Mix and Match:
How to Make a Popular and Profitable Organic Product
By Sarah Fister Gale
It’s no longer surprising news that the organic industry is growing by leaps and bounds. Our once fledgling industry is booming, and everyone knows it. More than one-quarter of Americans eat organic foods several times per month and they’re consuming more now than ever before, according to the 2005 Whole Foods Market Organic Trend Tracker, a survey of 1,000 Americans. The survey also showed that 65 percent of Americans have tried organic foods and beverages, jumping from just over half (54 percent) in both 2003 and 2004.
The market for organic foods continues to surge, with 27 percent of respondents indicating they consume more organic foods and beverages than they did one year ago, and that means organic processors have more opportunities to get their products into consumers’ kitchens.
But the popularity of organics is also drawing the attention and research dollars of many large conventional companies that are looking for ways to enter or expand into this clearly profitable organic marketplace. So, even though there are more dollars being spent on organic products, competition for those dollars is getting fierce.
Arran Stephens, CEO of Nature’s Path, once pointed out that smaller organic companies have the competitive edge because they can identify a need in the marketplace and turn that into a product in a matter of months, while it often takes the processing giants much longer to conduct the validation studies and market research necessary to warrant the release of something new.
However, smaller organizations have to be more careful when they launch a new product, because if it fails it can take the whole company down with it.
New product flops happen for a lot of different reasons, and it’s not only because people don’t like what you make. “You can make a great product that everyone loves, only to find out you can’t afford it,” says Sharon Herzog, director of research and development for Country Choice Organic, maker of a broad line of organic cookies cereal bars and oatmeal, based in Eden Prairie, MN.
Cost is only one of the many issues that impact the success of a new product. You also need to consider market research on the target audience, year round availability of ingredients, time to market, labeling issues, quality assurance and traceability, and the taste of the final formula. If you ignore or miscalculate any one of these issues, it can have devastating consequences.
“This process is part science and part creativity,” says Erik Smitt, vice president of manufacturing for Barbara’s Bakery, manufacturer and/or distributor of organic cereal, snack bars, cookies and crackers. Smitt approaches every new product development process with a project management approach, creating a business plan with periodic milestones and calculations of progress versus cost. “You always have to make sure the creative spark enters a new product, but you must temper that against costs, and manufacturing issues.”
Herzog has a similar attitude. She uses a carefully planned project outline for new product development that includes all the steps she needs to take to get from “great idea” to “finished product.”
She begins by deciding what the product is going to be. Her team makes these decisions by working with the marketing department to identify trends or needs in the marketplace and bringing in other organic and conventional products with flavors or attributes that they all find appealing. “We pick what we like and don’t like about each product and take those ideas to the lab,” she says.
The final product her team develops may be nothing like the samples, but she often gets ideas from them that she can spin in a new direction. For example, she may take a popular flavor from a beverage or smoothie and translate that into a new cookie.
Cost and Availability
Once Herzog has a broad idea of what the product will be, she calculates the costs to produce it and compares that to a target product price, making sure there is room for profit. This calculation includes the cost of ingredients, manufacturing, marketing and packaging with margins built in for additional costs and adjustments.
To help her calculate her product costs, she keeps a database of ingredient prices, availability and sources so that when she needs to know the cost of a product, or to adjust her costs to accommodate changes in the formula, she has that information on hand. She also uses an in-house developed cost worksheet that factors in freight, ingredients, packaging and manufacturing, on a per case basis that she compares to the margin goals for the product. She regularly calls her resources to get updates to keep the database current.
“Ingredient cost is a huge factor for organic, and cost and availability constantly fluctuates. If you aren’t careful, your formula could cost six times more than you expected,” she says. “You can really make a fatal error if you don’t pay attention to costs throughout the formulation process.”
Joel Dee, founder and CEO of Edward & Sons, a Carpinteria, CA-based developer of premium-quality vegetarian products, takes a structured, business approach to this step in the formulation process. “We analyze the new product cost, allocating anticipated trade margins for distributor and retailer and project suggested retail price (SRP),” he says. “If the SRP appears to offer good value at an attractive price we go forward. If the price appears too high, we look at packaging format and unit size to adjust the price-value relationship.
