How to start a food business

Key steps

• What is a food business and who is it suited to?
• What should you include in a food business plan?
• Are there any rules and regulations for setting up a food business?
• How much does it cost to set up a food business?
• How much can you earn running your own food business?

What is a food business and who is it suited to?

One of the more democratic sectors to enter, but one that requires great fervor and tenacity to survive in. Any business entering the food industry must carve out a niche and promise something more special than the myriad foodie start-ups vying for a share of the market.

The foodpreneur must have a palette finely tuned to contemporary tastes and trends but be prepared to subvert them with innovative culinary creations and expect hard, physical work and long unsociable hours.

Of course, a food business idea can encompass many things. Will you make your own food? If so, it’s worth taking a look at our guide on how to start a food production business. Will you make your food in front of customers? If so, you may want to take a look at our guide on how to start a street food business.

Lavinia Davolio, founder of boutique confectionary business Lavolio, says that while “food is an essential part of everyday life”, it’s also “a very big industry, with lots of existing competition and with its specific challenges”. Being “extremely passionate about food”, she says that starting a food business is a “way to combine a challenging career with something you feel very strongly about”. The long hours shouldn’t seem as bad when you’re doing something you enjoy.

Ed Smith, co-founder of superfood chocolate company Doisy and Dam describes a food business as “any business that works in the process of getting food from the ground to your mouth”.

For Smith, loving food isn’t enough: the nature of the industry demands a lot of time spent engaging with other people and is particularly suited to “those who like to talk to people all day. The less time behind the computer the better”, he explains: “You get to deal with tangible products, real customers and delicious food”.

But no food business is an island and it’s not just the customer you need to be friendly with. If you want to keep cogs turning you need to maintain solid working relationships with everyone from suppliers to stockists as well:  “Always be honest and do good business with people,” he warns.

Despite its highly competitive nature, Smith advises taking advantage of the knowledge and expertise of your peers and helping them out in turn: “The more you share with others, the more they will share with you.”

Anna Mackenzie, founder of on-the-go muesli pot start-up Cuckoo concurs: “Take lots of advice from those more experienced to validate your idea before you go ahead and invest considerable resources in it”.

While she agrees that it’s a tough industry to break into, the grind is worth it as it makes it all the more “rewarding if you are successful”. Simply making “sure you have an exciting and solid business proposition that you are passionate about” is a good place to start from she concludes.

Over the years, we have featured many food business ideas on these pages – from frozen yoghurt to Peruvian food. Take inspiration from what is – and isn’t – on the market right now.

Here are just a few food business ideas:

• Algae
• African ingredients
• Fermented foods
• Free-from foods

If you’re a gregarious individual, who’s passionate about creating, experimenting with and eating food, and are prepared to work hard, read on to find out how to create the essential foundation of any business: the business plan…

What should you include in a food business plan?

While the excitement of a new idea can make it tempting to get stuck in crafting in the kitchen, make sure this temptation doesn’t result in skipping writing up a thorough and detailed business plan.

Essentially a blueprint for your business, a business plan will help you plot out what steps you need to take to successfully manage cashflow and growth, and define your goals, ambitions and targets to make sure you stay on track.

Davolio asserts that one of the most important parts of a business plan for food production is your competitor analysis, which she explains as: “the size of the UK market in terms of value and units sold, and finding out which ways to market are viable for your product”.

For example: “If you are planning to sell ice-cream you could not easily sell directly with an e-commerce website, but you could sell directly in street markets or at events such as festivals or food fairs”.

Market research and testing your concept is crucial to any business plan. If you can test your food product at a festival or fair, it’s a great way to prove your product, learn how to behave in a customer-facing role, communicate your product and its uniqueness, establish a fair and reasonable price and get real-life feedback on your taste and branding. (Find out more about starting a street food business here.)

Mackenzie agrees that it’s important to be aware of your competitors: consider why your “product is unique and what gap it’s filling in the market. Look at this against the competitors you’ve identified and benchmark against them on those various features, making sure you come out on top in significant areas”.
By being “very targeted in the part of your business plan where you are considering your product features and benefits” you can identify your target market and focus your marketing and selling tactics. This will help you “capture your prime audience and early adopters of your product, gaining a loyal consumer base from which you can expand”, she concludes.

Once you’re happy with these key areas you can start thinking about targeting stores to stock your product. Davolio explains that “it’s easier to start with specialty food stores, rather than aiming directly at the big supermarkets […] because the specialty industry prides itself on stocking new, innovative products”, and the clientele are more likely to “shop there looking for niche products”.

Smith lays out his basic structure for a business plan as such: “Everything you’ll need to spend money on, every way you make money and how much of each. It’s always best to make conservative assumptions so you put yourself in the best position if anything goes wrong – always whack in a miscellaneous section to give yourself a buffer”.

Mackenzie also highlights the importance of getting your finances in order. Very importantly: “Calculate your product costs and pricing models ensuring that you can make a sufficient margin and then create your financial projections. At this stage, outline what your start-up costs and also operating costs will be”. If finance isn’t your strong point, it’s wise to sort out an accountant early on to get your accounts in order.

Finally, think about how you’re going to secure customers and market your business and your operational considerations as well.

Mackenzie concludes that you’ll need to think about “what you’ll need to be doing on a daily basis to meet the goals, and […] what team you are going to require”.

Are there any rules and regulations for setting up a food business?

