The Impact of Commercial Rental Prices on Food Tenants’ Profit Margin and Price Adjustments

A Research Paper Presented to the

Faculty of Accountancy, Business, and Management
FEU High School

In Partial Fulfillment of the Requirements for the Course:

Practical Research 2

Abendan, Rianne Margarette P.

Candoleta, Renzo Amiel C.
Enriquez, Antonio Luiz A.
Fernando, Zemiel Lewis
Jimenez, Erika Leana Joy R.
Palad, Ma. Andrea R.
Pepa, Khiara Chelsy A.
Tashiro, Keisuke T.

Ms. Aerielle Nuestro

Research Adviser
August 2023

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 CHAPTER 1

THE PROBLEM AND ITS BACKGROUND

Commercial rent has historically been seen as a strong foundation for economic growth in

the world of small firms, especially for small businesses. For any business, one of the most

important factors to track is the profit margin (What’s a Good Profit Margin for Your Small

Business, 2017).

Nonetheless, it is critical to note that the impact of rising commercial rent varies by

industry and location. Some businesses have effectively passed on rising rent costs to customers

through pricing adjustments, and in competitive locations, they have discovered novel ways to

stay profitable. Furthermore, research has shown that prime locations, such as the one at FEU

Manila, can provide benefits that surpass the rent prices, resulting in improved sales and

potentially balancing the costs (Ahlfeldt & Pietrostefani, 2019).

Because FEU Manila is in such a densely populated location, catering to its enormous

student body brings both benefits and challenges. The university has numerous canteens and

abundant eating areas for students. Statistical data from Statista (2023) shows that rental prices in

densely crowded areas such as schools and malls often average approximately Php. 4, 500 per

sqm per month.

The great location of FEU Manila does result in higher rent expenses. However, it is

critical to remember that the university's huge student body provides a steady client base, which

can be beneficial for food providers. Furthermore, the student population's different preferences

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present numerous opportunities for specialty food enterprises to develop, potentially offsetting

the obstacles posed by increased rent costs (Ahlfeldt & Pietrostefani, 2019).

According to Elmedni, Christian, & Stone (2018), stakeholders' perceptions of the role

business improvement districts can play in promoting economic development and increasing

property values, and thus rental rates. It can be a driver for a complete transformation of a

neighborhood by raising the real estate value. As a result, commercial rental rates in the area rise.

Indeed, food vendors at FEU Manila use a variety of techniques to maximize revenues

including price adjustments. Despite this, the impact of rent prices on adjustments appears to

have gotten little attention in research, even though rent often comprises a significant amount of a

business's costs within a given time (The Journal of Applied Business Research, 2016).

Nonetheless, it is important to note that pricing adjustments are complicated and

influenced by a variety of circumstances. Businesses might change their tactics in reaction to

changing cost structures. Businesses frequently develop novel ways to cut expenses while

providing value to customers (Szumilo, 2021).

Product quality and performance have a substantial impact on product pricing, with

higher-quality items often commanding higher prices. Furthermore, pricing is a strategic method

used by businesses to decide the selling prices of their goods and services. These prices are often

impacted by factors such as production costs and consumer perceptions of the value of the

products and services offered by competing enterprises (The Journal of Applied Business

Research, 2016).

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 Gijsbrechts (2017) underscores the significance and intricacy of formulating effective

pricing strategies, which are contingent on factors like prevailing market conditions, corporate

objectives, and customer characteristics. A variety of pricing approaches, such as penetration

pricing and skimming pricing, are employed to address these contingencies.

This research incorporates the Resource-Based View (RBV) theoretical framework,

which is particularly relevant when examining the dynamics of Micro, Small, and Medium

Enterprises (MSMEs). The RBV theory posits that the unique set of internal resources and

capabilities held by MSMEs plays a critical role in shaping their competitive advantage and

ability to adapt to various external factors, including rising commercial rent costs and the impact

on food vendors. By focusing on the internal attributes of MSMEs, such as human capital,

technology, and financial assets, this framework provides a lens through which to assess how

these businesses can effectively manage their financial health and adapt to changing market

conditions (Kozlenkova, 2014).

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Conceptual Framework

Figure 1.

Conceptual Framework of the Impact of Commercial Rental Prices on the Profit Margin and Price
Adjustments of Food Tenants
Figure 1 presents a conceptual framework examining the influence of commercial rental

prices on the profit margins and pricing adjustments of food tenants. The central focus is on

evaluating the impact of commercial rental prices on profit margins. To bolster the analysis,

essential control variables are integrated. Firstly, company tenure, indicative of the number of

years a business has been operational, is incorporated to account for potential variations in rent

cost management strategies between established and newer ventures. Secondly, monthly net

income is introduced as a control variable to consider the overall financial health of food tenants;

higher monthly net income implies a greater capacity to absorb increased rental costs. Lastly, rent

expense, representing the actual amount spent on rent, functions as a control variable to isolate

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the impact of rental prices from the other financial commitments that affect profit margins and

price adjustments made thereof.

Statement of the Problem

In recent years, the costs of commercial rent in FEU Manila have posed a significant

challenge to food businesses operating in the area. The impact of rental prices on the pricing

adjustments of these businesses is a critical concern, as it can affect their sustainability,

competitiveness, and the affordability of their offerings to consumers.

This study aims to understand the impact of rent expenses on food tenants’ product

pricing. The following research questions will guide our investigation:

1. What is the demographic profile of food tenants in terms of:

1.1 Monthly net income;

1.2 Company Tenure; and

1.3 Rent Expense?

2. What is the impact of commercial rental prices in terms of:

2.1 Price adjustments by food tenants?

2.2 Profit Margins

3. Is there a significant relationship between commercial rental prices and the way food tenants

adjust prices?

Research Hypotheses

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 These hypotheses are the core of this study’s inquiry into whether there is a significant

connection between commercial rent prices and the gross profit and pricing choices made by

small food vendors.

Ha: There is a significant relationship between commercial rent prices on pricing adjustments of

food vendors.

Ho: There is no significant relationship between commercial rent prices on pricing adjustments

of food vendors.

