For Food Startups, Incubators Help Dish Up Success

Aug 18, 2014
Originally published on September 30, 2014 8:08 pm

If you want to get in shape, you can join a gym. But if you want to start a food business, where do you go?

Try a culinary incubator.

Just as gym members share workout equipment, members of many food incubators share commercial kitchen space.

Incubators also offer business support and technical assistance — like branding, sales and distribution — to help "foodpreneurs" get off the ground.

"The food incubator model has really grown in the last several years, from virtually no food incubators to probably about 200 [or more] in the U.S.," Andrea Bell, the founder of Chef's Kitchen in Los Angeles, Calif., tells us.

And why such growth? With the booming demand for specialty and artisanal foods, incubators can help hungry entrepreneurs get started in a licensed kitchen at a fraction of the price of leasing their own space.

In Portland, KitchenCru is thriving, and in San Francisco, there's the nonprofit La Cocina, which focuses on cultivating low-income food entrepreneurs. Incubators have sprung up in towns beyond these foodie meccas, too, at institutions like Louisiana State Univerity in Baton Rouge and Mayland Community College in North Carolina.

"Everyone wants fresh and local [food]," says Cullen Gilchrist, co-founder of food incubator Union Kitchen in Washington, D.C.

But getting started as a foodpreneur is tricky. "The failure rate of food businesses — it's enormous," says Gilchrist. His goal is to lower the barriers to entry and teach foodpreneurs what they need to know.

"You need to be able to make great food — that's a given," says Gilchrist. But passion alone for your product only takes you so far. That stellar pie you bake from your grandmother's recipe that all your friends love is really just the first step, he says.

If you really want to make it, there's a long checklist to consider: Do you have a food handler's license? How are you going to find customers? What about business insurance, working a spreadsheet or a plan to distribute your food?

"[The food business] is not for the faint of heart," says Jenna Huntsberger as she pulls sheets of snickerdoodles out of the double-stacked convection ovens at Union Kitchen. Huntsberger started Whisked bakery, one of about 50 startups housed at the food incubator.

"You've got to know how much it costs to make this cookie," Huntsberger says. That means the labor and the ingredients.

In a business where profit margins are small, Huntsberger realized that the difference between being in the red and being in the black, in one instance, came down to how many walnuts she was adding to a line of cookie bars she sold.

When she priced out the bars, she calculated that she was spending $0.74 on ingredients, mostly nuts, for a cookie that was selling for about $1. That's way out of line with the rule of thumb that food costs should be kept to 30 percent of the retail price of the product.

So once it was clear that she'd "never, ever make money on the product," she says, she stopped making it. Huntsberger's bottom line? Become a numbers person.

Huntsberger's business has doubled since 2012. And, she says, the shared kitchen space and the business know-how she's honed at Union Kitchen have been a big part of her success. She has picked up retail clients, such as Washington's Green Grocer, which does a weekly pickup at Union Kitchen.

"What you get is this collaborative environment," says business consultant Terry St. Marie, who has studied the incubator model. "It's more than just providing [startups] with a stove; it's giving them connections."

It's hard to estimate the success rate of food incubators, in part because the model is still new. But Union Kitchen says 10 of its members and alumni businesses have opened, or are in the process of opening, their own brick-and-mortar establishments.

"We've created about 300 jobs," Gilchrist says.

And, he says, incubators like his are cultivating the kind of food businesses the community wants. Every time a Union Kitchen startup opens a store, "that's one less Subway or Potbelly."

At a time when big chains dominate, he's optimistic that small, independent businesses can find success, too.

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This morning we are covering the world of specialty food. It's an $80 billion industry that seems to offer some opportunities for people who are looking to start small food businesses. This is because many consumers these days are bypassing big-name brands for more artisanal and locally made foods. But as NPR's Allison Aubrey reports those who jump into this industry find obstacles they might not have expected.

ALLISON AUBREY, BYLINE: A few years back when the economy was in the tank Jonas Singer was unemployed and looking for something new to try. He was interested in food and so was his friend Cullen Gilchrest. So the two of them decided to open a cafe.

CULLEN GILCHREST: We had friend called Darnell, who owns Darnell's - which is a bar in Northwest D.C. And Jonas, my business partner, just went up to him and asked if we could open a cafe there during the mornings.

