Should Royal Address open a fast food restaurant branch in Dubai in order to increase profitability?
F.A.O
CEO of Royal Address - Hassan Moghaddam
Word count
Proposal - 506
Submission date: Sunday May 2nd, 2021
Research Proposal
Research Question:
Should Royal Address open another branch of fast food restaurants in Dubai in order to increase profitability?
Rationale:
The objective of the proposal is to help Royal Address decide whether the company should open another branch of fast food
restaurants in Dubai in order to increase profitability. Primary and secondary research is used such as; interviews with
different stakeholders, surveying regular customers, and profit and loss statements. This is beneficial towards the company
as it is an accurate tool to predict if the investment is going to be profitable after a few years. It gives the business a budget to
limit their spendings and increase money coming into the business. Surveying customers in Dubai allows the business to
innovate their fast food meals to meet customer satisfaction and stand out from other competitors in the UAE. Fast food
industry data over the past two years is also beneficial to figure out if the market for fast food is growing or not and to know
how Royal Address can take over the market.
Areas of Syllabus:
1.3: Organizational Objectives
- Ansoff matrix for different growth strategies of a given organization
- SWOT Analysis used to outline the current position of business
1.7: Organizational planning tools
- Force field analysis
3.4: Final accounts
Profit and loss account
- Profitability ratios
3.8: Investment appraisal
- Investment opportunities using payback period and average rate of return (ARR)
- Investment opportunities using net present value (NPV)
Methodology:
This investigation will propose primary and secondary sources to determine if Royal Address should open another branch of
fast food restaurants in Dubai in order to increase profitability?
Primary Research:
-
Interview the CEO of Royal Address in order to gather strategic input from a key stakeholder
Interview the marketing team of Royal Address
External perspective by surveying regular fast food customers (give samples to customers to get their opinion on the
fast food meals).
Secondary Research:
-
Profit and loss statement from 2019-2020 of Royal Address fast food restaurant operating in Tehran.
Profit and loss statement (prediction figure) of Royal Address operating a fast food restaurant in Dubai.
Fast food industry data in the UAE
Anticipated Difficulties:
Anticipated Difficulty
Reason for Difficulty
Possible Solution
1.
Different Languages
Language may be a problem in
communicating with customers in Dubai,
bank, or government as stakeholders in
the company may only speak farsi.
-
Interview will be conducted in
Farsi and will be translated into
english. Native speakers will be
conducted to make sure it is
appropriate.
2.
Inaccurate Financial
Data
Royal Address is providing an estimate of
their financial data in the past 2 years
which may be inaccurate.
-
Compare the primary and
secondary research in order to
know it is reliable.
3.
Market Research
limitation
Limited Market research does not identify
competitors in the market and how Royal
Address can dominate the market over
other competitors in the fast food industry.
-
Identify competitors in the fast
food market and their liabilities that
Royal Address can use against in
order to increase market share.
Action Plan:
Task
Find a suitable business
for the investigation
Start researching on
business and decide a
appropriate a RQ
Complete research
proposal
Start collecting primary
data
Interview the ceo and
marketing team of Royal
Address
Create a survey for
customers in order to
get customer feedback
Collect results from
surveys and interviews
Construct a profit and
loss statement from
data provided by Royal
Address
Prepare a profit and
loss statement
(prediction figure)
Perform Analysis explanation of collected
data
Complete introduction
Write Overall
Conclusion
Complete first draft
Act on supervisor’s
Feedback
Final Draft fully
completed
Submit Final Draft
April
May
June
July
Aug
Sept
Nov
Dec
Jan
Feb
Should Royal Address open another fast food restaurant branch in Dubai in order to increase
profitability?
