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Josh Phillips
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June 15, 2018

Ten steps to food service startup success

Can you afford to miss out on these ten steps to food startup success? Whether you dream of opening a restaurant, or you want to run the hottest food truck in town, these ten steps will see you right.

 

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So, you’re the grilled cheese champion.


Or maybe your burritos are legendary.


Or perhaps your handmade pasta reduces grown men to tears.


Whatever you make, the world needs it, and you’ve decided to take the plunge.


There’s a lot to bear in mind when starting a business, and food service is no exception.


The timeworn statistic that 90% of restaurants fail during their first year is a bit of an urban myth — the real figure is 17%, according to a study of 81,000 restaurants carried out by economists at Berkeley.

 

Cumulative survival rate

But you’re not off the hook: that’s still nearly 1 in every 5 restaurants closing in their first year. And they tend to fail not because of a lack of passion on their management’s part, but a lack of planning. This blog lays out a ten-step path to startup success that’ll ensure you’re ahead of the rest.

Nail your product

There’s a big difference between cooking up a storm in your kitchen at home, and making product at scale in a cramped food truck or a professional kitchen.

taco

When looking to start any food business, you need to make sure that you’re absolutely passionate about what you’re selling — not just as food but as a product.


This means that you need to be sure that you can make it at scale, day in, day out.


If you’re not happy making your product, that’ll show.


This holds true whether you’re running a food truck, a cafe, or a full-service restaurant.


You might make the best grilled cheese in a ten-mile radius, but if you find slinging sandwiches by the hundred a chore, they won’t be the best for very long — and your customers will vote with their feet.


So you need to make sure that you can cook your food at scale, without it dropping off in quality and without tiring yourself cooking it.


The best way of being sure of this is testing out your food on willing guinea pigs — not just on friends and family, who might feel obliged to say nice things, but on the public. If your food loses something in the transition from home-cooking to professional kitchen, they will know.

Make a business case

  1. Image of food business

But you can’t make it on passion alone. Before you start making anything on scale, you need to be able to justify it as a business move.


When looking at your menu, you need to think not just about what you’d like to make, or even what your customers would like to eat — although that’s certainly pretty key — but what will turn a profit.


There are several ways to go about this:

Menu Item Food Costs

This is how much it costs you to produce any item on your menu. This means that you don’t just take inventory costs into account, but also how much it costs to deliver it.

burger

For example: a 10-kilo bag of onions costs £7.50, and on top of that, you need to pay £1.50 delivery. Each bag has 10 onions in, which end up costing you 90p each.


Then, cost up a menu item that has half an onion in, you need to factor in that 45p cost. Rinse and repeat for every other item that goes into everything in your menu.


Obviously, working this out is painstaking. But it’s also vital — you need to know this in order to work out how profitable an item is.

Food Cost Percentage

Effectively, this is a way of working out how much money any given item makes you, as a percentage of its menu price.


The formula to calculate it is simple. Divide the food cost of a menu item by the price of that item on the menu, then multiply that by 100 to find a percentage:

 

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If you keep track of how this fluctuates as time progresses, week-by-week or month-by-month, you can work out what is working for you at any given time.

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When justifying any menu item, be it old or new, you need to take into account how much the ingredients cost, and how their prices fluctuate.


Although all costs are subject to some degree of variation, there are staples whose prices remain more-or-less the same — think flour, or tinned tomatoes — while other goods’ costs can vary significantly.


This is something to bear in mind when writing a menu:


An item that makes good business sense now might not be such a dead cert later in the year, especially if it relies on seasonal ingredients.


sandwichFor instance, a salad that features top-notch fresh tomatoes might be a good idea during the summer, when you can get them fresh down the road, but in the depths of winter, tomatoes have to be shipped in from warmer climes and you’ll find that you have to pay a hefty whack for inferior produce.


Plus, who wants salad in November?


The upshot:


Stocking items with a high degree of price volatility can hurt your bottom line, so think carefully about where your produce comes from.


