The Complete Guide to Starting Food Business Online
There are difficult lessons to be learned with any new sector, and each industry has its own set of complexities and legal concerns. But what about the food industry? It's in a class by itself. There's a thick forest of facts (and misinformation), a higher likelihood of legal consequences, and a dynamic supply chain that can be disrupted by everything from weather to individuals and a plethora of other factors.
The barrier to entry is relatively low if your passion is fashion and you want to sell clothes made in your living room online. And it's unlikely that your product would make anyone sick. However, when it comes to food, safety is still a concern. To ensure public safety, national and regional government bodies closely control and track the food industry, but the responsibility is on the manufacturer and merchant to stick to the rules and be obsessive about quality.
If that isn't challenging enough, running a food company often necessitates delicate inventory keeping to prevent spoilage and waste, all of which can be costly to a startup.
If your business idea is too good not to pursue, and if you’re ready to take on the challenge, welcome, intrepid entrepreneur. We're here to assist you in becoming a successful online seller. So you don't have to sift through mountains of data and consult experts, I did it for you. I'll go over everything from manufacturing to shipping and, finally, how to sell a product for free online in this post.
Note: Every country and region differs in terms of food laws and licensing requirements, and some industries, like dairy and alcohol, may be subjected to additional rules. Ensure you consult with a lawyer and your local government for information specific to your business and region. For this post, information and advice will be general, unless otherwise noted.
Food to make and sell
The best online business ideas are often born out of hobbies or passions. It's a good place to start if you make jams for friends and family from strawberries grown in your own backyard. You're already familiar with the procedure and have honed and tested the recipes.
Bob McClure and his brother Joe grew up helping their grandmother Lala make pickles, and it was her family recipe that inspired their company, McClure's Pickles. They didn't know much about business or manufacturing, as an actor and a psychology student, respectively, but their tried-and-true family recipe was their cornerstone.
Market Research
If you already have an idea, put it to the test. Is there a need for this item? How will your product stand out in a crowded market? Is there a niche or sub-audience that has yet to be discovered? Also, think about whether the product can be easily sold online and shipped—think about legalities (like with liquor), fragility, and shelf life (does it need to be refrigerated?).
Food Trends
If you don't have a product concept yet, study current food trends for inspiration. Mocktails, plant-based proteins, and kombucha beer, according to one source, will be among the hottest foods in 2020. However, you can back up the allegations with your investigation: look at search volume and Google Trends, as well as the competition.
The McClures had very little competition when they wanted to sell a premium pickled commodity. Pickling is experiencing a revival more than a decade later, and Bob welcomes the rivalry. “There is competition,” he says, “but it is the right kind of competition if it is raising visibility for highly specialized, quality-driven entrepreneurial products.” “It aids in the improvement of our whole category.”
Learn more: Even if you have a brick-and-mortar restaurant, we can take care of the online ordering system so you can keep cooking without sacrificing what matters.
Food business ideas
If your ideas tap into an existing category, explore these:
• Certified organic, natural, fair trade
• Dietary restrictions: allergen-free, gluten-free, nut-free, etc.
• Custom, novelty
• Ethical and religious: vegan, vegetarian, kosher, Hala
• Gourmet, artisanal, small-batch
JK Gourmet, Jodi Bager's company, was created to help her treat ulcerative colitis, and her target audience includes people who suffer from colitis and other bowel diseases. She creates safe snack choices that are free of the additives that usually cause her condition to flare up. “We also cater to the growing paleo community,” Jodi says, “and we speak to a broader audience than ever before.”
Ideas for beginners
Consider simple first-time food-business opportunities that require little capital, little machinery, and fewer shipping challenges and legal restrictions. Charlie Cabdish, thirteen, makes and sells candied pecans from his family's house. Nearly three years after its launch, he can still operate it from his home kitchen, in between schoolwork and basketball practice.
