In the field of Investments and Stock Trading, "Buy Low & Sell High" is the most basic concept, but what's funny is that no one knows what is low and what is high. Uncertainty is the only certainty in the stock market and without taking risk, it is tough to expect return.
Then there are exit strategies like "Stop Loss" and "Profit Booking", both of which are part of risk management. You might be wondering why I am discussing finance when the title suggests something else.
It is because the same concept is applicable to every business?
In the current context of the global health crisis, the golden rules of financial markets are more relevant than ever.
Talking specifically about the food business, many restaurants that had the financial leverage and held their businesses during the shutdown, will open and function as normal when the world recovers from this health crisis. There is no denying that many businesses could not sustain this period and fixed costs, rents and salary etc. forced them to close their business.
We are not out of uncertainty, the vaccine trial is on its way, it will take its own time, and we can only be vigilant for the good news.
But is it a good time to enter the food business ?
Honestly, the food business is always tricky and when there are health concerns consumers take a step back, even if the pandemic subsides over time, consumer confidence will take time to re-establish. The bad news is that there is no simple math to know when the market will return to its normal, and uncertainty is there, but the good news is that without investing or being in the market, you have saved those eight months of lockdown and have observed the market behavior. You still don't know what the low and when is the right time to take a long position, but if you will wait for the market to recover. You are denying participation in the risky environment and the return after normalcy will not be as interesting as it could be now.
Being adaptive to the new normal and adhering to CDC guidelines, increasing transparency and marketing it well, will position the business to keep it relevant during the ongoing pandemic and beyond that.
In this article we will outline how we can enter the market and grow as consumer confidence grows while not risking the whole bank account.
I am an on and off stock trader and the best tip I was ever given is, "if you cannot make $200 from $100, your strategy won't work with $20,000. We know there is deep uncertainty, but you have always dreamt of having a huge restaurant with customers queuing for a table. Even if customers want to, they cannot. Moreover, a successful business is the one that is socially sensitive.
Starting a delivery kitchen and marketing your hygiene strategy will excite the consumers more than the price. Spending little on fixed costs will give you the edge and some of the saved money should be used for marketing and content creation.
As you start earning a profit, divide and reinvest a portion of your profit to either scale up the production or keep it safe until the lump sum is good enough to expand the infrastructure.
Use Garage Sale
As many businesses have had to close in the last few months, they might be willing to sell off the functional equipment at a better price. Rather than buying a shiny new appliance, save money while also helping those who have suffered the loss and were forced to close their business.
Partner With Those Who Could Not Sustain The Lockdown
Another way to reduce risk and cost is to partner with a business that could not sustain the lockdown and was forced to close. With the functional equipment they will also bring their expertise and experience.
You want to be fair to everyone, but you don't want to be cheated. If you don't know the industry well or you don't have prior experience, it is better to create a symbiotic environment. Start your business but also be the helping hand to make your community stand on its feet.
While your fresh mind will find different ways to generate the "alpha" for the business, someone who has suffered the loss recently will be calculative enough and adjust the projections for the worst case scenario.
I have suggested many businesses to take their kitchen live and stream it over video platforms like Youtube, some are working on the infrastructure but some were hesitant.
If someone gathers the courage to increase, transparency will be the clear winner.
Restaurant business is not only about cooking and serving/selling/delivery, you don't open an ice cream parlor when it is about to snow for the next three months. You can either call it common sense or a strategy based on seasonality in the demand.
In the current context, consumers don't trust what is going on inside that dark hidden kitchen, where to the best of what I can remember was written "Staff Only".
Transparency may bring a change that has been long overdue.
Max The Discount Season
As we have discussed earlier, the higher the risk, the higher the possible reward is the only truth when it comes to business.
Taking risks with inventory can be highly rewarding, especially on nonperishable items. In the worst case you will end up using it for your own needs or sell it at the buying price to other businesses.
You cannot really speculate on the prices for raw materials, but the nonperishable products that you use in your restaurants if are packed and priced, buying it during festive sale is a perfect hedge for future price movement and the discount included.
Starting a restaurant business is tricky but as with any investment it is about timing and consumer demand. In the current environment adapting to the new normal, being creative and transparent for the sake of consumer confidence will help position your business for a longer innings.