Wednesday, April 4, 2012
Sausage vs. Meatballs: A Study in Start-ups
Why did the Currywurst Bros. chain fail in New York, while little Meatball Obsession is thriving? Entrepreneurs, take note.
By Jon Burgstone and Bill Murphy, Jr.
This is a story of meat, square feet, and microeconomics. It's the tale of how two food entrepreneurs opened up shop about 10 blocks from each another in Lower Manhattan. One crashed and burned. The other might just make it.
Like any good story, there's a moral. Two, actually. And since you're a busy entrepreneur we'll give them both to you up front. First, keep your overhead low. And second, at all times, do everything you can to obtain maximum information for minimum cost.
Meet the Meat Vendors
Exhibit A is Currywurst Bros., a German chain that opened its first U.S. location in Greenwich Village, not far from New York University. It served an inexpensive sausage dish, very popular in Germany, called—yes—currywurst. If you're not familiar with it, it’s basically chopped up pork sausage smothered in curry powder and ketchup.
Sorry to say, but if you haven't tried Currywurst Bros., you've missed your chance to do so in New York. The restaurant opened in May 2011 in a high-priced storefront, "after a long build-out that took many months," according to The Village Voice. But it closed for good just seven months later.
Against this, we submit Meatball Obsession, which sells "meatballs in a cup"—one, two or three of them, plus tomato sauce and a piece of bread. According to the company's founder, Dan Mancini, the place grew out of his memories of meatballs his grandmother used to make.
Meatball Obsession opened this past week about 10 blocks from where Currywurst Bros. stood, but it has a very different setup. In fact, the eatery is, "a stall—just a window, really—embedded near the PATH train entrance on the east side of Sixth Avenue just short of 14th Street," as the Village Voice puts it..
So why did the sausage place go kaput after just seven months? And what might the meatball place learn from it? (Even more important, what can you learn?)
Pay heed to what customers need
We're using "need" in a generic sense here, but currywurst was basically new to New York City. It's a German food, and while New Yorkers are pretty much willing to try anything once, it hadn't been proven before. Who knew if anyone would really like it?
That's not the case with meatballs. Many if not most people have eaten a few meatballs in their life. More than that, Meatball Obsession isn't the first New York City eatery focusing on the humble meatball. There's The Meatball Shop, for instance, with three locations in the city.
Even more important, Mancini had been selling meatballs and sauce to New York City supermarkets for four years before he opened Meatball Obsession. He must have had pretty good information on New Yorkers' tastes before he started.
Keep überhead under control
Meatball Obsession is operating out of a window outside a subway stop. But Currywurst was paying rent for a much bigger place, around $16,000 a month, according to The Village Voice. Do the math: If you cleared $1 on every sausage you sold, you'd have to sell more than 500 of them every single day simply to pay the landlord. That doesn't leave a lot for other all your other business expenses---you know, like paying your employees and yourself.
Mind your p's: Process and profitability
Of course costs play right into profitablity, but there are other factors as well. According to The Voice, Currywurst Bros. needed 10 minutes to cook each sausage after it was ordered. That's kind of a long time to wait for a $7 hot dog substitute. (Especially, as one commenter pointed out, when you can buy a hot dog for a couple of bucks from a street vendor for about $2.)
We didn't actually eat any meatballs in the course of writing this article, but it looks as if the prep time at Meatball Obsession is much faster. And yet, one meatball goes for $4 at Meatball Obsession; $10 will get you three. There's likely a lot more room for profit with that kind of math.
The restaurant business can be brutal, and there's no guarantee that Meatball Obsession will survive any longer than Currywurst did. But their odds look more favorable. Gather the best insights you can achieve into customer needs and tastes before you launch, and keep costs low, especially before your idea is proven. It's good advice for just about any entrepreneur in any field.