1 STARTING A FOOD BUSINESS 3204 Steven C Seideman Extension Food Processing Specialist Cooperative Extension Service University of Arkansas

2 Starting a Food Business This module of instruction is for people who are interested in starting a food processing business or learning more about how to get a food product on the market. It will assist you in the process of getting started with helpful hints and contacts to make your journey easier.

3 Introduction Everyday, people come up with ideas for food products that they think may have a market. Some of these ideas are simply an old family recipe for a salsa, barbeque sauce or something that friends have encouraged them to market. Some of these ideas involve totally new products that may have a market. Almost every major food company in existence today started with someone in your situation- an entrepreneur.

4 So you have an idea for a food product 15,000 new food products introduced to the marketplace every year. Only about 10% last more than one year. Only about 1-2% ever return the investment made to introduce them to the marketplace. As a future entrepreneur, you need to be aware of these statistics and make prudent, minimal- risk decisions that get you where you want to go.

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6 GETTING MARKET SHARE The single most important success factor a new entrepreneur needs to focus on is getting market share or volume. People tend to be “creatures of habit”. This means they tend to eat the same foods over and over again. They tend to eat what they are accustomed to. In any retail food store, there are literally thousands of types and brands of food.

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8 GETTING MARKET SHARE So how are you going to get a potential customer to pick up your product? Why should they pick up your product versus the competition?? If you have a great tasting product, how will the potential customer ever know it until they pick it up, purchase it, take it home and try it?

9 FOCUS ON THIS WHAT WILL I DO TO GET A POTENTIAL CUSTOMER TO PICK UP MY PRODUCT???

10 VALUE ADDED FOODS Value-added food products result when a food commodity is further processed to produce a benefit to the consumer. Examples are precooked meats and entrees where all the customer needs to do is “heat and serve” Another example is individually wrapped slices of cheese. This is truly a benefit to customers and they are willing to pay for it.

11 FOOD CHANNELS Food goes through one of 2 channels; *Retail-Sold directly to ultimate consumers where thousands of products are on display and competition is fierce. *Retail-Sold directly to ultimate consumers where thousands of products are on display and competition is fierce. *Food Service-Sold to restaurants and institutions that prepare the food for the ultimate consumer. *Food Service-Sold to restaurants and institutions that prepare the food for the ultimate consumer.

12 Photo courtesy of USDA

13 The Food Service Channel The food service channel is one of the most fertile grounds for value added products. They want food items that are prepared so all they have to do is “heat and serve”. They are concerned with the cost and quality of the workforce. Food Safety concerns are also at the top of their minds.

14 Photo courtesy of National Restaurant Association

15 Developing Formulations and Preparation Schedules This is the first step in commercializing your product idea. Write out the name of the product, what it does, how it will be used etc Write out the formula in detail. What are the ingredients and how much of each Write out how the product is made-where mixing, cooking etc take place in the flow of your product from raw material to finished/packaged product.

16 Developing Formulations and Preparation Instructions After you have collected and wrote down all these formulas and preparation instructions, contact Steve Seideman at the Institute of Food Science & Engineering; We will help you decide if you want to process the food item yourself or take it to a food processor who will copack it for you.

17 FOOD PROCESSING ASSISTANCE Steven C Seideman, PhD Extension Food Processing Specialist Extension Food Processing Specialist Institute of Food Science & Engineering Institute of Food Science & Engineering University of Arkansas University of Arkansas 2650 North Young Ave 2650 North Young Ave Fayetteville AR Fayetteville AR / /

18 FOOD PROCESSING ASSISTANCE The Institute of Food Science & Engineering works with the Department of Food Science to assist entrepreneurs like yourself in food product development and commercialization. Details of the services we provide can be found at

19 Directory of Services Pilot Plant Testing Nutritional Labeling Instrumentation Food Analysis Short Courses/ Work Shops Distance Education Courses Sensory/ Taste Panels Idea Development Grants Assistance Publications

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22 Regulations and Regulatory Agencies The following are the contacts for the regulatory agencies that cover food products.

