As tastes shift toward specialty, local and organic foods,
more so-called “food startups” are entering the market. According to PitchBook,
a private financial database, close to $570 million in venture capital has been
invested over the past five years in companies that produce food for
consumption, or prepared foods, with the number of deals involving startup
food makers growing to 36 in 2014 from 13 in 2011.
And for good reason: The specialty food business is booming.
The National Association for the Specialty Food Trade says the sector hit a
record $88.3 billion in sales in 2013, and continued to grow in 2014. The
association attributed the sector’s popularity to “growing concern” among
consumers about sustainability and health, as well as increased interest in
“small-batch production”—knowing where food is made and who made it.
As demand for their products grows, food startups sell
mainly in nearby shops and are restricted to producing limited quantities in
their home kitchens—are finding they need to scale up quickly for wholesale
distribution. And that can be difficult.
Regulatory requirements have complicated the transition from
selling goods at local retail shops to distributing them wholesale to large
grocery chains. Wholesale buyers have stricter health standards than local retailers,
requiring significant upfront investment by producers.
Los Angeles County’s public health inspectors are now
re-evaluating the rules. Some state health codes have already changed in recent
years to ease the startup process in the cottage food industry, or businesses
that operate out of their home kitchens. New legislation is what helped
Semolina Artisanal Pasta first get off the ground, but the law restricts
cottage food businesses to less than $50,000 a year in sales.
In Los Angeles County alone, according to the U.S. Census,
the number of food manufacturing businesses with fewer than 10 employees grew
to almost 2,000 in 2012, from less than 1,500 10 years earlier. Angelo Bellomo,
Los Angeles County’s director of environmental health, said health inspectors
are now trying to foster those small businesses’ need to grow. The current
regulatory system was tailored to accommodate larger-scale food producers,
which have a major presence here.
Most of what’s produced here gets shipped elsewhere. In most
major cities, only 1% to 2% of what’s consumed is produced locally. Developing
that shorter supply chain—from local farms to packing and production facilities
to retailers—is “the big missing piece in the local food puzzle.”
Enter Los Angeles’s latest experiment: Early in 2015, several
small food producers will move to an industrial kitchen at L.A. Prep, a new
food production center that will house as many as 50 businesses ready to scale
up from home or shared kitchens. Mott Smith, one of L.A. Prep’s founders, said
he sees the facility as a way of expanding the “middle-class in the food
processing arena.”
Developed through collaboration with the county over the
past two years, the facility will manage health and safety requirements for
producers, help them get expedited wholesale licenses and provide services such
as food storage, security, trash collection and access to required equipment
like range hoods and grease traps.
L.A. Prep will also provide “accelerator” services to help
its tenants grow their operations, joining more than 100 food incubators and
culinary accelerators that have emerged around the country in the past few
years, such as Mess Hall Food Community in Washington, D.C., and Chobani Food
Incubator in New York City.
Mr. Smith said he expects companies setting up shop at L.A.
Prep to follow varied paths, such as establishing brands and selling their
businesses to larger food producers; outgrowing the shared space and moving
into their own facilities; or simply staying put.
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