Picture, if you will, your own food or drinks shop decorated in your style, furnished with tables and chairs to your liking, and serving delicacies you think will be a big hit among locals.
Now imagine uprooting all that hard work, and compressing it into a different business model – one that you think can better serve your target market.
An ever-changing landscape for F&B businesses is not uncommon as entrepreneurs seek to better present themselves to customers. This is prevalent in Malaysia’s scene, whereby restaurants often relocate, rebrand, or revamp themselves by offering new menus every so often.
However, how many would take that leap of faith and make that total change of business model? And what are the causes that lead to this change?
While some have observed that the overall cost of doing business should be fairly contained, others note that high commodities prices and intense competition on the local front have generally affected food and beverage (F&B) players.
Researchers with AmBank Bhd (AmBank Research) observed that overall cost of doing business in Malaysia remained fairly contained, supported by the firmer US dollar-ringgit and stabler commodity prices.
Supressed profits til year end
However, the research arm of MIDF Amanah Investment Bank Bhd’s (MIDF Research in its fourth quarter of 2017 (4Q17) outlook sectoral for the consumer sector indicated otherwise.
“Despite the price correction shown in some commodities like raw sugar, milk powder and cocoa since the beginning of the year, F&B players’ gross profit margin were still depressed by the higher average overall raw material costs compared to the prior year,” it said.
Most F&B players recorded impressive gross profit margins in 2Q16, it recalled, due to the subdued commodities prices in the early part of 2016 before prices rose sharply in the second half of 2016 (2H16).
“In addition, the recent trough in international raw sugar price does not immediately translate into lower raw material costs as the selling price of refined sugar to the local F&B players is still fixed at a higher price,” the research arm added.
As such, gross profit margin will remain supressed at least until year end, before the effects of lower raw material and strengthening of the ringgit take effect.
The research arm has noted that for the time being, companies which started early on operation effictiency initiatives and diligent costs management are able to mitigate these temporary higher raw material costs as operating expenses drop.
According to MIDF Research, F&B players are facing intense competition locally as products being offered are homogenous in nature.
“Also, any increase in prices need to be done carefully due to the recently enacted Anti-Profiteering Regulations,” the research arm said.
“As maintaining market share remains the priority in the current business environment, F&B players are also limited in their ability to increase prices in order to pass on the higher raw material costs to consumers.”
This, it noted that any top line growth can only be achieved on the back of aggressive marketing and promotional activities as well as new product innovation.
In the case of some local F&B players in Kuching, adopt new approaches or have a complete do-over of their business model to allow for more exposure of their F&B products.
Cloud-99 fully embraces food truck concept
Cloud-99 Ice Cream Cafe (Cloud-99) is one such example of undergoing a major business transformation now having better visibility in the local desserts scene.
Operating since May 2013, the brand was bought over by entrepreneur Ooi See Bee back in 2015. Ooi then decided to close the cafe earlier this year and remodel her business into food truck – thus introducing the first Cloud-99 Liquid Nitrogen Ice Cream Truck in August.
Ooi explained that having a cafe specialising in desserts was not exactly ‘a piece of cake’.
“Especially for desserts – how many times can an individual consume desserts in a week? At best, it’s weekly. If not, most consume once or twice a month only,” she revealed to BizHive Weekly in a recent interview. “I feel, for my business, having a cafe is actually a waste of money.”
When running the cafe back then, Ooi also said hiring a new chef to work in the kitchen to expand her offerings apart from Cloud-99’s main liquid nitrogen ice-cream and frozen yogurt would mean an even heavier workload for hern.
Also, at that time, Ooi was taking part in events to create more visibility for her business, such as bringing Cloud-99’s ice cream to school fairs.
This was a tiring effort on Ooi’s part, she said, as she had to transport machinery and nitrogen tank herself. Aside from being tedious, the equipment were heavy and Ooi had worried then that constantly transporting around such machineries may eventually spoil her own personal car like the car springs and other parts of the vehicle.
It was when she observed other food trucks such as Noms on Street operating around Kuching that she believed it would be a good idea to transform Cloud-99 into a mobile business.
