If somebody had to start a scalable food truck business in India

Product Mangement Interview Case Study

I was asked this question in a Product Management interview so I thought of sharing my view here. This post is not going to cover what permits are required to start a food truck business. There are plenty of resources on the internet that gives detailed information on how to tackle this hurdle. This post, however, talks about the opportunity in the food business, competitive landscape and the thought process if someone wants to start a food truck business.

ASSUMPTIONS

  • There is no prior experience in running any business related to food
  • The founder is good at accounting and capable of tracking cash flows
  • The cuisine/category of the food truck is still not hard locked
  • The founder is aware of the laws and will take care of getting the required licenses to operate the food truck.

MARKET DRIVERS

  • Average daily calorie consumption in 1961 was 2,010. This grew to 2,458 in 2011. This indicates that people eat out more and probably this can be linked to the increase in average disposal income.
  • Women have also started working. With both husband and wife working in the household it is now more common to eat out than it was in the past.
  • With the advent of Social Media, and food bloggers/vloggers, people are now getting first-hand reviews of food they would have not tried by themselves before. This has lead people to become more experimental in their food choices.
  • The complete Indian gourmet food market is valued at USD 1.3 billion and is growing at CAGR of 20%
  • The online food delivery sector is growing at 150% year-on-year and the GMV (Gross Merchandise Value) is estimated at USD 300 million.

MARKET SIZE

As per Census 2011, 43% of India’s population was in the age group of 20–49. The total population in largest 20 cities in India was around 84,200,000.
Assuming population to grow at 1.2%. Therefore, it can be estimated that the current population in these 20 towns is 91,500,000.

43% of Population in the top 20 towns in India — 39,345,000.

In order to find the total addressable market, we can follow the 80–20 rule.
20% of Population in 20 cities = 7,869,000 . Assuming Avg Monthly spend on food outside the house is Rs 1000.

Even with the conservation approach, it can be assumed that Indian food truck business is more than 1.6 B$ in the retail space alone. If we include catering services in events and marriages the total addressable market can be close to 3B$

All factors mentioned above present a decent opportunity if someone wants to venture in a food truck business. Moreover, a food truck can be started in a fraction of money that is needed to start and run a restaurant.

COMPETITOR LANDSCAPE IN FOOD-TRUCKS

This can be viewed on a 2X2 Matric. The x-axis represents Gourmet Vs Traditional Food. Y-Axis represents Healthy vs Unhealthy Food.

In order to better understand the matrix, Let’s map it with food items

  • Traditional & Healthy food can include- Bajra Roti, Dal, Salad and Carrot Juices
  • Traditional and Unhealthy food include -> Chicken Tikka Butter Masala with Butter Nan and Coke
  • Gourmet and Healthy food include -> Mexican Salads, Exotic fruit shakes
  • Gourmet and Unhealthy -> Junk Food

[Rough representation of positioning of Food Trucks. Actual mapping may vary after extensive research]

It can be observed that the number of food trucks in the unhealthy food category are more. This is also because of the market share of restaurants in unhealthy food has predominantly been higher in the whole world. But with people becoming more health conscious and aware they have started to adopt a healthy lifestyle by exercising more and consuming a healthy diet. So the Healthy food category is growing and is still under-tapped with less competition.

CUSTOMER PERSONA

Below is the detailed Persona of one of the customer segment that the food truck should definitely target.

BUSINESS MODEL AND PRICING

As per data 60% of food truck close within the first 3 years of operations. Mainly because truck owners underestimate the costs involved in running the business or unable to manage the cash flow. Food trucks have upper hand with restaurants because they are mobile and they are not bounded by the location. They can go where their customers are. Food trucks can leverage this to improve their asset utilization. I propose the food truck to operate in a hub and Scope model where the Hubs are central Kitchens and hold inventory for the food trucks. This will ensure consistency in the food quality across all the food trucks and better control over the cash flows. It would also bring the raw materials cost down with the economics of scale. This model will be helpful in scaling up the business.

