TORTILLA DEA’S FOOD TRUCK FEASIBILITY STUDY

A Project Presented to the Faculty

of

California State University, Stanislaus

In Partial Fulfillment

of the Requirements for the Degree

of Master of Business Administration

By

Hugo Castrejon

October 2020

CERTIFICATION OF APPROVAL

TORTILLA DEA’S FOOD TRUCK FEASIBILITY STUDY

by

Hugo Castrejon

Dr. Jingyun Li, Project Advisor

Assistant Professor of Operations Management

Ms. Katrina Kidd, Director

Graduate Business Programs

Dr. Tomas Gomez-Arias, Dean

College of Business Administration

Date

Date

Date

Signed Certification of Approval page

is on file with the University Library

© 2020

Hugo Castrejon

ALL RIGHTS RESERVED

iv

DEDICATION

My wife is my greatest champion and my source of inspiration. I want to

thank her for her unwavering support while I achieved my Executive MBA. I also

want to thank her for the idea of opening a taco truck as the basis for this capstone

project. We have always fancied ourselves to be good cooks, so the idea of elevating

our recipes to be the cornerstone for a business proposal is surreal. In honor of her

and her selflessness, her namesake will be the name of the business (i.e. Tortilla

Dea’s).

I know the past year has been especially hard as I diverted time away from her

and my children. Regardless, she picked up the parental slack where I came up short

and tried her best to set me up with the time I needed to succeed in this program. I

hope to be her yoke one day to lighten her burden as she takes her much-deserved

time to shine. Thank you for being a source of inspiration during trying times. Thank

you for loving me unconditionally. Thank you for our two children. You are the best

one of the best ones and I am so fortunate to have you as my wife.

v

ACKNOWLEDGEMENTS

It is an honor and privilege for me to have been a part of Cohort 15. I want to

thank my colleagues who raised my standard of work through friendly competition,

thought provoking insight, and inspiring diligence. I especially want to thank those

colleagues who always took the opportunity to advocate on behalf of a differing

point-of-view than mine. I also want to thank EMBA Director Katrina Kidd and the

rest of the faculty for stewarding such a high-caliber Program that truly invokes a

cradle-to-grave business acumen and readiness to succeed within industry. I

especially want to thank Professor Hinrichs for so tactfully challenging the status quo

of effective leadership and Professor Zong for instilling in me sound working

knowledge of managerial finance. I am without reservation a believer in the higher

education process of refining leadership ability and workplace efficacy. I am so

grateful for the opportunity of being part of the Stanislaus State’s family of elite

business graduates.

vi

TABLE OF CONTENTS

PAGE

Dedication ............................................................................................................... iv

Acknowledgements ................................................................................................. v

List of Tables .......................................................................................................... vii

List of Figures ......................................................................................................... viii

Abstract ................................................................................................................... ix

CHAPTER

I. Introduction ........................................................................................... 1

Executive Summary .................................................................. 1

Business Objective .................................................................... 2

II. Market Analysis .................................................................................... 3

Industry Analysis ...................................................................... 3

Market Size ............................................................................... 3

Main Competitors ..................................................................... 4

Target Market Segment............................................................. 7

Market Trends ........................................................................... 8

Market Growth .......................................................................... 10

III. Feasibility Study ................................................................................... 12

Startup Cost ............................................................................... 12

Cash Flow Analysis .................................................................. 15

Alternate Cost Structures .......................................................... 20

Alternate Market ....................................................................... 24

IV. Conclusion ............................................................................................ 25

References ............................................................................................................... 27

vii

LIST OF TABLES

TABLE PAGE

1. Analysis of Taco Truck Competition Operating in Similar Areas ................... 5

2. Proposed Schedule of Operation for Tortilla Dea’s .......................................... 8

3. Breakdown of First Year Startup Costs ............................................................ 13

4. Cash Flow Analysis for the First 3 Years of Operation .................................... 16

5. Cost Breakdown for the First 3 Years of Anticipated Operation ...................... 17

6. NPV Analysis for the First 3 Years of Anticipated Operation ......................... 19

7. Readjusted Breakdown of First Year Startup Costs ......................................... 21

8. Readjusted Cost Breakdown for the First 3 Years of Anticipated Operation ... 23

viii

LIST OF FIGURES

FIGURE PAGE

1. Positioning Map for Where Tortilla Dea’s Will Strive to Be Within the

Competition Mix ............................................................................................... 6

