PERHAPS YOU’RE HITTING YOUR STATE’S COTTAGE FOOD SALES CAP. Or discovered that your product is not just great, it’s awesome. Maybe you’re getting hounded by specialty food stores that can’t wait to stock your mandel bread, as soon as you can sell wholesale. On a personal level, perhaps you want to scale up your operations because you’re having so much fun and like the thrill and excitement of running your own enterprise. Maybe you increasingly find making scones more enjoyable than your current job that confines you to a cubicle; you desire a full-time food venture based in a kitchen. Then this chapter is for you.
Part of the attraction to and purpose of cottage food laws is to give entrepreneurs a chance to test the market before sinking thousands, or hundreds of thousands, of dollars into an idea. It reduces the risk and jumpstarts innovation and small business. As we write in ECOpreneuring and throughout the pages of this book, we believe anyone can be a small business owner and make a living for themselves by following their passions and dreams rather than earning a living clocking in at a job. Life’s too short not to do what you love and create a life worth living.
Whether you want to take it to the next level to see if you can hit the jackpot, or at least earn a full-time livelihood with your passion and talent for cooking, we’ll begin this section of the book by pressing a pause button to encourage some contemplation. Then we’ll summarize the next steps if you decide to scale up your enterprise and point you in the direction of books, websites and other resources that might help.
In most cases, scaling up takes place along a continuum, from the cottage food entry level with its various limitations all the way up to a multi-million-dollar company that could even, one day, be gobbled up by a multinational food conglomerate like Unilever.
Scaling up your operations can be as fulfilling as running your small cottage food enterprise, except the potential payout and profits could be much higher. With this financial freedom, however, comes the regulatory super storm, depending on where you rest on the continuum of expansion. Operating under a $10,000 sales cap is considerably different from wholesaling to a regional Whole Foods Market.
The challenges of expansion are hardly insurmountable — there are thousands of food businesses out there thriving, after all. You just need to be aware that much of what we have covered so far in this book about regulations, licenses, UPC codes and nutritional labeling for food products may be out the door, depending on how much you’re scaling up.
Before jumping in with both feet, revisit your goals, objectives and aspirations for your business — and your life. How much time do you want to spend cooking, cleaning, canning or delivering product? How do you feel about hiring the employees you’ll probably need to expand the business? Or will you subcontract some aspects of the business that you either find yourself avoiding or feel need more attention, like bookkeeping, website development, social media or sales?
Many hired hands make light work for your stepped-up production. Now that you’ve moved beyond a cottage food enterprise, perhaps finding the need to make hundreds of loaves of your Honey Hearth Bread for a regional grocery store, you’re going to need some help. Instead of kneading the bread yourself, you’ll now be managing other bakers and trying to make sure they do it as well as you do. Ditto for your new sales force and delivery person. You’re an owner-manager now, no longer the cook in the kitchen.
This distinction between “bread baker” and “bread baking manager” is a big and important one to consider. Did you get into doing this because you love having your hands in the dough? Do you get a real kick out of talking to your loyal customers every week at the farmers’ market? If so, think carefully about the expansion and its potential to separate you from the very process of baking or canning, or other aspect of the business that you enjoy. Instead of keeping an eye on the oven, you may find your face in front of the computer screen managing orders, inventory and payroll.
Outside of business considerations, what does your family think? To take it the next level, are you giving your notice at the company you’ve worked at for the last decade and if so, do you have a plan for healthcare or retirement? Do you have enough “emergency funds” to cover the mortgage or car payments while you’re expanding?
These can, and should, be heady questions, requiring some soul-searching. As you grow your enterprise, risk, failure, liability issues, employer responsibility and complexity grow with it. You may find, too, that the expectations of your customers also change, becoming more demanding, requiring a higher level of service, even more exacting consistency. Depending on how much you expand, chances are you’ll no longer be on a first-name basis with them either.
If you’ve never worked in the kitchen of a restaurant or catering company, you may find yourself staring at commercial equipment you have no idea how to operate. And your recipes, how do you prepare them in a 20-quart mixer, so big it sits on the floor and resembles an inverted R2D2?
