Who Puts the “Specialty” in Specialty Food?
From cheeses, meats, and seafood to shortbreads, toffee, and maple syrup, the specialty food industry has such a wide range of entry points that if you have a food skill and feel passionately about letting others enjoy the fruits of your skill, you should certainly consider taking it to market. And not only is the range of food types broad but you can choose how to participate—as a producer of a specialty food, you can make your product and sell it in your own retail store or via mail order or be strictly a producer providing your product to retail stores or mail order catalogs to sell.
But first, let’s look at small business as a whole.
fun fact
This heading probably should be “Eew!” but the Specialty Food Association reports that the next wave in the edible insect market may be cooking oils made from insects. Who knew there even was an “edible insect market”?
The Current State of Small Business in America
According to the U.S. Census Bureau, small businesses (defined as those with 250 or fewer employees) employ 56.1 million of the nation’s private workforce. Firms with fewer than 100 employees make up the largest part of small-business employment.
That said, small business is far from immune to the ups and downs of business cycles. It has taken a while for the small-business sector to recover from the recession in the late 2000s. Just in 2015 did birthing of companies exceed exit rate, a trend not seen since 2007 according to business.com. “Small businesses are the forefront of our economy . . . every minute, a new business in the U.S. is started and according to some people, more than 50 percent of all workers will be self-employed by 2020.” (“The State of Small Business in 2015,” May 5, 2015, by Betsy Scuteri, www.business.com.)
State of Small Business
Wasp Barcode is a barcode and system software technology company. Their “State of Small Business Report” (www.waspbarcode.com) found the following statistics:
47 percent of small businesses were more confident in the economy in 2015 than a year before.
Product companies were anticipating higher revenue growth than nonproduct companies.
57 percent expected revenue growth in 2015.
56 percent expected to invest less than 3 percent in marketing.
38 percent were expecting to hire employees in 2015.
38 percent planned to spend money on IT in 2015.
35 percent view their company website as very or even extremely important.
54 percent spent over $5,000 in on IT-related equipment and software in 2014.
The Small Business Administration (SBA)
With statistics like the ones from the U.S. Census Bureau showing that small business (defined as fewer than 250 employees) employ 56.1 million people, it’s no wonder the U.S. government has an administration devoted to small businesses. Anyone thinking about starting a business should have the SBA (www.sba.gov) bookmarked for quick access. There is a wealth of information on this site; you couldn’t do much better to start your small-business research here.
tip
“The global cheese market is expected to surpass the $120 billion mark by 2021, and grow at a combined annual rate of 4 to 4.5 percent over the next six years, according to a recent report by DecisionDatabases.com.” Reported in an article titled “Growing Cheese Industry Reveals Opportunities in New Markets” on the Specialty Food website (www.specialtyfood.com).
The SBA started in 1953. It is an independent agency of the federal government helping Americans start and grow small businesses through field offices throughout the U.S. and its territories. The SBA was designed by Congress to also ensure that small businesses get a “fair proportion” of government contracts and sales of surplus property. You can quickly see that using the SBA to its fullest is only to any small business’s advantage.
Through the years, the SBA has met current challenges in the small-business arena such as focusing on minority- and women-owned businesses with special programs and education to help these businesses thrive. They publish the Small Business Resource magazine and annual national resource guides. These resources contain educational information on things like how to apply for a government contract and keep you up-to-date on current legislation and advocacy on behalf of small businesses, as well as some small-business basics like advice on creating a business plan and how to obtain financing.
The SBA was created for you. You will do yourself a favor by referring to their site and contacting them whenever something comes up in the startup phase or as you establish your specialty food small business.
stat fact
With consumers continuing to be health-and wellness-conscious, the demand for specialty foods such as gluten-free baked goods and low-fat snacks continues to rise.
—U.S. Small Business Administration www.sba.gov
Service Corps of Retired Executives (SCORE)
Imagine 13,000 volunteer mentors at the service of the small-business world. That’s what the nonprofit organization SCORE (www.score.org) is all about. There are almost 400 SCORE chapters throughout the U.S. in urban, suburban, and rural communities. Formed in 1964, more than ten million Americans have used SCORE’s mentoring services. These mentors can help you at any stage of your business, from planning to startup to growth.
