artwork Start up hot sauce business questions

[jeffrey]

Hello,

My friend and I have decided we are going to start up a hot sauce company. He has much know how of canning, jarring and all around preserves. He also has many connections into local restaurants and grocers who love to buy crazy local products. I am a grower (relatively new, just a few years into the super hots) and have the ability and space for a large scale grow both indoors and out.

Tho we know the basics of hot sauce making, quality growing and the process of preserving, neither of us are formally educated on the buisiness or legal end of things. We do not know where to even begin legally as far as something like this goes.

My questions start here.

*Would you be able to give a general set of process guidelines towards a start-up company?
*Where should we be looking for compliance policies with FDA?
*Do we have to worry about patent problems with other companies based on our ingredients or label?
*What are key determining factors on price guidlines with products of this nature?

Any information you guys would be able to help us out with would be greatly appreciated!

Take care,
Jeff

 

[salsalady]

Hi Jeffrey,
Welcome to THP!

It's very late for me but I found this post and wanted to reply. The very quick version is-

CONGRATS on having the gumption to do a sauce business!!


Depending on where you live, your city county or state will have authority on your licensing. If you live in an incorporated city, start out by calling the heath department. They are the ones who license restaurants and other food making facilities. It varites from state tot state, so just start calling around. Tell them what you want to do, they'll guide you along.

Forget about the FDA. Unless you are making something with dairy or meat, you will likely have no need for FDA licensing. You Will likely need to file an FDA labeleing Exemption. Google it, it's free....


as far as the business side of things go, if you are looking to go full on legal business, there are definitely things you and your busines partner wil need to do. Look for a SBA resource in your area (SCORE or other SBA sponsored programs) they will help you work through all the IRS-schtuff and even the state stuff to get a business started and run it as a legal operating business.


As far as I know, there are no patents on sauces,

well, there probably are for Dr Pepper, Coke, Tabasco and maybe KFC. as long as you are not trying to REPLICATE EXACTLY some other establiched sauce, you porbably don't have to worry about infringements....


As you mentioned having no knowledge of general business things, I would suggest a quarter of night classes or an online course in business 101. You need insurance, proper licensing, you need to keep records, you need records for your IRS filings, how wil your business be structured, (sole proprietor, partnership, whats the tax advantages of eithr/or) who holds the accounts, who pays the state taxes, who pays the fed taxes, what taxes are owed, are you both owners or would it be better served to be paid emplouyees of the corporation...but now you have to INCORPORATE,,,,,,, Or NOT...



Get some small biz help for the legal side of things and then have fun Cooking things up!




Basically, It sounds glamourous to run a business, but if you don't know business basics, it will sink you. Learn about all the mundane things like licensing, taxes, etc....winging it on your own as a small business person is one thing. But if you are looking to work with another person, both of you should know EVERYTHING about ALL sides of the business.


If you have a great product, it will be worth it!

 

[Lucky Dog Hot Sauce]

Hard to improve on SL's posts, but I'd add that this very forum has a wealth of answers for you - some of which I provided here in the last year as I went through this exact process. As I would learn things about liability insurance, what type of corporation to form (if any, but wth partners you'll probably want to do something to protect assets), trademark considerations for naming, art for labels, etc I would post it here.

Then if you'll be doing farmer's market there's county health permits, city sales permits safe food handling card, etc, etc, etc.

Everyone has their hand out - forms and fees and your wrist will get sore from writing checks.

Really important is to consider your business plan. I see you saying you grow peppers and your friend preserves/pickles/jars/cans suff - which one of you is thinking about where and how to move the product?

Making it is far and away the easiest part. trust me on that. All that takes is money and either 1. space or 2. co-packer. Distributing it - getting it into stores, selling on the web, hooking up with local and/or national distributors - that's the tricky part. How much product will you make at a time and where do you plan on selling it?

this is the part of the business I'm working out now - I'm in the Farmer's Market which is low volume/high profit (I'm the retailer) but I'm just now getting into stores locally and starting to work on more things out of my area. And at the grocery store my profit is paper thin - because there's the COGM (cost of goods manufactured) and the distributor takes his (~15%) and sells it wholesale to a store that gets theirs (~30-35%) and by the time all's said & done I'm not making a whole lot at the grocery store.