Before proceeding, it’s time to yank out that back-of-a-napkin business plan, punch a pot of coffee and put onto paper a polished, fifty-page-plus business plan with sales projections, a more detailed marketing plan and so forth. Now that you’re investing some serious cash, time and energy, it’s time to make sure that you’re pulling a salary (the government requires it!) and have some profits left over at the end of the day.
Casting Off the Shackles of the Cottage Food Law
In a commercial kitchen, there’s nothing you can’t make. How about cakes with cream cheese frosting? Yep! Blueberry sour cream pies? Ditto. Both will require refrigeration and a host of other factors when you sell them to the public, but the point is, you can. You can even make chicken pot pies for the frozen counter or fresh-daily Tex-Mex burrito wraps for resale at the local convenience store.
You can make anything you want in that commercial kitchen, depending on the classification of your permit and what that kitchen facility is authorized to make. And with the license comes the litany of regulations and product safety precautions you must make before anyone even gets to take one bite.
So, the time has arrived to scale up. To be clear, your business is going to get more complicated and costly and demand a level of commitment far beyond what you put into your small cottage food enterprise.
While you may continue to sell directly to the public, the rules change at this stage for the various other sales venues open to you, including wholesale and mail order. As mentioned earlier, your production must take place in a licensed commercial kitchen appropriate for the type of product you sell.
State Prerequisites for Wholesale and Mail Order
Most states have two prerequisites for producing your food product for wholesale and/or mail order:
So, You Want to Grow Big
Many aspects and options related to scaling up your enterprise are summarized briefly in this chapter and the next, provided as a tool for you to consider as you contemplate your next phase.
Homemade for Sale was explicitly written for the small-scale, home kitchen-based food entrepreneur. While much of the marketing and business management chapters are as applicable to small operations as they are to large ones, the following books and other resources will serve as a guide beyond the basics covered in the final two chapters.
• From Kitchen to Market: Selling Your Gourmet Food Specialty by Stephen F. Hall
The authoritative book on getting a specialty food product to as wide a market as possible is paired with a dynamic website (specialtyfoodresource.com) that picks up where Hall’s book leaves off.
• How to Start a Home-based Bakery Business by Detra Denay Davis
Focusing exclusively on a bakery business, Davis’ book covers, in a little more detail, issues related to scaling up your operations.
• Starting a Part-time Food Business: Everything You Need to Know to Turn Your Love of Food into a Successful Business Without Necessarily Quitting Your Day Job by Jennifer Lewis.
A straightforward look at what you may need to do to take your business up another notch.
• The Soup to Nuts Small Business Tradeshow Guide: What Every Artisan, Craftsman, and Handmade Entrepreneur Needs to Know About Growing Their Wholesale Business Through Tradeshows by Jennifer Lewis.
Take the mystery out of exhibiting at a food-focused trade show. If you’re going big, you’re going to need some bucks to connect with retailers who are looking for products that will sell on their shelves.
(a) Food Processor Permit or License
A food processor permit is the state-approved documentation and training that proves and legitimizes that you can safely produce a specified item with the intent to sell to the public. In other words, it’s the necessary process to prove to your state that you can legally and safely produce your product.
Generally speaking, the more foods are processed, the more tightly they’re regulated. The more steps involved in making your item and the longer the list of ingredients, the more complicated the regulations are. Note the exact title of such a license varies by state; it may be called a “retail food license,” a “food processor permit,” “processed food business license” or something similar, meaning basically the same thing.
Additionally, there may be different layers of licenses depending on exactly what you are producing and to whom you are selling. States often distinguish wholesale in a separate licensing category with specific requirements and procedures. For example, in Wisconsin, you would need a “retail food establishment license” to sell direct to consumers (including Internet sales) and a “food processing plant license” to sell wholesale.
There may also be federal requirements and additional labeling requirements, depending on what you are producing. But once you receive your wholesale license, the doors of opportunity open wide. You can sell your products anywhere in the United States and to anyone, including larger retail outlets and via mail order across state lines.
(b) Licensed Food Production Facility
The type of food processor permit you receive will determine the type of commercial facility in which you must process your product. Commercial kitchens are not all treated the same by state regulators. What you’re making will determine the type of kitchen you need to have.
