To start a food business is to embark on a journey, and chances are, the trip will be a lot smoother if you are prepared.
This is an incredibly pivotal moment for the foodservice industry. If you look across all industries, technology has massively disrupted many of them and caused a tectonic shift in power dynamics. We have not yet seen that in the restaurant business. But we do know this, in today’s business landscape there are two kinds of companies – the disrupters and the disrupted.
If you are looking to start a food business in this climate, then it is important to be aware of how the industry is changing and how you can adapt your business to thrive in this period of transition. Some of the most successful companies today were founded in the midst of economic downturns – Uber and AirBnb are examples of companies that recognized that the market was changing and adapted their business model to succeed in the changing climate.
There are a number of headwinds for the foodservice industry – namely, the now infamous Bill 148 and the resulting wage hike. Eight out of ten quick service restaurants said labour costs had a negative impact on their business.
For the last fifty years, restaurants have been taking market share away from grocery stores. Now, they are making a concerted effort to claw back market share from restaurants by offering hot food options in the now popular ‘grocerant’ trend.
The potential juggernaut of Amazon and Whole Foods coming together and bringing together convenience and distribution at the touch of a button has the potential to change the foodservice industry forever.
This is not meant to scare you, but it pays to see things as they are and then taking appropriate action. Your mindset plays an important role in shaping your reality. Where weak-minded people see problems, strong-minded people see opportunities for growth. As someone starting a food business today, you have to be mindful of the vulnerability of the foodservice industry to be disrupted, given that things have not really changed in almost a century.
Therefore, before we talk about ‘how’ to start a food business, let’s discuss ‘why’ to start a food business. Because if the ‘why’ is strong enough, then the ‘how’ becomes that much easier.
It is a misnomer to believe that if you are passionate about food, and willing to work hard, then you are likely to succeed in this business. Having worked with chefs from all parts of the world, they are the first to admit that cooking food is a small part of their responsibilities. Much of their time is spent in administrative and leadership activities and making sure standards of organization and hygiene are being upheld.
Some people believe that being a chef or a restaurant operator is glamorous. We romanticize our chefs and make rock stars out of them. Or you might be imagining walking through a service and shaking hands with your guest and playing the charming host, or perhaps a fun day-time fiesta at the beach and a long line-up in front of your food truck. Whatever it is that is your fantasy, it is important to be grounded in reality and to understand that a lot of the work done in restaurants is not glamorous at all.
The reality of being a chef is an enormous responsibility. Not only is the chef directly responsible for the food, but sometimes also has to be the dishwasher or the plumber. Kitchens are notoriously taxing work environments.
Lastly, if you are opening a food business because you want to make money, then I want to share this stat with you:
the average commercial foodservice business in Canada earned a pre-tax profit margin of 4.3% in 2015. With an average sales volume of $647,970, this translated to an annual pre-tax profit of $27,860.
So why should you open a foodservice business?
According to research, going out to a restaurant is the number one preferred activity for spending time with family and friends. The fact is that people need to eat and that need is not going to change anytime soon.
Hospitality and foodservice have been a part of our history across cultures; it is essential to the human experience. Foodservice is as much about food as it is about service, the words have literally become joined but somehow we tend to only think of food, and maybe stretching the meaning to include the service of food, but we often forget that service is its own entity in the equation, it has its own value and plays a huge role in the ultimate success of any business.
So if you are truly passionate about food and willing to adapt to the beast that is foodservice then you should consider opening a foodservice business.
Now let’s get into the nitty-gritty of why restaurants succeed or fail. These factors are universal for the success of any foodservice business – whether that’s a food truck, cafe or a restaurant.
Keep in mind that no restaurant succeeds or fails because of just one factor. Success or failure is determined by a number of factors coming together to affect the outcome.
Depending on the specific type of business you’re starting, you may need up to 39 permits, from three different government levels – municipal, provincial and federal.
The permits dictate whether or not you can have a patio, put out a sandwich board sign or make any changes to the electrical or plumbing of the building. For food trucks, you’re given specific zones in which you can operate.
If you plan on preparing food on your truck then you need a Refreshment Truck License. This is your business license and you get it from the Department of Municipal Licensing and Standards (MLS).
