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