The specialty food industry is filled with dynamic people who are passionate about what they do. How do you balance that passion with an understanding of the numbers so you can have a viable business? No amount of research can compare to simply asking your burning question to someone who has been in your shoes.
At Local Food Lab, we’ve assembled a team of experts from the industry to answer your questions about the new food and urban farm industries online via our discussion platform Food Lab News. On October 4th, we hosted a two hour "Ask Me Anything" (AMA) session with food production expert Tim Sullivan. Tim is the President of Sage Food Group, a consultancy that provides consulting for the specialty food industry. For over twenty years, Tim ran a FDA-inspected specialty food manufacturing plant, so he is very familiar with the details of food manufacturing, branded products, co-packing and private label. Tim recently was asked to be a speaker at the Whole Foods Local Entrepreneur Summit in San Francisco, and for over ten years he was a speaker at the UC Davis “Getting Started in the Specialty Foods Business” seminar.
In the AMA, Tim answered a range of questions about best practices in ethically minded businesses, and gave tips about tools and resources available to entrepreneurs and business owners.
You can see the full AMA thread here.
Highlights from Tim's live Q&A:
What are the key things I need to have prepared before reaching out to stores regarding getting my food product on their retail shelves?
SULLIVAN: That’s a great question. When you’re working with retailers, an important part of the process is to ask “What’s in it for me?” from the retailer’s perspective. Retailers are interested in carrying products that move off the shelf. What’s in it for them? They want to generate sales as quickly an often as possible.
The things you need to be prepared for are: – Do I have great packaging? Does it “pop” off the shelf? – Is my wholesale price in line with comparable products? – Am I offering recipe cards, shelf talkers or other promotion tools? – How will I encourage trial use? Will I offer demos? – Will I offer a discount (15% off or free shipping) on the first order? These address the “What’s in it for me” from the retailer’s perspective.
Do food startups need to be 100% sure of their recipe before approaching a co-packer?
SULLIVAN: All co-packers have different capabilities. Some require a production-ready formula. Other companies provide in-house product development and can take your home recipe and create a shelf-stable production formula. I worked with many home recipes and turned them into shelf stable formulas. Just check with your co-packer. If they don’t it, there are companies that specialize in product development.
Would you mind providing a list of the most important things to think about when launching a food startup? What kind of good advice is critical to get at particular junctures?
SULLIVAN: It can be difficult to find all the information you need to start a specialty food business. Stephen Hall’s book “Sell Your Specialty Food” is a good place to start. The Specialty Food Association offers seminars about getting into the business. The University of Nebraska has a good food incubator program. The reason why I started my business was to be able to provide that type of information as well. There are so many questions to ask. What kind of products do you have? What are your goals? Where do you plan on selling your product today and five years from now? Are you adequately capitalized? What is your cost of goods? What does your packaging look like? How many products do you have? Will you make it yourself or use a co-packer? My best advise is to really know your numbers.
So right now I’m producing out of a commercial kitchen. At some point to grow, it seems to me there are 2 options: 1. get co-packers 2. grow my production capability by building a factory. My question: are these the only options to grow? What are the determining questions I need to ask myself to decide which one is right for me (something tells me it largely relates to the numbers and my growth rate)?
SULLIVAN: Those really are the only two options. If you open your own facility you have the advantage of controlling all aspects of your production. The downsides of having your facility are the costs of equipment, requirements for regulation and food safety and time taken away from marketing your brand. Reasons to use a co-packer are that they have the equipment, meet regulatory and food safety requirements, have expertise and may have greater purchasing power. A key question to ask is what do you want to do with your time? Do you want to spend your time making your product or marketing your brand? There are compelling reasons to consider being a lean-and-mean sales and marketing company and outsourcing production. If you have your own facility, you have a much higher overhead. You have to keep the equipment running in order to pay for it.
I’m looking for a co-packer in the Bay Area to package dry snacks. What are the indicators of a good co-packer? Is it a contractual situation? How do I determine what is a fair price/bag?
SULLIVAN: Another excellent question! I think food safety is of greatest importance today, so I’d look for a co-packer that is at least third party audited or even better, GFSI (Global Food Safety Initiative) certified. Due to the number of food recalls over the years, retailers are beginning to require that all products they carry be produced in an approved facility. If you use a GFSI certified co-packer, you will reduce barriers to entry. I suggest you get quotes from different co-packers. There is no standard or fair price for co-packing. All co-packers have different costs to operate, so you just need to see if the numbers work for your business model. Some co-packers offer contracts, others don’t. It’s tough for a co-packer to guarantee pricing for any period of time unless you commit to substantial monthly volumes.
If using a co-packer, would you recommend finding one with warehousing space for distribution and order fulfillment? What are some advantages and drawbacks for this?
SULLIVAN: All co-packer have different capabilities. If you can find one that offers warehousing and order fulfillment, that would be great. It’s convenient and could save you some money. You’ll want to see what they charge for their service just to make sure the numbers make sense. I would not necessarily choose a co-packer because they offered that service. I’d look for the co-packer that first offers the best price with a minimum quantity that makes sense for your business and that has a stellar food safety record.
