Food Business Education: Our Top 10 Insights
Hana Kitchens’ management has a combined total of over 75 years of food business experience across all catergories: restaurants, catering, packaged food, food trucks, food delivery, and large and small volume manufacturing. We’ve all learned a lot from mistakes made along the way and have found more efficient and cost effective ways of running a food business. Here are our Top 10 Insights on succeeding in the food business:
1. Set Yourself Up For Success
Keep processes simple and able to be automated from the very beginning. Even if you can’t afford automation at first, as you grow at some point you will need it to be successful. After you have a loyal following and larger orders, you can’t go back and reformulate recipes and production processes if they will affect the taste or look of your product - customers will notice and complain, just when you need their support most. So research what equipment is available for your product and be sure you can have a seamless transition to automation when the time comes (and if your product is good, it will). Also be sure that any special ingredients you want to use in your products are available in bulk at a price that fits into your cost model. You can’t shop at Smart & Final or Trader Joe’s forever.
2. Budget For R&D
Many first time business owners don’t realize that making the transition from a home based business to a certified commercial kitchen is going to take some R&D time and money. Recipes may need to be tweaked when scaling up. Cooking times will change when moving to commercial ovens. A 30 quart or 80 quart mixer is going to mix differently than your 5 quart at home. Be sure to budget for these ingredients and kitchen time. Don't expect to hit the ground running when transitioning out of a home kitchen.
3. Shop Around
Do not underestimate the importance of continually looking for better pricing on your ingredients and packaging. What seems like pennies now will add up quickly when you’re fulfilling larger orders. I advocate for establishing accounts with several reputable purveyors and rotating orders, forcing them to compete with each other for your business. The same goes for packaging and label companies. This should be a continuous focus.
4. Labor, Labor, Labor
Ask any owner of a struggling or out of business food company, and they will tell you that what killed them was labor cost. Processes should be simple and labor tightly controlled. You can anticipate ingredient and packaging costs and keep those steady. However, labor is a moving target. Another mistake new business owners make is not counting their labor into business costs. You are not free labor. At some point, you will want/need to hire people to do what you are doing in production and packaging in order to get out there and sell your product and grow the business. Avoid hand labor intensive products and packaging. Opt instead for products that can easily be produced in large batches and easily packaged. Design packaging without too many labels to apply, ribbons that need to be tied, and other attractive but time consuming bells and whistles.
5. Budget For Samples
This relates to the sales aspect of the food business. Anyone that you want to sell your product to will want samples, whether it’s direct to customer at a Farmer’s Market or a grocery store. You will be amazed at how many samples you will need to churn out in order to secure sales. And this will never stop. When you first start pounding the wholesale pavement, be ready with a one page sales sheet and samples. If the decision maker is unable to see you, get an email or phone number and follow up 1-2 days after dropping the samples. The same idea goes for trade shows and promotional events. Be prepared to hand out thousands of samples based upon how big the event is, and have your sell sheet and business cards ready. Prices for booths at these shows can usually be negotiated down, especially for new or small businesses.
6. Slow and Steady Growth
It can be tempting to want to grow quickly, especially when there is great interest in your product and big purchase order numbers are being tossed around (believe me, I know firsthand). However, I’ve seen a common thread in the successful businesses that have worked at Hana: slow and steady growth. Keep quality up and labor under control. Perfect your product and start with low cost distribution like local delivery/pickup, markets, and popups to build your base. After building a strong foundation, you can look to one or both means of selling your product: retail and wholesale.
7. Retail Versus Wholesale
"Retail" means you’d open your own shop(s) or kiosks and sell directly to the customer. This would include online stores. "Wholesale" means you would sell to grocery stores or shop either directly or through a distributor. Retail has better margins because you’re collecting all of the profit after ingredients and packaging (known as COGS, or Cost of Goods Sold), labor, and fixed costs and overhead (rent, insurance, etc). However, you’re assuming more fixed costs and labor than you would selling wholesale. For example, commercial kitchen space rent, whether you work in a shared environment like Hana Kitchens or build out your own, is far less expensive than retail rent. On the flip side, selling wholesale is all about volume. You'll make far less of a profit margin, as you have to share it with the grocery store/coffee shop/etc. and also the distributor if you choose not to make your own deliveries. A distributor will typically pick up your product and hold it in their inventory, and then deliver to the stores that order through them. I usually advise against making your own deliveries because of the cost and liability associated with operating delivery vehicles. Plus, your reach is limited. With a distributor, you can go nationwide. You may want to do a combination of retail and wholesale and not put all your eggs in one basket. It really depends on how you want to grow and shape your company. Diversified revenue streams are always preferential.
8. Keep Your Inventory Lean
This brings me to my next insight: keep tight control on how much inventory you have in raw ingredients, packaging, WIP ("work in progress"), and finished product. You must look at each of these items as money. You want to run as tight a turnaround as possible: ingredients and packaging in, processed, and finished product out the door. Otherwise you're just sitting on cash that could have been used elsewhere. Resist the urge to buy ingredients in too great of bulk in order to get a lower price if you can't turn around them around in 2 weeks, maximum 30 days. Resist the urge to order 10,000 or 20,000 or even 100,000 custom printed bags or boxes because that is the minimum. Depending upon the stage of your business, it could take you 6 months to 1 year to go through this custom packaging - again, sitting on cash. Instead, opt for stock packaging and find a reasonable, high quality label printer. That will allow you to manage your packaging stock more easily, and also makes reordering simpler than custom packaging. Remember, inventory is money.
9. Learn To Roll With the Punches
Murphy's Law states that "anything that can go wrong, will go wrong", and this could not be more true than in the food business. Equipment will break at the very worst times. Employees will call out sick in the middle of preparing a big order. Ingredient and packaging shipments will arrive late, pushing back orders you have promised to deliver. Patience, flexibility, and quick problem solving are essential for success in the food business. You have to be able to keep your cool, think on your feet, and come up with alternate strategies to keep the business running.
10. Find Your Support Network
Running a food business can be a lonely endeavor. It's easy to feel overwhelmed and alone, especially if you don't have business partners you can trust and confide in. Reach out to family and friends for moral support. Another option, which Hana fosters, is networking with other entrepreneurs. Only they can understand the frustrations, trials, and tribulations you are going through. Hana is as much about supporting each other as it is producing good food.
Up next week in our Educational Series: Navigating Permits and Licenses.