A Feasibility Study for a Quick-Service Restaurant

Abstract

The purpose of the study is to determine the feasibility of opening a fastfood restaurant selling toufunao in Jingyang living area, Wuhou District in the city of Chengdu. Toufunao is a local food extremely popular in the city of Leshan in Sichuan Province of China, but toufunao hasn’t enjoyed the same popularity as other types of Leshan food have in Chengdu. The study will first look at the literature with regard to restaurant feasibility study, and then follow the four steps proposed by the literature to conduct the feasibility study of the proposed restaurant.

Market area, site selection, competition and financial analysis are made through observational research, surveys and literature review, and results of the analysis are concluded. The Graduate School University of Wisconsin-Stout Menomonie, WI Acknowledgments I want to extend my sincere thanks to Dr. Brian Bergquist for his consent to be my thesis advisor, his time and hard work advising on my thesis progress and his valuable suggestions without which I could never complete my thesis.

I also want to extend my thanks to my husand for his help with conducting surveys and formatting my thesis, and his encouragement when I was not making progress with my research. Thank my parents for their support for quitting my job in China and furthering education in US.

Chapter 1 Introduction

The paper is to present a proposal for a master’s thesis which seeks to conduct a feasibility study for a fast-food restaurant selling toufunao in Jinyang Road, Jinyang Living Area, Wuhou District, Chengdu, the capital city in Sichuan Province. Toufunao is a famous food in Leshan, a town with 200,000 people located 130 krn South to Chengdu, the capital city of Sichuan Province with 4, 170,000 people. It is a hot and spicy soup made out of toufu, starch, rice noodles, fried soybeans and varieties of seasoning, and it is usually eaten with niuroubing, which is like a beef sandwich.

The combination of beef, bread, toufu, starch, rice noodles and varieties of seasonings provides balanced nutrition containing protein, carbohydrate and calorie. The soup and niuroubing can be prepared in large amount and saved by sitting them on holding pan, thus reducing the serving time to only around 30 seconds. The cost of the food is very low and is only around 10 cents. 30-second preparing time, balanced nutrition and low cost makes the food an ideal candidate for fast food. Despite toufunao’s popularity in Leshan, it hasn’t found its presence in Chengdu, yet.

However, food oiginated in Leshan has already gained a good reputation in Chengdu, and Leshan, as a result is considered one of the best cities to go for good food for people in Chengdu. Two types of food originated in Leshan, have already been well accepted by people in Chengdu. They are boboji and shaokao. Boboji are small pieces of precooked meat and-vegetablesskewered on thin bamboo sticks and then soaked in a specially-made source for hours before serving. Boboji is premade and can be served upon order. When boboji is served, a bobo, a Chinese word for a big bowl, contains both the source and the skews of meat and egetables, will be brought to the table. Then people will eat meat and vegetables off the bamboo sticks, which makes the eating experience not only a convenient one but also full of fun. Boboji didn’t enter the Chengdu market until the beginning of this century, and have developed very fast in the market since then. Leshan, as the place where the type of food originated from, is added to the names of certain boboji places as an indicator of the genuineness of the food and a brand to attract customers. The price of boboji on Chengdu market is 6. 5 cents per skewer, and is mainly sold on a shabby food stands and served on shabby tables in the open air on the streets. Despite the unpleasant eating environment, people still come in groups of three or four and each group consumes several hundred skewers of meat and vegetable. Shaokao are small pieces of uncooked meat and vegetables skewed on bamboo sticks, and then grilled on burning charcoal while a variety of spices are added onto the meat and vegetables. Unlike boboji, shaokao is not premade, but fresh meat and vegetables have to be grilled for around 5 minutes before serving.

It was introduced to the city in the 1990s, thus more shaokao places can be seen on the Chengdu market than boboji. Exactly same as boboji, Leshan is also added to certain shaokao places as an indicator of the genuineness of the food and as a brand to attract customers. The price of shaokao is also 6. 25 cents per skewer, and is also sold on the food stands but usually without tables, since compared with boboji, shaokao is less juicy thus is usually ordered as to-go food and is eaten while people is on their way.

Toufunao and shaokao are both considered as xiaochi, meaning food eaten between meals. However, toufunao itself and the way it is served decide that it can be eaten both as xiaochi and meals, which means potentially higher market demand. The proposed study seeks to decide the feasibility of opening a quick-service restaurant with only toufunao and niuroubing as its menu in Jinyang Road of Wuhou District in Chengdu, the shopping area of Jinyang living areas.

The following discussion will provide the reader with an understanding of the background of the study, the purpose of this study, reasons why this topic was important and methods selected for data collection and analysis. Statement of Problem The purpose of the study is to determine the feasibility of opening a fast food restaurant in Jinyang Road, Wuhou District, Chengdu, China. Data will be collected through observational research method and through a survey distributed to potential customers in Chengdu, China.