Go to the SCORE website at www.score.org and click on the link to finding a chapter near you. A check of the zip code 03801 (Portsmouth, New Hampshire) produced one chapter right in Portsmouth and five other chapters within a 50-mile range of Portsmouth.
After locating a chapter near you, you submit a request for a mentor, get together with your mentor to get help on specific goals (or help creating specific goals!), and follow up with your mentor throughout the life of your business. SCORE offers online resources that you can sign up for to have emailed to you and they offer local and online workshops and webinars for further education as well as community events such as roundtable discussions and seminars. The website has everything you need to locate all of these services.
warning
Many small-business leaders point to healthcare costs along with EPA regulations and increased stringency in OSHA compliance as making it harder and harder to do business today. You shouldn’t let this deter you from starting your business, but you should be very aware of these costs as you get started.
The Specialty Food Industry as a Whole
The specialty food industry has far exceeded the realm of the niche market. While some items within the industry may be niche-driven, overall specialty food is itself a force to be reckoned with.
Throughout this book you will hear from those who have done it—a toffee maker who took over the family business; the person with a full-time job who took her hobby of making jams and jellies from local in-season produce and made a side business out of it then put it on hold and has plans to revitalize and expand the business; and the chocolatiers who have a commercial kitchen at their home and added an in-town retail store that they have decided to close.
There are several avenues you can take if you want to start a specialty food business. These include:
A homebased business that is self-limiting from not only space but also state and federal food production and sales laws
A homebased business that has more opportunity for growth because you have created a commercial kitchen space in your home
Your own retail shop that includes a production area
Production-only specialty food business that distributes to a network of retailers
Production-only specialty food business that focuses on mail order
Of course, a combination of one or two of these is not only a possibility but quite likely. Which is to say that with the specialty food market, the sky’s the limit! You need to do some soul searching and figure out some logistics to decide which approach makes sense for you and the business you envision.
warning
The food industry is heavily regulated in every state. Do not ignore these laws. In New Hampshire, one of the general laws about food stores (RSA 143-A:4) reads: “It shall be unlawful for any person, unless exempted under RSA 143-A:5, to operate a food service establishment or retail food store within the state without having obtained a food service license to be issued by the [DHHS] commissioner. For new establishments or establishments that change ownership, an application must be submitted along with the appropriate fee and an inspection must be conducted before a license will be issued.”
The SBA offers the following five steps to help you decide if a homebased specialty food business is right for you:
1. Ensure that you and your home are properly equipped for the business of food production. What do you intend to produce? Do you have the equipment? Do you fall within the limits of local zoning laws?
2. Finance your homebased business. The SBA does not give out loans but they do have a guaranty program with banks and lenders that you should check out. Their Microloan program guarantees loans averaging $13,000 with the high side at $35,000.
3. Take the appropriate steps to license and register your homebased business. It is not worth it to try to skirt around the regulations. You do not want to risk your business.
4. Understand the regulations that govern food production. Again, you need to know what you are required to do and you need to do it. It is not worth risking all your hard work trying to skirt around regulations that just seem too difficult. Contact your county’s public health department and find out all you need to know.
5. Marketing your food product or service online. Don’t look at the internet as regulation-free. The food business has very specific regulations governing online ordering and marketing of food, known in general as “ecommerce,” much of which, the SBA says, is state-regulated. If you plan to sell across state lines it gets even more complicated. Find out what these regulations are before betting your whole business on online sales.
aha!
Who says your specialty foods business has to be food for humans? The pet food business is a booming one. Pet owners are spending billions each year on Fido and Fifi. Buying them special homemade treats is one aspect of that booming market. Perhaps you find pet specialty food a more appealing market or perhaps you can add it as a sideline to your specialty-food-for-people retail store.
