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How to Set-up Low cost Food Joint?

I had been running a food joint sometimes ago, committed lot of blunders and learnt lot of lessons.

I have shared my story here. Lot of Entrepreneurs want to enter into food business but they too tend to replicate my doom story due to lack of experience.

Nothing makes me more satisfied than saving somebody from committing the same mistakes that I did.

So here are the few suggestions and tricks , I am listing down to bring the entry barrier low for new Entrepreneurs.

 

Right Attitude

Most of the Entrepreneurs who want to setup a QSR, do this mistake of having a wrong attitude towards the concept. They brainstorm, think, act, do everything keeping big QSR’s brands like Domino’s, Mc Donalds, KFC, etc. The first step itself goes wrong. Comparing a new idea of setting up a QSR to Decades old established brand is injustice to your unborn QSR. Business environment is very different for such established brands and your unborn QSR.

If you wanna setup a QSR, do it in a new way, be innovative, be disruptive. When you follow a religion you are restricted by traditions, customs, norms, etc, but if you don’t follow then you are a free man. Similarly, if you can isolate your idea from established QSRs in your mind then you can really do wonders.

 

Cash Cow or Brand

From the day of inception of idea, Entrepreneurs spend lot of efforts on making their unborn QSR a well established Brand.

Brand value once earned is not going to be in your kitty like a Fixed Deposit, its like an EMI, you will have to keep paying for it in all terms money, service, customer satisfaction, etc. But while you are starting new there will be inconsistency in service initially because it takes time to adapt, things on paper and on ground are very different, cash flow will also be in short initially as it takes some time to adjust working capital cycle to optimum level. So do you think it’s wise concentrating on Brand building when you have other vital issues to focus.

First goal of a new Entrepreneur must be to make it a cash cow not a brand, do whatever it takes to bring in revenue, you do whatever it takes to keep costs low. Try to enter into positive cash flow as soon as possible. I don’t advice against marketing but trying to imitate the marketing style of Big QSRs is not justified. Marketing should be innovative and as far as possible free of cost.

I agree that some of you may argue that Branding is a continuous process and has to be done from day 1 or else it would be hard to change the perception of the people later on, but then instead of spending money which you dont have on branding, create a cash cow, and then you can always start a new venture with same concept and brand it and you will also have cash cow to support it.

 

Investment

Don’t run after VCs for investment, don’t run after banks for project loan or don’t go for any formal method of raising funds because all your efforts will be futile. Banks will ask for collateral and 3yrs of ITR which if you had then you wouldn’t hv been reading this post to find out how to setup low cost QSR. VCs out of question, consider yourself extremely lucky if you even get a chance to pitch in front of VC, because they want to see sales, customer, scope for exponential return only then they would invest.

Your only option is personal savings, friends and family. By now I have made it clear the need for low cost QSR. You need low cost QSR because you don’t hv money to invest, so better have a modest plan, initially only think of building a base, later on as things progress and you start making money you can start expanding and growing, its the law of nature men when take birth they take birth as a baby not 6.ft tall man, let the process of birth of your QSR be natural. I confidently claim here that a decent QSR can be setup in as low as 1-2 lacs.

 

Format

No matter what is the size of the QSR in your mind, start with kiosk or if you have a decent budget then with a shop not more than 300 sq.ft. Don’t try to accommodate sitting arrangement for customers, take away is better. Dine-in format increases your fixed cost of space and limits your sales as there is a certain limit of how many customers you can accommodate. Even big QSRs are changing their format to take away as real estate cost is haunting them and also sales get restricted.

So in short try to start with a kiosk initially, with less or no sitting arrangement, if you see demand you can introduce home-delivery service.

 

Employee

This is real tough job, finding right person for right job. As a new Entrepreneur you tend to recruit highly experienced chef, or someone working for big QSR brand. But they charge you anything between 10k-20k or even more at times. Entrepreneurs hesitantly pay them to have a quality product and also in hope to get some help due to their experience. I suggest a better trick here. Hire a fresher with no experience, so he will be happy even with 4-5k initially, then hire an experienced chef to train your people and pay him in return, even if it means paying 20k its worth.

Another mistake new Entrepreneurs do is to hire too many people in anticipation of huge no. of customers. And then these employees sit idle and you pay them for wasting their time. Be like a Marwari and Sindhi, if they pay you they will extract each and every drop of yours, they make sure they are getting value for money.