There are three different license types for refreshment vehicles at varying costs:
– Motorized Refreshment Vehicle Owner: $1,030.25 for the first year, $690.01 for renewals
– Refreshment Vehicle Driver: $342.52 for the first year, $253.49 for renewals
– Refreshment Vehicle Assistant: $342.52 for the first year, $253.49 for renewals
We have all heard the phrase ‘location, location, location’. This goes hand-in-hand with the type of permits you’re going to apply for. You need to have a strong understanding of how accessible your location is by foot, and by car. I strongly advise driving to your proposed location from as many routes as possible to get a sense of how accessible it is.
A key metric is the amount of foot traffic there is – is it consistent throughout the day or is it concentrated during a few hours. Is it busy on weekdays and weekends or just one of those? Finding out this information beforehand will help you in many ways because you can make an informed decision about the location and whether it is the right fit for your business.
If it’s a newer plaza, then you might want to consider tying your rent to the occupancy of the entire plaza to ensure you’re not paying full rent in a plaza that is still mostly vacant.
Money to a business is like oxygen to a fire. When the oxygen is cut off, the fire dies and similarly when a business runs out of money it tends to die.
Lack of funding is the number one reason restaurants fail within the first year. You want to make sure to have enough funding to cover your operational costs. But in any new business, there are bound to be unexpected costs. Therefore, it is advisable to raise more funds than you think you will need.
A business that learned this lesson the hard way was a rotisserie chicken quick service restaurant that opened in downtown Toronto. The owner sourced his machines from another restaurant that was going out of business. A month after opening, his rotisserie grill stopped working and he had to pay $9,000 to replace it with a new one. Unexpected costs like these can be damaging to a new business and it is important to keep a cushion around for business emergencies.
What is your Unique Value Proposition? Having something that makes you stand out will garner attention for your business. Take the example of a new noodle place that opened in the Bay and Dundas neighbourhood. In this neighbourhood, there are countless options for noodles and ramen, so how were they able to differentiate themselves from the rest and have line-ups for months after they opened?
They did this by highlighting their hand-pulled noodles and making the noodle making an integral and interactive part of their restaurant, thereby attracting millennials and creating a social media buzz.
What are the popular trends? Making sure your menu is offering options that people are looking for will help boost sales. Vegan and health foods are on the rise, plant-based proteins are gaining in popularity and so are authentic ethnic cuisines.
Your concept is your brand and it is important to give this considerable thought to ensure a successful business.
Whether you’re aware of it or not, your business has a culture and it is this culture that is attracting the kind of staff and clientele you have. So if you want to change your business, it starts with changing your culture. Perhaps, you can ask yourself the following questions:
- What are the values of your restaurant?
- Why do you exist as a business – what is your ‘Why-dentity’?
- What do you believe in?
The answers to these questions will become your core values, and these, in turn, will inform your menu, marketing, branding, and hiring and training strategy.
Harmony among these factors is crucial to a successful business and the more alignment you have between your culture, concept and location, the more probability of you succeeding in a competitive industry.
This is closely linked to culture as your staff become your ambassadors and represent the culture of your restaurant. It starts by deciding what type of environment you want to create for your staff and guests. Is it a relaxed style of service or more of a traditional service experience? This is a crucial factor for foodservice today as eight out of ten quick service restaurants said labour costs had a negative impact on their business.
Once you have clarity on this concept, you can decide how much training you are going to provide your staff. Hiring and training staff is a huge cost, and you want to make sure you retain the staff that you’re investing resources into. There are a number of innovative ways that you can retain your staff.
How are you going to attract top talent in the highly competitive labour market? 39% of foodservice business reported a shortage in labour in 2016. This figure is projected to grow to 110,000 unfilled jobs by 2025. It is becoming increasingly challenging to find staff for the foodservice industry. While technology can supplement some positions, ultimately it is people that deliver hospitality and are integral to the foodservice experience.
This is another element where harmony with the other factors is important. Based on your concept, the supply chain will change – are you championing the local movement with a 100km radius or are you looking to offer authentic flavours from the eastern Mediterranean region? These decisions will change who your suppliers are.
Another popular trend today is chefs going out to forage for produce and offering limited-time offerings on their menu. Lots of restaurants are offering seasonal menus and working with local farmers. As you can see, the more harmony there is in your parts, the more harmony there will be in the end result
It is important to remember that success or failure is a result of a combination of many factors working for or against you. Having a deeper understanding of the challenges facing the foodservice industry, and how things are changing, and adding these seven factors can provide a framework for you to evaluate your business and build it in the best way possible.
In closing, I would like to share this quote with you:
Things are never as good as they seem, and they are never as bad they seem.