For you it might be better since you're growing the peppers yourself, but from my farming background I know that's not free - lots of labor, fertilizer, pesticide, equipment, water, seeds, etc, etc, etc. you need to work all that into your product costs, so in some ways you will end up with a much more complex business plan than I have as a result of those calculations.

That will also help you determine a price point. You don't want to outprice the market or be "the champaign of hot sauces" because you'll dissuade people from wanting to purchase it, and retail stores will be hesitant to bring it in. Remember - if it doesn't sell, they threw money away - there's always that risk, but supermarkets/gourmet grocers get more gunshy the higher the price.

Marketing is also a huge consideration - I felt fortunate to have had several marketing courses as part of my business cirriculum. I have absolutely applied a ton of stuff from that education, but I'm fortunate in that I have a pretty stable day job that takes some of the pressure off of the sauce business for the time being. You will want to get familiar with some marketing concepts and figure out how you're going to advertize your product. Getting into stores is hard enough - staying in stores is much much harder. I've been doing in-store demo's at one grocer I'm in, and the one I'm working on now has 9 stores - that will likely mean multiple demos per store X 9 at about $100-125 ea (plus expenses like branded t-shirts for the staff, tasting spoons, tortilla chips, signage, coupons if offered, etc). Customer acquisition is not cheap - and it is absolutely necessary.

All of this is just food for thought based on my personal experience. I've also been really, really lucky in many aspects - good co-packer who helped me with may things in terms of recipe scaling, ingredient sourcing & stability of recipes (in terms of "can you get ingredients consistently, for consistent pricing, etc) - I've also been fortunate to have many friend/relatives in the food industry who've offered advice along the way and who may at some point help to distribute the product.

So while you don't need to master all of these things at once, every one of them needs to be on your radar. If you end up with 3-4 pallets of product and nowhere to sell it, no protection for your company name, no marketing strategy, no distributor and no web-sales (which are really, really minimal) then you won't have a business - you'll have a glorified hobby & a crapload of sauce that you're stuck with.

Measure twice, cut once. Get some of these ducks in a row before you manufacture. My best advice - partly from pain I've been through.

Again - there are a ton of topics on this forum with a heap of advice for the business side of things (insurance, corporations, etc). I'd recommend starting there.

Also anything Salsalady tells you is gold. Listen to her. Best advice I've got right there. She helped me a ton.

 

[jeffrey]

Wow!

I would like to thank you both very much for this information! I can see we will have a lot ahead of us, but that makes it exciting!

As a plan, I believe we will probably wait to go through all of the motions until next year when my crop is large enough to stay "in-house" and after having tested said sauces on friends, family and anyone else who is willing to taste test.

I will absolutely be using this section of the forum as a great information source!

Jeffrey

And I apologize for not reading the PIN first... So much info there.

 

[Lucky Dog Hot Sauce]

One other tip - I've seen you mention friends & family a couple of times.

To me, that's a big red flag. You want to have anyone but friends & family eat it - that's where the brutal honesty comes from.

Better still - show up to a party/BBQ with people you don't know and drop some on the buffet all ninja style. Don't tell anyone you made it. Stand around within earshot and listen to what people say. I did this about a dozen times while honing recipes and it was the best, most honest feedback I'd received.