Step in the right direction
For Ooi, going into the food truck business was ‘the best strategic move’ she had made since taking over Cloud-99.
The first benefit, she said, was a slash in overhead costs involved when running a food truck which was comparatively much lower than operating a cafe.
“Cloud-99’s electricity bills currently with the food truck is minimal, compared to when operating a cafe.
“With the cafe, the bills amounted to approximately RM700 to RM1,000 a month while with the truck, I only had to pay RM6 a day on petrol bill,” she highlighted, adding that this was sufficient to support lighting and machineries used.
As Cloud-99 usually only operates for four hours a day, the amount she earns during that time has exceeded what she earned in a cafe which operated 11 hours a day.
Secondly, unlike renting out an outlet previously, costs of owning her own food truck is significantly lower as Ooi needs only to pay installments for the vehicle.
Mobility has also played a big part in her decision to go for a food truck, especially when it comes to joining events such as marathons. As mentioned earlier, it had been quite an ordeal for her to lug around her equipment in her car.
Prior to having the food truck and given the amount of machinery required for her to set up to make Cloud-99’s desserts, it had not exactly been feasible to join such events which usually lasted only three to four hours at a time.
Growing visibility
Since venturing into the food truck business, Ooi admitted that visibility for Cloud-99 is higher now. With the trend in the food truck market still growing here in Kuching, she noticed that on the day she officially launched her food truck on August 11, Cloud-99 actually received a lot more new customers.
“My regular customers still come back to me but I have more new customers, those who have not seen or heard of Cloud-99 before although they lived around the area (of the previous cafe location),” she mused.
As a food truck, Cloud-99 has been able to shift its location a little further up, next to Starbucks which is more visible from the main road.
Eventually, once its permit to operate at a fixed location has been approved by the local council, Cloud-99 will shift over to Friendship Park alongside a few other food trucks.
Ooi opined that having a few food trucks together in one location would be beneficial as it would allow customers to try different food trucks in one sitting as opposed to driving to separate locations as is the case now.
While it may be a bit tough because of the lack of space here in Kuching, Ooi still hopes that the council will be able to assist the food truckers with this issue.
More ways to expand
Moving forward, Ooi will be finding more ways to run the business and is even looking into operating in the afternoons. In the meantime, Cloud-99 continues to participate at malls on special occasions with their pop-up store booth.
Ooi will also eventually want to offer licensing for Cloud-99. For the moment, she is looking for partnerships with, for example, restaurants or cafes who would like to provide Cloud-99’s ice cream services in their outlets.
“There’s two choices. It’s either I set up a booth in the cafe or they will license from me, so they can put my ice-cream inside the menu,” she said.
“You have to look for these kind of collaborations because right now, economy is quite bad so you have no choice but to look into different directions.”
Ooi noted that licensing would be the best option given that they will be able to collect royalties from there. For licensing, she is looking outside of the Kuching market as she believed that the capital here is too small to house another food truck with the same brand.
However, if there were ever to be another Cloud-99 in Kuching, the second food truck would have to be situated up further north in a location such as Petra Jaya.
As for expanding to locations outside of Kuching, Ooi opined that Miri would be one of the best options. Following that would be Kota Kinabalu in Sabah.
Ooi attributed Kota Kinabalu being a viable option to the high level of tourism traffic that goes through the city and even admitted that should she ever have the capital, to possibly open a Cloud-99 herself there.
Lock Ann: Branching out with trucks, outlet still relevant
Fellow dessert provider Lock Ann Cafe 2 (Lock Ann) has also decided to cash in on the growing mobile F&B trend in Kuching by launching its own food truck this year.
Owner Lina Liew also agreed that expanding into this mobile business has comparatively lower expenses than if Lock Ann were to expand into another physical outlet.
More importantly, Liew said the mobility and the advantage of being able to easily participate in various events or functions played a key role in deciding to purchase a food truck under Lock Ann.
“Opening up a food truck is more cost efficient. There are less expenses involved compared to opening up a physical coffeshop or cafe, pay for the workers, rental. In contrast, for the food truck, you only need to pay for the loan of the truck.
