If You Were To Build A Business

[bizaro86]

Would you hire your own delivery drivers or primarily use the various services? Skip the dishes is the dominant player in that business where I live. I was at Edo Japan yesterday (a stir fry franchise chain) and couldn't believe how many skip the dishes orders there were. It outnumbered it eat in patrons at least two to one.

 

It seems to me that offering inexpensive options with multiple restaurant names could be very effective. (Ie a thai menu, a pizza menu, etc) I suspect even more niche cuisines would be worthwhile. The margins on a meal of pierogies would be huge, and the fact that you wouldn't sell many per night wouldn't be a big issue if you were splitting the overhead between many cuisines.

[DTEJD1997]

Would you hire your own delivery drivers or primarily use the various services? Skip the dishes is the dominant player in that business where I live. I was at Edo Japan yesterday (a stir fry franchise chain) and couldn't believe how many skip the dishes orders there were. It outnumbered it eat in patrons at least two to one.

 

It seems to me that offering inexpensive options with multiple restaurant names could be very effective. (Ie a thai menu, a pizza menu, etc) I suspect even more niche cuisines would be worthwhile. The margins on a meal of pierogies would be huge, and the fact that you wouldn't sell many per night wouldn't be a big issue if you were splitting the overhead between many cuisines.

I would hire my own drivers as well as have owned delivery vehicles.  The delivery vehicles would be small cargo vans (really small) or small hybrid cars. 

 

The hired drivers would also be able to do simple tasks when things are slow (sweeping, breaking boxes, taking out trash).  Another thing is that the vehicles would be optimized for food delivery (hot box & cold box).  Efficient to run.  One of the other most important things would be for them to be moving billboards.  Wrapped with colorful graphics showing name, website & food pictures.  As moving billboards, could change the graphics seasonally?

 

While I would have a SMALL core of dedicated drivers & vehicles, would also work with delivery services.  There are a few restaurants that I eat in, that I am SHOCKED at the amount of carry out/delivery that they do.

 

The core foods would probably be pizza & chicken....but then could also have a GREAT salad & juice selection?  Also have an oriental type food?  There are not many good Chinese places in this part of the city.  I also suspect that while the typical Chinese menu might have 250 different items on it, 85% of $$$ volume consists of the top 2 dozen items?  Offer Chinese, but only have 30 selections?  Even Indian perhaps?  Polish? Caribbean? If the kitchen is shared between 4-5 concepts, the 5th concept might be profitable to run as long as you got 12-16 orders a night?

 

Probably would ALWAYS have pizza/chicken and salad/juice and maybe Chinese, but then rotate the last two concepts?  Rotation would allow you to try different ideas easily and not have to wager a whole restaurant on it.  A "ghost kitchen" might be able to serve Indian food profitably if they could do 200 dishes a week?  Also have different things seasonally?

 

I think that if you could acquire the real estate/location AND outfit the kitchen cheaply/smartly

AND have smart advertising (vehicles & website & social media) AND have a few key people, the margins and volume might be very compelling.  A few things HAVE to fall into place, but once you've got those, then you have a good chance at success.

 

If I am right about the margins, you could have higher quality ingredients AND pay somewhat more to the workers.  Better quality & motivated workers leads to competitive advantage and virtuous circle.

[SharperDingaan]

You might want to consider a different approach.

In all these businesses, YOU'RE the guy who does everything. You absorb all the business risk, contract out as needs be, and make all the decisions. The reality of course is that you do NOT 'know' everything, and cannot be everywhere, ALL the time. When do you go on vacation? what happens when you're sick? how are you handling the 'control' thing?

 

Most of us will bring specific skill-sets to the application (time, expertise, IT, $, etc.) but know little about the 'nuts and bolts' of actually running the business in question. We all 'know' they we can run a restaurant/hire the right guy, buy/rent/sell real-estate; yet the business statistics tell us otherwise. So DON'T try to do everything.

 

Who's makes most of the return in RE?, and when?

I would suggest that on a risk-adjusted basis, over the short-medium term it is the broker - taking a cut, up front, on every buy/sell. So if the rental business is your game, why are you NOT the RE agent on your OWN transactions? If your contribution is just equity - would you not be better off syndicating with a broker who 'buys what he cant sell'; & being in the house flipping business, with a team of related contractors; that don't get paid unless the upgraded house resells for a profit?

