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Retailing Your Restaurant Products Post Pandemic

Restaurants have been selling a wide variety of their food and other products at retail for years. For nearly two decades, national chain concepts have made available their branded products in the supermarket aisles. Examples include Tex-Mex concept On the Border salsa and P.F. Chang's frozen entrees. Retail sales of menu items offer restaurants a number of benefits, from increased revenue to brand expansion.

Is taking your independent restaurant's products to retail distribution a good move for your concept? In this article, we look at the current opportunities, benefits and stumbling blocks.

That said, few independent operators had the resources to sell their signature seasonings, dressings, salsas, dips, sauces and more beyond their own four walls. But as with so many other aspects of the restaurant business in the wake of the pandemic, the landscape is changing. The explosion of online ordering and delivery has made getting a meal from a restaurant not much different than ordering clothing on Amazon. Consumers and grocers are more adventurous and often welcome products from local restaurants to pay homage to local flair. Retailing signature items can drive both sales and brand awareness – if done well.

Here's a case on point. First-time restaurant owners Rolf and Melissa Larson transformed a family Kolache recipe into their startup concept Kolache Rolf, a small counter-service bakery serving fresh kolaches (a sweet filled pas- try), coffee and breakfast sandwiches. This opened the door to distributing samples to grocers and preparing products at their units for wholesale distribution, with daily delivery to keep up with growing retailer demand.

Fast forward, Kolache Rolf's Bakery, Restaurant and Catering in College Station, Texas, has a 5,000 sq. ft. production facility nearing completion, with plans to expand retail grocer distribution, as well as grow their business via the restaurant, hotel, and health-care markets.

On the other hand, Stan Harris, president and CEO of the Louisiana Restaurant Association (and former president and CEO of TJM Restaurant Management, the largest franchisee of Ruth's Chris Steak House) points out how most restaurateurs see little return on the investment. "It is single digits on the dollar, especially if using a food broker or co-packer."

Distribution channels will vary based on the market position of the type of products being offered, Spiegel says. "If your product is organic, natural, gluten-free, dairy-free and kosher it will find a home in retailers like Whole Foods and Health Nuts.
Distributors like United Natural Foods, Inc. (UNFI) a Providence, Rhode Island-based natural and organic food distribution company carries products for this niche." She recommends working with local and regional distributors who will introduce your products to their customers.

"Most restaurants lack the capital capacity to pay upfront for its co-packer production, and carry the receivable from the retailer," says Harris. He believes restaurateurs typically underestimate the costs of making products available at retail "or compare it to what they can make on a restaurant plate."

The Restaurant as Grocerant

"During the pandemic, restaurants realized that there was an opportunity to become grocerants by supplying many retail items to their customers along with ordered meals," explains Arlene Spiegel, president of Arlene Spiegel & Associates Inc. in New York City. "In addition, platforms like Goldbelly, an online marketplace for regional and artisanal foods, were seeking independent restaurants to offer their customers local menu favorites."

One of Spiegel's clients, Antun's Catering in Queens, New York, all but shut down during the pandemic, but its loyal customers kept asking for its Caribbean food. "Micky King, the owner, started preparing meals to go," Spiegel says. "After realizing the demand was consistent, we put together a complete retail line of foods under the label Caribbean Plate. Mickey prepares the meals in a certified kitchen, and is ready to market refrigerated and frozen meals under that brand."

Others are taking the same approach. Marilyn Schlossbach, an Asbury Park, New Jersey-based restaurateur whose properties include Langosta Lounge, The Sparrow at WCP, and Chinese Fish House, recently began expanding into the sale of auxiliary chocolate and wellness products.

"Covid has had a tremendous impact on the success of retail and online sales," says Chris Tripoli, founder of A' La Carte Foodservice Consulting Group. "Demand has increased greatly because guests want their quality and variety, but now with the convenience of online ordering, pick-up and delivery."

Tripoli adds that "popular local restaurant brands are sought after by grocery companies to place product in their stores. Consumers are open to purchasing products from regional favorites, and that often includes popular independent restaurants." An example is New Orleans' legendary fine-dining concept Brennan's, which has begun selling its popular turtle soup and bread pudding at retail, which are now carried by grocery retailers throughout Texas.

Production

That said, "production for retail distribution is a lot of work," says Paul Bartlett, principal of Kitchen Solutions Consulting, LLC in Baltimore, Maryland. "It's very different than restaurant production. It is somewhat similar to carryout or catering production, but different, nevertheless."

