You’ve Been Chopped!: Market Research
Once you have determined to pursue your dream in the specialty food business, you will need to get a handle on where your business will fit in. First you will research the global picture of your specialty type and then you will want to drill down into your niche in the marketplace in your location. Whatever you do, research as much as you can so you don’t, as the popular foodie TV show forewarns, get chopped!
You know you want to take your whoopie pie recipe to the next level beyond your friends and family telling you they are the best or most creative whoopie pies they have ever seen. You could certainly just start making them and selling them, and perhaps you have. But if you want to make a living at your dream or want to create a whoopie pie empire that you might be able to sell down the road when you are ready to move on, you need to start your empire with a bit more planning.
What you have decided on for a business model will dictate what market you need to research. Figuring out the best place to site your retail shop will require very different research than if you plan to start a mail order business.
Your first market research will be about the specialty food business in general. This isn’t intended to tell you whether or not you want to enter the business—that ship has likely already sailed. But you do want to know about the industry you are getting into and you want to include some of that information in your business plan. If you use your business plan to get financing, which most small businesses do, you will want not only to inform them about the state of the industry, but to show your potential investors that you are informed.
The Specialty Food Association
First off, join. The Specialty Food Association offers a “membership candidate” category for a $100 application fee intended to “help new manufacturers gain the knowledge and experience they need to grow in the marketplace, and transition to full membership.” It includes mentoring, one free 30-minute consultation with SFA’s legal or trademark advisor, and other benefits intended to get you off the ground to a successful specialty food business.
But even if you don’t join, you can browse certain parts of their website and glean important information. Articles such as “The State of the Specialty Food Industry 2015” and “Small Food Companies Gain Ground on Big Brands” can give you valuable insight into the industry you are about to join.
And what about the “The State of the Specialty Food Industry 2015”? The article says:
Sales of specialty food in the U.S. topped $100 billion for the first time in 2014.
That said, the market’s growth has slowed slightly.
Specialty food stores captured a 10.6 percent share of the overall specialty food market.
The top ten specialty food categories were: 1) cheese; 2) coffee; 3) frozen meats and seafood; 4) chips, pretzels, snacks; 5) bread/baked goods; 6) candy; 7) condiments; 8) frozen entrees; 9) yogurt; 10) nuts, seeds, dried fruits, and veggies, in that order.
The three fastest growing categories were refrigerated pasta, eggs, and refrigerated pasta and pizza sauces.
The report also found the following emerging trends:
Local, sustainable, whole grains, humane food production
Smoked flavors, healthy food, pickled everything
More gluten-free, use of beets, kale, seaweed, coconut, and other good-for-you ingredients
Return to simple, clean, and old-fashioned, e.g., real grass butter, fermented foods, ancient grains
Smaller stores, more specialty grass-fed products, home gardening, far greater delivery options
The food itself isn’t the only part of the specialty food market you to which you will want to pay attention. Packaging is a huge part of the industry; sometimes packaging alone can help launch a food product to success. The packaging can be unique, like Phoenix Wrappers’ stretch wrapping intended to allow perishable food products to breathe. This unique system slices “stretch film during the wrapping process to create gaps in the wrap so that food can ‘breathe,’” eliminating the need for specialty film that has breathable holes in it and is expensive (www.FoodProductiondaily.com, “Kellogg’s Stretch Wrapper Provider Launches Breathable Wrap for Perishable Food,” by Jenny Eagle, 9/11/15).
“New packaging can redefine a category,” says Blake Mitchell in “The IKEA Effect: There Is a Total Respect for Design That Now Goes Well Beyond Furniture and Gadgets” (http://foodnavigator-usa.com). He points to IKEA, Target, and Apple as setting the bar for other industries to get on board with creative packaging and attention to package design. Pointing to nut butters that started making their product in squeeze packs that can be eaten on the go, the design actually created a new category of specialty food.
You don’t have to have a unique product to come up with unusual packaging. In fact, a common product in unique packaging would be more attention-getting—like “boxed wine” and now starting to make an appearance, “boxed water.” Whatever you do, however, don’t create unique packaging that doesn’t work well or you will get the opposite kind of attention to the kind you want.
Also keep in mind that unique packaging definitely needs to have the potential for bringing in higher sales since anything that is too original likely will require original production equipment. Also consider how it will play on the shelf—will those carrying your product need a special display rack? Will it topple over easily if placed on a normal shelf? Should it be hung?
The bottom line is, think about your product and its packaging. While you probably shouldn’t break the bank on packaging, could it be a value-added enhancement to call attention to what you know is a delicious and healthy food?
Packaging is a fascinating study in itself. You have targeted your market as 30-somethings who care about what they put in their bodies. If they care about nutrition and GMO-free or organic foods, they also likely care about the environment. How do you think they would feel about loving your product only to have it come in the mail shrink-wrapped in a cardboard box inside a Styrofoam container and shrink-wrapped again? You would likely lose them as a customer after the first purchase and they would tell their friends not to purchase from you either.
stat fact
“Local” and “organic” are the trends today. Specialty Food Association report “The State of the Specialty Food Industry 2015” indicates that in three years those trends will be “local,” “sustainable,” and “non-GMO.”