Research Objectives

1. The following questions will be answered after the completion of the research:
2. What area can be identified as the market area of the proposed restaurant?
3. What is the customer profile of the market area of the restaurant, such as population size, consumer spending patterns and average household income, etc?
4. Who are the competitors of the proposed resturant and how are they doing?
5. Which of the chosen locations is the most desirable one based on restaurant site selection guidelines?

Will the proposed restaurant be able to gain profit with the proposed pricing, operation hours, the estimated restaurant turn over rate, and estimated controllable and uncontrollable expenses? Assumptions of the Study In view of the successful entry of boboji and shaokao into Chengdu market, established popularity of toufunao in Leshan local market, and the fact that toufunao can be both xiaochi and regular meals, an assumption can be made that a fast food restaurant specializing in toufunao and niuroubing and located in jinyang road, Wuhou District, Chengdu, where 60,000 people currently live can be a success as well.

Definition of Terms The following terms are listed and emphasized to give clarity to the reader in reading the research: Accessibility: road capability and adequate ingress and egress of the proposed restaurant site. Customer profile: information of the customers of the proposed restaurant regarding their ages, incomes, occupations, their reasons for visiting the restaurant, and their frequency of their visit Demography: the statistical study of people and their characteristics.

Enclosed mall: a shopping center entirely inside a roofed structure, so that entrance to the mall is controlled by a limited number of entrances and most stores are accessible only via interior corridors Direct competition: the food service facilities that are competing directly with a specific menu of the proposed restaurant Generative area: concentrations that attract people and automobile activity Indirect competition: the food service facilities that are not competing directly with a specific menu of the proposed restaurant

Market area: the geographical area from which a business draws its customers Seat turnover rate: The number of times each restaurant seat is occupied by different patrons during a particular meal period.

Chapter 2 Literature Review

National Restaurant Association divides a restaurant feasibility study into five steps, which are 1) identifying market area and gathering of demographic data such as age, sex, income, dining-out habits and other characteristics of potential customers 2) concept development, which involves using the data about the population in the market area and forming and evaluating a restaurant concept that fits the area’s needs and preferences. 3) site analysis, a process to determine whether the characteristic of the site and the competitive environment around the restaurant will support such a concept. ) competitor analysis, which involves investigating competitors in the market area through a competitor analysis worksheet. 5) financial analysis, a process of specifying revenue-generating criteria, computing estimated average-check and revenue figures, estimating operating expenses, analyzing and interpreting the financial statement, and finally, developing an implementation plan. (http://www. restaurant. org/m~a~magArticle. cfm? icleID=294) The chapter will include published knowledge that correlates with the five steps excluding step two, because in this study the concept has already be firstly chosen, thus including four sections.

The first section will look at literature about how a trade area or market area should be determined, literature of the demographic characteristics and consumers spending patterns of the market area. The second section will comprise literature about competition analysis, and the third section will include literature about site-selection analysis for a start-up restaurant, and the last section will include literature of financial analysis. Market Area Before any research can be done, the market area of the proposed business must be identified to go further in the exploring process.

A market area is defined by Melaniphy(1992) as the area from which a unit can expect to capture approximately 85% of its business. (P56). For an established restaurant business, it is not hard to get market area information. Surveys can be made to gather information about where . the customers are from, and plots on the maps can be made to give a clear of picture of the market area or trade area. (Melaniphy, 1992). On the other hand, it is hard to predict the market area of a proposed restaurant because no information as to where the customers are from is available for a future restaurant.

But this information can be collected by gathering such information from vehicle stickers, license plate, competitors’ customer0 interview, mailed-back questionnaire from competitive facilities. (Melaniphy, 1992) However, in this study, market area can be easily identified since the proposed site will be located right across the street of a big enclosed shopping mall and customers of the restaurant will be mostly customers of the shopping mall. Thus the market area of the supermarket will be the same as that of the restaurant. The shopping mall is now still under construction and all businesses are scheduled to open on Oct. st in 2006, the national day of China. The following discussion will first identify the market area of the shopping mall and analyze the characteristics of the market area, and then describe the future development of the market area of the proposed restaurant. A. Market Area Identz$cation The site of the three-floor and altogether 50,000 square meters (538,213 square feet) shopping mall is located in Jinyang living area, Wuhou District, Chengdu on the “T” comer of Jinyang Road and Jingji Road in the west of Chengdu. Jingji Road is now still under construction and will be completed in May of 2006.