Significance of the Study

This study seeks to assess the situation of the leaseholders of food business sectors in Far

Eastern University – Manila Campus about product pricing. Moreover, the outcome of this study

will benefit the following:

Current FEU Food Tenants. The information presented in this study will enable small

business food tenants to secure healthy profit margin when encountering financial distress on

their operations. The current food store tenants would be able to determine whether they are

efficiently allocating their resources to their operating costs to lessen the total costs and

subsequently their prices to remain competitive.

General Consumers. The findings from this study will have a significant impact on how

consumers select products and services that influence their purchases.

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 FEU Management. The situation described in the study can be used to identify if the

food sector business in FEU is still profitable or has insufficient income to pay rent fees. Thus,

the data that was provided can be used as a record for the finance department for future food store

leaseholders that will build their business inside the campus.

Future FEU Food Tenants. The results may assist possible small food service tenants to

assess the condition of their incoming food business. The recommendations presented will also

serve as a guide for potential food business owners that will give them an overview or

background of how the present food store owners manage their business, their target earnings,

and how they remain in the ongoing competition.

Future Researchers. The conducted studies will further open its doors for new

researchers and may be used as reference data to expand the gathered ideas. This may serve as a

source of information about how rent impacts food industry occupant's pricing strategies.

Scope and Delimitations

This analytical study focuses on examining the specific impact of rent costs on small food

vendors located in the Accounts, Business, and Finance Building (ABB), Science Building

(Tayuman), and Nicanor Reyes Hall (NRH) at the FEU Manila campus during the third quarter of

2023. While this focus allows for a comprehensive analysis of the rent-related challenges faced

by these vendors, the study excludes the consideration of various external factors such as such as

economic conditions, competitive landscape, regulatory updates, seasonal shifts, and other

contextual elements that may influence vendor’s profit margin.

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 This study acknowledges the presence of various small food vendors within the

designated buildings, but its sample size is limited to 30 participants to ensure manageable data

collection and analysis within the study's timeframe.

The research project follows a structured timeline. First, during a 3-weeks instrumentation

phase, the research team designs and develops data collection tools like surveys and

questionnaires. Then, a 1-week pilot testing phase allows for fine-tuning based on feedback,

ensuring these tools work well for collecting the necessary data. The subsequent 3-weeks data

collection phase collects comprehensive data from 30 participating food vendors, forming the

foundation for the research analysis.

Next, there is a 1-week validation phase, which is crucial for the study's reliability.

During weeks 9 to 10, experts review the data collection tools to ensure their quality. After this

thorough data collection and validation period, the following 3 weeks are dedicated to analyzing

the collected data, including detailed statistical analysis and interpretation. In week 14, the final

revisions of the research paper ensure that the results, discussions, and conclusions align with the

validation findings. This structured timeline guarantees the accuracy and reliability of the study's

results and maintains a focus on the specific impact of commercial rent in these areas during the

specified timeframe while excluding external factors for precision.

This research project, aimed at understanding how rent affects food vendors, is carefully

designed to ensure accurate and reliable findings. The 16-week timeline covers all the necessary

steps, from developing research tools to collecting and validating data for analysis.

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Definition of Terms

Food Stalls

Food stalls, for the purpose of this research, are defined as small food service businesses

that predominantly function in transient or non-fixed physical settings, including markets,

festivals, events, and public spaces. These establishments primarily focus on the

preparation and sale of various food items, such as snacks, street food, specialty dishes,

and beverages. Food stalls are characterized by their limited physical footprint, often

involving portable or temporary structures, and are known for their emphasis on offering

convenient, budget-friendly, and diverse culinary options within a specific location. (Law

Insider, n.d.)

Profit Margin

In the context of this study, the profit margin is operationalized as metric indicating the

extent to which a company or a specific business activity generates profit. Stated as a

percentage, it signifies the share of a company's sales revenue retained as profit after

deducting all associated costs; the larger the amount, the greater the profit margin over

costs for the company. The formula to compute profit margin or also known as “net profit

ratio” is net income divided by revenue multiply by 100 to get the percentage

(Investopedia, 2023).

Rent

In the context of this study, commercial rent costs are operationally defined as the

financial outlay incurred by a business to secure the utilization of a physical space for

various purposes, including office space, retail outlets, storage facilities, or factory
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 premises. These costs encompass the expenses associated with leasing or renting a

commercial property and are inclusive of rent payments to the property owner or landlord.

Commercial rent costs represent a significant component of a business's overhead

expenditure and are a crucial factor to consider when assessing the financial impact on

businesses occupying such properties (Kenton, 2023).

Selling price

In the context of this study, the selling price is operationally defined as the total cost

incurred by a seller to produce or procure a certain product, augmented by an additional

amount intended to yield a profit. The selling price represents the monetary value

communicated to consumers as the price at which they can purchase the specified

product. This pricing strategy is employed by sellers to generate income and profit from

their products or services. The selling price is composed of both the cost of production or

acquisition and the profit margin added by the seller. It serves as a fundamental

component of a seller's revenue generation and pricing strategy (Investopedia, 2020).

Price Adjustment

In the context of this study, price adjustment is a strategy of a business to change its price

in a certain time. Price adjustment helps to protect the parties against unexpected price

escalations, so it should be included whenever there is a vulnerability to such risks

(Aldwin, 2023). To remain competitive, the business must adjust its prices. The product's

price and method of pricing are two of the most significant variables affecting how

purchases are made. Price adjustments have a huge impact on your revenue and, most

crucially, your clients and brand image.

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 CHAPTER 2

REVIEW OF RELATED LITERATURE AND STUDIES

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Commercial Rental Prices

According to Haila (2015), The concept of rent is of the marginal land also known as

differential rent; this refers to land that has lower productivity meaning that it is less valuable

than another plot of land. One example of that is when an open storefront is in a crowded area

that may attract more customers rather than a peripherally located store that is rarely visited. In

this way, the former store is more likely to generate extra profit that can be used to cover rent.

Rent is a component of income from operating activities carried out using or exploiting limited

natural resources. It is also a type of income that will directly affect the optimization of the use of

economic resources of the business entity. Understanding the rent rates will enable you to

increase sales volume, save profitability, and lower the sale price, all of which will increase

revenue and profit (Bardash & Osadcha, 2018). Rent regulation creates a balance between

supply-side incentives for landlords and secure tenant rights. The way rent control operates is that

renters and landlords are locked into a base rent that gradually decreases in real terms every year.

