Classic Business Car Crash.

[PepperMe]

A few months ago, a korean BBQ (Neuryang) opened up just down the road from us.

When it opened it was running a "buy two - get one free" promo on its pork at 159 baht each.

The restaurant opened in a location where there has been a string of failed bussiness attempts, I recall at least 6 in 5 years. There was already a very successful korean BBQ close by, and this one basically took its entire customer base away from it and forced its closure, and all because of the buy two, get one offer. Everything else was very same same.

This place has about 45 tables that provides about 180 total covers and it has been boomong since it opened. Most times you have to wait for a table. I have estimated that they turn over at least 100 tables perr night. I also estimated that they make between of 100 and 150 baht gross profit from each table. I know their rent is 18K per month and they pay their staff only 100 baht a night of which they have 5.... So even based on 100 baht profit, per table after costs and bills etc.. They are making an absolute minimum of 200,000 Baht a month and as much as 300,000. A nice little earner for a couple of young Thais.

One of the owners actually bragged to my wife that they make 500K profit a month, but personally I do not believe it.

Now here is the car crash.....

In their greed, they done away with the buy two get one offer, and lo and behold.... You guessed it. over the following 2 weeks their trade has dropped to no more than 5 tables occupied at any one time. I would go as far as to estimate that their costs are now more than their GP and are in fact losing money.

I asked one of the owners why do they not just reintroduce the offer?... That is clearly what their success was based on in the first place. But was just met with a vacant stare. They seem convinced that the customers have found somewhere new to go to... I dont think so, there is nothing we have heard of opening up in the area that could suck away so many customers. They have basically just become nothing special now they are trading in line with their competitor pricing.

They shot the golden goose in an attempt to gain more profit per table. They now are running at the same level as the previous incumbants that went broke one by one.

All I know, is that we have now put our name down as the next tennant when this lot go bust also, and we will be re-introducing the buy two, get one offer. It is a proven business model for the area, because the closest place offering the same is a 10 KM drive away. Start up cost will be around 80K, its a no brainer.

The classic Thai business car crash, based on greed.

Edited January 22, 2015 by PepperMe

[NeverSure]

In a restaurant, your highest single cost is food. Rent, labor, equipment maintenance, utility, paper goods, etc. will in total exceed food costs, but as a lone item food is it.

In a sit down restaurant with table service food can't exceed 25% of gross receipts. ideally it should be less.

If you're food cost is 25% and you give one away free, you are toast. There's no profit left after you pay labor and rent and utilities etc. They were probably losing money with that promotional deal.

I can't remember which famous person said this (jokingly) but he said "we lose money on every sale but we make up for it in volume."

Edited January 22, 2015 by NeverSure

[krisb]

Good idea...I shall remember that one.

In a country town I visit there is an all you can eat that does huuge business.

Piles of meat that looks like a salmonella hotel to me, but there would be easily easily 100 people a night in the place.

[PepperMe]

In a restaurant, your highest single cost is food. Rent, labor, equipment maintenance, utility, paper goods, etc. will in total exceed food costs, but as a lone item food is it.

In a sit down restaurant with table service food can't exceed 25% of gross receipts. ideally it should be less.

If you're food cost is 25% and you give one away free, you are toast. There's no profit left after you pay labor and rent and utilities etc. They were probably losing money with that promotional deal.

I can't remember which famous person said this (jokingly) but he said "we lose money on every sale but we make up for it in volume."

Na.... I am sorry but you can not apply western economics to Thailand.

Western costs are way higher than Thai costs... Rent is 18,000 a month, I know this because we are on the list as the next tennants if these leave. Electric is only for lighting and refrigeration, according to the building owner averages 5000 a month. wages on 5 staff is 500 a day, so 15,000 a month. charcoal only 10 baht per table maybe less, napkins are a few baht, chopsticks a couple of baht, ice they charge 10 baht for so make a profit there. A few green veggies on a plate is cheap to provide.

The only extra costs to them on that offer is pork, and that is about 200g per serving.. They are selling 2 servings for 318 baht and giving 600g on average at a cost of 100 baht (ish) leaving them 218 baht to provide everything else.

You don't even have cooking costs because the customer cooks it themselves. The only thing you need to cook is rice and that is sold as an extra and makes its own margin.

So based on the very conservative 100 baht per table turnover gross profit, That is 300,000 a month..... Probably a lot more when you add drink sales of which they sell a lot.... I would say they are probably making over 150 GP per table. But based on a conservative estimate, they can pull in 200K a month net profit if their costs were monthly 100,000 which they are not.