Jinyang Road is a six-lane road extending to the bordering Shuangliu county, and traffic flow of the road is as high as 64 motor vehicles (including cars, taxes and buses) per minute during non-peak time. (observed at 16:25 Beijing Time on Jan. 20,2006). The four-lane Jingji road to be completed in May will connect Jinyang Road and Wuhou Road. Wuhou Road extends to Wuhou High-Tech West Zone, a state-level high-tech area which host 214 companies. The nearest supermarket for residents in Jinyang living area is twenty-minute bus ride plus bus waiting time ranging from none to half an hour.

However, the establishment of Bailian, the shopping mall under construction is located within walking distance of most housing projects in the living area and five-minute bus ride of a few housing projects. Thus all housing projects in Jinyang living area can be identified as market area of the shopping mall. Jinyang living area is one living area of Wuhou District, one of five Districts in Chengdu. Jinyang livng area was first developed in the year of 1996, when the country first initiated the housing reform policy.

The widely called Five Big Gardens, which refers to the five housing projects located in the northem part of Jinyang living area, namely Zhongyang Garden, Huangjia Garden, Mingliu Garden, Hongyun Garden, Jiada Garden, are the first group of housing projects built to sell in Chengdu after the implementation of housing reform in China. Following the first group of housing projects, four projects were built in the area at the beginning of this century, and they are Haitian Ge, Chuiti Chunxiao, Jiaoda Courtyard, and Huisuo Garden.

After September of 2004, eleven new housing projects in this area started construction and is now put on the market, which are Ruitai Jincheng, Yihe Yaju, Xinyuan Jiayuan, Shuirun Tixiang, Jinyang Yingzuo, Jiangyuan Caiting, Lijing Huating, Huaxiang Tingyuan, Zhuyun Tianfu, Xiejia Guitian and Xinling. There are currently 60,000 people living in Jinyang living area, but after all of the newly-built housing projects are occupied with residents, the total living capacity of this area within a five-minute bus ride to the shopping mall will be 100,000 people. http://www. 028028. net~shownews. asp? id=l69) However, according to Li Kui of Wanda Property Development Company, (http://www. ~ipu. com. cn/info/mall/kfsw/2004-8-19%5C200408 1718. html), a 19C14 shopping center with an areage of 3000 square meters needs no more than 10,000 people, with an areage from 3,000-10,000 square meters( from 32,293 square feet to 107624 square feet) needs 100,000 to 300,000 people, and with an areage of more than 30,000 square meters (322,927 square feet) needs no more than 300,000 people.

The shopping mall under construction has an areage of 50,000 square meters (538213 square feet), thus it needs more than 300,000 people. With a total population of 100,000, the market area of the shopping mall is not able to support the shopping mall, but it is big enough to support a fast-food restaurant sitting across the street from the shopping mall on Jinyang Road. Thus, Jinyang living area, which is within 1. 5 kilo meters’ radius to the proposed restaurant site, and currently lives around 60,000 people with a potential to grow up to 100,000 can be identified as the market area of the restaurant.

Population Profile, and Consumer Spending Pattern of the Market Area After determining the market area of the restaurant, the following paragraphs will look at literature of the demographic profile and consumer spending pattern of market area. Demographic profile of the people in the proposed site is essential in determining whether or not to open a restaurant in a proposed site. Demographic profile includes the total population in the market area, the number of employed persons, working women, income level, population age, housing and family structure.

Among all the different aspects of demographic profile, total population of certain area reveals some information of the area in question, but it is the population profile, especially income distribution and age distribution, that reveals the information needed by any business person to make their decision. As Melaniphy (1992) indicated, “what matters is not the total number but rather the characteristics of those people. ” “A more realistic way of expressing population needs is to determine how many people you should have in the appropriate age and income categories. (P116). ” In more than 30 years of evaluating and selecting locations, I have found age and income to be the most sensitive demographic elements in identifying the right opportunities. “(P117). It can be found from Melaniphy (1992)’s statements that age and income distribution reveals the most how much eating-out need there is among the researched population. Thus, in this case study, the researcher will focus on the two most important aspects of demographic characteristics, age and income distribution and also discuss other related demographic features.

According to National Restaurant Association (1998),”in addition to the basic information on your potential customers gained through demographic studies, you will need to know more about their habits of eating away from home. ” But how to determine their eating-out behavior, National Restaurant Association (1 998) provides the following guidelines based on different types of restaurants and their targeted market segment. “a. The average person (8 years and older) eats out 4. 1 times a week b. Singles and married couples with no children eat out more frequently than families with children. c. As income increases, consumers eat away from home more frequently d. People 18 to 24 year old eat out more often than other age groups. e. households with a working female eat out more frequently than those with a nonworking female. ” Matching up these guidelines with demographic characteristics information provides the clue to the consumer spending behavior. In this study, population profile and consumer spending pattern will be collected mainly through surveys due to the lack of such statistics from the government.

