Today we ask co-founders Chad and Anthony from Lick Honest Ice Creams to give us a step by step walk through of exactly how they went from idea to getting their product in front of retailers and eventually how they were able to sell to grocery stores in Texas to expand their brand and grow revenue as a CPG company with brick mortar locations.
Step By Step Summary Of Getting Your Product Into Grocery Stores By Lick Honest Ice Creams:
- Start With An Industry Deep Dive Into Trade Publications, Publicly Traded Company Reports, And Trade Shows
- Identify Key Metrics For Your Specific Industry Or Sector Such As Sales Velocity
- Understand Overall Industry Trends And Seasonality That May Affect Your Business
- Get Rejected By Farmers Markets : )
- Get Validation From Friends And Family
- Decide When To Go From Brick And Mortar To Grocery Stores (Hint: 45 Minute Lines)
- Design Your Own Packaging
- Create Your First Wholesale Transaction – A Freezer In Your Own Store
- Let the FDA And Inspectors Be Your Allies
- Learn All You Can About Wholesale From Inspectors, Stockers, Buyers, & Networking With People In The Industry
- Decide On Production Methods, Use A Commercial Kitchen Or Keep It In House
- Start With Smaller Grocers And Retailers, Use Local Networks To Get Intros To Buyers
- Navigate The Buyer Process At Grocers Like Central Market And Whole Foods, Prep For Buyer Questions
- Use Your Competitive Advantage That Bigger Brands Don’t Have With Buyers, Your Passion
Chris: Can you give us a quick overview of how Lick came to be? How did you decide on ice cream? How did you decide to sell in a brick and mortar instead of some other channel like Direct To Consumer or Wholesale first?
Chad: We were both from small rural communities in Texas and Pennsylvania. We spent a lot of our time visiting scoop shops in Lancaster, PA. We got to experience super fresh and local ice cream with seasonal flavors. The milk and cream was from the dairy near by and it was all local. Anthony didn’t have that in Texas and only had big brands like Diary Queen. We moved to Texas with the plan of starting a business together. Anthony had a lot of experience with baking and I had a passion for ice cream. I had a background in retail design and branding so we thought we could combine this experience to create a brand with the mission of crafting ice cream inspired by seasonal and locally sourced ingredients.
Chris: Most business owners who come to our small business consulting firm in Austin don’t have super accurate unit economics figured out. Did you guys have any idea about the economics of ice cream or ice cream shops? Did you know anything about the margins, the operational complexities of the supply chain, etc?
Anthony: From my experience in baking and catering, I understood how to calculate my product costs and had an idea of what margins we needed to be close to. But then I did a deep dive into the ice cream and scoop shop industry to give us a better bearing of how the industry worked. I started by looking at every trade publication I could get my hands on for frozen dessert and for ice cream. I also was able to find information about the big publicly traded companies that sold ice cream and learn a bit about best practices that way. Pretty quickly we were able to see what sort of metrics were most important for scoop shop performance and it mostly came down to sales per square foot, a very popular metric in brick and mortar retail. We were also looking at overall industry sales year over year so we could see the trajectory of the entire industry. We were able to see how other companies performed during recessions and were also able to see the common tactics that most ice cream companies were taking in their ingredient list to cut corners and save on costs. We ultimately were able to find a competitive advantage there in not cutting corners, which really is the basis of our Honest Ice Cream brand.
Chris: How did you guys decide to do a scoop shop as opposed to Direct To Consumer or going straight to grocery stores?
Chad: Well, we were told that farmer’s markets were the easiest apporach to enter the foodie scene and it seemed a natural fit since we were already sourcing from the vendors. We approached all of them and were rejected repeatedly. Apparently, selling a new frozen dessert product at a farmers market at 9am is challenging. So we just kept developing our product. Anthony kept working on the base mix and flavors but we didn’t really have a way to sell it to customers because of the permit process. So we just did the R&D ourselves and with friends. We just kept testing and testing flavors until we felt that we had gotten it right.
Chris: Did you use a production kitchen to start?