As you’d expect, food manufacturing is fraught with legislation to combat the eventuality of food poisoning and contamination. If you don’t want to be deal with the hassle of red tape, this is not the business for you.

Davolio says regulation is especially important if “you have a food production facility where you are cooking or packing”. All the information is easily available online or you can contact your local authority Environmental Health Officer and the Food Standards Agency (FSA). “Both are very approachable”, she assures, “and will do what they can to help you to understand the rules and regulations”.

The FSA is the UK government body responsible for protecting public health in relation to food, which uses a hygiene rating scheme to assess a food business’ safety. Businesses are required to register their premises for free with the environmental health service for their local authority at least 28 days before they are due to start trading. The FSA website also features a checklist, showing everything you are expected to comply with before starting up.

Smith says that it depends on the type of food production you’re doing: “We make organic chocolate so we need to make sure that each part of our supply and distribution chain is organically certified”, he explains.

Doisy and Dam is also safe and local supplier approval (SALSA) accredited to ensure a higher level of health, safety and accountability. “Food trucks are different”, he warns,” frozen and chilled foods are different – make sure to double check with your local environmental health office”. SALSA certification is only granted to small producers and suppliers that can demonstrate to an auditor that they produce safe and local food.

“It very much depends what type of food business you are setting up as each one will require compliance to different regulations”, adds Mackenzie, “so you should seek specific advice according to your food business type to make sure you’re meeting them all”.

How much does it cost to set up a food business?

As with any business it depends on the scale of your operation. Are you going to have a bricks and mortar site to sell your wares or a street stall? Will you sell online or through a high street stockist?

As mentioned before, different kinds of food products suit different sales routes based on your target market and possibly the storage requirements of the product. You should keep costs low and scale in a controlled way while you assess the viability of different options and establish whether your product is going to sell.

After you’ve “developed a killer product or recipe the next biggest cost would be to design and produce the product’s packaging”, asserts Davolio. It will be a challenge to most small businesses as there are substantial fixed costs to cover and most packaging suppliers will only produce a very large number of units.

“We started our business with around £10,000”, recalls Smith, “but many do it for less and many do it for a LOT more”.

“It all depends on what you need to buy before you start operating”, he continues, “but I would recommend trying to do it on as little as possible. This way you’ll learn a lot more and develop good financial responsibility”.

Being frugal is a good habit to get into at the start of a business when it matters most and you can’t possibly predict how costs will stack up. Remember: You don’t have to have the best of everything – just focus on making good, tasty food.

Mackenzie says “there are many different ways of going about it depending on resources you have available and your business plan”. She advises working out and prioritising the areas “that require the more significant initial investment, or what is absolutely necessary to invest in, rather than just nice to invest in, and at what stage”.

Don’t let this hold you back though: “There are many steps that can be done at low cost initially if you’re creative and resourceful so that you can build up the idea and ensure it has legs before you take the plunge and invest more funding and time in to it.”

You should also take marketing into account as a major part of your start-up costs says Smith: “Some people go for a paid marketing approach where they spend money on advertising to get in front of their customer. Others go for the free approach, connecting with their customers on social media and through word of mouth and events”, he explains, “One is not better than the other, but it should all come from the type of product you’re trying to sell and who you’re trying to sell it to”.

How much can you earn running your own food business?

Unless you’re planning on getting into major supermarket chains and expanding internationally, a food business is not something you’re going to be reaping huge financial rewards from. If you’re money driven, then this may not be the business for you.

Any initial profits are likely to be reinvested into the business and food products aren’t known for having huge margins when all is taken into account.

“Beware that most food businesses take a longer time to break-even”, explains Davolio: “This is mainly due to the nature of the products you will be selling which are ‘small-ticket items’ so you need a big distribution before your margins become large enough to cover your fixed costs and your set up costs, not to mention the marketing expenses”.

If you manage the growth of your business well “you should expect it to be profitable in the second-third year of trading”, she concludes.

Smith agrees that most of your initial profits should be reinvested into the business: “It depends on how much you pay yourself. And how much profit the business is making. During the early growth phases I would plan not to be able to take an income as you develop your brand”, he advises.

Mackenzie says that for many food entrepreneurs, “growing a food business is a longer-term investment”, rather than a quick way to make money: “You may not set out to personally earn money from it at the very start as you might want to be investing in growing the brand rather than taking profits out of the business”.

Long hours, low pay and tough competition may seem off-putting, but for the determined and passionate, starting and nurturing a successful food business offers more than just financial rewards in the long term.

The great part about food businesses is that they’re pretty sturdy when it comes to a recession. Since everyone needs food regardless of the economy is doing, there’ll be consistent demand for goods provided by your food business.

Starting a food business: Tips and useful contacts

Remember

• It’s not enough to be passionate about food – be passionate about people as well
• Always be honest, punctual and friendly with suppliers and stockists
• Research your direct competitors thoroughly
• Make sure you’re up to date with food regulations and hygiene
• Be as frugal as possible in the early days of your business to develop good financial responsibility
• Expect to work long, hard, unsociable hours

Useful contacts

• The Food Standards Agency (FSA): The UK government body responsible for protecting public health in relation to food
• Safe and Local Supplier Approval (SALSA): A food safety-standard granted to safe and legal food suppliers and producers
• The Grocery Accelerator: An accelerator for food and drink brands offering funding and coaching.
• The Nationwide Caterers Association: Trade association supporting caterers