Future Development of Market Area Despite the continuing growth of the area, the living infrastructure in Jinyang living area is not desirable at all. There are only one primary school, one bank and some independent front store businesses, but there are no middle schools, kindergartens, hospitals, post offices and shopping center in the area. The ten roads within the living area are either bumpy and dusty or dead-end roads. Wuhou District government announced its plan at the end of 2004 to invest one billion yuan (125 million US dollars) into the mprovement of living infrastructure in the area, which includes building two middle schools, four primary schools, seven kindergartens, one hospital, three public restrooms, two garbage transferring centers, one post office, and two agricultural product market, and building ten more roads and repairing ten old roads within the living area. The investment is supposed to completely change the living condition of the area and make the living conditions in this area comparable to Shuangnan living area, area living area in Wuhou District selected as the best living area in 2004 by Chengdu city dwellers, within three years from then. http://house. scol. com. cn/htm1/2004/09/00500 1001476641. shtml) The housing price is souring after the government’s announcement. When Five Big Garden was just put on market in 1996, the selling price was then around 800 yuan (100 dollars) per square meter, but in the year of 2004, the price of the second-hand apartments in the area was already 1,600 yuan (200 US dollars) per square meter and apartments of new housing projects are selling at the price of 2,400 yuan (300 US dollars) per square meter.

However, compared with Shuangnan living area, the best selected in 2004 by Chengdu city dweller, the average housing price of Jinyang living area was around 1,000 yuan (125 US dollars) per square meter, or 38. 5% lower in 2004. The essential reason of the low price rate of the projects is that the living infrastructure of this area is not well developed. After the announcement of the government investment plan, the housing price in Jinyang living area has been increasing at a higher rate than the city average.

In the last month of 2005, the price of new housing projects in this area was 3750 yuan (469 US dollars) per square meter, when in Shuangnan it was around 4500 yuan ( 562 US dollars). The difference was narrowed down to 750 yuan (94 US dollars) or 17 percent, compared with 1,000 yuan (125 US dollars) and 38. 5% in 2004. ( http://www. 028028. net/shownews. asp? id=169) The soaring housing price in Jinyang living area, which is identified as the primary market area of the shopping mall, the continuing addition of new projects into the living area after the end of 2004 when the government nnounced its investment plan and the popularity of the new projects among apartment buyers indicate that Jinyang living area is going to attract more residents with middle-to-high income level. This provides an increasing market demand for xiaochi and fast-food in this area. Site Selection Analysis After all the market area identification, population characteristics and consumer spending pattern, and competition analysis have been made, the next step to be made is to decide which specific place the proposed restaurant should be located, or ” identify locational opportunities within the area delineated. (Melaniphy,1992, P264,) There is a wide range of literature concerning site selection, and all the literature agrees that site selection is essential to the success of any retail business, including restaurant business. Nobody emphasized the importance of site selection more than Salvaneschi (1996). He indicated in his book that “When you see a retail business struggling and on the verge of bankruptcy, it is not because the location didn’t have people with a median income of $32,000 or that the age group was 40-45 instead of 35-45. These subtleties are important, but they are relative.

The real reason for low sales is that the location lacks one or more of the essential location factors. ” (P 108) What criteria should be applied to evaluate a proposed site for a restaurant? WalkerLkLunderg’s (2005)’s site selection criteria checklist is as follows, “Demographics of the area: age, occupation, religion, nationality, race, family size, educational level, average income of individuals and families. Visibility from a major highway. Accessibility from a major highway Number of potential customers passing by the restaurant (potential customers might be only travelers going through a community, drivers, local workers)

Distance from potential market f. Desirability of surroundings” (P8 1) Salvangeschi says, “When looking for the right location for your retail business, you must consider essential location factors, including: visibility, accessibility, regional exposure, high density, growth, operational convenience, safety and security, adequate parking. “(P107) There is some difference between the site selection criteria checklist between Walker&Lunderg (2005) and Salvangeschi, but they complement each other with their different emphasis.

In this case study, a specific check-list (Walker&Lunderg, 2005, P95) and Fast Food Site Selection Guidelines (Melaniphy, 1992, P266) will be combined and adjusted to evaluate the proposed site. Competition analysis Competition analysis seems to be easy but it is because of the mentality towards competition analysis that makes a lot of unsuccessful businesses. Competition analysis is not just randomly choosing the restaurants that is located to the proposed restaurant, and have a rough idea of what the competitors are like, but to carefully choose the direct and ndirect competitors, and analyze all the aspects of the restaurants ranging from exterior appearance to traffic counts. According to Mallaniply, competitors can be further divided into direct competitors and indirect competitors.

