If you’re considering starting an online food business of your own, you’re not alone. In the wake of COVID-19, more than 25% of Americans have considered opening their own establishment to the public.
There is a significant amount of planning involved with starting a food business, but with the right mindset and planning technique, the store you open could become a successful operation that lasts for many years.
Let’s take a closer look at some of the founding pillars of starting a food business, including the initial planning points to consider before opening your doors.
Selling Food Online: Is it Possible?
As the retail market continues to pivot online, the ecommerce food industry has already generated a whopping $26.5 billion in 2021 (a 20% increase year over year). More than 112 million Americans have already experimented with buying online food, leading experts to posit that 20% of food and drink sales will be online by 2025.
The new age of post-pandemic business is proof that selling food online is an increasingly viable ecommerce option, with huge potential upside.
As with any business, there may be some confusion or overwhelm about which home-based food business ideas to consider. To help with this, as you begin to develop ideas for your home-based food business, keep these growing trends in mind:
- Food subscription boxes
- Niche food markets
- Functional foods
- Health and preventative eating
- Plant based products
- Specific Etsy creations
How to Start a Food Business from Home: Can I Make Food at Home and Sell it?
Cooking and selling food from your home is entirely possible in today’s marketplace, albeit at a smaller scale. Of course, operating entirely at home will be extremely difficult as you continue to grow and scale your business. Partnering with a suite of tools and vendors will help you operate far more efficiently in the future.
What is the Cheapest Food Business to Start?
It may sound obvious but the less you need to operate, the cheaper your food business will be. If you want to start as cheap as possible without sacrificing quality, consider the following ideas:
- Organic or local goods
- Home brewed kombucha
- Coffees or teas
- Spices or spice combos
- Prepackaged gluten-free mixes
- Homemade cookies
How to Start a Food Business Online
Before you kick off a food eCommerce business of your own, you’ll need to finalize six steps:
- perform thorough market research
- source sustainable ingredients
- find a location
- create good branding
- manage legal requirements
- source viable shipping partners.
Let’s go through these:
Perform Market Research
Performing market research for desired consumer demographics, business locations, and major competitors sets steady groundwork for your successful online food businesses.
Be sure to:
- Research your niche food industry and industry outlook.
- Identify primary competitors, both locally and around the country.
- Research competitor success, social media performance, and product development.
Analyze your findings to identify the strengths, weaknesses, opportunities, and threats for your business.
Identify How You’ll Source Ingredients and Supplies
Be sure you can source all the supplies necessary to continuously create your food. Focus on the ingredients, packaging, preservatives, and cooking equipment needed for general distribution. What items do you already own? Which will need to be continuously sourced?
Start researching vendors in your area to create an initial idea of partners and outlets. Carefully read through reviews to find a supplier with the right combination of speed, security, and customer satisfaction, opting for one within your budget. Additionally, think about how the supplies will impact the final price of your product, as well as its time to market.
Identify Your Production Location and Sequence
While your home may be a good place to start, establishing a production location for amplified food creation may become the logical next step for your thriving business.
- You may choose to use business locations such as your home or personal residence, although this is rarely feasible for growing operations.
- Renting a commercial kitchen could provide additional space for growth, although will bring additional overhead costs that might be extremely steep for startup ecommerce businesses.
- Large businesses could build and outfit a customized facility, although this approach is the most expensive option of the bunch.
No matter where you base your business, you must have a sufficient sequence in place for producing and distributing food. If you aren’t planning on making the food yourself, consider hiring employees, bringing in friends, or partnering with an existing manufacturing plant.
Build Your Branding
Building an online brand presence is no easy task. By creating meaningful, valuable posts on a select number of platforms, you can begin driving trust and word of mouth with loyal customers. High quality photos of your food will attract plenty of attention on crowded platforms, while contests and discounts could create a buzz around your product.
As you begin to build your social media activity, keep these statistics in mind:
Get Legal Requirements Squared Away
In order to start a food eCommerce business, you’ll need to have all documentations, certifications, and registrations before opening your doors.
- Cottage Food Regulations: If you are selling items from your home, you will need to adhere to both federal and state guidelines.
- Food Handler Certification: Taking a course in food handling may help to mitigate regulatory considerations down the road.
