1: How can the industry model for shared-use commercial kitchens be improved to better serve Minnesota’s growing cottage food industry?
2: How should a business owner approach a life cycle analysis?
These are a couple of the questions the Agricultural Utilization Research Institute (AURI) set out to answer via its Agricultural Innovation Partnership (AIP) program.
Each year, AURI solicits submissions from consultants, businesses and researchers, encouraging them to submit a proposal. AURI reviews and selects projects based on submissions most closely aligned with AURI’s mission of supporting innovation and creating long-term economic impact.
This year, AURI identified six areas for further exploration. From them, two projects were selected: (1) a research project on the economics of shared-use commercial kitchens and (2) a guide to the basics of conducting a life cycle analysis.
Both projects were selected after conferring with stakeholders, including clients, collaborators and partners to understand information gaps related to the food and agriculture sector. The aim of these initiatives is to identify areas where AURI can have the largest impact, explained Jen Wagner-Lahr, AURI’s Senior Director of Business Development and Commercialization.
Shared-use kitchens are critical for home-based food businesses to increase production to meet demand. In recent years, several commercial kitchens have gone out of business or changed hands. Further, a perception exists in some areas in rural Minnesota that there is not enough shared-use commercial kitchen space for growing businesses. For these reasons, and more, a thorough study of the economics of shared-use commercial kitchens, with a focus on rural areas, was a time sensitive project of significant benefit to entrepreneurs and emerging businesses as the state’s economy continues to recover from the pandemic, said Jason Robinson, AURI’s Business Development Director for Food. Finding and being able to afford commercial kitchen space is a much larger challenge for businesses outside of the Twin Cities metro area, Robinson shared.
“What we’ve seen is that it’s not overly difficult to get commercial kitchen space in the Twin Cities or in some of the other urban areas. However, once you get outside of those areas, it becomes much more difficult,” he said.
The AIP study set out to answer a few important questions.
Among them: What could be improved in the model for shared-use commercial kitchens? What factors contribute to the success or failure of these operations in Minnesota, and how do these challenges differ in rural and urban communities? Also, what can be done at a state level to foster growth and development in this sector statewide?
“The goal of this project was to understand the economics of the business model and why there is a notion in the marketplace that we don’t have enough [commercial kitchen] space,” Robinson said.
He stated the target audiences for the report are scaling cottage food and beverage businesses with plans to move from home-based operations into a shared space. Cottage food business owners adhere to specific regulations. While they must register with the state of Minnesota, they don’t need a license from the state to operate out of their homes. They are also not inspected by regulators.
“There are many early-stage entrepreneurs that are looking to launch into a wholesale food business. Some of them are content working in their home kitchen, but there is also a segment that is looking to invest in shared-use commercial space,” Robinson said. “We have done a lot of work to understand the landscape for food and beverage manufacturing in Minnesota with a focus on scaling businesses. We are continuing to explore the questions, issues and ongoing needs of food entrepreneurs to better understand how AURI can support them.”
For this report, AURI partnered with Clutch Performance, a Minneapolis-based food marketing firm and the Food Works Group, an advisory firm serving food businesses. Additionally, the Minnesota Department of Agriculture was a project sponsor. The partners conducted a series of interviews with commercial kitchen business owners, regional entrepreneurial support organizations, legislators, real estate experts, financial lending sources and others active in this space across the state. For the project, the researchers divided the state into three regions: Northern Minnesota, Central Minnesota (including the Twin Cities metro area) and Southern Minnesota. These interviews helped set the landscape and provided a more complete understanding of the legal, regulatory, financial and geographical issues at play for both commercial kitchens and aspiring food businesses.
The issues that emerged were often unique to the specific region, said Troy Schroeder, President of Clutch, and the solutions require a comprehensive approach. The authors recommend that an industry taskforce should be created to further support shared-use commercial kitchens in Minnesota. This group can advise on issues like additional funding, information sharing and policy changes.
“We set out to validate and test the hypothesis and assumptions we heard on both sides of the equation and then identify potential next steps to address some of the issues that came to light during the research and conversations,” Schroeder said.
Schroeder’s colleague Erin Heidecker, Senior Program Manager at Clutch, said one of the main takeaways from the research was that a knowledge and resource gap exists among commercial kitchen owners and users.
