Why did Kazakhstan’s Food Truck Businesses Fail to Increase Gains during the Quarantine?

The main advantage of food truck businesses is mobility. However, they were not so mobile during the quarantine and failed to move from areas around business center to new locations in «sleeper» neighborhoods due to legal loopholes.

What is a food truck and how much does it cost? 

Basically, a food truck is a van equipped with a mobile kitchen and designed to sell food and beverages for takeout. If someone wants to sell burgers or hotdogs from the van, he should spend from 8 to 12 million tenge (from $19,100 to $26,600). About two-thirds is the cost of the van or trailer itself and the rest is the equipment. However, there is an option to save some money. For example, Marlen Malkeev, the owner of the Picnic Food Truck, bought a used 1995 Mercedes 308D.

«I spent 4 million ($9,500) in total. This is a minimum sum you need if you are ready to work with your hands. If you want to buy a truck that is completely prepared to use, you have to spend 7 million ($16,700) at least,» said Malkeev. 

Another entrepreneur, Pavel Zavrin, believes that a minivan is optimal to start with. For example, he bought a mobile coffee bar based on Renault Kangoo minivan for 3.5 million tenge ($8,300). Usually, these mobile coffee shops are relatively cheap and easy to maintain, which is why many startups are choosing them.

However, if you are going to enter the food truck business, you have to register yourself with the local tax authority as an entrepreneur, register your van with the police and get permission from the local sanitary epidemiologic service.

According to Aslanbek Jakupov, former head of the Entrepreneurship Promotion Department under the Ministry of National Economy, a food truck business is ‘mobile and fast-payback project.’ 

Why mobile business isn’t mobile? 

As market participants noted, food trucks indeed are very fast-payback businesses (from two to three years), but they aren’t mobile. 

Currently, food truck businesses work in two ways. The first one is mobile catering, when a truck owner works on outdoor events.

«You can earn about 50,000 tenge ($120) net per one event on average. The turnover is roughly from 200,000 to 250,000 (from $478 to $597). Costs are just food and payment to event organizers. Sometimes you can make about 800,000 ($1900) per month,» Marlen Malkeev said. 

The second way of business is renting a spot in the city either on private land or in a business center. According to the owners of one Almaty business center, they calculate the payment based on the cost of the parking lot. Usually this payment ranges from 20,000 to 35,000 tenge (from $47 to $83) a month. Some business centers calculate payment by square meters depending on location and other factors.

«It might be similar to small open coffee shops that pay rent by square meters. In Nur-Sultan this payment ranges from 6,000 to 10,000 (from $14 to $23),» the business center representative said.

However, as Almaty food truckers’ experience shows, the average rent for a truck is about 400,000 ($956).

Almaty authorities offer 60 specific spots for kiosks with rent ranging from 300,000 to 400,000tenge ($717 to $956). This rate is fixed and doesn’t change even in the winter season when turnover declines four times. And most importantly, the authorities require entrepreneurs to stay there constantly, which kills the core idea of a mobile food truck that can change location or just go home for the night. 

Given these circumstances, the first business model of food truck operation is much more popular. It makes enough money and costs fewer resources. For example, if an event is organized by akimat (local administration), it costs about 30,000 tenge ($71) a day. If the organizers are private companies (The Spirit of Tengri or Let’s Eat), the rent might cost from 50,000 tenge ($119). However, after the pandemic hit and all events were canceled, those who work as mobile catering were left with no income. Those who prefer to stay ata certain spot also lost much of their revenues. According to Zavrin, net sales declined by 60%. In other words, both business models became ineffective because food trucks were unable to change the location and move to  sleeper neighborhood. 

Why the food truck didn’t go from the pandemic?

Because food trucks sell food as takeout, these businesses were able to operate legally during the quarantine. However, they couldn’t take advantage of this opportunity in full due to loopholes in the legislation.

For example, those entrepreneurs who were engaged in catering at events before the quarantine were unable to move to the places allocated for non-stationary trade. They would have to wait for special bidding, which is held only once a year. They were not allowed to simply park there and sell food.

«It was a good opportunity, but we didn’t have a preliminary agreement with the akimat on those new spots. The problem is that the biddings for such spots are held only once a year, so we would not be able to reset our work, and we have no legal right to operate anywhere,» explained Marlen Malkeev.

Currently, a special working group that includes representatives of the akimat and Atameken National Chamber of Entrepreneurs are discussing potential changes in legislation. Thus, they suggest developing route options for café-caravans, introducing differentiated rental fees depending on the location or even issuing patents for work in a certain area.

According to Atameken Chamber, the decree On Approval of the Rules of Internal Trade already has been amended in July 2019 and many restrictions for food trucks were resolved. For example, akimat now approves not only the spot but the route as well.

However, there are no specific routes for food trucks that have been developed yet. Kursiv asked the Department of Entrepreneurship and Investment of the city of Almaty a question about these routes through its virtual reception, but it didn’t respond.

Marketing research predicts an average annual growth of 5% for the global food truck market in the next five years, referring to such competitive advantages as lower cost of entry to the market compared to a stationary cafe and flexibility in managing customer flow. (In theory, a food truck can easily move to more crowded places.) Of course, this only works if the legal restrictions do not impede the industry.