For one, it often requires a separate kitchen facility for a production line or, at minimum, a separate dedicated work-shift if the same facility is to be used. He suggests that restaurants set up a separate production and storage area for retail foods, with provision for separate accounting of sales and inventory and an established method of tracking outgoing shipping and incoming sales.

The menu development process is another challenge. According to Tripoli, "It entails the use of a co-packer or approved and permitted commissary kitchen for packaging, nutrition analysis, labeling, storage and distribution. The good news is because of the popularity of small-batch specialty products and the increasing demand from retailers and wholesale distributors, it has become easier to find these facilities, and more reasonable to pay for this process."

Branding

An important upside to retailing restaurant products is the extension of brand awareness and the resulting increase in brand value. For example, Kolache Rolf's Bakery items in supermarkets has expanded awareness and driven sales of the company's restaurant and catering business – and vice versa. The two sides of the business can feed each other.

Just be aware that if the quality suffers on the restaurant or retailing side, it can drag down the entire brand. Brand and values should be top of mind when planning a retail strategy, says Schlossbach. And this means thinking about every aspect of what the retail products say about your business, including packaging. "Is it sustainable?" she asks.

When it works, however, "much like a successful take-out/ delivery program or catering division, having customers see your brand and enjoy your product away from the restaurant acts as a positive reminder of experiences they have had there, and increases the amount of return visits," notes Tripoli.

Again, food retailing requires specialized expertise. Mark Laux, co-founder of Hot Operator, a restaurant marketing consulting firm, recommends hiring someone who has experience with retailing and retail marketing and promotion.

Laux takes a page from a national chain's playbook, adding, "when we developed TGI Friday's snacks in the frozen food segment, they had a series of agencies working for them to get the product to sell. They also had a pretty popular name at the time."

Restaurant branding is not just about food. Consider what other items you might sell to promote your brand. Rudy Miick, founder of The Miick Companies in Boulder, Colorado, suggests packaging offerings can be a money maker if you have an intriguing brand and well-designed swag. "Bundle a hat, shirt and spice. Bundle tabletop offerings with sauces or spice and a logoed chef's apron."

In fact, branding might be a more important upside to retailing than sales. Marc Glosserman is CEO of Hill Country Hospitality, which operates three Hill Country BBQ restaurants in Manhattan, La Guardia Airport in Queens, and Washington, DC. As a percentage of restaurant sales, says Glosserman, "[retail food and other products] are not usually significant, but from a branding standpoint, it makes an impact. One of the things that brings a smile to my face is when I see someone walking around New York City wearing a Hill Country hat or tee-shirt."

Schlossbach advises her fellow restaurateurs to set up a shopping account on their website. "If you want to go the Amazon route, have all your ducks in a row and be prepared to pay the fees. Faire.com is one of the good sites to launch with and get out there." That online marketplace was designed to help small businesses come together to compete on a more level playing field with the likes of Walmart and Amazon.

Pricing and Distribution

When selling into a retail market channel, Spiegel advises operators carefully consider every cost – ingredients, container/glass packaging, labels, shipping containers, and shipping. She also reminds operators that "grocers like to mark-up items 40%, so back into the wholesale price you need so you can make a profit, typically 10%."

The bottom line on the bottom line is the cost of goods sold for retailing is much different than for restaurants. Too many restaurants "do not consider marketing fees, e-commerce fees, and product shortage fees," says Rolf Larson.

Distribution channels will vary based on the market position of the type of products being offered, Spiegel says. "If your product is organic, natural, gluten-free, dairy-free and kosher it will find a home in retailers like Whole Foods and Health Nuts. Distributors like United Natural Foods, Inc. (UNFI) a Providence, Rhode Island-based natural and organic food distribution company carries products for this niche." She recommends working with local and regional distributors who will introduce your products to their customers.

Laux says retail restaurant items have become "more popular in smaller communities" thanks to Covid, but warns that restaurateurs won't get distribution easily. "You'll have to find a strategy to get people to take on your product. Work with local people who like to display small companies that are regionally famous." That said, at the regional level, you need to get space in the grocery aisles to gain brand awareness. With online commerce only, you can get lost in a sea for offerings that "will keep you small," he cautions. "You need to get on shelves in stores where there is a lot of foot traffic." At first, "you'll be located in spots that don't have a lot of eye-level positioning." But it's a start.

And if customers like your products, supermarket sales can create unparalleled brand recognition. Sure, Miick agrees supermarket sales remain "the hardest to position, the hardest to make a profit. It is a complex business model requiring products with shelf life and particular packaging requirements," underscoring the need for food retailing product development, distribution, and marketing expertise. Nevertheless, he continues, "Supermarket sales can have a large bang if it takes off. Just be aware it can be a really hard to enter the market and/or keep up with production in the event of success."

