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The 4 Biggest Challenges Facing Small Food Businesses

From sourcing ingredients to accelerating sales, since the pandemic, the challenges facing small food business owners have become much larger.

A specialty confection producer recently told me that if her business doesn’t make money this year, she’s done because she can earn more money working fewer hours back in corporate consulting.

The producer is stocked in Whole Foods stores and in a series of independent retailers across the country. 

The last 3 years has shown unprecedented growth in artisanal food products. Some brands have found new consumers. Despite new opportunities, small food businesses have not had an easy time generating revenue, and this has made it tough for many to stay in business.

Four of the biggest challenges that emerging brands face, and in particular their bottom line, are: fluctuating ingredient costs; getting in front of buyers to discuss their wholesale strategy; restrictions on sampling; and the need to rely on distributors to create demand.

Let’s take a closer look.

Fluctuating Ingredient Costs and Availability

Since the pandemic, some products and ingredients have become hard to source. Remember last year’s egg shortage? For emerging brands, availability and affordability of raw materials has been challenging. Some micro-businesses and cottage food businesses are buying retail, meaning they’re competing with the public for scarce ingredients. Then, the rapidly rising costs caused an even greater impact. 

Most micro- and cottage businesses don’t buy in bulk or wholesale. Bulk buying requires adequate storage (ambient and refrigerated), managing shelf life and historically strong sales. Many of these brands lack the capacity to do all three of these well.

For emerging brands, managing COGS is critical, and today, it’s unpredictable. Consequently, profitability is even harder.

Here are some ideas:

  • Diversify Suppliers
    • If you always shop at Costco, consider other “big box” retailers in your area. To illustrate, in Los Angeles, Smart & Final and Restaurant Depot are good options.
  • Closely Manage Inventory
    • Try just-in-time inventory strategies to lower your inventory “investment” and reduce spoilage.
  • Consider Alternatives and Substitutes
    • Stay flexible in your recipes, allowing for adjustments based on availability and cost. 
    • Consider “seasonal” menu items
  • Collaborate with Local Producers
    • Establish partnerships with local farmers or producers to source fresh and seasonal ingredients. This may provide more stability in supply chains and potentially reduce transportation costs.
  • Look at Your Production Processes
    • Continually evaluate and optimize your production processes to increase efficiency and reduce waste. 
  • Monitor Market Trends
    • Stay informed about market trends, both in terms of ingredient availability and pricing. This will allow you to anticipate changes and make proactive decisions.
  • Pass Costs Along Transparently
    • If you need to increase prices to keep up with rising costs, be transparent with customers and explain the reasons for the price hike.

Engaging Buyers to Discuss Your Wholesale Strategy

Talk about a challenge, getting in front of wholesale buyers can seem like its own full-time job. 

These people are busy. In addition to finding new and interesting products to line their shelves, they’re focusing on their own metrics, analyzing market trends, keeping abreast of their shoppers’ buying habits and managing logistics. Whew. That’s a lot.

When you do score a meeting, make the best possible use of the time.

Here are some tips:

  • Understand your Target Audience
    • No, “everyone” is not your target audience. The more you can drill down and create a very specific persona (or target customer), the closer you’ll be to getting in front of them. That is to say, while it may seem counter-intuitive, if you want your product to sell and not just sit on a store shelf, you have to be on the right shelves.
  • Knock on the Right Doors
    • You may have dreams of having your product at grocery and specialty stores across the country. Knocking on doors where your target audience doesn’t shop isn’t a good use of time. If athletes who are plant-based and are challenged by finding a high-protein, portable snack, that’s the person you need to get in front of. Where do they shop? That’s the door to knock.
  • Perfect your Pitch
    • Absolutely, your oatmeal cookies are delicious and it’s heartwarming that the recipe has been handed down for over a century. However, it’s already understood that the cookies taste great, and the origin story can be condensed down to a single sentence. With only a few minutes to present, use your time effectively. Buyers are interested in how this cookie will impact their margins, its alignment with the store’s values, and your in-store marketing strategy to drive your product off the shelf and into shopping carts. This is an obstacle you can easily overcome.

Relying on Distributors to Create Demand

Distributors have one job: Getting your product from Point A to Point B. That’s it.  

As evidenced, successful distribution stems from effective consumer marketing and pull-through campaigns. Distributors primarily act as box movers. The primary challenge for “small box” brands lies in increasing their presence in consumer shopping carts. Distributors do not address this issue unless there’s consumer demand which leads to its “pull through”. Simply dropping products into locations won’t guarantee sales unless there’s demand.

Above all, you are responsible for getting your product into customer carts. That can be accomplished in several ways:

  • Attractive and professional labeling
    • It’s important to realize that your product may be on the shelf next to competing artisanal products and well-established brands. Consequently, one component of getting off the shelf is by standing out. Therefore, put your best foot forward.
  • To begin with, develop a comprehensive in-store marketing strategy
    • When you land on a store shelf, your job is only half done. At this point, you need buyers.
    • At first, demo’s, promotions, and BOGO’s can encourage a first-time buyer to add it to their cart. Meanwhile, you have to keep them coming back for more.
    • How well do your business values align with those of the shopper?
    • How are you able to translate that in a way that converts into sales?

In conclusion, being a small-batch brand owner is hard work. It can be immensely rewarding. Not to mention, current dynamics in the market can make challenging to be profitable.

That is to say, you have two imperatives:

Know your customer.

Know your COGS.

Need help with your COGS? Download our free eBook: Pricing Fundamentals for Foodpreneurs! Looking to rent flexible and affordable commercial kitchen space in Los Angeles, look no further! We want to hear about your small food business.

Crafted Kitchen is a shared use commercial kitchen in the Arts District of Los Angeles. We offer flexible kitchen rentals to small food businesses. Rent a kitchen today!

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