I will use systematic sampling to randomly choose the people that will be surveyed in my questionnaire. This will mean I will have to ask every 10th person who walks by during the time specified if they would be interested in participating in a survey about opening a Subway branch of the restaurant on that street, This should give a fairly random sample of people asked as it is out of my control who the 10th person to walk past will be. This should give me a large amount of results as a copious amount of people walk past the area in which I am going to be at so the results should give a fairly good view on the general opinion of people of the area. The survey will be carried out at the lunch time because the sandwiches made at the Subway franchise are more of a lunch meal as opposed to a dinner or breakfast mean although it does stay open from lunch through till dinner in case anyone wants a sandwich as an afternoon snack.
2.0 Secondary Objectives:
2.1 Objective 1: Competitors
I hope to find that competition in the area for the specific market the franchise tailors to will be fairly low or easy to overcome. As in all areas, there will always be a few restaurants so it would be unlikely for there to be no competition in Stockbridge. Problems may arise if there is already a supply of the same goods and services that I want to supply to the consumers in the area.
To investigate into the competition in the area, I performed some primary research in Stockbridge and visited all of the potential competition. The possible competitors include: Pizza Hut, Franco’s, Pizza Express, and two local pubs. At a glance, it can be seen that these restaurants do not specialize in healthy food and restaurants such as Franco’s and Pizza Hut do not any proper healthy food. Pizza Express and the local pubs provide some healthy food, but at these restaurants the customer usually pays mostly for the service provided in serving their meal in a relaxing environment so they do not provide it as a fast service. This is a promising aspect so far because all of the potential competitors are not directly linked in the same market. The main competition will be from Franco’s and Pizza Hut due to Pizza Hut’s large scale brand awareness and both restaurants provide good quality fast food at an affordable price. The kinds of people who go to these two places to eat may not care much for their diet and it may be tough trying to get customers to change to a healthier option of fast food.
To establish the reasoning why consumers went to Pizza Hut and Franco’s, I stood at their doors for 30 minutes each around lunch time on a working day and asked each person who entered what their reason for wanting to eat at those particular restaurants was and most people responded with something along the lines of that they wanted some food that they could get quickly that was near to where they worked. This is promising for my feasibility study because the restaurant I am conducting a feasibility study into is a fast food restaurant with a healthy theme to it. The consumers now need to be analysed to give further help into my feasibility study into setting up a Subway Sandwiches franchise in Stockbridge.
Using the above reasoning, I have found that there is some competition in the food market which may be hard to compete against as they may have brand loyalty but most of the customers will be from a more specific niche market, the market of young professionals. This will be analysed more closely when researching the secondary objectives for the customers.
2.2 Secondary Objective 2 – Suppliers
Suppliers are one of the main factors in a businesses running, If the suppliers are charging too much for goods then the firms costs will rise which could cause problems from the firm. One advantage from starting another branch of a franchise is that all of the supplies are dealt with by the administration of the franchise. This means that no time will be wasted in looking for good suppliers.
A fee needs to be paid each month to the administration of the franchise in return for supplies. Supplies may include products to be sold in the tertiary sector, trained staff and machinery.
The Subway franchise buys in extreme quantities of bulk buying, so the cost per unit would be significantly reduced then if each unit were bought separately. This means that Subway’s costs will be relatively low so each branch will not have to pay as much for the products to sell onto the consumers. The main things to look for in a good supplier are that they must be reliable, supply on time and should be cheaper than other suppliers.
Because there are other Subway sandwich branches in Edinburgh, it should not require much more effort for Subway to deliver extra supplies to the area. This should be good because the quality standards Subway sets are high so the food should stay fresh until after it is sold on to the customers.
2.3 Secondary Objective 3 – Customers
Without customers, any business will fail so before setting up any firm we must be sure that there is sufficient demand on the market to keep the firm running.
