ModelChoice decision tree · Restaurants

Restaurant Chain Expansion Decision

Expand with a company-owned flagship, franchises, a ghost kitchen, delivery only, or not at all?

Complexity: ★★★★★
Free Excel workbook
Needs ModelChoice: free trial

Download the Excel model Get the free ModelChoice trial

From the model’s decision tree

Best first decision: Company-Owned Flagship

The expected value of each first option when every later decision is also made well (the tree rolled back).

First decision	Expected value
Company-Owned Flagship	$155,250	✔ best
Franchise Model	$141,000
Ghost Kitchen / Delivery Only	$76,500
Don't Expand	$0

Measure	Value
Expected value of the best strategy	$155,250
Chance of a loss on the best strategy	40.2%
Best outcome on the best strategy	$1,700,000
Worst outcome on the best strategy	−$1,700,000

The best strategy: chance of each outcome or less

S-curve (cumulative probability) of Company-Owned Flagship from the saved simulation.

The decision

A successful regional restaurant chain (12 locations) is planning expansion into a new metropolitan market. The management team is evaluating three distinct expansion models, each with different capital requirements, control levels, and risk profiles.

Objective

Maximize expected 3-year profit. This model compares owned vs franchise vs digital-first expansion strategies with their distinct risk characteristics.

The options

Option 1: Company-Owned Flagship ($1.5M): Build a premium location with full brand experience. High investment but complete control. Location quality is the key risk factor. If the location proves poor, decide: rebrand, relocate, or close.
Option 2: Franchise Model ($200K): Lower capital via franchise fees and royalties. Key risk is franchisee quality. Weak operators can damage brand reputation. If weak, decide: provide extra support ($100K) or terminate the agreement.
Option 3: Ghost Kitchen / Delivery Only ($250K): Low-cost entry via delivery-only kitchen. Tests brand appeal in the market without the overhead of a full restaurant. Risk: delivery market saturation.

The decision tree

The tree has 3 decisions, 9 chance events and 25 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.

DecisionChance event+$ cash flow on the branch

Decision: Expansion Strategy

Company-Owned Flagship −$1,500,000expected $155,250 ✔ best
Chance: Location Quality
- 35% Prime Locationexpected $1,080,000
  Chance: Year 1 Performance (Prime)
  - 50% Strong Sales +$3,200,000payoff $1,700,000
  - 35% Average Sales +$2,200,000payoff $700,000
  - 15% Below Average +$1,400,000payoff −$100,000
- 40% Good Locationexpected $165,000
  Chance: Year 1 Performance (Good)
  - 30% Strong Sales +$2,400,000payoff $900,000
  - 45% Average Sales +$1,600,000payoff $100,000
  - 25% Below Average +$900,000payoff −$600,000
- 25% Poor Locationexpected −$1,155,000
  Decision: Poor Location Options
  - Rebrand & Relaunch −$300,000expected −$1,155,000 ✔ best
    Chance: Rebrand Outcome
    35% Turnaround +$1,200,000payoff −$600,000
    40% Marginal +$500,000payoff −$1,300,000
    25% Still Failing +$100,000payoff −$1,700,000
  - Close & Relocate +$200,000payoff −$1,300,000
  - Close Permanently +$50,000payoff −$1,450,000
Franchise Model −$200,000expected $141,000
Chance: Franchisee Quality
- 30% Experienced Operatorexpected $445,000
  Chance: Performance (Experienced)
  - 50% Exceeds Standards +$800,000payoff $600,000
  - 40% Meets Standards +$550,000payoff $350,000
  - 10% Underperforms +$250,000payoff $50,000
- 50% Average Operatorexpected $75,000
  Chance: Performance (Average)
  - 45% Meets Standards +$450,000payoff $250,000
  - 40% Below Standards +$200,000payoff $0
  - 15% Fails −$50,000payoff −$250,000
- 20% Weak Operatorexpected −$150,000
  Decision: Weak Franchisee Options
  - Provide Extra Support −$100,000expected −$150,000 ✔ best
    Chance: Support Outcome
    40% Improves +$300,000payoff $0
    60% No Change +$50,000payoff −$250,000
  - Terminate Agreement −$30,000payoff −$230,000
Ghost Kitchen / Delivery Only −$250,000expected $76,500
Chance: Delivery Demand
- 25% High Volume +$600,000payoff $350,000
- 45% Medium Volume +$350,000payoff $100,000
- 20% Low Volume +$120,000payoff −$130,000
- 10% Market Saturated −$50,000payoff −$300,000
Don't Expandpayoff $0

Change the numbers. Open the workbook with ModelChoice, change a probability or a cost in the tree, and the best decision updates at once.

Download the Excel model Get the free ModelChoice trial

Key assumptions

Assumption	Value	Notes
Flagship Build-Out	$1,500,000	Lease, renovation, equipment, marketing
Franchise Setup Cost	$200,000	Legal, training, support systems
Ghost Kitchen Setup	$250,000	Kitchen lease, equipment, app integration
Rebrand Cost	$300,000	Menu refresh, marketing, renovation
Extra Franchise Support	$100,000	Training, management oversight
Flagship Best Case (3yr)	$3,200,000	Prime location + strong sales
Franchise Best Case (3yr)	$800,000	Experienced operator, exceeds standards
Ghost Kitchen Best Case (3yr)	$600,000	High delivery volume
Poor Location Probability	25%	Site selection risk

The figures are illustrative: the companies and numbers are invented for teaching.

Try it in ModelChoice

Strategy Table. Compare owned, franchise, and ghost kitchen strategies
Sensitivity Analysis. How does location quality affect flagship profitability?
Risk Profile. Is the franchise model's lower variance worth lower expected return?

Find similar models

Related example models

All example models

An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.