AUBREY: Now between Jonas' business chops and Cullen's years of working in restaurants they thought they were good to go. So when they hung their sign for the Blind Dog Cafe they started working out of a two-foot kitchen in the back of the bar using an old KitchenAid mixer.

GILCHREST: I had this dream of making everything from scratch.

AUBREY: Which they did. But along the way they learned a lot about what it really takes to run a food business - you need licenses, health inspections. And to make money they quickly realized they needed to scale up and move to a professional kitchen.

GILCHREST: So we started looking around and there's nowhere. There's no shared kitchens. We could only find things that were absolutely enormous.

AUBREY: And way out of their budget. Leases ran in the tens of thousands of dollars. Cullen and Jonas were not alone. The local food scene was starting to take off - there were kombucha makers, local creameries, all the food trucks. But there was no infrastructure to support these startups.

GILCHREST: We were at the cafe all day and people would come in and be like, I make pickles for a living. I'd be like, that's awesome. Where do you do it? Church basement, you know. Everyone had a bad answer to that question.

AUBREY: So Cullen and Jonas took an idea from the tech sector. Technology incubators are places where tech startups share space and try to grow their businesses. Why not start a food incubator?

GILCHREST: Welcome to Union Kitchen.

AUBREY: It's seven a.m. at this converted brick warehouse - not far from the U.S. Capitol and the place is already buzzing. Among the 50 startups there are bakers, beverage makers, even Korean taco makers.

GILCHREST: So this is the main kitchen area.

AUBREY: It feels kind of like a cross between a busy restaurant kitchen and a group house where everybody's cooking on top of each other and using each other's stuff. At one station, a 60-quart mixer hums against a stainless steel counter as Baker Jenna Huntsberger pulls sheets of cookies out of double-stacked convection ovens.

JENNA HUNTSBERGER: This is the brown-butter snickerdoodle and then this is a salty oatmeal cookie.

AUBREY: Jenna is back-to-back with two guys sauteing tofu - part of an Asian food startup - and a sausage maker who's hand rolling half smokes. And what's that behind the sausages?

DANIEL BAE: These are all 50 gallon drums, all filled with kombucha.

AUBREY: That's Daniel Bae. He's kind of like the roommate who leaves his food sitting around a little too long - but he's following a precise method. Fermenting teas into kombucha. Lot's of it.

BAE: So, we have, like, a peach tea. We have a coconut tea - all different kinds.

AUBREY: Both Daniel Bae and Jenna Huntsberger say, moving into the incubator has given their businesses a boost.

HUNTSBERGER: My business has grown over 100 percent from what we did in 2012 to what we're going to do 2014.

AUBREY: So here's how the incubator works - Jenna has a membership, kind of like a gym membership. Her monthly fees cover the use of the mixer, the ovens, all the equipment. It's about a fifth of the cost of leasing her own space. But Union Kitchen is a lot more than just a shared space. Soon after Cullen Gilchrest started the incubator, he realized that most of the startups had a lot to learn.

GILCHREST: You know, it's like, wow, this person has no idea they need a business license. This person's never had a health inspection. So we saw those things and we started making solutions for each step along the way.

AUBREY: So now members can pay extra for help with sales, marketing and perhaps more importantly - a way to distribute their food.

GILCHREST: We do distribution now where Whole Foods can just call us.

AUBREY: Grocers and other wholesalers can order food from any of the 50 businesses.

GILCHREST: We drive it out there, we drop it off, we put it on the shelves. Whole Foods or whoever just pays us and then we take the money and pay it out to everyone. So we take all the hassle out.

AUBREY: It's working all over the country. There are now more than 100 food incubators. And not just in foodie Mecca's like Portland and San Francisco but also North Carolina, Ohio and Louisiana. At Union Kitchen, 10 members and alumni businesses are moving up and out to open their own storefronts this year, which is about 20 percent of the startups.

GILCHREST: A lot of people are growing and they're growing rapidly - which is awesome.

AUBREY: But in a business as tough as food of course there's no guarantee of success. So what if after testing the waters some of these rookies realize it's just not for them?

GILCHREST: I mean, you want to open a business here and three months in you realize it was a terrible idea, you're out a couple thousand dollars.

AUBREY: You haven't taken out a big loan or signed a lease so you cut your losses and you move on. Allison Aubrey, NPR News. Transcript provided by NPR, Copyright NPR.