 

Long time ago I used to do rolling 5-month partnerships with local cheese vendors in Toronto's prominent 'foodie' markets. Inject '70K' into the purchase and import of specialty cheese for sale over the christmas period, through 2-3 market vendors. At the end of the period; get your capital back + borrow costs + 1/3 of the collective profit. Never lost a dime, made a great many friends, and the total profit was almost always material. Typically, we collectively just donated it to our local sick kids hospital.

 

Point is, do what you do best - and do not try to do everything.

It's often a lot happier experience.

 

SD

 

 

[no_free_lunch]

Thank you very much Gregmal.  It is interesting to see the value mindset applied to real estate.

 

If you put down 20% and pay the property off in 15 years then that would equate to an 11% return and that is assuming no rent increases.  If the property can just match inflation, then that return would be 11% after inflation.  I am not sure if I calculated the return correctly, there are also some taxes but then there was a bit of cash flow as well.  At any rate, if the return percentage is at all reasonable then I would have a very difficult time replicating RE returns in equities over a full cycle.  In fact, compared to a market with a 25 or 30 shiller PE those results appear exceptional to me.

 

Unfortunately, the area I am in does not have such lucrative returns.  The condo prices are similar to what is described here but the rents are $300-400 less.  I would be looking at a 20 year period to pay down the mortgage and would likely have to put down 30% to get a reasonable mortgage rate.  This translates through to about a 6 or 7% return, hopefully 6% after interest rates are considered.

 

I think I would need to invest in a different city than I currently live in which makes direct ownership difficult.  Is there any other way to invest in real estate?  I know there are REITs but they tend to get prices very high.  Are there other options, some type of investor pools that you can get into?

[Orchard]

While you are using fancy terms to describe this and while you're dreaming up a big business this has been done in the past. You are essentially describing a Domino's Pizza. If you study Domino's success factors it's really speed of delivery. To make that happen it has to operate in a small radius. The moment it becomes big it doesn't work as well anymore.

[Spekulatius]

Thank you very much Gregmal.  It is interesting to see the value mindset applied to real estate.

 

If you put down 20% and pay the property off in 15 years then that would equate to an 11% return and that is assuming no rent increases.  If the property can just match inflation, then that return would be 11% after inflation.  I am not sure if I calculated the return correctly, there are also some taxes but then there was a bit of cash flow as well.  At any rate, if the return percentage is at all reasonable then I would have a very difficult time replicating RE returns in equities over a full cycle.  In fact, compared to a market with a 25 or 30 shiller PE those results appear exceptional to me.

 

Unfortunately, the area I am in does not have such lucrative returns.  The condo prices are similar to what is described here but the rents are $300-400 less.  I would be looking at a 20 year period to pay down the mortgage and would likely have to put down 30% to get a reasonable mortgage rate.  This translates through to about a 6 or 7% return, hopefully 6% after interest rates are considered.

 

I think I would need to invest in a different city than I currently live in which makes direct ownership difficult.  Is there any other way to invest in real estate?  I know there are REITs but they tend to get prices very high.  Are there other options, some type of investor pools that you can get into?

 

I would probably looking to join a local Real estate investment association and start networking. Another option would be a real estate crowdfunding platform. I am bit leery of the latter, because I am not sure hat would happen if any of those platforms would run into financial difficulties.

 

This might be a good question for folks knowledgeable in real estate like BG2008, especially if they are local to you.

[LC]

https://thespoon.tech/uber-eats-is-doing-ghost-kitchens-heres-how-that-could-change-food-delivery/

[Jurgis]

No one doing an Instagram/Social Media scale up?

 

Honestly, wrong forum.

 

People doing scale up businesses don't hang out here (with very few exceptions).

 

I beg to differ.  I think things have changed.  I know of a few people who are both value investors and heavily utilize Instagram and Social Media to grow and promote their businesses whether it is selling products or selling subscription.  I think most CoB guys are a bit too "old school" to realize that social media has lowered the barrier to entry in a very meaningful way.  I know of ice cream people who use Instagram to heavily promote all natural ingredients and they have done very well.