There are many ways of finding out about potential customers. One of these is to look at how many people there are living in the area of Stockbridge. This is useful because it would be convenient for the residents of that area to often have a quick snack or meal from a fast food restaurant. By using the Census Report of 2003, I have found that approximately 6,954 people live in the area with the postcode beginning with EH4, which is the Stockbridge area. This number of residents gives a promising outlook on the number of local potential customers.
Stockbridge is an area near to the main part of Edinburgh so many businessmen will work in the local area so would visit Stockbridge at lunch for a quick meal. I feel those people would be the main type of consumer which the product is aimed at. This is because many of those young professionals want a fast lunch so that they can get back to their busy work and they also will want something healthy because young professionals are known to eat and exercise well to keep in shape. One lunchtime on a working day, I went out to Stockbridge and inspected the number of young people wearing a suit. The results were as expected as a lot of the people I saw were dressed in this way so we can assume they are young professionals. The main target market will, therefore, be young professionals.
The ACORN (A Classification Of Residential Neighbourhoods) group performs vast amounts of research into different aspects of area, some of these include attitudes, housing, socio-economic profiles and media aspects. One of the pieces of data stated that the number of microwave purchases was low, this could mean either two things: people eat out often or people do not use the microwave to prepare meals. It also states that eating out is extremely popular in Stockbridge, particularly in the evenings, and all cuisines are popular except English. These two pieces of data are very useful because they show that many people do not eat at home but go out to restaurants. A Subway branch has potential to be one of these restaurants that people go out to eat at.
The number of households in the area with two or more cars is rated high by the ACORN profile. This could mean that incomes may be fairly high and couples live together. If there are two cars then each one will probably be for each person in the couple, so at least one person in the relationship will work because they need two cars because they will be doing two different things at the same time. This will mean that there is at least one professional in each household and they will most likely be a young professional because 47.6% of people in Stockbridge are 20-49 years of age. The socio-economic profile for the area is the population is well educated and there are nearly three times the amounts of professionals in Stockbridge than the national average. Young professionals are the target market for the Subway restaurant so this information is very promising in constructing a customer base.
Attitudes are very important in every day life. They can determine what we buy, where we go and what we do. ACORN tells that there is a 60% greater chance of someone being a vegetarian in Stockbridge than the national average. This may be the cause for the low meat consumption in the area. The most popular grocery products are ground coffee, dog food, mineral water, fresh fish and fresh fruit. Subway provides its customers with a range of fresh products and almost all sandwiches bought have salad and other vegetables in them. It seems that people in Stockbridge enjoy fresh foods and do not eat much meat. Because of the customisability of the sandwiches, the customers can choose what they would like on their sandwich so if they do not want meat, it will not be added to their sandwich.
Unfortunately, winter holidays are 73% more popular and long holidays are 2.7 times more popular than the national average so sales may be expected to decrease in the winter and on holiday occasions. Many of the young professionals will not travel though because they will be hard working and want to spend lots of time on their job so may not want to travel far away, such as abroad.
Stockbridge is a very affluent area with 3.5 times more people earning £40,000 per annum than the national average. This will mean there is more professionals in the area than in other places. Professionals take their jobs very seriously and do not have long lunch breaks so fast service is very important along with the healthy lifestyle the majority of people now lead.
Leisure activities are very popular in the area as people are very active. According to ACORN, they do lots of sports so probably live by the attitude of a healthy body is a healthy mind. One part of having a healthy body is the food they eat, eating at Franco’s (an unhealthy restaurant in Stockbridge) would not be a common option for healthy eaters, instead they would probably prefer a healthy sandwich.
The results of my survey indicated that most people questioned in my random sample were between the ages of 20 to 39 as shown in the below distribution graph. These ages are also the type of age which most commonly care about their general health, so it is very promising when these are the sorts of people the target market for the sandwich restaurant would be.
Most of the people in the survey turned out to live in the area. Each person who answered that they would visit the restaurant if one were to open in Stockbridge and also said they lived in the area may become regular customers due to the ease of being able to reach the restaurant and they also expressed an interest in visiting the store. Repeat customers are vital to the success of a business and make up most of the total number of sales a business will receive.
