Restaurent feasibility report
The information has been provided on ‘as is where is’ basis without any warranties or assertions as to the correctness or soundness thereof. 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, its employees or agents do not assume any liability for any financial or other loss resulting from this memorandum in consequence of undertaking this activity. The contained nformation does not preclude any further professional advice.
The prospective user of this memorandum is encouraged to carry out additional diligence and gather any information which is necessary for making an informed decision including taking professional advice from a qualified consultant / technical expert before taking any decision to act upon the information. For more information on services offered by SMEDA, please contact our website: www. smeda. org. pk SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) 2. PURPOSE OF THE DOCUMENT The objective of the pre-feasibility study is primarily to facilitate potential entrepreneurs in project identification for investment. The project pre-feasibility may form the basis of an important investment decision and in order to serve this objective, the document / study covers various aspects of project concept development, start-up, production, marketing, finance and business management.
The purpose of this document is to facilitate potential investors in Restaurant Cum Fast Food Restaurant (Take Away) business by providing them with a general understanding of the business with the intention of supporting potential investors in crucial investment decisions. The need to come up with pre-feasibility reports for undocumented or minimally documented sectors attains greater imminence as the research that precedes such reports reveal certain thumb rules; best practices developed y existing enterprises by trial and error, and certain industrial norms that become a guiding source regarding various aspects of business set-up and it’s successful management. Apart from carefully studying the whole document, one must consider critical aspects provided later on, which form basis of any investment decision. 3. INTRODUCTION TO SMEDA The Small and Medium Enterprises Development Authority (SMEDA) was established in October 1998 with an objective to provide fresh impetus to the economy through development of Small and Medium Enterprises (SMEs).
With a mission “to assist in employment generation and value addition to the national income, through development of the SME sector, by helping increase the number, scale and competitiveness of SMEs”, SMEDA has carried out ‘sectoral research’ to identify policy, access to finance, business development services, strategic initiatives and institutional collaboration and networking initiatives. Preparation and dissemination of prefeasibility studies in key areas of investment has been a hallmark of SME facilitation by SMEDA.
Concurrent to the prefeasibility studies, a broad spectrum of business development services is also offered to the SMEs by SMEDA. These services include identification of experts and consultants and delivery of need based capacity building programs of different types in addition to business guidance through help desk services. SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 3 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away)
Prime Minister’s Youth Business Loan for young entrepreneurs, with an allocated budget of Rs. 5. Billion for the year 2013-14, is designed to provide subsidised financing at 8% mark-up per annum for one hundred thousand (100,000) beneficiaries, by designated financial institutions, initially by National Bank of Pakistan (NBP) and First Women Bank Ltd. (FWBL). Loans from Rs. 0. 1 million to Rs. 2. 0 million, with tenure up to 8 years, inclusive of 1 year grace period and a debt: equity of 90 : 10 will be disbursed to SME beneficiaries across Pakistan, covering; Punjab, Sindh, Khyber Pakhtunkhwah, Balochistan, Gilgit Baltistan, Azad Jammu & Kashmir and Federally Administered Tribal Areas (FATA). 5.
The fast food restaurant is proposed to be established at a location that has a continuous stream of traffic, convenient parking, and is in proximity to other businesses, preferably near densely populated middle income areas or flat complexes. Major cities like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore, Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Peshawar, Hub and Quetta etc. are suitable to house the project. Common menu items at the proposed fast food outlet include sandwiches, burgers, fried chicken, Chinese soups, Chinese rice variants, French fries, salad and cold drinks.
The fast food restaurant will have an installed capacity to serve 335 clients per day; however, the restaurant would initially start business with 140-150 clients. 10 personnel would be required to manage the operations of fast food restaurant. Total Cost Estimates are Rs. 2. 20 million with a fixed investment of Rs. 1. 88 million and an initial working capital requirement of Rs. 0. 32 million. Given the cost assumptions, internal rate of Return (IRR) and payback are 54% and 2. 25 years respectively. The most critical considerations or factors for success of the project are: 1.
Choosing the right location for the fast food outlet 2. Creating the right menu and menu pricing 3. Hiring experienced cooks and staff 4. Knowing the competition SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 4 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) 6. BRIEF DESCRIPTION OF PROJECT AND PRODUCT Fast food is a name given to food which is prepared with preheated or precooked ingredients and served to customers in a packaged form for take-away or dine in.
Many fast-food restaurants operate chains or franchise operations, where standardized foodstuff is shipped to each restaurant from a central location. There are also simpler fast-food outlets, such as stands or kiosks, which may or may not provide seating arrangements for customers. As capital requirements to start a fast-food restaurant are relatively low, individually-owned fast-food restaurants have become popular and common throughout Pakistan. Market growth largely depends on demographics, urbanization, changing lifestyle patterns and demand for convenience. Thus all these variables determine the potential of fast food business.
