Business Update - January 2022
Who thought it was a good idea to pilot a brand from a food truck in winter in Columbus?
Hey everyone! It’s been about a month since the last update. I think that monthly formats for updates is my tentative plan moving forward. That cadence seems reasonable for me to achieve, and deliver quality content and updates.
A few things to talk about in this months update:
What is it really like to work on a food truck?
Learnings on operations of Smashburger Sliders
Data trends so far - basket sizes, channel splits
Whats on the radar for next month
Whats it really like to work on a food truck?
I’ve shared some thoughts on this already, but just want to dig deeper here and share learnings with anyone who might be interested in piloting a brand in a food truck, or for anyone just curious to learn how trucks work. Kudos to food truck operators everywhere, as this has been humbling.
Before roasting food trucks, I will say that running this pop-up from the food truck remains one of the smartest things we could have done. It was available, and ready to go immediately. The amount of knowledge we’ve gained is unbelievable - money literally can’t buy experience. We were able to locate in a place that we thought would reach our target customers, and that seems to have proven true.
That said, my opinion is that operating an off-premise brand from a food truck should only be temporary. If you want to grow/scale and make it profitable, I think you quickly outgrow a truck.
One key thing to note is that the complexities of a truck are not cuisine specific. I think that we would have faced the same issues if we had run any type of brand, not just Smashburger Sliders. And with that in mind, I would only advise someone to go the food truck route for an off-premise brand if they were in the same circumstances as us with a truck on hand.
I would not advise that someone considering this off-premise world ever goes out and buys a truck to pilot a brand. At that point, I believe they're better served in a cloud kitchen. Food truck owners need to be mechanics, need to know how to fix equipment, need to know how to manage power / watts being drawn, drive and park a big rig, understand mobile vending licenses and city permits and codes for mobile food, and much much more. In a cloud kitchen this is all just non-existent or handled by someone else, and you can focus on the food and the business.
However, one big thing a truck does allow is a consumer touchpoint. We try and talk to every customer and be super hospitable, we think this is crucial. Some shared ghost kitchens don't give you that option/its really hidden and a shared staff member across tenants. Which honestly is a huge thing to lose if you use a cloud kitchen... But I guess I’ll leave it at that and let others make their own decision. Theres tradeoffs in both models.
What else makes a truck so operationally complex?
Theres 0 room for error. Literally 0. You must bring everything you need. You forget Tots? You aren’t serving tots tonight. Didn’t refill the propane? Its out mid service, and your grills and fryer are done for the night. No more orders.
0 Margin for error means more effort + labor that goes into planning to make sure NOTHING goes wrong. And even then, things will go wrong.
And when it comes to labor - a 4 hr service window from 5-9pm is actually at minimum a 9 hour shift from 2pm to 11pm for at least 2 people, and then a 4-11 shift from at least 1-2 more. A fair amount of that labor that almost all disappears outside a truck. Our schedule is basically:
Theres of course a million ways to make the operation work a little bit better than what i’ve described, but theres always going to be significant wasted labor, and labor is expensive. With a food truck, we sometimes feel like we're more of a logistics operation than we are a food operation. And its annoying.
Learnings on operations of Smashburger Sliders
2 key buckets I’ll cover
Prep time / Cook time
Station utilization / bottlenecks
Prep Time / Cook time
Its not rocket science - simple math that shows its more tedious to do sliders than regular burgers.
For example Mr. Beast Burger does 1 bun, 1-2 patties for a single order. We do 2 buns, 4 patties (ours are smashed doubles), or 3 buns 6 patties. Right away its just more handling, prepping, portioning, toasting, searing, etc to fulfill a single serving.
1 cool thing about this though is that it creates a naturally harder barrier to entry. Figuring out the best way to operationally handle this has been a challenge, but we're humming now. We've gotten 10x better than opening day, probably more. And if other experienced restaurant operators look at this, they'll be really impressed if we were to tell them the volume we do considering its SLIDERS, alongside high order accuracy rates.
This makes labor higher. One tradeoff we're actively exploring is trading labor for increased food cost. E.g. instead of 1 person scooping a chub of beef into meatballs, instead buy pre-portioned beef at higher cost. I'm ok with letting food cost go up to trade off labor cost when the math is compelling.
Don’t get me wrong, I don’t want to completely extract people away from the business. People are critical to our operation, and I want the people we can bring on to be taken care of. But as everyone in this industry is seeing, people are hard to come by. So where its a redundant task with a clear cost trade off that we CAN move away from weekly labor, we’re interested.
The risk there is that we are now dependent on an external party to consistently get our requested order/preparation done and shipped to us in time. Which is not a risk I like taking on, but its probably easier to manage than the labor market.
All of the above is probably why virtual brand companies like VDC and nextbite don’t get into slider world… High labor complexity makes a decentralized operation even harder.
