Cottage food start-up sales, aided by food incubators, have soared from $5 billion annually in 2008 to over $20 billion annually in recent years. Chances are if you can make it, there is a market that will buy it – provided you are prepared to do more than just deliver the goods.
The benefits of bootstrapping a food start-up come from being able to dive right in without significant upfront costs, while the downside is a lack of resources that will allow you to grow consistently. However, food incubators offer a solution to a lack of resources so that you can have your cake and eat it too.
If you are known as the local chili specialist or have the chocolate lava cake recipe everyone is always asking for, then a specialty food business might be ripe for future success. While some homegrown food start-ups will grow to regional distribution in under a year, others will struggle to get out of the local farmer’s market.
What they have in common is that all food startups are started by real people with a concept they believe in. The difference between the two is strategic resources.
Photo Credit: Peerspace, Bite Unite Commercial Shared Kitchen
What Is A Food Incubator
To begin with, most cottage food businesses will be making high-value goods in low quantities, a sure recipe for quality but one lacking in a plan for scale and growth. No matter how good the idea is, you’ll need to front the investment for commercial space or a licensed home kitchen (depending on state law), equipment, and possibly most time-consuming, find your way through laws, licensing, and insurance.
The average start-up cost for a food business can easily be in the neighborhood of $100,000 before you’ve even labeled your first hot sauce.
The solution? Enter the food incubator model of the 1980s; a communally licensed and shared kitchen space. To “incubate” a business idea is to give resources to a fledgling idea before it leaves the nest.
Kitchen Incubators
Food incubator, shared kitchen, cloud kitchen, and ghost kitchen all refer to a magical place to start your food concept without the need for a big investment. These licensed commercial kitchens have been a place where small food business renters have the umbrella of shared preparation space, storage, and commercial equipment while sharing the costs with other creators. Kitchen incubators have allowed tens of thousands of “foodpreneurs” to start with minimal resources. These spaces can be rented hourly or monthly with limited contracts, allowing foodpreneurs who outgrow the space to move on and scale up without the liability of a long-term lease.
SAPi APP is an example of how a platform can make a great food incubator for a new business.
Platform Incubators
Kitchens aren’t the only business incubators available to hustling food entrepreneurs. A food APP platform, like Save A Plate (SAPi) , can also can address meaningful resource gaps as you grow. Food start-ups are more than the product. You can have the hottest biscuit in town, but without the ability to market, show proof of concept, and connect with your community, your biscuit will get cold.
This is where a digital platform, like a food APP, can help you fly. A crucial part of any operating budget is in marketing and sales. SAPi is a food incubator in the sense that it provides a shared platform of resources to reach a broader customer base. It also advertises for you, connecting your food concept to a local community looking for unique, fresh plates and products.
A food APP gives you the exposure you need without the legwork that usually follows. An APP also provides an organic marketing opportunity where the product pitch is coming from an established platform instead from just the creator. It also gives you a level of professionalism that is naturally associated with aligning yourself with a well-respected platform.
Utilizing a food incubator APP like SAPi will help you:
Reach new audiences.
Give you a place to trial concepts.
Save money on marketing costs.
Save valuable time.
Allow you to focus on the details of your product instead of sales.
Join the SAPi APP as a vendor, or find your local plate here.
The Top Five Questions About Starting a Home Based Food Business
Home Based Food Businesses Can Thrive If You Know The Secrets To Succeed
Suppose you’ve gotten countless compliments on your potluck specialty, been asked to make every kid’s birthday cake in the neighborhood, or everyone consistently votes to have dinner at your house. In that case, a home-based food business might be the vehicle to take your talent and passion to the next level.
While it is, by nature, a less start-up intensive business, a home-based or cottage food business still requires careful research and planning. While preparing your custom BBQ sauce for friends or catering an event on occasion can feel casual, running your food business out of your home involve the leveling up of your organization and operations.
Once you get your foundation in place, a home-based food business has many advantages and benefits. Check out more at The Perks Of a Home-Based Food Business.
Researching the laws and operating standards surrounding cottage food businesses can be time-consuming. So we’ve rounded up the top five questions commonly asked about home-based food businesses below so you can get to the fun part faster.
Do I need a business license or permit for a home-based food business?
Whether you need a business license for your cottage business depends on the requirements of your state. As you scale up, you’ll likely want one to formalize your operations. Most states require a business license or home-based business certificate, or both.
Here are just two examples of the differing requirements in California and South Carolina.
California
In California, you must also obtain the licenses and permits required of all businesses, such as a local business license as well as a food handlers permit.
You will need a permit from the county health department. A home-based food business can choose from two types of permits, depending on whether you want to sell products directly to customers or through other local businesses like shops or restaurants.
