Food Truck Nation: U.S. Chamber of Commerce Foundation Food Truck Index

Introduction

America's modern founding as a food truck nation began with the late-night cravings of a couple of Los Angeles-based entrepreneurs for Korean-style meat in Mexican tacos. Mark Manguera and Caroline Shin took their hunger to chef Roy Choi, and together they started Kogi Korean BBQ in 2008. Parked outside of a nightclub in the late hours, it soon began its tour of daylight streets with a tweet at every stop and a growing crowd in chase. By the end of Kogi’s first year of operation, its sole truck was clearing $2 million in sales, a then unheard-of figure.

Trucks like Kogis are not new. As “lunch wagons,” “taco trucks,” or just “street food,” mobile vending has been a part of the American culinary landscape for well over a century. From their birth in a covered wagon selling lunch food to journalists in 19th Century Providence, Rhode Island, these mobile mini-kitchens took off after World War II as they followed the growth of suburbs to places where restaurants were rare.

But Kogi’s early successes spawned gourmet imitators that are an altogether different breed from the latter-day “roach coaches.” Appealing to younger, cosmopolitan urbanites with novel takes on casual cuisine, today’s food trucks operate in Kogi’s innovative spirit.

Food trucks are a remarkable business. As John Levy, a board member of the National Food Truck Association told the Chicago Reader,

Food truck owners are a diverse crowd of rich and poor and represent all races and genders. In Chicago, roughly 80% of local food trucks are minority-owned small businesses. Owning and operating a food truck does not necessarily require an expensive degree, family connections, or English language skills. You just have to stand the heat. Food trucks continue to be vehicles for entrepreneurial opportunity and economic growth. Government regulators, though, have been slow to adapt their rules to this new breed of entrepreneur. From Boston to Washington, and San Francisco to Seattle, food trucks today continue to navigate tangled bureaucracies and costly processes. That is why the U.S. Chamber of Commerce Foundation, together with its project partners, created Food Truck Nation.

Food Truck Nation is the most comprehensive study ever conducted on local food truck regulations. This report consists of two parts:

1. The rules governing food trucks in 20 American cities and organized into an index, which borrows its inspiration from the World Bank’s Doing Business indicators and the U.S. Chamber of Commerce Foundation’s Regulatory Climate Index 2014.
2. The survey of 288 food truck owners and their first-hand accounts to drive the rest of the narrative and strengthen the findings of the index.

One aspect of our index looks at what it takes to obtain permits and licenses. We found that Denver, Indianapolis, and Philadelphia were the cities where those steps were clearest and easiest, while Washington, D.C., Seattle, and Boston are in the bottom. Boston and San Francisco, for example, require 32 procedures to start a new truck. Denver, by comparison, requires only 10 procedures to obtain permits and licenses.

These local regulations may be stalling the food truck industry’s growth. While food trucks have relatively low startup costs, permitting alone often creates high barriers to entry that can put the brakes on a new food truck venture.

“We all work so hard as small business owners that we don’t have time to deal with government,” one Austin-based food truck operator told us. “Government’s job should be to ensure we run a safe food service business, pay collected sales tax, obey labor laws, and that is about it.” A Chicago operator had a similar message for local governments: “Be open to different types of businesses, move processes faster, and be open to innovation.”

What is the state of the industry?

Food trucks are estimated to have reached $2.7 billion in revenue in 2017. Though this figure is still a small portion of the nearly $799 billion in expected restaurant sales for 2017, the estimate represents a sizable increase from its $650 million in revenue from just a few years prior, and relative nonexistence in 2008.

According to IBISWorld, the food truck industry grew at an average rate of 7.9% per year since 2011, reaching 3,703 trucks and 13,501 employees, by the end of 2016. These numbers come from previous year tax filings of companies that select the NAICS code for Mobile Food Services (722330). This number should be seen as a floor to the number of trucks that paid taxes in 2015, since it won’t necessarily include trucks that are part of brick-and-mortar institutions, or a single company running multiple trucks.

On average, starting and maintaining a food truck for one year requires:

• 45

  separate government-mandated procedures
• 37

  business days
• $28,276

  on permits, licenses, and ongoing legal compliance

That trend of food trucks morphing into and being a part of brick-and-mortar restaurants is accelerating. In nearly every city in which they set up shop, food trucks offer a net positive to the established restaurant industry. While official figures on that type of growth are elusive, neighborhoods where food trucks cluster, such as around Washington, D.C.’s Farragut Square, have seen visible, concomitant growth in brick-and-mortar establishments.

In spite of rapid growth, regulatory barriers appear to be slowing a once hot industry. Market research by IBISWorld found that “despite strong performance…high competition and unfavorable regulatory conditions in some cities have limited the growth of industry vendors.” That report predicts food truck growth will grind to a halt over the next few years. After five years of rapid growth, expected food truck growth is now only 0.4% a year through 2020. Several of America’s largest cities are already experiencing slower, or zero, growth of their local food truck economy. Forbes columnist Natalie Sportelli pointed out a few of these regulatory barriers to entry,

Such restrictions are already a greater concern for the foodservice industry. As Harvard’s Edward Glaeser pointed out, “You can begin an Internet company in Silicon Valley with little regulatory oversight; you need more than ten permits to open a grocery store in the Bronx.” This same regulatory inequality falls heaviest on food trucks at the state and local levels, directly affecting entrepreneurial opportunity for those who need it most.

