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The path I’ve been learning so far for food products to grow is to start with farmers markets or other direct sales, then move into self-distribution to retail locations, then move up to working with a distributor and brokers.   Getting into restaurants is a variation and leads into the discussion of targeting “Food Service” vs “Retail”.   What exactly does that entail?  The key seems to be finding segments where a gatekeeping purchaser makes a narrow product selection to offer to their audience.  No marketing investment required to the end consumer – they have few enough choices they’ll likely try your product.

I found an old paper written on the Food Service Industry from the perspective of developing a hospitality career.  They identified up to 12 segments for the food system based on a breakdown from the International Foodservice Manufacturer’s Association.   Market research firm CHD also makes similar breakdowns here.

The big breakdowns seem to be Commercial (retailer & restaurants) vs Non-Commercial (also called Institutional).  Sometimes included in Non-commercial, sometimes separated out is Military & Prisons & Schools.  The key to non-commercial is that it’s food service at an establishment whose primary business is something else (vs restaurants).  They’re not in the business of providing a wide variety of comparable choices to the end consumer in the way a retail establishment is.  A detailed segment version might break into:

  • Employee feeding (aka “Business & Industry”)
    • This breaks into cafeterias where employees may or may not pay for their own meals. Also includes break rooms and vending. Might include meeting/event catering.
    • Much of this market is contracted out to 3rd parties. Think Aramark. 
  • School systems (primary/secondary)
    • Here you’re participating in school lunch programs – I’m thinking prepared food.
  • Colleges & Universities
    • Here there’s a mix of faculty (employee cafeteria) student meal plans (so a pre-committed budget but variable consumption) snack bars and vending. Catering again. A mix of prepared food and packaged food.
  • Daycare
  • Transportation
    • Airline meals, transit concessions
  • Military
    • Some prepared food. Commissaries. Canteens and snack bars.
  • Nursing Homes
  • Elder care
    • In-home meal delivery, elder day care sites
  • Hospitals
    • A complex array of cafeteria, meal delivery, concessions.
  • Correctional institutions
  • Vending

 

Market-research firm Technavio divides the prepared-food system into 4 categories by how the preparation is done.  This is an interesting framework for thinking about how your product might fit into a food service model.

Conventional – food is prepared onsite and kept at service temperature until served.

Centralized – sounds like what I’ve heard described as a commissary model. Food is prepared at a centralized location and then distributed to kitchens for service, may be frozen, chilled or held hot for transport.

Ready Prepared – food is prepared ahead and chilled or frozen and then reheated on demand for serving.

Assembly serve – the teaser I read didn’t go into the detail of how they define this category, but perhaps this involves pre-prepared products from vendors that get assembled into a final result.  We’re also still missing individual meal service or kits.

Their full report is available for $1000.   Looking ahead, they called out mobile food service (IE Food Trucks) and delivery plus ghost kitchens as trends to watch.

It seems likely to me that each channel of foodservice will have differing requirements on shelf-life, ability to do refrigeration, quantity packing, sales, order & payment cycles.  The IMFA looks like they have a one-day seminar designed to cover the current state of the industry. Next one is June 16, 2020 – let’s check it out!

 

 

I, like so many others, seem to have a romantic notion of farming.  There’s some kind of longing to get back to nature, to feel a relationship with my food, to accomplish something tangible.  Yet the truth is it’s very difficult to build a financially sustainable small (less than 100 acres) farm. Especially with a diversity of crops that have different equipment and process optimizations.  So why do we keep trying?  Last summer my mom’s East Coast CSA had an interesting article in their weekly newsletter about it. I had hoped to do a little more reading, processing and writing, but in a New Year’s to-do list cleanup, let’s at least share that original fascinating article about why American’s might feel a particular affinity for the small farm.

Here’s to 2020!

 

I covered a great assortment of resources in an earlier blog, so be sure to check that if you haven’t seen it yet.  Since then a few more have crossed my mailbox.  These are resources that I know I’ll want to grab hold of again so I’m capturing them here.

Impact Washington:  “a nonprofit providing high performance business and technical assistance to Washington’s small to mid-sized manufacturers.”  They first came to my attention when OlyKraut got a grant to work with them on LEAN manufacturing.  Then Erin Adams of Seattle Good Business Network let me know that they have a range of technical assistance programs directed specifically at food manufacturers. Check it out!

To get more environmentally sound in Washington State, EnviroStars is the program to check out. They offer technial assistance to help you sort through what rebates and programs will be most useful to your business.  I’m bookmarking this one to do in advance of the next BCorp certification or re-certification I am part of.  Seattle Good Business Network may be able to hook you up with a free 30 minute consultation from them.

The Seattle Office of Economic Development has a page dedicated to the detailed steps of opening various food businesses here.

In Olympia, Enterprise 4 Equity has a long running food/Ag business training program, the Agripreneur program.

When it’s time for fundraising, going where the investors are always helps.  I’ve begun to notice there’s a real hub of energy in Colorado. This year I learned about a two-day business bootcamp focused on food businesses called The Hirshberg Institute.  It’s accessible for startups and is still probably helpful for early stage.  It happens in June.

