According to a serial entrepreneur in the food industry, a successful food and beverage Startup can take 15 years, or it can be an overnight success. Success demands a significant investment in money, time and commitment. It also requires patience, forbearance and foresight as your business grows.

As your business grows, ask yourself if this is the size of business that satisfies you in the long term. It is never too early to have an exit plan or succession plan. You may be happy with a part-time food-selling enterprise. Many food entrepreneurs have developed brands that get sold to larger companies. Others build businesses that they pass down to their children. You should try to identify the desired size of business as well as your exit plan when you write your strategic plan (see Setting up your business).

Each stage of building a food business has issues and growing pains. Businesses that thrive will evolve through each stage. Review these stages. It helps to know what to expect.

In this section you will learn:

  • the microbusiness stage
  • the cottage industry stage
  • the emerging business stage
  • the small to mid-sized manufacturing stage
  • the large or multinational enterprise stage
  • idea generation — don’t stop at one idea

The microbusiness stage (sales under $25,000 per year)

This is the start-up stage where you first learn about making a commercial product.

Product development

Farmers’ markets and specialty stores are excellent test market venues. A product or product line that gets repeat customers and grows in demand over an 18-to-24-month period may mean you are ready to move to the next growth stage.

Preparing your product

You made a prototype at home, now at the microbusiness stage you will need to use an approved and inspected site for food preparation. Many entrepreneurs start up in an inspected church, community centre or municipal food incubator kitchen.

Product sales

Products tend to be sold at seasonal craft sales and farmers’ markets, local specialty food stores and online. Some microbusinesses have a market booth a few days a week or sell through roadside on-farm stands. You may want to sell your product at farmers’ markets and craft shows or invest in a booth to open a seasonal spot in a local mall. Selling online during this stage allows you to reach a market outside of your local community for a relatively low cost, which can be appealing for microbusinesses. Many people use this channel to buy products of all sorts, including processed food, and it is expected to continue to grow moving forward.

The microbusiness stage may also be a critical test marketing exercise that helps you identify your customer and the frequency of their repeat purchases; information that will form the basis of your business plan should you choose to grow beyond this stage.

Product labelling

Check out the Canadian Food Inspection Agency’s Industry Labelling Tool. This is a food labelling reference tool for all food inspectors and stakeholders in Canada.

In this stage, products are often labelled by hand. If you make your own product, you may deliver and/or sell it at roadside stands, craft shows, flea markets, local farmers’ markets, specialty stores, sugar bushes and online.

Product costing and pricing

There is a difference between product cost and product price.

Product cost is the sum of all fixed and variable costs you incur to manufacture your product. As a start-up business your product costing model must be viable. See Manufacturing your product to learn more about product costing models.

Product price is your final selling price of your product. The pricing of your product will be based on your product cost and what customers are willing to pay (see Pricing your product).

Packaging, ingredients and gross margin

The cost of packaging (including labels), equipment, manufacturing labour and utilities and ingredients for successful microbusinesses generally ranges between 20-40% of the product’s selling price. These are variable costs. The difference between your sale price and your variable costs is called the gross margin.

For example, a 250 ml bottle of condiments priced at $7 may have variable costs that range between $1.80 and $3.00, leaving a Gross Margin that will range between 80% and 60% respectively (see Table 1: A Sample Product Costing Model in Manufacturing your product).

Operational costs

These are fixed costs that include the rent you pay on the space you use for office and production space, product development, sales, marketing, financing and transportation costs. Manufacturing your product provides a good example of a product costing model that you can easily follow. Remember to pay yourself and keep good records using either a software program or the services of an accountant.

Food handling training

Before you begin to make food for sale, take a safe food handling course and food safety training. You can find these courses online. The cost is minimal.