23 Government Agencies There are basically 2 federal agencies involved in food regulation 1)The U.S. Department of Agriculture-Food Safety and Inspection Service (USDA/FSIS) controls meat and meat products, any food item containing 5% or more meat and open-faced sandwiches (including pizza). 2)The Food and Drug Administration (FDA) controls all other food items and has contracted with the Arkansas Department of Health for services in Arkansas.

24 USDA/FSIS USDA/FSIS District Office 4700 S. Thompson 4700 S. Thompson Springdale, AR Springdale, AR / /

25 The Arkansas Department of Health Arkansas Department of Health State Office 4815 West Markham 4815 West Markham Little Rock AR Little Rock AR / /

26 FDA Small Business Representative David Arvelo Small Business Representative Small Business Representative Southwest Region Southwest Region Federal Food & Drug Administration Federal Food & Drug Administration Dallas, TX Dallas, TX / / /default.html /default.html

27 Government Food Agencies If you have a food product containing meat, you must contact USDA/FSIS. For all other products, it is best to start by going to your county Department of Health. Obtain a copy of the regulations from the county sanitarian and review the regulations.

28 Department of Health Requires that all food prepared/processed for sale must be manufactured in an approved facility. To be approved, the facility must meet requirements related to such things as kinds and number of sinks, location of restroom and materials used in flooring, walls and counters. Home kitchens or ranges placed in garages will not be approved for commercial food preparation.

29 COUNTY HEALTH DEPARTMENT The county Health Department has two publications that will help you with the regulations; *Plan Review Guidelines for Food Related *Plan Review Guidelines for Food Related Establishments Establishments *Rules and Regulations Pertaining to Good *Rules and Regulations Pertaining to Good Manufacturing Practices (GMPs) for Food Manufacturing Practices (GMPs) for Food Processing Establishments. Processing Establishments.

30 PRODUCT CODE The Arkansas Department of Health requires that food processors provide a meaningful code for food products. The code provides a means for tracking product should there be complaints or if a recall is necessary. The code should consist of where the product is manufactured, the date and year it was manufactured, the product and batch number.

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32 Labeling your Product The label is the means by which consumers identify your product, so time and thought should be spent developing a label that draw customers to your product and also complies with federal and state regulations. The federal regulations require that your product be labeled to conform to a standard of identity, qualifying statements, weight standards, name and address of processor, ingredient statement and a nutritional label.

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35 NUTRITIONAL LABELING All food agencies require nutritional labeling if you do more than $50,000 in business. The requirements for nutritional labeling can be found at the FDA Small Business website previously listed. The Institute of Food Science & Engineering can assist you with the nutrition figures.

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37 UNIVERSAL PRODUCT CODE- UPC If you plan to sell your product through retail stores, you should plan to get a UPC code. This barcode provides a means for automated identification of your product. Most brokers, wholesalers and retail buyers will not handle your product without a UPC code. To obtain a UPC number, contact the following.

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39 UPC CODE Uniform Code Council, Inc 7887 Washington Village Dr, Suite Washington Village Dr, Suite 300 Dayton, OH Dayton, OH / /

40 UPDATE Up to this point, we have covered; *New product ideas and value added. *New product ideas and value added. *Writing out the product description, formula, *Writing out the product description, formula, processing instructions. processing instructions. *Regulations and regulatory agencies *Regulations and regulatory agencies Now we can go into one of the most difficult, yet exciting parts of the new product development scheme.

41 BUSINESS CONSIDERATIONS Most difficult, yet most exciting and important aspect of starting a food business. A majority of companies that go into business go broke the first couple of years because the entrepreneurs did not fully understand the marketplace or the financial realities of the business.

42 DON’T PANIC- THERE IS HELP!! There is help available from experts to help you in this area.

43 Small Business Development Center The Small Business Development Center at the Sam Walton School of Business at the University of Arkansas offers free brochures and consulting to Arkansas-based businesses in planning the business considerations for entrepreneurs. It is strongly suggested that you have as much of your plan written up before going to them for advice so they can go through what you have and what you plan to do.