F.A.O
CEO of Royal Address - Hassan Moghaddam
Word count
Main Investigation Submission date: , 2021
Table of Contents:
Executive Summary
Introduction
7
Methodology
8
Primary Data
Secondary Data
Business tools
Modification to Methodology
9
Main Result and Findings
Ansoff Matrix
9
SWOT Analysis
10
Force Field Analysis
11
Profit and Loss Account
12
Profitability Ratios
13
Investment Appraisal (PP, ARR, NPV)
13-14
Evaluation and Analysis
Financial Analysis
14
Non-Financial Analysis
15
Limitations of Research
15
Conclusion
Recommendations
15
16
Bibliography
16
Appendix A
17-19
Appendix B
20-21
Appendix C
22-24
Introduction
Royal Address is a private limited company that specializes in fast food restaurants located in Tehran, Iran. The Quality and
the variety of fast food restaurants was very low in Iran so the CEO of Royal Address, Hassan Dargahi opened 2 fast food
branches in Tehran on January 9th, 2017 that provides high quality fast food from countries around the world that people
love to eat. They provide a variety of choices from American Food, Italian, to local Iranian food. Our fast food restaurant is
located in Tehran Mall in the fast food sections. We have 3 different restaurants in the mall depending on what type of fast
food you would like to have and are open from 9am to 10pm during weekdays and 10am to 12am on weekends.
Due to COVID-19, Iran’s economy took a big hit as many people lost their jobs since the pandemic started in 2020. The
number of COVID-19 cases have increased rapidly ever since which has affected the demand of fast food as many people
have cut back on spending and are trying to save money in case they lose their jobs. Sales revenue is starting to decrease as
total fixed cost is increasing due to the pandemic, therefore Royal Address is considering a strategic decision in the UAE
market; opening new fast food restaurants in order to increase profitability. It is very popular in Dubai to drive through fast
food restaurants, majority located in Jumeirah, due to the convenience of enjoying the food in your car without having to
park. This decision could provide a significant reduction in total costs as the new location is away from downtown therefore
the rent is a lot less expensive and so is the raw material. The new branch of Royal Address in Dubai is estimated to
generate approximately a 55% increase in sales revenue after 4 years of operation in Dubai.
Therefore, this report will further investigate and focus on whether Royal Address should open another fast food
restaurant in Dubai to increase profitability.
Methodology
Primary Data:
In order to gain insight information on Royal Address current operations and future plans, interviews in the following order
will be conducted.
●
●
Interview conducted with the CEO of Royal Address, Mr. Hassan Dargahi, who is significantly important to the
investigation to gain background information about Royal Address and strategic choices will discuss whether
opening a new fast food restaurant in Dubai would increase profitability. If needed a follow up meeting will be
conducted to address any certain clarifications with the CEO.
Interview conducted with the financial manager, Mr. Mohammad Reza in order to gain financial data about Royal
Address’s current sales, costs, and profits in the current location and its anticipated costs and sales in the new
location in Dubai.
These interviews are significantly important to gain insight about the financial and the non-financial aspect of Royal
Address’s new location. This first hard information that gives insight into the business is used in relevant business tools such
as force field analysis, swot, and a steeple analysis.
●
A survey questionnaire will be conducted with regular fast food customers in Dubai to get their opinion on the food
in order to gain information on other competitors in the fast food market to increase market share.
Secondary Data:
●
●
Review Royal Address’s profit and loss statement for the financial years 2016 through 2020 to help make a financial
decision whether opening a new fast food restaurant in Dubai will increase profitability.
UAE fast food industry data in the past following years (profit and loss statement and cash flow statement).
Business Tools:
Unit 1: Business, organization, and environment
●
1.3: Organizational Objectives
- Ansoff matrix for different growth strategies of a given organization
- SWOT analysis to determine current position of business
●
1.7: Organizational planning tools
- Force field analysis
Unit 3: Finance and Accounts
●
3.4: Final accounts
Profit and loss account
●
3.5: Profitability ratios
●
3.8: Investment appraisal
- Investment opportunities using payback period, average rate of return (ARR)
Modifications to Methodology:
After conducting financial analysis and non-financial information from the CEO of the royal address, it became
clear a SWOT analysis is required in order to outline the current position of the business and whether opening a
new branch in Dubai is an effective strategy to increase profitability. Rather than a steeple analysis that does not
help answer the main question of the report.
Main Results and Findings
Figure 1: Ansoff Matrix:
Existing Products
New Products
Existing
Markets
Market Penetration:
- Add Royal Address to Delivero and
talabat which is a delivery service in Iran
to increase sales.
- Offer more deals like “buy 2 get 1 for
free” to increase sales revenue as many
people try to cut back on spending due
to Covid.
- Growing social media platforms on apps
like TikTok and Instagram to increase
our brand awareness by attracting new
customers in Dubai. Applications like
TikTok are really easy to grow your
account especially when it involves
topics about food that people love. This
will increase Royal Address’s brand
recognition, therefore may lead to an
increase in sales revenue; net profit
increases.
