I have always been impressed by those that provide meals to our society. Overall, I don’t think they charge enough, but that is just my opinion. It also comes out in the numbers. I have reviewed the books for over 40 different types of food service operations. From franchise based to the hot dog cart, from those that serve quality food to those that buy their food supplies at the local Sam’s Club/Wal-Mart, I have had the privilege of finding out how their business operates.
To me, this is one of the toughest industries to generate a profit. What I mean by a real profit is at year end, essentially, the capital costs are covered and the owner walks away with no less than $100,000. Let’s walk through a simple transaction. Assume we own a sub shop and we sell our sub for $6.00 and the customer buys his soda for $1.50. Total sale is $7.50. Typically if you use average quality food and you pay your labor appropriately, you are looking at a 45% margin. The store makes $3.00 (($7.50 X (1 – costs of 55%)). From this we have to pay for rent, utilities, insurance, facilities, office operations, and of course those dreaded taxes. For the sake of argument, let’s assume that this costs $2.00 (in reality it is more like $4.00, I’ll explain in the future). We make $1.00 for this sub. That means that to cover costs of capital and make a real income, we’ll have to serve more than 100,000 subs per year.
Now, let’s break this down. Assume that you are closed for 4 days a year – Christmas, New Years, Thanksgiving, and your birthday; so we have a 360 day year to sell 100,000 subs. To give you an idea, it is 278 subs a day! Let’s take this to the next level. Nobody is going to eat a submarine sandwich at 9 in the morning. You’re limited from 11 AM to around 8 PM each day to sell your 278 subs. Wow, 31 submarine sandwiches an hour; or one every two minutes. How many subs are you going to sell from 2 PM to 5 PM? I would venture close to 10 and I’m assuming your restaurant is the best sub shop in town. The reality is that you have to sell 268 (278 less the 10 you sell between 2 and 5) subs in 6 hours. Now you are talking about 45 subs an hour. To do this you would have to have a line 12 people deep all day long! I don’t think so.
So, how do you make real money in this business? Over the next several articles (blogs) I’ll explain how you do this. I further explain how to not only make this a lifetime passion, but how you don’t have to kill yourself working 360 days a year to become a successful restaurateur. Act on Knowledge.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
- Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
- Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
- Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.
Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs, tutorials, templates and resources to use when you create your own pool;
- Access to existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.