Starting and running a retail store is an animal all its own and one that, according to the SBA, more than a quarter million people in the U.S. earn a living doing. The SBA offers the following tips to get you off on the right foot:
Determine which type of retail model is right for you. If you have decided on a physical store as opposed to online retailing, you might want to consider whether there is an existing store for sale that would meet your plans. If you are going to start from scratch, be sure to check all the regulations for retailing the specific type of specialty food you are planning to create.
Find the right location. As we discuss in more detail in Chapter 7, you need your location to be where your target market goes. The SBA recommends making sure to “combine visibility, accessibility, affordability, and commercial lease terms that you can live with.”
Finance your retail venture. In other words, make sure you have the proper financial backing to fund your startup until the business starts to earn income. This is one of the key reasons that small business startups do not make it. Chapter 6 walks you through financing.
Determine your business structure. Do you want to head out alone or do you think a partnership of some kind might make it more likely for your business to succeed? While you can certainly hire employees to staff a retail store, a partner will ease that burden and fill in other skills that you lack or are not interested in. Choose a partner who complements your own skill set. Partnerships can go sour very easily, but if you do your upfront due diligence, it might end up being the best decision you make for the success of your business.
Take care of the regulatory requirements involved in starting and operating a business. The food business has some unique and strict regulations that you will want to be sure to know and adhere to. If your retail store has a production area, you need to know the regulations for two very different aspects of your business.
You may decide that a retail store is just not right for you. You have decided that you will produce your specialty food but leave it to others more suited to retail to sell it for you. Your product still has to get to the retail stores, and the stores need to know about your product, so there is a still a lot to do besides produce your specialty food.
If the idea of marketing and the organizational details of marketing, selling, and shipping don’t appeal to you, you had better plan to find someone to whom that does appeal, because getting those three things right will make or break your business. You can produce all the great product in the world but if no one knows you have it, and no one sells it for you, your business is going nowhere.
The actual siting of a production operation is covered in Chapter 7, but to make the initial decision to do the production and let others do the selling, you need to focus on getting that production facility just right. First, as already stated, make sure you check with state regulations about a production facility. One of the mentors in this book decided to create her own commercial kitchen at her house—she found the process went very smoothly from planning the kitchen to its passing state inspection because she did some upfront work of having the regulators in her state help her before anyone pounded a nail to create the kitchen. You should do the same with your production facility.
You can choose to buy an existing facility or build out your own. It can be on the outskirts of town in a strip mall (these facilities are usually designed to be very flexible in renovating interior space) or in a warehouse area in your town or even at your own home if you have the space. It is often best to locate near your target market. In order to determine where that might be, use Figure 1–1: Target Market Worksheet. But no matter where you choose to locate, the regulations for the inside of the production facility will be the same. Be sure to find out what they are.
stat fact
Small businesses created 108,000 jobs in March of 2015.
—ADP Payroll Services
FIGURE 1–1: Target Market Worksheet
warning
NYC is the first U.S. city to “require chain restaurants to include a saltshaker symbol next to menu items that exceed the daily recommended limit of 2,300 milligrams of salt . . .”
–Time (“New York City Menus Will Soon Have Salt Warnings,” Michal Addady, 9/9/15)
Once you have your production facility planned and you know when you expect to start rolling out your first product, you will need to make sure to start marketing to the retailers that you hope will sell your product. Be prepared to provide samples to potential retailers. You can run a sample batch of your product (even if you have to rent a commercial kitchen for that). You can send samples to potential retailers or attend a trade conference where retailers check out wholesaler booths/products (check www.specialtyfood.com for one in your region).
However you decide to approach retailers, be sure to send the product in the actual packaging you plan to use so they can see the finished product and how it will look on their store shelves. If you are not 100 percent sure of the finished packaging, use potential retailers as an unofficial focus group and ask their opinions about different packaging possibilities.
save
According to Inbound Logistics, “Some packaging solutions that prevent product damage while cutting costs and boosting efficiencies can be counterintuitive.” They recommend that manufacturers consider the entire span of the supply chain. “Any wasted money is wasted over and over again,” says Dan Lafond of packaging manufacturer Rehrig in an Inbound Logistics article “Finding Cost Savings: It’s the Whole Package” by Suzanne Heyn (inboundlogistics.com). Reusable packaging materials, plastic trays, and pallets have become more common, the article says.
