How to start a food production business
Starting a business in the food manufacturing industry? Startups has the guide for you...
Steps to think about when starting a food production business are:
What is a food production business and what are the opportunities?
The food sector is the largest in the manufacturing industry as a whole and, according to Mintel, the world foods market was worth £1.7bn in 2013 and is set to hit £2.1bn by 2018 and so a food production business is an attractive area in which to start a business.
Food manufacturing businesses range for the multinational juggernauts such as Cadbury's and Heinz to the independent factory with a handful of staff producing one or two products for local retailers.
Unless you're planning on restricting sales to a few school fetes and church fares, this is not really a business you can effectively run on a part-time basis. Your own kitchen won't have the scalability you need to supply the big retailers. Starting a food production business will almost certainly involve taking on dedicated premises and at least a handful of staff.
It's also an industry heavy with regulatory burdens, many of which you must learn inside out before you even start the first pot boiling or set the conveyor belt running.
However, even with the relatively high start-up costs, it is an industry in which many entrepreneurs flourish, as the recent statistics on the sector's growth prove. And despite the apparent complexity involved in getting a manufacturing business off the ground, you can test the waters by starting small.
Lotte Garner started dried fruit and snacks company Southern Alps with her husband in her own kitchen at home. A mechanical engineering graduate, Garner started working on the idea after a friend reacted badly to the sulphur in the apricots she was eating. “After chasing different wholesalers I realised that all the real nasties were actually in the fruit – sugar, preservatives and even colours. It was the thought that I could improve on this that triggered the business.”
Having come from a farming background, Alex Albone attributes his handmade crisps company Pipers Crisps to having ‘a bit of a midlife crisis' and wanting to do something different. “Food processing seemed like a good idea so I started going to food trade shows while I mooched around thinking about what exactly we could do,” he recalls. “I chanced upon a man producing sea salt in Wales and then came my Eureka moment.”
Albone thought he could build a food business around the stories of regional produce – potatoes from his own county of Lincolnshire, and Anglesey Sea Salt. Zoeb Bhujwalla had been running a café after giving up his career in the financial services sector. He and co-founder of the American Muffin Co., Jose Mulji, thought there was space in the market for a donut manufacturing business.
However, after studying the logistics they decided not to pursue the idea because of the short shelf-life of the product. Instead they went with the idea of muffins, and now supply most of the major supermarkets with their gluten free products.
Planning your food production business
Your first steps should be to thoroughly research your market. Ask yourself who your competitors will be, how will your products measure up against them, and why will customers want to buy what you have to offer. Once you've established your unique selling point, don't be fooled into thinking you can start the business the following day.
The food manufacturing industry is a complicated one. There's much to learn, and a lot of preparation involved. “Once we'd come up with a muffin product we were happy with we started doing a lot of groundwork,” says Bhujwalla. “Everything from sourcing the machinery to learning the production process took us quite some time. It took us the best part of two years to develop the ideas and the products.”
You'll need to think carefully about how much you need to start your food processing business. Manufacturing by its very nature involves expensive equipment. However, as well as traditional funding routes such as using savings, bank loans or private investment, the manufacturing sector has plenty of accessible industry specific grants.
Albone went to the government for a grant when he started Pipers Crisps. He was successful in obtaining financial help but warns it's not an easy process. “We received two grants – one was a processing and marketing grant and the other was rural enterprise scheme funding. You go through hoops to get them. We employed an agent to help us.”
Bhujwalla and Mulji went to the Manufacturing Advisory Service (MAS) for help during their planning process. “Working with people like MAS gave us a lot of help both financially and in terms of good advice. They helped us with factory layout, machinery, dealing with retailers. They also helped us see where the pitfalls might be.”
Bhujwalla also describes the process of getting a capital grant as a ‘long drawn out process'. “You have to satisfy a lot of criteria and it's not a straightforward process. We employed accountants to help us with this.”
Finding premises and equipment
Although Garner started her dried fruits business at home, she was only supplying Borough Market in the early days. Unless your operation starts off this small it's unlikely you'll be able to get away with running the business from your own kitchen.
You'll need to think about securing factory premises and some dedicated machinery to produce your products efficiently and in the required quantities. Alborne approached a local coffee roasting company while looking for premises for Pipers Crisps. “We went to them and formed a partnership. They had some space within their business so we built our factory there. They were already established in the food production business so they knew about regulations and hygiene – things that were quite difficult for me seeing as I was a farmer.”
If you're new to the industry you'll want to get some sound advice before you commit to factory premises or start ordering expensive equipment. Organisations like MAS or your local Regional Development Agency can help, but don't rule out asking other food manufacturers for advice too.
