Deli Sandwich - ©

Food-O-Nomics: Bad Time To Open An Eatery?

So, I’m reading the Business section  this morning and find a big story on how the restaurant sector as a whole is floundering as the economy as a whole stagnates under the oppression of unconquerable household debt, ridiculous bank fees, rising interest rates and rising food prices.

Sandwich Shop - © thesandwichshopbk.com funky little neighbourhood Sandwich Shop.

People, the experts conclude, can’t afford to ‘eat out’ as much as they used to. D’oh!

Latest figures from Those Who Say They Know indicate that the restaurant sector as a whole saw negligible growth month-over-month, year-over-year in 2016. Only a small increase in Fast Food consumption has made a meager 0.7 per cent growth possible at all. Of course, folks in the food service industry have seen this coming for a long time.

But the news (reality) hit me really hard. These latest industry reports tell me it’s the worst possible time to open a restaurant of any kind, anywhere in the Developed World. That’s because just yesterday morning, my sister and I got talking about opening a restaurant in our own neighbourhood.

Against all odds…

We were out early in the a.m. walking Riley, our faithful but quirky Rescue Dog, when we passed a new mixed-use building on our route. Several of the eight ground-floor ‘bays’ have already been snapped up by professional offices – a Realtor, a Driving School, a Physiotherapist. But one prime end unit that includes a 600 sq. ft. / 55 sq. m side patio space and is being touted as ‘Perfect for a Café or Bistro’ remains unclaimed. We’ve had our eye on this space for a while but were, until recently, dissuaded from serious thoughts because the property was being marketed as a condo-purchase deal. But yesterday morning, a new sign was posted saying the owners (desperate to fill up the building) will now consider offers to rent the commercial spaces not already filled.

Running the numbers…

Not knowing how much rent the landlord wants or how far he might bend in negotiations, and not knowing how much of a ‘build’ we’d have to finance to get the place open, we talked ball-park numbers and weighed those against the potential market.

How good a spot? Two high schools within five-minute’s walk with a total of 1,500 kids enrolled, at least half of whom dine off campus at lunch. And the spot is surrounded by about 1,500 residential units of all sorts an easy walk away. The location is also within two minute’s walk of a major transit station, right on the main route to that facility. Get them for a Coffee and Bun coming and going from their daily commute!

We figured the best bet would be a Sandwich Shop with an 80 per cent take-out sales profile.

We figured we could sell 500 Sandwiches a day at an average $7.00 each, for a total of $10,500 revenue, plus another $750 per day in Beverages, Pastries and Packaged Snacks (Potato Chips, etc.).

Total projected revenue: $70,000 per month…

But that’s only the top half of the story…

We figured the rent would probably be $15,000 a month at least. That’s $25 per sq. ft. It’s a new building in a pretty good location. But it is in the burbs with no office towers full of hungry cubicle workers anywhere in sight. It’s ‘B’ Class space at best. And the landlord seems desperate…

We figured that it would cost about $50,000 to equip and decorate the interior space, and populate the patio with tables and umbrellas. That cost we’d finance and repay over, say, 5 years. That would cost about $1,300 per month.

We figured that recurring operating costs such as utilities, insurance, taxes, permits, business licenses, cleaning services (uniforms, floor mats, windows, etc.), signage, disposable paper goods (packaging) and waste removal service would cost at least $10,000 per month.

Add in a contingency fund contribution of $1,000 to pay for equipment repairs and other unforseens.

Then came the big cost factors: Staff and Food

Add in $3,600 per month for part-time counter help.

Add in $2,500 per month for a business manager / accountant.

We figured that each sandwich would cost in the neighbourhood of $5.00 to make. That mounted up to a monthly cost of at least $10,000 per month for basic ingredients.

We figured Beverages (Canned Pop, Coffee, Tea, etc.) would cost in the neighbourhood of $6,000 per month and Packaged Snacks would also cost somewhere in the neighbourhood of $6,000 per month.

So… That all adds up to a total estimated cost to run of around $60.000.

Now for the Great Reckoning…

That leaves (drum roll, please) about $10,000 a month gross profit for Erin and me, or $5,000 each. That’s about $60,000 per year, gross, but only about $40,000 after taxes, each.

And, after all that, we’d have to look at the possibility that the landlord would want a little more than we thought the space was worth. Not to mention the continuing increase in the cost of food, utilities and other operating costs. Well, everybody else has the same problem, so we’d raise prices along the way – cautiously.

And all of the foregoing depends on both Erin and I staying healthy and able to work. Extra hours for part-time counter help could really impact our take-home pay. No matter how you look at it, it would never make us millionaires.

So… It looks as if the deal could fly…

But there remain a lot of soft numbers and unknowns that could sink it. I’m serious – no, curious – enough to to call the agent handling the rentals today to see what they’re think the space is worth.

I’ll let you know the outcome of all this rampant speculation when I know…

~ Maggie J.