Hire just one fresher whom you will be training for chef and hire another fresher for miscellaneous jobs i.e ask him to assist chef when needed, home-delivery, cleaning, etc. If more no. of customers are turning up then you can hire more people but make sure before hiring that your QSR is running at 100% capacity don’t unnecessarily increase idle capacity.

 

Menu

Entrepreneurs tend to add lot of variety in their menu but don’t forget lot of options confuse the customer. More the no. of items on your menu, more you will have to maintain inventory, more requirement of working capital, more wastage as inventory items are highly perishable in this case.

Start with two variety and few variations in it, for eg you can have 3-4 kinds of juices and veg & Non-Veg burgers. As people start trying out your products, and revenue starts coming in you can introduce more products gradually in the intervals of 3 months and this will help you to hook customers.

 

Total Cost

Lets have a glance on total cost now. Set aside Deposit and rent for the set-up as it will differ place to place but anyway cost you really low if you go for Kiosk.

Equipment should not cost you more than 10-20k if you start with just 2 items on the menu.

Employee if you go according to my trick it will initially cost you max. 20k to train and then max 6k for fresher chef and 4k for other fresher, it total ups to 30k

As you have Kiosk you wont need lot of furniture and interiors, but still lets take another 40k into account.

Take another 10k into account for raw material.

Lets take another 20k for marketing budget including menu, leaflets, gift items, etc.

So excluding Real estate cost you will require a maximum of 1.2lac to start with,

and operating cost will be just Rent + Electricity + 10k(salary).

Plz don’t debate on this exact figure of 1.2Lac, it is a probable figure. Depending upon your plan it may increase or decrease but I can bet if take some inspiration from the above points mentioned then you can drastically reduce your cost to start.

 

Its better to Start small than never to Start!

 

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26 Comments

  1. Profile photo of Karan Pandhi

    Hi Aman,

    Thanks a lot for your post again. God advice for a lot of us QSR Start-ups

  2. Profile photo of Tejas Vishnu Nimbargi

    That was a nice and quick gist of setting up a QSR.
    Better to start small than never to start..is absolutely correct. Was a good read!

  3. Profile photo of Ratnakar Gokarn

    I agree with most of what you have written…..if it is written with a concept of running small business only.

    The problem is starting with a limited capital base which forces entrepreneurs to cut costs on almost everything. Before you know it, you become just another food joint with a banner.

    Before you begin, the real question to ask yourself what do you want to end up as? Are you happy to remain small business or do you want to enter the big league. The dynamics are completely different for both.

    The problem is confusing one with the other. 1.2 lacs capital base burns out very very fast.

    I started with a larger capital base, not in food industry, but I know first hand how fast money can burn. In perishable industry like food, it would  be better to start with a reasonable higher capital base. All the customer cares about is the value they are getting. For every product out there, there are other competitors who are better financed, better products, better service…better everything. If you are compromising on any of them, you will end up competing only on price. This is the worst situation to be in.

    As I said this is from first hand experience in another industry where items can be stored indefinitely. In food industry, it gets worse because its perishable.

    Personally capital raising is one skill that has to be learned as an entrepreneur whether you like it or not.

  4. Profile photo of Aman Jha

    Hi Ratnakar,

    What m saying here is? If you wanna start when you dont hv enough capital then how will you start. Thats why I was talking about cash cow, you can get into big league when you hv capital and experience. Even VCs before funding you will check out your caliber and won’t fund a newbie without any real ground experience which you will gain only after jumping into it.

    So all I am saying if sont hv capital and no experience then how to gain experience and on ground knowledge. As I said ‘Its better to start small than never to Start’ Instead of waiting for years to accumulate enough capital to start big, why not start it today, even if you don’t make money, atleast you will earn experience and knowledge.

    I can talk this because even I hv gone through this process earlier!

    Regards,

    Aman Jha

  5. Profile photo of Divyesh Panchal

    Hi Aman,

    All points very well covered. 

    Read these two articles: http://articles.economictimes.indiatimes.com/2012-06-15/news/32254815_1_indian-food-indian-startups-indian-cuisine    and

     http://www.livemint.com/Companies/R1dLv7AnHZpc8IOtLfUo6J/Organised-restaurant-market-to-touch-Rs28000-cr-by-2015.html 

    Well almost everyone who wants to venture out on its own wants to get into food industry with a basic mindset of presuming that human will never stop eating food. That makes this industry very attractive and to top it up the margins enjoyed over the sales makes this industry more seductive but only the one who gets into it understands the pain to get it successfully operated. Around 8 start-ups (food space) in India are funded and even to start small a threshold level of investment is required: a part goes into assets and a part of it in working capital. Not forgetting to mention the gestation period is also high as compared to other industry (for the investor) and breaking even and turning it profitable would come with 10x amount of patience! 