The truck should operate in 3 categories:-

  1. Nutritious juices during the morning
  2. Healthy Traditional food in the afternoon
  3. Unhealthy Traditional/Gourmet food for events/marriages during the night or night markets

This strategy will ensure that the food trucks never runs out of the peak and are available when customers are more likely to make a purchase. This strategy will improve the top line of the food truck. The food trucks should also have POS facility to accept payments by cards, PayTM or Sodex. Below is a detailed strategy of how the trucks should operate in the morning, afternoon and night.

Morning -> The food truck can sell healthy cold press juices and dairy-based products like Turmeric Latte in the morning. They are mobilized outside parks and within big societies where people go for morning walks, Yoga, Gyms etc. The equipment required for this category is minimal and fresh inventory can be picked from the Kitchen Hub every morning. Operating hours can be from 6 am — 9 am. Metrics to be tracked are Avg Revenue per User, Repeat vs New Customers. Option to sell monthly subscription packs to the users. Per glass juice can be from Rs 30–60.

Afternoon -> The central kitchen prepares food every day. The trucks pick up food from the hubs and queue in front of office spaces with heavy footfall in the city. The trucks have the capacity to keep the food hot. The options for the meals or thalis would be rotational and every day. They should capture users phone numbers to send them daily menu on their whattsapp numbers. Metrics to be tracked will be Avg Revenue per User, Daily Active Users, Repeat vs New Customers. The bigger strategy is to activate enterprises and get contracts for operating the canteens as well. Operating hours can be 11 AM — 3 30 PM. The central kitchen and food trucks list themselves with Zomato and Swiggy to get online orders. Every serve can detail out the nutritional value in the meal for eg Proteins, Carbs, Vitamin, Calories etc. Per plate charges can be 100–200 Rupees.

Night -> Cater in parties and events during the night. With estimated footfall and payments received in advance, events are profitable revenue channels. Food served would be more on the unhealthier sides like Burgers, Cheese Fries, Hotdogs etc. The food truck would also operate in night markets where student and young professional footfall is high. Operating hours can be 8 PM — 2 AM. Food served can be Indo Chinese like Chaowmin, Egg Rolls, Chicken Tikka etc. This will have chefs on the truck along with helpers. Avg price per plate can cost Rs 200–400

The downside of this approach is that creating a brand that serves for all three occasions can be difficult. All the 3 brands have to be run from the same truck at a different time of the day.

A food truck with the above business model can earn Rs 3000 per day in the morning ( assuming it sells 60 glasses of juices), Rs 15,000 in the afternoon ( assuming 100 plates sold), Rs 10,000 in the night ( assuming 50 plates)

(Financial estimation and detailed forecasting can be done with more time). Assuming there is a 50% operating margin. Per day earnings can be close to Rs 14,000. Monthly earnings come close to Rs 4,20,000. Maintenance salaries etc can bring profits close to Rs 3,00,000 per month. With a one time investment of 10–20 Lakhs and earnings close to Rs 3,00,000 can be a good option from a financial point of view.

KEY CHALLENGES

  • Maintenance of trucks, parking fees are usually very high and are underestimated
  • Traffic Conditions can be bad bigger cities and can lead to delays in the food truck to reach the destination. The routes need to be planned in advance with strict adherence to departure times to avoid traffic snarls.
  • Transferring food to canteens required manpower. Food truck should start serving retail customers only when enterprise orders are fulfilled. A full-time delivery boy should be at hand for delivering to individual customers in their offices. Using paper and foil based utensils so that cleaning utensils can be totally avoided.
  • No clear guidelines from the government for operating food trucks.

PORTERS FIVE FORCES

[Evaluating the food truck business with Porter’s 5 Forces]

CONCLUSION

With a change in consumer lifestyle and preferences, food trucks can cater to these changes. As they offer quality food at the right place and in the right budget. Setting up a food truck is not a financially daunting task and can start operating with an investment from 10–20 lakhs of rupees. With good market research on locations to serve and connections with connections with event organizers and marriage palaces, one expect good ROI as soon as one starts operations. The business model can be scaled only when consistency of food is maintained across the food trucks and raw materials are stored in cool and dry space so that their shelf life is not shortened.

This article was originally published at Medium

October 15, 2019

0 responses on "If somebody had to start a scalable food truck business in India"

Leave a Message

© Pragmatic Leaders. All rights reserved.
X