Chapter 4 Opening a Retail Outlet
There are four things that are essential in having a successful ice cream outlet: location, location, location—and—I forget the other one. Ice cream is an impulse food-you see it, you want it. A “good” location has lots of foot traffic.
No matter what size outlet you open or what you sell, its location is unquestionably the single most important decision you can make. This decision is so critical that we consider a big part of the benefit of franchising with us is the help we give regarding location.
Many an ice cream business has failed because of poor choice. The difference between a good location and a bad one may be just a few meters.
We had a friend who called and was excited because he thought he had found the perfect location for an ice cream kiosk. It was on the first floor of a mall (very good), right in front of the door (very good) and at a main walkway intersection (very good). But when we got there we immediately told him “Don’t do it!” Why?
Everything he told us was true but he omitted a few things. The big one was he didn’t tell me about the column. It was a large column. It hid the kiosk from the people entering and also the people approaching from the left on the main walkway. And, to the left of the column on the main walkway was a kiosk with a big sign that further hid his location from that direction.
The people approaching from the right had to pass a long line of confection and dessert stands that were the competition. They were in larger spaces, sold a wider product line and had better opportunities to market. Last but not least, the walkway where my friend would go was a dead end. He ignored my advice. He lasted two months.
Location tips to remember:
Is the location busy at peak hours, lunchtime, dinner and evenings? If the location is not really busy at these times, you cannot prosper.
- Car traffic is nice, but foot traffic is more important.
- If you are counting on car traffic, make sure that your location is easily visible from the street for not less than 4 seconds at 40kph (enough time to see your sign), is easy to access after drivers see it and it has good parking.
- Success in an open-air mall depends on how close you are to high-volume outlets like a supermarket.
- Visit the site on different days at different times, particularly peaks (lunch, dinner, evenings) to see how consistent the traffic is.
- Competition: How many dessert/ice cream shops are located nearby. Competition in a mall is inevitable, but having competition in the same area as you will dilute sales. Locating your shop near a brand name like Ben & Jerry’s is death.
- If an ice cream shop is on one side of the mall and doing well, chances are that you will do well on the other side, providing of course that your side has equal foot traffic
- Visibility. Will everyone who walks close by know that there is ice cream there?
Indoor Malls (in the right spot), airport departure lounge, zoo’s, convention centers, amusement parks, high-traffic open-air malls, near a cinema, near a superstore, train station, beach area, sports arena. Strip malls if located near a high-traffic store.
Location in a mall: Enclosed malls are better for year round traffic and people often stroll around in malls for amusement, making them perfect customers for impulse sales. Also, they are open in the evenings and this has seasonal advantages, particularly in temperate climates. In winter people in malls buy ice cream whereas in strip malls ice cream sales fall off dramatically in winter. In general, it’s better to pay more rent and be in an enclosed mall than to pay less and be in a strip mall.
We always urge our startups to try and open a kiosk in a mall. Upscale malls can be good because people know prices are higher in them. But be careful. If the upscale mall is super upscale and has little foot traffic you have a problem. This mall may be good for selling diamonds but ice cream needs loads of passers-bye.
Another good reason to start with a kiosk is that it is a cheap startup and a mall is prime territory if the location in it is right. If you don’t do well in your first location you may be able to move. If everything in your first mall fails you can load the kiosk onto a truck and move. In malls, the first floor is prime space for gelato, near entrances, escalators and main walkway intersections are best. Food courts are usually not great be3cause mo9st people go in their to eat a meal. Mall ice cream is a sort of between meals impulse food.
If you open on a street where most of the shops close at day’s end, it is likely that the street will be deserted at night, robbing you of one of your most lucrative periods. What happens on the weekends? Do most of the shops in your area close on Sundays? If so, you will probably be dead on Sundays, which should be one of your busiest days. Check out the action at night. Is yours an area where people promenade? Is there something nice to walk around, like a park, river or view? If the location has foot traffic, count it. Do not assume anything.
