198 food feasibility

8/2/2019 198 Food Feasibility

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Pre-Feasibility Study

FFAASSTT FFOOOODD RREESSTTAUAURRANANTT

Small and Medium Enterprise Development Authority

Government of Pakistan


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Government of Pakistan

Pre-Feasibility Study Fast Food Restaurant

DISCLAIMER

The purpose and scope of this information memorandum is to introduce the subject matter

and provide a general idea and information on the said area. All the material included in

this document is based on data/information gathered from various sources and is based on

certain assumptions. Although, due care and diligence has been taken to compile this

document, the contained information may vary due to any change in any of the concerned

factors, and the actual results may differ substantially from the presented information.

SMEDA does not assume any liability for any financial or other loss resulting from this

memorandum in consequence of undertaking this activity. Therefore, the content of this

memorandum should not be relied upon for making any decision, investment or otherwise.

The prospective user of this memorandum is encouraged to carry out his/her own due

diligence and gather any information he/she considers necessary for making an informed

decision.

The content of the information memorandum does not bind SMEDA in any legal or other

form.

DOCUMENT CONTROL


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11 PPRROOJJEECCTT PPRROOFFIILLEE

11..11 PPuurrppoossee ofoftthhee DoDoccuummeennttss

This document is developed to provide the entrepreneur with potential investmentopportunity in setting up and operating a medium sized fast food restaurant offering avariety of food items to the general public. This pre-feasibility gives an insight into variousaspects of planning, setting up and operating a fast food restaurant for the generalpopulace. The document is designed to provide relevant details (including technical) tofacilitate the entrepreneur in making the decision by providing various technological as

well as business alternatives. The document also allows flexibility to change variousproject parameters to suit the needs of the entrepreneur.

11..22 PPrroojjecectt BBrriieeff

Fast food is food which is prepared and served quickly at outlets called fast-foodrestaurants. It is a multi-billion dollar industry which continues to grow rapidly in manycountries. A fast-food restaurant is a restaurant characterized both by food which is

supplied quickly after ordering, and by minimal service. The food in these restaurants isoften cooked in bulk in advance and kept warm, or reheated to order. Many fast-foodrestaurants are part of restaurant chains or franchise operations, and standardizedfoodstuffs are shipped to each restaurant from central locations. There are also simplerfast-food outlets, such as stands or kiosks, which may or may not provide shelter or chairsfor customers. Because the capital requirements to start a fast-food restaurant are relativelysmall, particularly in areas with non-existent or medium income population, smallindividually-owned fast-food restaurants have become common throughout Pakistan.

Generally restaurants, where the customers sit down and have their food orders brought tothem, are also considered fast food.

11 33 OppOppoorrttuniunittyy RaRattiioonnaallee


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Consumers want to combine meal-time with time engaged in other activities, such asshopping, work, or travel, therefore allocating less time for food, hence the growing need

for fast food.

11..44 TThhee FFaasstt FFoodood IIndundussttrryy

The fast-food industry is popular in Pakistan, the source of most of its innovation, andmany major international chains are based there. The presence of multinational fast foodchains like McDonalds, KFC, Pizza Express, Pizza Hut, Subway etc. have somewhatcatered to the high income segment therefore developing a niche as upscale fastfood

restaurants. Multinational corporations such as these typically modify their menus to caterto local Pakistan tastes and most overseas outlets are owned by native franchisees to ensurethat cultural, ethnic, and community values are taken care of.

Additionally, multinational fast-food chains are not the only or even the primary source offast food in most cities of Pakistan. Many regional and local chains have developed aroundthe main cities of Pakistan (for example Khan Broast in Karachi) to compete withinternational chains and provide menu items that appeal to the unique regional tastes and

habits at comparatively low costs. In Pakistan, multinational chains are considerably moreexpensive; they usually are frequented because they are considered chic and somewhatglamorous and because they usually are much cleaner than local eateries. However muchof the middle-income segment (which forms a major chunk of fastfood goers) prefersvisiting local outlets that offer low cost fast food, hence more frequent visits.

11..44..11 IInnccrreeaassiingngNNumbumbeerrofofFFaassttFFoodoodOuOutltleettss

The rapid rate at which the fast food industry continues to add outlets is as much areflection of consumer demand for convenience as it is a reflection of demand for fast fooditself. Expanding the number of outlets increases accessibility, thus making it moreconvenient for consumers to purchase fast food Especially in recent years much of the


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Multinational Fast food chains like McDonald's rapidly gained a reputation for theircleanliness, fast service and a child-friendly atmosphere where families on the road could

grab a quick meal, or seek a break from the routine of home cooking. Prior to the rise ofthe fast food chain restaurant, people generally had a choice between greasy-spoon diners(kiosk) where the quality of the food was often questionable and service lacking, or high-end restaurants that were expensive and impractical for families with young children.

Modern, stream-lined convenience of the fast food restaurant provides a new alternativeand appealed to consumers' instinct for ideas and products associated with progress,technology and innovation.

Fast food restaurants have rapidly become the eatery "everyone can agree on", with manyfeaturing child-size menu combos, play areas and whimsical branding campaigns, designedto appeal to younger customers. Parents can have a few minutes of peace while childrenplayed or amused themselves with the toys included in the premsises.

