Multimodal Research Report Assignment

CONTINENTAL DIVIDE

MOBILE FOOD VENDING: ENTRANCE INTO THE MARKET BY AN ESTABLISHED RESTAURANT

THE ACCESSABILITY OF THE MOBILE FOOD VENDING INDUSTRY BY A RESTAURANT INTERESTED IN EXPANDING INTO THE MARKET.

THE MANAGING PARTNER OF CONTINENTAL DIVIDE, LOCATED IN RICHMOND, VIRGINIA, IS INTERESTED IN UNDERSTANDING THE CITIES MOBILE FOOD VENDING INDUSTRY.

BY JORDAN K. WALLS

CONTINENTAL DIVIDE

EXECUTIVE SUMMARY

THE WORLD OF MOBILE FOOD VENDING HAS BEEN CHANGING

The working class population of American cities have changed. This has caused the mobile food industry to change as well. As both money and time have become harder to come by, the restaurant industry has seen a large drop in customers. The mobile food industry however, has continued to grow despite these set backs.

WHY IS THIS? As hours-a-day spent working increases and the length of an employee’s lunch break decreases, the working class look for ways to cut down on both price and time. For those unwilling to bring a homemade lunch, the answer is street-side food vendors. The demand for proximity, convenience, and low cost options provided by vendors has continued to increase despite a recessed economy.

WHY IS THIS IMPORTANT?

As the demand for restaurant dining declines, a restaurant could benefit from the mobile food vending industry without some of the hardships a stand alone business faces.

UNDERSTANDING THE INDUSTRY PROVIDES NECESSARY INFORMATION

Understanding comes from the study of how the classification of diverse units, the costs involved, the way revenue is earned, optimizing location, policies in place, and how these factors influence new entrance into the market.

WHAT MAKES THE FACTORS IMPORTANT?

Classification Knowing how the parts within the industry are classified betters understanding of what drives diversity and change. This knowledge also allows for access to the proper entrance point into the market. Costs and Revenues Understanding major costs ensures financial planning is accurate. Knowing about the inflow of revenue allows for changes to be made to increase both revenues and profits. Location In the mobile food vending industry location is everything. Tracking foot traffic can lead to locations that provide maximum exposure. Policies Policies in a growing industry are always changing. Studying current policies will assure the business stays operational.

ALL OF THESE FACTORS PLAY A LARGE ROLE IN THE SUCCESS OF A MOBILE FOOD VENDOR. WITH THE UNDERSTANDING OF THESE FACTORS COMES A COMPETITIVE ADVANTAGE LEADING TO MARKET DOMINANCE.

CONTINENTAL DIVIDE

CONTENTS

INTRODUCTION…………………………………………………………………1

CLASSIFICATION………………………………………………………………...2

COSTS/REVENUE……………………………………………………………….5

LOCATION………………………………………………………………………….7

REGULATION/POLICY…………………………………………………………8

INDUSTRY………………………………………………………………………….9

RESTAURANT ADVANTAGES……………………………………………..10

CONCLUSION……………………………………………………………………11

RESOURCES….....................................................................12

CLASSIFICATION COSTS/

REVENUE LOCATION

REGULATION AND

POLICY INDUSTRYINTRODUCTION CONCLUSION

RESTAURANT POSSIBILITIES

CONTINENTAL DIVIDE

INTRODUCTION

THE WORLD OF MOBILE FOOD VENDING HAS BEEN CHANGING

The working class population of American cities have changed. This has caused the mobile food industry to change as well. As both money and time have become harder to come by, the restaurant industry has seen a large drop in customers. The mobile food industry however, has continued to grow despite these set backs.

WHY IS THIS? As hours-a-day spent working increases and the length of an employee’s lunch break decreases, the working class look for ways to cut down on both price and time. For those unwilling to bring a homemade lunch, the answer is street-side food vendors. The demand for proximity, convenience, and low cost options provided by vendors has continued to increase despite a recessed economy.

