ResouRces for by xiuliliaofz


									ChiCago & illinois
ResouRces for
FooD EntrEprEnEurs

                     In collaboration with

                                             enter >
In 2009, the Farm to Fork Conference was presented by the
Polsky Center for Entrepreneurship at the University of Chicago
Booth School of Business, in partnership with the Chicagoland
Entrepreneurial Center. One of the key take-aways from the
conference was that it is very difficult for early stage entrepreneurs
in the food industry to find critical information and resources
that they need to grow. Many felt that Chicago was lacking in
resources, while others said the resources were disconnected
and hard to find. The underlying message coming out of the
conference was the need for a central source of information for
the food entrepreneur.

After interviewing a select group of entrepreneurs and doing our
own research, we have compiled the following handbook as an
initial step for the interested food entrepreneur. We follow the
research, development and sales process from the farm to the
retailer, mapping out the resources along the way. We are looking
at this handbook as a living document. We hope that others can
find gaps along the value chain and provide additional resources
for food ventures. If you have additional resources or comments,
please forward to

Prepared by: Elise Moran and Una Pipic                                   <|>
ChiCago & illinois
ResouRces for
FooD EntrEprEnEurs

Table of Contents
Research                            4    Sales                                    14
Market and Consumer Research        4    Wholesale                                14
National Resources                  6    Distribution and Sales                   14
Academic Resources for Starting a   7    Traditional Retailers                    14
Food-based Company
                                         Food Brokers                             15
Agriculture                         7
                                         Farmers’ Markets                         16
                                         Mail-Order Retailers                     16
Manufacturing                       8    Online Retailers                         16
Co-Packing                          8    Food Retail Resources                    17
Food Processing                     9
Contract Manufacturer Directories   9
and Food Formulation
                                         Financing                                18
                                         Availability of Capital for Food-based   18
Food Safety                         10   Businesses
                                         Angel and Venture Capital Landscape      18
                                         Corporate Investment Landscape           19
Packaging                           12

                                         Mentoring                                20
Marketing                           13
Marketing and Branding              13   Entrepreneurial Assistance and           20
                                         Connecting with Mentors
The Internet and Social Media       13

                                         About Us                                 21
                                         Chicagoland Entrepreneurial Center       21
                                         Polsky Center for Entrepreneurship at    21
                                         the University of Chicago Booth School
                                         of Business


in general, the food supply chain is represented                   There are two types of market/consumer research: primary
by the following relationship: from food                           and secondary.
manufacturer to food distributor to retailer to                    • Primary research is research customized to a
consumer. this paper outlines the resources and                    company’s specific needs. It involves speaking directly
steps a food company should consider when                          to and collecting information from its business partners
venturing into business.                                           (customers) and consumers through a variety of
                                                                   approaches. Although more costly, it can provide rich
                                                                   insights that are more relevant to that specific business. To
Market & Consumer Research                                         minimize costs, it can be conducted on a small scale and in
                                                                   an informal setting.
Today’s consumer is better educated, savvier and demanding
in ways never anticipated a decade ago. With unprecedented         • secondary research involves utilizing existing resources,
power, unlimited choices and unending resources, consumers         such as industry surveys, trade associations, trade
are unquestionably the driving force of the food market. The       publications, government agencies or other organizations,
current failure rate for new product launches in the U.S. is       to collect information relevant to the business and
calculated at anywhere from 50% to 90%. At best, only half         products.
of new products introduced into the marketplace each year
succeed. Bringing new products to market in today’s business       For an entrepreneur with a limited budget, secondary
environment is more difficult than ever.                           research will be a key source of market and customer
                                                                   information. There are various sources of information
After setting business/product objectives, goals and               available, some of which are free or available for a nominal
success criteria, and establishing an R&D budget, the              investment:
entrepreneur should determine what kind of market or
consumer research she can and should do. The market                • Industry Reports: There are a variety of research reports
and consumer research should address the key elements of           and publication subscriptions available for purchase. These
the business, including product development, product mix,          reports contain information on consumers, industries and
pricing, distribution channels and marketing activities.           trends. The reports vary in quality and price, with a typical
                                                                   price for a quality report ranging from $2,000 to $8,000.
The number one mistake companies make when launching               A few examples of companies that offer such reports are
new products is failing to fully understand their target           Mintel International, Datamonitor, Packaged Facts, IBIS
markets. It is impossible to develop a product that appeals        World, SPINS, Market Research and NASFT.
to a certain market segment without a clear understanding
of that consumer’s needs and wants. Many entrepreneurs,            • Trade Associations: Some of the associations are small
especially the ones with heavy industry experience,                and have a specialty focus, and some are large and broad
incorrectly assume that they know what their customers             in their focus and membership benefits. Associations can
want. This is a very dangerous assumption that can deal            provide useful services, such as research, educational
a fatal blow to a new venture. Consumer behavior and               opportunities, industry trend information, articles,
preferences are ever-changing and evolving, especially in          statistics and networking opportunities. In addition, most
today’s environment.                                               associations hold trade shows at least once a year. Trade

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shows are a great place to meet with potential suppliers,             • Small Scale Surveys: An entrepreneur can gather
customers and competitors. There are many food industry               consumer insights using surveys distributed by email or
trade associations in North America, including Grocery                phone, or web surveys. An email or phone list can be
Manufacturers of America, National Association of                     purchased or collected, and the survey can be developed
Specialty Food Trade and the Chocolate Manufacturers                  by the entrepreneur himself. (For example, www.

