Selling your own products can greatly increase your bottom line. Here’s how to navigate the process.
By Lauren Fernandez
As restaurant operators continue to deal with supply chain issues, inflation and the ongoing uncertainty of the pandemic, many are searching for alternative ways to drive business and improve their bottom line. And one opportunity with great potential may be sitting there, right on the menu.
Developing and manufacturing a product — a proprietary sauce, menu item or another popular offering — can streamline operations, create cost savings and contribute directly to the bottom line. It can be sold in the restaurant and retail outlets to grow a lucrative new revenue stream, whether you’re a single storefront, a small chain or a franchisor with dozens or hundreds of locations.
Creating a consumer product for wholesale and retail use is a little more involved than simply making a few extra batches of your signature seasoning, putting them in jars and upselling them to your guests. There are a lot of key steps to consider along the way, and they are not always obvious to someone not intimately familiar with the ins and outs of product development.
But don’t let that stop you. The process can seem intimidating at first, but it can be conquered.
First, of course, is figuring out: what is the ideal product for manufacture and retail? One helpful step is to identify an item that can create a bottleneck in your kitchen — like one that’s used in large quantities on the menu, requires special labor or needs standardization. Often, this product may also have a recipe that is proprietary and may even be very complicated. Ask yourself: what would make life in your restaurant kitchen easier if it were already on hand and didn’t need to be made from scratch daily?
More importantly, find a product that has built-in demand. What are customers constantly asking for more of? What’s your best seller, the dish you’re best known for? What gets the most mentions on social media? What sauce do guests order extra on the side to take home? If you can name that item off the top of your head, you’ve likely already found your product to develop.
With that done, you’ll need to cost out the recipe. Is there a high labor cost involved? Does it involve hours of preparation? Skilled labor? Write down everything that goes into producing this item the way you currently make it and come up with a theoretical cost for it. It’s important to know this number to be able to benchmark against manufacturing costs when the time comes.
Now that you have that information, you can figure out an appropriate range of how much to make, based on demand. How frequently are you making batches in-house currently? How much demand do you estimate there will be for your product, in your restaurants and at local retailers? Try to determine a realistic volume — not how much you’d love to be able to produce, but how much you can and should reasonably make for your first batch. All of this is important for the next step of your journey — figuring out the manufacturing process.
Unless you have 100 stores or more, most restaurant operators use what’s called a co-packing manufacturer. A co-packer is a company that manufactures, packages and stores your product for a fee: you’re paying for their expertise as well as time on their manufacturing and packaging lines. Co-packers are much more economical for most companies rather than investing in machinery, manufacturing expertise and storage space.
Co-packers have all sorts of various capabilities, so it’s important to interview more than one. Certain certifications — such as for a kosher or halal product — will play into your choice of manufacturer or co-packer, as well. Manufacturers must follow strict guidelines for these certifications, as well as for gluten-free or vegan products.
When working with a co-packer, they should create several test batches of the recipe to ensure the finished product is as close to your original product as possible. The recipe you’re used to executing in your restaurant is rarely, if ever, the exact same as what is needed to run the product on a manufacturing line. All kinds of things, including preservatives added for shelf stability, can affect the way your product feels or tastes.
Make sure you always have an original, hand-made sample to test against the manufacturer’s product. The same holds true if your product is intended to be used as part of a secondary cooking process, like a marinade.
Take the test version and an original batch home and test them both on steak or chicken (or both). Again, the idea is to experience the product the same way your customer would.
Once a recipe is decided on, you’ll have some more detail from the manufacturer on shelf-stability and maximum recommended shelf life. The information you’ve put together on volume demand plus shelf life will help you determine batch size and allow a co-packer to price a run of your product.
Expect that most co-packers will charge you a one-time set-up fee to create your product for the first time. After that, you can produce several runs per year at a lower cost, based on demand. Some co-packers may offer a discount if you can afford to be flexible on timing.
It’s only after you’ve chosen a manufacturer that you’ll start to shop for and design your product packaging. How your product is bottled and how it looks will depend on your manufacturer’s equipment. Your co-packer should work with you on package selection and label design, but always make sure you’re in compliance with nutrition and labeling laws for the USDA and FDA by reviewing the label with counsel.
There’s nothing more satisfying than watching your finished product roll off the line. Well, maybe seeing it on a shelf. Better yet even: seeing it in someone’s refrigerator. But hold on: a couple more steps await you before the finish line!
Products do carry some risk, and managing risk with appropriate procedures, policies and insurance is very important. You’ll need to consult with a couple of skilled professionals, such as a product development attorney, insurance advisor and quality control consultant.
They’ll assist you in developing a documented complaint and return procedure before you begin selling so you can deal with issues like foodborne illness or an allergic reaction in a responsible, timely and legal manner. Managing your liability exposure is key, and an insurance advisor can make recommendations to ensure protections for situations like foodborne illness, product contamination, or voluntary or involuntary product recall.
After all of that — congratulations! Now you just need to get it into the hands of your customers. You can sell it online direct, in your restaurant, of course, and wholesale through your franchise system, if you have one. It’s not uncommon for franchisors to push proprietary product through the franchise system wholesale for kitchen use, but also packaged for retail sale within the stores as well.
And then there’s retail. Just think — your product, available at grocery stores, big-box outlets and other vendors. It’s an exciting prospect, but be aware that this process has even more hoops to jump through. Retail often has a number of fees and other costs associated with it, and while that may eat into your profit margin, it does bring broader brand awareness to the marketplace. It’s important to engage the services of a trusted broker or salesperson with experience when selling products like yours into retail.
The process of developing and manufacturing a signature product involves some up-front investment, but it’s well worth it for the impact such a product line can have on your brand awareness and bottom line. For growing restaurant brands, product lines should absolutely be a part of your strategy.
Lauren Fernandez is the CEO and founder of Full Course, a non-traditional restaurant investment group created for operators by operators that is changing the way new businesses grow their brands. The company partners with restaurants in the early stages of development to optimize existing operations, develop strategies for sustainable growth and bring the right investors or franchise partners to the table. Fernandez is a restaurant industry veteran with two decades of experience. She previously served as general counsel and head of franchise administration for FOCUS Brands, a multi-brand restaurant company with more than 4,000 restaurants (including Carvel, Cinnabon and Moe’s Southwest Grill) in over 15 countries, and was co-founder, president and operating partner for multi-unit franchise developer Origin Development Group, acting as a strategic growth partner for brands such as Chicken Salad Chick. She also is a frequent speaker in the areas of organic business growth, licensing and franchise operations across the country.