Would you recommend always selling your products online if you can, especially when starting out?
SULLIVAN: Anytime you can sell directly to consumers is a good thing. Your gross margins can be substantial. So yes, I would look at selling online. I’d also look at doing local direct-to-consumer shows: farmer’s markets, home and garden shows, street festivals and the like. You get immediate and important feedback from consumers. Make sure you know everything about your ingredients and process. Inquiring minds will ask you all kinds of questions. These events are great opportunities to promote your brand!
I am thinking about starting an incubator kitchen that can simultaneously accommodate 10 food production entrepreneurs. What are your tips for designing such a space? Are you aware of common deficiencies that other commercial kitchen spaces used by food entrepreneurs have?
SULLIVAN: You’ll want to determine what pieces of equipment you’ll need to accommodate the 10 entrepreneurs, but you’ll also want to consider what equipment gives you the most bang for the buck down the line. New equipment is expensive and used equipment can be risky. Do you needs refrigerators, freezers, food choppers, fillers, cappers, labeling machines? How much space do you need? Do you need/want to offer a value-added service such as warehousing or fulfillment? Does a truck need to be able to pick up or deliver? Do you want to specialize in certain types of products? How automated do you want to be? Who will be responsible for food safety? What happens if there is a recall of a product made at your facility? Are you responsible? There’s a lot to consider, but there is also a need for this type of business!
Exhibiting at trade shows (where retailers are looking for new products) can be pricey — do you think they are really worth it for the exposure? Thanks!
SULLIVAN: The two West Coast trade shows that offer the best exposure for the specialty/natural foods industry are the Fancy Food Show in San Francisco and Natural Products Expo West in Anaheim. The Fancy Food Show offers a reduced rate for first time exhibitors. I don’t believe Expo West does.There are close to 20,000 attendees at the Fancy Food Show and over 25,000 at Expo West. The shows can provide great exposure. If you do a show, you’ll need a booth presentation that attracts attendees walking down the aisle. Step outside your booth and see how it looks from an attendee’s perspective. Is it clean and uncluttered? What is the focal point? Are the one or two points you are trying to convey evident in 2-3 seconds. Be sure to pay for a lead-generating device. It’s worth the cost. Have a color sell sheet and a wholesale price list. Create a distributor price list even though you may not be ready to offer it. Qualify your leads. Most importantly, follow up after the show.
What new trends have you seen in speciality food lately? What food startups are you most excited about?
SULLIVAN: One thing about the specialty/natural food industry is that there are a lot of “me too” products. If you walk the aisle of the Fancy Food Show or Expo West you’ll notice there are many crowded categories, whether it’s chocolate, energy bars, beverages, tea, jams, sauces, baking mixes, gluten-free products, etc. Sometimes it’s tough to stand out. Two trends I like are the use of simple, easy-to-understand ingredients in a delicious tasting product (Kind bars, for example). The other trend is Whole Foods upcoming requirement of declaring GMO ingredients on labels. From a broad industry perspective, it’s the tail wagging the dog, if you will. I’m interested in how mainstream marketers, retailers and consumers will respond. I think’s a very exciting next step in dialog about what we eat. Right now I don’t have any favorite new startups.
When a first time food entrepreneur has a recipe and sourced local ingredients, what sort of production timeline can they expect when dealing with a co-packer?
SULLIVAN: You’ll need to discuss this with your co-packer. Most co-packers have production lead times. They may be booked for a month or so. It may be difficult for a co-packer to interrupt their schedule to accommodate the delivery of a ton of fresh tomatoes next week. I’ve worked with local growers and they were able to provide their ingredients either frozen or refrigerated. That worked out great. We were able to easily fit them in our production schedule. In terms of product development lead time, also check with your co-packer.
You can see the full AMA thread here.
About Tim Sullivan
Tim Sullivan is President of Sage Food Group, a consultancy that provides consulting for the specialty food industry. Their focus is working with startups as well as established companies looking to grow to the next level. For over twenty years, Tim ran an FDA-inspected specialty food manufacturing plant, so he is very familiar with the details of food manufacturing, branded products, co-packing and private label.
He has worked many startups, and it is something he really enjoys. He has assisted entrepreneurs that have a recipe and a dream, has guided chefs and restaurants that want to bring their signature products to market and has helped growers that want to create value-added products. He has also worked with established, growing companies and large and small grocery chains.
Tim recently was asked to be a speaker at the Whole Foods Local Entrepreneur Summit in San Francisco. For over ten years he was a speaker at the UC Davis “Getting Started in the Specialty Foods Business” seminar. He has been a co-presenter with Stephen Hall, author of “Sell Your Specialty Food,” for the Utah Specialty Foods Association. He has spoken at the PlacerGrown Ag conference, California Farm Conference and the Gourmet Products Show.
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