Product Development:
- Adding a different variety of fast food options
to attract a wider audience.
- Adding creativity to the menu that can
attract customers from social media apps
that they have never seen before. Eg: Exotic
shakes, hot cheetos burger.
New Markets
Market Development:
- Add creative fast food meals that attract
customers to our restaurant like the
cheetos burger. This will attract a
different audience of people who love
cheetos who want to try our burger.
Therefore, it may lead to an increase in
sales revenue.
- Add a new variety of food cuisine like
offering baklava which is a Turkish
dessert. This is a different product that
attracts a wider audience of people that
love Turkish food.
Diversification:
- Include a clothing line that can be purchased
online or in the restaurant.
-
Figure 2: SWOT Analysis:
Strengths
Internal
Environment
●
●
●
●
The quality and variety of fast
food.
Great customer service
First fast food restaurants in
Tehran that provide a variety of
selections from Italian to
American fast food.
Royal Address can be ordered
at home through a app called
“snapp” at any time of the day
that improves brand
recognition.
Weaknesses
●
●
Opportunities
External
environment
●
●
●
Offering one free meal after
purchasing 5 orders from us
which you track by the
employees stamping a card to
show the previous orders when
collecting the free meal. This
will attract more customers to
come back to our fast food
restaurant in order to get the
free meal.
Adding creative fast food meals
that attract customers to our
restaurant like the cheetos
burger. This will attract a
different audience of people
who love cheetos who want to
try our burger. Therefore, it
may lead to an increase in sales
revenue.
Growing our social media
platforms on apps like TikTok
and Instagram to increase our
brand awareness by attracting
new customers in Dubai.
Applications like TikTok are
really easy to grow your
account for, especially when it
involves topics about food that
people love. This will increase
Royal Address’s brand
High rent costs as the landlord is demanding
for a higher rent cost due to the coronavirus
that has driven many businesses out of jobs.
There is an increase of 20% of the rent cost
that is 55,700 every year to the landlord in
order to run the restaurant in the designated
spot.
Language barrier can be an issue as all
employees that work for Royal Address in
Tehran speak only Farsi and barely any
English which is the main speaking language
in Dubai. This can lead to communicating
issues with the employees between
customers.
Threats
●
●
●
●
When a business is doing really well in
Tehran, the government decides to shut
them down for a specific period of time that
can take a few weeks to reopen due to the
delay in court. Our restaurant has not been
shut down by the government but we know
there is a chance that in the near future the
Iran government may investigate our
business as we are one of the top fast food
restaurants in Tehran.
The high number of COVID-19 cases in
Tehran has negatively affected businesses.
This has led to a decrease in demand and
therefore a decrease in sales revenue.
There are already existing dominant
competitors in the fast food market in Dubai
such as Five Guys, Salt Burger, Shake Shack,
and High Joint.
It is a higher risk and very hard to reverse the
investment made to open a new branch of
fast food in Dubai. Over AED 130,000 needs
to be invested into the investment of the
new branch so if it turns out to be
unsuccessful then it will significantly impact
the company and may lead to bankruptcy.
recognition, therefore may lead
to an increase in sales revenue;
net profit increases.
