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  1. 1. Greater San Francisco Bay Area Food EntrepreneurNeedsAssessment Introduction The number of food entrepreneurs in the Bay Area is growing dramatically. Local food events such as the Underground Market, Eat Real Festival, and La Cocina’s Street Food Festival are drawing larger crowds every year. There are hundreds of food entrepreneurs in the greater San Francisco Bay Area who make great food products that their friends, family, and customers already enjoy. Many dream of transforming their love of making and sharing food into a full-time career. In order to do that, they face a number of barriers to entry including lack of access to the right commercial kitchen space, limited financing, a lack of professional skills and few relationships with co-packers, distributors and retailers. One of the biggest challenges for food entrepreneurs is access to a commercial kitchen space that meets their food production and storage needs. In addition to having the right equipment and infrastructure at the right price, many food entrepreneurs also may need other resources to scale and commercialize their products for regional, then national, sales and distribution. This could include forming relationships with co-packers, distributors and wholesale brokers to help them expand their production. Meanwhile, the market demand for locally produced foods is skyrocketing. According to the National Association for Specialty Food Trade’s 2012 Industry Report, the U.S. Specialty Food market grew by 19.1% from 2009- 2011, far out-pacing most other sectors of the U.S. economy. Furthermore, three quarters of retailers say that “local” is the most popular product claim with consumers and the majority think that it will continue to be the most popular and fastest-growing product category for the next few years.1 Highlighting the pro-local trend, USDA registered farmers markets grew by 1 Tanner, Ron. 2012. National Association for the Specialty Food Trade. “The State of the Specialty Food Industry 2012”.
  2. 2. 9.6% in 2012.2 This survey, funded by the Business & Entrepreneurship Center at Napa Valley College (http://www.becatnvc.com), was designed to help entrepreneurs and established businesses develop kitchens and other services that meet the needs of food entrepreneurs. We hope it improves success rates for food entrepreneurs and shared-use commercial kitchens. Methodology Developed on SurveyMonkey.com, the survey was designed by the author and vetted by eight reviewers from a range of professional backgrounds. After performing initial outreach, some additional questions were added to provide supplementary information. To better understand some of the survey results, anonymous phone interviews were conducted with ten of the respondents. With the help of numerous Bay Area non-profit, government, and private organizations, an extensive outreach effort was performed from July- September 2012. A goal was set for a minimum of one hundred completed surveys for the purpose of basic statistical analysis. The focus is on the 100- mile Bay Area ‘foodshed’, as defined by the San Francisco Bay Area Foodshed Assessment (2008)3 . The target market respondent self-identifies as a “food entrepreneur” and lives within 100 miles of the San Francisco. 162 people started the survey, 119 fit the target market, and of that, 104 completed the full survey. In addition to descriptive statistics, the author used SPSS software to assess statistically significant preferences for certain attributes, services or challenges. Results were deemed significant enough to reject the null hypothesis if it had a one-sided p-value of .05 or less (two sided of .10 or less), meaning that there is a 95% chance that one can reject the null hypothesis that there is no preferential value or rating. The results and conclusions drawn from the survey and interviews are based on the perceptions of the respondents. No effort was made to assess whether the entrepreneurs’ perceptions were consistent with the on-the- ground reality. If inconsistent, more outreach to entrepreneurs of existing kitchens and other opportunities may be warranted. 2 U.S. Department of Agriculture. Agricultural Marketing Service. 2012. Farmers Markets and Local Food Marketing. Farmer’s Market Growth: 1994-2012. 3 Edward M. Thompson, Alethea Harper and Sibella Krauss. 2008. Think Globally ~ Eat Locally: San Francisco Foodshed Assessment. American Farmland Trust.
  3. 3. Who is the Bay Area Food Entrepreneur? The most popular food categories of respondents are Baked Goods (25%), Confections & Chocolate (15%), Prepared Foods & Meal Replacements (11%), and Fermented & Preserved Products, Vinegars and Oils (10%).
