I was sitting down at home last night watching the latest episode of ABC’s Shark Tank and to my surprise, two Austin entrepreneurs appeared on the show. The Yung brothers, who operate the How do you Roll? sushi concept, were seeking a 1 million dollar investment for 12% of their parent company which holds all franchise rights to their business. The Yungs ended up getting their investment, from none other than notorious shark Kevin O’Leary.
The entire show got me thinking, are food trucks franchiseable? It’s a hotly debated topic within the food truck industry. Up to date, nobody to my knowledge has been successful at it. That’s not to say people haven’t tried. Calbi tried to operate a “franchise” unit in Austin, TX, only to be fazed out of the market in relative short time. The Sauca food truck in Washington, D.C. developed a franchise pack for potential franchisees, only to close it’s entire operation down a few months ago. If you don’t believe me you can purchase their old trucks on Ebay as of a couple of weeks ago.
So what is the answer? In theory, food trucks should be easily franchisable. There is a low capital investment to start one up. While an initial capital investment in a brick and mortar franchise may cost in excess of $400,000, a food truck franchisee could potentially get up and running for around $100,000-$130,000 (including operating capital). This is roughly one quarter the initial investment of a B&M unit. Food trucks also have fairly limited menus, in part because the food is either prepped on the truck itself or in a commissary kitchen where operators are paying by the hour (the more hours of prep, the higher the rent, the higher the operator’s costs).
Where the waters get murky are when you start to consider the operational challenges of running a food truck. Food trucks are extremely operator dependent: operators must pick and choose where to park, who to partner with, and what events will make them money as opposed to being complete financial busts. The stronger and smarter operators are able to parlay their street smarts into a more profitable business. But isn’t that true of any business, including B&M? Yes and no. Food truck operators have to fight the changing laws within their respective cities as well, something out of their control. A lot of cities are still adjusting to the street food movement, passing new laws as we speak. A more established street food market will likely yield greater returns than a market getting its feet wet (a la Chicago).
I am of the belief that you can indeed franchise food trucks, but the challenges are much greater than those found in B&M. Because there are no uniform laws governing food trucks, franchisors will have to do state dependent research to ensure that franchisees can be successful in their respective markets. Franchisors should only enter well established markets (Los Angeles, Houston, Austin, Atlanta, New York), where franchisees will not have question marks about where, when and how to operate. Just like any other franchise system, once the franchisor can reach certain levels of economies of scale, it can start to mass produce a percentage of its product and ship it out to its franchisees, ensuring consistency and increasing the ease of operation for franchisees.
The question remains, who will be the first one to try and execute a successful model?