You’ve landed several retailers around the region, or even the country (be sure you are legal, food-safety-wise, in every state you plan to do business!), to carry your product. Now you need to get it to them. This is where you need to decide on the best shipping method to ensure your product gets to the retailer intact, the way you intend it to look. One of the mentors in this book has decided not to invest in all the hot-weather packaging required to ensure safe delivery of their chocolate bars; therefore, they do not ship during the hottest season. They do not want their carefully created beautiful chocolate bars to arrive “as a puddle of chocolate.” You don’t want something like that to happen either.
Mail order specialty food retailer Omaha Steaks has created a shipping model for their frozen meats to ensure safe delivery. Their products ship via overnight mail and are flash frozen with dry ice inside a Styrofoam shipping cooler. Recipients are instructed on the outside packaging to unpack and put the contents in the freezer as soon as possible.
Not only do you need to decide on distribution range and packaging, but your facility needs to be able to accommodate the packing and shipping process. This is a whole different animal from creating the specialty food you plan to sell, so, once again, if this is not something that revs you up to get out of bed and get to work each morning, make sure you hire someone who has the skill to get an efficient distribution process underway and operating.
tip
One way to decide how you need to distribute your products is from the bottom line income your business needs to make to succeed. If you have the base in your region to meet that goal without casting your net wider—great. You can always expand later. Do keep in mind that many retailers do not appreciate it if you spread your product so widely in the region that sales outlets are cutting into each other’s sales totals.
Retail Secrets You Should Know
Here are a few things, according to the Retail Doctor’s Blog (“41 Things No One Told You About Starting a Retail Business” at www.retaildoc.com) that might surprise you:
As soon as you figure out what your customers want, they will want something totally different.
People in your town will assume you are rich because you have your own business.
You will work weekends and holidays; if you don’t like it, don’t go into retailing.
Sometimes a Tuesday might be your best day; other times it will be a Saturday. In this business, there is often no consistency.
The customer is always right.
You will rarely have a for sure day off again.
Just because someone asks for a discount doesn’t mean they won’t buy if you don’t give them one.
Running a business is harder than you think it’ll be, but you won’t really have time to notice.
If you find these helpful and interesting, go to www.retaildoc.com to read the other 33.
Perhaps you have an idea for a specialty food that you feel could make a business but the thought of producing food and getting it to the consumer through the retail market or mail order doesn’t quite suit you. There are several other ways you could get into the specialty food business.
You could make your specialty food—say it’s chocolates or lollipops or cake pops or goat cheese formed in the shape of a goat—and simply sell it via special orders. Corporate gifts to put in gift baskets, maybe those famous baskets of high-end items that the stars get in their hotels at the Academy Awards ceremony, wedding receptions, other big parties—the list of possibilities is endless. In this kind of business, you would have to have samples to offer, but your product is always presold. You would still need a production facility. You could lease a commercial kitchen, but then you would still have to put it all together somewhere—plate it, wrap it, box it, however you plan to present it to your client.
The other thing about this approach is that you will either need to spend as much time on sales as on making your food item or you will need to hire someone (or take on a partner) to do the sales part for you.
warning
Even though you are operating out of a food truck, there are still plenty of health and food safety regulations you must follow as well as general licensing fees and fees specific to your vending operation. Check local and state regulations for the laws specific to where you will be operating.
Food trucks continue to be hot in certain parts of the country. They tend to do well either on Main Street where there are a lot of people or in rural areas where lunch options are few and far between.
A food truck is a great place to sell certain specialty food concoctions—from special creations like veggie hot dogs with your special homemade sauerkraut or gourmet pretzels with a variety of dipping sauces or fruit dipped in different chocolate and sauces, crepes, meatballs, cupcakes—the possibilities are nearly limitless.
There are many advantages and unique features to food trucks. Here are a few, according to “Food Trucks 101: How to Start a Mobile Food Business” by Entrepreneur Press and Rich Mintzer (www.entrepreneur.com/article/220060):
You can choose a variety of locations from street corners to train and bus stations to resorts and conference centers, corporate parking lots, even beachside (how fun is that?).