If you live in a temperate zone, what happens to business when it gets cold? Do you have a supplementary product you can sell when ice cream sales drop off?
If there is little foot traffic passing your location, can it be seen easily from the street? Is it easy to pull off and park to make a purchase? Drivers have to get your marketing message in 2 seconds, no more. That is how long it takes to pass your location at 40 km/hour.
Do not fall in love with beautiful places. The beauty is only useful if all the other elements of your requirements fit. People often lease beautiful places only to find that the beauty does not turn into profits.
Selling gelato: Gelato does best in highly targeted locations where people can afford gourmet cuisine. Areas surrounded by office buildings, banks and close to upscale shopping are good. Since a shop is larger than a kiosk it must attract more customers and that means offering a wider variety of products. Time and again, small shops offering a light food menu, cookies, cakes and ice cream are solid winners. In most cases simple food with a good sauce and nice presentation makes people happy. This is a particularly good formula for airports.
Manufacturing in your Shop or Kiosk
Before getting into a discussion of the various shop sizes and their merits, let’s talk about making ice cream in your retail outlet. Of course the first question is whether to make it or buy finished ice cream, which was previously discussed.
There are advantages and disadvantages in making gelato in your shop as opposed to making it elsewhere.
Making ice cream in your shop centralizes your operation, reduces transportation cost, optimizes staff and if the manufacturing can be done where customers can see it this is a form of marketing that is very compelling.
Furthermore, sales are not continuous during the day and there will be time, especially in the morning, when staff have enough time to make ice cream, so labor costs can be discounted.
In addition, many shops have either a back room, a kitchen area or enough space in the retail area to accommodate the necessary equipment, which consists of a batch and blast freezer plus a working table and refrigerator. So, factory manufacturing cost, usually 30-35% the cost of ingredients, can be discounted.
Even the smallest manufacturing operation takes 3-5 additional s.m. (32-53 s.f.) of space and retail space is expensive. If you are starting off small, instead of a 9 s.m. space you will probably need a 14-15 s.m. space, adding 66% to your rent. In fact, if you go to that expense you might as well consider an 18 s.m. space, where you can sell a much wider product line. Read more about that later on.
It is often possible for the small startup to make ice cream in a spare room, garage or even kitchen, where overhead is low and then transport it when you go to the shop. In addition, in most places kiosk and shop space is standardized and 9-10 s.m. is common but 13-15 s.m. is not.
Matching Your Money to Your Dreams
The ice cream business is a lot of fun and can be very profitable but before plunging in, it is important to match your business goals to your investment capital. Regardless of what you decide it is important to have a cash reserve of about 25% of the startup cost or enough to keep the operation going for at least 4-6 months, so that you do not run out of money before the business becomes profitable.
Clearly, the least expensive way to start is with an ice cream cart and the most expensive is to open a full-size factory with outlets. Let’s summarize your choices:
The simplest, least expensive retail outlet is a kiosk, which is almost invariably opened in a mall, which is also one of the best places to start a small ice cream outlet. They are extremely easy to manage with just weekly visits. Employee theft and shrinkage is easy to spot. The space is small but the air conditioning is free because the mal supplies it.
A kiosk is your biggest bang for the buck. The ice cream is made elsewhere or you buy commercial. It requires much less investment than a shop and if the location turns out to be not good, you can move. You can open 2-3 kiosks for the cost of a single shop and that increases your exposure. All of the machines in a kiosk are hard assets and if things don’t work out you can sell them.
This is a 9 s.m. kiosk showing a 180 cm display freezer and cash counter. This freezer has a lower reserve bay for 15 tubs. Behind it is a cabinet/counter with a cone maker. The 3-seat counter to the right
takes up a bit more space.
Kiosk up to 9 s.m. (97 s.f.) Photo above
Our standard 9 s.m. kiosk is shown ABOVE. The basic equipment required is:
display freezer cash counter
cash register cabinet-work counter (or under-counter fridge)
storage freezer mixer for cone batter
The cost of the entire setup is less than $20,000. Of course you can also have a slush machine, coffee machine and a crepe maker.