Figure 3: Force Field Analysis:
Driving
Forces:
Possible
Increase in
Profits
The demand
for fast food is
a lot higher
Possible
decrease
in total
costs
Access to
more
delivering
services like
deliveroo and
Paying
talabat
lower
taxes in
Dubai
compare
Total
Driving
d
to Iran
Forces: 18
5
5
4
3
3
4
Openi
ng a
New
Fast
Food
Branch
in
Dubai
Restraining
Forces:
Already
existing
dominant
competitor
sLanguag
e barriers
can be a
issue
Higher
5
risk and
hard to
reverse if
not
successfu
l
3
Total
Restraining
Forces: 14
Figure 4: #1 Profit and Loss Account from 2020 of Royal Address Fast Food Restaurant in Tehran, Iran
AED
AED
186,565
Sales Revenue
Direct Costs
Staff Wages (V)
38,948
Cost of Raw Material (V)
22,223
61,171
---------125,394
Gross Profit
Less Expenses
Rent
55,727
Utilities
20,340
Insurance
9,583
85,650
-------39,744
Net Profit/Loss
#2 Profit and Loss Account in 2021 of Royal Address Opening a New Branch in Dubai (Predicted)
AED
AED
203,000
Sales Revenue
Direct Costs
Staff Wages
35,000
Cost of Raw Material
11,500
46,500
156,500
Gross Profit
Less Expenses
Rental
60,000
Utilities
18,500
Insurance
10,000
88,500
68,000
Net Profit/Loss
Figure 5: Profitability Ratios:
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 (2020) =
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑠𝑡 𝑎𝑛𝑑 𝑡𝑎𝑥
𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑥 100 = 186,565x 100 = 21%
39,744
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 (2021) =
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑖𝑛𝑡𝑒𝑟𝑠𝑡 𝑎𝑛𝑑 𝑡𝑎𝑥
𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑥 100 = 203,000x 100 = 33%
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
125,394
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
156,500
68,000
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 (2020) = 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 100 = 186,565x 100 = 67%
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 (2021) = 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 100 = 203,000x 100 = 77%
Figure 6: Investment Appraisal:
Expected Cash Flow Forecast of a AED 150,000 Investment for Royal Address
Years
Cash InFlow (AED)
Cash Outflow (AED)
Net Cash Flow
(AED)
Cumulative Net
Flow (AED)
0
0
150,000
(150,000)
(150,000)
1
203,000
135,000
68,000
(82,000)
2
218,500
124,800
93,700
11,700
3
232,000
137,500
94,500
106,200
4
289,211
130,180
159,031
265,231
Payback Period =
𝐴𝑚𝑜𝑢𝑛𝑡 𝑙𝑒𝑓𝑡 𝑡𝑜 𝑝𝑎𝑦
𝑁𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 𝑖𝑛 𝑡ℎ𝑒 𝑓𝑜𝑙𝑙𝑜𝑤𝑖𝑛𝑔 𝑦𝑒𝑎𝑟
x 100 =
82,000
93,700
x 12 = 10.5 = 11 months
1 year and 11 months = Pay Back
The investment of Royal Address opening a new fast food restaurant in Dubai is a AED 150,000 investment that
the business will be able to repay and start generating profit in 1 year and 11 months.
Average Rate of Return (ARR):
Average Rate of Return =
=
𝑇𝑜𝑡𝑎𝑙 𝑟𝑒𝑡𝑢𝑟𝑛𝑠 − 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 / 𝑦𝑒𝑎𝑟𝑠 𝑜𝑓 𝑢𝑠𝑒
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑐𝑜𝑠𝑡
x 100
415,231 −150,000/4
150,000
x 100 = 44%
ARR = 44%
Evaluation and Analysis
Using qualitative and quantitative data that was gathered from the surveys, interviews with the CEO, and the financial
manager, this report will determine whether Royal Address should open a new fast food restaurant branch in Dubai in order
to increase profitability. Due to the coronavirus, the demand for fast food restaurants have significantly decreased because
many people have cut back on spending in order to save money as a lot of people have lost their jobs since the pandemic in
2020. Therefore, Royal Address is facing a fall in sales revenue and the landlord is asking for a much higher rent cost that is
too expensive. In order for Royal Address to prevent this from getting out of control, the business has recently been
considering opening a new branch in Dubai in order to increase profitability. This report will provide a financial and nonfinancial analysis in order to determine whether Royal Address should open a new branch in Dubai.
Financial Analysis:
Find the steps to start a business in Dubai
Financial tools were used to provide an overview of the financial health of the business and investing in a way to
maximize profitability. These tools include; profit and loss statements, profitability ratios. and investment appraisal that
indicates how well a business is performing and is used to make effective decisions in the short and long term. Based on
Royal Address’s profit and loss account in 2020 shown in figure 4, the business made a profit of 39,700 with a net profit of
21%. The positive values indicate the business is still profitable and is generating enough profit from its sales and operating
costs. However, due to external factors like the coronavirus, from 2019 there is a 11% decrease in sales revenue from
209,000 to 186,565 in 2020. However, if Royal Address decided to open a new fast food restaurant in Dubai it would
increase sales revenue to 203,000 with a net profit of 33%. This is a predicted analysis that indicates the new branch in
Dubai would increase profitably by 12% as the branch in Dubai would do a better job in generating enough profit from its
sales revenue while containing operating and overhead costs. This is also shown in figure 5 , an increase by 10% in gross
profit margin from 67% to 77% that indicates a higher amount of money is left over from sales revenue after subtracting the
cost of goods sold.
