Group B

(A)
PS-II Assignment (Group B13A)
Profitability analysis of entering food delivery business for Eatmore
Objective
The project aims to utilize Probability & Statistics to analyze the prospects of Eatmore, a
restaurant chain in Ahmedabad & Bangalore, entering the Food delivery market. Eatmore
wishes to target the student & corporate segments and intends to base its decision on
appropriately collected data. Eatmore has approached group B-13 (A) to collect and analyze
data on the food ordering patterns of its target segments. Eatmore believes that the business
will be financially viable if majority of its customers order food at least thrice a week.
Collection of primary data
Primary data is collected from a sample comprising of college students and working
professionals. Using an Internet based survey (Exhibit 1), we gathered the current status of
the respondent (student or working professional) and the average frequency of choosing
delivery of food. A clustered sampling approach was used since the surveyed population
contains two heterogeneous groups students who have lower disposable income and
preference for junk food vs. working professionals who have higher disposable income but
preference for fixed meals. The survey was floated within the educational institutions and
corporate offices affiliated to the group members. To ensure that the cluster is representative
of the customer population and in order to assume normal distribution, the survey was closed
when targets of over 50 samples each for working professionals and students was achieved.
Methodology of analysis
Exhibit 2 shows trends in food ordering frequency for 177 respondents comprising of 100
working professionals and 77 students. As per the data provided by Eatmore, if the
percentage of customers ordering food for delivery at least thrice a week is a minimum of
40%, the company will find it profitable to enter the food delivery business. The calculations
for this target number are provided are in Exhibit 3. The company is willing to accept a 5%
margin of error on this target value.
For testing this assumption, the proportion of respondents ordering food for delivery at least
thrice a week was computed as 29.94%. (Computation of the proportions is shown in Exhibit
4). A lower tail hypothesis test was employed to determine if the test statistic lies within the
acceptance region.

Group B (A)
Null Hypothesis H0:
  40

Alternate Hypothesis Ha:
  40

At the current level of testing ( = 5%), the critical value was computed as 34.34%. Since the

sample statistic
= 29.94% is below this critical value, it was concluded that
lies in the

rejection region. The calculations for the Hypothesis testing have been shown in Exhibit 5.
The test was further performed at other commonly accepted values of (Exhibit 6). For all
these cases also, it was found that we can reject the null hypothesis.
Hence, it was concluded that for a combined population of students and working
professionals, the proportion of customers ordering food for delivery at least thrice a
week is not up to the expectations set by Eatmore.
Restrictions of the analysis

The profitability for food delivery has been computed based on the customers ordering at
least thrice a week. The analysis ignores the fact that some customers will be highly loyal
towards Eatmore, even if they are ordering food less than three times a week. These
customers are not considered part of the revenue stream.

The variety of cuisines ordered is not considered. While the students might be more
inclined towards fast foods like Pizza / Burgers / Wraps, the working professionals might
want to order fixed meals like Thali. Eatmore might not be able to satisfy all these
diverse requirements. Moreover, the prices of these items will differ widely.

Other Interesting Insights

As mentioned above, the requirements for students and working professionals are quite
different. The proportions of students and working professionals corresponding to various
food ordering frequencies was computed independent of each other (Results in Exhibit 7). A
hypothesis test performed above for the combined population was also applied separately to
these two categories of customers. The testing and its results are shown in Exhibit 8.
The testing revealed that at various commonly used values of , the proportion of students
ordering food for delivery at least thrice a week is within the acceptable region of Eatmore.
On the other hand, the working professionals dont satisfy Eatmores requirements at any
levels of alpha. Hence, we recommend Eatmore to focus solely on the student community.

A report by Ankit Bhageria, Yatin Kamat, Dharavath Naik

Group B (A)
Exhibits
Exhibit 1: Snapshot of online survey

Exhibit 2: Percentage of respondents for different frequencies of food ordering

29.944%
Less than 3
3 or more
70.056%

Group B (A)
Exhibit 3: Computation of target number for Eatmore
Target market size in locality where
restaurants are present

10000

Computed using Goal Seek

% of market ordering food for delivery

at least thrice a week

39.286%

Number of possible customers

ordering food at least thrice a week
Mean no. of orders for customers
ordering at least thrice a week
Maximum possible orders per week
Maximum possible orders per month
Average bill amount per order
Maximum possible revenue per month

3928.571429
3.5
13750
55000
100
5500000

Intended market share

Market share possible
Actual market share

275000
5%
275000

APPROXIMATING % ORDERING
THRICE

40%

Exhibit 4: Computation of proportions of food ordering frequency

Category
Student
Student
Student
Student
Working
professional
Working
professional
Working
professional
Working
professional

Ordering status
0
1
2
3 or more

Frequency
14
18
18
27

Proportion
7.91%
10.17%
10.17%
15.25%

19

10.73%

32

18.08%

23

12.99%

3 or more

26

14.69%

Total no. of
respondents (n)

177

Combined
(Student +
Working
professional)

0
1
2
3 or more

33
50
41
53

Grouping the
categories

Less than 3
3 or more

18.64%
28.25%
23.16%
29.94%
70.06%
29.94%

Group B (A)
Exhibit 5: Hypothesis Testing
Null Hypothesis H0:
  40

Alternate Hypothesis Ha:
  40

Sample size: n = 177

Standard Deviation:  

Sample statistic:
 0.2994

At = 0.05, Critical value (CV) =  
  







= 0.0344

= 34.34%

=>
 . Hence, the null hypothesis can be rejected.

Exhibit 6: Critical values at various level of testing

Critical values
36.00%
35.00%
34.00%
33.00%
Critical value

32.00%
31.00%
30.00%

1%

2%

5%

10%

Critical value 31.99% 32.93% 34.34% 35.59%

Exhibit 7: Proportion of customers for various food ordering frequencies

40.000%
35.000%
30.000%
25.000%
20.000%
15.000%
10.000%
5.000%
0.000%
0

Ordering frequency
Students

Working professionals

3 or more

Group B (A)
Exhibit 8a: Hypothesis testing for students
Category
Student
Student
Student
Student

Ordering status
0
1
2
3 or more

Frequency
14
18
18
27

Total no. of respondents

(n)

77

Proportion
18.182%
23.377%
23.377%
35.065%

Less than 3
3 or more

Grouping the
categories

Alpha Value
1%
2%
5%
10%

Critical value
31.06%
27.35%
28.83%
31.06%
33.03%

64.935%
35.065%

Hypothesis
Accept
Accept
Accept
Accept
Accept

Exhibit 8b: Hypothesis testing for working professionals

Category
Working professional
Working professional
Working professional
Working professional

Ordering status
0
1
2
3 or more

Frequency
19
32
23
26

Total no. of respondents (n)

100

Grouping the categories

Alpha Value
1%
2%
5%
10%

Less than 3
3 or more

Critical value
32.79%
29.80%
30.99%
32.79%
34.38%

Proportion
19.000%
32.000%
23.000%
26.000%

74.000%
26.000%

Hypothesis
Reject
Reject
Reject
Reject
Reject