About the smallest kiosk is a 9 s.m., usually 3×3 m. (9.8’ x 9.8’) allowing room for a 160 cm 16-flavor display case, a 60 cm cash counter and 60 cm for entry.
In this space you can sell soft serve, gelato in tubs or commercial packages products such as ice cream sandwiches, pre-made cones and also have enough room on a rear counter to make milk shakes, slush and coffee.
If the rear counter is replaced with an under-counter refrigerator you could store milk for shakes, fruit for sundaes and soft drinks in it. If you get the under-counter fridge, you will need a wall cabinet for storage.
The 15 s.m. (161 s.f.) kiosk or small shop:
The next size kiosk is like the one shown above. It requires 15 s.m. of space (3m x 5m). It is slightly less portable than the 9 s.m. model but it has the capacity to offer many more products than the smaller kiosk including:
- ice cream
- ice cream cakes and rolls
- soft drinks
- light food
- slush drinks
- milk shakes
- and much more
However the ice cream is made elsewhere. This kiosk without the equipment costs about €7,000. The equipment costs €9,000-€23,000 depending on what you want.
The 21 s.m. (226 s.f.) kiosk or small shop (3m x 7m) :
By stretching this kiosk 2 meters, adding 6 s.m. bringing the floor space to 21 s.m. you can add a batch machine and blast freezer and make ice cream
The 27 s.m. (290 s.f.) kiosk or small shop:
By adding 2 more s.m. to the length you can add side seating, bringing the seat capacity to 12.
Large Shop w light food 30-60 s.m. (322-645 s.f.)
Now we are talking about a shop the size of a small Dairy Queen with the capacity to be a full-size dessert shop and also a light food restaurant with a broad line of desserts and light food.
The 32 sm Kiosk
The 32 sm Kiosk
The 32 sm kiosk has many advantages. You can make ice cream and other desserts right in the shop. With a small convection oven you can also bake cakes, rolls bread and frozen-remade products. With our impinger microwave you can reheat food products made offsite. You can sell a variety of drinks: juice, slush, espresso, milkshakes, bottled drinks. The large cake case will notably hold confections but samples of your food items as well as bottled drinks.
Shop Setup Cost
THE FOLLOWING LIST IS JUST AN EXAMPLE.
These prices area little out-of-date, so add about 10%
- Rent $1890
- Rental deposit 3 months $5,670
- Utilities (Deposit) $900
- Interior decor $12,000
- Minor repairs/improvements $1000
- Plumbing $1500
- Product Inventory $4,500
- Advertising $500
- Miscellaneous supplies $750
- Insurance Premium $400
- Signage $2200
- Deposits/Licenses $1500
- Architectural & Legal $2500
Machinery & Equipment
- Display Freezers $8000
- Upright Glass Door Freezer $2200
- Pastry Case $875
- Storage Freezers $500
- Under counter Fridge $1400
- Waffle Cone Maker $550
- Hot Fudge Warmer $350
- Shake Mixer & hardware $670
- Cash Register $300
- Uniforms $300
- Cash reserve $12,000
- Total $65,155
Pricing Your Products
If you are located in an upscale area you should be able to charge about 12% more than elsewhere. Of course a big factor is how much ice cream is in a scoop but again, the competition will set the standard. But scoop size varies tremendously. In America a 4-ounce (112 gr.) scoop is normal but in Thailand a 2.5 ounce (70 gr.) scoop is typical. Using the American example:
THESE PRICES ARE JUST FOR EXAMPLE
USD Euros USD
Ice cream costs 4 oz scoop $0.50
Spoon, cup, napkin 0.10
TOTAL COST $0.70
SALE PRICE $3.50 $2.75
COST .70 .70
gross profit $2.80 $2.05
Cost of goods $0.70/$2.80 25%
It is always wise to price your products toward the top-end of the pricing range. In the beginning you can offer grand opening discounts and eventually you can lower prices if the market demands it—but raising prices is always taboo. Customers get angry at increases whereas they are always happy with reductions.