• Industry & consumer Magazines: These publications                   • Taste Tests: The best way to understand what
are a good way to stay up-to-date with general industry               consumers really think about the product is to conduct
trends. It is important to stay apprised on these trends              taste tests. The taste test can be conducted in many
from day one and throughout the growth of the business.               places, such as taste kitchens with focus group facilities or
In addition, editors and writers of these publications can            testing stations in grocery stores, malls or farmer markets.
be a good source of industry expertise. A few examples                It is important to try to collect personal information of the
are Specialty Food Magazine, Gourmet Retailer, Food and               tasters so that the same group can be used in a repeat
Wine Magazine, Gourmet and Bon Appétit. Also, all these               tasting. While it can be difficult to accomplish these
publications have online newsletters and blogs you can                types of tests in public places, it is possible with the right
follow daily.                                                         incentives.

• Other Resources: There are many websites and blogs                  • Open Forums: An entrepreneur can use open forums
online that contain information about flavor trends, ingredient       and blogs to collect consumer opinions about the product.
ideas, menu formats and much more. For example:                       This method is very useful when the product is already on,,                      the shelves.,
and                                      • In-store and virtual observations: Another great way
                                                                      to collect consumer information is to shop along with
Secondary research can offer valuable information                     consumers at a retail store to observe their interaction with
about the consumer and industry in general, but it                    the desired product category and shopping environment.
does not provide insights about the performance of an                 The entrepreneur can get insight into how a consumer sees
entrepreneur’s specific product in the marketplace, nor               her product on the shelf versus the competition in terms of
what consumers and customers like and dislike about it.               packaging and shelf space, buying patterns and consumer
Therefore, in order to deliver a successful product to the            behavior, comparable product offerings, etc. Additionally,
marketplace, every product should go through some sort                there are virtual ways to market test a product. Companies
of primary research. Usually the entrepreneur does not                such as In-Context Solutions and Y perform have created
have financial resources to engage in large-scale surveys,            software and internet platforms for this service.
large focus groups, consumer segmentation studies,
market analysis and so on. However, there are many
inexpensive ways to conduct primary research:

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For most of the companies, the biggest pitfall in market            The National Association for the Specialty Food Trade
research is the inability to implement what they learn.             (NASFT) is an international organization composed
Gathering relevant information is only the beginning of the         of domestic and foreign manufacturers, importers,
process. The real challenge lies in deriving insights from          distributors, brokers, retailers, restaurateurs, caterers and
the collected data which will help to develop the product           others in the specialty foods business. The organization has
and build the brand most effectively. These insights should         more than 2,700 current member companies throughout
be translated into an actionable product strategy.                  the U.S. and overseas, and is a great resource for trends,
                                                                    seminars and news.
                                                                    Activities and programs offered by NASFT include the
“Affordable Market Research”, NASFT
                                                                    Fancy Food Show, premier international food trade               events in the US that connect 45,000 motivated buyers
index.html                                                          with 250,000 specialty food products. They also publish
                                                                    the Specialty Food Magazine that delivers actionable
National Resources                                                  information retailers, distributors and other quality-driven
The Food Institute is a portal for research and articles            professionals can use to improve their businesses.
about the national food industry. On their site, you can find
                                                                    The National Restaurant Association is the leading business
the Institute’s own resources, other website’s resources,
                                                                    association for the restaurant industry. The Association
online seminars, tradeshow calendars and trending
                                                                    engages in advocacy and policy recommendations for
                                                                    restaurants while providing tools, research, seminars and
The Institute of Food Technologists is a nonprofit scientific       networking opportunities for members. Even for those not
society with 22,000 members working in food science,                in the restaurant business, researching the NRA is useful if
food technology and related professions in industry,                their potential clients are restaurants.
academia and government. As the authoritative voice of
                                                                    Slow Money is a non-profit organization that facilitates
food science and technology, IFT contributes to public
                                                                    the flow of investment capital to small food enterprises.
policy and opinion at national, state and local levels.
                                                                    Its mission is to promote new principles of fiduciary
IFT publishes various resources for the food industry,
                                                                    responsibility that support sustainable agriculture and
including Food Technology and the Journal of Food
                                                                    the emergence of a restorative economy. The Slow
Science. IFT also conducts the world’s largest annual
                                                                    Money Institute brings together, at the regional level, key
convention on food grown, processed, manufactured,
                                                                    stakeholders to explore investment needs and strategies
distributed and eaten worldwide: the IFT Annual Meeting
                                                                    for building local food systems.
& Food ExpoSM.

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For guidelines related to labeling, packaging and safety              “We did not write a formal
issues, visit the Food and Drug Administration (FDA)
website.                                                              business plan, but instead
Academic Resources for Starting                                       focused a lot of our efforts
a Food-based Company
• Penn State University’s public resource site                        on concept development
Penn State provides comprehensive information for                     and lots of research. We also
starting food business ventures. The site houses recent
publications, experiments and a blog discussing trends                did market trial for three
and news stories related to the food sciences. On this site,
you can also find information on available seminars and
                                                                      months before committing
                                                                      to product launch”
• Illinois Food Science and Human Nutrition
Undergraduate and graduate programs are available for
the study of the food industry and food businesses, with
focuses on food quality and safety, nutrition, business and

• University of Nebraska-Lincoln (Food Processing Center)
The Food Processing Center offers various resources to
aid in the development of a food business, including
conferences and seminars on developing a product
formulation and manufacturing process from inception to

In addition to these resources, local universities may be a
source of business and marketing classes or students who
can help develop a business plan, work on a marketing
plan or assist with financials for a business model.