I would say it is nearer 300,000 a month.

This is not the UK, this is Thailand..... costs are a hell of a lot lower here.... I have run a restaurant myself... I can look at one and know roughly what the minimum is they are making, and I know what ALL the costs are in Thailand in this industry. My wifes family own a string of them, as well as hotels.

Edited January 22, 2015 by PepperMe

[Rajhulmaheesh]

Good luck man! At least you have a plan! thats better than most..................hahahaha!

So the business that closed down couldnt figure out what their problem was? It all seems so silly- are you sure you not missing something?

Edited January 22, 2015 by Rajhulmaheesh

[ukrules]

Sounds reasonable to me, good luck.

They will probably attempt to sell the fixtures & fittings / goodwill, etc for a few million Baht. If you don't pay that you might have a long wait.

[Rajhulmaheesh]

So you give away pork worth $6. To make that up patron need tabs of @ least $70. assuming gropp profit % of 11%(which i would consider low).

Then if operator wants profit he needs patron to eat 5lbs of rice and drink 20 bottles of beer....................hahaha.

No wonder he was the only one doing the DEAL. and doesnt want to go back to it.

Since when is a proven business model defined by months of opearting.

Edited January 22, 2015 by Rajhulmaheesh

[PepperMe]

So you give away pork worth $6. To make that up patron need tabs of @ least $70. assuming gropp profit % of 11%(which i would consider low).

Then if operator wants profit he needs patron to eat 5lbs of rice and drink 20 bottles of beer....................hahaha.

No wonder he was the only one doing the DEAL. and doesnt want to go back to it.

Since when is a proven business model defined by months of opearting.

Pork around here is 155 baht per kilo and if you go to Tesco at the moment you can get it on offer for 109 baht/kilo.

Each portion is 200g of meat so as low as 22 baht per serving which they sell for 159 baht.

So 318 baht for 600g of meat costing no more than 105 baht.

Seriously mate...... don't go into business with your mathematical skills..... You will be bankrupt in a week.

3 months at full capacity while the 3 for 2 offer was in place in a location with successive failures over a 5 year period.... then declining rapidly as soon as the offer is lifted, is not enough information for you to decide what the success was based on?..... a second reason for you to never venture into business.

Edited January 22, 2015 by PepperMe

[PepperMe]

Sounds reasonable to me, good luck.

They will probably attempt to sell the fixtures & fittings / goodwill, etc for a few million Baht. If you don't pay that you might have a long wait.

Fixtures and fittings are owned by the tenants of the venue.

We wont be requiring them. We have all our own equipment, all we will need are tables. chairs and the charcoal burners which can all be picked up cheap.

The owner of the venue owns everything else and is included in the rent. They will not be able to keep their gear there till someone buys it all, they would have to keep up the rent and bills.

Edited January 22, 2015 by PepperMe

[impulse]

Seriously mate...... don't go into business with your mathematical skills..... You will be bankrupt in a week.

Let me know if stock in your restaurant goes public.

I'd like to short it.

You've dissed 2 guys giving excellent feedback. Not a great skill to have in the hospitality business.

Edited January 22, 2015 by impulse

[ThaiSanookGuy]

This is the way they are: hopeless !

[Rajhulmaheesh]

I know my numbers are way off...lol. minutiae doesnt matter. Only a fool think $80k will generate $6k a month in profits in a run of the mill korean bbq. A no-brain man....hahaha!

3 months with a gimmick is not what i call a succesful proven business model. What a goofball op is.

Edited January 22, 2015 by Rajhulmaheesh

[BKKdreaming]

will you do 2 free servings for TV members ?

maybe we can rent a tour bus to visit you

but really it sounds like the numbers work in the short run , but will the customers stay around for 1 year-2 years or longer ?

or will they go to the new place down the road selling the next "Fad food" for 10% less ?

[sdanielmcev]

Common business sense to offer discounted pricing so customers sample your wares. If patient, they'll find their niche. 300,000 sounds reasonable.

[Trembly]

Looking forward to a sitrep after opening.

[PepperMe]

Seriously mate...... don't go into business with your mathematical skills..... You will be bankrupt in a week.

Let me know if stock in your restaurant goes public.

I'd like to short it.

You've dissed 2 guys giving excellent feedback. Not a great skill to have in the hospitality business.

Agree. This is one arrogant SOB who really, really doesn't know what he's doing.

Lol....... You will never find me working in a restaurant..... I don't work in any of my businesses, i just run them and count the cash...... So I can be as arrogant as I want.