Friends and family are great at telling you what they like about the sauces, but not so great at saying what they don't like about 'em. I'm fortunate in that many of my friends are complete a-holes (lol) and provide pretty brutal feedback - if there's a bitter aftertaste, or if they don't like a note or flavor you can bet I'll hear it, but even still - I get the best feedback from people I don't know.

and then there's the bit about taking it all with a grain of salt. You need to listen to the feedback and chop off the top & bottom 10%. Remember - everyone's got an opinion. When making a product you cannot be all things to all people. My sauces will never please everyone. But I hope to hit the middle 80%. Last Sat at the farmer's market doing sampling, I heard it all - an Indian couple thought my Orange Label (hot) wasn't hot enough, and a Mexican dude thought my Green Label was too hot for him. You can't be all things to all people. Those two didn't buy - but many many others did, around 75-80% of people who tried it. And yes, I even heard from 2-3 people that they "like Tobasco better" or "like Cholula better" - I can't win those people. I'd like to think people are open minded and willing to try new things, but if someone likes the bitterness of a Tobasco, I can't compete as my sauces have a sweetness to them that Tobasco lacks. Similarly I'm not as snappy or salty as Choulula. I like Choulula, it's just not my sauce's flavor provile. So I try not to take it personally. I smile and nod and thank them for trying it, and hope the next 7-8 customers love it and purchase it (and that was about the ratio, fortunately).

It's hard to make a new thing and have people accept it. Feedback is a double edged sword. It is vital to get feedback while your product is in development, but it is equally vital to believe in your creations. I put 6+ years into my Red Label sauce - I knew what flavors and balance I was trying to achieve. If a ton of people tell me it sucks because (for example) it's too bitter or too salty or whatever, ok, that's worthwhile to note and modify accordingly. But if 1 guy says it sucks while 20 say it's rockin'? Then just ignore that one guy and be confident with the product you've created.

This applies to everything from flavor profiles to packaging/labelling, etc. Everyone is going to have an opinion. You'll need to learn the balance between constructive feedback that you can and should apply, and people who just want to say something negative or put down your product because it's not their product and they wish they had a product. Again - a lot of feedback will be valuable - it's a metter of sticking to your core business model & beliefs, while considering all feedback as "worthwhile to consider" - you might agree with some, you might disagree. The fine tuning of my labels was a total community event here as like 7 people chipped in ideas for me and all of them really helped me to have a better product label as a result. But when I hear "it's not hot enough" from someone who I know eats Morugas like M&M's, I tend to take it with a grain of salt.


Ps - also think about sending some out to folks here at THP - they're your target demographic and most folks here will gladly trade a bottle of sauce for a short write-up of feedback about it (or private message). I did this many times prior to launch, once with a critical change - one of the reviewers noticed a slight bitter aftertaste with the Orange Label. I made a couple of minor tweaks and addressed the bitterness. That was solid!

 

[salsalady]

+1 to LDHS's input about feedback.


Side story-
I've told this before, but it bears retelling-

First year I was selling salsa at a farmers market, hubby was covering for me for a couple hours. It wasn't a terribly busy market. My fresh salsa is a chunky salsa with very visible pieces of tomato, onion, green pepper and even the cilantro.

So this one dude, comes up to the table......takes a normal size tortilla chip and scoops up some mild, another chip and the medium, another chip for the hot... and finally...another chip with the scorcher......and then he says....


"I don't like onions".

to which my hubby replied., "well then don't f%@king eat it!"





True Story!




And then there was the college student in the grocery store while I was doing a tasting/sampling...

Me: would you like to try some locally made fresh salsa?
Stoodent: I don't eat salsa
Me: are you allergic to something? or ???
Stoodent: I don't agree with the governmental policies of Mexico, so I don't eat Mexican food.


WTF???? Are you kidding me????


True Story.

OK, to get back on topic....when you're ready to get your sauce out.....LDHS's pointers are all good ways to get unbiased feedback....in addition to the face-to-face of things like FM and in-store demos

Good Luck and Have Fun~

 

[jeffrey]

LDHS, that makes a lot of sense about using other unbiased sources outside of fam and friends. Sounds simple, yet I can see how much of a difference it can make! ​

When you mentioned about people who complain it's not hot enough, yet they eat morugas regularly reminds me of when I gave a friend (who regularly eats red savinas and nagas) a handful of tepins and he complained they wheren't hot enough for anyone and I wasted my time growing them... ​