Technology: The proposed setup with used fast food cooking machinery including fryers, grilling machine, soup containers and pre-processing equipment would serve popular fast food and Chinese cuisine. • Location: The business is envisaged to be established as a fast food takeaway/outlet, with limited seating capacity on rented premises/shop of around 500 sqft. , near a densely populated area suitable for fast food. Major cities like Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore, Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Islamabad, Peshawar, Hub or Quetta etc. re suitable to establish the business. • Product: Four popular fast food items, including fried chicken, burgers, sandwiches, Chinese fried rice and soups, have been selected to be served separately or as combo meals through the outlet. The restaurant is proposed to have an installed capacity of serving 335 customer per day but is estimated to start with 140-150 customers per day. • Target Market: The middle income segment of major cities such as Karachi, Hyderabad, Sukkur, Larkana, Multan, Lahore, Gujranwala, Faisalabad, Sialkot, Gujrat, Rawalpindi, Islamabad, Peshawar, Hub or Quetta etc. s the target market for the business.
Employment Generation: employment to 10 people. The proposed project will provide direct 7. CRITICAL FACTORS Whether an entrepreneur is opening a one-of-a-kind no-frills fast food restaurant or trying to expand an existing fast food outlet into a multi-unit chain, there are SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 5 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) winning principles that can improve the chances of success. Some key success factors are as follows: • • • • • • Selecting the right location and layout Hiring well experienced staff especially cooks and servers Quality & Hygiene Creating the right menu Menu pricing Operational food quality consistency Knowing the competition 8. INSTALLED AND OPERATIONAL CAPACITIES In the fast food restaurant business, the installed capacities are mainly dependant on the location and layout of the outlet, service style, food concept and the target market. The proposed fast food business is envisaged to be established as a take-away outlet with limited seating capacity around it.
The restaurant is expected to serve around 335 customers in a day. At start up, the operational capacities are estimated to be around 140-150 clients. Once the fast food gains popularity and acceptance, sales are expected to increase with the same installed capacity. 9. GEOGRAPHICAL POTENTIAL FOR INVESTMENT In recent years, much of the expansion in the fast food business has been in the form of “satellite” outlets. These tend to be smaller in size, with little or no seating capacity, and are often in nontraditional locations, such as office buildings, department stores, airports, and gasoline stations i. . locations chosen specifically to maximize convenience and consumer accessibility. It is important to find a location that has a continuous stream of traffic, convenient parking, and is in proximity to other businesses or densely populated middle income areas / apartment buildings, where the target market is available. Here are some factors to consider when deciding on a location to establish a fast food outlet: • • Anticipated sales volume. Estimate the sales potential of a location. Accessibility and visibility. Consider how easy it will be for customers to get to the outlet.
If an entrepreneur is relying on strong pedestrian traffic, it SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 6 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) should be considered whether or not nearby businesses will generate foot traffic. • The rent-paying capacity of the business. Sales-and-profit projections give a fair idea of how much revenue can be generated. This information can be used to decide how much rent can be paid. • Restrictive ordinances. Unusually restrictive ordinances can encountered that make an otherwise strong site less than ideal. • Traffic density.
Two factors are especially important in this analysis: total pedestrian traffic during business hours and the percentage of it that is likely to patronize the food service business. • Customer parking facilities. The site should provide convenient and adequate parking and easy access for customers. • Proximity to other businesses. Neighboring businesses may influence the fast food’s sales volume, and their presence can have both positive and negative implications. • History of the site. The recent history of each site under consideration should be ascertained before making a final selection. • Terms of the lease.
All the details of the lease must be carefully read, as it is possible to encounter unacceptable lease terms for an otherwise excellent site. • Future development. The local Development Authority / Planning Board should be consulted to check if any development is planned for the future that could affect the business, such as bridges, underpasses or any construction restricting accessibility. be 10. POTENTIAL TARGET MARKETS / CUTOMERS The fast food restaurant market is a growing segment in Pakistan relying heavily on the changing lifestyle patterns, population growth of the target age group and increase in employment of women.
The fast food consumption has also increased due to increase in the employment rate of male / female population aged between 20 to 45 years (fast food goers). In today’s hectic urban lifestyles, demand for convenience dominates all other preferences. People want quick and convenient meals. They do not want to spend a lot of time preparing meals, traveling to pick up meals, or waiting for meals in restaurants. As a result, consumers rely on fast food. However, the major chunk of fast-food goers, the middle income segment, prefers visiting outlets that offer fast food at affordable prices.