Other product ideas
• Canned and pickled products
• Dried herbs
• Curated resale
• Coffee and tea
• Baked good ingredient kits
• Candy
• Packaged snacks
• Seeds
• Raw ingredients (flours, etc.)
Produced vs Curated
Much of this article is relevant to companies that produce their food, whether through a third-party producer, a home-based company, or a full-scale commercial facility.
Skip ahead to Pricing if you're trying to curate existing food items, such as in the case of an online gourmet marketplace.
Sourcing Ingredients
Glenford Jameson, a food lawyer, emphasizes the value of doing your homework while sourcing ingredients. “Trace the supply chain,” he advises, to ensure that the packaging statements reflect what's on the inside and that you're dealing with reputable businesses.
Helpful resources:
• FDA food ingredient and packaging guide, including allergen and food additive information (US)
• Ingredient supplier guide by Food Processing magazine (US)
• Australian Food Composition Database
• Functional Foods and Natural Health Products Database (Canada)
"Sometimes our suppliers make suggestions based on something new that comes to market. It’s a collaborative partnership."
Jodi Bager
If you want to produce an organic product, for example, make sure your raw ingredient supplier has the required certification before making claims on your packaging. Building a partnership with your supplier increases confidence and gives them a stake in your business. “On occasion, our suppliers will make recommendations based on something new that comes to market,” Jodi explains.
Tips:
• Alternatively, for commodities like cacao and coffee beans, look for a distributor or broker who works directly with farmers.
• When you’re just starting and producing small batches, it may be cost-effective to shop for ingredients at consumer warehouse club stores like Costco or Sam’s Club.
• Team up with other small-batch producers to purchase bulk wholesale ingredients together.
• Make connections: in certain industries, finding suppliers may rely on word of mouth and personal introductions. The founders of Soul Chocolate networked in the industry to make connections with regional cacao farmers.
Food production: commercial kitchens, home-made businesses, and manufacturing facilities
Though McClure's Pickles began as a family tradition in the McClures' kitchen, the McClures' manufacturing setup evolved, ultimately settling in the 20,000-square-foot factory room where they now work. “When we first started, we rented a kitchen with a larger stove,” Bob explains, “and we would call up our mates and say, ‘Hey, I'll buy you pizza and beer if you come to make pickles with me on the weekend.’”
As you’re launching your business, you have several options for production:
Selling food from home
Some foods can be legally produced and sold right from your home kitchen, but check the regulations for your particular product. The FDA demands that you register your home-based company as a facility in the United States. Make sure you have the required licenses to sell food from your home in your area.
Shared commercial kitchens
Depending on the production needs, many facilities provide shared or co-op kitchen space that you can rent hourly or monthly. The advantages include lower costs and less paperwork (the facilities are already registered as commercial space). There are several regional directories for shared kitchen space, including:
• Culinary Incubator (US)
• Ketchup (UK)
• Book to Cook (Australia)
Set up your commercial facility
Allow yourself complete control and start from the ground up, but make sure to check with your local food regulatory agency to ensure your facility is properly licensed and up to code. This may not be the best choice for new entrepreneurs, but it is something to consider in the future. “We began small in our home kitchen and developed from there,” Jodi explains. “We did not move out until we were bursting at the seams and knew we had a big enough business to support the move.”
"It is really impressive how much diligence goes into running a USDA-inspected facility."
Daniel Patricio
Work with an existing manufacturer
This choice is ideal for entrepreneurs who choose to focus on the market rather than the production. It's also a good choice for newcomers to the industry, as the producers should already be familiar with food safety and regulations. You can locate a food manufacturer through a manufacturing directory like Maker’s Row.
Packaging, branding, and labeling
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E-commerce is particularly difficult for food businesses since the most critical decision-making sense—taste— cannot be accessed. Since your buyers won't be able to try your product, branding is crucial. To tell your story and help consumers imagine how your product could taste, package design, photography, website, product page, and copy must all work together. “Before you taste the product, it’s got to be something that attracts you,” says Bob. “We chose our name and our identity—everything from the label, the look, the feel, the text—to be something that connotes handmade and family, yet urban.”