This market seems to have vast amounts of young professionals in it which are the main target market. The healthy choice Subway provides would well suit the healthy attitude that most of the people of Stockbridge seem to live on so therefore there is a fairly high demand for healthy fast-food but there is no supply. A niche has been found in the market.
2.4 Secondary Objective 4 – Brand Image
Brand names are very important in modern society and may be the determining factor which will help a consumer decide between two similar brands. I wanted to find out whether Subway’s brand name was as well known in Scotland as it was in the United States of America.
On the side of the cups Subway sells for its drinks, it states, “Subway, the leading franchise in the world.” After some background research I found this to be true as Entrepreneur Magazine rates Subway as the number one franchise opportunity each year for the past 11 years. This shows that it is not just an advertising method. This is one of the methods Subway uses to increase their brand awareness and to help to increase their brand loyalty. Brand loyalty is very important to Subway so they try to make it so that the customers do not forget which store they are in. They do this by putting their logo on most things on the store, for example on the walls of the store and on the wrappers of the sandwiches. I asked other people around school if they had heard of Subway and 19 out of 20 people said they had been to a branch and everyone had heard of the brand. There is not another Subway franchise in Edinburgh but still everyone has heard of it or has been to one.
Over the past 38 years, Subway have been slowly promoting their brand and building up a strong brand image and lots of brand loyalty. If one were to look on the back of the number 54 NASCAR Winston Cup Car driven by Todd Bodine at Watkins Glen, they would see the Subways logo over the back of the car. This is a way Subway promotes their brand into different markets. This is advertising in the market for young people who enjoy watching cars race.
In my survey, I asked people if they had heard of Subway and out of the 50 people asked, only 1 did not know, therefore it is safe to assume that approximately 98% of people in the area know of the restaurant. This is due to the promotions and advertising done by the franchise to increase their brand awareness throughout the United Kingdom. Out of the sample, 54% had purchased something from the restaurant which shows us that about this percentage of the people may be regular customers or have experienced the restaurant. Combined with my question about how customers would rate the restaurant, this shows that Subway is fairly popular with the public in the Stockbridge area so I can say that there is definitely some forecasted demand for the sandwiches sold in the restaurant.
Due to the many methods Subway uses to advertise, they have created a very strong brand image and are very well known. This is very useful for franchisees because their store will be well known and will be easier to attract potential customers. This is good for my primary objective.
2.5 Secondary Objective 5 – Finances
A feasibility study must also cover financial aspects because without money, a firm cannot operate. There are four areas of finance which apply, these are: start-up costs, sales revenue, direct costs and indirect overheads.
Because the firm is a franchise, fees have to be paid to the administration of the firm. This fee is £12,500. There are three different types of store that the franchisee are allowed to open, a lower cost store, a moderate cost store and a higher cost store. The initial start up costs and running costs for the first three months for each is as follows:
With sales revenue, many things must be considered; these include a sales volume forecast and the effect of seasons. The forecast for the volume of sales must be looked at in three timeframes, long medium and short term. In the short term, it seems that many people in the area will visit the restaurant to try it to see if it meets their standards and their tastes in food. This should mean a relatively high volume of sales in the short term but the medium and long term sales will come from repeat customers. Repeat customers form the main consumer base of the majority of markets so they keep the demand high. The sales are not likely to be affected by seasonal changes unless there is a psychological connection with the weather and peoples’ eating habits which is yet to be proven. The price set for the product being sold to the customers is set by the administration of the Subway franchise so the franchisee does not need to research into pricing tactics such as price discrimination or selective discounting.
Direct cost may include materials, stock bought and labour. As shown in the above table, the stock each three months will cost from £500 to £1000 but a freight charge will also have to be paid to get the stock into the store. There would also need to be somewhere to store the stock which must also be paid for. This could be avoided by using a just in time basis or by having frequent, small deliveries of stock. Due to the nature of the business, having small and frequent deliveries would be the best option because the food must be fresh when sold to the customer, ensuring high quality goods and service.