“Direct competition represents those food service facilities that are competing directly with a specific menu. For example, a steak and lobster restaurant operation is directly competitive with other steak and lobster operations, and a fast food hamburger facility is directly competitive with other fast food hamburger facility”. Melaniphy, 1992, P149) “Indirect competition represents competition that is less direct such as a steak restaurant compared with a fish restaurant, or a fast food chicken operation compared with a pizzeria. “(Melaniphy, 1992, P 149). Salvaneschi(l996), former vice president of McDonald’s and of Kentucky Fried Chick had a different approach towards competition, but it does provides another. perspective of looking at competition. He indicates that two kinds of analyses should be done when sizing up the competition in an area you have tentatively selected for your own site.

First, complete the competitor’s location analysis. Second, complete the competitor’s strategy analysis. (PI 5). The location analysis can be conducted as following: “From the outside, evaluate whether the facility is properly located and attractive. From inside, judge the layout of the store and its merchandising, pricing, personnel training and attitudes, inventory level, cleanliness, lighting, and the number of people walking out of the store without any purchased merchandise. (Salvaneschi, 1996, P15) Competitor’s strategy analysis can be done through “a straight interview with the manager or owner and with some of the employees”, and “analyze the advertising of your top competitor” (Salvaneschi, 1996, P17). In this case study, observation and interview with store employees are going to be made to collect competitors’ information, but analysis of competitors’ advertisements is impossible to be done due the fact that none of the competitors have any advertising. Restaurant competition analysis worksheet (NRA, 1998) will be adopted to collect competitors’ data.

Pro Forma Financial Statement

After all the previous researches have been made, the final step of the feasibility study comes to the Pro Forma Financial Statement. The pro forma statement “presents the estimated projected revenues and expenses for a proposed or existing business over a certain period of time in the future. ” So basically this analysis answered the question “Can we earn money? “, and it provides “a quantitative assessment of the sites potential. ” (lJRA,1998, P5 1,). Four steps are usually utilized to develop a pro forma financial statement, which are, ”

1. Specify revenue-generating criteria.
2. Estimate average checks and revenues.
3. Estimate expenses.

Analyze and interpret the income statement. ” Revenue-generating criteria are the proposed prices, operating hours, customer volumes, seat turnover rate, average check rate, and etc basis operating conditions that can be used to calculate potential revenue. (NRA, 1998, P52). In the same way, the expenses can be calculated by dividing it into controllable expenses, which usually includes direct payroll cost, employee benefits, direct operating expenses, music and entertainment, marketing, utilities, administrative cost, and repairs and maintenance, and uncontrollable expenses, which usually includes rent, insurance, and taxes.

With all the figure of estimated expenses and revenues, Melaniphy(l992)’s criteria can be used to determine whether a restaurant is able to gain profit or not. “For the restaurant or fast-food operator who is not considering a ‘watering hole’, rent, as a percentage of sales, should usually be about 6%, although occasionally it may be as high as 8%. Total occupancy costs (rent plus maintenance and taxes) should not be more than 10 to 12%.

In the initial years, the percentage of rent to sales may be between 8% and 10% because of the high cost of setting up a new business. However, by the third year, the percentage to sales should be between 5% and 6%. With rent, real estate taxes, insurance, maintenance, and any local use taxes, the total percentage to sales should not exceed 10% to 12%” Chapter I11 Methodology The nature of the research determines that both primary research and secondary research should be conducted to collect information needed for the feasibility study.

Observational research method will be used to collect the information regarding competition and site selection, and a survey will be conducted to collect information concerning consumer’s spending pattern. In view of the different research methods, this chapter will include information about how research subjects will be selected, what data collection instrument will be used to conduct the survey and the observational research, what procedures will be followed to collect the data, and what sample selection criteria will be applied, and how the collected data will be analyzed.

Limitations of method, sample and procedures will also be addressed at the end of the discussion. Subject Selection and Description: Observational research method will be used to conduct the competition and site selection research. Features of the proposed sites will be evaluated by applying all the twenty-four items on the location information checklist (See appendix I), and the one with the most ideal location feature will be chosen to be the restaurant site.

Direct competitors and indirect competitors will be identified, and observational research will be conducted in the direct competitors’ restaurant, and information such as location, turnover rate, operation hours, and average check price will be collected. (See appendix 3). Surveys will be conducted to collect consumer spending pattern and market potential data. The subjects of the survey will be passers-by at the intersection near the proposed location. Passers-by will be chosen based on a five-minute interval.

Instrumentation: Site selection criteria checklist (See appendix 1) and Restaurant Competition Analysis Worksheet (See appendix 4) will be used to collect observational research information. A questionnaire will be used to collect consumer spending behavior information (See appendix 7). The questionnaire was created by the researcher for the sole purpose of this study. The first three questions(question 1-3) on the questionnaires are designed to find out how much money residents within the market area spend on their three meals, thus to guide the pricing strategy of the proposed restaurant.