WHY IS THIS IMPORTANT? As the demand for restaurant dining declines, a restaurant could benefit from the mobile food vending industry without some of the hardships a stand alone business faces.

THE CLASSIFICATION OF A MOBILE FOOD VENDING UNIT IS NECESSARY FOR UNDERSTANDING WHAT STEPS NEED TO BE TAKEN TO JOIN THE MARKET

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CLASSIFICATION COSTS/

REVENUE LOCATION

REGULATION AND

POLICY INDUSTRYINTRODUCTION CONCLUSION

RESTAURANT POSSIBILITIES

CONTINENTAL DIVIDE

TYPES OF VENDORS

45%

37%

18%

MARKET SHARE • Uses the traditional wagon-style wheel cart. (can also include booths, tents, and transportable kiosks)

• Typical locations: Instore, shopping malls, parking lots, sporting events, entertainment venues, transit stations, and high-traffic locations.

• Able to serve all types of food. • Rarely services more than one

venue per day.1

• Typically provided by a food truck • Provides hot foods, made to order according to

customer preferences. However, a truck could also provide prepackaged foods.

• Truck mobility allows for service at multiple locations. • Allows for more storage which leads to longer service

time.1

MOBILE FOOD PREPARATION TRADITIONAL STREET VENDOR

• Can use any food vending medium. (stand, truck, tent, or kiosk)

• Only serves prepackaged foods such as frozen goods, packaged chips, and any food that requires little or no preparation.1

INDUSTRIAL CATERING

IT IS IMPORTANT, WHEN DECIDING TO START A BUSINESS, TO CONSIDER MORE THAN JUST WHAT TYPE OF SERVICE YOU WILL PROVIDE. ONE MUST ALSO CONSIDER THE MEANS BY WHICH THAT SERVICE WILL BE PROVIDED

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MEANS OF DISTRIBUTION

• Kiosks are most often immobile booths or stands.

• Commonly placed inside shopping malls and large events.

• Typically facilitates the sale of prepackaged foods.

FOOD KIOSKS

• Stands can be pulled by car or pushed by hand. This makes them the most cost effective way to start a mobile business.

• Food is often prepared in advance.

• Requires the least amount of licensing.

• Trucks can carry more equipment, food, and handle more business.

• Food can be stored, prepared, cooked, and served.

• Popular in corporate parks and areas isolated from restaurants.

FOOD CARTS/STANDS FOOD TRUCKS

DECIDING THE TYPE OF VENDOR AND MEANS OF DISTRIBUTION ARE CRITICAL ISSUES. THESE CHARACTERISTICS DEFINE WHAT CLASS THE BUSINESS WILL BE. DIFFERENT CLASSIFICATIONS HAVE DIFFERENT REGULATIONS TO FOLLOW

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CLASSIFICATION OF MOBILE UNITS

CLASS 1

CLASS 2

CLASS 3

CLASS 4

COMMISARY KITCHEN

CFM* FHC** ASSEMBLY/ PREPARATION

COOKING COLD

STORAGE HOT

STORAGE HOT/COLD

WATER

WASTE WATER TANK

HANDWASH STATION

DISHWASH STATION

STOVEHOOD/ VENT

EXAMPLES

NO

YES

NONO NONO NO NO NO NONO NO NO

NO NO

YES

YES

YES

YES

YES

YES

YES YES YES YES YES

NO NO NONO NO NO NO

NO NO NOYES YES

YES YES YES YES YES YES YES YES YES YES

SNACKS, SODA, COOKIES, CHIPS, CRACKERS

PREPACKAGED SALADS, HOT DOGS, SANDWICHES

UNPACKAGED HOT DOGS, CHILI, SALADS, CORN, SOUPS

NO MENU LIMITATIONS

*Certified Food Safety Manager ** Food Safety Handler Certification

Understanding the classification of a mobile unit is very important. The classification outlines the necessary equipment needed to maintain compliance with certain regulations and policies. This table states the requirements needed to qualify for each level of mobile unit. Once vendor type, distribution channel, and classification have been identified, the definition of the business becomes clear.

