It’s easy for food entrepreneurs to get started — at farmers markets — but each step up gets tougher
It typically starts with a recipe, a streak of entrepreneurial spirit, and a dream. For some, the dream is financial independence; for others it is simply to make a living doing something they love.
A growing number of food entrepreneurs in Minnesota are pursuing that dream, bringing to market everything from spiced nuts and giant chocolate cookies to gourmet peanut butter and popcorn.
Tina Rexing, who gave up a six-figure salary when she left a corporate career to start T-Rex Cookies, says replacing that income isn’t her top priority. “It is a goal but I don’t think it’s a realistic one. For me, going into this business is more about being happy doing what I am doing, versus bringing home a steady paycheck that doesn’t necessarily make me happy. My realistic income goal is to break even for the first year.”
Steve Sorensen, senior product category manager for Lunds & Byerly’s, has been working with food entrepreneurs for the past 15 years. Finding local vendors with innovative products is part of his job. Sometimes, the process starts with a tip from a customer, sometimes he discovers them at farmers markets, and sometimes it starts with vendors contacting him.
Sometimes it all works out. Angie’s Artisan Treats, started by a husband and wife from Mankato, started out selling caramel corn at Vikings games and in supermarket parking lots, and now sells millions of bags of BoomChickaPop and BoomChickaPuffs in all 50 states and several foreign markets.
Steve Sorensen with makers of Wee Willy's at Lund's & Byerly's
France Avenue Edina
But the path from a great pickle recipe to a slot on a supermarket shelf isn’t an easy one. Sorensen estimates that only 5% of the products that he reviews ever make it onto Lunds & Byerly’s shelves. For aspiring entrepreneurs who are new to the food business,
Sorensen helps with direction and resources for them to work their way through an obstacle course that includes everything from liability insurance to working with state agencies to meet regulatory requirements, and obtaining packaging and UPC codes.
The explosion of farmers markets in the Twin Cities has provided an incubator for artisan products looking for a low-cost point of entry, and a place to test ideas and grow a customer base. Stroll through the Linden Hills Farmers Market on a typical Sunday morning, and you’ll find dozens of products, ranging from all-natural soft drinks in returnable bottles to spicy salsas and hot sauces to gourmet spiced nut mixes and frozen shimmy pops.
Farmers markets are a natural starting place for many food entrepreneurs starting on a part-time schedule with a limited budget. Vendors have to take a food safety course and register with the Minnesota Department of Agriculture. Some markets also require vendors to have liability insurance, and some cities require vendor licenses, but market fees are low (as little as $25 a day), and regulations for processed foods sold at farmers markets are much less stringent than the requirements for foods sold at grocery stores.
Rexing worked in high-powered corporate positions for nearly 20 years, for companies like Target, Northwest Airlines and Thomson-Reuters, but baking was always her passion. A perennial prize winner in the baking competition at the Minnesota State Fair, Rexing reached the point where she was ready to give up her six-figure income for a more rewarding and less stressful life.
In November of this year, she took the plunge. She quit her job, drafted a business plan, and in February launched a 60-day Kickstarter campaign that raised $9,000, which she used to buy a market tent and a decal wrap for her T-Rex Mini Cooper, as well as pay her initial rent at City Food Studio. Since then, she has been selling her cookies and quick breads at farmers markets, and online through her website, trexcookie.com. Rexing also offers corporate delivery for meetings and shipping cookies as gifts from companies to their clients. She’s shipped as far as London, England.
Rexing has also taken out a $50,000 line of credit from a local bank, but says that $20,000 would probably be sufficient for a start-up like hers. A line of credit is preferable to a business loan, since she only has to pay interest on the amount she actually borrows, instead of the full amount of the loan.
She started out making 50 pounds of cookie dough a week, and by mid-summer was up to about 250 pounds of cookie dough a week, which equates to 500-700 cookies. With her cookies selling for $4 apiece, that’s already a nice chunk of dough.
Factor in, however, drastic changes in egg prices. In March, Rexing was paying $23 for a case of eggs — which is 15 dozen. But now the cost per case is upwards of $43. Rising prices are one of her biggest challenges. “Small businesses have to absorb those pricing shifts and adapt,” Rexing says, “whereas big companies can afford major changes in ingredient prices.”