Chad: We looked at a bunch of production kitchens but there were a ton of rules around dairy. There were a lot of things you weren’t allowed to make in the same place you were working on ice cream. And we would walk into these places and we were told that we could make our ice cream on one side of the kitchen while another group was making pizzas 15 feet away. That just didn’t feel right to us. So we just spent our time getting through the legal hurdles and the permitting and just said, with all these complications, let’s just open our own shop and we can do the manufacturing on site in the back and control the process ourselves. Ultimately, we knew that while opening a shop was intimidating, we wanted to re-create that experience we had with the scoop shops in PA which is a much more intimate and enriching experience.
Chris: So you opened the shop without any real product market validation, no testing. How did you get the financing together?
Chad: It was kind of intense. We signed the lease in October and expected to be open in May to take advantage of the summer season. In fact the shop took so long to build that neighbors in the houses near our first location on South Lamar started walking by and offering to help. We used all of our own savings, some “gifts” from family, and had one investor who was willing to take a chance with us on our first space. The first few months were rough because it was winter but then SXSW came around and after that we started getting some PR and doing some events. It went gangbusters after that.
Luckily, major equipment and a van were easy to get financing for because they were collateral. That helped a lot. The unsecured debt for the build out of the shop and initial marketing is what was difficult to get and why we had to bring in an investor. Most banks don’t want to lend money for expenses that can’t be repossessed.
Chris: When and why did the idea of selling into grocery stores pop into your head?
Anthony: It got to the point where we were having 45 minute lines outside of our first shop and while that is awesome for us, it’s not a great experience for our customers. We also knew that there were tons of customers that would love our product but were either not willing to wait in line, or didn’t live in this part of town. I grew up just getting ice cream from the grocery store because I didn’t have all these scoop shops that Chad had. So I knew there were thousands of customers like me that we weren’t currently reaching. Finally, we knew that people were going to buy it at the grocery stores because they were coming into our shop and buying pints from our freezer and taking it home. We just wanted to make that experience easier for that segment of customer that wants to eat Lick Ice Cream in their own home.
Chris: So how did you get into your first grocery stores?
Chad: We were lucky in that the shop’s initial success garnered the attention of the buyers at Wheatsville, Quickie Pickie, and Fresh Plus Grocery. So we decided it was time to reach out to them but we knew that this was going to be a complex process.
Luckily we had made good friends with the state dairy inspector. We had a great relationship with him and in fact, he was willing to take the time to learn about our plan for producing ice cream in our shop. He came to a number of potential first locations and was able to help us decide which one was going to work and which ones wouldn’t based on the inspection requirements and square footage issues he had seen before. He also was able to provide us information about packaging requirements and point us to other helpful resources. We also spoke to a number of people who were already wholesaling.
We had to learn about packaging requirements, navigating the buyers and their needs, the buying process for these stores, how restocking of shelves worked, how doing demos was set up, there is just so much to it. We also found that the FDA had a lot of good tools to learn about package design. Ultimately, I designed all the packaging and I still do!
Chris: When did you decide it was time to get a bigger production space?
Chad: Luckily, we knew that we were going to open a second location in San Antonio and we knew we were going to continue pursuing selling to grocery stores so we spoke with the diary inspector again and were able to get an idea of what sort of space we were going to need. He also let us know what sort of liability we might get exposed to if we used a commercial kitchen for the next phase of our development. We had also saved up enough to have a good down payment for our own kitchen.
Now that we had some traction and a business with financials, we were able to get a bank loan to build out our second location and acquire our kitchen production space. We still had to personally guarantee everything, but the process was a lot easier with a track record.
Chris: How important is packaging for success in selling at grocery stores and retail shops?
Chad: To me, packaging is huge. We knew that we wanted the packaging to not only be beautiful but also to represent the honest ice cream philosophy. We decided to go with transparent pints so that you could see the ingredients and colors inside each pint. We knew that going to an agency would be tens of thousands of dollars so we decided to do it ourselves. We also looked at what our competitors were doing from a packaging standpoint. We did this because we want to see what would be different and stick out from the herd. From a creative process perspective, I’ve never been inspired by what other people are doing. I want to come to my conclusions organically. Getting the packaging design right actually took months of tinkering. The most difficult part was that we would have to work within the regulations of what the packaging needed to have on it from the FDA’s rules.
