For those who are considering venturing into the recession proof food production sector, though previous experience in that domain would be a valuable asset, if you have the passion, discipline, adequate funds, a viable product, and a high caliber team (with individuals that bring sales, marketing and finance expertise along with CPG know-how), your rate of success will undoubtedly increase. However, in practice there are no guarantees of triumph regardless of your resources. Blame is not entirely on the entrepreneur but rather on circumstances beyond one’s control. As such, there is a way to increase positive outcomes throughout the start-up journey by being prepared and anticipating potential hurdles in advance. This entails implementing a feasible strategy, remaining resilient along the way and applying a practical step-by-step process as the one outlined in this article. Consider it as your guide which was developed as a result of painstaking experiences during 18 months which ultimately led to launching a gluten-free and health snack from the ground-up.
What it takes to make it to market
- Food product or beverage idea, viability and development: How unique will your product idea be? Which food category is it supposed to fall under (snack, poultry, dry snack, frozen etc.)? What will be unique about it? Will it possess sales potential ─ especially repeat sales? Initial sales are fine but repeat orders are more important.
- Market research and competition: Like in every type of business and industry, conducting market research and your in-depth information about your competition is imperative in deciding if your potential product is good enough to compete with existing products. How will it be sold? Pricing etc. (marketing mix).
- Testing/Sampling and feedback: Before you invest in purchasing ingredients, packaging and other items in bulk, it is highly advisable that you determine if your food product will have appeal in the marketplace. That said, feedback from focus groups can not be underscored.
- Co-packer/contract manufacturer or kitchen space leasing: To produce your product you may want to find and negotiate with a facility where it will be produced in small or large batches – either with your own team or one provided to you. Co-packers/contract manufacturers normally charge per hour of production (with a minimum daily run) or a fee per packaged finished product. Along with their own in-house brand, they have the extra capacity to accommodate private label contracts.
- Product costs and potential earnings: Have someone with accounting and costing experience do this on a spreadsheet. Know your costs and margins ahead of time, as well as what you can potentially sell it wholesale and/or direct to the consumer ─ keeping in mind there are intermediaries involved such as food brokers and/or distributors.
- Ingredient sourcing: Contact potential suppliers of ingredients. Shop around especially for the best deal, supply capabilities, for quality certifications, and credit terms. Make certain you always have two or three suppliers as a back-up. Ask for specifications of each ingredient.
- Product formulation testing and sampling: This is most certainly not a one-time event but an on-going process. Do not be surprised if it can take as many as 50 or more trials before the formula has been refined. Refrain from haste in launching your product until the flavor profile and texture you are trying to achieve are above board. Your brand and brand new reputation are at stake.
- Scaling from the kitchen and lab to mass production: Small batches in the kitchen will not yield the same results when going into full scale production. The formula will almost certainly require several tweaks made progressively during the production process to produce similar texture and flavor.
- Funding requirements and sources: Based on what it will cost you to bring the product to market (with a reserve for unforeseen expenses), including constant operating expenses and perhaps a reasonable salary, determine how much you will need less your own funds (dubbed “bootstrapping”). The balance can be sought from either private investors and/or friends and family. Banks are reluctant to lend to start-ups as they would rather wait several months for your business to show some traction.
- Market – Retail, institutional or both: Establish where you will be pitching and selling your product. Keep in consideration that by going retail, you ought to invest additional funds in branding, packaging, instore sampling, promotional activities and perhaps shelf/slotting fees by major supermarkets. Start locally and slowly expand outside your area, state/province and eventually beyond your country borders.
- Channels of distribution: If you will be dealing with retailers, it is not always possible to go direct as they prefer you do so indirectly via distributors they deal with (a matter of streamlining inventory and invoicing). Distributors can tag anywhere from 30” to 40% margins above what you wholesale the product for. Retailers will tack on an additional 30% to 45% by the time it is sold to the consumer. If you are seeking to outsource your sales activities, consider doing so by hiring a food broker or two who have great contacts in the retail and institutional food sector, thus open many doors for potential purchase orders. Typically, they earn 5% to 6% of sales made under their account.
- Marketing and branding strategies: In the business world, it goes without saying that marketing and branding activities are crucial in developing awareness for the product. The new normal is more emphasis on digital/social media, experiential marketing, cause marketing and guerrilla/grassroots marketing among other tactics. Going retail takes long to establish brand recognition which is a costly affair.