2. Tortilla Dea’s Menu for Breakfast and Lunch .................................................. 10

ix

ABSTRACT

Smithsonian Magazine (2012) featured Chef Roy Koi’s concept of hustling

Korean barbecue tacos from a food truck, which spawned nationwide fanfare for food

that is distinct, affordable, and fast. He is credited with revitalizing the mobile food

industry and inspiring food truck shows on the Food Network and Cooking Channel

that grew the mainstream appeal for culinary innovation occurring outside the

conventional confines of brick-and-mortar (Smithsonian Magazine, 2012;

Thrillist.com, 2019). Following in his footsteps, many chefs and entrepreneurs have

opted to avoid the risk for return against multimillion-dollar build outs typical of

glitzy metropolitan restaurant spaces. Instead, their focus is to win over weary foodies

by marrying unique global flavors with familiar classics. Capitalizing on the tired

menus of franchise chains and extortive prices of posh venue small bites, aspiring

chefs are looking to showcase culinary genius by giving hungry patrons more bang

for their buck.

This was the inspiration for launching a food truck serving tacos and burritos

to the greater Sacramento-San Joaquin (Sac-Joaquin) area. Tortilla Dea’s would bring

crisp and refreshing flavors, authentic to Mexico, to the underserved foodies in need

of breakfast and lunch options on the go. Although there are many taco trucks in the

area, they are indistinct and have sunk into obscurity behind brick-and-mortar

restaurants and other mobile competitors. Only a few have differentiated themselves

by delivering the genuine flavor flare and freshness expected from Mexican home-

x

style cooking. Each of these appetite-inspiring food trucks have a small cult following

and have unfortunately closed their operations during the ongoing pandemic. So, the

opportunity is readily available to seize market share and solidify the business as a

part of the local culture.

1

CHAPTER I

INTRODUCTION

Executive Summary

For years, the author and his wife have hosted dinners for family and friends,

which has culminated into a desire to open a food truck. Uniquely paring delicious

Mexican food with clean ingredients has caused many guests to beam wide-grinned,

as the flavor of each bite impacts the palate, and they inevitably request second

helpings, effectively relinquishing any guilt from eating a full meal. The intention is

to bring the same joy for food to the local community. Providing the public

wholesome, flavor-packed food ready for on the go enjoyment is the vision behind

opening Tortilla Dea’s.

Although the experience of growing a food truck business from grass roots

concept to mainstream patronage would be surreal, the return on investment would

need to be feasible in order to move beyond ideation and launch the business.

Therefore, a comprehensive market analysis must be conducted. Assessing the current

market for hungry customers throughout Sacramento and San Joaquin counties (Sac-

Joaquin) will help to define who the target customers are and what their purchasing

habits are like. Interpolating the hours of operation, locations utilized, method of

information dissemination and social media presence, menu scope and quality, and

customer frequency, will reveal any competitor weaknesses or strengths. A thorough

assessment of the industry will help to refine the competitive strategy for Tortilla

2

Dea’s and set the baseline to litmus test the financial feasibility of launching the

business.

Business Objectives

The primary objective is to test the feasibility of Tortilla Dea’s becoming the

food truck of choice in the greater Sac-Joaquin area. Given the low per-capita density

within the target area relative to other metropolitan regions of California, the food

truck will need operate under limited hours to whet the appetite of foodies to ensure

week-to-week repeat business. The initial effort will be to grow Tortilla Dea’s from

grass roots to a contender for mainstream patronage. Meticulous scrutiny will be

exercised to test business feasibility against the established market and its

competitors. Should the business be capable of achieving 15% sales above the

breakeven point, then the gross profits produced would be on par with my salary. This

would convince me to take a step back from conventional employment and, instead,

consider being a fulltime small business entrepreneur. Should the business be capable

of a 3-year payback period, then I would feel confident in expanding to a secondary

truck and possibly on to a fleet. These two metrics will serve as the acceptance

criterion to move from feasibility to business launch.