The best place to start a food business might be a farm.
The State of Illinois has specific agriculture regulations that
a food business might need to consider. To learn more
about these regulations, visit

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Co-Packing                                                        cases, the same co-packer manufactures a competitor’s
                                                                  product. The entrepreneur can partially protect himself
Entrepreneurs choose to use the services of contract
                                                                  with confidentiality agreements , but full protection cannot
manufacturers or co-packers for many reasons. They
                                                                  be assured. (Most co-packers will not sign non-compete
provide manufacturing and packaging capabilities that
                                                                  agreements because they limit their potential customer
allow entrepreneurs to commercialize their products even
                                                                  base.) Lastly, the co-packer will charge direct and indirect
with limited resources. They also provide entrepreneurs
                                                                  overhead costs and margins which may make it less cost
a variety of other services, such as product formulation,
                                                                  effective for the entrepreneur than if she manufactured the
ingredients procurement, package design, point-of-
                                                                  product herself .
purchase display production, product inspection and
distribution.                                                     Before choosing a co-packer, an entrepreneur has to
                                                                  have a business and marketing plan, defined product
There are many advantages to using contract
                                                                  specifications, a sales forecast, product stability and
manufacturers or co-packers. First and foremost, it
                                                                  safety tests and regulatory compliance. University process
reduces the start-up cost and initial capital requirements.
                                                                  centers, test kitchens or consultants can be very helpful at
It also makes the product cost structure somewhat more
                                                                  this stage. The entrepreneur should utilize pilot plants to
transparent because an experienced co-packer has the
                                                                  test their products in a production environment to make
ability to forecast the product cost much more accurately.
                                                                  sure they are ready for mass production.
In addition, the product time-to-market can be reduced
significantly because the co-packer already has the assets        The best source of information about co-packers, their
and trained workforce in place and has usually already            capabilities and processes is often other entrepreneurs
satisfied most of the regulatory requirements. Co-packers         who can be encountered at state association meetings,
can leverage their scale and line of credit for supplies          food shows and trade shows. State directories of
and raw material purchasing, further reducing product             manufacturers are another resource for this information.
costs. One of the biggest strategic advantages of co-             An entrepreneur should look for those companies that
packers is their ability to operate effectively in a short-       list private labels -- they are usually the co-packers.
run manufacturing environment, thus enabling them to              Lastly, universities’ extension services or state food and
manufacture for test marketing, seasonal sales or special         agricultural marketing agencies can also be very helpful.
promotions.                                                       The National Association for the Specialty Food Trade
                                                                  (NASFT) has a listing of nearly 700 contract packaging
However, there are downsides to working with co-packers.
                                                                  companies (co-packers).
The biggest disadvantage of using a co-packer is a
loss of control over the product and its production. In           Before an entrepreneur can choose a co-packer, she
addition, if the entrepreneur’s business is not important         must visit all of the potential co-packers and collect such
to the co-packer (i.e. a smaller order), it may be hard to        information as technologies used, additional capabilities
get a slot on the production schedule for test runs or            (i.e. product development), product storage capabilities,
even production runs. Another potential problem with              lead times, ingredient preparation, raw material
a co-packer is confidentiality, since the co-packer gains         procurement and distribution capabilities. Then, when the
a deep knowledge of the entrepreneur’s formulation,               entrepreneur has all the information, she should evaluate
packaging, customer and sales information. In some                all the quantitative (estimated production, distribution

Table of Contents                                             8                                                       <|>
and costs of other added-value activities) and qualitative           sources/References
(quality standards, facility cleanliness, risks, other
customers, etc.) aspects of the co-packer.
                                                                     2. “Choosing and Using a Copacker” , John E. Rushing,
When the decision is made and the co-packer has been                 Ph.D
chosen, a written contract should be developed with an
attorney’s help to shield the entrepreneur from any future
                                                                     Food Processing
problems. The entrepreneur should be knowledgeable                   Ingredients sourcing
about the various items which should be addressed in the             One of the main tasks in new product development is the
contract. For example:                                               selection of ingredients and ingredient suppliers. Food
• Raw Material & Ingredients: Ingredients and supplies               ingredients are a very broad topic and food engineering
to be purchased by co-packer, operational and financial              consultants or university food centers can help an
responsibility for excess material, inventory levels                 entrepreneur to determine what ingredients to use.
and storage conditions and ingredient substitution                   On the next page is a select list of Illinois-based natural
specifications (including label updates)                             and organic ingredients suppliers.
• Operations & Processes: Process manipulation
                                                                     Contract Manufacturer Directories and
requirements (slicing , dicing or blanching), critical
                                                                     Food Formulation
manufacturing-process factors (pH, packaging
temperature, heat processing, etc.), scheduling, lead-               Food Engineering
times and delivery dates, finished goods inventory and               A list that allows you to search based on the manufacturers’
distribution policies and lot and batch sizes.                       capabilities

• Quality: Product quality specifications with well-defined          Food MP
control limits for poor quality rejects, raw material and            Allows you to search by company size, which can
final product testing procedures (such as taste, storage             be helpful to see which manufacturers work with
and stability), records collection, sample approval process,         entrepreneurs
third-party audits or other certifications of lots and batches
                                                                     Consultants for the Natural Products Industry
and package coding
                                                                     An overview of the natural food world
• Other: Product liability coverage, payments, insurance,
                                                                     Science and Engineering Consultants
rework & disposition costs, recall plan and clear financial
                                                                      Customer service representative guides you through their
and operational responsibilities for execution
                                                                     network of formulators. There is the ability to view resumes
But most importantly, the entrepreneur should develop a              of formulators here
good working relationship with her co-packer and make
                                                                     • LinkedIn
them part of her vision and success.
                                                                     Many formulators can be found through an easy search of
                                                                     these channels

                                                                     • American Association of Cereal Chemist
                                                                     A small but detailed list of formulators

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The best source of information    Finally, there are a number of shared-use kitchens available
                                  in the city of Chicago. These kitchens are fully equipped,
about co-packers, their           licensed facilities, which can be rented by the hour:
                                  • Kitchen Chicago:
capabilities and processes is     • Splice Kitchen:
                                  • Logan Square Kitchen:
often other entrepreneurs who     • Now We’re Cookin’:

can be encountered at state
                                  Food Safety
association meetings, food        The National Center for Food Safety and Technology at the
                                  Illinois Institute of Technology conducts research around
shows and trade shows.            food safety as well as teaching classes on the subject for
                                  Illinois Institute of Technology students. To learn about the
                                  classes at the center, as well as the research, visit http://
                                  FDA is a great resource for safety processes, requirements
                                  and other information.