Base rents are not regulated; they are determined for a new tenant. Even at the risk of reducing

their medium-term housing supply, landlords were found to have been involved in such practices

that enabled them to either directly or indirectly start the process of transitioning to the

unregulated sector (Rinn et al., 2022). Furthermore, one major barrier to small enterprises and

organizations' sustainability is still rent. When forced to relocate, leaders, employees, and tenants

suffer due to rising rent rates. Be it a sole proprietorship or a formal legal entity, small business

owners, especially immigrants, frequently rely solely on their enterprise for their income (Hill,

2021). Diamond, R., McQuade, T., & Qian, F. (2019) stated that rent control has a greater impact

on racial minorities, implying that it has helped to prevent minority displacement. This decrease

in rental supply is likely to raise rents in the long run, resulting in a transfer of future renters.

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 One of the expenditures that every Small and Medium Enterprise (SME) undergoes

through is fixed costs. Under the fixed costs are Commercial Rent or Lease that a business also

spends on. As explained by Hayes (2023) in his article Fixed Cost: What It Is and How It’s Used

in Business, Fixed Cost is a recurring or repeating cost that does not change over a period even if

the production level of services or goods decreases or increases. Fixed costs are expenses that are

established through an agreement and contract. Once guaranteed, it will not alter over time due to

the cost schedule. Not unless the production or services exceed, the fixed cost or the rental price

escalates if the business owner decides to upgrade to another commercial rent. Thus, the payment

for commercial rent will rise. According to Al Badi, K. S. (2018), Marketing mix (product, price,

place, and promotion) has an impact on achieving a competitive advantage for SMEs. All

marketing mix elements significantly influence competitive advantage, with price being the most

impactful. It recommends that SMEs improve product quality, distribution channels, and

promotion policies to compete effectively. The study concludes that using the marketing mix for

a competitive edge is still relatively new and emphasizes the need for further education and

support for SMEs in this area. Rising rents, both residential and commercial, have been identified

as a key risk to existing small businesses, demonstrating the changing nature of ‘spaces' impacted

by legacy structures. An emerging question related to both the conceptual and practical aspects of

delivering a 'local legacy' is whether gentrification (and the somewhat inevitable rise in

commercial rents) is a planned or unplanned outcome of SMEs (Duignan, M. B., 2019).

According to O’Connor, J., & Gu, X. (2014), the Creative Industry Cluster policy formalizes

creative industries' use of industrial spaces. It allowed the owner (of land-use rights) to charge

high commercial rent for industrial land without having to seek formal re-designation or pay the

fees and taxes associated with such a change. In this context, where SMEs are more closely

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linked to the state, the CIC model may provide an ideal framework for this support strategy,

assisting in the formation of links between these and larger cultural industry organizations.

According to Do, H., Mazzarol, Soutar, Voléry, & et al. (2018), the importance of SMEs

having a strategic commitment to innovation, supported by an open organizational culture and

strong systematic approaches to portfolio and project management, and the commercialization

process requires an initial assessment of the potential or entrepreneurial rent, a subsequent

assessment of the residual or quasi-rent following market insertion, and a final assessment of the

appropriable rent once the firm's available resources have been assessed. It backs up the RBV

theory of entrepreneurial firms and the importance of owner-managers having the right

commercialization process, a supportive culture for innovation, knowledge of the likely market

adoption rate, and a general commitment to innovation as ways to obtain and maintain a

competitive edge. In terms of NPD and commercialization, SMEs often lack the resources and

experience of large corporations. SME owner-managers are more likely to believe in their ability

to commercialize an innovation if their firms have these strategic and cultural orientations toward

innovation, as well as systematic approaches to NPD. Since rent is directly determined by the

decision of the entire price system, rent itself cannot be regarded as a macroeconomic issue. Any

rise in rent or quasi-rent can only have an inflationary effect and serve as a powerful incentive for

a wage to decline, the combined effect of these two occurrences would eventually cause workers'

consumption to decline (Flamant, 2021). Al Badi, K. S. (2018) stated that Marketing mix

(product, price, place, and promotion) has an impact on achieving a competitive advantage for

SMEs. All marketing mix elements significantly influence competitive advantage, with price

being the most impactful. It recommends that SMEs improve product quality, distribution

channels, and promotion policies to compete effectively. The study concludes that using the
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marketing mix for a competitive edge is still relatively new and emphasizes the need for further

education and support for SMEs in this area. Personal Selling had a significant impact on the

performance of Nairobi Central Business District rental office properties. It ensures that tenants

receive after-sales service, which has an impact on performance. The size of the sales team

influences the performance of commercial rental office properties. It remains a foundation upon

which Firms can build strong long-term tenant relationships. It is the most expensive mode of

communication among all marketing efforts (Konyimbih, T. M., Mbura, L. K. & Paul, S. N.,

2017).

The employment situation in the service sector, the selling price, the exchange rate,

inflation, interest rates, and economic growth are the factors that have the biggest impact on the

rental rate. On the other hand, the rental rate has the biggest impact on the selling price, followed

by employment in the service sector, the exchange rate, economic growth, the selling price,

inflation, and interest rates. Numerous studies have been done on the modeling of rental rates that

were affected by different macroeconomic requests or elements, including the unemployment

rate, GDP, inflation, interest rates, and the employment services sector. (Simon et al., 2015).

Thus, it is obvious that the MSMEs sector is fundamentally important to the growth of a nation’s

economy, but it is still vulnerable. Mall rental rates are widely distributed in Zambia, MSME

rents on these malls are high, averaging 252% and 231% higher than those of chain stores and

anchor tenants, respectively. While MSMEs continue to be leased at full rental value, which

makes them difficult to maintain in the event of unexpected economic uncertainty such as disease

outbreaks, chain stores and anchor tenants can successfully negotiate for a percentage lease. Yet,

post-analysis, the findings imply that there is no statistically significant difference between the

leases paid by chain retailers and anchor tenants on malls (Jain et al., 2021).
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Profit Margin and Resource-Based View Analysis

Profit Margins are subject to the influence of the cost of goods sold. However, it needs to

reflect the cost information due to the different points of view which may claim substantial

funding to keep a business afloat and competitive (Damayanti, 2023). The two earning

components mentioned in the report of Cheng, Chu, &Olson (2020) are the Sales and Profit

Margin. Sales measures the expenses to determine the profit margin. Therefore, results on

expenses may only sometimes be translated to profit margin. Sales projections should be the

primary factor influencing the earnings forecasting features if sales are the primary source of

earnings variability. If this is the case, scaled metrics like profit margin will not properly reflect

the variability of the business’ earnings. On the other hand, if sales are steady and costs are

unpredictable, analyst predictions regarding profit margin will influence the profit forecasting

characteristics. In discussions regarding business success, Profit Margin plays a significant part.