Compiling a shared-use commercial kitchen toolkit is a logical next step, she said. The document should contain a real-time index of available shared kitchen facilities throughout the state of Minnesota; a better understanding of kitchen facilities that might qualify for shared-kitchen use; and guidance on how to onboard an existing space for shared use. There is also a need for more information on regulatory, inspection, licensing and insurance requirements and existing funding opportunities for operating costs and capital investments.
Researchers discovered some innovative commercial kitchen owners with business models that could serve as examples in the industry. For example, in Pine Island, Minn., a business owner operates a commercial kitchen out of a former drive-thru restaurant. Food is prepared in the kitchen and the drive-thru space supports a retail business.
“That business is offering different ways to use and maximize the space. The answer is not always that we need more [commercial kitchen] space. Sometimes it is the industry needs a better understanding of what is in the market. There are idle facilities in some communities but there are also kitchens in restaurants, schools and churches that are not being used throughout the day,” Heidecker said.
Robinson said that AURI was deliberate in working with a broad spectrum of partners to ensure the research and subsequent report is as robust as possible. The project underscores the strength of AURI’s connections in the ecosystem.
“We don’t just work in a silo with one organization. We are taking a systemic approach with subject matter experts to help us solve challenges for our food and beverage economy,” he said.
Life Cycle Analysis
The second AIP project was a primer for small, early-stage entrepreneurs who have hired, or are considering hiring, a consultant to conduct a life cycle analysis of a product. In a life cycle analysis, researchers quantify the environmental impacts that result from the production and use of a product to create a ‘cradle to grave’ assessment of the products used. The aptly named ‘cradle-to-grave’ assessment considers impacts at each stage of a product’s life cycle, from the time natural resources are extracted from the ground and processed through each subsequent stage of manufacturing, transportation, product use and ultimately, disposal. By using this data, researchers can formulate an estimate of a product’s environmental impact, such as carbon footprint as well as water and air quality.
These analyses are becoming more popular, and in some cases even required for business owners seeking different funding sources. The assessment can also be a significant investment in time and money.
This project will help clients form a productive relationship with a life cycle analysis consultant and provide them a solid understanding of the questions that should be considered before the process starts, and as it continues. Small and medium-sized business can use the life cycle guide to understand the basic concepts of an analysis, the steps for execution and potential benefits.
“There is a gap in knowledge in the marketplace, especially at the early-stage level with respect to life cycle analysis,” said Dr. Luca Zullo, AURI’s Senior Director of Science and Technology. “It is not a complex process to go through for an entrepreneur, but it is a confusing topic. It can be easy to lose track of some of the most important information. We felt it was important for our clients and others to have a basic understanding of what these analyses can deliver, along with what the common pitfalls are.”
The guide provides information on how the life cycle analyses are applicable once completed and how a business can use it to differentiate products in the marketplace. The report also includes questions a business owner should ask a life cycle analyst before starting a project, as well as during the process.
“A life cycle analysis can be a powerful marketing tool in the food and consumer products goods space. Entrepreneurs want to show they have a climate and planet-friendly product,” Zullo said. “To be able to do so, one needs to understand what the data says as well as the language and the boundaries of these reports. What we have set out to do with this project is advance conversations and provide the framework for an entrepreneur to make some decisions down the line.”
AURI partnered with technical consultant Evalueserve on the project.
This is the fifth installment of the AIP, which was designed to catalyze innovation, generate new ideas and support collaborative partnerships in Minnesota’s value-added agricultural industry.
The projects selected to the AIP program receive match funding from AURI. The information generated through the AIP funded proposals will help entrepreneurs, producers, businesses and agricultural processors explore opportunities and technologies in the areas of biobased products, food, renewable energy and coproducts. A variety of channels are used for public dissemination — including AURI Connects events — that support agricultural innovation and create long-term economic impact.
Past research through the program produced applied research studies, as well as guides and tools to help businesses utilizing the state’s agricultural products. Past projects include: Demystifying E-Commerce and Digital Marketing, Building and Enhancing a Food Fish Industry and More Food Recovery Opportunities, Less Food Waste.