This forum is full of mean spirited, spiteful old codgers who just want to see every one of their fellow expats fail at everything... Mostly based on jealousy and their own bitter and twisted unsuccessful and boring existences.

Had I left out the last paragraph, the replies would have been a whole lot different... But as soon as I mentioned that I will take the place over, the bile erupted from the sad acts..... Typical TV member hatred.

Edited January 22, 2015 by PepperMe

[Chivas]

I know my numbers are way off...lol. minutiae doesnt matter. Only a fool think $80k will generate $6k a month in profits in a run of the mill korean bbq. A no-brain man....hahaha!

3 months with a gimmick is not what i call a succesful proven business model. What a goofball op is.

You really ARE brain dead.

80,000 baht to you converts to $80,000?

You have been getting ripped off mate.

You call ME a goofball....... lol

80K BAHT is nothing to me, and is worth a punt any day.

Such is your obvious lack of business nouse, I think I will stick to the absolute opposite of what you think and I should be safely successful. This is my soon to be 5th business here in this town, and the other 4 are very successful.... I have lots of confidence in my abilities.

So why are you teling everyone how to do it........I'd have thought your mouth would be completely shut

ps I've just located the Tenants and back handed them a 100k........You're no longer number 1 on their list..........See my point

[PepperMe]

I know my numbers are way off...lol. minutiae doesnt matter. Only a fool think $80k will generate $6k a month in profits in a run of the mill korean bbq. A no-brain man....hahaha!

3 months with a gimmick is not what i call a succesful proven business model. What a goofball op is.

You really ARE brain dead.

80,000 baht to you converts to $80,000?

You have been getting ripped off mate.

You call ME a goofball....... lol

80K BAHT is nothing to me, and is worth a punt any day.

Such is your obvious lack of business nouse, I think I will stick to the absolute opposite of what you think and I should be safely successful. This is my soon to be 5th business here in this town, and the other 4 are very successful.... I have lots of confidence in my abilities.

So why are you teling everyone how to do it........I'd have thought your mouth would be completely shut

ps I've just located the Tenants and back handed them a 100k........You're no longer number 1 on their list..........See my point

Nobody on here even knows what town I live in, let alone the restaurant in question..... So your point is exactly?

[Rooo]

Posts containing flames & responses deleted. I suggest you keep it civil otherwise closed.

Moved to SME in Thailand.

[thaibeachlovers]

Seriously mate...... don't go into business with your mathematical skills..... You will be bankrupt in a week.

Let me know if stock in your restaurant goes public.

I'd like to short it.

You've dissed 2 guys giving excellent feedback. Not a great skill to have in the hospitality business.

Agree. This is one arrogant SOB who really, really doesn't know what he's doing.

Lol....... You will never find me working in a restaurant..... I don't work in any of my businesses, i just run them and count the cash...... So I can be as arrogant as I want.

This forum is full of mean spirited, spiteful old codgers who just want to see every one of their fellow expats fail at everything... Mostly based on jealousy and their own bitter and twisted unsuccessful and boring existences.

Had I left out the last paragraph, the replies would have been a whole lot different... But as soon as I mentioned that I will take the place over, the bile erupted from the sad acts..... Typical TV member hatred.

I doubt anyone wants to see anyone fail, but we see it all the time. My wife was asked to work in a restaurant that was opening, but only a few hours every night 7 days a week. I put my foot down on that one and she didn't work there. It failed shortly after opening. Many people have tried to open a restaurant in the same place, but all fail. It's just in a bad location with too much competition.

I have no desire to, and would never go into business in LOS, so no jealousy on my part, but I am sad that part of your business model is apparently exploiting the workers. It may be the Thai way, but that is no excuse.

[CraigSchuler]

In a restaurant, your highest single cost is food. Rent, labor, equipment maintenance, utility, paper goods, etc. will in total exceed food costs, but as a lone item food is it.

In a sit down restaurant with table service food can't exceed 25% of gross receipts. ideally it should be less.

If you're food cost is 25% and you give one away free, you are toast. There's no profit left after you pay labor and rent and utilities etc. They were probably losing money with that promotional deal.

I can't remember which famous person said this (jokingly) but he said "we lose money on every sale but we make up for it in volume."

Most restaurants have a food cost more like 30-35%. Profit margin in the food business is pretty slim.

[MRGTINGTONG]

Only a few people in this world have vision for a successful business , I make profit in every thing that I do because of having the balls to do it where by others just stand by and watch in awe.

