As a business broker for better than a decade, I have a unique insight into what makes businesses succeed and fail. Recently, I sold a business that was unique in that it was profitable in when most of the other businesses that I have encountered in this vertical fail. I thought sharing the success would be helpful….and I like telling success stories.
So, the subject business sold ice cream and ……Hot Dogs. When the business was created the owner (who owns another totally different concept that is also profitable) looked first at the ….wait for it…..LOCATION.
LOCATION: That’s right, location….high traffic, foot and drive traffic, close to schools, retail shopping, and in a residential area. Now when he was thinking of a business to put in the space he had no original concept but let the LOCATION drive much of the decision making. Recognizing the residential, schools, and other restaurants in close proximity he decided on ice cream as it would capture children (and parents), as well as draw from the other share of stomach points of sale in close proximity, while equally drawing from the residential housing close by….genius. First Lesson…..ACCOUNT FOR DEMOGRAPHICS AND COMPETITION.
PRODUCT: When choosing Ice Cream as the sales item he recognized his employees (teens predominantly) the risk of portion management and risk of free giveaways. Cameras were installed for observation, a pay by weight method of sales was implemented to control the cost of goods, and he recognized that making ice cream cones is pretty damn simple so there was no prep time (the product was purchased from suppliers). Pricing also took into account the square footage and goals per day of sales were factored for sales per square foot to make sure the business always covered that fixed overhead costs. In addition, impulse buying items were stocked and merchandised at high margins oriented toward the target consumer (fidget spinners, trinkets)….after all what mom or dad wouldn’t want junior to be crazy happy with a toy after buying an ice cream.
EVOLUTION AND PRODUCT PAIRING…..shortly after the first year of opening the adjacent unit became available….it was all of 400 feet and the landlord wanted to put in an e-cigarette business. Not exactly optimum placement for the Ice Cream Business. So the owner asked, what could he pair with ice cream that was simple (no prep time), high margin, and fun for kids. Born was the hot dog business. Leveraging technology of steam fryers for french fries and tater tots for side items and roller cookers no capex was needed for the buildout of a hood system. Midday sales in both verticals soared as the traditional evening sales of ice cream was impacted by business professionals and kids grabbing a dog for lunch. Learning Curve for training staff on the new product nil (hot dogs on a roller ain’t hard). The net effect was uptick in sales per customer and not lift in labor but only a marginal lift in fixed overhead for the extra space.
All in all a really smart business that focused on the core elements of restaurant success: Keep your rent as a percent of sales at 8% or less, Control waste and theft (weighing ice cream and pay be wieght controls portions), limit prep time labor (dogs and ice cream pre made limiting labor cost per serving), increase sales per customer (pairing of dogs with the ice cream for the demographic), monitor competition and get your share of stomach by offering what others don’t, incremental sales with upselling or impulse buys (trinkets).
Look for more lessons learned from success stories go forward at Transworld Business Advisors.