What are the rules governing food trucks?

The food service sector has traditionally operated under strict rules created with an eye toward public health and safety. Food trucks similarly drive through a wide array of state and local regulations. Cities do not necessarily allow or ban food trucks. Rather, they determine rules over how, where, and when food trucks may operate that, in aggregate, often represent sizable barriers to entry.

They typically include varying levels of stringency in otherwise normal rules, such as permits for doing business, as well as specific restrictions on food truck operations, such as proximity bans or commissary requirements. Since food trucks are mobile, local regulations may quickly grow in complexity across jurisdictions where the food trucks operate.

Instead of trying to fit into a sometimes ill-fitting restaurant regulatory regime, food trucks often need to demonstrate why their business model is different enough to necessitate new regulations. This can sometimes come against a public sector inexperienced in the needs of food trucks or even wary competitors. There is little assurance that a new regulatory regime will be favorable.

When new regulations enter the books, their sheer variance from city to city often betray their arbitrary nature. At times, they appear to arise at the behest of established firms seeking restrictions against new competition. Regardless of the scale or scope of these regulations, collectively they can stem the flow of new business or direct the food truck industry in unexpected ways.

Food trucks contribute to public life and private flourishing. With a better understanding of the regulatory burden on food trucks, America’s cities will be better equipped to encourage these roving innovators and their hungry customers.

1. We shouldn’t ever have to deal with regulations on hours of operations, distance from restaurants, zoning, etc., unless those regulations are equally applied to all businesses, mobile or not.
2. We are also a cultural asset for local reputation and aid in driving tourism.

The Index

The Food Truck Nation index ranks, rates, and records regulatory burdens for opening and operating a food truck in 20 American cities. The project utilizes available information published by cities and counties to create an index that compares regulatory requirements, restrictions, and financial obligations. In so doing, it provides useful information and national benchmarking for public and private sector leaders to understand and improve their local business environments.

The index assesses the regulatory burdens and financial obligations to fulfill local requirements on three regulatory components of the ecosystem of the food truck business:

• Obtaining permits and licenses
• Complying with restrictions
• Operating a food truck

The index then ranks the 20 cities based on the composite scores of those three components. Our base case is a food truck that generates $250,000 a year and pays $150,000 in wages for three full-time employees.

Roaming Hunger, a food truck booking service, keeps one of the most up-to-date databases of mobile vendors in America. As a result, we used Roaming Hunger’s data and the U.S. Census’ population estimates to find cities with the highest density of food trucks, then we sorted the results by the Census’ four regions to obtain geographic diversity in our final selection of cities to study.

What are the highlights?

Local regulations on food trucks vary widely across America. These rules mandate review processes for food safety, business operations, insurance, fire safety, and more. Similarly, financial obligations, including licensing, permits, and mandatory food safety training, of food trucks differ substantially.

The five friendliest cities for food trucks are Portland (OR), Denver, Orlando, Philadelphia, and Indianapolis. Only Orlando sits in the top five rankings across each of those three components. For example, Portland does not rank as well in permits and licenses (8th place); there are more restrictions imposed on food trucks in Indianapolis (13th place); and it is costly to operate a food truck in Philadelphia (12th place).

The five most difficult cities for food trucks are Boston, Washington D.C., San Francisco, Minneapolis, and Seattle. Except Minneapolis (where it is a relatively smooth process to obtain permits and licenses), these cities prove to be difficult for food trucks in all three components in the Index.

The ease of doing business varies immensely across American cities depending on the angle of analysis. For example, Los Angeles does not have many restrictions on where trucks may operate, but it is more costly to maintain compliance with regulations compared with other cities. By contrast, Phoenix has many proximity restrictions for food trucks, but it is less costly to operate a truck there.

Moreover, the regulatory burdens of a city do not necessarily determine how easy the local government makes it to navigate those rules. Austin (TX) and Minneapolis have different business environments for food trucks by our measure, yet both have created one-stop shops to obtain permits and licenses for food trucks.

The rankings of each city in the Food Truck Nation index are based on the average scores of all three components of our index: obtaining permits and licenses, complying with restrictions, and operating a food truck. Each of these components in turn consists of the simple average (amongst all the cities in the Index) of procedures, trips to city government agencies, and fees paid to city government agencies. We give each city an overall score from 0 to 100 (100 being the best) to obtain a ranking from 1 to 20 (1 being the best).

Part One: Obtaining Permits and Licenses

The Obtaining Permits and Licenses component is a collective measure of the rules a food truck operator must comply with to establish their business. We examine the number of procedures required (e.g., inspecting a vehicle and obtaining a certificate counts as two procedures), the amount of trips to regulators (one for inspection and another to submit an application for a certificate), and the costs associated with these steps (e.g., a filing fee).

