Business Plan for a Diversified Fast-Food Establishment (2)

Business Plan for a Diversified Fast-Food Establishment

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Business Plan for a Diversified Fast-Food Establishment

1. Business Model

1.1 Project Background

There has been a robust growth in the fast-food industry in Chinese market since the last decade (Al-Shargie and Ahmed, 2019). The major cause of the increased growth is attributed to the high number of tourists visiting the Middle East Countries especially China. It is also due to the large population of China, the Chinese living in China are said to be 1.378 billion according to 2016 (Al-Shargie and Ahmed, 2019). The large population turns out to be the major contributor to the fast growth of the fasts food industry in China.

Picture 1: A graph of the general growth of the fast-food industry in China up to 2019 (Al-Shargie and Ahmed, 2019)

1.2 Organizational Form

Success in establishing and running the fast-food joint requires effective acquisition of the investors. This way, the whole project is able to acquire the required financial support. Through investors, the project can also benefit from the diversified business skills. These are mainly the skills that are brought to the table by the investors. For the business to achieve success in attaining investors and general establishment it should assume the corporation form of business. Corporation business has a limited liability to all investors, which is a crucial point in attracting investors. Corporations are also beneficial in that they are not limited to the number of investors. Therefore, for expansion and other future intentions the corporation organizational form, acts on the best interest of establishing and running the intended fast-food joint.

1.3 Business Model

A business success is highly attached to the type of business model adopted by the specific business. According to Hendriarto (2021), a suitable business model is crucial to achieving growth and viability of a business for a long time. The proposed food joint should be set up so as to serve the proposed qualities and specifications. The project is expected to assume the direct sales business model. This model benefits the project in that major control of the business is left to us as the creators (China Chain, n.d). Direct sales business model helps us implement the right strategies for the business. This business plan is crated for a diversified fast-food joint which can only be achieved only when the decision-making role and the management role is left to us as the creators. Franchise business model does not favor independent decision making. Major decision making is done by the franchising company. Franchising maybe a great idea since the branding is already done and the franchising company already has loyal customers. More so, securing financing for a franchise is way simpler than a company business structure, this makes it less risky business model to consider. However, Franchising has a number of cons that may stay in the way of our major objectives. Amongst these cons are, less flexibility with the business model. Lack of flexibility may hinder our aim of expansion to major areas which generally curbs growth with time. Franchising is also met by profit splitting with the franchising company. Paying of the loyalty dues may be a stress factor in our finance plan in matters of growth and development. Lack of flexibility and profit splitting in franchising means that the entire fate of the business does not lie on us. Therefore franchising does not serve the purpose intended for the business. Company business structure on the other hand has the liability of the investors limited to their initial investment. The major cons affecting company model with association to our plan is the double taxation aspect. For a company, the government specifies the policies in action for operation making it simple to adhere to and follow. Among all the pros of a company, there is the independence in decision making. Independence in decision making is vital to build and grow the diversified fast-food joint. Therefore, the proposed business project assumes the company model in terms of a direct sales business structure.

2. Financial Projection

2.1 Project Introduction

Lease a two-storey mini hall along one of the busy streets of Shanghai China.

Hire a contracting company to renovate the space such that it should offer kitchen space and customers serving and eating area.

Hire qualified chefs, waiters, cleaners and security agency.

Hire renown and reputable marketing agency to create our brand awareness.

Create an IT department and hire IT personnel to avail our services on an online platform for online orders and deliveries.

2.2 Fixed Cost Description

Item Description

Registration Fee This is the amount of money paid in order to have the business legally known and controlled by the laws of the government.

Leasing Fee Includes the amount of money paid to the landlord for using his/her space

Renovation and Labor cost Includes the money paid in acquisition of materials of renovating the space as well as the wages for the workers in action during the process.

Furnishing Cost Involves the cost of the furniture, Kitchen equipment, IT equipment, lighting products among other products used for furnishing the place.

Operation Expenses Involves the money to be spent on all employees working in the business.

Marketing Cost This is all the money paid to the agency hired to market the business to create brand awareness.

Maintenance cost This is the money used in sustaining the condition of the equipment in operation.

3. Cost-Volume-Profit Analysis of a store in Beijing

Earning forecast within five years (Currency in RMB Yuan)

Description Price/Cost

(RMB) Remarks

Average cost of a meal/person 20 RMB Yuan

(variable costs/day)

Average daily sales

(Physically and online) 24 000 Electricity and Water bill 4000 Cleaning services 3 000 Cooking fuel consumed 4 000 Ingredients Cost 7 067 Gross Profit 8 367

(Fixed Cost/Day)

Registration fee 6 500 Staff Wages/ Salaries 136 000 Annual registry of salary

Lease fee 650 000 Furnishing cost 70 000 Marketing Cost 45 000 Maintenance Expenses 80 000 Operation Cost 50 000 Total Cost 1, 037, 500 Daily profit is calculated as an average value of the completed orders made both physically and through online platform. Upon deduction of the daily expenses of 18 067 RMB the daily profit is left at 8367 RMB. On the other hand, the annual expenses accrued total to 1,037,500 RMB, therefore the break-even volume sales can be calculated as 1037500/ 8 367=124

So the turn over period of the business is expected to be 124 days in a single year

Earning forecast after five years. (Currency in RMB Yuan)

Description Price/Cost

(RMB) Remarks

Average cost of a meal/person 20 RMB Yuan

(variable costs/day)