Profit margin is more frequently mentioned than expenses because it is a ratio and can be

compared between companies more easily than expenses, which are expressed in monetary terms.

Profit margin serves as a counterbalance to sales. Businesses like food sectors are under the

Micro, small and medium-sized enterprises or the MSMEs. According to Paggadut (2021),

MSMEs have a significant impact not only on social but also on the economic advancement that

they can contribute through their entrepreneurial ability. To estimate and know the long-term

management of a retail food business, it must have well-planned management of the financial

structure of their capital, sales revenue, COGS and profit to influence the increase these

remarkably. Aside from that, the size of the profit margin may vary through individual types of

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trade like wholesale and retail, and retail chains as types of shops and product categories

(Vojteski-Kljenak, Lukíc, & Gavríc, 2019). The retail industry is significant because it fulfils the

needs of its customers by acting as a selling agent, collector, and supplier of goods and services

(Sunaryo, 2022). Opstad, et al., (2022) studied that the eating establishments industry's ability to

maintain profits can be attributed to several reasons. The product exhibits heterogeneity in terms

of both food and service quality. In addition, prices and locations vary, and several eateries

specialize in regional cuisine. These features can draw customers to eating places and develop

greater loyalty. Profit persistence to some degree could be the outcome. The Operating profit and

sales are compared to determine the net profit margin. The greater the ratio's value, the more

beneficial the business’ profitability(Sunaryo, 2022). Sales can be used to increase the profit

margin ratio when operating expenses are at a given level, or operational expenses can be pressed

or decreased when sales reach a certain level. Along with a certain amount of operating expenses,

the profit margin ratio can be enlarged by increasing sales, or with a certain number of sales the

profit margin ratio can be enlarged by pressing or reducing the operating expenses (Mahdi &

Khaddafi, 2020). This ratio can help the management of the food MSMEs understand the terms

of the implementation that will take place for the production and how they will affect them to go

forward (Sunaryo, 2022). Furthermore, MSMEs should be optimally operated to generate sales

by efficiently utilizing their resources and wisely managing those sales-controllable costs. They

should exercise caution to avoid sacrificing output quality in cost control (Pagaddut, 2021). Due

to its evident influence on profit growth, it is also possible to maintain and monitor the Net Profit

Margin variable. Consequently, for a business to make a healthy profit, it must be sustained and

developed (Nariswari & Nugraha, 2020). Currently, with enough capital, the efficiency to

improve its operations may maximize the Profit activities of Return on Asset (ROA) and optimal

operations of Net profit margin (NPM), as stated by Khalik (2021). In addition, the study of
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Handayani & Winarningsih ( 2020) proved that Return on Equity (ROE) and Net Profit Margin

(NPM) significantly positively impact the Profit Growth of food and beverage retailers.

Moreover, Parilla & Abadilla (2021) mentioned in their study that Supply chain management

practices have a positive relationship with profitability, with more practices leading to higher

profits. The implementation of supply chain strategies results in increased sales, cost savings,

increased response to customer needs, better quality information, and improved operating

efficiency. On the contrary, considering the prominent performance of MSMEs an analysis of

their importance can be influenced stated by Arbelo (2018). For an analysis of businesses,

resource-based theory provides a more comprehensive framework. As explained by Edwards

(2016), applying the Resource-Based Theory implies strategic resources that give a business a

great chance to gain advantage over its competitors. Aside from that, Some businesses acquire a

dynamic capability, which is the exceptional capacity to enhance, modernize, or generate new

capabilities, particularly in response to changes in their surroundings. Thus, a company that

benefits from dynamic capability is proficient at continuously modifying its range of capabilities

to stay up with the changes. Kozlenkova, Samaha, & Palmatier (2013) stated that when

examining the use of Resource-Based Theory in various marketing domains, the primary

motivation for using Resource-Based Theory in many marketing contexts is that it provides a

compelling framework for integrating multiple, dissimilar resources to explain their synergistic,

differential effects on performance and their associated contingencies. De La O (2015) has

proven that in recent decades, strategy has found relevance in the Resource-Based View (RBV).

However, unlike more clearly defined theories of firm behavior, there are several challenges with

the practical approach in creating distinctive and unambiguous hypotheses. One of them is the

absence of evidence of dynamic capabilities, which is also a problem with RBV theory and can

be attributed to two key issues: the insufficient specification of these skills and their challenging
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observation and measurement. The Resource-Based View of the business and its dynamic

capabilities have become the two main paradigms in strategy in the previous years and are

concentrated on those assets that can give a business a long-term edge. Furthermore, Arbelo

(2018) stated that Businesses can determine how well they are using their resources and

accomplishing their goals by using a profit estimate. In these situations, MSMEs can greatly

benefit from resource analysis in assisting them in achieving the goal of maximizing profits.

Price Adjustment

Price is a critical component for any business and can be crucial for its survival.

According to Cant, Wiid, & Sephapo (2016), MSMEs use their competitors' prices as a

benchmark for setting their own prices; however, the majority of them do not lower or match

their competitors' prices. Pricing is a method used by a company to determine the selling prices

of its products and services. It is influenced by the consumers' relationships, as well as the

benefits that they, the consumers, derive from the product. Product performance is also an

important factor to consider when determining prices. The price is normally determined by cost

elements as well as the consumer's perceived value of the goods or services in comparison to

competing firms, goods, or services. Asian Development Bank (2023) stated that price

adjustment prevents the parties involved from unanticipated price increases, so they ought to be

present whenever a contract is susceptible to these dangers. There isn't a single price-adjusting

method that works for all circumstances. Various formulas are used for contracts of varying sizes

and distinct elements. Formulas for price adjustments consist of unchangeable or fixed and

variable cost elements. The coefficient or cost component weight that is determined using its
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relative to the entire contract value to sum according to the engineer's projection. Therefore, the

efficient market hypothesis states that immediate and objective price adjustments are a result of

the rapid flow of information into prices. As volatility varies from one market to another, the

speed of adjustment resulting from price adjustments cannot be quantified with only an individual

volatility estimation (Kayal & Maheswaran, 2018). Additionally, the two-stage pricing plan only

determines the ideal retail prices as well as the timing of the price discount. This cost of price

modification takes out a significant portion of operating expenses and has a big impact on how

businesses decide to use flexible pricing (Chen & et al., 2018). As stated of Daño-Luna, Canare