And then one for the producers – the place to be is Organicology in Portland around February.  Seems like lots of folks attend that and it has serious education.

Yesterday I listened to a fascinating podcast about civility in the workplace. (Dan Harris, 10% Happier, Christine Porath guest.) I looked at the author’s website and she has a TED talk, and I also found this handy short workbook about building positive workplace culture, done for SHRM.  It’s a corporate-y kind of thing that small businesses don’t get around to, and there’s interesting food for thought in there!  So, for fun inspirational reading.   It’s about 20 magazine-formatted (so big fonts and side-bars) actual pages of reading, in shorter sections, so no need to be intimidated by the 52 page document size.
Christine (how she refers to herself on her website) has done research that shows people’s cognitive ability on tests actually declines after experiencing, and even just witnessing, incivility.  Incivility is contagious.  There are some things a company can do to build a better workplace. She mentioned a hospital (she seems to work with lots of hospitals) that encouraged a 10-5 policy – within 10 feet of someone you make eye-contact and smile, and within 5 feet you greet them.  I’ve seen Zingerman’s promote a 10-4 policy that’s the same thing. In the hospitality business, mood matters!
In the above SHRM document there’s one company’s “Code of Civility” and it includes things like “we greet and acknowledge each other”, “we say please and thank you”, “we acknowledge the contributions of others”.  I was once on a board that developed a set of “agreements” that we went over at the start of every meeting, and then checked ourselves on how we did at the end of every meeting.  It was similar – I do remember “We start on time, and we end on time” and “We come prepared to the meetings, having read the materials”.  I suspect at least one board I’m on would make sure “we don’t interrupt” goes on the list. I’m aware I do it but I still have this felt sensation that it’s “joining in”. Feel free to help me get over that!   Other aspects of civility: sharing credit, taking blame, not belittling or putting others down, sharing information, being responsive.
In the article Christine notes
Each small act of kindness and respect contributes to a cycle that fosters greater civility among the people in one’s network. Giving works the same way. Giving thanks, acknowledgement, attention and feedback is civility in its finest form. (p 52)
She also mentions the Google studies that “Psychological Safety” was one of the top attributes of high-performing teams – people felt free to make suggestions and take risks without being attacked or ridiculed. Dan Harris, in the podcast, noted that after a painful 360-degree review, one change he made was to more explicitly NOT walk around looking at his phone but make eye contact and greet people. Not only did it make others appreciate him more, he noticed that he, himself, felt better, too!
Lots of good fodder for humanizing workplaces – including a quiz!  See “Assess Yourself” at the bottom of her page.  Don’t worry, Dan Harris generously shared that he only got a 66%, and Christine says she’s far from perfect, herself.  We’re all work in progress.
You can find another quiz, focused on workplaces, at:

More thoughts after my week with Tera Johnson of the Food Finance Institute and several local businesses….

In tech people like to talk about the “attention marketplace” – that we’re competing for click-throughs and page views. Competing for attention is also true of retail and product marketing. No longer is it good enough to get onto the shelf or into the corner location. You need to fight for people’s attention and do marketing and promotion. To grow quickly, you will need cash to invest there and build sales, which hopefully will remain stable and repeatable at your target price once your promotional efforts have driven customers to try your product.  Tera said often: you have to drive trial.  Do demos so they’ll taste, do Temporary Price Reductions (TPRs) to get people to buy it just to try it, do couponing.  All of that costs money and is not easily financeable with debt because it isn’t asset backed.

What is financeable with debt is equipment.  What I learned in this class is to be aware that equipment often comes with “environmental costs” – that new sink needs a bigger drain. That new oven needs a bigger hood/ventilation system. That killer new processor needs tri-phase power that your space didn’t have.   Equipment can be a big capital investment, and using outsourced manufacturing can be a pragmatic step in growing quickly – it might be less optimal and efficient but it lets you avoid raising the capital and building the line until you’ve proven out the sales.   Grow sales on co-packing and then you’ll have the cashflow to support the debt to buy the equipment and build your own line.

In tech as an investor I’ve learned to want companies to “stick to their knitting” – really narrow their focus/target their customer. It’s too easy to try to “boil the ocean” and get nowhere.  Food is different because cashflow management is such a big thing.  In food, it can be company-saving to diversify.  The immediate cash generation of direct-to-consumer can be a key part of floating the company through the long receivables periods of growing a wholesale business.  The stability of wholesale can help balance the variability of a direct-to-consumer -be it popups, farmers markets, or a retail location, maybe catering.   Those can be important compliments that help smooth out both cash and capacity utilization of space, equipment, labor.   Building out a product in food service before tackling wholesale can be part of both market testing and cashflow building and perhaps brand-building if they’re willing to promote you.