FWIW I’m not bullish on “virtual brands” the way they are spun up today, attached to a celebrity, and scaled to 300 locations overnight. Doesn’t feel sustainable, and the food quality is poor. The network is too distributed with no oversight or incentive to cook the food right, or delivery a great customer experience.
Andy and I have talked about licensing out our concept, but it would need to be at a smaller scale and with significantly more checks on quality/accuracy to be considered. For example, we could choose to only license it to a tightly knit group of other operators we know and trust in our local markets (which I think could a viable path for us) that have underutilized space/people, and would have an incentive to stay on top of quality and output because we literally know them and its a personal relationship. We'll explore that if we can ever hit a critical mass of orders and the brand has some REAL staying power.
But it makes our general growth plan in the meantime more of a restaurant play that hacks digital acquisition, then uses "virtual" principles to scale locally instead of "lets make a brand and scale it to 300 locations and grab as much volume as possible" play. And I actually think our model is the more sustainable model, or at least one that we can compete in.
Station utilization / bottlenecks
Other thing we're seeing is that demand matching the labor needed across service hours is tricky. During slower hours, we need 2 people to run the show, but during peak hours, we absolutely need 4.
The tricky part is that while we need 4, not all 4 are at 100% utilization. For example, the utilization per person might look like
Grill person is at 90%
Buns/builder is at 75%
Tots/fry guy is at 50%
Expo is at 50%
Nobody is maxed out, but they HAVE to remain separate because combining them becomes infeasible (stuff gets missed, too much task switching, food gets burnt, wrong stuff goes out, etc).
Key insight we realized: Cutting labor isn’t the answer here, increasing topline to maximize utilization is the answer.
I think that nugget is antithetical to most kitchen operators that live or die by keeping costs and labor as low as possible. Plus the marketing side is what I think is fun, so increasing topline is a game I WANT to play.
What I like about the above realization is that it could make for a natural next step for us - layer in a concept that utilizes the 50% folks and bring demand and top-line up while keeping staff costs during service fixed.
Or layer in a concept that is prep-heavy vs. "needs to be cooked as orders come in".
Not clear which cuisines/concepts we'll pick next, but these strategic insights will help guide us to choose the next one more intentionally. Those concepts also need to be a fun story, economically viable, travel well, and marketable, etc... but we already knew that.
All in all, by running things in the truck, we are now WAY more informed when we need to make future decisions. It kind of validates the vision that we see of being fast/agile in creating brands that better utilize existing kitchen operations, and leaning into that to acquire digital customers at a faster and more economically efficient rate.
The above is very hard for someone like a Buca Di Beppo or Rallys or Chili's to be able to do.
The good stuff - DATA
We’ve done 6 weekends of service. Heres what we’ve been able to accomplish:
Basket Sizes - on all data since 12/2/2021
Doordash - $27.55
Uber Eats - $25.03
Grubhub - $22.45
Our own website - $33.10
Most QSR’s for burgers are between $18 and $27. We’re at the higher end of basket sizes on 3rd party apps, and significantly higher through our own channel.
We don’t know why that is. Based on looking at the item mix of what we sell 3rd party app baskets vs. our own baskets, it could be that the profile of eaters on a 3rd party app are more individuals, whereas the profile of eaters that order through our website are more groups/families, which means that our own channel will always be higher.
It could be that the primary customers on 3rd party apps these days are people that eat the most frequently, and are members of Dashpass or Eats Pass, and they order many meals per week at a small basket size, vs. the folks that order from a restaurant directly maybe order delivery less, but when they do they splurge. Therefore, the economics of dashpass or eats pass don’t make sense for them, and that might be why they’re more inclined to order directly from a restaurant.
I’m just speculating here. No idea.
Channel split - number of orders coming from each channel since 12/2/2021
Our own website - 81.6%
3rd party apps - 18.4%
I’m curious to see if we can keep this up. Its absolutely possible that our first customers are our best customers, and our best customers know to order from our site, and the splits I’m showing above will only get more balanced/worse over time and trend toward a 50/50 split if we continue to sell through third party apps.
It could be that as we grow and we hit a wider audience of people that are less engaged (haven’t followed us as long, don’t know our story as well, etc), they will just order from whatever channel is most convenient, and that might be 3rd party apps.
Also, as we get more reviews on these apps, and those reviews are 5 stars, and more people start clicking our storefront on these apps, I would assume that the algorithms that power the search/display ranking within the app learns from this and will start to show us more often. These apps seem to have feedback cycles that build on eachother and can boost or hurt your listing based on past performance. This is all a hunch, I’ve never worked at these companies.
Time will tell, but my takeaway is this: It IS possible to drive orders to your native channels when you’re just starting out. Digital marketing works, genuine storytelling works, and creating an EASY online order experience works.
