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

In this case there are economies of scale between the two products in some situations. If the real estate costs are quite high then this concept would work well. The fixed cost would be lower if the two products are sold at a single location rather than purchasing two separate locations.Also if it is an area where the sales are lower as compared to other locations, then the reduced sales will not have that great impact as the high real costs would have.But, if the sales are high in the area and the real estate prices are low then 20% reduction in sales will be more than the 30% reduction in fixed costs. Hence multiconcept restaurant will not be a profitable option in that case.