Getting to the next phase

There are several challenges you may face in growing your business to the next level. These include:

  • needing more help with labour as sales grow to $50,000 and $100,000
  • needing capital to lease or buy space
  • hiring staff for management and other role specializations
  • focusing on your product costing model to ensure a healthy gross margin
  • changing how you think about your product sales from “by the jar” to “by the case”

The cottage industry stage (sales under $250,000 per year)

Product(s) with consumer demand and effective marketing is key to how your microbusiness grows. As you grow, you will invest in your packaging and labels as well as test product sales using online forums. Alternatively, you can get an indoor booth at a market, start selling to a few more specialty stores, or build an enclosed store of your own and/or invest in two or three seasonal mall outlets. For some entrepreneurs this is the perfect size of business. It provides independence with a modest income.

You will also shift the way you think about sales from “by the package” to “by the case.”

Working smart

It is never too soon to avoid waste and establish a culture of conservation. How you make product can have a significant impact on what it costs to make. Touchpoints (where people touch product in a process), ergonomics (how workers move in a facility), maintenance and housekeeping all make a difference.

Set up your receiving, processing line, storage and loading flow in as straight a line as possible. Think through the handling steps which are touchpoints. Every time you handle a product you add cost and may increase food safety risk (touchpoints). A few short conveyor lines between workstations makes a difference. A criss-crossed flow of materials could create congestion (ergonomics). Your material flow and production set up should be designed to avoid people having to cross the floor, over-reach or cross co-workers’ personal bubble to do their assigned tasks. Consider gravity and how rolling conveyors will reduce repeated lifting, the risk of strain-related injuries and ensure workstation spacing from the start to the end of your process.

At this early-stage maintenance and housekeeping habits make a difference that will only increase as you grow. Poor lighting, wet floors, spillage, leaks and cramped workspaces are bound to result in injuries, product quality issues and added costs of making your product. Basic housekeeping principles such as fixing water leaks and clean floors are critical. Good design and preventative maintenance avoid the costs associated with these problems.

Your housekeeping practices are a first step to sustainable practices. Everything that goes down the drain has a cost and may cause clogs, overwhelm your septic system or trigger a visit from a municipal wastewater abatement officer. Food waste organics can be three to fifty-times more potent than household wastewater depending upon the kind of product you make. If you have municipal water and sewer a high organic load in your wastewater will result in wastewater overstrength costs that are potentially three to ten times the cost of your basic sewer fees.

And finally, it is important to understand how your production facility rests. Water leaks, compressed air leaks, equipment and lighting that is left on after receiving, production and shipping work is completed will add costs. These are unnecessary costs that you can see, hear and feel. Water leaks can add hundreds of dollars per month to your water and sewer bill (municipalities add sewer surcharges to all water use). An audible pinhole leak in a compressed air line wastes over $1,000 per year. Electric equipment and lighting left on can add hundreds more to your annual electric bills.

The $1000-$2000 per year you avoid wasting at this stage are critical to avoiding many thousands more should you choose to grow your business.


This formative stage of the business requires more labour. You cannot do it alone anymore and you will need to hire employees. Family, friends and students are often the first recruits. You will need to ensure they have food handling and food safety training. Share your culture of conservation with your employees. Their engagement in working smart is a sensible way to embed practices that support workplace distancing and environmental values. The Human resources page provides more detailed information regarding labour.

Product costing and pricing

In this business scale your overhead costs per unit must come down. It is possible to produce products for about 40-60% of your selling price. You should have a specific costing model for each kind of product you make. This will help you differentiate the price of various items in your product line in order to make a consistent gross margin on every product. For example, you know what it costs to make that 250 ml jar of condiment you priced at $7; now you can sell it for $5.50, at a lower gross margin. You make more money because you are selling ten times as much product.

Getting to the next phase

By this point it may seem that your product line is becoming well known, which can help you make the transition to the next business level. You may still face some challenges, however. These may include:

  • learning to export to a new market
  • achieving $500,000 to $2 million in sales
  • developing a professional label
  • minimizing capital investment in production facilities
  • committing to and executing a marketing plan
  • finding market channels that fit your capacity
  • developing specialized management help
  • complying with food safety and labelling requirements
  • choosing and using brokers and distributors (see Selling, wholesalers and brokers in Placing your product for definitions of brokers and distributors)
  • transitioning from self-distribution to trucking services
  • changing the way you think about sales from “by the case” to “by the skid”
  • navigating growth, possibly to a new location with a capital cost for moving

The emerging business stage (sales under $2 million per year)

At this stage, a food business needs a full-time management team. Your product line will also have grown, known in the industry as Shop Keeping Units (SKUs). You may also be ready to sell to larger chain retail and/or foodservice customers. This means an investment in equipment with more capacity and more space. You will also need to think about how you sell your product. Some retailers support direct specialty food manufacturers, others expect your product to be represented by a broker and may also expect you to provide delivery to their distribution centers.

