The Evolution of a Food Business

Food-Business-growt_20210225-165207_1

Owning a food business is not just about making the product. As the food business gets bigger, there is more work outside of the time spent in the kitchen. All businesses have to start somewhere, and food businesses are no exception. Many grow out of a hobby and others grow out of necessity as we've seen during Covid.

What continues to surprise and even alarm us are the number of food businesses operating without proper licensing or insurance. At the very least all individuals preparing food for sale should hold a Food Protection Manager Certification from the health department, no matter the size of the business.

Start-up food businesses

Most start-up food business owners are solopreneurs who prepare food in a home kitchen. Some food businesses operate in this stage forever, but for others starting out, this period is great for trying new things and perfecting the craft.

  • The person preparing the food must hold a cottage food license from the local health department.
  • In the state of Illinois, a cottage food license allows people to sell at a farmer's market or locally from home, direct to a customer.
  • There are restrictions on the type of food that can be sold so items that are not at risk of spoiling. We all understand that spoiled food makes people sick, but spoiled food is not always something we can see or smell. Cheesecake or pumpkin pie are both examples of items that cannot be made in a home kitchen under the cottage food laws.
  • All food items must be labeled according to the local cottage food laws.

The incubation phase

Once food entrepreneurs are ready to grow the business to a new level, the home kitchen is no longer the most efficient space for preparing food. In search of additional cold and dry storage, larger stoves, and ovens many chefs turn to a shared commercial kitchen. Products prepared in a commercial kitchen no longer fall under the cottage food umbrella meaning there are no restrictions on ingredients, and they can be sold in more locations.

There are additional challenges in running a food business at the incubator stage.

  • You must register your business as a legal entity.
  • Your role begins to transition from working entirely in your business to working on the business a portion of the time. You become an entrepreneur, taking on other business responsibilities.
  • In this phase, chefs are spending more money on the business and need to get more money out of the business. That may mean you hire an assistant to help increase production, packaging, and clean-up.
  • You will need to spend time planning. You can't "shoot from the hip" anymore. You must track expenses and income, not just for income tax filing, but to better understand and control profitability (or loss).
  • Marketing is important as you must continually find new customers. You will have to invest in your brand image, and you, or someone on your behalf, will have to spend time on advertising and marketing activities.
  • A professional photographer might be necessary to showcase the products in the most appealing way.
  • Quality and consistency cannot be compromised. New customers are important but repeat business and word of mouth are also essential to the growth of a food business. Those same people may not be buying your cheesecake every week, but every time they make a purchase, they expect the quality to be consistent.
  • Food Liability Insurance is essential and required for members using an incubator.
  • If the product is sold in retail establishments, the business owner must have a wholesale license.

There is so much to learn about being an entrepreneur!

The mature food business

As the business continues to grow, a shared kitchen might become too small. In this mature phase, the entrepreneur cannot keep up with demand, requiring a big shift. This time the shift may be opening your own brick-and-mortar shop that has a commercial kitchen (assuming you can afford that). Alternatively, you may choose to use a co-manufacturer and/or a co-packer. As an entrepreneur, you'll need help from all directions and must continue to evolve into additional roles and responsibilities.

  • The legal entity may need to be changed, and insurance upgraded.
  • A wholesale license will be required for retail or bulk sales to retailers.
  • Food labels must include nutrition facts as defined by the FDA.
  • Suppliers of all the ingredients and packaging materials must be contracted taking into account prices and timing of purchases.
  • Processes must be standardized to ensure quality and consistency, regardless if you are in your own shop or using a co-manufacturer, and a process and procedure manual is essential to a well-functioning business.
  • Key performance indicators should be calculated and reviewed on a regular basis, so you have an understanding of your return on investment. They are essential for making projections.
  • A marketing budget should be set and adhered to. Too many companies suffer from spending too much or not enough on marketing.
  • Sales efforts must broaden to cover a larger geographic area.
  • Because of all the additional work required to successfully run a mature food business, employees must be added to handle specific areas of the business. Some specialties may be contracted out like accounting or marketing, but you, the entrepreneur, need to hire employees to work in the business so you can spend a greater amount of time working on the business.
  • As your business grows, your focus changes from production to business development, always hunting for new customers, new channels, new locations, and even new products.

Few food businesses make it to the mature stage. However, we know several who have and next month we will tell you about them. 

Sustainability Explained
Set Yourself Up For Success

By accepting you will be accessing a service provided by a third-party external to https://thebusinessoffoodmr.com/

The Business of Food, LLC
1330 E. State Street, Unit B
Sycamore, IL 60178
815.991.5053