We also will survey potential packers for possible cost savings that will result from packer selection, or larger production runs. Finally, if these measures fail to achieve a practical retail price, we revisit the ingredient selection and consider adjustments to the recipe that might minimally impact the product flavor profile while reducing our costs to get to our price point.”
You also need to be confident the ingredient will be accessible in the quantities you need, says Katie Hyland, director of research and development and organic for Stonyfield Farm, the popular organic yogurt and dairy products company in Londonderry, NH. When she begins work on a new product she focuses most of her attention on the new ingredients in the product.
“If we are doing a peach yogurt instead of strawberry, we know most of the ingredients will be the same. We don’t need to find an organic milk source or sugar source, so we start by looking at the peach fruit,” she says.
As she begins formulating she keeps an eye out for any single high-priced or hard-to-locate ingredient that could tip the price scale of the finished product. “As soon as I see something like that, I get out my calculator and figure out how that ingredient is going to impact costs.” She makes sure she has a rough estimate of production price before she begins development.
Once she determines the new ingredient is reasonably priced, she looks into supply. “That’s the biggest thing,” she says. “If you print 10,000 labels that say ‘organic peach fruit’ and your supply runs dry you can’t make that product. That’s a huge loss. So we make sure supplies are not going to run out before we move forward.”
If she’s unsure of the continuing availability of a minor organic ingredient, she may opt to use organic but list it on the label as conventional, so if access to that organic ingredient suddenly stops, the packaging and certification is still in compliance. “We will use organic for as long as we can and we tell our certifier that.”
Hyland also says that even if they find a great flavor but the ingredient is only available seasonally she won’t use it. “For some companies, seasonal products can work but not for a dairy company,” she says. “We invest the same amount of money on research, marketing, and development of a new product whether it runs for four days or four years, so for us a seasonal run is just not worth it.”
Know Your Supplier
Choosing who you use to source ingredients is as important as what you buy, suggests Jim Kelly, CEO of Vans International Foods, maker of natural and organic frozen waffles, in Torrance, CA. He uses a variety of suppliers but says that trust is always the most important factor in selecting a provider. “We like to use people we’ve already done business with, and we prefer to use domestic sources for organic ingredients.”
If he can’t find what he’s looking for through his existing source list, he will ask for recommendations from his peers, seek new sources at industry conferences, or work with industry brokers to find new suppliers.
Any time he uses a new supplier for his organic products, he makes sure all of the organic and kosher certification paperwork is in place, including certificates of analysis (COAs), and he conducts lab samples of new ingredients to be sure they meet his quality standards before agreeing to the relationship. “Once we find a viable source from a reputable producer we make a commitment for the product,” he adds, noting that he tries to secure contracts for ingredients well into the future to guarantee that supply will remain constant.
For Edward & Sons, sourcing becomes more complicated if the ingredient comes from overseas. While Dee likes using small local suppliers, he admits that that can be challenging for imported materials. “Small ingredient suppliers are often unable to afford the costs of certifying to the organic standards of many countries. They face additional costs for each certification (EU, JAS, NOP), and must justify the expense based upon expected sales volume to the customers requesting that specific certification,” he says. “This problem sometimes forces us to source from larger suppliers who can better justify and afford the costs of multiple certifications.”
His company has also been known to dilute its own organic claim, from ‘100% Organic’ to ‘Made With Organic’, for example, in order to include ingredients that are certified to European standards but don’t yet have an NOP organic certificate.
Taste, Texture, Audience
With ingredients in place and a rough cost estimated, formulators can move to the best part of the process: batch testing. “Once we get into the lab we create bench prototypes to see if an idea will even work,” Country Choice’s Herzog says. “We may find the answer is no, or that it will work but it needs a lot of changes. You don’t know that stuff until you get into the lab.”
Her team does small batch testing, tweaking each recipe and constantly reviewing the product to be sure it’s meeting the taste, texture and nutritional expectations. Herzog relies on her suppliers to help her during this process. “People don’t realize that they can ask their suppliers to do a lot more for them,” she says. “Our flavor suppliers constantly gives us advice on what ingredients to use and they screen products ahead of time for us.”
