| Term | Definition | Relevant Articles |
|---|---|---|
This is a marketing strategy in which you sell to another business, such as a retailer or caterer. | ||
Commercialization is the process of taking a product and making it viable to produce at scale. This includes creating a scalable formulation, sourcing commercially available ingredients, testing out the formulation and packaging on the equipment, etc. | ||
Commercially available ingredients are specifically designed and produced for the food industry. They are sourced from reliable suppliers who adhere to strict quality control measures, and who can provide regulatory documents that are required for food manufacturing. | ||
This includes all of the expenses that go into the production of your final product. COGS includes raw material costs (ingredients & packaging) & production costs. When working with a turnkey co-packer, your COGS will be the price per unit that you pay for your product. If working out of a commercial kitchen or at home, remember to include your own labor costs as this will give you the right cushion for when you do move to larger production. | ||
This is a marketing strategy in which you sell directly to your consumer (as opposed to selling to a store). This is also known as BTC, or Business to Consumer. | ||
A food broker is a business that purchases food for resale to other businesses, such as manufacturers, retails, caterers, etc. Brokers will often work on behalf of brands as well. When a broker is working for a brand, they’ll reach out to their retailer contacts and do everything they can to get your product in the stores. | ||
This is a systematic approach to controlling and ensuring food safety throughout the entire food supply chain. FSMS certifications (such as ISO 22000 or FSSC 22000) focus on managing food safety risks and ensuring that an organization has effective systems in place to guarantee safe food production. | ||
Global Food Safety Initiative (GFSI) is a private, industry-led initiative that aims to improve food safety, reduce audit duplication, and foster collaboration among food safety experts worldwide. It is not a food safety standard itself, but rather creates the benchmarks for food safety programs. It does so by evaluating and recognizing food safety certification programs, ensuring they meet a set of globally accepted food safety requirements. Some GFSI-recognized certification programs include SQF, BRCGS, IFS, and FSSC 22000 | ||
The guidelines and standards that ensure the production of safe and high-quality food products through risk-based preventative controls. These are a requirement of any FDA certified facility. | ||
Margin is what’s left over in revenue after paying for COGS. Each link of your supply chain will take a margin percentage. Below are some typical margin percentages that you will need to prepare for:Brokers 5-7%Distributors: 20-30%Retailers 30-50% | ||
A lead time is how long it takes from a confirmed purchase order to delivery of a product. Lead times need to be factored into production (ingredients need to arrive before a scheduled production). | ||
This is a small sample-size production run used to test out the formulation and packaging and see if the final product will come out as intended, and will work for both the brand and co-man. | ||
Also known as Suggested Retail Price (SRP), this is the price the maker of a product recommends for it in customer-facing retail stores. It is commonly 2.5-3 times a wholesale price. | ||
The smallest volume the company will manufacture at a given time. This could be given in terms of production (i.e. an MOQ of 15,000 lbs per SKU per production) or in terms of annual volume (i.e. an MOQ of 1 million + units / year). This will give you an indication of the size of a co-man, and if they are the right fit for your business. | ||
This is your bottom line: your gross profit minus operating expense. Many food businesses will be operating at a net loss for the first several years (hence all the venture capital money!) | ||
These are all business expenses outside of cost of good sold: overhead, marketing & sales, additional labor etc. | ||
A product manufactured by a contract manufacturer but sold under a retailer's brand name. | ||
This is a letter written by a person who is deemed a “Process Authority”; someone with expert knowledge of thermal processing requirements of food products. Not all food products need a process authority letter.
There are three types of recognized process authorities for food mentioned in the U.S. federal regulations; two for FDA-regulated products, and one for USDA regulated products.
For FDA products, this includes
1. Low acid canned foods
2. Acidified foods (This includes foods with a pH of 4.6 or below) that have a water activity (aw) of greater than 0.85.)
For USDA products, this includes food products containing meat, poultry, or eggs.
If your product does not fall into any of these categories, you do not need a process authority letter. | ||
A product specification is a comprehensive guide that explains how to produce your product. You should be able to hand the guide to anyone and they should have all the information they need to perfectly replicate your product. | ||
Product velocity is defined as units sold per sku per store per week. You can use this number to estimate your total sales. | ||
The measures and processes put in place to ensure that food products meet the required quality standards and comply with regulations. | ||
The essential ingredients and components used in the production of food products. These materials encompass agricultural products like fruits and vegetables, animal-based ingredients such as meat and dairy, various additives and flavorings, packaging materials, and essential items like water and chemical compounds. | ||
SQF is a third party food safety program that contract manufacturers can voluntarily be certified for. It ensures manufacturers follow certain guidelines set out. SQF is one of the Food Safety and Quality Programs that are recognized by GFSI, and t is the most common GFSI recognized program in the US. | ||
This term describes the type of manufacturing relationship a brand has with a co-man, in which the brand is in charge of purchasing the ingredients & packaging, and sending it to the co-man. The co-man will manufacture the product, and will charge you for the use of their machines and their labor.
This type of relationship favors businesses who are looking to produce smaller quantities of products, or on an as-needed basis.
Also see: Turnkey | ||
This term describes the type of manufacturing relationship a brand has with a co-man, in which the co-man makes the entire product. They will be in charge of ordering the ingredients and packaging and making the product, and you will be billed for the finished product.
This type of relationship favors businesses who have a large number of products or a high volume, and don’t want to manage all of the components.
Also see: Tolling |