Face First Into Bureaucratic Madness – Opening a Hot Dog Stand In California

It happens to be that my brother needs a better paying job.  He doesn’t have a degree, but he is a hard worker.  He doesn’t like factory or trade work, but he’s always enjoyed working in the fast paced environment of the food service industry.

After poking around for some jobs I thought he might enjoy, I came upon the hot dog concession cart industry.  When I suggested running a hot dog cart as a possible option to my brother, he was ecstatic.  He loved the idea.

A cart owner who is willing to hustle can easily earn a six figure salary.  I’m not joking.  Simple math says a vendor selling $2 dogs, with a 30% overhead, would only need to sell 250 dogs a day, 5 days a week, to earn a 100,000 in annual profits – and that doesn’t include the real money makers which are combo deals.  Most customers will buy 2 dogs, so that’s 125 customers a day, which is a completely feasible number given the right locations.

Super low startup costs, low overhead, the ability to earn well over the median US wage, a sole proprietorship that’s relatively easy to manage, don’t have to deal with the hassle of employees, set your own hours – PERFECT!

At least that’s what I thought.

As I began the process of doing my due diligence in starting up a concessions business, I ran face first into the mammoth wall of bureaucracy called the California Environmental Health regulations.  Some of the discussions I had with the regulators would blow your mind.  The purpose of this post is to detail some of the utter insanity I experienced.

Some background – the regulations are completely engineered to make entering the concessions cart business virtually impossible.  You can do almost nothing with a concessions cart in CA, other than serve pre-packaged snack food, which includes re-heated hot dogs. If you want to do anything beyond that, you need to drop ~$70,000 on a full blown food truck.  As one regulator stated, “The minute you’re standing inside of a truck or trailer, all those little rules fade away. ”

In most states that are not run by the criminally insane, a decent used hot dog cart will run you about a grand.  It will come with a cooler, a steam table and a bread bin.  This basic cart system has served billions of dogs to millions of people around the world without incident for the past 100 years.

In most states that are not run by the criminally insane:

A cart owner can keep his cart at his house and he can do any prep work required in his own kitchen.

A hot dog cart isn’t required to undergo a $500 dollar third party certification, be equipped with a commercial grade refrigerator or a commercial grade .5 gallon hot water heater.

A cart owner can put chili and grilled onions on a hot dog.

A hot dog cart isn’t required to have three separate sinks separated by a 6″ high backsplash.

You can sell within a 1000 feet of park, 300 feet of a business that sells food, or on a residential street.

A business owner isn’t required to have hundreds of separate business licenses (not joking).

Yep, all that shit don’t fly in the great state of CA, and that’s not the half of it.  Care to guess what a cart that is compliant with all the CA regulations costs?  You may as well be buying a new Toyota.

When I began going through the cart approval process (which you should definitely do before you even think about buying a cart), I found a really nice cart online that had a cooler and a hot water heater.  When I submitted the cart design to the regulator, his response was, “It needs to have a commercial water heater as well as a commercial refrigerator unit. Does it have these and, if so, what are the make and model of them?”

It seems to me it should be his job to assess the plans I submitted, but at any rate I replied, “It would come with [this] water heater…But it does not have a commercial refrigerator unit.  I guess I have to keep looking.”

To which he replied, “We need an actual tank style water heater, no ‘on demand’ or tankless types.”

That’s right folks.  The new modern tankless heaters just aren’t good enough for the great unwashed masses of CA.  I then asked him to provide me a reference to the code that says I can’t use a tankless heater.

His response was:

From Section 114325:

“….On a mobile food facility that only utilizes the water for handwashing purposes, a minimum one-half gallon-capacity water heater interconnected with a potable water supply, shall be provided and shall operate independently of the vehicle engine.”

Instantaneous water heaters are allowed on carts that only do hot dogs, and where the water is only used for washing hands, but again, it would have to be commercial grade whereas the one you showed me is not.

Oh, so now the hot dog cart can have a tankless water heater, it’s just that the one I showed him wasn’t good enough for him.

Since I have enough money saved up to cover the startup fixed costs, my biggest concerns about the cart business model are the recurring costs.  In this regard, CA is beyond crazy with regulations.  Carts are required to be kept at a commercial commissary, which is like an RV park for carts that has a kitchen.   Guess what the rent is for that useless shit?  Heaven forbid you store your cart in your own garage!  You might contaminate yourself with hot dog juice!

You need annual vending permits and business licenses for each city your cart will be working in.  Riverside alone charges over $500 a year for a cart permit.  And then you need your recurring food manager license.  And don’t forget your food handler safety license!  Oh, and you definitely need a state business license and probably some federal tax ID nonsense as well.

