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Summary

Kitchen incubators are increasingly popular but unlike any other kind of program. Client companies stay longer before graduating, and the distinction between incubation and rental space can sometimes become blurred. Kitchen incubation programs can build revenue streams by partnering with educational institutions or expanding into every aspect of food production. But adding a food incubation program is not to be undertaken lightly.

Kitchen incubators help clients avoid heartache and heartburn

by Dennis E. Powell

June/July 2012

Kitchen incubation programs are as varied as food itself and sometimes, it seems, just as popular. They include the mentoring of caterers, restaurant owners, specialty food wholesalers and retailers, even street food cart and food truck owners.

Clients vary from people who want to make and sell their grandmother’s favorite cookies and rolls but who have outgrown their home kitchens to those who make wine, tortilla chips and salad dressing. They include many makers of barbecue sauce and salsa and cheese repackagers; people who make products from regional specialty foods that are then shipped all over the country; and people from other lands who want to capitalize on local tastes for their native dishes.

There are a few things food incubators have in common, though. They face regulatory and sanitary laws and certifications beyond those encountered in most incubation programs. Most face equipment costs associated with large commercial kitchens, as well as maintaining inspection, certification and licensing. And many have more flexible schedules for client graduation than do programs that serve less capital-intensive industries.

“It seems that everyone has a recipe for success, some recipe that they picked up somewhere or that came down through the family,” says Giles McDaniel, executive director of Shoals Entrepreneurial Center, a mixed-use incubator in Florence, Ala. “There’s a Food Channel on television. There’s no biotech channel. If there were, everybody would probably come around with Grandma’s favorite cold remedy.”

Embracing creative resource management

The costs involved in starting and maintaining a food-based program are substantial, but in the entrepreneurial spirit that permeates business incubators in general, those who run kitchen incubators have found some innovative revenue streams and sources for equipment and supplies.

While McDaniel’s incubation program has been in operation since 1992, the food-related Culinary Complex opened in 2001. It has served caterers and bakers, makers of packaged snack crisps, barbecue sauces and salsas, and southern sauces and gumbo mixes.

“I don’t care how untechnical it seems, it’s a very technical business,” says McDaniel. “It’s a layer on top of the regular business incubator services.” Much of the equipment for the Shoals kitchen was donated to it when the Tennessee Valley Authority closed the cafeteria at a nearby facility. “I don’t know if you’ve ever priced commercial kitchen equipment, but it’s expensive,” he says.

Currently home to 15 client businesses, Shoals is always expanding. It offers cooking classes at what it has named the Shoals Culinary Academy. But it offers eating classes, too, at $65 per class. “That’s right,” McDaniel says. “We have a chef who comes in and teaches about cuisines and wines and food appreciation.”

The educational aspect is growing as the incubator looks for new ways to bring in additional revenue to help support operations. “We’re kind of reinventing or remodeling our culinary facility,” he explains. “We’ve been dependent on leasing out the kitchen. Now we’re partnering with the local community college, Northwest Shoals Community College, in their hospitality training program. We’re hoping that some of the classes we’ve offered will get accreditation and be for-credit classes. We’ve been awarded an Appalachian Regional Commission grant for that.”

Added to the educational offerings will be a considerable expansion of food incubation services. “We are starting to offer R&D in house for clients. We’re incorporating a test kitchen – a lot of things we weren’t previously able to do in house, for a fee, of course. We’ll offer basic marketing to focus groups. We’ll now do all that and be able to take it from concept to ‘here’s your bottle of sauce.’”

Shepherding a region’s entire food economy

In Ohio, one mixed-use incubation program has expanded into every aspect of the food industry. In its more than a quarter-century of operation, the Appalachian Center for Economic Networks in Athens, Ohio, has stirred just about every pot in sight.

ACEnet is especially noted for the mark it has made on the food economy of 32 counties in Appalachian Ohio. The program and its clients are involved in just about every aspect of food production, from putting seeds into the ground to serving it on plates to consumers. “From vegetable farmers to prepared goods to restaurants, we’ve had our part in just about all of them,” says Leslie Schaller, ACEnet’s director of programming.