3

CHAPTER II

MARKET ANALYSIS

Industry Analysis

The dozens of food trucks already operating in the greater Sac-Joaquin area

are not mobilized as a coalition with lobbying power as in other markets, but are

instead fractured into silos. Unlike Angeleno food trucks that are united under the

Southern California Mobile Food Vendors Association, no united front exists here to

lobby local government to allow operations in ideal, high-traffic areas. There is no

monthly get together of food trucks on par with the Angeleno food scene like that of

First Fridays in Abbot Kinney or Third Thursdays on the Miracle Mile, where dozens

of food trucks congregate to serve hundreds of hungry passersby in popularly

traversed areas late into the night. Instead, local food trucks pay for specific

permitting for certain hours of operation at particular locations distinct from one

another. Therefore, it is imperative that food truck owners and operators know their

target customers and how to best reach them to maximize revenues.

Market Size

The website, Roaming Hunger, is the closest thing to a centralized database

for the number of mobile businesses participating in the local food scene. Food trucks

pay to feature their hours of operation, schedule of locations, menu and

accompanying professional photos of the food, and a private event solicitation tool

(RoamingHunger.com, 2020). It is not a comprehensive list of all local food trucks,

4

but it provides insight into how many leverage this service. Only seven Stockton

trucks are featured, but more than twice that many can be found after thoroughly

exploring the city or doing an exhaustive search for food trucks online. Roaming

Hunger features 125 trucks in Sacramento, although another 16 trucks can be found

by conducting another exhaustive search online.

At least 150 food trucks operate within the greater Sac-Joaquin area, servicing

hungry patrons from Tracy to Sacramento. Although most of the competition lies in

Sacramento, the explosion in popularity of local farmers markets has encouraged A-

list food trucks to venture out of the capital and grow their brand recognition

elsewhere. Now smaller communities are beginning to see local food trucks pop up to

defend their home turf, such as Lodi’s Moveable Feast.

Main Competitors

Fourteen businesses were deemed to be the main competitors for Tortilla

Dea’s. These businesses offer tacos or burritos as menu mainstays at competitive

prices. They also target similar patrons among similar neighborhoods. An analysis

was then conducted to assess the price point, size, and quality of the meals served.

The peak number of patrons served per hour was also tracked, which will help to test

the sales forecast for Tortilla Dea’s.

Table 1 shows that the average cost per menu item of equivalent portion size

is $7.81 and that the average meal quality is 1.79 out of 3, with 3 being the best

quality. The average truck vendor sold to 19 customers per peak operating hours.

5

Table 1

Analysis of Taco Truck Competition Operating in Similar Areas

Competitor Analysis

Competitors Meal Meal Meal Meal Customers

Description Cost Quality Size Per Hour

Rice Pot Movement 4 Tacos $9.00 3 3 28

Madd Mex

Regular Burrito $6.95 2 2

24 Super Burrito $7.95 2 2

California Burrito $8.95 2 2

La Picosita Regular Burrito $4.50 1 3

19 Supreme Burrito $5.50 1 3

A Moveable Feast Epic Fries $6.50 2 2 30

Bambi Tacos 3 Tacos $16.50 3 1 20

La Piedad 4 Tacos $6.00 1 3 25

North Border Burrito $8.00 1 3 21

Masa Guiseria 2 Tacos $8.00 3 2 27

Tacos Apatzingan Burrito $6.50 1 2 20

Tacos El Sinaloense Burrito $6.00 2 2 23

Mr. Jalapenos Burrito $9.00 1 2 22

$7.81 1.79 2.29 19

Figure 1 is a position map of the competition with the X-axis capturing the

portion size of a typical purchased meal and the Y-axis accounting for the quality of

the typical meal served. The bubble size of each competitor indicates how expensive

a typical meal is relative to each other.

6

Figure 1. Positioning map for where Tortilla Dea's will strive to be within the

competition mix.

The largest bubble belongs to Bambi Tacos, shown in green. Their tacos are

the smallest in size relative to other competitors, but arguably the highest in quality.

