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Getting the timing right on expansion

A lot of it involves trial and error

Gulf News

Dubai: Conventional wisdom has it that a small business owner has to cope with a lot in the run up to, and during, the launch of operations. And once that phase is gone through, it is relatively smooth sailing from then on. But reality paints a slightly different picture.

SMEs in the retail and F&B industry find that while opening the first location and making it work is often the easy part, doing an encore is when things start getting a bit dicey. A second location more often than not comes with a significant scale up in expenses and, if they get the location wrong, may not yield the expected numbers.

In the F&B space, businesses will also have to contend with the continuous production cycle due to the perishable inventory and limited shelf life that increases costs considerably. If not handled right, it could end up bleeding the business dry.

So, is there any such thing as an ideal time to expand? “A majority of small businesses fail within the first year — you are taught and told that if a small business survives the two-year mark it will be successful, since more than half close within two years,” said Jassim Al Bastaki, founder of the F&B concepts Café2Go and Camellos.

“With any new business venture or additional locations, the financial numbers are always important, but the vision and forecasting are vital. You always project how a certain location will perform and if it will cover its expenses or not.

“A lot of people perform financial analysis on paper but in reality are not able to achieve the goals. That is where experience and instinct come into play; they tell you whether you should go forward with a venture or not and not strictly base your decision on the financial numbers.”

Lamia Ahmad Al Hashly, owner of the patisserie brand Blossom Sweets, is convinced six months to a year post-launch affords enough time to get a feel of the operations and what an expansion should look like. “As start-ups we first need to introduce products or services, test the market and constantly innovate based on customer feedback and needs,” said Al Hashly, who set it up in tandem with Amna Al Hashly.

“Six months to a year can be used to absorb costs, size up future investments and then expand. “It is becoming increasingly difficult to build and sustain a successful F&B business today. Even more for a niche F&B segment such as ours where we face an array of increasingly complex issues — tougher regulation, growing competition, increasing food prices versus consumers looking for cheaper deals, constant production cycle and, especially, ever-changing consumer tastes.

“But since our launch in December 2011, we see a 20 per cent business growth month-after month,” said Al Hashly. “We would definitely be opening additional outlets as well as going commercial with a much larger kitchen unit and bigger team by end 2014.”

It is over a year since Café2Go opened its flagship location in Dubai and then backed it by creating a “mobile” concept of the same and then added a walk-through café. A drive-through location and a push-cart service are on the Café2Go expansion menu, as well as franchising.

In a way, Al Bastaki is not wasting time in seeking a wide footprint. But he is keeping an eye on the rents and he has a point.

“Rent is a significant expense for any small business and I believe that at the start the rental component should be around 10 per cent of your overall,” he said. “There are many locations that are available in Dubai for a fairly good price.

“To counter the high rent we have our mobile café and push cart. The mobile café is perfect for corporate and private parties and the push cart is perfect for lobbies of commercial buildings that don’t have food courts.”

The short and the long of it is to accept that there will be trial and error when taking on any expansion plan. The key is for the small business owner to be clued in at all times.