My previous post on a F&B chain with more than 10 outlets sound depressing. Alright. Let’s talk about something brighter.
This business sells BBQ chicken at food court in a very popular shopping mall. Cost per meal is at least $6. The first time I tried it, I fell in love. No wonder the queue is always so long.
One day, in morning with no crowd yet, I was the first few customers and I chatted with the staff. The friendly staff told me that in typical weekday, they sold 400-500 plates of chicken. In weekend, they could sell 600-700 plates. I was impressed. One evening, I had dinner there around 10pm. Being the last few customers, I looked at the receipt, which has a running number of transactions for the day. It showed 500+ on that Thursday. The other time on weekend, the receipt showed 600+.
So, let’s make this assumption:
Meals for 1 month (30 days): 22 weekdays x 450 meals + 8 weekend * 600 meals = 14,700 meals.
Since the food tastes so good, I assume they use more expensive ingredients. Assume the cost of food per meal is 40%, or $2.80 (I really dont know this cost, but let’s make some assumption).
1 month cost of food = 40% x $102,900 = $41,160.
Gross Profit = $61,740
Operating Profit = $36,240 per month
Operating profit margin = ~35.2%
Does that sound very high to you? It sounds very high to me! That’s yearly profit of more than $350k after tax! More than what a director earns in many companies.
Let’s revisit our assumptions.
Meals: This is based on what the staff said, verified by the numbers of transaction showing on the receipt. In fact, some transactions are serving 2-3 meals. I didn’t factor this in. The queue is always long during lunch/dinner time, so much better than all other stalls. So, the assumption on the number of meals look alright to me. Since we want to be more conservative, let’s assume the number of meals served is 10% lower. So meals for 1 month is 13,000.
Price: Minimum price is $6 and we are assuming $7 on average because some menu items are more expensive and some customers add extra ingredients. Ok, let’s be conservative again. Assume the price is $6.50.
Cost of food: Maybe my 40% assumption is too low. Let’s make it 50%. This means cost per meal is $3.25, which is quite high to me considering that $3.25 can let you buy a full meal at hawker centre. Ok, let’s assume cost of food is indeed 50% of price.
With this higher cost assumption, operating profit is still $12,250. Net profit after tax of $122k a year. Better than a manager at many companies.
So, with more conservative assumption, the profit of this food court stall is $12k a month. With more aggressive assumption, the profit is $36k a month. If we take somewhere in the middle, that’s $24k a month!
This is way better than the profit of F&B chain with more than 10 outlets I described in my previous post. That F&B chain will look more glamorous from outside: well renovated, have its own brand and concept, more than 10 outlets, employ more than 80 people, approaching $10 million of revenue. If you are given a choice, will you choose to run this food court stall or that F&B chain?
Why is the profit so high?
Mainly because the number of meals served is very high. That’s why I consider this food court stall among the best performing. I’m sure there are others doing even better than this one. They are probably among the best performing 5% of food court stalls in Singapore. In many businesses, when you are among the best 5% performing, your profitability is usually very high. That applies to salaried jobs too.
If you have a great recipe, try it with the people around you. If locals like it, then you’ve got a potential. If you own a business like above, you are on course to be a millionaire in few years. If you open a few stalls in different malls (above business did), you can retire really early. It’s recession proof by the way. During recession, people may cut down their visits to restaurants, but you are already running in food court. You don’t have to worry about GDP growth, unemployment rate, competition for jobs, retrenchment, upgrading your skills, etc. Rising rental can hurt you, but not as much as those stalls with lower profit. Labor squeeze can hurt you but with your high profitability, just pay extra few hundred dollar to retain your staff.