 

I misread what you asked. :) I thought you were asking if someone was building product similar to Instagram or in that space. :)

[DTEJD1997]

While you are using fancy terms to describe this and while you're dreaming up a big business this has been done in the past. You are essentially describing a Domino's Pizza. If you study Domino's success factors it's really speed of delivery. To make that happen it has to operate in a small radius. The moment it becomes big it doesn't work as well anymore.

 

Yes, I am very much aware of that.  The delivery radius is somewhat limited to about 3-4 miles, and time and miles driven is at a premium.

 

And you are right, Dominoes has been doing this for a long time.  HOWEVER, Dominoes has an incredibly limited menu and some people would also argue that they have limited food quality also.

 

 

[BG2008]

While you are using fancy terms to describe this and while you're dreaming up a big business this has been done in the past. You are essentially describing a Domino's Pizza. If you study Domino's success factors it's really speed of delivery. To make that happen it has to operate in a small radius. The moment it becomes big it doesn't work as well anymore.

 

Yes, I am very much aware of that.  The delivery radius is somewhat limited to about 3-4 miles, and time and miles driven is at a premium.

 

And you are right, Dominoes has been doing this for a long time.  HOWEVER, Dominoes has an incredibly limited menu and some people would also argue that they have limited food quality also.

 

DTEJD1997,

 

Sometimes offering great products and great convenience for your customers isn't such a great business.  From time to time, I kind of fancy myself as the next David Chang and think about what kind of concepts I would come up with.  Cloud kitchens have zero moat, especially for guys like you and me.  When you have Mr. Son's play money, it's a different paradigm.  I think Dominoes work so well because stoned out teenagers can run their businesses.

[Orchard]

Yes, I am very much aware of that.  The delivery radius is somewhat limited to about 3-4 miles, and time and miles driven is at a premium.

 

And you are right, Dominoes has been doing this for a long time.  HOWEVER, Dominoes has an incredibly limited menu and some people would also argue that they have limited food quality also.

I would argue that at least partially explains their success. The limited menu allows them to have small locations and the simple business model makes sure that deliveries arrive timely again and again.

[Spekulatius]

I think more restaurants fail for inconsistent quality and service than for food quality itself,  much less menu breadth. What DTE is trying to do (many different cuisines from one kitchen ) sounds very complex and would be highly skill dependent.

[BG2008]

I think more restaurants fail for inconsistent quality and service than for food quality itself,  much less menu breadth. What DTE is trying to do (many different cuisines from one kitchen ) sounds very complex and would be highly skill dependent.

 

I think restaurants are kind of like sports team.  The New England Patriots just finds a way to win and the Cleveland Browns just can't get their act together.  McDonald's for whatever reason is kind of like the NE Patriots.  Culture is a real thing.  My interns are sick and tired of me talking about how my HS wrestling team went undefeated my senior year.  Yes, I am living in my glory days.  But what I am trying to get at is that there was a change in regime.  We had a new coach who came in and got us to buy into the system.  We had 7-8 coaches where half of them were grown men volunteering when they could be working overtime.  It is telling you a ton about the people involve and frankly the sacrifices that they made.  They bought us hundreds of dollars of free dinners on Thursday nights so that we can build team chemistry.  We use to eat like 30 boxes of pizza for dinner. (edit: this was for the football team, during wrestling season, our diet was 3 ice cubes and 4 oz of apple juice. Nothing ever tasted so good!)  A successful restaurant is likely a place where everyone knows their role and there is pride in what they do.  They is a common core value.  This is likely the case for every business.  Not having power hungry assh@les are really important in businesses like this.  If you want to run a successful restaurant, whether it is physical or cloud kitchen, you likely have to be a good coach who is dealing with employees who aren't the most motivated.  It's hard to convince 16-17 years to run full speed at someone and hit them with all their might.  This is probably the equivalent of asking a high school drop out to show up on time, not smoke too much weed, and get the orders right.  I'm not trying to be condescending, I am trying to be realistic. 

[Jurgis]

I think more restaurants fail for inconsistent quality and service than for food quality itself,  much less menu breadth. What DTE is trying to do (many different cuisines from one kitchen ) sounds very complex and would be highly skill dependent.