  4. 4. Despite the fact that each respondent identified his/herself as a “food entrepreneur" only 56% currently use a commercial kitchen. Follow-up interviews with ten respondents suggest that some depend on exemptions from kitchen requirements (like coffee roasting) or first started selling their products through Underground Market events and “under the table” venues. With the passage of The California Homemade Food Act (AB1616), otherwise known as "the cottage food law", some of the interviewed entrepreneurs said they would work from home until they could better develop their products or planned to use the law to work part-time from home. Others, though, prefer the larger scale of production and additional services that commercial kitchens provide.
  5. 5. The vast majority of respondents are self-funded. On a scale of 1-7, how challenging are these aspects of running your food business? (1 = Not At All Challenging; 7 = Extremely Challenging) How Challenging? (1-7 scale) Challenging (5 - 6) Extremely Challenging (7) Combined Access to the RightCommercial Kitchen 29% 46% 75% Financing/Funding my Business 27% 45% 72% ProductMarketing/Sales 30% 25% 55% Skilled,ContractLabor to Help Produce 27% 18% 45% Operations/QA/Production Efficiency 30% 15% 45% Shipping/Distribution 27% 22% 49% Access to the right commercial kitchen and Financing/Funding my business are the two biggest challenges faced by food entrepreneurs. Statistical analysis infers that respondents find these two, plus Product Marketing/Sales, as significant challenges (mean >4).
  6. 6. What are their Commercial Kitchen Needs? Of those that currently use a commercial kitchen, 71% pay less than $25/hour and 44% pay less than $20/hour. The largest segment of responses (38%) will travel no more than 30 minutes. Only 26% will travel over 30 minutes.
  7. 7. 67% of respondents would (or do) use a kitchen for less than five 4-hour shifts per month. Of ten phone interviews conducted, two plan to run part-time food businesses. Few entrepreneurs need more than 1000 square feet of space. In hindsight, the survey over-estimated spatial needs.
  8. 8.  40% of respondents do not need freezer space.  92% need at least 4 square feet of refrigerator storage.  21% need at least 30 square feet of refrigerator storage. Note: These dimensions do not tell the whole story. In order to protect stored items from theft, shared use kitchens often build in lockers and other deterrents, which can take up additional space. On a scale of 1-7, how important are these on-site features to your needs? Features Important (5-6) Extremely Combined (>4) Dry Storage 33% 57% 89% Refrigerator Storage 21% 65% 87% Freezer Storage 14% 27% 41% Organic Certified 15% 18% 34% USDA Certified 18% 23% 41% Pallet Jack 7% 9% 15% Forklift 7% 7% 13% Dock High Loading 5% 5% 10% Roll-up doors 8% 9% 16% A majority of respondents view Dry Storage (57%) and Refrigerator Storage (65%) as Extremely Important. One-Third of respondents view an Organic Certified kitchen as important to their business.
  9. 9. Phone interviews and anecdotal conversations suggest that entrepreneurs think that many shared-use commercial kitchens lack adequate cold and dry storage and/or charge high rent for use of such space. The results also suggest that most entrepreneurs do not know how to value features important in shipping/distribution, such as a Forklift, Dock-High Loading, Pallet Jack and Roll-Up Doors. A number of respondents simply gave each of the four the same rating, usually low. Equipment Needs What typee s o f major equipment do yo u need?(Check all that apply) Answe r Options Response Percent Response Rotary Mixer 26.0% 27 Spiral Mixer 17.3% 18 Single-arm mixer 31.7% 33 Double arm mixer 7.7% 8 Deck convention oven 21.2% 22 Rack convention oven 51.9% 54 Tunnel oven 3.8% 4 Stove-top burners 66.3% 69 Tilt Skillet 9.6% 10 Steam Kettle 12.5% 13 Fryer 10.6% 11 Food Chopper 28.8% 30 Food Processor 55.8% 58 Proofers 8.7% 9 Sheeter 14.4% 15 Dough Dividers 11.5% 12 Depositors 12.5% 13 Fillers 18.3% 19 Bottling line 13.5% 14 Packaging machine 45.2% 47 Slab table 31.7% 33 Chocolate tempering machine 18.3% 19 Dish and pan washing system 63.5% 66 Other Equipment Needs? (be specific) 34.6% 36 answered question 104