Each of these five subcomponents have about seven parts to our measure. For instance, the administrative subcomponent looks for requirements around a mobile food truck application and general business certificate.

Denver, Indianapolis, and Philadelphia scored highest for starting a food truck, while Washington, D.C., Seattle, and Boston are in the bottom of our ranking. Boston and San Francisco, for example, require 32 procedures to start a new truck. Denver, by comparison, requires only 10 procedures to obtain permits and licenses.

Cities may combine several procedures in one step to save time for applicants, while others require many trips to government agencies or other official entities, such as a notary public or accredited food safety training institution. Applicants typically need to make eight trips to agencies in Denver and 23 trips in Washington, D.C., to complete all required procedures to obtain permits and licenses.

Fees paid to city governments and other official entities vary substantially across cities. Food truck owners pay approximately $17,066 to Boston city government, nearly 29 times more than fees paid in Indianapolis. A large portion of Boston’s fees go toward monthly zoning permits.

There are five subcomponents in this measure:

1. Administrative
2. Health/Menu/Food Safety
3. Vehicle Requirements & Safety/Hazard Prevention
4. Employment
5. Zoning

Part Two: Complying with Restrictions

The Complying With Restrictions component is a measure of the rules a food truck operator must comply with so they can vend on a regular basis. We examined the number of quantitative restrictions required (e.g., the number of proximity rules or amount of times a truck must report to a depot in a day), and the qualitative measure of these restrictions (e.g., the number of feet a truck must be away from a school).

Each of these subcomponents in turn has between three and nine parts to the measure. For instance, the proximity subcomponent looks for the number of feet that must be maintained from restaurants, civic events, or residential buildings. Philadelphia, Portland, and Denver scored best when it came to complying with restrictions, while Minneapolis, Phoenix, and San Francisco ranked at the bottom.

Six proximity restrictions in Phoenix add to 2,215 feet of restrictions, while nine proximity restrictions in Raleigh add to only 325 feet of restrictions. In addition to proximity restrictions, cities have restrictions on operations. In Washington, D.C., there are five operational restrictions, such as for opening hours and menu changes.

There are three subcomponents in this measure of regulation:

1. Proximity (determined by the distance the food truck must remain from schools, restaurants, or other locations)
2. Operations
3. Zoning

Part Three: Operating a Food Truck

Operating a food truck is a measure of the rules a food truck operator must comply with to maintain legal compliance annually. We examine the number of procedures, including regular health and safety inspections, the number of trips involved to a regulatory agency, and the costs associated with compliance, including the fee for renewing a food truck’s vehicle registration.

Each of these average about four aspects. For instance, the inspections subcomponent looks for requirements around health, safety, and fire inspections.

Portland, Phoenix, and Indianapolis scored best when it came to operating a food truck, while Boston, Washington, D.C., and San Francisco scored lowest.

Typically, fees are associated with the number of procedures and trips to city government agencies and other official entities, such as notaries and accredited food safety training facilities. In Boston, a food truck has to make 31 trips and 21 procedures to comply with these operation-based regulations. Meanwhile, Portland not only offers the lowest ongoing costs, but food trucks need to comply with only 7 procedures and 7 trips to city agencies each year.

There are five subcomponents in this measure:

1. Insurance
2. Licenses and permits
3. Taxes
4. Inspections
5. Other (e.g., a data plan, or tracking devices)

The Survey

Every city's food truck industry interacts with local regulations. The nature of these restrictions is a local story felt individually. For this reason we partnered with Argive, a Silicon Valley non-profit focused on regulatory transparency, to survey 288 food truck owners and operators about their unique regulatory environment and challenges they face as a consequence. We paired the results of this survey with highlights from our index to describe the notable features of all 20 cities in this report.

Food truck owners across the country consistently called for simplifying or eliminating unnecessary regulations on their businesses. “We all work so hard as small business owners that we don’t have time to deal with government,” remarked one Austin-based respondent to our survey. “Government’s job should be to ensure we run a safe food service business, pay collected sales tax, obey labor laws, and that is about it.”

A local government favorable to the food truck industry is helpful, but that is not as important as having “clear and consistent rules,” as another Austin truck owner said. A Chicago local echoed this sentiment: ”Be open to different types of businesses, move processes faster, and be open to innovation.” How can local governments do that? “Talk to the owners,” suggested a Denver food truck owner.

Regulatory complexity represented perhaps the greatest burden to food trucks doing business. Nearly every food truck operator who offered written feedback to our survey noted the difficulties in doing business across jurisdictions. Larger cities often exist in metros spanning multiple counties across sprawling suburbs. Truck owners are responsible for meeting the vending requirements in each of these jurisdictions. Paying $300 for an operating permit in each jurisdiction can quickly multiply.

noted a San Francisco-based respondent. Numerous owners called for a single licensing and permitting process statewide that would allow trucks to be truly mobile businesses. “I wish you could have one permit for the entire state,” said a Denver food truck owner. “We work with four different counties and eight different cities,” said another Denver local, “and none of the requirements are either posted or the same.” Letting local food trucks roam means reducing the proliferation of speed bumps statewide.