Many consumers see multinational fast food restaurants as symbols of the wealth, progressand well-ordered openness of Western society and therefore become trendy attractions in

many cities around Pakistan, particularly among younger people with more varied tastes.

11..44..33 FFooccuussiingngonon CCononssumumeerrCCononvevenniieennccee

Fast Food outlets tend to focus on the work while you eat philosophy similar to theMcDonald Outlet at Quaid e Azam Internation Aiport (Karachi) wherein seating space isalso available for passengers in transition or the KFC outlets in large shopping malls likethe Millenium Shopping Mall in Karachi promoting the concept of Shop While You Eat.

11..44..44 IInnccrreeaassiingngMMaarrkekettffororFFaassttFFoodoodTThehePPopuopullaatitiononBBoomoom

P ki t tl k d 6th

i t f t t l l ti i h t i d b hi h


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Popu lati on Pyr a m id 1998 & 2020*

*Population Census Organization; Population Projections 1998-2023, Planning Commission; NIPS

11..44..55 TTheheFFuuttuurree ofofttheheIIndundussttrryy

The Pakistani economy is becoming increasingly service-oriented, and over the pastseveral decades, the foodservice industries that offer the highest levels of conveniencehave been rewarded with strong sales growth. In the face of rising population, incomes and

increasingly hectic work schedules, a nearly insatiable demand for convenience willcontinue to drive fast food sales. Fast Food Outlets will strive to find ways to make theirproducts even more accessible.


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of the rest of the foodservice industry will be driven in large part by its ability to find newways to save consumers time.

11..55 KKeeyy SuSucceccessss FFaaccttoorrss // PPrraaccttiiccaall TTipipss ffoorr SuSucceccessss

Whether you are opening a one-of-a-kind restaurant or trying to grow your existingrestaurant into a multi-unit chain, there are winning principles that can help shape yourrestaurant and improve its chances of succeeding.

i) Conceive the Winning Conce p t

A well-defined concept stands a much better chance of long term success thansome vague notion. To start, it is wise to first set specific goals and decide on theways you will measure your restaurants success.

ii) Longetivity

This can be described as the art of being able to maintain success over time whileadjusting to meet the changing demands and buying habits of the customer. To

open a restaurant successfully and become profitable is one thing, but to maintainthat success over a long period of time is winning.

iii) Consistency

To not simply open a restaurant, but to truly develop a winning concept requiresimplementing systems and procedures to ensure consistency of your operation.

iv) Market Appeal

All restaurants want to be busy but winning concepts seem to have a broad appeald ll d l d i f diff h bl h d i h i


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items that are competitively priced in the marketplace. Menu pricing is a verytricky task because you need to price items so that you can operate profitably and,

just as important, offer your targeted guests a good price/value relationship.

vii) Selecting P rime Location

The specific location within your target area also is critical. If you are situated in aninfrequently traveled area no where near complimentary businesses or at the backof a mall, you limit your earning potential. Even if you are the only outlet in townyou must gauge the likelihood of outsiders visiting your restaurant. If the restaurant

is right off of a major freeway heavily traveled by truckers and road trippers youmay be highly successful despite a remote location.

viii) Mar k et Research

This is probably the most critical factor for running a successful fast foodrestaurant. You need to visit fast food outlets, franchises and other chains to seehow your concept would fit into the neighborhood you are planning to target.

Talk to customers to know their preferences, some detailed meetings withrestaurant managers / owners over dinner would do the trick in obtaining bestpractices and critical information that otherwise could have been overlooked.

Keep in mind that because a concept works in one area does not mean it will bewell-received by customers in your location. Tastes are subject to locationpreference and more often target market. In high scale urban areas (like PECHS,KDA etc.) you are more likely to be successful with a niche concept than in a densemiddle income areas (like Gulistan e Jauhar). Another thing to consider iscompetition. If your market is saturated with similar restaurants and the populationmay not be large enough to support more restaurants, you may want to rethink your


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22 OOPPEENNIINNGG AA SSUUCCCCESSESSFFUULL

RREESSTTAURANAURANTT

From burger stands to barbeque steakhouses more and more restaurants are popping up incities every day. Since restaurants are such a common business venture, people must enjoyrunning them. However, all of those advantages come at a price - building a restaurantfrom scratch is not an easy task. It is a hard and expensive process, and the reality is thatmany restaurants fail in their first year of business due to improper planning. But restassured, there are ways to reduce the risk of becoming another statistic. Following aresome of the handy tips that can help run a successful fast food establishment.

22..11 HHowow ttoo SSttaarrtt aa RReessttaauurraanntt??

22..11..11 WWoorrkkiinn aaRReessttauaurrantant

One of the best ways to reduce the risk of owning a failed restaurant is to have somerestaurant experience before you start. Many successful restaurateurs have said that thebest way to prepare for owning a restaurant is by working in one, hopefully in an eatery

similar to one you'd like to open. You'll learn more than just how to serve food with asmile; you can learn restaurant marketing, menu development, payroll, and othersignificant components of the restaurant world. Working in the restaurant industry andlearning the basics is an important first step to becoming an owner.

22..11..22 KKnnooww YYourourTTaarrggeettMMaarrkekett

Who do you see eating at your restaurant? Are you targeting the family crowd, teenagers orseniors? Knowing your target market before you start planning will not only help you

solidify your menu; it will help determine your location, dcor and the overall atmosphereof your restaurant. A family-style restaurant, which caters to parents and their kids, maynot appeal to seniors. On the other hand, an upscale, quiet restaurant offering a two-hourdining experience wouldn't be appealing to teenagers or families with small children.


