You want to buy a restaurant in Gurgaon, you have the sales data of last 6 months but you do not have any survey. How would you come up with a price for this restaurant
Question
You plan to buy a restaurant at a price of 80 lac in Cyber City. You have to sales data of the last 6 months. You can assume any valid sales data along with that you also have employees data.
You don’t have any survey data to match the price of other plots/restaurants in the neighborhood
solved
0
Case Study
55 years
15 Answers
999 views
Grand Master 0
Answers ( 15 )
We can start with few points here.
1. Check online food rates like zomato/swiggy etc and see how much prices do they offer, so that accordingly we can start with somewhat basic rate.
2.Check the prices of vegetables, fruits meat etc in nearby markets to know if prices have been increased recently or its has been constant, we can vary our prices accordingly.
3. We need to start with these points for a basic menu for the restaurant. Even we know gurgaon is a bit more on the costlier side, so we can have our menu accordingly.
I would start with-
Look at the market – identify the trends, pattern, consumer behaviour, growth drivers, opportunities, competitors
Define the scope –
Rev opportunities : B2C – dining and home delivery
B2B – catering services
For both the segments I look at their growth rates, TAM and estimate the penetration level that can be achieved.
Costs involved: required capital cost up front, salaries of staff, estimate the variable costs of supply and production
Calculate the breakeven time, time required for profits then do NPV of that.
Then do the relative valuation for other restaurants in similar area and business model
Adjust the NPV obtained to the relative valuation to come to price you want to pay
We can find the profit the restaurant made using the sales data and compare it with the investment needed to be made(which is 80lac) and arrive at a decision based on profit to investment margin.
Suppose the restaurant’s return is greater than those returns that we get from other safer investments like bonds or fixed deposits. Then it will be a good decision to buy the resturant.
We can find the profit the restaurant made using the sales data and compare it with the investment needed to be made(which is 80lac) and arrive at a decision based on profit to investment margin.
Suppose the restaurant’s return is greater than those returns from other safer investments like bonds or fixed deposits. Then it will be a good decision to buy the restaurant.
If this question is pertaining to arriving at the price for purchase of the restaurant, we would have to look at discounted cash flows, along with historical sales data to calculate IRR/ROI.
If this is pertaining to pricing the menu, i would look at the historical sales data :
1. To identify items on the menu that sell the most/least
2. To Identify seasonality in sales
3. To calculate correlation between price and sales to assess price sensitivity for each item
4. If i have access to customer data, identify customer groups -within that groups that contribute most/least to sales
5. Analysing price sensitivity in each customer group
6. If i have access to demographics of the area, use that information and our understanding our price sensitivity from our analysis to find an optimum price for the items on the menu
We can look at cost data and other investments made/to be made and use the sales data to calculate profit. We can also estimate profit margins in future and time required to gain optimum profit .This will help to decide on buying the restaurant or not .
Following points can be considered before pricing:
1) Location and popularity of the restaurant
2) Infrastructure of the restaurant that is if it has something unique and attractive interior or not.
3) Profit statement of past 6 months
4) Review of employees about the restaurant.
5) Check if there is any specialty in terms of menu of the restaurant.
6) Extra cost incurred in setting up the restaurant before it start for actual functioning.
First I will see the product and sales of that products and calculate the overall profit of the restaurant by investment and sales. Next I will calculate the profit for 6 month each. Identify the reason for each month profit especially the profit during festive and normal days. Based on the analysis and price of each quantity, i will try to predict future profit or loss. Based on the number of restaurant in nearby places and profit based on the last 6 month data, i will approx the price.
with the sales data of past 6 months
First thing that I will do is check over the profit in past 6 months i.e. how much profits is restaurant making over the period. This will help me to estimate in how much time I can cover my cost that i Have put in purchasing the resturant
Next thing I will check over is what is the margin between cost price and selling price and study how change in margin can boost up sales/profits
Next analysis will be on employee data , how many employee are minimum required for staffing and how with increase or decrease in employee has affected sales.
I will also check upon surrounding environment of how it is growing up which will affect my sales in positive or negative.
Market situation, branding strategy, competitors around and customers faith in the brand need to be analysed before buying the resturant.
Our aim would be to break even, eventually.