  10. 10. Other/Additional R e s p o ns es : 1 Coffee grinder, space and electricity for a dehydrator, table and counter space, and 2 scales for weighing mixes before bagging. 3 Steamer 4 juicer 5 FireMixer (Savage brand) 6 Chocolate melter, lots of speed racks, 1-2 metro racks for dry goods, 4-5 metro racks for packaging, tension pad 7 Hobart 20 qt. and/or larger mixerConvection double deck ovens 8 label applicator for jars and bottles. 9 dishwashing machine/sterilizer for bottling 10 smoker, meat grinder, sausage stuffer, vacumn sealer 11 deck oven 12 Convection oven holding 10 full sheet pans each 13 I am pre start up just processing spices, not sure what's most appropriate and washing system. 14 confectionery hot cooker for caramels, toffees, fudge, etc 15 Chamber Vacuum packer 16 Jar canning equipment 17 Not really sure. I'm a personal chef who would like to make homemade breads and rolls for my customers. 18 Commercial pour-over coffee brewer. (I already own one.) 19 juicer 20 Candy cooker with automatic mixing and temperature control 21 cake/pie portion slicer (e.g., Food Tools) for round cakes and possibly also for rectangular cakes. Manual or se 22 sheetpans 23 Coffee roaster, vacuum packaging equipment 24 i am not sure what I need. i have never done this before but am looking into it. 25 Immersion BlenderFood Mill 26 Would rely on copacker's equipment 27 dehydrator (racks) 28 Counter space 29 An area to clean and prep meat 30 All types of utensils and pans 31 juicer 32 roller/refiner 33 Roaster 34 dishwasher/sanatizer for re-used packaging 35 bread slicer Survey responses and conversations with entrepreneurs suggest that existing shared use kitchens lack certain key equipment needed to produce their products. While no one kitchen can likely provide every item that every food entrepreneur needs, kitchens could consider differentiating themselves by providing goods and services aimed at specific segments of entrepreneurs. If interested in equipment needs specific to a segment, contact the author at fmrsjr@gmail.com.
  11. 11. Co-Packing Services 55% plan to continue to produce their products in-house. 38% plan to switch (or already use) a co-packer. Of packaged food entrepreneurs, 43% plan to switch to a co-packer. Of those who have not already, 58% of respondents plan to convert to a co-packer in the next year.
  12. 12. Professional Services 69% of respondents were Likely-to-Extremely Likely (mean score of 5 on 1-7 scale) to pay for additional skilled contract labor to produce their products. Follow-up statistical analysis of the sample infers that entrepreneurs are showed expressed willingness (mean > 4) to consider paying for professional services that provide (1) Skilled Contract Labor, (2) Sourcing/Operations/Shipping, and (3) Food Broker/Wholesaler assistance. More research is needed to assess whether entrepreneurs would also pay for New Product Development expertise.
  13. 13. Are Food Entrepreneurs Willing to Use Kitchens that Incorporate Agri-Tourism? 66% are "Somewhat" or "Very" willing to provide on-site demonstrations to tour groups. 68% are "Somewhat" or "Very" Likely to work in a kitchen that allows tourists to view the production process.