                                  Food Safety Inspections and Education
                                  The Chicago Department of Public Health’s Food
                                  Protection Division strives to educate food businesses on
                                  food safety and administer food establishment inspections.

                                  For more information on what they do and essential
                                  information to be considered, click here.

                                  For information on the inspection process, click here.

                                  For food safety information related to retail food
                                  establishments, click here.

Table of Contents                10                                                    <|>
Below is a select list of Illinois-based natural and organic ingredients suppliers.

       Name              Location                          Category                                Website

                                         Certified organic oats, oat groats, corn,
                                         soy beans, soybean meal, flax, wheat,
All Star Trading       Park Ridge, IL                                             
                                         wheat byproducts, canola meal, and Safe
                                         LawnFeed Ingredient and Grain Merchants

                                         Organic vegetable oils, food grains,
Buy Wellness            Chicago, IL                                               
                                         chocolate, tea and sugar.

                                         Organic ingredients made from corn and
Clarkson Grain Co.,    Cerro Gordo,
                                         soybeans as well as feeds, whole grains and
Inc.                        IL
                                         oilseeds to processors and feeders

Fonterra USA           Rosemont, IL      Organic dairy ingredients                  

Fox Valley Organics      Aurora, IL      Certified organic herbs and seeds      

GEO-FRESH              Bloomington,      Organic herb, organic spices, organic herbal
ORGANIC                     IL           extract & organic essential oils

Green Mountain                           Organic-certified and natural flavors and
                        Oswego, IL                                             
Flavors, Inc.                            extracts

Harvest Food Group,                      Certified organic IQF fruits, vegetables,
                       Warrenville, IL                                         
Inc                                      prepared meals and other raw materials

Mori Milk and Ice      Franklin Park,
                                         Organic milk                               
Cream Co. Inc                IL

Nexcel Natural                           Organic soy-based ingredients and organic
                       Springfield, IL                                            
Ingredients                              edible oils without the typical “soy” taste

Nielsen-Massey                           Organic vanilla extracts, vanilla powders and
                       Waukegan, IL                                              
Vanillas, Inc.                           vanilla beans from various sources

                                         Soy Flour, roasted soynuts, soy meal,
US Soy, LLC             Mattoon, IL                                                  
                                         identity-preserved soybeans

Source: Organic Trade Association

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Packaging                                                              the manufacturer qualifies for the exemption, a nutritional label
                                                                       should be considered. Today’s label-savvy consumers might
One of the main stages of product development is the
                                                                       see the lack of nutrition labeling as an indication that a product
development of the packaging. Progress in the technologies of
                                                                       has a lower level of quality or poor nutrition.
packaging has led to the creation of an overwhelming number
of new packages containing a multitude of food products.               Development of packaging is a highly technical area.
A modern food package has many functions, but its main                 Increasing safety, cost reduction and functionality
purpose is to physically protect the product during transport          requirements, along with demands for creative designs,
from the manufacturing plant to the consumer. The package              has made the process even more complicated. Most
also acts as a barrier against potential spoilage agents, which        entrepreneurs do not possess the knowledge and technical
vary with the food product. For example, a carton will protect         expertise to develop packaging for their products that meet
milk from light or a potato chip bag will shield chips from            all the requirements (functionality, shelf life, food safety and
oxygen. Practically all foods should be protected from filth,          marketability) by themselves. So they need help from outside
microorganisms, moisture and objectionable odors.                      resources. There are many engineering companies that can
                                                                       provide this service, but they will consume already limited
Aside from protecting the food, the package serves as
                                                                       financial resources. However, there are alternative resources,
a vehicle of communication to the consumer. Nutritional
                                                                       including universities across the country.
information, ingredients and product benefits are found on
a label. In addition, the package is also a marketing tool             One of these establishments is the Food Innovation Center
designed to attract consumer attention at the store. This              (FIC) at Oregon State University. FIC provides many services
makes printability an important package property.                      to the food entrepreneurial community, from product
                                                                       development to market research. In the packaging area,
During the package development, it is important to align
                                                                       FIC can help to evaluate and determine the proper primary
the packaging with the chosen distribution channel. Many
                                                                       and secondary packaging material as well as the nutritional
retailers use uniform shelving and layouts in all their stores
                                                                       labeling for a food product. In addition it can help an
so they can only accept products with conforming package
                                                                       entrepreneur develop an innovative package design and
shapes. Whether it is a box, bottle, or jar, the size and shape
                                                                       solution if needed. FIC also helps entrepreneurs with shelf-
needs to fit the retailer’s merchandising requirements. A
                                                                       life testing to determine the product’s expiration date, best-
bottle that is too tall may not fit on the shelf, while one that is
                                                                       buy date, and sell-by date. Lastly, FIC can also assist with
too short or narrow will create undesirable “empty space.”
                                                                       processing and packaging technologies such as RFID, non-
The label is one of the most important parts of the package. It        thermal processing and laser technology.
is a communication channel between the manufacturer and the
consumer. In addition, the FDA requires most food products
to include a nutritional label, though there are exceptions for
small businesses. The FDA exemption states, “Businesses      
with fewer than 100 full-time equivalent employees may                 default.htm
claim an exemption for food products that have U.S. sales of 
fewer than 100,000 units annually. Companies claiming this   
exemption must notify the FDA that they meet the criteria              university_food_developmentprocessing_centers.cfm
before they begin marketing their products.” However, even if