Three Options for a Licensed Food Production Facility
Thanks to the booming food industry, there are three main options for making food products legally: renting a space, building a commercially approved kitchen in your home or contracting with a co-packer. In all cases, these are licensed, commercial production facilities. Some of these options provide an affordable way to scale up your product in modest ways without having to take on major debt. The following summarizes each.
Option 1: Renting a licensed food production facility
One of the more affordable ways to start selling wholesale quickly is renting an existing licensed facility. This could be an incubator kitchen, an existing restaurant or some church kitchens.
(a) A licensed incubator kitchen
Incubator kitchens, sometimes called cooperative or shared-use kitchens, are commercial kitchens that are run in a collaborative fashion. You simply rent the kitchen for an amount of time and use the space and equipment you need.
Incubator kitchens can be operated privately or, more often, by non-profit organizations. Non-profit incubators often provide resources and support in the expansion of your start-up, such as culinary and marketing training and shared office space. Some even have a video production lab that allow business owners to make educational or promotional videos or movies. Many provide networking opportunities among other food entrepreneurs. When you succeed, these incubator kitchens succeed.
For example, Blue Ridge Food Ventures in Asheville, North Carolina, offers 11,000 square feet of shared-use space to support food venture start-ups ranging from value-added products to caterers and food-cart vendors. As a non-profit initiative, Blue Ridge Food Ventures (blueridgefoodventures.org) offers strong support to help fledgling businesses succeed, including everything from storage space and equipment use to label design advice.
The majority of incubator kitchens are located in urban areas, where they can serve a larger population, but rural incubator kitchens are increasing in number as well. Locating a facility may be a challenge, depending on where you live. Check the following website to see if there’s one near you: culinaryincubator.com/maps.php.
While incubator kitchens are created to serve small food enterprises, they’re not free. Less expensive than building your own commercially licensed kitchen, they rent out their facility by the hour, running from $10 to $40 an hour. A non-profit facility is generally cheaper than a privately owned one. They may require a minimum block of time and a lease contract; they may also require a detailed business plan, liability insurance and ServSafe certification.
Since rural incubator kitchens rarely experience the same volume of use that urban ones do, they are often run by non-profit organizations that draw on grant support for their operation, one reason they may be a more affordable option. For example, the Starting Block (startingblock.biz), located in rural northwestern Michigan, showcases a partnership of economic development groups and non-profits, who have collaborated to create this resource for food entrepreneurs residing in or near the small town of Hart.
Renting an Incubator, Restaurant or Church Kitchen Checklist
Now that you’re scaling up, what should you consider when selecting a commercial kitchen to rent? The following are a few essential questions or issues to consider, arranged as a checklist.
[ ] Licensing: Is the kitchen licensed properly for the food product you want to produce there?
[ ] Equipment: Does the kitchen have, in proper working order, the equipment you need to make your item in the quantity needed?
[ ] Storage: Will you have access to storage space, either refrigerated or on shelves for dry goods? Is storage included in the rental fee, or an additional charge? Is the storage space private and secured, or shared and accessible to others who use the space?
[ ] Hours of access: When can you access the kitchen? Are there a minimum number of hours that you must commit to before being able to use the facility?
[ ] Price: Are there peak and non-peak rates for the use of the kitchen?
[ ] Management: How is the facility managed from the perspective of safety, theft prevention and security? Are others using the facility required to complete ServSafe certification, which might ensure that health and food contamination issues are fully addressed? Generally, how clean and well maintained is the facility? What happens if the equipment you want to use is either inoperable or breaks down while you’re using it?
[ ] Other facility benefits: What other features are included with the rental of the kitchen? Is telephone, fax, wireless Internet access or business office space included or available for an additional charge?
[ ] Insurance: What type and how much insurance must you carry to cover your use of the facility?
[ ] Miscellaneous fees: Are there any hidden charges or requirements in the fine print of your contract or lease for renting the facility?
[ ] Deliveries and lock-outs: How are food deliveries handled? Should you be receiving ingredients or supplies at the rented facility? What happens if you get locked out of the facility by accident?
