Considerations Before Starting
A Small Food-Processing Business
who are interested in introducing a processed food product into the market
place should be aware of several considerations. This publication addresses
some of the problems typically encountered by home-based businesses that
process food items to be sold to the general public.
fall into the trap of being too close to the product to evaluate objectively
its need or value. "Grandma's secret recipe for pickled peaches" may be
the best thing since sliced bread, but family and friends will not always
tell the truth in these matters.
If possible, it is
best to get opinions from people who are not closely associated with you
or the product you are developing. Restauranteurs, caterers, and grocery
or specialty food store managers are better able to evaluate a proposed
Is the product
new and different, or is it just one more salsa, salad dressing, or jelly
to fight for market share among the hundreds of similar products already
cluttering the food store shelf? A good question to ask yourself is, "Do
I want a hobby, or do I want to make money?" It is very difficult to introduce
a new product into the market place. In many instances, it would be better
to take the money required to start such a business and invest it in a
certificate of deposit.
is, "What market should I attempt to enter?" Grocery stores, institutional
food services, or specialty shops are three separate and different markets.
Grocery store markets are probably the hardest to enter. They are highly
competitive and require high volume sales items with low margins. Shelf
space in grocery stores commands a premium, and most grocery stores require
a "slotting fee" to place a product on their shelf space. The slotting
fee can be quite expensive, depending on location of the product on the
shelf and location within the store. More importantly, the slotting fee
is not refundable! Furthermore, slotting fees do not guarantee that the
product will remain in the store. If the product does not sell quickly,
it will be replaced by some other product that does sell.
in the grocery market is competition with nationally branded products.
Large, national food companies have economic advantages that make it almost
impossible for small companies to compete with them.
Food Service. The institutional food service market is somewhat easier
to penetrate than grocery stores. This market mainly consists of restaurants,
schools, factories, and hospitals and is serviced by large food distribution
companies. Normally, food products used by this market are packaged in
larger containers than would be purchased for household use. However,
there are several advantages to this market channel:
- Restaurant managers
and food brokers can actually help introduce a new food product to food
- Packaging is generally
less costly on a per unit basis than in other markets.
- Brand identification
is not a major concern with most products.
Specialty or gourmet food stores may have less market entry barriers for
the small food processor than any other food market outlet. Uniqueness
or novelty of the product and/or packaging becomes more important in this
market. Although packaging is important in the specialty market, it is
the quality of the food product that creates repeat purchases.
The majority of food
products sold through specialty shops in Mississippi are purchased through
one-on-one negotiations with the shop's owner or manager. The food processor
or broker will make direct contact with the shops management regarding
the food product.
The specialty market
generally is not high volume but relies more on the perception of a high
quality product at higher prices. Consumers of specialty foods look for
food items not only for personal consumption but also as gift items and
will pay premium prices to get them.
The home kitchen
is not an approved food-processing facility. Food products processed for
sale to the public must be processed in a facility that is inspected and
approved by the proper health agency.
Food products sold
to the public must adhere to specific regulations to ensure safety to
the consumer. All processed foods must follow the "Good Manufacturing
Practices" set forth by The Food and Drug Administration (FDA).
insurance is a must for anyone engaged in the business of processing food
products for sale to the public. Consumer complaints or lawsuits resulting
from problems with the end product will ultimately be traced back to the
manufacturer for reparation.
Will the product
be liquid, solid, semi-solid, or powdered? The form of the end product
will affect both the packaging required and the equipment needed for processing.
Also, will the product be shelf stable, or will it require refrigeration
after processing? These are critical questions that must be answered before
a market strategy can be developed.
has briefly covered several topics for consideration by potential food
product processors. If you are interested in starting a food processing
business, you need to consider many other factors before you make a decision.
The Food and Fiber
Center, a department within the Cooperative Extension Service at Mississippi
State University, has prepared a document to address the needs for starting
a food-processing business. The document is easy to follow and understand.
It is designed to help a person make the right decisions when considering
food processing as a business. For a copy of this document, contact your
county Extension office, or call Dr. Ken Hood, Economist, Food and Fiber
Center, Cooperative Extension Service, at (601) 325-2160. Ask for "Exploring
the Potential for New Food Products."
By Dr. Kenneth
W. Hood, Extension Economist
Extension Service of Mississippi State University, cooperating with U.S.
Department of Agriculture. Published in furtherance of Acts of Congress,
May 8 and June 30, 1914. Ronald A. Brown, Director
Mississippi State University. All rights reserved.
This document may be copied and distributed for nonprofit educational
purposes provided that credit is given to the Mississippi State University