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financial information and projections; a description of the target market; the menu andpricing; equipment and employee details; advertising and marketing plan; and a potential

exit strategy.22..11..55 CrCreeaattee ttheheMMeenunu andandnotnotaa mmeenunu

The menu can make or break a restaurant, and should be in accordance with the overallconcept of the restaurant. Revisit the business plan to make sure the menu is attractive tothe target market, is affordable within specified budget, and complements the restaurant'sdesign concept. For example, if the restaurant is family-friendly, you will need a kidsmenu. If it is supposed to be an upscale establishment, a lot of thought will have to go into

the dessert list.

22..11..66 CChoohoossee aaLLooccaatitionon &&LLaayyoutout

It is important to find a location that has a continuous stream of traffic, convenient parking,and is in proximity to other businesses (especially if you're catering to the lunch crowd). Itis necessary to revisit the business plan to make sure you are close to your target market. Ifyou are opening a fast food restaurant, it may not be the best idea to open it in the vicinityof upscale homes but preferably near flats. In addition, make sure that the monthly rent is

in-line with the business plan's projected profit so that you do not become building-poor.

Once you find your location, the layout and design of the interior should be taken intoaccount. You should already have a concept of your restaurant in your business plan; bringthis concept into the design of the dining room. When designing your kitchen area, thinkabout what's on your menu in order to determine what is needed for the food preparationarea.

22..11..77 GGeettittingngttheheAApppprropoprriiaatteeFFundundiingngThe business plan will help you recognize how much money you will need to start yourrestaurant. If you are unsure about how much money you will need upfront, talking toother restaurant owners can help you project your expected start up costs There are


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and responsibilities. In addition, find out what other restaurants are paying their employeesso that you can be competitive in the job market, without spending too much on payroll.

However try linking your payroll with the bottom line and see how much money can besqueezed out for the employees.

22..11..1010 AAddveverrtitissee &&MMaarrkekett

Every business needs a comprehensive marketing plan, and restaurants are no exception.After determining your marketing budget, price out billboard advertising, flyers innewspapers, and local cable TV advertising. Ask your customers how they found out aboutyou, so that you can record where your advertising and marketing money are best spent.

Opening up food stalls and setting up tasting booths at local neighborhood events orhaving an event at the restaurant benefiting a students / event, can be an inexpensive wayto achieve positive word-of-mouth.

22..22 CChhoooossiningg aa LLooccaattiionon

Not every food-service operation needs to be in a retail location, but for those that dodepend on retail traffic like fast food outlets, here are some factors to consider when

deciding on a location:

Anticipated sales volume. How will the location contribute to your sales volume? Accessibility to potential customers. Consider how easy it will be for customers

to get into your outlet. If you are relying on strong pedestrian traffic, considerwhether or not nearby businesses will generate foot traffic for you.

The rent-paying capacity of your business. If you've done a sales-and-profitprojection for your first year of operation, you will know approximately how much

revenue you can expect to generate, and you can use that information to decide howmuch rent you can afford to pay.

Restrictive ordinances. You may encounter unusually restrictive ordinances thatmake an other ise strong site less than ideal


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History of the site. Find out the recent history of each site under considerationbefore you make a final selection. Who were the previous tenants, and why are they

no longer there? Terms of the lease. Be sure you understand all the details of the lease, because it's

possible that an excellent site may have unacceptable leasing terms. Future development. Check with the local planning board to see if anything is

planned for the future that could affect your business, such as additional buildingsnearby or road construction.

22..33 DDececidinidingg onon tthhee LLayoayouutt

Layout and design are major factors in your restaurant's success. You'll need to take intoaccount the size and layout of the dining room, kitchen space, storage space and counter.Typically, restaurants allot 40 to 60 percent of their space to the dining area, approximately30 percent to the kitchen and prep area, and the remainder to storage and office space.

Dining area. This is where you'll be making the bulk of your money, so don't cutcorners when designing your dining room. Visit restaurants in your area and

analyze the dcor. Watch the diners; do they react positively to the dcor? Is itcomfortable or are people shifting in their seats throughout their meals? Note whatworks well and what doesn't.

Much of your dining room design will depend on your concept. It will help you to knowthat 40 to 50 percent of all sit-down customers arrive in pairs; 30 percent come alone or inparties of three; and 20 percent come in groups of four or more.

To accommodate the different groups of customers, use tables for four that can be pushedtogether in areas where there is ample floor space. This gives you flexibility inaccommodating both small and large parties. Place booths for four to six people along the

ll


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22..44 DDeessiiggninningg && DDececoror

Since customers ultimately drive restaurant design trends, many of your restaurant design

ideas will come from your clientele. Successful restaurant design ideas are bred with anunderstanding of the types of experiences your customers are looking for and the promiseyour brand has made to them. You may know what types of menu items they crave, but doyou know what kinds of restaurant design ideas create an atmosphere that will welcomethem time and time again?

Step One: The restaurant designers process begins with a thorough understanding

of the eaterys menu, location, customers, architectural preferences and lightingconcerns. More than just a design powwow, the restaurant designers processincludes budget considerations, timelines and coordination with city officials tosecure necessary building permits.