Product Liability

On that note, you should keep in mind that when food is not for immediate consumption it creates additional liability concerns. According to Spiegel, the operator will need product liability insurance that is separate from the restaurant insurance. "In addition, the FDA will ask you for a HACCP protocol and chain of custody report before giving the certification on any item."

Creating a product anti-tampering process or multiple seal is "critical," says Louisiana Restaurant Association chief Harris. However, once the operator has a clear HACCP plan and defined, written processes for production, packaging and storage of product, he adds, "obtaining product liability insurance should not be difficult."

The process, however, is easier said than done. "The cost to acquire adequate shelf- or cooler-ready packaging is almost always a surprise to the producer," notes Harris. "It typically requires a larger-quantity purchase." He points out that some states do not allow production of retail products in restaurant kitchens. "Some investment in prep, packaging and labeling equipment may be required. Shelf life, product rotation, shrinkage and tamper-resistant packaging are things restaurants don't usually have to address."

Common Mistakes

Glosserman believes the most common mistake restaurateurs make when peddling their products is not realizing that "retailing is hard. It's a different business, and managing inventory, initial orders and getting the product fit right" can prove challenging. "Some of the things you thought were going to sell inevitably will not sell well, but I think a lot of it comes down to pricing."

And in spite of their success in bringing their products to retail, the Larson's acknowledge the process is not child's play. According to Rolf Larson, who serves as director of operations for the family business, the greatest challenge in distributing high volumes of food products through a retail distribution channel is getting USDA/FDA approval.

Items must be prepared in a USDA/FDA-certified kitchen, which often requires supervision to ensure all protocols comply. Additional scrutiny and regulations are applied to items that are meat- and poultry-based. Naturally, most restaurant kitchens will not meet these requirements, so a co-packer may need to be engaged.

Typically, the FDA oversees shelf stable and jarred products, while the USDA regulates perishable and refrigerated product, including all protein and dairy-based products. Both agencies require a full nutritional panel as part of their documentation, as well as plenty of documentation showing the proper cooking and manufacturing process to ensure it was safely prepared (e.g., pasteurization of eggs). This is just one more area in which you will want to enlist expert advice. (See "Additional Resources" below).

Keep Learning. Keep Growing

Corner Booth Podcast — Rolf and Melissa Larson

How does a Kolache bakery concept with locations in a small college town successfully develop a wholesale distribution program currently serving more than 200 retail grocery stores? In this episode, first-time restaurant owners Rolf and Melissa Larson tell their story of how an idea and a family recipe became Kolache Rolf, a small counter-service bakery serving fresh Kolaches, coffee, and breakfast sandwiches.

Check it out at Podbean.com

Baby Steps

For most independent operators, the first steps should be baby steps. Tripoli advises that with proof of product acceptance "it takes time to sell/test at farmers markets, or provide samples at tasting booths in retail grocery or other food markets."

It is important to receive comments and develop a following for your product from a larger market rather than simply those existing restaurant customers. And then there is the competition. "The marketplace is very crowded with gluten-free baked goods and vegetarian items," he adds. "Retailers have limited shelf space, and brands fight for exposure."

Tripoli cites the serendipitous success of Catfish Parlour, a two-unit Gulf Coast seafood concept based in Austin, Texas. The business bottled its family recipe of Jalapeño Tartar Sauce for sales to its dining customers, Tripoli reports. "One such customer was a food broker that presented it, and it became popular in regional retail and convenience stores."

Another error restaurateurs typically make is being under-funded, says Laux. Others include not getting the help they need, thinking their brand is more powerful than it is, picking the wrong co-packer, setting the price too high "so that it isn't a daily purchase," not understanding the retail industry in general, and taking their focus off of their restaurant.

But for the companies, such as Kolache Rolf and Brennan's, that enter this arena armed with expert advice, planning and research, retail can sometimes outpace other areas of the business. Says Miick, who believes "there'll be no going back on this, and in fact this segment will grow through ambitious, smart, well-run restaurant companies."

ADDITIONAL RESOURCES

NASFT Fancy Food Show

Look at all the new foods coming out that may compete with your product, or inspire you to improve your own product. Packaging and marketing strategies are key to breaking into an already crowded marketplace. Either way, it's a must that you visit a show to understand this industry. Foodservice and food retailing are two different worlds — enjoy learning about this one.
For more information visit www.specialtyfood.com/shows-events.

The Cornell Food Venture Center (CFVC)

The CFVC helps food businesses large and small introduce new food products into the marketplace. Visit its site at the Cornell Food Venture Center.