Remember: can I bear the cost of pricier ingredients without raising prices?


Consider: is there a way I can hedge against volatile prices?


Think: will customers really mind something different?


When starting up, a short and frequently-changing menu can work to your advantage: it lets you shop around without getting locked in a long-term agreement with any one supplier, and it keeps things fresh for your customers. Plus, you might be able to score some brownie points for seasonality.

Choices, choices, choices

You don’t see that many multi-page menus any more.


While there are still a few places that can get away with offering quite so much choice — Chinese takeaways being a notable example — most restaurants have found that customers are put off by too much choice.


According to menu engineer Gregg Rapp, the best menus have seven items in each category.

Menu psychological tricks

Keeping your menu short and sweet is particularly important in a food truck or a new quick-service retail restaurant, where customers are looking to grab and go. Nobody wants to waste time leafing through a menu when they’ve only got half an hour for lunch.


Of course, offering seven items doesn’t necessarily mean that guests are limited in their choice when you take variations into account. For instance, a customer might be able to order their burrito with mild salsa or hot, with guacamole or without, and so on.


And, what’s more, all of these choices combine. So, one customer might want a veggie burrito with hot salsa and guacamole, while the next one wants theirs with mild salsa, hold the guac!

calculation

This means that even a brief menu can offer hundreds, if not thousands of different options.


Each one of these can be referred to as a Stock-Keeping Unit, or SKU.


Each different SKU has a different cost for you, and makes a different profit, even if they cost your customer the same at the till. So, that sprinkling of cheese or squirt of sour cream might cost your customer nothing, but these little extras add up for you.


Working out SKUs might be fiddly, especially if you’re doing it by hand, but it’s worth bothering because it allows you to nail down precisely what you’re making on each and every sale. If you’re running a restaurant with a menu that has the potential for thousands of different SKUs, then an EPOS system is definitely worth investing in: this is where EPOS systems come into their own.

The price is right

The take-home from these last couple of points has been that making sure you price your items right is crucial to whether your business succeeds.


If you price your items too low, you’re unlikely to turn a profit.


But if you price your items too high, you run the risk of putting customers off.

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It’s a balancing act: you need to make sure that you can make a profit and start to claw back some of your startup costs. But equally, you need to represent good value to your customers — even if you sell a premium product, customers will be put off by unjustifiably high prices.


One of the most important things to take into consideration when pricing your menu is what other, similar outlets in your area charge.


If you charge significantly more than other similar outlets in the area, customers will just go to the cheaper vendor — even if they know your product is superior.


Setting prices is a delicate negotiation between your needs and your customers’.


This article on the Huffington Post goes into more detail about the psychology behind menus and pricing.

Pricing psychology


Kitchen nightmares

Chances are, as a startup, your space is limited. You’ve got a tiny location, with a tinier kitchen — if you’ve got one at all. You might even be a food truck.


In these situations, making sure that your menu matches up with your kitchen is key.


There’s no point in offering a Sunday roast if you’ve got a kitchen that’s better suited to sandwiches: at best, it’ll be a tricky task, at worst, disastrous.


Instead, you need to work with what you’ve got: there’s a reason so many food trucks specialise in high-end cheese toasties: you barely need any equipment to make them.


In some situations, you might want to consider hiring space in a commissary kitchen.


These are commercial kitchens where you can do the bulk of your prep work and store bulky ingredients and supplies, as well as dispose of food waste hygienically and wash up.


FoodStars has commercial kitchens in four locations across London, and leases out shared and private kitchen space, as well as storage, fridge space, and office space, all kept to relevant safety standards. Meanwhile, ShareDining and Kitchup are both databases of commercial kitchen spaces in London, but neither have space of their own.

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They
come in useful if your menu features items that need to cook for a long time — a pulled pork roll might take a minute or so to put together, for instance, but getting the pork all tender and juicy means keeping it on a low heat for hours. This is something that most food trucks just aren’t set up for, so a commissary kitchen is ideal.