TIPS: Consider hiring a designer to assist you with your packaging needs, as packaging is extremely important in this industry.
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Aside from the aesthetics of your packaging, each country has its labeling criteria, such as best-before dates, nutritional facts, allergen alerts, and country of origin. Check the destination country's labeling rules if you want to ship your product across borders, particularly to retailers.
Helpful Resources:
• FDA food labeling, ingredients, and packaging information (US)
• FDA Food Labeling Requirements Ebook (US)
• FTC Fair Packaging and Labelling Act (US)
• CFIA food labeling requirements (Canada)
• Canadian food packaging manufacturer directory (Canada)
• US food packaging manufacturer directory (US)
How much does it cost to start a food business?
The costs of starting a food business will vary greatly due to the various models mentioned above. The initial costs of opening a restaurant or physical food store may be as high as $200,000. However, there are numerous ways to get started for far less money.
Small-batch producers who start their businesses from home have much lower overhead and can later expand into commercial spaces as their businesses grow. You might start small with only a few hundred dollars to cover ingredients, website, and marketing expenses, and packaging without having to pay for costly leases or staffing.
Remember the monthly expense of a commercial facility when estimating your startup costs if you can't run your company from home. While dedicated production facilities can be costly, many co-ops and incubators provide shared kitchens to entrepreneurs for a fraction of the cost. In Hamilton, Ontario, the Kitchen Collective offers memberships for as low as $200 per month or $16 per hour.
How to price food production
Regardless of the commodity, one thing is evident from my interviews with retailers over the last year: pricing is difficult. At the end of the day, there is no one-size-fits-all pricing formula that will work for everybody. Know your costs and make adjustments before you find the sweet spot.
Daniel suggests forgoing profit at first to get your product in front of as many customers as possible. “Over time, those cost savings will come,” he says.
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If you believe your product is valuable, price it accordingly. Bob says McClure’s stands by its pricing. “We’re not the cheapest product out there,” he says, “so we have to compete on something truly unique, otherwise you just become one of the other commodities. And then it’s a race to the bottom.”
Profit margins in the food industry are influenced by a variety of factors, including what you're selling and how and where you're selling it, for instance.
Restaurant margins are usually under 10%, while meal-kit services may have margins of up to 40%.
Expiry date and inventory
The JK Gourmet brand is based on products that are made entirely of natural ingredients and do not contain any preservatives. Since most of the company's goods have a five- to six-month shelf life, Jodi holds inventory low and rotates it every one to two weeks.
Though McClure's Pickles have a longer shelf life, Bob needs his product to be as fresh as possible for his customers. As a result, the firm's inventory policy errs on the side of making too little rather than too much of the commodity. “It’s a juggling act, and we’re always getting better with forecasting our needs,” he says. “We have to make so much to justify a production run, while also ensuring there are a sales channel or outlet and enough demand behind it to make it work.”
Tips:
• Investigate the tools available in the Shopify App Store—they’ll integrate with your store
• Use batch numbering or barcodes to keep inventory organized
• Educate your team on your inventory management practices
Growth and product development
The McClures were able to achieve success by focusing on their namesake product and perfecting and iterating on their grandmother's pickle recipe. Initially, expanding their offering was a reaction to overwhelming consumer reviews.
"A lot of our product ideas come from the customers."
Bob McClure
“We started with the pickles and very quickly made a bloody Mary mixer,” says Bob. “A lot of our product ideas come from the customers.”
Low-risk ideas came next—tried and true pickle flavors, for example, applied to other products, like chips. Since the early days, however, product development has become more sophisticated, and the family relies on data to inform their next move. “Before we had access to data, it was a lot of word-of-mouth,” says Bob.