& Francisco (2018), factors influencing SME development and competitiveness include

entrepreneurial mindset, enterprise capacity, and business environment. Small enterprises are

more likely to respond to tight competition by lowering prices or cutting costs, rather than

improving their products or expanding into new markets. In addition by Chandel, & Sharma

(2014) MSMEs concentrate primarily on market core dimensions such as financial resources,

government policies, market competition, cost structure, pricing components, and legal

framework. This indicates that MSMEs aimed to become market leaders when developing their

marketing strategies. Marketing strategies for MSMEs include all product attributes, pricing

attributes, distribution factors, promotional factors, and all other market and environmental

factors. The value proposition of product, price, location, and distribution strategies leads to

satisfied and loyal customers who enrich small businesses. Legaspi (2018) stated that medium

enterprises prefer the relevant cost for decision-making, correspondingly identified that a product

or service cost information tool aided them in product planning to determine how much the

"price" that they could offer must be included in the budget preparation.Moreover, MSMEs

engage in manufacturing, wholesale and retail trade, lodging and food service activities, financial

and insurance activities. Based on M & Köstner, (2016), the adapted pricing strategies pursued by
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SMEs should reflect the economic conditions in the target country because these conditions

determine the demand potential for a firm’s products. SME managers can benefit from adapting

their pricing strategy to meet country-specific conditions such as purchasing power, exchange

rate fluctuations, competitor pricing practices, and so on. Thus, while prices are reasonable,

consumers are still interested in purchasing products. In addition, MSME players must adjust and

condition their product and service sales. It is necessary to improve the quality of products and

services to attract the attention of consumers (Nadyan et al., 2021). Customers influence the

business by having low switching costs and determining market prices. Aside from the

customers, suppliers determine the business's expenses by controlling raw material costs. The

most critical factor is a lack of digitalization in marketing strategy which leads to low sales

performance by the business (Astro & Ghazali 2022). Aside from that, it has been determined

that contrastingly exists throughout businesses in terms of the scope and frequency of price

adjustments at the universal product code (UPC) level. The range of data and pricing tactics

emphasizes how important it is to identify the key aspects of micro-price behavior which is

significant to overall adjustment (Gagnon et al., 2013). Price adjustments related to quality

primarily impact durable goods, while some services are also impacted. The "pure" price change

in pricing statistics should be determined by separating out price changes brought on by an

improvement or reduction in a product's quality. Therefore, if growing prices are not corrected

for better product quality or if similar-quality products are assumed to be close alternative

options, inflation will be overstated (Menz,et al., 2023). Anggityo & Sudhartio (2020) stated that

the upper limit of a product's price is determined by the customer's perception of its value. There

are three major pricing strategies: customer value-based pricing, cost-based pricing, and

competition-based pricing. The theory used to develop a pricing strategy could be adapted to the

MSME total cost and business process. Bourletidi & Triantafyllopoulos (2014) studied that
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whatever has to do with a business's choice is quickly spreading to stakeholders, with a positive

or negative impact on the business depending on its choice. Price adjustment theory can explain

experimentally relevant unequal pricing reactions to transient and long-term changes that are both

positive and negative of comparable size. The explanation of price adjustment is not predicated

on random assumptions about the frequency of price adjustments or their substantive costs

(Ahrens et al., 2017). Despite the potential benefits of dynamic pricing, many sellers still employ

static pricing due to the inflexibility of present business constraints, the challenge of frequent re-

optimizations, and the unfavorable effects of abrupt price adjustments. With a limited number of

inventories, the vendor tries to sell a variety of goods during a limited selling season in order to

maximize the profits. Definitely, one of the key choices that has the biggest impact on the seller's

profitability is pricing. Price changes for multiple products, including may not be what the

company is interested in. (QG Chen & et al., 2016). Wang, Yuan, & Yuan (2022) stated that the

Inspired stochastic resonance theory, it ensures that SMEs can achieve optimal growth by

strategically applying "capital-product switches" – balancing risk and investment. The study uses

simulations to validate these strategies, considering factors like management focus,

specialization, and environmental uncertainty. Additionally both economic growth and market

equilibrium are significant factors in solving real-world issues, and market rivalry is vital for both

product providers and customers. When it comes to commodities whose prices could change

quickly, buyers and sellers are the two economic agents involved in the market. Customers may

select pricey products due to the snob effect, making it challenging to determine whether they

will purchase premium or inexpensive products. Price adjustments may take place in the case of a

production shortage or if the price of a particular product rises and suppliers decide to reduce

supply in order to boost profits (Baş et al., 2019). Falahat, Ramayah, Soto-Acosta & et al.

(2022), fills a gap in understanding how organizational capabilities drive competitive advantage
23
and international performance for exporting SMEs. It reveals that while market intelligence,

product innovation, and pricing contribute to a competitive edge, only pricing capability directly

influences global performance. It emphasizes the critical role of strategic pricing for SMEs

seeking to succeed in foreign markets. By focusing on pricing strategies alongside other vital

capabilities, SMEs can equip themselves for sustainable growth and prosperity on the global

stage. FFL is a process that equips SMEs with the ability to identify new opportunities for

innovation. Lastly, the report highlights the significance of FFL as a strategic approach for SMEs

seeking to thrive in adversity and embrace innovation as a critical driver of success (Gold &

Jones, 2023). Ogundele, Akingbade & et. al (2013) described that MSME owners use a variety of

marketing practices, including new product development, process development, process

adjustment, segmentation, price discrimination, direct distribution, personal selling, sales

promotion, relationship marketing, electronic advertisement, and other uses of IT. The practice

covers all four key elements of the marketing mix: product, price, place, and promotion. Mix

marketing planning is critical for business survival and success. Overall, every product has a

price, which is independent of both the seller and the end user (Baş et al., 2019). Along with the

numerous marketing and management tools, price planning is an important and difficult

responsibility for every owner of a food business (Chen & et al., 2018).