Go for it mate, best of luck and strike while the iron is hot.....

[recom273]

Good on you ! .. We visited a dead Korean BBQ the other month through accident and talked through the possibilities.

If you take on board the Chinese model, make little profit as long as you can sell a lot.

Thais will travel far and wide to a good Korean bbq, if you are selling 2 for 1 at 159b, there are still places round our way selling for 99b a head, so you make the extra in drinks and supplementary dishes and also the 'wasted' plate charge.

Thais also love a bargain without caring to read the menu, we are often horrified how much a bottle of water costs at a Korean BBQ, but it's never written down until the bill comes - still not extortionate but not 10-15b as it would be in a sit-down restaurant.

In time you will learn to find the cheap meat suppliers maybe butcher animals yourself.

Go for it!

[Rajhulmaheesh]

In a restaurant, your highest single cost is food. Rent, labor, equipment maintenance, utility, paper goods, etc. will in total exceed food costs, but as a lone item food is it.

In a sit down restaurant with table service food can't exceed 25% of gross receipts. ideally it should be less.

If you're food cost is 25% and you give one away free, you are toast. There's no profit left after you pay labor and rent and utilities etc. They were probably losing money with that promotional deal.

I can't remember which famous person said this (jokingly) but he said "we lose money on every sale but we make up for it in volume."

Most restaurants have a food cost more like 30-35%. Profit margin in the food business is pretty slim.

Op's is different. He has 3 months history to go on..................hahahaha!

[Crash999]

If you're food cost is 25% and you give one away free, you are toast. There's no profit left after you pay labor and rent and utilities etc. They were probably losing money with that promotional deal.

Your assumption is that people were eating 100% pork and that the retail price of the two-for-one deal reflects normal margin. In reality like many businesses they will inflate costs somewhat to provide a cushion for promotions. And of course people were ordering a variety of dishes.

Even if the pork dish was losing money it was driving a lot of traffic into the restaurant. Given the owners seemed very happy with the situation prior to dropping the promotion it suggests the promotion wasn't killing the business when it was running.

Of course another possibility is knowing OP owns businesses they were pretending the situation was rosy with the idea that he might take it off their hands.

[snowgard]

If you sale for 119 Baht each your profit will be higher. Who eats more than 3 pots. And sale chicken meat for the same Price.

[sean in udon]

Some of the comments on this thread are way off the money.

Six dollars worth of pork needs a bill of $70 dollars at 11%?

$80,000 start up? Hopeful a typo.

PepperMe, I wish you well in your future venture, but, as has already been mentioned, you may need to hone your communication skills. You do seem to be a little abrupt with people.

(2 edits as my iPhone was doing strange things while typing this)

Edited January 23, 2015 by sean in udon

[Robert24]

my assumption would be the promo was loss making so they stopped it. they onlybdidvit at the beginning to attract customers.

[NeverSure]

In a restaurant, your highest single cost is food. Rent, labor, equipment maintenance, utility, paper goods, etc. will in total exceed food costs, but as a lone item food is it.

In a sit down restaurant with table service food can't exceed 25% of gross receipts. ideally it should be less.

If you're food cost is 25% and you give one away free, you are toast. There's no profit left after you pay labor and rent and utilities etc. They were probably losing money with that promotional deal.

I can't remember which famous person said this (jokingly) but he said "we lose money on every sale but we make up for it in volume."

Most restaurants have a food cost more like 30-35%. Profit margin in the food business is pretty slim.

Fast food places do indeed. But a sit down restaurant with table service is a whole different animal. Obviously the prices are higher in a sit down restaurant but expenses are a lot higher too. The food cost due to quality is higher. It's a different type of food.

Not only do you have to pay for the service, but you have to provide the space.

A fast food restaurant could do 80% of its business at the drive-up if it has one, which is very cost effective. If it doesn't people go to the counter, order, and take out or take care of themselves.

I agree profits are very slim, so they need volume. They also need tight cost controls. They can't afford to have people standing around. They can't afford to waste food. They can't afford to be open during hours when it's slow.

These issues and others make the business very dicey and the failure rate very high.

Source: I used to be a banker and I analyzed P&L's and financial statements for making business loans. One of my borrowers owned 6 MacDonald's franchises and another owned 12 Burger King franchises. I had others including sit down restaurants and bars.

[dotpoom]

Back home many new restaurants go out of business after a short time. A well known chef was being interviewed on radio and he was asked why this was so....He said it was because..... "Abroad, people open restaurants to make a living....Here, people open restaurants to make a killing"