Food Truck Economics
blog.priceonomics.com
blog.priceonomics.com
We made a profit on about three different days last year. The other 300 were not profitable :( It would have helped a lot if we had family members working for chips and hugs; paying staff is a huge cost particularly if you want quality gourmet-style food and hard-working employees (we have mostly 5-star yelp reviews)
Before our pod landlord decided to shut down abruptly, combined with our chef/my girlfriend getting diagnosed with brain tumors, it was costing about $3k/month (net loss) however that's the awful wet northwest winters driving people away from outdoor pods. Once the warmer weather starts back up again and we find a new pod, we should be in the black, but the business model I'm working on involves a lot of carts with a central kitchen, in clusters in a few cities. If anyone wants to chat about investing, let me know :)
We got started for about $20k total including the 'truck' which is actually a trailer that is stationary.
obligatory link, http://theheartcart.com
It also probably helps that potatoes are cheap.
As someone who knows an awful lot about the food truck industry in multiple cities across the US, please, please do not proceed with this idea. Food trucks are not an economy of scale. They are boutique mom & pop businesses.
I am sorry to hear about the troubles with your truck, but I am sure that you can optimize operations to become profitable on most days.
The interesting thing that I've heard about here in Portland is that at the bigger pods, landlord tenant contracts include agreements not to allow potential competitors to lease, include restrictions on style of food, i.e. landlord not allowed to lease to a second Thai cart on the same lot.
I just bought a food truck (literally 24 hours ago) and while I am as new as it gets in the industry what I have learned so far is in line with this article.
We looked into starting a restaurant or event just a commercial kitchen to do catering out of. After much research and searching for a location we changed direction and went with a food truck.
The food truck has several advantages to us. Overall the cost is much cheaper. Also if we were to buy or rent a building and put money into building a kitchen that would be a sunk cost that we could never get back. If we outgrow the truck or decide this isn't the business for us we can sell the truck and get our money back.
A lot of the work does go into figuring out the health department stuff. Ohio is a lot more friendly than some other states but is still an area we have to dedicate a significant amount of attention to.
We will also be doing BBQ Competitions. The first of the season will be the VOA BBQ Bash in West Chester (http://www.voabbqbash.org/). If you like BBQ you should come check it out.
As we get closer to "Going Live" we'll update our website, facebook, and twitter. http://historicbbq.com http://twitter.com/HistoricBBQ
Not quite yet. We just got the truck and are making some minor changes and getting a full wrap on it.
We also have ordered a custom smoker so we are waiting for that to finish up.
We hope to be up and running in early April.
Our local food truck association actively addresses regulations that are unfair to foodtrucks on a city by city basis. Most have to do with the local business community trying to prevent foodtrucks from competing with b&m restaurants, usually by getting law enforcement to harass trucks with citations, tickets, whatever they can throw at you.
Do I see the foodtrucks eventually disrupting b&m's? Not likely, but I do see an impact. B&M's have had to be more nimble and creative to keep up, which ends up being a good thing for customers. I have been presented with business models that involve franchising our truck and concept across the country to different groups (ex-military most recently, from what I hear about the Grilled Cheese Truck) as a way to help develop small businesses. This is where I mostly see the similarity to startups. Foodtrucks are more accessible, financially and creatively. One can literally go from concept to launch in less than a month. Try that with a b&m restaurant. The thing is, I also see a high failure rate. (foodtrucks have been dropping like flies here in L.A., mostly during winter). Other similarities or takeaways, which also apply to most other business:
1. Know your market well. Cities have different regulations, population densities, competing restaurants, etc. If you don't have a very very very good awareness of where the bulk of your business will come from, you're doomed. I've seen trucks sprout and die within a month, clueless operators and the inability to pivot.
2. Know your product well and how to sell it. I've seen employees stutter through a dish description, with the potential sale walking away to the truck whose operator can spitfire all the ingredients of each of his dishes without looking up from the slider he's working on.
3. Streamline your operation to deliver your most important product as fast possible and as perfect as possible. Lunch crowds can be harsh. These are people who have limited time and limited budget and (depending on location) almost unlimited choices. If you're the truck who took 20 minutes to serve a rice bowl, you can trust that person is never going back and would most likely drag all their friends to another truck the next day.
Simple 'rules' but you'd be surprised how many operators can't figure this out.
Most new food truck operators I meet have just bought their first iPhone and are "still trying to figure out this tweetering thing." A lot of techies grossly overestimate the technical capabilities of food truck operators, not to mention performing the due diligence that you mentioned.
While social media does help with hype and reach, most trucks nowadays are figuring out that a good location will trump a tweet 9x out of 10. Some seem to think that tweeting out a special is enough (because its all they've heard about), and fail to realize that SM is just one part of a comprehensive marketing plan.
That someone was Square.
[edit for autocorrect of addition to edition]
Don't get me wrong; there's plenty of room for "decent Mexican places," but if too many of them open, then they might all end up with not enough customers to survive. Limiting the number of restaurants means that there will be enough customers for most of them.
Too bad. That's not the business of government, its the effect of market. They may all go out of business if people stop liking Mexican. Government shouldn't be picking winners that's the people's business.
