Question

A multiconcept restaurant incorporates two or more restaurants, typically chains, under one roof. Sharing facilities reduces costs of both real estate and labor. The multiconcept restaurants typically offer a limited menu, compared with full-sized, stand-alone restaurants. For example, KMAC operates a combination Kentucky Fried Chicken (KFC)/Taco Bell restaurant. The food preparation areas are separate, but orders are taken at shared point-of-sale (POS) stations. If Taco Bell and KFC share facilities, they reduce fixed costs by 30%; however, sales in joint facilities are 20% lower than sales in two separate facilities. What do these numbers imply for the decision of when to open a shared facility versus two separate facilities?

Answer 1

Answer:-

Even if the sales in joint facilities are 20% lower than sales in two separate facilities, given the 30% reduction in fixed costs in joint share facilities, the decision to open a shared facility would be beneficial for its owners. The reason being that a multiconcept restaurant takes full advantage of economies of scale. They enjoy menu flexibility of independent restaurant. Hence, a multiconcept restaurant often find themselves in the best of the both world scenarios.