Starting or radically extending a business in chocolate confectionery is an exciting and challenging thing to do and extremely satisfying if it is successful. The purpose of this article is to highlight some of the important issues you have to consider, choices you may have to make and where it may be useful to seek specialist advice.
It is important to realise that chocolate is not a particularly high margin sector other than in very specialist parts of the market, quality ingredients and packaging and reliable equipment are expensive and that properly designed facilities are needed to achieve consistent quality. Also remember that the large and small companies already in the market are not just going to sit back and let you compete with them – they are going to try to eliminate you. It is a tough market to enter, even tougher to thrive in and not easy to be successful in long term.
It is important to get your idea into the market place quickly and successfully (and hopefully turning a profit) not just for commercial reasons but because it reduces the opportunity for someone to copy (or steal) your idea and compete with you. First mover advantage is important with any new or novel product and whilst “me to” product is always second best one can cut into your sales, particularly if it is from someone already established in the market.
Actually manufacturing good quality base chocolate is difficult and expensive and has many potential pitfalls. In particular it is difficult and relatively expensive to do so on a small scale, even from part processed materials such as cocoa mass. If you are planning to do this, have a very, very clear rationale and understanding of why you are doing it and that it really does add something. There are plenty of people who will supply you with excellent chocolate in reasonable quantities and this is a sensible consideration particularly in the early stages of your business.
As with all small businesses there are a number of financial aspects which need to be understood and monitored carefully, particularly cash flow, profit and value creation. Without these your business will rapidly founder and possibly you with it. However much confectionery and the product may be your passion, you have to run a business for profit to survive long term.
If you are already involved in confectionery they you will probably be aware of some of the obvious difficulties in starting a new business in this field. Hopefully you will have a number of useful contacts with suppliers and distributors and even retailers which will be helpful.
Alternatively you may have an existing business, perhaps in a completely different field and may see logical opportunities to expand into confectionery either based on capacity or capability in manufacturing or because you have a strong distribution system or partner which can take additional products.
Whilst in either of these situations you will have significant skills and experience there will invariably be areas of the new business with which you will need assistance from a consultant or new partner.
If you are completely new to the confectionery business then you definitely need to take good advice on how to proceed and be prepared to commit quite a lot of money to the project – equipment and ingredients are not cheap in this industry and the costs of marketing, distribution and sales to get an entry to the market can be as much as the “technical” investment. It is wise in this situation to use consultants at an early stage to guide and advise you on appropriate choices and to make sure your plans are realistic and viable
You may have a great idea for a new product – good news, because there is precious little innovation in the market at present. There is, unfortunately, a big difference between making a product by hand and tasting it around a table and consistent, economic manufacturing of a quality product which will survive distribution and still deliver its key characteristics six months down the line in a retail outlet. There are many, many issues to consider even if you are currently involved in confectionery and you will need to employ a good consultant (or maybe more than one, each with different skills) in order to be successful.
If you are already a manufacturer but have a demand for a new product from an existing customer then perhaps with some technical advice on manufacturing things should be relatively straight forward, but it is important that the new initiative does not result in existing business suffering lack of attention or resources and that the new project genuinely creates value. It can be extremely attractive to produce a new product for an existing customer, but you need to consider the overall effect on your business, the product not selling, or the customer finding an alternative source at a lower price – because all of these are always possible.
Sometimes an attractive local sales opportunity will appear or can be found and because the sales, marketing and distribution costs will be low this is an excellent way to start a new venture. However, do always “start small” in this situation and also be sure that you are actually creating a positive cash flow and making at least a small profit. It is also very important to take a little time to understand the potential customer base and to make sure the product, the type of location and the time of year are all compatible, some products can be extremely seasonal and require careful management of stock levels.
Importantly you need to establish a route to market – how and where are you going to get the product in front of potential customers and consumers and give them a good reason to buy the product. Whilst the internet has been very effective for many start up businesses it is probably not a very effective route to the consumer for chocolate products from a new manufacturer – unit size and purchase volume will be small and distribution costs relatively high. Furthermore, people prefer to see such products rather than just reading a description. Remember, you know how good the product is, but that does not mean people will take your word for it!
A good internet based system can however be an extremely efficient method of supplying your retailers rather than a conventional distributor or cash and carry, as it allows you (and them) to control pricing, stock levels and delivery. You can also use relatively low cost, short transit time transport providers and avoid warehousing costs as well as closely tailoring production to demand
The internet and social media systems are however potentially very important. A good (professional) website allows you to get your message across about the product and its unique characteristics and to excite people about the product. It is also an invaluable and relatively low cost means of demonstrating to retailers and other outlets that you are serious and professional and are supporting their sales of your product. There are increasing numbers of specialists who can help you to create a website and link it to social media, Twitter, etc. This type of approach is especially important where your sales are relatively local or to highly specific outlets.
It is important that your product is shelf stable, manufactured in a consistent and safe manner and properly and accurately labelled. Confectionery products in UK and most of Europe are rarely if ever distributed or displayed in controlled conditions and have to be able to withstand environmental temperature and humidity for protracted periods. The product must also retain its intrinsic quality for at least six months, because remember that it will generally take a few weeks to produce stock, supply your customers and make it onto the shelves and thence to the consumer. Retailers will not thank you (or re-order) if they have to remove out of date stock or field customer complaints about stale product.
