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High hopes, high risks: Running your own food business ‘not for everyone’

When entrepreneur Rachel Kennedy ran a food truck called Plantain District, she wanted to move things to the next level but a standard restaurant wasn’t really what she was looking for.

“I started thinking about a shipping container because that’s so similar to a food truck,” said Kennedy. “Just taking the mobility factor out of it made sense.”

And that’s how the “Iron District,” a collection of 18 shipping containers arrayed across a tract of North Kansas City, came to be. Set to open soon, the repurposed metal structures will house six functioning eateries, an ice cream shop and even a tiki bar, along with a few retail operations.

The idea wasn’t just to give Kennedy’s Cuban-rooted international cuisine more permanent moorings. She hopes it will allow others with a passion for the art of cookery to try out their unproven ideas without gambling a ton of cash in the process.

“Just take it slow and easy,” she advised. “Because it is a hard hit to get into a brick-and-mortar with a failure rate as high as it is in the restaurant industry.”

‘Not for everyone’

A business in a shipping container might not be the solution for everyone, but that failure rate should be top of mind for almost anyone contemplating an act of culinary entrepreneurship. Food-related ventures come with equal parts high hopes and high risks, and stories of pain are common when sizzling-hot cooking ambitions are doused with the cold water of restaurant reality.

Mary McCord

McCord

Mary McCord, who started the entrepreneurship program at the University of Central Missouri in Warrensburg, recalled the times she’s heard from folks who love making baked goods and believe they want to turn their hobby into a business.

“I want you to do this for three days straight,” she told them bluntly. “Pretend you have a cupcake business. Make the cupcakes. Show up on campus or someplace to sell them. Pretty soon, they discover that they don’t like getting up at four or five in the morning to make fresh cupcakes and put decorations on them. It is not the same as being at home and doing it for your child’s birthday.”

Indeed, most experts agree that the first step to opening a food business is deciding if you really want to open a food business.

“It is not for everyone,” said Xander Winkel.

As executive director of the Ennovation Center, an Independence-based business incubator with a commercial kitchen, Winkel is in a position to know. He’s dealt with many prospective food entrepreneurs through the years. A main point he tries to impart is the fact that he isn’t a food entrepreneur.

Xander WInkel

Winkel

“One of the things that I tell them is that there is a reason I am here tonight teaching this class and not operating a restaurant or manufacturing a food product — because I know it is not for me, “ he said with a laugh, noting the long hours, low margins and constant pressure of managing others. “I don’t want to.”

He said the vast majority of the 500-600 people who explore the idea at his institution get the message — and he never sees them again. Still, the hardiest remain. The center hosts about 50 or so food businesses at any given time in the shared commercial kitchen of a former hospital.

“The first thing is that I need to ask them a bunch of questions,” Winkel said. “I need to know exactly what their product is. The ingredients. How are they going to distribute it? What’s that overall plan?”

Six to eight cents

Developing that plan is going to start with a concept — and it better be one based on what your customers want, not necessarily on what you were hoping to serve them.

“You have to think it through,” said Jeffrey P. Ivory, professor of hospitality studies at St. Louis Community College. “You can’t just be a good chef and expect it to work.”

Ivory recommends a feasibility study from a market-research company. You also can collect information yourself to see which eateries are doing well, what they are serving and whether your niche is already oversaturated.

“You can get information from the Chamber of Commerce,” he said. “You can look at restaurants that are thriving and look at what types of customers are coming in there. There is a lot of work you can do yourself, and some people are able to read that better than others.”

Once you have a concept, you can develop an ingredient list. The general rule of thumb? Simpler is better. Narrower menus mean easier inventory control, which can be an important thing to consider in an industry with a typical profit margin of 6 to 8 percent.

“When you are looking at every dollar in revenue that you bring in, you are only going to bring to the profit line 6 cents, so you need to understand where every single one of your pennies goes,” Ivory said.

Moreover, limiting your offerings now doesn’t mean they can’t expand later once you have a solid base of regular customers.

“If you get them in the door and keep them coming back, then you can use them to help develop your menu,” he said.

There is even an entire science of what Ivory calls “menu engineering” that allows you to compare and contrast different items and figure out which are selling and which are not tickling your clients’ taste buds.

He said the menu comes first, then you develop your recipes. After that, you can create your product specifications, get bids and find out how much it will all cost. Lastly, once you have all of that information, you can set the price the customer pays.

Of course, don’t forget that those prices need to include things such as rent, labor and utilities.

“You have to know what that plate is going to cost before you can actually put a price on your menu,” he said.

One possible solution is to start small. Winkel advises setting up a catering business before you move on to your own location.

“Get some following. Get some customers,” he said. “It is much less startup investment starting a catering company than starting up a bricks-and-mortar restaurant.”

Not only can a catering operation allow you to fine-tune your recipes in a less intense environment, but a stable, functioning business will go a long way to reassure jittery bankers that you are a good risk for the financing you’ll need if you do decide to go with a permanent location.

Above all, remember you aren’t running a place where people eat. You are running a company that has to turn a profit. Kennedy of Plantain District notes that she had both a business and a dietetics degree before she opened her mobile food unit.

“I focused on running the truck like a business, and then I hired two chefs who could focus on the food,” she said. “I was still intimately involved with all of it. I did all the food purchases. I was there for prep, etc. But I think by delegating duties a bit instead of one person trying to do it all, it spelled success for us.”

Finding a niche

Isham Nelson

Nelson

Then again, not every food business needs a fixed spot to serve customers.