Did I mention that in most of California, if you want to park your cart and sell for more than an hour at any location, you need to get a signed statement from the business you’re parked in front of that says you can use their bathroom, and then submit that statement to the county.  – I’m fucking serious.  Oh, I think I also forgot to mention that all menu changes and route changes must also be reported to the county for approval.

Of course, I haven’t even touched on taxes yet.

I did an entire projected budget in Excel that computes everything from the per dog cost of relish to the estimated amount of propane being used.  These are real numbers based on present market data.

Assuming my brother was able to sell 100 dogs a work day, 260 days a year, at $2.50 a dog, he would generate $65,000 in total sales, less 8% for sales taxes, leaving $59,800.  The estimated food cost per dog is $0.75, with the total operating expenses coming in at an estimated $35,565 a year, which does not include the cost of the cart itself, leaving $24,235 left over.

On it’s face, that’s not too shabby for only working five days a week and selling 100 dogs a day, but this is California we are talking about.  CA is one of the few states that imposes double taxation on business profits.  Once we account for Uncle Sam’s cut, which tax estimation calculators put at $6,887, he’s left with a mere $17,348 – basically less than minimum wage.  Remember folks, we started with $65,000 in revenue.

From that $17,348, I figure once we account for a $250 car payment, $100 a month cart payment, and $700 a month in rent and utilities, along with $800 a month in food/clothing/toiletries/misc expenses, he’ll only be going in the hole at the rate of $4,851.67 a year.

Perfect!

Now of course he could potentially average more than 100 dogs a day, and the profits obviously increase dramatically above this level because all of the fixed costs have been satisfied, but there’s the rub.  From this example, we can see that the barriers to entry for this market are incredibly high.  A person who doesn’t rapidly acquire a high volume location after starting up will quickly find themselves being run out of business by the fixed operating costs that are almost 100% caused by government regulation.

How many people are willing to bet $15,000 that they can sell more than 100 dogs a day?  Not many.  One of the regulators I talked to came within a hairs breadth of calling me stupid for even considering this line of business.

In the end, I thanked him for preventing me from making an unwise business decision.

 


Update:

For those of you who are interested in what it would take to break even selling dogs in the Inland Empire of CA, I did some further refinements to the calculator.  This also leaves out some start-up costs, like wrapping the cart with a logo, display signs, additional pans/utensils, etc.. etc..

Assuming the following expenses:

Tax Deductible Monthly Fixed Costs:

-Commissary $200.00 (most cost 2 to 3 times this, but Riverside has a cheap one)
-Propane $260.00 (assumes ~4 hours of burner time per work day, for an 8 hour day it’s $430.  This assumes one $30 propane tank will last 12 hours of continuous use.)
-Business Insurance $25.00
-Permits $50.00 (low ball again, assumes working one city only)
-Cart Upkeep/Cost $300.00  ($10K to $15K for a new cart, plus maintenance and future upgrades/replacement)
-Health Insurance $350.00
-QuickBooks $35.00

Non-deductible Monthly Fixed Costs:

-Car Insurance $150.00
-Car Payment $250.00 (Carmax used truck with warranty costs about the same as a new cart!)
-Food/Living $1,000.00 (phone, clothing, haircuts, toiletries, entertainment, and everything else)
-Gasoline $200.00
-Rent/utilities $800.00 (this is a low ball estimate that assumes roommates, double this for OC or LA living)

Variable Costs:

8.5% sales tax
~28% + $66 income/ss tax
2.7% cc transaction fee
$0.78 per dog food cost or $1.95 per combo

@ $2.50 per dog or $6.00 a combo (2 dogs, chips and a 16 oz water)

He would need to sell 139 dogs or 59 combo meals every work day to break even.  While these are certainly feasible numbers, they aren’t a slam dunk.  The risk is buying an extremely expensive cart and then not being able to hit those numbers.

If we leave out all the costs imposed by the bureaucracy, which I define as commissary, permits, cart costs, sales tax and income tax, he’d be left with an annual take home income of ~$55,000, or $4,600 a month.  But even that’s not entirely right, because the costs of rent, utilities, living expenses, etc.. are also impacted by fees, sales taxes and income taxes.  Thus, a true saved dollar amount is incalculable.  Needless to say, he’d be making a comfortable living.

  • Tom

    There’s a good reason why there’s a steady stream of people leaving California.

  • derfelcadarn

    It is California o, sare these tofu dogs to which we are referring ?

    • I’ll make sure he carries them if we go this route.