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Street Value: The real economics of launching a food truck

The food truck bubble hasn’t burst yet.

November 5, 2015

By Rebecca Bolton, Credibly

From college campuses to outdoor festivals, food trucks have become an increasingly common presence, serving one-of-a-kind cuisine to adventurous eaters. Their strategy is simple: Go where the customers are, instead of waiting for them to come to you.

On an individual level, most food truck owners are lean-and-mean disrupters — underdogs in an ultra-competitive food-service industry. But taken as a whole, food trucks are a powerful economic mover, with an estimated $857 million in annual revenue and annual growth of 9.3 percent. A January 2015 IBISWorld report accounted for 4,042 food trucks operating in the U.S., employing 14,893 people.

Launching a food truck can be a wise investment for established restaurants looking to better serve their local communities. Popular, well-marketed trucks often take in $250,000-$500,000 per year, and the superstars of the scene earn closer to $1 million. But what are the real costs and advantages of food truck ownership? And what separates the successful food trucks from the flops?

Startup costs

The cost of putting a food truck on the road is far less than the investment required to build a brick-and-mortar restaurant — which can swell to a million dollars if you’re building from scratch. But it still isn’t cheap. The biggest expense is the truck, of course. A new food truck built to your specifications will cost a minimum of $65,000. You’ll save money buying a used truck, although the additional maintenance and lower fuel efficiency can cost you later.

Add another $5,000 for the “wrap” — the custom vinyl graphic that covers the majority of your truck. As visually appealing, unique trucks attract more customers than plainly designed ones, this is one area worth the investment. Other startup expenses include $2,000-$4,000 for initial inventory and smallware (pots and pans, a fire extinguisher, etc.), about $600 for insurance, and the costs of local licenses and health/safety permits, which can run into the thousands of dollars.

Then there, are the monthly costs: $1,000 for maintenance, $500 for fuel, about $1,000 for the use of a commissary for food prep and waste disposal — restaurant owners can avoid this by using their own kitchen and private parking lot — and the salaries you pay your staff.

According to a new white paper by Credibly and VendingTrucks.com, the price of a custom fabricated food truck can range from as little as $45,000 for an old, used truck with a few cooking appliances, all the way to $150,000 for a brand new truck with a top of the line kitchen.

Still, the idea of spending less than six figures to enter a red-hot culinary scene remains very attractive to food entrepreneurs and restaurateurs, who can finance a food truck with personal savings or small business loans.

"Our total cost to get up and running was about $45,000," said Anthony Salvagno, who launched the S’wich It Up food truck last year in Albuquerque with the help of a $25,000 business loan. "We got a used truck, built to our specifications, and I installed a few items myself, which cut down on labor and parts. I bought equipment either online or locally — wherever I could find it cheapest."

Going Mobile

The competition between food trucks and restaurants has spurred many brick-and-mortar eateries to enter the food truck game, capitalizing on their existing brands while expanding their local reach. Considering that a fully staffed food truck only consists of two or three people, the employee costs are substantially lower than a traditional restaurant, with its waiters, busboys, and hosts.

While restaurant owners agonize over finding the perfect location, food trucks simply set up shop wherever hungry people congregate. The most successful food trucks don’t just stake out one street-corner — they’re nimble operations, bouncing from music festivals to sporting events to office complexes to breweries.

Serving customers all over town allows you immediate access to foot-traffic metrics and how receptive different neighborhoods are to your food; the ability to learn as you go is extremely valuable. Plus, social media has made it easy for food trucks to let their clientele know where they’ll be next. Food trucks that effectively harness social media can transform their customers into brand ambassadors, generating priceless word-of-mouth with every positive mention on Twitter and Facebook.

Road to success

As with any business, food truck success depends on market differentiation, business sense, and hustle.

"The best food trucks put a unique spin on food that’s already familiar to people,” said Brett Lindenberg, founding editor of FoodTruckEmpire.com. “Don't serve regular beef tacos — serve Pad Thai Tacos, like The Peached Tortilla in Austin. Don't serve regular hot dogs — serve gourmet hot dogs like Swizzlers in Washington, D.C. People generally don't want to try something 100% original, so put a creative spin on well-known items, and create trademark dishes that folks can't get anywhere else."

Turning your food truck into a money-maker also hinges on speed and volume. According to Instrucktional.com, food trucks need to serve 1.5 customers per minute on average — or about 100/hour — to maintain profitability and avoid losing customers to long lines. Ideally, a food truck should be able to serve about 300 people before running out of food, and item cost is crucial; your truck’s signature dish should be your highest-margin item.

"There's definitely a lot of room to grow to small cities,” Salvagno said. "And in larger cities, even though we’re closer to the saturation point, there’s still room to enter the market. The food truck bubble hasn’t burst yet."

Rebecca Bolton, director of Strategic Partnerships at Credibly, has over 8 years of restaurant strategy experience, from small independents to some of the largest chains in the country.