Take the Clif Bar Company as an example. They promote a line of “all-natural and organic energy and nutrition food and drinks.” Their famous Clif Bar energy bars come wrapped in brown paper wrappers with a simple yet colorful rock-climbing illustration. Their website has an “impact” button that talks about their attempt to lower their ecological footprint and help build healthier, more sustainable communities. This packaging is definitely in keeping with their target market’s belief system.
And speaking of that rock-climbing image, it’s not just the packaging material but the design that matters.
Probably the best market research you can do for your retail specialty food business is boots-on-the-ground research in your own market area. If you haven’t yet decided where you plan to set up shop, you will want to do market research in several different areas to help make your decision. Assuming you don’t plan to locate your retail food store more than 10 or 20 miles from your home, this should be an easy enough task.
There are two approaches you will want to take:
1. Look at retail stores of all types in the areas you are considering locating your shop.
2. Analyze the specialty-food-specific shops in the region.
fun fact
“Specialty foods are defined as foods or beverages of the highest grade, style, and/or quality in their respective categories. Their specialty nature derives from a combination of some or all of the following qualities: uniqueness, origin, processing method, design, limited supply, unusual application or use, extraordinary packaging, or channel of distribution/sales.”
—Specialty Food Association, “The State of the Specialty Food Industry” (www.specialtyfood.com)
Bring a notebook. Be sure to not only take notes but to jot down a general list of categories and questions so that you are comparing and considering each location under the same microscope.
In your research of the overall retail market in your targeted area (or areas, if you have not decided on a location), look at:
What is the demographic of the population?
Are shoppers in that area local or are they coming in from a distance?
What types of retail shops are there? Thrift shops, dollar stores, pop-up seasonal stores, small take-out restaurants, and chain drugstores? Or high-end clothing shops, jewelry stores, sit-down dining, and specialty stores like photo shops and chocolatiers?
What is the price-point range of the merchandise? Do the stores tend to have sidewalk sale racks or discounted sections up front in the store? Or are the display windows done in high-style displays changed on regular basis, with the marked-down clothing on a rack at the very back of the store?
Do the shoppers come away with merchandise in custom rope-handled shopping bags or in used plastic bags from the grocery store?
Are shoppers actually coming out of the stores having purchased merchandise?
What kind of staffing do the shops have? Are they mostly one-person shops where the owner is also the cashier and sits behind the counter eating her bagged lunch? Or do the shops tend to have someone at the cash register, another person helping customers on the floor, and the owner out in the back ready to help with questions but in the meantime ordering and doing bookkeeping and other back-office tasks?
aha!
The seasonal storefront known as a “pop-up store” is becoming popular. Open storefronts that are between leases rent on a short-term basis around Halloween, Christmas, or Mother’s Day. If your product is one that would be popular during one of these time frames, a pop-up store might be a great way to make some extra money and expose your product to a wider audience.
One metric used in the retail industry is to determine your sales per square foot of floor space. Typically it is used after the fact to figure out how much your business is bringing in per square foot. So if you average $1,000 per day out of a 200-square-foot store, you are making $50 per square foot per day.
This kind of calculation can also help you determine how big of a space you need. If you want to sell $2,000 per day of product, you need to have a store big enough to hold the product. Many factors come into play here, of course. They include:
The size of your product. If you have small jars of jam that stack neatly into square shelving units built into the walls, you can pack a lot of product into a smaller space than if you are selling puffy bags of specialty potato chips.
The retail price of your product. If your jams are selling at $7.50 per jar, you will need to sell 267 jars a day for gross sales of $2,000. On the other hand, you would need to sell 404 bags of $4.95/bag potato chips to get to the $2,000. Your space would actually need to be larger to accommodate the potato chips!
Other products. Perhaps your key product, the one that got you into the specialty foods business, isn’t the only thing you sell in the store. If you have gourmet nacho chips, maybe a local potter can sell nacho plates in your store. This would help dress up your store and if you sell them on consignment you don’t have to put out any money on inventory. But it would take up more space . . .
Special display needs. Does your product have a unique size or shape that requires special display for potential customers to be able to see the product in its best light? If yours is a product that is a great gift item, customers will want to see exactly what the gift recipient will see when he or she opens the package. You may want space in your shop to display a sample of the packaged item.
Nonsales floor space. What kind of space do you need that isn’t specifically selling space? Obviously your cash-out counter is one such area, although that can be offset with impulse items like a rack of wine bottle necklaces or oven mitts for those nachos. Do you need bathrooms accessible to customers? Space for staff breaks? An office area with space for a computer for bookkeeping and marketing? Space for packaging and mailing? Will you be doing production here as well? That will be a huge consideration.
warning
Retail is not for everyone. “It didn’t even occur to me,” says Lisa Johnson of Yummy Yammy of running a retail store as part of her salsa business. The idea of sitting around waiting for people to come into her store and buy her product just didn’t seem like a good use of her time, nor did staffing a store seem like a good use of resources. It may be different for you, but you may want to try it out with a part-time job in an existing store before going into retail yourself.