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Marketing and Branding                                             The Internet and Social Media
Food products usually do not sell simply because they taste        The Internet has penetrated almost every household in
great; they sell because people are aware of, know and             the US and presents a very inexpensive way to market
recognize the product. But most entrepreneurs cannot afford        products and services. Places like Google Ads and Facebook
to pay for expensive ads on TV, radio or consumer magazines.       allow entrepreneurs to target their potential buyers or
More importantly, entrepreneurs might not handle the               customers very effectively. For example, using Google Ads,
sudden increase in demand for their product that a TV              an entrepreneur can optimize her ads down to the specific
commercial might generate. Guerrilla marketing is one of the       keyword, with complete flexibility to invest only in the
best marketing weapons that entrepreneurs have. In this case,      keywords and ad creative that convert well.
small size is actually an advantage rather than a disadvantage.
                                                                   Facebook is another great way to reach desired niches,
Entrepreneurs are able to obtain publicity more easily than
                                                                   especially if the target audience is young adults (even though
large companies as they are closer to their customers and
                                                                   the number of users who are 50-60 years old is increasing
considerably more agile. The primary investments in the case
                                                                   every day). Facebook allows targeting specific audiences
of guerrilla marketing are time, energy and imagination.
                                                                   with demographic and psychographic characteristics such
For many products, its packaging, labels and language              as location, gender, age, education, relationship status,
are the only selling points it has. When a consumer looks          relationship interests, workspace and keyword.
at the package, it is like she is conversing directly with the
                                                                   Participating in blogs and site reviews is a great and
company. One of the big advantages of a small company
                                                                   affordable way to raise awareness about your product,
is lack of bureaucracy, which results in more creativity in the
                                                                   get reviews and gather feedback. It is also an excellent
marketing strategies, the choices of media channels and the
                                                                   opportunity to connect with other foodies in the industry and
executions within them. Moreover, smaller companies are
                                                                   stay abreast of industry trends and hot new products.
able to embed the brand values of their products into their
corporate tone of voice.
There is an advantage in using design agencies to develop
a product package. They have the expertise and capabilities
to truly differentiate the product. Despite the common   
belief that the cooperation with a design agency requires
high investment, some entrepreneurs solve this problem by
tying the design agency’s profit to the product’s success.
The Branded Program is a cost-share funding program that
supports the promotion of branded and private label food
and agricultural products in foreign markets. Participant
companies receive 50% cost reimbursement for a wide
variety of eligible international marketing and promotional
activities. To apply, visit their website and fill out the pre-
qualification survey.

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Wholesale                                                         between food manufacturers and consumers. One of the
                                                                  greatest challenges for food manufacturers is to penetrate
If you are a wholesale business, the City of Chicago
                                                                  this channel with new, innovative products.
has various licenses and taxes that are connected
with wholesale businesses located within the City. The            While many new manufacturers dream of selling their
Department of Business Affairs & Licensing’s Business             products in major retail chains across the country, the path
Assistance Center is a “one-stop-shop” to help businesses         to that goal is not always direct. Retailers, large and small,
navigate through the government process, troubleshoot             agree that it usually is best to start small and work up to
city agency issues and facilitate city services and resources.    the big players. This progression allows the entrepreneur
                                                                  to gain experience, learn how to play the game and build
Distribution and Sales                                            production and delivery capacities. Usually, it is almost
After spending time and money on product development,             impossible to penetrate into a large nationwide retail
an entrepreneur needs to make the very important                  chain because of insufficient scale. It is also not a perfect
decision of how to sell and deliver that product to the           environment for a new entrepreneur due to the price
buying public. This decision may well be one of the most          pressures in this type of channel. Consumers are much
critical areas she has to address because it will determine       more sensitive to price, and volume is the name of the
the initial introduction of the new company and its product.      game.
Many startup companies have a tendency to neglect this
part of the business in the early stages because of the           It is therefore not unusual to launch a product locally on
tremendous focus placed on the product itself. However,           a smaller scale. Many retailers state that they support
the distribution channel choice will have a big impact on         local farmers and manufacturers, but usually only local
the product packaging, labeling and other concerns.               independent retailers (including food cooperatives,
                                                                  gourmet stores, gift stores or specialty food retailer chains)
There are four major channels available to distribute             make this a top priority. These stores often are the best
specialty food products: Traditional Retailers, Farmers’          starting point for new businesses. That way, the product
Markets, Mail-Order Retailers and Online Retailers/               can command a price premium since the consumer is less
Company Websites. Usually it is recommended that                  price sensitive (85% of the consumers with annual incomes
the entrepreneur focus initially on one channel at a              over $100K are likely to buy specialty food), valuable
time and move to other distribution channels when                 market feedback can be obtained and the entrepreneur
the market viability of the product has been proven.              can recoup at least some of her investment before gearing
Most entrepreneurs do not have enough financial and               up for the mass production a national chain will require.
operational resources to grow in multiple channels at the         It is very important to remember that most trends start in
same time.                                                        specialty food. The representatives from large companies
                                                                  and large distributors always visit these small retailers to
Traditional Retailers                                             search for the next hot product.
Retailers are at the end of the food distribution channel
and thus greatly influence food manufacturers, which are          These days, to sell any kind of new consumer product, it
at the beginning of the chain. Grocery retailers often are        has to generate buzz among the early-adopter buyers who
the only face that consumers see in the food distribution         always want to be the first on the block with the latest new
channel; thus, they are the most powerful gatekeepers             thing. So an entrepreneur should look for specialty retailers