Commissary kitchens come in several flavours — as a startup looking to keep costs low, you’ll probably want to book slots in an existing commercial kitchen, or lease space in an established restaurant’s kitchen but as you expand, you may want to buy or rent your own kitchen.

Staffing

Making sure your startup is adequately staffed is the difference between providing great service and falling flat on your face.


chefOne of the great things about starting up your own restaurant is that you get to be involved in every aspect of the business — from designing the menu to making the food to serving (hopefully) happy customers.


But you can’t be everything to everyone, all the time. Hence the need for employees.


When hiring employees, you need to consider what their role is going to be, and how they will fit into your startup’s culture.


You might not think you have a company culture — you’re not a big corporation — but even the smallest of businesses has one. It’s a combination of your branding, your product, and the attitude that you project.


Regardless of whether they’re front-of-house, back-of-house, or juggling cooking and serving, anyone you hire needs to be three things: reliable, personable, and knowledgeable. While you will inevitably have to do some training, anyone who falls short in these three areas probably won’t last long.

A legal matter

Running a food truck might seem like the dream — just rock up in your van and sling pizzas for profit— but there’s a surprising amount of bureaucracy involved.


In the UK, any business which serves or distributes food to the public needs to register with the Food Standards Agency. This can be done by contacting your local council. It’s free to register, but if you’re caught without a licence then you could be liable for a fine or, in some cases, up to two years in prison.

 

Food business registration

 

As well as this, your premises need to comply with mandated minimum standards, and you need to meet the hygiene standards detailed in this document. Broadly speaking, you need to do the following:

  • Keep your premises clean, maintain hygiene, and disinfected,
  • Dispose of food waste in a safe and timely manner,
  • Provide adequate provision for toilets and hand-washing,
  • Keep your premises well-ventilated,
  • Ensure that staff are trained in the latest hygiene best practices

You also need to make sure all your food is traceable, so you need to keep records of all transactions with your suppliers.


As well as making sure that your operation is health and safety-compliant, you need to ensure that your business is registered with HMRC for tax purposes, and that you have a VAT number. If you employ anyone, you need to make sure that you run payroll correctly and pay National Insurance contributions.

Listen to your customers

positive-feedback

So, you’ve got a great location, a great product, and a tip-top business plan. But there’s nothing that will improve your restaurant more than customer service.


No matter how casual your joint is, great customer service is a non-negotiable.


Making sure that customers are served quickly and that they feel like their valued opinions are being listened to is key to ensuring that they come back time and time again.


This means that you need to listen to your customers’ concerns and find out what they want when they raise issues with you. If you neglect customer feedback, you could be missing key issues.


There are several ways to gather feedback. It could be as simple as asking customers if they have enjoyed their meal. Alternatively, you could offer feedback forms in your restaurant or at your food truck for customers to fill in — you can incentivise them to offer feedback by sending them a voucher if they write down their email address.


You can achieve something similar online, by using Survey Monkey or Google Forms to create a feedback eform, and putting a link to it on your website.

 

Survey Monkey

There is also social media to contend with: it offers a great channel through which to interact with customers, especially if you solicit it. Customers are more likely to post reviews to your business’s Facebook page, but it can be useful to ask more targeted questions on Twitter.


balloon-heartsNo matter how you choose to collect feedback, you need to be able to empathise with customers and be able to resolve their problems satisfactorily.


Unresolved disputes will lose you business — 91% of unsatisfied customers won’t willingly do business with you again according to Lee Research. It’s the #1 reason why customers abandon brands — more so than slow service or a poor product.


But 70% of customers will do business with you again if you resolve a complaint in their favour.


Any business with customers is in the “people” business and it’s critical that you put your customers first.

No shortcuts

The take-home message from each of these points is that, while there are plenty of ways to succeed as a food service startup, there are no shortcuts to success.


From making sure that your food is as good as it can be, to serving your first customers, you can’t afford to cut corners.