Limiting the number of restaurants means that there will be enough customers for most of them."
There's no such thing as 'keeping competition down to reasonable levels.' That's why we have a market. The optimal supply of restaurants and customers should be determined by the market, not government or protectionist incumbents. Unless you can make a legitimate case that allowing more food trucks, restaurants, or whatever else harms the health or security of society, there is zero reason to limit their numbers.
There are pros and cons to greater regulation. Established cities like SF, DC, and NYC, limit the number of taxis because there are literal hard limits on all the gov't provided functions around taxi's, including regulation of 'expectation of legitimacy,' and managing traffic congestion. In the case of hotels and to a lesser extent restaurants, there are zoning, housing, and infrastructure investments that cities have made from a gov't perspective and a private perspective that, AirBnB and FoodTrucks throw out of whack. Reading this article you see how much regulation FoodTrucks are now starting to come under, to try and bring their 'perceived' quality in line with that of a restaurant. It's hard to find arguments against this, other than, it is now demonstrably harder to be a new business. The same is not yet happening with airbnb style 'hotel' rooms because there is more money and the players are bigger.
I think the real problem is that the gov't is poorly organized to deal with the wisdom of crowds. I don't need a hotel regulation agency as much for an airbnb type rental because the economic interests of the 'landlord' are such that my 'review' really counts. personally, I'd prefer airbnb, food trucks, and uber to their respective old-world counterparts, precisely for the reason that it's much more difficult for regulatory capture given those de-centralized models. But there are legitimate arguments on the other side, around investment, community goals, and 'safety'. Unit economics in each of these cases make it much harder to systematically screw the customer. Now if only we could disrupt telecom this way, so I can stop dealing with Comcast.
Existing groups use their connections to politicians to get laws favorable to them and not favorable to competition. It has nothing to do with society becoming more conservative as it ages
From macro issues like regulating the financial services sector to micro issues like antitrust and competition policy, consumers like you and I can be made better off via regulation. For example, competition policy is one of the most productive types of government regulation that takes place. Disregarding the DoJ's treatment of online poker [to date], the FTC and the DoJ have been doing some pretty great things over the last few years[1] (e.g. $500 million in fines issued breaking up LCD price fixing scheme; continued effort towards addressing the current and future problems of privacy on the Internet)
In the US, the goal of competition policy is to promote the economic welfare of CONSUMERS, however a good policy would be one that increases the economic welfare of both consumers and producers. Game theoretically, figuring out how to make a policy that increases the welfare of both sides of the market is a mechanism design problem.
[1] Relative to almost all the other sectors of government.
http://www.commons-sense.net/blog-04/files/2011/05/Picture-3...
Still bitter about not having flying cars yet, but I don't necessarily see the mobile service as anything bad. It's just the natural progression of the food cart, some of which, are exceptionally good. In New York, there's a Halal cart on 53rd and 6th and everyone from construction workers to Wall Street types wait in line... and it's all worth it!
http://inhabitat.com/nyc/mayor-bloomberg-unveils-worlds-firs...
Fun fact about that cart is that it's one of the most and best reviewed "restaurants" in all of Manhattan, which is pretty crazy.
It's still very good and (even with the line) I save time over going to a restaurant. $8 Is still pretty cheap for a lunch in NY though. Eating at a restaurant all the time would make me broke pretty quick.
Plus I'm a very shy eater and that one plate will last me the whole rest of the day. Only down side is eating outside, since I walk there; I don't have time to get back and finish lunch. That's always interesting with the pigeons around ;)
If it's not faster, cheaper or more convenient than the to-go menu at a traditional restaurant, it sounds like "menu buzz" is the only thing keeping most of these trucks in business. How long can that last?
I think lack of competition (as described in the article) causes these hyper-inflated prices. If these gourmet organic locavore so-and-so food trucks had to compete in, say, Portland[1], they would have to contend with 30-40 other single-dish trucks in the same pod/lot that provide a heaping, often exotic lunch for 5 bucks.
"If it's not faster, cheaper or more convenient than the to-go menu at a traditional restaurant"
But often it is more convenient. Hypothetically (since I work from home), I would find the food truck at the end of the block of my building to be way more convenient than getting in my car and schlepping to a restaurant (as I would do when I worked at an office).
Or, if you get it delivered, you gotta know what you want in advance, phone them up, make sure you get a drink, wait awhile, tip the driver, etc.
It's a mess. Food truck? Pop down, walk to the corner, buy Korean taco and sugar water. Lunch done.
It's been mentioned already how trucks are most likely more convenient. I mean, you're eating at that truck because it was closer to you or that you saw it and decided to eat there. I believe the reduced overhead thing is a bit misleading. The startup costs may be different, but the overhead is more than likely the same as a b&m. Apples to apples that is.
At most chef driven trucks, you will get food prepared by the chef himself/herself. Some customers perceive a value in this, hence the willingness to pay the higher prices of some trucks.
