The Tasty Sub Shop Case: Predicting Yearly Revenue for a Potential Restaurant Site
A business entrepreneur uses simple linear regression analysis to predict the yearly revenue for a potential
restaurant site on the basis of the number of residents living near the site. The entrepreneur then uses the
prediction to assess the profitability of the potential restaurant site.
Part I Purchasing a Tasty Sub Shop Franchise. The Tasty Sub Shop is a restaurant chain that sells franchises
to business entrepreneurs. Like Quiznos and Subway, the Tasty Sub Shop does not construct a standard,
recognizable building to house each restaurants. Instead, the entrepreneur wishing to purchase a Tasty
Sub franchise finds a suitable size, which consists of a suitable geographical location and a suitable store
space to rent. Then, when Tasty Sub approves the site, an architect and a contractor are hired to remodel
the store rental space and thus “build” the Tasty Sub Shop restaurant. Franchise regulations allow Tasty
Sub (and other chains) to help entrepreneurs understand the factors that affect restaurant profitability
and to provide basic guidance in evaluating potential sites. However, in order to prevent restaurant chains
from over-predicting profits and thus misleading potential franchise owners, these regulations make each
individual entrepreneurs responsible for predicting the profits of his/her potential sites.
In this case study, we consider a business entrepreneur who has found several potential sites for a Tasty
Sub Shop restaurant. Similar to most existing Tasty Sub restaurant sites, each of the entrepreneur’s sites
is a store rental space located in an outdoor shopping area that is close to one or more residential areas.
For a Tasty Sub restaurant built on such a site, yearly revenue is known to partially depend on (1) the
number of residents living near the site and (2) the amount of business and shopping near the site.
Referring to the number of residents near a site as population size and for a Tasty Sub restaurant built on
the site yearly revenue, the entrepreneur will try to predict the dependent (response) variable yearly