“Also, it’s easier with a truck because you can move your products and services to wherever there is demand. Sometimes we are being invited or hired for events, we can easily bring our things there with the food truck. It’s more convenient,” she said.
The original Lock Ann Cafe was first established in 1952 and has since grown to a total of five outlets, including the food truck itself. Lock Ann’s food truck first opened for business in April this year.
Lock Ann’s food truck currently serves the brand’s more popular items on their menu including its various shaved ice desserts or drinks and ‘rojak buah’.
She observed that Lock Ann’s iced desserts and other local dishes from the food truck generally attract all customers of various demographics, whether young or old.
Since opening up the food truck, Liew revealed that response from the public thus far has been very satisfactory, mainly because people are already familiar with Lock Ann’s popular shaved ice desserts and drinks such as ABC (Air Batu Campur), Special, Ais Kacang or White Lady.
Perhaps in the future, they will create new shaved ice desserts to stand out from the dessert food truck market, Liew said, but for now, Lock Ann’s current and well-known menu will suffice.
Noms: From food trucks to restaurants
An interesting flow of events is the evolution from mobility to a full-time restaurant. BizHive Weekly recently caught up with NOMS (Noms), this time at the brand’s latest venture – NOMS Chapter Two – which embodies a physical restaurant concept.
Owned by partners Avertino Phua, Ardeles Phua and Kelvin Chong, Noms started out in the F&B industry via its NOMS On Street food truck two years ago serving Western cuisine. Noms’ mobile business is still thriving and attracting food lovers to this day.
The overwhelming response to their food led Noms to the decision to delve into the restaurant business mostly because they wanted to provide more to their customers, both in terms of food and services.
“From the point of view of a food truck business, you can only serve a very limited coverage of customers. For example, customers could only take away our dishes – they could not dine on the spot,” Avertino told BizHive Weekly.
“One of the reasons we expanded into a restaurant is because we want to give a place for customers to chill. Now, with a proper kitchen, we can offer a wider variety of dishes,” he added, noting that the menu served at the restaurant was different from its food truck.
“Same category, but different types of food. Some dishes have been upgraded,” he said.
With the restaurant now established, Noms will be able to constantly update or upgrade its dishes given that it now has a proper kitchen.
More space, more costs
Some of the challenges Noms encountered on its journey to expanding into a restaurant included the amount of capital required for this new venture. This included the renovation costs of the entire restaurant.
The Noms team or management for the restaurant also took time to build. Once a new cafe or restaurant opens up, if the team does not cooperate well with one another, this will result in the delay of dishes served to customers which Avertino noticed is a common mistake of many new eateries.
Avertino thus emphasised that a restaurant’s front line and back line staff are essential to the business running smoothly on a daily basis.
“I do not want to make customers wait long hours before being served their dishes, as is the case with many newly opened restaurants,” he said.
For NOMS Chapter Two, Avertino revealed that their waiting time that day for dishes to be served was only at most 20 minutes, which was normal for a restaurant setting.
He believed that it was Noms’ attention to details — such as the quality and freshness of food serve, along with the estimated time to serve each customer — which ensured the successful opening of their business.
On competing with the various F&B players on a restaurant platform out here in Kuching, Avertino did not believe Noms has much to worry on that part.
“Everyone has their own types of dishes, their own customer base, so to me, it’s not about competition. It’s about giving more choices to the people.
“The only challenges we face is sustainability. How we are going to sustain Noms’ branding in the future,” he said.
Keeping up with quality
Moving forward, Noms will continue to maintain both its restaurant and food truck businesses because both business models serve different needs.
“For example, with the food truck we can do events such as home parties while with the cafe, customers can come here to dine or they can book this place for parties.”
“I believe a food truck has its own pros and cons while a cafe also has its own pros and cons.”
On future growth plans, Avertino highlighted that from the beginning, their plan was to build the brand into a franchise and they will continue to do so via improvements and consistent branding.
In the coming one to two years, Noms aims to expand its brand throughout Kuching and open at least four to five outlets including in locations such as malls.
“Miri will be my next place to expand to, followed by Kota Kinabalu,” he added.
“When the operations there are stable, only then will we venture into West Malaysia.”