The Best Venue For Producing Your Food Products
Food entrepreneurs have several options available to them when it comes to where to produce products but determining which of these is right may not always be clear-cut.
Home-Based Food Business
It is legal in many states to operate a food business out of your home. Collectively known as Cottage Food Laws, these are regulated on a state-by-state basis. Before anyone should start selling their homemade food products, you must ensure that your state has cottage food laws and, if needed, secure the associated health permits.
For those who are in cottage food states, it’s important to take a close look at the laws before beginning. There may be, based on your state’s regulations, restrictions on what types of products you can make, where you can sell or distribute your products, and a cap on the total annual revenue you can earn from the business.
While working from your home kitchen can provide some significant upside; including no need to pay rent and access to the space whenever you need it, there are some challenges as well. Your home kitchen is also where you prepare the meals for yourself and other members of your home which can make it difficult to balance both home and work from the same space.
Commercial Kitchen Space
Operating out of a commercial kitchen space takes away many of the challenges and restrictions that cottage food laws impose. Commercial kitchen spaces may include kitchen incubators, shared kitchen spaces, or time subleased from another food entrepreneur or food business. These spaces are not only dedicated to the production of food but many of these kitchen spaces also provide commercial scale equipment, such as a 60-quart mixer, that enables greater batch sizes to be produced at a time. Many of these kitchens also provide storage space, either included in the rent or for an additional feel, where food entrepreneurs can store their ingredients, packaging, and equipment. Some, specifically food incubators, also offer business services and mentoring to entrepreneurs who work in their spaces.
As mentioned above, depending on the type of commercial kitchen you’re working in, there is oftentimes an hourly or monthly rental agreement in addition to a restriction on when you can and cannot use the space. This may make it tough to fulfill last minute orders if that’s an aspect of your business model. Additionally, you may be working in and amongst other food businesses in these kitchens. This can be a benefit because the right space can create camaraderie and other entrepreneurs to bounce ideas off of. Just like any group situation where people are thrown together though, this can also cause problems if people perceive that others aren’t cleaning up as they should, using more than their fair share of equipment, etc.
Taking the production off the entrepreneurs’ plate is one of the biggest benefits of working with a contract manufacturer (co-packer). Rather than hiring and managing employees, the right co-packer can take over the production of your products based on your specifications. Oftentimes the machinery the co-packer has enables them to produce more product in a shorter period of time which may, ultimately, decrease your per unit cost. Plus, with production no longer being something you have a manage, you can dedicate your time to the other parts of your business – such as sales generation and marketing.
However, finding the right co-packer to work with can be a challenge as not every co-packer is set up to work with every type of product or even every type of packaging. It can take weeks or months to find a co-packer who meets your requirements. Additionally, co-packers require ‘minimum runs’ meaning that they won’t produce less than a certain amount of product because it’s not cost effective for them to do so. This means that the food business owner may need to commit to receiving 10,000 units, 25,000 units, or more of each product. Not only can this be a logistical problem from the standpoint of storage and potential perishability, but this also requires an upfront payment that can be hard for early stage food entrepreneurs to finance.
While there are pros and cons to each type of production space, the good news is that the decision you make today isn’t one that you have to live with for the rest of your business’ lifecycle. It’s not uncommon for food businesses to start in one space and then ‘move up’ as their business grows – for example, starting in a home kitchen that then moves into a shared kitchen space and lastly the company starts working with a co-packer. Determine what is right for you and your business for the short-term and get cooking!
Jennifer Lewis is the founder of Small Food Business, a website focused on providing resources and information to food entrepreneurs. The site includes hundreds of articles specific to the food industry, a podcast series which includes interviews with industry experts, white papers, and a community forum amongst other things. In addition to being a professionally trained pastry chef and having worked in the food industry from more than 20 years, Jennifer also holds an MBA from Northwestern University’s Kellogg School of Management.