In order to make a reliable, consistent, quality product you will need a reliable source and supply of ingredients and packaging and a defined recipe and process for converting them into your finished product and monitoring quality. Your customers will want the same product every time they buy the product (noting the effects of winter and summer temperatures) and you cannot afford to disappoint them – the first time they are dissatisfied with the product will be the last time they buy it, whether they tell you about it or not. You will need to understand your recipe and process well enough to adapt them for changes in raw materials (natural materials always vary) and to incorporate small amounts of recycled scrap material.
Manufacturing a product on even a small commercial scale is quite different from making small batches by hand in a kitchen. You are going to need proper, hygienic, food safe premises not just for manufacturing itself but also for storage of ingredients, part processed materials, packaging materials and finished product. You will also need water and energy supplies and a means of disposal of wash water and other effluents and waste materials (and appropriate permissions from relevant authorities)
Your product will have to be wrapped and labelled with appropriate information which accurately reflects its ingredients and composition. Wrapping and branding are things which the customer sees before they consume the product, so they are important in establishing the image and anticipation of the product. Wrapping is also the primary protection for the product from such issues as moisture and flavour loss or pick up of “off flavours” and mechanical damage.
The people you need for the factory are important and will need appropriate selection, skills, training and management as well as uniforms, changing and hygiene facilities, an area to take breaks and so on. They will also need a good, safe, working environment and you have to allow for all of this in your plans, factory layout and space.
An important decision you have to make related to your manufacturing operation is to decide just how “fundamental” you plan to be. Are you for example going to try to manufacture chocolate from basic ingredients such as cocoa beans, take an intermediate step by using cocoa mass or are you going to purchase chocolate from specialist suppliers. The scale of your manufacturing operation may influence this to a degree, but making good quality chocolate is actually quite demanding and difficult on a small scale, and if your focus is on a finished product it may be a complexity you need to avoid. Equally there may be other part processed materials (and certainly wrapping materials) which you can purchase more effectively, at least at the beginning, than you can prepare from first principles. However care is needed in setting, monitoring and maintaining quality standards from suppliers. You need a system which approves such materials before you use them and add value.
I cannot recommend strongly enough getting good, professional, experienced advice when it comes to looking at the important and very challenging transition from “making” to “manufacturing”. There are many things which seem almost an aside when you make something by hand but which can be extremely difficult and expensive to achieve on a larger scale.
The type of product you decide to make is also going to have a big impact on the difficulty and cost of starting your business. A rough scale of difficulty (1=easy, 10=difficult) might be:-
- Chocolate panned goods using simple, regular, bought in centres
- Chocolate panned goods with more complex centres produced in house
- Solid moulded bars
- Solid moulded bars with inclusions
- Bar lines with simple centres
- Self lines (small single pieces based on 3,4 or 5 above)
- Filled moulded bars
- Bar lines with complex centres
- Manufacturing your own chocolate
10. Assortments
It is not enough to “just survive” financially, you have to have reserves to cater for the unseen challenges which will certainly occur and to finance some growth. You may be prepared to accept a small salary for yourself (but you still have to live) but your employees will expect to be paid and you should have a plan for how this project is actually going to repay your efforts – either by becoming profitable and paying you a salary or by creating value (through a brand or a market position for example) that you can sell on to someone once it is established.
Above all else you must plan and achieve a positive cash flow. Most small businesses don’t fail because of profitability, they simply run out of money because they don’t have cash flow to buy materials and pay salaries.
It is all very well to define a business plan which shows each product being massively profitable, but the result of this is, generally, that you don’t sell very many and end up with a lot of stock and no cash. You have to be able to sell at a price which gives you a small profit certainly (although part of your marketing expenditure can be short term loss leading) but you need turnover which provides cash for buying ingredients and paying wages. A well thought out pricing strategy, compatible with consumer expectation is important – otherwise you could end up with a warehouse full of out of date stock and real difficulty paying the bills
A good idea, hard work and attention to detail will almost certainly result in success – but are there any short cuts to get you started quickly and with less investment ?
If you are creating a new product, the most obvious short cut is to get someone else to do some of the hard work for you – find someone else to manufacture the product. There are a number of good third party manufacturers who will help you (for a price of course) but this then allows you to concentrate on the distribution, marketing, selling and promotion of your idea which is at least as important as manufacturing.
A third party manufacturer will also have scale and efficiency of manufacturing which you cannot hope to achieve as a new business. A good service agreement is of course important ensuring that you retain ownership of the product and that you have sufficient flexibility in supply quantity to cope with changes in demand you can plan for.
Alternatively, if you consider your strength to be in manufacturing (or you have a manufacturing process of which you wish to retain full control) then the opposite course may be worth considering – finding someone to handle the distribution, and sales of the product. Again there are good agents who will undertake this on your behalf. Marketing and promotion are more difficult areas for this strategy and it may be difficult to outsource this.
Whatever your situation, ambition and ideas, be aware that you will benefit from seeking good quality advice. It will certainly have a cost, but it should deliver value and help you to clarify your ideas and avoid expensive mistakes.