As mentioned by CEO Hassan Dargahi in appendix A, the average initial investment cost of opening a new branch is
AED150,000. Based on the calculated payback period that estimates future potential cash inflows and outflows, the time
needed for the business to recover from the cost of investment is 1 year and 11 months. The calculated payback period is
relatively low, this would mean that after 1 year and 11 months Royal Address would have a stable cash flow and would be
able to recuperate. Given that, the strategic decision of opening a new branch in Dubai is a worthy investment that will
increase profitability after the investment is paid back. However, it is important to consider investment appraisals that do
not consider external factors like economic changes, seasonal demand, and policy changes. Average rate of return (ARR)
that is calculated in figure 6 indicates whether the investment is worth undertaking. Royal Address’s calculated ARR based
on initial investment cost of 150,000 is 44% which is relatively high. Having a high ARR is very beneficial as it would allow
the business to have high levels of returns during the first four years of the business activity in Dubai.
Non-Financial Analysis:
If Royal Address decides to open a new fast food restaurant in Dubai, the business would be choosing to implement
a market development strategy. The particular growth strategy involves adding creative fast food meals to the menu that
attracts more customers to our restaurant. For example, the cheetos burger that was mainly originated from Salt Burger
and other fast food restaurants started copying them. The use of this strategy would attract a different audience of people
who love cheetos and who want to try our burger. Therefore, this can lead to an increase in brand recognition which can
increase overall net profit. Furthermore, adding a new variety of food cuisines like having baklava on the menu, which is a
Turkish dessert. This is a different product that attracts a different kind of target market that loves Turkish food. The market
development strategies maximizes sales revenue if only advertisement is done well. This is called market penetration that
reduces the competition by providing a competitive advantage to the business which Royal Address can do in the new
branch in order to increase profitability. The marketing penetration strategies involve; adding Royal Address to Delivero and
talabat which is a delivery service in Iran. This gains beneficial value to Royal Address because it improves brand recognition
as people can order anytime from their homes. Other strategies include; creating accounts on social media platforms like
TikTok and Instagram to increase our brand awareness by attracting new customers in Dubai. Applications like TikTok are
really easy to grow your account especially when it involves topics about food that people love. This will increase Royal
Address’s brand recognition, therefore may lead to an increase in sales revenue; net profit increases.
By staying in Royal Address’s current location in Tehran, the business would be forced to face a few difficulties.
Firstly, high rent costs as the landlord is demanding for a higher rent cost due to the coronavirus that has driven many
businesses out of jobs. There is an increase of 20% of the rent cost that is 55,700 every year to the landlord in order to run
the restaurant in the designated spot. Secondly, language barrier can be an issue as all employees that work for Royal
Address in Tehran speak only Farsi and barely any English which is the main speaking language in Dubai. This can lead to
communicating issues with the employees between customers. In accordance with the performed SWOT analysis, one of
the businesses main threats is in fact: the high number of COVID-19 cases in Tehran that has negatively affected businesses.
More and more people are losing jobs in Tehran so the standard of living has decreased a lot so people choose to stay home
instead of eating out. This has led to a decrease in demand and therefore a decrease in sales revenue. Although Royal
Address provides quality food, service, and a variety of fast food choices, the virus has led millions of citizens to quarantine
in their homes to prevent catching the virus. Which has therefore caused a significant decrease in sales revenue for many
businesses in Tehran including Royal Address. In the conducted interview with CEO Hassan Dargahi, he does in fact suggest
that opening a new branch in Dubai would significantly increase profitability based on the COVID conditions in Iran.
