The Scale of Business (longish)

[Duke]

The other day I got it in my head that sushi was a prime candidate for fast food, based mainly on the high turnover rate in fast food with the need for freshness in sushi.

On its surface it seems like a crappy idea, because sushi buffets are unilaterally terrible (stale rice, rotting fish, cheap seaweed), but I was thinking that it didn't have to be that way. They have to serve junk because they're one store with little buying power. To sell it cheaply, they have to go with inferior products. But if I had 10,000 locations, I could get good stuff, compete on price, and blow them away as far as order prep time went.

I thought Wal-Mart. They can sell things in the grocery store for cheaper than anywhere else because of their buying power. Sure, they operate the grocery store at a loss on some items to attract customers to buy things in other departments, but the buying power to price correlation is still valid.

So, I figured that if I were buying entire boats full of fish and distributing them nationwide, I could get the fish cheaper. While I'd pay more than I would for crappy fish, I could get great fish at a good price. The same would go for rice, seaweed, and whatever else I determine as being necessary in the line-up.

Of course, I wouldn't be selling the exotic rolls based on presentation that are virtually impossible to eat while driving, but hand rolls, or uncut normal rolls would be akin to burritos. Give packets of soy sauce with the wasabi mixed in already (in various levels, like Taco Bell sauce), and present a fairly limited menu that I could teach morons how to prepare. But have it be good quality, with good taste.

If something like this were attempted in one location, the primary principle for the combination wouldn't be taken advantage of. One store wouldn't have enough turnover to command better supply prices, so the menu items would have to cost more, and then who'd want to pay as much for "fast" sushi as they could for normal sushi. Whether or not it could be successful wouldn't ever be answered, as failure due to higher prices could prevent that advantage from ever being realized.

Now - am I just being stupid here with the idea that certain models can only work on a very large scale (while others can only work on a small scale), or am I missing something? I'm not an MBA.

[4_2_it]

Since most kids won't touch sushi, you will need to broaden the menu to attract families with children (key fast food demographic).

[Duke]

[ QUOTE ]
Since most kids won't touch sushi, you will need to broaden the menu to attract families with children (key fast food demographic).

[/ QUOTE ]

True. Yeah I didn't really think about this. I guess I just saw the connection between the turnover and the freshness, and then thought about how that wouldn't really work unless it was on a really large scale.

I guess the kids' menu would be all salmon, because the mercury content in other fish could damage kids.

It's too bad, because if kids regularly ate salmon rolls instead of double cheeseburgers they'd be a little less fat.

~D

[James Boston]

Duke,

I think another issue is the stigma associated with fast food. Being the McDonals of sushi, while possibly a good business model, is not a good market position to have IMO.

[LittleOldLady]

Duke--

While there is danger of food-born illness in any kind of restaurant, fastfood or otherwise (remember Jack-in-the-Box), the danger is particularly strong if raw fish and seafood are being served. I like sushi, but I wouldn't eat it if it were being prepared by clueless teenagers making minimum wage.

[madnak]

Fast food isn't fresh. Trust me.

[El Diablo]

Duke,

"Now - am I just being stupid here with the idea that certain models can only work on a very large scale (while others can only work on a small scale), or am I missing something?"

While there are a lot of issues/obstacles with your specific idea, that general concept regarding businesses and scale is 100% on the money.

[Duke]

[ QUOTE ]
Duke--

While there is danger of food-born illness in any kind of restaurant, fastfood or otherwise (remember Jack-in-the-Box), the danger is particularly strong if raw fish and seafood are being served. I like sushi, but I wouldn't eat it if it were being prepared by clueless teenagers making minimum wage.

[/ QUOTE ]

Yeah, good point. That would be a huge obstacle to overcome.

I guess I'm just caught up in the "well, I know every other fast food place jumps through hoops to preserve their stuff for as long as possible, despite spoilage, but why not take advantage of how much food they're moving to just have it be fresh all the time?"

~D

[mother_brain]

[ QUOTE ]
Duke,

"Now - am I just being stupid here with the idea that certain models can only work on a very large scale (while others can only work on a small scale), or am I missing something?"

While there are a lot of issues/obstacles with your specific idea, that general concept regarding businesses and scale is 100% on the money.


[/ QUOTE ]

Obviously the model must fit the scale. But he's still just basically saying to create a competitive advantage. His CA being economies of scale. I think a model for the fast food sushi could still be created that gave you a competitive advantage with only a single or small number of stores.

Starting a massive operation is obviously going to take a much larger amount of capital and involve greater risk. These are both negative factors. Also going from zero to a massive distribution/marketing/blah blah setup is going to be near impossible. This is why most restuarant franchises start as a single or small number of stores then expand after success is proven there. The only time that I can think of franchises just being created is when a company already has another franchise and starts more like pizza hut/taco bell/KFC.

Being a small operation can provide just as much EV as you would gain from your economy of scale idea. You will be able to put all of your effort into a single location and fix the kinks much quicker than if you had 100 stores. Also your overhead will be much lower with a single store than from having an entire management team.

In summary, it seems to me, the models must fit the scale of the business. However, two different models can be created for the same business but on two different scales.

[El Diablo]

mb,

A classic situation where this applies is a situation where there is a fixed set of overhead costs and a certain number of adminstrative functions that MUST exist, but these functions can service anywhere from 1 to X units of operation. In this scenario, the business needs to be run at a certain scale before the margins make it possible to be profitable.

I haven't really thought much or read any of the followups to Duke's specific idea, but regarding your general points of models/scale, I pretty much agree.