although not many surveyees reported that they were in the downtown area often, 81% of them still responded they would like to try a new restaurant in Ventura (P = .077). These people may not go down town on a regular basis, but they can still be a great resource to advertise by word of mouth. They may eventually try the place out and then tell their friends and family about the business. Although not significant valid, as far as gender goes, 80% of men that were surveyed said that they would be likely to try a new restaurant establishment and 86% of women said that they would (P = .433). This information can be useful in determining the target market for the new restaurant. When examining the survey results to help determine the target market of a newrestaurant in Ventura the following results were found.
When comparing males and females, females make up the majority of respondents who make $60,000 to $80,000 (69%) and over $80,000 (51%) (P=.787). When looking at how many people live in the household for women the highest response were two people with the next being five people in the household (P=.177). These results were close to the target market that MRI, Inc had in their database, which will be discussed in the following chapter. A projected income statement can be helpful when trying to determine if the restaurant has the ability to be successful. The income statement can also be used to help run the business properly and help the owners and managers be efficient at their job. The following income statement in Table 1 was based off Food Service Warehouse’s (2006) website of a sample restaurant’s income statement for a week in Greenwood Village, CO. All numbers were then multiplied 52 to give the financial information for the year as a whole. This information was adjusted using the rent as a base number to determine the rest of the expenses as well as the revenue.
Rent typically goes for $2 a square foot in downtown Ventura. An efficient restaurant size of 4,000 square feet was used to determine that rent would cost $96,000 a year. Further adjustments were made to incorporate the start-up cost of a restaurant, which is in the range of $300,000 to $500,000 (Rainsford and Bangs, 2001). The number used in this study was $300,000. After the first year was constructed, the revenues and expenses where increased by 2% due to inflation for the next two projected years. Changes in the income statement that are not held in consistency with the example income statement given were the equipment and repairs expense for the first year which includes the start-up cost along with a $5,000 projected repairs expense. The next year only included the repair expense with respect to the number used for inflation.
To determine the interest expense, an amortization schedule in Table 2 was made based on a five year, $300,000 loan with a 7% interest rate for the start-up cost of the company. Advertising and promotions expense where also added to the income statement do help promote the restaurant’s name, which is essential in the first few years of operation. A depreciation expense was added in to account for equipment and supplies. The depreciation expense was 28calculated by using the straight-line method for five years on the $165,920 for equipment and supplies.
The number used for depreciable assets was calculated by taking the initial start-up cost and then subtracting any items that are not depreciable. A miscellaneous expense of $1,000 was also added in case of unforeseen costs that may occur throughout the year. A break-even analysis in Table 3 was then performed to determine how many meals would have to be sold to cover expense. The unit price was based on an average projected meal cost of $11 for the first year and then adding in inflation rates for the next two years. The number of meals that would need to be sold for the first three years to break-even would be 70,403, 42,770 and 42,416, respectively.
29 Income Statement
Projected Income Statement
Sales| Year 1| Year 2| Year 3|
Food| 483, 487| 485, 166| 505, 028|
Wine| 70, 668| 72, 081| 73, 523|
Liquor| 58,488| 60, 678| 61, 871|
Beer| 126, 464| 128, 88| 131, 573|
Beverages| 3,744| 3, 817| 3, 875|
Total Sales| 742,860| 758, 737| 773, 812|
The data that was collected and analyzed from the 118 surveys collected proves the hypothesis to be correct by showing that people have a strong interest of trying a new restaurant Tacloban City. The hypothesis was also proven to be accurate through the projected income statement by showing that after the first year, the restaurant would start making a profit with the following years increasing in net income. The desirability of a new eating establishment by the people of Tacloban City appears to be high with 84% replying they would be likely try out a new restaurant. People who responded to the survey said service is the most important attribute of a restaurant which means the time of day staffing is most important would be from 11:00am to 2:00pm for lunch and 5:30pm to 8:00pm for dinner.
The days of the week that more staff then usual would be needed is on Saturdays and Sundays due to the large amount of people that like to eat at restaurants and go downtown on these days. The target market for the restaurant according to MRI, Inc (2010) which was close to the results of the survey analysis are Caucasian women, who have attended or graduated from college, 25 to 54 years old who are employed full time in sales and office occupations or professional and related occupations, with an income of $80,000 or more and three to four people living in the household.
The best type of restaurant in respect to the results of the analysis would be a traditional American food restaurant with a section of the menu being dedicated to ethnic food mainly including Mexican and Italian food. The type of bar the restaurant should have at night should be a dive bar with a mixture of rock and roll, hip-hop and rap playing in the background. The average price for a meal should be around $11. The location of the restaurant should be downtown and preferably on Main Street nearplaces to shop. Possible places to expand would be near Ventura College or by Century Theatres. The best way to advertise for the bar would be running ads in the Ventura County Start newspaper or on radio stations and internet radio stations that play rock and roll or hip-hop and rap.
This study shows that opening a new sit-down restaurant would be feasible in Tacloban City but further research of consumer trends of Tacloban City could be done to have a more accurate desirability of the restaurant market in Ventura. It would also help to have a strong background and work experience in the sit-down restaurant industry. Contacting and obtaining more financial information from restaurant owners or managers would also be helpful when conducting the financial analysis.
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University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 22 December 2016
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