 

I think restaurants are kind of like sports team.  The New England Patriots just finds a way to win and the Cleveland Browns just can't get their act together.  McDonald's for whatever reason is kind of like the NE Patriots.  Culture is a real thing.  My interns are sick and tired of me talking about how my HS wrestling team went undefeated my senior year.  Yes, I am living in my glory days.  But what I am trying to get at is that there was a change in regime.  We had a new coach who came in and got us to buy into the system.  We had 7-8 coaches where half of them were grown men volunteering when they could be working overtime.  It is telling you a ton about the people involve and frankly the sacrifices that they made.  They bought us hundreds of dollars of free dinners on Thursday nights so that we can build team chemistry.  We use to eat like 30 boxes of pizza for dinner.  A successful restaurant is likely a place where everyone knows their role and there is pride in what they do.  They is a common core value.  This is likely the case for every business.  Not having power hungry assh@les are really important in businesses like this.  If you want to run a successful restaurant, whether it is physical or cloud kitchen, you likely have to be a good coach who is dealing with employees who aren't the most motivated.  It's hard to convince 16-17 years to run full speed at someone and hit them with all their might.  This is probably the equivalent of asking a high school drop out to show up on time, not smoke too much weed, and get the orders right.  I'm not trying to be condescending, I am trying to be realistic.

 

Def!  8)

[SharperDingaan]

I think more restaurants fail for inconsistent quality and service than for food quality itself,  much less menu breadth. What DTE is trying to do (many different cuisines from one kitchen ) sounds very complex and would be highly skill dependent.

 

https://possector.com/management/restaurant-failure

https://possector.com/management/restaurant-failure

 

"Watch the video to hear the hosts of “Restaurant Startup” discuss why restaurants fail."

 

If someone suggested a 'buy and hold' investment to you that could make a lot of money, but which also might well result in a capital wipe-out within a 3 year holding period, they would be scoffed at. An example being OBE  ...  ;)

 

But 'package' that same risk of capital loss as 'owning a restaurant' - and suddenly it's a great idea!

There is nothing wrong in taking a risk - but  be very clear on if/how you are going to mitigate that risk, and whether the expected return is ultimately worth the effort.

 

One can swing-trade a stock; with the objectives of either recovering capital, or averaging down the cost base.

Sometimes it works, sometimes not so much, but you have the ability. Don't have that with a restaurant.

 

Every publicly listed equity comes with a professional board of directors and management, that know their business.

You may think them idiots, but they are paid to 'run' the business, and they do it professionally all day, every day of the week - so that you don't have to. You can own the business, and at the same time - make as much as you wish, someplace else. Can't do that with a restaurant.

 

Just a different POV.

 

SD

 

 

[Jurgis]

I think more restaurants fail for inconsistent quality and service than for food quality itself,  much less menu breadth. What DTE is trying to do (many different cuisines from one kitchen ) sounds very complex and would be highly skill dependent.

 

https://possector.com/management/restaurant-failure

https://possector.com/management/restaurant-failure

 

"Watch the video to hear the hosts of “Restaurant Startup” discuss why restaurants fail."

 

If someone suggested a 'buy and hold' investment to you that could make a lot of money, but which also might well result in a capital wipe-out within a 3 year holding period, they would be scoffed at. An example being OBE  ...  ;)

 

But 'package' that same risk of capital loss as 'owning a restaurant' - and suddenly it's a great idea!

There is nothing wrong in taking a risk - but  be very clear on if/how you are going to mitigate that risk, and whether the expected return is ultimately worth the effort.

 

One can swing-trade a stock; with the objectives of either recovering capital, or averaging down the cost base.

Sometimes it works, sometimes not so much, but you have the ability. Don't have that with a restaurant.

 

Every publicly listed equity comes with a professional board of directors and management, that know their business.

You may think them idiots, but they are paid to 'run' the business, and they do it professionally all day, every day of the week - so that you don't have to. You can own the business, and at the same time - make as much as you wish, someplace else. Can't do that with a restaurant.

 

Just a different POV.

 

SD

 

What you said applies to a lot of other startups and angel investing, not just restaurants.

 

So QFT.  8)