Know When You’ve Reached The End
It was early October ’14 & business slowed from 25 catering gigs in Sept. down to 12. Some said this was normal. Oil companies always started wrapping up the year in early 4Q. But something was on the horizon: the price for a barrel of crude was taking a nosedive. One of our regular customers, Robert @ United Rentals, told me Saudi Arabia was flooding the market with cheap oil. Why? To:
1. Crush the Russians (who were funding their war against the Ukraine w/ $100+/barrel oil),
2. Stop Venezuela from taking more market, and
3. Kill the explosive growth of shale oil from the USA
This geo-political event took me by surprise.
Our business moved into the RED and I began to lean on Richard, a good friend & minority shareholder, to cover the losses, ultimately selling 35% of Boom Town in exchange. As oil dipped to $50/barrel, exploration slowed and by December thousands of oil workers were getting laid off. Those still working saw big cuts in their bonuses & per diem expenses.
Customers said the market should rebound by 1Q2015, so I modified my strategy & contacted a few housing facilities built to serve the influx of workers (called “man camps”). I became fast friends with the owners of the Karnes County Lodge, a 74 bed camp in need of food service to offset their remote location. Multiple times throughout the winter we were “days away” from contracts that would allow us to turn the tide. They also introduced me to their contact, friend & manager Belinda, at The Escondido Creek Lodge (140 bed facility) who had a well-equipped kitchen & cafeteria, but no longer had a food service vendor. Still, nothing materialized.
Between a weekly gig at American Disposal Services (ADS) facility (by far, our largest customer), a few catering gigs, a few weekend festivals, nights on the street w/ the food truck, and cash from our partner, we bumped along from November-March at a loss of $3K-$6K per mth. So when we were offered to take over the kitchen at The Escondido we felt we’d received a reprieve.
If the oil price was Punch 1 of our undoing, taking over the camp kitchen was Punch 2.
In order to provide 3 meals/day coverage we needed more staff–we were fortunate to hire Chef Ralph, and a part-time staffer to cover breakfast. To conserve cash I worked 6-7 days/week to cover the cafeteria at night while Eli, our GM, & Ralph covered 7 days/week w/ 2 days off every other week. Excitement grew as the camp got a deal with Halliburton raising occupancy to +125 guests.
Great reviews for our food accelerated as Ralph & Eli worked magic together, we felt we’d be able to convert these guests to customers. But since the guests were not required to buy food from us, combined with their pay cut & per diem expense allocation cut… turns out we never really had a chance.
Easter Sunday evening I got a call from Belinda to serve 25 men 3 meals/day 7 days/week for 6 months for $17,500/mth. When a few days later our friends from the Karnes County Lodge wanted us to serve 50 men for 4 to 5 months to help meet a Halliburton contract they were negotiating, we thought the long drought was worth the wait.
But the euphoria over the deals would be fleeting. The Karnes deal inexplicably disappeared. Meanwhile, the 25 Escondido customers never averaged more than 8ppl/day and ended in under 4 weeks. And now that there was an excess of available camps, it became a buyers market. Facilities went from $175/night down to $70–below the cost of operating!
Working the man camps was the hardest thing I’ve ever done… Breakfast prep at 2:30am, serve B’fast + “bag” Lunch 3:45am-5:00am for Day Crew. Then B’fast for the returning Night Crew from 6-9am. Dinner prep starts at 12noon til 3PM, serve Dinner to the Night Crew & a “bag” Lunch from 3:30-5:30pm, then the Day Crew returns between 6-9pm. Clean up was done by 10:30pm.
The extra required staff made it impossible to turn a profit with less than 30 meal plan guests/day, and I was going on 15 months without income. The low revenue combined with the increased overhead pushed our loses to almost$8K/mth. Something had to give.
While back home in CT for 10 days, (May 17th) my partner, wife & I agreed to close the business. Two days later I returned to TX and within 48 hours landed a 5 week contract w/ Encana to serve lunch & dinner to families they evacuated due to an oil well blow-back that spewed some waste across a 3 mile radius. Going from serving barely 6-10 meals/day to 260 on Day 1 of the Encana contract is a story for another day. I will say calling it a “challenge” would be putting it mildly.
As Encana’s clean-up progressed families returned home, dropping the number of people served. We served our last meal June 13, & after a few days of catching our breath, once again there was no other business in the queue. About the same time ADS let us know they were stopping their weekly service–after exactly 52 weeks… I prayed with my wife as we confirmed I’d close on Friday. Before I even hung up The Karnes County Lodge called asking: “Could you be ready to start serving 50 Halliburton staff starting Friday night?” and it would last–at least–until the beginning of August. WHAT!?!
But the final blow was already being thrown in the form of another Geo-Political event–the Iran Nuclear Treaty. “WHAT? you say?”
Here’s why: When the treaty is approved Iran will join the Saudi’s in flooding the market with more cheap oil. In anticipation, the oil market collapsed to under $50/barrel killing any thoughts of recovery.
So when I got an early morning text message that Halliburton had checked out 10 days early (BTW: we never did serve over 36ppl/day) & weren’t coming back, I knew we had reached the end.
I could have changed directions again. Chased the consumer market out of San Antonio. Followed weekend events around the state. Pick up the odd catering gig for party’s & schools. But, no. Boom Town was designed as a food services business, not a food truck business. The differences are night and day.
I told my staff and closed the business 2 days later. Why? Sometimes you know you’ve reached the end. And I had.
Lots of blessings came as a result of taking the risk, and I really LOVED serving & feeding people. But that’s for another day & another post.
Danny Gallo, The Small Business Lifer