I didn't quite see it that way lol​

I will keep it in mind that everyone is different and some people just down right will never be turned on to it, yet to keep the vast majority of the demagraph satisfied and wanting more.​

I definetly will bring the sauces here to the THP pre-launch. You're right, this is THE demagraph. It's really cool having come across a place with so many chili heads, sauce heads and salsa heads!​

Salsalady those are 2 great stories! While my wife was in school, we lived in a college town with a lot of college kids with that same attitude... the type that go to a Chinese restaurant for athentic Chinese and the get the General Tso's or the type that were buy local and only local (which I am 80-90%) yet they own 5 Dixie Dogs and they drink milk from Jersey because "if you don't drink from a Jersey cow you are contributing to animal cruelty".​

Gimme a brake​

Anywho, I can't wait for the sauce to start burning! Thank you both again very much!​

Jeffrey​

 

[Lucky Dog Hot Sauce]

SL - lmao at both stories.

 

[salsalady]

Well, I'm glad y'all enjoyed the stories.



Jeffrey, you have a good sense of the market. LDHS had figured this next thing out also, so here's a "secret tip of the day"...
75% of people eat mild or medium
25% of people eat hot
5% of people eat superhot.


you do the math

 

[Samfromzaneandzacks]

Hi Jeffrey,
Welcome to THP!

It's very late for me but I found this post and wanted to reply. The very quick version is-

CONGRATS on having the gumption to do a sauce business!!


Depending on where you live, your city county or state will have authority on your licensing. If you live in an incorporated city, start out by calling the heath department. They are the ones who license restaurants and other food making facilities. It varites from state tot state, so just start calling around. Tell them what you want to do, they'll guide you along.

Forget about the FDA. Unless you are making something with dairy or meat, you will likely have no need for FDA licensing. You Will likely need to file an FDA labeleing Exemption. Google it, it's free....


as far as the business side of things go, if you are looking to go full on legal business, there are definitely things you and your busines partner wil need to do. Look for a SBA resource in your area (SCORE or other SBA sponsored programs) they will help you work through all the IRS-schtuff and even the state stuff to get a business started and run it as a legal operating business.


As far as I know, there are no patents on sauces,

well, there probably are for Dr Pepper, Coke, Tabasco and maybe KFC. as long as you are not trying to REPLICATE EXACTLY some other establiched sauce, you porbably don't have to worry about infringements....


As you mentioned having no knowledge of general business things, I would suggest a quarter of night classes or an online course in business 101. You need insurance, proper licensing, you need to keep records, you need records for your IRS filings, how wil your business be structured, (sole proprietor, partnership, whats the tax advantages of eithr/or) who holds the accounts, who pays the state taxes, who pays the fed taxes, what taxes are owed, are you both owners or would it be better served to be paid emplouyees of the corporation...but now you have to INCORPORATE,,,,,,, Or NOT...



Get some small biz help for the legal side of things and then have fun Cooking things up!




Basically, It sounds glamourous to run a business, but if you don't know business basics, it will sink you. Learn about all the mundane things like licensing, taxes, etc....winging it on your own as a small business person is one thing. But if you are looking to work with another person, both of you should know EVERYTHING about ALL sides of the business.


If you have a great product, it will be worth it!

Holy Crap!

COMPLETELY UNTRUE!

The only way this is even close to true is for fresh salsa.

Canned product is a completely different story.

FDA does not deal with dairy or meat!!!

That is USDA!

IF you Plan on selling ANY product outside of state lines, you MUST be FDA compliant!

If I made sauce that I only want to sell in Washington State then I would need to be WSDA compliant.

Check local regs, but only if you want to sell local only.

Interstate = Federal!

Don't beleive it? Check it out!

Maybe ask someone who has been through a recall. CaJohn (the award winningest sauce maker in the world) would be a good person to ask...

FYI,

Sam

 

[salsalady]

wow, Sam, a lot of contradictions there, that probably aren't contradictions, but I'm not sure where you're going with all that.

