The outlook for many restaurants is improving as COVID-19 restrictions ease and diners return to their favorite haunts. However, the ongoing impact of the pandemic continues to make this a challenging time for our industry as ongoing staffing issues and supply chain disruptions result in reduced menus and shorter hours in many cases.
So what can restaurateurs do to increase profits, drive cost savings, and generate brand awareness? One way is to design and manufacture products that can be used and sold both in the restaurant and in retail.
Product development isn’t quite as simple as bottling your signature marinara sauce and upselling it at your front desk. The playbook for adding product lines to your restaurant sales mix isn’t that obvious. A lot happens behind the scenes to get that bottle of your secret spice blend into the hands of your guests or onto the big shelves.
The process can be a little intimidating. But the good news is: it can be done.
Identify the winner on your menu
The first step, of course, is figuring out what you want to sell. Often we look for bottlenecks in production: where an item is bespoke, requires skilled labor and is used in large quantities on the menu. Other ways to source essential crafting supplies: What’s the most popular item on your menu—the one item you’re known for? What do your guests always order extra? Which dish is mentioned the most on Instagram, Yelp, or Google? Is it a signature dish, a dry rub, or a specific spice?
Most importantly, you want to find a copyrighted product that is unique and specific to your menu. This is your product.
How much does it cost to make?
Once you know what your product is, calculate the recipe as you are about to make it. Don’t forget to consider labor: does it involve high labor costs? Is it a skilled worker? hours of preparation? Consider everything you can think of that goes into production to determine the theoretical cost of the product, including packaging.
Estimate your needs and volume
Next, it comes down to how much to earn. There are a number of factors to consider when estimating the production batch size for a product. First, take stock of normal internal use in the kitchen – consider how frequently you make batches in your own restaurants. Then consider how much retail demand there might be for the product, both in your restaurants and at local retailers. Finally, make sure your product has maximum shelf life. Many natural preservatives are available to provide shelf stability to a product.
Answering these questions will help you determine what volume you can (and should) aim for. In general, sales targets should not be counted towards your initial batch size. Determining volume often also determines what type of manufacturing process and partner you are looking for.
Find a co-packer for crafting
Most restaurant operations, unless they have 100 or more stores, use what is called a co-packer — a manufacturing company that makes, packages, and stores your product for you. For most small and medium-sized businesses, co-packers are far more economical than investing in machinery, manufacturing expertise, and warehousing. Co-packers are a wonderful partner as they not only offer their expertise in developing scale formulations but also valuable time on their existing manufacturing and packaging lines.
That exercise we just did on product volume and shelf life is important to know before you buy from a co-packer. How large a run you have a co-packer produce at one time affects how much they will charge you for it.
Some co-packers charge a one-time setup fee to create your product the first time — they set out the procedures they need to follow and account for any special equipment they need to retrofit or custom tooling and the like. Then you can do three, four, or however many runs per year at a lower cost, provided you have the volume demand.
Sometimes in such situations it can pay off to wait. If you don’t need to run every week or month and can afford to be flexible, some co-packers may offer a small discount. Of course, larger batches give better economies of scale, but the product should have high demand or good shelf life. You may pay storage fees, but only until your demand grows to move products faster. Dialing into this balance of shelf life, batch size, and storage costs is an ongoing balance. Again, it’s important to always keep an eye on your demand level: monitor your consumption and sales at least monthly.
Research and Development
As part of the setup process, the manufacturer or co-packer can walk you through multiple iterations of test batches of the recipe. This part of the process is absolutely critical. Recipes you rarely or never use in a kitchen are ready for machined lines. The goal, of course, is to ensure that the finished product is as close to the original product as possible. Always bring an original, hand-made sample to the taste tests to compare with the machine-made recipe and product.
All sorts of things can change the way your sauce or mix feels or tastes during the process. Also, the addition of preservatives and the like for storage stability can affect the texture, viscosity, or flavor of the final product. Tasting your product straight off the line is an important part of this process.
And if your product has a secondary cooking process as part of its intended use, such as a marinade, then you also want to take it through the process of marinating and cooking. Take the trial version and an original handmade product into your kitchen and test both on the finished product. The aim is to experience the finished product as your customer will ultimately experience it and to ensure that it meets your quality standards.
If you want specific certifications for your product, this can also affect your choice of manufacturer. If it is a kosher or halal product, there are strict guidelines that the manufacturer must adhere to. And for gluten free or vegan – make sure your manufacturer is set up to follow any appropriate guidelines needed to get the certification you need. Most manufacturers have ISO certifications or similar that demonstrate their adherence to strict food safety protocols.
packaging and design
So many people are busy buying and designing packaging long before they find a manufacturer. The truth is, this part of the process comes after you’ve selected a manufacturer. It totally depends on the type of filling and labeling equipment already in place. You don’t want to start choosing bottles and jars ahead of time until you know who your co-packer will be.
A good co-packer should assist you with package selection and label design, and ensure that the package and label comply with USDA and FDA nutritional and labeling laws and regulations. In some cases when the type of packaging is critical, such as B. Single-use tear-off packs, you may need to arrange for the co-packer to ship the manufactured product to a specialty packaging company.
Quality Control, Legal and Insurance
These final steps require some expertise and qualified professionals to help you.
Once your final product has been delivered, you should perform quality assurance on specific batches to ensure each batch is consistent. You should also set aside part of each batch (perhaps half a case) in case it is later claimed that your product is spoiled. Maintain detailed records and consult an attorney for best practices on quality control record retention as well as complaint record retention.
It’s also important to set up a complaints and returns procedure before you start selling, so that you can respond in a timely, responsible, and legal manner in the event of an allergic reaction or foodborne illness. You may be required to report certain issues to health authorities, so make sure you have a good advisor with knowledge of product development and liability issues.
Always consult an attorney and an insurance specialist to ensure you have good general liability insurance with specific additional drivers for situations like a product recall or foodborne illness.
Entry into retail
Once you have your impeccably designed jar of fantastic sauce or special spice mix, you want to get it into the hands of your customers in the most efficient way possible. While bringing a product to retail has lower profit margins than wholesale or direct selling, it pays off when you market your brand. First and foremost, you can sell your new product lines in your restaurant and, if necessary, also push them through your franchise system.
However, if you want to expand your reach, you should know that the way these products are distributed to other sellers varies greatly. Retail has a number of hurdles to jump through, whether you want to get your product into a grocery store, a local vendor, or a major retailer. Entry into these big box stores can get very expensive with shelf or slotting fees, advertising costs, advertising fees and more.
It’s often best to find an experienced broker or seller to help you get to these places. Make sure you find someone who is intimately familiar with the type of space you are trying to conquer. Brokers often have upfront fees and commissions, so think carefully about how you want to spend your money to get to these spots.
return on investment
Product development can be a lot of work, but it can be an important revenue stream for a fast-growing restaurant brand. The use of manufacturing can create cost efficiencies and quality control within a restaurant system, especially when it is a franchise. Packaging some of this volume of production for retail can contribute to profits, drive brand interaction at home, and overall drive brand awareness in the larger market outside of the restaurant’s commercial arena.
From an investment perspective, while there is capital expense to begin product development, there are significant immediate and ongoing returns. When you consider that consumer-packaged product lines get their own assessment alongside the restaurants themselves — honestly, every growing restaurant brand needs to get on the product development lane. It can be done. And you should.