Fast Food outlets tend to focus on the “work while you eat” or “shop while SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 7 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) you eat” philosophy and fast food restaurants are rapidly becoming the eateries “everyone can agree on”, with many featuring menu combos for children, play areas and fancy branding campaigns, designed to appeal to younger customers. 11. PROCESS FLOW The service delivery diagram of the proposed fast food restaurant is as follows. Service Process Drive through customer Place order ? Front desk ? Walk in customer Meal preparation
Main course (Grill/Fry meat Fry rice & curry Prepare/heat soup Order in queue Takeaway Assembling order Server Sideline preparation SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – Dine-in 8 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) 12. PROJECT COST SUMMARY A detailed financial model has been developed to analyze the commercial viability of this project. Various costs and revenue related assumptions along with results of the analysis are outlined in this section. The projected Income Statement, Cash Flow Statement and Balance Sheet are attached as annexure. 12. 1 Project Economics
The following table shows internal rates of return and payback period for fastfood restaurant starting operations with 140-150 clients. Table 1 – Project Economics Description Internal Rate of Return (IRR) Payback Period (yrs) Net Present Value (NPV) Details 54% 2 . 25 years Rs 6,997,879 Returns on the project and its profitability are highly dependent on the location, quality of food and service, efficiency of the service team, interest of the owner manager and competition. 12. 2 Project Financing Following table provides details of the equity required and variables related to bank loan; Table 2 – Project Financing Description
Total Equity (10%) Bank Loan (90%) Markup to the Borrower (%age/annum) Tenure of the Loan (Years) Grace period (Year) Details Rs. 219,936 Rs. 1,979,428 08% 08 1 SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 9 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) 12. 3 Project Cost Following requirements have been identified for operations of the proposed business. Table 3: Capital Investment for the Project Capital Investment Renovation Cost Furniture & fixtures Machinery & Equipment Advance Rent and Gas Security Deposit (GSD) Preliminary Expenses Total Capital Cost Initial Working Capital
Total Project Cost Amount (Rs. ) 233,000 181,250 933,500 505,000 25,000 1,877,750 321,615 2,199,365 12. 4 Space Requirement The land requirement is around 500 sqft. It is recommended that the fast food outlet be opened on the ground floor of flat complexes or shopping malls or any other area with high retail consumer traffic. As per the proposed service style, the floor space needs to be carefully allocated to allow for maximum space for food preparation and store. The allocation of space between different sections would be as follows: Table 4: Space Requirement Space Requirement (in ft. ) Kitchen and preparation Store Front desk/reception
Waiting area Total Area Area (Sqft. ) 350 100 25 25 500 Cost of Renovation Amount (Rs. ) 175,000 30,000 20,500 7,500 233,000 The proposed premise would be acquired on rental basis with 3 months deposit and 3 months advance rent after which, rent will be payable every month. The monthly rent is estimated at approximately Rs. 85 / Sq. feet amounting to Rs. 42,500 per month for the proposed fast food outlet (500 Sq Ft. ).
The premise renovation costs of Rs. 233,000/- would be depreciated at the rate of 10% per annum using diminishing balance method. SMEDA Services / Information related to PM’s Youth Business Loan are FREE OF COST – 0 Pre-Feasibility Study Restaurant Cum Fast Food (Take Away) 12. 5 Machinery and Equipment Fast-food machines are easily available in the local market but the entrepreneur also has the choice to select from international brands such as Spinzer, Frymaster, Henny Penny, Lincoln, Ayrking, Keating, Mirror, Carpigiani, Lincat, Morretti, Ilsa, Round-Up, Sanyo, Elettrobar etc. Chinese brands have gained popularity over the years and can also be considered. The machines can be purchased through international vendors with a minimum delivery period of 3 months while refurbished / reconditioned machines are also available.
There is also an option to procure used machines from closing outlets but the durability and reliability factor must be taken into consideration while buying such machines. The typical fast food restaurant as outlined above would require the following machine / equipment for its operations: Table 5: List of Machinery and Equipment Description Freezers (12 cf. ) Broast Machine (15 Pound Capacity) Deep Well Fryer (Single Valve With 2 Baskets) Hot Plate for Burgers, Kebab, Sandwiches (30″x22″) Bin Marry Soup Container (2 Valve With Steel Cabinet) Potato Cutter (8mm) Peeler (4. 5 Kg Potato Peeling Capacity) Microwave Generator 1. 5 kva
It is essential to hire experienced cooks, trained in operating fast food machinery for the project. The proposed project would need a total of 10 persons to handle the fast food operations. Salaries of all employees are estimated to increase at the rate of 10% annually. 12. 9 Revenue Generation The Sales are expected to increase by 12% every year. The 12% annual increase in revenue is expected to result from a part increase in customer traffic and part increase in product price. The prices used to calculate the gross revenue earned are based on the billing rate at which the entrepreneur will charge the customer.