Class A permit. You can get a Class A permit in California if you want to sell only directly to customers within the state of California. For example, with a Class A permit, you can sell at farmers’ markets, festivals, from your home, or in other ways that allow individuals to purchase products directly from you. To get a Class A permit, you must complete a self-certification checklist, but there will be no physical inspection of your kitchen.
Class B permit. You need a Class B permit if you want to sell indirectly to customers – for example, through stores, restaurants, or other venues that will sell your products for you. In California, you may not sell indirectly outside of your own county unless the county where you want to sell has stated explicitly that they will allow indirect sales of cottage food products. To get a Class B permit, your kitchen must pass an annual physical inspection to get a Class B permit. (California Health and Safety Code § 113758 (2022).)
In addition, through the California Homemade Food Act, businesses ARE allowed to sell products online as long as they are picked up in person by the customer. Home-based food businesses ARE NOT allowed to ship food goods or cater.
South Carolina
Compared to California, South Carolina has a more flexible scenario for foodpreneurs. This state’s regulations do NOT require inspections, permits, licensing, registration, or a food handlers permit. However, a business license is recommended for taxation purposes.
Under South Carolina’s newly renovated 2022 Home Based Food Production Law, “home-based food production operations” can now sell items beyond shelf-stable baked goods and candy to include a wider variety or goods.
No retail food establishment permit is required as long as all production stays in the home space. Home-based food businesses are restricted to selling only to the end customer. New reform to the cottage food laws has opened up sales to restaurants and retail spaces, as well as farmer’s markets, roadside stands, events, and from home. (South Carolina Code § 44-1-143)
Additionally, you ARE allowed to ship and sell foods online in South Carolina as well as offer delivery and wholesale.
What information is needed to obtain a permit?
While this also differs from state to state and may or may not require an inspection, you will generally need to be prepared with these pieces of information. Even if not required, it is always better to be over-prepared for venue or retail-specific requirements.
ingredients and full recipes for all of your products
a complete list of sources for your ingredients
labels for each product
source information for your packaging
a floor plan of your kitchen work space
a list of your equipment, utensils, and food contact surfaces
a certificate showing you have completed a food handlers course
Do I need insurance?
Anyone turning their culinary passion into a profit-based model should ensure they are well protected against the risks associated with running a home food business. However, even though you are making food from your residence, this doesn’t mean that you are immune to the risks associated with working in the food industry.
Food Liability Insurance takes the prudent step to protect you from unforeseen accidents or events. Whether you run you are primarily selling at your local farmers’ market or sell your special recipe BBQ sauce out your back door, the cost of your food insurance policy is mainly driven by the size and scope of the food business you’re running. Food Liability Insurance typically costs between $300-$1300 annually, depending on differing variables from state to state.
Labelling requirements for cottage food businesses have reasonable exemptions through the FDA.
What kind of labeling do I need?
Thanks to the Small Business Nutritional Labeling Exemption, the FDA exempts “low-volume” products from needing to use barcodes or nutritional contents. To be considered exempt a home-based food business must:
Not have more than 100 employees
Sell fewer than 100,000 units annually
Have less than $50,000 in annual sales
File an exemption with the FDA annually
Online submissions for the exemption can be made here on an annual basis.
Keep in mind that each food app, venue, or retailer might have its own qualifications for labeling with higher standards.
Selling home baked goods to retailers is possible through Cottage Food Business Laws
What kinds of goods can I sell in my cottage food business?
Can you sell beef jerky, fermented foods, and hot food? The answer is a predictable one by now; it depends on the regulations of each state. Forrager has a great resource for all 50 states that cover the foods that are allowed, controlled, or strictly prohibited. Their directory also includes valuable information about where you can sell in each state, if and how you can deliver, and limitations for the cottage food industry.
For example, Colorado will allow the sale of some “potentially hazardous” foods, like fermented sauerkraut, while South Carolina allows only baked and confectionary goods. Baked goods are the sweet spot of the cottage food industry with every state allowing for the sale of some type of sweets.
However, while some states will allow the sale of artisan cookies, they may not allow banana bread due to moisture content and shelf stability. There are exceptions to these rules. Special permitting may satisfy separate home-based food laws. For example, in Ohio, you can apply for a special “Home Bakery License” that allows for potentially hazardous baked goods like cheesecake and dairy-based foods. Where there is a will, there is a way!
Here are several other resources to check your state’s cottage food allowances for different types of food.
Starting at home is a great way to build a proof of concept for the big market with less financial risk and time investment. Not that the cottage food business is an easy street, however, there is just an ease of entry into the foodpreneur market that doesn’t exist in brick-and-mortar situations.
Starting small will help build your audience and allow you to scale up organically as you find success. Check out our other articles in the Grow Your Food Business Series on where to start!
