Valuing the Halal Guys

Anyone who has been to the Halal Guys stand on 53^rd street and 6^th avenue knows why I am writing this article. There are hundreds of food carts in NYC, but only one that serves halal (others are proprietors of inferior lamb and rice).  As per Halal Guys’ slogan: “we are different.”

Get involved with the sauce

For those of you who have not been there, the Halal Guys is good enough to kill for (see 2006 stabbing incident ). It boasts long lines at all times of day. And the food is well worth the wait.

I have constantly wondered about the state of their business. How long is the average line? How many plates of halal do they serve? What are their margins like? What is their enterprise value? After over a month of observation (timing and counting the number of plates served per minute), here is what I have come up with:

The locations will be defined as follows:
cart 1 – 53^rd and 6^th on the south west corner of the street from 7:30pm – 4:00am

cart 2 – 53^rd and 6^th on the south east corner of the street from 12:00 pm – 4:00am

cart 3 – 52^nd and 6^th on the south west corner of the street. from 12:00pm – 4:00am

cart 4 – 53^rd and 7^th on the south west corner of the street from 12:00pm – 4:00am

Note: all carts are open until 5am on Friday and Saturday.

The first metric to discuss is the number of plates served per minute (PPM). All of my observations were performed at cart 2 during lunch and late-night hours. My assumptions on volume are as follows: (1) cart 1 is more popular while open, and averages about 20% more volume and efficiency than cart 2; (2) carts 3 and 4 are less popular and average about 30% less volume and efficiency than cart2; (3) Each cart’s PPM shows the same sinusoidal curve throughout open hours with peaks during lunch and late-night hours.  My findings are shown below:

Hour 1 corresponds to the hour between 12:00 and 1:00pm. Hour 17 is the hour between 4:00am and 5:00am.

Note that the PPM numbers are for an average day. Weekends obviously have more customers and more plates of halal served at night than do weekdays. There is seasonality and other factors (huge demand on New Year’s Eve, Halloween, etc.) that also affect the number of plates served.  My observations were made in October and November, fairly temperate months, and indicate a good baseline for an aggregate day of halal.

From the PPM metric we can derive the total number of plates served per hour:

In order to derive profit information I had to make some assumptions about the halal guy’s expenses. Since most halal carts are profitable selling their lamb and rice for $5, it follows that the actual cost of goods sold is less than $5 (even though the Halal Guys serve bigger plates and thus more food. See thisarticle, which estimates a 10% margin for DC food trucks). I assume cost per plate of $4.25, which includes all costs associated with producing a plate of halal besides staffing. I also assume a generous salary of $10 per hour for each employee and three employees per stand each operating hour.

It is important to note that aside from the $6 price charged per plate, the Halal Guys allow customers to cut the line for $10. Due to this higher price option, the average price per plate is a function of demand. The average price per plate is assumed to be $6.05 (about 1 in every 100 skipping the line) at lunch, and $6.20 during peak late-night hours. Multiplying the plates produced per minute by the assumed hourly halal prices, and applying the expense assumptions highlighted above, we arrive at the following revenue/expense numbers:

Note the higher margins during the late night hours, where larger PPM volume discounts the effects of labor fixed costs. Calculated metrics are below:

Time	Avg Price	Revenue	Expenses	Margin	Profit
12:00	6.05	1011.05	800.24	20.9%	210.81
13:00	6.05	1112.16	871.27	21.7%	240.89
14:00	6.00	954.95	766.42	19.7%	188.53
15:00	6.00	907.20	732.60	19.2%	174.60
16:00	6.00	861.84	700.47	18.7%	161.37
17:00	6.00	818.75	669.95	18.2%	148.80
18:00	6.00	777.81	640.95	17.6%	136.86
19:00	6.00	1225.05	987.74	19.4%	237.31
20:00	6.00	1310.81	1048.49	20.0%	262.32
21:00	6.00	1402.56	1113.48	20.6%	289.08
22:00	6.00	1500.74	1183.02	21.2%	317.72
23:00	6.05	1664.57	1289.33	22.5%	375.24
00:00	6.10	1930.08	1464.73	24.1%	465.35
01:00	6.20	2059.80	1531.96	25.6%	527.84
02:00	6.10	1925.25	1461.36	24.1%	463.89
03:00	6.05	1623.05	1260.16	22.4%	362.89
04:00	6.00	1207.23	975.12	19.2%	232.11

Applying the average day numbers obtained above results in the following yearly performance metrics:

	Per Day	Per Year
Plates	3,686	1,345,544
Avg Price	6.04	6.04
Revenue	22,292.90	8,136,907.92
Expenses	17,497.29	6,386,512.48
Profit	4,795.60	1,750,395.44
Margin	21.5%	21.5%

The results here are much higher than I expected. The Halal Guys serve over 1.34 million plates of halal per year for over $1.75 million in profit. Not to mention the 21.5% margin!

Valuing the Halal Guys now becomes easy (using Discounted Cashflow Analysis). The only assumptions left to make are the growth rate and the rate at which to discount future cashflows. Given that the Halal Guys have been increasing the number of carts in the area by about one every two to three years, a 5% per year is a fair and conservative estimate for growth.

As for discount rate, the weighted average cost of capital for other fast food vendors is as follows:

Chipotle	10.96%
McDonald's	6.83%
Yum Brands	8.52%
Wendy's	8.55%

These companies are public and have high transparency. The Halal Guys ostensibly presents more risk to future cash flows, as there are many unknown factors in play (fights amongst the proprietors, disagreements with the city, etc.) they could just shut down shop; we don’t know what is going to happen. I am applying a 15% discount rate to account for this additional risks.

You are free to determine your own appropriate growth and discount rates, with the sensitivity matrix shown below (discount rate on the x-axis, and growth rate on the y-axis):

	10.0%	12.5%	15.0%	17.5%	20.0%
0.0%	$17,503,954	$14,003,164	$11,669,303	$10,002,260	$8,751,977
2.5%	$23,922,071	$17,941,553	$14,353,243	$11,961,036	$10,252,316
5.0%	$36,758,304	$24,505,536	$18,379,152	$14,703,322	$12,252,768
7.5%	$75,267,004	$37,633,502	$25,089,001	$18,816,751	$15,053,401
10.0%	NA	$77,017,399	$38,508,700	$25,672,466	$19,254,350

The other potentially dubious assumption made is in the cost of goods sold. My $4.25 estimation could be off, so I have provided some additional valuations keeping all other factors constant (5% growth rate and 15% discount rate), while adjusting the cost per halal plate produced:

COGS	Valuation
5.25	4,250,938.95
4.75	11,315,045.54
4.25	18,379,152.14
3.75	25,443,258.73
3.25	32,507,365.33

The value of Halal Guys: $18,379,152.  

P.S. the red sauce is unreal.