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Building a Profitable Business Model in the F&B Industry

Oct 27, 2020 | 11m

Gain Actionable Insights Into:

  • Frameworks and concepts that are useful for evaluating and improving your business
  • Long-term planning and target-setting that gives the business a clear direction
  • How to better motivate your team to better execute company goals

Evaluating The Business Objectively

A common problem that persists in the F&B industry is that people who work in food often do so with a lot of passion. Of course, passion is important: having a deep passion for what you do drives the quality of the product you create. But passion also means that you see the world through rose-tinted glasses.

A common product of over-optimism, for example, when operators or investors confuse what they think consumers can buy with making money. You could sell a Ferrari for 10 dollars, and people would buy it, but you would not make any money on it. Having a sober assessment of what people are willing to spend on an item versus what it would cost you to sell it, is important in evaluating whether your business model is even actually viable.

Rose-tinted lenses are particularly dangerous in the F&B industry, as there is a relatively low barrier of entry: many investors jump in and try their luck. However, it is a business which is structured in a way that stacks the odds against new investors and operators. The business climate for F&B is also constantly changing. In Singapore, for example, e-commerce and delivery means that revenue is being moved from malls to in-home, which fundamentally changes profits and cost calculations, especially in rental of outlets in malls.

So, you need to be an optimist to be successful in F&B, but you also need to be a realist. The approach I take in assessing a business tends to be very sober. What are the nuts and bolts of the business? What are the levers we have available to grow our business in a profitable way?

Within the F&B industry, the typical levers that we would consider are: the price point of the menu; the raw materials required to produce the food, and whether they are specialised and require special logistical arrangements, or use generic ingredients; whether staff require significant training to operate an outlet at a high level; the rental cost of a unit, and the cost of furnishings that would go into it, and so on. Putting a critical eye into the nuts and bolts of the business give a good indicator as to the potential profitability of a new business, and the things that work and don’t in an existing business.

Let’s apply this thinking to Four Fingers. In my view, it’s a chicken product that is not particularly low price, but is good value for money. In terms of raw materials, we use generic ingredients like chicken, fries, rice, vegetables, soft drinks – nothing that requires specialised warehousing or logistics. In terms of staff, we do not require many specialised staff, but we do need a strong system that allows people to be trained easily and be deployed in a scalable manner. When we unpack the fundamentals of Four Finger’s business this way, it then gives us a better idea of the levers we can adjust to maximise profit, and ultimately, growth.

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