"Canned" products are different than "Hot Packed Acidified". And that's a technical discussion not for this thread. From what I understand, USDA regulates the manufacuring and processing of dairy and meat products, FDA regulates the processing of products that contain dairy or meat.

Just speaking from my own experiences, WSDA is my regulatory agency and has never had a problem with out-of-state sales. My state inspector knows I sell on the internet and has never asked for any further licensing for any of the basic hot sauces I sell. All my products have PA approved processes/recipes.

I have maintained the proper FDA nutritional labeling exemption for many years. Totally different license/whatever than an FDA processing license.

Our BBQ sauce has butter in it and therefore, the PA (that's... Process Authority...) who signed off on the BBQ recipe stipulated that the manufacturer (that would be ..ME>>) be BPCS certified and the facility (that would be...my kitchen!) be FDA registered.

So...I paid the $$$$, for the BPCS, passed the class, and I am certified to process any type of retort, hot pack, etc... And I have also registered my processing facility with the FDA as a licensed processing facility to make a product that contains........butter!

All of that, just for BUTTER! in a BBQ SAUCE.


But, all that aside, it still comes back to the original post....2 people who want to get a sauce business going. Their first stop is their local health district. Regulations for our county differ from the rest of the state, and depending on how I want to sell, (wholesale-v-retail) that dictates who I have to license with. They need to start local and then work their way up to the FDA. If they are working with the proper health authorities and PA's, they will end up with the FDA if need be. But I don't advocate starting with the FDA for licensing as most of the time....FDA licensing is NOT NEEDED! for most small sauce companies. I "survived" 10 years making and selling hot sauces without anyh FDA interferance aside from the labeling exemption.


If I am wrong about not needing FDA licensing for inter-state/internet sales I'd appreciate a heads up as I've been (obvioulsy) selling product over the internet and my WSDA inspector has never said a thing. Thanks, SL

 

[jeffrey]

What is it about butter that makes it require such a process?

 

[salsalady]

it's the dairy aspect. Anything with dairy or meat requires (xxxx) times more regulations than a sauce with chiles, vinegar, whatever-else-for-flavoring.....

 

[jeffrey]

gotcha!

 

[Lucky Dog Hot Sauce]

I am fully licensed & insured and the state inspects my products before the mfgr releases them because CA has even more brutal hot pack/acidic food regulations - no FDA. California inspection only. I think you're good, Ann.

 

[salsalady]

I talked to my Washington State Dept of Ag inspector on Friday.


As I understand it....

I have a processing facility located on my own property so I do not have to be FDA regulated for low-acid products (like your regular low pH hot sauces, but not anything containing dairy or meat). If I were to have a processing facility in another location...say...a building in town or at a shared use kitchen or a restaurant in the off-hours...I would likely need to be FDA licensed... DEPENDING ON THE PRODUCTS and the ingredients in those products.

And if I were using a co-packer, most likely the co-packer would already be FDA licensed, and would be assisting the new sauce maker with all that stuff, so I would not need FDA licensing either.

For those using a shared-use and co-packing facilities, I and others would appreciate your input as to how it works with those types of facilities.


It does vary by state, so, I again reitereate....
Start with your local county or state health authority. If you need to get FDA licensed, they will help you and direct you in that direction. Regulations have changed, and are changing as we speak. My inspector mentioned new regulations that will be coming out, so, who knows what it will be like 6 months from now.

edit- forgot to add that--- even though I would not need to be FDA REGISTERED while making low acid sauces, I could be subject to an FDA inspection if I used products that crossed state lines. For instance,. the canned mandarin oranges...(which don't grow well the the Methow Valley ) that I use for the Tropical Ghost Sauce could trigger an FDA inspection conducted by WSDA, but I would still not have to be FDA registered,,,, ..... [I agree...TMI~~~~
]

Bottom line- if someone is SERIOUSLY looking to get into the food production business...they need to start with their local health district authority and not rely on internet info as their guiding light, It's different for locales, regions, types of businesses, make it yourself, use a co-packer, etc, etc,,,,,,,


there's just too many variables to make blanket statements.