Hence, the price of $16.50 for a typical meal may be justified. Bambi Tacos

strategically pairs its food service with local craft breweries that lack full-service

kitchens in the Sacramento area. Bambi Tacos is thus able to satisfy hungry craft-

brew patrons, while simultaneously capitalizing on their festive mood and lack of

inhibitions. From personal experience and observation, patrons who would normally

order two or three tacos end up ordering more, to the benefit of Bambi Tacos. Typical

online food reviews hail Bambi Tacos for their refreshing taste and unique use of

plant-based nutrition.

The smallest bubble belongs to La Picosita, shown in yellow. Their burritos

are large but noticeably the lowest in quality, which may be compensated for by the

0

0.5

1

1.5

2

2.5

3

3.5

0 1 2 3 4

Meal S

ize

Meal Quality

Competition Positioning Map

Rice Pot Movement

Madd Mex

La Picosita

Bambi Tacos

Mr. Jalapenos

Tortilla Dea's

7

favorable price of $4.50 for a typical meal. La Picosita caters to passersby of limited

disposable income who just want to get a filling meal quickly. Living up to

expectations, La Picosita loads burritos with beans, rice, and cheese, as comforting

fillers in lieu of proteins like chicken or beef. Typical La Picosita reviews speak to

how easy it is to fill up a hungry family without breaking the bank.

The blue bubble represents the position that Tortilla Dea’s intends to secure,

assuming the strategy passes feasibility testing. According to the map, Tortilla Dea’s

will deliver both quality and portion-size satisfaction at a median price point among

its competitors. This strategy aims to set the precedent that Tortilla Dea’s will give

customers an affordable outlet for unrivalled culinary execution on the go.

Target Market Segment

The target demographic for Tortilla Dea’s customer base will consist of

college age students and busy professionals such as doctors and nurses. According to

an article in Market Scale, college students are focused on achieving academic

success now more than ever and are willing to spend what little disposable income

they have for the convenience of a delicious, yet inexpensive, prepared meal (Rector,

2018). A similar notion applies to professionals whose on-call status at work

promotes a need for convenience, specifically around meal purchases. With higher

disposable incomes available, medical professionals bored of cafeteria monotony

often venture out for fast-casual food options. The schedule of operation for Tortilla

Dea’s will look to capitalize on both of these target markets within the Sac-Joaquin

area.

8

Table 2 shows the proposed schedule for open business hours. A total of 16

hours per week will be dedicated to serving customers. These customers will include

passersby at three different local college campuses, a local farmers market, and two

area hospitals. The mileage to travel from the truck commissary, Central Valley

Kitchens, to the sales location is also included and totals up to 256 miles per week.

Table 2

Proposed Schedule of Operation for Tortilla Dea's

Proposed Business Schedule

Locations Week Shift Total Total

Days Hours Hours Mileage

Delta College Wednesday 0730-0930 2 63

UoP Wednesday 1130-1330 2

Lodi Farmers Thursday 1700-2000 3 60

Sac State Friday 0730-0930 2 63

Mercy General Friday 1130-1330 2

Midtown

Farmers Saturday 8000-1100 3

70 Kaiser

Sacramento Saturday 1130-1330 2

16 256

Market Trends

According to Forbes Magazine, food trucks have been heralded as mavericks

of the restaurant industry because they bring upscale culinary genius to where no chef

has cooked before (Dingwall, 2020). In essence, food truck business owners cannot

rely solely on the mettle of their cooking prowess, they must also exercise creativity

in reaching the masses and converting them into paying customers. This ingenuity in

9

food truck marketing has reached new heights as the shelter-in-place restrictions

surrounding COVID-19 have made it more difficult to reach potential customers.

Forbes Magazine describes what it has been like for food trucks to survive the

ongoing pandemic regulations. Some food trucks sought to wait out the reduction in

foot traffic, but failed to foresee how long the shelter-in-place restrictions would

continue (Dingwall, 2020). Other food trucks adapted by dropping anchor near

heavily trafficked locations like hospitals, neighborhoods with community clubhouses

and pool parking lots, or highway rest stops (Dingwall, 2020).

