With lockdown and redundancies, more people than ever are thinking about starting a food and drink business. 90% of them will fail within two years, in part because of the high failure rate in all start-ups but increased by the misconceptions surrounding this industry.
So, when a chum’s daughter asked me for advice, I put her in touch with Richard Horwell of Brand Relations, who mentors new food and drink brands. The conversation proved a revelation.
Annie: Hi Richard. I am so excited. I have a great stack of original recipes from my granny, and they sell massively well at the local market. Everyone loves them, so I know they could sell really well. Is that enough research, or should I ask some more people what they think?
Richard: There are so many things wrong with this idea. But let’s start with the fact that many recipes made in a kitchen that taste good are full of ingredients that cannot be used in mass production.
Annie: I don’t want to change anything! They wouldn’t be Grannie’s recipes anymore.
Richard: Tough, I am afraid. If you want to be successful, sacrifices have to be made.
Making things in your food processor without preservatives is one thing because they will sell within 48 hours. But products for mass production have to sit on supermarket shelves, still without preservatives. If yours only has a 7-10 day-shelf life and may only get to a supermarket shelf with a couple of days to spare, it’s a disaster. New products don’t sell that quickly.
Annie: I am making nearly 100% mark-up, and the products are still very cheap. That is great, so we will make lots of money if we increase the amount we sell, so that bit is ok.
Richard When you mass produce, the retailers, the wholesalers, VAT if a drink, all get a big chunk, so the short answer to that is no. What might sell at £1.50 from you will, in any case, end up selling at £3.00, and you won’t see much of that.
It isn’t the profit levels that will make you successful but the degree to which you have nailed your POD (point of difference).
Annie: Ok, well, it is vegan, so that is a bit different and makes it stand out, along with being my grannie’s original recipe, so that is our POD.
Richard: Vegan is growing, true, but it is still very artisan. To be successful, to make it a business that will hit supermarkets, the concept must be scalable. You need a lot more than just being vegan for a POD.
Annie: I have a local designer friend, and she has done all the labels. They are different. Aren’t they lovely? She helped me with the name too.
Richard: If you are launching a product, the name has to be relevant and speak to your target market. Beware; designers are not brand developers. There is a massive difference between the two.
Branding is about communicating, knowing your target audience, and communicating with them. Design can be anything. It can be a nice picture on the wall. Many designers try and get into food and drink and forget that they need to communicate with the audience.
With a new brand, people are only interested in what’s in it for them, not the pack’s pretty picture.
Annie: I take photos of them and put them on Instagram, and we have 2,000 followers now!
Richard: That is one plus. People like Tesco are starting to look at social media to spot new things. But it is endorsements that matter. I don’t mean from your friends and your Mum who will all say it is fantastic. I mean from people who have paid their good money for your recipes.
Annie: I am ringing and ringing the supermarkets and trying to find out who the buyers are, and then I can put my best sales hat on, and I know they will love the taste, and we will be in there.
Richard: Supermarkets won’t tell you who their buyers are. They are very unhelpful and only tell you to go through their info for it. Quite often, you have to go through the wholesale system to get to them. If, for example, you want to get into Whole Foods, you need to go through a wholesaler like Tree of Life.
If you go down to Tree of Life and ask to be listed, they will ask you for a sum of money for that upfront. Ideally, you would want to know which customers will see that list, but they can’t tell you because of GDPR. It is virtually impossible to get listed in the bigger outlets without hiring specialists with the right contacts.
Annie: What do you look for when you take on a brand to develop if it isn’t the taste?
Richard: Point of Difference, cash, and liking someone enough to work with them.
Annie: I have a bit of money saved, so I can just increase the sales, and it should pay for itself as we go along if I can cover a couple of months cash flow, shouldn’t it?
Richard: So many people don’t understand this. Wholesalers like The Tree of Life, for example, have 90-day payment terms. That means vast sums tied up in cash flow.
People need to have the contacts in place to raise the money when they get to the stage that needs it. You have to be sure your money doesn’t run out. That said, there is a lot of investment going on in food and drink brands right now.
My advice is if you are putting in your savings, be prepared to lose them. If you only have a grand saved, you are better off having a great night out. If you have 30k, you are still better off doing something else.
And I speak from experience of having had a drink brand for many years which continually made losses, and it took my brother to sit me down and get me to see sense and sell it.
Annie: So, if I do all this, I can sell my brand for a lot of money?
Richard: You must have a powerful POD and a niche, but yes, it is in the brand where, if done right, the value and return lies. You can’t take on the big players and become one of them. They will always have more resources, so it is pointless to attempt it.
They are sometimes in the market for companies with good start-up concepts. Coca-Cola, for example, is brilliant at distribution but less good at ideas. Equally, I had a friend with a small restaurant chain, and he sold it to Whitbread; the same story.
They have excellent distribution. They know precisely what to do to turn a chain of ten into one of a hundred. It is the one to ten stage they struggle with.
Another example of this is the founder of Honest Tea, Seth Goldman, who was able to sell to Coca-Cola for $200m. Seth says that his consumers “buy for health but return for taste.” You do have to nail the taste too.
Annie: Anything else I ought to think about?
Richard: The most expensive word in developing a food and drink brand is education. If you have to explain to people what the product is about, you will go bankrupt doing it.
Annie will not go full-time into the food and drink industry.
Richard spoke firmly to me afterward and asked that if I or anyone else knows someone with these sorts of illusions about starting a food and drink brand, please don’t let them ring him!
Richard Horwell and his company Brand Relations have been behind the launch of over 80 food and drink brands in the UK over the last ten years.
Richard has also built up and sold companies of his own in the Food and Beverage sector. He has over 30 years’ experience in marketing FMCG brands worldwide, having lived and worked in the US, Australia, and the Middle East.