Impact of high cogs

Discussion in 'The Think Tank' started by pizzaboi, Feb 24, 2019.

  1. pizzaboi

    pizzaboi Member

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    Wanted to get some general restaurant advice

    What do you guys make of food business with high cogs (45%), but still profitable cause of high sales.

    Rev:800k
    Cogs: 45%
    Labor: 25%
    Rent: 60k
    Misc: 5% (utilities, repairs, credit card)
    Net: 140k

    Should I avoid a business with such high cogs, or should I ignore high cogs, cz the business is profitable and still making 140k?

    This is not a pizza business. There won't be any possibility of bringing the cogs down in the near future.

    Was looking for advice from a general restaurant perspective.

    Thank you
     
  2. Piedad

    Piedad Active Member

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    It's all about what's being sold. 45% COGS at a gas station would produce huge profits, for example.
     
  3. pizzaboi

    pizzaboi Member

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    I hear you.

    But this is food business.. It's called poke. It's new trendy Hawaiin raw fish bowls

    The numbers I provided above are fairly accurate

    But my dilemma is should I avoid this business cz the cogs are high, or should I buy it, cause it is profitable.
     
  4. Daddio

    Daddio Well-Known Member Moderator

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    There a saying in the industry "You don't take percentages to the bank"
    My pizzas run about 27% cogs and my wings run 47% but it takes more time to make a pizza than it takes to make wings. At the end of the day what matters is the money that remains after everything is paid.
     
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  5. famousperry

    famousperry Active Member

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    you lost me at trendy...there are alot of frozen yogurt machines for sale these days
     
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  6. pizzaboi

    pizzaboi Member

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    Great point

    Thank you
     
  7. pizzaboi

    pizzaboi Member

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    You have valid point. I too thought the same initially.

    However what I think differentiates poke from froyo is

    1. Poke is meal, (made of rice, raw fish, veggies etc) Ppl have meals everyday. Froyo was dessert n not everyone has dessert everyday

    2. Froyo was a discretionary spend, but lunch n meals are mandatory expenses

    3. Chipotle is trendy, and also legitimate revenue generating business. I see, Chipotle is to Mexican food, what poke is to sushi/Hawaiin/saw fish scene

    These are just my observations, but I am not married to them

    So I welcome if anyone has differing thoughts. It will only make think harder.
     
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  8. famousperry

    famousperry Active Member

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    To be fair I know absolutely nothing about poke and used froyo as an example b/c they ran on unbelievable COGS during their peak with almost no labor and FC. Heck even with the craze over I am sure they still have a great number. I would focus on whether the concept is sustainable in your market or not. Good Luck!
     
  9. Steve

    Steve Active Member

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    As someone who had a froyo/coffee business .... Dont go trendy.

    Side note on those froyo/gravity fed soft serve machines. They suck. You'll pay more in service and boy do those things depreciate!

    Sent from my Pixel 2 using Tapatalk
     
  10. pizzaboi

    pizzaboi Member

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    Froyo is tanking. I have seen a lot of froyos for sale. I think people just got bored of it. Their margins are huge, but if the revenue is limited, then margins are meaningless. The weather too plays a role I guess. So winter time, the business is running on loss. So unless they make their money in the summer, they are in trouble.

    This Poke place I am reviewing is in office district of sorts, with lots of office people around. So lunch time, it is bound to do business. They are also closed on Sundays. So I think there is an opportunity here.

    But then it occured to me, that here must be a good reason everyone recommends 30% cogs (food + packaging), and this is at 38% . Wanted to make sure I am not overlooking any fundamentals.
     
  11. tguag

    tguag Active Member

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    poke has been around for a few years here...it's a fad. there are closed up poke shops allover down town. you have to be in an affluent, extremely high foot traffic area of a city where people don't mind spending $18 for a decent sized lunch that is full of raw fish. It seems just too niche for me.

    I'm assuming the high food costs are coming from the sushi grade fish and employees using too much in bowls or the place isn't charging enough for it...poke is expensive.

    but, it is a good concept, no real cooking equipment is needed, it's served cold so there is no worry of food getting cold, you can train a monkey to follow recipes for the bowls...I've seen it, and the concept doesn't take up much space so, low overhead.

    and always be wary of people truing to sell you something saying its "the Chipotle of..." and, "it's the Uber of..." for that matter. just look at the "Chipotle of pizza" market...Completely oversaturated, they are all now dying a slow death.
     
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  12. pizzaboi

    pizzaboi Member

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    Thank you for your input, tguag. wow. $18 is expensive.