Indirect costs would be the rent, salaries/wages, bills, insurance, interest on loans and depreciation. The rent has been found to be from £2000 to £12000 for two months depending on the type of store bought and the location, the insurance costs from £800 to £2500 each three months and there are many loan schemes that the Subway franchise have to offer if not all expenses can be paid by the franchisee.
There are many different start-up plans Subway has to offer so even if the franchisee does not have enough money to pay the costs, they can get help from Subway in raising the finances. This is very useful because it allows more franchisees to be able to afford to start up the higher cost stores which in turn are of better quality than the lower cost store. The total start-up investment needed to be a franchisee ranges from £86,300 to £213,500. If the franchisee feels they can make this money back through sales then this option seems financially feasible.
Deciding which type of store should be set up is another major consideration. The store will be located in a prime area and so will attract a fair amount of customers so it may not be a good idea to go for the low-cost store as it will be smaller and less attractive so may not attract as many customers. The higher the cost of the store, the more risk there is involved. We would like to have as little risk as possible whilst still being a quality shop so it may not be very practical to go for the high-cost store. This leaves one viable option left, the medium-cost store.
If the franchisee does not want to use one of Subway’s borrowing schemes for some reason such as they may know of a better and cheaper way to raise the finances then they must look for another form of money to pay for the original start-up costs. There are several different ways of obtaining this money. Some of these include bank loans, personal money owned and shareholders. Having shareholders in this particular case is not an option as franchisees cannot have shareholders due to the nature of the business. This leaves two other main options, personal finance and a bank loan. The total £149550 will not all be able to come from the personal money of the franchisee in this case but they could borrow money from friends and family. Borrowing within friends and family causes many social problems, such as family disputes over the firm. Many people will not want to help in the business venture as of the extremely high risks involved in starting up a business. This is why a bank loan would be the opportune way to collect funds to start up the firm. The only disadvantage in applying for a bank loan is that a feasibility study must be done and shown to the bank and the franchisee must be able to prove to the bank that the bank will get its money back with interest in a specified time. This feasibility study would be very useful in showing to a bank manager to help them make a decision on whether they think the risk outweighs the potential profits or not.
By 5 years into the business venture, I hope that at least the initial start-up costs will be paid off and the branch is making a continuous profit. I would like to compare the opportunity cost of investing the £149550 in a building society with extremely low risk instead of investing in the business proposition with very high risk over a 5 year period.
For this table, I assume the branch will make a revenue of £90 000 per year. I also assume that there is a fixed interest rate of 3.5% on my building society investment.
The above table shows that if the base rate remains the same then the interest rate will also be the same and after 5 years, £177 618 would be the amount of money the business would have by the end of the five years that could come from investing this money into a building society in a building society called Nationwide Building Society. If the business venture was taken up, £309450 would be the money made after paying back the loan.
This means that if the money were to be put into a business society then the opportunity cost of this would be that (409 450 – 177 618.50) £231 831.5 was missed out on.
There are many problems with this method to calculate payback, the main one being that costs are not taken into consideration. The costs for the business venture will be fairly high so the figures calculated are not an accurate representation of the future, it is only a model. The cost of investing in the building society is also not considered because of depreciation in the economy for currency.
The second problem with this method is that it does not take into account risk. The risk in the business venture is extremely high and if there are problems then the franchisee will be completely liable whereas the investing in a building society has little and almost no risk attached to it. Risk is one of the main factors in making important decisions about whether or not to become a franchisee. My calculations seem to show that it would be a very profitable to take up the business venture but it has also made me consider the factor of risk in more detail which has led me to the conclusion that it may not be such a good idea to take up the business venture after all.
3.1 Conclusion
After much deliberation, I feel that it is probably not the best of ideas to start up a Subway restaurant in Stockbridge. My main reasoning behind this is because there is so much risk involved. The amount of risk outweighs all of the other factors and the potential franchisee must be 100% sure that the business will succeed.