Furthermore, in accordance to the performed force field analysis, two groups were organized for driving forces that
Royal Address should open a new fast food restaurant in Dubai and restraining forces on not opening a new branch. Each
factor is categorized from 1-5, from 5 being the most important and 1 being the least important factor. Driving forces
regarding Royal Address opening a new branch in Dubai is; significant increase in total net profit by 135%, decrease in total
cost by 11%, and demand for fast food in Dubai is a lot higher which can lead to an increase in sales revenue. As seen in
figure 3, increase in total net profit is ranked a 5 as most important because it achieves the aim of the business which is to
increase profitability from the current location. The demand for fast food is a lot higher in Dubai which is ranked 4 because
higher demand leads to a higher sales revenue, therefore increase in profitability. The decrease in total costs is ranked a 3
because lower total cost means the business has a greater opportunity to invest in other areas such as market research or
research and development. However, there is only a 11% decrease which is not significant so it is not that important on
driving forces. Furthermore, if Royal Address is on delivery apps like delivero and talabat it improves brand recognition,
therefore increases profitability as more people know about the restaurant. The driving force is ranked 3 because it may
lead to a increase in profitability but you can already order from Royal Address in Tehran from a app called “snapp” that
delivers food to your house whenever you want. Lastly, the taxes paid in Dubai are lower than Iran by 10% so the total cost
of the business decreases which gives Royal Address another opportunity to invest in other areas of the business that need
improving. The restraining forces of Royal Address opening a new food restaurant in Dubai are the existing dominant
competitors in the fast food market in Dubai such as Five Guys, Salt Burger, Shake Shack, and High Joint. This is ranked at 5
because these competitors are already very known in Dubai so they have many loyal customers, therefore the food and
service Royal Address needs to provide has to be creative and better quality to stand out than other competitors in the
market. In addition, the investment has a high risk that will cause many financial problems if the investment is reversed.
Lastly, language barrier can be an issue which is ranked a 5, all employees that work for Royal Address in Tehran speak only
Farsi and barely any English which is the main speaking language in Dubai. This can lead to communicating issues with the
employees between customers.
Limitations of Research:
Although the report is based on primary and secondary data provided by the CEO, it includes limitations. The first limitation
is the numbers of the profit and loss statement and cash flow forecast are all predicted numbers given by the CEO. This is a
limitation because it does not encounter any difficulties like external factors such as; economic changes, policy changes, and
other complications Royal Address might encounter while opening a new branch. In addition, the numbers assigned to each
driving and restraining force in the force field analysis is subjective and may therefore contain bias. This is because each
factor is personal and different people can have different perspectives on how important it is.
Conclusion
Long and short term impacts must be taken into consideration, in order to make a final conclusion on whether Royal
Address should open a new fast food restaurant in Dubai. In the long term, Royal Address will generate a 135% increase in
net profit (160,000) after 4 years have passed from the investment. The total cost will have dropped by 13% due to the
cheaper rent that is paid in Dubai. However, in the short term only 11% has increased in terms of net profit from 20202021. It will take one year and 11 months for Royal Address to pay back its investment so it has a much higher risk and is
hard to reverse if not successful. This relatively small increase can be threatening compared to other dominant competitors
in the fast food market that may run Royal Address out of business. In conclusion, although the business might encounter a
slow increase in the first to two years after the investment is made, opening a new fast food restaurant in Dubai would
allow Royal Address’s overall profits to experience a gradual increase and result in positively impacting the company as a
whole in the long term.
Recommendations:
Through anylsisng and evaluating both financial and non financial data collected from Royal Address, this report reached to
the conclusion that: Royal Address should open a new fast food restaurant branch in Dubai in order to increase profitability.
Further research is required for a more detailed analysis:
-
Conduct market research to gain information on whether regular fast food customers enjoy Royal Address’s quality
food.
Construct a positioning map to gain information on where you would be in the fast food market in Dubai and to
know about other competitors that may be a threat.
Plan geographic research to further examine areas available for rental in Dubai for Royal Address
Bibliography
1. Thinkib.net. (2021). IB Business Management. [online] Available at:
https://www.student.thinkib.net/businessmanagement?lg=28224 [Accessed 16 Sep. 2021].
Appendix A:
#1 interview with Mr. Hassan Dargahi, the CEO of Royal Address
Date: August 2nd, 2021
Question 1: Could you please introduce your business?
Royal Address is a fast food private company based in Tehran that was founded on January 9th, 2017.. Our fast food
restaurant is located in Tehran Mall in the fast food sections. We provide a variety of choices for our customers from
American Food, Italian, to our local Iranian food. There are 3 different sections of the restaurant based on 3 different
cuisines provided. The restaurant is open from 9am to 10pm during weekdays and 10am to 12am on weekends.
Question 2: What is the main reason you want to expand Royal Address by opening a new fast food restaurant in Dubai?