Her close trusting relationship with her suppliers means she’s just as comfortable asking them to send her generic flavors with no criteria to give her product inspiration, as she is asking for something very specific, such as an organic and Kosher lemon flavor for a cookie that will appeal to 5-to-10 year olds, and will deliver a warm yellow hue to the product.
She knows they will only send her ingredients that meet all of her criteria, including certification that it is organic, Kosher, meets her allergen requirements, and that they will help her find the best ingredient for her needs. “Their help saves us time and headaches in the long run because we don’t have any surprises,” she says.
During early formula trials, she focuses on trickier functional ingredients, such as flavors, gums, starches and emulsifiers, that have a significant impact on the taste, texture and mouth feel of the final product. For example, different ingredients will impact the way the cookie spreads, or whether it dries out. “If you change these functional ingredients at the end, it changes the whole product and you’d have to start over.”
The limited variety of these minor ingredients in organics hampers her selection but it can also speed the development process. “I’m not tempted to try 20 different starches or emulsifiers to find the perfect one,” she says.
Once the functional ingredients are chosen she moves on to finalizing the recipe. Ultimately, she gets two or three versions of a formula that she thinks are good enough, then the company conducts formal and informal market testing. “We send samples home with people and have people in the field who have agreed to be taste testers.”
Taste testing is a critical point in the development process, adds Smitt of Barbara’s Bakery, who points out that you can’t just rely on your staff to determine if a product tastes good, you have to test it with the target audience. He learned that lesson through experience: “Years ago I was working in the lab and we came up with a wonderful product. I loved it, but our target audience was school kids, and I knew my kids wouldn’t eat it,” he says. “You need a clear vision of the market when you are creating your product.”
From Two Dozen to Two Tons
When the final formula is achieved and meets the expectations of consumers, it’s time to move from small batch production to large-scale manufacturing. This transition requires more than just increasing the batch size, there are many systems that need to be put in place, says Smitt, including traceability, quality assurance and a process for accepting and storing ingredients to ensure the integrity and organic status remains in place.
“Scaling up is a challenge on any new product,” he says. “It’s amazing what human hands can create, but when you translate that to the manufacturing environment it has to be machinable.”
When his team first moves to large-scale production, everyone on the team, from research and development to quality assurance, gets involved, tweaking and adjusting the production process till it creates a perfect product every time. That includes evaluating things like adhesion, thickness, crispness and the cook time of the batch as it goes through the system.
Because his team is well-versed in the production process, they know what to expect and what to look out for, and they have their own way of determining if a product is working. For example, to test adhesion of raw batter, his team takes a sample from the mixer and rolls it in their hands:
If it forms a ball they know it’s working.
“It sounds simple, but these are the people who run these processes every day. They can tell in a minute if something is going to work because they see it over and over again,” he says. “You can’t overstate the need for human involvement throughout the development process, even in the manufacturing environment.”
Packaging: Make Sure It’s Certified
At about the time you move to large-scale production, you need to be thinking about packaging. From a certification standpoint the package is as important as the product. “Do not mass produce your package materials until you get them approved by your certifier,” warns Stonyfield’s Hyland. “If there is any error, on the labeling, the placement of the seal, or the use of the word ‘organic’, you can’t move forward with that package.”
Before you mass produce packaging, you have to send the package with the finished label the to the certifier for approval. The best time to do this is when you submit the final formula and certification documents, Hyland says. If you don’t send the label to the certifier, you can’t complete your certification process because they have to verify that the label is truthful and accurate. “You can’t do anything with the product until the package is approved.”
You should also be aware of labeling issues, such as allergen-containing products, and the impact changes in regulations will have on your label, because it all impacts the final certification of the package.
Once it’s all approved you are ready to go to market. Hopefully, the time and effort invested upfront in creating a great tasting, reasonably priced formula will translate into a wildly popular product that your target market loves.
Sarah Fister Gale is the editor of Organic Processing Magazine. She can be reached at firstname.lastname@example.org.