    And the industry demands too many aspects to handle at the same time (esp for co-founders during the start-up stage): food concept, quality, hygiene, service, vendors, employees, fluctuating raw material prices, wastage, costs, operations, standards, marketing and the list is endless. At a point being the one man army may get you more tiresome than a coal miner slogging for 18 hrs a day. 

    After a particular point from starting up you need to draw lines for responsibilities taken care by you as a founder and delegating the same to employees (or out-sourcing that bit). But the game doesn’t end here with mere delegation. You hire an employee to say prepare juices everyday, for a week he is regular and for some reasons he quits. There you are.. back to square one making juices on your own. Important tip here: whenever possible have back-ups; right from employees to the number of spoons to serve to the no of vendors you work with! Thats what will get you confident for scaling up. Except for the founder of the company, every aspect of food biz need to have an arrangement of back-up!   

    Start by “doing everything on your own” but try to move out of the operations (food preparation, services etc) as soon as possible as it may take up your entire 24 hrs of the day leaving you no time to focus on key aspects of the business where you are required the most. 

    McDonalds, Burger King have become big due to their ages of experience in the industry, Agreed. But what makes international brands expand at much a lightening speed as compared to Indian brand is they (international brands) invest in the back-end (read processes and standardization) whereas we are more front-end oriented (read consumer concentric) Take McDonalds in this case. Right from its burger patty to the bread; everything is outsourced and standardized hence you enjoy the same MC Aloo tikki taste everywhere. Not a single Mc Donalds outlet uses a knife in their food preparation area! MC Donalds rarely changes its menu but still almost all its outlets are flooded always. Value meals and combo meals does wonders in ensuring higher ticket price and operational efficiency. Goli-Vada Pav has done this by standardizing its vada-pav production adopting similar practices and processes. 

    For Indian palette taste comes first rest everything is secondary. But that secondary aspect might be a key differentiation for your start-up. Find out what it is. Let it be mere service or the way you present your noodles, the way you pack your sandwich or the way you communicate your concept. Yogurt Bay is the only India based fro-yo brand rest all being internationally adopted yet its yogurt is most preferred one. Yogurt Bay plays around pretty well with the toppings and gets the idea of consuming fro-yo more seducing than any other brand. That’s their key differentiation. Rest, all yogurts of all brands tastes (and are priced) the same. 

    Where you serve and whom you serve is as important as the food itself. Do not land up selling Viagra in front of an Old-Age Home. A Mexican restaurant will never be successful in Kalyan. Or even a Chinese restaurant restaurant serving its noodles at 300Rs will never work in Kurla. Markets and place decide your price point too. You cant serve Rs.400 Domino’s pizza EVERYDAY by stalling up at the corporate cafeteria which is the most price sensitive food market of all. Understand the key of channelizing your products and not just focus on making your products tastier everyday.

    You cant be a miser to spend a stipulated amount of money on some aspects for your business. If you are a juice company, spending on commercial juicer is inevitable or else you may land up being at the electrician every day with the ‘made for home’ juicer for repair. Moreover, scaling up may require 10 times more the money you actually earned in the first year of your start-up. 

    These are my value add to the post shared by Aman, learned from my one year old start-up: Just Unjunk! 

    Regards, 

    Divyesh Panchal. +91 9619 32 33 34

    OBO JGD. 

  6. Profile photo of Aman Jha

    Hi Divyesh,

    Amazing comment! I completely agree with you and I hope you understood what I was trying to say through this post, all I was trying to do is bring down the entry barrier for new Entrepreneurs who don’t hv capital, experience, etc. So atleast the can hv first hand experience. Whatever you said, was about scaling QSR and about getting into big league and i completely agree with you. But for some of us like you and me who can’t start big, this strategy to enter this biz will work. You did the same thing, I did the same thing, and now as you hv gained experience, you may evn get funded by some VC and then you can make it big. Also, you were right, as soon as possible founders should quit from day to day management and concentrate on Macro issues of the biz.

    And last thing I want to request you is, this comment of yours is so wonderful that it deserves to be a discussion, plz repost this with some frills as discussion.

    Regards,

    Aman Jha

  7. Profile photo of Manish Singh Bisht

    Good key issues higlighted here.. Very helpful!!

  8. Profile photo of Aman Jha

    Thanks a lot Karan for ur kind words!