AFTER ESTABLISHING THE TYPE OF UNIT, A BUSINESS OWNER CAN START TO UNDERSTAND WHAT KIND OF COSTS WILL BE ENCOUNTERED WHEN STARTING AND MAINTAINING THE UNIT

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COSTS ENCOUNTERED AT START-UP The costs encountered when starting a mobile vending unit are low when compared to a restaurant. However, there are still many things to consider when first beginning. It is best to consider all of the options before making a decision. Below is a comparison between the two main mobile vending units.

FOOD STAND (CLASS 4) FOOD TRUCK

• Unit Price New: $2000-$5000 • Unit Price Used: >$2000 • Fewer regulations and

policies • Smaller quantities of supplies

required • One employee per unit • Commissary required

• Unit Price New: $100,000 • Unit Price Used: $30,000 • More extensive licensing

required • Larger quantities of supplies

required • Requires more than one

employee to run one unit • Runs on fuel • Commissary required

 Start-up costs vary greatly depending on the regulations imposed by local government, supplies distributors, labor costs, and rent of facilities

 Costs can be decreased when a mobile unit is attached to a restaurant (this will be discussed later)

WHEN A BUSINESS PASSES THE START-UP PHASE IT MUST BE READY TO MAINTAIN OPERATIONS. THESE RUNNING COSTS ARE OFTEN MORE DIFFICULT TO DEAL WITH THAN THE START-UP.

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CONSTANT COSTS/REVENUES OF BUSINESS The costs that are consistent throughout business operations can be divided into six categories. If revenues earned surpass these costs, a business is profitable.

Purchases

Wages

Rent and Utilities

Other

Marketing Costs Depreciation

Profit

PERCENT OF REVENUE2

PURCHASES (40.6%) are a major cost of any industry. In the food service industry purchases are mainly food and beverage. Typically these are purchased from a wholesaler.2

WAGES (20%) can be costly due to the labor intensity of the food industry. This may even include benefits, unemployment insurance.2

RENT AND UTILITIES (6.6%) can range from the fuel to power a unit or the rented space in a commercial kitchen. Often these costs will stay constant.2

OTHER (22.3%) costs include applicable administrative costs, liability, repairs, maintenance, and licensing fees.2

MARKETING (1.3%) costs are used to obtain ad-space or to retain to services of a marketing agency.2

DEPRECIATION (2.4) occurs when any equipment loses it’s value over time. PROFITS (6.8%) account for what is left over after all costs have been deducted from revenues.2

IN THE MOBILE VENDING INDUSTRY REVENUE CAN BE MAXIMIZED BY CHOOSING THE BEST LOCATION TO SET UP A UNIT.

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OPTIMIZING LOCATION A proximity to key markets is the most effective way to maximize revenue. Areas with higher foot traffic or high income tend to have high success rates. One upside to mobile vending is the ability to visit multiple locations in a day.

This is a map of metropolitan Richmond segmented by income. It indicates a higher level of income towards the west end. A unit in this area would have higher chances of being busy

AREAS WITH HIGH FOOT TRAFFIC: • DOWNTOWN • CARYTOWN • MONROE PARK • VCU CAMPUS (HIBBS HALL)

REGULATIONS CAN EITHER HELP OR HURT A BUSINESS. NO MATTER WHAT THE BUSINESS DEALS WITH, IT IS ALWAYS A GOOD PLAN TO KNOW WHAT REGULATIONS EXIST BEFORE STARTING

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REGULATIONS AND POLICIES VIRGINIA HEALTH DEPARTMENT3

“Mobile Food Operation Guide”

• A mobile food unit must operate from a licensed commissary kitchen

• A restaurant owned by the operator of the mobile unit can act as a commissary kitchen

