UNDERSTANDING COTTAGE FOODS VS MANUFACTURED FOODS, AND WHEN TO MAKE THE SWITCH
Farmers market or supermarket? In the world of food and beverage innovation, the spectrum is broad and dynamic. From homemade creations to large-scale production, the choices can be overwhelming. For many aspiring food entrepreneurs, a critical decision is whether to start with Cottage Foods or leap into manufacturing. We'll explore the key differences between the Cottage Foods Act and commercially manufactured foods, then guide you on when and how to make the transition.
Cottage Foods 101
Many small startups begin selling their products at local farmers markets before they decide to scale up and offer their products in stores like Whole Foods, Kroger, or other local grocery chains. It can be challenging for startups to acquire enough funding to jump straight into mass production. Instead, they will make small batches in their home kitchen, or a commercial/private kitchen to test the market before acquiring funding and taking the leap.
With that said, certain products are easier to sell than others due to the Cottage Foods Act; a set of laws that govern the type of foods that can be sold directly to consumers without licensing or inspections. The following post is based on Colorado laws, but each state has its own specific guidelines so make sure to review those relevant to you. A simple Google search of “Cottage Foods Act [your state of distribution]” will yield helpful results.
Specifically, the Cottage Foods Act allows smaller producers (typically an individual) to make and sell food products that do not require refrigeration. Eligible foods are limited to:
Fruit butters
Certain baked goods
Candies
Fruit empanadas
Tortillas
Flour
Pickled fruits and vegetables
Other non-potentially hazardous foods
Spices
Teas
Dehydrated produce
Nuts
Seeds, including roasted coffee beans
Honey
Jams
Jellies
Preserves
These foods must be sold directly to the consumer and cannot involve a third party (i.e. cannot be sold in grocery stores/chains). These products can be sold at farmers markets, out of the producer’s home, or even at a roadside stand. Producers must take a basic food safety course given by the state to ensure they know the best practices of food handling.
Additionally, all products must also be labeled in accordance with your state law - in this case, Colorado law states that the packaging must display:
The address and phone number of the producer
The date of production
The ingredient list
Identification that they are Cottage Foods products using the following statement:
“This product was produced in a home kitchen that is not subject to state licensure or inspection and that may also contain common food allergies such as tree nuts, peanuts, eggs, soy, wheat, milk, fish, and crustacean shellfish. This product is not intended for resale.”
Why produce the food myself, under the Cottage Foods Act, instead of using a Manufacturer?
A benefit of producing food under the Cottage Foods Act is that you can start a business for a low cost without having to partner with a manufacturer that might have large production requirements. However, not all products are allowed under the Cottage Foods Act and if your product is not eligible, you will have to partner with an FDA-regulated manufacturing facility to sell it.
What is a Commercial Food Manufacturer?
A food manufacturer is an FDA-approved manufacturing facility that operates under FDA compliance. Good Manufacturing Practices (GMPs) must be followed to ensure food-safe products, and additional audits from the FDA are implemented randomly to check the cleanliness of the space and if specific GMPS are being followed. These facilities will partner with clients to produce products at a larger scale for commercial use.
Pros and Cons of Using a Large-Scale Manufacturer
A benefit of producing with a formal manufacturer is that you will have the ability to make a lot of product quickly. In turn, that means you would have the feasibility to sell in grocery stores since the product was produced in an approved facility. You will also have a much lower time commitment by handing off production to a team of qualified people. This can sometimes be difficult for small businesses, but it is a huge advantage to reallocate that time to grow your business.
The cons of using a manufacturer are mainly monetary. It is much more expensive to produce, store, and ship an increased level of product. If too much is produced, you will need to invest in storage and transportation which can be costly. You might also run into extra travel expenses if the manufacturing or storage facility is in another state. Finally, you might have to adjust your process to fit the equipment they have in-house; however, if that is not possible, you may have to purchase new machinery for the production plant.
When To Make The Switch
Several key indicators suggest when it might be time to take the leap into commercial manufacturing. First, if you’re struggling to keep up with orders or have interest from larger retailers, it’s time to think about scaling up. Moreover, being financially ready to scale up production, invest in equipment, and possibly hire additional help is a strong signal that you're well-prepared for the transition. Last, if your market research and feedback indicate a growing demand for your products beyond your local community, it's a clear green light to explore manufacturing.
At Natural Development, we've witnessed companies of all sizes achieve success through both Cottage Foods Act production and direct partnerships with manufacturers. Whether you're just starting or further along in your business journey, it's crucial to collaborate with a professional who can guide you in making the best decisions for your unique situation - your path to success in the food industry is uniquely yours.
We have guided thousands of brands of varying sizes and complexity through this process and we would be happy to support you every step of the way. To schedule time with us, utilize our Ask A Food Scientist service, or inquire here.