  9. Profile photo of Aman Jha

    Glad that you liked it!

  10. Profile photo of Gopinath Nair

    hey aman

    Great tips for QSR start ups.

    But you said about being a cash cow rather than Brand name. But people go after Brand these days and it increases the sales too right ?

  11. Profile photo of Fayzad Wadia

    initially only think of building a base, later on as things progress and you start making money you can start expanding and growing, its the law of nature men when take birth they take birth as a baby not 6.ft tall man . . . .

    this analogy is sooooo simple, yet so true !!
    thanks for your valuable experience sharing . . being in Mumbai, almost every person dreams of starting / running an eatery . . on behalf of every dreamer I thank you !!
    🙂 f

    🙂 f

  12. Profile photo of Tejas Vishnu Nimbargi

    I will explain that on Aman’s behalf(based on my interactions with him)

    See, the best way to kill a brand is to build it and promote it hastily. Brands are built over a period of time. So over this period of time you should try to increase positive cash flows and customer satisfaction.

    And according to me you have got this thing wrong,
    people go after brand only after their sales increases…..

    Dosa Plza nd Goli vada pav are good examples!

    Aman, correct me if I am wrong!

  13. Profile photo of Aman Jha

    You are absolutely right my friend! Branding requires marketing, marketing requires money which only cash-cow can provide (unless u hv won million dollar in lottery).

  14. Profile photo of Aman Jha

    Thank you very much! It would be great if people with no financial backing start adopting this business model, the entry barrier will be diminished!

  15. Profile photo of Aman Jha

    You are absolutely right, also m thankful for ur inputs!

    Regards

  16. Profile photo of Bharat Agrawal

    Hi Aman, 

    Thanks for the nice article.  Can you shed little bit light on the legal part.  I am more interested in Kiosk part.  What license have to be taken from Municipal Body or Police or Anyone else.

  17. Profile photo of Aman Jha

    Shop & Establishment Licence is the 1st licence which u’ll require, without Shop & Establishment Licence you cant even apply for other licence. Once you hv it, nxt you can approach FDA or Food Security & Standards, for food licence. Also if you are using stove or gas, you need to procure fire license from Fire Brigade.

    Plz note:

    You can start operations even before acquiring any licence, but apply for Shop & Establishment in the first week, inspector will visit you for inspection and its mandatory that your business is operational. So you need not worry about delay in processing your documents.

    If I hv left out something, then plz point out, and for any further assistance, feel free to contact me.

    Regards,

    Aman Jha

    9892621090

  18. Profile photo of Geetha Ravi

    the best advice for beginners who neither have experience nor much capital.well explained by Aman.Experience speaks.

  19. Profile photo of Akash Agarwal

    great post Aman. and it was nice talking to you today.

    as adviced by you, i am working on the manpower and i feel that it would be better, if i start and make my hands dirty before hiring anyone. so am going to start making some of the items daily at home to get a hang of it and then take it outside.

    Akash

  20. Profile photo of Aman Jha

    Great move Akash! Anyway, in food biz you need to become expert yourself first in cooking the items on your menu…. All the best!

    Regards

  21. Profile photo of Hitesh Bhatia

    I was on Google looking for a restaurant consultant and this showed up.
    Beta bagel mein air dhindora nagar mein

  22. Profile photo of Aparna

    I was working on a idea based in food industry. But gave it up, as I didn’t have a ground on what constitutes what. So, Thanks for summing that up!

    Things I found challenging was – menu and hiring. Seems like you have solved it.! May be i should give that idea another go!

  23. Profile photo of Hitesh Bhatia

    Aparna,

    Am looking for a co-founder in case that interests you!

  24. Profile photo of asha chaudhry

    aparna – hitesh is the noodle town dude! (i call him the noodle guy!) and he’s a rockstar!!

  25. Profile photo of arpit shekhar

    thanks for great insights

  26. Profile photo of Siddharth Jaiswal

    Nice compilation Aman,

    I’d also like to help some these new startups with low-cost (efficient) web presence and marketing without adding up much costs. 

    Your web and social media presence is an integral part of marketing because food joints evidently drive most of its walk-ins from word of mouth and reviews/suggestions from friends.

    This head of marketing could include :

    • Contests on Social Media driving engagement with your food joint’s brand and existing customers.
    • Promoting offers and deals to prospect customers and maintaining a good interaction with existing base.

    When you’re starting with low funds, you should try these low-cost (almost free) promotional channels and avoid costs of advertising in newspapers, foodie networks, etc.

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