Step Two: The most effective restaurant design considers the flow of waiter stafffrom the kitchen to the dining area or from the dining area to the restrooms. Therestaurant designers process contemplates the overall circulation within the

restaurant for maximum efficiency

Step Three: With the floor plan in hand and a concept in mind, the next stage inthe restaurant designers process is interior design. Sketches may depict colorschemes, furniture placement, window treatments, artistic lighting and otheraspects of the ambiance. This is also the part of the restaurant designers processwhere we consider paints, wallpapers, foliage and artwork.

22..55 CCrreeaattiningg aa MMeennuu

Though menu variety has increased over the years, menus themselves are growing shorter.Busy consumers don't want to read a lengthy menu before dinner; dining out is a


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The speed of product delivery; the size of the engine, a casual or formal atmosphere, andnumbers of patrons you want to accommodate will all factor in to the amount of space you

need for your restaurant. The goal is trying to maximize the number of patrons one canserve, out of the smallest most efficient back-house possible.

22..77 HiHirriningg tthhee RRiigghhtt EEmmpplloyoyeeeess

Choosing employees who will do a good job is not only important to the success of yourbusiness, but will also contribute to the image of your establishment, provided they areproperly trained.

There are several categories of personnel in the restaurant business: manager, cooks,servers, busboys, dishwashers and cleaners. When your restaurant is still new, someemployees' duties may cross over from one category to another. For example, your serversmay double as the cleaners. Be sure to hire people who are willing to be flexible in theirduties.

Manager / Owner. The most important employee in most restaurants is the

manager. The best candidate is you or a person who has already managed arestaurant or restaurants in the area and will be familiar with local buying sources,suppliers and methods. The manager should have leadership skills and the ability tosupervise personnel while reflecting the style and character of the restaurant.

Chefs and cooks. When you start out, you'll probably need three cooks - two fulltime and one part time. But one lead cook may need to arrive early in the morningto begin preparing soups, bread and other items to be served that day. One full-timecook should work days, and the other evenings. The part-time cook will help duringpeak hours, such as weekend rushes, and can work as a line cook during slowerperiods, doing simple preparation. Cooking schools can usually provide you with


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22..88 AA GGoodood FFaasstt FFoodood RReessttaauurraanntt EExxppeerriieennccee

Based on some surveys conducted with fast food goers following are some of the factors

that contribute to a good fast food experience:

Location

Characteristics

Welcome

Food server

Food.

Environment (parking, restrooms, lighting). Dessert Variety

Smile factor.

Time factor.

Profit factor (beverages offered, dessert menus presented).

Measuring good service is subjective, but generally what is expected from a server whenreviewing restaurants.

The server should greet diners within 3 minutes of their being seated.

The server should neat and clean.

The server should not be too chatty or familiar.

The server should know the menu and be able to answer questions.

The server should bring drinks within 3 minutes of being ordered.

The appetizer (if any) should be served within 5 minutes of ordering.

Entrees should be served within 20 minutes of ordering. Water or beverage glasses should be refilled regularly.

The server should silently survey the table and assess our needs without constantlyinterrupting to ask "Do you need anything else?"


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Application for registration and determination of fair rates shall be made to the controllerin Form G together with a certificate of medical fitness in Form I from a registered

medical officer of the civil hospital in respect of the staff of the restaurant.

For registration of a restaurant, the owner of the restaurant is required to conform to thestandard of health, hygiene and comfort which standards have been set out in Schedule IIof the act.

On receipt of application, the controller will carryout inspection of the aforementionedpremises and once satisfied will initiate the registration process. Once registered the owner

of the restaurant will apply to the controller for license as per the Act which needs to berenewed on a yearly basis for the prescribed fee.

22..1010 PPrroojjecectt IInnvveessttmmeenntt

This section will provide the total cost of the project.

Item Cost (Rs.)

Construction Cost (all inclusive) 1,307,000

Dining & Office Furniture 542,250

Equipment & Machinery 967,000

Advance Rent 1,200,000

Preliminary Expenses 50,000Working Capital 1,036,000

Total 5 102 250


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22..1111 PPrrooppoosseedd PPrrooduducctt MMiixx

The proposed project is assumed to provide customers with a variety of fast food items as

outlined in the following menu:

BroastChicken Broast (Qtr.)

Price

65ChineseHot & Sour Soup (2 Servings)

Price

75Chicken Broast (Half) 125 Hot & Sour Soup (4 Servings) 140Chicken Broast (Full) 250 Chicken Corn Soup (2 Servings) 75

Chicken Corn Soup (4 Servings) 140Burgers Price Plain Rice 40Chicken Burger 50 Chicken Fried Rice 80

Chicken Cheese Burger 55 Vegetable Fried R ice 60Beef Burger 40 Egg Fried R ice 70Beef Cheese Burger 45 Beef Fried Rice 80Zinger Burger 80 Beef Chilli (w/o rice) 75

Chicken Chilli (w/o rice) 85

SandwichesChicken Sandwich

Price

55 French Fries (per plate)Price

25Egg Sandwich 40 Cole Slaw 15Beef Sandwich 45 Soft Drinks (Large) 50

Club Sandwich 80 Soft Drinks (Regular) 15

Based on the above the fast food restaurant can offer low cost combo meals to itscustomers for increased value. Following are the proposed combo deals that can be furthermodified to meet increasing demand:

Combos

Combo Deal 1

Items

Zinger Burger / French Fries / Regular Drink

Price

105Combo Deal 2 Chicken Broast (Qtr.) / French Fries / Regular Drink 90Combo Deal 3 Chicken Burger, Broast (Qtr.), French Fries, Regular Drink 135Combo Deal 4 Club Sandwich / French Fries / Regular Drink 105


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One important factor to consider here is that the entrepreneur must have the requisite skillsto decide on whether to introduce a new product line (like Barbeque, Pizza) or add a new

item to the existing product line both of which might require the purchase of additionalkitchen equipment. Hence the experience of the entrepreneur will play an important role indetermining the course of action.