24
Profit Margin and Price Adjustment

A study by De Toni et al. (2017) proved that the strategies based on value-based, cost-

based, and competitive-based pricing are the ones considered; high and low prices are the

categories for pricing levels. In a pricing strategy known as perceived value-based pricing,

Owners or managers make a choice based on how customers perceive and weigh the benefits of

the product they are purchasing in proportion to the money they hand over. While for

competition-based pricing considers the price levels of rivals as well as behavior expectations

seen in actual competitors and/or possible primary suppliers. At the same time, cost-based pricing

is the most frequent pricing technique. It is also the most lenient and widely used method for

setting prices. Thus, it involves raising the profit margin on expenses, for example, by increasing

the standard percentage contribution margin to the goods and services. Also, adding a standard

percentage contribution margin to the items and services is one way to put a profit margin on

costs. Aside from that, they found that most of the businesses set their prices based on expenses

creating sophisticated cost models, all of which used in profit margin and contribution targets to

determine the pricing. Therefore, the findings indicate that there are no statistically significant

differences between the means of profit margins for pricing strategies that are customer value-

based, competition-based, and cost-based, and price levels that are higher or lower in relation to

the competition. Hence, the most efficient way to implement the best pricing strategies is through

differentiation—whether from the products and/or services or from the value provided to

customers—which will boost a businesses' profitability and competitiveness.

25
 The research topic, investigating the impact of rent on the profit margins and price

adjustments of Micro, Small, and Medium Enterprises (MSMEs) within the framework of the

Resource-Based Theory, delves into a relatively underexplored facet of strategic

management and operations within these businesses. According to the Resource-Based Theory,

which underscores the significance of unique internal resources and capabilities for achieving

competitive advantage and adapting to external factors (Kozlenkova, 2014), understanding the

role of rented spaces as a crucial resource is particularly pivotal for MSMEs, especially those in

the food-related sector.

Food MSMEs heavily rely on rented spaces as a critical operational resource. Nariswari et

al. (2014) emphasize the need to delve into the impact of rental costs on the profit margins of

MSMEs, prompting an exploration of how such costs influence the pricing strategies adopted by

these businesses. The intricacies of this relationship become evident when considering how an

increase in rental expenses can indirectly affect profit margins. As rental costs escalate,

businesses may face heightened operational expenditures, thereby reducing their net profits.

Consequently, MSMEs may find themselves compelled to make strategic adjustments to their

pricing strategies. To maintain profitability in the face of rising rents, these businesses may opt to

implement price adjustments on their products. Therefore, this research aims to uncover the

nuanced dynamics wherein rental expenses indirectly impact profit margins, subsequently

influencing the strategic price adjustments made by MSMEs. By shedding light on this intricate

relationship, the study contributes to a deeper understanding of the multifaceted dynamics within

the small business sector of FEU Manila.

26
 CHAPTER 3

METHODOLOGY

Research Design

The study will use quantitative research to collect and analyze numerical data on the level

of impact of commercial rent on profit margins and price adjustments. Correlational research

examines the relationships between two or more variables without showing cause and effect

(Devi, Lepcha, & Basnet, 2023). This is used as it was the most appropriate in our study on food

MSMEs in FEU Manila due to the study requiring the understanding of the level of correlation

between the variables. The independent variable is commercial rent, while the dependent

variables are profit margin and price adjustments. The control variables are company tenure and

monthly income. These will be used to control the effect of rent on the profit margin and price

adjustments.

Research Locale and Sampling Technique

This study will be conducted in Far Eastern University-Manila campus’ canteens in the

Accounts, Business and Finance Building (ABB), Science Building (SB), Engineering Building

(ENB), and Nicanor Reyes Hall (NRH). The respondents will be the food MSMEs occupying the

said canteens inside the university. The researchers will employ a purposive sampling technique

since the respondents will be chosen from the mentioned buildings within the FEU vicinity.

Having 30 as the sample size guarantees reasonable data gathering and analysis during the

study’s timeframe.

27
Materials and Instruments

For survey questionnaire, the researchers will primarily be utilizing traditional pen and

paper survey. As indicated by Ebert (2018), this method is the most accessible for the chosen

respondents. The survey questionnaire includes an informed consent form where the FEU food

tenant/s would know the content of the study and will formally be asked for permission. It also

employed the Likert Scale method to indicate the participants' level of agreement with the

questions provided.

28
Data Collection Procedure

Figure 2. Schematic Diagram for the Data Collection Procedure

Instrumentation and Validation: In this phase, we meticulously select and validate

research instruments essential for data collection. Given the nature of our study on "The Impact

of Commercial Rental Prices on Food Tenants' Profit Margin and Price Adjustments," the

researchers will adapt an instrument tailored to capture relevant data. The process involves

ensuring the reliability and validity of the chosen tool, considering the unique context of

commercial rental dynamics and its influence on the profit margins and pricing strategies of food

tenants. This step is crucial to guarantee the accuracy and effectiveness of our data collection

methodology, providing a solid foundation for subsequent research stages (Korb, 2012).

29
 The researchers' goal in creating the questionnaire's schematic layout is to create an all-

inclusive instrument that would capture the key elements of the investigation. The questionnaire

is divided into three sections: the first part asks participants to provide demographic data; the

second part assesses their perceptions of how rental prices affect the use of pricing strategies; and

the third part investigates the perceived strong correlation between commercial rental prices and

the price adjustments made by food tenants. To ensure a deeper knowledge of participants'

perspectives, the Likert Scale approach was utilized to quantify replies. This approach

emphasizes precision and comprehensiveness in data collecting, which is consistent with

accepted research procedures (Smith et al., 2019).

Afterwards, in accordance with Lake's (2017) suggested methodology, a pilot test with a

limited number of participants will be carried out to verify the questionnaire's effectiveness and

enhance its content. The final questionnaire will be given in person to 30 food MSMEs on the Far

Eastern University-Manila campus after a successful pilot test. The goal of the in-person

questionnaire delivery and collecting is to increase participant engagement by offering deep

insights into their perspectives and experiences. For a more detailed understanding of how rent

affects profit margins and pricing adjustments among the targeted food tenants, a rigorous

technique of data gathering is necessary (Jones & Johnson, 2020).