  14. 14. Conclusions 1. Finding a "commercial kitchen space that fits your needs" is the biggest challenge facing early stage food entrepreneurs. Prior to conducting the survey, early conversations with entrepreneurs suggested that there were very few shared-use commercial kitchens available. But after a few conversations with commercial kitchen owners, it was apparent that there is vacant rental space in a number of bay area kitchens. Thus, there is a disconnect between what entrepreneurs believe commercial kitchens have to offer and what they need. Survey responses and follow-up interviews suggest that entrepreneurs have trouble finding the right services at the right price. Since many early stage entrepreneurs have limited financing, they are wary of wasting it using the wrong kitchen and may get turned off from a potential kitchen based on hearsay. Nonetheless, according to those who claim to have researched the options, the three most common responses are that many shared- use kitchens are either 1) too expensive, 2) in a very dangerous neighborhood, 3) lack affordable cold/freezer/dry storage space or a combination thereof. They are also concerned with cleanliness and theft. Considering that most of the entrepreneurs surveyed pay less than $25 per hour to use commercial-grade equipment, it is also possible that their perception of expensive kitchen rates is a function of poor financial planning, including inefficient use of kitchen space and/or unmet sales expectations. 2. San Francisco Bay food entrepreneurs view "funding/financing my business" as one of the two greatest challenges, yet place little value on paying for "financial management" services. The survey shows that "financing/funding my business" is one of the two greatest challenges faced by early stage food entrepreneurs. Interviews and secondary research suggests that many early stage food makers do not know their cost of production, nor pay themselves a salary for their work, or have financial plans for managing and monitoring their businesses. This makes strategic decisions like choosing the right commercial kitchen, deciding whether to use a co-packer and/or whether to hire someone to distribute or wholesale their products that much more daunting. Most micro-financiers, commercial banks, and other traditional lending sources require that a business operate profitably for a few years before financing a young business. This leaves early-stage food entrepreneurs with few options to find outside financing, which explains why greater than 81% of respondents are self-funded. Meanwhile, when asked which professional services entrepreneurs were willing to consider paying for, "financial management" ranked last. This suggests that they perhaps don't understand the value of well-documented finances or feel there are more immediate, higher-priority needs. Either way, many entrepreneurs interviewed could benefit from educational classes or services to help them better manage their finances.
  15. 15. 3. Cold Storage Space is Highly Valued: Survey responses and interviews suggest that entrepreneurs highly value cold and dry storage space. Conversations suggest that some entrepreneurs perceive that kitchens do not provide enough of these amenities or charge too much for them. In an informal conversation, one entrepreneur lamented that there was no commercial kitchen space that specialized in freezer space where he felt he had the on-site storage capacity to grow his business over time. As previously mentioned, one solution could be for commercial kitchens to differentiate themselves from their competitors through providing equipment and amenities specific to one or more segments of food makers. Nonetheless, the purchase and utility costs of cold storage space may make it difficult for commercial kitchen owners to provide as much space as entrepreneurs need. 4. Commercial Kitchens could consider specializing or better marketing themselves to best meet the needs of a specific segment of entrepreneurs and differentiate themselves from the competition. Anecdotal conversations and follow-up interviews with entrepreneurs suggest that they perceive existing shared-use kitchens to be better designed for catering than packaged production, relying on a “one size fits all” approach to satisfying a very diverse clientele with a variety of needs. Not only does this pose challenges for entrepreneurs, but also might also make it more difficult for kitchen owners/managers to differentiate themselves and build loyalty with specific clientele. One solution could be for kitchens to take stock of existing and easily acquired resources, and market their offerings toward certain types of entrepreneurs. In addition, secondary research suggests that Bay Area kitchens could do a better job of using social media to market themselves to clientele. Hopefully this survey will allow kitchen owner/managers to assess their individual strengths vis-à-vis their customers and differentiate by marketing to those segments. About the sponsor: The Business & Entrepreneurship Center (BEC) at Napa Valley College works with private, public and non-profit resources to build strong, sustainable and successful businesses resulting in wealth creation, job creation and retention, and better economic health in California. For more information: http://www.becatnvc.com. Marie Bianco, a consultant with the BEC, first spearheaded this project and was an invaluable resource and advisor in ensuring its success. She can be reached at biancomarie2000@yahoo.com. About the author: Frederick Smith attained a Master of Business Administration (MBA) degree from UC Davis Graduate School of Management in 2012. He also holds a previous M.S. in Environmental Studies from the University of Montana - Missoula (2003). Prior to his MBA studies, Frederick spent nine years in environmental advocacy, most recently as the Executive Director of the Environmental Action Committee of West Marin from 2007-2010. He currently works as an independent consultant performing market research and helping food and agricultural entrepreneurs with business planning and strategy. He can be reached at fmrsjr@gmail.com or via www.linkedin.com/in/fmrsjr.

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