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Agribusiness & Food Specialty FAQs
How do I commercialize my food product?While friends and family may love your product when it is offered as a free sample, repeat sales, the key to success in the food business, is more elusive and difficult to achieve. A business plan including a focused market plan is the recommended way to launch a new product successfully. Formation of an advisory board of 3-5 knowledgeable non-competing companies is also a helpful tool to provide entrepreneurs with constructive input at an early stage. As a first step outside of your property, you can locate a test kitchen to product small quantities of products as samples to test the market. The food industry specialists at PennTAP are an excellent resource for technical assistance related to food production issues and possible manufacturers who may be able to refer you to a potential co-packer. The plan may include efforts and costs to manufacture the product or target a co-packer to produce the product to your specifications for a stated cost. You may need a lawyer at this stage to draft a non-disclosure agreement as a prerequisite to discussing your product and process with a co-packer. Typically, co-packers will have minimum production runs and lead times. They may also charge for storage, especially if you have a refrigerated or frozen product. The co-packer will need to see your packaging & outside Carton as well as ingredients listing and process. How do I find food brokers and distributors?Brokers and distributors can be identified from the local Yellow Pages, the Internet, recommendations from non-competing food companies, NASFT (National Association for the Specialty Food Trade) Brokers Directory, Directory of Pennsylvania Food Brokers and the Directory of Food & Beverage Private Label Manufacturers in the Northeastern and Midwestern United States. These resources are available from the Kutztown University SBDC. It is important to understand costs and fees prior to engaging these services which should be formalized in a written agreement. Some brokers will require an upfront fee while others will work on a commission basis. Whom do I contact to warehouse and transport my products?The manufacturer or co-packer may offer this service or contact with an outside carrier for warehousing and transport. You can identify other sources for these services in the Yellow Pages of the telephone book or online via a search engine. It is always advisable to visit a warehouse prior to storing product there. Recommendations from other food manufacturers for storage and transport are helpful as well. Volatile fuel prices may result in surcharges for transport and storage. This should be clarified prior to contracting for these services. You should also inquire about insurance coverage when working with any outside contractor. What sales and marketing materials do I need?Generally, it is advisable to have a product summary sheet, commonly called a sell sheet or point of sale information. You would include company and contact information, product photos & applications and your logo. The reverse side of the sheet can mention product case specifications (net and gross weights, cube of the carton), product and size variations, recipes, nutritional information, order lead times or minimum order sizes. Companies, even start-ups, are expected to have at least a website highlighting key product selling points. Blogs and Facebook entries are increasingly used by new and established companies to communicate with customers and prospects. What markets should I first approach?Your marketing approach depends on your target market that should be clearly defined in your marketing plan. Companies selling direct to customers may sell through farm stands and farmers markets, a restaurant or a public forum such as a sports event. While owners enjoy higher gross margins, the quantities are small. Alternatively, selling to a supermarket chain, a restaurant wholesaler or a “big box” store may require broker and distributor fees as well as a longer, more bureaucratic, decision-making process. Retail grocers may demand a slotting fee per store which is sometimes negotiable. For new-to-market companies, it is recommended that you start with the local and regional market because it is easier and less expensive to supply. Entrepreneurs can also observe consumption and order patterns more closely that offer valuable lessons on target markets as you expand your product distribution. What should I sell my product for?While there is of course no one answer, creating a budget as part of a marketing plan for your product launch is critical to its success. In addition to the specific items below, consider whether you are manufacturing the product or contracting to a processor, intensity and type (local manufacturers vs. national brands) of competition and the value-added proposition of your product in your pricing. Typically manufacturers will realize higher margins that companies that contract with co-packers. Some specific key issues to consider are:
Finally, you may consider as part of your product launch strategy, introductory pricing, special packaging or pairing your product with a complimentary product. How much does it cost to launch a new food product?In addition to the above factors, it may be useful to divide costs into pre-launch/product development and in-business costs. Simply budgeting the for all of the product development costs is insufficient since one a business is open, it will of course incur additional costs to manufacture and sell products before realizing profits. Therefore effective cash flow management is crucial at this the product launch stage. As a start-up company, your suppliers may require prepayment for contracted services while your customers may demand terms or pay beyond the agreed payment terms. A line of credit, business loan or other accessible source of funds is essential for working capital. Over time, it may be possible to negotiate terms with your suppliers, food, non-food and servicers while your leverage with your commercial customers for prompt payment may remain weak. Charge backs by retail stores and retail & foodservice wholesalers can be costly and unexpected. Therefore understanding a customer’s chargeback policy should be clearly understood prior to making the sale. |