You may now be familiar with municipal, provincial and maybe even federal food safety inspectors (if you are selling outside the province). Your company may have employees that are not family members or friends. More information about this can be found in Food safety.

Co-pack business

As you grow, consider the merits of acquiring your own factory and/or contracting your production with a co-packer. A co-packer could help keep your capital investment and cost of goods low enough that you can market your product through more sophisticated channels (see Manufacturing your product).

Capital investment

If you want to control the entire process and marketing cycle, there are many challenges. Equipment needs to run steadily in order to pay for itself. A break-even point on processing is a challenge at one to three eight-hour shifts per week.

Successful companies have been known to move into larger facilities or finance major expansions at these sales volume benchmarks: $250,000, $1 million, $2.5 million and $10 million.

Industry experts estimate that it costs food processors $100-$200 per square foot to retrofit a standard industrial building to food-grade standards. Constructing brand new food processing facilities is expensive and can cost more than $250 per square foot depending on the type of processing (for example, meat, bakery, dairy) and the level of certification needed. When a company moves, previous investments in improvements to a rented or leased facility are either lost or discounted (in the sale of a facility that was owned). You must then make the investment again in a new, larger facility.

Market-entry channels

Many small food businesses grow in this phase by seeking out low-cost market entry channels. These include:

  • online sales
  • food service (businesses, restaurants, hospital cafeterias)
  • specialty and gourmet food stores
  • small independent grocers
  • convenience stores
  • local food processor retail networks

Product costing and pricing

When you begin to use wholesalers and brokers, your costing models will have to reflect their share. What you sold for $7.50 at a farmers’ market may only move off the gourmet store shelf if it is priced at $6. Transportation may cost you 5-10% of your selling price. The grocer will want 50% of that, a specialty distributor gets 20-25%, and the broker will probably want 5% of your cost. Originally, as a microbusiness, that $7.50 jar of jam cost you $3.00 to make. Now your product sells at $6.00 of which the wholesaler/distributer or retailer takes $3.00. That means you have about $3.00 left out of which you pay for transportation and brokerage. Your jam must now cost you $1.35 to $1.50 per jar (that is $16.50 to $18.00 per case of 12 jars) to leave you with enough gross margin to make a profit. Yet, if enough customers are buying it, you still may be able to make the same income.

Gross margin

Your gross margin is important to the success of your business. This is the money that pays for your financing, marketing and sales. Many retail chains want listing fees, slotting fees for their distribution centers as well as promotions. National retailers in North America can have up to 50 different kinds of fees and costs associated with selling product; some of them are optional. This is in addition to the markup they take on your product.

Getting to the next phase

To get to the next phase and grow your business you will need a strategic growth plan. This includes the further diversification of your product line and/or markets.

As your business grows you may face more challenges, which can include:

  • distributing from one or two locations into a network of stores, instead of doing all your distribution yourself. If you have an online presence, you will find it will become more active and require more attention from you and your team.
  • moving into lower price point market channels that require brokers and distributors
  • rethinking how to price your product
  • sustaining export sales with more than one foreign customer
  • designing the capacity of your facility to be viable at higher and lower cost production rates
  • hiring for specific skills in sales and marketing, production, procurement, food safety/quality assurance and finance/logistics
  • the way you think about your product, from your label, your brand or company logo and your suppliers
  • navigating the capital cost of growth and possible relocation to a larger facility

The small to mid-sized manufacturing stage (sales under $10 million per year)

Small to mid-sized manufacturers have moved away from the owner’s hands-on microbusiness roots. Their greatest challenge is to compete with large companies for grocery and food service customers.