Tortilla Dea’s will also need to be an agile business ready to pivot to

capitalize on market trends and seize market share. That is why Tortilla Dea’s choice

for a commissary home base outside Lodi splits the Stockton-to-Sacramento drive to

customers. It gives Tortilla Dea’s flexibility in serving a greater area, while also being

close enough to refuel on necessary utilities like propane or potable water. Tortilla

Dea’s business strategy already takes into account serving medical professionals and

highly trafficked hospitals. The hours of operation are also limited to be able to

accommodate catered events in the evenings or on off days of operation. Lastly,

Tortilla Dea’s intends to offer take-and-bake meals for families, effectively

facilitating the homebody responsibilities of working professionals. The take-and-

bake family meal is also a unique customer offering that would differentiate Tortilla

Dea’s from the competition. The initial menu is provided in Figure 2, which includes

the take-and-bake option.

10

Tortilla Dea's Menu

Breakfast Lunch

*All breakfast tacos and burritos

served with fresh eggs scrambled

*All lunch tacos and burritos served

with fresh guacamole,

with country potatoes and pickled cilantro lime rice, refried beans,

red onion and heirloom tomato and heirloom tomato pico de gallo

pico de gallo Taco Burrito Taco Burrito

$3.50 $7.50 $3.50 $7.50

Choices: Choices:

Cripsy Bacon and Oaxaca Savory Carnitas and Oaxaca

Savory Chorizo and Queso Fresco Carne Asada and Queso Fresco

Rojo Ground Ribeye and Cotija Jack Verde Chicken and Cotija Jack

Adobo Chicken and Asadero Cochinita Pibil and Asadero

** Breakfast chilaquiles available on ** Lunch tostaditas available on

Saturdays for $9.00 Fridays for $9.00

*** Frozen enchiladas offered seasonally as a take-and-bake family meal

for $24

Figure 2. Tortilla Dea's menu for breakfast and lunch.

Market Growth

Tortilla Dea’s is set up to leverage current market trends within the food truck

industry. By directing its sales efforts at nearby hospitals and college campuses,

Tortilla Dea’s stands to grow from a grass roots operation to a solidified contender

within the Sac-Joaquin food scene. The proposed strategy also promotes the

flexibility to take on more days of operation to sell at additional locations or to take

on private catering events as necessary, thus making Tortilla Dea’s agile enough to

remain at the forefront of industry trends and capable of year-to-year market growth

potential.

11

The overall competitive strategy for Tortilla Dea’s is time sensitive, which

means it is open to reevaluation within its first 3 years of operation. Assuming the

financial feasibility proves lucrative enough to launch the business, the realized

profits from revenues would be assessed to determine if the business is worth

continuing. Should the market growth not be sufficient, the backup plan would be to

sell the business or close the business and sell off the truck, the added equipment, and

any inventory. This contingency measure is included in the financial feasibility

analysis to follow.

12

CHAPTER III

FEASIBILITY STUDY

Startup Cost

A comprehensive list for startup costs is provided in Table 3. The general

costs are levied across six different categories: truck costs, commissary costs, permit

costs, staff costs, website costs, and food costs. Within each of these categories,

subgroupings exist to further break down the costs.

13

Table 3

Breakdown of First Year Startup Costs

1st Year Start-Up

Description Cost Unit Total

Truck $100,000 10-Year $100,000

Wrap $15,000 10-Year $15,000

Equipment $35,000 10-Year $35,000

Smallwares $2,500 3-Year $2,500

Register $800 3-Year $800

POS $893 Monthly $10,721

Fuel $90 Weekly $4,301

Maintenance $6,724 Annual $6,724

Fire Extinguisher $430 Annual $430

FLIP Policies $400 Monthly $4,800

Commissary

Insurance (Liability) $560 Annual $560

Commercial Kitchen $2,000 Monthly $24,000

Commissary $1,000 Monthly $12,000

Permits

Licenses $3,000 Annual $3,000

Staff

Uniforms $360 Monthly $4,320

PPE $55 Monthly $660

Labor $83,130 Annual $83,130

Website

Wifi $45 Monthly $540

FB/Twitter/Instagram $0 Future $0

Analytics $0 Future $0

Food

Drink Restock $800 Monthly $9,600

Food Restock $2,250 Monthly $27,000

Paper Product Restock $350 Monthly $4,200

14

Thorough research proved that truck buildouts could be as low as $50,000 or

as high as $250,000. The range in food truck costs depends on the degree of turnkey

convenience. Trucks priced around $50,000 are typically small, used vehicles where

the previous equipment and location of that equipment stay fixed. Truck purchases in

excess of $150,000 are typically for larger than normal food trucks that are brand new

and customized to the liking of the chef. A new Frieghtliner brand food truck of

typical size, measuring 14’ tall and 24’ long, was chosen as the basis for this study. It

would cost about $100,000 for the bare truck and an additional $35,000 would be

assessed for customization features such as deep fryer, freezer, generator, speaker

system, vent hood, air conditioning, and extra storage and refrigeration capacity.