My feasibility study however is not enough to completely eliminate any doubt of the business failing. Many other factors must also be considered, not just the five main ones I have chosen as I feel they are the main ones.
If I were to go ahead with the proposition, then there would be one major problem. The problem being the lack of room for growth and expansion. This is a very large problem because the business would not get better as the rest of the surrounding business grew. The growth of the branch would be limited but the franchise would continue to grow and new sandwiches would be brought onto the menu so there would be some change, but I feel that the changes would be so slow that customers would get bored of the same place and the same food every time they came and would move to our competitors as the competitors such as Franco’s might bring out a new menu or change its surroundings.
The figures I calculated and used were very unreliable as I cannot accurately predict how many customers I will have per day and how much they will spend in the shop therefore I cannot work out the total revenue per year which I managed to do using very inaccurate and maybe unrealistic figures in my Payback analysis in my Finances section (2.5).
The start-up costs are very high and a large loan would have to be taken out to reach this value of money. With interest being paid over a period of time on a large amount borrowed, the total amount of money that would have to be paid because of interest is very high.
On the whole, I am disappointed that I could not start the business venture but in the end, it is much better to have not started it when there is a large risk of failure. Even with all of the positive information I gathered, this was still not enough to overthrow the inevitable weighting of risk.
If a more in depth feasibility study was carried out and more than just the main 5 factors were considered, there may have been a different outcome. With more time and chances, I would have looked at as many aspects and then rated them in list of priority which could then be used to find out whether it would be feasible or not.
3.2 Appendix
Questionnaire:
Have you heard of Subway Sandwiches?
□ Yes □ No
Have you ever purchased anything from Subway?
□ Yes □ No
How often would you visit a Subway branch per month if one were to open in Stockbridge?
□ 0 □ 1-5 □ 6-10
□ 11-15 □ 16-20 □ Too often
Would area do you currently live in / closest to?
□ Stockbridge □ Pilton □ Granton
□ Inverleith □ Blackhall □ City Centre
□ Other
How would you rate the service and environment inside Subway branches?
□ 1 (best) □ 2 □ 3 □ 4 □ 5 (worst)
What is your gender?
□ Male □ Female
What is your age?
□ 5-9 □ 10-14 □ 15-19
□ 20-29 □ 30-39 □ 40+
Questionnaire Results:
Sample size: 50 people
Have you heard of Subway Sandwiches?
No: 2% (1)
Yes: 98% (49)
Have you ever purchased anything from Subway?
Yes: 54% (27)
No: 46% (23)
If you answered NO to the last question, if one branch were to open in Stockbridge would you ever visit it?
Yes: 17% (4)
No: 83% (19)
How often would you visit a Subway branch per month if one were to open in Stockbridge?
Would area do you currently live in / closest to?
Stockbridge: 23
Pilton: 3
Granton: 1
Inverleith: 11
Blackhall: 0
City Centre: 11
Other: 1
If you have visited a Subway restaurant, how would you rate the service and environment inside Subway branches?
What is your gender?
Male: 58% (29)
Female: 42% (21)
What is your age?
5-9: 0
10-14: 1
15-19: 7
20-29: 14
30-39: 20
40+: 9
Other information collected:
Property Prices:
Stockbridge Average- £154,052
Scotland Average- £82,319
Information from
ACORN profile:
Microwave purchases- Low
2+ Car ownership- High
Socio-economic profile- Educated population, nearly 3 times the national level of professionals
Attitudes- 60% more likely to be a vegetarian
Financial- affluent areas – 3.5 times more people earning £40,000 per annum than national average
Leisure- Winter holidays are 73% more popular and long holidays are 2.7 times more popular than national average. Eating out is extremely popular here, particularly in the evenings. All types of cuisine are popular (excluding English). Very active people- do lots of sports and activities.
Food and Drink- consumption of meat products is well below national average. Most popular grocery products are ground coffee, dog food, mineral water, fresh fish and fresh fruit.
People- 448,624 people in Edinburgh. 47.6% of people are 20-49 years old. 6,954 young pros in Stockbridge.
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