Growing pains

Small businesses can grow quickly when a business shifts from being solely focused on sales growth to being focused on cost-effective productivity, efficiency and automation while continuing to expand their sales.


The ability to maximize capital investment in processing facilities is a challenge for small manufacturers. At this stage, you may even be willing to do co-packing for other microbusinesses starting out in order to keep your equipment paying for itself. Co-packing can be a profitable sideline if you can accurately cost the product and use equipment that might otherwise sit idle.

Marketing costs

Your marketing costs grow significantly at this stage. These costs may include specific advertising and demonstration fees for each customer. The current going rate is about $500.00 per store not including samples. Most retailers use an approved third-party deliverer. Update your marketing budget to include these costs. You may also need to hire new brokers for specific chains and pay listing fees and allowances to get on shelves. Marketing costs for a new product introduction can add up significantly and a listing only guarantees you shelf space for a short time. It can take a great deal of money to launch one new product across retail chains in North America and there’s no guarantee of success. You may also consider using the various social media platforms to market your product, but this too has no guarantee of success.


Expanding into international markets can give your company a chance to increase sales and profits through new contacts. Despite the added costs of exporting, you can save costs by producing on a scale that makes better use of your resources, leading to higher profit margins. Exporting can also reduce your dependence on existing domestic markets, which can fluctuate with the domestic economy. It can also help make you be more competitive by exposing you to international best practices, ideas and alternative ways of doing business. Talk to your OMAFRA account lead to determine markets of interest and you will be connected with the Export Marketing Officer(s) who can assist with key markets globally.

Product testing

Your local specialty or health food store may provide an excellent test market for new products. The close interaction with customers allows companies to develop products and pinpoint the winners. If your products test well and gain sales over 18 months in a test market, they are more likely to be successful and generate great sales data to show a potential large retail customer.

Getting to the next phase

You will need to clear more hurdles to get to the next phase, including:

  • managing and expanding into the domestic market, while simultaneously attempting to break into international markets
  • identifying low-cost market entry channels that may require brokers and wholesalers
  • rethinking how you price your product
  • designing the capacity of your facility to be viable at low production rates
  • learning to work with more brokers and wholesalers
  • tackling energy and water efficiency issues
  • empowering a larger team of key employees (see Human Resources)
  • considering selling the business and start your next non-competing firm (this size of business attracts the attention of international food companies)
  • navigating the capital cost of growth and a possible relocation to a larger facility

The large or multinational enterprise stage

At this stage, sophisticated management teams report to an executive body. Issues at this stage include:

  • controlling costs
  • competing for capital at both the plant and country level
  • working on harmonizing regulations across governments both on behalf of the company and on behalf of the industry through trade associations

The challenges of growth intensify, along with the need for a keen focus on government and client relations. Sophisticated systems and cross-border harmonization issues become hallmarks of your operations.

A key executive decision maker in your firm should be working closely with a local business development consultant on specific topics such as energy efficiency. That person will be receiving monthly updates on important topics, including highlights of programs and services that could help grow your business.

Idea generation: don’t stop at one idea

One great product is rarely enough to grow a food processing business. Over time consumer behaviour, competition and market trends do change. To grow your business, it will take new products and new ideas.

In North America, most of the 15,000 or so new products launched into the regional and national retail and food service markets fail. Even local markets can be fickle. When you have only one product, your market risk is quite high. How do you come up with more new ideas?

One way is to do some research into consumer trends, food industry trends and advances in food processing technology, then make a list of all the new food product ideas that you could make.

Another approach is to focus on consumers’ needs and conduct in-depth research into their behaviours, likes and dislikes. Use your customers as a source of ideas. Conduct informal focus groups or a complete product sensory evaluation. Always look for ways to keep your product(s) relevant which may also require regular review of your packaging.

Once you have a list of ideas to explore, make sure they align with your business vision and mission then go back to the business planning process you followed for your original idea. Take each of the ideas and do some research to decide if it is worth producing.

Check to see if there really is a market for each idea, how much consumers would be willing to pay for this product, if this product already exists and if it is even possible to make it. This step should hone down the number of ideas that have a good chance of succeeding.