Another $15,000 would be required for the design wrap to grow brand awareness and

attract customers. Ancillary equipment costs for the food truck include a fire

extinguisher and a point-of-sale system and register.

The state of California requires that the food truck be insured as a motorized

vehicle and that the business maintain a worker’s compensation policy. These costs

are incorporated under the Food Liability Insurance Program (FLIP) policies. A

business owner’s policy (BOP) is also included, under the FLIP line item, to protect

against unforeseen interruptions to business. In light of the recent difficulties that

food trucks have faced due to shelter-in-place restrictions, a BOP is a worthwhile

expense to safeguard the business.

Commissary kitchens are required by California law to ensure that food trucks

maintain a clean and supplied operating environment. They allow preparation and

15

refrigeration space for chefs to work prior to venturing out on the road to sell food.

Commissaries also provide rental space for overnight storage of food trucks and offer

access to truck utilities such as potable water, propane, and electricity. Approved

commissaries require a valid general liability policy, so this line item is included

under the commissary category.

Tortilla Dea’s owner will seek to promote employee engagement to cook

flavorful food and provide excellent customer service. It will offer employees

uniforms that will be laundered by a third-party service such as Uni-First or Cintas.

Pickup of soiled uniforms and delivery of clean uniforms will be conveniently located

at the commissary. Employees will also be paid above industry average hourly rates

and be provided with health care benefits for them and their families. The goal of

incurring such extraneous costs is to reduce employee absenteeism and turnover, and

to promote a willingness to succeed on behalf of Tortilla Dea’s.

Cash Flow Analysis

Table 4 shows the annual expected cash flow and the disinvestment value of

the food truck at the end of the third year of operation. The costs, highlighted in red,

were pulled from the values provided in Table 3. Sales are expected to be slowest in

the first few years of operation, as Tortilla Dea’s grows its brand and market base.

Sales are expected to be at least 15% greater than the breakeven point. In this

particular case, the difference between the breakeven point and the 15% increase is

4,937 additional meals sold or $37,030. See Table 5 for the breakdown of costs over

the first 3 years of operation.

16

Table 4

Cash Flow Analysis for the First 3 Years of Operation

Predicted Cash Flow Analysis for First 3 Years

Initial Investment

Vehicle and equipment $ (150,000)

Inventories and other working capital $ (11,660)

Total investment cash outflow $ (161,660)

Operation Per Year

Sales $ 283,896

Cash expenditures

Food $ (36,600)

Labor $ (83,130)

Supplies $ (9,610)

Fuel and utilities $ (16,301)

SG&A $ (34,721)

Miscellaneous $ (7,264) $ (187,626)

$ 96,270

Disinvestment Value

Sale of vehicle and equipment $ 74,999

Recovery of inventories $ 8,745

$ 83,744

17

Table 5

Cost Breakdown for the First 3 Years of Anticipated Operation

Cost Structure

Description Per Year Per 3-Year

Truck $100,000 $100,000

Wrap $15,000 $15,000

Equipment $35,000 $35,000

Small Wares $2,500 $2,500

Register $800 $800

POS $10,721 $32,164

Fuel $4,301 $12,902

Maintenance $6,724 $20,172

Fire Extinguisher $430 $630

Insurance (FLIP) $4,800 $14,400

Commissary

Insurance (Liability) $560 $1,680

Commercial Kitchen $24,000 $72,000

Commissary $12,000 $36,000

Permits

Licenses $3,000 $9,000

Staff

Uniforms $4,320 $12,960

PPE $660 $1,980

Labor $83,130 $249,390

Website

Wifi $540 $1,620

FB/Twitter/Instagram $0 $0

Analytics $0 $0

Food

Drink Restock $9,600 $28,800

Food Restock $27,000 $81,000

Paper Product Restock $4,200 $12,600

Total $349,286 $740,598

The breakeven point, in number of burritos, is calculated as the 3-year

operating cost divided by the cost per meal per year.

