Small Restaurant Vs. Franchise Fastfood
Lin Du
Introduction
What are you going to do after graduation?
-Stay or leave?
Stay
-Find a job or start you own business?
-Find a job? Hard!
-Start you own business? Which one?
Background According to The Conversation US, Inc. (2015), Graduate Care
ers Australia runs a large, annual survey of new graduates to track what happens to them after university
-Over 100,000 graduates took part in the the survey -only 68% of bechelor graduates from the class of 2014 had a
full-time job -Lowest full-time employment rate for new graduates since 1
982
How about our city Vancouver? -According to Government of Canada:61%
The Conversation US, Inc. (2015). Retrived from http://theconversation.com/graduating-into-a-weak-job-market-why-so-many-grads-cant-find-work-45222
Statement of Problem
Why don't we start our own business?
Make a decision between:
Own Restaurant and Franchise Fastfood?
VS.
Pictures Retrieved from http://www.thedrum.com/news/2015/08/20/brand-day-subwayhttp://www.tripadvisor.co.uk/Restaurants-g186337-c11-Liverpool_Merseyside_England.html
Description of decision making process
Fishbone Diagram
Decision Tree
Sensitive Analysis
Fishbone Diagram Surroundings System Safty
Parking Position Do not have IT Experts Food safty
Competition Old version of POS system
Low Profit
High Price improperly advertised
Unfreshed Food Lack of training
Suppliers Skills
Decision Tree
Chine
se
Resta
uran
t
Subway
High flow
Low flow
0.5
0.5
0.8
0.2
$11,416
$21,833
$8,00
$24,000
Chinese Restaurant:$21,833*0.5+$11,416*0.5=$16,624
Subway:$24,000*0.8+$8,000*0.2=$20,600
High flow
Low flow
Sensitive Analysis
$8,000
$24,000
$11,416
$20,833
Subway
Chinese Restaurant
3.5
Analysis:According the Sensitive analysis we can see that:
-Before utility 3.5, Chinese restaurants is making more profit than Subway
-After utility 3.5, Subwany is making way much more than the Chinese restaurant
Thus:A rational decision maker may choose Subway at this point
But...Addtional Fees:
Subway:
Royalty-8% of total gross sales
Advertising-4.5% of total gross sales
License Fee-$1,500 per week
Profit comes to: $20,600*87.5%-15,00=$16,525 Per week
Chinese Restaurant: Profit = $16,624 per week
Franchise Direct. 2015. Retrieved from http://www.franchisedirect.com/directory/subway/ufoc/915/
FurthermoreCapital Cost
Subway: Estimated total cost to start- $116,600 to $263,150
Chinese Restaurant: Estimated total cost to start- around $100,000
Franchise Direct. 2015. Retrieved from http://www.franchisedirect.com/directory/subway/ufoc/915/
Final DecisionAccording to:Decision tree -Chinese restaurant: $16,624 -Subway: $20,600Sensitive Analysis -Chinese Restaruant: point 0 to point 3.5 (Utility) -Subway: After 3.5 (Utility)Additional Fees + Capital CostsFinal decision: To open a Chinese restaurant is better than to open a Subway.
Conclusion and Future disscusion Fishbone diagram, decision tree, and sensitive analysis are very good me
thods to help people to make decisions However, these three methods are not perfect Why?
These three methods are limited when we are dealing with risks. So, which one will you choose when it contains risks? To open a small res
taurant or Subway franchise?
-For long term consideration, I believe that Subway will be the better choise, because Subway has a higher brand awearness than a new grown restaurant. Also, the failure rate of small restaurant is more than 70% in Vancouver. Thus, when we put risk into consideration, Subway will be the one we are going to invest.
ReferenceFranchise Direct. 2015. Retrieved from http://www.franchisedirect.com/directory/subway/ufoc/915/
The Conversation US, Inc. (2015). Retrived from http://theconversation.com/graduating-into-a-weak-job-market-why-so-many-grads-cant-find-work-45222
Pictures retrieved from
http://www.thedrum.com/news/2015/08/20/brand-day-subway
http://www.tripadvisor.co.uk/Restaurants-g186337-c11-Liverpool_Merseyside_England.html