Operating with aspects of both an incubation program and an agricultural cooperative, ACEnet works with farmers in deciding what crops are in greatest demand. It works with local farmers markets to help sell the produce. It even worked with a client to help commercialize a local “folk fruit,” the pawpaw, and helped organize an annual pawpaw festival to celebrate it.

It’s all part of “the untidy work we do here trying to rebuild a sustainable, local food economy,” says Schaller. Untidy or not, ACEnet’s work has been successful in creating a food culture that has set its region apart and made its food products desirable.

Most visible has been the establishment of the Food We Love brand. This designation groups products of ACEnet’s food incubation program under a kind of seal of approval, with cooperative marketing. The program even offers wooden Foods We Love displays – also locally made – that can be used in grocery stores and regional tourist attractions to showcase and sell those products.

The program has encouraged both resident and affiliate clients to open their minds to the possibilities of the products they can make from the materials they have at hand, and how to establish and capitalize on niches, such as the local entrepreneur who started a dairy that now specializes in premium local milk products and the local grape grower who learned how to capitalize on the unique qualities of his grapes to make a popular wine.

“It’s always important to keep your eyes open to opportunities,” Schaller says. For instance, she and her clients developed a relationship with the manager of a local grocery store, part of a national chain. This led to product placement in first the local store, then in stores throughout the state. Now Foods We Love can be found in stores in both that chain and elsewhere in Ohio and in other states.

The food program resides in its own building – mixed-use incubation programs note that the aroma of sauce on the stove doesn’t always fit well among other offices – and includes a full commercial kitchen (much of it salvaged after the closing of a local mental hospital), a commercial bottling line, and a vast amount of space for storage of ingredients and supplies.

“The atmosphere is very cooperative,” Schaller explains. “If someone has to make a delivery to Columbus [70 miles away], they’ll see if anyone else has anything that needs to go there. That’s how it started, anyway. Now the arrangements tend to be a little more formalized, so that people know their products will be delivered, and when they’ll be delivered, even if they’re not taking them to the retailer themselves.” Similarly, different clients will band together to get quantity discounts on ingredients or packaging.

Legitimizing underground food products

There are few places in the world where one may prepare foods at home for retail sale, which is part of the reason the South Valley Economic Development Center in Albuquerque, N.M., started its Mixing Bowl: The Kitchen for Entrepreneurs food incubation program, says Tim Nisly, SVEDC’s chief operating officer.

“Food was identified as a strength of this community 20 years ago, and this center was built around the idea of helping the ‘gray-market’ food producers/caterers legitimize their businesses,” he says. “It’s always been a focus of our operation.” The incubator opened in 2005.

About 15 percent of the incubator’s 60 clients are caterers, Nisly says, while the rest produce packaged foods. As other kitchen incubator managers note, food incubation brings its own special set of challenges.

“It’s a very different animal,” Nisly says. “There’s a different cost structure, because you need kitchen employees to maintain cleanliness. Budgeting and scheduling are time-intensive as well and pretty specialized. Interactions with environmental health can vary widely around the country, and often one or two individuals can make that easy or incredibly time-intensive. Support from the local environmental health office is critical.”

One of the areas where incubation programs prove especially helpful to food-based entrepreneurs is in navigating the maze of regulations, which can be applied at local, state and national levels, depending on where the food products are to be marketed. This is in addition to the help and advice offered on more basic business topics such as financing, accounting and taxation, as well as other topics more specific to food entrepreneurs.

“Equipment is specialized and expensive, and relationships with local suppliers can make life a lot easier,” says Nisly. “Developing relationships with local retail markets and outlets for caterers has a huge upside for businesses, and can provide strong, fast business growth.”

Planning for expenses

With the increasing social popularity of food, more and more incubation programs are considering adding a shared kitchen and related facilities to their programs. Is this a good idea?

Maybe, says Kathrine Gregory, founder and director of Mi Kitchen es su Kitchen in New York City. Or maybe not.  “A kitchen will require a tremendous amount of build-out money for the actual facility and the equipment, especially if the building is not structurally set up for it,” she says, estimating that it probably costs at least $1 million to start a commercial kitchen from scratch. “The kitchen is also time-consuming in regard to scheduling. Many of the incubators are run on a monthly rental basis of one particular workstation by one specific client for the entire month.