22..1212 RRececoommmmeendndeedd PPrroojjecectt PPaarraammeetteerrss

Capacity Human Resource Equipment Location

300 Customers perday

21Local / American /

ChineseMiddle Income

Level Area

Financial Summary

Project Cost IRR NPV Payback PeriodCost of Capital

(WACC)

Rs. 5,102,250 57% Rs. 13,076,676 2.5 Years 17.5%

22..1313 PPrrooppoosseedd LLooccaattiionon

The recommended area for the proposed business setup will be in a densely populatedmiddle income area (for example Gulistan-e-Jauhar, Karachi). The main reason for such alocation is the presence of target market and customer traffic which are the prerequisitesfor the success of the restaurant.

33 MMACACHIHINNEERRYY &&

EEQQUUIIPPMMEENNTT

Understanding the customers individual needs and the capability to satisfy thesecompletely is a vital part of the restaurants success. This is in turn dependent on themachinery and equipment used to produce good quality fast food. Fast Food Machines areeasily available in the market wherein the owner has to choose between expensive brands


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Item Details Quantity Unit Price (Rs.) Total Price(Rs)

Freezers (12 cf) 3 25,000 75,000

New Broast Machine (15 PoundCapacity)*

1 650,000 650,000

Deep Well Frier (Single Valve With 2Baskets)

2 40,000 80,000

Hot Plate for Burgers, Kebab, Sandwiches(30 x 22)

1 33,000 33,000

Bin Marry Soup Container (2 Valve With

Steel Cabinet) 1 50,000 50,000

Potato Cutter (8mm) 1 3,000 3,000

Pillar (4.5 Kg Potato Peeling Capacity) 1 6,000 6,000

Microwave 1 10,000 10,000

Working Tables 2 20,000 40,000

Keg Racks & Shelves 2 10,000 20,000

Total 15 - 967,000

* Available from Spinzer USA, Delivery Time Three Months, Reconditioned Available at Rs. 200,000with

the same specs and Delivery Time

33..11 MMaacchinhineerryy MMaaiinntteennaannccee


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Item Details Quantity Unit Price (Rs.) Total Price(Rs)

Dining Table Square

(2X2)

25 6,000 150,000

Chairs (Standard 14) 100 1,500 150,000

Kitchen Cutlery Set 2 2,500 5,000

Dining Cutlery* (Plate,Fork, Knife, Spoon, Glass)

150 150 22,500

Air Conditioner Split Units

(6 Ton) 2 31,000 62,000

Hot Water Geyser Large 1 20,000 20,000

Halogen Lights 25 250 6,250

Wall Lights (Large) 4 1,500 6,000

Portable Emergency Light 4 2,500 10,000

Generator (1.5 KVA) 1 90,000 90,000

Counter Chairs 2 1,500 3,000

Office Table & Chair Set 1 10,000 10,000

Waiting Chairs for TakeAway Customers

5 1,500 7,500

Total 322 168,400 542,250


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44..22 DDeedidiccaatteedd AArreeaa RReequiquirreemmeenntt

The floor space needs to be carefully allocated to allow for maximum dining space for

customers in rush hours. The allocation of space between different sections would be asfollows:

Details%

(Sq. Feet)

Size

(Sq. Feet)

Civil Works & Dcor*

(Cost in Rs / square

feet)

Total Construction

Cost (Rs)

Dining 63 % 1,250 700 875,000

Waiting 4 % 80 700 56,000

Kids Play 3% 70 800 56,000

Kitchen &Preparation

25 % 500 450 225,000

Office 1.5% 30 450 13,500

Stores 3% 70 450 31,500

Total 100 % 2,000 3,550 1,257,000

* Includes interior decoration as well as fancy fittings, lightings, hangingsetc.

44..33 RRececoommmmeendndeedd MMooddee

The proposed premises will be acquired on a rental basis with 6 month deposit and 6months advance rent after which rent will be payable on a monthly basis. The monthly rentis approximately Rs. 50/ Sq Feet for the ground floor which would amount to Rs. 100,000


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Designation / Type NumberMonthly Salary

(Rs.)

Total Salary

(Rs.)Owner 1 - -

Kitchen Supervisor 2 6,000 12,000

Shift Supervisor(including reliever)

3 8,000 24,000

Cook 4 4,000 16,000

Servers 6 3,000 18,000

Take Away Order Taker

/ Cashier1 6,000 6,000

Dishwasher 2 2,500 5,000

Cleaner 1 2,500 2,500

Guard (12 Hour) 1 6,000 6,000

Total 21 38,000 89,500

Considering the size of the proposed establishment it is assumed that the owner would bemanaging the overall affairs of the fast food setup. He will be required to process andcheck bills, invoices, receivables management, maintain accounts, etc. for record. Theowner will also ensure safe custody of store keys.