To be successful in food you will have to manage your partners.  It’s not enough to get a distribution contract, you will need to monitor that they pay you they way they’ve promised to pay you and when they promised to pay you.   You will still need to hire brokers to get your product on the shelf and you will need to manage them. You will have to do your own promotion and marketing.   You will have to pay the distributors for your own data. When you hire copackers you will need to monitor the quality of your product that they produce.  Expect to inspect.  Don’t shoestring it and look for partners to save you:  this is you growing your company and managing it actively.  Buzzwords to study up on: copacking, 3PL (third party logistics), cold storage.

It’s important to understand financing, because it’s an essential part of growth.  Food companies need to grow in steps because growth involves expensive changes in both distribution and production – you’ll need to ready (study up to ensure the cost of those changes will be covered by the growth they enable), steady (model cashflows, be realistic and organize financing) and go!

Here’s a quick roundup of some resources I have to think about local farming in the Northwest, inspired by a friend’s question.

The resource said friend shared with me:
A PhD Farmer Sara Taber from North Carolina who does interesting writing and podcasting:
https://www.farmtotaber.com/

Erin Adams of Seattle Good Business Network/Seattle Made just hooked me up with this blog: https://kingcountygreen.com/category/local-food-news/

There’s a book that was all the rage one year, I’m not sure anyone has validated it:
https://www.amazon.com/Compact-Farms-Detailed-Productivity-Efficiency/dp/1612125948/

Viva Farms has a farm school program in Skagit in partnership with WSU – one quarter of farming and one quarter of farm business. (ooo, actually looks like there are 3 quarters now). I know the folks that founded it. https://vivafarms.org/practicum-in-sustainable-agriculture-2/

Many folks do WWOOFing to learn farming. https://wwoofinternational.org/ I don’t know how many become farmers, access to land is an issue for sure.

The class I’ve organized here in Seattle is from the Food Finance Institute of the University of Wisconsin. https://foodfinanceinstitute.org/ She doesn’t do “production agriculture” (IE how to be profitable with crops) but everything beyond that from distribution to value-added-production to marketing/branding

This publication gives me admiration for what government can do. I only hope it can still produce things like this: https://www.ncbi.nlm.nih.gov/books/NBK305181/ it’s pretty amazing.

Multiple times I’ve heard that Farm Accounting is a different beast.  I’m starting to understand why. Tera of the Food Finance Institute commented that you don’t have clear COGS when you’re farming – instead you’ve got all your inputs and then your outputs and how you find value for them.  I’ve heard about this in meat production – a challenge to organic meat production is you might be able to get an organic premium for steak and hamburger, but where’s the organic premium for offal? So how do you make the whole business model work?  Or you produce apples, but what price you get depends on how much of what quality you end up with, oh and of course what’s going on in the commodity markets.  So the usual business accounting of price-cogs = gross margin doesn’t cut it.  Instead you have to think, well, I could invest more in these kind of resources to improve the % of apples that come out to be worth more and that will change the total revenue.  I’ve discovered Steve Bragg of AccountingTools Inc, and I love what I have read of his stuff. He has a book on Agricultural Accounting that is totally what I’d reach for first, but I haven’t managed to read it yet so I can’t make a total endorsement.  Anyone want to let me know?

I had the privilege of working with Tera Johnson of the Food Finance Institute last week to put on part 1 of her Consultant Training and her Entrepreneur BootCamp here in Seattle.  Business Impact Northwest hosted the training.  Tera is great because of her wealth of experience in food, beverage and agriculture businesses.  After a week of trainings we drove up to the Skagit Co-op (I finally joined!) and met with folks from the local SBDC, the Puget Sound Food Hub, and Viva Farms.  Hopefully we’ll organize future trainings up there.  Tera’s specialty is value-added processing and selling products.

The first week of training focuses on the importance of being in touch with consumer markets – crafting products consumers want and can understand.  Then it moves into figuring out who’s your target market, where they are, and then matching your business model and your market size.   If you’re in a big area like the Puget Sound region, you can probably make a living for yourself and some income for others making your product in a shared kitchen and selling at farmers markets if you have a unique niche.  If you want to go into wholesale distribution, that’s frankly a different business with much lower margins and requires much higher volume – you need to gather your resources and shoot to get to the next level of stability ASAP. Trying to grow slowly and incrementally can accumulate operating losses that eventually drag you down.  The next sessions of class will be about how to finance these different kinds of business.

To better understand where the market opportunities are, Tera shared a wealth of resources for staying informed about market trends.  Most of these are free.

The best trade shows to attend to get a sense of your market:

Attendees also shared their favorite local resources for businesses.  Local CDFIs Ventures https://www.venturesnonprofit.org/ and Business Impact Northwest https://businessimpactnw.org/ offer lots of workshops, as well as the local SBA.  The University of Washington has many programs where student groups will do projects for businesses, market research and target marketing was one such project through the BIG program.

https://foster.uw.edu/centers/consulting-and-business-development-center/undergraduate-student-programs/

Other Northwest local conferences mentioned included ProvenderSeattle Good Business Network in Seattle has been organizing some food-business related events, and Davis Wright Tremaine in Portland has started an annual invitation-only Farm-To-Label one-day conference.