Impact of high cogs

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

  1. pizzaboi

    pizzaboi Member

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    According to the website for 'Below40' they only have 3 stores.

    I met with the owner/seller yesterday, and he told me that they are 100% oceanwise. Apparently, there is a gimmick there, whereby if you only shrimp from your entire sea food collection is "Oceanwise", you can put the Oceanwise sticker and claim to be oceanwise. But this guy said, all his sea food is oceanwise.

    But thanks for your pointers.
     
  2. pizzaboi

    pizzaboi Member

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    Lots of great points. Thank you gmac!

    You are right in that the barriers to entry are very low in Poke. But then it occured to me, isnt it same for burrito, taco, pizza place?

    So compared to Burrito, Taco, Pizza shop, what is the concern with low barrier to entry, with regards to Poke shop..
    Is it that Poke is niche food and hence could have more players than the market can support, compared to Pizza shop, or is it something else?

    This shop has been here for 2 years and I see there are few poke shops opening few blocks away. But the sales at this shop have been stable at around 700k. I wonder, if it is people from around 1 block from this shop who come here for lunch, and any other poke shops opening 2 blocks away dont effect this shop. I wonder. I dont know.

    As for differentiator. I cant immediately say what is the differentiator here with the shop as is. This was among the first poke shops to open 2 years back and have lots of great reviews. I dont know if I will keep this shop as is, or just use this location and put a poke franchise in there, then I will be relying on the franchise's differentiator. Pokeworks franchise has 40 stores opened and another 30 stores in the works. Then we have a regional franchise with 7 to 8 stores. So I have to think about that too. The good thing about franchises is that the cogs are low, you get training, and support, but with the royalties and fees, you effectively end up spending as much as independent shop.

    I have been thinking a lot about froyo. and I think my gut tells me that Froyo failed cause it was dessert option and discretionary spend, which ppl may or may not do once week. To spend $5 to $10 on yogurt is a lot of money.

    While I see Poke, as a legitimate lunch/dinner option especially for the office crowd and everyone has lunch and dinner everyday.

    I dont really know how healthy can sweet stuff toppings be with froyo, but poke with rice and fish, seaweed etc, does seem very healthy to me.

    But the growth may not continue. At least as far as this store is concerned, in the past 2 years, I am sure everyone has tried it out and made up their minds. So I am also keeping a buffer for 10% drop, in my valuation (god forbid that happens)
     
  3. pizzaboi

    pizzaboi Member

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    Between 55 secs and 1:17, his body language is so like jerry seinfeld.
     
    Last edited: Feb 28, 2019
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  4. woodfiredandrew

    woodfiredandrew Member

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    Pizzaboi.........if you have done your homework and understand the pit fall in finer level then you are ready for it, you just have to negotiates a good price and hopefully you are not going to be leveraged to your eye balls. 10-13 % hiccup in sales should be expected until you form a solid base line.

    People's taste is changing as demography is changing ( in major cities) so we have to adapt too. you have a good shot at it in big cities.

    Clear vision about the concept will help you adapt to changing taste and keep you connected at all times.

    my two cents
     
  5. pizzaboi

    pizzaboi Member

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    I have been doing some thinking but fear that I missed something. This forum helps me think out loud and run my thoughts and ideas and get opinions from others?

    Few recurring concerns are

    1. Poke could be trendy and is a fad like Froyo.
    My observation is that Froyo was dessert and discretionary spend, which people splurge in once is while, while poke is legitimate lunch/dinner option and people have lunch and dinner everyday. Other trends fad examples people give are bagels (low ticket), cupcakes (discretionary spending). I think I have reconciled on that front. But if there are examples of lunch & dinner options that were trendy and fad, I would definitely want to research into that further. I think the sales here have already peaked. The business has been around for last 2.5 years, and it made 700k revenue for each of the last 2 years.

    2. Low barrier to entry & competition
    This is a legitimate challenge. I think the current poke shop is at a good location. As long as someone doesnt open within few blocks around it, then it should be fine. Most of the business, is during office hours, and people will only block so much for food.

    I think if I get a low enough valuation, this could work.

    The business nets 125k as it stands currently on the 700k revenues. But it is only open 6 days a week till 8 PM. I will extend the hours to 9 PM, and may open it for 7 days. Hopefully that will generate revenues of 800k total, and net me another 150k.

    Here are 2 tactics for my deal structure

    Tactic 1:
    the asking price is 200k right now. But I value the business at 125k.

    I dont think I have credentials to pull a poke business. So will keep the seller around in some capacity.

    I will offer 100k for the business and give the owner 3% of gross revenues for his on going support. I havent fully finalised the mechanics of the earnout and how to best structure it yet.

    Instead of 3% royalty, I was also thinking of buying 75% of the business and letting the seller keep 25%. My math is, if the business can net 150k after being open for 7 days. I get a manager's wage for 50k and of the remaining 100k, seller get 25k for his 25% share, and I get 75k , for my 75% share.

    I think I can sustain a 25% drop from 800k revenue, and still be alright (not ideal)


    Tactic 2:

    I buy out the seller for 150k and spend another 100k, turning this into poke franchise. But this requires a lot more thought.