As long as you're not directly competing, you'll often find people very accommodating when it comes to offering up their knowledge. Although you won't want to pay money for more space than you need, you should also consider how quickly you'll want to scale up production to avoid time-consuming and expensive relocation further down the line. Garner started with a little fruit dryer at home when she launched Southern Alps. “At first I found I could do quite a bit from home,” she explains. “But at home you can only do so much and there's no room to employ anyone else to help. After a year we had a bottleneck so we had to find premises.”
Garner found a small unit to locate the factory in but soon realised it wasn't big enough so had to move into a bigger space. When it comes to kitting out your new premises, if you can't afford the right level of quality equipment then consider leasing as opposed to going for a cheaper and less efficient option. This is a commonly used option when trying to save on start-up costs. You may find it suits you during the early stages as you assess your production requirements.
The rules and regulations of the industry
There's no getting away from the fact that any business dealing with food is strictly governed by vast amounts of regulation and legislation. For obvious reasons, the food production industry is monitored carefully and subject to more stringent hygiene and health and safety rules than most other sectors.
As with any food business you will need to register all the business' premises with the local authority 28 days before opening. Even if you're not setting up a new premises and merely taking over an existing one, you still need to let the council know about the change of ownership.
All local authorities are bound by European law to maintain a register of food businesses within their catchment area, so registering is a rule they're keen to enforce. The most important regulations relating to food preparation are:
- The Food Safety Act 1990
- Regulation (EC) No. 852/2004 on the hygiene of foodstuffs
- The Food Hygiene (England) Regulations 2006 (there are equivalent regulations for Scotland, Wales and Northern Ireland)
These regulations set out the basic requirements for all aspects of a food business including premises, facilities and the hygiene of you and your staff. You are also legally required to put in place ‘food safety management procedures' which you must:
- Permanently keep in place
- Keep up to date documents relating to the procedures
- Review all procedures if you change how you work or the food you produce
More detail on the regulations can be obtained from the Food Standards Agency (FSA). Which has produced a series of documents and guides for food businesses.
There are also different regulations that apply to different sectors within the food production industry. For example, a business dealing with meat such as an abattoir will be bound by different rules to those in the dairy sector. Your local authority should be able to tell you what applies to you when you register your premises.
“The most common reason people are prosecuted is for not keeping their premises clean and in a state of good repair,” says Ashleigh Birkett, a lawyer specialising in food businesses at Eversheds. “As soon as you start operating you have to be up to the right standards because the environmental health authority could carry out an inspection at any time.”
It's also your responsibility to make sure the ingredients and equipment you use is safe and hygienic even before it reaches your premises. This involves choosing trustworthy and reliable suppliers. “A lot of the concept of food law comes down to due diligence,” says Birkett. “You need to be able to satisfy yourself that you're happy with all aspects of what you're getting. Ask the right questions of your suppliers to avoid problems along the chain of supply.”
Any business in the manufacturing industry has to take even more precautions to satisfy health and safety requirements. It's your responsibility to make sure your staff are adequately trained to operate any piece of equipment they deal with.More information on this can be found on the Health and Safety Executive website.
“Keeping up to date with legislation was a challenge but we'd like to think we did a good job of incorporating it into our daily routine,” says Bhujwalla. “We got a lot of free training from government-funded courses, and made sure we took advantage of all the help available to small businesses.”
Tips for negotiating with retailers
Getting your product to the customers will almost certainly be via a retail outlet. Negotiating with retailers is tricky and is very much dependent on the product you're selling, and the buyers you find yourself faced with. Here are some first-hand accounts and tips from the food manufacturers who've been there and done it:
“Prior to production we made some leaflets and started knocking on the doors of shops and distributors. Our initial thinking was that if we could get into individual shops, that would be a great start. Most of the people we contacted put in advance orders for a box or two. It meant when production started, we already had a market to go to.” – Bhujwalla, American Muffin Co.
“We started very slowly when it came to negotiating with retailers. Because we were in Borough Market they actually started coming to us. It's easier when you're the one being pursued. When you push for it you're more likely to suffer feelings of rejection.” – Lotte Garner, Southern Alps.
“Pipers Crisps don't deal with the multiples. I have nothing against them but I just think there are plenty of other routes to market without supplying them. We decided there's a place out there for being the best producer of handmade crisps for niche markets. I had a very short conversation with Al Fayed at Harrods and he suggested producing an own-brand label product for the store. I won't do that kind of thing. I'm building my own brand and don't want to be distracted.” – Alex Albone, Pipers Crisps.
“When it comes to dealing with the supermarkets you really need a USP, which we feel we've developed with our gluten free muffins. But negotiating with them takes time. It doesn't happen overnight. We've been in talks with them for the best part of two years.” – Zoeb Bhujwalla, American Muffin Co.
“Taking on a big customer like a supermarket is probably the biggest challenge you face. The difficulty is assessing what you need to supply them. We've burned our fingers in the past but you need to make sure you have a back-up plan so you can walk away intact.” – Lotte Garner, Southern Alps.