Restaurants are notoriously low-margin businesses with the high overhead costs of rent and labor. And yet if you’re a food maker or culinary entrepreneur, having a brick-and-mortar isn’t the only route to doing business. These days, it’s easier than ever to test your idea and see it to fruition, whether it’s seasonal bento boxes or artisanal kombucha. Thanks to an influx in commissary kitchen space and technology that makes it simple to take orders and facilitate deliveries, the local food and drink market is ripe for innovation. We’re calling it The New Food Economy.
Starting Up is Easy as 1–2‑3
For those who were starting delivery-only or wholesale concepts five years ago, available kitchen space to operate out of was few and far between. Now the options for “ghost kitchens” are endless, with companies like REEF and CloudKitchens providing the physical infrastructure to help small food businesses scale in many cities across the country. That’s in addition to a growing number of local options where you can rent space by the shift or hour, such as Brooklyn’s Cook Collective and Hatch in Richmond, VA.
On the tech side, you can take on-demand orders for pick-up using a product like Square or Toast and outsource your distribution through delivery apps. (If you’re hoping to streamline your production and eliminate waste, a more ideal model would be to facilitate pre-orders — more on that below.)
This means that all you have to worry about is making your food, and making it delicious.
Nailing the Economics
The downside of the New Food Economy is doing everything yourself, and so you have to make sure that your business is sustainable — both in terms of time spent and profit made. The math is what matters. If you nail down your economics from the get-go, you can set yourself up for success and build a solid business that generates as much money (if not more than) you were earning previously. Here are the key factors to work out:
- Produce a high order volume
- Establish a high value per order
- Ensure your unit of economics on delivery makes sense, so that you’re not losing money
- Keep a low overhead in running your business
For example, let’s say it takes you 6 hours to produce 100 pastry boxes, which you sell for $30 each, and the cost of delivery per hour is $15 (for simplicity’s sake, we’re assuming that you rent a kitchen and don’t have employees outside of delivery people).
Since you’re taking pre-orders, you’ll be able to limit your food waste, further driving down your ingredient cost. Whereas the industry standard for labor + ingredients might be 30–50% of the final sale cost, you should target 20–25% given your efficiency and low overhead.
With $3,000 of revenue (100 x $30 per box) and a lower cost structure, it’s easy to return a profit margin of 65%. Check out our sample bakery unit economics. The way we see it, these numbers significantly surpass traditional food margins and open up exciting new possibilities for creative business models.
The Future: Taking Pre-Orders and Building a Text Community
Not all food businesses are destined for on-demand delivery. For bread bakers, wine sellers, Vietnamese meal kit makers, and more, there’s a lot of opportunity for success with a business model rooted in pre-orders — this is where Bottle comes in. Pre-orders allow you to drop weekly menus, enable cut-off times, eliminate food waste by only procuring what you need to produce the orders you’ve taken, and streamline your schedule.
At Bottle, we believe that pre-orders are the most powerful when paired with SMS communication. When a customer makes their first purchase, Bottle gives them the opportunity to opt-in to receive text messages from you, including order updates and future menu drops. Everything happens over text, which allows you to meet your customers where they are (their phones) and maintain a relationship with ease. If they have a question, made a mistake, or want to add to their order? You’re just a text away.