However, I do agree that the truck and its food will have to eventually provide a value that will keep a customer coming back. $9 sliders are insane. I've seen this play out time and time again at other trucks because the 'fad' and popularity gets to their heads. Some operators of trucks that have become popular really quickly become shortsighted and cater only to the yelpers who are excited about the latest new thing. They fail to realize that their long term viability is dependent on how well they are able to keep a line outside their truck once these early adopters run for another new thing. Good prices, good food, and fast service is key.
You can't be serious. A food truck costs as much to operate as a B&M? One of the main points of the article is pointing out that's not the case:
As a service that strips all the overhead costs of a restaurant down to the minimum requirements for selling food to customers, food trucks are also an irresistible metaphor for lean startups...
I'm trying to understand the argument. I see it that food has a number of attributes, flavor, dietary compatibility, accessibility, and quantity. And it has a cost. There is an internal 'value' evaluation that is done when the cost is compared to the other attributes which results in a buy/no-buy decision. Sometimes those things are artificially manipulated (like having to buy a $1.50 hot dog at AT&T part for $5 if you want to eat it).
But in all cases the 'cost to produce' doesn't enter into it until you aren't making enough sales to make ends meet. If the food is equivalent between a truck and a restaurant why wouldn't the truck charge a bit more to capitalize on the fact that they are here and if you want it eat it from the restaurant you have to go drive off somewhere to get it?
Is it?
I don't find (most) food truck food overpriced at all - the food truck "revolution" seems to be almost exclusively centered around gourmet-on-wheels, rather than street-meat.
If you're slinging around stereotypical burgers and fries you will get no business - the successful food trucks around here seem to have struck a balance between eclectic taste and broad appeal, and the quality of the fare is always on par, if not better than, B&M restaurants.
Granted, my experience with food trucks have been in locations where they are parked in a block with multiple other food options and the convenience factor has been removed.
Bobby’s family borrows kitchen space in a friend’s restaurant, but commissaries complete with a kitchen, waste disposal, and a parking space run up to $1,000 a month. plus Another expense, for trucks that sell at places like Off The Grid, is the cut they owe to the organizers. Off The Grid charges 10% - something of an industry standard. They also expect vendors to sell a minimum of $1,000 of product over the course of a lunch or dinner period. So if a truck sells with them for lunch and dinner, 5 days a week, they will pay the organizer a minimum of $1,000 per week. which could easily be 6+k in a month.
However, I suspect the available locations are far better.
Businesses where costs are a fixed component of revenue can price their margin to always be "profitable" but businesses where costs are fixed have to meet minimum revenue goals to make minimum margin. On the plus side in a restaurant if you do a lot more business you get to keep the extra windfall.
However as the article mentions if you are really successful the landlord can up your rent when you renew your lease.
However, I think the real trick is it's far more negotiable as you can park somewhere else a lot easier than you can move a resistant.
This is what I'd wonder, surely any market manager would give a heavy discount for a decent payment up-front? Not to mention, there'll have to be some room for negotiating better pitches and so on.
I'm basing this on the brief time I spent working on a London market stall - not sure how negotiations on stuff like this might work in different cultures/countries... oh, and places that aren't market stalls.
"The costs of running a food truck are relatively modest compared to a restaurent. Phat Thai is mostly a family affair, with only one employee from outside the family. The main expenses outside of labor are $1,000 a week for food and supplies, $200 of insurance, and $120 to fill up the truck’s enormous tank. Its engine is the same one that powered Camaros in the seventies, but even at its terrible gas mileage, a tanks suffices for the week. Bobby’s family borrows kitchen space in a friend’s restaurant, but commissaries complete with a kitchen, waste disposal, and a parking space run up to $1,000 a month. "
Not only does it cost less to start from 0 to operating food truck than it does a restaurant, there is also the fact that you (probably) own the truck so rent doesn't go up. On a tax basis you can actually depreciate the truck which you can't do for the restaurant.
The food isn't prepared "in the truck" it is actually prepared in a certified kitchen. And then moved to the truck. Granted not all meals work well like this, but a number of them do.
So I suspect Danny wasn't thinking things through.
Given the surge perhaps a good investment would be a commercial kitchen tailored to support food trucks more efficiently. Sort of a food warehouse kind of deal.
Then again, any truck that is doing 200 tix for lunch and 100 for dinner is doing just fine, even paying 3 employees a decent wage.
Plus lets get down to the real money.. Profit margins in restaurants suck for the food items (unless you are high end); You make all your money on drinks + booze + deserts. But with food trucks a large percent of the people aren't purchasing drinks, booze, or deserts; as they are getting the items to go.
The cost of starting a high quality food truck ranges from
approximately $50,000 to $150,000 or more, and the process
takes several months.
The biggest cost is the truck itself. Bobby’s family bought
their truck used for $37,000.
I would like to ask if one of the (surprisingly many - gotta love HN) food truck experts could comment on
1. Stick to simple one dish in a huge wok approach as I have seen at many festivals - warm, usually tasty and easy to dole out fast.
2. Start on private Market / land with a marquee or painted shed that came in transit van.
It just seems an enormous start up cost for cooking rice and peas.
That's like, 30 gallons. Not that big.