Administration for Survey Questionnaires: This phase involves the implementation of

survey questionnaires tailored to gather pertinent information for the study. The researchers shall

carefully consider sampling methods to ensure representative data and adhere to ethical

guidelines. The administration process requires clear communication with participants, detailing

the research objectives and maintaining confidentiality. By employing effective survey

30
administration techniques, we aim to collect comprehensive data on how commercial rental

prices influence the profit margins and pricing strategies of food tenants, contributing to a robust

foundation for the subsequent analyses and interpretations (Korb, 2012).

C. Statistical Treatment: In this stage, linear regression analysis and the Central Limit

Theorem are applied to organize and analyze the collected data. The employment of the Central

Limit Theorem enhances the reliability of the statistical analyses, allowing researchers to make

inferences about the broader population from the collected sample, ensuring the generalizability

of the findings. Pearson's Rho is then utilized to test the significance of the relationship between

variables. Through the application of linear regression analysis, patterns, relationships, and trends

within the data are uncovered and analyzed. This approach provides a quantitative foundation for

understanding the intricate dynamics between commercial rental prices and the profit and price

adjustments made by food tenants (Korb, 2012).

D. Analyzation of the Treated Data: At this stage, the treated data, processed through

linear regression analysis and validated using the Central Limit Theorem, undergoes meticulous

examination in Excel. Leveraging Excel's analytical tools, relationships between commercial

rental prices and the profit and price adjustments made by food tenants are thoroughly explored.

The utilization of functions such as Pearson's correlation coefficient assesses the significance of

these relationships. Through Excel's capabilities, patterns, outliers, and potential correlations are

identified, offering a detailed understanding of how varying rental costs impact the financial

strategies of food tenants. This analytical process in Excel forms the basis for drawing

meaningful conclusions and informing subsequent interpretations in the study (Korb, 2012).

31
 E. Interpretation of the Treated Data: Using the treated data, relationships between

commercial rental prices and the profit, and price adjustments made by food tenants, are

examined. This involves identifying patterns and correlations within the data set. The

interpretation process is conducted with meticulous attention, scrutinizing the nuances and

significance of observed relationships. The goal is to draw meaningful and informed conclusions,

contributing to a comprehensive understanding of how commercial rental prices affect the

financial dynamics of food tenants. Throughout this stage, a commitment to objectivity ensures

that conclusions are drawn without introducing personal biases (Korb, 2012).

Collection Of Data from Respondents

Researchers will prepare and give prospective participants a well-organized consent form

before starting the data gathering procedure. This consent form will include comprehensive

details on the study, including its goals, its advantages, and any risks or drawbacks that may be

involved. Along with emphasizing that participation is optional, the consent form will reassure

respondents that it will not impact their connection with the university or any affiliated

businesses. This moral preamble guarantees openness, upholds participant autonomy, and

conforms to accepted standards for using human subjects in research (World Medical

Association, 2013).

While gathering data, the researchers are dedicated to maintaining the concepts of

anonymity and secrecy. The participants will be guaranteed that their answers will be handled

with the highest confidentiality before the survey questionnaires are distributed. To preserve

participant privacy, identifiable information will be maintained apart from the study data via
32
coding schemes or pseudonyms. To promote open and honest involvement in the study and build

confidence between the researchers and respondents, this ethical protection is crucial (American

Psychological Association, 2017).

Data Validation

Data validation must be performed to ensure the correctness of the collected data. By

validating the data, researchers can anticipate errors and inconsistencies in the data. In this

section, researchers can also analyze whether the collected data is relevant to the research

questions. The purpose of data validation is to improve the quality of data and thereby increase

the reliability and validity of research results (Kakarash, 2023).

Data Analysis

Data analysis is a crucial phase in the research process, encompassing the systematic

inspection, cleaning, transformation, and interpretation of collected data to derive meaningful

insights, draw conclusions, and make informed decisions. In this context, researchers must

carefully choose appropriate methods, utilize reliable software tools such as Excel and uphold a

rigorous and transparent approach throughout the analysis process (Calzon, 2023).

33
34
 Figure 3. Gantt Chart for the Research Paper

The research topic of the impact of rent on profit margins and price adjustment was

proposed by the researchers. Upon the approval by the research adviser, the construction of

Chapter 1 started. To gain knowledge on the chosen research topic, a review of related literature

was conducted for 4 weeks. A consent form will be written to formally ask for permission to

conduct the study. The researchers will then begin the collection of data.

The data for this research will be collected by conducting survey questionnaires with the

food tenants residing in the Far Eastern University-Manila campus' canteens, such as the

Accounts, Business, and Finance Building (ABB), Science Building, Engineering Building, and

Nicanor Reyes Hall (NRH). The survey questionnaire will be utilizing the Likert Scale method. It

will also be divided into three parts, all of which are connected to the respondent’s demographic

profile, level of perception towards the effect of rental prices on the employment of pricing

strategies, and the significant relationship between commercial rental prices and the food tenants'

pricing adjustments.

The researchers will organize a pilot test before disseminating the questionnaire to the

participants. By doing so, the study will begin with a few participants to enable the researchers to

test their approach prior to conducting their main study. Upon the success of the pilot testing, the

survey questionnaires will be delivered personally by the researchers to the 30 participants, which

are the food MSMEs inside the FEU Manila campus. The researchers will collect the

questionnaires right after the participants finish answering them. This method of collection will

be helpful in our research as it provides the viewpoints, experiences, and insights of the

participants (Lake, 2017).

35
 Following the respondents' completion of the questionnaire, the researchers will collect

and tally the information in preparation for data interpretation.

Data Analysis Procedure

Data Preprocessing

As stated by Anunaya (2023), an essential first step in getting survey responses

ready for analysis is data preprocessing. Following the collection of questionnaires, the

researchers meticulously check the consistency and completeness of the data, using the

proper imputation techniques to fill in any missing values. Coding is used to make

numerical analysis of categorical variables—such as responses (Saxena, 2023). Cleaning

and data transformation aid in the dataset's improvement and guarantee that it complies

with analysis specifications (BasuMallick, 2022).

