So I’ve now been told at least 4 different things about how long it takes your average deli to be profitable. One year, two years, three years and right away or not at all.
I tried google, but can’t find anything. Does anyone know if there are any stats about this?
I don’t believe there is a strictly factual answer for this. There had been a lot of misinformation floating around that was debunked.
The food service industry is tough because there are some pretty steep initial and fixed costs (rent, utilities, etc) as well as loans for places that made renovations and bought fancy equipment. Then once you start selling food you typically have 25% food costs along with at least 25% labour costs.
So to be profitable, you need to be selling enough food (or at a high enough margin) to pay for all that and THEN cover your fixed costs. Some places get lucky and hit on early success. Most take time to build a reputation and customer base.
The all too common scenario is a place is initially popular with high sales, but fails to manage their food costs. As a result they aren’t making enough money to cover the fixed costs and slowly bleed. When they realize this they start cutting back on food costs and labour costs resulting in a lower quality product and then lower sales.
Then the health department shows up and tells them they need new walls…
So like I said, I don’t believe there can be a specific answer to this question.
Isn’t this information in the business plan you wrote up before you opened the joint? Both general industry stats and ones more specific to your area and your menu should have already been generated.
I’d say you should start that business plan now. Better late than never.
If you are not hooked up with your local Small Business Administration and USDA Extension Service, you should be. They most likely have detailed information available for food-related businesses where you live.
Why would you think there is one average to a question with as many variables as this? Wouldn’t a range be much more likely?
Yeah, I realize that there are a lot of variables so I wasn’t too surprised that google was not a lot of help, but the folks advising me seemed so confident that I thought I’d ask here.
Thanks for the links Hello Again.
I need to do some better cost analysis. Our averages are improving, so I guess that’s the trend I should care about.
Thanks all of you.
Also, what do you mean by profitable? It’s quite possible for a business to be covering its expenses and showing an accounting profit, but not really be profitable if you take into account the opportunity cost of the capital and the owner’s time.
If different sources are using different definitions of profit, that would explain the disparity.
A related question or observation: the number of taco, et al. trucks that have been popping up are definitely one way to decrease the initial capital and to develop an earlier income stream. It seems many of these successes are transitioning to more traditional restaurants after developing a solid customer base. Seattle Food Trucks effectively acts as a menu for your area for each day of the week. So would you think that these are on the lower end of the time scale to profitability?
I was just at a fundraiser in which food trucks were contracted to “cater” the dinner. It was a lot of fun and the food was even better than usual as I think they were trying to attract new customers.
Wait - the OP actually owns a deli? And didn’t have a business plan?
Dude, how did you get the loan to start this thing? Don’t banks want to see a business plan?
Most people don’t have business plans.
And, especially in this economy, most don’t have bank loans either. You just can’t get one for a new business. It’s much more common to see people funding it via their own personal cash, leases, credit cards and seller-financing.
In fact, the point of the number of years that the OP asks about is that the initial financing for the business should operating capital for a couple of years, including an owner’s salary. This is what a bank would expect you to ask for.
For the OP, I would echo everything emacknight said.
My business was launched with my own money, I also started by working from home. This is why catering can be an attractive option at first, much of the equipment can be rented on a per job basis and it costs very little when you are not actively involved in a customer project.
Most small businesses fail. Food is even trickier. You have high capital costs plus it isn’t like lag bolts - food goes bad. Depending on the location, getting workers may be hard. I worked at a year round restauarant in vacation area and come fall all the college kids (including me) left, making it had to find competent people (even for low skill position like dishwasher)
My brother started a restaurant (with a wealthy backer) and I don’t know how long it took to be profitable, but it was quite a while before my brother was working < 80 / hrs a week.
Brian
No loans, we used our own funds. We did a business plan in order to get the lease, but it focused more on us.
In hindsight, I realize this was a stupid question. :o
It’s not a stupid question - it’s not necessarily well-phrased, and this probably isn’t the best place to get a good answer for it, mostly because the answer going to have so many factors based on your location, your type of business and lots of other factors.
The better places to ask are those linked by HelloAgain and WhyNot on a local level, as well as potentially your local public library - they may have the resources to find this information, or know other local agencies that can help. For example, if you were in Seattle, I’d point you hereas a starting place to find resources to help you answer the question in a way that’s actually helpful to you.
Thank you. Yes, badly phrased. I’ll take that. 
Something that might be more useful for you to think about - What do you expect to change between now and the time you’re profitable?
In your first post you conjectured that it might be either immediately or never. If it’s not immediate profitability then what has to change to keep it from being never-ever profitable?
I’ve never run a food service business but I’ve run other businesses and I would be thinking about profitability in non-chronological terms. Are there any fixed costs you can cut to make it easier to be profitable? Can you cut food costs without hurting your product?
If not, then you need to sell more, but how much more? I’d much rather know that I need to serve on average 50 more lunch customers a day than I am now to be profitable. Then I can strategize how to get that many more people in. I can even speculate how quickly I might be able to make that happen, which seems a lot more useful than how long it took other businesses.
Thanks, Fuzzy. I’ve spent the last day looking at all sorts of my figures. I know that’s what really matters.
We had our first event in the courtyard and lost some sales because we don’t have beer and wine. So, we’re going to change that right away.
Given the failure rates, I think any average is going to be less than zero.
This article in Business Week found that 25 percent of restuarants close within the first year, and sixty percent close within five years. Here’s an academic study (pdf) by economists from Ohio State University that found similar numbers. (I realize that restaurant <> deli, but the content is still relevant.)
And i’ll echo what **Fuzzy **said… a move towards profitability isn’t simply a matter of time. It’s about changing what you’re doing now to do better.
Good luck to you.
What I don’t understand is the “work from home” aspect of some food businesses. More and more TV programs featuring chefs make mention of “home Internet-based” companies.
How do these home-based businesses get around the need for a proper food service kitchen and food handler certifications?
~VOW