EXAMPLE OF FEASIBILITY STUDY IN NIGERIA
Example of a restaurant feasibility plan
Conducting a feasibility study before opening a restaurant will help the owner to save time and money; this study will help facilitate the success of the venture.
For your restaurant business, the following are important factors to consider when determining feasibility:
- Obtain Market Statistics: Your feasibility study should include understanding the demographic characteristics of your customers like age and income to know the size of the potential market. In this case, you need to know the number of people residing in the area where your business is established.
- Potential Location: The location of this restaurant will go a long way in. like is it an area where there is space for customers to park their cars anytime they come eating? Ensure that the place is easy to access by your customers. Also, there should be a proper tradeoff between location and lease cost.
- Competition: At the time of feasibility study, one should gather information about your competitors. The area should not be a place already full with a similar concept as planned. For this restaurant business to succeed there is a need for proper analysis of its competitors.
- Industry Analysis: for this restaurant business to succeed there should be a proper analysis of the industry to know the health and growth of the industry.
- Cost Structure: One should break down the cost on your menu list and determine the major suppliers in the future and their prices. In this section, there should be a proper cost projection of the food cost projections.
- In your restaurant business, you should carry out management evaluation and capability. This means that the business owner must have the capability to manage the staff and understand properly about the kitchen operation.
Below is a typical example of a restaurant feasibility report
KZ Restaurant engaged a professional feasibility writer, to evaluate the proposed development and use of a portion of the area in Asadam Area Ilorin Kwara State, for a full-service restaurant to be operated by KZ. It is the specialist’s findings that the restaurant concept as described by the owner will be a viable and successful one. The owner is uniquely qualified with a very respectable operational history in similar settings and they have the financial ability to meet the financial requirement of the development.
KZ concept owners believe they can develop the appropriate menu and concept for the trade area and Property with the owner making a preliminary estimate of sales projected in a range of from #5 Million to #6 Million annually. Based upon our experience, understanding of the demographics of the site, and competition in the area, it is believed that a more accurate estimate would be between #4 Million and #3 Million.
KZ estimates a capital investment of #1 million to cater for its costs, furniture, fixtures, and equipment. The professional who is writing the feasibility believes that #1M for KZ investment, as represented by him, should be adequate to cover these items.
Tenant Occupancy Cost:
The annual cost of occupancy is approximately #100,000, or #25 per square foot, on a gross basis, which is on the lower end of the rent range as compared to trade area restaurants with occupancy costs of from (#35- #60 per square foot). The Tenant’s occupancy costs would allow KZ to operate profitably even at lower sales volumes than the projected #3M sales. The industry target ratios for Occupancy Cost to Sales of 6-7% can be achieved at low annual sales of #1.5M to #1.7M. The Tenant’s #3M sales estimate equates to #15,000 annually per seat, if it has 50 seats and #375 per square foot if its 20,000 square feet both on the upper end of restaurant sales volumes in Ilorin Kwara State. The professional writer forecasts a more conservative #2 to #2.5M due to the size of the property and the population in the area. The percentage rent break-points is additional money for KZ when sales exceed #2,850,000.
Tenant Financial Returns
The specialist who is writing KZ restaurant feasibility study has not been given any financial information he can only speculate as to the KZ’s return on investment at varying sales volumes. Assuming KZ manages its cost of goods, labor expenses, and other operating costs to industry margins and standards; we estimate that KZ should be achieving a 15% to 20% E return on #3M in sales.
We believe that the location of the business presents a high level of risk because it’s not a trade area. The area has low population densities and it is very quiet in the evening and it has no history of full-service restaurants.
PROJECTED CONSTRUCTION BUDGET
The restaurant owner gave us the information about the initial investment, which is #1,700,000.
Other Expenses # 200,000
|Location||Asadam Area Ilorin, Kwara State.|
|Size Space||2,000 per square feet|
|Seating||50 and more|
|Hours||Lunch and Dinner|
|Sales||# 1, 600,00|
Cost of opening
Construction # 900,000
Kitchen # 230,000
Kitchen Equipment # 350,000
Furniture and fixtures # 120,000
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The Business Culture
KZ restaurant is an independent business owned and managed by an individual. The business is dedicated to furthering making African foods movement and running its business in a sustainable and professional manner.
SWOT ANALYSIS OF KZ RESTAURANT
- The visible location in the Centre town
- KZ restaurant is a good alternative to many restaurants nearby
- Experienced operator with financial resource
- The restaurant serves as an amenity to the community
- Limited potential for lunch business
- A limited number of seats (50 seats)
- Strong competitors some other nearby restaurant
- The restaurant is dependent upon the economy and consumer’s income
The town will have an attractive facility that can serve as a local gathering place for lunch and dinner.
There is no major threat
We assumed that KZ’s primary customers are based in places where they can take a 10–15-minute drive to the restaurant from various parts of town. Other full-service restaurants require a population of approximately 125,000 to 150,000 people within a 10-15 minute drive-time.
Ilorin Center’s unadjusted 10-minute drive time population is 180,649; its 5-mile population is 162,573 and includes areas as Post office Ilorin, Unity, Offa- Garage to Taiwo and Oja oba to Gere Alimi.
Incomes within the adjusted trade areas are the highest in Oja Oba with an Income of over #175,000 with over 26% with an Income in excess of #200,000. It is not expected that Oja oba commercial district will generate meaningful traffic to the location of the restaurant. Commercial development within the adjusted trade area is concentrated along Unity Road.
Gere Alimi area of Ilorin is surrounded by submarkets in all directions with more retail and food-oriented options than what Asadam offers the consumer. With the exception of Unity road, where retail is concentrated in a downtown Main Street setting, the competing submarkets are comprised of typical suburban shopping centers with ample surface parking and multiple traffic generators. There are over 10 full-service restaurants in the post Office and Unity submarkets.
The two (2) closest competitive submarkets are Care for Stomach and Aroma, Care for stomach is the more established, and Aroma with new regional and national restaurant concepts. There are over 12 full-service restaurants in the core trade area of the Gere Alimi core trade area including Gere Alimi, Offa Garage, Post Office, and Oja- oba. It is our opinion that the market is close to saturation for additional full-service restaurants.
The key competitors to restaurants in Offa garage are Eat well and Stomach dose, both strong performers with Eat well open only for diner and the stomach does open for both lunch and dinner.
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