Kitchen rental hours can add up, especially if you’re making something like bread with a long rise time. Plus you’ll need to account for your time commuting back and forth. If you’re raising young children, you’ll need to recognize possible daycare needs — and costs.
Storage space at an incubator kitchen may be limited or come at an additional cost. You may find yourself schlepping ingredients and packaging back and forth every time you produce. While the equipment is shared, you’ll need to coordinate schedules to avoid any conflicts with others using the space or equipment at the same time as you.
If you specialize in products for customers with food allergies, you’ll need to work out the specifics to avoid possible health issues. That said, some incubators, like Prep (prepatl.com) in Atlanta, Georgia, include a commercial kitchen, a USDA-approved meat kitchen and a gluten-free kitchen, each as separate licensed food preparation facilities.
(b) A licensed kitchen from a local church or restaurant
Unless you’re operating in a remote, unpopulated area, most food entrepreneurs will be within reach of restaurants or churches that might have licensed kitchen facilities available for rent. Some church kitchens, particularly larger ones that do a lot of public events with meals, go through state commercial inspection. Most of your work can easily be timed not to conflict with church events. To see if one exists near you, check out the website Commercial Kitchen for Rent, commercialkitchen forrent.com.
The same rental arrangement could be made at a local restaurant which, by the fact that it serves food to the public, must undertake extensive health inspections and adhere to all regulations related to the license they hold. Scheduling a mutually agreeable rental period may be your biggest challenge, however, depending on how many hours the restaurant is open every day.
Sample Kitchen Rental Contract
Whether you’re renting an incubator, restaurant or church kitchen, you’ll need to negotiate terms and sign a contract that will detail your rental fee. The contract should also detail your responsibility for utility expenses and obligations related to cleanup and proper hygiene. The kitchen will likely require that your business have general and product liability coverage, ranging from $300,000 to $1,000,000, that extends specifically to the kitchen in use; they will request a “certificate of insurance” be issued explicitly naming the rented facility as an additional insured party.
A sample kitchen rental contract can be found on this book’s website, homemade forsale.com.
Option 2: Building a commercial kitchen on your home property
If you thrive by operating a home-based business from your kitchen, perhaps while the young kids sleep in the other room, then building a state-approved commercial facility on your home property may be viable, providing you have both the space and funds. This facility could be in your home or possibly another structure located on the property you own.
While comparable, conceptually, to operating a cottage food enterprise in that you’re selling products made in your home, the similarities end there. For all practical purposes, going this route means you’re turning your home kitchen — or creating a separate facility within your home — into a bona fide commercial kitchen that adheres to the required health code requirements for the food items you’re producing.
Without a doubt, this is the most expensive option, and can run from $20,000 to more than $50,000, depending on your plans and goals. What you’ll need to renovate will depend on your state and what you plan on making in your kitchen.
The general requirements for building a commercial-grade kitchen include a hand-washing sink separate from the food preparation area along with a three-compartment sink or approved dishwasher for washing equipment and utensils daily. Additionally, floors and walls must be smooth, non-absorbent and easily cleaned; you’ll need to check on the specifics within your state. There may be aesthetic considerations, too, since that beautiful granite countertop may need to be replaced with a stainless steel one. Shelving must adhere to strict floor elevation requirements.
When these commercial codes reference “approved” equipment, items that bear the National Sanitation Foundation (NSF) certification, literally “NSF” printed on them, are what you want. This means the manufacturer adhered to strict commercial-food code guidelines. Most mainstream home appliances, such as the home-kitchen refrigerator, bears neither the NSF initials nor adhere to the level of standards required.
Remember, commercial kitchens are not one-size-fits-all. Commercial kitchens in your state do not all have the same equipment or specifics; it depends on what food item you’ll be producing and in what quantity. Generally, the simpler and less processed your item, the less costly and complicated a commercial kitchen setup will be.
Name: Dorothy Stainbrook
Business: HeathGlen’s Farm & Kitchen (Forest Lake, Minnesota)
Website: heathglen.com
Products: preserves, syrups, shrubs
Sales Venue: farmers’ market
Annual Sales: $25,000+
Jamming Expansion: Building an On-farm Commercial Kitchen
“Your best research comes directly from your customers. Ask them what they like and make it,” shares Dorothy Stainbrook, owner of HeathGlen’s Farm & Kitchen, specializing in preserves, syrups and shrubs made from the organic fruit from her farm.