The next three questions (question 4-6) are designed to find out where people usually have their breakfast, lunch and supper respectively. The next question (question 7) is designed to find out how much money residents within the market area usually spend on xiaochi, thus to decide how big the xiaochi market is within the market area. The next two questions (question 8-9) are designed to find out the population information of residents within the market area.

Question 10 is designed to find out whether there is an established reputation of t o u h a o among people within the market area. The next six questions (question 11- 16) are designed to find out approximately how much percentage of people within the market area have ever eaten toufunao before, and whether people who have ever eaten toufunao will have a positive or negative feeling toward the food, including the price, the appearance and the taste of the food, and whether people who haven’t eaten t o u h a o before will be interested in trying the food.

The next three questions (question 17-19) are designed to find out how much percentage of people within the market area have ever eaten niuroubing before and their expected price of such type of food. Question 20 is designed to find out whether people would like to eat the food both as xiaochi and regular meals. Question 21 is designed to find out how many times people will possibly eat the food within one week. The rest of the questions are designed to find out the percentage of people within this market from Leshan and their tendency to eat the local food from their ometown, thus to determine how big the Leshaners’ market is. Data Collection Procedures: The location data was collected through a period of one week from January 9thto January 1jth. Site visits are made to collect information such as site features, and phone calls are made to the property development company to collect information such as water, energy and natural gas supply. Observational research was done at 8:00 am, 12:OO pm and 6:00 pm from January 1 6 to January 22ndto collect information of traffic flow at a ~ ~ different time of a day.

Competitors’ data was collected again through a one-week period from January 2 to January 8. Data was collected by eating in the competitors’ restaurants at lunch and dinner on different days of the week. The survey was conducted through a 7-day period from 4:OOpm to 7:OOpm from to Feb 1 3 ‘ ~ Feb 19’~. The researcher stood at the intersection area of Jinyang road and Jinyan road and completed 20 surveys each day. It took approximately 5 minutes completing the survey, thus, a five minute interval was applied before. he next subject starts to do the survey in order to ensure unbiased sample selection. If the selected subject chose not to do the survey, the research immediately moved on to the next subject. The researcher explained to the selected passers-by before they were asked to do the survey that the survey would be done as partial completion of her research paper, and their response will be kept confidential. It was also explained to the researcher that they would get the ballpoint pen as a reward for their participation in the survey.

Data Analysis A number of statistical analyses were used in this consumer spending pattern study and market potential study. The Statistical Program for Social Sciences, version 10. 0 (SPSS, 2002) was used to analyze the data. Due to the nominal nature of all the questions on the questionnaire, only descriptive statistics analysis will be made to find out the consumer spending pattern and market potential data. Limitations The limitation of the research includes the following two points:

The way that the survey is conducted, which is that the researcher gives out the survey, stand by the selected subject, and wait until the survey is completed might make the subject very conscious of themselves. Thus, they might choose the higher amount of money than they actually spend for their meals, etc, because they don’t want the researcher know that they can’t afford meals of higher cost. b. Again, due to the fact that the researcher will stand by to wait until the selected subject finish their survey, asking about family income will make the subjects more aware of security issue when revealing their family income.

As a result, no family income questions are asked in the questionnaire, and no such information can be collected. Chapter IV: Results Since three researches have been done to collect information concerning sites, competitors and consumer spending patterns, the following result analysis will be conducted in the corresponding three areas: competition analysis, site selection, and consumer spending pattern and market potential research.

Competition Analysis Result

There are around 45 restaurants (observed on January 4th) in Jinyang living area and 21 of them are scattered around the six streets on the southern side of Jinyang road, while 24 of them concentrated on Jinyan road, the only street on the northern side of Jinyang living area, and the intersection area of Jinyang road and Jinyan. There will be no competition from restaurants located in the southern side of Jinyang road for the restaurant on the chosen site. There are altogether three up-scale restaurants, seven midscale and eleven fast-food restaurants in the northern side of Jinyang road.

There is no direction competition for the proposed restaurant in this area because no restaurant in the area is selling toufunao. However, there are eleven in direct competitors in the area selling various types of fast food ranging from fried rice, fried rice noodles, dumplings, and so on. The competition analysis will look at a wide range of aspects such as the service, quality, interior and exterior appearance of the five restaurants which are closest to the proposed restaurant. From the information collected see appendix 4 ), it can be found that Jiuzhiding is the most competitive one among all of the five competitors. Jiuzhiding has the highest average check, but it also has the highest turn over rate and the highest daily sales. Its success can be contributed to its pleasant eating environment, which is composed of adequate lighting and color, green plants, beautiful decorations, clean tables and floors and spacious set-up. Servers and chefs of the restaurant are all wearing uniforms and hat.