All of these should be taken into account to determine the best space for your retail store. Figuring them out in advance as much as possible will help you quickly weed out, and not be tempted by, spaces that just don’t make the cut.
stat fact
Pop-up stores allow you to test your idea before you take it bigger, according to an article by Alexandra Powers called “The Power of the Pop-Up Business” (www.cnbc.com, 8/21/15). And according to the article, consumers love pop-up stores as well for the uniqueness of the experience. Lawyer Jessica Tucker launched a pop-up festival in the U.K. called Urban Food Fest—every Saturday 15 food trucks appear with a new themed selection of cocktails, food, and musicians.
Whether you are going to set up as a retail space with a production area in the back or just a production space and use retailers, distributors, and/or mail order through which to sell your product, the production area of your specialty food business is perhaps the most critical. The main market research you need to do in this regard is whether the production of your product will have any impact on the market and how you are perceived.
A gluten-free product may, for instance, have production marketing implications especially if you sell other non-gluten-free products. Do you need to have each made in different areas? Can you clean instruments, utensils, bakeware, and production surfaces well enough to make the gluten-free products in the same area that products with gluten ingredients are made? And even if you can, will your market believe it is sufficient that you say you clean the surfaces well?
Your reliability in the market of gluten-free products or whatever your specialty—nut-free, organic foods—may be influenced by this decision. You don’t want to set up in too small a space only to find you didn’t address this properly. And check out what your competitors do; that will tell you a lot.
warning
Specialty food businesses say three of the biggest threats to their businesses are “deep discounting by competitors,” “high cost of distributor networks,” and “capital and cash-flow management.”
—Specialty Food Association, “The State of the Specialty Food Industry 2015”
Are you able to locate in a building/area that allows you to have both a storefront as well as a production area? Some segments of the specialty market, like craft beer and small wineries, have made it a selling point to have their production not only visible but capable of providing an interesting and educational tour for customers. Taffy shops on the beach often have their taffy-making equipment in the window for passersby to watch the taffy being made and entice them to come in and make a purchase—and tell others about how cool the process is.
If production is the part of the process you are focused on and decide to leave the retailing to someone else, don’t be lured into a space with a storefront that doesn’t quite meet your production needs. Again, research how your competitors do it. Ask around if producers in other categories find the combo a worthwhile venture.
Often the production-focused facility also uses mail/online ordering as a prime selling vehicle—if this is what your market expects, you will want to include shipping preparation as part of your facility. You do not want to be packing things up to move them somewhere else to get them on their way to the purchaser.
save
One way to save but still do a professional focus group is to hire a marketing class at a local business school to conduct one for you. Check with a marketing professor about when focus groups come up in the class. The school might even have a room with a one-way mirror designed to do focus groups.
Don’t try to figure out all this for yourself. If you can afford a company to put together a focus group for you, that is great. At the very least, conduct your own focus group with friends and friends of friends or even strangers that you solicit through, say, the local yoga center or the men’s basketball team and ask them to do an informal focus group for your product for pizza and some free product. Ask them the questions you have in mind and give them free rein to tell you what comes to their minds as they look at and taste your product. The most important thing is to listen to what they have to say. While the focus group consultants will know how to conduct focus groups with the most value, you can still gain a lot out of conducting one yourself.
The result of all your market research should ultimately help you answer the question: What makes your product/business stand out? What gives you a competitive edge over those you consider to be in your market?
You don’t have to go way out on a limb to stand out with some whacky logo or product. Whoopie pies with meat-flavored frosting or that are packaged with a singing elf will make you stand out, but not necessarily in a good way. And not necessarily in a way that will make the expense pay for itself.
tip
Watch what the big kids do and think about how it may impact your business. For example, Nestlé recently announced plans to remove artificial flavors and lower sodium levels in its frozen pizzas. According to the market research firm Mintel, “Any move that Nestlé makes across its huge pizza portfolio is likely to have residual effects for the whole category.” (“Nestlé slashes salt from frozen pizzas, but there’s no algae substitute . . . yet” by Alex Beckett, 9/4/15)
But you do need to have a product that is somehow different from all the rest. Yummy Yammy salsa stands out, for example, for its main ingredient being sweet potatoes. Newman’s Own products stand out because the company puts Paul Newman’s face on the labels and has done a great job making it well known that the company uses organic ingredients and donates its profits to charity. When Susan Desjardins Burns took over her husband’s 80-year-old aunt’s toffee recipe, she updated it making one significant change reflecting contemporary food choices: she substituted the high fructose corn syrup with agave nectar.
These are competitive edges that make the consumer purchase one product over another.