Although the family enjoys interacting with customers and hearing their suggestions, Bob cautions that they should be taken with a grain of salt. “Not all ideas are like gold,” he says. “You have to make sure that there’s enough critical mass behind the idea before you take that into a product launch.”
What else can you sell?
Dominion City Brewing Co. sells its beer locally through its online store, but it is unable to distribute outside of Ontario due to liquor laws. Outside of the province, fans of the company can still purchase branded items such as glassware and clothes.
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Depending on the liquor laws in your region, you may not be able to sell alcoholic beverages online at all. Consider complementary items to extend your reach beyond your local market.
Ideas:
• Branded merch
• Gift cards
• Complimentary food products
• Kitchen and serving tools
• Recipe books
The law and the food
The chances of getting into legal trouble are slim if you do your homework, obtain the required licenses, and diligently monitor everything. If you do violate the law, the effects can be serious, which is the scary part. According to food lawyer Glenford Jameson, food producers are subject to both civil and regulatory liability. “The government can throw you in jail, take all your products and destroy them, shut you down, or give you a big fine,” he says.
If your product is difficult or falls into a category that needs additional licensing (meat, seafood, and certain agricultural products, for example), you can speak with an attorney who has worked in the food industry. Though the initial investment may be large for a new business owner, it may save even more money in the long run.
However, Glenford says, “with the understanding that there’s this broad, significant regulatory frame
work,” If you want to handle the legal aspects on your own, there are certain best practices to follow.
Ideas:
• Work with a lab to test your products. Labs can help identify and trace elements that may be known to cause allergic reactions.
• Keep thorough records. Track everything coming in and going out of your facility.
• Get liability insurance. Be sure you’re covered in case anyone does get sick.
• Don’t get people sick. Learn how to properly handle and store food.
• Make friends with the food inspector. They are there to identify any issues and set you up for success. “They really offer you some pretty sage and, frankly, free advice on how to make sure you’re making a good and reasonable product,” says Glenford.
• Trace the supply chain. Ask questions of your suppliers and get referrals.
Ethics and Transparency
Aside from legality, poor ethical and transparency decisions can devastate a brand. This is true in every industry, but the layers of complexity in the food industry can make your company particularly vulnerable.
According to Glenford, the best companies ask themselves ethical questions about their actions, suppliers, employee treatment, and global effects. “When they approach problems in that way,” he says, “they’re typically in a better position to maintain the respect and goodwill of the community that they operate in, as well as from their customers.”
Shipping and delivery
We've put a lot of effort into creating tools to assist e-commerce business owners with their shipping processes. After all, it's one of the most popular sources of frustration for business owners.
It should come as no surprise that shipping food presents additional challenges, especially when shipping outside of the United States. “When you’re exporting food, there are a series of foods whose export is regulated under commodity legislation—Meat Inspection Act, Canada Agricultural Products Act, Fish Inspection Act, for example,” says Glenford. “Those have their own rules.”
Consider the possible limitations on your goods in the country where they will be sold. Technically, once goods are in the delivery process, they become the purchaser's concern, but a bad customer service experience can be detrimental to business. Reduce the customer's ultimate annoyance by familiarizing yourself with the laws in the areas where you ship.
If you do a lot of business across the border, you might consider working with a delivery service to avoid the red tape. “We found the cost of shipping individual orders to the US was prohibitive,” says Jodi. “For that reason, we ship bulk orders to the US where they are warehoused and shipped directly out to US customers.”
Products requiring refrigeration aren’t ideal for cross-border shipping, but Vegan Supply in Vancouver successfully ships its cold products nationally across Canada using cold packs and expedited shipping.
Order pickup and local delivery
Consider alternatives that still allow you to sell online if you're selling something that can't be delivered by mail (like cupcakes slathered in fluffy icing). Customers who pre-order your goods online should have the choice of picking up their order at your place or having it delivered locally.
