For ten years I was in the food business. From 1998 to 2008, my family and I operated a chain of hamburger stores that were franchised from the United States. Like many Filipinos, I wanted to start a small food business in the Philippines. Seeing the long queues and over-worked cash registers made the food business seem like a “can’t miss” opportunity.
But those ten years represented some of the hardest struggles of my life. Running a restaurant is not easy. When I hear people say managing a successful restaurant is all about serving good food and extending good service, I just shake my head. They don’t know the half of it.
In the United States, the failure rate of restaurants has been measured at three out of every five or 60%. Many reality shows on television feature failing, near-death restaurants resurrected by popular chefs such as Gordon Ramsey (“Kitchen Nightmares”) and Robert Irvine (“Restaurant Impossible”). While these shows do not necessarily reflect the state of the restaurant industry, they do show how difficult and unforgiving the business can be.
There are so many variables in the restaurant profitability equation. Good food and good service only cover the revenue side. Meanwhile, food cost, rent, wastage, pilferage, and salaries cover part of the expense side. We haven’t even touched on the behavioral side of the restaurant business. This includes personnel attitudes and behavioral patterns, customer relationships and the entire value chain: suppliers, vendors, landlords and contracted service providers.
Despite these challenges, more and more restaurants and food concepts are opening in the Philippines. Go to a mall, drive to the business district or even when you pass the last corner before you turn into your street; chances are you will come across new restaurants opening up.
So I decided to find out why. In my research I sought to find out the answers to these questions:
- What are the current trends in the industry?
- Which concepts are people lining up for?
- Theoretically, how profitable would these restaurants be?
- Is the “Branding Argument” still valid today?
- What qualities are people looking for in a good restaurant?
- Why are more restaurants still opening?
My methodologies included the following:
- Social media marketing. I define social media as digital “Word-Of-Mouth”. Who hasn’t been influenced by a post to try a new restaurant or coffee shop, right? I made a list of the most recommended restaurants from friends and focus groups. Then, I would schedule a visit to these restaurants on weekdays and weekends to assess the quality of food and service.
- Interviews. I would conduct random interviews with some of the customers, service crew and the store manager to get an idea of their preferences plus their viewpoints on the business and the industry.
- Time-Motion Analysis. The purpose of time-motion analysis is to measure the efficiency of the restaurant. This covers the ordering system and the time it takes to have the food served from the moment payment is made.
- Random surveys. Old habits are hard to break! This is what I used to do when I was running a restaurant. I would visit a competitor and do an accounting of the average check per customer.
- Food sampling. My preferred research methodology! Of course, I had to sample the food served. I would order one of two items: the most basic or the most recommended.
The results of my research formed my opinions on this piece. I just want to make it clear that I cannot identify the restaurants sampled in this article because this is not an advertorial. I can only go as far as describe the food and the concept.
The answers are dispersed throughout the different stages required to start a small food business in the Philippines.
First, let us define what we mean by “small.”
A small business in the Philippines is characterized as having low capitalization, low gross annual sales, and small manpower complement. So for the purpose of this article, let us forget the large-scale foreign and local fast food franchises where the required capitalization will exceed Php20 Million.
The food concepts I visited include:
- Dive-type or “hole-in-the-wall” establishments.
- Delivery concepts.
- Out-of-mall restaurants
- Food booths in well-patronized markets.
I estimate the costs of setting up these restaurants range from Php50,000 to Php2 Million. Costs include capitalization expenses, initial inventory and working capital for three to six months.
Some of these were small businesses that grew to become local franchises and the rest are local concepts that for now have no plans to franchise.
With these in mind, here is how you can start a small food business in the Philippines:
1. Define Your Concept
Product differentiation is critical in today’s highly competitive food retail market. You need a concept that will give your customer greater value.
I’ve noticed that many new concepts are focusing on customizing their products according to what the customer wants.
People think this is a great way to make the customer feel like he’s in charge and he is. But the intrinsic value of customization is that it is a great way for the restaurateur to improve his profit margin.
Everything starts out with the basic ingredients: burger patty and the bun or a pizza crust. Then you choose the toppings on your product: bacon, egg, cheese, pepperoni, mushrooms, BBQ sauce, chili; it’s all fun, and you are in control of what you want. But these toppings carry a healthy profit margin with them!
Customization is a smart concept for a restaurant because you give the customer flexible pricing options and at the same time protect your profit margin.
2. Develop and Test Your Product
Before you decide to push through with your food business, you have to develop and test your product first.
Always have the main product in your concept. If you are planning to start a Mexican-themed restaurant, perhaps create a signature burrito and store made corn chips.
Identify your Buyer Persona and create a few beta test groups. Come up with at least three versions and have these tasted by the beta test groups. Collate the surveys and interview the beta test groups on their experience with the different versions.
You must be prepared to have an extended beta-testing period because you want to fine-tune the quality of your product. The final version will determine your food cost.