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that target these early adopters. For example, consider             during specific times of the year. It is crucial to build a
Zabar’s supermarket chain in New York City. The people              strong long-term relationship with the retailer, as they are
who write articles for the important trade publications in          the entrepreneur’s face to the consumer and they have
the specialty food industry are always looking to see what’s        significant influence on the product’s success.
new at Zabar’s.
                                                                    Food Brokers
Another example of a large retailer looking for new,
                                                                    Another resource that an entrepreneur can tap is the
specialty foods is Whole Foods. Despite the fact that it is a
                                                                    food broker. Food brokers act as sales agents hired by
large retailer, they have one of the largest assortments of
                                                                    manufacturers to represent their products and make
local produce and specialty foods. Whole Foods makes its
                                                                    sales to retailers, foodservice companies and distributors.
buying decisions regionally, and each region has different
                                                                    They can help to find distributors, and they broker deals
review procedures. In order to start communication
                                                                    between manufacturers and distributors as well as between
with a Whole Foods buyer, the entrepreneur should
                                                                    distributors and retailers. Unlike distributors, brokers do
indentify an appropriate category manager in his region.
                                                                    not take title or physical possession of products, nor do
Before contacting the retailer, the entrepreneur should
                                                                    they transport products to the buyer. Brokers generally
be prepared to share product information, samples,
                                                                    work on a commission basis of five to eight percent of the
promotion plans with budgets and operations capabilities.
                                                                    total invoice amount on each order they receive and sell.
But most importantly, the entrepreneur should be ready
to convince the buyer why the product deserves space                A broker’s greatest value is in his or her experience,
on the already crowded Whole Foods’ shelves. Lastly,                expertise and longstanding relationships with customers.
Whole Foods created a Whole Foods Market’s Local                    Brokers can provide more services than just sales calls. For
Producer Loan Program, which has a pool of $10 million in           example, they can help develop promotional activities,
low interest loans for small, local producers to help grow          such as in-store demonstrations and new product
their businesses. Available loans range from $1,000 to              introductions. Overall, brokers are experts at selling; they
$100,000.                                                           use their relationships with customers to efficiently arrange
                                                                    the sale of a manufacturer’s food products to the retailer.
Many retailers like to purchase from a primary distributor who
can supply the majority of their products for a department.         The main disadvantage of using a broker might be that
However, at the beginning it will be very challenging               the entrepreneur is not his or her only client and products
to convince a distributor to buy a new product if the               might not receive adequate attention. Usually, the small
entrepreneur does not have an agreement with the retailer           companies represent only 5% of the brokers’ revenue. In
to put the product on the shelf. Thus, it is usually easier for     addition, the broker might not accurately represent the
the entrepreneur to approach a retailer directly, and if he         entrepreneur’s primary goals. For example, the broker
succeeds in closing the deal with the retailer, then she can        might promote a product solely on the basis of price and
involve the distributor if necessary. Some retailers, especially    ignore the focus on product quality.
the ones who frequently deal with local produce, purchase
directly from manufacturers for direct store delivery (DSD).        Usually brokers are very effective in helping an
                                                                    entrepreneur to grow the business after the product has
In addition, like everywhere in life, timing is important.          been initially introduced to a market.
Some retailers, mostly larger ones, look at new products

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Farmers’ Markets                                                 more importantly, they drive consumers to the company’s
                                                                 website (where extensive telemarketing support is required
Farmer’s markets are a great place to start selling food
                                                                 to ensure success).
products. Farmers’ markets can range from small markets
held once a week with a few vendors to large weekend             Online Retailers/Company Websites
events with hundreds of vendors and crowds numbering in
                                                                 The Internet has become an integral part of our lives.
the thousands. Because farmers’ markets are increasingly
                                                                 More consumers are shopping online as marketers have
popular for consumers and communities, they are
                                                                 developed more user-friendly and secure on-line shopping
becoming important economic outlets for many farmers
and food entrepreneurs.
                                                                 During the current recession, companies are moving to
Typically, a market stand is relatively inexpensive. In
                                                                 the Internet at an accelerating rate, driven in part by the
addition, an entrepreneur has a great opportunity to
                                                                 high fixed costs of offline distribution channels. As a result,
interact directly with the consumer, educate the consumer
                                                                 e-commerce sales have steadily outperformed offline sales
about the product, and collect the consumer feedback that
                                                                 for several years now, and this pace should accelerate.
can be invaluable for further product improvements.
                                                                 Online retailers are a great channel to introduce a new
Lately, the popularity of the farmers’ markets has grown
                                                                 product, especially if the product is a specialty product
significantly. They have been promoted within local
                                                                 (like allergy-friendly or special-diet products). Today, if
communities and they draw not just local citizens, but
                                                                 someone has a specialized or niche interest, the first thing
also restaurants and co-ops. As markets become more
                                                                 they do is search the web, and a number of clever Internet
important—both for farmers and consumers—the
                                                                 entrepreneurs are creating information clearinghouse
operational issues can become complicated. Because
                                                                 websites for people with common interests.
processed foods are being sold, rather than just fruits
and vegetables, health departments have become more              On-line retailers are less likely to order large quantities and
involved in ensuring food safety. An entrepreneur should         are more likely to negotiate generous prices and return
reach out to their local department of health to understand      conditions than the big nationwide chains. Some will even
the rules before purchasing permits to sell at these markets.    drop ship the products. They’ll list them online and will order
                                                                 from the manufacturer only when they receive an order
Mail-Order Retailers                                             from a customer, so the manufacturer can maintain control
Another good way to start selling a new product is               of the inventory. There are several very successful online
through mail order retailers. The biggest advantage of           food retailers such as Amazon, PeaPod and FreshDirect (an
this channel is that the retailer usually does not purchase      Internet-based grocery delivery service in New York).
the product but passes the order to the entrepreneur
who manufactures and delivers the product directly to            When choosing an online retailer, it is crucial to verify
the consumer (either via home delivery or mail). Thus            that the retailer has the experience to handle (i.e. store
the retailer does not bear much risk in case the product         and deliver) the product category of the entrepreneur’s
does not sell, and the entrepreneur can manufacture the          product. According to Rick Braddock, Chairman and
order when received and not worry about inventory shelf-         CEO of FreshDirect, online consumers have higher
life. Usually mail catalogs have 5% response rate, but           quality expectations from food products ordered through