To ensure transparency, thorough documentation is kept up to date, and quality

assurance procedures are carried out to verify that the dataset is prepared for precise

analysis (Simelane, 2023). In addressing the limitations of the analysis, we will draw

particular attention to sample size restrictions. In addition, specific suggestions for

additional study will be developed considering the useful information obtained from the

examination.

Spearman's Rank Correlation Coefficient

To evaluate the non-linear correlations between variables, Spearman's rho will be

computed. Ordinal data or variables with non-normal distributions can be handled with
36
this technique. To see the direction and intensity of the linkages between profit margin,

price adjustments, and commercial rent, a correlation matrix will be built. The coefficient

of Spearman's rho will be calculated in order to evaluate non-linear correlations between

the variables. This approach works especially well for non-normally distributed variables,

enabling the capture of non-linear relationships. To show the direction and strength of

relationships between profit margin, price adjustments, and commercial rent, a correlation

matrix will be built. Apart from calculating correlations, the variables will be ranked

according to their influence, and the rank with the greatest influence will be determined.

This method highlights the relative significance of each variable in influencing the others

and offers a thorough understanding of the relationships.

Figure 3. Formula for the Spearman’s Rho

Linear Regression Analysis

Y = B0 + B1X + ε
 y is the predicted value of the dependent variable (y) for any given value of the
independent variable (x).
 B0 is the intercept, the predicted value of y when the x is 0.
 B1 is the regression coefficient – how much we expect y to change as x increases.
 x is the independent variable (the variable we expect is influencing y).
 e is the error of the estimate, or how much variation there is in our estimate of the
regression coefficient. The Margin of Error.

37
 The researchers opt for linear regression analysis to investigate the simultaneous

effects of changes in the independent factor, commercial rent, and the dependent

variables, namely profit margin and pricing adjustments, within food Micro, Small, and

Medium Enterprises (MSMEs) at FEU Manila. Linear regression analysis is chosen as the

statistical method.

Bevans (2023) explains that firstly, linear regression allows the exploration of the

relationship between variables by modeling the linear association between an independent

variable (in this case, commercial rent) and one or more dependent variables (profit

margin and pricing adjustments). This method is particularly well-suited for

understanding the impact of changes in one variable on another, providing insights into

the direction and strength of the relationship.

Secondly, linear regression provides a straightforward and interpretable

framework for quantifying the magnitude and direction of the impact. The coefficients

obtained from the regression analysis (such as the slope coefficient) offer valuable

information on the extent to which variations in commercial rent are associated with

changes in profit margin and pricing adjustments.

Moreover, linear regression allows for the incorporation of control variables,

which enhances the model's robustness by accounting for potential confounding factors.

This is crucial in capturing the nuanced dynamics of the relationship between commercial

rent, profit margin, and pricing adjustments, as highlighted in the conceptual framework.

38
 In summary, the choice of linear regression analysis is due to its suitability for

examining the linear relationships between variables, providing interpretable coefficients,

and allowing for the inclusion of control variables to ensure a comprehensive analysis of

the simultaneous effects of commercial rent on profit margin and pricing adjustments in

food MSMEs at FEU Manila.

Data Interpretation

The direction and strength of the associations will be determined by interpreting

the regression results. Visual aids, like scatter plots and regression plots, will be actively

incorporated into the analysis to improve clarity. It is dedicated to fully addressing the

limitations of the analysis in the section on Recommendations and Limitations,

specifically going over things like sample size restrictions and possible confounding

variables. The researchers place a strong emphasis on taking a proactive stance, making

sure that suggestions for additional study will be thoughtfully developed considering the

conclusions drawn from the analysis.

In the context of the food MSMEs at FEU Manila, this thorough approach to

regression analysis, hypothesis testing, and data interpretation seeks to provide a

sophisticated understanding of the impact of commercial rent, profit margin, and pricing

adjustments with control variables of company tenure, rent expense, and monthly net

income.

Ethical Considerations

39
 In conducting research on the impact of rent on the profit margins and price adjustments

of Micro, Small, and Medium Enterprises (MSMEs), ethical considerations are paramount to

ensure the well-being and rights of all involved parties. The Republic Act No. 10173, more

commonly known as the Data Privacy Act of the Philippines will be rigorously maintained

throughout the study. All collected information will be treated with the utmost confidentiality.

Strict measures will be implemented to secure data, and any individual or business

identifiers will be anonymized to prevent the disclosure of sensitive information. Participants will

be given a clear and comprehensive informed consent form, detailing the study's purpose, the

nature of data collection, and their rights to withdraw at any stage without facing any

repercussions.

Participants will be truthfully informed about the objectives, methods, and potential

implications of the study. Moreover, the research team is committed to ensuring that the findings

are communicated accurately and responsibly. Recognizing the potential for harm, both

psychological and financial, such as the impact of the results of our study on their wellbeing,

every effort will be made to minimize adverse effects. Careful consideration will be given to the

questions and participants will be made aware of their right to skip any question they find

uncomfortable.

Additionally, the research team will remain vigilant to identify and address any

unforeseen consequences promptly. Ultimately, this research is guided by a commitment to the

40
highest ethical standards, prioritizing the well-being, privacy, and integrity of all individuals and

entities involved.

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 APPENDICES

Note that appendices appear after the reference page(s). They are used to present detailed

information that adds to the body of the research study, for example, sample questionnaires,

tables, or figures. Tables usually show numerical values or textual information arranged in an

orderly display of columns and rows. Any type of illustration other than a table is a figure.

Figures present data in the forms of graphs, charts, maps, drawings, and photographs.

If your manuscript has only one appendix, label Appendix in italics. If it has more than

one, label each appendix with a capital letter, for example, Appendix A, Appendix B, according

to the order in which you refer to it in your text. Label each appendix with a title but refer to it in

the text by its label.

54
 APPENDIX A

Title

Start here…

55
 APPENDIX B

Title

Start here…

56
 APPENDIX C

Title

Start here…

57
 CURRICULUM VITAE

Each member of the group should have the SAME FORMAT of curriculum vitae for the

entire group. This should be one-page only per member. Include the following details:

1. 2x2 FORMAL picture (must be in soft copy)

2. Personal Information (Name, Contact Number, Email Address, etc.)

3. Educational Background and Awards Received

4. Seminars and Workshops Attended

5. Affiliations/Organizations in School and Community

Note: Your CV must be real and current, not your projected content.

58