Chris: How did you get into a grocer that wasn’t actively asking you to come to their shelves?
Chad: The process of getting into Central Market was actually quite complex. We knew that we would do well there and I had been employed with HEB for a short time in the past so I had some rapport with the buyer because I had worked for the company. Unfortunately, that rapport didn’t help. Courting a buyer at a grocery store is a lot like a game. The buyers have hundreds of brands begging to get on their shelves which gives them the upper hand in conversations. Ultimately the conversation at the beginning was making sure that we would be a winner on their shelves with their demographic of shoppers. After that was determined, it was a conversation about margin.
Whole Foods was a much more difficult process. We would network with people at groups like Austin Food And Wine Alliance. We would get asked if we wanted an intro to Whole Foods and we’d get an intro and then reach out and find out that that wasn’t the right person to speak to about our specific product category. It was quite difficult to find the right person to speak to at Whole Foods about our specific product. They used to have a “forager” that would do initial research on your brand and then intro you to people within the company. Ultimately, the hardest part was talking to the wrong person over and over.
Chris: What do you need to know to prepare for a conversation with a Buyer? How transparent should you be about financials?
Chad and Anthony: Once we finally found the right person at Whole Foods Market, it really became a conversation about margin. They wanted to know about shelf life, ingredients, and what they really wanted to know was how well we were selling through at Central Market. They asked about our current sell through or sales velocity at other stores, our revenue per year. Again, the conversation ultimately came down to margin so you really have to know your product costs well. When we first started working with grocers, we would tell them exactly what it cost us to make our products. These days, we give them the base line that we are willing to sell for and have them think through how they are going to get to a price that still moves the product but allows them to benefit. This allows us to remain true to our honest philosophy and never cut corners on ingredient quality. One interesting thing was that grocers didn’t believe that people would pay our price point to get the quality of ice cream that we produce so we really had to sell that it would work and it did. Our customers really value how pure the ice cream is.
Chris: What sort of margin would you suggest that a business in CPG should be targeting if they are selling to a grocery store or a retailer in food and beverage?
Chad and Anthony: I would say somewhere around 40% gross margins would be a good target. We have found that grocery stores and retailers are looking for their margins to be anywhere from 25% to as high as 45%. So remember that they need to be able to mark your product up by that amount and still have customers be willing to pay for it.
Chris: Any other advice on navigating buyers?
Chad and Anthony: There is a balance between saying yes to things the buyers will ask you to do and knowing what’s best for the brand and the grocer that they may not understand. We had buyers ask us to make hyper seasonal ingredients and store specific flavors that would have been good for them in the short term but it would have destroyed our capacity and we wanted to be in control of the brand and flavors, not them. We also know that the specific flavors are loved by some but most people prefer our everydays and those are what are going to sell and delight our customers with. That means better long term business for the grocer. We have one shot to win at the grocer’s shelf so if you know better than they do what is going to work, you need to stand your ground. You’ll want to say yes because you want to be a good partner and you want to get the shelf space so badly. But it’s best to hold your ground to ultimately benefit both of you.
Chris: As a consulting firm focused on small businesses, we have to learn from other businesses decisions to get better and faster. How would you go about selling your product into grocery stores and retail locations if you were starting from scratch right now to make the process faster?
Chad and Anthony: The most challenging part of entering CPG is just finding the correct people within the stores to get through to. I think we would have had one of us just spend our time fostering and building relationships directly with the buyers. That would be one of our full time jobs. Establishing that relationship is key because the buyer is ultimately who is going to be championing your brand so you need to invest time fostering the enthusiasm and passion you have for your brand so they can sell it. In fact, this is the competitive advantage that smaller brands have over the bigger ones. You can really work with the buyer and their team to help move product in creative ways (events, PR, etc.)
We also would have gone to our competitors sooner. They aren’t going to give you the answers but at least in Austin, everyone seems willing to help. We are always happy to if we are able.
Announcement: If you seek a community of other business owners looking for ways to build a self sustaining business for themselves, join our Facebook group: Building A Business, Not a Job.