The interview of seven Jingzhiding customers shows that people eat in the restaurant not because they like the food in the restaurant, but because they feel safer eating in Jingzhiding because they can see how their food is made and the atmosphere in the restaurant is also very pleasant. Four out of six customers mentioned in the interview that the food in the restaurant doesn’t taste very good except fried rice noodles. (interview made on January 5th,2006 outside the restaurant).

Compared with the Jiuzhiding, the other restaurants are either dirty or untidy, inadequately lighted or decorated, and none of the five restaurants require employees wearing hat and uniform. The research shows that the food quality of Pagaimian and Yuntun is of higher quality, but Jiuzhiding still has the highest seat turnover rate. The fact shows that with the improvement of people’s living standard, restaurant hygiene and overall atmosphere are now becoming an important factor of people’s decision as to where to eat.

The research result shows that Jiuzhiding will be the most competitive one among all of the five competitors, and the proposed restaurant must take measures to build the overall atmosphere of the restaurant, and set up effective restaurant regulations to ensure a clean and tidy restaurant environment. Site Selection Result Applying all the site selection criteria on the proposed sites, the researcher found out the following facts concerning the site. The total area of the proposed site is 21 square meters, with a 3 meter site frontage, and it is a mechanical building.

There is a big area of around 200 square meters right in front of the building of the proposed site, so it is 10 meters away from the bicycle track on the road. After inquiry of the property development company of the building and the Wuhou District Development Office, businesses of the building have no rights to use the open area for any business purpose, including putting their advertising board and setting up tables onto the open area. (Telephone calls made to Wuhou District Development Office on January 9th,and personal visit made to the housing development company on the same day).

The average afternoon traffic (observed from 12:OOpm to 7:OOpm observed on January loth) on Jinyang road, which is a six-lane main road is 51 vehicles per minute, and 9 people per minute. A bus stop is around 20 meters away from where the proposed restaurant is located. Jinyang road didn’t have a median in this area. However, there is no traffic lights either in the intersection of Jingji Road and Jinyang Road. It is said that a new traffic road will be built there, however the hearabout is hard to be confirmed through the traffic department of the city.

For now, there are white strips in the intersection for pedestrians to cross the road, but compared with traffic lights, it is still not as convenient for pedestrians across the proposed restaurant to cross the street. There is no posted speed limit on Jiangyang road, but the city’s limitation put on vehicles driving between the second and the third ring road is 40 kilometers per hour, but due to the problem in the law enforcement, the average driving speed of vehicles on the road is around 60 kilometers per hour, making it hard for the proposed restaurant to attract consumers on the these vehicle.

There is no car parking facility available in the proposed site, which is suitable for such a fast-food restaurant establishment because the restaurant is targeted toward people with medium income, whose major transportation is still bicycles and buses. Since it is a new building, it is well equipped with draining and sewage system, and with internet access and cable. However, there is no natural gas available in the building, which will make the energy supply either electricity or liquefied gas, and both will increase the food cost.

There is also no exiting structure in the proposed site, which makes the restaurant decoration much easier. It is still unknown what businesses will be open next door to the proposed site within the same building, and at this stage it is hard to gain information of what businesses will be open near to the proposed site within the same building. The offering price of the proposed site is 3,000 yuan (375 US dollars per month) The same observation was also made to anther location, which is also on the northern side of Jinyang road, but around 300 meters further east towards the direction of urban Chengdu.

It is located on the comer of Jinyang road and Jinyang road, a community road where around 300,000 people get in and out of their housing projects everyday. The vehicle traffic is exactly the same as that of proposed site No. 1, however, there is a big difference in terms of the passers-by traffic of the proposed site No. 2. The afternoon traffic on the northern side of Jinyanroad (from 12:OOpm to 7:OOpm observed on January loth)is 32 people per minute, which is around four times that of proposed site No. . The total area of the site is 18 square meters, which is almost the same as that of site No. 1. The site frontage is around 3 meters in width and 6 meters in length. There is no open area in front of this site and it is right next to the side walk. The nearest bus stop is around 10 meters away. However, since the site is located around 400 meters away from the shopping mall, the market area of the site can’t be identified as the whole Jinyang Living area.

Instead, only some of the housing projects in the northern side of Jinyang road, which includes Haitiange, Xiejiaguitian, Cuidichunxiao, Zhongyang Huayuan (project one and project two), Huangjia Huayuan, Jiaoda Huayuan and Mingliu Huayuan, where around 30,000 people lives can be identified as the market area of the proposed site No. 2. A traffic light is on the intersection of the Jinyang road and Jinyan road, which make it easier for pedestrians on the other side of the road to cross the street.

What’s more, a college of around 1,200 students and a housing project where around 2,100 people lives are located right across the street, which increase the market area population by 3,300 people. There is no parking area within the restaurant area, either, which is not a serious issue in the city because only a very small fraction of the residents have cars. There are no existing structures either in this site and all properties from previous ownership are removable.

