The food retail business is popular among Filipinos because it can take on different forms. If you want to pursue your passion for food, you can buy a food franchise, set up your own restaurant, get into food delivery service or manage a canteen business.
Of these, the canteen may provide you the best conditions for earning a profit because of 3 reasons:
- Captive Market – The building administrator solicits bids for canteen operators so that tenants and visitors can have an immediate place for food and refreshments. A canteen provides the building another source of revenue and a captive market for the operator.
- Lower Marketing Expenses – With a captive market, the canteen operator does not have to spend much on marketing and promotional activities. Whether it’s a school, office or factory canteen, most people would prefer to stay close their area especially during inclement weather and heavy traffic.
- Lower Overhead Costs – As many food retailers know rent is a profit killer. The rental rates, especially in the popular malls, can be exorbitant. In some malls, rent is calculated at 34% of gross sales. So if your food cost is 50%, what are your chances of making a profit once you’ve paid off wages, utilities, and benefits?
In the canteen business, you can enter into a consignee arrangement whereby rent is calculated as a percentage of gross sales with utilities factored in. The rates can vary, but they are nowhere near the rates of a commercial mall.
As someone who ran a chain of fast-food restaurants from 1998 to 2008, I know what it was like to operate as a food retailer in a mall, a non-mall location and as a consignee.
Our worst performing restaurants were located inside a mall. In addition to onerous rental agreements, the competition was tight, and the mall-going public did not ring in the registers.
In terms of sales volume, the non-mall location did the best. However, the location with the consignee arrangement turned in the most profit.
If you can land a consignee arrangement for a canteen, you’ve won more than half of the battle for profitability.
Types of Canteens
There are four types of canteens. Each one has their advantages and disadvantages:
Students prefer to buy food at the canteen than eat their baon because they want their meals hot and fresh.
School canteens are busy throughout the day. In addition to students, they also cater to parents, teachers, drivers, nannies, school personnel, and visitors.
Unfortunately, you only get busy five days a week and nine months of the year. Plus if there are holidays and school cancellations due to inclement weather you don’t make any sale.
The office canteen gives building tenants and visitors an affordable option to eat hot home-cooked meals without having to worry about time, traffic and unpredictable weather.
In my days as a 9-to-5 employee, I enjoyed the canteen food at the old Royal Match building in Ayala Avenue and Citibank.
Over the last ten years, the office canteen has evolved into exquisite food courts. There are more food varieties, and the interiors are elegant.
While you do get good foot traffic here, business on weekends screeches to a near halt.
If you are thinking of getting into the food court setting, some lessors allow only one concept per tenant which is good for protecting your market. But the rent is on the high side; almost comparable to a mall’s.
With a factory canteen, you are busy almost seven days a week. You cater to a market that could reach thousands of people every day depending on the size and activity of the factory.
Factory owners want to make sure their people are well-fed, so they are usually more reasonable when it comes to negotiating terms. Most will only charge a small percentage of sales as rent which is inclusive of utilities.
However, there is a catch.
You will not be allowed to increase prices.
This will be a problem especially at this time when factors of production are rising, and the Philippine Peso is nearing its worst levels. Your profit margins will be seriously compromised.
Remember, the Philippines is a net importer. The products that you believe are “100% Proudly Filipino” have imported components. And as you know, when oil goes up, everything goes up.
The carinderia is the smaller scale version of the canteen. You see them located in high-traffic areas near schools, government offices and places populated by the informal sector.
Some carinderias are set up straight out of the proprietor’s home. It’s done in make-shift fashion; monobloc tables and chairs within proximity of a stall that cooks the food.
It will not cost much to set up a carinderia, but you will have to contend with customers who want to eat on credit and sanitation issues.
There are also city governments that have very strict zoning rules on carinderias. If you’re operating in an unauthorized area, your stall will be dismantled.
How to Run a Successful Canteen Business
Wanting to run a canteen business and being able to operate one are two very different objectives.
In the first place, many of these canteen consignors award development rights through a bid process. And it can get very competitive. Of course, in the Philippines politics exists everywhere even within private arrangements.
You can never discount the possibility of collusion between the administrator and a specific party.
But if you are lucky; or perhaps blessed is the more appropriate word, to win the award as operator or consignee, here are important steps you need to take to ensure a successful canteen business:
1. Study the Terms and Conditions of the Agreement
Getting the nod to become the new canteen operator over other bidders is certainly an incredible accomplishment. Many food operators are constantly competing to be the consignee of a canteen as it ensures you a steady market of diners.
But off the celebratory pat-on-the-back until you have read the terms and conditions of the Lease Agreement or Consignee Agreement.
As my lawyer advised me when we were reviewing the contract with a popular mall in Makati, “The lease agreement can contain provisions that serve to be ticking time bombs.”
Do not get carried away with the thrill of becoming the canteen operator. The agreement is the document that governs your arrangement with the Consignor or Lessor for the duration of the contract. You have to make sure your rights and interests are protected.
The contract and its provisions are written from the perspective of the Consignor. Thus, the focus is primarily on the interest of one party. Hire a lawyer to review the contract and to negotiate on your behalf. Keep in mind that every contract is negotiable.
2. Research on Your Market
The prospect of becoming the sole operator of food services in an enclosed population should not lull you into a feeling of complacency.
Yes, you have a captive market, but you should know how to cater to their tastes and preferences. Otherwise, you will lose them to outside proprietors or have the administrator revoke your rights to operate.
You should do research to find out what your market likes to eat, and their food consumption habits. Here are a few methodologies you can incorporate in your research:
- Conduct surveys
- Take note of the types of food they eat
- Come up with a close estimate of the average expenditure per person
Surveys are also an effective way of drumming up interest for your canteen. It is an opportunity to get close to your captive market and find out first-hand what they think of your proposed menu offerings. It is a great way to start building up a relationship.
3. Create a 30-Day Menu
Once you have all the information you need, develop a menu that is good for 30 days.
People expect a canteen to serve home-style meals or lutong bahay. They do not want to eat adobo or sinigang every day. People expect a variety of choices from a canteen.
A 30-day menu allows you to plan your daily offerings and at the same time find out which meals are selling faster. It will be easier to coordinate deliveries from suppliers and schedule food preparation. Proper planning and organization ensure you of better food quality and less wastage.
In time, you may be able to figure out your signature dish; one that your market will expect every time.
When I was a high school student in La Salle Greenhills, the signature dish of the canteen was Pork Barbecue with rice and gravy. The plate was literally swimming in gravy. It was delicious!
4. Set up an Accounting System
If you were able to get favorable concessions for rent, your attention should now focus on food cost. For most restaurants especially those with low-priced meals, food cost is the profit killer.
There are many factors that can affect food cost:
- Cost of raw materials
- Cost and usage of packaging
- Cost and usage of disposable utensils
- Cost and usage of sauces and condiments
An effective accounting system can help you keep track of your food cost. Instruct your accounting team to provide you with a food cost report every end of the month. Accounting can point out the factors which are contributing significantly to food cost.
In a canteen business, it is very important to manage your food cost especially in arrangements that prohibit you from raising prices.
Accounting can also down track labor and utility costs. Learning and understanding these figures can help you design systems that can run the canteen business more efficiently.