Our restaurant wants to put its refrigerated flatbread and other gourmet products on supermarket shelves, but we can't find basic how-to information and do's and don'ts for this industry. Any help you can give would be appreciated.
-- Jonathan Shulman, Boston
Taking a terrific product that's well-received in your restaurant and mass-producing it so it can be sold in supermarkets sounds like a relatively easy idea. In reality, however, it's a very difficult proposition, experts say. "Take a walk through any supermarket and notice how few packaged, refrigerated, and frozen products you see come from smaller companies," says Ray Coen, a food industry consultant and president of Los Angeles-based Coen Co. "That's because of the high cost of gaining distribution and the high marketing costs to generate sales and maintain the distribution, which of course leave little room for profit."
It's not uncommon for the successful introduction of a new food product in just one city to require a commitment of $l million or more, he says.
But you're starting out ahead of the pack since you have a product that has already proved popular with your customers and a restaurant that gives you a recognizable brand, at least locally. Here are a few do's and don'ts from Coen and Ed Engoron, a food consultant and president and CEO of Los Angeles-based Perspectives:
Realize that the supermarket business is a big business that's highly competitive, with tremendous demands placed on the vendors by the supermarkets. "It's not an industry for the squeamish," Engoron says.
Go into the project cautiously, understanding the costs involved up front. Familiarize yourself with terms like "slotting allowances," which are fees that the food producer typically pays to get their items on a supermarket's shelves. Fees can be up to $25,000 per product, depending on which chain you're selling to. Sometimes the fees can be negotiated, however, and if you have a niche product that captivates a particular buyer, some of the fees may disappear.
Expect to also pay promotional and advertising allowances, as well as "failure fees" if your product is picked up but doesn't do the sales volume you've projected. "You typically have 90 or 120 days to make it, then you have to pay a fee for them to send you back the product if it doesn't sell," Engoron says.
Realize that in a wholesale operation, you're no longer selling to the consumer, but to the grocery chain's buyer. Except for the rare independent grocery store, managers of individual stores don't buy merchandise. Purchasing is done for large store chains by a buying office and by purchasing co-ops for independents and small chains. You may be asked to pay "appointment fees" just to talk to the buyers of some national supermarket chains.
Expect supermarkets to want to make a 60% margin on fresh and refrigerated product (because of spoilage and expiration dates). Also, supermarkets will want you to deliver directly, and they may ask you to restock and turn the product for them. Since you have a refrigerated product, your commissary should be located within a four-hour drive of your key clients.
Don't skimp on your commissary. It must be a very sophisticated and safe food environment. It will be inspected by the supermarkets buying your product and by various government agencies that regulate food production.
Don't forget to emphasize your restaurant brand in your marketing efforts and capitalize on the fact that consumers are looking for restaurant-quality, chef-prepared meals and meal components. If your restaurant has a good name, go about pitching your name, but don't give away your restaurant business in the process.
Don't take no for an answer if you really want to pursue this niche. You are likely to be turned down by large chains, so start by getting noticed in smaller, specialty stores and then go back to the bigger players later, armed with sparkling sales data. In your area, you might try outlets like Trader Joe's or Bread & Circus.
Don't try to accomplish this project by yourself. Most startups and small manufacturers rely on grocery brokerages to represent them in dealing with supermarket buyers. These brokers are represented in every large city, and you can find the knowledgeable ones by contacting a local chain buyer or a nearby manufacturer and asking for some recommendations, Coen says. "A broker will explain what's needed to get onto the grocer's shelves in your specific category. He will mention Food & Drug Administration and Federal Trade Commission requirements, as well as any local health and packaging requirements, and take you through such areas as packaging design, advertising, and promotion."
For more resources and how-to information, the Food Marketing Institute may prove helpful. Links to many additional food-related industry organizations can be found at: http://www.msu.edu/~foodmark/associations.htm.
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