“If you are at a grocery store and they sell an item for you, you may only be making 80 cents or a buck 25 an item,” said Isham Nelson. “So, it is all about volume.”

Nelson, owner of the Kansas City area’s Just Enough Heat, is well-acquainted with the other side of the food industry. His company’s products, centered on various spicy sauces, are examples of shelf-stable foods that can be sold through grocers, specialty stores, Amazon or even a company website. Items like his cut a different course, which begins with a food scientist who can provide a process-authority letter certifying that the manufacturing procedure in your commercial kitchen is producing a safe product.

But if you don’t have a commercial kitchen, you still have options. Co-packing services, which Nelson also offers, can provide facilities to produce your recipe and often even help you to obtain your process-authority letter.

Obviously, however, they don’t work for free, and they may require you to produce in larger quantities than you wish. That’s the advantage of having the process in your own commercial kitchen instead.

“You don’t have the extra markup and the extra inventory costs,” he said. “But you also have all the time, the labor and all the other aspects of production. You are not as streamlined as a co-packer is.”

If your offerings are perishable, then regulations differ. You’ll simply need the appropriate state or local authorities to approve your commercial kitchen. Just remember that, if your inventory must be kept cold, it had better sell more quickly.

“Refrigerated space is more valuable in a store than non-refrigerated,” Nelson said. “If your product is not turning, you will get kicked out quicker than just regular ‘sit-and-forget’ shelf space.”

Then again, not everyone requires shelf space. In fact, some culinary businesspeople don’t bother making or serving food at all.

Andrew Glantz, owner of GiftAMeal, got the idea for his unique enterprise while interning with a venture capital firm when he was studying at Washington University.

“There are tons of things I didn’t know then,” the St. Louis-area entrepreneur said with a chuckle.

Andrew Glantz

Glantz

But today, GiftAMeal boasts 165 restaurant partners across three major metropolitan areas. More than 20,000 people employ its app, which creates food donations to the hungry every time users snap photos of their meals at participating eateries.

Glantz advises that, whatever an entrepreneur does, he should be willing to move forward even if others are delaying the process.

“Especially if you are working with other companies and people, things take longer than you think they would, so don’t put all your eggs in one basket,” he said, remembering how his business might grind to a halt while he’d wait for a particular restaurant to join the platform. “Now, when I approach things, it is more having multiple plans going on at once because you never know what is going to end up going through and pushing the business forward.”

His recommendations don’t sound that much different than those of restaurateurs developing their menus.

“You are building it up slowly so you can constantly learn and iterate so you can base your solution off of the market needs rather than just what you think would be a good idea,” he said.

Why food businesses fail

Glantz’s words echo the thoughts of other experts.

“Am I making decisions based on the customers, or am I making decisions based on what I want to do?” asked Morgan Perry, business outreach specialist for the Mid-Continent Public Library in Independence. “You have to find a balance in that.”

Morgan Perry

Perry

Business outreach specialist may seem an unusual title for a library employee, but then again, an “ask the experts” food truck panel seems an unusual event for one. In fact, entrepreneurial education runs deep at Mid-Continent, and lots of foodies who want to enter the field come here for knowledge and resources.

Perry said food businesses can work, but research is the most essential component. Like others, she urges a full understanding of the market in your region. She also stressed the benefits of starting small. A tentative first step might be to rent a booth for a local festival or fair. See what people buy — and what they don’t. Ask them why and what they might pay for it.

Most important, make sure they aren’t relatives or friends who are guaranteed to laud everything you prepare as though it were ambrosia.

“You need to talk to people who are not related to you,” she said. “If they love you, then you need to move on to the next person.”

Finally, Perry advises that you should get a taste of the field before you dig in to the entrepreneurial buffet and bite off more than you can chew.

“If you have never worked in the food business, go work a couple of shifts for someone,” she said. “Please, please, please, get something under your belt.”

Whatever you do, make sure to do enough homework that your menu is something in which your clients are interested. Merchants who don’t could fall into the trap of trying to attract unenthusiastic customers to the product by putting everything in the bargain basement and attempting to undercut their way to success.

“That’s a recipe for disaster,” she said.

The other common disaster she sees is too many nascent entrepreneurs who fail to make one of their first essential contacts — a friendly call to the local health department. She recalled a fellow who had already bought and refurbished his new food truck only to discover the local authorities wouldn’t permit it.

“This guy wasted 40 grand on something that was never going to pass a health inspection,” she said.

Winkel concurs. He said food trucks are especially vulnerable. In some Kansas City-area municipalities, regulations have made them functionally illegal.

But even a physical location can run into the same problems. Winkel remembers one entrepreneur who had purchased a building to house his restaurant when it turned out the property wouldn’t accommodate changes mandated by the authorities.

“He had already committed to that location, was already building it out, already in that process,” he said. “That’s why it is really important to have all of those, as much as you possibly can, with the plan put together ahead of time before you start spending money on things.”

The local health department usually will offer a plan review of some kind if requested, he said.

“I tell folks that it is always cheaper to change something on paper than it is to change when it is physically installed in a restaurant,” he noted.

Moreover, the same logic goes for most aspects of running a restaurant, a catering business or a production facility. Have your plans — physical, financial, culinary and strategic — in place before you buy your first piece of equipment. It could save you a lot of heartache later.

“Food businesses don’t fail because the food is bad,” Perry said. “Food businesses fail because of the 47 other things they have to worry about.”

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