Help from friends and family helps keep costs down. “My mother helps me, my dad is my dishwasher. A lot of folks I used to work with at Target have retired from Target or they want to take some time off so they come in a couple of days just so they can help me live my dream. A lot of my friends live vicariously through this adventure of mine.”
Legally, Rexing probably could bake her cookies in her home kitchen, but she prefers to work in a licensed commercial kitchen, City Food Studio, which also is home to more than a dozen artisanal food producers, including You Betcha Kimchi, Tempeh Tantrum and Isadore Nut Company.
For many food entrepreneurs, the next step up the ladder to increased sales and income would be selling to co-ops, specialty stores and upscale groceries, but not for Rexing: “I’m not interested because the margins if you go into wholesale are much lower, and for me having direct contact with my customers is one of the reasons I went into this business.”
Instead, says Rexing, “my initial business plan for my first year is to establish my brand. If I learned anything from Target, it is to make sure you establish a brand.” For her second year, she is thinking about getting a food truck that will just sell cookies and milk. “I did a lot of research on food trucks. There are a lot of foodies’ food trucks out there, but there are not a lot of dessert food trucks.”
For food entrepreneurs who want to grow beyond direct sales, local food co-ops, boutiques and upscale markets like Lunds & Byerly’s and Kowalski’s are often the next step up from farmers markets. Many such stores seek out local products as part of their mission, or part of their brand. As Lunds & Byerly’s, Sorensen explains, even when these products don’t generate high volume sales, they help the store provide a unique shopping experience and project an up-market image.
Tasya Kelen, founder of Isadore Nut Company, produces a line of gourmet spiced nut mixes made from organic ingredients and packaged in reusable glass jars that she manufactures at the City Food Studio and sells through food co-ops, specialty boutiques, and online. “I want to grow big, no doubt about it,” Kelen says, “but my product is not a conventional grocery story product. I am not trying to get into Target. This is a specialty artisan product and I want it to stay that way.”
But each rung on the ladder presents new challenges. Grocery stores take a big cut of the retail price — sometimes 50% — and distribution through wholesalers can take another big slice of the pie. Labeling requirements are more stringent, and more expensive — products sold in supermarkets must carry nutrition information, prepared by independent companies based on laboratory or database analysis, which costs hundreds of dollars per product, and each product must have an individual UPC code (a few hundred dollars for 10 products or less).
Additionally, some of the larger chains charge a “slotting fee” for their shelf space, which can present a big obstacle for small startups. The business website bizshifts-trends.com reports that slotting fees can range from the thousands to hundreds of thousands of dollars.
Mike Rakes, founder of Philia Foods
Mike Rakes, founder and president of Philia Foods, manufactures a line of feta cheese spreads that started out with a family recipe. “We made it at parties, and people said, ‘Why don’t you try selling it?’ I was in school and I thought it might be fun to try it at farmers markets to apply what I was learning, and then it just kind of morphed into stores asking for it.”
Philia’s spreads are already in the deli cases at dozens of stores around the Twin Cities, ranging from Lunds & Byerly’s, Kowalski’s and Jerry’s to many of the local food co-ops. He’d like to start selling his spreads regionally, in metro areas such as Des Moines, Milwaukee and Eau Claire, possibly by this fall. But that will take more capacity, and more capital. At the stage his company is at, the options include taking out a loan or a line of credit, or taking on an investor. “I want to keep ownership of my company, so I will probably look at bank loans,” says Rakes. To expand regionally, that could mean $150,000 to $200,000 in loans. And a national roll-out could cost $1 million or more.
“The next step,” says Rakes, “is figuring out production so that my capacity can go from what it is now to 10 to 15 times more. Then you can call on these stores that can potentially add 20-40-60-80 (additional stores) in a week, or in a meeting.” Rakes expects to see such a rise in his capacity sometime this fall.
For Rakes, “the ultimate dream would be you are able to sell (the business) to a bigger company that says, we are able to take it from a few million to $50 million (a year in sales), or something like that.” But, says Rakes, “Right now we are small enough that I need to just think about growing this business...That’s so far off right now. It doesn’t really drive you day to day.”