First, we should look at what internal data we have- sales data of last 6 months- Is it monthly level data or at a daily level? How accurately recorded is it? Employees data – what all does it contain? Does it have their salaries and other associated costs with them?
External data – since we would have to set prices, we can compare with the prices of items from our menu, on Zomato or Swiggy.
We can also get an idea of the size and operations of the restaurants in the same locality as ours- a rough idea of the daily footfall and average ticket size can give an idea of the revenue as well – whether we can achieve similar numbers too.
Coming to profits = Revenue – costs
Under costs, we would have supply and Ops-related, setting up the facility, salaries and marketing.
Under revenue, we first have to check the sales data of last 6 months – what city we were in and what times were we in when we recorded those numbers. Can we expect to hit similar or more?
The first step is to research a bit about the prices in the neighboring locations since it is not a good option to purchase without having the knowledge of the price trends in the neighboring areas.
Look for the ongoing trends in the prices and how and why the prices of the neighboring areas differ a lot if it does.
Compare the facilities provided and the consumer attraction areas that will include the price of food items, the convenience of reaching the location, the offers and discounts provided, the surrounding areas, and many more.
The employees working there can also help us in giving an idea of the prices of the areas.
Our aim would be to break even, eventually.
First, we should look at what internal data we have- sales data of last 6 months- Is it monthly level data or at a daily level? How accurately recorded is it? Employees data – what all does it contain? Does it have their salaries and other associated costs with them?
External data – since we would have to set prices, we can compare with the prices of items from our menu, on Zomato or Swiggy.
We can also get an idea of the size and operations of the restaurants in the same locality as ours- a rough idea of the daily footfall and average ticket size can give an idea of the revenue as well – whether we can achieve similar numbers too.
Coming to profits = Revenue – costs
Under costs, we would have supply and Ops-related ( day to day and raw material), setting up the facility, salaries and marketing.
Under revenue, we first have to check the sales data of last 6 months – what city we were in and what times were we in when we recorded those numbers. Can we expect to hit similar or more?
Based on internal and external data, we can come up with prices.
If this is pertaining to pricing the menu, i would look at the historical sales data :
1. To identify items on the menu that sell the most/least
2. To Identify seasonality in sales
3. To calculate correlation between price and sales to assess price sensitivity for each item
4. If i have access to customer data, identify customer groups -within that groups that contribute most/least to sales
5. Analysing price sensitivity in each customer group
6. If i have access to demographics of the area, use that information and our understanding our price sensitivity from our analysis to find an optimum price for the items on the menu
1. Sales of last 6 months will be helpful to get an estimate of the current situation of the restaurant.
2. Combine the sales data with a guesstimate of operationalization cost (Cost on raw material, electricity cost, salary to employees from employee data)
3. This combination will tell if the restaurant currently is giving good profits or not.
4. Calculate the amount of time it will take for you to recover your investment with the rate of current profits, considering inflation and interests into account.
5. Also consider the future investments which might be required to be competitive in the market
6. Consider the average rate of increase in property rates to get an idea of what will be the valuation after some years
7. Then based on how much profits you are targeting, see if it suits your portfolio and overall goals
Points to consider before buying a restaurant :
1) COMPETITOR ANALYSIS:
When looking at a restaurant listing ,make sure to note any other restaurants in the same market and their popularity.
If the competition in the area is good, it may not be a good investment.
2) LOCATION ANALYSIS:
Complete location analysis to determine if the restaurant has good or driving traffic. If there is ample parking space, if its in desirable neighborhood etc.
3)CASH FLOW AND PROFITABILITY:
a) If you are buying an existing restaurant you will want to find financial data about the business and profitability.
b) Identifying which season has the highest sales.
c)Identifying the items that sells the most, and the least.
d) Analyzing the prices and sales of each item in the menu. (Price sensitivity)
e) Analyzing the price sensitivity in each customer group .
f) Analyzing the count of bookings for birthdays, kitty parties, catering services. (Huge profit in one go)
g) Profit = revenue-cost
Analyzing the profits after cutting the costs of salary of staff , raw materials, electricity etc.
After analyzing all this if the profit comes out a good amount, then its quite good deal to buy the restaurant.
4) WHY THE OWNER IS SELLING:
Owner is retiring or leaving the restaurant industry.
Or is the owner having problems with business not maintaining profitability.