Stainbrook lives the lesson behind this advice: she first launched and tested her jams at farmers’ markets in Minneapolis and St. Paul while operating under Minnesota’s cottage food law. Thanks to customer feedback, Stainbrook found a niche in unique preserve flavor combos like blueberry lavender with merlot wine. With this sales success moving her closer to her state’s gross sales cap, she expanded and invested in building an on-farm commercial kitchen.
To understand and learn from Stainbrook’s evolution, jump back to 1998. “Our five-year-old daughter at the time had some medical problems that needed Mom to stay closer to home. As I gazed out the window at our 23 acres, even though those fallow fields were at the time overgrown with weeds, I saw an opportunity to trade my white-collar career and follow my true dream of starting a farm.” HeathGlen Organic Farm erupted from this vision, five acres of primarily berries along with herbs and vegetables sold at the St. Paul and Mill City Farmers’ Markets from May through December.
“Almost ten years later, in 2005, that same daughter that turned me into a farmer decided some jellies would be nice for the peanut butter sandwiches she took to swim practice,” recalls Stainbrook. “Turns out we had a bumper crop of fruit that year, so I confess I went a little overboard trying all kinds of pepper, wine and fruit jellies.”
This value-added direction proved to be something Stainbrook could readily experiment with under Minnesota’s cottage food law and strongly fit with her future business vision: “I wanted HeathGlen to be more than a hobby; I wanted to make a full living on the farm,” explains Stainbrook. “I saw these fruit preserves as an opportunity to develop a part of the farm business that would take me through the whole year financially, especially the winter months.”
“I did a ton of sampling at the market to get feedback from customers while developing a unique distinction by keeping the sugar as low as I could. This really accents the fresh fruit flavor.” Stainbrook also tapped into her former bartending expertise and blended liquors into the preserves to enhance the fruit flavor. Volume and sales snowballed to the point that Stainbrook exceeded the $5,000 Minnesota gross sales cap in 2008 and needed to look into commercial kitchen venues.
“I first rented commercial kitchen space at a local church that had a state license and had rented to businesses like mine before,” explains Stainbrook. “Even though this kitchen space was just a mile away, I quickly realized the hassle in packing and lugging my ingredients and equipment back and forth from the rented space. I also hated being away from my kids who were young at the time, and I also needed to be on-farm to supervise my staff of part-time employees.”
After two years of the church kitchen arrangement, Stainbrook decided to build a commercial facility on her farm. “If you grow your own produce and don’t have on-site storage at your rented kitchen venue — always my situation — building your own commercial kitchen may make sense from an efficiency standpoint.”
Stainbrook is quick to advise the importance of patience and understanding the time and cost involved with building such a facility. “I was the first on-farm facility that many of my state regulators had to work with, so we were often learning together on what, exactly, this needed to look like. I love what I have now, but there were lots of hurdles and expense to get here.” It took her about two years total to build her kitchen, including one year in the planning and permit state and a second year to actually build it. The kitchen is built within the existing attached garage, but needed things like a new floor, walls and lights to reach code for the state of Minnesota.
A reality of plowing new ground with state regulations is that HeathGlen Farm needed to comply with a litany of requirements, even if these stipulations were overkill for this small canned food business. “To comply with different regulations, we definitely built more than we realistically needed. We had an additional handicap-accessible bathroom, even through I was the only one working here. A huge ventilation intake system covers a six-foot area over the stove, which is overkill for the size of the kitchen space.” The commercial kitchen cost about $50,000, which was financed by family savings. The highest kitchen expense was a large ventilation system which she rarely uses.
The new kitchen was a playground for product experimentation. With the growing market interest among foodies in “craft cocktails,” Stainbrook tapped into her bartending background and started making fruit-flavored syrups and shrubs, a vinegar-based fruit sugar syrup that dates back to colonial times. She sells these jarred value-added products at both summer and winter farmers’ markets. The winter sales average higher, at around two hundred jars per event. The jars sell for eight dollars for a half-pint jar of preserves, and the syrups are also eight dollars, for an eight-ounce bottle.