The cashier will only be responsible for receiving payment and handing over change whilethe owner would be managing the cash drawer for control purposes. It is important to notethat many food outlets tend to lose out due to inadequate cash control by the owners


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The prices used to calculate the gross revenue earned are based on the billing rate at which

the entrepreneur will charge the customer. The prices are also inclusive of the GeneralSales Tax.

Furthermore it is assumed that the following sales breakup will form the revenue streamsfor the fast food outlet

Revenue Stream % of Total Sales

Dine In 60%

Take Away 20%

Home Delivery 20%

Total Revenue 100%

The minimum delivery order size is assumed to be Rs. 250/- per order with 3 deliveryriders being employed at the charge out rate of Rs. 25 per delivery order wherein notransportation fuel is provided by the fast food outlet. For Take Away and Home Deliveryanother 1% of sales added cost due to packing is assumed.

66..22 RReenntt CoCosstt

The rent for the assumed premises will be Rs. 100,000/- per month. It is assumed that Rs.

1,200,000 will be given in advance before possession of premises. This will include 6months deposit and 6 month advance rent. The rent would be payable on a monthly basisand is expected to increase at the rate of 10% per annum for the projected period.


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As depicted above the most of the fast food machines require considerable gas during the

preparation process. The preheating procedure of the equipment before commencement ofpreparation also consumes considerable gas. It is assumed that utilities expenses will beincreased by 10% every year.

66..44 DDeepprreecciiaattiionon onon BBuiuilldindingg && EEququiippmmeenntt

Depreciation on Shop, Equipment, Machinery and Fixtures is assumed to be at the rate of10% per annum based on the diminishing balance method for the projected period.

66..55 WoWorrkkiningg CaCapipittalal && PPrree OpOpeerraattiningg CoCossttss

It is estimated that an additional amount of approximately Rs. 1,036,000 will be requiredas cash in hand to meet the working capital requirements / contingency cash for the initialstages. The requirement is based on the rent, utilities and salaries expenses for at least fourmonths and 3 days raw material inventory. The following table gives the break up.

Item 4 Months Cost (Rs.)

Utilities 208,000

Salaries 358,000

Raw Material Inventory 70,000

Rent 400,000

Total 1,036,000

Th i i f i i d b R 50 000 hi h ill b i d


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66..88 FFininaanncciialal CChhaarrggeess

It is assumed that long-term financing for 5 years will be obtained in order to finance the

fast food setup which would mainly include construction & dcor of Building, Purchase ofmachinery & equipment, purchase of inventory etc. This facility would be required at arate of 15% (including 1% insurance premium) per annum with 60 monthly installmentsover a period of five years. The installments are assumed to be paid at the end of everymonth.

66..99 TTaaxxaattiionon

The tax rate applicable to sole proprietorship is the same as that of the salaried individual.Therefore, we are assuming that the tax rate would be the same for the proposed fast foodsetup.

66..1010 CoCosstt ofofCaCapipittalal

The cost of capital is explained in the following table:

Particulars Rate

Required return on equity 20.0 %

Cost of finance 15.0 %

Weighted average cost of capital 17.5 %

The weighted average cost of capital is based on the debt/equity ratio of 50:50.

66..1111 OOwwnneerrss WWiitthdhdrrawawaall

It is assumed that the owner with withdraw from the business once the desired profitabilityis reached from the start of operations. The amount would depend on business


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66..1212 KKeeyy AAssssuummppttiioonnss

Item Assumption(s)

Sales Increase 15 % per year

Increase in Cost of Raw Materials 10 % per year

Increase in Staff Salaries 10 % per year

Increase in Utilities (Electricity / Water /Gas)

10 % per year

Increase in Rent 10 % per year

Increase in Office Expenses 10 % per year

Debt / Equity Ratio 50 : 50

Depreciation

o Shop Building & Fixtures 10 % per annum (Diminishing Balance)

o Kitchenware & Machinery 10 % per annum (Diminishing Balance)

o Furniture 10 % per annum (Diminishing Balance)

Equipment Annual Maintenance Cost 2.5% of Written Down ValueRaw Food Inventory - Meat 3 Days

Raw Food Inventory Spices & Sauce 7 Days

Lease Period 5 Years

Lease Installments Monthly

Financial Charges (Lease Rate) 15 % per annum

Tax Rate Income Tax on Salaried Individuals


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INCOME STATEMENT:

FAST FOODRESTAURANT

Projected Income Statement(Rs.) Year1 Year 2 Year3 Year 4 Year5 Year 6 Year7 Year 8 Year9 Year 10

Revenue 10,015,200 11,517,480 13,245,102 15,231,867 17,516,647 20,144,145 23,165,766 26,640,631 3 0,636,72635,232,235

Raw MaterialCost 4,910,141 5,401,155 5,941,270 6,535,397 7,188,937 7,907,831 8,698,614 9,568,475 10,525,323 11,577,855

Labor & Salar ies 1,074,000 1,181,400 1,299,540 1,429,494 1,572,443 1,729,688 1,902,657 2,092,922 2,302,214 2,532,436