Whats on the radar for next month?
Good and bad news, I think!
The good news - we think that we’ve proven the things we set out to prove. I wrote about our “unknowns we hoped to solve” back in October. And now, we can pretty confidently say that:
We know what its like to take a brand from 0 to 1
It seems like we are capable of creating and sustaining demand (in the middle of winter, from a 192 square foot box)
We know how to do this with 100% online orders and a focus on takeout and delivery
We can effectively drive people to our native channels instead of relying on 3p apps
We know how to design something that is better than what exists on the market, and that people want
We have a really deep understanding of the economics of a single delivery brand in a leading category
We have written a repeatable playbook to building a social presence
We’ve proven we can acquire customers and retain them and get repeat orders
We have a really strong idea on which marketing tactics work and which dont
We stumbled across things we hadn’t even thought of, that we now can use to make better decisions moving forward!
The bad news
The cost structure of running this through a food truck is not great (but tbh we knew that going into this)
Breaking even is a good outcome, and thats without paying myself or my brother(s)
Theres a lot of wasted labor
The operation itself is challenging in its current setup
Forecasting is basically impossible with minimal service windows and many different variables that change weekly
Theres an upward capacity constraint of how much we can feasibly sell in a small service window and tiny truck
Theres a limit to the amount of food we can bring each service
Theres only 3 days of service, and prepping to par is very hard
We are getting no scale effects at all (packaging is one of the first places we’ll see this start to kick in)
Based on the above, our conclusion is that the food truck pop-up will be ending on 3/5 as planned, and we do not plan to extend it because it wouldn’t make business sense.
We believe that for this business to work, we need to quickly get into a more permanent location where we can actually start to streamline things, and where we aren’t capped by the limitations of a truck.
Our options are pretty much:
Go into a cloud kitchen - still not interested for many reasons
Buy a building - too capital intensive / doesn’t make sense right now
Build a new building - too capital intensive, too much time (even if we go the container/modular approach with a pre-fab kitchen)
Lease an existing restaurant - lowest immediate capital needed as it would come with essentials needed for a kitchen, but long term commitment and personal risk on the lease if we can’t include a sublease clause
Lease an existing retail space (non-restaurant) - more capital would be needed to get the place how we need it (grease interceptor, kitchen equipment, etc), then same risks as #4
Of course i’d love to own a building, or raise a ton of money and buy some pre-fab kitchens and drop them down and start selling in 3 months. But thats just not very realistic yet. That might be realistic after we get a full year of service under our belt and clear profitability metrics or line-of-sight into profitability, and IF we can/want to raise investor capital.
Which means that, surprise surprise, our likely scenario is #4 or #5! Same as every other restaurant owner! Grow out of a truck, and into a brick and mortar leased location. Its either that or we shut down the operation… and we don’t think we want to do that just yet!
That said, obviously nothing is a home run even with the massive success we are seeing with our product and our demand in this pop up. Finding a space to lease as outlined in number 4 and 5 come with all sorts of wrinkles that we need to figure out, such as:
Lease options available on the market and on what terms
Amount of money it will take after any TI budget allocated
Financing options to make that happen - debt service? friends and family round? Other creative options alongside more founder capital? Take on external investment?
Demand projections at 5-6 open days a week and expanded service hours
Profitability projections with lease payments, expanded headcount, and potential debt service
Payback periods on any investments if we choose to take those on
Runway of owner capital (me and my brother) and potential salary needs (going on 7 months no pay so far, will be at 9 months no pay in march, need a clear path or end game if we proceed or else our significant others will not be happy.)
Start with just expanding Smash Brothers, or start to R&D a second brand and launch with 2 or 3?
And no, we don’t think its sunshine and daisies inside a brick and mortar. We both have experience working inside them (me just as a dishwasher, my brother for many many years).
But it changes the set of problems we need to solve, and those problems in a brick and mortar we think CAN be solved in a more viable way than a traditional restaurant because we have a radically different approach to creating and sustaining demand and selling multiple concepts.
We can get away from food logistics, and 100% committed to the 2 critical factors to get this right:
Marketing to acquire new customers
Amazing food to get them to order from us again and again
So its basically Go or No-Go time in Smash Brothers world. And theres a lot we need to get in place if we want to keep going. So we are heads down on that Monday-Thursday evening, and then serving sliders Thursday evening to Saturdays.
Going to be a busy 5 more weeks of the pop-up but we’re optimistic we will figure something out… And if we don’t, this still has been a blast.
We get 5 star reviews on google daily, from people that we don’t even know. We have repeat customers. People love our food. They love engaging with us on social media They love our experience. They tell us we’re like a hybrid of In-n-out and Shake Shack!
And those things are all invaluable and a cool piece of our life story no matter what happens next.
Until then, back to work!