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the Internet. The switching costs are zero, so if these               While many new
consumers cannot get what they want, they can just as
easily go to other online destinations. Moreover, mishaps             manufacturers dream of
could lead to bad publicity, ruined reputations and a drop
in profits. The biggest problem with on-line reviews is that          selling their products in
they are always available and searchable. Every mishap
in an online business potentially can drive away more                 major retail chains across
consumers than a mishap in any offline retailer.
                                                                      the country, the path to that
There are a lot of food entrepreneurs that sell their
products only through their websites and have various                 goal is not always direct.
ways to deliver products to consumers such as the U.S.
Postal Service, UPS, Fedex or home delivery.                          Retailers, large and small,
Food Retail Resources                                                 agree that it usually is best
The State of Illinois has published a grocery store and               to start small and work up
convenience store startup profile. This guide lays out tips
and resources to help the startup store as well as stores             to the big players.
already in business. For more information on this guide,

Illinois Retail Merchants Association (IRMA) is a
membership-based association that represents over
23,000 retailers in the State of Illinois. Their main focus is
on government relations and those legislative issues that
affect retailers in the state and nationally.


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Availability of capital for food-based                          In addition to these market trends, there has been a
businesses in Chicago                                           proliferation of functional foods in the marketplace.
                                                                However, investors look past “berry of the week” trends
There is general consensus that investments in food have
                                                                and focus on sustainable growth with good products that
a strong and bright future, as people will always need
                                                                solve medical needs via food or beverage (for example,
food, in increasing quantities in spite of land constraints.
                                                                Viactiv chocolate chewables with calcium). Ultimately,
The “30-100-70-32” formula applies to the food industry:
                                                                investors are attracted to consumer products when there is
“In the next 30 years we need to increase our food supply
                                                                a defined and strong consumer need and the product is of
by 100% to feed the globe, with 70% new technology on
                                                                high quality with potential for long-term growth.
1/32 of our land mass (today we’re using 1/20 of our land
mass)1”. Investors believe that this increase in food supply    Angel and Venture Capital landscape
will be driven primarily by technology development,
                                                                Of 68 venture capital firms listed in the 2008 Illinois
therefore investors will focus heavily on agriculture, food
                                                                Venture Capital Association Directory, 30% have interest
ingredients and agricultural technology.
                                                                in or have invested in food-based businesses. We also
Further along the production chain, strong market trends,       identified 30+ angel groups in the Midwest who have
such as organic/natural, specialty/gourmet and ethic            expressed interest in investing in food-based businesses.
foods, have seen tremendous growth in the recent years          But, even angel investors, as with later-stage investors,
and such products have attracted investments from both          have a strong focus towards food-technology and
middle-market and buy-out investors. For example, Kraft’s       food manufacturing rather than retailing and consumer
purchase of Illinois-based Boca Burger allowed Kraft to         products. However, more so than institutional funds,
quickly enter and capture a significant portion of the          there are individual angel investors (usually former food
high-growth meat-alternative market. In 2006, Illinois-         executives) who are actively seeking opportunities in the
based Lifeway Foods, a supplier of the cultured dairy           branded products and food staples market. Examples
product Kefir, acquired fellow US firm Helios Nutrition, a      of Chicago-based companies who secured capital from
privately-held producer of milk and kefir-based products,       investors include National Pasteurized Eggs, Argo Tea and
for a reported $8 million, resulting in Lifeway Foods           Potbelly’s.
consolidating share in the rapidly growing market for
                                                                As far as getting access to target angel group and
organic dairy products.
                                                                institutional investors, there are not many organized forums
All the entrepreneurs recently interviewed by the               where entrepreneurs can engage investors. The American
Chicagoland Entrepreneurial Center self-funded their            Food Venture Forum (AFVF,
business or took on debt. Many used convertible debt            is based in Iowa and is the only venture capital and angel
from friends and family, while others took on second            investor event in the country focused solely on the food
mortgages and credit card debt. One entrepreneur stated,        industry and value-added agriculture2. This is an example
“I had planned to raise $400k but in the end was only able      of a traditional-venture forum template being applied
to raise $150k from friends and family.”                        to a specific industry. Interestingly, AFVF was launched
                                                                to coincide with the World Food Prize, an international

    Richard Boos, Arbor Investments                                 2

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award recognizing achievements in improving the quality,         Investors, both individuals and venture firms, tend
quantity or availability of food. The 2008 AFVF hosted 12        to look for ‘proven-ness’ of the business model in all
venture capital firms representing a total of $835 million in    businesses, including food-based ones. As discussed at the
funds, including Petra Capital (Nashville), Prolog Ventures      conference, “A $5-10 million business is never proven—
(St. Louis), LFE Capital (Minneapolis) and Smith Whiley &        usually there is a one- or two-customer concentration
Co. (Evanston, Ill.)3. In 2009, 22 companies were invited to     for businesses in this stage; we look for proven-ness
present and three are Illinois-based.                            along this curve”5. Proven-ness can take form in strong
                                                                 market trends and customer traction, validation that the
Corporate investment landscape                                   technology works and has immediate application in the
Some corporations have investment arms that focus on             industry and an experienced and strong management
finding and financing opportunities that have synergies          team. Investors also look for validation in the form of initial
with their business model or product offering. For               friends and family investors, angel investors and strategic
example, Emerging Business Accelerator (EBA) is a                investors. Corporations with investment arms tend to focus
business unit of Cargill, an international provider of food,     exclusively on the technology and the fit with corporate
agricultural and risk management products and services.          core competencies.
Cargill EBA’s mandate is to help accelerate Cargill’s
growth by building a global portfolio of new business
opportunities with the potential to generate revenue
within three years and become new Cargill Business                   One of the biggest mistakes we
Units4. Ultimately, the goal is for these businesses to
graduate into the broader world of Cargill. The EBA is
                                                                     made in the beginning was not
not focused exclusively on food related products, but on
                                                                     having advisors or mentors and
finding innovations in areas that leverage Cargill’s core
competencies. Innovations are sourced both from within               trying to do it all on our own
the company and outside, creating an opportunity for
startups to create financing and strategic opportunities
from a larger corporate player. However, unlike angel or
venture capital investors, corporate partners, because they
are investing financial, management and other corporate
resources, usually take significant ownership stakes in
companies, including buying the intellectual property
and installing their own management team. Cargill EBA is
based in Minnetonka, Minnesota.

