Important Considerations Before Starting Your Own Food Business

Singaporeans are foodies. We all love to eat good food and it is our  life’s mission to find the best food available all over the country.  Whether it is  high class French cuisine or our local hawker centre, we  are always searching for the most delicious food to indulge in to reward  ourselves after a busy day of work, or for students, school. Some of us  occasionally bring up the topic of owning our own food business for  ourselves but for those of us who are serious about doing so, do you  know what to consider and the steps to take to enter the F&B  industry? Here is a short introduction of what to take into  consideration before entering the food industry.

Types of food businesses

Deciding on the type of food business that you want to set up is the  first step that you have to consider. Differing food businesses have  different types of strategies that they have to adopt. First you have to  consider the profit margin that you want to achieve with each meal and  the number of customers you want to turnover. We shall now look at the  relationship between turnover rates of customers and the profit margin.

Fig 1: Profit Margin and Customer Turnover Rate

Food businesses in the top right hand quadrant consists of the  Chinese, Indian, Malay restaurants, fast food outlets and cafes. These  businesses sell their food at relatively high profits with a large  customer turnover rate. The top left hand quadrant consists of premium  restaurants, such as fine dining where there are few customers but very  high profits. Bottom right quadrant consists of hawker centres and  buffet outlets. These businesses cater to large crowds but at a very low  profit margin. The bottom left quadrant would basically be food  businesses that will not survive in this business.

By determining how your food business is going to operate, it will  allow you to determine the type of food business you will venture into.  It is always important to consider your expected rate of returns on  investments too before deciding.

Price and quality relationship

The type of food business that you plan to venture into also  determines the price and quality of your food that you will be providing  to your customers. Quality of services is also taken into account. For  example, hawker centres survive on their large customer turnover rates  with their small profit margin for every meal served. The quality of  their meal will meet the minimum requirements for consumption due to the  large pool of customers that they will serve. There will be little  quality of service to their customers too but will be acceptable for  customers to continue patronising.

Looking at fast food outlets and food courts, there is a balance  between quality of food and price. By providing better quality food  compared to hawker centres, they are able to price their meals higher  and have a large customer turnover rate at the same time. Quality of  service is also at a minimum due to the large customer turnover rates.

For restaurants, they provide high quality food and services for  their customers. By providing personalized services to their customers,  they are able to cater to customer’s food preferences. Also, by  carefully deciding on lighting and music, customers are exposed to a  much personalised ambience which entices customers to frequent the  restaurant. At this expense, the price for their food tend to be on the  high side which allows them to have a small customer turnover rate  compared to hawker centres and fast food joints.

Entry strategies for the inexperienced

For the inexperienced that are new to the food business and want to  venture into it, here are a few strategies that you can adopt:
1. Know the business that you are venturing into
2. Sacrificing partial income for the business
3. Grow the business slowly
4. Adaptation

For the inexperienced or no experience, it is important to be willing  to start from the bottom of the business and rise to the top, to learn  the ropes as you go along. The importance of knowing the business from  bottom to up is imperative as it will give you much insight on how to  run your own food business. By being an employee in a restaurant or a  fast food chain, you will be exposed to the operations of the business.  You will experience how chefs and servers alike do their tasks required  in order for the business to run. Ultimately, food businesses survive  and thrive when customers are happy and hence, you must learn how to  interact with customers, know their wants and preferences and learn to  provide them with the services that they will be satisfied with. This  experience will be invaluable when you start your own food business.

Are you willing to sacrifice your salary in order to grow a business?  Some professionals are working full time jobs during the day but at  night they run their own small food business at food courts. With the  incoming salary that they earn, they have enough capital to run a small  food business and support it until it become a viable business venture.  This takes a lot of time and patience before the business takes flight  and it is not for those who expects high returns in a short period of  time.

Start your business small and slowly grow and nurture it. Starting  out, you may be able to rent a small section of a store or a restaurant  to do your business. Keep in mind that this rental cost cannot be more  than 20-25 % of your expected earnings. Sell something that you know  that the community likes, like pastries or bubble tea, and be open to  customer’s suggestions on what to sell. By listening to their wants, you  will be able to reach out to a larger pool of customers, reaping in  more profits for your business.

Always be adaptable. If you are those kind of person who enters  without considering risks, take that step first and then follow through  with it. Learn how to run your business as you go along. Never stop  learning and adapt whenever necessary.

Entry strategies for the experienced

For the experienced, you may want to venture into a new food business  market where it seems lucrative with large potential. You may want to  consider adopting these possible strategies before entering the market:
1. Taking over a business
2. Starting a new business of your own
3. Starting a franchise

Taking over an existing business is one way to break into the new  market. However, before making any hasty decisions, it is important to  know the reason why this particular business is up for sale. Is it due  to its business not thriving due to competition in the area? The  business owner himself was offered a better job prospect elsewhere? Is  the business relocating elsewhere or was there a government policy  implementation that affects your business? It is of utmost importance to  know the reason why the owner wants to sell his business. This will  allow you to be aware of possible business issues and take proper  approaches towards rectifying them. The thought owning a business  yourself is enticing and tempting but it is not wise to make such  decisions hastily without doing your prior investigations about the  particular business.

Starting a totally new business is always a challenge but there are  so many benefits to reap from it. As a boss of your own, you are able to  choose your own business name, location, basically any business  decision by yourself. This gives you autonomy with regards to any  business decision that you make. You are able to build your own pool of  loyal customers and have good relations with them. You are able to busk  in your own innovative ideas and take full credit for its success.  However, nothing comes free of charge and without risks. The risks  involved is that your business MUST be able to enter the consumer  market. Your product must be something consumers want and are willing to  pay for. Without said, your set prices and revenue earned must be able  to cover all of your expenses in order for your business to survive or  thrive. If these basic conditions are not met, your food business will  inevitably come to an end. Thus, it is important to do prior market  research, to know the reasons why your targeted audience might be  currently unhappy with the current supplier and where you are able to  tap on and improve on it.

Buying a franchise is also another alternative to break into the  market. This allows you to build your business around an already  established business name and to have their experience and support.  However, there are misconceptions that buying a franchise will ALWAYS  result in reaping in quick money and that you are able to leave this  business entirely to your franchisor. In fact, buying a franchise still  requires you to work hard and have good business ethics of your own. You  are required to be present at the business venue and oversee its  operations, ensuring that everything is going smoothly and make business  decisions accordingly. One of the most common problems that franchises  face would be employee theft. Hence, it is important to oversee your  business properly and ensure that everything is smooth sailing. Never  assume that such things will not happen to you. If things are not going  well, the franchisor may buy back their franchise at a lower cost to  prevent further deterioration of their brand, leaving you to absorb all  the costs. That being said, the success rate of franchisees are  relatively high as franchisors are very careful on whom they are  entrusting their brand to. They may also provide training for  inexperienced owners before letting them run their franchise.

Your decision

Ultimately, it is your own decision on how you want to start your  food business. Be it starting one of your own or buying a franchise, the  success of your business depends on your own efforts and how much time  you are willing to invest in its business development. There are always  risks involved but with careful planning and market research, these  risks can be mitigated, increasing your success rate in your food  business venture. As writer and actor Ben Stein said,

“You must take the first step. The first steps will take some effort,  maybe pain. But after that, everything that has to be done is real-life  movement”.

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