Chi-Chi’s Salsa. Nathan’s Famous Hot Dogs. College Inn Chicken Broth. Marie Callender’s Chicken Pot Pies.
You’ve seen them all at your local grocery store, but did you know that each of these familiar products (and hundreds more) originated as extensions of their original brand, the full service restaurant?
In some ways, building out a retail component to your restaurant business is like creating a second business from scratch. The skills and strategy needed to make a hot sauce or brand of coffee bean a success in stores are vastly different than the customer service-focused structure of the restaurant workplace. There are upfront costs and months — perhaps years — of planning and tweaking to get that retail product just right.
Product extension for your restaurant is a big commitment, but it can also be really profitable, in more ways than one.
Why do it?
Extend your brand outside your four walls.
Getting your name out into the world is one of the chief challenges every owner or manager faces when marketing their restaurant.
While traditional marketing (like newspaper ads and coupons) has given way to reaching customers via mobile means (like responsive websites and email), one thing hasn’t changed: word of mouth is still powerful. Adding a retail component to your brand can open you up to an entirely new audience, but it also gives word of mouth a physical component. Loyal customers can (and do) share what’s great about your restaurant to anyone that will listen, but they can prove how great you are on the spot when they have your product in their hands.
But be careful not to damage your brand in the process of launching a new product. Whatever you sell needs to be as extraordinary in the bottle as it is on the plate in your restaurant. If that’s not possible, your reputation could end up taking a hit.
It’s not just about taste, either. Ensuring that demand is met on a continual basis once you start selling a product is critical to keeping those loyal customers happy and returning to purchase more — and dine with you — again and again. Treat retail with the same seriousness and commitment as your restaurant business, affording it the time and staff it needs to blossom and grow. Otherwise, you’re doing a great disservice to your own ideas, the rest of your brand, and your repeat customers.
Fulfill a niche.
Ask yourself, “Do you have a product no one else is making? Or, can you make your product better than anyone else’s?”
Before you go to the expense of developing a product for a wider market, it’s important to identify if it’s something people are already clamoring for. “You have to start with something that’s craveable,” says Amy O’Neil of PhaseNextHospitality, a company that manages franchises. “[A product] that you know there’s pent-up demand for and that people want to take home from your restaurant.”
And the more unique that product the better, because competition for shelf space and consumer dollar is fierce in the retail market, whether you’re selling to local grocery stores, national chains, or just from a shelf located next to your cash register. If you can’t offer something different or substantially better than a person’s normal food, condiment, or drink purchase, you’re going to lose the sale.
Create an additional revenue stream.
The nature of the restaurant business is ebb and flow. Every establishment has its slow times, but your restaurant may be more effected by seasonal traffic than others depending on your location. Adding a retail component to your already well-managed repertoire can be a way to broaden your potential earning — especially helpful during slow times.
Scale and efficiency are likely going to determine just how much additional revenue your product can expect to bring in. Once you decide what you want to accomplish, the real question is, just how do you get a new retail product from idea to reality?
How do I do it?
The best method for ensuring your product will meet all the requirements of the Food & Drug Administration (FDA) and the expectations of a demanding consumer audience is to partner with a co-packer.
Co-packers are unique companies that often make their own branded products, but partner with other food companies, chefs, and restaurants on the side to accentuate their own business. They are test kitchens, manufacturers, packages, and advisors all rolled up in one, and can be a fantastic resource for restaurants just starting out in the retail arena.
In fact, finding the right co-packer for your product line isn’t just about cost. It’s important to find someone you feel compatible with, who understands your business, and you feel you can have a long relationship with.
Questions to ask a co-packer early on in discussion can include:
- Are you licensed with FDA?
- Can you make nutritional labels?
- What are your minimums?
- Do you have experience with my particular type of product? Is it in your comfort zone?
- How much do you know about my particular industry? Can you advise on pricing, packaging, and promotions?
- Are you set up to partner with newer clients and what do you do to encourage their growth?
- Can you warehouse and manage my inventory?
Once you settle on a co-packer with which to partner on the retail product, you’ll want to prepare yourself for what they’ll need to get started. The most important preparation is to translate your product’s recipe into units of weight, rather than volume. This will help the co-packer scale up for production much more efficiently.
Once you’re ready to get started, there are four steps to the overall process with a co-packer.
Step 1: Your co-packer signs a non-disclosure agreement (NDA) and you settle on initial costs and pricing. The standard for suggested retail price (SRP) is usually four times the co-pack cost.
Step 2: The co-packer does an initial test batch based on the recipe you provided. Usually, at least two test batches are necessary before launching into a large scale batch.
Step 3: You review and approve the results of a large scale batch.
Step 4: The co-packer schedules your first manufacturing run. This includes producing the food, condiment, or drink, as well as the packaging, branding, and all labeling requirements.
Independent of the co-packer, you will need to register your brand name as a trademark and acquire a unique UPC bar code for your product from GS1, so that it can be scanned easily in a retail setting.
Throughout the process, do leave yourself open to new ideas, especially if this is your first time out in the retail space. A great co-packer will have years of experience advising clients, and will likely have encountered many of the hurdles you couldn’t predict at this point. It’s not unusual for a recipe to need slight adjustment, whether with preservatives for maintaining its shelf life, or simply because certain cooking methods won’t work as well in large scale production as in a small kitchen.
No matter what you end up producing, enjoy the process. This is an exciting time for your business and a big step. Don’t get lost in the responsibilities without recognizing what you’ve accomplished!
Worried about how your restaurant is going to fund a break out into retail? We’ve got you covered.