“To give you an example: I have Kitchen D – it can be rented by three different companies each day, which is a total of 21 different businesses using it in one week if I was at 100 percent capacity. Does an existing incubator have the knowledge and staff to handle that? I would also say that they need to have someone familiar with the food industry, cooking and the equipment as part of their management staff.”

Gregory points, too, to the rules and regulations in the food industry. While some violations could be harmful to the particular client company, others could have an adverse effect on not just one company but the program as a whole, and therefore all its clients. “That is where the knowledgeable food industry professional is mandatory to be on staff,” she says. “At the Entrepreneur Space [a partnership between Mi Kitchen es su Kitchen and the Queens (N.Y.) Economic Development Corp.], we mandate that clients get their licenses under our auspices. We help them with the paperwork and schedule the inspections.”

Kitchen incubation is hugely rewarding, Gregory says, but it must not be undertaken lightly. “The biggest problem is that this is a very expensive concept, and it takes time to build the revenue,” she says. “Does the incubator have the money to run it until it can become self-sufficient?”

Graduating food businesses

Clients of kitchen incubators may require more time and services to reach graduation than traditional incubation clients. Kitchen infrastructure is expensive, so companies need to be very profitable before they can afford to leave the program. Many kitchen clients enter an incubator with little more than a recipe and a goal, and developing a business model strong enough to weather a heavily competitive market rife with high overhead and low profit margins can take considerable time and business training. A client company may be achieving success, paying its bills and earning a return on its investment, and growing – but not yet able to afford a commercial kitchen of its own.

So what, many incubator managers say. “We don’t even encourage our people to graduate until they’re quite large,” McDaniel says. “A company might be getting lots of press and good placement in grocery store chains, but that doesn’t mean they have what’s necessary to get and equip a building of their own.”

Another reason for delayed graduation can be the a la carte nature of kitchen incubation services. Some companies rent space by the month, while others come in from time to time to make a batch of their special secret sauce, put it into its containers and ship it. Some need business help all the time, some less. Many companies go through phases involving some or all of the above.

To accommodate this variation, incubators may offer a range of services for affiliate and resident clients. Others will rent commercial kitchen space to nonclient businesses if they have available slots to increase incubator revenue and market their services to potential clients. For some, this is where the line between kitchen incubation and shared kitchen services blurs.

For example, San Francisco’s La Cocina, a best practice incubator profiled in NBIA’s 2010 publication, Best Practices in Action: Guidelines for Implementing First-Class Business Incubation Programs, Revised 2nd Edition, offers exemplary client services including technical assistance, training curricula, industry networking, marketing assistance and more to incubator clients at their4,400-square-foot facility. The program also offers select services and kitchen facility rental at increased rates to nonclients to generate additional revenue.

Incubators may also continue to rent kitchen space to companies after they graduate to reach full kitchen capacity. The more businesses there are paying for the use of the expensive equipment and the specialized building, the easier it is for a program to amortize it. That can free up funds to purchase newer technologies in packaging or perhaps to replace a piece of equipment that now would be more appropriate in the kitchen museum.

Training courses for kitchen incubation programs

The Rutgers University Food Innovation Center in Bridgeton, N.J., NBIA's 2007 Incubator of the Year in the manufacturing and services category, offers online short courses on food safety and business topics designed for three sectors of the food industry: start-up entrepreneurs, established food companies and farmers markets. The courses are available to individuals, or through a group rate, to incubators, Small Business Development Centers or educators, who can offer the courses as a service to clients free or for a fee. For more information, visit http://foodinnovation.rutgers.edu/educational_resources.

Featured Sources

Kathrine Gregory, founder and director, Mi Kitchen es su Kitchen, New York City

Giles McDaniel, executive director, Shoals Entrepreneurial Center, Florence, Ala.

Tim Nisly, chief operating officer, South Valley Economic Development Center, Albuquerque, N.M.

Leslie Schaller, director of programming, Appalachian Center for Economic Networks, Athens, Ohio

Keywords: kitchen incubator, special focus incubator, self-sustainability, specialized equipment /facilities

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