44 Sam Walton School of Business Contact; Jay McLaughlin, Center Director Jay McLaughlin, Center Director Small Business Development Center Small Business Development Center Sam M Walton School of Business Sam M Walton School of Business 140 Reynolds Center 140 Reynolds Center Fayetteville, AR Fayetteville, AR / /

45 BUSINESS PLANNING Before entering a food processing business, you should develop a comprehensive business plan to include detailed descriptions of the following; *Organization of the business *Organization of the business *The product(s) to be produced. *The product(s) to be produced. *Market analysis and marketing plan *Market analysis and marketing plan *The financial plan *The financial plan *Operational characteristics and management plan. *Operational characteristics and management plan.

46 The Business Plan Such a plan will help in determining the feasibility of the enterprise and will likely be required when seeking outside financing. This information should be written down before contacting the Small Business Development Center.

47 TWO CONSIDERATIONS The two most important areas to be considered as you decide whether or not to enter the food processing business are marketing and finance.

48 The Art of Marketing One has to constantly find ways to get potential customers to buy your products. This is rarely done by advertising the simple truths of a product because it doesn’t work. It must appeal to the customer in some way that personally affects them or by repetition (eg How many times do we see the same commercial over and over). These may seem odd but they work.

49 MARKETING The most important marketing consideration is to simply understand your product and its place in the marketplace. *What are the characteristics of your product which will make it appeal to the target market? *Who are the constituents of the target market? *Is the market for your product likely to grow? *Is the production, distribution and/or promotion of your product seasonal or restricted by geographic or other factors?

50 COMPETITION CONCERNS What is the availability of the same or similar products? Are substitutes available? Why should a consumer buy your product rather than that of a competitor? How many competitors exist and what is their size (market share)? Are competitors willing to protect their market share by cutting prices?

51 DISTRIBUTION AND PROMOTION CONCERNS Will your product be distributed through direct sales, mail order, wholesalers, specialty shops or large retailers? Do the characteristics of your product fit your distribution channel? What is your advertising plan? *How to differentiate your product from the competition? *How to differentiate your product from the competition? *What media to use to reach the consumer? *What media to use to reach the consumer? *Are you willing to accept introductory discounts, coupons, slotting fees or other promotional tie-ins ? *Are you willing to accept introductory discounts, coupons, slotting fees or other promotional tie-ins ?

52 PRODUCT COSTING CONCERNS What will be the price of your product and will it sell at that price? Does the market for similar goods exhibit relative price stability? Are the costs of producing the product likely to remain relatively stable? And lastly and most important, can the product be produced, distributed and sold at a profit?

53 FINANCING While help is available in answering questions about financial issues, one is well-advised to seek competent professional advice when attempting to address the various financial issues. While help is available in answering questions about financial issues, one is well-advised to seek competent professional advice when attempting to address the various financial issues.

54 FINANCIAL CONCERNS Form of business organization-Sole proprietorship, partnership, limited liability company or corporation? Capital intensity-is your type of business characterized by high fixed or high variable costs? Start-up costs Level of inventory needed Level of accounts receivable Sales forecast

55 Financial Concerns If you know the answers to the previous questions, you may be able to determine the amount of internal versus external funding you will need.

56 FROM RECIPE TO REALITY The University of Nebraska holds seminars several times per year for entrepreneurs. This seminar is an excellent way for individuals to learn about the issues they will need to consider when starting a food manufacturing business. This seminar has been going on for years and is the best of its type.

57 FROM RECIPE TO REALITY It is a one-day program and costs about $ The University of Nebraska has other programs in place to help entrepreneurs. Contact; Jill Gifford Jill Gifford Food Entrepreneur Assistance Program Food Entrepreneur Assistance Program Manager. Manager. 402/ /

58 Photo from University of Nebraska

59 CONCLUSIONS Having a solid idea for starting a food processing business is a good start, but knowledge of the regulatory, production, marketing and financial aspects of starting such a business is an integral part of the overall process. This module has covered some of the highlights and available resources you can use to get started.

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