|
We interviewed Ed Engoron,
President and CEO of Perspectives(tm)/ The Consulting Group,
Inc., an international consulting firm specializing in
developing new concepts and cutting-edge, creative and
practical solutions exclusively for the food and hospitality
industries. Mr. Engoron has a varied background and truly a
rich perspective that eludes many food consultants. He
entered operations in 1969 where he worked successfully for
many years and has been both a concept owner many times
over, and an executive with many successful restaurant
chains. In fact, while with Lawry's Restaurants as he put
it, "…many years ago", he was instrumental in getting their
products into grocery stores.
RestaurantBeast: We get
many inquiries from chefs and restaurants that are
interested in getting one or more of their products into
supermarkets. What's the first step?
Engoron: It starts
in your restaurant operations from the get-go. You have to
have an item(s) that you do better than anybody else. People
have to be saying, "I want to buy it from you, and I want to
serve it to my friends". And, if you don't have a great
name, and tremendous awareness such as a TGIF's or an Olive
Garden as examples don't waste your time…concentrate on
running your restaurant.
RestaurantBeast: Is it
necessary to rent a separate kitchen or commissary?
Engoron: If you
choose to make your own products you don't have to rent a
separate facility. You can, but, you don't have to.
However, if you have a great formula, most things today are
done by co-packers.
RestaurantBeast: What's
a co-packer?
Engoron: A co-packer
is a company that makes and distributes the products for
you. So, you don't make your own products. (For example, a
product by..) Taco Bell is manufactured by Nabisco and
Friday's beverages and appetizers are made by a number of
different co-packers. Olive Garden breadsticks are done by
local bakeries around the country. But this can be
problematic if the co-packer doesn't adhere strictly to your
recipe. You lose some control over the product and risk
damage to your brand.
RestaurantBeast: In the
event that you do choose to use a co-packer (or not) what's
the first step?
Engoron: Figure out
what the product is. Do some marketing research to assure
that your product is desirable in a different avenue. Does
your product translate well into a supermarket application?
What's the frequency that people are going to purchase it?
Will it tarnish your reputation? For instance, if you have a
fresh product and are serving it frozen. Will that interfere
with your (current) customers' perception of the quality of
your product?
RestaurantBeast: Are
there companies that can do this type of research for you
say if you don't have a marketing department?
Engoron: Yes,
companies exist that can do marketing research for you. You
need to have your pricing points and package. You need to
make sure that the products travel well whether they are
frozen or fresh. So when the items are delivered they aren't
broken etc…You have to study the ergonomics of the product.
RestaurantBeast: So
let's say you've got an incredible product, your market
research shows that it will be well received in a market
environment, the prices and packages are researched and
agreed upon. What steps then need to be taken to get the
product into supermarkets? I've read there are a lot of
costs involved.
Engoron: In all
fairness, markets have a lot of real estate; in the
warehouse and plus the shelf. It may cost 6 million dollars
to build a location. In larger facilities, there may be 350
employees. Then there's the cost of getting the product into
their system, the scanner, etc…it can run upwards of 25,000
a skew per chain. A lot of supermarkets don't make money on
how they sell (the products); it's how they buy the
products. So, it is not uncommon to pay a $1,500 appointment
fee, a $25, 000 slotting fee and up to another $15,000
failure fee.
RestaurantBeast: Wow!
Upwards of $30,000?! What in the world is a "failure fee"?
Engoron: If the
product doesn't move as you agreed and projected (with the
market) the products will be removed and either be
discounted heavily to make the margin, or even returned. If
returned, you pay for freight in and freight out.
RestaurantBeast: That
sure is a lot of dough!
Engoron: Here's an
example. There is a major cookie company out there and they
develop 900 new products a year, out of those new products
maybe 50 go into test market, out of the 50 maybe 3-4 make
it to market on a good year. And 5 years out - only 10% of
those products are still on the shelf. So doing your
homework upfront (taste tests, marketing) certainly saves a
tremendous amount of money.