Many retail stores switched to an online approach and set up contactless curbside pickup in place of in-store shopping during the lockdowns enforced to avoid the spread of COVID-19. We've put together a detailed guide to help you set up these distribution methods for your shop, too, in response to these challenges.
Building a website
The look and feel of your website, including branding and packaging, play a role in persuading customers to purchase a food product without first tasting it. This applies to photography as well. This includes photography. You can opt to DIY your photoshoots or hire a professional who has experience with properly styling and lighting food. Photograph food packaging and close-up details to reveal texture and true-to-life color, but also try lifestyle photography to suggest serving and matching ideas.
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Use the product page copy to explain the taste and feel of your product in detail, as well as provide all ingredient and allergy details. Invest time in a detailed FAQ page to address additional questions about ingredients, nutritional details, and manufacturing methods to keep the product page uncluttered.
Even if your website doesn't generate the majority of your revenue, it's important to keep it alive as a tool for connecting with customers and telling your story. “We’re in 5,000 stores worldwide,” says Bob, “but we still have a core group of people that come to our website, purchase every year, like to see what we’re doing, and get connected to our brand, our story.” If web design isn't your strength, you can opt for a plug for themes or write to us to help you build something custom.
Retail and wholesale
Initially, McClure's expanded its business through retail partnerships. The success of that channel hinged on making retailers feel like they were a part of the company and inviting them to care about McClure's mission. “Some of our retail partners take on more familial partnerships where we’ll work with them to do menu pairings or specific events that focus around our products and their products,” says Bob.
Resources for finding retail partners:
• National Association of Wholesaler-Distributors (US)
• Directory of food and beverage trade expos (US)
Marketing and content
"Word of mouth can take your brand extremely, extremely far."
Bob McClure
McClure's devotes a large portion of its website to the community—extra content, recipes (both its own and those submitted by customers), and popular social calls to action. The importance of social media to the brand cannot be overstated. “That’s where our core consumer goes,” says Bob. “We want to be engaged with our community because they’re the influencers. Word of mouth can take your brand extremely, extremely far, as we’ve seen.”
Offline marketing
Even if a physical retail strategy isn't in your business plan, it's still important to get your product out into the streets—and into the mouths of your potential customers:
• Partner with restaurants or other complementary brands to host a tasting event
• Host a private dinner for influencers
• Generate buzz locally by participating in farmers markets
• Launch your brand at a consumer food and beverage expo
• Run a pop-up
• Periodically invite customers into your process (like brewery tours)
Food is a difficult but exciting industry to work in, and if you're passionate and able to wade through the legalese, you will succeed.
"If we don’t learn from what we do as entrepreneurs, we don’t truly grow."
Bob McClure
McClure's now employs hundreds of people who make and ship its product to thousands of customers and retail partners around the world, more than a decade after its launch. Bob says his experience has been satisfying, even though he can't honestly say he has it all worked out. “Some challenges are big enough to break you,” he says, “but how you use them as a learning experience in the future is what really makes for a great ongoing success story. If we don’t learn from what we do as entrepreneurs, we don’t truly grow.”
Frequently asked questions about starting an online food business
How do I start an online food business?
Determine what kind of food you want to sell and who will make it—you can either make your own food or purchase it from a supplier. Choose your branding and incorporate it into your packages, labels, and website, as well as find out shipping logistics. Start selling your food items by listing them on your website.
What is the cheapest food business to start?
Making your food at home and selling them online is the most cost-effective way to start a food company. You can also teach cooking and baking classes online. A food truck may be an economical next move.
Can you make food at home and sell it?
Food can be prepared at home and sold online or in person. Consider things like shelf life and shipping costs, which can affect who you can sell your food to. Frozen foods necessitate specialized shipping or local distribution, while cookies can be shipped over long distances.
How do you price food for sale?
When pricing their items, food service establishments aim for food-cost percentages of 20 to 40%. It's also crucial to consider who your target market is and how much they're willing to pay for the food you're selling.