Average daily sales

(Physically and online) 24 000 Electricity and Water bill 4000 Cleaning services 3 000 Cooking fuel consumed 4 000 Ingredients Cost 7 067 Gross Profit 8 367

(Fixed Cost/Day)

Registration fee Staff Wages/ Salaries 136 000 Annual registry of salary

Lease fee Furnishing cost Marketing Cost 45 000 Maintenance Expenses 80 000 Operation Cost 50 000 Total Cost 311, 000 After the first five years according to our plan, there is very little change in the general price of the ingredients and the energy. With that, most of the prices changes may be left same. The daily profit is calculated as an average value of the completed orders made both physically and through online platform. Upon deduction of the daily expenses of 18, 067 RMB the daily profit is left at 8367 RMB. On the other hand, the annual expenses accrued total to 311 000 RMB, therefore the break-even volume sales can be calculated as 311 000/ 8 367=37

So the turn over period of the business is expected to be 37 days in a single year

4. Financing Plan

According to the financing forecast results obtained, assuming all the acting factors remain constant or within the margin of error allowed, then;

The one-time investment on the store is as follows

Registration fee Leasing fee Furnishing cost

Amount 32500 650 000 70 000

One time Investment 3,632,500

Daily annual expenses (along the error margins considered)

Staff wages/Salaries Marketing cost Maintenance fee Operating cost

Amount 136,000 45,000 80,000 50,000

Daily Expenses 311,000

The business has two types of capital requirements, one-time investment and the annual amount of daily cost of operation. The first and initial phase of the business establishment requires a large capital investment. For the larger amounts of capital requirements, loans may not form the best source of the financial acquisition. Loans are tied to a percentage of interest per year causing time extensions for the business to break even. Therefore, for this kind of capital the business should consider equity financing. Equity should be allowed for three to four shareholders taking up to 40% of the total business equity. For daily operational cost financing, we should consider low interest business loans. This phase of the business does not require a lot of capital. Low interest business loans can be the best way to sort this phase. The low amounts of capital required for operation may not accrue large interests upon payment. Considering the low interest rates, the business loans are suitable for the daily operations cost financing.

5. Risk Assessment

The large population of China creates a large market that is highly diversified. Despite the large market of food and hospitality industry, there still lie risks within this industry.

5.1 Risk of consumer preference

The numerous types of fast food available for consumers possess the risk of customer preference. A single mistake in marketing or the encroachment of bad reputation from a prior consumer may impact the business fatally. We should work on the marketing to ensure that all information getting out concerning the business service is clean and promotes the business.

5.2 Risk of competition

The food industry is densely populated with different business offering different differentiated products and services. The high number of businesses creates a highly competitive environment. We should ensure our services are high end with low to none chances of mistakes.

6. Investment Income Analysis

As the brand gradually grows, there are noticeable changes especially in sales and the cost of marketing. Growth of the brand brings with it the loyalty of certain customers and the continuous flow of new customers. An increase in customers results to increased sales. Consequently, brand growth reduces the need of intensive marketing. Reduction of the cost of marketing results to higher profit margins.

Cash flow= Average annual sales within the expected error limits- staff salary/wages-marketing cost-operation cost-Maintenance cost

NPV Analysis=Cash flow × (1 + discount rate) × number of years

According to the NPV results obtained, the business idea is worth investment. The analysis generally proves the survivability of the business plan.

7. Research

The general demand for snack-oriented food has highly increased in China and the greater Middle Eastern countries. The world has seen a increment of 33.2% increase in the consumption of fast foods in Asian countries which is higher than that of the United States of America at approximately 9.9% (Li et al., 2020). Adolescents have been classified as the group in high consumption rate of the fast food. 55.2% of the world adolescents have been considered to consume fast food at least once a week.

The fast-food industry has as a result grown exponentially. The industry marks revenue of more than a billion dollars in the current year 2021. This is said to rise by approximately 2.5% in the future five-year margin (Wang et al., 2016). The major aspects of this market include: the age of consumers, the time of meal consumption and the type of meal choice.

References

Al-Shargie, F., & Ahmed, E. (2019). Fast Food Industry Growth in China. https://doi.org/10.31232/osf.io/w74vqChina Chain: Fast Food: Business Revenue. CEIC, https://www.ceicdata.com/en/china/fast-food/cn-chain-fast-food-business-revenue.

Hendriarto, P. (2021). Understanding of the role of digitalization to business model and innovation: economics and business review studies. Linguistics and Culture Review, 5(S1), 160-173.

Lian, L., Ning, S., Lina, Z., Guodong X, Jingjing, L., Jingcen, H., Zhiying, Z., Jianjun L., Hongxia, D., Zhisen, Shen., & Liyuan, H. (2020). Fast food consumption among young adolescents aged 12–15 years in 54 low- and middle-income countries, Global Health Action, 13:1, DOI: 10.1080/16549716.2020.1795438Robin, R., Lorelle, F., & Park, T. (2020). A Western franchise in Shanghai, China: a late entrant’s success, Journal of Strategic Marketing. DOI: 10.1080/0965254X.2020.1823457Wang, Y., Wang, L., Xue, H., & Qu, W. (2016). A Review of the Growth of the Fast Food Industry in China and Its Potential Impact on Obesity.  International journal of environmental research and public health, 13(11), 1112. https://doi.org/10.3390/ijerph13111112