The Staff of Entrepreneur Media Inc. explain how you can launch a profitable specialty food business, with information on the hottest trends, insight from practicing specialty food business owners, and how you can differentiate your business. In this edited excerpt, the authors offer smart tips on researching your market, your packaging and your location.
If you're determined to pursue your dream in the specialty food business, you'll need to get a handle on where your business will fit in. First you need to research the global picture of your specialty type, then you'll want to drill down into your niche in the marketplace in your location.
Your initial market research should be about the specialty food business in general. This isn’t intended to tell you whether or not you want to enter the business -- that ship has likely already sailed. But you do want to know about the industry you're getting into and you want to include some of that information in your business plan. If you use your business plan to get financing, which most small businesses do, you'll not only want to inform them about the state of the industry but to show your potential investors that you're informed.
The Specialty Food Association offers a “membership candidate” category for a $100 application fee intended to “help new manufacturers gain the knowledge and experience they need to grow in the marketplace, and transition to full membership.” Even if you don’t join, you can browse certain parts of their website and glean important information. Articles such as “The State of the Specialty Food Industry 2015” and “Small Food Companies Gain Ground on Big Brands” can give you valuable insight into the industry you are about to join, such as:
- Sales of specialty food in the U.S. topped $100 billion for the first time in 2014.
- Specialty food stores captured a 10.6 percent share of the overall specialty food market.
- The top 10 specialty food categories were: 1) cheese; 2) coffee; 3) frozen meats and seafood; 4) chips, pretzels, snacks; 5) bread/baked goods; 6) candy; 7) condiments; 8) frozen entrees; 9) yogurt; 10) nuts, seeds, dried fruits, and veggies, in that order.
- The three fastest-growing categories were refrigerated pasta, eggs, and refrigerated pasta and pizza sauces.
The food itself isn’t the only part of the specialty food market to which you'll want to pay attention. Packaging is a huge part of the industry; sometimes packaging alone can help launch a food product to success, especially if it's unusual.
And you don’t have to have a unique product to come up with unusual packaging. In fact, a common product in unique packaging would be more attention-getting -- like “boxed wine” and now starting to make an appearance, “boxed water.” Keep in mind that unique packaging needs to have the potential for bringing in higher sales since anything that's too original likely will require original production equipment. Also consider how it will play on the shelf -- will retailers carrying your product need a special display rack? Will it topple over easily if placed on a normal shelf? Should it be hung?
The design of your product packaging must also appeal to your target market. If you're trying to sell to 30-somethings who care about nutrition and GMO-free or organic foods, they also likely care about the environment. So how do you think they'd feel if your product came in the mail shrink-wrapped in a cardboard box inside a Styrofoam container? You'd likely lose them as a customer after the first purchase, and they'd tell their friends not to purchase from you either.
The bottom line? Think about your product and its packaging. While you probably shouldn’t break the bank on packaging, could it be a value-added enhancement to call attention to what you know is a delicious and healthy food?
Retail market research
Probably the best market research you can do for your retail specialty food business is boots-on-the-ground research in your own market area. Assuming you don’t plan to locate your retail food store more than 10 or 20 miles from your home, this should be an easy enough task. There are two approaches you'll want to take:
1. Look at retail stores of all types in the areas you're considering locating your shop.
2. Analyze the specialty-food-specific shops in the region.
Be sure to not only take notes but to jot down a general list of categories and questions so that you are comparing and considering each location under the same microscope.
In your research of the overall retail market in your targeted area, look at:
- What is the demographic of the population?
- Are shoppers in that area local, or are they coming in from a distance?
- What types of retail shops are there? Thrift shops, dollar stores, pop-up seasonal stores, small take-out restaurants, and chain drugstores? Or high-end clothing shops, jewelry stores, sit-down dining, and specialty stores like photo shops and chocolatiers?
- What's the price-point range of the merchandise? Do the stores tend to have sidewalk sale racks or discounted sections up front in the store? Or are the display windows done in high-style displays changed on regular basis, with the marked-down clothing on a rack at the very back of the store?
- Do shoppers come away with merchandise in custom rope-handled shopping bags or in used plastic bags from the grocery store? Are shoppers actually coming out of the stores having purchased merchandise?
- What kind of staffing do the shops have? Are they mostly one-person shops where the owner is also the cashier and sits behind the counter eating her bagged lunch? Or do the shops tend to have someone at the cash register, another person helping customers on the floor, and the owner out in the back ready to help with questions but in the meantime ordering and doing bookkeeping and other back-office tasks?
Whether you're going to set up as a retail space with a production area in the back or just a production space and use retailers, distributors, and/or mail order through which to sell your product, the production area of your specialty food business is perhaps the most critical. The main market research you need to do in this regard is whether the production of your product will have any impact on the market and how you're perceived.
A gluten-free product may, for instance, have production marketing implications especially if you sell other non-gluten-free products. Do you need to have each made in different areas? Can you clean instruments, utensils, bakeware, and production surfaces well enough to make the gluten-free products in the same area that products with gluten ingredients are made? And even if you can, will your market believe it's sufficient that you say you clean the surfaces well? You don’t want to set up in too small a space only to find you didn’t address this properly. And check out what your competitors do; that will tell you a lot.
Retail / Production combo
Are you able to locate in a building/area that allows you to have both a storefront as well as a production area? Some segments of the specialty market, like craft beer and small wineries, have made it a selling point to have their production not only visible but capable of providing an interesting and educational tour for customers. Taffy shops on the beach often have their taffy-making equipment in the window for passersby to watch the taffy being made and entice them to come in and make a purchase -- and tell others about how cool the process is.
If production is the part of the process you're focused on and decide to leave the retailing to someone else, don’t be lured into a space with a storefront that doesn’t quite meet your production needs. Again, research how your competitors do it. Ask around if producers in other categories find the combo a worthwhile venture.
Often the production-focused facility also uses mail/online ordering as a prime selling vehicle -- if this is what your market expects, you will want to include shipping preparation as part of your facility. You do not want to be packing things up to move them somewhere else to get them on their way to the purchaser.