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Hi i'm rowena i am a food consultant based in Sydney Australia
I'm the founder of food marketing, we help people turn their dreams of
bringing their own food business into a reality so make sure you tune in
to all our episodes or have a look at food-marketing.com.au for more resources and support for
when you open your food business Thanks to covid 19 the world is a very
different place so if you're thinking about opening a food
business post pandemic you really need to focus on the businesses that
have the best margin. Now to understand margin we're talking profitability
what is your percentage of profit as a percentage of your turnover and you will
be absolutely shocked to know that most
food businesses operate on really slim margins most businesses
operate on a less than 10 percent profit now that is a lot of hard work
for a small amount of money unless your turnover is exceedingly high
To really understand margin you need to understand the three main cost centers
of a food-based business now they're going to be your cost of goods sold
your rent and your wage cost now it makes sense if you can keep these cost
centers down low your margin or your profitability is going to increase
So let's start with cost of goods sold now cost of goods sold is really about
how much is the product you make so all of your
f and b items on your menu how much does it really cost
by the time you go to sell it to your customer. Now
you'll be shocked to know that a lot of cost of goods sold uh
percentages are up around 40 percent for a lot of food-based businesses
now there's no room for margin by the time you have
your wage cost and your rent you're going to be operating
on the slimmest of margins and it's not sustainable in the long term
so what are some of the best businesses in terms of ones with
lower cost of goods sold here's a general rule of thumb
if you are making a product a menu item that has a small amount of protein
rather than a large percentage of protein
then your cost of goods sold is going to be lower so a great example of that
is pizza or pasta in general these are products
that have their main ingredients are flour water a bit of salt
and then of course with the with the toppings and sauces but the
majority of that menu item is actually a carbohydrate now
high carbohydrate menu items tend to have really
low cost of goods sold why because the ingredient costs are low to purchase
so let's think about this pizza places um pasta places
now I know it's a protein (diary) but a lot of dairy concepts are low cost of goods
sold as well so ice cream businesses are a
great example. So there's a few rule of thumbs of
businesses that have low cost of goods sold
that's a great place to start now food businesses with high cost of goods sold
are often protein driven menus but they all
are also often the higher priced locations
so you might have things like a steak restaurant or fine dining they have very
high cost of goods sold their customers are coming to them for
a premium product so their ingredient cost is very high
but their average transaction value is too because their customers are spending
more money to dine there however at the end
of the day if you can modify your cost of goods sold and keep
it down low then you're not so reliant on being in a really high traffic
location
so other great examples are some of the asian
food concepts like noodle bars.
So before we continue what are your thoughts on some other types of concepts
that have low cost of goods sold pop your comments in the list down below
and let's have a look at what you recommend
Okay now let's look at another cost center
believe it or not a lot of your businesses spend up to 40%
and even more on wages simply to run their businesses now if you've
got high cost of goods sold you have high wages we haven't even factored in
rent there's not going to be a lot left over for profit so let's look
at some businesses that have much lower wage
rates uh in terms of really driving profitability
now a great example is a lot of fast food concepts that use technology
in place of wages now a great example of that are
burger chains chicken chains even pizza places
where you pay an order at the counter often using
kiosk style or ipad technology it negates the need for front of house
sale stuff processing orders so your wage cost really centers on your
kitchen stuff of course you're going to have to also have stuff available to
troubleshoot and help not if you're doing it online
reducing the number of staff members so that's a great way and some examples
there are really businesses that have been
able to really lower their wage costs and really drive profitability a lot of
people will say well investing in technology like that
is going to initially be a really high set up cost
you're absolutely right but if I told you that for several thousand dollars
investment in ipad or kiosk ordering technology
you could be saving tens of thousands of dollars per annum
on wages would it not look suddenly like an appealing investment?
Okay finally let's turn our attention to rent now if you can minimise your
expenditure on rent then it goes to say that you are going
to have a higher level of profitability Now the problem is in this post covid
world you really want to minimize your
expenditures as much as possible we don't know
going forward about further restrictions being put in place
if you're looking at signing leases now is the time to really negotiate whether
you're in an existing location or you're looking at new locations but
the rule is always this if there is no point having really cheap rent
if it's not in a location that is accessible and convenient to your
customer base I have a client who has a very
successful cafe he only pays two percent of his turnover
on rent a lot of people pay up to 30
I've even seen up to 40 of their turnover on rent
these people will eventually go out of business it is absolutely
unsustainable if you are paying anywhere above 15
of your turnover on rent you are going to get into financial difficulty
so needless to say my client who's only paying 2 is laughing
that additional 13 is going straight into his hip pocket
as profit okay needless to say if you can make great savings in the following
three cost centers cost of goods wage and rent
then you have the ability to really increase your profitability
now imagine if you could make savings in one
two or even three of these areas now a great example of this is cloud
kitchens or ghost kitchens imagine if you were only renting a
kitchen rather than renting an entire restaurant
your rental costs are going to be a lot lower
your wage costs are going to be lower because the model is not dining in its
only takeaway and it's usually powered only by online
sales so then your wage cost is also going to be lower
now imagine if you could develop a concept that is a cloud kitchen or a
ghost kitchen that has really low cost of goods sold
for example a carbohydrate rich menu like noodles
pizza pasta um any of those concepts with low
cost of goods sold then you're going to make savings across
all three cost centers and that makes ghost kitchens and cloud
kitchens looking like a really interesting concept for profitability
moving into 2021! So if you would like our list of
strategies to help your business really increase sales in this post-pandemic
world then make sure you click the link below
and you can download our recommendations to really drive sales
and we focus on as always on low-cost and no-cost marketing strategies
to really help you increase your turnover
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