Dollars and Nonsense

It’s bloody expensive to launch a truly high quality, satisfying product. No wonder they don’t exist on store shelves; mainly just crap dressed up nicely as good for you healthy indulgences. The economics and the nuances of the food industry do everything to prevent the launch of such treats and it’s nonsense.

As a business student, we’re taught to identify gaps in the marketplace and if you’re embracing your entrepreneurial spirit, to fill them. Usually, the idea is to do something better (like Uber to taxis) but every now and again, it’s to introduce something new, despite the odds against you.

Bald Baker was created because I thought I was introducing something new: a satisfying, delicious, high-quality, low-sugar treat. I searched high and low and couldn’t find it; I did see plenty of premium, so-called “healthy” treats with crazy, unpronounceable ingredients, high carb flours and/or tons of ‘organic, naturally pressed cane juice’ (ie sugar). I also found quite a few very low-quality, disappointing low-sugar or low-carb products. That sweet spot (see what I did there?) of high-quality, low-sugar, didn’t exist in the marketplace and I couldn’t believe that I had stumbled onto it. After all, I’m not the only son of a diabetic parent, nor am I that insightful - if I had the idea, surely others did too. So how come there weren’t any other truly satisfying, healthy, low glycemic impact products on shelves?

Two and a half years into the business, and now I get it. The industry doesn’t support the production of these products and honestly, by in large, neither do consumers. After all - how much would you be willing to pay for a certified organic, certified natural, certified gluten-free, certified vegan, certified kosher, packaged with fully recyclable materials, actually delicious, clean-label, low sugar, low carb, low points cookie? $4? $5? $6? For a single cookie.

Indulge me for one paragraph (maybe two) as I explain myself. Starts with a recipe for something, let’s say a cookie. You graduate from the farmers’ markets and have a few local cafe’s selling your products. After a few successful foodie shows, you get noticed by a few retailers and now you’re in the game. Things get interesting, economically speaking. You have a few choices now: open up an online shop, open up your own bricks-and-mortar with a small cafe at the front. You’re talking rent, food safety, salaries, benefits, and the cost for the necessary certifications for retailers to accept your products. Or, you can partner with a co-packer who does all of the above and charges you on a per-cookie basis. However, their is an almost prohibitively-large minimum volume you must commit to before you can begin, regardless of whether or not you have the demand for it. Regardless of the sales channel, supplying a scaled up demand is a big challenge. Just to produce your cookies - the hurdles to jump through are pretty high, but not insurmountable.

Let’s say you’ve balanced all of the above and have your per cookie cost down to roughly $0.75 all-in. You’ve got what consumers want - great, clean, unprocessed ingredients that not only give the impression of high quality, but are actually high quality. First of all - a miracle has occurred and you should be extremely proud of yourself. Well done. Next comes how to get your products to stores, and to which stores. The standard way to proceed is with a food distributor with long-standing relationships with the right people at the right stores. You want to get into stores quickly - this is the way to do it. To a distributor you are committing to 25% of your gross revenues. To each retailer, you must prepare for 35% - 40%. To illustrate, if your cookie costs $0.75 and you want to make $0.25 profit, you’ll sell each cookie to your distributor for $1.00. The distributor, if they choose and if they can, will try to sell to the retailer for $1.33 (for them to make 25% profit). The retailer will sell to the public for at least $2.05 (for them to make a 35% profit). So far, so good, but we’ve ignored all of the start-up costs you’ve incurred and we’ve ignored the listing fees, per retailer per sku (starting at $2,500) you’re forced to incur to even have the opportunity to sell. You’re ignoring the advertising costs you’re forced to commit to, per retailer, per sku and you’re ignoring the periodic discounts that you alone bear the cost of. (This is illustrative and not based on my experience), assume you want to launch at Longo’s with 3 different products - you’ll need to put up minimum $7,500 if you’re distributed through an intermediary. If you’re only earning $0.25/cookie before all of the other nonsense gets taken into account, you’d need to sell 30,000 cookies before you break even on this one retailer. There’s Longo’s, Metro, Sobey’s, Loblaws, Whole Foods, to name just a few. Unless you’re very well capitalized, you’re General Mills, you have a very large appetite for sustained losses or you have a unicorn product, the bar is way too high for most foodpreneurs to launch any kind of a new product that is legitimately healthy and satisfying.

The dreadful economics is one reason why I stand up and applaud Sobeys in particular for nurturing a very well run Buy Local program. They give local foodpreneurs an opportunity to list their products without the aforementioned listing fees until you’ve built up a credible and valuable following at the store level. Sobey’s recognizes the consumers’ demand to support their local companies and enables buyers and sellers to come together in a collaborative, nurturing and exciting marketplace.

It’s a program that’s catching on because the alternative is to lower the quality of your ingredients, lower the quality of the overall experience and cut corners: those are the elements you can control in order to realize your dream. At that point, is it still your dream that you’re launching, or is it a frankenstein iteration of it that justifies all of your hard work? And how will the consumers that got you into business in the first place respond? In other words, as an entrepreneur - how committed are you to your vision and what sacrifices (or rather, pivots) are you wiling to make to achieve it?

These are all questions and points that I wish somebody had enlightened me with when I was first starting. Perhaps my complete naivety and ignorance of the industry were actually a great asset - I may not have moved forward. I’m not whining, I rather enjoy the challenge of challenging the industry. I believe there is another way, a better way. It is my sincere hope that in the wake of the closing of FoodStarter, a Toronto-based “food incubator,” entrepreneurs and larger food producers and retailers like Sobeys can foster an environment where innovation can happen, where new products can be introduced to consumers and where unhealthy eating habits that have lead many of astray can be mitigated. It does have to start at the ground level with an idea, and the courage to pursue it. I implore anyone who’s thinking about productizing their home-baked something - do it. Push hard. Go for it. Please.

Daniel Sennet1 Comment