Drainage, water supply, electricity supply and natural gas are all available in the site, but because it is an old building, there is no cable and internet access available in the site, which makes restaurant entertainment impossible. The adjacent stores are two restaurant businesses. There are also one bank, one copy service and one bike store near the proposed site within the same building, which have no harm on the restaurant business, at all. The offering price of the site is 2500 yuan(3 12 US dollars).

To draw a conclusion of all the facts found out with regard to the two proposed site, it is concluded that proposed site No. 2 is a better choice for the proposed restaurant. Three facts are not ideal for the proposed site No. 1. 1) The traffic flow is not high enough to support a restaurant at least for now. Even though the vehicle traffic flow is very desirable, since the vehicle speed is very high and there is no parking facility available within or near the proposed restaurant site, it is hard for vehicle passengers and drivers to stop by the restaurant.

However, the passers-by traffic is only 9 people per minute, which is not desirable at all. 2) There is no natural gas supply in the proposed site, which will increase the food cost because the cost of liquefied gas and electricity are both higher than natural gas. 3) Since it is unknown what businesses will open right next door to the proposed site, there is a risk that the nearby businesses will be a business producing odor or noise, which will deter potential consumers fiom eating in the proposed restaurant. Compared with site No. 1, site No. has a much higher traffic flow, a natural gas supply and it also has known adjacent businesses. However, because site No. 2 is not located closer to the shopping mall, the market area is narrower compared to site No. 1. Only 8 housing projects on the northern side of Jinyang road and one housing project and one college are the market area of the restaurant, while site No. 1 has the whole Jinyang living area with around 20 housing projects, as its market area. Despite the comparatively wider market area of proposed site No. 1, proposed site No. is the choice to be made to establish the restaurant due to the fast-food nature of the restaurant. Site No. 2 is located at 34,000 people’s way back home when these people get off the bus, and 30,000 people’s way to work when they walk to the bus stop. (calculated by multiplying the total number of apartments whose residents will have to walk by the restaurant by three, an average household size in China).

However, site No. 1 is located at only 16,000 people’s way back home when these people get off the bus, and 6,000 people’s way to work when they walk to the bus stop. calculated by multiplying the total number of apartments whose residents will have to walk by the restaurant by three, an average household size in China). The comparison shows that site No. 2 is located at a more convenient location where much more people have to pass by everyday. The wider market area brought by Bailian shopping mall will help to bring more customers to site No. 1, but people who travel to and back from their workplace are most likely to become customers of the proposed fast-food restaurant instead of customers of the shopping mall. Thus site No. is chosen as the location of the proposed restaurant. Consumer Spending Pattern and Market Potential Research Result. As stated in the previous discussion, the survey was conducted fiom 4:00 pm to 7:00 pm through a 7 day period from Feb. 13th to Feb. 19th , and altogether 140 questionnaires were distributed and returned. The high response rate could be contributed to the way that the survey was conducted and the incentive of ball-pointed pen as a reward for completing the questionnaire. The following paragraphs will analyze the results of the survey and seek out the implications of the results.

As discussed in the research instrumentation paragraphs, the first three questions (question 1-3) are designed to find out how much money residents in Jingyang living area usually spend on their three meals, and the result can be seen from the table 1 , 2 and 3. It can be seen from these tables that 57. 1 percent of respondents spend less than two yuan on their breakfast, but they are more generous on their lunch and meals because 67. 1 percent of respondents spend 3-4 yuan on their lunch and 62. 1 percent of them spend more than 5 yuan on their dinner.

Surprisingly, Table 8 shows that the total percentage of people between 23 to 40 accounts for 87. 1 percent of all respondents. This can be partially caused by a sampling bias because aged people are more conservative in their attitude toward surveys and more unwilling to take the surveys. What’s more, the researcher also conscientiously avoided young kids because their participation into the survey should be allowed by their parents according to IRB policy of UW-Stout, which in this study is completely impossible. However, the extremely high percent of people aged between 23-40 can also e explained by the fact that housing price and rental price of this area was relatively low compared to other areas of the city, thus newly college graduates are likely to rent houses in this area, and young and middle-aged couples with medium income are likely to buy houses in the area. So, excluding the research error caused by sampling bias, it can also be concluded that majority of the people living in the area aged between 23 and 40. Tables 9 shows that there are relatively more males than females among the respondents. Table 8 How old are you? 1 I —-

This is also an unexpected high percentage, which is an indicator of an established name and positive word-of-mouth effect. It can be seen from Table 1 1 that among all the respondents, 78. 6 percent of them don’t know that there is a difference between the two types of toufunao, and among the respondents who have ever heard about toufunao, which means that the promotion and advertising before the start-up of the restaurant should distinguish leshan toufunao from the locally known toufunao