18

$740,598

$7.50𝑚𝑒𝑎𝑙⁄ × 3 𝑦𝑒𝑎𝑟𝑠

= 32,916 𝑏𝑢𝑟𝑟𝑖𝑡𝑜𝑠𝑦𝑒𝑎𝑟⁄

Applying a 15% adder above the breakeven point requires a minimum of

37,853 burritos to be sold per year. Multiplying by the meal cost, the annual

anticipated sales is to be a minimum of $283,896 for the first three years of operation.

This minimum figure would promote at least $96,270 in gross profitability per year.

The net present value (NPV) of the overall investment must then be calculated

to determine whether the investment to own and operate Tortilla Dea’s will be

worthwhile. Table 6 shows the NPV for the predicted cash flows, including the option

to sell the food truck after the third year of operation. According to Table 6 the cost to

initiate and operate Tortilla Dea’s is clearly advantageous, as the NPV is $113,209.

19

Table 6

NPV Analysis for the First 3 Years of Anticipated Operation

Scenario 1 (Costs + 15%)

Net Present Value of Anticipated Cash Flows

Predicted

Cash

Inflows

(Outflows)

Year(s)

of Cash

Flows

15%

Present

Value

Factor

Present

Value of

Cash

Flows

Initial Investment ($161,660) 0 1.00 ($161,660)

Operation $96,270 1-3 2.28 $219,806

Disinvestment $83,744 3 0.66 $55,063

NPV of all cash flows $113,209

Year of CF CF

1 $96,270

2 $96,270

3 $180,014

PV $274,869

Initial CF ($161,660)

NPV $113,209

Year of CF CF

0 ($161,660)

1 $96,270

2 $96,270

3 $180,014

IRR 49%

BCR 1.70

PBP* 1.68

However, 49 burritos are required to be sold per hour of operation to sustain

the minimum sales expectation of 37,853 burritos per year. This is not a feasible

target for even A-list food trucks in more established markets like Los Angeles to

20

sustain. The breakeven analysis reveals that 43 burritos must be sold per hour, which

is still well in excess of the meals served per hour by the established competition.

Table 1 shows that the average food truck in the greater Sac-Joaquin area services 19

customer per hour of operation. Therefore, in order to justify launching the business,

the cost structure must be reduced without negatively impacting Tortilla Dea’s ability

to attract and serve customers.

Alternate Cost Structures

Table 7 lays out an alternative scenario for the startup costs for Tortilla Dea’s

to target about 25 meals sold per hour. In this scenario, the food truck is still new, but

smaller than originally planned. The food truck would be customized by Northwest

Mobile Kitchens, a specialty manufacturer of smaller food fleets

(NorthWestMobileKitchens.com). Since it is smaller it would have less room for all

the originally intended prep surfaces, included equipment, and storage capacity. The

overall costs for the initial truck investment drops by $36,000 in this scenario.

21

Table 7

Readjusted Breakdown of First Year Startup Costs

1st Year Start-Up (Smaller Truck)

Description Cost Unit Total

Truck $82,000 10-Year $82,000

Wrap $12,000 10-Year $12,000

Equipment $20,000 10-Year $20,000

Smallwares $2,500 3-Year $2,500

Register $800 3-Year $800

POS $683 Monthly $8,198

Fuel $90 Weekly $4,301

Maintenance $6,724 Annual $6,724

Fire Extinguisher $430 Annual $430

Insurance (FLIP) $400 Monthly $4,800

Commissary

Insurance (Liability) $560 Annual $560

Commercial Kitchen $1,600 Monthly $19,200

Commissary $1,000 Monthly $12,000

Permits

Licenses $3,000 Annual $3,000

Staff

Uniforms $360 Monthly $4,320

PPE $55 Monthly $660

Labor $75,258 Annual $75,258

Website

Wifi $45 Monthly $540

FB/Twitter/Instagram $0 Future $0

Analytics $0 Future $0

Food

Drink Restock $700 Monthly $8,400

Food Restock $1,650 Monthly $19,800

Paper Product Restock $325 Monthly $3,900

22

Other concessions would also have to be made to lower the overall cost of

operating Tortilla Dea’s. For example, the commissary rates would need to be

renegotiated to be slightly lower; a $25 per hour decrease would be the target.