RestaurantBeast: For
those that have a killer product but don't have the capital
are there any alternatives?
Engoron: Yes, many.
These costs (mentioned) are for the traditional markets;
Vons, Albertson's…. But, you can go to smaller companies who
are looking for boutique items; Bristol Farms, Gelson's (in
the West), Wegman's in East, Harris Teeter in the South,
they are looking for something different and high-end.
RestaurantBeast: What do
these markets cost to get into?
Engoron: They may
cost nothing. They are looking for boutique products because
people are looking for "Chef prepared" and "restaurant
quality." These are the market research words that we keep
hearing over and over again. Lifestyle stores are another
major opportunity. In lifestyle stores such as Bed Bath and
Beyond, Crate and Barrel, William Sonoma and Pottery Barn
(you'll) find dressings, sauces, condiments, pastas...in a
company like Restoration which has 140 stores, they have a
number of food products that they bring in on a regular
basis.
Another way is to deal with
a company that is already in the supermarket. (E.g. ConAgra)
It already has the relationship and the processing and you
may take 3-5% of sales and they keep the rest of it. You're
not making much but it costs you nothing. The only risk is
in damaging your brand since you lose control over the
formula.
(Lastly,) mail order is an
excellent option. For example, a large dessert company that
is one of my clients has an arrangement with Fed-Ex. Fed-Ex
has a large warehouse facility - the cakes are stored there
frozen so when they are ordered it's only one way shipping….
which is less expensive. You truck in a lot of product in
one shipment. If there's enough movement, you negotiate a
rate ahead of time and everyone wins.
RestaurantBeast: What
type of profit margin percentage do grocery stores expect to
make off each product?
Engoron: It depends
on the category.
RestaurantBeast:
Ballpark?
Engoron: The margins
are all over the place. Fresh products have a much higher
margin (50-60% gross margin) On others; 20-30%. As I've
already mentioned, supermarkets have a tremendous amount of
expense, 36-50 products, 6-10 million to build the
building…. And most of their employees are union …drivers
etc…that's also an additional expense. They deal in
high-volume with slim margins…. that's why they have to
charge what they charge. And, it's a real what have you done
for me this week business. If your product is moving, they
like you. If not then…
RestaurantBeast: Are
there any requirements that are different than foodservice
establishments that are enforced by authorities such as the
Food & Drug Administration and Federal Trade Commission?
Engoron: Yes. As an
example, you have to go through USDA if you have over a
certain percentage of protein in your product.
RestaurantBeast: And do
you have to list nutritional content on the product?
Engoron: That's
easy. There are programs you can purchase or you can send
the product to a lab or send to a company that owns the
software that can do it for you.
RestaurantBeast:
Anything else you'd like to add?
Engoron: Anyway that
a restaurant can increase revenues and get their products in
front of people (is good) because we're dealing with a
restaurant public. But it's share of mind (not only share of
stomach). Customers are being bombarded with commercials
(e.g. Red Lobster, McDonald's) so that is what is top of
mind. But if you're at home, and you're using a product that
gives you a little more awareness of the great restaurant
experience that you had, you are more likely to go back and
share that experience. But you're not going to get rich in
the supermarket.
RestaurantBeast: Well, if you're not going to get rich
selling your product in the supermarket, why do it?
Engoron: For lots of
people, it's ego. But if you can have someone set it up for
you (e.g. ConAgra) it's virtually easy money to earn,
because they are doing all the work for you. It enhances
your profitability.
More information about
Perspectives ™ can be found on their website,
www.perspectives-la.com. Their wide range of client
services includes: strategic planning, concept and brand
development, market research, operations analysis and
troubleshooting, menu and product development and more.
Interested parties can contact Ed Engoron, President/CEO at
PERSPECTIVES/The Consulting Group, Inc.
Phone: 310-477-8877
Fax: 310-479-8448
e-mail:
engoron@perspectives-la.com
Article submitted by Restaurant Beast
|