Utilities 624,000 686,400 755,040 830,544 913,598 1,004,958 1,105,454 1,215,999 1,337,599 1,471,359

Cost of Sales 6,608,141 7,268,955 7,995,850 8,795,435 9,674,979 10,642,477 11,706,725 12,877,397 14,165,137 15,581,650

Gross Profit 3,407,059 4,248,525 5,249,252 6,436,432 7,841,668 9,501,668 11,459,042 13,763,234 16,471,589 19,650,584

General Administrative & SellingExpenses

Rent Expense 1,200,000 1,320,000 1,452,000 1,597,200 1,756,920 1,932,612 2,125,873 2,338,461 2,572,307 2,829,537

Office & MiscellaneousExpenses 72,000 79,200 87,120 95,832 105,415 115,957 127,552 140,308 154,338 169,772

Amortization Expenses 10,000 10,000 10,000 10,000 10,000 0 0 0 0 0

Depreciation Expense 281,625 253,463 228,116 205,305 184,774 166,297 149,667 134,700 121,230 109,107

MaintenanceExpense 21,758 19,582 17,624 15,861 14,275 12,848 11,563 10,407 9,366 8,429

Subt otal 1,585,383 1,682,244 1,794,860 1,924,198 2,071,384 2,227,713 2,414,655 2,623,875 2,857,241 3,116,846

Operating Income 1,821,677 2,566,281 3,454,392 4,512,234 5,770,284 7,273,955 9,044,386 11,139,359 13,614,348 16,533,738

FinancialCharges (15% Per Annum) 357,889 298,344 229,228 149,001 55,878 0 0 0 0 0

EarningsBefore Taxes 1,463,788 2,267,936 3,225,164 4,363,233 5,714,406 7,273,955 9,044,386 11,139,359 13,614,348 16,533,738

Tax 365,947 566,984 806,291 1,090,808 1,428,602 1,818,489 2,261,097 2,784,840 3,403,587 4,133,435Net Profit 1,097,841 1,700,952 2,418,873 3,272,425 4,285,805 5,455,466 6,783,290 8,354,519 10,210,761 12,400,304

Monthly Profit After Tax 91,487 141,746 201,573 272,702 357,150 454,622 565,274 696,210 850,897 1,033,359

PREF-11/December, 2006/


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BALANCE SHEET:

FASTFOODRE ST AURA NT

Projected Balance S h eet(Rs.) Y ea r0 Y ea r1 Year 2 Y e a r3 Y e a r4 Year 5 Y e a r6 Y ea r7 Yea r 8 Year 9 Y e a r1 0

Assets

CurrentAssets

C a s h& B a n kB a l a n ce 1, 03 6 , 00 0 2 , 0 55 , 0 62 3,5 89 , 5 28 5 , 74 7 , 452 8 ,655,889 12 ,464,053 18 ,085,816 25,018,772 33 ,507,992 43 ,839,983 56 ,349,394

P re p aidR e nt 1,20 0 ,0 0 0 1 ,2 0 0,0 0 0 1,200 ,0 0 0 1 ,2 0 0, 00 0 1 , 20 0 , 0 0 0 1, 20 0 , 0 0 0 1,2 00 , 0 00 1, 2 0 0 ,0 0 0 1, 2 0 0 ,0 0 0 1,20 0 , 0 00 1 , 2 0 0 ,000

TotalCurre ntAssets 2,23 6 ,0 0 0 3 ,2 5 5,0 6 2 4,789 ,5 2 8 6 ,9 4 7,452 9 ,8 5 5,8 8 9 1 3 ,6 6 4,0 5 3 1 9 ,2 8 5,8 1 6 2 6 ,2 18 ,7 72 3 4 ,7 0 7,9 92 4 5 ,0 3 9, 98 3 5 7 ,5 4 9,3 9 4

FixedAsse ts

FastFoodMachine ry 9 67 ,0 00 8 70,3 00 7 83 ,2 70 70 4,9 43 6 34,449 57 1,0 04 5 13,903 4 62,513 4 16,262 3 74 ,6 36 3 3 7,1 7 2

S hop 1,30 7,00 0 1 ,176,30 0 1,058 ,6 70 952,803 857,523 771,770 694,593 625,134 562,621 5 06 ,3 59 4 55 ,7 2 3

Off ice Fixtures 542,250 488,025 439,223 395,300 355,770 320,193 288,174 259,356 233,421 2 10 ,0 79 1 8 9, 07 1Tota lFixe dAssets 2,81 6 ,2 5 0 2 ,5 3 4 ,6 2 5 2,281 ,1 6 3 2,053,046 1,847,742 1,66 2,96 7 1,496 ,6 71 1,3 47 ,00 4 1,21 2,3 03 1,091 ,07 3 981 ,96 6

Prelimina ryExpenses 50,000 40 ,000 30,000 20,000 10,000 - - - - - -

Total Assets 5,10 2 ,2 5 0 5 ,8 2 9 ,6 8 7 7,100 ,6 9 0 9, 02 0, 498 11,713,631 1 5 ,3 2 7, 02 0 2 0 ,7 82 ,4 8 6 2 7 ,5 6 5, 77 6 3 5 ,9 2 0,2 9 5 4 6 ,1 3 1,0 5 6 5 8 ,5 3 1,3 6 0