Starting pay of the chef and sous chef would be lowered to the industry standard,

though family benefits for employees are still included. Finally, less food, drinks, and

paper products would be needed to support fewer meals served per hour.

Table 8 shows that the readjusted 3-year operating cost for Tortilla Dea’s

decreased by $107,686 (14.5% reduction). However, despite the cost reduction

strategy, the breakeven point is 33 burritos per hour. This is still well in excess of 25

burritos per hour sales target. So, the only remaining decision is to sideline Tortilla

Dea’s as a food truck venture for now.

23

Table 8

Readjusted Cost Breakdown for the First 3 Years of Anticipated Operation

Cost Structure

Description Per Year Per 3-Year

Truck $82,000 $82,000

Wrap $12,000 $12,000

Equipment $20,000 $20,000

Small Wares $2,500 $2,500

Register $800 $800

POS $8,198 $24,594

Fuel $4,301 $12,902

Maintenance $6,724 $20,172

Fire Extinguisher $430 $630

Insurance (FLIP) $4,800 $14,400

Commissary

Insurance (Liability) $560 $1,680

Commercial Kitchen $19,200 $57,600

Commissary $12,000 $36,000

Permits

Licenses $3,000 $9,000

Staff

Uniforms $4,320 $12,960

PPE $660 $1,980

Labor $75,258 $225,774

Website

Wifi $540 $1,620

FB/Twitter/Instagram $0 $0

Analytics $0 $0

Food

Drink Restock $8,400 $25,200

Food Restock $19,800 $59,400

Paper Product

Restock $3,900 $11,700

Total $289,391 $632,912

24

Alternate Market

A concession from the initial cost structure to the adjusted structure still

exceeds the number of customers that the local market is capable of delivering per

hour of operation. However, the adjusted cost structure may prove lucrative in a more

mature market such as Los Angeles. Perhaps funding a business predicated on a

smaller, used food truck would prove to be a winning recipe in a metropolis with

pockets of greater disposable income and overall greater population density. It is not

uncommon for the A-list food trucks in Los Angeles to sustain sales of over 35

customers per hour per shift.

The pandemic so far has proven to be debilitating for the greater Sac-Joaquin

food truck market. Many food trucks served to whet the appetite of customers with

the intention of coaxing them to visit the accompanying brick-and-mortar restaurant.

However, even after reducing truck operating hours, local owners, such as Chef

Midgley of Midgley’s Public House, have sold their food trucks to outfits in San

Francisco or Los Angeles. Other food trucks, such as Bambi Tacos, have suspended

operation indefinitely until the shelter-in-place policy is lifted. Upon meticulous

examination, less than one third of the food truck businesses featured on Roaming

Hunger in Sacramento are running normal operating hours (RoamingHunger.com,

2020). The conclusion is that the greater Sac-Joaquin food truck market is not the

market to be in at the moment.

25

CHAPTER IV

CONCLUSION

The customers served per hour, detailed in Table 1, were determined during

February before the shelter-in-place policy was mandated. The likelihood that food

trucks operating in the Sac-Joaquin market are averaging 19 customers per hour is

somewhat farfetched. This means that achieving over 25 customers per hour is simply

not feasible, even if the policy is lifted. Perhaps as the food truck scene matures and

residents are more willing to solicit meals on the go, then revisiting this business plan

and testing its feasibility will prove sustainable and more lucrative.

Until then this exercise in assessing the feasibility of a proposed business plan

has proven to be a worthwhile experience. The ability to test business proposals is a

necessary skill for an impactful manager to have. By having to analyze the merit of a

proposal, the manager can effectively determine threats to the success of the

organization and opportunities to be leveraged. That is why there is value in

understanding that Tortilla Dea’s will not work in the current local market, but it may

prove to be a profitable contender in the local market’s distant future or sooner in

another market locale.

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27

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