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●
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Due to COVID-19, Iran’s economy took a big hit as many people lost their jobs since the pandemic started in 2020.
The number of COVID-19 cases have increased rapidly ever since which has affected the demand of fast food as
many people have cut back on spending and are trying to save money in case they lose their jobs. Sales revenue is
starting to decrease as total fixed cost is increasing due to the pandemic, therefore Royal Address is considering a
strategic decision in the UAE market; opening new fast food restaurants in order to increase profitability. It is very
popular in Dubai to drive through fast food restaurants, majority located in Jumeirah, due to the convenience of
enjoying the food in your car without having to park.
The landlord is asking for a much higher rent cost due to the coronavirus that is too expensive for us to operate at,
so opening a new branch in Dubai with a much lower fixed cost can increase our profitability.
I thought the fast food restaurants in Tehran were of very poor quality and lacked variety so I thought it would be a
great business Idea to open a fast food restaurant that would provide high quality fast food from countries around
the world that people love to eat.
Question 3: What would you say the vision statement of Royal Address is?
●
Ever since I started this company, the business's vision statement is to provide unmatched quality, service, and
value to every customer. Since fast food restaurants are starting to become popular in Tehran, our mission is to
make our customers favourite place to eat by providing delicious fast food and to create a community that creates
happy moments for customers while they enjoy our food.
Question 4: What do you think are some of Royal Address’s strengths and weaknesses?
Strengths:
●
Some of the business’s main strengths are the quality of service and food that we provide for our customers that
we prioritize a lot by receiving customer feedback that we use to further improve any issues or recommendations
customers may have. This is done by the customer filling out a questionnaire based on the overall satisfaction of the
food and service provided by the restaurant.
●
●
Another strength Royal Address portrays is that we are one of the first fast food restaurants in Tehran that provide
a variety of selections from Italian to American fast food.
In addition, Royal Address can be ordered at home through a app called “snapp” at any time of the day which
causes for more exposure that can lead to a increase in sales revenue.
Weaknesses:
●
●
High rent costs as the landlord is demanding for a higher rent cost due to the coronavirus that has driven many
businesses out of jobs. There is an increase of 20% of the rent cost that is 55,700 every year to the landlord in order
to run the restaurant in the designated spot.
Language barrier can be an issue as all employees that work for Royal Address in Tehran speak only Farsi and barely
any English which is the main speaking language in Dubai. This can lead to communicating issues with the
employees between customers.
Question 5: What are some threats to the business?
●
●
A threat that Royal Address faces is when a business is doing really well in Tehran, the government decides to shut
them down for a specific period of time that can take a few weeks to reopen due to the delay in court. Our
restaurant has not been shut down by the government but we know there is a chance that in the near future the
Iran government may investigate our business as we are one of the top fast food restaurants in Tehran.
Another threat the business is facing recently has been due to the high number of COVID-19 cases in Tehran that
has significantly affected a lot of businesses negatively. There are more than 35,000 cases everyday in Iran that
have caused many covid restrictions from the government like limiting the amount of tables and chairs which may
worsen the customer satisfaction as they have to take away their food. In addition, more and more people are
losing jobs in Tehran so the standard of living has decreased a lot so people choose to stay home instead of eating
out. This has led to a decrease in demand and therefore a decrease in sales revenue.
Question 7: Why are you planning on opening a new branch in Dubai out of all other cities?
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In the UAE there is no corp taxation except for oil companies and foreign banks so the total cost is less than Tehran
as we have to pay a 10% tax.
The COVID-19 situation is significantly better in Dubai as the cases are way less than it is in Tehran so the
regulations are not as strict on businesses. The people in Dubai are very protected and take the rules very seriously
which limits the amount of cases.
Dubai is only a 2 hour ride to Tehran which is more convenient for managers to travel every 2 weeks like our
financial manager; Mr. Mohammad Reza and marketing manager; Ms. Yara Sarafai.
The demand for fast food restaurants is very high in Dubai as many people enjoy eating fast food.
Question 8: What are the limitations of opening a new branch in Dubai?
●
●
●
There are already existing dominant competitors in the fast food market in Dubai such as Five Guys, Salt Burger,
Shake Shack, and High Joint.
Language barrier can be an issue as all employees that work for Royal Address in Tehran speak only Farsi and barely
any English which is the main speaking language in Dubai. This can lead to communicating issues with the
employees between customers.
