The Rickety Economics of Food Trucks

Whenever food trucks materialize to serve often-indulgent food out of a little kitchen with a big engine, more than a few of us wonder: How do they do it? What are their operating margins? What’s the long-term plan for the guy who owns it? Alongside Brett Lindenberg, founder of Food Truck Empire, we’re taking a peek under the hood of this mysterious little economy.

Starting a food truck business is less expensive than opening a restaurant, right?

Oh sure, it’s definitely less expensive. Opening a brick-and-mortar restaurant costs hundreds of thousands of dollars. But a food truck? You can get one for far less than $100,000 — and there’s sure as hell no shortages of them! Used ones are often anywhere from $20,000 to $90,000, mostly depending on how old they are (and what they’re equipped with). You can find loads of them on CraigslisteBay, Lindenberg’s own Food Truck Empire, etc. But it helps to know what you’re looking for, Lindenberg says. If the kitchen configuration isn’t in line with your menu (for example, you see a truck you like that was used for hamburgers when you plan on serving Asian food), you’ll have to spend more money getting the right equipment installed.

What types of costs do food trucks have that restaurants don’t?

There are many — the hidden, or lesser-known costs of the food truck industry that often get overlooked. In addition to the truck, there’s maintenance costs, because that thing will break down — or at the very least, will need some regular work done after so many months and miles spent crisscrossing the city. Parking in a food truck lot ($500 a month on up) — or even on the street in some big cities — will cost you, too. And until some genius invents a combustion engine fueled by meat trimmings, bread heels and whatever’s come to rest at the bottom of the grease trap, gasoline is a major expense.

There’s also food-truck-specific health permits (which vary widely by location, from a few hundred dollars per year in smaller cities to a few thousand in a metropolis like L.A.). The health codes themselves — and sometimes the local fire department’s requirements — also vary wildly, according to Lindenberg, so a truck you buy in Phoenix may not pass muster in San Francisco, for example.

But one of the biggest costs might also be one of the most overlooked: The prep space, or commissary, a brick-and-mortar location with a commercial-grade kitchen. In larger cities, it’s usually a requirement, Lindenberg says, that your truck has to be parked at a commissary overnight — and you also need a legit prep kitchen for obvious health-code requirements. Why is a commissary a big deal? Because they’re expensive: Around $1,000 a month.

So why not just open a restaurant and use its kitchen for prep, instead of getting a commissary?

That’s exactly what some of the savvier food truck operators discover after they’ve had a bit of success: For a few hundred bucks more than a commissary, they can rent out a small restaurant space and use the kitchen both for the restaurant and the food truck. “That’s definitely a trend: Once your proof-of-concept is out, then get a space, start a restaurant and run the food truck at the same time,” says Lindenberg.

Can I run a food truck all by myself?

“It’s almost impossible,” Lindenberg says, “at least for very long.” That’s another cost: labor. The only ways you could successfully roll solo are if you’re serving something extremely simple (hot dogs, or, say, running an ice cream truck), or if your sales volume is very low and you’re not doing any big events.

This is already adding up. Is anybody getting rich off of food trucks, then?

The margins are usually pretty slim, Lindenberg warns. That’s why the type of food you’re selling matters so much: There are a couple types of food with big margins, he says, which includes the lobster rolls you see everywhere now, which often go for $15 to $20 each. They’re one of the cash cows (or cash crustaceans) of the food-truck world — he knows some lobster-roll purveyors who won’t vend somewhere if they know they can’t bring in at least $5,000 to $8,000 there. Those guys with an ever-expanding fleet of lobster-roll trucks are an example of someone killing it.

Lindenberg says tacos have high margins, too. Think about it: It’s a bit of meat, tortillas and a dozen or more super-cheap condiments and sides, which you can reconfigure, a la Taco Bell, into an infinite array of menu items. Tacos are extremely cost-effective (hence their prevalence in the food-truck world), but you need to move enough of them to make a profit.

Then there’s the trade-off of doing most of it yourself or hiring a manager (in addition to those other employees) to help you out. “If you’re going to be the owner/operator type, where you’re the main guy that’s booking everything, talking to people on the phone, finding new business and you’re actually serving it yourself, you’re definitely going to be profitable as long as you have a decent product and execute well,” Lindenberg says. Many people, however, just can’t (or don’t want to) keep up the 60-hour workweek that this requires, so you’ll need to find a manager to actually run the truck — and that won’t be cheap, he says.

How do the successful food trucks survive and grow, besides taking a chance on a restaurant?

One word: catering. Lindenberg calls it “super important. Catering, for a lot of trucks, makes up over half their total revenue.” Think weddings — which every vendor marks up their prices for anyway (from the tux shop to the cake shop, along with the florist and the photographer). When the artisanal nachos truck rolls up late in the evening to serve a bunch of people who have been having their way with the open bar for several hours, absolutely nobody complains. Or if a food truck’s brand allows it, maybe they go one step further and branch out into a catering company, classing up their menu to handle the main course itself at the wedding. Corporate events are similarly rich catering opportunities.

“We think of food trucks making their money by doing daily service somewhere for lunch and then driving off and parking somewhere else,” Lindenberg says. “A lot of times they’re just doing that to pay bills for the week, get their name out there and get introduced to people, whereas the catering is where your guaranteed money comes in.”

Fancy food trucks have been a thing for a while now, but what about the old-school, no-name roach coaches that roll up to construction sites, selling basic burgers, burritos and sandwiches?

“From a profitability standpoint, both [types of food trucks] can be profitable, but there’s definitely a mindset difference from the ownership perspective,” says Lindenberg. “The guy at the construction site probably isn’t on social media trying to promote himself, and he’s probably not hoping to build a wedding catering business for his restaurant.” Nor are they likely seeking to expand into a brick-and-mortar type of restaurant — unless there’s an unusual local demand for bland turkey sandwiches on white bread.

These trucks are selling convenience, says Lindenberg. Sure, they’re serving average, cheap food, but hey, they’re right there on site, there’s a limited lunch break and the nearest restaurant is much farther away — not a bad, and almost certainly a lower-risk, formula. They also have the potential to make good money, though again, volume (likely a large fleet of trucks) is the way to earn it.

Do food trucks often fail?

For your answer, just look at Craigslist — each truck for sale is a cautionary tale, an unsavory, broken-down dream of selling Instagram-friendly meals in checkered cardboard serving boats across your fair city, one neighborhood and street festival at a time. It’s not a pretty picture: Although he hasn’t come across empirical data on it, Lindenberg estimates the failure rate is probably similar to restaurants’ notoriously high failure rate (two out of three restaurants don’t live to celebrate their third anniversary, according to research).

One difference Lindenberg notes is that many people will hold down their day job and work a food truck on weekends, maybe seasonally. With those types of expectations, and with the safety net of your day job, running a food truck can work, he says. It’s not like starting a restaurant, into which you generally go all in.

So should a food truck be looked at as a means to an end, or an end in itself?

Lindenberg says there’s just not a lot of growth to be had sticking with one truck. “Everybody’s different, you’ve got to know yourself and what your goals are, so to speak,” he says. “But for a lot of people, if you want to grow and make really good money, you’ve got to figure out a way to expand. That means operating multiple food trucks, or maybe it’s opening up the restaurant after you open up the food truck. However it ends up looking, there’s usually a next step for most people. At least the ones that are really successful.”

All Rights Reserved for Adam Elder

One Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.