    But the prices here are $14 for fairly filling bowl. The $14 price point is the reason cogs are high too.

    I think the other food options are in the $10 to $12 range. The neighborhood it is in, is fairly affluent, office going crowd.

    The sellers didnt give me "Chipotle of.." spin. It was my input for "trendy" being bad (although I am 90% suspicious of trendy stuff myself). This conversation also reminded me to check chipotle prices, and I see they charge 9.50 for their bowls. Which is a big cost difference.
     
    Last edited: Feb 25, 2019
  13. woodfiredandrew

    woodfiredandrew Member

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    There is a poke place i went to, it cost me $9.50 for a bowl with all the toppings and it had raw tuna and salmon, quantity was huge! I don't know how they afford it, then again it is a poke restaurant chain, i have seen them before but first time tried it. My daughter eat there with her friends. I must say i liked it...... but buying one and running it is a whole another story. I think they buy their sea food from Chinese version of restaurant depot so they can afford it because prices are very cheap there.
    I don't feel comfortable buying seafood there because where it is caught has no rules or regulations like we have here....
     
  14. pizzaboi

    pizzaboi Member

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    Thanks Andrew.

    Do you remember the name of the poke franchise or place.

    I think the fish has to be "sushi grade" for it to be used. So they cant cheap out much.
     
  15. woodfiredandrew

    woodfiredandrew Member

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    i want to say 'Below 40' ,
    understood but this big corporation would have pricing advantage over say single store owner . i have seen "sun city" has all the right kind of products lot cheaper.
    my point is just be aware of this fact and take into equation when putting price tag on the store.....that's all!
     
  16. tguag

    tguag Active Member

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    oh man Chipotle is getting ridiculous...my fat ass has to get double meat and guac so i'm looking at $15 for a bowl... but they are the only fast food place around that has smi clean ingredients. (the wife and I try to always eat organic and pasture raised) I wonder if the Margaritas are pasture raised?
     
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  17. Steve

    Steve Active Member

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    Are you saying Chipotle near you has Margaritas?

    Sent from my Pixel 2 using Tapatalk
     
  18. gmac42

    gmac42 Member

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    Poke thoughts. Relatively easy entry business. Can occupy very small square footage. You might have the best Poke business in the area but every mom & pop that goes into a very small location that requires much less capital to open and is operated by the owners and that might even not be quite as good as your business is a deterrent. Every poke bowl they serve is one you will not be selling. People do not belong in the business will take the leap and they take a little away from what you are doing. I eat poke once in awhile and by nature I watch all the poke places opening up. Some are good and some not so good but they all take a piece of your business. I would ask how you can differentiate from all those guys in a significant way? It would seem that you have to be able to answer that question or maybe you should not do it if you cannot identify that differentiation. In the example of the yogurt craze it was also an easy entry business in terms of capital and required product knowledge. Everybody was jumping into it. Many people who did had no business doing it because of lack of experience, not enough capital or whatever. A small restaurant could install a yogurt machine and they became competitors with the least amount of capital required and virtually no increase in fixed costs to the restaurant. Good operators are often disdainful of these small mom & pops and/or an existing restaurant adding a yogurt machine but every yogurt they sell is one that operator will not sell. In the case of poke there are some in our area that I will not patronize because of "that feel" that they are not very good at what they are doing and when it is fresh fish I am not taking any chances. Yet they are open and apparently making some money. A particular one I have in mind is just the husband and wife operation only. Not great food wise to my taste but they are attracting a reasonable amount of business. I know their rent is pretty low. Obviously they have no labor factor. Not a great location but they might survive because they are really nice hard working people. I also notice a number of poke businesses for sale.
    In my opinion, with these types of easily duplicated businesses, there is a time to get in and a time to get out. I had a business that among other things, made fruit toppings that we sold to a small local area yogurt chain. The woman that owned it was very sharp. Her installations were very professional and she was achieving strong sales. Then one day she told me she was going to sell. I asked her why when she was doing so well. She said there were to many people coming into the business and it was time to move on. She sold and the company lasted about two years more and during that two years some of them had to close.
     
  19. tguag

    tguag Active Member

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    yours don't? all the ones in the chicago area do... it's funny to order them in the burbs because no one knows how to make them so they have to get a manager...or the manager is the only one who is 21...

    side note: this is my fav comedian right now...talking about chipotle...
     
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  20. Steve

    Steve Active Member

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    Nope, I'm mind blown that they do that haha

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