5 Common Food Business Problems and How to Solve Them

This is 100% honest. All food businesses have problems you’ll need to solve. Here are a few ways to solve one of the most common problems facing food businesses.

Here are a few ways to solve these common business problems.

The problems below are not sugar-coated. (Although that would be tasty….mmmm sugar.) These are real problems. And I’m sure some of you are experiencing them, too. If you are, I’d love to here what you’ve done to solve them.

Here’s what’s going on:

Problem #1: Our Mustard is too Expensive

Shelf space is expensive. And retailers aren’t going to put products on shelves that don’t move. As one buyer recently told me verbatim: “I can’t sell this sh*t for $6.99. It’s not going to move.” He’s right. Unfortunately, it’s taken five years of retail sales for me to figure that out. So, we’ve been testing pricing – $4.99 on the shelf with a $3.99 quarterly promo. If you’re curious if it’s been working, the answer is a resounding yes.

At one retailer, we’ve gone from $766 sales YTD to $1,328 this year. That’s a 73% increase I’m happy about. But, this is one retailer. I wish these sales were across all 150 retailers we’re in (more on that below).

We sell direct to this store, which means we’re able to test pricing. But, to make $4.99 happen through a distributor, we’d need a product cost of $1.25/jar. As many of you know, that’s a challenge. But, it leads me to my next problem.

Problem #2: Reducing Costs

In the start-up phase, you’re probably not generating enough cash to buy anything in bulk – labels, packaging, ingredients, or machinery.

This means your costs are high, your shelf price is high, and you’re most likely not getting the turns you need to make your food business work. That’s where I am. I need to get down to $4.99 on the shelf – and $3.99 on promo. After testing, that’s the price that makes Green Mountain Mustard move off the shelf. So, how do I get there? Let’s look at my current pricing structure.

My average cost of goods for a jar of mustard is $1.72. That means half my skus are more, half are less.

My current pricing structure is making money. But, it puts me at $5.99-$7.99 on the shelf — and sometimes as high as $9.00 in high margin gift shops. To get down to $4.99 on the shelf, I’d have to drop my pricing significantly – to $1.25 on average.

Let’s look at what that entails:

• Purchasing 3-6 pallets of glass at a time ($2,244)
• Purchasing 3 main ingredients in pallet sizes ($7,000)
• Purchasing 60,000 labels ($1,800)

Total investment: $11,044

This investment brings my average COGS to, you guessed it, $1.25 (with two SKUs eliminated from distribution).

I urge you to see what your product cost looks like if you bought a couple ingredients in bulk. We already buy glass 3 pallets at a time (sidenote: I’m switching back to a 12-pack because it saves me $0.16 a unit – that’s HUGE), so I’m looking to finance the ingredient purchases and labels (when Vermont goes non-gmo next year).

With an average COGS of $1.25, this is what my pricing would look like to get to $4.99 on the shelf:

I’m working with a 32% retailer margin. If it was 40% our price on the shelf would be $5.99 – a far cry from $6.99 or higher. Any price decrease would help move more product. While a 7%  margin may not seem like a lot, on $100,000 in sales, it’s $7,000. That means my investment would be paid back within 2 years, and I’d reap the rewards moving forward.

I’m currently looking for ways to finance the economies of scale without taking a hit to my current cash flow. However, it’s important to note that this decrease may not lend itself to a 73% increase for all of my retailers. It’s a risk I’m willing to take right now.

Problem #3: Retail Sales are Lopsided

You know the old adage: 80% of your sales come from 20% of your customers? That’s true with me, too! We had two big sales that contributed to our temporary growth in retail sales. That’s good and bad.

As you can see from the chart below (retail names are hidden for privacy), the top 5 retailers I sell to directly make up 79.91% of my retail sales. And it drops off into the low single digits after retailer #6. That means my retailers I deal with directly aren’t making too much of an impact on the bottom line.

If I took out those two large sales, my top 10 retailers make up 40% of my sales – a reasonable number. This is leading me to focus on growing sales in those specific retailers and ignoring the retailers who generate less than $500 for me in the course of a year. I can support them with samples, point of sale, and demo materials for passive demos.

It’s risky, but if product isn’t moving, I’ve got to put my time to where product is moving.

Problem #4: Most of my Revenue Still Comes from Events

Here’s how my revenue channels break down, YTD:

I removed the two large retail events. I continue to make the largest amount of money in events:

These direct events include farmer’s markets, fairs, and festivals. In 2014, we participated in 32 events. This was in addition to the Burlington Farmer’s Market we vend at every Saturday. It was an exhausting lifestyle. Plus, one rainy weekend burned a $300-$500 hole in my pocket each weekend. Almost every show we did from January – May was at a loss. My time (your most precious commodity) was wasted.

This year, we cut our event schedule in half – down to 15 events.

Three of those events are new. One we lost over $500 at – and the rest have not happened. But, it’s becoming clear to me that the money I make at events is not sustainable because they cost so much to do – in time and money. But, they get my brand out there which is also important. If I can make money – even $100 – at a show, it’s a success. While our event revenue is down more than $9,000 compared to last year, we’re making money at the events we do.

There’s an opportunity to make better use of the events.

I launched a cookbook that has recipes using mustard – and it’s doing well. It’s been downloaded over 200 times since I launched it in April. And you’re right, I do have those email addresses. :)

I’m working on more ways to connect with people after their purchase at an event to get them to purchase more mustard – either at another event or online through our website.

After this year, we’ll pair down again. I plan on doing 8-10 events next year, in addition  to the Burlington Farmer’s Market. And only the ways that generate the most profit. Doing a weekend show for $200 in profit simply isn’t worth it anymore.

Problem #5: Customers Aren’t Using Mustard Fast Enough

Mustard, as with many other condiments, is known for “slow” use. The retailer in problem #1 above sells 2 jars of mustard a day. Not bad for one retailer, but how do we make that 6-8 a day?

It’s by solving mustard’s usage problem.

You see, many people believe mustard is just good for sandwiches. Meaning, whenever you have a sandwich, you have mustard. But, what if you don’t eat a lot of sandwiches? Our mustard sits in your fridge – with the other four or five jars of mustard you’re working your way through. Big problem.

This means my problem is educating my customers that mustard can be used for so much more than sandwiches or the occasional hot dog. Yes, the cookbook has helped, but it hasn’t quite translated into higher sales. We still get objections like “that’s a lot of mustard” or “how do you use it?” Here a couple of ideas I have to get people using more mustard:

1. Top of the jar label promoting recipes on our website and our cookbook (this also gives me the email address of customers purchasing our mustard in stores)
2. Smaller jars so people go through them faster (this would also solve the “your mustard is too expensive problem”, but it may not be worth the added cost.
3. Turn our mustards into dips (costs a lot of money and would be an incredible effort to re-tool packaging and such, so it isn’t feasible). But, I bet customers would go through it a lot faster.

Conclusion

These are five problems I face. As a small food business owner, the problems are never going to go away. You’ll always be tackling something – whether it’s production, scaling, ingredients, shipping, retailers, demos, etc. Nothing is ever smooth sailing it seems. Which leads me to this:

What’s one problem you’re struggling with? I hope this article helps point you in the right directions with some options.