- Health Inspection Permit: Your local health department must inspect the premises for safe food practices on a yearly basis.
- Sales Tax Permit: Some states require you to register for sales tax permits, which vary wildly according to where you live.
- License Your Business: The process required to license is largely dependent on your current state.
Figure Out Your Shipping Partners
The shipping partner you choose should be trustworthy, reliable, and extremely well vetted. Food exports are carefully monitored under state and federal legislation, which is why working with a logistics or fulfillment service can help to prevent unnecessary snafus.
Here are some characteristics you should be looking for in a shipping partner:
- Rates within your budget
- Highly reviewed customer services
- Check tenure and industry experience
- Opportunities for future growth and scaling
It’s also worth asking other eCommerce food vendors for shipping partner suggestions.
Selling Food Online: What is the Cost?
The cost of starting an eCommerce food business ranges from a few hundred dollars to almost $200,000. The actual price is determined by your business model, size, and food type, among other things.
Apart from initial overhead, there are two other cost factors to consider while running an online food business: product pricing and managing outdated inventory (expiration dates).
How to Price Your Product
Many first time business owners are uncomfortable with setting a price on their product. For online food businesses, there are three recommended strategies.
- Cost based pricing:Cost to make + markup (industry standard is 50%).
- Market oriented pricing:Pricing above, below, or in line with industry averages.
- Dynamic pricing:Changing prices throughout the day to match peak consumer times.
Keep in mind that product prices are not stagnant. As production costs, labor, and ingredients start to inflate over time, you will need to consider gradually increasing your price tags.
How to Manage Expiry Dates and Inventory
A single bad experience with expiration dates and old food items will send customers away in droves, not to mention bringing potential problems with the health authorities. Ensure your product is always fresh for consumers by planning ahead for supply and demand challenges.
- Keep all product information in a single location.
- Automate as much of the ordering process as possible.
- Track expiration dates using product and inventory software (PMI).
Learn more about E-commerce inventory management in our ultimate guide.
Managing your Online Food Business
Now that you have a food business up and running, it’s time to consider some of the ways to make it sustainable. Scaling with demand, managing product development, and prioritizing customer experience are three areas where proper management dramatically affects the outcome of your business. Remember that integrating these steps with proper PMI management is a surefire way to connect the growth stage of your business to sustainability.
How to Scale with Demand
Roughly 7 in 10 startups find it difficult to scale their growing business. This is due to three major reasons: lack of planning, poor funds management, and high overhead costs. It’s important to keep longevity in mind while you scale:
- Reduce unnecessary overheads
- Innovate more efficient pipelines
- Find ways of automating tasks
ERP systems are an excellent way to scale ecommerce businesses with demand, particularly within the online food industry. By outfitting your pipeline with new integrations, greater flexibility, and better product management functions, you could spend more time reaching customers and less time managing backend processes.
How to Manage Product Development
The failure rate of new food products can be up to 90% in some markets. This underlines the importance of being diligent with choosing when to introduce products to consumers, as it has the potential to make or break your product development process.
Here are some actionable tips for managing the development of your product from start to finish, especially as you scale:
- Time the market. Do careful research to consider what consumers are really looking for with online food, paying particular attention to seasonal trends.
- Focus on existing products. How have they been performing so far? How could they be improved for new market trends?
- Optimize through automation. Determine which elements of product development could be streamlined, outsourced, or otherwise automated to reduce time to market.
Prioritize Customer Experience
Quantitative studies have proven that customer experience is more important than price and product as a brand differentiator. The satisfaction of your customers should be paramount, even as you first start to get established. Improving their experience over time could help you retain loyal buyers, enhance online reviews, and generate positive word of mouth to potential leads.
Read more about how to improve your customer experience here.
- Ask customers for honest feedback via surveys to improve your processes
- Offer live chat to engage leads and their pressing questions
- Use an ERP system like xentral to manage your business funnel correctly
Enterprise resource planning tools are an excellent way to kickstart your online food business. By managing your main business processes with easy to use software, you can start growing your ecommerce business in a matter of weeks.
Interested to see how Xentral could bring your food business online? Get a demo to try it out for yourself.