With the new syrup and shrub additions, Stainbrook realized the importance of customer education to showcase and highlight how her products could be used. A “Balcony Bartender Blog” features short You - Tube videos demonstrating how to use the products in craft cocktails. She also actively maintains a recipe blog that offers creative ways to incorporate her products into various dishes, all of which can be accessed off her website.
“With the success of my preserve business, it led to the expansion and the advent of the new product lines of syrups and shrubs because I could process these at home,” Stainbrook adds. “I’m thankful for cottage food laws. As a farmer, I didn’t have the money or the time resources to go into the city and rent a commercial kitchen when I got started.”
Want to simply grow your existing cottage food business? Because these operations focus on low-risk, non-hazardous food, creating a commercial kitchen to make your jam or bake your cookies will not be complicated. While not a cheap endeavor, a kitchen for these products will not require the same level of equipment or infrastructure as one for producing fried meat pies or prepared meals. Many states provide a specific commercial kitchen classification, called “bakery,” that outlines this simpler kitchen licensing and required setup.
When dealing with your state agency, if the inspector tells you that you need a costly piece of equipment that doesn’t apply to what you are producing — say, an excessive stovetop venting system when all you are doing is making jam — speak up. Nicely, of course. Ask for an “exemption” to a specific requirement and give specific estimated usage data to validate your case. Or buy yourself some time and enquire if this issue could be revisited in a year to determine if it’s really necessary based on your actual operational history.
Option 3: Working with a contract packer, or co-packer
A contract packer, or co-packer, is a company that processes food products, either using their surplus capacity or specializing in packing other businesses’ food items. You turn over your recipe, perhaps some ingredients if you’re growing them yourself, and any other marketing elements and the co-packer takes it from there. What you get in return is a ready-to-sell product.
Depending on the co-packers, they might provide the following services:
• Production of the product
• Guidance on product formulation and development, including reformulating home recipes to large-scale production processes
• Packaging of the product
• Guidance on aspects of labeling, especially related to regulatory requirements
• Advice related to marketing and distribution
From a time and labor perspective, if you have customers lining up to place orders or a confirmed wholesale outlet, this route allows you to scale up without investing in or renting a commercial kitchen. You take your recipe and ingredient list to a co-packer that specializes in the food product you make and they produce it for you. Due to the volume produced, this may afford greater consistency of your product, quality and economies of scale realized through purchasing power, among other benefits. Additionally, co-packers can assist with the requirements that arise as you move from being a small cottage food enterprise to a wholesaler, including UPC codes, nutritional labeling and any lab analysis that may be required, covered briefly in the next chapter.
Going with a co-packer comes with a higher per unit cost. You will need to evaluate this increase in terms of time, labor and the financial resources required to produce your items another way. If this streamlined and complete process of production seems too good to be true, don’t forget the price and minimum order requirement.
For example, Sandhill Family Farms in Brodhead, Wisconsin, uses a local co-packer that specializes in items that are “pumped,” such as sauces, to turn their extra tomatoes into canned organic pureed tomatoes. While the final product they received is labeled and ready for wholesale, Matt and Peg Sheaffer, who run the farm, choose to use most of the jars to add a little surprise extra to member share boxes of their CSA (community supported agriculture) in the early spring, when the boxes can sometimes run a little lean as the harvest hasn’t fully kicked in yet. The key with co-packers is that they typically require a large minimum produce volume with which to work. For the Sheaffers, their co-packer requires a minimum of five thousand pounds of tomatoes.
Loss of control over much of the process deters some food entrepreneurs from going in this direction. While appealing in its efficiency, the quality and flavor may not perfectly match what you feel you could do yourself. Your recipe will no longer be handmade, in your kitchen. Co-packers have very efficient means to produce items at significant economies of scale through factory-oriented processes. Therefore, you’ll need to verify that your label goes on your product made with your recipe — and not just slapped on jars of “strawberry-rhubarb jam” made by the co-packer.
In the final chapter, we’ll explore in more detail some of the marketing possibilities, changes in your operations and sources of funding to make your culinary hit a reality.