78 percent of food trucks have four or fewer employees.
The mobile unit can be moved if you find the area you set up in isn’t as busy as you thought it might be.
The food trucks themselves have become capable of housing very sophisticated equipment.
There are, says the article from Entrepreneur Press, two different kinds of food trucks:
1. The MFPV, or “mobile food preparation vehicle,” where food is prepared as the customer waits
2. The ICV, or “industrial catering vehicle,” which sells only prepackaged food—sort of a vending machine with lots more choices
Of course, the ICV tends to be cheaper than the MFPV—which could run upwards of $100,000—because the unit where food is prepared needs lots more equipment. The food cart is the cheapest of all, likely costing under $3,000 for a used one.
warning
Food trucks have the unique issue of being out in the weather. You can create a food truck that keeps you comfortable in most conditions, but how likely are your customers to stand in line in a blizzard? You need to account for those days when you just can’t set up shop. This can be difficult for people who like regularity and need to count on that income every day.
Don’t get duped into thinking the food truck business is easy! It may be “easier” than opening a storefront or a distribution center, but it has its own quirks. As most of our mentors point out in Chapter 3, you need to figure out what kind of business suits your personality and lifestyle preference.
Some things to keep in mind are:
Staffing the food truck itself is likely to only be a small portion of your day. Prep, office work like ordering supplies, and picking up supplies typically takes a couple hours of the day before and/or after the truck itself is in operation on-site.
Cleanup is key. Your food truck needs to be as neat and clean as any other food operation.
Getting to and from your destination can take time. Of course, ideal is if you can keep your truck on-site even if it means packing it up and moving it a few hundred yards. But you may then fall under some different regulations since you are technically not a mobile truck unit if you don’t move.
Marketing doesn’t go away just because you are mobile. Unless, and even if, you are set up in a busy downtown area, people need to know about you. Social media can be great promotion for this kind of food business.
tip
Decide where and what time you want to set up shop and stick with it for a while. It takes time for people to get accustomed to your presence and tell their friends where they are getting their great lunch or midafternoon snack and coffee. You don’t want to keep them guessing about where you are going to be!
Entrepreneur and Mintzer’s article estimates that if you take an average of $60,000 for purchase of a food truck and add:
$1,000 for startup ingredients;
$2,000 for permits and licenses;
$2,000 for the first month’s rental of a commercial kitchen;
$300 for the first month of parking and truck maintenance;
$2,000 for packaging;
$1,000 for your home office for bookkeeping, etc.;
and $500 for miscellaneous costs,
You can get into the food truck business for just under $75,000. And if in a few months it isn’t what you thought it would be, you can likely recoup a lot of your vehicle costs by selling it used to the next person who thinks he wants to give the food truck business a try!
Being a personal chef for people on a specialty diet can be a very rewarding way to get into specialty food. Cancer patients, especially those on chemotherapy, can really benefit from a personal chef who knows how to make food that is especially appealing when chemotherapy drugs make food unappealing but when it is important to maintain nutrition for strength and the best health possible. James Haller, former chef in Portsmouth, New Hampshire, who ran the locally famous gourmet restaurant The Blue Strawberry and is credited with establishing the now vigorous Portsmouth restaurant scene, became engaged in food specifically for cancer patients, including writing the book What to Eat When You Don’t Feel Like Eating (Robert Pope Foundation, 1994).
Other types of specialty cooking for health reasons include:
Low-sodium and other high-blood pressure-related nutrition
Diabetes and low-sugar diets
Heart disease and low-fat, low-cholesterol cooking
Celiac disease and gluten-free cooking
stat fact
According to Statista (www.statista.com), specialty food store revenues in the United States in 2010 totaled almost $8 billion.
Besides being personal chef for those with chronic diseases, you can also get into specialty cooking as a personal chef for working couples with children who feel like they don’t have time to cook healthfully for the family. Or for those who are in positions to host frequent parties, events, and social functions who want someone they can count on to come into their home, take over the kitchen, and wow their guests with food within whatever budget they set for you.
