Omaha World-Herald | Posted: 10/31/2016
Scratch Baking Co. has enthusiastic owners, repeat customers and a menu of gourmet doughnuts in flavors including chocolate stout and honey ricotta peach.
What it doesn’t have is a storefront or a kitchen.
“Where are you guys located?” a customer asked on Facebook this summer. “I can’t find an exact address.”
Instead, the owners rent kitchen space from a downtown restaurant, bake late at night after dinner service ends, and drag themselves to their day jobs the next morning. To sell their treats, they drive all over town to drop off the doughnuts at area coffee shops, deliver orders placed by email, hustle at farmers markets and host occasional “pop-up” shops.
“The ability to bake whenever we want, that would be really, really awesome,” co-owner Anna Padilla said. “It really would impact our business.” She or her partner would be able to work on the business full time, and they could take on more clients and offer more pickup and delivery options.
Finding an oven of one’s own is a problem as a new wave of startup food businesses looks to take advantage of big consumer interest in local or artisan food products. State food code prevents entrepreneurs from just using their home kitchens. There are some exceptions for selling at farmers markets, but generally, food businesses need a permit to operate, which requires a commercial kitchen, according to the Douglas County Health Department.
The kitchen problem comes in addition to the regular new business struggles like marketing, distribution and finding startup capital.
To the rescue? New programs that aim to help food businesses like Scratch take root and grow in the Omaha area. The programs offer a combination of commercial kitchen space and business development mentorship.
The Kitchen Council, an incubator expected to launch early next year in Council Bluffs, is a project of the Greater Omaha Chamber of Commerce and the Council Bluffs Area Chamber of Commerce.
It’s starting around the same time as a similar incubator project in the Florence area of north Omaha, run by the nonprofit No More Empty Pots. That commercial kitchen, set to open Dec. 9, will support a separate bunch of startups including several now working their way through an entrepreneurship program run with help from Wells Fargo.
Like a technology startup incubator, food incubators — which took off about five years ago in larger urban centers — offer business advice and the chance to network with like-minded entrepreneurs and possibly investors, but also offer that coveted kitchen space.
In organizing their programs, Kitchen Council got advice from one successful incubator, the Washington, D.C.-based Union Kitchen, and No More Empty Pots modeled its program after San Francisco’s La Cocina.
Scratch’s owners plan to participate in the Kitchen Council and say it could be the road to growth for a new venture like theirs that would be hard-pressed to qualify for a bank loan.
The project ties in with the Omaha chamber’s focus on agribusiness. The business group is working to build off Nebraska’s stature as a top state for beef, corn, soybeans and other food industry commodities, plus its transportation network and long history with food manufacturers like ConAgra Foods, Kellogg Co. and Tyson Foods.
“We hope to grow a number of small businesses that could become the future Rotella’s,” the Omaha bread company, said Pete Tulipana, executive director of the Iowa West Foundation. Iowa West is supporting the Kitchen Council along with the Iowa Economic Development Authority and the Omaha Development Foundation.
The Kitchen Council will operate from an old Famous Dave’s restaurant between Bass Pro Shops and the Mid-America Center, with a view of a major Interstate exchange. Iowa West already owned the restaurant as part of a larger redevelopment project.
Organizers say they plan to be there for two years, before moving somewhere with more of a retail feel, where they can design a facility from scratch.
The vibe isn’t exactly “doughnut shop.” There’s still a faint whiff of barbecue in the air, but after a remodeling this winter, the spacious kitchen might smell like Scratch doughnuts — or bakery cakes, Cajun food, egg rolls or any of the other products that entrepreneurs have expressed interest in creating there.
There will be room for 30 member businesses, which will pay a monthly fee depending on level of use: full time, for $425 a month; nights and weekends for $325 a month; or “associate member” at $50 a month, for those that do have kitchen space but want the business development services.
Kitchen rental at No More Emtpy Pots will run $10 to $25 an hour, depending on the time of day and length of the rental.
Big businesses start small, and planners anticipate plenty of demand from entrepreneurs. It might be a person working in another industry who’s always wanted to turn a family recipe into a grocery-store brand, or an existing Omaha food company employee with an idea that didn’t quite fit in at their workplace.
In an economy where jobs are easy to find but a professional wage is harder to come by, people are saying, “If I’ve got to work this hard, I may as well work this hard for myself,” said Susan Whitfield, director of operations at No More Empty Pots.
Entrepreneurs may be calculating that now is a good time to enter the food business, with sales growth at small and specialty food businesses far outpacing growth at legacy food giants like ConAgra.
Padilla at Scratch said demand has been hot for her doughnuts despite the price of $2.50 each or $25 for a dozen — more like gourmet cupcakes than doughnuts from a national chain’s drive-thru.
“There are so many people that we see walking up to us, that pull out their wallets before they even see the price,” she said.
Padilla declined to disclose revenue figures but said the company sold 300 dozen doughnuts in September.
The millennial generation has taken an interest in food as an extension of personal identity, one of several changes driving interest in food and accelerating change in what consumers want out of the food they buy, said Will Rosenzweig, dean of the Food Business School at the Culinary Institute of America.
“This is causing tremendous challenges for incumbents and opportunities for challengers,” Rosenzweig said.
Big food companies are fighting back by launching new products aimed at millennials, designed for convenience and with organic and healthful ingredients. But they’re also buying small, high-growth food brands. And they’re launching their own venture capital arms to invest in new brands — both of which could mean a small brand launched at Kitchen Council or No More Empty Pots could one day end up as part of a company like Campbell Soup or Kellogg Co.
It may be easy to launch a food business, but it’s not easy to scale up from a home-based business to one that’s profitable enough to support many employees, let alone big enough to capture Big Food’s attention, Rosenzweig said.
“I like to say it takes 15 years to become an overnight success in food,” he said.
There are detailed food safety and labeling regulations, complex supply chains, thin margins and a web of policy debates to navigate, he said.
Obed Sanchez is hoping that Kitchen Council will give him kitchen space plus a bit of a business education. The 21-year-old started what has become his Grainolia Bakery as a student at South High School, baking 100 cookies a day and selling them for 50 cents apiece. “I didn’t really have time to go to school and learn about marketing and business management — I overnight decided to go into business,” he said. “I do need a lot of help.”
Now he makes a United Nations of pastries: spanakopita, Brazilian cheesebread, tres leches cake, butternut squash bread.
Sanchez won the top prize of $1,000 in a Kitchen Council contest this month and dreams of opening his own storefront bakery. “That’s the ultimate goal,” he said. “I’m doing all of this to get there.”
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