It is a higher risk and very hard to reverse the investment made to open a new branch of fast food in Dubai. Over
AED 130,000 needs to be invested into the investment of the new branch so if it turns out to be unsuccessful then it
will significantly impact the company and may lead to bankruptcy.
Question 9: What are some growth strategies you could implement in your new branch in order to increase profitability?
●
●
●
Some strategies we are thinking about is offering one free meal after purchasing 5 orders from us which you track
by the employees stamping a card to show the previous orders when collecting the free meal. This will attract more
customers to come back to our fast food restaurant in order to get the free meal.
We want to add creative fast food meals that attract customers to our restaurant like the cheetos burger. This will
attract a different audience of people who love cheetos who want to try our burger. Therefore, it may lead to an
increase in sales revenue.
Growing our social media platforms on apps like TikTok and Instagram to increase our brand awareness by
attracting new customers in Dubai. Applications like TikTok are really easy to grow your account for, especially
when it involves topics about food that people love. This will increase Royal Address’s brand recognition, therefore
may lead to an increase in sales revenue; net profit increases.
Question 10: What are the obstacles you might encounter while opening a new branch?
●
●
Marketing costs to advertise and attract new customers such as; billboards and ads
Initial investment cost - averagely around AED130,000 that include; rent, marketing costs, raw material and other
expenses.
Appendix C:
Interview conducted with Royal Address financial manager Mr. Mohammad Reza (August 3rd, 2021)
Question 1:
Could you please provide me with the current total fixed costs that Royal Address currently incurs
in Tehran, Iran.
Answer:
AED 85,650
Question 2:
Also the total variable costs that Royal Address incurs in Tehran?
Answer:
AED 32,233
Question 3: Could you individually provide me with the current rent, utilities, insurance, cost of raw material,
and staff wages paid by Royal Address in its current location?
Answer:
Rent - AED 55,727
Utilities- AED 20,340
Insurance - AED 9,583
Cost of raw material - AED 22,223
Staff Wages - AED 38,948
Question 4:
What are the expected total fixed costs that Royal Address would incur if it opens a new fast food
restaurant in Dubai?
Answer:
AED 90,00
Question 5:
What are the expected total variable costs that Royal Address would incur if it opens a new fast
food restaurant in Dubai?
Answer:
AED 45,000
Question 6:
What about the current total sales revenue made by Royal Address in its current premises for the
last 4 years?
Answer:
2017 - AED 121,704
2018 - AED 158,233
2019 - AED 209,092
2020 - AED 186,565
Total - AED 675,594
Question 7:
What are the current total costs made by Royal Address in its current premises for the last 4 years?
Answer:
2017 - AED 152,600
2018 - AED 149,756
2019 - AED 139,223
2020 - AED 146,821
Total - AED 588,400
Question 8: Could you individually provide me with the current rent, utilities, insurance, cost of raw material,
and staff wages paid by Royal Address if it opens in Dubai?
Answer:
Rent - AED 60,000
Utilities- AED 18,500
Insurance - AED 10,000
Cost of raw material - AED 11,500
Staff Wages - AED 35,000
Question 9: What are the expected total revenues for the upcoming 4 years if Royal Address opens a fast food
restaurant in Dubai?
Answer:
2021 - AED 203,000
2022 - AED 218,500
2023 - AED 232,000
2024 - AED 289,211
Total - AED 942,711
2
Question 10: What are the expected total costs for the upcoming 4 years if Royal Address opens a fast food
restaurant in Dubai?
Answer:
2021 - AED 135,000
2022 - AED 124,800
2023 - AED 137,500
2024 - AED 130,180
Total - AED 527,480
Appendix D:
Customer Survey: (Questions and Results)
Getting an external perspective by going to a few fast food restaurants in Dubai and surveying regular customers
to get their opinion on the food. Asking many questions to find out what they think about the food, what they
like, what they would change, and if they would come back again. 10 regular customers were surveyed per
restaurent in order to find out what Royal Address can do differently to attract more customers than other fast
food restaurants. This will allow the business to generate more profitability and increase market share.
1st Location: Salt Kite Beach
Question 1:
Question 2:
Question 3:
2nd Location: Burger28:
Question 1:
Question 3:
Question 2:
3rd Location: High Joint
Question 1:
Question 3:
Question 2: