Merchant Advance Blog

Blog Article: Food Trucks and Fads: Small Business Stability

A study just released by Vancity Bank has provided insight into one of the fastest-growing and buzzworthy business trends of recent years: namely, the explosion of food trucks in urban centres like Vancouver and Toronto. These mobile eateries have been hailed as masters of the modern approach to self-starting and promoting a business, finding and filling a niche and building a captive customer base through guerrilla marketing and use of social and digital resources – not to mention savvy design and branding. Some cities have created festivals where flotillas of food carts band together in travelling culinary convoys.

Tacofino-0.1

However, as the report shows, this rapidly growing industry (with its benefits to localization of consumer spending and creation of community-centric identity) faces many challenges in terms of regulations, licensing and cost structure, which can hinder the profitability and success of both new entrants and established players in the market.

Industry Canada indicates mobile food service businesses are more profitable than full-service restaurants; however, average profit for mobile food service businesses is still relatively low at $31,300. Twenty-nine percent of food trucks are estimated to be unprofitable. The Vancity study cites high operating expenses as a chief contributor to the failure of many food truck businesses.

Small businesses in any market hope to achieve the kind of long-term stability and profitability that will make them an anchor of consumer activity and interest in their community for years to come. As cities grow and use of urban space evolves, certain business models grow with a fad-like burst of speed, catering to the interests of changing demographics. Former industrial buildings might be converted to craft breweries. However, these types of emergent businesses are not simple fads, but important reactions to demographic change.

Simply put, change in one sector breeds entrepreneurial advantage in another. Former industrial areas might have the perfect balance of square footage and open plan to start a craft brewery. Areas with residential growth and infrastructural change might see a bubble of bike shops. Independent, community-based retailers can develop “cult followings” among locally motivated consumers. Food trucks are one of the salient examples of this phenomenon: in urban centres with rising density, considerable competition and increasing rent costs, these vendors have found ways to expand employment and productivity in the food services industry in a way that connects with the rising consumer demand for convenience, variety, transparency and support for locally-related industry.

The financial struggles of the food truck sector are a classic case of “fail quickly, fail often” entrepreneurship, where barriers to entry are relatively low but deceptively dangerous when encountered. However, some food truck operators (such as Vancouver’s Tacofino) have used their food truck experience as a stepping-stone to brick and mortar operations with a higher degree of business stability anchored in a physical location. This transition helps offset the inherent seasonal and transitional profit variability of food trucks, and allows for the expansion of service to cater to a greater volume of customers in a more efficient manner.

Businesses in an emergent market niche or sector, such as food trucks, are highly dependent on stable operating capital. Securing necessary funding may be a challenge for businesses that are right on the bubble – established enough to have garnered some traction in their market, but looking for the edge that will help them secure and optimize their workflow and profitability. Locally-minded solutions for financing need to be able to cater to the demands of such businesses and help local economies thrive.

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