• All food must be prepared in a commissary kitchen

• All cleaning and servicing must be done at a licensed restaurant

• Must use U.S.D.A. approved foods from an approved distributor

• Mobile unit must be mobile • A mobile unit can act at any temporary

event without an extra permit • All food stored on unit must be at least six

inches off of the ground

• Vendor permits are obtained from the health department

• Unit must be covered by “Commercial liability insurance”

• Must have federal tax ID number (restaurant ID can be used)

• Health permit cost: $225 plus $50 per each additional unit. Covers one year

• Permits must be displayed • Operator must be certified

through the “Food Safety Handlers Course”

• A “Certified Food Safety Manager is required ONCE THE PROPER REGULATIONS HAVE BEEN

IDENTIFIED IT IS IMPORTANT TO UNDERSTAND THE INDUSTRY YOU PLAN ON ENTERING

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CONCLUSION

CONTINENTAL DIVIDE

UNDERSTANDING THE INDUSTRY

REGULATION AND

POLICY

The mobile food industry is still in a growth stage. With barriers to entry so low, almost anyone can join the market. Competition, however, is very high. The segmentation of the market has created an over diverse customer base. Because of the customer niches emerging, there is a demand for many different kinds of mobile food.

LOW BARRIERS TO ENTRY1

• Cost to enter is low • Licensing is not difficult • The demand is increasing • Supplies are easy to obtain • There is no one company with a large

portion of control in the market

HIGH COMPETITION1

• Very diverse market • Good locations are hard to use

continuously • Conflict with full service restaurants • Trends drive demand • Quality standards are increasing

LOW RATE OF TECHNOLOGY CHANGE1

• Equipment used has and will change very little

• POS systems technologies have improved to allow for electronic payment anywhere

THIS KNOWLEDGE OF THE CURRENT STATE OF THE INDUSTRY CAN HELP WHEN DECIDING WHETHER OR NOT TO ENTER A MARKET. LASTLY, THE ADVANTAGES OF OWNING A RESTAURANT CAN IMPROVE ENTRY INTO A MARKET.

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RESTAURANT POSSIBILITIES

REGULATION AND

POLICY

Ownership of a restaurant when operating a mobile food vending unit allows for many of the costs and procedures to be easily overcome. Much of what goes into the mobile unit are the same supplies being used to run a restaurant.

• The kitchen of a restaurant, if properly maintained, can be used as the commissary kitchen needed to prepare food for the mobile unit. Furthermore, the food and kitchen supplies can also be used to stock the mobile food unit.

• The knowledge of food safety and storage is the same knowledge needed to run a mobile food unit. • The restaurant can be used to store, service, and clean a mobile food unit. • The liability insurance needed for a mobile food unit can be obtained through a restaurant’s insurance

provider. • Implementing a mobile food unit can provide extra revenue and serve as advertising for the full service

restaurant

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IN CONCLUSION

REGULATION AND

POLICY

The mobile food vending industry is still in the growth stage. The market itself is changing, more and more, every time a new operator enters. The demand for quality and diversity is high. The mobile food industry has many similarities with the full service restaurant industry. The understanding of how both of these industries work allows for incite to how the two industries might coexist.

Understanding the mobile food industry comes from knowing the parts that make it successful. Knowing what part of the industry to enter is a very important skill. The classification of mobile units allows for an operator to decide which level of the industry looks the most attractive. Knowing the important costs attached to starting and maintaining a mobile unit allows for educated financial planning. Finding ideal locations can be difficult, but thinking ahead can make a difference. Understanding the industry itself and the policies it accompanies will make quick adjustments possible.

Studying the separate segments of the mobile food vending industry will ensure that every decision is the best possible one.

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RESOURCES PAGE 12

• 1Alvarez, Andrew. “Street Truck Vendors in the US.” IBISWorld Industry Report 72233, October 2015. Web. October 23, 2015.

• 2“Food Trucks 101: How to Start a Mobile Food Business.” Entrepreneur.com, July 24, 2011. Web. October 23, 2015.

• 3“Mobile Food Unit Operation Guide: Guidelines for Food Service.” Chesapeake Health Department, date N/A. Print.