by Sally Colby
You’ve probably told someone, or perhaps someone has said those words to you: “It’s so good — you could sell it.”
But should and could are two different concepts. You might have a reputation for making the best peach jam or the hottest jalapeño spread in your state, but is it really something others would be willing to buy?
Gary Bullen, extension associate in the Department of Agricultural and Resource Economics at North Carolina State University, says anyone considering going into a food business or marketing should understand trends and consumer habits.
“Most consumers have more money, less time and fewer domestic skills,” said Bullen, comparing today’s consumers with other generations. “If you think back a couple of generations about what people were able to do, they could start from scratch. Now, a home-cooked meal really isn’t from scratch.”
There’s also a dramatic decrease in the amount of time spent preparing food at home. From the 1930s to 1950s, homemakers spent about an hour preparing each meal at home. “It’s been reduced to about five minutes,” said Bullen. “There isn’t a lot of preparing going on in that five minutes. It’s more ‘opening and warming up.’”
But health is one of the biggest drivers for Americans, and it’s a trend which isn’t going away. Many prepared food products include some kind of health claim, such as “beneficial” antioxidant levels or information about sugars and fats. “Blueberries have had tremendous growth in the past few years because of the antioxidant claim,” said Bullen. “That goes with several other foods and products. There’s real interest from people having health issues and why they eat certain foods.”
Another growing trend is convenience, which outweighs many other factors, as evidenced by the popularity of prepared salad kits, cut up fresh fruit mixes and “kits” which include cut up meat and vegetables. “If you can find a way to make it easier for people to get this food, you can always charge more money for it,” said Bullen. “Convenience is one of the main drivers of all consumer preference in local markets now.”
But consumers are also leaning toward nesting, a trend Bullen says started a few years ago. “People are looking for simplicity,” he said. “It also means a product has to meet their lifestyle.” Part of the nesting aspect is food safety, a concept which has been growing continually over the past 10 years and has become important to consumers when they think about food.
Bullen says the idea of “local” food started to become strong about 10 years ago. The concept, which is defined differently by different people, probably isn’t going away. “Is it distance, or geographic, or more than that?” said Bullen. “People want to feel connected to where their food is coming from.” Bullen believes the trend toward “local” arose as part of the increased awareness of food safety. “If you know where the food comes from, you can assume that it’s safer,” he said. “That’s the concept, and that’s what drives local food.”
With these trends in mind, a growing number of farms have considered offering added-value products to their on-farm markets, farmers market stands or even retail establishments. Annette Dunlap, Food Business Specialist/Agribusiness Development at North Carolina Department of Agriculture and Consumer Services, says the idea is often formed when people receive compliments from friends and family on homemade sauces, jellies, jams or baked goods.
“There’s something glamorous about thinking about going into business,” said Dunlap. “But here’s the reality: there are plenty of other people out there who are selling a product just like yours. Understand that you would be entering an extremely competitive market, and it’s important that you think about what it’s going to take and whether or not you actually have a market out there.”
Dunlap suggests those considering creating their own value-added products look closely at the competition. “Go to grocery stores and take a look at other products that are in the category that you’re thinking of entering,” she said. “Next, do some market research. Who’s going to buy your product — a woman or a man? Someone with a family, a single person, or an empty-nester? Are you looking at Millenials, Boomers or Gen-Xers? What’s their income level, what is their education level?” The answers to these questions will help create a customer profile which will help you define your potential market.
Another important aspect of the research phase is to determine how often the buyer will purchase and use your product. Dunlap says the food entrepreneurs she works with often do well with an initial sale when the product is offered during a demonstration, but have trouble with repeat sales. “They have trouble getting a loyal customer base willing to buy that product off the shelf when they’re not prompted to do so because someone is there doing a demo, reminding them that that product is there,” she said.
For those who want to place a product in a retail establishment, how will the store buyer be assured the product is different from others similar to it? “If you can’t come up with a quick 25-word or less description about why your product is noticeably different than all the other products in the category,” said Dunlap, “you’re not going to get a favorable hearing from the category buyer for the store.” Dunlap says although selling a product at a retail store is a lofty goal, there is probably more opportunity for profit selling at farmers markets or online.
One area where many fail to do sufficient research is determining the cost of making the product. “You may have a product that you are permitted to make in a home kitchen if your kitchen can pass inspection,” said Dunlap. “That’s going to be the lowest-cost way to get started. If you aren’t able to do that, look at a shared-use kitchen. A co-packer should be your last resort — that is going to be the most expensive way to get started.”
Dunlap says before going through product testing and other expenses, figure out who’s going to buy your product and how much they’re likely to pay for the product. “Figure out where you’re going to sell it, figure out how you will produce it, and how much money you’re going to need for start-up,” said Dunlap. “In other words, you need to develop a business plan.”
The planning process includes some important financial considerations, and Dunlap advises entrepreneurs to consider forming an LLC to protect personal assets. She also suggests securing a domain name for a website, and establishing a Facebook page and a Twitter account for the business.
Legal requirements for food products vary by state, so be sure to contact the appropriate authorities about recipe testing, label review and nutrition facts. Costs and requirements for shared-use kitchens and co-packers also vary by state. Dunlap suggests purchasing your own UPC code rather than from a reseller. Product liability insurance is another cost which should be figured into the business plan.
Dunlap explains how to determine profit potential. “Take projected revenue (what you think you’re going to make), subtract the cost of goods sold and all your related direct production expenditures, to get that gross profit margin. From your gross profit margin, take out your indirect (fixed) costs for your net profit.”
If all other aspects of product development fall into place, determine how much to charge for the product. Dunlap says to look at a gross margin minimum of 50 percent, preferably 55 to 60 percent, to make a profit. “The purpose of a business is to stay in business,” she said. “That means making a profit.”