There are some extra credentials you will need or want to successfully promote yourself in the specialty food personal chef business for those with chronic illnesses or health dietary concerns. This may be as little as having a go-to consultant in the medical field for that particular chronic health issue. Or you may want to get some training yourself in the specific field. The diabetes category, for instance, has a very formalized segment in the industry on diabetes education. Registered dietitians can specialize in any of these fields. And while you may not want to do the rigorous education for becoming an R.D., they often work independently and you can line them up as consultants. Contact the Academy of Nutrition and Dietetics (formerly the American Dietetic Association) at www.eatright.org to find registered dietitians near you.
fun fact
According to the Specialty Food Association, botanicals such as ginger in beverages is a growing trend, especially in European markets. In the first three quarters of 2015, 12.7 percent of carbonated soft drink launches in the U.K. contained ginger compared to 3.3 percent in 2010. Does what starts in Europe become a U.S. trend? Perhaps someone might try it and find out!
Once you start thinking about combining the food industry and retail, you have a lot to think about. Check with the state in which you plan to do business to get the most up-to-date information about the laws and regulations you need to abide by to prepare and sell food to the public. In New Hampshire, for instance, you would check with the Department of Health and Human Services. An online search of “selling food in New Hampshire” brings you to the DHHS site where there is information about licensing mobile food units, food sanitation, and more. Some regulations you may encounter include:
To establish a food service business or food store in New Hampshire you must, among other things, submit a Food Establishment Floor Plan with a fee, which as of this writing is $75.
Not only do you need to submit the floor plan, a water system plan, and a wastewater plan, but you also must include information that is required of all new retail establishments and businesses.
If you plan to buy or sell a food service establishment or retail food store you must submit at least 30 days in advance a list of several items to the Food Protection Program including the establishment’s license, written request for the change, a letter from the most recent owner acknowledging the impending transfer, as well as a floor plan checklist, water systems compliance plan, and wastewater system compliance plan—and any fees of course!
Look into the requirements from the Food Sanitation Inspection and Licensing Program, which will do routine inspections and investigate complaints. They also will help train food service workers, and they issue 90-day provisional licenses to new businesses and those that have changed ownership.
Every state has different laws that may be administered and regulated by different departments, or even more than one department. The onus is on you to do the proper research and contact departments and get the licensing you need to legally operate a retail food store in your state.
The bottom line is there are a lot of angles to think about when opening a specialty food business—and many of them are not specifically about food! But the specialty food industry is well entrenched in the U.S. retail consumers’ minds and can be well worth the effort to get your unique or same-old, same-old just more excellent than what is out there food business off the ground.
warning
If you are dealing with liquor on any level be sure to check with your state’s liquor commission to find out what rules you need to follow with regard to liquor sales or consumption.
To work with food you will want to become as familiar as you can with food safety standards as mandated by the FDA. Bookmark these websites:
www.foodsafety.gov. A dissemination site billed as “Your Gateway to Federal Food Safety Information.” Here you will find safety alerts such as salmonella outbreaks and the latest news regarding food safety and handling. This is primarily a consumer-oriented website, but it is well organized and comprehensive.
www.fsis.usda.gov. This is the website for the Food Safety and Inspection Service and is another place to find the latest news regarding food safety, recalls, and other food-related public health concerns.
www.fda.gov. Mentioned several times in this book, this is the site for the U.S. Food and Drug Administration. You can register here online as a food facility that manufactures, processes, packs, or holds food for either human or animal consumption. There is also information about labeling, packaging, additives, and other guidance.
www.usda.gov. This site has a “food and nutrition” section that includes general information on things such as the food pyramid and child nutrition as well as information on food safety, recalls, security issues, and other food-related news.
stat fact
Seventy percent of consumers in the age group of 25 to 34 were likely to purchase specialty foods, according to Statista. Next were 18- to 24-year-olds at 69 percent, followed by 35- to 44-year-olds at 60 percent. The lowest rank was among those over 65, but even still that was a respectable 45 percent, which is a lot of consumers considering the over-65 crowd represents a large percentage of the baby boom generation.