- Business model and business plan: A business model describes how and where you wish to operate your business, as well as how you plan to generate revenue and profit, whereas the business plan is a comprehensive document which states your businesses’ operational, marketing and financial goals and how it intends to meet them. It is like your company’s road-map. The business model you create is detailed in the business plan. Therefore, the business model comes before the business plan akin to the horse before the cart. Both are essential.
- Company name and formation, as well as product liability insurance coverage: There is no legitimate business without forming a company – an incorporation (limited liability) in favor of a sole proprietorship or general partnership (merely a registration). Additionally, do not take any risks in case there is a recall and/or someone gets ill caused by your product. Anything can go wrong from the supply chain to the product getting processed at the plant – regardless of the safety measures in place. Top food brands have not been immune either.
- Brand name trademark: Take the cautious path of protecting your company name and brand (including the logo). In the end, you will have invested an adequate amount of time and money, therefore, make certain you protect the intangible assets you are creating, otherwise, it may cost you plenty more to defend it in the future.
- Food safety issues, nutritional declarations and labeling requirements: This is a vital responsibility and requirement from the FDA (U.S.), CFIA (Canada) and in the European Union it is Regulation (EU) No 1169/2011 . Legislation with those governmental agencies includes what should be declared as ingredients on the packaging, as well as on the compulsory nutritional label (format varies from country to country).
- Packaging design, formats, POPs and UPC bar codes: The expression, “You eat with your eyes” applies quite well when it comes to food packaging – especially if you want your product to stand-out. A colorful, yet minimalist clean design on a quality package speaks volumes and can command a premium retail price. It is what is know as “perceived value.” Consider creating a POP display which will further expose your product, accentuate it, as well as possibly avoid paying slotting fees. Bear in mind that every product item, called a SKU (Stock Keeping Unit) requires its own bar code called a UPC (Universal Product Code). You can register and obtain this for an annual modest fee at gs1.org (or www.gs1ca.org in Canada).
- Going to market, in-store sampling and other activities: Launching a product for sale requires careful planning and timing. This should be well coordinated with your team and the food broker and/or distributor (or retailer directly). To introduce the unfamiliar product/brand to the consumer, where he or she shops, it is highly recommended that sampling be conducted in-store. There may be a cost associated with this if a third-party marketing company, specializing at this, is hired.
- On-going refinements and customer feedback: Once a product arrives on retail shelves, there is no reason to get complacent. A product’s flavor profile should be enhanced based on customer feedback which should be encouraged by making it easy for him or her to communicate with you (email, social media and perhaps a toll-free number on the packaging).
- Continuous research and development for new products – in-house production consideration: Progress and category success require constant innovation, refinements and tactics ─ whether it is with existing products or launching new ones.
Everyone needs to eat to survive
Starting a business is a challenge with statistically high failure rates during the initial five years ─ let alone starting a food production business. Statistics on this sector show promising growth. However, the food sector, especially in the health category, has tremendous opportunity for brands which offer snacks, ready to eat or easy to prepare meals which are tasty, allergen-free and with all natural ingredients – especially plant based.
The biggest challenges in the CPG (Consumer Packaged Goods) sector are the need for a large sum of capital (most notably if you plan on opening your own facility), a focus on research & development, scaling the product from the kitchen to manufacturing, as well as executing a plan for going to market. It is also an industry with government safety regulation requirements which the food entrepreneur should be quite familiar with and comply without compromise.
Despite the industry’s inherent challenges, it is still worth considering this route as there is plenty of room to increase one’s prosperity while also benefiting the consumer with nourishment. Although there is complexity involved, it is recommended that one starts small, hires a contract manufacturer for production. The moment sales begin to increase dramatically along with cash flow, a that juncture, in-house manufacturing may be a viable option.
As for risks, choose to take the “calculated” type as in “planned with forethought.” Anticipate problems and be prepared with viable solutions. Finally, watch those margins carefully.
According to Mintel, a research firm, these are the food market categories.
- Baby food market
- Breakfast cereals market
- Dairy market
- Fruit and vegetables market
- Meat and egg products market
- Pet food market
- Savory spreads market
- Snacks market
- Bakery market
- Chocolate confectionery market
- Desserts and ice cream market
- Meals and meal centers market
- Processed fish market
- Sauces and seasonings market
- Side dishes market
- Soup market
- Sugar and gum confectionery market
- Sweet spreads market
- Sweeteners and sugar market
I would also add:
- Health food