It’s easy to understand that the cost of rent is probably the second largest expense you will have after cost of goods. Many a tenant has been driven out of business because the rent was too high but this can also be because sales were too low! Furthermore, rent can be high because the landlord is gouging you or because the location is hot. Of course it was not hot for the last guy, which is why the spot is up for rent!
A rough rule-of-thumb states that rent should be about 10-15% of projected sales. In the gelato business, we always recommend upscale locations—which have upscale rents. If you are selling an upscale quality ice cream you need an upscale customer base and lots of passers bye. If you see that the competition gets about 3% of the foot traffic (it may be less), you can anticipate about the same.
So, if the sale-to-passers-bye is 3%, then if 10,000 people pass by your location during the day you will get 300 customers. If the rent is $1,840 Euros/month and you are making a gross profit of $2.80/scoop, you will need to sell 657 scoops/month to pay the rent. You are projecting selling 300 scoops per day @$2.80 each gross profit= $840 x 30=$25.200/month. 1,840/25,200=7% or selling 150 scoops/day is 14% so this rent is OK.
Of course you may be selling more than ice cream and your income per customer should be higher because about 20% of your customers will buy something in addition to ice cream and you will probably also sell some sundaes and takeout as well.
Getting a good lease is extremely important but most landlords have a prepared lease that benefits them and they don’t like to change it. Finding a good location is so important that when one is found you are highly motivated to rent it but that does not mean you should sign without examining it thoroughly. Sometimes landlords will allow modifications if they are not major ones and these small changes can help you immensely.
Escape clause: First among these is the escape clause. Woe unto the tenant who signs a long lease without an escape clause and then finds out his shop is not profitable! This is especially true if your company entity is not an LLC or incorporated, limiting your liability but even if it is, the landlord can sue. Furthermore, the landlord is not highly motivated to find a new tenant if you are paying the rent. At the very least, the landlord will keep your rent security and deposits.
An escape clause simply states that you are allowed to terminate the lease within a specified period, usually 90 days, upon earlier notice, say within 60 days.
Liability: Landlords are motivated to pass as much liability on to the tenants as they can. Logically your liability should be limited to areas of your responsibility, such as health/safety of the product, risk from defective furniture and fittings you installed and hazard-accidents such as customers falling on wet floors. But sometimes landlords like to pass all liability to the tenant such as the roof falling in and heaven help you if you fail to notice this and do not provide adequate insurance to cover.
Product Line: The product line you plan to sell may change after you begin operations. This is particularly true of food businesses. You may think that because you specified you are selling ice cream that this implies “light food.” It does not! And the guy down the mall who is selling light food will be sure to have a chat with the mandlor4d if later on you decide to broaden your product line. So it is wise to specify a product line as broad as possible.
Length of Lease: Sometimes landlords try to specify a month-to-month lease and really it is better to just walk away from these. The landlord may tell you this is just a form of insurance against rowdy or unreasonable tenants but it is in fact a sword over your head hung by a thread. You may say to yourself that you have a kiosk that is easily moved, but the customers you have will be lost. And the business interruption and uncertainty of where you will go is significant.
A long lease benefits the tenant but not the landlord. It locks in rent increases and locks out new prospective tenants the landlord might prefer. A 1-year lease is a minimum and it should come with several options to renew. To know where you are on this subject, just assume the landlord will kick you out when the lease expires and see where that idea takes you.
Escalator Clause: Don’t be afraid to ask for an escalator lease, with the first month free, then half the rent for the next few months, then full rent beginning in month four. Usually landlords laugh at this but sometimes they will compromise by giving you the first month or two free. At least it shows that you are thinking.
Location Guarantee: This means you won’t wake up one morning and find a Dairy Queen next to you.