Could Consumer Packaged Goods Be A Suitable Revenue Stream for Your Restaurant?

If you’re looking to boost revenue for your restaurant, paid advertising and adding another location aren’t your only options. You can enjoy the benefit of both while also increasing sales with a strategic move into the grocery store as a producer of CPGs – consumer packaged goods. 

A consumer packaged good is a meal item packaged for B2C sale in a retail setting. As they relate to restaurants, a consumer packaged good is typically a popular menu item, sauce, dressing, or garnish that restaurants identify as suitable for retail or e-commerce. 

Restaurant brands introducing their menu items to the grocery market as CPGs or licensed products, or in so-called "grocerants", is not a new trend — we’ve been able to get Dunkin Donuts coffee and TGI Fridays frozen potato skins at grocery stores for years. We can even grab a hot Starbucks drink within a supermarket or big box store. And for many of these massive brands, grocery sales have become a successful revenue stream: According to a report in Nation’s Restaurant News, TGI Friday's brings in $400 million a year in fees from its branded items licensed for supermarket sales.

Overall, the CPG/grocerant movement has driven a ton of foot traffic to grocery stores in the United States: NPD Group found that grocerants were responsible for generating 2.35 billion visits to grocery stores in the U.S over the past year. Imagine the revenue your restaurant could make by selling a CPG to a grocery store — that new point-of-sale system or second location would easily go from dream to reality. 

But it’s not just the giant brands turning up in grocery aisles as CPGs around the country: More and more upscale and artisanal restaurant and food truck brands are exploring grocery stores as a reseller channel. Jeni’s Splendid Ice Creams, which started as a food stall in Columbus, OH, and now has scoop shops in 9 states, is available for sale in the Northeast-based Wegman’s, while Whole Foods customers can enjoy dinner kits from East Coast sustainable seafood chain Luke’s Lobster. And in the world of e-commerce, you can pick up the famous Ssam Sauce from NYC’s Momofuku on Amazon.

So is your restaurant ready to test selling CPGs in the grocery aisle? Here are four tips to help you decide.

1. Start small, but not too small

As a restauranteur you know all too well how risky it can be to overextend yourself. Unsold inventory quickly turns to waste. When making the foray into consumer packaged food, you’ll almost certainly need to work with a licensed co-packing facility for regulatory reasons, and these factories operate in bulk with minimum runs in the thousands — so be prepared to go big. On top of that you’ll need to:

• Invest in packaging
• Pursue B2B relationships and sales to get the product into stores
• Master fulfillment logistics
• Partake in some degree of marketing to help move the product.

All those efforts cut into your profit margin, not to mention your time. It can become a full-time job in and of itself.

Not everyone has the time, resources, or the connections to get into mass retail, but that doesn’t mean retailing in smaller quantities at a local gourmet grocery is out of the question. Since small-scale production costs more per-item, you’ll need to work with a retailer that caters to shoppers who are willing to pay for higher-end, small batch, or artisanal category goods. You can also cut out the middleman and test selling direct to consumers on your website, a strategy best suited for shelf-stable products like sauces and spice mixes that can be marketed as gift items.

If you’re just not ready to navigate the complexities (and costs) associated with manufacturing your product in a factory, you can still experiment with the “grocerant” model by doing a pop-up shop or semi-permanent food stall in an existing retail market. It’s less financially risky than opening up an entirely new storefront, and you can benefit from the built-in foot traffic of the market.

Whether your goal is to open a new location, invest in new equipment, or expand into new revenue streams like consumer packaged goods, you're going to need a reliable source of funding to make your dreams a reality. Toast Capital offers restaurants access to fast, flexible funding for any restaurant need. Toast restaurants may be eligible for financing from $5K to $250K. Toast Capital Loans have one fixed cost - with no compounding interest and no personal guarantees. Better yet: Once approved, you can receive your funds as soon as the next business day.*

2. A revenue stream, but also a marketing vehicle

If you have a solid business with your restaurant, a good strategy for CPG, and reputable retailers interested in carrying your branded items, Dan Rowe of Fransmart — the franchise development company behind popular QSRs like The Halal Guys, Curry Up Now and The Hummus and Pita Co. — recommends trying CPG ASAP.

Mediterranean fast-casual restaurant CAVA sells its dips and spreads at Whole Foods. Dan explains that for Cava, “It was a great way to leverage an existing supply line system for more revenue and added exposure — all those free eyeballs at Whole Foods. And the more volume Cava sells, the more buying power they have, so they actually lower their restaurant-level food costs.”

Rowe advises that grocery sales can be a great dual channel for awareness and profits, but you have to keep a close eye on the margins. “Notice I said profits, not sales,” he says. “You get what you focus on, and if you focus on more sales, that does not always translate to more profits. It may just be more work and headache for the same money.”

Turning a profit with packaged food in the grocery market may be tough until you can scale up your quantities, but there is an immediate benefit to retail: Getting your brand name in front of more people in new places, ultimately to drive traffic back to your main restaurant business. That alone may be worth the investment.

3. Focus on your star menu items

You don’t need to, nor should you, put your whole menu into the grocery aisle. However, if you have a unique menu item that everyone raves about — like Momofuku’s staple Ssam Sauce — package it up and use it as a calling card to attract new customers to your restaurant.

“It should be something you are famous for, something you do better than anyone else, and is easy to produce — either yourself or through third parties — so you make a profit,” says Rowe. “Assuming your items are successful, you can always add more. But if you misfire out of the gate, it will be tougher to get another chance.”

It may be hard to objectively choose from among your babies which menu creation is perfect for CPG. That’s where your Toast sales data can be an enlightening look at exactly what items are most popular with your customers.

4. Choose products suited for grocery

As mentioned, the more popular restaurant products you’ll see as CPGs are sauces and dips.

You’re probably already making these staples of your kitchen in mass quantities, and may find it fairly easy to scale your operation to include a retail channel. Many of these are also shelf-stable once bottled, making them less risky for retail.

Besides the sauce, dip, and dressing categories, there are many opportunities to be had in the frozen food space, which, according to a report by the American Frozen Food Institute and the Food Marketing Institute, is currently experiencing a renaissance.

When it comes to frozen foods, it’s important to consider how – and by whom – the product is likely to be consumed. Dessert expert, chef and best-selling cookbook author Allison Robicelli points out that there’s a reason so many ice cream shops have broken into grocery store sales. “With ice cream, the majority of the consumer market is at home. That’s why it makes more sense to focus on grocery stores than opening more shops.”

Frozen food also caters to certain consumer segments for whom convenience is key. “A lot of Millennial purchases are made because there are a lot of single serve options,” says food entrepreneur Keith Klein of the frozen aisle. Klein, whose popular NYC food truck, Milk Truck, is exploring expansion into frozen CPG, is jazzed by the opportunity to curb food waste by selling frozen, packaged versions of his grilled cheese and mac n cheeses at grocery. “I am intensely interested in food waste and entrepreneurial opportunities that can help solve the problem. Frozen meals are very efficient for reducing food waste,” he says. “If it's multi-pack, you can use one and keep the rest frozen.”

So, is the CPG route right for your restaurant?

Expanding into new channels is difficult for any business in any industry, but with a strategic eye and a keen focus on your restaurant’s sales reporting, the added brand exposure and increased revenue from the right retail channel could make your foray into CPGs a worthwhile investment.

For more advice on how to scale the success of your restaurant, subscribe to the Toast blog.