Owner's E quity 2,551,125 3,648,966 5,349,918 7,768,791 11,041,216 15,327,020 20 ,782,486 27,565,776 35,920,295 46 ,131,056 58,531,360

Long Term Liability 2,551,125 2,180,721 1,750,772 1,251,707 672,415 0 0 0 0 0 0

Total Eq uity& Liab ilities 5,1 02 ,25 0 5,829 ,687 7 ,100,690 9,02 0 ,4 9 8 11,71 3 ,6 3 1 1 5 ,3 2 7 ,0 2 0 2 0 ,7 8 2 ,486 27,565,776 3 5 ,9 2 0 ,2 9 5 4 6 ,1 3 1 ,0 5 6 5 8 ,5 3 1 ,3 6 0



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CASH FLOW STATEMENT:

FAST FOODRESTAURANT

ProjectedStatement of Cash Flows (Rs.) Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10

Net Profit 0 1,097,841 1,700,952 2,418,873 3,272,425 4,285,805 5,455,466 6,783,290 8,354,519 10,210 ,761 12,400,304

Add: Depreciation Expense

Amortization Expense

0

0

281,625

10,000

253,463

10,000

228,116

10,000

205,305

10,000

184,774

10,000

166,297

0

149,667

0

134,700

0

121,230

0

109,107

0

Net CashFlow FromOperations 0 1,389,466 1,964,415 2,656,989 3,487,729 4,480,579 5,621,763 6,932,957 8,489,220 10,331,991 12,509,411

Cash Flow From Financing Activities

ReceiptofLongTerm Debt 2,551,125

Repayment ofLongTermDebt

Owner'sEquity 2,551,125

(370,404) (429,949) (499,065) (579,292) (672,415) 0 0 0 0 0

Net CashFlow FromFinancing Activities 5, 102, 250 (370, 404) (429,949) (499,065) (579,292) (672,415) 0 0 0 0 0

Cash Flow From Inves ting Activities

Construction Cost (1,307,000)

Office Furniture (967,000)

Equip & M/C (542,250)

AdvanceRent (1,200,000)

Preliminary Expenses (50,000)

Net CashFlow FromInvesting Activities (4,066,250) 0 0 0 0 0 0 0 0 0 0

NET CASH FLOW 1,036, 000 1,019,062 1,534,466 2,157,924 2,908,437 3,808,164 5,621,763 6,932,957 8,489,220 10,331,991 12,509,411

Cash at the Beginning of the Period 0 1 ,03 6,00 0 2,0 55 ,0 62 3 ,589 ,5 28 5,7 47 ,452 8,65 5,88 9 12,464,053 18,085,816 25,018,772 33,507,992 43,839,983



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FAST FOOD

RESTAURANT Cost &

RevenueSheet

Broast

Chicken Broast (Qtr.)

Cost

35

Price

65

UnitSales

36 0.12

TotalCost

1260

TotalSales

2340

Chinese

Hot & SourSoup (2 Servings)

Cost

25

Price

75

UnitSales

6 0.02

TotalCost

150

TotalSales

450Chicken Broast (Half) 70 125 18 0.06 1260 2250 Hot & SourSoup (4 Servings) 50 140 3 0.01 150 420

Chicken Broast (Full ) 140 250 6 0.02 840 1500 Chicken CornSoup (2 Servings) 25 75 6 0.02 150 450

Chicken CornSoup (4 Servings) 50 140 3 0.01 150 420

Burgers Cost Price Unit Sales TotalCost Total Sales Plain Rice 12 40 3 0.01 36 120

Chicken Burger 20 50 24 0.08 480 1200 Chicken Fried Rice 20 80 12 0.04 240 960

Chicken Cheese Burger 25 55 36 0.12 900 1980 Vegetable FriedRice 18 60 6 0.02 108 360

BeefBurger 18 40 18 0.06 324 720 Egg Fried Rice 18 70 3 0.01 54 210

BeefCheeseBurger 23 45 18 0.06 414 810 BeefFriedRice 20 80 3 0.01 60 240

ZingerBurger 40 80 24 0.08 960 1920 Beef Chilli (w/orice) 30 75 6 0.02 180 450

Sandwiches Cost Price Unit Sales TotalCost Total Sales

Chicken Chilli(w/o rice) 35

Cost

85

Price

9

UnitSales

0.03 315

TotalCost

765

TotalSales

Chicken Sandwich 20 55 21 0.07 420 1155 FrenchFries(perplate) 8 25 5 40 125Egg Sandwich 12 40 6 0.02 72 240 Cole Slaw 6 15 5 30 75

BeefSandwich 20 45 3 0.01 60 135 Soft Drinks (Large) 40 50 10 400 500

Club Sandwich 35 80 30 0.1 1050 2400 Soft Drinks (Regular 250ml) 9 15 375 3375 5625

TOTAL 8040 16650 TOTAL 5438 11170

Total Sales (Rs)

Daily

27,820

Monthly

834,600

Additional

-

Final

834,600

Total RM Cost (Rs.) 13,478 404,340 4,838 409,178

Gross Profit (Rs.) 14,342 430,260 425,422

Dine In (60%) 180 500,760 - -

TakeAway (20%) 60 166,920 1,669 - 1,669

Delivery(20%) 60 166,920 1,669 1,500 3,169

Total 300 834,600 3,338 1,500 4,838


198 food feasibility

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