4                      5
                                                                         Andy Whitman, 2X Capital Growth Partners

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Entrepreneurial Assistance and                                Further recognizing the importance and value of mentors,
Connecting with Mentors                                       the CEC recently launched a federally sponsored
                                                              initiative called the Cluster Acceleration Program (CAP).
Access to mentors continues to be one of the most useful
                                                              This program is designed to promote the growth of
tools for entrepreneurs when launching a business. The
                                                              professional networks and entrepreneurial ventures that
primary focus of the Chicagoland Entrepreneurial Center
                                                              anchor some of Illinois’ key emerging industry clusters
(CEC) is to provide business advisory services in the
                                                              (consumer products, including food, alternative energy and
areas of sales and financing while facilitating access to
                                                              information technology). Established Illinois entrepreneurs
mentors who can provide entrepreneurs with much needed
                                                              doing business in these clusters can gain access to year-
support and advice. Leveraging mentors can be extremely
                                                              round networking support by registering for the “CAP 200
beneficial for entrepreneurs from the beginning and
                                                              List” which the CEC uses to identify and facilitate matches
through exit. Working with advisors who provide advice
                                                              between relevant professional and peer entrepreneur
and experience the entrepreneur is lacking can make or
                                                              contacts. In addition to supporting cluster formation
break a business.
                                                              for particular industries, the CEC works with a group of
The CEC works with high-growth entrepreneurs in the           20 companies that were competitively selected for the
following industry segments: technology, consumer             program. Each CAP 20 participant receives:
products, food and business services. The CEC selects
                                                              • A matched CEC staff advisor, who provides guidance
high-growth entrepreneurial ventures with unique and
                                                              on company growth plans while harnessing supplemental
innovative value propositions and provides intense
                                                              resources to support plan execution
business advisory services through one-on-one meetings,
mentoring and grants. The organization serves as a            • Ongoing support with refining 12- and 24-month
strategic partner to its clients, connecting entrepreneurs    growth plans
with the resources and advice they need to grow at
different stages of their businesses.                         • Three volunteer mentor matches: one peer, one
                                                              seasoned entrepreneur/industry expert, one business
Historically, the CEC has worked primarily with technology    development expert
based companies. However, in the recent years there has
been a proliferation of innovative food companies working     • Brand exposure opportunities
with the CEC. In 2009, 15% of the CEC’s clients were food     • The opportunity to access up to $8,000 in grant dollars
businesses. In their efforts to expand programming for        for a strategic growth project
food and food service companies, the CEC partnered with
the University of Chicago Booth School in hosting the Farm    The CAP program, targeted business advisory services and
to Fork Conference in 2009, and they will again partner       the published resource guide are CEC’s efforts to support
to host Financing Farm to Fork in March 2010. For more        and fuel entrepreneurial innovation in the food industry of
information on this conference, visit www.chicagobooth.       Illinois.

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About Us

Chicagoland Entrepreneurial Center                             Polsky Center for Entrepreneurship at
The Chicagoland Entrepreneurial Center (CEC) works at          the University of Chicago Booth School
the intersection of business success and civic engagement.     of Business
It identifies the region’s most promising entrepreneurs and    The Polsky Center for Entrepreneurship advances
helps them build high-growth, sustainable businesses that      the knowledge and practice of entrepreneurship and
serve as a platform for economic development and civic         innovation across the university and in the greater
leadership for the Chicagoland area.                           business community. Organized in 1998 through a grant
                                                               from the Kauffman Foundation and endowed by leading
The CEC works with high-growth entrepreneurial ventures
                                                               energy entrepreneur Michael Polsky in 2002, the
through one-on-one advisory services, programs and
                                                               Center is the leading resource for students and alumni as
events. Since 2003, CEC helped secure $229 million in
                                                               they pursue entrepreneurial endeavors and private equity
new revenues for its clients. With the CEC’s assistance,
                                                               careers. The center supports entrepreneurial development
more than 200 companies received financing services
                                                               through its cutting-edge curriculum, innovative hands-on
and secured $130 million in debt and equity financing.
                                                               learning experiences, leading faculty research, conferences
Additionally, the CEC awarded over $1.9 million in grants
                                                               and community and global outreach programs.
to businesses for sales and financing related services. CEC
efforts also led to the creation and retention of more than    Entrepreneurship is the second largest concentration at
5,800 jobs.                                                    Chicago Booth, and with an impressive, growing network
                                                               of students and alumni entrepreneurs, the Polsky Center
The CEC is a nonprofit affiliate of the Chicagoland
                                                               is dedicated to expanding and capitalizing on this vibrant
Chamber of Commerce and provides services through its
                                                               and active sector of our economy. For more information
relationship with the Illinois Department of Commerce and
Economic Opportunity as an Entrepreneurship Center and
as a member of the Illinois Entrepreneurship Network.          The University of Chicago Booth School of Business is one
For more information visit:             of the leading business schools in the world. The school’s
                                                               faculty includes many renowned scholars and its graduates
                                                               include many national and worldwide business leaders.
                                                               The Chicago Approach to Management Education is
                                                               distinguished by how it leverages fundamental knowledge,
                                                               its rigor and its practical application to business challenges.
                                                               Chicago Booth offers a full-time MBA program, an evening
                                                               MBA program, a weekend MBA program and an executive
                                                               MBA program in Chicago, London and Singapore. The
                                                               school also offers a PhD program, open enrollment
                                                               executive education and custom corporate education. For
                                                               more information visit:

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                    In collaboration with

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